hmvod Limited — Proxy Solicitation & Information Statement 2005

Aug 26, 2005

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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

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

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

Tai Shing International (Holdings) Limited

*

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 8103)

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION INVOLVING THE ACQUISITION OF A 35% INTEREST IN TONGFANG ELECTRONIC (HONG KONG) COMPANY LIMITED

VERY SUBSTANTIAL ACQUISITION, DISCLOSEABLE AND CONNECTED TRANSACTION INVOLVING THE ACQUISITION OF THE ENTIRE INTEREST IN PACIFIC HEIGHTS HOLDINGS LIMITED BY WAY OF DISPOSAL OF THE ENTIRE INTEREST IN TOP GALLANT INTERNATIONAL LIMITED

Financial adviser to Tai Shing International (Holdings) Limited

Independent financial adviser to the Independent Board Committee

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MasterLink Securities (Hong Kong) Corporation Limited

A letter from the independent board committee of Tai Shing International (Holdings) Limited is set out on page 21 of this circular.

A letter from MasterLink Securities (Hong Kong) Corporation Limited, the independent financial adviser, containing its advice to the independent board committee and independent shareholders of Tai Shing International (Holdings) Limited is set out on pages 22 to 37 of this circular.

A notice convening an extraordinary general meeting of Tai Shing International (Holdings) Limited to be held on Monday, 12 September 2005 at 3:00 p.m. at Yat Tung Heen Chinese Restaurant, 2/F, Great Eagle Centre, 23 Harbour Road, Wanchai, Hong Kong is set out on pages 142 to 144 of this circular. A form of proxy is also enclosed. Whether or not you are able to attend and vote at the extraordinary general meeting, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon to the Company’s Hong Kong branch share registrar, Computershare Hong Kong Investor Services Limited at 46/F, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible and in any event not later than 48 hours before the time of the meeting or any adjourned meeting. Completion and return of the form of proxy will not preclude you from subsequently attending and voting at the meeting or any adjourned meeting, should you so wish.

This circular will remain on the GEM website at http://www.hkgem.com on the “Latest Company Announcements” page for at least 7 days from the date of its posting.

• For identification purpose only

26 August 2005

CHARACTERISTICS OF GEM

GEM has been established as a market designed to accommodate companies to which a high investment risk may be attached. In particular, companies may list on GEM with neither a track record of profitability nor any obligation to forecast future profitability. Furthermore, there may be risks arising out of the emerging nature of companies listed on GEM and the business sectors or countries in which the companies operate. Prospective investors should be aware of the potential risks of investing in such companies and should make the decision to invest only after due and careful consideration. The greater risk profile and other characteristics of GEM mean that it is a market more suited to professional and other sophisticated investors.

Given the emerging nature of companies listed on GEM, there is a risk that securities traded on GEM may be more susceptible to high market volatility than securities trading on the main board of the Stock Exchange and no assurance is given that there will be a liquid market in the securities trading on GEM.

The principal means of information dissemination on GEM is publication on the internet website operated by the Stock Exchange. Listed companies are not generally required to issue paid announcements in gazetted newspapers. Accordingly, prospective investors should note that they need to have access to the GEM website in order to obtain up-to-date information on GEM-listed issuers.

CONTENTS

			Page
DEFINITIONS .	. . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
**LETTER FROM **	THE BOARD
Introduction	. . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
First Acquisition Agreement .		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Shareholding structure . . . . .		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Second Acquisition Agreement		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Information	on the Target and	Pacific Heights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
Reasons for	the First Acquisition and the Second Acquisition . . . . . . . . . . . . . . . . . . . . .		16
Financial effects on the Group		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Implications	under the GEM Listing Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		17
EGM . . . .	. . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Voting on poll . . . . . . . . . . .		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
Recommendation . . . . . . . . . .		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
Additional information . . . . .		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
**LETTER FROM **	THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . . . . . . . .		21
**LETTER FROM **	MASTERLINK	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	22
APPENDIX I	— **FINANCIAL **	INFORMATION OF THE GROUP . . . . . . . . . . . . . . . .	38
APPENDIX II	— **FINANCIAL **	INFORMATION OF THE TARGET . . . . . . . . . . . . . . .	86
**APPENDIX III **	— **FINANCIAL **	INFORMATION OF PACIFIC HEIGHTS . . . . . . . . . .	120
APPENDIX IV	— PRO FORMA FINANCIAL INFORMATION OF THE
	ENLARGED GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		124
APPENDIX V	— GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		134
NOTICE OF EGM . . . . . . . . . . .		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	142

— i —

DEFINITIONS

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

“Associates”	has the meaning ascribed thereto under the GEM Listing
“Beijing Tongfang”	Rules (Beijing Tongfang Electronic Science
	& Technology Company Limited), a wholly owned foreign
	investment enterprise incorporated in the PRC and a wholly
	owned subsidiary of the Target
“Board”	board of Directors
“business day”	a day (other than a Saturday or a Sunday) on which banks are
	generally open for business in Hong Kong
“CCIF”	CCIF CPA Limited, Certified Public Accountants, Hong Kong
“Company”	Tai Shing International (Holdings) Limited, a company
	incorporated in the Cayman Islands with limited liability, the
	Shares of which are listed on GEM
“Consideration Share(s)”	a total of 15,890,000 Shares
“Director(s)”	director(s) of the Company
“Disposal”	the transfer of the entire equity interest in Top Gallant to
	Mr. Cho from the Company as the consideration for the
	Second Acquisition pursuant to the Second Acquisition
	Agreement
“EGM”	the extraordinary general meeting of the Company to be
	convened to consider, among other things, the First
	Acquisition and the Second Acquisition (including the
	Disposal)
“Enlarged Group”	the Group as enlarged by, as the case may be, the First
	Acquisition and the Second Acquisition (including the
	Disposal)
“First Acquisition”	the proposed acquisition of a 35% interest in the issued share
	capital of the Target by the Company from Tsinghua Tongfang
	pursuant to the First Acquisition Agreement
“First Acquisition Agreement”	the conditional agreement dated 22 July 2005 entered into
	between the Company and Tsinghua Tongfong in relation to
	the First Acquisition
“First Acquisition Completion”	completion of the First Acquisition Agreement

— 1 —

DEFINITIONS

“First Announcement”	the announcement issued by the Company dated 25 July 2005
	in relation to, among other things, the First Acquisition
“GEM”	the Growth Enterprise Market of the Stock Exchange
“GEM Listing Rules”	the Rules Governing the Listing of Securities on GEM
“Group”	the Company and its subsidiaries
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong” “Hung Luen”	the Hong Kong Special Administrative Region of the PRC (Beijing Hung Luen Network
	Technology Company Limited), a company incorporated in
	the PRC with limited liability
“Independent Board Committee”	an independent committee of the Board appointed by the
	Board to advise the independent Shareholders in respect of
	the First Acquisition and the Second Acquisition (including
	the Disposal), comprising Mr. Chung Shui Ming, Timpson,
	Professor Ip Ho Shing, Horace, Mr. Yan Yonghong and
	Mr. Peng Lijun
“Latest Practicable Date”	23 August 2005, being the latest practicable date prior to the
	printing of this circular for ascertaining certain information
	contained herein
“MasterLink”	MasterLink Securities (Hong Kong) Corporation Limited, a
	licensed corporation under the SFO to carry out types 1, 4 and
	6 regulated activities and the independent financial adviser to
	the Independent Board Committee and the independent
	Shareholders in connection with the First Acquisition and the
	Second Acquisition (including the Disposal)
“Mr. Cho”	Mr. Pyong Sig Cho, a substantial shareholder of an indirect
	non-wholly owned subsidiary of the Company and thus a
	connected person of the Company
“Pacific Heights”	Pacific Heights Holdings Limited, a company incorporated in
	the British Virgin Islands with limited liability
“PRC”	People’s Republic of China
“Second Acquisition”	the proposed acquisition of the entire equity interest in
	Pacific Heights by the Company from Mr. Cho pursuant to the
	Second Acquisition Agreement

— 2 —

DEFINITIONS

“Second Acquisition Agreement”	the conditional agreement dated 4 August 2005 entered into
	between the Company and Mr. Cho in relation to the Second
	Acquisition
“Second Acquisition Completion”	completion of the Second Acquisition Agreement
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the
	Laws of Hong Kong)
“Share(s)”	ordinary share(s) of HK$0.05 each in the share capital of the
	Company
“Shareholder(s)”	holder(s) of the Shares
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Target”	Tongfang Electronic (Hong Kong) Company Limited, a
	company incorporated under the laws of Hong Kong which is
	an investment holding company holding the entire interest in
	Beijing Tongfang
“Target Group”	the Target and its subsidiaries
“Target Share(s)”	a total of 35,000 shares of the Target held by Tsinghua
	Tongfang
“Tongfang (BVI)”	Tongfang Electronic Company Limited, a company
	incorporated in the British Virgin Islands with limited
	liability
“Top Gallant”	Top Gallant International Limited, a company incorporated in
	the British Virgin Islands with limited liability
“Treasure Wise”	Treasure Wise Enterprises Limited, a company incorporated
	in the British Virgin Islands with limited liability, which is a
	wholly owned subsidiary of the Company
“True Value” “Tsinghua Tongfang”	True Value Assets Limited (Tsinghua Tongfang Co. Limited), a
	domestic company incorporated under the laws of the PRC
	and the shares of which are listed on the Shanghai Stock
	Exchange
“US$”	United States dollars, the lawful currency of the United States
	of America

— 3 —

LETTER FROM THE BOARD

Tai Shing International (Holdings) Limited

*

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 8103)

Executive Directors:

Mr. Luk Yat Hung (Chairman) Ms. Li Wenli

Independent non-executive Directors:

Mr. Chung Shui Ming, Timpson Professor Ip Ho Shing, Horace Mr. Yan Yonghong Mr. Peng Lijun

Registered office:

Century Yard Cricket Square Hutchins Drive P.O. Box 2681GT George Town Grand Cayman British West Indies

Principal place of business in Hong Kong:

24/F, Prosperous Commercial Building 54-58 Jardine’s Bazaar Causeway Bay Hong Kong 26 August 2005

To the Shareholders

Dear Sir or Madam,

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION INVOLVING THE ACQUISITION OF A 35% INTEREST IN TONGFANG ELECTRONIC (HONG KONG) COMPANY LIMITED

VERY SUBSTANTIAL ACQUISITION, DISCLOSEABLE AND CONNECTED TRANSACTION INVOLVING THE ACQUISITION OF THE ENTIRE INTEREST IN PACIFIC HEIGHTS HOLDINGS LIMITED BY WAY OF DISPOSAL OF THE ENTIRE INTEREST IN TOP GALLANT INTERNATIONAL LIMITED

INTRODUCTION

On 25 July 2005, the Board announced that the Company and Tsinghua Tongfang entered into the First Acquisition Agreement on 22 July 2005 pursuant to which the Company has conditionally agreed

• For identification purpose only

— 4 —

LETTER FROM THE BOARD

to acquire and Tsinghua Tongfang has conditionally agreed to sell its entire interest in 35% of the issued share capital of the Target, for a total consideration of approximately HK$5.2 million which will be satisfied by the Company at First Acquisition Completion by the issue and allotment of 15,890,000 Consideration Shares, representing approximately 21.2% of the existing issued share capital of the Company and approximately 17.5% of the enlarged issued share capital of the Company upon First Acquisition Completion, at an issue price of HK$0.33 per Consideration Share.

On 5 August 2005, the Board further announced that it entered into the Second Acquisition Agreement with Mr. Cho on 4 August 2005, pursuant to which the Company has conditionally agreed to acquire from Mr. Cho and Mr. Cho has conditionally agreed to sell to the Company or the Company’s nominee his entire equity interest in Pacific Heights, for a total consideration of approximately HK$3.7 million. The consideration is to be satisfied by the Company by the transfer to Mr. Cho of the entire equity interest in Top Gallant the sole asset of which is its investment in 40% equity interest in Hung Luen at Second Acquisition Completion. As at the Latest Practicable Date, Pacific Heights has an effective interest of approximately 25% in the issued share capital of the Target (through its holding of 38.5% of the issued share capital of Tongfang (BVI) which in turn holds 65% of the issued share capital of the Target).

As at the Latest Practicable Date, the Company has an effective interest of approximately 40% in the issued share capital of the Target. Upon First Acquisition Completion, the Company will hold an effective interest of approximately 75% in the issued share capital of the Target. Upon First Acquisition Completion and Second Acquisition Completion, the Company will beneficially own the entire issued share capital of the Target. The First Acquisition Agreement and the Second Acquisition Agreement are not inter-conditional to each other.

Target is an indirect non-wholly owned subsidiary of the Company and Tsinghua Tongfang is a substantial shareholder of the Target. As such, Tsinghua Tongfang is a connected person of the Company. Mr. Cho is the legal and beneficial owner of the entire issued share capital of Pacific Heights, which in turn holds a 38.5% shareholding interest in Tongfang (BVI), an indirect non-wholly owned subsidiary of the Company. Mr. Cho is therefore a substantial shareholder of an indirect non-wholly owned subsidiary of the Company, and thus a connected person of the Company. Each of the First Acquisition and the Second Acquisition constitutes a very substantial acquisition and connected transaction for the Company pursuant to Rules 19.06(5) and 19.22, and Rule 20.13 (1)(a) respectively of the GEM Listing Rules; and the Disposal constitutes a discloseable and connected transaction for the Company pursuant to Rule 19.06(2) and Rule 20.13(1)(a) of the GEM Listing Rules respectively. Accordingly, each of the First Acquisition and the Second Aquisition (including the Disposal) are subject to the approval of the independent Shareholders on which voting shall be taken by poll. Any party who has a material interest in the First Acquisition or the Second Acquisition (including the Disposal) has to abstain from voting on the relevant resolution to approve the First Acquisition or the Second Acquisition (including the Disposal), as the case may be, at the EGM. As at the Latest Practicable Date, to the best knowledge of the Directors, no Shareholder has a material interest in either the First Acquisition or the Second Acquisition (including the Disposal), accordingly, no Shareholder is required to abstain from voting on the relevant resolution to approve each of the First Acquisition or the Second Acquisition (including the Disposal) at the EGM.

— 5 —

LETTER FROM THE BOARD

The purpose of this circular is to provide you with further information of the First Acquisition and the Second Acquisition and to give you notice of the EGM at which resolutions approving the First Acquisition and the Second Acquisition (including the Disposal) will be sought. The Independent Board Committee, comprising Mr. Chung Shui Ming, Timpson, Professor Ip Ho Shing, Horace, Mr. Yan Yonghong and Mr. Peng Lijun, has been formed to advise the independent Shareholders on the terms of the First Acquisition and the Second Acquisition (including the Disposal). Masterlink has been appointed as the independent financial adviser to the Independent Board Committee and the independent Shareholders in this regard. A letter from the Independent Board Committee is set out on page 21 of this circular and a letter from Masterlink is set out on pages 22 to 37 of this circular.

FIRST ACQUISITION AGREEMENT

Parties to the First Acquisition Agreement

Vendor:

(Tsinghua Tongfang Co. Limited), which legally and beneficially holds 35% interest in the issued share capital of the Target as at the Latest Practicable Date.

Tsinghua Tongfang is a company incorporated under the laws of the PRC and the shares of which are listed on the Shanghai Stock Exchange. Tsinghua Tongfang and its subsidiaries are principally engaged in the information technology, power and environmental protection, applied nuclear electronic technology, and bio-pharmaceutical businesses.

As at the Latest Practicable Date, Tsinghua Tongfang does not have any shareholding interest in the Company. Purchaser: the Company

Assets to be acquired

The assets to be acquired is a 35% interest in the issued share capital of the Target. Further information on the Target is set out in the paragraph headed “Information on the Target and Pacific Heights” below.

Consideration

The total consideration for the First Acquisition is approximately HK$5.2 million, which will be satisfied by the Company at First Acquisition Completion by the issue and allotment of 15,890,000 Consideration Shares at an issue price of HK$0.33 per Consideration Share. The issue of Consideration Shares will not result in a change in control of the Company. The consideration was arrived at after arm’s length negotiation between the Company and Tsinghua Tongfang after considering the business prospect of the Target which the Directors consider to be good and the financial performance (including the audited consolidated net profits for the two years ended 31 December 2004 and the audited consolidated net assets value as at 31 December 2004) of the Target

— 6 —

LETTER FROM THE BOARD

Group. The total consideration represents a discount of approximately 40% to the audited consolidated net assets value of the Target as at 31 December 2004 attributable to Tsinghua Tongtang of approximately HK$8.7 million (being 35% of the audited consolidated net assets value of the Target as at 31 December 2004 of approximately HK$25 million).

Based on the closing price of HK$0.28 per Share on 21 July 2005, being the last trading day for the Shares immediately before trading in the Shares was suspended pending the release of the First Announcement, the market value of the Consideration Shares was approximately HK$4.4 million. The Consideration Shares represent approximately 21.2% of the existing issued share capital of the Company and approximately 17.5% of the enlarged issued share capital of the Company upon First Acquisition Completion.

The issue price of HK$0.33 per Consideration Share was arrived at after arm’s length negotiation between the Company and Tsinghua Tongfang and represents:

• a premium of approximately 17.9% over the price of HK$0.28 per Share as quoted on the Stock Exchange on 21 July 2005, being the last trading day for the Shares immediately before trading in the Shares was suspended pending the release of the First Announcement;

• a premium of approximately 17.9% over the average closing price of approximately HK$0.28 per Share as quoted on the Stock Exchange for the last 10 trading days up to and including 21 July 2005;

• a premium of approximately 50.0% over the closing price of HK$0.22 per Share as quoted on the Stock Exchange on the Latest Practicable Date;

• a premium of approximately 35.2% over the average closing price of HK$0.244 per Share as quoted on the Stock Exchange for the last 10 trading days up to and including the Latest Practicable Date; and

• a premium of approximately 153.8% over the audited consolidated net assets value per Share as at 31 March 2005 of approximately HK$0.13.

Based on the above analysis, the Directors consider the issue price of HK$0.33 per Consideration Share is fair and reasonable.

An application has been made by the Company to the Stock Exchange for the listing of, and permission to deal in, the Consideration Shares to be issued under the First Acquisition Agreement. The Consideration Shares, when fully paid, will rank pari passu in all respects with all other Shares in issue as at the date of issue of the Consideration Shares.

— 7 —

LETTER FROM THE BOARD

Conditions

Completion of the First Acquisition is conditional upon:

• (i) Tsinghua Tongfang’s warranties given by Tsinghua Tongfang in respect of, amongst other things, the authorisation for due execution of the First Acquisition Agreement by Tsinghua Tongfang, the issue and allotment of the Target Shares being free from liens, claims, equities, charges, encumbrances or third party rights, the title of Tsinghua Tongfang’s interest in the Target Shares, the percentage interest of the Target Shares in relation to the issued share capital of the Target, under and as at the date of the First Acquisition Agreement remaining true, accurate and not misleading upon repetition of the same immediately prior to First Acquisition Completion;

• (ii) the Company’s warranties given by the Company in respect of, amongst other things, the authorisation for due execution of the First Acquisition Agreement by the Company, issue and allotment of the Consideration Shares, under and as at the date of the First Acquisition Agreement remaining true, accurate and not misleading upon repetition of the same immediately prior to First Acquisition Completion;

• (iii) the Listing Committee of GEM granting the listing of and permission to deal in the Consideration Shares;

• (iv) the approval of the First Acquisition Agreement and the transactions contemplated thereby by the independent Shareholders;

• (v) the delivery by Tsinghua Tongfang to the Company of a legal opinion to the satisfaction of the Company, from a PRC solicitor acceptable to the Company in connection with the transactions contemplated under the First Acquisition Agreement, including without limitation to the generality of the foregoing, to the effect that:

• (a) the sale of and the transfer of the Target Shares to the Company by Tsinghua Tongfang is, in respect of Tsinghua Tongfang, in compliance with all applicable laws and regulations in the PRC and all necessary approvals and consents in respect thereof have been obtained; and

• (b) the subscription of the Consideration Shares by Tsinghua Tongfang on First Acquisition Completion is, in respect of Tsinghua Tongfang, in compliance with all applicable laws and regulations in the PRC and all necessary approvals and consents in respect thereof have been obtained;

• (vi) all consents, waivers, approvals (including shareholders’ approval if necessary), authorisations and clearances (if any) of any relevant governmental or regulatory authority or any relevant third party necessary for Tsinghua Tongfang to enter into and perform the

— 8 —

LETTER FROM THE BOARD

First Acquisition Agreement having been obtained, including, but not limited to all governmental approvals required for the sale by Tsinghua Tongfang of the Target Shares and the subscription by Tsinghua Tongfang of the Consideration Shares pursuant to the First Acquisition Agreement; and

• (vii) all consents, waivers, approvals, authorisations and clearances (if any) of any relevant governmental or regulatory authority or any relevant third party necessary for the Company to enter into and perform the First Acquisition Agreement having been obtained.

If any of the conditions has not been fulfilled or in respect of the condition (i) which could be waived in writing by the Company or in respect of the condition (ii) which could be waived in writing by Tsinghua Tongfang, on or before 30 November 2005 (or such later date as may be agreed by the Company and Tsinghua Tongfang), the First Acquisition Agreement shall thereupon terminate and none of the parties shall have any claim against the others for costs, damages, compensation or otherwise (save in respect of any prior breach of the First Acquisition Agreement). As at the Latest Practicable Date, none of the above conditions have been fulfilled and both Tsinghua Tongfang and the Company have no intention to waive any of the above conditions.

Completion

Completion of the First Acquisition is to take place on the third business day following the day on which all the conditions stated in the paragraph headed “Conditions” above are fulfilled or waived by the Company or Tsinghua Tongfang (as the case may be).

SHAREHOLDING STRUCTURE

Set out below is a table showing the shareholding structure of the Company (i) as at the Latest Practicable Date; and (ii) immediately upon First Acquisition Completion, assuming there will be no other changes to the existing issued share capital of the Company:

Wide Source Group Ltd.1 Tsinghua Tongfang Other public Shareholders	As at the Latest Practicable Date Shares % 21,542,476 28.7 — — 53,562,524 71.3 75,105,000 100.0	Immediately upon First Acquisition Completion Shares % 21,542,476 23.7 15,890,000 17.5 53,562,524 58.8 90,995,000 100.0	Immediately upon First Acquisition Completion Shares % 21,542,476 23.7 15,890,000 17.5 53,562,524 58.8 90,995,000 100.0
			100.0

Note 1: Wide Source Group Ltd. is a company incorporated in the British Virgin Islands with limited liability and is ultimately and beneficially owned as to 50% by Mr. Luk Yat Hung, an executive Director, and as to 50% by Mr. Ma Bing.

— 9 —

LETTER FROM THE BOARD

• Note 2: As stated in the announcement of the Company dated 17 August 2005, the Board was informed by the Stock Exchange that there was a high concentration of the Company’s public float in the hands of a small number of investors as 22 entities held an aggregate of 38,787,600 Shares through HKSCC Nominees Limited as at 18 July 2005, representing approximately 51.64% of the then issued share capital of the Company. Please refer to the abovementioned announcement posted on the GEM website for further details.

SECOND ACQUISITION AGREEMENT

Parties to the Second Acquisition Agreement

• Vendor : Mr. Pyong Sig Cho, who legally and beneficially holds the entire issued share capital of Pacific Heights as at the Latest Practicable Date

• Purchaser : the Company

Assets to be acquired

The assets to be acquired is the entire equity interest in Pacific Heights. Pacific Heights is an investment holding company established by Mr. Cho in October 1999.

As at the Latest Practicable Date, the sole asset of Pacific Heights is its 38.5% shareholding interest in Tongfang (BVI), through which Pacific Heights presently has an effective interest of approximately 25% in the issued share capital of the Target. Further information on the Target is set out in the paragraph headed “Information on the Target and Pacific Heights” below.

Consideration

The total consideration for the Second Acquisition is approximately HK$3.7 million, which will be satisfied by the Company at Second Acquisition Completion solely by the transfer to Mr. Cho or his nominee the entire equity interest in Top Gallant, a wholly owned subsidiary of the Company. Top Gallant has no operating business and it recorded an audited consolidated net deficit of approximately HK$0.3 million as at 31 March 2005 and an unaudited consolidated net assets value of approximately HK$1.4 million as at 30 June 2005. The audited consolidated net loss before and after taxation of Top Gallant for the year ended 31 March 2005 were both approximately HK$4,600 and those for the year ended 31 March 2004 were both approximately HK$0.4 million. Upon Second Acquisition Completion, the Company will cease to have any shareholding interest in Top Gallant.

As at the Latest Practicable Date, Top Gallant is an investment holding company the sole asset of which is its 40% equity interest in Hung Luen, which was acquired in November 2003 at a consideration of HK$1.8 million by way of issue of a promissory note by the Company (details of such acquisition was set out in the Company’s announcement dated 9 September 2003). The remaining 60% equity interest in Hung Luen is held by four parties (namely, Beijing Taishengfeng Science & Technology Development Co., Ltd., Zhao Linping, Zhou Shouqing and Chen Yingtao) who are independent third parties not connected with the Company, any directors, chief executive, substantial shareholders or management shareholders of the Company or any of its subsidiaries or any Associates of any of them. The Company, through its interest in Top Gallant, is the single largest shareholder of

— 10 —

LETTER FROM THE BOARD

Hung Luen. Hung Luen is incorporated in the PRC with limited liability and its principal business is the research, development and provision of information-on-demand system solutions, telecommunication and broadcasting media, network solutions and provision of related products and services. In the Group’s audited consolidated balance sheet as at 31 March 2005, the Group recorded an investment in Hung Luen of approximately HK$1.4 million.

The amount of consideration and the settlement of the consideration by way of the Disposal under the Second Acquisition Agreement was agreed after arm’s length negotiation between the Company and Mr. Cho and having taken into account (i) the business prospects of the Target, which the Directors consider to be good as the Group believes that the strong demand for management information systems for power plants in the PRC would continue, (ii) the financial performance (including the audited consolidated net profits for the two years ended 31 December 2004 and the audited consolidated net assets value as at 31 December 2004) of the Target Group, (iii) the HK$5.2 million consideration payable for the First Acquisition of 35% interest in the issued share capital of the Target; (iv) the effect of the Second Acquisition and the Disposal would allow the Company to further consolidate its interest in and focus on the business of the Target while realizing its investment in Hung Luen at an estimated gain on disposal of approximately HK$2.3 million (being the difference between the consideration of approximately HK$3.7 million and the book value of Hung Luen attributable to the accounts of the Company of approximately HK$1.4 million); and (v) Mr. Cho is able to convert his 25% non-controlling interest in the Target to being the single largest shareholder of Hung Luen. The total consideration for the Second Acquisition of approximately HK$3.7 million represents i) a discount of approximately 41% to the audited consolidated net assets value of the Target as at 31 December 2004 attributable to Pacific Heights of approximately HK$6.3 million (being approximately 25% of the net assets value of the Target as at 31 December 2004 of approximately HK$25 million); and ii) a premium of approximately 164% over the unaudited consolidated net assets value of Top Gallant as at 30 June 2005. The difference between the consideration for the Second Acquisition of approximately HK$3.7 million and the audited consolidated net assets value of the Target attributable to Pacific Heights of approximately HK$6.3 million represents the negative goodwill of approximately HK$2.6 million arised from the Second Acquisition.

Conditions

Completion of the Second Acquisition is conditional upon:

• (i) the warranties given by Mr. Cho in respect of, amongst other things, title of his equity interest in Pacific Heights, the assets and liabilities of Pacific Heights and the 25% equity interest of Pacific Heights in the Target, under and as at the date of the Second Acquisition Agreement remaining true, accurate and not misleading upon repetition of the same immediately prior to Second Acquisition Completion;

• (ii) the Company’s warranties in respect of, amongst other things, title of the Company’s equity interest in Top Gallant and the assets of Top Gallant, given under and as at the date of the Second Acquisition Agreement remaining true, accurate and not misleading upon repetition of the same immediately prior to Second Acquisition Completion;

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LETTER FROM THE BOARD

• (iii) the approval of the Second Acquisition Agreement and the transactions contemplated thereby by the independent Shareholders;

• (iv) all consents, waivers, approvals, authorisations and clearances (if any) of any relevant governmental or regulatory authority or any relevant third party necessary for Mr. Cho to enter into and perform the Second Acquisition Agreement having been obtained; and

• (v) all consents, waivers, approvals, authorisations and clearances (if any) of any relevant governmental or regulatory authority or any relevant third party necessary for the Company to enter into and perform the Second Acquisition Agreement having been obtained.

If any of the conditions has not been fulfilled or in respect of the condition (i) which could be waived in writing by the Company or in respect of the condition (ii) which could be waived in writing by Mr. Cho, on or before 30 November 2005 (or such later date as may be agreed by the Company and Mr. Cho), the Second Acquisition Agreement shall thereupon terminate and none of the parties shall have any claim against the others for costs, damages, compensation or otherwise (save in respect of any prior breach of the Second Acquisition Agreement). As at the Latest Practicable Date, none of the above conditions have been fulfilled and both of Mr. Cho and the Company have no intention to waive any of the above conditions.

Completion

Completion of the Second Acquisition is to take place on the third business day following the day on which all the conditions stated in the paragraph headed “Conditions” above are fulfilled or waived by the Company or Mr. Cho (as the case may be) or at such other time and/or place as the parties may agree. Pursuant to the Second Acquisition Agreement, the Disposal will not take place if the Second Acquisition is not completed. Upon Second Acquisition Completion, the entire equity interest in Pacific Heights will be transferred to the Company or its nominee, while the entire equity interest in Top Gallant will be transferred to Mr. Cho or his nominee.

INFORMATION ON THE TARGET AND PACIFIC HEIGHTS

Background information

The Target was established in January 2001 by Tsinghua Tongfang, Pacific Heights, and True Value (which was 100% owned by a fund) through Tongfang (BVI), an investment holding company, with an initial contributed capital of US$5 million and an initial shareholding interest in Tongfang (BVI) of 35%, 25% and 40% respectively. Both of Pacific Heights and True Value were then independent third parties not connected with Tsinghua Tongfang, any directors, chief executive or substantial shareholders of Tsinghua Tongfang or any of its subsidiaries or any Associates of any of them. True Value had disposed of its entire interest in 40% of the issued share capital of Tongfang (BVI) to Treasure Wise (which is presently a wholly owned subsidiary of the Company) subsequently in 2004. As at the Latest Practicable Date, as a result of a corporate restructuring contemplated by the Target and Tongfang BVI, the Target is 35% held by Tsinghua Tongfang with the remaining 65% held by Tongfang (BVI) and Tongfang (BVI) is 61.5% held by Treasure Wise with the remaining 38.5% held by Pacific Heights. The Company acquired such an effective interest of approximately 40% in the

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LETTER FROM THE BOARD

Target in September 2004 at a consideration of HK$9,080,000, details of which was disclosed in the Company’s circular dated 20 April 2004. The abovementioned corporate restructuring was initiated by Tsinghua Tongfang and the Company has not been informed of the detailed reasons of the restructuring. Neither the Company nor Treasure Wise had been participated in the said restructuring. Moreover, the Company’s attributable interest in the Target was at all times maintained at a level of 40% before and after the restructuring. For further details, please refer to the announcement dated 18 November 2004 issued by the Company which was posted on the GEM website.

Shareholding structure

Upon First Acquisition Completion, the Company will have an additional 35% direct interest in the Target and the effective interest of the Company in the issued share capital of the Target will increase to approximately 75%. Upon First Acquisition Completion and Second Acquisition Completion, the Company will beneficially own 100% effective interest in the issued share capital of the Target. The First Acquisition Agreement and the Second Acquisition Agreement are not inter-conditional on each other. The shareholding structures of Tongfang (BVI) and the Target as at the Latest Practicable Date and upon First Acquisition Completion and Second Acquisition Completion are illustrated below:

Shareholding structure of Pacific Heights, Tongfang (BVI) and the Target as at the Latest Practicable Date:

Mr.	Cho	Cho		Company (Note 1)
	100%			100%
Pacific	Heights			Treasure Wise
(Note 2)				(Note 3)
38.5%				61.5%
		Tongfang (BVI) (Note 4) Tsinghua Tongfang (Note 5)
		65%			35%
				Target
				(Note 6)
				100%
				Beijing Tongfang
				(Note 7)

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LETTER FROM THE BOARD

Shareholding structure of Pacific Heights, Tongfang (BVI) and the Target upon First Acquisition Completion and Second Acquisition Completion:

==> picture [231 x 280] intentionally omitted <==

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

Company
(Note 1)
35%
100% 100%
Pacific Heights Treasure Wise
(Note 2) (Note 3)
38.5% 61.5%
Tongfang (BVI)
(Note 4)
65%
Target
(Note 6)
100%
Beijing Tongfang
(Note 7)
----- End of picture text -----

Notes:

1. The Company is an investment holding company which is incorporated in the Cayman Islands

2. Pacific Heights is an investment holding company which is incorporated in the British Virgin Islands

3. Treasure Wise is an investment holding company which is incorporated in the British Virgin Islands

4. Tongfang (BVI) is an investment holding company which is incorporated in the British Virgin Islands

5. Tsinghua Tongfang is a domestic company incorporated in the PRC and the shares of which are listed on the Shanghai Stock Exchange. Tsinghua Tongfang, together with its subsidiaries, are principally engaged in the information technology, power and environmental protection, applied nuclear electronic technology, and bio-pharmaceutical businesses

6. Target is an investment holding company which is incorporated in Hong Kong

7. Beijing Tongfang is a foreign investment enterprise incorporated in the PRC which is principally engaged in research, development and provision of integrated management information system for power plants and for banks in the PRC

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LETTER FROM THE BOARD

Business of the Target

The Target is an investment holding company the sole asset of which is the entire interest in Beijing Tongfang, a foreign investment enterprise incorporated under the laws of the PRC in May 2001 and is principally engaged in research, development and provision of integrated management information systems for power plants and for banks in the PRC. The businesses of Beijing Tongfang are principally divided into two business segments namely systems development and professional services (including consultancy, information technology engineering and technical support services in relation to the development of new system products that is tailor made in accordance with clients’ specifications). In the three years ended 31 December 2004, the turnover from systems development business increased from approximately HK$22.6 million in 2002 to approximately HK$48.2 million in 2004, resulting in an increase in the contribution of systems development business to the overall turnover of Beijing Tongfang from approximately 59% in 2002 to approximately 81% in 2004. This change in sales mix is expected to continue in the coming years as Beijing Tongfang will continue to approach the market for the provision of management information system to banks in the PRC. In addition, Beijing Tongfang will seek to enhance its competitiveness by broadening its sources and scope of system development business. According to the National Bureau of Statistics of China’s “2004 National Economy and Social Development Statistics Report”, the PRC’s power generating facilities recorded a 92.9% growth in 2004. Hence, it is expected that there will be a growth in power plant management information systems in view of the increase in the number of power plants to be constructed in the PRC. In this regard, Beijing Tongfang will steer its focus towards the businesses in the provision of management information systems for power plants in the PRC. As at 30 June 2005, Beijing Tongfang had orders on hand of approximately HK$67 million.

Financial information

The following table shows the audited consolidated financial information of the Target for the three months ended 31 March 2005 and the two years ended 31 December 2004:

				For the	For the
		For the three		year ended	year ended
		months ended		31 December	31 December
		**31 **	March 2005	2004	2003
			(Audited)	(Audited)	(Audited)
			HK$’000	HK$’000	HK$’000
Turnover			6,223	59,401	47,279
(Loss)/Profit	before taxation		(1,666)	2,318	4,271
(Loss)/Profit	after taxation		(1,666)	1,466	4,271

In addition, the Target had an audited consolidated net assets value of approximately HK$25.0 million as at 31 December 2004 and an audited consolidated net assets value of approximately HK$23.4 million as at 31 March 2005. As a result of a corporate restructuring of the Target Group as announced by the Company on 18 November 2004, the Target became an indirect non-wholly owned subsidiary of the Company with an effective equity interest of approximately 40% and the results of

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LETTER FROM THE BOARD

the Target has been consolidated into the accounts of the Company since December 2004. In the audited consolidated results of the Company for the year ended 31 March 2005, the amount of turnover and profit attributable to Shareholders contributed by the Target Group were approximately HK$24.6 million (representing approximately 81% of the Group’s turnover in that year) and HK$1.2 million respectively (representing approximately 784.3% of the Group’s profit from ordinary activities before taxation in that year).

The following table shows the audited consolidated net asset value of Pacific Heights as at 31 March 2003, 2004 and 2005:

				**At **	**31 **	March
			2003			2004	2005
			HK$			HK$	HK$
Net	asset	value	195			195	195

Pacific Heights is an investment holding company and has no operating business. The entire consolidated net asset value of Pacific Heights as shown above represents its investment in 38.5% equity interest in Tongfang (BVI).

REASONS FOR THE FIRST ACQUISITION AND THE SECOND ACQUISITION

The Company is an investment holding company and the subsidiaries of which are principally engaged in the provision of systems development, software and hardware products, professional services and training. As stated in the annual report of the Company dated 24 June 2005, the Group believe that the strong demand for management information systems for power plants in the PRC would continue for at least another year and the Group would focus its development in the management information system for the PRC energy market in the future. The Board would look for growth opportunities both internally and through acquisition in order to take advantage of the rapidly expanding and changing market of the PRC.

The Board considers that the First Acquisition and the Second Acquisition (including the Disposal) are desirable and represent a valuable opportunity for the Group to strengthen its existing business portfolio. One of the main businesses of the Target, the provision of management information systems for power plants in the PRC, is a sector the prospects of which the Directors consider with optimism and have determined to focus on developing. In addition, the Board is of the view that, despite the decrease in net profit and had a negative operating cashflow in 2004 as discussed below, the Target’s financial performance over the last two years has been satisfactory as it has recorded a turnover ranging from approximately HK$47 million to HK$59 million with profit after taxation of over HK$1 million for the latest two financial years ended 31 December 2004 which is expected to be contributory to the Group’s financial performance in the future. The Target recorded a decrease in profit attributable to shareholders from approximately HK$4.3 million in the year ended 31 December 2003 to approximately HK$1.5 million in the year ended 31 December 2004. As mentioned in the section headed “Information on the Target and Pacific Heights” above, there was a change in sales mix with increasing contribution to the overall turnover by systems development business. Comparing the two business segments, professional services business generates a relatively higher gross profit margin

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LETTER FROM THE BOARD

than systems development business. Therefore, although an increase in turnover was recorded in the year ended 31 December 2004, a decrease in gross profit margin from approximately 38% in 2003 to approximately 31% was noted because of the change in sales mix. Due to the decrease in gross profit margin, together with the increase in total expenses as a result of the expansion in operation, a decrease in profit attributable to shareholders was resulted in the year ended 31 December 2004. In addition, the Target had a negative operating cashflow of approximately HK$13 million for the year ended 31 December 2004. This is mainly due to the changes in working capital as a result of the acquisition of the net assets (including inventories, accounts receivable, computer softwares and hardwares) from (Beijing Tsinghua Neng Yuan Fang Zhen Company), and from the power plant information system business by Beijing Tongfang during the second half of the year ended 31 December 2004. The Target recorded a loss in the first quarter of 2005, which was considered acceptable as the first quarter is usually the slack season of the Target due to the Lunar Chinese New Year holidays. For further discussion on the financial performance of the Target, please refer to Appendix II to this circular. As at the Latest Practicable Date, the Group, through its indirect interest in 61.5% of the issued share capital of Tongfang (BVI), holds 40% equity interest in the Target and the Target is regarded as a subsidiary of the Company. Upon First Acquisition Completion, the Company would have an effective interest of approximately 75% in the issued share capital of the Target. The Second Acquisition would provide the Company with an opportunity to further acquire an effective interest of approximately 25% in the issued share capital of the Target and upon First Acquisition Completion and Second Acquisition Completion, the Target would become an indirect wholly owned subsidiary of the Company. Accordingly, the Company will have entire control of the Target and the results of the Target will be fully consolidated into the results of the Company. On the other hand, as stated in the annual report of the Company for the year ended 31 March 2005, the Company has no board representation in and has no significant influence over Hung Luen, the Company’s investment in Hung Luen has been recorded as an investment security in the accounts of the Company.

Based on the aforesaid, the Board (including the independent non-executive Directors) considers that the First Acquisition and the Second Acquisition (including the Disposal) are in the interests of the Company and the Shareholders as a whole and that the terms of the First Acquisition Agreement and the Second Acquisition Agreement (including the Disposal) are fair and reasonable.

FINANCIAL EFFECTS ON THE GROUP

The First Acquisition and the Second Acquisition (including the Disposal) will not have any material effect on the net assets position and earnings of the Group. Please refer to the pro forma financial information of the Enlarged Group as set out in Appendix IV to this circular for more details.

IMPLICATIONS UNDER THE GEM LISTING RULES

The Company acquired an effective interest of approximately 40% in the issued share capital of the Target in September 2004 and entered into the First Acquisition Agreement on 22 July 2005 to acquire an additional 35% direct interest in the issued share capital of the Target. Since the first 40% effective interest in the issued share capital of the Target was acquired, and the First Acquisition

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LETTER FROM THE BOARD

Agreement was entered into, within a 12 month period of the Second Acquisition, the first 40% effective interest acquisition, the First Acquisition, and, as the case may be, the Second Acquisition were aggregated in determining the classification of the First Acquisition and the Second Acquisition.

As Tsinghua Tongfang is a substantial shareholder of the Target by holding 35% shareholding interest in the Target, Tsinghua Tongfang is a connected person of the Company. Since Mr. Cho is the legal and beneficial owner of the entire issued share capital of Pacific Heights, which in turn holds a 38.5% shareholding interest in Tongfang (BVI), an indirect non-wholly owned subsidiary of the Company, Mr. Cho is considered to be a substantial shareholder of an indirect non-wholly owned subsidiary of the Company, and thus a connected person of the Company. Based on the above, each of the First Acquisition and the Second Acquisition constitutes a very substantial acquisition and connected transaction for the Company pursuant to Rules 19.06(5) and 19.22, and Rule 20.13(1)(a) of the GEM Listing Rules respectively; and the Disposal constitutes a discloseable and connected transaction for the Company pursuant to Rule 19.06(2) and Rule 20.13(1)(a) of the GEM Listing Rules respectively. Accordingly, each of the First Acquisition (including the issue of the Consideration Shares) and the Second Acquisition (including the Disposal) is subject to the approval of the independent Shareholders on which voting shall be taken by poll. Any party who has a material interest in either the First Acquisition or the Second Acquisition (including the Disposal) has to abstain from voting on the relevant resolution to approve the First Acquisition or the Second Acquisition (including the Disposal), as the case may be, at the EGM. As at the Latest Practicable Date, to the best knowledge of the Directors, no Shareholder has a material interest in the First Acquisition or the Second Acquisition (including the Disposal), accordingly, no Shareholder is required to abstain from voting on the relevant resolution, to approve each of the First Acquisition or the Second Acquisition (including the Disposal) at the EGM.

EGM

Set out on pages 142 to 144 is a notice convening the EGM to be held at Yat Tung Heen Chinese Restaurant, 2/F, Great Eagle Centre, 23 Harbour Road, Wanchai, Hong Kong at 3:00 p.m. on Monday, 12 September 2005 at which ordinary resolutions will be proposed to the independent Shareholders to consider and, if thought fit, approve the First Acquisition and the Second Acquisition (including the Disposal).

A form of proxy for use at the EGM is enclosed with this circular. Whether or not you are able to attend the EGM in person, you are requested to complete and return the form of proxy in accordance with the instructions printed thereon to the Company’s branch share registrar in Hong Kong, Computershare Hong Kong Investor Services Limited, at 46/F, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible but in any event not later than 48 hours before the time appointed for the holding of the EGM or any adjourned meeting thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjourned meeting thereof should you so wish.

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LETTER FROM THE BOARD

VOTING ON POLL

Pursuant to the existing articles of association of the Company, at any general meeting, a resolution put to the vote at the meeting shall be decided on a show of hands unless (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is demanded:

• (a) by the chairman of such meeting; or

• (b) by at least three Shareholders present in person (or in the case of a Shareholder being a corporation by its duly authorised representative) or by proxy for the time being entitled to vote at the meeting; or

• (c) by a Shareholder or Shareholders present in person (or in the case of a Shareholder being a corporation by its duly authorised representative) or by proxy and representing not less than one-tenth of the total voting rights of all Shareholders having the right to vote at the meeting; or

• (d) by a Shareholder or Shareholders present in person (or in the case of a Shareholder being a corporation by its duly authorised representative) or by proxy and holding Shares conferring a right to vote at the meeting being Shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all Shares conferring that right.

In compliance with the GEM Listing Rules, the Company will procure the chairman of the EGM to demand for voting on poll for the ordinary resolutions set out in the notice of the EGM in relation to the First Acquisition and the Second Acquisition (including the Disposal).

RECOMMENDATION

Your attention is drawn to the letter from the Independent Board Committee set out on page 21 of this circular which contains its advice to the independent Shareholders regarding the First Acquisition and the Second Acquisition (including the Disposal) and the letter from MasterLink on pages 22 to 37 of this circular which contains its advice to the Independent Board Committee and the independent Shareholders regarding the First Acquisition and the Second Acquisition (including the Disposal) as well as the principal factors and reasons taken into consideration in arriving at its advice.

For the reasons set out above, the Directors (including the independent non-executive Directors) consider that the terms of the First Acquisition and the Second Acquisition (including the Disposal) are fair and reasonable and in the interests of the Company and its shareholders as a whole, and therefore recommend the independent Shareholders to vote in favour of the relevant ordinary resolution to be proposed at the EGM to approve each of the First Acquisition and the Second Acquisition (including the Disposal). You are advised to read the letter from the Independent Board Committee and the letter from MasterLink mentioned above before deciding as to how to vote at the EGM.

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LETTER FROM THE BOARD

ADDITIONAL INFORMATION

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

Yours faithfully, For and on behalf of the Board

Tai Shing International (Holdings) Limited Luk Yat Hung

Chairman

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Tai Shing International (Holdings) Limited

*

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 8103)

26 August 2005

To the independent Shareholders

Dear Sir or Madam,

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION INVOLVING THE ACQUISITION OF A 35% INTEREST IN TONGFANG ELECTRONIC (HONG KONG) COMPANY LIMITED

VERY SUBSTANTIAL ACQUISITION, DISCLOSEABLE AND CONNECTED TRANSACTION INVOLVING THE ACQUISITION OF THE ENTIRE INTEREST IN PACIFIC HEIGHTS HOLDINGS LIMITED BY WAY OF DISPOSAL OF THE ENTIRE INTEREST IN TOP GALLANT INTERNATIONAL LIMITED

We have been appointed as the Independent Board Committee to advise you in connection with the First Acquisition Agreement and the Second Acquisition Agreement, details of which are set out in the “Letter from the Board” in the circular dated 26 August 2005 (the “Circular”), of which this letter forms part. Terms used in this letter have the same meanings as given to them in the Circular unless the context otherwise requires.

Your attention is drawn to the “Letter from the Board” as set out on pages 4 to 20 of the Circular and the “Letter from MasterLink” as set out on pages 22 to 37 of the Circular containing its advice to the Independent Board Committee regarding the First Acquisition and the Second Acquisition (including the Disposal). Having considered the advice given in the letter from MasterLink, we are of the view that the terms of each of the First Acquisition Agreement and the Second Acquisition Agreement are fair and reasonable and are in the interest of the independent Shareholders as a whole and we concur with the advice of MasterLink and recommend the independent Shareholders to vote in favour of the relevant ordinary resolution to be proposed at the EGM to approve each of the First Acquisition Agreement and the Second Acquisition Agreement and the transactions contemplated thereunder.

Yours faithfully, Independent Board Committee

**Mr. **	Chung Shui Ming,	Professor Ip Ho Shing,	Mr. Yan Yonghong	Mr. Peng Lijun
	Timpson	Horace	Independent	Independent
	Independent	Independent	non-executive	non-executive
	non-executive	non-executive	Director	Director
	Director	Director

• For identification purpose only

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LETTER FROM MASTERLINK

The following is the text of a letter of advice to the Independent Board Committee and the independent Shareholders from MasterLink setting out its opinion regarding the very substantial acquisitions and connected transactions prepared for the purpose of incorporation in this circular:

==> picture [49 x 41] intentionally omitted <==

MasterLink Securities (Hong Kong) Corporation Limited

Unit 2603, 26th Floor The Center 99 Queen’s Road Central Central Hong Kong

26 August 2005

To the Independent Board Committee and the independent Shareholders

Dear Sirs,

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION INVOLVING

THE ACQUISITION OF A 35% INTEREST IN TONGFANG ELECTRONIC (HONG KONG) COMPANY LIMITED

VERY SUBSTANTIAL ACQUISITION, DISCLOSEABLE AND CONNECTED TRANSACTION INVOVLING

THE ACQUISITION OF THE ENTIRE INTEREST IN PACIFIC HEIGHTS HOLDINGS LIMITED BY WAY OF DISPOSAL OF THE ENTIRE INTEREST IN TOP GALLANT INTERNTAIONAL LIMITED

INTRODUCTION

We refer to our engagement to advise the Independent Board Committee and independent Shareholders with respect to terms of the First Acquisition and the Second Acquisition (including the Disposal), details of which are set out in the letter from the Board (the “Letter”) contained in the circular of the Company dated 26 August 2005 to the Shareholders (the “Circular”), of which this letter forms part. Unless otherwise the context requires, terms used in this letter shall have the same meanings as those defined in the Circular.

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LETTER FROM MASTERLINK

The First Acquisition

As referred to in the Letter, the Company and Tsinghua Tongfang entered into the First Acquisition Agreement on 22 July 2005, pursuant to which the Company has conditionally agreed to acquire and Tsinghua Tongfang has conditionally agreed to sell Tsinghua Tongfang’s entire interest in 35% of the issued share capital of the Target, for a total consideration of approximately HK$5.2 million.

The Target is an indirect non-wholly owned subsidiary of the Company and Tsinghua Tongfang is a substantial shareholder of the Target. As such, Tsinghua Tongfang is a connected person of the Company under Rule 20.11(1) of the GEM Listing Rules. The First Acquisition constitutes a very substantial acquisition for the Company pursuant to Rules 19.06(5) and 19.22 of the GEM Listing Rules and a connected transaction for the Company pursuant to Rule 20.13(1)(a) of the GEM Listing Rules. Accordingly, the First Acquisition is subject to the approval of the independent Shareholders on which voting shall be taken by poll. As no Shareholder has a material interest in the First Acquisition, no Shareholder is required to abstain from voting on the resolution to approve the First Acquisition at the EGM.

The Second Acquisition

On 4 August 2005, the Company and Mr. Cho entered into the Second Acquisition Agreement pursuant to which the Company has conditionally agreed to acquire from Mr. Cho and Mr. Cho has conditionally agreed to sell to the Company or the Company’s nominee the entire equity interest in Pacific Heights, for a total consideration of approximately HK$3.7 million. The consideration is to be satisfied by the Company by the transfer to Mr. Cho or his nominee of the entire equity interest in Top Gallant, the sole asset of which is its investment in 40% equity interest in Hung Luen. As at the Latest Practicable Date, Pacific Heights has an effective interest of approximately 25% in the issued share capital of the Target (through its holding of 38.5% of the issued share capital of Tongfang (BVI) which in turn holds 65% of the issued share capital of the Target).

Mr. Cho is the legal and beneficial owner of the entire issued share capital of Pacific Heights, which in turn holds a 38.5% shareholding interest in Tongfang (BVI), an indirect non-wholly owned subsidiary of the Company. Under the GEM Listing Rules, Mr. Cho is considered to be a substantial shareholder of an indirect non-wholly owned subsidiary of the Company, and thus a connected person of the Company. Each of the Second Acquisition and the Disposal constitutes respectively a very substantial acquisition for the Company pursuant to Rules 19.06(5) and 19.22 of the GEM Listing Rules and a discloseable transaction for the Company pursuant to Rule 19.06(2) of the GEM Listing Rules and connected transactions for the Company pursuant to Rule 20.13(1)(a) of the GEM Listing Rules. Accordingly, the Second Acquisition is subject to the approval of the independent Shareholders. As no Shareholder has a material interest in the Second Acquisition (including the Disposal), no Shareholder is required to abstain from voting on the resolution to approve the Second Acquisition (including the Disposal) at the EGM.

As at the Latest Practicable Date, the Company has an effective interest of approximately 40% in the issued share capital of the Target. Pursuant to the First Acquisition as announced by the Company on 25 July 2005, the Company will hold an effective interest of approximately 75% in the

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LETTER FROM MASTERLINK

issued share capital of the Target upon First Acquisition Completion. Upon First Acquisition Completion and Second Acquisition Completion, the Company will beneficially own the entire issued share capital of the Target. The First Acquisition Agreement and the Second Acquisition Agreement are not inter-conditional to each other.

In our capacity as the independent financial adviser to the Independent Board Committee and the independent Shareholders for the purposes of the GEM Listing Rules, our role is to give you an independent opinion as to whether the First Acquisition and the Second Acquisition (including the Disposal) are in the interests of the Company and its shareholders as a whole, and whether the terms of the First Acquisition Agreement and the Second Acquisition Agreement (including the Disposal) are fair and reasonable so far as the independent Shareholders generally are concerned.

BASES AND ASSUMPTIONS

In formulating our opinion, we have relied on the accuracy of the information and facts supplied, and the opinions and representations expressed to us by the Directors, the Company and its management. We have also assumed that all statements of belief, opinion and intention made by the Directors in the Circular were reasonably made after due and careful enquiry and are based on honestly-held opinions. We have no reason to doubt the truth, accuracy and completeness of the information and representations referred to in the Circular and provided to us by the Company and the Directors, and have been advised by the Directors that no material facts have been omitted from the information provided to us and referred to in the Circular. We have also assumed that all statements of intention of the Company or its Directors as set out in the Circular will be implemented.

In formulating our opinion, we have obtained and reviewed relevant information and documents provided by the Company and its Directors and management in connection with the transactions and discussed with the management of the Group so as to assess the fairness and reasonableness of the terms of the transactions. Relevant information and documents, included, among other things, (i) the First Acquisition Agreement and the Second Acquisition Agreement; (ii) the accountants’ reports on the Target and Pacific Heights issued by CCIF; (iii) the pro forma financial information of the Enlarged Group; and (iv) the annual report and accounts of the Group for the year ended 31 March 2005 and the 1st quarterly report of the Group for the three months ended 30 June 2005. We consider that we have reviewed sufficient information to enable us to reach an informed view and to provide a reasonable basis for our opinion regarding the acquisitions.

We consider that we have reviewed sufficient information to reach an informed view and to justify reliance on the accuracy of the information contained in the Circular and to provide a reasonable basis for our advice. We have assumed that all information and representations made or referred to in the Circular and provided to us by the Company and the Directors, for which they were solely and wholly responsible, were true, complete and accurate at the time they were made and continue to be true, complete and accurate at the date of the EGM. In line with normal practice, we have not, however, carried out any independent verification of the information and representations provided to us nor have we conducted any form of independent investigation into the businesses and affairs, financial position or the future prospects of the Company, Tsinghua Tongfang, Pacific Heights, Tongfang (BVI), Top Gallant, Hung Luen and Target or their respective subsidiaries or associates. We have further assumed that all material governmental, regulatory or other consents, waivers,

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LETTER FROM MASTERLINK

authorisations, clearances and approvals necessary for the effectiveness and implementation of the First Acquisition and the Second Acquisition (including the Disposal) will be obtained without any adverse effect on the Group, the assets and liabilities of the Target Group and Pacific Heights or the contemplated benefits to the Group as derived from the First Acquisition and the Second Acquisition (including the Disposal).

Our opinion is necessarily based upon the financial, economic, market, regulatory and other conditions as they exist on, and the facts, information, representations and opinions made available to us as of, the Latest Practicable Date. Our opinion does not in any manner address the Company’s own decision to proceed with the First Acquisition and the Second Acquisition (including the Disposal). We disclaim any undertaking or obligation to advise any person of any change in any fact or matter affecting the opinion expressed herein, which may come or be brought to our attention after the Latest Practicable Date.

PRINCIPAL FACTORS AND REASONS CONSIDERED

The principal factors and reasons we have taken into account in assessing the First Acquisition and the Second Acquisition (including the Disposal) and in giving our advice to the Independent Board Committee and the independent Shareholders are set out below:

I. Background

• (1) The First Acquisition

As stated in the Letter, the Company and Tsinghua Tongfang entered into the First Acquisition Agreement pursuant to which the Company has conditionally agreed to acquire and Tsinghua Tongfang has conditionally agreed to sell Tsinghua Tongfang’s entire interest in 35% of the issued share capital of the Target, for a total consideration of approximately HK$5.2 million. The consideration was arrived at after arm’s length negotiation between the Company and Tsinghua Tongfang, which will be satisfied by the Company at the Completion by the issue and allotment of 15,890,000 Consideration Shares, representing approximately 21.2% of the existing issued share capital of the Company and approximately 17.5% of the enlarged issued share capital of the Company upon the First Acquisition Completion, at an issue price of HK$0.33 per Consideration Share.

(2) The Second Acquisition

On 4 August 2005, the Company entered into the Second Acquisition Agreement with Mr. Cho pursuant to which the Company has conditionally agreed to acquire the entire equity interest in Pacific Heights for a consideration of approximately HK$3.7 million. Pursuant to the Second Acquisition Agreement, the consideration would be fully settled by way of the Disposal. According to the Second Acquisition, the Disposal will not take place if the Second Acquisition is not completed. Upon the Second Acquisition Completion, the entire equity interest in Pacific Heights will be transferred to the Company or its nominee, while the entire equity interest in Top Gallant, a wholly owned subsidiary of the Company, will be transferred to Mr. Cho or his nominee.

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LETTER FROM MASTERLINK

As at the Latest Practicable Date, the sole asset of Pacific Heights is its 38.5% shareholding interest in Tongfang (BVI), through which Pacific Heights presently has an effective interest of approximately 25% in the issued share capital of the Target. Since Pacific Heights is only an investment holding company and in substance, the Second Acquisition would result in the acquisition by the Company of an additional effective equity interest in the Target of approximately 25%. Accordingly, upon the First Acquisition Completion and the Second Acquisition Completion, the Company will beneficially own the entire issued share capital of the Target.

(3) The Target

As at the Latest Practicable Date, the Target is an investment holding company, which holds the entire interest in Beijing Tongfang, a foreign enterprise incorporated under the laws of the PRC in May 2001 and is principally engaged in research, development and provision of integrated management information system for power plants and banks in the PRC.

The following table sets out the audited consolidated financial information of the Target for the three years ended 31 December 2004 and for the three months ended 31 March 2005 and the unaudited consolidated financial information of the Target for the three months ended 31 March 2004:

				For the	For the
	For the	For the	For the	three months	three months
	year ended	year ended	year ended	ended	ended
	31 December	31 December	31 December	31 March	31 March
	2002	2003	2004	2004	2005
	(Audited)	(Audited)	(Audited)	(Unaudited)	(Audited)
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Turnover:
Systems
development*	22,601	34,137	48,203	17,163	5,103
Professional
service fees**	15,439	13,142	11,198	—	1,120
	38,040	47,279	59,401	17,163	6,223
Profit/(Loss) before
taxation	4,417	4,271	2,318	(2,249)	(1,666)
Profit/(Loss) after
taxation	4,417	4,271	1,466	(2,249)	(1,666)

• : system integration services on the Target’s own products

• **: development of new system products that is tailor made in accordance with clients’ specifications

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LETTER FROM MASTERLINK

As at 31 December 2004, the audited consolidated net asset value of the Target was approximately HK$25.0 million. The Target recorded an audited consolidated net asset value of approximately HK$23.4 million as at 31 March 2005, which was mainly due to the loss as recorded by the Target Group for the three months ended 31 March 2005. In the audited consolidated results of the Company for the year ended 31 March 2005, the amount of turnover and profit attributable to Shareholders contributed by the Target Group were approximately HK$24.6 million and HK$1.2 million respectively, being 80.6% of the overall turnover of the Group and in contrast to the HK$2.0 million loss attributable to Shareholders of the Group for the year ended 31 March 2005.

According to the Directors, the decline in net profit of the Target Group for the year ended 31 December 2004 as compared with 2003 was principally due to the followings:

1. the gross profit margin declined from approximately 38% in 2003 to approximately 31% in 2004, which was principally due to the decrease in the contribution by the higher margin professional service fees to the overall turnover of the Target Group in 2004. Such decrease was the result of a change in sales mix of the Target with the increasing contribution to the overall turnover by systems development business. As advised by the Directors, the gross profit margins of systems development segment were ranging from approximately 7.9% to 31.3% in the three years ended 31 December 2004 and the three months ended 31 March 2005. Whereas the gross profit margin of the professional services business were ranging from approximately 55.5% to 82.0% in the three years ended 31 December 2004 and the three months ended 31 March 2005;

2. the Target Group was entitled to be exempted from enterprise income tax in the PRC in the previous financial years and 2004 was the first year that the Target Group has to pay enterprise income tax in the PRC at a tax rate of 10% (such tax rate would be applicable to the Target Group for the three years ending on 31 December 2006 and a 15% tax rate would be applicable to the Target Group thereafter); and

3. the administrative expenses increased during the year as the Target Group has expanded its operations in 2004. The Target’s administrative expenses increase from approximately HK$6.3 million for the year ended 31 December 2003 to approximately HK$8.4 million for the year ended 31 December 2004.

We noted that turnover as contributed by systems development services has accounted for a higher percentage in the turnover mix of the Target Group in the year ended 31 December 2004 than in 2003 and 2002. As advised by the Directors, the Target Group has maintained the same development policy for its two business segments, namely systems development services and professional service contracts during the year and the gradual change in turnover mix was solely due to the actual contract sum obtained and completed by the Target Group during the corresponding years. It is the Directors’ intention that, in the future, the Target Group will continue to expand systems development business while continue to look for opportunities in professional service contracts.

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LETTER FROM MASTERLINK

As advised by the Directors, the results of the Target Group is subject to seasonal fluctuations, with the first quarter of each calendar year as the slack season due to the Lunar New Year holidays. Accordingly, the Target Group recorded losses for the three months ended 31 March 2004 and the three months ended 31 March 2005. Given that the Target Group’s turnover is recognized on a project completion basis, the exceptionally high turnover in the first quarter of 2004, which accounted for approximately 29% of the total turnover for the year ended 31 December 2004, was principally due to the completion of two major systems development contracts with a total billing of approximately HK$14 million in the first quarter of 2004. Under the same logic, the relatively low turnover as recorded in the three months ended 31 March 2005 was due to the fact that only a few projects were completed during the said period.

The Directors consider that, despite the decrease in the turnover in the three months ended 31 March 2005 as compared with in the three months ended 31 March 2004, the net loss of the Target Group has been narrowed down from approximately HK$2.2 million to approximately HK$1.7 million. Accordingly, the Directors are of the view that the results of the Target Group for the three months ended 31 March 2005 has been improved as compared with the results for the three months ended 31 March 2004. Given the narrow down in net loss and the substantial improvements in the Target Group’s gross profit margin for the three month ended 31 March 2005 as compared with the corresponding period in 2004, we concur with the Directors’ view.

Despite the positive operating cashflow of approximately HK$15 million for the year ended 31 December 2003, the Target had a negative operating cashflow of approximately HK$13 million for the year ended 31 December 2004. As mentioned in the Letter, this was mainly due to the changes in working capital as a result of the acquisition of the net assets from (Beijing Tsinghua Neng Yuan Fang Zhen Company) and from the power plant information system business by Beijing Tongfang during the second half of the year ended 31 December 2004. We have discussed with the Directors and have reviewed the Target’s cashflow statement for the year ended 31 December 2004 and are advised that the negative operating cashflow of approximately HK$13 million for the year ended 31 December 2004 was mainly due to the build up of accounts receivable and inventories immediately after the abovementioned acquisition of net assets (including accounts receivable and inventories) during the second half of the year ended 31 December 2004. We have reviewed the aging analysis of accounts receivable as set out in the notes to the financial statements of the financial information of the Target as set out in appendix II to this Circular, and noted that as at 31 March 2005 approximately 95.7% of the accounts receivable of the Target Group are within one year, which is within the expected accounts receivable recovery period of the Target Group. In light of the above, we are of the view that the negative operating cashflow for the year ended 31 December 2004 is justifiable.

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LETTER FROM MASTERLINK

II. Reasons for the acquisitions

• (1) The First Acquisition and the Second Acquisition are in line with the Company’s business strategy and focus on the development in the management information systems for the PRC energy market in the future

As stated in the annual report of the Company for the year ended 31 March 2005 (the “2005 Annual Report”), the Company and its subsidiaries are principally engaged in research, development and provision of integrated management information systems for power plants and for banks. According to the 2005 annual report, due to the fierce competition of the PRC market of management information system for banks and the diminishing market share and margin of the Company’s Hong Kong operation, the Company will focus on the PRC energy market in the future. As discussed with the Directors, the market conditions of management information system for banks in the PRC and the Company’s operation in Hong Kong remained difficult, as such, the Company will continue its focus on the PRC energy market. Meanwhile, the provision of management information systems for power plants in the PRC is also one of the main businesses of the Target. We have discussed and confirmed with the Directors about the business scope and focus of the Company and the Target Group. In addition, we have reviewed the contents of Beijing Tongfang’s corporate brochure and service agreements with customers and found that the contents align with the Directors’ remarks on the business scope and focus of the Target Group. In view of the business scope and focus of the Company, we concur with the Directors’ view that the First Acquisition and the Second Acquisition are in line with the business strategy of the Company.

• (2) Increase in demand for power plants management information systems derived from the increase of power plants constructions in the PRC

According to the National Bureau of Statistics of China’s “2004 National Economy and Social Development Statistics Report”, the PRC’s power generating facilities recorded a 92.9% growth in 2004 and, as stated in the Letter, the surge of power plants constructions in the PRC has stimulated an increase in demand for power plants management information systems. Given the time lag between power plants site constructions and the ordering of management information systems, the Directors believe that the trend of strong demand for management information systems for power plants in the PRC would sustain in the coming years. As advised by the Directors, as at 30 June 2005, Beijing Tongfang had a total contract sum of approximately HK$67 million of management information systems orders on hand. We have reviewed the orders, on a sample basis, and our conclusion supports the Directors’ representations. In view of the anticipated increase in power plants constructions in the PRC, we concur with the Directors’ perspective in this regard.

• (3) Obtain full control of the Target

As a result of the First Acquisition Completion and the Second Acquisition Completion, the Target would become an indirect wholly owned subsidiary of the Company. Thereby, the Company will have full control of the Target and the management flexibility to achieve the Company’s goals.

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LETTER FROM MASTERLINK

III. Basis of the consideration

• (1) Consideration of the First Acquisition and the Second Acquisition

Pursuant to the First Acquisition Agreement, the total consideration for the First Acquisition is approximately HK$5.2 million, which represents a discount of approximately 40% to the attributable 35% interest of the audited consolidated net assets value of the Target as at 31 December 2004 of approximately HK$8.7 million and a discount of approximately 37% to the attributable 35% interest of the audited consolidated net assets value of the Target as at 31 March 2005 of approximately HK$8.2 million respectively. Similarly, according to the Second Acquisition Agreement, the total consideration for the Second Acquisition is approximately HK$3.7 million, which represents a discount of approximately 41% to the attributable 25% interest of the audited consolidated net assets value of the Target as at 31 December 2004 of approximately HK$6.3 million and a discount of approximately 37% to the attributable 25% interest of the audited consolidated net assets value of the Target as at 31 March 2005 of approximately HK$5.9 million respectively. Therefore, we consider that the discounts as represented by the respective consideration to the corresponding attributable interest of the audited consolidated net assets value of the Target in the First Acquisition and the Second Acquisition are approximately the same.

In order to assess the fairness and reasonableness of the consideration for the First Acquisition and the Second Acquisition, we have considered two commonly used valuation methodologies, namely net asset value or price-to-book ratio method (the “P/B” ratio method) and net profit or price earnings ratio method (the “P/E” method).

The P/E method determines the underlying value of a subject company by multiplying its earning by an average price earnings ratio of market comparables, which are engaged in the similar businesses with the subject company. Similarly, the P/B ratio method determines the underlying value of a subject company by multiplying its net asset value by an average price-to-book ratio of market comparables, which are engaged in the similar business with the subject company. As the data for the calculation of the price earnings ratio and price-to-book ratio of the Company, the Target and market comparables are accessible and readily comprehensible to the public, we consider that it would be appropriate to use the P/E method and the P/B ratio method as basis to assess the fairness and reasonableness of the consideration for the First Acquisition and the Second Acquisition.

Two criteria are used for shortlisting the comparables for the Target, namely: (i) companies listed on GEM; and (ii) companies principally engaged in the similar business as the Target (i.e. principally engaged in design, development and provision of integrated management information systems for business entities). To the best of our knowledge, we have identified 28 other GEM listed companies in Hong Kong to be the samples for comparison. As at 22 July 2005 and 4 August 2005, being the date of the First Acquisition Agreement and the Second Acquisition Agreement respectively, 7 out of these 28 companies (the “Peer Companies”) recorded profits in their most recent financial years according to the information from the Stock Exchange’s website and the Peer Companies’ annual reports published on or prior to 22 July 2005 and 4 August 2005

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LETTER FROM MASTERLINK

respectively. The following table illustrates their respective price earnings ratios and price-tobook ratios based on the closing prices of their shares on 22 July 2005 and 4 August 2005 respectively:

		Approximate	Approximate	Approximate	Approximate
		P/E ratio	P/E ratio	P/B ratio	P/B ratio
		(as at	(as at	(as at	(as at
	Stock	22 July	4 August	22 July	4 August
Company Name	Code	2005)	2005)	2005)	2005)
		(Note 1)	(Note 1)	(Note 2)	(Note 2)
ABC Multiactive	8131	33.71	32.57	Negative	Negative
Limited					(Note 5)
Angels Technology	8112	N/A	N/A	25.28	25.28
Company Limited			(Note 4)
Armitage Technologies	8213	N/A	N/A	0.47	0.47
Holding Limited			(Note 4)
Computech Holdings	8081	N/A	N/A	Negative	Negative
Limited			(Note 4)		(Note 5)
Digitel Group Limited	8030	N/A	N/A	Negative	Negative
			(Note 6)		(Note 5)
ePRO Limited	8086	N/A	N/A	1.07	0.98
			(Note 4)
Excel Technology	8048	N/A	N/A	0.45	0.70
International Holdings			(Note 4)
Limited
FlexSystem Holdings	8050	N/A	N/A	0.62	0.71
Limited			(Note 4)
Global Link	8060	N/A	N/A	5.35	5.35
Communications			(Note 4)
Holdings Limited
iMerchants Limited	8009	N/A	N/A	0.55	0.52
			(Note 4)
Inno-Tech Holdings	8202	4.42	4.16	0.52	0.49
Limited
Kanhan Technologies	8175	N/A	N/A	7.42	8.24
Group Limited			(Note 4)
Linefan Technology	8166	N/A	N/A	0.47	0.43
Holdings Limited			(Note 4)
Prosten Technology	8026	N/A	N/A	1.07	0.79
Holdings Limited			(Note 4)
Qianlong Technology	8015	13.49	13.49	1.05	1.05
International Holdings			(Note 3)		(Note 3)
Limited

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LETTER FROM MASTERLINK

		Approximate	Approximate	Approximate	Approximate	Approximate
		P/E ratio	P/E ratio	P/B ratio	P/B ratio
		(as at	(as at	(as at		(as at
	Stock	22 July	4 August	22 July	**4 **	August
Company Name	Code	2005)	2005)	2005)		2005)
		(Note 1)	(Note 1)	(Note 2)		(Note 2)
QUASAR	8171	N/A	N/A	0.68		0.68
Communication			(Note 4)
Technology Holdings
Limited
Sing Lee Software	8076	N/A	N/A	1.81		1.66
(Group) Limited			(Note 4)
Sino Stride Technology	8177	15.68	15.68	1.90		1.90
(Holdings) Limited			(Note 3)			(Note 3)
SJTU Sunway Software	8148	N/A	N/A	1.36		1.03
Industry Limited			(Note 4)
Soluteck Holdings	8111	N/A	N/A	0.93		0.86
Limited			(Note 4)
Superdata Software	8263	23.51	22.72	7.47		7.22
Holdings Limited			(Note 3)			(Note 3)
T S Telecom	8003	N/A	N/A	0.57		0.57
Technologies Limited			(Note 4)
ThinSoft (Holdings) Inc	8096	N/A	N/A	3.56		3.56
			(Note 4)
Thiz Technology Group	8119	N/A	N/A	2.03		2.03
Limited			(Note 4)
Timeless Software	8028	N/A	N/A	0.52		0.51
Limited			(Note 4)
Universal Technologies	8091	N/A	N/A	3.87		4.28
Holdings Limited			(Note 4)
Vodatel Networks	8033	11.32	11.26	0.65		0.65
Holdings Limited
Wafer Systems Limited	8198	10.58	11.06	0.56		0.58
Average		16.10	15.85	2.81		2.82
The Target			10.13		0.59

( Source: the Stock Exchange’s website, Bloomberg and companies’ annual reports)

• Note 1: P/E ratio is calculated by dividing the respective closing price of relevant share on 22 July 2005 and 4 August 2005 by the published earnings per share for the most recent financial year of the respective company.

• Note 2: P/B ratio is calculated by dividing the respective closing price of relevant share on 22 July 2005 and 4 August 2005 by the published net asset value per share for the most recent financial year of the respective company.

• Note 3: These companies’ financial statements are reported in Renminbi (“RMB” or “Renminbi”, the lawful currency of the PRC) and the related figures are converted into HK$ at the exchange rate of HK$1 = RMB1.06250, which was the average 12-month bid-ask rate of HK$ against RMB for the year 2004.

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LETTER FROM MASTERLINK

• Note 4: Not applicable since these companies reported losses in the published financial information of their most recent financial year.

• Note 5: These companies recorded negative net asset values in the published financial information of their most recent financial year.

• Note 6: The closing price of the company’s share on 22 July 2005 and 4 August 2005 are not available since the trading of the company’s share has been suspended since 2 July 2002.

The average P/E ratio and the average P/B ratio of the Peer Companies as at 22 July 2005, being the date of the First Acquisition Agreement, were approximately 16.1 times and approximately 2.8 times respectively. The average P/E ratio and the average P/B ratio of the Peer Companies as at 4 August 2005, being the date of the Second Acquisition Agreement, were approximately 15.9 times and approximately 2.8 times respectively. On the basis of the attributable 35% interest of the audited consolidated profit of the Target for the year ended 31 December 2004 of approximately HK$513,000 (i.e. 35% x HK$1,466,000) and the attributable 35% interest of the audited consolidated net asset value of the Target Group as at 31 December 2004 of approximately HK$8,741,000 (i.e. 35% x HK$24,975,000), the consideration for the First Acquisition implied a P/E ratio and a P/B ratio of the Target of approximately 10.1 times and 0.6 times respectively. Similarly, on the basis of the attributable 25% interest of the audited consolidated profit of the Target for the year ended 31 December 2004 of approximately HK$366,500 (i.e. 25% x HK$1,466,000) and the attributable 25% interest of the audited consolidated net asset value of the Target Group as at 31 December 2004 of approximately HK$6,243,750 (i.e. 25% x HK$24,975,000), the consideration for the Second Acquisition also implied a P/E ratio and a P/B ratio of the Target of approximately 10.1 times and 0.6 times respectively. Hence, both the P/E ratio and the P/B ratio on 22 July 2005 and 4 August 2005 as implied by the consideration for the First Acquisition and the Second Acquisition are below the averages of the Peer Companies.

Given that the P/E ratio and P/B ratio of the Target as implied by the consideration for the First Acquisition and the Second Acquisition are both below the averages of the Peer Companies, the valuations of the Target as implied by the considerations for the First Acquisition and the Second Acquisition under the P/E method and P/B ratio method are lower than those of the Peer Companies on average. Therefore, we are of the opinion that the consideration for the First Acquisition and the Second Acquisition are fair and reasonable so far as the independent Shareholders generally are concerned and are in the interests of the Company and its Shareholders as a whole.

• (2) Issue price of the Consideration Shares under the First Acquisition Agreement

The issue price of HK$0.33 per Consideration Share represents:

• (i) a premium of approximately 17.9% over the price of HK$0.28 per Share as quoted on the Stock Exchange on 21 July 2005, being the last trading day for the Shares prior to the release of the Announcement (the “Last Trading Day”);

• (ii) a premium of approximately 50.0% over the price of HK$0.22 per Share as quoted on the Stock Exchange on the Latest Practicable Date;

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• (iii) a premium of approximately 17.9% over the average closing price of approximately HK$0.28 per Share as quoted on the Stock Exchange for the last 10 trading days up to and including the Last Trading Day;

• (iv) a premium of approximately 43.5% over the average closing price of approximately HK$0.23 per Share as quoted on the Stock Exchange for the last 30 trading days up to and including the Last Trading Day; and

• (v) a premium of approximately 153.8% over the audited consolidated net asset value per Share as at 31 March 2005 of approximately HK$0.13.

As the issue price of the Consideration Shares represents a premium to the price on the Last Trading Day and the average closing prices for the last 10 and 30 trading days up to and including the Last Trading Day, relatively less Shares have to be issued to satisfy the consideration of the First Acquisition as compared with the number of Shares to be issued if the recent closing prices of the Shares was used as reference for the issue price of the Consideration Shares. In addition, the issue price of the Consideration Shares also represents a premium to the audited consolidated net asset value per Share as at 31 March 2005. The issue of the Consideration Shares as a payment method would preserve the Group’s cashflow position following the First Acquisition Completion. Therefore, we are of the view that the issue price of the Consideration Shares is fair and reasonable in so far as the independent Shareholders generally are concerned.

• (3) The Disposal

The total consideration for the Second Acquisition is approximately HK$3.7 million, which will be solely satisfied by the transfer of the entire equity interest in Top Gallant, a wholly owned subsidiary of the Company, from the Company to Mr. Cho or his nominee at Second Acquisition Completion. According to the Directors, as at the Latest Practicable Date, Top Gallant, with no operating business, is an investment holding company the sole asset of which is its 40% equity interest in Hung Luen, a company incorporated in the PRC with limited liability and its principal business is the research, development and provision of information-on-demand system solutions, telecommunication and broadcasting media, network solutions and provision of related products and services. Top Gallant recorded an audited consolidated net deficit of approximately HK$0.3 million as at 31 March 2005 and an unaudited consolidated net assets value of approximately HK$1.4 million as at 30 June 2005. The audited consolidated net loss before and after taxation of Top Gallant for the year ended 31 March 2005 were both approximately HK$4,600 and those for the year ended 31 March 2004 were both approximately HK$0.4 million. Upon Second Acquisition Completion, the Company will cease to have any shareholding interest in Top Gallant. The Company is currently the single largest shareholder of Hung Luen. In the Group’s audited consolidated balance sheet as at 31 March 2005, the Group recorded an investment in Hung Luen of approximately HK$1.4 million.

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The total consideration for the Second Acquisition of approximately HK$3.7 million represents:

• (i) a premium of approximately 164% over the unaudited consolidated net assets value of Top Gallant as at 30 June 2005; and

• (ii) a discount of approximately 41% to the audited consolidated net assets value of the Target as at 31 December 2004 attributable to Pacific Heights of approximately HK$6.3 million (being approximately 25% of the audited net assets value of the Target as at 31 December 2004 of approximately HK$25 million).

Given that (i) as stated in the Letter, the Disposal would allow the Company to realize its investment in Hung Luen with an estimated gain on disposal of approximately HK$2.3 million upon the Second Acquisition Completion; (ii) the total consideration for the Second Acquisition of approximately HK$3.7 million represents a discount of approximately 41% to the audited consolidated net assets value of the Target attributable to Pacific Heights (being approximately HK$6.3 million or approximately 25% of the audited net assets value of the Target as at 31 December 2004 of approximately HK$25 million); and (iii) the total consideration for the Second Acquisition also represents a premium of approximately 164% over the unaudited consolidated net assets value of Top Gallant as at 30 June 2005 respectively, we consider that the Disposal, as the full settlement of the consideration for the Second Acquisition, is fair and reasonable so far as the independent Shareholders generally are concerned and is in the interests of the Company and its Shareholders as a whole.

IV. Financial effects of the acquisitions

(1) Cashflow

Since the consideration of the First Acquisition would be satisfied by the issue of new Shares only and the settlement of the Second Acquisition would be satisfied by the transfer of the entire equity interest in Top Gallant (an investment holding company, with no operating business and accounted for as an investment in the Company’s books) to Mr. Cho or his nominee, the acquisitions would not have any material adverse impact on the cashflow position of the Group.

(2) Net asset value

As referred to in the “Pro Forma Financial Information of the Enlarged Group” in the Appendix IV of the Circular, the unaudited pro forma net asset value of the Group will be enhanced from approximately HK$10,090,000 (as at 31 March 2005) to approximately HK$23,561,000 immediately after the First Acquisition Completion and the Second Acquisition Completion. Accordingly, the audited consolidated net asset value per share of the Group as at 31 March 2005 (based on 75,105,000 Shares in issue as at 31 March 2005) and the unaudited pro forma consolidated net asset value per share of the Enlarged Group immediately after the completion of the acquisitions (based on 90,995,000 Shares in issue immediately upon the First

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Acquisition Completion and Second Acquisition Completion) are approximately HK$0.13 and approximately HK$0.26 respectively. In light of the above, we are of the view that the consolidated net asset value of the Group will be enhanced upon the First Acquisition Completion and Second Acquisition Completion.

(3) Earnings

Resulted from a restructuring of the Target Group as announced by the Company on 18 November 2004, the Target is currently owned as to 35% held by Tsinghua Tongfang and as to 65% by the Company’s indirect 61.5% owned subsidiary, Tongfang Electronic Company Limited (which represents an effective indirect interest in the Target of approximately 40%). Therefore, the Target Group has already been accounted for as a subsidiary of the Company and the results of the Target Group for the four months ended 31 March 2005 were consolidated into the audited results of the Group for the year ended 31 March 2005. In the audited consolidated results of the Company for the year ended 31 March 2005, the amount of turnover and profit attributable to Shareholders contributed by the Target Group were approximately HK$24.6 million and HK$1.2 million respectively. Upon the First Acquisition Completion and the Second Acquisition Completion, the Target would become a wholly owned subsidiary of the Company and the results of the Target will be fully consolidated into the results of the Group.

As referred to in the “Pro Forma Financial Information of the Enlarged Group” in the Appendix IV of the Circular, the unaudited pro forma earnings of the Enlarged Group for the year ended 31 March 2005 will be improved from a loss of approximately HK$2.0 million to a profit of approximately HK$6.2 million immediately after the First Acquisition Completion and the Second Acquisition Completion as if the First Acquisition and the Second Acquisition (including the Disposal) had taken place on 1 December 2004, being the date that the Target became a subsidiary of the Company. Accordingly, the audited consolidated loss per share of the Group for the year ended 31 March 2005 and the unaudited pro forma consolidated earnings per share of the Enlarged Group immediately after the completion of the acquisitions are approximately HK$0.035 and approximately HK$0.099 respectively. Accordingly, we are of the view that the consolidated earnings per share value of the Group will be enhanced upon the First Acquisition Completion and Second Acquisition Completion.

(4) Gearing

Given that: (i) immediately before the First Acquisition and the Second Acquisition, the Target has already been accounted for as a subsidiary of the Company with all borrowings of the Target have already been consolidated into the Group’s accounts as a result; (ii) the consideration of the First Acquisition would be satisfied by the issue of Consideration Shares only; and (iii) the consideration of the Second Acquisition would be satisfied by the transfer of the entire equity interest in Top Gallant only, the total borrowings of the Group will not be increased accordingly and there would be no adverse impact on the Group’s gearing upon the First Acquisition Completion and the Second Acquisition Completion.

— 36 —

LETTER FROM MASTERLINK

• (5) Dilution to the existing public Shareholders’ percentage interest in the Company due to the issue of the Consideration Shares under the First Acquisition Agreement

The Consideration Shares represent approximately 21.2% and approximately 17.5% of the Company’s existing and enlarged issued share capital respectively. On the basis as set out in the Letter, the percentage shareholding of the existing public Shareholders will decrease from approximately 71.3% to approximately 58.8% upon the First Acquisition Completion.

Taking into account that (i) the issue price of the Consideration Shares represents a premium of approximately 153.8% over the audited consolidated net asset value per Share as at 31 March 2005; (ii) the consideration for the First Acquisition represents a discount of approximately 40.2% to the attributable 35% interest of the audited consolidated net assets value of the Target as at 31 December 2004 of approximately HK$8.7 million and a discount of approximately 36.6% to the attributable 35% interest of the audited consolidated net assets value of the Target as at 31 March 2005 of approximately HK$8.2 million; and (iii) the shareholdings of all the existing Shareholders will be diluted to the same extent upon the First Acquisition Completion, we are of the view that such dilution is acceptable to the independent Shareholders.

RECOMMENDATION

Having considered the abovementioned principal factors and reasons, in particular (1) the Company’s business strategy and focus; (2) the basis of the consideration of the First Acquisition and the Second Acquisition (including the Disposal); and (3) the financial effects of the First Acquisition and the Second Acquisition (including the Disposal), on balance, we consider that the terms of the First Acquisition and the Second Acquisition (including the Disposal) are in the interest of the Company and the Shareholders as a whole, and are fair and reasonable so far as the independent Shareholders generally are concerned. Accordingly, we recommend (a) the independent Shareholders to vote in favour of, and (b) that the Independent Board Committee recommend the independent Shareholders to vote in favour of, each of the relevant ordinary resolutions to be proposed at the EGM to approve the First Acquisition and the Second Acquisition (including the Disposal).

Yours faithfully, For and on behalf of

MasterLink Securities (Hong Kong) Corporation Limited Jimmy Chan

Director

— 37 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

A. FINANCIAL SUMMARY

The following is a summary of the results and financial position of the Group for the three years ended 31 March 2005 extracted from the relevant annual reports of the Company:

	**For **	**the year ended 31 **	**the year ended 31 **	March
	2005		2004	2003
	HK$’000	HK$’000		HK$’000
RESULTS
Turnover	30,538		18,150	37,698
Profit/(Loss) from ordinary activities
before taxation	153		(6,605)	(56,904)
Taxation	(614)		(327)	75
Loss from ordinary activities after taxation	(461)		(6,932)	(56,829)
Minority interests	(1,538)		—	—
Loss attributable to shareholders	(1,999)		(6,932)	(56,829)
Loss per share
— Basic (HK cents)	(3.5)		(16.62)	(137.09)
		As at 31 March
	2005		2004	2003
	HK$’000	HK$’000		HK$’000
ASSET AND LIABILITIES
Total assets	101,803		5,492	15,777
Total liabilities	(76,821)		(4,482)	(10,340)
Minority interests	(14,892)		—	—
Net assets	10,090		1,010	5,437

— 38 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

B. AUDITED FINANCIAL STATEMENTS

Set out below are the audited consolidated income statement of the Group for each of the two years ended 31 March 2005 and 2004, the audited consolidated balance sheet of the Group as at 31 March 2005 and 2004, the audited consolidated statement of changes in equity of the Group for each of the two years ended 31 March 2005 and 2004 and the audited consolidated cash flow statement of the Group for each of the two years ended 31 March 2005 and 2004 together with the notes as extracted from the audited financial statements of the Group for the two years ended 31 March 2005 and 2004 which are prepared in accordance with accounting principles generally accepted in Hong Kong. According to the auditors’ report dated 24 June 2005 issued by CCIF, CCIF was in the opinion that the financial statements of the Group for the year ended 31 March 2005 gave a true and fair view of the state of affairs of the Company and of the Group at 31 March 2005 and of the loss and cash flows of the Group for the year then ended.

I. CONSOLIDATED INCOME STATEMENT

Notes Turnover 2 Cost of services and merchandise sold Gross profit Other income 3(c) Research and development costs 3(c) Selling expenses General and administrative expenses Impairment loss on goodwill Provision for impairment on other investment Loss from operations Share of profits less losses of associates Finance costs 3(a) Loss on disposal of subsidiaries Profit/(Loss) from ordinary activities before taxation 3 Taxation 4(a) Loss from ordinary activities after taxation Minority interests Loss attributable to shareholders 7 Dividends 8 Loss per share 9 — Basic (HK cents) — Diluted (HK cents)	For the 31 2005 HK$’000 30,538 (22,246)	year ended March 2004 HK$’000 18,150 (14,807) 3,343 72 (623) (588) (8,119) — (379) (6,294) — (17) (294) (6,605) (327) (6,932) — (6,932) — (16.62) cents N/A
	8,292 1,566 (1,855) (2,709) (4,702) (1,229) — (637) 1,286 (496) — 153 (614) (461) (1,538)	3,343 72 (623 (588 (8,119 — (379
		(6,294 — (17 (294
		(6,605 (327
		(6,932 —
	(1,999) — (3.5) cents N/A

— 39 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

II. CONSOLIDATED BALANCE SHEET

		At 31 March	At 31 March
		2005	2004
	Note	HK$’000	HK$’000
Non-current assets
Fixed assets	11	9,485	125
Interests in associates	12	—	—
Investment securities	15	2,724	1,421
		12,209	1,546
Current assets
Gross amount due from customers for contracts	16	711	—
Inventories	17	26,412	—
Accounts receivable	18	26,742	2,799
Prepayments, deposits and other receivables		31,812	240
Cash and bank balances		3,917	907
		89,594	3,946
Current liabilities
Gross amount due to customers for contracts	16	2,726	—
Trade payable	19	8,821	—
Bills payable	19	2,337	—
Receipts in advance	20	5,605	279
Other payables and accruals		13,774	2,076
Amount due to a related company	21	24,450	—
Short term bank loans	22	16,981	—
Tax payable		327	327
		75,021	2,682
Net current assets		14,573	1,264
Total assets less current liabilities		26,782	2,810
Non-current liabilities
Promissory note, unsecured	23	1,800	1,800
Minority interests		14,892	—
NET ASSETS		10,090	1,010
CAPITAL AND RESERVES
Share capital	24	3,755	2,373
Reserves/(deficit)		6,335	(1,363)
		10,090	1,010

— 40 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

III. BALANCE SHEET

		**At 31 **	March
		2005	2004
	Note	HK$’000	HK$’000
Non-current assets
Fixed assets	11	69	—
Interests in subsidiaries	13	10,279	1,507
		10,348	1,507
Current assets
Amounts due from subsidiaries	14	—	12
Prepayments, deposits and other receivables		119	160
Cash and bank balances		219	363
		338	535
Current liabilities
Amounts due to subsidiaries	14	33	132
Other payables and accruals		1,444	1,287
		1,477	1,419
Net current liabilities		(1,139)	(884)
Total assets less current liabilities		9,209	623
Non-current liabilities
Promissory note, unsecured	23	1,800	1,800
NET ASSETS/(LIABILITIES)		7,409	(1,177)
CAPITAL AND RESERVES
Share capital	24	3,755	2,373
Reserves/(deficit)		3,654	(3,550)
		7,409	(1,177)

— 41 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

IV. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 March 2005

THE GROUP

At 1 April 2003 Capital reduction Issue of new ordinary shares upon placement Realised on disposal of subsidies Loss for the year At 31 March 2004 and at 1 April 2004 Loss for the year Exchange difference on translation of financial statements of subsidiaries outside Hong Kong Issue of new ordinary shares on acquisition of a subsidiary (note 24(a)) Issue of new ordinary shares upon placement (note 24(b)) At 31 March 2005	Share capital HK$’000 103,638 (101,565) 300 — —	Share premium HK$’000 33,144 (33,144) 2,580 — —	Capital reserve Exchange reserve Accumulated losses HK$’000 HK$’000 HK$’000 1,200 (395) (132,150) — — 134,709 — — — — (375) — — — (6,932)	Capital reserve Exchange reserve Accumulated losses HK$’000 HK$’000 HK$’000 1,200 (395) (132,150) — — 134,709 — — — — (375) — — — (6,932)	Capital reserve Exchange reserve Accumulated losses HK$’000 HK$’000 HK$’000 1,200 (395) (132,150) — — 134,709 — — — — (375) — — — (6,932)	Total HK$’000 5,437 — 2,880 (375) (6,932) 1,010 (1,999) 7 9,080 1,992 10,090
	2,373 — — 908 474	2,580 — — 8,172 1,518	1,200 — — — —	(770) — 7 — —	(4,373) (1,999) — — —	1,010 (1,999 7 9,080 1,992
	3,755	12,270	1,200	(763)	(6,372)

According to the relevant PRC accounting rules and regulations, the PRC subsidiaries may appropriate part of its profits after tax to general reserve, at the discretion of the board of directors of the PRC subsidiaries. The general reserve can be used to make good losses and to convert into paid-up capital.

— 42 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

THE COMPANY

At 1 April 2003 Capital reduction Issue of new ordinary shares upon placement Loss for the year At 31 March 2004 and at 1 April 2004 Loss for the year Acquisition of subsidiaries Issue of new ordinary shares on acquisition of a subsidiary (note 24(a)) Issue of new ordinary shares upon placements (note 24(b)) At 31 March 2005	Share capital HK$’000 103,638 (101,565) 300 —	Share premium HK$’000 33,144 (33,144) 2,580 —	Capital reserve Exchange reserve Accumulated losses HK$’000 HK$’000 HK$’000 1,200 — (131,976) — — 134,709 — — — — — (10,063)	Capital reserve Exchange reserve Accumulated losses HK$’000 HK$’000 HK$’000 1,200 — (131,976) — — 134,709 — — — — — (10,063)	Capital reserve Exchange reserve Accumulated losses HK$’000 HK$’000 HK$’000 1,200 — (131,976) — — 134,709 — — — — — (10,063)	Total HK$’000 6,006 — 2,880 (10,063) (1,177) (2,100) (386) 9,080 1,992 7,409
	2,373 — — 908 474	2,580 — — 8,172 1,518	1,200 — — — —	— — (386) — —	(7,330) (2,100) — — —	(1,177 (2,100 (386 9,080 1,992
	3,755	12,270	1,200	(386)	(9,430)

Under the Companies Law (revised) of the Cayman Islands, the funds in the share premium account and capital reserve of the Company are distributable to the shareholders of the Company provided that immediately following the date on which the dividend is proposed to be distributed, the Company will be in a position to pay off its debts as they fall due in the ordinary course of business.

As at 31 March 2005, in the opinion of the Directors of the Company, no reserves of the Company are available for distribution to shareholders.

— 43 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

V. CONSOLIDATED CASH FLOW STATEMENT

		For the year ended	For the year ended
		31 March
		2005	2004
	Note	HK$’000	HK$’000
Operating activities
Profit/(Loss) from ordinary activities before taxation		153	(6,605)
Interest income		—	(1)
Depreciation		630	775
Finance costs		496	17
(Profit)/loss on disposal of fixed assets		(56)	5
Loss on disposal of subsidiaries		—	294
Provision for diminution in value against investment
securities		—	379
Impairment loss on goodwill		1,229	—
Profit on disposal of investment in securities		(845)	—
Waiver of amounts due to fellow subsidiaries		—	2,765
Operating profit/(loss) before changes in working
capital		1,607	(2,371)
Increase in gross amount due from customers for
contracts		(711)	(2,564)
Increase in inventories		(11,844)	(116)
(Increase)/decrease in accounts receivable		(15,807)	723
Decrease/(increase) in prepayments, deposits and other
receivables		5,975	(613)
Increase in gross amount due to customers for
contracts		1,566	—
Increase/(decrease) in receipts in advance		210	(1,270)
Decrease in bills payable		(863)	—
Increase in amount due to a related company		24,450	—
Decrease in trade payable		(11,255)	—
(Decrease)/Increase in other payables and accruals		(9,906)	2,560
Cash used in operations		(16,578)	(3,651)
Tax paid
— Hong Kong Profits Tax refunded		—	—
— Overseas tax paid		(857)	—
Net cash used in operating activities		(17,435)	(3,651)

— 44 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

		For the year ended	For the year ended
		31 March
		2005	2004
	Note	HK$’000	HK$’000
Investing activities
Purchase of fixed assets		(744)	(288)
Proceeds from disposal of fixed assets		1,202	—
Disposal of subsidiaries		—	(125)
Acquisition of subsidiaries	25(b)	8,310	—
Proceeds from disposal of investment in securities		6,505	—
Interest received		—	1
Net cash generated from/(used in) investing
activities		15,273	(412)
Financing activities
New shares issued		11,072	2,880
Repayment of short term bank loans		(5,411)	—
Interest paid		(496)	(17)
Net cash generated from financing activities		5,165	2,863
Net increase/(decrease) in cash and cash equivalents		3,003	(1,200)
Cash and cash equivalents at 1 April		907	2,107
Effect of foreign exchange rates changes		7	—
Cash and cash equivalents at 31 March		3,917	907

— 45 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

VI. NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 March 2005

1. SIGNIFICANT ACCOUNTING POLICIES

A) Statement of Compliance

These financial statements have been prepared in accordance with all applicable Statements of Standard Accounting Practice (“SSAP”) and Interpretations issued by Hong Kong Institute of Certified Public Accountants (“HKICPA”), accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. The financial statements have been prepared under the historical cost convention as modified by provision for impairment loss on investment securities and goodwill.

These financial statements also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). A summary of the significant accounting policies adopted by the Group is set out below.

Going concern concept

The financial statements have been prepared by the directors with due care on a going concern basis, notwithstanding that the Group had net loss of approximately HK$1,999,000 for the year ended 31 March 2005. The validity of the Group to carry on its business as a going concern is dependent upon future profitable operations of the Group. Accordingly, the financial statements have been prepared on a going concern basis.

Should the Group be unable to continue its business as a going concern, adjustments would have been made to restate the value of the assets to their recoverable amounts, to provide for any further liabilities which might arise, and to reclassify non-current assets and non-current liabilities as current assets and current liabilities, respectively. The effects of these potential adjustments have not been reflected in these financial statements.

Impact of recently issued Hong Kong Financial Reporting Standards (“HKFRSs”)

The HKICPA has issued a number of new Hong Kong Financial Reporting Standards and Hong Kong Accounting Standards, hereby collectively referred to as the new HKFRSs, which are generally effective for accounting periods beginning on or after 1 January 2005. The Group has not early adopted these new HKFRSs in the financial statements for the year ended 31 March 2005. The Group has already commenced an assessment of the impact of these new HKFRSs but is not in a position to state whether these new HKFRSs would have a significant impact on its results of operations and financial position.

B) Subsidiaries

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

Intra-group balances and transactions, and any unrealised profits arising from intra-group transactions, are eliminated in full in preparing the consolidated financial statements. Unrealised losses resulting from intragroup transactions are eliminated in the same way as unrealised gain, but only to the extent that there is no evidence of impairment.

— 46 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

In the Company’s balance sheet, an investment in a subsidiary is stated at cost less any impairment losses. The results of subsidiaries are accounted for by the Company on the basis of dividends received and receivable.

Minority interests represent the interests of outside shareholders in the operating results and net assets of subsidiaries.

C) Associates

An associate is an entity in which the Group or the Company has significant influence, which is neither a subsidiary nor a joint venture of the Group or the Company.

The investments in associates are stated at cost less any identified impairment loss. The results of associates are accounted for to the extent of dividends received and receivable.

D) Goodwill/Negative Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net assets of the acquired subsidiary at the date of acquisition. Goodwill is stated at cost less any impairment loss.

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

To the extent that negative goodwill relates to expectations of future losses and expenses that are identified in the acquisition plan and that can be measured reliably, but which do not represent identifiable liabilities as at the date of acquisition, that portion of negative goodwill is recognised as income in the consolidated income statement when the future losses and expenses are recognised.

To the extent that negative goodwill does not relate to identifiable expected future losses and expenses as at the date of acquisition, negative goodwill is recognised in the consolidated income statement on a systematic basis over remaining average useful life of the acquired depreciable assets. The amount of any negative goodwill in excess of the fair values of the acquired non-monetary assets is recognised as income immediately.

On disposal of subsidiaries, the gain or loss on disposal is calculated by reference to the net assets at the date of disposal, including the attributable amount of negative goodwill which has not been recognised in the consolidated income statement and any relevant reserves as appropriate.

E) Investment Securities

Investment securities are stated at cost less any provision for impairment losses.

The carrying amounts of individual investments are reviewed at each balance sheet date to assess whether the fair values have declined below the carrying amounts. When a decline other than temporary has occurred, the carrying amount of such securities will be reduced to its fair value. The impairment loss is recognised as an expense in the income statement. This impairment loss is written back to income statement when the circumstances and events that led to the write-downs or write-offs cease to exist and there is persuasive evidence that the new circumstances and events will persist for the foreseeable future.

— 47 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

F) Research and Development Costs

Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised as an expense in the period in which it is incurred.

Expenditure on development activities is capitalised if the product or process is technically and commercially feasible and the Group has sufficient resources and the intention to complete development. The expenditure capitalised includes the cost of materials, direct labour and an appropriate proportion of overheads. Capitalised development costs are stated at cost less accumulated amortisation and impairment losses. Other development expenditure is recognised as an expense in the period in which it is incurred.

G) Fixed Assets

• i) Fixed assets are stated in the balance sheet at cost less accumulated depreciation and impairment losses.

• ii) Subsequent expenditure relating to a fixed asset that has already been recognised is added to the carrying amount of the asset when it is probable that future economic benefits, in excess of the originally assessed standard of performance of the existing asset, will flow to the Group. All other subsequent expenditure is recognised as an expense in the period in which it is incurred.

• iii) Gains or losses arising from the retirement or disposal of a fixed asset are determined as the difference between the estimated net disposal proceeds and the carrying amount of the asset and are recognised in the income statement on the date of retirement or disposal.

H) Amortisation and Depreciation

Depreciation is calculated to write off the cost of fixed assets over their estimated useful lives on a straight-line basis, after taking into account their estimated residual values, as follows:

Leasehold improvements	Over the shorter of remaining lease term and 5 years
Furniture and fixtures	5 years
Computer and office equipment	5 years
Motor vehicles	8 years

I) Leased Assets

Leases of assets under which the lessor has not transferred all the risks and benefits of ownership are classified as operating leases.

Where the Group has the use of assets under operating leases, payments made under the leases are charged the income statement in equal instalments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased asset. Lease incentives received are recognised in the income statement as an integral part of the aggregate net lease payments made. Contingent rentals are charged to the income statement in the accounting period in which they are incurred.

— 48 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

J) Impairment of Assets

Internal and external sources of information are reviewed at each balance sheet date to identify indications that the following assets may be impaired or an impairment loss previously recognised no longer exists or may have decreased:

• fixed assets;

• investments in subsidiaries and associates; and

• positive goodwill

If any such indication exists, the asset’s recoverable amount is estimated. For intangible assets that are not yet available for use, the recoverable amount is estimated at each balance sheet date. An impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount.

i) Calculation of recoverable amount

The recoverable amount of an asset is the greater of its net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit).

• ii) Reversals of impairment losses

An impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount.

A reversal of impairment losses is limited to the asset’s carrying amount that would have been determined had no impairment loss been recognised in prior years. Reversals of impairment losses are credited to the income statement in the year in which the reversals are recognised.

K) Inventories

Inventories are carried at the lower of cost and net realisable value.

Cost is calculated using the first-in first-out cost formula and comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

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 any 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.

— 49 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

L) Cash Equivalents

Cash and cash equivalents comprise cash at bank and in hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition.

M) Employee Benefits

• (i) Salaries, annual bonuses, paid annual leave, leave passage and the cost to the Group of non-monetary benefits are accrued in the year in which the associated services are rendered by employees of the Group. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values.

• (ii) Contributions to Mandatory Provident Funds as required under the Hong Kong Mandatory Provident Fund Schemes Ordinance or other retirement benefit schemes, are recognised as an expense in the income statement as incurred, except to the extent that they are included in the cost of inventories not yet recognised as an expense.

• (iii) When the Group grants employees options to acquire shares of the Company at nil consideration, no employee benefit cost or obligations is recognised at the date of grant. When the options are exercised, equity is increased by the amount of the proceeds received.

• (iv) Termination benefits are recognised when, and only when, the Group demonstrably commits itself to terminate employment or to provide benefits as a result of voluntary redundancy by having a detailed formal plan which is without realistic possibility of withdrawal.

N) Deferred Taxation

Deferred taxation is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the accounts. Taxation rates enacted or substantively enacted by the balance sheet date are used to determine deferred taxation.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred taxation is provided on temporary differences arising on investments in subsidiaries except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

O) Provision and Contingent Liabilities

Provisions are recognised for liabilities of uncertain timing or amount when the Company or Group has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditures expected to settle the obligation.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

— 50 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

P) Service Contracts

The accounting policy for the revenue derived from systems development and consultancy services is set out in note 1 (Q)(i). When the outcome of a service contract can be estimated reliably, contract costs are recognised as expense by reference to the stage of completion of the contract activity at the balance sheet date. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. When the outcome of a service contract cannot be estimated reliably, contract costs are recognised as an expense in the period in which they are incurred.

Service contracts in progress at the balance sheet date are recorded in the balance sheet at the net amount of incurred plus recognised profit less recognised losses and progress billings, and are presented in the balance sheet as the “Gross amount due from customers for contracts” (as an asset) or the “Gross amount due to customers for contracts” (as a liability), as applicable. Progress billings not yet paid by the customer are included in the balance sheet under “Accounts receivable”. Amounts received before the related work is performed are included in the balance sheet, as a liability, as “Receipts in advance”.

Q) Revenue Recognition

Provided it is probable that the economic benefits will flow to the Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised in the income statement as follows:

• (i) Systems development and consultancy services

Revenue arising from the provision of systems development, maintenance and installation as well as consultancy services is recognised when the underlying services are rendered which is estimated by apportionment over the expected duration of each engagement; and the outcome of the contract can be estimated with reasonable certainty.

• (ii) Sale of software and hardware products

Revenue arising from the sale of software and hardware products is recognised when the customer has accepted the goods and the related risks and rewards of ownership. Revenue is stated after deduction of any trade discounts.

• (iii) Professional service fees

Professional service fees represent fees for the provision of IT engineering services and are recognised when the underlying professional services are rendered.

• (iv) Training fees

Training fees represent income earned from the provision of training courses, which is recognised when the related courses are held.

— 51 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

• (v) Interest income

Interest income from bank deposits is accrued on a time-apportioned basis by reference to the principal outstanding and the rate applicable.

(vi) Dividend income

Dividend income on investment securities is recognised when the right to receive payment is established.

R) Translation of Foreign Currencies

Foreign currency transactions during the year are translated into Hong Kong dollars at the exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated into Hong Kong dollars at the exchange rates ruling at the balance sheet date. Exchange gains and losses are dealt with in the income statement.

The results of foreign subsidiaries are translated into Hong Kong dollars at the average exchange rates for the year; balance sheet items are translated into Hong Kong dollars at the rates of exchange ruling at the balance sheet date. The resulting exchange differences are dealt with as a movement in reserves.

On disposal of a foreign subsidiary, the cumulative amount of the exchange differences which relate to that foreign enterprise is included in the calculation of the profit or loss on disposal.

S) Warranty Costs

Warranty costs are charged to the income statement as and when they are incurred.

T) Related Parties

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

U) Segment Reporting

A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments.

In accordance with the Group’s internal financial reporting system, the Group has chosen business segment information as the primary reporting format and geographical segment information as the secondary reporting format for the purposes of these financial statements.

Segment revenue, expenses, results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis to that segment. For example, segment assets may include inventories, accounts receivable and fixed assets. Segment revenue, expenses, assets, and liabilities are determined before intra-group balances and intra-group transactions are eliminated as part of the consolidation process, except to the extent that such intra-group balances and transactions are between group enterprises within a single segment. Inter-segment pricing is based on similar terms as those available to other external parties.

— 52 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. TURNOVER

Segment capital expenditure is the total cost incurred during the period to acquire segment assets (both tangible and intangible) that are expected to be used for more than one period.

Unallocated items mainly comprise financial and corporate assets, interest-bearing loans, borrowings, corporate and financing expenses and minority interests.

The principal activities of the Group are the provision of systems development, sale of software and hardware, training and technical support services. Turnover represents income arising from the provision of systems development and consultancy services, provision of IT engineering and technical support services, provision of courses and the sale of software and hardware products.

The amount of each significant category of revenue recognised in turnover during the year is as follows:

Systems development Software and hardware products Professional service fees Training fees	2005 HK$’000 20,567 1,754 8,026 191 30,538	2004 HK$’000 10,452 1,142 5,704 852
		18,150

— 53 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. PROFIT/(LOSS) FROM ORDINARY ACTIVITIES BEFORE TAXATION

Profit/(Loss) from ordinary activities before taxation is arrived at after (crediting)/charging:

(a) Finance costs: Interest on bank overdrafts and other borrowings repayable within five years (b) Staff costs: # Salaries, wages and other benefits Retirement costs (c) Other income Gain on disposal of investment in securities Value added tax refund (note) Gain on disposal of fixed assets Sundry Costs of services and merchandise sold # Research and development costs # Operating lease rentals - properties Auditor’s remuneration Depreciation Loss on disposal of subsidiaries Provision for diminution in value against investment securities	2005 HK$’000 496	2004 HK$’000 17 15,350 — 15,350 — — — (72) (72) 14,807 623 1,737 325 775 294 379
	7,667 218	15,350 —
	7,885
	(845) (665) (56) —	— — — (72
	(1,566) 22,246 1,855 178 247 630 — —

Note: A tax concession has been granted by the PRC tax authorities to the Group’ PRC subsidiary which is engaged in the development and trading of computer software. Under this concession, the PRC subsidiary is entitled to refund of value added tax (“VAT”) paid in excess of an effective rate of 3%. The amount of VAT refund is recognised as other income.

Cost of services and merchandise sold, research and development costs, and amortisation of deferred assets include HK$6,658,000 (2004: HK$12,833,000) staff costs.

— 54 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. TAXATION

a) Taxation in the consolidated income statement represents:

	2005	2004
	HK$’000	HK$’000
Current tax:
PRC Foreign Enterprise Income Tax	614	—
Hong Kong profits tax	—	327
	614	327

No Hong Kong profits tax has been provided in the financial statements as the Group has no assessable profits arising in Hong Kong during the year (2004: 17.5%).

The provision for PRC taxation is based on the estimated taxable income for PRC taxation purposes for the year at the appropriate current rate of taxation.

A Group’s subsidiary, Beijing Tongfang Electronic Science & Technology Company Limited, operated in the PRC was adjudicated as an Advanced Software Enterprise by the PRC government authority, the subsidiary is entitled to 10% Foreign Enterprise Income Tax (instead of the tax rate of 13.5%).

b) The charge for the year can be reconciled to the loss as per the income statement as follows:

Profit/(Loss) before taxation Effect of tax at Hong Kong profits tax rate of 17.5% (2004: 17.5%) Effect of different tax rates in other countries Income that are not taxable Expenses that are not deductible Tax losses not recognised Utilisation of tax losses Tax effect on accelerated depreciation allowance	2005 HK$’000 153	2004 HK$’000 (6,605)
	27 290 (499) 510 299 — (13)	(1,156) — (274) 1,411 — (291) (17)
	614	(327)

— 55 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

c) At the balance sheet date, potential deferred taxation assets not recognised and provided for are as follows:

Tax losses carried forward	2005 HK$’000 15,783 15,783	2004 HK$’000 15,484
		15,484

5. DIRECTORS’ REMUNERATION

Directors’ remuneration disclosed pursuant to section 161 of the Hong Kong Companies Ordinance is as follows:

Executive Directors: Salaries and other emoluments Retirement scheme contributions Other allowances Non-executive Directors: Fees The remuneration of the Directors is within the following bands: Nil - $1,000,000 $1,000,001 - $2,000,000	2005 2004 HK$’000 HK$’000 322 845 — 13 — — 322 858 264 178 Number of directors 2005 2004 7 13 — —	2004 HK$’000 845 13 —
		858
		178

— 56 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. INDIVIDUALS WITH HIGHEST EMOLUMENTS

Of the five individuals with the highest emoluments, none (2004: two) are Directors whose emoluments are disclosed in note 5 above. The aggregate of the emoluments in respect of the other five (2004: three) individuals are as follows:

Salaries and other emoluments Retirement scheme contributions	2005 HK$’000 1,893 58 1,951	2004 HK$’000 1,142 24
		1,166

The emoluments of the five (2004:three) individuals with the highest emoluments are within the following bands:

	Number of individuals	Number of individuals
	2005	2004
Nil - $1,000,000	5	3
$1,000,001 - $2,000,000	—	—

7. LOSS ATTRIBUTABLE TO SHAREHOLDERS

The loss attributable to shareholders includes a loss of HK$2,100,000 (2004: HK$10,063,000) which has been dealt with in the financial statements of the Company.

8. DIVIDENDS

The directors do not recommend the payment of any dividend for the year ended 31 March 2005 (2004: Nil).

9. LOSS PER SHARE

(A) Basic loss per share

The calculation of basic loss per share is based on the loss attributable to shareholders of HK$1,999,000 (2004: loss of HK$6,932,000) divided by the weighted average number of 57,565,874 (2004: 41,717,800) shares in issue during the year.

(B) Diluted loss per share

There were no potential dilutive ordinary shares in issue as at 31 March 2005 and 2004.

— 57 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

10. SEGMENT REPORTING

Segment information is presented in respect of the Group’s business and geographical segments. Business segment information is chosen as the primary reporting format because this is more relevant to the Group’s internal financial reporting.

Business segments

The Group comprises the following main business segments:

Systems development: Provision of systems development, maintenance and installation as well as consulting services. Software and hardware products: Sales of computer software and hardware products. Professional services: Provision of IT engineering and technical support services. Training: Provision of training courses.

— 58 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

20,196	10,452	11	1,142	8,026	5,704	2,305	852	30,538	18,150
879 1,422 98,427	1,421 656 2,836	3 — —	517 — —	5,183 — 71	934 — 118	2,227 — —	471 119 50	8,292 (7,700) (1,229) (637) 1,286 (496) — (614) (1,538) (1,999) 1,422 — 98,498 3,305	3,343 (9,637 —
									(6,294 — (17 (294 (327 —
									(6,932 775
									5
									3,004 2,488
73,686 670	743 132	— —	14 —	87 —	301 —	— —	— —	101,803
								73,773 3,048	1,058 3,424
								76,821 14,892 670
								74	—
								744

The Group does not have any inter-segment sales.

— 59 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Geographical segments

The Group’s four business segments are conducted mainly in Hong Kong and elsewhere in the PRC.

In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers. Segment assets and capital expenditure are based on the geographical location of the assets.

	**Hong **	Kong	**The **	PRC	**Other **	countries
	2005	2004	2005	2004	2005	2004
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Revenue from external customers	5,892	16,898	24,646	639	—	613
Segment assets	6,090	5,492	95,713	—	—	—
Capital expenditure incurred
during the year	126	132	618	—	—	—

11. FIXED ASSETS

The Group

Furniture and fixtures Computer and office equipment Leasehold improvements HK$’000 HK$’000 HK$’000 Cost At 1 April 2004 18 148 20 Acquisition of subsidiaries — 2,931 1,960 Additions 43 184 2 Disposals — (19) — At 31 March 2005 61 3,244 1,982 Accumulated depreciation At 1 April 2004 1 60 — Charge for the year 8 313 86 Disposals — (16) — At 31 March 2005 9 357 86 Net book value At 31 March 2005 52 2,887 1,896 At 31 March 2004 17 88 20	Furniture and fixtures Computer and office equipment Leasehold improvements HK$’000 HK$’000 HK$’000 Cost At 1 April 2004 18 148 20 Acquisition of subsidiaries — 2,931 1,960 Additions 43 184 2 Disposals — (19) — At 31 March 2005 61 3,244 1,982 Accumulated depreciation At 1 April 2004 1 60 — Charge for the year 8 313 86 Disposals — (16) — At 31 March 2005 9 357 86 Net book value At 31 March 2005 52 2,887 1,896 At 31 March 2004 17 88 20	Furniture and fixtures Computer and office equipment Leasehold improvements HK$’000 HK$’000 HK$’000 Cost At 1 April 2004 18 148 20 Acquisition of subsidiaries — 2,931 1,960 Additions 43 184 2 Disposals — (19) — At 31 March 2005 61 3,244 1,982 Accumulated depreciation At 1 April 2004 1 60 — Charge for the year 8 313 86 Disposals — (16) — At 31 March 2005 9 357 86 Net book value At 31 March 2005 52 2,887 1,896 At 31 March 2004 17 88 20	Furniture and fixtures Computer and office equipment Leasehold improvements HK$’000 HK$’000 HK$’000 Cost At 1 April 2004 18 148 20 Acquisition of subsidiaries — 2,931 1,960 Additions 43 184 2 Disposals — (19) — At 31 March 2005 61 3,244 1,982 Accumulated depreciation At 1 April 2004 1 60 — Charge for the year 8 313 86 Disposals — (16) — At 31 March 2005 9 357 86 Net book value At 31 March 2005 52 2,887 1,896 At 31 March 2004 17 88 20	Motor vehicles HK$’000 — 5,501 515 (1,329)	Total HK$’000 186 10,392 744 (1,348
	61 1 8 — 9	3,244 60 313 (16) 357	1,982 — 86 — 86	4,687 — 223 (186) 37	9,974
					61 630 (202
					489
	52 17	2,887 88	1,896 20	4,650 —	9,485
					125

— 60 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Company

Computer and office equipment Furniture and fixtures HK$’000 HK$’000 Cost At 1 April 2004 — — Additions 32 43 At 31 March 2005 32 43 Accumulated depreciation At 1 April 2004 — — Charge for the year 2 4 At 31 March 2005 2 4 Net book value At 31 March 2005 30 39 At 31 March 2004 — —	Computer and office equipment Furniture and fixtures HK$’000 HK$’000 Cost At 1 April 2004 — — Additions 32 43 At 31 March 2005 32 43 Accumulated depreciation At 1 April 2004 — — Charge for the year 2 4 At 31 March 2005 2 4 Net book value At 31 March 2005 30 39 At 31 March 2004 — —	Computer and office equipment Furniture and fixtures HK$’000 HK$’000 Cost At 1 April 2004 — — Additions 32 43 At 31 March 2005 32 43 Accumulated depreciation At 1 April 2004 — — Charge for the year 2 4 At 31 March 2005 2 4 Net book value At 31 March 2005 30 39 At 31 March 2004 — —	Total HK$’000 — 75
	32 — 2 2	43 — 4 4	75
			— 6
			6
	30 —	39 —	69
			—

12. INTERESTS IN ASSOCIATES

On 28 September 2004, the Company has entered the sales and purchase agreement with an independent third party to purchase the entire issued share capital of Treasure Wise Enterprise Limited (“Treasure Wise”), upon completion, the Company became the indirect beneficial owner of 40% equity interests in Tongfang Electronic Company Limited (“Tongfang BVI”), Tongfang Electronic (Hong Kong) Company Limited (“Tongfang HK”) and Beijing Tongfang Electronic Science & Technology Company Limited (“Beijing Tongfang”), collectively (the “Tongfang Group”). Pursuant to the corporate restructuring of the Tongfang Group on 1 December 2004, Treasure Wise has 61.5% equity interest in Tongfang BVI, which in turns has 65% shareholding in Tongfang HK and Beijing Tongfang. Therefore, interests in associates were subsequently transferred to as interests in subsidiaries.

— 61 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

13. INTERESTS IN SUBSIDIARIES

Unlisted investments, at cost Less: Impairment loss Advance to a subsidiary Less: Impairment loss	2005 HK$’000 14,725 (5,867)	2004 HK$’000 5,953 (5,867) 86 1,800 (379) 1,421 1,507
	8,858 1,800 (379) 1,421	86
		1,800 (379
		1,421
	10,279

Details of the subsidiaries at 31 March 2005 are as follows:

	Place of	**Percentage **	of ownership interest	of ownership interest
	incorporation/	Group’s	held		Issued/
	establishment	effective	by the	held by	registered
Name of company	and operation	holding	company	subsidiary	capital	Principal activities
Productive Finance	British Virgin	100%	100%	—	US$5,200	Investment holding
Limited (“PFL”)	Islands (“BVI”)
Absolute Great	BVI	100%	—	100%	US$1	Dormant
Technology Limited
Systek Information System	PRC	100%	—	100%	US$200,000	Dormant
(Shanghai) Limited (Note)
Systek Information	United States	100%	—	100%	US$10	Dormant
Technology Inc.	of America
Systek Information	Singapore	100%	—	100%	Singapore$2	Dormant
Technology (Pte) Limited
Top Gallant International	BVI	100%	100%	—	US$10,000	Investment holding
Limited (“Top Gallant”)
Acon Enterprises Limited	BVI	100%	100%	—	US$1,000	Dormant
Loyaltek Limited	Hong Kong	100%	—	100%	HK$10,000	Dormant
Tai Shing (Hong Kong) Limited	Hong Kong	100%	—	100%	HK$2	Dormant
Systek International Trading	PRC	100%	—	100%	US$200,000	Dormant
Company (Shanghai)
Limited (Note)

— 62 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

	Place of	**Percentage **	of ownership interest	of ownership interest
	incorporation/	Group’s	held		Issued/
	establishment	effective	by the	held by	registered
Name of company	and operation	holding	company	subsidiary	capital	Principal activities
Systek Solutions (China) Limited	Hong Kong	100%	—	100%	HK$2	Development and
						trading of software
						products and
						provision of
						training services
Systek Research Limited	BVI	100%	—	100%	US$1	Dormant
Transaction Technologies Limited	Hong Kong	100%	—	100%	HK$2	Development and
						trading of software
						products
Wingreat Investments Limited	BVI	100%	—	100%	US$1	Investment holding
Treasure Wise Enterprises Limited	BVI	100%	100%	—	US$1,000	Investment holding
Tongfang Electronic Company	BVI	61.5%	—	61.5%	US$50,000	Investment holding
Limited
Tongfang Electronic (Hong Kong)	Hong Kong	40%	—	40%	HK$100,000	Investment holding
Company Limited
Beijing Tongfang Electronic	PRC	40%	—	40%	RMB35,579,090	Reasearch,
Science & Technology						development and
Company Limited (Note)						provision of
						integrated
						management
						information system

Note: These companies were established as wholly-foreign owned enterprises in the PRC.

14. AMOUNTS DUE FROM/(TO) SUBSIDIARIES

Amounts due were unsecured, interest free and without fixed terms of repayment.

15. INVESTMENT SECURITIES

Other investments: Unlisted investments, at cost Less: Impairment loss	The Group 2005 HK$’000 3,103 (379) 2,724	2004 HK$’000 1,800 (379) 1,421

— 63 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

At 31 March 2005, the carrying value of the other investment exceed 10% of the total assets of the Company and the Group, respectively.

Name (“Hung Luen”) (“Tung Hing”)

Business structure Place of incorporation Principal activities Registered capital Percentage of interest held Corporate The People’s Republic of China Research, development and provision of information-on-demand system solutions, telecommunication and broadcasting media, network solutions and provision of related products and services RMB4.5 million 40% Corporate The People’s Republic of China Research, development and provision of information-on-demand system solutions, telecommunication and broadcasting media, network solutions and provision of related products and services RMB11.4 million 12.11%

The equity interest of 40% in Hung Luen is held by Top Gallant, a direct wholly owned subsidiary incorporated in British Virgin Islands.

Neither the Company nor Top Gallant has representative on the board of directors of Hung Luen and Tung Hing. In the opinion of the directors of the Company, neither the Company nor Top Gallant has any significant influence over Hung Luen and Tung Hing. Therefore, the interests in Hung Luen and Tung Hing are regarded as “other investments” and dealt with in accordance with the accounting policies detailed in note 1E and note 1Q(vi) to the financial statements.

— 64 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

16. GROSS AMOUNT DUE FROM/(TO) CUSTOMERS FOR CONTRACTS

Costs incurred Recognised profits less(losses), net Less: Progress billings Amounts due from contract customers Amounts due to contract customers	The Group 2005 2004 HK$’000 HK$’000 19,288 — 8,073 —	The Group 2005 2004 HK$’000 HK$’000 19,288 — 8,073 —
	27,361 (29,376)	— —
	(2,015)	—
	711 (2,726)	— —
	(2,015)	—

At 31 March 2005, retentions held by customers for contract work amounted to approximately HK$155,343 which have been included in accounts receivables under current assets.

17. INVENTORIES

Work in progress, at cost ACCOUNTS RECEIVABLE An ageing analysis of accounts receivable is as follows: Within 1 month More than 1 month but within 3 months More than 3 months but less than 12 months Beyond 1 year	The Group 2005 2004 HK$’000 HK$’000 26,412 — The Group 2005 2004 HK$’000 HK$’000 1,741 264 3,717 502 20,234 2,033 1,050 — 26,742 2,799	The Group 2005 2004 HK$’000 HK$’000 26,412 — The Group 2005 2004 HK$’000 HK$’000 1,741 264 3,717 502 20,234 2,033 1,050 — 26,742 2,799
		2,799

18. ACCOUNTS RECEIVABLE

All of the accounts receivable are expected to be recovered within one year. General credit term is 30 to 45 days from the date of billing. Debtors with balances that are more than 9 months overdue are requested to settle all outstanding balances before any further credit is granted.

— 65 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

19. TRADE AND BILLS PAYABLES

Bills payable Trade payable	The Group 2005 2004 HK$’000 HK$’000 2,337 — 8,821 — 11,158 —	The Group 2005 2004 HK$’000 HK$’000 2,337 — 8,821 — 11,158 —
		—

An ageing analysis of trade payable is as follows:

Within 1 month More than 1 month but within 3 months More than 3 months but less than 12 months Beyond 1 year	The Group 2005 2004 HK$’000 HK$’000 2,152 — 1,328 — 7,634 — 44 — 11,158 —	The Group 2005 2004 HK$’000 HK$’000 2,152 — 1,328 — 7,634 — 44 — 11,158 —
		—

All bills payables are due within five months.

20. RECEIPTS IN ADVANCE

Receipts in advance represented advance payments of systems development service fees from customers pursuant to the respective service contracts.

21. AMOUNT DUE TO A RELATED COMPANY

The amount due is unsecured, interest free and repayable on demand.

22. SHORT TERM BANK LOANS

Short term bank loans bear interest at rates ranging from 5.84% to 6.13% per annum and are guaranteed by a related company.

23. PROMISSORY NOTE, UNSECURED

On 8 September 2004, the Company entered into a sale and purchase agreement with an independent third party to purchase 40% equity interest in Hung Luen in PRC at a consideration of HK$1,800,000, which is satisfied by the issuance of a Promissory Note by the Company in the nominal value of HK$1,800,000. The Promissory Note bears interest at 1% per annum and is redeemable on 7 September 2005.

— 66 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

24. SHARE CAPITAL

Note Authorised: Ordinary shares of HK$0.05 each Issued and fully paid: At 1 April 2003 ordinary shares of HK$0.10 each Capital reduction of par value from HK$0.10 to HK$0.002 each Consolidation of every 25 shares to 1 share at HK$0.002 each Issue upon share placements At 31 March 2004 ordinary shares of HK$0.05 each Issue of shares on acquisition of a subsidiary (a) Issue upon share placements (b) At 31 March 2005 ordinary shares of HK$0.05 each	Number of shares ’000 4,000,000	Amounts HK$’000 200,000 103,638 (101,565) 2,073 — 2,073 300 2,373 908 474 3,755
	1,036,375 — 1,036,375 (994,920) 41,455 6,000 47,455 18,160 9,490	103,638 (101,565
		2,073 —
		2,073 300
		2,373 908 474
	75,105

(a) On 18 September 2004, 18,160,000 new ordinary shares of HK$0.05 each were issued at HK$0.50 to an independent third party as consideration for the acquisition of interest in a subsidiary. These shares rank pari passu in all respects with the existing ordinary shares of the Company.

(b) On 16 March 2005, 9,490,000 new ordinary shares of HK$0.05 each were issued at HK$0.21 each per placing share upon the completion of share placements. These shares rank pari passu in all respects with the existing ordinary shares of the Company. The reason for the increase in issued share capital was to provide additional general working capital of the Company for its daily operations and possible future expansion. The premium on issue of shares of approximately HK$1,518,400 was credited to the share premium account.

— 67 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

25. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT

(a) Disposal of subsidiaries

Net assets disposed of: Property, plant and equipment Gross amount due from customers Accounts receivable Inventories Prepayment, deposits and other receivable Due to fellow subsidiaries Pledged deposits Cash and bank balances Other payable and accruals Receipts in advance Exchange reserve realised on disposal Loss on disposal of subsidiaries Net cash outflow arising on disposal: Cash and bank balances disposed of	2005 HK$’000 — — — — — — — — — —	2004 HK$’000 3,835 4,165 2,537 356 1,165 (2,765) 526 125 (8,853) (422) 669 (375) (294) — 2004 HK$’000 (125)
	— — —	669 (375 (294
	— 2005 HK$’000 —

— 68 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Acquisition of subsidiaries

Net assets disposed of: Fixed assets Accounts receivable Inventories Investment in securities Prepayment, deposits and other receivable Cash and bank balances Bills payables Trade payables Other payable and accruals Gross amount due to customers for contracts Tax payable Bank loans Receipts in advance Minority interest Goodwill on acquisition Consideration Satisfied by: Issue of new shares	2005 HK$’000 10,392 8,136 14,567 6,963 37,547 17,390 (3,200) (20,076) (21,603) (1,160) (243) (22,392) (5,116)	2004 HK$’000 — — — — — — — — — — — — —
	21,205 (13,354) 1,229	— — —
	9,080 2005 HK$’000 9,080	—
		2004 HK$’000 —

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

					2005	2004
					HK$’000	HK$’000
Cash	and	bank	balance	acquired	17,390	—

(c) Major non-cash items

On 24 September 2004, the Company acquired the entire issued share capital of Treasure Wise Enterprise Limited at a consideration of HK$9,080,000 which was satisfied by the issue of 18,160,000 new shares of the Company at HK$0.50 per share.

— 69 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

26. COMMITMENTS UNDER OPERATING LEASES

At 31 March 2005, the total future minimum lease payment under non-cancellable operating leases payable are as follows:

Within 1 year After 1 year but within 5 years	The Group 2005 2004 HK$’000 HK$’000 923 150 64 128 987 278	The Group 2005 2004 HK$’000 HK$’000 923 150 64 128 987 278
		278

The Group leases a number of properties under operating leases. The leases typically run for an initial period of one year to two years, with an option to renew the lease when all terms are renegotiated. None of the leases includes contingent rentals.

27. RETIREMENT BENEFITS SCHEMES

Hong Kong

Since 1 December 2000, the Hong Kong subsidiaries are required to join the Mandatory Provident Fund (the “MPF”), managed by an independent approved MPF trustee, under the requirements of the Mandatory Provident Fund Schemes Ordinance.

The Group operates a Mandatory Provident Fund Scheme (“the MPF scheme”) under the Hong Kong Mandatory Provident Fund Schemes Ordinance for employees employed under the jurisdiction of the Hong Kong Employment Ordinance. The MPF scheme is a defined contribution retirement scheme administered by independent trustees. Under the MPF scheme, the employer and its employees are each required to make contributions to the scheme at 5% of the employees’ relevant income, subject to a cap of monthly relevant income of HK$20,000. Contributions to the scheme vest immediately.

Total retirement benefits costs under the MPF charged to the income statement amounted to HK$218,392 (2004: HK$376,000), minimum contribution to the MPF is 5% of the employees’ basic salaries.

PRC, other than Hong Kong

The PRC subsidiaries of the Group participate in pension schemes organised by the respective municipal governments whereby they are required to pay annual contributions at the rates ranging from 19% to 25.5% of the standard wages determined by the relevant authorises in the PRC.

Under the above schemes, retirement benefits of existing and retired employees are payable by the relevant PRC scheme administrators and the Group has no further obligations beyond the annual contributions.

The aggregate employers’ contributions by the Group under the PRC pension schemes amounted to HK$269,577 (2004: HK$122,000) during the year.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

28. SHARE OPTION SCHEME

The Company has a share option scheme which was adopted on 22 October 2003 whereby the Directors of the Company are authorised, at their discretion, to invite full time employees of the Group, including executive Directors of any Company in the Group excluding non-executive Directors and independent non-executive Directors, to take up options to subscribe for shares of the Company. The exercise price of options was determined by the board and was the higher of (i) the closing price of the shares as stated on the Stock Exchange of Hong Kong Limited’s (“Exchange’s”) daily quotations sheet on the date of grant; (ii) the average closing price of the shares as stated on the Exchange’s daily quotations sheets for the five trading days immediately preceding the date of grant; (iii) the nominal value of the shares. Each option gives the holder the right to subscribe for one share.

No option was granted since the inception of the share option scheme.

29. RELATED PARTY TRANSACTIONS

During the year, the Group purchased goods amounted to HK$5,339,426 (2004: NIL) and sold services amounted to HK$19,356,754 (2004: NIL) to a related company of which Ms Li Wenli, an executive director of the Company, is a director. The board of directors consider that the sales and purchases with the related company were transacted on normal commercial terms similar to those offered to other independent third parties.

VII. MANAGEMENT DISCUSSION AND ANALYSIS

• (a) For the year ended 31 March 2005

Set out below is the management discussion and analysis of the Group’s results and financials extracted from the annual report of the Company for the year ended 31 March 2005:

FINANCIAL PERFORMANCE

During the year ended 31 March 2005, the Group recorded a turnover of HK$30.5 million (2004: HK$18.2 million) representing an increase of approximately 68% as compared with the comparative figures of the corresponding year. General and administrative expenses were reduced to approximately HK$4.7 million as compared to HK$8.1 million of the previous corresponding year, representing a decrease of approximately 42%. The loss attributable to the shareholders amounted to HK$2 million (2004: HK$6.9 million) representing an improvement of approximately 71% over the same period in 2004.

LIQUIDITY AND FINANCIAL RESOURCES

As at 31 March 2005, shareholders’ funds of the Group amounted to approximately HK$10 million (2004: HK$1 million). Current assets amounted to approximately HK$89.6 million (2004: HK$3.9 million), of which approximately HK$3.9 million (2004: HK$0.9 million) were cash and cash equivalents. Current liabilities were approximately HK$75 million (2004: HK$2.7 million) mainly comprised of other payables and accruals as well as receipts in advance.

The Group currently has not engaged in any borrowing activities. The Group further confirms that it does not have any impending capital expenditure commitments.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

GEARING RATIO

The gearing ratio calculated on the basis of total liabilities over the total shareholders’ fund as at 31 March 2005 was 308% (2004: 265.5%).

CAPITAL STRUCTURE

During the year under review and subsequent to the review period, there were several corporate actions occurred that had resulted in material changes on the capital structure of the Company.

On 18 September 2004, 18,160,000 new shares were allotted and issued as the consideration for the acquisition of the entire issued share capital of Treasure Wise. As a result of the issuance and allotment of the new shares, the issued share capital of the Company was increased from HK$2,372,750 divided into 47,455,000 shares of HK$0.05 each to HK$3,280,750 divided into 65,615,000 shares of HK$0.05 each.

On 16 March 2005, the Company further completed a placing of 9,490,000 new shares at a price of HK$0.21 per share from which approximately of HK$1.8 million of net proceeds were raised for the Group’s future expansion, business development and general working capital.

As at 31 March 2005, the authorized share capital of the Company was HK$200,000,000 divided into 4,000,000,000 shares of HK$0.05 each and the issued share capital of the Company was HK$3,755,250 divided into 75,105,000 shares of HK$0.05 each (31 March 2004: HK$2,372,750 divided into 47,455,000 shares of HK$0.05 each).

FOREIGN CURRENCY EXPOSURE

During the year ended 31 March 2005, the Group experienced only immaterial exchange rate fluctuations, as the functional currencies of the Group’s operations were mainly Hong Kong dollars and Renminbi. As the risk on exchange rate difference considered being minimal, the Group did not employ any financial instruments for hedging purposes.

NEW PRODUCTS AND SERVICES

The information technology market is characterized by rapidly changing technologies, evolving industry standards as well as frequent new platform and application launch. The introduction of new products and services embodying new technologies is tended to be costly to the Group’s financial position. Therefore, the Group’s future direction is to reduce the investments in research and development of new products. Instead, the management will identify several critical technologies and seek for the right business partners either through merger and acquisition or forming strategic alliances. This led to the acquisition of Beijing Tongfang that directly support this strategy and offer a product portfolio deeper and broader than the Group can provide.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

SIGNIFICANT INVESTMENTS, MATERIAL ACQUISITIONS AND DISPOSAL OF SUBSIDIARIES

On 21 September 2004, the Company has successfully completed the acquisition of the entire issued share capital of Treasure Wise in a consideration HK$9.08 million by way of issuance of 18,160,000 new shares at an issue price of HK$0.50 per share (the “Acquisition”). Treasure Wise was the direct beneficial owner of 40% interests in Tongfang Electronic Company Limited (“Tongfang BVI”) which was an indirect beneficial owner of the entire interests in Beijing Tongfang held directly by Tongfang Electronic (Hong Kong) Limited (“Tongfang HK”). The details of the acquisition were set out in the Company’s circular dated 20 April 2004.

Subsequent to the completion of the Acquisition, Tongfang BVI had completed a share restructuring exercise on 1 December 2004. As a result of the restructuring exercise, the immediate shareholding of Treasure Wise in Tongfang BVI had been enlarged from 40% to approximately 61.5% but the approximate attributable shareholding interests of the Company in both Tongfang HK and Beijing Tongfang remained 40%. The details of the shareholding structure were set out in the Company’s announcement dated 18 November 2004.

Save as disclosed above, as at 31 March 2005 and up to the date of this announcement, the Group did not have any other significant investments, material acquisitions or disposal of subsidiaries.

FUTURE PLANS FOR MATERIAL INVESTMENTS OR CAPITAL ASSETS

As at 31 March 2005, the Group had no known plans for material investments or capital assets. The Group will continue to consolidate its business operations and explore potential business opportunities and new investments which are in the best interests of the Group and the shareholders.

SEGMENT INFORMATION

The Group is principally engaged in four business segments mainly in Hong Kong and the other regions of the PRC. The Group presents its segmental information based on the nature of the products and services provided.

In accordance with the Group’s internal financial reporting, the Group has determined that business segments be presented as the primary reporting format and geographical segments as the secondary reporting format. The Group reports its businesses in four business segments namely:

• systems development;

• sales of software and hardware products;

• provision of professional services; and

• provision of training services.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Activities under each of the business segment decreased. This may drive the management to reorganize the business model of these business segments in order to improve the financial performance of the Group as a whole.

With respect to geographical segments, there was a decrease during the period under review. Turnover generated from PRC represented approximately 81% of the total turnover of the Group during the year ended 31 March 2005 as compared to approximately 3.6% in the previous year under review. However, it is expected that the level of the Group’s activities in PRC will increase significantly following the acquisitions of Beijing Tongfang.

EMPLOYEES AND REMUNERATION POLICIES

As at 31 March 2005, the Group had hired 21 and 178 (2004: a total of 38) employees in Hong Kong and PRC respectively including the executive directors of the Company. Total staff costs including directors’ remuneration for the year under review amounting to approximately HK$8 million (2004: HK$16 million). The increase was mainly resulted from the inclusion of the employees of Beijing Tongfang. The Group’s remuneration policies are in line with the prevailing market practices and are determined on the basis of performance and experience of individual employees.

The Group had not made any changes to its remuneration policy and no bonuses were granted to any of its executive directors or employees for the year ended 31 March 2005.

The Company has conditionally adopted a new share option scheme on 22 October 2003 to replace the old share option scheme adopted on 26 August 2000. Pursuant to both schemes, the directors and employees of the Company and its subsidiaries may be granted options to subscribe for shares of the Company. During the year ended 31 March 2005, no option was granted under both the old and new share option schemes.

CHARGES ON GROUP’S ASSETS AND CONTINGENT LIABILITIES

As of the year ended 31 March 2005, the Company and its subsidiaries did not have any mortgages, charges, debentures, loan capital, bank loans and overdrafts, debt securities or other similar indebtedness, finance leases or hire purchase commitments, liabilities under acceptances or acceptance credits or any guarantees or other material contingent liabilities outstanding.

(b) For the year ended 31 March 2004

Set out below is the management discussion and analysis of the Group’s results and financials extracted from the annual report of the Company for the year ended 31 March 2004:

FINANCIAL PERFORMANCE

During the year ended 31 March 2004, the Group recorded a turnover of HK$18.2 million (2003: HK$37.7 million) representing a decrease of approximately 51.7% as compared with the comparative figures of the corresponding year. General and administrative expenses were

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

reduced to approximately HK$8.1 million as compared to HK$25.7 million of the previous corresponding year, representing a decrease of approximately 68.5%. The loss attributable to the shareholders amounted to HK$6.9 million (2003: HK$56.8 million) representing an improvement of approximately 87.8% over the same period in 2003.

LIQUIDITY AND FINANCIAL RESOURCES

As at 31 March 2004, shareholders’ funds of the Group amounted to approximately HK$1 million (2003: HK$5.4 million). Current assets amounted to approximately HK$3.9 million (2003: HK$11.3 million), of which approximately HK$0.9 million (2003: HK$2.1 million) were cash and cash equivalents. Current liabilities were approximately HK$2.7 million (2003: HK$10.3 million) mainly comprised of other payables and accruals as well as receipts in advance.

The Group currently has not engaged in any borrowing activities. The Group further confirms that it does not have any impending capital expenditure commitments.

GEARING RATIO

The gearing ratio calculated on the basis of total liabilities over the total shareholders’ fund as at 31 March 2004 was 265.5% (2003: 190.2%).

CAPITAL STRUCTURE

During the year under review and subsequent to the review period, there were several corporate actions occurred that had resulted in material changes on the capital structure of the Company.

With the shareholders’ approval granted at the extraordinary general meeting on 22 October 2003 and the approval granted by the Grand Court of the Cayman Islands and taking effect on 2 February 2004, the paid-up and the nominal value of each of the 1,036,375,000 issued shares of the Company was reduced from HK$0.10 to HK$0.002 whereby the Company’s issued share capital of HK$103,637,500 was reduced to HK$2,072,750, every 25 intermediate shares of HK$0.002 each was consolidated into one reorganized share of HK$0.05 each (the “Capital Reorganization”). The amount standing to the credit of the share premium account was applied towards the elimination of the same amount of the accumulated losses of the Company as permitted by the laws of the Cayman Islands.

Upon the completion of the Capital Reorganization on 2 February 2004, the authorized share capital of the Company had been changed from HK$200,000,000 divided into 2,000,000,000 shares of HK$0.10 each to HK$200,000,000 divided into 4,000,000,000 shares of HK$0.05 each. Whereas, the issued share capital of the Company upon consolidation had been reduced from HK$103,637,500 divided into 1,036,375,000 shares of HK$0.10 each to HK$2,072,750 divided into 41,455,000 shares of HK0.05 each.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Subsequent to the Capital Reorganization, the Company had further completed a placing of 6,000,000 new shares at a price of HK$0.48 per share on 16 March 2004 from which HK$2.5 million of net proceeds were raised for the Group’s future expansion, business development and general working capital.

As at 31 March 2004, the authorized share capital of the Company was HK$200,000,000 divided into 4,000,000,000 shares of HK$0.05 each and the issued share capital of the Company was HK$2,372,750 divided into 47,455,000 shares of HK$0.05 each.

FOREIGN CURRENCY EXPOSURE

During the year ended 31 March 2004, the Group experienced only immaterial exchange rate fluctuations, as the functional currencies of the Group’s operations were mainly Hong Kong dollars and Renminbi. As the risk on exchange rate difference considered being minimal, the Group did not employ any financial instruments for hedging purposes.

NEW PRODUCTS AND SERVICES

The information technology market is characterized by rapidly changing technologies, evolving industry standards as well as frequent new platform and application launch. The introduction of new products and services embodying new technologies is tended to be costly to the Group’s financial position. Therefore, the Group’s future direction is to reduce the investments in research and development of new products. Instead, the management will identify several critical technologies and seek for the right business partners either through merger and acquisition or forming strategic alliances. This led to the acquisition of Hung Luen and Beijing Tongfang that directly support this strategy and offer a product portfolio deeper and broader than the Group can provide.

SIGNIFICANT INVESTMENTS, MATERIAL ACQUISITIONS AND DISPOSAL OF SUBSIDIARIES

During the period under review and up to the date of this report, the Company has successfully completed two strategic acquisitions.

The Company had successfully acquired 40% interest in Hung Luen, an information technology company incorporated in Beijing, PRC in a consideration of HK$1.8 million which was satisfied by an issue of promissory note. The details of the acquisition were set out in the Company’s circular dated 30 September 2003.

Subsequent to the review period, with the approval of the shareholders of the Company at the extraordinary general meeting on 7 May 2004, the Company proposed to acquire the entire issued share capital of Treasure Wise which was an indirect beneficial owner of 40% interest in Beijing Tongfang in a consideration of HK$9.08 million by way of issuance of 18,160,000 new shares at an issue price of HK$0.50 per share. The details of the acquisition were set out in the circular of the Company dated 20 April 2004.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

During the year under review, the Board had disposed of some of the subsidiaries which were either dormant or sustaining losses for years in order to simplify the organization structure and improve the financial performance of the Group. It was believed that the sales of dormant and unprofitable subsidiaries were in the best interests of the Group and the shareholders as a whole. In addition, the Board was of the opinion that the disposals did not result in any material adverse impact on the business and financial position of the Group. On the contrary, the disposals could improve the trend of the continual declining financial results of the Group in the long run.

Save as disclosed above, as at 31 March 2004 and up to the date of this report, the Group did not have any other significant investments, material acquisitions or disposal of subsidiaries.

FUTURE PLANS FOR MATERIAL INVESTMENTS OR CAPITAL ASSETS

As at 31 March 2004, the Group had no future plan for material investments or capital assets.

SEGMENTAL INFORMATION

The Group is principally engaged in four business segments mainly in Hong Kong and the other regions of the PRC. The Group presents its segmental information based on the nature of the products and services provided.

In accordance with the Group’s internal financial reporting, the Group has determined that business segments be presented as the primary reporting format and geographical segments as the secondary reporting format. The Group reports its businesses in four business segments namely:

• systems development;

• sales of software and hardware products;

• provision of professional services; and

• provision of training services.

Activities under each of the business segment decreased tremendously. This may drive the management to reorganize the business model of these business segments in order to improve the financial performance of the Group as a whole.

With respect to geographical segments, there was a decrease during the period under review. Turnover generated from PRC represented approximately 3.5% of the total turnover of the Group during the year ended 31 March 2004 as compared to approximately 9.5% in the previous year under review. However, it is expected that the level of the Group’s activities in PRC may increase following the acquisitions of Hung Luen and Beijing Tongfang.

— 77 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

EMPLOYEES AND REMUNERATION POLICIES

As at 31 March 2004, the Group had hired a total of 38 (2003: 132) employees including the executive directors of the Company. Total staff costs including directors’ remuneration for the year under review amounting to approximately HK$16 million (2003: HK$40.3 million). The decrease was mainly caused by the headcount reduction and the disposal of unprofitable businesses. The Group’s remuneration policies are in line with the prevailing market practices and are determined on the basis of performance and experience of individual employees. The Group also provides mandatory provident fund scheme for employees employed under the jurisdiction of the Hong Kong Employment Ordinance.

The Group did not made any changes to its remuneration policy and no bonuses were granted to any of its executive directors or employees for the year ended 31 March 2004.

The Company has conditionally adopted a new share option scheme on 22 October 2003 to replace the old share option scheme adopted on 26 August 2000. Pursuant to both schemes, the directors and employees of the Company and its subsidiaries may be granted options to subscribe for shares of the Company. During the year ended 31 March 2004, no option was granted under both the old and new share option schemes.

CHARGES ON GROUP’S ASSETS AND CONTINGENT LIABILITIES

As of the year ended 31 March 2004, the Company and its subsidiaries did not have any mortgages, charges, debentures, loan capital, bank loans and overdrafts, debt securities or other similar indebtedness, finance leases or hire purchase commitments, liabilities under acceptances or acceptance credits or any guarantees or other material contingent liabilities outstanding.

(c) For the year ended 31 March 2003

Set out below is the management discussion and analysis of the Group’s results and financials extracted from the annual report of the Company for the year ended 31 March 2003:

FINANCIAL PERFORMANCE

During the year ended 31 March 2003, the Group recorded a turnover of HK$37.7 million (2002: HK$35.3 million). The loss attributable to the shareholders amounted to HK$56.8 million (2002: HK$54.2 million). Part of the current year loss is attributed by an impairment loss on capitalised research and development costs.

LIQUIDITY AND FINANCIAL RESOURCES

As at 31 March 2003, shareholders’ funds of the Group amounted to approximately HK$5.4 million (2002: HK$61.1 million). Current assets amounted to approximately HK$11.3 million (2002: HK$32.0 million), of which approximately HK$2.1 million (2002: HK$13.6 million) were cash and cash equivalents. Current liabilities were approximately HK$10.3 million (2002: HK$10.1 million) mainly comprised other payables and accruals.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group currently has not engaged in any borrowing activities except for lines of credit which are fully pledged in cash. The Group further confirms that it does not have any impending capital expenditure commitments.

GEARING RATIO

The gearing ratio calculated on the basis of total liabilities over the total shareholders’ fund as at 31 March 2003 was 190.2% (2002: 16.6%).

CAPITAL STRUCTURE

There has been no change to the share capital of the Company during the year ended 31 March 2003, amounted to HK$104 million (2002: HK$104 million). The Group did not use any debt and/or capital instruments during the year under review.

FOREIGN CURRENCY EXPOSURE

During the year ended 31 March 2003, the Group experienced only immaterial exchange rate fluctuations as the functional currencies of the Group’s operations are mainly Hong Kong dollars and Renminbi (“RMB”). As the risk on exchange rate differences is considered to be minimal, the Group did not employ any financial instruments for hedging purposes.

NEW PRODUCTS AND SERVICES

The information technology market is characterized by rapidly changing technologies, evolving industry standards, frequent new platform and application launch and ever-changing customer requirements. The introduction of products embodying new technologies and emerging new industry standards and practices can render current products obsolete and unmarketable. The Group’s future direction will depend on its ability to enhance its products and to develop and introduce, on a timely and cost-effective basis, new products and product features that keep pace with business features, technological developments, and emerging industry standards to address the increasingly sophisticated needs of its customers.

SIGNIFICANT INVESTMENTS, ACQUISITIONS OR DISPOSALS OF SUBSIDIARIES

During the year ended 31 March 2003, the Group had no significant investments held and had not made acquisitions or disposals of subsidiaries.

FUTURE PLANS FOR MATERIAL INVESTMENTS OR CAPITAL ASSETS

As at 31 March 2003, the Group had no future plans for material investment.

— 79 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

SEGMENT INFORMATION

The Group is principally engaged in four business segments mainly in Hong Kong and the other regions of the PRC. The Group presents its segmental information based on the nature of the products and services provided.

In accordance with the Group’s internal financial reporting, the Group has determined that business segments be presented as the primary reporting format and geographical segments as the secondary reporting format. The Group reports its businesses in four business segments namely:

• Systems development: Provision of systems development, maintenance and installation as well as consulting services.

• Software and hardware Sales of computer software and hardware products. products:

• Professional services: Provision of IT engineering and technical support services.

• Training: Provision of training courses.

In respect to the business segments, the Group continues to focus on systems development and professional services. Activity under software and hardware products has decreased in view of declining contributions to the overall revenue.

With respect to geographical segments, there was a decrease during the year under review. Turnover generated from the PRC represented approximately 9.5% of the total turnover of the Group during the year ended 31 March 2003 as compared to approximately 9.9% in the previous year under review. It is expected that the level of the Group’s activities in the PRC will remain stable in future.

EMPLOYEES AND REMUNERATION POLICIES

As at 31 March 2003, the Group had hired 132 (2002: 202) employees including the executive directors of the Company. Total staff costs including directors’ remuneration for the year under review amounting to approximately HK$40.3 million (2002: HK$64.5 million). The Group’s remuneration policies are in line with the prevailing market practices and are determined on the basis of performance and experience of individual employees. The Group also provides mandatory provident fund scheme and medical scheme for its employees and executive directors.

The Group has not made any changes to its remuneration policy and no bonuses were granted to any of its executive directors or employees for the year ended 31 March 2003.

During the year, directors’ remuneration of HK$0.5 million (2002: Nil) was waived.

On 26 August 2000, the Company has conditionally adopted a share option scheme (“Share Option Scheme”) pursuant to which the executive directors and full-time employees of the Company and its subsidiaries may be granted options to subscribe for shares of the Company. No option was granted since the inception of the Share Option Scheme.

— 80 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CHARGES ON GROUP’S ASSETS AND CONTINGENT LIABILITIES

As at 31 March 2003, the Group was granted banking facilities for an amount of HK$0.5 million secured with pledged deposits of HK$0.5 million with banks. The banking facilities utilized was the bank guarantees to the customers of the Group.

Save as disclosed above, the Group did not have any mortgages, charges, debentures, loan capital, bank loans and overdrafts, debt securities or other similar indebtedness, finance leases or hire purchase commitments, liabilities under acceptances or acceptance credits or any guarantees or other material contingent liabilities outstanding during the year under review.

— 81 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

C. QUARTERLY RESULTS FOR THE THREE MONTHS ENDED 30 JUNE 2005

Set out below are the unaudited consolidated income statement of the Group for each of the three months ended 30 June 2005 and 2004 together with the notes as extracted from the 1st quarterly report of the Group for the three months ended 30 June 2005:

CONDENSED CONSOLIDATED INCOME STATEMENT (UNAUDITED)

for the three months ended 30 June 2005

Note Turnover 2 Cost of services and merchandise sold Gross Profit Other revenue Research and development costs Selling expenses General and administrative expenses Profit/(Loss) from operations 3 Finance cost Gain/(Loss) on disposal of subsidiaries Profit/(Loss) from ordinary activities before taxation Taxation 4 Profit/(Loss) from ordinary activities after taxation Minority interests Profit/(Loss) attributable to the shareholders Earnings/(Loss) per share — basic (HK cents) 6	Three months ended 30 June 2005 2004 HK$’000 HK$’000 19,393 1,772 (15,658) (1,507) 3,735 265 652 — — — (1,509) — (2,300) (528) 578 (263) (45) (2) — — 533 (265) (31) — 502 (265) 605 — (103) (265) (0.14) cents (0.64) cents	Three months ended 30 June 2005 2004 HK$’000 HK$’000 19,393 1,772 (15,658) (1,507) 3,735 265 652 — — — (1,509) — (2,300) (528) 578 (263) (45) (2) — — 533 (265) (31) — 502 (265) 605 — (103) (265) (0.14) cents (0.64) cents
	3,735 652 — (1,509) (2,300) 578 (45) — 533 (31) 502 605	265 — — — (528
		(263 (2 —
		(265 —
		(265 —
	(103) (0.14) cents

— 82 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NOTES TO THE INCOME STATEMENTS

1. Basis of presentation

The unaudited condensed consolidated financial results of the Group (the “financial statements”) have been prepared in accordance with the Statement of Standard Accounting Practice issued by the Hong Kong Institute of Certified Public Accountants, and the applicable disclosure requirements of the Companies Ordinance (Chapter 32, the Laws of Hong Kong) and Chapter 18 of the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited.

The accounting policies and methods of computation used in the preparation of the financial statements are consistent with those used in the audited annual accounts for the year ended 31 March 2005.

All significant intra-group transactions and balances have been eliminated in the preparation of the financial statements.

2. Turnover

The principal activities of the Group are the provision of systems development and integration, sales of software and hardware products, provision of professional services and provision of training services. Turnover represents income arising from the provision of systems development and integration and consultancy services, provision of IT engineering and technical support services, the sales of software and hardware products and the provision of training courses.

An analysis of the turnover by principal activities of the operations of the Group during the reporting periods is as follows:

Principal activities Systems development and integration Sales of software and hardware products Professional services fees Training fees	Unaudited Three months ended 30 June 2005 2004 HK$’000 HK$’000 19,050 902 — 11 281 818 62 41 19,393 1,772	Unaudited Three months ended 30 June 2005 2004 HK$’000 HK$’000 19,050 902 — 11 281 818 62 41 19,393 1,772
		1,772

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. Profit/(Loss) from operations

Profit/(Loss) from operations is stated after charging/(crediting):

4.

	Unaudited	Unaudited
	**Three **	months ended
		30 June
	2005	2004
	HK$’000	HK$’000
Crediting
Interest income	—	—
Charging
Auditors’ remuneration	—	—
Depreciation	15	7
Finance costs — bank interests	45	2
Operating lease	44	42
Staff costs	3,811	1,761
Taxation
	Unaudited
	**Three **	months ended
		30 June
	2005	2004
	HK$’000	HK$’000
The Company and subsidiaries
Hong Kong profit tax	—	—
PRC income tax provision for
PRC income tax for the period at 10%	31	—
	31	—

No provision for Hong Kong profits tax has been made for the three months ended 30 June 2005 and 2004 as the Group sustained losses for taxation purpose during both periods.

The provision for PRC taxation is based on the estimated taxable income for PRC taxation purposes for the year at the appropriate current rate of taxation.

A Group’s subsidiary, Beijing Tongfang Electronic Science & Technology Company Limited, operated in the PRC was adjudicated as an Advanced Software Enterprise by the PRC government authority, the subsidiary is entitled to 10% Foreign Enterprise Income Tax (instead of the tax rate of 13.5%).

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. Dividend

The Board does not recommend the payment of any dividend for the three months ended 30 June 2005 (2004: Nil).

6. Earnings/(Loss) per share

The calculation of basic loss per share for the three months ended 30 June 2005 was based on the loss of approximately of HK$103,000 attributable to the shareholders (2004: loss of HK$265,000) divided by the weighted average number of 75,105,000 for the three months (2004: 41,717,800 as restated) in issue during the period.

There were no potential dilutive ordinary shares in issue during the three months ended 30 June 2005 and 2004.

7. Reserves

Movements in reserves for the nine months ended 30 June 2005 and 2004 are as follows:

			Unaudited
	Share	Capital	Exchange	Accumulated
	premium	reserve	reserve	losses	Total
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
At 1 April 2005	12,270	1,200	(763)	(6,372)	6,335
Exchange differences on translation of
financial statements of subsidiaries
outside Hong Kong	—	—	(6)	—	(6)
Loss for the period	—	—	—	(103)	(103)
Issue of new shares	—	—	—	—	—
At 30 June 2005	12,270	1,200	(769)	(6,475)	6,226
At 1 April 2004	2,580	1,200	(770)	(4,373)	(1,363)
Exchange differences on translation
of financial statements of
subsidiaries outside Hong Kong	—	—	—	—	—
Loss for the period	—	—	—	(265)	(265)
At 30 June 2004	2,580	1,200	(770)	(4,638)	(1,628)

— 85 —

FINANCIAL INFORMATION OF THE TARGET

APPENDIX II

A ACCOUNTANTS’ REPORT OF THE TARGET

The following is the text of a report, prepared for the purpose of inclusion in this circular, received from the auditors and reporting accountants of the Company, CCIF CPA Limited, Certified Public Accountants, Hong Kong.

==> picture [92 x 109] intentionally omitted <==

The Directors

Tai Shing International (Holdings) Limited

26 August 2005

Dear Sirs,

We have set out below our report on the financial information regarding Tongfang Electronic (Hong Kong) Company Limited (“Tongfang HK”) and its subsidiary (collectively referred to as the “Tongfang Group”) for each of the three years ended 31 December 2002, 2003 and 2004 and the 3 months ended 31 March 2004 and 2005 (the “Relevant Periods”) for inclusion in the circular of Tai Shing International (Holdings) Limited (the “Company”) dated 26 August 2005 in connection with the acquisition of a 35% equity interest in Tongfang HK by the Company.

Tongfang HK was incorporated in Hong Kong under the Hong Kong Companies Ordinance on 12 January 2001. Tongfang HK is principally engaged in investment holding. Since its incorporation, Tongfang HK became the holding company of Beijing Tongfang Electronic Science & Technology Company Limited (“Beijing Tongfang”) now comprising the Tongfang Group. The particulars of Beijing Tongfang as at 31 March 2005 are set out in note 10 of section II below.

Beijing Tongfang is principally engaged in research, development and provision of integrated management information systems in the PRC.

The statutory financial statements of Beijing Tongfang which were prepared in accordance with relevant accounting principles and relevant financial regulations applicable to enterprises established in the PRC, were audited by (Beijing Hua Xia Zheng Feng Certified Public Accountants) for the years ended 31 December 2002 and 2003, and were audited by (Beijing Hua Xia Tian Hai Certified Public Accountants) for the year ended 31 December 2004.

For the purpose of this report, we have undertaken an independent audit of the financial statements of Tongfang Group for the Relevant Periods in accordance with the Hong Kong Statements of Auditing Standards and the Auditing Guideline “Prospectus and the reporting accountant” issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).

— 86 —

FINANCIAL INFORMATION OF THE TARGET

APPENDIX II

The financial information as set out in Sections I to II below (“Financial Information”) has been prepared based on the audited HKGAAP financial statements, or, where appropriate, unaudited management accounts of all companies now comprising the Tongfang Group, on the basis set out in Section II below, after making such adjustments as are appropriate. The directors of the respective group companies, at the Relevant Periods, are responsible for preparing these accounts which give a true and fair view. In preparing these accounts, it is fundamental that appropriate accounting policies are selected and applied consistently, that judgements and estimates are made which are prudent and reasonable, and that the reasons for any significant departure from applicable accounting standards are stated. It is our responsibilities to form an independent opinion on the Financial Information and report our opinion to you.

We have reviewed the Financial Information for the 3 months ended 31 March 2004 in accordance with SAS 700 “Engagements to review interim financial reports” issued by the HKICPA. A review consists principally of making enquiries of group management and applying analytical procedures to the Financial Information and based thereon, assessing whether the accounting policies and presentation have consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the Financial Information for the 3 months ended 31 March 2004. On the basis of our review which does not constitute an audit, we are not aware of any material modifications that should be made to the 31 March 2004 Financial Information.

In our opinion, the Financial Information, for the purpose of this report, and prepared in the basis as set out in Section II below, gives a true and fair view of the consolidated results and cash flows of Tongfang Group for the Relevant Periods, and of the consolidated balance sheets of Tongfang Group and the balances sheets of Tongfang HK as at 31 December 2002, 2003, 2004 and 31 March 2005.

— 87 —

FINANCIAL INFORMATION OF THE TARGET

APPENDIX II

I FINANCIAL INFORMATION

CONSOLIDATED INCOME STATEMENT

					3 months ended	3 months ended
		Year ended 31 December			31 March
	Note	2002	2003	2004	2004	2005
		HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(Unaudited)
Turnover	3	38,040	47,279	59,401	17,163	6,223
Cost of sales		(21,857)	(29,312)	(41,063)	(15,809)	(4,793)
Gross profit		16,183	17,967	18,338	1,354	1,430
Other revenues	4	166	117	1,807	81	899
		16,349	18,084	20,145	1,435	2,329
Administrative expenses		(7,226)	(6,284)	(8,383)	(1,876)	(1,169)
Research and development
cost		—	—	(666)	—	(1,189)
Selling expenses		(3,714)	(6,160)	(7,725)	(1,662)	(1,397)
Operating expenses		—	—	(187)	—	—
Provision for bad and doubtful
debts		(5,702)	(938)	—	—	—
Provision for obsolete stocks
written back		4,710	—	—	—	—
Profit/(loss) from operating
activities	5	4,417	4,702	3,184	(2,103)	(1,426)
Finance costs	6	—	(431)	(866)	(146)	(240)
Profit/(loss) before taxation		4,417	4,271	2,318	(2,249)	(1,666)
Taxation	7	—	—	(852)	—	—
Profit/(loss) for the year/
period		4,417	4,271	1,466	(2,249)	(1,666)
Earning/(loss) per share		442	427	73	(225)	(17)

— 88 —

FINANCIAL INFORMATION OF THE TARGET

APPENDIX II

CONSOLIDATED BALANCE SHEET

At 31 December At 31 March Note 2002 2003 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 NON-CURRENT ASSETS Fixed assets 9 6,614 7,291 9,115 9,271 Investment security 12 — — 1,303 1,303 6,614 7,291 10,418 10,574 CURRENT ASSETS Inventories 14 3,785 9,948 20,556 26,412 Accounts receivable 15 8,382 4,351 21,173 24,174 Gross amount due from contracts customers 13 20 — 708 711 Prepayments and other receivables 14,384 19,310 27,091 31,448 Short term investment securities — — 6,102 — Cash and bank balances 12,045 24,278 17,233 3,244 38,616 57,887 92,863 85,989 CURRENT LIABILITIES Short term bank loans 19 — — 16,981 16,981 Bills payable 16 — — 3,185 2,337 Trade payables 16 852 10,490 8,987 8,821 Receipts in advance 17 — — 4,055 5,227 Gross amount due to contracts customers 13 500 1,153 2,561 2,726 Other payables and accruals 1,279 9,688 18,791 12,686 Tax payable — — 572 — Amount due to a related company 11 22,606 19,689 23,174 24,415 25,237 41,020 78,306 73,193 NET CURRENT ASSETS 13,379 16,867 14,557 12,796 TOTAL ASSETS LESS CURRENT LIABILITIES 19,993 24,158 24,975 23,370 NON-CURRENT LIABILITIES Amount due to immediate holding Company 18 (34,420) (34,400) — — NET (LIABILITIES)/ASSETS (14,427) (10,242) 24,975 23,370 CAPITAL AND RESERVES Share capital 20 10 10 100 100 Reserves (14,437) (10,252) 24,875 23,270 (14,427) (10,242) 24,975 23,370	At 31 December At 31 March Note 2002 2003 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 NON-CURRENT ASSETS Fixed assets 9 6,614 7,291 9,115 9,271 Investment security 12 — — 1,303 1,303 6,614 7,291 10,418 10,574 CURRENT ASSETS Inventories 14 3,785 9,948 20,556 26,412 Accounts receivable 15 8,382 4,351 21,173 24,174 Gross amount due from contracts customers 13 20 — 708 711 Prepayments and other receivables 14,384 19,310 27,091 31,448 Short term investment securities — — 6,102 — Cash and bank balances 12,045 24,278 17,233 3,244 38,616 57,887 92,863 85,989 CURRENT LIABILITIES Short term bank loans 19 — — 16,981 16,981 Bills payable 16 — — 3,185 2,337 Trade payables 16 852 10,490 8,987 8,821 Receipts in advance 17 — — 4,055 5,227 Gross amount due to contracts customers 13 500 1,153 2,561 2,726 Other payables and accruals 1,279 9,688 18,791 12,686 Tax payable — — 572 — Amount due to a related company 11 22,606 19,689 23,174 24,415 25,237 41,020 78,306 73,193 NET CURRENT ASSETS 13,379 16,867 14,557 12,796 TOTAL ASSETS LESS CURRENT LIABILITIES 19,993 24,158 24,975 23,370 NON-CURRENT LIABILITIES Amount due to immediate holding Company 18 (34,420) (34,400) — — NET (LIABILITIES)/ASSETS (14,427) (10,242) 24,975 23,370 CAPITAL AND RESERVES Share capital 20 10 10 100 100 Reserves (14,437) (10,252) 24,875 23,270 (14,427) (10,242) 24,975 23,370	At 31 December At 31 March Note 2002 2003 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 NON-CURRENT ASSETS Fixed assets 9 6,614 7,291 9,115 9,271 Investment security 12 — — 1,303 1,303 6,614 7,291 10,418 10,574 CURRENT ASSETS Inventories 14 3,785 9,948 20,556 26,412 Accounts receivable 15 8,382 4,351 21,173 24,174 Gross amount due from contracts customers 13 20 — 708 711 Prepayments and other receivables 14,384 19,310 27,091 31,448 Short term investment securities — — 6,102 — Cash and bank balances 12,045 24,278 17,233 3,244 38,616 57,887 92,863 85,989 CURRENT LIABILITIES Short term bank loans 19 — — 16,981 16,981 Bills payable 16 — — 3,185 2,337 Trade payables 16 852 10,490 8,987 8,821 Receipts in advance 17 — — 4,055 5,227 Gross amount due to contracts customers 13 500 1,153 2,561 2,726 Other payables and accruals 1,279 9,688 18,791 12,686 Tax payable — — 572 — Amount due to a related company 11 22,606 19,689 23,174 24,415 25,237 41,020 78,306 73,193 NET CURRENT ASSETS 13,379 16,867 14,557 12,796 TOTAL ASSETS LESS CURRENT LIABILITIES 19,993 24,158 24,975 23,370 NON-CURRENT LIABILITIES Amount due to immediate holding Company 18 (34,420) (34,400) — — NET (LIABILITIES)/ASSETS (14,427) (10,242) 24,975 23,370 CAPITAL AND RESERVES Share capital 20 10 10 100 100 Reserves (14,437) (10,252) 24,875 23,270 (14,427) (10,242) 24,975 23,370	At 31 December At 31 March Note 2002 2003 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 NON-CURRENT ASSETS Fixed assets 9 6,614 7,291 9,115 9,271 Investment security 12 — — 1,303 1,303 6,614 7,291 10,418 10,574 CURRENT ASSETS Inventories 14 3,785 9,948 20,556 26,412 Accounts receivable 15 8,382 4,351 21,173 24,174 Gross amount due from contracts customers 13 20 — 708 711 Prepayments and other receivables 14,384 19,310 27,091 31,448 Short term investment securities — — 6,102 — Cash and bank balances 12,045 24,278 17,233 3,244 38,616 57,887 92,863 85,989 CURRENT LIABILITIES Short term bank loans 19 — — 16,981 16,981 Bills payable 16 — — 3,185 2,337 Trade payables 16 852 10,490 8,987 8,821 Receipts in advance 17 — — 4,055 5,227 Gross amount due to contracts customers 13 500 1,153 2,561 2,726 Other payables and accruals 1,279 9,688 18,791 12,686 Tax payable — — 572 — Amount due to a related company 11 22,606 19,689 23,174 24,415 25,237 41,020 78,306 73,193 NET CURRENT ASSETS 13,379 16,867 14,557 12,796 TOTAL ASSETS LESS CURRENT LIABILITIES 19,993 24,158 24,975 23,370 NON-CURRENT LIABILITIES Amount due to immediate holding Company 18 (34,420) (34,400) — — NET (LIABILITIES)/ASSETS (14,427) (10,242) 24,975 23,370 CAPITAL AND RESERVES Share capital 20 10 10 100 100 Reserves (14,437) (10,252) 24,875 23,270 (14,427) (10,242) 24,975 23,370	At 31 December At 31 March Note 2002 2003 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 NON-CURRENT ASSETS Fixed assets 9 6,614 7,291 9,115 9,271 Investment security 12 — — 1,303 1,303 6,614 7,291 10,418 10,574 CURRENT ASSETS Inventories 14 3,785 9,948 20,556 26,412 Accounts receivable 15 8,382 4,351 21,173 24,174 Gross amount due from contracts customers 13 20 — 708 711 Prepayments and other receivables 14,384 19,310 27,091 31,448 Short term investment securities — — 6,102 — Cash and bank balances 12,045 24,278 17,233 3,244 38,616 57,887 92,863 85,989 CURRENT LIABILITIES Short term bank loans 19 — — 16,981 16,981 Bills payable 16 — — 3,185 2,337 Trade payables 16 852 10,490 8,987 8,821 Receipts in advance 17 — — 4,055 5,227 Gross amount due to contracts customers 13 500 1,153 2,561 2,726 Other payables and accruals 1,279 9,688 18,791 12,686 Tax payable — — 572 — Amount due to a related company 11 22,606 19,689 23,174 24,415 25,237 41,020 78,306 73,193 NET CURRENT ASSETS 13,379 16,867 14,557 12,796 TOTAL ASSETS LESS CURRENT LIABILITIES 19,993 24,158 24,975 23,370 NON-CURRENT LIABILITIES Amount due to immediate holding Company 18 (34,420) (34,400) — — NET (LIABILITIES)/ASSETS (14,427) (10,242) 24,975 23,370 CAPITAL AND RESERVES Share capital 20 10 10 100 100 Reserves (14,437) (10,252) 24,875 23,270 (14,427) (10,242) 24,975 23,370
	6,614 3,785 8,382 20 14,384 — 12,045 38,616 — — 852 — 500 1,279 — 22,606 25,237 13,379 19,993 (34,420)	7,291 9,948 4,351 — 19,310 — 24,278 57,887 — — 10,490 — 1,153 9,688 — 19,689 41,020 16,867 24,158 (34,400)	10,418 20,556 21,173 708 27,091 6,102 17,233 92,863 16,981 3,185 8,987 4,055 2,561 18,791 572 23,174 78,306 14,557 24,975 —	10,574
				26,412 24,174 711 31,448 — 3,244
				85,989
				16,981 2,337 8,821 5,227 2,726 12,686 — 24,415
				73,193
				12,796
				23,370
				—
	(14,427)	(10,242)	24,975	23,370
	10 (14,437)	10 (10,252)	100 24,875	100 23,270
	(14,427)	(10,242)	24,975	23,370

— 89 —

FINANCIAL INFORMATION OF THE TARGET

APPENDIX II

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

				Statutory
	Share	Capital	Accumulated	surplus	Exchange
	capital	reserves	losses	reserve	reserve	Total
	_HK$’000 _	HK$’000	_HK$’000 _	_HK$’000 _	_HK$’000 _	HK$’000
As at 1 January 2002	10	—	(19,010)	180	(38)	(18,858)
Profit for the year	—	—	4,417	—	—	4,417
Transfer to statutory
surplus reserve	—	—	(389)	389	—	—
Exchange differences
arising from translation
of financial statements
of overseas operation	—	—	—	—	14	14
As at 31 December 2002	10	—	(14,982)	569	(24)	(14,427)
Profit for the year	—	—	4,271	—	—	4,271
Transfer to statutory
surplus reserve	—	—	(564)	564	—	—
Exchange differences
arising from translation
of financial statements
of overseas operation	—	—	—	—	(86)	(86)
As at 31 December 2003	10	—	(11,275)	1,133	(110)	(10,242)
Profit for the year	—	—	1,466	—	—	1,466
Increase in share capital	90	—	—	—	—	90
Waived by the immediate
holding company	—	33,720	—	—	—	33,720
Transfer to statutory
surplus reserve	—	—	(658)	658	—	—
Exchange differences
arising from translation
of financial statements
of overseas operation	—	—	—	—	(59)	(59)
As at 31 December 2004	100	33,720	(10,467)	1,791	(169)	24,975
Loss for the period	—	—	(1,666)	—	—	(1,666)
Exchange differences
arising from translation
of financial statements
of overseas operation	—	—	—	—	61	61
As at 31 March 2005	100	33,720	(12,133)	1,791	(108)	23,370

— 90 —

FINANCIAL INFORMATION OF THE TARGET

APPENDIX II

CONSOLIDATED CASH FLOW STATEMENT

				**3 months **	ended	ended
	Year ended 31 December			31 March
	2002	2003	2004	2004		2005
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
			(Unaudited)
Cash flows from operating
activities
Profit /(loss) from ordinary
activities before taxation	4,417	4,271	2,318	(2,249)	(1,666)
Adjustments for:
Interest expenses	—	431	866	146		240
Interest income	(166)	(117)	—	—		—
Depreciation	823	1,030	1,433	269		453
Gain on disposal of fixed
assets	—	—	(56)	—		—
Unrealised gain on change in
fair value of short term
investment securities	—	—	(468)	—		—
Loss on disposal of fixed
assets	413	384	—	—		12
Gain on disposal of short term
investment securities	—	—	—	—		(374)
Operating profits/(loss) before
changes in working capital	5,487	5,999	4,093	(1,834)	(1,335)
(Increase)/decrease in
inventories	426	(6,163)	(10,608)	(13,130)	(5,856)
(Increase)/decrease in accounts
receivable	(4,163)	4,031	(16,822)	1,274	(3,001)
(Increase)/decrease in amounts
due from contracts customers	(6)	20	(708)	(605)		(3)
Increase in prepayments and
other receivables	(6,754)	(4,926)	(7,781)	(6,711)	(4,357)
Decrease in bills receivables	367	—	—	—		—
(Decrease)/increase in bills
payables	—	—	3,185	—		(848)
(Decrease)/increase in trade
payables	(15,989)	9,638	(1,503)	3,976		(166)
Increase in receipt in advance	—	—	4,055	—		1,172
Increase/(decrease) in amount
due to contracts customers	(104)	653	1,408	3,062		165

— 91 —

FINANCIAL INFORMATION OF THE TARGET

APPENDIX II

				**3 months **	ended	ended
	Year ended 31 December			31 March
	2002	2003	2004	2004		2005
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
			(Unaudited)
(Decrease)/increase in other
payables and accruals	(598)	8,409	9,103	7,740	(6,105)
Increase/(decrease) in amount
due to a related company	17,009	(2,917)	3,520	(13,302)		1,241
Decrease in amount due to
immediate holding company	(193)	(20)	(625)	(25)		—
Cash (used in)/generated from
operations	(4,518)	14,724	(12,683)	(19,555)	(19,093)
PRC enterprise income tax paid	—	—	(280)	—		(572)
Net cash (used in)/generated
from operating activities	(4,518)	14,724	(12,963)	(19,555)	(19,665)
Cash flows from investing
activities
Payment for the acquisition of
fixed assets	(2,186)	(2,122)	(4,379)	(661)		(577)
Payment for the acquisition
investment securities	—	—	(1,303)	—		—
Payment for the acquisition
short term investment
securities	—	—	(5,634)	—		—
Proceeds from disposal of fixed
assets	—	—	1,202	—		—
Proceeds from disposal of short
term investment	—	—	—	—		6,505
Interest received	166	117	—	—		—
Net cash (used in)/generated
from investing activities	(2,020)	(2,005)	(10,114)	(661)		5,928

— 92 —

FINANCIAL INFORMATION OF THE TARGET

APPENDIX II

				**3 months **	ended	ended
	Year ended 31 December			31 March
	2002	2003	2004	2004		2005
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
			(Unaudited)
Cash flows from financing
activities
Proceeds from bank and other
loans and borrowings	—	—	16,981	—		—
Interest paid	—	(431)	(866)	(146)		(240)
Net cash (used in)/ generated
from financing activities	—	(431)	16,115	(146)		(240)
Net (decrease)/increase in cash
and cash equivalents	(6,538)	12,288	(6,962)	(20,362)	(13,977)
Cash and cash equivalents at
beginning of year/period	18,570	12,045	24,278	24,278	17,233
Effect of foreign exchange rates
changes	13	(55)	(83)	120		(12)
Cash and cash equivalents at end
of year/period	12,045	24,278	17,233	4,036		3,244
Analysis of balances of cash and
cash equivalents
Cash and bank balances with
banks	12,045	24,278	17,233	4,036		3,244

— 93 —

FINANCIAL INFORMATION OF THE TARGET

APPENDIX II

BALANCE SHEET

At 31 December At 31 March Note 2002 2003 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 NON-CURRENT ASSETS Investment in a subsidiary 10 13,400 13,400 23,540 23,540 Current assets Amount due from a shareholder 11 — — 35 35 Amount due from a subsidiary 11 10,140 10,140 — — Cash and bank balances 842 764 69 69 10,982 10,904 104 104 TOTAL ASSETS 24,382 24,304 23,644 23,644 NON-CURRENT LIABILITIES Amount due to immediate holding Company 17 (34,420) (34,400) — — NET (LIABILITIES)/ASSETS (10,038) (10,096) 23,644 23,644 CAPITAL AND RESERVES Share capital 20 10 10 100 100 Reserves 21 (10,048) (10,106) 23,544 23,544 (10,038) (10,096) 23,644 23,644	At 31 December At 31 March Note 2002 2003 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 NON-CURRENT ASSETS Investment in a subsidiary 10 13,400 13,400 23,540 23,540 Current assets Amount due from a shareholder 11 — — 35 35 Amount due from a subsidiary 11 10,140 10,140 — — Cash and bank balances 842 764 69 69 10,982 10,904 104 104 TOTAL ASSETS 24,382 24,304 23,644 23,644 NON-CURRENT LIABILITIES Amount due to immediate holding Company 17 (34,420) (34,400) — — NET (LIABILITIES)/ASSETS (10,038) (10,096) 23,644 23,644 CAPITAL AND RESERVES Share capital 20 10 10 100 100 Reserves 21 (10,048) (10,106) 23,544 23,544 (10,038) (10,096) 23,644 23,644	At 31 December At 31 March Note 2002 2003 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 NON-CURRENT ASSETS Investment in a subsidiary 10 13,400 13,400 23,540 23,540 Current assets Amount due from a shareholder 11 — — 35 35 Amount due from a subsidiary 11 10,140 10,140 — — Cash and bank balances 842 764 69 69 10,982 10,904 104 104 TOTAL ASSETS 24,382 24,304 23,644 23,644 NON-CURRENT LIABILITIES Amount due to immediate holding Company 17 (34,420) (34,400) — — NET (LIABILITIES)/ASSETS (10,038) (10,096) 23,644 23,644 CAPITAL AND RESERVES Share capital 20 10 10 100 100 Reserves 21 (10,048) (10,106) 23,544 23,544 (10,038) (10,096) 23,644 23,644	At 31 December At 31 March Note 2002 2003 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 NON-CURRENT ASSETS Investment in a subsidiary 10 13,400 13,400 23,540 23,540 Current assets Amount due from a shareholder 11 — — 35 35 Amount due from a subsidiary 11 10,140 10,140 — — Cash and bank balances 842 764 69 69 10,982 10,904 104 104 TOTAL ASSETS 24,382 24,304 23,644 23,644 NON-CURRENT LIABILITIES Amount due to immediate holding Company 17 (34,420) (34,400) — — NET (LIABILITIES)/ASSETS (10,038) (10,096) 23,644 23,644 CAPITAL AND RESERVES Share capital 20 10 10 100 100 Reserves 21 (10,048) (10,106) 23,544 23,544 (10,038) (10,096) 23,644 23,644	At 31 December At 31 March Note 2002 2003 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 NON-CURRENT ASSETS Investment in a subsidiary 10 13,400 13,400 23,540 23,540 Current assets Amount due from a shareholder 11 — — 35 35 Amount due from a subsidiary 11 10,140 10,140 — — Cash and bank balances 842 764 69 69 10,982 10,904 104 104 TOTAL ASSETS 24,382 24,304 23,644 23,644 NON-CURRENT LIABILITIES Amount due to immediate holding Company 17 (34,420) (34,400) — — NET (LIABILITIES)/ASSETS (10,038) (10,096) 23,644 23,644 CAPITAL AND RESERVES Share capital 20 10 10 100 100 Reserves 21 (10,048) (10,106) 23,544 23,544 (10,038) (10,096) 23,644 23,644
	— 10,140 842 10,982 24,382 (34,420)	— 10,140 764 10,904 24,304 (34,400)	35 — 69 104 23,644 —	35 — 69
				104
				23,644
				—
	(10,038)	(10,096)	23,644	23,644
	10 (10,048)	10 (10,106)	100 23,544	100 23,544
	(10,038)	(10,096)	23,644	23,644

— 94 —

FINANCIAL INFORMATION OF THE TARGET

APPENDIX II

II NOTES TO THE FINANCIAL STATEMENTS

1. BASIS OF PREPARATION

The Financial Information has been prepared in accordance with accounting principles generally accepted in Hong Kong and comply with accounting standards issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”). The Financial Information has been prepared under the historical cost convention.

IMPACT OF RECENTLY ISSUED HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSS”)

The HKICPA has issued a number of new Hong Kong Financial Reporting Standards and Hong Kong Accounting Standards, hereby collectively referred to as the new HKFRSs, which are generally effective for accounting periods beginning on or after 1 January 2005. The Group has not early adopted these new HKFRSs in the financial statements. The Group has already commenced an assessment of the impact of these new HKFRSs but is not in a position to state whether these new HKFRSs would have a significant impact on its results of operations and financial position.

2. SIGNIFICANT ACCOUNTING POLICIES

(a) Subsidiary

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

Intra-group balances and transactions, and any unrealised profits arising from intra-group transactions, are eliminated in full in preparing the consolidated financial statements. Unrealised losses resulting from intragroup transactions are eliminated in the same way as unrealised gain, but only to the extent that there is no evidence of impairment.

In the Company’s balance sheet, an investment in a subsidiary is stated at cost less any impairment losses. The results of subsidiaries are accounted for by the Company on the basis of dividends received and receivable.

(b) Investment securities

Investment securities are stated at cost less any provision for impairment losses.

The carrying amounts of individual investments are reviewed at each balance sheet date to assess whether the fair values have declined below the carrying amounts. When a decline other than temporary has occurred, the carrying amount of such securities will be reduced to its fair value. The impairment loss is recognised as an expense in the income statement. This impairment loss is written back to income statement when the circumstances and events that led to the write-downs or write-offs cease to exist and there is persuasive evidence that the new circumstances and events will persist for the foreseeable future.

(c) Research and development costs

Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised as an expense in the period in which it is incurred.

Expenditure on development activities is capitalised if the product or process is technically and commercially feasible and the Group has sufficient resources and the intention to complete development. The expenditure capitalised includes the cost of materials, direct labour and an appropriate proportion of overheads. Capitalised development costs are stated at cost less accumulated amortisation and impairment losses. Other development expenditure is recognised as an expense in the period in which it is incurred.

— 95 —

FINANCIAL INFORMATION OF THE TARGET

APPENDIX II

(d) Fixed assets

• i) Fixed assets are stated in the balance sheet at cost less accumulated depreciation and impairment losses.

• ii) Subsequent expenditure relating to a fixed asset that has already been recognised is added to the carrying amount of the asset when it is probable that future economic benefits, in excess of the originally assessed standard of performance of the existing asset, will flow to the Group. All other subsequent expenditure is recognised as an expense in the period in which it is incurred.

• iii) Gains or losses arising from the retirement or disposal of a fixed asset are determined as the difference between the estimated net disposal proceeds and the carrying amount of the asset and are recognised in the income statement on the date of retirement or disposal.

(e) Depreciation

Depreciation is calculated to write off the cost of fixed assets over their estimated useful lives on a straight-line basis, after taking into account their estimated residual values, as follows:

Leasehold improvements Over the shorter of remaining lease term and 5 years Furniture and equipment 5 years Motor vehicles 8 years

(f) Leased assets

Leases of assets under which the lessor has not transferred all the risks and benefits of ownership are classified as operating leases.

Where the Group has the use of assets under operating leases, payments made under the leases are charged the income statement in equal instalments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased asset. Lease incentives received are recognised in the income statement as an integral part of the aggregate net lease payments made. Contingent rentals are charged to the income statement in the accounting period in which they are incurred.

(g) Impairment of assets

Internal and external sources of information are reviewed at each balance sheet date to identify indications that the following assets may be impaired or an impairment loss previously recognised no longer exists or may have decreased.

fixed assets

• investments in a subsidiary

If any such indication exists, the asset’s recoverable amount is estimated. For intangible assets that are not yet available for use, the recoverable amount is estimated at each balance sheet date. An. impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount.

• i) Calculation of recoverable amount

The recoverable amount of an asset is the greater of its net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate

— 96 —

FINANCIAL INFORMATION OF THE TARGET

APPENDIX II

that reflects current market assessments of time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit).

ii) Reversals of impairment losses

An impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount.

A reversal of impairment losses is limited to the asset’s carrying amount that would have been determined had no impairment loss been recognised in prior years. Reversals of impairment losses are credited to the income statement in the year in which the reversals are recognised.

(h) Inventories

Inventories are carried at the lower of cost and net realisable value.

Cost is calculated using the first-in first-out cost formula and comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

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 any 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.

(i) Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and in hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition.

(j) Retirement benefit costs

Obligatory retirement benefits in the form of contributions under a defined contribution retirement scheme administered by local government agencies are recognised as an expense to the income statement as and when they occurred.

(k) Deferred taxation

Deferred taxation is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the accounts. Taxation rates enacted or substantively enacted by the balance sheet date are used to determine deferred taxation.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

— 97 —

FINANCIAL INFORMATION OF THE TARGET

APPENDIX II

Deferred taxation is provided on temporary differences arising on investments in subsidiaries except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

(l) Provision and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when the Company or Group has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditures expected to settle the obligation.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

(m) Service contracts

The accounting policy for the revenue derived from systems development and consultancy services is set out in note 1 (n)(i). When the outcome of a service contract can be estimated reliably, contract costs are recognised as expense by reference to the stage of completion of the contract activity at the balance sheet date. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. When the outcome of a service contract cannot be estimated reliably, contract costs are recognised as an expense in the period in which they are incurred.

Service contracts in progress at the balance sheet date are recorded in the balance sheet at the net amount of cost incurred plus recognised profit less recognised losses and progress billings, and are presented in the balance sheet as the “Gross amount due from customers for contracts” (as an asset) or the “Gross amount due to customers for contracts” (as a liability), as applicable. Progress billings not yet paid by the customer are included in the balance sheet under “Accounts receivable”. Amounts received before the related work is performed are included in the balance sheet, as a liability, as “Receipts in advance”.

(n) Revenue recognition

Provided it is probable that the economic benefits will flow to the Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised in the income statement as follows:

• (i) Systems development and consultancy services

Revenue arising from the provision of systems development, maintenance and installation as well as consultancy services is recognised when the underlying services are rendered which is estimated by apportionment over the expected duration of each engagement; and the outcome of the contract can be estimated with reasonable certainty.

• (ii) Sale of software and hardware products

Revenue arising from the sale of software and hardware products is recognised when the customer has accepted the goods and the related risks and rewards of ownership. Revenue is stated after deduction of any trade discounts.

— 98 —

FINANCIAL INFORMATION OF THE TARGET

APPENDIX II

• (iii) Professional service fees

Professional service fees represent fees for the provision of IT engineering services and are recognised when the underlying professional services are rendered.

• (v) Interest income

Interest income from bank deposits is accrued on a time-apportioned basis by reference to the principal outstanding and the rate applicable.

• (vi) Dividend income

Dividend income on investment securities is recognised when the right to receive payment is established.

(o) Translation of foreign currencies

Foreign currency transactions during the year are translated into Hong Kong dollars at the exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated into Hong Kong dollars at the exchange rates ruling at the balance sheet date. Exchange gains and losses are dealt with in the income statement.

The results of foreign subsidiaries are translated into Hong Kong dollars at the average exchange rates for the year; balance sheet items are translated into Hong Kong dollars at the rates of exchange ruling at the balance sheet date. The resulting exchange differences are dealt with as a movement in reserves.

On disposal of a foreign subsidiary, the cumulative amount of the exchange differences which relate to that foreign enterprise is included in the calculation of the profit or loss on disposal.

(p) Segmental reporting

A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economics (geographical segment), which is subject to risks and rewards that are different from those of other segments.

The Group’s operating business are structured and managed separately, according to the nature of their operations and the products and services provided. Its operations are organized under two main business segments: (i) systems development; and (ii) professional service. Financial information for business segment is presented in note 8 below.

Segment revenue, expenses, results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis to that segment. For example, segment assets may include inventories, trade receivables and fixed assets.

As all operations and assets and liabilities of the Group are located in the PRC, no separate information for geographical segments is presented.

— 99 —

FINANCIAL INFORMATION OF THE TARGET

APPENDIX II

(q) Related parties

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

3. TURNOVER

The principal activities of the Group are the provision of systems development, sale of software and hardware, training and technical support services. Turnover represents income arising from the provision of systems development and consultancy services, provision of IT engineering and technical support services, provision of courses and the sale of software and hardware products.

The amount of each significant category of revenue recognised in turnover during the year is as follows:

Systems development Professional service fees	The Group Year ended 31 December 3 months ended 2002 2003 2004 2004 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 22,601 34,137 48,203 17,163 15,439 13,142 11,198 — 38,040 47,279 59,401 17,163	31 March 2005 HK$’000 5,103 1,120
		6,223

4. OTHER REVENUES

			The Group	The Group
	**Year **	ended 31 December			**3 months ended **	31 March
	2002	2003		2004	2004	2005
	HK$’000	HK$’000	HK$’000		HK$’000	HK$’000
					(Unaudited)
Gain on disposal of short term investment
securities	—	—		—	—	374
Unrealised gain on change in fair value of
short term investment securities	—	—		468	—	—
Bank interest income	166	117		—	—	—
Gain on disposal of fixed assets	—	—		56	—	—
Value added tax refund	—	—		1,283	81	525
	166	117		1,807	81	899

— 100 —

FINANCIAL INFORMATION OF THE TARGET

APPENDIX II

5. PROFIT/(LOSS) FROM OPERATING ACTIVITIES

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

			The Group
	**Year **	ended 31 December		**3 months ended **	31 March
	2002	2003	2004	2004	2005
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(Unaudited)
Depreciation of fixed assets	823	1,030	1,433	269	453
Operating lease	545	—	65	13	—
Staff costs
- Wages and salaries	4,470	4,832	4,311	1,025	790

6. FINANCE COSTS

			The Group
	**Year **	ended 31 December		**3 months ended **	31 March
	2002	2003	2004	2004	2005
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(Unaudited)
Interests on bank overdrafts and other
borrowings repayable within five years	—	431	866	146	240

7. TAXATION

a) Taxation in the consolidated income statement represents:

			The Group
	**Year **	ended 31 December		**3 months ended **	31 March
	2002	2003	2004	2004	2005
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(Unaudited)
Current tax:
PRC Foreign Enterprise Income Tax	—	—	852	—	—
Hong Kong profits tax	—	—	—	—	—
	—	—	852	—	—

— 101 —

FINANCIAL INFORMATION OF THE TARGET

APPENDIX II

No Hong Kong profits tax has been provided in the financial statements as the Group has no assessable profits arising in Hong Kong during the Relevant Periods.

The provision for PRC taxation is based on the estimated taxable income for PRC taxation purposes for the year at the appropriate current rate of taxation.

The Company’s subsidiary, Beijing Tongfang Electronic Science & Technology Company Limited, operated in the PRC was adjudicated as an Advanced Software Enterprise by the PRC government authority, the subsidiary is entitled to 10% Foreign Enterprise Income Tax (instead of the tax rate of 13.5%).

b) The charge for the year can be reconciled to the profit/(loss) as per the income statement as follows:

Profit/(loss) before taxation Effect of tax at Hong Kong profits tax rate of 17.5% for 2005, 2004, and 2003, and 16% for 2002 Effect of different tax rates in other countries Expenses that are not deductible	The Group Year ended 31 December 3 months ended 2002 2003 2004 2004 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 4,417 4,271 2,318 (2,249)	The Group Year ended 31 December 3 months ended 2002 2003 2004 2004 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 4,417 4,271 2,318 (2,249)	The Group Year ended 31 December 3 months ended 2002 2003 2004 2004 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 4,417 4,271 2,318 (2,249)	The Group Year ended 31 December 3 months ended 2002 2003 2004 2004 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 4,417 4,271 2,318 (2,249)	31 March 2005 HK$’000 (1,666) (292) 292 — —
	707 (714) 7	747 (757) 10	406 434 12	(393) 390 3	(292 292 —
	—	—	852	—

— 102 —

FINANCIAL INFORMATION OF THE TARGET

APPENDIX II

The business based on which the Group reports its primary segment information is as follows:	(i) Systems development - provision of systems development, maintenance and installation as well as consulting services; and	(ii) Professional services — provision of IT engineering and technical support services.	System Development Professional services Consolidated	3 months ended 3 months ended 3 months ended	Year ended 31 December 31 March Year ended 31 December 31 March Year Ended 31 December 31 March	2002 2003 2004 2004 2005 2002 2003 2004 2004 2005 2002 2003 2004 2004 2005	HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000	(Unaudited) (Unaudited) (Unaudited)	Revenue from external customers 22,601 34,137 48,203 17,163 5,103 15,439 13,142 11,198 — 1,120 38,040 47,279 59,401 17,163 6,223	Contribution from operations 3,527 10,668 9,766 1,354 581 12,656 7,299 8,572 — 849 16,183 17,967 18,338 1,354 1,430	Unallocated operating income and expenses (11,766) (13,265) (15,154) (3,457) (2,856)	Loss from operations 4,417 4,702 3,184 (2,103) (1,426)	Finance costs — (431) (866) (146) (240)	Taxation — — (852) — —	Loss attributable to shareholders 4,417 4,271 1,466 (2,249) (1,666)	Depreciation for the year 823 1,030 1,433 269 453	Segment assets 45,230 65,178 103,281 64,555 96,563	Segment liabilities 59,657 75,420 78,806 43,151 73,193	Capital expenditure incurred during the year 2,186 2,122 4,379 661 577

— 103 —

FINANCIAL INFORMATION OF THE TARGET

APPENDIX II

9. FIXED ASSETS

The Group

Motor vehicles Furniture and equipment Leasehold improvements HK$’000 HK$’000 HK$’000 Cost As at 1 January 2002 2,730 6,352 1,450 Additions 1,128 1,058 — Disposals — (437) — Exchange revaluation — (1) — As at 31 December 2002 3,858 6,972 1,450 Accumulated depreciation As at 1 January 2002 22 4,760 87 Charge for the year 411 281 131 Written back on disposals — (24) — Exchange revaluation (1) (1) — As at 31 December 2002 432 5,016 218 Net book value As at 31 December 2002 3,426 1,955 1,232 Cost As at 1 January 2003 3,858 6,972 1,450 Additions 566 1,204 352 Disposals — (386) — Exchange revaluation (17) (31) (7) As at 31 December 2003 4,407 7,759 1,795 Accumulated depreciation As at 1 January 2003 432 5,016 218 Charge for the year 447 435 148 Written back on disposals — (2) — Exchange revaluation (1) (22) (1) As at 31 December 2003 878 5,427 365 Net book value As at 31 December 2003 3,529 2,332 1,430	Motor vehicles Furniture and equipment Leasehold improvements HK$’000 HK$’000 HK$’000 Cost As at 1 January 2002 2,730 6,352 1,450 Additions 1,128 1,058 — Disposals — (437) — Exchange revaluation — (1) — As at 31 December 2002 3,858 6,972 1,450 Accumulated depreciation As at 1 January 2002 22 4,760 87 Charge for the year 411 281 131 Written back on disposals — (24) — Exchange revaluation (1) (1) — As at 31 December 2002 432 5,016 218 Net book value As at 31 December 2002 3,426 1,955 1,232 Cost As at 1 January 2003 3,858 6,972 1,450 Additions 566 1,204 352 Disposals — (386) — Exchange revaluation (17) (31) (7) As at 31 December 2003 4,407 7,759 1,795 Accumulated depreciation As at 1 January 2003 432 5,016 218 Charge for the year 447 435 148 Written back on disposals — (2) — Exchange revaluation (1) (22) (1) As at 31 December 2003 878 5,427 365 Net book value As at 31 December 2003 3,529 2,332 1,430	Motor vehicles Furniture and equipment Leasehold improvements HK$’000 HK$’000 HK$’000 Cost As at 1 January 2002 2,730 6,352 1,450 Additions 1,128 1,058 — Disposals — (437) — Exchange revaluation — (1) — As at 31 December 2002 3,858 6,972 1,450 Accumulated depreciation As at 1 January 2002 22 4,760 87 Charge for the year 411 281 131 Written back on disposals — (24) — Exchange revaluation (1) (1) — As at 31 December 2002 432 5,016 218 Net book value As at 31 December 2002 3,426 1,955 1,232 Cost As at 1 January 2003 3,858 6,972 1,450 Additions 566 1,204 352 Disposals — (386) — Exchange revaluation (17) (31) (7) As at 31 December 2003 4,407 7,759 1,795 Accumulated depreciation As at 1 January 2003 432 5,016 218 Charge for the year 447 435 148 Written back on disposals — (2) — Exchange revaluation (1) (22) (1) As at 31 December 2003 878 5,427 365 Net book value As at 31 December 2003 3,529 2,332 1,430	Motor vehicles Furniture and equipment Leasehold improvements HK$’000 HK$’000 HK$’000 Cost As at 1 January 2002 2,730 6,352 1,450 Additions 1,128 1,058 — Disposals — (437) — Exchange revaluation — (1) — As at 31 December 2002 3,858 6,972 1,450 Accumulated depreciation As at 1 January 2002 22 4,760 87 Charge for the year 411 281 131 Written back on disposals — (24) — Exchange revaluation (1) (1) — As at 31 December 2002 432 5,016 218 Net book value As at 31 December 2002 3,426 1,955 1,232 Cost As at 1 January 2003 3,858 6,972 1,450 Additions 566 1,204 352 Disposals — (386) — Exchange revaluation (17) (31) (7) As at 31 December 2003 4,407 7,759 1,795 Accumulated depreciation As at 1 January 2003 432 5,016 218 Charge for the year 447 435 148 Written back on disposals — (2) — Exchange revaluation (1) (22) (1) As at 31 December 2003 878 5,427 365 Net book value As at 31 December 2003 3,529 2,332 1,430	Total HK$’000 10,532 2,186 (437) (1) 12,280 4,869 823 (24) (2) 5,666 6,614 12,280 2,122 (386) (55) 13,961 5,666 1,030 (2) (24) 6,670 7,291
	3,858 22 411 — (1) 432	6,972 4,760 281 (24) (1) 5,016	1,450 87 131 — — 218	12,280
				4,869 823 (24 (2
				5,666
	3,426	1,955	1,232
	3,858 566 — (17) 4,407 432 447 — (1) 878	6,972 1,204 (386) (31) 7,759 5,016 435 (2) (22) 5,427	1,450 352 — (7) 1,795 218 148 — (1) 365	12,280 2,122 (386 (55
				13,961
				5,666 1,030 (2 (24
				6,670
	3,529	2,332	1,430

— 104 —

FINANCIAL INFORMATION OF THE TARGET

APPENDIX II

Motor vehicles Furniture and equipment Leasehold improvements HK$’000 HK$’000 HK$’000 Cost As at 1 January 2004 4,407 7,759 1,795 Additions 2,481 1,202 696 Disposals (1,150) (4) — Exchange revaluation 6 10 2 As at 31 December 2004 5,744 8,967 2,493 Accumulated depreciation As at 1 January 2004 878 5,427 365 Charge for the year 590 647 196 Written back on disposals (22) (1) — Exchange revaluation 2 7 — As at 31 December 2004 1,448 6,080 561 Net book value As at 31 December 2004 4,296 2,887 1,932 Cost As at 1 January 2005 5,744 8,967 2,493 Additions 514 63 — Disposals (173) (19) — Exchange revaluation 27 42 12 As at 31 March 2005 6,112 9,053 2,505 Accumulated depreciation As at 1 January 2005 1,448 6,080 561 Provided for the year 164 221 68 Disposals (164) (16) — Exchange revaluation 6 28 3 As at 31 March 2005 1,454 6,313 632 Net book value As at 31 March 2005 4,658 2,740 1,873	Motor vehicles Furniture and equipment Leasehold improvements HK$’000 HK$’000 HK$’000 Cost As at 1 January 2004 4,407 7,759 1,795 Additions 2,481 1,202 696 Disposals (1,150) (4) — Exchange revaluation 6 10 2 As at 31 December 2004 5,744 8,967 2,493 Accumulated depreciation As at 1 January 2004 878 5,427 365 Charge for the year 590 647 196 Written back on disposals (22) (1) — Exchange revaluation 2 7 — As at 31 December 2004 1,448 6,080 561 Net book value As at 31 December 2004 4,296 2,887 1,932 Cost As at 1 January 2005 5,744 8,967 2,493 Additions 514 63 — Disposals (173) (19) — Exchange revaluation 27 42 12 As at 31 March 2005 6,112 9,053 2,505 Accumulated depreciation As at 1 January 2005 1,448 6,080 561 Provided for the year 164 221 68 Disposals (164) (16) — Exchange revaluation 6 28 3 As at 31 March 2005 1,454 6,313 632 Net book value As at 31 March 2005 4,658 2,740 1,873	Motor vehicles Furniture and equipment Leasehold improvements HK$’000 HK$’000 HK$’000 Cost As at 1 January 2004 4,407 7,759 1,795 Additions 2,481 1,202 696 Disposals (1,150) (4) — Exchange revaluation 6 10 2 As at 31 December 2004 5,744 8,967 2,493 Accumulated depreciation As at 1 January 2004 878 5,427 365 Charge for the year 590 647 196 Written back on disposals (22) (1) — Exchange revaluation 2 7 — As at 31 December 2004 1,448 6,080 561 Net book value As at 31 December 2004 4,296 2,887 1,932 Cost As at 1 January 2005 5,744 8,967 2,493 Additions 514 63 — Disposals (173) (19) — Exchange revaluation 27 42 12 As at 31 March 2005 6,112 9,053 2,505 Accumulated depreciation As at 1 January 2005 1,448 6,080 561 Provided for the year 164 221 68 Disposals (164) (16) — Exchange revaluation 6 28 3 As at 31 March 2005 1,454 6,313 632 Net book value As at 31 March 2005 4,658 2,740 1,873	Motor vehicles Furniture and equipment Leasehold improvements HK$’000 HK$’000 HK$’000 Cost As at 1 January 2004 4,407 7,759 1,795 Additions 2,481 1,202 696 Disposals (1,150) (4) — Exchange revaluation 6 10 2 As at 31 December 2004 5,744 8,967 2,493 Accumulated depreciation As at 1 January 2004 878 5,427 365 Charge for the year 590 647 196 Written back on disposals (22) (1) — Exchange revaluation 2 7 — As at 31 December 2004 1,448 6,080 561 Net book value As at 31 December 2004 4,296 2,887 1,932 Cost As at 1 January 2005 5,744 8,967 2,493 Additions 514 63 — Disposals (173) (19) — Exchange revaluation 27 42 12 As at 31 March 2005 6,112 9,053 2,505 Accumulated depreciation As at 1 January 2005 1,448 6,080 561 Provided for the year 164 221 68 Disposals (164) (16) — Exchange revaluation 6 28 3 As at 31 March 2005 1,454 6,313 632 Net book value As at 31 March 2005 4,658 2,740 1,873	Total HK$’000 13,961 4,379 (1,154) 18 17,204 6,670 1,433 (23) 9 8,089 9,115 17,204 577 (192) 81 17,670 8,089 453 (180) 37 8,399 9,271
	5,744 878 590 (22) 2 1,448	8,967 5,427 647 (1) 7 6,080	2,493 365 196 — — 561	17,204
				6,670 1,433 (23 9
				8,089
	4,296	2,887	1,932
	5,744 514 (173) 27 6,112 1,448 164 (164) 6 1,454	8,967 63 (19) 42 9,053 6,080 221 (16) 28 6,313	2,493 — — 12 2,505 561 68 — 3 632	17,204 577 (192 81
				17,670
				8,089 453 (180 37
				8,399
	4,658	2,740	1,873

— 105 —

FINANCIAL INFORMATION OF THE TARGET

APPENDIX II

10. INTEREST IN A SUBSIDIARY

		The Company	The Company
		At 31 December		At 31 March
	2002	2003	2004	2005
	HK$’000	HK$’000	HK$’000	HK$’000
Unlisted investment, at cost	23,400	23,400	33,540	33,540
Less: Impairment loss	(10,000)	(10,000)	(10,000)	(10,000)
	13,400	13,400	23,540	23,540
Amount due from a subsidiary	10,140	10,140	—	—
	23,540	23,540	23,540	23,540

Details of the subsidiary at 31 March 2005 are as follows:

		Percentage of
	Place of	ownership
	incorporation/	interest	Issued/
	establishment	held by the	Registered
Name of company	and operation	Company	**Capital **	Principal activities
Beijing Tongfang Electronic Science &	PRC	100%	RMB35,579,090	Research, development
Technology Company Limited				and provision of
(Note)				integrated management
				information system

Note: This company was established as a wholly owned foreign owned enterprise in the PRC.

11. AMOUNTS DUE FROM A SHAREHOLDER, A SUBSIDIARY AND AMOUNT DUE (TO) A RELATED COMPANY

The amounts due are unsecured and interest free. For the amounts due from a shareholder and due (to) a related company, they are repayable on demand. For the amount due from a subsidiary, it was capitalised as cost of investment in 2004.

12. INVESTMENT SECURITY

		The Group	The Group
		At 31 December		At 31 March
	2002	2003	2004	2005
	HK$’000	HK$’000	HK$’000	HK$’000
Other investments:
Unlisted investments, at cost	—	—	1,303	1,303

— 106 —

FINANCIAL INFORMATION OF THE TARGET

APPENDIX II

At 31 March 2005, the details of investment security:

			Business	Place of		Registered	Percentage of
Name			structure Corporate	incorporation The People’s	Principal Activities Research, development	capital RMB11.4	interest held 12.11%
(“Tung Hing”)				Republic of	and provision of	million
				China	information-on-demand
					system solutions,
					telecommunication and
					broadcasting media,
					network solutions and
					provision of related
					products and services

13. GROSS AMOUNT DUE FROM/(TO) CUSTOMERS FOR CONTRACTS

Costs incurred Recognised profits less(losses), net Less: Progress billings Amounts due from contract customers Amounts due to contract customers	At 2002 HK$’000 24,707 22,442	The Group 31 December At 2003 2004 HK$’000 HK$’000 52,036 86,436 41,328 61,624	The Group 31 December At 2003 2004 HK$’000 HK$’000 52,036 86,436 41,328 61,624	31 March 2005 HK$’000 103,739 67,826
	47,149 (47,629)	93,364 (94,517)	148,060 (149,913)	171,565 (173,579
	(480)	(1,153)	(1,853)	(2,014
	20 (500)	— (1,153)	708 (2,561)	711 (2,726
	(480)	(1,153)	(1,853)	(2,015

14. INVENTORIES

							The Group	The Group
						**At **	31 December		At 31 March
					2002		2003	2004	2005
					HK$’000		HK$’000	HK$’000	HK$’000
Work	in	progress,	at	cost	3,785		9,948	20,556	26,412

— 107 —

FINANCIAL INFORMATION OF THE TARGET

APPENDIX II

15. ACCOUNTS RECEIVABLE

An ageing analysis of accounts receivable is as follows:

		The Group	The Group
		At 31 December		At 31 March
	2002	2003	2004	2005
	HK$’000	HK$’000	HK$’000	HK$’000
Within 1 month	—	—	—	1,540
More than 1 month but within 3 months	8,382	4,351	2,400	3,311
More than 3 months but less than 12 months	—	—	16,984	18,273
Beyond 1 year	—	—	1,789	1,050
	8,382	4,351	21,173	24,174

All of the accounts receivable are expected to be recovered within one year. General credit term is 30 to 45 days from the date of billing. Debtors with balances that are more than 9 months overdue are requested to settle all outstanding balances before any further credit is granted.

16. TRADE AND BILLS PAYABLES

Bills payable Trade payable	At 2002 HK$’000 — 852 852	The Group 31 December At 2003 2004 HK$’000 HK$’000 — 3,185 10,490 8,987 10,490 12,172	31 March 2005 HK$’000 2,337 8,821
			11,158

An ageing analysis of trade payable is as follows:

		The Group	The Group
		At 31 December		At 31 March
	2002	2003	2004	2005
	HK$’000	HK$’000	HK$’000	HK$’000
Within 1 month	—	—	3,185	2,152
More than 1 month but within 3 months	852	10,490	8,987	1,327
More than 3 months but less than 12 months	—	—	—	7,634
Beyond 1 year	—	—	—	45
	852	10,490	12,172	11,158

All bills payables are due within five months.

— 108 —

FINANCIAL INFORMATION OF THE TARGET

APPENDIX II

17. RECEIPTS IN ADVANCE

Receipts in advance represented advance payments of systems development and service fees from customers pursuant to the respective service contracts.

18. AMOUNT DUE TO IMMEDIATE HOLDING COMPANY

The amount due was unsecured, interest free and with no fixed repayment terms. On 20 January, 2004, the balance was waived by the immediate holding company and was transferred to capital reserve accordingly.

19. SHORT TERM BANK LOANS

Short term bank loans bear interest at rates ranging from 5.84% to 6.13% per annum and are guaranteed by a related company.

20. SHARE CAPITAL

Authorised: As at 1 January — 10,000 ordinary share of HK$1 each Increase in authorise share capital As at 31 December/ 31 March Issued and fully paid: As at 1 Jaruary — 10,000 ordinary share of HK$1 each Issue of share As at 31 December/ 31 March	The Group and the Company At 31 December At 2002 2003 2004 HK$000 HK$000 HK$000 10 10 10 — — 90 10 10 100	The Group and the Company At 31 December At 2002 2003 2004 HK$000 HK$000 HK$000 10 10 10 — — 90 10 10 100	The Group and the Company At 31 December At 2002 2003 2004 HK$000 HK$000 HK$000 10 10 10 — — 90 10 10 100	31 March 2005 HK$000 100 —
				100
	10 —	10 —	10 90	100 —
	10	10	100	100

Pursuant to an ordinary resolution passed at an Extraordinary General Meeting of the Company held on 22 November 2004, the authorised share capital of the Company was increased from HK$10,000 to HK$100,000 by the creation of 90,000 additional ordinary shares of HK$1 each ranking pari passu in all respects with the existing ordinary shares of the Company. On the same day, all the additional 90,000 ordinary shares were issued, fully paid for cash, at par.

— 109 —

FINANCIAL INFORMATION OF THE TARGET

APPENDIX II

21. RESERVES

The Company Accumulated losses Capital reserve HK$’000 HK$’000 As at 31 January 2002 (10,001) — Loss for the year (47) — As at 31 December 2002 (10,048) — Loss for the year (58) — As at 31 December 2003 (10,106) — Loss for the year (70) — Waived by the immediate holding company — 33,720 As at 31 December 2004 and 31 March 2005 (10,176) 33,720	The Company Accumulated losses Capital reserve HK$’000 HK$’000 As at 31 January 2002 (10,001) — Loss for the year (47) — As at 31 December 2002 (10,048) — Loss for the year (58) — As at 31 December 2003 (10,106) — Loss for the year (70) — Waived by the immediate holding company — 33,720 As at 31 December 2004 and 31 March 2005 (10,176) 33,720	The Company Accumulated losses Capital reserve HK$’000 HK$’000 As at 31 January 2002 (10,001) — Loss for the year (47) — As at 31 December 2002 (10,048) — Loss for the year (58) — As at 31 December 2003 (10,106) — Loss for the year (70) — Waived by the immediate holding company — 33,720 As at 31 December 2004 and 31 March 2005 (10,176) 33,720	Total HK$’000 (10,001) (47)
	(10,048) (58) (10,106) (70) —	— — — — 33,720	(10,048) (58)
			(10,106) (70) 33,720
	(10,176)	33,720	23,544

22. OPERATING LEASE COMMITMENTS

At 31 March 2005, the total future minimum lease payment under non-cancellable operating leases payable are as follows:

Within 1 year After 1 year but within 5 years	At 2002 HK$’000 528 — 528	The Group 31 December At 2003 2004 HK$’000 HK$’000 1,590 1,178 662 182 2,252 1,360	31 March 2005 HK$’000 751 60
			811

The Group leases a number of properties under operating leases. The leases typically run for an initial period of one year to two years, with an option to renew the lease when all terms are renegotiated. None of the leases includes contingent rentals.

23. RETIREMENT BENEFITS SCHEMES

The PRC subsidiaries of the Group participate in pension schemes organised by the respective municipal governments whereby they are required to pay annual contributions at the rates ranging from 19% to 25.5% of the standard wages determined by the relevant authorises in the PRC.

Under the above schemes, retirement benefits of existing and retired employees are payable by the relevant PRC scheme administrators and the Group has no further obligations beyond the annual contributions.

— 110 —

FINANCIAL INFORMATION OF THE TARGET

APPENDIX II

24. RELATED PARTY TRANSACTIONS

During the Relevant Periods the Group purchased goods and sold services to a related company of which Ms Li Wenli, an executive director of the Company, is a director:

Purchases Sales	The Group Year ended 31 December 3 months ended 2002 2003 2004 2004 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 56 5,312 5,458 301 — (19,357) (6,704) (961)	31 March 2005 HK$’000 1,470 (1,745)

The board of directors consider that the sales and purchases with the related company were transacted on normal commercial terms similar to those offered to other independent third parties.

25. SUBSEQUENT EVENTS

No significant events have been taken place subsequent to 31 March 2005.

26. SUBSEQUENT FINANCIAL STATEMENTS

No individual and consolidated audited financial statements have been prepared by Tongfang Hong Kong in respect of any period subsequent to 31 March 2005.

Yours faithfully

CCIF CPA LIMITED

Certified Public Accountants Hong Kong

Kwok Cheuk Yuen, Nickson Practising Certified Number P02412

— 111 —

FINANCIAL INFORMATION OF THE TARGET

APPENDIX II

B MANAGEMENT DISCUSSION AND ANALYSIS

Overview

The Target Group is principally engaged in the research, development and provision of integrated management information system for power plants and for banks in the PRC, which reports its businesses in two business segments namely systems development and professional services.

For the three months ended 31 March 2005

Business review and financial performance

During the period for the three months ended 31 March 2005, the Target Group recorded a turnover of approximately HK$6 million, representing a decrease of approximately 64% from the turnover of approximately HK$17 million for the corresponding period in 2004. The higher turnover recorded for the three months ended 31 March 2004 was mainly due to the completion of two major systems development contracts with a total billing of approximately HK$14 million during the period. The gross profit margin for the three months ended 31 March 2005 and 31 March 2004 were approximately 23% and 8% respectively. Although a higher turnover was recorded for the three months ended 31 March 2004, a lower gross profit margin was resulted as the entire turnover for the three months ended 31 March 2004 was contributed by systems development business with margin much lower than the professional services business. The gross profit margins of systems development business for the three months ended March 2004 and 2005 were approximately 8% and 11% respectively while the gross profit margin of professional services business for the three months ended March 2005 was approximately 76%. In addition, a decrease in gross profit margin was noted when comparing the gross profit margin of approximately 23% for the three months ended 31 March 2005 to that of approximately 31% for the year ended 31 December 2004. The first quarter of each year is usually the slack season of the Target due to the Lunar Chinese New Year holidays. Therefore, the number of projects completed for the three months ended 31 March 2005 is usually less than the rest of the year. The turnover recorded by the Target during this period represented approximately 10% of that for the year ended 31 December 2004. As such, the average gross profit margin during this period would be relatively fluctuated as it would be easily affected by any order with a lower gross profit margin or even a gross loss.

For the three months ended 31 March 2005, the share of systems development business decreased from 100% in the corresponding period in 2004 to approximately 82% of the total turnover of the Target Group. The total administrative and selling expenses of the Target Group for the three months ended 31 March 2005 and 2004 were approximately HK$2.6 million and HK$3.5 million respectively. The lower total administrative and selling expenses for the three months ended 31 March 2005 was due to the stringent control over overheads by the Target during the period. During the period for the three months ended 31 March 2005, the Target Group incurred research and development cost of approximately HK$1.2 million.

Due to the disposal of the short term investment securities (amounted to approximately HK$6.1 million as at 31 December 2004) with proceeds of approximately HK$6.5 million during the three months ended 31 March 2005, a gain on disposal of approximately HK$0.4 million was recorded for the period.

— 112 —

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET

The loss attributable to the shareholders for the three months ended 31 March 2005 was approximately HK$1.7 million, representing an improvement of approximately 26% over that in the corresponding period in 2004. Although a higher gross profit margin was recorded for the three months ended 31 March 2005, the net loss margin of approximately 27% recorded by the Target Group for the three months ended 31 March 2005 was higher than that for the three months ended 31 March 2004 of approximately 13% which was mainly due to the higher total operating expenses incurred during the period after accounting for the research and development cost of approximately HK$1.2 million.

During the three months ended 31 March 2005, the Target Group has launched a “Simulation System for Large Power Plants” and a new version of the financial institution core business system.

Liquidity, financial resources and gearing ratio

As at 31 March 2005, the total current assets and current ratio of the Target Group were approximately HK$86 million and approximately 1.2 respectively. The total cash and bank balances of the Target Group as at 31 March 2005 was approximately HK$3 million.

As at 31 March 2005, the Target Group had short term bank loans denominated in Renminbi with total balance of approximately HK$17 million. The bank loans were charged at interest rates ranging from 5.84% to 6.13% per annum and were guaranteed by a related company of the Target Group. The gearing ratio of the Target Group as at 31 March 2005, which is represented by total liabilities over total shareholders’ fund, was approximately 313%. The Target Group has repaid in full the short term bank loans in April 2005 and as at the Latest Practicable Date, no new bank loans was obtained by the Target.

Capital structure

As at 31 March 2005, the Target Group had net tangible assets of approximately HK$23 million, comprising non-current assets of approximately HK$10 million and net current assets of approximately HK$13 million.

As at 31 March 2005, the Target recorded the balance of amount due to a related company of approximately HK$24.4 million, which represented trade payable (approximately HK$15.4 million) to Tsinghua Tongfang and outstanding consideration payable (approximately HK$9 million) to Tsinghua Tongfang for the acquisition of the net assets of the power plant information system business by Beijing Tongfang in August 2004.

For the year ended 31 December 2004

Business review and financial performance

During the year ended 31 December 2004, the Target Group recorded a turnover of approximately HK$59 million, of which approximately 81% (2003: 72%) and 19% (2003: 28%) was contributed by systems development business and professional services business respectively. The growth in turnover in this year of approximately 26% over the turnover of approximately HK$47 million last year was mainly contributed by the systems development services business. Despite a slightly increase in gross

— 113 —

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET

profit by approximately HK$0.4 million for the year ended 31 December 2004, the gross profit margin of approximately 31% in 2004 showed a drop from the gross profit margin of approximately 38% in 2003. The decrease in gross profit margin was mainly due to the change in sales mix of the Target with increasing contribution to the overall turnover by systems development business. Comparing the two business segments, professional services business generates a relatively higher gross profit margin than systems development business. The gross profit margins of systems development business and professional services business for the year ended 31 December 2004 were approximately 20% and 77% respectively. The total administrative and selling expenses of the Target Group for the year ended 31 December 2004 was approximately HK$16 million, representing an increase of approximately 29% over last year. The increase in total administrative and selling expenses was mainly due to the expansion in operation of the Target Group during the year.

The profit attributable to the shareholders for the year ended 31 December 2004 was approximately HK$1.5 million (2003: HK$4.3 million). The net profit margin for the year ended 31 December 2004 was approximately 2%, representing a decrease of approximately 7% from the net profit margin of approximately 9% for the year ended 31 December 2003. The decrease in net profit margin was mainly due to the decrease in gross profit margin as explained above and the increase in expenses and taxation.

In addition, the Target had a negative operating cashflow of approximately HK$13 million for the year ended 31 December 2004. This is mainly due to the changes in working capital as a result of the acquisition of the net assets from (Beijing Tsinghua Neng Yuan Fang Zhen Company) and from the power plant information system business by Beijing Tongfang during the second half of the year ended 31 December 2004.

During the year, the Target Group has launched its first fully integrated system for financial institutions.

Liquidity, financial resources and gearing ratio

As at 31 December 2004, the total current assets and current ratio of the Target Group were approximately HK$93 million (2003: HK$58 million) and approximately 1.2 (2003: 1.4) respectively. The total cash and bank balances of the Target Group as at 31 December 2004 was approximately HK$17 million (2003: HK$24 million).

As disclosed in the “Letter form the Board” in this circular, Tongfang (BVI) was set up with an initial contributed capital of US$5 million (equivalent to approximately HK$39 million) and invested in the Target by way of shareholders’ loan. As at 31 December 2003, the balance of the amount due to immediate holding company was approximately HK$34.4 million. After the year end, the Target repaid Tongfang (BVI) approximately HK$0.7 million and the balance of the amount due to immediate holding company was reduced to approximately HK$33.7 million. On 20 January 2004, in order to improve the financial position of the Target, the balance of the amount due to immediate holding company of approximately HK$33.7 million was waived by Tongfang (BVI).

No shareholders’ loan has been provided by the Group to the Target since the acquisition of approximately 40% effective interest in the Target by the Company in September 2004.

— 114 —

FINANCIAL INFORMATION OF THE TARGET

APPENDIX II

As at 31 December 2004, the Target Group had short term bank loans denominated in Renminbi with total outstanding balance of approximately HK$17 million (2003: Nil). The bank loans were charged at interest rates ranging from 5.84% to 6.13% per annum and were guaranteed by a related company of the Target Group. The gearing ratio of the Target Group as at 31 December 2004, which is represented by total liabilities over total shareholders’ fund, was approximately 314%. (2003: as the Target Group had net deficits as at 31 December 2003, no gearing ratio was calculated)

Capital structure

The Target Group had net deficits of approximately HK$10 million as at 31 December 2003. Due to the waiving of the balance of amount due to immediate holding company of approximately HK$33.7 million by Tongfang (BVI), the Target Group recorded net tangible assets of approximately HK$25 million as at 31 December 2004, comprising non-current assets of approximately HK$10 million and net current assets of approximately HK$15 million.

Save as disclosed in the accountants’ report of the Target as set out in this appendix, there has been no change to the capital structure during the period under review.

For the year ended 31 December 2003

Business review and financial performance

For the year ended 31 December 2003, the Target Group recorded a turnover of approximately HK$47 million, of which approximately 72% (2002: 59%) and 28% (2002: 41%) was contributed by systems development business and professional services business respectively. The growth in turnover this year was principally contributed by the provision of systems development services, representing a growth of approximately 24% over the turnover of approximately HK$38 million last year. Comparing with the gross profit margin of approximately 43% in 2002, the gross profit margin of approximately 38% in 2003 represented a decrease of approximately 5%. The decrease in gross profit margin was mainly due to the change in the sales mix of the Target Group during the year. The contribution by the higher margin professional services business to the overall turnover of the Target Group had been decreased from 41% in 2002 to 28% in 2003. The gross profit margins of systems development business and professional services business for the year ended 31 December 2003 were approximately 31% and 56% respectively. The total administrative and selling expenses of the Target Group for the year ended 31 December 2003 was approximately HK$12 million, representing an increase of approximately 14% over last year. The increase in total administrative and selling expenses was mainly due to the increase in the marketing effort made by the Target to a larger potential customer base.

The profit attributable to the shareholders for the year ended 31 December 2003 was approximately HK$4.3 million (2002: HK$4.4 million). The net profit margin for the year ended 31 December 2003 was approximately 9%, representing a decrease of approximately 3% from the net profit margin of approximately 12% for the year ended 31 December 2002. The decrease in net profit margin was mainly due to the decrease in gross profit margin and increase in selling expenses as explained above.

— 115 —

FINANCIAL INFORMATION OF THE TARGET

APPENDIX II

During the year, the Target Group has launched a number of new products including “Power Company Management Information System”, “Call Centre for Power Companies”, and “Settlement System for Financial Institutions”.

Liquidity, financial resources and gearing ratio

As at 31 December 2003, the total current assets and current ratio of the Target Group were approximately HK$58 million (2002: HK$39 million) and approximately 1.4 (2002: 1.5) respectively. The total cash and bank balances of the Target Group as at 31 December 2003 was approximately HK$24 million (2002: HK$12 million).

As at 31 December 2003, the Target Group did not have any interest-bearing borrowings. As the Target Group had net deficits as at 31 December 2003 and 2002, no gearing ratio was calculated.

Capital structure

As at 31 December 2003, the Target Group had net deficits of approximately HK$10 million, comprising non-current assets of approximately HK$7 million, net current assets of approximately HK$17 million and non-current liabilities of approximately HK$34 million.

For the year ended 31 December 2002

Business review and financial performance

For the year ended 31 December 2002, the Target Group recorded a turnover of approximately HK$38 million which was mainly contributed by the provision of systems development services. For the year ended 31 December 2002, the contribution by systems development business and professional services business to the overall turnover of the Target Group was approximately 59% and 41% respectively. The gross profit margin in 2002 was approximately 43%, with the gross profit margins of systems development business and professional services business of approximately 16% and 82% respectively. During the year, the Target Group completed a major professional contract for the power plant. This act established the Target’s reputation in the industry and also increased the share of higher margin professional services business to the turnover of the Target Group to approximately 41% in 2002. The total administrative and selling expenses of the Target Group for the year ended 31 December 2002 was approximately HK$11 million. During the year, as the Target was able to utilize certain stocks that were written off in previous years, a written back of approximately HK$4.7 million of provision for obsolete stocks was resulted. Besides, approximately HK$5.7 million was provided for bad and doubtful debts during the year.

The profit attributable to the shareholders and net profit margin for the year ended 31 December 2002 was approximately HK$4.4 million and approximately 12% respectively.

The Target Group has launched a “Customer Service Center System for Power Companies” and a “E-home System” during the year.

— 116 —

FINANCIAL INFORMATION OF THE TARGET

APPENDIX II

Liquidity, financial resources and gearing ratio

As at 31 December 2002, the total current assets and current ratio of the Target Group were approximately HK$39 million and approximately 1.5 respectively. The total cash and bank balances of the Target Group as at 31 December 2002 was approximately HK$12 million.

As at 31 December 2002, the Target Group did not have any interest-bearing borrowings. As the Target Group had net deficits as at 31 December 2002, no gearing ratio was calculated.

Capital structure

As at 31 December 2002, the Target Group had net deficits of approximately HK$14 million, comprising non-current assets of approximately HK$7 million, net current assets of approximately HK$13 million and non-current liabilities of approximately HK$34 million.

General

Inventory Analysis

The following table sets forth the inventory balances of the Target Group as at the balance sheet dates:

								At 31
						At 31 December		March
					2002	2003	2004	2005
					HK$’000	HK$’000	HK$’000	HK$’000
Work	in	progress,	at	cost	3,785	9,948	20,556	26,412

The above inventory balances represent the work in progress for contracts on hand, which includes the cost of hardware, software, direct labour costs and overhead incurred in completing the contracts. A significant portion of the inventories as at 31 December 2004 was acquired from (Beijing Tsinghua Neng Yuan Fang Zhen Company) and from the power plant information system business during the second half of the year ended 31 December 2004. As more time is required to further develop such systems before they are ready for sale (which is expected to be in the second half of 2005 to first quarter of 2006), there was a cumulative effect on the inventory balance of the Target Group as at 31 March 2005.

The inventory turnover days (being average inventory balance/cost of sales* 365 days) were 86 days, 136 days and 1,788 days respectively in 2003, 2004 and the three months ended 31 March 2005. The inventory turnover days for the three months ended 31 March 2005 was significantly high as most of the inventories cumulated during the three months ended 31 March 2005 would only be realized during the second half of 2005 to first quarter of 2006 as explained above.

— 117 —

FINANCIAL INFORMATION OF THE TARGET

APPENDIX II

Accounts receivable analysis

An aging analysis of the accounts receivable balance as at the balance sheet dates is illustrated below:

				At 31
		At 31 December		March
	2002	2003	2004	2005
	HK$’000	HK$’000	HK$’000	HK$’000
Within 1 month	—	—	—	1,540
More than 1 month but within 3 months	8,382	4,351	2,400	3,311
More than 3 moths but less than 12 months	—	—	16,984	18,273
Beyond 1 year	—	—	1,789	1,050
	8,382	4,351	21,173	24,174

The increase in accounts receivable balance as at 31 December 2004 was due to the acquisition of accounts receivable of (Beijing Tsinghua Neng Yuan Fang Zhen Company) and the power plant information system business during the second half of the year ended 31 December 2004.

The accounts receivable turnover days (being average accounts receivable balance/turnover* 365 days) were 49 days, 78 days and 1,330 days respectively in 2003, 2004 and the three months ended 31 March 2005. The accounts receivable turnover days for the three months ended 31 March 2005 was much higher than the turnover days in 2003 and 2004, which was mainly due to low turnover during this period and low recoverability before and after Lunar Chinese New Year holidays. Therefore, during the three months ended 31 March 2005, the recoverability of the accounts receivable balance was not satisfactory and a high accounts receivable turnover day was resulted. As at 31 July 2005, approximately HK$6.0 million of the accounts receivable balance as at 31 March 2005 was subsequently collected.

Foreign currency exposure

For the three years ended 31 December 2004 and three months ended 31 March 2005, all of the Target Group’s businesses were carried out in the PRC and the functional currencies of the Target Group’s operations were mainly Hong Kong dollars and Renminbi, the Target Group did not employ any financial instruments for hedging purposes as the risk on exchange rate difference considered being minimal.

Significant investments, material acquisitions and disposal of subsidiaries and affiliated companies or assets, and future plans for material investments or capital assets

On 7 September 2004, the wholly owned subsidiary of the Target, Beijing Tongfang, completed the acquisition of the net assets of (Beijing Tsinghua Neng Yuan Fang Zhen Company) from Tsinghua University at a total consideration of RMB3,100,000.

— 118 —

FINANCIAL INFORMATION OF THE TARGET

APPENDIX II

On 30 August 2004, Beijing Tongfang and Tsinghua Tongfang entered into the assets transfer agreement in relation to the transfer of the net assets of the power plant information system business of Tsinghua Tongfang to Beijing Tongfang at a consideration of approximately RMB9 million.

Save as disclosed above, the Target Group had no known plans for material investments or capital assets and did not have any other significant investments, material acquisitions or disposal of subsidiaries and affiliated companies during each of the relevant period under review.

Charges on assets and contingent liabilities

Save for the short term bank loans with total balance of approximately HK$17 million guaranteed by a related company as at 31 March 2005 and 31 December 2004, the Target Group did not have any mortgages, charges, debentures, loan capital, bank loans and overdrafts, debt securities or other similar indebtedness, finance leases or hire purchase commitments, liabilities under acceptances or acceptance credits or any guarantees or other material contingent liabilities outstanding during each of the relevant period under review.

Employees and remuneration policies

The Target Group’s remuneration policies are in line with the prevailing market practices and are determined on the basis of performance and experience of individual employees.

The tables below set out (i) the number of employees; and (ii) the total staff costs of the Target Group for each of the period under review:

	No. of employees
As at 31 March 2005	178
As at 31 December 2004	186
As at 31 December 2003	136
As at 31 December 2002	104
	Total staff costs
	(HK$’million)
Three months ended 31 March 2005	0.8
Year ended 31 December 2004	4.3
Year ended 31 December 2003	4.8
Year ended 31 December 2002	4.5

— 119 —

FINANCIAL INFORMATION OF PACIFIC HEIGHTS

APPENDIX III

A ACCOUNTANTS’ REPORT OF PACIFIC HEIGHTS

The following is the text of a report, prepared for the purpose of inclusion in this circular, received from the reporting accountants of the Company, CCIF CPA Limited, Certified Public Accountants, Hong Kong.

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26 August 2005

The Directors

Tai Shing International (Holdings) Limited

Dear Sirs

We set out below our report on the financial information regarding Pacific Heights Holdings Limited (the “Company”) for each of the three years ended 31 March 2003, 2004 and 2005 (the “Relevant Periods”) for inclusion in the circular of Tai Shing International (Holdings) Limited (“Tai Shing”) dated 26 August 2005 (the “Circular”) in connection with the acquisition of 100% equity interest in the Company by Tai Shing.

The Company was incorporated in the British Virgin Islands under the International Business Companies Act on 13 October 1999. The Company is engaged in investment holding since its incorporation.

For the purpose of this report, we have performed an independent audit of the financial statements of the Company for the Relevant Periods in accordance with the Statements of Auditing Standards issued by the Hong Kong Institute of Certified Public Accountants and carried out such additional procedures as are necessary in accordance with the Auditing Guideline “Prospectuses and the Reporting Accountants” issued by the Hong Kong Institute of Certified Public Accountants.

The financial information as set out in section I to III (the “Financial Information”) has been prepared based on management accounts of the Company. The directors of the Company are responsible for preparing the respective financial statements, which give a true and fair view. In preparing these financial statements, it is fundamental that appropriate accounting policies are selected and applied consistently.

The directors of the Company are responsible for the Financial Information. It is our responsibility to form an independent opinion on the Financial Information.

— 120 —

FINANCIAL INFORMATION OF PACIFIC HEIGHTS

APPENDIX III

In our opinion, on the basis of preparation set out in note 1 of Section II below, the Financial Information, for the purpose of this report, gives a true and fair view of the results of the Company for the Relevant Periods and of the state of affairs of the Company as at 31 March 2003, 2004 and 2005.

I. BALANCE SHEET

	Note of	**At **	31 March	**At **	31 March	**At **	31 March
	Section II		2003		2004		2005
			HK$		HK$		HK$
ASSET
Other investment	4		195		195		195
CAPITAL
Issued capital	5		195		195		195

II. NOTES TO THE FINANCIAL STATEMENTS

1. Principal accounting policies

The financial statements have been prepared in accordance with generally accepted accounting principles in Hong Kong and comply with Statements of Standard Accounting Practice issued by the Hong Kong Institute of Certified Public Accountants and the disclosure requirements of the Hong Kong Companies Ordinance. The financial statements are prepared under the historical cost convention. A summary of the principal accounting policies adopted by the Company is set out below.

a) Provision and Contingent Liabilities

Provisions are recognised for liabilities of uncertain timing or amount when the Company has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditures expected to settle the obligation.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

— 121 —

FINANCIAL INFORMATION OF PACIFIC HEIGHTS

APPENDIX III

b) Deferred Taxation

Deferred taxation is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Taxation rates enacted or substantively enacted by the balance sheet date are used to determine deferred taxation.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

c) Translation of Foreign Currencies

Transactions in foreign currencies during the period are translated at exchange rates ruling at the transaction dates. Monetary assets and liabilities expressed in foreign currencies are translated at rates of exchange ruling at the balance sheet date. Exchange differences arising in these cases are dealt with in the income statement.

2. Turnover

The Company was dormant and has no turnover for the Relevant Periods.

3. Taxation

No provision for Hong Kong profits tax has been made in the financial statements as the Company has no assessable profits for the Relevant Periods.

4. Other investment

Other investment represents the holding of 25 shares capital in Tongfang Electronic Company Limited (“Tongfang (BVI)”), being 25% equity interests in that company for the year ended 31 March 2003 and 2004, which was increased to 38.5% as a result of its corporate restructuring in December 2004.

5. Issued capital

HK$

Authorised:

50,000 shares of US$1 each

390,000

Issued and fully paid:

25 shares of US$1 each

195

— 122 —

FINANCIAL INFORMATION OF PACIFIC HEIGHTS

APPENDIX III

6. Capital commitments

The Company has no capital commitments as at 31 March 2005.

1. Contingent liabilities

The Company has no contingent liabilities as at 31 March 2005.

8. Subsequent events

The Company has no material events subsequent to 31 March 2005 to be disclosed.

III. SUBSEQUENT ACCOUNTS

No audited financial statements have been prepared for the Company in respect of any period subsequent to 31 March 2005.

Yours faithfully

CCIF CPA Limited

Certified Public Accountants Hong Kong

Kwok Cheuk Yuen, Nickson Practising Certified Number P02412

B MANAGEMENT DISCUSSION AND ANALYSIS

Since its establishment in October 1999, Pacific Heights has been an investment holding company the sole asset of which is its investment in Tongfang (BVI). During the three years ended 31 March 2005, Pacific Heights has no operating business. As at each of the three years ended 31 March 2005, Pacific Heights had a net asset value of HK$195 (which represents its investment in 38.5% equity interest in Tangfang (BVI)), and did not have any borrowings, was not exposed to any foreign currency exchange risk, did not have any mortgages, charges, debentures, loan capital, bank loans and overdrafts, debt securities or other similar indebtedness, finance leases or hire purchase commitments, liabilities under acceptances or acceptance credits or any guarantees or other material contingent liabilities outstanding. There has been no change in the capital structure of Pacific Heights during the period under review. As at 31 March 2005, Pacific Heights has no future plans for material investments or capital assets.

— 123 —

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The following is the text of a report, prepared for the purpose of inclusion in this circular, received from the auditors and reporting accountants of the Company, CCIF CPA Limited, Certified Public Accountants, Hong Kong, in respect of the pro forma financial information of the Enlarged Group as set out in this appendix.

==> picture [92 x 109] intentionally omitted <==

The Directors

Tai Shing International (Holdings) Limited

26 August 2005

Dear Sirs,

We report on the pro forma financial statement of unaudited pro forma consolidated income statement, consolidated balance sheet and consolidated cash flow statement (“Unaudited Pro Forma Financial Information”) of Tai Shing International (Holdings) Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”) set out in Appendix IV “Pro forma financial information of the Enlarged Group” of the Company’s circular (the “Circular”) dated 26 August 2005 in connection with the proposed acquisition (“First Acquisition”) of additional 35% equity interest in Tongfang Electronics (Hong Kong) Company Limited (“Tongfang (HK)”) and the proposed acquisition (“Second Acquisition”) of the entire equity interest in Pacific Heights Holdings Limited, which in turn effectively holds 25% equity interest in Tongfang (HK), by way of disposal of the entire interest in Top Gallant International Limited (the “Disposal”). The Unaudited Pro Forma Financial Information has been prepared, for illustrative purposes only, to provide information about how the First Acquisition and the Second Acquisition (including the Disposal) resulting in the formation of an enlarged group (the “Enlarged Group”) might have affected the relevant financial information of the Group.

RESPONSIBILITIES

It is solely the responsibility of the directors of the Company to prepare the Unaudited Pro Forma Financial Information in accordance with Paragraph 31 of Chapter 7 of the Rules Governing the Listing of Securities on the Growth Enterprises Market of The Stock Exchange of Hong Kong Limited (the “GEM Listing Rules”).

— 124 —

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

It is our responsibility to form an opinion, as required by paragraph 31(7) of Chapter 7 of the GEM Listing Rules, on the Unaudited Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

BASIS OF OPINION

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

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

The Unaudited Pro Forma Financial Information has been prepared on the basis set out in Appendix IV “Pro forma financial information of the Enlarged Group” of the Circular for illustrative purpose only and, because of its nature, it may not be indicative of the financial position of the Enlarged Group as at 31 March 2005 or at any future dates or an indicative results and cash flows of the Enlarged Group for the year ended 31 March 2005 or any future period.

OPINION

In our opinion:

• (a) the Unaudited Pro Forma Financial Information has been properly compiled on the basis stated;

• (b) such basis is consistent with the accounting policies of the Group; and

• (c) the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 7.31(1) of the GEM Listing Rules.

Yours faithfully

CCIF CPA Limited

Certified Public Accountants Hong Kong

Kwok Cheuk Yuen, Nickson Practising Certified Number P02412

— 125 —

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

The following sets out the pro forma financial information of the Enlarged Group, which is prepared based on the audited consolidated financial statements of the Group for the year ended 31 March 2005, extracted from the annual report of the Company for the year ended 31 March 2005 as set out in Appendix I to this circular. The unaudited pro forma consolidated financial information is prepared under three scenarios: (1) Scenario 1 assumes only the First Acquisition proceeds and reflects the effect of the First Acquisition on the audited consolidated financial statements of the Group for the year ended 31 March 2005 as if the First Acquisition had taken place on 1 December 2004, being the date Tongfang (HK) became a subsidiary of the Company; (2) Scenario 2 assumes only the Second Acquisition proceeds and reflects the effect of the Second Acquisition on the audited consolidated financial statements of the Group for the year ended 31 March 2005 as if the Second Acquisition had taken place on 1 December 2004, being the date Tongfang (HK) became a subsidiary of the Company; and (3) Scenario 3 assumes both the First Acquisition and the Second Acquisition proceed and reflects the effect of the First Acquisition and the Second Acquisition on the audited consolidated financial statements of the Group for the year ended 31 March 2005 as if both the First Acquisition and the Second Acquisition had taken place on 1 December 2004, being the date Tongfang (HK) became a subsidiary of the Company. In other words, Scenario 3 shows the combined effect of Scenario 1 and Scenario 2.

The unaudited pro forma consolidated financial statements of the Enlarged Group is prepared to provide financial information on the Enlarged Group as a result of the completion of the First Acquisition and the Second Acquisition. As it is prepared for illustrative purpose only and because of its nature, it may not give a true picture of the results of the Enlarged Group for any financial periods.

— 126 —

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT OF THE ENLARGED GROUP

		Pro forma		Pro forma	Pro forma		Pro forma	Pro forma
		adjustments		statement	adjustments		statement	statement
		under		under	under		under	under
	The Group	Scenario 1		Scenario 1	Scenario 2		Scenario 2	Scenario 3
	HK$’000	HK$’000	(Note)	HK$’000	HK$’000	(Note)	HK$’000	HK$’000
Turnover	30,538	—		30,538			30,538	30,538
Cost of services and
merchandise sold	(22,246)	—		(22,246)			(22,246)	(22,246)
Gross profit	8,292	—		8,292	—		8,292	8,292
Other income	1,566	—		1,566			1,566	1,566
Gain on disposal of
Top Gallant	—	—		—	2,279	(2)	2,279	2,279
Research and development
costs	(1,855)	—		(1,855)			(1,855)	(1,855)
Selling expenses	(2,709)	—		(2,709)			(2,709)	(2,709)
General and administrative
expenses	(4,702)	—		(4,702)			(4,702)	(4,702)
Impairment loss on
goodwill	(1,229)	1,800	(1)	571	2,610	(1)	1,381	3,181
Loss from operations	(637)	1,800		1,163	4,889		4,252	6,052
Share of profits less
losses of associates	1,286	—		1,286			1,286	1,286
Finance costs	(496)	—		(496)			(496)	(496)
Profit from ordinary
activities before
taxation	153	1,800		1,953	4,889		5,042	6,842
Taxation	(614)	—		(614)			(614)	(614)
	(461)	1,800		1,339	4,889		4,428	6,228
Minority interests	(1,538)	898	(3)	(640)	640	(3)	(898)	—
(Loss)/profit attributable
to shareholders	(1,999)	2,698		699	5,529		3,530	6,228
(Loss)/earning per share
(cents)	(3.5)			1.1			6.1	9.9

— 127 —

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Notes:-

(1) The adjustment represents the elimination of goodwill after the the First Acquisition or the Second Acquisition, as the case may be:

35% increase in the sharing of consolidated net assets of Tongfang (HK) as at 1 December 2004 38.5% increase in the sharing of consolidated net assets of Tongfang Electronic Company Limited as at 1 December 2004 Consideration for the First Acquisition Consideration for the Second Acquisition Negative goodwill arising (2) Gain on disposal of Top Gallant Sales proceeds Less: Net assets value of Top Gallant as at 1 August 2005 being disposed	Scenario 1 Scenario 2 HK$’000 HK$’000 7,044 — — 6,310 (5,244) — — (3,700) 1,800 2,610 HK$ 3,700,000 (1,421,000) 2,279,000	Scenario 1 Scenario 2 HK$’000 HK$’000 7,044 — — 6,310 (5,244) — — (3,700) 1,800 2,610 HK$ 3,700,000 (1,421,000) 2,279,000
		2,610

• (3) The adjustment represents the elimination of minority interest after the First Acquisition or Second Acquisition, as the case may be:

	Scenario 1	Scenario 2
	HK$’000	HK$’000
Elimination of minority interest after the First Acquisition
(HK$1,538,000/60% x 35%)	898	—
Elimination of minority interest after the Second Acquisition
(HK$1,538,000/60% x 25%)	—	640
	898	640

• (4) All of the above adjustments have no continuing effect on the Enlarged Group

— 128 —

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET OF THE ENLARGED GROUP

The Group Pro forma adjustments under Scenario 1 Pro forma statement under Scenario 1 Pro forma adjustments under Scenario 2 Pro forma statement under Scenario 2 Pro forma statement under Scenario 3 HK$’000 HK$’000 (Note) HK$’000 HK$’000 (Note) HK$’000 HK$’000 Non-current assets Fixed assets 9,485 — 9,485 — 9,485 9,485 Investment securities 2,724 — 2,724 (1,421) (1) 1,303 1,303 12,209 — 12,209 (1,421) 10,788 10,788 Current assets Gross amount due from customers for contracts 711 — 711 — 711 711 Inventories 26,412 — 26,412 — 26,412 26,412 Accounts receivable 26,742 — 26,742 — 26,742 26,742 Prepayments, deposits and other receivables 31,812 — 31,812 — 31,812 31,812 Cash and bank balances 3,917 — 3,917 — 3,917 3,917 89,594 — 89,594 — 89,594 89,594 Current liabilities Gross amount due to customers for contracts 2,726 — 2,726 — 2,726 2,726 Trade payable 8,821 — 8,821 — 8,821 8,821 Bills payable 2,337 — 2,337 — 2,337 2,337 Receipts in advance 5,605 — 5,605 — 5,605 5,605 Other payables and accruals 13,774 — 13,774 — 13,774 13,774 Amount due to a related company 24,450 — 24,450 — 24,450 24,450 Short term bank loans 16,981 — 16,981 — 16,981 16,981 Tax payable 327 — 327 — 327 327 75,021 — 75,021 — 75,021 75,021 Net current assets 14,573 — 14,573 — 14,573 14,573 Total assets less current liabilities 26,782 — 26,782 (1,421) 25,361 25,361	The Group Pro forma adjustments under Scenario 1 Pro forma statement under Scenario 1 Pro forma adjustments under Scenario 2 Pro forma statement under Scenario 2 Pro forma statement under Scenario 3 HK$’000 HK$’000 (Note) HK$’000 HK$’000 (Note) HK$’000 HK$’000 Non-current assets Fixed assets 9,485 — 9,485 — 9,485 9,485 Investment securities 2,724 — 2,724 (1,421) (1) 1,303 1,303 12,209 — 12,209 (1,421) 10,788 10,788 Current assets Gross amount due from customers for contracts 711 — 711 — 711 711 Inventories 26,412 — 26,412 — 26,412 26,412 Accounts receivable 26,742 — 26,742 — 26,742 26,742 Prepayments, deposits and other receivables 31,812 — 31,812 — 31,812 31,812 Cash and bank balances 3,917 — 3,917 — 3,917 3,917 89,594 — 89,594 — 89,594 89,594 Current liabilities Gross amount due to customers for contracts 2,726 — 2,726 — 2,726 2,726 Trade payable 8,821 — 8,821 — 8,821 8,821 Bills payable 2,337 — 2,337 — 2,337 2,337 Receipts in advance 5,605 — 5,605 — 5,605 5,605 Other payables and accruals 13,774 — 13,774 — 13,774 13,774 Amount due to a related company 24,450 — 24,450 — 24,450 24,450 Short term bank loans 16,981 — 16,981 — 16,981 16,981 Tax payable 327 — 327 — 327 327 75,021 — 75,021 — 75,021 75,021 Net current assets 14,573 — 14,573 — 14,573 14,573 Total assets less current liabilities 26,782 — 26,782 (1,421) 25,361 25,361	The Group Pro forma adjustments under Scenario 1 Pro forma statement under Scenario 1 Pro forma adjustments under Scenario 2 Pro forma statement under Scenario 2 Pro forma statement under Scenario 3 HK$’000 HK$’000 (Note) HK$’000 HK$’000 (Note) HK$’000 HK$’000 Non-current assets Fixed assets 9,485 — 9,485 — 9,485 9,485 Investment securities 2,724 — 2,724 (1,421) (1) 1,303 1,303 12,209 — 12,209 (1,421) 10,788 10,788 Current assets Gross amount due from customers for contracts 711 — 711 — 711 711 Inventories 26,412 — 26,412 — 26,412 26,412 Accounts receivable 26,742 — 26,742 — 26,742 26,742 Prepayments, deposits and other receivables 31,812 — 31,812 — 31,812 31,812 Cash and bank balances 3,917 — 3,917 — 3,917 3,917 89,594 — 89,594 — 89,594 89,594 Current liabilities Gross amount due to customers for contracts 2,726 — 2,726 — 2,726 2,726 Trade payable 8,821 — 8,821 — 8,821 8,821 Bills payable 2,337 — 2,337 — 2,337 2,337 Receipts in advance 5,605 — 5,605 — 5,605 5,605 Other payables and accruals 13,774 — 13,774 — 13,774 13,774 Amount due to a related company 24,450 — 24,450 — 24,450 24,450 Short term bank loans 16,981 — 16,981 — 16,981 16,981 Tax payable 327 — 327 — 327 327 75,021 — 75,021 — 75,021 75,021 Net current assets 14,573 — 14,573 — 14,573 14,573 Total assets less current liabilities 26,782 — 26,782 (1,421) 25,361 25,361	The Group Pro forma adjustments under Scenario 1 Pro forma statement under Scenario 1 Pro forma adjustments under Scenario 2 Pro forma statement under Scenario 2 Pro forma statement under Scenario 3 HK$’000 HK$’000 (Note) HK$’000 HK$’000 (Note) HK$’000 HK$’000 Non-current assets Fixed assets 9,485 — 9,485 — 9,485 9,485 Investment securities 2,724 — 2,724 (1,421) (1) 1,303 1,303 12,209 — 12,209 (1,421) 10,788 10,788 Current assets Gross amount due from customers for contracts 711 — 711 — 711 711 Inventories 26,412 — 26,412 — 26,412 26,412 Accounts receivable 26,742 — 26,742 — 26,742 26,742 Prepayments, deposits and other receivables 31,812 — 31,812 — 31,812 31,812 Cash and bank balances 3,917 — 3,917 — 3,917 3,917 89,594 — 89,594 — 89,594 89,594 Current liabilities Gross amount due to customers for contracts 2,726 — 2,726 — 2,726 2,726 Trade payable 8,821 — 8,821 — 8,821 8,821 Bills payable 2,337 — 2,337 — 2,337 2,337 Receipts in advance 5,605 — 5,605 — 5,605 5,605 Other payables and accruals 13,774 — 13,774 — 13,774 13,774 Amount due to a related company 24,450 — 24,450 — 24,450 24,450 Short term bank loans 16,981 — 16,981 — 16,981 16,981 Tax payable 327 — 327 — 327 327 75,021 — 75,021 — 75,021 75,021 Net current assets 14,573 — 14,573 — 14,573 14,573 Total assets less current liabilities 26,782 — 26,782 (1,421) 25,361 25,361	The Group Pro forma adjustments under Scenario 1 Pro forma statement under Scenario 1 Pro forma adjustments under Scenario 2 Pro forma statement under Scenario 2 Pro forma statement under Scenario 3 HK$’000 HK$’000 (Note) HK$’000 HK$’000 (Note) HK$’000 HK$’000 Non-current assets Fixed assets 9,485 — 9,485 — 9,485 9,485 Investment securities 2,724 — 2,724 (1,421) (1) 1,303 1,303 12,209 — 12,209 (1,421) 10,788 10,788 Current assets Gross amount due from customers for contracts 711 — 711 — 711 711 Inventories 26,412 — 26,412 — 26,412 26,412 Accounts receivable 26,742 — 26,742 — 26,742 26,742 Prepayments, deposits and other receivables 31,812 — 31,812 — 31,812 31,812 Cash and bank balances 3,917 — 3,917 — 3,917 3,917 89,594 — 89,594 — 89,594 89,594 Current liabilities Gross amount due to customers for contracts 2,726 — 2,726 — 2,726 2,726 Trade payable 8,821 — 8,821 — 8,821 8,821 Bills payable 2,337 — 2,337 — 2,337 2,337 Receipts in advance 5,605 — 5,605 — 5,605 5,605 Other payables and accruals 13,774 — 13,774 — 13,774 13,774 Amount due to a related company 24,450 — 24,450 — 24,450 24,450 Short term bank loans 16,981 — 16,981 — 16,981 16,981 Tax payable 327 — 327 — 327 327 75,021 — 75,021 — 75,021 75,021 Net current assets 14,573 — 14,573 — 14,573 14,573 Total assets less current liabilities 26,782 — 26,782 (1,421) 25,361 25,361	The Group Pro forma adjustments under Scenario 1 Pro forma statement under Scenario 1 Pro forma adjustments under Scenario 2 Pro forma statement under Scenario 2 Pro forma statement under Scenario 3 HK$’000 HK$’000 (Note) HK$’000 HK$’000 (Note) HK$’000 HK$’000 Non-current assets Fixed assets 9,485 — 9,485 — 9,485 9,485 Investment securities 2,724 — 2,724 (1,421) (1) 1,303 1,303 12,209 — 12,209 (1,421) 10,788 10,788 Current assets Gross amount due from customers for contracts 711 — 711 — 711 711 Inventories 26,412 — 26,412 — 26,412 26,412 Accounts receivable 26,742 — 26,742 — 26,742 26,742 Prepayments, deposits and other receivables 31,812 — 31,812 — 31,812 31,812 Cash and bank balances 3,917 — 3,917 — 3,917 3,917 89,594 — 89,594 — 89,594 89,594 Current liabilities Gross amount due to customers for contracts 2,726 — 2,726 — 2,726 2,726 Trade payable 8,821 — 8,821 — 8,821 8,821 Bills payable 2,337 — 2,337 — 2,337 2,337 Receipts in advance 5,605 — 5,605 — 5,605 5,605 Other payables and accruals 13,774 — 13,774 — 13,774 13,774 Amount due to a related company 24,450 — 24,450 — 24,450 24,450 Short term bank loans 16,981 — 16,981 — 16,981 16,981 Tax payable 327 — 327 — 327 327 75,021 — 75,021 — 75,021 75,021 Net current assets 14,573 — 14,573 — 14,573 14,573 Total assets less current liabilities 26,782 — 26,782 (1,421) 25,361 25,361	The Group Pro forma adjustments under Scenario 1 Pro forma statement under Scenario 1 Pro forma adjustments under Scenario 2 Pro forma statement under Scenario 2 Pro forma statement under Scenario 3 HK$’000 HK$’000 (Note) HK$’000 HK$’000 (Note) HK$’000 HK$’000 Non-current assets Fixed assets 9,485 — 9,485 — 9,485 9,485 Investment securities 2,724 — 2,724 (1,421) (1) 1,303 1,303 12,209 — 12,209 (1,421) 10,788 10,788 Current assets Gross amount due from customers for contracts 711 — 711 — 711 711 Inventories 26,412 — 26,412 — 26,412 26,412 Accounts receivable 26,742 — 26,742 — 26,742 26,742 Prepayments, deposits and other receivables 31,812 — 31,812 — 31,812 31,812 Cash and bank balances 3,917 — 3,917 — 3,917 3,917 89,594 — 89,594 — 89,594 89,594 Current liabilities Gross amount due to customers for contracts 2,726 — 2,726 — 2,726 2,726 Trade payable 8,821 — 8,821 — 8,821 8,821 Bills payable 2,337 — 2,337 — 2,337 2,337 Receipts in advance 5,605 — 5,605 — 5,605 5,605 Other payables and accruals 13,774 — 13,774 — 13,774 13,774 Amount due to a related company 24,450 — 24,450 — 24,450 24,450 Short term bank loans 16,981 — 16,981 — 16,981 16,981 Tax payable 327 — 327 — 327 327 75,021 — 75,021 — 75,021 75,021 Net current assets 14,573 — 14,573 — 14,573 14,573 Total assets less current liabilities 26,782 — 26,782 (1,421) 25,361 25,361
	12,209 711 26,412 26,742 31,812 3,917 89,594 2,726 8,821 2,337 5,605 13,774 24,450 16,981 327 75,021 14,573	— — — — — — — — — — — — — — — — —	12,209 711 26,412 26,742 31,812 3,917 89,594 2,726 8,821 2,337 5,605 13,774 24,450 16,981 327 75,021 14,573	(1,421) — — — — — — — — — — — — — — — —	10,788 711 26,412 26,742 31,812 3,917 89,594 2,726 8,821 2,337 5,605 13,774 24,450 16,981 327 75,021 14,573	10,788
						711 26,412 26,742 31,812 3,917
						89,594
						2,726 8,821 2,337 5,605 13,774 24,450 16,981 327
						75,021
						14,573
	26,782	—	26,782	(1,421)	25,361	25,361

— 129 —

APPENDIX IV

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

		Pro forma		Pro forma	Pro forma		Pro forma	Pro forma
		adjustments		statement	adjustments		statement	statement
		under		under	under		under	under
	The Group	Scenario 1		Scenario 1	Scenario 2		Scenario 2	Scenario 3
	HK$’000	HK$’000	(Note)	HK$’000	HK$’000	(Note)	HK$’000	HK$’000
Non-current liabilities
Promissory note,
unsecured	1,800	—		1,800	—		1,800	1,800
Minority interests	14,892	(7,942)	(4)	6,950	(6,950)	(4)	7,942	—
NET ASSETS	10,090	7,942		18,032	5,529		15,619	23,561
CAPITAL AND
RESERVES
Share capital	3,755	795	(2)	4,550			3,755	4,550
Reserves	6,335	7,147	(3)	13,482	5,529	(3)	11,864	19,011
	10,090	7,942		18,032	5,529		15,619	23,561

Notes:

(1) The amount of approximately HK$1.4 million represents the net book value of 40% equity interest in (Beijing Hung Luen Network Technology Company Limited) which is disposed as a result of the transfer of entire interest in Top Gallant as consideration for the Second Acquisition, which is extracted from the annual report of the Company for the year ended 31 March 2005.

• (2) The adjustment represents the consideration of approximately HK$5.2 million which is satisfied by the issue of 15,890,000 Consideration Shares at an issue price of HK$0.33 per Consideration Share for the First Acquisition:

Increase in share capital issued = Shares issued x nominal value

• = 15,890,000 x 0.05

• = 794,500

		Scenario 1	Scenario 2
		HK$’000	HK$’000
(3)	Increase in share premium (15,890,000 x (0.33-0.05*))	4,449	—
	Increase in sharing of subsidiaries profit as a result of the acquisitions
	under:
	— Scenario 1 (please refer to note 3 of the unaudited proforma
	consolidated income statement of the Enlarged Group)	898	—
	— Scenario 2 (please refer to note 3 of the unaudited proforma
	consolidated income statement of the Enlarged Group)	—	640
	Gain on disposal of Top Gallant	—	2,279
	Negative goodwill recognised	1,800	2,610
		7,147	5,529

* This represents the nominal value of the Share

— 130 —

APPENDIX IV

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(4) The adjustment represents the elimination of minority interest after the First Acquisition or the Second Acquisition, as the case may be:

	Scenario 1	Scenario 2
	HK$’000	HK$’000
Increase in sharing of consolidated net assets as at 1 December 2004 of
— Tongfang (HK) Group	7,044	—
— Tongfang Electronic Company Limited Group	—	6,310
Increase in sharing of consolidated profit of Beijing Tongfang Group for the
year ended 31 March 2005	898	640
	7,942	6,950

UNAUDITED PRO FORMA CONSOLIDATED CASH FLOW STATEMENT OF THE ENLARGED GROUP

The Group Pro forma adjustments under Scenario 1 and Scenario 2 Pro forma Statement under Scenario 3 HK$’000 HK$’000 HK$’000 (Note) (Unaudited) Net cash used in operating activities (17,435) — (17,435) Net cash from investing activities 15,273 — 15,273 Net cash from financing activities 5,165 — 5,165 Net increase in cash and cash equivalents 3,003 — 3,003 Cash and cash equivalents at beginning of year 907 — 907 Effect of foreign exchange rate changes 7 — 7 Cash and cash equivalents at end of period 3,917 — 3,917 Analysis of the balances of cash and cash equivalents Cash and bank balances 3,917 — 3,917	The Group Pro forma adjustments under Scenario 1 and Scenario 2 Pro forma Statement under Scenario 3 HK$’000 HK$’000 HK$’000 (Note) (Unaudited) Net cash used in operating activities (17,435) — (17,435) Net cash from investing activities 15,273 — 15,273 Net cash from financing activities 5,165 — 5,165 Net increase in cash and cash equivalents 3,003 — 3,003 Cash and cash equivalents at beginning of year 907 — 907 Effect of foreign exchange rate changes 7 — 7 Cash and cash equivalents at end of period 3,917 — 3,917 Analysis of the balances of cash and cash equivalents Cash and bank balances 3,917 — 3,917	The Group Pro forma adjustments under Scenario 1 and Scenario 2 Pro forma Statement under Scenario 3 HK$’000 HK$’000 HK$’000 (Note) (Unaudited) Net cash used in operating activities (17,435) — (17,435) Net cash from investing activities 15,273 — 15,273 Net cash from financing activities 5,165 — 5,165 Net increase in cash and cash equivalents 3,003 — 3,003 Cash and cash equivalents at beginning of year 907 — 907 Effect of foreign exchange rate changes 7 — 7 Cash and cash equivalents at end of period 3,917 — 3,917 Analysis of the balances of cash and cash equivalents Cash and bank balances 3,917 — 3,917	The Group Pro forma adjustments under Scenario 1 and Scenario 2 Pro forma Statement under Scenario 3 HK$’000 HK$’000 HK$’000 (Note) (Unaudited) Net cash used in operating activities (17,435) — (17,435) Net cash from investing activities 15,273 — 15,273 Net cash from financing activities 5,165 — 5,165 Net increase in cash and cash equivalents 3,003 — 3,003 Cash and cash equivalents at beginning of year 907 — 907 Effect of foreign exchange rate changes 7 — 7 Cash and cash equivalents at end of period 3,917 — 3,917 Analysis of the balances of cash and cash equivalents Cash and bank balances 3,917 — 3,917
	3,003 907 7	— — —	3,003 907 7
	3,917 3,917	— —	3,917
			3,917

Note: Both of the First Acquisition and the Second Acquisition would have no effect on the cash flows of the Enlarged Group, as the First Acquisition is satisfied by the issue of 15,890,000 Consideration Shares of the Company and the Second Acquisition is satisfied by the transfer of the Company’s entire equity interest in Top Gallant, a wholly owned subsidiary of the Company.

— 131 —

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

FINANCIAL AND TRADING PROSPECTS

The Directors consider that the First Acquisition and the Second Acquisition can contribute to the business growth of the Group. Due to the shortage in electricity supply in the PRC, there has been a boom in the construction of power plants in the PRC since 2003 and hence a rising demand for the management information systems for power plants. As Beijing Tongfang, a wholly owned subsidiary of the Target, is well positioned in the power plants’ management information system industry in the PRC, the Directors are optimistic to the business development of the Target in the near future. As a result, the Board is of the view that the First Acquisition and the Second Acquisition represent a valuable opportunity for the Group to strengthen its existing business portfolio as well as its presence in the power plants’ management information system industry in the PRC. In addition, the Board believe that the First Acquisition and the Second Acquisition will enhance the financial position of the Group based on the satisfactory financial performance of the Target Group in the past two years. Besides the First Acquisition and the Second Acquisition, the Board will continue to look for growth opportunities both internally and through acquisition in order to take advantage of the rapidly expanding and changing market of the PRC.

INDEBTEDNESS

At the close of the business on 30 June 2005, being the latest practicable date for the purpose of this indebtedness statement, the Enlarged Group had total outstanding debts of approximately HK$2 million. These borrowings comprise short term bank loan of approximately HK$0.2 million and promissory note of HK$1.8 million.

Save as aforesaid and apart from intra-group liabilities and normal trade payables, the Enlarged Group did not have any bank loans and overdraft, debt securities or other similar indebtedness, or hire purchase commitments, or liabilities under acceptance credits, or any guarantees, or other material contingent liabilities outstanding at the close of business on 30 June 2005.

The Directors are not aware of any material changes to the indebtedness and contingent liabilities of the Group since 30 June 2005.

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PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

WORKING CAPITAL

The Directors are satisfied after due and careful consideration that, in the absence of unforeseeable circumstances, upon completion and after taking into account the present internal financial resources and credit facilities available of the Enlarged Group, the Enlarged Group has sufficient working capital for its present requirements.

MATERIAL ADVERSE CHANGE

Save for the First Acquisition and the Second Acquisition, the Directors confirm that (i) there has been no material adverse change in the financial or trading position of the Group since 31 March 2005, the date to which the latest audited consolidated financial statements of the Group were made up; and (ii) there has been no material adverse change in the financial or trading position of the Target Group since 31 December 2004, the date to which the latest audited consolidated financial statements of the Target Group were made up.

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GENERAL INFORMATION

APPENDIX V

RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the GEM Listing Rules for the purpose of giving information with regard to the Group. The Directors, having made all reasonable enquiries, confirm that, to the best of their knowledge and belief: (1) the information contained in this circular is accurate and complete in all material respects and not misleading; (2) there are no other matters the omission of which would make any statement in this circular misleading; and (3) all opinions expressed in this circular have been arrived at after due and careful consideration and are founded on bases and assumptions that are fair and reasonable.

SHARE CAPITAL

Authorised and issued share capital

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

Authorised: HK$ Ordinary shares 4,000,000,000 Shares 200,000,000

Issued and fully paid:

Ordinary shares 75,105,000 Shares 3,755,250

All the existing issued Shares rank pari passu in all respects including all rights as to dividends, voting and return of capital.

As at the Latest Practicable Date, the Group did not have any outstanding options, warrants or other securities carrying rights of conversion into or exchange or subscription for Shares.

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GENERAL INFORMATION

APPENDIX V

DISCLOSURE OF INTERESTS

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

Save as disclosed below, as at the Latest Practicable Date, none of the Directors or chief executives of the Company had any interests or short positions in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO), which (a) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO; or (b) were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (c) were required, pursuant to the Rules 5.46 to 5.67 of the GEM Listing Rules relating to securities transactions by Directors to be notified to the Company and the Stock Exchange.

Interest in the Shares

			Approximate
			percentage
		Number of	of the issued
Name of Director	Capacity	Shares held	share capital
Mr. Luk Yat Hung	Held by controlled corporation	21,542,476	28.68%
		(Note)

Note: Mr. Luk Yat Hung will be taken to be interested in 21,542,476 Shares as a result of him being beneficially interested in 50% of the issued share capital of Wide Source Group Ltd. which in turn holds 21,542,476 Shares.

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GENERAL INFORMATION

APPENDIX V

(b) Interests and short positions of Shareholders discloseable under the SFO

Save as disclosed below, as at the Latest Practicable Date, so far as is known to the Directors and chief executives of the Company, no person, other than a Director or chief executive of the Company, had a long or short position in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or which were recorded in the register required to be kept by the Company under Section 336 of the SFO:

(a) Interest in the Shares

			Approximate
			percentage
		Number of	of the issued
Name of Shareholders	Capacity	Shares held	share capital
Wide Source Group Ltd.	Beneficial owner	21,542,476	28.68%
		(Note 1)
Mr. Ma Bing	Interest of a controlled	21,542,476	28.68%
	corporation	(Note 2)

Notes:

1. Wide Source Group Ltd. is a company incorporated in the British Virgin Islands with limited liability and is ultimately and beneficially owned as to 50% by Mr. Luk Yat Hung, an executive Director, and as to 50% by Mr. Ma Bing.

2. Mr. Ma Bing will be taken to be interested in 21,542,476 shares in the Company as a result of him being beneficially interested in 50% of the issued share capital of Wide Source Group Ltd. which in turn holds 21,542,476 shares in the Company.

(b) Substantial shareholding in other members of the Group

Save as disclosed below, as at the Latest Practicable Date, so far as is known to the Directors and chief executives of the Company, no person, other than a Director or chief executive of the Company, was 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 other members of the Enlarged Group, or any options in respect of such capital:

	Name of	Approximate percentage of
Name of subsidiary	shareholder	the issued share capital
Tongfang (BVI)	Pacific Heights	38.5%
Target	Tsinghua Tongfang	35.0%

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GENERAL INFORMATION

APPENDIX V

SERVICE CONTRACTS

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

INTERESTS IN ASSETS AND/OR CONTRACTS AND OTHER INTERESTS

As at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any assets which have been, since 31 March 2005 (the date to which the latest audited consolidated financial statements of the Group were made up), acquired or disposed of by or leased to any member of the Enlarged Group, or are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group.

As at the Latest Practicable Date, none of the Directors was materially interested in any contract or arrangement which is significant in relation to the businesses of the Enlarged Group.

DIRECTORS’ INTERESTS IN COMPETING BUSINESS

As at the Latest Practicable Date, none of the Directors or the management shareholders of the Company and their respective Associates had an interest in a business which competes or may compete with the business of the Group or has any other conflict of interest which any such person has or may have with the Group pursuant to Rule 11.04 of the GEM Listing Rules.

EXPERTS AND CONSENTS

The following are the qualifications of the experts whose letters and reports (as the case may be) are contained in this circular:

Name Qualification MasterLink a licensed corporation under the SFO to carry out types 1, 4 and 6 regulated activities CCIF Certified Public Accountants

Each of MasterLink and CCIF has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and report and the references to its name in the form and context in which they appear.

As at the Latest Practicable Date, each of MasterLink and CCIF did not have any shareholding in the Company or any member of the Group and did not have any right or option, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in the Company or any member of the Group.

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GENERAL INFORMATION

APPENDIX V

As at the Latest Practicable Date, none of MasterLink and CCIF had any direct or indirect interest in any assets which have been, since 31 March 2005 (the date to which the latest audited consolidated financial statements of the Company were made up), acquired or disposed of by or leased to any member of the Enlarged Group, or are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group.

LITIGATION

As at the Latest Practicable Date, there was no litigation or arbitration or claim of material importance pending or threatened against any member of the Enlarged Group.

MATERIAL CONTRACTS

As at the Latest Practicable Date, the following contracts, not being contracts entered into in the ordinary course of business, were entered into by members of the Enlarged Group within the two years immediately preceding the Latest Practicable Date which are, or may be, material:

• (a) the sale and purchase agreement dated 8 September 2003 entered into between Top Gallant, Mr. Li Yi and Hung Luen in relation to the acquisition of 40% interest in Hung Luen;

• (b) the placing agreement dated 13 February 2004 entered into between the Company and VC CEF Brokerage Limited as placing agent in relation to the placing of 6,000,000 Shares at HK$0.48 per Share;

• (c) the sale and purchase deed dated 23 March 2004 entered into between the Company and Ms. Li Lu Yuan in relation to the acquisition of the entire issued share capital of Treasure Wise;

• (d) the assets transfer agreement dated 30 August 2004 entered into between Beijing Tongfang and Tsinghua Tongfang in relation to the transfer of the net assets of the power plant information systems business of Tsinghua Tongfang to Beijing Tongfang;

• (e) the placing agreement dated 24 February 2005 entered into between the Company and Tai Fook Securities Company Limited as placing agent in relation to the placing of 9,490,000 Shares at HK$0.21 per Share;

• (f) the First Acquisition Agreement; and

• (g) the Second Acquisition Agreement.

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GENERAL INFORMATION

APPENDIX V

MISCELLANEOUS

• (a) The registered office of the Company is at Century Yard, Cricket Square, Hutchins Drive, P.O. Box 2681GT, George Town, Grand Cayman, British West Indies. The principal place of business of the Company in Hong Kong is at 24/F, Prosperous Commercial Building, 54-58 Jardine’s Bazaar, Causeway Bay, Hong Kong. The principal registrar and transfer agent of the Company is Butterfield Bank (Cayman) Limited at Butterfield House, Fort Street, P.O. Box 705, George Town, Grand Cayman, Cayman Islands, British West Indies. The branch registrar and transfer agent of the Company in Hong Kong is Computershare Hong Kong Investor Services Limited at 46/F, Hopewell Centre, 183 Queen’s Road East, Hong Kong.

• (b) The Board comprises two executive Directors and four independent non-executive Directors.

Executive Directors

Mr. Luk Yat Hung, aged 45, joined the Group as the chairman, qualified accountant and compliance officer in July 2003. Mr. Luk is a member of Chartered Association of Certified Accountants of the United Kingdom and a fellow member of Hong Kong Institute of Certified Public Accountants with a master degree in business administration with Oklahoma City University, the United States of America. Mr. Luk has over 20 years of working experience with a number of international conglomerates performing functions of chief financial officer. The residential address of Mr. Luk is Flat F, 10/F, Block One, One Island Place, North Point, Hong Kong.

Ms. Li Wenli, aged 34, joined the Group in November 2004. Ms. Li graduated from Hebei University of Technology with a bachelor degree in computer science and engineering and holds a master degree in economics with Peking University. Prior to joining the Group, Ms. Li held senior positions with China Textile Machinery Co., Ltd. and Shanghai Guojia Industrial Co., Ltd., companies listed in The Shanghai Stock Exchange. She is a director and vice general manager of Beijing Tongfang, a non wholly owned subsidiary of the Company. The residential address of Ms. Li is Room 202, No. 10, 458 Lane, Rui Jin Nan Road, Shanghai 200032, PRC.

Independent non-executive Directors

Mr. Chung Shui Ming, Timpson, GBS, JP, aged 53, joined the Group in July 2003. Mr. Chung holds a Master of Business Administration degree and is a fellow member of Hong Kong Institute of Certified Public Accountants and the Association of Chartered Certified Accountants. He is a member of the National Committee of the 10th Chinese People’s Political Consultative Conference, a Council Member and the Deputy Chairman of the City University of Hong Kong and a member of Hong Kong Housing Authority and Chairman of its Finance Sub-Committee. Currently, Mr. Chung is an executive director and chief executive officer of Shimao International Holdings Limited, a company listed on the Stock Exchange and an independent non-executive director of three other companies listed on the

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APPENDIX V

GENERAL INFORMATION

Stock Exchange. Formerly, Mr. Chung was the Chairman of the Hong Kong Housing Society and the Chief Executive of the Hong Kong Special Administrative Region Government Land Fund Trust. The residential address of Mr. Chung is Flat 2A, 6/F, Clovelly Court, 12 May Road, Hong Kong.

Professor Ip Ho Shing, Horace, aged 48, joined the Group in July 2003. Professor Ip graduated from the University of London with a Bachelor of Science degree in Applied Physics and a Doctorate degree in Image Processing. He is the Chair Professor of the Department of Computer Science and a director of the Centre for Innovative Applications of Internet and Multimedia Technologies — AIMtech Centre of the City University of Hong Kong. The residential address of Professor Ip is Flat 5B, Block 11, 88 Tat Chee Avenue, Yau Yat Chuen, Hong Kong.

Mr. Yan Yonghong, aged 38, joined the Group in September 2004. Mr. Yan graduated from Tsinghua University with a Bachelor of Science degree in Electronic Engineering and holds a Doctorate degree in Computer Science and Engineering with Oregon Graduate Institute of Science and Engineering, the United States of America. Mr. Yan had been a principal engineer of Intel Corporation and an associate professor of Oregon Health and Science University. Currently, he is appointed by the Chinese Academy of Sciences as a professor and an instructor of doctorate students. He is also appointed by the Chinese government as a member of the vetting committee of National Science Foundation of China. The residential address of Mr. Yan is Chinese Academy of Science, 1/F, DSP Building, No. 21 Bei Si Huan West Road, Haidian District, Beijing 100080, PRC.

Mr. Peng Lijun, aged 39, joined the Group in December 2004. Mr. Peng graduated from Jianghan Petroleum University major in architectural civil engineering. Mr. Peng has extensive experience in the industries of petroleum and civil engineering. Currently, he is appointed by Xinjiang YouBang Engineering Construction Co. Ltd. and Kelamayi YouBang Real Estate Developing Co. Ltd. as the president. The residential address of Mr. Peng is Beidou Xincun 28-2, Kelamayi District, Kelamayi City, Xinjiang, PRC

• (c) The company secretary of the Company is Mr. Young Wai Ching. Mr. Young is a practising member of Hong Kong Institute of Certified Public Accountants and a member of Chartered Association of Certified Accountants of the United Kingdom. He has over 14 years working experience in an accounting firm in Hong Kong performing auditing and management functions.

• (d) The Company has established an audit committee comprising four independent nonexecutive Directors, Mr. Chung Shui Ming, Timpson, Professor Ip Ho Sing, Horace, Mr. Yan Younghong and Mr. Peng Lijun. The primary duties of the audit committee are to review and supervise the financial reporting process and internal control procedures of the Group and to provide advice and comments to the Board. Please refer to point (b) of this paragraph for the biographical details of the four independent non-executive Directors.

• (e) The English texts of this circular and the accompanying form of proxy shall prevail over their respective Chinese texts.

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GENERAL INFORMATION

APPENDIX V

DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during business hours at the principal place of business in Hong Kong of the Company at 24/F, Prosperous Commercial Building, 54-58 Jardine’s Bazaar, Causeway Bay, Hong Kong from the date of this circular up to and including the date of the EGM:

• (a) the First Acquisition Agreement and the Second Acquisition Agreement;

• (b) the memorandum and articles of association of the Company;

• (c) the annual report of the Company for each of the two years ended 31 March 2005;

• (d) the quarterly report of the Company for the three months ended 30 June 2005;

• (e) the report issued by CCIF in connection with the financial information of the Target as set out in Appendix II to this circular;

• (f) the report issued by CCIF in connection with the financial information of Pacific Heights as set out in Appendix III to this circular;

• (g) the report issued by CCIF in connection with the pro forma financial information of the Enlarged Group as set out in Appendix IV to this circular;

• (h) the letter from MasterLink, the text of which is set out in this circular;

• (i) the letters of consent referred to in the section headed “Experts and consents” in this appendix; and

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

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NOTICE OF EGM

Tai Shing International (Holdings) Limited

*

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 8103)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting of Tai Shing International (Holdings) Limited (the “Company”) will be held on Monday, 12 September 2005 at 3:00 p.m. at Yat Tung Heen Chinese Restaurant, 2/F, Great Eagle Centre, 23 Harbour Road, Wanchai, Hong Kong for the purpose of considering and, if thought fit, passing, with or without amendments, the following resolutions as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

1. “ THAT

• (A) the transaction contemplated under the agreement (the “First Acquisition Agreement”) dated 22 July, 2005 between the Company and Tsinghua Tongfang Co. Limited (“Tsinghua Tongfang”) (a copy of the First Acquisition Agreement has been produced to this meeting marked “A” and initialled by the chairman of the meeting for identification purpose) pursuant to which, subject to the fulfilment of certain conditions, the Company has agreed to acquire 35% interest in the issued share capital of Tongfang Electronic (Hong Kong) Company Limited at a consideration of approximately HK$5.2 million, including the issue and allotment of 15,890,000 new shares of HK$0.05 each in the share capital of the Company (each a “Share”) to Tsinghua Tongfang or as it may direct, credited as fully paid in satisfaction of such consideration, be and is hereby approved;

• (B) the directors of the Company (the “Directors”) be and are hereby authorised to exercise all the powers of the Company and take all other steps as might in the opinion of the Directors be desirable or necessary in connection with the First Acquisition Agreement.”

2. “ THAT :

• (A) the transaction contemplated under the agreement (the “Second Acquisition Agreement”) dated 4 August, 2005 between the Company and Mr. Pyong Sig Cho (“Mr. Cho”) (a copy of the Second Acquisition Agreement has been produced to this meeting marked “B” and initialled by the chairman of the meeting for identification purpose) pursuant to which, subject to the fulfilment of certain conditions, the Company has agreed to acquire the entire interest in the issued share capital of Pacific

• For identification purpose only

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NOTICE OF EGM

Heights Holdings Limited at a consideration of approximately HK$3.7 million, which is to be satisfied by the Company by the transfer to Mr. Cho or his nominee the entire interest in Top Gallant International Limited, a wholly owned subsidiary of the Company, be and is hereby approved;

• (B) the Directors be and are hereby authorised to exercise all the powers of the Company and take all other steps as might in the opinion of the Directors be desirable or necessary in connection with the Second Acquisition Agreement.”

By order of the Board

Tai Shing International (Holdings) Limited Luk Yat Hung Chairman

Hong Kong, 26 August 2005

Principal place of business in Hong Kong:

24/F Prosperous Commercial Building 54-58 Jardine’s Bazaar Causeway Bay Hong Kong

As at the date of this notice, the board of directors of the Company comprises two executive directors, namely Mr. Luk Yat Hung and Ms. Li Wenli and four independent non-executive directors, namely Mr. Chung Shui Ming, Timpson, Professor Ip Ho Shing, Horace, Mr. Yan Yonghong and Mr. Peng Lijun.

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NOTICE OF EGM

Notes:

1. Any member of the Company entitled to attend and vote at the meeting of the Company is entitled to appoint another person as his proxy to attend and vote instead of him. A member of the Company who is the holder of two or more shares may appoint more than one proxy to represent him and vote on his behalf at the general meeting of the Company. A proxy need not be a member of the Company. In addition, a proxy or proxies representing either a member of the Company who is an individual or a member of the Company which is a corporation shall be entitled to exercise the same powers on behalf of the member of the Company which he or they represent as such member of the Company could exercise.

2. The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing or, if the appointor is a corporation, either under its seal or under the hand of an officer, attorney or other person authorised to sign the same. In the case of an instrument of proxy purporting to be signed on behalf of a corporation by an officer thereof it shall be assumed, unless the contrary appears, that such officer was duly authorised to sign such instrument of proxy on behalf of the corporation without further evidence of the facts.

3. The instrument appointing a proxy and (if required by the board of directors of the Company) the power of attorney or other authority (if any) under which it is signed, or a certified copy of such power or authority, shall be delivered to the Company’s Hong Kong branch share registrar, Computershare Hong Kong Investor Services Limited, at 46/F, Hopewell Centre, 183 Queen’s Road East, Hong Kong not less than forty-eight (48) hours before the time appointed for holding the meeting or adjourned meeting at which the person named in the instrument proposes to vote or, in the case of a poll taken subsequently to the date of the meeting or adjourned meeting, not less than twenty-four (24) hours before the time appointed for the taking of the poll and in default the instrument of proxy shall not be treated as valid.

4. Delivery of an instrument appointing a proxy shall not preclude a member of the Company from attending and voting in person at the meeting convened and in such event, the instrument appointing a proxy shall be deemed to be revoked.

5. Where there are joint holders of any share, any one of such joint holders may vote, either in person or by proxy, in respect of such share as if he were solely entitled thereto, but if more than one of such joint holders be present at the meeting the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the register of members of the Company in respect of the joint holding.

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