Honbridge Holdings Limited — Proxy Solicitation & Information Statement 2003

Sep 2, 2003

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in Jessica Publications Limited , you should at once hand this circular to the purchaser or the transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this 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.

==> picture [128 x 41] intentionally omitted <==

JESSICA PUBLICATIONS LIMITED

(Incorporated in the Cayman Islands with limited liability)

MAJOR TRANSACTION

Establishment of a joint venture in the People’s Republic of China with Shanghai Boyang Advertising Limited which will be engaged in the magazine publication and distribution related businesses

Financial adviser

==> picture [42 x 36] intentionally omitted <==

MasterLink Securities (Hong Kong) Corporation Limited

This circular will remain on the “Latest Company Announcements” page of the GEM website at www.hkgem.com for at least seven days from the date of its publication and on the website of Jessica Publications Limited at www.jessicahk.com.

1 September 2003

CHARACTERISTICS OF THE GROWTH ENTERPRISE MARKET (“GEM”) OF THE STOCK EXCHANGE OF HONG KONG LIMITED (THE “STOCK EXCHANGE”)

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 profitablility 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 traded on the Main Board of the Stock Exchange and no assurance is given that there will be a liquid market in the securities traded 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.

— i —

CONTENTS

			Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . .		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
**LETTER **	FROM THE BOARD
A)	Introduction . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
B)	Joint Venture . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
	1. Joint Venture Agreement . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
	2. Establishment of the Joint Venture .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
	3. Capital contribution . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
	4. Term of the Joint Venture . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
	5. Business scope of the Joint Venture	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
	6. Management of the Joint Venture . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
C)	Information on Boyang . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
D)	Reasons for entering into the Joint Venture	Agreement . . . . . . . . . . . . . . . . . . . . . . . . . .	5
E)	Financial effect on the Jessica Group upon	the formation of the Joint Venture . . . . . . . . . .	5
F)	General . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
G)	Additional information . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
APPENDIX I — FINANCIAL INFORMATION OF THE JESSICA GROUP . . . . . . . . . . . . .			7
APPENDIX II — GENERAL INFORMATION		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	29

— ii —

DEFINITIONS

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

“Board”	means the board of Directors
“Boyang”	means Shanghai Boyang Advertising Limited ( ),
	an independent third party
“Company”	means Jessica Publications Limited, a company incorporated in the
	Cayman Islands with limited liability, whose shares are listed on
	GEM
“Director(s)”	means the director(s) of the Company
“EGM”	means an extraordinary general meeting of the Company
“Enlarged Jessica Group”	means the Jessica Group as enlarged immediately after the
	establishment of the Joint Venture
“GEM”	means the Growth Enterprise Market of the Stock Exchange
“GEM Listing Rules”	means the Rules Governing the Listing of Securities on GEM
“Grandpress”	means Grandpress Limited, a company incorporated in Hong Kong
	whose registered office is at 28th Floor, Bank of China Tower, 1
	Garden Road, Central, Hong Kong and is a wholly-owned subsidiary
	of the Company. Its principal asset is the 55% shareholding in the
	Joint Venture
“HK$”	means Hong Kong dollars
“Hong Kong”	means the Hong Kong Special Administrative Region of the PRC
“Jessica Group”	means the Company and its subsidiaries
“Jessica Share(s)”	means the ordinary share(s) of HK$0.001 each in the share capital of
	the Company
“Joint Venture”	means Shanghai South China & Boyang Media Consultant Co., Ltd. ( ), a Sino-foreign co-operative joint
	venture enterprise to be established in the PRC by Grandpress and
	Boyang pursuant to the Joint Venture Agreement
“Joint Venture Agreement”	means a legally binding agreement entered into between Grandpress
	and Boyang for the establishment of the Joint Venture on 11 August
	2003
“Latest Practicable Date”	means 28 August 2003, being the latest practicable date prior to the
	printing of this circular for ascertaining certain information for
	inclusion in this circular
“PRC”	means the People’s Republic of China

— 1 —

	DEFINITIONS
“SFO”	means the Securities and Futures Ordinance (Chapter 571 of the laws
	of Hong Kong)
“Shareholder(s)”	means the holder(s) of the Jessica Shares
“Shareholders’ Approval”	means the written approval on the formation of the Joint Venture
	received by the Company on 11 August 2003 from a closely allied
	group of Shareholders, namely Mr Ng Hung Sang, Robert, Parkfield
	Holdings Limited, Fung Shing Group Limited, Ronastar Investments
	Limited, Earntrade Investments Limited and Bannock Investment
	Limited, being Shareholders, which have no interest in the formation
	of the Joint Venture and collectively own approximately 66.4% in
	nominal value of the Jessica Shares having the right to attend and
	vote at the general meeting of the Company as at the Latest
	Practicable Date
“Stock Exchange”	means The Stock Exchange of Hong Kong Limited

— 2 —

LETTER FROM THE BOARD

==> picture [128 x 40] intentionally omitted <==

JESSICA PUBLICATIONS LIMITED

(Incorporated in the Cayman Islands with limited liability)

Directors:

Mr NG Hung Sang, Robert (Chairman) Ms NG, Jessica Yuk Mui (Chief Executive Officer) Ms FOO Kit Tak Ms CHEUNG Mei Yu Ms PONG Oi Lan, Scarlett Mr SO, George Siu Ming

Registered office:

The Offices of M & C Corporate Services Limited P.O. Box 309 George Town Grand Cayman Cayman Islands British West Indies

* independent non-executive directors

Head office and principal place of business:

Unit C, 3rd Floor Wah Shing Centre 5 Fung Yip Street Chai Wan Hong Kong

1 September 2003

To the Shareholders

Dear Sirs or Madams

MAJOR TRANSACTION

Establishment of a joint venture in the People’s Republic of China with Shanghai Boyang Advertising Limited which will be engaged in the magazine publication and distribution related businesses

A) INTRODUCTION

It was announced on 11 August 2003 that Grandpress, a wholly-owned subsidiary of the Company, has entered into a legally binding Joint Venture Agreement with Boyang, an independent third party, under which, inter alia, Grandpress and Boyang agree to jointly establish a Sino-foreign co-operative joint venture enterprise namely Shanghai South China & Boyang Media Consultant Co., Ltd. ( ) in Shanghai, the PRC. The Joint Venture will be owned as to 55% by Grandpress and as to 45% by Boyang.

The registered capital of the Joint Venture is HK$5.20 million of which (i) HK$2.86 million will be contributed in cash by Grandpress; and (ii) the remaining HK$2.34 million will be contributed in cash and in kind by Boyang.

— 3 —

LETTER FROM THE BOARD

As the capital commitment of Grandpress under the Joint Venture Agreement is more than 50% of the audited consolidated net tangible assets of the Jessica Group as of 31 December 2002, the formation of the Joint Venture constituted a major transaction of the Company under Chapter 19 of the GEM Listing Rules. On 11 August 2003, the Company received the Shareholders’ Approval and therefore given no Shareholder will be required to abstain from voting on the relevant resolution should an EGM be held, pursuant to Rule 19.39 of the GEM Listing Rules, the Company need not hold an EGM to consider the formation of the Joint Venture.

The purpose of this circular is to provide the Shareholders with further information relating to the Joint Venture Agreement and any transactions contemplated thereunder. This circular also contains information in compliance with the GEM Listing Rules.

B) JOINT VENTURE

1. Joint Venture Agreement

Date : 11 August 2003 Parties : (1) Grandpress (2) Boyang

2. Establishment of the Joint Venture

Pursuant to the Joint Venture Agreement, Grandpress and Boyang have agreed to jointly establish the Joint Venture in the PRC. The Joint Venture will be owned as to 55% by Grandpress and as to 45% by Boyang. Hence, the Joint Venture will become an indirect non-wholly-owned subsidiary of the Company, the financial results of which will be consolidated into the Jessica Group’s consolidated financial statements.

3. Capital contribution

• (i) Registered capital: HK$5.20 million, of which

• (a) HK$2.86 million will be contributed in cash by Grandpress as part of the registered capital of the Joint Venture; and

• (b) HK$2.34 million will be contributed in cash and in kind by Boyang as part of the registered capital of the Joint Venture.

• (ii) The cash capital contribution by Grandpress will be funded by internal resources of the Jessica Group.

The amount of cash capital contribution by Boyang will be approximately HK$2.30 million and the in kind contribution will be approximately HK$0.04 million worth of assets.

The valuation of the in kind capital contribution was based on Boyang’s net book value of assets.

4. Term of the Joint Venture

50 years from the date of the issuance of the business licence of the Joint Venture.

— 4 —

LETTER FROM THE BOARD

5. Business scope of the Joint Venture

The location of the operation of the Joint Venture will be initially in Shanghai. The Joint Venture will carry out the magazine publication and distribution related businesses.

6. Management of the Joint Venture

According to the Joint Venture Agreement, the board of directors of the Joint Venture will have five members. Grandpress is entitled to appoint the chairman and two directors and Boyang is entitled to appoint the other two directors. Grandpress is also entitled to nominate the first chief financial officer and first deputy general manager of the Joint Venture. The general manager of the Joint Venture will be appointed by the board of directors of the Joint Venture.

C) INFORMATION ON BOYANG

Boyang is a company incorporated in the PRC on 15 July 1999 and is engaged in the businesses of advertising agency, contents provision for various print media companies and distribution of “ ”, a weekly magazine in the PRC. Each of Boyang and its ultimate beneficial owner of Boyang is an independent third party not connected with the Directors, chief executive, substantial shareholders and management shareholders of the Company and their respective associates (as defined under the GEM Listing Rules).

D) REASONS FOR ENTERING INTO THE JOINT VENTURE AGREEMENT

The Directors believe that Boyang is a successful player in the PRC print media related businesses. With the establishment of the Joint Venture, the Company would further expand in the Chinese language print media related business. The Directors consider that the Joint Venture will help the Company to penetrate the PRC market and provide synergies to its existing print media businesses including, “ JESSICA” magazine, “ LISA” magazine and “ JESSICACODE” magazine.

Although the establishment of the Joint Venture was not specifically disclosed in the Company’s prospectus dated 31 December 2001, the Directors believe that the Joint Venture is in line with one of the Company’s statement of business objectives as stated therein, which is, expanding into other Chinese-speaking markets by identifying suitable PRC publishing partners to license the title of the Jessica Group and will not constitute any change in the business of the Jessica Group as stated in the prospectus of the Company dated 31 December 2001.

E) FINANCIAL EFFECT ON THE JESSICA GROUP UPON THE FORMATION OF THE JOINT VENTURE

The audited consolidated net asset value of the Jessica Group as at 31 December 2002 was approximately HK$4.87 million. Taking into account of the 55% interest of Grandpress in the Joint Venture, it is expected that there is no material effect on the unaudited consolidated net asset value of the Enlarged Jessica Group immediately upon the formation of the Joint Venture. Any attributable operating profits and losses arising from the Joint Venture subsequent to the formation of the Joint Venture shall be recognized by the Enlarged Jessica Group on the proportion of capital contribution made by Grandpress as compared to the entire registered capital of the Joint Venture.

— 5 —

LETTER FROM THE BOARD

F) GENERAL

The Directors consider that the Joint Venture Agreement is entered into on normal commercial terms in the ordinary and usual course of business of the Jessica Group and that the terms of the Joint Venture Agreement are fair and reasonable and in the interests of the Jessica Group so far as the interests of the Shareholders are concerned.

As the capital commitment of Grandpress under the Joint Venture Agreement is more than 50% of the audited consolidated net tangible assets of the Jessica Group as of 31 December 2002, the signing of the Joint Venture Agreement constituted a major transaction of the Company under Chapter 19 of the GEM Listing Rules and is therefore conditional upon approval by the Shareholders at an EGM or in writing by a shareholder or a closely allied group of shareholders (as defined under the GEM Listing Rules) who together hold more than 50% in nominal value of the securities having the right to attend and vote at a general meeting. On 11 August 2003, the Company received the Shareholders’ Approval on the entering into the Joint Venture Agreement. Accordingly, given no Shareholder will be required to abstain from voting on the relevant resolution should an EGM be held, pursuant to Rule 19.39 of the GEM Listing Rules, the Company needs not hold a general meeting to consider the Joint Venture Agreement.

The principal business activity of Jessica Group is the publication of a monthly Chinese language magazine, namely “ JESSICA” magazine, a bi-weekly Chinese language magazine, namely “ LISA” magazine, and a half-monthly Chinese language magazine, namely “ JESSICACODE” magazine for female readers. The magazines of the Jessica Group are principally marketed in Hong Kong while “ JESSICA” magazine is also made available in Taiwan through an independent distributor.

G) ADDITIONAL INFORMATION

Your attention is drawn to the additional information set out in the appendices hereto.

Yours faithfully For and on behalf of JESSICA PUBLICATIONS LIMITED Ng, Jessica Yuk Mui Director

— 6 —

FINANCIAL INFORMATION OF THE JESSICA GROUP

APPENDIX I

1. SHARE CAPITAL

(i) Jessica Shares

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

Authorised: 1,000,000,000,000 Jessica Shares Issued and fully paid: 506,479,876 Jessica Shares	HK$ 1,000,000,000
	506,480

(ii) Outstanding share options

As at the Latest Practicable Date, details of the share options granted and outstanding under the share option scheme of the Company as adopted on 20 December 2001 are as follows:

		No. of Jessica Shares
	Exercise price per Jessica	to be issued upon exercise
Month of grant	Share	of options
	HK$
April 2002	0.69	10,240,000
September 2002	0.31	8,800,000
		19,040,000

Notes:

• (a) The vesting period of the share options is the period from the date of grant until the commencement of the exercise period. All share options referred to above are subject to one year’s vesting period. The share options may be exercised, in whole or in part, in the following manner:

From the date of grant of share options	Exercisable percentage
Within 12 months	Nil
13th-24th months	331⁄3%
25th-36th months	331⁄3%
37th-48th months	331⁄3%

• (b) The exercise price is subject to adjustment. Provided always that any part of the share options not exercised in full in accordance with the periods specified above shall remain exercisable during the exercise period of share options but the exercise price shall be adjusted by increasing 5% per annum (on a cumulative basis) until such time as the relevant portion of the share options shall have been fully exercised or lapsed in accordance with the share option scheme of the Company.

— 7 —

FINANCIAL INFORMATION OF THE JESSICA GROUP

APPENDIX I

2. CONSOLIDATED FINANCIAL STATEMENTS OF THE JESSICA GROUP

Set out on pages 8 to 26 is an extract from the audited consolidated financial statements of the Jessica Group for the year ended 31 December 2002 (the date of which the latest audited financial statements were made up), together with the comparative figures for the year ended 31 December 2001 and the unaudited consolidated income statements for the three months ended 31 March 2003 and 30 June 2003 respectively and relevant notes to the audited financial statements of the Jessica Group.

CONSOLIDATED INCOME STATEMENTS

NOTES Turnover 5 Direct operating expenses Other operating income Selling and distribution costs Administrative expenses Net loss from operations Waiver of amounts due to related companies Net (loss) profit before taxation 6 Taxation credit (charge) 8 Net (loss) profit for the year (Loss) earnings per share 9	For the three months ended 31 March 2003 30 June 2003 HK$’000 HK$’000 6,573 10,787 (4,442) (6,949) 49 29 (1,574) (2,805) (952) (1,051)	For the three months ended 31 March 2003 30 June 2003 HK$’000 HK$’000 6,573 10,787 (4,442) (6,949) 49 29 (1,574) (2,805) (952) (1,051)	For the year ended 31 December 2002 2001 HK$’000 HK$’000 27,599 20,034 (18,668) (15,611) 104 437 (6,488) (5,355) (4,591) (5,164) (2,044) (5,659) — 7,611 (2,044) 1,952 117 (117) (1,927) 1,835 HK(0.38) cents HK0.40 cents	For the year ended 31 December 2002 2001 HK$’000 HK$’000 27,599 20,034 (18,668) (15,611) 104 437 (6,488) (5,355) (4,591) (5,164) (2,044) (5,659) — 7,611 (2,044) 1,952 117 (117) (1,927) 1,835 HK(0.38) cents HK0.40 cents
	(346) — (346) —	11 — 11 —	(2,044) — (2,044) 117	(5,659 7,611
				1,952 (117
	(346) HK(0.07) cents	11 HK0.002 cents	(1,927) HK(0.38) cents

— 8 —

FINANCIAL INFORMATION OF THE JESSICA GROUP

APPENDIX I

CONSOLIDATED BALANCE SHEET

NOTES Non-current assets Property, plant and equipment 10 Current assets Trade receivables 12 Other receivables Deferred share issuance expenses Bank balances and cash Current liabilities Trade payables 13 Other payables and accrued charges Receipts in advance Amount due to a related company Taxation payable Net current assets (liabilities) Capital and reserves Share capital 15 Share premium and reserves 16	As at 31 December 2002 2001 HK$’000 HK$’000 586 90 5,566 3,255 703 263 — 3,150 7,293 597 13,562 7,265 6,469 4,916 2,057 3,376 737 852 12 459 — 117 9,275 9,720 4,287 (2,455) 4,873 (2,365) 506 456 4,367 (2,821) 4,873 (2,365)	As at 31 December 2002 2001 HK$’000 HK$’000 586 90 5,566 3,255 703 263 — 3,150 7,293 597 13,562 7,265 6,469 4,916 2,057 3,376 737 852 12 459 — 117 9,275 9,720 4,287 (2,455) 4,873 (2,365) 506 456 4,367 (2,821) 4,873 (2,365)
	5,566 703 — 7,293 13,562 6,469 2,057 737 12 — 9,275 4,287	3,255 263 3,150 597
		7,265
		4,916 3,376 852 459 117
		9,720
		(2,455
	4,873
	506 4,367	456 (2,821
	4,873

— 9 —

FINANCIAL INFORMATION OF THE JESSICA GROUP

APPENDIX I

BALANCE SHEET

NOTES Non-current assets Investments in subsidiaries 11 Current assets Other receivables Amount due from a subsidiary 14 Deferred share issuance expenses Bank balances Current liabilities Other payables and accrued charges Amount due to a subsidiary 14 Net current assets (liabilities) Capital and reserves Share capital 15 Share premium and reserves 16	As at 31 December 2002 2001 HK$’000 HK$’000 510 510 — 28 8,761 — — 3,150 70 — 8,831 3,178 45 1,775 — 1,540 45 3,315 8,786 (137) 9,296 373 506 456 8,790 (83) 9,296 373	As at 31 December 2002 2001 HK$’000 HK$’000 510 510 — 28 8,761 — — 3,150 70 — 8,831 3,178 45 1,775 — 1,540 45 3,315 8,786 (137) 9,296 373 506 456 8,790 (83) 9,296 373
	— 8,761 — 70 8,831 45 — 45 8,786	28 — 3,150 —
		3,178
		1,775 1,540
		3,315
		(137
	9,296
	506 8,790	456 (83
	9,296

— 10 —

FINANCIAL INFORMATION OF THE JESSICA GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2002

At 1 January 2001 Issue of shares on Reorganisation Net profit for the year At 1 January 2002 Placing of shares Share issue expenses Net loss for the year At 31 December 2002	Share capital HK$’000 — 456 — 456 50 — — 506	Share premium HK$’000 — 54 — 54 12,612 (3,497) — 9,169	Capital reserve Accumulated losses HK$’000 HK$’000 — (4,200) (510) — — 1,835 (510) (2,365) — — — — — (1,927) (510) (4,292)	Total HK$’000 (4,200) — 1,835 (2,365) 12,662 (3,497) (1,927) 4,873

— 11 —

FINANCIAL INFORMATION OF THE JESSICA GROUP

APPENDIX I

CONSOLIDATED CASH FLOW STATEMENT

OPERATING ACTIVITIES Net loss from operations Adjustments for: Depreciation of property, plant and equipment Operating cash flows before movements in working capital (Increase) decrease in trade and other receivables Decrease in amount due from a related company Increase in trade payables (Decrease) increase in other payables and accrued charges (Decrease) increase in receipts in advance Decrease in amount due to a related company NET CASH (USED IN) FROM OPERATING ACTIVITIES INVESTING ACTIVITIES Purchases of property, plant and equipment FINANCING ACTIVITIES Proceeds from the issue of shares Expenses incurred in connection with the issue of shares NET CASH FROM (USED IN) FINANCING ACTIVITIES NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT 1 JANUARY CASH AND CASH EQUIVALENTS AT 31 DECEMBER ANALYSIS OF THE BALANCE OF CASH AND CASH EQUIVALENTS Bank balances and cash	For the year ended 31 December 2002 2001 HK$’000 HK$’000 (2,044) (5,659) 65 10 (1,979) (5,649) (2,751) 83 — 8,123 1,553 534 (1,319) 2,589 (115) 135 (447) (1,972) (5,058) 3,843 (561) (100) 12,662 — (347) (3,150) 12,315 (3,150) 6,696 593 597 4 7,293 597 7,293 597	For the year ended 31 December 2002 2001 HK$’000 HK$’000 (2,044) (5,659) 65 10 (1,979) (5,649) (2,751) 83 — 8,123 1,553 534 (1,319) 2,589 (115) 135 (447) (1,972) (5,058) 3,843 (561) (100) 12,662 — (347) (3,150) 12,315 (3,150) 6,696 593 597 4 7,293 597 7,293 597
	(1,979) (2,751) — 1,553 (1,319) (115) (447) (5,058) (561) 12,662 (347) 12,315 6,696 597	(5,649 83 8,123 534 2,589 135 (1,972
		3,843
		(100
		— (3,150
		(3,150
		593 4
	7,293 7,293

— 12 —

FINANCIAL INFORMATION OF THE JESSICA GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 December 2002

1. GENERAL

The Company was incorporated in the Cayman Islands on 29 June 2001 as an exempted limited company under the Companies Law (2001 Revision) of the Cayman Islands. The Company’s shares were listed on GEM of the Stock Exchange on 8 January 2002.

The Company acts as an investment holding company.

Details of the principal activities of its subsidiaries are set out in note 24.

2. BASIS OF PRESENTATION OF COMPARATIVE FINANCIAL STATEMENTS

On 10 September 2001, the Company became the holding company of the other companies comprising the Group pursuant to a group reorganisation scheme (the “Reorganisation”) which included exchanges of shares. The Reorganisation involved companies under common control, and the Group resulting from the Reorganisation is regarded as a continuing group. Accordingly, the Reorganisation was accounted for on the basis of merger accounting, under which the consolidated financial statements for the year ended 31 December 2001 were prepared as if the Company had been the holding company of the other companies comprising the Group since the beginning of that year, rather than from the date on which the Reorganisation was completed.

3. ADOPTION OF STATEMENTS OF STANDARD ACCOUNTING PRACTICE

In the current year, the Group has adopted for the first time a number of new and revised Statements of Standard Accounting Practice (“SSAP(s)”) issued by the Hong Kong Society of Accountants. The adoption of these SSAPs has resulted in a change in the format of presentation of the cash flow statement and the statement of changes in equity, and in the adoption of the following new and revised accounting policies.

Cash flows statements

In the current year, the Group has adopted SSAP 15 (Revised) “Cash Flow Statements”. Under SSAP 15 (Revised), cash flows are classified under three headings - operating, investing and financing, rather than the previous five headings.

Employee benefits

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

4. SIGNIFICANT ACCOUNTING POLICIES

The financial statements have been prepared under the historical cost convention and in accordance with accounting principles generally accepted in Hong Kong. The principal accounting policies adopted are as follows:

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to 31 December each year.

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

— 13 —

FINANCIAL INFORMATION OF THE JESSICA GROUP

APPENDIX I

Investments in subsidiaries

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

Turnover

Turnover represents (i) sale of magazines after allowances for returns and discounts; (ii) advertising income from publications, and (iii) promotion and marketing income.

Revenue recognition

Revenue from sale of magazines is recognised when the magazines are delivered and title has passed, with advance subscription fees received from subscribers recorded as receipts in advance.

Advertising income is recognised when the advertisements are published.

Promotion and marketing income is recognised when the service is rendered.

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

Advertising barter transactions

Revenue and expense from an advertising barter transaction are recognised at fair value only if the fair value of the advertisement surrendered in the transaction is determinable based on the Company’s historical practice of receiving cash or other consideration that is readily convertible to a known amount of cash for similar advertisement from buyers unrelated to the counter-party in the barter transaction. Revenue and expenses from an advertising barter transaction for exchange of similar goods or services are not regarded as transactions which generate revenue and expenses.

Property, plant and equipment

Property, plant and equipment are stated at cost less depreciation and accumulated impairment losses.

Depreciation is provided to write off the cost of property, plant and equipment over their estimated useful lives and after taking into account their estimated residual value, using the straight-line method, at the following rates per annum:

Leasehold	improvement	20%
Furniture	and office equipment	20%

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

Impairment

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

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

— 14 —

FINANCIAL INFORMATION OF THE JESSICA GROUP

APPENDIX I

Foreign currencies

Transactions in currencies other than Hong Kong dollars are translated at the rates of exchange prevailing on the dates of the transactions. Monetary assets and liabilities denominated in currencies other than Hong Kong dollars are re-translated at the rates prevailing on the balance sheet date. Profits and losses arising on exchange are dealt with in the income statement.

Taxation

The charge for taxation is based on the results for the year as adjusted for items which are non-assessable or disallowed. Timing differences arise from the recognition for tax purposes of certain items of income and expense in a different accounting period from that in which they are recognised in the financial statements. The tax effect of timing differences, computed using the liability method, is recognised as deferred taxation in the financial statements to the extent that it is probable that a liability or an asset will crystallise in the foreseeable future.

Retirement benefits scheme

Payments to the Groups’ Mandatory Provident Fund Scheme are charged as an expense as they fall due.

Operating leases

Rentals payable under operating leases are charged to the income statement on a straight line basis over the term of the relevant

lease.

5. TURNOVER

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

Sale of magazines Advertising income Promotion and marketing income	2002 HK$’000 9,943 16,964 692 27,599	2001 HK$’000 7,611 12,056 367
		20,034

During the year, the Group’s revenue from advertising barter transactions was approximately HK$37,000 (2001: HK$32,000).

— 15 —

FINANCIAL INFORMATION OF THE JESSICA GROUP

APPENDIX I

6. NET (LOSS) PROFIT BEFORE TAXATION

Net (loss) profit before taxation has been arrived at after charging (crediting): Staff costs including directors’ emoluments Retirement benefits scheme contributions Auditors’ remuneration Depreciation (Reversal of) allowance for bad and doubtful debts	2002 HK$’000 6,075 262 6,337 300 65 (61)	2001 HK$’000 5,968 270
		6,238 350 10 418

7. DIRECTORS’ EMOLUMENTS AND HIGHEST PAID EMPLOYEES

• (a) Directors’ emoluments

Independent Non-Executive Directors Fees Executive Directors Salaries and other benefits Retirement benefits scheme contributions Total emoluments	2002 HK$’000 100	2001 HK$’000 33
	1,389 59 1,448	746 32
		778
	1,548	811

For the year ended 31 December 2002, the four Executive Directors received emoluments of approximately nil (2001: Nil), HK$432,000 (2001: HK$110,000), HK$377,000 (2001: HK$388,000) and HK$639,000 (2001: HK$281,000) respectively.

(b) Employees’ emoluments

Of the five highest paid individuals in the Group, three (2001: two) were Directors of the Company whose remunerations were set out in (a) above. The emoluments of the remaining two (2001: three) individuals were as follows:

Salaries and other benefits Retirement benefits scheme contributions	2002 HK$’000 795 29 824	2001 HK$’000 1,074 40
		1,114

— 16 —

APPENDIX I

FINANCIAL INFORMATION OF THE JESSICA GROUP

The aggregate emoluments of each of the individuals during the years 2001 and 2002 were below HK$1,000,000.

During each of the two preceding years ended 31 December 2002, no emoluments were paid by the Group to the five highest paid individuals, including Directors, as an inducement to join or upon joining the Group or as a compensation for loss of office.

8. TAXATION CREDIT (CHARGE)

Hong Kong Profits Tax Current year Overprovision in prior year	2002 HK$’000 — 117 117	2001 HK$’000 (117) —
		(117)

No provision for Hong Kong Profits Tax has been made as the Group incurred a tax loss for the year.

Hong Kong Profits Tax was calculated at the rate of 16% of the estimated assessable profit for the previous year.

Details of the potential deferred tax charge not provided for are set out in note 23.

9. (LOSS) EARNINGS PER SHARE

The calculation of the (loss) earnings per share for the year is based on the net loss for the year of approximately HK$1,927,000 (2001: net profit of approximately HK$1,835,000) and on the weighted average number of 506,063,591 (2001: 455,831,888) shares in issue during the year.

No diluted (loss) earnings per share has been presented because the exercise price of the Company’s options was higher than the average market price per share for the year.

— 17 —

FINANCIAL INFORMATION OF THE JESSICA GROUP

APPENDIX I

10. PROPERTY, PLANT AND EQUIPMENT

11.

Leasehold improvement HK$’000 COST At 1 January 2002 — Additions 479 At 31 December 2002 479 DEPRECIATION At 1 January 2002 — Provided for the year 39 At 31 December 2002 39 NET BOOK VALUE At 31 December 2002 440 At 31 December 2001 — INVESTMENTS IN SUBSIDIARIES Unlisted shares	Furniture and office equipment HK$’000 100 82 182 10 26 36 146 90 2002 HK$’000 510	Total HK$’000 100 561
		661
		10 65
		75
		586
		90
		2001 HK$’000 510

None of the subsidiaries had any debt securities issued during the year or outstanding at the end of the year.

Details of the Company’s subsidiaries are set out in note 24.

— 18 —

FINANCIAL INFORMATION OF THE JESSICA GROUP

APPENDIX I

12. TRADE RECEIVABLES

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

The following is an aged analysis of trade receivables:

0 to 30 days 31 to 60 days 61 to 90 days 91 to 180 days Over 180 days Less: allowance for bad and doubtful debts	2002 HK$’000 2,475 1,270 193 1,597 388 5,923 (357) 5,566	2001 HK$’000 1,900 788 391 249 345
		3,673 (418)
		3,255

13. TRADE PAYABLES

The following is an aged analysis of trade payables:

0 to 30 days 31 to 60 days 61 to 90 days 91 to 180 days Over 180 days	2002 HK$’000 624 1,567 1,553 2,371 354 6,469	2001 HK$’000 4,172 44 77 247 376
		4,916

14. AMOUNTS DUE FROM (TO) A SUBSIDIARY

The amounts are unsecured, interest-free and have no fixed repayment term.

— 19 —

FINANCIAL INFORMATION OF THE JESSICA GROUP

APPENDIX I

15. SHARE CAPITAL

N Authorised: At time of incorporation Subdivision on 20 August 2001 At 31 December 2001 and 31 December 2002 Issued and fully paid: Issue of share on 29 June 2001 Subdivision on 20 August 2001 Issue of shares on Reorganisation At 31 December 2001 Placing of shares At 31 December 2002	umber of ordinary shares Share price HK$ 100,000,000,000 0.01 900,000,000,000 — 1,000,000,000,000 0.001	Share capital HK$’000 1,000,000 —
		1,000,000
	1 0.01 9 — 10 0.001 455,831,878 0.001 455,831,888 0.001 50,647,988 0.001	— —
		— 456
		456 50
	506,479,876 0.001	506

Pursuant to the Prospectus, and by means of placing, the Company issued a total of 50,647,988 new ordinary shares of HK$0.001 each at a price of HK$0.25 per share. The new shares rank pari passu with the existing shares in all respects.

16. SHARE PREMIUM AND RESERVES

	Share	Capital	Accumulated
	premium	reserve	losses	Total
	HK$’000	HK$’000	HK$’000	HK$’000
THE GROUP
At 1 January 2001	—	—	(4,200)	(4,200)
Attributable to the Reorganisation (see note 2)	54	(510)	—	(456)
Net profit for the year	—	—	1,835	1,835
At 31 December 2001	54	(510)	(2,365)	(2,821)
Premium arising from the issue of shares
by means of placing	12,612	—	—	12,612
Expenses incurred in connection with
the issue of shares	(3,497)	—	—	(3,497)
Net loss for the year	—	—	(1,927)	(1,927)
At 31 December 2002	9,169	(510)	(4,292)	4,367

— 20 —

FINANCIAL INFORMATION OF THE JESSICA GROUP

APPENDIX I

THE COMPANY At 29 June 2001 Attributable to the Reorganisation (see note 2) Net loss for the period At 31 December 2001 Premium arising from the issue of shares by means of placing Expenses incurred in connection with the issue of shares Net loss for the year At 31 December 2002	Share premium A HK$’000 — 54 — 54 12,612 (3,497) — 9,169	ccumulated losses HK$’000 — — (137) (137) — — (242) (379)	Total HK$’000 — 54 (137)
			(83) 12,612 (3,497) (242)
			8,790

Capital reserve represents the difference between the nominal value and premium of the ordinary shares issued by the Company and the aggregate of the share capital of a subsidiary acquired through an exchange of shares pursuant to the Reorganisation (see note 2).

Under the Companies Law (Revised) (Chapter 22) of the Cayman Islands, the share premium of the Company is available for paying distributions or dividends to shareholders subject to the provisions of its Articles of Association and a statutory solvency test. It is provided that a dividend cannot be paid if this would result in the Company being unable to pay its debts as they fall due. In accordance with the Company’s Articles of Association, the Company’s reserves available for distribution to shareholders represent the accumulated losses and share premium which in total amounted to approximately HK$8,790,000 (2001: Nil).

17. BUSINESS AND GEOGRAPHICAL SEGMENTS

The Group is principally engaged in magazine publishing and advertising activities carried out in Hong Kong during the year. Accordingly, the Directors consider there is only one business and geographical segment and no analysis of segmental assets and liabilities by geographical location is presented.

— 21 —

APPENDIX I

FINANCIAL INFORMATION OF THE JESSICA GROUP

18. RELATED PARTY TRANSACTIONS

During the year, the Group had significant transactions with companies controlled by, or affiliated with, South China Holdings. These companies are collectively referred to as South China Group. A Director of the Company, Mr. Ng Hung Sang, Robert, is a substantial shareholder and a Director of South China Holdings. Details of these transactions are as follows:

Nature of transactions	2002	2001
	HK$’000	HK$’000
Income:
Rental income	—	437
Expenses:
Administrative service fees	944	832
Agency arrangement fees	—	20
Color separation and photo processing fees	996	894
Corporate finance service fee	300	—
Marketing service fees	122	235
Personnel expenses	—	1,340
Phototaking service fees	470	723
Purchase of fixed assets	—	100
Rental expenses in respect of office equipment and office premises	119	197
Staff costs	—	4,909
Underwriting commission	317	—
Waiver of amounts due to South China Group	—	7,611

Tek Lee Finance and Investment Corporation Limited (“Tek Lee”), an intermediate holding company, up to 10 September 2001 had undertaken to provide continuing financial support to the Company to enable it to meet its liabilities as they fall due. This undertaking was terminated when the Company ceased to be a subsidiary of Tek Lee on 10 September 2001. Thereafter, Mr. Ng Hung Sang, Robert, a major shareholder of the Company, had undertaken to provide continuing financial support to the Group to enable the Group to meet its liabilities as they fall due up to 8 January 2002, when Company’s shares were listed on the GEM.

Mr. Ng Hung Sang, Robert, Parkfield, Fung Shing, Ronastar, Earntrade and Bannock, shareholders of the Company, have provided indemnities in favour of the Group in the event that the Group incurs any liability as a result of the wavier of amounts due to related companies (see note 20(a)).

In the opinion of the Directors, the above transactions during the year ended 31 December 2002 were conducted in accordance with the respective arrangements between the Group and the related parties.

19. OPERATING LEASE COMMITMENTS

The minimum lease payments paid under operating leases during the year in respect of:

Premises Office equipment	2002 HK$’000 640 — 640	2001 HK$’000 789 197
		986

— 22 —

APPENDIX I

FINANCIAL INFORMATION OF THE JESSICA GROUP

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

Within one year In the second to fifth year inclusive	2002 HK$’000 237 356 593	2001 HK$’000 801 582
		1,383

The leases are negotiated for an average term of three years and rentals are fixed for an average term of three years.

At the balance sheet date, the Company had no arrangement under non-cancellable operating leases.

20. CONTINGENT LIABILITIES

As at 31 December 2002, the Group and the Company had the following contingent liabilities:

• (a) On 30 June 2001, three related companies waived certain balances due to them by the Group amounting to approximately HK$7,611,000 at no consideration (the “Waiver”). As advised by the Group’s legal counsel, in the event of winding up of any one of these related companies by reason of insolvency or the Waiver is ordered by courts or other competent authorities to be restored to the related companies, the Group may be required to compensate these related companies. In the opinion of Directors, the risk of winding up of these related companies by reason of insolvency or restoring the balances to these related companies is remote, and, accordingly, it is not probable that the Group will compensate those related companies. No provision has been made in the financial statements with respect to such compensation. In addition, in the event that the Group incurs any liability as a result of the Waiver, such liability would fall within the indemnity given by Mr. Ng Hung Sang, Robert, Parkfield, Fung Shing, Ronastar, Earntrade and Bannock, shareholders of the Company, in favour of the Group.

• (b) As at 31 December 2002, the Company had provided a corporate guarantee to a bank to secure a bank facility of HK$1 million (2001: HK$1 million) granted to a subsidiary, which remained unused as at 31 December 2002.

21. SHARE OPTION SCHEME

The Scheme was adopted pursuant to a resolution passed on 20 December 2001 for the primary purpose of providing incentives to directors and eligible employees and will be expired on 7 January 2012. Under the Scheme, the board of directors of the Company may offer to any director or employee of the Company, or any of its subsidiaries, options to subscribe for shares in the Company.

At 31 December 2002, the number of shares in respect of which options were granted under the Scheme was 22,400,000, representing 4.4% of the shares of the Company in issue at that date. Without prior approval from the Company’s shareholders, the total number of shares in respect of which options may be granted under the Scheme is not permitted to exceed 10% of the shares of the Company in issue at any point in time, and the number of shares in respect of which options may be granted to any individual in any one year is not permitted to exceed 1% of the shares of the Company in issue at any point in time.

The consideration payable on the grant of an option is HK$1 per option. Options may be exercised at any time for a period of ten years commencing on the date of grant. The exercise price of the option shares would be at a price equal to the higher of (i) the closing price of the Company’s shares as stated in the Stock Exchange’s daily quotations sheet on the date of the offer; (ii) the average closing price of the shares of the Company on the Stock Exchange’s daily quotations sheet for the five trading days immediately preceding the date of offer of the options; and (iii) the nominal value of a share.

— 23 —

APPENDIX I

FINANCIAL INFORMATION OF THE JESSICA GROUP

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

Date of grant Gran 15 April 2002 2 September 2002	ted during the year 14,800,000 10,240,000 25,040,000	Numbe Exercised during the year — — —	r of share options Cancelled during the year — — —	Lapsed during the year Outstanding at 31/12/2002 (2,160,000) 12,640,000 (480,000) 9,760,000 (2,640,000) 22,400,000	Lapsed during the year Outstanding at 31/12/2002 (2,160,000) 12,640,000 (480,000) 9,760,000 (2,640,000) 22,400,000
					22,400,000

Details of specific categories of options are as follows:

Date of grant	Exercise period	Exercise price
15 April 2002	15 April 2003 to 7 January 2012	HK$0.69
2 September 2002	2 September 2003 to 7 January 2012	HK$0.31

The vesting period of share options is the period from the date of grant until the commencement of the exercise period. All share options referred to above are subject to one year’s vesting period.

The share options may be exercised, in whole or in part, in the following manner:

From the date of grant of share options	Exercisable Percentage
Within 12th months	Nil
13th - 24th months	331⁄3%
25th - 36th months	331⁄3%
37th - 48th months	331⁄3%

The exercise price is subject to adjustment. Provided always that any part of the share options not exercised in full in accordance with the periods specified above shall remain exercisable during the exercise period of share options but the exercise price shall be adjusted by increasing 5% per annum (on a cumulative basis) until such time as the relevant portion of the share options shall have been fully exercised or lapsed in accordance with the scheme.

Total consideration received during the year from grantee for taking up the options granted amounted to HK$89 (2001: Nil).

No charge is recognised in the income statement in respect of the value of options granted during the year.

22. RETIREMENT BENEFITS SCHEME

The Group participates in both a defined contribution scheme which is registered under the Occupational Retirement Scheme Ordinance (the “ORSO Scheme”) and a Mandatory Provident Fund Scheme (the “MPF Scheme”) established under the Mandatory Provident Fund Ordinance in December 2000. The assets of the schemes are held separately from those of the Company, in funds under the control of trustees. Employees who were members of the ORSO Scheme prior to the establishment of the MPF Scheme were offered a choice of staying within the ORSO Scheme or switching to the MPF Scheme, whereas all new employees joining the Group on or after 1 December 2000 are required to join the MPF Scheme.

— 24 —

APPENDIX I

FINANCIAL INFORMATION OF THE JESSICA GROUP

For members of the MPF Scheme, the Group contributes 5% of relevant payroll costs to the MPF Scheme, which contribution is matched by the employee. Both the employer’s and the employees’ contributions are subject to a maximum of monthly earnings of HK$20,000 per employee and thereabove contributions are voluntary.

The ORSO Scheme is funded by monthly contributions from both employees and the Group at 5% of the employee’s basic salary. The employees are entitled to receive their entire contributions and the accrued interest thereon, and 100% of the employer’s contributions and the accrued interest thereon upon retirement or leaving the employer after completing 10 years of service or at a reduced scale of between 30% to 90% after completing 3 to 9 years of service.

Where there are employees who leave the ORSO Scheme prior to vesting fully in the contributions, the contributions payable by the Group are reduced by the amount of forfeited contributions. The amount of forfeited contributions utilised in this manner during the year was HK$17,821 (2001: Nil). As at 31 December 2002, no material forfeited contributions, which arose upon employees leaving the ORSO Scheme, were available to reduce the contributions payables in future years.

23. DEFERRED TAXATION

At the balance sheet date, the major components of the unprovided deferred tax liabilities (assets) are as follows:

Tax effect of timing differences because of: — excess of tax allowances over depreciation — taxation losses	2002 HK$’000 12 (874) (862)	2001 HK$’000 9 (424)
		(415)

A net deferred tax asset has not been recognised in the financial statements in respect of tax losses available to offset future profits as it is not certain that the tax losses will be utilized in the foreseeable future.

The amount of unprovided deferred tax for the year is as follows:

Tax effect of timing differences because of: — excess of tax allowances over depreciation — tax losses (arising) utilised	2002 HK$’000 3 (450) (447)	2001 HK$’000 9 370
		379

— 25 —

FINANCIAL INFORMATION OF THE JESSICA GROUP

APPENDIX I

24. PARTICULARS OF SUBSIDIARIES

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

		Issued and
		fully paid	Proportion of nominal
		share	value of issued capital
Name of subsidiary	Place of incorporation	capital	held by Company		Principal activity
			Directly	Indirectly
Beforward Trading Limited	British Virgin Islands	US$2	—	100%	Investment holding
Cathy Success Limited	British Virgin Islands	US$1	—	100%	Investment holding
Great Ready Assets Limited	British Virgin Islands	US$2	100%	—	Investment holding
Jessica (BVI) Limited	British Virgin Islands	US$2	—	100%	Investment holding
Jessica Publications	British Virgin Islands	US$2	—	100%	Investment holding
(BVI) Limited
Jessica Limited	Hong Kong	HK$2	—	100%	Publication of
(formerly known as “Deemwell					“	JESSICA”
Limited”)					magazine
Jessica Girl Limited	Hong Kong	HK$2	—	100%	Inactive
Jessica Management Limited	Hong Kong	HK$2	—	100%	Provision of employee
(formerly known as					and personnel
“Kewell Limited”)					services and holding
					of	a lease agreement
Rockwell Company Limited Superb Taste Company Limited	Hong Kong Hong Kong	HK$2 HK$2	— —	100% 100%	In deregistration Publication of “
					LISA” magazine

3. PROFORMA STATEMENT OF UNAUDITED ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS OF THE ENLARGED JESSICA GROUP AND PROFORMA STATEMENT OF ADJUSTED COMBINED ASSETS AND LIABILITIES OF THE ENLARGED JESSICA GROUP

The Directors are of the opinion that there is no material effect on the Jessica Group’s consolidated net tangible assets or combined assets and liabilities immediately upon the formation of the Joint Venture and therefore the proforma statement of unaudited adjusted consolidated net tangible assets and proforma statement of adjusted combined assets and liabilities of the Enlarged Jessica Group are not presented in this circular.

4. INDEBTEDNESS

Borrowing

As at 31 July 2003, the Jessica Group had no outstanding secured or unsecured bank and other borrowings.

Contingent Liabilities

• (a) As at 31 July 2003, three related companies waived on 30 June 2001 certain balances due to them by the Jessica Group amounting to approximately HK$7,611,000 at no consideration (the “Waiver”). As advised by the Jessica Group’s legal counsel, in the event of winding up of any one of these related companies by reason of insolvency or the Waiver is ordered by courts or other competent authorities

— 26 —

APPENDIX I

FINANCIAL INFORMATION OF THE JESSICA GROUP

to be restored to the related companies, the Jessica Group may be required to compensate these related companies for approximately HK$7,611,000. In the opinion of the Directors, the risk of winding up of these related companies by reason of insolvency or restoring the balances to these related companies is remote, and, accordingly, it is not probable that the Jessica Group will compensate those related companies. No provision has been made in the financial statements with respect to such compensation. In addition, in the event that the Jessica Group incurs any liability as a result of the Waiver, such liability would fall within the indemnity given by Mr Ng Hung Sang, Robert, Parkfield Holdings Limited, Fung Shing Group Limited, Ronastar Investments Limited, Earntrade Investments Limited and Bannock Investment Limited, being Shareholders, in favour of the Jessica Group (as set out in paragraph 8(c) of the Appendix II to this circular).

• (b) As at 31 July 2003, the Company had provided a corporate guarantee to a bank to secure a bank facility of HK$1 million granted to a subsidiary, which remained unused as at 31 July 2003.

Capital Commitments

As at 31 July 2003, save for the injection of capital by Grandpress to the Joint Venture, the Jessica Group had no significant capital commitment.

Mortgages and Charges

As at 31 July 2003, the Jessica Group had no outstanding mortgages and charges.

Debt Securities

As at 31 July 2003, the Jessica Group had no outstanding guaranteed nor unguaranteed nor secured nor unsecured debt securities.

Disclaimer

Save as aforesaid and apart from the intra-group liabilities and normal trade payables, as at 31 July 2003, none of the companies comprising the Jessica Group had any mortgages, charges, debentures or other loan capital, bank overdrafts, loans or other similar indebtedness, hire purchase or other finance lease commitments, liabilities under acceptance (other than normal trade bills), acceptance credits, guarantees or other material contingent liabilities.

Save as disclosed above, the Directors have confirmed that there has been no material change in the indebtedness or contingent liabilities of the Jessica Group since 31 July 2003 to the Latest Practicable Date.

5. WORKING CAPITAL

Taking into account the internal and financial resources available to the Enlarged Jessica Group and in the absence of unforeseen circumstances, the Directors are of the opinion that the Enlarged Jessica Group will have sufficient working capital for its present requirements.

— 27 —

FINANCIAL INFORMATION OF THE JESSICA GROUP

APPENDIX I

6. MATERIAL ADVERSE CHANGE

Save as disclosed in this circular, the Directors are not aware of any material adverse change in the financial or trading position of the Jessica Group since 31 December 2002, the date to which the latest published audited consolidated financial statements of the Jessica Group were made up.

— 28 —

GENERAL INFORMATION

APPENDIX II

1. 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 Company. The Directors, having made all reasonable enquiries, confirm that, to the best of their knowledge and belief:

• (a) the information contained in this circular is accurate and complete in all material respects and not misleading;

• (b) there are no other matters the omission of which would make any statement in this circular misleading; and

• (c) 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.

2. DISCLOSURE OF INTERESTS AND DIRECTORS’ RIGHTS TO ACQUIRE JESSICA SHARES

As at the Latest Practicable Date, the interests and short positions of the Directors and chief executive of the Company in the Jessica Shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they are taken or deemed to have under such provisions of the SFO), or which were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein, or which were required, pursuant to Rules 5.40 to 5.58 of the GEM Listing Rules, relating to the minimum standards of dealing by directors of listed issuers, to be notified to the Company and the Stock Exchange, were as follows:

(1) Directors’ and chief executive’s interests in Jessica Shares

			Number of	Approximate
	Name of		Jessica Shares	percentage of
Name of Director	company	Capacity	held	shareholding
Mr Ng Hung Sang,	The Company	Beneficial owner	18,102,800	3.57%
Robert	The Company	Corporate interest	318,132,403	62.81%
			(Note)
Ms Ng, Jessica Yuk Mui The Company		Beneficial owner	296,000	0.06%

Note: The 318,132,403 Jessica Shares referred to above include 92,966,000 Jessica Shares held by Parkfield Holdings Limited, 99,012,563 Jessica Shares held by Fung Shing Group Limited, 4,166,400 Jessica Shares held by Ronastar Investments Limited and 121,987,440 Jessica Shares held by Earntrade Investments Limited, which is owned as to 60%, 20% and 20% by Mr Ng Hung Sang, Robert, Ms Cheung Choi Ngor, Christina and Mr Richard Howard Gorges, directors of South China Holdings Limited, respectively. The 121,987,440 Jessica Shares referred to above include the 59,325,840 Jessica Shares held by Bannock Investment Limited which is a wholly-owned subsidiary of Earntrade Investments Limited. Each of Parkfield Holdings Limited, Fung Shing Group Limited and Ronastar Investments Limited is wholly-owned by Mr Ng Hung Sang, Robert.

— 29 —

GENERAL INFORMATION

APPENDIX II

• (2) Directors’ rights to acquire Jessica Shares

The Company’s existing share option scheme (the “Scheme”) was adopted on 20 December 2001 and became effective on 8 January 2002. Pursuant to the Scheme, certain Directors were granted share options to subscribe for Jessica Shares, details of which as at the Latest Practicable Date were as follows:

		Number of
		share options		Exercise
		outstanding as		price per
		at the Latest		Jessica
Name of Director	Date of grant	Practicable Date	Exercise period	Share
	(note a)			HK$
				(Note b)
Ms Foo Kit Tak	15 April 2002	1,600,000	15 April 2003 to 7	0.69
			January 2012
	2 September	1,600,000	2 September 2003 to	0.31
	2002		7 January 2012
Ms Cheung Mei Yu	15 April 2002	1,600,000	15 April 2003 to 7	0.69
			January 2012
	2 September	1,600,000	2 September 2003 to	0.31
	2002		7 January 2012
Notes:

(a) The vesting period of the share options is the period from the date of grant until the commencement of the exercise period. All share options referred to above are subject to one year’s vesting period. The share options may be exercised, in whole or in part, in the following manner:

From the date of grant of share options	Exercisable percentage
Within 12 months	Nil
13th-24th months	331⁄3%
25th-36th months	331⁄3%
37th-48th months	331⁄3%

• (b) The exercise price is subject to adjustment. Provided always that any part of the share options not exercised in full in accordance with the periods specified above shall remain exercisable during the exercise period of share options but the exercise price shall be adjusted by increasing 5% per annum (on a cumulative basis) until such time as the relevant portion of the share options shall have been fully exercised or lapsed in accordance with the Scheme.

Save as disclosed herein, as at the Latest Practicable Date, none of the Directors or chief executive of the Company had any interest or short positions in any Jessica Shares, underlying shares or debentures of the Company or any associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they are taken or deemed to have under such provisions of the SFO), or which were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein, or which were required, pursuant to Rules 5.40 to 5.58 of the GEM Listing Rules, to be notified to the Company and the Stock Exchange.

— 30 —

GENERAL INFORMATION

APPENDIX II

3. SUBSTANTIAL SHAREHOLDERS

So far as is known to any Director or chief executive of the Company, as at the Latest Practicable Date, the Shareholders who had interests or short positions in the Jessica Shares or underlying shares of the Company which would fall to be disclosed to the Company under provisions of Divisions 2 and 3 of Part XV of the SFO or, who were directly, or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meeting of any other members of the Jessica Group were as follows:

			Number	Approximate
	Name of		of Jessica	percentage of
Name of Shareholder	company	Capacity	Shares held	shareholding
Mr Ng Hung Sang,	The Company	Beneficial owner	18,102,800	3.57%
Robert	The Company	Corporate interest	318,132,403	62.81%
			(Note a)
Parkfield Holdings Limited	The Company	Beneficial owner	92,966,000	18.36%
			(Note a)
Fung Shing Group Limited	The Company	Beneficial owner	99,012,563	19.55%
			(Note a)
Earntrade Investments	The Company	Beneficial owner	62,661,600	12.37%
Limited			(Note b)
	The Company	Corporate interest	59,325,840	11.71%
			(Note b)
Bannock Investment	The Company	Beneficial owner	59,325,840	11.71%
Limited			(Note b)
Ms Ng Lai King,	The Company	Spouse’s interest	336,235,203	66.38%
Pamela			(Note c)

Notes:

• (a) The 318,132,403 Jessica Shares referred to above include 92,966,000 Jessica Shares held by Parkfield Holdings Limited, 99,012,563 Jessica Shares held by Fung Shing Group Limited, 4,166,400 Jesssica Shares held by Ronastar Investments Limited and 121,987,440 Jessica Shares held by Earntrade Investments Limited, which is owned as to 60%, 20% and 20% by Mr Ng Hung Sang, Robert, Ms Cheung Choi Ngor, Christina and Mr Richard Howard Gorges, directors of South China Holdings Limited, respectively. Each of Parkfield Holdings Limited, Fung Shing Group Limited and Ronastar Investments Limited is wholly-owned by Mr Ng Hung Sang, Robert.

• (b) Earntrade Investments Limited is the holding company of Bannock Investment Limited. Thus, Earntrade Investments Limited is deemed to be interested in the 59,325,840 Jessica Shares held by Bannock Investment Limited.

• (c) Ms Ng Lai King, Pamela is the wife of Mr Ng Hung Sang, Robert and is taken to be interested in the 336,235,203 Jessica Shares in which Mr Ng Hung Sang, Robert is interested by virtue of the SFO.

Save as disclosed above, as at the Latest Practicable Date, the Directors or chief executive of the Company were not aware of any other person who had an interest or short position in Jessica 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 who was interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meeting of any other members of the Jessica Group.

— 31 —

GENERAL INFORMATION

APPENDIX II

4. COMPETING INTERESTS

Mr Ng Hung Sang, Robert, Chairman and management shareholder of the Company, is also Chairman of South China Holdings Limited (“South China Holdings”), a company listed on the Main Board of the Stock Exchange and Co-Chairman of Capital Publications Limited (“Capital”), a company listed on GEM of the Stock Exchange. Mr Ng Hung Sang, Robert, personally and through Parkfield Holdings Limited, Fung Shing Group Limited and Ronastar Investments Limited, has interest in South China Holdings and Capital. Mr Ng Hung Sang, Robert together with Ms Cheung Choi Ngor, Christina and Mr Richard Howard Gorges, management shareholders of the Company, have beneficial interests in Earntrade Investments Limited, which directly and indirectly through Bannock Investment Limited holds shares in South China Holdings and Capital. Ms Cheung Choi Ngor, Christina, who was an ex-director of Capital Publishing Limited, a wholly-owned subsidiary of Capital and Mr Richard Howard Gorges, are also directors of various members of South China Holdings. As Capital and certain members of South China Media Limited, a subsidiary of South China Holdings, are principally engaged in magazine publication, Mr Ng Hung Sang, Robert, Ms Cheung Choi Ngor, Christina and Mr Richard Howard Gorges are regarded to be interested in such competing businesses of the Jessica Group. Likewise, Ms Ng, Jessica Yuk Mui, Chief Executive Officer of the Company, is also a director of certain members of South China Media Limited and a non-executive director of Capital.

Save as disclosed above, none of the Directors or chief executives of the Jessica Group, the initial management shareholders or the substantial shareholders (as defined under the GEM Listing Rules) of the Company or their respective associates had any interest in a business which competes or may compete or had any conflicts of interest with the business of the Jessica Group.

5. MATERIAL ADVERSE CHANGE

Save as disclosed herein, the Directors are not aware of any material adverse change in the financial positions or prospects or trading position of the Jessica Group since 31 December 2002, the date to which the latest published audited consolidated financial statements of the Jessica Group for the year ended 31 December 2002.

6. LITIGATION

As at the Latest Practicable Date, no member of the Jessica Group was engaged in any litigation or arbitration of material importance and there is no litigation or claim of material importance known to the Directors to be pending or threatened by or against any member of the Jessica Group.

7. SERVICE CONTRACTS

The executive Directors have entered into service contracts with the Company. Particulars of these contracts, except as indicated, are in all material respects identical and are set out below:

• (a) Each service contract is for an initial term of 1 year commencing on 1 October 2001, in the case of Ms Cheung Mei Yu and 24 August 2001, in the case of Mr Ng Hung Sang, Robert, Ms Ng, Jessica Yuk Mui and Ms Foo Fit Tak and will continue thereafter unless and until terminated by either party by giving 3 months prior written notice to the other and each executive Directors (other than Mr Ng Hung Sang, Robert and Ms Ng, Jessica Yuk Mui) is required to work full time for the Company;

— 32 —

APPENDIX II

GENERAL INFORMATION

• (b) The salary of each executive Directors during their terms of appointment is set out below which shall be subject to review at the discretion of the Company by a committee comprising two or more independent non-executive Directors:

Name of Director

Name of Director	Annual salary
Mr Ng Hung Sang, Robert	Nil
Ms Ng, Jessica Yuk Mui	HK$431,828
Ms Foo Kit Tak	HK$638,758
Ms Cheung Mei Yu	HK$377,288

• (c) Mr Ng Hung Sang, Robert and Ms Ng, Jessica Yuk Mui are entitled to be engaged, concerned or interested in the non-Jessica Group business, trades or others as disclosed in prospectus of the Company dated 31 December 2001.

Each non-executive Director is appointed for an initial term of 2 years commencing from 4 September 2001 and will thereafter be subject to retirement at the annual general meeting according to the articles of association of the Company.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors have entered into any service agreements with any member of the Jessica Group (excluding contracts expiring or determinable by the employer within one year without payment of compensation other than statutory compensation).

Save as disclosed herein, no director is proposed to be appointed to the Jessica Group upon the formation of the Joint Venture.

8. MATERIAL CONTRACTS

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

• (a) Sale and purchase agreement dated 10 September 2001 between Yongder Hall Overseas Inc. (“Yongder”) and the Company pursuant to which Yongder agreed to transfer to the Company 3 shares of US$1.00 each in Surge Fast Assets Limited in consideration of the issue and allotment of 455,831,878 Jessica Shares to Yongder;

• (b) A deed of representations, warranties, undertakings and indemnities relating to the Jessica Group dated 20 December 2001 given by Mr Ng Hung Sang, Robert, Parkfield Holdings Limited, Fung Shing Group Limited, Ronastar Investments Limited, Earntrade Investments Limited and Bannock Investment Limited;

• (c) A deed of indemnity dated 20 December 2001 executed by Mr Ng Hung Sang, Robert, Parkfield Holdings Limited, Fung Shing Group Limited, Ronastar Investments Limited, Earntrade Investments Limited and Bannock Investment Limited in favour of the Company in relation to taxation, estate duty and other matters;

— 33 —

GENERAL INFORMATION

APPENDIX II

• (d) the underwriting and placing agreement dated 31 December 2001 entered into by the Company relating to the placing of Jessica Shares; and

• (e) the Joint Venture Agreement.

9. SPONSOR’S INTERESTS

As at the Latest Practicable Date, MasterLink Securities (Hong Kong) Corporation Limited (“MasterLink”), its directors, employees or associates (as referred to in Note 3 to Rule 6.35 of the GEM Listing Rules) did not have any interests in the securities of the Company or any members of the Jessica Group, or any rights to subscribe for or to nominate persons to subscribe for the securities of the Company or any members of the Jessica Group.

Pursuant to the agreement dated 27 November 2002 entered into between the Company and MasterLink, MasterLink has received and will receive fees for acting as the Company’s sponsor for the period from 26 November 2002 to 31 December 2004 or until the termination of the agreement upon the terms and conditions as set out therein.

Save as disclosed above, MasterLink (including its directors and employees) and its associates, did not have any interests in the Company as at the Latest Practicable Date.

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at the principal place of business of the Company at Unit C, 3rd Floor, Wah Shing Centre, 5 Fung Yip Street, Chai Wan, Hong Kong during normal business hours on any weekday other than public holidays, up to and including 16 September 2003:

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

• (b) the prospectus of the Company dated 31 December 2001;

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

• (d) the service contracts referred to in the paragraph headed “Service contracts” in this appendix; and

• (e) the annual reports of the Company for the two years ended 31 December 2001 and 31 December 2002.

— 34 —

GENERAL INFORMATION

APPENDIX II

11. GENERAL

• (a) The registered office of the Company is at The Offices of M & C Corporate Services Limited, PO Box 309, George Town, Grand Cayman, Cayman Islands, British West Indies and the head office and principal place of business of the Company is at Unit C, 3rd Floor, Wah Shing Centre, 5 Fung Yip Street, Chai Wan, Hong Kong. The share registrar and transfer office of the Company is Standard Registrars Limited, Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong.

• (b) The compliance officer of the Company is Ms Ng, Jessica Yuk Mui, an executive Director and the Chief Executive Officer of the Company, who holds a bachelor’s degree in law from King’s College London, University of London in the United Kingdom. Ms Ng is an associate member of the Chartered Institute of Management Accountants.

• (c) The qualified accountant and company secretary of the Company is Ms Chan Kam Yin who is a member of the Hong Kong Society of Accountants and The Association of Chartered Certified Accountants.

• (d) The Company established an audit committee on 4 September 2001 with written terms of reference in compliance with Rules 5.23 to 5.25 of the GEM Listing Rules. The primary duties of the audit committee are to review and supervise the financial reporting and internal control procedures of the Jessica Group, and to review the Company’s annual reports and accounts, interim and quarterly reports. The audit committee comprises two members, Mr So, George Siu Ming and Ms Pong Oi Lan, Scarlett, who are independent non-executive Directors, further details of whom are set out below:

Mr So, George Siu Ming, aged 45, is an executive director of Forefront International Holdings Limited, a company listed on the Stock Exchange and an independent non-executive director of Wah Shing International Holdings Limited, a company listed on the Singapore Stock Exchange. Mr So obtained a bachelor of arts degree from the University of Toronto in Canada. He is an associate member of the Canadian Institute of Chartered Accountants, the Society of Management Accountants of Canada and the Hong Kong Society of Accountants. Mr So has extensive experience in auditing, accounting and finance.

Ms Pong Oi Lan, Scarlett, aged 44, is the managing director of Realchamp Asset Management Limited and Health Quotient HQ International Institute Limited. She completed her executive program at Harvard Business School in the United States. She also obtained a graduate diploma in business administration at Monash University in Australia, and a bachelor’s degree in pharmaceutical sciences from the University of Saskatchewan in Canada. She is being appointed in a number of government boards and public committees.

• (e) Save as disclosed in this circular:

• (i) none of the Directors has any direct or indirect interest in any assets which have been, since 31 December 2002, the date to which the latest published audited financial results of the Company were made up, to the Latest Practicable Date, acquired or disposed of by or leased to any member of the Jessica Group or are proposed to be acquired or disposed of by or leased to any member of the Jessica Group; and

• (ii) none of the Directors is materially interested in any contract or arrangement subsisting at the Latest Practicable Date which is significant in relation to the business of the Jessica Group.

• (f) The English text of this circular shall prevail over the Chinese text.

— 35 —