424B3 1 m13731yze424b3.htm RULE 424(B)(3) e424b3
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Filed pursuant to Rule 424(b)(3)
Registration No. 333-114264

Filed pursuant to Rule 424(b)(3)
Registration No. 333-114220

July 29, 2004

Dear Fellow Shareholder:

      You are cordially invited to attend a special meeting of shareholders of Grand Toys International, Inc., which we refer to as Grand US, to be held at 11 a.m. on August 13, 2004, at the offices of Adessky Poulin, 999, De Maisonneuve Ouest, Suite 1800, Montreal, Quebec, Canada. At the meeting, we are presenting for your approval proposals for:

  •  the reorganization of Grand US in which it will become a subsidiary of its Hong Kong subsidiary, which we refer to as Grand HK, and you will receive, in exchange for each of your shares of Grand US, one American depositary share, or ADS, of Grand HK represented by an American depositary receipt, or ADR, representing beneficial ownership of one ordinary share of Grand HK; and
 
  •  the issuance to Centralink Investments Limited of 10,000,000 Grand HK ADSs, which will be evidenced by Grand HK ADRs, in exchange for all of the shares of Playwell International Limited and cash and other consideration in a total amount of $11,000,000.

      The reorganization of Grand US, Grand HK’s acquisition of the shares of Playwell International Limited, which we refer to as Playwell, and the issuance of Grand HK ADSs to Centralink Investments Limited, which we refer to as Centralink, are steps in a single transaction. Grand HK is a subsidiary of Grand US but will, as a result of the reorganization, become the publicly-traded holding company of both Grand US and Playwell. The reorganization will be accomplished through the merger of Grand US and a subsidiary of Grand HK. Grand US will continue to exist, but it will be a wholly-owned subsidiary of Grand HK. Unless you approve both proposals, neither of those transactions will be completed.

      The number of Grand HK ADSs to be owned by you and represented by ADRs immediately after the transaction will be the same as the number of Grand US shares you own immediately prior to the transaction. However, as a result of the issuance to Centralink of 10,000,000 Grand HK ADSs as part of the transaction, and Centralink’s further purchase of 924,187 Grand HK ADSs from current significant shareholders of Grand US, Mr. Hsieh Cheng (to whom we refer as Jeff Hsieh or Mr. Hsieh) the ultimate beneficial owner of Centralink, will become the majority beneficial owner of Grand HK, indirectly owning over 71% of all of the outstanding capital stock of Grand HK. As a result, these transactions on which you are voting will constitute a change in control of Grand HK, and Mr. Hsieh will be in a position to control the affairs of Grand HK after the consummation of these transactions.

      After completion of the transactions described in the enclosed proxy statement/ prospectus, Grand HK and its subsidiaries will continue to conduct the business now conducted by Grand US and its subsidiaries. Grand HK will also conduct the business of Playwell and its subsidiaries. In addition, all of Grand US’ current directors, other than Elliot L. Bier, the chairman of Grand US, and Michael Kron will resign upon completion of the transaction and a new board of directors of Grand HK consisting of five persons, including Messrs. Bier and Kron, will direct the operations of Grand HK and its subsidiaries. Grand US common stock is currently traded on the Nasdaq SmallCap Market under the symbol “GRIN”, and Grand HK has applied to have the Grand HK ADSs listed and traded after the reorganization merger on the Nasdaq SmallCap Market under the same symbol.

      The proxy statement/ prospectus enclosed with this letter provides you with detailed information regarding each of the proposals to be considered at the special meeting. We encourage you to read this entire document carefully. Please consider the risk factors beginning on page 38.

      Grand US’ board of directors has unanimously adopted an amended and restated agreement and plan of merger to facilitate the reorganization merger and the subscription and exchange agreement which provides for the acquisition of Playwell and the issuance to Centralink of 10,000,000 Grand HK ADSs. Your board recommends that you vote “FOR” approval of the transactions described in those agreements, both of which must be approved if either is to go forward. Although the board’s determination was unanimous, you should be aware that four of Grand US’ seven directors have interests in the transactions which are different from Grand US’ shareholders which may have created a conflict of interest in making their determination. These interests and potential conflicts are described in the proxy statement/ prospectus enclosed with this letter in the section titled “Interests of Grand US Directors and Officers in the Reorganization Merger and Subsequent Operation of Grand HK and Potential Conflicts of Interest” on page 70.


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      If our shareholders approve the transactions at the special meeting, we expect to complete the reorganization merger, the Playwell acquisition and the related subscription transactions immediately after the special meeting. The board appreciates and encourages your participation. Whether or not you plan to attend the meeting, it is important that your shares be represented. PLEASE MARK, SIGN, DATE AND MAIL THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED AT YOUR EARLIEST CONVENIENCE.

  Very truly yours,
 
  ELLIOT L. BIER
  Chairman

      Neither the Securities and Exchange Commission nor any state securities commission has approved the securities of Grand HK to be issued in connection with the reorganization merger and acquisition and subscription transactions. Furthermore, the Securities and Exchange Commission has not determined if this proxy statement/ prospectus is accurate or adequate. Any representation to the contrary is a criminal offense. This proxy statement/ prospectus is not an offer to sell and it is not soliciting an offer to buy securities in any jurisdiction where offers or sales are not permitted.


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Filed pursuant to Rule 424(b)(3)
Registration No. 333-114264

Filed pursuant to Rule 424(b)(3)
Registration No. 333-114220

GRAND TOYS INTERNATIONAL, INC.

1710 Route Transcanadienne
Dorval, Quebec

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

To Be Held On August 13, 2004

Notice of Special Meeting of Shareholders

July 29, 2004

To the Shareholders:

      A special meeting of shareholders of Grand Toys International, Inc. will be held at the offices of Adessky Poulin, 999, De Maisonneuve Ouest, Suite 1800, Montreal, Quebec, Canada, on August 13, 2004 at 11:00 a.m., for the following purposes:

  (1)  To approve an amended and restated agreement and plan of merger, substantially in the form attached to the accompanying proxy statement/ prospectus as Annex A, between GTI Acquisition Corp., Grand Toys International, Inc., which is referred to as Grand US, and Grand Toys International Limited, which is referred to as Grand HK. Under the amended and restated agreement and plan of merger, Grand US will become a subsidiary of its Hong Kong subsidiary, Grand HK, by merging GTI Acquisition Corp., a wholly-owned subsidiary of Grand HK, into Grand US. In the reorganization merger, each share of common stock of Grand US, will automatically convert into the right to receive one American depositary share, or ADS, evidenced by one American depositary receipt, or ADR, of Grand HK. These ADSs represent beneficial ownership of one ordinary share of Grand HK. Outstanding options and warrants to purchase shares of Grand US will be converted into the right to acquire, upon exercise, the same number of Grand HK ADSs.
 
  (2)  To approve the issuance of 10,000,000 ADSs of Grand HK to Centralink Investments Limited in exchange for all the shares of Playwell International Limited and cash and other consideration in a total amount of $11,000,000 pursuant to a subscription and exchange agreement, as amended, by and among Grand US, Grand HK and Centralink in the form attached to the accompanying proxy statement/prospectus as Annex B.
 
  (3)  To transact such other business as may properly come before the meeting or any adjournment or postponement thereof. Shareholders of record at the close of business on June 15, 2004 are entitled to vote at the meeting.

      WHETHER YOU OWN ONE SHARE OR MANY, PLEASE MARK, SIGN, DATE AND RETURN PROMPTLY THE ENCLOSED PROXY IN THE POSTAGE PAID ENVELOPE PROVIDED OR YOU CAN, IF SO INDICATED ON YOUR PROXY CARD, VOTE ELECTRONICALLY THROUGH THE INTERNET BY FOLLOWING THE INSTRUCTIONS ON YOUR PROXY CARD.

  By Order of the board of directors
 
  ELLIOT L. BIER
  Chairman of the Board

Montreal, Quebec

July 29, 2004

      This Proxy Statement is dated July 29, 2004, and was first mailed to Grand Toys International, Inc. shareholders on July 30, 2004.


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Annex A — Amended and Restated Agreement and Plan of Merger
Annex B — Subscription and Exchange Agreement, as amended
Annex C — Fairness Opinion of Empire Valuation Consultants
Annex D — Form of Shareholders’ Agreement
       

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INTRODUCTION

      This proxy statement/ prospectus is being mailed to shareholders of Grand Toys International, Inc. in connection with its special meeting of shareholders. This proxy statement/ prospectus is part of a registration statement that Grand Toys International Limited is required to file with the SEC in order to register its ordinary shares. American depositary shares, or ADSs, which represent beneficial ownership of the ordinary shares being registered, will be issued in the reorganization merger in exchange for shares of the common stock of Grand Toys International, Inc. These ADSs will be traded in the United States in the form of and will be evidenced by American depositary receipts, or ADRs. You should read this proxy statement/ prospectus carefully before you vote your shares. The document is organized into four parts.

      Part I — “Summary” summarizes the information set forth in this proxy statement/ prospectus.

      Part II — “The Reorganization Merger and the Playwell Acquisition” provides information about proposals 1 and 2, the transaction in which Grand Toys International, Inc. will reorganize by becoming a subsidiary of its current Hong Kong subsidiary, Grand Toys International Limited, and the issuance by Grand Toys International Limited of 10,000,000 ADSs to Centralink Investments Limited in connection with the acquisition of Playwell International Limited and related transactions immediately after the reorganization merger.

      Part III — “Information About the Special Meeting and Voting” provides information about the special meeting of shareholders of Grand Toys International, Inc., how shareholders may vote or grant a proxy, and the vote required to approve each proposal.

      Part IV — “Where You Can Find More Information” explains where shareholders of Grand Toys International, Inc. can find more information about Grand Toys International, Inc. and Playwell International Limited.

      Throughout this proxy statement/ prospectus,

  •  Grand Toys International, Inc. is referred to as Grand US;
 
  •  Grand Toys International Limited is referred to as Grand HK;
 
  •  Centralink Investments Limited is referred to as Centralink;
 
  •  Playwell International Limited is referred to as Playwell;
 
  •  Cornerstone Overseas Investments, Limited is referred to as Cornerstone;
 
  •  Hong Kong refers to the Hong Kong Special Administrative Region of the People’s Republic of China; and
 
  •  China or Mainland China refers to the People’s Republic of China.

      All dollar figures, unless otherwise specified, will be denominated in U.S. Dollars.

      References to HK$ refers to Hong Kong Dollars.


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QUESTIONS AND ANSWERS

ABOUT THE REORGANIZATION MERGER AND THE ISSUANCE OF SHARES TO CENTRALINK

Q. What am I being asked to vote on?

A. You are being asked to vote in favor of a reorganization of Grand US, a Nasdaq SmallCap Market listed Nevada corporation, in which it will become a subsidiary of Grand HK, a Hong Kong company that is currently a subsidiary of Grand US. You are also being asked to vote on the related issuance to Centralink of Grand HK ADSs, which, when issued, will represent more than twenty percent of the issued and outstanding securities of Grand HK.

      The reorganization of Grand US will be accomplished by a statutory merger. In the reorganization merger, your shares of Grand US common stock will automatically convert into the right to receive an identical number of Grand HK ADSs which will be represented by Grand HK ADRs.

      Immediately after the completion of the reorganization merger but as part of the same transaction, 10,000,000 Grand HK ADSs will be issued to Centralink pursuant to a subscription and exchange agreement entered into by and among Centralink, Grand HK and Grand US. 5,000,000 of the Grand HK ADSs will be issued in exchange for all of the outstanding shares of Playwell, and another 5,000,000 Grand HK ADSs will be issued in consideration for investments by Centralink into Grand HK in the form of cash and other consideration having a total value of $11,000,000.

Q. What vote is required to approve each of the proposals to be voted on at the meeting of shareholders?

A. The approval of the reorganization merger requires the approval of a majority of the 5,355,244 shares of Grand US common stock outstanding as of the record date. The issuance of the 10,000,000 Grand HK ADSs to Centralink requires the approval of a majority of the shares present at the special meeting voting in person or by proxy. Unless you approve both proposals, neither of these transactions will be completed. The record date is June 15, 2004, and only holders of record of Grand US common stock on the record date are entitled to notice of and to vote at the special meeting. On the record date, directors and executive officers of Grand US and their affiliates owned in the aggregate 2,032,822 shares of Grand US common stock, representing 38% of the outstanding common stock of Grand US. These persons have informed Grand US that they intend to vote in favor of the proposals.

Q. Why are we proposing this reorganization merger?

A. Although Grand US is a Nevada company, nearly all of its current business is carried on in Canada through its Canadian subsidiary, and its headquarters are in Canada. Grand US has relatively little business activity in the United States. As a result of the acquisition of Playwell from Centralink, the vast majority of Grand HK’s assets and operations will be located in Hong Kong or in nearby Guangdong province of southern China. The seat of management of Grand HK’s operations will be in Hong Kong. Changing the corporate structure from a US holding company into a Hong Kong holding company will simplify corporate management and facilitate dealings with suppliers and customers in the region, who are accustomed to dealing with Hong Kong companies and sometimes hesitant to do business with United States companies, which are sometimes regarded as unduly litigious.

      The reorganization also makes sense from a tax standpoint. In fact, Centralink would not consummate the Playwell acquisition or the related subscription transaction without the reorganization merger. It would not have been logical for Centralink, a British Virgin Islands company, to transfer the shares of Playwell, a Hong Kong limited company, to a United States corporation. Hong Kong companies such as Playwell have a 17.5% tax rate on profits from Hong Kong operations only, and no capital gains, sales, turnover or similar taxes, compared to U.S. companies like Grand US, which generally pay an effective Federal tax of 35% on their worldwide income, including capital gains, and may be subject to sales, use and other United States transaction taxes. Subjecting Playwell’s income to United States corporate taxation would significantly reduce the after-tax returns of the

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Playwell business. The reorganization merger will not, of course, affect the tax position of the current Grand US business, which will continue to be operated through Grand US just as before.

      You should be aware that pending United States federal tax legislation, if enacted and depending upon its final form, might result in the treatment of a foreign corporation formed through a so-called “expatriation” or “inversion” of a United States corporation like the proposed reorganization as if it continued to be a United States corporation. Grand US has the right not to, and does not intend to consummate the reorganization merger, if legislative proposals are enacted or proposed or passed by any committee of the United States Senate or House of Representatives that would materially and adversely affect the anticipated United States tax treatment of Grand US and its shareholders at the time of or following the reorganization merger. The applicability of any such legislation most likely will depend on certain factual determinations that will not be binding on any taxing authority and that could be affected by future developments relating to the business operations and assets of Grand HK. Accordingly, whether the tax advantages of the reorganization merger will ultimately be realized cannot be predicted with any certainty. Once the reorganization merger is consummated, it will be difficult if not impossible to return to the current structure even if those advantages were not realized.

Q. Why are we acquiring Playwell and issuing 10,000,000 Grand HK ADSs to Centralink?

A. Centralink, the sole shareholder of Playwell, is being issued 5,000,000 Grand HK ADSs in exchange for all of the issued and outstanding shares of Playwell pursuant to the subscription and exchange agreement. Playwell is a holding company which owns four subsidiaries: Hong Kong Toy Centre Limited, a trading company which trades in and coordinates the manufacturing of toy products designed by customers and Playwell branded items; Gatelink Mould Engineering Limited, a manufacturer of moulds for the companies in the Playwell group; Great Wall Alliance Limited, the holder of Playwell trademarks; and Asian World Enterprises Co., Limited, which holds certain intellectual property licenses for Walt Disney Company and Crayola branded products. In addition to the acquisition by Grand HK of the Playwell shares, Centralink will also subscribe for 5,000,000 additional Grand HK ADSs for cash and other consideration having a total value of $11,000,000 pursuant to the subscription and exchange agreement.

      The principals of Grand US and Playwell have known and transacted business with each other for several years. Management of Grand US and Playwell believe that the combination of Playwell’s manufacturing and sourcing expertise, financial resources and cost-management skills and experiences with Grand US’ marketing and distribution presence in North America and the combined significant toy industry experience of the management of Playwell and Grand US will create a vertically-integrated company that will have manufacturing and distribution capabilities and allow Grand HK to expand its product offerings significantly.

      Grand US and Playwell also believe that the acquisition will provide strategic and financial benefits to the shareholders of Grand US. Together, the combined company will be a stronger vehicle for future expansion. The board of directors of Grand US believes that the acquisition has the potential to facilitate Grand HK’s expansion into Asian and other world markets where Playwell has a presence and provide economies of scale.

      Grand US has also entered into the subscription and exchange agreement with Centralink because it believes that the acquisition of Playwell will result in the combined company being a much larger and financially more stable company. In addition, Grand US believes that characteristics resulting from the combination of Grand US and Playwell, including but not limited to, Grand HK’s larger size, financial stability and international coverage, will afford Grand HK better access to capital which will support future growth. The $11,000,000 in capital and other consideration provided to Grand HK by Centralink will provide working capital and other assets to further expand the operations of Grand HK. Centralink will have no obligation to supply Grand HK with additional capital. The location of future operations will depend on the needs of the business, independent of Grand HK’s place of incorporation. Grand US, Grand HK and Centralink are currently focused on consummating the proposed reorganization merger and related acquisition of Playwell. There are various acquisition opportunities that have been and are being pursued by Cornerstone Investments Limited, Centralink’s parent company and which is referred to as Cornerstone, and these companies or businesses, some of which have been acquired and others of which if acquired, may be contributed to Grand HK. For further discussion of these actual and potential

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acquisitions and the terms under which they may be contributed to Grand HK, see the section titled “Recent Developments” on page 21.

Q. What are ADSs and ADRs, and why are they being issued instead of shares in Grand HK?

A. American depositary shares, or ADSs, represent ownership interests in the ordinary shares of a company. American depositary receipts, or ADRs, are certificates that evidence ownership of ADSs. The ADRs you will receive will be delivered by The Bank of New York and represent your ownership of Grand HK ADSs which, in turn, represent your beneficial ownership of the ordinary shares of Grand HK. Grand HK ADSs are publicly traded in place of the ordinary shares in Grand HK because the transfer of shares in a Hong Kong company under HK law requires the completion of corporate formalities and the payment of stamp duties. Compliance with these formalities is not practical with respect to shares that are publicly traded in the United States. Shares of many foreign companies are traded in the United States as ADSs for similar reasons.

      In the case of Grand HK, each ADS will represent beneficial ownership of one ordinary share issued by Grand HK and placed on deposit with The Hong Kong and Shanghai Banking Corporation Limited, as custodian.

Q. What will I receive in the reorganization merger?

A. Each share of Grand US common stock will be converted in the reorganization merger into one Grand HK ADS representing your beneficial ownership of one ordinary share of Grand HK. Your Grand HK ADSs will be evidenced by a Grand HK ADR. Grand HK expects to list the Grand HK ADSs for trading in the United States on the Nasdaq SmallCap Market. The number of Grand HK ADSs to be issued in the reorganization merger will not be adjusted based upon changes in the value of Grand US common stock. As a result, the value of Grand HK ADSs that you receive in the reorganization merger will not be determined at the time you vote on the reorganization merger and its value will go up or down as the market price of Grand US common stock changes.

Q. How will the reorganization be accomplished?

A. GTI Acquisition Corp., a Nevada corporation, is a subsidiary of Grand HK, which in turn is currently a subsidiary of Grand US. In the reorganization, GTI Acquisition Corp. will merge with and into Grand US. Grand US will be the surviving company in the reorganization merger and thus will become a wholly-owned subsidiary of Grand HK. Upon completion of the reorganization merger, Grand US will cease to have any interest in Grand HK. The shares of Grand US held by you will automatically convert into the right to receive the same number of Grand HK ADSs. This procedure will result in your becoming a beneficial shareholder of Grand HK. Following the reorganization merger, you will own an interest in a Hong Kong holding company which, through Grand US, Playwell and the other Grand HK subsidiaries, will operate the same line of businesses that Grand US, Playwell and their respective subsidiaries were engaged in before the reorganization merger. The additional steps in the reorganization merger are fully described in the section titled “Proposal 1 — Adoption and Approval of the Amended and Restated Agreement and Plan of Merger” on page 78.

Q. Will the reorganization dilute my ownership interest?

A. The reorganization merger itself will not dilute your ownership interest in Grand HK because, after the reorganization merger is consummated, you will own the same number of Grand HK ADSs as you own shares of Grand US common stock immediately before the completion of the reorganization merger. The total number of shares outstanding will be the same.

      However, the reorganization merger is part of a larger transaction which includes the acquisition of Playwell and an additional investment by Centralink. This will result in the issuance by Grand HK of 10,000,000 new Grand HK ADSs to Centralink. Also in connection with but separate from the reorganization merger, Centralink has agreed to purchase from certain controlling shareholders of Grand US a total of 924,187 Grand HK ADSs. As a result of these transactions, Centralink will hold a total of 10,924,187 Grand HK ADSs out of a total of 15,355,244 Grand HK ADSs outstanding immediately after these transactions.

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      Accordingly, your percentage ownership interest in Grand HK after the consummation of all these transactions will decrease and you and the other current holders of Grand US common stock will own 28.86% of Grand HK. Mr. Cheng Hsieh, to whom Grand HK also refers as Jeff Hseih, the ultimate beneficial owner of Centralink, will control 71.14% of Grand HK immediately after the completion of all of the transactions described in this proxy statement/ prospectus. By virtue of his ownership, Mr. Hsieh will be able to control the business and affairs of Grand HK.

Q. What is the tax effect on shareholders of Grand US as a result of this reorganization merger?

A. Grand HK has obtained an opinion of its United States counsel to the effect that, if you are a United States shareholder, you will not be taxed on your receipt of Grand HK ADSs in exchange for your Grand US common stock pursuant to the reorganization merger, and will carry your tax basis and holding period with respect to your Grand US common stock over to the Grand HK ADSs received by you in the reorganization merger. However, if you receive Grand HK ADSs representing 5% or more (by either vote or value) of the outstanding ordinary shares of Grand HK, you will be subject to tax on your gain (if any) on the exchange unless you file a gain recognition agreement with the United States Internal Revenue Service, or IRS, and comply with certain certification requirements for the year in which the reorganization merger occurs and each of the five succeeding calendar years. Counsel’s opinion relies on certain factual representations and assumptions, and is not binding on the IRS or the courts.

      If you are a non-corporate United States shareholder, dividends (if any) paid to you by Grand HK will be taxable to you in the same manner as dividends paid by Grand US, and (provided Grand HK ADRs are traded on the Nasdaq SmallCap Market or another United States exchange and you satisfy various holding period rules) these dividends paid to you through 2008 will be eligible for federal income taxation at a maximum 15% tax rate. However, dividends (if any) paid by Grand HK to United States shareholders that are corporations generally will not be eligible for the dividends received deduction. Dividends paid by Grand HK generally will be treated as foreign source income for purposes of calculating a U.S. shareholder’s allowable foreign tax credits.

      WE URGE YOU TO CONSULT YOUR OWN TAX ADVISORS REGARDING THE PARTICULAR TAX CONSEQUENCES TO YOU IN RELATION TO THE REORGANIZATION.

Q. Will Grand US or Grand HK be taxed as a result of the reorganization merger?

A. Grand US and Grand HK have been advised by their United States counsel that neither Grand HK nor Grand US will incur any material United States federal income or withholding taxes in connection with the reorganization merger.

Q. Why was Hong Kong selected as the domicile of the new parent company?

A. In addition to the business reasons discussed above, Grand US and Centralink chose Hong Kong for several other reasons. Administratively, it will be easier for Grand HK to operate as a Hong Kong company, in terms of corporate formalities and banking relationships, which are expected to be established principally with Hong Kong banks. Since the corporate headquarters of Grand HK will be physically located in Hong Kong, the corporate formalities, including filings with regulatory agencies and payment of franchise taxes, required for a Hong Kong company should be administratively easier to comply with than the corporate formalities of other jurisdictions. In addition, banks often require constant updates of corporate documentation in connection with loans and other transactions. As mentioned above, the corporate headquarters is expected to be located in Hong Kong, and administratively, it will be easier for Grand HK to handle such corporate responsibilities and banking relationships locally, with ready access to the relevant records and documents. Furthermore, since Hong Kong is a global financial center with significant banking presence and good access to capital, neither Grand US nor Centralink believes there to be any material business disadvantages to domiciling Grand HK in Hong Kong. The absence of any such disadvantages paired with the administrative convenience of domiciling Grand HK locally led Grand US and Centralink to conclude that the most efficient domicile for Grand HK is Hong Kong.

      Moreover, Hong Kong is an internationally recognized global center of trade. The corporate law in Hong Kong, a Special Administrative Region of the People’s Republic of China with its own government and

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legislature and which enjoys a high degree of autonomy from the People’s Republic of China, is based on English law and is well-developed and substantially ensures effective protection of shareholder rights. We encourage you to read the section titled “Comparison of Rights of Grand HK Shareholders and Grand US Shareholders” beginning on page 88 for a more detailed description of the differences between your rights as a shareholder of Grand US under Nevada law and your rights as a shareholder of Grand HK under Hong Kong law.

Q. When do you expect to complete the reorganization merger and Playwell Acquisition?

A. Grand HK, Grand US and Centralink expect to complete the reorganization merger immediately after the special meeting of Grand US shareholders if the reorganization merger and the related transactions with Centralink are approved by the shareholders at the meeting.

Q. Will I be able to trade my Grand US shares during the time between the date of this proxy statement/ prospectus and the effective time of the reorganization merger?

A. Yes. You will be able to trade your Grand US shares during the time between the date of this proxy statement/ prospectus and the effective time of the reorganization merger.

Q. How does Grand US’ board of directors recommend that I vote?

A. Grand US’ board of directors unanimously recommends that you vote to approve and adopt the amended and restated agreement and plan of merger and the issuance of the 10,000,000 Grand HK ADSs to Centralink pursuant to the subscription and exchange agreement. Although the board’s decision was unanimous, you should be aware that four of Grand US’s seven directors have interests in the transactions which are different from Grand US’ shareholders which may have created a conflict of interest in making their determination. These interests and potential conflicts of interest should be carefully considered by you in evaluating the board’s recommendation. Please see the section titled “Interests of Grand US Directors and Officers in the Reorganization Merger and Subsequent Operation of Grand HK and Potential Conflicts of Interest” on page 70.

Q. Am I entitled to appraisal rights in connection with the reorganization merger or the related transactions?

A. No. Under the General Corporation Law of the State of Nevada, shareholders voting against the amended and restated agreement and plan of merger or the subscription and exchange agreement will not have appraisal rights.

Q. What risks should I consider in deciding whether to approve and adopt the reorganization merger and the issuance of 10,000,000 Grand HK ADSs to Centralink?

A. In evaluating the reorganization merger and the issuance of ADSs to Centralink, you should carefully read this proxy statement/ prospectus and especially consider the factors discussed in the section titled “Risk Factors” beginning on page 38.

Q. How do I vote if my shares are registered in my name?

A. After you read this document, you may vote by MARKING, SIGNING, DATING AND MAILING your proxy card in the enclosed postage-prepaid envelope or you can, if so indicated on your proxy card, vote electronically through the Internet by following the instructions on your proxy card. Please vote as soon as possible even if you currently plan to attend the meeting in person so that your shares may be represented and voted at the special meeting.

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Q. How do I vote if my broker holds my shares in “Street Name”?

A. After you read this document, you should follow the voting instructions provided by your broker.

Q. If my broker holds my shares in “Street Name,” will my broker vote my shares for me?

A. No, not with respect to the reorganization merger or the issuance of the Grand HK ADSs to Centralink pursuant to the subscription and exchange agreement, unless you provide your broker with instructions on how to vote your “Street Name” shares. If you do not provide instructions, your broker will not be permitted to vote your shares on the proposed reorganization merger or the issuance of the Grand HK ADSs to Centralink and the effect would be the same as a vote against the reorganization merger and the Centralink transactions. To ensure your shares are represented and voted at the special meeting, you should complete and return the enclosed form of proxy or be sure to provide your broker with instructions on how to vote your shares.

Q. Who can answer my questions?

A. If you have questions about the reorganization merger and the issuance of ADSs to Centralink or desire additional copies of this proxy statement/ prospectus or additional proxy cards you should contact:

  Tania M. Clarke

Executive Vice-President and Chief Financial Officer
Grand Toys International, Inc.
Telephone: (514) 685-2180 ext. 233,
or email her at Tania@grand.com

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      Below is a graphic representation of the structure of Grand US immediately before and Grand HK immediately after the reorganization merger and the Playwell acquisition:

(FLOW GRAPHIC)

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PART I

SUMMARY

      This document is a prospectus of Grand HK and is a proxy statement of Grand US. This summary highlights the material terms of the reorganization merger and the subsequent acquisition of Playwell and related issuance of Grand HK ADSs to Centralink. To understand the transactions required to complete the reorganization merger of Grand US and the acquisition of Playwell and Centralink subscription more fully, you should read this entire proxy statement/ prospectus, including the Annexes. The amended and restated agreement and plan of merger and the subscription and exchange agreement, as amended, are attached as Annex A and Annex B, respectively, to this proxy statement/ prospectus. The Fairness Opinion of Empire Valuation Consultants regarding the transaction contemplated by the subscription and exchange agreement is attached as Annex C.

Information About Grand Toys International, Inc.

and Playwell International Limited (see page 109)

Grand Toys International, Inc.

      Principal executive offices:

  Grand Toys International, Inc.

1710 Route Transcanadienne
Dorval, QC H9P 1H7 Canada
Telephone: (514) 685-2180

      Grand Toys International, Inc., which is referred to as Grand US, is a Nevada corporation. Both directly and through its Canadian subsidiary, Grand Toys Ltd., which is referred to as Grand Canada, Grand US has engaged in the toy business for over 43 years. Grand US, primarily through Grand Canada, develops and distributes a wide variety of toys and ancillary items throughout Canada and markets proprietary products in the United States. Grand US’ business consists of four areas of operation:

  •  importing and distributing throughout Canada, on an exclusive and non-exclusive basis, a wide variety of well-known toy and leisure products and ancillary items, including party goods, stationary and accessories;
 
  •  selling toy products and ancillary items featuring popular characters licensed to Grand Canada;
 
  •  earning commissions on the sale of products represented by Grand Canada and shipped directly from an overseas vendor to Canadian customers; and
 
  •  selling proprietary products, such as puzzles, mobiles, and gift-related items.

      Grand US’ shares are traded on the Nasdaq SmallCap Market under the symbol “GRIN”.

Playwell International Limited

      Principal executive offices:

  Room UG202, Floor UG2

Chinachem Golden Plaza
77 Mody Road
Tsimshatsui East
Kowloon, Hong Kong
Telephone: (852) 2738-7878

      Playwell International Limited, which is referred to as Playwell, is a Hong Kong limited company. All of the shares of Playwell are beneficially owned by Hong Kong-based Centralink Investments Limited, a British Virgin Islands company that is wholly-owned by Cornerstone Overseas Investments, Limited, also a British Virgin

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Islands company. Cornerstone is 100% beneficially owned by Mr. Jeff Hsieh. Playwell is a holding company with four operating subsidiaries:

  •  Hong Kong Toy Centre Limited, which develops products for sale under the Playwell brand and supervises the outsourced manufacture of such products, as well as products designed by customers of Hong Kong Toy Centre Limited for sale under their own brands, by contract manufacturers located primarily in mainland China;
 
  •  Gatelink Mould Engineering Limited, a manufacturer of moulds for Playwell;
 
  •  Great Wall Alliance Ltd., the holder of Playwell trademarks; and
 
  •  Asian World Enterprises, Co., Ltd., which holds certain intellectual property licenses from the Walt Disney Company and for Crayola branded products.

      Playwell Industry Limited, a subsidiary of Playwell from August 2001 to May of 2003 is and has been a manufacturer of products for Grand US over the past two years.

Grand Toys International Limited

      Principal executive offices:

  Room UG202, Floor UG2

Chinachem Golden Plaza
77 Mody Road
Tsimshatsui East
Kowloon, Hong Kong
Telephone: (852) 2738-7878

      Grand Toys International Limited, which is referred to as Grand HK, is a Hong Kong limited company and is currently wholly-owned by Grand US. Grand HK has no significant assets or capitalization and has engaged in no activities other than in connection with its formation and the reorganization merger and the Centralink transactions. As a result of the reorganization merger, it will become the direct parent holding company of Grand US, Playwell and their respective subsidiaries.

GTI Acquisition Corp.

      Principal executive offices:

  c/o Grand Toys International, Inc.

1710 Route Transcanadienne
Dorval, QC H9P 1H7 Canada
Telephone: (514) 685-2180

      GTI Acquisition Corp. is a Nevada corporation and a wholly-owned subsidiary of Grand HK. GTI Acquisition Corp. was formed to accomplish the proposed reorganization merger. Prior to the reorganization merger, it will have no significant assets or capitalization unrelated to the reorganization merger and will not engage in any activities except in connection with its formation and the reorganization merger and related transactions.

Information About the Special Meeting and Voting (see page 142)

Time, date and place (see page 142)

      A special meeting of shareholders of Grand US will be held at 11:00 a.m., local time, on August 13, 2004, at the offices of Adessky Poulin, 999 De Maisonneuve Ouest, Suite 1800, Montreal, Quebec, Canada.

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Purposes of the Grand US Special Meeting (see page 142)

      The purposes of the Grand US special meeting are:

  •  to vote upon the adoption of an amended and restated agreement and plan of merger providing for the reorganization of Grand US in which it will become a subsidiary of Grand HK, a Hong Kong company, and you will receive, in exchange for each of your shares of Grand US, one American depositary share, or ADS, represented by an American depositary receipt, or ADR, representing beneficial ownership of one ordinary share of Grand HK;
 
  •  to approve the issuance to Centralink of 10,000,000 Grand HK ADSs in exchange for all of the shares of Playwell and cash and other consideration having a total value of $11,000,000 pursuant to the subscription and exchange agreement; and
 
  •  to transact such other business as may properly come before the meeting and any and all continuations and adjournments thereof.

Quorum; Vote Required (see page 142)

      The presence, in person or by proxy, of shareholders holding a majority of the 5,355,244 shares outstanding and entitled to vote at the special meeting shall constitute a quorum.

      Approval of the amended and restated agreement and plan of merger requires the affirmative vote of a majority of the 5,355,244 Grand US shares outstanding as of the record date. The issuance of 10,000,000 Grand HK ADSs pursuant to the subscription and exchange agreement requires the affirmative vote of a majority of the Grand US shares present at the special meeting voting in person or by proxy. The record date is June 15, 2004, and only holders of record of Grand US common stock on the record date are entitled to notice of and to vote at the special meeting. On the record date, directors and officers of Grand US owned an aggregate of 2,087,312 shares of Grand US common stock, or 39% of the shares of Grand US common stock outstanding on the record date. These persons have informed Grand US that they intend to vote in favor of the proposals.

      For registered holders and holders for whom brokers hold their shares in “street name,” failure to submit a proxy or to vote will have the effect of a vote against these transactions. In addition, if you abstain, it will have the effect of a vote against these transactions.

The Reorganization Merger and the Acquisition of Playwell (see page 56)

      The reorganization merger of Grand US pursuant to the amended and restated agreement and plan of merger and Grand HK’s acquisition of the shares of Playwell and the issuance of Grand HK ADSs to Centralink pursuant to the subscription and exchange agreement are steps in a single transaction.

      Grand HK will, as a result of the reorganization merger and the Centralink transactions, become the publicly-traded holding company of both Grand US and Playwell. The reorganization merger will be accomplished through the merger of Grand US and GTI Acquisition Corp., which is a subsidiary of Grand HK. Grand US will continue to exist, but it will be a wholly-owned subsidiary of Grand HK. In the reorganization merger, each of your shares of Grand US common stock will be converted into the right to receive one Grand HK ADS. Each outstanding option and warrant to purchase shares of Grand US held by you will be converted into the right to acquire, upon exercise, the same number of Grand HK ADSs.

      Immediately upon the completion of the reorganization merger, 10,000,000 Grand HK ADSs will be issued to Centralink pursuant to a subscription and exchange agreement entered into by and among Centralink, Grand HK and Grand US. 5,000,000 of the Grand HK ADSs will be issued in exchange for all of the outstanding shares of Playwell, and another 5,000,000 Grand HK ADSs will be issued in consideration for investment by Centralink into Grand HK in the form of cash and other consideration having a total value of $11,000,000.

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Recommendation of the Board of Grand US (see page 64)

      After careful consideration, Grand US’ board of directors unanimously determined that the reorganization merger to be effected pursuant to the amended and restated agreement and plan of merger and the related acquisition of Playwell and issuance of 10,000,000 Grand HK ADSs to Centralink pursuant to the subscription and exchange agreement are advisable and are fair to and in the best interests of Grand US and its shareholders. The directors of Grand US unanimously recommend that the Grand US shareholders vote:

  •  “FOR” the proposal to approve and adopt the amended and restated agreement and plan of merger; and
 
  •  “FOR” the issuance of Grand HK ADSs to Centralink pursuant to the subscription and exchange agreement.

      Although the board’s determination was unanimous, you should be aware that four of Grand US’ seven directors have interests in the transactions which are different from Grand US’ shareholders, which may have created a conflict of interest in making their determination. These interests and potential conflicts are described under the section titled “Interests of Grand US Directors and Officers in the Reorganization Merger and Subsequent Operation of Grand HK and Potential Conflicts of Interest” on page 70.

Share Conversion; Exchange of Shares (see page 78)

      After the reorganization merger occurs, Grand HK will send a letter to you that will provide instructions on exchanging your Grand US stock certificates for Grand HK ADRs which will evidence your ownership of Grand HK ADSs. Please do not send any stock certificates at this time.

Grand US’ Reasons for the Subscription and Exchange Transaction (see page 61)

      The principal shareholders and executive officers of Grand US and Playwell have known and transacted business with each other for several years. Affiliates of Playwell have supplied products to Grand US. The logic of the parties’ coming together in the current transaction is best understood against the background of the ongoing evolution and consolidation currently taking place in the global toy industry.

      Grand US has historically been essentially a distributor of toy products developed and manufactured by others. Realizing that this has limited its opportunities for growth, Grand US has for some time sought ways of developing brands and proprietary products of its own. Having been largely unsuccessful in that effort, and faced with the consolidation of retailers in the toy industry and what had been declining revenues and profitability, Grand US was more than willing to consider a combination with a company like Playwell.

      Management of Grand US and Playwell believe that the combination of Playwell’s manufacturing and sourcing expertise, financial resources and cost-management skills and experience and Grand US’ marketing and distribution presence in North America and the combined significant toy industry experience of the management of Playwell and Grand US will create a vertically-integrated company that will have manufacturing and distribution capabilities and allow Grand HK to expand its product offerings significantly.

      Grand US also believes that the acquisition will provide strategic and financial benefits to the shareholders of Grand US. Together, the combined company will be a stronger vehicle for future expansion. The board of directors of Grand US believes that the acquisition has the potential to facilitate Grand HK’s expansion into Asian and other world markets where Playwell has a presence and provide economies of scale. Grand US also believes that the acquisition of Playwell will result in the combined company being larger and financially more stable than Grand US. In addition, Grand US believes that certain characteristics resulting from combining Grand US and Playwell, including but not limited to, Grand HK’s larger size, financial stability and international coverage, will afford Grand HK better access to capital which will support future growth.

Grand US’ Reasons for the Reorganization Merger (see page 61)

      Apart from the fact that the reorganization merger is a condition to the Centralink transaction, nearly all of Grand US’ current business is carried on in Canada through Canadian subsidiaries, and its headquarters are in Canada. It has relatively little business activity in the United States. As a result of the Centralink transaction,

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including the acquisition of Playwell, the vast majority of Grand HK’s assets and operations will be located in Hong Kong or in nearby southern China, and the seat of management of Grand HK’s operations will also be in Hong Kong. Reorganization of Grand US as a Hong Kong company will simplify corporate management and facilitate dealings with suppliers and customers in the region, who are accustomed to dealing with Hong Kong companies and sometimes hesitant to do business with United States companies, which are sometimes regarded as unduly litigious.

      The reorganization merger also makes sense from a tax standpoint. In fact, Centralink would not consummate the Playwell acquisition or the related subscription transaction without the reorganization merger. It would not have been logical for Centralink, a British Virgin Islands company, to transfer the shares of Playwell, a Hong Kong limited company, to a United States corporation. Hong Kong companies such as Playwell have a 17.5% tax rate on profits from Hong Kong operations only, as well as no capital gains, sales, turnover or similar taxes compared to United States companies like Grand US, which generally have an effective Federal tax rate of 35% on worldwide income, are subject to capital gains taxes and may be subject to Federal and state sales, use and other taxes. Subjecting Playwell’s income to United States corporate taxation would significantly reduce the after-tax returns of the Playwell business. The reorganization merger will not, of course, affect the tax position of the current Grand US business, which will continue to be operated through Grand US just as before.

Potential Disadvantages or Adverse Effects of the Reorganization Merger and the Playwell Acquisition on the Shareholders of Grand US

      Although the board of directors has determined that the reorganization merger and the Playwell acquisition are in your best interests, the acquisition is not without risk. Among the potential disadvantages you should consider the following, all of which are described in detail in the section titled “Risk Factors” beginning on page 38.

  •  The transactions will result in a change of control of Grand US. Mr. Hsieh, the ultimate controlling shareholder of Centralink, will control a majority of the outstanding shares of Grand HK. Although the board of Grand HK will consist of a majority of disinterested independent directors, Mr. Hsieh will have the right to influence the business of Grand HK and to decide any matters submitted to shareholders, even if his determination is not in your best interests;
 
  •  As a result of Mr. Hsieh’s ability to control Grand HK and the potential dilutive effect of the issuance of 10,000,000 Grand HK ADRs to Centralink, the share price of Grand HK may trade at a discount;
 
  •  Pending United States tax legislation could result in Grand HK not being able to realize the tax benefits of being a Hong Kong holding company. This could have an adverse effect on Grand HK and it’s shareholders;
 
  •  If the IRS were to successfully challenge Grand HK’s assessment of the tax treatment of the reorganization merger, you could be taxed on the receipt of Grand HK ADSs in exchange for your shares of Grand US common stock;
 
  •  The issuance of the 10,000,000 Grand HK ADSs to Centralink may be below the market price of the Grand HK ADSs;
 
  •  It is possible that Grand HK will not receive all or any of the benefits that it believes will occur by combining the operations of Grand US and Playwell. Each of Grand US and Playwell will have incurred significant costs as a result of the transactions and the impact of these costs may have an adverse effect on the results of operations of Grand HK;
 
  •  Playwell’s business is and will continue to be dependent on transactions with related parties; and
 
  •  Grand HK’s operating results will be significantly dependent on the sales of products licensed from Marvel Enterprises, Inc.

      In addition, although the reorganization merger, the Playwell acquisition and the related subscription transactions were negotiated by Grand US and Centralink on a arms-length basis, the relative values of Grand US

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and Playwell and the resulting number of Grand HK ADSs to be issued was determined by the managements of Grand US and Centralink without the assistance of financial advisors. This determination was based on the historical operations of both companies, the prospects of each company and the prospects of the combined company. No competing transactions were solicited by Grand US because management believed that the transaction presented by Centralink was the best plan for you to achieve long term returns from your investment in Grand US.

Appraisal Rights (see page 89)

      You will not be entitled to appraisal rights in connection with any matter to be considered at the Grand US special meeting.

United States Federal Income Tax Consequences (see page 96)

      Grand HK has obtained an opinion of its United States counsel to the effect that, if you are a United States shareholder, you will not be taxed on your receipt of Grand HK ADSs in exchange for your Grand US common stock pursuant to the reorganization merger, and will carry your tax basis and holding period with respect to your Grand US common stock over to the Grand HK ADSs received by you in the reorganization merger. However, if you receive Grand HK ADSs representing 5% or more (by either vote or value) of the outstanding ordinary shares of Grand HK, you will be subject to tax on your gain (if any) on the exchange unless you file a gain recognition agreement with the IRS and comply with certain certification requirements for the year in which the reorganization merger occurs and each of the five succeeding calendar years. Counsel’s opinion relies on certain factual representations and assumptions, and is not binding on the IRS or the courts.

      If you are a non-corporate United States shareholder, dividends (if any) paid to you by Grand HK will be taxable to you in the same manner as dividends paid by Grand US, and (provided Grand HK ADSs are traded on the Nasdaq SmallCap Market or another United States exchange and you satisfy various holding period rules) these dividends paid to you through 2008 will be eligible for federal income taxation at a maximum 15% tax rate. However, dividends (if any) paid by Grand HK to United States shareholders that are corporations generally will not be eligible for the dividends received deduction. Dividends paid by Grand HK generally will be treated as foreign source income for purposes of calculating a U.S. shareholder’s allowable foreign tax credits.

      In order for the tax treatment described above to apply, Grand US and/or Centralink intend to make various factual showings relating to, among other things, the assets of and the business conducted by one of Playwell’s operating subsidiaries (Hong Kong Toy Centre Limited) outside the United States, and the ownership of shares in Grand HK by United States persons. Factual determinations by Grand US and/or Centralink will not be binding on any taxing authority or the courts.

      If you are a non-U.S. shareholder of Grand US, you will not be subject to United States federal income tax on your gain (if any) on your receipt of Grand HK ADSs in exchange for your shares of Grand US common stock pursuant to the reorganization merger, provided that your gain is not effectively connected with your conduct of a United States trade or business and, if you are an individual, you are not present in the United States for 183 days or more in the year the reorganization merger occurs.

      Determining the actual tax consequences of the reorganization merger to you can be complicated. Your tax consequences will also depend on your specific situation. You should consult with your own tax advisor for a full understanding of the reorganization merger’s tax consequences.

Fairness Opinion (see page 65)

      Empire Valuation Consultants, LLC has delivered a written opinion to the Grand US board of directors as to the fairness, from a financial point of view, to Grand US and you of the transactions contemplated by the subscription and exchange agreement. A copy of the full text of this opinion is attached to this proxy statement/prospectus as Annex C. Grand US encourages you to read the opinion carefully in its entirety for a description of the procedures followed, assumptions made, matters considered and limitations on the review undertaken by Empire Valuation Consultants.

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      Empire Valuation Consultants provided its opinion for the information and assistance of the Grand US board in connection with its determination to proceed with the approval of the transactions contemplated by the subscription and exchange agreement, and such opinion is not a recommendation as to how you should vote with respect to the approval of the issuance of the Grand HK ADSs to Centralink in connection with such transactions. Apart from its compensation for evaluating the fairness of the transactions described in this proxy statement/ prospectus, Empire Valuation Consultants has no other relationship with Grand US, Grand HK, Centralink or Playwell.

Interests of Grand US Directors and Officers in the Acquisition and Potential Conflicts of Interest (see page 70)

      When you consider the recommendation of the Grand US board that Grand US shareholders vote in favor of the proposal to adopt and approve the amended and restated agreement and plan of merger and the issuance to Centralink of Grand HK ADSs in connection with the Playwell acquisition and its subscription, you should be aware that certain executive officers of Grand US and members of Grand US’ board of directors have interests in the reorganization merger and acquisition and subscription that may be different from, or in addition to, both their current situation and your interests generally. These interests are described in the section titled “Interests of Grand US Directors and Officers in the Reorganization Merger and Subsequent Operation of Grand HK and Potential Conflicts of Interest” beginning on page 70, including:

  •  the purchase by Centralink of 924,187 Grand HK ADSs from David Mars, a director of Grand US and Stephen Altro, a director and acting president of Grand US, and affiliates of Messrs. Mars and Altro at a price of $4.00 per Grand HK ADS. This will eliminate any risk resulting from a decrease in the market price on one-half of the Grand HK ADSs owned by each of them and their affiliates;
 
  •  the execution of a shareholders’ agreement by and among Centralink, Stephen Altro, David Mars, Grand HK and certain other shareholders of Grand HK under which the shareholders have agreed that the provisions of the memorandum and articles of association of Grand HK limiting the size of the board to five persons will not be varied, and the shareholders will vote their shares for the election of two directors who will be nominated by Messrs. Mars and Altro and two directors who will be nominated by Centralink. One designee of each of Centralink and Messrs. Mars and Altro must be “independent” within the meaning of current Nasdaq marketplace rules, as must the fifth director, who will be nominated by the other two “independent” directors and must be acceptable to Centralink and to Messrs. Mars and Altro. Mr. Altro and Mr. Mars intend to designate Elliot L. Bier, Grand US’ Chairman, and Michael Kron, a director of Grand US, as their designees with Mr. Kron being the “independent” nominee. This voting arrangement will remain in place until Grand HK’s 2005 annual general meeting of shareholders;
 
  •  the retention of Messrs. Mars and Altro as consultants to Grand Toys Ltd., Grand US’ Canadian subsidiary, at an aggregate of $184,000 per annum. Messrs. Mars and Altro currently receive an aggregate of approximately $78,000 per year for consulting services performed for Grand Toys Ltd.
 
  •  the employment of Elliot L. Bier as a vice chairman of Grand HK pursuant to an employment agreement under which Mr. Bier will receive a salary of not less than $150,000 per year, be eligible to receive performance bonuses and be granted options to purchase 300,000 Grand HK ADSs. Mr. Bier is not currently employed by Grand US, although he receives chairman fees of $42,000 per year and automatic quarterly director option grants of 125 options per quarter. Furthermore, since January 1, 2004, Mr. Bier has also served as a paid consultant to Cornerstone;
 
  •  the employment of Tania M. Clarke, Grand US’ current executive vice-president and chief financial officer, as vice president of finance of Grand HK and vice president and chief financial officer of Grand US pursuant to an employment agreement under which Ms. Clarke will receive a salary of not less than $170,000 per year, an increase of approximately $56,000 per year over her existing salary, be eligible to receive performance bonuses of up to 25% of her base salary and be granted options to purchase 50,000 Grand HK ADSs. Ms. Clarke’s existing employment agreement does not contain specified bonus and option amounts;

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  •  The agreement of Grand HK to compensate its directors, including Michael Kron and Elliot L. Bier, two of Grand US’ current directors, by paying each of them an annual director fee of $25,000 and granting to each of them options to purchase 1,250 Grand HK ADSs on a quarterly basis, or 5,000 options per year, at an exercise price equal to the market price of the Grand HK ADSs on the date of grant. In addition, non-employee directors such as Mr. Kron will receive an additional grant of options to purchase 6,250 Grand HK ADSs on a quarterly basis, or an additional 25,000 options per year, at an exercise price equal to the market price of the Grand HK ADSs on the date of grant. Grand US’ directors currently receive quarterly grants of options to purchase 125 shares of Grand US’ common stock at an exercise price equal to the market price of Grand US common stock on the date of grant. Mr. Kron was not approached about serving as a director of Grand HK until after the board of Grand US had unanimously voted in favor of the reorganization merger and the acquisition of Playwell;
 
  •  the requirement of Grand US to continue to indemnify directors, officers and employees of Grand US for events occurring before the reorganization merger;
 
  •  the purchase by Grand US of a directors’ and officers’ liability tail insurance policy, which will provide insurance coverage for acts and omissions of Grand US’ directors and officers before the reorganization merger for a period of six years after the reorganization merger;
 
  •  the agreement of Cornerstone to pay or reimburse Grand US for obligations and liabilities that Grand US incurs on behalf of Cornerstone and its affiliates in connection with transactions Cornerstone has pursued and is pursuing as described in the section titled “Recent Developments” on page 21. Cornerstone has also agreed to indemnify the directors, officers, employees, agents and representatives of Grand US for actions taken for Cornerstone in pursuing these transactions; and
 
  •  the rights of officers and directors of Grand US who hold an aggregate of 100,114 options and 187,857 warrants to purchase Grand US common stock, which will become options and warrants to purchase Grand HK ADSs upon consummation of the transactions described in this proxy statement/ prospectus.

      Grand US’ board of directors was aware of and considered these potentially conflicting interests when the Grand US board, including the three disinterested members of the Grand US board, unanimously approved the amended and restated agreement and plan of merger and the subscription and exchange agreement.

Conditions to Consummation of the Reorganization Merger and Playwell Acquisition (see page 105)

      A number of conditions must be satisfied or waived before Grand HK and Centralink will complete the acquisition of Playwell and the related Centralink subscription transactions. Neither Grand US nor Centralink have any present intention to waive any of the closing conditions. The material closing conditions are summarized below.

      The obligations of both Centralink and Grand US are subject to:

  •  the reorganization merger shall have been completed in accordance with the terms of the amended and restated agreement and plan of merger;
 
  •  the execution of a shareholders’ agreement among Centralink, Grand HK, David Mars, Stephen Altro and certain affiliates of such persons pursuant to which, until Grand HK’s 2005 annual general meeting of shareholders, the shareholders have agreed that the provisions of the memorandum and articles of association of Grand HK limiting the size of its board of directors to five directors will not be varied and the shareholders will vote their shares for the election of two directors nominated by Messrs. Mars and Altro and two directors nominated by Centralink. One designee of each of Centralink and Messrs. Mars and Altro must be “independent” within the meaning of current Nasdaq marketplace rules, as must be the fifth director, who will be nominated by the two independent nominees of Centralink and Messrs. Mars and Altro;
 
  •  the registration statement of which this proxy statement/ prospectus is a part shall have become effective under the Securities Act and the Grand HK ADSs to be issued pursuant to the reorganization merger and

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  to Centralink pursuant to the subscription and exchange agreement will be listed on the Nasdaq SmallCap Market following completion of the reorganization merger;
 
  •  the absence of any legislation that would materially and adversely affect the prospective tax treatment of Grand US following the reorganization merger as a result of the current tax treatment of the transactions described in this proxy statement/ prospectus; and
 
  •  the approval of the issuance of 10,000,000 Grand HK ADSs to Centralink pursuant to the subscription and exchange agreement by Grand US shareholders.

      The obligations of Centralink are further subject to the following conditions:

  •  the exercise of not less than 1,048,357 options and warrants currently outstanding for the purchase of shares of Grand US common stock; and
 
  •  the receipt by Centralink of a letter from Messrs. Altro and Mars indemnifying Centralink from any fraud by Grand US in inducing Centralink to enter into the subscription and exchange agreement or to consummate the acquisition of Playwell and the additional Centralink subscription for Grand HK ADSs, or from any intentional or willful misrepresentation or breach of, or omission of any material fact in, the representations and warranties of Grand US in the subscription and exchange agreement.

      The obligations of Grand US are subject to the following conditions:

  •  Grand US shareholders have approved the reorganization merger and the issuance of the Grand HK ADSs to Centralink pursuant to the subscription and exchange agreement;
 
  •  receipt of Empire Valuation Consultants’ fairness opinion;
 
  •  receipt of a third party valuation analysis to support a conclusion that Grand HK satisfies the substantiality test of Treasury Regulation Section 1.367(a)-3(c)(iii) that will allow the reorganization merger to be tax-free to Grand US’ shareholders;
 
  •  the release of Playwell and its subsidiaries from any guarantee or other liability which any of them may have relating to the liabilities of Centralink or any affiliate of Centralink;
 
  •  the satisfaction in full of any obligation, other than ordinary course obligations, owed by Centralink or its affiliates to Playwell or its subsidiaries;
 
  •  receipt of an indemnification letter from Cornerstone, Centralink’s parent company, indemnifying Grand HK from any fraud by Centralink in inducing Grand US and Grand HK to proceed with the transactions contemplated by the subscription and exchange agreement or from any intentional or willful misrepresentation or breach of, or omission of material facts in the representations and warranties of Centralink, and assurances that Cornerstone is financially capable of satisfying its obligations pursuant to such indemnification;
 
  •  Playwell or its subsidiaries shall enter into a facilities sharing agreement with Toy Biz Worldwide Ltd., which is referred to as Toy Biz, or other affiliates of Centralink, for the sharing of office and management facilities in Hong Kong and related matters; and
 
  •  Hong Kong Toy Centre shall enter into a new supply agreement with Toy Biz, providing for the manufacture and sale of moulds and toys for Toy Biz.

      At this time, subject to shareholder approval of the proposals, neither Grand US nor Centralink has any reason to believe that these conditions to closing will not be satisfied.

Prohibition on Grand US Soliciting Other Offers (see page 104)

      The subscription and exchange agreement contains detailed provisions that prohibit Grand US and its affiliates and representatives from soliciting, discussing or participating in negotiations with any person about an acquisition proposal. However, Grand US may, in response to an unsolicited “superior proposal”, furnish information to any person making a superior proposal. A superior proposal is defined as any proposal made by a

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third person to acquire, directly or indirectly, more than 50% of the combined voting power of Grand US or at least 50% or more of the assets of Grand US if:

  •  the board of Grand US determines in its good faith judgment that the proposal is more favorable to Grand US’ shareholders than the reorganization merger, acquisition of Playwell and the related subscription by Centralink; and
 
  •  the board of Grand US determines in good faith that participating in discussions or negotiations with respect to the superior proposal or withdrawing or modifying its recommendation with respect to the reorganization merger, acquisition of Playwell and the related subscription by Centralink or termination of the subscription and exchange agreement is required for it to comply with its fiduciary duties to Grand US’ shareholders.

Termination of the Subscription and Exchange Agreement (see page 108)

      The subscription and exchange agreement may be terminated at any time before the completion of the Playwell acquisition and related subscription transaction, whether before or after approval of the reorganization merger by the Grand US shareholders:

  •  by mutual written consent of Grand US, Grand HK and Centralink;
 
  •  by Grand US or Centralink if Grand US determines to pursue discussions and negotiations in connection with an unsolicited superior proposal;
 
  •  by Grand US if satisfaction of any of the closing conditions for Grand US contained in the subscription and exchange agreement becomes impossible, other than through the failure of Grand US or Grand HK to comply with their obligations under the subscription and exchange agreement, and Grand US and Grand HK have not waived such condition on or before the closing of the Playwell acquisition and related subscription transaction;
 
  •  by Centralink if satisfaction of any of the closing conditions for Centralink contained in the subscription and exchange agreement becomes impossible, other than through the failure of Centralink to comply with its obligations under the subscription and exchange agreement, and Centralink has not waived such condition on or before the closing of the Playwell acquisition and related subscription transaction;
 
  •  by either Grand US or Centralink if the closing has not occurred, other than through the failure of the party seeking to terminate the subscription and exchange agreement fully to comply with its obligations under the subscription and exchange agreement, on or before August 15, 2004, or such later date as the parties may agree upon; or
 
  •  by either Grand US or Centralink if the other party has committed a material breach of the subscription and exchange agreement and such breach has not been waived.

Expenses; Termination Fees (see page 108)

      In the event the reorganization merger, Playwell acquisition and additional Centralink subscription are completed, all expenses paid by Centralink will be reimbursed by Playwell, Playwell shall cause to be paid all expenses incurred and estimated to be incurred by Centralink but unpaid prior to closing (including expenses associated with post-closing actions), and Centralink shall cause to be paid or reimbursed all expenses paid or incurred by Grand US prior to closing arising out of or related to the subscription and exchange agreement or the consummation of the transactions contemplated by the subscription and exchange agreement.

      In the event that the subscription and exchange agreement is terminated by either Centralink or Grand US as a result of Grand US’ decision to pursue a superior proposal, Grand US would be obligated to pay Centralink a fee of the greater of $500,000 or the actual expenses incurred by Centralink in connection with the negotiations and execution of the transactions contemplated by the subscription and exchange agreement. In the event of the termination of the subscription and exchange agreement for any other reason, subject to the rights of Centralink,

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Grand US and Grand HK if termination results from a material breach by the other party or parties, each of Centralink and Grand US will be responsible for its own fees and expenses.

Government and Regulatory Approvals (see page 105)

      Except for the listing of the Grand HK ADSs on the Nasdaq SmallCap Market or another nationally recognized stock exchange, neither Grand HK, Grand US nor Centralink is aware of any regulatory approvals or actions that are required prior to the consummation of the amended and restated agreement and plan of merger or the issuance of the Grand HK ADSs to Centralink and the consummation of the other transactions contemplated by the subscription and exchange agreement. Should any approvals be required, it is presently contemplated that such approvals would be sought, but neither Grand HK, Grand US, nor Centralink can assure you that such approvals would be obtained.

Comparison of Rights of Shareholders (see page 88)

      Your rights as a Grand US shareholder are currently governed by the Nevada statutory and common law, Grand US’ articles of incorporation, as amended, and Grand US’ amended and restated by-laws. As a result of the reorganization merger, your rights as the beneficial owner of Grand HK ordinary shares will be governed by Hong Kong statutory and common law, Grand HK’s memorandum and articles of association and the depositary agreement among Grand HK, the Bank of New York, as depository, and you. Hong Kong statutory law is modeled after United Kingdom corporate law and differs from laws applicable to Nevada corporations and their shareholders.

      The following summarizes the material differences between your rights as a Grand US shareholder and your rights as a beneficial owner of Grand HK ordinary shares. For a discussion comparing the rights of Grand HK shareholders with Grand US shareholders, please see the section titled “Comparison of Rights of Grand HK Shareholders and Grand US Shareholders” on page 88.

  •  Rights upon mergers or consolidations. Because Grand US is a public company, under Nevada law, you do not have the right to seek appraisal to obtain the fair value of your shares upon a merger or consolidation. Under Hong Kong law, you will have the right to apply to a court if you believe that the action of Grand HK is unfairly prejudicial to your rights as a shareholder.
 
  •  In addition, if an acquiring company makes an offer and acquires 90% or more of the Grand HK ordinary shares which are the subject of the offer, you will have the right to require the acquiring company to purchase your shares. On the other hand, an acquiring company which makes such an offer and acquires 90% or more of the shares which are the subject of the offer has the right to demand that you sell your interest in Grand HK to such acquiring company even if you do not want to sell.
 
  •  Cumulative Voting. Although Grand US does not presently provide for cumulative voting for its board, under Nevada law a corporation may provide for cumulative voting. Hong Kong law does not have provisions which allow cumulative voting.
 
  •  Right to call shareholder meetings. Under Nevada law, a request to call a shareholder meeting requires not less than a majority of the outstanding shares of Grand US. Under Hong Kong law, shareholders holding not less than 1/20th of the outstanding capital of Grand HK have the right to request a shareholder meeting.
 
  •  Action by written consent. Under Nevada law, shareholders holding a majority of the outstanding stock of Grand US can take action by written consent without a meeting. Under Hong Kong law, action can be taken without a meeting only if consented to by all of the shareholders of Grand HK.
 
  •  Removal of Directors. Under Nevada law and Grand US’ by-laws, directors may be removed upon the vote of not less than 2/3 of the voting power of Grand US. Under Hong Kong law, directors of Grand HK may be removed by a vote of the majority of the outstanding shares of Grand HK.
 
  •  Amendment of governing documents. Under Nevada law, the articles of incorporation of Grand US can be amended if approved by a majority of the board and a majority of the voting power of Grand US.

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  Under HK law, the memorandum and articles of association of Grand HK may be amended if approved by not less than 75% of its shareholders.
 
  •  Interested Director Transactions. Nevada law generally does not prohibit transactions with directors. Hong Kong law prohibits loans to directors, but does not prohibit all transactions with directors if the other directors are made aware of the director’s interest and exercise their duty of care and discharge their fiduciary obligations in determining to approve the transaction.
 
  •  Shareholder Suits. Under Nevada law, a shareholder may bring a derivative action on behalf of a corporation. Hong Kong law does not recognize derivative suits in the same manner as United States courts, although as a Grand HK shareholder, you will have the right to apply to the Hong Kong courts for relief if you believe that Grand HK’s affairs are being operated in a manner that is unfairly prejudicial to your interests.
 
  •  Restrictions on Business Combinations. Under Nevada law, transactions between Grand HK and interested shareholders are prohibited for three years unless the transaction is approved by the board prior to the interested shareholder becoming an interested shareholder. Hong Kong law does not have any similar prohibitions on transactions with interested shareholders.

Exchange Listing (see page 70)

      Grand HK has applied to have the Grand HK ADSs approved for listing on the Nasdaq SmallCap Market under the symbol “GRIN,” which is the same symbol under which Grand US’ shares are currently listed.

Anticipated Accounting Treatment of the Reorganization Merger, Playwell Acquisition and Centralink Subscription (see page 77)

      The reorganization merger of Grand US pursuant to the amended and restated agreement and plan of merger and Grand HK’s acquisition of the shares of Playwell and the issuance of Grand HK ADSs to Centralink pursuant to the subscription and exchange agreement are steps in a single transaction, and will be treated as a “purchase” with Playwell as the acquirer for accounting purposes (notwithstanding the fact that, as a legal matter, Grand HK is acquiring Playwell). Therefore, the purchase price will be allocated to Grand HK’s assets and liabilities based on their estimated fair market values at the completion of the reorganization merger and related subscription and exchange. Any excess of the purchase price over these fair market values will be accounted for as goodwill and intangible assets.

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Recent Developments

      One of the principal reasons why Grand US and Centralink are pursuing the reorganization merger and the transactions contemplated by the subscription and exchange agreement is to combine the businesses of Grand US and Playwell to create a public company with greater revenues and assets which could serve as a platform for future expansion. In the future, Grand HK expects to seek to identify and acquire complementary companies which have experienced management with proven track records, but which lack cost-effective manufacturing and proper sales channels into mass market retailers and large distributors. In this regard, several acquisition opportunities have been identified as potentially attractive. However, Grand HK and Grand US are currently focused on consummating the proposed reorganization merger and the related acquisition of Playwell, and Grand US does not have the financial resources to pursue these acquisition opportunities.

      Centralink’s parent company, Cornerstone Overseas Investments, Limited, believes that these potential acquisition opportunities have businesses and/or personnel that would complement and enhance the prospective business and organization of Grand HK after the reorganization merger and the transactions contemplated by the subscription and exchange agreement. Cornerstone believes that these opportunities are only available for a finite amount of time. Since the reorganization merger and the Playwell acquisition have taken a significant amount of time, Cornerstone has pursued these negotiations on its own as there can be no assurance that these acquisition opportunities will continue to be available.

      On May 25, 2004, Cornerstone acquired Hua Yang Holdings Co., Ltd., which is a holding company for Hua Yang Printing Holdings Co. Ltd., a company engaged in the business of printing hand-made books, specialty packaging and other paper products. Hua Yang Holdings Co., Ltd. was a subsidiary of Zindart Limited, a Nasdaq National Market listed company. On June 15, 2004, Cornerstone acquired New Adventures, LLC, a New Jersey limited liability company engaged in developing, marketing and selling girl’s and activity toys. On June 18, 2004, Cornerstone entered into a stock purchase agreement to purchase all of the outstanding equity security of Kord Holdings Inc., a limited liability company incorporated under the laws of the British Virgin Islands, engaged in the business of design and contract manufacturing of party favors for novelty product companies. The acquisition of Kord Holdings, Inc. is expected to close on or about July 30, 2004. In addition, at this time, Cornerstone has entered into letters of intent with one other company pursuant to which Cornerstone would acquire all of its stock or assets. This acquisition candidate is engaged in the business of distributing licensed toys. Cornerstone has also held preliminary discussions with various other potential acquisition candidates.

      It is Cornerstone’s intention to offer to contribute to Grand HK Hua Yang Holdings Co., Ltd., New Adventures, LLC and Kord Holdings, Inc. when its acquisition is completed, and other companies which are complementary to Grand HK that it successfully acquires, either before or after the consummation of the reorganization merger and the transactions contemplated by the subscription and exchange agreement. In fact, Grand US personnel have assisted and are assisting Cornerstone in pursuing these opportunities, including performing due diligence and financial analyses and assisting in negotiations. Cornerstone has advised Grand HK that the terms upon which it will contribute these businesses to Grand HK will first be negotiated on an arms-length basis between Cornerstone and the directors of Grand HK who are not affiliated with Cornerstone. If an agreement providing for the contribution of these businesses to Grand HK is reached, the consummation of such transaction will be conditioned on the affirmative vote of a majority of the shareholders of Grand HK who are not affiliated with Cornerstone at a general meeting of Grand HK shareholders convened for that purpose. This self-imposed requirement that any transfer of any of these businesses from Cornerstone to Grand HK must be approved by the independent directors, who will constitute a majority of the board, and the disinterested shareholders of Grand HK provides assurance that such a transfer will occur, if at all, only if the contribution is in the best interest of Grand HK and then only on terms that are fair to its shareholders.

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Selected Historical And Unaudited Pro Forma Summary Financial Information

Grand US Selected Historical Consolidated Financial Data

      The following selected historical consolidated financial data should be read in conjunction with Grand US’ consolidated financial statements and related notes thereto and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Grand US” which are included in this proxy statement/ prospectus.

      Income statement data for the years ended December 31, 2003, 2002 and 2001, as well as the balance sheet data as at December 31, 2003 and 2002 are derived from the audited consolidated financial statements of Grand US included in this proxy statement/ prospectus. Income statement data for the years ended December 31, 2000 and 1999, as well as the balance sheet data as at December 31, 2001, 2000 and 1999 are derived from the audited consolidated financial statements of Grand US, which are not included in this proxy statement/ prospectus.

      Income statement and balance sheet data for the periods ended March 31, 2004 and 2003 are derived from the unaudited consolidated financial statements included in this proxy statement/ prospectus.

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GRAND TOYS INTERNATIONAL, INC.

AND SUBSIDIARIES

SELECTED CONSOLIDATED FINANCIAL DATA

                                                           
Three Months Ended
March 31 Year Ended December 31,


2004 2003 2003 2002 2001 2000 1999







(In US$ and US GAAP)
Statement of Income Data:
                                                       
Net sales
  $ 2,813,698     $ 2,907,332     $ 10,861,452     $ 12,180,307     $ 8,062,866     $ 11,301,545     $ 35,470,534  
Cost of goods sold
    1,674,605       1,689,518       6,349,890       8,323,540       5,746,446       11,644,011       26,481,341  
Selling, general and administrative expenses and other
    897,549       861,566       3,877,192       4,857,058       4,954,489       6,031,227       8,633,821  
Unusual items
                            (2,033,225 )     3,625,055       814,669  
Interest expense (revenue), net
    5,316       5,843       35,393       9,743       (54,068 )     754,033       544,253  
Income tax expense (recovery)
          325       (15,800 )     14,106       389,364       (763,961 )     (294,084 )
     
     
     
     
     
     
     
 
Earnings (loss) from continuing operations
  $ 236,228     $ 350,080     $ 614,777     $ (1,024,140 )   $ (940,140 )   $ (9,988,820 )   $ (709,466 )
Gain (loss) on discontinued operations
          103,002       497,800       197,292       (431,352 )     (167,893 )      
     
     
     
     
     
     
     
 
Net earnings (loss)
  $ 236,228     $ 453,082     $ 1,112,577     $ (826,848 )   $ (1,371,492 )   $ (10,156,713 )   $ (709,466 )
 
Preferred stock dividends
                                  31,250       50,000  
     
     
     
     
     
     
     
 
Earnings (loss) attributable to common stockholders
  $ 236,228     $ 453,082     $ 1,112,577     $ (826,848 )   $ (1,371,492 )   $ (10,187,963 )   $ (759,466 )
Basic and diluted earnings per shares
                                                       
Net earnings (loss) per share of continuing operations:
                                                       
 
Basic
  $ 0.04     $ 0.13     $ 0.20     $ (0.50 )   $ (0.79 )   $ (12.49 )   $ (1.42 )
 
Diluted
    0.04       0.06       0.17       (0.50 )     (0.79 )     (12.49 )     (1.42 )
Net earnings (loss) per share:
                                                       
 
Basic
  $ 0.04     $ 0.16     $ 0.36     $ (0.40 )   $ (1.16 )   $ (12.70 )   $ (1.42 )
 
Diluted
    0.04       0.08       0.31       (0.40 )     (1.16 )     (12.70 )     (1.42 )
Weighted average number of common shares outstanding
                                                       
 
Basic
    5,355,244       2,762,698       3,036,151       2,064,465       1,183,992       801,946       533,145  
 
Diluted
    5,964,818       5,602,889       3,573,467       2,064,465       1,183,992       801,946       533,145  
Book value per share(1)
  $ 0.83     $ 1.14     $ 0.79     $ 0.94     $ 1.76     $ 2.41     $ 15.32  
Cash dividends declared per share
                                      $ 0.03  
Number of common shares Outstanding
    5,355,244       2,762,698       5,355,244       2,762,698       1,285,119       808,726       783,726  
                                                         
2004 2003 2003 2002 2001 2000 1999







Balance Sheet Data:
                                                       
Cash and cash equivalents
  $ 1,064,628     $ 433,784     $ 1,487,318     $ 540,896     $ 431,903     $ 211,515     $  
Total assets
    7,537,123       6,706,454       7,343,459       6,244,467       5,689,225       6,582,383       19,408,405  
Total debt
    100       100       100       100       100       2,000,100       2,777,878  
Long term debt
                                  1,500,000       1,777,778  
Convertible redeemable preferred stock
                                  500,000       1,000,000  
Capital stock
    5,355       2,763       5,355       2,763       1,285       3,235       3,135  
Shareholders’ equity
    4,435,949       3,165,500       4,236,148       2,594,689       2,256,503       1,946,508       12,003,783  
     
     
     
     
     
     
     
 


(1)  Book value per share is determined by using year-end outstanding shares.

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Playwell Selected Historical Consolidated Financial Data

      The following selected historical financial data should be read in conjunction with Playwell’s consolidated financial statements and related notes thereto and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Playwell” which are included elsewhere in this proxy statement/ prospectus.

      The Playwell information is presented in three tables to reflect the fact that Playwell’s primary financial statements are prepared on the basis of Hong Kong GAAP and reconciled to U.S. GAAP. The tables reflect Playwell’s financial statements first in HK dollars and U.S. GAAP, second in HK dollars and HK GAAP and then third, for your benefit, in U.S. dollars and U.S. GAAP. Playwell publishes its consolidated financial statements in Hong Kong dollars and has included a reconciliation to U.S. GAAP in note 29 of its 2003 audited consolidated financial statements. Certain translations of Hong Kong dollar amounts into U.S. dollars at specified rates have been done solely for your convenience. This does not mean that the assets and liabilities have been converted or could have been converted at those rates. Since the exchange rate for the latest practicable date is not materially different than the exchange rate on March 31, 2004, the date of Playwell’s latest financial statement, unless otherwise indicated, the translation of Hong Kong dollars into U.S. dollars, made for your convenience, is made at the rate of HK$7.793 to US$1.00, the exchange rate at March 31, 2004.

      Income statement and balance sheet data for the years ended December 31, 2003 and 2002 are derived from Playwell’s audited consolidated financial statements included in this proxy statement/ prospectus. Income statement and balance sheet data for the years 2001 and 2000 can be found in Note 30 of Playwell’s 2003 audited consolidated financial statements. These amounts are unaudited. Income statement and balance sheet data for the three months ended March 31, 2004 and 2003 are unaudited and are derived from the March 2004 consolidated financial statements included in this proxy statement/ prospectus.

      Playwell International Limited was incorporated on December 13, 2000 and commenced business in August 2001. One of Playwell’s consolidated subsidiaries, which was incorporated on May 12, 2000, is included since the date of its incorporation. As such, historical consolidated financial data is only available for 2003, 2002, 2001 and the 7.5 month period ending December 31, 2000.

Exchange Rate Information

      The Basic Law of Hong Kong provides that no foreign exchange control policies will be applied in Hong Kong and that the Hong Kong dollar will be freely convertible. Since October 17, 1983, the Hong Kong dollar has been linked to the U.S. dollar at the rate of HK$7.80 to US$1.00. The market exchange rate of the Hong Kong dollar against the U.S. dollar continues to be determined by the forces of supply and demand in the foreign exchange market. However, as a result of the fixed rate that applies to the issue of Hong Kong currency in the form of banknotes, the market exchange rate has not deviated significantly from the level of HK$7.80 to US$1.00. The exchange rates set forth below between the Hong Kong dollar and the U.S. dollar (in HK$ per US$) are based on the noon buying rate in New York City for cable transfers in Hong Kong dollars as certified for customs purposes by the Federal Reserve Bank of New York. On March 31, 2004, the exchange rate was HK$7.793 per US$1.00.

      The following table sets out the exchange rate as of each of the days indicated:

         
Exchange
Rates

December 31, 2000
    7.7999  
2001
    7.7980  
2002
    7.7988  
2003
    7.7640  
March 31, 2004
    7.7930  
June 30, 2004
    7.8000  

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      The following table sets forth the high and low exchange rates and average calculated by using the average of the exchange rates on the last day of each month for each of the periods indicated:

                         
Year Ended December 31, High Low Average Exchange Rate




(HK$ per US$1.00)
(HK$ per US$1.00)
2000
    7.8008       7.7767       7.7924  
2001
    7.8004       7.7970       7.7997  
2002
    7.8095       7.7970       7.7997  
2003
    7.8001       7.7085       7.7875  
                         
Period Ended March 31,

2004
    7.7980       7.7632       7.7850  

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PLAYWELL INTERNATIONAL LTD.

AND SUBSIDIARIES

SELECTED CONSOLIDATED FINANCIAL DATA

                                   
Three Months Ended March 31, Year Ended December 31,


2004 2003 2003 2002




(In HK$ and US GAAP)
Statement of Income Data:
                               
 
Net Sales
  $ 51,674,419     $ 38,670,364     $ 306,636,225     $ 280,722,621  
 
Cost of sales
    39,097,480       29,452,923       258,351,513       217,688,969  
     
     
     
     
 
 
Gross profit
    12,576,939       9,217,441       48,284,712       63,033,652  
 
Other costs and expenses including selling general and administrative expenses
    4,641,460       5,476,155       20,752,231       40,823,862  
 
Income tax expense
    1,376,363       837,417       3,997,634       858,446  
     
     
     
     
 
 
Earnings from continuing operations
    6,559,116       2,903,869       23,534,847       21,351,344  
 
Discontinued operations
          8,775,661       9,650,549       172,592,162  
     
     
     
     
 
 
Net profit
  $ 6,559,116     $ 11,679,530     $ 33,185,396     $ 193,943,506  
     
     
     
     
 
 
Weighted average number of common shares outstanding:
    101       101       101       101  
Basic and diluted earnings per share:
                               
 
from continuing operations
  $ 64,942     $ 28,751     $ 233,018     $ 211,399  
 
from discontinued operations
          86,888       95,550       1,708,833  
     
     
     
     
 
 
Basic and diluted earning per share, net
  $ 64,942     $ 115,639     $ 328,568     $ 1,920,232  
                                   
2004 2003 2003 2002




Balance Sheet Data:
                               
 
Bank balance and cash
  $ 18,547,608     $ 27,421,013     $ 14,920,159     $ 31,846,973  
 
Bank overdraft
          4,704             889,147  
 
Total assets
    101,831,127       273,923,629       91,521,525       778,997,923  
 
Total debt
    2,368,725             1,471,452       41,771,748  
 
Share capital
    101       101       101       101  
 
Number of common shares outstanding
    101       101       101       101  
 
Total shareholder’s equity
    52,039,364       72,968,479       45,480,352       190,176,652  

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PLAYWELL INTERNATIONAL LTD.

AND SUBSIDIARIES

SELECTED CONSOLIDATED FINANCIAL DATA

                                                   
Three Months Ended
March 31 Year Ended December 31,


2004 2003 2003 2002 2001 2000(1)






(In HK$ and HK GAAP)
Statement of Income Data:
                                               
 
Net Sales
  $ 51,674,419     $ 38,670,364     $ 306,636,225     $ 280,722,621     $ 302,469,749     $ 110,781,823  
 
Cost of sales
    39,097,480       29,452,923       258,351,513       217,688,969       268,923,773       94,334,261  
     
     
     
     
     
     
 
 
Gross profit
    12,576,939       9,217,441       48,284,712       63,033,652       33,545,976       16,447,562  
 
Other costs and expense including selling general and administrative expenses
    4,531,207       5,365,902       20,311,227       40,510,183       36,606,276       15,363,583  
 
Income tax expense
    1,387,059       848,113       4,022,082       897,564       171,977        
     
     
     
     
     
     
 
 
Net profit (loss)
  $ 6,658,673     $ 3,003,426     $ 23,951,403     $ 21,625,905     $ (3,232,277 )   $ 1,083,979  
     
     
     
     
     
     
 
Weighted average number of common Shares outstanding:
    101       101       101       101       41       2  
 
Basic and diluted earnings (loss) per share
  $ 65,927     $ 29,737     $ 237,143     $ 214,118     $ (78,836 )   $ 541,990  
                                                   
2004 2003 2003 2002 2001 2000






Balance Sheet Data:
                                               
 
Bank balances and cash
  $ 18,547,608     $ 27,421,013     $ 14,920,159     $ 31,846,973     $ 16,379,011     $ 1,829,530  
 
Bank overdraft
          4,704             889,147       4,632,972       26,354  
 
Total assets
    97,174,742       101,815,840       84,613,409       268,753,435       237,995,159       45,380,359  
 
Total debt
    2,422,555             1,300,311       1,488,117       41,606,949       1,702,392  
 
Share capital
    101       101       101       101       101       2  
 
Number of common shares outstanding
    101       101       101       101       101       2  
 
Total shareholder’s equity
    50,087,784       421,157       43,429,111       (2,582,269 )     (24,208,174 )     1,083,981  


(1)  One of Playwell’s consolidated subsidiaries which was incorporated on May 12, 2000 is included since the date of incorporation in the consolidated financial statements for the period ending December 31, 2000. As of December 31, 2000, Playwell had two shares issued and outstanding. For the purpose of calculation of basic and diluted earnings per share, two shares were deemed to be outstanding for the whole period.

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PLAYWELL INTERNATIONAL LTD.

AND SUBSIDIARIES

SELECTED CONSOLIDATED FINANCIAL DATA

                   
3 months ended Year Ended,
March 31, December 31
2004 2003


(In US$ and US GAAP)
Statement of Income Data:
               
 
Net Sales
  $ 6,630,876     $ 39,347,648  
 
Cost of sales
    5,016,999       33,151,740  
     
     
 
 
Gross profit
    1,613,877       6,195,908  
 
Other costs and expenses including selling general and administrative expenses
    595,593       2,662,932  
 
Income tax expense
    176,616       512,978  
     
     
 
 
Earnings from continuing operations
  $ 841,668     $ 3,019,998  
 
Discontinued operations
          1,238,361  
     
     
 
 
Net profit
  $ 841,668     $ 4,258,359  
     
     
 
Weighted average number of common shares outstanding
    101       101  
Basic and diluted earnings per share:
               
 
from continuing operations
  $ 8,333     $ 29,901  
 
from discontinued operations
          12,261  
     
     
 
 
Basic and diluted earning per share, net
  $ 8,333     $ 42,162  
     
     
 
                   
March 31, 2004 December 31, 2003


Balance Sheet Data:
               
 
Bank balance and cash
  $ 2,380,034     $ 1,914,559  
 
Bank overdraft
           
 
Total assets
    13,066,999       11,744,069  
 
Total debt
    303,955       188,817  
 
Share capital
    13       13  
 
Number of common shares outstanding
    101       101  
 
Total shareholder’s equity
    6,677,719       5,836,051  

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Unaudited Pro Forma Consolidated Financial Data of Grand Toys International Limited

      The following unaudited pro forma consolidated financial data gives effect to the proposed business combination of Playwell and Grand US. The acquisition is being accounted for under the purchase method of accounting, as required by Statement of Financial Accounting Standards No. 141 “Business Combinations.” Under this method of accounting, the purchase price has been allocated to the fair value of the net assets acquired, including goodwill and intangible assets.

      The unaudited pro forma consolidated financial data is based on the historical consolidated financial statements of Playwell and Grand US for the year ended December 31, 2003, and the three months ended March 31, 2004, which are included in this proxy statement/ prospectus.

      The unaudited pro forma consolidated balance sheet assumes the acquisition was consummated on March 31, 2004 and combines the unaudited March 31, 2004 consolidated balance sheets of Playwell and Grand US. The 2003 unaudited pro forma consolidated income statement combines the year ended December 31, 2003 audited consolidated statement of operations for Grand US with the year ended December 31, 2003 audited consolidated income statement for Playwell and assumes the acquisition took place on January 1, 2003. The first quarter 2004 unaudited pro forma consolidated income statement combines the quarter ended March 31, 2004 unaudited consolidated statement of operations for Grand US with the quarter ended March 31, 2004 unaudited consolidated income statement for Playwell and assumes the acquisition took place on January 1, 2003.

      The unaudited pro forma consolidated financial data is not necessarily indicative of the actual operating results that would have occurred or the future operating results that will occur as a consequence of such transactions. The Pro Forma consolidated financial statements are presented based on Grand US’ financial statement presentation. Grand HK will be reporting in US$ and US GAAP in its financial statements, after consummation of the reorganization merger and acquisition of Playwell.

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UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

March 31, 2004
                                           
Pro Forma Adjust- Pro Forma
Playwell(1) Grand US Adjustment ment # Combined





(in US dollars and US GAAP)
(In thousands, except share and per share data)
Current assets
                                       
 
Cash and cash equivalents
  $ 2,380     $ 1,065     $ 8,700       1     $ 12,145  
 
Short-term deposits
          500                     500  
 
Accounts receivable — trade, net
    6,588       1,985                       8,573  
 
Inventories
    338       1,726                       2,064  
 
Subscription receivable
                2,300       1       2,300  
 
Due from Playwell
          1,053       (1,053 )     2        
 
Other current assets
    591       624                       1,215  
 
Related party receivable
    993                             993  
     
     
     
             
 
 
Total current assets
    10,890       6,953       9,947               27,790  
Equipment & leaseholds improvements, net
    1,451       211                       1,662  
Intangible assets
                5,200       4       5,200  
Goodwill
                    10,729       4       10,729  
Trademarks
    726                             726  
Long-term receivable
          373                       373  
     
     
     
             
 
Total assets
  $ 13,067     $ 7,537     $ 25,876             $ 46,480  
     
     
     
             
 
Current liabilities
                                       
 
Bank indebtedness
  $     $ 1,800                     $ 1,800  
 
Trade accounts payable
    3,974       979       1,418       2       6,371  
 
Income tax payable
    413                           413  
 
Related party payable
    516             1,029       3       1,545  
 
Other current liabilities
    1,306       322                       1,628  
     
     
     
             
 
Total current liabilities
    6,209       3,101       2,447               11,757  
Deferred taxation
    180                             180  
     
     
     
             
 
Total liabilities
    6,389       3,101       2,447               11,937  
Shareholders’ equity:
                                       
 
Common stock
          5       10               15  
 
Additional paid-in capital
          22,751       5,099       1, 5       27,850  
 
Accumulated earnings (deficit)
    6,645       (17,732 )     17,732       5       6,645  
 
Cumulative currency translation adjustment
    33       (588 )     588       5       33  
     
     
     
             
 
Total shareholders’ equity
    6,678       4,436       23,429               34,543  
     
     
     
             
 
Total liabilities and shareholders’ equity
  $ 13,067     $ 7,537     $ 25,876             $ 46,480  
     
     
     
             
 
Book value per share
  $ 66,116     $ 0.83                     $ 2.25  
Common shares outstanding
    101       5,355,244       10,000,000               15,355,244  


(1)  The Playwell HK balance sheet was translated into US$ in accordance with SFAS 52 using a spot rate of HK$7.793 to US$1.00, which represents the rate at March 31, 2004.

See accompanying notes to pro forma financial information

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UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT

December 31, 2003 and March 31, 2004
                                                                                   
Year Ended December 31, 2003 Three Months Ended March 31, 2004


Pro Forma Adj Pro Forma Pro Forma Adj Pro Forma
Playwell(1) Grand US Adjustment # Combined Playwell(1) Grand US Adjustment # Combined










(In US$ and US GAAP)
(In thousands, except share and per share data)
Net sales
  $ 39,375     $ 10,861                     $ 50,236     $ 6,638     $ 2,814                     $ 9,452  
Cost of goods sold
    33,175       6,350                       39,525       5,022       1,675                       6,697  
     
     
     
             
     
     
     
             
 
Gross profit
    6,200       4,511                       10,711       1,616       1,139                       2,755  
Selling, general and administrative expenses
    2,641       3,877       600       6       7,118       578       898       150       6       1,626  
     
     
     
             
     
     
     
             
 
Income before interest and income taxes
    3,559       634       (600 )             3,593       1,038       241       (150 )             1,129  
Interest expense
    24       35                       59       19       5                       24  
Income taxes expense (recovery)
    513       (16 )                     497       177                             177  
     
     
     
             
     
     
     
             
 
Income from continuing operations
  $ 3,022     $ 615     $ (600 )           $ 3,037     $ 842     $ 236     $ (150 )           $ 928  
     
     
     
             
     
     
     
             
 
Earnings per share:
                                                                               
 
Basic
                            7     $ 0.20                               7     $ 0.06  
 
Diluted
                            7       0.19                               7       0.06  
Weighted average number of shares:
                                                                               
 
Basic
                            7       15,355,244                               7       15,355,244  
 
Diluted
                            7       16,387,102                               7       16,387,102  


(1)  Playwell’s HK$ income statements were translated into US$ in accordance with SFAS 52 using an average rate for December 31, 2003, the rate used was HK$7.7875 to US$1.00 and for March 31, 2004, the rate used was HK$7.785 to US$1.00.

See accompanying notes to pro forma financial information

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NOTES TO PRO FORMA FINANCIAL STATEMENTS

1.     Accounting Treatment For Business Combination

      The pro forma financial information presents the business combination of Grand HK with Playwell. The terms of the transaction provide that Grand HK will acquire Playwell in exchange for 5,000,000 Grand HK ADSs to be issued to Centralink, Playwell’s shareholder. In addition to the acquisition of the Playwell shares, Centralink has also agreed to subscribe for 5,000,000 Grand HK ADSs for an aggregate of $11,000,000 in cash and other consideration. As a result, Centralink will own, after completion of the transaction, approximately 65% of the total shares outstanding of Grand HK.

      Centralink has the right to satisfy a portion of the subscription price by assigning to Grand HK up to $2,300,000 of certain loans that it advanced to a third party. However, if the loans are not repaid by December 31, 2004, Centralink has agreed to make a cash contribution or provide other equivalent consideration to Grand HK in an amount equal to the unpaid balance of the loans. For purposes of the preparation of the pro forma financial statements, the loans which may be assigned to Grand HK are characterized as a subscription receivable.

      The purchase method of accounting will be used to account for the business combination. Due to the terms of the acquisition, from an accounting viewpoint, Playwell is deemed to be the acquirer and Grand US will be the subject of the reverse takeover by Playwell, the accounting acquirer.

      Application of purchase accounting results in the following:

        i. The identifiable tangible and intangible assets acquired and liabilities assumed from Grand US will be based on their fair values on the date of acquisition;
 
        ii. The excess of the acquisition cost over the identifiable assets acquired and liabilities assumed from Grand US will be reflected as goodwill; and
 
        iii. The results of operations of Grand US, as the acquired entity, for accounting purposes, will be included in the consolidated financial statements of Playwell as the acquirer, for accounting purposes, from the date of acquisition only.

 
2. Pro Forma Assumptions And Adjustments

      The pro forma consolidated balance sheet gives effect to the acquisition as if such acquisition had taken place as at March 31, 2004. The pro forma consolidated statement of income for the year ended December 31, 2003 gives effect to the acquisition as if such acquisition had taken place as at January 1, 2003. The pro forma consolidated statement of income for the three months ended March 31, 2004 gives effect to the acquisition as if such acquisition had taken place on January 1, 2003.

      The accounting policies used in the preparation of the pro forma consolidated financial statements are those disclosed in the Grand US consolidated financial statements for the year ended December 31, 2003 and for the three months ended March 31, 2004 which are included elsewhere in this proxy statement/ prospectus.

      The financial information for both Playwell and Grand US are presented in US dollars and in accordance with US GAAP. Playwell’s balance sheet, as of March 31, 2004 has been converted at the exchange rate in effect at March 31, 2004, and the income statements have been converted at the average exchange rates for each period presented.

      The consideration of $11,000,000 is assumed to be comprised of $8,700,000 cash and a $2,300,000 subscription receivable.

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NOTES TO PRO FORMA FINANCIAL STATEMENTS — (Continued)

      The pro forma consolidated financial statements give effect to the following assumptions and adjustments:

 
Consolidated Balance Sheet

      The cost of the acquisition was determined as follows:

         
Grand US shares outstanding at average market price at April 2004(1)
  $ 15,852  
Acquisition costs
    3,500  
Grand US options and warrants
    1,013  
     
 
Total Cost of Acquisition
  $ 20,365  
     
 

      The following table shows the results of the assumptions made with respect to the allocation of the aggregate purchase price to Grand US’ net assets.

      Purchase price allocation:

         
Current assets
  $ 6,953  
Equipment and leasehold improvements, net
    211  
Other long-term assets
    373  
Goodwill and other intangibles
    15,929  
     
 
Current liabilities
    3,101  
     
 
Purchase price
  $ 20,365  
     
 


(1)  Average market price is the average of the two days prior and two days after the original filing date of this proxy statement/prospectus, which was April 6, 2004.

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NOTES TO PRO FORMA FINANCIAL STATEMENTS — (Continued)

      Following are the details of the balance sheet adjustments; these amounts are the net result of entries that would reflect the acquisition, transaction and elimination upon consolidation.

      Grand US’ pre-acquisition accumulated deficit and cumulative currency translation adjustment are eliminated upon consolidation.

     Consolidated Balance Sheet

             
Adjustment
No. Financial Statement line Amount



(In thousands)
1.
  Cash and cash equivalents/subscription receivable        
    For the subscription of 5 million shares:        
    Cash consideration paid by Playwell   $ 8,700  
    Subscription receivable contributed by Playwell     2,300  
2.
  Due from Playwell        
    Reclassification of capitalized transaction costs incurred by Grand US to date   $ 1,053  
    Accrual of Acquisition costs estimated to be incurred until completion of the transaction     1,418  
3.
  Related Party Reclassification        
      To record reimbursement of transaction costs paid by Playwell to date   $ 1,029  
4.
  Goodwill and Intangible Assets        
      To record the goodwill based on the allocation of the cost of Acquisition (see previous purchase price allocation)   $ 10,729  
      To record intangible assets acquired (refer to Adjustment #6)     5,200  
5.
  Stockholder’s Equity        
    Capital Stock and Additional Paid In Capital resulting from the transaction:        
      Grand US capital stock valued upon acquisition   $ 15,852  
      Grand US options and warrants valued upon acquisition     1,404  
      Capital stock issued for cash and subscription receivable     11,000  
         
 
        $ 28,256  
         
 
    Presented as:        
    Capital stock at nominal value   $ 15  
    Additional paid in capital     28,241  
         
 
        $ 28,256  
         
 
 
Consolidated Income Statement
 
6. Amortization of Intangible Assets

      The preliminary allocation of the purchase price resulted in identifiable intangibles assets of $5,200,000. The components of the identifiable assets, with amounts assigned and useful life are:

                 
Amount Assigned Useful Life


Customer list
  $ 2,000,000       10 years  
Trade name
  $ 2,000,000       10 years  
Distribution network
  $ 1,000,000       10 years  
License/royalty agreements
  $ 200,000       2 years  

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NOTES TO PRO FORMA FINANCIAL STATEMENTS — (Continued)

      The identifiable intangibles were primarily customer list, trade name and license/royalty agreements, which support Grand US’ distribution network.

      The resulting amortization expense included in the pro forma consolidated income statements:

         
Year/period Amortization expense


For the year ended December 31, 2003
  $ 600,000  
For the period ended March 31, 2004
  $ 150,000  

      The purchase price allocations above could change depending on the results of the independent valuation currently underway by Empire Valuations.

 
7.  Earnings per Share:
                 
Basic Diluted


Weighted average shares:
               
Historical weighted-average shares outstanding — Playwell
    101       101  
Conversion factor
    99,010       99,010  
     
     
 
Adjusted weighted-average shares outstanding — Playwell
    10,000,000       10,000,000  
Shares issued to Grand US shareholders(1)
    5,355,244       6,387,102  
     
     
 
Pro Forma weighted-average shares
    15,355,244       16,387,102  
Earnings per share:
               
December 31, 2003
               
Pro forma earnings from continuing operations
  $ 3,037,000     $ 3,037,000  
Pro forma earnings per share
  $ 0.20     $ 0.19  
March 31, 2004
               
Pro forma earnings from continuing operations
  $ 928,000     $ 928,000  
Pro forma earnings per share
  $ 0.06     $ 0.06  

 

  (1)  Reconciliation of shares issued to Grand US shareholders:

                   
Outstanding shares, basic
            5,355,244  
Convertible securities:
               
 
Options
    394,715          
 
Warrants
    637,143       1,031,858  
     
     
 
Outstanding shares, Diluted
            6,387,102  
Anti-dilutive securities excluded from total diluted shares:
               
 
Options
    16,500          

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NOTES TO PRO FORMA FINANCIAL STATEMENTS — (Continued)

MARKET PRICE AND DIVIDEND INFORMATION

      Grand US common stock is quoted on the Nasdaq SmallCap Market under the symbol “GRIN.” For current share price information, you should consult publicly available sources for market quotations. On November 14, 2003, the last trading day before the public announcement of the signing of the subscription and exchange agreement, the last quoted sale price of Grand US’ common stock on the Nasdaq SmallCap Market was $3.59. On July 26, 2004 the last day for which information was available prior to the date of this proxy statement/ prospectus, the last quoted sale price of Grand US shares on the Nasdaq SmallCap Market was $2.30.

      The following tables set forth the range of high and low closing representative bid prices for the Grand US’ common stock as reported by Nasdaq for the periods indicated. The figures represent prices between dealers, do not include retail mark-ups, markdowns or commissions and may not represent actual transactions.

                 
Representative Bid
Prices

Common Stock Annual High ($) Low ($)



1999
    30.25       2.50  
2000
    27.50       .63  
2001
    4.31       .75  
2002
    4.78       1.00  
2003
    3.78       1.33  
                 
Representative Bid
Prices

Common Stock Two Year historical and recent Quarter High ($) Low ($)



2002
               
First Quarter
    2.63       1.60  
Second Quarter
    3.50       1.50  
Third Quarter
    1.19       1.00  
Fourth Quarter
    4.78       1.00  
2003
               
First Quarter
    2.00       1.33  
Second Quarter
    3.78       2.70  
Third Quarter
    3.25       2.52  
Fourth Quarter
    3.35       2.81  
2004
               
First Quarter
    3.85       2.77  
Second Quarter
    3.20       2.53  
Third Quarter (through July 23, 2004)
  $ 2.85     $ 1.96  
                 
Representative Bid
Prices

Common Stock Monthly High ($) Low ($)



December 2003
    3.25       2.76  
January 2004
    3.71       2.90  
February 2004
    3.70       3.02  
March 2004
    3.85       2.77  
April 2004
    3.20       2.76  
May 2004
    3.03       2.53  
June 2004
    3.17       2.70  
July 2004 (through July 23, 2004)
  $ 2.85     $ 1.96  

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      Grand US has never paid a cash dividend on its common stock. Future dividends declared and paid by Grand HK, if any, will be determined by Grand HK’s board of directors in light of circumstances existing from time to time, including growth prospects, profitability, financial condition, results of operations and other factors that Grand HK’s board of directors deems relevant.

      Because there is no established trading market for Playwell’s ordinary shares, information with respect to the market price of Playwell’s shares on a historical and an equivalent per share basis has been omitted.

COMPARATIVE PER SHARE INFORMATION

      The following tables show per share data regarding earnings and book value for Grand US and Playwell on a historical basis and the pro forma book value and earnings information, which was computed as if the transaction took place on January 1, 2003. These amounts do not necessarily reflect future per share levels of earnings, book value or cash dividends of Grand HK. Pro forma equivalent per share information is also provided.

      The following unaudited comparative per share data is derived from the historical consolidated financial statements of Grand US and Playwell. You should read the information below in conjunction with the historical consolidated financial statements of Grand US and Playwell for the year ended December 31, 2003 and for the quarter ended March 31, 2004 which are included in this proxy statement/ prospectus.

                   
March 31, December 31,
2004 2003


GRAND US:
               
Book value per share
  $ 0.83     $ 0.79  
Cash dividends declared per share
           
Earnings per share from continuing operations:
               
 
Basic
  $ 0.04     $ 0.20  
 
Diluted
    0.04       0.17  
PRO FORMA:
               
Book value per share(1)
  $ 2.25        
Cash dividends declared per share
           
Earnings per share from continuing operations(2):
               
 
Basic
  $ 0.06     $ 0.20  
 
Diluted
    0.06       0.19  
PLAYWELL:
               
Book value per share
  $ 66,116     $ 57,783  
Cash dividends declared per share
           
Earnings per share from continuing operations:
               
 
Basic and diluted
  $ 8,333     $ 29,901  
PRO FORMA EQUIVALENT PER SHARE INFORMATION(3):
               
Book value per share(1)
  $ 222,773     $  
Cash dividends per share
           
Earnings per share from continuing operations(2):
               
 
Basic
  $ 6,145     $ 20,227  
 
Diluted
    5,758       18,955  


(1)  Pro forma book value per share is not presented for December 31, 2003 because a pro forma balance sheet at December 31, 2003 is not required.
 
(2)  Refer to Note 2, adjustment 7 for the details of the calculation of pro forma earnings per share.
 
(3)  Pro forma equivalent per share information was calculated by multiplying the pro forma per share information by the conversion factor in Note 2, adjustment 7.

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RISK FACTORS

      You should consider the following risk factors in evaluating whether to approve and adopt the amended and restated agreement and plan of merger and the issuance of 10,000,000 Grand HK ADSs to Centralink pursuant to the subscription and exchange agreement. These factors should be considered in conjunction with the other information contained in this proxy statement/ prospectus and the Annexes hereto. If any of the following risks actually occur, the business, financial condition or results of operations of any or all of Grand HK, Grand US and Playwell may be seriously harmed.

Risks Related to the Reorganization Merger

      In deciding whether to vote in favor of the amended and restated agreement and plan of merger, Grand US stockholders should consider the following risks.

 
Pending U.S. tax legislation could adversely affect both Grand HK and the current U.S. shareholders of Grand US

      Congress is considering legislation under which, for U.S. federal income tax purposes, a domestic corporation that reincorporates in a foreign jurisdiction, in what is sometimes referred to as a corporate “expatriation” or corporate “inversion” transaction, generally would continue to be treated as a domestic corporation and, thus, would be subject to U.S. federal income tax, unless the applicable transaction satisfied certain requirements. Depending on the provisions and effective date of any legislation ultimately enacted, the anticipated tax-free treatment of the reorganization merger might not be realized and/or Grand HK might be subjected to U.S. taxation on the income of Playwell and its subsidiaries, which are not currently subject to such tax, thus reducing Grand HK’s anticipated after-tax net profits.

      While the reorganization merger, unlike those about which some members of Congress are concerned, would not remove from the U.S. tax jurisdiction any entities or income currently subject to such jurisdiction, it is possible that an overbroad form of the proposed legislation might be enacted which could have adverse effects on the reorganization merger, such as those described above. There can be no assurance that such tax legislation adopted after the completion of the reorganization merger would not be made applicable retroactively to the reorganization merger. Once the reorganization merger is completed, it will be difficult if not impossible to return to the current structure even if the anticipated tax advantages of the reorganization merger are not realized.

 
If you are a U.S. shareholder, you could be taxed as a result of the reorganization merger if the IRS successfully challenges the tax-free treatment of the reorganization merger

      Apart from any changes in U.S. tax laws like those described above, the IRS or other taxing authority could disagree with Grand HK’s assessment of the effects or interpretation of existing laws and regulations, or with certain factual determinations upon which the contemplated tax treatment of the reorganization merger depends. If the IRS were to challenge successfully the tax treatment of the reorganization merger, this could result in U.S. shareholders of Grand US being taxed on their receipt of Grand HK ADSs in exchange for their Grand US common stock pursuant to the reorganization merger. The tax would be imposed on the excess, if any, of the trading price of the Grand HK ADSs received by U.S. shareholder in exchange for Grand US common stock in the reorganization merger over the shareholder’s adjusted tax basis in the shares of Grand US common stock exchanged therefor. Generally, any such gain would be capital gain.

 
In the event the reorganization merger is approved and consummated, you will receive ADSs of Grand HK, which is a “foreign private issuer” and has disclosure obligations that are less stringent than those of Grand US and other U.S. domestic reporting companies

      Grand HK is a foreign private issuer and, as a result, obtains relief from certain of the requirements the SEC imposes upon U.S. domestic issuers like Grand US. For example, Grand HK is not required to issue quarterly reports or proxy statements. Grand HK is allowed six months to issue annual reports instead of three, and Grand HK is not required to disclose executive compensation reports that are as detailed as U.S. domestic issuers. Grand HK’s directors and officers are not required to report equity holdings under Section 16 of the Securities Exchange

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Act, although Grand HK will file reports under Section 13 of the Securities Exchange Act of 1934, if and when applicable. In general, because various of the disclosure obligations on Grand HK as a foreign private issuer are less stringent than those required of Grand US, in the event the reorganization merger is approved and consummated, Grand US stockholders who receive Grand HK ADSs should not expect to receive an equivalent amount of disclosure from Grand HK which they have received in the past from Grand US as a U.S. domestic reporting company.
 
In the event that the reorganization merger is approved and consummated, your rights as a beneficial owner of Grand HK’s ordinary shares will be governed by Hong Kong law instead of Nevada law, and some of the provisions of Hong Kong law are less favorable to you than Nevada law

      Grand HK will be organized under the laws of Hong Kong and your rights as a shareholder of a Hong Kong company will be different from your rights under Nevada law under which Grand US is organized. Some of these differences may be less favorable to you, including:

  •  if not less than 90% of the Grand HK ordinary shares in respect of which an offer is made are acquired by a company, that company has the right to demand that you sell your interest in Grand HK to such company even if you do not wish to accept the offer.
 
  •  Unlike Nevada law, Hong Kong law does not permit cumulative voting. Cumulative voting may allow minority shareholders of a company such as Grand HK to achieve board representation.
 
  •  Under Nevada law, shareholders holding a majority of the outstanding stock of Grand US can take action by written consent without a meeting. Under Hong Kong law, action can be taken without a meeting only if consented to by all of the shareholders of Grand HK, thereby making action by written consent virtually impossible because of the large number of Grand HK shareholders.
 
  •  Under Nevada law, the articles of incorporation of Grand US can be amended if approved by a majority of the board and a majority of the voting power of Grand US. Under HK law, the memorandum and articles of association of Grand HK may be amended if approved by not less than 75% of its shareholders. This will make it more difficult for shareholders to effect a change in Grand HK’s governing documents.
 
  •  Nevada law generally does not prohibit transactions with directors. Hong Kong law prohibits loans to directors, but does not prohibit all transactions with directors if the other directors are made aware of the director’s interest and exercise their duty of care and discharge their fiduciary obligations in determining to approve the transaction.
 
  •  Under Nevada law, a shareholder may bring a derivative action on behalf of a corporation. Hong Kong law does not recognize derivative suits in the same manner as United States courts.
 
  •  Under Nevada law, transactions between Grand HK and interested shareholders are prohibited for three years unless the transaction is approved by the board prior to the interested shareholder becoming an interested shareholder. This makes an unsolicited hostile takeover of a company such as Grand US more difficult. Hong Kong law does not have any similar prohibitions on transactions with interested shareholders.

Risks Related to the Issuance of 10,000,000 Grand HK ADSs to Centralink

      In deciding whether to approve the issuance of the Grand HK ADSs to Centralink in exchange for the shares of Playwell and other consideration pursuant to the subscription and exchange agreement, Grand US shareholders should consider the following risks relating to the issuance of shares to Centralink.

 
Grand HK will be controlled by a single investor and this control could inhibit potential changes of control which could benefit shareholders

      After the consummation of the reincorporation merger, the acquisition of Playwell, the additional subscription of Grand HK ADSs by Centralink and Centralink’s purchase of certain shares held by two former directors of Grand US, Centralink will own 71.14% of the outstanding Grand HK ADSs. The ultimate beneficial

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owner of Centralink is Mr. Jeff Hsieh. Accordingly, Mr. Hsieh will have the ability to control the outcome of all matters requiring shareholder approval, including, after the expiration of the shareholders’ agreement, the election and removal of Grand HK’s entire board of directors, any merger, consolidation or sale of all or substantially all of Grand HK’s assets, and the ability to control Grand HK’s management and affairs. This concentrated control could discourage others from initiating any potential merger, takeover or other change of control transaction that may otherwise be beneficial to Grand HK’s businesses. As a result, the market price of Grand HK’s ADSs could be adversely affected.
 
The issuance of Grand HK ADSs to Centralink will have a dilutive effect on the current holders of Grand US common stock

      After the consummation of the Playwell acquisition and the additional Centralink subscription, there will be 10,000,000 additional Grand HK ADSs outstanding, above the 5,355,244 Grand HK ADSs to be issued to the former owners of Grand US common stock. The Centralink issuance and the related purchase by Centralink of certain shares held by two former directors of Grand US will, therefore, decrease the percentage equity ownership in Grand HK held by former owners of Grand US common stock from 100% to approximately 28.86%, thereby diluting the absolute ownership percentage of the Grand US shareholders on a fully diluted basis.

 
The issuance of 5,000,000 Grand HK ADSs to Centralink pursuant to the subscription and exchange agreement may be below the market price for Grand HK ADSs which may negatively impact the market price of Grand HK ADSs

      Under the terms of the subscription and exchange agreement, Centralink is subscribing for two tranches of Grand HK ADSs, one for 3,000,000 Grand HK ADSs at a price of $1.00 per Grand HK ADS and one for 2,000,000 Grand HK ADSs at a price of $4.00 per Grand HK ADS. The $1.00 subscription price was agreed upon in January, 2003 at a time when Grand US’ market price was $1.00 per share and the $4.00 subscription price was orally agreed upon in January, 2004 at a time when Grand US’ market price was $3.00 per share. Grand US believes that the terms of the Centralink subscription were and are fair to the shareholders of Grand US. However, the average price for the Grand HK ADSs to be purchased by Centralink is $2.20 per Grand HK ADS compared to a closing price of Grand US common stock on March 31, 2004 of $3.07 per share. Accordingly, if the market price of Grand US common stock remains above $2.20 per share at the closing of the consummation of the Playwell acquisition and the additional Centralink Grand HK ADS issuance, the issuance of the Grand HK ADSs to Centralink will be below the market price of the Grand HK ADSs. This may negatively impact the market price of Grand HK ADSs.

 
If the expected benefits of the reorganization merger and Playwell acquisition are not realized, the market price of the Grand HK ADSs may be adversely affected

      Grand HK will operate the combined operations of Grand US and Playwell in a market environment that cannot be predicted and that involves significant risks, many of which will be beyond its control. The failure of Grand HK to realize any of the anticipated benefits of the reorganization merger and acquisition, including anticipated cost savings described in this proxy statement/ prospectus, could seriously harm the results of operations of Grand HK, thereby reducing earnings and potentially affecting the market price of the Grand HK ADSs. The challenges involved include the following:

  •  demonstrating to the customers of Grand US and Playwell that the reorganization merger and Playwell acquisition will not result in adverse changes in customer service standards or business focus;
 
  •  preserving distribution, marketing or other important relationships of both Grand US and Playwell and resolving potential conflicts that may arise;
 
  •  minimizing the diversion of management attention from ongoing business concerns;
 
  •  persuading employees that the business culture of Grand US and Playwell are compatible, maintaining employee morale and retaining key employees;

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  •  realizing economies of scale through the elimination of certain redundant administrative and overhead costs; and
 
  •  realizing cost savings and strategic benefits due to vertical integration resulting from the combination of Grand US distribution capabilities and Playwell’s manufacturing capabilities.

 
If the benefits of the reorganization merger and Playwell acquisition do not exceed the related costs, Grand HK’s financial results could be negatively impacted

      If the benefits of the reorganization merger and Playwell acquisition do not exceed the costs associated with the reorganization merger and acquisition, including transaction costs and the dilution to Grand HK’s shareholders resulting from the issuance of Grand HK ADSs to Centralink, Grand HK’s financial results, including earnings per share, could be decreased. Grand HK estimates that it will incur, on a consolidated basis, direct transaction costs of approximately $2,500,000 in connection with the proposed reorganization merger and Playwell acquisition, which will be considered as part of the purchase price and will be allocated to the net assets of Grand HK. This amount is a preliminary estimate and could change. Grand HK may incur additional charges in subsequent quarters to reflect costs associated with the proposed reorganization merger and the Playwell acquisition.

 
Certain Members of Grand HK’s management team will not perform duties exclusively for Grand HK and, as a result, their attention may be diverted from Grand HK’s business and could result in conflicts of interest which would be detrimental to Grand HK

      Although certain members of Grand HK’s management team will be employed by Grand HK under written employment agreements, including Elliot L. Bier, who will be Grand HK’s director and vice chairman, Henry Hai Lin Hu, who will be Grand HK’s executive director and chief executive officer and Raymond Chan Hong, who will be Playwell’s chief operating officer, the terms of their employment agreements permit each of them to perform services for Grand HK on a non-exclusive basis. In the future, Grand HK may make similar non-exclusive arrangements with other senior management employees. Although, none of these individuals will be permitted to engage in activities which are competitive with those of Grand HK, their other business activities could divert their attention from or otherwise interfere with their future availability to, and efforts on behalf of, Grand HK.

      In addition, each of Messrs. Hu and Chan will perform services for Cornerstone and subsidiaries of Cornerstone, including Mr. Chan serving as operations director for Playwell Industry Limited. Grand HK will do business with these subsidiaries, which could result in potential conflicts of interest arising out of their dual responsibilities. Although Grand HK and Cornerstone and its subsidiaries intend to operate on an arms-length basis, there can be no assurance that these potential conflicts of interest will not be resolved to the detriment of Grand HK.

 
Certain relationships among Grand HK’s management and affiliates create various perceived, potential or actual conflicts of interest which could adversely affect Grand HK’s business or the market price or liquidity of its ADSs

      Grand HK will be engaged in business with companies that may be affiliated with members of management and its principal shareholder. As a result, situations may arise where an interested party would be required to vote on transactions with affiliated companies that could benefit such interested party and negatively impact Grand HK, or vice versa. Furthermore, a perceived or actual conflict of interest in Grand HK’s management and/or its affiliates may discourage investors from investing in the Grand HK ADSs, which may negatively impact the stock price or liquidity of the Grand HK ADSs.

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Risks Related to the Combined Operations of Grand US and Playwell After the Reorganization Merger and the Acquisition of Playwell

      In deciding whether to approve the reorganization merger and the issuance of the Grand HK ADSs to Centralink in exchange for the shares of Playwell and other consideration, Grand US shareholders should consider the following risks that will result from the combined operations of Grand US and Playwell.

 
If Grand HK fails to maintain existing relationships Grand US and Playwell have with their related companies on which its business and operating results will be highly dependent, Grand HK’s business and operating results may be adversely affected

      Both Grand US and Playwell are, and will continue to be, very dependent on companies related to Centralink for the manufacturing, marketing and sale of their toy products. This dependency includes the following:

  •  Playwell historically purchases most of its plastic products from a factory in Dongguan, China operated by Playwell Industry Limited, a subsidiary of Centralink, and most of its wooden products in certain factories in Zhejiang, China operated by Zhejiang Playwell Toy Co., Ltd., an indirect subsidiary controlled by Mr. Hsieh;
 
  •  55% of Playwell’s net revenues in fiscal 2003 derived from Toy Biz Worldwide Ltd., a subsidiary of Cornerstone, which is referred to as Toy Biz;
 
  •  Playwell also accesses, through Playwell Toy “China” Ltd., established retail outlets and multiple sales offices in Mainland China; and
 
  •  62% and 67% of Grand US’ net sales in 2003 and 2002, a company indirectly controlled by Mr. Hsieh, respectively, were from products sold under license from Toy Biz.

      If relationships such as those listed above are not maintained, the failure could adversely affect Grand HK’s business and operating results.

 
Grand HK may not be able to obtain sufficient funding for Playwell’s working capital needs

      Historically, Playwell has funded its working capital needs through its cash flow from operations and loans from its affiliates, including Centralink. Therefore, Playwell does not currently have an established line of credit from a financial institution for its working capital needs. In the event that Playwell’s cash flow from operations is not sufficient to meet its working capital needs and Centralink does not advance the required financing, Playwell could be forced to curtail or delay its business activities. Centralink has no obligation to provide funding to Grand HK or to Playwell.

 
Grand HK’s business and operating results are and will continue to be highly dependent on sales of products licensed from Marvel Enterprises, Inc.

      A significant portion of the revenues of Grand US and Playwell are, and the revenues of Grand HK will continue to be, derived from the manufacture and distribution of toys based on certain Marvel comic and movie characters for Toy Biz. Toy Biz acquired the worldwide right to manufacture and sell toys based on these Marvel comic and movie characters from Marvel Enterprises Inc. through the end of 2006. In the event that Toy Biz is unable to secure the rights to continue to manufacture and sell these Marvel products after 2006, it would have a material adverse effect on the business of Playwell, Grand US and Grand HK, taken as a whole.

 
Grand HK may be adversely affected by the seasonal aspect of its business

      The business of both Grand US and Playwell is seasonal and a majority of their sales take place in the third and fourth quarters of their fiscal years, therefore, Grand HK’s annual operating results will depend, in large part, on sales during the relatively brief holiday season from September through December. Further, the impact of seasonality is increasing as large retailers become more efficient in their control of inventory levels through quick response management techniques. Rather than maintaining large on-hand inventories throughout the year to meet

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consumer demand, these customers are timing reorders so that they are being filled by suppliers closer to the time of purchase by retail customers, which to a large extent occur during September through December. While these techniques reduce a retailer’s investment in inventory, they increase pressure on suppliers like Grand US and Playwell to fill orders promptly and shift a significant portion of inventory risk and carrying costs to the supplier. The limited inventory carried by retailers may also reduce or delay retail sales. Additionally, the logistics of supplying more and more products within shorter time periods will increase the risk that Grand US or Playwell may fail to achieve tight and compressed shipping schedules. This seasonal pattern requires significant use of working capital mainly to manufacture inventory during the year, prior to the holiday season, and requires accurate forecasting of demand for products during the holiday season. Grand HK’s failure to accurately predict and respond to consumer demand could result in its under-producing popular items and overproducing less popular items.
 
Grand HK’s attempts to acquire other companies may not prove fruitful or even if successful could have an adverse effect on its liquidity and earnings

      Grand HK currently expects to pursue an acquisition strategy to expand its business and product offerings. This process will likely divert a significant amount of management time and effort. New acquisition discussions will likely distract Grand HK management from its day-to-day operations. Even if Grand HK does find companies that are worth acquiring, it may be extremely difficult to integrate their operations into its existing operations. In addition, there is no guaranty that its acquisitions will be successfully completed or, if completed will be financially successful. Thus, any such acquisition could have an adverse effect on Grand HK’s future liquidity and earnings.

 
An inability to obtain financing could adversely impact Grand HK’s ability to expand its operations

      In order to achieve Grand HK’s long-term expansion objectives and to enhance its competitive position in the worldwide toy industry, Grand HK will need additional financial resources over the next several years. The precise amount and timing of its future financing needs cannot be determined at this time and will depend upon a number of factors, including the demand for its products, the management of its working capital and the nature of companies which Grand HK plans to acquire. Grand HK may not be able to obtain additional financing on acceptable terms, or at all. If Grand HK is unable to obtain sufficient capital, it could be required to curtail its expansion plans.

 
Grand HK is dependent upon key personnel whose loss may adversely impact Grand HK’s business

      Grand HK will depend on the expertise, experience and continued services of its senior management employees, including Elliot L. Bier, who is chairman of Grand US and will become an officer and director of Grand HK, Henry Hu, a managing director of Playwell who will become the managing director of Grand HK, Raymond Chan, the chief operating officer of Playwell, David J. Fremed, who will become the chief financial officer of Grand HK, and Tania M. Clarke, who is the executive vice-president and chief financial officer of Grand US and will become a senior financial executive of Grand HK. Each of these individuals has acquired specialized knowledge and skills with respect to Grand US and Playwell, and their respective operations and most decisions concerning the business of Grand US and Playwell will be made or significantly influenced by them. Neither Grand US nor Playwell maintains “key man” insurance on the life of any of these persons. The loss of some of these senior management employees, or an inability to attract or retain other key individuals, could materially adversely affect Grand HK. Growth in Grand HK’s business is dependent, to a large degree, on Grand HK’s ability to retain and attract such employees. Grand HK, Playwell and Grand US seek to compensate and incentivize its key executives, as well as other employees, through competitive salaries, stock ownership and bonus plans, but there can be no assurance that these programs will allow it or Grand US or Playwell to retain key employees or hire new key employees. As a result, if any of these individuals were to leave Grand HK, Grand US or Playwell following the reorganization merger and Centralink transactions, the combined company could face substantial difficulty in hiring qualified successors and could experience a loss in productivity while any such successor obtains the necessary training and experience.

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Grand HK may suffer from bad debts and returns of toy products manufactured or sold by Grand US or Playwell

      Grand HK cannot be assured that any customer will not default on a payment of debt. Such a default could have a significant effect on its results. Furthermore, it is industry practice for retailers to hold back payments on slow moving stock or to request markdowns or returns on such stock. In certain instances, where retailers are unable to sell the quantity of products which have been ordered from Playwell or Grand US, Playwell and Grand US may, in accordance with industry practice, assist retailers to enable them to sell such excess inventory by offering discounts or accepting returns. A portion of firm orders, by their terms, may be canceled if shipment is not made by a certain date. There can be no assurance that these defaults, returns and cancellations will not have a material adverse effect on the business, financial conditions and results of operations of Grand HK.

 
In order to maintain its business, Grand HK will depend on obtaining and maintaining licenses for the manufacture and distribution of products

      Playwell and Grand US have entered into various licenses and royalty agreements in which they pay fees in exchange for rights to the use of product inventions or trademarked names, shapes and likenesses for use in development of its product line. The two major licenses that Playwell currently holds are the right to certain Walt Disney Company and Crayola branded products. Grand US’ major license is with Toy Biz. These agreements generally include minimum fee guarantees based on a reasonable expectation of the product sales to be generated throughout the life of the agreement. There can be no assurance that Playwell or Grand US will be able to meet these projected expectations and may be obligated to pay unearned fees as a result. License and royalty agreements are also mostly for fixed terms and often contain performance-related covenants. Playwell’s licenses for such Walt Disney Company and Crayola branded products are both short-term agreements, expiring in 2006. Similarly, Grand US has no written agreement with Toy Biz to distribute its products. There is no assurance that Playwell or Grand US will be able to maintain or extend the rights to these or other of its existing licenses. The failure to renew these license agreements or any difficulty in entering into other license agreements with other entertainment companies will have an adverse effect on Grand HK’s business and results of operations.

 
Grand HK may fail to make new product introductions in a timely fashion which could negatively impact its operating results

      Once a new product is conceived, the principal steps to the introduction of the product include design, sourcing and testing of components, tooling, and purchase and design of graphics and packaging. At any stage in the process, there may be difficulties or delays in completing the necessary steps to meet the contemplated product introduction schedule. It is, for example, common in new product introductions or product revisions to encounter technical and other difficulties affecting manufacturing efficiency and, at times, the ability to manufacture at all, that will typically be corrected or improved over a period of time with continued manufacturing experience and engineering efforts. If one or more aspects necessary for introduction of products are not met in a timely fashion, or if technical difficulties take longer than anticipated to overcome, the anticipated product introductions will be delayed, or in some cases may be terminated. Therefore, no assurances can be given that products will be introduced in a timely fashion. Significant delays in the introduction of, or the failure to introduce, new products or improved products would have an adverse effect on Grand HK’s operating results.

 
  Grand HK’s operating results may be highly volatile which could have a material adverse impact on Grand HK’s results of operations

      The toy industry is known for a high level of volatility as a result of changing consumer tastes, competition and over saturation of popular products. Playwell and Grand US have both experienced significant volatility in their results in their past histories. While Grand HK is expected to diversify its business in the future to reduce volatility, there can be no guarantee that this history of volatility will not continue.

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Because the life cycle for toy products is usually very short and consumer preferences are unpredictable, Grand HK’s business may be adversely affected by its inability to develop or secure the right to distribute new products

      Grand HK’s business and operating results will depend largely upon the appeal of the toy products manufactured and sold by Grand US and Playwell. Consumer preferences in the toy industry are highly subjective, and there can be no assurance that consumers will continue to find existing products of Grand US or Playwell appealing or will find new products introduced by Playwell or Grand US appealing. As a result of changing consumer preferences, many toy products are successfully marketed for only one or two years. Grand HK’s continued success will depend on the ability of Playwell and Grand US to redesign, restyle and extend its existing toy and fashion accessory products and to develop, acquire the right to, introduce and gain customer acceptance of new products. A decline in the popularity of its existing products and product lines or the failure of new products and product lines to achieve and sustain market acceptance could result in reduced overall revenues and margins, which could have a material adverse effect on Grand HK’s business, financial condition and results of operations. There can be no assurances that

  •  any of the current products or product lines manufactured or sold by Grand US or Playwell will continue to be popular for any significant period of time;
 
  •  any new products or product lines subsequently manufactured or sold by Grand US or Playwell will achieve an adequate degree of market acceptance;
 
  •  any new product’s life cycle will be sufficient to permit Grand US or Playwell to recover development, manufacturing, marketing or other costs of the product; or
 
  •  that retailers will react positively to any new product introduced by Playwell or Grand US.

      If the market for new or existing products is less than expected, Playwell and Grand US may build excess quantities of certain products and subsequently may be required to sell inventory of such products at a substantial discount or put inventory provisions in place to mark the value of excess inventory quantities down to their estimated market value.

      Finally, Playwell continues to offer a relatively limited range of products that are all in the categories of generic toys in the infant, preschool, and activity toys for younger children. This exposes Playwell to the risks of any narrowly focused business.

 
Grand HK may become subject to U.S. corporate income tax, which would reduce Grand HK’s net income

      Although Grand US and its subsidiaries will continue to be subject to U.S. corporate income tax on their U.S. operations after the reorganization merger, Grand HK anticipates that its non-U.S. operations will not be subject to U.S. corporate income tax, under current U.S. tax law, other than withholding taxes imposed on certain U.S. source income. However, if Grand HK becomes subject to U.S. corporate income tax, its net income will be reduced.

      Grand HK, Playwell and other non-U.S. affiliates of Grand HK intend to conduct their operations in a manner intended to ensure that they will not be treated as engaging in the conduct of a trade or business in the U.S. Thus, Grand HK, Playwell and its non-U.S. affiliates believe that they should not be required to pay U.S. corporate income tax, other than withholding tax on certain U.S. source income. However, if the IRS successfully contends that Grand HK, Playwell or any of the non-U.S. affiliates of Grand HK are engaged in a trade or business in the U.S., then Grand HK, Playwell or the non-U.S. affiliates of Grand HK would be required to pay U.S. corporate income tax on income that is subject to the taxing jurisdiction of the U.S., and possibly the U.S. branch profits tax.

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Grand HK may have difficulty retaining or increasing market share because the segments of the toy industry in which Playwell and Grand US operate are highly competitive

      Playwell and Grand US face significant competition in the segments of the toy industry in which they operate. Playwell faces significant competition in the infant and pre-school toy industry. The barriers for new producers to enter into Playwell’s markets are relatively low and Playwell expects that it will face increased competition in the future. Some competitors offer products at lower prices, are better established in the industry and are larger than Playwell. In addition, with respect to original design manufacturing, or ODM, and original equipment manufacturing, or OEM, Playwell competes with a number of substantially larger and more experienced manufacturers.

      Grand US primarily operates in the rapidly consolidating toy distribution business. Many other companies involved in the toy distribution industry in Canada and the U.S. have greater financial resources, larger sales forces, greater name recognition, larger facilities for product development and products that may be more competitively priced than Grand US products. As a result, some of Grand US’ competitors may be able to obtain toy products in greater volume or more lucrative distribution contracts than Grand US can. In addition, as the toy industry consolidates, many retailers have begun to deal directly with toy manufacturers, thereby reducing or eliminating the need for distributors such as Grand US.

 
Grand HK may be involved in disputes regarding its ownership and use of intellectual property which, if unsuccessfully defended, may result in Grand HK being held responsible for payment of substantial amounts of money

      From time to time, other companies and individuals may assert exclusive patent, copyright, trademark and other intellectual property rights to technologies or marks that are important to the toy industry generally or to Grand HK’s business specifically. Grand HK and its subsidiaries will evaluate each claim relating to its products or other aspects of its business and, if appropriate, will seek a license to use the protected technology. There can be no assurance that Grand HK or its subsidiaries will be able to obtain licenses to intellectual property of third parties on commercially reasonable terms, if at all. In addition, Grand US and Playwell could be at a disadvantage if its competitors obtain licenses for protected technologies on more favorable terms than does Playwell or Grand US. If Playwell, Grand US or their suppliers are unable to license protected technology used in Playwell’s or Grand US’ products, Playwell and Grand US could be prohibited from marketing those products or may have to market products without desirable features. Playwell and Grand US could also incur substantial costs to redesign its products or to defend any legal action taken against Playwell or Grand US. If Playwell’s or Grand US’ products or manufacturing methods should be found to infringe protected technology, Playwell or Grand US could be enjoined from further infringement and required to pay damages to the infringed party. Any of the foregoing could have an adverse effect on the results of operations and financial position of Grand HK.

 
Grand HK may not be able to protect its intellectual property

      On occasion in the toy industry, successful products are “knocked-off” or copied. While Playwell and Grand US strive to protect their intellectual property, there can be no guarantee that knock-offs will not have a significant negative effect on its business. In addition, intellectual property laws are less developed in China than in the U.S., and historically, China has not protected companies’ intellectual property rights to the same extent as the U.S. The costs incurred in protecting Grand US’s and Playwell’s intellectual property rights could be significant and there is no assurance that they will be able to successfully protect their rights.

 
  Grand HK may be subject to product liability claims which, if not covered by adequate insurance, could result in Grand HK becoming responsible for paying substantial amount of damages, which could adversely impact its business, financial condition and results of operations

      Grand US and Playwell are both subject to product liability claims relating to the products they manufacture and distribute. Since most of Playwell’s products are manufactured for infants and pre-school children, safety has been a major concern in the toys that Playwell, in particular, designs, develops and has manufactured. However, neither Playwell nor Grand US can assure total safety of its products and therefore can be subject to possible

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claims for injury or damage, some or all of which may not be covered by insurance. Playwell is not currently, nor has it been in the past, a defendant in any product liability lawsuit. Grand US is currently a defendant in a product liability claim relating to a third party’s product which was distributed by Grand US. A successful claim brought against Playwell or Grand US by a customer or a consumer and the adverse publicity that could accompany any such claim could have a material adverse effect on the business, financial condition and results of operations of Grand HK.
 
Grand HK is expected to operate across a number of international borders and may face unanticipated assessments from taxing authorities from these jurisdictions

      Grand HK’s operations will involve a significant number of cross-border transactions. Grand HK is expected to establish provisions for its known and estimated income tax obligations. However, whether through a challenge by one of the many tax authorities in international jurisdictions where Grand HK and its subsidiaries operate, through Grand HK’s transfer pricing, or through challenges to Grand HK’s claim regarding lack of permanent establishment, or other matters that may exist, Grand HK could be exposed to possible additional taxation that will not have been accrued.

 
Grand HK will be subject to many U.S. regulations when exporting toys into the U.S. that could result in the exclusion of some of its products from U.S. markets

      U.S. customers of Grand US are and U.S. customers of Grand HK will be subject to the provisions of the Federal Hazardous Substances Act and the Federal Consumer Product Safety Act when importing or producing toys to be sold in the U.S. These laws empower the Consumer Product Safety Commission, or the CPSC, to protect consumers from hazardous toys and other articles. The CPSC has the authority to exclude products from the market that are found to be unsafe or hazardous, and can require a recall of such products under certain circumstances. Similar laws exist in some states and cities in the U.S., as well as in foreign jurisdictions. Grand HK will design and test the products it purchases or manufactures for compliance with regulatory standards, however, there can be no assurance that Grand HK’s products will not be found to violate applicable laws, rules and regulations, which could have a material adverse effect on the business, financial condition and results of operations of Grand HK. In addition, there can be no assurance that more restrictive laws, rules and regulations will not be adopted in the future, or that Grand HK’s products will not be marketed in the future in countries with more restrictive laws, rules and regulations, either of which could make compliance more difficult or expensive, and which could have a material adverse effect on Grand HK’s business, financial condition and results of operations.

 
Grand HK may be subject to tariffs and quotas that could restrict its ability to export products to the U.S.

      A substantial portion of Grand HK’s products are expected to be shipped to customers in the U.S. The U.S. may, from time to time, impose new quotas, duties, tariffs, or other charges or restrictions, or adjust presently prevailing quota, duty or tariff levels, which could adversely affect Grand HK’s ability to continue to export products to the U.S. at the expected or increased levels. Grand HK cannot predict what regulatory changes may occur, if any, or the type or extent of any financial impact on Grand HK that such changes may have in the future. In addition, various forms of protectionist trade legislation have been proposed in the U.S. Adverse changes in tariff structures or other trade policies could have a material adverse effect on Grand HK’s business, financial condition and results of operations.

Investment Risks

      By voting in favor of the reorganization merger and the issuance of Grand HK ADSs to Centralink, Grand US shareholders will be choosing to invest in Grand HK. Owning Grand HK ADSs will subject holders to a number of risks, some of which are similar to those associated with owning Grand US common stock and some of which are different.

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The market price of Grand HK ADSs may decline compared with the market price of Grand US common stock as a result of the reorganization merger and the Playwell acquisition

      The acquisition of Playwell represents a fundamental change in the business and operations of Grand US. Playwell is a larger company than Grand US and is engaged in different lines of business. Accordingly, the historical market price of Grand US should not be used as an indication of the future market price of Grand HK ADSs. In fact, the market price of Grand HK ADSs may decline compared with the market price of Grand US common stock as a result of the reorganization merger and Playwell acquisition, if:

  •  the integration of Grand US and Playwell is unsuccessful;
 
  •  Grand HK does not achieve the perceived benefits of the reorganization merger and the Playwell acquisition as rapidly as it believes or as investors expect;
 
  •  the effect of the reorganization merger and the Playwell acquisition on Grand HK’s financial results is not consistent with the expectations of investors;
 
  •  investors react negatively to the ownership concentration of a single investor like Mr. Hsieh and the fact that public shareholders will constitute a minority of Grand HK’s shareholder base.

 
The market price of Grand HK ADSs is expected to be volatile

      Market prices of the securities of toy companies are often volatile and Grand US’ historical stock price has reflected this volatility. The trading price of Grand US common stock has been, and the trading price of Grand HK’s ADSs may continue to be, subject to wide fluctuations. For the period from January 1, 2003 through July 23, 2004, the closing sale prices of Grand US common stock on the Nasdaq SmallCap Market ranged from $0.99 to $4.19. These broad market and industry fluctuations may result in the decline of the market price of Grand HK’s ADSs, regardless of its operating performance.

      The market price of Grand US common stock has been, and Grand HK expects that the market price of the Grand HK ADSs will be, affected by many factors, including:

  •  fluctuations in Grand HK’s financial results;
 
  •  the actions of Grand HK’s customers and competitors;
 
  •  new regulations affecting foreign manufacturing;
 
  •  other factors affecting the toy industry in general;
 
  •  announcements of new products by Grand HK or its competitors,;
 
  •  the operating and stock price performance of other companies that investors may deem comparable;
 
  •  news reports relating to trends in its markets; and
 
  •  sales of Grand HK ADSs into the public market.

 
It may be difficult for Grand HK ADSs to be sold at attractive prices

      Grand US common stock has generally experienced limited liquidity and trading volume, and it is likely that Grand HK ADSs will initially experience lack of liquidity, lack of volume and lack of coverage by analysts and market makers, which may or may not affect the future performance of the Grand HK ADSs. There can be no assurance that a more active trading market for the Grand HK ADSs will develop or that, if developed, will be sustained. Further, there is no public market for the ordinary shares of Grand HK underlying the ADSs. In the past several years, many foreign issuers with market capitalization similar to that of Grand HK have been unable to sustain an active trading market for their securities. The market price for the Grand HK ADSs going forward may be highly volatile, as has been the case with the ADSs and the securities of other companies located in emerging market countries.

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      In addition, the stock market in general has experienced extreme volatility that often has been unrelated to the operating performance of any company. These broad market and industry fluctuations may result in the decline of the price of Grand HK ADSs, regardless of its operating performance.

 
Future sales of Grand HK ADSs by existing shareholders, option holders and warrant holders could result in a decline of the price of Grand HK ADSs

      The market price of Grand HK ADSs could decline as a result of sales of a large number of its ADSs into the market after the exchange is completed, or the perception that these sales could occur. There are currently options and warrants to purchase 1,048,357 shares of Grand US common stock outstanding. All of these options and warrants will be converted into options and warrants to purchase the same number of Grand HK ADSs upon exercise. If and when these options and warrants are exercised, it might have a depressive impact on the market price of the Grand HK ADSs. This might make it more difficult for Grand HK to sell equity securities in the future at a time and at a price that it deems appropriate.

 
Grand HK does not expect to pay dividends on its stock

      Neither Grand US nor Playwell has paid any cash or other dividends on its common stock and Grand HK does not expect to declare or pay any cash dividends in the foreseeable future.

 
It may be difficult to enforce civil liabilities against Grand HK

      Grand HK is a Hong Kong company, and a substantial portion of its assets will be located outside the U.S. In addition, certain of Grand HK’s directors and officers named herein are resident outside the U.S. (principally in Hong Kong and the People’s Republic of China), and all or a substantial portion of the assets of such persons are or may be located outside the U.S. As a result, it may not be possible for investors to effect service of process within the U.S. upon such persons, or to enforce against them or Grand HK judgments obtained in the U.S. courts predicated upon the civil liability provisions of the U.S. securities laws. The availability in Hong Kong, in original actions or in actions for enforcement of judgments of U.S. courts, of remedies provided for under the U.S. securities laws may be subject to the discretion of the Hong Kong courts based on consideration of Hong Kong public policy.

 
Features of Hong Kong law which allow an acquiring party to compulsorily acquire shares held by minority shareholders may force minority shareholders of Grand HK to sell their shares under certain circumstances which may negatively impact the price and liquidity of the Grand HK ADSs

      Hong Kong law allows a party to compulsorily acquire the shares of a Hong Kong company held by minority shareholders. These circumstances are described under the section titled “— Compulsory Acquisition of Shares Held by Minority Shareholders” on page 81 of this proxy statement/ prospectus. This in turn may discourage ownership of the Grand HK ADSs and negatively impact the price and liquidity of the Grand HK ADSs. Mr. Jeff Hsieh, who will indirectly or directly control over 71% of the shares of Grand HK following the reorganization merger and the transactions contemplated by the subscription and exchange agreement, could potentially force the minority shareholders of Grand HK to sell their Grand HK ADSs pursuant to these provisions. Mr. Hsieh has informed Grand HK that he does not presently intend to initiate or support an effort to force the compulsory acquisition of shares using these provisions. Should he initiate or support such an effort in the future, minority shareholders may be forced to sell their Grand HK shares.

Risks Specific to Grand US

      In deciding whether to approve the reorganization merger and the issuance of Grand HK ADSs to Centralink, in addition to some of the risks described above, Grand US shareholders should consider the following risks of Grand US if these transactions are not approved and Grand US continues to operate as an independent company.

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Doubts about Grand US’ ability to continue as a going concern could have a material adverse effect on its stock price and the liquidity of its shares

      In Grand US’ audited financial statements for the year ended December 31, 2002 and 2001, it recognized that it had certain issues which raised substantial doubts about its ability to continue as a going concern. The reasons cited were its recurring losses and the insufficiency of its line of credit to fund its operations. This was included in the notes in, and in KPMG’s audit report on, those financial statements. In mid-2002, Grand US implemented a plan to stem its losses and return to profitability and, at that time, secured an increase in its line of credit. These efforts led to Grand US’ return to profitability in 2003 and the absence of any going concern note in, and in KPMG’s audit report on, Grand US’ financial statements for the year ended December 31, 2003. However, there can be no assurance that Grand US will be able to sustain profitability and if it cannot, whether Grand US would be able to continue to operate as a going concern.

 
Grand US has a recent history of losses which makes sustained profitability uncertain

      Although Grand US had net earnings of $236,228 and $1,112,577, respectively, for the quarter ended March 31, 2004 and the year ended December 31, 2003, it incurred net losses of $826,848 and $1,371,492 for the years ended December 31, 2002 and 2001, respectively, and had not reported an annual profit since the year ended December 31, 1997. Grand US believes that its return to profitability in 2003 resulted form it recent focus on the distribution of products with higher profit margins and the reduction in expenses. Although these efforts were successful in 2003, Grand US cannot be sure that its efforts will result in continued profitability on an annual basis in the future.

 
Grand US’ shares may not continue to be listed on the Nasdaq SmallCap Market which could adversely affect the price and liquidity of its stock and its ability to obtain financing in the future

      On January 9, 2004, Grand US was advised by Nasdaq that it failed to meet the requirements for continued listing on Nasdaq for failure to hold its 2003 annual meeting by December 31, 2003, and that its securities were therefore subject to delisting from the Nasdaq SmallCap Market. Grand US successfully appealed the Nasdaq Staff determination and Grand US’ shares will continue to be listed on the Nasdaq SmallCap Market. However, Grand US’ most recent appeal was the third time since 2001 that it was subject to potential delisting. There can be no assurance that Grand US will be able to continue to meet the requirements for continued listing or that Grand US could successfully appeal a delisting determination in the future. If Grand US’ shares were delisted, Grand US might be able to have its shares listed for quotation on the OTC Bulletin Board or other markets. However, the failure to have Grand US’ shares quoted on the Nasdaq market would likely have an adverse impact on the price and liquidity of Grand US’ shares and Grand US’ ability to obtain financing in the future.

 
A few customers account for a large portion of Grand US’ net sales and a substantial reduction in or termination of orders from its large customers could adversely affect its business, financial condition and results of operations

      Grand US’ four largest customers accounted for approximately 54% and 65% of its net sales in 2003 and 2002, respectively. Except for outstanding purchase orders for specific products, Grand US does not have written contracts with or commitments from any of its customers. A substantial reduction in or termination of orders from any of its largest customers could adversely affect its business, financial condition and results of operations. In addition, pressure by large customers seeking a reduction in prices, financial incentives, a change in other terms of sale or on Grand US to bear the risks and the cost of carrying inventory could also adversely affect Grand US’ business, financial condition and results of operations.

 
The loss of Grand US’ right to distribute Toy Biz products would have a material adverse affect on its business, financial condition and results of operations

      Grand US has operated without a written distribution agreement with Toy Biz Worldwide Ltd. since 2001. However, it has continued to distribute the product lines carried by Toy Biz during 2002 and 2003 and has accepted orders from Toy Biz in 2004. There can be no assurance that Grand US will be able to retain the right to

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distribute the Toy Biz product line or, even if Grand US does retain this right, that any of the products in this branded product line will retain their current popularity. The loss of Grand US’ distribution rights to any of these product lines or the decrease in the popularity of any one of these branded product lines would adversely affect Grand US’ business, financial condition and results of operations.
 
Non-compliance with certain Canadian government regulations could seriously harm our business

      Most of Grand US’ business is currently conducted in Canada. Grand US is subject to the provisions of various laws, certain of which have been enacted by the federal government of Canada, the Province of Quebec and other Canadian provinces. The laws of Canada include the Hazardous Products Act which empowers the Canadian government to protect children from hazardous toys and other articles. Under that legislation, the Canadian government has the authority to exclude from the market those products which are found to be hazardous. Grand US is also subject to the Consumer Packaging and Labeling Act enacted by the government of Canada. This legislation prohibits the importation of prepackaged items and the sale or importation or advertising of items which have misleading information on their labels. As a result, if any Canadian governmental entities should allege that any of Grand US’ products are hazardous to children or the packaging is misleading, whether or not such items are dangerous or misleading, Grand US could be precluded from distributing entire lines of toys in Canada until a full investigation is completed. In such case, a significant portion of the value of the entire line could be lost during a time-consuming investigation because, as discussed above, the life cycle for toy products is usually very short.

Risks Related to Doing Business in China

      Grand HK will be organized and based in Hong Kong, which is part of the People’s Republic of China, and Grand HK is also expected to purchase most of its products from manufacturers in China. The following addresses some of the risks associated with doing business in China.

 
Playwell depends on certain of its related subsidiaries for producing its products. These related subsidiaries have large manufacturing operations in China and interruptions in the production capacity of these related subsidiaries will adversely affect Playwell’s business and financial results.

      Playwell sources most of its supplies of finished products and moulds for manufacturing from two subsidiaries of Cornerstone. Playwell Industry Ltd. and Zhejiang Playwell Toy Co. Ltd. Both of these companies have their manufacturing facilities in Mainland China. Should the production capacity of any of these companies be interrupted for whatever reason, including risks inherently associated with doing business in Mainland China, the operations of Playwell would be materially affected. The U.S. government is currently reviewing a number of commercial and legal practices widespread in China, such as China’s handling of intellectual property and certain of its labor practices, and certain political and military actions taken or proposed by China. If the U.S. ultimately takes negative action against China’s exports or its transaction of business with U.S. entities, then the cost of Chinese imports could increase significantly and the ability of Playwell to source its supplies of finished goods and moulds from China may be materially impaired. If the production capacity of any of the companies on which Playwell depends is interrupted for any reason, including the actions described above, there could be an adverse effect on Playwell’s ability to develop and supply products until alternative manufacturing arrangements are made on economic, production and operational terms at least as favorable as those currently in effect.

 
  If current opposition to the extension of China’s Normal Trade Relations, or NTR, status with the U.S. results in the loss of China’s NTR status, or the tariff or trade policies between these two countries changes in a manner adverse to China, the loss of favorable import duties or other favorable trade policies could have an adverse impact on Grand HK’s business

      Grand HK expects to purchase a majority of its products from manufacturers in China and export them from Hong Kong and China to the U.S. and worldwide. On September 19, 2000, the US Senate voted to permanently normalize trade with China, which provides a favorable category of US import duties for products imported from China. In addition, on December 11, 2001, China was accepted into the World Trade Organization, or WTO, a global international organization of 144 countries that regulates international trade. As a result of opposition to

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certain policies of the Chinese government and China’s growing trade surpluses with the U.S., there has been, and in the future may be, opposition to the extension of NTR status for China. The loss of NTR status for China, changes in current tariff structures or adoption in the U.S. of other trade policies adverse to China could have an adverse effect on Grand HK’s business and results of operations.
 
Increased Sino-U.S. Political tension may make Grand HK less attractive to investors and clients

      The relationship between the U.S. and China is subject to sudden fluctuations and periodic tension. For example, relations may be compromised if the U.S. becomes a more vocal advocate of Taiwan or proceeds to sell certain military weapons and technology to Taiwan. Any weakening of relations between the U.S. and China could have a material adverse effect on Grand HK’s business. Anti-Chinese sentiment could make Grand HK and its shares less attractive. In addition, changes in political conditions in China and changes in the state of Sino-U.S. relations are difficult to predict and could cause the Greater China market to become less attractive to investors and clients or could adversely affect Grand HK’s operations because it operates in China.

 
Any change in the Chinese government’s economic reform programs may have a negative impact on Grand HK’s operating results

      The success of Grand HK’s current and future operations in China and Hong Kong is highly dependent on the Chinese government’s continued support of economic reform programs that encourage private investment, and particularly foreign private investment. Although the Chinese government has adopted an “open door” policy with respect to foreign investments, there can be no assurance that such policy will continue. A change in policies by the Chinese government could adversely affect Grand HK by, among other things, imposing confiscatory taxation, restricting currency conversion, imports and sources of supplies, or expropriating private enterprises. Although the Chinese government has been pursuing economic reform policies for nearly two decades, no assurance can be given that the Chinese government will continue to pursue such policies or that such policies may not be significantly altered, especially in the event of a change in leadership or other social or political disruption.

 
Because China does not have a well developed, comprehensive system of laws, it may be difficult for Grand HK and its subsidiaries to protect or enforce their legal rights

      As a result of the Centralink transaction, including the acquisition of Playwell, a majority of Grand HK’s assets and operations will be located in Hong Kong, but certain of Playwell’s related subsidiaries, on which Playwell depends, have large operations in China. For instance, Playwell Industry Ltd. and Zhejiang Playwell Toy Co. Ltd., from which Playwell sources most of its supplies of finished products and moulds for manufacturing, have their manufacturing facilities in Mainland China. While Hong Kong corporate law is based on English law and is well-developed, the Chinese legal system is a civil law system based on written statutes in which decided legal cases have little value as precedents, unlike the common law system in the U.S. China does not have a well-developed, consolidated body of law governing foreign investment enterprises. As a result, the administration of laws and regulations by government agencies may be subject to considerable discretion and variation.

      In addition, the Chinese legal system relating to foreign investments is both new and continually evolving, and currently there can be no certainty as to the application of its laws and regulations in particular instances. Definitive regulations and policies with respect to such matters as the permissible percentage of foreign investment and permissible rates of equity returns have not yet been published, statements regarding these evolving policies have been conflicting, and any such policies, as administered, are likely to be subject to broad interpretation, discretion and modification, perhaps on a case-by-case basis. As the legal system in China develops with respect to these new types of enterprises, foreign investors may be adversely affected by new laws, changes to existing laws (or interpretations thereof) and the preemption of provincial or local laws by national laws. Enforcement of existing laws may be sporadic and implementation and interpretation thereof inconsistent. Furthermore, the Chinese judiciary is relatively inexperienced in enforcing the laws that exist, leading to a higher than usual degree of uncertainty as to the outcome of any litigation. Even where adequate laws exist in China, it may be impossible to obtain swift and equitable enforcement of such laws, or to obtain enforcement of a judgment by a court of another jurisdiction. It is widely believed that China’s entry into the WTO should expedite

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the uniform interpretation and enforcement of laws throughout China. However, there can be no assurance that Grand HK’s current or future activities in China will have a high degree of certainty under China’s legal system.
 
If Grand HK is not able to obtain appropriate governmental support and approvals in China, it may not be able to conduct its business activities as planned.

      Grand HK’s activities in China may by law be subject, in some circumstances, to administrative review and approval by various national and local agencies of the Chinese government. Although Grand HK believes that the present level of support from local, provincial and national governmental entities enjoyed by Playwell benefits Playwell’s operations in connection with administrative review and the receipt of approvals, there is no assurance that such approvals, when necessary or advisable in the future, will be forthcoming. The inability to obtain such approvals could have a material adverse effect on Grand HK’s business, financial condition and results of operations.

 
Changes in laws relating to Chinese taxation could subject Grand HK to substantial future taxation

      The Chinese tax system is subject to substantial uncertainties and has been subject to recently enacted changes, the interpretation and enforcement of which are also uncertain. There can be no assurance that changes in Chinese tax laws or their interpretation or their application will not subject Grand HK to substantial Chinese taxes in the future.

 
Any change in the political and economic situation in Hong Kong could have a significant impact on Grand HK’s operations

      After the reorganization merger and the acquisition of Playwell, a significant part of Grand HK’s facilities and operations will be located in Hong Kong. On July 1, 1997, sovereignty over Hong Kong was transferred from the United Kingdom to the People’s Republic of China, and Hong Kong became a Special Administrative Region, or SAR, of China. As provided in the Sino-British Joint Declaration on the Question of Hong Kong and the Basic Law of the Hong Kong SAR of China, Hong Kong is to have a high degree of autonomy from China except in matters related to foreign affairs and defense. Under the Hong Kong Basic Law, Hong Kong has its own legislature, legal and judicial systems and economic autonomy for 50 years. Based on current political conditions and Grand HK’s understanding of the Hong Kong Basic Law, Grand HK does not believe that the transfer of sovereignty of Hong Kong will have a material adverse effect on Grand HK’s business, financial condition or results of operations. There can be no assurance, however, that changes in political, legal or other conditions will not result in such an adverse effect.

 
If the Exchange Rate for the Hong Kong Dollar ceases to be fixed against the U.S. Dollar, Grand HK would be subject to potentially significant adverse exchange rate risks

      The Hong Kong dollar has remained relatively constant against the U.S. dollar due to the U.S. dollar peg and currency board system that has been in effect in Hong Kong since 1983. One U.S. dollar is pegged to $7.80 HK dollar under that system. There can be no assurance that the historical currency peg of the Hong Kong dollar to the U.S. dollar will be maintained in the future. With the anticipated location of Grand HK’s corporate headquarters in Hong Kong after the reorganization merger, a large proportion of Grand HK’s administrative and business expense will be denominated in Hong Kong dollars and a large proportion of its revenues is expected to be in U.S. Dollars from the sale of toy products to the U.S. Should the currency peg cease to be maintained and the exchange rate between the Hong Kong dollar and the U.S. dollar be allowed to float, Grand HK’s business and results of operations may be negatively impacted.

 
A change in currency exchange rates could increase Grand HK’s costs relative to its revenues

      Grand HK’s sales are expected to be mostly denominated in U.S. dollars or Euros. The majority of Grand HK’s expenses are expected to be denominated in Hong Kong dollars, followed by Chinese renminbi, the currency of Mainland China, Euros and U.S. dollars. Grand HK is also expected to generate revenues, expenses and liabilities in other currencies such as Singapore dollars and New Taiwan dollars. As a result, Grand HK will

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be subject to the effects of exchange rate fluctuations with respect to any of these currencies and the related interest rate fluctuations. Fluctuations in the exchange rate of the U.S. dollar against the respective foreign currencies could have a significant impact on Grand HK’s revenues, results and financial condition. A rise in the value of the foreign currencies relative to the U.S. dollar will increase Grand HK’s relative production costs and decrease the relative value of its revenue, thereby reducing its operating margins. Furthermore, should the U.S. dollar weaken, Grand HK’s products could become more expensive in the U.S. even if the prices of the products in Hong Kong dollars remain unchanged, which could further adversely affect Grand HK’s revenues. Currently, Grand HK has not entered into agreements or purchase instruments to hedge its exchange rate risks.
 
Restrictions on Chinese currency exchange may affect Grand HK’s results of operations

      Although Chinese government policies were introduced in 1996 to allow greater convertibility of the renminbi, significant restrictions still remain and the renminbi is not a freely convertible currency. Under the existing foreign exchange regulations in China, foreign exchange transactions for capital account purposes, including purchasing and selling the assets used in Playwell’s operations, require the prior approval of the State Administration of Foreign Exchange of China, or SAFE, which is the Chinese government body responsible for regulating foreign currency in China. Approvals are granted by types of transactions and the procedures for obtaining these approvals are often changed, depending on the economic conditions. If Playwell is unable to obtain consent from SAFE to convert renminbi into foreign currencies for such purposes in a timely fashion, Playwell’s capital expenditure plan and Playwell’s results of operations and financial condition could be adversely affected. In addition, Grand HK can provide no assurance that the Chinese regulatory authorities will not impose greater restrictions on the convertibility of the renminbi in the future. Because a significant amount of Grand HK’s future expenses and liabilities may be in the form of renminbi due to a majority of its manufacturing facility being in China, any unexpected limitation on the convertibility of renminbi and any additional restrictions in the future on currency exchanges may limit its ability to effectively produce its toy products in China, which in turn will negatively affect its business and results of operations.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

      This document contains forward-looking statements with respect to the reorganization merger, the issuance of ADSs of Grand HK to the shareholders of Grand US and Centralink and the financial condition, results of operations and business of Grand US and Playwell. Forward-looking statements by their nature involve a degree of risk and uncertainty, including, but not limited to, the risks and uncertainties referred to under “Risk Factors” and elsewhere herein. All statements regarding the expected benefits of the reorganization merger, the Playwell acquisition and the acquisition by Centralink of a controlling interest in Grand HK are forward-looking statements. The forward-looking statements include statements for the period following completion of the transaction. You can find many of these statements by looking for words such as “believes,” “expects,” “anticipates,” “estimates,” “continues,” “may,” “intends,” “plans” or similar expressions in this document. You should be aware that any forward-looking statements in this document are not guarantees of future performance. Grand HK, Grand US and Playwell have identified factors that could cause actual plans or results to differ materially from those included in any forward-looking statements.

      Actual results may differ materially from those expressed or implied by forward-looking statements. As you make your decision how to vote, please take into account that forward-looking statements speak only as of the date of this proxy statement/ prospectus.

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PART II

THE REORGANIZATION AND THE PLAYWELL ACQUISITION AND SUBSCRIPTION

      This section of this proxy statement/ prospectus describes the background of the transaction, the amended and restated agreement and plan of merger under which Grand US will reorganize into a subsidiary of Grand HK, a Hong Kong company and Grand US’ subsidiary prior to the reorganization merger, and the subscription and exchange agreement under which Grand HK will, after the reorganization merger, issue 10,000,000 Grand HK ADSs to Centralink in connection with the acquisition of Playwell and the additional investment in Grand HK by Centralink.

      This discussion is a summary only and is qualified in its entirety by reference to the amended and restated agreement and plan of merger and the subscription and exchange agreement, as amended, copies of which are included elsewhere in this proxy statement/ prospectus as Annex A and Annex B.

Background of the Reorganization, the Acquisition of Playwell and the Subscription of Centralink

      Grand US has, for over 40 years, been engaged in the distribution of toys and novelty products. Since Grand US went public in 1993, Grand US has sought to expand its operations beyond the Canadian toy distribution business. These expansion efforts have been focused on expanding product offerings through the development of proprietary products and expanding geographically outside of Canada. Grand US has, for many years distributed products for Toy Biz Worldwide, or Toy Biz, an entity affiliated with Playwell, including the Marvel line of products, the largest source of Grand US’ revenues during the past four years.

      Playwell was formed in 2000 as a holding company for a principal operating subsidiary, Hong Kong Toy Centre Limited. Hong Kong Toy Centre Limited was formed in 1969 and has been active in the toy business for over 30 years.

      The series of transactions described in this proxy statement/ prospectus, if approved by you, will fundamentally change the constitution and business of Grand US. The transaction consists of two separate elements. The first element is the reorganization of Grand US, involving a reorganization merger through which Grand US would become a wholly-owned subsidiary of Grand HK. Pursuant to the reorganization merger, all of the outstanding common stock of Grand US would be converted into Grand HK ADSs and will be evidenced by Grand HK ADRs. The second element is the acquisition of all of the issued and outstanding shares of Playwell from Centralink in exchange for 5,000,000 Grand HK ADSs and the issuance to Centralink of an additional 5,000,000 Grand HK ADSs for cash and other consideration in a total amount of $11,000,000. As a result of these transactions, Grand HK will become the holding company for Grand US, Playwell and their respective operating subsidiaries. Unless shareholders approve both the reorganization merger and the Playwell acquisition and the additional Centralink subscription, neither of these transactions will be completed.

      Following consummation of the transactions contemplated by the subscription and exchange agreement, there will be a change in control of Grand HK with Centralink owning a majority of the shares and Mr. Hsieh Cheng, also known as Mr. Jeff Hsieh, the ultimate beneficial owner of Centralink, having the right to control the business and affairs of Grand HK. The board of directors of Grand HK will initially consist of five directors, two of whom will be nominated by Centralink, two of whom will be nominated by Mr. David Mars and Mr. Stephen Altro, current directors and significant shareholders of Grand US, and one of whom will be selected by the independent directors of Grand HK and must be acceptable to Centralink and Messrs. Mars and Altro. However, at least two directors may have conflicts of interest with Grand HK by virtue of contractual relationships with Grand HK and Cornerstone or their affiliates.

      Since 1996, Grand US has been the exclusive Canadian distributor of toy products for Toy Biz Worldwide. Sales of Toy Biz products, consisting primarily of action figures licensed from Marvel Enterprises, constituted 62%, 67% and 45% of sales by Grand US during the years ended December 31, 2003, 2002 and 2001, respectively. Grand US’s distribution agreement with Toy Biz expired on December 31, 2001. Since January 1, 2002, Grand US has distributed Toy Biz products pursuant to an oral agreement. Toy Biz, like Centralink, is wholly-owned by Cornerstone Overseas Investments, Limited. Playwell Industry Limited, another entity owned by Cornerstone, and Toy Biz have manufactured products distributed by Grand US. During the year ended

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December 31, 2002, Grand US’ sales of Hong Kong Toy Centre products were $309,202 and there were no sales made during the year ended December 31, 2003. Additionally, in 2002 and 2003, Grand US received sales commissions from Hong Kong Toy Centre of $29,505 and $9,370, respectively. Grand US paid commissions of $91,770 and $199,537 to Kidbest Ltd., a sister-company of Playwell, in 2003 and 2002, respectively. Except for these arrangements, there are no other contracts, arrangements or understandings between Grand US or its subsidiaries and Cornerstone, Centralink, Playwell or their respective subsidiaries.

      As early as late 2001, Mr. David Mars, a director of Grand US, and Mr. Elliot Bier, Grand US’ chairman, held discussions with Mr. Hsieh and his representatives about a possible combination of Toy Biz and Grand US. Grand US had been looking for ways to enhance its distribution business which had been declining for some time, by creating its own brands and proprietary products. Mr. Hsieh and Messrs. Mars and Bier, conscious of the growing consolidation in the toy industry, were interested in achieving the economies and higher margins associated with vertical integration of the manufacturing and distribution functions as well as the acquisition of additional proprietary products and enhanced brand recognition. At the time of these discussions in late 2001 and throughout the first quarter of 2002, Grand US was incurring significant losses which raised substantial doubt about its ability to continue as a going concern. Because of Grand US’ poor financial condition, the terms proposed by Mr. Hsieh and his representatives were not, in the opinion of Grand US’ management, in the best interests of its shareholders and the discussions were abandoned in late spring 2002.

      Later in 2002, Grand US adopted a restructuring plan which resulted in Grand US’ return to profitability. As a result of these efforts, by late 2002, Grand US’ financial condition had improved significantly, allowing Grand US to be in a better position to negotiate acquisition terms which would be more favorable to the shareholders of Grand US. However, it was not until January, 2003 that renewed discussions with Mr. Hsieh, this time involving Playwell, began in earnest. Those discussions initially involved a third party, Fun-4-All Corp., a developer and marketer of toy products and concepts that is referred to as Fun-4-All. Grand US and Playwell were interested in Fun-4-All because of its proven history as a developer of the type of proprietary products being sought by Grand US. As conceived, Fun-4-All’s products would be manufactured by Playwell and distributed by Grand US, thereby furthering the parties’ plan of vertical integration.

      Grand US’ interests in Fun-4-All dated back to 1996 when Messrs. Mars and Bier, and Mr. Stephen Altro, another director of Grand US, negotiated with Mr. Scott Bachrach, the president and a shareholder of Fun-4-All, regarding Grand US’ potential acquisition of Fun-4-All. At that time, Grand US and Fun-4-All were not able to reach an agreement on valuation and the talks ended. Fun-4-All subsequently introduced a highly successful line of arts and crafts products.

      In late December, 2002, Mr. Mars telephoned Mr. Hsieh to discuss a potential business combination in anticipation of Mr. Mars’ trip to Hong Kong. While Mr. Mars was in Hong Kong, Mr. Bachrach, who had become the sole shareholder of Fun-4-All, approached Mr. Mars about renewing discussions. It was during this visit that Mr. Mars introduced Mr. Bachrach to Mr. Hsieh. On or about January 5, 2003, Mr. Mars telephoned Mr. Henry Hu, then a consultant to Cornerstone, to introduce Mr. Bachrach. Mr. Mars suggested that Playwell consider a business combination with Fun-4-All. Shortly thereafter, Mr. Hu met Mr. Bachrach in Hong Kong.

      Late in the week of January 5, 2003, Mr. Hu and Mr. Mars met at the Marco Polo Hotel in Hong Kong. At that meeting, it was agreed that the parties would explore the possibility of a three-way combination involving Grand US, Playwell and Fun-4-All. A few days after that meeting, Messrs. Hu, Mars and Bachrach met, again in Hong Kong, and agreed to exchange preliminary financial information, which was done shortly thereafter. From January, 2003 onward Grand US did not engage in discussions concerning possible business combinations with any parties other than Fun-4-All, Cornerstone and Centralink. Grand US’ management did not pursue these transactions with Playwell and Fun-4-All with a view to selling itself but to create a more valuable enterprise for its shareholders. Its long relationship with both Mr. Hsieh and Mr. Bachrach and the synergies that each of Playwell and Fun-4-All could bring to a combined company were, in the opinion of Grand US’ management, unique.

      On January 22, 2003, Grand US retained the firm Piper Rudnick LLP to serve as its legal advisor in connection with the proposed transaction.

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      On January 25, 2003, a meeting was held in New York at the offices of Lazar Levine, an independent accounting firm, to discuss the terms of the potential combination. The meeting was attended by Mr. Bier, Mr. Mars and Mr. Altro; Mr. Hu, a representative of Centralink; Mr. Bachrach; Mr. Michael Dinkes of Lazar Levine; and counsel to Fun-4-All and Grand US. At this meeting, the parties outlined the material terms of the proposed transaction.

      During the week of January 27, 2003, representatives of Piper Rudnick LLP circulated a draft letter of intent to those attending the January 25 meeting. Several e-mails were thereafter exchanged concerning the terms of the letter of intent.

      On February 15, 2003, a meeting was held at the offices of Lazar Levine to discuss the potential transaction and to further negotiate the terms of the letter of intent. The meeting was attended by Messrs. Bier, Mars, Hu, Bachrach and Altro. At the meeting, substantially all of the terms of the transaction were agreed upon.

      Between February 15, 2003 and February 26, 2003, drafts of a proposed form of letter of intent were circulated among the parties.

      On February 26, 2003, Grand US, Cornerstone and Fun-4-All executed a letter of intent. The letter of intent contemplated that Grand US would acquire the stock of both Playwell and Fun-4-All. The financial terms of the Playwell acquisition covered by the letter of intent were substantially similar to those set forth in the subscription and exchange agreement, except that Cornerstone’s subscription commitment was limited to 3,000,000 shares at a price of $1.00 per share, which price reflected the market value of Grand US’ common stock at that time.

      On March 3, 2003, Cornerstone retained Dorsey & Whitney to serve as its legal advisor in connection with the proposed transaction.

      On March 22, 2003, Cornerstone retained BDO Seidman to perform a financial due diligence investigation of Grand US.

      During the month of March 2003, representatives of Grand US and Cornerstone commenced legal and financial due diligence on Playwell, Fun-4-All and Grand US.

      On April 2, 2003, representatives of Dorsey & Whitney, Cornerstone’s counsel, and Piper Rudnick LLP, Grand US’ counsel, met at the offices of Piper Rudnick LLP to discuss the progress of the due diligence. At the meeting, Cornerstone’s counsel proposed a change to the structure of the transaction in which Grand US would reorganize outside of the U.S. Before the meeting the parties contemplated a transaction in which Grand US would acquire the shares of both Playwell and Fun-4-All and Grand US would remain the holding company for the combined company. However, Cornerstone concluded that this structure did not make sense for business reasons. Although Grand US is a Nevada company, nearly all of its current business is carried on in Canada through its Canadian subsidiary, and its headquarters are in Canada. Grand US has relatively little business activity in the United States. As a result of the contemplated transaction, including the acquisition of Playwell, the vast majority of Grand HK’s assets and operations would be located in Hong Kong or in nearby Guangdong province in southern China, and the seat of management of Grand HK’s operations would be in Hong Kong. Cornerstone’s management determined that changing the corporate structure from a US holding company into a Hong Kong holding company would simplify corporate management and facilitate dealings with suppliers and customers in the region, who are accustomed to dealing with Hong Kong companies and sometimes hesitant to do business with United States companies, which are sometimes regarded as unduly litigious.

      The reorganization outside of the U.S. also made sense from a tax standpoint. In fact, Centralink would not consummate the Playwell acquisition or the related subscription transaction without the reorganization merger. It would not have been logical for Centralink, a British Virgin Islands company, to transfer the shares of Playwell, a Hong Kong limited company, to a United States corporation. Hong Kong companies such as Playwell have a 17.5% tax rate on profits from Hong Kong operations only, and no capital gains, sales, turnover or similar taxes, compared to U.S. companies like Grand US, which generally pay an effective Federal tax of 35% on their worldwide income, including capital gains taxes, and may be subject to sales, use and other U.S. transaction taxes. Subjecting Playwell’s income to U.S. corporate taxation would significantly reduce the after-tax returns of

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the Playwell business. The reorganization merger will not, of course, affect the tax position of the current Grand US business, which would continue to be operated through Grand US just as before.

      On May 1, 2003, Tania M. Clarke, Grand US’ executive vice-president and chief financial officer, and representatives of Piper Rudnick LLP, Dorsey & Whitney and BDO Seidman, Cornerstone’s independent accountants, met again at the offices of Piper Rudnick LLP to discuss in more detail the proposal to reorganize Grand US outside of the United States.

      On May 7, 2003, Grand US, Cornerstone and Fun-4-All amended the letter of intent to extend the period for entering into definitive agreements to July 1, 2003.

      On May 19, 2003, Mr. Hu met with Mr. Bier in Vancouver, Canada, to discuss some of the issues that had arisen during the course of the parties’ due diligence. The topics discussed included the composition of the board of directors of Grand HK following the consummation of the transaction and lock-up arrangements for affiliates of Grand US and Cornerstone.

      On May 22, 2003, a meeting was held at the offices of Dorsey & Whitney in New York. The meeting was attended by Messrs. Bier and Mars of Grand US, Mr. Hu, who had become executive director of Cornerstone during May 2003, Mr. Bachrach and Steve Krause of Fun-4-All and representatives of BDO Seidman, Lazar Levine, Dorsey & Whitney and Katten Muchin Zavis Rosenman. The latter firm had been retained by Grand US to replace Piper Rudnick LLP in connection with the transaction. At the meeting, all material business issues regarding the transaction were agreed upon and a schedule was provided for completing due diligence and preparing definitive documentation.

      On May 30, 2003, Grand US retained J. Chan, Yip, So & Partners as special Hong Kong counsel in connection with the acquisition of Playwell.

      On June 24, 2003, an initial draft of an exchange agreement was calculated to all parties. This document ultimately became the subscription and exchange agreement.

      Between June 24, 2003 and November 13, 2003, representatives of Grand US, Cornerstone, Centralink and Fun-4-All and their respective legal counsel engaged in ongoing due diligence and negotiation of the subscription and exchange agreement and the related documentation.

      On July 1, 2003, Grand US, Cornerstone and Fun-4-All executed a further amendment to the letter of intent which extended the deadline for entering into definitive agreements from July 1, 2003 to August 15, 2003, and extending the anticipated date of the closing from September 30, 2003 to November 30, 2003.

      On July 16, 2003, Grand US retained KPMG to perform a financial due diligence investigation of Fun-4-All.

      On August 5, 2003, Grand US retained KPMG to perform a financial due diligence investigation of Playwell.

      On September 8 and 9, 2003, Mr. Bier, Mr. Bachrach and counsel for Grand US Centralink, Cornerstone and Fun-4-All met in New York to discuss the draft agreements and the open issues pertaining to the Fun-4-All transaction which had arisen during the course of Grand US’ due diligence. Mr. Hu participated in some of the discussion by telephone. At the time of the meeting, all of the material terms of the subscription and exchange agreement had been agreed upon by Grand US, Cornerstone and Centralink.

      Between September 9, 2003 and November 5, 2003, Grand US, Centralink and Fun-4-All and their respective representatives negotiated the terms of an agreement for Grand HK to acquire Fun-4-All.

      On November 5 and 6, 2003, meetings were held at the offices of Katten Muchin Zavis Rosenman in New York. The meetings were attended by Messrs. Bier and Mars of Grand US, Mr. Hu of Cornerstone, Mr. Bachrach of Fun-4-All and their respective legal counsel. The meetings were held to discuss and finalize any unresolved issues concerning the terms of the Fun-4-All transaction.

      On November 11, 2003, Grand US’ legal counsel circulated to the board of directors of Grand US the final version of the subscription and exchange agreement and the final version of an asset purchase agreement between Grand US and Fun-4-All, with a memorandum summarizing the terms of both transactions.

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      On November 12, 2003, the board of directors of Grand US held a telephonic meeting during which Mr. Bier reviewed the background and terms of the reorganization merger of Grand US, the acquisition of Playwell, the subscription by Centralink following the reorganization merger and the acquisition of Fun-4-All. Legal counsel reviewed in detail the terms of the subscription and exchange agreement with Centralink and the asset purchase agreement with Fun-4-All and the related documents, and reviewed with the directors their fiduciary duties. Mr. Bier and Grand US’ legal counsel answered questions from the directors with regard to the acquisitions. In response to some of the questions raised by members of the board, it was determined to adjourn the meeting to give the members of the board more time to review the terms of the transaction and ask follow up questions.

      On November 14, 2003, the meeting of the board of directors of Grand US was reconvened by conference telephone. The directors continued to ask questions and discussed the terms of the Playwell transaction and the Fun-4-All transaction. Following the discussion, by unanimous vote, the Grand US board approved the terms of the reorganization merger and the other terms of the subscription and exchange agreement, subject to receipt of the opinion from Empire Valuation Consultants that the Playwell acquisition and related investment by Centralink pursuant to the subscription and exchange agreement is fair to the shareholders of Grand US from a financial point of view. On the same day, the subscription and exchange agreement was signed by Grand US, Grand HK and Centralink. The Board also approved the acquisition of the assets of Fun-4-All, but only if Fun-4-All could provide assurances that it would meet certain performance criteria and Grand US received from Empire Valuation Consultants their opinion that the Fun-4-All acquisition, pursuant to the asset purchase agreement, is fair to the shareholders of Grand US from a financial point of view.

      From November 14, 2003 until December 11, 2003, representatives of Grand US and Cornerstone and their counsel continued to negotiate with Fun-4-All and its counsel regarding the terms on which Fun-4-All might participate in the transaction.

      On November 17, 2003, Empire Valuation Consultants was retained by Grand US to render an opinion regarding the fairness, from a financial point of view, of the consideration to be paid to Centralink in connection with the subscription and exchange agreement.

      On December 10, 2003 and December 11, 2003, Mr. Bier and Mr. Hu again had meetings to discuss whether Fun-4-All might participate in the transaction and concluded that it could not.

      On December 11, 2003, representatives of Katten Muchin Zavis Rosenman, counsel for Grand US, wrote to counsel for Fun-4-All notifying the latter on behalf of Grand US of the termination of negotiations concerning the participation of Fun-4-All in the proposed combination of Grand US and Playwell on the grounds that the board of directors of Grand US had determined that the transaction was not viable on the revised terms that had been negotiated since the meeting of September 8 and 9, 2003.

      In late December, 2003, Grand US was orally advised by Nasdaq that its shares would be delisted as a result of its failure to hold its 2003 annual meeting of shareholders. Official notice from Nasdaq of this determination was received on January 9, 2004. Grand US had elected to defer the annual meeting to avoid the expense of holding two meetings, since the transactions contemplated by the subscription and exchange agreement would also require shareholder approval. Grand US successfully appealed the delisting determination. However, in the course of its appeal, Nasdaq raised issues about the continued listing of Grand HK’s shares following consummation of the reorganization merger.

      Nasdaq advised Grand US that Grand HK would need to meet all of the initial listing criteria required by Nasdaq. Beginning in late December, 2003, Mr. Hu and Mr. Bier engaged in numerous discussions on strengthening the financial condition of Grand HK to ensure that all Nasdaq listing criteria could be met. On a conference call during the week of January 5, 2004, Mr. Bier, Mr. Hu and Grand US’ and Centralink’s counsel discussed the possibility of Centralink making an additional investment in Grand HK at the closing which would reflect the value of the combined companies.

      During the week of January 12, 2004, Mr. Bier and Mr. Hu agreed in principal to a proposal in which Centralink would subscribe for an additional 2,000,000 Grand HK ADSs at a price of $4.00 per share, or $8,000,000 in the aggregate.

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      On February 12, 2004, the board of directors of Grand US held a special meeting. At the meeting, the additional investment by Centralink was discussed, representatives of Empire Valuation Consultants reported to the directors of Grand US on their financial analysis of the terms of the subscription and exchange agreement, including the additional subscription by Centralink, and delivered their oral opinion that, as of such date and based on and subject to the assumptions, qualifications and limitations set forth in their opinion, it was their conclusion that the consideration to be exchanged by Grand HK and Centralink pursuant to the subscription and exchange agreement was fair to the shareholders of Grand US from a financial point of view.

      On March 6, 2004, the subscription and exchange agreement was amended to extend the termination date to May 31, 2004.

      On March 31, 2004, Empire Valuation Consultants delivered their written opinion that, as of such date and based on and subject to the assumptions, qualifications and limitations set forth in their opinion, it was their conclusion that the consideration to be exchanged by Grand HK and Centralink pursuant to the subscription and exchange agreement was fair to the shareholders of Grand US from a financial point of view.

      On March 31, 2004, the subscription and exchange agreement was amended a second time. The amendment included Centralink’s agreement to subscribe for an additional 2,000,000 Grand HK ADSs at a price of $4.00 per Grand HK ADS and the agreement to provide the officers, directors and employees of Grand US indemnification and liability insurance for actions taken as officers, directors and employees of Grand US prior to reorganization merger.

      On May 31, 2004, the subscription and exchange agreement was amended for the third time to extend the termination date to July 31, 2004.

      On May 31, 2004, the agreement and plan of merger was executed by Grand US, Grand HK and GTI Acquisition Inc.

      On June 30, 2004, the agreement and plan of merger was amended and restated.

      On July 26, 2004, the subscription and exchange agreement was amended for the fourth time to extend the termination date to August 31, 2004, to modify a closing condition relating to the reorganization of Playwell’s Gatelink subsidiary and to permit Centralink to pay up to $2,300,000 of the subscription commitment in the form of assets other than cash.

Grand US’ Reasons for the Reorganization Merger and the Playwell Acquisition

      In reaching its decision to approve the amended and restated agreement and plan of merger and the acquisition of Playwell and the related investment by Centralink in Grand HK, the board of directors identified and considered a number of potential benefits for Grand US and its shareholders that supported the board’s decision. The board also considered the risks of proceeding. These factors include both business and synergistic reasons.

 
Business and Financial Benefits

      The potential business and financial benefits include the following:

  •  the implementation of the determination by Grand US’ board to find ways to enhance and diversify its business;
 
  •  the opportunity for Grand US shareholders to participate in the future growth of Grand HK following consummation of the reorganization merger and the Playwell acquisition;
 
  •  the potential for the combination of Playwell’s financial resources and cost-management skills, and Grand US’ marketing and distribution presence in North America to create a vertically-integrated company with efficiencies of integration and scale that should provide a stronger vehicle for future expansion and product development;

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  •  the larger Grand HK group of companies would be able to further leverage on the existing relationships that Grand HK and Playwell have with licensors of proprietary names, characters and other intellectual property;
 
  •  the wealth of toy industry experience in the new entity would allow Grand HK to significantly expand its product offerings from those currently offered by Grand US and Playwell;
 
  •  the potential to facilitate Grand HK’s expansion into Asian and other world markets where Playwell has a presence;
 
  •  the potential of Grand HK to have better access to capital which in turn will improve Grand HK’s balance sheet and make Grand HK more attractive to investors and customers, and potential acquisition candidates; and
 
  •  the acquisition of Playwell and the related investment by Centralink would result in Grand HK being a much larger, financially more stable company than Grand US as it currently exists.

      In addition to these potential benefits accruing to Grand US and its shareholders from the reorganization merger and the acquisition of Playwell and the related purchase of Grand HK ADSs by Centralink, the board of Grand US considered a number of additional factors that supported the transactions, including the following:

  •  primarily a distributor of toys and related products, Grand US is disadvantaged by a lack of independent branding and proprietary products;
 
  •  the absence of a long-term distribution agreement with Toy Biz and the potential impact that the loss of its largest account would have on Grand US;
 
  •  the consolidation in the retail toy industry is allowing retailers to deal directly with manufacturers, and reducing the need for distributors such as Grand US;
 
  •  management’s view of the financial condition, results of operations and businesses of Grand US and Playwell before and after giving effect to the transactions, management’s view of the business prospects of Grand US and Playwell as a combined company, and the board’s view on the potential impact of the transaction on shareholder value;
 
  •  the results of the due diligence investigation of Playwell conducted by Grand US’ management, accountants and legal counsel; and the financial analysis and presentation of Empire Valuation Consultants delivered to Grand US’ board of directors on February 12, 2004, as well as its opinion dated March 31, 2004 that the transactions were fair, from a financial point of view, to the shareholders of Grand US; and
 
  •  the contractual terms of the amended and restated agreement and plan of merger, the subscription and exchange agreement and related transaction documents.

 
Reasons for the Reorganization Merger

      The board of directors of Grand US is recommending the reorganization merger be undertaken as a part of the overall transaction on several related grounds:

  •  Operational Convenience. As a result of the Playwell acquisition, a substantial majority of the assets, personnel and operations of Grand HK will be located in Hong Kong or nearby Guangdong province of southern China. Its banking relationships will likewise be in Hong Kong, as will the seat of its senior management. Accordingly, the reorganization merger will facilitate the business and financial operations of Grand HK by enabling its primary business partners to deal with a familiar local entity.
 
  •  Essential Condition of the Playwell Acquisition. Centralink made it clear that it would not agree to transfer the shares of Playwell to Grand US in exchange for common stock of Grand US. This would have meant that profits of Playwell would be subjected to U.S. corporate income tax when distributed as dividends to Grand US and then again to U.S. withholding tax upon distribution of the same income as dividends from Grand US to Centralink. Since Centralink currently pays no corporate or withholding tax

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  on dividends from Playwell, the result would have been to dramatically reduce the after-tax profitability of the Playwell business, which will become the largest part of the combined business of Playwell and Grand US, without any corresponding business advantage.
 
  •  Enhanced Returns to Grand US Shareholders. While the reorganization merger will have no material effect on the current taxation of the income of Grand US and its subsidiaries, by keeping the lower tax rate of a Hong Kong company on the income of Playwell’s business it will result in a lower average or effective tax rate on the combined income of Grand US and Playwell than would have been the case had Grand US acquired Playwell without first completing the reorganization merger. The result is that the current shareholders of Grand US, as holders of Grand HK ADSs, may benefit substantially from the reorganization merger in terms of enhanced returns and greater shareholder value. Thus, while the primary reason for the reorganization merger was to make possible the acquisition of Playwell and the concomitant diversification of the business and strengthening of the capital base, there is a secondary benefit to Grand US shareholders.
 
  •  Key Element in Grand’s Growth Strategy. Centralink and Grand US contemplate that Grand HK will in the future, as part of its growth strategy in the midst of consolidation in the global toy industry, acquire additional non-U.S. companies. Such companies could not be acquired by Grand US itself due to its capital limitations. In addition to providing the return necessary to justify investments in such companies, the improved profitability of Grand HK from that of Grand US has the potential to result in a higher market price for Grand HK ADSs, which could facilitate the use of Grand HK’s equity as currency for acquisitions.
 
  •  Potential Expansion of Investor Base. The board also believes that the reorganization merger will increase Grand HK’s attractiveness to non-U.S. investors. The growth of the business will require substantial additional capital. Much of that capital is expected to be provided by non-U.S. investors, who in many cases will require a higher after-tax rate of return than could have been achieved in the absence of the reorganization merger. Apart from the enhanced profitability of the business itself, non-U.S. investors will avoid the U.S. withholding taxes to which dividends to non-U.S. shareholders by a U.S. corporation are generally subject, at rates of up to 30%. Under Hong Kong law, however, there will be no Hong Kong income or withholding tax on dividends paid by Grand HK. As a result, non-U.S. investors are likely to be significantly more receptive to an investment in Grand HK ADSs. This potentially increases, the liquidity in the market for Grand HK ADSs.

 
Risks Considered

      In reaching its decision to approve the amended and restated agreement and plan of merger, the acquisition of Playwell and the related transactions, the board of Grand US also identified and considered a number of potentially negative factors that affect or could result from the whole transaction, including the following:

  •  the transactions will result in a change of control of Grand US. Mr. Jeff Hsieh, the ultimate controlling shareholder of Centralink, will control a majority of the outstanding shares of Grand HK;
 
  •  as a result of Mr. Hsieh’s ability to control Grand HK and the potential dilutive effect of the issuance of 10,000,000 Grand HK ADRs to Centralink, the share price of Grand HK may trade at a discount;
 
  •  the conflicts of interests that certain Grand US officers and directors may have as a result of the reorganization merger and the acquisition of Playwell and related transactions;
 
  •  pending U.S. tax legislation could result in Grand HK not being able to realize the tax benefits of being a Hong Kong holding company, which could have unfavorable tax consequences for Grand HK;
 
  •  if the IRS were to successfully challenge Grand HK’s assessment of the tax treatment of the reorganization merger, you could be taxed on the receipt of Grand HK ADSs in exchange for your shares of Grand US common stock;
 
  •  the issuance of the 10,000,000 Grand HK ADSs to Centralink may be at a price below the market price of the Grand HK ADSs;

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  •  it is possible that Grand HK will not receive all or any of the benefits that it believes will occur by combining the operations of Grand US and Playwell;
 
  •  Playwell’s business is and will be dependent on transactions with related parties;
 
  •  Grand HK’s operating results will be significantly dependent on the sales of products licensed from Marvel Enterprises, Inc.;
 
  •  the significant cost, which Grand HK and Grand US estimate to be $3,500,000, that will be incurred by Grand US and Playwell in seeking to complete the reorganization merger and the acquisition of Playwell; and
 
  •  the other risks described in this proxy statement/ prospectus in the section entitled “Risk Factors.”

 
Conclusion and Recommendation of the Board

      Grand US’ board of directors evaluated all of the factors described above in light of their knowledge of Grand US’ business, financial condition and prospects, Playwell’s business, financial condition and prospects, and the market for toy products. In view of the variety of factors considered by Grand US’ board of directors in its evaluation of the transactions, Grand US’ board of directors did not find it practicable to, and did not, quantify or otherwise assign relative weight to the specific factors considered in reaching its decision. In addition, individual members of Grand US’ board of directors may have given different weight to different factors. The list of factors described in this section as having been considered by Grand US’ board of directors is not intended to be the complete list of all factors considered but is believed to include all of the factors considered by Grand US’ board of directors to be material.

      After considering all of the information and factors described in this section, Grand US’ board of directors unanimously approved the reorganization merger, the amended and restated agreement and plan of merger, the subscription and exchange agreement and the other transactions contemplated by the amended and restated agreement and plan of merger and the subscription and exchange agreement. Grand US’ board of directors believes that the transactions are fair to, advisable and in the best interests of Grand US and its shareholders. Grand US’ board of directors has unanimously recommended that the Grand US shareholders vote FOR the adoption of the amended and restated agreement and plan of merger (proposal 1) and the issuance of the shares to Centralink pursuant to the subscription and exchange agreement (proposal 2).

      Although the Board’s decision was unanimous, you should be aware that four of Grand US’ seven directors have interests in the transaction that are different from yours, which may have created a conflict of interest in making their determinations.

Centralink’s Reasons for the Subscription and Exchange Transaction

      Playwell, Centralink, Cornerstone and their shareholders, have been seeking ways of growing the Playwell business, which consists principally of the manufacture and outsourcing of products for third parties on a “private label” basis and only secondarily on the manufacture of its small line of proprietary products, which it wants to expand. Also, in light of the rapid consolidation taking place in the toy industry, Playwell desires to achieve vertical integration through direct distribution in order to realize the higher margins associated with the marketing end of the business. The original concept of combining the distribution of Grand US and the manufacturing capability of Playwell with the creative product development skills of Fun-4-All was a natural way of achieving the objectives of both Grand US and Centralink. The failure of the Fun-4-All participation to materialize was a disappointment but did not invalidate the basic premise of the combination.

      Playwell and its shareholders believe that the combination of Playwell’s financial resources and cost-management skills with Grand US’ marketing and distribution presence in North America will create a vertically-integrated company with efficiencies of integration and scale that should provide a stronger vehicle for future expansion. Playwell and its shareholders believe that the combination will provide strategic and financial benefits to Grand HK by creating a toy company that has international coverage both in Asia and in North America. The combination should generate economies of scale and create a much larger and financially more stable company.

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Opinion of Empire Valuation Consultants

      Pursuant to a letter agreement dated as of November 17, 2003 and executed on November 17, 2003, Empire Valuation Consultants, LLC, or Empire, was engaged to provide a fairness opinion to the board of directors of Grand US. Empire focuses on providing business and intangible asset valuations for fairness opinions, financial reporting, tax planning and reporting, employee stock ownership plans, corporate planning, and other purposes. In this capacity, Empire is continually engaged in valuing these businesses and intangible assets and has access to and utilizes different databases of information on business valuation for comparative purposes.

      Empire made an oral presentation to the Grand US board on February 12, 2004, that, as of such date, based upon and subject to the various factors and assumptions described in the Empire presentation, the consideration to be delivered by Grand HK to Centralink pursuant to the subscription and exchange agreement was fair, from a financial point of view, to the shareholders of Grand US. The presentation made by Empire did not constitute a fairness opinion. Empire subsequently delivered its written fairness opinion, dated March 31, 2004, to the Grand US board. Other than the retention of Empire in connection with the delivery of the fairness opinion, there is no material relationship between Grand US, Playwell, Centralink and Empire, and there has been no material relationship between these parties at any time during the two years prior to the date of this proxy statement/ prospectus.

      Empire’s March 31, 2004 fairness opinion, which describes the assumptions made, matters considered and limitations on the review undertaken by Empire, is attached as Annex C to this proxy statement/ prospectus. You are urged to, and should, read the Empire opinion carefully and in its entirety. The Empire opinion is directed to the board of directors of Grand US and addresses only the fairness of the transaction consideration from a financial point of view to holders of Grand US common stock as of the date of the opinion. The Empire opinion does not address any other aspect of the reorganization merger consideration and does not constitute a recommendation to any Grand US shareholder as to how to vote at the Grand US special meeting. The summary of the Empire opinion set forth in this proxy statement/ prospectus, although materially complete, is qualified in its entirety by reference to the full text of such opinion.

      In rendering its opinion, Empire:

  •  analyzed the terms of the subscription and exchange agreement furnished to Empire by legal counsel to Grand US on September 4, 2003;
 
  •  analyzed certain publicly available financial statements and other information with respect to Grand US;
 
  •  analyzed certain internal financial and operating information, including certain projections for Grand US prepared and provided to Empire by Grand US’ management;
 
  •  participated in discussions with Grand US’ management concerning the operations, business strategy, current financial performance and prospects for Grand US;
 
  •  discussed with Grand US’ management its view of the strategic rationale for the consideration payable pursuant to the subscription and exchange agreement;
 
  •  analyzed recent reported closing prices and trading activity for Grand US common stock;
 
  •  compared certain aspects of the financial performance of Grand US with other comparable public companies;
 
  •  analyzed available information, concerning other comparable mergers and acquisitions;
 
  •  analyzed certain financial statements and other information with respect to Playwell provided by Playwell;
 
  •  analyzed certain internal financial and operating information, including certain projections for Playwell prepared and provided to Empire by Playwell’s management;
 
  •  participated in discussions with Playwell’s management concerning the operations, business strategy, current financial performance and prospects for Playwell;

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  •  discussed with Playwell’s management its view of the strategic rationale for the acquisition;
 
  •  compared certain aspects of the financial performance of Playwell with other comparable public companies;
 
  •  analyzed the anticipated effect of the Playwell acquisition on the future financial performance of the consolidated entity;
 
  •  conducted a review of the Value Line Quarterly Economic Review forecast, dated February 27, 2004;
 
  •  utilized Hoover’s Web site in researching publicly-traded comparable or guideline companies;
 
  •  utilized Yahoo! Finance’s Web site in researching publicly-traded comparable or guideline companies and in gathering market prices of publicly-traded guideline companies;
 
  •  utilized Compact Disclosure’s Database in researching publicly-traded comparable or guideline companies;
 
  •  utilized Mergerstat’s Database in researching comparable transactions;
 
  •  utilized Done Deals’ Database in researching comparable transactions; and
 
  •  utilized Pratt’s Stats Database in researching comparable transactions.

      In rendering its opinion, Empire relied, without independent verification, on the accuracy and completeness of all the financial and other information, including without limitation the representations and warranties contained in the subscription and exchange agreement, that was furnished to Empire by Grand US, Playwell or their respective advisors. With respect to the financial projections examined by Empire, Empire assumed that they were reasonably prepared and reflected the best available estimates and good faith judgments of the management of Grand US and Playwell as to the future performance of Grand US and Playwell, respectively. Empire’s opinion does not address the financial impact of any of the potential acquisitions that Cornerstone might make or is considering in the future. Empire did not make any independent appraisal of any of Grand US’ or Playwell’s assets. In addition, Empire expressed no opinion as to the price at which Grand HK ADSs will trade at any time or as to the tax consequences of the reorganization merger to Grand US or any of its stockholders. Empire’s fairness opinion is necessarily based upon market, economic, financial and other conditions as they existed as of the date of the opinion, and any change in such conditions would require a reevaluation of the opinion.

      The following is a brief summary of the valuation methodologies employed by Empire in rendering its opinion. These analyses were also presented to the board of directors of Grand US at its meeting on February 12, 2004. This summary does not purport to be a complete description of analyses performed by Empire in arriving at its opinion.

      Analyses were performed focusing on two scenarios:

  •  excluding the impact of the Playwell acquisition and additional consideration to be tendered by Centralink (the “Stand Alone Scenario”), and
 
  •  including the impact of the Playwell acquisition (the “Post-merger Scenario”). Empire also considered additional cash or bridge loan consideration offered by Centralink as part of the transaction and other factors pertinent to arriving at a fairness opinion. The following analyses were performed:

      Guideline Company Analysis — Using Hoover’s Web site and Compact Disclosure’s database, Empire conducted a search for publicly-traded comparable companies that were involved in distribution, manufacturing and/or marketing of toys and related products. This search yielded five companies:

  •  Jakks Pacific, Inc.;
 
  •  Playmates Holdings, Ltd.;
 
  •  RCS Corp.;
 
  •  Lung Cheong International Holdings Ltd.; and

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  •  Zindart, Ltd.

      Empire’s criteria for selecting guideline companies consisted of:

  •  the company’s sales could be no more than $500 million;
 
  •  the company’s common equity had to be actively traded on a public market as of the Valuation Date;
 
  •  the company’s markets, operations, and types of products had to be similar to those of Grand US;
 
  •  the company’s primary products, services, and sales were not tied to a specific niche or single customer; and
 
  •  sufficient information was publicly available with which to perform a thorough analysis.

      Value was determined based on market value of invested capital or MVIC, as a multiple of trailing twelve month, or TTM, earnings before interest, taxes, depreciation and amortization or EBITDA for the five publicly traded companies identified as being most comparable to Grand US and Playwell, which are referred to as the comparable companies.

      Adjustments were made to EBITDA when necessary, to account for extraordinary and/or non-recurring items. A range of MVIC to TTM EBITDA multiples of 5.9 to 10.7 times was calculated, and the median and average multiples were each approximately eight times. These multiples are summarized in the following table:

Guideline Company Multiples

         
MVIC to TTM
Company EBITDA Multiple


Jakks Pacific, Inc. 
    10.7  
Playmates Holdings Ltd. 
    5.9  
RC2 Corp. 
    9.0  
Lung Cheong International Holdings Ltd. 
    8.2  
Zindart Ltd. 
    6.8  
Maximum
    10.7  
Minimum
    5.9  
Average
    8.1  
Median
    8.2  
Selected Multiple (Pre-Merger)
    8.0  
Selected Multiple (Post-Merger)
    8.5  

      Empire derived indications of equity values by (i) applying selected MVIC/ TTM EBITDA multiples — in the range of 7.5 times to 8.5 times, for the Stand Alone Scenario, and in the range of 8.0 to 9.0 times, for the Post-merger Scenario and (ii) applying a control premium of 20%. This resulted in the aggregate value of equity of between $5.6 million and $6.3 million for the Stand Alone Scenario and between $45 million and $51 million for the Post-merger Scenario. Note that for all valuation analyses the calculated MVIC values equate to equity values due to the absence of debt.

      Guideline Transaction Analysis — Using Mergerstat’s Database, the DoneDeals Database, and PrattStat’s Database, Empire conducted a search for comparable transactions. The review of comparable transactions was limited to transactions involving companies that were involved in the sales of toys and related products. This search yielded eleven transactions. Value was determined based on MVIC to TTM EBITDA multiples and MVIC to TTM revenue multiples for the eleven acquired companies. Adjustments were made to EBITDA when necessary, to account for extraordinary and/or non-recurring items.

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      A range of MVIC to TTM EBITDA multiples (for companies with positive TTM EBITDA) of 2.6 to 23.6 times were calculated, with median and average multiples at 7.5 times and 9.9 times respectively. A range of MVIC to TTM revenue multiples of 0.2 to 2.8 times was calculated, with median and average multiples at 0.7 times and 0.8 times respectively. These multiples are summarized in the following table:

Guideline Transaction Multiples

                 
MVIC to TTM MVIC to
Acquired Company EBITDA Multiple TTM Sales



Toymax International, Inc. 
    0.69       Neg.  
McGuggan, LLC
    0.74       9.1  
Marx Toys, Inc. 
    2.84       Neg.  
Learning Curve International, Inc. 
    0.88       7.5  
Meritus Industries, Inc. 
    0.43       23.6  
Funline Merchandising Company, Inc. 
    1.02       N/A  
Sassy, Inc. 
    1.02       N/A  
Toymax International, Inc. (Monogram International, Inc. Unit Sold)
    0.22       2.6  
Irwin Toy, Ltd. 
    0.43       6.8  
Montgomery Schoolhouse
    0.49       Neg.  
DaMert Co., Inc. 
    0.81       Neg.  
Maximum
    2.84       23.6  
Minimum
    0.22       2.6  
Average
    0.87       9.9  
Median
    0.74       7.5  
Selected Multiple (Pre-Merger)
    0.80       8.0  
Selected Multiple (Post-Merger)
    0.85       8.5  

      Empire derived indications of equity values for the Stand Alone Scenario by applying selected MVIC/ TTM EBITDA multiples in the range of 7.5 times to 8.5 times and MVIC/ TTM Revenues multiples in the range of 0.70 to 0.90 times to certain adjusted operating results for the latest twelve months ended December 31, 2003. Empire derived indications of equity values for the Post-merger Scenario by applying selected MVIC/ TTM EBITDA multiples in the range of 8.0 times to 9.0 times and MVIC/ TTM Revenues multiples in the range of 0.75 to 0.95 times to certain adjusted operating results for the latest twelve months ended December 31, 2003. This resulted in an aggregate equity value range of between $6.3 million and $7.7 million for the Stand Alone Scenario and between $38 million and $45 million for the Post-merger Scenario.

      Discounted Cash Flow Analysis — In determining values based on the discounted cash flow approach, Empire estimated the present value of: (i) Grand US’ unlevered cash flows (for both Scenarios) for the remainder of 2004 through December 31, 2008; and (ii) the value of Grand US (for both Scenarios) at 2008. Based on these analyses an equity value range (based on a range of selected discount rates and long term growth rates) of $6.0 million to $7.3 million was concluded for the Stand Alone Scenario and $41 million to $54 million for the Post-merger Scenario. Projections were provided to Empire by management of Grand US and Playwell.

      The discount rates used for the analyses were developed using a weighted average cost of capital analysis and were based upon benchmark rates. Empire employed the Capital Asset Pricing Model and the Build-up Method to develop its discount rates. The long-term growth rate utilized by Empire of 4% was based upon long-term inflation and real GDP growth forecasts provided by Value Line, industry trends, and discussions with management on Grand US’s long-term growth prospects.

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      Market Capitalization and Concluded Values — Analyses of Grand US’s publicly traded values over different time periods were performed and considered. Some of these calculations and the concluded value ranges for the Stand Alone Scenario and Post-merger Scenario are as follows:

                                                   
Range Low % Total Range Mid Pt. % Total Range High % Total
Value Value Value Value Value Value






($000s excl. %s and per share #s)
Value of Grand US Pre-merger
    5,700               6,200               7,000          
Note: Value per Share(1)
  $ 0.94             $ 1.02             $ 1.15          
Value of Grand HK Post-merger (Grand US and Playwell combined)
                                               
Value of Grand HK (Grand US and Playwell combined)
    40,000       84.6 %     46,000       86.3 %     52,000       87.7 %
Net Value of Cash Contributions by Centralink
    7,300       15.4 %     7,300       13.7 %     7,300       12.3 %
     
     
     
     
     
     
 
Total Value Post Merger
    47,300       100.0 %     53,300       100.0 %     59,300       100.0 %
Note: Value per Share(1)
  $ 3.12             $ 3.51             $ 3.91          
Note: Mkt. Cap. Value per Share last 60 days
  $ 3.35             $ 3.35             $ 3.35          
Note: Mkt. Cap. Value per Share last 30 days
  $ 3.28             $ 3.28             $ 3.28          
Note: Mkt. Cap. Value per Share @ Valuation Date
  $ 3.07             $ 3.07             $ 3.07          
Proposed % Equity to Grand US Shareholders (see below)
    34.1 %             34.1 %             34.1 %        
Proposed Value to Grand US Shareholders (rounded)
  $ 16,100             $ 18,200             $ 20,200          
 
Note: Value per Share(1)
  $ 3.12             $ 3.52             $ 3.91          
Pro Rata Value of Grand US Pre-merger(2)
    5,700               6,200               7,000          
Additional Value Received (Lost)
  $ 10,400             $ 12,000             $ 13,200          

      Concluded values are based upon values arrived at for Grand US on a pre-and post-merger basis using the discounted cash flow, guideline company, and guideline transaction methods. As illustrated in the previous table, the analyses by Empire show that the value to Grand US’s shareholders is higher on a post-merger basis than on a pre-merger basis. Also taken into consideration was that the concluded equity value to Grand US shareholders was higher than that reflected by its stock price.

      Other Considerations — Other factors considered included:

  •  the use of operating metrics as a measure to consider the value contributed by each entity. This refers to the fact that the EBITDA, revenues, and book value contributed by Grand US was less in percentage terms than the equity ownership it received from the transaction. The review of these operating metrics should be considered as supplementary considerations by Empire;
 
  •  the extremely competitive and challenging environment for toy distributors;
 
  •  Grand US’ declining revenue trend;
 
  •  the strength in developing a vertically-integrated company;
 
  •  the benefits from increased customer and product base diversification;
 
  •  the greater access to financial resources through Playwell and its affiliates;
 
  •  increased channels of distribution through Playwell and its affiliates; and

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  •  the enhanced ability to absorb fixed overhead costs (such as public company costs) provided by a larger operating entity.

      The preparation of a fairness opinion is a complex process that involves various judgments and determinations as to the most appropriate and relevant methods of financial and valuation analysis and the application of those methods to the particular circumstances. The opinion is, therefore, not necessarily susceptible to partial analysis or summary description. Empire believes that its analyses must be considered as a whole and that selecting portions of its analyses and the factors considered, without considering all of the analyses and factors, would create a misleading and incomplete view of the processes underlying its opinion.

 
Fees

      Pursuant to a letter agreement between Grand US and Empire, Grand US paid a $32,500 engagement fee to Empire at the time the parties entered into the letter agreement and an additional $32,500 upon delivery of the fairness opinion. In addition, Grand US has agreed to reimburse Empire for its reasonable expenses, including fees and expenses of its counsel, up to a maximum of $5,000, and to indemnify Empire and its affiliates against certain liabilities and expenses related to their engagement, including liabilities under the federal securities laws. The terms of the fee arrangement with Empire, which Grand US and Empire believe are customary in transactions of this nature, were negotiated at arm’s length between the Grand US board and Empire, and the Grand US board was aware of the nature of the fee arrangement.

Delisting and Deregistration of Grand US Common Stock

      Grand US’ common stock is currently listed on the Nasdaq SmallCap Market under the symbol “GRIN.” There is currently no established public trading market for Grand HK’s ordinary shares or the ADSs of Grand HK. If the reorganization merger is completed, Grand US common stock will be delisted from the Nasdaq SmallCap Market and will be deregistered under the Exchange Act.

Nasdaq Listing

      Grand HK has applied to have the Grand HK ADSs approved for listing on the Nasdaq SmallCap Market immediately following the reorganization merger, subject to notice of issuance under the symbol “GRIN”, the same symbol under which Grand US common stock is currently listed.

Interests of Grand US Directors and Officers in the Reorganization Merger and Subsequent Operation of Grand HK and Potential Conflicts of Interest

      Some officers and directors of Grand US have interests in the transactions described in this proxy statement/ prospectus that are different from, or in addition to, the interests of Grand US shareholders generally. As described in detail below, there are substantial financial interests to be conveyed to certain executive officers and directors of Grand US in connection with the reorganization merger, the Playwell acquisition and the Centralink subscription.

  •  Centralink purchase of Grand HK ADSs. It is a condition to the closing of the Playwell acquisition and the related Centralink subscription for Grand HK ADSs that Centralink purchase an aggregate of 924,187 Grand HK ADSs at a purchase price of $4.00 per ADS from Mr. Altro, a director of Grand US and its acting president, and Mr. Mars, a director of Grand US. Messrs. Mars and Altro control the largest block of shares in Grand US. These shares to be purchased by Centralink represent in the aggregate one-half of the shares owned by Messrs. Mars, Altro and their affiliates. After the closing of the transactions described in this proxy statement/ prospectus, Messrs. Altro and Mars will no longer be directors or officers of Grand HK or any of its subsidiaries, including Grand US. As a result, Messrs. Mars and Altro would generally be free to sell all of their shares in Grand HK. Centralink, as the largest shareholder of Grand HK after the reorganization merger and the Playwell acquisition and related transaction, was concerned about the potential impact that the sale of a large block of Grand HK ADSs would have on the market for Grand HK’s ADSs. Accordingly, it determined to purchase one-half of their respective interests in Grand HK ADSs as a way of mitigating this market risk. The remainder of the shares owned

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  by Messrs. Mars, Altro and their affiliates are subject to a lockup agreement and cannot be sold for six months after the consummation of the Playwell acquisition. Although the purchase of the Grand HK ADSs from Messrs. Mars and Altro and their affiliates immediately after the closing will prevent them from sharing in the future appreciation in value of these ADSs, the purchase will also eliminate any risk resulting from a decrease in the market price on one half of the Grand HK ADSs owned by each of them and their affiliates.
 
  •  Board representation. It is a condition to the closing of the Playwell acquisition and the related Centralink subscription that Centralink and Messrs. Mars and Altro enter into a shareholder’s agreement. As more particularly described below in “Management of Grand HK,” Messrs. Mars and Altro will have the right, until Grand HK’s 2005 annual meeting of shareholders, to designate two persons to Grand HK’s five member board. It is expected that Elliot L. Bier, Grand US’ current Chairman, and Michael Kron, a current member of Grand US’ board, will be the two nominees of Messrs. Mars and Altro.
 
  •  Engagement of Messrs. Mars and Altro as consultants. It is expected that Messrs. Mars and Altro will be retained as consultants to Grand Toy Ltd., Grand US’ Canadian subsidiary after the reorganization merger and Playwell acquisition. Messrs. Mars and Altro are currently negotiating the terms of their consulting agreements, although it has been agreed that Messrs. Mars and Altro will receive consulting fees of $184,000 in the aggregate and be entitled to participate, at their own expense in the group insurance plan of Grand Toys Ltd. Messrs. Mars and Altro currently receive an aggregate of approximately $78,000 per year of consulting fees from Grand Toys Ltd.
 
  •  Employment of Grand US executives. It is expected that Elliot L. Bier, Grand US’ current chairman, and Tania M. Clarke, Grand US’ current executive vice-president and chief financial officer, will enter into employment agreements with Grand HK that will become effective when the reorganization merger and the Playwell acquisition are completed. Under the terms of the proposed employment agreements, Mr. Bier will serve as the paid vice-chairman of Grand HK and Ms. Clarke will serve as vice president of finance of Grand HK and vice president and chief financial officer of Grand US. Mr. Bier is not currently an employee of Grand US, although he receives chairman fees of $42,000 per year and automatic director option grants of 125 options per quarter. Under Mr. Bier’s employment agreement, he will receive an annual salary of not less than $150,000 and options to purchase 300,000 Grand HK ADSs at an exercise price of $2.95 per Grand HK ADS. Although Ms. Clarke is employed by Grand US, under her new employment agreement, her base salary will increase to $170,000 per year, an increase of approximately $56,000 per year over her existing salary, she will have the right to receive a bonus of up to 25% of her base salary and she will be granted options to purchase 50,000 Grand HK ADSs. Ms. Clarke’s existing employment agreement does not contain specified bonus and option amounts. Mr. Bier’s and Ms. Clarke’s employment agreements are summarized under the section titled “Executive Employment Agreements” beginning on page 74. Furthermore, since January 1, 2004, Mr. Bier has also served as a paid consultant to Cornerstone.
 
  •  Compensation of Michael Kron and Elliot L. Bier as directors of Grand HK. Grand HK has agreed that all directors of Grand HK shall receive an annual director fee of $25,000 and quarterly grants of options to purchase 1,250 Grand HK ADSs, or 5,000 options per year, at an exercise price equal to the market price of the Grand HK ADSs on the date of grant. In addition, non-employee directors’ such as Mr. Kron, will receive an additional quarterly grant of options to purchase 6,250 Grand HK ADSs, or 25,000 options per year, at an exercise price equal to the market price of Grand HK ADSs on the date of grant. By virtue of Mr. Bier’s and Mr. Kron’s agreement to serve on the board of Grand HK as nominees of Messrs. Mars and Altro under the terms of the stockholders’ agreement, each will benefit from these compensation arrangements. However, this director compensation program was not contemplated, nor was Mr. Kron approached about serving as a director of Grand HK, until months after the board of Grand US had unanimously voted in favor of the reorganization merger and the acquisition of Playwell.
 
  •  Directors’ and officers’ insurance and indemnification. The subscription and exchange agreement provides that Grand US, as the surviving corporation in the reorganization merger, will purchase and maintain a directors’ and officers’ liability tail insurance policy to cover, for a period of six years, present

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  and former directors, officers and employees of Grand US for acts and omissions of Grand US’ directors prior to the consummation of the reorganization merger and the Playwell acquisition. This insurance will have comparable coverage and amounts as the coverage currently provided by Grand US. The subscription and exchange agreement requires Grand US, as the surviving corporation in the merger, to indemnify each past and present director, officer and employee of Grand US following the reorganization merger and the Playwell acquisition against all expenses or liabilities incurred in connection with any claim or investigation arising out of actions or omissions occurring before the merger to the fullest extent permitted under the laws of the State of Nevada and the Grand US articles of incorporation, as amended and amended and restated bylaws.
 
  •  Reimbursement and indemnification agreement. As described under the section titled “Recent Developments” on page 21, Cornerstone has identified, and is pursuing discussions with a view to acquiring, other companies in the toy business. These companies may become part of Grand HK after the completion of the reorganization merger. Grand US and its directors, officers, employees and agents have performed services and contracted for services in connection with acquisition and financing initiatives for Cornerstone pending completion of the reorganization merger and the Playwell acquisition. Cornerstone has agreed to pay or reimburse Grand US for the obligations and liabilities incurred on behalf of Cornerstone and its affiliates in connection with the initiatives undertaken at the request of Centralink and its affiliates. Cornerstone has also agreed to indemnify the directors, officers, employees, agents and representatives of Grand US for actions taken in furtherance of such initiatives.
 
  •  Grand US stock options and warrants. As a result of the pending reorganization merger, Grand US’ stock options and warrants will be assumed by Grand HK and the optionees and warrant holders will be entitled to receive Grand HK ADSs upon exercise of their options and warrants. Officers and directors of Grand US currently hold an aggregate of 100,114 options and 187,857 warrants to purchase Grand US common stock.

Management of Grand HK

 
Shareholders Agreement

      As a result of the subscription and exchange agreement, the board of directors of Grand HK will be completely reconstituted from Grand US’s current board following the reorganization merger and the acquisition of Playwell and the related subscription transaction and Centralink will own a majority of the shares of Grand HK. Accordingly, in order to assure an orderly transition in management of the newly combined company, Centralink and Messrs. Mars and Altro, two directors and significant shareholders of Grand US, have agreed to enter into a shareholder’s agreement. Under the shareholders’ agreement, which is attached as Annex D to this proxy statement/ prospectus, the parties have agreed that the provisions of the memorandum and articles of association of Grand HK limiting the size of its board of directors to 5 persons will not be varied and the shareholders will vote their shares for the election of two directors nominated by Centralink and two directors nominated by Messrs. Mars and Altro. One designee of each of Centralink and Messrs. Mars and Altro must be “independent” within the meaning of current Nasdaq marketplace rules, as must the fifth director, who will be nominated by the other two “independent” directors and must be acceptable to Centralink and to Messrs. Mars and Altro. This arrangement will remain in place until Grand HK’s 2005 annual general meeting of shareholders. It is expected that Elliot L. Bier, Grand US’ Chairman, and Michael Kron, current director of Grand US, will be designated by Messrs. Mars and Altro with Mr. Kron being Messrs. Mars’ and Alfro’s “independent” nominee; Henry Hu, executive director of Cornerstore, and Thomas J. Mitchell will be designated by Centralink with Mr. Mitchell being Centralink’s “independent” nominee; and Robert Laverdure will be the third “independent” director designated by Messrs. Kron and Mitchell, and acceptable to Centralink and Messrs. Mars and Altro.

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Board of Directors and Executive Officers

      Set forth below is the name, age, principal occupation during the past five years and other information concerning each person who will serve as the initial directors and executive officers of Grand HK after the consummation of the reorganization merger and the acquisition of Playwell and the related Centralink subscription. The information presented with respect to each director nominee and each executive officer has been furnished by that person.

             
Name Age Position



Henry Hai Lin Hu
    58     Chief Executive Officer and Chairman of the Board
Elliot L. Bier
    54     Director, Vice Chairman
David J. Fremed
    43     Executive Vice President and Chief Financial Officer
Tania M. Clarke
    36     Vice President of Finance and Chief Financial Officer of Grand US
Raymond Chan Hong Leung
    45     Chief Operating Officer — Playwell Division
Michael Kron
    40     Director
Thomas J. Mitchell
    65     Director
Robert Laverdure
    57     Director

      Henry Hai Lin Hu — Mr. Hu is currently an executive director of Cornerstone. Mr. Hu joined Cornerstone in May 2003. Prior to joining Cornerstone, from 1998 to 2003, Mr. Hu was a principal of Business Plus Consultants Limited, a consulting firm, where he was instrumental in advising numerous Hong Kong manufacturers in strategic planning and business development. From 1996 to 1998, Mr. Hu served as chairman and chief executive officer of Sinomex Inc., a US/ Mexico based toy manufacturing company. Prior to joining Sinomex, Mr. Hu was chairman and chief executive officer of Nasdaq listed Zindart Industrial Company Ltd. From 1993 to 1996, Mr. Hu was also a co-founder of Wah Shing Toys International Ltd., which he ran from 1982 to 1991 and which has been subsequently listed on the Singapore Stock Exchange. Prior to 1982, Mr. Hu was a senior executive and director of several large toy companies, including Mattel HK, Marx Toys HK, and Universal Matchbox. Mr. Hu is a chartered engineer and corporate member of the Institution of Electrical Engineers. Mr. Hu graduated from the University of Hong Kong in 1970 with a Bachelor of Science degree in Mechanical Engineering.

      Elliot L. Bier — Mr. Bier has been a senior partner in the Montreal, Canada law firm of Adessky Poulin, where he has practiced law for the last 25 years. Adessky Poulin has been Grand US’ Canadian legal counsel for the last 13 years. Since November 16, 2000, Mr. Bier has served as chairman of Grand US. Since January 1, 2004, Mr. Bier has also served as a paid consultant to Cornerstone. From May 2001 to June 2003, Mr. Bier served as the chief operating officer of Polystar Inc., a Montreal-based plastics company. Mr. Bier is or has served as a director of a number of public, quasi-public, private and charitable companies and or institutions, including Capital Trust Corporation, Mount Sinai Hospital Foundation, Pursuit Financial Management Corporation, JB Oxford Corp and Federation CJA. He is currently chairman and president of Mount Sinai Hospital in Montreal. Mr. Bier is a graduate of Long Island University where he also received a masters of business administration, and he received his law degree, from McGill University.

      David J. Fremed — Mr. Fremed is currently a consultant to Cornerstone serving in the role of its principal financial officer. Prior to being engaged by Cornerstone in February 2004, Mr. Fremed was the chief financial officer of Atari, Inc., a Nasdaq listed company, from May 2000 to February 2004, where he was responsible for all treasury, budgeting, SEC reporting and compliance functions. In addition, Mr. Fremed was responsible for seeking potential acquisition candidates, negotiating terms of acquisition transactions, and integrating the newly acquired companies into Atari. From 1990 to 2000, Mr. Fremed held various financial positions at Marvel Enterprises, Inc., including serving as its chief financial officer, where he was responsible for arranging both debt and equity financings as well as managing the financial reporting, MIS, tax, and human resource departments.

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Mr. Fremed is a certified public accountant and holds a masters of business administration degree from New York University and a bachelor of science degree from Albany State University.

      Tania M. Clarke — Ms. Clarke has served as the executive vice-president and chief financial officer of Grand US and Grand Canada since December 4, 2000. Ms. Clarke is responsible for Grand US’ public company reporting, regulatory requirements, audit, finance, legal, banking, and human resources management. She has been employed by Grand US and its subsidiaries in various other financial capacities since May 3, 1993, including the positions of assistant-controller and controller prior to accepting the position of executive vice-president and chief financial officer at Grand US. Before her employment with Grand US, Ms. Clarke was employed by KPMG LLP as an external auditor for 3 years. Ms. Clarke is a Canadian chartered accountant and a U.S. certified public accountant. Ms. Clarke graduated from Concordia University in Montreal, Canada, with a bachelor of accounting degree and a graduate certificate in accounting.

      Raymond Chan Hong Leung — Mr. Chan is currently the chief operating officer of Cornerstone. Mr. Chan has been the chief financial officer and executive vice president of Hong Kong Toy Centre Limited and Playwell Industry Limited since August 1, 2002 and prior to that he served as the Chief Financial Officer of both companies since June 2000. Prior to joining Cornerstone, Mr. Chan was an audit manager with Chan & Wat CPA from 1998 until May 2000. Mr. Chan is an associated member of the Association of Certified Public Accountants and a Graduate Member of Canadian Institute of Certified Administrative Managers. He holds a bachelor’s degree in business administration from Newport University in California and a masters of professional accounting from Southern Cross University.

      Michael Kron — Mr. Kron is co-founder and has served as chief operating officer of Miazzi Ventures Inc., an investment company located in Montreal, Canada, since 1992. Mr. Kron is a Canadian chartered accountant. Mr. Kron has served as a director of Grand US since June 2002. Mr. Kron graduated from McGill University with an undergraduate degree and a graduate certificate in accounting.

      Thomas J. Mitchell — Mr. Mitchell is currently retired. Until his retirement in 1999, Mr. Mitchell served as a Senior Audit Partner at Ernst & Young and also served as the Co-Chairman of Ernst & Young Multinational Partner Group. Mr. Mitchell has served as a director of Atari Inc., a publisher and developer of video games, since January 2001. Mr. Mitchell also serves on the audit and compliance committees of several not-for-profit organizations.

      Robert Laverdure — Mr. Laverdure is currently retired. From 1989 until his retirement in 2003, Mr. Laverdure served as senior vice president, Quebec region for TD Bank Financial Group. From 1970 to 1989, Mr. Laverdure held various management positions with TD Bank Financial Group and its predecessor entities. Mr. Laverdure has served as a director of Sitecell Inc., a technology company offering business solutions. Mr. Laverdure is or has served as a director or officer of a number of private charitable institutions. Mr. Laverdure graduated from the University of Notre Dame, British Columbia with a degree in economics.

 
Executive Employment Agreements

      It is expected that Mr. Bier, Mr. Hu, Mr. Fremed, Mr. Chan and Ms. Clarke will enter into new employment agreements with Grand HK effective following completion of the reorganization merger and the acquisition of Playwell and the related Centralink subscription. The following summarizes the material terms of these employment agreements.

      Henry Hai Lin Hu. Under Mr. Hu’s employment agreement, Mr. Hu will be employed as the chairman of the board and chief executive officer of Grand HK. Mr. Hu’s employment agreement with Grand HK will entitle him to receive an annual base salary of $250,000. Mr. Hu shall be awarded incentive compensation at the discretion of the Grand HK board of directors. Mr. Hu will also be eligible to participate in the fringe benefit plans and arrangements of Grand HK made available to similarly situated senior executives of Grand HK and its subsidiaries. In addition, Mr. Hu’s employment agreement provides that Mr. Hu may serve as a consultant for Cornerstone under a separate agreement.

      Mr. Hu’s employment agreement provides for a term of employment extending from the consummation of the acquisition of Playwell until Grand HK’s 2007 annual general meeting of shareholders. However, the

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agreement will terminate upon Mr. Hu’s death or disability and may be terminated at any time by Grand HK with or without cause. In the event Mr. Hu’s employment is terminated by Grand HK without cause and not due to his death or disability, Mr. Hu will continue to receive his base salary and benefits until the earlier to occur of the scheduled expiration of the term of his employment agreement or one year after the date of termination of his employment.

      Mr. Hu’s employment agreement also provides that, during its term and for one year following the termination of Mr. Hu’s employment, Mr. Hu may not become associated with competitive entities that are actively engaged in Grand HK’s business, solicit the business of any company that was a customer or client of Grand HK within the one year period prior to the date of Mr. Hu’s termination of employment, or solicit any person that is or was an employee of Grand HK on the date of Mr. Hu’s termination of employment. The employment agreement contains provisions requiring Mr. Hu to maintain the confidentiality of proprietary information of Grand HK and other companies in the Grand HK group of companies.

      Elliot L. Bier. Under Mr. Bier’s employment agreement, Mr. Bier will be employed as an employee director of Grand HK and will serve as the vice-chairman of the board. Mr. Bier’s employment agreement with Grand HK will entitle him to receive an annual salary of not less than $150,000 and he will be eligible to receive performance bonuses based upon transactions successfully completed by Grand HK. Mr. Bier will also be granted options to purchase 300,000 Grand HK ADSs at an exercise price of $2.95 per Grand HK ADS. The options will vest as to 100,000 Grand HK ADSs on each of the first two anniversaries of the effective date of his employment and as to the last 100,000 Grand HK ADSs on the last day of the initial term of Mr. Bier’s employment agreement. However, if there is a change of control of Grand HK and Mr. Bier’s employment is terminated for any reason other than for cause or his employment is terminated at any other time and such termination is not made by Mr. Bier voluntarily or by Grand HK for cause, or by reason of Mr. Bier’s death or disability, all of the options will immediately vest. Mr. Bier will also be eligible to participate in the various retirement, welfare and fringe benefit plans, programs and arrangements of Grand HK afforded to similarly situated senior executives of Grand HK and its subsidiaries, in accordance with the terms of such plans, programs and arrangements.

      The agreement provides for a term of employment extending from the consummation of the acquisition of Playwell until Grand HK’s 2007 annual general meeting of shareholders. However, the agreement will terminate upon Mr. Bier’s death or disability and may be terminated at any time by Grand HK with or without cause. The termination of Mr. Bier’s employment with Grand HK will not affect his status as a director nominee of Messrs. Mars and Altro pursuant to the shareholders’ agreement. In the event Mr. Bier is terminated by Grand HK without cause and not due to his death or disability, Mr. Bier will continue to receive his base salary plus benefits until the earlier to occur of the scheduled expiration of the term of the agreement or the first anniversary of the termination of his employment. Mr. Bier shall also be entitled to any transaction bonuses accrued during this period.

      Mr. Bier’s employment agreement also provides that, during its term and for one year following the termination of Mr. Bier’s employment, unless Mr. Bier’s termination is not for cause and except in connection with the practice of law, Mr. Bier may not become associated with competitive entities that are actively engaged in Grand HK’s business, solicit the business of any company that was a customer or client of Grand HK or its affiliates during the six-month period prior to Mr. Bier’s termination date, or solicit any person that was a management or sales employee of Grand HK or its affiliates during the six-month period prior to Mr. Bier’s termination date. The employment agreement contains provisions requiring Mr. Bier to maintain the confidentiality of proprietary information of Grand HK and its affiliates.

      David J. Fremed. Under Mr. Fremed’s employment agreement, Mr. Fremed will be employed as executive vice president and chief financial officer of Grand HK. Mr. Fremed’s employment agreement with Grand HK will entitle him to receive an annual base salary of $330,000 and he will be entitled to receive a guaranteed bonus each year for the first three years of his employment, which will be equal to 40% of the base salary he would have received for that year. Mr. Fremed will also be granted options to purchase 300,000 Grand HK ADSs at a price per Grand HK ADS equivalent to the closing market price of the Grand HK ADSs on the last trading day prior to the date of the grant. The options will vest as to 100,000 ADSs on each of the first three anniversaries of the

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effective date of his employment unless there is an earlier change of control of Grand HK and Mr. Fremed ceases to act in the capacity of Chief Financial Officer of Grand HK, other than due to a termination for cause, then all of these options shall immediately vest. Mr. Fremed will also be eligible to participate in the fringe benefit plans and arrangements of Grand HK made available to similarly situated senior executives of Grand HK and its subsidiaries with a certain guaranteed minimum level of benefits prior to establishment of benefit plans available to U.S. employees.

      The agreement provides for a term of employment extending from the consummation of the acquisition of Playwell until Grand HK’s 2007 annual general meeting of shareholders. However, the agreement will terminate upon Mr. Fremed’s death or disability and may be terminated at any time by Grand HK with or without cause. In the event Mr. Fremed’s employment is terminated by Grand HK without cause and not due to his death or disability, Mr. Fremed will continue to receive his base salary and guaranteed bonus until the earlier to occur of the scheduled expiration of the term of his employment agreement or six months after the date of termination of his employment and his options shall continue to vest during this period as if his employment was not terminated.

      Mr. Fremed’s employment agreement also provides that, during its term and for two years following the termination of Mr. Fremed’s employment, Mr. Fremed may not become associated with competitive entities that are actively engaged in Grand HK’s business, solicit the business of any company that was a customer or client of Grand HK or its affiliates, or solicit any person that is or was an employee of Grand HK during the six-month period prior to the solicitation. The employment agreement contains provisions requiring Mr. Fremed to maintain the confidentiality of proprietary information of Grand HK and other companies in the Grand HK group of companies.

      Tania M. Clarke. Under Ms. Clarke’s employment agreement, Ms. Clarke will be employed as vice president of finance of Grand HK and vice president and chief financial officer of Grand US. Ms. Clarke’s employment agreement with Grand HK will entitle her to receive an annual salary of not less than $170,000 and she will be eligible to receive annual performance bonuses of 20%-25% of her base salary she would have received for that year, based on the achievement of certain milestones and approval by Grand HK’s compensation committee. Ms. Clarke will be granted options to purchase 50,000 Grand HK ADSs at a price per Grand HK ADSs equivalent to the closing market price of Grand HK ADSs on the last trading day prior to the date of grant. The options will vest as to one-third of the shares on each of the first three anniversaries of the effective date of her employment agreement, unless there is a change in control of Grand HK and Ms. Clarke’s employment is terminated for any reason other than for cause, then all of the options shall immediately vest. Ms. Clarke will also be eligible to participate in the various retirement, welfare and fringe benefit plans, programs and arrangements available to similarly situated senior executives of companies of Grand HK and its subsidiaries in accordance with the terms of such plans, programs and arrangements with a certain guaranteed minimum level of medical benefits.

      The agreement provides for a term of employment of three years extending from the consummation of the acquisition of Playwell until the third anniversary thereof. However, the agreement will terminate upon Ms. Clarke’s death or disability and may be terminated at any time by Grand HK with or without cause. In the event Ms. Clarke is terminated by Grand HK without cause and not due to her death or disability, Ms. Clarke will continue to receive her base salary and bonuses until the earlier to occur of the scheduled expiration of the term of her employment or the first anniversary of the termination of her employment and all of her options shall vest immediately on the date of her termination.

      Ms. Clarke’s employment agreement also provides that, during its term and for one year following the termination of Ms. Clarke’s employment, Ms. Clarke may not become associated with competitive entities that are actively engaged in Grand HK’s business, solicit the business of any company that was a customer or client of Grand HK or its affiliates or solicit any person that is or was an employee of Grand HK or its affiliates during the six-month period prior to such solicitation. The employment agreement contains provisions requiring Ms. Clarke to maintain the confidentiality of certain proprietary information of Grand HK and its affiliates.

      Raymond Chan Hong Leung. Under Mr. Chan’s employment agreement, Mr. Chan will be employed as the Chief Operating Officer — Playwell Division of Grand HK. Mr. Chan’s employment agreement with Grand HK will entitle him to receive an annual base salary of $175,000. Mr. Chan shall be awarded incentive

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compensation at the discretion of the Grand HK board of directors. Mr. Chan will also be eligible to participate in the fringe benefit plans and arrangements of Grand HK made available to similarly situated senior executives of Grand HK and its subsidiaries. In addition, Mr. Chan’s employment agreement provides that Mr. Chan may provide services to Cornerstone under a separate agreement.

      Mr. Chan’s employment agreement provides for a term of employment extending from the consummation of the acquisition of Playwell until Grand HK’s 2007 annual general meeting of shareholders. However, the agreement will terminate upon Mr. Chan’s death or disability and may be terminated at any time by Grand HK with or without cause. In the event Mr. Chan’s employment is terminated by Grand HK without cause and not due to his death or disability, Mr. Chan will continue to receive his base salary and benefits until the earlier to occur of the scheduled expiration of the term of his employment agreement or one year after the date of termination of his employment.

      Mr. Chan’s employment agreement also provides that, during its term and for one year following the termination of Mr. Chan’s employment, Mr. Chan may not become associated with competitive entities that are actively engaged in Grand HK’s business, solicit the business of any company that was a customer or client of Grand HK within the one year period prior to the date of Mr. Chan’s termination of employment, or solicit any person that is or was an employee of Grand HK on the date of Mr. Chan’s termination of employment. The employment agreement contains provisions requiring Mr. Chan to maintain the confidentiality of proprietary information of Grand HK and other companies in the Grand HK group of companies.

 
Compensation of Directors

      All directors of Grand HK will receive an annual director fee of $25,000 and quarterly grants of options to purchase 1,250 Grand HK ADSs, or 5,000 options per year, at an exercise price equal to the market price of the Grand HK ADSs on the date of grant. In addition, non-employee directors will receive additional quarterly grants of options to purchase 6,250 Grand HK ADSs, or 25,000 options per year, at an exercise price equal to the market price of the Grand HK’s ADSs on the date of grant.

Accounting Treatment of the Reorganization

      The reorganization of Grand US pursuant to the amended and restated agreement and plan of merger and Grand HK’s acquisition of the shares of Playwell and the issuance of ADSs to Centralink pursuant to the subscription and exchange agreement are steps in a single transaction, and will be treated as a “purchase” with Playwell as the acquirer for accounting purposes (notwithstanding the fact that, as a legal matter, Grand HK is acquiring Playwell). Therefore, the purchase price will be allocated to Grand HK’s assets and liabilities based on their estimated fair market values at the completion of the reorganization merger and related subscription and exchange. Any excess of the purchase price over these fair market values will be accounted for as goodwill.

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PROPOSAL 1 — ADOPTION AND APPROVAL OF THE AMENDED AND RESTATED

AGREEMENT AND PLAN OF MERGER

The Amended and Restated Agreement and Plan of Merger

      Grand US, Grand HK and GTI Acquisition Corp. have entered into an amended and restated agreement and plan of merger which is the legal document that governs the reorganization merger of Grand US into a subsidiary of Grand HK. Grand US and Grand HK recommend that you read carefully the complete amended and restated agreement and plan of merger for the precise legal terms of the reorganization merger and other information that may be important to you. The amended and restated agreement and plan of merger is included in this proxy statement/ prospectus as Annex A.

Effective Time

      If the amended and restated agreement and plan of merger is approved by Grand US’ shareholders, the reorganization merger will become effective upon the date the articles of merger are filed with the Secretary of State of the State of Nevada in accordance with Nevada law. Grand US expects to file the articles of merger and have the reorganization merger become effective as soon as practicable following approval of the amended and restated agreement and plan of merger at the special meeting.

      In the event the conditions to the subscription and exchange agreement are not satisfied, the reorganization merger may be abandoned or delayed even after the amended and restated agreement and plan of merger has been approved by Grand US’ shareholders. In addition, the reorganization merger may be abandoned or delayed for any reason by the board of directors of Grand US or Grand HK at any time prior to its becoming effective, even though the amended and restated agreement and plan of merger has been approved by Grand US’ shareholders and all conditions to the amended and restated agreement and plan of merger and the subscription and exchange agreement have been satisfied.

Share Conversion; Exchange of Shares

      Each share of Grand US common stock will automatically convert into the right to receive one Grand HK ADS, which will be evidenced by a Grand HK ADR, upon the consummation of the reorganization merger.

      If you desire to sell some or all of your Grand HK ADSs after the effective date of the reorganization merger, delivery of the stock certificate(s) which previously represented shares of Grand US common stock will be sufficient. Your right to sell shares of Grand US before the effective date of the reorganization merger will also not be affected. After the reorganization merger becomes effective, Grand US will not register any further transfers of shares of Grand US common stock. Any certificates for Grand US shares that you present for registration after the effective time of the reorganization merger will be exchanged for Grand HK ADRs.

      We have appointed the Bank of New York as exchange agent to handle the exchange of Grand US stock certificates for Grand HK ADRs. Prior to the reorganization merger, Grand HK will deposit certificates representing a sufficient number of Grand HK ordinary shares with the exchange agent for the purpose of enabling shareholders to exchange their Grand US common stock certificates for Grand HK ADRs evidencing an equal number of Grand HK ADSs. Soon after the closing of the reorganization merger, the exchange agent will send you a letter of transmittal. This letter of transmittal is to be used to exchange Grand US stock certificates for certificates of Grand HK ADSs. The letter of transmittal will contain instructions explaining the procedure for surrendering Grand US stock certificates. You should not return your Grand US stock certificates with the enclosed proxy card.

      Once you have surrendered your stock certificates, together with a properly completed letter of transmittal, you will receive Grand HK ADSs which represent your beneficial ownership interest in the ordinary shares of Grand HK to which you are entitled pursuant to the reorganization merger. After the reorganization merger, each certificate that previously represented shares of Grand US common stock will represent only the right to receive Grand HK ADRs evidencing the Grand HK ADSs.

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      If you surrender a Grand US stock certificate and request the new Grand HK ADR to be issued in a name other than the one appearing on the surrendered certificate, you must endorse the stock certificate or otherwise prepare it in proper form for transfer and furnish a signature guarantee.

Treatment of Grand US Stock Options and Warrants

      Upon completion of the reorganization merger, each outstanding option or warrant to purchase Grand US common stock shall, upon exercise thereof, represent the right to receive one Grand HK ADS, which shall be represented by a Grand HK ADR. The exercise price will be equal to the exercise price per share of the option or warrant for the Grand US common stock currently in effect. The other terms of each option and warrant and, if applicable, the Grand US option plans under which the options were issued will continue to apply in accordance with their terms, including any provisions providing for acceleration.

DESCRIPTION OF AUTHORIZED SHARES OF GRAND HK

      The memorandum and articles of association of Grand HK and the Companies Ordinance (Ch. 32 of the Laws of Hong Kong), or the Companies Ordinance govern the rights and restrictions of the capital stock of Grand HK. The memorandum and articles of association of Grand HK are included as an exhibit to the registration statement of which this proxy statement/ prospectus is a part. The following discussion is a summary of the rights and restrictions attaching to ordinary shares of Grand HK that will be in effect immediately following the reorganization merger.

Authorized Share Capital

      The authorized share capital of Grand HK is HK$100,000,000 shares of HK$1.00 each. Shareholders of Grand HK have the power to increase Grand HK’s authorized share capital beyond HK$100,000,000.

Issue of Shares

      Without prejudice to any special rights previously conferred on the holders of any then-existing shares or class of shares, any share in Grand HK may be issued with such preferred, deferred or other special rights or such restrictions, whether in regard to dividend, voting, return of capital or otherwise as Grand HK may by ordinary resolution determine.

Voting

      Subject to any rights or restrictions of any class or classes of shares, every shareholder present in person at a meeting of shareholders shall have one vote, for each share of which such person is the holder. There are no limitations imposed by Hong Kong law or Grand HK’s memorandum and articles of association on the right of shareholders who are not Hong Kong residents to hold shares in Grand HK or exercise voting rights in respect thereof.

Dividend Rights

      Grand HK shall not pay dividends unless they are paid out of profits in accordance with the provisions of Part IIA of the Companies Ordinance. Subject to this limitation, Grand HK may at a general meeting declare dividends, but no dividend shall exceed the amount recommended by the directors. The directors may from time to time pay to the shareholders interim dividends that the directors deem to be justified by the profits of Grand HK. Any general meeting declaring a dividend may direct payment of such dividend wholly or partly by the distribution of specific assets.

Redemption and Conversion

      Currently outstanding shares of Grand HK and shares of Grand HK and the corresponding Grand HK ADSs to be issued pursuant to the reorganization merger, the Playwell acquisition and the related subscription will not

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be convertible into shares of any other class or series or be subject to compulsory redemption either by Grand HK or the holders of such shares.

Changes to Rights of a Class or Series

      Grand HK’s articles of association provide that, if at any time the share capital of Grand HK is divided into different classes of shares, the rights attached to any class may, whether or not Grand HK is being wound up, be varied with the consent in writing of the holders of 75% of the issued shares of that class, or with the sanction of a special resolution passed at a separate general meeting of the holders of the shares of that class. Each holder of shares of such class present in person will have one vote for each share held.

Quorum for General Meetings

      No business shall be transacted at any general meeting of Grand HK unless a quorum of shareholders is present at the time when the meeting proceeds to business and continues to be present until the conclusion of the meeting. Unless otherwise provided by Grand HK’s articles of association, two shareholders present in person or by proxy and holding at least fifty-one percent of the paid-up capital of Grand HK shall be a quorum. Grand HK’s articles of association provide that written action can be taken by consent if signed by all shareholders of Grand HK.

Rights Upon Liquidation

      Upon the liquidation of Grand HK, after payment of the expenses of the liquidation and amounts due to secured, preferential and unsecured creditors of Grand HK, any remaining assets of Grand HK will be available for distribution to the holders of shares in Grand HK on a pro rata basis. The liquidator may deduct from the amount payable to a shareholder any amount owed by such shareholder to Grand HK. The liquidator may, with the sanction of a special resolution of Grand HK and any other sanction required by the Companies Ordinance, divide amongst the shareholders in all or any part of the assets of Grand HK in money or property (whether they shall consist of property of the same kind or not).

Sinking Fund

      The memorandum and articles of association of Grand HK contain no sinking fund provisions in respect of shares in Grand HK.

Liability for Further Calls or Assessments

      Shares in Grand HK to be issued in connection with the reorganization merger and in connection with the Playwell acquisition and related subscription will be duly and validly issued, fully paid and nonassessable. Grand HK does not have the legal right to levy further calls or assessments on its existing shareholders and will not have such legal right to levy further calls or assessments on its shareholders immediately after the consummation of the reorganization merger, the Playwell acquisition and related subscription.

Preemptive Rights

      Holders of Grand HK shares will have no preemptive or preferential right to purchase any other securities of Grand HK.

Repurchase Rights

      The board of directors may, at its discretion, authorize the purchase by Grand HK of its own shares of any class, at any price (whether at par or above or below par), as long as such purchase is made in accordance with the provisions of the Companies Ordinance and Grand HK’s memorandum and articles of association.

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Compulsory Acquisition of Shares Held by Minority Shareholders

      An acquiring party is generally able to acquire compulsorily the shares in Grand HK held by minority shareholders in one of the following ways:

  •  By a procedure under the Companies Ordinance known as a “scheme of arrangement.” Such an arrangement would be proposed by Grand HK to its shareholders and the Hong Kong Court of First Instance would order a meeting of the shareholders of Grand HK. If a majority in number representing three-fourths in value of the shareholders of Grand HK present and voting either in person or by proxy at the meeting agree to the arrangement, the arrangement would, if sanctioned by the Court, be binding on all the shareholders of Grand HK and on Grand HK itself. Under such an arrangement, minority shareholders of Grand HK could be compelled to sell their shares;
 
  •  If another company makes an offer to shareholders of Grand HK and, within four months of making the offer, acquires not less than 90% of the shares in Grand HK for which the offer was made, the offeror may, at any time not later than five months after the offer was made, give a written notice to non-accepting shareholders of its desire to purchase their shares in Grand HK. Such non-accepting shareholders will then be bound to sell their shares in Grand HK on the terms of the offer. A non-accepting shareholder has a period of two months from the date of such written notice to apply to a court for an order that he shall not be bound to sell his shares in Grand HK or to order terms of acquisition different from those of the offer.

      Following the consummation of the reorganization merger and the transactions contemplated by the subscription and exchange agreement, Mr. Jeff Hsieh will control over 71% of the outstanding capital shares of Grand HK. Mr. Hsieh has informed Grand HK that at this time, he does not intend to initiate or support a compulsory acquisition of Grand HK shares pursuant to either of the acquisition methods described above.

Transfer Agent

      The transfer agent and registrar for the Grand HK ADSs will be The Bank of New York.

DESCRIPTION OF GRAND HK AMERICAN DEPOSITARY RECEIPTS

American Depositary Receipts

      The Bank of New York, as depositary, will execute and deliver the Grand HK ADRs. Grand HK ADRs are American Depositary Receipts. Each Grand HK ADR is a certificate evidencing a specific number of American depositary shares, also referred to as Grand HK ADSs. Each Grand HK ADS will represent one ordinary share (or a right to receive one share) deposited with the principal Hong Kong office of Hong Kong & Shanghai Banking Corporation Limited, as custodian for the depositary in Hong Kong. Each Grand HK ADS will also represent any other securities, cash or other property which may be held by the depositary. The depositary’s office at which the Grand HK ADRs will be administered is located at 101 Barclay Street, New York, New York 10286.

      You may hold Grand HK ADSs either directly (by having a Grand HK ADR registered in your name) or indirectly through your broker or other financial institution. If you hold Grand HK ADSs directly, you are a Grand HK ADR holder. This description assumes you hold your Grand HK ADSs directly. If you hold the Grand HK ADSs indirectly, you must rely on the procedures of your broker or other financial institution to assert the rights of ADR holders described in this section. You should consult with your broker or financial institution to find out what those procedures are.

      As a Grand HK ADR holder, Grand HK will not treat you as one of its shareholders and you will not have shareholder rights. Hong Kong law governs shareholder rights. The depositary will be the holder of Grand HK ordinary shares underlying your Grand HK ADSs. As a holder of Grand HK ADRs, you will have Grand HK ADR holder rights. A deposit agreement among Grand HK, the depositary and you, as a Grand HK ADR holder,

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and the beneficial owners of Grand HK ADRs set out Grand HK ADR holder rights as well as the rights and obligations of the depositary. New York law governs the deposit agreement and the Grand HK ADRs.

      The following is a summary of the material provisions of the deposit agreement. For more complete information, you should read the entire deposit agreement and the form of ADR filed as an exhibit to the registration statement for which this proxy statement/ prospectus is a part of. If you would like to obtain an extra copy of these documents, please contact Tania M. Clarke, executive vice-president and chief financial officer of Grand Toys International Inc. at 1710 Route Transcanadienne, Dorval, QC H9P 1H7 Canada, or by phone at (514) 685-2180, x233.

Dividends and Other Distributions

 
How will you receive dividends and other distributions on the shares?

      The depositary has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or other deposited securities, after deducting its fees and expenses. You will receive these distributions in proportion to the number of shares your Grand HK ADSs represent.

  •  Cash. The depositary will convert any cash dividend or other cash distribution Grand HK pays on its shares into U.S. dollars, if it can do so on a reasonable basis and can transfer the U.S. dollars to the United States. If that is not possible or if any government approval is needed and can not be obtained, the deposit agreement allows the depositary to distribute the foreign currency only to those ADR holders to whom it is possible to do so. It will hold the foreign currency it cannot convert for the account of the ADR holders who have not been paid. It will not invest the foreign currency and it will not be liable for any interest.

        Before making a distribution, the depositary will deduct any withholding taxes that must be paid. See Income Tax Consequences of the Reorganization beginning on page 96. It will distribute only whole U.S. dollars and cents and will round fractional cents to the nearest whole cent. If the exchange rates fluctuate during a time when the depositary cannot convert the foreign currency, you may lose some or all of the value of the distribution.

  •  Shares. The depositary may distribute additional Grand HK ADSs representing any shares Grand HK distributes as a dividend or free distribution. The depositary will only distribute whole ADSs. It will sell shares which would require it to deliver a fractional ADS and distribute the net proceeds in the same way as it does with cash. If the depositary does not distribute additional ADRs, the outstanding ADSs will also represent the new shares.
 
  •  Rights to purchase additional shares. If Grand HK offers holders of its securities any rights to subscribe for additional shares or any other rights, the depositary may make these rights available to you. If the depositary decides it is not legal and practical to make the rights available but that it is practical to sell the rights, the depositary may sell the rights and distribute the proceeds in the same way as it does with cash. The depositary will allow rights that are not distributed or sold to lapse. In that case, you will receive no value for them.

        If the depositary makes rights available to you, it will exercise the rights and purchase the shares on your behalf. The depositary will then deposit the shares and deliver ADSs to you. The depositary will only exercise rights if you pay it the exercise price and any other charges the rights require you to pay.

        U.S. securities laws may restrict transfers and cancellation of the ADSs represented by shares purchased upon exercise of rights. For example, you may not be able to trade these ADSs freely in the United States. In this case, the depositary may deliver restricted depositary shares that have the same terms as the ADRs described in this section except for changes needed to put the necessary restrictions in place.

  •  Other Distributions. The depositary will send to you anything else Grand HK distributes on deposited securities by any means it thinks are legal, fair and practical. If it cannot make the distribution in that way, the depositary has a choice. It may decide to sell what Grand HK distributed and distribute the net proceeds, in the same way as it does with cash or it may decide to hold what Grand HK distributed, in which case Grand HK ADSs will also represent the newly distributed property. However, the depositary is

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  not required to distribute any securities (other than ADSs) to you unless it receives satisfactory evidence from Grand HK that it is legal to make that distribution.

      The depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any ADR holders. Grand HK has no obligation to register ADSs, shares, rights or other securities under the Securities Act. Grand HK also has no obligation to take any other action to permit the distribution of ADRs, shares, rights or anything else to ADR holders. This means that you may not receive the distributions Grand HK makes on its shares or any value for them if it is illegal or impractical for Grand HK to make them available to you.

Deposit and Withdrawal

 
How are ADSs issued?

      The depositary will deliver ADSs if you or your broker deposit shares or evidence of rights to receive ADS with the custodian. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will register the appropriate number of ADSs in the names you request and will deliver the ADRs at its office to the persons you request.

 
How do ADS holders cancel an ADS and obtain ordinary shares?

      You may surrender your ADRs at the depositary’s office. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will deliver the ordinary shares and any other deposited securities underlying the ADR to you or a person you designate at the office of the custodian or, at your request, risk and expense, the depositary will deliver the deposited securities at its office, if feasible.

Voting Rights

 
How do you vote?

      You may instruct the depositary to vote the shares underlying your ADRs, but only if Grand HK asks the depositary to ask for your instructions. Otherwise, you won’t be able to exercise your right to vote unless you withdraw the shares. However, you may not know about the meeting enough in advance to withdraw the shares.

      If Grand HK asks for your instructions, the depositary will notify you of the upcoming vote and arrange to deliver our voting materials to you. The materials will describe the matters to be voted on and explain how you may instruct the depositary to vote the shares or other deposited securities underlying your ADSs as you direct. For instructions to be valid, the depositary must receive them on or before the date specified. The depositary will try, as far as practical, subject to Hong Kong law and the provisions of Grand HK’s memorandum and articles of association, to vote or to have Grand HK’s agents vote the shares or other deposited securities as you instruct.

      The depositary will only vote or attempt to vote as you instruct or as described in the preceding sentence.

      Grand HK cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your shares. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that you may not be able to exercise your right to vote and there may be nothing you can do if your shares are not voted as you requested.

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Fees and Expenses

     
Persons depositing shares or ADR holders must pay: For:


$5.00 (or less) per 100 ADSs
(or portion of 100 ADSs)
  • Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property
• Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates
 
$.02 (or less) per ADS   • Any cash distribution to you
 
A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of ADSs   • Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADR holders
 
$.02 (or less) per ADS per calendar year (to the extent the depositary has not collected a cash distribution fee of $.02 per Grand HK ADS during that year)   • Depositary services
 
Registration or transfer fees   • Transfer and registration of shares on Grand HK’s share register to or from the name of the depositary or its agent when you deposit or withdraw shares
 
Expenses of the depositary in converting foreign currency to U.S. dollars    
 
Expenses of the depositary   • Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement)
 
Taxes and other governmental charges the depositary or the custodian have to pay on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxes   • Transfer and registration of shares on Grand HK’s share register to or from the name of the depositary or its agent when you deposit or withdraw shares
 
Any charges incurred by the depositary or its agents for servicing the deposited securities   • No charges of this type are currently made in the Hong Kong market.

Payment of Taxes

      The depositary may deduct the amount of any taxes owed from any payments to you. It may also sell deposited securities, by public or private sale, to pay any taxes owed. You will remain liable if the proceeds of the sale are not enough to pay the taxes. If the depositary sells deposited securities, it will, if appropriate, reduce the number of ADSs to reflect the sale and pay to you any proceeds, or send to you any property, remaining after it has paid the taxes.

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Reclassifications, Recapitalizations and Mergers

     
If Grand HK: Then:


• Change the nominal or par value of its shares or reclassify, split up or consolidate any of the deposited securities   The cash, shares or other securities received by the depositary will become deposited securities. Each ADS will automatically represent its equal share of the new deposited securities.
• Distribute securities on the shares that are not distributed to you or recapitalize, reorganize, merge, liquidate, sell all or substantially all of its assets, or take any similar action   The depositary may distribute some or all of the cash, shares or other securities it received. It may also deliver new ADSs or ask you to surrender your outstanding ADSs in exchange for new ADSs identifying the new deposited securities.

Amendment and Termination

 
How may the deposit agreement be amended?

      Grand HK may agree with the depositary to amend the deposit agreement and the ADRs without your consent for any reason. If an amendment adds or increases fees or charges, except for taxes and other governmental charges or expenses of the depositary for registration fees, facsimile costs, delivery charges or similar items, or substantially prejudices your rights, it will not become effective for outstanding ADRs until 30 days after the depositary notifies you of the amendment. At the time an amendment becomes effective, you are considered, by continuing to hold your ADR, to agree to the amendment and to be bound by the ADRs and the deposit agreement as amended.

 
How may the deposit agreement be terminated?

      The depositary will terminate the deposit agreement if Grand HK asks it to do so. The depositary may also terminate the deposit agreement if the depositary has told Grand HK that it would like to resign and Grand HK has not appointed a new depositary bank within 60 days. In either case, the depositary must notify you at least 30 days before termination.

      After termination, the depositary and its agents will do the following under the deposit agreement but nothing else:

  •  advise you that the deposit agreement is terminated,
 
  •  collect distributions on the deposited securities,
 
  •  sell rights and other property, and
 
  •  deliver shares and other deposited securities upon cancellation of ADRs.

      One year or more after termination, the depositary may sell any remaining deposited securities by public or private sale. After that, the depositary will hold the money it received on the sale, as well as any other cash it is holding under the deposit agreement for the pro rata benefit of the ADR holders that have not surrendered their ADRs. It will not invest the money and has no liability for interest. The depositary’s only obligations will be to account for the money and other cash. After termination, Grand HK’s only obligations will be to indemnify the depositary and to pay fees and expenses of the depositary that Grand HK agreed to pay.

Limitations on Obligations and Liability

      The deposit agreement expressly limits Grand HK’s obligations and the obligations of the depositary. It also limits Grand HK’s liability and the liability of the depositary. Grand HK and the depositary:

  •  are only obligated to take the actions specifically set forth in the deposit agreement without negligence or bad faith;

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  •  are not liable if either of Grand HK or the depositary is prevented or delayed by law or circumstances beyond the control from performing the obligations of Grand HK or the depositary under the deposit agreement;
 
  •  are not liable if either of Grand HK or the depositary exercises discretion permitted under the deposit agreement;
 
  •  have no obligation to become involved in a lawsuit or other proceeding related to the ADRs or the deposit agreement on your behalf or on behalf of any other person;
 
  •  may rely upon any documents Grand HK or the depositary believe in good faith to be genuine and to have been signed or presented by the proper party.

      In the deposit agreement, Grand HK has agreed to indemnify the depositary for acting as depositary, except for losses caused by the depositary’s own negligence or bad faith, and the depositary agrees to indemnify Grand HK for losses resulting from its negligence or bad faith.

Requirements for Depositary Actions

      Before the depositary will deliver or register a transfer of an ADS, make a distribution on an ADS, or permit withdrawal of shares or other property, the depositary may require:

  •  payment of stock transfer or other taxes or other governmental charges and transfer or registration fees charged by third parties for the transfer of any shares or other deposited securities;
 
  •  satisfactory proof of the identity and genuineness of any signature or other information it deems necessary; and
 
  •  compliance with regulations it may establish, from time to time, consistent with the deposit agreement, including presentation of transfer documents.

      The depositary may refuse to deliver ADSs or register transfers of ADSs generally when the transfer books of the depositary or Grand HK’s transfer books are closed or at any time if the depositary or Grand HK thinks it advisable to do so.

Your Right to Receive the Ordinary Shares Underlying your Grand HK ADSs

      You have the right to surrender your ADSs and withdraw the underlying shares at any time except:

  •  When temporary delays arise because: the depositary has closed its transfer books or Grand HK has closed its transfer books; the transfer of shares is blocked to permit voting at a shareholders’ meeting; or Grand HK is paying a dividend on our shares.
 
  •  When you or other Grand HK ADS holders seeking to withdraw shares owe money to pay fees, taxes and similar charges; or
 
  •  When it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to ADSs or to the withdrawal of shares or other deposited securities.

      This right of withdrawal may not be limited by any other provision of the deposit agreement.

Pre-release of ADSs

      The deposit agreement permits the depositary to deliver ADSs before deposit of the underlying shares. This is called a pre-release of the ADS. The depositary may also deliver shares upon surrender of pre-released ADSs (even if the ADSs are surrendered before the pre-release transaction has been closed out). A pre-release is closed out as soon as the underlying shares are delivered to the depositary. The depositary may receive ADSs instead of shares to close out a pre-release. The depositary may pre-release ADSs only under the following conditions:

  •  before or at the time of the pre-release, the person to whom the pre-release is being made represents to the depositary in writing that it or its customer owns the shares or ADSs to be deposited;

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  •  the pre-release is fully collateralized with cash or other collateral that the depositary considers appropriate; and
 
  •  the depositary must be able to close out the pre-release on not more than five business days’ notice.

      In addition, the depositary will limit the number of ADSs that may be outstanding at any time as a result of pre-release, although the depositary may disregard the limit from time to time, if it thinks it is appropriate to do so.

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COMPARISON OF RIGHTS OF GRAND HK SHAREHOLDERS

AND GRAND US SHAREHOLDERS

      The rights of Grand US shareholders are currently governed by the Nevada Revised Statutes, or the NRS and Nevada common law which, together with the NRS represents Nevada law affecting Grand US, Grand US’ articles of incorporation, as amended and Grand US’ amended and restated by-laws. As a result of the reorganization merger, Grand US shareholders will receive Grand HK ADSs. The rights and privileges of the holders of Grand HK ADSs will be indirectly governed by Grand HK’s memorandum and articles of association, the Companies Ordinance of Hong Kong or the Companies Ordinance and Hong Kong common law (which, together with the Companies Ordinance represents Hong Kong law affecting the corporate organization and governance of Grand HK) and be directly governed by the depositary agreement among Grand HK, the Bank of New York, as depository, and Grand HK’s shareholders. The Companies Ordinance is modeled after United Kingdom corporate law but does not follow recent United Kingdom statutory enactments and differs from laws applicable to Nevada corporations and their shareholders.

      The following is a summary of material differences between the rights of holders of Grand HK ordinary shares under Grand HK’s memorandum and articles of association and Hong Kong law and the rights of Grand US shareholders under Grand US’ articles of incorporation, as amended, and amended and restated by-laws and Nevada law. This summary does not purport to be complete and is qualified in its entirety by reference to Grand HK’s memorandum and articles of association, the Companies Ordinance and Grand US’ articles of incorporation, as amended and its amended and restated by-laws. Copies of Grand HK’s memorandum and articles of association and Grand US’ articles of incorporation, as amended, and amended and restated by-laws are filed as exhibits to the registration statement of which this proxy statement/prospectus is a part.

Approval of Business Combinations

     
Grand US Grand HK


Nevada law generally requires that a merger or exchange be approved by the directors and by a majority of the outstanding capital stock. A corporation’s charter may require a greater vote. Under Nevada law, a surviving corporation need not obtain shareholder approval for a merger if:

• the articles of incorporation of the surviving corporation will not differ from its articles before the merger;

• each share of the surviving corporation’s stock outstanding prior to the merger remains outstanding in identical form after the merger;

• the number of voting shares outstanding immediately after the merger, plus the number of voting shares issued as a result of the merger, either by conversion of securities issued pursuant to the merger or the exercise of rights and warrants issued pursuant to the merger, will not exceed by more than 20 percent the total number of voting shares of the surviving corporation outstanding immediately before the merger; and

• the number of participating shares outstanding immediately after the merger, plus the number of participating shares issuable issued pursuant to the merger or the exercise of rights and warrants issued pursuant to the merger, will not exceed by more than 20 percent the total number of participating shares outstanding immediately before the merger.
  Other than requirements contained in the listing and takeover standards for publicly listed Hong Kong companies, which Grand HK will not be, Hong Kong laws do not provide a statutory merger framework or procedure comparable to Nevada law. However, there are statutory provisions that facilitate the reconstruction and amalgamation of companies. The proposed arrangement must be approved by a majority in each class of shareholders with whom the arrangement is to be made, and who must in addition represent three-fourths in value of each such class of shareholders that are present and voting either in person or by proxy at a meeting, or meetings convened for that purpose. The convening of the meetings and subsequently the proposed arrangement must be sanctioned by the Hong Kong Court of First Instance. The court order must then be delivered to the Hong Kong Registrar of Companies and annexed to the company’s memorandum and articles of association.

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Appraisal Rights

     
Grand US Grand HK


Under Nevada law, the right of dissenting shareholders to obtain the fair value for their shares is available in connection with some mergers or consolidations. Unless otherwise provided in the corporate charter, appraisal rights are not available to shareholders when no vote of its shareholders is required to approve the merger. In addition, no appraisal rights are available to holders of shares of any class of stock which is either:

• listed on a national securities exchange or designated a national market system security on an interdealer quotation system by the National Association of Securities Dealers; or

• held of record by more than 2,000 shareholders, unless those shareholders are required by the terms of the merger to accept anything other than (a) shares of stock of another corporation which, on the effective date of the merger or consolidation, are of the kind described above, (b) cash, owners’ interests or owners’ interests and cash in lieu of fractional shares of stock, or (c) any combination of the consideration set forth in (a) through (c).

In this merger, Grand US shareholders are not entitled to appraisal rights.
  A dissenting shareholder may make an application to the Hong Kong Court of First Instance claiming the affairs of Grand HK are being or have been conducted in a manner unfairly prejudicial to the interests of the shareholders. Although dissenting shareholders do not have rights comparable to appraisal rights available to shareholders of US corporations, the Court has the power to utilize its discretion to make provisions for such dissenting shareholders.

In case of a successful takeover of a Hong Kong company whereby the acquiring company has obtained over 90% of the outstanding shares or class of shares, the Companies Ordinance allows the minority holders of such shares to require the acquiring company to buy them out as well.

If a Hong Kong company makes a general offer to purchase all of its shares or all of its shares of a particular class, and within the offer period, the repurchasing company obtains not less than 90% of its shares, the Companies Ordinance allows any shareholder to whom the offer relates to demand the repurchasing company buy them out at the offer terms or at any other terms agreed to by the parties or ordered by the courts.

Cumulative Voting

     
Grand US Grand HK


Under Nevada law, a corporation may provide for cumulative voting for the election of directors in the certificate of incorporation or articles of incorporation. Grand US’ articles of incorporation, as amended does not provide for cumulative voting for the election of directors.   Under Grand HK’s memorandum and articles of association, each shareholder is entitled to one vote per share of stock.

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Shareholder Meetings

     
Grand US Grand HK


Under Nevada law, meetings of the shareholders may be held in the manner provided by the by-laws of the corporation. The Grand US amended and restated by-laws provide that special meetings shall be held on the first Monday in June or at such other date and time designated by the board of directors.

The Grand US by-laws provide that special meetings may be called by the president and shall be called by the president or secretary at the request of the majority of the board of directors or of the shareholders owning a majority of the capital stock.
  The Companies Ordinance states that a company shall in each year hold a general meeting as its annual general meeting in addition to any other meeting in that year and shall specify the meeting as such in the notices calling it. Not more than 15 months shall elapse (or such longer period as the Hong Kong Registrar of Companies may authorize) between the date of one annual general meeting of Grand HK and that of the next. As long as the first annual general meeting of Grand HK is held within 18 months of the date of its incorporation, a general meeting need not be held within the year of, or within the year immediately following the company’s incorporation. The annual general meeting must be held at such time and place as the board shall appoint. Additional general meetings may be convened by the board or by written request of shareholders holding not less than one-twentieth of the paid-up capital of Grand HK which carries the right of voting at general meetings of Grand HK.

Quorum Requirements

     
Grand US Grand HK


Under the Grand US amended and restated by-laws, the presence, in person or by proxy, of the holders of a majority of the stock issued and outstanding and entitled to vote, constitutes a quorum for purposes of all meetings of the shareholders.   Under Grand HK’s memorandum and articles of association, a quorum for all general meetings shall be the presence of at least two members, in person or by proxy, of shareholders who also hold at least a majority of Grand HK’s stock issued and outstanding and entitled to vote.

Actions by Written Consent

     
Grand US Grand HK


Under Nevada law, any action required or permitted to be taken at a meeting of the shareholders may be taken without a meeting if a written consent thereto is signed by shareholders holding at least a majority of the voting power, except that if a different proportion of voting power is required for such an action at a meeting, then that proportion of written consent is required.   Hong Kong law provides that shareholders may take action requiring a resolution without a meeting only by unanimous written consent, signed by all of the shareholders of Grand HK who are entitled to attend the meeting and vote on the day of the resolution. Grand HK’s memorandum and articles of association authorizes actions by unanimous written consent of its shareholders.

Rights Agreement

     
Grand US Grand HK


Grand US does not have a shareholder rights agreement.
  Grand HK does not have a shareholder rights agreement.

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Dividends and Distributions

     
Grand US Grand HK


Under Nevada law, a corporation may pay dividends unless, after giving effect to the proposed dividend, (1) the corporation would not be able to pay its debts as they become due in the usual course of business or (2) the corporation’s total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the corporation were to be dissolved at the time of distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution.
  Under Hong Kong law, the board of directors may declare the payment of dividends to the shareholders out of profits available for the purpose. Such profits are accumulated, realized profits, so far as not previously distributed or capitalized, less accumulated, realized losses, so far as not previously written off in a reduction or reorganization merger of capital duly made.

No Hong Kong laws or regulations restrict the import or export of capital or affect the payment of dividends to non-resident holders of ordinary shares.

Share Repurchases

     
Grand US Grand HK


Nevada law provides that the articles of incorporation or a resolution of the board of directors may authorize one or more classes of stock that are (1) redeemable or convertible at the option of the corporation, the shareholders or another person or upon the occurrence of a designated event, (2) for cash, indebtedness, securities or other property or (3) in a designated amount or in an amount determined in accordance with a designated formula or by reference to extrinsic data or events.   Under Hong Kong law, shares of a Hong Kong company may, if so authorized by its articles of association, be redeemed or repurchased. Shares may only be redeemed or purchased out of the profits of Grand HK, out of the proceeds of a fresh issue of shares made for that purpose or out of capital, provided that Grand HK has the ability to pay its debts as they come due in the ordinary course of business.

Number of Directors

     
Grand US Grand HK


The Grand US by-laws provide that the number of directors on its board will not be less than one. The current number of directors of Grand US is seven.   Under Grand HK’s memorandum and articles of association, the minimum number of directors is two. The number of directors of Grand HK is currently fixed at five.

Vacancies on the Board of Directors

     
Grand US Grand HK


The Grand US by-laws provide that vacancies on the board of directors may be filled by a majority vote of the remaining directors, though less than a quorum.   Grand HK’s memorandum and articles of association provides that any vacancy on the board of directors may be filled by the board of directors. The term of office of a director appointed in this manner will end as if he had become a director on the day on which the director in whose place he is appointed was last elected.

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Removal of Directors

     
Grand US Grand HK


Nevada law provides that any director or one or more of the incumbent may be removed from office by the vote of shareholders representing not less than two-thirds of the voting power of the issued and outstanding stock entitled to vote.

The Grand US amended and restated by-laws provide that directors may be removed with or without cause, by the holders of not less than two-thirds of the shares entitled to vote at an election of directors.
  Grand HK’s memorandum and articles of association provides that a director may be removed by the ordinary resolution of Grand HK. Such ordinary resolution requires a majority vote of the shareholders.

Amendment of Governing Documents

     
Grand US Grand HK


Under Nevada law, amendments to the articles of incorporation must be adopted in accordance with the following procedures:

• The board of directors must adopt a resolution setting forth the amendment and declaring its advisability;

• The board of directors must call a meeting, providing notice to each shareholder entitled to vote as to the meeting and the amendment to be considered; and

• Unless the articles of incorporation provide otherwise, the amendment may be approved by the holders of a majority of the voting power entitled to vote on the amendment.

Nevada law provides that, subject to any by-laws adopted by the shareholders, the board of directors may adopt the by-laws of the corporation. Nevada law is silent on the amendment or repeal of by-laws. The by-laws of Grand US may be amended by the board of directors of Grand US.
  Under the Companies Ordinance, amendment of Grand HK’s memorandum and articles of association requires a special resolution passed by the shareholders.

Under the Companies Ordinance, a resolution is a special resolution when:

• it has been passed by not less than three-fourths of such shareholders as, being entitled to do so, vote in person or, if proxies are allowed, by proxy at a general meeting of which notice specifying the intention to propose the resolution as a special resolution has been duly given; or

• if it has been approved in writing by all of the shareholders entitled to vote at a general meeting of Grand HK in one or more instruments each signed by one or more of such shareholders, and the effective date of the special resolution shall be the date on which the instrument or the last of such instruments, if more than one, is executed.

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Indemnification of Directors and Officers

     
Grand US Grand HK


The Grand US amended and restated by-laws provide that Grand US will indemnify its directors and officers against expenses incurred in connection with any action, suit or proceeding to which such person is or was a party due to the fact that such person was a director or officer of Grand US   The Companies Ordinance prohibits exempting any officer or director from liability from, or indemnifying any officer or director against, any liability which by virtue of any rule of law would otherwise attach to him in respect of any negligence, default, breach of duty or breach of trust of which he may be guilty in relation to Grand HK.

Grand HK’s memorandum and articles of association provides for indemnification of officers and directors for any liability incurred by him in relation to Grand HK in defending any proceedings in which judgment is given in his favor, relief is granted to him by the court, or he is acquitted.

Limited Liability of Directors

     
Grand US Grand HK


The certificate of incorporation of Grand US provides that no director or officer shall be personally liable to Grand US or its shareholders for monetary damages for any breach of fiduciary duty. However, a director or officer will be liable to the extent provided by Nevada law for acts or omissions which involve intentional misconduct, fraud or a knowing violation of law, or for the payment of dividends in violation of Nevada law.   The Companies Ordinance prohibits exempting any director from any liability which by virtue of any rule of law would otherwise attach to him in respect of any negligence, default, breach of duty or breach of trust of which he may be guilty in relation to Grand HK.

Corporate Governance

     
Grand US Grand HK


Nevada law provides that the board of directors owe fiduciary duties to corporations for which they serve as directors. Directors are presumed to act on an informed basis, and in the best interests of the Corporation. Nevada law generally does not prohibit interested director transactions.
  Hong Kong law generally prohibits loans to directors. Transactions between Grand HK and directors or parties related to directors are not prohibited, provided that such director must, if his interest in such contract or arrangement is material, declare the nature of his interest at the earliest meeting of the board of directors at which it is practicable for him to do so, either specifically or by way of a general notice stating that, by reason of the facts specified in the notice, he is to be regarded as interested in any contracts of a specified description which may subsequently be made by Grand HK. However, under Hong Kong common law, directors must exercise a duty of care and owe a fiduciary duty to the companies for which they serve as directors.

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Shareholder Suits

     
Grand US Grand HK


Under Nevada law, a shareholder may bring a derivative action on behalf of the corporation to enforce the rights of the corporation. Nevada law expressly authorizes shareholder derivative suits on the condition that the shareholder either held the stock at the time of the transaction of which the shareholder complains, or acquired the stock thereafter by operation of law and continues to hold it throughout the duration of the suit.   In principle, a Hong Kong company will normally be the proper plaintiff in an action to enforce the rights of Grand HK, and a derivative action may not be brought by a minority shareholder. While Hong Kong law does not recognize shareholder derivative actions in the same manner that United States courts do, the Companies Ordinance permits a shareholder to apply for a court order when Grand HK’s affairs are being or have been conducted in a manner unfairly prejudicial to the interests of all or some shareholders, including the shareholder making the claim. A court has wide discretion in granting relief.

Restrictions on Business Combinations with Interested Shareholders

     
Grand US Grand HK


Nevada law does not permit business combinations with interested shareholders for a period of three years following the date such shareholder became an interested shareholder. The Nevada law defines an interested shareholder, generally, as a person who owns 10% or more of the outstanding shares of the corporation’s voting stock.

In addition, Nevada law generally disallows the exercise of voting rights with respect to “control shares” of an “issuing corporation‘ held by an “acquiring person”, unless such voting rights are conferred by a majority vote of the disinterested shareholders. “Acquiring person” means (subject to certain exceptions) any person who individually or in association with others, acquires or offers to acquire, directly or indirectly, a controlling interest in the issuing corporation. “Control shares” are the voting shares of an issuing corporation acquired in connection with the acquisition of a “controlling interest.” “Controlling interest‘ is defined in terms of threshold levels of voting share ownership of outstanding voting shares of an issuing corporation sufficient to enable the acquiring person, individually or in association with others, directly or indirectly, to exercise (i) one-fifth or more but less than one-third, (ii) one-third or more but less than a majority, or (iii) a majority or more of the voting power of the issuing corporation in the election of directors, and voting rights must be conferred by a majority of the disinterested shareholders as each threshold is reached and/or exceeded.
  The Companies Ordinance does not restrict business combinations with interested shareholders.

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Inspection of Books and Records

     
Grand US Grand HK


Under Nevada law, any person who has been a shareholder of record for at least six months immediately preceding his or her demand, or any person holding or authorized in writing by the holders of at least 15% of all of its outstanding shares, upon at least five days’ written demand, is entitled to inspect in person or by agent or attorney, during usual business hours, the corporation’s articles of incorporation and by-laws and all amendments thereto, and stock ledger.   Holders of Grand HK shares will have a general right under Hong Kong law to inspect or obtain copies of Grand HK’s list of shareholders or minutes of any general meeting.

The Hong Kong Court of First Instance may appoint an inspector upon application of one hundred shareholders or one-tenth of the shareholders of a company or Grand HK itself may appoint an inspector by special resolution. The inspector will then inspect books and records and issue a report, to the Hong Kong Financial Secretary if the inspector is court appointed and to Grand HK if the inspector is company appointed. The report will be admissible as evidence in any legal proceedings.

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INCOME TAX CONSEQUENCES OF THE REORGANIZATION MERGER

U.S. Federal Income Tax Consequences to Grand US Shareholders

      The following constitutes the opinion of Grand US’ and Grand HK’s tax counsel, Katten Muchin Zavis Rosenman, as to the material U.S. federal income tax consequences of the receipt of Grand HK ADSs as of the date hereof by you pursuant to the reorganization merger. The discussion below deals only with shares of Grand US common stock and Grand HK ADSs that are held as capital assets, and does not address all of the U.S. federal income tax consequences that may be relevant to you in light of your individual circumstances or to shareholders who, for U.S. federal income tax purposes, are subject to special rules, such as:

  •  dealers or traders in securities or currencies;
 
  •  tax-exempt entities;
 
  •  banks, financial institutions or insurance companies;
 
  •  grantor trusts;
 
  •  real estate investment trusts or regulated investment companies;
 
  •  holders who hold Grand US common stock as part of a position in a straddle or as part of a hedging or conversion transaction for U.S. federal income tax purposes;
 
  •  US holders (as defined below) whose functional currency is not the U.S. dollar; and
 
  •  holders who acquired their Grand US common stock within twelve months of the effective date of the reorganization merger pursuant to the exercise of employee stock options or otherwise as compensation.

      Further, this section does not address any U.S. federal estate and gift or alternative minimum tax consequences or any state, local or foreign tax consequences relating to the reorganization merger or the ownership and disposition of Grand HK ADSs, nor (except as expressly set forth herein) does this discussion address the tax consequences of the reorganization merger to Grand US or Grand HK.

      Neither Grand US nor Grand HK will request any ruling from the IRS as to the U.S. federal income tax consequences of the reorganization merger. You are strongly urged to consult your own tax advisor as to the particular tax consequences to you of the receipt of Grand HK ADSs pursuant to the reorganization merger contemplated by this proxy statement/ prospectus and the ownership and disposition of Grand HK ADSs, including the applicability and effect of federal, state, local and foreign income and other tax laws in your particular circumstances.

      This Section is based on the Internal Revenue Code of 1986, as amended, which we refer to as the Code, the Treasury regulations promulgated thereunder and judicial and administrative interpretations thereof, in each case as in effect and available on the date of this proxy statement/ prospectus. The Code, the treasury regulations and judicial and administrative interpretations are subject to change, which change could apply with retroactive effect and could affect the tax consequences described below.

      For purposes of this proxy statement/ prospectus, a U.S. holder is a beneficial owner of Grand US common stock who exchanges Grand US common stock for Grand HK ADSs and, for U.S. federal income tax purposes, is:

  •  an individual who is a citizen or resident of the U.S.;
 
  •  a corporation (including any entity treated as a corporation for U.S. income tax purposes) created or organized in or under the laws of the U.S. or any state thereof, including the District of Columbia;
 
  •  an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or
 
  •  a trust, if such trust validly has elected to be treated as a U.S. person for U.S. federal income tax purposes, or if a U.S. court can exercise primary supervision over its administration and one or more U.S. persons have the authority to control all of the substantial decisions of the trust.

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      If a partnership (including any entity treated as a partnership for U.S. income tax purposes) owns Grand US common stock, the tax consequences of the reorganization merger to a partner generally will depend upon the status of the partner and the activities of the partnership. If you are a partner in a partnership holding Grand US common stock, you should consult your own tax advisors.

The Reorganization Merger

      In the opinion of Katten Muchin Zavis Rosenman:

  •  The reorganization merger will constitute a reorganization within the meaning of Section 368 of the Code, and/or, when integrated with the issuance of Grand HK ADSs to Centralink, will be treated as a transaction described in Section 351(a) of the Code;
 
  •  The exchange of Grand US common stock for Grand HK ADSs in the reorganization merger will not be subject to Section 367(a)(1) of the Code (other than with respect to a Grand US shareholder that is a “5% transferee shareholder” within the meaning of U.S. Treasury Regulation Section 1.367(a)-3(c)(5)(ii), i.e., a U.S. holder who will own 5% or more of either the total voting power or the total value of the stock of Grand HK immediately after the reorganization merger, determined after taking into account applicable stock attribution rules); and
 
  •  Each of Grand HK, GTI Acquisition and Grand US will be a party to the reorganization within the meaning of Section 368(b) of the Code.

      Based on the foregoing opinions, the following additional material U.S. federal income tax consequences will result to U.S. holders from the reorganization merger (other than with respect to U.S. holders that are 5% transferee shareholders):

  •  You will not recognize gain or loss on the exchange of Grand US common stock for Grand HK ADSs in the reorganization merger;
 
  •  The tax basis to you of the Grand HK ADSs received in exchange for your Grand US common stock pursuant to the reorganization merger will equal your tax basis in the Grand US common stock surrendered in exchange therefor;
 
  •  Your holding period for the Grand HK ADSs received pursuant to the reorganization merger will include the holding period of the Grand US common stock surrendered in exchange therefor; and
 
  •  No income, gain or loss will be recognized by Grand HK, GTI Acquisition or Grand US as a result of the transfer to Grand ADSs to you pursuant to the reorganization merger.

      Also based on the foregoing opinions, the following additional material U.S. federal income tax consequences will result from the reorganization merger to U.S. holders that are 5% transferee shareholders:

  •  If you do not enter into a “gain recognition agreement” (as described below) you will recognize gain (but not loss) for U.S. federal income tax purposes on the exchange of Grand US common stock for Grand HK ADSs in the reorganization merger, measured by the difference (if any) between the value of the Grand HK ADSs received by you and your tax basis in the Grand US common stock exchanged for Grand HK ADSs. Any gain recognized will be capital gain, which, if you are a non-corporate taxpayer, will qualify for a reduced rate of U.S. federal income tax if your holding period in your Grand US common stock exceeds one year. If you recognize gain, then your tax basis in the Grand HK ADSs received in the reorganization merger will equal their fair market value when received and your holding period for the Grand HK ADSs received in the reorganization merger will begin with the day following the effective date of the reorganization merger; and
 
  •  If you enter into a gain recognition agreement in accordance with Treasury Regulation Section 1.367(a)-8, you will not recognize gain or loss on the exchange of Grand US common stock for Grand HK ADSs, and you will have a tax basis and holding period for the Grand HK ADSs received in the reorganization merger as described above for Grand US shareholders that are not 5% transferee shareholders, provided you comply with the gain recognition agreement. This agreement, which must be signed under penalties

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  of perjury and filed with your timely filed income tax return for the taxable year that includes the effective date of the reorganization merger, will require you to file annual certifications with your income tax return for each of the five years following the year of the reorganization merger, and to recognize any gain not recognized by you in the reorganization merger if Grand HK disposes of the Grand US common stock acquired by it in the reorganization merger at any time before the close of the foregoing five-year period following the year of the reorganization merger. Failure to comply with the gain recognition agreement could result in your having to report and pay tax on your gain (if any) on the receipt of Grand HK ADSs retroactively to the year in which the reorganization merger occurs.

      The opinion of Katten Muchin Zavis Rosenman is based on: the facts set forth in this proxy statement/ prospectus; the assumption that the reorganization merger is consummated in accordance with the terms of the amended and restated agreement and plan of merger and the acquisition of Playwell and related Centralink subscription is consummated in accordance with the amended subscription and exchange agreement, respectively, without waiver or modification of any of the material terms and conditions thereof; the opinion of American Appraisal China Limited as to the value of Hong Kong Toy Centre Limited; and certain representations as to factual matters made by Grand US and Centralink, including representations by Grand US that it will comply with the reporting requirements of Treasury Regulation Section 1.367(a)-3(c)(6), and that Grand HK will satisfy the active trade or business test of Treasury Regulation Section 1.367(a)-3(c)(3). Any inaccuracy in such assumption or representations could jeopardize the conclusions reached in the opinions, and any factual determinations by Grand US or the valuation firm may be challenged by a taxing authority. Also, counsel’s opinions are not binding on the IRS or the courts. A successful IRS challenge to counsel’s conclusions could result in material adverse U.S. federal income tax consequences to you.

Grand HK ADSs

U.S. Holders

 
Distributions

      Subject to the discussion below under “— Passive Foreign Investment Company Considerations,” the gross amount of any distribution by Grand HK to you of cash or property (other than certain distributions, if any, of common stock distributed pro rata to all shareholders of Grand HK) with respect to Grand HK ADSs will be includible in your income as dividend income to the extent such distributions are paid out of the current or accumulated earnings and profits of Grand HK as determined under U.S. federal income tax principles. Such dividends generally will not be eligible for the dividends received deduction allowed to U.S. holders that are corporations, but (provided Grand HK ADSs are traded on a U.S. exchange) such dividends paid to you through 2008 will be eligible for the special 15% U.S. federal income tax rate applicable to qualifying dividends received by you, if you are a non-corporate U.S. holder who satisfies certain holding period requirements as to your Grand HK ADSs. Subject to the discussion below under “— Passive Foreign Investment Company Considerations,” to the extent that the amount of any distribution by Grand HK exceeds Grand HK’s current and accumulated earnings and profits as determined under U.S. federal income tax principles, the excess distribution will be treated first as a tax-free return of your adjusted tax basis in the Grand HK ADSs and thereafter as capital gain.

      Amounts taxable to you as dividends generally will be treated as foreign source income for purposes of calculating your foreign tax credit limitation.

 
Sale or Exchange of Grand HK ADSs

      Subject to the discussion below under “— Passive Foreign Investment Company Considerations,” if you are a U.S. holder you generally will recognize gain or loss on a sale or exchange of Grand HK ADSs equal to the difference between the amount realized on such sale or exchange and your adjusted tax basis in such Grand HK ADSs. Such gain or loss will be capital gain or loss. If you are a non-corporate U.S. holder, the maximum marginal U.S. federal income tax rate applicable to such gain will be lower than the maximum marginal U.S. federal income tax rate applicable to ordinary income if your holding period for your Grand HK ADSs exceeds one year. Gain or loss, if any, recognized by you generally will be treated as U.S. source income or loss for U.S. foreign tax credit purposes. The deductibility of capital losses is subject to limitations.

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Passive Foreign Investment Company Considerations

      A non-U.S. corporation like Grand HK will be classified as a passive foreign investment company (which is referred to as a PFIC) for U.S. federal income tax purposes in any taxable year in which, after applying certain look-through rules, either at least 75% of its gross income is passive income or at least 50% of the gross value of its assets is attributable to assets that produce passive income or are held for the production of passive income. Passive income for this purpose generally includes dividends, interest, royalties, rents, and gains from commodities and securities transactions.

      Grand HK believes that it will not be classified as a PFIC for the taxable year in which the reorganization merger occurs. Grand HK’s status in future years will depend on its assets and activities in those years. Grand HK has no reason to believe that its assets or activities will change in a manner that would cause it to be classified as a PFIC. However, the tests for determining PFIC status are applied annually, and it is difficult to accurately predict Grand HK’s future income and assets, which are relevant to this determination. Accordingly, although not anticipated, Grand HK cannot assure you that it will not become a PFIC. If Grand HK were to become a PFIC, then, subject to the discussion below, you would be subject to imputed interest charges and other disadvantageous tax treatment with respect to any gain from the sale or exchange of, and certain distributions with respect to, your Grand HK ADSs.

      Alternatively, if you are a U.S. holder you generally could elect, subject to certain limitations, to annually take into gross income the appreciation or depreciation in the value of the Grand HK ADSs during the tax year (which is referred to as the mark-to-market election). If you make the mark-to-market election, you will not be subject to the above-described rule, but will recognize each year an amount equal to the difference as of the close of the taxable year between the value of the Grand HK ADSs and your adjusted tax basis in the Grand HK ADSs. Losses would be allowed only to the extent of net gain previously included by you under the mark-to-market election for prior taxable years. Amounts included in or deducted from income under the mark-to-market election and actual gains and losses realized upon the sale or disposition of the Grand HK ADSs would be treated as ordinary income or loss.

      You should consult your tax advisors regarding the tax consequences that would arise if Grand HK were treated as a PFIC.

 
Information Reporting and Backup Withholding Tax

      Currently, any distributions with respect to Grand US common stock and the proceeds from the sale or redemption of Grand US common stock are subject to U.S. backup withholding tax and information reporting rules. After the reorganization merger, it is anticipated that the same rules will apply to distributions with respect to Grand HK ADSs and to proceeds from the sale or redemption of Grand HK ADSs.

      In general, information reporting requirements will apply to dividends or sale proceeds paid within the U.S., and in some cases, outside of the U.S., to U.S. holders other than certain exempt recipients, such as corporations. In addition, backup withholding at the then applicable rate will apply to these payments unless you provide an accurate taxpayer identification number in the manner required by U.S. law and applicable regulations, certify that you are not subject to backup withholding, and you otherwise comply with applicable requirements of the backup withholding rules. Amounts withheld under the backup withholding rules may be credited against your federal income tax liability, and you may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the IRS.

Non-U.S. holders

 
Distributions and Dispositions

      In general, and subject to the discussion below under “Information Reporting and Backup Withholding Tax,” you will not be subject to U.S. federal income or withholding tax on income from distributions with respect to, or gain upon the disposition of, Grand HK ADSs, unless either (1) the income or gain is effectively connected with your conduct of a trade or business in the U.S. or (2) in the case of gain realized by an individual

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non-U.S. holder upon a disposition of Grand HK ADSs, you are present in the U.S. for 183 days or more in the taxable year of the sale and certain other conditions are met.

      In the event that clause (1) in the preceding paragraph applies, such income or gain generally will be subject to regular U.S. federal income tax in the same manner as if such income or gain, as the case may be, were realized by a U.S. holder. In addition, if you are a corporation, such income or gain may be subject to a branch profits tax at a rate of 30%, although a lower rate may be provided by an applicable income tax treaty. In the event that clause (2), but not clause (1), in the preceding paragraph applies, the gain generally will be subject to tax at a rate of 30%, or such lower rate as may be provided by an applicable income tax treaty.

 
Information Reporting and Backup Withholding Tax

      If your Grand HK ADSs are held through a non-U.S. and non-U.S. related broker or financial institution, information reporting and backup withholding generally would not be required with respect to distributions on and dispositions of Grand HK ADSs. Information reporting, and possibly backup withholding, may apply if Grand HK ADSs are held by you through a U.S. or U.S. related broker or financial institution and you fail to provide appropriate information. The amount of any backup withholding from a payment to you will be allowable as a refund or credit against your U.S. federal income tax liability, provided that the requested information or appropriate claim for refund is furnished to the IRS. If you are a non-U.S. holder, you should consult your tax advisors regarding the imposition of backup withholding and information reporting with respect to distributions on and dispositions of Grand HK ADSs.

Hong Kong Tax Consequences to Holders of Grand HK ADSs

      Holders will generally not be liable for Hong Kong profits or withholding taxes on their receipt of Grand HK ADSs in the reorganization merger, on dividends received from Grand HK or on capital gains realized upon the sale of Grand HK ADSs. However, Hong Kong profits taxes may apply to holders who are engaged in Hong Kong in the trade or business of buying and selling shares. Grand HK ADSs held by an individual holder at the time of death may be treated as property for the purposes of Hong Kong estate duty.

RESTRICTIONS ON SALES OF GRAND HK ADSs RECEIVED

IN THE REORGANIZATION MERGER

      The Grand HK ADSs to be issued in the reorganization merger to Grand US shareholders generally will be freely transferable, except for Grand HK ADSs issued to any person who is deemed to be an “affiliate” of Grand US and Playwell under the Securities Act as of the date of the special meeting. Persons who may be deemed to be “affiliates” of Grand US and Playwell prior to the reorganization merger include individuals or entities that control, are controlled by, or are under common control with Grand US and Playwell prior to the reorganization merger and the consummation of the transactions contemplated by the subscription and exchange agreement, and may include officers and directors, as well as significant shareholders of Grand US and Playwell prior to the reorganization merger and the consummation of the transactions contemplated by the subscription and exchange agreement. Centralink and affiliates of Grand US and Playwell prior to the reorganization merger may not sell any of the Grand HK ADSs received by them in connection with the reorganization merger and the subscription and exchange agreement except pursuant to:

  •  an effective registration statement under the Securities Act covering resale of those shares;
 
  •  an exemption under paragraph (d) of Rule 145 under the Securities Act; or
 
  •  any other applicable exemption under the Securities Act.

      Grand HK’s registration statement on Form F-4, of which this proxy statement/ prospectus forms a part, does not cover the resale of Grand HK ADSs to be received by affiliates of Grand US and Playwell in the reorganization merger.

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PROPOSAL 2 — ISSUANCE OF 10,000,000 ADSs OF GRAND HK TO CENTRALINK

IN CONNECTION WITH THE ACQUISITION OF THE CAPITAL STOCK OF
PLAYWELL INTERNATIONAL LIMITED

The Subscription and Exchange Agreement

      Grand US, Grand HK and Centralink have entered into the subscription and exchange agreement which is the legal document that governs the acquisition of Playwell and the subscription by Centralink of an additional 5,000,000 Grand HK ADSs. The subscription and exchange agreement has been amended on four occasions by Grand US, Grand HK and Centralink. Grand US and Grand HK recommend that you read carefully the complete subscription and exchange agreement, as amended, for the precise legal terms of the subscription and exchange and other information that may be important to you. The subscription and exchange agreement and its amendments are included in this proxy statement/ prospectus as Annex B.

The Playwell Acquisition and the Centralink Investment in Grand HK

      Immediately after the completion of the reorganization merger, Grand HK will acquire Playwell in exchange for 5,000,000 Grand HK ADSs. The subscription and exchange agreement contemplated an adjustment in the number of Grand HK ADSs to be issued to Playwell in the event that Playwell and its subsidiaries did not achieve a target EBITDA of $3,600,000 for the year ending December 31, 2003 or in the event that Grand US did not achieve a target EBITDA of $675,000 or more (excluding up to $750,000 of the costs that Grand US incurs as a result of being a public company) for the twelve months ended December 31, 2003. However, each of Grand US and Playwell exceeded its target EBITDA and, accordingly, the adjustment mechanism is not applicable.

      In addition to the acquisition of the Playwell shares, Centralink has also agreed to subscribe for 5,000,000 Grand HK ADSs for an aggregate subscription price of cash and other consideration with a value of $11,000,000 in two tranches. Centralink will first purchase 3,000,000 Grand HK ADSs for $3,000,000, or $1.00 per Grand HK ADS, and will then purchase 2,000,000 Grand HK ADSs for cash and other consideration valued at $8,000,000, or $4.00 per Grand HK ADS. Centralink has the right to satisfy a portion of the subscription price by assigning to Grand HK up to $2,300,000 of the loans that it advanced to Fun-4-All on the condition that if the loans are not repaid by December 31, 2004, Centralink will make an additional cash contribution to Grand HK in an amount equal to the unpaid balance of the loans in exchange for Grand HK assigning the right to collect the loans back to Centralink.

      On June 8, 2004, Fun-4-All filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code. As a result of the filing, Fun-4-All’s obligations to repay the loans were stayed pending resolution of the case. Subsequently, on July 22, 2004, Centralink and Fun-4-All entered into an asset purchase agreement pursuant to which Centralink has agreed to acquire certain assets and assume certain liabilities of Fun-4-All, including a license to develop and market certain Crayola branded products, in consideration for Centralink discharging Fun-4-All from its obligations to Centralink under the loan. The transfer of the assets is conditioned upon bankruptcy court approval and the consent by Binney & Smith to the assignment of the license agreement. As a result of this development, Grand HK, Grand US and Centralink have agreed to the following:

  •  In the event that this asset transfer is consummated before the closing of the Playwell acquisition and the related subscription, Grand US, Grand HK and Centralink have agreed that Centralink shall have the right, in lieu of cash, to satisfy up to $2,300,000 of the subscription price for its purchase of Grand HK ADSs by assigning to Grand HK the assets and liabilities that Centralink acquires from Fun-4-All.
 
  •  In the event that this asset transfer is not consummated before the closing of the Playwell acquisition and the related subscription, Centralink shall still have the right to satisfy up to $2,300,000 of the subscription price for its purchase of Grand HK ADSs by assigning to Grand HK up to $2,300,000 of the loan that it advanced to Fun-4-All, together with its rights under the Fun-4-All asset purchase agreement, on the condition that if the transfer of the assets does not occur and the loan is not repaid on or before December 31, 2004, Centralink will immediately make an additional cash contribution to Grand HK in an amount equal to the unpaid balance of the assigned Fun-4-All loan. By acquiring these rights, Grand HK

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  would acquire the Fun-4-All assets if the asset purchase agreement is completed before December 31, 2004.
 
  •  In the event that the asset purchase agreement is terminated before December 31, 2004, the Fun-4-All loans which are assigned to Grand HK will remain outstanding. Because it is unlikely that Fun-4-All will be able to pay the loans before December 31, 2004, it is likely that Centralink will be required to made an additional cash contribution of $2,300,000 to Grand HK under the subscription and exchange agreement at the end of the year.

      In the event the Fun-4-All assets are acquired by Grand HK, Grand HK would retain Empire Valuation Consultants, LLC to value the assets transferred. If the value of the assets is less than $2,300,000, Centralink will pay the difference in cash on or before December 31, 2004.

Representations and Warranties of Grand US, Grand HK and Centralink

      The subscription and exchange agreement contains customary representations and warranties by each of Grand US, Grand HK and Centralink relating to, among other things, the following matters for Grand US and Playwell:

  •  Due organization and valid existence;
 
  •  Capitalization; and title to shares and structure;
 
  •  Status of subsidiaries;
 
  •  No winding-up;
 
  •  No violation resulting from the transaction; required consents;
 
  •  Securities law filings of Grand US;
 
  •  Financial statements; liabilities;
 
  •  Absence of certain changes since the date of the financial statements;
 
  •  Status of litigation;
 
  •  Compliance with laws;
 
  •  Existence of any environmental matters;
 
  •  Tax matters;
 
  •  Employee benefit matters;
 
  •  Labor and employment matters;
 
  •  Product defects and product warranties;
 
  •  Real property owned or leased; title to other assets;
 
  •  Sufficiency and condition of assets;
 
  •  Material contracts;
 
  •  Insurance;
 
  •  Intellectual property matters;
 
  •  Customers and suppliers;
 
  •  Lists of bank accounts and powers of attorney;
 
  •  Transactions with affiliates;
 
  •  Brokers or finders fees;

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  •  Status of books and records;
 
  •  Privacy;
 
  •  Status of accounts receivable;
 
  •  Status of inventory;
 
  •  Restrictions on business activities;
 
  •  No significant items excluded;
 
  •  Absence of certain business practices;
 
  •  Export control and related matters; and
 
  •  No omissions and disclosure of all material facts.

Conduct of Business of Grand US and Playwell Before Completion of the Transactions

      During the period between the execution of the subscription and exchange agreement until the consummation or termination of that agreement, Centralink has agreed to cause Playwell and its subsidiaries and Grand US and Grand HK have agreed themselves, and have agreed to cause each of their subsidiaries, to conduct their respective operations and activities in the ordinary course of business and to also do the following:

  •  use commercially reasonable efforts to preserve their business organizations, keep available the services of their officers, employees and agents, preserve their relationships with business contacts and preserve goodwill;
 
  •  confer with the other party on a regular basis concerning material operational matters; and
 
  •  report to the other party concerning the status of the business, operations and finances of their respective companies.

      Centralink, on the one hand, and Grand US and Grand HK, on the other hand, have agreed not to and will not permit Playwell or any subsidiary of either Playwell or Grand US or Grand HK to do any of the following without the written consent of the other party:

  •  pay any dividends or make any distributions in respect of any shares of capital stock or change the dividend policy; split, reclassify or issue any shares or acquire any shares of their respective companies;
 
  •  issue, deliver, sell, pledge dispose of any shares of capital stock, voting securities or equity equivalent, or any securities convertible into, or any rights, warrants or options to acquire any shares, voting securities or convertible securities or equity equivalent of their respective companies;
 
  •  amend its organizational documents;
 
  •  enter into voluntary liquidation;
 
  •  acquire by merging or consolidating with, or by purchasing a substantial portion of the assets of or equity in any entity or acquire any assets that have an aggregate value in excess of 1% of its total assets other than assets acquired in the ordinary course of business;
 
  •  sell, lease or dispose of any of its assets that have an aggregate value in excess of 1% of its total assets, other than any sale, lease or other disposal in the ordinary course of business;
 
  •  amend or terminate, any material contract, or enter into any other commitment which is material, except actions in relation to license agreements taken in the ordinary course of business and not involving any liability in excess of $50,000;
 
  •  incur any additional indebtedness, enter into a guaranty, or engage in any other financing arrangements having a value in excess of 1% of its total assets, or make any loans, advances or capital contributions to, or investments in, any other entity, other than existing indebtedness under applicable lines of credit;

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  •  alter through merger, liquidation, reorganization, restructuring or in any other fashion its corporate structure or ownership;
 
  •  change any of its accounting principles or practices, except as may be required as a result of a change in law;
 
  •  revalue any of its assets, including writing down the value of its inventory or writing off notes or accounts receivable, other than in the ordinary course of business;
 
  •  make or change any tax election, or file for any change in any method of accounting with a tax authority, except as required by any change in applicable laws;
 
  •  pay, discharge or satisfy any liabilities, other than in the ordinary course of business, that are reflected in the balance sheets of the respective companies as of September 30, 2003 or incurred in the ordinary course of business subsequent to that date;
 
  •  increase the compensation or benefits of any director, officer and other key employee or pay any pension or retirement allowance not required by any existing benefit plan or contract, or enter into any pension, retirement, profit-sharing or welfare benefit plan or employment contract with any employee, other than increases in the compensation of employees who are not officers or directors made in the ordinary course of business, or, voluntarily accelerate the vesting of any compensation or benefit to any employee;
 
  •  waive, amend or allow to lapse any term or condition of any confidentiality, “standstill,” consulting, advisory or employment commitment;
 
  •  approve any annual operating budgets;
 
  •  enter into any transaction with any affiliate;
 
  •  enter into any business other than the business which it is now conducting;
 
  •  purchase any real property or enter into any lease or tenancy contract;
 
  •  enter into or amend or terminate any employment commitment with any officer or employee;
 
  •  take certain actions enumerated in the subscription and exchange agreement; or
 
  •  take any of the foregoing actions.

No Solicitation of Acquisition Transactions

      Grand US has agreed that neither Grand US nor its affiliates or representatives will, directly or indirectly, solicit, initiate or encourage the submission of inquiries, proposals or offers from, or enter into any discussions regarding, or otherwise assist, facilitate or encourage, any person relating to the acquisition of Grand US or any subsidiary of Grand US, or any equity interest in any of them, or any part of their business or assets of any of them.

      Grand US is permitted, in response to an unsolicited “superior proposal” that did not otherwise result from a breach of the subscription and exchange agreement to furnish information with respect to Grand US and the subsidiaries of Grand US to any person making such superior proposal, and, participate in discussions or negotiations regarding such superior proposal. In response to a superior proposal, Grand US may pursue discussions or negotiations with the person making such superior proposal, in which event either Grand US or Centralink may terminate the subscription and exchange agreement. A superior proposal is any proposal made by a third party to acquire, directly or indirectly, more than fifty percent (50%) of the voting power of Grand US or at least 50% or more of the assets of Grand US if:

  •  the proposal is otherwise on terms which the board of Grand US determines in its good faith judgment to be more favorable, taken as a whole, to Grand US shareholders than the transactions contemplated by the subscription and exchange agreement; and

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  •  the board of Grand US determines in good faith that participating in discussions or negotiations with respect to the superior proposal or withdrawing or modifying its recommendation with respect to or otherwise terminating, the subscription and exchange agreement is required for the board of Grand US to comply with its fiduciary duties under applicable law.

Conditions to Consummation of the Reorganization Merger and Acquisition

      The subscription and exchange agreement may be terminated by either Grand US or Centralink and the acquisition of Playwell will not be completed unless, among other things, the following conditions are satisfied or, if allowed by law, waived:

  •  the reorganization merger is completed in accordance with the amended and restated agreement and plan of merger;
 
  •  there is not enacted, entered, enforced, or deemed applicable any law or other action taken by a court or governmental authority which would have a material adverse effect on Grand US’ or Centralink’s ability to conduct the business of Grand US or Playwell, as the case may be, or to enjoy the benefits to be derived from the reorganization merger;
 
  •  the shareholders’ agreement among Grand HK, Centralink, Mr. Altro, Mr. Mars and certain affiliates of these parties is executed;
 
  •  none of the parties to the amended and restated agreement and plan of merger is subject to any governmental decree, order or injunction that prohibits the consummation of any of the steps in the reorganization merger;
 
  •  the registration statement of which this proxy statement/ prospectus is a part is declared effective by the SEC, and no stop order is in effect and the Grand HK ADSs shall be listed for trading on Nasdaq or other nationally recognized stock exchange;
 
  •  the U.S. Senate or House of Representatives or a committee of such body has not enacted or proposed any legislation which would materially and adversely affect the prospective tax treatment of Grand US which is different from any legislation currently in effect; and
 
  •  receipt of all consents and approvals required by any governmental or regulatory agency and all other material third-party consents are received.

      In addition to these mutual conditions, the subscription and exchange agreement may be terminated by Grand US if satisfaction of any of the conditions set forth below becomes impossible, other than through the failure of Grand US to comply with its obligations under the subscription and exchange agreement, and Grand US has not waived such condition on or before the closing of the transactions contemplated by the subscription and exchange agreement:

  •  all representations and warranties made by Centralink in the subscription and exchange agreement, any related transaction documents, and in any certificate or other writing delivered by Centralink being correct in all material respects when made and on the closing or on the date specifically specified;
 
  •  Centralink performing each agreement required to be performed by it pursuant to the subscription and exchange agreement;
 
  •  Centralink delivering to Grand US an officer’s certificate executed by an officer of Centralink certifying that the conditions to closing have been satisfied;
 
  •  no governmental entity notifying Grand US that it is challenging or seeking to prohibit or limit the ownership or operation of any part of the business or assets of Playwell or any subsidiary of Playwell, or otherwise seeking to make Playwell or any subsidiary of Playwell dispose or hold separate any portion of its business or assets or impose any material limitation on the ability of Playwell or any subsidiary of Playwell to conduct its business following the closing;

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  •  the absence of any legal action having been threatened, instituted or pending and no law or action shall have been taken by any governmental authority

  •  challenging or seeking to restrain or prohibit, or having the effect of preventing, delaying, making illegal or otherwise interfering with the consummation of the transactions contemplated by the subscription and exchange agreement or seeking damages in connection with the transactions,
 
  •  challenging or seeking to prohibit or limit the ownership or operation by Playwell or any subsidiary of Playwell of all or any portion of its business or assets or ownership by Grand HK of Playwell shares or compelling or seeking to compel Playwell or any subsidiary of Playwell to dispose of or hold separate all or any portion of its business or assets or seeking to impose any material limitation on the ability of Playwell or any subsidiary of Playwell to conduct its business or own its assets or the ability of Grand HK to own Playwell Shares,
 
  •  that could reasonably be expected to result in any material diminution in the benefits expected to be derived by Grand HK as a result of the transactions contemplated by the subscription and exchange agreement or
 
  •  that has or has had a material adverse effect on Grand US and its subsidiaries;

  •  the occurrence or possible occurrence of any circumstance which has had or could reasonably be expected to have a material adverse effect on Playwell and its subsidiaries;
 
  •  the receipt of a legal opinion of Dorsey & Whitney, counsel to Centralink;
 
  •  the receipt of certificates of incumbency and good standing of Centralink, Great Wall Alliance Limited and Asian World Enterprises Co. Limited;
 
  •  the receipt from Centralink of a certified copy of minutes of a meeting of the directors of Centralink approving the acquisition of Playwell;
 
  •  the receipt of resignations of the directors and company secretary of Playwell and its subsidiaries, including a waiver of all rights to further compensation;
 
  •  receipt of the books and records of Playwell and its subsidiaries;
 
  •  Grand US shareholder approval of the reorganization merger and the issuance of the Grand HK ADSs to Centralink pursuant to the subscription and exchange agreement;
 
  •  receipt of Empire Valuation Consultant’s fairness opinion;
 
  •  receipt of a valuation report to support a conclusion that Grand HK satisfies the substantiality test of Treasury Regulation Section 1.367(a)-3(c)(iii) that will allow the reorganization merger to be tax-free to Grand US’ shareholders;
 
  •  retention of a custodian for the issuance of the Grand HK ordinary shares and a depositary for the issuance of the Grand HK ADSs;
 
  •  the release of Playwell and its subsidiaries from any guarantee or other liability which any of them may have relating to the liabilities of Centralink or any affiliate of Centralink;
 
  •  the satisfaction of any obligation, other than ordinary course obligations, owed by Centralink or its affiliates to Playwell or its subsidiaries in full;
 
  •  the receipt of all permits and consents by Playwell and its subsidiaries and Centralink required to permit the acquisition of Playwell without breach or default by Playwell or its subsidiaries or Centralink;
 
  •  receipt of an indemnification letter from Cornerstone, Centralink’s parent company, indemnifying Grand HK from any fraud by Centralink in inducing Grand US and Grand HK to proceed with the transactions contemplated by the subscription and exchange agreement or from any intentional or willful misrepresentation or breach of, or omission of material facts in the representations and warranties of Centralink, and

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  assurances that Cornerstone is financially capable of satisfying its obligations pursuant to such indemnification;
 
  •  Playwell or its subsidiaries entering into a facilities sharing agreement with Toy Biz or other affiliates of Centralink, acceptable to Grand US, for the sharing of office and management facilities in Hong Kong and related matters; and
 
  •  Hong Kong Toy Centre entering into a new supply agreement with Toy Biz, acceptable to Grand US, providing for the manufacture and sale of moulds and toys for Toy Biz.

      The subscription and exchange agreement may be terminated by Centralink if satisfaction of any of the conditions set forth below becomes impossible, other than through the failure of Centralink to comply with its obligations under the subscription and exchange agreement, and Centralink has not waived such condition on or before the closing of the reorganization merger and acquisition:

  •  All representations and warranties made by Grand US and Grand HK in the subscription and exchange agreement, any related transaction document and in any certificate or other writing delivered by Grand US and Grand HK being correct in all material respects when made and on the closing or on the date specifically specified;
 
  •  Grand US and Grand HK performing each agreement required to be performed by them pursuant to the subscription and exchange agreement;
 
  •  Grand US and Grand HK delivering to Centralink an officer’s certificate executed by an officer of Grand US and Grand HK certifying that the conditions to closing have been satisfied;
 
  •  no governmental entity notifying Centralink that it is challenging or seeking to prohibit or limit the ownership or operation of any part of the business or assets of Grand US or any subsidiary of Grand US, or otherwise seeking to make Grand US or any subsidiary of Grand US dispose or hold separate any portion of its business or assets or impose any material limitation on the ability of Grand US or any subsidiary of Grand US to conduct its business following the closing;
 
  •  the absence of any legal action having been threatened, instituted or pending and no law shall have been passed and no action shall have been taken by any governmental authority

  •  challenging or seeking to restrain or prohibit, or having the effect of preventing, delaying, making illegal or otherwise interfering with the consummation of the transactions contemplated by the subscription and exchange agreement or seeking damages in connection with the transactions,
 
  •  challenging or seeking to prohibit or limit the ownership or operation by Grand US or any subsidiary of Grand US of all or any portion of its business or assets or ownership by Grand HK of Grand US Shares or compelling or seeking to compel Grand US or any subsidiary of Grand US to dispose of or hold separate all or any portion of its business or assets or seeking to impose any material limitation on the ability of Grand US or any subsidiary of Grand US to conduct its business or own its assets,
 
  •  that could reasonably be expected to result in any material diminution in the benefits expected to be derived by Centralink as a result of the transactions contemplated by the subscription and exchange agreement or
 
  •  that has or has had a material adverse effect on Grand US and its subsidiaries;

  •  the occurrence or possible occurrence of any circumstance which has had or could reasonably be expected to have a material adverse effect on Grand US and its subsidiaries;
 
  •  the receipt of a legal opinion of Katten Muchin Zavis Rosenman, counsel to Grand US;
 
  •  the exercise of not less than 1,002,858 outstanding options or warrants to purchase Grand US common stock;
 
  •  the receipt by Centralink of a secretary certificate certifying as to the approval of the transactions contemplated by the subscription and exchange agreement by the board of directors and the shareholders

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  of Grand US, the good standing of Grand US and Grand HK and the organization documents of Grand US and Grand HK;
 
  •  the receipt of resignations of the directors of Grand US and its subsidiaries, including a waiver of all rights to further compensation;
 
  •  the receipt of all permits and consents by Grand US and its subsidiaries required to permit the acquisition of Playwell, the other transactions contemplated by the subscription and exchange agreement and the uninterrupted continued operation of the business of Grand US and its subsidiaries without breach or default by Grand US or its subsidiaries after these transactions; and
 
  •  the receipt of an indemnification letter from David Mars and Stephen Altro indemnifying Centralink HK from any fraud by Grand US or Grand HK in inducing Centralink to proceed with the transactions contemplated by the subscription and exchange agreement or from any intentional or willful misrepresentation or breach of, or omission of material fact in, the representations and warranties of Grand US and Grand HK in such agreement.

Termination of the Subscription and Exchange Agreement

      The subscription and exchange agreement may be terminated at any time prior to completion of the acquisition:

  •  by mutual consent of Grand US, Grand HK and Centralink;
 
  •  by either Grand US or Centralink if Grand US has notified Centralink that it intends to pursue discussions or negotiations with a third party in response to a “superior proposal” as described above under the section titled “No Solicitation of Transactions”;
 
  •  by Grand US or Centralink if satisfaction of the conditions to their respective obligations to close becomes impossible, other than through its failure to comply with its obligations under the subscription and exchange agreement;
 
  •  By either Grand US or Centralink if the closing has not occurred on or before August 31, 2004, except that neither Grand nor Centralink may terminate the subscription and exchange agreement if it has failed to comply with its obligations under the subscription and exchange agreement; and
 
  •  By either Grand US or Centralink if the other party has committed a material breach of the agreement and such breach has not been waived.

Expenses: Termination Fees

      In the event the reorganization merger, Playwell acquisition and additional Centralink subscription are completed, all expenses paid by Centralink will be reimbursed by Playwell, Playwell shall cause to be paid all expenses incurred and estimated to be incurred by Centralink but unpaid prior to closing (including expenses associated with post-closing actions), and Centralink shall cause to be paid or reimbursed all expenses paid or incurred by Grand US prior to closing arising out of or related to the subscription and exchange agreement or the consummation of the transactions contemplated by the subscription and exchange agreement.

      In the event that the subscription and exchange agreement is terminated by either Centralink or Grand US’s as a result of Grand US’s decision to pursue a superior proposal, Grand US would be obligated to pay Centralink a fee of the greater of $500,000 or the actual expenses incurred by Centralink in connection with the negotiation and consummation of the transactions contemplated in the subscription and exchange agreement. This will have a potentially chilling effect on Grand US’ ability to find a suitor more favorable than Centralink, given Grand US’ current valuation. Moreover, in the event that Grand US should fail to pay timely any amount due to Centralink, as a result of the termination of the subscription and exchange agreement, interest thereon shall accrue at the rate of 12% per annum from the date such payment is due until the date such payment is made. In the event the subscription and exchange agreement is terminated for any other reason, each party will be responsible for its own fees and expenses, except that the termination of the agreement as a result of a breach by either party will not relieve the breaching party from any liability that it may have for such breach.

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INFORMATION ABOUT GRAND TOYS INTERNATIONAL, INC.

AND PLAYWELL INTERNATIONAL LIMITED

Business of Grand Toys International, Inc.

 
Introduction

      Grand US is a Nevada corporation which, by itself and through its Canadian subsidiary, Grand Toys Ltd. (which is referred to as Grand Canada), has been engaged in the toy business for over 43 years. Grand US develops and distributes a wide variety of toys and fashion accessories throughout Canada and, to a lesser extent, the United States. Grand US’ business consists of four areas of operation:

  •  importing and distributing throughout Canada, on an exclusive and non-exclusive basis, a wide variety of well-known toy and leisure products and fashion accessories including party goods, stationery and accessories;
 
  •  selling toy products and fashion accessories featuring popular characters licensed to Grand US;
 
  •  earning commissions on the sale of products represented by Grand Toys Ltd. and shipped directly from an overseas vendor to Canadian customers; and
 
  •  selling proprietary products such as I-screme cosmetics and Art X-press crafts.

      On January 29, 2002, Grand US consolidated all of its Canadian operations into Grand Toys Ltd.

      On June 14, 2002, Grand US sold all of the shares of one of its United States subsidiaries, Sababa Toys Inc., which commenced operations in 2000.

      Unless the context otherwise requires, references herein to Grand US include Grand Toys International, Inc. and its operating subsidiary, Grand Toys Ltd. Grand US revenues are primarily derived from the operations of Grand Toys Ltd.

 
Products

      Grand Canada imports into Canada for distribution select toys and fashion accessories from vendors who typically design, develop and sell their products in other countries.

      In determining which items to import, Grand Canada examines such factors as consumer acceptance of the particular products in other countries, and Canadian consumer tastes for such products based on similar products distributed previously in Canada. In addition, prior to ordering a product, Grand Canada attempts to predict the potential demand for such product by exhibiting it to Grand Canada’s existing customers.

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      The following table sets forth certain vendors whose products Grand Canada distributes in Canada, the type of products they manufacture, and the price range at which Grand Canada sells such products to retailers.

             
Product Price
Vendor (Head Office) Products Distributed by Grand US Range($)



Barter (H.K.)
  Proprietary Arts & Crafts & licensed products     1.60 -  36.84
Catpro (U.S.)
  Licensed novelty products     2.32   
Comic Images (U.S.)
  Bobbleheads     2.49   
Intex Corporation (Taiwan)
  Inflatable water toys (licensed & non-licensed)     2.67 -  203.12
May Fair (H.K.)
  Art Supplies     15.14 -  17.46
P & M Products (U.S.)
  Arts & Crafts     1.14 -  11.03
Processed Plastic (U.S.)
  Plastic toys, ride-on vehicles, and etc.     0.26 -  22.70
Spectra Star Toys (U.S.)
  Kites     1.06 -  88.94
T-Ink (U.S.)
  Educational toys     4.09 -  12.11
Toy Biz (U.S.)
  Male action figures     3.03 -  30.65
Toy Tech (H.K.)
  Astrojax products     1.96 -  9.09
Unice S.A. (Spain)
  Balls     1.32 -  1.67

      Grand US’ business and operating results depend largely upon the appeal of the toy products developed and distributed by Grand US. A decline in the popularity of its existing products and product lines or the failure of new products and product lines to achieve and sustain market acceptance could result in reduced overall revenues and margins, which could have a material adverse effect on Grand US business, financial condition and results of operations. Grand US’ continued success will depend on its ability to redesign, restyle and extend its existing toy products and fashion accessories and to develop, introduce and gain customer acceptance of new toy products. However consumer preferences with respect to toy products and fashion accessories are continuously changing and are difficult to predict.

Design and Development

      Grand Canada does not employ its own inventors of new concepts as is common in the toy and fashion accessory industries. Instead Grand Canada receives and develops new concepts in other ways including:

  •  Consideration of numerous concepts from unaffiliated third parties for new products. If it accepts and develops an inventor’s concept for a new product, it will pay royalties to the inventor on sales from that product; and
 
  •  Review by Grand US’ staff of trade and product developments within the recreational sector and determination if there is an opportunity that could be put into development.

      Grand US’ staff then develops the new concepts by attending tradeshows worldwide, reading industry publications and communicating with our existing vendors and customers.

      Grand US, through it’s United States subsidiary, Sababa Toys Inc., developed new concepts to be developed internally or by the other subsidiaries within the corporate group, to be sold to third parties. On June 14, 2002, Grand US sold all of the shares of its Sababa Toys, Inc. subsidiary.

      Grand US also develops proprietary products and uses internal staff to develop these products to be sold to third parties.

      All safety testing of Grand US products is done by the manufacturers at the manufacturers’ factories and is designed to meet safety regulations imposed by the Canadian and United States governmental authorities. Grand US also monitors quality assurance procedures of the manufacturers for Grand US products for safety purposes at Grand US warehouse facilities.

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Sources of Product

      Approximately 93% of Grand US gross sales in 2003 were from products supplied by the following five vendors: Toy Biz, Toy Tech, Barter, P & M Products and T-Ink Ltd. These products accounted for 62%, 13%, 11%, 4% and 3%, respectively, of 2003 gross sales. If one or more of the remaining suppliers identified above were to terminate their relationship with Grand US, such termination may have a material adverse effect on Grand US. Other than the products from the above-mentioned vendors, no products from any other vendor or from Grand US proprietary products accounted for more than 3% of Grand US gross sales in 2003.

      The products distributed by Grand US are manufactured for Grand US by unaffiliated third parties principally located in China, Hong Kong, Mexico, Spain, the United States and the United Kingdom. Grand US orders products from its vendors which in turn select product manufacturers on the basis of factors standard in the toy industry including price, payment terms, product quality, reliability and the ability of a manufacturer to meet delivery requirements. For licensed products, the licensors may have the right to approve the manufacturers selected by the vendors. The use of third-party manufacturers enables Grand US to avoid incurring fixed manufacturing costs, but also reduces its ability to control the timing and quality of the manufacturing process.

      Grand US does not supervise the day-to-day manufacturing of its products. However, prior to the commencement of manufacturing, Grand US, the vendor and the manufacturer work together to design a prototype of the specific product and its packaging. The manufacturer is contractually obligated to manufacture the products in accordance with those prototype specifications. For licensed products, some licensors may be required to approve the prototype prior to production.

      All manufacturing services performed overseas are generally paid for by either letter of credit or wire transfer. Payment for such manufacturing is made only upon the proper fulfillment of terms established by Grand US for each purchase order. These terms include adherence to product quality, design, packaging and shipping standards, as well as proper documentation relating thereto. Most product purchases are paid for in U.S. dollars.

      Grand Canada is not a party to any long-term supply or requirements agreements with any specific manufacturer. All of Grand US manufacturers may subcontract the manufacture of components of their products to third parties who are not affiliated with Grand US.

Materials

      The principal raw materials used in the production and sale of Grand US products are plastic, printed fabrics and paper products. These are all currently available at reasonable prices from a variety of sources. Because Grand US does not manufacture any of its products on site, it does not own any specialized tools or other production equipment.

Location

      Grand Canada leases a building in suburban Montreal, Quebec, Canada, where Grand US executive and administrative offices are located as well as its distribution center. Grand US also had a sales office and showroom in Mississauga, Ontario, Canada. This location was closed on December 31, 2002 as part of Grand US restructuring efforts.

Licensing and Distribution Agreements

Character Licenses

      Grand US product lines include products featuring well-known character properties created by others. In order to obtain the right to manufacture and sell products featuring such character properties, Grand Canada enters into license agreements with the owners of such properties. Under the terms of the character property license agreements, Grand Canada pays royalties to licensors that generally range from 6% to 15% of net sales of the products carrying these character properties. To the extent that competition increases among companies to

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obtain character property licenses, Grand Canada may encounter increased difficulty in obtaining certain character licenses and may be required to pay greater minimum guaranteed royalty amounts.

      Generally, Grand US character property license agreements provide Grand US with the right to sell only specific products featuring the particular character. All but one of Grand US’ licenses are non-exclusive. These agreements typically limit the sale of such products to Canada. However, certain agreements allow distribution in the United States. They generally have terms of one to three years and are generally although not required by their terms, renewed upon payment of certain minimum guarantees or the attainment of specified sales levels.

      The following table sets forth Grand US character licenses, the licensor for these character properties, the territory of sale, and the types of products that Grand US markets featuring these character properties.

             
Character Property Licensor (Territory) Product Featuring Property



Batman
    Warner Bros. (CAN)     Kites, Balls
Bear In The Big Blue House
    Venture (CAN)     Balls
Eye Scream
    Excel Development (U.S. & CAN)     I-Screme cosmetics
Scooby Doo
    Warner Bros. (CAN)     Balls
Hello Kitty, Pochacco.
    Sanrio Co. Ltd. (U.S. & CAN)     Foam Puzzles, Foam Floor Tiles
Monsters, Winnie the Pooh, Toy Story, Standard characters
    Disney (CAN)     Kites
Nintendo
    G-Squared (CAN)     Balls
Pooch Patrol
    Isovoy Inc. (U.S. & CAN)     Plush Toys
Bob the Builder
    Hit Entertainment (CAN)     Kites, Suncatchers
Rugrats, Sponge Bob, Blues Clues Dora the Explorer, Jimmy Neutron
    Studio Licensing (CAN)     Kites, Balls, Suncatchers, Bath Activity Toys
Sesame Street
    E.M.G. (CAN)     Balls, Kites
Spider-man
    Marvel, (CAN)     Ball, Stationery
Astrojax
    Vele Marketing (CAN)     Astrojax product lines
Spiderman
    Marvel (U.S. & CAN)     Foam Puzzles, Foam Floor Tiles
X-Men
    Marvel (U.S. & CAN)     Foam Puzzles, Foam Floor Tiles

      There is one particular character property license that resulted in sales in excess of 10% of Grand Canada’s sales revenues for the year ended December 31, 2003. The Astrojax property represented 13% of Grand US Sales revenues and the loss of this licensed product would have a material adverse effect on Grand US operations.

      All costs associated with licensing and distribution are expensed in the period incurred and are shown as royalty expense in the Statements of Operations. Total royalty expense for the years ended December 31, 2003, 2002 and 2001 was $302,801, $311,082 and $252,506, respectively.

Distribution Arrangements with Toy Vendors

      Grand Canada selects products from a master product list provided to it by the vendor. The purchase price, depending on the arrangement with the supplier, may consist of a fixed payment per item, specified minimum quantities to be purchased and other conditions, and occasionally a royalty fee.

      Pursuant to these agreements, Grand Canada obtains either the exclusive or non-exclusive right to import and distribute throughout Canada the products selected by it. These agreements generally have terms of one to five years and are usually exclusive for a specified product or product line within a specific territory.

      Grand Canada’s distribution agreement with its largest vendor, Toy Biz Inc., accounted for 62% of Grand US’ 2003 sales volume. Grand’s contract with this vendor renews on an annual basis. At December 31, 2003, the agreement is verbal in nature.

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      Generally, under Grand US’ distribution agreements, Grand Canada is responsible for paying shipping and other related costs upon the purchase of goods from the vendor. If Grand Canada were to be in default under a license or distribution agreement, such agreement could be terminated and Grand US could also incur liability for certain costs and penalties.

      As a result of changing consumer preferences, many toy products are successfully marketed for only one or two years. There can be no assurances that any of Grand US current products or product lines will continue to be popular for any significant period of time; any new products or product lines introduced by Grand US will achieve an adequate degree of market acceptance; or any new product’s life cycle will be sufficient to permit Grand US to recover development, manufacturing, marketing or other costs of the product.

      In the event a new product does not receive sufficient market acceptance, Grand US may be required to sell inventory of such product at a substantial discount. Accordingly, Grand US’ success is dependent in large part on its ability to secure the rights to distribute new products and to secure new character and well-known brand name licenses for existing or new product lines, which cannot be assured. Therefore, Grand US cannot assume that any new products will be successful or meet with the same success as existing products.

Marketing, Sales and Distribution

      Grand Canada markets its products throughout Canada via one employee sales representative and independent sales agents. Purchasers of the products include mass retailers, regional retail stores, toy specialty stores and wholesalers.

      Grand Canada’s three largest customers are: Toys ‘R’ Us, Zellers, and Walmart, which for the year ended December 31, 2003 accounted for approximately 21%, 20% and 8%, respectively, of Grand US gross sales. No other customer accounted for more than 8% of gross sales in 2003. If one or more of the three customers identified above terminated its relationship with Grand Canada, a material adverse effect on Grand US may occur.

      Grand Canada, in its regular business operations does not have long term order commitments from its customers. Grand US sells to its customers on open account, allowing customers to purchase products up to certain pre-established credit limits.

      For the majority of its customers, Grand US enters into one-year term agreements. These agreements stipulate payment terms, shipping terms, allowances and rebates (i.e., a return on prices paid by the customer if it provides advertising, there are defective product returns or a high volume of product orders, as applicable). Payment terms typically vary between 30 and 90 days.

      Customers generally can cancel purchase orders for which goods have been purchased. Grand US attempts to minimize this possibility by ensuring that customer orders are matched to product purchases.

      In addition, pressure by large customers seeking a reduction in prices, financial incentives, a change in other terms of sale or for Grand US to bear the risks and the cost of carrying inventory could also adversely affect our business, financial condition and results of operations.

      Grand Canada employs a sales and marketing staff of four, including one senior manager and one sales person who makes on-site visits to customers for the purpose of soliciting orders for products. Grand Canada markets products at major and regional toy trade shows in Canada. In addition, Grand Canada maintains a showroom at its headquarters in suburban Dorval, Quebec, Canada.

      Grand Canada directly, or through outside salespersons, takes written orders for products from customers and submits the orders to Grand US vendors who then arrange for manufacture of the products. Customer order cancellations are generally made in writing and Grand US will then notify the appropriate vendors of customer cancellations who in turn notify the manufacturers. This procedure allows Grand US to avoid adding products to inventory as a result of customer cancellations of orders.

      Returns are generally not accepted although consistent with industry practices, exceptions to this policy are made on a case-by-case negotiated basis. Those customers who are shipped defective products (per their term

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agreements) would claim product returns against the rebates. If a return is material, Grand Canada may have recourse against the manufacturer of the product.

Seasonality

      Grand US’ business is seasonal, with a majority of sales occurring during the period from September through December in anticipation of the holiday season. Therefore its annual operating results will depend, in large part, on its sales during the relatively brief holiday season.

      Further, this seasonality is increasing as large retailers become more efficient in their control of inventory levels through quick response management techniques. Retail sales of toy products are seasonal. These customers are timing reorders so that they are being filled by suppliers closer to the time of purchase by consumers, which to a large extent occurs during September through December, rather than maintaining large on-hand inventories throughout the year to meet consumer demand. While these techniques reduce a retailer’s investment in inventory, they increase pressure on suppliers like Grand US to fill orders promptly and shift a significant portion of inventory risk and carrying costs to the supplier. The limited inventory carried by retailers may also reduce or delay retail sales. Additionally, the logistics of supplying more and more product within shorter time periods increase the risk that Grand US may fail to achieve tight and compressed shipping schedules.

      This seasonal pattern requires significant working capital mainly to purchase inventory prior to the holiday season, and requires accurate forecasting of demand for products during the holiday season. Grand US failure to accurately predict and respond to consumer demand could result in our under-producing popular items and overproducing less popular items.

      However management of Grand US attempts to offset the seasonal nature of the industry by seeking out non-seasonal product lines. The success of non-seasonal product lines, i.e., Spiderman and Lord of the Rings, has resulted in an appropriate seasonal, non-seasonal inventory concentration for the third and fourth quarters.

Product Liability

      Grand US maintains product liability coverage for Grand US operations in the aggregate amount of Canadian $12,000,000.

Competition

      The industries in which Grand US competes are highly competitive. Grand US competes with many larger toy companies in the design and development of new toys, the procurement of licenses and for adequate retail shelf space for its products. The larger toy companies include Hasbro Inc., Mattel Inc., Playmates Inc. and Bandai Co. Many of these competitors have greater financial and other resources than Grand US. Grand US also faces competition from retailers who buy directly from the supplier rather than use a distributor like Grand US. Grand US remains competitive by offering full service to its customers, including marketing programs and customer service. The toy industry’s highly competitive environment continues to place cost pressures on manufacturers and distributors. Discretionary spending among potential toy consumers is limited and the toy industry competes for those dollars along with the makers of computers and video games. Management believes that strong character and product licenses, Grand US’ reputation, the competence of its senior management and its operational controls have enabled Grand US to be competitive.

Government Regulation

      Grand US is subject to the provisions of various laws, certain of which have been enacted by the Federal Government of Canada and others which have been enacted by the Government of the Province of Quebec and other Canadian provinces, and the various states in the United States.

Federal

      The laws of the Government of Canada to which Grand Canada is subject include the Hazardous Products Act which empowers the Government to protect children from hazardous toys and other articles. Under that

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legislation the Government has the authority to exclude from the market those articles, which are found to be hazardous. Grand Canada is also subject to the Consumer Packaging and Labeling Act enacted by the Government of Canada, whose legislation prohibits the importation of prepackaged items into Canada, as well as the sale, importation, or advertising in Canada of items, which have misleading information on their label.

Provincial

      The legislation enacted by the Government of the Province of Quebec in Canada to which Grand Canada is subject includes the Consumer Protection Act which prohibits the sale of hazardous toys and other articles, and also requires proper labeling and instructions to be included with the item being sold.

      Grand Canada is also subject to the Charter of the French Language, which requires that all labeling and instructions appear in the French language, as well as the Upholstery and Stuffed Articles Act, which requires that stuffed articles conform to hygienic norms, and obligates companies to take measures against contamination during transportation and storage. Similar laws exist in several cities and provinces throughout Canada and in many jurisdictions throughout the world.

      Grand US maintains a quality control program to ensure compliance with all applicable laws.

Employees

      As of December 31, 2003, Grand US employed 23 full-time persons, including two executive officers, none of whom are represented by a union. Grand US believes that its relations with its employees are satisfactory.

Properties

      Grand US’ principal executive offices are located in an approximately 105,000 square foot facility located at 1710 Route Trans-Canada, Dorval, Quebec, Canada. Grand US uses the facility for offices, showroom, warehousing and distribution.

      The lease for the premises expires on September 30, 2004 but Grand US has the right to extend the lease for an additional five-year period, to September 30, 2009, which Grand US is considering exercising. The current monthly rent is $25,315 and during the extension period shall be increased each year by a percentage that is equal to 75% of the percentage increase in the consumer price index for the greater Montreal, Canada area. On October 23, 2002, Grand US sub-let 56,132 square feet of this facility in order to maximize facility efficiency and reduce expenses. The sub-lease ends on November 30, 2008.

      Grand US believes that its current facilities are satisfactory for its present needs and that its insurance coverage is adequate for the premises.

Legal Proceedings

      On November 30, 1995, an involuntary petition under Chapter 7 of the United States Bankruptcy Code was filed against Grand Group Inc, a United States subsidiary of Grand US, in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Proceeding”). On January 4, 1996, the court entered an order for relief under Chapter 7 of the United States Bankruptcy Code and a trustee was appointed to supervise the liquidation of Grand Group Inc. On November 21, 2003, the bankruptcy was discharged.

      On May 10, 2000, a lawsuit for alleged breach of contract has been filed against Grand Canada by a former sales representative. In the opinion of Grand US’ management, this action has no merit. At this point in time it is difficult to ascertain or estimate the value of a settlement, if any.

      On May 21, 2003, Grand US was named in a lawsuit for an alleged defective product causing personal injury. Grand was acting as a distributor for the product. A defense has been filed denying liability and the claim is covered by insurance. At this point in time, it is difficult to ascertain or estimate the value of a settlement, if any.

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      On April 15, 2004, Grand US was named in a lawsuit for alleged non payment of commissions. In the opinion of Grand US’ management, it is difficult to ascertain or estimate the value of a settlement, if any.

Security Ownership of Certain Beneficial Owners and Management

      The following table sets forth certain information regarding beneficial ownership of Grand US common stock as of July 15, 2004 by

  •  each person (or group of affiliated persons) who is known by Grand US to own beneficially more than 5% of the outstanding shares of Grand US common stock;
 
  •  each of Grand US directors and executive officers; and
 
  •  all of Grand US executive officers and directors as a group. Except as indicated in the footnotes to this table, Grand US believes that the persons named in this table have sole voting and investment power with respect to such shares.

                 
Number of Shares Percent of Class and
Name and Address of Beneficial Owner Beneficially Owned Voting Power(1)



Stephen Altro
1710 Rte. Transcanadienne
Dorval, QC, Canada, H9P 1H7
    931,518(2 )     17.15 %
David Mars
1710 Rte. Transcanadienne
Dorval, QC, Canada H9P 1H7
    917,357(3 )     16.94 %
Livescore Finance Company Ltd.
C/o Insinger Trust
Standard Charter Bank Bld.,
4-4A Des Voeux, Hong Kong
    472,500(4 )     8.75 %
Robenham Inc.
C/o Insinger Trust
Standard Charter Bank Bld.,
4-4A Des Voeux, Hong Kong
    472,500(4 )     8.75 %
Faxfleet Holdings Ltd.
C/o Insinger Trust
Standard Charter Bank Bld.,
4-4A Des Voeux, Hong Kong
    452,500(5 )     8.38 %
Spellord Inc.
C/o Insinger Trust
Standard Charter Bank Bld.,
4-4A Des Voeux, Hong Kong
    452,500(5 )     8.38 %
R. Ian Bradley
1710 Rte. Transcanadienne
Dorval, QC, Canada, H9P 1H7
    300,000(6 )     5.38 %
James B. Rybakoff
780 Third Avenue
New York, NY 10017
    140,109(7 )     2.59 %
Tania M. Clarke
5622 Shumack Crescent
Pierrefonds, QC, Canada H8Z 3K3
    52,739(8 )