GBA Holdings Limited — Proxy Solicitation & Information Statement 2004

Aug 23, 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 CCT Tech International Limited, you should at once hand this circular together with 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 onward 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.

TECH INTERNATIONAL LIMITED

(Incorporated in Bermuda with limited liability)

(Stock Code: 261)

MAJOR AND CONNECTED TRANSACTION AND CONTINUING CONNECTED TRANSACTIONS

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders

A letter from the Board is set out on pages 5 to 15 of this circular and a letter from the Independent Board Committee containing its reommendation to the Independent Shareholders is set out on pages 16 to 17 of this circular. A letter from the Independent Financial Adviser containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 18 to 29 of this circular.

A notice convening the Special General Meeting to be held at 32/F., China Merchants Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong on Wednesday, 8 September 2004 at 10:00 a.m. is set out on pages 130 to 132 of this circular. A form of proxy for use by the Independent Shareholders at the Special General Meeting is enclosed herein. Whether or not you intend to attend and vote at the Special General Meeting in person, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed thereon to the branch share registrar and transfer office of the Company in Hong Kong, Tengis Limited at G/F., Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong as soon as practicable but in any event, not later than 48 hours before the time appointed for holding the Special General Meeting. Such form of proxy for use at the Special General Meeting is also published on the website of the Stock Exchange (www.hkex.com.hk). Completion and return of the form of proxy will not preclude you from attending and voting at the Special General Meeting in person should you so wish.

20 August 2004

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
I. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
II. The Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
III. Further information about the First Precision Group . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
IV. Further information about CCT Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
V. Reasons for the Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
VI. Continuing Connected Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
VII. Special General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
VIII. Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
IX. Further information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
Letter from the Independent Financial Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Appendix I — Property valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	30
Appendix IIA — Financial information of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . .	35
Appendix IIB — Financial information of the First Precision Group . . . . . . . . . . . . . . .	80
Appendix IIC — Financial information of CCT Investment . . . . . . . . . . . . . . . . . . . . . .	106
Appendix III — General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	122
Notice of the Special General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	130

— i —

DEFINITIONS

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

“Agreement”	the conditional agreement dated 2 June 2004 entered into
	between the Company as vendor and CCT Telecom as
	purchaser in respect of the Transaction
“associate”	has the same meaning as given to it in the Listing Rules
“Board”	the board of Directors
“Business Day”	a day (excluding Saturday or Sunday) on which banks are
	generally open in Hong Kong for business for more than four
	hours
“BVI”	the British Virgin Islands
“CCT HK”	CCT Telecom (HK) Limited, a company incorporated in Hong
	Kong with limited liability and an indirect wholly-owned
	subsidiary of the Company
“CCT Investment”	CCT Investment Limited, a company incorporated in Hong
	Kong with limited liability and an indirect wholly-owned
	subsidiary of the Company
“CCT Investment Debt”	the outstanding interest-free debt as at the date of Completion
	due from CCT Investment to CCT Telecom Product
	International Holdings Limited, a wholly-owned subsidiary of
	the Company, and such debt amounted to approximately
	HK$45 million as at 31 December 2003
“CCT Telecom”	CCT Telecom Holdings Limited, a company incorporated in
	the Cayman Islands with limited liability and the shares of
	which are listed on the main board of the Stock Exchange
“CCT Telecom Director(s)”	the director(s) of CCT Telecom
“CCT Telecom Group”	CCT Telecom and its subsidiaries
“CCT Telecom Remaining Group”	CCT Telecom Group but excluding the Group
“CCT Telecom Shareholder(s)”	the holder(s) of the share(s) of CCT Telecom
“Company”	CCT Tech International Limited, an exempted company

CCT Tech International Limited, an exempted company incorporated in Bermuda with limited liability and the Shares of which are listed on the main board of the Stock Exchange

— 1 —

DEFINITIONS

“Completion”	completion of the Transaction
“connected person”	has the same meaning as given to it in the Listing Rules
“Consideration”	an amount of HK$139 million for the Transaction
“Continuing Connected	the transactions contemplated under the PSC Manufacturing
Transactions”	Agreement
“Convertible Note”	the convertible note due 2008 issued by the Company on 30
	June 2003 in favour of Noble Team Investments Limited, an
	indirect wholly-owned subsidiary of CCT Telecom, in the
	outstanding principal amount of HK$754 million after
	conversion of an aggregate amount of HK$14 million out of
	the original principal amount of HK$768 million
“Debts”	the CCT Investment Debt and the First Precision Debt
“Director(s)”	the director(s) of the Company
“ESL”	Electronic Sales Limited, a company incorporated in Hong
	Kong with limited liability and currently an indirect
	wholly-owned subsidiary of the Company and was acquired
	by the Company in May 2002
“First Precision”	First Precision Holdings Limited, a company incorporated in
	the BVI with limited liability and an indirect wholly-owned
	subsidiary of the Company
“First Precision Debt”	the outstanding interest-free debt as at the date of Completion
	due from First Precision to CCT Tech Holdings Limited, a
	wholly-owned subsidiary of the Company, and such debt
	amounted to approximately HK$68 million as at 31 December
	2003
“First Precision Group”	First Precision and its subsidiaries
“Group”	the Company and its subsidiaries
“HK$”	Hong Kong dollar(s), the lawful currency of Hong Kong
“Hong Kong”	the Hong Kong Special Administrative Region of the People’s
	Republic of China

— 2 —

DEFINITIONS

“Independent Board Committee”	the independent board committee of the Company comprising
	the independent non-executive Directors which is formed to
	advise the Independent Shareholders in respect of the
	Agreement, the Transaction, the PSC Manufacturing
	Agreement and the respective caps in relation to the
	Continuing Connected Transactions
“Independent Financial Adviser”	Altus Capital Limited, a deemed licensed corporation under
	the SFO and engaged in types 1 (dealing in securities), 4
	(advising on securities), 6 (advising on corporate finance) and
	9 (asset management) regulated activities, and the
	independent financial adviser to the Independent Board
	Committee and the Independent Shareholders
“Independent Shareholders”	the Shareholders other than CCT Telecom and its associates
“Latest Practicable Date”	18 August 2004, being the latest practicable date prior to the
	printing of this circular for the purpose of ascertaining certain
	information contained herein
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange
“ODM”	original design manufacturing
“OEM”	original equipment manufacturing
“PRC”	the People’s Republic of China, excluding Hong Kong, Macau
	Special Administrative Region and Taiwan for the purpose of
	this circular
“Property”	the plot of land together with the factory complex located at
	No. 3 Hong Yie Dong San Road, Hong Yie Economic
	Development Zone, Tong Xia Zhen, Dongguan, Guangdong
	Province, the PRC
“PSC Manufacturing Agreement”	the power supply components manufacturing agreement dated
	2 June 2004 entered into between the Company and CCT
	Telecom for the manufacture and supply of certain
	transformers, adaptors, power supply components and other
	related components by the CCT Telecom Group (including the
	First Precision Group after Completion but excluding the
	Remaining Group) to the Remaining Group
“Remaining Group”	the Group but excluding the First Precision Group and CCT
	Investment

— 3 —

DEFINITIONS

• “Sale Shares” one share of US$1.00 in First Precision (representing the entire issued share capital of First Precision) and two shares of HK$1.00 each in CCT Investment (representing the entire issued share capital of CCT Investment)

• “SFO” Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)

• “Share(s)” the ordinary share(s) of HK$0.01 each in the capital of the Company

• “Shareholder(s)” the holder(s) of the Share(s) “Special General Meeting” the special general meeting of the Company to be convened and held for the Independent Shareholders at 32/F., China Merchants Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong on Wednesday, 8 September 2004 at 10:00 a.m. to consider and, if thought fit, approve the Agreement, the Transaction, the PSC Manufacturing Agreement and the respective caps in relation to the Continuing Connection Transactions or any adjournment thereof (as the case may be)

• “Stock Exchange” The Stock Exchange of Hong Kong Limited “substantial shareholder” has the same meaning as given to it in the Listing Rules “Transaction” the proposed sale and purchase of the Sale Shares and the assignment of the Debts by the Company to CCT Telecom or its nominee(s)

• “US$” United States dollar(s), the lawful currency of the United States of America

• “%” cent.

per cent.

— 4 —

LETTER FROM THE BOARD

TECH INTERNATIONAL LIMITED

(Incorporated in Bermuda with limited liability)

Executive Directors: Mak Shiu Tong, Clement Tam Ngai Hung, Terry Cheng Yuk Ching, Flora Tong Chi Hoi William Donald Putt

Independent non-executive Directors: Lau Ho Kit, Ivan Chow Siu Ngor

Registered office: Canon’s Court 22 Victoria Street Hamilton HM12 Bermuda

Head office and principal place of business in Hong Kong: 32/F., China Merchants Tower Shun Tak Centre 168-200 Connaught Road Central Hong Kong

20 August 2004

To the Shareholders and, for information only, the holders of the convertible notes and the share options of the Company

Dear Sir/Madam,

MAJOR AND CONNECTED TRANSACTION AND CONTINUING CONNECTED TRANSACTIONS

I. INTRODUCTION

The Board announced on 2 June 2004 that the Company and CCT Telecom entered into the Agreement on 2 June 2004, pursuant to which the Company has agreed (i) to sell or procure the sale of the Sale Shares; and (ii) to assign or procure the assignment of the Debts to CCT Telecom or its nominee(s).

The Board also announced that the Company and CCT Telecom entered into the PSC Manufacturing Agreement on 2 June 2004.

The Company is approximately 35.4% owned by CCT Telecom and is regarded as a non wholly-owned subsidiary of CCT Telecom. Accordingly, CCT Telecom is a connected person of the Company under the Listing Rules.

The Independent Board Committee has been formed to advise the Independent Shareholders on the terms of the Agreement, the Transaction, the PSC Manufacturing Agreement and the respective caps in relation to the Continuing Connected Transactions.

— 5 —

LETTER FROM THE BOARD

An independent financial adviser, Altus Capital Limited, has been appointed to advise the Independent Board Committee and the Independent Shareholders as to whether or not the terms of the Agreement, the Transaction, the PSC Manufacturing Agreement and the respective caps in relation to the Continuing Connected Transactions are fair and reasonable so far as the Independent Shareholders are concerned.

The purposes of this circular are:

• (i) to provide the Shareholders with details of the Agreement, the Transaction, the PSC Manufacturing Agreement and the respective caps in relation to the Continuing Connected Transactions;

• (ii) to set out the opinion of the Independent Financial Adviser in respect of the terms of the Agreement, the Transaction, the PSC Manufacturing Agreement and the respective caps in relation to the Continuing Connected Transactions;

• (iii) to set out the recommendation of the Independent Board Committee in respect of the terms of the Agreement, the Transaction, the PSC Manufacturing Agreement and the respective caps in relation to the Continuing Connected Transactions; and

• (iv) to give you the notice of the Special General Meeting to consider and, if thought fit, to approve the Agreement, the Transaction, the PSC Manufacturing Agreement and the respective caps in relation to the Continuing Connected Transactions.

II. THE TRANSACTION

The Agreement

Date: 2 June 2004 Vendor: the Company Purchaser: CCT Telecom Assets to be acquired: (i) the Sale Shares; and (ii) the Debts.

Consideration

The aggregate consideration for the Transaction in the amount of HK$139 million was determined after arm’s length negotiations between the Company and CCT Telecom.

The consideration of HK$105 million for the acquisition of First Precision and the assignment of the First Precision Debt has been determined with reference to the unaudited combined profits after tax of the First Precision Group for the year ended 31 December 2003 of approximately HK$11 million. First Precision will be disposed at a price-earning ratio of approximately 9.3 times.

— 6 —

LETTER FROM THE BOARD

The consideration of HK$34 million for the acquisition of CCT Investment and the assignment of the CCT Investment Debt has been determined in accordance with the market value of the Property of HK$34 million as at 31 December 2003 which was valued by an independent professional valuer, Vigers Appraisal and Consulting Limited.

The face value of the Debts as at 31 December 2003 was approximately HK$113 million.

The Consideration will be satisfied by cancellation of the Convertible Note to the extent of the same amount of HK$139 million. After Completion, the outstanding principal amount of the Convertible Note will be reduced to HK$615 million.

Conditions

Completion is conditional on:

• (a) the Company having complied fully with the obligations specified in the Agreement;

• (b) the warranties given by the Company in the Agreement remaining true and accurate and not misleading at Completion;

• (c) the warranties given by CCT Telecom in the Agreement remaining true and accurate and not misleading at Completion;

• (d) the requisite resolution being passed by the Independent Shareholders at the Special General Meeting in compliance with the Listing Rules; and

• (e) the requisite resolution being passed by the CCT Telecom Shareholders at its extraordinary general meeting in compliance with the Listing Rules.

CCT Telecom may waive conditions (a) and (b) above at any time by serving a notice in writing to the Company. The Company may waive condition (c) above at any time by serving a notice in writing to CCT Telecom.

In the event that any of the conditions will not have been fulfilled or waived (as the case may be) prior to 31 October 2004 (or such later date as the parties to the Agreement may agree in writing), the Agreement will cease to be of any effect save in respect of claims arising out of any antecedent breach of the Agreement.

Completion

Completion is expected to take place on the third Business Day after the fulfillment of conditions (d) and (e) above.

— 7 —

LETTER FROM THE BOARD

III. FURTHER INFORMATION ABOUT THE FIRST PRECISION GROUP

First Precision is an investment holding company and the First Precision Group is principally engaged in the design, manufacture and sale of power supply components including linear and switching transformers and adaptors. First Precision is a manufacturer of power supply components to customers for the production of telecom and other consumer products in the PRC including Hong Kong. The production plant of First Precision is located in Dongguan, the PRC. As at 31 December 2003, the First Precision Group had over 1,000 staff members.

The audited combined turnover of the First Precision Group for the two years ended 31 December 2002, 2003 and the six months ended 30 June 2004 were approximately HK$147 million, HK$120 million and HK$65.7 million respectively. The audited combined profits before tax of the First Precision Group for the two years ended 31 December 2002, 2003 and the six months ended 30 June 2004 were approximately HK$1.4 million, HK$14.6 million and HK$5.9 million respectively. The audited combined profits after tax of the First Precision Group for the two years ended 31 December 2002, 2003 and the six months ended 30 June 2004 were approximately HK$1.1 million, HK$12.0 million and HK$6.8 million respectively. As at 31 December 2003, the audited combined net assets of the First Precision Group amounted to approximately HK$56.7 million and the audited combined total assets of the First Precision Group amounted to approximately HK$100 million. As at 30 June 2004, the First Precision Group recorded an audited combined net assets and total assets of approximately HK$63.5 million and approximately HK$100.5 million respectively.

With a consideration of HK$105 million and an audited combined profits after tax of approximately HK$12.0 million for the year ended 31 December 2003, First Precision is being transferred to CCT Telecom (i) at a consideration that is approximately HK$48 million above the audited combined net assets of the First Precision Group before deduction of the First Precision Debt as at 31 December 2003; and (ii) at a price-earning ratio of approximately 8.8 times.

IV. FURTHER INFORMATION ABOUT CCT INVESTMENT

CCT Investment is a property holding company which holds a plot of land with a three-storey factory complex located at No. 3 Hong Yie Dong San Road, Hong Yie Economic Development Zone, Tong Xia Zhen, Dongguan, Guangdong Province, the PRC which was acquired by CCT Investment in 1993 from a third party independent of and not connected with the substantial shareholders, chief executive and directors of the Group. The area of the land is approximately 21,611 square meters and the gross floor area of the factory complex is approximately 33,822 square meters. The Property was valued by an independent professional valuer, Vigers Appraisal and Consulting Limited, at a value of HK$34 million as at 31 May 2004.

CCT Investment has no other material asset and business besides the holding of the Property. For the two years ended 31 December 2002, 2003 and the six months ended 30 June 2004, CCT Investment recorded an audited net profit attributable to shareholders of approximately HK$2.9 million and an audited net losses attributable to shareholders of HK$1.5 million and HK$0.7 million respectively.

— 8 —

LETTER FROM THE BOARD

As at 31 December 2003, both the audited total/net assets of CCT Investment before deduction of the CCT Investment Debt amounted to approximately HK$23 million and after deduction of the CCT Investment Debt amounted to an audited net deficit of approximately HK$3 million. As at 30 June 2004, CCT Investment recorded an audited total assets of approximately HK$21.9 million and an audited net deficit of approximately HK$3.5 million.

With a consideration of HK$34 million, CCT Investment is being transferred to CCT Telecom at a consideration that is approximately HK$11 million above the audited net assets of CCT Investment as at 31 December 2003 before deduction of the CCT Investment Debt.

V. REASONS FOR THE TRANSACTION

(i) The First Precision Group

First Precision was incorporated in November 2002 as an intermediate holding company for holding 100% interest in ESL by the Company. The transformer business of the First Precision Group is mainly carried out by ESL. The key operating subsidiaries of the First Precision Group are ESL and its wholly-owned subsidiary, (Dongguan ESL Electronic Products Co., Ltd.).

CCT Telecom and the Company have constantly been reviewing their business strategies to enhance their shareholding value. Currently, the Group is principally engaged in the sale, manufacture, design and development of telecom products on an ODM and OEM basis and is also engaged through the First Precision Group, in the manufacture and sale of power supply components, principally for the Group’s use for the production of telecom and other consumer products. At present, the CCT Telecom Group’s principal activities can broadly be categorised into: (i) manufacture and sale of telecom and other consumer products through the Group; (ii) manufacture of power supply components through the First Precision Group; and (iii) manufacture and sale of plastic components and baby and health care products through the CCT Telecom Remaining Group.

The Directors believe that it is in the interests of the Company to attach a clearer corporate identity to the Company, with a view to enabling a better evaluation of its businesses.

For the year ended 31 December 2003, the First Precision Group contributed approximately HK$16 million (after elimination of approximately HK$104 million upon consolidation of the Group’s accounts) of audited combined turnover and approximately HK$12.0 million of audited combined profit after tax to the Group. The contribution of the First Precision Group of net turnover of approximately HK$16 million and net profit of approximately HK$12.0 million represent approximately 1% of the consolidated turnover of the Group and approximately 16.5% of the net profit after taxation of the Group for the year ended 31 December 2003 respectively. As at 31 December 2003, the audited combined net assets of the First Precision Group amounted to approximately HK$56.7 million which represents approximately 40% of the consolidated net assets of the Group.

After Completion, the Group will be able to realign its resources and focus on and expand its operations in ODM and OEM businesses in telecom products. After Completion, the Group will be able to concentrate its management and resources on finished telecom products. The Group believes this restructuring will enhance its efficiency and will provide a clearer corporate identity to the Group.

— 9 —

LETTER FROM THE BOARD

The profits of the First Precision Group represents a relatively small percentage of the Group. Therefore, the sale of the First Precision Group will not have any significant adverse impact on the Remaining Group’s operations. With reference to the combined net assets of the First Precision Group of approximately HK$56.7 million as at 31 December 2003, the Directors estimate that there will be a gain on disposal of the First Precision Group of approximately HK$48 million.

After Completion, First Precision will cease to be a subsidiary of the Company and CCT Telecom’s interest in the First Precision Group will be increased from approximately 35.4% to 100% as First Precision will become an indirect wholly-owned subsidiary of CCT Telecom.

(ii) CCT Investment and the Property

As the other existing available production facilities can fulfill the Group’s production requirement, the Property is currently not required by the Group for its manufacturing business. In light of this, the Group decides to dispose of the Property. The disposal of the Property will save maintenance costs. CCT Investment was acquired by the Company through its acquisition of interest in the entire issued share capital of Empire Success Holdings Limited on 30 June 2003. Before Completion, CCT Investment is indirectly 100% owned by the Company. Upon Completion, the Company will cease to hold any interest in CCT Investment. CCT Investment will upon Completion become an indirect wholly-owned subsidiary of CCT Telecom.

The Consideration will be satisfied by cancellation of the Convertible Note to the extent of the same amount of HK$139 million. The Transaction will reduce the liability of the Company and improve its financial position and save the financial cost of the Company by approximately HK$9.7 million per annum as the Convertible Note carries an interest at the rate of prime or best lending rate plus 2% per annum. After Completion, the outstanding principal amount of the Convertible Note will be reduced from HK$754 million to HK$615 million.

Taking into account all the reasons stated in paragraphs (i) and (ii) under the section headed “Reasons for the Transaction”, the Directors believe that the Transaction is in the interest of the Company.

With reference to the audited net assets of CCT Investment before deduction of the CCT Investment Debt of approximately HK$23 million as at 31 December 2003, the Directors estimate that there will be a gain on disposal of CCT Investment of approximately HK$11 million.

The Company is treated as a non wholly-owned subsidiary of CCT Telecom where its results will be consolidated to the CCT Telecom Group.

VI. CONTINUING CONNECTED TRANSACTIONS

After Completion, First Precision will become a wholly-owned subsidiary of CCT Telecom and transactions between the CCT Telecom Group (including the First Precision Group after Completion but excluding the Remaining Group) and the Remaining Group therefore constitute connected transactions for the Company under the Listing Rules.

— 10 —

LETTER FROM THE BOARD

Details of the Continuing Connected Transactions

The PSC Manufacturing Agreement dated 2 June 2004.

Parties: (1) CCT Telecom; and

(2) the Company

Subject: Conditional upon the requisite resolution being passed by the Independent Shareholders at the Special General Meeting in compliance with the Listing Rules approving the PSC Manufacturing Agreement and the transactions contemplated thereunder, pursuant to the PSC Manufacturing Agreement, CCT Telecom will, and/or will procure other members of the CCT Telecom Group (including the First Precision Group after Completion but excluding the Remaining Group) to, manufacture and supply certain transformers, adaptors, power supply components and other related components for the Remaining Group.

Term: The PSC Manufacturing Agreement will become effective as from the date of Completion and will continue until 31 December 2006 (both dates inclusive). Both parties may renew the PSC Manufacturing Agreement upon its expiry for another three years subject to compliance with the Listing Rules and either party will have the right to terminate the PSC Manufacturing Agreement without cause by serving the other party with not less than one month’s prior written notice. The PSC Manufacturing Agreement will cease to be of any effect if Completion does not take place on or before 31 October 2004 (or such later date as the parties to the PSC Manufacturing Agreement may agree in writing).

Price: On a case-by-case basis, depending on the model capped by the amount of direct material costs plus a mark-up of no more than 100% of such material costs.

For each of the two years ended 31 December 2002 and 2003, sales from the First Precision Group to CCT HK (a member of the Remaining Group), a company engaging in the sourcing of production materials for the Group’s telecom products, amounted to approximately HK$73.7 million and approximately HK$103.8 million respectively. The total sales from the First Precision Group to CCT HK for the year ended 31 December 2003 represented (i) approximately 86.5% of the First Precision Group’s total sales; and (ii) approximately 4.3% of the total cost of sales of CCT HK.

Under the PSC Manufacturing Agreement, the cap amounts of the sales of the transformers, adaptors, power supply components and other related components from the CCT Telecom Group (including the First Precision Group after Completion but excluding the Remaining Group) to the Remaining Group under the PSC Manufacturing Agreement for each of the three financial years ending 31 December 2006 will not exceed HK$170 million, HK$220 million and HK$280 million, respectively. The basis of the cap amount is determined with reference to: (i) the historical figures of the sales of transformers, adaptors, power supply components and other related components to the

— 11 —

LETTER FROM THE BOARD

Group by the First Precision Group; (ii) the expectation of the Group that more transformers, adaptors, power supply components and other related components will be used as a result of the potential business growth of the telecom product business of the Remaining Group; and (iii) the potential business growth of the Remaining Group in the next three years due to the increasing demand for telecom products as a whole in view of the recovery of the world economy. Such growth is assumed to allow for extra transaction volume for the purpose of determining the proposed cap only and shall not be regarded as any indication directly or indirectly as to the Group’s revenue, profitability or prospects.

Reasons for the Continuing Connected Transactions

Transactions similar to the Continuing Connected Transactions were entered into between CCT HK and ESL in relation to, among other things, the sale of transformers, AC/DC adaptors and custom built-in power supply and products manufactured by ESL to CCT HK. Following completion of the Restructuring Agreement (as defined in the announcement of the Company (under its former name of Wireless InterNetworks Limited) dated 31 May 2002), ESL became a direct wholly-owned subsidiary of the Company and CCT Telecom became a substantial shareholder of the Company. As a result thereof, the transactions between ESL and CCT HK became connected transactions of the Company. Further details of the aforesaid continuing connected transactions are set out in the announcement of the Company dated 31 May 2002.

The Directors consider that the Continuing Connected Transactions will be entered into in the usual and ordinary course of businesses of the Remaining Group. The terms of the transactions have been negotiated and will be conducted on an arm’s length basis and on normal commercial terms. The Directors consider that it is in the interests of the Remaining Group to continue to purchase power supply components and other related components from the First Precision Group after Completion as the First Precision Group can offer quality products and reliable delivery service at a competitive price. The Directors are of the view that the Continuing Connected Transactions and the terms thereof are fair and reasonable and in the best interests of the Company and the Shareholders as a whole.

The Continuing Connected Transactions are subject to reporting, announcement and the Independent Shareholders’ approval requirements pursuant to Rule 14A.35 of the Listing Rules at the Special General Meeting by way of a poll.

The Company will seek the approval by the Independent Shareholders of the PSC Manufacturing Agreement and the respective caps in relation to the Continuing Connected Transactions for a period of three financial years ending 31 December 2006 on the following conditions:

• (a) Cap amounts:

The amount of purchase of the transformers, adaptors, power supply components and other related components from the CCT Telecom Group (including the First Precision Group after Completion but excluding the Remaining Group) by the Remaining Group for each of the three financial years ending 31 December 2006 will not exceed HK$170 million, HK$220 million and HK$280 million, respectively.

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LETTER FROM THE BOARD

• (b) The Continuing Connected Transactions will be:

• (i) entered into in the usual and ordinary course of businesses of the Remaining Group;

• (ii) conducted either (A) on normal commercial terms; or (B) if there is no available comparison, on terms no less favourable to the Remaining Group than terms available from independent third parties; and

• (iii) entered into in accordance with the terms of the PSC Manufacturing Agreement.

• (c) Brief details of the Continuing Connected Transactions will be disclosed in the Company’s next and each successive annual report and accounts, each accompanied with a statement of opinion of the independent non-executive Directors in such manner as referred to in paragraph (d) below.

• (d) The independent non-executive Directors will review annually the Continuing Connected Transactions, and they will confirm in the Company’s annual report and accounts for the year in question that such Continuing Connected Transactions under their review were conducted in the manner as stated in paragraphs (a) and (b) above.

• (e) The auditors of the Company will review annually the Continuing Connected Transactions, and they will confirm in a letter to the Directors (a copy of which letter will be provided to the Stock Exchange at least 10 Business Days prior to the bulk printing of the annual report of the Company) in respect of each relevant financial year, during which the Continuing Connected Transactions were conducted, stating that:

• (i) the Continuing Connected Transactions had been approved by the Directors;

• (ii) the Continuing Connected Transactions had been entered into in accordance with the terms of the relevant agreement governing the transactions;

• (iii) the value of the Continuing Connected Transactions had not exceeded their respective annual caps set out in paragraph (a) above; and

• (iv) the Continuing Connected Transactions had been entered into in accordance with the pricing policy of the Group,

and where for whatever reasons, if the auditors of the Company decline to accept the engagement or are unable to provide the auditors’ letter, the Directors will contact the Listing Division of the Stock Exchange immediately.

• (f) So long as the Shares are listed on the Stock Exchange, the Company will, and will procure CCT Telecom to, provide auditors of the Company with access to the relevant records of the Continuing Connected Transactions for the purpose of auditors’ review as referred to in paragraph (e) above.

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LETTER FROM THE BOARD

• (g) The Company will comply with the applicable provisions of the Listing Rules governing connected transactions in the event that the total amount of any of the Continuing Connected Transactions exceeds their respective caps, or that there is any material amendment to the terms of the PSC Manufacturing Agreement.

General

The Company is approximately 35.4% owned by CCT Telecom and CCT Telecom is a substantial shareholder and hence a connected person of the Company under the Listing Rules. The Company is treated as a non wholly-owned subsidiary of CCT Telecom. The Transaction constitutes a major and connected transaction for the Company for the purposes of the Listing Rules. The Transaction and the Continuing Connected Transactions are therefore subject to (i) the approval by the Independent Shareholders by way of a poll with CCT Telecom and its associates abstain from voting in respect of the resolutions to approve the Agreement, the Transaction, the PSC Manufacturing Agreement and the respective cap amounts of the Continuing Connected Transactions at the Special General Meeting; and (ii) the approval by the CCT Telecom Shareholders at its extraordinary general meeting by way of a poll in respect of the resolution to approve the Agreement and the Transaction.

The Independent Board Committee has been set up to advise the Independent Shareholders and the Independent Financial Adviser has been appointed to provide independent advice to the Independent Board Committee and the Independent Shareholders in connection with the Agreement, the Transaction, the PSC Manufacturing Agreement and the respective caps in relation to the Continuing Connected Transactions.

VII. SPECIAL GENERAL MEETING

The notice convening the Special General Meeting to be held at 32/F., China Merchants Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong on Wednesday, 8 September 2004 at 10:00 a.m. at which ordinary resolutions will be proposed to approve the Agreement, the Transaction, the PSC Manufacturing Agreement and the respective caps of the Continuing Connected Transactions, is set out on pages 130 to 132 of this circular. A form of proxy for use by the Independent Shareholders at the Special General Meeting is enclosed herein. Whether or not you intend to attend and vote at the Special General Meeting in person, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed thereon to the branch share registrar and transfer office of the Company in Hong Kong, Tengis Limited at G/F., Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong, as soon as practicable but in any event, not less than 48 hours before the time appointed for holding the Special General Meeting. Such form of proxy for use at the Special General Meeting is also published on the website of the Stock Exchange (www.hkex.com.hk). Completion and return of the form of proxy will not preclude you from attending and voting at the Special General Meeting in person should you so wish.

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LETTER FROM THE BOARD

Pursuant to bye-law 70 of the bye-laws of the Company, every resolution submitted to a general meeting shall be determined on a show of hands in the first instance by the Shareholders present in person or by proxy or by a duly authorised corporate representative, but a poll may be demanded (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) by the chairman of the general meeting or by:

• (a) at least 3 Shareholders present in person (or in the case of a corporation, by its duly authorised corporate representative) or by proxy and entitled to vote at the general meeting; or

• (b) any Shareholder or Shareholders present in person (or in the case of a corporation, by its duly authorised corporate representative) or by proxy and representing in an aggregate not less than one-tenth of the total voting rights of all the Shareholders having the rights to vote at the general meeting; or

• (c) any Shareholder or Shareholders present in person (or in the case of a corporation, by its duly authorised corporate representative) or by proxy and holding the Shares conferring a right to vote at the general meeting being the 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.

As the transactions contemplated under the Agreement and the PSC Manufacturing Agreement are connected transactions, the votes of the Independent Shareholders at the Special General Meeting will be taken by way of a poll pursuant to the Listing Rules and CCT Telecom and its associates will abstain from voting at the Special General Meeting.

VIII. RECOMMENDATION

Your attention is drawn to the letter from the Independent Board Committee as set out on pages 16 to 17 of this circular which contains its recommendation to the Independent Shareholders on the terms of the Agreement, the Transaction, the PSC Manufacturing Agreement and the respective caps in relation to the Continuing Connected Transactions. Your attention is also drawn to the letter of advice from the Independent Financial Adviser as set out on pages 18 to 29 of this circular which contains, amongst other matters, its advice to the Independent Board Committee and the Independent Shareholders in relation to the Agreement, the Transaction, the PSC Manufacturing Agreement and the respective caps in relation to the Continuing Connected Transactions and the principal factors and reasons considered by it in concluding its advice.

IX. FURTHER INFORMATION

Your attention is also drawn to further information as set out in the appendices to this circular.

Yours faithfully, For and on behalf of the Board of CCT TECH INTERNATIONAL LIMITED Mak Shiu Tong, Clement Chairman

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

TECH INTERNATIONAL LIMITED

(Incorporated in Bermuda with limited liability)

Independent Board Committee: Lau Ho Kit, Ivan Chow Siu Ngor

Registered office: Canon’s Court 22 Victoria Street Hamilton HM12 Bermuda

Head office and principal place of business in Hong Kong:

32/F., China Merchants Tower Shun Tak Centre 168-200 Connaught Road Central Hong Kong

20 August 2004

To the Independent Shareholders

Dear Sir/Madam,

MAJOR AND CONNECTED TRANSACTION AND CONTINUING CONNECTED TRANSACTIONS

We refer to the circular of the Company to the Shareholders dated 20 August 2004 (the “Circular”), in which this letter forms part. Unless the context requires otherwise, capitalised terms used in this letter will have the same meanings as given to them in the section headed “Definitions” of the Circular.

We have been appointed by the Board as the Independent Board Committee to advise the Independent Shareholders on whether the terms of the Agreement, the Transaction and the PSC Manufacturing Agreement and the respective caps in relation to the Continuing Connected Transactions are fair and reasonable so far as the Independent Shareholders are concerned.

We wish to draw your attention to the letter of advice from the Independent Financial Adviser as set out on pages 18 to 29 of the Circular and the letter from the Board as set out on pages 5 to 15 of the Circular.

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Having considered, amongst other matters, the factors and reasons considered by, and the opinion of the Independent Financial Adviser as stated in its letter of advice, we consider that the terms of the Agreement, the Transaction, the PSC Manufacturing Agreement and the respective caps in relation to the Continuing Connected Transactions are fair and reasonable so far as the Independent Shareholders are concerned and accordingly recommend the Independent Shareholders to vote in favour of the ordinary resolutions in relation to the Agreement, the Transaction, the PSC Manufacturing Agreement and the respective caps in relation to the Continuing Connected Transactions to be proposed at the Special General Meeting.

Yours faithfully,

The Independent Board Committee of CCT TECH INTERNATIONAL LIMITED Lau Ho Kit, Ivan Chow Siu Ngor Independent non-executive Directors

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the full text of the letter of advice to the Independent Board Committee and the Independent Shareholders from Altus Capital Limited prepared for incorporation in this circular.

ALTUS CAPITAL LIMITED

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

20 August 2004

To the Independent Board Committee and Independent Shareholders of

CCT Tech International Limited

32/F., China Merchants Tower

Shun Tak Centre

168-200 Connaught Road Central Hong Kong

Dear Sirs,

Major and Connected Transaction And Continuing Connected Transactions

INTRODUCTION

We refer to the circular to the Shareholders dated 20 August 2004 (the “Circular”) issued by the Company of which this letter forms part and to our appointment as independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Transaction and the Continuing Connected Transactions. Details of the Transaction and the Continuing Connected Transactions are set out in the Letter from the Board contained in the Circular. Capitalised terms used in this letter shall have the same meanings ascribed to them in the Circular of which this letter forms part, unless the context otherwise requires.

On 2 June 2004, CCT Telecom and the Company entered into the Agreement pursuant to which the Company has agreed (i) to sell or procure the sale of the Sale Shares; and (ii) to assign or procure the assignment of the Debts to CCT Telecom or its nominee(s). The aggregate consideration for the Transaction is HK$139 million which will be satisfied by the cancellation of the Convertible Note in the same amount issued by the Company to Noble Team Investments Limited (“Noble Team”), a wholly-owned subsidiary of CCT Telecom.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Company is approximately 35.4% owned by CCT Telecom and is regarded as a non wholly-owned subsidiary of CCT Telecom. Accordingly, CCT Telecom is a connected person of the Company under the Listing Rules. Transactions between the CCT Telecom Group and the Group constitute connected transactions for the Company under the Listing Rules. The Transaction will therefore subject to the approval by the Independent Shareholders by poll at the Special General Meeting.

First Precision will become a wholly-owned subsidiary of CCT Telecom after Completion and transactions between the CCT Telecom Group (including the First Precision Group after Completion but excluding the Remaining Group) and the Remaining Group will constitute continuing connected transactions for the Company under the Listing Rules. The Continuing Connected Transactions therefore will be subject to reporting, announcement and Independent Shareholders’ approval requirements pursuant to Rule 14A.35 of the Listing Rules. In view of the interests of CCT Telecom in the Company, CCT Telecom and its associates shall abstain from voting on the resolutions in connection with the Transaction and the Continuing Connected Transactions at the Special General Meeting.

BASIS OF OUR OPINION

In formulating our opinion, we have relied to a considerable extent on the information, statements, opinions and representations supplied to us by the Company and the Directors and we have 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 terms and conditions of the Transaction and the Continuing Connected Transactions 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 the 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.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

A. The Transaction

Principal factors considered

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

1. Background

(i) The Group

The Group is principally engaged in the sale, manufacture, design and development of telecom products on an ODM and OEM basis as well as the manufacture of power supply components. The acquisition of Empire Success Holdings Limited (“ESH”) and its subsidiaries (collectively, the “ESH Group”) from CCT Telecom was completed on 30 June 2003. The principal business of the ESH Group was the manufacturing of telecom products on an ODM/OEM basis. Below is a summary of the audited financial results of the Group for the 15-month period from 1 October 2001 to 31 December 2002 (“FP2002”) and the year ended 31 December (“FY”) 2003:

	FP2002	FY2003
	HK$’000	HK$’000
Turnover	106,385	1,926,258
Gross profit	18,221	216,509
Finance costs	(3,093)	(29,020)
Net profit	98,158	72,742

The profit and loss account of the Group for FY2003 was derived from the full year results of ESL and the 6-month results of the ESH Group which was acquired on 30 June 2003; meanwhile, the profit and loss account for FP2002 reflected the 7-month results of ESL, the acquisition of which took place in May 2002. Turnover of the Group increased by over 17 times from approximately HK$106.4 million in the previous period which was solely derived from ESL to approximately HK$1,926 million in FY2003 which was mainly attributable to the ESH Group’s manufacturing and sale of telecom products.

Finance costs for FY2003 also increased significantly to approximately HK$29.0 million, or by approximately 8.4 times, from approximately HK$3.1 million in FP2002. As disclosed in the Company’s annual report 2003, the Company has on 30 June 2003 issued the Convertible Note of HK$768 million to Noble Team as consideration for the acquisition of the ESH Group. Net profit decreased by approximately 25.9% from approximately HK$98.2 million for FP2002 to approximately HK$72.7 million for FY2003; however, the Directors advised that the

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

net profit for FP2002 was mainly due to the one-off restructuring gain of approximately HK$119 million arising from the restructuring of the Group, the particulars of which has been set out in pages 39 and 40 of the 2002 annual report of the Company.

(ii) The First Precision Group

First Precision is an investment holding company and the First Precision Group is principally engaged in the design, manufacture and sale of power supply components including linear and switching transformers and adaptors. The audited combined turnover for FY2002, FY2003 and the six-months’ period ended 30 June 2004 (“FP2004”) were approximately HK$147 million, HK$120 million and HK$65.7 million respectively. The audited combined profit before tax for FY2002, FY2003 and FP2004 were approximately HK$1.4 million, HK$14.6 million and HK$5.9 million respectively while the audited combined profit after tax for FY2002, FY2003 and FP2004 were approximately HK$1.1 million, HK$12.0 million and HK$6.8 million respectively. As at 31 December 2003, the First Precision Group recorded audited combined net assets and total assets of approximately HK$56.7 and HK$100 million respectively. As at 30 June 2004, the First Precision Group recorded audited combined net assets and total assets of approximately HK$63.5 and HK$100.5 million respectively.

(iii) CCT Investment

CCT Investment is a property holding company whose sole business is the holding of the Property located in Dongguan, Guangdong Province, the PRC. The Property was valued at HK$34 million based on a valuation as at 31 May 2004 conducted by Vigers Appraisal and Consulting Limited (the “Valuer”), who is an independent professional valuer. CCT Investment recorded an audited net profit of approximately HK$2.9 million for FY2002 and audited net losses of approximately HK$1.5 million and HK$0.7 million for FY2003 and FP2004 respectively. As at 31 December 2003, CCT Investment recorded audited total/net assets of approximately HK$23.3 million and audited net deficit of approximately HK$2.8 million after deduction of the CCT Investment Debt. As at 30 June 2004, it recorded audited total assets of approximately HK$21.9 million and audited net deficit of approximately HK$3.5 million.

2. Terms of the Transaction

(i) Consideration

The Consideration of HK$139 million was determined based on arm’s length negotiations between the Company and CCT Telecom of which HK$105 million was attributable to the disposal of First Precision and the remaining balance of HK$34

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

million was attributable to the disposal of CCT Investment. The Consideration will be satisfied by the cancellation of the Convertible Note issued by the Company to Noble Team in the same amount and therefore the Company will not receive any cash payments in respect of the Transaction.

a. The First Precision Group

The consideration of HK$105 million for the disposal of First Precision and the assignment of the First Precision Debt was determined with reference to the unaudited combined profits after tax of the First Precision Group for FY2003 of approximately HK$11.0 million. Based on the audited combined profits after tax of the First Precision Group for FY2003 of approximately HK$12.0 million, the consideration of HK$105 million would represent (i) a price-earning ratio (“P/E ratio”) of approximately 8.8 times and (ii) a premium of approximately HK$48.3 million above the audited combined net assets of the First Precision Group as at 31 December 2003.

In order to assess the fairness and reasonableness of the P/E ratio, we have selected and reviewed companies engaged in businesses similar to that of the First Precision Group that are listed on the stock exchanges in Hong Kong and Taiwan and have recorded net profits in their latest financial year. Three such companies (“Reference Companies”) were found for comparison purpose and the results are summarised in the table below:

	Stock	Closing	Earnings
	exchange	Price(2)	per share	P/E ratio
				times
Wing Lee Holdings Limited	Hong Kong	HK$2.75	HK$0.9	3.1
Xepex Electronics Co Ltd	Taiwan	NT$16.2	NT$1.87	8.7
Phihong Technology Co Ltd	Taiwan	NT$18.2	NT$1.17	15.6
High				15.6
Low				3.1
Average				9.1
Median				8.7
First Precision		N/A		8.8

Notes:

1. Information on turnover, net assets and earnings/loss per share was extracted from the latest annual reports of the respective Reference Companies.

2. Closing price quoted from the relevant stock exchanges on 31 May 2004, the last trading day before the suspension of the trading of the Shares pending for the issue of the announcement in relation to the Transaction and Continuing Connected Transactions.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The average and median historical P/E ratio of the Reference Companies were approximately 9.1 times and 8.7 times respectively and are comparable to the P/E ratio of 8.8 times of First Precision. In this respect, we consider the P/E ratio of First Precision to be acceptable.

Having considered the premium arising from the disposal and the results of the comparison stated above, we are of the view that the consideration of the First Precision Group is fair and reasonable as far as the Independent Shareholders are concerned and the assignment of the First Precision Debt is favourable to the Company.

b. CCT Investment

The consideration of HK$34 million for the disposal of CCT Investment and the assignment of the CCT Investment Debt was determined in accordance with the valuation as at 31 May 2004 conducted by the Valuer, a copy of the report is set out in Appendix I to the Circular. The consideration is equal to the valuation of the Property and is approximately HK$11 million above the audited net assets of CCT Investment before deduction of the CCT Investment Debt.

As advised by the Directors, the Property is not mortgaged. We have endeavoured to assess the fairness and reasonableness of the valuation and have reviewed the methodology, bases and assumptions underlying the valuation report.

Methodology

As stated in the valuation report, a combination of the market and depreciated replacement cost approaches in assessing the land portion of the properties and the buildings and structures standing on the land respectively was adopted in the valuation and the sum of the two results represents the market value of the Property as a whole.

In the valuation of the land portions, reference has been made to the standard land price in Tong Xia Zhen determined by the Dongguan City Land Administration Bureau and the sales evidence as available to the Valuer in the locality.

Due to the nature of the buildings and structures comprised in the Property, there are no readily identifiable market sale comparables, and the buildings and structures cannot be valued on the basis of open market value. The buildings and structures have therefore been valued on the basis of their depreciated replacement cost. The depreciated replacement cost approach considers the cost to reproduce or replace in new condition the property appraised in accordance with current construction costs for similar property in the locality, with allowance for accrued depreciation as evidenced by observed condition or

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

obsolescence present, whether arising from physical, functional or economic causes. The depreciated replacement cost approach generally furnishes the most reliable indication of value for property in the absence of a known market based on comparable sales.

We have discussed with the Valuer and reviewed the basis of the underlying assumptions, namely, that (i) all consents, approvals and licences from relevant PRC government authorities for development of the Property will be granted without any onerous conditions or undue delay; (ii) the owner sells the Property in the open market without the benefit of a deferred terms contract, leaseback, joint venture, management agreement or any similar arrangement which would serve to increase the value of the Property; (iii) no account has been taken of any option or right of pre-emption concerning or affecting the sale of the Property and no forced sale situation in any manner is assumed; and (iv) free and uninterrupted rights to use, occupy or assign the Property for the whole of the unexpired term as granted. Based on our discussion with the Valuer, we have no reason to doubt the assumptions made by the Valuer and the reasonableness of the valuation. In this regard, we are of the view that the valuation of the Property has been performed by the Valuer after due care and consideration.

As mentioned previously, the Consideration will be satisfied by cancellation of the Convertible Note issued by the Company to Noble Team in the same amount. We concur with the Directors that such arrangement is beneficial to the Company as the principal outstanding amount of the Convertible Note will be reduced by the amount of the Consideration to HK$615 million and the associated finance costs of the Company amounted to approximately HK$9.7 million per annum will also be reduced accordingly.

(ii) Conditions

The Transaction is subject to a number of conditions, details of which are set out in the Letter from the Board. Shareholders should note that if any of the conditions have not been fulfilled or waived, as the case may be, prior to 31 October 2004 or such later date as the parties to the Agreement may agree in writing, the Agreement will lapse save in respect of claims arising out of any antecedent breach of the Agreement.

3. Reasons for the Transaction

The Group is currently engaged in the sale, manufacture, design and development of telecom products on an ODM and OEM basis and through the First Precision Group is also engaged in the manufacture and sale of power supply components which is principally for the Group’s production of telecom and other consumer products. The Directors advised that it is the Company’s intention to streamline its businesses and the Transaction which will help to realign the business of the Group and enable it to focus on the operations and future expansion in the ODM and OEM of telecom products. For FY2003, the First Precision Group accounted approximately 1% of the consolidated turnover and approximately 16.5%

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

of the net profit after taxation of the Group. The Directors are of the view that the profit of the First Precision Group only represents a relatively small percentage of the Group and the sale of the First Precision Group will not have any significant adverse impact on the Remaining Group’s operations. Having consider the above and that the Company will realise a gain of approximately HK$48.3 million (based on the consideration of HK$105 million and the audited combined net assets of the First Precision Group of approximately HK$56.7 million as at 31 December 2003) on the disposal of the First Precision Group, we concur with the Directors that the disposal of the First Precision Group is in the interests of the Company and its shareholders as a whole.

The Directors are also of the view that the disposal of the Property, which will save certain maintenance costs per year, is in line with the interest of the Group as its existing production facilities are sufficient for the Group’s operations.

Having regard to (i) the realignment of business after Completion which will enable the Group to focus its resources on its telecom product business; (ii) the reduction in the Group’s liabilities and gearing as a result of the cancellation of the Convertible Note in the same amount of the Consideration; and (iii) the potential savings on finance costs as a result of the reduction in the outstanding amount of the Convertible Note and maintenance costs on the Property, we concur with the Directors that the Transaction is in the interests of the Company and the Shareholders as a whole. We are also of the view that the Transaction represents a good opportunity for the Group to realise its investments as the aggregate Consideration of HK$139 million represents premium to the net asset values of the First Precision Group and CCT Investment and we consider the terms of the Agreement to be fair and reasonable as far as the Independent Shareholders are concerned.

4. Financial effects of the Transaction

(i) Net assets

The audited net asset value and net tangible asset value of the Group as at 31 December 2003 amounted to approximately HK$142 million and approximately HK$64 million respectively. With reference to the audited net assets of the First Precision Group and CCT Investment before deduction of the Debts, the Directors expect the Company to realise a total gain of approximately HK$59 million upon Completion which is expected to lead to an increase in the net asset value of the Group.

• (ii) Profit and loss account

As the respective considerations for the disposals of the First Precision Group and CCT Investment are above their respective audited combined net asset values, the Company will realise a total gain of approximately HK$59 million upon Completion. As discussed in the section headed “Consideration” above, the consideration for the First Precision Group is determined with reference to its net asset value before deduction of the First Precision Debt while the consideration for CCT Investment was

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

based on a valuation conducted by the Valuer which reflects the open market value of the Property as at 31 May 2004. The Directors consider the Transaction to be a good opportunity to realign its businesses and to dispose of the Property which it has no current use at a gain.

In addition, as the Consideration will be satisfied by the cancellation of Convertible Note in the same amount, the Company will be able to save approximately HK$9.7 million per annum on finance costs. However, the Group would lose the future contribution from the First Precision Group after the Completion.

(iii) Gearing

Based on the audited financial results of the Company for FY2003, the Group had a gearing ratio (total borrowings over total borrowings plus shareholders’ equity) of approximately 87% as at 31 December 2003 and the gearing ratio will be reduced further immediately following Completion. We are of the view that the reduction in the Group’s total borrowings as well as gearing as a result of the Transaction is beneficial to the Group.

(iv) Working capital and cash flow

There will be no immediate impact on the Company’s working capital position upon Completion as the Consideration will be satisfied by the cancellation of the Convertible Note in the same amount. Finance costs, however, will be reduced by approximately HK$9.7 million per annum since the interest will be calculated on a smaller outstanding balance of the Convertible Note which carries an interest rate of prime or best lending rate plus 2% per annum.

Having considered the above factors, we are of the view that as the Transaction not only will enable the Group to focus its resources on the development of its telecom product business but will also strengthen the financial position of the Group, the Transaction is in the interests of the Company and its shareholders as a whole.

B. The Continuing Connected Transactions

Principal factors considered

The following principal factors have been considered in arriving at our advice with regards to the Continuing Connected Transactions:

1. Terms of the PSC Manufacturing Agreement

The Company entered into the PSC Manufacturing Agreement with CCT Telecom on 2 June 2004 pursuant to which CCT Telecom will, and/or will procure other members of the CCT Telecom Group (including the First Precision Group after Completion but excluding the Remaining Group) to manufacture and supply certain transformers, adaptors, power

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

supply components and other related components for the Remaining Group. As stated in the Letter from the Board, the terms of the Continuing Connected Transactions have been and will be negotiated and conducted on an arm’s length basis and on normal commercial terms.

Term and termination

The PSC Manufacturing Agreement will be effective as from the date of Completion, being the third Business Day after the granting of approval by the Independent Shareholders at the Special General Meeting, and continue until 31 December 2006 (both dates inclusive). We note that the duration of three years of the PSC Manufacturing Agreement is in accordance with the Listing Rules.

The PSC Manufacturing Agreement will lapse if Completion does not take place on or before 31 October 2004 or such later date as the Company and CCT Telecom may agree in writing. Either party will have the right to terminate the PSC Manufacturing Agreement without cause by serving the other party with not less than one month’s prior written notice.

Pricing

The purchase prices to be charged by the CCT Telecom Group (including the First Precision Group after Completion but excluding the Remaining Group) will be determined on a case-by-case basis depending on the models sourced. Such prices will be capped by the amount of direct material costs plus a mark-up of not more than 100%, and the CCT Telecom Group (including the First Precision Group after Completion but excluding the Remaining Group) must ensure that the prices charged to the Remaining Group are comparable to those offered by independent third party suppliers. We believe such arrangement can, to a large extent, ensure that the purchase prices from the CCT Telecom Group (including the First Precision Group after Completion but excluding the Remaining Group) are at prevailing market prices and that the Company will not be disadvantaged.

In assessing whether or not the prices of products sold by the First Precision Group to the Group are fair, we have compared the prices offered by the First Precision Group to its independent third party customers and to the Group. We have randomly selected a number of sale transactions by the First Precision Group to the independent third parties and to the Group and reviewed the invoices of those transactions. We found that prices charged to the Group are comparable to, if not more favourable than, prices charged to the independent customers.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We have also reviewed quotations from independent third party suppliers of the Group in respect of its purchases and compared such quotations with the prices charged by the First Precision Group. We are satisfied that prices offered by such independent suppliers are comparable to those of the First Precision Group. Having considered the above, we are of the view that the terms of the PSC Manufacturing Agreement are fair and reasonable.

2. Proposed Caps

The following table summarises the audited historical amounts of the Continuing Connected Transactions for the two years ended FY2003 (the “Historical Amounts”) and the proposed caps for the three years ending 31 December 2006 for the transactions:

Historical Amounts FP2002 FY2003 HK$ million Sales from the First Precision Group to the Remaining Group 74 104	Proposed caps
	FY2004 FY2005 FY2006 HK$ million 170 220 280

For each of FP2002 and FY2003, sales of transformers, adaptors, power supply components and other related components from the First Precision Group to CCT HK (a member of the Remaining Group which is engaged in the sourcing of production materials for the Group’s telecom products) amounted to approximately HK$74 million and approximately HK$104 million respectively. Sales to CCT HK for FY2003 represented (i) approximately 87% of the First Precision Group’s total sales; and (ii) approximately 4% of the total cost of sales of CCT HK.

The Directors advised that the demand for its telecom products has been rising as evidenced by the increase in the Group’s sales due to the recovery of the global economy and, in view of such growth, the Group will be required to purchase more products manufactured by the First Precision Group in the coming year to satisfy its production requirement. The proposed caps for the three years ending FY2006 have been determined with reference to (i) the historical figures of the sale of transformers, adaptors, power supply components and other related components to the Group by the First Precision Group; and (ii) the expected increase in sales in and production of the Group’s telecom products and proposed caps are expected to increase in accordance with the growth in sales and turnover of the Group at a rate of approximately 15% in FY2005 and FY2006.

In view of the expected business growth of the Group as well as the competitive pricing offered and the stable supply and consistent quality of products manufactured by the First Precision Group, we are of the view that the proposed caps for the Continuing Connected Transactions are fair and reasonable as far as the Company and its shareholders are concerned.

— 28 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

3. Reasons for the Continuing Connected Transactions

The Continuing Connected Transactions have been conducted in the usual and ordinary course of businesses of the Group on an arm’s length basis and will continue to be so. The Directors advised that the First Precision Group has been able to provide the Group with stable supplies of consistent and good quality products at competitive market prices. The proximity of the Group’s premises to those of the First Precision Group ensures that products can be delivered promptly, facilitating the manufacturing operations of the Group.

On this basis, we concur with the Directors that it is in the interest of the Company to continue conducting the Continuing Connected Transactions with the CCT Telecom Group (including the First Precision Group after Completion but excluding the Remaining Group).

4. Conditions of the Continuing Connected Transactions

The approval of the Independent Shareholders of the Continuing Connected Transactions and the respective proposed caps is subject to the terms and conditions set out in the section headed “Reasons for the Continuing Connected Transactions” in the Letter from the Board.

The conditions stipulated would ensure that the Company would abide by the terms of the PSC Manufacturing Agreement.

CONCLUSION AND RECOMMENDATION

Having considered the above principal factors, we are of the view that terms and conditions of the Agreement and the PSC Manufacturing Agreement and proposed caps for the Continuing Connected Transactions are fair and reasonable insofar as the Independent Shareholders are concerned. We would therefore advise the Independent Shareholders and the Independent Board Committee to recommend the Independent Shareholders to vote in favour of the resolutions to be proposed at the Special General Meeting.

Yours faithfully, For and on behalf of Altus Capital Limited Arnold Ip Kevin Chan Executive Director Executive Director

— 29 —

APPENDIX I

PROPERTY VALUATION

The following is the text of a letter with a valuation certificate, prepared for the purpose of inclusion in this circular, from Vigers Appraisal and Consulting Limited, the independent property valuer, in connection with its valuation as at 31 May, 2004 of the property held by CCT Investment.

Vigers Appraisal & Consulting Limited International Assets Appraisal Consultants

10th Floor, The Grande Building 398 Kwun Tong Road Kowloon Hong Kong

==> picture [73 x 73] intentionally omitted <==

20 August, 2004

The Directors

CCT Tech International Limited

32nd Floor, China Merchants Tower

Shun Tak Centre

168-200 Connaught Road Central Hong Kong

Dear Sirs,

A factory complex located at No. 3 Hong Yie Dong San Road Hong Yie Economic Development Zone Tong Xia Zhen Dongguan Guangdong Province, the People’s Republic of China

In accordance with your instructions for us to value the above property interest (the “Property”) in the People’s Republic of China (the “PRC”), we confirm that we have carried out an inspection, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the open market value of such the property interest as at 31 May, 2004.

Our valuation is our opinion of the open market value which we would define as intended to mean � “the best price at which the sale of an interest in property might reasonably be expected to have been completed unconditionally for cash consideration on the date of valuation assuming:

• (a) a willing seller;

• (b) that, prior to the date of valuation, there had been a reasonable period (having regard to the nature of the property and the state of the market) for the proper marketing of the interest, for the agreement of price and terms and for the completion of the sale;

— 30 —

APPENDIX I

PROPERTY VALUATION

• (c) that the state of the market, level of values and other circumstances were, on any earlier assumed date of exchange of contracts, the same as on the date of valuation;

• (d) that no account is taken of any additional bid by a special purchaser with a special interest; and

• (e) that both parties to the transaction had acted knowledgeably, prudently and without compulsion.”

In our valuation, we have adopted a combination of the market and depreciated replacement cost approaches in assessing the land portion of the property and the buildings and structures standing on the site of the property respectively. Hence, the sum of the two results represents the market value of the property as a whole. In the valuation of the land portions, reference has been made to the standard land price in Tong Xia Zhen determined by the Dongguan City Land Administration Bureau and the sales evidence as available to us in the locality. Due to the nature of the buildings and structures comprised in the property, there are no readily identifiable market sale comparables, and the buildings and structures cannot be valued on the basis of open market value. They have therefore been valued on the basis of their depreciated replacement cost. The depreciated replacement cost approach considers the cost to reproduce or replace in new condition the property appraised in accordance with current construction costs for similar property in the locality, with allowance for accrued depreciation as evidenced by observed condition or obsolescence present, whether arising from physical, functional or economic causes. The depreciated replacement cost approach generally furnishes the most reliable indication of value for property interest in the absence of a known market based on comparable sales.

We have not caused searches to be made of the title of the property and in some instances we have been provided with extracts from title documents relating to the property. We have not, however, searched the original documents to verify ownership or to verify the existence of any lease amendments which do not appear on the copies handed to us. All documents and leases have been used for reference only. All dimensions, measurements and areas included in the valuation certificate are based on information contained in the documents provided to us by you and therefore only approximations.

In undertaking our valuation of the property interest, we have relied on the legal opinion provided by (Zhu Ming Lawer Office of GuangDong), the Group’s PRC legal advisers (“the PRC Legal Opinion”).

For the PRC Legal Opinion, we understand that the status of titles, grant of major approvals, licences and documents for the Property are as follows:-

• a. Land Use Rights Certificate

• b. Red-Line Drawings c. Real Estate Ownership Certificates

Yes Yes Yes

In the course of our valuation, we have assumed that all consents, approvals and licences from relevant PRC government authorities for development of the Property will be granted without any onerous conditions or undue delay.

— 31 —

APPENDIX I

PROPERTY VALUATION

We have relied to a considerable extent on information provided by you and have accepted advice given to us by you on such matters as planning approvals or statutory notices, easements, tenure, occupation, lettings, site and floor areas. We have also been advised by you that no material factors had been concealed or omitted in the information provided to us and we have independently verified the information provided by you.

Our valuation have been made on the assumption that the owner sells the property interest in the open market without the benefit of a deferred terms contract, leaseback, joint venture, management agreement or any similar arrangement which would serve to increase the value of the property interest. In addition, no account has been taken of any option or right of pre-emption concerning or affecting the sale of the property interest and no forced sale situation in any manner is assumed in our valuation.

In valuing the property interest, we have assumed free and uninterrupted rights to use, occupy or assign the Property for the whole of the unexpired term as granted.

We have inspected the property, but no structural survey has been made and we are therefore unable to report whether the property is free from rot, infestation or any structural defects. No tests were carried out on any of the services.

We have had no reason to doubt the truth and accuracy of the information provided to us by the instructing party. The instructing party has also advised us that no material facts have been omitted from the information supplied to us to reach an informed view, and we have no reason to suspect that any material information has been withheld.

No allowance has been made in our valuation for any charges, mortgages or amounts owing on the property interest nor for any expenses or taxation which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that the property interest is free from encumbrances, restrictions and outgoings of an onerous nature which could affect its value.

Unless otherwise stated, all amounts stated are in Renminbi. The exchange rate used in valuing the property interest on 31 May, 2004 was HK$1 = RMB1.06. There has no significant in exchange rate between that date and the date of this letter.

We enclose herewith our valuation certificate.

Yours faithfully, For and on behalf of Vigers Appraisal and Consulting Limited Raymond Ho Kai Kwong Registered Professional Surveyor MRICS MHKIS MSc (e-com) Executive Director

Note : Raymond Ho Kai Kwong, Chartered Surveyor, MRICS, MHKIS, MSc (e-com) has extensive experience in undertaking valuations of properties in Hong Kong and has over ten years’ experience in the valuation of properties in the PRC.

— 32 —

APPENDIX I

PROPERTY VALUATION

VALUATION CERTIFICATE

Property

Description and Tenure

Capital value Particulars of in existing state as at Occupancy 31 May, 2004

A factory complex located at

No. 3 Hong Yie Dong San Road, Hong Yie Economic Development Zone, Tong Xia Zhen, Dongguan, Guangdong Province, the PRC.

The property comprises one piece of land with a total site area of approximately 21,611 sq.m.. At present, a factory complex is erected on the property.

The total gross floor area of the factory complex is approximately 33,822 sq.m. and detail as follows:

	No. of	Gross	Year of
Block Storey		Floor Area	Completion
		(sq.m.)
1. Main Factory	3	25,541	1992
2. 2# Staff Dormitory	5	1,940	1992
3. 3# Staff Dormitory	5	1,940	1992
4. 5# Staff Dormitory	5	1,167	1992
5. 6# Staff Dormitory	5	1,167	1992
6. 7# Staff dormitory	5	1,167	1992
7. 4# Canteen	2	900	1992
TOTAL:		33,822

The property RMB36,000,000 is at present vacant (equivalent to HK$34,000,000)

According to a State-owned Land Use Rights Certificate (Document No. (1993) 159 (Dongfuguoyong (1993) zidite 159), the property is granted with a land use rights for a term of 50 years commencing from April 1993 to April 2043 for industrial uses.

Notes:

1. Pursuant to the Land Use Right Certificate No. (1993) 159 (Dongfuguoyong (1993) zidite 159) dated April, 1993 issued by Dongguan City Government, the site with a site area of approximately 21,611 sq.m. was granted to CCT Investment Limited ( ) (an indirectly wholly-owned subsidiary of CCT Tech International Limited). The permitted use of the site is for industrial and the land use right term is 50 years up to April, 2043.

2. Pursuant to seven Real Estate Ownership Certificates Nos.Yuefangdizhengzidi 1578125, 157126, 157127, 1578128, 1578129, 1578130, 1578131, CCT Investment Limited ( ) has the right to use block Nos. 1, 2, 3, 4, 5, 6 and 7 of the property for a term from April, 1993 to April, 2043.

3. Pursuant to the PRC Legal Opinion, we understand that the status of titles, grant of major approvals, licences and documents for the Property are as follows:

4. a. Land Use Rights Certificate

5. b. Red-Line Drawings

6. c. Real Estate Ownership Certificates

Yes Yes Yes

— 33 —

APPENDIX I

PROPERTY VALUATION

1. In the course of our valuation, we have assumed that all consents, approvals and licences from relevant government authorities for development of the property have been granted without any onerous conditions or undue delay.

2. The PRC legal advisers have inspected the original of the Land Use Right Certificate and the Real Estate Ownership Certificates of the property and the Company has confirmed that the conformity to the original documents of all copy documents supplied to the PRC legal advisers. Based on the foregoing, the PRC legal advisers have issued the legal opinion dated 15th June, 2004 (the “PRC Legal Opinion”). Pursuant to the PRC Legal Opinion prepared by (Zhu Ming Lawer Office of GuangDong), it states that:

3. (i) CCT Investment Limited has obtained the legal title of the land use rights and the building ownership of the property and CCT Investment Limited had already fully settled all the land premium of the property.

4. (ii) CCT Investment Limited is entitled to freely transfer, let or mortgage the property to any party thereof without payment of any land grant premium.

5. At the date of our recent inspection, we noted that two staff dormitories (Block 5 and Block 6) and a canteen (Block 7) have been demolished.

— 34 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IIA

INDEBTEDNESS

As at the close of business on 30 June 2004 (being the Latest Practicable Date for the ascertaining information regarding this indebtedness statement) and based on the unaudited management accounts of the Group (other than First Precision Group and CCT Investment) as at 30 June 2004, the audited accounts of the First Precision Group as at 30 June 2004 and the audited accounts of CCT Investment as at 30 June 2004, the Group had outstanding borrowings of approximately HK$131,701,000. The borrowings comprised secured bank loans of approximately HK$84,773,000, secured trust receipt loans of approximately HK$45,985,000 and obligations under finance lease contracts of approximately HK$943,000. The Group’s borrowings were secured by the fixed deposits of approximately HK$100,192,000. In addition, as at the same date, the Group had outstanding convertible notes with a principal sum of HK$819,400,000.

As at 30 June 2004, the Group had possible future long service payments to employees under the Employment Ordinance (Chapter 57 of the Laws of Hong Kong), with a maximum possible amount of approximately HK$5,222,000.

Save as aforesaid and as otherwise disclosed herein, and apart from intra-group liabilities, the Group did not have any bank loans, bank overdrafts and liabilities under acceptances or other similar indebtedness, debentures or other loan capital, mortgages, charges, finance leases or hire purchase commitments, guarantees or other material contingent liabilities outstanding at the close of business on 30 June 2004.

WORKING CAPITAL

The Directors are of the opinion that taking account the Remaining Group’s internal, resources, available banking and other borrowing facilities, the Remaining Group has sufficient working capital for its present requirement.

— 35 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IIA

REPORT OF THE AUDITORS

To the members

CCT Tech International Limited

(Incorporated in Bermuda with limited liability)

We have audited the financial statements on pages 38 to 79 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 1981, 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. An audit includes an examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Company’s and the Group’s circumstances, consistently applied and adequately disclosed.

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

Opinion

In our opinion, the financial statements give a true and fair view of the state of affairs of the Company and of the Group at 31 December 2003 and of the profit and cash flows of the Group for the year then ended and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

— 36 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IIA

Emphasis of matter

Without qualifying our opinion, we draw attention to the fact that our opinion on the financial statements of the Group and the Company for the fifteen month period from 1 October 2001 to 31 December 2002 included in our report dated 15 April 2003, was disclaimed due to certain limitations of scope as further explained in the basis of opinion section therein. Accordingly, the comparative amounts shown in these financial statements may not be comparable with the amounts for the current year.

Ernst & Young

Certified Public Accountants Hong Kong 23 April 2004

— 37 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IIA

CONSOLIDATED PROFIT AND LOSS ACCOUNT

Year ended 31 December 2003

			Period from
			1 October
		Year ended	2001 to
		31 December	31 December
		2003	2002
	Notes	HK$’000	HK$’000
TURNOVER	5	1,926,258	106,385
Cost of sales		(1,709,749)	(88,164)
Gross profit		216,509	18,221
Other revenue		12,161	2,760
Selling and distribution costs		(26,058)	(723)
Administrative expenses		(63,410)	(24,356)
Other operating expenses		(27,822)	(2,603)
Impairment of fixed assets		—	(9,985)
PROFIT/(LOSS) FROM OPERATING ACTIVITIES	6	111,380	(16,686)
Net gain attributable to the Group Restructuring	7	—	119,472
Finance costs	8	(29,020)	(3,093)
PROFIT BEFORE TAX		82,360	99,693
Tax	11	(9,666)	(1,000)
PROFIT BEFORE MINORITY INTERESTS		72,694	98,693
Minority interests		48	(535)
NET PROFIT FROM ORDINARY ACTIVITIES
ATTRIBUTABLE TO SHAREHOLDERS	12	72,742	98,158
DIVIDEND	13	—	—
EARNINGS PER SHARE	14
Basic		0.60 cents	1.75 cents
Diluted		0.22 cents	1.15 cents

— 38 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IIA

CONSOLIDATED BALANCE SHEET

31 December 2003

Notes NON-CURRENT ASSETS Fixed assets 15 Intangible assets 16 Goodwill 17 Other assets 19 Deferred tax assets 29 CURRENT ASSETS Inventories 20 Trade and bills receivables 21 Prepayments, deposits and other receivables 22 Pledged time deposits 23 Cash and cash equivalents 23 CURRENT LIABILITIES Trade and bills payables 24 Tax payable Other payables and accruals 25 Interest-bearing bank and other borrowings 26 Convertible notes 28 NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Finance lease payables 27 Convertible notes 28 Deferred tax liabilities 29 MINORITY INTERESTS CAPITAL AND RESERVES Issued capital 30 Reserves 32(a)	2003 2002 HK$’000 HK$’000 681,128 16,134 22,925 496 55,066 32,297 350 — 8,811 — 768,280 48,927 155,128 1,849 593,923 29,867 7,502 1,790 100,161 5,043 449,655 62,933 1,306,369 101,482 859,256 25,682 13,326 2,214 113,051 7,014 111,680 2,578 8,000 — 1,105,313 37,488 201,056 63,994 969,336 112,921 775 — 823,000 65,000 2,931 985 826,706 65,985 487 535 142,143 46,401 131,384 108,384 10,759 (61,983) 142,143 46,401	2003 2002 HK$’000 HK$’000 681,128 16,134 22,925 496 55,066 32,297 350 — 8,811 — 768,280 48,927 155,128 1,849 593,923 29,867 7,502 1,790 100,161 5,043 449,655 62,933 1,306,369 101,482 859,256 25,682 13,326 2,214 113,051 7,014 111,680 2,578 8,000 — 1,105,313 37,488 201,056 63,994 969,336 112,921 775 — 823,000 65,000 2,931 985 826,706 65,985 487 535 142,143 46,401 131,384 108,384 10,759 (61,983) 142,143 46,401
	768,280 155,128 593,923 7,502 100,161 449,655 1,306,369 859,256 13,326 113,051 111,680 8,000 1,105,313 201,056 969,336 775 823,000 2,931 826,706 487	48,927
		1,849 29,867 1,790 5,043 62,933
		101,482
		25,682 2,214 7,014 2,578 —
		37,488
		63,994
		112,921
		— 65,000 985
		65,985
		535
	142,143
	131,384 10,759	108,384 (61,983
	142,143

Mak Shiu Tong, Clement

Chairman

Tam Ngai Hung, Terry

Director

— 39 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IIA

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Year ended 31 December 2003

At 1 October 2001 Capital reduction against accumulated losses (note a) Issue of new shares of CCT Technology Placement of new shares of CCT Technology Reversal of conversion option reserve upon the Group Restructuring (note b) Reversal of reserves upon the Group Restructuring (note c) Share issue expenses Profit for the period At 31 December 2002 and 1 January 2003 Issue of new shares Profit for the year At 31 December 2003	Issued share capital Share premium account Contributed surplus Capital reserve Conversion option reserve Accumulated losses Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 127,681 733,730 34,600 47,926 20,487 (1,014,788) (50,364) (121,297) — — — — 121,297 — 84,200 — — — — — 84,200 17,800 — — — — — 17,800 — — — — (20,487) — (20,487) — — (34,600) (47,926) — — (82,526) — (380) — — — — (380) — — — — — 98,158 98,158 108,384 733,350 — — — (795,333) 46,401 23,000 — — — — — 23,000 — — — — — 72,742 72,742 131,384 733,350 — — — (722,591) 142,143	Issued share capital Share premium account Contributed surplus Capital reserve Conversion option reserve Accumulated losses Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 127,681 733,730 34,600 47,926 20,487 (1,014,788) (50,364) (121,297) — — — — 121,297 — 84,200 — — — — — 84,200 17,800 — — — — — 17,800 — — — — (20,487) — (20,487) — — (34,600) (47,926) — — (82,526) — (380) — — — — (380) — — — — — 98,158 98,158 108,384 733,350 — — — (795,333) 46,401 23,000 — — — — — 23,000 — — — — — 72,742 72,742 131,384 733,350 — — — (722,591) 142,143	Issued share capital Share premium account Contributed surplus Capital reserve Conversion option reserve Accumulated losses Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 127,681 733,730 34,600 47,926 20,487 (1,014,788) (50,364) (121,297) — — — — 121,297 — 84,200 — — — — — 84,200 17,800 — — — — — 17,800 — — — — (20,487) — (20,487) — — (34,600) (47,926) — — (82,526) — (380) — — — — (380) — — — — — 98,158 98,158 108,384 733,350 — — — (795,333) 46,401 23,000 — — — — — 23,000 — — — — — 72,742 72,742 131,384 733,350 — — — (722,591) 142,143	Issued share capital Share premium account Contributed surplus Capital reserve Conversion option reserve Accumulated losses Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 127,681 733,730 34,600 47,926 20,487 (1,014,788) (50,364) (121,297) — — — — 121,297 — 84,200 — — — — — 84,200 17,800 — — — — — 17,800 — — — — (20,487) — (20,487) — — (34,600) (47,926) — — (82,526) — (380) — — — — (380) — — — — — 98,158 98,158 108,384 733,350 — — — (795,333) 46,401 23,000 — — — — — 23,000 — — — — — 72,742 72,742 131,384 733,350 — — — (722,591) 142,143	Issued share capital Share premium account Contributed surplus Capital reserve Conversion option reserve Accumulated losses Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 127,681 733,730 34,600 47,926 20,487 (1,014,788) (50,364) (121,297) — — — — 121,297 — 84,200 — — — — — 84,200 17,800 — — — — — 17,800 — — — — (20,487) — (20,487) — — (34,600) (47,926) — — (82,526) — (380) — — — — (380) — — — — — 98,158 98,158 108,384 733,350 — — — (795,333) 46,401 23,000 — — — — — 23,000 — — — — — 72,742 72,742 131,384 733,350 — — — (722,591) 142,143	Issued share capital Share premium account Contributed surplus Capital reserve Conversion option reserve Accumulated losses Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 127,681 733,730 34,600 47,926 20,487 (1,014,788) (50,364) (121,297) — — — — 121,297 — 84,200 — — — — — 84,200 17,800 — — — — — 17,800 — — — — (20,487) — (20,487) — — (34,600) (47,926) — — (82,526) — (380) — — — — (380) — — — — — 98,158 98,158 108,384 733,350 — — — (795,333) 46,401 23,000 — — — — — 23,000 — — — — — 72,742 72,742 131,384 733,350 — — — (722,591) 142,143	Issued share capital Share premium account Contributed surplus Capital reserve Conversion option reserve Accumulated losses Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 127,681 733,730 34,600 47,926 20,487 (1,014,788) (50,364) (121,297) — — — — 121,297 — 84,200 — — — — — 84,200 17,800 — — — — — 17,800 — — — — (20,487) — (20,487) — — (34,600) (47,926) — — (82,526) — (380) — — — — (380) — — — — — 98,158 98,158 108,384 733,350 — — — (795,333) 46,401 23,000 — — — — — 23,000 — — — — — 72,742 72,742 131,384 733,350 — — — (722,591) 142,143
	108,384 23,000 —	733,350 — —	— — —	— — —	— — —	(795,333) — 72,742	46,401 23,000 72,742
	131,384	733,350	—	—	—	(722,591)

Notes:

(a) The entire credit balance, arising from the capital reduction of CCT Technology in the amount of HK$121,297,000, was applied to write off part of the accumulated losses of CCT Technology.

• (b) The entire conversion option reserve was reversed upon settlement of the convertible notes on 17 May 2002.

(c) The contributed surplus and capital reserves were reversed upon the disposal of certain subsidiaries and disposal of properties, respectively.

The events as explained in notes (a) to (c) above have arisen from the Group Restructuring which was completed on 17 May 2002. Details of the Group Restructuring are set out in note 1 to the financial statements.

— 40 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IIA

CONSOLIDATED CASH FLOW STATEMENT

Year ended 31 December 2003

			Period from
			1 October
		Year ended	2001 to
		31 December	31 December
		2003	2002
	Notes	HK$’000	HK$’000
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax		82,360	99,693
Adjustments for:
Interest income	5	(1,270)	(365)
Gain on disposal of fixed assets, net	6	(8)	—
Finance costs	8	29,020	3,093
Net gain attributable to the Group Restructuring	7	—	(119,472)
Depreciation	6	42,749	3,808
Amortisation of goodwill	6	2,290	1,100
Amortisation of deferred development costs	6	20,103	99
Bad and doubtful debt provisions on trade receivables	6	369	380
Provision for slow-moving and obsolete stocks	6	7,684	—
Loss on disposal of fixed assets, net	6	—	116
Write off of fixed assets	6	17,893	1,007
Impairment of fixed assets		—	9,985
Write off of deferred development costs	6	7,270	—
Operating profit/(loss) before working capital changes		208,460	(556)
Decrease in inventories		28,198	1,445
Decrease/(increase) in trade and bills receivables,
prepayments, deposits and other receivables		(43,987)	630
Increase in trade and bills payables, other payables and
accruals		245,948	5,700
Cash generated from operations		438,619	7,219
Interest received		1,270	365
Interest paid		(28,966)	—
Interest element on finance lease rental payments		(54)	(31)
Hong Kong profits tax paid		(6,424)	(754)
Net cash inflow from operating activities		404,445	6,799

— 41 —

APPENDIX IIA

FINANCIAL INFORMATION OF THE GROUP

			Period from
			1 October
		Year ended	2001 to
		31 December	31 December
		2003	2002
	Notes	HK$’000	HK$’000
Net cash inflow from operating activities		404,445	6,799
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of fixed assets		(31,594)	(2,563)
Proceeds from disposal of fixed assets		5,706	61
Additions to deferred development costs		(18,750)	(172)
Acquisition of subsidiaries	33(b)	134,932	15,026
Disposal of subsidiaries and discharge of secured
and unsecured financial obligations
upon the Group Restructuring	33(c)	—	(12,870)
Increase in pledged time deposits		(36,482)	(5,043)
Net cash inflow/(outflow) from investing activities		53,812	(5,561)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of new shares		—	40,000
Proceeds from placement of shares		—	17,800
Share issue expenses		—	(380)
Issue of convertible notes		21,000	20,000
Repayment of convertible notes		—	(23,000)
New bank loans		93,000	—
Repayment of bank loans		(115,183)	—
Net repayment of trust receipts		(69,238)	—
Capital element of finance lease rental payments		(1,114)	—
Net cash inflow/(outflow) from financing activities		(71,535)	54,420
INCREASE IN CASH AND CASH EQUIVALENTS		386,722	55,658
Cash and cash equivalents at beginning of year/period		62,933	7,275
CASH AND CASH EQUIVALENTS AT END OF
YEAR/PERIOD		449,655	62,933
ANALYSIS OF BALANCES OF CASH AND CASH
EQUIVALENTS
Cash and bank balances	23	316,620	27,718
Non-pledged time deposits with original
maturity of less than three months when acquired	23	133,035	35,215
		449,655	62,933

— 42 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IIA

BALANCE SHEET

31 December 2003

		2003	2002
	Notes	HK$’000	HK$’000
NON-CURRENT ASSETS
Interests in subsidiaries	18	886,522	71,092
CURRENT ASSETS
Prepayments, deposits and other receivables	22	130	740
Cash and cash equivalents	23	11,137	35,722
		11,267	36,462
CURRENT LIABILITIES
Other payables and accruals	25	1,380	1,012
Convertible notes	28	8,000	—
		9,380	1,012
NET CURRENT ASSETS		1,887	35,450
TOTAL ASSETS LESS CURRENT LIABILITIES		888,409	106,542
NON-CURRENT LIABILITIES
Convertible notes	28	823,000	65,000
		65,409	41,542
CAPITAL AND RESERVES
Issued capital	30	131,384	108,384
Reserves	32(b)	(65,975)	(66,842)
		65,409	41,542

Mak Shiu Tong, Clement

Chairman

Tam Ngai Hung, Terry

Director

— 43 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IIA

NOTES TO FINANCIAL STATEMENTS

31 December 2003

1. CORPORATE INFORMATION

During the year, the Group was engaged in the business of manufacture and sale of telecom products and accessories.

In June 2003, the Group acquired the entire 100% interest in Empire Success Holdings Limited (“ESH”) and its subsidiaries (collectively referred to as the “ESH Group”) from CCT Telecom Holdings Limited (“CCT Telecom”), details of which are set out in notes 33(b) and 38 to the financial statements. The principal activities of ESH Group are the manufacture and sale of telecom products and accessories.

In the opinion of the directors, the ultimate holding company of the Company is CCT Telecom, which is incorporated in the Cayman Islands with limited liability and is listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”).

Pursuant to the restructuring agreements entered into between Wireless InterNetworks Limited (“WIN”), WIN’s then receivers, Standard Chartered Bank, CCT Telecom and Dongguan Defa Investment Limited, an independent third party, on 10 August 2001 (the “Group Restructuring”), a substantial portion of the defaulted indebtedness owed by WIN and its then subsidiaries as of that date was fully discharged. In addition, all material loss-making WIN group subsidiaries were carved out from WIN. The Group Restructuring was completed on 17 May 2002. The name of WIN was subsequently changed to CCT Technology Holdings Limited (“CCT Technology”) on 22 May 2002.

On 5 July 2002, CCT Technology announced its proposal for a group reorganisation (the “Group Reorganisation”), which involved the introduction of the Company. As a result of the Group Reorganisation, CCT Technology became a wholly-owned subsidiary of the Company and the then shareholders of CCT Technology then became the shareholders of the Company with the shares exchanged on a one-to-one basis, each with the same respective interest as they were previously interested in CCT Technology (further details of the share exchange are set out in note 30 to the financial statements).

The listing of the shares of CCT Technology on the Stock Exchange was withdrawn on 6 November 2002. The shares of the Company were listed on the Stock Exchange by way of introduction and the dealing of which commenced on 7 November 2002.

Further details of the Group Restructuring and the Group Reorganisation are set out in WIN’s circular and CCT Technology’s circular dated 31 March 2002 and 20 September 2002, respectively.

2. IMPACT OF NEW AND REVISED STATEMENTS OF STANDARD ACCOUNTING PRACTICE (“SSAP”)

The following revised SSAP is effective for the first time for the current year’s financial statements and has had a significant impact thereon:

● SSAP 12 (Revised): “Income taxes”

SSAP 12 prescribes the accounting for income taxes payable or recoverable, arising from the taxable profit or loss for the current period (current tax); and income taxes payable or recoverable in future periods, principally arising from taxable and deductible temporary differences and the carryforward of unused tax losses (deferred tax).

— 44 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IIA

The principal impact of the revision of this SSAP on these financial statements is described below:

Measurement and recognition:

• deferred tax assets and liabilities relating to the differences between capital allowances for tax purposes and depreciation for financial reporting purposes and other taxable and deductible temporary differences are fully provided for, whereas previously the deferred tax was recognised for timing differences only to the extent that it was probable that the deferred tax asset or liability would crystallise in the foreseeable future; and

• a deferred tax asset has been recognised for tax losses arising in the current/prior periods to the extent that it is probable that there will be sufficient future taxable profits against which such losses can be utilised.

Disclosures:

• deferred tax assets and liabilities are presented separately on the balance sheet, whereas previously they were presented on a net basis; and

• the related note disclosures are now more extensive than previously required. These disclosures are presented in notes 11 and 29 to the financial statements and include a reconciliation between the accounting profit and the tax expense for the year.

Further details of these changes arising from them are included in the accounting policy for deferred tax in note 3 and in note 29 to the financial statements.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of preparation

These financial statements have been prepared in accordance with Hong Kong Statements of Standard Accounting Practice, accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. They have been prepared under the historical cost convention.

Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries for the year ended 31 December 2003. The results of subsidiaries acquired or disposed of during the year are consolidated from or to their effective dates of acquisition or disposal, respectively. All significant intercompany transactions and balances within the Group are eliminated on consolidation.

Minority interests represent the interests of outside shareholders in the results and net assets of the Company’s subsidiaries.

The Group Reorganisation, which was completed on 4 November 2002, involved companies under common control. The consolidated financial statements of the Group for the period ended 31 December 2002 have been prepared using the merger basis of accounting in accordance with SSAP 27 “Accounting for group reconstructions”. On this basis, the consolidated financial statements of the Group have been prepared as if the Company had been the holding company of its subsidiaries acquired since their respective dates of incorporation/registration, rather than from the completion date of the Group Reorganisation. Accordingly, the consolidated results and cash flows of the Group for the period ended 31

— 45 —

APPENDIX IIA

FINANCIAL INFORMATION OF THE GROUP

December 2002 included the results and cash flows of the Company and its subsidiaries with effect from 1 October 2001 or since their respective dates of incorporation/registration, where this is a shorter period. In the opinion of the directors, the consolidated financial statements prepared on the above basis present more fairly the results, cashflows and state of affairs of the Group as a whole.

Subsidiaries

A subsidiary is a company whose financial and operating policies the Company controls, directly or indirectly, so as to obtain benefits from its activities.

The results of subsidiaries are included in the Company’s profit and loss account to the extent of dividends received and receivable. The Company’s interests in subsidiaries are stated at cost less any impairment losses.

Goodwill

Goodwill arising on the acquisition of subsidiaries represents the excess of the cost of the acquisition over the Group’s share of the fair values of the identifiable assets and liabilities acquired as at the date of acquisition.

Goodwill arising on acquisition is recognised in the consolidated balance sheet as an asset and amortised on the straight-line basis over its estimated useful life of 20 years.

On disposal of subsidiaries, the gain or loss on disposal is calculated by reference to the net assets at the date of disposal, including the attributable amount of goodwill which remains unamortised and any relevant reserves, as appropriate.

The carrying amount of goodwill is reviewed annually and written down for impairment when it is considered necessary. A previously recognised impairment loss for goodwill is not reversed unless the impairment loss was caused by a specific external event of an exceptional nature that was not expected to recur, and subsequent external events have occurred which have reversed the effect of that event.

Impairment of assets

An assessment is made at each balance sheet date of whether there is any indication of impairment of any asset, or whether there is any indication that an impairment loss previously recognised for an asset in prior years may no longer exist or may have decreased. If any such indication exists, the asset’s recoverable amount is estimated. An asset’s recoverable amount is calculated as the higher of the asset’s value in use or its net selling price.

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. An impairment loss is charged to the profit and loss account in the period in which it arises, unless the asset is carried at a revalued amount, when the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the recoverable amount of an asset, however not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortisation), had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is credited to the profit and loss account in the period in which it arises, unless the asset is carried at a revalued amount, when the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

— 46 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IIA

Fixed assets and depreciation

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

Depreciation is calculated on the straight-line basis to write off the cost of each asset over its estimated useful life after taking into account its estimated residual value. The principal annual rates used for this purpose are as follows:

Leasehold land	2% - 6%
Buildings	5% - 6%
Plant and machinery	10% - 20%
Tools, moulds and equipment	10% - 20%
Furniture and office equipment	10% - 20%
Motor vehicles	15% - 30%

Freehold land is not depreciated.

The gain or loss on disposal or retirement of a fixed asset recognised in the profit and loss account is the difference between the net sales proceeds and the carrying amount of the relevant asset.

Intangible assets

Deferred development costs

All research costs are charged to the profit and loss account as incurred.

Expenditure incurred on projects to develop new products is capitalised and deferred only when the projects are clearly defined; the expenditure is separately identifiable and can be measured reliably; there is reasonable certainty that the projects are technically feasible; and the products have commercial value. Product development expenditure which does not meet these criteria is expensed when incurred.

Deferred development costs are stated at cost less accumulated amortisation and any impairment losses, and are amortised using the straight-line basis over the commercial lives of the underlying products not exceeding four years, commencing from the date when the products are put into commercial production.

Club memberships

Club memberships are intended to be held for long term purposes. They are stated at cost less any impairment losses, on an individual membership basis.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined on the weighted average basis and, in the case of work in progress and finished goods, comprises direct materials, direct labour and an appropriate proportion of overheads. Net realisable value is based on the estimated selling prices less any estimated costs to be incurred to completion and disposal.

— 47 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IIA

Income tax

Income tax comprises current and deferred tax. Income tax is recognised in the profit and loss account or in equity if it relates to items that are recognised in the same or a different period, directly in equity.

Deferred tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences:

• except where the deferred tax liability arises from goodwill or the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

• in respect of taxable temporary differences associated with investments in subsidiaries, except where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, carryforward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward of unused tax assets and unused tax losses can be utilised:

• except where the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

• in respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

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 deferred tax asset to be utilised. Conversely, previously unrecognised deferred tax assets are recognised to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

Leased assets

Leases that transfer substantially all the rewards and risks of ownership of assets to the Group, other than legal title, are accounted for as finance leases. At the inception of a finance lease, the cost of the leased assets is capitalised at the present value of the minimum lease payments and recorded together with the obligation, excluding the interest element, to reflect the purchase and financing. Assets held under capitalised finance leases are included in fixed assets and depreciated over the shorter of the lease terms and the estimated useful lives of the assets. The finance costs of such leases are charged to the profit and loss account so as to provide a constant periodic rate of charge over the lease terms.

— 48 —

APPENDIX IIA

FINANCIAL INFORMATION OF THE GROUP

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the Group is the lessor, assets leased by the Group under operating leases are included in non-current assets and rentals receivable under the operating leases are credited to the profit and loss account on the straight-line basis over the lease terms. Where the Group is the lessee, rentals payable under the operating leases are charged to the profit and loss account on the straight-line basis over the lease terms.

Employee benefits

Paid leave carried forward

The Group provides paid annual leave to its employees under their employment contracts on a calendar year basis. Under certain circumstances, such leave which remains untaken as at the balance sheet date is permitted to be carried forward and utilised by the respective employees in the following year. An accrual is made at the balance sheet date for the expected future cost of such paid leave earned during the year by the employees and carried forward.

Employment Ordinance long service payments

Certain of the Group’s employees have completed the required number of years of service to the Group in order to be eligible for long service payments under the Hong Kong Employment Ordinance in the event of the termination of their employment. The Group is liable to make such payments in the event that such a termination of employment meets the circumstances specified in the Employment Ordinance.

A contingent liability is disclosed in respect of possible future long service payments to employees, as a number of current employees have achieved the required number of years of service to the Group, to the balance sheet date, in order to be eligible for long service payments under the Employment Ordinance if their employment is terminated in the circumstances specified. A provision has not been recognised in respect of such possible payments, as it is not considered probable that the situation will result in a material future outflow of resources from the Group.

Share option scheme

The Company operates a share option scheme for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations. The financial impact of the share options granted under the share option scheme is not recorded in the Company’s or the Group’s balance sheet until such time as the options are exercised, and no charge is recorded in the profit and loss account or balance sheet for their cost. Upon the exercise of the share options, the resulting shares issued are recorded by the Company as additional share capital at the nominal value of the shares, and the excess of the exercise price per share over the nominal value of the shares is recorded by the Company in the share premium account. Options which are cancelled prior to their exercise date, or which lapse, are deleted from the register of outstanding shares.

Pension scheme

The Group operates a defined contribution Mandatory Provident Fund retirement benefits scheme (the “MPF Scheme”) under the Mandatory Provident Fund Schemes Ordinance, for its employees. Contributions are made based on a percentage of the employees’ relevant income and are charged to the profit and loss account as they become payable in accordance with the rules of the MPF Scheme. The assets of the MPF Scheme are held separately from those of the Group in an independently administered fund. The Group’s employer contributions vest fully with the employees when contributed into the MPF Scheme, except for the Group’s employer voluntary contributions accumulated in the previous retirement scheme before 1 December 2000, which are refunded to the Group when the employee leaves employment prior to the contributions vesting fully, in accordance with the rules of the MPF Scheme.

— 49 —

APPENDIX IIA

FINANCIAL INFORMATION OF THE GROUP

In addition to the MPF Scheme, the Group operates a separate defined contribution retirement benefits scheme for those employees who were eligible to participate in this scheme. This scheme operates in a similar way to the MPF Scheme, except that the contributions are made based on a percentage of the employees’ basic salary and when an employee leaves this scheme before his/her interest in the Group’s employer contributions has vested fully, the ongoing contributions payable by the Group are reduced by the relevant amount of the forfeited employer contributions.

Foreign currencies

Foreign currency transactions are recorded at the applicable exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable exchange rates ruling at that date. Exchange differences are dealt with in the profit and loss account.

On consolidation, the financial statements of overseas subsidiaries are translated to Hong Kong dollars using the net investment method. The profit and loss accounts of overseas subsidiaries are translated to Hong Kong dollars at the weighted average exchange rates for the year and their balance sheets are translated to Hong Kong dollars at the exchange rates ruling at the balance sheet date. The resulting translation differences are included in the exchange fluctuation reserve.

For the purpose of the consolidated cash flow statement, the cash flows of overseas subsidiaries are translated to Hong Kong dollars at the exchange rates ruling at the dates of the cash flows. Frequently recurring cash flows of overseas subsidiaries which arise throughout the year are translated to Hong Kong dollars at the weighted average exchange rates for the year.

Cash and cash equivalents

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

For the purpose of the balance sheet, cash and cash equivalents comprise cash on hand and at banks, including term deposits, which are not restricted as to use.

Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to the Group and when the revenue can be measured reliably, on the following bases:

• (a) from the sale of goods, when the significant risks and rewards of ownership have been transferred to the buyer, provided that the Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold;

• (b) rental income, on a time proportion basis over the lease terms; and

• (c) interest income, on a time proportion basis taking into account the principal outstanding and the effective interest rate applicable.

— 50 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IIA

Dividends

Final dividends proposed by the directors are classified as a separate allocation of retained earnings within the capital and reserves section of the balance sheet, until they have been approved by the shareholders in a general meeting. When these dividends have been approved by the shareholders and declared, they are recognised as a liability.

Interim dividends are simultaneously proposed and declared, because the Company’s memorandum and articles of association grant the directors the authority to declare interim dividends. Consequently, interim dividends are recognised immediately as a liability when they are proposed and declared.

Related parties

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

4. SEGMENT INFORMATION

Segment information is presented by way of two segment formats: (i) on a primary segment reporting basis, by business segment; and (ii) on a secondary segment reporting basis, by geographical segment.

The Group’s operating businesses are structured and managed separately, according to the nature of their operations and the products they provide. Each of the Group’s business segments represents a strategic business unit that offers products which are subject to risks and returns that are different from those of other business segments. Summary details of the business segments are as follows:

• (a) the telecom products segment engages in the manufacture and sale of telecom products and accessories; and

• (b) the corporate segment includes corporate income and expense items.

In determining the Group’s geographical segments, revenues are attributed to the segments based on the location of the customers, and assets are attributed to the segments based on the location of the assets.

— 51 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IIA

(a) Business segments

The following table presents revenue and profit/(loss) for the Group’s business segments.

Group

	Telecom products	Telecom products		Corporate	Corporate			Total
		Period from			**Period **	from		Period from
		1 October			1 October			**1 **	October
	Year ended	**2001 **	to	Year ended	2001 to		Year ended		2001 to
	31 December	31 December		31 December	31 December		31 December	31 December
	2003	2002		2003		2002	2003		2002
	HK$’000	HK$’000		HK$’000	HK$’000		HK$’000		HK$’000
Segment revenue:
Sales to external
customers	1,924,988	106,020		—		—	1,924,988		106,020
Other revenue	12,161		—	—		2,760	12,161		2,760
Total revenue	1,937,149	106,020		—		2,760	1,937,149		108,780
Segment results	119,073	6,991		(8,963)	(24,042)		110,110		(17,051)
Interest income							1,270		365
Net gain attributable
to the Group
Restructuring							—		119,472
Finance costs							(29,020)		(3,093)
Profit before tax							82,360		99,693
Tax							(9,666)		(1,000)
Profit before minority
interests							72,694		98,693
Minority interests							48		(535)
Net profit from
ordinary activities
attributable to
shareholders							72,742		98,158

No analysis of the assets, liabilities and other segment information regarding the Group’s business segments for the year ended 31 December 2003 and the period ended 31 December 2002 has been presented as over 90% of the Group’s revenue is derived from the telecom products segment.

— 52 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IIA

(b) Geographical segments

The following table presents revenue information for the Group’s geographical segments. Over 90% of the Group’s assets are located in the People’s Republic of China (“PRC”) including Hong Kong. Accordingly, no analysis of the assets and capital expenditures by geographical segments is presented.

	United States	United States		**PRC, **	including
	of America			Hong Kong		European Union		Others		Consolidated
		**Period **	from		Period from		Period from		Period from		Period from
		1 October			1 October		1 October		1 October		1 October
	Year ended	2001 to 31		Year ended	2001 to 31	Year ended	2001 to 31	Year ended	2001 to 31	Year ended	2001 to 31
Group	31 December	December		31 December	December	31 December	December	31 December	December	31 December	December
	2003		2002	2003	2002	2003	2002	2003	2002	2003	2002
	HK$’000	HK$’000		HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Segment revenue:
Sales to external
customers	1,244,344		—	342,617	106,020	64,996	—	273,031	—	1,924,988	106,020
Other revenue	—		—	12,161	2,760	—	—	—	—	12,161	2,760
Total revenue	1,244,344		—	354,778	108,780	64,996	—	273,031	—	1,937,149	108,780

5. TURNOVER

Turnover represents the net invoiced value of goods sold, after allowances for returns and trade discounts.

Revenue from the following activities has been included in turnover:

		Period from
		1 October
	Year ended	2001 to
	31 December	31 December
	2003	2002
	HK$’000	HK$’000
Manufacture and sale of telecom products and accessories	1,924,988	106,020
Interest income	1,270	365
	1,926,258	106,385

— 53 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IIA

6. PROFIT/(LOSS) FROM OPERATING ACTIVITIES

The Group’s profit/(loss) from operating activities is arrived at after charging:

Year ended 31 December 2003 Period from 1 October 2001 to 31 December 2002 Notes HK$’000 HK$’000 Depreciation 15 42,749 3,808 Less: Amount capitalised in deferred development costs (1,728) — 41,021 3,808 Minimum lease payments under operating leases in respect of land and buildings 6,124 1,465 Research and development costs Deferred expenditure amortised 16 20,103 99 Current year/period expenditure 16 18,750 172 Amortisation of goodwill 17 2,290 1,100 Staff costs (excluding directors’ remuneration — note 9) 128,976 11,310 Pension scheme contributions 1,866 218 Less: Amount capitalised in deferred development costs (11,053) — 119,789 11,528 Auditors’ remuneration 2,500 650 Bad and doubtful debt provisions on trade receivables 369 380 Loss on disposal of fixed assets, net — 116 Write off of fixed assets 17,893 1,007 Write off of deferred development costs 16 7,270 — Provision for slow-moving and obsolete stocks* 7,684 — and after crediting: Net rental income 3,000 — Gain on disposal of fixed assets, net 8 —	Year ended 31 December 2003 Period from 1 October 2001 to 31 December 2002 Notes HK$’000 HK$’000 Depreciation 15 42,749 3,808 Less: Amount capitalised in deferred development costs (1,728) — 41,021 3,808 Minimum lease payments under operating leases in respect of land and buildings 6,124 1,465 Research and development costs Deferred expenditure amortised 16 20,103 99 Current year/period expenditure 16 18,750 172 Amortisation of goodwill 17 2,290 1,100 Staff costs (excluding directors’ remuneration — note 9) 128,976 11,310 Pension scheme contributions 1,866 218 Less: Amount capitalised in deferred development costs (11,053) — 119,789 11,528 Auditors’ remuneration 2,500 650 Bad and doubtful debt provisions on trade receivables 369 380 Loss on disposal of fixed assets, net — 116 Write off of fixed assets 17,893 1,007 Write off of deferred development costs 16 7,270 — Provision for slow-moving and obsolete stocks* 7,684 — and after crediting: Net rental income 3,000 — Gain on disposal of fixed assets, net 8 —	Year ended 31 December 2003 Period from 1 October 2001 to 31 December 2002 Notes HK$’000 HK$’000 Depreciation 15 42,749 3,808 Less: Amount capitalised in deferred development costs (1,728) — 41,021 3,808 Minimum lease payments under operating leases in respect of land and buildings 6,124 1,465 Research and development costs Deferred expenditure amortised 16 20,103 99 Current year/period expenditure 16 18,750 172 Amortisation of goodwill 17 2,290 1,100 Staff costs (excluding directors’ remuneration — note 9) 128,976 11,310 Pension scheme contributions 1,866 218 Less: Amount capitalised in deferred development costs (11,053) — 119,789 11,528 Auditors’ remuneration 2,500 650 Bad and doubtful debt provisions on trade receivables 369 380 Loss on disposal of fixed assets, net — 116 Write off of fixed assets 17,893 1,007 Write off of deferred development costs 16 7,270 — Provision for slow-moving and obsolete stocks* 7,684 — and after crediting: Net rental income 3,000 — Gain on disposal of fixed assets, net 8 —
	41,021 6,124 20,103 18,750 2,290 128,976 1,866 (11,053)	3,808 1,465 99 172 1,100 11,310 218 —
	119,789 2,500 369 — 17,893 7,270 7,684 3,000 8	11,528 650 380 116 1,007 — —
		— —

• The amortisation of deferred development costs and provision for slow-moving and obsolete stocks are included in “Cost of sales” on the face of the consolidated profit and loss account.

• ** The amortisation of goodwill and write off of deferred development costs for the year/period are included in “Other operating expenses” on the face of the consolidated profit and loss account.

• *** The effect of forfeited contributions on the Group’s contributions to the pension schemes for the year/period, and the amounts of forfeited contributions available to reduce contributions in future years, were not material.

— 54 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IIA

7. NET GAIN ATTRIBUTABLE TO THE GROUP RESTRUCTURING

		Group
		Period from
		1 October
	Year ended	2001 to
	31 December	31 December
	2003	2002
	HK$’000	HK$’000
Waiver of secured and unsecured financial obligations by banks,
noteholders and creditors	—	46,842
Reversal of reserves upon the Group Restructuring	—	82,526
	—	129,368
Less: Expenses incurred in connection with the Group Restructuring	—	(9,896)
	—	119,472

8. FINANCE COSTS

		Group
		Period from
		1 October
	Year ended	2001 to
	31 December	31 December
	2003	2002
	HK$’000	HK$’000
Interest on bank loans and overdrafts wholly repayable within five years	1,059	401
Interest on convertible notes	27,907	482
Interest on finance leases	54	31
Amortisation of premium payable upon the final
redemption of the convertible notes	—	2,179
	29,020	3,093

— 55 —

APPENDIX IIA

FINANCIAL INFORMATION OF THE GROUP

9. DIRECTORS’ REMUNERATION

Directors’ remuneration for the year/period, disclosed pursuant to the Listing Rules and Section 161 of the Companies Ordinance, is as follows:

Group Year ended 31 December 2003 Period from 1 October 2001 to 31 December 2002 HK$’000 HK$’000 Fees: Executive directors — — Independent non-executive directors 300 150 300 150 Executive directors’ other emoluments: Salaries, allowances and benefits in kind 5,629 — Pension scheme contributions 309 — 5,938 — 6,238 150	Group Year ended 31 December 2003 Period from 1 October 2001 to 31 December 2002 HK$’000 HK$’000 Fees: Executive directors — — Independent non-executive directors 300 150 300 150 Executive directors’ other emoluments: Salaries, allowances and benefits in kind 5,629 — Pension scheme contributions 309 — 5,938 — 6,238 150	Group Year ended 31 December 2003 Period from 1 October 2001 to 31 December 2002 HK$’000 HK$’000 Fees: Executive directors — — Independent non-executive directors 300 150 300 150 Executive directors’ other emoluments: Salaries, allowances and benefits in kind 5,629 — Pension scheme contributions 309 — 5,938 — 6,238 150
	300 5,629 309 5,938	150
		— —
		—
	6,238	150

The number of directors whose remuneration fell within the following bands is as follows:

	Number of directors	Number of directors
		**Period **	from
		1 October
	Year ended	2001 to
	31 December	31 December
	2003		2002
Nil - HK$1,000,000	4		6
HK$1,000,001 - HK$1,500,000	1		—
HK$1,500,001 - HK$2,000,000	1		—
HK$2,000,001 - HK$2,500,000	1		—

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

During the year, 366,000,000 share options were granted to the directors in respect of their services to the Group, for the details of which are set out in note 31 to the financial statements. No value in respect of the share options granted during the year has been charged to the profit and loss account, or is otherwise included in the above directors’ remuneration disclosures.

— 56 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IIA

10. FIVE HIGHEST PAID EMPLOYEES

The five highest paid employees during the year included three (period ended 31 December 2002: Nil) directors, details of whose remuneration are set out in note 9 above. Details of the remuneration of the remaining two (2002: five) non-director, highest paid employees for the year are as follows:

		Group
		Period from
		1 October
	Year ended	2001 to
	31 December	31 December
	2003	2002
	HK$’000	HK$’000
Salaries, allowances and benefits in kind	1,223	1,336
Performance related bonuses	216	—
Pension scheme contributions	79	92
	1,518	1,428

The number of the non-director, highest paid employees fell within the following bands is as follows:

			Number of employees	Number of employees
				Period from
				1 October
			Year ended	2001 to
			31 December	31 December
			2003	2002
Nil	-	HK$1,000,000	2	5

During the year, 78,000,000 share options were granted to a non-director, highest paid employee in respect of his service to the Group, further details of which are included in the disclosures in note 31 to the financial statements. No value in respect of the share options granted during the year has been charged to the profit and loss account, or is otherwise included in the above non-director, highest paid employees’ remuneration disclosures.

11. TAX

Hong Kong profits tax has been provided at the rate of 17.5% (period ended 31 December 2002: 16%) on the estimated assessable profits arising in Hong Kong during the year. The increased Hong Kong profits tax rate became effective from the year of assessment 2003/2004, and so is applicable to the assessable profits arising in Hong Kong for the whole of the year ended 31 December 2003. Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the countries in which the Group operates, based on existing legislation, interpretations and practices in respect thereof.

— 57 —

APPENDIX IIA

FINANCIAL INFORMATION OF THE GROUP

Certain PRC subsidiaries of the Group, which are categorised a wholly foreign-owned enterprises, are entitled to preferential tax treatments including full exemption from the PRC income tax for two years starting from the first profit-making year, followed by a 50% reduction for the next consecutive three years.

		Period from
		1 October
	Year ended	2001 to
	31 December	31 December
	2003	2002
	HK$’000	HK$’000
Group:
Current — Hong Kong
Charge for the year	8,207	1,000
Overprovision in prior years	(860)	—
Current — Elsewhere	2,130	—
Deferred — note 29	189	—
	9,666	1,000
Total tax charge for the year/period	9,666	1,000

A reconciliation of the tax expense applicable to profit before tax using the statutory rates for the countries in which the Company and its subsidiaries are domiciled to the tax expense at the effective tax rates, and a reconciliation of the applicable rates (i.e., the statutory tax rates) to the effective tax rates, are as follows:

Group — 2003

	Hong Kong		**Mainland **	China	Total
	HK$’000	%	HK$’000	%	HK$’000	%
Profit before tax	8,526		73,834		82,360
Tax at the statutory or applicable
tax rate	1,492	17.5	17,720	24.0	19,212	23.3
Lower tax rate for specific
provinces or local authority	—	—	463	0.6	463	0.6
Effect on opening deferred tax of
increase in rates	92	1.1	—	—	92	0.1
Tax exemption	—	—	(2,104)	(2.8)	(2,104)	(2.6)
Income not subject to tax	(154)	(1.8)	(16,845)	(22.8)	(16,999)	(20.6)
Expenses not deductible for tax	6,107	71.6	2,895	3.9	9,002	10.9
Tax charge at the Group’s effective
rate	7,537	88.4	2,129	2.9	9,666	11.7

— 58 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IIA

Group — 2002

Profit before tax Tax at the statutory or applicable tax rate Income not subject to tax Expenses not deductible for tax Tax charge at the Group’s effective rate	Hong HK$’000 91,973 14,716 (19,557) 5,841 1,000	Kong % 16.0 (21.3) 6.4 1.1	Mainland China HK$’000 % 7,720 1,853 24.0 (1,853) (24.0) — — — —	Total HK$’000 % 99,693 16,569 16.6 (21,410) (21.5) 5,841 5.9 1,000 1.0

12. NET PROFIT FROM ORDINARY ACTIVITIES ATTRIBUTABLE TO SHAREHOLDERS

The net profit from ordinary activities attributable to shareholders for the year ended 31 December 2003 dealt with in the financial statements of the Company, was approximately HK$867,000 (period ended 31 December 2002: net loss of HK$11,093,000) (note 32(b)).

13. DIVIDEND

No dividends have been paid or declared by the Company for the year ended 31 December 2003 (period ended 31 December 2002: Nil).

14. EARNINGS PER SHARE

The calculation of basic earnings per share is based on the net profit attributable to shareholders for the year ended 31 December 2003 of HK$72,742,000 (period ended 31 December 2002: HK$98,158,000), and the weighted average number of 12,066,769,981 ordinary shares (period ended 31 December 2002: 5,617,923,213) ordinary shares in issue during the year.

The calculation of diluted earnings per share is based on the net profit attributable to shareholders for the year of HK$100,676,000 (period ended 31 December 2002: HK$98,564,000), after adjustment for interest saved upon deemed exercise of all convertible notes during the year. The weighted average number of ordinary shares used in the calculation of diluted earnings per share is 46,453,485,820 (period ended 31 December 2002: 8,592,814,043) which includes the weighted average number of 12,066,769,981 (period ended 31 December 2002: 5,617,923,213) shares in issue during the year, as used in the basic earnings per share calculation; the weighted average of 34,263,463,796 (period ended 31 December 2002: 2,974,890,830) ordinary shares assumed to have been issued on the deemed exercise of all convertible notes during the year; and the weighted average of 123,252,043 (period ended 31 December 2002: Nil) ordinary shares assumed to have been issued at no consideration on the deemed exercise of all share options during the year.

— 59 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IIA

15. FIXED ASSETS

Group

	Leasehold land and buildings Plant and machinery Tools, moulds and equipment Furniture and office equipment HK$’000 HK$’000 HK$’000 HK$’000 — 16,356 4,861 5,339 2,153 9,683 14,572 3,229 547,768 187,013 84,056 62,912 — — (71) (110) (18,835) — — —	Leasehold land and buildings Plant and machinery Tools, moulds and equipment Furniture and office equipment HK$’000 HK$’000 HK$’000 HK$’000 — 16,356 4,861 5,339 2,153 9,683 14,572 3,229 547,768 187,013 84,056 62,912 — — (71) (110) (18,835) — — —	Leasehold land and buildings Plant and machinery Tools, moulds and equipment Furniture and office equipment HK$’000 HK$’000 HK$’000 HK$’000 — 16,356 4,861 5,339 2,153 9,683 14,572 3,229 547,768 187,013 84,056 62,912 — — (71) (110) (18,835) — — —	Leasehold land and buildings Plant and machinery Tools, moulds and equipment Furniture and office equipment HK$’000 HK$’000 HK$’000 HK$’000 — 16,356 4,861 5,339 2,153 9,683 14,572 3,229 547,768 187,013 84,056 62,912 — — (71) (110) (18,835) — — —	Motor vehicles HK$’000 2,750 1,957 12,049 (1,696) —	Motor vehicles HK$’000 2,750 1,957 12,049 (1,696) —
— 9,985 — — (9,985) — —	531,086 — 14,440 36,660 — (942) 50,158	213,052 11,128 14,034 77,973 — — 103,135	103,418 2,773 8,243 39,527 (66) — 50,477	71,370 2,404 4,681 32,703 (69) — 39,719	15,060 1,636 1,351 7,195 (813) — 9,369	933,986
						27,926 42,749 194,058 (10,933 (942
						252,858

The net book value of the fixed assets of the Group held under finance leases included in the total amounts of furniture and office equipment and motor vehicles as at 31 December 2003, amounted to HK$132,000 (2002: Nil) and HK$1,503,000 (2002: Nil), respectively.

The Group’s leasehold land and buildings included above are situated in the PRC and are held under medium term leases.

— 60 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IIA

16. INTANGIBLE ASSETS

Group

	Deferred
	development
	costs
	HK$’000
Cost:
At 1 January 2003	762
Acquisition of subsidiaries	90,330
Additions	18,750
Write off	(25,157)
At 31 December 2003	84,685
Accumulated amortisation:
At 1 January 2003	266
Acquisition of subsidiaries	59,278
Amortisation provided during the year	20,103
Write back	(17,887)
At 31 December 2003	61,760
Net book value:
At 31 December 2003	22,925
At 31 December 2002	496

17. GOODWILL

The amounts of the goodwill capitalised as an asset in the consolidated balance sheet, arising from the acquisition of subsidiaries, are as follows:

Group Cost: At 1 January 2003 Acquisition of subsidiaries (note 33(b)) At 31 December 2003 Accumulated amortisation: At 1 January 2003 Amortisation provided during the year At 31 December 2003 Net book value: At 31 December 2003 At 31 December 2002	HK$’000 33,397 25,059
	58,456
	1,100 2,290
	3,390
	55,066
	32,297

— 61 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IIA

18. INTERESTS IN SUBSIDIARIES

						Company	Company
					2003					2002
					HK$’000			HK$’000
Unlisted shares, at cost					308,294				52,635
Due from subsidiaries					594,721				28,900
Due to subsidiaries					(6,493)					(443)
					896,522				81,092
Provision for impairment					(10,000)				(10,000)
					886,522				71,092
The balances with the subsidiaries are unsecured,		interest-free and are		repayable on	demand.
Particulars of the principal subsidiaries are as follows:
	Place of	Nominal value of
	incorporation/	issued ordinary		**Percentage **	of equity
	registration and	share/ registered		attributable to
Name	operations		share capital	**the **	Company	Principal activities
				Direct	Indirect
Empire Success Holdings	British Virgin		US$1 Ordinary	—	100	Investment holding
Limited	Islands
CCT Marketing Limited	British Virgin		US$1 Ordinary	—	100	Trading of telecom
	Islands/Hong						products
	Kong
CCT Telecom (HK) Limited	Hong Kong		HK$2,600,000	—	100	Sourcing of		telecom
			Ordinary				products
Electronic Sales Limited	Hong Kong		HK$5,948,000	—	100	Sale of telecom
	People’s Republic		Ordinary HK$60,000,000	—	100	products Manufacture
	of China		Registered *				of telecom
							products
Huiyang CCT	People’s Republic		HK$80,000,000	—	100	Manufacture
Telecommunications	of China		Registered *				of telecom
Products Co., Ltd.							products

• Registered as a wholly foreign-owned enterprises under the PRC laws.

During the year, the Group acquired ESH Group, including Huiyang CCT Telecommunications Products Co., Ltd., CCT Marketing Limited and CCT Telecom (HK) Limited. Further details of the acquisition are included in note 33(b) to the financial statements.

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 of the Group. To give details of other subsidiaries would, in the opinion of the directors, result in particulars of excessive length.

— 62 —

APPENDIX IIA

FINANCIAL INFORMATION OF THE GROUP

S. Meggatel Sdn. Bhd., a 70%-owned subsidiary of the Group in Malaysia, had incomplete books and records. However, the net assets and results of S. Meggatel Sdn. Bhd. as at 31 December 2003 and for the year then ended are not material to the current year’s financial statements of the Group.

19. OTHER ASSETS

					Group
				2003		2002
				HK$’000		HK$’000
Club	memberships,	at	cost	350		—

20. INVENTORIES

Raw materials Work in progress Finished goods	Group 2003 HK$’000 33,121 43,846 78,161 155,128	2002 HK$’000 193 98 1,558
		1,849

The carrying amount of inventories carried at net realisable value included in the above balance was nil (2002: Nil) as at the balance sheet date.

21. TRADE AND BILLS RECEIVABLES

An aged analysis of the trade and bills receivables as at the balance sheet date, based on invoice date, and net of provisions, is as follows:

			Group
		2003			2002
	HK$’000	Percentage		HK$’000	Percentage
Current to 30 days	251,586	42		28,259	95
31 to 60 days	184,463	31		1,464	5
61 to 90 days	154,085	26		99	—
Over 90 days	3,789	1		45	—
	593,923	100		29,867	100

The Group allows an average credit period of 30-90 days to its trade customers.

— 63 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IIA

22. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

Prepayments Deposits and other receivables	Group 2003 2002 HK$’000 HK$’000 498 804 7,004 986 7,502 1,790	Company 2003 2002 HK$’000 HK$’000 130 740 — — 130 740	Company 2003 2002 HK$’000 HK$’000 130 740 — — 130 740
			740

23. CASH AND CASH EQUIVALENTS AND PLEDGED TIME DEPOSITS

		Group		Company	Company
		2003	2002	2003	2002
		HK$’000	HK$’000	HK$’000	HK$’000
Cash	and bank balances	316,620	27,718	1,498	507
Time	deposits	233,196	40,258	9,639	35,215
		549,816	67,976	11,137	35,722
Less:	Time deposits pledged for bank borrowings	(100,161)	(5,043)	—	—
		449,655	62,933	11,137	35,722

At the balance sheet date, the cash and bank balances of the Group denominated in Renminbi (“RMB”) amounted to approximately HK$11,561,000 (2002: HK$159,000). The RMB is not freely convertible into other currencies, however, under Mainland China’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the Group is permitted to exchange RMB for other currencies through banks authorised to conduct foreign exchange business.

24. TRADE AND BILLS PAYABLES

An aged analysis of the trade and bills payables as at the balance sheet date is as follows:

Group Current to 30 days 31 to 60 days 61 to 90 days Over 90 days	2003 HK$’000 Percentage 209,485 24 230,149 27 174,772 20 244,850 29 859,256 100	2002 HK$’000 Percentage 18,995 74 4,118 16 2,386 9 183 1 25,682 100	2002 HK$’000 Percentage 18,995 74 4,118 16 2,386 9 183 1 25,682 100
			100

Included in the above balance is a trade payable of approximately HK$95,487,000 (2002: HK$5,794,000) to Neptune Holding Limited (“Neptune”), a wholly-owned subsidiary of CCT Telecom, which is repayable within 120 days.

— 64 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IIA

25. OTHER PAYABLES AND ACCRUALS

Other payables Accruals	Group 2003 2002 HK$’000 HK$’000 30,218 326 82,833 6,688 113,051 7,014	Company 2003 2002 HK$’000 HK$’000 — — 1,380 1,012 1,380 1,012	Company 2003 2002 HK$’000 HK$’000 — — 1,380 1,012 1,380 1,012
			1,012

26. INTEREST-BEARING BANK AND OTHER BORROWINGS

Note Current portion of bank loans, secured Current portion of finance lease payables 27	Group 2003 HK$’000 111,181 499 111,680	2002 HK$’000 2,578 —
		2,578

27. FINANCE LEASE PAYABLES

The Group leases certain of its motor vehicles and furniture and office equipment for business use. These leases are classified as financial leases and have remaining lease terms ranging from one to two years.

At the balance sheet date, the total future minimum lease payments under financial leases and their present value were as follows:

Group

Amounts payable: Within one year In the second year In the third to fifth years, Inclusive Total minimum finance lease payments Future finance charges Total net finance lease payables Portion classified as current liabilities — note 26 Non-current portion	Minimum lease payments 2003 HK$’000 548 378 495 1,421 (147) 1,274 (499)	Minimum lease payments 2003 HK$’000 548 378 495 1,421 (147) 1,274 (499)	Minimum lease payments Present value of minimum lease payments Present value of minimum lease payments 2002 2003 2002 HK$’000 HK$’000 HK$’000 — 499 — — 336 — — 439 — — 1,274 —	Minimum lease payments Present value of minimum lease payments Present value of minimum lease payments 2002 2003 2002 HK$’000 HK$’000 HK$’000 — 499 — — 336 — — 439 — — 1,274 —	Minimum lease payments Present value of minimum lease payments Present value of minimum lease payments 2002 2003 2002 HK$’000 HK$’000 HK$’000 — 499 — — 336 — — 439 — — 1,274 —
					—
		) )	— — —
	1,274 (499
	775		—

— 65 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IIA

28. CONVERTIBLE NOTES

2004 Convertible notes — note (a) 2005 Convertible notes — note (b) 2005 Convertible notes — note (c) 2008 Convertible notes — note (d) Portion classified as current liabilities Non-current portion	Group 2003 2002 HK$’000 HK$’000 8,000 20,000 45,000 45,000 10,000 — 768,000 —	Group 2003 2002 HK$’000 HK$’000 8,000 20,000 45,000 45,000 10,000 — 768,000 —	Company 2003 2002 HK$’000 HK$’000 8,000 20,000 45,000 45,000 10,000 — 768,000 —	Company 2003 2002 HK$’000 HK$’000 8,000 20,000 45,000 45,000 10,000 — 768,000 —
	831,000 (8,000)	65,000 —	831,000 (8,000)	65,000 —
	823,000	65,000	823,000	65,000

Notes:

• (a) On 19 July 2002, CCT Technology issued convertible notes with aggregate principal amounts of HK$20 million through a placing agent to an independent third party and which were subsequently replaced by the convertible notes issued by the Company on 4 November 2002 pursuant to the Group Reorganisation. The convertible notes provide the holder option right to convert the principal amount into ordinary shares of HK$0.01 each of the Company on any business day being five business days prior to the maturity of the convertible notes at a conversion price of HK$0.01 per share.

The principal amounts of the convertible notes bear interest at 5% per annum and the convertible notes will mature on the second anniversary of the date of their issue.

On 24 June 2003, the principal amounts of HK$12 million were converted into 1,200,000,000 shares of the Company of HK$0.01 each at conversion price of HK$0.01 per share.

(b) On 17 May 2002, CCT Technology issued convertible notes with aggregate principal amounts of HK$45 million to CCT Emporium International Limited, an indirect wholly-owned subsidiary of CCT Telecom which were subsequently replaced by the convertible notes issued by the Company on 4 November 2002 pursuant to the Group Reorganisation. The convertible notes were issued as part of the consideration for the acquisition of a 100% interest in ESL from an indirect wholly-owned subsidiary of CCT Telecom, details of which are set out in note 33(b) to the financial statements. The convertible notes provide the holder option right to convert the principal amount into ordinary shares of HK$0.01 each of the Company on any business day being five business days prior to the maturity of the convertible notes at a conversion price of HK$0.01 per share.

The principal amounts of the convertible notes are interest-free and will mature on the third anniversary of the date of their issue.

• (c) On 14 May 2003, the Company issued convertible notes with aggregate principal amounts of HK$21 million through a placing agent to several independent parties. The convertible notes provide the holders option right to convert the principal amount into the Company’s ordinary shares of HK$0.01 each on any business day being five business days prior to the maturity of the convertible notes at a conversion price of HK$0.01 per share.

The principal amounts of the convertible notes bear interest at 2% per annum and the convertible notes will mature on the second anniversary of the date of their issue.

— 66 —

APPENDIX IIA

FINANCIAL INFORMATION OF THE GROUP

In June 2003, the principal amounts of HK$11 million have been converted into 1,100,000,000 shares of the Company of HK$0.01 each at a conversion price of HK$0.01 per share.

• (d) On 30 June 2003, the Company issued convertible notes with aggregate principal amounts of HK$768 million to an indirect wholly-owned subsidiary of CCT Telecom as the consideration for the acquisition of the entire interest in ESH from an indirect wholly-owned subsidiary of CCT Telecom, details of which are set out in note 33(b) to the financial statements. The convertible notes provide the holder option right to convert the principal amount into the Company’s ordinary shares of HK$0.01 each on any business day being five business days prior to the maturity of the convertible notes at a conversion price of HK$0.014 per share. The convertible notes bear interest at prime or best lending rate as quoted by The Hongkong and Shanghai Banking Corporation Limited for Hong Kong dollar loans plus 2% per annum and will mature on the fifth anniversary of the date of their issue.

29. DEFERRED TAX

The movement in deferred tax liabilities and assets during the year is as follows:

Deferred tax liabilities

Group

	2003
	Accelerated tax
	depreciation
	HK$’000
At 1 January 2003
As previously reported	985
Prior year adjustment:
SSAP 12 — restatement of deferred tax	—
As restated	985
Deferred tax credited to the profit and loss account during the year	(1,161)
Acquisition of subsidiaries — note 33(b)	3,107
Gross deferred tax liabilities at 31 December 2003	2,931

— 67 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IIA

Deferred tax assets

Group

	2003
	Losses available
	for offset against
	future taxable
	profit
	HK$’000
At 1 January 2003
As previously reported	—
Prior year adjustment:
SSAP 12 — restatement of deferred tax	—
As restated	—
Deferred tax charged to the profit and loss account during the year	(1,350)
Acquisition of subsidiaries — note 33(b)	10,161
Gross deferred tax assets at 31 December 2003	8,811
Net deferred tax assets at 31 December 2003	5,880

Deferred tax liabilities

Group

2002 Accelerated tax depreciation HK$’000

At 1 October 2001 As previously reported Prior year adjustment: SSAP 12 — restatement of deferred tax As restated Deferred tax charged to the profit and loss account Acquisition of subsidiaries — note 33(b) Gross deferred tax liabilities at 31 December 2002	—
	— — — 985
	985

— 68 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IIA

Group

	2002
	Losses available
	for offset against
	future taxable
	profit
	HK$’000
At 1 October 2001
As previously reported	—
Prior year adjustment:
SSAP 12 - restatement of deferred tax	—
As restated	—
Deferred tax credited to the profit and loss account	—
Gross deferred tax assets at 31 December 2002	—
Net deferred tax liabilities at 31 December 2002	985

The Group has tax losses arising in Hong Kong of HK$23,966,000 (2002: Nil) that are available indefinitely for offsetting against future taxable profits of the companies in which the losses arose. Deferred tax assets have not been recognised in respect of these losses as they have arisen in subsidiaries that have been loss-making for some time.

At 31 December 2003, there is no significant unrecognised deferred tax liability (2002: Nil) for taxes that would be payable on the unremitted earnings of certain of the Group’s subsidiaries as the Group has no liability to additional tax should such amounts be remitted.

There are no income tax consequences attaching to the payment of dividends by the Company to its shareholders.

SSAP 12 (revised) was adopted during the year, as further explained in note 2 to the financial statements. This change in accounting policy has resulted in a decrease in the Group’s deferred tax liabilities as at 31 December 2003 and 2002 by HK$1,161,000 and Nil, respectively, and a decrease in the Group’s deferred tax assets as at 31 December 2003 and 2002 by HK$1,350,000 and Nil, respectively. As a consequence, the consolidated net profit attributable to shareholders for the year ended 31 December 2003 and period ended 31 December 2002 have been decreased by HK$189,000 and Nil, respectively.

30. SHARE CAPITAL

Shares

Authorised: 120,000,000,000 (2002: 30,000,000,000) ordinary shares of HK$0.01 each Issued and fully paid: 13,138,422,562 (2002: 10,838,403,562) ordinary shares of HK$0.01 each	2003 HK$’000 1,200,000 131,384	2002 HK$’000 300,000
		108,384

— 69 —

APPENDIX IIA

FINANCIAL INFORMATION OF THE GROUP

Pursuant to an ordinary resolution passed on 27 June 2003, the authorised shared capital of the Company was increased from HK$300,000,000 to HK$1,200,000,000 by the creation of 90,000,000,000 additional shares of HK$0.01 each, ranking pari passu in all respects with the existing issued shares of the Company.

A summary of the transactions involving the Company’s issued ordinary share capital during the year is as follows:

Notes At 1 October 2001 Capital reduction and share consolidation (a)(i) & (ii) Issue of shares to settle unsecured indebtedness (a)(iii) Issue of shares (a)(iv) Issue of shares in respect of acquisition of ESL (a)(v) Issue of shares to noteholders (a)(vi) Placement of shares (b) Cancellation of shares (c) Issue of shares in exchange for shares in CCT Technology (c) At 31 December 2002 and 1 January 2003 Exercise of share options (d) Conversion on convertible notes (e) At 31 December 2003	Number of ordinary shares of HK$0.02 each HK$0.01 each 6,384,035,621 — (6,384,035,621) 638,403,562 — 100,000,000 — 4,000,000,000 — 2,500,000,000 — 1,820,000,000 — 1,780,000,000 — (10,838,403,562) — 10,838,403,562	Number of ordinary shares of HK$0.02 each HK$0.01 each 6,384,035,621 — (6,384,035,621) 638,403,562 — 100,000,000 — 4,000,000,000 — 2,500,000,000 — 1,820,000,000 — 1,780,000,000 — (10,838,403,562) — 10,838,403,562	Issued capital HK$’000 127,681 (121,297) 1,000 40,000 25,000 18,200 17,800 (108,384) 108,384 108,384 — 23,000 131,384
	— — —	10,838,403,562 19,000 2,300,000,000	108,384 — 23,000
	—	13,138,422,562

Notes:

• (a) The Group Restructuring, which was completed on 17 May 2002, involved the following steps and had effects on CCT Technology’s and the Company’s share capital account:

• (i) the nominal value of each of the then issued share of CCT Technology were reduced from HK$0.02 to HK$0.001 and the credit balance of HK$121,297,000 arising from the capital reduction was applied to write off part of the brought forward accumulated losses of CCT Technology. Each of the then unissued shares of the CCT Technology share capital was sub-divided into 20 shares of HK$0.001 each;

• (ii) every 10 shares of HK$0.001 each, following the capital reduction mentioned in (i), were consolidated into one share of HK$0.01 each;

• (iii) pursuant to an asset transfer agreement dated 21 September 2001 entered into between CCT Technology and S. Megga Telecom, 100,000,000 new shares were issued to S. Megga Telecom as part of the consideration for the hive-down of certain assets of S. Megga Telecom to another subsidiary of CCT Technology;

• (iv) pursuant to the terms of the Restructuring Agreements, CCT Telecom and Dongguan Defa each subscribed for 2,000,000,000 new shares of HK$0.01 each for an aggregate consideration of HK$40 million in cash;

• (v) CCT Technology issued 2,500,000,000 new shares to CCT telecom at HK$0.01 each as part of the consideration for the transfer of the entire share capital of ESL and its subsidiaries from an indirect wholly-owned subsidiary of CCT Telecom to the Group; and

— 70 —

APPENDIX IIA

FINANCIAL INFORMATION OF THE GROUP

• (vi) CCT Technology issued 1,820,000,000 new shares at HK$0.01 each to the noteholders of the convertible notes due 2003 and due 2007 issued in prior years pursuant to the terms of the Restructuring Agreements.

• (b) In June 2002, CCT Technology allotted and issued 1,780,000,000 new shares at HK$0.01 each to an indirect wholly-owned subsidiary of CCT Telecom pursuant to the subscription agreement dated 5 June 2002.

• (c) On 4 November 2002, pursuant to the Group Reorganisation, the entire 10,838,403,562 shares of CCT Technology were cancelled and the Company (i) repurchased 10,000,000 shares and (ii) allotted and issued 10,838,403,562 new shares of HK$0.01 each credited as fully paid to the then existing qualifying shareholders of CCT Technology in the proportion of one share for every one existing share then held. All shares issued pari passu with the existing issued shares of the Company in all respects.

• (d) The subscription rights attaching to 19,000 share options were exercised at the subscription price of HK$0.014 per share (note 31), resulting in the issue of 19,000 shares of HK$0.01 each for a total cash consideration, before expenses, of HK$266.

• (e) During the year, HK$23 million worth of convertible notes were converted into 2,300,000,000 shares of the Company of HK$0.01 each. Further details relating to these convertible notes are set out in note 28 to these financial statements.

Share options

Details of the Company’s share option scheme and the share options issued under the scheme are included in note 31 to the financial statements.

31. SHARE OPTION SCHEME

A share option scheme (the “Share Option Scheme”) was conditionally adopted by the then shareholder of the Company and the shareholders of CCT Technology Holdings Limited, the then holding company of the Company, on 17 September 2002 and 15 October 2002 respectively to comply with the new amendments to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”). The Share Option Scheme became effective on 7 November 2002. Unless otherwise cancelled or amended, the Share Option Scheme will remain in force for 10 years from that date. As at 31 December 2003, there were 1,082,781,000 share options outstanding under the Share Option Scheme. Based on these outstanding share options, the total number of shares available for issue is 1,082,781,000, which represents approximately 8.06% of the existing issued share capital of the Company as at the date of this report.

The purpose of the Share Option Scheme is to provide incentives and rewards to the eligible participants who contribute to the success of the operations of the Group. Eligible participants of the Share Option Scheme include any employee, executive or officer of the Group (including executive and non-executive directors of the Group) and any supplier, consultant, agent, adviser, shareholder, customer, partner or business associate who, at the sole discretion of the board of directors of the Company (the “Board”), will contribute or has contributed to the Group.

Pursuant to the Share Option Scheme, the maximum number of shares in respect of which share options may be granted under the Share Option Scheme is such number of shares, when aggregated with shares subject to any other share option scheme(s) of the Company, must not exceed 10% of the issued share capital of the Company upon the listing of the shares of the Company on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). The maximum number of shares issuable upon exercise of the share options granted under the Share Option Scheme and any other share option scheme(s) of the Company (including exercised, cancelled and outstanding share options) to each eligible participant in any 12-month period is limited to 1% of the shares of the Company in issue as at the date of grant. Any further grant of share options in excess of this 1% limit shall be subject to the issue of a circular by the Company (and if required, the holding company) and the shareholders’ approval of the Company (and if required, the approval of the shareholders of the holding company) at a general meeting.

— 71 —

APPENDIX IIA

FINANCIAL INFORMATION OF THE GROUP

Share options granted to a director, chief executive or substantial shareholder of the Company, or to any of their respective associates, are subject to the approval in advance by the independent non-executive directors of the Company (and if required, the approval of the independent non-executive directors of the holding company), excluding the independent non-executive director(s) of the Company and the holding company who is/are the grantee(s) of the share options. In addition, any share option granted to a substantial shareholder or an independent non-executive director of the Company, or to any of their respective associates, in excess of 0.1% of the shares of the Company in issue as at the date of grant or with an aggregate value (based on the closing price of the shares of the Company as at the date of grant) in excess of HK$5 million, within any 12-month period, are subject to the issue of a circular by the Company (and if required, the holding company) and the shareholders’ approval of the Company (and if required, the approval of the shareholders of the holding company) in advance at a general meeting.

The offer of a grant of share options may be accepted within 28 days from the date of the offer, upon payment of a nominal consideration of HK$1 in total by the grantee. The exercise period of the share options granted is determinable by the Board, and commences on a specified date and ends on a date which is not later than 10 years from the date of grant of the share options or the expiry date of the Share Option Scheme, whichever is earlier.

The exercise price of the share options is determinable by the Board, but may not be less than the highest of (i) the closing price of the shares of the Company as stated in the daily quotation sheet of the Stock Exchange on the date of grant, which must be a trading day; (ii) the average closing price of the shares of the Company as stated in the Stock Exchange’s daily quotation sheets for the five trading days immediately preceding the date of grant; and (iii) the nominal value of the Company’s shares.

Details of the movements of share options under the Share Option Scheme during the year were as follows:

Name or category of participant Outstanding as at 1 January 2003 Executive directors Mak Shiu Tong, Clement — Cheng Yuk Ching, Flora — Tam Ngai Hung, Terry — Tong Chi Hoi — — Independent non-executive directors Chow Siu Ngor — Lau Ho Kit, Ivan — — Other employees In aggregate — — —	Name or category of participant Outstanding as at 1 January 2003 Executive directors Mak Shiu Tong, Clement — Cheng Yuk Ching, Flora — Tam Ngai Hung, Terry — Tong Chi Hoi — — Independent non-executive directors Chow Siu Ngor — Lau Ho Kit, Ivan — — Other employees In aggregate — — —	Number of share options Granted during the year Exercised during the year Lapsed/ Cancelled during the year 100,000,000 — — 100,000,000 — — 100,000,000 — — 50,000,000 — —	Number of share options Granted during the year Exercised during the year Lapsed/ Cancelled during the year 100,000,000 — — 100,000,000 — — 100,000,000 — — 50,000,000 — —	Number of share options Granted during the year Exercised during the year Lapsed/ Cancelled during the year 100,000,000 — — 100,000,000 — — 100,000,000 — — 50,000,000 — —	Price of the shares of the Company Outstanding as at 31 December 2003 Date of grant of share options Exercise period of share options Exercise price per share At grant date of share options At exercise date of share options (Note 1) HK$ (Note 2) HK$ (Note 3) HK$ 100,000,000 30/4/2003 30/4/2003 -29/4/2008 0.014 0.014 — 100,000,000 30/4/2003 30/4/2003 -29/4/2008 0.014 0.014 — 100,000,000 30/4/2003 30/4/2003 -29/4/2008 0.014 0.014 — 50,000,000 30/4/2003 30/4/2003 -29/4/2008 0.014 0.014 — 350,000,000 8,000,000 30/4/2003 30/4/2003 -29/4/2008 0.014 0.014 — 8,000,000 30/4/2003 30/4/2003 -29/4/2008 0.014 0.014 — 16,000,000 716,781,000 30/4/2003 30/4/2003 -29/4/2008 0.014 0.014 0.022 716,781,000 1,082,781,000
	—	350,000,000 8,000,000 8,000,000 16,000,000 716,800,000 716,800,000	— — — — (19,000) (19,000)	—	350,000,000
	— —			— —	8,000,000 8,000,000
	—			—	16,000,000
	—			—	716,781,000
	—			—	716,781,000
	—	1,082,800,000	(19,000)	—

— 72 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IIA

Notes:

1. The exercise price of the share options is subject to adjustment(s) in the case of rights or bonus share issues, or other similar changes in the share capital of the Company.

2. The price of the shares of the Company as at the date of grant of the share options is the closing price of the shares of the Company as listed on the Stock Exchange on the trading day immediately before the date on which the share options were granted.

3. The price of the shares of the Company as at the date of exercise of the share options is the weighted average of the closing prices of the shares of the Company as listed on the Stock Exchange on the trading day immediately before the dates on which the share options were exercised.

The financial impact of the share options granted is not recorded in the balance sheet of the Company or the Group until such time as the share options are exercised, and no charge is recorded in the profit and loss account or balance sheet for their cost. Upon exercise of the share options, the resulting shares issued are recorded by the Company as additional share capital at the nominal value of the shares, and the excess of the exercise price per share over the nominal value of the shares is recorded by the Company in the share premium account. Share options which are lapsed or are cancelled prior to their exercise date are deleted from the register of outstanding share options.

The directors of the Company do not consider it appropriate to disclose a theoretical value of the share options granted to the directors and the employees of the Company during the year because a number of factors crucial for the valuation cannot be determined. Accordingly, any valuation of the share options based on various speculative assumptions would not be meaningful, but would be misleading to the shareholders of the Company.

32. RESERVES

• (a) Group

The amounts of the Group’s reserves and the movements therein for the current year and prior period are presented in the consolidated statement of changes in equity on page 37 of the financial statements.

• (b) Company

Special reserve Accumulated losses HK$’000 HK$’000 On date of incorporation — — Special reserve arising from the Group Reorganisation (55,749) — Loss for the period — (11,093) At 31 December 2002 and beginning of year (55,749) (11,093) Profit for the year — 867 At 31 December 2003 (55,749) (10,226)	Special reserve Accumulated losses HK$’000 HK$’000 On date of incorporation — — Special reserve arising from the Group Reorganisation (55,749) — Loss for the period — (11,093) At 31 December 2002 and beginning of year (55,749) (11,093) Profit for the year — 867 At 31 December 2003 (55,749) (10,226)	Special reserve Accumulated losses HK$’000 HK$’000 On date of incorporation — — Special reserve arising from the Group Reorganisation (55,749) — Loss for the period — (11,093) At 31 December 2002 and beginning of year (55,749) (11,093) Profit for the year — 867 At 31 December 2003 (55,749) (10,226)	Total HK$’000 — (55,749) (11,093) (66,842) 867 (65,975)
	(55,749) —	(11,093) 867	(66,842 867
	(55,749)	(10,226)

The special reserve of the Company represents the difference between the fair values of the shares of the subsidiaries acquired pursuant to the Group Reorganisation and the nominal value of the Company’s shares issued in exchange therefor.

— 73 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IIA

33. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT

(a) Major non-cash transactions

During the year, the Company issued a convertible note with a principal amount of HK$768 million to an indirect wholly-owned subsidiary of CCT Telecom as consideration for the acquisition of the entire interest in ESH.

(b) Acquisition of subsidiaries

Net assets acquired: Fixed assets Intangible assets Other assets Deferred tax assets Cash and bank balances Pledged time deposits Inventories Trade and bills receivables Prepayments, deposits and other receivables Trade and bills payables Tax payable Other payables and accruals Interest bearing bank borrowings Bank overdrafts Finance lease payables Deferred tax liabilities Goodwill on acquisition — note 17 Satisfied by: Issue of consideration shares Issue of convertible notes — note 28 Cash paid for incidental acquisition costs	2003 HK$’000 699,740 31,052 350 10,161 137,480 58,636 189,161 499,707 26,443 (618,523) (8,059) (75,140) (200,024) — (2,388) (3,107)	2002 HK$’000 11,819 423 — — 15,058 — 3,295 32,024 643 (23,003) (1,968) (671) — (32) — (985) 36,603 33,397 70,000 25,000 45,000 — 70,000
	745,489 25,059	36,603 33,397
	770,548
	— 768,000 2,548	25,000 45,000 —
	770,548

— 74 —

APPENDIX IIA

FINANCIAL INFORMATION OF THE GROUP

An analysis of the net inflow of cash and cash equivalents in respect of the acquisition of subsidiaries is as follows:

Cash paid Cash and bank balances acquired Less: Bank overdrafts Net inflow of cash and cash equivalents in respect of the acquisition of subsidiaries	2003 HK$’000 (2,548) 137,480 — 134,932	2002 HK$’000 — 15,058 (32) 15,026

The subsidiaries acquired during the year contributed approximately HK$1,865,553,000 to the Group’s consolidated turnover and HK$96,768,000 to the consolidated profit after tax and before minority interests for the year ended 31 December 2003.

The subsidiary acquired in the prior year contributed approximately HK$106,020,000 to the Group’s consolidated turnover and approximately HK$6,053,000 to the consolidated profits after tax before minority interests for the period ended 31 December 2002.

(c) Disposal of subsidiaries and discharge of secured and unsecured financial obligations upon the Group Restructuring

Net assets disposed of: Fixed assets Other investments Inventories Cash and bank balances Trade payables Other payables and accruals Finance lease payables Bank loans and other borrowings Convertible notes Conversion option Reversal of reserves upon the Group Restructuring: Contributed surplus Capital reserve Expenses incurred in connection with the Group Restructuring Net gain attributable to the Group Restructuring	2003 HK$’000 — — — — — — — — — —	2002 HK$’000 62,027 368 23,439 2,974 (63,880) (28,622) (314) (12,480) (9,867) (20,487) (46,842) (34,600) (47,926) (82,526) (129,368) 9,896 (119,472) 119,472 —
	— — — — — — — —	(46,842 (34,600 (47,926
		(82,526
		(129,368 9,896
		(119,472 119,472
	—

— 75 —

APPENDIX IIA

FINANCIAL INFORMATION OF THE GROUP

An analysis of the net outflow of cash and cash equivalents in respect of the disposal of subsidiaries and discharge of secured and unsecured financial obligations is as follows:

Cash consideration Cash and bank balances disposed of Expenses incurred in connection with the Group Restructuring Net outflow of cash and cash equivalents in respect of the disposal of subsidiaries and discharge of secured and unsecured financial obligations	2003 HK$’000 — — — —	2002 HK$’000 — 2,974 9,896
		12,870

34. CONTINGENT LIABILITIES

• (a) At the balance sheet date, contingent liabilities not provided for in the financial statements were as follows:

		Group		Company	Company
	2003		2002	2003	2002
	HK$’000		HK$’000	HK$’000	HK$’000
Corporate guarantees given to banks in
connection with facilities granted to
subsidiaries	—		—	346,000	—

As at 31 December 2003, the bank facilities granted to the subsidiaries subject to guarantees given to the banks by the Company were utilised to the extent of approximately HK$183 million (2002: Nil).

• (b) The Group has a contingent liability in respect of possible future long service payments to employees under the Hong Kong Employment Ordinance, with a maximum possible amount of approximately HK$4,708,000 as at 31 December 2003 (2002: HK$215,000), as further explained in note 3 to the financial statements. The contingent liability has arisen as a number of current employees have achieved the required number of years of service to the Group, to the balance sheet date, in order to be eligible for long service payments under the Employment Ordinance if their employment is terminated under certain circumstances. A provision has not been recognised in respect of such possible payments, as it is not considered probable that the situation will result in a material future outflow of resources from the Group.

35. PLEDGE OF ASSETS

At the balance sheet date, the Group’s bank borrowings were secured by pledge of the Group’s fixed deposits amounting to approximately HK$100 million (2002: HK$5 million).

The bank loans as at 31 December 2002 were secured by the fixed charges over the Group’s freehold land and buildings with a net book value amounting to approximately HK$4,769,000. The bank loans were fully repaid during the year and the related fixed charges over the Group’s freehold land and buildings were released.

— 76 —

APPENDIX IIA

FINANCIAL INFORMATION OF THE GROUP

36. OPERATING LEASE ARRANGEMENTS

The Group leases certain of its office premises under operating lease arrangements. Leases for properties are negotiated for terms ranging from one to three years.

At the balance sheet date, the Group had total future minimum lease payments under non-cancellable operating leases in respect of office premises falling due as follows:

Within one year In the second to fifth years, inclusive	Group 2003 HK$’000 4,443 1,440 5,883	2002 HK$’000 600 —
		600

37. COMMITMENTS

In addition to the operating lease commitments detailed in note 36 above, the Group had the following capital commitments at the balance sheet date:

Contracted, but not provided for Purchases of plant, machinery and equipment Leasehold improvements	Group 2003 HK$’000 2,255 94 2,349	2002 HK$’000 — —
		—

38. RELATED PARTY TRANSACTIONS

• (1) On 15 May 2003, the Company and CCT Telecom entered into a conditional agreement pursuant to which CCT Telecom has agreed (i) to dispose of the entire interest in ESH to the Company; and (ii) to assign its interest-free shareholder’s loan due from ESH Group to the Company as at the completion date of this transaction, at a total consideration of HK$768 million. The consideration was satisfied by the issue of a convertible note with a principal amount of HK$768 million by the Company to an indirect wholly-owned subsidiary of CCT Telecom.

ESH Group is principally engaged in the design, manufacture and sale on ODM and OEM basis of home-use telecom products including cordless phones and family radio systems.

The transaction was completed on 30 June 2003 and further details of the acquisition are set out in the Company’s circular dated 11 June 2003.

— 77 —

APPENDIX IIA

FINANCIAL INFORMATION OF THE GROUP

• (2) For the period from 1 July 2003 to 31 December 2003, certain indirect wholly-owned subsidiaries of the Company had the following material transactions with CCT Telecom and its certain subsidiaries subsequent to the acquisition of ESH Group by the Company on 30 June 2003:

		2003
	Notes	HK$’000
Purchases of plastic casings and components	(a)	132,353
Factory rental income	(b)	3,000
Factory rental expense	(c)	900
Office rental expenses	(d)	1,492
Management information system service fee	(e)	1,200

Notes:

• (a) The plastic casings and components were purchased by CCT Telecom (HK) Limited (“CCT HK”), an indirect wholly-owned subsidiary of the Company, from Neptune Holding Limited (“Neptune”), an indirect wholly-owned subsidiary of CCT Telecom, in accordance with the terms and conditions set out in a manufacturing agreement entered into between CCT HK and Neptune on 15 May 2003.

The purchase prices were determined based on the direct material costs plus a mark-up of no more than 300%.

• (b) The factory rental income was charged to Shine Best Developments Limited (“Shine Best”), an indirect wholly-owned subsidiary of CCT Telecom, by CCT Enterprise Limited (“CCT Ent”), an indirect wholly-owned subsidiary of the Company, for the provision of factory space in Huiyang, the PRC, at a rate determined in accordance with the terms and conditions set out in a tenancy agreement entered into between Shine Best and CCT Ent on 15 May 2003.

• (c) The factory rental expense was charged to CCT Investment Limited (“CCT Inv”), an indirect wholly-owned subsidiary of the Company, by CCT Properties (Dongguan) Limited (“CCT Prop”), an indirect whollyowned subsidiary of CCT Telecom, for the provision of factory space in Dongguan, the PRC, at a rate determined in accordance with the terms and conditions set out in a tenancy agreement entered into between CCT Inv and CCT Prop on 15 May 2003.

• (d) The office rental expenses were charged to CCT HK and CCT Telecom R&D Limited (“CCT R&D”), indirect wholly-owned subsidiaries of the Company, by Goldbay Investments Limited (“Goldbay”), an indirect wholly-owned subsidiary of CCT Telecom, for the provision of office spaces in Hong Kong, at rates determined in accordance with the terms and conditions set out in three tenancy agreements entered into between CCT HK and Goldbay on 21 November 2001 and 23 October 2002, and between CCT R&D and Goldbay on 20 January 2003, respectively.

• (e) The management information system service fee was charged to CCT Telecom by CCT HK for the provision of general management information system support, network and software consultation and hardware maintenance services. The rate was determined in accordance with the terms and conditions set out in an agreement entered into between CCT Telecom and CCT HK on 15 May 2003.

— 78 —

APPENDIX IIA

FINANCIAL INFORMATION OF THE GROUP

• (3) During the year, Electronic Sales Limited (“ESL”), a wholly-owned subsidiary of the Company, had the following material transactions with certain subsidiaries of CCT Telecom:

			Period from
		Year ended	17 May 2002 to
		31 December	31 December
		2003	2002
	Notes	HK$’000	HK$’000
Rental expense	(a)	1,800	1,200
Purchase of materials	(b)	24,427	17,256

Notes:

• (a) The rental expense was charged to ESL by CCT Prop for the provision of factory space in Dongguan, the PRC, at a rate determined in accordance with the terms and conditions set out in a rental agreement entered into between ESL and CCT Prop on 15 April 2003.

• (b) The purchase of materials from Neptune, included plastic moulds and materials, and the prices of which were determined based on the direct costs of the materials plus a mark-up of up to 50% of such direct costs.

In addition to the above, ESL had the following material transactions with CCT HK up to 30 June 2003, the date on which CCT HK became a wholly-owned subsidiary of the Group:

		Period from	Period from
		1 January 2003 to	17 May 2002 to
		30 June	31 December
		2003	2002
	Notes	HK$’000	HK$’000
Management fee expense	(c)	1,200	1,600
Sale of products	(d)	45,750	73,750

• (c) The management fee expense was charged to ESL by CCT HK for the provision of general administration, management information system consultation and hardware maintenance services and was determined based on actual costs incurred.

• (d) The sale of products to CCT HK included transformers, AC/DC adaptors and custom built-in power supply, and the prices of which were determined based on the direct material costs of the products plus a mark-up of up to 50% of such direct material costs.

39. COMPARATIVE AMOUNTS

As further explained in note 2 to the financial statements, due to the adoption of certain revised SSAPs during the current year, the accounting treatment and presentation of certain items in the financial statements have been revised to comply with the new requirements. Accordingly, certain comparative amounts have been reclassified to conform with the current period’s presentation.

40. APPROVAL OF THE FINANCIAL STATEMENTS

The financial statements were approved and authorised for issue by the board of directors on 23 April 2004.

— 79 —

APPENDIX IIB FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

The following is the text of a report, prepared for the purpose of inclusion in this circular from Ernst & Young, Certified Public Accountants, Hong Kong

15th Floor Hutchison House 10 Harcourt Road Central Hong Kong

20 August 2004

The Directors

First Precision Holdings Limited

Dear Sirs,

We set out below our report on the financial information regarding First Precision Holdings Limited (“First Precision”) and its subsidiaries (hereinafter collectively referred to as the “First Precision Group”), for each of the three years ended 31 December 2003 and the six months ended 30 June 2004 (the “Relevant Periods”), prepared on the basis set out in Section 1 below, for inclusion in the circular of CCT Telecom Holdings Limited (“CCT”), the ultimate holding company of First Precision, dated 20 August 2004 (the “Circular”) in relation to the proposed acquisition of the entire issued capital of First Precision by CCT (the “Proposed Acquisition”).

First Precision was incorporated with limited liability in the British Virgin Islands under the International Business Companies Act on 26 November 2002.

The statutory auditors of (Dongguan ESL Electronic Products Co., Ltd.) were (Dongguan City De Zheng Certified Public Accountants) for each of the Relevant Periods. For the purpose of this report, we have performed independent audits in accordance with Statements of Auditing Standards issued by the Hong Kong Society of Accountants (the “HKSA”) on the management accounts of (Dongguan ESL Electronic Products Co., Ltd.) for the Relevant Periods.

As at the date of this report, no audited financial statements have been prepared for First Precision, Terrison Limited and Canova Limited for each of the Relevant Periods or since the dates of their incorporation, where this is a shorter period. We have, however, performed our own independent review of all the relevant transactions of these companies for each of the Relevant Periods or since the dates of their incorporation, where this is a shorter period, and carried out such procedures as we considered necessary for inclusion of the financial information relating to these companies in this report.

We have acted as auditors of Electronic Sales Limited for each of the Relevant Periods.

— 80 —

APPENDIX IIB FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

For the purpose of this report, we have examined the audited financial statements or, where appropriate, the management accounts of each of the companies now comprising the First Precision Group for each of the Relevant Periods or from the dates of their incorporation/registration, where this is a shorter period, in accordance with the Auditing Guideline “Prospectuses and the reporting accountant” issued by the HKSA.

The summaries of the combined results, combined statements of changes in equity and combined cash flow statements of the First Precision Group for the Relevant Periods and of the combined balance sheets of the First Precision Group as at 31 December 2001, 2002 and 2003, and 30 June 2004 (the “First Precision Summaries”) set out in this report have been prepared from the audited financial statements or, where appropriate, the management accounts of the companies now comprising the First Precision Group, after making such adjustments as we consider appropriate, and are presented on the basis set out in Section 1 below.

The directors of First Precision are responsible for the preparation of the First Precision Summaries. In preparing the First Precision Summaries, it is fundamental that appropriate accounting policies are selected and applied consistently. It is our responsibility to form an independent opinion on the First Precision Summaries.

In our opinion, the First Precision Summaries together with the notes thereon give, for the purpose of this report, a true and fair view of the combined results and cash flows of the First Precision Group for each of the Relevant Periods and of the combined balance sheets of the First Precision Group as at 31 December 2001, 2002 and 2003 and 30 June 2004.

1. BASIS OF PRESENTATION

The First Precision Summaries, which are based on the audited financial statements or, where appropriate, the management accounts of the companies now comprising the First Precision Group, after making such adjustments as we consider appropriate, include the results, statements of changes in equity, cash flow statements and balance sheets of the companies now comprising the First Precision Group as if the current First Precision Group structure had been in existence throughout the Relevant Periods, or since the dates of their incorporation/registration, where this is a shorter period.

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

— 81 —

APPENDIX IIB FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

At the date of this report, First Precision had direct or indirect interests in the following subsidiaries, all of which are private companies (or, if incorporated/registered outside Hong Kong, have substantially similar characteristics to a private company incorporated in Hong Kong), the particulars of which are set out below:

					Nominal value
					of issued and
				Place and date of	fully-paid/	Percentage of
				incorporation/	registered share	equity attributable		Principal
Company name				registration	capital	**to First **	Precision	activities
						Direct	Indirect
Electronic Sales			Limited	Hong Kong	HK$5,948,000	100	—	Sale of telecom
				2 July 1972 Mainland China	Ordinary HK$60,000,000	—	100	products Manufacture of
(Dongguan ESL Electronic				5 February 2001	Registered			telecom products
Products Co.,			Ltd.)
Terrison Limited				Hong Kong	HK$2 Ordinary	—	100	Dormant
				3 July 1994
Canova Limited				Hong Kong	HK$2 Ordinary	—	100	Dormant
				26 October 1994

2. PRINCIPAL ACCOUNTING POLICIES

The principal accounting policies adopted by the First Precision Group in arriving at the financial information set out in this report, which conform with accounting principles generally accepted in Hong Kong, are set out below:

Subsidiaries

A subsidiary is a company whose financial and operating policies First Precision controls, directly or indirectly, so as to obtain benefits from its activities.

Related parties

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

Impairment of assets

An assessment is made at each balance sheet date of whether there is any indication of impairment of any assets, or whether there is any indication that an impairment loss previously recognised for an asset in prior years may no longer exist or may have decreased. If any such indication exists, the assets’ recoverable amount is estimated. An asset’s recoverable amount is calculated as the higher of the asset’s value in use or its net selling price.

— 82 —

APPENDIX IIB

FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. An impairment loss is charged to the combined profit and loss account in the period in which it arises, unless the asset is carried at a revalued amount, when the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the recoverable amount of an asset, however not to an amount higher than the carrying amount that would have been determined (net of depreciation/amortisation), had no impairment loss been recognised in prior years.

A reversal of an impairment loss is credited to the combined profit and loss account in the period in which it arises, unless the asset is carried at a revalued amount, when the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

Fixed assets and depreciation

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

Depreciation is calculated on the straight-line basis to write off the cost of each asset over its estimated useful life. The principal annual rates used for this purpose are as follows:

Plant and machinery	15%
Tools, moulds and equipment	15%
Furniture and office equipment	15%
Motor vehicles	15% - 30%

The gain or loss on disposal or retirement of a fixed asset recognised in the combined profit and loss account is the difference between the net sales proceeds and the carrying amount of the relevant asset.

Deferred development costs

All research costs are charged to the combined profit and loss account as incurred.

— 83 —

APPENDIX IIB

FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

Expenditure incurred on projects to develop new products is capitalised and deferred only when the projects are clearly defined; the expenditure is separately identifiable and can be measured reliably; there is reasonable certainty that the projects are technically feasible; and the products have commercial value. Product development expenditure which does not meet these criteria is expensed when incurred.

Deferred development costs are stated at cost less accumulated amortisation and any impairment losses and are amortised using the straight-line basis over the commercial lives of the underlying products not exceeding four years, commencing from the date when the products are put into commercial production.

Income tax

Income tax comprises current and deferred tax. Income tax is recognised in the profit and loss account or in equity if it relates to items that are recognised in the same or a different period, directly in equity.

Deferred tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Tax rates enacted or substantively enacted by the balance sheet date are used to determine deferred tax.

Deferred tax liabilities are provided in full on all taxable temporary differences while deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Leased assets

Leases that transfer substantially all the rewards and risks of ownership of assets to the First Precision Group, other than legal title, are accounted for as finance leases. At the inception of a finance lease, the cost of the leased asset is capitalised at the present value of the minimum lease payments and recorded together with the obligation, excluding the interest element, to reflect the purchase and financing. Assets held under capitalised finance leases are included in fixed assets and depreciated over the shorter of the lease terms and the estimated useful lives of the assets. The finance costs of such leases are charged to the combined profit and loss account so as to provide a constant periodic rate of charge over the lease terms.

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the First Precision Group is the lessor, assets leased by the First Precision Group under operating leases are included in non-current assets and rental receivables under the operating leases are credited to the combined profit and loss account on the straight line basis over the lease terms. Where the First Precision Group is the lessee, rentals payable under the operating leases are charged to the combined profit and loss account on the straight-line basis over the lease terms.

— 84 —

FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

APPENDIX IIB

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined on the weighted average basis and, in the case of work in progress and finished goods, comprises direct materials, direct labour and an appropriate proportion of overheads. Net realisable value is based on estimated selling prices less any estimated costs to be incurred to completion and disposal.

Cash equivalents

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

For the purpose of the combined balance sheet, cash and cash equivalents comprise cash on hand and at banks, including time deposits, which are not restricted as to use.

Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to the First Precision Group and when the revenue can be measured reliably, on the following bases:

• (a) from the sale of goods, when the significant risks and rewards of ownership have been transferred to the buyer, provided that the First Precision Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold;

• (b) rental income, on a time proportion basis over the lease terms; and

• (c) interest income, on a time proportion basis taking into account the principal outstanding and the effective interest rate applicable.

Employee benefits

Paid leave carried forward

The First Precision Group provides paid annual leave to its employees under their employment contracts on a calendar year basis. Under certain circumstances, such leave which remains untaken as at the balance sheet date is permitted to be carried forward and utilised by the respective employees in the following year. An accrual is made at the balance sheet date for the expected future cost of such paid leave earned during the year by the employees and carried forward.

— 85 —

APPENDIX IIB

FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

Employment Ordinance long service payments

Certain of the First Precision Group’s employees have completed the required number of years of service to the First Precision Group in order to be eligible for long service payments under the Hong Kong Employment Ordinance in the event of the termination of their employment. The First Precision Group is liable to make such payments in the event that such a termination of employment meets the circumstances specified in the Employment Ordinance.

A contingent liability is disclosed in respect of possible future long service payments to employees, as a number of current employees have achieved the required number of years of service to the First Precision Group, to the balance sheet date, in order to be eligible for long service payments under the Employment Ordinance if their employment is terminated in the circumstances specified. A provision has not been recognised in respect of such possible payments, as it is not considered probable that the situation will result in a material future outflow of resources from the First Precision Group.

Pension scheme

The First Precision Group operates a defined contribution Mandatory Provident Fund retirement benefits scheme (the “MPF Scheme”) under the Mandatory Provident Fund Schemes Ordinance, for certain of its employees. Contributions are made based on a percentage of the employees’ basic salaries and are charged to the combined profit and loss account as they become payable in accordance with the rules of the MPF Scheme. The assets of the MPF Scheme are held separately from those of the First Precision Group in an independently administered fund. The First Precision Group’s employer contributions vest fully with the employees when contributed into the MPF Scheme, except for the First Precision Group’s employer voluntary contributions, which are refunded to the First Precision Group when the employee leaves employment prior to the contributions vesting fully, in accordance with the rules of the MPF Scheme.

In addition to the MPF Scheme, the First Precision Group operates a separate defined contribution retirement benefits scheme for those employees who are eligible to participate in this scheme. This scheme operates in a similar way to the MPF Scheme, except that when an employee leaves the scheme before his/her interest in the First Precision Group’s employer contributions vesting fully, the ongoing contributions payable by the First Precision Group are reduced by the relevant amount of the forfeited employer contributions.

Foreign currencies

Foreign currency transactions are recorded at the applicable exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable exchange rates ruling at that date. Exchange differences are dealt with in the combined profit and loss account.

— 86 —

APPENDIX IIB

FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

On combination, the financial statements of overseas subsidiaries are translated into Hong Kong dollars using the net investment method. The profit and loss accounts of overseas subsidiaries are translated into Hong Kong dollars at the weighted average exchange rates for the year, and their balance sheets are translated to Hong Kong dollars at the exchange rates ruling at the balance sheet date. The resulting translation differences are included in the exchange fluctuation reserve.

For the purpose of the combined cash flow statement, the cash flows of overseas subsidiaries are translated into Hong Kong dollars at the exchange rates at the dates of the cash flows. Frequently recurring cash flows of overseas subsidiaries which arise throughout the year are translated to Hong Kong dollars at the weighted average exchange rates for the year.

3. COMBINED RESULTS

The following is a summary of the combined results of the First Precision Group for the Relevant Periods, prepared on the basis set out in Section 1 “Basis of presentation” above:

Notes Turnover (a) Cost of sales Gross profit Other revenue and gains (a) Selling and distribution costs Administrative expenses Other operating expenses Profit from operating activities (b) Finance costs (c) Profit before tax Tax (f) Net profit from ordinary activities attributable to shareholders Dividend (g)	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 144,830 146,906 120,404 65,653 (120,454) (129,558) (99,521) (58,523) 24,376 17,348 20,883 7,130 875 1,014 800 750 (696) (723) (633) (244) (17,751) (10,539) (6,142) (1,719) (585) (5,661) (345) — 6,219 1,439 14,563 5,917 (688) (74) (2) — 5,531 1,365 14,561 5,917 (828) (282) (2,543) 890 4,703 1,083 12,018 6,807 — — — —	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 144,830 146,906 120,404 65,653 (120,454) (129,558) (99,521) (58,523) 24,376 17,348 20,883 7,130 875 1,014 800 750 (696) (723) (633) (244) (17,751) (10,539) (6,142) (1,719) (585) (5,661) (345) — 6,219 1,439 14,563 5,917 (688) (74) (2) — 5,531 1,365 14,561 5,917 (828) (282) (2,543) 890 4,703 1,083 12,018 6,807 — — — —	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 144,830 146,906 120,404 65,653 (120,454) (129,558) (99,521) (58,523) 24,376 17,348 20,883 7,130 875 1,014 800 750 (696) (723) (633) (244) (17,751) (10,539) (6,142) (1,719) (585) (5,661) (345) — 6,219 1,439 14,563 5,917 (688) (74) (2) — 5,531 1,365 14,561 5,917 (828) (282) (2,543) 890 4,703 1,083 12,018 6,807 — — — —	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 144,830 146,906 120,404 65,653 (120,454) (129,558) (99,521) (58,523) 24,376 17,348 20,883 7,130 875 1,014 800 750 (696) (723) (633) (244) (17,751) (10,539) (6,142) (1,719) (585) (5,661) (345) — 6,219 1,439 14,563 5,917 (688) (74) (2) — 5,531 1,365 14,561 5,917 (828) (282) (2,543) 890 4,703 1,083 12,018 6,807 — — — —
	24,376 875 (696) (17,751) (585) 6,219 (688) 5,531 (828)	17,348 1,014 (723) (10,539) (5,661) 1,439 (74) 1,365 (282)	20,883 800 (633) (6,142) (345) 14,563 (2) 14,561 (2,543)	7,130 750 (244 (1,719 —
				5,917 —
				5,917 890
	4,703 —	1,083 —	12,018 —

— 87 —

FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

APPENDIX IIB

Notes:

(a) Turnover, other revenue and gains

Turnover represents the net invoiced value of goods sold, after allowances for returns and trade discounts, during the Relevant Periods.

An analysis of turnover, other revenue and gains is as follows:

Turnover Manufacture and sale of telecom products and accessories Interest income Other revenue Exchange gains, net Rental income for mould and equipment Sale of scrap materials Others Gains Gain on disposal of fixed assets, net	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 144,777 146,814 120,358 65,647 53 92 46 6 144,830 146,906 120,404 65,653	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 144,777 146,814 120,358 65,647 53 92 46 6 144,830 146,906 120,404 65,653	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 144,777 146,814 120,358 65,647 53 92 46 6 144,830 146,906 120,404 65,653	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 144,777 146,814 120,358 65,647 53 92 46 6 144,830 146,906 120,404 65,653
				65,653
	— — 776 45 821 54	— 309 482 223 1,014 —	— — 535 230 765 35	258 — 490 2
				750
				—
	875	1,014	800	750

— 88 —

APPENDIX IIB

FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

(b) Profit from operating activities

The First Precision Group’s profit from operating activities is arrived at after charging/(crediting):

Depreciation Minimum lease payments under operating leases in respect of land and buildings Bad and doubtful debt provisions on trade receivables Bad and doubtful debt provisions on amount due from a fellow subsidiary Provision for slow-moving and obsolete stock Amortisation of deferred development costs Write off of deferred development costs** Staff costs: Wages and salaries Pension scheme contributions Less: Forfeited contributions Net pension contributions Auditors’ remuneration Write off of fixed assets Exchange losses, net	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 2,804 3,037 3,147 1,767 2,352 1,621 2,123 911 585 380 — — — 1,305 — — 2,748 6,103 628 — 769 318 366 — — 2,969 345 — 22,300 13,778 10,198 5,178 592 218 128 72 — — — (409) 592 218 128 (337) 22,892 13,996 10,326 4,841 200 120 120 60 — 1,007 — — 432 136 93 —	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 2,804 3,037 3,147 1,767 2,352 1,621 2,123 911 585 380 — — — 1,305 — — 2,748 6,103 628 — 769 318 366 — — 2,969 345 — 22,300 13,778 10,198 5,178 592 218 128 72 — — — (409) 592 218 128 (337) 22,892 13,996 10,326 4,841 200 120 120 60 — 1,007 — — 432 136 93 —
		(337)
		4,841 60 — —

• The amortisation of deferred development costs and provision for slow-moving and obsolete stocks for the Relevant Periods are included in “Cost of sales” on the face of the combined results.

** The write off of deferred development costs for the Relevant Periods is included in “Other operating expenses” on the face of the combined results.

(c) Finance costs

Interest on bank loans and overdrafts wholly repayable within five years Interest on finance leases	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 614 23 2 — 74 51 — — 688 74 2 —	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 614 23 2 — 74 51 — — 688 74 2 —
		—

— 89 —

APPENDIX IIB

FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

(d) Directors’ remuneration

Details of the directors’ remuneration are as follows:

Fees Salaries, housing benefits and other allowances Pension scheme contributions	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 — — — — — — — — — — — — — — — —	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 — — — — — — — — — — — — — — — —
		—

The number of directors whose remuneration fell within the following bands is as follows:

					Number of directors	Number of directors
							Six months
							ended
				**Year **	ended 31 December		30 June
			2001		2002	2003	2004
Nil	-	HK$1,000,000	3		3	3	4

During the Relevant Periods, no remuneration was paid by the First Precision Group to any of the directors as an inducement to join or upon joining the First Precision Group, or as compensation for loss of office. No director waived or agreed to waive any remuneration during the Relevant Periods.

(e) Five highest paid employees

The five highest paid employees of the First Precision Group did not include any director during the Relevant Periods. Details of the remuneration of the five non-director, highest paid individuals during each of the Relevant Periods are as follows:

				Six months
				ended
		Year ended 31 December		30 June
	2001	2002	2003	2004
	HK$’000	HK$’000	HK$’000	HK$’000
Salaries, housing benefits and other
allowances	3,003	1,963	1,384	694
Pension scheme contributions	192	131	75	33
	3,195	2,094	1,459	727

— 90 —

APPENDIX IIB FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

The number of the non-director, highest paid individuals whose remuneration fell within the following bands is as follows:

Nil - HK$1,000,000 HK$1,000,001 - HK$1,500,000	Number of employees Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 4 5 5 5 1 — — — 5 5 5 5	Number of employees Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 4 5 5 5 1 — — — 5 5 5 5
		5

During the Relevant Periods, no remuneration was paid by the First Precision Group to any of the non-director, highest paid employees as an inducement to join or upon joining the First Precision Group, or as compensation for loss of office.

(f) Tax

Hong Kong profits tax has been provided at the rate of 17.5% in the six months period ended 30 June 2004 and the year ended 31 December 2003, and 16% in the two years ended 31 December 2002 on the estimated assessable profits arising in Hong Kong. The increased Hong Kong profits tax rate became effective from the year of assessment 2003/2004, and so is applicable to the assessable profits arising in Hong Kong for the whole of the year ended 31 December 2003 and the six months ended 30 June 2004.

(Dongguan ESL Electronic Products Co., Ltd.) is entitled to preferential tax treatments including full exemption from the corporate income tax in the PRC for two years starting from the first profit-making year, followed by a 50%-reduction for the next consecutive three years.

Current - Hong Kong Charge for the year/period Overprovision in prior periods Current - Elsewhere Deferred tax - note 4(k) Total tax charge/(credit) for the year/period	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 604 752 2,550 878 — — — (1,898) — — 51 76 224 (470) (58) 54 828 282 2,543 (890)	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 604 752 2,550 878 — — — (1,898) — — 51 76 224 (470) (58) 54 828 282 2,543 (890)
		(890)

— 91 —

APPENDIX IIB FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

A reconciliation of the tax expense applicable to profit before tax using the statutory rates for the countries in which First Precision and its subsidiaries are domiciled to the tax expense at the effective tax rates, and a reconciliation of the applicable rates (i.e., the statutory tax rates) to the effective tax rates, are as follows:

2001

Profit before tax Tax at the statutory or appropriate tax rate Higher tax rate for specific provinces or local authority Income not subject to tax Expenses not deductible for tax Tax exemption Tax charge 2002 Profit before tax Tax at the statutory or appropriate tax rate Higher tax rate for specific provinces or local authority Income not subject to tax Expenses not deductible for tax Tax exemption Tax charge 2003 Profit before tax Tax at the statutory or appropriate tax rate Higher tax rate for specific provinces or local authority Effect on opening deferred tax of increase in rates Income not subject to tax Tax exemption Tax charge	Hong Kong HK$’000 % 4,743	Hong Kong HK$’000 % 4,743	Mainland China HK$’000 % 788	Mainland China HK$’000 % 788	Total HK$’000 % 5,531 948 17.1 24 0.4 (9) (0.1) 78 1.4 (213) (3.8) 828 15.0 Total HK$’000 % 1,365 286 20.9 26 1.9 (8) (0.6) 208 15.3 (230) (16.8) 282 20.7 Total HK$’000 % 14,561 2,573 17.7 11 0.1 18 0.1 (8) (0.1) (51) (0.3) 2,543 17.5	Total HK$’000 % 5,531 948 17.1 24 0.4 (9) (0.1) 78 1.4 (213) (3.8) 828 15.0 Total HK$’000 % 1,365 286 20.9 26 1.9 (8) (0.6) 208 15.3 (230) (16.8) 282 20.7 Total HK$’000 % 14,561 2,573 17.7 11 0.1 18 0.1 (8) (0.1) (51) (0.3) 2,543 17.5
	759 — (9) 78 —	16.0 — (0.2) 1.7 —	189 24 — — (213)	24.0 3.0 — — (27.0)	948 24 (9) 78 (213)	17.1 0.4 (0.1 1.4 (3.8
	828 17.5 Hong Kong HK$’000 % 514		— — Mainland China HK$’000 % 851
	82 — (8) 208 —	16.0 — (1.6) 40.4 —	204 26 — — (230)	24.0 3.0 — — (27.0)	286 26 (8) 208 (230)	20.9 1.9 (0.6 15.3 (16.8
	282 54.8 Hong Kong HK$’000 % 14,181		— — Mainland China HK$’000 % 380
	2,482 — 18 (8) —	17.5 — 0.2 (0.1) —	91 11 — — (51)	24.0 3.0 — — (13.5)	2,573 11 18 (8) (51)	17.7 0.1 0.1 (0.1 (0.3
	2,492	17.6	51	13.5	2,543

— 92 —

FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

APPENDIX IIB

Six months ended 30 June 2004

Profit before tax Tax at the statutory or appropriate tax rate Higher tax rate for specific provinces or local authority Adjustments in respect of current tax of previous periods Income net subject to tax Tax exemption Others Tax charge	Hong Kong HK$’000 % 5,321 931 17.5 — — (1,898) (35.7) 1 0.1 — — — — (966) (18.1)	Mainland China HK$’000 % 596 143 24.0 18 3.0 — — 1 0.2 (80) (13.4) (6) (1.0) 76 12.8	Total HK$’000 % 5,917 1,074 18.2 18 0.3 (1,898) (32.1) 2 0.1 (80) (1.4) (6) (0.1) (890) (15.0)

(g) Dividend

No dividend had been paid or declared by First Precision since the date of its incorporation.

(h) Earnings per share

No basic and diluted earnings per share amount is presented as its inclusion, for the purpose of this report, is not considered meaningful.

— 93 —

APPENDIX IIB

FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

(i) Related party transactions

During the Relevant Periods, the First Precision Group had the following material transactions with related parties:

					Six months
					ended
		**Year **	ended 31 December		30 June
	Notes	2001	2002	2003	2004
		HK$’000	HK$’000	HK$’000	HK$’000
Sales of products to fellow subsidiaries	(i)	83,122	99,544	103,767	57,454
Purchases of raw materials from fellow
subsidiaries	(ii)	1,333	24,037	24,427	12,381
Management fee expenses paid to a fellow
subsidiary	(iii)	—	1,600	1,200	—
Factory rental expense	(iv)	—	1,200	1,800	750
Office rental expenses	(v)	625	323	323	161

Notes:

• (i) The sales of products included transformers, AC/DC adaptors and custom built-in power supply. The prices of which were determined based on the direct material costs plus a mark-up of up to 50% of such direct material costs.

• (ii) The purchases of raw materials included plastic moulds and materials and tooling charges for specific models of telecom products. The prices of which were determined based on direct material costs plus a mark-up of up to 50% of such direct material costs.

• (iii) The management fee expenses were paid for the provision of general administration, management information system consultation and hardware maintenance services and were determined based on actual costs incurred.

• (iv) The factory rental expense was charged to Electronic Sales Limited (“ESL”), a wholly-owned subsidiary of First Precision, by CCT Properties (Dongguan) Limited (“CCT Prop”), a wholly-owned subsidiary of CCT, for the provision of factory spaces in Dongguan, the PRC. The rates were determined in accordance with the terms and conditions set out in three tenancy agreements entered into between ESL and CCT Prop on 12 April 2002, 15 April 2003 and 14 January 2004, respectively.

• (v) The office rental expense was charged to ESL by Goldbay Investment Limited (“Goldbay”), a wholly-owned subsidiary of CCT, for the provision of office spaces in Hong Kong. The rates were determined in accordance with the terms and conditions set out in four tenancy agreements entered into between ESL and Goldbay on 1 September 2000, 7 October 2000, 11 February 2002 and 20 January 2003, respectively.

In the opinion of the directors of First Precision, all of the above transactions were conducted in the ordinary course of the First Precision Group’s business.

In addition, ESL guaranteed certain banking facilities granted to a fellow subsidiary of the First Precision Group up to HK$50,000,000 (2001: nil; 2002: nil; 2003: HK$50,000,000) as at 30 June 2004.

— 94 —

FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

APPENDIX IIB

4. COMBINED BALANCE SHEETS

The following is a summary of the combined balance sheets of the First Precision Group as at 31 December 2001, 2002 and 2003 and 30 June 2004 prepared on the basis set out in Section 1 “Basis of presentation” above:

As at 31 December As at 30 June Notes 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 NON-CURRENT ASSETS Fixed assets (a) 12,893 11,365 12,597 11,778 Deferred development costs (b) 3,545 496 — — 16,438 11,861 12,597 11,778 CURRENT ASSETS Inventories (c) 11,531 1,849 4,492 5,513 Trade and bills receivables (d) 38,240 31,467 40,415 44,382 Prepayments, deposits and other receivables 533 1,025 496 140 Due from fellow subsidiaries (e) 31,226 443 6,988 1,922 Pledged time deposits (f) — 5,043 — — Cash and cash equivalents (f) 22,460 27,019 34,543 36,792 103,990 66,846 86,934 88,749 CURRENT LIABILITIES Trade and bills payables (g) 26,030 25,682 32,623 29,571 Tax payable 772 770 3,371 1,063 Other payables and accruals (h) 6,644 5,751 6,336 5,851 Due to fellow subsidiaries (e) 31,858 1,600 337 317 Interest-bearing bank and other borrowings (i) 10,507 — — — 75,811 33,803 42,667 36,802 NET CURRENT ASSETS 28,179 33,043 44,267 51,947 TOTAL ASSETS LESS CURRENT LIABILITIES 44,617 44,904 56,864 63,725 NON-CURRENT LIABILITIES Finance lease payables (j) 326 — — — Deferred tax (k) 666 196 138 192 992 196 138 192 43,625 44,708 56,726 63,533 CAPITAL AND RESERVES Issued capital 5 5,948 5,948 5,948 5,948 Reserves 37,677 38,760 50,778 57,585 43,625 44,708 56,726 63,533	As at 31 December As at 30 June Notes 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 NON-CURRENT ASSETS Fixed assets (a) 12,893 11,365 12,597 11,778 Deferred development costs (b) 3,545 496 — — 16,438 11,861 12,597 11,778 CURRENT ASSETS Inventories (c) 11,531 1,849 4,492 5,513 Trade and bills receivables (d) 38,240 31,467 40,415 44,382 Prepayments, deposits and other receivables 533 1,025 496 140 Due from fellow subsidiaries (e) 31,226 443 6,988 1,922 Pledged time deposits (f) — 5,043 — — Cash and cash equivalents (f) 22,460 27,019 34,543 36,792 103,990 66,846 86,934 88,749 CURRENT LIABILITIES Trade and bills payables (g) 26,030 25,682 32,623 29,571 Tax payable 772 770 3,371 1,063 Other payables and accruals (h) 6,644 5,751 6,336 5,851 Due to fellow subsidiaries (e) 31,858 1,600 337 317 Interest-bearing bank and other borrowings (i) 10,507 — — — 75,811 33,803 42,667 36,802 NET CURRENT ASSETS 28,179 33,043 44,267 51,947 TOTAL ASSETS LESS CURRENT LIABILITIES 44,617 44,904 56,864 63,725 NON-CURRENT LIABILITIES Finance lease payables (j) 326 — — — Deferred tax (k) 666 196 138 192 992 196 138 192 43,625 44,708 56,726 63,533 CAPITAL AND RESERVES Issued capital 5 5,948 5,948 5,948 5,948 Reserves 37,677 38,760 50,778 57,585 43,625 44,708 56,726 63,533	As at 31 December As at 30 June Notes 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 NON-CURRENT ASSETS Fixed assets (a) 12,893 11,365 12,597 11,778 Deferred development costs (b) 3,545 496 — — 16,438 11,861 12,597 11,778 CURRENT ASSETS Inventories (c) 11,531 1,849 4,492 5,513 Trade and bills receivables (d) 38,240 31,467 40,415 44,382 Prepayments, deposits and other receivables 533 1,025 496 140 Due from fellow subsidiaries (e) 31,226 443 6,988 1,922 Pledged time deposits (f) — 5,043 — — Cash and cash equivalents (f) 22,460 27,019 34,543 36,792 103,990 66,846 86,934 88,749 CURRENT LIABILITIES Trade and bills payables (g) 26,030 25,682 32,623 29,571 Tax payable 772 770 3,371 1,063 Other payables and accruals (h) 6,644 5,751 6,336 5,851 Due to fellow subsidiaries (e) 31,858 1,600 337 317 Interest-bearing bank and other borrowings (i) 10,507 — — — 75,811 33,803 42,667 36,802 NET CURRENT ASSETS 28,179 33,043 44,267 51,947 TOTAL ASSETS LESS CURRENT LIABILITIES 44,617 44,904 56,864 63,725 NON-CURRENT LIABILITIES Finance lease payables (j) 326 — — — Deferred tax (k) 666 196 138 192 992 196 138 192 43,625 44,708 56,726 63,533 CAPITAL AND RESERVES Issued capital 5 5,948 5,948 5,948 5,948 Reserves 37,677 38,760 50,778 57,585 43,625 44,708 56,726 63,533	As at 31 December As at 30 June Notes 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 NON-CURRENT ASSETS Fixed assets (a) 12,893 11,365 12,597 11,778 Deferred development costs (b) 3,545 496 — — 16,438 11,861 12,597 11,778 CURRENT ASSETS Inventories (c) 11,531 1,849 4,492 5,513 Trade and bills receivables (d) 38,240 31,467 40,415 44,382 Prepayments, deposits and other receivables 533 1,025 496 140 Due from fellow subsidiaries (e) 31,226 443 6,988 1,922 Pledged time deposits (f) — 5,043 — — Cash and cash equivalents (f) 22,460 27,019 34,543 36,792 103,990 66,846 86,934 88,749 CURRENT LIABILITIES Trade and bills payables (g) 26,030 25,682 32,623 29,571 Tax payable 772 770 3,371 1,063 Other payables and accruals (h) 6,644 5,751 6,336 5,851 Due to fellow subsidiaries (e) 31,858 1,600 337 317 Interest-bearing bank and other borrowings (i) 10,507 — — — 75,811 33,803 42,667 36,802 NET CURRENT ASSETS 28,179 33,043 44,267 51,947 TOTAL ASSETS LESS CURRENT LIABILITIES 44,617 44,904 56,864 63,725 NON-CURRENT LIABILITIES Finance lease payables (j) 326 — — — Deferred tax (k) 666 196 138 192 992 196 138 192 43,625 44,708 56,726 63,533 CAPITAL AND RESERVES Issued capital 5 5,948 5,948 5,948 5,948 Reserves 37,677 38,760 50,778 57,585 43,625 44,708 56,726 63,533	As at 31 December As at 30 June Notes 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 NON-CURRENT ASSETS Fixed assets (a) 12,893 11,365 12,597 11,778 Deferred development costs (b) 3,545 496 — — 16,438 11,861 12,597 11,778 CURRENT ASSETS Inventories (c) 11,531 1,849 4,492 5,513 Trade and bills receivables (d) 38,240 31,467 40,415 44,382 Prepayments, deposits and other receivables 533 1,025 496 140 Due from fellow subsidiaries (e) 31,226 443 6,988 1,922 Pledged time deposits (f) — 5,043 — — Cash and cash equivalents (f) 22,460 27,019 34,543 36,792 103,990 66,846 86,934 88,749 CURRENT LIABILITIES Trade and bills payables (g) 26,030 25,682 32,623 29,571 Tax payable 772 770 3,371 1,063 Other payables and accruals (h) 6,644 5,751 6,336 5,851 Due to fellow subsidiaries (e) 31,858 1,600 337 317 Interest-bearing bank and other borrowings (i) 10,507 — — — 75,811 33,803 42,667 36,802 NET CURRENT ASSETS 28,179 33,043 44,267 51,947 TOTAL ASSETS LESS CURRENT LIABILITIES 44,617 44,904 56,864 63,725 NON-CURRENT LIABILITIES Finance lease payables (j) 326 — — — Deferred tax (k) 666 196 138 192 992 196 138 192 43,625 44,708 56,726 63,533 CAPITAL AND RESERVES Issued capital 5 5,948 5,948 5,948 5,948 Reserves 37,677 38,760 50,778 57,585 43,625 44,708 56,726 63,533
	16,438 11,531 38,240 533 31,226 — 22,460 103,990 26,030 772 6,644 31,858 10,507 75,811 28,179 44,617 326 666 992	11,861 1,849 31,467 1,025 443 5,043 27,019 66,846 25,682 770 5,751 1,600 — 33,803 33,043 44,904 — 196 196	12,597 4,492 40,415 496 6,988 — 34,543 86,934 32,623 3,371 6,336 337 — 42,667 44,267 56,864 — 138 138	11,778
				5,513 44,382 140 1,922 — 36,792
				88,749
				29,571 1,063 5,851 317 —
				36,802
				51,947
				63,725 — 192
				192
	43,625	44,708	56,726	63,533
	5,948 37,677	5,948 38,760	5,948 50,778	5,948 57,585
	43,625	44,708	56,726	63,533

— 95 —

FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

APPENDIX IIB

Notes:

(a) Fixed assets

Cost: Plant and machinery Tools, moulds and equipment Furniture and office equipment Motor vehicles Accumulated depreciation: Plant and machinery Tools, moulds and equipment Furniture and office equipment Motor vehicles Net book value: Plant and machinery Tools, moulds and equipment Furniture and office equipment Motor vehicles	As 2001 HK$’000 18,454 3,900 6,357 2,001 30,712	at 31 December 2002 2003 HK$’000 HK$’000 15,490 18,641 4,861 5,443 5,055 5,649 2,750 2,270 28,156 32,003	at 31 December 2002 2003 HK$’000 HK$’000 15,490 18,641 4,861 5,443 5,055 5,649 2,750 2,270 28,156 32,003	As at 30 June 2004 HK$’000 18,777 6,201 5,697 2,274
				32,949
	11,390 2,440 2,691 1,298	10,262 2,773 2,120 1,636	11,925 3,215 2,808 1,458	12,916 3,502 3,187 1,566
	17,819	16,791	19,406	21,171
	7,064 1,460 3,666 703	5,228 2,088 2,935 1,114	6,716 2,228 2,841 812	5,861 2,699 2,510 708
	12,893	11,365	12,597	11,778

The net book value of the fixed assets of the First Precision Group held under finance leases included in the total amounts of fixed assets is as follows:

Furniture and office equipment Motor vehicles	As 2001 HK$’000 426 13 439	at 31 December 2002 2003 HK$’000 HK$’000 — — — — — —	As at 30 June 2004 HK$’000 — —
			—

— 96 —

APPENDIX IIB

FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

(b) Deferred development costs

Cost Accumulated amortisation Net book value Inventories Raw materials Work in progress Finished goods At cost	As 2001 HK$’000 6,506 (2,961) 3,545 As 2001 HK$’000 8,700 1,187 1,644 11,531	at 31 December 2002 2003 HK$’000 HK$’000 762 434 (266) (434) 496 — at 31 December 2002 2003 HK$’000 HK$’000 193 579 98 438 1,558 3,475 1,849 4,492	As at 30 June 2004 HK$’000 — —
			—
			As at 30 June 2004 HK$’000 1,614 854 3,045
			5,513

(c) Inventories

(d) Trade and bills receivables

The First Precision Group allows an average credit period of 30 to 120 days to its trade customers. An aged analysis of the trade and bills receivables as at the balance sheet date, based on payment due date and net of provisions, is as follows:

Current to 30 days 31 to 60 days 61 to 90 days Over 90 days	As 2001 HK$’000 27,023 7,553 2,871 793 38,240	at 31 December 2002 2003 HK$’000 HK$’000 29,859 39,902 1,464 276 99 118 45 119 31,467 40,415	As at 30 June 2004 HK$’000 44,168 32 69 113
			44,382

Included in the above balances are trade receivables from fellow subsidiaries of the First Precision Group of approximately HK$23,891,000, HK$24,007,000, HK$37,750,000 and HK$43,037,000 as at 31 December 2001, 2002, 2003 and 30 June 2004, respectively, which are repayable within 120 days.

— 97 —

FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

APPENDIX IIB

(e) Due from/(to) fellow subsidiaries

The balances with fellow subsidiaries are unsecured, interest-free and have no fixed terms of repayment.

(f) Cash and cash equivalents and pledged time deposits

Cash and bank balances Time deposits Less: Pledged time deposits for bank borrowings Cash and cash equivalents	As 2001 HK$’000 22,460 —	at 31 December 2002 2003 HK$’000 HK$’000 27,019 34,543 5,043 —	at 31 December 2002 2003 HK$’000 HK$’000 27,019 34,543 5,043 —	As at 30 June 2004 HK$’000 36,792 —
	22,460 —	32,062 (5,043)	34,543 —	36,792 —
	22,460	27,019	34,543	36,792

(g) Trade and bills payables

An aged analysis of the trade and bills payables as at the balance sheet date is as follows:

Current to 30 days 31 to 60 days 61 to 90 days Over 90 days	As 2001 HK$’000 4,296 5,476 7,168 9,090 26,030	at 31 December 2002 2003 HK$’000 HK$’000 18,995 25,464 4,118 4,590 2,386 1,497 183 1,072 25,682 32,623	As at 30 June 2004 HK$’000 28,568 425 394 184
			29,571

Included in the above balances are trade payables to fellow subsidiaries of the First Precision Group of approximately HK$752,000, HK$5,794,000, HK$9,102,000 and HK$9,363,000 as at 31 December 2001, 2002, 2003 and 30 June 2004, respectively, which are repayable within 120 days.

— 98 —

APPENDIX IIB

FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

• (h) Other payables and accruals

Other payables Accruals	As 2001 HK$’000 165 6,479 6,644	at 31 December 2002 2003 HK$’000 HK$’000 165 684 5,586 5,652 5,751 6,336	As at 30 June 2004 HK$’000 819 5,032
			5,851

(i) Interest-bearing bank and other borrowings

Current portion of bank loans Current portion of finance lease payables — note 4(j)	As 2001 HK$’000 10,206 301 10,507	at 31 December 2002 2003 HK$’000 HK$’000 — — — — — —	As at 30 June 2004 HK$’000 — —
			—

At 31 December 2001, the First Precision Group’s bank loans were secured by:

• (i) the pledge of certain fixed deposits of a fellow subsidiary of the First Precision Group; and

• (ii) fixed charges over certain of the leasehold land and buildings of a fellow subsidiary of the First Precision Group.

In addition, First Precision’s ultimate holding company executed guarantees in favour of certain banks for the First Precision Group’s banking facilities as at 31 December 2001.

— 99 —

APPENDIX IIB

FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

(j) Finance lease payables

At the balance sheet date, the total future minimum lease payments under finance leases and their present values were as follows:

31 Amounts payable: Within one year In the second year In the third to fifth years, inclusive Total minimum finance lease payments Future finance charges Total net finance lease payables Portion classified as current liabilities — note 4(i) Long term portion	Minimum lease payments December 2001 31 HK$’000 337 255 86 678 (51) 627 (301)	Minimum lease payments December 2001 31 HK$’000 337 255 86 678 (51) 627 (301)	Minimum lease payments December 2002 31 HK$’000 — — — —	Minimum lease payments December 2003 HK$’000 — — — —	Minimum lease payments 30 June 2004 31 HK$’000 — — — —	Present value of minimum lease payments December 2001 31 HK$’000 301 242 84 627	Present value of minimum lease payments December 2002 31 HK$’000 — — — —	Present value of minimum lease payments December 2003 HK$’000 — — — —	Present value of minimum lease payments 30 June 2004 HK$’000 — — —
									—
		) )	— — —	— — —	— — —
	627 (301
	326		—	—	—

(k) Deferred tax

The movement in deferred tax liabilities during the Relevant Periods is as follows:

31 December 2001

Accelerated tax depreciation Deferred development costs HK$’000 HK$’000 At beginning of the year 62 380 Deferred tax charged/(credited) to the profit and loss account during the year — note 3(f) (40) 264 Deferred tax liabilities at the end of the year 22 644	Total HK$’000 442 224
	666

— 100 —

FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

APPENDIX IIB

31 December 2002

Accelerated tax depreciation Deferred development costs HK$’000 HK$’000 At beginning of the year 22 644 Deferred tax charged/(credited) to the profit and loss account during the year — note 3(f) 50 (520) Deferred tax liabilities at the end of the year 72 124	Total HK$’000 666 (470)
	196

31 December 2003

Accelerated tax depreciation Deferred development costs HK$’000 HK$’000 At beginning of the year 72 124 Deferred tax charged/(credited) to the profit and loss account during the year — note 3(f) 66 (124) Deferred tax liabilities at the end of the year 138 —	Total HK$’000 196 (58)
	138

30 June 2004

Accelerated tax depreciation Deferred development costs HK$’000 HK$’000 At beginning of the period 138 — Deferred tax charged to the profit and loss account during the period — note 3(f) 54 — Deferred tax liabilities at the end of the period 192 —	Total HK$’000 138 54
	192

At the balance sheet date, there is no significant unrecognised deferred tax liability for taxes that would be payable on the unremitted earnings of certain of the First Precision Group’s subsidiaries as the First Precision Group has no liability to additional tax should such amounts be remitted.

(l) Operating lease arrangements

First Precision leases its office premises under operating lease arrangements. Leases for properties are negotiated for terms ranging from one to three years.

— 101 —

APPENDIX IIB

FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

At the balance sheet date, First Precision had total future minimum lease payments under non-cancellable operating leases as follows:

Within one year In the second to fifth years, inclusive	As 2001 HK$’000 146 98 244	at 31 December 2002 2003 HK$’000 HK$’000 323 323 — — 323 323	As at 30 June 2004 HK$’000 161 —
			161

(m) Commitments

At 30 June 2004, First Precision had no significant commitments (2001: nil; 2002: nil; 2003: nil).

(n) Contingent liabilities

The First Precision Group had a contingent liability in respect of possible future long service payments to employees under the Hong Kong Employment Ordinance, with a maximum possible amount of approximately HK$236,000 as at 30 June 2004 (2001: HK$236,000; 2002: HK$215,000; 2003: HK$552,000), as further explained under the heading “Employee benefits” in note 2 of this report. The contingent liability has arisen because, at the balance sheet date, a number of current employees have achieved the required number of years of service to the First Precision Group in order to be eligible for long service payments under the Employment Ordinance if their employment is terminated under certain circumstances. A provision has not been recognised in respect of such possible payments, as it is not considered probable that the situation will result in a material future outflow of resources from the First Precision Group.

5. COMBINED STATEMENTS OF CHANGES IN EQUITY

Issued share capital Share premium account Retained profits Total HK$’000 HK$’000 HK$’000 HK$’000 At 1 January 2001 5,948 276 32,698 38,922 Net profit for the year — — 4,703 4,703 At 31 December 2001 and 1 January 2002 5,948 276 37,401 43,625 Net profit for the year — — 1,083 1,083 At 31 December 2002 and 1 January 2003 5,948 276 38,484 44,708 Net profit for the year — — 12,018 12,018 At 31 December 2003 and 1 January 2004 5,948 276 50,502 56,726 Net profit for the period — — 6,807 6,807 At 30 June 2004 5,948 276 57,309 63,533	Issued share capital Share premium account Retained profits Total HK$’000 HK$’000 HK$’000 HK$’000 At 1 January 2001 5,948 276 32,698 38,922 Net profit for the year — — 4,703 4,703 At 31 December 2001 and 1 January 2002 5,948 276 37,401 43,625 Net profit for the year — — 1,083 1,083 At 31 December 2002 and 1 January 2003 5,948 276 38,484 44,708 Net profit for the year — — 12,018 12,018 At 31 December 2003 and 1 January 2004 5,948 276 50,502 56,726 Net profit for the period — — 6,807 6,807 At 30 June 2004 5,948 276 57,309 63,533	Issued share capital Share premium account Retained profits Total HK$’000 HK$’000 HK$’000 HK$’000 At 1 January 2001 5,948 276 32,698 38,922 Net profit for the year — — 4,703 4,703 At 31 December 2001 and 1 January 2002 5,948 276 37,401 43,625 Net profit for the year — — 1,083 1,083 At 31 December 2002 and 1 January 2003 5,948 276 38,484 44,708 Net profit for the year — — 12,018 12,018 At 31 December 2003 and 1 January 2004 5,948 276 50,502 56,726 Net profit for the period — — 6,807 6,807 At 30 June 2004 5,948 276 57,309 63,533	Issued share capital Share premium account Retained profits Total HK$’000 HK$’000 HK$’000 HK$’000 At 1 January 2001 5,948 276 32,698 38,922 Net profit for the year — — 4,703 4,703 At 31 December 2001 and 1 January 2002 5,948 276 37,401 43,625 Net profit for the year — — 1,083 1,083 At 31 December 2002 and 1 January 2003 5,948 276 38,484 44,708 Net profit for the year — — 12,018 12,018 At 31 December 2003 and 1 January 2004 5,948 276 50,502 56,726 Net profit for the period — — 6,807 6,807 At 30 June 2004 5,948 276 57,309 63,533	Issued share capital Share premium account Retained profits Total HK$’000 HK$’000 HK$’000 HK$’000 At 1 January 2001 5,948 276 32,698 38,922 Net profit for the year — — 4,703 4,703 At 31 December 2001 and 1 January 2002 5,948 276 37,401 43,625 Net profit for the year — — 1,083 1,083 At 31 December 2002 and 1 January 2003 5,948 276 38,484 44,708 Net profit for the year — — 12,018 12,018 At 31 December 2003 and 1 January 2004 5,948 276 50,502 56,726 Net profit for the period — — 6,807 6,807 At 30 June 2004 5,948 276 57,309 63,533
	5,948 — 5,948 — 5,948 —	276 — 276 — 276 —	37,401 1,083 38,484 12,018 50,502 6,807	43,625 1,083
				44,708 12,018
				56,726 6,807
	5,948	276	57,309	63,533

— 102 —

APPENDIX IIB FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

6. COMBINED CASH FLOW STATEMENTS

The following is a summary of the combined cash flow statements of the First Precision Group for the Relevant Periods, prepared on the basis set out in Section 1 “Basis of presentation” above:

				Six months
				ended
	Year ended 31 December			30 June
	2001	2002	2003	2004
	_HK$’000 _	_HK$’000 _	HK$’000	HK$’000
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax	5,531	1,365	14,561	5,917
Adjustments for:
Finance costs	688	74	2	—
Interest income	(53)	(92)	(46)	(6)
Depreciation	2,804	3,037	3,147	1,767
Amortisation of deferred development costs	769	318	366	—
Write off of deferred development costs	—	2,969	345	—
Write off of fixed assets	—	1,007	—	—
Bad and doubtful debt provisions on trade
receivables	585	380	—	—
Bad and doubtful debt provisions on amount
due from a fellow subsidiary	—	1,305	—	—
Provision for slow-moving and obsolete stocks	2,748	6,103	628	—
Gain on disposal of fixed assets, net	(54)	—	(35)	—
Operating profit before working capital changes	13,018	16,466	18,968	7,678
Decrease/(increase) in inventories	2,555	3,579	(3,271)	(1,021)
Decrease/(increase) in trade and bills receivables	32,313	6,393	(8,948)	(3,967)
Decrease/(increase) in prepayments, deposits and
other receivables	274	(492)	529	356
Decrease/(increase) in due from fellow
subsidiaries	(31,186)	29,817	(6,545)	5,066
Increase/(decrease) in trade and bills payables	302	(348)	6,941	(3,052)
Increase/(decrease) in other payables and
accruals	1,907	(893)	585	(485)
Increase/(decrease) in due to fellow subsidiaries	3,249	(30,258)	(1,263)	(20)
Cash generated from operations	22,432	24,264	6,996	4,555
Interest received	53	92	46	6
Interest paid	(614)	(23)	(2)	—
Interest element on finance lease rental payments	(74)	(51)	—	—
Hong Kong profits tax paid	(259)	(754)	—	(1,364)
Net cash inflow from operating activities	21,538	23,528	7,040	3,197

— 103 —

FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

APPENDIX IIB

				Six months
				ended
	Year ended 31 December			30 June
	2001	2002	2003	2004
	_HK$’000 _	_HK$’000 _	HK$’000	HK$’000
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of fixed assets	(4,313)	(2,855)	(4,783)	(948)
Proceeds from disposals of fixed assets	68	—	439	—
Additions to deferred development costs	(2,420)	(238)	(215)	—
Decrease/(increase) in pledged time deposits	—	(5,043)	5,043	—
Net cash inflow/(outflow) from investing
activities	(6,665)	(8,136)	484	(948)
CASH FLOWS FROM FINANCING
ACTIVITIES
Capital element of finance lease rental payments	(524)	(627)	—	—
Net additions/(repayment) of trust receipt loans	3,477	(10,206)	—	—
Net cash inflow/(outflow) from financing
activities	2,953	(10,833)	—	—
NET INCREASE IN CASH AND CASH
EQUIVALENTS	17,826	4,559	7,524	2,249
Cash and cash equivalents at beginning of
year/period	4,634	22,460	27,019	34,543
CASH AND CASH EQUIVALENTS AT END OF
YEAR/PERIOD	22,460	27,019	34,543	36,792
ANALYSIS OF BALANCES OF CASH AND
CASH EQUIVALENTS
Cash and bank balances	22,460	27,019	34,543	36,792

Note:

Major non-cash transactions

				Six months
				ended
	Year ended 31 December			30 June
	2001	2002	2003	2004
	HK$’000	HK$’000	HK$’000	HK$’000
Transfer of fixed assets at net book value
to a fellow subsidiary	—	339	—	—

— 104 —

APPENDIX IIB FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

7. SEGMENT INFORMATION

No business segment and geographical segment information are presented as over 90% of the First Precision Group’s revenue and assets related to manufacture and sale of telecom products and accessories and based in the PRC including Hong Kong.

8. SUBSEQUENT EVENT

No significant event has taken place subsequent to 30 June 2004.

9. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by First Precision or any of the companies now comprising the First Precision Group in respect of any period subsequent to 30 June 2004.

Yours faithfully,

Ernst & Young

Certified Public Accountants Hong Kong

— 105 —

APPENDIX IIC

FINANCIAL INFORMATION OF CCT INVESTMENT

The following is the text of a report, prepared for the purpose of inclusion in this circular from Ernst & Young, Certified Public Accountants, Hong Kong

15th Floor Hutchison House 10 Harcourt Road Central Hong Kong

20 August 2004

The Directors CCT Investment Limited

Dear Sirs,

We set out below our report on the financial information regarding CCT Investment Limited (“CCT Investment”), for each of the three years ended 31 December 2003 and the six months ended 30 June 2004 (the “Relevant Periods”), prepared on the basis set out in Section 2 below, for inclusion in the circular of CCT Telecom Holdings Limited (“CCT”), the ultimate holding company of CCT Investment, dated 20 August 2004 (the “Circular”) in relation to the proposed acquisition of the entire issued capital of CCT Investment by CCT (the “Proposed Acquisition”).

CCT Investment was incorporated with limited liability in Hong Kong on 10 December 1991.

We have acted as auditors of CCT Investment for each of the Relevant Periods. For the purpose of this report, we have examined the audited financial statements of CCT Investment for each of the three years ended 31 December 2003 and the management accounts of CCT Investment for the six months ended 30 June 2004 in accordance with the Auditing Guideline “Prospectuses and the reporting accountant” issued by the Hong Kong Society of Accountants.

The summaries of the results, statements of changes in equity and cash flow statements of CCT Investment for the Relevant Periods and of the balance sheets of CCT Investment as at 31 December 2001, 2002 and 2003, and 30 June 2004 (the “CCT Investment Summaries”) set out in this report have been prepared from the audited financial statements or, where appropriate, the management accounts of CCT Investment after making such adjustments as we consider appropriate, and are presented on the basis set out in Section 2 below.

The directors of CCT Investment are responsible for the preparation of the CCT Investment Summaries. In preparing the CCT Investment Summaries, it is fundamental that appropriate accounting policies are selected and applied consistently. It is our responsibility to form an independent opinion on the CCT Investment Summaries.

In our opinion, the CCT Investment Summaries together with the notes thereon give, for the purpose of this report, a true and fair view of the results and cash flows of CCT Investment for each of the Relevant Periods and of the balance sheets of CCT Investment as at 31 December 2001, 2002 and 2003, and 30 June 2004, which have been prepared on the basis set out in Section 2 below.

— 106 —

FINANCIAL INFORMATION OF CCT INVESTMENT

APPENDIX IIC

1. PRINCIPAL ACTIVITIES

At the date of this report, the principal activity of CCT Investment is the holding of a plot of land with a factory building situated thereon in Dongguan (“Dongguan Factory”), the People’s Republic of China (the “PRC”).

During the Relevant Periods, CCT Investment had two wholly-owned subsidiaries namely, Huiyang CCT Plastic Products Co., Ltd. (“HCT”) and Dongguan Eswire Electronics Co., Ltd. (“DEL”), which were principally engaged in the manufacture of plastic casings, cordless phones and related parts.

On 25 June 2002, CCT Investment disposed of its entire interest in HCT to CCT Plastic Products Limited, a fellow subsidiary of CCT Investment, at a consideration determined based on CCT Investment’s carrying cost of investment in HCT of HK$40,000,000. On 20 May 2004, CCT Investment disposed of its entire interest in DEL to Techno Faith Holdings Limited, a fellow subsidiary of CCT Investment, at a consideration determined based on CCT Investment’s carrying cost of investment in DEL of HK$40,057,000.

2. BASIS OF PRESENTATION

The CCT Investment Summaries, which are based on the audited financial statements or, where appropriate, the management accounts of CCT Investment, after making such adjustments as we consider appropriate, include the results, statements of changes in equity, cash flow statements and the balance sheets of CCT Investment.

For the purpose of this report, all the related results, assets and liabilities of HCT and DEL were excluded from the CCT Investment Summaries as if the disposals had been completed on 31 December 2000.

In addition to the above, on 1 January 2003, Dongguan CCT Telecommunications Products Co., Ltd., a fellow subsidiary of CCT Investment, transferred the building cost of the Dongguan Factory to CCT Investment at a consideration of approximately HK$25,270,000, determined based on its carrying value at 31 December 2002. The CCT Investment Summaries were prepared as if CCT Investment had recorded the building cost of the Dongguan Factory since 1 January 2001.

The CCT Investment Summaries have been prepared under the going concern concept because CCT Tech International Limited, a holding company of CCT Investment, has agreed to provide adequate funds for CCT Investment to meet its liabilities until the completion of the Proposed Acquisition. CCT has agreed to provide adequate funds for CCT Investment to meet its liabilities subsequent to the Proposed Acquisition.

— 107 —

FINANCIAL INFORMATION OF CCT INVESTMENT

APPENDIX IIC

3. PRINCIPAL ACCOUNTING POLICIES

The principal accounting policies adopted by CCT Investment in arriving at the financial information set out in this report, which conform with accounting principles generally accepted in Hong Kong are set out below:

Impairment of assets

An assessment is made at each balance sheet date of whether there is any indication of impairment of any asset, or whether there is any indication that an impairment loss previously recognised for an asset in prior years may no longer exist or may have decreased. If any such indication exists, the asset’s recoverable amount is estimated. An asset’s recoverable amount is calculated as the higher of the asset’s value in use or its net selling price.

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. An impairment loss is charged to the profit and loss account in the period in which it arises, unless the asset is carried at a revalued amount, when the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the recoverable amount of an asset, however not to an amount higher than the carrying amount that would have been determined (net of any depreciation/ amortisation), had no impairment loss been recognised for the asset in prior years.

A reversal of an impairment loss is credited to the profit and loss account in the period in which it arises, unless the asset is carried at a revalued amount, when the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

Fixed assets and depreciation

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

— 108 —

FINANCIAL INFORMATION OF CCT INVESTMENT

APPENDIX IIC

Depreciation is calculated on the straight-line basis to write off the cost of each asset over its estimated useful life. The principal annual rates used for this purpose are as follows:

Leasehold land and buildings 5% Motor vehicle 20%

The gain or loss on disposal or retirement of a fixed asset recognised in the profit and loss account is the difference between the net sales proceeds and the carrying amount of the relevant asset.

Income tax

Income tax comprises current and deferred tax. Income tax is recognised in the profit and loss account or in equity if it relates to items that are recognised in the same or a different period, directly in equity.

Deferred tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Tax rates enacted or substantively enacted by the balance sheet date are used to determine deferred tax.

Deferred tax liabilities are provided in full on all taxable temporary differences while deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Leased assets

Leases that transfer substantially all the rewards and risks of ownership of assets to CCT Investment, other than legal title, are accounted for as finance leases. At the inception of a finance lease, the cost of the leased asset is capitalised at the present value of the minimum lease payments and recorded together with the obligation, excluding the interest element, to reflect the purchase and financing. Assets held under capitalised finance leases are included in fixed assets. The finance costs of such leases are charged to the profit and loss account so as to provide a constant periodic rate of charge over the lease terms.

Lease where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where CCT Investment is the lessor, assets leased by the Company under operating leases are included in non-current assets and rentals receivable under the operating leases are credited to the profit and loss account on the straight-line basis over the lease terms.

Cash equivalents

For the purpose of the cash flow statements, cash equivalents comprise cash on hand and demand deposits, and short term highly liquid investments which are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of CCT Investment’s cash management.

— 109 —

FINANCIAL INFORMATION OF CCT INVESTMENT

APPENDIX IIC

For the purpose of the balance sheet, cash and bank balances comprise cash on hand and at banks, including term deposits, which are not restricted as to use.

Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to CCT Investment and when revenue can be measured reliably. Rental income is recognised on a time proportion basis over the lease terms.

Related parties

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

4. RESULTS

The following is a summary of the results of CCT Investment for the Relevant Periods, prepared on the basis set out in Section 2 “Basis of presentation” above:

					**Six **	months
						ended
		**Year **	ended 31 December			30 June
	Notes	2001	2002	2003		2004
		HK$’000	HK$’000	HK$’000	HK$’000
Turnover		—	—	—		—
Other revenue		—	4,347	1,800		3,000
Administrative expenses		(1,376)	(1,408)	(3,234)		(3,694)
Other operating expenses		—	—	(41)		—
Profit/(loss) from operating activities	(a)	(1,376)	2,939	(1,475)		(694)
Finance costs	(b)	(2)	(11)	—		—
Profit/(loss) before tax		(1,378)	2,928	(1,475)		(694)
Tax	(e)	—	—	—		—
Net profit/(loss) from ordinary
activities attributable to shareholders		(1,378)	2,928	(1,475)		(694)
Dividend	(f)	—	—	—		—

— 110 —

FINANCIAL INFORMATION OF CCT INVESTMENT

APPENDIX IIC

Notes:

(a) Profit/(loss) from operating activities

CCT Investment’s profit/(loss) from operating activities is arrived at after charging/(crediting):

				Six months
				ended
		Year ended 31 December		30 June
	2001	2002	2003	2004
	HK$’000	HK$’000	HK$’000	HK$’000
Depreciation	1,370	1,400	1,391	681
Auditors’ remuneration	—	—	20	10
Minimum lease payments under operating
leases in respect of land and buildings	—	—	1,800	3,000
Staff costs	—	—	—	—
Loss on disposal of a fixed asset	—	—	41	—
Rental income	—	—	(1,800)	(3,000)
Waiver of amount due to a fellow subsidiary	—	(4,347)	—	—

Auditors’ remuneration has been absorbed by CCT Investment’s fellow subsidiaries during the year ended 31 December 2001 and 2002.

(b) Finance costs

								Six months
								ended
					**Year **	ended 31 December		30 June
				2001		2002	2003	2004
				HK$’000		HK$’000	HK$’000	HK$’000
Interest	on	finance	leases	2		11	—	—

— 111 —

FINANCIAL INFORMATION OF CCT INVESTMENT

APPENDIX IIC

(c) Directors’ remuneration

Details of the directors’ remuneration are as follows:

Fees Salaries, housing benefits and other allowances Pension scheme contributions	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 — — — — — — — — — — — — — — — —	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 — — — — — — — — — — — — — — — —
		—

The number of directors whose remuneration fell within the following bands is as follows:

					Number of directors	Number of directors
							Six months
							ended
				**Year **	ended 31 December		30 June
			2001		2002	2003	2004
Nil	-	HK$1,000,000	3		3	2	2

During the Relevant Periods, no remuneration was paid by CCT Investment to any of the directors as an inducement to join or upon joining the Company, or as compensation for loss of office. No director waived or agreed to waive any remuneration during the Relevant Periods.

(d) Five highest paid employees

The five highest paid employees of CCT Investment did not include any director during the Relevant Periods. Details of the remuneration of the five non-director, highest paid individuals during each of the Relevant Periods are as follows:

Salaries, housing benefits and other allowances Pension scheme contributions	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 — — — — — — — — — — — —	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 — — — — — — — — — — — —
		—

— 112 —

APPENDIX IIC

FINANCIAL INFORMATION OF CCT INVESTMENT

The number of the non-director, highest paid individuals whose remuneration fell within the following bands is as follows:

					Number of employees	Number of employees
							Six months
							ended
				**Year **	ended 31 December		30 June
			2001		2002	2003	2004
Nil	-	HK$1,000,000	5		5	5	5

During the Relevant Periods, no remuneration was paid by CCT Investment to any of the non-director, highest paid employees as an inducement to join or upon joining the Company, or as compensation for loss of office.

(e) Tax

No provision for Hong Kong profits tax has been made as CCT Investment did not generate any assessable profits arising in Hong Kong during the Relevant Periods.

A reconciliation of the tax expense applicable to profit/(loss) before tax using the statutory rate to the tax expense at the effective tax rate are as follows:

Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 % HK$’000 % HK$’000 % HK$’000 % Profit/(loss) before tax (1,378) 2,928 (1,475) (694) Tax at the statutory tax rate (220) (16.0) 468 16.0 (258) (17.5) (121) (17.5 Income not subject to tax — — (695) (23.7) (315) (21.3) (525) (75.6 Expenses not deductible for tax 220 16.0 227 7.7 573 38.8 646 93.1 Tax charge — — — — — — — —	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 % HK$’000 % HK$’000 % HK$’000 % Profit/(loss) before tax (1,378) 2,928 (1,475) (694) Tax at the statutory tax rate (220) (16.0) 468 16.0 (258) (17.5) (121) (17.5 Income not subject to tax — — (695) (23.7) (315) (21.3) (525) (75.6 Expenses not deductible for tax 220 16.0 227 7.7 573 38.8 646 93.1 Tax charge — — — — — — — —	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 % HK$’000 % HK$’000 % HK$’000 % Profit/(loss) before tax (1,378) 2,928 (1,475) (694) Tax at the statutory tax rate (220) (16.0) 468 16.0 (258) (17.5) (121) (17.5 Income not subject to tax — — (695) (23.7) (315) (21.3) (525) (75.6 Expenses not deductible for tax 220 16.0 227 7.7 573 38.8 646 93.1 Tax charge — — — — — — — —	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 % HK$’000 % HK$’000 % HK$’000 % Profit/(loss) before tax (1,378) 2,928 (1,475) (694) Tax at the statutory tax rate (220) (16.0) 468 16.0 (258) (17.5) (121) (17.5 Income not subject to tax — — (695) (23.7) (315) (21.3) (525) (75.6 Expenses not deductible for tax 220 16.0 227 7.7 573 38.8 646 93.1 Tax charge — — — — — — — —	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 % HK$’000 % HK$’000 % HK$’000 % Profit/(loss) before tax (1,378) 2,928 (1,475) (694) Tax at the statutory tax rate (220) (16.0) 468 16.0 (258) (17.5) (121) (17.5 Income not subject to tax — — (695) (23.7) (315) (21.3) (525) (75.6 Expenses not deductible for tax 220 16.0 227 7.7 573 38.8 646 93.1 Tax charge — — — — — — — —	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 % HK$’000 % HK$’000 % HK$’000 % Profit/(loss) before tax (1,378) 2,928 (1,475) (694) Tax at the statutory tax rate (220) (16.0) 468 16.0 (258) (17.5) (121) (17.5 Income not subject to tax — — (695) (23.7) (315) (21.3) (525) (75.6 Expenses not deductible for tax 220 16.0 227 7.7 573 38.8 646 93.1 Tax charge — — — — — — — —	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 % HK$’000 % HK$’000 % HK$’000 % Profit/(loss) before tax (1,378) 2,928 (1,475) (694) Tax at the statutory tax rate (220) (16.0) 468 16.0 (258) (17.5) (121) (17.5 Income not subject to tax — — (695) (23.7) (315) (21.3) (525) (75.6 Expenses not deductible for tax 220 16.0 227 7.7 573 38.8 646 93.1 Tax charge — — — — — — — —	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 % HK$’000 % HK$’000 % HK$’000 % Profit/(loss) before tax (1,378) 2,928 (1,475) (694) Tax at the statutory tax rate (220) (16.0) 468 16.0 (258) (17.5) (121) (17.5 Income not subject to tax — — (695) (23.7) (315) (21.3) (525) (75.6 Expenses not deductible for tax 220 16.0 227 7.7 573 38.8 646 93.1 Tax charge — — — — — — — —	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 % HK$’000 % HK$’000 % HK$’000 % Profit/(loss) before tax (1,378) 2,928 (1,475) (694) Tax at the statutory tax rate (220) (16.0) 468 16.0 (258) (17.5) (121) (17.5 Income not subject to tax — — (695) (23.7) (315) (21.3) (525) (75.6 Expenses not deductible for tax 220 16.0 227 7.7 573 38.8 646 93.1 Tax charge — — — — — — — —
	(220) — 220	(16.0) — 16.0	468 (695) 227	16.0 (23.7) 7.7	(258) (315) 573	(17.5) (21.3) 38.8	(121) (525) 646	(17.5 (75.6 93.1
	—	—	—	—	—	—	—	—

There was no unprovided deferred tax for the Relevant Periods and as at 31 December 2001, 2002 and 2003 and 30 June 2004.

(f) Dividend

No dividend had been paid or declared by CCT Investment during the Relevant Periods.

(g) Earnings/(loss) per share

No basic and diluted earnings/(loss) per share amount is presented as its inclusion, for the purpose of this report, is not considered meaningful.

— 113 —

APPENDIX IIC

FINANCIAL INFORMATION OF CCT INVESTMENT

• (h) Related party transactions

During the Relevant Periods, CCT Investment had the following material transactions with related parties:

							Six months
							ended
				**Year **	**ended 31 **	December	30 June
			Notes	2001	2002	2003	2004
				HK$’000	HK$’000	HK$’000	HK$’000
Factory	rental	expense	(i)	—	—	1,800	3,000
Factory	rental	income	(ii)	—	—	1,800	3,000

• (i) The factory rental expense was charged to CCT Investment by CCT Properties (Dongguan) Limited (“CCT Prop”), a wholly-owned subsidiary of CCT, for the provision of factory space in Dongguan, the PRC, at a rate determined in accordance with the terms and conditions set out two tenancy agreements entered into between CCT Investment and CCT Prop on 15 May 2003 and 14 January 2004, respectively.

• (ii) The factory rental income was received from DEL for sub-leasing the Dongguan Factory to DEL with the same terms as set out in the aforementioned tenancy agreements.

— 114 —

FINANCIAL INFORMATION OF CCT INVESTMENT

APPENDIX IIC

5. BALANCE SHEETS

The following is a summary of the balance sheets of CCT Investment as at 31 December 2001, 2002 and 2003 and 30 June 2004, prepared on the basis set out in Section 2 “Basis of presentation” above.

						As at
			**As **	at 31 December		30 June
	Notes	2001		2002	2003	2004
		HK$’000		HK$’000	HK$’000	HK$’000
NON-CURRENT ASSETS
Fixed assets	(a)	25,483		24,083	22,581	21,900
CURRENT ASSETS
Other receivables		19		—	—	—
Cash and cash equivalents	(b)	1		—	712	6
		20		—	712	6
CURRENT LIABILITIES
Accruals		—		—	—	10
Due to immediate holding company	(c)	29,584		25,397	26,082	25,379
Current portion of finance lease
payables	(d)	69		—	—	—
		29,653		25,397	26,082	25,389
NET CURRENT LIABILITIES		(29,633)		(25,397)	(25,370)	(25,383)
TOTAL ASSETS LESS CURRENT
LIABILITIES		(4,150)		(1,314)	(2,789)	(3,483)
NON-CURRENT LIABILITIES
Non-current portion of finance lease
payables	(d)	92		—	—	—
		(4,242)		(1,314)	(2,789)	(3,483)
DEFICIENCIES IN ASSETS
Issued capital	6	1		1	1	1
Accumulated losses		(4,243)		(1,315)	(2,790)	(3,484)
		(4,242)		(1,314)	(2,789)	(3,483)

— 115 —

FINANCIAL INFORMATION OF CCT INVESTMENT

APPENDIX IIC

Notes:

(a) Fixed assets

Cost: Leasehold land and buildings Motor vehicle Accumulated depreciation: Leasehold land and buildings Motor vehicle Net book value: Leasehold land and buildings Motor vehicle	As 2001 HK$’000 27,276 179 27,455	at 31 December 2002 2003 HK$’000 HK$’000 27,276 27,276 179 — 27,455 27,276	at 31 December 2002 2003 HK$’000 HK$’000 27,276 27,276 179 — 27,455 27,276	As at 30 June 2004 HK$’000 27,276 —
				27,276
	1,966 6	3,330 42	4,695 —	5,376 —
	1,972	3,372	4,695	5,376
	25,310 173	23,946 137	22,581 —	21,900 —
	25,483	24,083	22,581	21,900

The net book value of the fixed assets of CCT Investment held under finance leases included in the total amounts of motor vehicle as at 31 December 2001, 2002 and 2003, and 30 June 2004 are HK$173,000, nil, nil and nil, respectively.

CCT Investment’s leasehold land and buildings are situated in the PRC and held under medium term leases.

(b) Cash and cash equivalents

								As at
					**As **	at 31 December		30 June
				2001		2002	2003	2004
				HK$’000		HK$’000	HK$’000	HK$’000
Cash	and	bank	balances	1		—	712	6

(c) Due to immediate holding company

The amounts due to immediate holding company are unsecured, interest-free and have no fixed terms of repayment.

— 116 —

FINANCIAL INFORMATION OF CCT INVESTMENT

APPENDIX IIC

(d) Finance lease payables

At the balance sheet date, the total future minimum lease payments under the finance leases and their present values were as follows:

Amounts payable: Within one year In the second year In the third to fifth years, inclusive Total minimum finance lease payments Future finance charges Total net finance lease payables Portion classified as current liabilities Long term portion	Minimum lease payments 31 December 2001 HK$’000 78 78 25 181 (20) 161 (69)	Minimum lease payments 31 December 2001 HK$’000 78 78 25 181 (20) 161 (69)	Minimum lease payments 31 December 2002 HK$’000 — — — —	Minimum lease payments 31 December 2003 HK$’000 — — — —	Minimum lease payments 30 June 2004 HK$’000 — — — —	Present value of minimum lease payments 31 December 2001 HK$’000 69 69 23 161	Present value of minimum lease payments 31 December 2002 HK$’000 — — — —	Present value of minimum lease payments 31 December 2003 HK$’000 — — — —	Present value of minimum lease payments 30 June 2004 HK$’000 — — —
									—
		) )	— — —	— — —	— — —
	161 (69
	92		—	—	—

(e) Contingent liabilities

At 30 June 2004, CCT Investment had no significant contingent liabilities.

(f) Commitments

At 30 June 2004, CCT Investment had no significant commitments.

— 117 —

FINANCIAL INFORMATION OF CCT INVESTMENT

APPENDIX IIC

6. STATEMENTS OF CHANGES IN EQUITY

	Issued	Accumulated
	capital	losses	Total
	HK$’000	HK$’000	HK$’000
At 1 January 2001	1	(2,865)	(2,864)
Loss for the year	—	(1,378)	(1,378)
At 31 December 2001 and 1 January 2002	1	(4,243)	(4,242)
Profit for the year	—	2,928	2,928
At 31 December 2002 and 1 January 2003	1	(1,315)	(1,314)
Loss for the year	—	(1,475)	(1,475)
At 31 December 2003 and 1 January 2004	1	(2,790)	(2,789)
Loss for the period	—	(694)	(694)
At 30 June 2004	1	(3,484)	(3,483)

— 118 —

FINANCIAL INFORMATION OF CCT INVESTMENT

APPENDIX IIC

7. CASH FLOW STATEMENTS

The following is a summary of the cash flow statements of CCT Investment for the Relevant Periods, prepared on the basis set out in Section 2 “Basis of presentation” above:

				Six months
				ended
	**Year **	ended 31 December		30 June
	2001	2002	2003	2004
	HK$’000	HK$’000	HK$’000	HK$’000
CASH FLOWS FROM OPERATING
ACTIVITIES
Profit/(loss) before tax	(1,378)	2,928	(1,475)	(694)
Adjustments for:
Finance costs	2	11	—	—
Depreciation	1,370	1,400	1,391	681
Loss on disposal of a fixed asset	—	—	41	—
Waiver of amount due to a fellow
subsidiary	—	(4,347)	—	—
Operating loss before working capital
changes	(6)	(8)	(43)	(13)
Decrease/(increase) in other receivables	(19)	19	—	—
Increase in accruals	—	—	—	10
Increase/(decrease) in amount due to
immediate holding company	45	160	685	(703)
Cash generated/(used) from operations	20	171	642	(706)
Interest element on finance lease rental
payments	(2)	(11)	—	—
Net cash inflow/(outflow) from operating
activities	18	160	642	(706)
CASH FLOWS FROM INVESTING
ACTIVITIES
Proceeds from disposal of fixed assets	—	—	70	—
Net cash inflow from investing activities	—	—	70	—

— 119 —

FINANCIAL INFORMATION OF CCT INVESTMENT

APPENDIX IIC

					Six months
					ended
	**Year **	ended 31 December			30 June
	2001	2002	2003		2004
	HK$’000	HK$’000	HK$’000		HK$’000
CASH FLOWS FROM FINANCING
ACTIVITIES
Capital element of finance lease rental
payments	(18)	(161)		—	—
Net cash outflow from financing
activities	(18)	(161)		—	—
NET INCREASE/(DECREASE) IN CASH
AND CASH EQUIVALENTS	—	(1)	712		(706)
Cash and cash equivalents
at beginning of year/period	1	1		—	712
CASH AND CASH EQUIVALENTS
AT END OF YEAR/PERIOD	1	—	712		6
ANALYSIS OF BALANCES OF CASH
AND CASH EQUIVALENTS
Cash and bank balances	1	—	712		6
Note:
Major non-cash transaction

During the year ended 31 December 2001, CCT Investment entered into finance lease arrangements in respect of fixed assets with a total capital value at inception of the finance leases of HK$179,000.

— 120 —

FINANCIAL INFORMATION OF CCT INVESTMENT

APPENDIX IIC

8. SEGMENT INFORMATION

No business segment and geographical segment information are presented as over 90% of the Company’s revenue and assets related to property holding and based in the PRC including Hong Kong.

9. SUBSEQUENT EVENT

No significant event has taken place subsequent to 30 June 2004.

10. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by CCT Investment in respect of any period subsequent to 30 June 2004.

Yours faithfully Ernst & Young Certified Public Accountants Hong Kong

— 121 —

GENERAL INFORMATION

APPENDIX III

1. RESPONSIBILITY STATEMENT

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

2. SHARE CAPITAL

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

Authroised share capital: HK$ 120,000,000,000 Shares 1,200,000,000.00

Issued and fully paid or credited as fully paid Shares:

15,538,422,562 Shares 155,384,225.62

3. DISCLOSURE OF INTERESTS

• (a) Directors’ interests and short positions in the shares, underlying shares and debentures of the Company and its associated corporations

As at the Latest Practicable Date, the interests and short positions of the Directors and the chief executive of the Company and their respective associates 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 were required, pursuant to section 352 of the SFO, to be entered in the register of the Company referred to therein or were required, pursuant to Part XV of the SFO or the Model Code for Securities Transactions by Directors of Listed Companies of the Listing Rules, to be notified to the Company and the Stock Exchange were as follows:

— 122 —

GENERAL INFORMATION

APPENDIX III

• (1) Interests and short positions in the Shares, underlying Shares and debentures of the Company

Long positions in the underlying Shares of equity derivatives of the Company:

• (i) Share options:

	Date of	Exercise		Number	Number	Approximate
	grant of	period of	Exercise	of share	of total	percentage
	share	share	price per	options	underlying	of total
Name of Director	options	options	Share	outstanding	Shares	shareholding
			HK$			(%)
Mak Shiu Tong, Clement	30/4/2003	30/4/2003 -	0.014	100,000,000	100,000,000	0.64
		29/4/2008
Cheng Yuk Ching, Flora	30/4/2003	30/4/2003 -	0.014	100,000,000	100,000,000	0.64
		29/4/2008
Tam Ngai Hung, Terry	30/4/2003	30/4/2003 -	0.014	100,000,000	100,000,000	0.64
		29/4/2008
Tong Chi Hoi	30/4/2003	30/4/2003 -	0.014	50,000,000	50,000,000	0.32
		29/4/2008
Chow Siu Ngor	30/4/2003	30/4/2003 -	0.014	8,000,000	8,000,000	0.05
		29/4/2008
Lau Ho Kit, Ivan	30/4/2003	30/4/2003 -	0.014	8,000,000	8,000,000	0.05
		29/4/2008

• (ii) Convertible note:

		Number	Approximate
		of total	percentage
		underlying	of total
Name of Director	Description of equity derivatives	Shares	shareholding
			(%)
Mak Shiu Tong,	HK$45 million zero coupon	4,500,000,000	28.96
Clement (Note)	convertible note due 2005

Note: The HK$45 million zero coupon convertible note due 2005 was held by New Capital Industrial Limited, which is a corporation controlled by Mr. Mak Shiu Tong, Clement. This interest in the underlying Shares has also been disclosed under the section headed “Substantial Shareholders’ Interests” below.

— 123 —

GENERAL INFORMATION

APPENDIX III

• (2) Interests and short positions in the shares, underlying shares and debentures of an associated corporation — CCT Telecom

• (i) Long positions in the shares of CCT Telecom:

	Number of shares in CCT Telecom beneficially held and nature of interest	Number of shares in CCT Telecom beneficially held and nature of interest	Approximate percentage of total
Name of Director	Personal	Corporate Total	shareholding
			(%)
Mak Shiu Tong, Clement (Note)	—	86,261,941 86,261,941	20.44
Cheng Yuk Ching, Flora	9,876,713	— 9,876,713	2.34
Tong Chi Hoi	282,000	— 282,000	0.07
William Donald Putt	171,500	— 171,500	0.04

Note: The shares were held by Capital Force International Limited and Capital Interest Limited, which are corporations controlled by Mr. Mak Shiu Tong, Clement.

• (ii) Long positions in the underlying shares of equity derivatives of CCT Telecom — share options:

	Date of	Exercise		Number	Number	Approximate
	grant of	period of	Exercise	of share	of total	percentage
	share	share	price per	options	underlying	of total
Name of Director	options	options	share	outstanding	shares	shareholding
			HK$			(%)
Mak Shiu Tong, Clement	17/3/2003	17/3/2003 -	0.75	420,000	420,000	0.10
		16/3/2008
Cheng Yuk Ching, Flora	17/3/2003	17/3/2003 -	0.75	4,200,000	4,200,000	1.00
		16/3/2008
Tam Ngai Hung, Terry	17/3/2003	17/3/2003 -	0.75	4,200,000	4,200,000	1.00
		16/3/2008
Tong Chi Hoi	17/3/2003	17/3/2003 -	0.75	1,000,000	1,000,000	0.24
		16/3/2008
William Donald Putt	17/3/2003	17/3/2003 -	0.75	420,000	420,000	0.10
		16/3/2008

(b) Particulars of Directors’ other interests

As at the Latest Practicable Date, none of the Directors had entered or was proposing to enter into a service contract with the Company or any of its subsidiaries (excluding contracts expiring or determinable within one year without payment of compensation other than statutory compensation).

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APPENDIX III

GENERAL INFORMATION

• (c) Save as disclosed above, as at the Latest Practicable Date

• (i) none of the Directors and the chief executive of the Company and their respective associates held 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 the SFO) which had 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, pursuant to section 352 of the SFO, to be entered in the register of the Company referred to therein or which were required, pursuant to Part XV of the SFO or the Model Code for Securities Transactions by Directors of Listed Companies of the Listing Rules, to be notified to the Company and the Stock Exchange; and

• (ii) none of the Directors was interested in any business that was in competition with the Company.

4. SUBSTANTIAL SHAREHOLDERS’ INTERESTS

As at the Latest Practicable Date, so far as was known to, or could be ascertained after reasonable enquiries by, the Directors, the following persons (other than the Directors or the chief executive of the Company) had interests or short positions in the Shares or underlying Shares as recorded in the register required to be kept by the Company under section 336 of the SFO:

• (i) Long positions in the Shares:

			Approximate
			percentage
		Number of	of total
Name of Shareholder	Notes	Shares held	shareholding
			(%)
CCT Telecom	(1)	5,500,000,000	35.40
CCT Technology Investment Limited	(2)	5,500,000,000	35.40
Jade Assets Company Limited		1,800,000,000	11.58
CCT Assets Management Limited		1,350,000,000	8.69
Expert Success International Limited		1,350,000,000	8.69
Noble Team Investments Limited		1,000,000,000	6.44
Dongguan Defa Investment Limited		1,400,000,000	9.01
Tan Jinrong	(3)	1,400,000,000	9.01
Kwong Cheong Trading Limited		2,000,000,000	12.87
Yang Shao Wu	(4)	2,000,000,000	12.87

Notes:

• (1) The interest disclosed comprises 5,500,000,000 Shares indirectly owned by CCT Technology Investment Limited through the subsidiaries stated in note (2) below. CCT Technology Investment Limited is a wholly-owned subsidiary of CCT Telecom.

— 125 —

APPENDIX III

GENERAL INFORMATION

• (2) The interest disclosed comprises 1,800,000,000 Shares held by Jade Assets Company Limited, 1,350,000,000 Shares held by CCT Assets Management Limited, 1,350,000,000 Shares held by Expert Success International Limited and 1,000,000,000 Shares held by Noble Team Investments Limited, all of them are wholly-owned subsidiaries of CCT Technology Investment Limited.

• (3) The interest disclosed comprises 1,400,000,000 Shares held by Dongguan Defa Investment Limited, which is 75% owned by Mr. Tan Jinrong.

• (4) The interest disclosed comprises 2,000,000,000 Shares held by Kwong Cheong Trading Limited, which is wholly-owned by Mr. Yang Shao Wu.

• (ii) Long positions in the underlying Shares of equity derivatives of the Company:

			Number	Approximate
			of total	percentage
Name of holder of		Description of	underlying	of total
equity derivatives	Notes	equity derivatives held	Shares	shareholding
				(%)
CCT Telecom	(1)	HK$754 million out of	53,857,142,857	346.61
		the principal sum of
		HK$768 million prime or
		best lending rate plus 2%
		convertible note due 2008
CCT Technology	(2)	HK$754 million out of	53,857,142,857	346.61
Investment Limited		the principal sum of
		HK$768 million prime or
		best lending rate plus 2%
		convertible note due 2008
Noble Team		HK$754 million out of	53,857,142,857	346.61
Investments Limited		the principal sum of
		HK$768 million prime or
		best lending rate plus 2%
		convertible note due 2008
New Capital Industrial	(3)	HK$45 million zero coupon	4,500,000,000	28.96
Limited		convertible note due 2005

Notes:

• (1) The interest disclosed comprises 53,857,142,857 underlying Shares indirectly owned by CCT Technology Investment Limited through the subsidiary stated in note (2) below. CCT Technology Investment Limited is a wholly-owned subsidiary of CCT Telecom.

• (2) The interest disclosed comprises 53,857,142,857 underlying Shares held by Noble Team Investments Limited, which is a wholly-owned subsidiary of CCT Technology Investment Limited.

• (3) New Capital Industrial Limited is a corporation controlled by Mr. Mak Shiu Tong, Clement. This interest in the underlying Shares has also been disclosed under the section headed “Disclosure of Interests” above.

— 126 —

GENERAL INFORMATION

APPENDIX III

Save as disclosed above, so far as was known to the Directors, as at the Latest Practicable Date, no other person (other than the Directors or the chief executive of the Company) had any interests or short positions in the Shares and underlying Shares as recorded in the register required to be kept by the Company under section 336 of the SFO.

5. MATERIAL ADVERSE CHANGES

Save as disclosed herein, as at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Company since 31 December 2003, being the date to which the latest published audited financial statements of the Company were made up.

6. INTERESTS IN ASSETS AND/OR CONTRACTS AND OTHER INTERESTS

As at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any asset which had, since 31 December 2003, being the date of the latest published audited accounts of the Group were made up, been acquired or disposed of by or leased to any member of the Group or were proposed to be acquired or disposed of by or leased to any member of the Group.

As at the Latest Practicable Date, none of the Directors was materially interested in any contract entered into by any member of the Group which was subsisting as at the Latest Practicable Date and which was significant in relation to the business of the Group taken as a whole.

7. MATERIAL CONTRACTS

In the two years immediately preceding the Latest Practicable Date, the following contracts, not being contracts entered into in the ordinary course of business, were entered into by the Company or its subsidiaries which are or may be material:

• (i) a sale and purchase agreement dated 31 March 2003 made between by S. Meggatel Sdn Bhd (a 70% indirect subsidiary of the Company) and Leadken Industry Sdn Bhd relating to the sale of a property in Malaysia;

• (ii) a conditional placing agreement dated 17 April 2003 made between the Company and Kingsway SW Securities Limited relating to the placing of the HK$21 million 2% convertible notes due 2005;

• (iii) a conditional agreement dated 15 May 2003 made between the Company and CCT Telecom relating to the acquisition of the entire equity interest in Empire Success Holdings Limited, a then indirect wholly-owned subsidiary of CCT Telecom, and the assignment of a shareholder’s loan; and

• (iv) the Agreement.

— 127 —

GENERAL INFORMATION

APPENDIX III

8. LITIGATION

As at the Latest Practicable Date, neither the Company nor any of its subsidiaries was engaged in any litigation or arbitration of material importance and no litigation or claim of material importance was known to the Directors to be pending or threatened by or against the Company or any of its subsidiaries.

9. QUALIFICATIONS AND CONSENTS OF EXPERTS

Each of Ernst & Young, the PRC Legal Advisers (as defined below), Altus Capital Limited and Vigers Appraisal and Consulting Limited has given and has not withdrawn its written consent to the issue of this circular with copies of its letter or report (as the case may be) and the references to its name included herein in the form and context in which they appear.

The following are the qualifications of the experts who have given their advice/opinion as contained in this circular:

Qualification

Name Qualification Ernst & Young Certified public accountants Vigers Appraisal and Consulting Limited Property valuer Altus Capital Limited A deemed licensed corporation under the SFO and engaged in types 1, 4, 6 and 9 regulated activities.

Registered law firm in the PRC

(Zhu Ming Lawyer Office of Guangdong)

• (“PRC Legal Advisers”)

Save as disclosed in this circular, none of Ernst & Young, the PRC Legal Advisers, Vigers Appraisal and Consulting Limited or Altus Capital Limited is interested in any Share or share in any member of the Group nor does it have any right or option (whether legally enforceable or not) to subscribe for or nominate persons to subscribe for any Share or share in any member of the Group.

10. GENERAL

• (a) The branch share registrar and transfer office of the Company in Hong Kong is Tengis Limited at G/F., Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong.

• (b) The company secretary of the Company is Ms. Low Pui Man, Jaime, who is a fellow of both The Institute of Chartered Secretaries and Administrators and The Hong Kong Institute of Company Secretaries.

• (c) None of the experts named in paragraph 9 in this appendix has any direct or indirect interest in any asset which had, since 31 December 2003, being the date of the latest published audited accounts of the Group were made up, been acquired or disposed of by or leased to any member of the Group or were proposed to be acquired or disposed of by or leased to any member of the Group.

— 128 —

GENERAL INFORMATION

APPENDIX III

• (d) In the event of inconsistency, the English text of this circular shall prevail over the Chinese text.

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at the head office and the principal place of business of the Company in Hong Kong at 32/F., China Merchants Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong during normal business hours on any Business Day from the date of this circular up to and including the date of the Special General Meeting:

• (a) the bye-laws of the Company;

• (b) the annual reports of the Company for the two financial years ended 31 December 2002 and 2003;

• (c) the letter of recommendation from the Independent Board Committee to the Independent Shareholders, the text of which is set out on pages 16 to 17 of this circular;

• (d) the letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, the text of which is set out on pages 18 to 29 of this circular;

• (e) the property valuation report prepared by Vigers Appraisal and Consulting Limited, the text of which is set out in appendix I to this circular;

• (f) the written consents from the PRC Legal Advisers, Independent Financial Adviser, Ernst & Young and Vigers Appraisal and Consulting Limited referred to in paragraph 9 in this appendix;

• (g) the PRC Legal Opinion referred to in appendix I to this circular;

• (h) the accountants’ reports prepared by Ernst & Young, the text of which are set out in appendices IIB and IIC to this circular;

• (i) the material contracts referred to in the section headed “Material contracts” in this appendix;

• (j) the PSC Manufacturing Agreement;

• (k) the Agreement; and

• (l) a copy of each circular issued pursuant to the requirements set out in Chapter 14 and/or Chapter 14A since 31 December 2003, being the date of the latest published audited accounts of the Company were made up.

— 129 —

NOTICE OF THE SPECIAL GENERAL MEETING

TECH INTERNATIONAL LIMITED

(Incorporated in Bermuda with limited liability)

NOTICE IS HEREBY GIVEN that a special general meeting of the shareholders of CCT Tech International Limited (the “ Company ”) will be held at 32/F., China Merchants Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong on Wednesday, 8 September 2004 at 10:00 a.m. for the purpose of considering and, if thought fit, passing with or without modifications the following resolutions as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

1. “ THAT

2. (a) the agreement (the “ Agreement ”) dated 2 June 2004 entered into between the Company and CCT Telecom Holdings Limited (“ CCT Telecom ”), a copy of which is tabled at the meeting and marked “A” and initialled by the chairman of the meeting for identification purpose, pursuant to which the Company has agreed (i) to sell or procure the sale of the entire issued share capital of each of First Precision Holdings Limited (“ First Precision ”) and CCT Investment Limited (“ CCT Investment ”), both being wholly-owned subsidiaries of the Company; and (ii) to assign or procure the assignment of the outstanding debts as at the date of completion of the Agreement due from CCT Investment to CCT Telecom Product International Holdings Limited, a wholly-owned subsidiary of the Company, and the outstanding debts as at the date of completion of the Agreement due from First Precision to CCT Tech Holdings Limited, a wholly-owned subsidiary of the Company, to CCT Telecom or its nominee(s), for an aggregate consideration of HK$139 million to be satisfied by cancellation of the Convertible Note (as defined in the circular of the Company dated 20 August 2004, a copy of which is tabled at the meeting and marked “B” and initialled by the chairman of the meeting for identification purpose) to the extent of the same amount of the aggregate consideration and the terms of and the transactions contemplated under the Agreement and the implementation thereof be and are hereby approved, ratified and confirmed; and

3. (b) any one director of the Company, or any two directors of the Company if the affixation of the common seal is necessary, be and is/are hereby authorised for and on behalf of the Company to execute all such other documents, instruments and agreements and to do all such acts or things deemed by him/them to be incidental to, ancillary to or in connection with the matters contemplated in or relating to the completion of the Agreement as he/they may consider necessary, desirable or expedient.”

— 130 —

NOTICE OF THE SPECIAL GENERAL MEETING

1. “ THAT

2. (a) the agreement (the “ PSC Manufacturing Agreement ”) dated 2 June 2004 entered into between the Company and CCT Telecom Holdings Limited (“ CCT Telecom ”, together with its subsidiaries, the “ CCT Telecom Group ”), a copy of which is tabled at the meeting and marked “C” and initialled by the chairman of the meeting for identification purpose, pursuant to which CCT Telecom will, and/or will procure other members of the CCT Telecom Group to, manufacture and supply certain transformers, adaptors, power supply components and other related components for the Company and its subsidiaries, and the terms of and the transactions contemplated under the PSC Manufacturing Agreement and the implementation thereof be and are hereby approved, ratified and confirmed;

3. (b) the proposed caps in relation to the Continuing Connected Transactions (as defined in the circular of the Company dated 20 August 2004, a copy of which is tabled at the meeting and marked “B” and initialled by the chairman of the meeting for identification purpose), for each of the three financial years ending 31 December 2006 being HK$170 million, HK$220 million and HK$280 million respectively be and are hereby approved; and

4. (c) any one director of the Company, or any two directors of the Company if the affixation of the common seal is necessary, be and is/are hereby authorised for and on behalf of the Company to execute all such other documents, instruments and agreements and to do all such acts or things deemed by him/them to be incidental to, ancillary to or in connection with the matters contemplated in or relating to the completion of the PSC Manufacturing Agreement and/or the Continuing Connected Transactions as he/they may consider necessary, desirable or expedient.”

By Order of the Board of

CCT TECH INTERNATIONAL LIMITED Mak Shiu Tong, Clement Chairman

Hong Kong, 20 August 2004

Head office and principal place of business in Hong Kong:

32/F., China Merchants Tower

Shun Tak Centre

168-200 Connaught Road Central

Hong Kong

— 131 —

NOTICE OF THE SPECIAL GENERAL MEETING

Notes:

1. A form of proxy for use at the meeting is enclosed herewith.

2. The instrument appointing a proxy shall be in writing under the hand of the appointor or of his/her attorney duly authorised in writing or, if the appointor is a corporation, either executed under its common seal or under the hand of any officer, attorney or other person authorised to sign the same.

3. Any member entitled to attend and vote at the meeting is entitled to appoint not more than two proxies (who must be an individual(s)) to attend and vote instead of him/her on the same occasion. A proxy need not be a member of the Company but must attend the meeting in person to represent him/her.

4. In order to be valid, the form of proxy, together with the power of attorney or other authority (if any) under which it is signed, or a notarially certified copy of such power or authority, must be lodged at the branch share registrar and transfer office of the Company in Hong Kong, Tengis Limited at G/F., Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong, not less than 48 hours before the time appointed for holding the meeting or any adjourned meeting thereof (as the case may be).

5. Completion and return of the form of proxy shall not preclude members from attending and voting in person at the meeting or any adjourned meeting thereof (as the case may be) should they so wish, and in such event, the form of proxy shall be deemed to be revoked.

6. Where there are joint registered holders of any share(s), any one of such joint holders may attend and vote at the meeting, either in person or by proxy, in respect of such share(s) as if he/she was solely entitled thereto, but if more than one of such joint holders are present at the meeting or any adjourned meeting thereof (as the case may be), the most senior shall alone be entitled to vote, whether in person or by proxy. For this purpose, seniority shall be determined by the order in which the names stand in the register of members of the Company in respect of the joint holding.

— 132 —

TECH INTERNATIONAL LIMITED

(Incorporated in Bermuda with limited liability)

(Stock Code: 261)

FORM OF PROXY FOR THE SPECIAL GENERAL MEETING TO BE HELD ON WEDNESDAY, 8 SEPTEMBER 2004 AND ANY ADJOURNMENT THEREOF

I/We[1]

of

being the registered holder(s) of[2]

shares (the “ Shares ”) of HK$0.01 each in

the capital of CCT Tech International Limited (the “ Company ”), HEREBY APPOINT THE CHAIRMAN OF THE MEETING[3] , or

of

as my/our proxy to attend and act for me/us and on my/our behalf at the special general meeting of the Company to be held at 32/F., China Merchants Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong, on Wednesday, 8 September 2004 at 10:00 a.m. (and at any adjournment thereof, as the case may be) (the “ Meeting ”) for the purpose of considering and, if thought fit, passing the ordinary resolutions as set out in the notice convening the Meeting and at the Meeting to vote for me/us and in my/our name(s) in respect of such resolutions as hereinunder indicated, and, if no such indication is given, as my/our proxy thinks fit. My/our proxy will also be entitled to vote on any matter properly put to the Meeting in such manner as he/she thinks fit.

						FOR4	AGAINST4	AGAINST4	AGAINST4
Ordinary		Resolution	No.	1
Ordinary		Resolution	No.	2

Signature[5] Date

Notes:

1. Full name(s) and address(es) must be inserted in BLOCK CAPITALS. The names of all joint registered holders should be stated.

2. Please insert the number of Shares registered in your name(s) to which this proxy relates. If no number is inserted, this form of proxy will be deemed to relate to all Shares registered in your name(s).

3. If any proxy other than the Chairman of the Meeting is preferred, please strike out the words “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 OF PROXY MUST BE INITIALLED BY THE PERSON WHO SIGNS IT.

4. IMPORTANT: If you wish to vote for the resolution, please put a tick in the box marked “FOR”. If you wish to vote against the resolution, please put a tick in the box marked “AGAINST”. If no direction is given, your proxy may vote or abstain as he/she thinks fit. Your proxy will also be entitled to vote at his/her discretion on any resolution properly put to the Meeting other than the resolutions referred to in the notice convening the Meeting.

5. 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 executed under its common seal or under the hand of an officer or attorney duly authorised on that corporation’s behalf.

6. In the case of joint registered holders of any Share(s), any one of such persons may vote at the Meeting, either in person or by proxy, in respect of such Share(s) as if he/she were solely entitled thereto, but if more than one of such joint holders are present at the Meeting in person or by proxy, that one of the said persons so present whose name stands first in the register of members of the Company in respect of such Share(s) shall alone be entitled to vote in respect thereof.

7. In order to be valid, this form of proxy, together with any power of attorney or other authority (if any) under which it is signed, or a notarially certified copy thereof, must be deposited at the branch share registrar and transfer office of the Company in Hong Kong, Tengis Limited at G/F., Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong, not less than 48 hours before the time appointed for holding the Meeting.

8. A proxy need not be a shareholder of the Company but must attend the Meeting in person to represent you.

9. Completion and deposit of this form of proxy will not preclude you from attending and voting in person at the Meeting if you so wish. If you attend and vote at the Meeting in person, the authority of your proxy will be revoked.