G-Resources Group Limited - M&A Activity 2002

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in Star Bio-Tech (Holdings) Limited, you should at once hand this document and the accompanying form of acceptance and transfer to the purchaser or the 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 document, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this document.

Win Channel Sheung Hai Investments Limited Developments Limited (Incorporated in the British Virgin Islands (Incorporated in the British Virgin Islands with limited liability) with limited liability)

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STAR BIO-TECH

星光生物科技

STAR BIO-TECH (HOLDINGS) LIMITED

(Incorporated in Bermuda with limited liability)

Mandatory general offer jointly by

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KIM ENG

S E C U R I T I E S Kim Eng Securities (Hong Kong) Limited

on behalf of Win Channel Investments Limited and

Sheung Hai Developments Limited for all the issued Shares of Star Bio-Tech (Holdings) Limited at a price of HK$0.01 per Share (other than those already owned by Win Channel Investments Limited, Sheung Hai Developments Limited and parties acting in concert with any of them)

Joint financial advisers to Win Channel Investments Limited

and Sheung Hai Developments Limited

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KIM ENG C A P I T A L

Kim Eng Capital (Hong Kong) Limited

Independent financial adviser to the Independent Board Committee of

Star Bio-Tech (Holdings) Limited

ALTUS CAPITAL LIMITED

A letter from Kingston Securities Limited and Kim Eng Securities (Hong Kong) Limited containing, among other things, the details of the Offer is set out on pages 13 to 20 of this document.

A letter from Altus Capital Limited containing its opinion and advice to the Independent Board Committee of Star Bio-Tech (Holdings) Limited in respect of the Offer is set out on pages 23 to 34 of this document.

The procedures for acceptance of the Offer are set out in appendix I to this document and in the accompanying form of acceptance and transfer. Acceptance(s) of the Offer must be received by the share registrar of Star Bio-Tech (Holdings) Limited, Secretaries Limited at 5th Floor, Wing On Centre, 111 Connaught Road Central, Hong Kong no later than 4:00 p.m. on Friday, 17th May, 2002 or such later date as Win Channel Investments Limited and Sheung Hai Developments Limited may determine and announce.

26th April, 2002

Star Bio-tech (Holdings) Limited

	Page
Expected timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Letter from Kingston Securities and Kim Eng Securities . . . . . . . . . . . . . . . . . . . . . . . . . .	13
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	21
Letter from Altus Capital Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
Appendix I — Further terms of the Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	35
Appendix II — Financial information of the Group . . . . . . . . . . . . . . . . . . . . . . . . . .	39
Appendix III — General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	87

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Star Bio-tech (Holdings) Limited

EXPECTED TIMETABLE

2002

Commencement of the Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Friday, 26th April

Latest time for acceptance of the Offer . . . . . . . . . . . . . . . . . . . . . 4:00 p.m. on Friday, 17th May

Closing time of the Offer (Note 1) . . . . . . . . . . . . . . . . . . . . . . . . . 7:00 p.m. on Friday, 17th May

Announcement of the results of the Offer

to be published in newspapers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tuesday, 21st May

Latest date for posting of remittances for

the amounts due under the Offer in respect of valid acceptances received on or before the latest time for acceptances (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Monday, 27th May

Notes:

The Offer will remain open for acceptance until 4:00 p.m. on Friday, 17th May, 2002 unless Win Channel and Sheung Hai revise or extend the Offer in accordance with the Code. Acceptances tendered after 4:00 p.m. on Friday, 17th May, 2002 will only be valid if the Offer is revised or extended before 7:00 p.m. on Friday, 17th May, 2002. Win Channel and Sheung Hai have no intention to extend the Offer but reserve the right to do so.
Remittances in respect of Shares tendered under the Offer during the Offer period will be despatched to the relevant Shareholders within 10 days after the receipt by the Registrar of the valid requisite documents from the accepting Shareholders.
Acceptance of the Offer shall be irrevocable and not capable of being withdrawn, except as permitted under the Code.

All time references contained in this document refer to Hong Kong time.

— 1 —

Star Bio-tech (Holdings) Limited

DEFINITIONS

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

“Agreements”	the Share Acquisition Agreement and the Subscription
	Agreement
“Altus”	Altus Capital Limited, an investment adviser and a dealer
	registered under the Securities Ordinance (Chapter 333 of the
	Laws of Hong Kong) and the independent financial adviser to
	the Independent Board Committee
“Announcement”	the joint announcement by the Company, Win Channel and
	Sheung Hai dated 27th February, 2002 relating to, among
	other things, the terms of the Agreements and the Offer
“associate(s)”	has the meaning ascribed to it under the Listing Rules
“Board”	the board of directors of the Company
“Code”	the Hong Kong Code on Takeovers and Mergers
“Company”	Star Bio-Tech (Holdings) Limited, a company incorporated in
	Bermuda with limited liability, the ordinary shares of which
	are listed on the Stock Exchange
“Completion”	completion of the Agreements
“Convertible Notes”	three convertible loan notes due 2004 in an outstanding
	aggregate principal amount of HK$24,150,000 issued by the
	Company on 19th June, 2001 and 16th July, 2001
“Director(s)”	the director(s) of the Company
“Executive”	the Executive Director of the Corporate Finance Division of
	the SFC or any delegate of the Executive Director
“Group”	the Company and its subsidiaries
“Hong Kong”	the Hong Kong Special Administrative Region of the People’s
	Republic of China
“Independent Board Committee”	the independent board committee of the Company comprising
	Ha Ping and Sum Mun Kid, Frederick duly appointed by the
	Board for the purpose of advising the Independent
	Shareholders in respect of the Offer

— 2 —

Star Bio-tech (Holdings) Limited

DEFINITIONS

“Independent Shareholders”	Shareholders other than Win Channel, Sheung Hai, their
	respective associates and parties acting in concert with any of
	them
“Kim Eng Capital”	Kim Eng Capital (Hong Kong) Limited, an investment adviser
	registered under the Securities Ordinance (Chapter 333 of the
	Laws of Hong Kong), an associated company of Kim Eng
	Securities and one of the joint financial advisers to Win
	Channel and Sheung Hai
“Kim Eng Securities”	Kim Eng Securities (Hong Kong) Limited, a dealer registered
	under the Securities Ordinance (Chapter 333 of the Laws of
	Hong Kong)
“Kingston Corporate Finance”	Kingston Corporate Finance Limited, an investment adviser
	registered under the Securities Ordinance (Chapter 333 of the
	Laws of Hong Kong), an associated company of Kingston
	Securities and one of the joint financial advisers to Win
	Channel and Sheung Hai
“Kingston Securities”	Kingston Securities Limited, a dealer registered under the
	Securities Ordinance (Chapter 333 of the Laws of Hong
	Kong)
“Latest Practicable Date”	23rd April, 2002, being the latest practicable date prior to the
	printing of this document for ascertaining certain information
	for inclusion in this document
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange
“Mr. Chim”	Mr. Chim Pui Chung, the ultimate beneficial owner of Win
	Channel
“Mr. Wong”	Mr. Wong Kam Fu, the chairman of the Company and the sole
	director and shareholder of Sheung Hai, a controlling
	shareholder of the Company prior to the Completion
“New Shares”	a total of 4,500,000,000 new Shares issued, of which
	2,500,000,000 Shares issued to Win Channel under the Share
	Acquisition Agreement and 2,000,000,000 Shares issued to
	Sheung Hai under the Subscription Agreement

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Star Bio-tech (Holdings) Limited

DEFINITIONS

“Offer”	the mandatory general offer by Kingston Securities and Kim
	Eng Securities on behalf of Win Channel and Sheung Hai, for
	all the issued Shares not already owned by Win Channel,
	Sheung Hai or parties acting in concert with any of them
“Options”	options to subscribe for Shares granted under the share option
	scheme of the Company adopted on 11th April, 1994 and
	modified on 27th July, 2001
“Registrar”	Secretaries Limited, the Hong Kong share registrar of the
	Company at 5th Floor, Wing On Centre, 111 Connaught Road
	Central, Hong Kong
“Settlement Agreement”	the agreement dated 6th July, 2000 and made between the
	SFC, Mr. Chim and the provisional liquidators of Mandarin
	Resources Corporation Limited in respect of the settlement of
	the Hong Kong High Court Companies Winding Up
	Proceedings No.348 of 1996
“SFC”	Securities and Futures Commission in Hong Kong
“Share Acquisition Agreement”	a conditional agreement entered into between Win Channel,
	the Company and Mr. Wong on 6th February, 2002 in
	connection with the subscription by Win Channel of
	2,500,000,000 New Shares and the transfer to Win Channel of
	the Transfer Shares
“Share(s)”	ordinary share(s) of HK$0.01 each in the share capital of the
	Company
“Shareholder(s)”	holder(s) of Share(s)
“Sheung Hai”	Sheung Hai Developments Limited, a company incorporated
	in the British Virgin Islands with limited liability which is
	wholly and beneficially owned by Mr. Wong, and is a party
	acting in concert with Win Channel
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Subscriptions”	the subscriptions of New Shares by Win Channel and Sheung
	Hai
“Subscription Agreement”	a conditional agreement entered into between Sheung Hai and
	the Company on 6th February, 2002 in connection with the
	subscription by Sheung Hai of 2,000,000,000 New Shares

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Star Bio-tech (Holdings) Limited

	DEFINITIONS
“Transfer Shares”	a total of 88,187,919 Shares	beneficially owned by Sheung
	Hai and transferred to Win	Channel pursuant to the Share
	Acquisition Agreement
“Win Channel”	Win Channel Investments Limited, a company incorporated in
	the British Virgin Islands	with limited liability which,
	together with its beneficial	owner, Mr. Chim, are parties
	acting in concert with Sheung Hai
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“%”	per cent.

— 5 —

Star Bio-tech (Holdings) Limited

LETTER FROM THE BOARD

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STAR BIO-TECH (HOLDINGS) LIMITED

(Incorporated in Bermuda with limited liability)

Executive Directors: Wong Kam Fu (Chairman) Chan Kwong On, Daniel Wong Kam Wing Wang Zhao Bin Zhao Hua Lew Mon Hung

Independent non-executive Directors: Ha Ping Sum Mun Kid, Frederick

Registered office: Cedar House 41 Cedar Avenue Hamilton HM 12 Bermuda

Principal place of business: 11/F., Tai Sang Bank Building 130-132 Des Voeux Road Central Hong Kong

26th April, 2002

To the Independent Shareholders

Dear Sir or Madam,

MANADATORY GENERAL OFFER BY KINGSTON SECURITIES AND KIM ENG SECURITIES ON BEHALF OF WIN CHANNEL AND SHEUNG HAI FOR ALL THE ISSUED SHARES AT A PRICE OF HK$0.01 PER SHARE (OTHER THAN THOSE ALREADY OWNED BY WIN CHANNEL, SHEUNG HAI OR PARTIES ACTING IN CONCERT WITH ANY OF THEM)

INTRODUCTION

On 6th February, 2002:

Win Channel, the Company and Mr. Wong entered into the Share Acquisition Agreement pursuant to which (a) Win Channel has conditionally agreed to subscribe for 2,500,000,000 New Shares for a total cash consideration of HK$25 million, equivalent to HK$0.01 per Share, and (b) Mr. Wong has conditionally agreed to procure a transfer to Win Channel of the Transfer Shares beneficially owned by Sheung Hai, a company wholly and beneficially owned by Mr. Wong, for a total cash consideration of HK$1.00; and

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Star Bio-tech (Holdings) Limited

LETTER FROM THE BOARD

Sheung Hai and the Company entered into the Subscription Agreement pursuant to which Sheung Hai has conditionally agreed to subscribe for 2,000,000,000 New Shares for a total cash consideration of HK$20 million, equivalent to HK$0.01 per Share.

Completion of each of the Agreements took place on 23rd April, 2002.

Immediately upon Completion, Win Channel, Sheung Hai and parties acting in concert with them together became interested in a total of 4,676,375,839 Shares, representing about 93.72% of the issued share capital of the Company as enlarged by the New Shares. Under Rule 26 of the Code, Kingston Securities and Kim Eng Securities, on behalf of Win Channel and Sheung Hai, are making a mandatory general offer for all the issued Shares not already owned by Win Channel, Sheung Hai or parties acting in concert with any of them.

Mr. Wong is an executive Director and the beneficially owner of Sheung Hai. Mr. Chan Kwong On, Daniel, Mr. Wong Kam Wing, Mr. Wang Zhao Bin, Mr. Zhao Hua and Mr. Lew Mon Hung are executive Directors and are salaried employees of the Company. Accordingly, all the executive Directors are not considered to be independent in relation to the Offer. An independent board committee comprising Ms. Ha Ping and Mr. Sum Mun Kid, Frederick, the independent non-executive Directors, has been appointed to advise the Independent Shareholders as to whether the terms of the Offer are fair and reasonable so far as the Independent Shareholders are concerned. Altus has been appointed to advise the Independent Board Committee in relation to the Offer.

The purpose of this document is to provide you with, among other things, information relating to the Company and further details of the Offer. The principal terms of the Offer are set out in the letter from Kingston Securities and Kim Eng Securities on pages 13 to 20 of this document and further terms of the Offer and other information required by the Code are set out in the appendices to this document and in the accompanying form of acceptance and transfer. The letter from Altus containing its advice to the Independent Board Committee on the Offer is set out on pages 23 to 34 of this document.

THE OFFER

Under Rule 26 of the Code, Kingston Securities and Kim Eng Securities, on behalf of Win Channel and Sheung Hai, are making the Offer, on the terms set out in this document and the accompanying form of acceptance and transfer, for all the issued Shares not already owned by Win Channel, Sheung Hai or parties acting in concert with any of them on the following basis:

For each Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . HK$0.01 in cash

The price of HK$0.01 per Share under the Offer is the same as that payable by Win Channel for each New Share under the Share Acquisition Agreement and that payable by Sheung Hai for each New Share under the Subscription Agreement.

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Star Bio-tech (Holdings) Limited

LETTER FROM THE BOARD

As at the Latest Practicable Date, the Convertible Notes remain outstanding. All the holders of the Convertible Notes are independent third parties. The Convertible Notes of amount of HK$3,550,000 are convertible into Shares at an initial conversion price that represents a 20% discount to the average of the closing prices of one Share on the Stock Exchange for each of the last ten Stock Exchange trading days on which dealings in the Shares took place ending on the last such dealing day preceding the conversion date. While the remaining amount of Convertible Notes of HK$20.6 million are convertible into Shares at an adjusted initial conversion price (per Share) of the lower of:

(i) 80% of the average closing prices of one Share on the Stock Exchange for each of the last ten Stock Exchange trading days on which dealings in the Shares took or may have taken place ending on the last of such trading day immediately preceding the conversion date; or
(ii) HK$0.40.

Assuming the conversion price of the Convertible Notes is calculated at HK$0.153, being 80% of the average closing prices per Share for the ten trading days up to and including the Latest Practicable Date, about 157,843,137 Shares will be issued upon full conversion of the Convertible Notes, representing about 3.16% of the total issued share capital of the Company as enlarged by the New Shares.

The holder of the Convertible Notes amounted to HK$10,350,000 has undertaken to Win Channel and Sheung Hai that it will not convert any part of the Convertible Notes into Shares during the period from 22nd February, 2002 up to and including the final closing date of the Offer and that it will not accept any offer that Win Channel and Sheung Hai may make for the Convertible Notes held by them while the Offer remains open for acceptance and it has confirmed that Win Channel and Sheung Hai do not have to extend the Offer or make any comparable offer arising out of or in relation to the Offer to it for the Convertible Notes. The holder of the Convertible Notes amounted to HK$13,800,000 has undertaken not to accept the Offer for any Shares converted under the Convertible Notes held by it or make any transfer of Shares converted under the Convertible Notes and not to accept any offer that Win Channel and Sheung Hai may make for the Convertible Notes while the Offer remains open for acceptance, and it has confirmed that Win Channel and Sheung Hai do not have to extend the Offer or make any comparable offer arising out of or in relation to the Offer to them for the Convertible Notes and/or any Shares converted under the Convertible Notes on or after 22nd February, 2002. As at the Latest Practicable Date, none of the Convertible Notes has been converted.

The Company had also granted Options under its share option scheme to 5 Directors and 12 staff of the Company. As at the Latest Practicable Date, 23,850,000 Shares, representing 0.48% of the issued share capital of the Company, fall to be issued upon exercise in full of all outstanding Options. Holders of all outstanding Options have undertaken to Win Channel and Sheung Hai that they will not exercise any part of the Options into Shares during the period from 22nd February, 2002 up to and including the final closing date of the Offer or accept any offer that Win Channel and Sheung Hai may make for the Options held by them while the Offer remains open for acceptance. All the holders of

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Star Bio-tech (Holdings) Limited

LETTER FROM THE BOARD

the Options have confirmed that Win Channel and Sheung Hai do not have to extend the Offer or make any comparable offer arising out of or in relation to the Offer to them for the Options. Details of the Options are as follows:

		Number of
	Exercise price	outstanding
Exercise period	per Share	Share Options
21st February, 2001 to 20th February, 2003	HK$1.5368	4,275,000
22nd February, 2001 to 21st February, 2003	HK$1.5368	1,050,000
25th February, 2001 to 24th February, 2003	HK$1.5368	200,000
5th March, 2001 to 4th March, 2003	HK$1.5368	125,000
6th March, 2001 to 5th March, 2003	HK$1.5368	450,000
30th April, 2001 to 29th April, 2003	HK$0.652	2,450,000
1st May, 2001 to 30th April, 2003	HK$0.652	250,000
6th May, 2001 to 5th May, 2003	HK$0.652	250,000
7th May, 2001 to 6th May, 2003	HK$0.652	250,000
7th May, 2001 to 6th May, 2003	HK$0.672	3,200,000
9th May, 2001 to 8th May, 2003	HK$0.652	150,000
11th May, 2001 to 10th May, 2003	HK$0.652	250,000
27th May, 2001 to 26th May, 2003	HK$0.652	75,000
2nd August, 2001 to 1st August, 2004	HK$0.4	3,275,000
1st September, 2001 to 31st August, 2004	HK$0.4	100,000
18th November, 2001 to 17th November, 2003	HK$0.4	7,500,000
		23,850,000

INFORMATION ABOUT THE GROUP

Business

The Group is principally engaged in the provision of credit cards security services, trading of electronic products such as electronic dictionaries, provision of financial information through pagers, internet and mobile phones and investments in high-tech and bio-technology related businesses.

The Company’s credit card security system (“DNA Security System”) is a specially designed alert system for credit card transaction on and off line. Information of credit card payment transactions such as payment amounts will be sent to cardholders who are using the DNA Security System through mobile communication network operators in alert messages, which will alert the cardholder of unauthorised uses or credit card frauds. The DNA Security System was launched in September 2001.

The technology for the DNA Security System has been patented in the United States, the United Kingdom, the PRC, Hong Kong, France, Japan and Germany. Mr. Wong currently holds these patents. Since the DNA Security System requires further development before it can be launched on a large scale, Mr. Wong allows the Company to use the existing technology for the DNA Security System without any charges. However, the Company intends to discuss with Mr. Wong in respect of the terms for the use of the patents when the DNA Security System generates both steady revenue and income.

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Star Bio-tech (Holdings) Limited

LETTER FROM THE BOARD

Save that the DNA Security System is currently being used by Dah Sing Bank in Hong Kong, which incorporates the DNA Security System into their credit cards as part of the services rendered to credit card holders, the DNA Security System has yet to be adopted by any other customer in any other country. The Company is under negotiation with other banks in Hong Kong and the PRC for the use of the DNA Security System. The income generated by the DNA Security System may be based on the number of transactions and/or on a fixed monthly fee basis. As further development is required for the DNA Security System before it can be launched on a large scale, minimal revenue and no profit have been generated from the operation of the DNA Security System.

The Company recognises that plastic money will be widely used and acceptable through various transactions regularly. The Company further reckons that it is a very good opportunity in both local and the PRC market. Therefore, it is the intention of the Company to further develop and put its business focus on the credit card security services. As such, about HK$25 million of the proceeds from the Subscriptions will be used for further development of the DNA Security System which include technology enhancement, research and development, marketing and promotion and for related expenses.

Reasons for the Subscriptions and use of proceeds

As stated in the circular of the Company dated 26th March, 2002, the Company is currently experiencing a tight liquidity situation. The Board expects that injection of capital by Win Channel and Sheung Hai pursuant to the Agreements will assist the Group in improving its cash flow position and provide working capital for its daily operations. In addition, it will also assist the Group in reducing the level of its indebtedness and repay overdue bank borrowings. About HK$44 million of the net proceeds from the Subscriptions will be used as to about HK$5 million for developing existing businesses of the Group, about HK$25 million for developing its credit card security services, and as to about HK$14 million for general working capital purposes, including repaying outstanding debts and payables.

The Board is of the view that the issue of New Shares pursuant to the Agreements is an expedient and practicable method for the Group to raise funds to further develop its business particularly in the credit card security services. The Board had considered other fund raising alternatives such as bank borrowings or a rights issue of Shares. However, the Board considers that raising funds by means of bank borrowings or issuance of debt securities will further increase the level of the Group’s indebtedness.

The Board had approached four institutions in respect of rights issue of Shares between December 2001 and January 2002. Even before the pricing of a rights issue was discussed, these institutions indicated they had no interest in underwriting or participating in a rights issue for the Company. The Board therefore concluded that the level of participation in any proposed rights issue exercises of the Company would be uncertain in view of the declining trend of the market price of the Shares prior to the Company’s entry into the Agreements.

Mr. Wong has indicated that given his financial resources, it would not be feasible for him to underwrite a rights issue of HK$45 million. Mr. Chim was not a shareholder of the Company and since the outset of the discussions with the Company, Mr. Chim’s role had always been that of a passive investor in the Company and not an underwriter.

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Star Bio-tech (Holdings) Limited

LETTER FROM THE BOARD

The subscription price of the New Shares at HK$0.01 was determined after arm’s length negotiation between the Company, Win Channel and Sheung Hai, based on (i) the low liquidity of the Shares; (ii) the difficulty encountered by the Company in procuring subscribers to subscribe bulk volume of Shares; and (iii) the Company’s funding needs for its operations as described above.

MAINTAINING THE LISTING OF THE SHARES

It is the intention of Win Channel and Sheung Hai that the listing of the Shares on the Stock Exchange be maintained after the close of the Offer. Rule 8.08 of the Listing Rules requires that at least 25% of the issued Shares from time to time are held by the public and that failure to do so may result in the Stock Exchange suspending trading in the Shares.

As a result of Completion, Win Channel, Sheung Hai, their respective associates and parties acting in concert with them are collectively interested in about 93.72% of the issued share capital of the Company. Their shareholding interests may further increase during the period of the Offer as a result of valid acceptances received under the Offer. In view of the fact that the shareholding of the public is reduced to approximately 6.28% as a result of Completion, the Company has applied for and the Stock Exchange has granted the Company a waiver from compliance with the requirements of Rule 8.08 of the Listing Rules during the Offer period on the basis that suspension of trading of Shares during the Offer period will prejudice the interest of those independent Shareholders who choose to dispose of their Shares in the market during such period.

Investors should note that trading of Shares may be suspended immediately following the close of the Offer until the public float of the Shares is restored pursuant to Rule 8.08 of the Listing Rules.

The Stock Exchange has stated that if the Stock Exchange believes that a false market exists or may exist in the trading of the Shares or that there are insufficient Shares in public hands to maintain an orderly market, it will consider exercising its discretion to suspend dealings in the Shares.

The Stock Exchange has also stated that, if the Company remains a listed company on the Stock Exchange, any further acquisitions or disposals of assets by the Company and its subsidiaries will be subject to the provisions of the Listing Rules. Pursuant to the Listing Rules, the Stock Exchange has the discretion to require the Company to issue a circular to the Shareholders irrespective of the size of the proposed transactions, particularly when such proposed transaction represents a departure from the principal activities of the Company. The Stock Exchange also has the power to aggregate a series of transactions and any such transaction may result in the Company being treated as a new applicant for listing and subject to the requirements for new applicants as set out in the Listing Rules.

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Star Bio-tech (Holdings) Limited

LETTER FROM THE BOARD

PROCEDURES FOR ACCEPTANCE OF THE OFFER

To accept the Offer, you should complete the accompanying form of acceptance and transfer in accordance with the instructions printed thereon. The completed form of acceptance and transfer should then be forwarded, together with the share certificate(s) and/or transfer receipt(s) and/or any other document(s) of title for the whole of your holding of Shares, or for not less than the number of Shares in respect of which you accept the Offer, by post or by hand, to the Registrar in an envelope marked “Star Bio-Tech Offer” as soon as possible but in any event so as to arrive by not later than 4:00 p.m. on Friday, 17th May, 2002. No acknowledgement of receipt of any form of acceptance and transfer, share certificate(s), transfer receipt(s) or other document(s) of title will be given. Your attention is drawn to the further terms regarding the procedures for acceptance of the Offer which set out in appendix I to this document.

FURTHER INFORMATION IN RELATION TO THE OFFER

Your attention is drawn to the letter from Kingston Securities and Kim Eng Securities, as set out in this document, which contains details of the Offer, information on Win Channel and Sheung Hai and the intentions of them regarding the future businesses of the Group.

Your attention is drawn to the letter from the Independent Board Committee which contains its recommendation to the Independent Shareholders in relation to the Offer, as set out in this document.

Your attention is also drawn to the letter of advice from Altus, as set out in this document, which contains its advice and recommendation to the Independent Board Committee in relation to the Offer, and to the additional information as set out in the appendices to this document.

Yours faithfully, For and on behalf of the board of Star Bio-Tech (Holdings) Limited Wong Kam Fu

Chairman

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Star Bio-tech (Holdings) Limited

LETTER FROM KINGSTON SECURITIES AND KIM ENG SECURITIES

28/F, One International Finance Centre 1 Harbour View Street, Central, Hong Kong

Kim Eng Securities (Hong Kong) Limited 8/F, Alexandra House 16-20 Chater Road, Central, Hong Kong

To the Independent Shareholders

Dear Sir/Madam,

MANDATORY GENERAL OFFER

INTRODUCTION

On 6th February, 2002:

Win Channel, the Company and Mr. Wong entered into the Share Acquisition Agreement pursuant to which (a) Win Channel has conditionally agreed to subscribe for 2,500,000,000 New Shares for a total cash consideration of HK$25 million, equivalent to HK$0.01 per Share, and (b) Mr. Wong has conditionally agreed to procure a transfer to Win Channel of the Transfer Shares beneficially owned by Sheung Hai, a company wholly and beneficially owned by Mr. Wong, for a total cash consideration of HK$1.00; and
Sheung Hai and the Company entered into the Subscription Agreement pursuant to which Sheung Hai has conditionally agreed to subscribe for 2,000,000,000 New Shares for a total cash consideration of HK$20 million, equivalent to HK$0.01 per Share.

Completion of each of the Agreements took place on 23rd April, 2002.

THE OFFER

For each Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . HK$0.01 in cash

— 13 —

Star Bio-tech (Holdings) Limited

LETTER FROM KINGSTON SECURITIES AND KIM ENG SECURITIES

(i) 80% of the average closing prices of one Share on the Stock Exchange for each of the last ten Stock Exchange trading days on which dealings in the Shares took or may have taken place ending on the last of such trading day immediately preceding the conversion date; or
(ii) HK$0.40.

The Company had also granted Options under its share option scheme. As at the date of this announcement, 23,850,000 Shares, representing 0.48% of the issued share capital of the Company, fall to be issued upon exercise in full of all outstanding Options. Holders of all outstanding Options have undertaken to Win Channel and Sheung Hai that they will not exercise any part of the Options into Shares during the period from 22nd February, 2002 up to and including the final closing date of the Offer or accept any offer that Win Channel and Sheung Hai may make for the Options held by them

— 14 —

Star Bio-tech (Holdings) Limited

LETTER FROM KINGSTON SECURITIES AND KIM ENG SECURITIES

while the Offer remains open for acceptance. All the holders of the Options have confirmed that Win Channel and Sheung Hai do not have to extend the Offer or make any comparable offer arising out of or in relation to the Offer to them for the Options. Details of the Options are as follows:

		Number of
	Exercise price	outstanding
Exercise period	per Share	Share Options
21st February, 2001 to 20th February, 2003	HK$1.5368	4,275,000
22nd February, 2001 to 21st February, 2003	HK$1.5368	1,050,000
25th February, 2001 to 24th February, 2003	HK$1.5368	200,000
5th March, 2001 to 4th March, 2003	HK$1.5368	125,000
6th March, 2001 to 5th March, 2003	HK$1.5368	450,000
30th April, 2001 to 29th April, 2003	HK$0.652	2,450,000
1st May, 2001 to 30th April, 2003	HK$0.652	250,000
6th May, 2001 to 5th May, 2003	HK$0.652	250,000
7th May, 2001 to 6th May, 2003	HK$0.652	250,000
7th May, 2001 to 6th May, 2003	HK$0.672	3,200,000
9th May, 2001 to 8th May, 2003	HK$0.652	150,000
11th May, 2001 to 10th May, 2003	HK$0.652	250,000
27th May, 2001 to 26th May, 2003	HK$0.652	75,000
2nd August, 2001 to 1st August, 2004	HK$0.4	3,275,000
1st September, 2001 to 31st August, 2004	HK$0.4	100,000
18th November, 2001 to 17th November, 2003	HK$0.4	7,500,000
		23,850,000

Effect of accepting the Offer

By accepting the Offer, the Independent Shareholders will sell their Shares and all rights attached to them to Win Channel and Sheung Hai, including their rights to receive all dividends and distributions declared, made or paid on or after the date of the Agreements.

Stamp duty

Stamp duty at the rate of HK$1.00 for every HK$1,000 or part thereof on the amount payable in respect of the acceptance of the Offer will be deducted for the amount payable to the Shareholders who accept the Offer. Win Channel and Sheung Hai will pay the stamp duty on behalf of such Shareholders in respect of the relevant acceptance under the Stamp Duty Ordinance (Chapter 117 of the Laws of Hong Kong).

— 15 —

Star Bio-tech (Holdings) Limited

LETTER FROM KINGSTON SECURITIES AND KIM ENG SECURITIES

Financial resources

As at the Latest Practicable Date, the Company has 4,989,615,679 Shares in issue in which Sheung Hai and parties acting in concert with it are interested in 2,088,187,919 Shares and Win Channel and parties acting in concert with it are interested in 2,588,187,919 Shares. Based on an Offer price of HK$0.01 per Share, the total consideration payable by Win Channel and Sheung Hai upon full acceptance of the Offer will be HK$3,132,398.4.

The cost of funding the Offer and the Shares accepted under the Offer will be borne by and shared between Win Channel and Sheung Hai in the ratio of about 5.5 to 4.5 respectively. Win Channel and Sheung Hai have arranged a loan facility with Kingston Securities to fund the Offer. Kingston Corporate Finance and Kim Eng Capital are satisfied that both Win Channel and Sheung Hai have sufficient financial resources to satisfy full acceptance of the Offer.

Dealings and holdings in the Shares

Save for the subscription of the Shares pursuant to the Agreements, Win Channel, Sheung Hai and parties acting in concert with any of them have confirmed that they have not dealt in any Shares in the six months prior to the date of the Agreements and in the period from the date of the Agreements to the Latest Practicable Date.

INFORMATION ON WIN CHANNEL AND SHEUNG HAI

Win Channel is a company incorporated in the British Virgin Islands, having its registered office at Sea Meadow House, Blackburne Highway, Road Town, Tortola, British Virgin Islands, and is beneficially wholly-owned by Mr. Chim. Mr. Chim, aged 56, has been engaged in financial and securities industry for over 30 years. He is a member of the Chinese People’s Political Consultative Conference of Shantou ( ). Pursuant to the Settlement Agreement, Mr. Chim has undertaken to the SFC that he will not act or purport to act as a director or otherwise take part or purport to take part in the management of any company listed on the Stock Exchange in Hong Kong for three years from 7th July, 2000.

Sheung Hai is a company incorporated in the British Virgin Islands, having its registered office at P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands, and is beneficially wholly-owned by Mr. Wong. Mr. Wong is currently the chairman and managing director of the Company. Mr. Wong has extensive experience and connections in the electronic industry. He achieved numerous awards including the “Hong Kong Young Industrialist Awards 1990” and the 3rd and 4th “World Genius Convention” in 1989 and 1990 respectively and his inventions won extensive public recognition. From January 1996 to June 1999, he was the chairman of Hong Kong Radio Paging Association. Due to his distinguished achievements in the paging industry and his contributions to Chinese affairs, he was appointed as member for the First Election Committee for Hong Kong Special Administrative Region. Mr. Wong has been engaged in the telecommunications and internet related business for over 20 years.

— 16 —

Star Bio-tech (Holdings) Limited

LETTER FROM KINGSTON SECURITIES AND KIM ENG SECURITIES

INTENTIONS OF WIN CHANNEL AND SHEUNG HAI

Win Channel and Sheung Hai have long been looking for investment opportunities with great potential and was impressed by the credit card security services provided by the Company. Win Channel and Shanghai Hai have understood from the Company that patents for the technology for the DNA Security System have been obtained in the United States, the United Kingdom, the PRC, Hong Kong, France, Japan and Germany, and the Company is regarded as one of the pioneers in developing the kind of the technology for the DNA Security System in the world. Win Channel and Sheung Hai are of the view that to be the first few to develop such technology will be advantageous to the Group in the world where plastic money is being widely used and acceptable, and reckon that there is a good opportunity in both local and the PRC market.

Based on the study performed by the Company and understanding the growth potential of the DNA Security System, Win Channel and Sheung Hai have taken a positive view on the long term market potential of the Company’s credit card security services even though further development is required for the DNA Security System before it can be launched on a large scale and minimal revenue and no profit have generated from the operation of the DNA Security System so far. The proceeds from the Subscriptions are expected to provide the Group with funds to expand and improve its existing operations as well as the development of its credit card security services in order to capture the business opportunities arising thereto. Both Win Channel and Sheung Hai believe that the Company’s credit cards security services will be further enhanced in terms of technology, marketability and eventually profitability with this new capital injection.

It is the intention of Win Channel and Sheung Hai that the existing principal activities of the Group will remain unchanged, and Win Channel and Sheung Hai have no intention of injecting any assets or businesses (including redeployment of fixed assets in the ordinary course of business) into the Group or disposing of any major assets of it. Win Channel and Sheung Hai intend to hold its interest in the Company as a long-term investment.

DIRECTORS, MANAGEMENT AND EMPLOYEES OF THE COMPANY

At present, the Board comprises Mr. Wong, Mr. Chan Kwong On, Daniel, Mr. Wong Kam Wing, Mr. Wang Zhao Bin, Ms. Zhao Hua, Mr. Lew Mon Hung, Ms. Ha Ping and Mr. Sum Mun Kid, Frederick. There will not be any changes to the composition of the Board as a result of Completion or the transactions contemplated in the Agreements.

Pursuant to the Settlement Agreement, Mr. Chim has undertaken to the SFC that he will not act or purport to act as a director or otherwise take part or purport to take part in the management of any company listed on the Stock Exchange in Hong Kong for three years from 7th July, 2000. Mr. Chim has also undertaken that he will not act as or purport to act as a director of the Company or otherwise take part or purport to take part in the management of the Company pursuant to the undertaking in the Settlement Agreement with the SFC or appoint any director to the Board at least up to 7th July, 2003.

Mr. Chim will be a passive investor in the Company in the future. As Mr. Chim has no management power over the Company, by being the largest shareholder of the Company, he can protect his interest in the investment in the Company through exercising his voting rights at shareholders’ general meeting of the Company. Thus, the intended shareholding structure of the Company after Completion and meeting the minimum public float requirements under Rule 8.08 of the Listing Rules will allow Mr. Chim to achieve this purpose by holding about 41.25% of the enlarged share capital of the Company.

— 17 —

Star Bio-tech (Holdings) Limited

LETTER FROM KINGSTON SECURITIES AND KIM ENG SECURITIES

Mr. Wong and Mr. Chim are parties acting in concert. Mr. Chim will be the leader of the group acting in concert after Completion of the Agreements. However, Mr. Chim is a passive investor. Mr. Wong will not report to Mr. Chim as there is no management reporting relationship between Mr. Wong and Mr. Chim. Mr. Chim will have no management power and he can only exercise his control over the Company through his voting rights at shareholders general meetings. Mr. Chim and Mr. Wong have confirmed that there is no shareholders’ agreement, agreement, arrangement or understanding on how the Company should be managed between Mr. Chim and Mr. Wong or other directors of the Company.

Save as disclosed above, it is the intention of Win Channel and Sheung Hai that there will be no material change in the continued employment of the management and employees of the Group or to terms or conditions of employment of the management and employees of the Group by reason only of the Offer.

MAINTAINING THE LISTING OF THE SHARES

In view of the fact that the shareholding of the public is reduced to approximately 6.28% as a result of Completion, the Company has applied for and the Stock Exchange has granted the Company a waiver from compliance with the requirements of Rule 8.08 of the Listing Rules during the Offer period on the basis that suspension of trading of Shares during the Offer period will prejudice the interest of those independent Shareholders who choose to dispose of their Shares in the market during such period.

Investors should note that trading of Shares may be suspended immediately following the close of the Offer until the public float of the Shares is restored pursuant to Rule 8.08 of the Listing Rules.

— 18 —

Star Bio-tech (Holdings) Limited

LETTER FROM KINGSTON SECURITIES AND KIM ENG SECURITIES

proposed transaction represents a departure from the principal activities of the Company. The Stock Exchange also has the power to aggregate a series of transactions and any such transaction may result in the Company being treated as a new applicant for listing and subject to the requirements for new applicants as set out in the Listing Rules.

PROCEDURES FOR ACCEPTANCE OF THE OFFER

SETTLEMENT

Provided that your form(s) of acceptance and transfer, share certificate(s) and/or transfer receipt(s) and/or any other document(s) of title (and/or any satisfactory indemnity or indemnities required in respect thereof) are received by the Registrar in an envelope marked “Star Bio-Tech Offer” not later than 4:00 p.m. on Friday, 17th May, 2002 and are in order, the remittance relating to the Shares that you are entitled to under the Offer will be posted in accordance with the authority contained in the form(s) of acceptance and transfer within 10 days of the date on which all the relevant documents are received by the Registrar to render such acceptance complete and valid. If the Offer is extended, remittances in respect of form(s) of acceptance and transfer received subsequently will be posted within 10 days after the date of receipt of a valid form(s) of acceptance and transfer, relevant share certificate(s) and/or transfer receipt(s) and/or document(s) of title (and/or any satisfactory indemnity or indemnities required in respect thereof).

GENERAL

All documents and remittances sent by or to Shareholders through the post will be sent by or to them at their own risk.

The making of the Offer to persons with a registered address in jurisdictions outside Hong Kong may be affected by the laws of the relevant jurisdictions. Shareholders who are citizens or residents or national of jurisdictions outside Hong Kong should inform themselves about and observe any applicable legal requirements. It is the responsibility of any such person who wishes to accept the Offer to satisfy himself as to the full observance of the laws of the relevant jurisdiction in connection therewith, including the obtaining of any governmental or other consent which may be required or the compliance with other necessary formalities and the payment of any transfer or other taxes due in respect of such jurisdiction.

— 19 —

Star Bio-tech (Holdings) Limited

LETTER FROM KINGSTON SECURITIES AND KIM ENG SECURITIES

Shareholders are recommended to consult their own professional advisers if they are in any doubt as to the taxation implications of their accepting the Offer. It is emphasised that none of Win Channel and Sheung Hai, Kingston Securities, Kim Eng Securities, the Company or any of their respective directors or any other person involved in the Offer accepts responsibility for any tax effects on, or liabilities of, any person or persons as a result of their acceptance of the Offer.

Independent Shareholders are strongly advised to refer to the recommendation of the Independent Board Committee and the recommendation of Altus, its independent financial adviser, before deciding whether or not to accept the Offer.

ADDITIONAL INFORMATION

Your attention is drawn to the additional information set out in the appendices which form parts of this document.

Yours faithfully, Yours faithfully, For and on behalf of For and on behalf of Kingston Securities Limited Kim Eng Securities (Hong Kong) Limited Nicholas Chu Fok Kwong Hang, Terry Director Managing Director

— 20 —

Star Bio-tech (Holdings) Limited

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [116 x 36] intentionally omitted <==

STAR BIO-TECH (HOLDINGS) LIMITED

(Incorporated in Bermuda with limited liability)

26th April, 2002

To the Independent Shareholders

Dear Sir or Madam,

MANDATORY GENERAL OFFER BY KINGSTON SECURITIES AND KIM ENG SECURITIES ON BEHALF OF WIN CHANNEL AND SHEUNG HAI FOR ALL THE ISSUED SHARES (OTHER THAN THOSE ALREADY OWNED BY WIN CHANNEL, SHEUNG HAI OR PARTIES ACTING IN CONCERT WITH THEM)

INTRODUCTION

We refer to the document dated 26th April, 2002 issued jointly by Win Channel, Sheung Hai and the Company (the “Document”), of which this letter forms part. Terms defined in the Document shall bear the same meanings when used herein unless otherwise defined.

We have been appointed to constitute the Independent Board Committee to advise you as to whether, in our opinion, the terms of the Offer, are fair and reasonable so far as the Independent Shareholders are concerned. Altus has been appointed as the independent financial adviser to advise the Independent Board Committee in respect of the terms of the Offer. Details of its recommendations and the principal factors taken into consideration in arriving at its recommendations are set out in the letter from Altus on pages 23 to 34 of the Document.

Your attention is drawn to: (i) the letter from the Board; (ii) the letter from Kingston Securities and Kim Eng Securities set out in the Document containing, among other things, the terms of the Offer; (iii) the letter of advice from Altus; and (iv) the additional information set out in the appendices to the Document.

RECOMMENDATIONS

The Offer Price represents a premium of 100% to the adjusted net tangible asset value per Share of about HK$0.005 immediately following the Subscriptions. The Group’s operation has continued to sustain losses and its gearing ratio remains high after the Completion. Thus, based on the Group’s financial position alone, the offer price of HK$0.01 per Share (“Offer Price”) fully reflects the value of the Shares.

Star Bio-tech (Holdings) Limited

— 21 —

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Reference is made to the circular of the Company dated 26th March, 2002, where as stated in the “Letter from Altus Capital Limited”, having considered, inter alias, the principle factors, including (a) the material dilution effect on the shareholdings of the Independent Shareholders pursuant to the Agreements; and (b) given the sustained operating losses of its principal business activities, the proceeds from the issurance of New Shares were crucial in enabling the Group to meet its financial obligations and working capital requirements, we were of the view that the terms of the Agreements were fair and reasonable.

Notwithstanding the above, having considered that the closing prices of the Shares have been consistently and significantly higher than the Offer Price both before and after the Announcement and that the Offer Price represents a discount of approximately 94.2% to the closing market price as at the Latest Practicable Date, we are of the opinion that the terms of the Offer is not fair and not reasonable so far as the Independent Shareholders are concerned as it is likely that Independent Shareholders who wish to realise their investments in the Company could sell their shareholdings in the open market at more favourable prices. We therefore recommend the Independent Shareholders not to accept the Offer and recommend them to sell their shares in the open market should they wish to exit their investment in the Company.

Independent Shareholders who wish to realise their investment in the Shares should closely monitor the price performance of the Shares in the stock market during the period of the Offer. Independent Shareholders should note that the consequential placing down or issue of securities of the Company to fulfil the public float requirements of the Stock Exchange may have negative impact on the market price of Shares.

Yours faithfully, Ha Ping Sum Mun Kid, Frederick Independent Board Committee

— 22 —

Star Bio-tech (Holdings) Limited

LETTER FROM ALTUS CAPITAL LIMITED

The following is the text of the letter of advice to the Independent Board Committee from Altus dated 26th April, 2002 prepared for incorporation in this Document.

ALTUS CAPITAL LIMITED

8/F Hong Kong Diamond Exchange Building 8 Duddell Street, Central Hong Kong

Tel : (852) 2522 6122 Fax: (852) 2522 6992

26th April, 2002

The Independent Board Committee Star Bio-Tech (Holdings) Limited 11th Floor, Tai Sang Bank Building 130-132 Des Voeux Road Central Hong Kong

Dear Sirs,

MANDATORY GENERAL OFFER

INTRODUCTION

We refer to the document to the Shareholders dated 26th April, 2002 (the “Document”) issued by the Company of which this letter forms part and to our appointment as independent financial adviser to the Independent Board Committee in respect of the Offer, the details of which are set out in the “Letter from the Board” contained in this Document. Capitalised terms used in this letter shall have the same meanings ascribed to them in the Document unless the context otherwise requires.

On 27th February, 2002, Win Channel, Sheung Hai and the Company jointly announced that, inter alia, Win Channel, the Company and Mr. Wong entered into the conditional Share Acquisition Agreement and that Sheung Hai and the Company entered into the conditional Subscription Agreement. The Completion took place on 23rd April, 2002.

Pursuant to the Completion, Win Channel and Sheung Hai and parties acting in concert with them are together interested in a total of 4,676,375,839 Shares, representing approximately 93.72% of the issued share capital of the Company as enlarged by the New Shares. Accordingly, Win Channel, Sheung Hai and parties acting in concert with them are obliged under Rule 26 of the Code to make a mandatory unconditional cash offer for all the issued Shares other than those already held or agreed to be acquired by Win Channel, Sheung Hai and parties acting in concert with either of them.

An Independent Board Committee comprising Ms. Ha Ping and Mr. Sum Mun Kid, Frederick has been appointed to give advice to the Independent Shareholders as to whether the terms of the Offer are fair and reasonable so far as the Independent Shareholders are concerned.

BASIS OF OUR OPINION

In formulating our opinion, we have relied to a considerable extent on the information, statements, opinions and representations supplied to us by the Company and the Directors and we have

— 23 —

Star Bio-tech (Holdings) Limited

LETTER FROM ALTUS CAPITAL LIMITED

assumed that all such information, statements, opinions and representations contained or referred to in the Document were true and accurate and complete at the time they were made and continue to be true at the date of the Document, and we have relied on the same. We have also assumed that all statements of belief, opinion and intention of the Directors as set out in the “Letter from the Board” in this Document were reasonably made after due and careful inquiry. We have also sought and obtained confirmation from the Company that no material facts have been omitted from the information provided and referred to in the Document. We have also discussed with the management of the Group their plans for the Group and the prospects of the businesses of the Group.

We consider that we have been provided with, and we have reviewed, all currently available information and documents which are available under present circumstances to enable us to reach an informed view regarding the Offer and to justify reliance on the accuracy of the information contained in the Document so as to provide a reasonable basis of our opinions. We have no reason to suspect that any material facts or information (which is known to the Company) have been omitted or withheld from the information supplied or opinions expressed in the Document nor to doubt the truth and accuracy of the information and facts, or the reasonableness of the opinions expressed by the Company and its directors which have been provided to us. We have not, however, carried out any independent verification on the information provided to us by the Directors, nor have we conducted an independent in-depth investigation into the business and affairs of the Group.

We have not considered the tax consequences for the Independent Shareholders of accepting the Offer or any other aspect of the position of such Independent Shareholders with regard to taxation arising from the acceptance of the Offer since this will depend on the Independent Shareholder’s individual circumstances. Independent Shareholders who are overseas residents or are subjected to overseas taxes or Hong Kong taxation on securities dealings should consider their own taxation position and, if they are in any doubt, they should consult their own professional advisers.

PRINCIPAL FACTORS CONSIDERED

In arriving at our recommendation in respect of the terms of the Offer, we have considered the following principal factors:

1. The Offer

The Offer is made to Independent Shareholders on the following basis:

For each Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . HK$0.01 in cash

On the basis of the price of the Offer of HK$0.01 per Share (“Offer Price”) and the Shares in issue as at the Latest Practicable Date, the Offer values the entire existing issued share capital of the Company at approximately HK$49.9 million.

2. The Offer Price

The Offer Price is equivalent to the price paid by Win Channel for each New Share under the Share Acquisition Agreement and that payable by Sheung Hai for each New Share under the Subscription Agreement. The Offer Price is also equal to the nominal value of the Share.

— 24 —

Star Bio-tech (Holdings) Limited

LETTER FROM ALTUS CAPITAL LIMITED

The Offer Price represents:

(a) a discount of approximately 87.2% to HK$0.078, being the closing market price of the Shares prior to the suspension in trading of Shares on 5th February, 2002 pending the Announcement;
(b) a discount of approximately 89.4% to HK$0.0947, being the average closing market price for the 10 trading days up to and including 5th February, 2002;
(c) a discount of approximately 90.4% to HK$0.1040, being the average closing market price for the one-month period up to and including 5th February, 2002;
(d) a discount of approximately 95.0% to HK$0.2012, being the average closing market price during the period from 5th February, 2002 to the Latest Practicable Date; and
(e) a discount of approximately 94.2% to HK$0.173, being the closing market price on the Latest Practicable Date.

From the above, we conclude that the Offer Price represents substantial discount to the various references of market price.

— 25 —

Star Bio-tech (Holdings) Limited

LETTER FROM ALTUS CAPITAL LIMITED

A chart illustrating the Share price from 20th April, 2001 and up to the Latest Practicable Date (both dates inclusive) is as follows:

Chart I

==> picture [402 x 367] intentionally omitted <==

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

HK$
0.7
0.6
0.5
0.4
0.3
0.2
0.1
Offer Price = HK$0.01
0
Date
Closing share price
20th April, 2001 20th May, 2001 20th June, 2001 20th July, 2001 20th August, 2001 20th September, 2001 20th October, 2001 20th November, 2001 20th December, 2001 20th January, 2002 20th February, 2002 20th March, 2002 23rd April, 2002
----- End of picture text -----

The price has been adjusted to reflect the consolidation of 40 shares of HK$0.01 each in the then share capital of the Company into one Share in November 2001.

— 26 —

Star Bio-tech (Holdings) Limited

LETTER FROM ALTUS CAPITAL LIMITED

A chart illustrating the Share trading volume from 20th April, 2001 and up to the Latest Practicable Date (both dates inclusive) is as follows:

Chart II

==> picture [404 x 299] intentionally omitted <==

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

80000000
70000000
60000000
50000000
40000000
30000000
20000000
10000000
0
Date
Volume
20th April, 2001 20th May, 2001 20th June, 2001 20th July, 2001 20th August, 2001 20th September, 2001 20th October, 2001 20th November, 2001 20th December, 2001 20th January, 2002 20th February, 2002 20th March, 2002 23rd April, 2002
----- End of picture text -----

The volume has been adjusted to reflect the consolidation of 40 shares of HK$0.01 each in the then share capital of the Company into one Share in November 2001.

Between 3rd December, 2001 and 5th February, 2002, being a period prior to the Announcement, the Shares had traded at prices between HK$0.155 and HK$0.06 per Share. After the Announcement and resumption of trading, the traded Share price increased significantly and reached a high of HK$0.36 per Share on 6th March, 2002.

From Chart II above, between 3rd December, 2001 and 5th February, 2002, being a period prior to the Announcement, the average daily trading volume of the Shares had been low at approximately 1.21 million Shares, representing about 0.25% of the then Shares in issue of the Company prior to Completion and representing about 0.38% of the Shares held by public. Trading volume increased significantly after the Announcement and resumption in trading on 28th February, 2002 with an average daily trading volume of the Shares of approximately 10.29 million Shares between 28th February, 2002 and the Completion, representing about 2.10% of the then total issued Shares prior to Completion and representing about 3.28% of the Shares held by public.

— 27 —

Star Bio-tech (Holdings) Limited

LETTER FROM ALTUS CAPITAL LIMITED

Having reviewed the overall price trend of the Shares and the trading volume of the Shares both before and after the Announcement, it was noted that the closing prices of the Shares have been consistently and significantly higher than the Offer Price. In our opinion, when compared to the prevailing market price, the Offer Price is not attractive to the Independent Shareholders.

We wish to highlight that following the Completion, Win Channel and Sheung Hai hold in aggregate, approximately 93.72% of the issued share capital of the Company and the public float of Shares represents only 6.28% of the issued share capital of the Company. Given the low average daily trading volume as indicated above, the trading in Shares may be illiquid. In view of the minimal public float and the low level of liquidity, should the Independent Shareholders decide to sell all their Shares in the market, the trading price of the Shares may be under pressure.

3. Principal activities and financial position of the Group

The Group is engaged principally in the provision of credit card security services, trading of electronic products such as electronic dictionaries, provision of financial information through pagers, the Internet and mobile phones and investment in high-tech and bio-technology related businesses.

The current Board took over control and management of the Company around June 2000, after which, the Company has undergone various reorganisations, acquisitions and joint ventures including, among other things, restructuring of its debts, which involved waiver by financial creditors of certain debts owed to them by the Group, and changes to the capital structure of the Company involving reduction of capital, consolidation of shares and issue of new shares. The Company has formed various joint ventures including a web site specialising in trade information in the PRC and a Chinese character input software joint venture. The Company has acquired businesses including the distribution and marketing of language translation products, service provider of financial information, manufacturer of electronics and telecommunication products and credit card security system. The Group has also ventured into the bio-technology business which includes the manufacture and marketing of health food products.

According to the Directors, for the six months ended 31st December, 2001, the aforesaid businesses and ventures had not been profitable and had not contributed profit to the Group.

— 28 —

Star Bio-tech (Holdings) Limited

LETTER FROM ALTUS CAPITAL LIMITED

Set out below are the abridged unaudited consolidated balance sheet of the Group as at 31st December, 2001 and the abridged audited consolidated balance sheet as at 30th June, 2001.

	As at	As at
	30th June,	31st December,
	2001	2001
	(audited)	(unaudited)
	HK$’000	HK$’000
Property, plant and equipment	25,284	20,461
Inventories, investments and other assets	17,290	15,322
Debtors, deposits and prepayments	28,729	29,161
Cash and bank balances	13,595	6,964
Total assets	84,898	71,908
Creditors, payables and accrued charges	(42,457)	(46,365)
Convertible notes	(4,800)	(24,150)
Loan	(12,500)	(12,500)
Bank borrowings	(11,556)	(4,591)
Minority interests	(5,879)	(4,657)
Total liabilities	(77,192)	(92,263)
Shareholders’ funds	7,706	(20,355)
Net asset value/(Deficit) per Share (HK$)	0.016	(0.042)

Net asset value

From the abridged unaudited consolidated balance sheets of the Group above, the Group’s financial position deteriorated from a net asset position of approximately HK$7.7 million as of 30th June, 2001 to a net liability position of approximately HK$20.4 million as of 31st December, 2001. The deterioration was due mainly to losses from operations.

Following the Completion, as a result of the issue and allotment of the New Shares, shareholders’ funds became approximately HK$23.6 million, an improvement from the net liability position of approximately HK$20.4 million. Net liability of HK$0.042 per Share as at 31st December, 2001 has therefore improve to net asset value of HK$0.005 per Share (“Adjusted NAV”). The Offer Price represents a premium of 100% to the Adjusted NAV.

— 29 —

Star Bio-tech (Holdings) Limited

LETTER FROM ALTUS CAPITAL LIMITED

Trading record of the Group

The table below sets out the abridged unaudited consolidated results of the Group for the six months ended 31st December, 2001 and the audited consolidated results of the Group for the year ended 30th June, 2001.

	Year ended	6 months ended
	30th June,	31st December,
	2001	2001
	(audited)	(unaudited)
	HK$’000	HK$’000
Turnover	30,071	16,909
Loss from operations	(67,007)	(28,264)
Net loss	(92,483)	(29,310)

During the year ended 30th June, 2001, the Group’s principal business activities included the manufacture and sale of food products, manufacture and sale of electronic products, sale of health products, provision of financial information services and provision of Internet consultancy services. All such principal business activities recorded operating losses, which contributed to the Group’s loss from operations of approximately HK$67.0 million for the year ended 30th June, 2001.

The Group recorded loss from operations of approximately HK$28.3 million for the six months ended 31st December, 2001 as its principal business activities continued to sustain losses from operations. In other words, these principal business activities have not contributed operating profit to the Group.

Given the sustained losses of the Group, it is not practicable to employ the price-to-earnings multiple valuation method to assess the fairness and reasonableness of the Offer Price.

Gearing

As of 31st December, 2001, the Group had deficit in shareholders’ funds of approximately HK$20.4 million and total financial debts, comprising convertible notes, loan and bank borrowings, of approximately HK$41.3 million. Upon Completion, shareholders’ funds improved to approximately HK$23.6 million, and after the repayment of all bank borrowings using portion of the proceeds as stated in the Company’s circular dated 26th March, 2002 (“March Circular”), total financial debts would become approximately HK$36.7 million. The gearing ratio would therefore become approximately 156% which, implies the financial debts cannot be covered fully by the Group’s net assets.

Cash position

According to the Board, cash and bank balances declined from approximately HK$13.6 million as at 30th June, 2001 to approximately HK$7.0 million as at 31st

— 30 —

Star Bio-tech (Holdings) Limited

LETTER FROM ALTUS CAPITAL LIMITED

December, 2001 mainly because the Group’s operations, most of which were still loss making, had not contributed sufficient funds to the Group. This is after taking into account the fact that during the six months between 30th June, 2001 and 31st December, 2001, the Group raised about HK$19.4 million in cash through the issue of convertible notes.

The issue of New Shares pursuant to the Agreements resulted in net proceeds of approximately HK$44 million. According to the March Circular, the proceeds would be used to (a) repay the overdue bank borrowings; (b) provide working capital for the existing businesses; and (c) finance the development of the DNA Security System as described below (up to HK$25 million) and existing businesses of the Group (up to HK$5 million). It was stated in the March Circular that given the sustained operating losses of its principal business activities, the aforesaid proceeds were crucial in enabling the Group to meet its financial obligations and working capital requirements.

Conclusion

We note that the Offer Price represents a premium of 100% to the Adjusted NAV. The Group’s operation has continued to sustain losses and its gearing ratio remains high after the Completion. Thus, based solely on the Group’s current financial position, we are of the view that the Offer Price fully reflects the value of the Shares.

Future prospect and outlook

In the “Letter from Kingston Securities and Kim Eng Securities”, it was stated that:

(a) Win Channel and Sheung Hai intend to maintain the existing principal activities of the Group and have no intention to inject any assets or businesses into the Group nor dispose of any major assets. Win Channel and Sheung Hai intend to hold their interests in the Company as a long-term investment;
(b) both Win Channel and Sheung Hai believe that the DNA Security System will be further enhanced in terms of technology, marketability and profitability following the capital injection and reckon that there is a good opportunity in both the local and the PRC market. They therefore intend to further develop and place the Company’s business focus on the DNA Security System;
(c) there will not be any changes to the composition of the Board following the Completion and there will be no material change in the existing management and employees of the Group by reason of the Offer;
(d) Mr. Chim, the ultimate beneficial owner of Win Channel, will be a passive investor in the Company and will have no management function in the Company. There is not any form of agreement, arrangement or understanding between Mr. Chim and Mr. Wong or other Directors on how the Company should be managed.

Description of the DNA Security System, which is intended to be the main business focus of the Group, can be found in “Letter from the Board”. The Company recognises that plastic

— 31 —

Star Bio-tech (Holdings) Limited

LETTER FROM ALTUS CAPITAL LIMITED

money will be widely used and accepted by various transactions. The Company believes that with the use of credit cards becoming more widespread and with credit card frauds becoming increasingly rampant, the DNA Security System has significant growth potential, especially in the PRC. Nevertheless, the management noted that further development and enhancement of the DNA Security System will require substantial capital for research and development. The existing management will continue to manage the businesses of the Group, including the DNA Security System.

We wish to highlight that there are minimal assets attributable to the DNA Security System, which has yet to generate any profit. In addition, as the DNA Security System is still in its initial stage, it is generating minimal and inconsistent cashflow from operations. According to the Company, the technology for DNA Security System has been patented in the United States, the United Kingdom, the PRC, Hong Kong, France, Japan and Germany. Mr. Wong currently holds these patents. Since the DNA Security System requires further development before it can be launched on a large scale, Mr. Wong allows the Company to use the existing technology for DNA Security System without any charges. However, the Company intends to discuss with Mr. Wong the terms for the use of the patents when the DNA Security System generate both steady revenue and income. Save for Hong Kong where the DNA Security System is currently being used by Dah Sing Bank, the technology for DNA Security System has yet to be commercialised and used in those countries mentioned above. Hence, the DNA Security System currently does not generate any revenue or profit overseas. The Directors are currently not aware of the same technology being used for similar purposes in countries other than Hong Kong. Consequently, we are of the view that it is not practicable to employ conventional valuation methods to the DNA Security System.

As stated in the “Letter from Kingston Securities and Kim Eng Securities”, Win Channel and Sheung Hai have entered into the Agreements because they are impressed by the DNA Security System, they believe that it could be further enhanced in terms of technology, marketability and profitability following the capital injection and reckon that there is a good opportunity in both the local and the PRC market. Win Channel and Sheung Hai’s decision to inject capital into the Company and the DNA Security System business is based on their expectations of the aforesaid.

We are of the view that notwithstanding the future plans and prospects of the DNA Security System and the fact that it is currently being used by Dah Sing Bank, further research and development efforts are required to commercialise and launch this service on a large scale and the marketability of the DNA Security System is yet to be proven. Hence, we are of the view that there is no certainty as to the success and profitability of the DNA Security System. On this basis, Independent Shareholders are advised to assess their investment objectives and review their investment strategies in conjunction with this future plan of the Group, taking into consideration the fact that there is no valuation conducted on the DNA Security System, before deciding whether to accept the Offer.

5. Maintaining the listing of the Shares

Win Channel and Sheung Hai intend to maintain the listing of the Shares on the Stock Exchange after the close of the Offer. Rule 8.08 of the Listing Rules requires that at least 25% of the issued Shares from time to time are held by the public and that failure to do so may result in the Stock Exchange suspending trading in the Shares.

— 32 —

Star Bio-tech (Holdings) Limited

LETTER FROM ALTUS CAPITAL LIMITED

As a result of Completion, Win Channel, Sheung Hai, their respective associates and parties acting in concert with them collectively have shareholding interest in about 93.72% of the enlarged issued share capital of the Company. This shareholding interest may further increase after the Offer as a result of valid acceptances received under the Offer. In view of the fact that the shareholding of the public is reduced to approximately 6.28% as a result of Completion, the Company has applied for and the Stock Exchange has granted to the Company for a waiver from compliance with the requirements of Rule 8.08 of the Listing Rules during the period of the Offer on the basis that a suspension in trading of Shares during the period of the Offer will prejudice the interest of those Independent Shareholders who may want to choose to dispose of their Shares at the stock market during such period. Investors should note that trading of Shares may be suspended immediately following the close of the Offer until public float of the Shares is restored pursuant to Rule 8.08 of the Listing Rules.

Independent Shareholders should note that there is no certainty that such new application for listing will be approved by the Stock Exchange.

6. Recommendation

The Offer Price represents a premium of 100% to the Adjusted NAV. The Group’s operation has continued to sustain losses and its gearing ratio remains high after the Completion. Thus, based on the Group’s financial position alone, the Offer Price fully reflects the value of the Shares.

Reference is made to the March Circular, where as stated in the “Letter from Altus Capital Limited”, having considered, inter alias, the principle factors, including (a) the material dilution effect on the shareholdings of the Independent Shareholders pursuant to the Agreements; and (b) given the sustained operating losses of its principal business activities, the proceeds from the issurance of New Shares were crucial in enabling the Group to meet its financial obligations and working capital requirements, we were of the view that the terms of the Agreements were fair and reasonable.

— 33 —

Star Bio-tech (Holdings) Limited

LETTER FROM ALTUS CAPITAL LIMITED

Notwithstanding the above, having considered that the closing prices of the Shares have been consistently and significantly higher than the Offer Price both before and after the Announcement and that the Offer Price represents a discount of approximately 94.2% to the closing market price as at the Latest Practicable Date, we are of the opinion that the terms of the Offer is not fair and not reasonable so far as the Independent Shareholders are concerned as it is likely that independent Shareholders who wish to realise their investments in the Company could sell their shareholdings in the open market at more favourable prices. We therefore advise the Independent Board Committee to recommend the Independent Shareholders not to accept the Offer and recommend them to sell their shares in the open market should they wish to exit their investment in the Company.

Yours faithfully, For and on behalf of Altus Capital Limited Arnold Ip Jimmy Chung Director Director

— 34 —

Star Bio-tech (Holdings) Limited

FURTHER TERMS OF THE OFFER

APPENDIX I

1. FURTHER PROCEDURES FOR ACCEPTANCE OF THE OFFER

(i) If the certificate(s) and/or transfer receipt(s) and/or any other document(s) of title (and/or any satisfactory indemnity or indemnities in respect thereof) in respect of your Shares is/are in the name of a nominee company or some name other than your own, and you wish to accept the Offer whether in full or in respect of part your holding(s) of your Shares, you must either:
(a) lodge your share certificate(s) and/or transfer receipt(s) and/or any other document(s) of title (and/or any satisfactory indemnity or indemnities required in respect thereof) with the nominee company, or other nominee, with instructions authorising it to accept the Offer on your behalf and requesting it to deliver the relevant form(s) of acceptance and transfer duly completed together with the relevant share certificate(s) and/or transfer receipt(s) and/or any other document(s) of title (and/or any satisfactory indemnity required in respect thereof), to the Registrar; or
(b) arrange for the Shares to be registered in your name by the Company through the Registrar and send the relevant form(s) of acceptance and transfer duly completed together with the relevant share certificate(s) and/ or transfer receipt(s) and/or any other document(s) of title (and/or any satisfactory indemnity or indemnities required in respect thereof), to the Registrar; or
(c) if your Shares have been lodged with your broker/custodian bank through CCASS, instruct your broker/custodian bank to authorise HKSCC Nominees Limited to accept the Offer on your behalf on or before the deadline set out by HKSCC Nominees Limited, in this case, on Thursday, 16th May, 2002 which is one business day before the latest date on which acceptances of the Offer must be received by the Registrar. In order to meet the deadline set by HKSCC Nominees Limited, you should check with your broker/ custodian bank for the timing on processing of your instruction, and submit your instruction to your broker/custodian bank as required by them; or
(d) if your Shares have been lodged with your Investor Participant Account with CCASS, authorise your instruction via the CCASS Phone System not later than one business day (in this case, Thursday, 16th May, 2002) before the latest date on which acceptances of the Offer must be received by the Registrar.
(ii) If the share certificate(s) and/or transfer receipt(s) and/or any other document(s) of title (and/or any satisfactory indemnity or indemnities required in respect thereof) in respect of your Shares is/are not readily available and/or is/are lost and you wish to accept the Offer in respect of your Shares, the relevant form(s) of acceptance and transfer should nevertheless be completed and delivered to the Registrar, together with a letter stating that you have lost one or more of your share certificate(s) and/or transfer receipts and/or other document(s) of title (and/ or any satisfactory indemnity or indemnities required in respect thereof) or that it/they is/are not readily available. If you find such document(s) or if it/they become(s) available, the relevant share certificate(s) and/or transfer receipt(s) and/or any other document(s) of title (and/or any satisfactory indemnity or indemnities required in

— 35 —

Star Bio-tech (Holdings) Limited

FURTHER TERMS OF THE OFFER

APPENDIX I

respect thereof) should be forwarded to the Registrar as soon as possible thereafter. If you have lost your share certificate(s), you should also write to the Registrar for a letter of indemnity which, when completed in accordance with the instructions given, should be returned to the Registrar.

(iii) If you have lodged (a) transfer(s) of any of your Shares for registration in your name(s) and have not yet received your share certificate(s), and you wish to accept the Offer in respect of your Shares, you should nevertheless complete the relevant form(s) of acceptance and transfer and deliver it/them to the Registrar, together with the transfer receipt(s) duly signed by yourself(ves). Such action will be deemed to be an irrevocable authority to Kingston Corporate Finance, Kingston Securities, Altus, and/or Win Channel and Sheung Hai or their respective agent(s) to collect from the Company or the Registrar on your behalf the relevant share certificate(s) when issued and to deliver such certificate(s) to the Registrar and to authorise and instruct the Registrar to hold such certificate(s), subject to the terms and conditions of the Offer, as if it was/they were delivered to the Registrar with the relevant form(s) of acceptance and transfer.
(iv) Acceptance(s) of the Offer may, at the discretion of Win Channel and Sheung Hai, be treated as valid even if not accompanied by the relevant share certificate(s) and/or transfer receipt(s) and/or other document(s) of title (and/or any satisfactory indemnity or indemnities required in respect thereof), but, in such cases, the cheque(s) for the consideration due (net of the relevant seller’s ad valorem stamp duty) will not be despatched until the relevant share certificate(s) and/or transfer receipt(s) and/or other document(s) of title (and/or a satisfactory indemnity or indemnities in respect of thereof) has/have been received by the Registrar.
(v) No acknowledgement of receipt of any form(s) of acceptance and transfer, share certificate(s) and/or transfer receipt(s) and/or any other document(s) of title (and/ or any satisfactory indemnity or indemnities required in respect thereof) will be given.
(vi) The address of the Registrar is 5th Floor, Wing On Centre, 111 Connaught Road Central, Hong Kong.

2. ACCEPTANCE PERIOD, REVISIONS AND EXTENSIONS

Although Win Channel and Sheung Hai do not intend to extend or revise the Offer, they reserve the right to do so in accordance with the relevant provisions of the Code. Unless the Offer have previously been extended, all acceptances must be received by 4:00 p.m. on Friday, 17th May, 2002 and the Offer will close at 7:00 p.m. on Friday, 17th May, 2002.

3. RIGHT OF WITHDRAWAL

Acceptances of the Offer shall be irrevocable and cannot be withdrawn, except in the circumstances set out in Rule 19.2 of the Code which is to the effect that if Win Channel and Sheung Hai are unable to comply with any of the requirements of making announcements relating to the Offer, the Executive may require that acceptors be granted a right of withdrawal, on terms acceptable to the Executive.

— 36 —

Star Bio-tech (Holdings) Limited

FURTHER TERMS OF THE OFFER

APPENDIX I

4. ANNOUNCEMENTS

(i) By 6:00 p.m. on Friday, 17th May, 2002 which is the closing day of the Offer, Win Channel and Sheung Hai must inform the Executive and the Stock Exchange of its intentions in relation to revision, extension or expiry of the Offer. Win Channel and Sheung Hai shall publish a teletext announcement through the Stock Exchange by 7:00 p.m. on the closing date of the Offer stating whether the Offer has expired, been extended or revised (as the case may be). Win Channel and Sheung Hai shall also republish such announcement in accordance with the requirements set out in item (iii) below on the next business day. The announcement shall also specify the total number of Shares, as nearly as practicable, which Win Channel and Sheung Hai and any person acting in concert with it, directly and indirectly, owns or controls as at the date of that announcement, the number of Shares for which valid acceptances have been received, and the number of Shares otherwise acquired by Win Channel and Sheung Hai or any person acting in concert with them during the Offer period. The announcement shall also specify the percentages of the issued share capital of the Company and voting rights of the Company represented by these numbers of Shares.
(ii) In computing the number of Shares represented by acceptances, there must be included for announcement purposes acceptances, which are not in all respects in order or that are subject to verification.
(iii) As required under the Code and the Listing Rules, any announcement in relation to the Offer, in respect of which the Executive and the Stock Exchange have confirmed that they have no further comments thereon, must be published as a paid announcement in at least one leading English language newspaper and one leading Chinese language newspaper published daily and circulated generally in Hong Kong and specified in the list of newspaper issued and published in the Gazette for the purpose of section 71A of the Companies Ordinance (Chapter 32 of the Laws of Hong Kong). Copies of the announcement will be delivered to the Stock Exchange in electronic form, in accordance with its requirements from time to time, for publication on its websites.

5. GENERAL

(i) Acceptance of the Offer by any person or persons holding Shares will be deemed to constitute a warranty by such person or person to Win Channel and Sheung Hai that the Share(s) acquired under the Offer is/are sold by any such person or person free from all liens, charges, encumbrances, equities and third party rights and together with all rights attaching thereto, including the right to receive all dividends and distributions declared, made or paid on or after the date of the Agreements.
(ii) All communications, notices, forms of acceptance and transfer, share certificates, transfer receipts, other documents of title (and/or any satisfactory indemnity or indemnities required in respect thereof) and remittances to be delivered by or sent to or from the accepting Shareholders will be delivered by or sent to or from them, or their designated agents, through post at their own risk, and none of Win Channel and Sheung Hai, Kingston Corporate Finance, Kingston Securities, Altus and any of their respective agents accepts any liability for any loss in postage or any other liabilities that may arise as a result thereof.

— 37 —

Star Bio-tech (Holdings) Limited

FURTHER TERMS OF THE OFFER

APPENDIX I

(iii) The provisions set out in the accompanying form of acceptance and transfer form part of the terms of the Offer.
(iv) The accidental omission to despatch this document and/or the form of acceptance and transfer or either of them to any person to whom the Offer is made will not invalidate the Offer in any way.
(v) The making of the Offer to certain persons resident in jurisdictions outside Hong Kong may be affected by the laws of the relevant jurisdictions. Shareholders who are citizens or residents or nationals of jurisdictions outside Hong Kong should obtain appropriate legal advice on, inform themselves about and observe any applicable legal requirements. It is the responsibility of any such person who wishes to accept the Offer to satisfy himself/herself as to the full observance of the laws of the relevant jurisdiction in connection therewith, including the obtaining of any governmental or other consent which may be required or the compliance with any other necessary formalities and the payment of any transfer or other taxes due in respect of such jurisdiction.
(vi) The Offer and all acceptances will be governed by and construed in accordance with the laws of Hong Kong.
(vii) Due execution of a form of acceptance and transfer will constitute an authorisation to Win Channel and Sheung Hai, any directors of Win Channel and Sheung Hai, Kingston Corporate Finance, Kingston Securities, Altus, or such person or persons as Win Channel and Sheung Hai may direct, to complete and execute any document on behalf of the person or persons accepting the Offer and to do any other act that may be necessary or expedient for the purposes of vesting in Win Channel and Sheung Hai, or such person or persons as they may direct, the Shares in respect of which such persons or persons has/have accepted the Offer.
(viii)References to the Offer in this document and in the accompanying form(s) of acceptance and transfer shall include any extension and/or revision thereof.
(ix) The Offer is made in accordance with the Code.
(x) The English text of the document and the form of acceptance and transfer shall prevail over the Chinese text for the purpose of interpretation.
(xi) Seller’s ad valorem stamp duty arising in connection with acceptance of the Offer at the rate of HK$1.00 for every HK$1,000 or part thereof of the consideration payable in respect of the relevant acceptance of the Offer will be payable by the accepting Shareholders and will be deducted from the cash amount due to such Shareholders pursuant to the Offer.

— 38 —

Star Bio-tech (Holdings) Limited

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

1. SUMMARY OF FINANCIAL INFORMATION

The following is a summary of the audited consolidated profit and loss accounts of the Group for the period from 1st April, 1998 to 31st March, 1999, from 1st April, 1999 to 30th June, 2000 and from 1st July, 2000 to 30th June, 2001 as extracted from the relevant annual reports of the Group for the years presented.

RESULTS

1.7.2000 1.4.1999 to 30.6.2001 to 30.6.2000 HK$’000 HK$’000 Turnover 30,071 13,810 (Loss)/profit before taxation and extraordinary items (92,704) 34,349 Extraordinary items — — Taxation (charge) credit (251) (129) (Loss)/profit before minority interests (92,955) 34,220 Minority interests 472 — Net (loss)/profit for the year/period (92,483) 34,220 Earning/(loss) per Shares (0.63 cent) 1.99 cents Dividend proposed — — Dividend paid — — ASSETS AND LIABILITIES 30.6.2001 30.6.2000 HK$’000 HK$’000 Total assets 84,898 107,912 Total liabilities (71,313) (72,859) Minority interests (5,879) (2,140) Shareholders’ funds 7,706 32,913	1.7.2000 1.4.1999 to 30.6.2001 to 30.6.2000 HK$’000 HK$’000 Turnover 30,071 13,810 (Loss)/profit before taxation and extraordinary items (92,704) 34,349 Extraordinary items — — Taxation (charge) credit (251) (129) (Loss)/profit before minority interests (92,955) 34,220 Minority interests 472 — Net (loss)/profit for the year/period (92,483) 34,220 Earning/(loss) per Shares (0.63 cent) 1.99 cents Dividend proposed — — Dividend paid — — ASSETS AND LIABILITIES 30.6.2001 30.6.2000 HK$’000 HK$’000 Total assets 84,898 107,912 Total liabilities (71,313) (72,859) Minority interests (5,879) (2,140) Shareholders’ funds 7,706 32,913	1.4.1998 to 31.3.1999 HK$’000 109,825 (500,196) — 479 (499,717) — (499,717) (42.05 cents) — — 31.3.1999 HK$’000 59,502 (231,172) (550) (172,220)
(92,704) — (251) (92,955) 472	34,349 — (129) 34,220 —	(500,196 — 479
		(499,717 —
(92,483) (0.63 cent) — — 30.6.2001 HK$’000 84,898 (71,313) (5,879) 7,706	34,220 1.99 cents — — 30.6.2000 HK$’000 107,912 (72,859) (2,140) 32,913

— 39 —

Star Bio-tech (Holdings) Limited

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

2. AUDITED ACCOUNTS FOR THE YEAR ENDED 30TH JUNE, 2001

Set out below are the consolidated profit and loss account, the consolidated statement of recognised gains and losses, the consolidated cash flow statement for the period from 1st April, 1999 to 30th June, 2000 and the year ended 30th June, 2001, and the balance sheet as at 30th June, 2000 and 30th June, 2001 of the Group together with the relevant notes as extracted from the annual report of the Group for the year ended 30th June, 2001.

CONSOLIDATED INCOME STATEMENT

NOTES Turnover 6 Cost of sales Gross profit Other revenue Distribution costs Administrative expenses Loss attributable to properties 7 Loss from operations 8 Finance costs 9 Share of losses of associates Loss attributable to investments 11 Gain on waiver of obligations 12 Gain attributable to financial restructuring 13 Impairment loss recognised in respect of property, plant and equipment 14 Provision for payments under guarantee 15 (Loss) profit before taxation Taxation 16 (Loss) profit after taxation Minority interests Net (loss) profit for the year/period 17 (Loss) earnings per share 18 — Basic — Diluted	For the period from 1.7.2000 to 30.6.2001 1.4.1999 to 30.6.2000 HK$’000 HK$’000 30,071 13,810 (26,473) (12,551) 3,598 1,259 3,364 1,348 (3,683) (925) (69,566) (21,037) (720) (1,005) (67,007) (20,360) (2,549) (1,335) — (31,358) (26,737) (17,240) 8,069 — — 133,651 (4,480) (23,338) — (5,671) (92,704) 34,349 (251) (129) (92,955) 34,220 472 — (92,483) 34,220 (0.63 cents) 1.99 cents N/A 1.89 cents	For the period from 1.7.2000 to 30.6.2001 1.4.1999 to 30.6.2000 HK$’000 HK$’000 30,071 13,810 (26,473) (12,551) 3,598 1,259 3,364 1,348 (3,683) (925) (69,566) (21,037) (720) (1,005) (67,007) (20,360) (2,549) (1,335) — (31,358) (26,737) (17,240) 8,069 — — 133,651 (4,480) (23,338) — (5,671) (92,704) 34,349 (251) (129) (92,955) 34,220 472 — (92,483) 34,220 (0.63 cents) 1.99 cents N/A 1.89 cents
	3,598 3,364 (3,683) (69,566) (720) (67,007) (2,549) — (26,737) 8,069 — (4,480) — (92,704) (251) (92,955) 472	1,259 1,348 (925 (21,037 (1,005
		(20,360 (1,335 (31,358 (17,240 — 133,651 (23,338 (5,671
		34,349 (129
		34,220 —
	(92,483) (0.63 cents) N/A

— 40 —

Star Bio-tech (Holdings) Limited

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

CONSOLIDATED BALANCE SHEET

	NOTES	30.6.2001	30.6.2000
		HK$’000	HK$’000
NON-CURRENT ASSETS
Investment properties	19	2,220	5,431
Property, plant and equipment	20	25,284	18,100
Interest in a subsidiary not consolidated	22	—	—
Interests in associates	23	—	—
Investments in securities	24	4,150	150
		31,654	23,681
CURRENT ASSETS
Inventories	25	7,779	1,100
Debtors, deposits and prepayments	26	28,729	10,181
Investments in securities	24	3,141	—
Bank balances and cash		13,595	72,950
		53,244	84,231
CURRENT LIABILITIES
Creditors and accrued charges	27	42,363	39,716
Taxation		94	128
Loan	28	12,500	12,500
Bank loans-secured		11,556	20,515
		66,513	72,859
NET CURRENT (LIABILITIES) ASSETS		(13,269)	11,372
		18,385	35,053
CAPITAL AND RESERVES
Share capital	29	194,596	129,802
Reserves	31	(186,890)	(96,889)
		7,706	32,913
MINORITY INTERESTS		5,879	2,140
NON-CURRENT LIABILITIES
Convertible note	32	4,800	—
		18,385	35,053

— 41 —

Star Bio-tech (Holdings) Limited

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

BALANCE SHEET

	NOTES	30.6.2001	30.6.2000
		HK$’000	HK$’000
NON-CURRENT ASSETS
Property, plant and equipment	20	3,908	454
Interests in subsidiaries	21	6,107	—
		10,015	454
CURRENT ASSETS
Debtors, deposits and prepayments		6,351	8,015
Bank balances and cash		2,782	71,649
		9,133	79,664
CURRENT LIABILITIES
Creditors and accrued charges		10,191	15,217
Bank loans secured		11,556	20,515
		21,747	35,732
NET CURRENT (LIABILITIES) ASSETS		(12,614)	43,932
		(2,599)	44,386
CAPITAL AND RESERVES
Share capital	29	194,596	129,802
Reserves	31	(201,995)	(85,416)
		(7,399)	44,386
NON-CURRENT LIABILITIES
Convertible note	32	4,800	—
		(2,599)	44,386

— 42 —

Star Bio-tech (Holdings) Limited

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

CONSOLIDATED STATEMENT OF RECOGNISED GAINS AND LOSSES

	1.7.2000 to	1.4.1999 to
	30.6.2001	30.6.2000
	HK$’000	HK$’000
Net (loss) profit and total recognised (losses)
gains for the year/period	(92,483)	34,220
(Goodwill) capital reserve arising on acquisition
of interest in subsidiaries and associates	(41,539)	9,052
	(134,022)	43,272

— 43 —

Star Bio-tech (Holdings) Limited

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

CONSOLIDATED CASH FLOW STATEMENT

		1.7.2000 to	1.4.1999 to
	NOTES	30.6.2001	30.6.2000
		HK$’000	HK$’000
NET CASH OUTFLOW FROM OPERATING ACTIVITIES	34	(70,582)	(16,858)
RETURNS ON INVESTMENTS AND SERVICING
OF FINANCE
Interest paid		(2,462)	(1,310)
Interest on hire purchase contracts		—	(25)
Interest received		903	202
NET CASH OUTFLOW FROM RETURNS ON
INVESTMENTS AND SERVICING OF FINANCE		(1,559)	(1,133)
TAXATION
Hong Kong Profits Tax refunded		660	—
Hong Kong Profits Tax paid		(328)	—
Overseas tax paid		—	(272)
NET TAX REFUNDED (PAID)		332	(272)
INVESTING ACTIVITIES
Purchase of subsidiaries	35	(22,563)	2
Deposits paid for investments		(14,586)	—
Purchase of investments in securities		(10,054)	—
Purchase of property, plant and equipment		(9,204)	(1,683)
Purchase of associates		(9,000)	—
Proceeds from sale of subsidiaries (net of cash and
cash equivalents disposed of)	36	(11)	(51)
Proceeds from disposal of investment property		2,491	—
Proceeds from disposal of property, plant and equipment		1,166	698
Proceeds from disposal of investment in securities		1,061	—
NET CASH OUTFLOW FROM INVESTING ACTIVITIES		(60,700)	(1,034)
NET CASH OUTFLOW BEFORE FINANCING
ACTIVITIES		(132,509)	(19,297)

— 44 —

Star Bio-tech (Holdings) Limited

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

		1.7.2000 to	1.4.1999 to
	NOTES	30.6.2001	30.6.2000
		HK$’000	HK$’000
FINANCING ACTIVITIES	37
Issue of convertible notes for cash		42,600	—
Issue of shares for cash		40,960	100,000
Repayment of bank loans		(8,959)	(9,758)
Expenses paid in connection with the issue of shares		(1,447)	(3,256)
Repayment of obligations under hire purchase contracts		—	(469)
NET CASH INFLOW FROM FINANCING ACTIVITIES		73,154	86,517
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS		(59,355)	67,220
AMOUNT RECLASSIFIED FROM BANK OVERDRAFT
AND TRUST RECEIPT AND PACKING LOAN		—	22,039
CASH AND CASH EQUIVALENTS AT BEGINNING OF
THE YEAR/PERIOD		72,950	(16,309)
CASH AND CASH EQUIVALENTS AT END OF THE
YEAR/PERIOD - represented by
Bank balances and cash		13,595	72,950

— 45 —

Star Bio-tech (Holdings) Limited

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

NOTES TO THE FINANCIAL STATEMENTS

1. GENERAL

The Company is incorporated and registered as an exempted company in Bermuda with limited liability and its shares are listed on The Stock Exchange of Hong Kong Limited.

The Company acts as an investment holding company. The principal activities of its principal subsidiaries and associates are set out in notes 21 to 23 to the financial statements.

2. PRESENTATION OF FINANCIAL STATEMENTS

The financial statements for the current year cover a twelve-month period from 1st July, 2000 to 30th June, 2001. The corresponding amounts for the consolidated income statement, consolidated cash flow statement, consolidated statement of recognised gains and losses and related notes covered a fifteen-month period from 1st April, 1999 to 30th June, 2000 and therefore may not be comparable with amounts shown for the current year. After taken into account the statutory financial year end date of all those group companies in the People’s Republic of China (“PRC”), i.e. 31st December, the directors resolved to change the Group’s financial year end date to 30th June to allow the Group to prepare and update its financial results on a semi-annual basis so as to rationalise its internal resources.

3. BASIS OF PREPARATION OF FINANCIAL STATEMENTS

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 HK$13,269,000 as at 30th June, 2001. The directors are currently considering various options for the future financing of the Group. In particular, the Group is, through its financial advisers, conducting discussions with certain potential strategic investors with a view to potential equity injection. The Group, its bankers and its advisers are currently considering various proposals. Provided that the negotiations can be successfully completed with the Group’s bankers to restructure the Group’s borrowing facilities and with the 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. Accordingly, the financial statements have been prepared on a going concern basis.

4. ADOPTION OF REVISED STATEMENT OF STANDARD ACCOUNTING PRACTICE

In the current year, the Group has adopted, for the first, time, the revised Statement of Standard Accounting Practice (“SSAP”) No. 14 “Leases” issued by the Hong Kong Society of Accountants.

Adoption of this SSAP has resulted in amendment to the related disclosures but with no effect on the results for the current or prior periods.

5. SIGNIFICANT ACCOUNTING POLICIES

The financial statements have been prepared under the historical cost convention as modified for the valuation of investment properties and investments in securities.

The financial statements have been prepared in accordance with accounting principles generally accepted in Hong Kong. The principal accounting policies adopted are set out below:

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries other than those excluded for the reasons referred to below made up to the balance sheet date.

— 46 —

Star Bio-tech (Holdings) Limited

APPENDIX II

FINANCIAL INFORMATION OF THE GROUP

Where the Group holds more than half of the issued share capital of a subsidiary, but does not control the composition of the board of directors or equivalent governing body, the financial statements of the subsidiary are not consolidated because to do so would be misleading. Where the Group is in a position to exercise significant influence or joint control, such investments are dealt with as associates or jointly controlled entities as appropriate. Otherwise, they are dealt with as investments in securities.

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

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

Goodwill

Goodwill represents the excess of the purchase consideration over the fair value ascribed to the Group’s share of the separable net assets at the date of acquisition of a subsidiary and is written off to reserves immediately on acquisition. Negative goodwill, which represents the excess of the fair value ascribed to the Group’s share of the separable net assets at the date of acquisition of a subsidiary over the purchase consideration is credited to reserves.

Any premium or discount arising on the acquisition of an interest in an associate, representing the excess or shortfall respectively of the purchase consideration over the fair value ascribed to the Group’s share of the separable net assets of the associate at the date of acquisition, is dealt with in the same manner as that described above for goodwill arising on acquisition of subsidiaries.

On disposal of investments in subsidiaries and associates, goodwill previously eliminated against or credited to reserves is included in the determination of the profit or loss on disposal of the subsidiary or associate.

Investments in subsidiaries

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

Investments in subsidiaries are included in the Company’s balance sheet at cost less identified impairment losses.

The results of the subsidiaries not consolidated are accounted for at the carrying amount of the Group’s interest in them at the date of deconsolidation less any identified impairment losses.

Investments in associates

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

The consolidated income statement includes the Group’s share of the post-acquisition results of its associates for the year/period. In the consolidated balance sheet, interests in associates are stated at the Group’s share of the net assets of the associates.

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

— 47 —

Star Bio-tech (Holdings) Limited

APPENDIX II

FINANCIAL INFORMATION OF THE GROUP

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

Revenue recognition

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

Service income is recognised when the relevant services are rendered.

Sales of investments in securities are recognised when the sales contract become unconditional.

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

Rental income, including rentals invoiced in advance from properties let under operating leases, is recognised on a straight line basis over the relevant lease term.

Investment properties

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

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

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

No depreciation and amortisation is provided on investment properties except where the unexpired term, including the renewal period, of the relevant lease is twenty years or less.

Property, plant and equipment

Property, plant and equipment is stated at cost less depreciation and amortisation. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after the 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.

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

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

— 48 —

Star Bio-tech (Holdings) Limited

APPENDIX II

FINANCIAL INFORMATION OF THE GROUP

Depreciation and amortisation are provided to write off the costs of the assets over their estimated useful lives, using the straight line method, at the following rates per annum:

Land held on long leases Over the terms of the leases Land held on medium term leases 2.5% or over the terms of the leases whichever is shorter Buildings 2.5% or over the terms of the leases whichever is shorter Leasehold improvement 10% or over the terms of the leases whichever is shorter Furniture, fixture and equipment 10-20% Plant and machinery 10% Motor vehicles 20%

Investments in securities

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

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

Investment securities, which are securities held for an identified long-term strategic purpose, are measured at subsequent reporting dates at cost, as reduced by any identified impairment losses.

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

Club debenture

Club debenture is stated at cost less any identified impairment loss.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost, which comprises all costs of purchase and, where applicable, cost of conversion and other costs that have been incurred in bringing the inventories to their present location and condition, is calculated using the weighted average method. Net realisable value represents the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

Foreign currencies

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

On consolidation, the financial statements of the subsidiaries which are denominated in currencies other than Hong Kong dollars are translated at the rates ruling on the balance sheet date. Exchange differences arising on consolidation are dealt with in reserves.

Taxation

The charge for taxation is based on the results for the year/period after adjusting for items which are non-assessable or disallowed. Timing differences arise from the recognition for tax purposes of certain items of income and expense in a different accounting period from that in which they are recognised in the financial statements. The tax effect of the resulting timing differences, computed 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.

— 49 —

Star Bio-tech (Holdings) Limited

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Operating leases

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

Retirement benefit scheme

The retirement benefit scheme contributions relating to the mandatory provident fund scheme charged to the income statement represent contributions payable to the schemes by the Group at rates specified in the rules of the schemes.

The amount of contributions payable to pension schemes in jurisdictions other than Hong Kong are charged to the income statement.

Cash equivalents

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

— 50 —

Star Bio-tech (Holdings) Limited

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

6. TURNOVER AND SEGMENTAL INFORMATION

An analysis of the Group’s turnover and contributions to operating results by principal activity and geographical market is as follows:

1.7.2000 to 30.6.2001 Turnover Contributions to loss from operations HK$’000 HK$’000 9,058 (6,192) 15,328 (2,518) 370 (957) 5,102 (1,471) 213 (3,406) 30,071 (14,544) (52,463) (67,007) (2,549) — (26,737) 8,069 — (4,480) — (92,704) 16,075 (6,841) 12,041 (7,488) 1,955 (215)	1.7.2000 to 30.6.2001 Turnover Contributions to loss from operations HK$’000 HK$’000 9,058 (6,192) 15,328 (2,518) 370 (957) 5,102 (1,471) 213 (3,406) 30,071 (14,544) (52,463) (67,007) (2,549) — (26,737) 8,069 — (4,480) — (92,704) 16,075 (6,841) 12,041 (7,488) 1,955 (215)	1.7.2000 to 30.6.2001 Turnover Contributions to loss from operations HK$’000 HK$’000 9,058 (6,192) 15,328 (2,518) 370 (957) 5,102 (1,471) 213 (3,406) 30,071 (14,544) (52,463) (67,007) (2,549) — (26,737) 8,069 — (4,480) — (92,704) 16,075 (6,841) 12,041 (7,488) 1,955 (215)	1.4.1999 to 30.6.2000 Turnover Contributions to loss from operations HK$’000 HK$’000 13,810 (5,589 — — — — — — — — 13,810 (5,589	1.4.1999 to 30.6.2000 Turnover Contributions to loss from operations HK$’000 HK$’000 13,810 (5,589 — — — — — — — — 13,810 (5,589
				(5,589
		) ) ) ) )		(14,771
	(67,007 (2,549 — (26,737 8,069 — (4,480 —			(20,360 (1,335 (31,358 (17,240 — 133,651 (23,338 (5,671
	(92,704)			34,349
	(6,841) (7,488) (215)		— 13,810 —	— (5,589 —
30,071	(14,544) (52,463) (67,007) (2,549) — (26,737) 8,069 — (4,480) —		13,810	(5,589
		) ) ) ) )		(14,771
	(67,007 (2,549 — (26,737 8,069 — (4,480 —			(20,360 (1,335 (31,358 (17,240 — 133,651 (23,338 (5,671
	(92,704)			34,349

— 51 —

Star Bio-tech (Holdings) Limited

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

7. LOSS ATTRIBUTABLE TO PROPERTIES

1.7.2000 to 30.6.2001 1.4.1999 to 30.6.2000 HK$’000 HK$’000 Deficit on revaluation of investment properties (320) (1,054) (Loss) gain on disposal of investment properties (400) 49 (720) (1,005) LOSS FROM OPERATIONS 1.7.2000 to 30.6.2001 1.4.1999 to 30.6.2000 HK$’000 HK$’000 Loss from operations has been arrived at after charging: Staff costs: Directors’ remuneration (note 10) 27,530 3,730 Other staff costs 13,830 2,948 Total staff costs 41,360 6,678 Auditors’ remuneration: Current year 1,100 900 Overprovision in prior year — (49) Depreciation and amortisation Owned assets 4,238 4,015 Assets held under hire purchase contracts — 23 Loss on disposal of property, plant and equipment 2,342 612 Operating lease payments in respect of rented premises 8,424 1,991 and after crediting: Interest income 903 202 Rental income from properties under operating leases, net of outgoings of HK$10,000 (2000: HK$15,000) 533 65	1.7.2000 to 30.6.2001 1.4.1999 to 30.6.2000 HK$’000 HK$’000 Deficit on revaluation of investment properties (320) (1,054) (Loss) gain on disposal of investment properties (400) 49 (720) (1,005) LOSS FROM OPERATIONS 1.7.2000 to 30.6.2001 1.4.1999 to 30.6.2000 HK$’000 HK$’000 Loss from operations has been arrived at after charging: Staff costs: Directors’ remuneration (note 10) 27,530 3,730 Other staff costs 13,830 2,948 Total staff costs 41,360 6,678 Auditors’ remuneration: Current year 1,100 900 Overprovision in prior year — (49) Depreciation and amortisation Owned assets 4,238 4,015 Assets held under hire purchase contracts — 23 Loss on disposal of property, plant and equipment 2,342 612 Operating lease payments in respect of rented premises 8,424 1,991 and after crediting: Interest income 903 202 Rental income from properties under operating leases, net of outgoings of HK$10,000 (2000: HK$15,000) 533 65	1.7.2000 to 30.6.2001 1.4.1999 to 30.6.2000 HK$’000 HK$’000 Deficit on revaluation of investment properties (320) (1,054) (Loss) gain on disposal of investment properties (400) 49 (720) (1,005) LOSS FROM OPERATIONS 1.7.2000 to 30.6.2001 1.4.1999 to 30.6.2000 HK$’000 HK$’000 Loss from operations has been arrived at after charging: Staff costs: Directors’ remuneration (note 10) 27,530 3,730 Other staff costs 13,830 2,948 Total staff costs 41,360 6,678 Auditors’ remuneration: Current year 1,100 900 Overprovision in prior year — (49) Depreciation and amortisation Owned assets 4,238 4,015 Assets held under hire purchase contracts — 23 Loss on disposal of property, plant and equipment 2,342 612 Operating lease payments in respect of rented premises 8,424 1,991 and after crediting: Interest income 903 202 Rental income from properties under operating leases, net of outgoings of HK$10,000 (2000: HK$15,000) 533 65
	41,360	6,678
	1,100 — 4,238 — 2,342 8,424 903 533	900 (49) 4,015 23 612 1,991 202 65

8. LOSS FROM OPERATIONS

— 52 —

Star Bio-tech (Holdings) Limited

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

9. FINANCE COSTS

1.7.2000 to 30.6.2001 1.4.1999 to 30.6.2000 HK$’000 HK$’000 Interest on: Bank and other borrowings wholly repayable within five years 2,462 1,310 Convertible notes 87 — Hire purchase contracts — 25 2,549 1,335 DIRECTORS’ REMUNERATION 1.7.2000 to 30.6.2001 1.4.1999 to 30.6.2000 HK$’000 HK$’000 Directors’ fees: Executive — — Non-executive — — Independent non-executive — — — — Other emoluments Executive Salaries and other benefits 11,828 3,330 Discretionary bonus 14,936 — Contributions to retirement benefit scheme 28 — Compensation for loss of office 551 — Independent non-executive 187 400 27,530 3,730	1.7.2000 to 30.6.2001 1.4.1999 to 30.6.2000 HK$’000 HK$’000 Interest on: Bank and other borrowings wholly repayable within five years 2,462 1,310 Convertible notes 87 — Hire purchase contracts — 25 2,549 1,335 DIRECTORS’ REMUNERATION 1.7.2000 to 30.6.2001 1.4.1999 to 30.6.2000 HK$’000 HK$’000 Directors’ fees: Executive — — Non-executive — — Independent non-executive — — — — Other emoluments Executive Salaries and other benefits 11,828 3,330 Discretionary bonus 14,936 — Contributions to retirement benefit scheme 28 — Compensation for loss of office 551 — Independent non-executive 187 400 27,530 3,730	1.7.2000 to 30.6.2001 1.4.1999 to 30.6.2000 HK$’000 HK$’000 Interest on: Bank and other borrowings wholly repayable within five years 2,462 1,310 Convertible notes 87 — Hire purchase contracts — 25 2,549 1,335 DIRECTORS’ REMUNERATION 1.7.2000 to 30.6.2001 1.4.1999 to 30.6.2000 HK$’000 HK$’000 Directors’ fees: Executive — — Non-executive — — Independent non-executive — — — — Other emoluments Executive Salaries and other benefits 11,828 3,330 Discretionary bonus 14,936 — Contributions to retirement benefit scheme 28 — Compensation for loss of office 551 — Independent non-executive 187 400 27,530 3,730
	— 11,828 14,936 28 551 187	— 3,330 — — — 400
	27,530	3,730

10. DIRECTORS’ REMUNERATION

The emoluments of the directors were within the following bands:

	No. of	directors
	1.7.2000 to	1.4.1999	to
	30.6.2001	30.6.2000
Nil to HK$1,000,000	9		10
HK$1,000,001 to HK$1,500,000	1		2
HK$2,000,001 to HK$2,500,000	1		—
HK$3,500,001 to HK$4,000,000	2		—
HK$15,000,001 to HK$15,500,000	1		—

— 53 —

Star Bio-tech (Holdings) Limited

APPENDIX II

FINANCIAL INFORMATION OF THE GROUP

The five highest paid individuals of the Group for the year ended 30th June, 2001 and for the period from 1st April, 1999 to 30th June, 2000 were all directors of the Company and details of their emoluments are set out above.

During the year, an amount of HK$551,000 (2000: nil) was paid to one director as compensation for loss of office. Other than that, no emoluments were paid by the Group to any of the directors as an inducement to join the Group or as compensation for loss of office.

11. LOSS ATTRIBUTABLE TO INVESTMENTS

1.7.2000 to 30.6.2001 1.4.1999 to 30.6.2000 HK$’000 HK$’000 Gain (loss) on disposal/dilution of subsidiaries (a) 7,316 (9,324) Less: Goodwill previously written off against reserves (568) — 6,748 (9,324) Gain on disposal of investments in securities 156 — Provision for payments made in connection with investment projects (b) (13,633) — Impairment loss recognised in respect of goodwill (c) (18,000) — Unrealised loss in investments in securities (2,008) — Loss arising in connection with committed acquisition of additional interests in associate (d) — (5,965) Loss arising in connection with committed repurchase of interest in a subsidiary (e) — (1,951) (26,737) (17,240)	1.7.2000 to 30.6.2001 1.4.1999 to 30.6.2000 HK$’000 HK$’000 Gain (loss) on disposal/dilution of subsidiaries (a) 7,316 (9,324) Less: Goodwill previously written off against reserves (568) — 6,748 (9,324) Gain on disposal of investments in securities 156 — Provision for payments made in connection with investment projects (b) (13,633) — Impairment loss recognised in respect of goodwill (c) (18,000) — Unrealised loss in investments in securities (2,008) — Loss arising in connection with committed acquisition of additional interests in associate (d) — (5,965) Loss arising in connection with committed repurchase of interest in a subsidiary (e) — (1,951) (26,737) (17,240)	1.7.2000 to 30.6.2001 1.4.1999 to 30.6.2000 HK$’000 HK$’000 Gain (loss) on disposal/dilution of subsidiaries (a) 7,316 (9,324) Less: Goodwill previously written off against reserves (568) — 6,748 (9,324) Gain on disposal of investments in securities 156 — Provision for payments made in connection with investment projects (b) (13,633) — Impairment loss recognised in respect of goodwill (c) (18,000) — Unrealised loss in investments in securities (2,008) — Loss arising in connection with committed acquisition of additional interests in associate (d) — (5,965) Loss arising in connection with committed repurchase of interest in a subsidiary (e) — (1,951) (26,737) (17,240)
	6,748 156 (13,633) (18,000) (2,008) — —	(9,324) — — — — (5,965) (1,951)
	(26,737)	(17,240)

(a) The net gain on disposal/dilution of subsidiaries during the year comprises (i) the gain on disposal of the Group’s entire interest in Vincent Honour Limited of HK$7,468,000; and (ii) the net loss on dilution of the Group’s interest in Thinking Group Holdings Limited of HK$720,000.

During the period from 1st April, 1999 to 30th June, 2000, the amount represented loss on disposal of the Group’s entire interest in Chung Hwa Media Holdings Limited (“Chung Hwa Media”) and those subsidiaries held under Chung Hwa Media.

(b) During the year, the Group entered into an agreement (“Acquisition Agreement”) with a third party to acquire a 25% equity interest in a company which operates a website for provision of trade information in the PRC. A payment of HK$13,000,000 was made by the Group for such investment.

As the transfer of equity interest has not been completed, and following an assessment of business prospects of the web site, the Group entered into agreement to terminate the Acquisition Agreement and the payment made, which was accordingly treated as deposit and prepayment, will be refunded to the Group. A provision of HK$9,500,000 was made during the year in view of the uncertainty on the recoverability of the outstanding amount.

The Group entered into agreement with two other third parties to establish an internet based business to business trading platform for online trading of sugar and wine in the PRC. An initial payment of HK$4,133,000 was made for this investment project. Due to changes in market conditions, the investment project was temporarily suspended and a provision of HK$4,133,000 was accordingly made against the initial payment.

— 54 —

Star Bio-tech (Holdings) Limited

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(c) The amount represented an impairment loss recognised in respect of all of the goodwill relating to the acquisition of the entire interest in Cheung On Consultants Limited and 20% interest in Coriolan Limited during the year.
(d) At the time of the formation of Chung Hwa Food & Beverages Limited (“CHFBL”) on 25th May, 1996, the Group and the other investors of CHFBL (“JV Partners”) signed an agreement (“JV Agreement”) which stated that CHFBL would seek a listing on an appropriate stock exchange within three years from the date of signing of the JV Agreement. In the event that such listing did not take place, the JV Agreement provided that the JV Partners have an option to exchange their shares in CHFBL for the Company’s shares, during the period commencing from the third anniversary (i.e. 25th May, 1999) and ending on the fourth anniversary of the date of the JV Agreement. The number of shares to be issued pursuant to the exercise of the option by the JV Partners would depend on the prevailing market price of the Company’s shares at the time when the option notice is served by the JV Partners.

On 29th December, 1999, the Group entered into a supplementary agreement to the JV Agreement with the JV Partners whereby the Group agreed to issue and allot 504,505,807 shares of HK$0.10 per share to the JV Partners to discharge in full all the obligations of the Group under the JV Agreement and a provision of HK$50,451,000 for the purchase of shares in CHFBL was made in the financial statements for the year ended 31st March, 1999.

During the period from 1st April, 1999 to 30th June, 2000, the Company issued and allotted 504,505,807 shares of HK$0.10 each to the JV Partners in exchange for its 50% shareholding in CHFBL, which then became a wholly-owned subsidiary of the Group. An additional loss of approximately HK$5,965,000 arose from such acquisition of interests in CHFBL.

(e) On 26th February, 1997, the Group entered into an agreement (the “CHFB Agreement”) with a third party (“Investor”) for the sale of its 21.01% interest in Chung Hwa Food & Beverages Holdings Limited (“CHFBHL”), a wholly-owned subsidiary of the Group. Pursuant to the CHFB Agreement, if this subsidiary failed to obtain a listing status three years from the date of the CHFB Agreement, the Investor would be granted a put option one year thereafter which requires the Group to repurchase the 21.01% interest in CHFBHL from the Investor at a consideration of approximately HK$27,300,000. The consideration would be satisfied by either issue and allotment of the Company’s shares or by payment in cash plus interest thereon at 20% per annum charging from the date the CHFB Agreement was completed. The number of shares to be issued pursuant to the exercise of the option by the Investor would depend on the prevailing market price of the Company’s shares at the time when the option notice was served by the Investor.

Following the exercise of the put option by the Investor, the Group agreed with the Investor to repurchase the 21.01% interests in CHFBHL in cash. Accordingly, a provision of HK$32,008,000 was made in the financial statements for the year ended 31st March, 1999.

During the period from 1st April, 1999 to 30th June, 2000, a further amount of HK$1,951,000 in respect of accrued interest was provided in the financial statements.

12. GAIN ON WAIVER OF OBLIGATIONS

The amount represents the waiver of the Group’s outstanding obligations to certain creditors during the year.

— 55 —

Star Bio-tech (Holdings) Limited

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

13. GAIN ATTRIBUTABLE TO FINANCIAL RESTRUCTURING

	1.7.2000 to	1.4.1999 to
	30.6.2001	30.6.2000
	HK$’000	HK$’000
Waiver of unsecured financial obligations by banks,
a financial institution and creditors	—	125,985
Gain on discharge of a secured financial obligation*	—	7,000
Waiver of accrued interest	—	2,545
	—	135,530
Less: Expenses incurred in connection with the financial restructuring	—	(1,879)
	—	133,651

The gain arose when the obligation was satisfied by transferring the collateral to a bank. The amount represents the difference between the agreed value of the collateral to satisfy the obligation to the bank and the carrying value of such collateral as stated in the Group’s financial statements.

14. IMPAIRMENT LOSS RECOGNISED IN RESPECT OF PROPERTY, PLANT AND EQUIPMENT

The amount represents the impairment loss recognised in respect of property, plant and equipment in respect of certain subsidiaries in the PRC following a rationalisation of the Group’s business.

15. PROVISION FOR PAYMENTS UNDER GUARANTEE

During the period from 1st April, 1999 to 30th June, 2000, the amount represented provision for obligations crystallising on guarantees given by the Group to third parties.

16. TAXATION

The charge for the year/period represented underprovision of Hong Kong Profits Tax in prior year.

No provision for taxation has been made in the financial statements as the Group had incurred tax loss for the year/period.

Taxation in other jurisdictions is calculated at the rates prevailing in the respective jurisdictions. As the Company’s PRC subsidiaries are Sino-foreign joint venture enterprises, they are eligible for certain tax holidays and concessions. Accordingly, certain of the PRC subsidiaries were subject to PRC income tax at reduced rates. No provision for taxation has been made in the financial statements as the PRC subsidiaries had incurred tax losses for the year.

The Group has no other assessable income subject to income tax in other jurisdictions.

Details of unrecognised deferred taxation are set out in note 33.

17. NET (LOSS) PROFIT FOR THE YEAR/PERIOD

Of the Group’s net loss for the year of HK$92,483,000 (1st April, 1999 to 30th June, 2000: a profit of HK$34,220,000), a loss of HK$142,032,000 (1.4.1999 to 30.6.2000: a profit of HK$60,259,000) has been dealt with in the financial statements of the Company.

— 56 —

Star Bio-tech (Holdings) Limited

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

18. (LOSS) EARNINGS PER SHARE

The calculation of the basic (loss) earnings per share is based on the net loss for the year of HK$92,483,000 (1st April, 1999 to 30th June, 2000: profit of HK$34,220,000) and on the weighted average number of 14,608,274,971 (1st April, 1999 to 30th June, 2000: weighted average number of 1,719,225,884) ordinary shares in issue.

No diluted loss per share has been presented for the current year as the exercise of the share options and conversion of the convertible notes would result in a decrease in the loss per share.

The diluted earnings per share for the period from 1st April, 1999 to 30th June, 2000 was based on the profit for the period of HK$34,220,000 and on the adjusted weighted average number of 1,806,370,942 ordinary shares in issue during the period, after adjustment for the effect of dilutive potential ordinary shares on unexercised share options during the period.

19. INVESTMENT PROPERTIES

	THE GROUP
	HK$’000
AT VALUATION
At 1st July, 2000	5,431
Disposals	(2,891)
Deficit arising on revaluation (note 7)	(320)
At 30th June, 2001	2,220

The Group’s investment properties were revalued at 30th June, 2001 by LCH (Asia-Pacific) Surveyors Limited, an independent firm of professional property valuers, on an open market value basis. The deficit arising on revaluation has been charged to the income statement.

The Group’s investment properties were vacant during the year.

The carrying value of the investment properties comprises:

				THE	GROUP
				2001	2000
				HK$’000	HK$’000
Properties	held	under	long term leases in Hong Kong	2,220	3,870
Properties	held	under	medium-term leases in Hong Kong	—	1,561
				2,220	5,431

— 57 —

Star Bio-tech (Holdings) Limited

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

20. PROPERTY, PLANT AND EQUIPMENT

Leasehold land and buildings Leasehold improvement Furniture, fixtures and equipment Plant and machinery HK$’000 HK$’000 HK$’000 HK$’000 13,076 14,816 4,283 34,166 — 1,918 6,328 461 7,364 750 1,547 672 (3,723) (1,918) (269) —	Leasehold land and buildings Leasehold improvement Furniture, fixtures and equipment Plant and machinery HK$’000 HK$’000 HK$’000 HK$’000 13,076 14,816 4,283 34,166 — 1,918 6,328 461 7,364 750 1,547 672 (3,723) (1,918) (269) —	Leasehold land and buildings Leasehold improvement Furniture, fixtures and equipment Plant and machinery HK$’000 HK$’000 HK$’000 HK$’000 13,076 14,816 4,283 34,166 — 1,918 6,328 461 7,364 750 1,547 672 (3,723) (1,918) (269) —	Leasehold land and buildings Leasehold improvement Furniture, fixtures and equipment Plant and machinery HK$’000 HK$’000 HK$’000 HK$’000 13,076 14,816 4,283 34,166 — 1,918 6,328 461 7,364 750 1,547 672 (3,723) (1,918) (269) —	Motor vehicles HK$’000 1,334 497 172 (547)	Total HK$’000 67,675 9,204 10,505 (6,457)
16,717 4,714 4,480 487 (1,811) 7,870	15,566 13,311 — 958 (383) 13,886	11,889 4,020 — 1,047 (91) 4,976	35,299 26,399 — 1,706 — 28,105	1,456 1,131 — 40 (365) 806	80,927
					49,575 4,480 4,238 (2,650)
					55,643
8,847 8,362	1,680 1,505	6,913 263	7,194 7,767	650 203	25,284
					18,100

— 58 —

Star Bio-tech (Holdings) Limited

APPENDIX II

FINANCIAL INFORMATION OF THE GROUP

The net book value of properties of the Group shown above comprises leasehold properties held in the PRC under medium-term leases.

Furniture, fixtures and equipment Motor vehicles HK$’000 HK$’000 THE COMPANY COST At 1st July, 2000 255 206 Additions 3,862 123 Disposals — (206) At 30th June, 2001 4,117 123 DEPRECIATION At 1st July, 2000 4 3 Provided for the year 318 31 Eliminated on disposals — (24) At 30th June, 2001 322 10 NET BOOK VALUES At 30th June, 2001 3,795 113 At 30th June, 2000 251 203 21. INTERESTS IN SUBSIDIARIES 2001 HK$’000 Unlisted shares, at cost less provision 2,000 Amounts due from subsidiaries 164,939 Less: Provision (160,832) 6,107	Furniture, fixtures and equipment Motor vehicles HK$’000 HK$’000 THE COMPANY COST At 1st July, 2000 255 206 Additions 3,862 123 Disposals — (206) At 30th June, 2001 4,117 123 DEPRECIATION At 1st July, 2000 4 3 Provided for the year 318 31 Eliminated on disposals — (24) At 30th June, 2001 322 10 NET BOOK VALUES At 30th June, 2001 3,795 113 At 30th June, 2000 251 203 21. INTERESTS IN SUBSIDIARIES 2001 HK$’000 Unlisted shares, at cost less provision 2,000 Amounts due from subsidiaries 164,939 Less: Provision (160,832) 6,107	Total HK$’000 461 3,985 (206)
4,117 4 318 — 322	123 3 31 (24) 10	4,240
		7 349 (24)
		332
3,795 251	113 203 2001 HK$’000 2,000 164,939 (160,832) 6,107	3,908
		454
		2000 HK$’000 — 59,469 (59,469)
		—

The amounts due from subsidiaries are unsecured, non-interest bearing and have no fixed repayment terms. In the opinion of the directors, the amounts are unlikely to be repaid within one year from the balance sheet date and are therefore classified as non-current.

— 59 —

Star Bio-tech (Holdings) Limited

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Details of the principal subsidiaries as at 30th June, 2001 are as follows:

	Place of
	incorporation/		Proportion of nominal
	registration and	Issued and fully paid share	value of issued capital		Principal
Name	operation	capital/registered capital	held by the Company		activities
			Directly	Indirectly
Cheung On Consultants	British Virgin Islands	US$100	—	100%	Investment
Limited	(“BVI”)				holding
CHFBHL	BVI	Ordinary shares	100%	—	Investment
		US$5,760			holding
		Preference shares “A”	100%	—
		US$3,498,790, non-voting,
		priority on liquidation to
		ordinary shares and
		Preference shares “B”
		Preference shares “B”	100%	—
		US$13,199,450,
		non-voting, priority
		on liquidation to
		ordinary shares
CHFBL	Hong Kong	Ordinary shares	100%	—	Investment
		HK$10,000			holding
		Preference shares “A”
		HK$37,995,000
		Preference shares “B”
		HK$37,995,000
China Eastern Investment	BVI	US$1	—	100%	Investment
Limited					holding
Cosmos Wealth Investment	Hong Kong	HK$2	—	100%	Property holding
Limited
Fu Yuk DNA Holistic Limited	Hong Kong	HK$2	—	100%	Trading of
					health products
Full Support Technology	BVI	US$1	—	100%	Investment
Limited					holding
Harbin Dongfang	PRC	RMB16,905,299	—	100%	Manufacture and
(Hong Kong)					sale of food
Food Company Limited					products
(“Harbin Dongfang”)
Harbin HDL (New Zealand)	PRC	RMB5,618,976	—	100%	Manufacture and
Limited					sale of food
					products

— 60 —

Star Bio-tech (Holdings) Limited

APPENDIX II

FINANCIAL INFORMATION OF THE GROUP

	Place of
	incorporation/		Proportion of nominal
	registration and	Issued and fully paid share	value of issued capital		Principal
Name	operation	capital/registered capital	held by the Company		activities
			Directly	Indirectly
High Stone Assets Limited	BVI	US$1	—	100%	Investment
(“High Stone”)					holding
iTech Investments Inc.	BVI	US$10	—	80%	Investment
(“iTech”)					holding
Jamison Group Limited	BVI	HK$75,000,000	—	100%	Investment
					holding
Rich City Investments	Hong Kong	HK$2	100%	—	Investment
Limited					holding
Six Forest Bio-Science	BVI	US$1	100%	—	Investment
Holdings Limited					holding
Credit Card DNA Security	Hong Kong	HK$2	—	100%	Development of
System Limited (Formerly					e-business
konwn as Star Cyber DNA					security
Limited)
Star Cyberpower Limited	BVI	US$1	100%	—	Investment
					holding
Star Cyberpower Management	Hong Kong	HK$10,000	100%	—	Provision of
Limited					management
					services
Star Cyberpower V.F. Limited	BVI	US$1	100%	—	Investment
					holding
Special Gold Assets Limited	BVI	HK$3,900,000	—	100%	Investment
					holding
Starstruck Group Limited	BVI	US$1	—	100%	Investment
					holding
Star Internet Financial	Hong Kong	HK$200	—	100%	Provision of
Information Services					financial
Limited					information
					services
Star Paging Telecom	PRC	HK$15,000,000	—	80%	Manufacture and
Technology (Shenzhen)					sale of financial
Company Limited					pagers

— 61 —

Star Bio-tech (Holdings) Limited

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

	Place of
	incorporation/		Proportion of nominal
	registration and	Issued and fully paid share	value of issued capital		Principal
Name	operation	capital/registered capital	held by the Company		activities
			Directly	Indirectly
Thinking Group Limited	Hong Kong	HK$3,708,235	—	67%	Trading of
					electronic
					products
Thinking Group Holdings	BVI	HK$4,500,000	—	67%	Investment
Limited					holding
Xiamen Dongchen Food	PRC	RMB15,000,000	—	100%	Manufacture and
Industry Company Limited					sale of food
					products

A subsidiary of CHFBL has debt securities outstanding at 30th June, 2001, details of which are set out in note 28 to the financial statements.

None of the other subsidiaries of the Group had any debt securities outstanding at the balance sheet date or at any time during the year/period.

22. INTEREST IN A SUBSIDIARY NOT CONSOLIDATED

Share of net assets The above is represented by: Share of net assets of subsidiary not consolidated Less: Impairment loss recognised	THE GROUP 2001 2000 HK$’000 HK$’000 — —	THE GROUP 2001 2000 HK$’000 HK$’000 — —
	13,853 (13,853)	13,853 (13,853
	—	—

Details of the subsidiary not consolidated as at 30th June, 2001 are as follows:

			Proportion of
		Issued and	nominal value of
	Place of	fully paid	registered capital
	incorporation/	registered	held indirectly
Name	and operation	capital	by the Company	Principal activity
Nanchang Pepsi Cola Beverage	PRC	US$2,154,000	75%	Bottling of
Co. Ltd. (“Nanchang Pepsi”)				beverages

— 62 —

Star Bio-tech (Holdings) Limited

APPENDIX II

FINANCIAL INFORMATION OF THE GROUP

The Group through CHFBL holds 75% interest in Nanchang Pepsi. The Group does not have control or significant influence over Nanchang Pepsi as there are restrictions imposed on the Group’s ability to appoint directors into the board of directors of Nanchang Pepsi. Accordingly, Nanchang Pepsi is considered as a subsidiary not consolidated and dealt with as investment in securities. The investment in Nanchang Pepsi is stated at the carrying amount at the date of lost control less any subsequent impairment loss.

23. INTERESTS IN ASSOCIATES

				THE GROUP	THE GROUP
				2001	2000
				HK$’000	HK$’000
Share of net assets				—	—
Details of the principal	associates as at 30th	June, 2001 are as follows:
		Proportion of nominal	value
	Place of	of issued share capital
Name of company	Incorporation	held by the Group		Principal activity
Coriolan Limited	BVI		20%	Investment holding
Stareasy.com Limited	Hong Kong		20%	Provision of media agency services

24. INVESTMENTS IN SECURITIES

Equity securities in Hong Kong: Listed Unlisted Club debenture Classified as Current Non-current Market value of listed securities	THE GROUP 2001 2000 HK$’000 HK$’000 3,141 — 4,000 —	THE GROUP 2001 2000 HK$’000 HK$’000 3,141 — 4,000 —
	7,141 150	— 150
	7,291	150
	3,141 4,150	— 150
	7,291 3,141	150
		—

— 63 —

Star Bio-tech (Holdings) Limited

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

25. INVENTORIES

Raw materials Work in progress Finished goods	THE GROUP 2001 2000 HK$’000 HK$’000 2,380 958 714 — 4,685 142 7,779 1,100	THE GROUP 2001 2000 HK$’000 HK$’000 2,380 958 714 — 4,685 142 7,779 1,100
		1,100

Inventories are stated at cost.

26. DEBTORS, DEPOSITS AND PREPAYMENTS

Included in the debtors, deposits and prepayments was an amount of HK$14,586,000 in respect of payment made in connection with an investment. The Group entered into agreement (“Cooperation Agreement”) with a third party (the “Partner”) in which both parties agreed to invest in a company which is mainly engaged in the research, development and marketing of Chinese character input software and Chinese language technology. The Group was required to inject an amount of US$3,000,000 (equivalent to approximately HK$23,400,000) in return for 25% equity interest in this company within a specified period of time (“Period”). As at 30th June, 2001, the Group had injected the amount of HK$14,586,000. Having failed to make the injection in full within the Period, the Group is subject to a forfeiture of US$1,000,000 (equivalent to approximately HK$7,800,000) according to the Cooperation Agreement. The Company is currently in the process of negotiation with the Partner for the extension of the Period and, accordingly, no provision for any amount to be forfeited has been made in these financial statements.

The Group allows an average credit period of 60 days to its trade customers. Included in debtors, deposits and prepayments are trade debtors with the following aged analysis:

0-60 days 61-90 days Over 90 days Other debtors, deposits and prepayments	THE GROUP 2001 2000 HK$’000 HK$’000 3,553 — — — — 207 3,553 207 25,176 9,974 28,729 10,181	THE GROUP 2001 2000 HK$’000 HK$’000 3,553 — — — — 207 3,553 207 25,176 9,974 28,729 10,181
		207 9,974
		10,181

— 64 —

Star Bio-tech (Holdings) Limited

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

27. CREDITORS AND ACCRUED CHARGES

Included in creditors and accrued charges are trade creditors with the following aged analysis:

0-60 days 61-90 days Over 90 days Accrued charges	THE GROUP 2001 2000 HK$’000 HK$’000 4,325 1,701 430 31 3,923 3,520 8,678 5,252 33,685 34,464 42,363 39,716	THE GROUP 2001 2000 HK$’000 HK$’000 4,325 1,701 430 31 3,923 3,520 8,678 5,252 33,685 34,464 42,363 39,716
		5,252 34,464
		39,716

28. LOAN

The loan was granted by a minority shareholder of a subsidiary of CHFBL in previous year. The loan is unsecured, bears interest at 8% per annum and the holder of the loan has the right on the repayment date to convert the loan into ordinary shares of that subsidiary.

No conversion rights have been exercised during the year. At 30th June, 2001, the convertible loan is due for repayment.

— 65 —

Star Bio-tech (Holdings) Limited

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

29. SHARE CAPITAL

Authorised Ordinary shares of HK$0.10 each at 1st April, 1999 Share subdivision Ordinary shares of HK$0.01 each at 1st July, 2000 and 30th June, 2001 Issued and fully paid Ordinary shares of HK$0.10 each at 1st April, 1999 Issue of new shares at HK$0.10 each Ordinary shares of HK$0.10 each Share reduction Share consolidation Issue of new shares of HK$0.01 each Ordinary shares of HK$0.01 each at 1st July, 2000 Issue of new shares of HK$0.01 each Conversion of convertible notes Exercise of share options Ordinary shares of HK$0.01 each at 30th June, 2001	Numberof shares 6,000,000,000 54,000,000,000 60,000,000,000	Value HK$’000 600,000 —
		600,000
	2,522,529,039 504,505,807 3,027,034,846 — (1,513,517,423) 11,466,650,310 12,980,167,733 2,643,425,890 2,500,000,000 1,336,033,547	252,253 50,451
		302,704 (287,568) — 114,666
		129,802 13,834 25,000 25,960
	19,459,627,170	194,596

The movements in the ordinary share capital for the period from 1st April, 1999 to 30th June, 2000 were as follows:

(a) 504,505,807 ordinary shares of HK$0.10 each were issued to the JV Partners at HK$0.10 per share to discharge all the obligations of the Group under the JV Agreement, details of which are set out in note 11(d).
(b) Pursuant to resolutions passed at a special general meeting of the Company on 12th June, 2000:
(i) The Group’s financial restructuring was carried out and completed on 14th June, 2000, which involved the restructuring of the share capital:
- The par value of the issued shares was reduced from HK$0.10 each to HK$0.005 each.
- Every two issued shares of HK$0.005 each in the capital of the Company was consolidated into one new share of HK$0.01 each.
- Every unissued shares of HK$0.10 each in the authorised share capital of the Company existing after completion of the Share Reduction and the Share Consolidation is subdivided into 10 shares of HK$0.01 each.
(ii) 5,500,000,000 shares of HK$0.01 each were subscribed by Sheung Hai Developments Limited (“Sheung Hai”), a company beneficially owned by Wong Kam Fu, Nelson at HK$0.01 per share.

— 66 —

Star Bio-tech (Holdings) Limited

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(iii) 4,500,000,000 shares of HK$0.01 each were issued and allotted to institutional investors at HK$0.01 per share by placements.
(iv) 1,466,650,310 shares of HK$0.01 each were issued and allotted to banks, a financial institution and creditors at HK$0.01 per share as part of the consideration to discharge the Group’s obligations to these parties, under the restructuring of the Group’s obligations to banks, a financial institution and creditors pursuant to the Group’s financial restructuring.

The movements in the ordinary share capital for the year ended 30th June, 2001 are as follows:

(a) Pursuant to a resolution passed at a special general meeting of the Company on 12th June, 2000, 33,425,890 shares of HK$0.01 each were issued and allotted to a creditor at HK$0.01 per share as part of the consideration to discharge in full all the obligations of the Group pursuant to the Group’s financial restructuring.
(b) 150,000,000 shares of HK$0.01 each were issued and allotted to Millennium Group Limited at HK$0.04 per share, representing a discount of approximately 7% on the closing price of HK$0.043 per share on 14th July, 2000, under a private share placement.
(c) 1,200,000,000 shares of HK$0.01 each were issued and allotted to institutional investors at HK$0.018 per share, representing a discount of approximately 33.3% on the closing price of HK$0.027 per share on 1st November, 2000 under a private share placement.
Both shares mentioned in (b) and (c) were issued under the general mandate granted to the directors on 30th June, 2000.
(d) 1,260,000,000 shares of HK$0.01 each were issued and allotted to Wong Kam Fu, Nelson to satisfy the partial consideration for the acquisition of 80% interest in iTech.
The issue price of HK$0.01 per share was same as the closing price of HK$0.01 per share on 22nd February, 2001 and the shares were issued under the general mandate granted to the directors on 15th December, 2000.
(e) 1,600,000,000 shares and 900,000,000 shares of HK$0.01 each were issued and allotted to Gain Master Assets Limited (“Gain Master”) and Direct Gain Profits Limited (“Direct Gain”) at HK$0.018 and HK$0.01 per share, respectively, as a result of the conversion of convertible notes issued to these two parties during the year.
(f) As a result of the exercise of share options, 1,336,033,547 shares of HK$0.01 each were issued and allotted to Wong Kam Fu, Nelson.

All the shares issued during the year rank pari passu in all respects with the then existing shares.

30. SHARE OPTION

The Company has an employee share option scheme (the “Scheme”) under which the board of directors of the Company may grant options to eligible employees, including executive directors, of the Company and its subsidiaries, to subscribe for shares in the Company at a price equal to the higher of the nominal value of the Company’s shares and 80% of the average of the closing prices of the shares on the Stock Exchange on the five trading days immediately preceding the date of the grant of the options. The maximum number of shares in respect of which options may be granted under the Scheme shall not exceed 10% of the issued share capital of the Company from time to time.

Options granted are exercisable at any time during the two year period commencing six months after the date on which the option is accepted and expiring on the last day of the two year period or 10th April, 2004, whichever is the earlier.

— 67 —

Star Bio-tech (Holdings) Limited

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Movements in the number of employee share options granted under the Scheme during the year are as follows:

Exercisable period Exercise price HK$ 14.6.2000 - 13.6.2001 0.01 21.2.2001 - 5.3.2003 0.03842* 30.4.2001 - 27.5.2003* 0.0163 7.5.2001 - 6.5.2003 0.0168 18.11.2001 - 17.11.2003 0.01	Outstanding at 1.7.2000 2,596,033,547 — — — — 2,596,033,547	Number of share options Granted during the year Exercised during the year Lapsed/ cancelled during the year* — (1,336,033,547)(1,260,000,000) 800,000,000 — (223,000,000) 201,000,000 — (27,000,000) 429,000,000 — — 400,000,000 — — 1,830,000,000 (1,336,033,547)(1,510,000,000)	Outstanding at 30.6.2001 — 577,000,000 174,000,000 429,000,000 400,000,000
		1,830,000,000	1,580,000,000

Upon the acquisition of 80% interest in iTech from Wong Kam Fu, Nelson by the issue and allotment of 1,260,000,000 shares of HK$0.01 each in the Company, the number of shares options granted to Wong Kam Fu, Nelson was reduced by 1,260,000,000 accordingly.
** The exercise price of the aforesaid share options was amended from HK$0.0352 to HK$0.03842.
*** The exercisable periods are longer than two years because certain grantee of the options accepted the options on different dates.

The amount of consideration received by the Company for options granted during the year is not material.

— 68 —

Star Bio-tech (Holdings) Limited

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

31. RESERVES

Share premium Contributed surplus HK$’000 HK$’000 (Note a) 162,707 — — — — — (3,256) — — —	Share premium Contributed surplus HK$’000 HK$’000 (Note a) 162,707 — — — — — (3,256) — — —	Capital reserve HK$’000 (Note b) 1,700 — — — —	Goodwill reserve HK$’000 — — 9,052 — —	Deficit HK$’000 (588,880) 287,568 — — 34,220	Total HK$’000 (424,473 287,568 9,052 (3,256 34,220
159,451 26,900 (1,447) — — — —	— — — — — — —	1,700 — — — — — —	9,052 — — (41,539) 18,000 568 —	(267,092) — — — — — (92,483)	(96,889 26,900 (1,447 (41,539 18,000 568 (92,483
184,904	—	1,700	(13,919)	(359,575)	(186,890
184,904 —	— —	1,700 —	(13,919) —	(359,575) —	(186,890 —
184,904	—	1,700	(13,919)	(359,575)	(186,890
162,707 — (3,256) — 159,451 26,900 (1,447) —	93,289 — — — 93,289 — — —	— — — — — — — —	— — — — — — — —	(685,983) 287,568 — 60,259 (338,156) — — (142,032)	(429,987 287,568 (3,256 60,259
					(85,416 26,900 (1,447 (142,032
184,904	93,289	—	—	480,188)	(201,995

— 69 —

Star Bio-tech (Holdings) Limited

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Notes:

(a) The contributed surplus of the Company includes (i) the difference between the consolidated shareholders’ funds of the subsidiaries at the date at which they were acquired by the Company, and the nominal amount of the Company’s shares issued for the acquisition at the time of the group reorganisation prior to the listing of the Company’s shares in 1994 and; (ii) the surplus arising from the group reorganisation in 1998.
(b) The capital reserve of the Group represents the difference between the nominal amount of shares issued by the Company and the aggregate nominal amount of the issued share capital of subsidiaries acquired at the time of the group reorganisation prior to the listing of the Company’s shares in 1994.

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

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

In the opinion of the directors, no reserves are available for distribution to shareholders at 30th June, 2001 and 30th June,

32. CONVERTIBLE NOTE

Gain Master (a) Less: Conversion into 1,600,000,000 shares of HK$0.01 each Direct Gain (b) Less: Conversion into 900,000,000 shares of HK$0.01 each	THE GROUP AND THE COMPANY 2001 2000 HK$’000 HK$’000 (28,800) (28,800) —	THE GROUP AND THE COMPANY 2001 2000 HK$’000 HK$’000 (28,800) (28,800) —
	— 13,800 (9,000) 4,800	—
		— —
		—
	4,800	—

(a) The Group issued a convertible note in the amount of HK$28,800,000 to Gain Master. The convertible note bears interest at 4% per annum and is redeemable on 6th April, 2003 unless it is previously converted or cancelled. The holder of the convertible note has the option to convert the convertible note into ordinary shares of the Company of HK$0.01 each at an initial conversion price of HK$0.018 per share, subject to adjustment, at any time during the period from 7th April, 2001 to 6th April, 2003.

During the year, the holder of the convertible note exercised the option to convert the whole convertible note into 1,600,000,000 shares of HK$0.01 each at the conversion price of HK$0.018 per share.

— 70 —

Star Bio-tech (Holdings) Limited

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(b) The Group issued a convertible note in the amount of HK$13,800,000 to Direct Gain Profits. The convertible note bears interest at the higher of (i) the difference between the prime lending rate of the business day immediately before any date of interest payment quoted by the Hongkong and Shanghai Banking Corporation Limited and 2%; and (ii) 2% per annum and is redeemable on 18th June, 2004 unless previously converted or cancelled. The holder of the convertible note has the option to convert the convertible note into ordinary shares of the Company of HK$0.01 each at an initial conversion price of HK$0.01 per share, subject to adjustment, at any time during the period from 19th June, 2001 to 18th June, 2004.

During the year, the holder of the convertible note exercised the option to convert part of the convertible note into 900,000,000 shares of HK$0.01 each at a price of HK$0.01 per share.

33. DEFERRED TAXATION

At the balance sheet date, the net potential deferred tax asset, not recognised in the balance sheet, is analysed as follows:

Tax effect of timing differences attributable to: Excess of tax allowances over depreciation Tax losses unutilised	THE GROUP 2001 2000 HK$’000 HK$’000 (821) (35) 61,658 53,122 60,837 53,087	THE COMPANY 2001 2000 HK$’000 HK$’000 (605) (42) 15,707 8,561 15,102 8,519	THE COMPANY 2001 2000 HK$’000 HK$’000 (605) (42) 15,707 8,561 15,102 8,519
			8,519

The net potential deferred tax asset has not been recognised in the financial statements as it is not certain that the asset will be realised in the foreseeable future.

The net potential deferred tax credit (charge) arising during the year/period, which has not been recognised in the income statement, is as follows:

	THE	GROUP	THE COMPANY	THE COMPANY
	1.7.2000 to	1.4.1999 to	1.7.2000 to	1.4.1999 to
	30.6.2001	30.6.2000	30.6.2001	30.6.2000
	HK$’000	HK$’000	HK$’000	HK$’000
Tax effect of timing differences attributable to:
(Excess) shortfall of tax allowance over
depreciation	(786)	75	(563)	(38)
Tax losses arising	8,536	18,661	7,146	1,506
	7,750	18,736	6,583	1,468

— 71 —

Star Bio-tech (Holdings) Limited

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

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

(Loss) profit before taxation Interest income Interest expenses Depreciation and amortisation Loss on disposal of property, plant and equipment Loss attributable to properties Share of losses of associates Gain on waiver of obligation Provision for impairment in value of property, plant and equipment Gain attributable to financial restructuring Loss attributable to investments Provision for payments under guarantee Decrease in inventories Increase in debtors, deposits and prepayments (Decrease) increase in creditors and accrued charges Net cash outflow from operating activities	2001 HK$’000 (92,704) (903) 2,549 4,238 2,342 720 — (8,069) 4,480 — 26,737 — 600 (10,463) (109) (70,582)	2000 HK$’000 34,349 (202) 1,335 4,038 612 2,725 31,358 — 21,618 (135,530) 17,240 5,671 2,146 (3,526) 1,308
		(16,858)

— 72 —

Star Bio-tech (Holdings) Limited

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

35. PURCHASE OF SUBSIDIARIES

1.7.2000 to 30.6.2001 1.4.1999 to 30.6.2000 HK$’000 HK$’000 Net assets acquired: Property, plant and equipment 10,505 472 Inventories 7,279 — Debtors, deposits and prepayments 6,833 1,038 Taxation receivable 617 — Bank balances and cash 9,387 2 Creditors and accrued charges (18,551) (8,824 Amounts due to group companies — (37,772 Loan — (12,500 Minority interest (4,059) — 12,011 (57,584 Loss attributable to investments — 5,965 12,011 (51,619 Less: interest previously acquired as interest in associate — 51,619 12,011 — Goodwill arising on acquisition of subsidiaries 32,539 — 44,550 — Satisfied by: Issue of shares 12,600 — Cash 31,950 — 44,550 — Analysis of the net (outflow) inflow of cash and cash equivalents in connection with the purchase of subsidiaries: Cash consideration paid (31,950) — Bank balances acquired 9,387 2 (22,563) 2	1.7.2000 to 30.6.2001 1.4.1999 to 30.6.2000 HK$’000 HK$’000 Net assets acquired: Property, plant and equipment 10,505 472 Inventories 7,279 — Debtors, deposits and prepayments 6,833 1,038 Taxation receivable 617 — Bank balances and cash 9,387 2 Creditors and accrued charges (18,551) (8,824 Amounts due to group companies — (37,772 Loan — (12,500 Minority interest (4,059) — 12,011 (57,584 Loss attributable to investments — 5,965 12,011 (51,619 Less: interest previously acquired as interest in associate — 51,619 12,011 — Goodwill arising on acquisition of subsidiaries 32,539 — 44,550 — Satisfied by: Issue of shares 12,600 — Cash 31,950 — 44,550 — Analysis of the net (outflow) inflow of cash and cash equivalents in connection with the purchase of subsidiaries: Cash consideration paid (31,950) — Bank balances acquired 9,387 2 (22,563) 2	1.7.2000 to 30.6.2001 1.4.1999 to 30.6.2000 HK$’000 HK$’000 Net assets acquired: Property, plant and equipment 10,505 472 Inventories 7,279 — Debtors, deposits and prepayments 6,833 1,038 Taxation receivable 617 — Bank balances and cash 9,387 2 Creditors and accrued charges (18,551) (8,824 Amounts due to group companies — (37,772 Loan — (12,500 Minority interest (4,059) — 12,011 (57,584 Loss attributable to investments — 5,965 12,011 (51,619 Less: interest previously acquired as interest in associate — 51,619 12,011 — Goodwill arising on acquisition of subsidiaries 32,539 — 44,550 — Satisfied by: Issue of shares 12,600 — Cash 31,950 — 44,550 — Analysis of the net (outflow) inflow of cash and cash equivalents in connection with the purchase of subsidiaries: Cash consideration paid (31,950) — Bank balances acquired 9,387 2 (22,563) 2
	12,011 — 12,011 — 12,011 32,539	(57,584 5,965
		(51,619 51,619
		— —
	44,550	—
	12,600 31,950	— —
	44,550	—
	(31,950) 9,387	— 2
	(22,563)	2

The subsidiaries acquired during the year contributed cash outflow of HK$8,853,000 to the Group’s net operating cash outflow, received HK$12,000 in respect of net returns on investments and servicing of finance, received refund of income tax of HK$603,000 and utilized HK$724,000 in respect of investing activities.

The subsidiaries acquired during the year contributed HK$20,411,000 to the Group’s turnover and HK$7,775,000 to the Group’s loss from operations.

The subsidiaries acquired during the period from 1st April, 2000 to 30th June, 2001 did not have material contribution to the net cash flows and results of the Group.

— 73 —

Star Bio-tech (Holdings) Limited

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

36. DISPOSAL/DILUTION OF SUBSIDIARIES

	1.7.2000 to	1.4.1999 to
	30.6.2001	30.6.2000
	HK$’000	HK$’000
Net assets disposed of:
Bank balances and cash	11	51
Creditors and accrued charges	(7,479)	(1,369)
Minority interests	—	10,642
	(7,468)	9,324
(Gain) loss on disposal of subsidiaries	(7,468)	9,324
Consideration	—	—
Analysis of the net outflow of cash and cash equivalents in connection with
the disposal of subsidiaries:
Bank balances and cash disposed of	(11)	(51)

The subsidiaries disposed of during the year/period did not have material contribution to the net cash flows and results of the Group.

— 74 —

Star Bio-tech (Holdings) Limited

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

37. ANALYSIS OF CHANGES IN FINANCING DURING THE YEAR

		Obligations
		under hire		Share capital
		purchase	Convertible	and share
	Bank Loans	Bank loans	contracts	notes premium
	HK$’000	HK$’000	HK$’000	HK$’000
At 1st April, 1999	16,154	469	—	414,960
Proceeds on issue of shares	—	—	—	100,000
Expenses in connection with issue of shares	—	—	—	(3,256)
Repayment of bank loans	(9,758)	—	—	—
Repayment of obligations under hire purchase
contracts	—	(469)	—	—
Other movements not involving cash flows:
Amount reclassified from trust receipt and
packing loans and bank overdrafts	22,039	—	—	—
On acquisition of subsidiaries	37,479	—	—	—
Set off with consideration from disposal of
property, plant and equipment	(13,507)	—	—	—
Waiver of bank loans	(37,217)	—	—	—
Amount reclassified from provision	8,544	—	—	—
Amount reclassified from a subsidiary
not consolidated	2,321	—	—	—
Issue of shares	(5,540)	—	—	65,117
Share reduction	—	—	—	(287,568)
At 1st July, 2000	20,515	—	—	289,253
Proceeds on issues of shares	—	—	—	40,960
Expenses in connection with issue of shares	—	—	—	(1,447)
Proceeds on issue of convertible notes	—	—	42,600	—
Repayment of bank loans	(8,959)	—	—	—
Other movements not involving cash flows:
Issue of shares upon conversion of
convertible notes	—	—	(37,800)	37,800
Issue of shares as partial consideration
for acquisition of a subsidiary	—	—	—	12,600
Issue of shares for settlement of debts	—	—	—	334
	11,556	—	4,800	379,500

38. MAJOR NON-CASH TRANSACTIONS

During the year ended 30th June, 2001, the Group has the following major non-cash transactions:

(i) The acquisition of interest in a subsidiary was partially satisfied by the issue of 1,260,000,000 shares of HK$0.01 each.
(ii) Obligations to a creditor of approximately HK$334,000 were settled by the issue of the 33,425,890 shares of HK$0.01 each.

— 75 —

Star Bio-tech (Holdings) Limited

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

During the period from 1st April, 1999 to 30th June, 2000, the Group has the following major non-cash transactions:

(i) Obligations to banks, a financial institution and creditors of approximately HK$14,667,000 were settled by the issue of the Company’s shares.
(ii) Obligations to banks and creditors of approximately HK$13,952,000 and HK$125,985,000 were settled by the transfer of property, plant and equipment disposal of and waived respectively.
(iii) The acquisition of interest in a subsidiary was satisfied by the issue of 504,505,807 shares at HK$0.10 each.

39. OPERATING LEASE COMMITMENTS

At the balance sheet date, the Group had outstanding commitments under non-cancellable operating leases in respect of land and buildings, which fall due as follows:

Within one year In the second to fifth year inclusive Over five years	THE GROUP 2001 2000 HK$’000 HK$’000 4,914 4,011 8,143 16,044 22 90 13,079 20,145	THE GROUP 2001 2000 HK$’000 HK$’000 4,914 4,011 8,143 16,044 22 90 13,079 20,145
		20,145

The Company had no significant operating lease commitment at the balance sheet date.

40. CAPITAL COMMITMENTS

	THE	GROUP	THE	COMPANY
	2001	2000	2001	2000
	HK$’000	HK$’000	HK$’000	HK$’000
Capital expenditure contracted for but not provided
in the financial statements relating to acquisition
of property, plant and equipment	108	245	—	—

41. RETIREMENT BENEFITS SCHEME

The Group participate in a pension scheme, which was registered under the Mandatory Provident Fund Schemes Ordinance (the “MPF Ordinance”), for all its employees in Hong Kong. The scheme is a defined contribution scheme effective from December 2000 and is funded by contributions from employer and employees according to the provisions of the MPF Ordinance. During the year under review, the total amount contributed by the Group to the scheme and charged to the income statement was insignificant and no contributions were forfeited.

The employees in the subsidiaries in the PRC are members of the state-sponsored pension scheme operated by the government in the PRC. The subsidiaries in the PRC are required to contribute a certain percentage of their payroll to the pension scheme to fund the benefits. The only obligation of the Group with respect to the pension scheme is to make the required contributions under the scheme.

— 76 —

Star Bio-tech (Holdings) Limited

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

42. PLEDGE OF ASSETS

At 30th June, 2001, the Group has pledged one of its investment properties with a carrying value of HK$610,000 (2000: HK$3,670,000) to secure general banking facilities granted to the Group.

43. LITIGATION

On 19th August, 1998, TY Lee & Associate commenced proceedings against CHFBL, a subsidiary of the Group, for a sum of HK$520,000 together with interest accrued and costs. CHFBL paid HK$208,000 and HK$156,000 on 31st August, 1998 and 7th October, 1998 respectively. As at the report date, no acknowledgement of service and defence have been filed in respect of the claim. The amount had been fully provided in the financial statements.

44. POST BALANCE SHEET EVENTS

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

(a) On 4th July, 2001, the Company entered into agreements to issue convertible notes of HK$13,800,000 and HK$6,800,000 to Gain Master and Directgain Profits, respectively.

The convertible notes bear interest at the higher of (i) the difference between the prime lending rate of the business day immediately before any date of interest payment quoted by the Hongkong and Shanghai Banking Corporation Limited and 3%; and (ii) 2% per annum and are redeemable on the third anniversary of the date of issue of the convertible notes, unless previously converted or cancelled.

The holders of the convertible notes have the option to convert the convertible notes into ordinary shares of the Company of HK$0.01 each at an initial conversion price of HK$0.01 per share, subject to adjustment, at any time during the period to the third anniversary of the date of issue.

(b) On 17th October, 2001 the Company announced a capital reorganisation as follows:
(i) Every forty existing issued shares will be consolidated into one consolidated issued share; and
(ii) The nominal value of each of the issued consolidated shares of HK$0.40 each will be reduced by HK$0.39 to HK$0.01; and
(iii) Each of the authorized and issued consolidated shares will be sub-divided into 40 shares of HK$0.01 each.

45. RELATED PARTY TRANSACTIONS

During the current year, the Group has the following transactions with the related parties:

(a) The Group acquired the entire interest in Starstruck at a consideration of HK$950,000.
(b) The Group acquired 80% interest in iTech and 100% interest in High Stone at an aggregate consideration of HK$19,600,000.

Wong Kam Fu, Nelson, the director of the Group, held the entire interest in Starstruck, iTech and High Stone.

Details of balances with related parties as at the balance sheet date are set out in the consolidated balance sheet and in notes 22, 23 and 28 to the financial statements.

Save as disclosed above, there were no other significant transactions with related parties during the year or significant balances with them at the end of the year.

— 77 —

Star Bio-tech (Holdings) Limited

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

3. INTERIM RESULTS FOR THE SIX MONTHS ENDED 31ST DECEMBER, 2001

Set out below are extracted from the Group’s unaudited interim results of the Group for the six months ended 31st December, 2001.

CONDENSED CONSOLIDATED INCOME STATEMENT

Notes Turnover 3 Cost of sales Gross profit Other revenue Distribution costs Write off of property, plant and equipment Administrative expenses Loss from operations Finance costs Loss on disposal of investments in securities Unrealized loss on investments in securities Gain on waiver of obligations under guarantee Loss before taxation Taxation 5 Loss after taxation Minority interest Net loss for the period Loss per share - Basic and diluted 6	For the six months ended 31.12.2001 31.12.2000 (unaudited) (unaudited) HK$’000 HK$’000 16,909 13,873 (14,595) (9,808) 2,314 4,065 2,942 852 (2,083) (1,446) (1,061) — (30,376) (34,552) (28,264) (31,081) (1,687) (1,935) (530) — (51) (1,410) — 3,464 (30,532) (30,962) — (182) (30,532) (31,144) 1,222 (272) (29,310) (31,416) (5.99) cents (9.34) cents	For the six months ended 31.12.2001 31.12.2000 (unaudited) (unaudited) HK$’000 HK$’000 16,909 13,873 (14,595) (9,808) 2,314 4,065 2,942 852 (2,083) (1,446) (1,061) — (30,376) (34,552) (28,264) (31,081) (1,687) (1,935) (530) — (51) (1,410) — 3,464 (30,532) (30,962) — (182) (30,532) (31,144) 1,222 (272) (29,310) (31,416) (5.99) cents (9.34) cents
	2,314 2,942 (2,083) (1,061) (30,376) (28,264) (1,687) (530) (51) — (30,532) — (30,532) 1,222	4,065 852 (1,446 — (34,552
		(31,081 (1,935 — (1,410 3,464
		(30,962 (182
		(31,144 (272
	(29,310) (5.99) cents

— 78 —

Star Bio-tech (Holdings) Limited

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

CONDENSED CONSOLIDATED BALANCE SHEET

31.12.2001 (unaudited) Notes HK$’000 NON-CURRENT ASSETS Investment properties 2,220 Property, plant and equipment 4 20,461 Investments in securities 4,150 26,831 CURRENT ASSETS Inventories 8,892 Debtors, deposits and prepayments 8 29,161 Investments in securities 60 Bank balances and cash 6,964 45,077 CURRENT LIABILITIES Creditors and accrued charges 9 46,291 Taxation 74 Loan 12,500 Bank borrowings 4,591 63,456 NET CURRENT LIABILITIES (18,379) 8,452 CAPITAL AND RESERVES Share capital 7 4,896 Reserves (25,251) (20,355) MINORITY INTERESTS 4,657 NON-CURRENT LIABILITY Convertible notes 24,150 8,452	31.12.2001 (unaudited) Notes HK$’000 NON-CURRENT ASSETS Investment properties 2,220 Property, plant and equipment 4 20,461 Investments in securities 4,150 26,831 CURRENT ASSETS Inventories 8,892 Debtors, deposits and prepayments 8 29,161 Investments in securities 60 Bank balances and cash 6,964 45,077 CURRENT LIABILITIES Creditors and accrued charges 9 46,291 Taxation 74 Loan 12,500 Bank borrowings 4,591 63,456 NET CURRENT LIABILITIES (18,379) 8,452 CAPITAL AND RESERVES Share capital 7 4,896 Reserves (25,251) (20,355) MINORITY INTERESTS 4,657 NON-CURRENT LIABILITY Convertible notes 24,150 8,452	30.6.2001 (audited) HK$’000 2,220 25,284 4,150 31,654 7,779 28,729 3,141 13,595 53,244 42,363 94 12,500 11,556 66,513 (13,269) 18,385 194,596 (186,890) 7,706 5,879 4,800 18,385
	8,892 29,161 60 6,964	7,779 28,729 3,141 13,595
	45,077
	46,291 74 12,500 4,591 63,456 (18,379)	42,363 94 12,500 11,556
		66,513
		(13,269
	8,452
	4,896 (25,251) (20,355) 4,657 24,150	194,596 (186,890
		7,706 5,879 4,800
	8,452

— 79 —

Star Bio-tech (Holdings) Limited

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

CONDENSED CONSOLIDATED CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED 31ST DECEMBER, 2001

	For the six	months ended
	31.12.2001	31.12.2000
	(unaudited)	(unaudited)
	HK$’000	HK$’000
Net cash outflow from operating activities	(21,820)	(65,100)
Net cash outflow from returns on investments
and servicing of finance	(1,575)	(1,183)
Hong Kong profits tax (paid) refunded	(20)	392
Net cash inflow (outflow) from investing activities	3,149	(17,950)
Net cash outflow before financing activities	(20,266)	(83,841)
Net cash inflow from financing activities	13,635	25,286
Decrease in cash and cash equivalents	(6,631)	(58,555)
Cash and cash equivalents at beginning of the period	13,595	72,950
Cash and cash equivalents at end of period	6,964	14,395

CONDENSED CONSOLIDATED STATEMENT OF RECONGNIZED GAINS OR LOSSES FOR THE SIX MONTHS ENDED 31ST DECEMBER, 2001

	For the six	months ended
	31.12.2001	31.12.2000
	(unaudited)	(unaudited)
	HK$’000	HK$’000
Net loss and total recognized losses for the period	(29,310)	(31,416)
Goodwill arising on acquisition of subsidiaries
written off to reserve	—	(15,906)
	(29,310)	(47,322)

— 80 —

Star Bio-tech (Holdings) Limited

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

1. BASIS OF PREPARATION

The condensed consolidated financial statements have been prepared in accordance with Statement of Standard Accounting Practice (“SSAP”) 25 “Interim Financial Reporting” issued by the Hong Kong Society of Accountants and with the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

In preparing the condensed consolidated financial statements, the directors have given careful consideration to the future liquidity of the Group in the light of its net current liabilities of HK$18,379,000 as at 31st December, 2001. The Group has entered into two conditional share subscription agreements (“Agreements”) with Win Channel Investments Limited and Sheung Hai Development Limited respectively for the subscription of an aggregate of 4,500,000,000 new shares for a total consideration of HK$45 million. Completion of each of the Agreements is conditional on the fulfilment or waiver of certain conditions as detailed in the press announcements dated 28th February, 2002. Provided that the Agreements can be successfully completed with the parties 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. Accordingly, the financial statements have been prepared on a going concern basis.

2. PRINCIPAL ACCOUNTING POLICIES

The condensed financial statements have been prepared under the historical cost convention, as modified for the revaluation of investment properties and investments in securities.

The accounting policies adopted are consistent with those followed by the Group’s audited financial statements for the year ended 30th June, 2001.

In the current period, the Group has adopted, for the first time, a number of new and revised SSAPs issued by the Hong Kong Society of Accountants. The adoption of these SSAPs does not have any significant effect on the financial statements for the current or prior period.

In the current period, the Group has adopted SSAP 30 “Business Combinations” and has elected not to restate goodwill (negative goodwill) previously eliminated against (credited to) reserves. Accordingly, goodwill arising on acquisitions prior to 1st July, 2001 is held in reserves and will be charged to the income statement at the time of disposal of the relevant subsidiary, or at such time as the goodwill is determined to be impaired. Negative goodwill arising on acquisitions prior to 1st July, 2001 will be credited to income at the time of disposal of the relevant subsidiary.

Goodwill arising on acquisitions after 1st July, 2001 is capitalised and amortised over its estimated useful life. Negative goodwill arising on acquisitions after 1st July, 2001 is presented as a deduction from assets and will be released to income based on an analysis of the circumstances from which the balance resulted.

— 81 —

Star Bio-tech (Holdings) Limited

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

3. SEGMENTAL INFORMATION

An analysis of the Group’s turnover and contributions to operating results by principal activity and geographical market is as follows:

For the six months ended

31.12.2001 Turnover Contribution to loss from operations HK$’000 HK$’000 4,538 (3,269) 2,237 (437) 216 (651) 9,788 (3,974) 130 (1,093) 16,909 (9,424) (18,840) (28,264) (1,687) (581) — (30,532) 5,975 (2,433) 7,277 (5,645) 3,350 (263) 307 (1,083)	31.12.2001 Turnover Contribution to loss from operations HK$’000 HK$’000 4,538 (3,269) 2,237 (437) 216 (651) 9,788 (3,974) 130 (1,093) 16,909 (9,424) (18,840) (28,264) (1,687) (581) — (30,532) 5,975 (2,433) 7,277 (5,645) 3,350 (263) 307 (1,083)	31.12.2001 Turnover Contribution to loss from operations HK$’000 HK$’000 4,538 (3,269) 2,237 (437) 216 (651) 9,788 (3,974) 130 (1,093) 16,909 (9,424) (18,840) (28,264) (1,687) (581) — (30,532) 5,975 (2,433) 7,277 (5,645) 3,350 (263) 307 (1,083)	31.12.2000 Turnover Contribution to profit (loss) from operations HK$’000 HK$’000 4,083 (1,239 2,484 (270 214 (3,051 7,092 409 — — 13,873 (4,151	31.12.2000 Turnover Contribution to profit (loss) from operations HK$’000 HK$’000 4,083 (1,239 2,484 (270 214 (3,051 7,092 409 — — 13,873 (4,151
				(4,151
		) ) ) )		(27,733
	(28,264 (1,687 (581 —			(31,884 (932 (1,610 3,464
	(30,532)			(30,962
	(2,433) (5,645) (263) (1,083)		6,740 4,296 2,837 —	(3,088 (1,227 164 —
16,909	(9,424) (18,840) (28,264) (1,687) (581) —		13,873	(4,151
		) ) ) )		(27,733
	(28,264 (1,687 (581 —			(31,884 (932 (1,610 3,464
	(30,532)			(30,962

— 82 —

Star Bio-tech (Holdings) Limited

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

4. PROPERTY, PLANT AND EQUIPMENT

During the period, the Group had written off certain property, plant and equipment at carrying value of approximately HK$3,071,000 and depreciation of approximately HK$2,848,000 (2000: HK$1,351,000) was charged in respect of the Group’s property, plant and equipment.

5. TAXATION

No provision for Hong Kong Profits Tax has been made as the Group had no assessable profit for either periods.

The charge for the prior period represented a under-provision of Hong Kong Profits Tax of a subsidiary of the Company in prior year.

6. LOSS PER SHARE

The calculation of the basic loss per share is based on the net loss for the period of HK$29,310,000 (six months ended 31st December, 2000: loss of HK$31,416,000) and on the weighted average number of 489,123,152 (six months ended 31st December, 2000: weighted average number of 336,229,522) shares in issue after adjustment for the share consolidation on 29th November, 2001 to consolidate every forty existing issued shares into one share.

The computation of diluted loss per share for the six months ended 31st December, 2001 and 31st December, 2000 has not assumed the exercise of the share options and the conversion of convertible notes as their exercise and conversion would result in a decrease in the loss per share for both periods.

7. SHARE CAPITAL

Number of shares Authorized: Ordinary shares of HK$0.01 at 30th June, 2001 and 31st December, 2001 60,000,000,000 Issued and fully paid: Ordinary shares of HK$0.01 each at 30th June, 2001 19,459,627,170 Conversion of convertible notes 125,000,000 Share consolidation (19,095,011,491) Share reduction — Ordinary shares of HK0.01 each at 31st December, 2001 489,615,679	Number of shares Authorized: Ordinary shares of HK$0.01 at 30th June, 2001 and 31st December, 2001 60,000,000,000 Issued and fully paid: Ordinary shares of HK$0.01 each at 30th June, 2001 19,459,627,170 Conversion of convertible notes 125,000,000 Share consolidation (19,095,011,491) Share reduction — Ordinary shares of HK0.01 each at 31st December, 2001 489,615,679	Value HK$’000 600,000
	19,459,627,170 125,000,000 (19,095,011,491) —	194,596 1,250 — (190,950)
	489,615,679	4,896

The movements in the ordinary share capital for the six months ended 31st December, 2001 are as follows:

(a) 125,000,000 shares of HK$0.01 each were issued and allotted to Direct Gain Profits Limited at HK$0.01 per share, as a result of the conversion of convertible notes during the period.
(b) Pursuant to resolutions passed at a special general meeting of the Company on 28th November, 2001:
Every forty existing shares of HK$0.01 each in the authorised and issued share capital of the Company were consolidated into one consolidated share of HK$0.40 each; and

— 83 —

Star Bio-tech (Holdings) Limited

APPENDIX II

FINANCIAL INFORMATION OF THE GROUP

The par value of each of the issued consolidated shares of HK$0.40 each was reduced by HK$0.39 to HK$0.01, and each of the authorised but unissued consolidated shares was sub-divided into 40 shares of HK$0.01 each.

All the shares issued during the period rank pari passu in all respects with the then existing shares.

8. DEBTORS, DEPOSITS AND PREPAYMENTS

Included in the debtors, deposits and prepayments was an amount of HK$14,586,000 in respect of payment made in connection with an investment.

The Group entered into agreement (“Cooperation Agreement”) with a third party (“Partner”) in which both parties agreed to invest in a company which is mainly engaged in the research, development and marketing of Chinese character input software and Chinese language technology. The Group was required to inject an amount of US$3,000,000 (equivalent to approximately HK$23,400,000) in return for 25% equity interest in this company within a specified period of time (“Period”). As at 31st December, 2001, the Group had injected the amount of HK$14,586,000. Having failed to make the injection in full within the Period, the Group is subject to a forfeiture of US$1,000,000 (equivalent to approximately HK$7,800,000) according to the Cooperation Agreement. The Company is currently in the process of negotiation with the Partner for the extension of the Period and, accordingly, no provision for any amount to be forfeited has been made in these condensed consolidated financial statements.

The Group allows an average credit period of 60 days to its trade customers. Included in debtors, deposits and prepayments are trade debtors with the following aging analysis:

31.12.2001 30.06.2001 HK$’000 HK$’000 0 - 60 days 1,143 3,553 61 - 90 days 26 — Over 90 days 675 — 1,845 3,553 Other debtors, deposits and prepayments 27,316 25,176 29,161 28,729	31.12.2001 30.06.2001 HK$’000 HK$’000 0 - 60 days 1,143 3,553 61 - 90 days 26 — Over 90 days 675 — 1,845 3,553 Other debtors, deposits and prepayments 27,316 25,176 29,161 28,729	31.12.2001 30.06.2001 HK$’000 HK$’000 0 - 60 days 1,143 3,553 61 - 90 days 26 — Over 90 days 675 — 1,845 3,553 Other debtors, deposits and prepayments 27,316 25,176 29,161 28,729
	1,845 27,316	3,553 25,176
	29,161	28,729

9. CREDITORS AND ACCRUED CHARGES

Included in creditors and accrued charges are trade creditors with the following aging analysis:

31.12.2001 30.06.2001 HK$’000 HK$’000 0 - 60 days 1,916 4,325 61 - 90 days 508 430 over 90 days 3,694 3,923 6,118 8,678 Accrued charges 40,173 33,685 46,291 42,363	31.12.2001 30.06.2001 HK$’000 HK$’000 0 - 60 days 1,916 4,325 61 - 90 days 508 430 over 90 days 3,694 3,923 6,118 8,678 Accrued charges 40,173 33,685 46,291 42,363	31.12.2001 30.06.2001 HK$’000 HK$’000 0 - 60 days 1,916 4,325 61 - 90 days 508 430 over 90 days 3,694 3,923 6,118 8,678 Accrued charges 40,173 33,685 46,291 42,363
	6,118 40,173	8,678 33,685
	46,291	42,363

— 84 —

Star Bio-tech (Holdings) Limited

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

4. STATEMENT OF PRO FORMA UNAUDITED ADJUSTED CONSOLIDATED NET TANGIBLE ASSET VALUE

The following pro forma statement of the unaudited adjusted net tangible asset value of the Group immediately following Completion is based on the unaudited consolidated financial statements of the Group as at 31st December, 2001 adjusted to reflect the effects of the adjustments since 31st December, 2001.

Unaudited consolidated net liabilities of the Group
as at 31st December, 2001
Net proceeds from the Subscriptions
Pro forma unaudited adjusted net tangible asset value
of the Group after Subscriptions
Unaudited adjusted consolidated net liabilities
per Share immediately before the Subscriptions, based on
489,615,679 Shares in issue
Pro forma unaudited adjusted net tangible asset value per Share
immediately following the Subscriptions, based on 4,989,615,679
Shares in issue

HK$’000
(20,355)
44,000
23,645
(HK$0.042)
HK$0.005

5. INDEBTEDNESS

Borrowings

At the close of business on 28th February, 2002 (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$40,838,000 comprising secured bank loans of approximately HK$3,758,000 and unsecured bank loan of approximately HK$430,000, loan granted by a minority shareholder of approximately HK$12,500,000 and convertible notes of approximately HK$24,150,000.

Securities and guarantees

As at 28th February, 2002, the secured borrowings as shown above were secured by one of the investment property of the Group with a carrying value of approximately HK$610,000 and shares in a subsidiary.

Contingent liabilities

Apart from the litigations disclosed in the section headed “Litigation” in Appendix III to this document, the Group had no material contingent liabilities at the close of business on 28th February, 2002.

— 85 —

Star Bio-tech (Holdings) Limited

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Disclaimer

Save as aforesaid and apart from intra-group liabilities, the Group did not have, at the close of business on 28th February, 2002, any loan capital issued and outstanding or agreed to be issued, bank overdrafts, loans or other similar indebtedness, liabilities under acceptances or acceptance credits, debentures, mortgages, charges, obligations under hire purchases of finance leases, guarantees or other 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 28th February, 2002.

The Directors have confirmed that there has been no material change in the indebtedness and contingent liabilities of the Group since 28th February, 2002 and up to the Latest Practicable Date.

6. MATERIAL CHANGES

Save for (i) two subscription agreements dated 4th July, 2001 entered into between the Company, Gain Master Assets Limited and Directgain Profits Limited respectively in relation to the issue of two convertible bonds in an aggregate principal amount of HK$20,600,000 as stated in the announcement of the Company dated 4th July, 2001; (ii) a writ dated 12th January, 2002 issued against Star Bio-Tech (Holdings) Limited (BVI) and Real Well Investments Limited, wholly-owned subsidiaries of the Company, by The Center (45) Limited claiming a total sum of approximately HK$3,726,000 plus interest in relation to an alleged breach of a lease agreement for 45th Floor of The Center as stated in the circular of the Company dated 26th March, 2002; and (iii) the Subscriptions, the Directors are not aware of any other material changes in the financial or trading position or prospects of the Group since 30th June, 2001, being the date to which the latest published audited financial statements of the Group were made up.

— 86 —

Star Bio-tech (Holdings) Limited

GENERAL INFORMATION

APPENDIX III

1. RESPONSIBILITY STATEMENT

This document includes particulars given in compliance with the Code for the purpose of giving information with regard to the Group and the Offer. The information contained herein (other than information relating to Win Channel and Sheung Hai and on the future intentions of Win Channel and Sheung Hai in respect of the Group) has been supplied by the Directors, who jointly and severally accept full responsibility for the accuracy of the information contained in this document (other than those relating to Win Channel and Sheung Hai and on the future intentions of Win Channel and Sheung Hai in respect of the Group) and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in this document by them have been arrived at after due and careful consideration and there are no other facts not contained in this document the omission of which would make any statement contained herein misleading.

The issue of this document has been approved by the directors of Win Channel and Sheung Hai and includes particulars given in compliance with the Code for the purpose of giving information with regard to Win Channel and Sheung Hai, the Offer and the future intentions of Win Channel, Sheung Hai in respect of the Group. The information contained herein relating to Win Channel, Sheung Hai and on the future intentions of Win Channel and Sheung Hai in respect of the Group has been supplied by the directors of Win Channel and Sheung Hai, who accepts full responsibility for the accuracy of the information contained in this document relating to Win Channel and Sheung Hai and their future intentions in respect of the Group and confirm, having made all reasonable enquiries, that to the best of its knowledge, opinions expressed in this document by it have been arrived at after due and careful consideration and there are no other facts not contained in this document the omission of which would make any statement contained herein misleading.

— 87 —

Star Bio-tech (Holdings) Limited

GENERAL INFORMATION

APPENDIX III

2. SHARE CAPITAL

The authorised and issued share capital of the Company as at the Latest Practicable Date are as follows:

Authorised:
60,000,000,000
Shares

HK$’000
60,000
194,596
1,250
(190,950)
25,000
20,000
49,896

Issued and fully paid:
19,459,627,170
Shares as at 30th June, 2001 (being the date to which its
latest published accounts were made up)
125,000,000
Conversion of convertible notes (Note 1)
(19,095,011,491)
Share consolidation and reduction of share capital (Note 2)
2,500,000,000
Shares issued pursuant to the Share Acquisition Agreement
(Note 3)
2,000,000,000
Shares issued pursuant to the Subscription Agreement
(Note 4)

194,596
1,250
(190,950
25,000
20,000

4,989,615,679
Shares in issued as at the Latest Practicable Date

Notes:

125,000,000 Shares were issued and allotted to Direct Gain Profits Limited at HK$0.01 per Share as a result of the conversion of convertible notes during the period.
Pursuant to resolutions passed at a special general meeting of the Company on 28th November, 2001:
every forty shares of HK$0.01 each in the authorised and issued share capital of the Company were consolidated into one consolidated share of HK$0.40 each; and
the par value of each of the issued consolidated shares of HK$0.40 each was reduced by HK$0.39 to HK$0.01, and each of the authorised but unissued consolidated shares was sub-divided into 40 shares of HK$0.01 each.
2,500,000,000 Shares were issued and allotted to Win Channel under the Shares Acquisition Agreement.
2,000,000,000 Shares were issued and allotted to Sheung Hai under the Subscription Agreement.

All the Shares rank pari passu in all aspects, including all rights as to dividend, voting and interests in capital.

Save as disclosed above, there have been no Shares issued since 30th June, 2001 (being the date to which its latest published accounts were made up) and up to the Latest Practicable Date.

— 88 —

Star Bio-tech (Holdings) Limited

GENERAL INFORMATION

APPENDIX III

Share Options

As at the Latest Practicable Date, there were 23,850,000 outstanding Share Options entitling holders thereof to subscribe for in aggregate 23,850,000 new Shares, representing about 0.48% of the existing issued share capital. Details of these outstanding Share Options are as follows:

				Number of
Name of				outstanding
option holders	Subscription price	Exercise period	share options
Au Ka Sin, Purcy	1.5368	6th March 2001 to		100,000
		5th March 2003
Chan Kwong On, Daniel	1.5368	21st February 2001 to		250,000
		20th February 2003
	0.652	30th April 2001 to		1,000,000
		29th April 2003
Chan So Fan	1.5368	22nd February 2001 to		100,000
		21st February 2003
Cheng Ka Yee, Cary	1.5368	22nd February 2001 to		350,000
		21st February 2003
	0.652	9th May 2001 to 8th May	2003	75,000
	0.4	18th November 2001 to		1,250,000
		17th November 2003
Ho Kit Yan, Cannie	1.5368	22nd February 2001 to		600,000
		21st February 2003
	0.652	9th May 2001 to 8th May	2003	75,000
	0.4	18th November 2001 to		1,250,000
		17th November 2003
	0.4	1st September 2001 to		50,000
		31st August 2004
Kong Kwun Man	1.5368	6th March 2001 to		100,000
		5th March 2003
Lam Chun Wai, Eric	1.5368	25th February 2001 to		100,000
		24th February 2003
	0.652	1st May 2001 to		200,000
		30th April 2003
Lam Wai Man, Gavin	1.5368	6th March 2001 to		250,000
		5th March 2003
	0.652	27th May 2001 to		75,000
		26th May 2003
Lee Ho Yip, Andy	1.5368	21st February 2001 to		250,000
		20th February 2003
	0.652	30th April 2001 to		100,000
		29th April 2003

— 89 —

Star Bio-tech (Holdings) Limited

GENERAL INFORMATION

APPENDIX III

				Number of
Name of				outstanding
option holders	Subscription price	Exercise period	share options
Li Mei Ha, Valen	1.5368	5th March 2001 to		125,000
		4th March 2003
	0.652	1st May 2001 to		50,000
		30th April 2003
Sheng Long	0.652	7th May 2001 to 6th May	2003	250,000
Tam Pui Ling, Elaine	1.5368	21st February 2001 to		325,000
		20th February 2003
	0.652	30th April 2001 to		100,000
		29th April 2003
	0.4	2nd August2001 to		256,250
		1st August 2004
	0.4	1st September 2001 to		50,000
		31st August 2004
Wang Zhao Bin	1.5368	21st February 2001 to		500,000
		20th February 2003
	0.652	6th May 2001 to 5th May	2003	250,000
Wong Kam Fu	0.652	30th April 2001 to		1,250,000
		29th April 2003
	0.672	7th May 2001 to 6th May	2003	3,200,000
	0.4	2nd August 2001 to		3,018,750
		1st August 2003
	1.5368	21st February 2001 to		2,500,000
		20th February 2003
Wong Kam Wing	0.4	18th November 2001 to		5,000,000
		17th November 2003
Yik Kwok Yau	1.5368	25th February 2001 to		100,000
		24th February 2003
Zhao Hua	1.5368	21st Februray 2001 to		450,000
		20th February 2003
	0.652	11th May 2001 to		250,000
		10th May 2003
				23,850,000

The above holders of the Options have undertaken not to accept any offer that Win Channel and Sheung Hai may make for the Options held by them while the Offer remains open for acceptance.

There are 5 Directors and 12 staff of the Company who received the Share Options.

— 90 —

Star Bio-tech (Holdings) Limited

GENERAL INFORMATION

APPENDIX III

Convertible Notes

(i) 80% of the average closing prices of one Share on the Stock Exchange for each of the last ten Stock Exchange trading days on which dealings in the Shares took or may have taken place ending on the last of such trading day immediately preceding the conversion date; or
(ii) HK$0.40.

Assuming the conversion price of the Convertible Notes is calculated at HK$0.153, being 80% of the average closing prices per share for the ten trading days up to and including the Latest Practicable Date, about 157,843,137 Shares will be issued upon full conversion of the Convertible Notes, representing about 3.16% of the total issued share capital of the Company as enlarged by the New Shares.

The holder of the Convertible Notes amounted to HK$10,350,000, which is Directgain Profits Limited, has undertaken to Win Channel and Sheung Hai that it will not convert any part of the Convertible Notes into Shares during the period from 22nd February, 2002 up to and including the final closing date of the Offer and that it will not accept any offer that Win Channel and Sheung Hai may make for the Convertible Notes held by them while the Offer remains open for acceptance and it has confirmed that Win Channel and Sheung Hai do not have to extend the Offer or make any comparable offer arising out of or in relation to the Offer to it for the Convertible Notes. The holder of the Convertible Notes amounted to HK$13,800,000, which is Gain Master Assets Limited, has undertaken not to accept the Offer for any Shares converted under the Convertible Notes held by it or make any transfer of Shares converted under the Convertible Notes and not to accept any offer that Win Channel and Sheung Hai may make for the Convertible Notes while the Offer remains open for acceptance, and it has confirmed that Win Channel and Sheung Hai do not have to extend the Offer or make any comparable offer arising out of or in relation to the Offer to them for the Convertible Notes and/or any Shares converted under the Convertible Notes on or after 22nd February, 2002.

— 91 —

Star Bio-tech (Holdings) Limited

GENERAL INFORMATION

APPENDIX III

3. MARKET PRICES

The table below shows the closing prices of the Shares quoted on the Stock Exchange on (i) the last day on which dealings took place in each of the six calendar months immediately preceding the Announcement, (ii) 5th February, 2002, being the last trading day immediately preceding the Announcement, (iii) the last day on which dealing took place in each of the calendar months during the period from the date of the Announcement, 27th February, 2002, to the Latest Practicable Date and (iv) the Latest Practicable Date:

	Closing price
Date	per Share
	HK$
31st August, 2001	0.40
28th September, 2001	0.40
31st October, 2001	0.40
30th November, 2001	0.132
31st December, 2001	0.12
31st January, 2002	0.092
5th February, 2002	0.078
28th February, 2002	0.067
28th March, 2002	0.218
Latest Practicable Date	0.173

The highest and lowest closing prices per Share recorded on the Stock Exchange during the period commencing on the date falling six months prior to the date of the Announcement to the Latest Practicable Date (the “Relevant Period”) were HK$0.4 per Share from 28th August, 2001 to 28th November, 2001 and HK$0.057 per Share on 28th February, 2002 respectively.

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Star Bio-tech (Holdings) Limited

GENERAL INFORMATION

APPENDIX III

4. DISCLOSURE OF INTERESTS

(a) Interests in the Company

(i) Directors’ interest in Shares

As at the Latest Practicable Date, the interests of the Directors in the share capital of the Company or any associated corporation (within the meaning of the SDI Ordinance) notifiable to Fourseas.com and the Stock Exchange under Section 28 of the SDI Ordinance and including interests in which a Director has taken under Section 31 or Part I of the Schedule to the SDI Ordinance or required to be entered into the register under Section 29 of the SDI Ordinance or required pursuant to the Model Code for Securities Transactions by Directors of Listed Companies under the Listing Rules are as follows:

	Number of shares held	Number of shares held			Numbers of
Name of Directors	Personal	Corporate		Share Options
					(Note 2)
Mr. Wong	—	2,088,187,919 (Note 1)			9,968,750
Chan Kwong On, Daniel	—		—		1,250,000
Wong Kam Wing	—		—		5,000,000
Wang Zhou Bin	—		—		750,000
Zhao Hua	—		—		700,000

Notes:

2,082,712,919 of these shares were beneficially owned by Sheung Hai, the remaining 5,475,000 shares are beneficially owned by Super Biotech Enterprises Limited (“Super Biotech”). The entire share capital of both Sheung Hai and Super Biotech are held by Mr. Wong.
These Share Options were granted under the Share Option Scheme adopted on 11th April, 1994. These Share Options were exercisable during the period from 21st February, 2001 to 31st August, 2004 respectively with exercise prices of between HK$0.4 to HK$1.5368 per share.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors had any interest in the equity or debt securities of the Company or any associated corporations (within the meaning of the SDI Ordinance) which is required to be notified to the Company and the Stock Exchange pursuant to Section 28 of the SDI Ordinance (including interests which any such Director is taken or deemed to have under Section 31 of, or Part I of the Schedule to, the SDI Ordinance), or which is required, pursuant to Section 29 of the SDI Ordinance, to be entered in the register referred to therein, or which is required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies under the Listing Rules, to be notified to the Company and the Stock Exchange;

(ii) The interest of directors of Win Channel and Sheung Hai in Shares
Save for Mr. Chim, the shareholding of him is set out in the section headed “Substantial Shareholders”in this appendix, none of the directors of Win Channel had any interest in the Share.

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Star Bio-tech (Holdings) Limited

GENERAL INFORMATION

APPENDIX III

  2. Save for Mr. Wong, the shareholding of him is set out in the section headed “Substantial Shareholders” in this appendix, none of the directors of Sheung Hai had any interest in the Share.

(iii) Other Directors’interest
- (1) As at the Latest Practicable Date, no benefit (other than statutory compensation) would be given to any Director as compensation for loss of office or otherwise in connection with the Offer.
- (2) There is no existing or proposed service contract between any of the Directors and any member of the Group, excluding contract expiring or terminable by the employer within one year without payment of compensation (other than statutory compensation) and no service contract has been entered into within the six months prior to the commencement of the offer period between any company comprising the Group and any of the Directors.
- (3) None of the Directors intend, in respect of their own beneficial shareholdings, to accept or reject the Offer.
(b) Interest in Win Channel and Sheung Hai
(i) As at the Latest Practicable Date, neither the Company nor any of the Directors (except Mr. Wong who had certain interest in Sheung Hai and had been disclosed in the section headed “Substantial Shareholders” in this appendix) owned or had any interest in the shares of Win Channel and Sheung Hai.
(ii) As at the Latest Practicable Date, there was no agreement, arrangement or understanding (including any compensation arrangement) exists between Win Channel and Sheung Hai or any person acting in concert with it, and any of the Directors, recent Directors, Shareholders or recent Shareholders which is conditional on the outcome of the Offer or otherwise connected with the Offer.
(iii) No material contracts have been entered into by Win Channel and Sheung Hai in which any Director has a material personal interest.
(c) Other interest s
(i) Save for interests of Mr. Wong and Mr. Chim which set out in the section headed “Substantial Shareholders” in this appendix, no persons acting in concert with Win Channel and Sheung Hai owned or controlled any Shares.
(ii) As at the Latest Practicable Date, no person had any arrangement of the kind referred to in Note 8 to Rule 22 of the Code with the Company or Win Channel and Sheung Hai or with any party acting in concert with any of them.
(iii) As at the Latest Practicable Date, none of the experts named in the paragraph headed “Consent” in this appendix, any of their respective holding companies, or any of their respective subsidiaries was beneficially interested, directly or indirectly, in any Shares, and none of them had dealt in any Shares during the period beginning 6 months prior to the offer period and ending on the Latest Practicable Date.

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Star Bio-tech (Holdings) Limited

GENERAL INFORMATION

APPENDIX III

(iv) No shareholding in the Company was owned or controlled or dealt with by a subsidiary of the Company, by a pension fund of the Company or of a subsidiary of the Company as at the Latest Practicable Date.

5. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as is known to, or can be ascertained after reasonable enquiry by, the Directors, the following persons (not being a Director or the chief executive of the Company) were, directly or indirectly, 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 Company:

		Percentage of total
Name of shareholders	Number of shares held	issued share capital
Sheung Hai (Note 1)	2,088,187,919	41.85
Mr. Wong (Note 1)	2,088,187,919	41.85
Win Channel (Note 2)	2,588,187,919	51.87
Mr. Chim (Note 2)	2,588,187,919	51.87

Notes:

The entire share capital of Sheung Hai was held by Mr. Wong.
The entire share capital of Win Channel was held by Mr. Chim.

Save for these Shares, none of Win Channel, Sheung Hai, the directors of Win Channel and Sheung Hai and any party acting in concert with any of them (or any of the directors of any of them) owned or controlled any Shares.

Save as disclosed above, no party was recorded in the register requested to be kept under Section 16(l) of the SDI Ordinance who, as at the Latest Practicable Date, was interested in 10% or more of the issued share capital of the Company.

— 95 —

Star Bio-tech (Holdings) Limited

GENERAL INFORMATION

APPENDIX III

6. DEALING IN SHARES OF THE COMPANY AND THE SHARES OF WIN CHANNEL AND SHEUNG HAI

(i) Save for the issue of New Shares under the Agreements and the transfer of Transfer Shares from Sheung Hai to Win Channel under the Share Acquisition Agreement, none of Win Channel, Sheung Hai, the directors of Win Channel and Sheung Hai and any persons acting in concert with any of them has dealt in any Shares during the period beginning 6 months prior to the offer period and ending on the Latest Practicable Date.
(ii) The Company had no dealings in the shares of Win Channel and Sheung Hai during the period beginning 6 months prior to the offer period and ending on the Latest Practicable Date.
(iii) None of the Directors had dealings in the shares of Win Channel and Sheung Hai during the period beginning 6 months prior to the offer period and ending on the Latest Practicable Date.
(iv) No person, who has an arrangement of kind referred to in Note 8 to Rule 22 of the Takeovers Code with the Company or with any person who is an associate of the offeree company by virtue of classes (1), (2), (3) and (4) of the definition of associate, was dealt in the Shares during the period beginning 6 months prior to the offer period and ending on the Latest Practicable Date.
(v) No Shares which are managed on a discretionary basis by fund managers (other than exempt fund managers) connected with the Company was dealt during the period beginning 6 months prior to the offer period and ending on the Latest Practicable Date.

7. MATERIAL CONTRACTS

Save for the Share Acquisition Agreement and the Subscription Agreement, the following contracts (not being contracts in the ordinary course of business) have been entered into by members of the Group within the two years preceding the date of this document and are or may be material:

(i) A placing agreement dated 2nd November, 2000 relating to the subscription for 1,200,000,000 Shares in the capital of the Company by Sheung Hai at subscription price of HK$0.018 per Share.
(ii) A subscription agreement dated 29th March, 2001 entered into between the Company and Gain Master Assets Limited (“Gain Master”) in respect of the issue of a convertible bond in the principal amount of HK$28,800,000.
(iii) An agreement dated 23rd February, 2001 entered into between Star Cyberpower Limited (“Star Cyberpower”), a wholly-owned subsidiary of the Company and Mr. Wong whereby Star Cyberpower acquired from Mr. Wong 80% equity interest in iTech Investments Inc. at consideration of HK$16,800,000.

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Star Bio-tech (Holdings) Limited

GENERAL INFORMATION

APPENDIX III

(iv) An agreement dated 23rd February, 2001 entered into between Star Cyberpower and Mr. Wong whereby Star Cyberpower acquired from Mr. Wong the entire equity interest in High Stone Assets Limited at a consideration of HK$2,800,000.
(v) A subscription agreement dated 12th June, 2001 entered into between the Company and Directgain Profits Limited (“Directgain Profits”) in respect of the issue of a convertible loan note in the principal amount of 13,800,000.
(vi) Two subscription agreements dated 4th July, 2001 entered into between the Company, Gain Master Assets and Directgain Profits respectively in respect of the issue of two convertible bonds in an aggregate principal amount of HK$20,600,000.

8. LITIGATION

The following sets out information on those litigation or claims engaged in by or, to the knowledge of the Directors, pending or threatened by or against members of the Group as the Latest Practicable Date which are in the opinion of the Directors of material importance:

On 19th August, 1998, T Y Lee & Associate commenced proceedings against Chung Hwa Food & Beverages Limited (“Chung Hwa Food”), a wholly-owned subsidiary of the Company, for a sum of HK$520,000 together with interest accrued and costs. Chung Hwa Food paid an aggregate of HK$364,000 to the plaintiff on 31st August, 1998 and 7th October, 1998 respectively. As at the Latest Practicable Date, no acknowledgement of service and defence have been filed in respect of the claim.
On 12th January, 2002, a writ was issued against Star Bio-Tech (Holdings) Limited (BVI) and Real Well Investments Limited, wholly-owned subsidiaries of the Company, by The Center (45) Limited claiming a total sum of approximately HK$3,726,000 plus interest in relation to an alleged breach of a lease agreement for 45th Floor of The Center. Defences were filed by the defendants on 8th February, 2002 and 6th March, 2002 and since then no further action was taken by any party to the proceedings.

Save as disclosed above, so far as the Directors are aware, neither the Company nor any of its subsidiaries is engaged in any litigation or claims which is in the opinion of the Directors of material importance and no litigation or claims which is in the opinion of the Directors of material importance is known to the Directors to be pending or threatened by or against any member of the Group.

9. CONSENT

Each of Kingston Corporate Finance, Kingston Securities, Kim Eng Capital, Kim Eng Securities, Altus has given and has not withdrawn its written consent to the issue of this document with the inclusion herein of its report, valuation or letter (as the case may be) and references to its name, in the form and context in which it appears.

— 97 —

Star Bio-tech (Holdings) Limited

GENERAL INFORMATION

APPENDIX III

10. GENERAL

(a) As at the Latest Practicable Date, there was no agreement, arrangement or understanding between Win Channel and Sheung Hai and any other persons for the transfer of the beneficial interests in Shares acquired by Win Channel and Sheung Hai under the Offer.
(b) The registered office of Win Channel is at Sea Meadow House, Black Burne Highway, Road Town, Tortola, British Virgin Islands.
(c) The registered office of Sheung Hai is at P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands.
(d) As at the Latest Practicable Date, the entire issued share capital of Win Channel is beneficially owned by Mr. Chim. The sole director of Win Channel is Mr. Chim.
(e) The Offeror has no intention to avail itself of compulsory acquisition power.
(f) The address of Kingston Corporate Finance, one of the joint financial advisers to Win Channel and Sheung Hai, is at Suite 2801, 28th Floor, One International Finance Centre, I Harbour View Street, Central, Hong Kong. The address of Kim Eng Capital, the other joint financial adviser to Win Channel and Sheung Hai, is at 8th Floor, Alexandra House, 16-20 Chater Road, Central, Hong Kong. The address of Altus, the independent financial adviser, is at 8th Floor, Hong Kong Diamond Exchange, 8 Duddell Street, Central, Hong Kong.
(g) All time references contained in this document refer to Hong Kong time.
(h) The English text of this document and of the form of acceptance and transfer shall prevail over the Chinese text.

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the head office and principal place of business of the Company in Hong Kong, 11th Floor, Tai Sang Bank Building, 130-132 Des Voeux Road Central, Hong Kong while the Offer remains open:

(a) the memorandum of association and the bye-laws of the Company;
(b) the memorandum and articles of association of Win Channel and Sheung Hai;
(c) the annual reports of the Company for the 15 months ended 30th June, 2000 and for the year ended 30th June, 2001 respectively;
(d) the letter from Kingston Securities and Kim Eng Securities;

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Star Bio-tech (Holdings) Limited

GENERAL INFORMATION

APPENDIX III

(e) the letter from the Independent Board Committee;
(f) the letter of advice from Altus;
(g) the material contracts referred to in the paragraph headed “Material contracts” in this appendix;
(h) the written consents referred to in the paragraph headed “Consent” in this appendix; and
(i) irrevocable undertakings given by the holders of the Options and the Convertible Notes.

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Star Bio-tech (Holdings) Limited

AI assistant

G-Resources Group Limited — M&A Activity 2002

49648_rns_2002-04-26_384cb3ec-7cae-4a6d-8211-71490ee85e77.pdf

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

STAR BIO-TECH (HOLDINGS) LIMITED

CONTENTS

EXPECTED TIMETABLE

Announcement of the results of the Offer

Latest date for posting of remittances for

All time references contained in this document refer to Hong Kong time.

DEFINITIONS

DEFINITIONS

STAR BIO-TECH (HOLDINGS) LIMITED

INTRODUCTION

THE OFFER

LETTER FROM THE BOARD

LETTER FROM THE BOARD

INFORMATION ABOUT THE GROUP

Business

LETTER FROM THE BOARD

Reasons for the Subscriptions and use of proceeds

LETTER FROM THE BOARD

MAINTAINING THE LISTING OF THE SHARES

PROCEDURES FOR ACCEPTANCE OF THE OFFER

FURTHER INFORMATION IN RELATION TO THE OFFER

MANDATORY GENERAL OFFER

INTRODUCTION

THE OFFER

Effect of accepting the Offer

Stamp duty

Financial resources

Dealings and holdings in the Shares

INFORMATION ON WIN CHANNEL AND SHEUNG HAI

INTENTIONS OF WIN CHANNEL AND SHEUNG HAI

DIRECTORS, MANAGEMENT AND EMPLOYEES OF THE COMPANY

LETTER FROM KINGSTON SECURITIES AND KIM ENG SECURITIES

MAINTAINING THE LISTING OF THE SHARES

PROCEDURES FOR ACCEPTANCE OF THE OFFER

SETTLEMENT

GENERAL

LETTER FROM KINGSTON SECURITIES AND KIM ENG SECURITIES

ADDITIONAL INFORMATION

STAR BIO-TECH (HOLDINGS) LIMITED

MANDATORY GENERAL OFFER BY KINGSTON SECURITIES AND KIM ENG SECURITIES ON BEHALF OF WIN CHANNEL AND SHEUNG HAI FOR ALL THE ISSUED SHARES (OTHER THAN THOSE ALREADY OWNED BY WIN CHANNEL, SHEUNG HAI OR PARTIES ACTING IN CONCERT WITH THEM)

INTRODUCTION

RECOMMENDATIONS

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

ALTUS CAPITAL LIMITED

MANDATORY GENERAL OFFER

INTRODUCTION

BASIS OF OUR OPINION

LETTER FROM ALTUS CAPITAL LIMITED

PRINCIPAL FACTORS CONSIDERED

1. The Offer

2. The Offer Price

LETTER FROM ALTUS CAPITAL LIMITED

Chart I

Chart II

LETTER FROM ALTUS CAPITAL LIMITED

3. Principal activities and financial position of the Group

Net asset value

LETTER FROM ALTUS CAPITAL LIMITED

Trading record of the Group

Gearing

Cash position

Conclusion

5. Maintaining the listing of the Shares

LETTER FROM ALTUS CAPITAL LIMITED

6. Recommendation

LETTER FROM ALTUS CAPITAL LIMITED

1. FURTHER PROCEDURES FOR ACCEPTANCE OF THE OFFER

2. ACCEPTANCE PERIOD, REVISIONS AND EXTENSIONS

3. RIGHT OF WITHDRAWAL

4. ANNOUNCEMENTS

5. GENERAL

1. SUMMARY OF FINANCIAL INFORMATION

RESULTS

2. AUDITED ACCOUNTS FOR THE YEAR ENDED 30TH JUNE, 2001

CONSOLIDATED INCOME STATEMENT

CONSOLIDATED BALANCE SHEET

G-Resources Group Limited M&A Activity 2002