G-Resources Group Limited — Annual Report 2001

Dec 3, 2001

STAR BIO-TECH (HOLDINGS) LIMITED

(Incorporated in Bermuda with limited liability)

FINAL RESULTS FOR THE TWELVE MONTHS

ENDED 30 JUNE 2001

FINAL RESULTS

The Board of Directors of Star Bio-Tech (Holdings) Limited (the “Company”) is pleased to announce the audited consolidated results of the Company and its subsidiaries (the “Group”) for the twelve months ended 30 June 2001 (the “Period”). Due to the change of the accounting period by the Group as announced on 20 July 2000, the comparative results as disclosed hereunder covered fifteen months ended 30 June 2000 as follows:

		Twelve months		Fifteen months
		ended		ended
		30 June		30 June
		2001		2000
		Audited		Audited
	Notes	HK$’000		HK$’000
Turnover		30,071		13,810
Cost of sales		(26,473	)	(12,551	)
Gross profit		3,598		1,259
Other revenue		3,364		1,348
Distribution and costs		(3,683	)	(925	)
Administrative expenses		(69,566	)	(21,037	)
Loss attributable to property		(720	)	(1,005	)
Loss from operations		(67,007	)	(20,360	)
Financial costs		(2,549	)	(1,335	)
Share of losses of associates		-		(31,358	)
Loss attributable to investments		(26,737	)	(17,240	)
Gain on waiver of obligation		8,069		-
Gain attributable to financial restructuring		-		133,651
Impairment losses reconized in respect
of property, plant and equipment		(4,480	)	(23,338	)
Provision for payment under guarantee		-		(5,671	)
(Loss)/profit before taxation		(92,704	)	34,349
Taxation		(251	)	(129	)
(Loss)/profit after taxation		(92,955	)	34,220
Minority interest		472		-
		(92,483	)	34,220
Earnings (loss) per share
- Basic	1	(0.63) cents		1.99 cents
- Diluted		N/A		1.89 cents

Note:

1. (Loss) earnings per share

The calculation of the basic loss per share is based on the loss for the period from 1st July, 2000 to 30th June 2001 of HK$92,483,000 (1.4.1999 to 30.6.2000 : profit of HK$34,220,000) and on the weighted average number of 14,608,274,971 (1.4.1999 to 30.6.2000: weighted average number of 1,719,225,884) ordinary shares in issue.

No disclosure of the diluted loss per share for the year ended 30th June, 2001 is shown as the exercise prices of the share options were greater than the market prices of the Company’s shares during that period.

RESULTS

Turnover of the Group for the period under review was HK$30.0 million compared to HK$13.8 million in 2000. It was an increase of approximately 117.4 % from last year. Loss from operation was HK$67.0 million whereas it was HK$20.3 million loss last year. Loss attributable to shareholders for the current period was HK$92.4 million compared to profit of HK$34.2 million in 2000 which was mainly due to a gain substained from restructuring of debts. Loss per share for the period was HK$0.63 cents per share.

FINAL DIVIDEND

The directors of the Company do not recommend the payment of dividend in respect of the twelve months ended 30 June 2001 (2000: Nil).

AUDITOR’S REPORT

The auditors’ report on the Group’s financial statements for the period ended June 30, 2000 contains a qualified opinion as follows:-

“We have audited the financial statements which have been prepared in accordance with accounting principles generally accepted in Hong Kong other than as set out below.

Respective responsibilities of directors and auditors

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

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

Basis of opinion

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

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

We planned our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the financial statements are free from material misstatement. However, the evidence available to us was limited. The consolidated balance sheet as at 30th June, 2000 included net liabilities of HK$35,481,000 in respect of an inactive subsidiary, on the basis of the unaudited management accounts. Accordingly, we were unable to satisfy ourselves that the gain on disposal of this subsidiary of HK$7,468,000, included in the consolidated income statement for the year ended 30th June, 2001 was fairly stated in the financial statements. Any adjustments to these figures would have a consequential effect on the retained reserves of the Group as at 30th June, 2000 and on the loss of the Group for the year ended 30th June, 2001.

Fundamental uncertainty relating to the going concern basis

In forming our opinion, we have considered the adequacy of the disclosure made in note 3 to the financial statements. The Group is, through its financial advisors, conducting discussions with certain potential strategic investors with a view to potential equity injection. Provided that the negotiations can be successfully completed with potential investors for the injection of new equity capital, the directors are satisfied that the Group will be able to meet in full its financial obligations as they fall due for the foreseeable future. The financial statements have been prepared on a going concern basis, the validity of which depends upon future funding being available. The financial statements do not include any adjustments that would result from a failure to obtain such funding. We consider that the fundamental uncertainty has been adequately disclosed in the financial statements and our opinion is not qualified in this respect.

Qualified opinion arising from disagreement about accounting treatment and limitation of audit scope

In the financial statements, under an agreement (“Cooperation Agreement”) with a third party (the “Partner”) the Group was required to inject an agreed amount of US$3,000,000 (equivalent to approximately HK$23,400,000) into an investee company within the specified period of time (“Period”) in return for a 25% equity interest in that investee company. However, having failed to make the injection within the Period, the Group is subject to a forfeiture of US$1,000,000 (approximately HK$7,800,000). The directors have not made any provision for any amount to be forfeited in these financial statements on the basis that the Company is currently in the process of negotiation with the Partner for the extension of the Period. However, in our opinion, a provision of HK$7,800,000 should have been made in these financial statements to reflect the obligations of the Group under the Cooperation Agreement thereby increasing loss before taxation for the year and reducing the net assets as at 30th June, 2001 by that amount.

Except for any adjustments that might have found to be necessary had we been able to obtain sufficient evidence concerning this subsidiary and except for the absence of the provision referred to above, in our opinion the financial statements give a true and fair view of the state of affairs of the Company and the Group as at 30th June, 2001 and of the loss and cash flows of the Group for the year then ended and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

In respect alone of the limitation on our work relating to this subsidiary:

(i) we have not obtained all the information and explanations that we considered necessary for the purpose of our audit; and

(ii) we are unable to determine whether proper books of account have been kept.

Without qualifying our opinion we draw to your attention that included in the consolidated income statement for the period from 1st April, 1999 to 30th June, 2000 was a loss on the disposal of another inactive subsidiary of HK$9,324,000, which prior to disposal had been included in the financial statements on the basis of unaudited management accounts. Accordingly, we were unable to satisfy ourselves that the amount was fairly stated in the financial statements for the year ended 30th June, 2000.”

BUSINESS REVIEW

For the period under review, the Group has turnover of HK$30.0 million from which the Food and Beverage Division (“F&B Operation”) generated HK$9.0 million and the Internet-Related Division (“IT Operation”) & Bio-Technology Division (“BioTech Operation”) collectively generated HK$21.0 million. It was in total an increase of 117% when compared to the overall turnover of last year.

F&B Operation

The operating result of this operation has recorded 40% decrease in turnover and sustained an operating loss of HK$9.6 million. This is mainly due to the shrinkage in market share from competition with small enterprises. Increased finance cost also contributed this year’s unfavourable result.

IT Operation

Turnover in this division has generated HK$18.2 million. Sale of Quickionary products and revenue from stock and financial information subscription made up the contribution. Certain IT projects which the Group invested in early this financial period have been reconsidered in terms of immediate future benefit to the Group and hence the board has either postponed further capital injection or make provisions for these IT investments.

BioTech Operation

Qilisheng a product manufactured and marketed by one of the wholly owned subsidiary of the Group, is a health product embedded with the latest technology of MAB (“Micro Alternating Biotechnology”). It was launched in March this financial year and was being retailed in one of the prominent chain stores. During the period, Qilisheng has generated turnover of HK$0.3 milliom.

BUSINESS OUTLOOK

At the closure of this financial period, the board has re-examined certain investment projects in the PRC under the present economic situation and sentiments. Core business however will remain in the existing operations and the Group expects to streamline operations and set up strategic policies in line with existing and persisting global economic climate for these projects.

F&B Operation

The management is confident of this operation and will be trying to maintain the same momentum for the benefit of the Group.

Bio-Tech Operation

The management of the Group was satisfied with the momentum of Qilisheng and has reported some encouraging results. With the latest technology by means of MAB, the Group is developing other health products. The first one will be the product for trimming and the other the Group intends to develop is for alcoholic detoxication. The Management believes the health products with MAB technology will be one of the main operation for the Group for the years to come. Other than the health products in this operation, the Group is developing a project of purifying contaminated water which has been a concern of an environmental issue. A bio-technology laboratory was set up in Shenzhen to enhance the testing procedures and field works.

IT Operation

Business of DNA (“Digital Network Alerting”) System will be one of the main projects in IT Operation for the coming years. This alerting system helps the security of transactions by credit card payments through SMS (“Short Message System”). Given the widely used of credit card payment on-line and off-line, security is the most important consideration by consumers. Infrastructures have already been set up with most of the telecommunication operators to enhance the networking of this service.

Another major businesses in this operation are WinFCS which provides instant security market information plus other financial information, and Quickionary which is a pen size dictionary. A series of promotional plans are being considered to assist the advanced version of these two products. The management is confident these products will generate a promising return for the Group.

Other investment projects in IT Operation includes a software development in Chinese Star Cyber Technology Holdings Limited (“CSCTHL”) which the Group holds 16% equity interest and a B-B platform for an on-line direct trading and auction on sugar and wine dealings in the PRC. For the investment in Chinese software through CSCTHL, the Group understands some global conglomerates have expressed their interest in this technology and hopefully promising investment return is expected for the coming years.

PURCHASE, REDEEM OR SELL THE COMPANYS LISTED SECURITIES

Neither the Company nor any of its subsidiaries purchased, redeemed or sold any of the Companys listed securities during twelve months ended 30 June 2000.

CODE OF BEST PRACTICE

None of the Directors are aware of any information that would reasonably indicate that the Company is not, or was not for any part of the accounting period covered by results announcement in compliance with the Code of Best Practice as set out in Appendix 14 of the Listing Rules of The Stock Exchange of Hong Kong Limited, except that the non-executive directors of the Company are not appointed for specific terms but are subject to retirement by rotation in Annual General Meeting in accordance with the Company’s Bye-laws.

On behalf of the Board

Wong Kam Fu, Nelson

Chairman

Hong Kong, 30 November 2001

NOTICE OF ANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that the Annual General Meeting of Star Bio-Tech (Holdings) Limited (the “Company”) will be held at The Ritz-Calton Hong Kong, 3 Connaught Road, Central, Hong Kong on Thursday, 17 January 2002, at 10:00 a.m. for the following purposes:-

1. To receive and consider the audited Statements of Accounts and Reports of the Directors and Auditors for the fifteen months ended 30 June 2001.

2. To re-elect Directors and to authorise the Board of Directors to fix their remuneration.

3. To re-appoint Auditors and to authorise the Board of Directors to fix their remuneration.

4. As special business, to consider and, if thought fit, pass the following resolutions as Ordinary Resolutions:-

(A) “THAT:

(a) subject to paragraph (c) below, the exercise by the directors of the Company (“Directors”) during the Relevant Period (as hereinafter defined) of all the powers of the Company to allot, issue and deal with additional shares of the Company (“Shares”) or securities convertible into Shares, or options, warrants or similar rights to subscribe for any Shares, and to make or grant offers, agreements and options which might require the exercise of such power be and is hereby generally and unconditionally approved;

(b) the approval in paragraph (a) above shall be in addition to any other authorisations given to the Directors and shall authorise the Directors during the Relevant Period to make or grant offers, agreements and options which might require the exercise of such powers after the end of the Relevant Period;

(c) the aggregate nominal amount of share capital allotted or agreed conditionally or unconditionally to be allotted (whether pursuant to an option or otherwise) by the Directors pursuant to the approval in paragraph (a) above, otherwise than pursuant to:

(i) a Rights Issue (as hereinafter defined);

(ii) the exercise of rights of subscription or conversion under terms of any warrants issued by the Company or any securities which are convertible into Shares;

(iii) the exercise of any option scheme or similar arrangement for the time being adopted for the grant or issue to officers and/or employees of the Company and/or any of its subsidiaries of Shares or rights to acquire Shares; and

(iv) any scrip dividend or similar arrangement providing for the allotment of shares in lieu of the whole or part of a dividend on the Shares in accordance with the bye-laws of the Company,

shall not exceed 20 per cent. of the share capital of the Company in issue as at the date of this Resolution, and the said approval shall be limited accordingly; and

(d) for the purpose of this Resolution:

“Relevant Period” means the period from the passing of this Resolution until whichever is the earlier of:

(i) the conclusion of the next annual general meeting of the Company;

(ii) the expiration of the period within which the next annual general meeting of the Company is required by law or the bye-laws of the Company to be held; or

(iii) the revocation or variation of the authority given under this Resolution by ordinary resolution of the shareholders of the Company in general meeting.

“Rights Issue” means the allotment, issue or grant of Shares pursuant to an offer of Shares open for a period fixed by the Directors to holders of the Shares or any class thereof on the register on a fixed record date in proportion to their then holdings of such Shares or class thereof (subject to such exclusion or other arrangements as the Directors may deem necessary or expedient in relation to fractional entitlements or having regard to any restrictions or obligations under the laws of, or the requirements of, any recognised regulatory body or stock exchange in any territory outside Hong Kong).”

(B) “THAT:

(a) subject to paragraph (b) below, the exercise by the directors of the Company (“Directors”) during the Relevant Period (as hereinafter defined) of all the powers of the Company to repurchase shares of the Company (“Shares”) on The Stock Exchange of Hong Kong Limited (“Stock Exchange”) or on any other stock exchange on which the Shares may be listed and recognised for this purpose by The Securities and Futures Commission of Hong Kong and the Stock Exchange under The Hong Kong Code on Share Repurchases (“Recognised Stock Exchange”) and, subject to and in accordance with all applicable laws and the Rules Governing the Listing of Securities on the Stock Exchange as amended from time to time or that of any other Recognised Stock Exchange, be and is hereby generally and unconditionally approved;

(b) the aggregate nominal amount of the Shares which may be repurchased pursuant to the approval in paragraph (a) above shall not exceed 10 per cent. of the aggregate of the nominal amount of the share capital of the Company in issue at the date of passing of this Resolution and the said approval shall be limited accordingly; and

(c) for the purpose of this Resolution:

“Relevant Period” means the period from the passing of this Resolution until whichever is the earlier of:

(i) the conclusion of the next annual general meeting of the Company;

(ii) the expiration of the period within which the next annual general meeting of the Company is required by law or the bye-laws of the Company to be held; or

(iii) the revocation or variation of the authority given under this Resolution by ordinary resolution of the shareholders of the Company in general meeting.”

(C) “THAT conditional upon the passing of the Resolutions Nos. 4(A) and 4(B) as set out in the notice of this Meeting, the general mandate granted to the directors of the Company (“Directors”) to exercise the powers of the Company to allot, issue and otherwise deal with shares of the Company pursuant to Resolution No. 4(A) above be and is hereby extended by the addition to the aggregate nominal amount of the share capital of the Company which may be allotted by the Directors pursuant to such general mandate an amount representing the aggregate nominal amount of the share capital of the Company repurchased by the Company under the authority granted pursuant to Resolution No. 4(B) above, provided that such amount shall not exceed 10 per cent. of the aggregate of the nominal amount of the share capital of the Company in issue at the date of passing of this Resolution.”

By order of the Board

Tam Pui Ling, Elaine

Company Secretary

Hong Kong, 30 November 2001

Notes:

I. Any member entitled to attend and vote at the above Meeting is entitled to appoint one or more proxies to attend and, on a poll, vote in his stead. A proxy need not be a member of the Company.

1. To be valid, a form of proxy, together with the power of attorney or other authority (if any) under which it is signed or a notarially certified copy thereof, must be deposited at the Company’s Registrars in Hong Kong, Secretaries Limited, at 5th Floor, Wing On Centre, 111 Connaught Road Central, Hong Kong not less than 48 hours before the time fixed for holding the Meeting.

2. The Register of Members of the Company will be closed from Tuesday 15 January 2002 to Thursday 17 January 2002, both days inclusive, during which period no transfer of shares will be effected. In order to qualify for attending the Annual General Meeting convened by the above notice, all transfers accompanied by the relevant share certificates must be lodged with the Company’s Registrars in Hong Kong, Secretaries Limited, at 5th Floor, Wing on Centre, 111 Connaught Road Central, Hong Kong not later than 4:00 p.m. on Monday 14 January 2002 for registration.

Please also refer to the published version of this announcement in the Hong Kong iMail Post dated 3/12/2001