G-Resources Group Limited - Proxy Solicitation & Information Statement 2004

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in Credit Card DNA Security System (Holdings) Limited, you should at once hand this circular and the accompanying form of proxy to the purchaser or the transferee, or to the bank, licensed securities dealer or other agent through whom the sale or the transfer was effected for transmission to the purchaser or the transferee.

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

This circular is for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for any securities.

==> picture [303 x 118] intentionally omitted <==

(Incorporated in Bermuda with limited liability)

(Stock Code: 1051)

Advised by

MAJOR AND CONNECTED TRANSACTIONS PROPOSED ACQUISITION OF A 70 PER CENT INTEREST IN MING YUEN ASSETS LIMITED AND ADOPTION OF NEW BYE-LAWS IN SUBSTITUTION FOR THE EXISTING BYE-LAWS

Independent financial adviser to the Independent Board Committee and the Independent Shareholders

A letter dated 13 May, 2004 from the Independent Board Committee containing its recommendation to the Independent Shareholders in respect of the Acquisition is set out on pages 15 to 16 of this circular.

A letter dated 13 May, 2004 from Altus Capital Limited, the independent financial adviser to the Independent Board Committee and the Independent Shareholders, containing its advice in respect of the Acquisition to the Independent Board Committee is set out on pages 17 to 27 of this circular.

A notice convening a special general meeting to be held at 10:00 a.m. on Tuesday, 8 June, 2004 at Gloucester Room, 2nd Floor, Mandarin Oriental Hong Kong, 5 Connaught Road, Central, Hong Kong, is set out on pages 119 to 121 of this circular. A form of proxy for use in the special general meeting is enclosed. Whether or not you propose to attend the meeting, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed thereon as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the special general meeting or any adjourned meeting thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the special general meeting or any adjourned meeting thereof, should you so desire.

The Chinese name is for identification purpose only

13 May, 2004

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
The Sale and Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Reasons for the Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Implications under the Takeovers Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
Adoption of the New Bye-Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
Special General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
Voting on poll . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Additional information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . .	15
Letter from Altus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Appendix I − Accountants’ report on Ming Yuen . . . . . . . . . . . . . . . . . .	28
Appendix II − Financial information of the Group . . . . . . . . . . . . . . . . .	37
Appendix III − Financial information of the Enlarged Group . . . . . . . .	87
Appendix IV − Valuation of Ming Yuen . . . . . . . . . . . . . . . . . . . . . . . . . . . .	92
Appendix V − Summary of the principal terms of
the New Bye-Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	106
Appendix VI − General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	110
Notice of the Special General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	119

−i −

DEFINITIONS

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

“Acquisition”	the proposed acquisition of a 70 per cent interest in
	Ming Yuen pursuant to the Sale and Purchase
	Agreement and transactions contemplated thereunder
“Altus”	Altus Capital Limited, a deemed licensed corporation
	under the SFO and the independent financial adviser
	to the Independent Board Committee and the
	Independent Shareholders
“Board”	the board of the Directors
“Company”	Credit Card DNA Security System (Holdings) Limited,
	an exempted company incorporated with limited
	liability in Bermuda, the shares of which are listed on
	the Stock Exchange
“Completion”	completion of the Sale and Purchase Agreement
“Director(s)”	the director(s) of the Company, including the
	independent non-executive directors of the Company
“Enlarged Group”	the Group and Ming Yuen
“Existing Bye-Laws”	the Bye-laws of the Company for the time being in
	force adopted on 11 April, 1994
“Group”	the Company and its subsidiaries
“Hong Kong”	the Hong Kong Special Administrative Region of the
	PRC
“Hong Kong Patent”	the registered patent in Hong Kong, details of which
	are summarised in the paragraph headed “Information
	on Ming Yuen” in the “Letter from the Board”
“Independent Board	an independent committee of the Board, comprising
Committee”	the independent non-executive Directors of the
	Company, namely Ms. Ha Ping and Mr. Cheng Kong
	Ming, duly appointed by the Board for the purpose of
	advising the Independent Shareholders in respect of
	the proposed transactions as set out in this circular
“Independent Shareholders”	the shareholders of the Company other than Mr. Wong
	and his associates (as defined under the Listing Rules)

−1 −

DEFINITIONS

“Latest Practicable Date”	6 May, 2004, being the latest practicable date for
	ascertaining certain information for inclusion in this
	circular
“Listing Rules”	the Rules Governing the Listing of Securities on the
	Stock Exchange
“Ming Yuen”	Ming Yuen Assets Limited, a private company
	incorporated in the British Virgin Islands on 12
	February, 2002
“Mr. Wong”	Mr. Wong Kam Fu who is the chairman, an executive
	Director and the sole beneficial owner of Sheung Hai
	Developments Limited (a controlling shareholder of
	the Company) and is also a director and the
	controlling shareholder of Ming Yuen
“New Bye-Laws”	the new Bye-laws proposed to be adopted at the
	Special General Meeting, the principal terms of which
	are summarised in Appendix V to this circular
“Patents”	the Hong Kong Patent and the PRC Patent
“PRC Patent”	the registered patent in the PRC, details of which are
	summarised in the paragraph headed “Information on
	Ming Yuen” in the “Letter from the Board”
“PRC”	the People’s Republic of China, which for the purpose
	of this circular, excludes Hong Kong, the Macau
	Special Administrative Region and Taiwan
“Sale and Purchase Agreement”	the sale and purchase agreement dated 6 April, 2004
	between the Company as purchaser, and Mr. Wong as
	vendor for the acquisition of seven existing shares of
	US$1.00 each in Ming Yuen
“SFC”	Securities and Futures Commission of Hong Kong
“SFO”	Securities and Futures Ordinance (Chapter 571 of the
	Laws of Hong Kong)
“Special General Meeting”	the special general meeting of the Company to be held
	at 10:00 a.m. on Tuesday, 8 June, 2004 at Gloucester
	Room, 2nd Floor, Mandarin Oriental Hong Kong, 5
	Connaught Road, Central, Hong Kong and any
	adjournment thereof
“Stock Exchange”	The Stock Exchange of Hong Kong Limited

−2 −

DEFINITIONS

“Takeovers Code” The Hong Kong Code on Takeovers and Mergers “HK$” Hong Kong dollars, the lawful currency of Hong Kong “US$” United States dollars, the lawful currency of the United States of America

For the purpose of illustration only and unless otherwise stated, the translation of US$ into HK$ is based on the exchange rate of US$$1.00 = HK$7.8. Such translation should not be construed as a representation that the amounts in question have been, could have been or could be converted at any particular rate or at all.

− −3

LETTER FROM THE BOARD

==> picture [303 x 122] intentionally omitted <==

(Incorporated in Bermuda with limited liability)

Executive Directors: Registered office: Wong Kam Fu (Chairman) Canon’s Court Song Xiao Hai 22 Victoria Street Wong Hoi Keung (Managing Director) Hamilton HM 12 Wang Zhao Bin Bermuda Lew Mon Hung

Head office and principal Independent non-executive Directors: place of business in Hong Kong: Ha Ping 11th Floor Cheng Kong Ming Tai Sang Bank Building 130-132 Des Voeux Road Central Hong Kong

13 May, 2004

To all the shareholders of the Company

Dear Sir or Madam,

MAJOR AND CONNECTED TRANSACTIONS

PROPOSED ACQUISITION OF A 70 PER CENT INTEREST IN MING YUEN ASSETS LIMITED AND ADOPTION OF NEW BYE-LAWS IN SUBSTITUTION FOR THE EXISTING BYE-LAWS

INTRODUCTION

On 13 April, 2004, the Directors announced that on 6 April, 2004, the Company and Mr. Wong entered into the Sale and Purchase Agreement under which the Company has agreed to acquire from Mr. Wong a 70 per cent interest in Ming Yuen. The aggregate consideration is HK$83 million. The purpose of this circular is to provide you with, among other things, further information of the Acquisition and to seek approval from the Independent Shareholders for the Acquisition.

The Chinese name is for identification purpose only

−4 −

LETTER FROM THE BOARD

THE SALE AND PURCHASE AGREEMENT

Date: 6 April, 2004

Parties: The Company as the purchaser and Mr. Wong as the vendor

Terms

Subject to the fulfilment or waiver of the conditions to the Sale and Purchase Agreement, the Company agreed to acquire from Mr. Wong seven existing shares of US$1.00 each in Ming Yuen, representing 70 per cent equity interest in the issued share capital of Ming Yuen.

Consideration

HK$83 million payable by the Company and which will be satisfied in the following manner:

a. as to HK$14 million to be satisfied by the Company assuming the obligations and liabilities of a debt of HK$14 million owing to Ming Yuen by Mr. Wong repayable on demand; and
b. as to HK$69 million by the issuance to Alpha Logistics Group Limited, a company wholly-owned by Mr. Wong, of a convertible loan note for the principal amount of HK$69 million in the Company, the terms of which are summarised below.

The consideration of HK$83 million was determined with reference to the fair market value of the entire interest of Ming Yuen as at 6 April, 2004, based on the valuation report prepared by LCH (Asia-Pacific) Surveyors Limited, the text of which is set out in Appendix IV to this circular.

The consideration of HK$83 million represents a discount of approximately 7.4 per cent to the fair market value of the entire equity interest of Ming Yuen attributable to the 70 per cent interest in Ming Yuen of HK$128 million, based on the valuation report mentioned above.

−5 −

LETTER FROM THE BOARD

Terms of the convertible loan note in the Company

Duration: Three years from the issue of the convertible loan note on Completion. Conversion: The noteholder has the right on any business day to convert all or part of the principal amount of the convertible loan note, representing HK$300,000 or an integral multiple thereof, into shares in the Company, at HK$0.08 per share (subject to adjustment), at any time, after the date of issue of the convertible loan note but prior to the maturity of the convertible loan note. If the Company shall default in making payment in full in respect of the convertible loan note on the maturity date, the conversion right will continue to be exercisable up to and including the date upon which the full amount of the principal moneys payable has been duly received by the noteholder. Provided that for so long as there is principal amount of the convertible loan note outstanding as at the maturity date, the Company may require conversion of the outstanding principal amount of the convertible loan note into shares in the Company, at HK$0.08 per share (subject to adjustment), at any time on or after the maturity date.

Redemption: The Company may redeem all or part of the outstanding principal amount of the convertible loan note at any time prior to its maturity.
Transfer: No assignment of transfer, in whole or in part, of the convertible loan note may be made unless with prior written consent of the Company.
Interest: The convertible loan note bears interest at a rate of 2 per cent per annum, payable semi-annually in arrears.
Repayment: The principal amount outstanding under the convertible loan note shall be repaid in full by the Company to the noteholder on the maturity date, being the date falling three years from the date of issue of the convertible loan note on Completion.

−6 −

LETTER FROM THE BOARD

Comparisons of the conversion price to the market price

The conversion price of the convertible loan note is HK0.08 per share of the Company (subject to adjustment), which represents:

a premium of approximately 14.3 per cent to the closing price of HK$0.070 per share in the Company as quoted on the Stock Exchange on the Latest Practicable Date;
a premium of approximately 12.7 per cent to the closing price of HK$0.071 per share in the Company as quoted on the Stock Exchange on 6 April, 2004, being the last day of trading in the shares prior to suspension of trading;
a premium of approximately 6.7 per cent to the average closing price of approximately HK$0.075 per share in the Company as quoted on the Stock Exchange for the last 5 trading days up to and including 6 April, 2004; and
a premium of approximately 2.6 per cent to the average closing price of approximately HK$0.078 per share in the Company as quoted on the Stock Exchange for the last 10 trading days up to and including 6 April, 2004.

Conditions precedent

Completion is conditional upon, amongst other things, the fulfilment or waiver of the following conditions on or before 12:00 noon on 30 June, 2004 (as revised from 31 May, 2004 and agreed by Mr. Wong and the Company in writing):

(i) the Company having completed its due diligence in respect of Ming Yuen and being, in its absolute opinion, satisfied with the results such due diligence review in all respects and a written notice to that effect having been given to Mr. Wong;
(ii) where necessary, the independent shareholders of the Company having passed the necessary resolutions to approve the Sale and Purchase Agreement and the transactions contemplated thereunder at a special general meeting of the Company;
(iii) the Listing Committee of the Stock Exchange having granted the listing of, and permission to deal in, such shares in the Company which may fall to be issued pursuant to the exercise of the convertible loan note;

−7 −

LETTER FROM THE BOARD

(iv) there being no material deviation between the unaudited management accounts of Ming Yuen for the nine months ended 31 March, 2004 and such management accounts being prepared in accordance with applicable audit procedures in Hong Kong, which in the reasonable opinion of the Company is material and adverse in all aspects; and
(v) where necessary, all approvals from government and regulatory authorities for the transactions contemplated under the Sale and Purchase Agreement being obtained.

As at the Latest Practicable Date, only condition (iv) had been fulfilled.

Information on the shares to be issued under the convertible loan note

Upon full conversion of the convertible loan note at the initial conversion price of HK$0.08 per share, the noteholder will be issued 862,500,000 new shares in the Company, representing approximately 9.0 per cent of the existing issued share capital of the Company. The shares to be issued under the convertible loan note, upon conversion, will be issued as fully paid shall rank pari passu in all respects with the shares in the Company in issue at the date of issue of the conversion shares. The Company has made an application to the Stock Exchange for the listing of, and permission to deal in, the conversion shares to be issued upon the exercise of the conversion rights attached to the convertible loan note.

Completion

Completion shall take place on the date falling three business days after the fulfilment or waiver of the conditions to the Sale and Purchase Agreement (or such later date as the parties thereto may agree in writing).

As at the Latest Practicable Date, the Company owned 30 per cent of the issued share capital of Ming Yuen. Following Completion, the Company will own the entire issued share capital of Ming Yuen, and thus will become a subsidiary of the Company.

Information on the Group

The Group is principally engaged in the provision of credit card security services, provision of financial information through internet and mobile phones and investments in high-tech related businesses.

−8 −

LETTER FROM THE BOARD

Information on Ming Yuen

Ming Yuen is a private company limited by shares incorporated in the British Virgin Islands on 12 February, 2002. As at the Latest Practicable Date, Ming Yuen had an authorised share capital of US$50,000 consisting of 50,000 shares of US$1.00 each and an issued share capital of US$10.00 consisting of 10 fully paid share of US$1.00 each. Mr. Wong and Mr. Wong Hoi Keung, both of whom are the Directors, are the two directors of Ming Yuen.

From the date of its incorporation up to the Latest Practicable Date, Ming Yuen had not commenced any business operation other than acting as a holding company of two patents covering certain technologies in connection with a security system for non-cash transactions with respect to the territories of Hong Kong and the PRC. The Hong Kong Patent and PRC Patent were filed on 30 June, 1994 and 19 May, 1994, respectively, and both patents will expire in 2014. Subsequent to the incorporation of Ming Yuen, which was then wholly and beneficially owned by Mr. Wong, Mr. Wong transferred the two patents to Ming Yuen at a nominal consideration of US$10. With the recording of the transfer having been successfully approved by the relevant intellectual department/bureau in Hong Kong and the PRC, Ming Yuen has become the registered proprietor of the two patents since October 2002. Mr. Wong invented this security system with which holders of debit/credit card (including banking cards) can prevent other people from using their cards for payment without their authorisation. Each cardholder can give authorisation to a transaction by transmitting a secret code number known to the cardholder only through his or her mobile phone. Ming Yuen recorded an audited net loss before and after tax of HK$5,070 from the date of incorporation on 12 February, 2002 to 30 June, 2002, an audited net loss before and after tax of HK$65,200 for the year ended 30 June, 2003 and an audited net loss before and after tax of HK$28,655 for the nine months ended 31 March, 2004.

The audited balance sheet of Ming Yuen as at 31 March, 2004 recorded total asset value of approximately HK$30.7 million, which comprised an amount due from the Company of approximately HK$0.7 million, promissory note receivable from the Company of HK$16 million, and amount due from Mr. Wong of HK$14 million. The audited balance sheet of Ming Yuen as at 31 March, 2004, recorded total liabilities of approximately HK$0.8 million.

Under the subscription agreement dated 26 September, 2002, regarding the subscription of 30% interest in Ming Yuen, between Ming Yuen, Mr. Wong and the Company, a promissory note issued by the Company to Ming Yuen in the principal amount of HK$30 million was to be repaid on 17 May, 2004. On 15 June, 2003, the parties to the agreement have agreed to extend the maturity date of the promissory note to 17 September, 2004. As of the Latest Practicable Date, the Company had paid, in aggregate, HK$14 million to Ming Yuen.

− −9

LETTER FROM THE BOARD

REASONS FOR THE ACQUISITION

Following completion of the acquisition of a 30 per cent interest in Ming Yuen on 18 November, 2002, the Company has been actively marketing the patented technologies licensed by Ming Yuen pursuant to the patent license agreement entered into with the Company on 26 September, 2002 in developing its credit card security business in Hong Kong and the PRC. Other than this exclusive licence to the Company, the Patents have not been licensed to any other parties. Implementation and trials of the systems by the partner banks are promising though the overall business results is below the Company’s expectation. However, further investigation by the project committee of the Company has revealed that other than the required implementation of the banks’ system to match the configuration of DNA system requirements, additional and supplemental DNA services to cover all other major electronic banking systems requested by partner banks were attributable factors causing the delay of the results. With the accomplishment of the implementation of the partner banks’ systems, more proactive sales and marketing campaign, the Directors are encouraged by the promising prospects of these technologies. Since entering into the patent license agreement, the Company has continued development of its credit card security business and provided limited trials of the system which resulted in approximately HK$32,000 in royalties paid to Ming Yuen up to 31 March, 2004. For the last six months ended 31 December, 2003, the Group was striving hard to get more banks in both China and Hong Kong to offer DNA security services to their customers to safeguard security in electronic banking transactions and urging the partner banks to promote DNA services to their customers. A more proactive and aggressive approach to recruit partner banks and promoting DNA services subscription are imperative. To that end, in February 2004, the Company has signed a memorandum of understanding with The Macau Chinese Bank Limited and in April 2004, a cooperative agreement was signed with Beijing Municipal Administration and Communication Co. Ltd. Additionally, upon the full launch of the Company’s credit card security service, the Directors expect that the future saving on royalties may be significant. Also subsequent to the introduction of the vital strategic partner which is a subsidiary of The Capital Group in March 2004, the Directors are confident that the expansion of business particularly in the PRC is foreseeable and within the expectation of the board. The Capital Group is a state-owned limited liability company, which is the holding company of Beijing Capital Land Ltd., the shares of which are listed on the Main Board of the Stock Exchange. Leveraging on the leading position of The Capital Group, together with its long standing and well established relationship with Beijing Municipal Government, the Directors believe that the Company can benefit from the strategic relationship with The Capital Group as the latter would introduce banks in the PRC to the Group for future cooperation. With a view to tapping the anticipated growth potential from the exclusive use of the patented technologies in Hong Kong and the PRC, the Board believes that it is now the right opportunity to acquire full control of the patented technologies. The Board believes that the Acquisition is fair and reasonable and is in the best interest of the Company and its shareholders as a whole.

−10 −

LETTER FROM THE BOARD

IMPLICATIONS UNDER THE TAKEOVERS CODE

Mr. Wong and parties acting in concert with him currently own approximately 23.2 per cent of the issued share capital of the Company, and outstanding share options for 100,000,000 shares in the Company, representing approximately 1.0 per cent of the existing issued share capital. Assuming the convertible loan notes and share options held by Mr. Wong and parties acting in concert with him are converted and exercised, respectively, in full into shares in the Company, Mr. Wong and parties acting in concert with him will own approximately 30.3 per cent of the enlarged issued share capital of the Company. Mr. Wong has informed the Company that he will comply with the Takeovers Code should he be obliged, upon conversion of the convertible loan notes in full and exercise of the share options, to extend a general offer for the securities in the Company not owned by him and parties acting in concert with him.

Assuming there is no change in shareholding after the Latest Practicable Date, the shareholding structure of the Company immediately prior to Completion, after Completion, after full conversion of the convertible loan note, and after exercise of share options in full by Mr. Wong is approximately as follows:

							After
							Completion and
					After		upon full
					Completion and		conversion of
					upon full		the convertible
	Immediately				conversion of		loan note and
	prior to		After		the convertible		exercise of
	Completion		Completion		loan note		share options
	Number of shares		Number of shares		Number of shares		Number of shares
Mr. Wong_(Note a)_	2,212,991,543	23.2%	2,212,991,543	23.2%	3,075,491,543	29.6%	3,175,491,543	30.3%
The Hong Kong Beijing Finance
and Investment Limited	1,020,000,000	10.7%	1,020,000,000	10.7%	1,020,000,000	9.8%	1,020,000,000	9.7%
Mr. Lam Ching Kui_(Note b)_	1,015,186,000	10.7%	1,015,186,000	10.7%	1,015,186,000	9.8%	1,015,186,000	9.7%
Other	5,283,622,622	55.4%	5,283,622,622	55.4%	5,283,622,622	50.8%	5,283,622,622	50.3%
	9,531,800,165	100.0%	9,531,800,165	100.0%	10,394,300,165	100.0%	10,494,300,165	100.0%

Notes:

a. Of the interests of Mr. Wong, 2,178,516,543 shares in the Company are held by Sheung Hai Developments Limited (“Sheung Hai”), 5,475,000 shares in the Company are held by Super Biotech Enterprises Limited (“Super Biotech”), and 29,000,000 shares are held by Mr. Wong personally. Both Sheung Hai and Super Biotech are wholly and beneficially owned by Mr. Wong.
b. Of the interests of Mr. Lam Ching Kui (“Mr. Lam”), 265,178,000 shares in the Company are held by Chinese Success Limited (“Chinese Success”), and 750,008,000 shares are held by Mr. Lam personally. Chinese Success is wholly and beneficially owned by Mr. Lam.

−11 −

LETTER FROM THE BOARD

ADOPTION OF THE NEW BYE-LAWS

The Directors further proposed that the Existing Bye-Laws be replaced by adopting the New Bye-Laws on the ground that since the Existing Bye-Laws were originally adopted pursuant to a resolutions of the shareholders of the Company passed on 11 April, 1994 a number of provisions therein should have been amended to take into account various changes in applicable laws, regulations and market practices. As such amendments are substantial, it is proposed that the New Bye-Laws be adopted instead of amending the Existing Bye-Laws on a piecemeal basis which may lead to confusion and complication in future. The Directors considered that the New Bye-Laws are in conformity with the current form of bye-laws generally adopted by companies incorporated in Bermuda and listed on the Stock Exchange and most importantly, the New Bye-Laws are in compliance with the latest amended requirements of the Listing Rules which took effect on 31 March, 2004.

A summary of the principal terms of the New Bye-Laws is set out in Appendix V to this circular. The New Bye-Laws will be proposed for approval and adoption in substitution of, and as replacement for, the Existing Bye-Laws by the shareholders of the Company at the Special General Meeting by way of a special resolution.

SPECIAL GENERAL MEETING

Under the Listing Rules, the Acquisition constitutes a major transaction of the Company and is therefore subject to the approval of the Independent Shareholders at the Special General Meeting.

As Mr. Wong is the chairman of the Company and an executive Director as well as the controlling shareholder of Ming Yuen, Mr. Wong is a connected person of the Company within the meaning of the Listing Rules. Accordingly, the Acquisition also constitutes a connected transaction of the Company and is subject to the approval of the Independent Shareholders, voting by way of poll, at the Special General Meeting. The procedure for demand for voting on poll at the Special General Meeting is set out in the paragraph headed “Voting on poll” below.

Mr. Wong and his associates, own approximately 23.2 per cent of the issued share capital of the Company and control the voting rights in respect of all their shares in the Company. Mr. Wong and his associates will abstain from voting on the ordinary resolutions to be proposed at the Special General Meeting to approve the Acquisition at the Special General Meeting.

A notice of the Special General Meeting is set out on pages 119 to 121 of this circular. The meeting will be held at 10:00 a.m. on Tuesday, 8 June, 2004 at Gloucester Room, 2nd Floor, Mandarin Oriental Hong Kong, 5 Connaught Road, Central, Hong Kong. Ordinary resolutions will be proposed to approve the proposed implementing, completing and giving effect to the Acquisition. Further, a special resolution will be proposed to consider and, if thought fit, to approve the adoption of the New Bye-Laws in substitution of, and as replacement for, the Existing Bye-Laws.

−12 −

LETTER FROM THE BOARD

A form of proxy for use at the Special General Meeting is enclosed with this circular. Whether or not you are able to attend the meeting in person, you are requested to complete and return the form of proxy in accordance with the instructions printed on it to the Company’s principal place of business at 11th Floor, Tai Sang Bank Building, 130-132 Des Voeux Road Central, Hong Kong, as soon as possible but in any event not later than 48 hours before the time appointed for the holding of the Special General Meeting. Completion of the form of proxy will not preclude you from attending and voting at the Special General Meeting or any adjourned meeting thereof should you so wish.

VOTING ON POLL

Pursuant to Bye-Law 69 of the Existing Bye-Laws, at any general meeting a resolution put to vote of the meeting shall be decided on a show of hands, unless a poll is (before or on the declaration of the result of the show of hands) demanded by:

(i) the chairman;
(ii) at least 3 members present in person or by proxy or authorised representative for the time being entitled to vote at the meeting;
(iii) any members or members present in person or by proxy or authorised representative and holding between them not less than one-tenth of the total voting rights of all the members having the right to attend and vote at the meeting; or
(iv) any members or members present in person or by proxy or authorised representative and holding shares in the Company conferring a right to attend and vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all the shares conferring that right.

Unless a poll is so demanded and the demand is not withdrawn, a declaration by the chairman that a resolution has, on a show of hands, been carried or carried unanimously or by a particular majority or lost and an entry to that effect in the book of the proceedings of the Company shall be conclusive evidence of the fact, without proof of the number or proportion of the votes recorded in favour of or against that resolution.

In compliance with the Listing Rules, the Company will procure the chairman of the Special General Meeting to demand for voting on poll, pursuant to Bye-Law 69 of the Existing Bye-Laws, for the ordinary resolutions proposed to be approved the proposed implementing, completing and giving effect to the Acquisition.

− −13

LETTER FROM THE BOARD

RECOMMENDATION

Your attention is drawn to the letter from the Independent Board Committee set out on pages 15 to 16 of this circular which contains its advice to the Independent Shareholders, and the letter from Altus on pages 17 to 27 of this circular which contains its advice to the Independent Board Committee as well as the principal factors and reasons taken into consideration in arriving at its advice.

For the reasons set out above, the Board considers that the Acquisition is fair and reasonable and in the interests of the Company and its shareholders as a whole, and therefore recommend the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the Special General Meeting. You are advised to read the letter from the Independent Board Committee and the letter from Altus mentioned above before deciding as to how to vote at the Special General Meeting.

The Board also believes that the adoption of the New Bye-Laws are essential to comply with the amendments to the applicable laws, regulations and the Listing Rules and therefore recommends the shareholders of the Company to vote in favour of the special resolution to be proposed at the Special General Meeting so that the New Bye-Laws can be adopted in substitution of, and as replacement for, the Existing Bye-Laws.

ADDITIONAL INFORMATION

Please refer to the appendices to this circular for additional information.

By order of the Board Credit Card DNA Security System (Holdings) Limited Wong Hoi Keung

Managing Director

−14 −

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [303 x 122] intentionally omitted <==

(Incorporated in Bermuda with limited liability)

13 May, 2004

To the Independent Shareholders

Dear Sir or Madam,

MAJOR AND CONNECTED TRANSACTIONS

PROPOSED ACQUISITION OF A 70 PER CENT INTEREST IN MING YUEN ASSETS LIMITED

We have been appointed as members of the independent board committee to advise you in connection with the proposed acquisition, details of which are set out in the “Letter from the Board” in the circular dated 13 May, 2004 (the “Circular”) of which this letter forms part. The terms used in this letter shall have the same meanings as given to them in the circular unless the context otherwise requires.

We, being the independent non-executive Directors constituting the Independent Board Committee, are writing to you to set out our opinion in respect of the Acquisition. The Independent Board Committee was set up to advise you as Independent Shareholders whether in its view the terms of the Acquisition are in the interest of the Company and its Independent Shareholders and are fair and reasonable so far as the Independent Shareholders are concerned.

Altus has been appointed by the Company to advise the Independent Board Committee as to whether the terms of the Acquisition are fair and reasonable so far as the Independent Shareholders are concerned. Details of its advice, together with the principal factors taken into consideration in arriving at such advice, are set out on pages 17 to 27 of the Circular.

Your attention is also drawn to the “Letter from the Board” set out on pages 4 to 14 of the Circular and the additional information set out in the appendices to the Circular.

As referred to in the “Letter from the Board” of the Circular, Mr. Wong and his associates will abstain from voting on the ordinary resolutions to be proposed at the Special General Meeting to approve the Acquisition.

The Chinese name is for identification purpose only

−15 −

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Having considered the terms of the Sale and Purchase Agreement and the advice of Altus, we consider that the terms of the Sale and Purchase Agreement are fair and reasonable as far as the Independent Shareholders are concerned and that the Acquisition is in the interests of the Company and the Independent Shareholders. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolutions as set out in the notice of the Special General Meeting attached to the Circular to approve the proposed implementing, completing and giving effect to the Sale and Purchase Agreement and the transactions contemplated thereunder.

Yours faithfully,

Independent Board Committee of Credit Card DNA Security System (Holdings) Limited Ha Ping Cheng Kong Ming Independent Independent Non-Executive Director Non-Executive Director

−16 −

LETTER FROM ALTUS

The following is the text of the letter of advice to the Independent Board Committee from Altus dated 13 May 2004 prepared for incorporation in this Circular.

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

13 May 2004

The Independent Board Committee and the Independent Shareholders Credit Card DNA Security System (Holdings) Limited 11th Floor, Tai Sang Bank Building 130−132 Des Voeux Road Central Hong Kong

Dear Sirs,

MAJOR AND CONNECTED TRANSACTIONS

INTRODUCTION

We refer to the Sale and Purchase Agreement relating to the Acquisition, details of which are set out in the circular of the Company dated 13 May 2004, (the “Circular”) to its shareholders (“Shareholders”) of which this letter forms part. Capitalised terms used in this letter shall have the same meanings ascribed to them in the Circular unless the context otherwise requires.

The Company announced that on 6 April 2004, the Company and Mr. Wong entered into the Sale and Purchase Agreement under which the Company has agreed to acquire from Mr. Wong a 70% interest in Ming Yuen, which owns the Patents on which the technologies (“Patented Technologies”) relating to a security system (“DNA System”) used in non-cash transactions currently being developed and marketed by the Group are based. The aggregate consideration is HK$83 million which will be satisfied as to (i) HK$14 million by the Company assuming the obligations and liabilities of a debt of HK$14 million owed to Ming Yuen by Mr. Wong; and (ii) as to HK$69 million by the issue of a convertible loan note (“Convertible Loan Note”) to Alpha Logistics Group Limited, which is a company wholly-owned by Mr. Wong. As at the Latest Practicable Date, the Company owned 30% of the issued share capital of Ming Yuen. Upon completion of the Sale and Purchase Agreement, the Company will own the entire issued share capital of Ming Yuen.

Mr. Wong is the chairman and an executive Director of the Company. He is also a director and the controlling shareholder of Ming Yuen. Mr. Wong is therefore a connected person of the Company within the meaning of the Listing Rules. Accordingly, the

−17 −

LETTER FROM ALTUS

Acquisition constitutes a connected transaction of the Company and is subject to the approval of the Independent Shareholders at the Special General Meeting. Under Rules 14A.18 and14A.54, Mr. Wong and his associates will be required to abstain from voting on the relevant resolution to approve the Acquisition at the Special General Meeting.

The Independent Board Committee was appointed to advise the Independent Shareholders in relation to the Acquisition. Altus has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders as to whether the terms of the Acquisition 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, opinion and representations supplied to us by the Company and the Directors and we have assumed that all such information, statements, opinions and representations contained or referred to in the Circular were true and accurate and, unless otherwise stated, complete at the time they were made and continue to be true at the date of the Circular, 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 the Circular 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 Circular.

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 Acquisition and to justify reliance on the accuracy of the information contained in the Circular 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 Circular 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.

PRINCIPAL FACTORS CONSIDERED

We have considered the following factors in formulating our recommendation and in arriving at our opinion as to the fairness and reasonableness of the terms of the Acquisition:

1. Businesses of the Group

The Group is principally engaged in (i) the provision of credit card security services; (ii) the provision of financial information through the internet and mobile phones; and (iii) investments in high-tech related business.

−18 −

LETTER FROM ALTUS

The Group recorded turnover and net loss of approximately HK$11.2 million and HK$59.6 million respectively for the financial year ended 30 June 2003. For the six months ended 31 December, 2003, the Group recorded turnover of about HK$1.5 million and net loss of HK$17.1 million. Turnover of the Group decreased significantly following the divestment and discontinuation of several businesses of the Group such as the biotechnology businesses, the pen-size dictionary and pager manufacturing businesses as well as the website for wine and sugar trading. These divested and discontinued businesses had been loss making and failed to contribute to the Group’s profitability. These divestments are therefore in line with the Group’s strategy of streamlining its non-core operations and focusing its resources to developing and marketing the DNA System, the Group’s core business.

According to the Directors, the Group collects fixed fees and/or fees on a per transaction basis for each user. Under such fee structure, for example, a credit card authorisation product based on the DNA Systems can facilitate a large number of users with marginal incremental costs. In other words, once fees collected from such number of users exceed the costs of maintaining the systems of the products, any additional fees collected will have high profit margins. The Group is required to pay an amount equivalent to 15% of the gross fees collected as royalty fees to Ming Yuen.

Thus far, the Group has paid only nominal royalty fees to Ming Yuen as certain products based on the DNA System is still being refined and implemented. Furthermore, the Group’s partner banks provided free trial period to the users during the initial launch, thus fees were not charged, although the number of users have increased substantially since. Due to the fee structure as described above, the Directors expect royalty fee payments to increase when the business of DNA System further develops and more products are launched. The acquisition of the remaining interest of Ming Yuen may therefore result in savings in royalty fee payments in the future.

Given the Group’s intention to fully focus on the business of DNA System, we consider that it is reasonable for the Group to acquire the remaining interest of Ming Yuen, thereby wholly owning the Patents.

2. Business of Ming Yuen

Ming Yuen is a private company limited by shares incorporated in the British Virgin Islands on 12 February 2002. As at the Latest Practicable Date, Ming Yuen had an authorised share capital of US$50,000 consisting of 50,000 shares of US$1.00 each and an issued share capital of US$10.00 consisting of 10 fully paid share of US$1.00 each. As at the Latest Practicable Date, the Company owned 30% of the issued share capital of Ming Yuen and the remaining 70% was owned by Mr. Wong. Both Mr. Wong and Mr. Wong Hoi Keung are Directors as well as the two directors of Ming Yuen.

From the date of its incorporation up to the Latest Practicable Date, Ming Yuen has not had any business operation other than the holding of two Patents with respect to the territories of Hong Kong and the PRC. Both Patents are valid until 2014.

− −19

LETTER FROM ALTUS

Mr. Wong invented this security system with which a debit/credit card (including banking card) cardholder can prevent third parties from using his/her cards for payment without authorisation. Each cardholder must authorise a transaction by transmitting a secret code number known to the cardholder only through his or her mobile phone.

As stated in the Letter from the Board, Ming Yuen has recorded nominal losses and profits in each of its financial period since its incorporation. For the nine months ended 31 March 2004, Ming Yuen recorded an unaudited net loss of HK$36,273. The net asset value of Ming Yuen as at 31 March 2004 was about HK$29.5 million.

It is noted that Ming Yuen has received limited royalty payment, which is its main source of income, since its incorporation. The income of Ming Yuen, in the form of royalty payments, will increase when the application of the DNA System is more widely used and is fully launched.

3. Reasons for the Acquisition

The Company acquired a 30% equity interest in Ming Yuen in November 2002 for a consideration of HK$30 million which was payable by the Company by the issue of a promissory note due in July 2004. Since the aforesaid acquisition, the Company has been actively marketing the Patented Technologies relating to the DNA System in the PRC, Hong Kong and Macau.

The Directors advised that the implementation and trials of various products based on the DNA System by partner banks are progressing well although the schedule of launch of certain products has been delayed. Such delays were due mainly to requests by partner banks for more features to be included, such as to cover debit card transactions or non-card transactions in addition to credit card transactions. We have discussed with the Directors the impact of the above on the Group. According to the Directors, the DNA System is a mature system that has been fully developed and the addition of new features does not require substantial capital expenditure or funding. The Group’s current financial resources are therefore sufficient to meet the ongoing requirements of its operations.

The Directors noted that the development of products based on the DNA System which have been launched, is encouraging. For example, although the Agricultural Bank of China has only conducted a limited launch of DNA System-based credit card products to a group of end-users in March 2003, the number of users has steadily increased. For instance, there were about 4,800 paying users in August 2003 and such number increased to about 25,000 users in March 2004. The Directors expect such number to increase substantially upon full-scale launch of the credit card products. In addition, following extensive efforts on implementation and trial runs with the Group, the Shenzhen Development Bank Company Limited is expected to conduct a nation-wide launch of payment products based on the DNA System in the third quarter of 2004.

−20 −

LETTER FROM ALTUS

Further to the aforesaid development, an authorised distributor of the Company has signed a memorandum of understanding with The Macau Chinese Bank Limited (“MOU”) in February 2004 for the application of the DNA System on certain payment authorisation and transfer systems. The Company has also entered into a cooperation agreement (“Cooperation Agreement”) in April 2004 with Beijing Municipal Administration and Communications Card Co. Ltd, for the joint development of an electronic card payment system (which we understand from the Directors is similar to the functions of the Octopus Card in Hong Kong) using the platform of DNA Systems.

The Directors are confident about the expansion into the PRC market following the introduction of a vital strategic partner which is a subsidiary of The Capital Group in February 2004. The Capital Group is a state-owned limited liability company and is one of the largest enterprises in Beijing. The Directors consider that such strategic partnership will enable the Company to further expand the DNA System businesses by leveraging on The Capital Group’s resources, its extensive business network and close relationships with financial institutions, including the four major banks in the PRC.

Based on our discussions with the management of the Group, we were informed that the outbreak of the Severe Acute Respiratory Syndrome (“SARS”) in the first half of 2003 had adversely affected the development and implementation of the DNA Systems in Hong Kong and the PRC. The progress of work subsequently has however been encouraging as described above. The Directors also informed us that The Capital Group has reiterated its commitment in assisting the Group to further develop the DNA Systems, especially in the PRC.

The delays in full-scale launches of certain products as well as free trial periods extended to end-users at initial stages have affected the income derived from the DNA System. However, having considered the above and in view of favourable factors such as the immense growth of credit card and debit card transactions in the PRC, the growing emphasis on security for payment authorisation systems and the introduction of The Capital Group as a strategic partner, we concur with the Directors’ view on the growth potential of the DNA System. In view of the Group’s long-term strategy of focusing on the development of the DNA System, we consider that the Acquisition, which entails the Group having full and exclusive use of the Patents on which the Patented Technologies are based, is reasonable and commercially justifiable.

4. Valuation of the Patented Technologies

As set out in Appendix IV to the Circular, a valuation report dated 13 May 2004 has been prepared by LCH (Asia-Pacific) Surveyors Limited, a firm of Chartered Surveyors, to evaluate the fair market value of the entire equity interest of Ming Yuen (including monetary assets, tangible and intangible assets) as at 6 April 2004 (the “Valuation Report”). The fair market value of the entire interest of Ming Yuen according to the Valuation Report is HK$128 million.

−21 −

LETTER FROM ALTUS

We have endeavoured to assess the fairness and reasonableness of the valuation and have reviewed the methodology, bases and assumptions underlying the Valuation Report.

(i) Methodology

As stated in the Valuation Report, the Valuer has identified three acceptable valuation approaches to value Ming Yuen, namely (a) the Market Approach; (b) the Asset-based Approach; and (c) the Income Approach.

Having considered that (i) only limited numbers of listed companies in the Stock Exchange of Hong Kong have similar nature of business of that of Ming Yuen; (ii) to its best knowledge, there had not been any merger and acquisition activities of similar business ventures in Hong Kong; (iii) Ming Yuen has very minimal assets, the Valuer is of the view that the Income Approach is the most appropriate approach in valuing the fair market value of Ming Yuen.

Whilst the Valuer is of the view that Income Approach is the most appropriate approach in deriving the value of Ming Yuen, Independent Shareholders should note that under the Income Approach, valuation is sensitive to the underlying assumptions and many of those assumptions cannot be easily assessed due to (i) the limited operating history of Ming Yuen and the fact that its only business activity is acting as a holding company of the Patents; and (ii) the lack of certainty to the potential financial benefits, such as income generation, as a result of successful commercialisation of the Patented Technologies.

(ii) Factors considered in the Valuation Report

We have also discussed and reviewed the basis of the valuation and the underlying assumptions, including expected sales turnover, expense structure, and discount factors taken into account for closely held company, with the Valuer and are of the view that the factors considered by the Valuer in arriving at the valuation to be fair and reasonable.

We noted that the valuation of Ming Yuen based on the Valuation Report of HK$128 million is slightly higher than its value of HK$120 million as at 23 August 2002 based on the then valuation report prepared for the purpose of the initial acquisition of a 30% equity interest in Ming Yuen in November 2002 (“Previous Valuation”). According to the Valuer, such increase is due to the higher income expected to be generated by the Patented Technologies following the signing of the MOU and Cooperation Agreement in early 2004.

The Valuer pointed out that the discount rate applied in the current valuation is not significantly different from that used in the Previous Valuation. Based on our discussion with the Valuer about the basis of the discount rate

−22 −

LETTER FROM ALTUS

applied in arriving at the current valuation, we were informed that the discount rate has been adjusted to take into account risks such as risk inherent to the Patented Technologies and risk relating to the regions where it operates. According to the Valuer, such factors have not changed significantly since the Previous Valuation.

In line with our discussion with the management of the Company, there appears to be higher visibility to the timing to the implementation of the DNA System-based products by various partner banks. In addition, with increased scope of application of the Patented Technologies and the new engagements such as the electronic card payment system with the Beijing Municipal Administration and Communications Card Co. Ltd, we agree that the income generation potential of the Patented Technologies has been enhanced compared to the Previous Valuation.

5. Consideration of the Acquisition

The consideration of HK$83 million was determined based on arm’s length negotiations between the parties to the Sale and Purchase Agreement and with reference to the fair market value of the entire interest of Ming Yuen of HK$128 million based on the Valuation Report. Compared with the value of a 70% equity interest in Ming Yuen of HK$89.6 million, the consideration of HK$83 million represents a discount of approximately 7.4%. We consider that such discount is favourable to the Company and the consideration for the Acquisition is fair and reasonable.

The consideration under the Acquisition will be payable by the Company as to (i) HK$14 million to be satisfied by the Company assuming the obligations and liabilities of a debt of HK$14 million owing to Ming Yuen by Mr. Wong repayable on demand; and (ii) HK$69 million by the issuance of the Convertible Loan Note for the principal amount of HK$69 million in the Company. Details on the terms of the Convertible Loan Note are set out in the Letter from the Board and will be further discussed in the section headed “Terms of the Convertible Loan Note” below.

As the consideration will be satisfied by the issuance of the Convertible Loan Note, the Company will not make any immediate cash payment in respect of the Acquisition. We consider that this is advantageous to the Group as it allows the Group to focus its current financial resources to developing the DNA Systems and provides for the Convertible Loan Note to be subsequently paid, if applicable, using expected financial resources from cashflow generated from the Patented Technologies.

− −23

LETTER FROM ALTUS

6. Terms of the Convertible Loan Note

Detailed terms of the Convertible Loan Note are set out in the Letter from the Board in this Circular. In particular, we noted the following:

Duration

The 3-year duration of the Convertible Loan Note allows the Group to focus its current financial resources to developing and improving the Patented Technologies.

Redemption

The Company has the right to redeem all or part of the outstanding principal amount of the Convertible Loan Note at any time prior to its maturity. Such term is favourable to the Company as it provides flexibility to the Company, subject to availability of financial resources and if deemed appropriate by the Directors, to partly or to fully redeem the Convertible Loan Note, thereby mitigating the effects of possible dilution on Shareholders. The possible dilution on shareholdings of the Shareholders is further discussed below.

Conversion

As long as there is principal amount of the Convertible Loan Note outstanding as at the maturity date, the Company has the right to require conversion of the outstanding principal amount into shares of the Company at HK$0.08 per Share (subject to adjustment) at any time on or after the maturity date.

This term is beneficial to the Company and the Shareholders as the Company would have a choice at maturity to either redeem the Convertible Loan Note or request for conversion. This provides flexibility to the Group in managing its financial resources at maturity, depending on the funding requirements of its business operations at that time.

Conversion price

The conversion price of the Convertible Loan Note of HK$0.08 per Share (“Conversion Price”) represents:

(i) a premium of about 14.3% to the closing price of HK$0.070 per Share as quoted on the Stock Exchange on the Latest Practicable Date;
(ii) a premium of about 12.7% to the closing price of HK$0.071 per Share as quoted on the Stock Exchange on 6 April 2004, being the last trading day prior to the suspension in trading pending the announcement of the Acquisition; and

−24 −

LETTER FROM ALTUS

(iii) premiums of about 6.7% and 2.6% to the average closing prices per Share of the last 5 trading days and last 10 trading days up to 6 April 2004.

The following chart sets out the daily closing price of the Shares on the Stock Exchange during the period from 1 April 2003 to the Latest Practicable Date:

==> picture [306 x 219] intentionally omitted <==

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

HK$
0.10
0.09
0.08
0.07
0.06
0.05
0.04
0.03
0.02
0.01
0.00
April 2003May 2003June 2003July 2003August 2003September 2003October 2003November 2003December 2003January 2004February 2004March 2004April 20046 May 2004
----- End of picture text -----

Source: Stock Exchange website

According to the chart, the Shares had been traded in the range of HK$0.01 and HK$0.03 between April 2003 and late February 2004. The price of the Shares increased significantly after the announcement of the introduction of The Capital Group as a strategic partner in February 2004 as discussed above. Thereafter, the price per Share had declined progressively to HK$0.070 as at the Latest Practicable Date. The Conversion Price is therefore at the high end of the trading range of price of the Shares in the past 12 months.

The Group has an unaudited adjusted consolidated net liabilities position as at 31 December 2003. The Conversion Price therefore represents a substantial premium to the Group’s adjusted net liabilities value per Share.

Having considered the above, we are of the view that the Conversion Price is fair and reasonable and would also provide an expansion of the Group’s capital base in the event that the underlying conversion rights of the Convertible Loan Note were exercised.

7. Dilution effects on shareholding of Shareholders

Assuming the Convertible Loan Note is fully converted, the Company will issue about 862.5 million new Shares, representing about 6.4% of the enlarged issued share capital of the Company. The shareholdings of existing Shareholders will be diluted by about 6.0%.

−25 −

LETTER FROM ALTUS

Having considered the benefits of the Acquisition as discussed above and the current financial position and resources of the Group, we are of the view that the issue of the Convertible Loan Note is an appropriate method to finance the Acquisition. Accordingly, we consider that the dilution effect of about 6.0% is acceptable.

8. Financial effects of the Acquisition

(i) Net liabilities

The net liabilities of the Group as at 31 December 2003 was about HK$3.9 million. As set out in the unaudited pro forma statement of assets and liabilities of the Enlarged Group after Completion in Appendix III to this circular, the pro forma net asset value of the Enlarged Group immediately after Completion will be about HK$4.6 million. Excluding intangible asset, the pro forma net liabilities of the Enlarged Group will be about HK$93.0 million. However, upon conversion of the Convertible Loan Note, the pro forma net liabilities position excluding the intangible assets will improve to approximately HK$24.0 million.

From the above, the pro forma net liabilities (excluding intangible asset) of the Group will increase from about HK$3.9 million as at 31 December 2003 to about HK$24.0 million after the Completion and conversion of the Convertible Loan Note. Such deterioration is unfavourable to the Group and is a result of the Group acquiring an asset which underlying value is derived from its profit generating potential in the future.

It is the Group’s long-term strategy to focus on the DNA System businesses. The strategic partnership with The Capital Group will enable the Group to further expand these businesses, especially in the PRC. The Directors expect revenue from the DNA System business, and correspondingly the royalty fee payments to Ming Yuen, to increase when more DNA System-based products, such as products for debit card and for non-card transactions which are currently being developed, are progressively launched and implemented in the next few years. Having weighed the potential benefits of savings in royalty fee payments in the future after the Acquisition, we are of the view that the negative impact on the financial position of the Group upon Completion is acceptable.

(ii) Profit and loss account

As Ming Yuen will become a wholly owned subsidiary of the Company after the Acquisition, any future profits or losses of Ming Yuen will be consolidated into the Company’s financial statement. As Ming Yuen is currently making nominal losses, there will be no immediate significant impact on the Group’s profit and loss statement.

The Company will recognise an intangible asset amounting to approximately HK$97.5 million upon completion of the Acquisition which will be amortised over 10 years according to the Group’s accounting policy. The annual amortisation will therefore be about HK$9.8 million and will negatively affect the profit and loss statement of the Group.

−26 −

LETTER FROM ALTUS

Following the Acquisition, the Company will no longer be required to pay royalty fees to Ming Yuen which currently amounts to 15% of the Group’s gross revenue derived from the Patented Technologies. The savings in royalty fees will increase when more DNA System-based products, such as products for debit card and for non-card transactions which are currently being developed, are progressively launched and implemented in the next few years and might outweigh the negative effects of the intangible asset amortisation. Having weighed the factors above, we are of the view that the negative impact on the profit and loss of the Group is acceptable.

In addition, the Convertible Loan Note bears interest at a rate of 2% per annum. Thus, the Company will incur annual interest expense of up to HK$1.38 million after the Acquisition, subject to conversion of the Convertible Loan Note. We are of the view that the interest expense is not material.

(iii) Working capital

As the consideration of the Acquisition will be satisfied by the issue of the Convertible Loan Note, there will be no immediate impact on the Company’s working capital position.

9. Implications under the Takeovers Code

Mr. Wong and parties acting in concert with him were interested in 23.3% of the issued share capital of the Company as at the Latest Practicable Date. Assuming the Convertible Loan Note and the share options held by Mr. Wong and parties acting in concert with him are fully converted and exercised, Mr. Wong and parties acting in concert with him will own approximately 30.3% of the enlarged issued share capital of the Company. Mr. Wong has informed the Company that he will comply with the Takeovers Code should he be obliged, upon conversion of the Convertible Loan Notes in full and exercise of the share options, to extend a general offer for the securities in the Company not owned by him and parties acting in concert with him.

RECOMMENDATION

Having considered the above factors, we are of the view that the Acquisition and the terms and conditions of the Sale and Purchase Agreement are fair and reasonable as far as the Independent Shareholders are concerned and the Sale and Purchase Agreement is in the interests of the Company and the Shareholders as a whole. We would therefore advise the Independent Shareholders, as well as the Independent Board Committee to recommend to the Independent Shareholders, to vote in favour of the relevant resolutions to be proposed at the Special General Meeting.

Yours faithfully, For and on behalf of

Altus Capital Limited Arnold Ip Sean Pey, Chang Executive Director Executive Director

−27 −

ACCOUNTANTS’ REPORT ON MING YUEN

APPENDIX I

==> picture [189 x 60] intentionally omitted <==

==> picture [95 x 56] intentionally omitted <==

13 May, 2004

The Directors Credit Card DNA Security System (Holdings) Limited

Dear Sirs,

We set out below our report on the financial information regarding Ming Yuen Assets Limited (“Ming Yuen”) for the period from 12 February, 2002 (date of incorporation) to 30 June, 2002, year ended 30 June, 2003 and nine months ended 31 March, 2004 (the “Relevant Periods”) for inclusion in the circular dated 13 May, 2004 (the “Circular”) of Credit Card DNA Security System (Holdings) Limited (“Credit Card DNA”) in connection with the major and connected transactions for the proposed acquisition of a 70 per cent interest in Ming Yuen.

Ming Yuen was incorporated in the British Virgin Islands (“BVI”) under the International Business Companies Act. Ming Yuen is a limited company and is engaged in holding and licensing the intellectual property rights in respect of a credit card security system.

Ming Yuen has not prepared any audited financial statements since its incorporation as it was incorporated in a country where there is no statutory audit requirement. However, for the purpose of this report, we have carried out independent audit procedures as we considered necessary on Ming Yuen’s management accounts for the Relevant Periods (the “Underlying Financial Statements”) in accordance with Statements of Auditing Standards issued by the Hong Kong Society of Accountants (“HKSA”) and we have examined the Underlying Financial Statements in accordance with the Auditing Guideline “Prospectuses and the Reporting Accountant” as recommended by the HKSA.

The Underlying Financial Statements are the responsibility of the directors of Ming Yuen. The directors of Credit Card DNA are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the financial information set out in this report from the Underlying Financial Statements to form an independent opinion on the financial information and to report our opinion to you.

In our opinion, the financial information together with the notes thereon give, for the purpose of this report, a true and fair view of the results and cash flows of Ming Yuen for the Relevant Periods and of the state of affairs of Ming Yuen as at 30 June, 2002, 30 June, 2003 and 31 March, 2004.

−28 −

ACCOUNTANTS’ REPORT ON MING YUEN

APPENDIX I

I. FINANCIAL INFORMATION

The followings are the financial information of Ming Yuen for the Relevant Periods as at 30 June, 2002, 30 June, 2003 and 31 March, 2004.

Income statements

		12.2.2002 to	1.7.2002 to	1.7.2003 to
		30.6.2002	30.6.2003	31.3.2004
	Note	HK$	HK$	HK$
Turnover		−	−	31,590
Interest income on promissory
note		−	299,178	404,055
Administrative expenses		(5,070)	(364,378)	(464,300)
Loss for the period/year	3	(5,070)	(65,200)	(28,655)

− −29

ACCOUNTANTS’ REPORT ON MING YUEN

APPENDIX I

Balance sheets

30.6.2002 HK$ − − −	30.6.2003 HK$ − 27,000,000 3,000,000	31.3.2004 HK$ − − 14,000,000
− − − 8 8 − 8 8 5,070	30,000,000 − 289,730 55 289,785 360,000 (70,215) 29,929,785 −	14,000,000
		16,000,000 721,075 55
		16,721,130 820,000
		15,901,130
		29,901,130
		−
(5,062)	29,929,785	29,901,130

8 (5,070)	78 29,929,707	78 29,901,052
(5,062)	29,929,785	29,901,130

− −30

ACCOUNTANTS’ REPORT ON MING YUEN

APPENDIX I

Cash flow statements

12.2.2002 to 30.6.2002 1.7.2002 to 30.6.2003 HK$ HK$ OPERATING ACTIVITIES Loss for the period/year (5,070) (65,200) Interest income on promissory note − (299,178) Increase in amount due from a shareholder − (289,730) Increase (decrease) in amount due to a shareholder 5,070 (5,070) Increase in other payables − 360,000 NET CASH USED IN OPERATING ACTIVITIES − (299,178) INVESTING ACTIVITIES Repayment of promissory note receivable − 3,000,000 Interest income on promissory note − 299,178 Purchase of intangible asset − (78) Advance to a shareholder − (3,000,000) NET CASH FROM INVESTING ACTIVITIES − 299,100 FINANCING ACTIVITIES Issue of share capital 8 47 Advance from a shareholder − 78 NET CASH FROM FINANCING ACTIVITIES 8 125 Net increase in cash and cash equivalents 8 47 Cash and cash equivalents at beginning of the period/year − 8 Cash and cash equivalents at end of the period/year 8 55	12.2.2002 to 30.6.2002 1.7.2002 to 30.6.2003 HK$ HK$ OPERATING ACTIVITIES Loss for the period/year (5,070) (65,200) Interest income on promissory note − (299,178) Increase in amount due from a shareholder − (289,730) Increase (decrease) in amount due to a shareholder 5,070 (5,070) Increase in other payables − 360,000 NET CASH USED IN OPERATING ACTIVITIES − (299,178) INVESTING ACTIVITIES Repayment of promissory note receivable − 3,000,000 Interest income on promissory note − 299,178 Purchase of intangible asset − (78) Advance to a shareholder − (3,000,000) NET CASH FROM INVESTING ACTIVITIES − 299,100 FINANCING ACTIVITIES Issue of share capital 8 47 Advance from a shareholder − 78 NET CASH FROM FINANCING ACTIVITIES 8 125 Net increase in cash and cash equivalents 8 47 Cash and cash equivalents at beginning of the period/year − 8 Cash and cash equivalents at end of the period/year 8 55	1.7.2003 to 31.3.2004 HK$ (28,655) (404,055) (431,345) − 460,000 (404,055) 11,000,000 404,055 − (11,000,000) 404,055 − − − − 55 55
− − − − − − 8 − 8 8 −	(299,178) 3,000,000 299,178 (78) (3,000,000) 299,100 47 78 125 47 8	(404,055
		11,000,000 404,055 − (11,000,000
		404,055
		− −
		−
		− 55
8	55

− −31

ACCOUNTANTS’ REPORT ON MING YUEN

APPENDIX I

Statement of changes in equity

Issue of share Loss for the period At 30 June, 2002 Issue of share Loss for the year At 30 June, 2003 Loss for the period At 31 March, 2004	Share capital HK$ 8 − 8 70 − 78 − 78	Share Premium Accumulated losses HK$ HK$ − − − (5,070) − (5,070) 29,999,977 − − (65,200) 29,999,977 (70,270) − (28,655) 29,999,977 (98,925)	Total HK$ 8 (5,070) (5,062) 30,000,047 (65,200) 29,929,785 (28,655) 29,901,130

− −32

ACCOUNTANTS’ REPORT ON MING YUEN

APPENDIX I

Notes to the financial information

1. Significant accounting policies

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

Turnover

Turnover represents the income received and receivable for the licensing of the intellectual property rights.

Revenue recognition

Licensing income is recognised when it is probable that the economic benefit associated with the transaction will flow to the enterprises and the amount of the revenue can be measured reliably.

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

Impairment

At each balance sheet date, Ming Yuen reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Impairment loss is recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, such that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately.

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the period/year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income and expense that are taxable or deductible in other period/years, and it further excludes income statement items that are never taxable or deductible.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill (or negative goodwill) or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

− −33

ACCOUNTANTS’ REPORT ON MING YUEN

APPENDIX I

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities are offset which they related to income taxes levied by the same taxation authority and Ming Yuen intends to settle its current tax assets and liabilities on a net basis.

Foreign currencies

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

2. Segmental information

Ming Yuen is engaged in holding and licensing the intellectual property rights in respect of a credit card security system and all of the Ming Yuen’s income are derived from the People’s Republic of China (the “PRC”) during the Relevant Periods. All the identifiable assets of Ming Yuen are located in Hong Kong. Accordingly, no segmental information is presented.

3. Loss for the period/year

Loss for the period/year has been arrived at after charging:

	12.2.2002 to	1.7.2002 to	1.7.2003 to
	30.6.2002	30.6.2003	31.3.2004
	HK$	HK$	HK$
Auditors’ remuneration	–	–	–
Director fee	–	360,000	450,000
Staff costs	–	–	–

4. Taxation

No provision of income tax has been made in the financial information as Ming Yuen has incurred tax loss which the tax effect was not recognised for the Relevant Periods. There is no significant reconciling item between the accounting and tax losses.

There was no significant unprovided deferred taxation for the Relevant Periods or at the respective balance sheet dates.

5. Dividends

No dividend had been paid or declared by Ming Yuen during the Relevant Periods.

6. Directors’ and employees’ remunerations

Mr. Wong Kam Fu (“Mr. Wong”) is the one of the two directors of Ming Yuen during the Relevant Periods and he is the only director who has received director fee during the Relevant Periods. No emolument was paid by Ming Yuen to the directors as an inducement to join or upon joining Ming Yuen or as compensation for loss of office. None of the directors waived any emoluments during the Relevant Periods.

7. Intangible asset

Intangible asset represents the intellectual property rights in respect of a credit card security system previously held by Mr. Wong. According to an assignment dated 3 August, 2002 between Mr. Wong and Ming Yuen, the intellectual property rights were assigned from Mr. Wong to Ming Yuen at a consideration of US$10. The cost of acquisition was subsequently charged to the income statement.

− −34

ACCOUNTANTS’ REPORT ON MING YUEN

APPENDIX I

8. Promissory note receivable

On 26 September, 2002, Ming Yuen entered into a share subscription agreement with Mr. Wong and Credit Card DNA to allot and issue 3 new ordinary shares at a consideration of HK$30,000,000 to Credit Card DNA, satisfied by the issue of a promissory note bearing interest at 2% per annum with a maturity date on 17 May, 2004, which has been agreed by both parties to extend to 17 September, 2004. During the year ended 30 June, 2003 and period ended 31 March, 2004, Credit Card DNA had repaid the amount of HK$3,000,000 and HK$11,000,000 to Ming Yuen respectively.

9. Amount due from a shareholder

The balance represents amount due from Mr. Wong which is unsecured, interest-free and has no fixed repayment terms. The amount is not repayable within one year and is therefore shown as non-current. The year/period end balance represents the maximum balance for that year/period.

10. Amount due from a shareholder

The balance represents amount due from Credit Card DNA which is unsecured, interest-free and is repayable on demand. The year/period end balance represents the maximum balance for that year/period.

11. Amount due to a shareholder

The balance represented amount due to Mr. Wong which was unsecured, interest-free and fully repaid during the year ended 30 June, 2003.

12. Share capital

Authorised: 50,000 ordinary shares of US$1 each At incorporation, 30 June, 2002 and 30 June, 2003 and 31 March, 2004 Issued and fully paid: 1 ordinary share of US$1 each At incorporation, 30 June, 2002 Issue of 9 new ordinary shares of US$1 At 30 June, 2003 and 31 March, 2004 As shown in the financial statements At 30 June, 2002 At 30 June, 2003 and 31 March, 2004	US$50,000

	US$1 US$9
	US$10
	HK$8

	HK$78

Ming Yuen was incorporated with an authorised share capital of 50,000 ordinary shares at US$1 each. At the time of incorporation, 1 ordinary share of US$1 was issued at par, to the subscriber to provide the initial capital of Ming Yuen.

On 26 September, 2002, Ming Yuen entered into a share subscription agreement with Mr. Wong and Credit Card DNA to allot and issue 6 new ordinary shares at US$1 each to Mr. Wong and 3 new ordinary shares at a consideration of HK$30,000,000 to Credit Card DNA.

13. Capital commitments

At 30 June, 2002, 30 June, 2003 and 31 March, 2004, Ming Yuen did not have any significant capital commitments.

− −35

ACCOUNTANTS’ REPORT ON MING YUEN

APPENDIX I

14. Contingent liabilities

At 30 June, 2002, 30 June, 2003 and 31 March, 2004, Ming Yuen did not have any significant contingent liabilities.

15. Pledge of assets

At 30 June, 2002, 30 June, 2003 and 31 March, 2004, Ming Yuen had no pledge of assets.

16. Related party transactions

During the Relevant Periods, the entire amount of income for licensing of the intellectual property rights and interest income on promissory note are received and receivable by Ming Yuen from Credit Card DNA, a shareholder of Ming Yuen.

II. SUBSEQUENT FINANCIAL INFORMATION

No audited financial statements have been prepared by Ming Yuen in respect of any period subsequent to 31 March, 2004.

Yours faithfully,

DELOITTE TOUCHE TOHMATSU

Certified Public Accountants Hong Kong

− −36

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

FINANCIAL SUMMARY

The following is a summary of the audited consolidated profit and loss accounts of the Group for the three years ended 30 June, 2003 as extracted from the relevant annual reports of the Group for the years presented and unaudited consolidated profit and loss accounts of the Group for the six months period ended 31 December, 2003 as extracted from the interim report of the Group for the period ended 31 December, 2003.

RESULTS

Six months ended 31 December, 2003 HK$’000 Turnover 1,500 Loss before taxation (17,147) Taxation credit (charge) − Loss before minority interests (17,147) Minority interests − Net loss for the year (17,147) ASSETS AND LIABILITIES As at 31 December, 2003 HK$’000 Total assets 40,068 Total liabilities (43,934) Minority interests − Shareholders’ (deficits) funds (3,866)	Year ended 30 June, 2003 2002 HK$’000 HK$’000 11,176 28,221	Year ended 30 June, 2003 2002 HK$’000 HK$’000 11,176 28,221	2001 HK$’000 30,071 (92,704) (251) (92,955) 472 (92,483) 2001 HK$’000 84,898 (71,313) (5,879) 7,706
(17,147) − (17,147) −	(60,957) − (60,957) 1,380	(33,270) 117 (33,153) 2,147	(92,704 (251
			(92,955 472
	(59,577) 2003 HK$’000 47,291 (57,132) − (9,841)	(31,006) As at 30 June, 2002 HK$’000 60,177 (34,337) (1,592) 24,248

− −37

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

AUDITED CONSOLIDATED FINANCIAL STATEMENTS

Set out below is the auditors’ report and the audited consolidated financial statements of the Group for the year ended 30 June, 2003 as extracted from the Company’s 2003 annual report.

==> picture [189 x 61] intentionally omitted <==

==> picture [95 x 55] intentionally omitted <==

TO THE MEMBERS OF

CREDIT CARD DNA SECURITY SYSTEM (HOLDINGS) LIMITED

(Incorporated in Bermuda with limited liability)

We have audited the financial statements on pages 20 to 59 which have been prepared in accordance with accounting principles generally accepted in Hong Kong.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS

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

It is our responsibility to form an independent opinion, based on our audit, on those financial statements and to report our opinion solely to you, as a body, in accordance with section 90 of the Bermuda Companies Act, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

BASIS OF OPINION

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

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

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

(i) The Group’s interest in an associate represents a 30% interest in Ming Yuen Assets Limited (“Ming Yuen”) stated at a carrying value of HK$28,500,000. However, we were unable to obtain sufficient audit evidence to assess whether any impairment loss is required to be recognised in respect of the goodwill arising on acquisition of Ming Yuen. Accordingly, we were unable to satisfy ourselves that the Group’s interest in Ming Yuen was fairly stated.

− −38

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(ii) In related to unlisted investments securities of HK$3,420,000, we were unable to obtain sufficient audit evidence to assess whether any impairment is required in respect of the unlisted securities. Accordingly, we are unable to satisfy ourselves that the carrying value of the investments in securities amounting to HK$3,420,000 was fairly stated.

Any adjustments to the figures in (i) and (ii) above would have a consequential effect as appropriate on the net liabilities of the Group and the Company as 30 June, 2003 and on the net loss of the Group for the year then ended.

FUNDAMENTAL UNCERTAINTY RELATING TO THE GOING CONCERN BASIS

In forming our opinion, we have considered the adequacy of the disclosure made in note 2 to the financial statements concerning the uncertainty relating to the going concern status of the Group in light of its net liabilities of approximate HK$9,841,000 of the Group. As disclosed in note 33, after the balance sheet date, the Company issued and allotted 200,000,000 shares of HK$0.01 to an independent third party for HK$3,200,000 under a private share placement. 101,800,000 shares of HK$0.01 each are issued for HK$1,444,000 as a result of the exercise of share options. In addition, convertible notes with principal amount of HK$11,200,000 are converted into ordinary shares after the balance sheet date. However, in the light of normal operational expenditures to be incurred by the Group in the foreseeable future, the directors are currently actively seeking equity investment from certain potential strategic investors. And the Group has recently entered into agreements with certain banks in the PRC to provide credit card security device and digital network authorisation services. Provided that the Group successfully obtain equity investment from these potential strategic investors and the credit card security device and digital network authorisation services generate budgeted cash inflow, 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. The financial statements do not include any adjustments that would result from a failure to obtain such funding. In view of the extent of the uncertainty surrounding the new equity capital injection for the Group, we disclaim our opinion in respect of the fundamental uncertainty relating to the going concern basis.

DISCLAIMER OF OPINION

Because of the significance of the possible effect of the limitations in evidence available to us referred to in the basis of opinion section of this report and the fundamental uncertainty relating to the going concern basis, we are unable to form an opinion as to whether the financial statements give a true and fair view of the state of affairs of the Company and the Group as at 30 June, 2003 and of the loss and cash flows of the Group for the year then ended. In all other respects, in our opinion the financial statements have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

In respect alone of the limitations on our work as set out in the basis of opinion section of this report, we have not obtained all the information and explanations that we considered necessary for the purpose of our audit.

Deloitte Touche Tohmatsu Certified Public Accountants

Hong Kong, 28 October, 2003

− −39

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Consolidated Income Statement

For the year ended 30 June, 2003

Notes Turnover 5 Cost of sales Gross profit Other operating income Distribution costs Administrative expenses Deficit on revaluation of investment properties Impairment loss recognised in respect of goodwill 6 Loss from operations 7 Finance costs 8 (Loss) gain on disposal of discontinuing operations 9 Loss attributable to investments 11 Loss before taxation Taxation credit 12 Loss after taxation Minority interests Net loss for the year Loss per share 13 −Basic	2003 HK$’000 11,176 (10,643)	2002 HK$’000 28,221 (26,112) 2,109 4,055 (4,042) (49,759) (250) − (47,887) (1,637) 35,392 (19,138) (33,270) 117 (33,153) 2,147 (31,006) (2.23 cents)
	533 1,553 (2,322) (34,268) (60) (11,000) (45,564) (650) (14,411) (332) (60,957) − (60,957) 1,380	2,109 4,055 (4,042 (49,759 (250 −
		(47,887 (1,637 35,392 (19,138
		(33,270 117
		(33,153 2,147
	(59,577) (1.16 cents)

−40 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Consolidated Balance Sheet

At 30 June, 2003

Notes NON-CURRENT ASSETS Investment properties 14 Property, plant and equipment 15 Interests in associates 17 Investments in securities 18 CURRENT ASSETS Inventories −at cost 19 Debtors, deposits and prepayments 20 Investments in securities 18 Bank balances and cash CURRENT LIABILITIES Creditors and accrued charges 21 Taxation payable Obligation under a finance lease −due within one year 22 NET CURRENT ASSETS	2003 HK$’000 1,910 5,466 28,500 3,570	2002 HK$’000 1,970 14,099 − 150
	39,446 − 1,382 54 6,409 7,845 6,332 − − 6,332 1,513	16,219
		7,010 30,800 71 6,077
		43,958
		20,261 20 106
		20,387
		23,571
	40,959	39,790

−41 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Notes CAPITAL AND RESERVES Share capital 23 Reserves MINORITY INTERESTS NON-CURRENT LIABILITIES Obligation under a finance lease −due after one year 22 Convertible notes 26 Promissory note 27	2003 HK$’000 54,094 (63,935)	2002 HK$’000 50,983 (26,735)
	(9,841) − − 23,800 27,000 50,800 40,959	24,248 1,592 150 13,800 − 13,950 39,790

−42 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Balance Sheet

At 30 June, 2003

Notes NON-CURRENT ASSETS Property, plant and equipment 15 Interests in subsidiaries 16 Interests in associates 17 CURRENT ASSETS Other debtors, deposits and prepayments Bank balances and cash CURRENT LIABILITIES Other creditors and accrued charges NET CURRENT ASSETS CAPITAL AND RESERVES Share capital 23 Reserves 25 NON-CURRENT LIABILITIES Amounts due to subsidiaries 16 Convertible notes 26 Promissory note 27	2003 HK$’000 2,443 1,560 28,500	2002 HK$’000 3,264 4,956 − 8,220 3,207 2,139 5,346 4,596 750 8,970 50,983 (60,624) (9,641) 4,811 13,800 − 18,611 8,970
	32,503 341 5,922 6,263 3,603 2,660	8,220
		3,207 2,139
		5,346 4,596
		750
	35,163
	54,094 (72,353) (18,259) 2,622 23,800 27,000 53,422	50,983 (60,624
		(9,641
		4,811 13,800 −
		18,611
	35,163

− −43

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Consolidated Statement of Changes in Equity

For the Year Ended 30 June, 2003

At 1 July, 2001 Adjustment of nominal value in respect of share consolidation Issue of new shares of HK$0.01 Conversion of convertible notes Realised on disposal of subsidiaries Net loss for the year At 30 June, 2002 and 1 July, 2002 Issue of new shares of HK$0.01 Exercise of share options Impairment losses recognised on goodwill Realised on disposal of subsidiaries Net loss for the year At 30 June, 2003	Share capital Share premium HK$’000 HK$’000 194,596 184,904 (190,950) − 45,000 − 2,337 9,263 − − − −	Share capital Share premium HK$’000 HK$’000 194,596 184,904 (190,950) − 45,000 − 2,337 9,263 − − − −	Capital reserve Goodwill reserve HK$’000 HK$’000 1,700 (13,919) − − − − − − − (9,052) − −	Capital reserve Goodwill reserve HK$’000 HK$’000 1,700 (13,919) − − − − − − − (9,052) − −	Deficit HK$’000 (359,575) 190,950 − − − (31,006)	Total HK$’000 7,706 − 45,000 11,600 (9,052) (31,006) 24,248 6,523 1,069 11,000 6,896 (59,577) (9,841)
	50,983 2,319 792 − − −	194,167 4,204 277 − − −	1,700 − − − − −	(22,971) − − 11,000 6,896 −	(199,631) − − − − (59,577)	24,248 6,523 1,069 11,000 6,896 (59,577
	54,094	198,648	1,700	(5,075)	(259,208)

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.

−44 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Consolidated Cash Flow Statement

For the Year Ended 30 June, 2003

Note OPERATING ACTIVITIES Loss before taxation Adjustments for: Interest income Interest expenses Finance lease charges Depreciation and amortisation (Gain) loss on disposal of property, plant and equipment Deficit on revaluation of investment properties Impairment loss recognised in respect of goodwill Loss attributable to investments Loss (gain) on disposal of discontinuing operations Operating loss before working capital changes Decrease in inventories Decrease (increase) in debtors, deposits and prepayments Increase (decrease) in creditors and accrued charges Cash used in operating activities Hong Kong Profits Tax refunded Hong Kong Profits Tax paid Interest paid Finance lease charges paid Interest received NET CASH USED IN OPERATING ACTIVITIES	2003 HK$’000 (60,957) (90) 643 7 2,610 (351) 60 11,000 332 14,411	2002 HK$’000 (33,270) (115) 1,631 6 4,020 2,325 250 − 19,138 (35,392) (41,407) 439 (19,912) (3,336) (64,216) 62 (19) (1,631) (6) 115 (65,695)
	(32,335) 2,298 23,631 (3,622) (10,028) − − (643) (7) 90 (10,588)	(41,407 439 (19,912 (3,336
		(64,216 62 (19 (1,631 (6 115
		(65,695

−45 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Note INVESTING ACTIVITIES Purchase of property, plant and equipment Proceeds from disposal of subsidiaries (net of cash and cash equivalents disposed of) 29 Proceeds from disposal of an associate Proceeds from disposal of property, plant and equipment Proceeds from disposal of investment in securities Refund of payments made in connection with investment project Deposits paid for investments NET CASH (USED IN) FROM INVESTING ACTIVITIES FINANCING ACTIVITIES Issue of convertible notes for cash Issue of shares for cash Exercise of share options Repayment of promissory note Repayment of bank loans Principal repayment of obligations under a finance lease NET CASH FROM FINANCING ACTIVITIES INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS AT END OF THE YEAR −representing bank balances and cash	2003 HK$’000 (1,200) (696) 1,185 459 − − −	2002 HK$’000 (4,848) (1,275) − 7,799 2,491 1,000 (973)
	(252) 10,000 3,103 1,069 (3,000) − − 11,172 332 6,077 6,409	4,194 20,600 45,000 − − (11,556) (61) 53,983 (7,518) 13,595 6,077

−46 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Notes to the Financial Statements

For the year ended 30 June, 2003

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 16 and 17 to the financial statements.

2. BASIS OF PREPARATION OF FINANCIAL STATEMENTS

In preparing the financial statements, the directors have given careful consideration to the uncertainty relating to the going concern status of the Group in the light of its net liabilities of approximately HK$9,841,000 as at 30 June, 2003. As disclosed in note 33, after the balance sheet date, the Company issued and allotted 200,000,000 shares of HK$0.01 to an independent third party for HK$3,200,000 under a private share placement. 101,800,000 shares of HK$0.01 each are issued for HK$1,444,000 as a result of the exercise of share options. In addition, convertible notes with principal amount of HK$11,200,000 are converted into ordinary shares after the balance sheet date. However, in the light of normal operational expenditures to be incurred by the Group in the foreseeable future, the directors are currently considering various options for the future financing of the Group. In particular, the directors are currently actively seeking equity investment from certain potential strategic investors. And the Group has recently entered into agreements with certain banks in the PRC to provide credit card security device and digital network authorisation services. Provided that the Group successfully obtain equity investment from these potential strategic investors and the credit card security device and digital network authorisation services generate budgeted cash flow, 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.

3. ADOPTION OF NEW AND REVISED STATEMENTS OF STANDARD ACCOUNTING PRACTICE

In the current year, the Group has adopted, for the first time, a number of new and revised Statements of Standard Accounting Practice (SSAPs) issued by the Hong Kong Society of Accountants, which has resulted in the adoption of the following new and revised accounting policies. The adoption of these SSAPs has resulted in a change in the format of presentation of the cash flow statement and the statement of changes in equity, but has had no material effect on the results for the current or prior accounting periods. Accordingly, no prior period adjustment has been required.

Foreign Currencies

The revisions to SSAP 11 “Foreign Currency Translation” have eliminated the choice of translating the income statements of subsidiaries operate outside Hong Kong at the closing rate for the year which was the policy previously followed by the Group. They are now required to be translated at an average rate. This change in accounting policy has not had any material effect on the results for the current or prior accounting periods.

Discontinuing Operations

SSAP 33 “Discontinuing Operations” is concerned with the presentation of financial information regarding discontinuing operations and replaces the requirements previously included in SSAP 2 “Net Profit or Loss for the Period, Fundamental Errors and Changes in Accounting Policies”. Under SSAP 33, financial statement amounts relating to the discontinuing operations are disclosed separately from the point at which either a binding sale agreement is entered into or a detailed plan for the discontinuance is announced. The adoption of SSAP 33 has resulted in the identification of the Group’s business segment of manufacture and sales of electronic products and sales of health products as discontinuing operations in the current year, details of which are disclosed at note 9.

−47 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Employee Benefits

In the current year, the Group had adopted SSAP 34 “Employee Benefits”, which introduces measurement rules for employee benefits, including retirement benefit plans. Because the Group participates only in defined contribution retirement benefit schemes, the adoption of this SSAP 34 has not had any material impact on the financial statements.

4. 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 made up to the balance sheet date.

The results of the subsidiaries and associates which are acquired or disposed of during the year 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 inter-group transactions and balances have been eliminated on consolidation.

Goodwill

Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities of a subsidiary or an associate at the date of acquisition.

Goodwill arising on acquisitions prior to 1 July, 2001 continues to be 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.

Goodwill arising on acquisitions after 1 July, 2001 is capitalised and amortised on a straight-line basis over its useful economic life and is presented separately in the balance sheet.

On disposal of investments in subsidiaries or associates, the attributable amount of unamortised goodwill/goodwill previously eliminated against reserves is included in the determination of the profit or loss on disposal.

Negative goodwill

Negative goodwill represents the excess of the Group’s interest in the fair value of the identifiable assets and liabilities of a subsidiary or associate at the date of acquisition over the cost of acquisition.

Negative goodwill arising on acquisitions is presented as deduction from assets and will be released to income based on an analysis of the circumstances from which the balance resulted.

Negative goodwill arising on the acquisition of an associate is deducted from the carrying value of that associate. Negative goodwill arising on the acquisition of subsidiaries is presented separately in the balance sheet as a deduction from assets.

−48 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Investments in subsidiaries

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

Interests in associates

The consolidated income statement includes the Group’s share of the post-acquisition results of its associates for the year. In the consolidated balance sheet, interests in associates are stated at the Group’s share of the net assets of the associates plus the premium paid on acquisition less any identified impairment loss.

Revenue recognition

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

Service income is recognised when the services are rendered.

Sales of investments in securities are recognised when the sales contract becomes 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 under operating leases, is recognised on a straight line basis over the respective leases.

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 accumulated impairment losses.

− −49

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Depreciation is provided to write off the costs of the property, plant and equipment over their estimated useful lives and after taking into account their estimated residual value, 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%

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.

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 impairment losses that is other than temporary.

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

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 is calculated using the weighted average method.

Impairment

At each balance sheet date, the Group reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Impairment losses are recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior period. A reversal of an impairment loss is recognised as income immediately.

−50 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Leased assets

Leases are classified as finance leases when the terms of the lease transfer all the risks and rewards of ownership of the assets concerned to the Group. Assets held under finance leases are capitalised at their fair value at the date of acquisition. The corresponding liability to the lessor, net of interest changes, is included in the balance sheet as a finance lease obligation. Finance costs, which represent the difference between the total leasing commitments and the fair value of the assets acquired, are charged to the income statement over the year of the relevant leases so as to produce a constant periodic rate of charge on the remaining balances of the obligations for each accounting year.

All other leases are classified as operating leases and the annual rentals are charged to the income statement on a straight-line basis over the relevant lease term.

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 assets and liabilities of the Group’s overseas operations which are denominated in currencies other than Hong Kong dollars are translated at exchange rates ruling on the balance sheet date. Income and expenses are translated into Hong Kong dollars at the average exchange rates for the year. All exchange differences arising on consolidation are dealt with in reserves and are recognised as income or as expenses in the period in which the operation is disposed of.

Taxation

The charge for taxation is based on the results for the year 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.

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.

−51 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

5. TURNOVER AND SEGMENTAL INFORMATION

Turnover represents the net amounts received and receivable for the followings:

Manufacture and sales of electronic products Provision of financial information services Sales of health products Provision of credit card security device and digital network authorisation services Manufacture and sales of food products Others	2003 HK$’000 7,389 3,211 296 246 – 34 11,176	2002 HK$’000 14,847 4,209 243 363 8,546 13
		28,221

−52 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Business segments

For management purposes, the Group is currently organised into four (2002: six) operating divisions as detailed above. These divisions are the basis on which the Group reports its primary information. An analysis of the Group’s turnover and contributions to operating results and segmental assets and liabilities by business segments is as follows:

For the year ended 30 June, 2003

Discontinuing operations Manufacture and sales of electronic products Sales of health products Unallocated Consolidation (Note 1) (Note 2) HK$’000 HK$’000 HK$’000 HK$’000 7,389 296 – 11,176 (5,999) (73) – (14,775 (19,789 (11,000) – – (11,000 (45,564 (650 (12,714) (1,697) – (14,411 – – (332) (332 (60,957 1,380 (59,577 – – – 2,489 44,802 47,291 – – – 1,771 55,361 57,132 29 – 61 1,200 463 6 1,615 2,610 355 – (4) 351	Discontinuing operations Manufacture and sales of electronic products Sales of health products Unallocated Consolidation (Note 1) (Note 2) HK$’000 HK$’000 HK$’000 HK$’000 7,389 296 – 11,176 (5,999) (73) – (14,775 (19,789 (11,000) – – (11,000 (45,564 (650 (12,714) (1,697) – (14,411 – – (332) (332 (60,957 1,380 (59,577 – – – 2,489 44,802 47,291 – – – 1,771 55,361 57,132 29 – 61 1,200 463 6 1,615 2,610 355 – (4) 351	Discontinuing operations Manufacture and sales of electronic products Sales of health products Unallocated Consolidation (Note 1) (Note 2) HK$’000 HK$’000 HK$’000 HK$’000 7,389 296 – 11,176 (5,999) (73) – (14,775 (19,789 (11,000) – – (11,000 (45,564 (650 (12,714) (1,697) – (14,411 – – (332) (332 (60,957 1,380 (59,577 – – – 2,489 44,802 47,291 – – – 1,771 55,361 57,132 29 – 61 1,200 463 6 1,615 2,610 355 – (4) 351
Manufacture and sales of electronic products (Note 1) HK$’000 7,389 (5,999) (11,000) (12,714) – – – 29 463 355

		(14,775
	– – (332)	(19,789 (11,000
		(45,564 (650 (14,411 (332
		(60,957 1,380
	– – 61 1,615 (4)	(59,577

		2,489 44,802
		47,291

		1,771 55,361
		57,132

		1,200 2,610 351

− −53

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

For the year ended 30 June, 2002

Continuing operations Provision of financial information services Provision of credit card security device and digital network authorisation services Others Manufacture and sales of electronic products (Note 1) HK$’000 HK$’000 HK$’000 HK$’000 TURNOVER External sales 4,209 363 13 14,847 SEGMENT RESULT (570) (2,685) (407) (9,479) Unallocated corporate expenses Loss from operations Finance costs Gain on disposal of discontinuing operations – – – – Loss attributable to investments – – – – Loss before taxation Taxation credit Loss after taxation Minority interests Net loss for the year Assets and Liabilities as at 30 June, 2002 ASSETS Segment assets 1,246 262 329 16,125 Unallocated corporate assets Consolidated total assets LIABILITIES Segment liabilities 1,807 – – 7,440 Unallocated corporate liabilities Consolidated total liabilities Other information: Capital additions 14 310 367 450 Depreciation and amortisation 192 133 43 695 Loss on disposal of property, plant and equipment – – – 121	Discontinuing operations Sales of health products Manufacture and sales of food products Provision of internet consultancy services Unallocated Consolidation (Note 2) (Note 3) (Note 3) HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 243 8,546 – – 28,221 (2,001) (9,138) (239) – (24,519 (23,368 (47,887 (1,637 – 31,747 3,645 – 35,392 – – – (19,138) (19,138 (33,270 117 (33,153 2,147 (31,006 527 – – – 18,489 41,688 60,177 476 – – – 9,723 24,614 34,337 1 – – 4,023 5,165 80 1,041 239 1,597 4,020 – – – 2,204 2,325	Discontinuing operations Sales of health products Manufacture and sales of food products Provision of internet consultancy services Unallocated Consolidation (Note 2) (Note 3) (Note 3) HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 243 8,546 – – 28,221 (2,001) (9,138) (239) – (24,519 (23,368 (47,887 (1,637 – 31,747 3,645 – 35,392 – – – (19,138) (19,138 (33,270 117 (33,153 2,147 (31,006 527 – – – 18,489 41,688 60,177 476 – – – 9,723 24,614 34,337 1 – – 4,023 5,165 80 1,041 239 1,597 4,020 – – – 2,204 2,325


(9,479)		(24,519

– – 16,125 7,440 450 695 121	– (19,138)	(23,368
		(47,887 (1,637 35,392 (19,138
		(33,270 117
		(33,153 2,147
	– – 4,023 1,597 2,204	(31,006

		18,489 41,688
		60,177

		9,723 24,614
		34,337

		5,165 4,020 2,325

−54 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Notes:

(1) In March 2003, the Group disposed of its entire interest in Thinking Group Limited (“Thinking Group”). In June 2003, the Group disposed of its entire interests in Star Paging Telecom Technology (Shenzhen) Co. Ltd. (“Star Paging”) and GSM Roaming Plug (H.K.) Ltd. (“GSM”). All these disposed companies were mainly engaged in the manufacture and sales of electronic products. Upon the completion of the disposal, the business segment of manufacture and sales of electronic products was regarded as discontinuing operation.
(2) In August 2002, the Group disposed of its entire interest in Fu Yuk DNA Holistic Limited (“Fu Yuk”) and other subsidiaries which was engaged in the sales of health products. Upon the completion of the disposal, the business segment of sales of health products was regarded as discontinuing operation.
(3) In June 2002, the Group disposed of its entire interest in Chung Hwa Food & Beverages Limited, Chung Hwa Food & Beverages Holdings Limited, Harbin Dongfang (Hong Kong) Food Company Limited, Harbin HDL (New Zealand) Limited, Xiamen Dongchen Food Industry Company Limited, Full Support Technology Limited and other subsidiaries, which were mainly engaged in the manufacture and sales of food products and provision of internet consultancy services. Upon the completion of the disposal, the business segments of manufacture and sales of food products and provision internet consultancy services were regarded as discontinuing operations.

Geographical segments

The Group’s operations are located in Hong Kong, the People’s Republic of China (“PRC”) and other Asian countries. The business segment of manufacture and sales of electronic products and provision of credit card security device and digital network authorisation services are located in PRC. Part of manufacture and sales of electronic products segment is carried out in other Asian countries. The remaining segments are located in Hong Kong.

The following provides an analysis of the Group’s turnover by geographical market, irrespective of the origin of the goods or services:

Hong Kong PRC excluding Hong Kong Other Asian countries	Turnover 2003 HK$’000 9,174 1,394 608 11,176	2002 HK$’000 11,841 11,627 4,753
		28,221

Revenue from the Group discontinuing operations was derived principally from PRC (2003: HK$1,394,000, 2002: HK$11,627,000), Hong Kong (2003: HK$5,683,000, 2002: HK$7,256,000) and other Asian countries (2003: HK$608,000, 2002: HK$4,753,000).

−55 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

The following is an analysis of the carrying amount of segment assets, capital addition analysed by the geographical area in which the assets are located:

Hong Kong PRC Elsewhere	Carrying amount of segment assets Additions to property, plant and equipment 2003 2002 2003 2002 HK$’000 HK$’000 HK$’000 HK$’000 41,324 49,356 187 1,930 2,547 10,821 1,013 3,235 3,420 – – – 47,291 60,177 1,200 5,165	Carrying amount of segment assets Additions to property, plant and equipment 2003 2002 2003 2002 HK$’000 HK$’000 HK$’000 HK$’000 41,324 49,356 187 1,930 2,547 10,821 1,013 3,235 3,420 – – – 47,291 60,177 1,200 5,165
		5,165

6. IMPAIRMENT LOSS RECOGNISED IN RESPECT OF GOODWILL

In view of the net selling price of Thinking Group which was engaged in manufacture and sales of electronic products, the Group has recognised impairment loss in respect of goodwill relating to that business and the entire amount of HK$11,000,000 has been recognised in the consolidated income statement during the year.

7. LOSS FROM OPERATIONS

Loss from operations has been arrived at after charging: Staff costs: Directors’ remuneration (note 10) Other staff costs Pension scheme contributions Total staff costs Auditors’ remuneration: Current year Overprovision in prior year Depreciation and amortisation Owned assets Assets held under finance leases Loss on disposal of property, plant and equipment and after crediting: Gain on disposal of property, plant and equipment Interest income Rental income from properties under operating leases, net of negligible outgoings	2003 HK$’000 7,148 10,689 287	2002 HK$’000 11,774 12,375 317
	18,124 800 –	24,466
		1,085 (20
	800 2,562 48 50 401 90 –	1,065 3,999 21 2,325 – 115 156

−56 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

8. FINANCE COSTS

Interest on: Bank and other borrowings wholly repayable within five years Convertible notes Promissory note Finance leases	2003 HK$’000 – 344 299 7 650	2002 HK$’000 1,325 306 – 6
		1,637

9. (LOSS) GAIN ON DISPOSAL OF DISCONTINUING OPERATIONS

During the current year, the Group disposed of its entire interest in subsidiaries engaged in the manufacture and sales of electronic products and a loss on disposal of subsidiaries amounting to HK$12,714,000 was recognised in the consolidated income statement.

The Group also disposed of its entire interest in a subsidiary engaged in the sale of health products and other subsidiaries during the year and net loss on disposal of HK$1,697,000 was recognised in the consolidated income statement, accordingly.

For the year ended 30 June, 2002, the gain on disposal of subsidiaries represented the gain on disposal of the Group’s entire interest in certain subsidiaries engaged in the manufacture and sales of food products of HK$31,747,000 and a subsidiary engaged in provision of internet consultancy services of HK$3,645,000.

Sales of health products

In August 2002, the Group entered into an agreement to dispose of the entire interest in Fu Yuk and other subsidiaries, which carried out all of the Group’s sales of health products operation. The disposal was completed on 31 August, 2002, the date on which control of Fu Yuk and other subsidiaries passed to the acquirer.

The results of the sales of health products operation for the period from 1 July, 2002 to 31 August, 2002 which have been included in the consolidated financial statements, were as follows:

1.7.2002 to 31.8.2002 1.7.2001 to 30.6.2002 HK$’000 HK$’000 Turnover 296 243 Cost of sales (252) (78 Gross profit 44 165 Administrative expenses (117) (2,166 Loss for the period/year (73) (2,001	1.7.2002 to 31.8.2002 1.7.2001 to 30.6.2002 HK$’000 HK$’000 Turnover 296 243 Cost of sales (252) (78 Gross profit 44 165 Administrative expenses (117) (2,166 Loss for the period/year (73) (2,001	1.7.2002 to 31.8.2002 1.7.2001 to 30.6.2002 HK$’000 HK$’000 Turnover 296 243 Cost of sales (252) (78 Gross profit 44 165 Administrative expenses (117) (2,166 Loss for the period/year (73) (2,001
	(117)	(2,166
	(73)	(2,001

During the year, Fu Yuk and other subsidiaries contributed HK$102,000 to the Group’s net operating cash flows.

−57 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

The net assets and liabilities of Fu Yuk and other subsidiaries at the date of disposal and at 30 June, 2002 were as follows:

	31.8.2002	30.6.2002
	HK$’000	HK$’000
Bank balances and cash	110	8
Property, plant and equipment	3,426	276
Inventories	60	–
Debtors, deposits and prepayment	3,013	243
Creditors and accrued charges	(3,399)	(476)
	3,210	51

Manufacture and sales of electronic products

In March 2003, the Group entered into an agreement to dispose of the entire interest in Thinking Group. The disposal was completed on 28 March, 2003, the date on which control of Thinking Group passed to the acquirer.

In June 2003, the Group also entered into an agreement to dispose of the entire interest in GSM and Star Paging. The disposal was completed on 2 June, 2003, on which date control of GSM and Star Paging passed to the acquirer.

The results of the manufacture and sales of electronic products for the period from 1 July, 2002 to 2 June, 2003, which have been included in the consolidated financial statements, were as follows:

	1.7.2002 to	1.7.2001 to
	2.6.2003	30.6.2002
	HK$’000	HK$’000
Turnover	7,389	14,847
Cost of sales	(5,921)	(11,909)
Gross profit	1,468	2,938
Other operating income	500	310
Administrative expenses	(7,967)	(12,727)
Loss from operations	(5,999)	(9,479)
Finance costs	(79)	–
Loss before taxation	(6,078)	(9,479)
Taxation	–	2
Loss for the period/year	(6,078)	(9,477)

During the year, the manufacture and sales of electronic products operations contributed HK$719,000 to the Group’s net operating cash flows, received HK$430,000 in respect of investing activities and paid HK$79,000 in respect of financing activities.

−58 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

The net assets and liabilities of all these subsidiaries at the date of disposal and at 30 June, 2002 were as follows:

Bank balances and cash Property, plant and equipment Inventories Trade and other receivables Creditors and accrued charges Taxation payable Obligation under a finance lease Minority interests	2.6.2003 30.6.2002 HK$’000 HK$’000 2,076 1,006 3,689 4,228 4,652 6,859 2,774 4,032 (6,908) (5,572 (20) (20 (256) (256 (212) (1,592 5,795 8,685	2.6.2003 30.6.2002 HK$’000 HK$’000 2,076 1,006 3,689 4,228 4,652 6,859 2,774 4,032 (6,908) (5,572 (20) (20 (256) (256 (212) (1,592 5,795 8,685
		8,685

10. DIRECTORS’ REMUNERATION AND EMPLOYEES’ EMOLUMENTS

(a) Directors’ remuneration

Directors’ fees: Executive Non-executive Independent non-executive Other emoluments Executive Salaries and other benefits Discretionary bonus Contributions to retirement benefit scheme Compensation for loss of office Independent non-executive	2003 HK$’000 – – –	2002 HK$’000 – – –
	– 6,504 540 44 – 60	– 7,597 2,354 23 1,800 –
	7,148	11,774

The number of directors whose remuneration fall within the bands set out below is as follows:

	No. of directors
	2003	2002
Nil to HK$1,000,000	8	9
HK$1,000,001 to HK$1,500,000	1	–
HK$1,500,001 to HK$2,000,000	–	2
HK$2,000,001 to HK$2,500,000	–	1
HK$5,000,001 to HK$5,500,000	1	1

Of the five individuals with the highest emoluments in the Group, two (2002: five) were all directors of the Company and details of their emoluments are set out above.

− −59

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

For the year ended 30 June, 2002, HK$1,800,000 was paid to two directors 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.

(b) Employees’ emoluments

The aggregate emoluments of the remaining three (2002: Nil) individuals who are employees of the Group is as follows:

Salaries and other benefits Discretionary bonus Contributions to retirement benefit scheme	2003 HK$’000 1,452 99 36 1,587	2002 HK$’000 – – –
		–

The emoluments of each of the remaining individuals were below HK$1,000,000.

11. LOSS ATTRIBUTABLE TO INVESTMENTS

Amortisation of premium on acquisition of an associate Loss on disposal of an associate (a) Loss on disposal of investments in securities Unrealised loss on investments in securities Provision for payments made in connection with investment projects (b) Reversal of provision for payments made in connection with investment projects (c)	2003 HK$’000 (1,500) 1,185 – (17) – – (332)	2002 HK$’000 – – (579) – (19,559) 1,000
		(19,138)

(a) The Group entered into an agreement with a third party to dispose of its entire interests in an associate, China Growth Enterprises Limited and a gain on disposal of HK$1,185,000 was recognised.
(b) (i) For the year ended 30 June, 2002, the Group entered into agreement (“Cooperation Agreement”) with a third party (the “Partner”) in which both parties agreed to invest in a company (“Joint Venture”) 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 the Joint Venture within a specified period of time. As at 30 June, 2002, the Group had injected the amount of HK$15,559,000 to the Joint Venture. For the year ended 30 June, 2002, the Group had entered into another agreement with the Partner and agreed that no further investment had to be injected into the Joint Venture since then. Following an assessment of the business prospects of the Joint Venture and existing market conditions by the directors for the year, a full provision of HK$15,559,000 was made in the financial statements.

−60 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(ii) For the year ended 30 June, 2002, the Group entered into an agreement with a third party to invest in a company which is engaged in the development of the logistic network in the PRC. Following an assessment of its business prospects by the directors for the year, a full provision of HK$4,000,000 was made in the financial statements.
(c) In respect of the payments made in connection with investment projects in the acquisition of a 25% equity interest in a company which operates a website for provision of trade information in the PRC, the provision of HK$1,000,000 was written back as the Group recovered this amount for the year ended 30 June, 2002.

12. TAXATION CREDIT

The taxation credit for the year ended 30 June, 2002 represented over-provision of Hong Kong Profits Tax in previous years.

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

Details of unrecognised deferred taxation are set out in note 28.

13. LOSS PER SHARE

The calculation of the basic loss per share is based on the net loss for the year of HK$59,577,000 (2002: net loss of HK$31,006,000) and on the weighted average number of 5,154,619,706 (2002: weighted average number of 1,392,643,841) ordinary shares in issue during the year.

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

14. INVESTMENT PROPERTIES

	THE GROUP
	HK$’000
AT VALUATION
At 1 July, 2002	1,970
Deficit arising on revaluation	(60)
At 30 June, 2003	1,910

The Group’s investment properties held under long term leases at 2/F, 239 Queen’s Road East, Wanchai and 13/F, Flat F, Golden Cassia Court, 5 Kai Yuen, Terrace, Hong Kong and were revalued at 30 June, 2003 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.

−61 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

15. 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 THE GROUP COST At 1 July, 2002 6,598 1,457 8,024 8,333 Additions – 356 844 – Disposals – (120) (168) (583) On disposal of subsidiaries (3,689) – (3,732) (7,750) At 30 June, 2003 2,909 1,693 4,968 – DEPRECIATION AND AMORTISATION At 1 July, 2002 2,407 922 2,736 5,066 Provided for the year 480 421 1,529 55 Eliminated on disposals – (120) (117) (544) Eliminated on disposal of subsidiaries (1,013) – (2,856) (4,577) At 30 June, 2003 1,874 1,223 1,292 – NET BOOK VALUES At 30 June, 2003 1,035 470 3,676 – At 30 June, 2002 4,191 535 5,288 3,267	Motor vehicles HK$’000 1,380 – (354) (638) 388 562 125 (336) (248) 103 285 818	Total HK$’000 25,792 1,200 (1,225) (15,809)
		9,958
		11,693 2,610 (1,117) (8,694)
		4,492
		5,466

		14,099

At 30 June, 2002, the net book value of motor vehicles of HK$818,000 includes an amount of HK$296,000 in respect of assets held under a finance lease. The motor vehicles were disposed of due to the disposal of a subsidiary during the current year.

−62 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

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

THE COMPANY COST At 1 July, 2002 Additions Disposals At 30 June, 2003 DEPRECIATION At 1 July, 2002 Provided for the year Eliminated on disposals At 30 June, 2003 NET BOOK VALUES At 30 June, 2003 At 30 June, 2002 INTERESTS IN SUBSIDIARIES Unlisted shares, at cost less provision Amounts due from subsidiaries Less: Allowances on amounts due from subsidiaries Amounts due to subsidiaries	Furniture, fixtures and equipment HK$’000 4,372 62 (5) 4,429 1,108 879 (1) 1,986 2,443 3,264 2003 2002 HK$’000 HK$’000 1,560 2,000 87,347 148,234 (87,347) (145,278) 1,560 4,956 (2,622) (4,811)

16. INTERESTS IN SUBSIDIARIES

The amounts due from (to) 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.

− −63

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Details of the principal subsidiaries as at 30 June, 2003 are as follows:

			Issued and
	Place of		fully paid
	incorporation/		share	Proportion of
	registration		capital/	nominal value of
	and	Class of	registered	issued capital held		Principal
Name	operation	shares held	capital	by the Company		activities
				Directly	Indirectly
Credit Card DNA Security	PRC	Ordinary	US$200,000	–	100%	Provision of credit
System (Shenzhen)						and security
Limited						device, digital
						network
						authorisation
Cheung On Consultants	British	Ordinary	US$100	–	100%	Investment
Limited	Virgin					holding
	Islands
	(“BVI”)
China Eastern Investment	BVI	Ordinary	US$1	–	100%	Investment
Limited						holding
Cosmos Wealth Investment	Hong Kong	Ordinary	HK$2	–	100%	Property holding
Limited
High Stone Assets Limited	BVI	Ordinary	US$1	–	100%	Investment
(“High Stone”)						holding
Rich City Investments	Hong Kong	Ordinary	HK$2	100%	–	Investment
Limited						holding
SENDXQ.COM Limited	Hong Kong	Ordinary	HK$10,000	–	100%	Provision of SMS
						personalised
						astrology
						services
Star Cyber DNA Limited	BVI	Ordinary	US$1	–	100%	Investment
						holding
Star Cyberpower Limited	BVI	Ordinary	US$1	100%	–	Investment
						holding
Star Cyberpower	Hong Kong	Ordinary	HK$10,000	100%	–	Provision of
Management Limited						management
						services
Star Cyberpower V.F.	BVI	Ordinary	US$1	100%	–	Investment
Limited						holding
Special Gold Assets Limited	BVI	Ordinary	HK$3,900,000	–	100%	Investment
						holding
Starstruck Group Limited	BVI	Ordinary	US$1	–	100%	Investment
(“Starstruck”)						holding

−64 −

APPENDIX II

FINANCIAL INFORMATION OF THE GROUP

			Issued and
	Place of		fully paid
	incorporation/		share	Proportion of
	registration		capital/	nominal value of
	and	Class of	registered	issued capital held		Principal
Name	operation	shares held	capital	by the Company		activities
				Directly	Indirectly
Star Internet Financial	Hong Kong	Ordinary	HK$200	–	100%	Provision of
Information Services						financial
Limited						information
						services
Star Mobile DNA Payment	Hong Kong	Ordinary	HK$2	–	100%	Provision of credit
Gateway Limited						card security
						device, digital
						network
						authorisation

The above table lists the subsidiaries of the Company which, in the opinion of the directors, principally affected the results for the year or formed a substantial portion of the net assets and liabilities of the Group. To give details of other subsidiaries would, in the opinion of the directors, result in particulars of excess length.

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

17. INTERESTS IN ASSOCIATES

Share of net assets Premium on acquisition of an associate Less: Amortisation of premium on acquisition of an associate	THE GROUP 2003 2002 HK$’000 HK$’000 – – 30,000 – (1,500) – 28,500 –	THE GROUP 2003 2002 HK$’000 HK$’000 – – 30,000 – (1,500) – 28,500 –
		–

−65 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

As at 30 June, 2003, the Group had interests in the following associates:

			Proportion
			of nominal
			value of
			issued
			share
			capital
	Place of	Class of	held by
Name of Company	incorporation	Share held	group	Principal activity
Ming Yuen Assets Limited	BVI	Ordinary	30%	Holding and licensing
(“Ming Yuen”)				the intellectual
				property rights in
				respect of credit
				card security device
				and digital network
				authorisation system
Conolan Limited	BVI	Ordinary	20%	Investment holding

During the year, the Group acquired 30% equity interest in Ming Yuen for a consideration of HK$30 million satisfied by the issue of a promissory note by the Group, details of which are set out in note 27.

The premium on acquisition is amortised over a period of 10 years on a straight line basis. Amortisation charged in the current year amounting to HK$1,500,000 has been included in the consolidated income statement.

18. INVESTMENTS IN SECURITIES-OTHER INVESTMENTS

Equity securities: Listed −Hong Kong −other investments Unlisted −Elsewhere −investment securities Club debenture Classified as Current Non-current Market value of listed securities	THE GROUP 2003 2002 HK$’000 HK$’000 54 71 3,420 – 3,474 71 150 150 3,624 221	THE GROUP 2003 2002 HK$’000 HK$’000 54 71 3,420 – 3,474 71 150 150 3,624 221
		71 150
		221

	54 3,570	71 150
	3,624 54	221

		71

−66 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

19. INVENTORIES −AT COST

Raw materials Work in progress Finished goods	THE GROUP 2003 2002 HK$’000 HK$’000 – 2,556 – 319 – 4,135 – 7,010	THE GROUP 2003 2002 HK$’000 HK$’000 – 2,556 – 319 – 4,135 – 7,010
		7,010

20. DEBTORS, DEPOSITS AND PREPAYMENTS

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 2003 2002 HK$’000 HK$’000 94 1,330 – 106 7 424	THE GROUP 2003 2002 HK$’000 HK$’000 94 1,330 – 106 7 424
	101 1,281	1,860 28,940
	1,382	30,800

For the year ended 30 June, 2002, included in other debtors, deposits and prepayments is the amount of HK$20,000,000 deposited with Kingston Securities Limited which bears interest at the prevailing market rate.

21. 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 2003 2002 HK$’000 HK$’000 378 2,861 – 238 1,357 1,938	THE GROUP 2003 2002 HK$’000 HK$’000 378 2,861 – 238 1,357 1,938
	1,735 4,597	5,037 15,224
	6,332	20,261

−67 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

22. OBLIGATION UNDER A FINANCE LEASE

Amounts payable under a finance lease: Within one year In the second to fifth years inclusive Less: future finance charges Present value of lease obligation Less: Amount due within one year shown under current liabilities Amount due after one year	Minimum lease payments 2003 2002 HK$’000 HK$’000 – 115 – 164 – 279 – 23 – 256	Present value of minimum lease payments 2003 2002 HK$’000 HK$’000 – 106 – 150 – 256 – (106) – 150

The subsidiary which held the motor vehicles under finance leases was disposed of by the Group during the year.

The lease term was 3 years and the average effective borrowing rate was 3% per annum. The lease was on a fixed repayment basis and no arrangements have been entered into for contingent rental payments. The Group’s obligation under finance lease was secured by the lessor’s charge over the leased assets.

−68 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

23. SHARE CAPITAL

Authorised Ordinary shares of HK$0.01 each at 1 July, 2001, 30 June, 2002 and 30 June, 2003 Issued and fully paid Ordinary shares of HK$0.01 each at 1 July, 2001 Share consolidation Adjustment of nominal value Issue of new shares of HK$0.01 each Conversion of convertible notes Ordinary shares of HK$0.01 each at 1 July, 2002 Issue of new shares of HK$0.01 each Exercise of share options Ordinary shares of HK$0.01 each at 30 June, 2003	Number of shares 60,000,000,000	Value HK$’000 600,000 194,596 – (190,950) 45,000 2,337 50,983 2,319 792 54,094
	19,459,627,176 (19,095,011,497) – 4,500,000,000 233,718,486 5,098,334,165 231,934,000 79,200,000	194,596 – (190,950 45,000 2,337
		50,983 2,319 792
	5,409,468,165

The movements in the ordinary share capital for the year ended 30 June, 2002 are as follows:

(a) Pursuant to resolutions passed at a special general meeting of the Company on 19 April, 2002, 2,000,000,000 and 2,500,000,000 shares of HK$0.01 each were issued and alloted to Sheung Hai Developments Limited and Win Channel Investments Limited, respectively at HK$0.01 per share.
(b) 108,718,486 shares and 125,000,000 shares of HK$0.01 each were issued and alloted to Direct Gain Profits Limited at HK$0.0952 and HK$0.01 per share, respectively, as a result of the conversion of convertible notes.
(c) Pursuant to resolutions passed at a special general meeting of the Company on 28 November, 2001, the Group’s financial restructuring was carried out and completed on 28 November, 2001, which involved the restructuring of the share capital:
Every 40 issued shares of HK$0.01 each in the capital of the Company was consolidated into one new share of HK$0.4 each.
The par value of the issued shares was then reduced from HK$0.4 each to HK$0.01 each.

The movements in the ordinary share capital for the year ended 30 June, 2003 are as follows:

(a) 38,000,000 shares of HK$0.01 each were issued and allotted to W-Phone, Inc. at HK$0.09 per share, which is the closing price of the Company’s shares as quoted on the Stock Exchange on 19 July, 2002, to subscribe for 422,222 preference shares in W-Phone, Inc.
(b) 193,934,000 shares of HK$0.01 each were issued and allotted to an independent third party at HK$0.016 per share, representing a discount of approximately 11.11% on the closing price of HK$0.018 per share on 10 June, 2003 under a private share placement.

Shares mentioned in (a) and (b) were issued under the general mandate granted to the directors on 19 April, 2002 and 27 November, 2002 respectively.

− −69

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(c) 79,200,000 shares of HK$0.01 each were issued and allotted as a result of the exercise of share options by the directors and employees of the Company.

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

24. SHARE OPTION SCHEME

The Company’s share option scheme (the “Scheme”), was adopted pursuant to a resolution passed on 11 April, 1994 for the primary purpose of providing incentives to directors and eligible employees, and will expire on 10 March, 2004. Under the Scheme, the Board of Directors of the Company may grant options to eligible employees, including executive director of the Company or any subsidiaries, to subscribe for shares in the Company.

At 30 June, 2003, the number of shares in respect of which options had been granted under the Scheme was 345,175,000 (2002: 23,850,000), representing 6.4% (2002: 0.5%) of the shares of the Company in issue at that date. The total number of shares in respect of which options may be granted under the Scheme is not permitted to exceed 10% of the shares of the Company in issue at any point in time excluding any shares issued pursuant to the Scheme. The number of shares in respect of which options may be granted to any individual is not permitted to exceed 25% of the number of shares issued and issuable under the Scheme.

Options granted must be taken up within 28 days of the date of grant, upon payment of HK$10 per each grant of share options. The options granted are exercisable at any time during the two years period commencing six months after the date on which the option is accepted and expiring on the last day of the two years period or 10 April, 2004, whichever is the earlier. Pursuant to a resolution passed on 27 July, 2001, the Scheme was modified. Accordingly from 27 July, 2001, the exercise period of the share options granted under the Scheme shall be determined by the Board of Directors when such options are granted, provided that such period shall not end more than 10 years from the date of grant. The exercise price is determined by the Board of Directors of the Company, and will not be less than the higher of the 80% of average closing price of the Company’s shares for the five business days immediately preceding the date of grant, and the nominal value of the Company’s shares.

The following tables disclose details of the Company’s share options held by employees and movements of such holdings during the year:

2003

Date of grant Exercisable period Exercise price Outstanding at 1 July, 2002 HK$ 21.2.2001 21.2.2001-5.3.2003 1.5368 6,100,000 30.4.2001 30.4.2001-27.5.2003 0.652 3,675,000 7.5.2001 7.5.2001-6.5.2003 0.672 3,200,000 18.11.2001 18.11.2001-17.11.2003 0.4 7,500,000 2.8.2001 2.8.2001-1.8.2004 0.4 3,275,000 1.9.2001 1.9.2001-31.8.2004 0.4 100,000 30.10.2002 30.10.2002-29.10.2004 0.0386 – 2.11.2002 2.11.2002-1.11.2004 0.0366 – 7.5.2003 7.5.2003-6.5.2005 0.0135 – 23,850,000	Date of grant Exercisable period Exercise price Outstanding at 1 July, 2002 HK$ 21.2.2001 21.2.2001-5.3.2003 1.5368 6,100,000 30.4.2001 30.4.2001-27.5.2003 0.652 3,675,000 7.5.2001 7.5.2001-6.5.2003 0.672 3,200,000 18.11.2001 18.11.2001-17.11.2003 0.4 7,500,000 2.8.2001 2.8.2001-1.8.2004 0.4 3,275,000 1.9.2001 1.9.2001-31.8.2004 0.4 100,000 30.10.2002 30.10.2002-29.10.2004 0.0386 – 2.11.2002 2.11.2002-1.11.2004 0.0366 – 7.5.2003 7.5.2003-6.5.2005 0.0135 – 23,850,000	Date of grant Exercisable period Exercise price Outstanding at 1 July, 2002 HK$ 21.2.2001 21.2.2001-5.3.2003 1.5368 6,100,000 30.4.2001 30.4.2001-27.5.2003 0.652 3,675,000 7.5.2001 7.5.2001-6.5.2003 0.672 3,200,000 18.11.2001 18.11.2001-17.11.2003 0.4 7,500,000 2.8.2001 2.8.2001-1.8.2004 0.4 3,275,000 1.9.2001 1.9.2001-31.8.2004 0.4 100,000 30.10.2002 30.10.2002-29.10.2004 0.0386 – 2.11.2002 2.11.2002-1.11.2004 0.0366 – 7.5.2003 7.5.2003-6.5.2005 0.0135 – 23,850,000		Number of share options	Number of share options	Number of share options	Number of share options
			Granted during the year – – – – – – 427,500,000 60,000,000 113,000,000		Exercised during the year – – – – – – – – (79,200,000)	Cancelled/ lapsed during the year Outstanding at 30 June, 2003 (6,100,000) – (3,675,000) – (3,200,000) – (5,000,000) 2,500,000 – 3,275,000 – 100,000 (152,000,000) 275,500,000 (30,000,000) 30,000,000 – 33,800,000
	23,850,000		600,500,000		(79,200,000)	(199,975,000)	345,175,000

−70 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

2002

Date of grant Exercisable period Exercise price Outstanding at 1 July, 2001 HK$ 21.2.2001 21.2.2001-5.3.2003 1.5368 14,425,000 30.4.2001 30.4.2001-27.5.2003 0.652 4,350,000 7.5.2001 7.5.2001-6.5.2003 0.672 10,725,000 18.11.2001 18.11.2001-17.11.2003 0.4 10,000,000 2.8.2001 2.8.2001-1.8.2004 0.4 – 1.9.2001 1.9.2001-31.8.2004 0.4 – 39,500,000	Date of grant Exercisable period Exercise price Outstanding at 1 July, 2001 HK$ 21.2.2001 21.2.2001-5.3.2003 1.5368 14,425,000 30.4.2001 30.4.2001-27.5.2003 0.652 4,350,000 7.5.2001 7.5.2001-6.5.2003 0.672 10,725,000 18.11.2001 18.11.2001-17.11.2003 0.4 10,000,000 2.8.2001 2.8.2001-1.8.2004 0.4 – 1.9.2001 1.9.2001-31.8.2004 0.4 – 39,500,000	Date of grant Exercisable period Exercise price Outstanding at 1 July, 2001 HK$ 21.2.2001 21.2.2001-5.3.2003 1.5368 14,425,000 30.4.2001 30.4.2001-27.5.2003 0.652 4,350,000 7.5.2001 7.5.2001-6.5.2003 0.672 10,725,000 18.11.2001 18.11.2001-17.11.2003 0.4 10,000,000 2.8.2001 2.8.2001-1.8.2004 0.4 – 1.9.2001 1.9.2001-31.8.2004 0.4 – 39,500,000		Number of share options	Number of share options	Number of share options	Number of share options
			Granted during the year – – – – 7,525,000 600,000		Exercised during the year – – – – – –	Cancelled/ lapsed during the year Outstanding at 30 June, 2002 (8,325,000) 6,100,000 (675,000) 3,675,000 (7,525,000) 3,200,000 (2,500,000) 7,500,000 (4,250,000) 3,275,000 (500,000) 100,000
	39,500,000		8,125,000		–	(23,775,000)	23,850,000

Details of the share options held by the directors included in the above table as follows:

Outstanding at 1 July, 2003 17,668,750 2002 32,750,000	Granted during the year 521,000,000 7,768,750	Exercised during the year (25,000,000) –	Cancelled/ lapsed during the year Outstanding at 30 June, (196,650,000) 317,018,750 (22,850,000) 17,668,750	Cancelled/ lapsed during the year Outstanding at 30 June, (196,650,000) 317,018,750 (22,850,000) 17,668,750

				17,668,750

Total consideration received during the year from employees for taking up the options granted is not material.

No charge is recognised in the income statement in respect of the value of options granted in the year (2002: Nil).

25. RESERVES

Share premium Contributed surplus HK$’000 HK$’000 THE COMPANY At 1 July, 2001 184,904 93,289 Premium on issue of shares 9,263 – Transfer pursuant to share consolidation – – Net loss for the year – – At 30 June, 2002 194,167 93,289 Premium on issue of shares 4,481 – Net loss for the year – – At 30 June, 2003 198,648 93,289	Share premium Contributed surplus HK$’000 HK$’000 THE COMPANY At 1 July, 2001 184,904 93,289 Premium on issue of shares 9,263 – Transfer pursuant to share consolidation – – Net loss for the year – – At 30 June, 2002 194,167 93,289 Premium on issue of shares 4,481 – Net loss for the year – – At 30 June, 2003 198,648 93,289	Share premium Contributed surplus HK$’000 HK$’000 THE COMPANY At 1 July, 2001 184,904 93,289 Premium on issue of shares 9,263 – Transfer pursuant to share consolidation – – Net loss for the year – – At 30 June, 2002 194,167 93,289 Premium on issue of shares 4,481 – Net loss for the year – – At 30 June, 2003 198,648 93,289	Deficit HK$’000 (480,188) – 190,950 (58,842)	Total HK$’000 (201,995 9,263 190,950 (58,842
	194,167 4,481 –	93,289 – –	(348,080) – (16,210)	(60,624 4,481 (16,210
	198,648	93,289	(364,290)	(72,353

−71 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

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.

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 30 June, 2003 and 30 June, 2002.

26. CONVERTIBLE NOTES

Ming Sang Finance Ltd (“Ming Sang”) (a) Gain Master Assets Ltd. (“Gain Master”) (b) Direct Gain Profits Limited (“Direct Gain”) (c) _Less:_Conversion into 125,000,000 shares of HK$0.01 each Conversion into 108,718,486 shares of HK$0.0952 each	THE GROUP AND THE COMPANY 2003 2002 HK$’000 HK$’000 10,000 – 13,800 13,800 – 11,600 – (1,250) – (10,350) 23,800 13,800

(a) The Company issued a convertible note in the amount of HK$10,000,000 to Ming Sang. The convertible note bears interest at 3% plus the prime lending rate on the business day immediately before any date of interest payment quoted by the Hongkong and Shanghai Banking Corporation Limited per annum and is redeemable on 20 December, 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, subject to adjustment, at any time during the period from 20 June, 2003 to 20 December, 2004.

The entire amount of the convertible note has been converted into 150,000,000 shares and 683,332,000 shares of HK$0.01 each at a price of HK$0.012 on 10 October, 2003 and 15 October, 2003 respectively.

(b) The Company issued a convertible note in the amount of HK$13,800,000 to Gain Master. 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 3%; and (ii) 2% per annum and is redeemable on 16 July, 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, subject to adjustment, at any time during the period from 16 July, 2001 to 16 July, 2004.

Convertible note of HK$1,200,000 has been converted into 80,000,000 shares of HK$0.01 each at a price of HK$0.015 on 22 October, 2003.

−72 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(c) The Company issued a convertible note in the amount of HK$11,600,000 to Direct Gain. 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 3%; and (ii) 2% per annum and is redeemable on 16 July, 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, subject to adjustment, at any time during the period from 16 July, 2001 to 16 July, 2004.

The entire amount of the convertible note was converted into share, during the year ended 30 June, 2003.

27. PROMISSORY NOTE

Promissory note bears interest at 2% per annum and is payable to an associate, Ming Yuen. The date of maturity of the promissory note is 17 September, 2004. Hence, it is classified as non-current.

28. 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: Difference between tax allowances and depreciation Tax losses unutilised	THE GROUP 2003 2002 HK$’000 HK$’000 (486) (799) 55,015 46,604 54,529 45,805	THE COMPANY 2003 2002 HK$’000 HK$’000 (405) (481) 22,263 17,901 21,858 17,420	THE COMPANY 2003 2002 HK$’000 HK$’000 (405) (481) 22,263 17,901 21,858 17,420
			17,420

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 arising during the year, which has not been recognised in the income statement, is as follows:

Tax effect of timing differences attributable to: Difference between tax allowance and depreciation Tax losses utilised Effect of change in tax rate	THE GROUP 2003 2002 HK$’000 HK$’000 119 22 3,891 5,162 4,714 – 8,724 5,184	THE COMPANY 2003 2002 HK$’000 HK$’000 76 124 2,454 2,194 1,908 – 4,438 2,318	THE COMPANY 2003 2002 HK$’000 HK$’000 76 124 2,454 2,194 1,908 – 4,438 2,318
			2,318

− −73

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

29. DISPOSAL OF SUBSIDIARIES

Net assets disposed of: Bank balances and cash Property, plant and equipment Inventories Debtors, deposits and prepayment Loan Creditors and accrued charges Taxation payable Obligation under a finance lease Minority interests Goodwill realised on disposal of subsidiaries (Loss) gain on disposal Consideration Analysis of the net outflow of cash and cash equivalents in connection with the disposal of subsidiaries: Cash consideration received Bank balances and cash disposed of	2003 HK$’000 2,186 7,115 4,712 5,787 – (10,307) (20) (256) (212)	2002 HK$’000 1,675 2,206 330 3,255 (12,500) (18,766) – – (2,140) (25,940) (9,052) 35,392 400 400 (1,675) (1,275)
	9,005 6,896 (14,411)	(25,940 (9,052 35,392
	1,490
	1,490 (2,186)	400 (1,675
	(696)

The subsidiaries disposed of during the year contributed cash inflow of HK$821,000 to the Group’s net cash from operating activities, received HK$430,000 in respect of investing activities and paid HK$79,000 in respect of financing activities.

The subsidiaries disposed of during the year contributed HK$7,685,000 to the Group’s turnover and HK$6,072,000 to the Group’s loss from operations.

The subsidiaries disposed of for the year ended 30 June, 2002 contributed cash outflow of HK$2,952,000 to the Group’s net cash used in operating activities and paid HK$1,000,000 in respect of investing activities.

The subsidiaries disposed of for the year ended 30 June, 2002 contributed HK$8,546,000 to the Group’s turnover and HK$9,354,000 to the Group’s loss from operations.

30. MAJOR NON-CASH TRANSACTIONS

During the year ended 30 June, 2003, the Group had the following major non-cash transactions:

(i) The acquisition of investment in unlisted equity securities in W-Phone, Inc. was satisfied by the issue of 38,000,000 shares of the Company at HK$0.09 each.
(ii) The acquisition of interest in an associate was settled by the issue of HK$30,000,000 promissory note.

−74 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

During the year ended 30 June, 2002, the Group had the following major non-cash transaction:

(i) The Group entered into a finance lease arrangement in respect of assets with a total capital value at the inception of the lease of HK$317,000.
(ii) Convertible notes of HK$11,600,000 were converted into 108,718,486 and 125,000,000 shares of the Company at conversion prices of HK$0.0952 and HK$0.01 per share, respectively.

31. OPERATING LEASE COMMITMENTS

	THE	GROUP
	2003	2002
	HK$’000	HK$’000
Minimum lease payments paid under operating leases
in respect of rented premises	1,992	4,584

At the balance sheet date, the Group had commitments for future minimum lease payments for rented premises under non-cancellable operating leases which fall due as follows:

Within one year In the second to fifth year inclusive	THE GROUP 2003 2002 HK$’000 HK$’000 343 1,029 716 562 1,059 1,591	THE GROUP 2003 2002 HK$’000 HK$’000 343 1,029 716 562 1,059 1,591
		1,591

Operating lease payments represent rentals payable by the Group for certain of its office premises. Leases are negotiated for an average term of two years.

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

32. RETIREMENT BENEFITS SCHEME

The Group participates 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.

−75 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

33. POST BALANCE SHEET EVENTS

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

(a) A total of 101,800,000 shares of HK$0.01 each were issued and allotted as a result of the exercise of share options at exercise prices of HK$0.0135 and HK$0.0156 respectively.
(b) A total of 103,000,000 shares options were granted to employees of the Group in accordance with the share option scheme adopted on 11 April, 1994 and modified on 27 July, 2001.
(c) Ming Sang exercised the option to covert all the convertible notes into 150,000,000 shares and 683,332,000 shares of HK$0.01 each at a price of HK$0.012 on 10 October, 2003 and 15 October, 2003 respectively.
(d) Gain Master transferred the principal amount of HK$12,600,000 of the convertible note to a third party of the Company and Gain Master holds the remaining convertible note in the amount of HK$1,200,000.

On 22 October, 2003, Gain Master exercised the option to convert all the remaining convertible notes into 80,000,000 shares of HK$0.01 each at a price of HK$0.015.

(e) 200,000,000 shares of HK$0.01 each were issued and allotted to an independent third party at HK$0.016 per share, representing a discount of approximately 5.88% on the closing price of HK$0.017 per share on 20 October, 2003 under a private share placement. The shares were issued under the general mandate granted to the directors on 9 July, 2003.
(f) One of the Group’s investment properties held under long term leases in Hong Kong was sold to an independent third party at approximately HK$1,200,000. A gain on disposal of approximately HK$590,000 was resulted.

34. RELATED PARTY TRANSACTIONS

Details of balances with related parties as at the balance sheet date are set out in the consolidated balance sheet and in notes 16 and 17.

During the year, the Company entered into the Subscription Agreement with Ming Yuen Assets Limited (“Ming Yuen”) on 26 September, 2002 whereby Ming Yuen agreed to issue and the Company agreed to subscribe a 30% equity interest in Ming Yuen for a consideration of HK$30,000,000 payable by the issue of a promissory note by the Company. The promissory note bears interest at 2% per annum and is payable on 17 September, 2004.

Ming Yuen was 100% beneficially owned by Mr. Wong Kam Fu who is the chairman, executive director and substantial shareholder of the Company.

−76 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

INTERIM REPORT FOR THE SIX MONTHS ENDED 31 DECEMBER, 2003

Set out below are the unaudited financial statements of the Group for the six months ended 31 December, 2003 together with the comparative figures for the year ended 30 June, 2003 extracted from the interim report of the Company for the six months ended 31 December, 2003.

Condensed Consolidated Income Statement

For the six months ended 31 December, 2003

Note Turnover Cost of sales Gross (loss) profit Other operating income Distribution costs Administrative expenses Unrealised gain (loss) on investments in securities Gain on disposal of investment property Impairment loss on investments in securities Impairment losses recognised in respect of goodwill Loss from operations Loss on disposal of subsidiaries Amortisation of premium on acquisition of an associate Finance costs Loss before minority interest Minority interest Net loss for the period Loss per share 5 −Basic	For the six months ended 31.12.2003 31.12.2002 (unaudited) (unaudited) HK$’000 HK$’000 1,500 7,215 (2,164) (5,580) (664) 1,635 557 692 (277) (1,386) (11,831) (20,075) 5 (18) 591 – (3,420) – – (11,000) (15,039) (30,152) – (4,929) (1,500) – (608) (145) (17,147) (35,226) – 699 (17,147) (34,527) (0.28) cents (0.67) cents	For the six months ended 31.12.2003 31.12.2002 (unaudited) (unaudited) HK$’000 HK$’000 1,500 7,215 (2,164) (5,580) (664) 1,635 557 692 (277) (1,386) (11,831) (20,075) 5 (18) 591 – (3,420) – – (11,000) (15,039) (30,152) – (4,929) (1,500) – (608) (145) (17,147) (35,226) – 699 (17,147) (34,527) (0.28) cents (0.67) cents
	(664) 557 (277) (11,831) 5 591 (3,420) – (15,039) – (1,500) (608) (17,147) –	1,635 692 (1,386 (20,075 (18 – – (11,000
		(30,152 (4,929 – (145
		(35,226 699
	(17,147) (0.28) cents

−77 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Condensed Consolidated Balance Sheet

At 31 December, 2003

Notes NON-CURRENT ASSETS Investment properties 6 Property, plant and equipment 6 Interests in associates 7 Investments in securities 8 CURRENT ASSETS Debtors, deposits and prepayments 9 Investments in securities Bank balances and cash CURRENT LIABILITIES Creditors and accrued charges 10 Convertible notes 11 Promissory note 12 NET CURRENT (LIABILITIES) ASSETS CAPITAL AND RESERVES Share capital 13 Reserves NON-CURRENT LIABILITIES Convertible notes 11 Promissory note 12	31.12.2003 (unaudited) HK$’000 1,300 4,594 27,000 –	30.6.2003 (audited) HK$’000 1,910 5,466 28,500 3,570 39,446 1,382 54 6,409 7,845 6,332 – – 6,332 1,513 40,959 54,094 (63,935) (9,841) 23,800 27,000 50,800 40,959
	32,894 1,383 59 5,732 7,174 5,334 12,600 26,000 43,934 (36,760)	39,446
		1,382 54 6,409
		7,845
		6,332 – –
		6,332
		1,513
	(3,866)
	70,871 (74,737) (3,866) – – –	54,094 (63,935
		(9,841
		23,800 27,000
		50,800
	(3,866)

−78 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Condensed Consolidated Statement of Changes in Equity

For the six months ended 31 December, 2003

Share capital Share premium HK$’000 HK$’000 50,983 194,167 380 3,040 – – – –	Share capital Share premium HK$’000 HK$’000 50,983 194,167 380 3,040 – – – –	Capital reserve Goodwill reserve HK$’000 HK$’000 1,700 (22,971) – – – 11,000 – –	Capital reserve Goodwill reserve HK$’000 HK$’000 1,700 (22,971) – – – 11,000 – –	Retained profits HK$’000 (199,631) – – (34,527)	Total HK$’000 24,248 3,420 11,000 (34,527) 4,141 3,103 1,069 6,896 (25,050) (9,841) 9,600 2,322 11,200 (17,147) (3,866)
51,363 1,939 792 – – 54,094 6,000 1,643 9,134 –	197,207 1,164 277 – – 198,648 3,600 679 2,066 –	1,700 – – – – 1,700 – – – –	(11,971) – – 6,896 – (5,075) – – – –	(234,158) – – – (25,050) (259,208) – – – (17,147)	4,141 3,103 1,069 6,896 (25,050
					(9,841 9,600 2,322 11,200 (17,147
70,871	204,993	1,700	(5,075)	(276,355)

− −79

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Condensed Consolidated Cash Flow Statement

For the six months ended 31 December, 2003

Net cash used in operating activities Net cash from investing activities Net cash from (used in) financing activities Decrease in cash and cash equivalents Cash and cash equivalents at beginning of the period Cash and cash equivalents at end of the period, represented by bank balances and cash	For the six months ended 31.12.2003 31.12.2002 (unaudited) (unaudited) HK$’000 HK$’000 (12,635) (2,875) 1,036 1,217 10,922 (203) (677) (1,861) 6,409 6,077 5,732 4,216

−80 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Notes to the Condensed Financial Statements

For the six months ended 31 December, 2003

1. BASIS OF PREPARATION

The condensed 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 (“HKSA”) 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 financial statements, the directors have given careful consideration to the future liquidity of the Group in the light of its net current liabilities and net liabilities of approximately HK$36,760,000 and HK$3,866,000 as at 31 December, 2003 respectively. Subsequent to the balance sheet date the Group has entered into a total of three placing agreements to issue a total of 1,400,000,000 placing shares at a price of HK$0.018 each to three independent third parties for HK$25,200,000. The directors are satisfied that the Group is able to meet in full its financial obligations as they fall due for the foreseeable future. Accordingly, the interim 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 investments in securities.

The accounting polices adopted are consistent with those followed by the Group’s audited financial statements for the year ended 30 June, 2003, except that the Company in the current period has adopted SSAP 12 (Revised) “Income Taxes” issued by the HKSA.

The principal effect of the implementation of SSAP 12 (Revised) is in relation to deferred tax. SSAP 12 (Revised) requires the adoption of a balance sheet liability method, whereby deferred tax is recognised in respect of all temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, with limited exceptions. In the absence of any specific transitional requirements in SSAP 12 (Revised), the new accounting policy has been applied retrospectively. The adoption of SSAP 12 (Revised) has had no material effect on the results for the current or prior accounting periods. Accordingly, no prior period adjustment has been required.

−81 −

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 December, 2003

			Continuing	operations
			Provision
			of credit
			and
			security
	Provision		device and
	of		digital
	financial		network
	information	authorisation
	services		services	Other	Consolidated
	HK$’000		HK$’000	HK$’000	HK$’000
TURNOVER	1,285		191	24	1,500

SEGMENT RESULT	(417)		(4,440)	(24)	(4,881)

Unallocated corporate expenses					(7,329)
Gain on disposal of investment
properties					591
Impairment loss on investments
in securities					(3,420)
Loss from operations					(15,039)
Amortisation of premium on
acquisition of an associate			(1,500)		(1,500)
Finance costs					(608)
Loss before minority interest					(17,147)

−82 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

For the six months ended 31 December, 2002

TURNOVER SEGMENT RESULT Unallocated corporate expenses Impairment losses recognised in respect of goodwill Loss from operations Loss on disposal of subsidiaries Finance costs Loss before minority interest	Continuing operations Discontinuing operations Provision of financial information services Provision of credit card security device and digital network authorisation services Manufacturing and sales of electronic products Sales of health products Consolidated HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 1,668 123 5,294 130 7,215 (276) (3,023) (3,990) (100) (7,389) (11,763) (11,000) (11,000) (30,152) (4,929) (4,929) (145) (35,226)	Continuing operations Discontinuing operations Provision of financial information services Provision of credit card security device and digital network authorisation services Manufacturing and sales of electronic products Sales of health products Consolidated HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 1,668 123 5,294 130 7,215 (276) (3,023) (3,990) (100) (7,389) (11,763) (11,000) (11,000) (30,152) (4,929) (4,929) (145) (35,226)	Continuing operations Discontinuing operations Provision of financial information services Provision of credit card security device and digital network authorisation services Manufacturing and sales of electronic products Sales of health products Consolidated HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 1,668 123 5,294 130 7,215 (276) (3,023) (3,990) (100) (7,389) (11,763) (11,000) (11,000) (30,152) (4,929) (4,929) (145) (35,226)

			(7,389)
		(4,929)	(11,763) (11,000)
			(30,152) (4,929) (145)
			(35,226)

4. TAXATION

No provision for taxation has been made as the Group had no assessable profit for either period.

The charge for the six months ended 31 December, 2003 can be reconciled to the loss per the income statement as follows:

Loss before minority interest Tax at the domestic income tax rate of 17.5% (2002: 16%) Tax effect of expenses not deductible for tax purpose Tax effect of tax losses not recognized Tax effect and effective tax rate for the period	Six months ended 31 December, 2003 2002 HK$’000 % HK$’000 % (17,147) (35,226)	Six months ended 31 December, 2003 2002 HK$’000 % HK$’000 % (17,147) (35,226)	Six months ended 31 December, 2003 2002 HK$’000 % HK$’000 % (17,147) (35,226)	Six months ended 31 December, 2003 2002 HK$’000 % HK$’000 % (17,147) (35,226)
	(3,001) 861 2,140	(17.5) 5.0 12.5	(5,636) 2,549 3,087	(16.0) 7.2 8.8
	–	–	–	–

− −83

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

At 31 December, 2003, the Group has unused tax losses of HK$326,600,000 (30 June, 2003: HK$314,371,000) available for offset against future profits. No deferred tax asset has been recognised due to the unpredictability of future profit streams.

There was no other significant unprovided deferred taxation for the period or at the balance sheet date.

5. LOSS PER SHARE

The calculation of the basic loss per share is based on the net loss for the period of HK$17,147,000 (six months ended 31 December, 2002: HK$34,527,000) and on the weighted average number of 6,022,189,882 (six months ended 31 December, 2002: weighted average number of 5,132,616,774) shares in issue.

No diluted loss per share for the six months ended 31 December 2003 and 31 December, 2002 has been presented as the exercise of the share options and the conversion of convertible notes would result in a decrease in the loss per share for both periods.

6. MOVEMENTS IN INVESTMENT PROPERTIES AND PROPERTY, PLANT AND EQUIPMENT

During the period, depreciation of approximately HK$1,037,000 (2002: HK$1,392,000) was charged in respect of the Group’s property, plant and equipment.

One of the Group’s investment properties was disposed of to an independent third party resulting in a gain on disposal of approximately HK$591,000 and the remaining investment property was revalued by an independent firm of professional property valuers at 30 June, 2003. The directors considered that there was no material change in the market value of the investment property since last balance sheet date.

7. INTEREST IN AN ASSOCIATE

Share of net assets Premium on acquisition of an associate Less: Amortisation of premium on acquisition of an associate	31.12.2003 (unaudited) HK$’000 – 30,000 (3,000) 27,000	30.6.2003 (audited) HK$’000 – 30,000 (1,500) 28,500

The Group has 30% equity interest in Ming Yuen Assets Limited (“Ming Yuen”), a private company incorporated in the British Virgin Islands and engaged in holding and licensing the intellectual property rights in respect of a credit card security system.

8. INVESTMENTS IN SECURITIES

For the year end 30 June, 2003, the Group entered into an agreement with a third party to invest in a company which is engaged in telecommunication business. Following an assessment of its business prospects by the directors for the period, an impairment of HK$3,420,000 was made during the period. The remaining item was disposed of at cost during the period.

−84 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

9. DEBTORS, DEPOSITS AND PREPAYMENTS

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	31.12.2003 (unaudited) HK$’000 133 25 32	30.6.2003 (audited) HK$’000 94 – 7
	190 1,193	101 1,281
	1,383	1,382

10. CREDITORS AND ACCRUED CHARGES

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

0 - 60 days 61 - 90 days Over 90 days Accrued charges	31.12.2003 (unaudited) HK$’000 378 23 42	30.6.2003 (audited) HK$’000 378 – 1,357
	443 4,891	1,735 4,597
	5,334	6,332

11. CONVERTIBLE NOTES

The Company issued a convertible note in the amount of HK$10,000,000 to Ming Sang Finance Ltd. The convertible note bears interest at 3% plus the prime lending rate on the business day immediately before any date of interest payment quoted by the Hongkong and Shanghai Banking Corporation Limited per annum and is redeemable on 20 December, 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, subject to adjustment, at any time during the period from 20 June, 2003 to 20 December, 2004.

The Company issued a convertible note in the amount of HK$13,800,000 to Gain Master Assets Ltd. 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 3%; and (ii) 2% per annum and is redeemable on 16 July, 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, subject to adjustment, at any time during the period from 16 July, 2001 to 16 July, 2004.

−85 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Convertible note of HK$1,200,000 has been converted into 80,000,000 shares of HK$0.01 each at a price of HK$0.015 on 22 October, 2003. The title of the note with outstanding balance of HK$12,600,000 was transferred to Mr. Yim Sang during the period.

12. PROMISSORY NOTE

Promissory note bears interest at 2% per annum and is payable to an associate, Ming Yuen. The date of maturity of the promissory note is 17 September, 2004.

13. SHARE CAPITAL

Ordinary shares of HK$0.01 each Issued and fully paid: At 30 June, 2003 Issue of new shares at HK$0.016 per share Exercise of share options Conversion of convertible bonds At 31 December, 2003	Number of shares 5,409,468,165 600,000,000 164,300,000 913,332,000 7,087,100,165	Value HK$’000 54,094 6,000 1,643 9,134
		70,871

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

14. POST BALANCE SHEET EVENTS

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

(a) On 21 February, 2004 and 22 February, 2004 the Company entered into a total of three placing agreements, pursuant to which the Company agreed to issue a total of 1,400,000,000 placing shares at a price of HK$0.018 each to three independent third parties. The above placing was completed before the date of these interim financial statements.
(b) On 25 February, 2004, Mr. Yim Sang, the convertible note holder, converted the entire amount of the convertible note of HK$12,600,000 into 750,000,000 new ordinary shares at HK$0.0168 each.
(c) On 19 March, 2004, BFIL has increased the stake in the Company of 20 million shares at an average price of HK$0.088 through the market.

−86 −

FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The following is the text of a report, prepared for the sole purpose of inclusion in this circular, received from the independent reporting accountants, Deloitte Touche Tohmatsu, Certified Public Accountants, Hong Kong.

==> picture [189 x 60] intentionally omitted <==

==> picture [95 x 55] intentionally omitted <==

13 May, 2004

The Directors

Credit Card DNA Security System (Holdings) Limited

Dear Sirs,

We report on the pro forma financial information (“Pro Forma Financial Information”) of Credit Card DNA Security System (Holdings) Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”) and Ming Yuen Assets Limited (“Ming Yuen” and together with the Group hereinafter referred to as the “Enlarged Group”) set out in Appendix III of the circular dated 13 May, 2004 (the “Circular”) in connection with the major and connected transactions in respect of the proposed acquisition of a 70 per cent interest in Ming Yuen (the “Acquisition”), which has been prepared, as if the Acquisition had been completed as at 31 March, 2004 for illustrative purpose only, to provide information about how the Acquisition might have affected the relevant financial information presented.

RESPONSIBILITIES

It is solely the responsibility of the directors of the Company to prepare the Pro Forma Financial Information in accordance with the paragraph 29 of Chapter 4 of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (“Listing Rules”).

It is our responsibility to form an opinion, as required by the Listing Rules, on the Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

−87 −

FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

BASIS OF OPINION

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

Our work did not constitute an audit or a review in accordance with Statements of Auditing Standards issued by the Hong Kong Society of Accountants, and accordingly, we do not express any such audit or review assurance on the Pro Forma Financial Information.

The Pro Forma Financial Information has been compiled in accordance with the basis set out in the first paragraph of this letter for illustrative purposes only and because of its nature, it may not be an indicative position of the assets and liabilities of the Enlarged Group as at 31 December, 2003 or 31 March, 2004 or at any future date.

OPINION

In our opinion:

(a) the Pro Forma Financial Information has been properly compiled on the basis of preparation as stated in the first paragraph of this letter;
(b) such basis is consistent with the accounting policies of the Company; and
(c) the adjustments are appropriate for the purposes of the pro forma financial information as disclosed pursuant to paragraph 29 of Chapter 4 of the Listing Rules.

Yours faithfully,

Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong

−88 −

FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES OF THE ENLARGED GROUP AFTER COMPLETION

The following unaudited pro forma statement of assets and liabilities of the Enlarged Group has been prepared as if the proposed acquisition of a 70% interest in Ming Yuen had been completed and based on the unaudited consolidated balance sheet of the Group as at 31 December, 2003 and the audited balance sheet of Ming Yuen as at 31 March, 2004, as extracted from unaudited interim report of the Group for the six month period ended 31 December, 2003 and the accountants’ report of Ming Yuen respectively, after appropriate adjustments made as follows.

The unaudited pro forma statement of assets and liabilities of the Enlarged Group should be read in conjunction with the accountants’ report of Ming Yuen as set out in Appendix I, the financial information of the Group as set out in Appendix II and other financial information included elsewhere in this circular.

Enlarged Group

The Group as at 31 December, 2003 Ming Yuen as at 31 March, 2004 HK$’000 HK$’000 NON-CURRENT ASSETS Investment properties 1,300 − Property, plant and equipment 4,594 − Intangible asset – – Interests in associates 27,000 – Amount due from a shareholder – 14,000 32,894 14,000 CURRENT ASSETS Debtors, deposits and prepayments 1,383 – Investments in securities 59 – Amount due from a shareholder – 721 Promissory note receivable – 16,000 Bank balances and cash 5,732 – 7,174 16,721 CURRENT LIABILITIES Creditors and accrued charges 5,334 820 Convertible notes 12,600 – Promissory note 26,000 – 43,934 820	The Group as at 31 December, 2003 Ming Yuen as at 31 March, 2004 HK$’000 HK$’000 NON-CURRENT ASSETS Investment properties 1,300 − Property, plant and equipment 4,594 − Intangible asset – – Interests in associates 27,000 – Amount due from a shareholder – 14,000 32,894 14,000 CURRENT ASSETS Debtors, deposits and prepayments 1,383 – Investments in securities 59 – Amount due from a shareholder – 721 Promissory note receivable – 16,000 Bank balances and cash 5,732 – 7,174 16,721 CURRENT LIABILITIES Creditors and accrued charges 5,334 820 Convertible notes 12,600 – Promissory note 26,000 – 43,934 820	Sub-total Pro forma adjustments Pro forma balance HK$’000 HK$’000 Notes HK$’000 1,300 1,300 4,594 4,594 – 97,537 1, 2, 3, 4 97,537 27,000 (27,000) 2 – 14,000 (14,000) 1 −	Sub-total Pro forma adjustments Pro forma balance HK$’000 HK$’000 Notes HK$’000 1,300 1,300 4,594 4,594 – 97,537 1, 2, 3, 4 97,537 27,000 (27,000) 2 – 14,000 (14,000) 1 −
32,894 1,383 59 – – 5,732 7,174 5,334 12,600 26,000 43,934	14,000 – – 721 16,000 – 16,721 820 – – 820	46,894 1,383 59 721 (721) 5, 6 16,000 (16,000) 5 5,732 23,895 6,154 9,414 5 12,600 26,000 (26,000) 5 44,754	103,431
			1,383 59 − – 5,732
			7,174
			15,568 12,600 –
			28,168

− −89

APPENDIX III

FINANCIAL INFORMATION OF THE ENLARGED GROUP

The Group as at 31 December, 2003 Ming Yuen as at 31 March, 2004 HK$’000 HK$’000 NET CURRENT (LIABILIITES) ASSETS (36,760) 15,901 (3,866) 29,901 CAPITAL AND RESERVES Share capital 70,871 – Reserves (74,737) 29,901 (3,866) 29,901 NON-CURRENT LIABILITIES Convertible note – – Deferred tax liabilities − − (3,866) 29,901	The Group as at 31 December, 2003 Ming Yuen as at 31 March, 2004 HK$’000 HK$’000 NET CURRENT (LIABILIITES) ASSETS (36,760) 15,901 (3,866) 29,901 CAPITAL AND RESERVES Share capital 70,871 – Reserves (74,737) 29,901 (3,866) 29,901 NON-CURRENT LIABILITIES Convertible note – – Deferred tax liabilities − − (3,866) 29,901	The Group as at 31 December, 2003 Ming Yuen as at 31 March, 2004 HK$’000 HK$’000 NET CURRENT (LIABILIITES) ASSETS (36,760) 15,901 (3,866) 29,901 CAPITAL AND RESERVES Share capital 70,871 – Reserves (74,737) 29,901 (3,866) 29,901 NON-CURRENT LIABILITIES Convertible note – – Deferred tax liabilities − − (3,866) 29,901	Sub-total Pro forma adjustments Pro forma balance HK$’000 HK$’000 Notes HK$’000 (20,859) (20,994)	Sub-total Pro forma adjustments Pro forma balance HK$’000 HK$’000 Notes HK$’000 (20,859) (20,994)
	(3,866) 70,871 (74,737) (3,866) – − (3,866)	29,901 – 29,901 29,901 – − 29,901	26,035 70,871 (44,836) (21,465) 2, 3, 6 26,035 – 69,000 1 − 8,867 4 26,035	82,437 70,871 (66,301) 4,570 69,000 8,867 82,437

Notes:

The adjustment reflects the proposed acquisition of a 70% interest in Ming Yuen at a consideration of HK$83 million. The consideration will be settled by the Company as to HK$69 million by issue of the Convertible Note and HK$14 million by the Company assuming the debt of HK$14 million owing to Ming Yuen by Mr. Wong. Accordingly, the intercompany debt of HK$14 million had been eliminated upon the Completion.
The adjustment reflects the transfer of premium on previous acquisition of 30% equity interest in Ming Yuen of HK$27,000,000 as an associate and the difference of HK$8,571,000 between the book value and fair value of 30% interest in Ming Yuen at the time of acquisition to as an investment in a subsidiary.
The adjustment reflects the difference between the investment in a subsidiary of HK$118,571,000 and the net asset value of HK$29,901,000 of the subsidiary at the time of acquisition. The balance of HK$88,670,000 represents the amount of the intellectual property rights of Ming Yuen recognised at the time of acquisitions of Ming Yuen.
The adjustment reflects the deferred tax liabilities related to the intangible asset recognised at the time of acquisition of Ming Yuen.
The adjustment reflects the elimination of intercompany balances.
The adjustment reflects the elimination of the interest receivable, included in the amount due from a shareholder of Ming Yuen, the Company, of approximately HK$135,000 and the corresponding interest income for the promissory note receivable for the three months ended 31 March 2004 in which the Company has not accrued for such interest expense yet up to 31 December, 2003.

− −90

FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

INDEBTEDNESS

At the close of business on 31 March, 2004, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Enlarged Group did not have any outstanding borrowings.

Save as aforesaid and apart from intra-group liabilities, the Group did not have any outstanding mortgages, charges, debentures, loan capital and overdraft or other similar indebtedness, finance leases or hire purchase commitment, liabilities under acceptances or acceptance credits or any guarantees or other material contingent liabilities as at the close of business on 31 March, 2004.

For the purpose of the above indebtedness statement, foreign currency amounts have been translated into Hong Kong dollars at the approximate exchange rates prevailing at the close of business on 31 March, 2004.

Upon completion of the Acquisition, the Group will issue convertible note in the amount of HK$69,000,000 to Mr. Wong.

Save as disclosed above, the Directors have confirmed that there has been no material change in the indebtedness or contingent liabilities of the Enlarged Group since 31 March, 2004.

WORKING CAPITAL

The Directors are of the opinion that, after taking into account the expected cash inflow to be generated from the credit card security service provided and deferment of emolument of two Directors, the Group has sufficient working capital for its present requirements that is for the next twelve months from the date of the circular. The aforementioned deferment is of the aggregate amount of HK$400,000 per month and will persist for a period of one year, or until the Group has sufficient funds to pay said amount, in any case the deferment shall be in effect for one year in order for the Group to meet its financial obligations.

MATERIAL CHANGE

The Directors are not aware of any material adverse change in the financial or trading position of the Group since 30 June, 2003, the date to which the latest audited financial statements of the Group were made up.

− −91

VALUATION OF MING YUEN

APPENDIX IV

The following is the text of a letter prepared for the purpose of incorporation in this circular, received from LCH (Asia-Pacific) Surveyors Limited in connection with the valuation of entire equity interest of Ming Yuen:

CHARTERED SURVEYORS PLANT AND MACHINERY VALUERS BUSINESS & FINANCIAL SERVICES VALUERS

27th Floor Li Dong Building No. 9 Li Yuen Street East Central Hong Kong

13 May 2004

The Directors

Credit Card DNA Security System (Holdings) Limited 4th Floor and 11th Floor Tai Sang Bank Building 130 Des Voeux Road Central Hong Kong

Dear Sirs,

In accordance with the recent instructions given by the management of Credit Card DNA Security System (Holdings) Limited (hereinafter referred to as “DNA”), we have investigated and analyzed the business enterprise value of Ming Yuen Assets Limited (hereinafter referred to as the “Company”) as at 6 April 2004 (hereinafter referred to as the “effective date of the appraisal”) and to document our findings and conclusion as follows:

INTRODUCTION

Business enterprise value is defined as the total value of a business. It comprises of monetary assets (net working capital), tangible assets and intangible assets, thereby encompassing all assets of a business enterprise (see Note) . In other words, the business enterprise value is also equal to the value of its invested capital −common equity, preferred stocks and long-term debts. However, there is no universal definition of the term; rather, it is a usual practice for a professional valuer, based on his professional knowledge and experience, to identify the definition intended in its use.

The purpose of this appraisal is to analyze the value of the business enterprise i.e. the Company and, to express an independent opinion of the value of the entire Company’s common stock (hereinafter referred to as the “appraised asset”) as at the effective date of the appraisal based on documents and information provided by the management of DNA

Note: A business enterprise is defined as a commercial, industrial, service, or investment entity, or a combination thereof, pursuing an economic activity.

− −92

VALUATION OF MING YUEN

APPENDIX IV

for your internal management reference and for the purpose of incorporation in a public document to be circulated to the shareholders of DNA. Based on the instruction, we define the term business enterprise value in this appraisal as the fair market value of the appraised asset.

The term “Fair Market Value” as used herein is defined as the price, expressed in terms of cash equivalents, at which asset would change hands between a hypothetical willing and able buyer and a hypothetical willing and able seller, acting at arm’s-length in an open and unrestricted market, when neither is under compulsion to buy or sell and when both have reasonable knowledge of the relevant facts. This definition has been made on the assumption that both the buyer and the seller contemplate the retention of the subject asset at its present location for the continuation of the current operations, and both seeking their maximum economic self-interest in arriving at an arm’s-length transaction.

OVERVIEW

Company Profile

The Company is an investment holding company incorporated in the British Virgin Islands on 12 February 2002 with its registered address at P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, the British Virgin Islands. The Company is capitalized with one class of common (also known as ordinary) stock that has a par value of US$1. As of the effective date of the appraisal, the Company has an authorized share capital of US$50,000 consisting of 50,000 shares of US$1.00 each and an issued share capital of US$10.00 consisting of 10 fully paid share of US$1.00 each. There were 10 shares of common stock authorized, issued and fully paid. The Company, as at the effective date of the appraisal, was owned by an individual and DNA. The risk and profit sharing are based on the shareholding ratio of the Company. The transfer and transmission of the Company’s shares are subject to the Company’s Memorandum (Clause 15) and Articles of Association (Regulation 48).

We are given to understand that the principal economic asset of the Company to be its holding of a patent assignment which covered two patents on certain technologies in connection with a security system for non-cash transactions (hereinafter referred to as the “Technology”) with respect to the territories of Hong Kong and the People’s Republic of China (hereinafter referred to as the “PRC” or “China”). The patents were filed on 30 June 1994 in Hong Kong and 19 May 1994 in China and, both patents will expire in 2014. The inventor assigned the patent assignment to the Company on 3 August 2002. Through the patent assignment, the Company has the exclusive right to commercialize the Technology in China and Hong Kong.

− −93

VALUATION OF MING YUEN

APPENDIX IV

The Technology is an invention relating to a security system with which an owner can prevent other people from using their credit cards (including bank cards) and/or mobile telephones in case they are stolen. The system, in general descriptive term, comprises a deal action device for registering an attempted transaction, and communication means to alert a person authorized to make that transaction to the attempted transaction. The Technology was invented by the inventor and has been registered in Hong Kong, China and other places of the world.

By a patent licence agreement made between the Company and DNA on 26 September 2002, the Company allowed DNA to use the Technology exclusively in China and Hong Kong. In return, the Company would receive a royalty at a certain percentage of the gross revenue to be received by DNA with regard to the use of the Technology.

We are further understand that DNA is in the process of commercializing the Technology by entering into several trial-use agreements and formal user agreements with certain commercial banks and public services companies in China, Hong Kong and Macau in their non-cash instant payment services provided to their customers.

The Economic Outlook of China and Hong Kong

The GDP (Gross Domestic Product) growth of Hong Kong for this year is estimated to be 6%. With the implementation of the Closer Economic Partnership Arrangement with mainland China and the strong growth of China’s economy at a compound annual growth rate of approximately 8.8% from 1986 to 2003, it is expected that the Hong Kong’s economy will benefit. Economists estimated that the 2005 GDP growth of Hong Kong would reach some 5% to 7% whilst mainland China economic growth would remain at 8% at the same time. Economists further estimated that the 2008 Olympic Games in Beijing would benefit the nation’s GDP by additional one per cent.

The Bank Cards in China and Hong Kong

In China, bank cards (i.e. credit cards and debit cards) continue to grow in popularity and have an issued numbers of 569 million as at June 2003 with a compound annual growth rate of 51% from 1996 to 2003. Industry analyst estimated that the volume of bank cards would grow to 1.79 billion at a transaction volume of RMB4,970 billion in 2007. However, there were some studies suggested that more than 50% of them were dormant in nature; with the introduction of annual fees to those debit cards in coming months, industry practitioners believed that the dormant percentage would be lower.

In Hong Kong, there were approximately 8.78 million credit cards issued at the fourth quarter of 2003, and it is expected that the number would remain stable for a period of time until the economy regain its power later this year.

− −94

VALUATION OF MING YUEN

APPENDIX IV

VALUATION PROCEDURES ADOPTED

In performing the appraisal of the Company, we have adopted the following procedures which were agreed with the management of DNA before the engagement. They are:

to prepare and submit a list(s) of required document and information regarding the operation of the Company during the course of valuation;
to read the supplied materials and based on the content of the materials such as product information, market information, financial information and the scale of the Company to arrive at our valuation;
to obtain the latest available management account of the Company on which to start the valuation;
to conduct a meeting with the Company’s personnel and to gather relevant information regarding the type of business, its operation and the assets of the Company;
to hold discussions with relevant personnel and to review various accounting and financial documents in order to understand the scope of their operations;
to obtain necessary industry and market information to support our opinion of value;
to value the Company by using the most appropriate standards of value; and,
to document our findings and conclusion in our appraisal report.

BASIS OF VALUATION

The business enterprise value of the Company is valued on the basis of “Fair Market Value” in continued use and as an ongoing concern. The continued use premise assumes that the subject asset will be used for the purpose for which the subject asset was conceived or is currently used. Implicit in this definition is the fact that a hypothetical willing and able buyer would not pay more to acquire the subject asset than he could reasonably expect to earn in the future from an investment in the subject asset.

− −95

VALUATION OF MING YUEN

APPENDIX IV

The valuation of the appraised asset required consideration of all pertinent factors affecting the operations of the business with the particular usage of the Technology and its ability to generate future investment returns. The factors considered in the appraisal included, but were not limited to, the following:

The nature of the Technology such as it’s life and characteristics;
The going-concern business of the Company;
The nature and the business of the Company’s agent(s);
Projected future economic income stream of the Company (by commercializing the Technology in China and Hong Kong) based on the assumptions made by the appointed personnel from the Company and it’s agent(s) subject to the planned promotion campaign to increase the market share of the Technology in China and Hong Kong;
The economic and industry data affecting the commercialization of the Technology under the planned operation of the Company’s agent(s) such as the number of subscribers of mobile communication devices and the wide acceptance of non-cash instant payment system in China and Hong Kong;
Market-derived investment returns of similar business; and,
The risks facing the Technology and the operation of the Company’s agent(s) under the license(s) such as the effective period of the patents in China and Hong Kong, the competence of relevant personnel and/or agents to monitor the promotion and marketing effort, the potential replacement of similar system (if any), and the need of in-process research and development of the existing Technology (if any).

APPROACHES TO VALUE

The valuation of a business enterprise, especially when it is a closely held company (like the Company) and its common stocks or preferred stocks are not traded on an exchange, is a complex exercise. In the process of valuing the appraised asset, we have first looked for sources of economic benefits to be contributed to the Company during its economic life. We are given to understand that the principal economic asset of the Company is its holding of a patent assignment assigned by the inventor of the Technology. Through this patent assignment, the Company has the exclusive right to commercialize the Technology in the PRC and Hong Kong. By employing this patent assignment, the Company could derive economic benefits from the commercialisation of the Technology.

In the process of valuation, we have considered the three generally accepted business enterprise appraisal approaches to value, namely the Market Approach, the Asset-based Approach and the Income Approach.

− −96

VALUATION OF MING YUEN

APPENDIX IV

Market Approach

The Market Approach is basically a comparison method to value a business enterprise by comparison to the prices at which other similar business nature companies or interests changed hands in arm’s-length transactions. The underlying theory of this approach is one would not pay more than one would have to pay for an equally desirable alternative. By using this approach, the valuer will first look for valuation indication from the prices of other similar companies or equity interests in companies that were sold recently. The right transactions used in analyzing for valuation indication need to be sold on an arm’s-length basis, assuming that the buyers and sellers are well informed and have no special motivations or compulsions to buy or to sell. Then, based on those transactions to derive multiples (i.e. financial ratios) to apply to the fundamental financial variables of the subject business enterprise and to arrive at an indicated value of the subject business enterprise. The most commonly used multiples are price-to-earnings, price-to-revenues and price-to-tangible book multiple.

There are two methods of the Market Approach, namely the Guideline Publicly Traded Company Method (by using similar company daily stock transaction prices) and the Guideline Merged and Acquired Company Method. Both methods need to rely on analyzing available similar transacted comparables, and the big difference is on the structure of transactions −daily stock transaction prices in public market or mergers and acquisitions as occurred. However, finding good market comparables is often difficult (particularly for those mergers and acquisitions) for there is no single marketplace where similar assets change hands between buyers and sellers, who are well informed and have no special motivations or compulsions to buy or to sell, are recorded.

To the best of our knowledge, there are only limited numbers of listed companies in the Stock Exchange of Hong Kong, through their subsidiaries, have similar nature of business lines (holder of exclusive technology rights) and form part of their businesses. However, we have reservation to use these companies as guideline companies for the different business model they operate (in terms of business segment, service area and service category) which will cause inadequate comparative analysis.

To the best of our knowledge, we are not aware that there had any merger and acquisition activities of similar business ventures in Hong Kong. We take the view that there might have been a number of merger and acquisition activities of similar business ventures in China and Hong Kong around the effective date of the appraisal, however, due to the imperfect nature of the market, details of the transactional data and the basis were not made available to the public.

Under such circumstances, we have not relied on the Market Approach in our estimate of the fair market value of the appraised asset due to insufficient supporting data (market-based transactional information, in this instance).

Asset-based Approach

When the business enterprise value of an asset rich business entity cannot be appraised by using one single approach to value, a valuer will consider the Asset-based

− −97

VALUATION OF MING YUEN

APPENDIX IV

Approach (also known as balance sheet restatement approach) as the appropriate approach to value since the earning power of the subject business enterprise is derived primarily from its existing assets.

The assumption of this approach is that when each of the elements of working capital, tangible and intangible assets is individually valued, their sum represents the value of a business enterprise and equals to the value of its invested capital (equity and long-term debt). In other words, the value of the business enterprise is represented by the money that has been collected to purchase the business assets needed. This money comes from investors who buy stocks of the business enterprise (equity) and investors who lend money to the business enterprise (debt). After collecting the total amounts of money from equity and debt, and converted into various types of assets of the business enterprise for its operations, their sum equals the value of the business enterprise.

From a valuation perspective, the valuer will restate the value of all types of assets of a business enterprise from book value i.e. historical cost minus depreciation to appropriate standards of value. After the restatement, the valuer can identify the indicated value of the business enterprise, or, by applying the accounting principle “assets minus liabilities” to arrive at the value of the equity interests of the business enterprise.

The Company is basically an investment holding company without any manufacturing assets, either direct or indirectly owned, and is therefore not a manufacturing firm. We consider its real asset is its holding of the patent assignment and is an intellectual property: information and technology know-how. It is difficult to assess the replacement cost of intellectual property and the value of the expertise used in developing this kind of intellectual property. Given that the Asset-based Approach does not take into consideration the stunning market potential and future growth of the Company’s business, its business model, and the impact of its management’s abilities. We, therefore, considered this approach as irrelevant.

Income Approach

The Income Approach focuses on the economic benefits generated by the incomeproducing capability of a business enterprise. The underlying theory of this approach is that the value of a business enterprise can be measured by the present worth of the economic benefits to be received over the useful life of the business enterprise. Based on this valuation principle, the Income Approach estimates the future economic benefits and discounts these benefits to its present value using a discount rate suitable for the risks associated with realizing those benefits. Alternatively, this can be calculated by capitalizing the economic benefits to be received in the next period at an appropriate capitalization rate. This is subject to the assumption that the business enterprise has been maintaining stable economic benefits and growth rate.

We considered this approach to be the most appropriate approach in valuing the appraised asset since a rational buyer normally will purchase an asset only if the present

− −98

VALUATION OF MING YUEN

APPENDIX IV

value of the expected economic benefits is at least equal to the purchase price. Likewise, a rational seller normally will not sell if the present value of the expected economic benefits is more than the selling price. Thus, a sale generally will occur only at an amount equal to the economic benefits of the business enterprise.

Valuation Methodology −the Yield Capitalization Method

In choosing the Income Approach as the most appropriate approach, we have used the Yield Capitalization Method to arrive at our opinion of value of the appraised asset. The Yield Capitalization Method, also known as the Discounted Cash Flow (“DCF”) Method, estimates the fair market value of the appraised asset by discounting the future cash flows (as advised, to be generated by commercializing the granted right i.e. the Technology) through out its economic life to its present value. This would necessitate the subtraction, from net income, the capital expenditures and net changes in working capital and the addition of depreciation in the computation of cash flow. DCF analysis reflects investment criteria and requires the valuer to make empirical and subjective assumptions.

We considered two variants of the DCF Method, namely the Free Cash Flows to Equity (“FCFE”) Technique and the Free Cash Flows to the Firm Technique (invested capital as a whole). The FCFE Technique values the Company by estimating the fair market value of the ownership interests (equity) of the Company. This technique requires that the firm’s interest expenses, if any, be excluded from the free cash flows and the resulting cash flows to be discounted at the relevant rate of return required by equity. This technique then equates the value of the ownership interests as the value of the enterprise. In our opinion, using the FCFE Technique is the most appropriate technique in valuing the Company, because the Company does not have any long-term debt (as advised) i.e. no other claimholders except the stockholder(s).

The projections of the future revenues are prepared by the appointed personnel of the Company and it’s agent(s), and they are responsible for the assumptions upon which the projections are based. Having discussed with the appointed personnel, we understood that the assumptions adopted by them reflect their judgment of their ability to promote and to commercialize the Technology. The projections are based on their view of the most likely action to be taken by the Company’s agent(s) in the commercialization of the Technology.

There are many ways to estimate the discount rate such as the Build-up Model, the Capital Asset Pricing Model, the Weighted Average of Cost of Capital and the Arbitrage Pricing Models. The use of the appropriate model in each analyze depends on numerous factors. There is no universal model that applies to all cases. In this engagement, we have considered the most common models, namely the Build-up Model, the Capital Asset Pricing Model and the Weighted Average Cost of Capital.

We considered the Weighted Average Cost of Capital Model is not the best model in this case as the Company is a debt-free entity. In our opinion, the appropriate model in estimating the discount rate is either the Capital Asset Pricing Model (“CAPM”) or the

− −99

VALUATION OF MING YUEN

APPENDIX IV

Build-up Model. Both models consider businesses, business interests, and business investments are a subset of the investment opportunities available in the total capital market; thus, the determination of the prices of businesses and the prices of other investment assets should be subject to the same economic forces and relationships. The only difference between the CAPM and the Build-up Model is the use of systematic risk i.e. the beta as a modifier to the general equity risk premium. In fact, portions of the size premium and specific industry risk have been captured in the systematic risk.

The Build-up Model comprises four components, namely a risk free rate, a general equity risk premium, a size premium and a specific company risk adjustment. And, the CAPM is built on the premise that the variance in returns is the appropriate measure of risk but only that portion of the variance of the returns of an asset that is not reduced by diversification has to be compensated, therefore the appropriate return required of an asset is determined by the volatility of the asset’s returns relative to the returns that can be achieved by a broad market portfolio. This measured nondiversifiable risk is represented by the beta of the asset and the risk premium of the asset is its beta multiplied to the risk premium of a broad market portfolio.

In our valuation, we have considered both CAPM and the Build-up Model in estimating the discount rate and, reconciled the discount rate under each model to an applied discount rate in this report.

Taking the industry and the global equity market into consideration, we have used the equity market of the National Association of Securities Dealers Automated Quotation Stock (“NASDAQ”) Market Index in the United States of America (the “U.S.”) as our representative market for: a) it is commonly agreed that the U.S. has a comparatively mature equity market than in Hong Kong and China, particularly the institutional holders ratio is higher than in Hong Kong and China; b) the U.S. has an advanced data processing technology industry than in Hong Kong and China; c) there are a large numbers of data processing technology developers listed in the NASDAQ Market for a long time and they can form a reliable representative industry portfolio than in Hong Kong and China; and, d) the exchange rate of Hong Kong dollars is pegged with the U.S. dollars which makes the two economies close to each other.

We have used the rate of return of NASDAQ Market Index (see Note) as the broad market portfolio return in our CAPM computations. It is our opinion that the NASDAQ Market Index rate of return represents the most reliable objective market rate of return to be used in valuing the Company’s equity, since this Index captures investors’ expectations, prevailing market conditions and the accompanying risks associated with these. The NASDAQ is heavy on technology stocks, including newer companies and recent IPOs, and firms provide products or services that have any strong similarity to or related to the Technology are listed in the NASDAQ. Examples of these companies are:

Note: Annual average compound return of NASDAQ National Market and NASDAQ SmallCap Market (including foreign securities but excluding preferred issues, rights and warrants).

−100 −

VALUATION OF MING YUEN

APPENDIX IV

Hi/Fn Inc., SafeNet Inc., SCM Microsystems, Inc., Secure Computing Corporation and Symantec Corporation. In the course of appraisal, we have used the majority of these firms to build a model of representative industry.

In addition to the NASDAQ Market Index return, to derive the required cost of equity in our valuation, we have added the country risk for Hong Kong and China in which the Company and it’s agent(s) operate. Majority of the representative companies are based and listed in the U. S., which has a more developed and liquid capital market than in Hong Kong and China, thus it is necessary to add the relevant country risk premium to the NASDAQ Market Index rate of return.

We have derived a proxy beta for the Company by deriving a representative industry beta based on a selected group of representative companies that have products strong similarity to or related to the Technology as mentioned above. In deriving a proxy beta for the business, we derived the betas of the representative companies and weighted these according to market capitalization to arrive at the proxy beta. The risk premiums of the Company were reached by multiplying the proxy beta to the difference between the rate of return of the NASDAQ Market Index and the risk-free rate.

For the estimation of long-term growth rate, we have made reference to the past growth of the data processing technology market, the expected growth trend of the bank cards in China and Hong Kong, and the China and Hong Kong’s economy (of which the Company and it’s agent(s) are operating) and the external environment as a whole.

Having considered the quantity and quality of available data, and each analyzed method in providing a valid indication of discount rate, we have, therefore, assigned an adjusted discount rate of approximately 16% in our computation.

VALUATION COMMENTS

In this appraisal, we are instructed to investigate and analyze the value of the appraised asset and to express an independent opinion of the fair market value of the entire equity interest of the Company, subject to it’s Memorandum and Articles of Association, as at the effective date of the appraisal.

By definition, ownership interests in closely held companies are typically not readily marketable, and, by definition not as liquid and as easily converted to cash compared to similar interests in public companies. Therefore, a share of stock in a closely held company is usually worth less than an otherwise comparable share in a publicly held company. Numerous studies have been made showing that the Lack of Marketability (“LOM”) discount for a closely held stock compared with a publicly traded counterpart averages between 20% and 50%, and many different researchers have obtained these averages over a wide span of years. We have opted to apply a LOM discount to the appraised asset for the limitation of transfer of shares of the Company, and the directors of the Company or the shareholders have discretionary power to reject any registration of transfer of shares under the Company’s Memorandum and Articles of Association. We then applied a discount of, say 35% in our valuation.

−101 −

VALUATION OF MING YUEN

APPENDIX IV

OTHER COMMENTS AND CAVEATS

We understand that the management of DNA will use our work product as part of its business diligence and we have not been engaged to make specific purchase or sale recommendations. We further understand that the management of DNA will not rely solely on our work, and that the use of our work product will not supplant other due diligence which the management of DNA should conduct in reaching its business decision. Our work is designed solely to provide information that will allow the management of DNA to make an informed decision.

Title and the licence rights to the Company are assumed to be good and marketable. In the course of appraisal, we have assumed that the appraised asset of the Company, being valued in our appraisal is freely disposable and transferable in the market to both local and overseas purchasers without payment of any premium to the government.

No investigation has been made to the legal title, licence rights or any liabilities attached to the Company. All legal documents disclosed (if any) are for reference only and no responsibility is assumed for any legal matters concerning the legal title to the Company and the licence rights. We have not verified the original documents (if any) presented to us. Any responsibility for our misinterpretation of the documents, therefore, cannot be accepted. We are not attorney in nature, therefore, we are not in the position to advise and comment on the title and encumbrances to the Company and the licence rights.

For the purpose of this appraisal, we were furnished with unaudited financial statements and other documents germane to the appraisal by the management of the Company. We have utilized the data provided without further verification and make allowance for any change of industry, market, business model or the management of the Company. We have had no reason to doubt the truth and accuracy of the information that we have been furnished. No responsibility is assumed for the accuracy of such information.

We were, also, furnished with various copies of documents related to this appraisal. These copies have been referenced without further verifying with the relevant bodies and/or authorities. We need to state that we are not attorney in nature, therefore, we are not in the position to advise and comment on the legality and effectiveness of the documents provided by the management of the Company. No responsibility is assumed.

In arriving at our opinion, we have assumed that the management of the Company and it’s agent(s) have adopted reasonable and necessary security measures and have considered several contingency plans against any disruption to the operation of the business and to protect the Technology against any infringement of the patents.

We are not contracted to conduct a due diligence to review the existing on-line transaction policy together with banking and financial policies in China and Hong Kong. In the course of appraisal, we have solely depended on the advice given by the management of the Company. We are unable to accept any responsibility for the reliability of the advice.

−102 −

VALUATION OF MING YUEN

APPENDIX IV

When we adopted the work products from other professions and the management of the Company in our valuation, the assumptions and caveats that adopted by them in arriving at their figures also applied in our valuation. The procedures we have taken do not provide all the evidence that would be required in an audit and, as we have not performed an audit, accordingly, we do not express an audit opinion.

Our procedures did not include undertaking a feasibility study of any future expansion of the Company (if any). Accordingly we do not express an opinion as to the merit or demerit of any future expansion (if any).

To the best of our knowledge, all data set forth in this report are true and accurate. Although gathered from sources we deem reliable, no guarantee is made nor liability assumed for the accuracy of any data, opinions, or estimates identified as being furnished by others which have been used in formulating this report.

We are unable to accept any responsibility for the information that has not been supplied to us by the respective management of the Company and DNA. We have sought and received confirmation from the respective management of the Company and DNA that no material factors have been omitted from the information supplied. Our analysis and appraisal are based upon full disclosure between us and the respective management of the Company and DNA of material and latent facts that may affect the appraisal.

No allowance has been made in our valuation for any expenses or taxation, which may be incurred in effecting a sale of the appraised asset of the Company. It is assumed that the appraised asset of the Company will be rendered free from encumbrances, restrictions and outgoings of any onerous nature, which could affect its value.

Our opinion of the value in this report is valid only for the stated purpose and only for the effective date of the appraisal. No responsibility is taken for changes in market conditions and no obligation is assumed to revise this report to reflect events or change of government policy or financial condition or other conditions, which occur subsequent to the date hereof.

This report is provided strictly for the sole use of DNA. Neither the whole nor any part of this report or any reference hereto may be included in any published document, circular or statement, or published in any way, without our written approval of the form and context in which it may appear. Nonetheless, we consent to the circulation of this report to DNA’s shareholders.

Unless otherwise stated, the base currency of this report is Hong Kong Dollars, the adopted exchange rate was the prevailing rate as at 6 April 2004, being RMB1.06 per HK$1 and no significant fluctuation in exchange rate has been found between that date and the date of this report.

Our valuation is prepared in line with the ethics and guidelines as contained in the International Valuation Standards issued by the International Valuation Standards

− −103

VALUATION OF MING YUEN

APPENDIX IV

Committee and have been made in conformity with the Uniform Standards of Professional Appraisal Practice of the Appraisal Foundation. The valuation has been undertaken by valuer, acting as external valuer, qualified for the purpose of the valuation.

Neither us nor any individuals signing or associated with this report shall be required by reason of this report to give further consultation, testimony, or appear in court or other legal proceedings, unless prior specific arrangements have been made.

Our maximum liability relating to services rendered under this report (regardless of form of action, whether in contract, negligence or otherwise) shall be limited to the charges paid to us for the portion of its services or work products giving rise to liability. In no event shall we be liable for consequential, special, incidental or punitive loss, damage or expense (including without limitation, lost profits, opportunity costs, etc.), even if it has been advised of their possible existence.

DNA is required to indemnify and hold us harmless and our personnel from any claims, liabilities, costs and expenses (including, without limitation, attorney’s fees and the time of our personnel involved) brought against, paid or incurred by us at a time and in any way based on the information made available in connection with our work product except to the extent any such loses, expenses, damages or liabilities are ultimately determined to be the result of gross negligence of our engagement team in conducting its work. This provision shall survive even after the termination of this engagement for any reason.

OPINION OF VALUE

Based on the above, and on the appraisal method employed, it is our opinion that as of the effective date of the appraisal, the fair market value of the entire equity interest of the Company (before taking into consideration any transaction cost) is reasonably stated by the amount of HONG KONG DOLLARS ONE HUNDRED AND TWENTY EIGHT MILLION ONLY (HK$128,000,000.00).

The conclusion of value is based on the generally accepted appraisal procedures and practices that rely extensively on assumptions and considerations, not all of which can be easily quantified or ascertained exactly. The Technology is in the preliminary stage of commercialization with limited financial and operation record, thus a range of values may be attributed to the Company depending upon the assumptions made. While we have exercised our professional judgment in arriving at the appraisal, the readers are urged to consider carefully the nature of such assumptions which are disclosed in this report and should exercise caution in interpreting this report.

We retain a copy of this report in our files, together with the data from which it was prepared except the technical data of the Technology which already returned to the management of DNA in accordance with our confidentiality agreement. We considered these records confidential, and we do not permit access to them by anyone without your authorization and prior arrangement made with us. Moreover, we will add DNA into our client list for our future reference.

−104 −

VALUATION OF MING YUEN

APPENDIX IV

We hereby certify that the fee for this service is not contingent upon our conclusion of value and we have neither present nor prospective interest in the Company, DNA and the value reported.

Yours faithfully, For and on behalf of

LCH (Asia-Pacific) Surveyors Limited Ho Chin Choi, Joseph BSc MRICS Managing Director

Mr. Joseph Ho Chin Choi has been conducting asset valuations and advisory work in Hong Kong, Macau, Taiwan, mainland China, South East Asia, Finland, Canada and the United States of America for various purposes since 1988. He obtained the Examination Certificate of the Uniform Standards of Professional Appraisal Practice issued by the American Society of Appraisers in 1996. He has extensive experience in the valuation of power plants, toll road, health products and foodstuffs, pharmaceutical and biotechnology, electronic consumer products manufactory, telecommunication, media and information technology related businesses for the listed companies in Hong Kong, Canada and the United States of America.

−105 −

SUMMARY OF THE PRINCIPAL TERMS OF THE NEW BYE-LAWS

APPENDIX V

The four major amendments reflected in the New Bye-Laws are summarised below:

1. SUMMARY FINANCIAL STATEMENT

On 4 January, 2002, Companies (Amendment) Ordinance 2001 came into force in Hong Kong which permits companies to offer shareholders the option to elect to receive, in place of the long form report, a summary financial report. Subsequently, the Stock Exchange on 17 February, 2002 announced amendments to the Listing Rules to permit listed companies to distribute summary financial report in place of the long form report, provided that they have ascertained the wishes of the shareholders and comply with the relevant legal requirements of their own place of incorporation and provisions of their constitutional documents. Furthermore, the Companies Act 1981 of Bermuda (as amended) (the “Act”) was amended with effect on 14 February, 2003 to allow for the sending of summarised financial statements subject to the provisions set out in the Act.

The New Bye-Law 162 will enable the Company to send summarized financial statements to shareholders of the Company who have consented and elected to receive summarized financial statements instead of full financial statements subject to the requirements of the Act and the Listing Rules. The summarized financial statements must be accompanied by an auditor’s report and notice informing the shareholder how to notify the Company that he elects to receive the full financial statements. The summarized financial statements, notice and auditor’s report must be sent not less than twenty-one days before the general meeting to those shareholders that consented and elected to receive the summarized.

2. ELECTRONIC CORPORATE COMMUNICATION

On 5 February, 2002 the Stock Exchange announced amendments to the Listing Rules which came into effect on 15 February, 2002. The amendments permit listed companies to send or otherwise make available corporate communication to shareholders by electronic means with their prior approval subject to relevant legal requirements of their own place of incorporation and provisions of their constitutional documents.

The New Bye-Laws 167 and 169 provide that a notice or document to be served or delivered by the Company to any shareholder by electronic means to such address as may from time to time be authorised by the shareholder concerned or by publishing it on a computer network and notifying the shareholder concerned, in such manner as he may from time to time authorise, that it has been so published. Any notice or document, if sent by electronic means (including through any relevant system), shall be deemed to be have been given on the day following that on which the electronic communication was sent by or on behalf of the Company. And any notice or document posted on a computer network shall be deemed to have been served or delivered on the day it was so published or posted.

−106 −

SUMMARY OF THE PRINCIPAL TERMS OF THE NEW BYE-LAWS

APPENDIX V

3. SECURITIES AND FUTURES ORDINANCE CHANGES

With the coming into effect of the Securities and Futures Ordinance on 1 April, 2003, the Securities and Futures (Clearing Houses) Ordinance (Chapter 420 of the Laws of Hong Kong) (the “repealed Ordinance”) was repealed. The definition of “Clearing House” has been amended to make reference to this new ordinance.

4. APPENDIX 3 TO THE LISTING RULES CHANGES

On 30 January, 2004, the Stock Exchange announced that subject to certain transitional arrangements, the proposed amendments to the Listing Rules relating to corporate governance issues took effect on 31 March, 2004.

Resulting from the amendment of Appendix 3 to the Listing Rules, the following new provisions are incorporated into the New Bye-Laws:

(i) Bye-Law 103 provides for the minimum seven-day period for lodgment by shareholders of the notice to nominate a director shall commence no earlier than the day after the despatch of the notice of the meeting appointed for such election and end no later than seven days before the date of such meeting;
(ii) Bye-Law 98(H) provides that a director of the Company shall not vote on any board resolution approving any contract or arrangement or any other proposal in which he or any of his associates has/have a material interest nor shall he be counted towards the quorum of the relevant board meeting with the exception of the following:
(i) the giving of any security or indemnity either:
- (a) to the Director or his associate(s) in respect of money lent or obligations incurred or undertaken by him or any of them at the request of or for the benefit of the Company or any of its subsidiaries; or
- (b) to a third party in respect of a debt or obligation of the Company or any of its subsidiaries for which the Director or his associate(s) has himself/themselves assumed responsibility in whole or in part and whether alone or jointly under a guarantee or indemnity or by the giving of security;
(ii) any proposal concerning an offer of shares or debentures or other securities of or by the Company or any other company which the Company may promote or be interested in for subscription or purchase where the Director or his associate(s) is/are or is/are to be interested as a participant in the underwriting or sub-underwriting of the offer;

−107 −

SUMMARY OF THE PRINCIPAL TERMS OF THE NEW BYE-LAWS

APPENDIX V

(iii) any proposal concerning any other company in which the Director or his associate(s) is/are interested only, whether directly or indirectly, as an officer or executive or shareholder or in which the Director or his associate(s) is/are beneficially interested in shares of that company, provided that the Director and any of his associates are not in aggregate beneficially interested in 5% or more of the issued shares of any class of such company (or of any third company through which his interest or that of his associate(s) is derived) or of the voting rights;
(iv) any proposal or arrangement concerning the benefit of employees of the Company or its subsidiaries including:
- (a) the adoption, modification or operation of any employees’ share scheme or any share incentive or share option scheme under which the Director or his associate(s) may benefit; or
- (b) the adoption, modification or operation of a pension fund or retirement, death or disability benefits scheme which relates both to Directors, his associates and employees of the Company or any of its subsidiaries and does not provide in respect of any Director or his associate(s), as such any privilege or advantage not generally accorded to the class of persons to which such scheme or fund relates; and
(v) any contract or arrangement in which the Director or his associate(s) is/are interested in the same manner as other holders of shares or debentures or other securities of the Company by virtue only of his/their interest in shares or debentures or other securities of the Company; and
(iii) Bye-Law 76A provides that where any shareholder is, under the Listing Rules, required to abstain from voting on any particular resolution or restricted to voting only for or only against any particular resolution, any votes cast by or on behalf of such shareholder in contravention of such requirement or restriction shall not be counted.

The New Bye-Law 98 on director’s interest will also contain new provisions including the following:

Where arrangements are under consideration concerning the appointment (including the arrangement or variation of the terms thereof, or the termination thereof) of two or more Directors to offices or places of profit with the Company or any other company in which the Company is interested, a separate resolution may be put in relation to each Director and in such case each of the Directors concerned shall be entitled to vote (and be counted in the quorum) in respect of each resolution except that concerning his own appointment (or

−108 −

SUMMARY OF THE PRINCIPAL TERMS OF THE NEW BYE-LAWS

APPENDIX V

the arrangement or variation of the terms thereof, or the termination thereof) and except (in the case of an office or place of profit with any such other company as aforesaid) where the other company is a company in which the Director together with any of his associates owns 5 per cent. or more of the issued shares of any class of the equity share capital of such company or of the voting rights of any class of shares of such company;

A company shall be deemed to be a company in which a Director together with any of his associates owns five (5) per cent. or more of the issued shares of any class of the equity share capital of such company or of the voting rights of any class of shares of such company if and so long as (but only if and so long as) he together with his associates is (either directly or indirectly) the holder of or beneficially interested in five (5) per cent. or more of any class of the equity share capital of such company (or of any third company through which his interest is derived) or of the voting rights of any class of shares available to shareholders of the company. For the purpose of this paragraph there shall be disregarded any shares held by a Director as bare or custodian trustee and in which he has no beneficial interest, any shares comprised in a trust in which the Director’s interest is in reversion or remainder if and so long as some other person is entitled to receive the income thereof, and any shares comprised in an authorised unit trust scheme in which the Director is interested only as a unit holder; and
Where a company in which a Director together with any of his associates holds five (5) per cent. or more of any class of the equity share capital of such company or of the voting rights of any class of shares available to shareholders of the company is materially interested in a transaction, then that Director shall also be deemed materially interested in such transaction.

− −109

GENERAL INFORMATION

APPENDIX VI

RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquires, that to the best of their knowledge and belief there are no other facts the omission of which would make any statement herein misleading.

SHARE CAPITAL

(a) Ordinary shares

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

Authorised:		HK$
60,000,000,000	shares of HK$0.01 each	600,000,000
_Issued and fully _	paid or credited as fully paid:
9,531,800,165	shares of HK$0.01 each	95,318,002

Based on the issued capital as at the Latest Practicable Date and upon issue of new shares of the Company, on full conversion of the convertible loan note (based on a conversion price of HK$0.08 per share) and full exercise of the share options as set out in subsection 2.(b) below, the issued share capital will be:

9,531,800,165 shares as at the Latest Practicable Date 862,500,000 shares to be issued on full conversion of the convertible loan note 182,306,250 shares to be issued on full exercise of the share options 10,576,606,415	95,318,002 8,625,000 1,823,062
	105,766,064

All of the above shares rank pari passu in all aspects, including all rights as to dividend, voting and interests in capital, among themselves and with all other shares in issue on the date of issue.

−110 −

GENERAL INFORMATION

APPENDIX VI

(b) Share options

As at the Latest Practicable Date, there were 182,306,250 outstanding share options entitling holders thereof to subscribe for in aggregate 182,306,250 new shares of the Company, representing about 1.91% of the existing issued share capital. The share options were granted under the share option scheme granted adopted on 11 April, 1994 but expired on 11 April, 2004 pursuant to the terms thereof. Each option gives the holder the right to subscribe for 1 share of the Company. Details of these outstanding share options are as follows:

Name of			Number of
option	Subscription		outstanding
holders	price	Exercise period	share options
Ho Kit Yan	HK$0.4	2001/9/1 to 2004/8/31	50,000
Hu Shek Mo	HK$0.0127	2003/12/2 to 2005/12/1	300,000
Tam Pui Ling	HK$0.4	2001/8/2 to 2004/8/1	256,250
	HK$0.4	2001/9/1 to 2004/8/31	50,000
Wang Zhao Bin	HK$0.0386	2002/10/30 to 2004/10/29	52,000,000
	HK$0.0366	2002/11/4 to 2004/11/3	30,000,000
Wong Kam Fu	HK$0.0386	2002/10/30 to 2004/10/29	100,000,000
			182,656,250

−111 −

GENERAL INFORMATION

APPENDIX VI

DISCLOSURE OF INTERESTS

(a) Directors’ interests

As at the Latest Practicable Date, the interests and short positions of the Directors and the chief executive of the Company in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO), which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO), or which were required to be recorded in the register maintained by the Company pursuant to Section 352 of the SFO, or which were otherwise required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies, were as follows:

Long positions in shares and share options of the Company

(i) Ordinary shares of HK$0.01 each

Number of issued ordinary shares held Approximate percentage of the issued share capital 3,046,491,543 32.0% 29,000,000 0.3%	Number of issued ordinary shares held Approximate percentage of the issued share capital 3,046,491,543 32.0% 29,000,000 0.3%	Number of issued ordinary shares held Approximate percentage of the issued share capital 3,046,491,543 32.0% 29,000,000 0.3%
3,075,491,543 145,000,000 10,000,000		32.3% 1.52% 0.11%
3,230,491,543 Number of options held 100,000,000 82,000,000 182,000,000	33.93% Number of underlying shares 100,000,000 82,000,000	33.93%

	182,000,000

−112 −

GENERAL INFORMATION

APPENDIX VI

Note: These interest includes 2,178,516,543 shares were held by Sheung Hai Developments Limited (“Sheung Hai”), 5,475,000 shares were held by Super Biotech Enterprises Limited (“Super Biotech”) and 862,500,000 shares which may fall to be issued pursuant to the exercise in full of the conversion rights attached to the conversion loan note, to be issued by the Company to Alpha Logistics Group Limited (“Alpha Logistics”) upon Completion. As each of Sheung Hai, Super Biotech and Alpha Logistics is wholly and beneficially owned by Mr. Wong, he is deemed to be interested in all such shares and underlying shares by these companies by virtue of the SFO.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors are aware that they have any interests or short positions in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which are required and are due to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they are deemed or taken to have under such provisions of the SFO) or which are required, pursuant to section 352 of the SFO to be entered in the register referred to therein or which are required and are due, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies, to be notified to the Company and the Stock Exchange.

As at the Latest Practicable Date, none of the Directors is materially interested in any contract or arrangement subsisting which is significant in relation to the business of the Group, save and except as follows:

(a) Mr. Wong is the holder of the outstanding convertible note issued pursuant to the subscription agreement dated 26 September, 2002 entered into between the Company and Ming Yuen (being one of the material contracts referred to in paragraph (b) in the section headed “Material contracts” below);
(b) Mr. Wong is a party to the shareholders’ agreement dated 26 September, 2002 entered into between the Company, Ming Yuen and Mr. Wong (being one of the material contracts referred to in paragraph (c) in the section headed “Material contracts” below); and
(c) Mr. Wong is interested indirectly in the patent licence agreement dated 26 September, 2002 entered into between the Company and Ming Yuen (being one of the material contracts referred to in paragraph (d) in the section headed “Material contracts” below) by virtue of his equity interest in Ming Yuen prior to Completion.

As at the Latest Practicable Date, Altus, Deloitte Touche Tohmatsu and LCH (Asia-Pacific) Surveyors Limited are not beneficially interested in the share capital of any member of the Group and did not have any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

As at the Latest Practicable Date, none of the Directors, Altus, Deloitte Touche Tohmatsu or LCH (Asia-Pacific) Surveyors Limited had any direct or indirect interest in any asset which had been acquired, or disposed of by, or leased to any member of the Group, or was proposed to be acquired, or disposed of by, or leased to any member of the Group, since 30 June, 2003, the date to which the latest published audited financial statements of the Group were made up.

− −113

GENERAL INFORMATION

APPENDIX VI

(b) Substantial shareholders

As at the Latest Practicable Date, the register of substantial shareholders maintained by the Company pursuant to Section 336 of the SFO shows that other than the interests disclosed above in respect of certain Directors, the following shareholders had notified the Company of relevant interests and short positions in the shares and/or underlying shares of the Company.

Long positions in shares of the Company

		Approximate
	Number of	percentage of
	issued ordinary	the issued
Name of shareholders	shares held	share capital
Mr. Wong (Note a)	3,175,491,543	33.3%
The Hong Kong Beijing Finance
and Investment Limited	1,020,000,000	10.7%
Mr. Lam Ching Kui (Note b)	1,015,186,000	10.7%
Ms. Chan Oi Mo (Note b)	1,015,186,000	10.7%
Mr. Yim Sang	551,548,000	5.79%

Notes:

a. Of the interests of Mr. Wong, 2,178,516,543 shares in the Company are held by Sheung Hai Developments Limited (“Sheung Hai”), 5,475,000 shares in the Company are held by Super Biotech Enterprises Limited (“Super Biotech”), and 862,500,000 shares which may fall to be issued pursuant to the exercise in full of the conversion rights attached to the conversion loan note, to be issued by the Company to Alpha Logistics Group Limited (“Alpha Logistics”) upon Completion. As each of Sheung Hai, Super Biotech and Alpha Logistics wholly and beneficially owned by Mr. Wong, he is deemed to be interested in all such shares and underlying shares by these companies by virtue of the SFO.

In addition, these interests include the 29,000,000 shares held by Mr. Wong personally and the 100,000,000 shares which may fall to issued by the Company upon the exercise in full of the share option held by Mr. Wong.

b. Of the interests of Mr. Lam Ching Kui (“Mr. Lam”), 265,178,000 shares in the Company are held by Chinese Success Limited (“Chinese Success”), and 750,008,000 shares are held by Mr. Lam personally. Chinese Success is wholly and beneficially owned by Mr. Lam. Ms. Chan Oi Mo is deemed to be interested in all the shares for which Mr. Lam is interested by virtue of the SFO.

Save as disclosed above and so far as is known to the Directors, there is no person known to the Directors who, as at the Latest Practicable Date, had an interest or short position in the shares and underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or, was, directly or indirectly, interested in 5% or more of the nominal value of the issued share capital carrying rights to vote in all circumstances at general meeting of any other member of the Group, or under any option.

−114 −

GENERAL INFORMATION

APPENDIX VI

DIRECTORS’ SERVICE CONTRACTS

No Director has any existing or proposed service contract with any member of the Group which is not expiring or terminable by the relevant employer within one year without payment of compensation, other than normal statutory compensation.

EXPERTS’ QUALIFICATIONS AND CONSENTS

The following are the qualifications of the experts who have provided their advice, reports and valuations as the case may be, which are contained in this circular:

Name	Qualifications
Altus Capital Limited	A deemed licenced corporation under the SFO
Deloitte Touche Tohmatsu	Certified Public Accountants
LCH (Asia-Pacific) Surveyors	Chartered Surveyors
Limited

Each of Altus, Deloitte Touche Tohmatsu and LCH (Asia-Pacific) Surveyors Limited has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letters and the references to its name in the form and context in which it appears.

LITIGATION

As at the Latest Practicable Date, to the best knowledge of the Directors, neither the Company nor any of its subsidiaries was engaged in any litigation or claims which was in the opinion of the Directors of material importance and no litigation or claims which was in the opinion of the Directors of material importance was known to the Directors to be pending or threatened by or against any member of the Group.

MATERIAL CONTRACTS

As at the Latest Practicable Date, the following contracts (not being contracts entered into in the ordinary course of business and save for the Sale and Purchase Agreement) were entered into by members of the Group within the two years immediately preceding the date of this circular and are, or may be, material:

(a) a subscription agreement dated 10 July, 2002 entered into between Star Cyber DNA Limited (a wholly owned subsidiary of the Company) and W-Phone Inc. for subscribing 422,222 new series C1 preference shares of W-Phone Inc. for a total consideration of US$633,333 (equivalent to about HK$4,939,997) to be satisfied by Star Cyber DNA Limited procuring the Company to issue to W-Phone Inc. 38,000,000 new shares, credited as fully paid at HK$0.13 each;

−115 −

GENERAL INFORMATION

APPENDIX VI

(b) a subscription agreement dated 26 September, 2002 entered into between the Company and Ming Yuen whereby Ming Yuen agreed to issue a 30 per cent. equity interest in Ming Yuen for a consideration of HK$30 million payable by the issue of a promissory note by the Company;
(c) a shareholders’ agreement dated 26 September, 2002 entered into between the Company, Ming Yuen and Mr. Wong governing the relationship between the Company and Mr. Wong as shareholders of Ming Yuen;
(d) a patent licence agreement dated 26 September, 2002 entered into between the Company and Ming Yuen pursuant to which Ming Yuen as licensor has granted to the Company as licensee an exclusive licence in respect of the Patents for an initial term ending 31 January, 2006, renewal upon agreement, in consideration of the Company paying or procuring to pay a royalty being 15 per cent. of the gross revenue derived from the licenced technology thereunder;
(e) a subscription agreement dated 2 June, 2003 entered into between the Company and Ming Sang Finance Limited (“Ming Sang”) in respect of the subscription by Ming Sang of a convertible bond in a principal amount of HK$10,000,000 at a cash consideration of HK$10,000,000;
(f) a subscription agreement dated 10 June, 2003 relating to the subscription for 193,934,000 new shares in the capital of the Company by Mr. Ng Chi Shing at a cash consideration of HK$0.016 per share, representing a total consideration of HK$3,102,944;
(g) a subscription agreement dated 20 October, 2003 relating to the subscription for 200,000,000 new shares in the capital of the Company by Mr. Leung Pun Yam at a cash consideration of HK$0.016 per share, representing a total consideration of HK$3,200,000;
(h) a subscription agreement dated 12 November, 2003 relating to the subscription for 300,000,000 new shares in the capital of the Company by Mr. Liu Chak Wan at a cash consideration of HK$0.016 per share, representing a total consideration of HK$4,800,000; and
(i) a subscription agreement dated 12 November, 2003 relating to the subscription for 100,000,000 new shares in the capital of the Company by Ms. Law Sau Fan at a cash consideration of HK$0.016 per share, representing a total consideration of HK$1,600,000.

Save for the material contracts described in (c) and (d) above, the material contracts disclosed in this section have been completed. The Company has complied with the relevant requirements of the Listing Rules when each of the above material contracts was entered into.

−116 −

GENERAL INFORMATION

APPENDIX VI

GENERAL

(a) The registered office of the Company is at Canon’s Court, 22 Victoria Street, Hamilton HM 12, Bermuda. The head office and principal place of business of the Company is at 11/F., Tai Sang Bank Building, 130-132 Des Voeux Road Central, Hong Kong. The branch share registrar and transfer office of the Company in Hong Kong is Secretaries Limited of 5th Floor, Wing On Centre, 111 Connaught Road Central, Hong Kong.
(b) The secretary of the Company is Ms. Tam Pui Ling, Elaine, who is an associate member of the Institute of Chartered Secretaries and Administrators and the Hong Kong Institute of Company Secretaries.
(c) The qualified accountant of the Company is Mr. Lee Ho Yip, Andy, who is a member of CPA of Australia (as required under the Listing Rules).
(d) The English text of this circular and the accompanying form of proxy shall prevail over their respective Chinese text in case of any inconsistency.

DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during business hours at the head office and principal place of business of the Company at 11/F., Tai Sang Bank Building, 130-132 Des Voeux Road Central, Hong Kong from the date of this circular up to and including the date of the Special General Meeting:

(a) the memorandum of association of the Company and the Existing Bye-Laws;
(b) the Sale and Purchase Agreement;
(c) the letter from the Independent Board Committee dated 13 May, 2004, the text of which is set out on pages 15 to 16 of this circular;
(d) the letter of advice from Altus dated 13 May, 2004, the text of which is set out on pages 17 to 27 of this circular;
(e) the accountants’ report regarding Ming Yuen issued by Deloitte Touche Tohmatsu, the text of which is set out in Appendix I of this circular;
(f) the letter regarding the valuation of the entire equity interest of Ming Yuen, the text of which is set out in Appendix IV of this circular;
(g) the written consents referred to in this appendix;

−117 −

GENERAL INFORMATION

APPENDIX VI

(h) the annual reports of the Group for the two years ended 30 June, 2003;
(i) the interim report of the Company for the six months ended 31 December, 2003;
(j) the material contracts referred to in this appendix; and
(k) the draft New Bye-Laws.

−118 −

NOTICE OF THE SPECIAL GENERAL MEETING

==> picture [303 x 121] intentionally omitted <==

(Incorporated in Bermuda with limited liability)

(Stock Code: 1051)

NOTICE IS HEREBY GIVEN that a special general meeting of Credit Card DNA Security System (Holdings) Limited (the “Company”) will be held at 10:00 a.m. on Tuesday, 8 June, 2004 at Gloucester Room, 2nd Floor, Mandarin Oriental Hong Kong, 5 Connaught Road, Central, Hong Kong for the purpose of considering and, if thought fit, passing the following resolutions as ordinary resolutions and/or special resolution (as the case may be):

ORDINARY RESOLUTIONS

“ THAT the conditional sale and purchase agreement (the “ Acquisition Agreement ”) dated 6 April, 2004 entered into between the Company as purchaser and Mr. Wong Kam Fu (“ Mr. Wong ”) as vendor relating to the acquisition (the “ Acquisition ”) of seven (7) shares (the “ Sale Shares ”) of US$1.00 each in the share capital of Ming Yuen Assets Limited (“ Ming Yuen ”) by the Company, representing 70 per cent. of the issued share capital of Ming Yuen (a copy of which has been produced at this meeting marked “A” and initialled by the chairman of this meeting for the purpose of identification) be and the same is hereby approved, confirmed and ratified and that all the transactions contemplated thereunder, including without limitation and among other things, the execution of:
(i) the convertible loan note (the “ Convertible Note ”) in an aggregated amount of HK$69,000,000 to be issued by the Company for the purpose of settling part of the consideration of the Sale Shares;
(ii) the deed of novation (the “ Novation Deed ”) to be made by and among Mr. Wong, the Company and Ming Yuen pursuant to which the Company shall assume the obligations and liabilities of an aggregate amount of HK$14,000,000 owing to Ming Yuen by Mr. Wong;
(iii) the deed of indemnity (the “ Tax Indemnity ”) to be made by and among Mr. Wong, the Company and Ming Yuen in relation to, among other things, taxation falling on the Company; and
(iv) the deed of termination (the “ Termination Deed ”) to be made by and among Mr. Wong, the Company and Ming Yuen for the purpose of terminating the shareholders’ agreement dated 26 September, 2004 entered into by the same parties,
The Chinese name is for identification purpose only

− −119

NOTICE OF THE SPECIAL GENERAL MEETING

(a copy of each of the Convertible Note, the Novation Deed, the Tax Indemnity and the Termination Deed has been produced at this meeting marked “ B ”, “ C ”, “ D ” and “ E ” respectively and initialled by the chairman of this meeting for the purpose of identification) be and the same are hereby approved and that any one director of the Company be and he/she is hereby authorised to do or execute for and on behalf of the Company all such acts or such other documents by hand or, in the case of execution of documents under seal, to do so jointly for and on behalf of the Company with either the secretary or a second director of the Company which in his/her or their opinion may be necessary, appropriate, desirable or expedient for the implementation, completion and the giving effect of the transactions contemplated in the Acquisition Agreement, the Convertible Note, the Novation Deed, the Tax Indemnity and the Termination Deed and all other matters incidental thereto or in connection therewith and to agree to variation and the waiver of all matters relating thereto are, in the opinion of any one director of the Company, not material to transactions contemplated thereby and are in the best interests of the Company.”

“THAT conditional upon (i) the passing of Resolution No. 1 and (ii) the Listing Committee of The Stock Exchange of Hong Kong Limited granting or agreeing to grant the listing of and permission to deal in the shares of HK$0.01 each in the share capital of the Company which may fall to be issued and allotted (collectively the “ Conversion Shares ”) pursuant to the exercise of the conversion rights attached to the Convertible Note (as defined in the Resolution No. 1), the issue and allotment of the Conversion Shares be and the same is hereby generally and unconditionally approved; that the Conversion Shares, when issued and allotted, rank pari passu in all respects among themselves and with all other shares of the Company in issue on the date of issue and allotment; and that any one director of the Company be and he/she is hereby authorised to do or execute for and on behalf of the Company all such acts or such other documents by hand or, in the case of execution of documents under seal, to do so jointly for and on behalf of the Company with either the secretary or a second director of the Company which in his/her or their opinion may be necessary, appropriate, desirable or expedient for the implementation, completion and the giving effect of the transactions contemplated in the issue and allotment of the Conversion Shares and in connection therewith.”

−120 −

NOTICE OF THE SPECIAL GENERAL MEETING

SPECIAL RESOLUTION

“ THAT the set of the new bye-laws of the Company (a copy of which has been produced at this meeting marked “ F ” and initialled by the chairman of this meeting for the purpose of identification) be and the same is hereby approved and adopted as the new bye-laws of the Company in substitution for and as a replacement for the Existing Bye-Laws of the Company in effect prior to the passing of this resolution and that the directors to the Company be and they are hereby authorized to do all such acts, deeds and things as they shall, in their absolute discretion, deem fit to effect the foregoing.”

By Order of the Board Tam Pui Ling, Elaine Company Secretary

Hong Kong, 13 May, 2004

Notes:

Any member of the Company entitled to attend and vote at the meeting to be convened by the above notice is entitled to appoint one or more proxies to attend and, on a poll, vote in his stead. A proxy need not be a member of the Company.
A form of proxy in respect of the special general meeting is enclosed. Whether or not you intend to attend the meeting in person, you are requested to duly complete, sign and return the form of proxy in accordance with the instructions printed thereon.
To be valid, the form of proxy, together with any power of attorney or other authority (if any) under which it is signed or a notarially certified copy of that power of attorney or authority must be lodged at the head office and principal place of business in Hong Kong of the Company at 11th Floor, Tai Sang Bank Building, 130-132 Des Voeux Road Central, Hong Kong, not less than 48 hours before the time appointed for the meeting or adjourned meeting.
Where there are joint registered holders of any share of the Company, any one of such holders may vote at the meeting either personally or by proxy in respect of such share as if he was solely entitled thereto, but if more than one of such holders be present at the meeting personally or by proxy, that one of such holders so present whose name stands first on the register of members of the Company in respect of such share shall alone be entitled to vote in respect thereof.
Completion and return of the proxy form shall not preclude a member of the Company from attending and voting in person at the meeting should he so wish.
Pursuant to the Rules (the “ Listing Rules ”) Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, Mr. Wong Kam Fu and his associates (within the meaning of the Listing Rules) will abstain from voting on the above ordinary resolutions and voting on such resolutions will be conducted by way of poll.

−121 −

==> picture [303 x 117] intentionally omitted <==

(Incorporated in Bermuda with limited liability)

(Stock Code: 1051)

Proxy Form for use at the Special General Meeting to be held Gloucester Room, 2nd Floor, Mandarin Oriental Hong Kong, 5 Connaught Road, Central, Hong Kong on Tuesday, 8 June, 2004 at 10:00 a.m.

I/We [(Note 1)]

being the registered holder(s) of [(Note 2)]

Share(s) of

HK$0.01 each in the capital of Credit Card DNA Security System (Holdings) Limited (the “Company”) hereby appoint the Chairman of the Meeting or [(Note 3) ]

as my/our proxy to act and vote for me/us at the Special General Meeting of the Company to be held at Gloucester Room, 2nd Floor, Mandarin Oriental Hong Kong, 5 Connaught Road, Central, Hong Kong on Tuesday, 8 June, 2004 at 10:00 a.m., Hong Kong, and at any adjournment(s) thereof on the undermentioned resolutions as indicated:

ORDINARY RESOLUTIONS FOR [(Note 4)] AGAINST [(Note 4)] 1. To approve, confirm and ratify the conditional sale and purchase agreement in connection with the acquisition of interest in Ming Yuen Assets Limited and approve the convertible note, the novation deed, the tax indemnity and the termination deed to be entered into upon completion of the sale and purchase agreement. 2. To approve the issue of the conversion shares upon the exercise of conversion rights attached to the convertible note referred to in resolution 1 above. SPECIAL RESOLUTION

To approve and adopt the new bye-laws of the Company.

Dated this day of 2004 Signed:

Notes:

Full name(s) and address(es) must be inserted in block capitals.
Please insert the number of shares registered in your name(s). If no number is inserted, this form will be deemed to be related to all the shares in the Company registered in your name(s).
If any proxy other than the Chairman of the Meeting is preferred, strike out “the Chairman of the Meeting” and insert the name and address of the proxy desired in the space provided. Any alteration made to this form must be initialled by the person who signs it.
IMPORTANT: If you wish to vote for any resolutions, tick the appropriate boxes marked “FOR”. If you wish to vote against any resolutions, tick the appropriate boxes marked “AGAINST”. Failure to complete the box will entitle your proxy to cast his votes at his discretion.
This form of proxy must be signed by you or your attorney duly authorised in writing, or in the case of a corporation must be either under its common seal or under the hand of an officer or attorney duly authorised.
In the case of joint holders of a share, the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holder(s) and for this purpose seniority shall be determined by the order in which the names stand in the register or members in respect of the joint holding, the first named being the senior.
To be valid, this form of proxy together with power of attorney (if any) or other authority (if any) under which it is signed or a notarially certified copy thereof must be deposited at the Company’s principal place of business at 11/F., Tai Sang Bank Building, 130 Des Voeux Road Central, Hong Kong, not less than 48 hours before the time fixed for holding the Special General Meeting.
The proxy need not be a member of the Company but must attend the Special General Meeting in person to represent you. 9. Completion and return of this form will not preclude you from attending and voting at the Special General Meeting if you wish to do so.

* The Chinese name is for identification purpose only

AI assistant

G-Resources Group Limited — Proxy Solicitation & Information Statement 2004

49648_rns_2004-05-18_33ade104-11f9-4fe7-a7cc-6982c65e35e4.pdf

Advised by

MAJOR AND CONNECTED TRANSACTIONS PROPOSED ACQUISITION OF A 70 PER CENT INTEREST IN MING YUEN ASSETS LIMITED AND ADOPTION OF NEW BYE-LAWS IN SUBSTITUTION FOR THE EXISTING BYE-LAWS

Independent financial adviser to the Independent Board Committee and the Independent Shareholders

DEFINITIONS

DEFINITIONS

MAJOR AND CONNECTED TRANSACTIONS

PROPOSED ACQUISITION OF A 70 PER CENT INTEREST IN MING YUEN ASSETS LIMITED AND ADOPTION OF NEW BYE-LAWS IN SUBSTITUTION FOR THE EXISTING BYE-LAWS

INTRODUCTION

THE SALE AND PURCHASE AGREEMENT

Terms

Consideration

Terms of the convertible loan note in the Company

Comparisons of the conversion price to the market price

Conditions precedent

Information on the shares to be issued under the convertible loan note

Completion

Information on the Group

Information on Ming Yuen

REASONS FOR THE ACQUISITION

IMPLICATIONS UNDER THE TAKEOVERS CODE

ADOPTION OF THE NEW BYE-LAWS

SPECIAL GENERAL MEETING

VOTING ON POLL

RECOMMENDATION

ADDITIONAL INFORMATION

MAJOR AND CONNECTED TRANSACTIONS

PROPOSED ACQUISITION OF A 70 PER CENT INTEREST IN MING YUEN ASSETS LIMITED

Yours faithfully,

MAJOR AND CONNECTED TRANSACTIONS

INTRODUCTION

LETTER FROM ALTUS

BASIS OF OUR OPINION

PRINCIPAL FACTORS CONSIDERED

1. Businesses of the Group

LETTER FROM ALTUS

2. Business of Ming Yuen

3. Reasons for the Acquisition

LETTER FROM ALTUS

4. Valuation of the Patented Technologies

(i) Methodology

(ii) Factors considered in the Valuation Report

5. Consideration of the Acquisition

6. Terms of the Convertible Loan Note

Duration

Redemption

Conversion

Conversion price

7. Dilution effects on shareholding of Shareholders

8. Financial effects of the Acquisition

(i) Net liabilities

(ii) Profit and loss account

LETTER FROM ALTUS

(iii) Working capital

9. Implications under the Takeovers Code

RECOMMENDATION

I. FINANCIAL INFORMATION

Income statements

Balance sheets

Cash flow statements

Statement of changes in equity

Notes to the financial information

1. Significant accounting policies

Turnover

Revenue recognition

Impairment

Taxation

Foreign currencies

2. Segmental information

3. Loss for the period/year

4. Taxation

5. Dividends

6. Directors’ and employees’ remunerations

7. Intangible asset

8. Promissory note receivable

9. Amount due from a shareholder

10. Amount due from a shareholder

11. Amount due to a shareholder

G-Resources Group Limited Proxy Solicitation & Information Statement 2004