GoFintech Quantum Innovation Limited - Capital/Financing Update 2003

THIS PROSPECTUS IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

A copy of this prospectus, together with copies of the provisional allotment letter and the form of application for excess Rights Shares (as defined herein), has been registered by the Registrar of Companies in Hong Kong as required by Section 342C of the Companies Ordinance of Hong Kong and delivered to the Registrar of Companies in Bermuda for filing in accordance with the Companies Act 1981 of Bermuda. The Registrar of Companies in Hong Kong, the Registrar of Companies in Bermuda and the Securities and Futures Commission take no responsibility for the contents of any of these documents.

If you have sold or transferred all your shares in Pacific Challenge Holdings Limited (the “Company”), you should at once hand this prospectus to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee. Dealings in the Shares (as defined herein) may be settled through CCASS (as defined herein) and you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser for details of those settlement arrangements and how such arrangements may affect your rights and interests.

Subject to the grant of the listing of, and permission to deal in, the Rights Shares in both their nil-paid and fully-paid forms, as well as compliance with the stock admission requirements of HKSCC (as defined herein), the Rights Shares in their nil-paid and fully-paid forms will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the commencement dates of dealings in the Rights Shares in their nil-paid and fullypaid forms, or such other dates as may be determined by HKSCC. Settlement of transactions between participants of the Stock Exchange (as defined herein) on any trading day is required to take place in CCASS on the second trading day thereafter. All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time.

The Stock Exchange and HKSCC take no responsibility for the contents of this prospectus, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this prospectus.

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(Incorporated in Bermuda with limited liability)

RIGHTS ISSUE OF NOT LESS THAN 144,434,000 NEW SHARES AND NOT MORE THAN 158,877,400 NEW SHARES OF HK$0.10 EACH ON THE BASIS OF ONE RIGHTS SHARE FOR EVERY TWO EXISTING SHARES HELD AT HK$0.30 PER RIGHTS SHARE PAYABLE IN FULL ON ACCEPTANCE

Financial adviser to Pacific Challenge Holdings Limited in relation to the Rights Issue and underwriter for the Rights Issue

CHATERON

CORPORATE FINANCE LIMITED 華夏融資有限公司

The latest time for acceptance of provisional allotments under the Rights Issue and payment for the Rights Share and application for excess Rights Shares is 4:00 p.m. (Hong Kong time) on Monday, 28 April 2003. The procedures for acceptance and payment or transfer are set out on pages 18 to 19 of this prospectus.

It should be noted that the Underwriting Agreement (as defined herein) contains provisions granting the Underwriter (as defined herein) the right to terminate the arrangements as set out in the Underwriting Agreement which shall be exercisable by notice in writing given by the Underwriter to the Company at any time prior to 4:00 p.m. (Hong Kong time) on the third Business Day (as defined herein) immediately following the last day of acceptance of provisional allotments under the Rights Issue (as defined herein) and payment for the Rights Shares, being Monday, 28 April 2003 (or such other time or date as the Company and the Underwriter may agree in writing), if (1) in the absolute opinion of the Underwriter, the business, financial or trading position or prospects of the Group (as defined herein) as a whole or the success of the Rights Issue would be materially and adversely affected or it would be inexpedient or inadvisable for the Company or the Underwriter to proceed with the Rights Issue as a result of (a) the introduction of any new law or regulation or any change in existing law or regulation or any material change in the judicial interpretation or application thereof or other occurrence of any nature whatsoever; or (b) the occurrence of any event, development or change (whether or not local, national or international or forming part of a series of events or changes occurring or continuing before, on or after the date of the Underwriting Agreement and including an event of change in relation to or a development of an existing state of affairs) of a political, military, financial, regulatory, economic, currency or other nature (whether or not sui generis with any of the foregoing or in the nature of any local, national or international outbreak or escalation of hostilities or armed conflict) resulting in a material adverse change in, or which might reasonably be expected to result in a material adverse change in political, economic or stock market conditions; or (c) the imposition of any moratorium, suspension or material restriction on trading in securities generally on the Stock Exchange occurring due to exceptional financial circumstances; or (d) a change or development involving a prospective material change in taxation in Hong Kong (as defined herein) or Bermuda or the implementation of exchange controls which shall or might materially adversely affect the Company; or (e) the occurrence of any material change in market conditions, taxation or exchange control or combination of circumstances in Hong Kong (including without limitation suspension or material restriction on trading in securities); or (f) any material change in the conditions of local, national or international securities markets; or (2) the Underwriter shall receive notification pursuant to the Underwriting Agreement or shall otherwise become aware of the fact that any of the representations or warranties contained in the Underwriting Agreement was, when given, untrue or inaccurate or would be untrue or inaccurate if repeated as provided in the Underwriting Agreement and the Underwriter shall, in its reasonable opinion, determine that any such untrue representation or warranty represents or is likely to represent a material adverse change in the business, financial or trading position or prospects of the Group taken as a whole or is otherwise likely to have a materially prejudicial effect on the Rights Issue; or (3) any change occurs in the circumstances of the Company or any member of the Group which would materially and adversely affect the business, financial or trading position or prospects of the Group as a whole; or (4) the Company commits any breach of or omits to observe any of the obligations or undertakings expressed to be assumed by it under the Underwriting Agreement which breach or omission would have a material and adverse effect on the business, financial or trading position of the Group as a whole; or (5) the occurrence of any event, or series of events, beyond the control of the Underwriter (including, without limitation, acts of government, strike, lock-outs, fire, explosion, flooding, civil commotion, acts of war or acts of God) which in the reasonable opinion of the Underwriter has or would have the effect of making any part of the Underwriting Agreement (including underwriting) incapable of performance in accordance with its terms or which prevents the processing of applications and/or payments pursuant to the Rights Issue or pursuant to the underwriting thereof. If the Underwriter terminates the Underwriting Agreement, the Rights Issue will not proceed. In such circumstances, all monies received in respect of acceptances of the Rights Shares will be refunded, without interest, by sending a cheque made payable to the relevant applicant named on the provisional allotment letter and/or the form of application for excess Rights Shares or, in the case of joint applicants, to the first-named applicant, and crossed “Account Payee Only” through ordinary post at the risk of such person to the address specified in the provisional allotment letter and/or the form of application for excess Rights Shares on or before Friday, 9 May 2003.

It should be noted that the Shares have been dealt in on an ex-rights basis with effect from Wednesday, 2 April 2003 and the Rights Shares will be dealt in their nil paid form during the period from Thursday, 10 April 2003 to Wednesday, 23 April 2003, both days inclusive. Such dealings will take place whilst the outstanding conditions to which the Rights Issue is subject remain unfulfilled. Any buying or selling of Shares commencing from the date of this prospectus up to the date on which all the outstanding conditions of the Rights Issue are fulfilled, and any buying or selling of nil-paid Rights Shares between Thursday, 10 April 2003 and Wednesday, 23 April 2003 (being the first and last days of dealings in the nil-paid Rights Shares, respectively, both days inclusive) will accordingly bear the risk that the Rights Issue may not become unconditional and may therefore not proceed. Any person contemplating buying or selling Shares and/or Rights Shares in their nil-paid form during such periods who is in any doubt about his/her position is advised to consult his/her professional adviser.

8 April 2003

For identification purpose only

RESPONSIBILITY STATEMENT

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

– i –

FORCE MAJEURE

It should be noted that the Underwriting Agreement contains provisions granting the Underwriter, Chateron Corporate Finance Limited, the right to terminate the arrangements as set out in the Underwriting Agreement which shall be exercisable by notice in writing given by the Underwriter to the Company at any time prior to 4:00 p.m. (Hong Kong time) on the third Business Day immediately following the last day of acceptance of provisional allotments under the Rights Issue and payment for the Rights Shares, being Monday, 28 April 2003 (or such other time or date as the Company and the Underwriter may agree in writing), if:–

(1) in the absolute opinion of the Underwriter, the business, financial or trading position or prospects of the Group as a whole or the success of the Rights Issue would be materially and adversely affected or it would be inexpedient or inadvisable for the Company or the Underwriter to proceed with the Rights Issue as a result of:
(a) the introduction of any new law or regulation or any change in existing law or regulation or any material change in the judicial interpretation or application thereof or other occurrence of any nature whatsoever; or
(b) the occurrence of any event, development or change (whether or not local, national or international or forming part of a series of events or changes occurring or continuing before, on or after the date of the Underwriting Agreement and including an event of change in relation to or a development of an existing state of affairs) of a political, military, financial, regulatory, economic, currency or other nature (whether or not sui generis with any of the foregoing or in the nature of any local, national or international outbreak or escalation of hostilities or armed conflict) resulting in a material adverse change in, or which might reasonably be expected to result in a material adverse change in political, economic or stock market conditions; or
(c) the imposition of any moratorium, suspension or material restriction on trading in securities generally on the Stock Exchange occurring due to exceptional financial circumstances; or
(d) a change or development involving a prospective material change in taxation in Hong Kong or Bermuda or the implementation of exchange controls which shall or might materially adversely affect the Company; or
(e) the occurrence of any material change in market conditions, taxation or exchange control or combination of circumstances in Hong Kong (including without limitation suspension or material restriction on trading in securities); or
(f) any material change in the conditions of local, national or international securities markets; or
(2) the Underwriter shall receive notification pursuant to the Underwriting Agreement or shall otherwise become aware of the fact that any of the representations or warranties contained in the Underwriting Agreement was, when given, untrue or inaccurate or would be untrue or inaccurate if repeated as provided in the

– ii –

FORCE MAJEURE

Underwriting Agreement and the Underwriter shall, in its reasonable opinion, determine that any such untrue representation or warranty represents or is likely to represent a material adverse change in the business, financial or trading position or prospects of the Group taken as a whole or is otherwise likely to have a materially prejudicial effect on the Rights Issue; or

(3) any change occurs in the circumstances of the Company or any member of the Group which would materially and adversely affect the business, financial or trading position or prospects of the Group as a whole; or
(4) the Company commits any breach of or omits to observe any of the obligations or undertakings expressed to be assumed by it under the Underwriting Agreement which breach or omission would have a material and adverse effect on the business, financial or trading position of the Group as a whole; or
(5) the occurrence of any event, or series of events, beyond the control of the Underwriter (including, without limitation, acts of government, strike, lock-outs, fire, explosion, flooding, civil commotion, acts of war or acts of God) which in the reasonable opinion of the Underwriter has or would have the effect of making any part of the Underwriting Agreement (including underwriting) incapable of performance in accordance with its terms or which prevents the processing of applications and/or payments pursuant to the Rights Issue or pursuant to the underwriting thereof.

If the Underwriter terminates the Underwriting Agreement, the Rights Issue will not proceed. In such circumstances, all monies received in respect of acceptances of the Rights Shares will be refunded, without interest, by sending a cheque made payable to the relevant applicant named on the provisional allotment letter and/or the form of application for excess Rights Shares or, in the case of joint applicants, to the first-named applicant, and crossed “Account Payee Only” through ordinary post at the risk of such person to the address specified in the provisional allotment letter and/or the form of application for excess Rights Shares on or before Friday, 9 May 2003.

– iii –

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Summary of the Rights Issue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Expected timetable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Terms of the Rights Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Qualifying Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Business overview and future prospects of the Group . . . . . . . . . . . . . . . . . . . . . . . .	9
Reasons for the Rights Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Use of net proceeds of the Rights Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Underwriting arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
Outstanding conditions of the Rights Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
Shareholding structures of the Company before and after the Rights Issue . . . . . .	16
Rights of Excluded Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Listings and dealings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Fractions of Rights Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Procedures for acceptance and payment or transfer . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Applications by the Qualifying Shareholders for excess Rights Shares . . . . . . . . .	19
Certificates for Rights Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
Compliance with applicable laws and regulations . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	21
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	21
Appendix I – Financial information regarding the Group . . . . . . . . . . . . . . . . . . . . .	22
Appendix II – General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	54

– iv –

DEFINITIONS

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

“Acquisition”	the acquisition by Powerful Union Limited, a wholly owned
	subsidiary of the Company, of the entire issued share capital
	of Tone Communication Limited from Dr. Hsiao Yue George
	Han for a cash consideration of HK$50 million pursuant to
	a conditional sale and purchase agreement entered into
	between the parties dated 14 March 2003, details and the
	terms and conditions of which are set out in the Company’s
	announcement dated 18 March 2003 and in a circular issued
	by the Company dated 8 April 2003
“associate(s)”	has the same meaning ascribed to it in the Listing Rules
“Business Day”	a day on which banks in Hong Kong are generally open for
	business (other than a Saturday and any day on which a
	tropical cyclone warning No. 8 or above is hoisted or
	remains hoisted between 9:00 a.m. and 12:00 noon and is
	not lowered at or before 12:00 noon or on which a “black”
	rainstorm warning signal is hoisted or remains in effect
	between 9:00 a.m. and 12:00 noon and is not discontinued
	at or before 12:00 noon)
“CCASS”	the Central Clearing and Settlement System established and
	operated by HKSCC
“Chateron” or “Underwriter”	Chateron Corporate Finance Limited, a registered investment
	adviser and securities dealer under the SFO, who has been
	appointed as the financial adviser to the Company in relation
	to the Rights Issue and the underwriter for the Rights Issue
“Company”	Pacific Challenge Holdings Limited, a company incorporated
	in Bermuda with limited liability whose shares are listed
	on the Stock Exchange
“Director(s)”	the director(s) of the Company
“Excluded Shareholder(s)”	the Shareholder(s), other than Kandy Profits and Kistefos,
	whose name(s) appear(s) on the register of members of the
	Company on the Record Date and whose address(es) as
	shown on such register on that date is/are outside Hong
	Kong
“Group”	the Company and its subsidiaries
“Hong Kong”	the Hong Kong Special Administrative Region of the PRC
“HKSCC”	Hong Kong Securities Clearing Company Limited

– 1 –

DEFINITIONS

“Kandy Profits”	Kandy Profits Limited, a company incorporated in the
	British Virgin Islands who is the controlling shareholder of
	the Company and who was beneficially interested in
	154,244,000 issued Shares as at the Latest Practicable Date
“Kistefos”	Kistefos Investment A.S., a company whose registered
	address appearing on the register of members of the
	Company is in Norway and who is the registered holder of
	an aggregate of 62,400,000 Shares, representing
	approximately 21.6% of the Company’s issued share capital
	as at the Latest Practicable Date
“Latest Practicable Date”	4 April 2003, being the latest practicable date for the
	purpose of ascertaining certain information contained in
	this prospectus
“Loan”	an unsecured loan in the aggregate principal amount of
	HK$42.6 million to be granted by Powerful Union Limited,
	a wholly owned subsidiary of the Company, to Tone
	Communication Limited pursuant to a loan agreement
	entered into between the parties dated 14 March 2003,
	details and the terms and conditions of which are set out in
	the Company’s announcement dated 18 March 2003 and in
	a circular issued by the Company dated 8 April 2003
“Listing Rules”	Rules Governing the Listing of Securities on the Stock
	Exchange
“Options”	the 28,886,800 outstanding options in issue which were
	granted by the Company to employees of the Group on 15
	October 2002 pursuant to the Company’s share option
	scheme adopted on 30 August 2002, and which are
	exercisable during the period of five years commencing
	from 1 February 2003 at a subscription price of HK$0.67
	per Share (subject to adjustments)
“PRC”	People’s Republic of China
“Qualifying Shareholder(s)”	the Shareholder(s), other than the Excluded Shareholder(s),
	whose name(s) appear(s) on the register of members of the
	Company at the close of business on the Record Date
“Record Date”	8 April 2003
“Rights Issue”	rights issue of one Rights Share at the issue price of
	HK$0.30 each for every two existing Shares held by the
	Qualifying Shareholders on the Record Date
“Rights Issue Documents”	this prospectus, the provisional allotment letter and the form
	of application for excess Rights Shares

– 2 –

DEFINITIONS

“Rights Shares”	not less than 144,434,000 new Shares and not more than
	158,877,400 new Shares to be issued by the Company
	pursuant to the Rights Issue
“SFO”	Securities and Futures Ordinance, Chapter 571 of the Laws
	of Hong Kong
“Share(s)”	share(s) of HK$0.10 each in the capital of the Company
“Shareholder(s)”	holder(s) of Share(s)
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Subscription”	the subscription by Tone Communication Limited of
	3,705,000 new shares in Trend Technology Limited for a
	cash consideration of HK$42.6 million pursuant to a
	subscription agreement dated 14 March 2003 between the
	parties, details of which are set out in the Company’s
	announcement dated 18 March 2003 and in a circular issued
	by the Company dated 8 April 2003
“Underwriting Agreement”	the underwriting agreement dated 14 March 2003 entered
	into between the Company and the Underwriter in relation
	to the Rights Issue
“HK$” and “cents”	Hong Kong dollars and cents, respectively, the lawful
	currency of Hong Kong
“%”	per cent.

– 3 –

SUMMARY OF THE RIGHTS ISSUE

The following information is derived from, and should be read in conjunction with, the full text of this prospectus:

Amount to be raised by the Rights Issue (assuming none of the conversion rights attaching to the Options shall be exercised on or before the Record Date) . . . . . . . . . . . . . . . . . . . . . . approximately HK$41.1 million, net of expenses.

Amount to be raised by the Rights Issue (assuming all of the conversion rights attaching to the Options shall be exercised on or before the Record Date) . . . . . . . . . . . . . . . . . . . . . . approximately HK$45.5 million, net of expenses. Basis of the Rights Issue . . . . . . . . . . . . . . . . . one Rights Share for every two existing Shares held on the Record Date at a subscription price of HK$0.30 per Rights Share. There is also an aggregate of 28,886,800 Options outstanding in issue as at the Latest Practicable Date which, upon full exercise by the holders thereof on or before the Record Date, would result in the issue and allotment by the Company of an aggregate of 28,886,800 new Shares on or before the Record Date.

Number of Shares in issue . . . . . . . . . . . . . . . . 288,868,000 Shares as at the Latest Practicable Date. Number of Rights Shares . . . . . . . . . . . . . . . . . not less than 144,434,000 Rights Shares and not more than 158,877,400 Rights Shares (assuming all the 28,886,800 outstanding Options are exercised by the holders thereof on or before the Record Date). Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tuesday, 8 April 2003. Issue price per Rights Share . . . . . . . . . . . . . . HK$0.30 payable in full on acceptance. Status of the Rights Shares . . . . . . . . . . . . . . . the Rights Shares, when allotted and fully paid, will rank pari passu with the then existing Shares in issue and holders of such Rights Shares will be entitled to receive all future dividends and other distributions which may be declared, made or paid after the date of allotment and issue of the Rights Shares by the Company. Right to apply for excess Rights Shares . . . . . . . . . . . . . . . . . . . . . . . . provisional allottees have the right to apply for Rights Shares in excess of their provisional allotments.

– 4 –

SUMMARY OF THE RIGHTS ISSUE

Undertakings from Kandy Profits . . . . . . . . . . Kandy Profits was beneficially interested in an

aggregate of 154,244,000 Shares representing approximately 53.4% of the total issued share capital of the Company as at the Latest Practicable Date. Kandy Profits has given an irrevocable undertaking in favour of the Company and the Underwriter to accept and subscribe in full its entitlement to 77,122,000 Rights Shares which have been provisionally allotted to it pursuant to the Rights Issue.

– 5 –

EXPECTED TIMETABLE

2003
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tuesday, 8 April
Despatch of the Rights Issue Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tuesday, 8 April
Register of members re-opens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wednesday, 9 April
First day of dealings in nil-paid Rights Shares
on the Stock Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thursday, 10 April
Latest time for splitting nil-paid Rights Shares 4:00 p.m. (Hong Kong time)
on the Stock Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . on Wednesday, 16 April
Last day of dealings in nil-paid Rights Shares
on the Stock Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wednesday, 23 April
Latest time for acceptance of provisional allotments
under the Rights Issue and payment for the 4:00 p.m. (Hong Kong time)
Rights Shares and application for excess Rights Shares . . . . . . . . . . . . . . . . on Monday, 28 April
Rights Issue expected to become unconditional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Friday, 2 May
Announcement of the results of the Rights Issue to be published . . . . . . . . . . . . . . . Monday, 5 May
Refund cheques in respect of wholly or partially unsuccessful applications
for excess Rights Shares to be despatched on or before . . . . . . . . . . . . . . . . . . . . . . Friday, 9 May
Certificates for the fully-paid Rights Shares to be
despatched on or before . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Friday, 9 May
Commencement of dealings in the Rights Shares
on the Stock Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Tuesday, 13 May

– 6 –

LETTER FROM THE BOARD

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(Incorporated in Bermuda with limited liability)

Executive Directors: Registered office: Cheong Tin Yau (Chairman) Clarendon House Lam Kwan Sing 2 Church Street Hamilton HM 11 Bermuda

Independent non-executive Directors: Bermuda Lau Ching Yin, Judy Chau Oi Ching, Samuel Head office and principal place Lo Kwok Hung, John of business: 22nd Floor 80 Gloucester Road Wanchai Hong Kong

8 April 2003

To the Qualifying Shareholders and,

for information only, the Excluded Shareholders and the holders of the Options

Dear Sir or Madam,

RIGHTS ISSUE OF NOT LESS THAN 144,434,000 NEW SHARES AND NOT MORE THAN 158,877,400 NEW SHARES OF HK$0.10 EACH ON THE BASIS OF ONE RIGHTS SHARE FOR EVERY TWO EXISTING SHARES HELD AT HK$0.30 PER RIGHTS SHARE PAYABLE IN FULL ON ACCEPTANCE

INTRODUCTION

It was announced on 18 March 2003 that, subject to the satisfaction of the conditions of the Rights Issue as mentioned in the paragraph headed “Outstanding conditions of the Rights Issue” below, the Company proposes to raise not less than approximately HK$41.1 million, after expenses (assuming that none of the 28,886,800 outstanding Options shall be exercised on or before the Record Date) and not more than approximately HK$45.5 million, after expenses (assuming that all of the 28,886,800 outstanding Options shall be exercised on or before the Record Date), by way of the Rights Issue of not less than 144,434,000 Rights Shares (assuming that none of the 28,886,800 outstanding Options shall be exercised on or before the Record Date) and not more than 158,877,400 Rights Shares (assuming that all of the 28,886,800 outstanding Options shall be exercised on or before the Record Date) in the proportion of one Rights Share for every two existing Shares held on the Record Date at an issue price of HK$0.30 per Rights Share. Chateron has been appointed as the financial adviser in relation to the Rights Issue and the underwriter for the Rights Issue.

For identification purposes only

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LETTER FROM THE BOARD

As at the Latest Practicable Date, the Company had an authorized share capital of HK$90,000,000 divided into 900,000,000 Shares, of which 288,868,000 Shares have been issued and are fully paid. Pursuant to the Rights Issue, the Company will provisionally allot one Rights Share for every two existing Shares held by the Qualifying Shareholders whose names appear on the register of members of the Company at the close of business on the Record Date, as a result of which not less than 144,434,000 Rights Shares (assuming that none of the 28,886,800 outstanding Options shall be exercised on or before the Record Date) and not more than 158,877,400 Rights Shares (assuming that all of the 28,886,800 outstanding Options shall be exercised on or before the Record Date) shall be issued. After the Rights Issue, the Company’s resultant issued share capital as enlarged by the issue of the Rights Shares shall comprise not less than 433,302,000 Shares (assuming that none of the 28,886,800 outstanding Options shall be exercised on or before the Record Date) and not more than 476,632,200 Shares (assuming that all of the 28,886,800 outstanding Options shall be exercised on or before the Record Date). The Rights Issue is not available to the Excluded Shareholders.

This prospectus sets out, inter alia, the details of the Rights Issue, including information on dealings in the Rights Shares in their nil-paid and fully-paid forms, transfers and acceptances of the Rights Shares and certain financial and other information in respect of the Group.

TERMS OF THE RIGHTS ISSUE

Subject to the fulfillment of the conditions of the Rights Issue as set out in the paragraph headed “Outstanding conditions of the Rights Issue” below, Qualifying Shareholders will be provisionally allotted Rights Shares in the proportion of one Rights Share for every two existing Shares held by them at the close of business on the Record Date at an issue price of HK$0.30 per Rights Share, payable in full on acceptance. Provisional allottees are entitled to apply for Rights Shares in excess of their provisional allotments by way of excess applications. As explained below, no provisional allotment of the Rights Shares will be made to the Excluded Shareholders. Any Rights Shares to which the Excluded Shareholders would otherwise have been entitled and which are not sold as described below and any Rights Shares provisionally allotted but not accepted will be available for application on forms of application for excess Rights Shares by the Qualifying Shareholders. Excess Rights Shares, if any, will be allocated by the Directors at their discretion to the applicants on a fair and reasonable basis, but the Directors will give preference to topping-up odd lots of Rights Shares to whole board lots.

When allotted and fully paid, the Rights Shares will rank pari passu in all respects with the then existing Shares in issue and holders of such Rights Shares will be entitled to receive all future dividends and other distributions which may be declared, made or paid after the date of allotment and issue of the Rights Shares.

The subscription price per Rights Share of HK$0.30 represents a discount of (i) approximately 18.9% to the closing price of the Share of HK$0.37 (the “ Closing Price ”) as quoted on the Stock Exchange on 13 March 2003 (being the last trading day of the Shares on the Stock Exchange prior to the date of the announcement of the Rights Issue); (ii) approximately 13.5% to the theoretical ex-rights price of approximately HK$0.347 per Share based on the Closing Price; (iii) approximately 31.0% to the average closing price per Share of approximately HK$0.435 (the “ Average Price ”) for the last 10 trading days up to and including 13 March 2003; and (iv) approximately 23.1% to the theoretical ex-rights price per Share of approximately HK$0.39 determined on the basis of the Average Price. The subscription price per Rights Share of HK$0.30 also represents a discount of approximately 18.3% to the closing price of the Shares as quoted on the Stock Exchange of HK$0.367 on the Latest Practicable Date on an ex-rights basis.

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LETTER FROM THE BOARD

QUALIFYING SHAREHOLDERS

The Company will send this prospectus, the provisional allotment letter and form of application for excess Rights Shares to the Qualifying Shareholders only on the Record Date. The Company will send this prospectus to the Excluded Shareholders, for information only, on the Record Date.

To qualify for the Rights Issue, a Qualifying Shareholder must:

be registered as a member of the Company on the Record Date; and
have its address appearing on the register of members of the Company in Hong Kong at the close of business on the Record Date.

BUSINESS OVERVIEW AND FUTURE PROSPECTS OF THE GROUP

The Group is principally engaged in (i) the provision of corporate finance and investment advisory services; (ii) manufacturing and trading; and (iii) investment activities.

For the financial year ended 31 March 2002, the Company reported audited consolidated turnover and consolidated net loss attributable to the Shareholders of approximately HK$45.0 million and HK$39.9 million, respectively (for the corresponding year ended 31 March 2001: audited consolidated turnover and consolidated net profit attributable to the Shareholders of approximately HK$48.5 million and HK$10.8 million, respectively). As referred to in the Company’s annual report and accounts for the year ended 31 March 2002, the Group’s net loss for the year then ended was attributable to (i) the unfavourable sentiment of the global economy, as a result of which the Group made a provision for investments and loss on revaluation on marketable securities of approximately HK$16.3 million during the year then ended; and (ii) legal and professional expenses incurred and provided for by the Group during the year then ended of approximately HK$18.1 million in relation to litigation matters.

For the six months ended 30 September 2002, the Company reported unaudited consolidated turnover and consolidated net loss attributable to the Shareholders of approximately HK$19.8 million and HK$28.0 million, respectively (for the corresponding six months ended 30 September 2001: unaudited consolidated turnover and consolidated net loss attributable to the Shareholders of approximately HK$14.2 million and HK$19.3 million, respectively). As referred to in the Company’s interim report for the six months ended 30 September 2002, the Group’s increased net loss for the six months ended 30 September 2002 (when compared with that for the corresponding six months ended 30 September 2001) was attributable to the provision made by the Group for unrealized loss on marketable securities which amounted to approximately HK$17.3 million during the six months ended 30 September 2002. The Directors are of the view that despite the continuing problems of deflation and unemployment in Hong Kong and the continuing volatility in the global economy, Hong Kong will continue to play an important role in channeling funds after the accession of the PRC into the World Trade Organization. Therefore, under the Group’s business plans, the Directors will actively look into appropriate business and investment opportunities for the Group.

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LETTER FROM THE BOARD

REASONS FOR THE RIGHTS ISSUE

As referred to in the Company’s interim report for the six months ended 30 September 2002, the Group maintained aggregate cash and bank balances of approximately HK$111 million and the Group did not have any bank borrowings as at 30 September 2002, as a result of which the Group maintained a current ratio (being the Group’s total current assets expressed as a ratio of the Group’s total current liabilities) of about 5.4 times as at 30 September 2002. In this regard, the Directors consider that notwithstanding the Group’s financially healthy position as referred to above, the Directors are also aware of the prevailing weak stock market sentiment in Hong Kong which generally makes fund raising activities in the capital markets difficult to materialize. In view of the Company’s successful procurement of underwriting interests for the Rights Issue, the Directors therefore consider that it would be in the best interest of the Company to seize the first available opportunity offered under the Rights Issue as it would enable the Company to broaden its capital base and to raise the requisite funding for the purpose of funding the advance of the Loan, details of which are set out in the Company’s announcement dated 18 March 2003 and in a circular issued by the Company to the Shareholders on 8 April 2003.

As the Rights Issue would also allow the participating Qualifying Shareholders to maintain their respective pro-rata shareholdings in the Company, the Directors consider that it is in the best interests of the Company and the Shareholders as a whole to raise capital through the Rights Issue.

USE OF NET PROCEEDS OF THE RIGHTS ISSUE

The Company announced on 18 March 2003 that:

(a) Powerful Union Limited, a wholly owned subsidiary of the Company, and Dr. Hsiao Yue George Han had on 14 March 2003 entered into a conditional agreement pursuant to which Powerful Union Limited agreed to acquire from Dr. Hsiao Yue George Han his entire beneficial interest in Tone Communication Limited for a cash consideration of HK$50 million under the Acquisition;
(b) Powerful Union Limited and Tone Communication Limited had on 14 March 2003 entered into a loan agreement pursuant to which (i) Powerful Union Limited agreed to grant to Tone Communication Limited the Loan in an aggregate principal amount of HK$42.6 million upon completion of the Acquisition; and (ii) Tone Communication Limited agreed to use the Loan for the sole purpose of funding the entire consideration payable by it under the Subscription as referred to in (c) below; and
(c) Tone Communication Limited and Trend Technology Limited had on 14 March 2003 entered into a subscription agreement pursuant to which Tone Communication Limited conditionally agreed to subscribe for 3,705,000 new shares in Trend Technology Limited for a cash consideration of HK$42.6 million under the Subscription.

Further details and the terms and conditions of the Acquisition, the Loan and the Subscription are set out in the circular issued by the Company to the Shareholders dated 8 April 2003.

As at the Latest Practicable Date, Tone Communication Limited beneficially owned an approximately 69.11% interest in Trend Technology Limited and will be interested in approximately 80.55% of its issued share capital immediately following completion of the Subscription. Trend Technology Limited, in turn, beneficially and wholly owns 趨勢（鄂州）科技有限公司 (Trend Technology (Erzhou) Limited), which is a wholly foreign-owned enterprise established in the PRC engaged in the research, development and manufacturing of bio-agricultural pesticide products in

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LETTER FROM THE BOARD

Gedian (葛店), Hubei province, the PRC. Each of Dr. Hsiao Yue George Han, Tone Communication Limited, Trend Technology Limited and its shareholders is independent of and not connected with any of the directors, chief executive and substantial shareholders of the Company and its subsidiaries and any of their respective associates.

Completion of the Acquisition is subject to the fulfilment or waiver (as applicable) of a number of conditions on or before 12 June 2003 (or such other date as the parties may agree). These include, inter alia, (i) the results of a due diligence exercise to be conducted by Powerful Union Limited on Tone Communication Limited, Trend Technology Limited and its subsidiary and their respective assets, businesses and other affairs being satisfactory to it; and (ii) the Rights Issue having been completed. Further details of these conditions are set out in the circular dated 8 April 2003 issued by the Company to the Shareholders in relation to the Acquisition, the Loan and the Subscription. In addition, completion of the Acquisition will not take place unless the Subscription is completed at the same time. Accordingly, if the conditions of the Acquisition are not fulfilled or waived (as applicable) by 12 June 2003 (or such other date as may be agreed between the parties) or the Subscription is not completed at the same time as the Acquisition, the Acquisition will not proceed and the obligations of Powerful Union Limited to grant the Loan will cease.

If all the conditions precedent to the Acquisition are fulfilled and subject to there being no default on the part of Dr. Hsiao Yue George Han, the Acquisition will proceed to completion. The granting of the Loan is subject to and is to be effected upon completion of the Acquisition and the Subscription is expected to be completed immediately upon or following the granting of the Loan. Following completion of all these transactions, the Company will, through Powerful Union Limited and Tone Communication Limited, be interested in approximately 80.55% of the issued share capital of Trend Technology Limited.

As referred to above, Powerful Union Limited will, on completion of the Acquisition, advance the Loan to Tone Communication Limited to enable it to complete the Subscription with Trend Technology Limited. This in turn will enable Trend Technology Limited to derive cash proceeds of HK$42.6 million for the purpose of funding the general working capital of Trend Technology Limited and the business operations of its wholly owned subsidiary, Trend Technology (Erzhou) Limited, in the research, development and manufacturing of bio-agricultural pesticide products in the PRC. It is intended that the Loan will be funded from the net proceeds of the Rights Issue. Completion of the Acquisition and hence the granting of the Loan is conditional upon, inter alia, the completion of the Rights Issue in all respects.

Assuming that none of the 28,886,800 Options shall be exercised on or before the Record Date and hence the net proceeds of the Rights Issue would amount to approximately HK$41.1 million, the cash proceeds to be made available by Powerful Union Limited to Tone Communication Limited of HK$42.6 million under the Loan (and hence the subscription proceeds of the same amount payable by Tone Communication Limited to Trend Technology Limited under the Subscription) is intended to be funded as to (i) approximately HK$41.1 million from the entire net proceeds of the Rights Issue; and (ii) the remaining balance of approximately HK$1.5 million from the Group’s internal resources. On the other hand, assuming that all of the 28,886,800 Options shall be exercised on or before the Record Date and hence the net proceeds of the Rights Issue would amount to approximately HK$45.5 million, the cash proceeds to be made available by Powerful Union Limited to Tone Communication Limited of HK$42.6 million under the Loan (and hence the subscription proceeds of the same amount payable by Tone Communication Limited to Trend Technology Limited under the Subscription) is intended to be funded entirely by the net proceeds of the Rights Issue, whilst the remaining balance of the proceeds of the Rights Issue (after meeting the designated usage above) of approximately HK$2.9 million shall be reserved for the Group’s working capital purposes.

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LETTER FROM THE BOARD

Furthermore, as referred to in the circular issued by the Company to the Shareholders dated 8 April 2003 in relation to the Acquisition, the Loan and the Subscription, the Acquisition is conditional. In the event that completion of the Acquisition does not take place, the Directors intend to re-designate the entire net proceeds of the Rights Issue as the Group’s cash reserves, which amount may be used by the Company to acquire or invest in appropriate businesses as and when such opportunities arise. The Directors confirm that no such business opportunities have been identified as at the Latest Practicable Date, but will cause the Company to make the relevant announcement(s) required by the Listing Rules if it has identified any such business opportunities.

UNDERWRITING ARRANGEMENTS

Irrevocable undertaking by Kandy Profits:

Kandy Profits, the controlling shareholder of the Company which is beneficially interested in 154,244,000 Shares representing a beneficial interest of approximately 53.4% in the issued share capital of the Company as at the Latest Practicable Date, has irrevocably undertaken to the Company and the Underwriter that it will take up its provisional allotment of, and will subscribe for, 77,122,000 Rights Shares which represent its pro-rata entitlement under the Rights Issue.

Underwriting Agreement:

Date : 14 March 2003. Underwriter :

Chateron, which is a wholly owned subsidiary of the Company. Chateron has agreed that, in the event that it is called upon to take up any Rights Shares which it has agreed to underwrite, it will place out all such Rights Shares. In this regard, Chateron shall use its reasonable endeavours to ensure that the subscribers of such Rights Shares shall be third parties who are independent of and not connected with any of the directors, chief executive or substantial shareholders of the Company and its subsidiaries and any of their respective associates.

The entering into of the Underwriting Agreement between the Company and its wholly owned subsidiary, Chateron, is exempted from any disclosure or shareholders’ approval requirements as connected transactions under Rule 14.24(6)(c) of the Listing Rules.

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LETTER FROM THE BOARD

Number of Rights Shares : Not less than 67,312,000 Rights Shares underwritten (assuming none of the 28,886,800 Options shall be exercised by the holders thereof on or before the Record Date) and not more than 81,755,400 Rights Shares (assuming all the 28,886,800 Options shall be fully exercised by the holders thereof on or before the Record Date as a result of which an aggregate of 28,886,800 new Shares shall fall to be issued on or before the Record Date) which represent approximately 46.6% and approximately 51.5%, respectively, of the aggregate number of Rights Shares falling to be issued under the Rights Issue. The Rights Issue is fully underwritten. Underwriting commission : 3% of the aggregate subscription price of the Rights Shares underwritten by the Underwriter, out of which the Underwriter will bear its own sub-underwriting commissions.

Termination of the Underwriting Agreement:

The Underwriter reserves the right to terminate the arrangements as set out in the Underwriting Agreement which shall be exercisable by notice in writing given by the Underwriter, Chateron Corporate Finance Limited, to the Company at any time prior to 4:00 p.m. (Hong Kong time) on the third Business Day immediately following the last day of acceptance of provisional allotments under the Rights Issue and payment for the Rights Shares, being Monday, 28 April 2003 (or such other time or date as the Company and the Underwriter may agree in writing), if:

1. in the absolute opinion of the Underwriter, the business, financial or trading position or prospects of the Group as a whole or the success of the Rights Issue would be materially and adversely affected or it would be inexpedient or inadvisable for the Company or the Underwriter to proceed with the Rights Issue as a result of:

(a) the introduction of any new law or regulation or any change in existing law or regulation or any material change in the judicial interpretation or application thereof or other occurrence of any nature whatsoever; or
(b) the occurrence of any event, development or change (whether or not local, national or international or forming part of a series of events or changes occurring or continuing before, on or after the date of the Underwriting Agreement and including an event of change in relation to or a development of an existing state of affairs) of a political, military, financial, regulatory, economic, currency or other nature (whether or not sui generis with any of the foregoing or in the nature of any local, national or international outbreak or

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LETTER FROM THE BOARD

escalation of hostilities or armed conflict) resulting in a material adverse change in, or which might reasonably be expected to result in a material adverse change in political, economic or stock market conditions; or

(c) the imposition of any moratorium, suspension or material restriction on trading in securities generally on the Stock Exchange occurring due to exceptional financial circumstances; or
(d) a change or development involving a prospective material change in taxation in Hong Kong or Bermuda or the implementation of exchange controls which shall or might materially adversely affect the Company; or
(e) the occurrence of any material change in market conditions, taxation or exchange control or combination of circumstances in Hong Kong (including without limitation suspension or material restriction on trading in securities); or
(f) any material change in the conditions of local, national or international securities markets; or

2. the Underwriter shall receive notification pursuant to the Underwriting Agreement or shall otherwise become aware of the fact that any of the representations or warranties contained in the Underwriting Agreement was, when given, untrue or inaccurate or would be untrue or inaccurate if repeated as provided in the Underwriting Agreement and the Underwriter shall, in its reasonable opinion, determine that any such untrue representation or warranty represents or is likely to represent a material adverse change in the business, financial or trading position or prospects of the Group taken as a whole or is otherwise likely to have a materially prejudicial effect on the Rights Issue; or

3. any change occurs in the circumstances of the Company or any member of the Group which would materially and adversely affect the business, financial or trading position or prospects of the Group as a whole; or

4. the Company commits any breach of or omits to observe any of the obligations or undertakings expressed to be assumed by it under the Underwriting Agreement which breach or omission would have a material and adverse effect on the business, financial or trading position of the Group as a whole; or

5. the occurrence of any event, or series of events, beyond the control of the Underwriter (including, without limitation, acts of government, strike, lockouts, fire, explosion, flooding, civil commotion, acts of war or acts of God) which in the reasonable opinion of the Underwriter has or would have the effect of making any part of the Underwriting Agreement (including underwriting) incapable of performance in accordance with its terms or which prevents the processing of applications and/or payments pursuant to the Rights Issue or pursuant to the underwriting thereof.

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LETTER FROM THE BOARD

Upon the giving of notice of termination, all obligations of the Underwriter under the Underwriting Agreement shall cease and no party shall have any claims against any other party in respect of any matter or thing arising out of or in connection with the Underwriting Agreement provided that the Company shall remain liable to pay to the Underwriter such fees as may then be agreed between the Underwriter and the Company, and that the Company shall on demand indemnify the Underwriter and its directors, officers and employees and hold each of the Underwriter and its directors, officers and employees indemnified against all losses or liabilities of any nature suffered by it (including, without limitation, claims, costs, charges and expenses) whatsoever arising from or in respect of certain events as provided for in the Underwriting Agreement. If the Underwriter exercises such right and terminates the Underwriting Agreement, the Rights Issue will not proceed. In such circumstances, all monies received in respect of acceptances of the Rights Shares will be refunded, without interest, by sending a cheque made payable to the relevant applicant named on the provisional allotment letter and/ or the form of application for excess Rights Shares or, in the case of joint applicants, to the first-named applicant, and crossed “Account Payee Only” through ordinary post at the risk of such person to the address specified in the provisional allotment letter and/ or the form of application for excess Rights Shares on or before Friday, 9 May 2003.

OUTSTANDING CONDITIONS OF THE RIGHTS ISSUE

The Rights Issue is conditional upon, inter alia, each of the following happening on or before 4:00 p.m. on the third Business Day immediately following the last day of acceptance of provisional allotments under the Rights Issue and payment for the Rights Shares, being Monday, 28 April 2003 (or such other time or date as the Company and the Underwriter may agree in writing):

(a) the completion by Kandy Profits of all its liabilities and obligations pursuant to the irrevocable undertaking by Kandy Profits as referred to in the paragraph headed “Underwriting arrangements” above in all respects;
(b) the Company filing/registering all relevant documents with the Registrar of Companies in Bermuda in compliance with the Companies Act 1981 of Bermuda and with the Registrar of Companies in Hong Kong in accordance with the Companies Ordinance (Chapter 32 of the Laws of Hong Kong) and delivery of any such relevant documents to the Stock Exchange;
(c) the Listing Committee of the Stock Exchange granting the listing of, and permission to deal in, the Rights Shares in their nil-paid and fully-paid forms; and
(d) the obligations of the Underwriter pursuant to the Underwriting Agreement becoming unconditional and not being terminated in accordance with its terms.

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LETTER FROM THE BOARD

SHAREHOLDING STRUCTURES OF THE COMPANY BEFORE AND AFTER THE RIGHTS ISSUE

Set out below are the shareholding structures of the Company before and after the Rights Issue, assuming that:

(i) under Scenario 1, all the existing Shareholders will subscribe for their provisional allotments of the Rights Shares;
(ii) under Scenario 2, Kistefos will subscribe for its provisional allotment of the Rights Shares but the public Shareholders will not subscribe for their provisional allotments of the Rights Shares (which will however be fully underwritten by the Underwriter);
(iii) under Scenario 3, Kistefos will not subscribe for its provisional allotment of the Rights Shares (which will however be fully underwritten by the Underwriter) but the public Shareholders will subscribe for their provisional allotments of the Rights Shares; and
(iv) the Underwriter shall procure independent investors, who are independent of and not connected with any of the directors, chief executive or substantial shareholders of the Company and its subsidiaries and any of their respective associates, to subscribe for all the Rights Shares underwritten by it so that none of such investors shall become a Shareholder having a beneficial shareholding in excess of 5% of the Company’s enlarged issued share capital after the Rights Issue:–
(a) Assuming that none of the 28,886,800 outstanding Options shall be exercised on or before the Record Date

Kandy Profits Kistefos Public Shareholders:– Underwritten by Chateron_(Note 1)_ Existing public Shareholders Total	Before the Rights Issue Number of % Shares interest 154,244,000 53.4% 62,400,000 21.6% – – 72,224,000 25.0% 72,224,000 25.0% ----------- ----------- 288,868,000 100%	Scenario 1 Number of % Shares interest 231,366,000 53.4% 93,600,000 21.6% – – 108,336,000 25.0% 108,336,000 25.0% ----------- ----------- 433,302,000 100%	After the Rights Issue Scenario 2 Number of % Shares interest 231,366,000 53.4% 93,600,000 21.6% 36,112,000 8.3% 72,224,000 16.7% 108,336,000 25.0% ----------- ----------- 433,302,000 100%	Scenario 3 Number of % Shares interest 231,366,000 53.4% 62,400,000 14.4% 31,200,000 7.2% 108,336,000 25.0% 139,536,000 32.2% ----------- ----------- 433,302,000 100%	Scenario 3 Number of % Shares interest 231,366,000 53.4% 62,400,000 14.4% 31,200,000 7.2% 108,336,000 25.0% 139,536,000 32.2% ----------- ----------- 433,302,000 100%
					32.2% -----------
					100%

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LETTER FROM THE BOARD

(b) Assuming that all of the 28,886,800 outstanding Options shall be exercised on or before the Record Date

Before the Rights Issue Number of % Shares interest Kandy Profits 154,244,000 48.6% Kistefos 62,400,000 19.6% Public Shareholders:– Underwritten by Chateron_(Note 1) – – Existing public Shareholders(Note 2) 101,110,800 31.8% 101,110,800 31.8% ----------- ----------- Total 317,754,800 100% _Notes:	Scenario 1 Number of % Shares interest 231,366,000 48.6% 93,600,000 19.6% – – 151,666,200 31.8% 151,666,200 31.8% ----------- ----------- 476,632,200 100%	After the Rights Issue Scenario 2 Number of % Shares interest 231,366,000 48.6% 93,600,000 19.6% 50,555,400 10.6% 101,110,800 21.2% 151,666,200 31.8% ----------- ----------- 476,632,200 100%	Scenario 3 Number of % Shares interest 231,366,000 48.6% 62,400,000 13.1% 31,200,000 6.5% 151,666,200 31.8% 182,866,200 38.3% ----------- ----------- 476,632,200 100%	Scenario 3 Number of % Shares interest 231,366,000 48.6% 62,400,000 13.1% 31,200,000 6.5% 151,666,200 31.8% 182,866,200 38.3% ----------- ----------- 476,632,200 100%
				38.3% -----------
				100%

1. The amount to be underwritten by Chateron will be placed out to third parties who are independent of and not connected with any of the directors, chief executive or substantial shareholders of the Company and its subsidiaries and any of their respective associates, where none of whom shall become a Shareholder having a beneficial shareholding in excess of 5% of the Company’s enlarged issued share capital after the Rights Issue.

2. Including the Group’s employees to whom the 28,886,800 outstanding Options were allotted.

RIGHTS OF EXCLUDED SHAREHOLDERS

The Rights Issue Documents will not be registered or filed under the securities or equivalent legislations of any jurisdictions other than Hong Kong and Bermuda. The Directors will exercise the discretion granted to them under the bye-laws of the Company not to offer the Rights Shares to the Excluded Shareholders with registered addresses in territories where, in the opinion of the Directors, it would or might be unlawful or impracticable to offer Rights Shares in such places without registration of the Rights Issue Documents and/or compliance with any legal or regulatory requirements or special formalities in such places. Accordingly, if, on the Record Date, a Shareholder’s address on the Company’s register of members is in a place outside Hong Kong, such Shareholder cannot take part in the Rights Issue (except for Kandy Profits and Kistefos). On the Record Date, the Company will send this prospectus to the Excluded Shareholders, for their information only, and will not send the provisional allotment letter or form of application for excess Rights Shares to the Excluded Shareholders.

If a premium (net of expenses) can be obtained, the Company will arrange for the sale of those Rights Shares which would otherwise have been provisionally allotted to the Excluded Shareholders once dealings in the nil-paid Rights Shares commence on the Stock Exchange. The proceeds of each sale, less expenses, of HK$100 or more will be paid pro-rata to the shareholdings of the Excluded Shareholders, in Hong Kong dollars. The Company will keep individual amounts of less than HK$100 for its own benefit.

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LETTER FROM THE BOARD

LISTINGS AND DEALINGS

Application has been made to the Listing Committee of the Stock Exchange for the grant of the listing of, and permission to deal in, the Rights Shares in their nil-paid and fully-paid forms. It is expected that dealings in the Rights Shares in their nil-paid form will commence on Thursday, 10 April 2003 and will end on Wednesday, 23 April 2003, both days inclusive. No securities of the Company are listed or dealt in on any stock exchange other than the Stock Exchange and no application has been made or is presently proposed to be made for the Rights Shares to be listed or dealt in on any other stock exchange.

Subject to the grant of the listing of, and permission to deal in, the Rights Shares in both their nil-paid and fully-paid forms as well as compliance with the stock admission requirements of HKSCC, the Rights Shares in their nil-paid and fully-paid forms will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the commencement dates of dealings in the Rights Shares in their nil-paid and fully-paid forms, or such other dates as may be determined by HKSCC. Settlement of transactions between participants of the Stock Exchange on any trading day is required to take place in CCASS on the second trading day thereafter. All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time.

All necessary arrangements will be made to enable the above securities of the Company to be admitted into CCASS. Trading in the Rights Shares, in both nil-paid and fully-paid forms, will be in board lots of 2,000 Shares which is equal to the existing board lot size of the Shares.

It should be noted that the existing Shares have been dealt in on an ex-rights basis with effect from Wednesday, 2 April 2003 and the Rights Shares will be dealt in their nil-paid form during the period from Thursday, 10 April 2003 to Wednesday, 23 April 2003, both days inclusive. Such dealings will take place whilst the outstanding conditions to which the Rights Issue is subject remain unfulfilled. Any buying or selling of Shares commencing from the date of this prospectus up to the date on which all the outstanding conditions of the Rights Issue are fulfilled, and any buying and selling of nil-paid Rights Shares between Thursday, 10 April 2003 and Wednesday, 23 April 2003 (being the first and last days of dealings in the nilpaid Rights Shares, respectively, both days inclusive), will accordingly bear the risk that the Rights Issue may not become unconditional and may therefore not proceed. Any person contemplating buying or selling Shares and/or Rights Shares in their nil-paid form during such periods who is in any doubt about his/her position is advised to consult his/her professional adviser.

FRACTIONS OF RIGHTS SHARES

In accordance with the bye-laws of the Company, the Company will not allot any fractions of Rights Shares to Qualifying Shareholders. All fractions of Rights Shares will be aggregated and all Rights Shares arising from such aggregation will be allotted in nil-paid form to a nominee of the Company and sold in the market for the benefit of the Company.

PROCEDURES FOR ACCEPTANCE AND PAYMENT OR TRANSFER

A provisional allotment letter is enclosed with this prospectus which entitles the Qualifying Shareholders to take up the number of the Rights Shares as shown therein. If any Qualifying Shareholder wishes to exercise his/her rights to take up the Rights Shares specified in the provisional allotment letter, such Qualifying Shareholder will need to lodge the

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LETTER FROM THE BOARD

provisional allotment letter in accordance with the instructions printed thereon, together with a remittance for the full amount payable on acceptance, with the Company’s branch share registrar in Hong Kong, Tengis Limited at G/F, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong by not later than 4:00 p.m. (Hong Kong time) on Monday, 28 April 2003. All remittances must be made in Hong Kong dollars. Cheques must be drawn on an account with, and cashier’s orders must be issued by, a bank in Hong Kong and made payable to “PACIFIC CHALLENGE HOLDINGS LIMITED – RIGHTS ISSUE – PROVISIONAL ALLOTMENT ACCOUNT” and crossed “ACCOUNT PAYEE ONLY”.

It should be noted that unless the provisional allotment letter, together with the appropriate remittance, has been lodged with the Company’s branch share registrar in Hong Kong, Tengis Limited, by 4:00 p.m. (Hong Kong time) on Monday, 28 April 2003, whether by the original allottee or any person to whom the rights have been validly transferred, the relevant provisional allotment and all rights thereunder will be deemed to have been declined and will be cancelled.

The provisional allotment letter contains full information regarding the procedures to be followed if the Qualifying Shareholders wish to accept only part of their provisional allotment or if the Qualifying Shareholders wish to transfer all or part of their rights under their provisional allotment.

All cheques and cashier’s orders will be presented for payment following receipt and all interest earned on such monies will be retained for the benefit of the Company. Any provisional allotment letter in respect of which the accompanying cheque or cashier’s order is dishonoured on first presentation is liable to be rejected, and in that event the relevant provisional allotment and all rights thereunder will be deemed to have been declined and will be cancelled.

If the Underwriter exercises its right to terminate the Underwriting Agreement before 4:00 p.m. (Hong Kong time) on the third Business Day following the last day for acceptance of provisional allotments under the Rights Issue and payment for the Right Shares, being Monday, 28 April 2003, the monies received in respect of acceptances of the Rights Shares will be returned to the Qualifying Shareholders or such other persons to whom the Rights Shares in their nil-paid form shall have been validly transferred without interest, by means of cheques to be despatched in the ordinary post at the risk of such Qualifying Shareholders or other persons on or before Friday, 9 May 2003.

APPLICATIONS BY THE QUALIFYING SHAREHOLDERS FOR EXCESS RIGHTS SHARES

Qualifying Shareholders may apply for Rights Shares attributable to any unsold entitlements of the Excluded Shareholders and any Rights Shares provisionally allotted but not accepted by the Qualifying Shareholders or otherwise not subscribed for by holders of nil-paid Rights Shares.

If any Qualifying Shareholder wishes to apply for any Rights Shares in addition to his/ her provisional allotment under the Rights Issue, he/she must complete and sign the enclosed form of application for excess Rights Shares as indicated therein and lodge it, together with a separate remittance for the amount payable on application in respect of the excess Rights Shares applied for, with the Company’s branch share registrar in Hong Kong, Tengis Limited at G/F, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong by no later than 4:00 p.m. (Hong Kong time) on Monday, 28 April 2003. All remittances must

– 19 –

LETTER FROM THE BOARD

be made in Hong Kong dollars. Cheques must be drawn on an account with, and cashier’s orders must be issued by, a bank in Hong Kong and made payable to “PACIFIC CHALLENGE HOLDINGS LIMITED – RIGHTS ISSUE – EXCESS APPLICATION ACCOUNT” AND CROSSED “ACCOUNT PAYEE ONLY”.

All cheques and cashier’s orders will be presented for payment following receipt and all interest earned on such monies will be retained for the benefit of the Company. Any form of application for excess Rights Shares in respect of which the accompanying cheque or cashier’s order is dishonoured on first presentation is liable to be rejected.

If no excess Rights Shares is allotted to the relevant applicants, the amount tendered on application is expected to be refunded to the relevant applicants in full without interest by means of cheques despatched in the ordinary post at their own risk on or before Friday, 9 May 2003. If the number of excess Rights Shares allotted to the relevant applicants is less than that applied for, the surplus application money is expected to be refunded to the relevant applicants without interest by means of cheques despatched in the ordinary post at their own risk on or before Friday, 9 May 2003.

If the Underwriter exercises its right to terminate the Underwriting Agreement before 4:00 p.m. (Hong Kong time) on the third Business Day following the last day for acceptance of provisional allotments under the Rights Issue and payment for the Rights Shares and application for excess Rights Shares, being Monday, 28 April 2003, the monies received in respect of applications for excess Rights Shares will be returned to the relevant applicants, without interest, by means of cheques to be despatched in the ordinary post at the risk of such applicants on or before Friday, 9 May 2003.

CERTIFICATES FOR RIGHTS SHARES

It is expected that certificates for the fully-paid Rights Shares will be despatched in the ordinary post to the persons who have accepted and paid for the Rights Shares and those successful applicants for the excess Rights Shares, at their own risk, to their addresses as shown on the register of members of the Company on or before Friday, 9 May 2003.

Where entitlements to Rights Shares exceed one board lot, it is proposed, so far as is practicable, to issue certificates for Shares in board lots of 2,000 Shares, with a certificate for the balance, if any.

COMPLIANCE WITH APPLICABLE LAWS AND REGULATIONS

No action has been taken in any jurisdictions other than Hong Kong and Bermuda to permit the offering of the Rights Shares or the distribution of any of the Rights Issue Documents in any territory outside Hong Kong, and therefore no person receiving any of the Rights Issue Documents in any territory outside Hong Kong may treat it as an offer or an invitation to apply for the Rights Shares, unless in the relevant territory such an offer or invitation could lawfully be made without compliance with any registration or other legal or regulatory requirements. Subject as referred to below, it is the responsibility of anyone outside Hong Kong wishing to make an application for Rights Shares to satisfy himself or herself as to the observance of the laws and regulations of all relevant territories, including the obtaining of any government or other consents, and to pay taxes and duties required to be paid in such territory in connection therewith. No application for Rights Shares will be accepted from any person whose address is outside Hong Kong unless the Company, in its absolute discretion, is satisfied that such acceptance would not involve any breach of any

– 20 –

LETTER FROM THE BOARD

applicable laws or regulatory requirements or any need for compliance with any registration or other legal or regulatory requirements. The Company reserves the right to refuse to accept any application for Rights Shares if it believes that such acceptance would violate the applicable securities or other laws or regulations of any territory.

TAXATION

The terms of the Rights Issue have not taken into account the tax consequences on those Qualifying Shareholders who participate in the Rights Issue by way of taking up their provisional allotments and/or applying for excess Rights Shares, since these are particular to the individual circumstances of any Qualifying Shareholder. It is emphasized that the Company will not accept responsibility for any tax effects on or liabilities of any Qualifying Shareholder resulting from his/her participation in the Rights Issue. In particular, any Qualifying Shareholder who is in any doubt about his/her own tax position in connection with his/her participation in the Rights Issue should consult his/her own professional adviser(s).

GENERAL

Your attention is drawn to the appendices to this prospectus.

Yours faithfully, For and on behalf of Pacific Challenge Holdings Limited Cheong Tin Yau Chairman

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FINANCIAL INFORMATION REGARDING THE GROUP

APPENDIX I

SHARE CAPITAL AND OPTIONS

(a) Share capital

The authorized and issued share capital of the Company immediately following the completion of the Rights Issue is expected to be as follows:

Authorized		HK$
900,000,000	Shares as at the Latest Practicable Date	90,000,000

Assuming that none of the 28,886,800 outstanding Options shall be exercised on or before the Record Date

Issued (and fully-paid up) and to be issued:

288,868,000 Shares in issue as at the Latest Practicable Date 144,434,000 Shares to be issued pursuant to the Rights Issue_(Note)_ 433,302,000	28,886,800 14,443,400
	43,330,200

Assuming that all of the 28,886,800 outstanding Options shall be exercised on or before the Record Date

Issued (and fully-paid up) and to be issued:

317,754,800 Shares in issue as at the Latest Practicable Date 158,877,400 Shares to be issued pursuant to the Rights Issue_(Note)_ 476,632,200	31,775,480 15,887,740
	47,663,220

Note: Assuming the Rights Issue becomes unconditional.

Each of the Shares in issue ranks pari passu in all respects including, in particular, rights to dividends, voting and capital distribution.

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FINANCIAL INFORMATION REGARDING THE GROUP

APPENDIX I

(b) Share options

The Company adopted a share option scheme on 30 August 2002 pursuant to which the Company may grant options to eligible participants in accordance with Chapter 17 of the Listing Rules (including executive Directors) to subscribe for Shares, subject to a maximum amount representing 10% of the number of Shares in issue as at the date of approval of the share option scheme. The subscription price per Share attaching to each option will be determined by the Directors and shall be not less than the higher of (i) the nominal value of the Shares; (ii) the average closing price of the Shares as quoted on the Stock Exchange during the period of five consecutive trading days immediately preceding the date of the offer or the grant of the option; and (iii) the closing price of the Shares as quoted on the Stock Exchange on the date of grant of the option.

The aggregate outstanding number of Options as at the Latest Practicable Date were as follows:–

			Number	of Options
			Granted	Exercised
			during the	during the
			period from	period from
			30 August	30 August
			2002 up to	2002 up to
			and	and
			including	including	As at
			the Latest	the Latest	the Latest
		Exercise	Practicable	Practicable	Practicable
Date of grant	Exercise period	price	Date	Date	Date
		HK$
15 October 2002	1 February 2003 to
	31 January 2008	0.67	28,886,800	Nil	28,886,800

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FINANCIAL INFORMATION REGARDING THE GROUP

APPENDIX I

1. FINANCIAL SUMMARY

The following is a summary of (i) the audited consolidated income statements of the Group for the three financial years ended 31 March 2000, 2001 and 2002; (ii) the audited consolidated balance sheets of the Group as at 31 March 2000, 2001 and 2002; and (iii) the audited consolidated cash flow statements of the Group for the three financial years ended 31 March 2000, 2001 and 2002, which are extracted from the annual reports of the Company.

Audited consolidated income statements

2002 HK$’000 44,990	2001 HK$’000 48,478	2000 HK$’000 132,606
44,990 –	26,092 22,386	25,777 106,829
(23,634) 21,356 4,337 (1,221) (28,689) (10,494) (5,800) (18,079) (38,590)	– 48,478 2,233 – (36,197) – (4,027) – 10,487	– 132,606 27 – (88,661) – – – 43,972
(38,590) –	1,580 8,907	14,892 29,080
– (1,014) (222) – (39,826) (140) (39,966) 82 (39,884) 157,030 – 117,146 (14) cents	3,800 – – (1,494) 12,793 (1,988) 10,805 – 10,805 150,522 (4,297) 157,030 4 cents	– – – (2,388) 41,584 (6,060) 35,524 – 35,524 114,998 – 150,522 15 cents

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FINANCIAL INFORMATION REGARDING THE GROUP

APPENDIX I

Audited consolidated balance sheets

NON-CURRENT ASSETS Fixed assets Investment in subsidiaries Investment in associates Shares of Hong Kong Exchanges and Clearing Limited Trading rights of The Stock Exchange of Hong Kong Limited and Hong Kong Futures Exchange Limited Other non-current assets Total non-current assets CURRENT ASSETS Inventories Loans receivable Advances for investments Accounts receivable Deposits, prepayments and other receivables Investment in marketable securities Margin client receivables Cash and bank balances Total current assets CURRENT LIABILITIES Short-term bank loan, secured Accounts payable Accruals and other payables Due to a minority shareholder of a subsidiary Taxation payable Margin client payables Total current liabilities Net current assets Total assets less current liabilities NON-CURRENT LIABILITIES Deferred taxation Net assets Representing – SHARE CAPITAL RESERVES RETAINED PROFIT PROPOSED DIVIDEND SHAREHOLDERS’ EQUITY	2002 HK$’000 3,063 – – – – – 3,063 18,983 – – 17,027 4,792 19,976 – 203,119 263,897 – (14,531) (26,942) (3,964) (1,069) – (46,506) 217,391 220,454 (106) 220,348 28,648 74,554 117,146 – 220,348	2001 HK$’000 1,153 – 1,014 – – – 2,167 – 3,902 1,794 6,605 2,636 6,409 – 265,624 286,970 – (4,514) (18,014) – (1,015) – (23,543) 263,427 265,594 (106) 265,488 28,648 75,513 157,030 4,297 265,488	2000 HK$’000 3,154 – 1,014 11,654 7,171 2,130 25,123 – – – 187,452 1,978 – 66,127 184,336 439,893 (20,000) (144,474) (48,056) – (4,882) (20,915) (238,327) 201,566 226,689 (239) 226,450 23,888 52,040 150,522 – 226,450

– 25 –

FINANCIAL INFORMATION REGARDING THE GROUP

APPENDIX I

Audited consolidated cash flow statements Net cash (outflow) inflow from operating activities RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Interest received Interest paid Dividend received Dividend paid TAXATION Hong Kong profits tax paid INVESTING ACTIVITIES Purchase of fixed assets Purchase of investment in marketable securities Advances for investments Net cash outflow in respect of disposal of subsidiaries Net cash outflow from acquisition of a subsidiary Investment in an associate Increase in loans from associates Proceeds from disposal of investment in marketable securities Translation adjustments Others NET CASH (OUTFLOW) INFLOW BEFORE FINANCING FINANCING Proceeds from issue of ordinary shares Share issue expense Repayment of short-term bank loan Capital contributions from a minority shareholder of a subsidiary Increase in amount due to a minority shareholder of a subsidiary (DECREASE) INCREASE IN CASH AND BANK BALANCES CASH AND BANK BALANCES, beginning of year CASH AND BANK BALANCES, end of year	2002 HK$’000 (45,029) 8,888 – 302 (4,297) 4,893 (86) (1,654) (22,770) (4,798) – (500) (50,000) 49,778 4,574 (959) – (26,329) (66,551) – – – 82 3,964 4,046 (62,505) 265,624 203,119	2001 HK$’000 92,573 19,759 (1,494) – – 18,265 (2,742) (279) (13,279) (5,696) (22,872) – – – 3,766 – – (38,360) 69,736 31,892 (340) (20,000) – – 11,552 81,288 184,336 265,624	2000 HK$’000 (4,581) 17,948 (2,388) – (26,276) (10,716) (3,337) (2,784) – – – – (1,014) – 2,000 – 60 (1,738) (20,372) – – – – – – (20,372) 204,708 184,336

– 26 –

FINANCIAL INFORMATION REGARDING THE GROUP

APPENDIX I

2. AUDITED FINANCIAL INFORMATION

The financial information set out below is extracted from the audited financial statements of the Group for the year ended 31 March 2002 as set out in the Company’s annual report for the year ended 31 March 2002:

Consolidated income statement

for the financial year ended 31 March 2002

Note Turnover 4 & 6 Continuing operations Discontinued operations 5 Cost of sales 4 Gross profit Other revenue 6 Selling and marketing expenses General and administrative expenses Impairment loss on investments Loss on investment in marketable securities Provision for legal and professional fees (Loss) Profit from operations Continuing operations Discontinued operations 5 Gain on disposal of subsidiaries Impairment loss on investment in associates Share of loss of associates Interest expense (Loss) Profit before taxation 7 Taxation 9 (Loss) Profit after taxation but before minority interests Minority interests (Loss) Profit attributable to shareholders 10 Continuing operations Discontinued operations 5 Retained profit, beginning of year Proposed dividend 11 Retained profit, end of year 12 (Loss) Earnings per share – basic 13	2002 HK$’000 44,990	2002 HK$’000 44,990	2001 HK$’000 48,478
	44,990 –		26,092 22,386
	(23,634) 21,356 4,337 (1,221) (28,689) (10,494) (5,800) (18,079) (38,590)		– 48,478 2,233 – (36,197) – (4,027) – 10,487
	(38,590) –		1,580 8,907
	– (1,014) (222) – (39,826) (140) (39,966) 82 (39,884) (39,884) – 157,030 – 117,146 (14) cents		3,800 – – (1,494) 12,793 (1,988) 10,805 – 10,805
			4,035 6,770
			150,522 (4,297) 157,030 4 cents

– 27 –

FINANCIAL INFORMATION REGARDING THE GROUP

APPENDIX I

Consolidated statement of recognised gains and losses for the financial year ended 31 March 2002

Note Net (losses) gains not recognised in the consolidated income statement – Write-back of revaluation reserve upon disposal of subsidiaries Translation adjustments 27 (Loss) Profit attributable to shareholders Total recognised (losses) gains	2002 HK$’000 – (959) (39,884) (40,843)	2001 HK$’000 (3,319) – 10,805 7,486

– 28 –

FINANCIAL INFORMATION REGARDING THE GROUP

APPENDIX I

Balance sheets

As at 31 March 2001 and 31 March 2002

Note NON-CURRENT ASSETS Fixed assets 14 Investment in subsidiaries 15 Investment in associates 16 Total non-current assets CURRENT ASSETS Inventories 17 Loans receivable 18 Advances for investments 19 Accounts receivable 20 Deposits, prepayments and other receivables Investment in marketable securities 21 Cash and bank balances Total current assets CURRENT LIABILITIES Accounts payable 22 Accruals and other payables 23 Due to a minority shareholder of a subsidiary 4 Taxation payable Total current liabilities Net current assets Total assets less current liabilities NON-CURRENT LIABILITIES Deferred taxation 24 Net assets Representing – SHARE CAPITAL 25 RESERVES 27 RETAINED PROFIT PROPOSED DIVIDEND 3.b & 27 SHAREHOLDERS’ EQUITY	Consolidated 2002 2001 HK$’000 HK$’000 (Restated – Note 3.b) 3,063 1,153 – – – 1,014 3,063 2,167 18,983 – – 3,902 – 1,794 17,027 6,605 4,792 2,636 19,976 6,409 203,119 265,624 263,897 286,970 (14,531) (4,514) (26,942) (18,014) (3,964) – (1,069) (1,015) (46,506) (23,543) 217,391 263,427 220,454 265,594 (106) (106) 220,348 265,488 28,648 28,648 74,554 75,513 117,146 157,030 – 4,297 220,348 265,488	Company 2002 2001 HK$’000 HK$’000 (Restated – Note 3.b) – – 124,361 125,857 – – 124,361 125,857 – – – – – – 928 114 1,143 5,260 – – 145,222 100,208 147,293 105,582 – (703) (17,883) (7,411) – – – (86) (17,883) (8,200) 129,410 97,382 253,771 223,239 – – 253,771 223,239 28,648 28,648 188,792 188,792 36,331 1,502 – 4,297 253,771 223,239

– 29 –

FINANCIAL INFORMATION REGARDING THE GROUP

APPENDIX I

Consolidated cash flow statements

for the two financial years ended 31 March 2002

Note Net cash (outflow) inflow from operating activities 28.a RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Interest received Interest paid Dividend received Dividend paid TAXATION Hong Kong profits tax paid INVESTING ACTIVITIES Purchase of fixed assets Purchase of investment in marketable securities Advances for investments Net cash outflow in respect of disposal of subsidiaries Net cash outflow from acquisition of a subsidiary 28.b Investment in an associate Increase in loans from associates Proceeds from disposal of investment in marketable securities Translation adjustments NET CASH (OUTFLOW) INFLOW BEFORE FINANCING FINANCING 28.c Proceeds from issue of ordinary shares Share issue expense Repayment of short-term bank loan Capital contributions from a minority shareholder of a subsidiary Increase in amount due to a minority shareholder of a subsidiary (DECREASE) INCREASE IN CASH AND BANK BALANCES CASH AND BANK BALANCES,beginning of year CASH AND BANK BALANCES,end of year	2002 HK$’000 (45,029) 8,888 – 302 (4,297) 4,893 (86) (1,654) (22,770) (4,798) – (500) (50,000) 49,778 4,574 (959) (26,329) (66,551) – – – 82 3,964 4,046 (62,505) 265,624 203,119	2001 HK$’000 92,573 19,759 (1,494) – – 18,265 (2,742) (279) (13,279) (5,696) (22,872) – – – 3,766 – (38,360) 69,736 31,892 (340) (20,000) – – 11,552 81,288 184,336 265,624

– 30 –

FINANCIAL INFORMATION REGARDING THE GROUP

APPENDIX I

Notes to the financial statements for the year ended 31 March 2002

1. ORGANISATION AND PRINCIPAL ACTIVITIES

Pacific Challenge Holdings Limited (“the Company”) was incorporated in Bermuda as an exempted company with limited liability under the Companies Act 1981 of Bermuda on 23 July 1998. Its shares have been listed on The Stock Exchange of Hong Kong Limited since 13 October 1998.

The Company is an investment holding company. Its subsidiaries are principally engaged in (i) the manufacturing and trading of precision components processing equipment, (ii) the provision of securities investment and financial services and (iii) the provision of corporate finance and investment advisory services.

In May 2002, the Company’s shareholders received a voluntary conditional cash offer from TingKong – RexCapital Securities International Limited on behalf of Kandy Profits Limited to acquire all the issued shares of the Company and outstanding options to subscribe for shares of the Company. Details of the voluntary conditional cash offers were disclosed in the Company’s circular to its shareholders dated 6 June 2002.

2. BASIS OF PRESENTATION

On 8 March 2001, Kistefos Investment A.S. (“Kistefos”), a 21.78% shareholder of the Company, filed a petition (“the Petition”) against the Company and one of its directors to The Supreme Court of Bermuda (“the Court”) under Section 111(1) of the Companies Act 1981 of Bermuda. The Petition was based on an alleged claim that certain affairs of the Company had been conducted in a manner which is oppressive or unfairly prejudicial to the interests of certain shareholders of the Company, including Kistefos itself. Pursuant to the Petition, Kistefos intends to seek an order from the Court to either (i) force the Company or the director to purchase all shares of the Company held by Kistefos, at a fair value to be determined by the Court, or (ii) wind up the Company by the Court.

After taking legal advice from its legal advisers in Bermuda, the Company made a strike out application in relation to the Petition, the Court hearing of which was completed in September 2001. The Company was advised by its legal advisers in Bermuda that the Acting Judge of the Court in his judgement made in October 2001, struck out the claim by Kistefos to wind up the Company, while the remaining relief claimed by Kistefos in the Petition remains to be dealt with by the Court in subsequent hearings. In December 2001, the Company appealed to the Court of Appeal of Bermuda to strike out the entire Petition. In February 2002, Kistefos filed a notice of intention to the Court of Appeal of Bermuda to appeal against the decision made by the Court to strike out the claim to wind up the Company. The hearing of the appeal was conducted in June 2002. The Company was then advised by its legal advisers in Bermuda that the Bermuda Court of Appeal dismissed both the appeal of the Company and the cross-appeal of Kistefos. As a result, the claim by Kistefos to wind up the Company remains struck out, while the remaining relief claim will be dealt with by the Court in subsequent trials. The Directors of the Company, after considering advice from its Bermuda legal advisers, believe that the Company has a reasonably good defense to the remaining relief claim in the Petition. Accordingly, the financial statements have been prepared on the going concern basis. Should the outcome of the Petition not be favourable to the Company, the Company and the Group might not be able to realise the carrying value of its assets and repay its liabilities.

In connection with the Petition, a provision for legal and professional fees amounting to approximately HK$14,800,000 (2001 – HK$5,000,000) was recorded in the financial statements during the year ended 31 March 2002.

3. PRINCIPAL ACCOUNTING POLICIES

The financial statements have been prepared in accordance with Statements of Standard Accounting Practice issued by the Hong Kong Society of Accountants, accounting principles generally accepted in Hong Kong, and the disclosure requirements of the Hong Kong Companies Ordinance and the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. The principal accounting policies are summarised below:

(a) Basis of measurement

The financial statements have been prepared on the historical cost basis, as modified by stating investment in marketable securities at fair value as explained in Note 3(j).

– 31 –

FINANCIAL INFORMATION REGARDING THE GROUP

APPENDIX I

(b) Adoption of new/revised Statements of Standard Accounting Practice

Effective from the year ended 31 March 2002, the Company and its subsidiaries (together “the Group”) have adopted, for the first time, the following Statements of Standard Accounting Practice (“SSAPs”) issued by the Hong Kong Society of Accountants:

SSAP 9 (revised) Events after the balance sheet date SSAP 14 (revised) Leases SSAP 26 Segment reporting SSAP 28 Provisions, contingent liabilities and contingent assets SSAP 29 Intangible assets SSAP 30 Business combinations SSAP 31 Impairment of assets SSAP 32 Consolidated financial statements and accounting for investments in subsidiaries

The adoption of the above new/revised SSAPs had no material effect on the Group’s financial statements, other than those described below:

i. SSAP 9 (revised) – Events after the balance sheet date

In accordance with SSAP 9 (revised), dividends proposed or declared after the balance sheet date in respect of the financial year ended on the balance sheet date are not recognised as a liability at the balance sheet date, but are disclosed as a separate component of shareholders’ equity on the face of the balance sheet. This change in accounting policy has been applied retrospectively as a prior year adjustment, resulting in an increase of approximately HK$4,297,000 in shareholders’ equity as at 1 April 2001, which represents the proposed final dividend for the year ended 31 March 2001.

ii. SSAP 26 – Segment reporting

Segment information of the Group are disclosed in Note 29 to the financial statements.

In addition to the adoption of the above standards, the Group has adopted the consequential changes made to SSAP 10 – Accounting for investments in associates, SSAP 17 – Property, plant and equipment and SSAP 18 – Revenue. The Directors of the Company consider that the consequential changes made to these SSAPs do not have a material effect on the Group’s financial statements.

The 2001 comparative figures presented herein have incorporated the effect of adjustments, where applicable, resulting from the adoption of the new/revised SSAPs.

(c) Basis of consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries (the “Group”), together with the Group’s share of post-acquisition results and reserves of its associates under the equity method of accounting. The results of subsidiaries and associates acquired or disposed of during the year are consolidated from or to their effective dates of acquisition or disposal. Significant intra-group transactions and balances have been eliminated on consolidation.

(d) Subsidiaries

A subsidiary is a company over which the Group can exercise control, which is normally evidenced when the Group has the power to govern the financial and operating policies so as to obtain benefits from its activities. In the Company’s financial statements, investment in subsidiaries is stated at cost less any impairment loss, while income from subsidiaries is recorded to the extent of dividends received and receivable.

(e) Associates

An associate is a company over which the Group has significant influence, but not control or joint control, over its financial and operating policy decisions. In the consolidated financial statements, investment in associates is accounted for under the equity method of accounting, whereby the investment is initially recorded at cost and is adjusted thereafter to recognise the Group’s share of the post-acquisition results of associates, distributions received from associates, other necessary alterations in the Group’s proportionate interest in associates arising from changes in the equity of associates that have not been included in the income statement of associates, amortisation of the difference between the cost of investment and the Group’s share of the aggregate fair value of the identifiable net assets acquired at the date of acquisition (goodwill), and any impairment loss. The Group’s share of post-acquisition results of associates is included in the consolidated income statement.

– 32 –

FINANCIAL INFORMATION REGARDING THE GROUP

APPENDIX I

(f) Turnover and revenue recognition

Turnover represents (i) sales of precision components processing equipment, (ii) interest income from bank deposits; and (iii) corporate finance and investment advisory fees.

Revenue is recognised when the outcome of a transaction can be measured reliably and when it is probable that the economic benefits associated with the transaction will flow to the Group. Revenues are recognised on the following bases:

(i) Sales of precision components processing equipment is recognised when the merchandise is shipped and title has passed.
(ii) Interest income from bank deposits is recognised on a time proportion basis that takes into account the effective yield on the bank deposits.
(iii) Corporate finance and investment advisory fees are recognised when services are rendered.
(iv) Gain on disposal of marketable securities is recognised on the trade date.
(v) Dividend income is recognised when the right to receive payment is established.
(vi) Rental income is recognised on a straight-line basis over the terms of the leases.

(g) Taxation

Individual companies within the Group provide for profits tax on the basis of their profits for financial reporting purposes, adjusted for income and expense items which are not assessable or deductible for profits tax purposes.

Deferred taxation is provided under the liability method, at the current tax rates, in respect of significant timing differences between profit as computed for taxation purposes and profit as stated in the financial statements, except when it is considered that no liability will arise in the foreseeable future. Deferred tax assets are not recognised unless the related benefits are expected to crystallise in the foreseeable future.

(h) Fixed assets and depreciation

Fixed assets are stated at cost less accumulated depreciation and any impairment loss. Major expenditures on modifications and betterments of fixed assets which will increase their future economic benefits are capitalised, while expenditures on maintenance and repairs are expensed when incurred. Depreciation is provided on a straightline basis to write off the cost of each asset over its estimated useful life. The annual rates of depreciation are as follows:

Leasehold improvements 25% – 33% (Over the unexpired period of the leases) Machinery and equipment 20% Furniture and office equipment 20% Motor vehicles 33%

The depreciation methods and useful lives are reviewed periodically to ensure that the methods and rates of depreciation are consistent with the expected pattern of economic benefits from fixed assets.

Gains and losses on disposal of fixed assets are recognised in the income statement based on the net disposal proceeds less the then carrying amount of the assets.

(i) Inventories

Inventories are stated at the lower of cost and net realisable value. Cost includes costs of raw materials determined using the first-in-first-out method of costing and, in the case of work-in-progress and finished goods, also direct labour and an appropriate proportion of production overheads. Net realisable value is based on estimated selling price in the ordinary course of business, less further costs expected to be incurred to completion and disposal. Provision is made for obsolete, slow-moving or defective items where appropriate.

When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of write-down of inventories, arising from an increase in net realisable value, is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.

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FINANCIAL INFORMATION REGARDING THE GROUP

APPENDIX I

(j) Investment in marketable securities

Securities that are held for the purpose of generating a profit from short-term fluctuations in price are classified as investment in marketable securities, and are included in the balance sheet at their fair values. All changes in the fair values of investment in marketable securities and gains and losses on disposal of investment in marketable securities are recognised in the income statement when they arise.

(k) Impairment of assets

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

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

(l) Provisions and contingencies

A provision is recognised when there is a present obligation, legal or constructive, as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligations, and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed regularly and adjusted to reflect the current best estimate. Where the effect of the time value of money is material, the amount of a provision is the present value of the expenditures expected to be required to settle the obligation.

Contingent liabilities are not recognised in the financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognised in the financial statements but disclosed when an inflow of economic benefits is probable.

(m) Employee retirement benefits

Costs of employee retirement benefits are recognised as an expense in the period in which the employees’ services are rendered.

(n) Operating leases

Operating leases represent those leases under which substantially all the risks and rewards of ownership of the leased assets remain with the lessors. Rental payments under operating leases are charged to the income statement on a straight-line basis over the period of the relevant leases.

(o) Subsequent events

Post-year-end events that provide additional information about financial position as at the balance sheet date or those that indicate the going concern assumption is not appropriate (adjusting events) are reflected in the financial statements. Post-year-end events that are not adjusting events are disclosed in the notes when material.

(p) Foreign currency translation

Individual companies within the Group maintain their books and records in the primary currencies of their respective operations (“functional currencies”). In the accounts of the individual companies, transactions in other currencies during the year are translated into the respective functional currencies at the applicable rates of exchange prevailing at the time of the transactions; monetary assets and liabilities denominated in other currencies are translated into the respective functional currencies at the applicable rate of exchange in effect at the balance sheet date. Exchange gains and losses are dealt with in the income statement of the individual companies.

The Group prepares consolidated financial statements in Hong Kong dollars. For the purpose of consolidation, all the assets and liabilities of subsidiaries with functional currencies other than Hong Kong dollars are translated into Hong Kong dollars at the applicable rates of exchange in effect at the balance sheet date; all income and expense items are translated into Hong Kong dollars at the applicable average exchange rates during the year. Exchange differences arising from such translation are dealt with as movements in cumulative translation adjustments.

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FINANCIAL INFORMATION REGARDING THE GROUP

APPENDIX I

(q) Segments

Business segments: for management purposes the Group is organised into 3 major operating businesses. The Group reports its primary segment information on the basis of the business segments. Financial information on business and geographical segments is presented in Note 29.

Intersegment transactions: segment revenue, segment expenses and segment performance include transfers between business segments and between geographical segments. Those transfers are eliminated upon consolidation.

(r) Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in Hong Kong requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

4. RELATED PARTY TRANSACTIONS

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.

(a) The Group had the following significant transactions with related parties during the year:

	2002	2001
	HK$’000	HK$’000
Purchase of fixed assets and inventories
from a related company, in which
Mr. L. Yen, a minority shareholder
of a subsidiary, has a beneficial interest	15,970	–
Purchase of fixed assets and inventories from
a related company, in which Mr. S. C. Kwan,
a director of a subsidiary, has a beneficial interest	7,630	–
Receipt of investment advisory and management
fee income from E1-SkyTech Investment Company
Limited, an associate	1,917	–

(b) The amount due to a minority shareholder of a subsidiary is unsecured, non-interest bearing and has no fixed repayment terms.

5. DISCONTINUED OPERATIONS

In March 2000, the Group disposed of its entire equity interest in Pacific Challenge Securities Limited, Pacific Challenge Futures Hong Kong Limited and Pacific Challenge Nominees Limited, all being wholly-owned subsidiaries of the Group, to an independent third party at an aggregate consideration of approximately HK$29,300,000. The transaction was completed on 29 June 2000 and thereafter, the Group ceased its stock brokerage, futures brokerage and margin financing businesses. The results of these operations were presented as discontinued operations in the consolidated income statement for the year ended 31 March 2001.

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FINANCIAL INFORMATION REGARDING THE GROUP

APPENDIX I

6. TURNOVER AND REVENUE

An analysis of turnover and revenue in the consolidated income statement is as follows:

Continuing operations Sales of precision components processing equipment Interest income Corporate finance and investment advisory fees Discontinued operations_(Note 5)_ Total turnover Gain on disposal of marketable securities Dividend income from marketable securities Write-back of accruals for termination of an operating lease Write-back of accruals for employees’ bonus Rental income less outgoings Others Total other revenue Total revenue	2002 HK$’000 30,894 8,888 5,208 44,990 – 44,990 1,171 302 1,390 723 151 600 4,337 49,327	2001 HK$’000 – 15,390 10,702
		26,092 22,386
		48,478
		923 – – – 1,310 –
		2,233
		50,711

7. (LOSS) PROFIT BEFORE TAXATION

(Loss) Profit before taxation in the consolidated income statement was determined after charging and crediting the following items, other than other revenue as disclosed in Note 6:

After charging – Interest expense on – bank loans wholly repayable within five years – other loans and payables wholly repayable within five years Cost of inventories sold (excluding provision for obsolete and slow-moving inventories) Depreciation of fixed assets Provision for doubtful receivables Provision for obsolete and slow-moving inventories Staff cost (including directors’ emoluments) Operating lease rentals for rented premises Auditors’ remuneration After crediting – Interest income from – bank deposits – other loans – margin loans Write-back of provision for doubtful receivables Exchange gain, net	2002 HK$’000 – – 21,502 1,025 1,804 2,132 15,430 2,898 610 2002 HK$’000 8,888 – – – 9	2001 HK$’000 485 1,009 – 1,012 – – 14,937 2,184 330

		2001 HK$’000 15,221 940 3,598 819 76

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FINANCIAL INFORMATION REGARDING THE GROUP

APPENDIX I

8. DIRECTORS’ AND SENIOR EXECUTIVES’ EMOLUMENTS

(a) Directors’ emoluments

Fees for executive directors Fees for non-executive directors Other emoluments for executive directors – Basic salaries, housing and other allowances – Discretionary bonuses – Contribution to mandatory provident fund	2002 HK$’000 – 195 5,840 – 33 6,068	2001 HK$’000 – – 4,198 1,000 12
		5,210

No directors waived any emoluments during the year. No incentive payment for joining the Group or compensation for loss of office was paid or payable to any directors during the year.

The directors’ emoluments fell within the following bands:

Executive directors Nil – HK$1,000,000 HK$1,000,001 – HK$1,500,000 HK$1,500,001 – HK$2,000,000 HK$3,000,001 – HK$3,500,000 Non-executive directors Nil – HK$1,000,000	2002 1 – 1 1 3 3 6	2001 1 1 – 1
		3 4
		7

(b) Senior executives’ emoluments

Details of emoluments paid to the five highest paid individuals (including directors and employees) are:

Basic salaries, housing and other allowances Bonuses Contribution to mandatory provident fund The five highest paid individuals consist of: Number of directors Number of employees	2002 HK$’000 8,933 – 55 8,988 2002 3 2 5	2001 HK$’000 6,467 1,000 20
		7,487

		2001 2 3
		5

During the year, no emolument of the five highest paid individuals (including directors and other employees) was incurred as an inducement to join or upon joining the Group or as compensation for loss of office.

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FINANCIAL INFORMATION REGARDING THE GROUP

APPENDIX I

The emoluments paid to the aforementioned directors and employees fell within the following bands:

Nil – HK$1,000,000 HK$1,000,001 – HK$1,500,000 HK$1,500,001 – HK$2,000,000 HK$3,000,001 – HK$3,500,000	2002 1 1 2 1 5	2001 2 2 – 1
		5

9. TAXATION

Taxation in the consolidated income statement consisted of:

Current tax – Hong Kong profits tax Over-provision in prior years	2002 HK$’000 680 (540) 140	2001 HK$’000 1,988 –
		1,988

The Company is exempted from taxation in Bermuda until 2016.

Hong Kong profits tax was provided at the rate of 16% (2001 – 16%) on the estimated assessable profit arising in or derived from Hong Kong.

The subsidiary operating in Taiwan is subject to Taiwan corporate income tax at a rate of 25% (2001 – 25%) after the deduction of NT$10,000 on estimated assessable profit in Taiwan.

The wholly foreign-owned enterprise of the Group established in Dongguan, Guangdong Province, Mainland China, is subject to Mainland China enterprise income taxes at a rate of 27% (24% state income tax and 3% local income tax). However, it is exempted from enterprise income tax for 2 years starting from the first year of profitable operations after offsetting prior year tax losses, followed by a 50% reduction for the next three years. No provision for Mainland China enterprise income tax was recorded as the subsidiary remained in a tax loss position as at 31 March 2002.

10. (LOSS) PROFIT ATTRIBUTABLE TO SHAREHOLDERS

The consolidated (loss) profit attributable to shareholders included a profit of approximately HK$34,829,000 (2001 – HK$290,000) dealt with in the financial statements of the Company.

11. PROPOSED DIVIDEND

12.

Final – Nil (2001 – HK$0.015) per ordinary share, proposed after year end RETAINED PROFIT Retained profit (accumulated loss) consisted of: Company Subsidiaries Associates	2002 HK$’000 – 2002 HK$’000 36,331 81,037 (222) 117,146	2001 HK$’000 4,297

		2001 HK$’000 1,502 155,528 –
		157,030

13. (LOSS) EARNINGS PER SHARE

The calculation of (loss) earnings per share is based on the consolidated loss attributable to shareholders for the year of approximately HK$39,884,000 (2001 – profit attributable to shareholders of HK$10,805,000) and on the weighted average number of approximately 286,480,000 (2001 – 266,788,000) shares in issue during the year.

Diluted (loss) earnings per share is not presented as there were no share options, warrants or any other convertible instruments outstanding during the year which would result in dilution.

– 38 –

FINANCIAL INFORMATION REGARDING THE GROUP

APPENDIX I

14. FIXED ASSETS

Movements of fixed assets (consolidated) are as follows:

Leasehold improvements HK$’000 Cost Beginning of year 2,054 Additions 312 Attributable to acquisition of a subsidiary – Disposal – Attributable to disposal of subsidiaries – End of year 2,366 Accumulated depreciation Beginning of year 1,602 Provision for the year 501 Disposal – Attributable to disposal of subsidiaries – End of year 2,103 Net book value End of year 263 Beginning of year 452	Machinery and equipment HK$’000 – – 1,281 – – 1,281 – 190 – – 190 1,091 –	2002 Furniture and office equipment HK$’000 1,543 1,153 – – – 2,696 842 278 – – 1,120 1,576 701	Motor vehicles HK$’000 715 189 – – – 904 715 56 – – 771 133 –	Total HK$’000 4,312 1,654 1,281 – – 7,247 3,159 1,025 – – 4,184 3,063 1,153	2001 Total HK$’000 6,695 279 – (8) (2,654) 4,312 3,541 1,012 (8) (1,386) 3,159 1,153 3,154

15. INVESTMENT IN SUBSIDIARIES

In the Company’s balance sheet, investment in subsidiaries consists of:

Unlisted shares, at cost Due from subsidiaries Due to subsidiaries	2002 HK$’000 131,899 17,609 (25,147) 124,361	2001 HK$’000 131,899 8,946 (14,988) 125,857

The outstanding balances with subsidiaries are unsecured, non-interest bearing and have no pre-determined repayment terms.

The underlying value of investment in subsidiaries is, in the opinion of the Company’s Directors and the Group’s management, not less than its carrying value as at 31 March 2002.

– 39 –

FINANCIAL INFORMATION REGARDING THE GROUP

APPENDIX I

Details of subsidiaries as at 31 March 2002 are as follows:

				Issued and
				fully paid
		Proportion of		share
	Place of	nominal value of		capital/
	incorporation/	issued capital held		registered
Name of subsidiary	operations	by the Company		capital	Principal activities
		Directly	Indirectly
Pacific Challenge Incorporated	The British Virgin	100%	–	HK$1,000	Investment holding
	Islands
Optima Worldwide Investment	The British Virgin	100%	–	HK$1,493	Inactive
Limited	Islands
Chateron Corporate Finance	Hong Kong	–	100%	HK$10,000,000	Provision of corporate
Limited (formerly known as					finance and investment
Pacific Challenge Capital Limited)					advisory services
Dongguan Long Heng Machinery	Mainland China	–	79.1%	HK$3,500,000	Manufacturing and
Company Limited_(a)_					trading of precision
					components processing
					equipment
E1 On-line Limited	Hong Kong	–	100%	HK$2	Provision of management
					services
EIUSA Inc.	The United States	–	90%	US$10,000	Information technology
	of America				solution services
Express Magic Limited	The British Virgin	–	100%	US$1	Investment holding
	Islands
Grand Dragon Industrial Limited	The British Virgin	–	79.1%	US$50,000	Investment holding
	Islands
Grand Dynasty Capital Limited	Hong Kong	–	100%	HK$3,000,000	Investment advisory
(formerly known as EI Corporate
Finance Limited)
Ideal Far East Limited	Hong Kong	–	100%	HK$10,000	Trading of precision
					components processing
					equipment
Key Foundation Limited	The British Virgin	–	100%	US$1	Investment holding
	Islands
Nissin Top Machinery Company	Taiwan	–	79.1%	NT$50,000,000	Manufacturing of
Limited					machinery
Pacific Challenge Finance Limited	Hong Kong	–	100%	HK$20	Inactive
Pacific Challenge Investments	The British Virgin	–	100%	US$1	Investment holding
Limited	Islands
Profit Dynamic Limited	The British Virgin	–	100%	US$1	Investment holding
	Islands
Shine Tech International Limited	Hong Kong	–	79.1%	HK$10,000	Investment holding
Ultra Technologies Limited	The British Virgin	–	100%	US$1	Investment holding
	Islands
Uni-Shine International Limited	Hong Kong	–	100%	HK$10,000	Investment holding

(a) The subsidiary is a wholly foreign-owned enterprise established in Mainland China to be operated for 12 years up to June 2012.

None of the subsidiaries had any loan capital in issue at any time during the year ended 31 March 2002.

– 40 –

FINANCIAL INFORMATION REGARDING THE GROUP

APPENDIX I

16. INVESTMENT IN ASSOCIATES

Investment in associates (consolidated) consisted of:

Unlisted shares, at cost Share of loss of associates Loans from associates Less: Impairment loss	2002 HK$’000 51,014 (222) (49,778) 1,014 (1,014) –	2001 HK$’000 1,014 – –
		1,014 –
		1,014

The loans from associates are unsecured, non-interest bearing and have no pre-determined repayment terms.

The details of associates as at 31 March 2002 are as follows:

		Proportion of	Issued and
	Place of	nominal value of	fully paid
	incorporation/	issued capital held	share
Name of associate	operations	by the Company	capital	Principal activities
		Directly Indirectly
E1-SkyTech Investment Company	Cayman Islands	– 50%	HK$350,000	Direct investment
Limited (“E1-SkyTech”)(a)
Pacific Challenge Technology	The British Virgin	– 26%	US$50	Investment holding
Capital Limited (“PCTCL”)(b)	Islands

(a) E1-SkyTech was established as a direct investment joint venture pursuant to a shareholders’ agreement entered into between a wholly-owned subsidiary of the Company and SkyTech Investment Limited, an independent third party, in April 2001. In view of the change in the economic environment, no investments were made by the joint venture and both shareholders withdrew substantially all of their initial investment by way of shareholders’ loans from the joint venture. During the year ended 31 March 2002, the Group received a sum of approximately HK$49,778,000 from E1-SkyTech and such balance was recorded as loans from associates as at 31 March 2002.
(b) PCTCL holds approximately 2% shareholding interest in E1 Media Technology Limited (“E1 Media”). E1 Media is 60% beneficially owned by Dr. Lily Chiang, a director of the Company. In addition, E1 Media holds a 100% interest in Super Drive Inc., a substantial shareholder of the Company.

17. INVENTORIES

Inventories (consolidated) consisted of:

Raw materials Work-in-progress Finished goods _Less:_Provision for obsolete and slow-moving inventories	2002 HK$’000 10,693 1,690 8,732 21,115 (2,132) 18,983	2001 HK$’000 – – –
		– –
		–

As at 31 March 2002, inventories of approximately HK$18,983,000 (2001 – Nil) were stated at net realisable

value.

– 41 –

FINANCIAL INFORMATION REGARDING THE GROUP

APPENDIX I

18. LOANS RECEIVABLE

Loans receivable (consolidated) consisted of:

Beginning of year Additions during the year End of year _Less:_Impairment loss	2002 HK$’000 3,902 – 3,902 (3,902) –	2001 HK$’000 – 3,902
		3,902 –
		3,902

During the year ended 31 March 2001, the Group granted a one-year term loan amounting to approximately HK$3,902,000 (equivalent of US$500,000) to Muse Corporation (“MC”), a company incorporated in the British Virgin Islands which is principally engaged in the provision of information technology solution services in the United States of America. The loan was unsecured, bore interest at a rate of 10% per annum, and was repayable on 31 January 2002 or convertible into ordinary shares of MC on or before 31 January 2002. During the year ended 31 March 2002, the Group signed an agreement with MC to convert the loan to 3,638,353 ordinary shares of MC. The Group is in the process of obtaining the share certificate. After considering the economic environment in the United States of America and the value of the underlying assets of MC, the Directors of the Company made full provision for the Group’s investment in MC during the year ended 31 March 2002.

19. ADVANCES FOR INVESTMENTS

Advances for investments (consolidated) consisted of:

Beginning of year Additions during the year End of year _Less:_Impairment loss	2002 HK$’000 1,794 4,798 6,592 (6,592) –	2001 HK$’000 – 1,794
		1,794 –
		1,794

During the year ended 31 March 2001, advances totalling approximately HK$1,794,000 were made to an independent third party in respect of investment in an internet business in the United States of America, EIUSA Inc. (“EIUSA”). During the year ended 31 March 2002, the Group made further advances totalling approximately HK$4,798,000 to EIUSA and obtained a 90% equity interest in EIUSA. After considering the business prospects of EIUSA and the economic environment in the United States of America, the Directors of the Company made full provision for the Group’s investment in EIUSA during the year ended 31 March 2002.

– 42 –

FINANCIAL INFORMATION REGARDING THE GROUP

APPENDIX I

20. ACCOUNTS RECEIVABLE

The Group’s sales are primarily made on an open account basis and the credit terms of the Group range from 0 day to 180 days. An aging analysis of accounts receivable is as follows:

Accounts receivable 0 – 1 month 1 – 3 months 3 – 6 months 6 – 12 months Over 12 months _Less:_Provision for doubtful receivables	Consolidated 2002 2001 HK$’000 HK$’000 4,715 4,792 6,740 – 5,928 3,891 1,394 – 2,132 – 20,909 8,683 (3,882) (2,078) 17,027 6,605	Company 2002 2001 HK$’000 HK$’000 928 – – – – 114 – – – – 928 114 – – 928 114	Company 2002 2001 HK$’000 HK$’000 928 – – – – 114 – – – – 928 114 – – 928 114
			114 –
			114

21. INVESTMENT IN MARKETABLE SECURITIES

Investment in marketable securities (consolidated) consisted of:

Listed shares, at quoted market value – Listed on The Stock Exchange of Hong Kong Limited – Listed on Nasdaq, The United States of America	2002 HK$’000 18,656 1,320 19,976	2001 HK$’000 5,130 1,279
		6,409

22. ACCOUNTS PAYABLE

An aging analysis of accounts payable is as follows:

Accounts payable 0 – 1 month 1 – 3 months 3 – 6 months 6 – 12 months Over 12 months	Consolidated 2002 2001 HK$’000 HK$’000 4,012 – 4,916 – 2,255 4,514 10 – 3,338 – 14,531 4,514	Company 2002 2001 HK$’000 HK$’000 – – – – – 703 – – – – – 703	Company 2002 2001 HK$’000 HK$’000 – – – – – 703 – – – – – 703
			703

– 43 –

FINANCIAL INFORMATION REGARDING THE GROUP

APPENDIX I

23. ACCRUALS AND OTHER PAYABLES

Accruals and other payables consisted of:

Employees’ bonus (a) Legal and professional fees (b) Others	Consolidated 2002 2001 HK$’000 HK$’000 7,500 9,885 15,756 5,000 3,686 3,129 26,942 18,014	Company 2002 2001 HK$’000 HK$’000 – – 15,756 5,000 2,127 2,411 17,883 7,411	Company 2002 2001 HK$’000 HK$’000 – – 15,756 5,000 2,127 2,411 17,883 7,411
			7,411

(a) This represents the provision of a discretionary bonus to certain employees and key executives.

(b) This represents the legal and professional fees payable in relation to the Petition (see Note 2) and other matters.

24. DEFERRED TAXATION

Movements of deferred taxation (consolidated) are as follows:

Beginning of year Disposal of subsidiaries End of year	2002 HK$’000 106 – 106	2001 HK$’000 239 (133
		106

Deferred taxation represents the taxation effect of the timing differences relating to accelerated depreciation for taxation purposes.

25. SHARE CAPITAL

Authorised – shares of HK$0.10 each Issued and fully paid – shares of HK$0.10 each Beginning of year Issue of ordinary shares End of year	2002 Number Nominal of shares value ’000 HK$’000 900,000 90,000 286,480 28,648 – – 286,480 28,648	2001 Number Nominal of shares value ’000 HK$’000 900,000 90,000 238,880 23,888 47,600 4,760 286,480 28,648	2001 Number Nominal of shares value ’000 HK$’000 900,000 90,000 238,880 23,888 47,600 4,760 286,480 28,648

			23,888 4,760
			28,648

On 29 August 2000, the Company issued an aggregate of 47,600,000 ordinary shares of HK$0.10 each at HK$0.67 per share to certain independent third parties. Net proceeds from the issue amounted to approximately HK$31,552,000. Details of the above shares issued were disclosed in the Company’s announcement dated 27 July 2000 prior to the completion of the share issue.

– 44 –

FINANCIAL INFORMATION REGARDING THE GROUP

APPENDIX I

26. SHARE OPTION SCHEME

The Company has a share option scheme under which it may grant options to employees of the Group (including executive directors of the Company) to subscribe for shares in the Company, subject to a maximum of 10% of the nominal value of the issued share capital of the Company from time to time, excluding for this purpose shares issued on exercise of options. The subscription price will be determined by the Directors of the Company, and will not be less than the higher of the nominal value of the shares and 80% of the average of the closing prices of the shares quoted on The Stock Exchange of Hong Kong Limited on the five trading days immediately preceding the date of offer of the options.

Movements in the share options are as follows:

				Number of	share options
				Granted	Exercised
	Exercise	Exercise	Beginning	during the	during the
Date of grant	period	price	of year	year	year	End of year
			’000	’000	’000	’000
4 February 2002	7 May 2002 to	HK$0.32	–	23,880	–	23,880
	31 December 2007

27. RESERVES AND PROPOSED DIVIDEND

Consolidated

Beginning of year – as previously reported – prior year adjustment (see Note 3.b) As restated Translation adjustments Write-back of revaluation reserve upon disposal of subsidiaries Issue of ordinary shares Share issue expense Proposed final dividend Payment of dividend End of year Company Beginning of year – as previously reported – prior year adjustment (see Note 3.b) As restated Issue of ordinary shares Share issue expense Proposed final dividend Payment of dividend End of year	Share premium HK$’000 65,928 – 65,928 – – – – – – 65,928 Share premium HK$’000 65,928 – 65,928 – – – – 65,928	Cumulative translation adjustments HK$’000 – – – (959) – – – – – (959) Cumulative translation adjustments HK$’000 – – – – – – – –	2002 Capital reserve (a) HK$’000 9,585 – 9,585 – – – – – – 9,585 2002 Contributed surplus (b) HK$’000 122,864 – 122,864 – – – – 122,864	Total HK$’000 75,513 – 75,513 (959) – – – – – 74,554 Total HK$’000 188,792 – 188,792 – – – – 188,792	Proposed dividend HK$’000 – 4,297 4,297 – – – – – (4,297) – Proposed dividend HK$’000 – 4,297 4,297 – – – (4,297) –	2001 Proposed Total dividend HK$’000 HK$’000 52,040 – – – 52,040 – – – (3,319) – 27,132 – (340) – – 4,297 – – 75,513 4,297 2001 Proposed Total dividend HK$’000 HK$’000 162,000 – – – 162,000 – 27,132 – (340) – – 4,297 – – 188,792 4,297	2001 Proposed Total dividend HK$’000 HK$’000 52,040 – – – 52,040 – – – (3,319) – 27,132 – (340) – – 4,297 – – 75,513 4,297 2001 Proposed Total dividend HK$’000 HK$’000 162,000 – – – 162,000 – 27,132 – (340) – – 4,297 – – 188,792 4,297
							– – – 4,297 –
							4,297

– 45 –

FINANCIAL INFORMATION REGARDING THE GROUP

APPENDIX I

(a) Capital reserve represents the difference between the nominal value of ordinary shares issued by the Company and the aggregate of the share capital and share premium of subsidiaries acquired through a reorganisation in relation to the listing of the Company’s shares on The Stock Exchange of Hong Kong Limited in October 1998.
(b) Contributed surplus represents the difference between the aggregate net asset value of subsidiaries acquired as a result of the reorganisation prepared for the listing of the Company’s shares on The Stock Exchange of Hong Kong Limited and the nominal amount of the Company’s shares issued for the acquisition. Under Section 54 of the Companies Act 1981 of Bermuda, contributed surplus is available for distribution as dividends to shareholders subject to the provisions of the Company’s Bye-laws and provided that immediately following the distribution, the Company is able to pay its liabilities as they fall due or the realisable value of the Company’s assets would not be less than the aggregate of its liabilities and its issued share capital and share premium accounts.

As at 31 March 2002, the Company’s reserves available for distribution to shareholders are represented by contributed surplus of approximately HK$122,864,000 (2001 – HK$122,864,000) and retained profit of approximately HK$36,331,000 (2001 – HK$1,502,000).

28. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT

(a) Reconciliation of (loss) profit before taxation to net cash (outflow) inflow from operating activities:

(Loss) Profit before taxation Depreciation of fixed assets Provision for (Write back of) doubtful receivables Provision for obsolete and slow-moving inventories Provision for legal and professional fees Interest income Interest expense Gain on disposal of marketable securities Dividend income from marketable securities Loss on investment in marketable securities Gain on disposal of subsidiaries Impairment loss on investments Impairment loss on investment in associates Share of loss of associates Increase in inventories (Increase) Decrease in accounts receivable Increase in deposits, prepayments and other receivables (Decrease) Increase in accounts payable, accruals and other payables Net cash (outflow) inflow from operating activities	2002 HK$’000 (39,826) 1,025 1,804 2,132 18,079 (8,888) – (1,171) (302) 5,800 – 10,494 1,014 222 (18,291) (12,226) (1,967) (2,928) (45,029)	2001 HK$’000 12,793 1,012 (819) – – (19,759) 1,494 (923) – 4,027 (3,800) – – – – 81,659 (12,561) 29,450 92,573

– 46 –

FINANCIAL INFORMATION REGARDING THE GROUP

APPENDIX I

(b) Details of net assets of a subsidiary acquired are as follows:

Fixed assets Inventories Deposits, prepayments and other receivables Due to a shareholder Group’s share of net assets acquired Consideration paid, representing the net cash outflow from acquisition of a subsidiary	2002 HK$’000 1,281 2,824 189 (3,794) 500 500

As at 1 April 2000 Proceeds from issue of ordinary shares Share issue expense Repayment of short-term bank loan As at 1 April 2001 Capital contributions from a minority shareholder of a subsidiary Share of losses Increase in amount due to a minority shareholder of a subsidiary As at 31 March 2002	Share capital and share premium HK$’000 63,024 31,892 (340) – 94,576 – – – 94,576	Short-term bank loan HK$’000 20,000 – – (20,000) – – – – –	Due to a minority shareholder of a subsidiary HK$’000 – – – – – – – 3,964 3,964	Minority interests HK$’000 – – – – – 82 (82) – –	Total HK$’000 83,024 31,892 (340) (20,000) 94,576 82 (82) 3,964 98,540

– 47 –

FINANCIAL INFORMATION REGARDING THE GROUP

APPENDIX I

29. SEGMENT INFORMATION

(a) Primary segment

The Group is organised into 3 major operating units: (i) manufacturing and trading of precision components processing equipment, (ii) securities investment and financial services and (iii) corporate finance and investment advisory services. An analysis by business segment is as follows:

Continuing operations Manufacturing and trading Securities of precision investment components and processing financial equipment services HK$’000 HK$’000 Turnover External 30,937 7,101 Inter-segment 762 – Total turnover 31,699 7,101 Operating results Segment result 269 (9,656) Other revenue Impairment loss on investments Provision for legal and professional fees Loss on investment in marketable securities Impairment loss on investment in associates Share of loss of associates Taxation Loss after taxation but before minority interests Other information Assets 42,308 167,251 Liabilities 15,749 23,110 Capital expenditures 1,433 10 Depreciation 246 9	2002 Corporate finance and investment advisory Discontinued services operations HK$’000 HK$’000 6,952 – 4,280 – 11,232 – 833 – 57,401 – 7,753 – 211 – 770 –	Eliminations HK$’000 – (5,042) (5,042)	Total HK$’000 44,990 – 44,990 (8,554) 4,337 (10,494) (18,079) (5,800) (1,014) (222) (140) (39,966) 266,960 46,612 1,654 1,025

– 48 –

FINANCIAL INFORMATION REGARDING THE GROUP

APPENDIX I

Continuing operations Manufacturing and trading Securities of precision investment components and processing financial equipment services HK$’000 HK$’000 Turnover External – 12,027 Inter-segment – 9,323 Total turnover – 21,350 Operating results Segment result – 205 Interest expense Other revenue Loss on investment in marketable securities Gain on disposal of subsidiaries Taxation Profit after taxation but before minority interests Other information Assets – 230,756 Liabilities – 14,479 Capital expenditures – – Depreciation – –	2001 Corporate finance and investment advisory Discontinued services operations HK$’000 HK$’000 14,065 22,386 984 – 15,049 22,386 3,169 8,907 58,381 – 9,170 – 279 – 1,012 –	Eliminations HK$’000 – (10,307) (10,307)	Total HK$’000 48,478 – 48,478 12,281 (1,494) 2,233 (4,027) 3,800 (1,988) 10,805 289,137 23,649 279 1,012

– 49 –

FINANCIAL INFORMATION REGARDING THE GROUP

APPENDIX I

(b) Secondary segment

The Group has business operations in Hong Kong, Mainland China and Taiwan. An analysis by geographical location is as follows:

Turnover (Loss) Profit after taxation but before minority interests Assets Capital expenditures Turnover Profit after taxation but before minority interests Assets Capital expenditures	Hong Kong HK$’000 13,746 (40,235) 242,535 364 Hong Kong HK$’000 48,478 10,805 289,137 279	2002 Mainland China Taiwan HK$’000 HK$’000 20,137 11,107 1,622 (1,353) 4,925 19,500 – 1,290 2001 Mainland China Taiwan HK$’000 HK$’000 – – – – – – – –	Total HK$’000 44,990

			(39,966

			266,960

			1,654

			Total HK$’000 48,478

			10,805

			289,137

			279

* Turnover by geographical location is determined mainly on the basis of the destination of delivery of services/merchandise.

30. OPERATING LEASE COMMITMENTS

The Group had aggregate outstanding operating lease commitments in respect of office premises under various non-cancellable operating lease agreements extending to June 2005 of approximately HK$2,846,000 (2001 – HK$2,668,000). Total commitments payable under these agreements are analysed as follows:

Amounts payable – within one year – in the second to fifth years	2002 HK$’000 1,250 1,596 2,846	2001 HK$’000 2,527 141
		2,668

– 50 –

FINANCIAL INFORMATION REGARDING THE GROUP

APPENDIX I

31. PENSION SCHEMES

Since 1 December 2000, the Group has arranged for its Hong Kong employees to join the Mandatory Provident Fund Scheme (“the MPF Scheme”), a defined contribution scheme managed by an independent trustee. Under the MPF scheme, each of the Group (the employer) and its employees make monthly contributions to the scheme at a rate of 5% of the employees’ earnings as defined under the Mandatory Provident Fund legislation. The annual contributions of each of the employer and employees are subject to a cap of HK$12,000 and thereafter contributions are voluntary.

As stipulated by regulations in Mainland China, all retired employees of the Group’s Mainland China subsidiary are entitled to an annual pension equal to their basic annual salaries upon retirement. The Group contributes to a statesponsored retirement plan at a rate of approximately 18% of the basic salaries of its employees. The state-sponsored retirement plan is responsible for the entire pension obligations payable to retired employees and the Group has no further obligations for the actual pension payments or post-retirement benefits beyond the annual contributions.

According to the Taiwan Labour Standard Law (“TLSL”), the Group has arranged for its Taiwan employees to join a defined benefits scheme managed by a government agent. The Group has an obligation to make contributions at a rate of 2% of the employee’s earnings as stipulated by TLSL. After serving a qualifying period, the Group’s Taiwan employees are entitled to benefits on retirement. The government agent provides benefits based on years of service and final average salary. The Group is required to make up any shortfall in the fund managed by the agent to meet payments due to employees under TLSL. The subsidiary did not perform an actuarial valuation as it was newly incorporated during the year ended 31 March 2002. The Directors of the Company considered the assets managed by the government agent were sufficient to meet all benefits payable as at 31 March 2002.

During the year ended 31 March 2002, the employer contributions made by the Group in respect of the abovementioned pension schemes amounted to approximately HK$251,000 (2001 – HK$50,000).

– 51 –

FINANCIAL INFORMATION REGARDING THE GROUP

APPENDIX I

PRO FORMA STATEMENT OF ADJUSTED UNAUDITED CONSOLIDATED NET TANGIBLE ASSETS

Set out below is the pro forma statement of adjusted unaudited consolidated net tangible assets of the Group both before and after the completion of the Rights Issue:

Audited consolidated net tangible assets of the Group as at 31 March 2002 Less: Unaudited consolidated net loss attributable to Shareholders for the six months ended 30 September 2002 Add: Issue of shares Translation adjustments Proceeds from the full exercise of the Options Proforma unaudited consolidated net tangible assets of the Group before the completion of the Rights Issue Add: Net proceeds from the Rights Issue Proforma adjusted unaudited consolidated net tangible assets of the Group after the completion of the Rights Issue_(Note 3) Number of issued Shares comprised in the Company’s issued share capital: – Before the Rights Issue – After the Rights Issue Proforma adjusted unaudited consolidated net tangible asset value per Share: – Before the Rights Issue – After the Rights Issue _Note:	HK$’000 (note 1) 220,348 (27,967) 764 214 – 193,359 41,100 234,459 288,868,000 433,302,000 HK$0.67 HK$0.54	HK$’000 (note 2) 220,348 (27,967) 764 214 19,354 212,713 45,500 258,213 317,754,800 476,632,200 HK$0.67 HK$0.54

1. Assumes that none of the 28,886,800 outstanding Options shall be exercised by the holders thereof on or before the Record Date.

– 52 –

FINANCIAL INFORMATION REGARDING THE GROUP

APPENDIX I

2. Assumes that all of the 28,886,800 outstanding Options shall be exercised by the holders thereof on or before the Record Date.

3. The proforma adjusted unaudited consolidated net tangible assets computations as referred to above have not taken into account the financial effects of the completion of the Acquisition, details of which are set out in the Company’s announcement dated 18 March 2003 and in the circular issued by the Company dated 8 April 2003 given that the Rights Issue is not conditional upon completion of the Acquisition.

INDEBTEDNESS

As at the Latest Practicable Date, the Group had no outstanding borrowings. At the close of business on 28 February 2003, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this prospectus, the Group had contingent liabilities in respect of the litigation brought by Kistefos, a substantial Shareholder, on the Company and a formal Director of the Company. Details of the litigation are further described in the paragraph headed “Litigation” in Appendix II of this prospectus.

Save as aforesaid or as otherwise disclosed herein and apart from intra-group liabilities and normal accounts payable in the ordinary course of business of the Group, the Group did not have any outstanding indebtedness in respect of any mortgages, charges or debentures, loan capital, bank overdrafts, loans, debt securities or other similar indebtedness, or hire purchase commitments, finance lease commitments, guarantees or other material contingent liabilities as at the close of business on 28 February 2003.

The Directors have confirmed that there has been no material change in the indebtedness and the contingent liabilities of the Group since 28 February 2003.

WORKING CAPITAL

Taking into account the available banking facilities and internal resources of the Group and the expected net proceeds of the Rights Issue, the Directors are of the opinion that the Group has sufficient working capital for its present requirements.

MATERIAL CHANGE

Save as disclosed herein or in the Company’s annual report for the year ended 31 March 2002, the Directors are not aware of any material adverse change in the financial or trading position or prospects of the Group since 31 March 2002, being the date to which the latest published audited consolidated financial statements of the Company have been made up.

– 53 –

GENERAL INFORMATION

APPENDIX II

1. DIRECTORS AND SECRETARY

The business address for the Directors is 22nd Floor, 80 Gloucester Road, Wanchai, Hong Kong and their respective particulars are as follows:

Executive Directors

Mr. Cheong Tin Yau, aged 42, is the chairman of the Company since July 2002. He has over 18 years’ experience in PRC trade, in particular, the trading of machinery, petro-chemical products and coal. He also has extensive experience in real estate development in the PRC including hotel and residential development projects in various parts of the PRC.

Mr. Lam Kwan Sing, aged 33, was appointed a Director in July 2002. He is an accountant with extensive experience in the commercial and corporate finance field. He has previously held directorships and senior management positions in various publicly listed companies.

Independent non-executive Directors

Ms. Lau Ching Yin, Judy, aged 43, was appointed a Director in July 2002. She has extensive experience in the fields of corporate management and investment advisory services. She has previously held senior management positions in various publicly listed companies.

Mr. Chau Oi Ching, Samuel, aged 34, was appointed a Director in July 2002. He has over ten years’ experience in corporate management, in particular, the sales and marketing of electronic and electrical equipment, manufacturing equipment, building materials and waste management systems.

Mr. Lo Kwok Hung, John, aged 44, was appointed a Director in November 2002. He is currently the managing partner of a certified public accounting firm, John K H Lo & Co, in Hong Kong. He has over 20 years’ experience in the financial field and is a member of both the Hong Kong Society of Accountants and the Association of Chartered Certified Accountants.

The business address of the Directors is at the head office and principal place of business of the Company at 22nd Floor, 80 Gloucester Road, Wanchai, Hong Kong.

Secretary

Ms. Yim Lai Wa, aged 36, joined the Company in July 2001 and was appointed the secretary of the Company in August 2002. She has more than five years’ professional company secretarial experience and is an associate member of both the Hong Kong Institute of Company Secretaries and the Institute of Chartered Secretaries and Administrators.

2. PARTIES INVOLVED IN THE RIGHTS ISSUE AND CORPORATE INFORMATION

Registered office	Clarendon House
	2 Church Street
	Hamilton HM 11
	Bermuda
Head office and principal place	22nd Floor,
of business	80 Gloucester Road
	Wanchai
	Hong Kong

– 54 –

GENERAL INFORMATION

APPENDIX II

Authorized representatives	Mr. Cheong Tin Yau
	Mr. Lam Kwan Sing
Company secretary	Ms. Yim Lai Wa
Underwriter	Chateron Corporate Finance Limited
	Suite 20B
	20th Floor
	9 Queen’s Road Central
	Hong Kong
Auditors	Ernst & Young
	Certified Public Accountant
	15th Floor
	Hutchison House
	10 Harcourt Road
	Hong Kong
Legal adviser to the Underwriter	Sidley Austin Brown & Wood
	49th Floor
	Bank of China Tower
	1 Garden Road
	Central
	Hong Kong
Legal advisers to the Company	On Hong Kong Law:
	Preston Gates & Ellis
	10th Floor
	Hutchison House
	10 Harcourt Road
	Central
	Hong Kong
	On Bermuda Law:
	Conyers Dill & Pearman
	Room 2901
	One Exchange Square
	8 Connaught Place
	Central
	Hong Kong
Branch share registrar and transfer office	Tengis Limited
in Hong Kong	G/F
	Bank of East Asia Harbour View Centre
	56 Gloucester Road
	Wanchai
	Hong Kong
Principal banker	The Hongkong and Shanghai Banking
	Corporation Limited
	1 Queen’s Road
	Central
	Hong Kong

– 55 –

GENERAL INFORMATION

APPENDIX II

3. DISCLOSURE OF DIRECTORS’ INTERESTS

As at the Latest Practicable Date, the interests of the Directors in the issued share capital of the Company as recorded in the register maintained by the Company pursuant to Section 352 of the SFO were as follows:

			Percentage of
Name	Nature of interest	Number of Shares	voting power
Cheong Tin Yau	Corporate_(Note)_	154,244,000	53.4%

Note: This corporate interest was held by Kandy Profits, a company wholly owned by Mr. Cheong Tin Yau.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or their associates had any interests in the securities of the Company or any of its associated corporations (within the meaning of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Section 341 of the SFO (including interests which they were deemed or taken to have under Sections 344 or 345 of the SFO) or which were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein or which were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies, to be notified to the Company and the Stock Exchange.

4. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as were known to the Directors, the following persons, other than a Director, were directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of the Company:

		Nature of	Number of	Percentage of
Name	Note	interests	Shares	voting power
Kandy Profits	a	Corporate	154,244,000	53.4%
Kistefos	b	Corporate	62,400,000	21.6%

Notes:

(a) Details of the interest of these 154,244,000 Shares are set out in the paragraph headed “Disclosure of Directors’ interests” of this appendix.

(b) Kistefos is wholly owned by A.S. Kistefos Traesliberi, in which Christen Sveaas has an 85% beneficial interest.

Save as disclosed above, the Directors are not aware of any person, other than a Director, who was, as at the Latest Practicable Date, directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group or in any options in respect of such capital.

– 56 –

GENERAL INFORMATION

APPENDIX II

5. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors have had any existing or proposed service contracts with the Company or any member of the Group (excluding contracts expiring or determinable by the Company or any member of the Group within one year without payment of compensation (other than statutory compensation)).

6. LITIGATION

On 8 March 2001, Kistefos, a substantial Shareholder, filed a petition (“the Petition”) against the Company and a former Director of the Company, in the Supreme Court of Bermuda (the “Court”) under Section 111 (1) of the Companies Act 1981 of Bermuda. The Petition was based on a claim that certain affairs of the Company had been conducted in a manner which was oppressive or unfairly prejudicial to the interests of certain Shareholders, including Kistefos itself.

In the Petition, Kistefos sought an order from the Court to:–

(i) compel the Company or the former Director to purchase Kistefos’ shareholding in the Company at a fair value to be determined by the Court; or
(ii) wind up the Company.

The Company and the former Director sought to strike out the Petition. In October 2001, the Court struck out the claim of Kistefos to wind up the Company but refused to strike out the claim of Kistefos for an order compelling the Company or the former Director to repurchase the shareholding of Kistefos. This latter claim remains to be tried in the Court.

In June 2002, following the hearing of an appeal brought by the Company against the decision of October 2001, the Court of Appeal of Bermuda (the “Court of Appeal”) confirmed the earlier order of the Court. Accordingly, the claim of Kistefos to wind up the Company remains struck out, but the claim of Kistefos to compel the Company or the former Director to repurchase its shareholding remains to be tried.

Following the decision of the Court of Appeal in June 2002, the proceedings were dormant until recently. Kistefos filed a summons dated 7 March 2003 in the Court seeking directions for the future conduct of the litigation. In addition, Kistefos sought in its summons to re-amend the Petition. The application by Kistefos to make the amendments to the Petition was heard by the Court on 27 March 2003. On 28 March 2003, the Company announced that it was informed by its legal adviser in Bermuda that Kistefos did not proceed with the summons for directions at the Court hearing of 27 March 2003 but had instead asked that the existing Petition, as it currently stands, be set down for trial. Consequently, the Petition was not re-amended and the Court ordered that the Petition, as it currently stands, be set down for trial but no date has yet been fixed for any further Court hearing.

The Petition remains at a preliminary stage. The Directors, after considering the advice from the Company’s Bermuda legal advisers, consider that the Company has a reasonably good defence to the original claim by Kistefos that the Company or the former Director should buy out the shareholding of Kistefos in the Company.

– 57 –

GENERAL INFORMATION

APPENDIX II

With regard to the Group’s contingent liabilities in respect of the litigation brought by Kistefos on the Company and a former Director of the Company, the Directors are of the view that given the ongoing status of the litigation brought by Kistefos, the Group is unable to quantify the amount of contingent liabilities which may arise from the litigation brought by Kistefos.

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

7. MATERIAL CONTRACTS

The following contracts, not being contracts in the ordinary course of business, have been entered into by members of the Group within the two years preceding the Latest Practicable Date and are or may be material:

(a) On 25 April 2001, Key Foundation Limited (a subsidiary of the Company) and SkyTech Investment Limited (being an independent third party which is independent of and not connected with any of the then and current directors, chief executive or substantial shareholders of the Company and its subsidiaries and any of their respective associates) entered into a shareholders’ agreement to promote and establish a private limited company in the Cayman Islands under the name of E1-SkyTech Investment Company Limited (“E1-SkyTech”) which carries on its business as an investment company. Each of the parties agreed to subscribe for 1,750 shares in E1-SkyTech at a subscription price of HK$50,000,000. In view of the change in the then prevailing economic environment, no investments were made by E1-SkyTech and both shareholders withdrew substantially all of their initial investments in E1-SkyTech. During the year ended 31 March 2002, the Group received a sum of approximately HK$49,778,000 (net of expenses) from E1-SkyTech and such amount was recorded as a loan from an associated company in the Company’s accounts for the year ended 31 March 2002;
(b) the agreement dated 14 March 2003 between Powerful Union Limited, a wholly owned subsidiary of the Company, and Dr. Hsiao Yue George Han in relation to the acquisition by Powerful Union Limited of the entire issued share capital of Tone Communication Limited for a cash consideration of HK$50 million;
(c) the agreement dated 14 March 2003 between Powerful Union Limited, a wholly owned subsidiary of the Company, and Tone Communication Limited in relation to the granting by Powerful Union Limited of an unsecured loan in an aggregate principal amount of HK$42.6 million to Tone Communication Limited; and
(d) the Underwriting Agreement.

8. EXPENSES

The expenses in connection with the Rights Issue, including financial advisory fees, underwriting commission, printing, registration, translation, legal and accountancy fees are estimated to amount to approximately HK$2.2 million in aggregate and are payable by the Company.

– 58 –

GENERAL INFORMATION

APPENDIX II

9. LEGAL EFFECT

This prospectus, the provisional allotment letter and the form of application for excess Rights Shares and all acceptances of any offer or application contained in such documents are governed by and shall be construed in accordance with the laws of Hong Kong. Where an application is made in pursuance of any such documents, the relevant document(s) shall have the effect of rendering all persons concerned bound by the provisions, other than the penal provisions of Sections 44A and 44B of the Companies Ordinance (Chapter 32 of the laws of Hong Kong), so far as applicable.

10. DOCUMENTS DELIVERED TO THE REGISTRARS OF COMPANIES IN HONG KONG AND BERMUDA

A copy of each of this prospectus, the provisional allotment letter and the form of application for excess Rights Shares have been delivered to and registered by the Registrar of Companies in Hong Kong as required by Section 342C of the Companies Ordinance (Chapter 32 of the laws of Hong Kong) and filed with the Registrar of Companies in Bermuda as required by the Companies Act 1981 of Bermuda.

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours at the head office and principal place of business of the Company at 22nd Floor, 80 Gloucester Road, Wanchai, Hong Kong up to 4:00 p.m. (Hong Kong time) on Monday, 28 April 2003:

(a) the memorandum of association and the bye-laws of the Company;
(b) the annual report of the Company for each of the three years ended 31 March 2002;
(c) the interim report of the Company for the six months ended 30 September 2002; and
(d) the material contracts referred to in the paragraph headed “Material contracts” in this appendix.

– 59 –

AI assistant

GoFintech Quantum Innovation Limited — Capital/Financing Update 2003

49098_rns_2003-04-10_2a9b001e-f07c-4c51-afa4-5d8f53c53633.pdf

CHATERON

RESPONSIBILITY STATEMENT

CONTENTS

DEFINITIONS

DEFINITIONS

RIGHTS ISSUE OF NOT LESS THAN 144,434,000 NEW SHARES AND NOT MORE THAN 158,877,400 NEW SHARES OF HK$0.10 EACH ON THE BASIS OF ONE RIGHTS SHARE FOR EVERY TWO EXISTING SHARES HELD AT HK$0.30 PER RIGHTS SHARE PAYABLE IN FULL ON ACCEPTANCE

INTRODUCTION

TERMS OF THE RIGHTS ISSUE

QUALIFYING SHAREHOLDERS

BUSINESS OVERVIEW AND FUTURE PROSPECTS OF THE GROUP

REASONS FOR THE RIGHTS ISSUE

USE OF NET PROCEEDS OF THE RIGHTS ISSUE

UNDERWRITING ARRANGEMENTS

Irrevocable undertaking by Kandy Profits:

Underwriting Agreement:

Termination of the Underwriting Agreement:

OUTSTANDING CONDITIONS OF THE RIGHTS ISSUE

SHAREHOLDING STRUCTURES OF THE COMPANY BEFORE AND AFTER THE RIGHTS ISSUE

RIGHTS OF EXCLUDED SHAREHOLDERS

LISTINGS AND DEALINGS

FRACTIONS OF RIGHTS SHARES

PROCEDURES FOR ACCEPTANCE AND PAYMENT OR TRANSFER

APPLICATIONS BY THE QUALIFYING SHAREHOLDERS FOR EXCESS RIGHTS SHARES

CERTIFICATES FOR RIGHTS SHARES

COMPLIANCE WITH APPLICABLE LAWS AND REGULATIONS

TAXATION

GENERAL

SHARE CAPITAL AND OPTIONS

(a) Share capital

(b) Share options

1. FINANCIAL SUMMARY

Audited consolidated income statements

Audited consolidated balance sheets

2. AUDITED FINANCIAL INFORMATION

Consolidated income statement

for the financial year ended 31 March 2002

Consolidated statement of recognised gains and losses for the financial year ended 31 March 2002

Balance sheets

As at 31 March 2001 and 31 March 2002

Consolidated cash flow statements

for the two financial years ended 31 March 2002

Notes to the financial statements for the year ended 31 March 2002

1. ORGANISATION AND PRINCIPAL ACTIVITIES

2. BASIS OF PRESENTATION

3. PRINCIPAL ACCOUNTING POLICIES

(a) Basis of measurement

(b) Adoption of new/revised Statements of Standard Accounting Practice

(c) Basis of consolidation

(d) Subsidiaries

(e) Associates

(f) Turnover and revenue recognition

(g) Taxation

(h) Fixed assets and depreciation

(i) Inventories

(j) Investment in marketable securities

(k) Impairment of assets

(l) Provisions and contingencies

(m) Employee retirement benefits

(n) Operating leases

(o) Subsequent events

(p) Foreign currency translation

(q) Segments

(r) Use of estimates

4. RELATED PARTY TRANSACTIONS

5. DISCONTINUED OPERATIONS

6. TURNOVER AND REVENUE

7. (LOSS) PROFIT BEFORE TAXATION

8. DIRECTORS’ AND SENIOR EXECUTIVES’ EMOLUMENTS

(a) Directors’ emoluments

(b) Senior executives’ emoluments

9. TAXATION

10. (LOSS) PROFIT ATTRIBUTABLE TO SHAREHOLDERS

11. PROPOSED DIVIDEND

12.

13. (LOSS) EARNINGS PER SHARE

14. FIXED ASSETS

15. INVESTMENT IN SUBSIDIARIES

GoFintech Quantum Innovation Limited Capital/Financing Update 2003