Baoye Group Company Limited - Proxy Solicitation & Information Statement 2002

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 adviser.

If you have sold or transferred all your shares in Telecom Plus Holdings Limited, you should at once hand this circular with the enclosed form of proxy to the purchaser or other transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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.

TELECOM PLUS HOLDINGS LIMITED （普納集團有限公司[] ）*

(Incorporated in Bermuda with limited liability)

VERY SUBSTANTIAL ACQUISITION ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL IN GLORY CHOICE INVESTMENTS LIMITED AND MAJOR TRANSACTION INVOLVING ISSUE OF NEW SHARES

Financial adviser to Telecom Plus Holdings Limited

==> picture [119 x 36] intentionally omitted <==

A notice convening a special general meeting of Telecom Plus Holdings Limited to be held at 10:30 a.m. on 19th June 2002 at Tai Tam Room, 7th Floor, Conrad Hotel, Pacific Place, 88 Queensway, Hong Kong is set out on pages 148 to 150 of this circular. A form of proxy for use at the special general meeting is enclosed. Whether or not you intend to attend the meeting, you are requested to complete the enclosed form of proxy in accordance with the instructions printed thereon and return it as soon as possible to the office of Tengis Limited, being the share registrar of Telecom Plus Holdings Limited in Hong Kong, at 4th Floor, Hutchison House, 10 Harcourt Road, Central, Hong Kong and in any event not less than 48 hours before the time appointed for the holding of the meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting or any adjourned meeting should you so wish.

31st May 2002

* For identification purpose only

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Details of the Dynamic Acquisition Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Information on Dynamic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
Reasons for the Dynamic Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
Financial effects of the Dynamic Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
Specific mandate to issue the Dynamic Consideration Shares . . . . . . . . . . . . . . . . . .	13
Details of the Glory Choice S&P Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
Information on Glory Choice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Reasons for the Glory Choice Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
Financial effects of the Glory Choice Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
Specific mandate to issue the Glory Choice Consideration Shares . . . . . . . . . . . . . . .	21
Business review and prospects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	22
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24
Additional information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24
Appendix I – Financial information relating to the Group. . . . . . . . . . . . . . . . . . .	25
Appendix II – Financial information on Dynamic . . . . . . . . . . . . . . . . . . . . . . . . . . .	72
Appendix III – Accountants’ report on Glory Choice. . . . . . . . . . . . . . . . . . . . . . . . .	110
Appendix IV – Financial effects of the Dynamic Acquisition and
the Glory Choice Acquisition on the Group. . . . . . . . . . . . . . . . . .	133
Appendix V – General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	138
Notice of SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	148

– i –

DEFINITIONS

“Able Technology”

Able Technology Limited, a company incorporated under the laws of the BVI, is wholly owned by Mr. Zou Yishang, the chairman of the Company

“associate(s)”

has the meaning ascribed thereto under the Listing Rules

“Board”
board of Directors
“BVI”
The British Virgin Islands
“Changran”
Beijing Chang-Ran I.T. Co. Ltd. （北京暢然信息技術有限公司）, a company incorporated in the PRC with limited liability on 16th September 1998
“CMIC”
Continental Mariner Investment Company Limited, a company incorporated in Hong Kong with limited liability and the ultimate beneficial owner of UDL, is an independent third party not connected with any of the directors, chief executive or substantial shareholders of the Company or any of its subsidiaries or their respective associates
“Company”
Telecom Plus Holdings Limited, a company incorporated in Bermuda with limited liability, whose shares are listed on the Stock Exchange
“Director(s)” director(s) of the Company
“Dynamic”

Dynamic Holdings Limited, a company incorporated in Bermuda with limited liability, whose shares are listed on the Stock Exchange

“Dynamic Acquisition”

The acquisition by TPIL from Li, Zhang and UDL, respectively, of the Dynamic Sale Shares pursuant to the Dynamic Acquisition Agreements

“Dynamic Acquisition Agreements”

The three conditional agreements dated 2nd April 2002 entered into by and among TPIL as purchaser, Li, Zhang and UDL, respectively, as vendors and the Company in relation to the sale and purchase of the Dynamic Sale Shares

– 1 –

DEFINITIONS

“Dynamic Completion”
The completion of the sale and purchase of the Dynamic Sale Shares contemplated under the Dynamic Acquisition Agreements
“Dynamic Completion Date”
On or before 30th June 2002 or such other date as mutually agreed by the Company, TPIL, Li, Zhang and UDL in writing, respectively
“Dynamic Consideration” HK$40,624,200, being the total consideration contemplated under the Dynamic Acquisition Agreements which shall be satisfied by the allotment and issue of the Dynamic Consideration Shares
“Dynamic Consideration Shares” 90,276,000 new Shares of par value of HK$0.10 each, to be allotted and issued by the Company to Li, Zhang and UDL at HK$0.45 per Share pursuant to the Dynamic Acquisition Agreements in satisfaction of the Dynamic Consideration
“Dynamic Sale Shares”
15,046,000 ordinary shares of HK$1.00 each in Dynamic, which constitute approximately 6.87% of the entire issued share capital of Dynamic, to be sold to TPIL by Li, Zhang and UDL, respectively, pursuant to the Dynamic Acquisition Agreements
“Dynamic Share(s)” Ordinary share(s) of HK$1.00 each in the share capital of Dynamic
“Enlarged Group”
The Company and its subsidiaries after the Dynamic Completion and the Glory Choice Completion
“Glory Choice”
Glory Choice Investments Limited, a company incorporated in the BVI with limited liability on 2nd January 2002, is beneficially owned by the Glory Choice Shareholders
“Glory Choice Acquisition”
The acquisition contemplated under the Glory Choice S&P Agreement
“Glory Choice Completion” Completion of the Glory Choice Acquisition
“Glory Choice Completion Date” Date of the Glory Choice Completion, being 31st July 2002 or such other date as TPTH and the Glory Choice Vendors may agree in writing

– 2 –

DEFINITIONS

“Glory Choice Consideration”
“Glory Choice Consideration Shares”
“Glory Choice S&P Agreement”
“Glory Choice Sale Shares”
“Glory Choice Shareholders”
“Glory Choice Vendors”
“Group”
“Hong Kong”
“HK$”
HK$44 million, being the total consideration payable by TPTH to the Glory Choice Vendors for the Glory Choice Sale Shares
80,000,000 new Shares to be allotted and issued by the Company to the Glory Choice Vendors at HK$0.45 per Share to satisfy part of the consideration under the Glory Choice S&P Agreement
A conditional agreement dated 22nd April 2002 entered into by and between the Glory Choice Vendors as vendors and TPTH as purchaser in respect of the sale and purchase of the Glory Choice Sale Shares
The entire issued share capital in Glory Choice to be sold by the Glory Choice Vendors to TPTH pursuant to the Glory Choice S&P Agreement
Shareholders of Glory Choice, being Gu Hao, Zhang Heping, Fu Bo, Li Jian, Jiang Hong, Lai Pui Bun and Isure Technology Limited, a corporation established in the BVI and wholly owned by Zhao Jichao who is independent of and not connected with any of the directors, chief executive or substantial shareholders of the Company or any of its subsidiaries or their respective associates. Their respective shareholdings in Glory Choice are 15%, 6.25%, 18.75%, 18.75%, 18.75%, 10% and 12.5%. All Glory Choice Shareholders are independent of and not connected with any of the directors, chief executive or substantial shareholders of the Company or any of its subsidiaries or their respective associates

All the Glory Choice Shareholders

The Company and its subsidiaries

Hong Kong Special Administrative Region of the People’s Republic of China

The Hong Kong dollars, the lawful currency of Hong Kong

– 3 –

DEFINITIONS

“ICEA” ICEA Capital Limited, a registered dealer under the Securities Ordinance (Chapter 333 of the Laws of Hong Kong) and the financial adviser to the Company
“Latest Practicable Date” 27th May 2002, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained in this circular
“Li” Li Quan, a third party independent of and not connected with Zhang, UDL and any of the directors, chief executive or substantial shareholders of the Company or any of its subsidiaries or their respective associates
“Listing Rules” Rules Governing The Listing of Securities on the Stock Exchange
“Poly Network” Guangzhou Poly Network Technology Limited（廣州保利網絡科技有限公司）, a company incorporated in the PRC with limited liability on 13th July 2000
“Polywise” Guangzhou Polywise Technology Limited（廣州保利威科技有限公司）, a wholly foreign owned enterprise incorporated in the PRC with limited liability on 4th September 2001
“PRC” The People’s Republic of China
“SGM”
The special general meeting of the Company to be convened and held to consider and approve the Dynamic Acquisition Agreements, the Dynamic Acquisition contemplated thereunder and the issue of the Dynamic Consideration Shares, in which Li, Zhang, UDL, CMIC and their respective associates shall abstain from voting, and to consider and approve the Glory Choice S&P Agreement, the Glory Choice Acquisition contemplated thereunder and the issue of the Glory Choice Consideration Shares
“Scheme”
The share option scheme adopted by the Shareholders in general meeting on 22nd January 2001
“SDI Ordinance” Securities (Disclosure of Interests) Ordinance (Chapter 396 of the Laws of Hong Kong)

– 4 –

DEFINITIONS

“Shareholders”	Shareholders of the Company
“Share(s)”	Ordinary share(s) of HK$0.10 each in the share capital of
	the Company
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“TPIL”	Telecom Plus Investment Limited, a company incorporated
	in Hong Kong with limited liability on 4th September 2000
	and a wholly owned subsidiary of the Company
“TPTH”	Telecom Plus Technology Holdings Limited, a company
	incorporated in Hong Kong with limited liability on 25th
	July 2001 and a wholly owned subsidiary of the Company
“UDL”	Upperace Developments Limited, a company incorporated
	in the BVI with limited liability and a wholly owned
	subsidiary of CMIC, is independent of and not connected
	with Li, Zhang and any of the directors, chief executive or
	substantial shareholders of the Company or any of its
	subsidiaries or their respective associates
“Zhang”	Zhang Keqiang, a third party independent of and not
	connected with Li, UDL and any of the directors, chief
	executive or substantial shareholders of the Company or any
	of its subsidiaries or their respective associates

– 5 –

LETTER FROM THE BOARD

TELECOM PLUS HOLDINGS LIMITED （普納集團有限公司[] ）*

(Incorporated in Bermuda with limited liability)

Executive Directors: Mr. Zou Yishang (Chairman) Mr. Chen Jian Mr. Ma Hongyao

Registered Office:

Clarendon House 2 Church Street Hamilton HM 11 Bermuda

Non-executive Directors:

Mr. Ni Guangnan Mr. Weng Xianding

Independent Non-executive Directors: Mr. Zhao Renwei Mr. Leung Wai Man, Roger

Principal Place of Business:

Unit 01A, 24th Floor Bank of America Tower 12 Harcourt Road Central Hong Kong

31st May 2002

To the Shareholders

Dear Sir or Madam,

VERY SUBSTANTIAL ACQUISITION ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL IN GLORY CHOICE INVESTMENTS LIMITED AND MAJOR TRANSACTION INVOLVING ISSUE OF NEW SHARES

INTRODUCTION

On 4th April 2002, the Directors announced that the Company and TPIL, a wholly owned subsidiary of the Company, entered into the Dynamic Acquisition Agreements dated 2nd April 2002 for the sale and purchase of a total of 15,046,000 Dynamic Shares representing approximately 6.87% of the entire issued share capital of Dynamic with Li, Zhang and UDL, respectively, pursuant to which each of Li, Zhang and UDL has agreed to sell and TPIL has conditionally agreed to acquire a total of approximately 6.87% of the entire issued share capital of Dynamic at a total consideration of HK$40,624,200.

* for identification purpose only

– 6 –

LETTER FROM THE BOARD

As at the Latest Practicable Date, the Group holds 4,258,000 Dynamic Shares, representing approximately 1.94% of the entire issued share capital of Dynamic. TPIL will be acquiring a total of 15,046,000 Dynamic Shares, representing approximately 6.87% of the entire issued share capital of Dynamic. Upon the Dynamic Completion, Dynamic will be owned as to approximately 8.81% by the Group.

Dynamic is a company incorporated in Bermuda with limited liability, whose shares are listed on the Stock Exchange. The consideration of HK$40,624,200 was arrived at after arm’s length negotiations among the parties involved, which will be satisfied by the allotment and issue of the Dynamic Consideration Shares to each of Li, Zhang and UDL at an issue price of HK$0.45 per Dynamic Consideration Share. The Dynamic Consideration Shares represent approximately 7.86% of the existing issued share capital of the Company, approximately 7.29% of the issued share capital of the Company as enlarged by the Dynamic Consideration Shares and approximately 6.85% of the issued share capital of the Company as enlarged by the Dynamic Consideration Shares and the Glory Choice Consideration Shares.

The Directors consider that the terms of the Dynamic Acquisition Agreements are fair and reasonable and are in the interests of the Company and the Shareholders as a whole. The Dynamic Acquisition constitutes a major transaction for the Company under the Listing Rules and is subject to independent Shareholders’ approval in the SGM, in which Li, Zhang, UDL, CMIC and their respective associates shall abstain from voting.

On 25th April 2002, the Directors announced that TPTH, a wholly owned subsidiary of the Company, entered into the conditional Glory Choice S&P Agreement dated 22nd April 2002 with the Glory Choice Vendors. Pursuant to the Glory Choice S&P Agreement, the Glory Choice Vendors have agreed to sell and TPTH has conditionally agreed to acquire the Glory Choice Sale Shares at a consideration of HK$44 million.

The consideration for the Glory Choice Acquisition was arrived at after arm’s length negotiations between the parties with reference to the unaudited combined net profit of Glory Choice for the year ended 31st March 2002 of approximately HK$2.5 million and a profit guarantee provided by the Glory Choice Vendors on a joint and several basis to TPTH that the net profit of Glory Choice for the period from the Glory Choice Completion Date to 31st March 2003 will not be less than HK$3.7 million. The consideration for the Glory Choice Acquisition will be satisfied by (i) HK$8 million in cash and (ii) the allotment and issue of 80,000,000 Glory Choice Consideration Shares at an issue price of HK$0.45 per Glory Choice Consideration Share by the Company under the Glory Choice S&P Agreement. The Glory Choice Consideration Shares represent approximately 6.97% of the existing issued share capital of the Company, approximately 6.51% of the issued share capital of the Company as enlarged by the Glory Choice Consideration Shares and approximately 6.07% of the issued share capital of the Company as enlarged by the Glory Choice Consideration Shares and the Dynamic Consideration Shares.

– 7 –

LETTER FROM THE BOARD

The Directors (including the independent non-executive Directors) consider that the terms of the Glory Choice Acquisition are fair and reasonable and are in the interests of the Company and the Shareholders as a whole. The Glory Choice Acquisition constitutes a very substantial acquisition for the Company under the Listing Rules and requires, among other matters, approval of the Shareholders at the SGM.

The purpose of this circular is to provide the Shareholders with further information relating to the Dynamic Acquisition, the Glory Choice Acquisition and to seek their approval at the SGM of the Dynamic Acquisition, the Glory Choice Acquisition and specific mandates to issue the Dynamic Consideration Shares and the Glory Choice Consideration Shares.

DETAILS OF THE DYNAMIC ACQUISITION AGREEMENTS

Date : 2nd April 2002

Parties

Purchaser : TPIL Vendors : Li, Zhang and UDL, respectively, and The Company

TPIL is a company incorporated in Hong Kong and a wholly owned subsidiary of the Company.

As at the Latest Practicable Date, Li holds 60,042,000 Shares, representing approximately 5.23% of the entire issued share capital of the Company whereas Zhang holds 35,000,000 Shares, representing approximately 3.05% of the entire issued share capital of the Company.

The ultimate beneficial owner of UDL is CMIC. Another wholly owned subsidiary of CMIC holds 60,000,000 Shares as at the Latest Practicable Date, representing approximately 5.22% of the entire issued share capital of the Company.

Each of Li, Zhang and UDL (or its ultimate beneficial owner, CMIC) is a third party independent of and not connected with each other and any of the directors, chief executive or substantial shareholders of the Company or any of its subsidiaries or their respective associates.

– 8 –

LETTER FROM THE BOARD

Assets to be acquired

Each of Li, Zhang and UDL has agreed to sell and TPIL has conditionally agreed to purchase the Dynamic Sale Shares, as to 1,840,000 of which, representing approximately 0.84% of the issued share capital of Dynamic, from Li, 3,500,000 of which, representing approximately 1.60% of the issued share capital of Dynamic, from Zhang and 9,706,000 of which, representing approximately 4.43% of the issued share capital of Dynamic from UDL, pursuant to the terms and conditions of the Dynamic Acquisition Agreements.

Consideration

The consideration for the Dynamic Acquisition is HK$40,624,200 which shall be satisfied by the allotment and issue of the Dynamic Consideration Shares pursuant to the Dynamic Acquisition Agreements. The Directors consider that the terms of the Dynamic Acquisition Agreements are fair and reasonable and are in the interests of the Company and the Shareholders as a whole.

The consideration for the acquisition of 6.87% of the entire issued share capital of Dynamic was arrived at after arm’s length negotiations among the parties involved.

Sale Shares

The selling price of the Dynamic Sale Shares is HK$2.70 per Dynamic Sale Share, which represents

(i) a premium of approximately 13.68% to the closing price of HK$2.375 per Dynamic Share as quoted on the Stock Exchange on 28th March 2002, being the last trading day prior to the date of the Dynamic Acquisition Agreements;
(ii) a premium of approximately 20.00% to the average closing price of approximately HK$2.25 per Dynamic Share as quoted on the Stock Exchange for the last 10 trading days up to and including the trading day prior to the date of the Dynamic Acquisition Agreements;
(iii) a premium of approximately 3.85% to the closing price of HK$2.60 per Dynamic Share as quoted on the Stock Exchange on the Latest Practicable Date; and
(iv) a discount of approximately 25.62% as compared with the net asset value as at 30th June 2001 per Dynamic Share.

The selling price of the Dynamic Sale Shares is determined by reference to the current share price of Dynamic, its high growth potential in the property market in the PRC and its net asset value.

– 9 –

LETTER FROM THE BOARD

The market value of the Dynamic Sale Shares in aggregate as at 28th March 2002, being the last trading day prior to the date of the Dynamic Acquisition Agreements, amounts to HK$35,734,250, the average market value of the Dynamic Sale Shares in aggregate for the last 10 trading days up to and including the trading day prior to the date of the Dynamic Acquisition Agreements amounts to approximately HK$33,853,500 and the market value of the Dynamic Sale Shares in aggregate as at the Latest Practicable Date amounts to HK$39,119,600.

Dynamic Consideration Shares

On the Dynamic Completion Date and upon satisfaction of all the conditions as stated in the Dynamic Acquisition Agreements, the Company shall allot and issue the Dynamic Consideration Shares, as to 11,040,000 of which to Li, 21,000,000 of which to Zhang, and 58,236,000 of which to UDL.

The Dynamic Consideration Shares represent approximately 7.86% of the existing issued share capital of the Company, approximately 7.29% of the issued share capital of the Company as enlarged by the Dynamic Consideration Shares and approximately 6.85% of the issued share capital of the Company as enlarged by the Dynamic Consideration Shares and the Glory Choice Consideration Shares. The Dynamic Consideration Shares upon allotment and issue will rank pari passu in all respects with the issued shares of the Company. The Directors will allot and issue the Dynamic Consideration Shares pursuant to a specific mandate to be sought in the SGM to be convened.

The issue price of the Dynamic Consideration Shares at HK$0.45 per Dynamic Consideration Share represents:

(i) a premium of approximately 13.92% to the closing price of HK$0.395 per Share as quoted on the Stock Exchange on 28th March 2002, being the last trading day prior to the date of the Dynamic Acquisition Agreements;
(ii) a premium of approximately 10.70% to the average closing price of approximately HK$0.4065 per Share as quoted on the Stock Exchange for the last 10 trading days up to and including the trading day prior to the date of the Dynamic Acquisition Agreements; and
(iii) a premium of approximately 13.92% to the closing price of HK$0.395 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

The issue price of the Dynamic Consideration Shares is determined by reference to the positive impact of the Dynamic Acquisition contemplated under the Dynamic Acquisition Agreements on the earning base and asset base of the Group and the current share price of the Company.

– 10 –

LETTER FROM THE BOARD

Upon the Dynamic Completion and the issue of the Dynamic Consideration Shares, the shareholding structures of Li, Zhang and UDL in the Company are set out below for reference:

	Before the Dynamic	Before the Dynamic	Upon the Dynamic Completion	Upon the Dynamic Completion	Upon the Dynamic	Upon the Dynamic
	Completion and the Glory		but prior to the Glory		Completion and	the Glory
	Choice Completion		Choice Completion		Choice Completion
No.	of Shares held		No. of Shares held	No.	of Shares held
Able Technology	234,282,790	20.40%	234,282,790	18.91%	234,282,790	17.77%
Chen Jian*	60,000,000	5.22%	60,000,000	4.84%	60,000,000	4.55%
Li	60,042,000	5.23%	71,082,000	5.74%	71,082,000	5.39%
Zhang	35,000,000	3.05%	56,000,000	4.52%	56,000,000	4.25%
UDL and its associates	60,000,000	5.22%	118,236,000	9.55%	118,236,000	8.96%
Glory Choice Vendors	–	0.00%	–	0.00%	80,000,000	6.07%
Other public
Shareholders	699,058,089	60.88%	699,058,089	56.44%	699,058,089	53.01%
	1,148,382,879	100.00%	1,238,658,879	100.00%	1,318,658,879	100.00%

Note:* Chen Jian is an executive Director.

Conditions

The Dynamic Acquisition Agreements are conditional upon (a) the independent Shareholders approving the Dynamic Acquisition Agreements and the Dynamic Acquisition contemplated thereunder in the SGM, in which Li, Zhang, UDL, CMIC and their respective associates shall abstain from voting, (b) the grant of a specific mandate for the allotment and issue of the Dynamic Consideration Shares, and (c) the Listing Committee of the Stock Exchange granting the listing of and permission to deal in the Dynamic Consideration Shares.

Completion

Subject to the fulfillment of the conditions stated in the Dynamic Acquisition Agreements, completion of the Dynamic Acquisition is expected to take place on 30th June 2002 or such other date as mutually agreed by TPIL, the Company, Li, Zhang and UDL in writing, respectively. As stated in the Dynamic Acquisition Agreements, the completion of the Dynamic Acquisition is expected to take place on 31st May 2002 or such other date as mutually agreed by TPIL, the Company, Li, Zhang and UDL in writing, respectively. Pursuant to the two supplemental letters signed by TPIL, the Company, Li and Zhang on 21st May 2002 and the one supplemental letter signed by TPIL, the Company and UDL on 29th May 2002, respectively, TPIL, the Company, Li, Zhang and UDL mutually agreed to postpone the expected completion date of the Dynamic Acquisition to 30th June 2002 or such other date as mutually agreed in writing.

– 11 –

LETTER FROM THE BOARD

INFORMATION ON DYNAMIC

Dynamic is a company incorporated in Bermuda with limited liability, whose principal place of business in Hong Kong is situated at Room 1702, Eton Tower, 8 Hysan Avenue, Causeway Bay, Hong Kong. Dynamic has been engaged in property investment and development businesses in the PRC, whose shares are listed on the Stock Exchange.

REASONS FOR THE DYNAMIC ACQUISITION

The principal business of the Group is providing network and system integration, business/operation support system, telecom value-added services/solutions and other application on software systems. The Directors have always been exploring investment opportunities which would increase the earning base of the Group. To this end and taking into account the potential prospects of the business operation of Dynamic and the considerably discounted share price as compared to Dynamic’s current net asset value, the Directors consider that the Dynamic Acquisition represents a valuable investment opportunity to broaden the Group’s asset base in the short term and enhance the Group’s income base in the long run. This provides a solid foundation for any future acquisitions by the Group.

The Directors intend to hold the Dynamic Sale Shares for long term investment and at present the Directors do not intend to acquire further interest or to gain control in Dynamic or to change the board members of the Company upon Dynamic Completion.

FINANCIAL EFFECTS OF THE DYNAMIC ACQUISITION

(i) Net tangible assets value

Set out in Appendix IV to this circular is a pro forma statement of unaudited consolidated net tangible assets of the Group immediately following the Dynamic Completion, which is based on the interim report of the Group as at 30th September 2001, adjusted to reflect the effect of the Dynamic Acquisition and certain adjustments since 30th September 2001. The unaudited pro forma adjusted net tangible assets of the Group will be about HK$38 million. This represents an increase in net tangible assets of approximately HK$41 million as compared to the unaudited consolidated net tangible liabilities of the Company before the Dynamic Completion of approximately HK$3 million. The total number of Shares in issue upon Dynamic Completion will increase from 1,148,382,879 to 1,238,658,879 as a result of the issue

– 12 –

LETTER FROM THE BOARD

of the Dynamic Consideration Shares as contemplated under the Dynamic Acquisition Agreements. The unaudited pro forma adjusted consolidated net tangible asset value per Share after the Dynamic Acquisition will be approximately HK$0.030. This represents an increase in net tangible assets per Share of approximately HK$0.033 as compared to the unaudited consolidated net tangible liabilities per Share before the completion of the Dynamic Acquisition of approximately HK$0.003.

(ii) Gearing

Based on the unaudited consolidated financial statements of the Group as at 30th September 2001, the gearing ratio (the ratio of total liabilities to total assets) of the Group was approximately 0.995. Immediately after the Dynamic Completion, the gearing ratio calculated on the same basis will be lowered to approximately 0.728.

Taken into account the improvement in the financial position of the Group in terms of the enhancement in the consolidated net tangible assets value of the Group and the lowering of gearing ratio of the Group, the Directors consider that the Dynamic Acquisition is in the interests of the Group and the Shareholders as a whole.

SPECIFIC MANDATE TO ISSUE THE DYNAMIC CONSIDERATION SHARES

The Dynamic Consideration Shares will be allotted and issued on the Dynamic Completion pursuant to a specific mandate to be granted to the Directors at the SGM.

DETAILS OF THE GLORY CHOICE S&P AGREEMENT

Date : 22nd April 2002 Parties Vendors : Glory Choice Shareholders Purchaser : TPTH

TPTH is a company incorporated in Hong Kong and a wholly owned subsidiary of the Company.

The Glory Choice Vendors, being the existing beneficial owners of Glory Choice, own the entire issued share capital in Glory Choice. The Glory Choice Vendors and their respective associates together with their ultimate beneficial owners are independent of and not connected with any of the directors, chief executive or substantial shareholders of the Company of or any of its subsidiaries or their respective associates.

– 13 –

LETTER FROM THE BOARD

Assets to be acquired

The Glory Choice Vendors have agreed to sell, and TPTH has conditionally agreed to purchase from the Glory Choice Vendors, the Glory Choice Sale Shares pursuant to the terms and conditions of the Glory Choice S&P Agreement.

Consideration

The consideration for the sale and purchase of the Glory Choice Sale Shares is HK$44 million. Such consideration shall be satisfied by (i) HK$8 million in cash which will be funded from the Group’s internal resources and (ii) the issue and allotment of 80,000,000 new Shares at an issue price of HK$0.45 per Glory Choice Consideration Share by the Company under the Glory Choice S&P Agreement upon the Glory Choice Completion.

The consideration for the sale and purchase of the Glory Choice Sale Shares represents a premium of approximately 209% to the audited combined net asset value of Glory Choice of approximately HK$14.22 million as at 31st March 2002. In addition, the consideration of the sale and purchase of the Glory Choice Sale Shares represents a price earnings multiple of approximately 15.27 times the audited net profit after taxation and extraordinary items of Glory Choice for the year ended 31st March 2002. With reference to the future prospects of Glory Choice, the Directors consider that such premium is reasonable.

The Directors consider that the consideration for the sale and purchase of the Glory Choice Sale Shares is fair and reasonable. The consideration was arrived at after arm’s length negotiations, having taken into account the following factors:

the unaudited combined net profit of Glory Choice for the year ended 31st March 2002 of approximately HK$2.5 million; and
a profit guarantee provided by the Glory Choice Vendors on a joint and several basis to TPTH that the audited net profit of Glory Choice for the period from the Glory Choice Completion Date to 31st March 2003 will not be less than HK$3.7 million (based on the accounting principles generally accepted in Hong Kong).

In connection with the above profit guarantee, the Directors confirm that the Company will disclose the following information in the Group’s annual report for the year ending 31st March 2003:

(i) the audited net profit of Glory Choice during the period from the Glory Choice Completion Date to 31st March 2003; and

– 14 –

LETTER FROM THE BOARD

(ii) whether such audited net profit of Glory Choice is more than the profit guarantee of HK$3.7 million.

In accordance with the Listing Rules, the audited accounting information of the Group (i.e., comprising that of Glory Choice) will be available within 4 months from 31st March 2003. Accordingly, if the audited net profit fails to meet the guaranteed profit by then (i.e. the day on which such audited accounting information is finalized and made available to the Glory Choice Vendors and TPTH), the Glory Choice Vendors will compensate any shortfall in respect thereof in cash to TPTH on a joint and several basis.

Consideration Shares

On the Glory Choice Completion Date and upon satisfaction of all the conditions as stated in the Glory Choice S&P Agreement, the Company shall allot and issue the Glory Choice Consideration Shares to the Glory Choice Vendors as partial satisfaction of the consideration of the Glory Choice Sale Shares.

The Glory Choice Consideration Shares represent approximately 6.97% of the existing issued share capital of the Company, approximately 6.51% of the issued share capital of the Company as enlarged by the Glory Choice Consideration Shares and approximately 6.07% of the issued share capital of the Company as enlarged by the Glory Choice Consideration Shares and the Dynamic Consideration Shares.

The issue price of the Glory Choice Consideration Shares at HK$0.45 per Glory Choice Consideration Share represents:

(i) a premium of approximately 18.42% to the closing price of HK$0.38 per Share as quoted on the Stock Exchange on 22nd April 2002 being the date of the Glory Choice S&P Agreement;
(ii) a premium of approximately 15.68% to the average closing price of approximately HK$0.389 per Share as quoted on the Stock Exchange for the last 10 trading days up to and including the date of the Glory Choice S&P Agreement; and
(iii) a premium of approximately 13.92% to the closing price of HK$0.395 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

The issue price of the Glory Choice Consideration Shares is determined by reference to the positive impact of the Glory Choice Acquisition contemplated under the Glory Choice S&P Agreement on the earning base and asset base of the Group and the current share price of the Company.

– 15 –

LETTER FROM THE BOARD

The Glory Choice Consideration Shares upon allotment and issue will rank pari passu in all respects with the issued Shares. The Directors will allot and issue the Glory Choice Consideration Shares pursuant to a specific mandate to be sought in the SGM to be convened.

Upon the Glory Choice Completion, the shareholding structure of the Company is set out below for reference:

Upon the Glory Choice

				Upon the Glory Choice	Upon the Glory Choice
	Before the Glory Choice			Completion but		Upon the Glory Choice
	Completion and			taking no account of		Completion	and the
	the Dynamic	Completion		the Dynamic	Completion	Dynamic Completion
No. of	Shares held		No.	of Shares held	No.	of Shares held
Able Technology	234,282,790	20.40%		234,282,790	19.07%	234,282,790	17.77%
Chen Jian	60,000,000	5.22%		60,000,000	4.9%	60,000,000	4.55%
Glory Choice Vendors
Gu Hao	–	0.00%		12,000,000	0.98%	12,000,000	0.91%
Zhang Heping	–	0.00%		5,000,000	0.41%	5,000,000	0.38%
Fu Bo	–	0.00%		15,000,000	1.22%	15,000,000	1.14%
Li Jian	–	0.00%		15,000,000	1.22%	15,000,000	1.14%
Jiang Hong	–	0.00%		15,000,000	1.22%	15,000,000	1.14%
Lai Pui Bun	–	0.00%		8,000,000	0.65%	8,000,000	0.60%
Isure Technology
Limited	–	0.00%		10,000,000	0.81%	10,000,000	0.76%
				80,000,000	6.51%	80,000,000	6.07%
Li	60,042,000	5.23%		60,042,000	4.89%	71,082,000	5.39%
Zhang	35,000,000	3.05%		35,000,000	2.85%	56,000,000	4.25%
UDL and its associates	60,000,000	5.22%		60,000,000	4.88%	118,236,000	8.96%
Other public
Shareholders	699,058,089	60.88%		699,058,089	56.91%	699,058,089	53.01%
1,148,382,879		100.00%		1,228,382,879	100.00%	1,318,658,879	100.00%

Conditions

Completion of the Glory Choice Acquisition is conditional upon the following:

the Company will not be treated by the Stock Exchange as a new applicant for listing of its Shares on the Stock Exchange in any respect due to the Glory Choice Acquisition;

– 16 –

LETTER FROM THE BOARD

the passing of an ordinary resolution by the Shareholders at the SGM to be convened to approve the Glory Choice Acquisition contemplated under the Glory Choice S&P Agreement and the issue of the Glory Choice Consideration Shares;
the Listing Committee of the Stock Exchange granting the listing of and permission to deal in the Glory Choice Consideration Shares;
the Glory Choice Vendors shall provide documentary evidence to the satisfaction of TPTH in relation to Glory Choice’s beneficial ownership in Changran and Polywise;
the Glory Choice Vendors shall ensure that the board of Glory Choice has passed the resolutions to:
(i) approve the transfer of the Glory Choice Sale Shares to TPTH and/or its nominee(s); and
(ii) appoint those nominees proposed by TPTH to the board of Glory Choice, representing the majority votes,

and that certified copy of the board minutes recording the aforesaid resolutions be produced to TPTH on or before the Glory Choice Completion; and

completion of the sale and purchase of the Glory Choice Sale Shares by each of the Glory Choice Vendors and TPTH pursuant to the Glory Choice S&P Agreement shall take place simultaneously on the Glory Choice Completion Date.

Completion

Subject to the fulfillment of the conditions stated in the Glory Choice S&P Agreement, the Glory Choice Completion is expected to take place on 31st July 2002 or such other date as TPTH and the Glory Choice Vendors may agree in writing.

INFORMATION ON GLORY CHOICE

Glory Choice is an investment holding company incorporated in the BVI with limited liability on 2nd January 2002. Glory Choice has not conducted any business since its incorporation except its investment in the entire equity interest in Polywise and Changran.

As at the Latest Practicable Date, Li Jian, Fu Bo and Gu Hao are directors of Glory Choice. Upon the Glory Choice Completion, Li Jian, Fu Bo and Gu Hao will remain as directors of Glory Choice and the Company is entitled to appoint more than half of the seats of the board of Glory Choice. The Company intends to nominate four representatives to the board of Glory Choice, however, the identities of such nominees have not been determined yet. It is expected that the board of Glory Choice will comprise seven members.

– 17 –

LETTER FROM THE BOARD

As at the Latest Practicable Date, Glory Choice is not involved in any material litigation or dispute pending or threatened against Glory Choice.

The table below sets out the audited combined financial information (based on the accounting principles generally accepted in Hong Kong) of Glory Choice. The audited combined financial information shown below includes the results of operations of companies comprising Glory Choice (for the two financial years immediately preceding the Glory Choice Acquisition) as if the group structure of Glory Choice shown below had been in existence and remained unchanged throughout the entire relevant period.

	For the year ended	For the year ended
	31st March	31st March
	2001	2002
	(HK$’000)	(HK$’000)
Turnover	–	10,470
Net (loss)/profit before taxation, minority interests,
and extraordinary items	(1,167)	5,220
Net (loss)/profit after taxation, minority interests
and extraordinary items	(675)	2,882
Net tangible asset value	3,064	14,218

The group structure of Glory Choice upon Glory Choice Completion is set out as below:

==> picture [233 x 143] intentionally omitted <==

----- Start of picture text -----

TPTH
100%
Glory Choice
100% 100%
Polywise Changran
50%
Poly Network
----- End of picture text -----

Polywise

Polywise is a wholly foreign owned enterprise incorporated in the PRC with limited liability on 4th September 2001. According to the business license of Polywise, Polywise can be engaged in (i) research and development of broadband network technology and telecommunication system, (ii) manufacture of telecommunication products such as telephone sets. Polywise has not conducted any business since its incorporation.

– 18 –

LETTER FROM THE BOARD

The sole investment of Polywise is the 50% equity interest in Poly Network. The remaining 50% equity interest of Poly Network are owned by third parties who are independent of and not connected with any of the directors, chief executive or substantial shareholders of the Company or any of its subsidiaries or their respective associates.

The audited financial information of Polywise (based on the accounting principles generally accepted in Hong Kong) is set out as below:

	For the year ended	For the year ended
	31st March	31st March
	2001	2002
	(HK$’000)	(HK$’000)
Turnover	N/A	–
Net loss after taxation and extraordinary items	N/A	61
Net tangible asset value	N/A	7,737

Poly Network

Poly Network is a company incorporated in the PRC with limited liability on 13th July 2000 and commenced its business in May 2001. It is principally engaged in the design, technical consultation and maintenance on (i) network integration and (ii) system integration business. Its principal place of business is in the southern part of the PRC with major clientele in the telecommunications and property development markets.

As at the Latest Practicable Date, Polywise has nominated four representatives to the board of Poly Network and the board of Poly Network comprises seven members. As such, Polywise could control the board of Poly Network and in this regard, Poly Network is regarded as a subsidiary of Polywise. Polywise has no intention to change the board composition of Poly Network upon the Glory Choice Completion.

The audited financial information of Poly Network (based on the accounting principles generally accepted in Hong Kong) is set out as below:

		For the year ended	For the year ended
	31st March		31st March
		2001	2002
	(HK$’000)		(HK$’000)
Turnover		–	9,386
Net (loss)/profit after taxation and extraordinary items		(983)	4,676
Net tangible asset value		4,671	9,346

– 19 –

LETTER FROM THE BOARD

Changran

Changran is a company incorporated in the PRC with limited liability on 16th September 1998, which commenced business in November 1998. It is principally engaged in the provision of application software system, for example data analysis system. Its principal place of business is in the PRC with major clientele in the insurance and tobacco industries.

The audited financial information of Changran (based on the accounting principles generally accepted in Hong Kong) is set out as below:

		For the year ended	For the year ended
	31st March		31st March
		2001	2002
	(HK$’000)		(HK$’000)
Turnover		–	1,084
Net (loss)/profit after taxation and extraordinary items		(184)	605
Net tangible asset value		728	1,804

REASONS FOR THE GLORY CHOICE ACQUISITION

The principal business of the Group is providing network and system integration, business/operation support system, telecom value-added services/solutions and other application on software systems. The Directors have always been exploring investment opportunities which would increase the earning base of the Group. To this end and taking into account the potential prospects of the business operations of Poly Network and Changran and the synergy effect that can bring to the Group, the Directors consider that the Glory Choice Acquisition represents a valuable investment opportunity to the Group.

FINANCIAL EFFECTS OF THE GLORY CHOICE ACQUISITION

(i) Net tangible assets value

Set out in Appendix IV to this circular is a pro forma statement of unaudited consolidated net tangible assets of the Group immediately following the Glory Choice Completion, which is based on the interim report of the Group as at 30th September 2001, adjusted to reflect the effect of the Glory Choice Acquisition and certain adjustments since 30th September 2001. The unaudited pro forma adjusted net tangible assets of the Group will be about HK$5 million. This represents an increase in net tangible assets of approximately HK$8 million as compared to the unaudited consolidated net tangible liabilities of the Company before the Glory Choice

– 20 –

LETTER FROM THE BOARD

Completion of approximately HK$3 million. The total number of Shares in issue upon Glory Choice Completion will increase from 1,148,382,879 to 1,228,382,879 as a result of the issue of the Glory Choice Consideration Shares as contemplated under the Glory Choice S&P Agreement. The unaudited pro forma adjusted consolidated net tangible asset value per Share after the Glory Choice Acquisition will be approximately HK$0.004. This represents an increase in net tangible assets per Share of approximately HK$0.007 as compared to the unaudited consolidated net tangible liabilities per Share before the completion of the Glory Choice Acquisition of approximately HK$0.003.

(ii) Gearing

Based on the unaudited consolidated financial statements of the Group as at 30th September 2001, the gearing ratio (the ratio of total liabilities to total assets) of the Group was approximately 0.995. Immediately after the Glory Choice Completion, the gearing ratio calculated on the same basis will be lowered to approximately 0.660.

Taken into account the improvement in the financial position of the Group in terms of the enhancement in the consolidated net tangible assets value of the Group and the lowering of gearing ratio of the Group, the Directors consider the Glory Choice Acquisition is in the interests of the Group and the Shareholders as a whole.

SPECIFIC MANDATE TO ISSUE THE GLORY CHOICE CONSIDERATION SHARES

The Glory Choice Consideration Shares will be allotted and issued on the Glory Choice Completion Date pursuant to a specific mandate to be granted to the Directors at the SGM.

– 21 –

LETTER FROM THE BOARD

BUSINESS REVIEW AND PROSPECTS

As at 30th September 2001, the unaudited net asset value of the Group was approximately HK$950,000. The table below sets out the turnover, gain/loss on exceptional items, profit/(loss) before taxation and profit/(loss) attributable to Shareholders for each of the three years ended 31st March 2001 as extracted from the Group’s annual reports and for the six months period ended 30th September 2001 as extracted from the Group’s interim report:

For the six months ended 30th September 2001 (Unaudited) HK$’000 Turnover 137,854 Operating profit/(loss) before taxation and exceptional items 15,313 Gain/(loss) on exceptional items – Profit/(loss) before taxation 15,313 Profit/(loss) attributable to Shareholders 10,219	For the For the For the year ended year ended year ended 31st March 31st March 31st March 2001 2000 1999 (Audited) (Audited) (Audited) HK$’000 HK$’000 HK$’000 31,100 159,276 565,030 (26,431) (73,937) (198,384) 263,858 (76,336) (496,563) 237,427 (150,273) (694,947) 237,427 (150,273) (683,530)

For the year ended 31st March 2000, the Group’s turnover declined from approximately HK$565 million to approximately HK$159 million, representing a decrease of approximately 72%. Such significant decrease in the turnover of the Group was mainly due to the financial difficulties experienced by the Group after the financial crisis in 1997 and the keen competition faced by the Group in its operations. In the year ended 31st March 2000, the Group experienced in operating loss of approximately HK$74 million due to fierce competition which had led to a reduction in gross profit. Net loss dropped to approximately HK$150 million, down by approximately 78% as compared to the previous year, as a result of reduction in operating cost and the absence of certain exceptional losses. The exceptional items of approximately HK$76 million for the year ended 31st March 2000 included provision for doubtful debts of approximately HK$12 million, provision for obsolete and slow-moving stocks of approximately HK$16.3 million, write-down of fixed assets of approximately HK$1.9 million and written-off of unsubstantiated payments and receipts of approximately HK$46 million.

– 22 –

LETTER FROM THE BOARD

After the financial crisis in 1997, the Group experienced financial difficulties in conducting its business. For the year ended 31st March 2001, the Group focused on conducting the debt-restructuring exercise, therefore the Group’s turnover declined from approximately HK$159 million to approximately HK$31 million, representing a decrease of approximately 80.5% and the operating loss amounted to approximately HK$26 million. The decrease in the operating loss was mainly due to the reduction in the fixed overhead cost (such as salaries, wages and depreciation). The exceptional gain of approximately HK$264 million was attributed to significant progress on the debt restructuring which rendered the elimination of debts.

In view of the promising prospects of communication business in the PRC market, the Group acquired the entire issued share capital of Holy (Hong Kong) Universal Limited in January 2001 and 51% equity interest of Beijing HollyBridge System Integration Company Limited in June 2001.

For the six months ended 30th September 2001, the Group recorded a turnover of approximately HK$138 million, representing a substantial increase when comparing to the last corresponding period of approximately HK$0.5 million. The unaudited operating profit was approximately HK$10 million as compared to the unaudited operating loss of approximately HK$36 million (excluding the exceptional gain) for the same period in the previous financial year.

In view of the high growth of investment in telecommunications equipment and information technology, China joining the World Trade Organization and hosting the Olympic Games in Beijing, the Directors believe that the operating environment of the Group is favourable. In light of the strong marketing and distribution channel and broad customers base covering southern and northern China, the Company’s market share in the telecommunications and information technology markets is expected to be enhanced considerably.

GENERAL

The Directors have confirmed that there will not be any change in the composition of the Board following the completion of the Dynamic Acquisition and the Glory Choice Acquisition.

The Directors consider that the terms of the Dynamic Acquisition Agreements are fair and reasonable and are in the interests of the Company and the Shareholders as a whole.

The Dynamic Acquisition constitutes a major transaction for the Company under the Listing Rules and is subject to independent Shareholders’ approval in the SGM, in which Li, Zhang, UDL, CMIC and their respective associates shall abstain from voting.

– 23 –

LETTER FROM THE BOARD

Application will be made to the Stock Exchange for the listing of and permission to deal in the Dynamic Consideration Shares to be allotted and issued pursuant to the Dynamic Acquisition Agreements and the Glory Choice Consideration Shares to be allotted and issued pursuant to the Glory Choice S&P Agreement. In the event that the Stock Exchange’s approval is not obtained or any of the conditions stated in the Dynamic Acquisition Agreements and the Glory Choice S&P Agreement is not fulfilled or waived (as the case may be), the Dynamic Acquisition and the Glory Choice Acquisition may not proceed.

SGM

A notice convening the SGM to be held at 10:30 a.m. on 19th June 2002 at Tai Tam Room, 7th Floor, Conrad Hotel, Pacific Place, 88 Queensway, Hong Kong is set out on pages 148 to 150 of this circular. A proxy form for use at the SGM is also enclosed herein. Whether or not you intend to attend the SGM, please complete and return the enclosed form of proxy in accordance with the instructions printed thereon as soon as possible and in any event not less than 48 hours before the time appointed for holding the SGM. Completion and return of the form of proxy will not preclude you from attending and voting at the SGM or at any adjourned meeting should you so wish.

RECOMMENDATION

The Directors consider that the terms of the Dynamic Acquisition, the terms of the Glory Choice Acquisition and the grant of the specific mandates are in the best interest of the Company and the Shareholders as a whole. The Directors therefore recommend you to vote in favour of the resolutions.

ADDITIONAL INFORMATION

Your attention is also drawn to the information set out in the appendices and the notice of the SGM set out in this circular.

By Order of the Board Telecom Plus Holdings Limited Zou Yishang

Chairman

– 24 –

APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

I. SUMMARY OF FINANCIAL INFORMATION

Results

The following is a summary of the audited consolidated results of the Group for the three years ended 31st March 2001, extracted from the Group’s annual report for the three years ended 31st March 2001.

		Year ended 31st March	Year ended 31st March
	2001	2000	1999
	HK$’000	HK$’000	HK$’000
TURNOVER	31,100	159,276	565,030

OPERATING PROFIT/(LOSS)	237,427	(150,273)	(704,195)
Share of profits less losses
of associated companies	–	–	9,248
PROFIT/(LOSS) BEFORE TAXATION	237,427	(150,273)	(694,947)
Taxation	–	–	11,414
PROFIT/(LOSS) BEFORE
MINORITY INTERESTS	237,427	(150,273)	(683,533)
Minority interests	–	–	3
NET PROFIT/(LOSS) ATTRIBUTABLE
TO SHAREHOLDERS	237,427	(150,273)	(683,530)

EARNINGS/(LOSS) PER SHARE	40 cents	(34 cents)	(159.36 cents)

– 25 –

APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

Net liabilities

A summary of the net liabilities of the Group for the last three financial years is set out below:

		As at 31st March
	2001	2000	1999
	HK$’000	HK$’000	HK$’000
Net liabilities	53,730	500,915	358,383

The consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in Hong Kong and have complied with accounting standards issued by The Hong Kong Society of Accountants. They have also adopted the prevailing Statements of Standard Accounting Practice at the time of preparing the financial statements for the last three financial years.

The financial statements in respect of the Group and the Company for the year ended 31st March 1999 and 31st March 2000 were disclaimed by the auditors and a qualified report had been given for the year ended 31st March 2001.

– 26 –

APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

II. AUDITED FINANCIAL STATEMENTS OF THE COMPANY

(1) Report of the auditors of the Company

The report of the auditors of the Company, Arthur Andersen & Co., on the results of the Company as contained in the annual report of the Company for the year ended 31st March 2001 is reproduced as follows:

==> picture [18 x 18] intentionally omitted <==

Arthur Andersen & Co 21st Floor Edinburgh Tower The Landmark 15 Queen’s Road Central Hong Kong

To the Shareholders of Telecom Plus Holdings Limited (Formerly Known as Chun Tai Holdings Limited)

(Incorporated in Bermuda with limited liability)

We have audited the financial statements on pages 30 to 57 which have been prepared in accordance with accounting principles generally accepted in Hong Kong.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS

The Company’s directors are responsible for the preparation of financial statements which give a true and fair view. In preparing financial statements which give a true and fair view it is fundamental that appropriate accounting policies are selected and applied consistently.

It is our responsibility to form an independent opinion, based on our audit, on those statements and to report our opinion to you.

BASIS OF OPINION

We conducted our audit in accordance with Statements of Auditing Standards issued by the Hong Kong Society of Accountants, except that the scope of our work was limited as explained below.

– 27 –

APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the circumstances of the Company and of the Group, consistently applied and adequately disclosed.

We planned our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the financial statements are free from material misstatement. However, the evidence available to us was limited as set out below.

The financial statements of the Group and the Company for the year ended 31st March 2000 were audited by other auditors who have disclaimed an opinion for reasons which included the significance of the possible effects of several limitations on the scope of their audit which were detailed in their report dated 11th December 2000. Because of the inadequacy of the Group’s and the Company’s prior years’ accounting records, we were unable to obtain sufficient evidence to verify the opening balances of the assets and liabilities of the Group as at 1st April 2000. There were no other satisfactory audit procedures that we could adopt to confirm that the opening balances of assets and liabilities of the Group were properly recorded. The books and records in respect of all the disposed subsidiaries of the Company, namely Chun Tai Toys (China) Limited, Chun Tai Industries Limited, Zhong Shan Chun Yuan Electronic Co., Limited and Chun Hui Electronic (Zhong Shan) Co., Limited (collectively referred to as the “Disposed Subsidiaries”) and Zhongshan Modern Colour Printing and Packaging Products Factory Company Limited (“Zhongshan Modern”) have not been made available to us either because the production facilities of the Group were under seizure by Mainland China court orders as security for unsettled claims found against the Disposed Subsidiaries, or because they have not been properly prepared. Because of this limitation we are not able to satisfy ourselves as to the appropriateness of (i) the gain on disposal of subsidiaries of approximately HK$149,060,000 for the year ended 31st March 2001; and (ii) the loss on the write-off of net assets of Zhongshan Modern of approximately HK$386,000 for the year ended 31st March 2001.

In forming our opinion, we also evaluated the overall adequacy of the presentation of information on the financial statements. We believe that our audit provides a reasonable basis for our opinion.

– 28 –

APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

QUALIFIED OPINION ARISING FROM LIMITATION OF AUDIT SCOPE

Except for any adjustments that might have been found to be necessary had we been able to obtain sufficient evidence concerning the matters set out above, in our opinion the financial statements give a true and fair view of the state of affairs of the Group and the Company as at 31st March 2001 and of the profit and cash flows of the Group for the year then ended and have been properly prepared in accordance with the accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance.

In respect alone of the limitation on our work relating to the opening balances of the assets and liabilities of the Group and the Company, the gain on Disposed Subsidiaries and the net assets of Zhongshan Modern:

We have not obtained all the information and explanations that we considered necessary for the purpose of our audit; and
We were unable to determine whether proper books of account had been kept.

ARTHUR ANDERSEN & CO Certified Public Accountants

Hong Kong 16th July 2001

– 29 –

APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

(2) Audited financial statements of the Company

Set out below is an extract from the audited financial statements of the Group for the year ended 31st March 2001 together with notes thereto.

CONSOLIDATED INCOME STATEMENT

For the year ended 31st March 2001

Notes TURNOVER Continuing operations 4 Discontinued operations 4, 8 COST OF SALES Continuing operations Discontinued operations GROSS PROFIT Continuing operations Discontinued operations Other revenue 4 Selling and distribution expenses Administrative expenses Other operating expenses PROFIT (LOSS) FROM OPERATING ACTIVITIES Continuing operations Discontinued operations Finance costs PROFIT (LOSS) BEFORE TAXATION 6 Taxation 9 PROFIT (LOSS) ATTRIBUTABLE TO SHAREHOLDERS 10 EARNINGS (LOSS) PER SHARE Basic 11 Diluted 11	2001 HK$’000 30,628 472 31,100 (24,030) (430) (24,460) 6,598 42 6,640 283,197 (12) (41,722) (1,935) 5,839 240,329 246,168 (8,741) 237,427 – 237,427 HK$0.40 N/A	2000 HK$’000 (Note 30) – 159,276 159,276 – (132,517) (132,517) – 26,759 26,759 15,617 (11,399) (61,615) (72,357) – (102,995) (102,995) (47,278) (150,273) – (150,273) (HK$0.34) N/A

– 30 –

APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

CONSOLIDATED BALANCE SHEET

As at 31st March 2001

Note NON-CURRENT ASSETS Fixed assets 12 Goodwill 13 CURRENT ASSETS Inventory Accounts receivable 15 Other receivables, deposits and prepayments Amount due from group companies Cash and bank CURRENT LIABILITIES Accounts payable 16 Other payables and accruals Amount due to related companies 24 Amount due to shareholders 24 Provision for guarantees Amount due to group companies Tax payable Bank loans and overdrafts 17 Other loan 18 Obligations under finance leases 19 Current portion of convertible bonds 20 NET CURRENT LIABILITIES	2001 HK$’000 677 20,228 20,905 – 40,276 3,473 – 5,901 49,650 462 34,959 20,390 3,789 – – – 2,652 20,553 2,135 7,008 91,948 (42,298)	2000 HK$’000 (Note 30) 120,934 – 120,934 5,378 8,222 3,738 44,332 4,514 66,184 139,518 174,451 – – 5,905 82,800 288 183,120 43,972 29,689 – 659,743 (593,559)

– 31 –

APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

CONSOLIDATED BALANCE SHEET (continued)

As at 31st March 2001

Note NON-CURRENT LIABILITIES Obligations under finance leases payable in more than one year 19 Non-current portion of convertible bonds 20 NET LIABILITIES CAPITAL AND RESERVES Share capital 21 Reserves 22 Accumulated losses	2001 HK$’000 11,314 21,023 32,337 (53,730) 89,151 288,156 (431,037) (53,730)	2000 HK$’000 (Note 30) 259 28,031 28,290 (500,915) 43,890 123,659 (668,464) (500,915)

– 32 –

APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

NOTES TO FINANCIAL STATEMENTS

31st March 2001

1. ORGANISATION AND OPERATIONS

Telecom Plus Holdings Limited (the “Company”) was incorporated in Bermuda with limited liability. The Company’s shares are listed on The Stock Exchange of Hong Kong Limited.

The Company is an investment holding company. The principal activities of its subsidiaries are set out in Note 26 to the financial statement.

During the year, the Company underwent debt-restructuring arrangements with the Group’s banks, other financial and trade creditors to restructure its debt repayment obligations. As at 31st March 2001, the Group’s creditors have waived payment of debts amounting to approximately HK$114,798,000.

2. BASIS OF PRESENTATION AND CORPORATE UPDATE

The Group’s financial statements for the year ended 31st March 2001 have been prepared on the following bases:

(a) The financial statements have been prepared based on the books and records maintained by the Company and its subsidiaries. However, all of the Group’s production facilities located in Mainland China were seized under court orders as security for the unsettled claims found against the Group and, as a result, the directors have not been able to obtain access to the books and records of the Company’s subsidiaries in Mainland China.

No representation as to the completeness of the books and records of the Company’s subsidiaries in Mainland China can be given by the directors. Although care has been taken in the preparation of these financial statements to mitigate the effect of the incomplete records, the directors are unable to represent that all transactions entered into in the name of these subsidiaries have been included in these financial statements. To the extent possible, the directors have taken such steps as they considered practicable to ascertain the accuracy of the account balances and have made provisions, adjustments and disclosures as they considered appropriate in the preparation of these financial statements.

(b) The Group had a consolidated net profit attributable to shareholders of approximately HK$237 million for the year ended 31st March 2001. As at the balance sheet date, the Group had net current liabilities of approximately HK$42 million and minimal cash resources.

During the year, the Group discontinued its production operation due to the seizure of its production line in Zhongshan, the PRC. In January 2001, the Group acquired a subsidiary, Holy (Hong Kong) Universal Limited (“Holy (HK)”). Since then, the Group has strengthened its business operation.

Against this background, to strengthen the capital base of the Group and to improve its financial position, liquidity, cash flows, profitability and operations, the directors adopted the following measures:

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APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

(i) Equity financing

On 30th May 2001, the Company announced the placing of 160 million new shares of the Company of HK$0.10 each at a price of HK$0.18 per share. The placing was completed on 5th June 2001 and the cash proceeds therefrom was approximately HK$28.8 million.

(ii) Restructuring of the Group’s indebtedness

On 30th May 2001, the Company entered into a debt-equity conversion agreement with a creditor for the conversion of the indebtedness owing to this creditor into 1,600,000 new shares of the Company of HK$0.10 each at a price of approximately HK$0.305 per share to settle a debt of approximately HK$488,000. This conversion was completed on 11th June 2001.

Furthermore, on 12th June 2001, the Company entered into a debt-equity conversion agreement with a creditor for the conversion of the indebtedness owing to this creditor into 427,000 new shares of the Company of HK$0.10 each at a price of approximately HK$1.00 per share to settle a debt of approximately HK$427,000. This conversion was completed on 29th June 2001.

(iii) New business

On 12th February 2001, Holy (HK) entered into an acquisition agreement with the shareholders of Beijing HollyBridge System Integration Company Limited (“Beijing HollyBridge”) to acquire a 51% interest in Beijing HollyBridge at a consideration of HK$16 million. This acquisition was completed on 12th June 2001. Beijing HollyBridge is a company incorporated in the PRC. It is principally engaged in the sales and distribution, design as well as technical consultation and maintenance of communication equipment and information products, intelligent building system and communication system and is also a solutions provider.

In view of the above measures taken by the Company’s directors to secure new equity funding, to restructure the Group’s borrowings, and to reactivate the Group’s business operations, the directors are of the opinion that these financial statements should be prepared on a going concern basis.

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APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of presentation

These financial statements have been prepared under the historical cost convention as modified by the revaluation of leasehold land and buildings, and in accordance with accounting principles generally accepted in Hong Kong, Statements of Standard Accounting Practice issued by the Hong Kong Society of Accountants, the disclosure requirements of Hong Kong Companies Ordinance and the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

(b) Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries. For subsidiaries acquired or disposed of during the year, their results are consolidated from or to their effective dates of acquisition or disposal. All significant intragroup transactions and balances have been eliminated on consolidation.

(c) Subsidiaries

A company is a subsidiary company if more than 50% of the issued voting capital is held long-term, directly or indirectly. Investment in subsidiaries is carried at cost less provision for impairment in value where considered necessary by the directors. The results of the subsidiaries are included in the income statement to the extent of dividends declared by the subsidiaries.

(d) Goodwill

Goodwill represents the difference between the fair value of the consideration given and the Group’s share of the aggregate fair values of the identifiable net assets acquired. Positive goodwill arises where the consideration given exceeds the Group’s share of the aggregate fair values of the identifiable net assets acquired. Positive goodwill is capitalised as assets and amortised over 20 years.

Negative goodwill arises where the consideration given does not exceed the Group’s share of the aggregate fair values of the identifiable net assets acquired. Negative goodwill is presented as a deduction from positive goodwill. It should then be recognised as income as follows:

(i) to the extent that negative goodwill relates to expectations of future losses and expenses that are identified in the acquirer’s plan for the acquisition and that can be measured reliably, negative goodwill is recognised as income when the identified future losses and expenses occur; and
(ii) to the extent that it does not relate to future losses and expenses, negative goodwill not exceeding the fair values of the non-monetary assets acquired is recognised as income over the remaining average useful life of the depreciable or amortisable non-monetary assets acquired. Negative goodwill in excess of the fair values of the non-monetary assets acquired is recognised as income immediately

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APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

(e) Fixed assets and depreciation

Fixed assets are stated at cost or valuation less accumulated depreciation. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after the fixed assets have been put into operation, such as repairs and maintenance, and overhaul costs, is normally charged to the income statement in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the fixed asset, the expenditure is capitalised as an additional cost of the fixed asset.

Any increase in fixed assets valuation is credited to the fixed asset revaluation reserve; any decrease is first offset against an increase on earlier valuation in respect of the same asset and is thereafter charged to income statement.

Depreciation is calculated on the straight-line basis at annual rates estimated to write off the cost or valuation of each asset over its expected useful life. The annual rates are as follows:

Medium term leasehold land and buildings	2% – 4%
Leasehold improvements	20%, or over the terms of the leases,
	whichever is shorter
Plant and machinery	10% – 50%
Furniture, fixtures and office equipment	20%
Motor vehicles	20%

Assets held under finance leases are depreciated over their expected useful lives or, where shorter, the terms of the lease on the same basis as owned assets.

When assets are sold or retired, their cost or valuation and accumulated depreciation and amortisation are eliminated from the financial statements and any gain or loss resulting from their disposals is included in the income statement.

The carrying amount of assets is assessed annually and when factors indicating an impairment are present. The Group determines the recoverable amount of assets by measuring discounted future cash flows. If an impairment is present, the assets are reported at the lower of carrying amount or recoverable amount.

(f) Foreign currencies

Companies within the Group maintain their books and records in the primary currencies of their respective countries (the “functional currencies”).

In the financial statements of the individual companies, monetary assets and liabilities denominated in other currencies at the balance sheet date are translated into the respective functional currencies at rates of exchange in effect at the balance sheet date. Transactions in other currencies during the year are translated into the respective functional currencies at rates of exchange in effect at the time of the transactions. Exchange differences are dealt with in the income statement of the individual companies.

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APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

For the purpose of consolidation, all of the financial statements of the subsidiaries are translated into Hong Kong dollars at rates of exchange in effect at the balance sheet date. Exchange differences arising on such translation are credited or charged to the cumulative translation reserve.

(g) Deferred tax

Deferred tax is provided under the liability method, at the current tax rate, in respect of timing differences between profit as computed for taxation purposes and profit as stated in the financial statements, except where it is considered that no liability will arise in the foreseeable future.

A deferred tax asset is not recognised unless the related benefits are expected to crystallise in the foreseeable future.

(h) Leases

(i) Finance leases

Leases that transfer to the company substantially all the rewards and risks of ownership of the assets, other than legal title, are accounted for as finance leases.

Fixed assets held under finance leases are initially recorded at the present value of the minimum lease payments at the inception of the leases, with the equivalent liabilities recorded as appropriate under current or non-current liabilities.

Finance charges, which represent the difference between the minimum lease payments at the inception of the leases and the fair value of the assets, are allocated to accounting periods over the period of the relevant leases so as to produce a constant periodic rate of charge on the outstanding balances.

(ii) Operating leases

Leases where substantially all the rewards and risks of ownership remain with the leasing company are accounted for as operating leases. Rental payments under operating leases are charged to the income statement on a straight-line basis over the period of the relevant leases.

(i) Turnover and revenue recognition

Turnover represents net invoiced value of goods sold after allowances for returns and discount.

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

(i) Sale of goods is recognised when the significant risks and rewards of ownership of the goods have been transferred to customers.

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APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

(ii) Rental income is recognised when rentals become due and receivable.
(iii) Interest income from bank deposits is recognised on a time proportion basis on the principal outstanding and at the rate applicable.

(j) Borrowing costs

Interest is expensed as incurred.

Other borrowing costs, including amortisation of discounts on premiums relating to borrowings, amortization of ancillary costs incurred in connection with arranging borrowings and exchange differences arising from foreign currency borrowings to the extent that they are regard as an adjustment to interest costs, are considered immaterial and are recognised as an expense in the year incurred.

(k) Convertible bonds

Convertible bonds are recorded as liabilities at its face value until conversion occurs. The finance cost, including the premium payable upon the final redemption of convertible bonds, is calculated so as to produce a constant periodic rate of charge on the remaining balances of the convertible bonds of each accounting period.

(l) Employee retirement benefits

Costs of employee retirement benefits are charged to the income statement in the relevant period in which they are incurred.

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APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

4. TURNOVER AND REVENUE

The amounts of each significant category of revenue recognised during the year are as follows:

Sale of goods: Continuing operations – communication products – electronic products Discontinued operations – communication products – toy products – audio products – gift products – others Total turnover Interest income Rental income Gain on disposal of subsidiaries Gain on waiver of bank overdraft, bank loans and other loans Gain on waiver of obligations under finance lease Write-back of over accrued interest Write-back of revaluation deficit previously charged to the income statement Others Total other revenue Total revenue	2001 HK$’000 30,375 253 30,628 – 472 – – – 472 31,100 126 125 149,060 101,442 13,356 5,231 – 13,857 283,197 314,297	2000 HK$’000 (Note 30) – –
		–
		1,117 87,843 68,569 969 778
		159,276
		159,276
		130 458 4,771 – – – 6,037 4,221
		15,617
		174,893

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APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

5. PRINCIPAL ACTIVITIES AND GEOGRAPHICAL ANALYSIS OF OPERATIONS

2001
Turnover
Results
HK$’000
HK$’000
(a)
By principal activities
Continuing operations
– communication products
30,375
5,839
– electronic products
253
–
Discontinuing operations
– communication products
–
–
– toy products
472
240,329
– audio products
–
–
– gift products
–
–
– others
–
–
31,100
246,168
Finance costs
(8,741)
237,427
(b)
By geographical regions
The PRC (excluding
Hong Kong)
30,628
5,839
Hong Kong
10
263,586
Europe
34
(1,717)
United States of America
336
(16,905)
Japan
–
–
Others
92
(4,635)
31,100
246,168
Finance costs
(8,741)
237,427

2000
Turnover
Results
HK$’000
HK$’000
(Note 30)
(Note 30)
–
–
–
–
1,117
(722)
87,843
(56,803)
68,569
(44,339)
969
(627)
778
(504)
159,276
(102,995)
(47,278)
(150,273)
1,161
(751)
10,712
(6,927)
2,644
(1,710)
81,101
(52,443)
56,956
(36,830)
6,702
(4,334)
159,276
(102,995)
(47,278)
(150,273)

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APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

6. PROFIT (LOSS) BEFORE TAXATION

Profit (Loss) before taxation is determined after charging and crediting the following:

Charging:
Interest on:
– bank loans and overdrafts wholly repayable
within one year
– convertible bonds wholly repayable within five years
– other loans
– obligations under finance leases
Auditors’ remuneration:
– current year provision
– prior year overprovision
Operating lease rentals in respect of land and buildings
Staff costs (excluding directors’ emoluments)
Exchange losses, net
Depreciation of fixed assets
Amortisation of goodwill
Write-off of bad and doubtful debts
Provision for inventory obsolescence
Loss on disposal of fixed assets
Loss on write-off of net assets of a subsidiary
Loss on revaluation of fixed assets
Write-off of other miscellaneous items
Write-off of unsubstantiated payments and receipts, net
Provision for guarantee
Write-off of obsolete fixed assets, net
Crediting:
Interest income on bank deposits
Write-back of loss on revaluation of fixed assets
Write-back of provision against unsubstantiated and
idle fixed assets, net
Write-back of provision against an amount
due from an associate
Write-back of provision for guarantee

Group
2001
2000
HK$’000
HK$’000
(Note 30)
2,937
18,287
4,931
4,286
667
19,585
206
5,120
8,741
47,278
900
1,300
–
(500)
900
800
921
974
4,045
15,912
17
367
8,954
30,594
256
–
691
12,095
–
16,285
495
2,242
386
–
–
2,228
–
1,152
–
46,056
–
350
43
–
126
130
–
6,037
–
3,722
–
386
5,904
–

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APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

7. DIRECTORS’ AND SENIOR EXECUTIVES’ EMOLUMENTS

Directors’ emoluments disclosed pursuant to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (“Listing Rules”) and Section 161 of the Companies Ordinance are as follows:

Fees Executive directors Non-executive director Independent non-executive directors Basic salaries, allowances and benefits in kind Executive directors Mandatory provident fund Executive directors	Group 2001 2000 HK$’000 HK$’000 (Note 30) 1,477 – 770 – 150 20 2,397 20 2,483 4,168 6 – 4,886 4,188	Group 2001 2000 HK$’000 HK$’000 (Note 30) 1,477 – 770 – 150 20 2,397 20 2,483 4,168 6 – 4,886 4,188
		20
		4,168
		–
		4,188

No director waived any emoluments during the year.

Analysis of the emoluments of the directors by number of directors and emolument ranges was as follows:

Nil to $1,000,000 $1,000,001 to $1,500,000	2001 8 1 9	2000 10 1
		11

The five highest paid individuals included five (2000: two) directors, details are as follows:

Fees Basic salaries, allowances and benefits in kind Mandatory provident fund	Group 2001 2000 HK$’000 HK$’000 (Note 30) 2,247 – 2,051 3,697 6 – 4,304 3,697	Group 2001 2000 HK$’000 HK$’000 (Note 30) 2,247 – 2,051 3,697 6 – 4,304 3,697
		3,697

During the year, no emoluments were paid by the Group to the five highest paid individuals (including directors and employees) as inducement to join or as compensation for loss of office.

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APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

Analysis of the emoluments earned by the five highest paid individuals (including directors and employees) by number of individuals and emolument ranges is as follows:

Nil to $1,000,000 $1,000,001 to $1,500,000 $2,500,001 to $3,000,000	2001 4 1 – 5	2000 (Note 30) 3 1 1
		5

8. DISCONTINUED OPERATIONS

On 2nd November 2000, the Group’s production facilities in Mainland China were seized under court orders and the Group has not carried out any production activities thereafter.

9. TAXATION

Hong Kong profits tax and overseas taxation were not provided as the Group had no assessable profits for the year in Hong Kong and in other countries in which the Group operated.

There was no significant unprovided deferred taxation as at 31st March 2001.

10. PROFIT (LOSS) ATTRIBUTABLE TO SHAREHOLDERS

The consolidated profit (loss) attributable to shareholders included a loss of approximately HK$128,992,000 (2000: HK$113,265,000) dealt with in the financial statements of the Company.

11. EARNINGS (LOSS) PER SHARE

Basic earnings per share was calculated based on the consolidated profit (loss) attributable to shareholders for the year of approximately HK$237,427,000 (2000: Loss of HK$150,273,000) and the weighted average number of ordinary shares of approximately 592,407,000 (2000: 438,900,000) in issue during the year.

The diluted loss per share for the years ended 31st March 2001 and 2000 is not shown because the Company’s convertible bonds were anti-dilutive during these years.

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APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

12. FIXED ASSETS

GROUP

Leasehold land and Leasehold buildings improvements HK$’000 HK$’000 Cost or valuation: Beginning of year 54,177 56,492 Additions – 384 Disposals (1,400) – Written off (i) – (1,159) Written down to revaluation reserve – – Disposal of subsidiaries (52,777) (55,333) End of year – 384 Comprising: At cost – 384 At 2000 professional valuation – – – 384 Accumulated depreciation: Beginning of year – 47,747 Charge for the year 586 1,777 Disposals – – Written off (i) – (831) Written back on revaluation – – Written back on disposal of subsidiaries (586) (48,608) End of year – 85 Net book value: End of year – 299 Beginning of year 54,177 8,745	2001 Plant and machinery HK$’000 55,113 – (2,240) (5,300) (1,121) (46,452) – – – – – 6,014 – (1,060) – (4,954) – – 55,113	Furniture, fixtures and office equipment HK$’000 4,671 355 – (408) – (4,171) 447 447 – 447 2,024 514 – (326) – (2,143) 69 378 2,647	Motor vehicles HK$’000 568 – – – – (474) 94 94 – 94 316 63 – – – (285) 94 – 252	Total HK$’000 171,021 739 (3,640) (6,867) (1,121) (159,207) 925 925 – 925 50,087 8,954 – (2,217) – (56,576) 248 677 120,934	2000 Total HK$’000 (Note 30) 233,085 249 (8,556) (43,192) (3,934) (6,631) 171,021 61,731 109,290 171,021 83,252 30,594 (1,073) (45,762) (15,484) (1,440) 50,087 120,934 149,833

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APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

All of the Group’s leasehold land and buildings and plant and machinery were revalued on 31st March 2000 by Chesterton Petty Limited, an independent firm of professional valuers. The land and buildings were valued based on depreciated replacement cost basis and open market value existing use basis, and the plant and machinery were valued based on depreciated replacement cost basis.

(i) As stated in Note 2(a), all fixed assets in Zhongshan, the PRC, were seized under court orders, and were written-off accordingly.

As at 31st March 2001, the net book value of fixed assets held under finance leases was HK$nil (2000: approximately HK$29,499,000).

COMPANY

2001 Furniture, fixtures and equipment HK$’000 Cost or valuation: Beginning of year – Intercompany transfer-in 71 End of year 71 Accumulated depreciation: Beginning of year – Depreciation transfer-in 6 Charge for the year 14 End of year 20 Net book value: End of year 51 Beginning of year –	2000 Total HK$’000 (Note 30) – –
	–

	– – –
	–

	–

	–

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APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

13. GOODWILL

Addition Less: Accumulated amortisation End of year	2001 HK$’000 20,484 (256) 20,228	2000 HK$’000 (Note 30) – –
		–

14. INVESTMENT IN SUBSIDIARIES

Unlisted investments, at cost Less: Provisions for impairment in values	Company 2001 2000 HK$’000 HK$’000 (Note 30) 109,202 109,192 (109,192) (109,192 10 –	Company 2001 2000 HK$’000 HK$’000 (Note 30) 109,202 109,192 (109,192) (109,192 10 –
		–

Provisions have been made against the investment costs by the directors in view of the losses incurred by the Company’s principal subsidiaries and their financial difficulties.

Particulars of the Company’s principal subsidiaries as at the balance sheet date are set out in Note 26 to the financial statements.

As at 31st March 2001, the amount due to subsidiaries was unsecured, non-interest bearing and with no pre-determined repayment terms.

15. ACCOUNTS RECEIVABLE

Sales of goods are payable within 30 days by the customers. The aging analysis of accounts receivable is as follows:

Within 30 days Over 30 days but within 90 days Over 90 days	Group 2001 2000 HK$’000 HK$’000 (Note 30) 13,230 2,308 16,285 421 10,761 5,493 40,276 8,222	Group 2001 2000 HK$’000 HK$’000 (Note 30) 13,230 2,308 16,285 421 10,761 5,493 40,276 8,222
		8,222

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APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

16. ACCOUNTS PAYABLE

The aging analysis of accounts payable is as follows:

Within 90 days Over 90 days but within 180 days Over 180 days	Group 2001 2000 HK$’000 HK$’000 (Note 30) – 765 – 14,196 462 124,557 462 139,518	Group 2001 2000 HK$’000 HK$’000 (Note 30) – 765 – 14,196 462 124,557 462 139,518
		139,518

17. BANK LOANS AND OVERDRAFTS

Bank overdrafts Bank loans OTHER LOAN Secured Unsecured	Group 2001 2000 HK$’000 HK$’000 (Note 30) 2,195 32,819 457 150,301 2,652 183,120	Group 2001 2000 HK$’000 HK$’000 (Note 30) 2,195 32,819 457 150,301 2,652 183,120	Group 2001 2000 HK$’000 HK$’000 (Note 30) 2,195 32,819 457 150,301 2,652 183,120	Company 2001 2000 HK$’000 HK$’000 (Note 30) 1,949 – 457 21,347 2,406 21,347 Group 2001 2000 HK$’000 HK$’000 (Note 30) 20,553 – – 43,972 20,553 43,972	Company 2001 2000 HK$’000 HK$’000 (Note 30) 1,949 – 457 21,347 2,406 21,347 Group 2001 2000 HK$’000 HK$’000 (Note 30) 20,553 – – 43,972 20,553 43,972


					43,972

18. OTHER LOAN

Other loan, secured, represents a loan from a financial institution of US$2,652,000 bearing interest at 12% per annum. This loan is secured by guarantee from a director.

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APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

19. OBLIGATIONS UNDER FINANCE LEASES

There were obligations under finance leases at the balance sheet date as follows:

Group 2001 2000 HK$’000 HK$’000 (Note 30) Amounts payable in the next year 2,135 29,689 Amounts payable in the second to fifth years inclusive 11,314 259 Total obligations under finance leases 13,449 29,948 Less: amounts payable in the next year (2,135) (29,689) Non-current portion of obligations under finance leases 11,314 259	Company 2001 2000 HK$’000 HK$’000 (Note 30) 2,096 – 11,021 – 13,117 – (2,096) – 11,021 –	Company 2001 2000 HK$’000 HK$’000 (Note 30) 2,096 – 11,021 – 13,117 – (2,096) – 11,021 –
		– –
		–

20. CONVERTIBLE BONDS

Pursuant to the subscription letter dated 20th May 1998 made between Baring Asia Flagship Investments B.V. and the Company, the convertible bonds (the “Bonds”) in the principal amount of US$6,000,000 (equivalent to HK$46,476,000) were issued by the Company at the direction of Baring Asia Flagship Investments B.V. on 30th June 1998 to Baring Asia Investments II B.V. The Bonds were transferred in or about July 2000 to BAPEF Investments II Limited (the “Bondholder”). As at 31st March 2001, the outstanding balance of the Bonds was US$3,600,000 (equivalent to HK$28,031,000).

The Bonds are, at the option of the Bondholder, convertible on or after 1st July 1998 up to and including 30th June 2001, into fully paid ordinary shares of the Company with a par value of HK$0.10, at an initial conversion price of HK$0.588, subject to adjustment under certain events.

Unless previously redeemed, converted, purchased or cancelled, the Company is required to redeem the Bonds on the original maturity date at 133.75%.

On 7th June 2001, the Company entered into an agreement with Able Technology Limited and the Bondholder in which the maturity date has been extended to June 2003. The conversion price has been revised to HK$0.25, subject to adjustment under certain events. The conversion time of the Bonds is fixed at 31st December 2001, 30th June 2002, 31st December 2002 and 30th June 2003 to convert US$900,000 (equivalent to approximately HK$7,008,000) on each date. In addition, all accrued interest from 30th June 1998 to the completion of the agreement will be waived by the Bondholder upon issuance of 6.88 million new ordinary shares to the Bondholder. These shares will be issued on or before 31st December 2001.

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APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

21. SHARE CAPITAL

Shares Note Authorised: Ordinary shares of HK$0.10 each Beginning of year Addition a End of year Issued and fully paid: Ordinary shares of HK$0.10 each Beginning of year Placement of new shares b As consideration c Debt conversion d End of year	Company No. of shares ’000 HK$’000 1,000,000 100,000 500,000 50,000 1,500,000 150,000 438,900 43,890 190,000 19,000 60,000 6,000 202,608 20,261 891,508 89,151	Company No. of shares ’000 HK$’000 1,000,000 100,000 500,000 50,000 1,500,000 150,000 438,900 43,890 190,000 19,000 60,000 6,000 202,608 20,261 891,508 89,151
		150,000

		43,890 19,000 6,000 20,261
		89,151

Notes:

(a) On 24th November 2000, the authorised share capital of the Company increased from 1,000,000,000 to 1,500,000,000 ordinary shares of HK$0.10 each.
(b) During the year, the Company allotted new ordinary shares through private placements and details are as follows:

	Number of issued
Issue date	ordinary shares	Issued price (HK$)
17th July 2000	80,000,000	0.35
14th August 2000 (i)	50,000,000	0.35
2nd March 2001	60,000,000	0.30
	190,000,000

(i) The allotment of these shares was made to Able Technology Limited, the single largest shareholder of the Company, and not in proportion to other shareholders of the Company. Such allotment has not been specifically authorised by the shareholders. These shares were allotted pursuant to a general mandate granted by the shareholders of the Company on 31st May 2000. The proceeds of this allotment were approximately HK$17.5 million, of which approximately HK$14 million was used for repayment of debts owing to financial creditors and the remaining portion was used as general working capital.
(c) On 8th January 2001, pursuant to the shareholders’ resolution, the Company allotted 60,000,000 new ordinary shares as consideration of the acquisition of Holy (HK), which was HK$24,000,000.

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APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

(d) During the year, the Company converted certain of its debts into subscription shares and details are as follows:

Date of conversion 20th December 2000 2nd January 2001 9th January 2001_(ii) 17th January 2001(ii) 19th January 2001(ii)_	Number of ordinary shares Issued price (HK$) 69,106,376 1.00 19,797,041 1.00 2,925,171 1.00 41,651,428 approximately 0.35 69,128,171 approximately 0.35 202,608,187

(ii) These shares were issued pursuant to a general mandate granted by the Shareholders of the Company on 3rd November 2000.
(e) Details of new ordinary shares issued subsequent to the balance sheet date are set out in note 2(b)(i) and (ii).
(f) Subsequent to the balance sheet date, on 12th July 2001, the authorised share capital of the Company was increased from HK$150,000,000 to HK$300,000,000 by the creation of an additional 1,500,000,000 ordinary shares of HK$0.10 each ranking pari passu in all respects with the existing issued shares.
(g) Share options

By an ordinary resolution passed at an annual general meeting of the Company held on 22nd January 2001, the employee share option scheme of the Company adopted pursuant to a resolution of the Company passed on 15th January 1997 (the “Previous Scheme”) was terminated. No share options under the Previous Scheme was exercised during the year as all share options granted lapsed in 1999.

A new share option scheme (the “Share Option Scheme”) was adopted by the Company on 22nd January 2001. Pursuant to the Share Option Scheme, the directors may, within a period of 10 years commencing from 22nd January 2001, grant options to any employee and/or directors of the Company or any of its subsidiaries to subscribe for shares in the Company. No share options was granted under the Share Option Scheme during the year.

22. RESERVES

GROUP

Beginning of year Revaluation deficit Disposal of subsidiaries Write-off of assets Premium on issue of shares Share issue expenses End of year	Share premium HK$’000 115,918 – – – 172,841 (603) 288,156	Fixed asset revaluation reserve HK$’000 7,741 (1,121) (3,376) (3,244) – – –	Total HK$’000 123,659 (1,121 (3,376 (3,244 172,841 (603
			288,156

– 50 –

APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

COMPANY

Beginning of year Premium on issue of shares Share issue expenses End of year	Share premium HK$’000 115,918 172,841 (603) 288,156	Contributed surplus HK$’000 107,992 – – 107,992	Total HK$’000 223,910 172,841 (603) 396,148

The contributed surplus of the Company represents the difference between the fair value of the consolidated net assets of Chun Tai (BVI) Limited acquired and the nominal value of the Company’s shares issued in exchange therefor. Under the Bermuda Companies Act, the contributed surplus less accumulated losses is distributable to the shareholders of the Company, which the Company does not currently meet.

– 51 –

APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

23. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT

(a) Reconciliation of profit (loss) before taxation to net cash outflow from operating activities

Profit (Loss) before taxation Interest income Depreciation of fixed assets Amortisation of goodwill Provisions for bad and doubtful debts Provisions for inventory obsolescence Gain on disposal of subsidiaries Loss on disposal of fixed assets Loss on write-off of net assets of a subsidiary Gain on waiver of obligations under finance leases Gain on waiver of bank overdraft, bank loans and others loans Deficit on revaluation of fixed assets Write-back of revaluation deficit Write-back of provision against unsubstantiated and idle fixed assets, net Write-off of obsolete fixed assets Write-back of provision against amount due from an associate Write-off of other miscellaneous items Write-off of unsubstantiated payments and receipts, net Write-back of provision for guarantee Provision for guarantee in respect of debts owed by a subcontractor Interest expense (Increase) Decrease in accounts receivable Decrease (Increase) in other receivables, deposits and prepayments Decrease in inventory Increase in amount due from Group companies Decrease in trust receipt loans Decrease in accounts payable (Decrease) Increase in other payables and accruals Decrease in amount due from an associate Increase in amount due to Group companies Decrease in amount due to related companies Exchange realignment Net cash outflow from operating activities	2001 HK$’000 237,427 (126) 8,954 256 691 – (149,060) 495 386 (13,356) (101,442) – – – 43 – – – (5,905) – 8,741 (20,760) 11,469 212 – – (58,661) (24,681) – – (5,246) – (110,563)	2000 HK$’000 (Note 30) (150,273) (130) 30,594 – 12,095 16,285 (4,771) 2,242 – – – 2,228 (6,037) (3,722) – (386) 1,152 46,056 – 350 47,278 3,848 (52,419) – (5,830) (10,277) (24,787) 87,534 386 6,371 – 155 (2,058)

– 52 –

APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

(b) Analysis of changes in financing during the year

Beginning of year Cash inflow (outflow) from financing activities, net Disposal of subsidiaries Debt conversion Acquisition of subsidiary Waiver of debt End of year	Share capital and share premium HK$’000 159,808 62,897 – 130,602 24,000 – 377,307	Share capital and share premium HK$’000 159,808 62,897 – 130,602 24,000 – 377,307	Convertible bonds HK$’000 28,031 – – – – –	Bank and other loans HK$’000 123,633 121,368 (12,500) (130,602) – (101,442)	Obligations under finance leases HK$’000 29,948 (2,330) (813) – – (13,356) 13,449
		377,307	28,031	457

(c) Major non-cash transactions

During the year, the Group entered into agreements with three of its finance lessors. Pursuant to these agreements, these finance lessors have agreed to accept payments of 20% of the outstanding indebtedness owed by the Group as a final settlement of the debts. These agreements have reduced the obligations under finance leases by HK$13,356,000.

On 14th June 2000, the Company made an offer to 16 financial creditors concerning the restructuring of certain outstanding indebtedness owed by the Group to these financial creditors. Pursuant to the offer, the outstanding indebtedness owed by the Group to 9 of the 16 financial creditors was fully settled by paying 20% thereof. These agreements reduced the debts by a total of HK$101,442,000, including bank overdrafts, trust receipt loans and other loans of HK$55,630,000 and bank loans of HK$45,812,000.

On 8th January 2001, the Company allotted 60,000,000 ordinary shares to a director as consideration for the acquisition of a subsidiary. For details please refer to (d).

During the year, the Company entered into several debt-equity conversion agreements with its major financial and trade creditors, leading to a capitalisation of the Group’s indebtedness of HK$130,602,000. The debt conversion had increased the cash and cash equivalent of HK$26,060,000, reduced bank loans of HK$12,714,000 and other loans of HK$40,713,000.

– 53 –

APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

(d) Acquisition of a subsidiary

		HK$’000
	Net assets acquired:
	Cash and bank balances	5,568
	Accounts receivable	12,227
	Other receivables, deposits and prepayments	12,364
	Other payables and accruals	(1,007)
	Amount due to related companies	(25,636)
		3,516

	Paid by:
	Share consideration	24,000

	Analysis of net inflow of cash and cash equivalents in respect of the acquisition of a
	subsidiary:
		HK$’000
	Cash consideration	–
	Cash and cash equivalents acquired	5,568
	Net inflow of cash and cash equivalents in respect of the
	acquisition of a subsidiary	5,568

(e)	Disposal of subsidiaries
		HK$’000
	Net assets disposed of:
	Fixed assets	102,631
	Cash	701
	Bank loans and overdrafts	(12,500)
	Accounts receivable	242
	Other receivables, deposits and prepayments	1,157
	Inventory	5,166
	Accounts payable	(80,183)
	Other payables and accruals	(123,410)
	Amounts due to Group companies	(38,468)
	Obligations under finance leases	(813)
	Tax payable	(207)
	Revaluation reserve	(3,376)
		(149,060)
	Gain on disposal of subsidiaries	149,060
		–

	Satisfied by:
	Cash consideration	–

– 54 –

APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

Analysis of the net outflow of cash and cash equivalents in respect of the disposal of subsidiaries:

Cash consideration Cash and cash equivalents disposed of Net outflow of cash and cash equivalents in respect of the disposal of subsidiaries	HK$’000 – (701
	(701

24. RELATED PARTY TRANSACTIONS

Parties are considered to be related if one party has the ability, directly or indirectly, to control or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence.

The Group had the following material related party balances and transactions:

(a) Amount due to related companies was unsecured, non-interest bearing and had no predetermined term of repayment.
(b) Amount due to shareholders was unsecured, non-interest bearing and had no pre-determined terms of repayment.
(c) A director of the Company provided guarantee on the other loan of the Group.

25. COMMITMENTS

As at the balance sheet date, the Group had the following material commitments:

Annual commitments payable in the following year under non-cancellable operating leases in respect of land and buildings expiring within:

One year Two to five years, inclusive	Group 2001 2000 HK$’000 HK$’000 (Note 30) 807 47 – 1,587 807 1,634	Group 2001 2000 HK$’000 HK$’000 (Note 30) 807 47 – 1,587 807 1,634
		1,634

As at the balance sheet date, save as disclosed above, the Company had no other significant commitments.

– 55 –

APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

26. PARTICULARS OF SUBSIDIARIES

Particulars of the Company’s principal subsidiaries at the balance sheet date are as follows:

	Place of	Issued	Percentage of
	incorporation/	share/paid-up	equity interest
	registration and	registered	attributable to		Principal
Name	operations	capital	the Company		activities
			2001	2000
Chun Tai (BVI) Limited	The British Virgin	US$100	100%	100%	Investment holding
– Note (ii)	Islands
Chun Tai Novelty	Hong Kong	HK$10,000	100%	100%	Dormant
Company Limited
Telecom Plus Technology	Hong Kong	HK$1,000,000	100%	100%	Investment holding
Limited – Note (ii)					and trading of
					communication
					and electronic
					products
Up Hill Investments	The British Virgin	US$1	100%	100%	Dormant
Limited – Note (ii)	Islands/Hong Kong
Full Hope Enterprises Limited	Hong Kong	HK$10,000	100%	100%	Investment holding
– Note (ii)
Holy (Hong Kong)	Hong Kong/	HK$300,000	100%	100%	Trading of
Universal Limited	The PRC				communication
					and electronic
					products
Telecom Plus Technology	The PRC	HK$2,000,000	100%	100%	Trading of
(Shenzhen) Limited					communication
– Notes (iii) and (v)					and electronic
					products
Chun Tai Printing Limited	Hong Kong	HK$10,000	90%	90%	Investment holding
Zhongshan Modern Colour	The PRC	HK$11,000,000	90%	90%	Dormant
Printing and Packaging
Products Factory Company
Limited – Notes (iii) and (iv)

Notes:

(i) All holdings are ordinary shares except Zhongshan Modern Colour Printing and Packaging Products Factory Company Limited and Telecom Plus Technology (Shenzhen) Limited, which are of equity interest.

– 56 –

APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

(ii) Directly held by the Company
(iii) Directly translated from the Chinese name shown in the business licence.
(iv) Zhongshan Modern Colour Printing and Packaging Products Factory Limited was licensed to operate as a wholly foreign-owned enterprise for a period of 11 years commencing 28th February 1995.
(v) Telecom Plus Technology (Shenzhen) Limited was licensed to operate as a wholly foreign-owned enterprise for a period of 10 years commencing 9th January 2001.

27. PENSION SCHEME

The Group participated in the defined Mandatory Provident Fund Scheme in Hong Kong since 1st December 2000 and makes monthly contributions to the Scheme based on 5% of the employees’ basic salaries, with an upper limit of HK$1,000 for both the Group and employees. During the year ended 31st March 2001, the Group’s employer’s contribution for pension scheme was approximately HK$30,000 (2000: Nil). The assets of the fund are held separately from those of the Group and are managed by independent professional fund managers.

28. CONTINGENT LIABILITIES

As at 31st March 2001, the Company provided guarantees in respect of an other loan granted to a disposed subsidiary with an amount of approximately HK$35.5 million.

29. POST BALANCE SHEET EVENTS

(a) As stated in Note 2(b)(i), the Company placed 160 million ordinary shares on 5th June 2001 with cash proceeds of approximately HK$28,800,000.
(b) As stated in Note 2(b)(iii), Holy (HK) acquired a 51% equity interest of Beijing HollyBridge at a consideration of HK$16 million which was completed on 12th June 2001.
(c) As stated in Note 2(b)(ii), subsequent to the year ended 31st March 2001, the Company has converted debts of approximately HK$915,000 into ordinary shares at conversion prices ranging from approximately HK$0.305 to approximately HK$1 per ordinary share.
(d) As stated in Note 20, on 7th June 2001, the Company had entered into a supplemental agreement with Able Technology Limited and the Bondholder in which the maturity date of the Bonds has been extended to 30th June 2003.
(e) As stated in Note 21, the Company increased its authorised share capital to HK$300,000,000 on 12th July 2001.

30. COMPARATIVE FIGURES

The financial statements as at and for the year ended 31st March 2000 were audited and reported on by certified public accountants other than Arthur Andersen & Co, whose report dated 11th December 2000 was disclaimed due to limitation in evidence and fundamental uncertainties.

– 57 –

APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

III. UNAUDITED INTERIM REPORT OF THE COMPANY

The following is a summary of the unaudited consolidated results of the Group for the six months ended 30th September 2001 together with the comparative figures for the last corresponding period, extracted from the Group’s interim report for the six months period ended 30th September 2001.

CONDENSED CONSOLIDATED INCOME STATEMENT

Notes
Turnover
Continuing operations
2
Discontinued operations
2,3
Cost of sales
Continuing operations
Discontinued operations
Gross profit (loss)
Continuing operations
Discontinued operations
Other revenue
Selling and distribution expenses
Administrative expenses
Other operating expenses
Gain on deconsolidation of subsidiaries
Gain on debt restructuring
Profit from operating activities
4
Continuing operations
Discontinued operations
Discontinued operations
Finance costs
Discontinued operations
Profit before taxation
Taxation
5
Discontinued operations
Profit before minority interests
Minority interests
Discontinued operations
Profit attributable to shareholders
Earnings per share
Basic
6
Diluted
6

Unaudited
Six months ended
30th September
2001
2000
HK$’000
HK$’000
137,854
–
–
472
137,854
472
(111,435)
–
–
(6,532)
(111,435)
(6,532)
26,419
–
–
(6,060)
26,419
(6,060)
265
2,098
(3,113)
–
(4,741)
(23,192)
(1,093)
(1,081)
–
116,882
–
119,933
17,737
–
–
208,580
–
(6,060)
17,737
208,580
(2,424)
(8,213)
–
(6,060)
15,313
200,367
(1,388)
–
–
(6,060)
13,925
200,367
(3,706)
–
–
(6,060)
10,219
200,367
1.0 cent
41.0 cents
0.9 cent
N/A

– 58 –

APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

CONSOLIDATED STATEMENT OF RECOGNISED GAINS AND LOSSES

Deficit on revaluation of fixed assets Deconsolidation of subsidiaries Exchange differences on translation of the financial statements of foreign entities Net loss not recognised in the income statement Net profit attributable to shareholders Total recognised gains	Unaudited Six months ended 30th September 2001 2000 HK$’000 HK$’000 – (1,421) – (3,376) 235 – 235 (4,797) 10,219 200,367 10,454 195,570

– 59 –

APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

CONDENSED CONSOLIDATED BALANCE SHEET

As at 30th September 2001 (Unaudited) Notes HK$’000 Non-current assets Fixed assets 8,338 Development cost 11,278 Goodwill 24,911 44,527 Current assets Inventories 46,331 Accounts receivable 7 60,280 Other receivables, deposits and prepayments 36,923 Cash and bank balances 17,567 161,101 Total assets 205,628 Current liabilities Accounts payable 8 37,921 Other payables and accruals 35,745 Amount due to related companies 21,983 Amount due to shareholders – Tax payable 2,594 Bank loans and overdrafts 13,170 Other loans 37,742 Obligations under finance leases 2,604 Current portion of convertible bonds 14,015 165,774	As at 31st March 2001 (Audited) HK$’000 677 – 20,228
	20,905
	– 40,276 3,473 5,901
	49,650
	70,555
	462 34,959 20,390 3,789 – 2,652 20,553 2,135 7,008
	91,948

– 60 –

APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

CONDENSED CONSOLIDATED BALANCE SHEET (CONTINUED)

As at
30th September
2001
(Unaudited)
Notes
HK$’000
Net current liabilities
(4,673)
Non-current liabilities
Obligations under finance leases
payable in more than one year
10,289
Non-current portion of convertible bonds
14,015
Minority interests
14,600
Total non-current liabilities
38,904
Net assets (liabilities)
950
Capital and reserves
Share capital
9
106,042
Reserves
10
315,726
Accumulated losses
(420,818)
950

As at
31st March
2001
(Audited)
HK$’000
(42,298)
11,314
21,023
–
32,337
(53,730)
89,151
288,156
(431,037)
(53,730)

– 61 –

APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

NET CASH (OUTFLOW) INFLOW FROM
OPERATING ACTIVITIES
RETURNS ON INVESTMENTS AND
SERVICING OF FINANCE
Interest received
Interest paid
Net cash outflow from returns on investments
and servicing of finance
TAX
Hong Kong profits tax paid
INVESTING ACTIVITIES
Purchases of fixed assets
Proceeds from disposal of fixed assets
Repayment of shareholders’ loan
Development cost
Acquisition of a subsidiary, net
11 (a)
Disposal of subsidiaries
Net cash outflow from investing activities
NET CASH (OUTFLOW) INFLOW BEFORE
FINANCING ACTIVITIES
FINANCING ACTIVITIES
Issue of new shares
Share issue expenses
Repayment of bank loans
Repayment of other loans
Repayment of obligations under finance leases
Net cash inflow from financing activities

Unaudited
Six months ended
30th September
2001
2000
HK$’000
HK$’000
(8,716)
36,977
265
94
(1,787)
(3,175)
(1,522)
(3,081)
–
(100)
(1,673)
(355)
248
–
(3,789)
–
(6,928)
–
(15,557)
–
–
(701)
(27,699)
(1,056)
(37,937)
32,740
28,800
45,500
–
(603)
(457)
(6,698)
–
(3,259)
(129)
–
28,214
34,940

– 62 –

APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

CONDENSED CONSOLIDATED CASH FLOW STATEMENT (CONTINUED)

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of period Effect of foreign exchange rate changes, net CASH AND CASH EQUIVALENTS AT END OF PERIOD ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances Bank overdrafts Trust receipt loans Other loans Bank loans	Unaudited Six months ended 30th September 2001 2000 HK$’000 HK$’000 (9,723) 67,680 (16,848) (98,946) (170) – (26,741) (31,266) 17,567 2,652 (1,849) (18,009) – (5,766) (37,742) – (4,717) (10,143) (26,741) (31,266)

– 63 –

APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

NOTES TO THE CONDENSED FINANCIAL STATEMENTS:

1. Principal accounting policies

These interim financial statements have not been audited by the Company’s auditors but have been reviewed by the Company’s audit committee.

These interim financial statements have complied with Statements of Standard Accounting Practice (“SSAP”) No. 25 “Interim Financial Reporting” issued by the Hong Kong Society of Accountants (“HKSA”) and the disclosure requirements set out in Appendix 16 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”).

The accounting policies and basis of presentation used in the preparation of the interim financial statements are consistent with those used in the annual audited financial statements for the year ended 31st March 2001, except that the following new/revised SSAPs have been adopted for the first time in the preparation of the current period’s condensed consolidated financial statements:

SSAP 9 (revised) Events after the Balance Sheet Date SSAP 14 (revised) Leases SSAP 28 Provisions, Contingent Liabilities and Contingent Assets SSAP 29 Intangible Assets SSAP 30 Business Combinations SSAP 31 Impairment of Assets SSAP 32 Consolidated Financial Statements and Accounting for Investments in Subsidiaries

– 64 –

APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

2. Segmental information

By activities Continuing operations – communication products – communication software and services Discontinued operations – toy products By geographical regions PRC (excluding Hong Kong) Hong Kong Europe United States of America Others	Turnover Six months ended 30th September 2001 2000 HK$’000 HK$’000 116,820 – 21,034 – – 472 137,854 472 137,854 – – 10 – 34 – 336 – 92 137,854 472	Contribution to profit (loss) from operating activities Six months ended 30th September 2001 2000 HK$’000 HK$’000 11,159 – 6,578 – – 208,580 17,737 208,580 17,737 – – 236,217 – (2,034) – (20,100) – (5,503) 17,737 208,580

3. Discontinued operations

In prior period, the Group’s production facilities in PRC had been seized by court order and the Group had not engaged in any production activities thereafter.

– 65 –

APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

4. Profit from operating activities

Profit from operating activities is determined after charging and crediting the followings:

Charging: Depreciation of fixed assets Operating lease rentals in respect of land and buildings Exchange losses, net Amortisation of goodwill Loss on disposals of fixed assets Interest on bank loans and overdrafts wholly repayable within one year Interest on convertible bonds wholly repayable within five years Interest on other loans Crediting: Interest income on bank deposits	Unaudited Six months ended 30th September 2001 2000 HK$’000 HK$’000 645 8,281 913 669 209 599 600 – 69 200 226 2,818 857 2,383 1,341 3,012 265 94	Unaudited Six months ended 30th September 2001 2000 HK$’000 HK$’000 645 8,281 913 669 209 599 600 – 69 200 226 2,818 857 2,383 1,341 3,012 265 94

		94

5. Tax

No provision for Hong Kong profits tax has been made as the Group did not generate any assessable profits arising in Hong Kong for the period (2000: Nil).

The amount of taxation charged to the consolidated income statement represents the overseas taxation. (2000: Nil)

6. Earnings per share

(a) Basic earnings per share

The calculation of basic earnings per share is based on the unaudited net profit attributable to shareholders for the period of HK$10,219,000 (2000: HK$200,367,000), and the weighted average of 997,379,979 (2000: 485,238,798) ordinary shares in issue during the period.

(b) Diluted earnings per share

The calculation of diluted earnings per share is based on the unaudited net profit attributable to shareholders for the period of HK$10,219,000. The weighted average number of ordinary shares used in the calculation comprises the 997,379,979 ordinary shares in issue during the period, as used in the basic earnings per share calculation, and the weighted average of 125,577,358 ordinary shares assumed to have been issued at no consideration on the deemed exercise of all options outstanding and all outstanding balance of convertible bonds had been converted into shares during the period.

– 66 –

APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

The diluted earnings per share for the six months ended 30th September 2000 is not shown because there were no dilutive potential ordinary shares outstanding during the period.

7. Accounts receivable

The Group’s average credit term to trade debtor is 60 days. The aging analysis of accounts receivable is as follows:

As at 30th September 2001 (Unaudited) HK$’000 Within 30 days 31,473 Over 30 days but within 90 days 6,050 Over 90 days 22,757 60,280	As at 31st March 2001 (Audited) HK$’000 13,230 16,285 10,761
	40,276

8. Accounts payable

The aging analysis of accounts payable is as follows:

As at 30th September 2001 (Unaudited) HK$’000 Within 180 days 36,083 Over 180 days 1,838 37,921	As at 31st March 2001 (Audited) HK$’000 – 462
	462

– 67 –

APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

9. Share Capital

(a) Shares

Note Authorised: Ordinary shares of HK$0.10 each Beginning of period Addition i. End of period Issued and fully paid: Ordinary shares of HK$0.10 each Beginning of period Placement of new shares ii. Debt conversion iii. End of period	No. of shares ’000 1,500,000 1,500,000 3,000,000 891,508 160,000 8,907 1,060,415	HK$’000 150,000 150,000
		300,000

		89,151 16,000 891
		106,042

Notes:

(i) On 12th July 2001, the authorised share capital of the Company was increased from 1,500,000,000 to 3,000,000,000 ordinary shares of HK$0.10 each.
(ii) On 30th May 2001, the Company announced the placing of 160 million new shares of the Company of HK$0.10 each at a price of HK$0.18 per share. The placing was completed on 5th June 2001 and the cash proceeds therefrom was approximately HK$28.8 million.
(iii) During the period, the Company converted certain of its indebtedness into subscription shares and details are as follows:

Date of conversion Number of 30th May 2001 12th June 2001 22nd August 2001	ordinary shares Approximate issued price (HK$) 1,600,000 0.305 427,000 1.00 6,880,000 2.10 8,907,000

– 68 –

APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

(b) Share options

On 3rd August 2001, the Company granted 4,500,000 share options to certain employees of the Group at a consideration of HK$1.00 per grantee under the share option scheme (the “Scheme”) for the subscription of ordinary shares of the Company at a subscription price of HK$0.3672 per share. The share options granted are exercisable up to 2nd August 2011.

On 29th August 2001, the Company granted 92,670,000 share options to certain directors and certain employees of the Group at a consideration of HK$1.00 per grantee under the Scheme for the subscription of ordinary shares of the Company at a subscription price of HK$0.352 per share. The share options granted are exercisable for the period from 1st April 2002 to 28th August 2011.

None of these share options has been exercised since the dates of grant.

10. Reserves

Beginning of period Premium on issue of shares Exchange reserve End of period	Share premium HK$’000 288,156 27,335 – 315,491	Exchange reserve HK$’000 – – 235 235	Total HK$’000 288,156 27,335 235
			315,726

11. Notes to condensed consolidated cash flow statement

(a) Acquisition of a subsidiary

During the period, the Group acquired 51% interest in Beijing HollyBridge System Integration Company Limited at a total consideration of HK$16,000,000 in cash. The acquisition during the period contributed approximately HK$443,000 to the group’s cash and cash equivalents.

(b) Major non-cash transaction

During the period, the Company entered into debt-equity conversion agreements with its creditors, leading to a capitalization of the Group’s indebtedness of approximately HK$15,426,000.

– 69 –

APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

12. Related party transactions

As at the balance sheet date, the Group had the following material related parties balances:

(a) Amounts due to a related company was unsecured, non-interest bearing and had no predetermined term of repayment.
(b) A director of the Company provided guarantee on other loan of the Group.

13. Commitments

As at 30th September 2001, the Group had the annual commitments payable in the following year under non-cancellable operating leases in respect of land and buildings expiring within:

As at 30th September 2001 (Unaudited) HK$’000 One year 391 Two to five years, inclusive 4,129 4,520	As at 31st March 2001 (Audited) HK$’000 807 –
	807

14. Contingent liabilities

As at 30th September 2001, the Group provided guarantees in respect of an other loan granted to a disposed subsidiary to the extent of approximately HK$36 million.

15. Post balance sheet events

(a) On 2nd November 2001, the Company provided a guarantee to a financial institution for a loan facility provided to a subsidiary to the extent of approximately HK$28 million.
(b) On 23rd November 2001, the Group entered into a letter of intent with Shenzhen Venture Capital Co. Ltd. in respect of the proposed subscription of equity interest of Telecom Plus Technology (Shenzhen) Limited, a wholly-owned subsidiary of the Group. The subscription funds will be amounted to approximately HK$19 million.

– 70 –

APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

IV. INDEBTEDNESS

As at the close of business on 31st March 2002, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Enlarged Group had outstanding unsecured bank borrowings of approximately HK$14,151,000, other borrowings of approximately HK$43,151,000, obligations under finance leases of approximately HK$11,314,000 and convertible bonds of approximately HK$21,060,000. Also, as at the same date, the Enlarged Group had provided guarantees in respect of other loans granted to disposed subsidiary to the extent of approximately HK$36,000,000.

Save as aforesaid or as otherwise disclosed herein, and apart from intra-group liabilities, none of the companies comprising the Enlarged Group had outstanding at the close of business on 31st March 2002 any mortgages, charges, debentures or other loan capital, issued and outstanding or agreed to be issued, bank loans or other similar indebtedness, finance lease commitments or other material contingent liabilities.

The Directors confirmed that there has been no material change in the indebtedness and contingent liabilities of the Enlarged Group since 31st March 2002.

V. WORKING CAPITAL

Taking into account the financial resources available to the Enlarged Group, including internally generated funds and the available banking facilities, the Directors are of the opinion that the Enlarged Group will have sufficient working capital for its present requirement.

VI. MATERIAL ACQUISITION

Save as disclosed herein, after 31st March 2001, no member of the Group has acquired or agreed to acquire or is proposing to acquire a business or an interest in the share capital of a company whose profits or assets make or will make a material contribution to the figures in the auditors’ report or next published accounts of the Group.

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I. SUMMARY OF RESULTS

The following is a summary of the results of Dynamic for the three years ended 30th June 2001 and for the six months ended 31st December 2001 as extracted from the published accounts of Dynamic.

Unaudited Six months ended 31st December 2001 HK$’000 Turnover 27,541 Other revenue 133 Profit before (loss) taxation 9,893 Taxation (648) Profit (loss) for the year 9,245 Minority interests (596) Net profit (loss) for the year 8,649 Distributions – Earnings per share (Hong Kong cents) – basic 3.95	For 2001 HK$’000 294,593 5,131 30,356 (8,739) 21,617 (556) 21,061 8,764 9.6	Audited the year ended 30th June 2000 1999 HK$’000 HK$’000 398,771 54,527 2,537 1,502 40,271 (178,530) (5,089) (176) 35,182 (178,706) (567) – 34,615 (178,706) 8,764 8,764 15.8 (81.6)

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II. AUDITED FINANCIAL STATEMENTS OF DYNAMIC

Set out below is an extract from the audited financial statements of the Dynamic for the year ended 30th June 2001 together with the notes thereto.

CONSOLIDATED INCOME STATEMENT

For the year ended 30th June 2001

Notes Turnover 4 Cost of sales Gross profit Other revenue 5 Operating expenses Written back of impairment in value of properties under development Profit from operations 6 Finance costs 7 Share of result of an associate Profit before taxation Taxation 9 Profit for the year Minority interests Net profit for the year 10 Distributions 11 Earnings per share (Hong Kong cents) 12 – basic	2001 HK$’000 294,593 (241,686) 52,907 5,131 (29,732) 12,447 40,753 (10,397) – 30,356 (8,739) 21,617 (556) 21,061 8,764 9.6	2000 HK$’000 398,771 (336,571) 62,200 2,537 (27,307) 9,102 46,532 (6,659) 398 40,271 (5,089) 35,182 (567) 34,615 8,764 15.8

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CONSOLIDATED BALANCE SHEET

At 30th June 2001

Notes Non-current assets Property, plant and equipment 13 Investment properties 14 Properties under development 15 Deposit paid to acquire land use rights 16 Goodwill 17 Investments in associates 19 Investments in securities 20 Current assets Properties under development 15 Properties held for sale 21 Trade and other receivables 22 Tax recoverable Bank deposits – pledged Bank balances and cash Current liabilities Trade and other payables 23 Pre-sale deposits received Tax liabilities Proposed distribution Bank loans – due within one year (secured) 24 Net current assets Total assets less current liabilities	2001 HK$’000 6,962 520,000 325,626 51,064 3,584 421 – 907,657 – 86,898 56,382 16 6,117 168,751 318,164 186,863 25,519 117 4,382 15,550 232,431 85,733 993,390	2000 HK$’000 7,642 520,000 311,672 51,064 4,725 421 –
		895,524
		184,891 85,259 72,969 – 53,421 91,570
		488,110
		264,279 46,591 211 4,382 58,333
		373,796
		114,314
		1,009,838

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Notes Capital and reserves Share capital 25 Reserves 27 Minority interests Non-current liabilities Bank loans – due after one year (secured) 24 Amounts due to associates 28	2001 HK$’000 219,104 575,677 794,781 24,016 171,597 2,996 174,593 993,390	2000 HK$’000 219,104 562,389
		781,493
		23,423
		201,926 2,996
		204,922
		1,009,838

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NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30th June 2001

1. GENERAL

The Company was incorporated in Bermuda as an exempted company with limited liability and its shares are listed on The Stock Exchange of Hong Kong Limited (the “Hong Kong Stock Exchange”).

The Company acts an investment holding company. The activities of its principal subsidiaries are property investment and development.

2. ADOPTION OF STATEMENT OF STANDARD ACCOUNTING PRACTICE

In the current year, the Group has adopted, for the first time, Statement of Standard Accounting Practice 14 (Revised) “Leases” (“SSAP 14”par (Revised)) issued by the Hong Kong Society of Accountants.

The adoption of SSAP 14 (Revised) has not resulted in any significant changes to the accounting treatment adopted for leases and accordingly, no prior period adjustment has been required. Disclosure for the Group’s leasing arrangements have been modified so as to comply with the new requirements of SSAP 14 (Revised). Comparative amounts have been restated to achieve a consistent presentation.

3. SIGNIFICANT ACCOUNTING POLICIES

The financial statements have been prepared under the historical cost convention as modified for revaluation of certain properties of the Group. The financial statements have been prepared in accordance with accounting principles generally accepted in Hong Kong and the principal accounting policies adopted are as follows:

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to 30th June each year.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective dates of acquisition and up to the effective dates of disposal, as appropriate.

All significant inter-company transactions and balances within the Group have been eliminated on consolidation.

Goodwill and capital reserve arising on consolidation

Goodwill arising on consolidation which represents the excess of purchase consideration over the fair value ascribed to the separable net assets at the date of acquisition of a business, is recognised as an asset and amortised on a straight line basis over its estimated useful economic life or ten years, whichever is shorter.

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Capital reserve arising on consolidation which represents the excess of the fair value of separable net assets at the date of acquisition of a business over the purchase consideration, is credited directly to reserves.

On disposal of a subsidiary, the attributable amount of unamortised goodwill, or capital reserve previously written off or credited to reserves at the time of acquisition is included in the determination of the profit or loss on disposal.

Revenue recognition

When properties under development are sold, revenue is recognised either when the sale agreement is completed or when the development is completed which is determined by the issuance of the relevant occupation permit, whichever is the later. Deposits and instalments received on properties sold prior to their completion are included in current liabilities.

Rental income, including rental invoiced in advance from properties under operating leases, is recognised on a straight line basis over the lease terms.

Interest income is accrued on a time basis by reference to the principal outstanding and at the interest rate applicable.

Port operations income is recognised when the services are rendered.

Dividend income from investments is recognised when the Group’s right to receive payment has been established.

Investment properties

Investment properties are completed properties which are held for their investment potential, any rental income being negotiated at arm’s length.

Investment properties are stated at their open market values based on professional valuations at the balance sheet date. Any surplus or deficit arising on the revaluation of investment properties is credited or charged to the investment property revaluation reserve unless the balance of this reserve is insufficient to cover a deficit, in which case the excess of the deficit over the balance of the investment property revaluation reserve is charged to the income statement.

Where a deficit has previously been charged to the income statement and a revaluation surplus subsequently arise, this surplus is credited to the income statement to the extent of the deficit previously charged.

On disposal of an investment property, the balance on the investment property revaluation reserve attributable to that property is transferred to income statement.

No depreciation is provided on investment properties except where the unexpired term of the relevant lease is 20 years or less.

Properties under development

Properties under development are stated at the lower of cost and net realisable value. Cost comprises the cost of land under development, interest, finance charges, professional fees and

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APPENDIX II

other direct costs attributable to such properties until they reach a marketable state. Net realisable value is calculated at the estimated selling price less all costs to completion and costs of marketing and selling.

Properties under development which are due for completion more than one year from the balance sheet date are shown as non-current assets.

Properties under development which are due for completion within one year from the balance sheet date and are intended to be held for sale will be treated as properties under development and are shown as current assets.

Properties held for sale

Properties held for sale are stated at the lower of cost and net realisable value. Cost includes land cost, development costs, borrowing costs capitalised and other direct costs attributable to such properties until they reach a marketable state. Net realisable value represents the estimated selling price less all estimated costs of completion and the estimated costs necessary to make the sale.

Subsidiary

A subsidiary is an enterprise in which the Company, directly or indirectly, holds more than half of the issued share capital or controls more than half of the voting power, or where the Company controls the composition of its board of directors or equivalent governing body.

Investments in subsidiaries are included in the Company’s balance sheet at cost, as reduced by any decline in the value of the subsidiary that is other than temporary. Results of subsidiaries are accounted for by the Company on the basis of dividends received or receivable during the year.

Associate

An associate is an enterprise, over which the Group is in a position to exercise significant influence, including participation in financial and operating policy decisions.

The consolidated income statement includes the Group’s share of the postacquisition results of its associates for the year. In the consolidated balance sheet, interests in associates are stated at the Group’s share of the net assets of associates, as reduced by any decline in the value of the associate that is other than temporary.

When the Group transacts with its associates, unrealised profits and losses are eliminated to the extent of the Group’s interest in the relevant associates, except where unrealised losses provide evidence of an impairment of the asset transferred.

The results of associates are accounted for by the Company on the basis of dividends received and receivable during the year. In the Company’s balance sheet, investments in associates are stated at cost, as reduced by any decline in the value of the associate that is other than temporary.

Investments in securities

Investments in securities are recognised on a trade date basis and are initially measured at cost.

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Investments other than held-to-maturity debt securities are classified as investment securities and other investments.

Investment securities, which are securities held for an identified long-term strategic purpose, are measured at subsequent reporting dates at cost, as reduced by any impairment loss that is other than temporary.

Other investments are measured at fair value, with unrealised gains and losses included in net profit or loss for the period.

Property, plant and equipment

Property, plant and equipment are stated at cost less depreciation. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its present working condition and location for its intended use. Expenditure incurred after the assets have been put into operations, such as repairs and maintenance and overhaul costs, is normally charged to the income statement in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the asset, the expenditure is capitalised as an additional cost of the asset.

The gain or loss arising from disposal or retirement of an asset is determined as the difference between the sale proceeds and the carrying amount of the assets and is recognised in the income statement.

Where the recoverable amount of an asset has declined below its carrying amount, the carrying amount is reduced to reflect the decline in value. In determining the recoverable amount of assets, expected future cash flows are not discounted to their present values.

Depreciation is provided to write off the cost of other property, plant and equipment over their estimated useful lives using the straight line method at the following rates per annum:

Motor vehicles 15% to 20% Plant and machinery, equipment and others 10% to 33.3%

Capitalisation of borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying asset, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalised as part of the cost of those assets. Capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing cost capitalised.

All other borrowing costs are recognised as an expense in the period in which they are incurred.

Taxation

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APPENDIX II

recognised in the financial statements. The tax effect of timing differences, computed under the liability method, is recognised as deferred taxation in the financial statements to the extent that it is probable that a liability or asset will crystallise in the foreseeable future.

Operating leases

Rentals payable on properties under operating leases are charged to the income statement on a straight line basis over the terms of the leases.

Foreign currencies

Transactions in foreign currencies are translated at the rates ruling on the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are re-translated at the rates ruling on the balance sheet date. Gains and losses arising on exchange are dealt with in the income statement.

On consolidation, the financial statements of overseas operations are translated at the rates ruling on the balance sheet date. All exchange differences arising on consolidation are dealt with in the translation reserve.

Retirement benefit scheme

The pension costs charged in the income statement represent the contributions payable in respect of the current year to the Group’s defined contribution scheme.

Cash equivalents

Cash equivalents represent short-term, highly liquid investments which are readily convertible into known amounts of cash and which were within three months of maturity when acquired; less advances from banks repayable within three months from the date of the advances.

4. TURNOVER

The Group’s turnover and contribution to profit from operations are analysed as follows:

By principal activity:

Property sales Property rental Port operation income	Turnover 2001 2000 HK$’000 HK$’000 253,017 356,460 34,746 37,388 6,830 4,923 294,593 398,771	Contribution to profit from operations 2001 2000 HK$’000 HK$’000 20,521 29,409 21,124 20,094 (892) (2,971) 40,753 46,532

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By geographical location of operations:

Hong Kong Special Administrative Region (“Hong Kong”) Other regions in the People’s Republic of China (“PRC”)	Turnover 2001 2000 HK$’000 HK$’000 30,433 34,811 264,160 363,960 294,593 398,771	Contribution to profit from operations 2001 2000 HK$’000 HK$’000 16,908 16,765 23,845 29,767 40,753 46,532	Contribution to profit from operations 2001 2000 HK$’000 HK$’000 16,908 16,765 23,845 29,767 40,753 46,532
			46,532

5. OTHER REVENUE

Other revenue includes interest income from bank deposits amounted to HK$3,879,000 (2000: HK$1,327,000).

6. PROFIT FROM OPERATIONS

Profit from operations has been arrived at after charging (crediting): Amortisation of goodwill Auditors’ remuneration Depreciation Less: Amount capitalised and included in properties under development Loss on disposal of property, plant and equipment Operating lease rentals in respect of office premises and staff quarters Staff costs (including directors’ remuneration shown in note 8(a)) Less: Amount capitalised and included in properties under development	2001 HK$’000 1,141 637 1,650 (585) 1,065 7 740 15,666 (7,274) 8,392	2000 HK$’000 1,141 520 1,752 (768 984
		27 856 15,445 (4,559 10,886

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APPENDIX II

		2001	2000
		HK$’000	HK$’000
	and after crediting:
	Net operating lease rentals received
	and receivable
	Gross rents from properties	34,746	37,388
	Less: Outgoings	(4,145)	(6,344)
		30,601	31,044

	Operating lease rentals in respect of directors’ accommodation amounting to HK$420,000 (2000:
	HK$420,000) are included under directors’ other emoluments.
7.	FINANCE COSTS
		2001	2000
		HK$’000	HK$’000
	Interest on bank borrowings
	wholly repayable within
	five years	21,286	18,483
	Less: Amount capitalised and
	included in properties
	under development at
	capitalization rate of
	8.8% (2000: 8.7%)	(10,889)	(11,824)
		10,397	6,659

8.	DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS
	(a) Directors’ emoluments
		2001	2000
		HK$’000	HK$’000
	Directors’ fees
	Executive	–	–
	Independent Non-executive	60	60
	Other emoluments (Executive Directors):
	Salaries and other benefits	1,152	1,150
		1,212	1,210

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APPENDIX II

Emoluments of the directors are within the following bands:

HK$nil to HK$1,000,000 HK$1,000,001 to HK$1,500,000	2001 No. of Directors 8 1	2000 No. of Directors 8 1

(b) Employees’ emoluments

The five highest paid individuals included 1 director (2000: 1 director), details of whose emoluments are set out in note 8(a) above. The emoluments of the remaining 4 individuals (2000: 4 individuals) are as follows:

	2001	2000
	HK$’000	HK$’000
Salaries and other benefits	3,552	3,354
Retirement benefits scheme contributions	105	84
	3,657	3,438
Their emoluments are within the following bands:
	2001	2000
	No. of	No. of
	employees	employees
HK$nil to HK$1,000,000	3	3
HK$1,000,001 to HK$1,500,000	1	1

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9. TAXATION

The tax charge comprises: Hong Kong Profits Tax Current year Underprovision in prior years PRC Income Tax Share of taxation of an associate in the PRC	2001 HK$’000 38 – 8,701 – 8,739	2000 HK$’000 236 10 4,813 30
		5,089

Hong Kong Profits Tax is calculated at 16% (2000: 16%) of the estimated assessable profits for the year.

PRC Foreign Enterprise Income Tax is calculated at the rates prevailing in the PRC.

Details of the potential deferred tax charge not provided for in the year are set out in note 30.

10. NET PROFIT FOR THE YEAR

Of the Group’s net profit for the year of HK$21,061,000 (2000: HK$34,615,000), a profit of HK$28,885,000 (2000: a loss of HK$331,000) has been dealt with in the financial statements of the Company.

11. DISTRIBUTIONS

Interim distribution, 2 Hong Kong cents (2000: 2 Hong Kong cents) per share, paid Final distribution, 2 Hong Kong cents (2000: 2 Hong Kong cents) per share, proposed	2001 HK$’000 4,382 4,382 8,764	2000 HK$’000 4,382 4,382
		8,764

12. EARNINGS PER SHARE

The calculation of basic earnings per share is based on the net profit for the year of HK$21,061,000 (2000: HK$34,615,000) and on the weighted average number of 219,103,681 (2000: 219,103,681) ordinary shares in issue throughout the year.

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13. PROPERTY, PLANT AND EQUIPMENT

THE GROUP COST At 1st July 2000 Exchange realignment Additions Disposals At 30th June 2001 DEPRECIATION At 1st July 2000 Exchange realignment Provided for the year Eliminated on disposals At 30th June 2001 NET BOOK VALUES At 30th June 2001 At 30th June 2000 14. INVESTMENT PROPERTIES VALUATION At 1st July 2000 and at 30th June 2001	Plant and machinery, Motor equipment vehicles and others Total HK$’000 HK$’000 HK$’000 6,471 19,578 26,049 5 25 30 – 982 982 – (95) (95) 6,476 20,490 26,966 5,130 13,277 18,407 5 14 19 397 1,253 1,650 – (72) (72) 5,532 14,472 20,004 944 6,018 6,962 1,341 6,301 7,642 THE GROUP 2001 HK$’000 520,000

The investment properties of the Group are situated in Hong Kong and are held under medium-term leases. They were revalued at 30th June 2001 on an open market, existing use basis by Knight Frank, Chartered Surveyors at an aggregate value of HK$520,000,000. The investment properties are held for use under operating leases for the periods of one to three years some with renewal options given to the leases for further periods not exceeding two years.

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APPENDIX II

FINANCIAL INFORMATION ON DYNAMIC

As at the balance sheet date, the future minimum lease payments under non-cancellable operating leases for each of the following period is:

Not later than 1 year Later than 1 year but not later than 5 years Total Details of investment properties are set out on page 71.	THE GROUP 2001 2000 HK$’000 HK$’000 23,942 20,126 5,994 12,462 29,936 32,588	THE GROUP 2001 2000 HK$’000 HK$’000 23,942 20,126 5,994 12,462 29,936 32,588
		32,588

15. PROPERTIES UNDER DEVELOPMENT

COST At beginning of the year Exchange realignment Additions Arising on acquisition of a subsidiary Interest capitalised Written back of impairment in value of properties under development Less: Completed and transferred to properties held for sale At end of the year Shown in the balance sheet as: Non-current assets Current assets	THE GROUP 2001 2000 HK$’000 HK$’000 496,563 492,000 655 2,316 43,737 383,319 – 17,073 10,889 11,824 12,447 9,102 564,291 915,634 (238,665) (419,071) 325,626 496,563 325,626 311,672 – 184,891 325,626 496,563	THE GROUP 2001 2000 HK$’000 HK$’000 496,563 492,000 655 2,316 43,737 383,319 – 17,073 10,889 11,824 12,447 9,102 564,291 915,634 (238,665) (419,071) 325,626 496,563 325,626 311,672 – 184,891 325,626 496,563
		915,634 (419,071)
		496,563

		311,672 184,891
		496,563

The properties under development are situated in the PRC with a land use right certificate of up to 70 years commencing on 19th October 1995. Details of the properties under development are set out on page 70.

Included in the properties under development is an amount of HK$15,830,000 (2000: HK$20,948,000) being interest capitalised in the account.

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16. DEPOSIT PAID TO ACQUIRE LAND USE RIGHTS

The amount represents the payment of deposit to acquire the land use rights in Tung Kok Tau, Shekou, Shenzhen, The PRC. According to the land use rights contract dated 18th November 1999 entered into between an 80% equity owned subsidiary of the Company, Shenzhen Zhen Wah Harbour Enterprises Ltd. (“Zhen Wah”) and Shenzhen Land Administration Bureau (“Land Bureau”), Zhen Wah was required to settle the outstanding amount of RMB155,801,760 on 3rd November 2000. However, as the Group started negotiations with the Chinese joint venture partner for the acquisition of the full control on real estates development in Tung Kok Tau, Zhen Wah applied for the extension of the outstanding payment. In the opinion of Directors, the final payment will be resolved with Land Bureau soon.

17. GOODWILL

	THE GROUP
	HK$’000
COST
At 1st July 2000 and 30th June 2001	13,704
AMORTISATION
At 1st July 2000	8,979
Provided for the year	1,141
At 30th June 2001	10,120
NET BOOK VALUES
At 30th June 2001	3,584
At 30th June 2000	4,725

18. INTERESTS IN SUBSIDIARIES

Unlisted shares, at cost Less: Provision for impairment loss Amounts due from subsidiaries Less: Provision	THE COMPANY 2001 2000 HK$’000 HK$’000 239,663 239,663 (239,663) (239,663) – – 819,075 798,754 (144,481) (144,481) 674,594 654,273	THE COMPANY 2001 2000 HK$’000 HK$’000 239,663 239,663 (239,663) (239,663) – – 819,075 798,754 (144,481) (144,481) 674,594 654,273
		–
		798,754 (144,481)
		654,273

Particulars of the principal subsidiaries are set out in note 40.

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FINANCIAL INFORMATION ON DYNAMIC

19. INVESTMENTS IN ASSOCIATES

Share of net assets Amounts due from associates Less: Provision for amounts due from associates	THE GROUP 2001 2000 HK$’000 HK$’000 421 421 12,530 12,530 12,951 12,951 (12,530) (12,530) 421 421	THE GROUP 2001 2000 HK$’000 HK$’000 421 421 12,530 12,530 12,951 12,951 (12,530) (12,530) 421 421
		12,951 (12,530)
		421

20. INVESTMENTS IN SECURITIES

Unlisted shares, at cost Less: Impairment loss recognised	THE GROUP 2001 2000 HK$’000 HK$’000 334 334 (334) (334) – –	THE GROUP 2001 2000 HK$’000 HK$’000 334 334 (334) (334) – –
		–

21. PROPERTIES HELD FOR SALE

The properties held for sale are situated in the PRC, held under long lease and stated at cost.

22. TRADE AND OTHER RECEIVABLES

At 30th June 2001, the balance of trade and other receivables included trade receivables of HK$21,586,000 (2000: HK$32,122,000). For property sales, the Group allows an average credit period of 30 days to its customers. Rentals receivable from tenants and service income receivables from customers’ are payable on presentation of invoices. The aged analysis of trade receivable is as follows:

0–60 days 61–90 days >90 days	2001 HK$’000 13,843 797 6,946 21,586	2000 HK$’000 25,479 561 6,082
		32,122

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APPENDIX II

23. TRADE AND OTHER PAYABLES

At 30th June 2001, the balance of trade and other payables included trade payables of HK$125,014,000 (2000: HK$212,668,000). The aged analysis of trade payables is as follows:

0–60 days 61–90 days >90 days	2001 HK$’000 46,991 551 77,472 125,014	2000 HK$’000 203,747 – 8,921
		212,668

24. BANK LOANS

Bank loans, secured The bank loans are repayable as follows: Within one year or on demand More than one year, but not exceeding two years More than two years, but not exceeding five years Less: Amount repayable within one year shown under current liabilities Amount due after one year	THE GROUP 2001 2000 HK$’000 HK$’000 187,147 260,259 15,550 58,333 34,300 77,350 137,297 124,576 187,147 260,259 (15,550) (58,333 171,597 201,926	THE GROUP 2001 2000 HK$’000 HK$’000 187,147 260,259 15,550 58,333 34,300 77,350 137,297 124,576 187,147 260,259 (15,550) (58,333 171,597 201,926
		260,259 (58,333
		201,926

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APPENDIX II

25. SHARE CAPITAL

Number 2001 Ordinary shares of HK$1.00 each Authorised 300,000,000 Issued 219,103,681	of shares 2000 300,000,000 219,103,681	Share 2001 HK$’000 300,000 219,104	capital 2000 HK$’000 300,000

			219,104

There was no movement in share capital for both years ended 30th June.

26. SHARE OPTION SCHEME

Pursuant to a special general meeting on 23rd March 1992, shareholders of the Company approved a share option scheme which allows the directors to grant full-time employees (including executive directors) options to subscribe for the Company’s ordinary shares at a price equal to 80% of the average closing prices of the shares listed on the Hong Kong Stock Exchange for the last five business days immediately preceding the date of grant of the option or the nominal value of the shares, whichever is the greater.

On 18th September 1995, in accordance with the provisions of the share option scheme, certain directors and employees of the Company and its subsidiaries were granted options to subscribe for a total of 8,410,000 ordinary shares of HK$1.00 each at an initial subscription price of HK$1.224 per share. All these options were exercised or lapsed in prior years.

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APPENDIX II

27. RESERVES

THE GROUP At 1st July 1999 Exchange adjustment Reserve on acquisition of a subsidiary Net profit for the year Transfer Distributions At 30th June 2000 Exchange adjustment Net profit for the year Transfer Distributions At 30th June 2001	Share Capital premium Contributed reserve on account surplus consolidation HK$’000 HK$’000 HK$’000 426,608 55,018 5,115 – – – – – 1,538 – – – – – – – – – 426,608 55,018 6,653 – – – – – – – – – – – – 426,608 55,018 6,653	Capital redemption Translation reserve reserve HK$’000 HK$’000 1,644 (4,874) – 1,173 – – – – – – – – 1,644 (3,701) – 991 – – – – – – 1,644 (2,710)	Statutory reserve HK$’000 – – – – 448 – 448 – – 94 – 542	Retained profits HK$’000 50,316 – – 34,615 (448) (8,764) 75,719 – 21,061 (94) (8,764) 87,922	Total HK$’000 533,827 1,173 1,538 34,615 – (8,764) 562,389 991 21,061 – (8,764) 575,677

Included in the above are the following Group’s share of post-acquisition reserves of the associates:

THE GROUP At 1st July 1999 Reclassification to subsidiaries Net profit for the year At 30th June 2000 and 2001	Translation reserve HK$’000 (9,413) 9,413 – –	Retained profits HK$’000 2,265 – 368 2,633	Total HK$’000 (7,148) 9,413 368 2,633

The contributed surplus of the Group arose from the difference between the aggregate amount of the then share capital, share premium, general reserve and accumulated losses of the Group, and the nominal amount of the Company’s shares issued for the acquisition, net of distributions paid by the Company.

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APPENDIX II

The statutory reserves transferred from retained profits are required by the relevant PRC laws and regulations applicable to the Group’s PRC subsidiaries.

THE COMPANY At 1st July 1999 Net loss for the year Distributions At 30th June 2000 Net profit for the year Distributions At 30th June 2001	Share premium HK$’000 426,608 – – 426,608 – – 426,608	Contributed surplus HK$’000 29,375 – (8,764) 20,611 – (8,764) 11,847	(Accumulated Capital losses)/ redemption Retained reserve profit HK$’000 HK$’000 1,644 (19,246) – (331) – – 1,644 (19,577) – 28,885 – – 1,644 9,308	Total HK$’000 438,381 (331) (8,764) 429,286 28,885 (8,764) 449,407

The contributed surplus of the Company arose from the difference between the consolidated net assets of the Company’s subsidiaries at the date when they were acquired by the Company and the nominal amount of the Company’s shares issued for the acquisition, net of distributions made by the Company. Under the Companies Act 1981 of Bermuda (as amended), contributed surplus of a company is available for distribution. However, the Company cannot declare or pay a dividend, or make a distribution out of contributed surplus if:

(a) it is, or would after the payment be, unable to pay its liabilities as they become due; or
(b) the realisable value of its assets would thereby be less than the aggregate of its liabilities and its issued share capital and share premium accounts.

In the opinion of the Directors, the Company’s reserves available for distribution to shareholders were as follows:

Contributed surplus Retained profit (Accumulated losses)	2001 HK$’000 11,847 9,308 21,155	2000 HK$’000 20,611 (19,577) 1,034

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FINANCIAL INFORMATION ON DYNAMIC

APPENDIX II

28. AMOUNTS DUE TO ASSOCIATES

The amounts are unsecured, non-interest bearing and have no fixed term of repayment. Repayment of the amounts will not be demanded within next twelve months from the balance sheet date. Accordingly, the amounts are shown as non-current.

29. AMOUNTS DUE TO SUBSIDIARIES

30. DEFERRED TAXATION

The major components of unprovided deferred tax charge (credit) for the year are as follows:

Tax effect of timing differences arising from: Difference between tax depreciation allowances and depreciation charged in the financial statements Tax losses arising	THE GROUP 2001 2000 HK$’000 HK$’000 227 267 (1,448) (1,598) (1,221) (1,331)

At the balance sheet date, the major components of potential deferred tax liabilities (assets) not recognised in the financial statements are as follows:

Tax effect of timing differences attributable to: Difference between tax depreciation allowances and depreciation charged in the financial statements Unutilised tax losses	THE GROUP 2001 2000 HK$’000 HK$’000 16,044 15,817 (8,759) (7,311) 7,285 8,506

Included in the unutilised tax losses was a tax loss arising from additional depreciation allowance granted by the Inland Revenue Department (“IRD”) in respect of the building portion of the investment properties. Such building portion of the investment properties was accounted for as an operating asset for tax purposes by the IRD.

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FINANCIAL INFORMATION ON DYNAMIC

APPENDIX II

Deferred tax has not been provided as the above timing differences are mainly attributed to the Group’s investment properties. Currently, the Group has no intention of disposing of the investment properties. Accordingly, the net deferred tax liabilities would not crystallise in the foreseeable future.

31. RECONCILIATION OF PROFIT BEFORE TAXATION TO NET CASH INFLOW FROM OPERATING ACTIVITIES

Profit before taxation Written back of impairment in value of properties under development Share of result of an associate Interest income Interest expenses Loss on disposal of property, plant and equipment Depreciation Amortisation of goodwill Provision for impairment in value of investments in securities Decrease in properties held for sale Increase in deposit paid to acquire land use rights Decrease (increase) in trade and other receivables (Decrease) increase in trade and other payables Decrease in pre-sales deposits received Exchange realignment Net cash inflow from operating activities	2001 HK$’000 30,356 (12,447) – (3,879) 10,397 7 1,065 1,141 – 237,026 – 16,544 (77,121) (21,072) 242 182,259	2000 HK$’000 40,271 (9,102) (398) (1,327) 6,659 27 984 1,141 331 333,812 (51,064) (38,251) 242,653 (99,105) (517) 426,114

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FINANCIAL INFORMATION ON DYNAMIC

APPENDIX II

32. PURCHASE OF A SUBSIDIARY

In 2000, the registered capital of Zhen Wah was increased by approximately HK$30,670,000 and the Group subscribed these additional 31% equity interest of Zhen Wah. As a result, Zhen Wah became a subsidiary of the Group. This acquisition has been accounted for using the acquisition method of accounting. The amount of reserve arising as a result of the acquisition was approximately HK$1,538,000. The loss after taxation of Zhen Wah included in the consolidated income statement for the year ended 30th June 2000 amounted to approximately HK$2,212,000.

NET ASSETS ACQUIRED Property, plant and equipment Properties under development Trade and other receivables Bank balances and cash Trade and other payables Amount due to the intermediate holding company Taxation Bank loan Exchange reserve Minority interests Capital reserve SATISFIED BY Reclassification from interests in associates Bank balances and cash acquired	2001 HK$’000 – – – – – – – – – – – – – – –	2000 HK$’000 5,980 17,073 26,374 4,343 (4,787) (22,786) (39) (1,270) (50) (11,120) 13,718 (1,538) 12,180 12,180 4,343

The subsidiary acquired in 2000 contributed approximately HK$2,245,000 to the Group’s net operating cash flows, paid approximately HK$1,469,000 in respect of servicing of finance, paid approximately HK$158,000 in respect of taxation, utilised approximately HK$51,937,000 for investing activities and raised approximately HK$31,687,000 in respect of financing activities.

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FINANCIAL INFORMATION ON DYNAMIC

APPENDIX II

33. ANALYSIS OF CHANGES IN FINANCING DURING THE YEAR

At 1st July 1999 New bank loan raised Loan acquired through a subsidiary Repayments of amounts borrowed At 30th June 2000 Exchange realignment New bank loan raised Repayments of amounts borrowed At 30th June 2001 34. CONTINGENT LIABILITIES	Bank loans HK$’000 183,664 96,126 1,270 (20,801
	260,259 56 6,997 (80,165
	187,147

Guarantees given to financial institutions in respect of banking facilities granted to subsidiaries	THE COMPANY 2001 2000 HK$’000 HK$’000 209,647 271,949

The extent of such facilities utilised and unutilised by the subsidiaries at 30th June 2001 amounted to approximately HK$187,147,000 (2000: HK$260,259,000) and HK$22,500,000 (2000: HK$11,690,000), respectively.

35. CAPITAL COMMITMENTS

Capital expenditure contracted for but not provided in the financial statements for the construction and other fees to be paid in respect of properties under development	THE GROUP 2001 2000 HK$’000 HK$’000 162,779 162,585

The Company did not have any significant capital commitments at the balance sheet date.

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FINANCIAL INFORMATION ON DYNAMIC

APPENDIX II

36. LEASE COMMITMENTS

At the balance sheet date, the Group had the total of future minimum lease payments under noncancellable operating leases in respect of rented premises as follows:

Within one year In the second to fifth year, inclusive	THE GROUP 2001 2000 HK$’000 HK$’000 1,147 639 524 43 1,671 682	THE GROUP 2001 2000 HK$’000 HK$’000 1,147 639 524 43 1,671 682
		682

The Company did not have any operating lease commitments at the balance sheet date.

37. RETIREMENT BENEFIT SCHEME

Prior to 1st December 2000, the Group operated a defined contribution retirement benefit scheme (“Defined Contribution Scheme”) for its qualifying employees in Hong Kong. The assets of the scheme were held separately from those of the Group in funds under the control of an independent trustee. Where there are employees who leave the Defined Contribution Scheme prior to vesting fully in the contributions, the amount of the forfeited contributions would be used to reduce future contributions payable by the Group.

With effective from 1st December 2000, the Group has joined a Mandatory Provident Fund scheme (“MPF Scheme”) for all employees in Hong Kong. The MPF scheme is registered with the Mandatory Provident Fund Scheme Authority under the Mandatory Provident Fund Schemes Ordinance. The assets of the MPF scheme are held separately from those of the Group in funds under the control of an independent trustee. Under the rule of the MPF Scheme, the employer and its employees are each required to make contributions to the scheme at rate specified in the rules. No forfeited contribution is available to reduce the contribution payable in the future years by the employer.

The retirement benefit scheme contributions arising from the Defined Contribution Scheme and the MPF Scheme charged to the income statement represent contributions payable to the funds by the Group at rates specified in the rules of the schemes.

During the year, retirement benefits contributions charged to income statement, net of forfeited contribution of Nil (2000: Nil) are HK$532,144 (2000: HK$441,000).

At 30th June 2001, the total amount of forfeited contributions which arose upon employees leaving the Defined Contribution Scheme and which are available to reduce the contributions payable by the Group in the future years were HK$40,108 (2000: HK$1,663).

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FINANCIAL INFORMATION ON DYNAMIC

APPENDIX II

38. PLEDGE OF ASSETS

At 30th June 2001, the Group has pledged certain of its assets, including bank deposits of HK$6,117,000 (2000: HK$53,421,000) and investment properties with an aggregate carrying value of HK$520,000,000 (2000: HK$520,000,000) and floating charge on its rental income from its investment properties to the banks to secure general banking facilities granted to the Group.

39. RELATED PARTY TRANSACTIONS

During the year, the Group has entered into the following transactions with related parties in which certain Directors have common significant influence:

	2001	2000
	HK$’000	HK$’000
Rental income received_(note 1)_	440	635
Rental and management fees paid_(note 1)_	1,507	1,525
Consultancy service fees paid_(note 1)_	984	984

The outstanding balances with these related parties at 30th June 2001 are as follows:

Amounts due from related parties included in trade and other receivables_(note 2) Amounts due to related parties included in trade and other payables(note 2)_	2001 HK$’000 3,067 998	2000 HK$’000 1,880 1,084

Notes:

The transactions were carried out based on the contractual agreements made between both parties.
The amounts are unsecured, interest free and repayable on demand.

– 98 –

FINANCIAL INFORMATION ON DYNAMIC

APPENDIX II

40. PARTICULARS OF PRINCIPAL SUBSIDIARIES

Particulars of principal subsidiaries at 30th June 2001 are as follows:

						Proportion of
	Place of		Issued and			nominal value of
	incorporation/			paid up		issued/registered
	registration/		share capital/			capital held by
Name of subsidiary	operation		registered capital			the Company	Principal activities
			Ordinary		Others
Ardent Enterprises	Hong Kong		HK$1,200		–	100%	Investment holding
Limited
Beijing Longfast Property	The PRC		–	US$29,500,000		98%	Property investment
Development Co., Ltd.					(note 1)		and development
Billion Stock Investment	Hong Kong		HK$2		–	100%	Provision of
Limited							nominee services
Broad Capital Investments	British Virgin		US$1		–	100%	Investment holding
Limited	Islands
Caldonny Limited	Hong Kong	HK$7,001,000			–	100%	Investment holding
Duraco Company Limited	Hong Kong		HK$200		–	100%	Investment holding
Dynamic (B.V.I.) Limited	British Virgin		US$50,000		–	100%	Investment holding
	Islands
Dynamic Finance Limited	Hong Kong		HK$10,000		–	100%	Financing
Dynamic Management	British Virgin		HK$7		–	100%	Financing
(Beijing) Limited	Islands
Dynamic Management	Hong Kong		HK$2		–	100%	Provision of
Services Limited							management
							services
Dynamic (Nominees)	Hong Kong		HK$2		–	100%	Provision of
Limited							management
							services
Dynamic Real Estate	British Virgin		US$1		–	100%	Management
(China) Management	Islands						consultancy
Consultancy Limited

– 99 –

APPENDIX II

FINANCIAL INFORMATION ON DYNAMIC

					Proportion of
	Place of		Issued and		nominal value of
	incorporation/			paid up	issued/registered
	registration/		share capital/		capital held by
Name of subsidiary	operation		registered capital		the Company	Principal activities
			Ordinary	Others
Glory Diamond Inc.	British Virgin		US$10	–	100%	Investment holding
	Islands
Harvic Investment Limited	Hong Kong		HK$2	–	100%	Investment holding
Kiu Miles Company Limited	Hong Kong		HK$2	–	100%	Investment holding
Kwong Lung Company,	Hong Kong	HK$3,466,400		–	100%	Provision of
Limited						nominee services
Pearlway Investments	British Virgin		US$1	–	100%	Investment holding
Limited	Islands
Prime Selection Investment	Hong Kong		HK$2	–	100%	Investment holding
Limited
Shenzhen Zhen Wah Harbour	The PRC		–	RMB53,550,000	80%	Port operations
Enterprises Ltd.
Strong Way Investment	Hong Kong		HK$10,000	–	100%	Investment holding
Limited
Yonderille Developments	Hong Kong		HK$40,000	–	100%	Property investment
Limited

Notes:

Beijing Longfast Property Development Co., Ltd. (“Beijing Longfast”) had a registered capital of US$30,000,000. The amount of US$29,500,000 disclosed above represents capital paid by the Group up to 30th June 2001. However, the Group’s entitlement to share the profit in Beijing Longfast was agreed to be 95%.
Other than Dynamic (B.V.I.) Limited and Glory Diamond Inc., which were wholly-owned directly by the Company, all subsidiaries were held by the Company indirectly.
The above table lists the subsidiaries of the Company which, in the opinion of the directors, principally affected the results or assets of the Group. To give details of other subsidiaries would, in the opinion of the directors, result in particulars of excessive length.
None of the subsidiaries had any loan capital outstanding at the end of the year, or at any time during the year.

– 100 –

FINANCIAL INFORMATION ON DYNAMIC

APPENDIX II

III. UNAUDITED INTERIM REPORT OF DYNAMIC

The following is a summary of the unaudited consolidated results of Dynamic for the six months ended 31st December 2001 as taken from its interim report.

CONDENSED CONSOLIDATED INCOME STATEMENT

For the six months ended 31st December 2001

Notes Turnover 2 Cost of sales Gross profit Other revenue 3 Operating expenses Profit from operations Finance costs Profit before taxation Taxation 5 Profit for the period Minority interests Net profit for the period Distribution 6 Earnings per share (Hong Kong cents) 7 – basic	Unaudited Six months ended 31st December 2001 2000 HK$’000 HK$’000 27,541 223,505 (8,232) (193,150) 19,309 30,355 133 1,083 (8,043) (9,603) 11,399 21,835 (1,506) (4,409) 9,893 17,426 (648) (4,309) 9,245 13,117 (596) (673) 8,649 12,444 – – 3.95 5.68

– 101 –

FINANCIAL INFORMATION ON DYNAMIC

APPENDIX II

CONDENSED CONSOLIDATED BALANCE SHEET

At 31st December 2001

Note Non-current assets Property, plant and equipment Investment properties Properties under development Deposit paid to acquire land use rights Goodwill Investments in associates Current assets Properties held for sale Trade and other receivables 8 Tax recoverable Bank deposits – pledged Bank balances and cash Current liabilities Trade and other payables 9 Pre-sale deposits received Tax liabilities Bank loans – due within one year (secured) 10 Net current assets Total assets less current liabilities Capital and reserves Share capital 11 Reserves 13 Minority interests Non-current liabilities Bank loans – due after one year (secured) 10 Amounts due to associates	Unaudited At 31st December 2001 HK$’000 8,407 520,000 383,082 51,093 3,013 421 966,016 81,604 54,577 216 6,102 126,659 269,158 148,604 72,694 136 37,050 258,484 10,674 976,690 219,104 583,895 802,999 24,598 146,097 2,996 149,093 976,690	Audited At 30th June 2001 HK$’000 6,962 520,000 325,626 51,064 3,584 421
		907,657
		86,898 56,382 16 6,117 168,751
		318,164
		186,863 25,519 117 15,550
		228,049
		90,115
		997,772

		219,104 580,059
		799,163
		24,016
		171,597 2,996
		174,593
		997,772

– 102 –

FINANCIAL INFORMATION ON DYNAMIC

APPENDIX II

1. BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES

These unaudited condensed interim financial statements have been prepared in accordance with the requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and the Statement of Standard Accounting Practice No. 25 ‘‘interim financial reporting’’ issued by the Hong Kong Society of Accountants.

The accounting policies adopted are consistent with those adopted in the annual financial statements of the Group for the year ended 30th June 2001 except for the change in accounting policy with respect to dividend recognition.

In prior periods, dividends/distributions proposed or declared after the balance sheet date in respect of an accounting period were recognised as a liability at the balance sheet date. In order to comply with the Statement of Standard Accounting Practice No. 9 (revised) ‘‘events after the balance sheet date’’, the Group does not recognise a liability for dividends/distributions in the accounting period in which they are declared or proposed and approved by shareholders. The new accounting policy has been adopted retrospectively, with the retained profits as at 1st July 2001 adjusted for the amounts relating to final distribution declared for the year ended 30th June 2001.

The condensed financial statements of the Group for the six months ended 31st December 2001 are unaudited and have been reviewed by the Audit Committee of the Company. Certain comparative figures have been reclassified to conform with the current basis of presentation.

2. TURNOVER

The Company acts as an investment holding company. The activities of its principal subsidiaries are property investment and development. The Group’s turnover and contribution to profit from operations for the period under review are analysed as follows:

By principal activity:

Property sales Property rental Port operation income	Contribution to profit from Turnover operations Unaudited Six months ended 31st December 2001 2000 2001 2000 HK$’000 HK$’000 HK$’000 HK$’000 6,966 203,522 1,258 12,693 15,313 15,247 8,826 7,715 5,262 4,736 1,315 1,427 27,541 223,505 11,399 21,835	Contribution to profit from Turnover operations Unaudited Six months ended 31st December 2001 2000 2001 2000 HK$’000 HK$’000 HK$’000 HK$’000 6,966 203,522 1,258 12,693 15,313 15,247 8,826 7,715 5,262 4,736 1,315 1,427 27,541 223,505 11,399 21,835
		21,835

– 103 –

FINANCIAL INFORMATION ON DYNAMIC

APPENDIX II

By geographical location of operations:

Hong Kong Special Administrative Region (‘‘Hong Kong’’) Other regions in the People’s Republic of China (‘‘PRC’’)	Contribution to profit from Turnover operations Unaudited Six months ended 31st December 2001 2000 2001 2000 HK$’000 HK$’000 HK$’000 HK$’000 15,313 15,247 8,826 7,715 12,228 208,258 2,573 14,120 27,541 223,505 11,399 21,835	Contribution to profit from Turnover operations Unaudited Six months ended 31st December 2001 2000 2001 2000 HK$’000 HK$’000 HK$’000 HK$’000 15,313 15,247 8,826 7,715 12,228 208,258 2,573 14,120 27,541 223,505 11,399 21,835
		21,835

Interest income has been reclassified from turnover to other revenue in the previous corresponding period.

3. OTHER REVENUE

Other revenue includes interest income from bank deposits for the six months ended 31st December 2001 amounted to HK$85,000 (2000: HK$1,045,000).

4. DEPRECIATION AND AMORTISATION

Profit from operations has been arrived at after charging (crediting): Amortisation of goodwill Depreciation Less: Amount capitalised and included in properties under development	Unaudited Six months ended 31st December 2001 2000 HK$’000 HK$’000 571 571 734 155 (233) (39 501 116	Unaudited Six months ended 31st December 2001 2000 HK$’000 HK$’000 571 571 734 155 (233) (39 501 116
		116

– 104 –

FINANCIAL INFORMATION ON DYNAMIC

APPENDIX II

5. TAXATION

The tax charge comprises: PRC Income Tax	Unaudited Six months ended 31st December 2001 2000 HK$’000 HK$’000 648 4,309

No Hong Kong Profits Tax is provided as there is no estimated assessable profit for 2001. No Hong Kong Profits Tax was payable in 2000 since the assessable profit was wholly absorbed by the tax relief brought forward.

PRC Foreign Enterprise Income Tax is calculated at the rates prevailing in the PRC.

6. DISTRIBUTION

On 17th January 2002, a distribution of 2 Hong Kong cents (2000: 2 Hong Kong cents) per share was paid to the Company’s shareholders as a final distribution for the year ended 30th June 2001.

The Directors have declared an interim distribution of 2 Hong Kong cents (2000: 2 Hong Kong cents) per share for the six months ended 31st December 2001 to all shareholders whose names appear on the register of members of the Company on 26th April 2002.

7. EARNINGS PER SHARE

The calculation of basic earnings per share is based on the net profit for the period of HK$8,649,000 (2000: HK$12,444,000) and on the weighted average number of 219,103,681 (2000: 219,103,681) ordinary shares in issue throughout the period.

No diluted earnings per share is shown as there is no dilutive effect on the earnings per share.

8. TRADE AND OTHER RECEIVABLES

At 31st December 2001, the balance of trade and other receivables included trade receivables of HK$15,954,000 (30th June 2001: HK$21,586,000). For property sales, the Group allows an average credit period of 30 days to its customers. Rentals receivable from tenants and service income receivables from customers are payable on presentation of invoices.

The aging analysis of trade receivables at the reporting date is as follows:

0 – 60 days 61 – 90 days >90 days	Unaudited At 31st December 2001 HK$’000 8,496 1,791 5,667 15,954	Audited At 30th June 2001 HK$’000 13,843 797 6,946
		21,586

– 105 –

FINANCIAL INFORMATION ON DYNAMIC

APPENDIX II

9. TRADE AND OTHER PAYABLES

At 31st December 2001, the balance of trade and other payables included trade payables of HK$96,944,000 (30th June 2001: HK$125,014,000).

The aging analysis of trade payables at the reporting date is as follows:

0 – 60 days 61 – 90 days >90 days 10. BANK LOANS Bank loans, secured The bank loans are repayable as follows: Within one year or on demand More than one year, but not exceeding two years More than two years, but not exceeding five years Less: Amount repayable within one year shown under current liabilities Amount due after one year	Unaudited At 31st December 2001 HK$’000 43,189 198 53,557 96,944 Unaudited At 31st December 2001 HK$’000 183,147 37,050 146,097 – 183,147 (37,050) 146,097	Audited At 30th June 2001 HK$’000 46,991 551 77,472 125,014 Audited At 30th June 2001 HK$’000 187,147 15,550 34,300 137,297 187,147 (15,550) 171,597

– 106 –

FINANCIAL INFORMATION ON DYNAMIC

APPENDIX II

11. SHARE CAPITAL

Ordinary shares of HK$1.00 each Authorised Issued	Number of Shares Unaudited Audited At 31st At 30th December June 2001 2001 300,000,000 300,000,000 219,103,681 219,103,681	Share Capital Unaudited Audited At 31st At 30th December June 2001 2001 HK$’000 HK$’000 300,000 300,000 219,104 219,104	Share Capital Unaudited Audited At 31st At 30th December June 2001 2001 HK$’000 HK$’000 300,000 300,000 219,104 219,104

			219,104

12. SHARE OPTION SCHEME

Pursuant to the Company’s ordinary resolution passed on 21st December 2001, shareholders of the Company approved termination of the Company’s share option scheme adopted on 23rd March 1992 (‘‘Previous Scheme’’) and adoption of a new share option scheme (‘‘New Scheme’’), which allows the Directors to grant eligible participants as defined in the New Scheme including, inter alia, employees and Directors of the Group options to subscribe for the Company’s ordinary shares at a price, which shall not be less than the highest of:

(a) the closing price of the Company’s share as quoted on The Stock Exchange of Hong Kong Limited on the date of grant;
(b) an amount equivalent to the average closing price of the Company’s share as quoted on such Exchange for the 5 business days immediately preceding the date of grant; or
(c) the nominal value of the Company’s share.

No value of option is disclosed as no share option has been granted under the New Scheme since adoption nor was outstanding under the Previous Scheme as at 31st December 2001.

13. RESERVES

THE GROUP At 30th June 2001 (audited) As originally stated Prior period adjustment Restated Exchange adjustment Net profit for the period Distribution At 31st December 2001 (unaudited)	Share Capital Capital premium Contributed reserve on redemption Translation account surplus consolidation reserve reserve HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 426,608 55,018 6,653 1,644 (2,710) – – – – – 426,608 55,018 6,653 1,644 (2,710) – – – – (431) – – – – – – – – – – 426,608 55,018 6,653 1,644 (3,141)	Statutory reserve HK$’000 542 – 542 – – – 542	Retained profits HK$’000 87,922 4,382 92,304 – 8,649 (4,382) 96,571	Total HK$’000 575,677 4,382

				580,059 (431) 8,649 (4,382)

				583,895

– 107 –

FINANCIAL INFORMATION ON DYNAMIC

APPENDIX II

14. CONTINGENT LIABILITIES

Guarantees given to financial institutions in respect of banking facilities granted to subsidiaries 15. CAPITAL COMMITMENTS Capital expenditure contracted for but not provided in the financial statements for the construction and other fees to be paid in respect of properties under development	The Company Unaudited Audited At 31st At 30th December June 2001 2001 HK$’000 HK$’000 202,147 209,647 Unaudited Audited At 31st At 30th December June 2001 2001 HK$’000 HK$’000 162,677 162,779	The Company Unaudited Audited At 31st At 30th December June 2001 2001 HK$’000 HK$’000 202,147 209,647 Unaudited Audited At 31st At 30th December June 2001 2001 HK$’000 HK$’000 162,677 162,779

		Audited At 30th June 2001 HK$’000 162,779

16. RELATED PARTY TRANSACTIONS

During the period, the Group has entered into the following transactions with related parties in which certain Directors have common significant influence:

		Unaudited
	Six	month ended
	31st December
	2001	2000
	HK$’000	HK$’000
Rental income received_(Note 1)_	195	169
Rental and management fees paid_(Note 1)_	719	550
Consultancy service fees paid_(Note 1)_	500	492

– 108 –

FINANCIAL INFORMATION ON DYNAMIC

APPENDIX II

The outstanding balances with these related parties at 31st December 2001 were as follows:

Amounts due from related parties included in trade and other receivables_(Note 2) Amounts due to related parties included in trade and other payables(Note 2)_	Unaudited At 31st December 2001 HK$’000 4,895 1,365	Audited At 30th June 2001 HK$’000 3,067 998

Notes:

The transactions were carried out based on the contractual agreements made between both parties.
The amounts are unsecured, interest free and repayable on demand.

– 109 –

ACCOUNTANTS’ REPORT ON GLORY CHOICE

APPENDIX III

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==> picture [75 x 51] intentionally omitted <==

31st May 2002

The Directors Telecom Plus Holdings Limited Unit 01A, 24th Floor Bank of America Tower 12 Harcourt Road Central Hong Kong

Dear Sirs,

Pursuant to a conditional sale and purchase agreement entered into on 22nd April 2002 (the “Agreement”), as described more fully in the section headed “Details of the Glory Choice S&P Agreement” in the circular of Telecom Plus Holdings Limited (“TPHL”) dated 31st May 2002 (the “Circular”), all the shareholders of Glory Choice Investments Limited (the “Company”) have agreed to sell and Telecom Plus Technology Holdings Limited, a wholly owned subsidiary of TPHL, has conditionally agreed to acquire the entire issued share capital of the Company at a consideration of HK$44,000,000 (the “Glory Choice Acquisition”).

We set out below our report on the financial information relating to the Company and Glory Choice Subsidiaries as defined below (hereinafter collectively referred to as the “Glory Choice Group”) for inclusion in the Circular, as if the group structure of the Company upon completion of the Glory Choice Acquisition had been in existence for each of the three years ended 31st March 2002 (the “Relevant Periods”).

The Company was incorporated in the British Virgin Islands on 2nd January 2002. The principal activity of the Company is investment holding. The Company will become the holding

– 110 –

ACCOUNTANTS’ REPORT ON GLORY CHOICE

APPENDIX III

company of the following companies (“Glory Choice Subsidiaries”) upon completion of the Glory Choice Acquisition:

	Country		Attributable equity
	and date of	Registered	interest to be held
Name	registration	capital	by the Company	Principal activities
			(Note i)
廣州保利威科技有限公司	The People’s Republic	Paid up	100%	Investment holding
Guangzhou Polywise	of China (“PRC”)	HK$10,000,000
Technology Limited	4th September 2001
(“Polywise”)
廣州保利網絡科技有限公司	PRC	Paid up	50%	Engaged in the design,
Guangzhou Poly Network	13th July 2000	RMB6,000,000	(note ii)	technical consultation
Technology Limited				and maintenance on
(“Poly Network”)				network and system
				integration business
北京暢然信息技術有限公司	PRC	Paid up	100%	Provision of application
Beijing Chang-Ran I.T.	16th September 1998	RMB1,000,000		software system
Co. Ltd. (“Changran”)

Notes:

(i) Upon completion of the Glory Choice Acquisition, the Company will directly hold the equity interests in Polywise and Changran. Poly Network will be held by the Company indirectly through Polywise.
(ii) Although the Company will only have a 50% attributable equity interest in Poly Network, it is accounted for as a subsidiary in the financial information set out in this report since the Company will have the ability to appoint the majority of the board of directors of Poly Network.

No audited financial statements have been prepared for the Company since its date of incorporation as it was incorporated in a country where there is no statutory audit requirement. In addition, no audited financial statements were prepared for Changran and Polywise since their respective dates of registration as there are no such statutory requirements.

– 111 –

ACCOUNTANTS’ REPORT ON GLORY CHOICE

APPENDIX III

The statutory financial statements of Poly Network were prepared in accordance with the relevant accounting rules and financial regulations in the PRC. Guangzhou Orient Certified Public Accountants Co., Ltd. 廣州東方會計師事務所有限公司 have acted as auditor of Poly Network for the year ended 31st December 2000 and 2001.

For the purpose of this report, we have undertaken our own independent audits of the management accounts (the “Underlying Financial Statements”), prepared in accordance with accounting principles generally accepted in Hong Kong, of the companies comprising the Glory Choice Group for the Relevant Periods, or since their respective dates of incorporation or registration to 31st March 2002, where this is a shorter period, in accordance with the Statements of Auditing Standards issued by the Hong Kong Society of Accountants. We have examined the Underlying Financial Statements in accordance with the Auditing Guideline “Prospectuses and the Reporting Accountant” issued by the Hong Kong Society of Accountants.

The financial information of the Glory Choice Group for the Relevant Periods set out in this report has been prepared from the Underlying Financial Statements, on the basis set out in note 1 to the financial information.

The Underlying Financial Statements are the responsibilities of the directors of those companies who approve their issue. The directors of TPHL are responsible for the contents of the Circular in which this report is included. It is our responsibilities to compile the financial information set out in this report from the Underlying Financial Statements, to form an opinion on the financial information and to report our opinion to you.

In our opinion, on the basis of presentation set out in note 1 to the financial information, the financial information give, for the purpose of this report, a true and fair view of the state of affairs of the Glory Choice Group as at 31st March 2000, 2001 and 2002 and of the results and cash flows of the Glory Choice Group for the Relevant Periods.

– 112 –

ACCOUNTANTS’ REPORT ON GLORY CHOICE

APPENDIX III

I. FINANCIAL INFORMATION

COMBINED INCOME STATEMENTS

NOTES Turnover 3 Direct operating costs Gross profit Other revenue Gain on disposal of other investment Administrative expenses Distribution expenses Profit (loss) before taxation 4 Taxation 6 Profit (loss) before minority interests Minority interests Net profit (loss) for the year 15 Earnings (loss) per share 7	Year ended 31st 2000 2001 HK$’000 HK$’000 697 – (38) – 659 – 5 16 – – (177) (1,041) – (142) 487 (1,167) – – 487 (1,167) – 492 487 (675) HK$1,218 HK$(1,688)	March 2002 HK$’000 10,470 (5,302) 5,168 76 2,270 (1,420) (874) 5,220 – 5,220 (2,338) 2,882 HK$7,205

– 113 –

ACCOUNTANTS’ REPORT ON GLORY CHOICE

APPENDIX III

COMBINED STATEMENTS OF RECOGNISED GAINS AND LOSSES

Year ended 31st 2000 2001 HK$’000 HK$’000 Exchange differences arising from translation of financial statements of operations outside Hong Kong not recognised in the combined income statements 2 2 Net profit (loss) for the year 487 (675) Total combined recognised gains (losses) 489 (673)	March 2002 HK$’000 (1) 2,882 2,881

– 114 –

ACCOUNTANTS’ REPORT ON GLORY CHOICE

APPENDIX III

COMBINED BALANCE SHEETS

NOTES Non-current assets Property and equipment 8 Other investment 9 Current assets Inventories Trade and other debtors 10 Amounts due from customers for contract works 11 Amounts due from related parties 12 Bank balances and cash Current liabilities Trade and other creditors 13 Accrued expenses Loan from a related party 12 Net current assets (liabilities) Capital and reserves Share capital 14 Reserves 15 Minority interests	THE THE GLORY CHOICE GROUP COMPANY At 31st March At 31st March 2000 2001 2002 2002 HK$’000 HK$’000 HK$’000 HK$’000 60 382 1,037 – – 13,401 – – 60 13,783 1,037 – – – 23 – 345 176 1,931 3 – 126 395 – – 471 9,326 – 531 776 17,351 – 876 1,549 29,026 3 1 3 1,018 – 24 103 807 – – 9,828 9,348 – 25 9,934 11,173 – 851 (8,385) 17,853 3 911 5,398 18,890 3 466 3,292 11,565 3 445 (228) 2,653 – 911 3,064 14,218 3 – 2,334 4,672 – 911 5,398 18,890 3	THE THE GLORY CHOICE GROUP COMPANY At 31st March At 31st March 2000 2001 2002 2002 HK$’000 HK$’000 HK$’000 HK$’000 60 382 1,037 – – 13,401 – – 60 13,783 1,037 – – – 23 – 345 176 1,931 3 – 126 395 – – 471 9,326 – 531 776 17,351 – 876 1,549 29,026 3 1 3 1,018 – 24 103 807 – – 9,828 9,348 – 25 9,934 11,173 – 851 (8,385) 17,853 3 911 5,398 18,890 3 466 3,292 11,565 3 445 (228) 2,653 – 911 3,064 14,218 3 – 2,334 4,672 – 911 5,398 18,890 3
		–
		– 3 – – –
		3
		– – –
		–
		3
		3

		3 –
		3 –
		3

– 115 –

ACCOUNTANTS’ REPORT ON GLORY CHOICE

APPENDIX III

COMBINED CASH FLOW STATEMENTS

NOTES
Net cash inflow (outflow) from
operating activities
16
Returns on investments and
servicing of finance
Interest received
Investing activities
Acquisition of other investment
Advance to related parties
Acquisition of property and equipment
Net proceeds from disposal of
other investment
Net cash (outflow) inflow from
investing activities
Net cash inflow (outflow) before
financing
Financing
17
Loan from (repayment to)
a related party
Contribution from minority shareholders
of a Glory Choice Subsidiary
Increase in paid up capital
Net cash inflow from financing
Increase in cash and cash equivalents
Effect of foreign exchange rate changes
Cash and cash equivalents
at beginning of the year
Cash and cash equivalents at end
of the year, represented by
bank balances and cash

Year ended 31st March
2000
2001
2002
HK$’000
HK$’000
HK$’000
191
(968)
2,800
3
3
3
–
(13,401)
–
–
(471)
(8,855)
(18)
(400)
(836)
–
–
15,671
(18)
(14,272)
5,980
176
(15,237)
8,783
–
9,828
(480)
–
2,826
–
–
2,826
8,273
–
15,480
7,793
176
243
16,576
2
2
(1)
353
531
776
531
776
17,351

– 116 –

ACCOUNTANTS’ REPORT ON GLORY CHOICE

APPENDIX III

II. NOTES TO THE FINANCIAL INFORMATION

1. BASIS OF PRESENTATION OF FINANCIAL INFORMATION

The Company was incorporated in the British Virgin Islands on 2nd January 2002 as an international business company under the International Business Companies Act. The Company will become the holding company of the Glory Choice Group upon completion of Glory Choice Acquisition.

The Combined Income Statements, Combined Statements of Recognised Gains and Losses and Combined Cash Flow Statements of the Glory Choice Group for the Relevant Periods included the results and cash flows of the companies comprising the Glory Choice Group as if the group structure of the Company upon the completion of Glory Choice Acquisition had been in existence throughout the Relevant Periods or since their dates of incorporation or registration to 31st March 2002, where this is a shorter period. The Combined Balance Sheets of the Glory Choice Group as at 31st March 2000, 2001 and 2002 have been prepared to present the assets and liabilities of the Glory Choice Group as if the group structure of the Company upon completion of the Glory Choice Acquisition had been in existence as at those dates.

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

The financial information has been presented in Hong Kong dollars, as the directors consider this presentation to be more useful for its current and potential investors.

2. PRINCIPAL ACCOUNTING POLICIES

The financial information set out in this report has been prepared under the historical cost convention. The principal accounting policies which have been adopted in preparing the financial information set out in this report and which conform with accounting principles generally accepted in Hong Kong, are as follows:

Revenue recognition

Sales of goods are recognised when goods are delivered and title has passed.

Service income is recognised when services are provided.

Revenue from a fixed price contract is recognised using the percentage of completion method, measured by reference to the percentage of contract costs incurred to date to estimated total contract costs for the contract.

Interest income from bank deposits is accrued on a time basis, by reference to the principal outstanding and at the interest rate applicable.

– 117 –

ACCOUNTANTS’ REPORT ON GLORY CHOICE

APPENDIX III

Property and equipment

Property and equipment are stated at cost less depreciation and accumulated impairment losses.

Depreciation is provided to write off the cost of property and equipment over their estimated useful lives, using the straight line method, at the following rates per annum:

Leasehold improvements Over the shorter of the term of lease, or 5 years Furniture, fixtures and equipment 25% Computer equipment 25%

The gain or loss arising from disposal or retirement of an asset is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in the income statement.

Impairment

At each balance sheet date, the Glory Choice Group reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. Impairment losses are recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increase to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

Other investment

The Company has selected the benchmark treatment to measure investment other than held to maturity securities under Statement of Standard Accounting Practice No. 24 “Accounting for investments in securities” issued by the Hong Kong Society of Accountants.

Other investment which is held for an identified long-term strategic purpose are stated at cost, as reduced by any impairment loss that is other than temporary.

Foreign currencies

Transactions in currencies other than Hong Kong dollars are translated into Hong Kong dollars are translated at the rates ruling on the dates of the transactions. Monetary assets and liabilities denominated in currencies other than Hong Kong dollars are re-translated into Hong Kong dollars at the rates ruling on the balance sheet date. Gains and losses arising on translation are dealt with in the income statement.

On consolidation, the financial statements of operations outside Hong Kong are translated into Hong Kong dollars at the rates ruling on the balance sheet date. All exchange differences arising on translation are dealt with through the exchange reserve.

– 118 –

ACCOUNTANTS’ REPORT ON GLORY CHOICE

APPENDIX III

Taxation

The charge for taxation is based on the results for the year as adjusted for items which are nonassessable or disallowed. Timing differences arise from the recognition for tax purposes of certain items of income and expense in a different accounting period from that in which they are recognised in the financial statements. The tax effect of the resulting timing differences, computed under the liability method, is recognised as deferred taxation in the financial statements to the extent that it is probable that a liability or asset will crystallise in the foreseeable future.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the weighted average method.

Contracts

Where contract costs incurred to date plus recognised profits less recognised losses exceed progress billings, the surplus is shown as an amount due from customers for contract work. For contracts where progress billings exceed contract costs incurred to date plus recognised profits less recognised losses, the surplus is shown as an amount due to customers for contract work. Amounts received before the related work is performed are included in the balance sheet, as a liability, as advances received. Amounts billed for work performed but not yet paid by the customer are included in the balance sheet under trade and other receivables.

Operating leases

Rentals payable under operating leases are recognised on a straight line basis over the lease terms.

3. TURNOVER

Contract revenue Sales of goods Service income	Year ended 31st March 2000 2001 2002 HK$’000 HK$’000 HK$’000 – – 8,173 – – 295 697 – 2,002 697 – 10,470	Year ended 31st March 2000 2001 2002 HK$’000 HK$’000 HK$’000 – – 8,173 – – 295 697 – 2,002 697 – 10,470
		10,470

– 119 –

ACCOUNTANTS’ REPORT ON GLORY CHOICE

APPENDIX III

4. PROFIT (LOSS) FROM TAXATION

Profit (loss) before taxation has been arrived at after charging (crediting): Directors’ remuneration (note 5) Other staff costs Total staff costs Auditors’ remuneration Depreciation Interest income from bank deposits	Year ended 31st March 2000 2001 2002 HK$’000 HK$’000 HK$’000 34 54 130 – 304 784 34 358 914 – – – 11 78 181 (3) (3) (3	Year ended 31st March 2000 2001 2002 HK$’000 HK$’000 HK$’000 34 54 130 – 304 784 34 358 914 – – – 11 78 181 (3) (3) (3
		914
		– 181 (3

5. DIRECTOR’S AND EMPLOYEES’ EMOLUMENTS

Director’s emoluments

Fees Salaries and allowances	Year ended 31st March 2000 2001 2002 HK$’000 HK$’000 HK$’000 – – – 34 54 130 34 54 130	Year ended 31st March 2000 2001 2002 HK$’000 HK$’000 HK$’000 – – – 34 54 130 34 54 130
		130

Employees’ emoluments

The five highest paid individuals included two directors of the Glory Choice Group for the years ended 31st March 2000 and 2002, and no director of the Glory Choice Group for the year ended 31st March 2001, whose emoluments are disclosed above. The emoluments of the remaining individuals were as follows:

		Year ended 31st	March
	2000	2001	2002
	HK$’000	HK$’000	HK$’000
Salaries and other benefits	–	219	322

During the Relevant Periods, no emoluments were paid by the Glory Choice Group to the directors and the five highest paid individuals as an inducement to join the Glory Choice Group or as compensation for loss of office.

– 120 –

ACCOUNTANTS’ REPORT ON GLORY CHOICE

APPENDIX III

6. TAXATION

No provision for Hong Kong Profits Tax has been made in the financial information as the Glory Choice Group’s income neither arises in, nor derived from, Hong Kong.

Pursuant to the relevant laws and regulations in the PRC, Changran is exempted from the PRC income tax for up to three years starting from their first profit-making year in 1999, followed by a 50% reduction for the next three years starting from 2002.

No provision for PRC income tax has been made in the financial statements as all of the Glory Choice Subsidiaries were exempted from the PRC income tax during the Relevant Periods.

The Glory Choice Group did not have any significant unprovided deferred taxation for the Relevant Periods and at the balance sheet dates.

7. EARNINGS (LOSS) PER SHARE

The calculation of basic earnings (loss) per share for the three years ended 31st March 2002 is based on net profit (loss) for the year and 400 issued shares of the Company as at 31st March 2002.

– 121 –

ACCOUNTANTS’ REPORT ON GLORY CHOICE

APPENDIX III

8. PROPERTY AND EQUIPMENT

THE GLORY CHOICE GROUP

Furniture, Leasehold fixtures and improvements equipment HK$’000 HK$’000 COST At 1st April 1999 – 57 Additions – 18 At 31st March 2000 – 75 DEPRECIATION At 1st April 1999 – 4 Provided for the year – 11 At 31st March 2000 – 15 NET BOOK VALUE At 31st March 2000 – 60 COST At 1st April 2000 – 75 Additions 148 138 At 31st March 2001 148 213 DEPRECIATION At 1st April 2000 – 15 Provided for the year 36 25 At 31st March 2001 36 40 NET BOOK VALUE At 31st March 2001 112 173 COST At 1st April 2001 148 213 Additions 173 262 Disposals (61) – At 31st March 2002 260 475 DEPRECIATION At 1st April 2001 36 40 Provided for the year 71 70 Eliminated on disposals (61) – At 31st March 2002 46 110 NET BOOK VALUE At 31st March 2002 214 365	Computer equipment HK$’000 – – – – – – – – 114 114 – 17 17 97 114 401 – 515 17 40 – 57 458	Total HK$’000 57 18 75 4 11 15 60 75 400 475 15 78 93 382 475 836 (61) 1,250 93 181 (61) 213 1,037

– 122 –

ACCOUNTANTS’ REPORT ON GLORY CHOICE

APPENDIX III

9. OTHER INVESTMENT

THE GLORY CHOICE GROUP

Unlisted equity investment in the PRC, at cost	2000 HK$’000 –	At 31st March 2001 HK$’000 13,401	2002 HK$’000 –

At 31st March 2001, the amount represents Poly Network’s 5% equity interest in 大連天途有線 ” 網絡股份有限公司 (“大連天途）. 大連天途 is established in the PRC and is engaged in cable television network operations. During the year ended 31st March 2002, Poly Network disposed of its entire interest in 大連天途 for a consideration of approximately HK$17,432,000, net of incidental costs of approximately HK$1,761,000.

10. TRADE AND OTHER DEBTORS

The policy of the Glory Choice Group is to offer credit terms to customers ranging from 30 to 60 days. The aged analysis of trade debtors is summarised as follows:

Up to 30 days 31 to 60 days Over 60 days Other debtors	THE THE GLORY CHOICE GROUP COMPANY At 31st March At 31st March 2000 2001 2002 2002 HK$’000 HK$’000 HK$’000 HK$’000 338 – 481 – – – 198 – – – 514 – 338 – 1,193 – 7 176 738 3 345 176 1,931 3	THE THE GLORY CHOICE GROUP COMPANY At 31st March At 31st March 2000 2001 2002 2002 HK$’000 HK$’000 HK$’000 HK$’000 338 – 481 – – – 198 – – – 514 – 338 – 1,193 – 7 176 738 3 345 176 1,931 3
		– 3
		3

– 123 –

ACCOUNTANTS’ REPORT ON GLORY CHOICE

APPENDIX III

11. AMOUNTS DUE FROM CUSTOMERS FOR CONTRACT WORKS

THE GLORY CHOICE GROUP

At 31st March 2000 2001 HK$’000 HK$’000 Contracts in progress at the balance sheet Contract costs incurred to date plus recognised profits less recognised losses – 126 Less: progress billings – – Amounts due from contract customers – 126	2002 HK$’000 866 (471
	395

At 31st March 2002, retentions of HK$280,000 (2000 and 2001: Nil) were held by customers and no advances were received from customers for contract works.

12. AMOUNTS DUE FROM RELATED PARTIES / LOAN FROM A RELATED PARTY

THE GLORY CHOICE GROUP

Amounts due from related parties

保利南方總公司(note i) Polywise Technology Holdings Limited (“PTHL”) (note ii) 廣東保利威科技有限公司(note iii)	At 31st March 2000 2001 2002 HK$’000 HK$’000 HK$’000 – 471 471 – – 7,799 – – 1,056 – 471 9,326	Maximum amount outstanding during year ended 31st March 2000 2001 2002 HK$’000 HK$’000 HK$’000 – 471 471 – – 7,799 – – 1,056	Maximum amount outstanding during year ended 31st March 2000 2001 2002 HK$’000 HK$’000 HK$’000 – 471 471 – – 7,799 – – 1,056

The amounts due from related parties are unsecured, non-interest bearing and have no fixed repayment terms.

Loan from a related party

Mr. Chen Xian Min_(note i)_	2000 HK$’000 –	At 31st March 2001 HK$’000 9,828	2002 HK$’000 9,348

– 124 –

ACCOUNTANTS’ REPORT ON GLORY CHOICE

APPENDIX III

12. AMOUNTS DUE FROM RELATED PARTIES / LOAN FROM A RELATED PARTY-Continued

The loan from a related party is unsecured and non-interest bearing. The loan was originally repayable on 16th August 2001 and its repayment had been extended to 16th August 2002.

Notes:

(i) 保利南方總公司 and Mr. Chen Xian Min are shareholders of Poly Network.
(ii) Polywise was a wholly owned subsidiary of PTHL as at 31st March 2002. Following the corporate restructuring as set out in note 1, PTHL will dispose of its entire interests in Polywise to the Company.
(iii) Mr. Yao Wen Zheng, a director of Poly Network, and Mr. Gu Hao, the General Manager of Polywise, have beneficial interests in 廣東保利威科技有限公司 .

13. TRADE AND OTHER CREDITORS

THE GLORY CHOICE GROUP

The aging analysis of trade creditors is summarised as follows:

Up to 30 days 31 to 60 days 91 to 180 days Over 180 days Other creditors	2000 HK$’000 – – – – – 1 1	At 31st March 2001 HK$’000 – – – – – 3 3	2002 HK$’000 287 96 396 149
			928 90
			1,018

– 125 –

ACCOUNTANTS’ REPORT ON GLORY CHOICE

APPENDIX III

14. SHARE CAPITAL

For the purpose of the preparation of the Combined Balance Sheets, the balances of the share capital at 31st March 2000, 2001 and 2002 represent the aggregate amount of the share capital of the Company and Glory Choice Subsidiaries as follows:

Share capital of the Company of US$1 each Paid up capital of Glory Choice Subsidiaries: – Changran – Poly Network (Note) – Polywise Shown in Combined Balance Sheets as Shown in Balance Sheet of the Company as	2000 US$ N/A RMB’000 500 – 500 HK$’000 – 466 N/A	At 31st March 2001 US$ N/A RMB’000 500 3,000 3,500 HK$’000 – 3,292 N/A	2002 US$ 400

			RMB’000 1,000 3,000
			4,000

			HK$’000 7,799

			11,565

			3

Note: The amount represents the paid up capital of Poly Network of RMB6,000,000, less the minority shareholders’ contribution of RMB3,000,000.

– 126 –

ACCOUNTANTS’ REPORT ON GLORY CHOICE

APPENDIX III

15. RESERVES

THE GLORY CHOICE GROUP

Accumulated (losses) profits HK$’000 At 1st April 1999 (46) Exchange differences arising from translation of financial statements of operations outside Hong Kong – Net profit for the year 487 Transfer (from) to reserves (96) At 31st March 2000 and 1st April 2000 345 Exchange differences arising from translation of financial statements of operations outside Hong Kong – Net loss for the year (675) Transfer (from) to reserves (237) At 31st March 2001 and 1st April 2001 (567) Exchange differences arising from translation of financial statements of operations outside Hong Kong – Net profit for the year 2,882 Transfer (from) to reserves (640) At 31st March 2002 1,675	Statutory Statutory public surplus welfare reserve fund reserve HK$’000 HK$’000 (note a) (note b) – – – – – – 10 10 10 10 – – – – 20 20 30 30 – – – – 53 53 83 83	Dis- cretionary surplus reserve HK$’000 (note c) – – – 76 76 – – 197 273 – – 534 807	Translation reserve HK$’000 2 2 – – 4 2 – – 6 (1) – – 5	Total HK$’000 (44) 2 487 – 445 2 (675) – (228) (1) 2,882 – 2,653

(a) Statutory surplus reserve represents the appropriation of 10% of profit after taxation calculated in accordance with the PRC accounting standards and the Glory Choice Subsidiaries’ Articles of Association. The appropriation may cease to apply if the balance of the statutory surplus reserve has reached 50% of the Glory Choice Subsidiaries’ issued capital. According to the Glory Choice Subsidiaries’ Articles of Association, statutory surplus reserve can be used to make up prior year losses, to expand production operation or to increase share capital. The Glory Choice Subsidiaries may capitalise the statutory surplus reserve by way of bonus issues provided that the remaining balance of the statutory surplus reserve fund after such appropriation shall not be less than 25% of the issued capital of the Glory Choice Subsidiaries.

– 127 –

ACCOUNTANTS’ REPORT ON GLORY CHOICE

APPENDIX III

15. RESERVES – Continued

(b) Statutory public welfare fund reserve represents the appropriation 10% of profit after taxation according to the requirements of the Glory Choice Subsidiaries’ Articles of Association and the Companies Law in the PRC. The fund can only be utilised for capital expenditure on employees’ collective welfare facilities and cannot be used in staff welfare expenses. Such employee welfare facilities are owned by the Glory Choice Subsidiaries. The statutory public welfare fund reserve is not distributable to shareholders other than in liquidation.
(c) The transfer to discretionary surplus reserve is subject to the approval by shareholders at general meetings. Its usage is similar to that of statutory surplus reserve.

16. RECONCILIATION OF PROFIT (LOSS) BEFORE TAXATION TO NET CASH INFLOW (OUTFLOW) FROM OPERATING ACTIVITIES

Profit (loss) before taxation Interest income Depreciation Gain on disposal of other investment Increase in inventories (Increase) decrease in trade and other debtors Increase in amounts due from customers for contract works Increase in trade and other creditors Increase in accrued expenses Net cash inflow (outflow) from operating activities	Year ended 31st March 2000 2001 2002 HK$’000 HK$’000 HK$’000 487 (1,167) 5,220 (3) (3) (3 11 78 181 – – (2,270 – – (23 (329) 169 (1,755 – (126) (269 1 2 1,015 24 79 704 191 (968) 2,800	Year ended 31st March 2000 2001 2002 HK$’000 HK$’000 HK$’000 487 (1,167) 5,220 (3) (3) (3 11 78 181 – – (2,270 – – (23 (329) 169 (1,755 – (126) (269 1 2 1,015 24 79 704 191 (968) 2,800
		2,800

17. ANALYSIS OF CHANGES IN FINANCING DURING THE YEARS

Loan from a related party HK$’000 At 1st April 1999 and 2000 – Capital contribution – Share of loss by minority shareholders of Glory Choice Subsidiaries – Advances during the year 9,828 At 31st March 2001 and 1st April 2001 9,828 Capital contribution – Share of profit by minority shareholders of Glory Choice Subsidiaries – Repayment during the year (480) At 31st March 2002 9,348	Minority interests HK$’000 – 2,826 (492) – 2,334 – 2,338 – 4,672	Share capital HK$’000 466 2,826 – –
		3,292 8,273 – –
		11,565

– 128 –

ACCOUNTANTS’ REPORT ON GLORY CHOICE

APPENDIX III

18. OPERATING LEASE ARRANGEMENTS

THE GLORY CHOICE GROUP

Minimum lease payments paid under operating lease during the year in respect of premises	Year ended 31st March 2000 2001 2002 HK$’000 HK$’000 HK$’000 11 144 305

At the respective balance sheet dates, the Glory Choice Group had commitments for future minimum lease payments under non-cancellable operating leases which fall due as follows:

Within one year In the second to fifth year inclusive	Year ended 31st March 2000 2001 2002 HK$’000 HK$’000 HK$’000 26 209 189 – 51 410 26 260 599	Year ended 31st March 2000 2001 2002 HK$’000 HK$’000 HK$’000 26 209 189 – 51 410 26 260 599
		599

Leases are negotiated for an average term of 1.5 years. Rentals are fixed and no arrangements has been entered into for contingent rental payments.

The Company had no commitments under non-cancellable operating leases at 31st March 2002.

19. SUBSEQUENT EVENTS

Subsequent to 31st March 2002, the paid up capital of Polywise has been increased from HK$7,799,000 to HK$10,000,000 as a result of capital contribution of HK$2,201,000 by PTHL.

– 129 –

ACCOUNTANTS’ REPORT ON GLORY CHOICE

APPENDIX III

20. RELATED PARTY TRANSACTIONS

THE GLORY CHOICE GROUP

Details of the balances with related parties are disclosed in note 12.

21. RETIREMENT BENEFITS SCHEME

The Glory Choice Group did not operate any retirement scheme for its employees for the two years ended 31st March 2002.

The employees of Glory Choice Subsidiaries in the PRC are members of state-managed retirement benefit schemes operated by the PRC government. The Glory Choice Group is required to contribute a specified percentage of their payroll costs to the retirement benefit scheme to fund the retirement benefits of their employees. The only obligation of the Glory Choice Group with respect to the retirement benefit scheme is to make the specified contributions under the respective schemes.

– 130 –

ACCOUNTANTS’ REPORT ON GLORY CHOICE

APPENDIX III

22. SEGMENT INFORMATION

The Glory Choice Group carried out its principal activities in the PRC. An analysis of the Glory Choice Group’s revenue and net profits for the year ended 31st March 2002 and segment assets by principal activities are as follows:

For the year ended 31st March 2002

Communication Communication software products and services HK$’000 HK$’000 REVENUE External revenue 292 10,178 RESULTS Segment results (34) 2,984 Gain on disposal of other investment Profit before taxation Taxation Profit before minority interests ASSETS AND LIABILITIES ASSETS Segmental assets 400 2,985 Unallocated corporate assets LIABILITIES Segmental liabilities 51 1,774 Unallocated corporate liabilities OTHER INFORMATION Capital expenditure 23 813 Depreciation 5 176	Total HK$’000 10,470

	2,950 2,270
	5,220 –
	5,220

	3,385 26,678
	30,063

	1,825 9,348
	11,173

	836 181

The Glory Choice Group was engaged in the provision of communication software and services for each of the years ended 31st March 2000 and 2001 and no segment information is presented.

– 131 –

ACCOUNTANTS’ REPORT ON GLORY CHOICE

APPENDIX III

23. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by any companies in the Glory Choice Group in respect of any period subsequent to 31st March 2002.

Yours faithfully

Deloitte Touche Tohmatsu Certified Public Accountants

– 132 –

APPENDIX IV FINANCIAL EFFECTS OF THE DYNAMIC ACQUISITION AND THE GLORY CHOICE ACQUISITION ON THE GROUP

1. UNAUDITED PRO FORMA STATEMENT OF ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS/(LIABILITIES) OF THE GROUP

The following is a statement of the pro forma adjusted combined net tangible assets/ (liabilities) of the Group immediately following the Dynamic Completion and the Glory Choice Completion. It is based on the interim report of the Group as at 30th September 2001, adjusted to reflect the effect of the Dynamic Acquisition and certain adjustments since 30th September 2001.

Unaudited Pro Forma Statement of Adjusted Combined Net Tangible Assets/ (Liabilities) of the Group

Unaudited consolidated net tangible liabilities of the Group as at 30th September 2001 Net proceeds from placing of 80,000,000 ordinary shares of the Company to Able Technology as previously announced by the Company on 5th December 2001 Conversion of Convertible Bonds to BAPEF Investment II Limited on 28th December 2001 as previously announced by the Company on 9th June 2001 Repurchase of ordinary shares by the Company from December 2001 to January 2002 Unaudited adjusted consolidated net tangible liabilities of the Company immediately before the Dynamic Completion and the Glory Choice Completion Proceeds from the issue of the Dynamic Consideration Shares Unaudited adjusted consolidated net tangible assets of the Company upon the Dynamic Completion but prior to the Glory Choice Completion	HK$’000 (35,239) (Note 1) 34,900 7,008 (9,713) (3,044) 40,624 37,580	Per Share HK$ (0.031) (Note 2) (0.003) (Note 2) 0.030

(Note 3)

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FINANCIAL EFFECTS OF THE DYNAMIC ACQUISITION AND THE GLORY CHOICE ACQUISITION ON THE GROUP

APPENDIX IV

Net combined tangible asset value of Glory Choice Unaudited adjusted consolidated net tangible assets of the Company upon the Glory Choice Completion but taking no account of the Dynamic Completion Unaudited adjusted consolidated net tangible assets of the Company upon the Dynamic Completion and the Glory Choice Completion	HK$’000 8,419 (Note 4) 5,375 45,999	Per Share HK$ 0.004

		(Note 5) 0.035

		(Note 6)

Notes:

The difference between this net tangible liabilities of HK$35,239,000 and the net assets from the unaudited condensed consolidated balance sheet, under section headed “Unaudited Interim Report of the Company” in this circular, of HK$950,000 represents development cost and goodwill of HK$11,278,000 and HK$24,911,000 respectively.
Based on 1,148,382,879 Shares in issue as at the Latest Practicable Date.
Based on 1,238,658,879 Shares in issue after taking into account the Dynamic Consideration Shares to be issued upon the Dynamic Completion.
The difference between this net combined tangible asset value of Glory Choice and the net asset value of Glory Choice of HK$14,218,000 as shown in the Accountants’ Report on Glory Choice in Appendix III represents the consideration to be paid in relation to the Glory Choice Acquisition of HK$8,000,000 and the additional capital contribution by Polywise Technology Holdings Limited to Polywise of HK$2,201,000.
Based on 1,228,382,879 Shares in issue after taking into account the Glory Choice Consideration Shares to be issued upon the Glory Choice Completion but taking no account of the Dynamic Completion.
Based on 1,318,658,879 Shares in issue after taking into account the Dynamic Consideration Shares to be issued upon the Dynamic Completion and the Glory Choice Consideration Shares to be issued upon the Glory Choice Completion.

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APPENDIX IV FINANCIAL EFFECTS OF THE DYNAMIC ACQUISITION AND THE GLORY CHOICE ACQUISITION ON THE GROUP

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

The following is a pro forma statement of adjusted combined assets and liabilities of the Group and Glory Choice, based on the interim report of the Group as at 30th September 2001 and the audited combined balance sheet of Glory Choice as at 31st March 2002 as set out in Appendix III to this circular.

Unaudited Retained Group Group prior as at 30th to Glory September 1st 2nd 3rd 4th Choice 2001 Adjustment Adjustment Adjustment Adjustment completion (Note 1) (Note 2) (Note 3) (Note 4) HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 ASSETS Investment in securities – – – – 40,624 40,624 Development cost 11,278 – – – – 11,278 Fixed assets 8,338 – – – – 8,338 Goodwill 24,911 – – – – 24,911 44,527 – – – 40,624 85,151 CURRENT ASSETS Cash and bank deposits 17,567 34,900 – (9,713) – 42,754 Accounts receivables 60,280 – – – – 60,280 Due from related parties – – – – – – Due from customers for contract works – – – – – – Prepayments, deposits and other receivables 36,923 – – – – 36,923 Stocks 46,331 – – – – 46,331 Total current assets 161,101 34,900 – (9,713) – 186,288 Total assets 205,628 34,900 – (9,713) 40,624 271,439	Audited Glory Choice Unaudited as at 31st combined March 5th after 2002 Adjustment adjustment (Note 5) (Note 6) (Note 7) HK$’000 HK$’000 HK$’000 – – 40,624 – – 11,278 1,037 – 9,375 – 27,581 52,492 1,037 27,581 113,769 17,351 (5,799) 54,306 1,193 – 61,473 9,326 – 9,326 395 – 395 738 – 37,661 23 – 46,354 29,026 (5,799) 209,515 30,063 21,782 323,284	Audited Glory Choice Unaudited as at 31st combined March 5th after 2002 Adjustment adjustment (Note 5) (Note 6) (Note 7) HK$’000 HK$’000 HK$’000 – – 40,624 – – 11,278 1,037 – 9,375 – 27,581 52,492 1,037 27,581 113,769 17,351 (5,799) 54,306 1,193 – 61,473 9,326 – 9,326 395 – 395 738 – 37,661 23 – 46,354 29,026 (5,799) 209,515 30,063 21,782 323,284
		113,769
		54,306 61,473 9,326 395 37,661 46,354
		209,515
		323,284

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FINANCIAL EFFECTS OF THE DYNAMIC ACQUISITION AND THE GLORY CHOICE ACQUISITION ON THE GROUP

APPENDIX IV

Unaudited Retained Group Group prior as at 30th to Glory September 1st 2nd 3rd 4th Choice 2001 Adjustment Adjustment Adjustment Adjustment completion (Note 1) (Note 2) (Note 3) (Note 4) HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 LIABILITIES NON-CURRENT LIABILITIES Obligations under finance leases payable in more than one year 10,289 – – – – 10,289 Non-current portion of convertible bonds 14,015 – – – – 14,015 Total non-current liabilities 24,304 – – – – 24,304 CURRENT LIABILITIES Accounts payable 37,921 – – – – 37,921 Other payables and accruals 35,745 – – – – 35,745 Amount due to related companies 21,983 – – – – 21,983 Amount due to shareholders – – – – – – Loan from a related party – – – – – – Tax payable 2,594 – – – – 2,594 Bank loans and overdrafts 13,170 – – – – 13,170 Other loans 37,742 – – – – 37,742 Obligations under finance leases 2,604 – – – – 2,604 Current portion of convertible bonds 14,015 – (7,008) – – 7,007 Total current liabilities 165,774 – (7,008) – – 158,766 Total liabilities 190,078 – (7,008) – – 183,070 MINORITY INTERESTS 14,600 – – – – 14,600 NET ASSETS/(LIABILITIES) 950 34,900 7,008 (9,713) 40,624 73,769	Audited Glory Choice Unaudited as at 31st combined March 5th after 2002 Adjustment adjustment (Note 5) (Note 6) (Note 7) HK$’000 HK$’000 HK$’000 – – 10,289 – – 14,015 – – 24,304 928 – 38,848 897 – 36,643 – – 21,983 – – – 9,348 – 9,348 – – 2,594 – – 13,170 – – 37,742 – – 2,604 – – 7,007 11,173 – 169,939 11,173 – 194,243 4,672 – 19,272 14,218 21,782 109,769	Audited Glory Choice Unaudited as at 31st combined March 5th after 2002 Adjustment adjustment (Note 5) (Note 6) (Note 7) HK$’000 HK$’000 HK$’000 – – 10,289 – – 14,015 – – 24,304 928 – 38,848 897 – 36,643 – – 21,983 – – – 9,348 – 9,348 – – 2,594 – – 13,170 – – 37,742 – – 2,604 – – 7,007 11,173 – 169,939 11,173 – 194,243 4,672 – 19,272 14,218 21,782 109,769
		24,304

		38,848 36,643 21,983 – 9,348 2,594 13,170 37,742 2,604 7,007
		169,939
		194,243
		19,272
		109,769

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FINANCIAL EFFECTS OF THE DYNAMIC ACQUISITION AND THE GLORY CHOICE ACQUISITION ON THE GROUP

APPENDIX IV

Notes:

This represents the net proceeds of the subscription as disclosed in an announcement issued by the Company dated 5th December 2001.
This represents the changes in net assets and liabilities of the Group to reflect the conversion of the Group’s convertible bonds as disclosed in an announcement issued by the Company on 9th June 2001.
This represents the changes in net assets and liabilities of the Group on repurchase of ordinary shares of the Company from December 2001 to January 2002.
This represents the changes in net assets and liabilities of the Group after Dynamic Completion.
Information in respect of Glory Choice in this statement is extracted from the Financial Information on Glory Choice in Appendix III.
The adjustment includes the consideration to be paid in relation to the Glory Choice Acquisition, the additional capital contribution by Polywise Technology Holdings Limited to Polywise and the estimated goodwill arising from the acquisition of Glory Choice. In accordance with the accounting policy of the Group, the goodwill is capitalised and amortised on a straight-line basis over 20 years.
The difference between this net asset value of approximately HK$109,769,000 and the pro forma unaudited adjusted consolidated net tangible assets of the Company upon Dynamic Completion and Glory Choice Completion represents the estimated goodwill attributable to the Glory Choice Acquisition of approximately HK$27,581,000 and that of the Group of approximately HK$24,911,000 and the development cost of the Group of approximately HK$11,278,000.

– 137 –

GENERAL INFORMATION

APPENDIX V

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 the omission of which would make any statement herein misleading.

2. SHARE CAPITAL

The authorized and issued share capital of the Company immediately following allotment and issue of the Dynamic Consideration Shares and the Glory Choice Consideration Shares will be as follows:

Authorised: 3,000,000,000 Shares Issued and fully paid or credited as fully paid: 1,148,382,879 Shares in issue as at the Latest Practicable Date 90,276,000 Issue of Dynamic Consideration Shares 80,000,000 Issue of Glory Choice Consideration Shares 1,318,658,879 Shares in issue	HK$ 300,000,000 114,838,288 9,027,600 8,000,000
	131,865,888

3. DIRECTORS’ INTERESTS IN SHARES

As at the Latest Practicable Date, the interests of the Directors and chief executive of the Company in the equity and debt securities of the Company and any associated corporation (within the meaning of the SDI Ordinance) which were required to be notified to the Company and the Stock Exchange pursuant to Section 28 of the SDI Ordinance (including interests which they were deemed or taken to have under Section 31 or Part I of the Schedule to the SDI Ordinance) or pursuant to the Model Code for Securities Transactions by Directors of Listed

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GENERAL INFORMATION

APPENDIX V

Companies or which were required, pursuant to Section 29 of the SDI Ordinance, to be entered in the register referred to therein were as follows:

		Shares in the Company	Shares in the Company
		Number of Shares
	Personal	Family	Corporate	Other
Name of Director	Interests	Interests	Interests	Interests
Mr. Zou Yishang	–	–	234,282,790	–
			(Note 1)
Mr. Chen Jian	60,000,000	–	–	–

Note 1: These 234,282,790 Shares are owned by Able Technology, which is wholly owned by Mr. Zou. Mr. Zou is also the sole director of Able Technology.

Save as disclosed herein, and other than the nominee shares in certain subsidiaries of the Company held in trust for the Group, none of the Directors and chief executive of the Company had any interests in the equity or debt securities of the Company or any associated corporation (within the meaning of the SDI Ordinance) which were required to be notified to the Company and the Stock Exchange pursuant to Section 28 of the SDI Ordinance (including interests which they were deemed or taken to have under Section 31 or Part I of the Schedule to the SDI Ordinance) or pursuant to the Model Code for Securities Transactions by Directors of Listed Companies or which were required, pursuant to Section 29 of the SDI Ordinance, to be entered in the register referred to therein as at the Latest Practicable Date.

4. DIRECTORS’ RIGHTS TO ACQUIRE SHARES

As at the Latest Practicable Date, the interests of the Directors of the Company in options to subscribe shares of the Company under the Scheme were as follows:

Name of director	Number of options held
Zou Yishang	20,000,000
Ma Hongyao	15,000,000
Chen Jian	17,000,000

These options were granted on 29th August 2001 for a consideration of HK$1.00 per grantee for the subscription of ordinary shares of the Company at a subscription price of HK$0.352 per share. The share options granted are exercisable commencing from 1st April 2002 up to 28th August 2011 in different portions. None of these share options has been exercised since the date of grant.

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GENERAL INFORMATION

APPENDIX V

Save as disclosed herein, at no time during the period was the Company or any of its subsidiaries a party to any arrangement which enables the Directors, their respective spouse or children under 18 years of age to acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate.

5. DISCLOSURE OF DIRECTORS’ INTERESTS IN CONTRACTS

On 12th February 2001, Holy (Hong Kong) Universal Limited (“Holy (HK)”) entered into an acquisition agreement with 17 individuals (the “ Vendors ”) holding in between them 100% of the entire rights and equity interest in Beijing HollyBridge System Integration Company Limited (“ Beijing HollyBridge ”), a company incorporated in the PRC with limited liability and beneficially owned by the Vendors, pursuant to which the Vendors agreed to sell and Holy (HK) conditionally agreed to acquire 51% interest in Beijing HollyBridge at a consideration of HK$16 million to be settled in cash. On 2nd April 2001 and 14th May 2001 respectively, Holy (HK) and the Vendors entered into two supplementary agreements for the purposes of cancelling the initial deposit arrangement and extending the completion date from 15th May 2001 to 12th June 2001. Mr. Ma Hongyao and Mr. Chen Jian, being executive directors of the Company, and Mr. Ma Zhixuan, the son of Mr. Ma Hongyao (therefore an associate of Mr. Ma Hongyao), were three of the Vendors. By virtue of the relationship between Beijing HollyBridge, Mr. Ma Hongyao and Mr. Chen Jian, the transaction constituted a connected transaction for the Company under the Listing Rules. The transaction also constituted a very substantial acquisition for the Company for the purposes of the Listing Rules. Details of the transaction were contained in the Company’s announcement dated 19th February 2001 and the Company’s circular dated 21st May 2001. The transaction was approved by the independent shareholders at a special general meeting of the Company held on 8th June 2001 and was completed on 12th June 2001.

Save as disclosed herein, none of the Directors has any interest, direct or indirect, in any assets which have been acquired or disposed of by or leased to any member of the Group or which are proposed to be acquired or disposed of by or leased to any member of the Group since 31st March 2001.

Save as disclosed herein, as at the Latest Practicable Date, none of the Directors were materially interested in any contract or arrangement which is significant in relation to the business of the Group.

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GENERAL INFORMATION

APPENDIX V

6. SUBSTANTIAL SHAREHOLDER

So far as is known by the Directors and chief executive of the Company, the following persons (not being a Director or chief executive of the Company) were directly or indirectly interested in 10 per cent. or more of the nominal value of any class of share capital carrying right to vote in all circumstances at general meetings of the Company as at the Latest Practicable Date:

		Approximate
		Percentage
Name of shareholder	Number of Shares	of holding
Able Technology	234,282,790	20.40%
		(Note)

Note: The interests of Mr. Zou Yishang in Able Technology has been stated in note 1 to the paragraph headed “Directors’ interests in Shares” above.

Save as disclosed herein and so far as the Directors and the chief executive of the Company are aware, there was no person (other than a Director or chief executive of the Company), who, as at the Latest Practicable Date, was interested directly or indirectly in 10 per cent. or more of the nominal value of any class of share capital carrying right to vote in all circumstances at general meetings of the Company or any of its substitutes or any option in respect of such capital.

7. MATERIAL ADVERSE CHANGES

The Directors confirm that there has been no material adverse change in the financial or trading position of the Group since 31st March 2001, being the date to which the latest published audited consolidated accounts of the Group were made up.

8. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contract with any member of the Group, save for contracts expiring or determinable by the employer within one year without payment of compensation, other than statutory compensation.

9. LITIGATION

Neither the Company nor Glory Choice nor any of their respective subsidiaries is engaged in any litigation or claim of material importance that would have a material adverse impact on the financial position of the Company taken as a whole and there is no litigation or claim of material importance which would have a material adverse impact on the financial position of the Group taken as a whole known to the Directors to be pending or threatened by or against the Company or any or its subsidiaries.

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GENERAL INFORMATION

APPENDIX V

10. MATERIAL CONTRACTS

Saved as disclosed below, none of the Company or any other members of the Group has entered into any material contracts (not being contracts entered into in the ordinary course of business carried on by the Group) within the two years immediately preceding the date of this circular and are or may be material:

(i) The Glory Choice S&P Agreement dated 22nd April 2002.
(ii) The Dynamic Acquisition Agreements dated 2nd April 2002.
(iii) The subscription agreement dated 5th December 2001 entered into between the Company and Able Technology in respect of the subscription of 80,000,000 shares by Able Technology at the subscription price of HK$0.45 per share.
(iv) The supplemental agreement dated 7th June 2001 made between the Company, BAPEF Investments II Limited and Able Technology for the restructuring of the 2% convertible bonds due on 30th June 2001 issued by the Company to Baring Asia Investments II B.V., on 30th June 1998.
(v) The subscription agreements dated 30th May 2001 entered into by the Company with New Industries Investment Consultants (HK) Limited and Wireless Asia Limited respectively in respect of the subscription of 100,000,000 Shares and 60,000,000 Shares respectively at HK$0.18 per share.
(vi) The subscription agreement dated 20th April 2001 entered into between the Company and Able Technology in respect of the subscription of 130,000,000 Shares at HK$0.155 per Share for a total consideration of HK$20,150,000, as amended by the supplementary agreement dated 9th May 2001 to extend the completion date of the proposed subscription from on or before 15th May 2001 to on or before 12th June 2001.
(vii) The acquisition agreement dated 12th February 2001 and the two supplementary agreements to the acquisition agreement dated 2nd April 2001 and 14th May 2001, respectively, in respect of the acquisition of 51% interest in Beijing HollyBridge mentional under the heading of “Disclosure of directors’ interest in contracts”.
(viii) The Company entered into an agreement dated 28th December 2000 with Bright Ocean Investment Limited (“Bright Ocean”) in respect of the settlement of indebtedness owed by the Group to Bright Ocean in the sum of HK$14,578,000 by issuing 41,651,428 new Shares to Bright Ocean.

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GENERAL INFORMATION

APPENDIX V

(ix) The Company entered into an agreement dated 28th December 2000 with Mr. He, Xiangdong (“Mr. He”) in respect of the settlement of an indebtedness owed by the Group to Mr. He in the sum of HK$12,713,572 by issuing 36,324,491 new Shares to Mr. He.
(x) The Company entered into an agreement dated 28th December 2000 with Miss Yeung, Lai Kwan (“Miss Yeung”) in respect of the settlement of an indebtedness owed by the Group to Miss Yeung in the sum of HK$11,481,288 by issuing 32,803,680 new Shares to Miss Yeung.
(xi) The Company entered into a subscription agreement dated 27th December 2000 with Able Technology in respect of the subscription by Able Technology of 60,000,000 Shares at HK$0.30 per Share.
(xii) The Company entered into an agreement dated 21st December 2000 with Bright Trend Limited (“Bright Trend”) in respect of the settlement of an indebtedness owed by the Company to Bright Trend in the sum HK$2,925,171 by allotting and issuing 2,925,171 new Shares to Bright Trend.
(xiii)The agreement dated 22nd September 2000 which was entered into between Mr. Chen Jian as vendor and Full Hope Enterprises Limited, a wholly owned subsidiary of the Group, as purchaser on acquiring the entire issued share capital of Holy (Hong Kong) Universal Limited at a consideration of HK$24,000,000.
(xiv) Asahi Corporation (Hong Kong) Limited (“Asahi”) entered into an agreement with the Company, the Directors and Chun Tai Industries Limited (“CTIL”) (a wholly owned subsidiary of the Company now in liquidation), on 15th September 2000 pursuant to which Asahi agreed to, amongst others, discharge CTIL from the trade debts in the sum of HK$47,522,817 and the Company from its obligation to guarantee the repayment of the said trade debts in consideration of the Company’s issue and allotment to Asahi 47,522,817 new Shares.
(xv) The Company entered into a deed of settlement with Pacific Finance (Hong Kong) Limited (“Pacific Finance”) on 12th October 2000 whereby Pacific Finance agreed to release and discharge the Company from all liability in an aggregate sum of HK$29,000,000 arising from and incidental to the Company’s indemnity obligations regarding indebtedness of CTIL incurred pursuant to lease purchase agreements between CTIL as debtor and Pacific Finance as creditor dated 15th July 1997, 4th February 1998, two on 10th February 1998, 19th June 1998, 24th June 1998 and 17th November 1998 respectively.

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GENERAL INFORMATION

APPENDIX V

(xvi) The Company entered into an agreements dated 3rd August 2000 with Able Technology and China Everbright Securities (HK) Limited in respect of placing of 50,000,000 Shares at HK$0.35 per Share.

(xvii) Loan agreement with Chi Wo Plastic Moulds Fty. Limited (“Chi Wo”) and others

a. CTIL entered into a loan agreement with Chi Wo on 13th February 1999 pursuant to which Chi Wo made a loan in the principal sum of US$2,500,000 to CTIL (“Chi Wo Loan”);
b. the Company had on 13th February 1999 given a guarantee in favour of Chi Wo for all that monies due and payable by CTIL under the Chi Wo Loan;
c. the Company, CTIL, Chung Kam Ming (“Mr. Chung”), Chi Wo, Baring Asia Investments II B.V. (“Baring”) and Successful Years Investments Ltd. entered into an Assignment, Novation and Amendment Agreement on 19th October 1999 pursuant to which Chi Wo agreed to assign to Successful Years Investments Ltd. all its rights under the Chi Wo Loan; and
d. the Company, CTIL, Directors of the Company and Successful Years Investments Ltd. entered into an agreement on 15th September 2000 pursuant to which Successful Years Investments Ltd. agreed to, amongst others, convert its claim under the Chi Wo Loan and interests accrued thereon into new shares in the Company. According to the conversion mechanism stipulated in the agreement, the Company shall issue and allot to Successful Years Investments Limited 21,583,559 new Shares.

(xviii) Loan agreement with Baring

a. the Company entered into a loan agreement with Baring on 6th January 1999 (“Baring Loan Agreement”) pursuant to which Baring agreed to make available to the Company a loan facility of US$2,400,000 (the “Baring Loan”);
b. as security to the Baring Loan and ancillary to the Baring Loan Agreement, CTIL had on 8th January 1999 executed:
i. in favour of Baring an option deed (the “Option Deed”) on 310 shares in the capital of Successful Years Investments Ltd. under CTIL’s ownership; and

– 144 –

GENERAL INFORMATION

APPENDIX V

  - ii. in favour of Baring Asia Private Equity Fund a share charge over the 310 shares in the capital of Successful Years Investments Ltd. and all further shares or securities of Successful Years Investments Ltd. at any time beneficially owned by CTIL.

c. CTIL, the Company and Baring had entered into a supplemental deed to the Option Deed on 3rd February 1999 pursuant to which Baring was entitled to apply the amounts of any indebtedness or other amounts owing by the Company to Baring from time to time, or any part thereof in setting off against the exercise price as defined in the Option Deed when such price is payable under the Option Deed.
d. BAPEF Investments II Limited (“BAPEF”), which had been assigned of all that Baring’s rights on the Baring Loan, had on 15th September 2000 entered into an agreement with the Company pursuant to which BAPEF agreed to convert its claim under the Baring Loan into new Shares in the Company. According to the conversion mechanism stipulated in the agreement, the Company shall issue and allot to BAPEF 19,797,041 new Shares.
(xix)Facility Agreement between Chun Tai Enterprises Limited (now renamed Telecom Plus Technology Limited) (“Chun Tai Enterprises”), a wholly owned subsidiary of the Company, and Zeppelin Capital Limited (“Zeppelin”).
a. Chun Tai Enterprises had entered into a facility agreement on 27th May 1999 (the “Zeppelin Facility Agreement”) pursuant to which Zeppelin agreed to arrange a loan facility of HK$42 million advanced by Baring, Fantastic Culture Inc. and Zeppelin (the “Participants”) collectively to Chun Tai Enterprises; and
b. As security of and ancillary to the Zeppelin Facility Agreement, Chun Tai Enterprises had executed in favour of Zeppelin:
- i. as agent and trustee for the Participants an account assignment agreement in respect of the account opened by Chun Tai Enterprises as designated by Zeppelin (the “Account Assignment Agreement”);
- ii. as agent and trustee a debenture incorporating a floating charge against the assets of Chun Tai Enterprises (the “Debenture”); and
- iii. as agent for the Participant a management agreement appointing Zeppelin as the manager of Chun Tai Enterprises to undertake its management (the “Management Agreement”).

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GENERAL INFORMATION

APPENDIX V

c. The Company, Chun Tai Enterprises, Zeppelin and the Participants executed a deed on 26th October 2000 pursuant to which, amongst others and under certain conditions and exceptions, the Zeppelin Facility Agreement, the Account Assignment Agreement, the Debenture, the Management Agreement, and other related agreement and deed were terminated and the parties thereto released and discharged each other from all obligations and liabilities under the afore-said documents.
d. Chun Tai Enterprises and Zeppelin executed a deed on 26th October 2000 pursuant to which Zeppelin, amongst others, as agent and with the consent of the Participants, discharge and convey unto Chun Tai Enterprises all of Chun Tai Enterprises’s rights title and interest in to and under the account designated under the Account Assignment Agreement.
(xx) On 30th August 1999, the Group entered into a standstill agreement (the “Standstill Agreement”) with 14 out of 16 of its creditor banks in respect of all outstanding debts (bank borrowings, convertible bonds and certain other loans) owing thereto. The initial term of the Standstill Agreement was valid until 27th November 1999 and was renewable for another six months subject to certain conditions. The Standstill Agreement was secured by a personal guarantee from Mr. Chung and debentures over the entire undertaking of each of the Company and its principal subsidiaries operating in Hong Kong. On 14th June 2000, the Company made an offer by a letter (the “Offer Letter”) to 16 of the aforesaid financial creditors concerning the restructuring of certain outstanding indebtedness owed by CTIL to these financial creditors. Pursuant to the Offer Letter, in consideration of the Company agreeing to pay the requisite amounts as specified in the Offer Letter, being 20% of the outstanding indebtedness owed by CTIL to these financial creditors who signed and accepted the Offer Letter (the “Cash Banks”), the Cash Banks agreed to assign to the Company all their rights, title, interest, and benefit in and to the outstanding CTIL indebtedness owed to the Cash Banks.

11. EXPERT

The following is the qualification of the expert who has given opinion or advice which is contained in this circular:

Name Qualification Deloitte Touche Tohmatsu certified public accountants

As at the Latest Practicable Date, Deloitte Touche Tohmatsu has given and has not withdrawn its written consent to the issue of this circular with inclusion of its letter, which have been prepared for inclusion in this circular, and reference to its name in the form and context in which it is included.

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GENERAL INFORMATION

APPENDIX V

As at the Latest Practicable Date, Deloitte Touche Tohmatsu does not have any shareholding interest in any of the Group or any right, whether legally enforceable or not, to subscribe for or to nominate to subscribe for securities in any member of the Group.

12. MISCELLANEOUS

(a) ICEA does not have any shareholding in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.
(b) The registered office of the Company is situated at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda.
(c) The branch share registrar of the Company in Hong Kong is Tengis Limited, 4th Floor, Hutchison House, 10 Harcourt Road, Central, Hong Kong.
(d) The company secretary of the Company is Li Sheung Ki, Lawrence, a qualified accountant with FCCA.

13. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours at the principal place of business of the Company in Hong Kong at Unit 01A, 24th Floor, Bank of America Tower, 12 Harcourt Road, Central, Hong Kong during normal business hours on any week day (except public holidays) up to and including 18th June 2002:

(a) the memorandum of association and bye-laws of the Company;
(b) the Dynamic Acquisition Agreements and the Glory Choice S&P Agreement;
(c) the audited financial statements of the Group for each of the two financial years ended 31st March 2000 and 31st March 2001, respectively;
(d) the letter of consent from Deloitte Touche Tohmatsu as referred to under the section headed “Expert” above;
(e) the accountants’ report on Glory Choice as set out in Appendix III to this circular;
(f) any other material contracts referred to in this Appendix; and
(g) all circulars issued by the Company since the date of the latest published audited accounts.

– 147 –

NOTICE OF SGM

TELECOM PLUS HOLDINGS LIMITED （普納集團有限公司[] ）*

(Incorporated in Bermuda with limited liability)

NOTICE IS HEREBY GIVEN that a special general meeting (the “SGM “) of Telecom Plus Holdings Limited (the “Company”) will be held at Tai Tam Room, 7th Floor, Conrad Hotel, Pacific Place, 88 Queensway, Hong Kong on 19th June 2002 at 10:30 a.m. for the purpose of considering and, if thought fit, passing with or without amendments, the following resolutions as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

1. “ THAT

(a) the Dynamic Acquisition (as defined in the circular of the Company dated 31st May 2002 (the “Circular”), a copy of which has been produced to the SGM marked “A” and signed by the chairman of the meeting for the purpose of identification) pursuant to the Dynamic Acquisition Agreements (as defined in the Circular), copies of which have been produced to the SGM marked “B”, “C” and “D”, respectively, and signed by the chairman of the meeting for the purpose of identification, be and is hereby approved, ratified and confirmed;
(b) the Dynamic Acquisition Agreements be and are hereby approved, ratified and confirmed;
(c) the grant of a specific mandate for the allotment and issue of 90,276,000 Dynamic Consideration Shares (as defined in the Circular) pursuant to the Dynamic Acquisition Agreements at an issue price of HK$0.45 per Dynamic Consideration Share for a total consideration of HK$40,624,200 be approved; and
(d) the directors of the Company be and are hereby authorised to allot and issue the Dynamic Consideration Shares pursuant to the specific mandate granted in paragraph (c) above and to do all acts, deeds and things which they may in their absolute discretion consider necessary, expedient or desirable to give effect to and implement the Dynamic Acquisition pursuant to the Dynamic Acquisition Agreements, and to waive compliance from or make and agree such variations of a non-material nature to any of the terms thereof as they may in their discretion consider to be desirable and in the interest of the Company.”

– 148 –

NOTICE OF SGM

“ THAT
(a) the Glory Choice Acquisition (as defined in the Circular) pursuant to the Glory Choice S&P Agreement (as defined in the Circular), a copy of which has been produced to the SGM marked “E” and signed by the chairman of the meeting for the purpose of identification, be and is hereby approved, ratified and confirmed;
(b) the Glory Choice S&P Agreement be and is hereby approved, ratified and confirmed;
(c) the grant of a specific mandate for the allotment and issue of 80,000,000 Glory Choice Consideration Shares (as defined in the Circular) pursuant to the Glory Choice S&P Agreement at an issue price of HK$0.45 per Glory Choice Consideration Share to satisfy part of the consideration in the sum of HK$36,000,000 contemplated under the Glory Choice S&P Agreement be approved; and
(d) the directors of the Company be and are hereby authorised to allot and issue the Glory Choice Consideration Shares pursuant to the specific mandate granted in paragraph (c) above and to do all acts, deeds and things which they may in their absolute discretion consider necessary, expedient or desirable to give effect to and implement the Glory Choice Acquisition pursuant to the Glory Choice S&P Agreement, and to waive compliance from or make and agree such variations of a non-material nature to any of the terms thereof as they may in their discretion consider to be desirable and in the interest of the Company.”

By order of the board Zou Yishang Chairman

Hong Kong, 31st May 2002

Principal place of business:

Unit 01A, 24th Floor Bank of America Tower 12 Harcourt Road, Central Hong Kong

– 149 –

NOTICE OF SGM

Notes:

(1) A member entitled to attend and vote at the above meeting is entitled to appoint a proxy to attend and to vote on his behalf. A proxy need not be a member of the Company.
(2) A form of proxy of the meeting is enclosed. Whether or not a member intends to attend the meeting in person, he/she/it is urged to complete and return the form of proxy in accordance with the instructions printed thereon.
(3) To be valid, a form of proxy, together with a power of attorney or other authority, if any, under which it is signed, or a certified copy of such power or authority, must be deposited at the Company’s Hong Kong branch share registrar, Tengis Limited, at 4th Floor, Hutchison House, 10 Harcourt Road, Central, Hong Kong, as soon as possible and in any event not later than 48 hours before the time fixed for the holding of the SGM or any adjournment thereof.
(4) Where there are joint holders of a share of the Company, any one of such holders may vote at the meeting either personally or by proxy in respect of such share as if such holder were solely entitled thereto, but if more than one of such holders be present at the meeting personally or by proxy, that one of such holders so present whose name stands first on the register of members of the Company in respect of such share shall alone be entitled to vote in respect thereof. Several executors or administrators of a deceased member in whose name any share stands shall for this purpose be deemed joint holders thereof.
(5) Completion and return of the form of proxy will not preclude the member from attending and voting in person at the SGM or any adjournment thereof should the member so wish.
For identification purpose only

– 150 –

AI assistant

Baoye Group Company Limited — Proxy Solicitation & Information Statement 2002

50544_rns_2002-05-31_09e42879-c380-4902-9ce4-c04b81d229eb.pdf

TELECOM PLUS HOLDINGS LIMITED （普納集團有限公司[] ）*

VERY SUBSTANTIAL ACQUISITION ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL IN GLORY CHOICE INVESTMENTS LIMITED AND MAJOR TRANSACTION INVOLVING ISSUE OF NEW SHARES

Financial adviser to Telecom Plus Holdings Limited

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

TELECOM PLUS HOLDINGS LIMITED （普納集團有限公司[] ）*

VERY SUBSTANTIAL ACQUISITION ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL IN GLORY CHOICE INVESTMENTS LIMITED AND MAJOR TRANSACTION INVOLVING ISSUE OF NEW SHARES

INTRODUCTION

LETTER FROM THE BOARD

LETTER FROM THE BOARD

DETAILS OF THE DYNAMIC ACQUISITION AGREEMENTS

Parties

LETTER FROM THE BOARD

Assets to be acquired

Consideration

Sale Shares

LETTER FROM THE BOARD

Dynamic Consideration Shares

LETTER FROM THE BOARD

Conditions

Completion

INFORMATION ON DYNAMIC

REASONS FOR THE DYNAMIC ACQUISITION

FINANCIAL EFFECTS OF THE DYNAMIC ACQUISITION

(i) Net tangible assets value

LETTER FROM THE BOARD

(ii) Gearing

SPECIFIC MANDATE TO ISSUE THE DYNAMIC CONSIDERATION SHARES

DETAILS OF THE GLORY CHOICE S&P AGREEMENT

LETTER FROM THE BOARD

Assets to be acquired

Consideration

LETTER FROM THE BOARD

Consideration Shares

Upon the Glory Choice

Conditions

Completion

INFORMATION ON GLORY CHOICE

Polywise

Poly Network

LETTER FROM THE BOARD

Changran

REASONS FOR THE GLORY CHOICE ACQUISITION

FINANCIAL EFFECTS OF THE GLORY CHOICE ACQUISITION

(i) Net tangible assets value

LETTER FROM THE BOARD

(ii) Gearing

SPECIFIC MANDATE TO ISSUE THE GLORY CHOICE CONSIDERATION SHARES

BUSINESS REVIEW AND PROSPECTS

LETTER FROM THE BOARD

GENERAL

LETTER FROM THE BOARD

SGM

RECOMMENDATION

ADDITIONAL INFORMATION

I. SUMMARY OF FINANCIAL INFORMATION

Results

Net liabilities

II. AUDITED FINANCIAL STATEMENTS OF THE COMPANY

(1) Report of the auditors of the Company

To the Shareholders of Telecom Plus Holdings Limited (Formerly Known as Chun Tai Holdings Limited)

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS

BASIS OF OPINION

APPENDIX I FINANCIAL INFORMATION RELATING TO THE GROUP

QUALIFIED OPINION ARISING FROM LIMITATION OF AUDIT SCOPE

(2) Audited financial statements of the Company

CONSOLIDATED INCOME STATEMENT

CONSOLIDATED BALANCE SHEET

CONSOLIDATED BALANCE SHEET (continued)

NOTES TO FINANCIAL STATEMENTS

1. ORGANISATION AND OPERATIONS

2. BASIS OF PRESENTATION AND CORPORATE UPDATE

(i) Equity financing

Baoye Group Company Limited Proxy Solicitation & Information Statement 2002