Changyou International Group Limited — Proxy Solicitation & Information Statement 2004

Aug 13, 2004

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt about 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 Ruili Holdings Limited, you should at once hand this circular with the enclosed form of proxy to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or the 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 however arising from or in reliance upon the whole or any part of the contents of this circular.

==> picture [246 x 63] intentionally omitted <==

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

RUILI HOLDINGS LIMITED
瑞力控股有限公司 []
(Incorporated in Bermuda with limited liability)
(Stock Code: 491)
----- End of picture text -----*

MAJOR TRANSACTION INVOLVING DISPOSAL OF RUIAN WEIYE TECHNOLOGY (SHENZHEN) LIMITED

A notice convening the SGM (as defined herein) to be held on Tuesday, 31st August, 2004 at Loashan Snow Garden Restaurant, 5/F., China Resources Building, 26 Harbour Road, Wanchai, Hong Kong at 2:30 p.m. is set out on pages 68 to 69 of this circular. If you are not able to attend the SGM (as defined herein), you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon to the Company’s branch share registrar in Hong Kong, Tengis Limited located at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for holding the SGM (as defined herein). Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM (as defined herein) or any adjournment of it should you so wish.

* For identification only

13th August, 2004

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
RWTL Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Reasons for and benefits of the RWTL Agreement . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Business of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
RWTL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Appendix I – Financial information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Appendix II – General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	60
Notice of SGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	68

– i –

DEFINITIONS

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

“Company”	Ruili Holdings Limited, a company incorporated in
	Bermuda with limited liability and whose securities are
	listed on the Stock Exchange;
“Completion”	completion of the RWTL Agreement, which took place
	on 30th April, 2004;
“Consideration”	consideration paid under the RWTL Agreement;
“Director(s)”	(a) director(s) of the Company;
“Latest Practicable Date”	11th August, 2004, being the latest practicable date prior
	to the printing of this circular for ascertaining certain
	information contained herein;
“Listing Rules”	the Rules Governing the Listing of Securities on the
	Stock Exchange;
“PRC”	the People’s Republic of China;
“RTCL”	Ruian Technology Company Limited, a wholly-owned
	subsidiary of the Company incorporated in Hong Kong;
“RWTL”	Ruian Weiye Technology (Shenzhen) Limited (瑞安偉
	業科技（深圳）有限公司), a company incorporated in
	the PRC;
“RWTL Agreement”	the agreement dated 30th April, 2004 entered into
	between RTCL and Star Shanghai in relation to the sale
	and purchase of interests in RWTL;
“SGM”	a special general meeting of the Company to be held on
	Tuesday, 31st August, 2004 atLoashan Snow Garden
	Restaurant, 5/F., China Resources Building, 26 Harbour Road,
	Wanchai, Hong Kongat 2:30 p.m. to rectify the RWTL
	Agreement;
“Shareholder(s)”	shareholder(s) of the Company;

– 1 –

DEFINITIONS

“Special Audit Accounts” a special audit conducted by 深圳鵬城會計事務所 was carried out on RWTL as at 31st March, 2004 to establish a fair value for RWTL before sale using PRC generally accepted accounting principles; “SRT” 深圳銀河通信息技術有限公司 (“Shenzhen Yinhetong Information Technology Company Limited”), a nonwholly owned subsidiary of the Company incorporated in the PRC which is owned as to 55% by the Company indirectly, 15.75% by Hu Yidong (胡宜東 ), a Director o f t h e C o m p a n y , a n d 1 4 . 6 2 5 % e a c h b y Yim Yiouhan (嚴由漢 ) and Tsao Henliang (曹垣亮) respectively who are independent to the Company save disclosed herein; “Star Shanghai” Star Shanghai International Limited, a company incorporated in the British Virgin Islands and beneficially and legally owned by Wang Gang; “Stock Exchange” The Stock Exchange of Hong Kong Limited; “Wang Gang” Wang Gang (王剛 ), the sole director and shareholder of Star Shanghai; “HK$” Hong Kong dollars; and “RMB” Renminbi of the People’s Republic of China.

Note: Amounts expressed in RMB in this circular have been translated into HK$ at the rate of HK$1=RMB1.06

– 2 –

LETTER FROM THE BOARD

RUILI HOLDINGS LIMITED 瑞力控股有限公司[*]

(Incorporated in Bermuda with limited liability)

Directors:

Mr. Wu Jiahong Mr. Liao Chongde Mr. Zhang Yiwei Mr. Lee Kwok Leung, Alan Mr. Hu Yidong Mr. Li Fui Lung, Danny Mr. Ng Hoi Yue, Herman

* Independent Non-executive Directors

Registered office: Clarendon House Church Street Hamilton HM 11 Bermuda

Principal place of business in Hong Kong: Rooms 2703-04, 27th Floor China Resources Building 26 Harbour Road Wanchai Hong Kong

13th August, 2004

To the Shareholders,

MAJOR TRANSACTION INVOLVING DISPOSAL OF RUIAN WEIYE TECHNOLOGY (SHENZHEN) LIMITED

INTRODUCTION

The Company announced in its announcement dated 12th May, 2004 that its whollyowned subsidiary RTCL, had entered into the RWTL Agreement on 30th April, 2004 with Star Shanghai pursuant to which, inter alia, RTCL sold and Star Shanghai purchased the entire paid-up registered share capital of RWTL. The purpose of this circular is to provide you with further details of the RWTL Agreement and to give you notice of the SGM.

* For identification only

– 3 –

LETTER FROM THE BOARD

RWTL AGREEMENT

A summary of the terms of the RWTL Agreement is set out below.

Date

30th April, 2004

Vendor

RTCL, a wholly-owned subsidiary of the Company.

Purchaser

Star Shanghai

Star Shanghai is beneficially and legally owned by Wang Gang. It is an investment holding company used as a special purpose vehicle by Wang Gang to invest in RWTL. To the best of the Directors’ knowledge, information and belief having made all reasonable enquiry, each of Star Shanghai and Wang Gang is a third party independent of and not connected with the directors, chief executives or substantial shareholders of the Company, its subsidiaries and their respective associates.

Subject

RTCL sold and Star Shanghai purchased the entire paid-up registered share capital of RWTL.

Consideration

The Consideration was HK$400,000. This was determined on an arm’s length basis by reference to RWTL’s latest financial statements and negotiations between the parties which took into account the operations of RWTL, its future outlook, amounts outstanding and claims against RWTL. The Consideration was satisfied in cash on Completion.

Completion

Completion took place on signing and RWTL is no longer a subsidiary of the Company.

– 4 –

LETTER FROM THE BOARD

REASONS FOR AND BENEFITS OF THE RWTL AGREEMENT

The Company is focusing on the redevelopment of its products, market expansion, cost minimisation and business diversification, as stated in its 2004 Interim Report. Whilst the Directors regard the business of sale of digital cameras, multi-media electronic products, toys and games products as core to the Group (and it is expected to continue with these sales, with some manufacturing being outsourced to RWTL), RWTL itself was not sufficiently profitable (and suffered a loss of approximately HK$20.9 million in the 9 months ended 31st March, 2004 due to reduced turnover of approximately HK$29 million that was not accompanied by a corresponding reduction in fixed overhead as well as provision for bad and doubtful debts of approximately HK$19.1 million) and was therefore disposed of.

As disclosed in the Company’s 2004 Interim Report, legal claims initiated by suppliers in relation to goods and services have been issued against RWTL. As far as the directors of the Company are aware, total claims in respect of these writs and demands amount to approximately RMB7 million (approximately HK$6.6 million) as at 31st March, 2004. Also disclosed in the Company’s 2004 Interim Report, RWTL received a demand in May 2003 from a creditor for repayment of a loan amounting to RMB10 million (HK$9.4 million) which was due in August 2003. Legal advisers were appointed to contest these claims. The Directors were advised by its PRC legal advisers that none of the claims were made against the Company. Star Shanghai agreed that RTCL will not be liable for any claims or liabilities of RWTL. Since the claims were made against RWTL, not the Company and as the Company is a separate legal entity from RWTL, the Company was not at any time, liable to repay any loans or liabilities of RWTL. Neither the Company or its subsidiaries have acted as guarantor for the loans or liabilities of RWTL. The Company no longer recognises in its consolidated financial statements any demands or claims against RWTL.

As at 30th April, 2004, RWTL owed RTCL approximately RMB1.8 million (approximately HK$1.7 million) in trade debts and SRT RMB3.2 million (approximately HK$3.02 million) under a loan from SRT to RWTL for working capital purposes. As at the Latest Practicable Date, the RMB1.8 million (approximately HK$1.7 million) trade debts owed by RWTL to RTCL have been settled in cash. Discussions are taking place between RWTL and SRT over the settlement of the RMB3.2 million loan which may involve the setting off of future trade debts between SRT and RWTL. It is expected that after the sale the Company will continue to trade with RWTL on arm’s length commercial terms by outsourcing manufacturing to RWTL.

An estimated profit of approximately HK$10.4 million is expected to be recognised by the Group in its financial statements as a result of completing the RWTL Agreement. This is derived from the sale proceeds of the transaction which amount to HK$400,000, and because after completion of the RWTL Agreement, the Group no longer recognises the net liability of RWTL of approximately HK$10 million as at 31st March, 2004, in its financial statements, which are prepared using Hong Kong generally accepted accounting principles and not PRC generally accepted accounting principles.

– 5 –

LETTER FROM THE BOARD

The reason for disposing RTWL and outsourcing the manufacturing process to RTWL and other third party manufacturer is that it is a major strain on the Company’s resources to continue funding the operations of RWTL as a factory of that size at its current business volume and past losses. The Company’s comparative advantage is in product development and marketing and sales, not in manufacturing. The Directors have decided that the costs of maintaining Hong Kong based staff in a manufacturing factory in the PRC is financially burdensome to the Company and when compare with other manufacturers employing local staff with lower overheads, the Group’s competitive advantage became very low.

The Directors believe that in order to turn the business environment to the Group’s advantage, the Group can develop a new business relationship with RWTL by contracting out its orders to RWTL for manufacturing under arms length terms and conditions. That way, the Group no longer has to fund the operations of RWTL and be responsible for any losses in the future. Instead, RWTL will be treated as one of the Group’s manufacturing candidates. To ensure the Group receives competitive prices, the Group will continue look for other manufacturers. Furthermore, the Group is developing some new products, such as Karaoke machines with TV screen, which the Directors believe RWTL may not have the expertise in manufacturing and therefore not able to provide the Group with competitive prices.

BUSINESS OF THE GROUP

The Company is an investment holding company. The Company, through its subsidiaries is now focusing itself on products development, market expansion, cost minimisation and business diversification. In respect of products development, the Group develops high technology digital cameras, karaoke combo systems with TV and DVD players and high definitions DVD players. It is also constantly exploring opportunities of penetrating its multimedia electronic products into the PRC market. The Directors are of the view that the Group could leverage on its core competencies in digital cameras productions and know-how technology as well as wholesaling track records in expanding into the PRC market. At the same time, the Group, through extensive participation in world trade exhibitions and pricing strategy, is taking more aggressive approach to recapture its market share in North America and to expand the customer base in Europe.

To enhance the Group’s competitiveness in the market, the Group has imposed certain measures to increase productivity, to reduce the manufacturing overhead and administrative expenses. Cost efficiency and stringent credit controls to improve the Group’s financial position remain as major tasks of the Group’s management.

– 6 –

LETTER FROM THE BOARD

The Company will remain active after the disposal of RWTL and details of each of the main operating activities of the Group and the subsidiaries through which they are carried out are as follows:

• trading of digital cameras, multimedia electronic products, toys and games products through RTCL, a wholly-owned subsidiary of the Company. RTCL has had established relationships with some of its major clients for over 4 years. After the RWTL Transaction, RTCL remains the trading arm of the Group and may place manufacturing orders with RWTL on arm’s length terms. The expected contractual turnover for RTCL from May to December, 2004, based on the value of confirmed orders is HK$37 million. These orders are placed by customers of the Group and if these customers later decide to change the size of the orders or even cancel them, RTCL’s turnover may be affected. As at the Latest Practicable Date, none of these orders have been cancelled.

• provision of services in computer and telecommunication systems integration and trading, software and hardware development services, primarily through SRT (深 圳銀河通信息技術有限公司 ) which is 55% owned by the Company. The value of SRT’s expected contractual turnover, based on the value of sales projects to be completed, in the four months up to June, 2004 was RMB17 million as derived from signed contracts. As at the Latest Practicable Date, none of these projects have been completed. The turnover booked for the period from April to June, 2004 amounted to approximately RMB91 million.

• trading of high technology components for telecommunication products through Widax (Hong Kong) Limited which is 100% owned by the Company. Although no revenue was generated from this operating arm in the first half of 2004, the Directors are actively seeking potential trading partners to develop this business.

In view of the above, the Directors consider that the Group has sufficient operations and assets in order to satisfy the requirements of Rule 13.24 of the Listing Rules on the basis of its existing business and assets.

CONSIDERATION

In light of RWTL’s liabilities, the Directors considered that the Consideration was fair and reasonable. The Company intends to use the proceeds of RWTL’s sale of HK$400,000 under the RWTL Agreement as working capital. The consideration of HK$400,000 was derived by reference to RWTL’s latest financial statements and negotiations between the parties which took into account the operations of RWTL, its future outlook and amounts outstanding and claims against RWTL.

– 7 –

LETTER FROM THE BOARD

RWTL

RWTL is a PRC-incorporated company which was established on 26th June, 2001 by Welback Enterprises Limited which was previously an indirect non-wholly owned subsidiary of the Company. RWTL has been wholly owned by the Company since 7th July, 2003 when the remaining 49% in its registered capital was acquired at a consideration of HK$7,062,678.55. It is principally engaged in the manufacture and sale of digital cameras, multi-media electronic products, toys and games products.

To establish a fair value for RWTL before sale, a special audit conducted by 深圳鵬城 會計事務所 was carried out on RWTL using PRC generally accepted accounting principles in connection with the RWTL Agreement. As at 31st March, 2004 as shown in the Special Audit Accounts, RWTL had total assets of approximately RMB20,516,933 (approximately HK$19,355,597) representing some 44% of its total assets at 31st December, 2003 largely as a result of a provision for bad and doubtful debts of RMB20,357,380. At the same date it had a net asset deficit of approximately RMB7,931,346 (approximately HK$7,482,401). The difference between the net asset deficit of approximately RMB7,931,346 (approximately HK$7,482,401) as shown in the Special Audit Accounts and the net liability of RWTL of approximately HK$10 million (based on Hong Kong generally accepted accounting principles) is due to accounting differences. Based on the audited financial statements of RWTL for 2002 and 2003, its net profit before and after tax for the last two financial years were approximately RMB1,436,329 (approximately HK$1,355,027) for the year ended 31st December, 2003 and approximately RMB481,371 (approximately HK$454,124) for the year ended 31st December, 2002. Its financial statements did not record any tax expenses. Based on the same financial statements the:

Net asset value of RWTL at 31st December, 2003 was approximately RMB14,502,753 (approximately HK$13,681,843).

Net asset value of RWTL at 31st December, 2002 was approximately RMB4,153,201 (approximately HK$3,918,115).

Total asset value of RWTL at 31st December, 2003 was approximately RMB46,174,376 (approximately HK$43,560,732).

Total asset value of RWTL at 31st December, 2002 was approximately RMB27,238,320 (approximately HK$25,696,529).

– 8 –

LETTER FROM THE BOARD

GENERAL

The Company announced in its announcement dated 12th May, 2004 that it considered the RWTL Agreement to be a discloseable transaction for the Company under Chapter 14 of the Listing Rules as the total assets of RWTL represents less than 25% of the total assets of the Company as at 31st December, 2003 shown in its latest published interim report. The Listing Division disagreed. Having considered the result of a test based on the annual unaudited turnover of the Group and RWTL for the year ended 31st December, 2003, the Company and the Listing Division have now come to a consensus that the entering into the RWTL Agreement constitutes a major transaction for the Company. As the transaction has been completed, the SGM will be held to rectify the transaction. None of the Shareholders were required under the Listing Rules to abstain from voting on this resolution at the SGM.

SGM

The notice of the SGM is set out on page 68 to page 69 of this circular. A form of proxy for use at the SGM is enclosed. If you are not able to attend the SGM (as defined herein), you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon to the Company’s branch share registrar in Hong Kong, Tengis Limited located at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for holding the SGM (as defined herein). Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM (as defined herein) or any adjournment of it should you so wish.

RECOMMENDATION

The Board is of the opinion that the RWTL Agreement is fair, reasonable and in the best interests of the Company and the Shareholders as a whole, and recommends you to vote in favour of the resolution to be proposed at the SGM.

Yours attention is also drawn to the additional information set out in the appendices to this circular.

By order of the board Ruili Holdings Limited Wu Jiahong Executive Director

– 9 –

FINANCIAL INFORMATION

APPENDIX I

SUMMARY OF AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE GROUP FOR THE THREE YEARS ENDED 30TH JUNE, 2003

• (A) Set out below is a summary of audited consolidated results of the Group for the three years ended 30th June, 2003 extracted from the Group’s audited consolidated financial statements:

Consolidated Income Statement

Turnover Cost of sales Gross profit Other revenue Subscription right reserve release Distribution costs Administrative expenses Revaluation decrease of investment properties Revaluation decrease of leasehold land and buildings Impairment loss in respect of interest in an associate Impairment loss in respect of investments in securities Amortisation of operating rights Impairment loss in respect of operating rights Provision for doubtful debts Deposit forfeited Loss from operations Amortisation on goodwill Share of results of an associate Finance costs Loss on disposal of subsidiaries Loss before taxation Taxation Loss before minority interest Minority interest Net loss for the year Dividends Loss per share basic and diluted

For the year ended 30th June 2003 2002 2001 HK$’000 HK$’000 HK$’000 279,839 402,124 382,764 (274,703) (362,336) (333,626) 5,136 39,788 49,138 4,928 5,630 5,147 25,221 – – (10,285) (15,118) (19,636) (67,416) (60,050) (58,437) (6,500) (2,557) – – (126) (30) (1,000) (47,887) – (15,180) (13,751) (1) (453) – – (6,347) – – (22,233) (746) (5,015) (4,100) – – (98,229) (94,817) (28,834) (11) (3,391) – – (181) – (6,331) (5,790) (3,745) – (2,032) – (104,571) (106,211) (32,579) – – – (104,571) (106,211) (32,579) – 78 (102) (104,571) (106,133) (32,681) – – – (1.23)cent (1.62)cent (0.51)cent

– 10 –

FINANCIAL INFORMATION

APPENDIX I

Consolidated Balance Sheet

Non-current assets Intangible assets Property, plant and equipment Investment properties Interests in an associate Investments in securities Amount due from an investee company Current assets Inventories Property held for sale Trade and other receivables Taxation recoverable Pledged bank deposits Time deposits, bank balances and cash Less: current liabilities Trade and other payables Short-term secured bank borrowings Obligations under finance leases due within one year Convertible bonds Other secured borrowings Amount due to a related company Net current liabilities Total assets less current liabilities	At 30th June, 2003 2002 2001 HK$’000 HK$’000 HK$’000 91 4,029 – 42,128 59,783 59,653 28,000 34,500 – – 3,072 – – 7,404 – – – 171 70,219 108,788 59,824 33,582 69,744 69,478 – – 36,556 23,589 78,750 63,868 – – 12 9,860 8,646 – 2,639 4,523 25,759 69,670 161,663 195,673 81,478 121,615 77,761 25,471 23,296 26,800 1,186 1,446 913 15,602 14,887 – 14,423 5,000 6,000 38,301 – – 176,461 166,244 111,474 (106,791) (4,581) 84,199 (36,572) 104,207 144,023	At 30th June, 2003 2002 2001 HK$’000 HK$’000 HK$’000 91 4,029 – 42,128 59,783 59,653 28,000 34,500 – – 3,072 – – 7,404 – – – 171 70,219 108,788 59,824 33,582 69,744 69,478 – – 36,556 23,589 78,750 63,868 – – 12 9,860 8,646 – 2,639 4,523 25,759 69,670 161,663 195,673 81,478 121,615 77,761 25,471 23,296 26,800 1,186 1,446 913 15,602 14,887 – 14,423 5,000 6,000 38,301 – – 176,461 166,244 111,474 (106,791) (4,581) 84,199 (36,572) 104,207 144,023
		59,824
		69,478 36,556 63,868 12 – 25,759
		195,673
		77,761 26,800 913 – 6,000 –
		111,474
		84,199
		144,023

– 11 –

FINANCIAL INFORMATION

APPENDIX I

Less: non-current liabilities Secured term loan due after one year Obligations under finance leases due after one year Loan from a shareholder Amount due to a related company Minority interests Net (liabilities)/assets Financed by: Share capital Reserves Shareholders’ (deficits)/funds	At 30th June, 2003 2002 2001 HK$’000 HK$’000 HK$’000 19,263 21,295 23,543 712 993 965 3,136 – – – 40,459 – 23,111 62,747 24,508 – – 551 (59,683) 41,460 118,964 96,141 66,116 64,901 (155,824) (24,656) 54,063 (59,683) 41,460 118,964	At 30th June, 2003 2002 2001 HK$’000 HK$’000 HK$’000 19,263 21,295 23,543 712 993 965 3,136 – – – 40,459 – 23,111 62,747 24,508 – – 551 (59,683) 41,460 118,964 96,141 66,116 64,901 (155,824) (24,656) 54,063 (59,683) 41,460 118,964
		24,508
		551
		118,964
		64,901 54,063
		118,964

– 12 –

FINANCIAL INFORMATION

APPENDIX I

• (B) Set out below are the audited financial statements of the Group as extracted from the annual report of the Group for the year ended 30th June, 2003:

Audited Consolidated Profit and Loss Account

Notes Turnover 5 Cost of sales Gross profit Other revenue Subscription right reserve release Distribution costs Administrative expenses Revaluation decrease of investment properties Revaluation decrease of leasehold land and buildings Impairment loss in respect of interest in an associate Impairment loss in respect of investments in securities Amortisation of operating rights Impairment loss in respect of operating rights Provision for doubtful debts Deposit forfeited Loss from operations 7 Amortisation on goodwill Share of results of an associate Finance costs 8 Loss on disposal of subsidiaries Loss before taxation Taxation 9 Loss before minority interest Minority interest Net loss for the year 10 Dividends 12 Loss per share Basic and diluted 11

For the year ended 30th June, 2003 2002 HK$’000 HK$’000 279,839 402,124 (274,703) (362,336) 5,136 39,788 4,928 5,630 25,221 – (10,285) (15,118) (67,416) (60,050) (6,500) (2,557) – (126) (1,000) (47,887) (15,180) (13,751) (453) – (6,347) – (22,233) (746) (4,100) – (98,229) (94,817) (11) (3,391) – (181) (6,331) (5,790) – (2,032) (104,571) (106,211) – – (104,571) (106,211) – 78 (104,571) (106,133) – – (1.23)cent (1.62)cent

– 13 –

FINANCIAL INFORMATION

APPENDIX I

Audited Consolidated Balance Sheet

Notes Non-current assets Intangible assets 15 Property, plant and equipment 16 Investment properties 17 Interests in an associate 19 Investments in securities 20 Current assets Inventories 21 Trade and other receivables 22 Pledged bank deposits Time deposits, bank balances and cash Less: current liabilities Trade and other payables 23 Short-term secured bank borrowings 24 Obligations under finance leases due within one year 26 Convertible bonds 27 Other secured borrowings Amount due to a related company 29 Net current liabilities Total assets less current liabilities Less: non-current liabilities Secured term loan due after one year 25 Obligations under finance leases due after one year 26 Loan from a shareholder 28 Amount due to a related company 29 Net (liabilities)/assets Financed by: Share capital 30 Reserves 31 Shareholders’ (deficits)/funds

As at 30th June, 2003 2002 HK$’000 HK$’000 91 4,029 42,128 59,783 28,000 34,500 – 3,072 – 7,404 70,219 108,788 33,582 69,744 23,589 78,750 9,860 8,646 2,639 4,523 69,670 161,663 81,478 121,615 25,471 23,296 1,186 1,446 15,602 14,887 14,423 5,000 38,301 – 176,461 166,244 (106,791) (4,581) (36,572) 104,207 19,263 21,295 712 993 3,136 – – 40,459 23,111 62,747 (59,683) 41,460 96,141 66,116 (155,824) (24,656) (59,683) 41,460

– 14 –

FINANCIAL INFORMATION

APPENDIX I

Balance Sheet

Notes Non-current assets Property, plant and equipment 16 Investments in subsidiaries 18 Net amounts due from subsidiaries 18 Current assets Other receivables Time deposits, bank balances and cash Less: current liabilities Other payables Obligations under finance leases due within one year 26 Convertible bonds 27 Net current liabilities Total assets less current liabilities Less: non-current liabilities Obligations under finance leases due after one year 26 Loan from a shareholder 28 Amount due to a related company Net (liabilities)/assets Financed by: Share capital 30 Reserves 31 Shareholders’ (deficits)/funds

As at 30th June, 2003 2002 HK$’000 HK$’000 1,051 182 – – 6,761 114,781 7,812 114,963 169 1,622 121 586 290 2,208 1,301 1,819 192 – 15,602 14,887 17,095 16,706 (16,805) (14,498) (8,993) 100,465 712 – 3,136 – – 2,430 3,848 2,430 (12,841) 98,035 96,141 66,116 (108,982) 31,919 (12,841) 98,035

– 15 –

FINANCIAL INFORMATION

APPENDIX I

Consolidated Statement of Changes in Equity

Notes Total equity as at 1st July, 2002/2001 Net gains and losses not recognised in the consolidated income statement: Revaluation decrease 31 Goodwill released upon disposal of a subsidiary Movements in issued share capital and share premium: Issue of shares from exercise of share options 30 Premium arising on issue of shares in respect of exercise of share options 31 Issue of shares pursuant to – subscription agreements 30 – settlement agreement 30 Premium arising on issue of shares pursuant to – subscription agreements 31 – settlement agreement 31 Issue of shares from exercise of warrants 30 Premium arising on issue of shares in respect of exercise of warrants 31 Movements in issue of warrants: Proceeds from issue of warrants 31 Warrants issue expenses 31 Subscription rights expired 31 Net loss for the year 10 Total equity as at 30th June, 2003/2002

For the year ended 30th June, 2003 2002 HK$’000 HK$’000 41,460 118,964 (9,536) (1,386) – 1,972 (9,536) 586 3,000 1,215 1,800 1,559 22,079 – 4,921 – 3,926 – 2,159 – 25 – 275 – – 26,140 – (871) (25,221) – (104,571) (106,133) (59,683) 41,460

– 16 –

FINANCIAL INFORMATION

APPENDIX I

Consolidated Cash Flow Statement

Notes Cash flows from operating activities Loss before taxation Adjustment for: Subscription right reserve release Interest income Interest expenses Depreciation Amortisation of development costs Written off of development costs Amortisation on goodwill Amortisation of operating rights Written off of operating rights Loss on disposal of property, plant and equipment Written off of property, plant and equipment Loss on disposal of subsidiaries Deficit arising on revaluation of leasehold properties Deficit arising on revaluation of investment properties Provision for doubtful debts Deposit forfeited Provision for obsolete inventories Provision for impairment loss of – Investment in an associate – Investments in securities – Amount due from an investee company Operating loss before working capital changes Decrease/(increase) in inventories Decrease/(increase) in trade and other receivables (Decrease)/increase in trade and other payables Cash (used in)/generated from operations Hong Kong profits tax refunded Net cash (used in)/generated from operating activities

For the year ended 30th June, 2003 2002 HK$’000 HK$’000 (104,571) (106,211) (25,221) – (216) (236) 6,331 5,790 8,985 9,683 636 318 3,291 – 11 3,391 453 – 6,347 – 330 234 434 – – 2,032 – 126 6,500 2,557 22,233 746 4,100 – 31,991 – 1,000 47,887 15,180 13,751 – 171 (22,186) (19,761) 4,171 (5,219) 32,928 (20,043) (33,281) 45,827 (18,368) 804 – 12 (18,368) 816

– 17 –

FINANCIAL INFORMATION

APPENDIX I

Notes Cash flows from investing activities Interest income received Purchase of property, plant and equipment Proceeds from disposal of property, plant and equipment Acquisition of operating rights Purchase of an associate Purchase of investments in securities Deposit for internet platform Disposal of 49% interests and shareholder’s loan in subsidiaries Increase in pledged bank deposits Development costs incurred Disposal of a subsidiary (net of cash and cash equivalents disposed of) 32 Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares Proceeds from issue of warrants Proceeds from issue of convertible bonds Advance from a shareholder Net increase in secured short-term loan Net increase in other secured borrowings Net decrease in trust receipts and import loans Net decrease in amount due to a related company Repayment of other borrowings Issue costs of shares Expenses paid in connection with the issue of warrants Issue costs of convertible bonds Repayment of term loans Repayment of obligations under finance leases Interest expenses paid Interest on obligations under finance leases Net cash generated from financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year Analysis of the balances of cash and cash equivalents Time deposits, bank balances and cash Bank overdrafts

For the year ended 30th June, 2003 2002 HK$’000 HK$’000 116 236 (2,982) (11,531) 2,440 385 (6,800) – – (56,170) (5,700) (11,700) (4,000) – – 40,571 (1,214) (8,646) – (4,245) – (1,286) (18,140) (52,386) 32,150 2,774 – 26,140 – 15,602 3,000 – 7,117 – 9,423 – (4,194) (2,656) (2,157) – – (1,000) (1,445) – – (871) – (780) (1,806) (1,606) (1,632) (1,340) (4,657) (4,248) (198) (191) 35,601 31,824 (907) (19,746) 3,546 23,292 2,639 3,546 2,639 4,523 – (977) 2,639 3,546

– 18 –

FINANCIAL INFORMATION

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

1. CORPORATE INFORMATION

The Company was incorporated in Bermuda on 27th March, 1992 as an exempted company with limited liability under the Companies Act 1981 of Bermuda (as amended) and its shares are listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”).

The Company acts as an investment holding company. The principal activities and other particulars of the Company’s significant subsidiaries are set out in Note 18 to the financial statements.

2. BASIS OF PREPARATION AND FUNDAMENTAL UNCERTAINTIES RELATING TO GOING CONCERN

(a) Basis of Preparation

• (i) Since key management and personnel responsible for the accounting and finance function of Welback International Investments Limited and its subsidiaries (“WIIL group”), being the major operating subsidiaries of the Group, commenced to leave WIIL group in May 2003, the books of account and records of WIIL group have not been properly prepared and maintained. In the absence of properly prepared accounting records and supporting documents of WIIL group, the directors of the Company have prepared the consolidated financial statements of WIIL group based on unaudited individual management accounts of the companies comprising WIIL group. Against this background, the directors of the Company are unable to represent as to the validity, completeness, existence, valuation, recording and presentation of assets, liabilities, income, expenditure and cash flows of WIIL group. Accordingly, the directors of the Company are unable to represent that the financial statements of the Group are free from material misstatement.

• (ii) In the absence of properly prepared accounting records and supporting documents of WIIL group, the following required disclosures have not been made in these financial statements:

• Details of deferred taxation disclosures as required by Statement of Standard Accounting Practice (“SSAP”) 12 “Accounting for deferred tax” issued by the Hong Kong Society of Accountants; and

• Details of related party transactions as required by SSAP 20 “Related party disclosures”.

• (iii) In the absence of properly prepared accounting records and supporting documents of WIIL group, the directors of the Company are unable to represent as to the completeness of the following disclosure notes:

• contingent liabilities of WIIL group in respect of various legal proceedings, claims and writs of approximately HK$48,941,000. In addition, the directors of the Company are unable to quantify the amount of banking facilities utilised by WIIL group as at 30th June, 2003, for which the Company has provided corporate guarantees to the extent of approximately HK$31,700,000 as shown in the latest available banking facilities letters dated 25th July, 2002 and 22nd November, 2002.

• pledge of assets in aggregate amount of approximately HK$19,044,000;

• operating lease commitments of approximately HK$5,201,000; and

• post balance sheet events as set out in Note 37 to the financial statements.

– 19 –

FINANCIAL INFORMATION

APPENDIX I

In preparing the financial statements, the directors of the Company have given careful consideration to the liquidity position and going concern status of the Group.

Events of default have arisen under convertible bonds due on 29th May, 2003 and certain borrowing arrangements entered into by the Group. As a result, the relevant borrowings have become repayable on demand and have been classified as current liabilities.

Tripoli Investments Limited (“Tripoli”), the related company of the Group, has informed the Company that it is not willing to provide further financial support to the WIIL group to meet its financial obligations as they fall due.

(b) Fundamental Uncertainties relating to Going Concern

In preparing the financial statements, the directors have given careful consideration to the future liquidity of the Group in the light of its net current liabilities of approximately HK$106,791,000 and net liabilities of approximately HK$59,683,000 as at 30th June, 2003. The Group also incurred a net loss from ordinary activities attributable to shareholders and recorded a decrease in cash and cash equivalents for the year ended 30th June, 2003 of approximately HK$104,571,000 and HK$907,000 respectively.

The Group has had difficulty in repaying the 4% convertible bonds due on 29th May, 2003 and payables on time, its creditors and employees. The Group had also been the subject of various claims and demands, mainly result from its ordinary course of business.

The financial statements have been prepared on a going concern basis, the validity of which depends upon future funding being available, the satisfactory resolution of the settlement of convertible bonds due on 29th May, 2003, the satisfactory resolution of a number of lawsuits against the Group, the successful attainment of profitable and positive cash flow operations and the successful outcome of the implementation of the measures noted below. The financial statements do not include any adjustments that would result from a failure of implementation of the measures noted below. If these measures were not to be successful or insufficient, or if the going concern basis were not to be appropriate, adjustments would have to be made to the financial statements to reduce the value of the Group’s assets to their recoverable amounts, to provide for any further liabilities which might arise and to reclassify non-current assets and liabilities as current assets and liabilities, respectively.

The financial statements have been prepared on the assumption that the Group will continue to operate as a going concern notwithstanding the conditions prevailing as at 30th June, 2003 and subsequently thereto up to the date of approval of these financial statements. In order to improve the Group’s financial position, immediate liquidity, cash flows, profitability and operations, the directors of the Group have adopted several financing measures which have been completed or to be completed subsequent to the balance sheet date together with other measures in progress at the date of this report which include, but are not limited to, the following:

• (i) On 21st July, 2003, the Company completed the issue of 300,000,000 new shares with an aggregate proceeds of approximately HK$4,934,000 to three independent placees. The proceeds were received on 23rd July, 2003. Further details of these transactions are set out in the Note 37(i) to the financial statements.

• (ii) On 19th August, 2003, the Company entered into an agreement with an independent third party for the issuance of convertible bonds with an aggregate principal of HK$16,000,000. Further details of the terms of such convertible bonds are set out in Note 37(iii) to the financial statements. The proceeds from the issue of the convertible bonds were primarily utilised to reduce the Group’s indebtedness and partially used as general working capital of the Group. According to the agreement dated 19th August, 2003, the proceeds will be received in November 2003, which is two months after the approval of the Stock Exchange.

– 20 –

FINANCIAL INFORMATION

APPENDIX I

• (iii) On 10th September, 2003, the Company entered into a subscription agreement with Accurate Sino Holdings Limited (“ASHL”) under which ASHL agreed, inter alia, to subscribe for 700,000,000 new shares of the Company at a subscription price of HK$0.016 per share. Also, the sole director and shareholder of ASHL agreed to grant a loan of HK$5,000,000 to the Company for a term of one year at an interest rate of 8% per annum. Further details of these transactions are set out in the Note 37(vi) to the financial statements. The proceeds for the subscription of new shares were received on 16th October, 2003 and the loan has not been granted up to the date of approval of these financial statements.

In the opinion of the directors, in light of the measures taken to date, the Group will have sufficient working capital to meet its financial obligations in full as they fall due in the foreseeable future. Accordingly, the directors are satisfied that it is appropriate to prepare the financial statements on a going concern basis, notwithstanding the Group’s financial position and tight cash flows as at 30th June, 2003.

Should the Group and the Company be unable to continue as a going concern, adjustments would have to be made to restate the values of the assets to their recoverable amounts, to provide for any further liabilities which might arise and to reclassify non-current assets and liabilities as current assets and liabilities. The effects of these potential adjustments have not been reflected in the financial statements.

3. ADOPTION OF NEW OR REVISED SSAPs

In the current year, the Group adopted the following new or revised SSAPs issued by the Hong Kong Society of Accountants (the “HKSA”) which are effective for the first time for the current year’s financial statements:

SSAP 1 (revised) : Presentation of financial statements SSAP 11 (revised) : Foreign currency translation SSAP 15 (revised) : Cash flow statement SSAP 34 : Employee benefits

These SSAPs prescribe new accounting measurement and disclosure practices. The major effects on the Group’s accounting policies and on the amounts disclosed in these financial statements of adopting these SSAPs, which have had a significant effect on the financial statements, are summarised as follows:

SSAP 1 (revised) prescribed the basis for presentation of financial statements and set out guidelines for their structure and minimum requirements for the content thereof. The main revision to this SSAP is to change the requirements from presenting a statement of recognised gains and losses to a statement of changes in equity. The consolidated statement of changes in equity for the current financial year and the comparative figures has been presented in accordance with the revised SSAP.

SSAP 11 (revised) prescribes the basis for the translation of foreign currency transaction and financial statements. The revisions to this SSAP have eliminated the choice of translating the income statements of overseas subsidiaries and associates at the closing rate of that period. They are now required to be translated at an average rate. This change in accounting policy has not had any material effect on the results for the current or prior accounting period.

SSAP 15 (revised) prescribes the revised format for the cash flow statement. The principal impact of the revision of this SSAP is that the consolidated cash flow statement now presents cash flows under three headings, cash flow from operating, investing and financing activities, rather than the five headings previously required. In addition, the definition of cash equivalents for the purpose of the consolidated cash flow statement has been revised to exclude advances from bank repayable within three months from the date of advance that are financing in nature.

SSAP 34 prescribed the recognition and measurement criteria to apply to employee benefits, together with the required disclosures in respect thereof. The adoption of this SSAP has resulted in no material change to the previously adopted accounting treatments for employee benefits. In addition, disclosures are required to be included in the notes to the financial statements in respect of the Company’s share option scheme.

– 21 –

FINANCIAL INFORMATION

APPENDIX I

4. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES

The financial statements have been prepared in accordance with all applicable SSAPs and Interpretation issued by the HKSA, accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance, except for the non-compliance with SSAP 12 “Accounting for deferred tax” and SSAP 20 “Related party disclosures” as disclosed in Note 2 to the financial statements. These financial statements also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on the Stock Exchange. A summary of the principal accounting policies followed by the Group in the preparation of the financial statements is set out below:

(a) Basis of Consolidation

The consolidated financial statements include 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 effective date of acquisition or up to the effective date of disposal, as appropriate.

On 30th June, 2003, the Company through Ruian Technology Company Limited, an indirect wholly owned subsidiary of the Company, acquired from Welback Enterprises Limited, a 51% owned subsidiary of the Company, the entire paid-up registered capital of Ruian Weiye Technology (Shenzhen) Limited (“Ruian Weiye”), a company established in the People’s Republic of China. As a result, Ruian Weiye changed from a 51% indirectly owned subsidiary to a wholly owned subsidiary of the Company. The results of Ruian Weiye for the year ended 30th June, 2003 were included in the financial statements of WIIL group as mentioned in Note 18 to the financial statements, whereas the consolidated balance sheet of the Group as at 30th June, 2003 has consolidated the assets and liabilities as shown in the management accounts of Ruian Weiye as at 30th June, 2003.

All significant intercompany transactions and balances within the Group are eliminated on consolidation.

The gain or loss on the disposal of a subsidiary represents the difference between the proceeds of the sale and the Group’s share of its net assets together with any unamortised goodwill or negative goodwill or goodwill/negative goodwill taken to reserves and which was not previously charged or recognised in the consolidated income statement and also any related accumulated foreign currency translation reserve.

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

(b) Subsidiaries

A subsidiary is an enterprise controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefit from its activities.

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

(c) Associates

An associate is a company, not being a subsidiary, in which an equity interest is held for the long-term and significant influence is exercised in its management. Significant influence is the power to participate in, but not control, the financial and operating policy decisions of the investee.

Investment in associate is accounted for in the consolidated financial statements using equity method. The consolidated income statement includes the Group’s share of the post-acquisition results of associates for the year, and the consolidated balance sheet includes the Group’s share of the net assets of the associates and also goodwill/negative goodwill (net of accumulated amortisation) on acquisition.

– 22 –

FINANCIAL INFORMATION

APPENDIX I

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

Equity accounting is discontinued when the carrying amount of the investment in associates reaches zero, unless the Group has incurred obligations or guaranteed obligations in respect of the associate.

(d) Goodwill/Negative Goodwill

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

In accordance with SSAP 30, goodwill arising on acquisitions occurring on or after 1st July, 2001 is included in intangible assets and is amortised using the straight-line method over its estimated useful life. Goodwill arising on major strategic acquisitions of the Group to expand its product or geographical market coverage is amortised over a maximum period of 15 years. For all other acquisitions goodwill is generally amortised over 5 to 10 years.

Goodwill on acquisitions that occurred prior to 1st January, 2001 was written off against reserves. The Group has taken advantage of the transitional provision 1(a) in SSAP 30 and goodwill previously written off against reserves has not been restated. However, any impairment arising on such goodwill will be accounted for in accordance with SSAP 31.

Negative goodwill represents the excess of the fair value of the Group’s share of the net assets acquired over the cost of acquisition.

For acquisitions on or after 1st July, 2001, negative goodwill is presented in the same balance sheet classification as goodwill. To the extent that negative goodwill relates to expectations of future losses and expenses that are identified in the Group’s plan for the acquisition and can be measured reliably, but which do not represent identifiable liabilities at the date of acquisition, that portion of negative goodwill is recognised in the income statement when the future losses and expenses are recognised. Any remaining negative goodwill, not exceeding the fair values of the non-monetary assets acquired, is recognised in the income statement over the remaining weighted average useful life of those assets; negative goodwill in excess of the fair values of those nonmonetary assets is recognised in the income statement immediately.

For acquisitions prior to 1st July, 2001, negative goodwill was taken directly to reserves on acquisition. The Group has taken advantage of the transitional provisions in SSAP 30 and such negative goodwill has not been restated.

The gain or loss on disposal of an entity includes the unamortised balance of goodwill relating to the entity disposed of or, for pre 1st July, 2001 acquisitions, the related goodwill written off against reserve to the extent it has not previously been realised in the income statement.

(e) Property, Plant and Equipment

Property, plant and equipment, other than leasehold properties, are stated at cost less accumulated depreciation and accumulated impairment losses at the balance sheet date. 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 asset has 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 asset, the expenditure is capitalised as an additional cost of the asset.

– 23 –

FINANCIAL INFORMATION

APPENDIX I

Leasehold properties are stated in the balance sheet at their revalued amounts, being the fair values on the basis of their existing use at the date of revaluation, less any subsequent accumulated depreciation and accumulated impairment losses. Revaluations are performed with sufficient regularity such that the carrying amounts do not differ materially from that which would be determined using fair values at the balance sheet date.

Any revaluation increase arising on the revaluation of leasehold properties is credited to the asset revaluation reserve, except to the extent that it reverses a revaluation decrease of the same asset previously recognised as an expense, in which case the increase is credited to the income statement to the extent of the decrease previously charged. A decrease in net carrying amount arising on revaluation of an asset is dealt with as an expense to the extent that it exceeds the balance, if any, on the revaluation reserve relating to a previous revaluation of that asset.

Depreciation is charged so as to write off the valuation of leasehold properties over their estimated useful lives, using the straight-line basis, at the following annual rates:

Leasehold land : Term of lease Buildings : Over 40 years or term of lease, whichever is shorter

Depreciation is charged so as to write off the cost of other property, plant and equipment over their estimated useful lives, using the reducing balance basis, at the rate of 20% per annum.

At each balance sheet date, both internal and external sources of information are considered to assess whether there is any indication that assets included in property, plant and equipment are impaired. If any such indication exists, the recoverable amount of the asset is estimated and where relevant, an impairment loss is recognised to reduce the asset to its recoverable amount. Such impairment losses are recognised in the income statement except where the asset is carried at valuation and the impairment loss does not exceed the revaluation surplus for that same asset, in which case it is treated as a revaluation decrease.

The gain or loss on disposal or retirement of an asset is the difference between the net sales proceeds and the carrying amount of the relevant asset, and is recognised in the income statement. Any revaluation reserve balance remaining attributable to the relevant asset is transferred to retained profits and is shown as a movement in reserves.

(f) Investment Properties

Investment properties are interests in land and buildings in respect of which construction work and development have been completed and which are intended to be held on a long term basis for their investment potential. Such properties are not depreciated and are stated at their open market values on the basis of annual professional valuations performed at the end of each financial year. Changes in the values of investment properties are dealt with as movements in the investment property revaluation reserve. If the total of this reserve is insufficient to cover a deficit, on a portfolio basis, the excess of the deficit is charged to the income statement. Any subsequent revaluation surplus is credited to the income statement to the extent of the deficit previously charged.

On disposal of an investment property, the relevant portion of the investment property revaluation reserve realised in respect of previous valuation is released to the income statement.

(g) Research and Development Costs

Research costs are expensed as incurred. Cost incurred on development projects relating to the design and testing of new or improved products are recognised as an intangible asset where the technical feasibility and intention of completing the product under development has been demonstrated and the resources are available to do so, costs are identifiable and there is an ability to sell or use the asset that will generate probable future economic benefits. Such development costs are recognised as an asset and amortised on a straight-line basis over a period of not more than 5 years to reflect the pattern in which the related economic benefits are recognised. Development costs that do not meet the above criteria are expensed as incurred. Development costs previously recognised as an expenses are not recognised as an asset in a subsequent period.

– 24 –

FINANCIAL INFORMATION

APPENDIX I

(h) Investments in Securities

Investment which are intended to be held on a continuing basis, and which are held for an identified long term purpose documented at the time of acquisition or change of purpose and are clearly identified for the documented purpose, are classified as investment securities stated at cost less any impairment losses, on an individual investment basis.

When impairments in values have occurred, the carrying amounts of the securities are reduces to their fair values, as estimated by the directors, and the amounts of the impairments are charged to the income statement for the period in which they arise.

When the circumstances and events which led to the impairments in values cease to exist and there is persuasive evidence that the new circumstances and events will persist for the foreseeable future, the appreciation in fair value is credited to the income statement, on individual investment basis, to the extent of the amount previously charged.

All securities other than held-to-maturity debt securities and investment securities are measured at subsequent reporting dates at fair value.

(i) Turnover

Turnover represents the net amounts received and receivable for goods sold by the Group to outside customers during the year.

(j) Revenue Recognition

Provided it is probable that the economic benefits will flow to the Group and the revenue can be measured reliably, revenue is recognised in the income statement as follow:

• (i) Sales of goods are recognised when goods are delivered and title has passed.

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

• (iii) Rental income, including rentals invoices in advance from properties under operating leases, recognised on a straight-line basis over the term of the relevant leases.

(k) Inventories

Inventories are valued at the lower of cost and net realisable value. Cost is determined on the first-in, first-out basis and comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Net realisable value represents the estimated selling price in the ordinary course of business less all costs to completion and costs to make the sale.

(l) Foreign Currencies

Transactions in foreign currencies other than Hong Kong dollars are translated into Hong Kong Dollars at the rates of exchange ruling on the dates of the transactions or at the contracted settlement rate. Monetary assets and liabilities denominated in foreign 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 exchange are dealt with in the income statement.

On consolidation, the balance sheet items of overseas subsidiaries, jointly-controlled entities and associates are translated into Hong Kong dollars at the applicable rates of exchange rates ruling at the balance sheet date whilst the income and expenses items are translated at the average rates for that year. The resulting translation differences are dealt with in the exchange reserve.

– 25 –

FINANCIAL INFORMATION

APPENDIX I

(m) Leases

Leases are classified as finance leases whenever the terms of the contract transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

Assets held under finance leases are capitalised at their fair value at the date of acquisition or, if lower, the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as an obligation under finance leases. Finance charges, which represent the difference between the total leasing commitments and the recorded value of the assets acquired, are charged to the income statement over the term of the relevant leases so as to produce a constant periodic rate of charge on the remaining balance of the obligations for each accounting period.

Rental payable under operating leases are charge to income statement on a straight-line basis over the term of the relevant lease.

(n) Convertible Bonds

Convertible bonds are stated at the aggregate of the net proceeds from the issue.

The net proceeds represent the amount received on the issue of the convertible bonds after deduction of direct issue costs. Direct issue costs are amortised to the income statement on a straight-line basis over the period from the date of issue to their final redemption date. If any of the convertible bonds are purchased and cancelled, redeemed or converted prior to the final redemption date, any remaining unamortised issue costs attributable to the convertible bonds purchased, redeemed or converted will be written off immediately to the income statement.

(o) Taxation

The charge for taxation is based on the results for the year after adjusting for items which are non-assessable or disallowed. Certain items of income and expenses are recognised for tax purposes in a difference accounting period from that in which they are recognised in the financial statements. The tax effect of the resulting timing differences, computed using the liability method, is recognised as deferred taxation in the financial statements to the extent that it is probable that a liability or an asset will crystallise in the foreseeable future.

(p) Impairment of Assets

Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of one of these assets may not be recoverable. Whenever the carrying amount of an asset exceeds its recoverable amount, an impairment loss representing the difference between the carrying amount and the recoverable amount of an asset, is recognised in the income statement. The recoverable amount is the higher of an asset’s net selling price and value in use. The net selling price is the amount obtainable from the sale of an asset in an arm’s length transaction less the costs of the disposal, while value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life.

Reversal of an impairment loss of an asset recognised in prior years is recorded when there is an indication that the impairment loss recognised for the asset no longer exists or has decreased. The reversal is recorded in the income statement.

(q) Provisions

A provision is recognised when there is a present obligation, legal or constructive, as a result of a past event and it probable (i.e. more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed regularly and adjusted to reflect the current best estimate. Where the effect of the time value of money is material, the amount of a provision is the present value of the expenditures expected to be required to settle the obligation.

– 26 –

FINANCIAL INFORMATION

APPENDIX I

(r) Contingent Liabilities and Contingent Assets

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

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

A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain events not wholly within the control of the Group.

Contingent assets are not recognised but are disclosed in the notes to financial statements when an inflow of economic benefits is probable. When inflow is virtually certain, an asset is recognised.

• (s) Employee Benefits

• (i) Salaries, annual bonuses, paid annual leaves, leave passage and the cost to the Group of non-monetary benefits are accrued in the year in which the associated services are rendered by employees of the Group. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values.

• (ii) Contributions to Mandatory Provident Funds are required under the Hong Kong Mandatory Provident Funds Schemes Ordinance are recognised as an expenses in the consolidated income statement as incurred.

• (iii) When the Group grants employees options to acquire shares of the Company at nil consideration, no employee benefit cost or obligation is recognised at the date of grant. When the options are exercised, equity is increased by the amount of the proceeds received.

• (iv) Termination benefits are recognised when, and only when, the Group demonstrably commits itself to terminate employment or to provide benefits as a result of voluntary redundancy by having a detailed formal plan which is without realistic possibility of withdrawal.

(t) Cash Equivalents

Cash equivalents represent short-term, highly liquid investments which are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of the Group’s cash management.

(u) Related Parties

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

(v) Related Party Transactions

A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.

– 27 –

FINANCIAL INFORMATION

APPENDIX I

(w) Segment Reporting

A segment is a distinguishable component of the Group that is either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments.

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

Segment revenue, expenses, results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis to that segment. For example, segment assets may include inventories, trade receivables, and property, plant and equipment. Segment revenue, expenses, assets and liabilities are determined before intra-group balances and transactions are eliminated as part of the consolidation process, except to the extent that such intra-group balances and transactions are between group enterprises within a single segment. Intra-segment pricing is based on similar terms as those available to other external parties.

Segment capital expenditure is the total cost incurred during the year to segment assets (both tangible and intangible) that are expected to be used for more than one year.

Unallocated items mainly comprise financial and corporate assets, interest-bearing loans, borrowings, corporate and financing expenses and minority interests.

5. TURNOVER

Turnover represents revenue from the manufacture and sale of multimedia electronic products and toys and games products. The amount of each significant category of revenue recognised during the year are as follows:

Continuing operations: Manufacture and sale of – Multimedia electronic products – Toys and games products Others Discontinued operations: Trading in telecommunication products	2003 HK$’000 198,087 58,458 23,294 279,839 – 279,839	2002 HK$’000 264,282 74,279 11,372
		349,933 52,191
		402,124

– 28 –

FINANCIAL INFORMATION

APPENDIX I

6. SEGMENT INFORMATION

(a) Business Segments

Business segment information is chosen as the primary reporting format because this is more relevant to the Group’s internal financial reporting.

The following table present revenue and results for the Group’s business segments.

Multimedia electronic products 2003 2002 HK$’000 HK$’000 Revenue from external customers 198,087 264,282 Segment results 15,183 (8,376) Interest income and unallocated gains Unallocated corporate expenses Revaluation decrease of investment properties Revaluation decrease of leasehold land and buildings Impairment loss in respect of interest in an associate Impairment loss in respect of investment in securities Amortisation of operating rights Impairment loss in respect of operating rights Provision for doubtful debts Deposit forfeited Loss from operations Amortisation on goodwill Share of results of an associate Finance costs Loss on disposal of subsidiaries Loss before taxation Taxation Loss before minority interests Minority interests Net loss for the year	Toys and games products 2003 2002 HK$’000 HK$’000 58,458 74,279 (19,987) (15,500)	Telecommunication products 2003 2002 HK$’000 HK$’000 – 52,191 – (388)	Others 2003 2002 HK$’000 HK$’000 23,294 11,372 9,940 1,823	Consolidated 2003 2002 HK$’000 HK$’000 279,839 402,124 5,136 (22,441) 30,149 5,630 (77,701) (13,685) (6,500) (2,557) – (126) (1,000) (47,887) (15,180) (13,751) (453) – (6,347) – (22,233) – (4,100) – (98,229) (94,817) (11) (3,391) – (181) (6,331) (5,790) – (2,032) (104,571) (106,211) – – (104,571) (106,211) – 78 (104,571) (106,133)	Consolidated 2003 2002 HK$’000 HK$’000 279,839 402,124 5,136 (22,441) 30,149 5,630 (77,701) (13,685) (6,500) (2,557) – (126) (1,000) (47,887) (15,180) (13,751) (453) – (6,347) – (22,233) – (4,100) – (98,229) (94,817) (11) (3,391) – (181) (6,331) (5,790) – (2,032) (104,571) (106,211) – – (104,571) (106,211) – 78 (104,571) (106,133)
					(22,441) 5,630 (13,685) (2,557) (126) (47,887) (13,751) – – – –
					(94,817) (3,391) (181) (5,790) (2,032)
					(106,211) –
					(106,211) 78
					(106,133)

There are no sales or other transactions between the business segments.

Analysis of assets and liabilities by business segments has not been disclosed as most of the Group’s assets and liabilities are unallocated.

– 29 –

FINANCIAL INFORMATION

APPENDIX I

(b) Geographical Segments

In determining the Group’s geographical segments, revenues and results are attributed to the segments based on the location of the customers. More than 90% of the Group’s assets are located in the region of Hong Kong and mainland China. Accordingly, analysis of segment assets based on the geographical segments has not been disclosed.

The following table present revenue for the Group’s geographical segments.

	North	America	Europe	Europe	Japan	Japan	Hong	Kong	Consolidated	Consolidated
	2003	2002	2003	2002	2003	2002	2003	2002	2003	2002
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Revenue from
external customers	196,095	284,197	61,926	82,459	10,912	10,232	10,906	25,236	279,839	402,124

No information was available for the geographical segment results.

There are no sales between the geographical segments.

7. LOSS FROM OPERATIONS

Loss from operations is stated after charging: Auditors’ remuneration Depreciation – owned assets – assets held under finance leases Loss on disposal of leasehold properties Loss on disposal of property, plant and equipment Fixed assets written off Operating leases in respect of land and buildings Research and development costs Impairment loss in respect of amount due from an investee company Cost of inventories Amortisation of development costs Written off of development costs Provision for obsolete inventories Staff costs – Retirement benefit scheme contributions, (2002: net of forfeited contributions of HK$503,000) – Severance payments – Other staff costs, including directors’ emoluments Less: Staff costs capitalised as research and development costs and after crediting: Interest income Rental income	2003 HK$’000 965 8,132 853 167 163 434 2,283 829 – 274,703 636 3,291 31,991 1,089 637 47,952 49,678 – 49,678 216 2,066	2002 HK$’000 990 9,151 532 – 234 – 2,058 757 171 362,336 318 – 13,141 991 181 51,938
		53,110 (1,627)
		51,483
		236 1,651

– 30 –

FINANCIAL INFORMATION

APPENDIX I

8. FINANCE COSTS

Interest on: Bank borrowings wholly repayable – Within five years – Over five years Other borrowings Loan from a shareholder Convertible bonds Obligations under finance leases Amortisation of issue costs of convertible bonds	2003 HK$’000 2,691 835 1,131 136 624 198 716 6,331	2002 HK$’000 2,288 1,066 2,125 – 55 191 65
		5,790

9. TAXATION

No provision for Hong Kong Profits Tax has been made in the financial statements as the Company and its subsidiaries had no assessable profits for the year (2002: Nil).

10. NET LOSS FOR THE YEAR

Of the Group’s net loss for the year of HK$104,571,000 (2002: HK$106,133,000), a loss of HK$123,840,000 (2002: HK$26,891,000) has been dealt with in the financial statements of the Company.

11. LOSS PER SHARE

The calculation of the basic loss per share is based on the net loss for the year of HK$104,571,000 (2002: HK$106,133,000) and on the weighted average number of 8,511,616,632 (2002: 6,540,844,650) ordinary shares in issue during the year.

The computation of diluted loss per share for 2003 and 2002 does not assume the conversion of the Company’s outstanding convertible bonds, warrants and share options since their exercise would result in a decrease in net loss per share from continuing ordinary operations.

12. DIVIDENDS

The directors do not recommend the payment of any dividend in respect of the year ended 30th June, 2003 (2002: Nil).

– 31 –

FINANCIAL INFORMATION

APPENDIX I

13. DIRECTORS’ EMOLUMENTS AND FIVE HIGHEST PAID INDIVIDUALS

2003	2002
HK$’000	HK$’000

(a) Directors’ Emoluments

The aggregate amounts of emoluments payable to directors of the Company during the year are as follows: Directors’ fees Executive directors Non-executive director Independent non-executive directors Other emoluments Executive directors – Salaries and other benefits	60 – 120 180 4,404 4,584	– 80 120
		200 5,837
		6,037

The emoluments of the directors fell within the following bands:

	Number of directors	Number of directors
	2003	2002
Nil to HK$1,000,000	9	5
HK$1,000,001 to HK$1,500,000	3	–
HK$1,500,001 to HK$2,000,000	–	3

During the year, a total of 50,000,000 share options to subscribe for ordinary shares of the Company were granted to a director under the Company’s share option scheme. The details of these benefits in kind are disclosed under section headed “Directors’ Interests in Equity or Debt Securities” in Report of the Directors. In the absence of a readily available market value for an accurate assessment of the value of these share options, accordingly, no value has been included in the emoluments of the directors in respect thereof.

There was no arrangement under which a director waived or agreed to waive any emoluments during the year.

(b) Five Highest Paid Individuals

The five individuals whose emoluments were the highest in the Group for the year include three (2002: three) directors of the Company, details of whose emoluments are set out above. The emoluments payable to the remaining two (2002: two) individuals during the year are as follows:

	2003	2002
	HK$’000	HK$’000
Salaries and other benefits	1,563	7,432

– 32 –

FINANCIAL INFORMATION

APPENDIX I

The emoluments of the non-director individuals fell within the following bands:

Nil to HK$1,000,000 HK$1,000,001 to HK$1,500,000	Number of employees 2003 2002 2 1 – 1 2 2	Number of employees 2003 2002 2 1 – 1 2 2
		2

14. EMPLOYEE BENEFITS

Retirement Benefit Scheme

Prior to 1st December, 2000, the Group operated a defined contribution retirement benefits 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 the contributions payable by the Group. The Defined Contribution Scheme was terminated on 1st December, 2000.

Effective from 1st December, 2000, the Group joined the MPF Scheme for all of its employees in Hong Kong. The MPF Scheme is registered with the Mandatory Provident Fund Authority under the Mandatory Provident Fund Schemes Ordinance in Hong Kong. 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 rules of the MPF Scheme, the Group and its employees are each required to make contributions to the MPF Scheme at rates specified in the rules. No forfeited contribution is available to reduce the contribution payable in the future years.

The employees of the Company’s subsidiary in the People’s Republic of China (the “PRC”) are members of the state-sponsored retirement benefit scheme organised by the relevant local government authority in the PRC. The subsidiary is required to contribute, based on a certain percentage of the basic salary of its employees, to the retirement benefit scheme and has no further obligations for the actual payment of pension or post-retirement benefits beyond the annual contributions. The state-sponsored retirement benefit scheme represents the entire pension obligations payable to retired employees.

The Group does not have any other pension schemes for its employees in respect of its subsidiaries outside Hong Kong and the PRC. In the opinion of the directors of the Company, the Group did not have any significant contingents liabilities as at 30th June, 2003 in respect of the retirement of its employees.

Equity Compensation Benefits

Share Options

The Company has adopted a new share option scheme on 23rd November, 2001 under which the directors may grant options to employees, including any directors, of the Company, its subsidiaries or its invested entities to subscribe for shares in the Company. The subscription price will be determined by the director (subject to adjustment), and will not be less than (i) the closing price of the shares of the Company as stated in the Stock Exchange’s daily quotation sheet for trades in one or more board lots of shares on the date of offer of the options; (ii) the average closing price of the shares of the Company as stated in the Stock Exchange’s daily quotation sheets for the five trading days immediately preceding the date of offer of the options; or (iii) the nominal value of the shares of the Company, whichever is the higher. The maximum number of shares in respect of which options may be granted under this scheme may not exceed 10% of the issued share capital of the Company from time to time. An option may be exercised at any time before the expiration of ten years from the date of adoption of the relevant share option scheme.

– 33 –

FINANCIAL INFORMATION

APPENDIX I

Details of the share options outstanding as at 30th June, 2003 which have been granted under the aforesaid share option scheme are as follows:

Exercise Exercise on or after price HK$ 16th January, 2002 0.0570 1st February, 2002 0.0810 16th January, 2003 0.0160 20th February, 2003 0.0170 24th April, 2003 0.0174	Number of share options Outstanding Granted as at during 1st July, 2002 year 261,400,000 – 392,100,000 – – 300,000,000 – 150,000,000 – 50,000,000 653,500,000 500,000,000	Exercised during year – – (300,000,000) – – (300,000,000)	Lapsed during year (196,050,000) (261,400,000) – – – (457,450,000)	Cancelled Outstanding during as at year 30th June, 2003 (65,350,000) – (130,700,000) – – – – 150,000,000 – 50,000,000 (196,050,000) 200,000,000	Cancelled Outstanding during as at year 30th June, 2003 (65,350,000) – (130,700,000) – – – – 150,000,000 – 50,000,000 (196,050,000) 200,000,000
					200,000,000

15. INTANGIBLE ASSETS

Group Cost: At 1st July, 2002 Acquired/incurred during the year At 30th June, 2003 Accumulated amortisation and impairment: At 1st July, 2002 Provided for the year Impairment loss recognised for the year At 30th June, 2003 Net book value: At 30th June, 2003 At 30th June, 2002	Operating rights HK$’000 – 6,800 6,800 – 453 6,347 6,800 – –	Development Goodwill costs HK$’000 HK$’000 107 4,245 – – 107 4,245 5 318 11 636 – 3,291 16 4,245 91 – 102 3,927	Total HK$’000 4,352 6,800
			11,152
			323 1,100 9,638
			11,061
			91
			4,029

Development costs capitalised in the year ended 30th June, 2002 included an amount of HK$1,627,000 in respect of staff costs.

– 34 –

FINANCIAL INFORMATION

APPENDIX I

16. PROPERTY, PLANT AND EQUIPMENT

Leasehold Leasehold properties improvements HK$’000 HK$’000 Group Cost or Valuation: At 1st July, 2002 23,240 17,742 Additions – 847 Disposals (2,650) (204) Reclassification – – Written off – (4,259) At 30th June, 2003 20,590 14,126 Accumulated depreciation: At 1st July, 2002 – 10,937 Provided for the year 1,049 1,432 Eliminated on disposals (42) (41) Eliminated on written off – (3,825) Impairment loss recognised 9,536 – At 30th June, 2003 10,543 8,503 Net book value: At 30th June, 2003 10,047 5,623 At 30th June, 2002 23,240 6,805 The net book value of certain of the above assets held under At 30th June, 2003 – – At 30th June, 2002 – –	Furniture, fixtures and equipment HK$’000 18,781 711 – 757 – 20,249 12,373 1,575 – – – 13,948 6,301 6,408 finance leases a 805 1,026	Plant and Tools and machinery moulds HK$’000 HK$’000 28,542 41,476 77 1,346 – – (813) 56 – – 27,806 42,878 19,372 28,152 1,764 2,889 – – – – – – 21,136 31,041 6,670 11,837 9,170 13,324 re analysed as follows: 1,840 – 2,300 –	Motor vehicles H$’000 2,519 1,090 – – – 3,609 1,683 276 – – – 1,959 1,650 836 1,377 459	Total HK$’000 132,300 4,071 (2,854) – (4,259)
				129,258
				72,517 8,985 (83) (3,825) 9,536
				87,130
				42,128
				59,783
				4,022
				3,785

Apart from the leasehold properties, which are stated at valuation, all other property, plant and equipment are stated at cost.

The net book value of the leasehold properties at 30th June, 2003 included an amount of HK$2,507,000 (2002: HK$5,240,000) in respect of properties situated in Hong Kong which are held under medium-term leases and an amount of HK$7,540,000 (2002: HK$18,000,000) in respect of properties situated in the People’s Republic of China (the “PRC”) which is held for use by the Group for a period of 30 years ending on 31st December, 2021.

As more fully set out in Note 37 to the financial statements, the Group disposed of the leasehold property situated in the PRC subsequent to 30th June, 2003 at a consideration of approximately HK$7,540,000. Accordingly, an impairment loss of approximately HK$9,536,000 has resulted and the same amount has been charged against the Group’s asset revaluation reserve.

No valuation of the leasehold properties situated in Hong Kong has been carried as at 30th June, 2003 because the directors consider that there are no significant changes in their open market values and accordingly, these leasehold properties are stated at their value as at 30th June, 2002, prepared by AA Property Services Limited, an independent firm of property consultants, on an open market value basis.

– 35 –

APPENDIX I

FINANCIAL INFORMATION

Had the leasehold properties been carried at historical cost less depreciation, their aggregate carrying amount would have been stated at approximately HK$9,441,000 (2002: HK$12,392,000).

Leasehold improvements HK$’000 Company Cost: At 1st July, 2002 204 Additions 8 Disposals (204) At 30th June, 2003 8 Accumulated depreciation: At 1st July, 2002 41 Charge for the year 2 On disposal written back (41) At 30th June, 2003 2 Net book value: At 30th June, 2003 6 At 30th June, 2002 163	Furniture, fixtures and equipment HK$’000 24 61 – 85 5 16 – 21 64 19	Motor vehicles HK$’000 – 1,090 – 1,090 – 109 – 109 981 –	Total HK$’000 228 1,159 (204) 1,183 46 127 (41) 132 1,051 182

The net book value of fixed assets includes an amount of approximately HK$981,000 (2002: Nil) in respect of assets held under finance leases.

17. INVESTMENT PROPERTIES

Valuation: At 1st July, 2002/2001 Transfer from property held for sale Additional cost capitalised during the year Revaluation decrease At 30th June, 2003/2002	Group 2003 2002 HK$’000 HK$’000 34,500 – – 36,556 – 501 (6,500) (2,557) 28,000 34,500

The investment property is situated in Hong Kong and held under long lease. As at 30th June, 2003, the property was revalued on an open market basis at HK$28,000,000 (2002: HK$34,500,000) by RHL Appraisal Ltd, an independent professional surveyor, and the revaluation decrease of approximately HK$6,500,000 (2002: HK$2,557,000) was charged to the consolidated income statement.

– 36 –

FINANCIAL INFORMATION

APPENDIX I

18. INVESTMENTS IN SUBSIDIARIES

Unlisted shares, at cost Less: Impairment loss recognised Net amounts due from subsidiaries, less provision	Company 2003 2002 HK$’000 HK$’000 22,115 22,115 (22,115) (22,115) – – 6,761 114,781 6,761 114,781

The amounts due from subsidiaries are unsecured and interest free.

The following is a list of the significant subsidiaries at 30th June, 2003:

			Proportion of	Proportion of
	Place of		nominal value
Name of	incorporation/	Nominal value	of issued shares
subsidiary	operation	of issued shares*	held by the	Company		Principal activities
			Directly	Indirectly
Bestplus Profits	British Virgin	US$1	–	100%		Inactive
Limited	Islands (“BVI”)
Cristine Holdings	BVI	US$1	100%		–	Investment holding
Limited
Digital Infinity Limited	BVI	US$1	100%		–	Investment holding
Fine Apex Limited	Hong Kong	HK$4	–	100%		Property holding
Future Wealth	BVI	US$1	–	100%		Investment holding
Investments Ltd
Graceley Enterprises	Hong Kong	HK$2	–	51%		Provision of
Limited#						nominee services
Great Central Trading	BVI	US$1	100%		–	Investment holding
Limited^
HD Audiovideo	Hong Kong	HK$100	–	70%		Inactive
(China) Limited^
Hero Bright	Hong Kong	HK$1,000	–	51%		Trading of toys,
International Limited#						games and
						multi-media
						electronic products
Hitchman Limited#	Hong Kong	HK$150,000	–	51%		Property holding and
						trading in toys,
						games and
						multi-media
						electronic products

– 37 –

APPENDIX I

FINANCIAL INFORMATION

			Proportion of	Proportion of
	Place of		nominal value
Name of	incorporation/	Nominal value	of issued shares
subsidiary	operation	of issued shares*	held by the Company		Principal activities
			Directly	Indirectly
Indofast Technology	BVI	US$1	100%	–	Investment holding
Limited
Modern Gala	Hong Kong	HK$1,500,000	–	51%	Manufacture
Industrial Limited#					and sale of
					moulds and
					plastic parts
P.N. Electronic Limited#	Hong Kong	HK$1,000	–	51%	Inactive
Profit Charter Holdings	BVI	US$1	100%	–	Investment holding
Limited^
Quentinbelle Limited#	BVI/PRC	US$100	–	51%	Provision of
					sub-contracting
					services
Quicky Technologies	BVI	US$1	100%	–	Investment holding
Limited
Quidde Limited#	Hong Kong	HK$2	–	51%	Investment holding
Ruian Technology	Hong Kong	HK$2	–	100%	Investment holding
Company Limited^
(formerly known as
Widax (Asia) Limited)
Ruian Weiye Technology	PRC	HK$8,376,000@	–	100%	Manufacture and
(Shenzhen) Limited+#					sale of toys,
					games and
					multi-media
					electronic products
Timlex International	Hong Kong	HK$2	–	51%	Trading in toys,
Limited#					games and
					multi-media
					electronic products
Transfer Networks	BVI	US$1	100%	–	Inactive
Limited
Welback Enterprises	Hong Kong	HK$13,501,000**	–	51%	Manufacture and
Limited#					sale of toys,
					games and
					multi-media
					electronic products
Welback International	BVI	HK$16,875,000	51%	–	Investment holding
Investments Limited#

– 38 –

FINANCIAL INFORMATION

APPENDIX I

			Proportion of
	Place of		nominal value
Name of	incorporation/	Nominal value	of issued shares
subsidiary	operation	of issued shares*	held by the Company	Principal activities
			Directly Indirectly
Widax (China) Limited^	Hong Kong	HK$2	– 100%	Investment holding
Widax (Hong Kong)	Hong Kong	HK$2	– 100%	Inactive
Limited^
Widax Company
Limited^	Hong Kong	HK$2	– 100%	Inactive

• All are ordinary share capital unless otherwise stated.

• ** The issued and fully paid share capital of Welback Enterprises Limited includes 1,350,000 non-voting deferred share of HK$10 each.

• • Ruian Weiye Technology (Shenzhen) Limited (“Ruian Weiye”) was established as a wholly foreign owned enterprise in the PRC.

During the year, the Company through its wholly owned subsidiary, Ruian Technology Company Limited, acquired the entire paid-up registered share capital of Ruian Weiye. As a result, it becomes a wholly owned subsidiary of the Company as at 30th June, 2003.

As mentioned in Note 4(a) to the financial statements above, the results of Ruian Weiye for the year ended 30th June, 2003 was included in the financial statements of WIIL group. The unaudited financial information of Ruian Weiye was included in the financial statements of the Group.

• @ The entire paid-up registered share capital of Ruian Weiye Technology (Shenzhen) Limited includes HK$3,376,000 which was injected in the form of plant and machinery on 13th March, 2003.

• ^ Acquired during the year.

• The financial statements of these companies are audited by certified public accountants other than Messrs HLB Hodgson Impey Cheng.

None of the subsidiaries had any loan capital subsisting at the end of the year or at any time during the year.

– 39 –

FINANCIAL INFORMATION

APPENDIX I

The financial information of Welback International Investments Limited and its subsidiaries (“WIIL group”) and Ruian Weiye Technology (Shenzhen) Limited (“Ruian Weiye”) for the year ended 30th June, 2003 are as follows:

Non-current assets Property, plant and equipment Current assets Inventories Trade and other receivables Amount due from fellow subsidiaries Pledged bank deposits Time deposits, bank balances and cash Current liabilities Trade and other payables Amount due to ultimate holding company Amount due to immediate holding company Amount due to a shareholder Amounts due to fellow subsidiaries Secured short-term bank borrowings Obligations under finance leases – due within one year Other secured borrowings Net current (liabilities)/assets Net (liabilities)/assets Capital and reserve Share capital/registered capital Reserve Shareholders’ (deficits)/funds

Consolidated balance sheet Balance sheet of of WIIL group Ruian Weiye HK$’000 HK$’000 35,395 5,122 13,475 20,106 21,762 1,237 – 2,819 8,997 863 2,392 107 46,626 25,132 (74,022) (4,490) (47,063) – – (2,387) (53,017) – (3,382) – (16,593) (7,117) (994) – (5,000) (9,423) (200,071) (23,417) (153,445) 1,715 (118,050) 6,837 16,875 8,376 (134,925) (1,539) (118,050) 6,837

– 40 –

APPENDIX I

FINANCIAL INFORMATION

Consolidated income statement of WIIL group for the year ended 30th June, 2003 (included the results of Ruian Weiye for the year ended 30th June, 2003):

Turnover Cost of sales Gross profit Other operating income Distribution costs Administrative expenses Allowance for doubtful debts Loss from operations Finance costs Loss before minority interests Minority interest Net loss for the year	HK$’000 279,839 (274,703) 5,136 1,634 (10,285) (48,176) (18,747) (70,438) (3,874) (74,312) – (74,312)

19. INTERESTS IN AN ASSOCIATE

Share of net assets Goodwill unamortised Deposit paid for acquisition for an associate_(note 1) _Less:_Provision for impairment loss Reclassified as investment in securities(note 2) _Notes:	Group 2003 2002 HK$’000 HK$’000 – – 50,963 47,489 50,963 47,489 – 3,470 50,963 50,959 (48,887) (47,887) 2,076 3,072 (2,076) – – 3,072

1. The amount represents a deposit paid for subscription of additional 1,549,909 shares of Gen-Wan Technology Corporation (“Gen-Wan”) which was classified as an associate of the Group as at 30th June, 2002 with a par value of NT$10 each. The acquisition was completed in September 2002 and the Group’s equity interest in Gen-Wan was increased from 23.7% to 24.9% thereafter.

2. Pursuant to a board resolution of Gen-Wan, Gen-Wan increased its share capital by NT$70 million during the year. The Group has given up its right to contribute additional investment in Gen-Wan and, accordingly, the Group’s equity interest in Gen-Wan was diluted from 24.9% to 9.5% and the Group no longer has the power to participate in the financial and operating policy decision of Gen-Wan. As a result, the investment in Gen-Wan was reclassified as investments in securities as at 30th June, 2003 as disclosed in Note 20 to the financial statements.

– 41 –

FINANCIAL INFORMATION

APPENDIX I

20. INVESTMENTS IN SECURITIES

(a) Investment securities Unlisted equity securities, at cost _Less:_Impairment loss recognised	Group 2003 2002 HK$’000 HK$’000 28,931 21,155 (28,931) (13,751) – 7,404	Group 2003 2002 HK$’000 HK$’000 28,931 21,155 (28,931) (13,751) – 7,404
		7,404

In the opinion of the directors, the investment securities in the amount of approximately HK$15,180,000 (2002: HK$13,751,000) are determined to be impaired and the amount of impairment loss has been charged to the consolidated income statement.

Details of the investee company in which the Group has significant shareholdings as at 30th June, 2003 are as follows:

	Place of	Equity interest
Name of company	incorporation/operation	held indirectly
Everbest Water Treatment	Hong Kong	50% (ordinary shares)
Development Company Ltd
(“Everbest”)

Since the Group has not appointed any representatives in the Board of Directors of Everbest, in the opinion of the directors of the Company, the Group has no significant influence in the operating and financial policy decisions of Everbest. As a result, the Group’s investment in Everbest is classified as investments in securities.

(b) Other securities Unlisted securities _Less:_Impairment loss recognised	Group 2003 2002 HK$’000 HK$’000 2,051 2,051 (2,051) (2,051) – –	Group 2003 2002 HK$’000 HK$’000 2,051 2,051 (2,051) (2,051) – –
		–

In the opinion of the directors, the other securities are determined to be impaired and the amount of impairment loss has been charged to the consolidated income statement in previous years.

– 42 –

FINANCIAL INFORMATION

APPENDIX I

21. INVENTORIES

Raw materials Work in progress Finished goods	Group 2003 2002 HK$’000 HK$’000 23,186 40,776 2,758 15,930 7,638 13,038 33,582 69,744	Group 2003 2002 HK$’000 HK$’000 23,186 40,776 2,758 15,930 7,638 13,038 33,582 69,744
		69,744

As at 30th June, 2002, raw materials of approximately HK$942,000 and finished goods of approximately HK$727,000 were carried at net realisable value.

22. TRADE AND OTHER RECEIVABLES

At 30th June, 2003, the balances of trade and other receivables included trade receivables of approximately HK$16,295,000 (2002: HK$56,869,000). An aged analysis of trade receivables prepared on the basis of sales invoice date is as follows:

0 to 90 days 91 days or above	Group 2003 2002 HK$’000 HK$’000 9,569 34,816 6,726 22,053 16,295 56,869	Group 2003 2002 HK$’000 HK$’000 9,569 34,816 6,726 22,053 16,295 56,869
		56,869

The Group allows an average credit period of 90-180 days (2002: 60-90 days) to its trade customers.

Included in the 2002 balance was a receivable of approximately HK$18 million in respect of goods shipped to a former customer, North America Foreign Trading Corporation (“NAFT”) in 1996. NAFT has filed a Statement of Claim with American Arbitration Association, in which it alleges that the Group manufactured and sold defective goods to NAFT for which NAFT is entitled to a refund. In addition, NAFT is claiming damages not exceeding US$5 million. Based on previously obtained legal advice, the Group had contested vigorously the claims brought by NAFT and also counterclaimed for the said sum of HK$18 million and for other damages.

However, in view of the current financial difficulty encountered by the WIIL group and to avoid additional legal costs, the directors of WIIL Group had decided to cease further recovery actions against NAFT and accordingly, provision for doubtful debts for the abovementioned receivable balance has been made in these financial statements. Nevertheless, the director of WIIL group believes that the abovementioned claims not exceeding US$5 million has been made without valid ground and accordingly, no provision has been made in these financial statements against the Group’s exposure in respect of this matter.

– 43 –

FINANCIAL INFORMATION

APPENDIX I

23. TRADE AND OTHER PAYABLES

At 30th June, 2003, the balances of trade and other payables included trade payables of approximately HK$57,085,000 (2002: HK$87,843,000). An aged analysis of trade payables prepared on the basis of supplier invoice date is as follows:

0 to 90 days 91 days or above 24. SHORT-TERM SECURED BANK BORROWINGS Trust receipts and import loans Portion of secured term loan due within one year_(Note 25) Short-term secured bank borrowings Bank overdrafts 25. SECURED TERM LOAN At 30th June, 2003, the Group’s secured term loan is repayable as follows: – Within one year – In the second year – In the second to fifth year inclusive – After the fifth year _Less: Amount due within one year included under short-term secured bank borrowings in current liabilities_(Note 24)_

Group 2003 2002 HK$’000 HK$’000 20,178 70,921 36,907 16,922 57,085 87,843 Group 2003 2002 HK$’000 HK$’000 16,302 20,493 2,052 1,826 7,117 – – 977 25,471 23,296 Group 2003 2002 HK$’000 HK$’000 2,052 1,826 1,793 1,992 5,800 5,516 11,670 13,787 21,315 23,121 (2,052) (1,826) 19,263 21,295

Events of default have arisen under certain loan arrangements entered into by WIIL group amounting to approximately HK$291,000. As a result, the relevant loans have become repayable on demand and have been reclassified as current liabilities.

– 44 –

FINANCIAL INFORMATION

APPENDIX I

26. OBLIGATIONS UNDER FINANCE LEASES

Group Amounts payable under finance leases: Within one year In the second to fifth year inclusive Less: future finance charges Present value of obligations under finance leases Less: Amount due within one year shown under current liabilities Amount due after one year	Minimum lease payments 2003 2002 HK$’000 HK$’000 1,298 1,620 792 1,048 2,090 2,668 (192) (229) 1,898 2,439	Present value of minimum lease payments 2003 2002 HK$’000 HK$’000 1,186 1,446 712 993 1,898 2,439 – – 1,898 2,439 (1,186) (1,446) 712 993	Present value of minimum lease payments 2003 2002 HK$’000 HK$’000 1,186 1,446 712 993 1,898 2,439 – – 1,898 2,439 (1,186) (1,446) 712 993
			2,439 –
			2,439 (1,446)
			993

The average lease term is three years. All leases are on fixed repayment basis except for the amount as described below. No arrangement have been entered into for contingent rental payments.

Events of default have arisen under certain lease arrangements entered in WIIL group amounting to approximately HK$994,000 as at 30th June, 2003. As a result, such lease obligations have become repayable on demand and accordingly, the amounts have been classified as current liabilities.

Company Amounts payable under finance leases: Within one year In the second to fifth year inclusive Less: Future finance charges Present value of obligations under finance leases Less: Amount due within one year shown under current liabilities Amount due after one year	Minimum lease payments 2003 2002 HK$’000 HK$’000 250 – 792 – 1,042 – (138) – 904 –	Present value of minimum lease payments 2003 2002 HK$’000 HK$’000 192 – 712 – 904 – – – 904 – (192) – 712 –	Present value of minimum lease payments 2003 2002 HK$’000 HK$’000 192 – 712 – 904 – – – 904 – (192) – 712 –
			– –
			– –
			–

The average lease term is five years. All leases are on fixed repayment basis and no arrangements have been entered into for contingent rental payments.

– 45 –

FINANCIAL INFORMATION

APPENDIX I

27. CONVERTIBLE BONDS

Principal amount At the beginning of year Issued during the year At the end of year _Less:_Issue costs At the beginning of year Incurred during the year Amortisation during the year including amounts written back upon redemption At the end of year Carrying value at 30th June	Group and Company 2003 2002 HK$’000 HK$’000 15,602 – – 15,602 15,602 15,602 715 – – 780 (715) (65) – 715 15,602 14,887

The HK$15,601,700 4% convertible bonds (the “Bonds”) were issued on 30th May, 2002 and were due on 29th May, 2003. Up to the maturity date, no Bonds has been converted into, either in whole or in part, ordinary shares of the Company.

As mentioned in Note 2(b) to the financial statements, the Group has had difficulty in repaying the Bonds. As a result, the Bonds were still outstanding as at 30th June, 2003. On 21st July, 2003, the Company’s sole bondholder issued a statutory demand against the Company in respect of the amount owing under the Bonds held by the bondholder, which includes approximately HK$15,602,000 in principal and HK$255,000 in interest and default interest to be assessed.

On 19th August, 2003, a subscription agreement was entered into between the Company and a subscriber whereby the Company has agreed to issue and the subscriber has agreed to subscribe for convertible bonds (the “New Bonds”) with an aggregate principal of HK$16,000,000. Part of the net proceeds will be used for repayment of the Bonds. The Company has informed the sole bondholder of this arrangement, and the bondholder has not raised any objection up to the date of this report.

For further details, please refer to Note 37 to the financial statements.

28. LOAN FROM A SHAREHOLDER

Group and Company

The amount due is unsecured, chargeable with interest at 10% p.a. and repayable on 16th January, 2005.

29. AMOUNT DUE TO A RELATED COMPANY

Group

The amount due is unsecured and interest free. As mentioned in Note 2(a) to the financial statements, the related company is not willing to provide further financial support to the WIIL group and accordingly, the amount due becomes payable on demand and has therefore been reclassified and shown as a current liability as at 30th June, 2003.

– 46 –

FINANCIAL INFORMATION

APPENDIX I

30. SHARE CAPITAL

Authorised: Ordinary shares of HK$0.01 each at 30th June, 2002 and 30th June, 2003 Note Issued: Ordinary shares of HK$0.01 each at 1st July, 2001 Issue of shares from exercise of share options Ordinary shares of HK$0.01 each at 30th June, 2002 and 1st July, 2002 Issue of shares pursuant to – Subscription agreements (b), (d) – Settlement agreement (c) Issue of shares from exercise of share options (e) Issue of shares from exercise of warrants (a) Ordinary shares of HK$0.01 each at 30th June, 2003	Number of shares 20,000,000,000 Number of shares 6,490,107,840 121,516,292 6,611,624,132 2,207,900,000 492,100,000 300,000,000 2,500,000 9,614,124,132	Nominal value HK$’000 200,000
		Nominal value HK$’000 64,901 1,215
		66,116 22,079 4,921 3,000 25
		96,141

All new shares issued ranked pari passu with the then existing shares in all respects.

Notes:

The following movements in the Company’s issued share capital took place during the year ended 30th June, 2003:

• (a) On 24th July, 2002, 3 grantees had exercised the subscription rights attaching to the warrant to subscribe for a total of 2,500,000 ordinary shares of HK$0.01 each at a subscription price of HK$0.12 each.

• (b) On 10th September, 2002, pursuant to the subscription agreement dated 21st August, 2002, a total of 657,900,000 ordinary shares of HK$0.01 each were allotted and issued at a subscription price of HK$0.0152 each for a total proceeds, before related expenses, of approximately HK$10,000,000.

• (c) On 10th September, 2002, pursuant to the settlement agreement dated 23rd August, 2002, a total of 492,100,000 ordinary shares of HK$0.01 each were allotted and issued at an issue price of HK$0.0152 for a total proceeds, before related expenses, of approximately HK$7,480,000.

• (d) On 16th December, 2002, 1,550,000,000 ordinary shares of HK$0.01 each were allotted and issued at a subscription price of HK$0.011 each for a total proceeds, before related expenses, of approximately HK$17,050,000.

– 47 –

FINANCIAL INFORMATION

APPENDIX I

• (e) On 18th January, 2003, 4 employees had exercised a total of 300,000,000 share options granted to them under the Share Option Scheme at the subscription price of HK$0.016 each, resulting in the issue of 300,000,000 ordinary shares of HK$0.01 each for a total proceeds, before expenses, of approximately HK$4,800,000.

Share Options

The Company operates a share option scheme (the “Scheme”), further details of which are set out under the heading “Equity Compensation Benefits” in Note 14 to the financial statements.

Warrants

On 17th April, 2002, the Company allotted and issued 1,307,000,000 warrants (the “Warrants”) by way of private placing at an issue price of HK$0.02 per warrant, which are exercisable at any time from 19th April, 2002 to 18th April, 2003, both date inclusive. These warrants entitled the warrant holders thereof to subscribe for the ordinary shares of HK$0.01 each in the share capital of the Company at an initial subscription price of HK$0.12 (subject to adjustment).

During the year ended 30th June, 2003, 3 grantees had exercised the subscription rights attaching to the Warrants to subscribe for the shares of the Company. Save as disclosed above, on 17th April, 2003, the subscription rights attaching to the Warrants which have not been exercised were lapsed and the Warrants were expired and ceased to be valid for any purpose.

– 48 –

FINANCIAL INFORMATION

APPENDIX I

31. RESERVES

Subscription Share right premium reserve HK$’000 HK$’000 Group At 1st July, 2001 99,681 – Premium arising on issue of shares in respect of exercise of share options 1,559 – Revaluation decrease – – Goodwill released upon disposal of a subsidiary – – Proceeds from issue of warrants – 26,140 Warrants issue expenses – (871) Net loss for the year – – At 30th June, 2002 101,240 25,269 At 1st July, 2002 101,240 25,269 Premium arising on issue of shares in respect of exercise of share options 1,800 – Premium arising on issue of shares pursuant to subscription agreements 3,926 – Premium arising on issue of shares pursuant to settlement agreement 2,159 – Premium arising on issue of shares in respect of exercise of warrants 275 – Transfer from subscription right reserve to share premium 48 (48) Revaluation decrease – – Subscription rights expired – (25,221) Reserve transferred to accumulated deficits upon disposal of a leasehold property – – Net loss for the year – – At 30th June, 2003 109,448 –	Asset Capital revaluation reserve on Accumulated reserve consolidation deficits HK$’000 HK$’000 HK$’000 13,077 8,828 (67,523) – – – (1,386) – – – 1,972 – – – – – – – – – (106,133) 11,691 10,800 (173,656) 11,691 10,800 (173,656) – – – – – – – – – – – – – – – (9,536) – – – – – (694) – 694 – – (104,571) 1,461 10,800 (277,533)	Total HK$’000 54,063 1,559 (1,386) 1,972 26,140 (871) (106,133) (24,656) (24,656) 1,800 3,926 2,159 275 – (9,536) (25,221) – (104,571) (155,824)

– 49 –

APPENDIX I

FINANCIAL INFORMATION

Subscription Asset Capital Share right revaluation reserve on Accumulated premium reserve reserve consolidation deficits HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Group Attributable to: The Company and subsidiaries 101,240 25,269 11,691 10,800 (173,475) An associate – – – – (181) At 30th June, 2002 101,240 25,269 11,691 10,800 (173,656) Attributable to: The Company and subsidiaries 109,448 – 1,461 10,800 (277,533) An associate – – – – – At 30th June, 2003 109,448 – 1,461 10,800 (277,533) Subscription Share right Contributed Accumulated premium reserve surplus deficits HK$’000 HK$’000 HK$’000 HK$’000 Company At 1st July, 2001 99,681 – 26,487 (81,207) Premium arising on issue of shares in respect of exercise of share options 1,559 – – – Proceeds from issue of warrants – 26,140 – – Warrants issue expenses – (871) – – Released upon disposal of subsidiaries – – (12,979) – Net loss for the year – – – (26,891) At 30th June, 2002 101,240 25,269 13,508 (108,098)

Total HK$’000 (24,475) (181) (24,656) (155,824) – (155,824) Total HK$’000 44,961 1,559 26,140 (871) (12,979) (26,891) 31,919

– 50 –

APPENDIX I

FINANCIAL INFORMATION

Subscription Share right Contributed Accumulated premium reserve surplus deficits HK$’000 HK$’000 HK$’000 HK$’000 Company At 1st July, 2002 101,240 25,269 13,508 (108,098) Premium arising on issue of shares in respect of exercise of share options 1,800 – – – Premium arising on issue of sharespursuant to subscription agreement 3,926 – – – Premium arising on issue of shares pursuant to settlement agreement 2,159 – – – Premium arising on issue of shares in respect of exercise of warrants 275 – – – Transfer from subscription right reserve to share premium 48 (48) – – Subscription rights expired – (25,221) – – Net loss for the year – – – (123,840) At 30th June, 2003 109,448 – 13,508 (231,938)

Total HK$’000 31,919 1,800 3,926 2,159 275 – (25,221) (123,840) (108,982)

The contributed surplus represents the difference between the consolidated shareholders’ funds of Welback International Investments Limited (“Welback International”) at the date on which its shares were acquired by the Company and the nominal amount of the Company’s shares issued for the acquisition. During the year ended 30th June, 2002, 49% of equity interest of Welback International has been disposed of. Accordingly, 49% of the contributed surplus brought forward was released upon the completion of disposal.

Under the Companies Act 1981 of Bermuda (as amended), contributed surplus is also available for distribution to shareholders. However, a company cannot declare or pay a dividend, or make a distribution out of contributed surplus if:

• (i) the Company is, or would after the payment be, unable to pay its liabilities as they become due; or

• (ii) the realisable value of the Company’s 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 did not have any reserves available for distribution to shareholders at 30th June, 2003 and 30th June, 2002.

– 51 –

FINANCIAL INFORMATION

APPENDIX I

32. DISPOSAL OF SUBSIDIARIES

Net assets disposed of: Property, plant and equipment Inventories Trade and other receivables Bank balances and cash Trade and other payables Minority interests Net assets Goodwill released on disposal Loss on disposal of subsidiaries Satisfied by: Cash consideration received Deferred consideration Net cash outflow in respect of the disposal of a subsidiary: Cash consideration received Bank balances and cash disposed of	2003 HK$’000 – – – – – – – – – – – – – – – –	2002 HK$’000 1,487 4,954 4,416 1,430 (10,243) (580) 1,464 1,972 (2,032) 1,404 144 1,260 1,404 144 (1,430) (1,286)

The subsidiary disposed of during the year ended 30th June, 2002 did not have any significant impact on the Group’s cash outflows, turnover and operating results.

33. MAJOR NON-CASH TRANSACTIONS

During the year, the Group entered into the following major non-cash transactions:

• (a) the Company through Ruian Technology Company Limited, its wholly owned subsidiary entered into an acquisition agreement with Welback Enterprises Limited (“WEL”), its 51% owned subsidiary to acquire the entire paid-up registered share capital of Ruian Weiye Technology (Shenzhen) Limited at initial consideration of approximately of HK$9,788,000 which was satisfied by setting off the loan due to the Company by WEL. The consideration was then adjusted to approximately HK$9,224,000 due to an adjustment in the net asset value of Ruian Weiye as at 30th June, 2003.

• (b) pursuant to a board resolution of Gen-Wan, which was classified as an associate of the Group as at 30th June, 2002, Gen-Wan will increase its share capital by NT$70 million. The Group has given up its right to contribute additional investment in Gen-Wan and, accordingly, the Group’s equity interest in Gen-Wan was diluted from 24.9% to 9.5% and the Group no longer has the power to participate in the financial and operating policy decision of GenWan. As a result, the investment in Gen-Wan was reclassified as investment securities as at 30th June, 2003 as disclosed in Note 19 to the financial statements.

– 52 –

FINANCIAL INFORMATION

APPENDIX I

• (c) the Group entered into finance leases arrangements in respects of property, plant and equipment with a total capital value at the inception of the contract of approximately HK$1,090,000 (2002: HK$1,901,000).

• (d) on 23rd August, 2002, the Company and Well Green Group Limited (“Well Green”), a company incorporated in the British Virgin Islands, entered into the Settlement Agreement pursuant to which Well Green agreed to subscribe for, and the Company agreed to issue the Settlement Shares at an issue price of HK$0.0152 each and in return Well Green should transfer and assign a debt to the Company in amount of approximately HK$7,480,000 originally owned by Quicky Technologies Limited, a wholly owned subsidiary of the Company, to Well Green.

34.

OPERATING LEASES COMMITMENTS

As at 30th June, 2003, the Group had outstanding commitments under non-cancellable operating leases which fall due as follows:

Within one year In the second to fifth year inclusive After five years	Group 2003 2002 HK$’000 HK$’000 2,184 2,828 3,048 5,841 – 773 5,232 9,442	Group 2003 2002 HK$’000 HK$’000 2,184 2,828 3,048 5,841 – 773 5,232 9,442
		9,442

Operating lease payments represent rentals payable by the Group for certain of its office property and staff quarters. Leases and rentals were negotiated and fixed for an average term of two years (2002: four years).

At the balance sheet date, the Company had outstanding commitments under non-cancellable operating leases which fall due as follows:

Within one year In the second to fifth year inclusive	Company 2003 2002 HK$’000 HK$’000 31 189 – 94 31 283	Company 2003 2002 HK$’000 HK$’000 31 189 – 94 31 283
		283

Operating lease payments represent rentals payable by the Company for its office property. Leases and rentals were negotiated and fixed for an average term of two years (2002: two years).

35. PLEDGE OF ASSETS

As at 30th June, 2003, the Group pledged its leasehold properties with an aggregate net book value of approximately HK$10,047,000 (2002: HK$23,240,000), an investment property of approximately HK$28,000,000 (2002: HK$34,500,000) and its banks deposits of approximately HK$9,860,000 (2002: HK$8,646,000) to secure general banking facilities granted to the Group.

The Company did not pledge any of its assets at the balance sheet date.

– 53 –

FINANCIAL INFORMATION

APPENDIX I

36. CONTINGENT LIABILITIES

		Group
	2003		2002
	HK$’000		HK$’000
Bills discounted with recourse	5,304		31,748

At 30th June, 2003, the Company provided corporate guarantees amounting to approximately HK$54,900,000 (2002: HK$54,900,000) to various banks in respect of banking facilities granted to its subsidiaries. The aggregate amount utilised in respect of the banking facilities granted amounted to approximately HK$37,300,000 at 30th June, 2003 (2002: HK$44,110,000).

As explained in Note 2(a)(iii) to the financial statements, in the absence of properly prepared accounting records and supporting documents of WIIL group, the directors of the Company are unable to represent as to the completeness of the above figures.

During the year ended 30th June, 2003 and subsequently, WIIL Group has been involved in various legal proceedings, claims and writs, with aggregate estimated potential liabilities amounting to approximately HK$48,941,000, taken out by its creditors, employees and workers. In the opinion of the directors of WIIL Group, these claims were made without valid ground and WIIL Group would vigorously contest against these claims. Accordingly, these potential liabilities have not been accrued in the Group’s financial statements as at 30th June, 2003.

The Company has no guarantee or other indirect liability in respect of any of the above claims except the Company has guaranteed certain obligations of WEL and Hitchman in respect of trade facilities provided by a bank.

On 13th October, 2003, a writ of summons and statement of claim was made by BII Finance Company Limited (“BII Finance”) against the Company under a guarantee allegedly given by the Company in favour of BII Finance in respect of certain liabilities of the Company’s indirect non-wholly owned subsidiary, WEL. The claim is for a sum of approximately HK$3,583,000 and US$248,000 (approximately HK$1,936,000) together with interest. The directors are seeking legal advice in this matter and are of the preliminary review that the claim is meritless.

37. SUBSEQUENT EVENTS

The following significant events occurred subsequent to the balance sheet date:

• (i) On 27th May, 2003, an agreement was entered into between the Company and six independent third parties, pursuant to which the independent third parties agreed to subscribe for and the Company agreed to issue 1,200,000,000 new shares of the Company at a subscription price of HK$0.017 each. The net proceeds of approximately HK$20,064,000, of which approximately HK$15,500,000 will be used for repayment of liabilities under the Convertible Bonds and the balance of approximately HK$4,500,000 for working capital of the Group. The placing was scheduled to be completed on 21st July, 2003. However, on 21st July, 2003, it was noticed that three of the placees did not take up the 900,000,000 new shares of the Company at a subscription price of HK$0.017 each. As these three placees did not take up the new shares, the new shares issued have been changed from 1,200,000,000 to 300,000,000 and the net proceeds of which have been changed from approximately HK$20,064,000 to approximately HK$4,934,000. The said proceeds have been used for partial repayment of liabilities under the Convertible Bonds, and as working capital of the Group.

– 54 –

FINANCIAL INFORMATION

APPENDIX I

• (ii) On 5th August, 2003, an unconditional Termination Agreement was entered into between Graceley Enterprise Limited (“Graceley”), a 51% owned subsidiary of the Company and 深 圳市寶安區西鄉鎮河東村委會 (“the PRC party”), an independent third party, to terminate an agreement dated 10th July, 1991 in which the PRC party agreed to assign the rights to use a property for 30 years from 1st January, 1992 to 31st December, 2021 (the “1991 Agreement”). Under the Termination Agreement, Graceley surrendered its interest in the rights to use the property acquired pursuant to the 1991 Agreement together with the equipment affixed to the property for an aggregate cash consideration of RMB8,000,000 (equivalent to approximately HK$7,540,000).

On the same date, in order to avoid any interruption to the Group’s production and business operations, the PRC party also entered into lease arrangements with Ruian Weiye Technology (Shenzhen) Limited, a wholly owned subsidiary of the Company, for a term of two years and with Welback Enterprises Limited, a 51% owned subsidiary of the Company, for a term of one year, to lease to them the aforesaid property at a monthly rental of approximately RMB150,000 (equivalent to approximately HK$141,345) and RMB38,000 (equivalent to approximately HK$35,807) respectively.

• (iii) On 19th August, 2003, a subscription agreement was entered into between the Company and Asano (Pte) Ltd. (“Asano”), a company incorporated in Singapore, pursuant to which Asano agreed to subscribe for and the Company agreed to issue 8% convertible bonds which is expected to be due approximately on 30th November, 2004 (the “Bonds”) with a principal amount of HK$16,000,000. The Bonds carry the rights to convert either in whole or in part of the principal amount into shares at the initial conversion price of HK$0.018 per share at any time after the issue of the Bonds up to the maturity date. The net proceeds of approximately HK$15,840,000, of which approximately HK$12,000,000 will be used for repayment of liabilities under the 4% Convertible Bonds due on 2003 and the balance of about HK$3,840,000 for working capital of the Group.

• (iv) Pursuant to a special resolution passed on 29th August, 2003, the Company changed its name from Terabit Access Technology International Limited to Ruili Holdings Limited with effect from 2nd September, 2003.

• (v) On 10th September, 2003, Transfer Networks Limited, a wholly owned subsidiary of the Company, entered into a conditional Investment Agreement with the shareholders of 深圳 市銀河通信技術有限公司（「銀河通信」）and 銀河通信, inter alia, to invest RMB17,000,000 in the registered share capital of 銀河通信 . The agreement has yet to be completed.

• (vi) On 10th September, 2003, the Company entered into subscription agreement with Accurate Sino Holdings Limited (“ASHL”), a company incorporated in the British Virgin Islands, under which ASHL agreed, inter alia, to subscribe for 700,000,000 new shares of the Company at a subscription price of HK$0.016 per share. Also, the sole director and shareholder of ASHL has agreed to grant a loan of HK$5 million to the Company for a term of one year at an interest rate of 8% per annum. The subscription of 700,000,000 new shares of HK$0.016 to ASHL and a loan of HK$5 million carrying at 8% interest for one year are used for the acquisition of equity interest in 深圳市銀河通信技術有限公司 as mentioned in 37(v) above. The proceeds from the subscription of new shares were received on 16th October, 2003.

38. AUTHORISATION FOR ISSUE OF FINANCIAL STATEMENTS

The financial statements were approved and authorised for issue by the Board of Directors on 28th October, 2003.

– 55 –

FINANCIAL INFORMATION

APPENDIX I

STATEMENT OF INDEBTEDNESS

Borrowings and debt securities

At the close of business on 31st May, 2004, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Group had outstanding borrowings of approximately HK$30.6 million, comprising secured borrowing under finance lease of approximately HK$0.7 million and unsecured borrowings of approximately HK$29.9 million in forms of a bank loan of approximately HK$4.7 million, convertible bonds of approximately HK$16.7 million and other borrowings of approximately HK$8.5 million.

As at 31st May, 2004, the Company had finance leases payables of approximately HK$0.7 million which were chargeable with interest at flat rate of 2.95% per annum.

In December 2003, SRT has been granted a short-term bank loan of approximately HK$4.7 million. The loan was unsecured, interest free and repayable in December 2004. The outstanding amount of the loan as at 31st May, 2004 is HK$4.7 million.

In December 2003, the Company has issued 8% convertible bonds in the principal amount of approximately HK$16 million at the initial conversion price of HK$0.018 per share which is exercisable at any time from and including the first date of the issue of the convertible bonds until the maturity date ending on 22nd December, 2004. Since the bondholder has not exercised any of its rights of conversion, the total amount payable in respect of the convertible bonds as at 31st May, 2004, including the principal and interests incurred, was approximately HK$16.7 million.

As at 31st May, 2004, the Company was indebted to an independent third party for approximately HK$8.5 million under two loans initially granted by its former shareholder, Achieve Well Group Limited. These loans are unsecured, chargeable with interest at 10% per annum and repayable in amounts of approximately HK$5.3 million and HK$3.6 million (inclusive of interest) on 1st October, 2004 and 16th January, 2005 respectively. Achieve Well Group Limited transferred all of its rights and interests under these loans to the abovementioned individual on 31st May, 2004.

Securities and guarantees

The net book value of the motor vehicle under the finance leases mentioned above as at 31st May, 2004 is approximately HK$0.9 million.

Hu Yidong, a director and shareholder of SRT, and 重慶長豐通信股份有限公司 (“Chongqing Chang Fung Tong Xin Corporation Limited”), an independent company with business relationship with SRT, have given a personal guarantee and a corporate guarantee to the bank loan as shown above respectively. The Group has not provided any form of corporate guarantee to SRT over the loan.

– 56 –

FINANCIAL INFORMATION

APPENDIX I

Contingent liabilities

As at 31st May, 2004, the Company provided corporate guarantees amounting to approximately HK$24 million to a financial institution in respect of banking facilities granted to WIIL Group, approximately HK$5.5 million of which was utilized by members of the WIIL Group and such amount was claimed by the financial institution as disclosed in section 7 heading of “Litigation” in Appendix II of this circular.

Disclaimer

Save as referred to as above and apart from intra-group liabilities and normal trade payables, the Group did not have, as at 31st May, 2004, any mortgages, charges, debentures or other loan capital or bank overdrafts, loans or other similar indebtedness or hire purchase commitments or any guarantees or any material contingent liabilities.

Foreign currency amounts have been translated into Hong Kong dollars at the approximate exchange rates prevailing at the close of business on 31st May, 2004.

WORKING CAPITAL

As at the Latest Practicable Date, after taking into account the available credit facilities as described in more detail in the above section “Statement of indebtedness” under the heading “Borrowings and debt securities” and internal resources (for example, cash generated from operating activities) of the Group, the Directors are of the opinion that the Group has sufficient working capital for its present requirements. In order to repay the short term debts of the Group and in the event that short term funding is required, the Company will continue to look for funding arrangement which may involve extending the term of the existing loans and obtaining new banking facilities. Currently, the Company is in negotiation to extend the repayment date in respect of HK$5 million being part of its total borrowings due to an independent third party.

NO MATERIAL CHANGE

The Directors confirmed that there have not been any material adverse change in the financial or trading position of the Group since 30th June, 2003.

LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE

As at 31st December, 2003, being the Group’s latest published interim account ending date, the Group had net assets of HK$15.7 million with total assets of approximately HK$104 million and total liabilities of approximately HK$89 million. The Group’s current ratio, being the proportion of total current assets against total current liabilities was 0.62 as at 31st December, 2003 as compared with 0.40 as at 30th June, 2003. The Group’s bank balances and short-term deposits, which are mainly denominated in Hong Kong dollars and US dollars, amounted to HK$5.8 million as at 31st December, 2003.

– 57 –

APPENDIX I

FINANCIAL INFORMATION

As at 31st May, 2004, the Company also has outstanding convertible bonds in the principal amount of approximately HK$16 million. It has a coupon rate of 8% convertible at the initial conversion price of HK$0.018 per share which is exercisable at any time from and including the first date of the issue of the convertible bonds until the maturity date ending on 22nd December, 2004.

The Group’s gearing ratio as at 31st December, 2003 was 25%, which is calculated on the basis of the total of non-current secured term loans and other loans over total shareholders’ funds.

While the sales of the Group are mainly denominated in US dollars, the purchases of raw materials are mainly in US dollars, Hong Kong dollars and Renminbi. Bank borrowings are also denominated in Hong Kong dollars and US dollars with interest being charged on a fixed rate basis. As the exchange rates of US dollars against Hong Kong dollars and Renminbi were relatively stable during the period, the Group’s exposure to fluctuations in exchange rates is considered minimal.

EMPLOYEES SCHEMES

As at the Latest Practicable Date, there are 16 employees within the Group. The remuneration policy and package of the Group’s employees are periodically reviewed and approved by the executive Directors. Apart from pension funds and in-house training programmes, discretionary bonuses and share options may be awarded to employees according to the assessment of individual performance.

PROSPECTS

The Group is developing a number of new products such as high technology digital cameras, karaoke combo systems with TV and DVD players and high definitions DVD players. Responses on these potential new products have been positive. The Group is also constantly exploring opportunities to penetrate its multimedia electronic products into the PRC market. The Directors are of the view that the Group could leverage on its core competencies in digital cameras productions and know-how technology as well as wholesaling track records in expanding into the PRC market. At the same time, the Group, through extensive participation in world trade exhibitions and pricing strategy, is taking more aggressive approach to recapture its market share in North America and to expand the customer base in Europe.

To enhance the Group’s competitiveness in the market, the Group has imposed certain measures to increase productivity, to reduce the manufacturing overhead and administrative expenses. Cost efficiency and stringent credit controls to improve the Group’s financial position remain as major tasks of the Group’s management.

– 58 –

FINANCIAL INFORMATION

APPENDIX I

As stated in the section “Letter from the Board” under the heading “Business of the Group”, The amount of the confirmed orders of RTCL from May to December 2004 is around HK$37 million. As at the Latest Practicable Date, none of these orders have been cancelled.

The Group disposed of its then loss making subsidiary Welback International Investments Limited and its subsidiaries (“WIIL Group”) in December 2003. In September 2003 the Group entered into an agreement for acquiring 55% interest in SRT which has enabled the Group to diversify its business operations into system integration and development in the PRC. The Group also disposed its property located at Admiralty Centre, which completed in March 2004.

To broaden the Group’s business scope, Widax (Hong Kong) limited, which is a whollyowned subsidiary of the Company, has commenced business in the trading of high technology components of telecommunication products mainly to customers in Canada and the PRC.

In order to satisfy the Group’s short term funding requirement, the Group will continue to look for funding arrangement which may involve extending the term of the existing loans and obtaining new banking facilities.

In light of the Group’s diversification, the disposal of loss making WIIL Group and RWTL and stringent control over its costs and operation efficiencies, the Directors are optimistic that the Group’s financial performance and strength would be enhanced in the future.

– 59 –

GENERAL INFORMATION

APPENDIX II

1. RESPONSIBILITY STATEMENT

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

2. SHARE CAPITAL

(a) Issued share capital

Shares HK$ 10,614,124,132 Shares of HK$0.01 each as 106,141,241 at the Latest Practicable Date

(b) Outstanding options

As at the Latest Practicable Date, there were 200,000,000 outstanding Options which entitle the holders thereof when exercised, to subscribe for 200,000,000 Shares at HK$0.017 each (in respect of 150,000,000 Options) and HK$0.0174 each (in respect of 50,000,000 Options) (subject to adjustment).

3. DISCLOSURE OF INTERESTS

As at the Latest Practicable Date, the interests and short positions of the Directors and chief executives of the Company in the Shares, underlying Shares or debentures of the Company and its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance) (a) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the Securities and Futures Ordinance (including interests or short positions which the Directors or the chief executives were taken or deemed to have under such provisions of the Securities and Futures Ordinance); or (b) which were required, pursuant to section 352 of the Securities and Futures Ordinance, to be entered in the

– 60 –

GENERAL INFORMATION

APPENDIX II

register referred to therein; or (c) which are required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies contained in the Listing Rules were as follows:

(a) Interests in the Company

• (i) Share Options

The Company has a share option scheme under which the Directors may, at their discretion, grant options to employees, including any executive Directors of the Company or its subsidiaries to subscribe for shares in the Company, subject to the terms and conditions stipulated. As at the Latest Practicable Date, the outstanding share options granted to Directors were as follows:

			Outstanding
			as at the Latest
Name	Exercisable	Exercise	Practicable
of Director	on or after	price	Date
		HK$
Wu Jiahong	20th February, 2003	0.017	50,000,000

Save as disclosed above, as at the Latest Practicable Date, to the knowledge of the Company, none of the Directors, or chief executives of the Company had or was deemed to have any interests or short position in the Shares, underlying Shares or debentures of the Company and its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance) (a) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the Securities and Futures Ordinance (including interests or short positions which the Directors and the chief executives are taken or deemed to have under the provisions of the Securities and Futures Ordinance); or (b) which were required, pursuant to section 352 of the Securities and Futures Ordinance, to be entered in the register referred to therein; or (c) which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies contained in the Listing Rules.

• (b) As at the Latest Practicable Date, none of the Directors was materially interested in any contract or arrangement which was significant to the business of the Group.

• (c) As at the Latest Practicable Date, none of the Directors had 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 30th June, 2003, the date to which the latest published audited financial statements of the Company were made up.

– 61 –

GENERAL INFORMATION

APPENDIX II

4. SUBSTANTIAL SHAREHOLDERS

So far as is known to any Director or the chief executive of the Company, as at the Latest Practicable Date, the persons or companies (not being a Director or chief executive of the Company) who had interests or short positions in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the Securities and Futures Ordinance or who were directly or indirectly deemed to be interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group were as follows:

		% of total issued
Name of Shareholder	Number of Shares held	share capital
Yu Kam Kee, Lawrence	2,872,938,146	27.07%
Accurate Sino Holdings Limited	1,508,960,000	14.22%
Lu Chieh-Kang (陸介康)(Note 1)	1,508,960,000	14.22%

Note:

1. Accurate Sino Holdings Limited is wholly-owned by Mr. Lu Chieh-Kang, and therefore Mr. Lu Chieh-Kang is deemed to be interested in the 1,508,960,000 Shares held by Accurate Sino Holdings Limited.

5. MATERIAL CONTRACTS

Members of the Group entered into the following contracts, not being contracts in the ordinary course of business, within two years preceding the date of this document and which are or may be material:

1. On 30th April, 2004, the Company’s wholly-owned subsidiary, Ruian Technology Company Limited, entered into an agreement with Star Shanghai International Limited pursuant to which, inter alia, Ruian Technology Company Limited sold and Star Shanghai International Limited purchased the entire paid-up registered share capital of Ruian Weiye Technology (Shenzhen) Limited.

2. On 2nd April, 2004, the Company entered into a loan agreement with Achieve Well Group Limited whereby Achieve Well Group Limited who was, at the time of the transaction, the substantial shareholder of the Company, had agreed to grant a short-term loan in the sum of HK$5,000,000 to the Company. The loan was unsecured and chargeable with interest at 10% per annum. It was for working capital purpose.

– 62 –

GENERAL INFORMATION

APPENDIX II

1. On 27th November, 2003, the Company’s wholly-owned subsidiary, Fine Apex Limited, entered into a provisional sale and purchase agreement to sell its property, the office premise situated at Unit A, 29th Floor of Tower 1, Admiralty Centre, No. 18 Harcourt Road, Hong Kong, to Wealth Asia Development Limited, a third party independent of the Company, its subsidiaries and the Company’s connected persons (as defined under the Listing Rules), at a consideration of HK$34,500,000.

2. On 12th November, 2003, the Company entered into a sale and purchase agreement with Sirena Limited, a third party independent of the Company and its connected persons, relating to the sales of 86,062,500 shares in the share capital of Welback International Investments Limited and the loans due from certain members of the WIIL Group to the Company at a consideration of HK$1.

3. On 10th September, 2003, the Company’s wholly-owned subsidiary, Transfer Networks Limited, entered into an investment agreement with Shenzhen Yinhetong Information Technology Company Limited (“SRT”) who was, at the time of the agreement, a third party independent of the Company and its connected persons, and the then existing shareholders of SRT, agreeing to invest RMB17,000,000 (approximately HK$16,037,300) into the registered capital of SRT.

4. On 10th September, 2003, the Company entered into a subscription agreement with Accurate Sino Holdings Limited who was, before the agreement, a third party independent of the Company and its connected persons, regarding the subscription of 700,000,000 new shares of the Company at HK$0.016 per share.

5. On 19th August, 2003, the Company and Asano (PTE) Ltd (the “Subscriber”), a third party independent of the Company and its connected persons, entered into a subscription agreement whereby the Company agreed to issue and the Subscriber agreed to subscribe for bonds with an aggregate principal amount of HK$16,000,000.

6. On 26th June, 2003, the Company’s wholly-owned subsidiary, Ruian Technology Company Ltd. (formerly known as Widax (Asia) Limited), entered into a sale and purchase agreement to acquire from Welback Enterprises Limited, the entire paidup registered share capital of Ruian Weiye Technology (Shenzhen) Limited and a loan for an aggregate consideration of HK$9,787,516.

7. On 13th May, 2003, the Company entered into a placing agreement with Yicko Securities Limited, a third party independent of the Company and its connected persons, relating to the placing of a total of 1,200,000,000 new shares of the Company at HK$0.017 per share.

– 63 –

GENERAL INFORMATION

APPENDIX II

1. On 4th January, 2003, the Company’s wholly-owned subsidiary, 偉達通信科技 （深圳）有限公司 (“Widax Telecom Technology (Shenzhen) Ltd.”), and 深圳市 捷時運網絡科技有限公司 (“Shenzhen Jie Shi Information Technology Ltd.”) who was, at the time of the agreement, a third party independent of the Company and its connected persons, entered into a cooperative agreement to invest RMB5,000,000 in the development of an internet platform. This agreement was subsequently terminated in writing by the parties on 9th April, 2003 as the parties considered the internet platform was no longer commercially viable. The termination did not have any adverse financial impact on the Company.

2. On 16th December, 2002, the Company’s wholly-owned subsidiary, Widax (China) Ltd., entered into a sale and purchase agreement with Prime Venture International Ltd., to purchase 50% equity interest in Everbest Water Treatment Development Ltd at a consideration of HK$5,700,000.

3. On 22nd November, 2002, the Company and Achieve Well Group Limited entered into a subscription agreement pursuant to which Achieve Well Group Limited agreed to subscribe for, and the Company agreed to issue 1,550,000,000 new shares of the Company at a subscription price of HK$0.011 per share.

4. On 30th October, 2002, the Company’s wholly-owned subsidiary, Indofast Technology Limited, entered into a cooperation agreement with 江門市新會區 昌寧高分子材料有限公司 (“Jian Men City Xin Hui District Chang Ning High Polymer Material Company Ltd”) for the acquisition of operating rights in manufacturing of silicon rubber products by a factory located in the PRC for a period of 15 years at a consideration of HK$6,800,000.

5. On 8th October, 2002, the Company entered into a loan agreement with Shenzhen Chung Pao Wei Yee Investments Limited whereby the Company agreed to grant a loan amounting to HK$6,000,000 to Chung Po Wei Yee Investments Limited for a period of six months.

6. On 23rd August, 2002, the Company and Well Green Group Limited entered into a settlement agreement pursuant to which Well Green Group Limited agreed to subscribe for, and the Company agreed to issue 492,100,000 new shares in the Company at 0.0152 per share and in return Well Green Group Limited agreed to transfer and assign a debt to the Company in an amount of HK$7,479,920 originally owed by Quicky Technologies Limited, a wholly-owned subsidiary of the Company, to Well Green Group Limited.

7. On 21st August, 2002, the Company and Money Master Limited entered into a subscription agreement pursuant to which Money Master Limited agreed to subscribe for, and the Company agreed to issue 657,900,000 new shares in the Company at 0.0152 per share.

– 64 –

GENERAL INFORMATION

APPENDIX II

6. SERVICE CONTRACT

None of the Directors has any service contract with any member of the Group (excluding contracts expiring or determinable by the employer within one year without payment of compensation other than statutory compensation).

7. LITIGATION

The Company and its former subsidiary, P.N. Electronics Ltd. (“PNE”) are in an arbitration with North American Foreign Trading Corporation (“NAFT”) in respect of a gross receivable of HK$18 million and related damages from various parties for goods shipped by PNE to NAFT in 1996. The arbitration proceedings was initiated by NAFT against the Company and PNE claiming for alleged damages in New York, USA. The alleged claims had been contested and a counterclaim for the sum of HK$18 million as well as other damages was made in the proceedings. As at the Latest Practicable Date, no further action has been taken by either party and thus it is not possible to predict the outcome with reasonable certainty.

By a Writ and Statement of Claim dated 13th October, 2003, BII Finance Company Limited (“BII Finance”) has made a claim against the Company under a guarantee allegedly given by the Company in favour of BII Finance in respect of certain alleged liabilities of the Company’s ex-subsidiary, Welback Enterprises Limited. The claim is for a sum of approximately HK$3,583,000 and US$248,000 (equivalent to approximately HK$1,934,000) together with interest and costs. The claim is being disputed by the Company. The Company has joined its former directors, Mr. Lee Chun Kwok and Mr. Fong Wing Seng, as third parties to the action. The Company’s Defence was filed on 1st December, 2003. BII Finance has now taken out summary judgment proceedings against the Company. The parties attended a hearing of BII Finance’s summary judgment application on 16th July, 2004, but the hearing was adjourned to 2nd November, 2004 due to typhoon.

The Company is considering the merits of these claims and regards some of these claims as groundless. Nonetheless, the Company is currently seeking financial and legal advice on the effect on the Company of these matters and on what further actions are appropriate.

Save as disclosed above, as at the Latest Practicable Date, neither the Company nor any of its subsidiaries was engaged in any litigation or arbitration of material importance and so far as the Directors are aware, no litigation or claims of material importance was pending or threatened by or against the Company or any of its subsidiary.

– 65 –

GENERAL INFORMATION

APPENDIX II

8. PROCEDURE TO DEMAND POLL

The Bye-laws of the Company provide that a resolution put to the vote of a meeting shall be decided on a show of hands unless (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is demanded:

• (a) by the chairman; or

• (b) by at least three members present in person (or, in the case of a member being a corporation, by its duly authorised representative) or by proxy for the time being entitled to vote at the meeting; or

• (c) by a member or members present in person (or, in the case of a member being a corporation, by its duly authorised representative) or by proxy and representing not less than one-tenth of the total voting rights of all members having the right to vote at the meeting; or

• (d) by a member or members present in person (or, in the case of a member being a corporation, by its duly authorised representative) or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all shares conferring that right.

A demand by a person as proxy for a member shall be deemed to be the same as a demand by the member.

9. MISCELLANEOUS

• (a) The share registrar of the Company is Tengis Limited at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong.

• (b) The secretary of the Company is Ms. Ng Yuk Yee, Feona (Solicitor, HKSAR).

• (c) The qualified accountant of the Company is Mr. Kwok Yeuk Yee, FCCA, AHKSA.

• (d) In the case of any discrepancy, the English text of this circular shall prevail over the Chinese text.

– 66 –

GENERAL INFORMATION

APPENDIX II

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours on any weekday (except public holidays) at the office of Richards Butler at 20th Floor, Alexandra House, 16-20 Chater Road, Central, Hong Kong, from the date of this circular up to and including the date of the SGM.

• (a) the memorandum and bye-laws of the Company;

• (b) all material contracts referred to in section 5 of Appendix II of this circular;

• (c) annual report of the Company for the financial years ended 30th June, 2002 and 2003; and

• (d) circulars of the Company dated 4th August, 2003, 5th September, 2003, 20th October, 2003, 5th December, 2003 and 19th December, 2003.

– 67 –

NOTICE OF SGM

RUILI HOLDINGS LIMITED 瑞力控股有限公司[*]

(Incorporated in Bermuda with limited liability)

(Stock Code: 491)

NOTICE IS HEREBY GIVEN THAT a special general meeting of Ruili Holdings Limited (the “Company”) will be held on Tuesday, 31st August, 2004 at Loashan Snow Garden Restaurant, 5/F., China Resources Building, 26 Harbour Road, Wanchai, Hong Kong at 2:30 p.m. for the purposes of considering and, if thought fit, passing the following resolution, which will be proposed as an ordinary resolution with or without amendment:

ORDINARY RESOLUTION

“ THAT the sale and purchase agreement (the “Agreement”) dated 30th April, 2004 entered into between Ruian Technology Company Limited, a wholly-owned subsidiary of the Company, as vendor and Star Shanghai International Limited as purchaser, relating to the sale and purchase of registered capital in Ruian Weiye Technology (Shenzhen) Limited (瑞安偉業 科技（深圳）有限公司 ) (a copy of which has been produced to this meeting marked “A” and signed by the Chairman of this meeting for the purpose of identification), be and is hereby ratified and the directors of the Company be and are hereby authorised to execute such documents and take such actions on behalf of the Company as they may consider necessary and desirable to complete and give effect to the transactions contemplated by the Agreement.”

Yours faithfully, By Order of the Board Ruili Holdings Limited 瑞力控股有限公司[] Wu Jiahong* Executive Director

Hong Kong, 13th August, 2004

As at the date of this notice, the executive directors of Ruili Holdings Limited are Wu Jiahong, Liao Chongde, Zhang Yiwei, Lee Kwok Leung, Alan, and Hu Yidong and the independent non-executive directors of Ruili Holdings Limited are Li Fui Lung, Danny and Ng Hoi Yue, Herman.

* For identification only

– 68 –

NOTICE OF SGM

Principal place of business: Room 2703, 27/F

China Resources Building 26 Harbour Road Hong Kong

Notes:

1. A member entitled to attend and vote at the special general meeting is entitled to appoint one or more proxies to attend and vote instead of him. A proxy need not be a member of the Company. A member may appoint a proxy in respect of part only of his holding of Shares in the Company. Completion and return of an instrument appointing a proxy will not preclude a member from attending and voting in person at the special general meeting.

2. In order to be valid, the proxy form and the power of attorney or other authority (if any) under which it is signed, or a certified copy of such power or authority shall be deposited with the Company’s branch share registrar, Tengis Limited, at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong not less than 48 hours before the time appointed for holding the special general meeting or any adjournment thereof.

3. Where there are joint registered holders of any share, any one of such persons may vote at any meeting, either personally or by proxy, in respect of such share as if he were solely entitled thereto; but if more than one of such joint holders be present at any meeting personally or by proxy, that one of the said persons so present whose name stands first on the register in respect of such share shall alone be entitled to vote in respect thereof.

– 69 –