Alltronics Holdings Limited — Proxy Solicitation & Information Statement 2005

Dec 13, 2005

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional advisers.

If you have sold or transferred all your shares in Alltronics Holdings Limited , you should at once hand this circular to the purchaser or to the bank, stockbroker or other agent through whom the sale was effected for transmission to the purchaser.

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

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ALLTRONICS HOLDINGS LIMITED 華訊股份有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 833)

MAJOR TRANSACTION

ACQUISITION OF

26% EQUITY INTEREST IN AN ASSOCIATED COMPANY

Financial adviser

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CAPITAL
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CSC Asia Limited

13 December 2005

CONTENTS

	Page
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
THE SALE AND PURCHASE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
REASONS FOR AND BENEFITS OF THE TRANSACTION . . . . . . . . . . . . . . . . . .	8
FINANCIAL EFFECTS OF THE TRANSACTION ON THE GROUP . . . . . . . . . . .	8
PRINCIPAL ACTIVITIES OF THE GROUP AND
THE SOUTHCHINA GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
APPENDIX I – FINANCIAL INFORMATION OF THE GROUP . . . . . . . . . . . . .	10
APPENDIX II – ACCOUNTANTS’ REPORT ON
THE SOUTHCHINA GROUP. . . . . . . . . . . . . . . . . . . . . . . . . . . .	68
APPENDIX III – PRO FORMA FINANCIAL INFORMATION OF
THE ENLARGED GROUP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	115
APPENDIX IV – GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	121

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DEFINITIONS

In this circular, unless the context requires otherwise, the following expressions have the following meanings:

• “Alltronics” Alltronics Tech. Mftg. Limited, a private limited company incorporated in Hong Kong on 17 March 1997 and a wholly-owned subsidiary of the Company

• “Board” the board of Directors “Company” Alltronics Holdings Limited, a company incorporated in the Cayman Islands, the Shares of which are listed on the Stock Exchange

• “Completion” completion of the Transaction pursuant to the Sale and Purchase Agreement

• “Conditions” the conditions precedent to Completion, as more particularly set out under the section headed “Conditions to Completion” of this circular

• “Consideration” the consideration of HK$8,300,000 payable by Alltronics to the Vendors for the purchase of the Sale Shares

• “Directors” the directors of the Company “Enlarged Group” the Group as enlarged immediately after Completion “Group” the Company and its subsidiaries “HK$” Hong Kong dollars, the lawful currency of Hong Kong “HKFRS” Hong Kong Financial Reporting Standards “HKGAAP” generally accepted accounting principles in Hong Kong “Hong Kong” the Hong Kong Special Administrative Region of the People’s Republic of China

• “Latest Practicable Date” 8 December 2005, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein

• “Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange

• “Profit International” Profit International Holdings Limited, a company incorporated in the British Virgin Islands and 95% equity interest of which is owned by Mr. Lam Yin Kee, the chairman and an executive Director and the remaining 5% by Ms. Yeung Po Wah, an executive Director and the wife of Mr. Lam Yin Kee

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DEFINITIONS

“PRC”	The People’s Republic of China (for the purpose of this
	circular, excludes Hong Kong, Macao Special
	Administrative Region of the PRC and Taiwan)
“Sale and Purchase Agreement”	the conditional sale and purchase agreement dated 27
	October 2005 made between Alltronics and the Vendors
	relating to the Transaction
“Sale Shares”	260,000 shares of HK$1 each in Southchina representing
	26% of the total issued share capital of Southchina
“Shares”	ordinary shares of HK$0.01 each in the capital of the
	Company
“Shareholders”	holders of Shares
“Southchina”	Southchina Engineering and Manufacturing Limited, a
	private limited company incorporated in Hong Kong on 3
	September 1992
“Southchina Group”	Southchina and its subsidiaries
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Transaction”	the acquisition by Alltronics of 26% of the total issued
	share capital of Southchina from the Vendors pursuant to
	the Sale and Purchase Agreement
“Vendors”	Messrs Lam On Bong, Ieong Kin San and Leung Hon
	Kwong
“%”	per cent.
“sq.m.”	square meter

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LETTER FROM THE BOARD

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ALLTRONICS HOLDINGS LIMITED 華訊股份有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 833)

Executive Directors: Mr. Lam Yin Kee (Chairman) Ms. Yeung Po Wah Mr. Toshio Daikai Mr. William Peter Shelley

Non-executive Director: Mr. Fan, William Chung Yue

Independent Non-executive Directors: Mr. Barry John Buttifant Mr. Leung Kam Wah Ms. Yeung Chi Ying

Head office and principal place of business in Hong Kong: Room 1108, 11/F Eastwood Centre No. 5 A Kung Ngam Village Road Shau Kei Wan Hong Kong

Registered office: Century Yard Cricket Square Hutchins Drive P.O. Box 2681 GT George Town, Grand Cayman British West Indies

13 December 2005

To the Shareholders

Dear Sirs,

MAJOR TRANSACTION

ACQUISITION OF 26% EQUITY INTEREST IN AN ASSOCIATED COMPANY

INTRODUCTION

On 31 October 2005, the Board announced that Alltronics entered into the Sale and Purchase Agreement on 27 October 2005, to acquire from the Vendors 26% of the total issued share capital of Southchina. Southchina is currently an associated company of the Group and owned as to 25% by the Group and as to the remaining 75% by the Vendors. Upon Completion, Alltronics will hold in aggregate 51% of the total issued share capital of Southchina. Southchina will then become a subsidiary of the Group.

The Transaction constitutes a major transaction for the Company under the Listing Rules and is conditional on approval by the Shareholders. Pursuant to Rule 14.44 of the Listing Rules, written shareholders’ approval may, subject to Rule 14.86 of the Listing Rules, be accepted in lieu of holding a general meeting, if (i) no shareholder is required to abstain from

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LETTER FROM THE BOARD

voting if the company were to convene a general meeting for the approval of the transaction; and (ii) such approval has been obtained from a shareholder or a closely allied group of shareholders which in aggregate holds more than 50% of the issued share capital giving the right to attend and vote at the general meeting of the company to approve the transaction.

To the best of the knowledge of the Directors, none of the Shareholders of the Company or its associates (as defined under the Listing Rules) has any interest in the Transaction, therefore, no Shareholder of the Company is required to abstain from voting if the Company were to convene a general meeting for the approval of the Transaction. Profit International, the controlling Shareholder of the Company, currently holding 70% of the issued share capital of the Company, has approved the Transaction by way of a written approval pursuant to Rule 14.44(2) of the Listing Rules. In addition, Rule 14.86 of the Listing Rules is not applicable, as no qualified/modified accountants’ report on the Southchina Group is issued in respect of the Transaction. Therefore, no Shareholders’ meeting is required to be convened for the purpose of approving the Transaction.

The purpose of this circular is to provide the Shareholders with further information of the Transaction and other information as required under the Listing Rules.

THE SALE AND PURCHASE AGREEMENT

1. Date

27 October 2005

2. The parties

Vendors: Messrs Lam On Bong, Ieong Kin San and Leung Hon Kwong Purchaser: Alltronics, being a company incorporated in Hong Kong and a wholly-owned subsidiary of the Company

To the best of the knowledge, information and belief of the Directors, and having made all reasonable enquiries, as at the Latest Practicable Date, the Vendors are independent third parties not connected with any of the Directors, chief executive or substantial Shareholders of the Company and its subsidiaries or their respective associates (as defined under the Listing Rules).

3. The assets to be acquired

Alltronics has pursuant to the Sale and Purchase Agreement conditionally agreed to acquire from the Vendors the Sale Shares representing 26% of the total issued share capital of Southchina (i.e., as to 16%, 5% and 5% from Messrs. Lam On Bong, Ieong Kin San and Leung Hon Kwong respectively).

(i) Information of Southchina

Southchina is a company incorporated in Hong Kong on 3 September 1992 with limited liability. The Southchina Group is principally engaged in the manufacture of plastic moulds, plastic components and electronic product assembly with the main

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LETTER FROM THE BOARD

production plants located in leased premises at Fuyong Town, Shenzhen, the PRC. The production plants comprise warehouses and workshops occupying a total floor area of approximately 9,600 sq.m. and are leased to the Southchina Group pursuant to four lease agreements expiring in or about March 2006 to July 2009 from independent third parties (“Landlords”). According to the information provided by the Vendors, the Landlords do not possess the relevant real estate ownership certificates for these leased properties. According to the opinion of the Company’s PRC legal adviser, the Landlords may not have the proper right to lease such properties and there may be a risk that the Southchina Group cannot legally occupy these leased properties. Should the respective lease agreements become voidable and thereby the Southchina Group not able to continue to occupy these leased properties, the Southchina Group will relocate its production facilities to other factories located at the same district with proper land use right certificates. However, the Directors are of the opinion that such a relocation of production facilities, if necessary, will not have any significant adverse effects on the Southchina Group’s business.

On 9 July 2001, Alltronics acquired 25% of the issued share capital of Southchina from the Vendors at a consideration of HK$8 million. The financial results of the Southchina Group have been accounted for by the Group using the equity method since then.

The Southchina Group is one of the Group’s major suppliers for certain plastic components and moulds. As disclosed in the sub-section headed “Continuing related party transactions” of the section headed “Particulars of the Group” of the Company’s listing prospectus dated 30 June 2005, during the three years ended 31 December 2004, the cost of plastic components purchased by the Group from the Southchina Group amounted to approximately HK$9.6 million, HK$19.1 million and HK$23.2 million respectively, representing approximately 8.9%, 13.6% and 13.6% of the Group’s total purchases of raw materials in the respective periods. During the three years ended 31 December 2004, the cost of moulds purchased by the Group from the Southchina Group amounted to approximately HK$1.8 million, HK$4.0 million and HK$1.7 million respectively. The Company expects that purchases from the Southchina Group will continue to occur after the Transaction.

As of the Latest Practicable Date, the group structure of the Southchina Group is as follows:

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Southchina
南華工程實業有限公司
(Incorporated in Hong Kong with limited liability)
100% 100% 40%
南盈塑膠實業
Quant Electronics
（深圳）有限公司
TSC Manufacturing Limited
(H.K.) Limited
(Southchina Engineering & 德華製造有限公司
建光電子有限公司
Manufacturing Ltd.) (Incorporated in Hong Kong
(Incorporated in the PRC (Incorporated in Hong Kong with limited liability)
with limited liability)
with limited liability)
----- End of picture text -----

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LETTER FROM THE BOARD

The shareholding structure of Southchina as of the date of the Sale and Purchase Agreement is and immediately after the Completion will be as follows:

	Shareholding		Shareholding
	percentage as at the		percentage
	date of the Sale and		immediately
Shareholders	Purchase Agreement	after Completion
Lam On Bong	35%		19%
Ieong Kin San	20%		15%
Leung Hon Kwong	20%		15%
Alltronics	25%		51%
	100%		100%

(ii) Financial information of Southchina

The audited consolidated net asset value of the Southchina Group attributable to equity holders of Southchina as of 31 December 2002, 2003, 2004 and 30 June 2005 as set out in Appendix II of this circular were approximately HK$4.0 million, HK$5.9 million, HK$11.7 million and HK$9.3 million respectively. The audited consolidated net profit before taxation of the Southchina Group for each of the three years ended 31 December 2002, 2003 and 2004 were approximately HK$288,000, HK$2.2 million and HK$6.5 million respectively, while the audited consolidated net loss before taxation for the six months ended 30 June 2005 was approximately HK$1.3 million. The audited consolidated net profit after taxation of the Southchina Group for each of the two years ended 31 December 2003 and 2004 were approximately HK$1.9 million and HK$5.8 million respectively. The audited consolidated net loss after taxation for the year ended 31 December 2002 and the six months ended 30 June 2005 were approximately HK$159,000 and HK$1.5 million respectively. Details of the Southchina Group’s financial information are set out in Appendix II of this circular.

As at the Latest Practicable Date, Alltronics has advanced a loan of HK$4 million to Southchina. The loan is provided to Southchina for financing its purchase of machinery and is non-interest bearing, unsecured and repayable on demand.

After Completion, Alltronics will hold in aggregate 51% of the total issued share capital of Southchina. Southchina will then become a subsidiary of the Group and the accounts of the Southchina Group will be consolidated into the accounts of the Group.

4. Conditions to Completion

Completion is conditional upon:

• (a) the result of a legal and financial due diligence exercise to be carried out by Alltronics on the Southchina Group being satisfactory to Alltronics and written notice to that effect having been given to the Vendors, within 30 days from the date of the Sale and Purchase Agreement (or such other extended time as Alltronics and the Vendors may agree);

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LETTER FROM THE BOARD

• (b) the issue of this circular and the passing of the necessary resolution(s) by the Shareholders (including by means of written shareholders’ approval in accordance with Rule 14.44 of the Listing Rules) approving the Sale and Purchase Agreement and the Transaction in accordance with the Listing Rules;

• (c) the receipt by Alltronics of a PRC legal opinion satisfactory to Alltronics, inter alia, on the due incorporation of 南盈塑膠實業（深圳）有限公司(Southchina Engineering & Manufacturing Ltd.); and

• (d) all necessary requirements, consents, approvals and authorisations having been complied with and obtained from all relevant governmental and regulatory authorities (including the Stock Exchange) in relation to Alltronics and the Company in connection with the Sale and Purchase Agreement and the Transaction.

If the Conditions are not fulfilled (or waived by Alltronics (other than conditions (b) and (d))) on or before 5:00 p.m. on 20 December 2005 (or such later date as Alltronics and the Vendors may agree), the Sale and Purchase Agreement shall cease and terminate and no party shall have any obligations and liabilities save for any antecedent breaches of the terms thereunder. The Vendors and Alltronics have agreed to extend the deadline for fulfilment of condition (a) to the same deadline for fulfilment of the other conditions, which is on or before 5:00 p.m. on 20 December 2005.

Completion shall take place on the 3rd business day following the fulfilment (or waiver) of the above conditions (or such other date as may be agreed between Alltronics and the Vendors). As at the date of this letter, condition (a) has been fulfilled and Completion is expected to take place on or before 16 December 2005.

5. The Consideration

The consideration payable by Alltronics to the Vendors shall be HK$8.3 million in aggregate and shall be payable in cash by Alltronics to the Vendors on Completion.

The Consideration was arrived at after arm’s length negotiations between the Vendors and Alltronics based on various factors including the unaudited total assets value as per management accounts of the Southchina Group of approximately HK$65 million as of 30 June 2005, extensive experience of Southchina’s founders and management team, earnings potential and growth prospects of the Southchina Group and synergy effect on vertical integration of the Southchina Group. The unaudited net asset value as per management accounts of the Southchina Group was approximately HK$12 million as of 30 June 2005.

The Directors believe that the Consideration is fair and reasonable after taking into account the following factors:

• (a) the earnings potential and growth prospects of the Southchina Group;

• (b) the gaining of controlling interest in and direct management of the Southchina Group by Alltronics through the Transaction; and

• (c) the strengthening of the revenue base of the Group by the Transaction.

The entire consideration will be funded from internal resources of the Group.

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LETTER FROM THE BOARD

REASONS FOR AND BENEFITS OF THE TRANSACTION

As mentioned in the Company’s interim report for the six months ended 30 June 2005, the Group has been exploring business opportunities in electronic industry that will expand its operations and increase its profits.

The Transaction, if completed, will be a step in diversification of the Group’s products and a key development in the Group’s business strategy. The Directors consider that the Transaction will bring additional earnings and long term value to the Group. As a long term investment, the Directors also consider that the Transaction will contribute positively to the Group’s future development and growth through a broadening base of business opportunities.

The Directors consider that the terms of the Transaction are fair and reasonable and in the interests of the Company and the Shareholders as a whole. It is currently contemplated that following completion of the Transaction, the composition of the board of directors of Southchina will not be changed which, currently, comprise Mr. Lam Yin Kee, chairman of the board of directors of Southchina and the Vendors.

FINANCIAL EFFECTS OF THE TRANSACTION ON THE GROUP

The Consideration will be settled from internal resources of the Group and the cash and cash equivalents of the Group will therefore be reduced by HK$8.3 million. As the Southchina Group is a self-contained group, it is expected that no additional material costs to be incurred for maintaining its current operations following Completion. The Directors are of the opinion that maintaining the current operations of the Southchina Group would not have any significant adverse impact on the working capital position of the Group.

Net asset value

Based on the audited combined balance sheet of the Group as of 31 December 2004 as set out in Appendix I to this circular, the audited combined net asset value of the Group was approximately HK$52.0 million. Based on the unaudited pro forma statement of assets and liabilities of the Enlarged Group as set out in Appendix III of this circular, the unaudited pro forma net asset value of the Enlarged Group will be approximately HK$72.8 million.

Upon Completion, goodwill of approximately HK$5.9 million will arise. The goodwill will not be written off immediately and will be recognized at its net carrying value after considering adequate impairment loss, pursuant to the new accounting standards effective from January 2005.

Earnings

For the year ended 31 December 2004, the Group recorded an audited combined net profit after taxation of approximately HK$38.7 million. During the same period, the Southchina Group recorded an audited consolidated net profit after taxation of approximately HK$5.8 million. Upon Completion, the profit and loss account of the Southchina Group will be

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LETTER FROM THE BOARD

consolidated into the profit and loss account of the Group and the Group is entitled to share 51% of the net profit or loss after taxation of the Southchina Group, after minority interests. The Directors are of the opinion that the Transaction will provide an opportunity for the Group to broaden its earnings base and bring additional earnings to the Group.

PRINCIPAL ACTIVITIES OF THE GROUP AND THE SOUTHCHINA GROUP

The principal activities of the Group are research and development, manufacture and sales of electronic products. The Southchina Group is principally engaged in the manufacture of plastic moulds, plastics components and electronic product assembly.

ADDITIONAL INFORMATION

Your attention is drawn to the information set out in the appendices to this circular.

By order of the Board Lam Yin Kee Chairman

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The following financial information is extracted from the accountants’ report of the Group for the three years ended 31 December 2004 as published in the listing prospectus of the Company dated 30 June 2005 and the unaudited interim financial statements of the Group for the six months ended 30 June 2005 as published in 2005 interim report of the Company. The accountants’ report of the Group for the three years ended 31 December 2004 was not qualified or modified by the reporting accountants. The audited financial statements of the Group have been prepared in accordance with accounting principles generally accepted in Hong Kong and comply with accounting standards issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”). The HKICPA has issued a number of new and revised Hong Kong Financial Accounting Standards (“HKFRS”) and Hong Kong Accounting Standards (“HKAS”) (collectively the “New HKFRSs”) which are effective for accounting periods beginning on or after 1 January 2005. The adoption of the new HKFRS had no significant impact on the Group’s financial position and result of operation for the three years ended 31 December 2004.

1. AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR THE THREE YEARS ENDED 31 DECEMBER 2004

Combined Profit and Loss Accounts

Note Turnover 3, 4 Costs of sales Gross profit Other revenues 3 Distribution costs Administrative expenses Other operating income/ (expenses), net Operating profit 5 Finance costs 6 Share of profits less (losses) of associated companies, net of goodwill amortisation Profit before taxation Taxation 7 Profit for the year 25 Dividends 8	Year ended 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 176,802 252,760 292,447 (122,616) (169,317) (201,493) 54,186 83,443 90,954 837 215 100 (4,525) (4,261) (4,718) (23,870) (30,251) (36,654) 1,000 (2,605) (196) 27,628 46,541 49,486 (1,515) (2,153) (2,577) (308) (195) 271 25,805 44,193 47,180 (2,915) (14,056) (8,510) 22,890 30,137 38,670 36,000 30,000 25,000

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Combined Balance Sheets

Note Non-current assets Fixed assets 13 Investments in associated companies 14 Current assets Inventories 15 Accounts receivables 16 Prepayments, deposits and other receivables 17 Due from an associated company 18 Due from a related company 19 Trading securities 20 Pledged bank deposits 31 Bank balances and cash 21 Current liabilities Accounts payables 22 Accruals and other payables Due to a director 23 Dividend payable Due to an associated company 23 Taxation payable Current portion of long-term liabilities 26 Bills payables, secured 31 Trust receipt loans, secured 31 Bank overdrafts, secured 31 Net current assets Total assets less current liabilities	As at 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 29,077 30,078 31,907 11,675 10,895 10,646 40,752 40,973 42,553 ------------ ------------ ------------ 32,294 29,430 33,387 36,043 42,444 26,220 4,089 2,734 5,419 450 – – – 2,046 1,667 – 10,765 15,723 3,280 13,265 13,372 18,757 25,543 24,925 94,913 126,227 120,713 ------------ ------------ ------------ 21,376 19,327 20,193 6,597 7,969 7,270 27,845 27,918 – – – 10,000 2,088 2,955 3,430 2,341 13,069 14,538 3,880 3,761 5,104 23,219 22,458 25,343 – 2,102 772 2,456 23,222 21,759 89,802 122,781 108,409 ------------ ------------ ------------ 5,111 3,446 12,304 ------------ ------------ ------------ 45,863 44,419 54,857	As at 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 29,077 30,078 31,907 11,675 10,895 10,646 40,752 40,973 42,553 ------------ ------------ ------------ 32,294 29,430 33,387 36,043 42,444 26,220 4,089 2,734 5,419 450 – – – 2,046 1,667 – 10,765 15,723 3,280 13,265 13,372 18,757 25,543 24,925 94,913 126,227 120,713 ------------ ------------ ------------ 21,376 19,327 20,193 6,597 7,969 7,270 27,845 27,918 – – – 10,000 2,088 2,955 3,430 2,341 13,069 14,538 3,880 3,761 5,104 23,219 22,458 25,343 – 2,102 772 2,456 23,222 21,759 89,802 122,781 108,409 ------------ ------------ ------------ 5,111 3,446 12,304 ------------ ------------ ------------ 45,863 44,419 54,857
		42,553 ------------ 33,387 26,220 5,419 – 1,667 15,723 13,372 24,925
		120,713 ------------ 20,193 7,270 – 10,000 3,430 14,538 5,104 25,343 772 21,759
		108,409 ------------
		12,304 ------------
		54,857

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Note Financed by: Share capital 24 Reserves 25 Non-current liabilities Long-term liabilities 26 Deferred taxation 27 Balance Sheets of the Company Current assets Prepayment, deposit and other receivables Current liabilities Accruals and other payables Due to a subsidiary company Net current liabilities Total assets less current liabilities Represented by: Share capital Accumulated losses	2002 HK$’000 500 41,542 42,042 3,172 649 45,863 Note 16 23 24 25	As at 31 December 2003 2004 HK$’000 HK$’000 500 500 40,428 51,543 40,928 52,043 2,095 1,533 1,396 1,281 44,419 54,857 As at 31 December 2003 2004 HK$’000 HK$’000 – 32 – 32 ------------ ------------ – – – 165 – 165 ------------ ------------ – (133) ------------ ------------ – (133) – – – (133) – (133)

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Combined Cash Flow Statements

Note Net cash inflow generated from operations 28(a) Interest paid PRC income tax paid Hong Kong profits tax paid Net cash inflow from operating activities Investing activities Purchase of fixed assets Sale of fixed assets Purchase of trading listed securities Sale of trading listed securities Interest received Purchase of associated companies Disposal of associated companies Increase in pledged bank deposits Dividend received from trading listed securities Loan to an associated company Net cash used in investing activities Net cash inflow before financing

Year ended 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 59,798 47,320 42,338 (1,515) (2,153) (2,577) – (726) (112) (1,654) (1,855) (7,013) 56,629 42,586 32,636 ------------ ------------ ------------ (11,015) (5,575) (8,795) 16 – – – (28,945) (46,912) – 18,684 41,285 82 215 100 (500) – – – 587 491 (66) (9,985) (107) – 69 251 (4,000) – – (15,483) (24,950) (13,687) ------------ ------------ ------------ 41,146 17,636 18,949 ------------ ------------ ------------

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Note Financing activities Capital element of finance lease payments 28(b) Dividend paid 28(b) Repayments of bank loans 28(b) New bank loan raised 28(b) (Decrease)/increase in trust receipt loans 28(b) Increase in share issuance costs 28(b) Net cash outflow from financing Increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year Analysis of balances of cash and cash equivalents Bank balances and cash Bank overdrafts Combined Statements of Changes in Equity Total equity as the beginning of year Profit for the year Share issuance costs Dividend paid Total equity at the end of year

Year ended 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 (1,106) (1,378) (1,221) (36,000) (30,000) (15,000) (2,667) (2,712) (3,110) – 1,623 5,112 (879) 2,102 (1,330) – (1,251) (2,555) (40,652) (31,616) (18,104) ------------ ------------ ------------ 494 (13,980) 845 15,807 16,301 2,321 16,301 2,321 3,166 18,757 25,543 24,925 (2,456) (23,222) (21,759) 16,301 2,321 3,166 Year ended 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 55,152 42,042 40,928 22,890 30,137 38,670 – (1,251) (2,555) (36,000) (30,000) (25,000) 42,042 40,928 52,043

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Financial Statements

For the three years ended 31 December 2004

1 BASIS OF PREPARATION

Pursuant to an agreement dated 17 June 2005 between the Company and Mr. Lam Yin Kee (“Mr. Lam”) and Ms. Yeung Po Wah (“Mrs. Lam”), the directors and shareholders of Alltronics (BVI), the Company acquired the entire share capital of Alltronics (BVI) through a share swap and became the holding company of the subsidiaries now comprising the Group. As part of the Reorganisation, on 29 October 2004, Alltronics (BVI) acquired the entire issued share capital of Alltronics of 500,000 shares of HK$1.00 each through a share swap.

The combined profit and loss account, combined cash flow statement and combined statement of changes in equity of the Group for the three years ended 31 December 2004 had been prepared on a combined basis as prescribed by the Auditing Guideline 3.340 issued by the HKICPA, and include the financial information of the companies now comprising the Group and the associated companies as if the current Group structure had been in existence throughout the three years ended 31 December 2004, or since their respective dates of incorporation/establishment or acquisition by the Group to 31 December 2004 whichever is the shorter period. The combined balance sheets of the Group as at 31 December 2002, 2003 and 2004 have been prepared to present the assets and liabilities of the Group as at these dates as if the current Group structure had been in existence at these dates.

As at 31 December 2002, the Company was not incorporated and therefore there was no issued share capital. The share capital as at 31 December 2002 represented the share capital of Alltronics, which was the then holding company of all members of the Group. The share capital of the Group as at 31 December 2003 and 2004 represented the combined capital of the Company, Alltronics BVI and Alltronics as at the respective dates.

All significant intra-group transactions and balances have been eliminated on combination.

2 PRINCIPAL ACCOUNTING POLICIES

The financial information has been prepared under the historical cost convention based on the accounting policies described below which are in accordance with accounting principles generally accepted in Hong Kong and comply with Hong Kong Financial Reporting Standards issued by the HKICPA.

(a) Subsidiaries

Subsidiaries are those entities in which the Company, directly or indirectly, controls more than one half of the voting power; has the power to govern the financial and operating policies; to appoint or remove the majority of the members of the board of directors; or to cast majority of votes at the meetings of the board of directors.

(b) Associated companies

An associated company is a company, not being a subsidiary, or a joint venture, in which an equity interest is held for the long-term and significant influence is exercised in its management.

The combined profit and loss account includes the Group’s share of the results of associated companies for the three years ended 31 December 2004, and the combined balance sheet includes the Group’s share of the net assets of the associated companies and also goodwill (net of accumulated amortisation) on acquisition.

– 15 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(c) Jointly controlled assets

Jointly controlled assets are assets of a joint venture over which the Group has joint control with other venturers in accordance with contractual arrangements and through the joint control of which, the Group has control over its share of future economic benefits earned from the assets.

The combined profit and loss account includes the Group’s share of the income and expenses arising from jointly controlled assets for the three years ended 31 December 2004, and the combined balance sheet includes the Group’s share of the assets and liabilities in relation to such joint ventures.

(d) Translation of foreign currencies

Transactions in foreign currencies are translated at exchange rates ruling at the transaction dates. Monetary assets and liabilities expressed in foreign currencies at the balance sheet date are translated at rates of exchange ruling at the balance sheet date. Exchange differences arising in these cases are dealt with in the combined profit and loss account.

The balance sheets of subsidiaries and associated companies expressed in foreign currencies are translated at the rates of exchange ruling at the balance sheet date whilst the profit and loss accounts are translated at an average rate. Exchange differences are dealt with as a movement in reserves.

(e) Goodwill/negative goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net assets of the acquired associated companies at the date of acquisition.

Goodwill on acquisitions is included in intangible assets and is amortised using the straightline method over its estimated useful life up to 10 years. Where an indication of impairment exists, the carrying amount of goodwill is assessed and written down immediately to its recoverable amount.

Negative goodwill represents the excess of the fair value of the Group’s share of the net assets acquired over the cost of acquisition. For acquisitions after 1 January 2001, negative goodwill is presented in the same balance sheet classification as goodwill. For acquisitions prior to 1 January 2001, negative goodwill was taken directly to capital reserve.

(f) Fixed assets

Fixed assets are stated at cost less accumulated depreciation and accumulated impairment losses.

Fixed assets are depreciated at rates sufficient to write off their cost less accumulated impairment losses and estimated residual value over their estimated useful lives on a straight-line basis. The principal annual rates are as follows:

Land use right and buildings	2%
Furniture and fixtures	9%-20%
Office equipment	8%-20%
Plant and machinery	9%
Leasehold improvements	16.67%-20%
Motor vehicles	9%-20%

– 16 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

At each balance sheet date, both internal and external sources of information are considered to assess whether there is any indication that fixed assets are impaired. If any such indication exists, the recoverable amount of the asset is estimated and where relevant, an impairment loss is recognised to reduce the asset to its recoverable amount. Such impairment losses are recognised in the combined profit and loss account.

The gain or loss on disposal of a fixed asset is the difference between the net sales proceeds and the carrying amount of the relevant asset, and is recognised in the combined profit and loss account.

(g) Assets under leases

(i) Finance leases

Leases that substantially transfer to the Group all the risks and rewards of ownership of assets are accounted for as finance leases. Finance leases are capitalised at the inception of the leases at the lower of the fair value of the leased assets or the present value of the minimum lease payments. Each lease payment is allocated between the capital and finance charges so as to achieve a constant rate on the capital balances outstanding. The corresponding rental obligations, net of finance charges, are included in short-term and longterm liabilities as appropriate. The finance charges are charged to the combined profit and loss account over the lease periods.

Assets held under finance leases are depreciated over the shorter of their estimated useful lives or the lease periods.

(ii) Operating leases

Leases where substantially all the risks and rewards of ownership of assets remain with the leasing company are accounted for as operating leases. Payments made under operating leases net of any incentives received from the leasing company are charged to the combined profit and loss account on a straight-line basis over the lease periods.

(h) Trading securities

Trading securities are carried at fair value. At each balance sheet date, the net unrealised gains or losses arising from the changes in fair value of trading securities are recognised in the combined profit and loss account. Profits or losses on disposal of trading securities, representing the difference between the net sales proceeds and the carrying amounts, are recognised in the combined profit and loss account as they arise.

(i) Inventories

Inventories are stated at the lower of cost and net realisable value. Cost, calculated on the weighted average basis, comprises materials, direct labour and an appropriate proportion of all production overhead expenditure. Net realisable value is determined on the basis of anticipated sales proceeds less estimated selling expenses.

(j) Accounts receivable

Provision is made against accounts receivable to the extent they are considered to be doubtful. Accounts receivable in the combined balance sheet are stated net of such provision.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(k) Cash and cash equivalents

Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks and bank overdrafts.

(l) Employee benefits

• (i) Employee leave entitlements

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

Employee entitlements to sick leave and maternity leave are not recognised until the time of leave.

• (ii) Pension obligations

The Group operates a number of defined contribution plans in Hong Kong and the Mainland China, the assets of which are generally held in separate trustee-administered funds.

Contributions to the schemes by the Group and employees are calculated as a percentage of employees’ basic salaries. The retirement benefit scheme cost charged to the combined profit and loss account represents contributions payable by the Group to these schemes.

The Group’s contributions to the schemes are expensed as incurred.

(m) Deferred taxation

Deferred taxation is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the accounts. Taxation rates enacted or substantively enacted by the balance sheet date are used to determine deferred taxation.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

(n) Contingent liabilities

A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that outflow of economic resources will be required or the amount of obligation cannot be measured reliably.

A contingent liability is not recognised but is disclosed in the notes to the accounts. When a change in the probability of an outflow occurs so that the outflow becomes probable, it will then be recognised as a provision.

– 18 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(o) Research and development costs

Research costs are expenses as incurred. Costs incurred on development projects relating to the design and testing of new or improved products are recognised as an intangible asset where the technical feasibility and intention of completing the product under development has been demonstrated and the resources are available to do so, costs are identifiable and there is an ability to sell or use the asset that will generate probable future economic benefits. Development costs that do not meet the above criteria are expensed as incurred.

All development costs for the three years ended 31 December 2004 were charged to the combined profit and loss account.

(p) Revenue recognition

Revenue from the sale of goods is recognised on the transfer of risks and rewards of ownership, which generally coincides with the time when the goods are delivered to customers and the title has passed.

Interest income is recognised on a time proportion basis, taking into account the principal amounts outstanding and the interest rates applicable.

Management fee income is recognised when service is rendered.

(q) Borrowing costs

All borrowing costs are charged to the combined profit and loss account in the year in which they are incurred.

(r) Segment reporting

In accordance with the Group’s internal financial reporting, the Group has determined that business segments be presented as the primary reporting format and geographical segments as the secondary reporting format.

Segmental sales are based on the country in which the customer is located and total assets and capital expenditure are where the assets are located.

The HKICPA has issued a number of new and revised Hong Kong Financial Reporting Standards and Hong Kong Accounting Standards (“HKAS”) (collectively referred to as “new HKFRSs”) which are effective for accounting periods beginning on or after 1 January 2005. The Group has not early adopted these new HKFRSs in the financial statements for the year ended 31 December 2004. The Group is in the process of making an assessment of the impact of these new HKFRSs and has so far concluded that the more significant differences between new HKFRSs and current accounting policies that are expected to affect the Group are as follows:

Goodwill

Under HKFRS 3 “Business Combinations”, goodwill will no longer be amortised but instead will be subject to rigorous annual impairment testing. This will result in a change to the Group’s current accounting policy under which goodwill is amortised over its useful life up to 10 years and assessed for an indication of impairment at each balance sheet date. Under the new policy, amortisation will no longer be charged, but goodwill will be tested annually for impairment, as well as when there are indications of impairment. This new policy will be applied prospectively from 1 January 2005. Reliable estimation of the future financial effects of this change in accounting policy is not practical because the conditions under which impairment will be assessed are not yet known.

– 19 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Intangible asset arising from business combinations

Under HKFRS 3 “Business Combinations”, intangible asset should be recognised separately from goodwill in a business combination when it arises from contractual or other legal rights, or if it is separable. This will result in more intangible assets and less goodwill will be recognised on business combinations. Such as trademarks and customer relationships will be recognised on business combinations under the new policy, whereas such assets are not recognised under the Group’s current accounting policy. This new accounting policy will be applied to the accounting for business combinations for which the agreement date is on or after 1 January 2005.

Leasehold land in Hong Kong and mainland China

Under HKAS 17 “Leases”, leasehold land in Hong Kong and mainland China will no longer be accounted for as fixed assets. Instead, it will be accounted for as prepayment of lease and stated at cost and recognised as an expense on a straight-line basis over the lease term under HKAS 17. This treatment will have no impact on the net assets and profits of the Group for the three years ended 31 December 2004, as the leasehold land has been depreciated on a straight-line basis over the lease term under the current accounting policy.

Financial instruments

Under HKAS 39 “Financial Instruments: Recognition and Measurement”, financial instruments will be carried at either amortised cost of fair value, depending on their classification. Depending on the classification of the financial instruments, movements in fair value will be either charged to net profit or loss or taken to equity in accordance with the standard. In addition, all derivatives, including those embedded in non-derivatives host contracts will be recognised in the balance sheet at fair value.

This will result in a change to the Group’s current accounting policies in respect of classification, measurement and recognition of derivative financial instruments. This new accounting policy will be applied prospectively from 1 January 2005. The future financial effect of this change in accounting policy is not yet known as the classification and measurement process has not been completed. However, the requirements to recognise derivatives and certain other financial instruments with changes in fair value being reflected in the profit and loss account may result in increased volatility in the Group’s profit an net assets.

Functional currency

Under HKAS 21 “The Effects of Changes in Foreign Exchange Rates”, the Group has re-evaluated the functional currency of each of the combined entities based on HKAS 21. All the Group entities have the same functional currency as their measurement currency. There is no material effect on the Group’s policy.

The Group will be continuing with the assessment of the impact of the other new HKFRSs and other significant changes may be identified as a result.

– 20 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3 TURNOVER AND REVENUES

The Group is principally engaged in the research and development, manufacturing and trading of electronics products. Revenues recognised during the three years ended 31 December 2004 are as follows:

Turnover Sale of goods Other revenues Interest income on bank deposits Management fee income received from an associated company Total revenues	Year ended 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 176,802 252,760 292,447 ------------ ------------ ------------ 82 215 100 755 – – 837 215 100 ------------ ------------ ------------ 177,639 252,975 292,547	Year ended 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 176,802 252,760 292,447 ------------ ------------ ------------ 82 215 100 755 – – 837 215 100 ------------ ------------ ------------ 177,639 252,975 292,547
		100 ------------
		292,547

4 SEGMENT INFORMATION

Segment information is presented in respect of the Group’s business and geographical segments. Business segment information is chosen as the primary reporting format because this is more relevant to the Group in making operating and financial decisions.

(a) Business segment

The Group has been operating in one single business segment, i.e. the research and development, manufacturing and trading of electronics products.

(b) Geographical segment

In presenting information on the basis of geographical segments, segment revenue is based on the geographical presence of customers. Segment assets and capital expenditures are based on the geographical location of the assets.

2002 The United States Europe Mainland China Hong Kong Other countries	As at Year ended 31 December 31 December 2002 2002 Capital Turnover expenditure Total assets HK$’000 HK$’000 HK$’000 124,136 – – 9,978 – – – 9,443 59,275 41,782 1,977 76,390 906 – – 176,802 11,420 135,665	As at Year ended 31 December 31 December 2002 2002 Capital Turnover expenditure Total assets HK$’000 HK$’000 HK$’000 124,136 – – 9,978 – – – 9,443 59,275 41,782 1,977 76,390 906 – – 176,802 11,420 135,665
		135,665

– 21 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

2003 The United States Europe Mainland China Hong Kong Other countries 2004 The United States Europe Mainland China Hong Kong Other countries	As at Year ended 31 December 31 December 2003 2003 Capital Turnover expenditure Total assets HK$’000 HK$’000 HK$’000 180,144 – – 29,478 – – 240 4,890 58,806 24,637 1,956 108,394 18,261 – – 252,760 6,846 167,200 As at Year ended 31 December 31 December 2004 2004 Capital Turnover expenditure Total assets HK$’000 HK$’000 HK$’000 213,835 – – 23,150 – – 17 8,458 66,277 33,311 336 96,987 22,134 – – 292,447 8,794 163,264	As at Year ended 31 December 31 December 2003 2003 Capital Turnover expenditure Total assets HK$’000 HK$’000 HK$’000 180,144 – – 29,478 – – 240 4,890 58,806 24,637 1,956 108,394 18,261 – – 252,760 6,846 167,200 As at Year ended 31 December 31 December 2004 2004 Capital Turnover expenditure Total assets HK$’000 HK$’000 HK$’000 213,835 – – 23,150 – – 17 8,458 66,277 33,311 336 96,987 22,134 – – 292,447 8,794 163,264
		163,264

– 22 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5 OPERATING PROFIT

Operating profit is stated after crediting and charging the following:

Crediting Gain on disposal of associated company Unrealised gain on trading listed securities Realised gain on trading listed securities Dividend received from trading listed securities Reversal of provision for slow-moving inventories Net exchange gain Charging Auditors’ remuneration Cost of inventories Depreciation – Owned fixed assets – Leased fixed assets Loss on disposal of fixed assets Net exchange loss Operating leases - land and buildings Provision for slow-moving inventories Provision for write off of doubtful debts (included in administrative expenses) Research and development costs_(note below) Staff costs (excluding directors’ remuneration) (note 10)_ Realised loss on trading listed securities Obsolete inventories written off	Year ended 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 – 2 2 – 201 423 – 303 – – 601 251 – 851 – 288 – – 543 400 358 121,948 169,261 200,954 4,037 5,002 5,985 960 843 981 58 – – – 499 901 3,789 4,325 4,623 728 – 344 – 395 153 85 61 – 10,169 13,565 16,345 – – 1,093 – 2,764 –	Year ended 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 – 2 2 – 201 423 – 303 – – 601 251 – 851 – 288 – – 543 400 358 121,948 169,261 200,954 4,037 5,002 5,985 960 843 981 58 – – – 499 901 3,789 4,325 4,623 728 – 344 – 395 153 85 61 – 10,169 13,565 16,345 – – 1,093 – 2,764 –
		358 200,954 5,985 981 – 901 4,623 344 153 – 16,345 1,093 –

Note: Majority of research and development costs represent salaries paid to the Group’s engineers, which has been included under staff costs.

6 FINANCE COSTS

Interest on bank loans and overdrafts Interest element of finance leases	Year ended 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 1,343 2,019 2,487 172 134 90 1,515 2,153 2,577	Year ended 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 1,343 2,019 2,487 172 134 90 1,515 2,153 2,577
		2,577

– 23 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

7 TAXATION

The amount of taxation charged to the combined profit and loss accounts represents:

Hong Kong profits tax_(note (a)) PRC enterprise income tax(Note (b)) Under provision in prior years Deferred taxation relating to the origination and reversal of temporary differences (Note 27) Deferred taxation resulting from an increase in tax rate(Note 27)_ Share of taxation attributable to associated companies Taxation charge	Year ended 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 2,068 7,371 8,026 263 262 568 313 5,676 – 182 691 (115) – 56 – 2,826 14,056 8,479 89 – 31 2,915 14,056 8,510

(a) Hong Kong profits tax

Hong Kong profits tax has been provided at the rate of 17.5% on assessable profit for the years ended 31 December 2003 and 2004 (for the year ended 31 December 2002: 16%).

(b) PRC enterprise income tax

PRC enterprise income tax has been calculated on the estimated assessable profits at the rates of taxation prevailing in the PRC. The Company’s subsidiary operating in the PRC, namely Shenzhen Allcomm, during the three years ended 31 December 2004 is subject to a standard income tax rate of 15% in accordance with the relevant applicable tax laws. Furthermore, Shenzhen Allcomm is entitled to full exemption from PRC income tax for the two years ended 31 December 2000, and followed by a 50% reduction of PRC income tax (i.e. 7.5%) for the three years ended 31 December 2003.

– 24 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

• (c) The taxation on the Group’s profit before taxation differs from the theoretical amount that would arise using the Hong Kong profits tax rate as follows:

Profit before taxation Calculated at a taxation rate of Notional tax on profit before tax Effect of different taxation rates in other countries Income not subject to taxation Expenses not deductible for taxation purposes Temporary differences not recognised Under provision in prior years Increase in opening net deferred tax liabilities resulting from an increase in tax rate Taxation charge	Year ended 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 25,805 44,193 47,180 16% 17.5% 17.5% 4,129 7,734 8,257 134 (308) (38 (1,923) (49) (2,380 605 595 2,584 (343) 352 87 313 5,676 – – 56 – 2,915 14,056 8,510	Year ended 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 25,805 44,193 47,180 16% 17.5% 17.5% 4,129 7,734 8,257 134 (308) (38 (1,923) (49) (2,380 605 595 2,584 (343) 352 87 313 5,676 – – 56 – 2,915 14,056 8,510
		17.5% 8,257 (38 (2,380 2,584 87 – –
		8,510

8 DIVIDENDS

No dividend has been paid or declared by the Company since its incorporation. Dividends were paid by the Company’s subsidiaries, Alltronics and Alltronics BVI, to its then shareholders during the three years ended 31 December 2004 as follows:

Interim dividend, paid by Alltronics BVI (2003: paid by Alltronics)	Year ended 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 36,000 30,000 25,000

The rates of dividend and the number of shares ranking for dividends are not presented as such information is not meaningful having regard to the purpose of this financial information.

9 EARNINGS PER SHARES

No earnings per share information is presented as its inclusion, for the purpose of this financial information, is not considered meaningful because the preparation of the results for the three years ended 31 December 2004 is on a combined basis as disclosed in note 1 above.

– 25 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

10 STAFF COSTS – EXCLUDING DIRECTORS’ EMOLUMENTS

Wages and salaries Unutilised annual leave Pension costs – defined contribution plans Staff welfare and allowance	Year ended 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 8,575 12,460 14,453 440 – – 332 409 471 822 696 1,421 10,169 13,565 16,345	Year ended 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 8,575 12,460 14,453 440 – – 332 409 471 822 696 1,421 10,169 13,565 16,345
		16,345

11 EMOLUMENTS FOR DIRECTORS AND FIVE HIGHEST PAID INDIVIDUALS

(a) Directors’ emoluments

The Company was incorporated on 24 July 2003. The aggregate amounts of emoluments paid and payable to the directors of the Company by the companies now comprising the Group during the three years ended 31 December 2004 are as follows:

Salaries and allowances Discretionary bonuses Retirement benefit – defined contribution plans	Year ended 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 1,653 2,255 3,477 80 – 90 12 12 12 1,745 2,267 3,579	Year ended 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 1,653 2,255 3,477 80 – 90 12 12 12 1,745 2,267 3,579
		3,579

None of the directors of the Company waived any emoluments paid by the companies now comprising the Group during the three years ended 31 December 2004.

No emoluments were paid to the independent non-executive directors of the Company during the three years ended 31 December 2004.

The emoluments of the directors of the Company fell within the following bands:

Nil to HK$1,000,000 HK$1,000,001 to HK$1,500,000	Number of directors Year ended 31 December 2002 2003 2004 8 8 7 – – 1	Number of directors Year ended 31 December 2002 2003 2004 8 8 7 – – 1
		1

– 26 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Five highest paid individuals

The five individuals whose emoluments were the highest in the Group for the year ended 31 December 2004 include three (for the year ended 31 December 2003: three; for the years ended 31 December 2002: two) directors whose emoluments are reflected in the analysis presented above. The emoluments payable to the remaining individuals during the three years ended 31 December 2004 are as follows:

Salaries and allowances Discretionary bonuses Retirement benefit – defined contribution plans	Year ended 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 1,653 1,488 3,038 100 – – 36 24 24 1,789 1,512 3,062	Year ended 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 1,653 1,488 3,038 100 – – 36 24 24 1,789 1,512 3,062
		3,062

The emoluments of these individual fell within the following bands:

Nil to HK$1,000,000	Number of individuals Year ended 31 December 2002 2003 2004 3 2 2

(c) During the three years ended 31 December 2004, no emoluments were paid by the companies now comprising the Group to any of the above directors or the five highest paid individuals as an inducement to join or upon joining the Group or as compensation for loss of office.

12 PENSION SCHEMES

The Group has arranged for its Hong Kong employees to join the Mandatory Provident Fund Scheme (the “MPF Scheme”), a defined contribution scheme managed by an independent trustee. Under the MPF Scheme, each of the Hong Kong incorporated companies within the Group and their employees makes monthly contributions to the scheme at 5% of the employees’ earnings up to a maximum of HK$1,000 per month per employee as defined under the Mandatory Provident Scheme Ordinances.

As stipulated by the rules and regulations in the PRC, the Group contributes to a state-sponsored retirement plan for its employees in the PRC as determined by the local governments, which is a defined contribution plan. The Group and its employees contribute approximately 8% to 22% and 5% to 8%, respectively, of the salary as specified by the relevant local governments, and the Group has no further obligations for the actual payment of pensions or post-retirement benefits beyond the annual contributions. The state-sponsored retirement plan is responsible for the entire pension obligations payable to retired employees.

For the years ended 31 December 2002, 2003 and 2004, the aggregate amounts of the Group’s contributions to the aforementioned pension schemes were approximately HK$344,000, HK$421,000 and HK$483,000 respectively. As at 31 December 2002, 2003 and 2004, the Group was not entitled to any forfeited contributions to reduce the Group’s future contributions under the above schemes.

– 27 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

13 FIXED ASSETS

Cost At 1 January 2002 Additions Disposals At 31 December 2002 Additions At 31 December 2003 Additions At 31 December 2004 Accumulated depreciation At 1 January 2002 Charge for the year Disposals At 31 December 2002 Charge for the year At 31 December 2003 Charge for the year At 31 December 2004 Net book value At 31 December 2002 At 31 December 2003 At 31 December 2004 Net book value of leased assets At 31 December 2002 At 31 December 2003 At 31 December 2004	Land use right and Furniture buildings and Office Plant and Leasehold (note (a)) fixtures equipment machinery improvements HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 9,016 4,874 4,610 7,259 5,500 – 1,032 362 3,922 5,311 – – (72) – (665) 9,016 5,906 4,900 11,181 10,146 – 361 1,213 2,193 1,462 9,016 6,267 6,113 13,374 11,608 1,992 308 1,119 2,606 2,524 11,008 6,575 7,232 15,980 14,132 480 2,397 2,372 2,362 2,192 180 560 617 1,527 1,724 – – (64) – (599) 660 2,957 2,925 3,889 3,317 180 504 626 1,894 2,006 840 3,461 3,551 5,783 5,323 201 539 768 2,422 2,253 1,041 4,000 4,319 8,205 7,576 8,356 2,949 1,975 7,292 6,829 8,176 2,806 2,562 7,591 6,285 9,967 2,575 2,913 7,775 6,556 – – – 2,000 – – – – 939 – – – – 537 –	Motor vehicles HK$’000 1,638 793 – 2,431 1,617 4,048 246 4,294 366 389 – 755 635 1,390 783 2,173 1,676 2,658 2,121 1,091 2,029 1,450	Total HK$’000 32,897 11,420 (737)
			43,580 6,846
			50,426 8,795
			59,221
			10,169 4,997 (663)
			14,503 5,845
			20,348 6,966
			27,314
			29,077
			30,078
			31,907
			3,091
			2,968
			1,987

– 28 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

• (a) In 1998, the Group entered into an arrangement with 2 independent third parties (the “Partners”) for the development of certain manufacturing premises for the Group’s use and staff quarters in Shenzhen and the Group’s attributable interest in these buildings is 60%. These buildings are accounted for as jointly controlled assets of the Group.

• (b) The Group’s interest in land use right and buildings which are all located in PRC have leases of between 10-50 years.

14 INVESTMENTS IN ASSOCIATED COMPANIES

Share of net assets Goodwill on acquisition of associated companies less amortisation_(Note (b)) Loan to an associated company(Note (c))_	2002 HK$’000 2,420 5,255 4,000 11,675	As at 31 December 2003 2004 HK$’000 HK$’000 2,271 2,653 4,624 3,993 4,000 4,000 10,895 10,646	As at 31 December 2003 2004 HK$’000 HK$’000 2,271 2,653 4,624 3,993 4,000 4,000 10,895 10,646
			10,646

• (a) As at 31 December 2002, 2003 and 2004, the Company had indirect interests in the following associated companies:

	Place of
	incorporation		Particulars of	Interest held
Name	and operations	Principal activities	paid up capital	indirectly
UAL	Hong Kong	Manufacturing and	1,500,000 ordinary	49%
(disposed of in June 2003,		trading of electronics	shares of
see Note (d))		products	HK$1 each
Southchina_(Note (f))_	Hong Kong and	Manufacturing of	1,000,000 ordinary	25%
	Mainland China	plastic moulds and	shares of
		trading of electronics	HK$1 each
		accessories
Robotsoft_(disposed of in_	Hong Kong	Design engineering	1,000,000 ordinary	50%
June 2004, see Note (e))			shares of HK$1 each

– 29 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Goodwill

Opening net book amount Amortisation charges Closing net book amount Representing: Cost Accumulated amortisation Net book amount	2002 HK$’000 5,886 (631) 5,255 6,306 (1,051) 5,255	As at 31 December 2003 2004 HK$’000 HK$’000 5,255 4,624 (631) (631 4,624 3,993 6,306 6,306 (1,682) (2,313 4,624 3,993	As at 31 December 2003 2004 HK$’000 HK$’000 5,255 4,624 (631) (631 4,624 3,993 6,306 6,306 (1,682) (2,313 4,624 3,993
			3,993
			6,306 (2,313
			3,993

• (c) The loan was provided to Southchina for financing its acquisition of machineries. The balance is interest-free, unsecured and has no fixed terms of repayment.

• (d) In June 2003, the 49% equity interest in UAL was disposed of by the Group to an independent third party at a cash consideration of HK$587,000 based on the unaudited net asset value of UAL at the time of disposal.

• (e) Robotsoft was incorporated on 23 September 2002. During the year ended 31 December 2004, Robotsoft was disposed of by the Group to an independent third party at a cash consideration of HK$491,000, which was determined with reference to the unaudited net asset value of that associated company at the time of disposal.

• (f) A summary of assets, liabilities, turnover and net profit of Southchina for the three years ended 31 December 2004, as extracted from its audited accounts for the years ended 31 December 2002, 2003 and 2004, is as follows:

Non-current assets Current assets Current liabilities Net current assets Less: long-term liabilities Net assets	2002 HK$’000 8,908 21,521 19,283 2,238 6,393 4,753	As at 31 December 2003 2004 HK$’000 HK$’000 9,918 13,890 30,579 47,210 28,539 42,689 2,040 4,521 4,852 7,806 7,106 10,605	As at 31 December 2003 2004 HK$’000 HK$’000 9,918 13,890 30,579 47,210 28,539 42,689 2,040 4,521 4,852 7,806 7,106 10,605
			4,521 7,806
			10,605

– 30 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Turnover Net profit 15 INVENTORIES Raw materials Work-in-progress Finished goods Provision for slow-moving inventories	Year ended 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 48,134 61,164 95,723 499 2,353 3,499 As at 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 22,824 14,780 22,089 5,865 9,749 6,711 5,643 6,088 6,118 34,332 30,617 34,918 (2,038) (1,187) (1,531 32,294 29,430 33,387	Year ended 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 48,134 61,164 95,723 499 2,353 3,499 As at 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 22,824 14,780 22,089 5,865 9,749 6,711 5,643 6,088 6,118 34,332 30,617 34,918 (2,038) (1,187) (1,531 32,294 29,430 33,387
		34,918 (1,531
		33,387

As at 31 December 2002, 2003 and 2004, inventories of HK$20,786,000, HK$13,593,000 and HK$20,558,000 were carried at net realisable value, respectively.

16 ACCOUNTS RECEIVABLE

The Group’s sales to corporate customers are entered into on credit terms ranging up to 90 days, except for certain credit worthy customers to whom a longer credit period is allowed. The ageing analysis of accounts receivable at the respective balance sheet dates is as follows:

0 – 30 days 31 – 60 days 61 – 90 days 91 – 120 days 121 – 365 days	2002 HK$’000 17,500 3,994 3,474 9,297 1,778 36,043	As at 31 December 2003 2004 HK$’000 HK$’000 24,845 14,421 3,852 5,266 2,222 3,612 2,868 2,389 8,657 532 42,444 26,220	As at 31 December 2003 2004 HK$’000 HK$’000 24,845 14,421 3,852 5,266 2,222 3,612 2,868 2,389 8,657 532 42,444 26,220
			26,220

17 PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

The balances of the Group as at 31 December 2004 included a receivable of approximately HK$1.5 million from the Partners, representing 40% sharing of expenses (including land premium cost) incurred for the application of the real estate ownership certificates of the jointly controlled assets. The Directors expect that the full balance will be recovered by end of 2005 and accordingly, no provision is considered necessary.

– 31 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

18 DUE FROM AN ASSOCIATED COMPANY

The balance represents trade receivable from an associated company, Southchina, which is unsecured, interest-free and has no fixed terms of repayment.

19 DUE FROM A RELATED COMPANY

The balance represented trade receivable from a related company, Maruman Products Co., Limited (“Maruman”) which was unsecured, interest-free and with a credit term of 60 days. Mr. Lam, also a director of the Company, has equity interest in Maruman. The balance as at 31 December 2004 has been subsequently settled.

20 TRADING SECURITIES

Equity securities: Listed in Hong Kong, at market value	2002 HK$’000 –	As at 31 December 2003 2004 HK$’000 HK$’000 10,765 15,723

21 BANK BALANCES AND CASH

Bank balances and cash of approximately HK$446,000, HK$191,000 and HK$1,131,000 as at 31 December 2002, 2003 and 2004, respectively, were denominated in Renminbi and kept in the bank accounts maintained with banks in the PRC. The remittance of these funds out of the PRC is subject to the foreign exchange control restrictions imposed by the PRC government.

22 ACCOUNTS PAYABLE

The ageing analysis of accounts payable at the respective balance sheet dates is as follows:

0 – 30 days 31 – 60 days 61 – 90 days 91 – 120 days 121 – 365 days	2002 HK$’000 11,463 9,334 359 204 16 21,376	As at 31 December 2003 2004 HK$’000 HK$’000 10,866 8,054 7,311 9,681 910 2,390 240 21 – 47 19,327 20,193	As at 31 December 2003 2004 HK$’000 HK$’000 10,866 8,054 7,311 9,681 910 2,390 240 21 – 47 19,327 20,193
			20,193

23 DUE TO A DIRECTOR/AN ASSOCIATED COMPANY/A SUBSIDIARY

The amount due to a director represented fundings from Mr. Lam to provide additional working capital for the Group. The balance is unsecured, interest-free and has been fully repaid during the year ended 31 December 2004.

The amount due to an associated company represented trade payable to Southchina which is unsecured, interest-free and has no fixed terms of repayment.

– 32 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

In the Company’s balance sheet, the amount due to a subsidiary is unsecured, interest-free and has no fixed terms of repayment.

24 SHARE CAPITAL

At 24 July 2003 (date of incorporation), at 31 December 2003 and 31 December 2004 At incorporation, 24 July 2003 Issue of share at nil paid At 31 December 2003 and at 31 December 2004	Authorised ordinary shares of HK$0.1 each Number of shares HK$’000 5,000,000 500 Issued ordinary shares of HK$0.1 each Number of shares HK$’000 – – 2 – 2 –	Authorised ordinary shares of HK$0.1 each Number of shares HK$’000 5,000,000 500 Issued ordinary shares of HK$0.1 each Number of shares HK$’000 – – 2 – 2 –
		–

• (a) The Company was incorporated on 24 July 2003 with authorised share capital of HK$500,000 divided into 5,000,000 shares of HK$0.10 each.

• (b) On 18 August 2003 two shares of HK$0.10 each was allotted and issued nil paid to the initial subscribers of the Company.

• (c) On 17 June 2005, every issued and unissued share of HK$0.10 in the share capital of the Company was subdivided into 10 shares of HK$0.01 each such that the Company had an authorised share capital of HK$500,000 divided into 50,000,000 shares of HK$0.01 each.

• (d) In preparation of the Company’s listing of its shares on the Main Board of the Stock Exchange, on 17 June 2005, the Company acquired the entire issued share capital of Alltronics (BVI) of 100 shares of US$1.00 each, which is satisfied by the Company (i) allotted and issued 930 new shares of HK$0.01 each and 50 new shares of HK$0.01 each, credited as fully paid, to Mr. Lam and Mrs. Lam respectively, and (ii) credited as fully paid the 20 shares of HK$0.01 each as issued in nil paid on 18 August 2003.

• (e) On 22 June 2005, the Company increased its authorised share capital from HK$500,000 to HK$100,000,000 by creation of an additional 9,950,000,000 shares of HK$0.01 each.

As at 31 December 2002, the Company was not yet incorporated and the share capital as at 31 December 2002 in the combined balance sheet represented the share capital of Alltronics, which was the then holding company of all members of the Group. The share capital of the Group as at 31 December 2003 and 31 December 2004 represented the combined capital of the Company, Alltronics BVI and Alltronics as at the respective dates.

– 33 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

25 RESERVES

(a) Group

At 31 December 2001 Profit for the year Interim dividend At 31 December 2002 Profit for the year Share issuance costs Interim dividend At 31 December 2003 Profit for the year Share issuance costs Interim dividend At 31 December 2004 Representing: Company and subsidiaries Associated companies As at 31 December 2002 Company and subsidiaries Associated companies As at 31 December 2003 Company and subsidiaries Associated companies As at 31 December 2004	Capital reserve (Note (a)) HK$’000 5,300 – – 5,300 – – – 5,300 – – – 5,300 5,300 – 5,300 5,300 – 5,300 5,300 – 5,300	Share issuance costs HK$’000 – – – – – (1,251) – (1,251) – (2,555) – (3,806) – – – (1,251) – (1,251) (3,806) – (3,806)	Exchange reserve HK$’000 130 – – 130 – – – 130 – – – 130 130 – 130 130 – 130 130 – 130	Retained earnings HK$’000 49,222 22,890 (36,000) 36,112 30,137 – (30,000) 36,249 38,670 – (25,000) 49,919 37,672 (1,560) 36,112 37,854 (1,605) 36,249 51,275 (1,356) 49,919	Total HK$’000 54,652 22,890 (36,000) 41,542 30,137 (1,251) (30,000) 40,428 38,670 (2,555) (25,000) 51,543 43,102 (1,560) 41,542 42,033 (1,605) 40,428 52,899 (1,356) 51,543

Note (a): Capital reserve represented the excess of the fair value of the entire interest in the net assets of Shenzhen Allcomm acquired over the cost of acquisition in 1999.

– 34 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Company

	Accumulated losses
	HK$’000
At 24 July 2003 (date of incorporation)	–
Loss for the period	–
At 31 December 2003	–
Loss for the year	(133)
At 31 December 2004	(133)

26 LONG-TERM LIABILITIES

Bank loans – secured_(Note 32)_ Obligations under finance leases Total long-term liabilities, wholly repayable within five years Current portion of long-term liabilities	2002 HK$’000 4,667 2,385 7,052 (3,880) 3,172	As at 31 December 2003 2004 HK$’000 HK$’000 3,578 5,580 2,278 1,057 5,856 6,637 (3,761) (5,104) 2,095 1,533	As at 31 December 2003 2004 HK$’000 HK$’000 3,578 5,580 2,278 1,057 5,856 6,637 (3,761) (5,104) 2,095 1,533
			6,637 (5,104)
			1,533

(a) As at respective year end dates, the Group’s bank loans were repayable as follows:

Within one year In the second year In the third to fifth year	2002 HK$’000 2,667 2,000 – 4,667	As at 31 December 2003 2004 HK$’000 HK$’000 2,540 4,441 540 950 498 189 3,578 5,580	As at 31 December 2003 2004 HK$’000 HK$’000 2,540 4,441 540 950 498 189 3,578 5,580
			5,580

– 35 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) As at respective year end dates, the Group’s finance lease liabilities were repayable as follows:

Within one year In the second year In the third to fifth year Future finance charges on finance leases Present value of finance lease liabilities	2002 HK$’000 1,323 857 383 2,563 (178) 2,385	As at 31 December 2003 2004 HK$’000 HK$’000 1,297 699 699 357 404 46 2,400 1,102 (122) (45) 2,278 1,057	As at 31 December 2003 2004 HK$’000 HK$’000 1,297 699 699 357 404 46 2,400 1,102 (122) (45) 2,278 1,057
			1,102 (45)
			1,057

The present value of finance lease liabilities is as follows:

Within one year In the second year In the third to fifth year	2002 HK$’000 1,213 808 364 2,385	As at 31 December 2003 2004 HK$’000 HK$’000 1,221 663 663 349 394 45 2,278 1,057	As at 31 December 2003 2004 HK$’000 HK$’000 1,221 663 663 349 394 45 2,278 1,057
			1,057

27 DEFERRED TAXATION

Deferred taxation is calculated in full on temporary differences under the liability method using a principal taxation rate of 17.5% for the years ended 31 December 2003 and 2004 (for the year ended 31 December 2002: 16%).

The movement on the deferred tax liabilities account is as follows:

At beginning of the year Deferred taxation charged/(credited) to the combined profit and loss account_(Note 7)_ At end of the year The amounts shown in the combined balance sheet Deferred tax liabilities to be settled after more than 12 months	Year ended 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 467 649 1,396 182 747 (115) 649 1,396 1,281 include the following: 649 1,396 1,281	Year ended 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 467 649 1,396 182 747 (115) 649 1,396 1,281 include the following: 649 1,396 1,281
		1,281
		1,281

– 36 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The movement in deferred tax liabilities is as follows:

Accelerated tax depreciation HK$’000 At 1 January 2002 467 Charged to the combined profit and loss account 182 At 31 December 2002 649 Charged to the combined profit and loss account 712 At 31 December 2003 1,361 Charged/(credited) to the combined profit and loss account (153) At 31 December 2004 1,208	Others HK$’000 – – – 35 35 38 73	Total HK$’000 467 182 649 747 1,396 (115) 1,281

28 NOTES TO COMBINED CASH FLOW STATEMENTS

(a) Reconciliation of operating profit to net cash inflow generated from operations

Operating profit Interest income Depreciation Loss on disposal of fixed assets (Gain)/loss on disposal of trading listed securities Unrealised gain on trading listed securities Gain on disposal of associated company Dividend received from trading listed securities Operating profit before working capital changes (Increase)/decrease in accounts receivables Decrease/(increase) in prepayments, deposits and other receivables (Increase)/decrease in inventories Decrease in amount due from director Decrease in amount due from associated company (Increase)/decrease in due from a related company Increase/(decrease) in bills payables Increase/(decrease) in amount due to a director Increase in amounts due to associated company Increase/(decrease) in accounts payables Increase/(decrease) in accruals and other payables Net cash inflow generated from operations

Year ended 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 27,628 46,541 49,486 (82) (215) (100) 4,997 5,845 6,966 58 – – – (303) 1,093 – (201) (424) – (2) (2) – (69) (251) 32,601 51,596 56,768 (14,715) (6,401) 16,224 4,331 1,355 (2,685) (9,242) 2,864 (3,957) 3,078 – – 1,207 450 – – (2,046) 379 4,463 (761) 2,885 27,845 73 (27,918) 2,088 867 475 5,775 (2,049) 866 2,367 1,372 (699) 59,798 47,320 42,338

– 37 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Analysis of changes in financing

Bank loans, trust receipt loans and obligations under finance leases

At the beginning of the year Net cash outflow from financing Inception of finance leases At the end of the year At the beginning of the year Dividend declared Net cash outflow from financing At the end of the year At the beginning of the year Net cash outflow from financing At the end of the year 29 COMMITMENTS (a) Capital commitments for fixed assets Contracted but not provided for

Year ended 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 11,299 7,052 7,958 (4,652) (365) (549) 405 1,271 – 7,052 7,958 7,409 Dividends As at 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 – – – 36,000 30,000 25,000 (36,000) (30,000) (15,000) – – 10,000 Share issuance costs As at 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 – – (1,251) – (1,251) (2,555) – (1,251) (3,806) As at 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 – 1,075 200

– 38 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Financial commitment for investment in a subsidiary

During the year ended 31 December 2004 the Group has set up a wholly own foreign investment enterprise (Actronics) in the PRC with a registered capital of US$1,200,000. Up to 31 December 2004, the paid up capital amounted to US$180,000. The remaining US$1,020,000 is required to be paid by Alltronics (immediate holding company of Actronics) on or before 12 May 2006.

(c) Commitments under operating leases

The Group had future aggregate minimum lease payments under non-cancellable operating leases in respect of land and buildings as follows:

		As at 31	December	December
	2002	2003		2004
	HK$’000	HK$’000		HK$’000
Not later than one year	4,193	4,092		3,576
Later than one year and not later than
five years	4,411	2,441		3,708
	8,604	6,533		7,284
RELATED PARTY TRANSACTIONS
Save as disclosed in notes 14, 18, 19 and 23 above, during the three years			ended 31 December
the Group had the following significant transactions with related companies:
		Year ended	31 December
	2002	2003		2004
	HK$’000	HK$’000		HK$’000
Discontinuing transactions with former
related companies to the Group
Associated company
Sales of electronic products to UAL	4,221		–	–
Purchases of finished goods from UAL	281		–	–
Purchases of fixed assets from UAL	719		–	–
Management fee income from UAL (i)	755		–	–
Sales of electronic products to Sinco Limited (ii)	34,190		–	–
Continuing transactions with other
related parties of the Group
Sales to Maruman	–	13,706		21,109
Purchases of plastic components from Southchina	9,556	19,122		23,264
Mould expenses paid to Southchina	1,839	3,997		1,664
Rental expense paid to Profit Home Investments
Limited (iii)	780		780	960

30 RELATED PARTY TRANSACTIONS

Save as disclosed in notes 14, 18, 19 and 23 above, during the three years ended 31 December 2004, the Group had the following significant transactions with related companies:

– 39 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

• (i) Management fee is charged based on the services rendered to UAL by the Group on a monthly basis.

• (ii) Mr. Lam had equity interest in Sinco Limited up to September 2002, when Mr. Lam disposed of all his interests in Sinco Limited to certain third parties. Thereafter, Sinco Limited ceased to be a related party of the Group.

• (iii) Profit Home Investments Limited is owned as to 60% by Mrs. Lam (a director of the Company) and as to 20% each by the son and daughter of Mrs. Lam respectively.

In the opinion of the directors of the Company, the above related party transactions were carried out in the normal course of business and at terms negotiated between the Group and the respective parties.

31 BANKING FACILITIES

As at 31 December 2004, the Group’s banking facilities totalling approximately HK$162,300,000 were secured by the following:

• (a) personal guarantees from Mr. Lam;

• (b) pledge of the Group’s fixed deposits of HK$13,372,000; and

• (c) investment in securities of Alltronics of HK$15,333,000 which is placed with one of the lending bank (Note 20).

The above banks have agreed in principle that guarantees under (a) be released and replaced by corporate guarantee issued by the Company upon the listing of the Company’s shares on the Main Board of The Stock Exchange of Hong Kong Limited.

32 DISTRIBUTABLE RESERVES

There were no reserves available for distribution to the shareholders of the Company at 31 December 2003 and 31 December 2004.

33 PENDING LITIGATION

Alltronics is involved in a legal proceeding in relation to a fatal traffic accident causing the death of one of its employees during his business trip in the PRC. On 7 March 2005, Alltronics was served with an application made by the family of the deceased employee against Alltronics pursuant to the Employees’ Compensation Ordinance (Cap. 282). The applicants claimed HK$1,260,000 as compensation and HK$35,000 as funeral expenses pursuant to the application. As of 30 June 2005, the court hearing has not commenced.

Alltronics maintains a business insurance policy which covers various types of business risks, including employees’ compensation and the coverage limit for claims of employees’ compensation is up to HK$100,000,000 for any one event. The directors consider the aforesaid claim of employees’ compensation will be fully covered by the business insurance policy and accordingly, do not make a provision for such claim in the Financial Information.

34 ULTIMATE HOLDING COMPANY

The directors regard Profit International Holdings Limited, a company incorporated in the BVI, as being the ultimate holding company of the Company.

– 40 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. UNAUDITED INTERIM FINANCIAL STATEMENTS OF THE GROUP FOR THE SIX MONTHS ENDED 30 JUNE 2005

Condensed Consolidated Profit and Loss Accounts

		Six months ended 30 June	Six months ended 30 June	Six months ended 30 June	Six months ended 30 June
		2005			2004
	Notes	HK$’000		HK$’000
		(Unaudited)	(Unaudited)
Turnover	5	164,595			165,268
Cost of sales		(116,633)		(111,223)
Gross profit		47,962			54,045
Other revenues/(expenses)	5	2,258			(1,393)
Distribution costs		(2,251)			(2,855)
Administrative expenses		(19,638)			(18,305)
Other operating income/(expenses), net		79			(596)
Operating profit	6	28,410			30,896
Finance costs	7	(1,438)			(1,297)
Share of profit of associated companies		356			460
Profit before taxation		27,328			30,059
Taxation	8	(5,024)			(5,154)
Profit attributable to shareholders		22,304			24,905
Dividends	9	10,500			15,000
Earnings per share (HK cents)
– Basic	10	7.4			8.3

– 41 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Condensed Consolidated Balance Sheets

Notes Non-current assets Property, plant and equipment 11 Leasehold land and land use rights 12 Interest in associated companies 13 Current assets Inventories Accounts receivable 14 Prepayments, deposits and other receivables Due from an associated company 13 Due from a related company 23 Due from ultimate holding company Financial assets at fair value through profit and loss/trading securities Pledged bank deposits 15 Bank balances and cash Current liabilities Accounts payable 16 Accruals and other payables Dividend payable Due to an associated company 13 Taxation payable Current portion of borrowings 19 Bills payable, secured Trust receipt loans, secured Bank overdrafts, secured Net current assets Total assets less current liabilities Financed by: Share capital 17 Reserves 18 Proposed dividends 9 Shareholders’ funds Non-current liabilities Long-term borrowings 19 Deferred taxation	At At 30 June 31 December 2005 2004 HK$’000 HK$’000 (Unaudited) (Audited- restated) 29,251 29,635 2,247 2,272 7,002 6,646 38,500 38,553 ------------ ------------ 45,190 33,387 47,136 26,220 4,846 5,419 4,000 4,000 3,819 1,667 29 – 7,992 15,723 17,557 13,372 26,776 24,925 157,345 124,713 ------------ ------------ 27,891 20,193 5,084 7,270 – 10,000 5,620 3,430 19,292 14,538 3,146 5,104 38,062 25,343 – 772 21,476 21,759 120,571 108,409 ------------ ------------ 36,774 16,304 ------------ ------------ 75,274 54,857 – 500 63,016 51,543 10,500 – 73,516 52,043 767 1,533 991 1,281 75,274 54,857	At At 30 June 31 December 2005 2004 HK$’000 HK$’000 (Unaudited) (Audited- restated) 29,251 29,635 2,247 2,272 7,002 6,646 38,500 38,553 ------------ ------------ 45,190 33,387 47,136 26,220 4,846 5,419 4,000 4,000 3,819 1,667 29 – 7,992 15,723 17,557 13,372 26,776 24,925 157,345 124,713 ------------ ------------ 27,891 20,193 5,084 7,270 – 10,000 5,620 3,430 19,292 14,538 3,146 5,104 38,062 25,343 – 772 21,476 21,759 120,571 108,409 ------------ ------------ 36,774 16,304 ------------ ------------ 75,274 54,857 – 500 63,016 51,543 10,500 – 73,516 52,043 767 1,533 991 1,281 75,274 54,857
		38,553 ------------ 33,387 26,220 5,419 4,000 1,667 – 15,723 13,372 24,925
		124,713 ------------ 20,193 7,270 10,000 3,430 14,538 5,104 25,343 772 21,759
		108,409 ------------
		16,304 ------------
		54,857
		500 51,543 –
		52,043 1,533 1,281
		54,857

– 42 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Condensed Consolidated Statement of Changes in Equity

Total equity as at the beginning of the period Profit attributable to shareholders Share issuance costs Dividends paid Total equity as at the end of the period	Six months ended 30 June 2005 2004 HK$’000 HK$’000 (Unaudited) (Unaudited) 52,043 40,928 22,304 24,905 (831) (904) – (15,000) 73,516 49,929

– 43 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Condensed Consolidated Cash Flow Statement

Net cash inflow from operating activities Net cash inflow/(outflow) from investing activities Net cash used in financing Net increase in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 30 June Analysis of balances of cash and cash equivalents Bank balances and cash Bank overdrafts	Six months ended 30 June 2005 2004 HK$’000 HK$’000 (Unaudited) (Unaudited) 13,847 20,991 2,614 (3,632) (14,327) (14,547) 2,134 2,812 3,166 2,321 5,300 5,133 26,776 33,798 (21,476) (28,665) 5,300 5,133

– 44 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Financial Statements

For the six months ended 30 June 2005

1 BASIS OF PREPARATION AND GROUP REORGANISATION

The Company was incorporated in the Cayman Islands on 24 July 2003 as an exempted company with limited liability under the Companies Law, Chapter 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands.

Pursuant to a group reorganisation (the “Reorganisation”) to rationalise the structure of the Group in preparation for the listing of the Company’s shares on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”), the Company became the holding company of the companies now comprising the Group on 17 June 2005. Details of the Reorganisation are set out in the prospectus dated 30 June 2005 issued by the Company (the “Prospectus”). The shares of the Company have been listed on the Main Board of the Stock Exchange since 15 July 2005.

The Company is an investment holding company. The principal activities of its subsidiaries are research and development, manufacture and sales of electronic products.

The Group resulting from the Reorganisation is regarded as a continuing entity. Accordingly, the unaudited consolidated profit and loss account and cash flow statement for the six months ended 30 June 2005 and 30 June 2004 were prepared on the basis as if the current group structure had been in existence throughout the periods. The consolidated balance sheet of the Group as at 31 December 2004 has been prepared to present the assets and liabilities of the Group as at 31 December 2004 as if the current group structure had been in existence at that date.

The unaudited consolidated financial information has been prepared in accordance with Hong Kong Accounting Standard (“HKAS”) 34 “Interim Financial Reporting” issued by the Hong Kong Institute of Certified Public Accountants.

This condensed consolidated financial information should be read in conjunction with the Group’s audited financial information included in the Prospectus.

The accounting policies and method of computation used in the preparation of this condensed consolidated financial information are consistent with those adopted in the preparation of the Group’s audited financial information as included in the Prospectus, except that the Group has changed certain of its accounting policies following its adoption of new/revised Hong Kong Financial Reporting Standards (“HKFRS”) and Hong Kong Accounting Standards (collectively “new HKFRS”) which are effective for accounting periods commencing on or after 1 January 2005.

This interim financial information has been prepared in accordance with those HKFRS standards and interpretations issued and effective as at the time of preparing this information. The HKFRS standards and interpretations that will be applicable at 31 December 2005, including those that will be applicable on an optional basis, are not known with certainty at the time of preparing this interim financial information.

The changes to the Group’s accounting policies and the effect of adopting these new policies are set out in Note 2 below.

– 45 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2 CHANGES IN ACCOUNTING POLICIES

(a) Effect of adopting new HKFRS

In 2005, the Group adopted the new HKFRS below, which are relevant to its operations. The 2004 comparatives have been amended as required, in accordance with the relevant requirements.

HKAS 1 Presentation of Financial Statements HKAS 2 Inventories HKAS 7 Cash Flow Statements HKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors HKAS 10 Events after the Balance Sheet Date HKAS 16 Property, Plant and Equipment HKAS 17 Leases HKAS 21 The Effects of Changes in Foreign Exchange Rates HKAS 23 Borrowing Costs HKAS 24 Related Party Disclosures HKAS 27 Consolidated and Separate Financial Statements HKAS 28 Investments in Associates HKAS 32 Financial Instruments: Disclosures and Presentation HKAS 33 Earnings per Share HKAS 36 Impairment of Assets HKAS 38 Intangible Assets HKAS 39 Financial Instruments: Recognition and Measurement HKFRS 2 Share-based Payments HKFRS 3 Business Combinations

The adoption of new/revised HKASs 1, 2, 7, 8, 10, 16, 21, 23, 24, 27, 28 and 33 did not result in substantial changes to the Group’s accounting policies. In summary:

• HKAS 1 has affected the presentation of share of net after-tax results of associates and other disclosures.

• HKASs 2, 7, 8, 10, 16, 23, 27, 28 and 33 had no material effect on the Group’s policies.

• HKAS 21 had no material effect on the Group’s policy. The functional currency of each of the consolidated entities has been re-evaluated based on the guidance to the revised standard. All the Group entities have the same functional currency as the presentation currency for respective entity financial statements.

• HKAS 24 has affected the identification of related parties and some other related-party disclosures.

The adoption of revised HKAS 17 has resulted in a change in the accounting policy relating to the reclassification of leasehold land and land use rights from property, plant and equipment to operating leases. The up-front prepayments made for the leasehold land and land use rights are expensed in the profit and loss account on a straight-line basis over the period of the lease or where there is impairment, the impairment is expensed in the profit and loss account. In prior years, leasehold land and land use rights were accounted for at fair value or cost less accumulated depreciation and accumulated impairment losses.

– 46 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The adoption of HKASs 32 and 39 has resulted in a change in the accounting policy relating to the classification of financial assets at fair value through profit or loss and available-for-sale financial assets. It has also resulted in the recognition of derivative financial instruments at fair value and the change in the recognition and measurement of hedging activities.

The adoption of HKFRS 2 has no effect on the Group’s policies as the Group has not granted any share option since its incorporation up to the date of 2005 interim report of the Company.

The adoption of HKFRS 3, HKAS 36 and HKAS 38 has resulted in a change in the accounting policy for goodwill. Until 31 December 2004, goodwill was:

• Amortised on a straight line basis over its estimated useful life up to 10 years.

• Assessed for an indication of impairment at each balance sheet date.

In accordance with the provisions of HKFRS 3 (Note 2.6):

• The Group ceased amortisation of goodwill from 1 January 2005;

• Accumulated amortisation as at 31 December 2004 has been eliminated with a corresponding decrease in the cost of goodwill;

• From the year ending 31 December 2005 onwards, goodwill is tested annually for impairment, as well as when there is indication of impairment.

The Group has reassessed the useful lives of its intangible assets in accordance with the provisions of HKAS 38. No adjustment was resulted from this reassessment.

All changes in the accounting policies have been made in accordance with the transition provisions in the respective standards. All standards adopted by the Group require retrospective application other than:

• HKAS 16 – the initial measurement of an item of property, plant and equipment acquired in an exchange of assets transaction is accounted at fair value prospectively only to future transactions;

• HKAS 21 – prospective accounting for goodwill and fair value adjustments as part of foreign operations;

• HKAS 39 – does not permit to recognise, derecognise and measure financial assets and liabilities in accordance with this standard on a retrospective basis. The Group applied the previous SSAP 24 “Accounting for investments in securities” to investments in securities for the 2004 comparative information. No adjustment is required for the accounting differences between SSAP 24 and HKAS 39;

• HKFRS 3 – prospectively after the adoption date.

– 47 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The adoption of revised HKAS 17 has resulted in changes in the balance sheet as follows:

Decrease in property, plant and equipment Increase in leasehold land and land use rights	As at 30 June 31 December 2005 2004 HK$’000 HK$’000 (Unaudited) (Restated) (2,247) (2,272 2,247 2,272

There was no impact on opening retained earnings at 1 January 2004 from the adoption of HKFRS2 and HKFRS3.

The Company did not early adopt the following new standards or interpretations that have been issued but are not yet effective. The adoption of such standards or interpretations will not result in substantial changes to the Group’s accounting policies.

HKAS 19 (Amendment)	Actuarial Gains and Losses, Group Plans and Disclosures
HKFRS 6	Exploration for and Evaluation of Mineral Resources
HKFRS-Int 4	Determining whether an Arrangement contains a Lease
HKFRS-Int 5	Rights to Interests Arising from Decommissioning, Restoration
	and Environmental Rehabilitation Funds

(b) New Accounting Policies

The accounting policies used for the condensed interim financial information for the six months ended 30 June 2005 are the same as those adopted in the preparation of the Group’s audited financial information as included in the Prospectus except for the following:

2.1 Acquisition of subsidiaries and associates

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the profit and loss account.

An investment in an associate is accounted for using the equity method from the date on which it becomes an associate. On acquisition of the investment, the measurement and recognition of goodwill is same as that of goodwill arising from the acquisition of subsidiaries. Goodwill relating to an associate is included in the carrying amount of the investment. Appropriate adjustments to the investor’s share of the profits or losses after acquisition are made to account based on their fair values at the date of acquisition.

– 48 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2.2 Foreign currency translation

(a) Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The functional currency used by its subsidiaries and associate is HK dollars. The consolidated financial statements are presented in HK dollars, which is the Company’s functional and presentation currency.

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the profit and loss account, except when deferred in equity as qualifying cash flow hedges or qualifying net investment hedges.

Translation differences on non-monetary items, such as equity instruments held at fair value through profit or loss, are reported as part of the fair value gain or loss. Translation difference on non-monetary items, such as equities classified as availablefor-sale financial assets, are included in the fair value reserve in equity.

(c) Group companies

The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

• (i) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;

• (ii) income and expenses for each profit and loss account are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and

• (iii) all resulting exchange differences are recognised as a separate component of equity.

On consolidation, exchange differences arising from the translation of the net investment in foreign entities, and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders’ equity. When a foreign operation is sold, such exchange differences are recognised in the profit and loss account as part of the gain or loss on sale.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

– 49 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2.3 Property, plant and equipment

Cost may include transfers from equity of any gains/losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment.

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

2.4 Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired associate at the date of acquisition. Goodwill on acquisitions of associates is included in investments in associates. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses.

Goodwill is allocated to cash-generating units for the purpose of impairment testing.

2.5 Impairment of assets

Assets that have an indefinite useful life are not subject to amortisation, which are at least tested annually for impairment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).

2.6 Investments

From 1 January 2004 to 31 December 2004:

The Group classified its investments in securities, other than associates and held for sale, as trading securities.

Trading securities were carried at fair value. At each balance sheet date, the net unrealised gains or losses arising from the changes in fair value of trading securities were recognised in the profit and loss account. Profits or losses on disposal of trading securities, representing the difference between the net sales proceeds and the carrying amounts, were recognised in the profit and loss account as they arose.

From 1 January 2005 onwards:

Trading securities represent financial assets at fair value through profit or loss. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and re-evaluates this designation at every reporting date.

– 50 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Financial assets at fair value through profit or loss have two sub-categories: financial assets held for trading, and those designated at fair value through profit or loss at inception. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by management. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if they are either held for trading or are expected to be realised within 12 months of the balance sheet date.

Purchases and sales of investments are recognised on trade-date – the date on which the Group commits to purchase or sell the asset. Investments are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Financial assets at fair value through profit or loss are subsequently carried at fair value. Realised and unrealised gains and losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are included in the profit and loss account in the period in which they arise.

The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models refined to reflect the issuer’s specific circumstances.

The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired.

2.7 Inventories

Costs of inventories include the transfer from equity of any gains/losses on qualifying cash flow hedges relating to purchases of raw materials.

2.8 Trade and other receivables

Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade and other receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in the profit and loss account.

2.9 Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial asset or financial liability, including fees and commissions paid to agents, advisers, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the profit and loss account over the period of the borrowings using the effective interest method.

– 51 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

2.10 Interest income

Interest income is recognised on a time-proportion basis using the effective interest method. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans is recognised either as cash is collected or on a costrecovery basis as conditions warrant.

3 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

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

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

(a) Estimated impairment of goodwill

The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in Note 2.5. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates.

(b) Income taxes

The Group is subject to income taxes in numerous jurisdictions. Significant judgment is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

(c) Contingent liabilities

The Group does not recognise liabilities because they are either i) possible obligations, as it has yet to be confirmed whether the entity has a present obligation that could lead to an outflow of resources embodying economic benefits or ii) present obligations that either it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation, or a sufficiently reliable estimate of the amount of the obligation cannot be made.

– 52 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4 SEGMENT INFORMATION

Segment information is presented in respect of the Group’s business and geographical segments. Business segment information is chosen as the primary reporting format because this is more relevant to the Group in making operating and financial decisions.

(a) Business segment

The Group has been operating in one single business segment, namely the research and development, manufacture and sales of electronic products.

(b) Geographical segment

In presenting information on the basis of geographical segments, segment revenue is based on the geographical presence of customers. Segment assets and capital expenditures are based on the geographical location of the assets.

	For the six months ended	For the six months ended	For the six months ended
	30 June 2005	30 June 2004
	HK$’000		HK$’000
	(Unaudited)		(Unaudited)
Turnover
United States	115,193		121,362
Hong Kong	19,975		17,083
Europe	11,911		10,502
PRC	57		–
Other countries	17,459		16,321
	164,595		165,268
		As at
	30 June	31 December
	2005		2004
	HK$’000		HK$’000
	(Unaudited)
Total Assets
Hong Kong	118,955		96,989
PRC	76,890		66,277
	195,845		163,266
	For the six months ended
	30 June 2005	30 June 2004
	HK$’000		HK$’000
	(Unaudited)		(Unaudited)
Capital expenditures
Hong Kong	170		281
PRC	3,375		3,902
	3,545		4,183

– 53 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5 TURNOVER AND OTHER REVENUES/(EXPENSES)

The Group is principally engaged in the research and development, manufacture and sales of electronic products. Revenues recognised during the period are as follows:

Turnover Sale of goods Other revenues/(expenses) Interest income Realised and unrealised gains (losses) on financial assets at fair value through profit and loss/trading securities Dividend income from financial assets at fair value through profit and loss/trading securities Total revenues	Six months ended 30 June 2005 2004 HK$’000 HK$’000 (Unaudited) (Unaudited) 164,595 165,268 ------------ ------------ 166 38 2,071 (1,669) 21 238 ------------ ------------ 2,258 (1,393) ------------ ------------ 166,853 163,875

– 54 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6 OPERATING PROFIT

Operating profit is stated after crediting and charging the following:

Crediting: Gain on disposal of an associated company Gain on disposal of property, plant and equipment Unrealised gain on financial assets at fair value through profit and loss Realised gain on financial assets at fair value through profit and loss Dividend received from financial assets at fair value through profit and loss/trading securities Charging: Amortisation of leasehold land and land use rights Depreciation – Owned assets – Hire purchase assets Staff costs (including directors’ emoluments) Cost of inventories Operating leases on rented premises Realised loss on trading securities Net exchange loss Provision for doubtful debts	Six months ended 30 June 2005 2004 HK$’000 HK$’000 (Unaudited) (Unaudited) – 2 71 – 4 – 2,067 – 21 238 25 12 3,355 2,825 290 491 9,864 9,453 116,631 110,819 2,337 2,014 – 1,669 246 542 – 153	Six months ended 30 June 2005 2004 HK$’000 HK$’000 (Unaudited) (Unaudited) – 2 71 – 4 – 2,067 – 21 238 25 12 3,355 2,825 290 491 9,864 9,453 116,631 110,819 2,337 2,014 – 1,669 246 542 – 153
		12 2,825 491 9,453 110,819 2,014 1,669 542 153

7 FINANCE COSTS

Interest on bank loans and overdrafts Interest element of finance leases	Six months ended 30 June 2005 2004 HK$’000 HK$’000 (Unaudited) (Unaudited) 1,415 1,243 23 54 1,438 1,297	Six months ended 30 June 2005 2004 HK$’000 HK$’000 (Unaudited) (Unaudited) 1,415 1,243 23 54 1,438 1,297
		1,297

– 55 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

8 TAXATION

The amount of taxation charged to the condensed consolidated profit and loss account represents:

Hong Kong profits tax_(Note (a)) PRC enterprise income tax(Note (b))_ Under provision in prior years Deferred taxation Taxation charge	Six months ended 30 June 2005 2004 HK$’000 HK$’000 (Unaudited) (Unaudited) 4,869 4,842 445 309 – 32 (290) (29 5,024 5,154	Six months ended 30 June 2005 2004 HK$’000 HK$’000 (Unaudited) (Unaudited) 4,869 4,842 445 309 – 32 (290) (29 5,024 5,154
		5,154

(a) Hong Kong profits tax

Hong Kong profits tax has been provided at the rate of 17.5% (2004: 17.5%) on the estimated assessable profit for the periods.

(b) PRC enterprise income tax

PRC enterprise income tax has been calculated on the estimated assessable profit at the rates of taxation prevailing in the PRC. A subsidiary of the Company operating in the PRC, namely Shenzhen Allcomm Electronic Co. Ltd. (“Shenzhen Allcomm”), is subject to a standard income tax rate of 15% in accordance with the relevant tax laws applicable. Furthermore, Shenzhen Allcomm is entitled to full exemption from PRC income tax for the two years ended 31 December 2000, and followed by a 50% reduction of PRC income tax (i.e. 7.5%) for the three years ended 31 December 2003.

9 INTERIM DIVIDENDS

Interim dividend paid of HK$nil (2004: HK$30 ) per ordinary share_(Note a) Interim dividend proposed of HK2 cents (2004: HK$nil) per ordinary share Special interim dividend proposed of HK1.5 cents (2004: HK$nil) per ordinary share(Note b)_	Six months ended 30 June 2005 2004 HK$’000 HK$’000 (Unaudited) (Unaudited) – 15,000 6,000 – 4,500 – 10,500 15,000	Six months ended 30 June 2005 2004 HK$’000 HK$’000 (Unaudited) (Unaudited) – 15,000 6,000 – 4,500 – 10,500 15,000
		15,000

Note (a) The dividend for the six months ended 30 June 2004 was paid by the Company’s subsidiary, Alltronics Tech. Mftg. Limited, to its then shareholders on 12 May 2004.

– 56 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

• Note (b) In recognition of the continued support from the shareholders and the successful listing of the Company’s shares on the Main Board of the Stock Exchange on 15 July 2005, the Board proposed a special interim dividend of HK1.5 cents per ordinary share.

• Note (c) The 2005 interim dividend and special interim dividends were proposed after the balance sheet date and have not been recognised as a liability at the balance sheet date. The declaration of these dividends was approved by the Board on 21 September 2005 and these dividends have been accounted for as the proposed dividends from the reserves.

10 EARNINGS PER SHARE

The calculation of basic earnings per share for the period is based on the Group’s profit attributable to shareholders of approximately HK$22,304,000 (2004: HK$24,905,000) and the weighted average number of 300,000,000 (2004: 300,000,000) ordinary shares deemed to be in issue during the period as if the share capital of the Company outstanding immediately after the share exchange in connection with the Reorganisation and the related subsequent capitalisation issue as described in the Prospectus had been in existence throughout the periods.

There were no dilutive potential ordinary shares in existence during the period under review and, therefore, no diluted earnings per share amounts have been presented.

11 PROPERTY, PLANT AND EQUIPMENT

The Group’s buildings are situated in the PRC on land with medium term lease. The Group entered into an arrangement with independent third parties to jointly develop certain buildings in the PRC for the use by the Group. The Group’s attributable interest in these buildings is 60%. These buildings are accounted for as jointly controlled assets of the Group. At 30 June 2005, the net book value of the Group’s share of these buildings amounted to approximately HK$7,609,000 (At 31 December 2004: HK$7,695,000).

During the period, additions to the Group’s property, plant and equipment amounted to approximately HK$3,545,000 (1 January 2004 to 30 June 2004: HK$4,183,000).

12 LEASEHOLD LAND AND LAND USE RIGHTS

Leasehold land and land use rights represent the prepayment of rent for land lease for a property situated in Shenzhen, the PRC and are amortised over a period of 50 years.

– 57 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

13 INTEREST IN ASSOCIATED COMPANIES

Beginning of the period/year Share of result of associated companies – profit before taxation – taxation_(Note a) Disposal of associated company Amortisation of goodwill on acquisition(Note b) End of the period/year Loan to an associated company(Note c) Due to an associated company(Note d)_	At At 30 June 31 December 2005 2004 HK$’000 HK$’000 (Unaudited) (Restated) 6,646 6,895 370 902 (14) (31) 7,002 7,766 – (489) – (631) 7,002 6,646 4,000 4,000 5,620 3,430

• Note (a) The associated companies in the PRC are subject to a standard income tax rate of 15% in accordance with the relevant tax laws applicable. Some of the associated companies are entitled to full exemption from PRC income tax for the two years from its incorporation or the first profitable year, and followed by a 50% reduction of PRC income tax (i.e. 7.5%) from the third year to the fifth year .

• Note (b) Cost and accumulated amortisation of goodwill are offset by the same amount of approximately HK$2,313,000 upon the adoption of HKFRS 3 at 1 January 2005. Interest in associated companies at 30 June 2005 includes goodwill of approximately HK$3,993,000 (31 December 2004: HK$3,993,000).

• Note (c) The loan was provided to an associated company, Southchina Engineering and Manufacturing Limited, for financing its acquisition of machinery. The balance is interest-free, unsecured and repayable on demand.

• Note (d) The outstanding balances with an associated company are aged less than one year and are unsecured, non-interest bearing and with normal credit terms of 60 days.

– 58 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

14 ACCOUNTS RECEIVABLE

The Group’s sales to customers are entered into on credit terms ranging up to 90 days, except for certain credit worthy customers to whom a longer credit period is allowed. The ageing analysis of accounts receivable at the respective balance sheet dates is as follows:

0 – 30 days 31 – 60 days 61 – 90 days 91 – 120 days 121 – 365 days	At At 30 June 31 December 2005 2004 HK$’000 HK$’000 (Unaudited) 28,664 14,421 15,223 5,266 3,243 3,612 – 2,389 6 532 47,136 26,220	At At 30 June 31 December 2005 2004 HK$’000 HK$’000 (Unaudited) 28,664 14,421 15,223 5,266 3,243 3,612 – 2,389 6 532 47,136 26,220
		26,220

15 PLEDGED BANK DEPOSITS

Deposits amounting to approximately HK$17,557,000 as of 30 June 2005 (31 December 2004: HK$13,372,000) have been pledged to banks for general banking facilities granted to the Group (Note 20(b)).

16 ACCOUNTS PAYABLE

The ageing analysis of accounts payable at the respective balance sheet dates is as follows:

0 – 30 days 31 – 60 days 61 – 90 days 91 – 120 days 121 – 365 days	At At 30 June 31 December 2005 2004 HK$’000 HK$’000 (Unaudited) 10,756 8,054 11,479 9,681 4,603 2,390 262 21 791 47 27,891 20,193	At At 30 June 31 December 2005 2004 HK$’000 HK$’000 (Unaudited) 10,756 8,054 11,479 9,681 4,603 2,390 262 21 791 47 27,891 20,193
		20,193

– 59 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

17 SHARE CAPITAL

	Authorised share capital	Authorised share capital	Authorised share capital
	Number of	Nominal value
	shares		HK$’000
At 24 July 2003 (date of incorporation) and at
31 December 2004 (ordinary shares of HK$0.1 each)	5,000,000		500
Subdivision of one share of HK$0.1 each into 10
shares of HK$0.01 each (a)	50,000,000		500
Increase in authorised share capital (c)	9,950,000,000		99,500
At 30 June 2005	10,000,000,000		100,000
	Issued	share capital
	Number of	Nominal value
	shares		HK$
At 24 July 2003 (date of incorporation)	–		–
Issue of share of HK$0.1 each at nil paid
on 18 August 2003	2		–
At 31 December 2004	2		–
Subdivision of one share of HK$0.1 each into 10
shares of HK$0.01 each (a)	20		–
Shares issued for acquisition of Alltronics (BVI) Limited (b)	980		9.8
Credited as fully paid the 20 shares already issued (b)	–		0.2
At 30 June 2005	1,000		10.0

Notes:

• (a) On 17 June 2005, every issued and unissued share of HK$0.1 each in the share capital of the Company was subdivided into 10 shares of HK$0.01 each such that the Company had an authorized share capital of HK$500,000 divided into 50,000,000 shares of HK$0.01 each.

• (b) On 17 June 2005, in preparation for the listing of the Company’s shares on the Main Board of the Stock Exchange, the Company acquired the entire issued share capital of Alltronics (BVI) Limited of 100 shares of US$1.00 each, which is satisfied by the Company (i) allotting and issuing 980 new shares of HK$0.01 each, credited as fully paid, to the then shareholders of Alltronics (BVI) Limited, and (ii) crediting as fully paid the 20 shares of HK$0.01 each as issued in nil paid on 18 August 2003.

• (c) On 22 June 2005, the Company increased its authorised share capital from HK$500,000 to HK$100,000,000 by the creation of an additional 9,950,000,000 shares of HK$0.01 each.

• (d) On 15 July 2005, the Company issued 90,000,000 new shares of HK$0.01 each at HK$0.8 per share by way of placing and public offer in connection with the listing of the Company’s shares on the Main Board of the Stock Exchange (the “Listing”), and raised net proceeds of approximately HK$61 million.

– 60 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

• (e) Immediately after the Listing, 209,999,000 shares of HK$0.01 were allotted and issued, credit as fully paid at par value to the then existing shareholder of the Company, by capitalisation of HK$2,099,900 from the share premium account.

Details of the above changes in share capital of the Company are set out in the Prospectus issued by the Company.

The share capital of the Group as at 31 December 2004 represented the consolidated capital of the Company and its subsidiaries as at that date.

18 RESERVES

At 31 December 2004 Capital reserve arising on Reorganisation Profit for the period Share issuance cost Proposed dividends At 30 June 2005	Capital reserve HK$’000 (Unaudited) 5,300 500 – – – 5,800	Share issuance costs HK$’000 (Unaudited) (3,806) – – (831) – (4,637)	Exchange reserve HK$’000 (Unaudited) 130 – – – – 130	Retained earnings HK$’000 (Unaudited) 49,919 – 22,304 – (10,500) 61,723	Total HK$’000 (Unaudited) 51,543 500 22,304 (831) (10,500) 63,016

19 LONG-TERM BORROWINGS

Bank loans – secured Obligations under finance leases Total borrowings, wholly repayable within five years Current portion of borrowings	At At 30 June 31 December 2005 2004 HK$’000 HK$’000 (Unaudited) 3,221 5,580 692 1,057 3,913 6,637 (3,146) (5,104) 767 1,533

– 61 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group’s bank loans were repayable as follows:

Within one year In the second year In the third to fifth year The Group’s finance lease liabilities were repayable as follows: Within one year In the second year In the third to fifth year Future finance charges on finance leases Present value of finance lease liabilities The present value of finance lease liabilities is as follows: Within one year In the second year In the third to fifth year	At At 30 June 31 December 2005 2004 HK$’000 HK$’000 (Unaudited) 2,579 4,441 642 950 – 189 3,221 5,580 At At 30 June 31 December 2005 2004 HK$’000 HK$’000 (Unaudited) 585 699 130 357 – 46 715 1,102 (23) (45) 692 1,057 At At 30 June 31 December 2005 2004 HK$’000 HK$’000 (Unaudited) 567 663 125 349 – 45 692 1,057

– 62 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

20 BANKING FACILITIES

As of 30 June 2005, the Group’s banking facilities of approximately HK$162,300,000 were secured by the following:

• (a) personal guarantees from the director, Mr Lam Yin Kee,

• (b) pledge of the Group’s fixed deposits of approximately HK$17,557,000 (31 December 2004: HK$13,372,000); and

• (c) financial assets at fair value through profit and loss/trading securities held by the Group with carrying value of approximately HK$7,992,000 (31 December 2004: HK$15,333,000).

The banks have agreed in principle that the guarantees mentioned in (a) above be released and replaced by a corporate guarantee to be issued by the Company upon the listing of the Company’s shares on the Stock Exchange.

21 COMMITMENTS

• (a) Capital commitments for property, plant and equipment

Contracted but not provided for Authorised but not contracted for	At At 30 June 31 December 2005 2004 HK$’000 HK$’000 (Unaudited) 200 200 45,000 –

• (b) The Group had future aggregate minimum lease payments under non-cancellable operating leases in respect of land and buildings as follows:

Not later than one year Later than one year and not later than five years	At At 30 June 31 December 2005 2004 HK$’000 HK$’000 (Unaudited) 5,341 3,576 6,807 3,708 12,148 7,284	At At 30 June 31 December 2005 2004 HK$’000 HK$’000 (Unaudited) 5,341 3,576 6,807 3,708 12,148 7,284
		7,284

On 29 July 2005 the Group has entered into a new lease agreement for factory premises located at Tang Xia Yong Village, Songgang Town, Baoan District, Shenzhen, the PRC for a period of 5 years from 19 September 2005 to 19 September 2010.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

22 PENDING LITIGATION

A subsidiary of the Company, Alltronics Tech. Mftg. Limited (“Alltronics”) is involved in a legal proceeding in relation to a fatal traffic accident causing the death of one of its employees during his business trip in the PRC. On 7 March 2005, Alltronics was served with an application made by the family of the deceased employee against Alltronics pursuant to the Employee’s Compensation Ordinance (Cap. 282). The applicants claimed HK$1,260,000 as compensation and HK$35,000 as funeral expenses pursuant to the application. As of the date of 2005 interim report of the Company, the case has not been settled.

Alltronics maintains a business insurance policy which covers various types of business risks, including employees’ compensation and the coverage limit for claims of employees’ compensation is up to HK$100,000,000 for any one event. The directors consider the aforesaid claim of employees’ compensation would be fully covered by the business insurance policy and accordingly do not make a provision for such claim in the financial statements.

23 RELATED PARTY TRANSACTIONS

• (a) During the six months ended 30 June 2005, the Group had entered into the following significant transactions with related parties:

Notes Sales to Maruman Product Co. Limited (“Maruman”) (i) Sales to an associated company, Southchina Engineering and Manufacturing Limited (“Southchina”) (ii) Purchases from Southchina (ii) Mould expenses paid to Southchina (ii) Rental expense paid to Profit Home Investments Limited (iii)	Six month ended 30 June 2005 2004 HK$’000 HK$’000 (Unaudited) (Unaudited) 17,420 15,450 262 – 13,245 12,597 449 693 480 480

• (i) Mr. Lam Yin Kee has 24.7% equity interests in Maruman.

• (ii) Southchina is a 25% owned associated company of the Group engaging in the manufacture of plastic moulds and sales of electronic accessories,

• (iii) Ms. Yeung Po Wah is a shareholder of Profit Home Investments Limited and holding 60% of its issued share capital.

In the opinion of the directors of the Company, the above related party transactions were carried out in the normal course of business and at terms negotiated between the Group and the respective related parties.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

• (b) Period/year end balance arising from the related parties transactions as disclosed in note 23(a) above were as follows:

Amounts due from a related company	At At 30 June 31 December 2005 2004 HK$’000 HK$’000 (Unaudited) 3,819 1,667

The outstanding balances with related companies are aged less than one year and are unsecured, non-interest bearing and with normal credit terms of 60 days.

• (c) Key management compensation

Salaries and other short-term employee benefits Post-employment benefits	Six month ended 30 June 2005 2004 HK$’000 HK$’000 (Unaudited) (Unaudited) 3,906 3,691 30 24

24 ULTIMATE HOLDING COMPANY

The Company’s ultimate holding company is Profit International Holdings Limited, being a company incorporated in the British Virgin Islands.

25 SUBSEQUENT EVENT

The Company issued 90 million shares at HK$0.8 per share by way of placing and public offer (as set out in detail in the Prospectus dated 30 June 2005) in July 2005. The shares of the Company were listed on the Main Board of the Stock Exchange on 15 July 2005.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. MANAGEMENT DISCUSSION AND ANALYSIS FOR THE PRECEDING THREE YEARS

For the financial year ended 31 December 2002, the Group recorded a turnover of approximately HK$177 million, of which approximately HK$164 million generated from sales of home improvement electronic products and approximately HK$13 million represented sales of other electronic products and electronic product components. The increase in turnover was mainly due to the establishment of the new factory for the manufacture of electronic product components since March 2002 and the increase in sales of smart cards and readers and radio controlled clocks and clock movement units. Gross profit margin for the year increased slightly from 28.5% to 30.6%. The increase in gross profit margin was resulted from a change in product mix with an increase in proportion of sales of products with higher gross profit margin. The profit attributable to shareholders for the year amounted to approximately HK$23 million, which represented a net profit margin of approximately 12.9%. At the end of 31 December 2002, gearing of the Group in terms of external borrowings was around 23%.

For the financial year ended 31 December 2003, the Group recorded a turnover and profit attributable to shareholders of approximately HK$253 million and approximately HK$30 million respectively. The increase in turnover and profit was mainly due to the increase in sales of the Group’s major product, irrigation controllers, the sales of which have been increased by approximately HK$50 million. Gross profit margin for the year also improved to approximately 33% mainly due to the consistent change in product mix and the reduction in unit production cost as a result of economy of scale and the Group’s continued effort in cost control. Gearing of the Group at the end of 31 December 2003 increased to approximately 71% as the Group has increased its total external borrowings in order to cope with the expansion in business.

For the financial year ended 31 December 2004, the Group recorded an increase in turnover and profit attributable to shareholders of approximately HK$40 million and approximately HK$9 million respectively. The increase in turnover was mainly attributable to the expansion in the manufacture and sales of electronic product components and aroma ionizers. The gross profit margin has reduced slightly from approximately 33% for the year 2003 to approximately 31% for the year 2004, due to the fact that electronic product components and aroma ionizers usually have comparatively lower gross profit margins than other products of the Group. Gearing of the Group at the end of 31 December 2004 has reduced to approximately 55% as a result of the expansion in shareholders’ funds through accumulation of retained profits, after payment of dividends.

4. GENERAL OUTLOOK AND PROSPECTS OF THE GROUP’S BUSINESS

The Group’s primary objective is to become a leading and internationally renowned manufacturer of home improvement electronic products and electronic product components. After its listing on the Main Board of the Stock Exchange on 15 July 2005, the Group has been focusing on developing new designs to meet customers’ needs and continuously expanding its service to international customers. The Group will utilise part of the net proceeds from the listing to further expand its production capacity, primarily for the manufacture of home improvement electronic products.

In future, the Group intends to launch more electronic products and to explore new markets and new customers. United States is the major market of the Group’s products in the past and is still the major target market of the Group in the near future. However, the Group

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

will also strengthen and expand its market in other areas by providing high quality products to its customers. On the other hand, in order to cope with the increasing competition and rising operating costs and overheads, the Group intends to streamline or to restructure its operations so as to reduce the overall production and administrative overheads. The Group is also looking into potential investment opportunities in the electronic industry to expand its operations as well as to increase its profit.

In view of the consistent growing demand from customers, the Board is optimistic about the business outlook in future and has confidence to perform well in the future and to generate higher value to its Shareholders.

– 67 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

The following is the text of a report from PricewaterhouseCoopers, the reporting accountants, in relation to the financial information of Southchina Engineering and Manufacturing Limited (“Southchina”), and its subsidiaries (hereinafter collectively referred to as the “Southchina Group”) as at and for the years ended 31 December 2002, 2003 and 2004 and as at and for the six months ended 30 June 2005.

羅兵咸永道會計師事務所

PricewaterhouseCoopers 22nd Floor, Prince�s Building Central, Hong Kong

13 December 2005

The Directors Alltronics Holdings Limited Southchina Engineering and Manufacturing Limited

Dear Sirs,

We set out below our report on the financial information relating to Southchina Engineering and Manufacturing Limited (“Southchina”), and its subsidiaries (hereinafter collectively referred to as “Southchina Group”) as at and for the years ended 31 December 2002, 2003, 2004, and as at and for the six months ended 30 June 2005 (the “Relevant Periods”) for inclusion in the circular of Alltronics Holdings Limited dated 13 December 2005 (the “Circular”) in connection with the proposed acquisition by Alltronics Tech. Mftg. Limited, a wholly owned subsidiary of Alltronics Holdings Limited, of a 26% equity interest in Southchina.

Southchina was incorporated in Hong Kong on 3 September 1992 with limited liability under the Hong Kong Companies Ordinance. As at the date of this report, Southchina has the following subsidiaries and associated company, all of which are private companies:

	Place and date
	of incorporation/
	establishment	Issued/registered	Attributable
	and place of	and fully paid-up	equity	Principal
Company	operations	share capital	interests	activities
Directly held
subsidiaries
南盈塑膠實業	People’s Republic	Registered capital	100%	Manufacturing of
(深圳)有限公司	of China (“PRC”),	of HK$1,700,000		plastic moulds, plastic
(“南盈”)Note (i)	19 November			and electronics
	2001			accessories in the PRC
Quant Electronics	Hong Kong,	HK$330,000	100%	Dormant
(HK) Limited	23 July 1982	330,000 ordinary
(“Quant”)		shares of HK$1 each
Associated company
TSC Manufacturing	Hong Kong,	HK$3,000,000	40%	Manufacturing of
Limited (“TSC”)	14 January	3,000,000 ordinary		plastic accessories
	2005	shares of HK$1 each		and mould making
				technology development

(i) 南盈 was established as a wholly owned foreign enterprise in the PRC for a term of 10 years up to 2011 and can be extended upon application to the relevant authorities.

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APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

The Group and the associated company have adopted 31 December as their financial year end date since incorporation/establishment.

The statutory financial statements of Southchina and Quant for the years ended 31 December 2002, 2003 and 2004 were prepared under Hong Kong Financial Reporting Standards (“HKFRS”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) and were audited by Eric Y.K. Fung & Co., Certified Public Accountants in Hong Kong. The statutory financial statements of 南盈 for the period from 19 November 2001 (date of incorporation) to 31 December 2002 and for the years ended 31 December 2003 and 2004 were prepared in accordance with relevant accounting principles and financial regulations applicable to PRC enterprises and were audited by 深圳高信會計師事務所 , Certified Public Accountants registered in the PRC.

No audited financial statements have been prepared for TSC since the date of incorporation as it is newly incorporated.

For the purpose of this report, we have performed independent audit procedures, in accordance with Statements of Auditing Standards issued by the HKICPA, on the consolidated financial statements of Southchina Group, prepared in accordance with HKFRS as at and for the years ended 31 December 2002, 2003 and 2004, and as at and for the six months ended 30 June 2005.

We have examined the audited consolidated financial statements of Southchina Group for the Relevant Periods and have carried out such additional procedures as are necessary in accordance with the Auditing Guideline “Prospectuses and the Reporting Accountant” issued by the HKICPA.

We have reviewed the unaudited consolidated financial statements of Southchina Group for the six months ended 30 June 2004 in accordance with Statement of Auditing Standards No. 700, “Engagements to Review Interim Financial Reports” issued by the HKICPA. A review consists principally of making enquires of Southchina Group’s management and applying analytical procedures to the financial information and based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the consolidated financial statements of Southchina Group for the six months ended 30 June 2004.

The financial information of Southchina Group as set out in Sections I to III of Appendix II of this circular (the “Financial Information”) has been prepared by the directors of Southchina based on the consolidated financial statements of Southchina Group for the Relevant Periods and for the six months ended 30 June 2004 in accordance with HKFRS issued by the HKICPA.

The directors of Southchina are responsible for the Financial Information such that it gives a true and fair view. In preparing these financial statements, it is fundamental that appropriate accounting policies are selected and applied consistently. It is our responsibility to form an independent opinion, based on our examination and review, on the Financial Information and to report our opinion to you.

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APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

In our opinion, the Financial Information, for the purpose of this report, gives a true and fair view of the state of affairs of Southchina and of Southchina Group as at 31 December 2002, 2003 and 2004 and as at 30 June 2005 and of the results and cash flows of Southchina Group for the periods then ended.

Moreover, on the basis of our review which does not constitute an audit, we are not aware of any material modifications that should be made to the financial information for the six months ended 30 June 2004.

I. CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Profit and Loss Accounts

Note Turnover 5, 6 Cost of sales Gross profit Other revenues 5 Distribution costs Administrative expenses Other operating (expenses)/ income, net Operating profit/(loss) 7 Finance costs 8 Share of loss of an associated company 16 Profit/(loss) before taxation Taxation 9 Profit/(loss) attributable to shareholders 25

Six months Year ended 31 December ended 30 June 2002 2003 2004 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 48,354 58,998 98,461 48,056 52,064 (31,752) (37,885) (68,335) (34,464) (41,034) 16,602 21,113 30,126 13,592 11,030 25 18 11 4 4 (998) (1,188) (1,793) (970) (747) (14,102) (16,769) (21,079) (9,232) (11,262) (272) (166) 384 229 643 1,255 3,008 7,649 3,623 (332) (967) (855) (1,176) (528) (772) – – – – (211) 288 2,153 6,473 3,095 (1,315) (447) (281) (626) (251) (206) (159) 1,872 5,847 2,844 (1,521)

The notes to the consolidated financial statements are an integral part of these financial statements.

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APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

Consolidated Balance Sheets

Note Non-current assets Property, plant and equipment 14 Interest in an associated company 16 Investment securities 20 Available-for-sale financial assets 19 Current assets Inventories 17 Account receivables 18 Prepayments, deposits and other receivables Due from an associated company 16 Due from directors 23 Tax recoverable Pledged bank deposits 30 Bank balances and cash 21 Current liabilities Account payables 22 Accruals and other payables Due to directors 23 Due to a shareholder 28 Due to an associated company 16 Tax payable Current portion of borrowings 26 Bills payables, secured 30 Trust receipt loans, secured 30 Bank overdrafts, secured 30 Net current liabilities Total assets less current liabilities	As at 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 8,908 9,918 13,890 – – – 2,107 2,107 3,729 – – – 11,015 12,025 17,619 ----------- ----------- ----------- 4,546 9,906 18,539 11,076 15,599 22,886 290 463 506 – – – 220 551 751 – 5 61 2,335 2,450 2,448 834 1,452 647 19,301 30,426 45,838 ----------- ----------- ----------- 4,891 10,818 15,927 2,760 4,110 2,247 52 46 161 4,000 4,000 4,000 – – – 148 367 765 3,701 3,353 4,990 3,791 4,404 10,987 1,009 2,412 2,114 3,583 6,230 7,496 23,935 35,740 48,687 ----------- ----------- ----------- (4,634) (5,314) (2,849) ----------- ----------- ----------- 6,381 6,711 14,770	As at 30 June 2005 HK$’000 12,924 989 – 2,825 16,738 ----------- 15,300 23,217 555 440 1,287 61 4,848 1,716 47,424 ----------- 14,262 3,016 – 4,000 51 954 4,835 7,872 2,436 10,725 48,151 ----------- (727) ----------- 16,011

– 71 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

Note Financed by: Share capital 24 Reserves 25 Non-current liabilities Long-term borrowings 26 Deferred taxation 27	As at 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 1,000 1,000 1,000 2,987 4,859 10,706 3,987 5,859 11,706 2,026 456 2,496 368 396 568 6,381 6,711 14,770	As at 30 June 2005 HK$’000 1,000 8,281
		9,281 6,162 568
		16,011

The notes to the consolidated financial statements are an integral part of these financial statements.

– 72 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

Balance Sheets

Note Non-current assets Property, plant and equipment 14 Interest in subsidiaries 15 Interest in an associated company 16 Investment securities 20 Available for sales financial assets 19 Current assets Inventories 17 Account receivables 18 Prepayments, deposits and other receivables Due from an associated company 16 Due from directors 23 Tax recoverable Pledged bank deposits 30 Bank balances and cash 21 Current liabilities Account payables 22 Accruals and other payables Due to a shareholder 28 Due to an associated company 16 Due to subsidiaries 15 Due to directors 23 Tax payable Current portion of borrowings 26 Bills payables, secured 30 Trust receipt loans, secured 30 Bank overdrafts, secured 30 Net current liabilities Total assets less current liabilities	As at 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 8,232 9,375 13,488 2,986 2,986 2,986 – – – 2,107 2,107 3,729 – – – 13,325 14,468 20,203 ----------- ----------- ----------- 4,524 9,709 18,092 10,849 15,206 20,662 290 463 563 – – – – 343 548 – 5 61 2,335 2,450 2,448 205 1,310 538 18,203 29,486 42,912 ----------- ----------- ----------- 4,870 10,576 14,963 2,341 3,462 1,264 4,000 4,000 4,000 – – – 100 294 1,588 156 162 283 – – 115 3,701 3,353 4,990 3,791 4,404 10,987 1,009 2,412 2,114 3,583 6,230 7,496 23,551 34,893 47,800 ----------- ----------- ----------- (5,348) (5,407) (4,888) ----------- ----------- ----------- 7,977 9,061 15,315	As at 30 June 2005 HK$’000 12,523 2,986 1,200 – 2,825 19,534 ----------- 14,006 21,468 481 440 1,047 61 4,848 1,576 43,927 ----------- 13,119 1,915 4,000 51 1,688 85 115 4,835 7,872 2,436 10,725 46,841 ----------- (2,914) ----------- 16,620

– 73 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

Note Financed by: Share capital 24 Reserves 25 Non-current liabilities Long-term borrowings 26 Deferred taxation 27	As at 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 1,000 1,000 1,000 4,583 7,209 11,251 5,583 8,209 12,251 2,026 456 2,496 368 396 568 7,977 9,061 15,315	As at 30 June 2005 HK$’000 1,000 8,890
		9,890 6,162 568
		16,620

The notes to the consolidated financial statements are an integral part of these financial statements.

– 74 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

Consolidated Statements of Changes in Equity

Note Total equity as at the beginning of the year/period Opening adjustment for the adoption of HKAS 39 2.1 Total equity as at the beginning of the year/ period, as restated (Loss)/profit attributable to shareholders Fair value changes on available-for-sale financial assets Total equity as at the end of the year/period	Six months Year ended 31 December ended 30 June 2002 2003 2004 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 4,146 3,987 5,859 5.859 11,706 – – – – (380) 4,146 3,987 5,859 5,859 11,326 (159) 1,872 5,847 2,844 (1,521) – – – – (524) 3,987 5,859 11,706 8,703 9,281

The notes to the consolidated financial statements are an integral part of these financial statements.

– 75 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

Consolidated Cash Flow Statements

Note Net cash inflow/(outflow) generated from operations 29(a) Interest paid PRC income tax paid Hong Kong profits tax refund/(paid) Net cash inflow/(outflow) from operating activities Investing activities Purchase of fixed assets Sales proceeds from disposal of property, plant and equipment Purchase of investment securities Sales of investment securities Interest received Capital injection in an associated company Dividend received from available-for-sale financial assets (Increase)/decrease in pledged deposits Net cash used in investing activities Net cash used before financing

Six months Year ended 31 December ended 30 June 2002 2003 2004 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 4,234 4,682 6,789 1,042 (538) (967) (855) (1,176) (528) (772) (13) (32) (51) (11) (16) 178 (7) (61) (45) – 3,432 3,788 5,501 458 (1,326) ----------- ----------- ----------- ----------- ----------- (2,809) (4,622) (6,363) (4,630) (371) 546 – – – – (2,107) – (3,729) (3,729) – – – 2,243 2,243 – 25 18 11 4 4 – – – – (1,200) – – – – 519 (2,335) (115) 2 606 (2,400) (6,680) (4,719) (7,836) (5,506) (3,448) (3,248) (931) (2,335) (5,048) (4,774)

– 76 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

Note Financing activities 29(b) Capital element of finance lease payment Repayment of bank loans New bank loan raised Increase/(decrease) in trust receipt loans Loan from a shareholder Net cash (used in)/inflow from financing activities Decrease in cash and cash equivalent Cash and cash equivalents at beginning of the year/period Cash and cash equivalents at end of the year/period Analysis of balances of cash and cash equivalents Bank balances and cash Bank overdrafts

Six months Year ended 31 December ended 30 June 2002 2003 2004 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) (2,968) (1,725) (1,388) (514) (958) (8,466) (2,452) (5,017) (2,538) (3,100) 4,587 1,676 6,966 5,347 6,351 1,009 1,403 (297) 950 321 4,000 – – – – (1,838) (1,098) 264 3,245 2,614 ----------- ----------- ----------- ----------- ----------- (5,086) (2,029) (2,071) (1,803) (2,160) 2,337 (2,749) (4,778) (4,778) (6,849) (2,749) (4,778) (6,849) (6,581) (9,009) ----------- ----------- ----------- ----------- ----------- 834 1,452 647 1,429 1,716 (3,583) (6,230) (7,496) (8,010) (10,725) (2,749) (4,778) (6,849) (6,581) (9,009)

The notes to the consolidated financial statements are an integral part of these financial statements.

– 77 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

II. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. GENERAL INFORMATION

Southchina Engineering and Manufacturing Limited (“Southchina”) was incorporated in Hong Kong on 3 September 1992 with limited liability under the Hong Kong Companies Ordinance. The address of its registered office is Room 1601, 16/F, Eastwood Centre, No. 5, A Kung Ngam Village Road, Shau Kei Wan, Hong Kong.

The principal activities of Southchina and its subsidiaries (the “Southchina group”) are the manufacturing of plastic moulds, plastic and electronics accessories. Southchina Group’s production facilities are located in PRC.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years/periods presented, unless otherwise stated.

2.1. Basis of preparation

The consolidated financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRS”). The consolidated financial statements have been prepared under the historical cost convention, except that available-for-sale financial assets are carried at fair value.

The preparation of financial statements in conformity with HKFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying Southchina’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 4.

The adoption of new/revised HKFRS

In 2005, Southchina Group adopted the following new/revised standards of HKFRS, which are relevant to its operations. The accounts for the years ended 31 December 2002, 2003, 2004 and for the six months ended 30 June 2004 accounts have been amended as required, in accordance with the relevant requirements.

HKAS 1	Presentation of Financial Statements
HKAS 2	Inventories
HKAS 7	Cash Flow Statements
HKAS 8	Accounting Policies, Changes in Accounting Estimates and Errors
HKAS 10	Events after the Balance Sheet Date
HKAS 16	Property, Plant and Equipment
HKAS 17	Leases
HKAS 21	The Effects of Changes in Foreign Exchange Rates
HKAS 23	Borrowing Costs
HKAS 24	Related Party Disclosures
HKAS 27	Consolidated and Separate Financial Statements
HKAS 28	Investments in Associates
HKAS 32	Financial Instruments: Disclosures and Presentation
HKAS 36	Impairment of Assets
HKAS 39	Financial Instruments: Recognition and Measurement
HKFRS 3	Business Combinations

– 78 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

The adoption of new/revised HKASs 1, 2, 7, 8, 10, 16, 17, 21, 23, 24, 27, 28 and 36 did not result in substantial changes to Southchina Group’s accounting policies. In summary:

• HKAS 1 has affected the presentation of share of net after-tax results of associates and other disclosures.

• HKASs 2, 7, 8, 10, 16, 17, 23, 27, 28 and 36 had no material effect on Southchina Group’s policies.

• HKAS 21 had no material effect on Southchina Group’s policy. The functional currency of each of the consolidated entities has been re-evaluated based on the guidance to the revised standard. All Southchina Group entities have the same functional currency as the presentation currency for respective entity financial statements.

• HKAS 24 has affected the identification of related parties and some other relatedparty disclosures.

The adoption of HKASs 32 and 39 has resulted in a change in the accounting policy relating to the classification of financial assets at fair value through profit or loss and available-for-sale financial assets. It has also resulted in the recognition of derivative financial instruments at fair value and the change in the recognition and measurement of hedging activities.

All changes in the accounting policies have been made in accordance with the transition provisions in the respective standards. All standards adopted by Southchina Group require retrospective application other than:

• HKAS 16 – the initial measurement of an item of property, plant and equipment acquired in an exchange of assets transaction is accounted at fair value prospectively only to future transactions.

• HKAS 21 – prospective accounting for goodwill and fair value adjustments as part of foreign operations;

• HKAS 39 – does not permit to recognise, derecognise and measure financial assets and liabilities in accordance with this standard on a retrospective basis. Southchina Group applied the previous SSAP 24 “Accounting for investments in securities” to investments in securities for the 2004 comparative information. The adjustment for the accounting difference between SSAP 24 and HKAS 39 and determined and recognised at 1 January 2005.

• HKFRS 3 – prospectively from 1 January 2005.

There was no impact on opening retained earnings at 1 January 2005 from the adoption of HKFRS 3.

– 79 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

The following new standards or interpretations that have been issued but are not yet effective are not early adopted. The adoption of such standards or interpretations will not result in substantial changes to Southchina Group’s accounting policies.

HKAS 19 (Amendment)	Actuarial Gains and Losses, Group Plans and Disclosures
HKAS 6	Exploration for and Evaluation of Mineral Resources
HKFRS-Int 4	Determining whether an Arrangement contains a Lease
HKFRS-Int 5	Rights to Interests Arising from Decommissioning,
	Restoration and Environmental Rehabilitation Funds

2.2. Consolidation

The consolidated financial statements include the financial statements of Southchina and all its subsidiaries made up to 30 June 2005.

(a) Subsidiaries

Subsidiaries are those entities in which Southchina, directly or indirectly, controls the composition of the board of directors, controls more than half the voting power or holds more than half of the issued share capital.

Subsidiaries are fully consolidated from the date on which control is transferred to Southchina Group. They are de-consolidated from the date that control ceases.

The purchase method of accounting is used to account for the acquisition of subsidiaries by Southchina Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of Southchina Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the consolidated profit and loss account.

Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by Southchina Group.

In Southchina’s balance sheet the investments in subsidiaries are stated at cost less provision for impairment losses. The results of subsidiaries are accounted by Southchina on the basis of dividend received and receivable.

(b) Associated company

An associate is an entity over which Southchina Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investment in associate is accounted for by the equity method of accounting and is initially recognised at cost.

Southchina Group’s share of its associate’s post-acquisition profits or losses is recognised in the consolidated profit and loss account, and its share of post-acquisition movements in reserves is recognised in consolidated reserves. The cumulative post-

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APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

acquisition movements are adjusted against the carrying amount of the investment. When Southchina Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, Southchina Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

Unrealised gains on transactions between Southchina Group and its associate are eliminated to the extent of Southchina Group’s interest in the associate. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

In Southchina’s balance sheet the investment in associated company is stated at cost less provision for impairment losses. The result of associated company is accounted for by Southchina on the basis of dividend received and receivable.

2.3 Foreign currency translation

(a) Functional and presentation currency

Items included in the financial statements of each of Southchina Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The functional currencies used by its subsidiaries and associate are Renminbi HK dollars respectively. The consolidated financial statements are presented in HK dollars, which is Southchina’s functional and presentation currency.

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the profit and loss account, except when deferred in equity as qualifying cash flow hedges or qualifying net investment hedges.

Translation differences on non-monetary items, such as equity instruments held at fair value through profit or loss, are reported as part of the fair value gain or loss. Translation difference on non-monetary items, such as equities classified as available-for-sale financial assets, are included in the fair value reserve in equity.

(c) Group companies

The results and financial position of all Southchina Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

• (i) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;

• (ii) income and expenses for each profit and loss account are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and

• (iii) all resulting exchange differences are recognised as a separate component of equity.

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APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

On consolidation, exchange differences arising from the translation of the net investment in foreign entities, and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders’ equity. When a foreign operation is sold, such exchange differences are recognised in the consolidated profit and loss account as part of the gain or loss on sale.

2.4 Property, plant and equipment

Property, plant and equipment are stated at cost less depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the item. Cost may also include transfers from equity of any gains/losses on qualifying cashflow hedge of foreign currency purchase of property, plant and equipment.

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that the economic benefits associate with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are expensed in the profit and loss account during the financial period in which they incurred.

Property, plant and equipment are depreciated at rates sufficient to write off their cost less accumulated impairment losses and estimated residual value over their estimated useful lives on a straight-line basis. The principal annual rates are as follows:

Buildings	20%	or over the lease terms, whichever is
		shorter
Furniture and fixtures	20%
Office equipment	20%
Plant and machinery	20%
Leasehold improvements	20%	or over the lease terms, whichever is
		shorter
Motor vehicles	20%

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

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

2.5 Impairment of assets

Assets that have an indefinite useful life are not subject to amortisation, which are at least tested annually for impairment and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).

2.6 Leases (as the lessee)

(a) Finance lease

Leases that substantially transfer to Southchina Group all the risks and rewards of ownership of assets are accounted for as finance leases. Finance leases are capitalised at the inception of the leases at the lower of the fair value of the leased assets or the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the liability balances outstanding. The

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APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

corresponding rental obligations, net of finance charges, are included in current and noncurrent borrowing, as appropriate. The finance charges are charged to the profit and loss account over the lease periods.

Assets held under finance leases are depreciated over the shorter of their estimated useful lives or the lease periods.

(b) Operating lease

Leases where substantially all the risks and rewards of ownership of assets remain with the leasing company are accounted for as operating leases. Payments made under operating leases net of any incentives received from the leasing company are charged to the profit and loss account on a straight-line basis over the lease periods.

2.7 Investments

From 1 January 2002 to 31 December 2004:

Southchina Group classified its investments in securities, other than subsidiaries, associates and jointly controlled entities, as Investment securities.

Investment securities

Investment securities are stated at cost less any provision for impairment losses

The carrying amounts of individual investments are reviewed at each balance sheet date to assess whether the fair values have declined below the carrying amounts. When a decline other than temporary has occurred, the carrying amount of such securities will be reduced to its fair value. The impairment loss is recognised as an expense in the profit and loss account. This impairment loss is written back to profit and loss account when the circumstances and events that led to the write-downs or write-offs cease to exist and there is persuasive evidence that the new circumstances and events will persist for the foreseeable future.

From 1 January 2005 onwards:

Southchina Group has reclassified its investments as available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and reevaluates this designation at every reporting date.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date.

Purchases and sales of investments are recognised on trade-date – the date on which Southchina Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Investments are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and Southchina Group has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets are subsequently carried at fair value. Unrealised gains and losses arising from changes in the fair value of non-monetary securities classified as available-for-sale are recognised in equity.

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APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in the profit and loss account as gains or losses from investment securities.

The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), Southchina Group establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models refined to reflect the issuer’s specific circumstances.

Southchina Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity securities classified as available for sale, a significant or prolonged decline in fair value of the security below its cost is considered in determining whether the securities are impaired. If such evidence exists for available-for-sale financial assets, the cumulative loss - measured as the difference between the recognition cost and the current fair value, less any impairment loss on that financial asset previously recognized in the profit and loss account - is removed from equity and recognized in the profit and loss account. Impairment losses recognized in the profit and loss account on equity instruments are not revised through the profit and loss account.

2.8 Inventories

Inventories are stated at the lower of cost and net realisable value. Cost, calculated on the weighted average basis, comprises materials, direct labour and an appropriate proportion of all production overhead expenditure (based on normal operating capacity). It excludes borrowing costs. Net realisable value is determined on the basis of anticipated sales proceeds less estimated selling expenses.

2.9 Trade and other receivables

Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade and other receivables is established when there is objective evidence that Southchina Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in the profit and loss account.

2.10 Cash and cash equivalents

Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks and bank overdrafts.

2.11 Employee benefits

(a) Employee leave entitlements

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

Employee entitlements to sick leave and maternity leave are not recognised until the time of leave.

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APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

(b) Pension obligations

Southchina Group operates a number of defined contribution plans in Hong Kong and the PRC, the assets of which are generally held in separate trustee-administered funds.

Contributions to the schemes by Southchina Group and employees are calculated as a percentage of employees’ basic salaries. The retirement benefit scheme cost charged to the profit and loss account represents contributions payable by Southchina Group to these schemes.

Southchina Group’s contributions to the schemes are expensed as incurred.

2.12 Deferred taxation

Deferred taxation is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the accounts. Taxation rates enacted or substantively enacted by the balance sheet date are used to determine deferred taxation.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates and jointly controlled entities, except where the timing of the reversal of the temporary difference is controlled by the Group and it is provable that the temporary will not reverse in the foreseeable future.

2.13 Contingent liabilities

A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of Southchina Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that outflow of economic resources will be required or the amount of obligation cannot be measured reliably.

A contingent liability is not recognised but is disclosed in the notes to the accounts. When a change in the probability of an outflow occurs so that the outflow becomes probable, it will then be recognised as a provision.

2.14 Research and development costs

Research costs are expenses as incurred. Costs incurred on development projects relating to the design and testing of new or improved products are recognised as an intangible asset where the technical feasibility and intention of completing the product under development has been demonstrated and the resources are available to do so, costs are identifiable and there is an ability to sell or use the asset that will generate probable future economic benefits. Development costs that do not meet the above criteria are expensed as incurred.

All development costs for the Relevant Periods were charged to the profit and loss account.

2.15 Revenue recognition

Revenue from the sale of goods is recognised on the transfer of risks and rewards of ownership, which generally coincides with the time when the goods are delivered to customers and the title has passed.

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APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

Interest income is recognised on a time-proportion basis using the effective interest method. When a receivable is impaired, Southchina Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans is recognised either as cash is collected or on a cost-recovery basis as conditions warrant.

2.16 Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial asset or financial liability, including fees and commissions paid to agents, advisers, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the profit and loss account over the period of the borrowings using the effective interest method.

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

2.17 Segment reporting

In accordance with Southchina Group’s internal financial reporting, Southchina Group has determined that business segments be presented as the primary reporting format and geographical segments as the secondary reporting format.

Segmental sales are based on the country in which the customer is located and total assets and capital expenditure are where the assets are located.

3. FINANCIAL RISK MANAGEMENT

Financial assets and financial liabilities carried on the balance sheets include available-for-sale financial assets, bank balances and cash, accounts receivables, trust receipt loans, due from an associated company, bills payables, accounts payables and due to an associated company and borrowings. The accounting policies on recognition and measurement of these items are disclosed in Note 2. Management regularly monitors the financial risks of Southchina Group. Because of the simplicity of the financial structure and the current operations of Southchina Group, hedging activities were not undertaken by management.

3.1 Foreign exchange risk

Southchina Group’s business operations are exposed to foreign exchange risk, primarily with respect to United States dollars and Renminbi. Foreign exchange risk arises from future commercial transactions denominated in United States dollars and Renminbi, recognised assets and liabilities and net investments in the People’s Republic of China (“PRC”) operations. Southchina Group has certain investments in PRC operations, whose net assets are exposed to foreign currency translation risk. Southchina Group does not presently hedge this foreign exchange exposure.

3.2 Credit risk

Southchina Group has no significant concentrations of credit risk. It has policies in place to ensure that sales of products are made to customers with an appropriate credit history.

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APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

3.3 Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities. Due to the continuous growth in business, Southchina Group aims at maintaining flexibility in funding by keeping committed credit lines available.

3.4 Cash flow and fair value interest rate risk

As Southchina Group has no significant interest-bearing assets and liabilities except as its bank deposits, bills payable, finance lease liabilities and bank borrowings, Southchina Group’s income and operating cash flows are substantially independent of changes in market interest rates. Southchina Group’s interest-rate risk arose from bank balances and bank borrowings. Southchina Group regularly seeks out the most favourable interest rates available for its bank deposits and bank borrowings. Information relating to interest rates of Southchina Group’s bank balance and deposits and bank borrowings are disclosed in Notes 21 and 26, respectively.

4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

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

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

4.1 Income taxes

Southchina Group is subject to income taxes in numerous jurisdictions. Significant judgment is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Southchina Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

4.2 Estimated impairment of property, plant and equipment

Southchina Group assesses annually whether property, plant and equipment have any indication of impairment, in accordance with the accounting policy stated in Notes 2.4 and 2.5. The recoverable amounts of property, plant and equipment will be determined based on value-in-use calculations. These calculations require the use of judgement and estimates.

4.3 Estimated provision for doubtful debts

Southchina Group makes provision for doubtful debts based on an assessment of the recoverability of accounts receivable. Provisions are applied to accounts receivable where events or changes in circumstances indicate that the balances may not be collectible. The identification of doubtful debts requires the use of judgement and estimates. Where the expectation is different from the original estimate, such difference will impact carrying value of bills receivable and accounts receivable and doubtful debt expenses in the years/periods in which such estimate has been changed.

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APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

5. TURNOVER AND OTHER REVENUES

Southchina Group is principally engaged in the manufacturing of plastic moulds, plastics and electronics accessories. Revenues recognised during the Relevant Periods are as follows:

Turnover Sale of goods Other revenue Interest income	Six months Year ended 31 December ended 30 June 2002 2003 2004 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 48,354 58,998 98,461 48,056 52,064 25 18 11 4 4 48,379 59,016 98,472 48,060 52,068	Six months Year ended 31 December ended 30 June 2002 2003 2004 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 48,354 58,998 98,461 48,056 52,064 25 18 11 4 4 48,379 59,016 98,472 48,060 52,068
		52,068

6. SEGMENT INFORMATION

Segment information is presented in respect of Southchina Group’s business and geographical segments. Business segment information is chosen as the primary reporting format because this is more relevant to Southchina Group in making operating and financial decisions.

(a) Business segment

Southchina Group has been operating in one single business segment, namely the manufacturing of plastic moulds, plastic and electronics accessories.

(b) Geographical segment

In presenting information on the basis of geographical segments, segment revenue is based on the geographical presence of customers. Segment assets and capital expenditures are based on the geographical location of the assets.

Turnover Hong Kong PRC United States Europe Other countries	Six months Year ended 31 December ended 30 June 2002 2003 2004 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 28,502 34,011 50,743 29,796 23,847 9,800 13,819 17,594 7,672 11,802 9,786 10,531 17,780 4,532 11,261 266 69 4,796 2,010 2,809 – 568 7,548 4,046 2,345 48,354 58,998 98,461 48,056 52,064	Six months Year ended 31 December ended 30 June 2002 2003 2004 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 28,502 34,011 50,743 29,796 23,847 9,800 13,819 17,594 7,672 11,802 9,786 10,531 17,780 4,532 11,261 266 69 4,796 2,010 2,809 – 568 7,548 4,046 2,345 48,354 58,998 98,461 48,056 52,064
		52,064

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APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

Total Assets Hong Kong PRC Associate company Capital expenditures Hong Kong PRC	As 2002 HK$’000 – 5,578 5,578	As at As at 31 December 30 June 2002 2003 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 15,627 21,336 28,047 32,729 14,689 21,115 35,410 30,444 – – – 989 30,316 42,451 63,457 64,162 Six months Six months ended ended at 31 December 30 June 30 June 2003 2004 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 11 15 15 580 5,194 9,464 6,835 1,009 5,205 9,479 6,850 1,589	As at 30 June 2005 HK$’000 32,729 30,444 989
			64,162
			1,589

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APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

7. OPERATING PROFIT/(LOSS)

Operating profit/(loss) is stated after crediting and charging the following:

					Six months	Six months
	Year	ended 31 December			ended 30 June
	2002	2003	2004		2004	2005
	HK$’000	HK$’000	HK$’000		HK$’000	HK$’000
					(Unaudited)
Crediting:
Gain on disposal of investment
securities	–	–		136	136	–
Dividend received from available-
for-sale financial assets	–	–		–	–	519
Gain on disposal of property,
plant and equipment	–	–		97	–	111
Charging:
Depreciation
– Owned assets	2,619	3,771	4,197		1,836	1,952
– Finance lease assets	899	424	1,310		600	603
Staff costs (excluding directors’
emoluments)	7,966	10,061	13,978		6,671	7,724
Operating leases – land and buildings	1,514	1,877	1,947		997	980
Loss on disposal of property,
plant and equipment	35	–		–	–	–
Auditors’ remuneration	37	67		79	24	7
Net exchange loss	249	172		–	52	–
Bad debt written off	158	–		567	–	–

8. FINANCE COSTS

Interest on bank loans and overdrafts Interest element of finance leases wholly repayable within five years	Six months Year ended 31 December ended 30 June 2002 2003 2004 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 753 766 1,086 500 694 214 89 90 28 78 967 855 1,176 528 772	Six months Year ended 31 December ended 30 June 2002 2003 2004 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 753 766 1,086 500 694 214 89 90 28 78 967 855 1,176 528 772
		772

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APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

9. TAXATION

The amount of taxation charged to the consolidated profit and loss accounts represents:

Current taxation Hong Kong profits tax (Note (a)) Under provision in the prior year PRC enterprise income tax (Note (b)) Deferred taxation relating to the origination and reversal of temporary differences (Note 27) Taxation charge	Six months Year ended 31 December ended 30 June 2002 2003 2004 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) – 2 115 109 – – – 5 – – 161 251 334 142 206 286 28 172 – – 447 281 626 251 206	Six months Year ended 31 December ended 30 June 2002 2003 2004 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) – 2 115 109 – – – 5 – – 161 251 334 142 206 286 28 172 – – 447 281 626 251 206
		206

(a) Hong Kong profits tax

Hong Kong profits tax has been provided at the rate of 16% for the year ended 31 December 2002 and at the rate of 17.5% for the years ended 31 December 2003 and 2004 and for the six month ended 30 June 2005.

(b) PRC enterprise income tax

PRC enterprise income tax has been calculated on the estimated assessable profit at the rates of taxation prevailing in the PRC. Southchina’s subsidiary in the PRC, namely 南盈塑膠實業 (深 圳 )有限公司 (“南盈”), is subject to a standard income tax rate of 15% in accordance with the relevant tax laws applicable. Furthermore, 南盈 is entitled to full exemption from PRC income tax for the two years ended 31 December 2005, followed by a 50% reduction of PRC income tax (i.e. 7.5%) for the three years ending 31 December 2008.

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APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

The tax on Southchina Group’s profit before tax differs from the theoretical amount that would arise using the Hong Kong profit tax rate as follows:

Profit/(loss) before taxation Tax calculated at domestic tax rates applicable to profits in the respective countries Effect of different taxation rates in other countries Income not subject to taxation Expenses not deductible for taxation purposes Tax losses not recognised Utilisation of previously unrecognised tax losses Increase in opening net deferred tax liabilities resulting from an increase in tax rate Tax expense	Six months Year ended 31 December ended 30 June 2002 2003 2004 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 288 2,153 6,473 3,095 (1,315) 46 377 1,133 541 (230 163 258 272 149 192 (20) (415) (814) (497) (185) 233 15 35 17 429 25 45 – 41 – – (5) – – – – 6 – – – 447 281 626 251 206	Six months Year ended 31 December ended 30 June 2002 2003 2004 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 288 2,153 6,473 3,095 (1,315) 46 377 1,133 541 (230 163 258 272 149 192 (20) (415) (814) (497) (185) 233 15 35 17 429 25 45 – 41 – – (5) – – – – 6 – – – 447 281 626 251 206
		(230 192 (185) 429 – – –
		206

10. DIVIDENDS

No dividend has been paid or declared by Southchina since its incorporation.

11. STAFF COSTS (EXCLUDING DIRECTORS’ EMOLUMENTS)

Wage and salaries Unutilised annual leave Pension costs – defined contribution plans Staff welfare	Six months Year ended 31 December ended 30 June 2002 2003 2004 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 7,190 9,035 12,438 6,103 6,856 – – – – 50 102 89 109 73 42 674 937 1,431 495 776 7,966 10,061 13,978 6,671 7,724	Six months Year ended 31 December ended 30 June 2002 2003 2004 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 7,190 9,035 12,438 6,103 6,856 – – – – 50 102 89 109 73 42 674 937 1,431 495 776 7,966 10,061 13,978 6,671 7,724
		7,724

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APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

12. DIRECTORS’ EMOLUMENTS AND FIVE HIGHEST PAID INDIVIDUALS

(a) Directors’ emoluments

Southchina was incorporated on 3 September 1992. The aggregate amounts of emoluments paid and payable to the directors of Southchina during the Relevant Periods are as follows:

Salaries and allowance Discretionary bonuses Retirement benefit – defined contribution plans	Six months Year ended 31 December ended 30 June 2002 2003 2004 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 1,585 1,878 2,263 1,060 1,164 – – – – – 36 36 36 18 18 1,621 1,914 2,299 1,078 1,182	Six months Year ended 31 December ended 30 June 2002 2003 2004 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 1,585 1,878 2,263 1,060 1,164 – – – – – 36 36 36 18 18 1,621 1,914 2,299 1,078 1,182
		1,182

None of the directors of Southchina waived any emoluments paid by Southchina during the Relevant Periods.

The emoluments of each director for the Relevant Periods are set out below:

						Employer	Compensation
						contribution	for loss of
			Discretionary	Inducement	Other	to pension	office as
Name of Director	Fees	Salary	bonuses	fees	benefits(a)	scheme	director	Total
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Director/Years/Period ended
Mr. Ieong Kin San
30 June 2005	–	388	–	–	–	6	–	394
31 December 2004	–	900	–	–	–	12	–	912
31 December 2003	–	500	–	–	–	12	–	512
31 December 2002	–	500	–	–	–	12	–	512
Mr. Lam On Bon
30 June 2005	–	388	–	–	–	6	–	394
31 December 2004	–	800	–	–	–	12	–	812
31 December 2003	–	800	–	–	–	12	–	812
31 December 2002	–	500	–	–	–	12	–	512
Mr. Leung Hon Kwong
30 June 2005	–	388	–	–	–	6	–	394
31 December 2004	–	500	–	–	63	12	–	575
31 December 2003	–	500	–	–	78	12	–	590
31 December 2002	–	500	–	–	85	12	–	597

Mr. Lam Yin Kee did not receive any emoluments paid by Southchina during the Relevant Periods.

Note (a) Other benefits includes housing allowance.

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APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

(b) Five highest paid individuals

The five individuals whose emoluments were the highest in Southchina Group for the Relevant Periods include three directors whose emoluments are reflected in the analysis presented above. The emoluments payable to the remaining two individuals during the Relevant Periods are as follows:

Salaries and allowances Discretionary bonuses Retirement benefit – defined contribution plans	Six months Year ended 31 December ended 30 June 2002 2003 2004 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 812 885 686 306 429 – – – – – 24 24 24 10 12 836 909 710 316 441	Six months Year ended 31 December ended 30 June 2002 2003 2004 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 812 885 686 306 429 – – – – – 24 24 24 10 12 836 909 710 316 441
		441

The emoluments of these individuals fell within the following bands:

Number of individuals

Nil to HK$1,000,000	Six months Year ended 31 December ended 30 June 2002 2003 2004 2004 2005 (Unaudited) 2 2 2 2 2

• (c) During the Relevant Periods, no emoluments were paid by the Group to any of the above directors or the five highest paid individuals as an inducement to join or upon joining Southchina Group or as compensation for loss of office.

13. PENSION SCHEMES

Southchina Group has arranged for its Hong Kong employees to join the Mandatory Provident Fund Scheme (the “MPF Scheme”), a defined contribution scheme managed by an independent trustee. Under the MPF Scheme, each of the Hong Kong incorporated companies within Southchina Group and their employees makes monthly contributions to the scheme at 5% of the employees’ earnings up to a maximum of HK$1,000 per month per employee as defined under the Mandatory Provident Scheme Ordinances.

As stipulated by the rules and regulations in the PRC, Southchina Group contributes to a statesponsored retirement plan for its employees in the PRC as determined by the local governments, which is a defined contribution plan. Southchina Group and its employees contribute approximately 8% and 5%, respectively, of the salary as specified by the relevant local governments, and Southchina Group has no further obligations for the actual payment of pensions or post-retirement benefits beyond the annual contributions. The state-sponsored retirement plan is responsible for the entire pension obligations payable to retired employees.

For the years ended 31 December 2002, 2003 and 2004 and the six month period ended 30 June 2004, the aggregate amounts of Southchina Group’s contributions to the aforementioned pension schemes were approximately HK$138,000, HK$125,000, HK$145,000 and HK$60,000, respectively. As at 31 December 2002, 2003, 2004 and 30 June 2005, Southchina Group was not entitled to any forfeited contributions to reduce Southchina Group’s future contributions under the above schemes.

– 94 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

14. PROPERTY, PLANT AND EQUIPMENT

(a) Group

Buildings HK$’000 At 1 January 2002 Cost 556 Accumulated depreciation (14) Net book amount 542 Year ended 31 December 2002 Opening net book amount 542 Additions – Disposals (542) Depreciation – Closing net book amount – At 31 December 2002 Cost – Accumulated depreciation – Net book amount – Year ended 31 December 2003 Opening net book amount – Additions – Depreciation – Closing net book amount – At 31 December 2003 Cost – Accumulated depreciation – Net book amount –	Furniture and fixtures HK$’000 2,188 (1,679 ) 509 509 633 (3 ) (385 ) 754 2,753 (1,999 ) 754 754 106 (272 ) 588 2,859 (2,271 ) 588	Office equipment HK$’000 452 (227) 225 225 131 – (114) 242 583 (341) 242 242 112 (114) 240 695 (455) 240	Plant and machinery HK$’000 11,882 (7,449) 4,433 4,433 3,694 (36) (2,291) 5,800 14,970 (9,170) 5,800 5,800 4,175 (2,944) 7,031 19,145 (12,114) 7,031	Leasehold improvements HK$’000 2,089 (760 ) 1,329 1,329 1,120 – (619 ) 1,830 3,209 (1,379 ) 1,830 1,830 812 (756 ) 1,886 4,021 (2,135 ) 1,886	Motor vehicles HK$’000 545 (154) 391 391 – – (109) 282 545 (263) 282 282 – (109) 173 545 (372) 173	Total HK$’000 17,712 (10,283) 7,429 7,429 5,578 (581) (3,518) 8,908 22,060 (13,152) 8,908 8,908 5,205 (4,195) 9,918 27,265 (17,347) 9,918

– 95 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

Buildings HK$’000 Year ended 31 December 2004 Opening net book amount – Additions – Depreciation – Closing net book amount – At 31 December 2004 Cost – Accumulated depreciation – Net book amount – Period ended 30 June 2005 Opening net book amount – Additions – Depreciation – Closing net book amount – At 30 June 2005 Cost – Accumulated depreciation – Net book amount –	Furniture and fixtures HK$’000 588 120 (276 ) 432 2,979 (2,547 ) 432 432 44 (100 ) 376 3,023 (2,647 ) 376	Office equipment HK$’000 240 213 (143) 310 908 (598) 310 310 108 (66) 352 1,016 (664) 352	Plant and machinery HK$’000 7,031 8,651 (4,179) 11,503 27,796 (16,293) 11,503 11,503 860 (1,932) 10,431 28,656 (18,225) 10,431	Leasehold improvements HK$’000 1,886 495 (800 ) 1,581 4,516 (2,935 ) 1,581 1,581 241 (391 ) 1,431 4,757 (3,326 ) 1,431	Motor vehicles HK$’000 173 – (109) 64 545 (481) 64 64 336 (66) 334 881 (547) 334	Total HK$’000 9,918 9,479 (5,507) 13,890 36,744 (22,854) 13,890 13,890 1,589 (2,555) 12,924 38,333 (25,409) 12,924

Machinery includes the following amounts where Southchina Group is a lessee under finance leases:

Cost – capitalised finance leases Accumulated depreciation Net book amount	As at 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 4,499 2,123 6,538 (1,403) (913) (2,029) 3,096 1,210 4,509	As at 30 June 2005 HK$’000 6,042 (1,813) 4,229

– 96 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

(b) Company

Buildings HK$’000 At 1 January 2002 Cost 556 Accumulated depreciation (14) Net book amount 542 Year ended 31 December 2002 Opening net book amount 542 Additions – Disposals (542) Depreciation – Closing net book amount – At 31 December 2002 Cost – Accumulated depreciation – Net book amount – Year ended 31 December 2003 Opening net book amount – Additions – Depreciation – Closing net book amount – At 31 December 2003 Cost – Accumulated depreciation – Net book amount –	Furniture and fixtures HK$’000 2,120 (1,614 ) 506 506 633 – (385 ) 754 2,753 (1,999 ) 754 754 106 (272 ) 588 2,859 (2,271 ) 588	Office equipment HK$’000 452 (227) 225 225 113 – (110) 228 565 (337) 228 228 85 (105) 208 650 (442) 208	Plant and machinery HK$’000 11,276 (6,879) 4,397 4,397 3,694 (812) (2,141) 5,138 13,990 (8,852) 5,138 5,138 4,175 (2,793) 6,520 18,165 (11,645) 6,520	Leasehold improvements HK$’000 2,089 (760 ) 1,329 1,329 1,120 – (619 ) 1,830 3,209 (1,379 ) 1,830 1,830 812 (756 ) 1,886 4,021 (2,135 ) 1,886	Motor vehicles HK$’000 545 (154) 391 391 – – (109) 282 545 (263) 282 282 – (109) 173 545 (372) 173	Total HK$’000 17,038 (9,648) 7,390 7,390 5,560 (1,354) (3,364) 8,232 21,062 (12,830) 8,232 8,232 5,178 (4,035) 9,375 26,240 (16,865) 9,375

– 97 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

Buildings HK$’000 Year ended 31 December 2004 Opening net book amount – Additions – Depreciation – Closing net book amount – At 31 December 2004 Cost – Accumulated depreciation – Net book amount – Period ended 30 June 2005 Opening net book amount – Additions – Depreciation – Closing net book amount – At 30 June 2005 Cost – Accumulated depreciation – Net book amount –	Furniture and fixtures HK$’000 588 120 (276 ) 432 2,979 (2,547 ) 432 432 44 (100 ) 376 3,023 (2,647 ) 376	Office equipment HK$’000 208 192 (131) 269 842 (573) 269 269 108 (60) 317 949 (632) 317	Plant and machinery HK$’000 6,520 8,651 (4,029) 11,142 26,816 (15,674) 11,142 11,142 771 (1,848) 10,065 27,587 (17,522) 10,065	Leasehold improvements HK$’000 1,886 495 (800 ) 1,581 4,516 (2,935 ) 1,581 1,581 241 (391 ) 1,431 4,757 (3,326 ) 1,431	Motor vehicles HK$’000 173 – (109) 64 545 (481) 64 64 336 (66) 334 881 (547) 334	Total HK$’000 9,375 9,458 (5,345) 13,488 35,698 (22,210) 13,488 13,488 1,500 (2,465) 12,523 37,197 (24,674) 12,523

Machinery includes the following amounts where Southchina is a lessee under finance leases:

Cost – capitalised finance leases Accumulated depreciation Net book amount	As at 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 4,499 2,123 6,538 (1,403) (913) (2,029) 3,096 1,210 4,509	As at 30 June 2005 HK$’000 6,042 (1,813) 4,229

– 98 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

15. INTEREST IN SUBSIDIARIES

				Company	Company
						As at
		As at 31 December				30 June
		2002		2003	2004	2005
		HK$’000	HK$’000		HK$’000	HK$’000
Unlisted share, at cost		2,986	2,986		2,986	2,986
Particulars of the principal subsidiary are as follows:
	Place of	Principal		Particulars
	incorporations	activities		of issued		Direct
	and kind of	and place of		share		interest
Name	legal entity	operation		capital		held
南盈塑膠實業	PRC, wholly owned	Manufacturing of		Registered		100%
（深圳）有限公司	foreign enterprise	plastic	moulds,	capital of
	for a term of 10	plastic	and	HK$1,700,000
	years up to 2011	electronics
		accessories
		in PRC

Amounts due to subsidiaries are unsecured, non-interest bearing and repayable on demand.

16. INTEREST IN AN ASSOCIATED COMPANY

	Group
	As at 30 June
	2005
	HK$’000
Opening balance	–
Initial capital injection_(Note (a))_	1,200
Share of result of associated company
– loss before taxation	(211)
– taxation	–
Ending balance	989
Loan to an associated company_(Note (b))_	440
Due to an associated company_(Note (c))_	51
	Company
	As at 30 June
	2005
	HK$’000
Unlisted shares, at cost	1,200

– 99 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

Note:

• (a) The associated company, TSC Manufacturing Limited (“TSC”) was incorporated on 14 January 2005. A summary of assets, liabilities, revenues and net loss of TSC for the six months ended 30 June 2005, is as follows:

Particulars of issued Country of Net % Interest Name shares held incorporation Assets Liabilities Revenues loss held HK$’000 HK$’000 HK$’000 HK$’000 TSC 3,000,000 ordinary Hong Kong 7,944 4,373 1,008 529 40% shares of HK$1 each

• (b) The loan was provided to an associated company, TSC, for financing its acquisition of machinery. The balance is unsecured, bear interest at prime rate plus 1% and repayable on demand.

• (c) The outstanding balance with associated company is aged less than one year and is unsecured, noninterest bearing and with normal credit terms of 30 to 60 days.

17. INVENTORIES

(a) Group

Raw materials Work-in-progress Finished goods	As at 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 3,096 6,372 12,184 385 2,550 3,584 1,065 984 2,771 4,546 9,906 18,539	As at 30 June 2005 HK$’000 9,971 2,475 2,854
		15,300

(b) Company

Raw materials Work-in-progress Finished goods	As at 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 3,074 6,201 11,781 385 2,550 3,584 1,065 958 2,727 4,524 9,709 18,092	As at 30 June 2005 HK$’000 9,092 2,475 2,439
		14,006

– 100 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

18. ACCOUNT RECEIVABLES

Southchina Group’s and Company’s sales to corporate customers are entered into on credit terms ranging up to 90 days, except for certain worthy customers to whom longer credit period is allowed. The aging analysis of account receivables at the respective balance sheet dates is as follows:

(a) Group

0 – 30 days 31 – 60 days 61 – 90 days 91 – 120 days 121 – 365 days Over 365 days	As at 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 4,133 7,277 8,140 3,630 4,112 6,636 1,883 1,983 3,832 935 935 2,357 383 782 1,629 112 510 292 11,076 15,599 22,886	As at 30 June 2005 HK$’000 11,700 5,925 3,227 588 1,406 371
		23,217

(b) Company

0 – 30 days 31 – 60 days 61 – 90 days 91 – 120 days 121 – 365 days Over 365 days	As at 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 3,946 7,126 7,283 3,590 3,951 5,776 1,883 1,902 3,325 935 935 2,357 383 782 1,629 112 510 292 10,849 15,206 20,662	As at 30 June 2005 HK$’000 11,134 4,742 3,227 588 1,406 371
		21,468

– 101 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

19. AVAILABLE-FOR-SALE FINANCIAL ASSETS

Available-for-sale financial assets include the following:

	Group and	Group and
	Company
	As at	30 June
		2005
	HK$’000
Unlisted equity securities
Beginning of the period_(Note 20)_		3,729
Opening adjustment for the adoption of HKAS 39		(380)
Additions		–
Disposals		–
Fair value changes transfer to equity_(Note 25)_		(524)
End of the period		2,825

From 1 January 2005 onwards, Southchina Group reclassifies its investment securities as availablefor-sale financial assets upon adoption of HKAS 32 and HKAS 39. Unrealised gains and losses arising from changes in the fair value of non-monetary securities classified as available-for-sale are recognised in equity.

20. INVESTMENT SECURITIES

Investment securities include the following:

Unlisted equity securities_(Note 19)_	Group and Company As at 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 2,107 2,107 3,729	As at 30 June 2005 HK$’000 –

21. BANK BALANCE AND CASH

(a) Group

Bank balances and cash of approximately HK$765,000, HK$562,000, HK$328,000 and HK$496,000 as at 31 December 2002, 2003 and 2004 and 30 June 2005, respectively, were denominated in Renminbi and kept with banks in the PRC. The remittance of these funds out of the PRC is subject to the foreign exchange control restrictions imposed by the PRC government.

(b) Company

Bank balances and cash of approximately HK$146,000, HK$430,000, HK$229,000 and HK$366,000 as at 31 December 2002, 2003 and 2004 and 30 June 2005, respectively, were denominated in Renminbi and kept with banks in the PRC. The remittance of these funds out of the PRC is subject to the foreign exchange control restrictions imposed by the PRC government.

– 102 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

22. ACCOUNT PAYABLES

The ageing analysis of the account payables at the respective balance sheet dates is as follows:

(a) Group

0–30 days 31–60 days 61–90 days 91–120 days 121–365 days Over 365 days	As at 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 1,772 5,033 3,330 1,623 3,024 4,959 826 1,181 2,522 327 1,426 1,610 343 141 3,468 – 13 38 4,891 10,818 15,927	As at 30 June 2005 HK$’000 8,061 3,308 1,407 842 506 138
		14,262

(b) Company

0–30 days 31–60 days 61–90 days 91–120 days 121–365 days Over 365 days	As at 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 1,760 4,901 3,159 1,614 2,915 4,755 826 1,181 2,398 327 1,426 1,587 343 140 3,028 – 13 36 4,870 10,576 14,963	As at 30 June 2005 HK$’000 7,472 2,786 1,405 817 503 136
		13,119

– 103 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

23. DUE FROM/(TO) DIRECTORS

The balances due from/(to) directors are unsecured, non-interest bearing and were fully repayable within one year. Disclosure pursuant to section 161B of the Hong Kong Companies Ordinance, in respect of the amounts due from directors, are as follows:

(a) Group

Mr. Ieong Kin San Mr. Lam On Bon Mr. Leung Hon Kwong Company Mr. Ieong Kin San Mr. Lam On Bon Mr. Leung Hon Kwong	Maximum amount outstanding Balance during the as at period 2002 2002 HK$’000 HK$’000 – – 30 272 190 432 220 704 Maximum amount outstanding Balance during the as at period 2002 2002 HK$’000 HK$’000 – – – 190 – 190 – 380	Maximum amount outstanding Balance during the as at period 31 December 2003 2003 HK$’000 HK$’000 343 343 – 112 208 450 551 905 Maximum amount outstanding Balance during the as at period 31 December 2003 2003 HK$’000 HK$’000 343 343 – 208 – 30 343 581	Maximum amount outstanding Balance during the as at period 2004 2004 HK$’000 HK$’000 548 658 – 431 203 766 751 1,855 Maximum amount outstanding Balance during the as at period 2004 2004 HK$’000 HK$’000 548 658 – 524 – 348 548 1,530	Maximum amount outstanding Balance during the as at period 30 June 2005 2005 Term HK$’000 HK$’000 512 708 Unsecured, non-interest bearing and repayable on demand 618 812 Unsecured, non-interest bearing and repayable on demand 157 603 Unsecured, non-interest bearing and repayable 1,287 2,123 on demand Maximum amount outstanding Balance during the as at period 30 June 2005 2005 Term HK$’000 HK$’000 512 708 Unsecured, non-interest bearing and repayable on demand 535 535 Unsecured, non-interest bearing and repayable on demand – 729 Unsecured, non-interest bearing and repayable 1,047 1,972 on demand

(b) Company

– 104 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

24. SHARE CAPITAL

Authorised, issued and fully paid shares capital Number of shares HK$’000

As at 31 December 2002, 2003 and 2004 and 30 June 2005 (Ordinary shares of HK$1 each)

1,000,000 1,000

25. RESERVES

(a) Group

Available-for- sale financial assets reserve HK$’000 At 1 January 2002 – Profit for the year – At 31 December 2002 – Profit for the year – At 31 December 2003 – Profit for the year – At 31 December 2004 – Opening adjustment for the adoption of HKAS 39_(Note 19) – At 1 January 2005, as restated – Profit for the period – Fair value changes for available- for-sale financial assets(Note 19)_ (524) At 30 June 2005 (524)	Retained earnings HK$’000 3,146 (159) 2,987 1,872 4,859 5,847 10,706 (380) 10,326 (1,521) – 8,805	Total HK$’000 3,146 (159) 2,987 1,872 4,859 5,847 10,706 (380) 10,326 (1,521) (524) 8,281

– 105 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

(b) Company

Available-for- sale financial assets reserve HK$’000 At 1 January 2002 – Profit for the year – At 31 December 2002 – Profit for the year – At 31 December 2003 – Profit for the year – At 31 December 2004 – Opening adjustment for the adoption of HKAS 39 (–) (–) Profit for the period – Fair value change for available- for-sale financial assets_(Note 19)_ (524) At 30 June 2005 (524)	Retained earnings HK$’000 4,087 496 4,583 2,626 7,209 4,042 11, 251 (380) 10,871 (1,457) – 9,414	Total HK$’000 4,087 496 4,583 2,626 7,209 4,042 11,251 (380) 10,871 (1,457) (524) 8,890

26. BORROWINGS

Bank loans – secured_(Note 30)_ Obligations under finance leases Total borrowings, wholly repayable within five years Current portion of borrowings	Group and Company As at 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 3,361 2,585 4,534 2,366 1,224 2,952 5,727 3,809 7,486 (3,701) (3,353) (4,990) 2,026 456 2,496	As at 30 June 2005 HK$’000 7,785 3,212 10,997 (4,835) 6,162

– 106 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

Southchina Group’s and Company’s bank loans were repayable as follows:

Within one year In the second year In the third to fifth year	As at 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 2,166 2,425 3,678 1,195 160 856 – – – 3,361 2,585 4,534	As at 30 June 2005 HK$’000 3,392 3,904 489
		7,785

Southchina Group’s and Company’s finance lease liabilities were repayable as follows:

Within one year In the second year In the third to fifth year Future finance charges on finance lease Present value of finance lease liabilities The present value of finance lease liabilities is as follows: Within one year In the second year In the third to fifth year	As at 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 1,617 963 1,405 660 299 1,106 198 – 588 2,475 1,262 3,099 (109) (38) (147) 2,366 1,224 2,952 1,535 928 1,312 635 296 1,059 196 – 581 2,366 1,224 2,952	As at 30 June 2005 HK$’000 1,560 1,508 342
		3,410 (198
		3,212
		1,443 1,449 320
		3,212

The effective interest rates at the balance sheet date were as follows:

				As at
	As at	31 December		30 June
	2002	2003	2004	2005
Bank loans	8.8%	6.4%	5.2%	5.7%
Obligations under financial lease	5.2%	4.5%	4.2%	5.4%

– 107 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

27. DEFERRED TAXATION

Deferred taxation is calculated in full on temporary differences under the liability method using a principal taxation rate of 16% for the year ended 31 December 2002 and at a rate of 17.5% for the years ended 31 December 2003 and 2004 and for the six months ended 2005.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority. The offset amounts are as follows:

Deferred tax assets: – Deferred tax asset to be recovered after more than 12 months – Deferred tax asset to be recovered within 12 months Deferred tax liabilities: – Deferred tax liabilities to be recovered after more than 12 months	Group and Company As at As at 31 December 30 June 2002 2003 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 – – 70 70 49 – – – 49 – 70 70 ----------- ----------- ----------- ----------- (417) (396) (638) (638 ----------- ----------- ----------- ----------- (368) (396) (568) (568	Group and Company As at As at 31 December 30 June 2002 2003 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 – – 70 70 49 – – – 49 – 70 70 ----------- ----------- ----------- ----------- (417) (396) (638) (638 ----------- ----------- ----------- ----------- (368) (396) (568) (568
		70 ----------- (638 ----------- (568

The movement on the deferred income tax account is as follows:

Beginning of the year/period Recognised in the profit and loss account End of the year/period	Group and Company As at 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 82 368 396 286 28 172 368 396 568	As at 30 June 2005 HK$’000 568 –
		568

– 108 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

The movement in deferred tax assets and liabilities during the year/period, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows:

Deferred tax assets:

At 1 January 2002 Recognised in the profit and loss account At 31 December 2002 Recognised in the profit and loss account At 31 December 2003 Recognised in the profit and loss account At 31 December 2004 Recognised in the profit and loss account At 30 June 2005 Deferred tax liabilities: At 1 January 2002 Recognised in the profit and loss account At 31 December 2002 Recognised in the profit and loss account At 31 December 2003 Recognised in the profit and loss account At 31 December 2004 Recognised in the profit and loss account At 30 June 2005

Group and Company Tax losses Other Total HK$’000 HK$’000 HK$’000 (105) – (105) 56 – 56 (49) – (49) 49 – 49 – – – – (70) (70) – (70) (70) – – – – (70) (70) Group and Company Accelerated tax depreciation HK$’000 187 230 417 (21) 396 242 638 – 638

– 109 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

28. DUE TO A SHAREHOLDER

The loan was advanced from Alltronics Tech, Mftg. Limited, a beneficial shareholder of Southchina. It was unsecured, non-interest bearing and repayable on demand.

29. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENTS

• (a) Reconciliation of profit before taxation to net cash inflow/(outflow) generated from operations

Operating profit Interest income Dividend received from available-for-sale financial assets Loss on disposal of property, plant and equipment Depreciation Gain on disposal of investment securities Operating profit before working capital change Increase in accounts receivable (Increase)/decrease in prepayments, deposits and other receivables (Increase)/decrease in inventories Decrease/(increase) in due from directors Increase in due from an associated company (Decrease)/increase in due to directors Increase in amounts due to associated company Increase/(decrease) in due to shareholder Increase/(decrease) in accounts payable Increase/(decrease) in accruals and other payables Net cash inflow/(outflow) generated from operations	Year 2002 HK$’000 1,255 (25) – 35 3,518 – 4,783 (6,258) (79) (1,549) 104 – (1,322) – 3,791 3,789 975 4,234	Six months ended 31 December ended 30 June 2003 2004 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 3,008 7,649 3,623 (332) (18) (11) (4) (4) – – – (519) – – – – 4,195 5,507 2,436 2,555 – (136) (136) – 7,185 13,009 5,919 1,700 (4,523) (7,287) (7,020) (331) (173) (43) 28 (49) (5,360) (8,633) (2,409) 3,239 (331) (200) (812) (536) – – – (440) (6) 115 (46) (161) – – – 51 613 6,583 1,663 (3,115) 5,927 5,108 4,307 (1,665) 1,350 (1,863) (588) 769 4,682 6,789 1,042 (538)

– 110 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

(b) Analysis of changes in financing during the Relevant Periods

At the beginning of the year/period Net cash (outflow)/inflow from financing Inception of finance lease	Bank loans and obligation under finance leases Six months Year ended 31 December ended 30 June 2002 2003 2004 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 9,805 10,736 10,221 10,221 13,601 (1,838) (1,098) 264 3,245 2,614 2,769 583 3,116 1,677 1,218 10,736 10,221 13,601 15,143 17,433	Bank loans and obligation under finance leases Six months Year ended 31 December ended 30 June 2002 2003 2004 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 9,805 10,736 10,221 10,221 13,601 (1,838) (1,098) 264 3,245 2,614 2,769 583 3,116 1,677 1,218 10,736 10,221 13,601 15,143 17,433
		17,433

30. BANKING FACILITIES

As at 30 June 2005, Southchina Group’s total available banking facilities were approximately HK$46,500,000. Unused facilities as at the same date amounted to approximately HK$17,682,000. These facilities were secured by the following:

• (a) joint and several guarantees from the directors, Mr. Lam Yin Kee, Mr. Ieong Kin San, Mr. Leung Hon Kwong and Mr. Lam On Bong.

• (b) pledge of Southchina Group’s fixed deposits of approximately HK$2,335,000, HK$2,450,000; HK$2,448,000 and HK$4,848,000 as at 31 December 2002, 2003 and 2004 and 30 June 2005; respectively. The effective interest rates on fixed deposit are approximately 0.9%, 0.4%, 0.5% and 1.8% as at 31 December 2002, 2003 and 2004 and 30 June 2005 respectively, the average maturity period for these deposits ranging from 90 days to 94 days.

• (c) available-for-sales financial assets held by Southchina Group with carrying value of approximately HK$2,107,000, HK$2,107,000; HK$3,729,000 and HK$2,825,000 as at 31 December 2002, 2003 and 2004 and 30 June 2005, respectively.

• (d) the effective interest rates on bills payable and trust receipt loans are 5.6%, 5.6%, 5.6% and 5.5% as at 31 December 2002, 2003 and 2004 and 30 June 2005 respectively.

• (e) the effective interest rates on bank overdraft are 5.9%, 5.4%, 5.8% and 5.8% as at 31 December 2002, 2003 and 2004 and 30 June 2005 respectively.

31. CONTINGENT LIABILITIES

As at 31 December 2002, 2003 and 2004 and 30 June 2004 and 2005, Southchina Group had no material contingent liabilities.

– 111 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

32. COMMITMENTS UNDER OPERATING LEASES

Southchina Group had future aggregate minimum lease payments under non-cancellable operating leases of land and buildings as at 31 December 2002, 2003 and 2004 and 30 June 2005 as follows:

Not later than one year Later than one year and not later than five years	As at 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 1,438 1,624 1,747 2,786 2,822 3,228 4,224 4,446 4,975	As at 30 June 2005 HK$’000 1,740 2,679
		4,419

33. RELATED PARTY TRANSACTIONS

• (i) Southchina is held by Mr. Ieong Kin San, Mr. Leung Hon Kwong, Mr. Lam On Bong and Alltronics Tech. Mftg. Limited (“Alltronics”) as to 20%, 20%, 35% and 25% respectively during the Relevant Periods.

During the Relevant Periods, Southchina Group entered into the following significant transactions with related parties:

Sales to a shareholder, Alltronics_(Note (a)) Mould expenses charged to Alltronics Processing fee paid to TSC(Note (b))_	Six months Year ended 31 December ended 30 June 2002 2003 2004 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 9,556 19,122 23,264 12,597 13,245 1,839 3,997 1,664 693 449 – – – – 434

• (a) Alltronics held 25% equity interest in Southchina.

• (b) TSC is a 40% owned associated company of the Company engaging in the manufacturing of plastic accessories and mould making technology development.

In the opinion of directors of Southchina, the above related party transactions were carried out in the normal course of business and at normal commercial terms or terms negotiated between Southchina Group and the respective related parties.

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APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

• (ii) The trading balances set out below with Alltronics are included within the relevant balance sheets items:

Account receivables Account payables	As at 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 2,088 2,955 3,430 450 – –	As at 30 June 2005 HK$’000 5,620 –

The outstanding balances are unsecured, interest-free and have no fixed terms of repayment.

(iii) Key management compensation (including directors’ emolument):

Wages and salaries Pension costs – defined contribution plans	Six months Year ended 31 December ended 30 June 2002 2003 2004 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 1,585 1,878 2,267 1,060 1,164 36 36 36 18 18 1,621 1,914 2,303 1,078 1,182

34. PROFIT/(LOSS) ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY

Profit/(loss) attributable to equity holders of the Company dealt with in the financial statements of the Company	Six months Year ended 31 December ended 30 June 2002 2003 2004 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 496 2,626 4,042 2,799 (1,669

35. SUBSEQUENT EVENTS

Apart from those disclosed in notes of this report, there is no significant event taken place subsequent to 30 June 2005 and up to the date of this report.

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APPENDIX II ACCOUNTANTS’ REPORT ON THE SOUTHCHINA GROUP

III. SUBSEQUENT ACCOUNTS

No audited financial statements have been prepared for Southchina or any of the companies comprising Southchina Group in respect of any period subsequent to 30 June 2005. No dividend or distribution has been declared, made or paid by Southchina or its subsidiaries in respect of any period subsequent to 30 June 2005.

Yours faithfully, PricewaterhouseCoopers Certified Public Accountants Hong Kong

– 114 –

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

1. UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES OF THE ENLARGED GROUP

The accompanying unaudited pro forma statement of assets and liabilities of the Enlarged Group has been prepared to illustrate the effect of the Group’s proposed acquisition of 26% interest in Southchina for a total consideration of HK$8,300,000, which shall be payable in cash financed from internal resources of the Group.

The unaudited pro forma statement of assets and liabilities of the Enlarged Group gives effect to the above acquisition as if they have consummated on 30 June 2005 and is prepared based on historical financial information as set out in the accountants’ report on Southchina Group set out in Appendix II of this circular and the unaudited consolidated financial statements of the Group for the six months ended 30 June 2005 after giving effect to the pro forma adjustments described in the accompanying notes.

The unaudited pro forma statement of assets and liabilities of the Enlarged Group was prepared for illustrative purposes only and because of its nature, it may not give a true picture of the financial position of the Enlarged Group for any future financial periods.

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PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

The Group as at 30 June 2005 HK$’000 (Unaudited) Non-current assets Property, plant and equipment 29,251 Leasehold land and land use rights 2,247 Interest in associated companies 7,002 Available-for-sale financial assets – Goodwill – 38,500 ---------- Current assets Inventories 45,190 Accounts receivable 47,136 Prepayments, deposits and other receivables 4,846 Due from ultimate holding company 29 Due from an associated company 4,000 Due from a related company 3,819 Due from directors – Tax recoverable – Financial assets at fair value through profit/loss 7,992 Pledged bank deposits 17,557 Bank balances and cash 26,776 157,345 ---------- Current liabilities Accounts payable 27,891 Accruals and other payables 5,084 Due to an associated company 5,620 Due to shareholders – Taxation payable 19,292 Current portion of borrowings 3,146 Bills payable, secured 38,062 Trust receipt loans, secured – Bank overdrafts, secured 21,476 120,571 ---------- Net current assets/(liabilities) 36,774 ---------- Total assets less current liabilities 75,274 Non-current liabilities Long-term liabilities (767) Deferred taxation (991) 73,516 Minority interests – Total net assets attributable to equity shareholders 73,516		Pro forma adjustments Consolidation entries HK$’000 Note HK$’000 Note (3,993) 2(e) (3,009) 2(e) 3,993 2(e) 5,888 2(e) (5,620) 2(c) (4,000) 2(b) (1,287) 2(d) (8,300) 2(a) (5,620) 2(c) (4,000) 2(b) (3,261) 2(d), (e) & (f)	Pro forma adjusted The Enlarged Group HK$’000 (Unaudited) 42,175 2,247 989 2,825 9,881 58,117 ---------- 60,490 64,733 5,401 29 440 3,819 – 61 7,992 22,405 20,192 185,562 ---------- 42,153 8,100 51 – 20,246 7,981 45,934 2,436 32,201 159,102 ---------- 26,460 ---------- 84,577 (6,929) (1,559) 76,089 (3,261) 72,828
	Assets and liabilities of Southchina Group as at 30 June 2005 HK$’000 12,924 – 989 2,825 – 16,738 ---------- 15,300 23,217 555 – 440 – 1,287 61 – 4,848 1,716 47,424 ---------- 14,262 3,016 51 4,000 954 4,835 7,872 2,436 10,725 48,151 ---------- (727) ---------- 16,011 (6,162) (568) 9,281 – 9,281

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PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Notes to the unaudited pro forma statement of assets and liabilities of the Enlarged Group:

1. The Hong Kong Institute of Certified Public Accountants has issued a number of new and revised Hong Kong Financial Reporting Standards and Hong Kong Accounting Standards and Interpretations (collectively the “new HKFRS”) which are effective for accounting periods beginning on or after 1 January 2005. The unaudited consolidated balance sheet of the Group as of 30 June 2005 has been restated to reflect the impacts of the adoption of the new HKFRS. The audited consolidated balance sheet of Southchina Group as of 30 June 2005 has been prepared in accordance with the new HKFRS, which is consistent with the accounting policies adopted by the Group in preparing its unaudited consolidated balance sheet as of 30 June 2005.

2. The pro forma adjustments, derived using the accounting policies as adopted in the unaudited consolidated financial statements of the Group as at and for the six months ended 30 June 2005, reflect the following:

3. (a) Being the consideration for the Transaction amounting to HK$8,300,000. The consideration shall be payable in cash financed from internal resources of the Group.

4. (b) Being the elimination of the inter-group loan of HK$4,000,000 made by the Group to Southchina.

5. (c) Being the elimination of the inter-group trade balance between the Group and Southchina Group.

6. (d) Being the reclassification of amounts due from the minority shareholders of Southchina.

7. (e) Being the elimination of the Group’s investment in the 51% interest in Southchina. The goodwill represents (i) the difference of approximately HK$5,888,000 between the consideration for the Transaction amounting to HK$8,300,000 as set out in note (a) above and the net asset value of approximately HK$2.4 million attributable to the 26% interest in Southchina to be acquired, based on the audited consolidated balance sheet of Southchina as at 30 June 2005 set out in Appendix II of this circular, and (ii) the carrying net book amount of goodwill of approximately HK$3,993,000 arising on the acquisition of 25% equity interest in Southchina in 2001. Since Southchina will change its status from an associate of the Group into a subsidiary pursuant to the Transaction, the goodwill previously recognised and included in interest in an associate will be reclassified and included as a seperate line in goodwill on the balance sheet. For the purpose of calculating goodwill arising from the Transaction and preparing the unaudited pro forma statement of assets and liabilities of the Enlarged Group, the directors of the Company have taken into account the fair values of the assets and liabilities of Southchina Group as at 30 June 2005. However, the fair values of the assets and liabilities may be substantially different from such amounts used in the preparation of the unaudited pro forma statement of assets and liabilities above. Accordingly, the actual goodwill arising from the transaction may be different from that shown above.

8. (f) Being the interests of the minority shareholders in Southchina Group as of 30 June 2005 of approximately HK$3,261,000.

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APPENDIX III PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

2. LETTER ON UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES OF THE ENLARGED GROUP

The following is the text of a letter from PricewaterhouseCoopers, the auditors of the Company in respect of the unaudited pro forma statement of assets and liabilities of the Enlarged Group.

羅兵咸永道會計師事務所

PricewaterhouseCoopers 22nd Floor, Prince�s Building Central, Hong Kong

13 December 2005

The Directors Alltronics Holdings Limited

Dear Sirs,

We report on the unaudited pro forma statement of assets and liabilities set out in Section 1 of Appendix III of the circular (the “Circular”) of Alltronics Holdings Limited (the “Company”), dated 13 December 2005 in connection with the proposed acquisition by Alltronics Tech. Mftg. Limited, a wholly-owned subsidiary of the Company, of an aggregate of 26% equity interest in Southchina Engineering and Manufacturing Limited (“the Acquisition”). The unaudited pro forma statement of assets and liabilities has been prepared by the directors of the Company, for illustrative purposes only, to provide information about how the Acquisition might have affected the relevant financial information of the Company and its subsidiaries (hereinafter collectively referred to as “the Group”) as at 30 June 2005.

Responsibilities

It is the responsibility solely of the directors of the Company to prepare the unaudited pro forma statement of assets and liabilities in accordance with paragraph 14.67 and paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”).

It is our responsibility to form an opinion, as required by paragraph 4.29 of the Listing Rules, on the unaudited pro forma statement of assets and liabilities and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the unaudited pro forma statement of assets and liabilities beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

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PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Basis of opinion

We conducted our work with reference to the Statements of Investment Circular Reporting Standards and Bulletin 1998/8 “Reporting on pro forma financial information pursuant to the Listing Rules” issued by the Auditing Practices Board in the United Kingdom, where applicable. Our work, which involved no independent examination of any of the underlying financial information, consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments and discussing the unaudited pro forma statement of assets and liabilities with the directors of the Company.

Our work does not constitute an audit or review in accordance with Statements of Auditing Standards issued by the Hong Kong Institute of Certified Public Accountants, and accordingly, we do not express any such assurance on the unaudited pro forma statement of assets and liabilities.

The unaudited pro froma statement of assets and liabilities has been prepared on the basis set out on Appendix I Section II of the Circular for illustrative purposes only and, because of its nature, it may not be indicative of the financial position of the Enlarged Group following the completion of the acquisition, as at 30 June 2005 or at any future date.

Option

In our opinion:

• (a) the unaudited pro forma statement of assets and liabilities has been properly compiled by the directors of the Company on the basis stated;

• (b) such basis is consistent with the accounting policies of the Group; and

• (c) the adjustments are appropriate for the purposes of the unaudited pro forma statement of assets and liabilities as disclosed pursuant to paragraph 4.29 of the Listing Rules.

Yours faithfully, PricewaterhouseCoopers Certified Public Accountants Hong Kong

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PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

3. WORKING CAPITAL STATEMENT

The Directors are of the opinion that taking into account the available facilities and internal resources of the Enlarged Group and in the absence of unforeseeable circumstances, the Enlarged Group will have sufficient working capital for its requirements currently and for the period ending 12 months from the date of this circular.

4. INDEBTEDNESS STATEMENT

(a) Borrowings

At the close of business on 31 October 2005, being the latest practicable date for the purpose of this indebtedness statement, the Enlarged Group had total outstanding borrowings of approximately HK$46.3 million, comprising bank overdrafts of approximately HK$34.6 million, bank loans of approximately HK$8.5 million and finance lease payable of approximately HK$3.2 million.

(b) Security

As of 31 October 2005, the outstanding borrowings of approximately HK$14.3 million of the Enlarged Group were secured by bank deposits and financial assets of approximately HK$4.9 million and HK$2.8 million respectively.

(c) Contingent liabilities

As of 31 October 2005, the Enlarged Group did not have any material contingent liabilities.

(d) Capital commitments

As of 31 October 2005, the Enlarged Group had capital commitments for property, plant and equipment of approximately HK$45.2 million.

Disclaimer

Save as aforesaid or otherwise disclosed herein, and apart from intra-group liabilities, none of the companies in the Enlarged Group had, at the close of business on 31 October 2005, any other loans debt securities or similar borrowings or indebtedness in the nature of borrowing whether secured or unsecured, any mortgages, charges or debenture, loan capital issued and outstanding or agreed to be issued, bank overdrafts, or hire purchase commitment, liabilities under acceptances or acceptances credits or any guarantees or other material contingent liabilities.

5. NO MATERIAL CHANGES

The Directors have confirmed that save as disclosed above, there has been no material change in the indebtedness, commitments or contingent liabilities of the Enlarged Group since 31 October 2005 and up to the Latest Practicable Date.

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GENERAL INFORMATION

APPENDIX IV

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, there are no other facts not contained herein the omission of which would make any statement herein misleading.

2. DISCLOSURE OF INTERESTS

• (a) As at the Latest Practicable Date, the interests and short positions of the Directors or chief executives of the Company in the shares, underlying shares and debentures of the Company or any associated corporation (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which any such Director or chief executive was taken or deemed to have under such provisions of the SFO) or which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein or which were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies contained in the Listing Rules, to be notified to the Company and the Stock Exchange were as follows:

(i) The Company

			Percentage of
			issued
			share capital
			of the relevant
	Nature of	Number of	company
Name	interests	shares	(approximate)
Lam Yin Kee	Corporate interest	210,000,000	70.00%
	(Note 1)	Shares (L)
Yeung Po Wah	Family interest	210,000,000	70.00%
	(Note 1)	Shares (L)
Toshio Daikai	Personal	801,000	0.27%
		Shares (L)

(L) denotes the long position held in the shares.

• Note 1: These Shares are held by Profit International Holdings Limited, which is 95% beneficially owned by Mr. Lam Yin Kee (“Mr. Lam”) and 5% beneficially owned by Ms. Yeung Po Wah (“Mrs. Lam”). Mr. Lam is deemed to be interested in the 210,000,000 Shares held by Profit International Holdings Limited under Part XV of the SFO. Mrs. Lam is the spouse of Mr. Lam and is deemed to be interested in the 210,000,000 Shares held by Profit International Holdings Limited under Part XV of the SFO.

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GENERAL INFORMATION

APPENDIX IV

(ii) Profit International Holdings Limited

			Percentage of
			issued
			share capital
			of the relevant
	Nature of	Number of	company
Name	interests	shares	(approximate)
Lam Yin Kee	Personal interest	950 shares (L)	95.00%
Yeung Po Wah	Personal interest	50 shares (L)	5.00%
	(Note 1)

(L) denotes the long position held in the shares.

Note: Profit International Holdings Limited beneficially holds 210,000,000 Shares, representing 70% of the issued share capital of the Company.

Save as disclosed herein, as at the Latest Practicable Date, none of the Directors nor chief executives of the Company had or was deemed to have any interests and short positions in the shares, underlying shares and debentures of the Company or any associated corporation (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which any such Director or chief executive was taken or deemed to have under such provisions of the SFO) or which were required, pursuant to section 352 of the SFO to be entered in the register referred to therein or which were required pursuant to the Model Code for Securities Transactions by Directors of Listed Companies contained in the Listing Rules to be notified to the Company and the Stock Exchange.

(b) Directors’ interest in assets of the Group

As at the Latest Practicable Date, none of the Directors had any interest, direct or indirect, in any assets which had been acquired or disposed of by or leased to any member of the Group or were proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2004, the date to which the latest published audited consolidated financial statements of the Group were made up.

(c) Directors’ interest in contracts of the Group

The Group has rented a quarter as directors’ accommodation from Profit Home Investments Limited (“Profit Home”) at a monthly rental of HK$80,000. Ms. Yeung Po Wah holds 60% of the shareholding and is a director of Profit Home.

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GENERAL INFORMATION

APPENDIX IV

The Group has been selling aroma ionizers to Maruman Products Co., Limited (“Maruman”) and total sales by the Group to Maruman for the two years ended 31 December, 2003 and 2004 were approximately HK$13.7 million and HK$21.1 million respectively, representing approximately 5.4% and 7.2% of the total sales of the Group for the relevant periods. Maruman is a private limited company incorporated in Japan and is owned as to 24.7% by Mr. Lam Yin Kee. The principal activities of Maruman is trading in general merchandise.

Save as mentioned above, none of the Directors was materially interested in any contract or arrangement subsisting as at the Latest Practicable Date and which was significant in relation to the business of the Group.

(d) Directors’ interest in competing business

As at the Latest Practicable Date, none of the Directors or their respective associates had any interests in business which competes or is likely to compete, either directly or indirectly, with the business of the Group as required to be disclosed pursuant to the Listing Rules.

3. SUBSTANTIAL SHAREHOLDERS AND SHAREHOLDERS HOLDING 5% OR MORE INTERESTS IN SHARES

• (a) So far as is known to the Directors or chief executives of the Company, the following persons (other than a Director or chief executive of the Company or a member of the Group) had an interest or short position in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or, who were, directly or indirectly interested in 5% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group or had any option in respect of such capital as at the Latest Practicable Date:

				Percentage of
	Name of company			issued share capital
	in which interests			of the relevant
	or short positions	Nature of	Number of	company
Name	were held	interests	shares	(approximate)
Profit	The Company	Beneficial	210,000,000	70.00%
International		interests	Shares (L)
Holdings		(Note 1)
Limited

(L) denotes the long position held in the shares.

• Note 1: Profit International Holdings Limited is 95% beneficially owned by Mr. Lam Yin Kee (“Mr. Lam”), the Chairman of the Board and 5% beneficially owned by Ms. Yeung Po Wah, an executive Director and the spouse of Mr. Lam.

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GENERAL INFORMATION

APPENDIX IV

Save as disclosed herein, so far as is known to the Directors or chief executives of the Company, no person (other than a Director or chief executive of the Company or a member of the Group) had an interest or short position in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who was, directly or indirectly interested in 5% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group or had any option in respect of such capital as at the Latest Practicable Date.

4. DIRECTORS’ SERVICE CONTRACTS

Each of the executive Directors entered into a service contract with the Company commencing on 15 July 2005 for a fixed term of 3 years and would continue thereafter unless and until terminated by, among others, either party giving to the other not less than three calendar months’ prior notice in writing. Under the service contracts, each of Mr. Lam Yin Kee, Ms. Yeung Po Wah, Mr. Toshio Daikai and Mr. William Peter Shelley is entitled to monthly salaries of HK$140,000, HK$46,000, HK$60,000 and HK$59,142 respectively. The remuneration payable to each of the executive Directors may, subject to the discretion of the Board, be increased after each completed year of service provided that such increase shall not be more than 10% of the annual salary immediately prior to such increase, and the executive Directors will each be entitled to a discretionary bonus of such amount as the Board may determine provided that the total amount of bonus payable to all the executive Directors for any financial year shall not exceed 10% of the combined/consolidated profit after taxation but before extraordinary items of the Group for the relevant financial year. In addition, the Group provides accommodation to Mr. Lam Yin Kee at a monthly rental of HK$80,000. The Group also provides directors accommodation to Mr. Toshio Daikai at a monthly rental of HK$11,000 and housing allowance to Mr. William Peter Shelley in the amount of HK$12,000 per month.

The non-executive Director and the independent non-executive Directors have been appointed by the Company for an initial term of 1 year commencing from 17 June 2005 and such appointment shall continue thereafter year to year until terminated by either party with 1 month’s notice in writing served on the other. Each of Mr. Fan, William Chung Yue, Mr. Barry John Buttifant, Mr. Leung Kam Wah and Ms. Yeung Chi Ying is entitled to an annual fee of HK$240,000.

5. EXPERTS

• (a) The followings are the qualifications of the experts who have given opinions or advice which are contained in this circular.

Name Qualification GFE Law Office PRC Lawyer PricewaterhouseCoopers Certified public accountants

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GENERAL INFORMATION

APPENDIX IV

• (b) As at the Latest Practicable Date, neither, GFE Law Office nor PricewaterhouseCoopers had any shareholding directly or indirectly in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for any securities in any member of the Group.

• (c) As at the Latest Practicable Date, neither, GFE Law Office nor PricewaterhouseCoopers had any direct or indirect interest in any assets which had been acquired or disposed of by, or leased to, or which were proposed to be acquired or disposed of by, or leased to, any member of the Group since 31 December 2004, the date to which the latest published audited consolidated financial statements of the Group were made up.

• (d) GFE Law Office and PricewaterhouseCoopers have given and have not withdrawn their written consents to the issue of this circular with inclusion of their respective letters or reports (as the case may be) and references to their names in the form and context in which they respectively appear.

6. MATERIAL CONTRACTS

The following contracts, not being contracts entered into in the ordinary course of business, had been entered into by members of the Group, within two years immediately preceding the date of this circular which may be material:

• (a) the sale and purchase agreement dated 17 June, 2005 and made among Mr. Lam Yin Kee (“Mr. Lam”), Ms. Yeung Po Wah (“Mrs. Lam”) and the Company for the acquisition by the Company of the entire issued share capital of Alltronics (BVI) Limited in consideration of the allotment and issue of 930 Shares and 50 Shares, credited as fully paid, to Mr. Lam and Mrs. Lam respectively, and the crediting as fully paid by the Company of the 20 Shares of HK$0.01 each as subdivided from the 2 shares of HK$0.10 each issued and/or transferred in nil paid to Mr. Lam on 18th August, 2003;

• (b) the underwriting agreement dated 29 June 2005 entered into among, among others, the Company and underwriters in connection with the listing of the Shares on the Stock Exchange;

• (c) the deed of indemnity dated 29 June, 2005 entered into among each of Profit International Holdings Limited, Mr. Lam Yin Kee and Ms. Yeung Po Wah (the “Indemnifiers”) and the Company for itself and as trustee for its subsidiaries, under which the Indemnifiers have given certain indemnities in favour of the Group in relation to, among other things, estate duty, tax and certain accounting treatments;

• (d) the compliance adviser agreement dated 29 June, 2005 entered into between the Company and CSC Asia Limited (“CSC Asia”), whereby CSC Asia agreed to act as the Company’s compliance adviser for the period commencing from 15 July 2005 (“Listing Date”) and ending on the date on which the Company distributes the annual report in respect of the Group’s financial results for the first full financial year commencing after the Listing Date; and

• (e) the Sale and Purchase Agreement.

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GENERAL INFORMATION

APPENDIX IV

7. LITIGATION AND CLAIMS

Alltronics was involved in a legal proceeding in relation to a fatal traffic accident causing the death of one of its employees during his business trip in the PRC. On 7 March 2005, Alltronics was served with an application made by the family of the deceased employee against Alltronics pursuant to the Employee’s Compensation Ordinance (Cap.282). The applicants claimed HK$1,260,000 as compensation and HK$35,000 as funeral expenses under the claim. Alltronics maintains a business insurance policy which covers various types of business risks, including employees’ compensation and the coverage limit for claims of employees’ compensation is up to HK$100,000,000 for any one event. The case has been settled in accordance with a court order filed on 22 September 2005. Total compensation paid or payable to the plaintiff amounted to approximately HK$1,260,000 and were covered by the Group’s business insurance policy.

As at the Latest Practicable Date and save as disclosed above, no member of the Group was engaged in any litigation or arbitration of material importance and there was no litigation or arbitration or claim of material importance known to the Directors to be pending or threatened by or against any member of the Group.

8. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours on any weekday (except for public holidays) at the office of Preston Gates & Ellis at 35/F., Two International Finance Centre, 8 Finance Street Central, Hong Kong from the date of this circular up to and including 28 December 2005:

• (a) the memorandum and articles of association of the Company;

• (b) the audited financial statements of the Group for the three years ended 31 December 2004 and the related statements of adjustments and the unaudited financial statements of the Group for the six months ended 30 June 2005;

• (c) the letter issued by PricewaterhouseCoopers in connection with the pro forma financial information of the Enlarged Group after completion of the Acquisition as set out in Appendix III to this circular;

• (d) the accountants’ report on Southchina Group prepared by PricewaterhouseCoopers, the text of which is set out in Appendix II to this circular;

• (e) the audited financial statements of Southchina Group for the three years ended 31 December 2004 and the related statements of adjustments and the unaudited financial statements of Southchina Group for the six months ended 30 June 2005;

• (f) the legal opinion given by GFE Law Office in connection with, among other things, the due incorporation of 南盈塑膠實業（深圳）有限公司 (Southchina Engineering & Manufacturing Ltd.);

• (g) copies of the contracts and service contracts as disclosed under the sections headed “Material contracts” and “Directors’ service contracts” in this appendix;

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GENERAL INFORMATION

APPENDIX IV

• (h) the written consent given by each of GFE Law Office and PricewaterhoueCoopers referred to in the section headed “Experts” in this appendix; and

• (i) this circular.

9. GENERAL

• (a) The qualified accountant and secretary of the Company is Mr. Leung Fuk Cheung, who is an associate member of the Hong Kong Institute of Certified Public Accountants and the Association of the Chartered Certified Accountants.

• (b) The head office and principal place of business of the Company in Hong Kong is situated at Room 1108, 11/F., Eastwood Centre, No. 5 A Kung Ngam Village Road, Shau Kei Wan, Hong Kong.

• (c) The registered office of the Company is situated at Century Yard, Cricket Square, Hutchins Drive, P.O. Box 2681 GT, George Town, Grand Cayman, British West Indies.

• (d) The branch share registrars of the Company in Hong Kong is Tengis Limited at Ground Floor, BEA Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong.

• (e) The principal share registrars of the Company is Butterfield Fund Services (Cayman) Limited, P.O. Box 705, Butterfield House, 68 Fort Street, George Town, Grand Cayman, Cayman Islands, British West Indies.

• (f) In any event of inconsistency, the English language text of this circular shall prevail over the Chinese language text.

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