THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular, you should consult a licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser. If you have sold all your shares in FT Holdings International Limited, you should at once hand this circular and the accompanying form of proxy to the purchaser or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

This circular does not constitute an offer of, nor is it calculated to invite offers for, shares of FT Holdings International Limited.

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

FT HOLDINGS INTERNATIONAL LIMITED 精藝集團國際有限公司[*]

(Incorporated in Bermuda with limited liability)

(1) PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL; (2) PROPOSED CAPITAL REORGANISATION; (3) PROPOSED OPEN OFFER OF NEW SHARES ON THE BASIS OF FIVE OFFER SHARES FOR EVERY NEW SHARE HELD ON THE RECORD DATE; (4) PROPOSED TERMINATION OF EXISTING SHARE OPTION SCHEME AND ADOPTION OF NEW SHARE OPTION SCHEME; (5) PROPOSED CHANGE OF BOARD LOT SIZE; (6) PROPOSED CHANGE OF CHINESE NAME; AND (7) PROPOSED GRANT OF GENERAL MANDATES TO ISSUE AND REPURCHASE NEW SHARES

Underwriter

Independent financial adviser to the Independent Board Committee

The Underwriter may terminate the Underwriting Agreement by notice in writing to the Company if, prior to 4:00 p.m. on the third business day after the latest date for acceptance of the Offer Shares, which is expected to be on Thursday, 18th December, 2003, any of the following grounds of termination happens, (1) in the reasonable opinion of the Underwriter, the success of the Open Offer would be materially and adversely affected by: (a) the introduction of any new law or regulation or any change in existing law or regulation (or the judicial interpretation thereof) or other occurrence of any nature whatsoever which may in the reasonable opinion of the Underwriter, materially and adversely affect the business or the financial or trading position or prospects of the Group as a whole or is materially adverse in the context of the Open Offer; or (b) the occurrence of any local, national or international event or change (whether or not forming part of a series of events or changes occurring or continuing before and/or after the date of the Underwriting Agreement) of a political, military, financial, economic or other nature (whether or not ejusdem generis with any of the foregoing), or in the nature of any local, national or international outbreak or escalation of hostilities or armed conflict, or affecting local securities markets which may, in the reasonable opinion of the Underwriter materially and adversely affect the business or the financial or trading position or prospects of the Group as a whole or materially and adversely prejudice the success of the Open Offer or otherwise makes inexpedient or inadvisable to proceed with the Open Offer; or (2) any adverse change in market conditions (including, with limitation, any change in fiscal or monetary policy, or foreign exchange or currency markets, suspension or material restriction or trading in securities) occurs which in the reasonable opinion of the Underwriter is likely to materially and adversely affect the success of the Open Offer or otherwise makes it inexpedient or inadvisable to proceed with the Open Offer; or (3) there is any change in the circumstance of the Company or any member of the Group which in the reasonable opinion of the Underwriter will adversely affect the prospects of the Company, including without limitation the generality of the foregoing the presentation of a petition or the passing of a resolution for the liquidation or winding up or similar event occurring in respect of any member of the Group or the destruction of any material asset of the Group; or (4) any suspension in the trading of securities generally or the Company’s securities on the Stock Exchange for a period of more than five consecutive business days, excluding any suspension in connection with the clearance of the Prospectus Documents or announcements or circulars in connection with the Capital Reorganisation and/or the Open Offer. If the Underwriter terminates the Underwriting Agreement, the Open Offer will not proceed.

If the Underwriter terminates the Underwriting Agreement, or if the conditions of the Underwriting Agreement have not been fulfilled in accordance with the terms thereof, the Open Offer will not proceed. Shareholders and potential investors should therefore exercise caution when dealing in the Shares, and if they are in any doubt about their position, they should consult their professional advisers. Shareholders should note that the Shares will be dealt with on an ex-entitlement basis commencing from Friday, 28th November, 2003 and that dealings in such Shares will take place while the conditions to which the Underwriting Agreement is subject remain unfulfilled. Any Shareholder or other person dealings in such Shares up to the date on which all conditions to which the Open Offer is subject are fulfilled (which is expected to be Tuesday, 23rd December, 2003), will accordingly bear the risk that the Open Offer cannot become unconditional and may not proceed. Any Shareholders or other persons contemplating selling or purchasing Shares who is in any doubt about his/her/its position is recommended to consult his/her/its own professional adviser.

A letter of advice from AMS Corporate Finance Limited, the independent financial adviser to the independent board committee, containing its opinion regarding the Open Offer is set out on pages 22 to 34 of this circular.

A notice convening a special general meeting of FT Holdings International Limited to be held at Unit 501, 5th Floor, Riley House, 88 Lei Muk Road, Kwai Chung, New Territories, Hong Kong on Thursday, 4th December, 2003 at 10:00 a.m. is set out on pages 109 to 115 of this circular. Whether or not you are able to attend the meeting, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return it to the office of Tengis Limited at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding the meeting or any adjourned meeting. Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting should you so wish.

11th November, 2003

* For identification purpose only

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Expected Timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Proposed increase in authorised share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Proposed Capital Reorganisation and change of board lot size . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Proposed Open Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Proposed termination of Existing Share Option Scheme and
adoption of New Share Option Scheme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Proposed change of Chinese name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Free exchange of New Share certificates and trading arrangements . . . . . . . . . . . . . . . . . . . . . . . .	18
Proposed grant of general mandates to issue and repurchase New Shares . . . . . . . . . . . . . . . . . . .	18
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
The SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
Further information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	21
Letter from AMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	22
Appendix I – Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	35
Appendix II – General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	92
Appendix III – Terms of the New Share Option Scheme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	98
Appendix IV – Repurchase Mandate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	106
Notice of Special General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	109

DEFINITIONS

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

“Adoption Date”

the date on which the New Share Option Scheme becomes unconditional upon fulfillment of the conditions to which it is subject

“AMS” AMS Corporate Finance Limited, a deemed licensed corporation under the SFO, the independent financial adviser to the Independent Board Committee “Announcement” the announcement dated 23rd October, 2003 made by the Company in relation to the proposed (1) increase in authorised share capital; (2) the Capital Reorganisation; (3) the Open Offer of New Shares on the basis of five Offer Shares for every New Share held on the Record Date; (4) termination of Existing Share Option Scheme and adoption of New Share Option Scheme; (5) change of board lot size; (6) change of Chinese name; and (7) grant of general mandates to issue and repurchase New Shares “Application Form(s)” the application form(s) for use by the Qualifying Holders to apply for the Offer Shares “associates” has the meaning ascribed thereto in the Listing Rules “Board” the board of Directors “Capital Reduction” the proposed reduction of the nominal value of each of the issued Shares from HK$0.10 each to HK$0.01 each by the cancellation of HK$0.09 paid up on each issued Share “Capital Reorganisation” the Capital Reduction and the Share Subdivision “CCASS” the Central Clearing and Settlement System established and operated by HKSCC “China Star” China Star Entertainment Limited, a company incorporated in Bermuda with limited liability and the entire issued shares of which are listed on the main board of the Stock Exchange “China Star HK” China Star HK Entertainment Company Limited, being one of the substantial Shareholders and a company incorporated in Hong Kong with limited liability and a wholly owned subsidiary of China Star

DEFINITIONS

“Companies Act” Companies Act 1981 of Bermuda “Companies Ordinance” Companies Ordinance (Chapter 32 of the Laws of Hong Kong) “Company” FT Holdings International Limited, a company incorporated in Bermuda under the Companies Act and the entire issued Shares of which are listed on the main board of the Stock Exchange
“Director(s)” the director(s) of the Company, including the independent nonexecutive director(s) of the Company
“Eligible Participant(s)” any full time employee of the Group (including any executive director of the Company or its subsidiaries but not any nonexecutive directors) who is in full-time employment with the Group at the time when an Option was granted under the Existing Share Option Scheme or, after its termination and the adoption of the New Share Scheme, any associate of the Company or substantial Shareholder, any full-time or part-time employee of the Group, associate of the Company or substantial Shareholders (including any executive, non-executive and independent non-executive directors of any of them) or any advisers, consultants, suppliers, distributors, contractors, agents, business partners, service providers or customers of the Group who, in the sole discretion of the Board, have contributed or will contribute to the Group
“Excluded Shareholders” Shareholders other than Qualifying Holders
“Existing Share Option Scheme” the existing share option scheme adopted by the Company on 13th December, 1996
“Group” the Company and its subsidiaries
“HKSCC”

Hong Kong Securities Clearing Company Limited

“Hong Kong” the Hong Kong Special Administrative Region of the PRC
“Independent Board Committee” an independent committee of the Board comprising Mr. Chun Jay and Ms. Lo Miu Sheung, Betty, the independent non-executive Directors, formed for the purpose of advising the Shareholders in relation to the Open Offer

“Kingston” or “Underwriter” Kingston Securities Limited, a licensed corporation to carry out business in types 1, 4, 6 and 9 regulated activities under the SFO

DEFINITIONS

“Latest Practicable Date”	7th November, 2003, being the latest practicable date for the
	purpose of ascertaining certain information for inclusion in this
	circular
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange
“New Share(s)”	share(s) of HK$0.01 each in the share capital of the Company
	upon the Capital Reorganisation becoming effective
“New Share Option Scheme”	the new share option scheme proposed to be adopted by the
	Shareholders at the SGM
“Offer Share(s)”	not less than 2,159,375,000 New Shares and not more than
	2,206,875,000 New Shares proposed to be offered to the Qualifying
	Holders for subscription pursuant to the Open Offer
“Open Offer”	the proposed issue of the Offer Shares by way of open offer to the
	Qualifying Holders on the terms to be set out in the Prospectus
	Documents
“Options”	options granted under the Existing Share Option Scheme or, after
	its termination, under the New Share Option Scheme
“PRC”	the People’s Republic of China, which for the purpose of this
	circular, shall exclude Hong Kong, the Macau Special
	Administrative Region of the PRC and Taiwan
“Prospectus”	the Open Offer prospectus
“Prospectus Documents”	the Prospectus and the Application Form
“Qualifying Holders”	Shareholders whose names appear on the register of members of
	the Company as at the close of business on the Record Date and
	whose addresses as shown in the register of members of the
	Company are in Hong Kong
“Raffles”	Raffles International Holdings Limited, a company incorporated
	in the British Virgin Islands with limited liability and the entire
	issued share capital of which is beneficially owned by Mr. Lai
	Kam Wing, Jimmy, being one of the substantial Shareholders
“Record Date”	4th December, 2003, being the date by reference to which
	entitlements to the Open Offer will be determined

DEFINITIONS

“Registrar”	Tengis Limited of Ground Floor, Bank of East Asia Harbour View
	Centre, 56 Gloucester Road, Wanchai, Hong Kong, the Company’s
	branch share registrar in Hong Kong
“Repurchase Mandate”	the general mandate proposed to be granted to the Directors at the
	SGM to enable them to repurchase New Shares on the Stock
	Exchange up to a maximum of 10% of the issued share capital of
	the Company as enlarged by the allotment and issue of the Offer
	Shares at the date of passing of such resolution
“SFC”	the Securities and Futures Commission of Hong Kong
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the Laws of
	Hong Kong)
“SGM”	the special general meeting of the Company to be held to approve,
	among others, the Capital Reorganisation and the Open Offer
“Share(s)”	share(s) of HK$0.10 each in the share capital of the Company
“Shareholder(s)”	holder(s) of Shares or, after the Capital Reorganisation becoming
	effective, holder(s) of New Shares
“Share Subdivision”	the proposed subdivision of the each unissued Share into 10 New
	Shares
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Subscription Price”	the subscription price of HK$0.04 per Offer Share pursuant to the
	Open Offer
“Takeovers Code”	the Hong Kong Code on Takeovers and Mergers
“Underwriting Agreement”	the underwriting agreement dated 21st October, 2003 entered into
	between the Company and the Underwriter in relation to the Open
	Offer
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong

EXPECTED TIMETABLE

, 2003

Last day of dealings in Shares on cum-entitlement basis . . . . . . . . . . . . . . . . . . . Thursday, 27th November First day of dealings in Shares on ex-entitlement basis . . . . . . . . . . . . . . . . . . . . . . Friday, 28th November Latest time for lodging transfers of Shares in order to be qualified for the Open Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . 4:00 p.m. on Monday, 1st December Register of members closes (both dates inclusive) . . . . . . . . . . . . . . . . . . . . . . . Tuesday, 2nd December to Thursday, 4th December Latest time for lodging forms of proxy for the purpose of the SGM (not less than 48 hours before the time for holding the SGM) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10:00 a.m. on Tuesday, 2nd December Time and date of the SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10:00 a.m. on Thursday, 4th December Despatch of the Prospectus Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thursday, 4th December The Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thursday, 4th December Effective time and date of the Capital Reorganisation . . . . . . . . . . 4:00 p.m. on Thursday, 4th December Register of members reopens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Friday, 5th December Effective date for the change in board size from 2,000 Shares to 40,000 New Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Friday, 5th December Free exchange of existing share certificates for new share certificates commences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Friday, 5th December First day of availability of odd lot facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Friday, 5th December Latest time for lodging application and payment for the Offer Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4:00 p.m. on Thursday, 18th December Latest time for the Open Offer to become unconditional . . . . . . . . 4:00 p.m. on Tuesday, 23rd December Announcement of results of the Open Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wednesday, 24th December Share certificates for the Offer Shares to be posted . . . . . . . . . . . . . . . . . . . . . . . . . Monday, 29th December Dealings in the Offer Shares commences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wednesday, 31st December , 2004 Last day of availability of odd lot facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Monday, 5th January Free exchange of existing share certificates for new share certificates ends . . . . . . Monday, 19th January

LETTER FROM THE BOARD

FT HOLDINGS INTERNATIONAL LIMITED 精藝集團國際有限公司[*]

(Incorporated in Bermuda with limited liability)

Executive Directors: Mr. Chu Yuk Kuen Mr. Lam Kwan Sing Mr. Lei Hong Wai Ms. Leung Mei Yee

Registered office: Clarendon House 2 Church Street Hamilton HM 11 Bermuda

Independent Non-executive Directors:

Mr. Chun Jay Ms. Lo Miu Sheung, Betty

Head office and principal place of business in Hong Kong: Unit 501, 5th Floor Riley House 88 Lei Muk Road Kwai Chung New Territories Hong Kong

11th November, 2003

To Shareholders and, for information only, holders of Options

Dear Sir or Madam,

(1) PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL;
- (2) PROPOSED CAPITAL REORGANISATION;
(3) PROPOSED OPEN OFFER OF NEW SHARES ON THE BASIS OF FIVE OFFER SHARES FOR EVERY NEW SHARE HELD ON THE RECORD DATE;
(4) PROPOSED TERMINATION OF EXISTING SHARE OPTION SCHEME AND ADOPTION OF NEW SHARE OPTION SCHEME;
- (5) PROPOSED CHANGE OF BOARD LOT SIZE;
(6) PROPOSED CHANGE OF CHINESE NAME; AND
(7) PROPOSED GRANT OF GENERAL MANDATES TO ISSUE AND REPURCHASE NEW SHARES

INTRODUCTION

It was announced on 23rd October, 2003 that the Board intended to put forward proposals to the Shareholders in relation to: (1) the increase in authorised share capital of the Company; (2) the Capital Reorganisation; (3) the Open Offer; (4) the termination of Existing Share Option Scheme and adoption of New Share Option Scheme; (5) the change of board lot size; (6) the change of Chinese name of the Company; and (7) the grant of general mandates to issue and repurchase New Shares.

* For identification purpose only

LETTER FROM THE BOARD

The Independent Board Committee has been established to advise the Shareholders in relation to the Open Offer. AMS has been appointed as the independent financial adviser to advise the Independent Board Committee in this respect. The purpose of this circular is to provide you with further information regarding, among other things, the proposed increase in authorised share capital of the Company, the proposed Capital Reorganisation, the proposed Open Offer, the proposed change of board lot size, the proposed change of Chinese name of the Company, the termination of Existing Share Option Scheme and adoption of New Share Option Scheme, the proposed grant of general mandates to issue and repurchase New Shares, the financial and other information of the Group, to set out the advice of AMS to the Independent Board Committee in respect of the Open Offer, the recommendation of the Independent Board Committee to the Shareholders; and the notice of the SGM, which shall be convened for the purpose of considering and, if thought fit, approving the resolutions in relation to the aforesaid proposals.

PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL

As at the Latest Practicable Date, the authorised share capital of the Company was HK$50,000,000 divided into 500,000,000 Shares, of which 431,875,000 Shares had been issued and fully paid or credited as fully paid.

In order to accommodate future expansion and growth of the Group, the Directors propose to increase the authorised share capital of the Company from HK$50,000,000 to HK$100,000,000 by the creation of an additional 500,000,000 unissued Shares.

The increase in the authorised share capital of the Company is conditional upon the passing of an ordinary resolution by the Shareholders at the SGM. However, it is not conditional upon the passing of the resolutions approving the Capital Reorganisation and the Open Offer by the Shareholders at SGM.

PROPOSED CAPITAL REORGANISATION AND CHANGE OF BOARD LOT SIZE

Capital Reoganisation

The Directors also propose to implement the Capital Reorganisation in the following manner:

(1) the nominal value of the issued Shares be reduced from HK$0.10 each to HK$0.01 each by the cancellation of HK$0.09 paid up on each issued Share; and
(2) every authorised but unissued Share be subdivided into 10 New Shares.

Based on the number of Shares in issue as at the Latest Practicable Date, the issued share capital of the Company will be reduced from HK$43,187,500 consisting of 431,875,000 Shares to HK$4,318,750 consisting of 431,875,000 New Shares. As a result, an amount of approximately HK$38,868,750 standing to the credit of the share capital account of the Company will be cancelled and credited to the contributed surplus account of the Company. Such amount will be applied to set off an equivalent amount against the accumulated losses of the Company as at 31st December, 2002.

LETTER FROM THE BOARD

As at the Latest Practicable Date, the authorised share capital of the Company was HK$50,000,000 divided into 500,000,000 Shares of HK$0.10 each, of which 431,875,000 Shares have been issued and fully paid or credited as fully paid. Immediately upon the increase in the authorised share capital of the Company and the Capital Reorganisation becoming effective, the authorised share capital of the Company would be HK$100,000,000 divided into 10,000,000,000 New Shares, of which 431,875,000 New Shares would be issued and fully paid or credited as fully paid. The Directors have no present intention to issue any part of the unissued share capital of the Company other than pursuant to the Open Offer and the exercise of the outstanding Options.

Application will be made to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the New Shares.

Subject to the granting of the listing of, and permission to deal in, the New Shares on the Stock Exchange, the New Shares will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the commencement date of dealings in the New Shares on the Stock Exchange or, under contingent situation, such other date as determined by HKSCC. Settlement of transactions between participants of the Stock Exchange on any trading day is required to take place in CCASS on the second trading day thereafter. All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time.

Reasons for and effect of the Capital Reorganisation

The Company had accumulated losses of approximately HK$59.1 million as at 31st December, 2002. With the implementation of the Capital Reorganisation, the Company will be able to apply the amount credited to the contributed surplus account as a result of the Capital Reorganisation (being approximately HK$38,868,750) to set off an equivalent amount against such losses.

The Capital Reorganisation will have no material effect on the consolidated net assets of the Group. Other than the expenses to be incurred by the Company in relation to the Capital Reorganisation, the implementation thereof will not, by itself, materially alter the underlying assets, business operations, management or financial position of the Group or the interests of the Shareholders as a whole.

Conditions of the Capital Reorganisation

The implementation of the Capital Reorganisation is conditional upon, among other things, :

(a) the passing of the special resolution to approve the Capital Reorganisation by the Shareholders at the SGM;
(b) the Listing Committee of the Stock Exchange granting the listing of, and permission to deal in, the New Shares; and
(c) the publication of a notice in relation to the Capital Reduction in Bermuda in accordance with the Companies Act and a certificate being signed by a Director confirming that on the date as from which the Capital Reduction is to have effect, there should be no reasonable ground for believing that the Company is, and after the Capital Reduction would be, unable to pay its liabilities as they become due.

The Capital Reorganisation is not conditional upon the implementation of the Open Offer.

LETTER FROM THE BOARD

Change of board lot size

Currently, the Shares are traded in board lots of 2,000 Shares. Upon the Capital Reorganisation becoming effective, the New Shares will be traded in board lots of 40,000 New Shares.

In order to alleviate the difficulty arising from the existence of odd lots of New Shares, the Company has appointed Kingston to arrange for matching service regarding the sale and purchase of odd lots of New Shares.

Kingston will provide such service during the period from Friday, 5th December, 2003 to Monday, 5th January, 2004, both dates inclusive. Holders of New Shares in odd lots who wish to take advantage of this facility either to dispose of or top up their odd lots to a board lot of 40,000 New Shares may directly or through their brokers contact Kingston at Suite 2801, 28th Floor, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong and at the telephone number (852) 2298-6215, to the attention of Ms. Rosita Kiu during such period. Shareholders should note that successful matching of the sale and purchase of odd lots of the New Shares is not guaranteed.

PROPOSED OPEN OFFER

Issue statistics:

Basis of the Open Offer	:	Five Offer Shares for every New Share held on the Record
		Date
Number of Shares in issue as at	:	431,875,000 Shares
the Latest Practicable Date
Outstanding Options as at the	:	Options entitling the holders thereof to subscribe up to
Latest Practicable Date		9,500,000 Shares
Number of Offer Shares	:	Not less than 2,159,375,000 Offer Shares and not more than
		2,206,875,000 Offer Shares (assuming the exercise in full of
		the outstanding Options before the Record Date)
Number of New Shares in issue upon	:	Not less than 2,591,250,000 New Shares and not more than
completion of the Open Offer		2,648,250,000 New Shares (assuming the exercise in full of
		the outstanding Options before the Record Date)

Save for the Options, the Company has no outstanding options, warrants or other instruments convertible into Shares. As at the Latest Practicable Date, there were 4,000,000 outstanding Options granted to Leung Mei Yee (“Ms. Leung”), an executive Director, entitling her to subscribe for 4,000,000 Shares. Ms. Leung has not indicated whether she will exercise the 4,000,000 outstanding Options held by her or not. Save for the aforesaid, none of the Directors held any outstanding Options as at the Latest Practicable Date.

LETTER FROM THE BOARD

Qualifying Holders:

The Company will send (i) the Prospectus Documents to the Qualifying Holders; and (ii) the Prospectus, for information only, to the Excluded Shareholders. To qualify for the Open Offer, Shareholders must, at the close of business on the Record Date:

(i) be registered on the register of members of the Company; and
(ii) have an address in Hong Kong on the register of members of the Company.

In order to be registered as members of the Company on the Record Date, Shareholders must lodge any transfer of Shares (with the relevant share certificates) for registration with the Registrar by 4:00 p.m. on Monday, 1st December, 2003.

The invitation to apply for the Offer Shares will not be transferable and there will be no trading in nil-paid entitlements on the Stock Exchange.

The Qualifying Holders will not be entitled to subscribe for any Offer Shares in excess of their respective entitlements.

Closure of register of members:

The register of members of the Company will be closed from Tuesday, 2nd December, 2003 to Thursday, 4th December, 2003, both dates inclusive, to determine the eligibility of the Open Offer. No transfer of Shares will be registered during this period.

Subscription Price:

HK$0.04 per Offer Share, payable in full on application. The Subscription Price represents:

(i) a discount of approximately 37.5% to the closing price of HK$0.064 per New Share (on pro forma basis assuming the Capital Reorganisation has become effective) as quoted on the Stock Exchange on 21st October, 2003, being the last trading day before the publication of the Announcement;
(ii) a discount of approximately 9.09% to the theoretical ex-entitlement price of approximately HK$0.044 per New Share (on pro forma basis assuming the Capital Reorganisation has become effective) based on the aforesaid closing price per New Share;
(iii) a discount of approximately 57.63% to the average closing price of HK$0.0944 per New Share (on pro forma basis assuming the Capital Reorganisation has become effective) as quoted on the Stock Exchange for the last 10 consecutive trading days up to and including 21st October, 2003; and
(iv) a discount of approximately 74.19% to the unaudited consolidated net asset value of HK$0.155 per Share as at 30th June, 2003 based on the unaudited condensed financial statements of the Group made up to 30th June, 2003.
10 -

LETTER FROM THE BOARD

The Subscription Price has been determined based on arm’s length negotiations between the Company and the Underwriter, with reference to the prevailing market prices of the Shares as well as the subscription prices offered in certain recent open offers with discounts of over 50% to the relevant closing prices of the relevant shares. The Directors consider that the terms of the Open Offer are fair and reasonable and the discount of the Subscription Price as compared to the recent market prices would encourage Shareholders to participate in the Open Offer and would, therefore, enhance the future growth of the Group.

Warning of the risks of dealing in Shares:

Shareholders should note that the Shares will be dealt with on an ex-entitlement basis commencing from Friday, 28th November, 2003 and that dealings in such Shares will take place while the conditions to which the Underwriting Agreement is subject remain unfulfilled. Any Shareholder or other person dealings in such Shares up to the date on which all conditions to which the Open Offer is subject are fulfilled (which is expected to be Tuesday, 23rd December, 2003), will accordingly bear the risk that the Open Offer cannot become unconditional and may not proceed. Any Shareholders or other persons contemplating selling or purchasing Shares who is in any doubt about his/her/its position is recommended to consult his/her/its own professional adviser.

Status of the Offer Shares:

The Offer Shares, when allotted and issued, will rank pari passu in all respects with the New Shares in issue on the date of allotment and issue of the Offer Shares. Holders of the Offer Shares will be entitled to receive all future dividends and distributions which are declared, made or paid on or after the date of allotment and issue of the Offer Shares.

Certificates of the Offer Shares:

Subject to fulfilment of the conditions of the Open Offer, share certificates for the Offer Shares are expected to be posted on or before Monday, 29th December, 2003 to those Qualifying Holders who have validly applied and paid for the Offer Shares at their own risks. No fractional entitlements or allotments are expected to arise as a result of the Open Offer.

11 -

LETTER FROM THE BOARD

Rights of the Excluded Shareholders:

The Prospectus Documents will not be registered or filed under any securities or equivalent legislation in jurisdictions other than Hong Kong and Bermuda. The Directors are of the view that the offer of the Offer Shares to the Excluded Shareholders would or might, in the absence of compliance with registration or other special formalities in such other jurisdictions, be unlawful or impracticable. Accordingly, no Offer Share will be offered to the Excluded Shareholders. The Company will send the Prospectus to the Excluded Shareholders for their information only. The Company will not send the Application Forms to the Excluded Shareholders. The Excluded Shareholders will be entitled to vote at the SGM to consider and, if thought fit, passing the resolutions approving, among other things, the Open Offer.

Application for listing:

The Company will apply to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Offer Shares. Dealings in the Offer Shares will be subject to the payment of stamp duty in Hong Kong.

Subject to the granting of the listing of, and permission to deal in, the Offer Shares on the Stock Exchange, the Offer Shares will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the commencement date of dealings in the Offer Shares on the Stock Exchange or, under contingent situation, such other date as determined by HKSCC. Settlement of transactions between participants of the Stock Exchange on any trading day is required to take place in CCASS on the second trading day thereafter. All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time.

Neither Raffles nor China Star HK, both being substantial Shareholders, has indicated whether it will subscribe for the Offer Shares to which it will be entitled under the Open Offer. As at the Latest Practicable Date, none of the Directors or connected persons (as defined in the Listing Rules) of the Company is interested in any Shares.

Permission of the Bermuda Monetary Authority:

Permission under the Exchange Control Act 1972 of Bermuda (and regulations made thereafter) has been received from the Bermuda Monetary Authority in respect of the issue of the Offer Shares to persons regarded as non-residents of Bermuda for exchange control purposes subject to the requirement of the Offer Shares are listed on the Stock Exchange. In granting such permission and in the Prospectus Documents for filing, neither the Bermuda Monetary Authority nor the Registrar of Companies of Bermuda accepts any responsibility for the financial soundness of the Group or for the correctness of any statements made or opinions expressed in the Prospectus Documents.

The Underwriting Agreement:

Pursuant to the Underwriting Agreement, the Underwriter has agreed to fully underwrite all Offer Shares, being not less than 2,159,375,000 Offer Shares and not more than 2,206,875,000 Offer Shares.

12 -

LETTER FROM THE BOARD

The Underwriter is independent of and not connected with any of the directors, chief executive or substantial shareholders of the Company, its subsidiaries or any of their respective associates.

The Company will pay to the Underwriter an underwriting commission calculated at 6% of the aggregate Subscription Price of the maximum number of Offer Shares to be underwritten by the Underwriter.

Termination of the Underwriting Agreement

(1) in the reasonable opinion of the Underwriter, the success of the Open Offer would be materially and adversely affected by:
(a) the introduction of any new law or regulation or any change in existing law or regulation (or the judicial interpretation thereof) or other occurrence of any nature whatsoever which may in the reasonable opinion of the Underwriter, materially and adversely affect the business or the financial or trading position or prospects of the Group as a whole or is materially adverse in the context of the Open Offer; or
(b) the occurrence of any local, national or international event or change (whether or not forming part of a series of events or changes occurring or continuing before and/or after the date of the Underwriting Agreement) of a political, military, financial, economic or other nature (whether or not ejusdem generis with any of the foregoing), or in the nature of any local, national or international outbreak or escalation of hostilities or armed conflict, or affecting local securities markets which may, in the reasonable opinion of the Underwriter, materially and adversely affect the business or the financial or trading position or prospects of the Group as a whole or materially and adversely prejudice the success of the Open Offer or otherwise makes inexpedient or inadvisable to proceed with the Open Offer; or
(2) any adverse change in market conditions (including, without limitation, any change in fiscal or monetary policy, or foreign exchange or currency markets, suspension or material restriction or trading in securities) occurs which in the reasonable opinion of the Underwriter is likely to materially and adversely affect the success of the Open Offer or otherwise makes it inexpedient or inadvisable to proceed with the Open Offer; or
13 -

LETTER FROM THE BOARD

(3) there is any change in the circumstance of the Company or any member of the Group which in the reasonable opinion of the Underwriter will adversely affect the prospects of the Company, including without limitation the generality of the foregoing the presentation of a petition or the passing of a resolution for the liquidation or winding up or similar event occurring in respect of any member of the Group or the destruction of any material asset of the Group; or
(4) any suspension in the trading of securities generally or the Company’s securities on the Stock Exchange for a period of more than five consecutive business days, excluding any suspension in connection with the clearance of the Prospectus Documents or announcements or circulars in connection with the Capital Reorganisation and/or the Open Offer.

If the Underwriter terminates the Underwriting Agreement, the Open Offer will not proceed.

Conditions of the Underwriting Agreement

The Underwriting Agreement is conditional upon, among other things:

(i) the passing by the Shareholders at the SGM of resolutions to approve the Capital Reorganisation and the Open Offer;
(ii) the Listing Committee of the Stock Exchange granting or agreeing to grant (subject to allotment) and not having withdrawn or revoked the listing of, and permission to deal in, the Offer Shares;
(iii) the delivery to the Stock Exchange for authorisation and the registration with the Registrar of Companies in Hong Kong respectively one copy of each of the Prospectus Documents and all documents required to be attached thereto in compliance with the Listing Rules and the Companies Ordinance;
(iv) the filing with the Registrar of Companies in Bermuda of one copy of the each of the Prospectus Documents in compliance with the Companies Act;
(v) the publication of a notice of reduction of capital in Bermuda in accordance with the Companies Act and a certificate being signed by a Director confirming that on the date as from which the Capital Reduction is to have effect, there is no reasonable ground for believing that the Company is, and after the Capital Reduction would be, unable to pay its liabilities as they become due;
(vi) the posting of the Prospectus Documents to the Qualifying Holders; and
(vii) if necessary, the Bermuda Monetary Authority granting consent to the allotment and issue of the Offer Shares.
14 -

LETTER FROM THE BOARD

If the conditions to the Underwriting Agreement are not fulfilled on the dates as specified in the Underwriting Agreement (or such later date or dates as the Underwriter may agree with the Company in accordance with its terms), the Underwriting Agreement shall terminate and the obligations and liabilities of the parties thereto shall cease and determine save for any antecedent breaches of the terms thereof. The Open Offer is subject to the Underwriting Agreement having become unconditional and not being terminated in accordance with its terms.

Undertaking from the Underwriter:

Pursuant to the Underwriting Agreement, the Underwriter has committed to underwrite a maximum of 2,206,875,000 Offer Shares, representing approximately 83.33% of the issued share capital of the Company after the completion of the Open Offer. In this regard, the Underwriter has undertaken to the SFC that it will sub-underwrite and/or place all the Offer Shares underwritten by the Underwriter pursuant to the Underwriting Agreement to independent investors before the close of the Open Offer.

Shareholding structure of the Company:

The following is the shareholding structure of the Company immediately before and after completion of the Open Offer, assuming the Capital Reorganisation has become effective and no outstanding Option has been exercised:

Raffles China Star HK The Underwriter Independent Shareholders Total	Immediately before completion of the Open Offer(Note 1) New Shares Percentage 120,900,000 27.99% 86,375,000 20.00% – – 224,600,000 52.01% 431,875,000 100%	Immediately after completion of the Open Offer (assuming all Qualifying Holders take up their respective entitlements under the Open Offer) New Shares Percentage 725,400,000 27.99% 518,250,000 20.00% – – 1,347,600,000 52.01% 2,591,250,000 100%	Immediately after completion of the Open Offer (assuming no Qualifying Holder takes up his/her/ its entitlement under the Open Offer and all Offer Shares are taken up by the Underwriter) New Shares Percentage 120,900,000 4.67% 86,375,000 3.33% 2,159,375,000 83.33% 224,600,000 8.67% 2,591,250,000 100%	Immediately after completion of the Open Offer (assuming no Qualifying Holder takes up his/her/ its entitlement under the Open Offer and all Offer Shares are taken up by the Underwriter) New Shares Percentage 120,900,000 4.67% 86,375,000 3.33% 2,159,375,000 83.33% 224,600,000 8.67% 2,591,250,000 100%
				100%

15 -

LETTER FROM THE BOARD

The following is the shareholding structure of the Company immediately before and after completion of the Open Offer assuming the Capital Reorganisation has become effective and all outstanding Options have been exercised:

Immediately before completion of the Open Offer(Note 1) New Shares Percentage Raffles 120,900,000 27.39% China Star HK 86,375,000 19.57% The Underwriter – – Independent Shareholders 224,600,000 50.89% Ms. Leung Mei Yee_(Note 2)_ 4,000,000 0.90% Employees 5,500,000 1.25% Total 441,375,000 100%	Immediately after completion of the Open Offer (assuming all Qualifying Holders take up their respective entitlements under the Open Offer) New Shares Percentage 725,400,000 27.39% 518,250,000 19.57% – – 1,347,600,000 50.89% 24,000,000 0.90% 33,000,000 1.25% 2,648,250,000 100%	Immediately after completion of the Open Offer (assuming no Qualifying Holder takes up his/her/ its entitlement under the Open Offer and all Offer Shares are taken up by the Underwriter New Shares Percentage 120,900,000 4.57% 86,375,000 3.26% 2,206,875,000 83.33% 224,600,000 8.48% 4,000,000 0.15% 5,500,000 0.21% 2,648,250,000 100%	Immediately after completion of the Open Offer (assuming no Qualifying Holder takes up his/her/ its entitlement under the Open Offer and all Offer Shares are taken up by the Underwriter New Shares Percentage 120,900,000 4.57% 86,375,000 3.26% 2,206,875,000 83.33% 224,600,000 8.48% 4,000,000 0.15% 5,500,000 0.21% 2,648,250,000 100%
			100%

Notes:

Assuming the shareholdings of Raffles and China Star HK remain unchanged since the Latest Practicable Date up to the date immediately before completion of the Open Offer.
Ms. Leung Mei Yee is an executive Director.

Reasons for the Open Offer and use of proceeds:

The Group is principally engaged in (i) the design, manufacture and sale of life-like plants; (ii) the production, acquisition and distribution of television programmes and provision of related multi-media services; (iii) the sale of festival gift products; and (iv) the provision of anti-theft car alarm and tracking services.

The Company raised funds of approximately HK$8.3 million through issuing 86,375,000 Shares to China Star HK in August, 2003. Such proceeds have been fully applied as general working capital for the operations of the Group. In view of the financial needs of the Company (i) for repayment of certain outstanding loans, which have been used as general working capital, due to certain bank and independent third parties, which are repayable on various dates from November, 2003 to March, 2004; and (ii) for further development of the multi-media business of the Group, the Directors consider it is a suitable time to raise funds for the above purposes through the Open Offer. The Directors consider that it is an appropriate means through which the Group can raise funds whereby there will be no dilutive effects on the interests of the Shareholders.

16 -

LETTER FROM THE BOARD

The estimated net proceeds from the Open Offer will be not less than approximately HK$79 million and not more than approximately HK$82 million, of which (i) approximately HK$20 million will be applied for repayment of outstanding loans; (ii) approximately HK$40 million will be applied for further development of the multimedia business, such as expansion of the Group’s network to cover more cities and/or provinces in the PRC for distributing drama series and increase in the production volume of the Group’s self-produced television dramas; and (iii) the remaining balance of not less than HK$19 million will be used as the general working capital of the Group. The Directors did consider getting other banking facilities for repayment of the aforesaid outstanding loans as well as for further development of the multimedia business, but no agreement has been reached as at the Latest Practicable Date. The Directors consider that compared with debt financing, the Open Offer is a better way to raise funds without causing any interest liabilities to the Company.

PROPOSED TERMINATION OF EXISTING SHARE OPTION SCHEME AND ADOPTION OF NEW SHARE OPTION SCHEME

The Directors note that amendments had been made by the Stock Exchange to Chapter 17 of the Listing Rules, which came into effect on 1st September, 2001. The Directors propose to terminate the Existing Share Option Scheme and adopt the New Share Option Scheme in order to comply with the new requirements of Chapter 17 of the Listing Rules.

The adoption of the New Share Option Scheme is conditional upon, among other things:

(a) the passing of ordinary resolutions to terminate the Existing Share Option Scheme and to adopt the New Share Option Scheme, by the Shareholders at the SGM; and
(b) the Listing Committee of the Stock Exchange granting the listing of, and permission to deal in, the New Shares which may fall to be issued pursuant to the exercise of options which may be granted under the New Share Option Scheme.

As at the Latest Practicable Date, there were outstanding Options to subscribe for 9,500,000 Shares under the Existing Share Option Scheme. Upon adoption of the New Share Option Scheme, no further Options can be granted under the Existing Share Option Scheme but in all other respects, the provisions of the Existing Share Option Scheme shall remain in force and all Options granted prior to the termination of the Existing Shares Option Scheme shall continue to be valid and exercisable in accordance therewith.

A summary of the principal terms of the rules of the New Share Option Scheme which is proposed to be approved and adopted by the Company at the SGM is set out in Appendix III to this circular. A copy of the rules of the New Share Option Scheme is available for inspection at the head office and principal place of business of the Company in Hong Kong at Unit 501, 5th Floor, Riley House, 88 Lei Muk Road, Kwai Chung, New Territories, Hong Kong during normal business hours from the date hereof up to and including 28th November, 2003 and at the SGM.

17 -

LETTER FROM THE BOARD

PROPOSED CHANGE OF CHINESE NAME

The Directors propose to change the Chinese name of the Company from “精藝集團國際有限公司 ” to “星采控股有限公司 ” and adopt this name for identification purpose as well as for registration purpose under Part XI of the Companies Ordinance. Such change is subject to the approval of the Shareholders by passing the relevant special resolution at the SGM. The Directors consider that the proposed adoption of the new Chinese name will better reflect the identity of the Company for its future development, especially in the multi-media business.

FREE EXCHANGE OF NEW SHARE CERTIFICATES AND TRADING ARRANGEMENTS

Upon the Capital Reorganisation and/or the change of Chinese name becoming effective, Shareholders may on or after Friday, 5th December, 2003 until Monday, 19th January, 2004 submit certificates for the existing Shares to the Registrar for exchange, at the expenses of the Company, for certificates for the New Shares in issue. Thereafter, certificates for the Shares will be accepted for exchange only on payment of a fee of HK$2.50 (or such higher amount as may from time to time to be allowed by the Stock Exchange) for each new certificate issued for the New Shares. Nevertheless, certificates for the existing Shares will continue to be good evidence of legal title and will continue to be valid for trading, settlement and registration purposes.

PROPOSED GRANT OF GENERAL MANDATES TO ISSUE AND REPURCHASE NEW SHARES

In connection with the enlarged issued share capital of the Company as a result of the Open Offer, the Directors also propose to seek approval from the Shareholders at the SGM for the grant of general mandates to (i) allot and issue New Shares not exceeding 20%; and (ii) repurchase New Shares not exceeding 10%, of the issued share capital of the Company as enlarged by the allotment and issue of the Offer Shares under the Open Offer.

GENERAL

The SGM will be held to consider and, if thought fit, passing the resolutions to approve, among others, (1) the increase in authorised share capital of the Company; (2) the Capital Reorganisation; (3) the Open Offer; (4) the termination of Existing Share Option Scheme and adoption of New Share Option Scheme; (5) the change of Chinese name of the Company; and (6) the grant of general mandates to issue and repurchase New Shares.

If as a result of the Open Offer, less than 25% of issued New Shares are in the hands of the public, the Company will take steps to restore the public float to 25%. If the Stock Exchange believes that (i) a false market exists or may exist in the New Shares; or (ii) there are too few New Shares in public hands to maintain an orderly market, then it will consider exercising its discretion to suspend trading in the New Shares. In this connection, it should be noted that upon the close of the Open Offer, there may be insufficient public float for the New Shares and therefore trading in the New Shares may be suspended until a sufficient level of public float is attained.

18 -

LETTER FROM THE BOARD

THE SGM

Set out in this circular is a notice convening the SGM which will be held at Unit 501, 5th Floor, Riley House, 88 Lei Muk Road, Kwai Chung, New Territories, Hong Kong on Thursday, 4th December, 2003 at 10:00 a.m. at which resolutions will be proposed to approve (1) the increase in authorised share capital of the Company; (2) the Capital Reorganisation; (3) the Open Offer; (4) the change of Chinese name of the Company; (5) the termination of Existing Share Option Scheme and adoption of New Share Option Scheme; and (6) the grant of general mandates to issue and repurchase New Shares.

A form of proxy for use at the SGM is enclosed with this circular. Whether or not you intend to attend the SGM, you are requested to complete the enclosed form of proxy in accordance with the instructions printed thereon and return it as soon as possible to the office of Tengis Limited at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong not less than 48 hours before the time appointed for the holding of the SGM. Delivery of a form of proxy will not preclude you from attending and voting in person at the SGM or any adjourned meeting thereof should you so desire.

RECOMMENDATIONS

AMS has been appointed to advise the Independent Board Committee with regard to the terms and conditions of the Open Offer. AMS considers that the terms of the Open Offer are fair and reasonable so far as the Shareholders are concerned. The text of the letter of advice from AMS to the Independent Board Committee containing its recommendation and the principal factors it has taken into account in arriving at its recommendation are set out on pages 22 to 34 of this circular.

The Independent Board Committee, having taken into account the advice of AMS, considers the terms of the Open Offer are fair and reasonable so far as the Shareholders are concerned. Accordingly, the Independent Board Committee recommends the Shareholders to vote in favour of the Open Offer. The text of the letter from the Independent Board Committee is set out on page 21 of this circular.

The Directors consider that (i) the increase in authorised share capital of the Company; (ii) the Capital Reorganisation; (iii) the Open Offer; (iv) the change of board lot size; (v) the change of Chinese name of the Company; (vi) the termination of Existing Share Option Scheme and adoption of New Share Option Scheme; and (vii) the grant of general mandates to issue and repurchase New Shares, are in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of the resolutions to be proposed at the SGM.

Subject to the necessary resolutions approving the Open Offer being passed at the SGM, it is expected that the Prospectus Documents will be despatched to the Qualifying Holders on or about Thursday, 4th December, 2003.

19 -

LETTER FROM THE BOARD

FURTHER INFORMATION

Your attention is drawn to the texts of the letters from the Independent Board Committee and from AMS respectively containing their recommendations and opinions regarding the Open Offer and the information set out in the Appendices to this circular.

On behalf of the Board Lei Hong Wai Executive Director

20 -

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

FT HOLDINGS INTERNATIONAL LIMITED 精藝集團國際有限公司[*]

(Incorporated in Bermuda with limited liability)

11th November, 2003

To the Shareholders

Dear Sir or Madam,

PROPOSED OPEN OFFER OF NEW SHARES ON THE BASIS OF FIVE OFFER SHARES FOR EVERY NEW SHARE HELD ON THE RECORD DATE

As the Independent Board Committee, we have been appointed to advise you in connection with the Open Offer, details of which are set out in the letter from the Board contained in the circular to the Shareholders and, for information only, holders of Options dated 11th November, 2003 (the “Circular”), of which this letter forms part. Terms defined in the Circular shall have the same meanings when used herein unless the context otherwise requires.

Having considered the terms of the Open Offer and the advice of AMS in relation thereto as set out on pages 22 to 34 of the Circular, we are of the opinion that the terms of the Open Offer are fair and reasonable so far as the Shareholders are concerned. We therefore recommend that you vote in favour of resolution in relation to the Open Offer to be proposed at the SGM to approve the Open Offer.

Yours faithfully,

Mr. Chun Jay Ms. Lo Miu Sheung, Betty Independent Board Committee

* For identification purpose only

21 -

LETTER FROM AMS

==> picture [282 x 39] intentionally omitted <==

20th Floor

Hong Kong Diamond Exchange Building 8-10 Duddell Street Central, Hong Kong

11th November, 2003

To the Independent Board Committee of FT Holdings International Limited

Dear Sirs,

PROPOSED OPEN OFFER OF NEW SHARES OF HK$0.01 EACH AT HK$0.04 PER OFFER SHARE PAYABLE IN FULL ON ACCEPTANCE (ON THE BASIS OF FIVE OFFER SHARES FOR EVERY NEW SHARE HELD)

I. INTRODUCTION

We refer to our appointment to advise the Independent Board Committee in respect of the Open Offer, details of which are set out in the circular to the Shareholders dated 11th November, 2003 (the “Circular”) of which this letter forms part. This letter contains our advice to the Independent Board Committee in respect of the Open Offer. Terms defined in the Circular have the same meanings when used herein unless the context otherwise requires.

On 23rd October, 2003, the Board announced, among other things, the Company’s proposal to raise equity of not less than approximately HK$86 million and not more than approximately HK$88 million, before expenses, by way of the Open Offer. The Open Offer is fully underwritten pursuant to the terms and conditions of the Underwriting Agreement dated 21st October, 2003. Given that the Open Offer involves an increase in the issued share capital of the Company by more than 50%, the Open Offer is required under the Listing Rules to be subject to approval by Shareholders at a general meeting of the Company in which any controlling shareholders shall abstain from voting.

In formulating our opinion, we have relied on the statements, information, opinions and representations contained in the Circular and the information and representations provided to us by the Company and the Directors. We have assumed that all information, representations and opinions contained or referred to in the Circular which have been provided by the Company and the Directors and for which they are solely responsible, are true and accurate at the time they were given and continue to be so at the date hereof. We consider that we have reviewed sufficient information which enables us to form a reasonable basis for our opinion. We have no reason to suspect that any relevant information has been withheld, nor are we aware of any facts or circumstances which would render the information provided and the representations made to us untrue, inaccurate or misleading. The Directors have further confirmed, having made all reasonable enquiries, that to the best of their knowledge and belief, there are no other facts or representations the omission of which would make any statement in the Circular, including this letter, misleading. We have not, however, conducted any independent verification of the information provided, nor have we carried out any in-depth investigation into the business and affairs of the Group.

22 -

LETTER FROM AMS

In formulating our opinion and recommendation, we have not considered the taxation consequences on Shareholders arising from the subscription for, holding of or dealing in the Offer Shares or otherwise, since these are particular to their individual circumstances. Shareholders subject to overseas taxes or Hong Kong taxation on securities dealing should consider their own tax position and, if in any doubt, should consult their own professional advisers.

II. PRINCIPAL FACTORS AND REASONS CONSIDERED

Set out below are the principal factors and reasons considered by us in arriving at our recommendation in respect of the Open Offer:

1. Background information on the Group

The principal businesses of the Group can be categorized as:

(a) design, manufacture and sale of life-like plants and other products for decorative purposes;
(b) production, acquisition and distribution of television programmes and the provision of related multi-media services;
(c) sale of festival gift products through an internet portal; and
(d) provision of anti-theft car alarm and tracking services.

For the year ended 31st December, 2001, the Group reported turnover of approximately HK$124.0 million with net profit attributable to Shareholders of approximately HK$64,000. The Group recorded a slight drop in turnover for the year ended 31st December, 2002 to HK$122.7 million and a net loss attributable to Shareholders of approximately HK$82.3 million. As indicated in the Company’s 2002 annual report, the loss was largely attributable to the provisions amounting to approximately HK$58.3 million for bad and doubtful receivables and the drop in gross profit margin.

As indicated in the Company’s latest published interim report, the Group experienced a significant drop in its turnover to approximately HK$11.7 million and recorded a loss attributable to Shareholders of approximately HK$54.2 million for the six months ended 30th June, 2003. The Directors explained that the drop in business turnover was mainly due to the outbreak of the Severe Acute Respiratory Syndrome, which resulted in cancellation of business appointments with the Group’s customers from the United States of America. Such adverse impact was particularly significant on the Group’s life-like plants business, which in the past accounted for about 80% of the Group’s turnover. On the other hand, the full provision of the set-up costs of approximately HK$22 million in respect of the Group’s anti-theft car alarm and tracking business during the six months ended 30th June, 2003 had also contributed to the overall loss-making situation.

23 -

LETTER FROM AMS

To cope with the Group’s tight financial position following recent substantial losses, the Company raised net proceeds of approximately HK$8.3 million by issuing a total of 86,375,000 new Shares (representing 20% of the total issued share capital of the Company as enlarged thereby) to an independent investor (which has since then become a substantial shareholder of the Company) under two tranches of share subscription in September and October 2003. As confirmed by the Directors, such net proceeds have been used up as the general working capital of the Group.

2. Principal terms of the Open Offer

a. Basis for the Open Offer

It is proposed that not less than 2,159,375,000 Offer Shares and not more than 2,206,875,000 Offer Shares will be offered to Qualifying Holders for subscription in the proportion of five Offer Shares for every New Share held on the Record Date at the Subscription Price, payable in full on acceptance. The Offer Shares will rank pari passu in all respects with the New Shares in issue on the date of allotment and issue of the Offer Shares. Holders of the Offer Shares will be entitled to receive all dividends and distributions which are declared, made or paid on or after the date of issue and allotment of the Offer Shares.

Should the Shareholders decide to subscribe for their full entitlements of the Offer Shares under the Open Offer, there would be no dilution effect on their interests in the Company. However, should the Shareholders decide not to subscribe in full for their entitlements of Offer Shares, the Shareholders’ interest in the Company upon completion of the Open Offer would be diluted by up to approximately 83.3%.

b. Subscription Price

As stated in the “Letter from the Board”, the Subscription Price was arrived at after arm’s length negotiation between the Company and the Underwriter. The Directors consider the terms of the Open Offer to be fair and reasonable so far as the Shareholders are concerned.

We have reviewed the Share price during the 12-month period commencing from 22nd October, 2002 (being the first trading day twelve months preceding the date of the Underwriting Agreement) and set out below the average of the daily closing prices, the discounts represented by the Subscription Price to such average daily closing prices, the highest price and the lowest price of the Shares traded on the Stock Exchange in such period:

24 -

LETTER FROM AMS

	Average of the
	daily closing
	prices/Discount	Highest	Lowest
	represented by the	trading price	trading price
Month	Subscription Price	in the period	in the period
	HK$/%	HK$	HK$
2002
October (from 22nd October)	0.1526/73.8	0.160	0.100
November	0.1444/72.3	0.156	0.080
December	0.1069/62.6	0.120	0.090
2003
January	0.1105/63.8	0.120	0.086
February	0.1248/67.9	0.145	0.064
March	0.0765/47.7	0.114	0.040
April	0.0704/43.2	0.072	0.056
May	0.0509/21.4	0.070	0.032
June	0.0473/15.4	0.060	0.035
July	0.0514/22.2	0.056	0.036
August	0.0656/39.0	0.134	0.030
September	0.1303/69.3	0.140	0.118
October (up to and including
21st October, 2003)	0.1037/61.4	0.133	0.063

Source: website of the Stock Exchange

During the 12-month period under review, the Shares were traded at a lowest price of HK$0.030 (recorded on 14th August, 2003) and a highest price of HK$0.160 (recorded on 24th October, 2002 and 30th October, 2002). The subscription price of HK$0.04 per Offer Share under the Open Offer, which falls between such range, represents a discount of 75% to such highest price and a premium of approximately 33.3% over such lowest price. During the 12-month period under review, the Shares had been traded at prices above the Subscription Price most of the time and had been below the Subscription Price in 7 days out of a total of 248 trading days.

We have also reviewed the trading volume of the Shares during the 12-month period up to the date of the Underwriting Agreement. The liquidity of the Shares had been low with average daily turnover amounted to less than 1.7 million Shares (approximately 0.4% of the total number of Shares in issue) throughout the period under review except in September and October 2003 (up to the date of the Underwriting Agreement) where average daily turnover increased to about 8.4 million Shares and 11.4 million Shares, respectively, following the Company’s announcement regarding two tranches of share subscription by an independent investor.

During the 12-month period under review, there was trading in the Shares in 147 days out of a total of 248 trading days.

25 -

LETTER FROM AMS

In addition, the Subscription Price represents:	In addition, the Subscription Price represents:
(a)	Closing price quoted on the Stock Exchange on the date of the
	Underwriting Agreement	HK$0.064
	Discount (%)	37.5
(b)	Theoretical ex-entitlement price based on the closing price
	on the date of the Underwriting Agreement	HK$0.044
	Discount (Approximate %)	9.09
(c)	Average closing price for the last ten consecutive trading days
	up to and including the date of the Underwriting Agreement	HK$0.0944
	Discount (Approximate %)	57.63
(d)	Closing price per Share quoted on the Stock
	Exchange on the Latest Practicable Date	HK$0.044
	Discount (Approximate %)	9.09
(e)	Pro forma net asset value per Share based on the unaudited
	consolidated net asset value as at 30th June, 2003, as adjusted
	for the net proceeds of approximately HK$8.3 million raised
	from the two tranches of share subscription completed on
	10th September, 2003 and 7th October, 2003 respectively	0.1434
	Discount (Approximate %)	72.11

Shareholders should note that while listed companies differ from one another, it seems to be a common market practice to price an open offer by a listed company on the Stock Exchange, or rights issue which is very similar in nature as an open offer, at a discount to the market price. We have reviewed four open offers and eleven rights issues carried out by other listed companies on the main board of the Stock Exchange during the 12-month period up to 21st October, 2003, being the date of the Underwriting Agreement (the “Reference Companies”). Details of our findings on these open offers and rights issues are summarized in the table below.

26 -

LETTER FROM AMS

				Discount to
				theoretical
				ex-rights/
				ex-entitlements
				price per
			Discount to	share based
			closing price	on the closing
		Basis of	per share on	price per share
		provisional	the last trading	on the last
		allotment for	day prior	trading day prior
	Date of	the open offer/	to the press	to the press
Company	announcement	rights issue	announcement	announcement
	(dd/mm/yyyy)
*Open offer*
The Company	23/10/2003	5 for 1	37.5%	9.09%
Ezcom Holdings Limited	29/01/2003	5 for 1	96.2%	80.6%
GR Investment International
Limited	06/05/2003	3 for 1	62.96%	29.82%
Starbow Holdings Limited	02/12/2002	9 for 1	64.3%	15.3%
Xin Corporation Limited	15/07/2003	4 for 1	62.0%	24.6%
*Rights issue*
Harmony Asset Limited	11/11/2002	3 for 2	62.96%	40.48%
e-Kong Group Limited	07/10/2002	1 for 1	40%	25%
Enerchina Holdings Limited	20/12/2002	3 for 2	60%	37.5%
Hon Kwok Land Investment
Company, Limited	12/02/2003	3 for 2	32.4%	16.1%
Leaptek Limited	13/05/2003	1 for 1	85.7%	75%
Matsunichi Communication
Holdings Limited	01/08/2003	2 for 1	33.3%	14.3%
Oriental Union Holdings
Limited	28/05/2003	1 for 1	53.13%	36.17%
renren Holdings Limited	03/03/2003	1 for 1	43.75%	28%
Start Technology Company
Limited	09/05/2003	3 for 1	64.8%	26.9%
Styland Holdings Limited	25/11/2002	2 for 1	79.2%	55.9%
Yoshiya International
Corporation, Limited	05/05/2003	2 for 1	71.43%	45.36%

27 -

LETTER FROM AMS

We notice that the business activities of the Reference Companies are not directly comparable to those carried out by the Group. We consider that an industry comparison would not be relevant as the terms of an open offer/rights issue by a listed company are largely determined by reference to the stock market conditions and are specific to the individual company. In our analysis, we have included all 15 open offers and rights issues carried out in the 12month period prior to the date of the Underwriting Agreement that involved an increase in the issued share capital of the respective Reference Company by more than 50% and were required under the Listing Rules to be subject to approval by shareholders at general meeting where any controlling shareholders shall abstain from voting.

We found that the subscription prices of these 15 open offers and rights issues were all set at discounts to their respective closing price of the shares on the last trading day prior to the release of the relevant announcement of the fund-raising activities and the discounts of which ranged from approximately 32.4% to 96.2%. In addition, the discounts to the theoretical ex-entitlements/ex-rights prices per share based on the last trading day prior to the dates of the respective announcements of the fund-raising activities ranged from approximately 14.3% to 80.6%. The discount of 37.5% of the Subscription Price to the closing price of the Shares on the date of the Underwriting Agreement is within the abovementioned range for the Reference Companies, though on the lower end. The discount of approximately 9.09% of the Subscription Price to the theoretical ex-entitlement price based on the closing price on the date of the Underwriting Agreement is lower than the lowest end of the abovementioned range for the Reference Companies. Although the discounts represented by the Subscription Price as discussed above are relatively low as compared to those of the Reference Companies, we consider that the Subscription Price is fair and reasonable as all Qualifying Holders are offered an equal opportunity to participate in the enlargement of the capital base of the Company at a price below the closing price of the Shares on the date of the Underwriting Agreement.

3. Reasons for the Open Offer and use of net proceeds

a. Use of net proceeds

The reasons for the Open Offer are set out in the Letter from the Board contained in the Circular. In particular, the net proceeds from the Open Offer of not less than approximately HK$79 million and not more than approximately HK$82 million are intended to be applied as to (i) approximately HK$20 million for repayment of outstanding loans; (ii) approximately HK$40 million for further development of the multimedia business; and (iii) the remaining balance of not less than HK$19 million as general working capital of the Group.

It has been stated in the Letter from the Board that the Group has financial needs for repayment of loans due to banks and independent third parties which are repayable on various dates from November 2003 to March 2004. We notice from the unaudited interim report of the Company for the six months ended 30th June, 2003 that the Group had outstanding loans and borrowings of approximately HK$49.2 million against a cash position of approximately HK$2.8 million as at 30th June, 2003.

28 -

LETTER FROM AMS

The Board also intends to apply approximately HK$40 million for further development of the Group’s multimedia business, such as expansion of the Group’s network to cover more locations in the PRC for distribution of drama series and increase the production volume of the Group’s self-produced television dramas. As indicated in the Company’s annual reports and latest published interim report, the Group reported segment profit for its multimedia business of approximately HK$1.6 million for the year ended 31st December, 2001. The Group’s multimedia business then reported a segment loss of approximately HK$15.1 million and approximately HK$2.5 million for the year ended 31st December, 2002 and the six months ended 30th June, 2003, respectively. As explained in the Company’s 2002 annual report, the segment loss for the multimedia business for the year ended 31st December, 2002 was primarily due to the shrinkage in business turnover during the year and the provision of approximately HK$14.7 million on aged and doubtful debts. The segment loss for the six months ended 30th June, 2003 of approximately HK$2.5 million was primarily due to further shrinkage in business turnover as a result of the weak advertising market in the PRC. Nevertheless, it was reported in the Company’s latest published interim report that the 36-episode drama series produced and distributed by the Group in the PRC in late 2002 had received good review and ratings. Based on the success of this project, the Directors consider it beneficial for the Group to produce its own drama series for distribution. As reported in the interim report, the Group has completed the production of a 30-episode drama series and expected to commence the distribution work in November 2003. The Group has also purchased the rights to 80 hours of drama series from Hong Kong and Taiwan producers. While the government approval for distribution in the PRC of 20 hours of this drama series has been obtained and distribution work has commenced, the Group also expects to obtain the relevant PRC government approval for the remaining 60 hours of drama series in the third and fourth quarters of 2003 and will then proceed to the distribution.

In view of the indebtedness position of the Group and the development of the Group’s multimedia business as reported in the Company’s latest annual report and interim report, we consider that it is prudent for the Company to finance the expansion of its business by way of equity instead of debt financing, which would further increase its debt level. We also consider that unlike a share placement which would normally involve an issue of new shares at a discount to the market price of the shares and at the same time result in a dilution of existing Shareholders’ interests, the Open Offer provides an equal opportunity to all the Qualifying Holders to participate in the enlargement of the capital base of the Company. Having considered the above, we are of the opinion that it is in the interests of the Company and the Shareholders as a whole to raise fund through the Open Offer.

b. Alternative means of fund raising

As advised by the management of the Group, the Directors have considered various means of fund raising in order to meet the Group’s financial requirements. In September and October 2003, the Company issued a total of 86,375,000 new Shares at HK$0.10 each to an independent investor, which has since then become a substantial Shareholder, under two tranches of share subscription. As stated in the Letter from the Board, the net proceeds of approximately HK$8.3 million from such share subscription have been fully applied as

29 -

LETTER FROM AMS

general working capital of the Group. It was also stated in the Letter from the Board that the Directors had considered obtaining additional banking facilities to meet the Group’s financial requirements, but no agreement was reached. We concur with the Directors’ view that compared to other means of fund raising such as debt financing or share placement, the Open Offer is a better financing means as it will strengthen the Group’s financial position without causing any repayment or interest burden to the Group and it allows the Qualifying Holders to maintain their proportionate shareholding interests in the Company at a price representing a discount to the market price and the net asset value of the Shares.

30 -

LETTER FROM AMS

4. Financial effects of the Open Offer

a. Effect on net asset value

The following statement of pro forma unaudited adjusted consolidated net asset value of the Group, which shows the effect of the Open Offer on the net asset value of the Group, is based on the unaudited consolidated net asset value of the Group as at 30th June, 2003 and the assumption that there was no change in the Group’s financial position thereafter, adjusted as described below:

	Assuming no	Assuming full
	exercise of the	exercise of the
	outstanding Options	outstanding Options
	HK$’000	HK$’000
Unaudited consolidated net asset value of the Group
as at 30th June, 2003	53,642	53,642
Add: Net proceeds from two tranches of share
subscription_(Note 1)_	8,300	8,300
Add: Proceeds received from exercise of the Options
(Note 2)	–	6,703
Pro forma unaudited adjusted consolidated net asset
value of the Group before the Open Offer	61,942	68,645
Add: Estimated net proceeds from the Open Offer	79,000	82,000
Pro forma unaudited adjusted consolidated net asset
value of the Group upon completion of the
Open Offer	140,942	150,645
Pro forma unaudited adjusted consolidated net
asset value of the Group per New Share:
– based on 431,875,000 Shares in issue
at the Latest Practicable Date before the
Open Offer	HK$0.1434
– based on 2,591,250,000 New Shares in issue
upon completion of the Open Offer	HK$0.0544
– based on 441,375,000 Shares in issue
(assuming exercise in full of the
outstanding Options) before the Open Offer		HK$0.1555
– based on 2,648,250,000 New Shares in issue
upon completion of the Open Offer
(assuming exercise in full of the outstanding
Options before the Record Date)		HK$0.0569

31 -

LETTER FROM AMS

Notes:

Being the net proceeds from the completion of two tranches of share subscription of a total of 86,375,000 new Shares as referred to in the announcements of the Company dated 10th September, 2003 and 7th October, 2003.
Subject to the terms of the Existing Share Option Scheme, each of the Options confers the right on its holder to subscribe for one new Share at the exercise price of HK$0.7056.

According to the statement above, the pro forma unaudited adjusted consolidated net asset value of the Group would increase from approximately HK$61.9 million to approximately HK$140.9 million immediately following completion of the Open Offer, assuming no exercise of the outstanding Options before the Record Date. The pro forma unaudited adjusted consolidated net asset value of the Group per New Share would decrease by approximately 62.1% from approximately HK$0.1434 to approximately HK$0.0544 immediately following completion of Open Offer. In the event of full exercise of the outstanding Options before the Record Date, the pro forma unaudited adjusted consolidated net asset value of the Group per New Share would also decrease by approximately 63.4% from approximately HK$0.1555 to HK$0.0569 following completion of the Open Offer. Such decreases in the net asset value per New Share following completion of the Open Offer are primarily due to the discount of the Subscription Price to the pro forma unaudited adjusted consolidated net asset value per New Share before the Open Offer. We consider that the decrease in unaudited adjusted consolidated net asset value per New Share immediately after completion of the Open Offer is not prejudicial to the Qualifying Holders as the Qualifying Holders have an equal opportunity to take up their entitlements under the Open Offer at the Subscription Price which is at a discount to the unadjusted consolidated net asset value per New Share.

b. Effect on gearing ratio

After adjusting for the net proceeds of approximately HK$8.3 million from the two tranches of share subscription completed in September and October 2003 and assuming no other change in the Group’s financial position, the shareholders’ fund of the Group would increase from approximately HK$53.6 million as at 30th June, 2003 to approximately HK$61.9 million before the Open Offer. Assuming no exercise of the outstanding Options before the Record Date, the gearing ratio of the Group immediately before the Open Offer (calculated on the basis of the Group’s loans and bank borrowings of approximately HK$49.2 million as at 30th June, 2003 over shareholder’s fund of approximately HK$61.9 million) was approximately 79.5%. Such gearing ratio after completion of the Open Offer would be improved to approximately 20.7% (calculated on the basis that net proceeds of not less than HK$79 million will be raised from the Open Offer assuming none of the outstanding Options were exercised before the Record Date and the Group’s indebtedness will be reduced by HK$20 million according to the Directors’ intended use of the net proceeds).

32 -

LETTER FROM AMS

c. Effect on cash flow

As at 30th June, 2003, cash and cash equivalents of the Group amounted to approximately HK$2.8 million. Apart from approximately HK$20 million of the net proceeds from the Open Offer which will be used for repayment of outstanding loans, it is the present intention of the Directors to apply the remaining balance from the Open Offer of not less than HK$59 million for further development of the Group’s multimedia business and as general working capital for the Group. Thus the cash flow position of the Group would improve upon completion of the Open Offer.

In view of the resulting improvement in the financial position of the Group upon completion of the Open Offer, we consider that the Open Offer is in the interest of the Company and the Shareholders as a whole.

5. Conditions of the Open Offer

The Open Offer is subject to the Underwriting Agreement having become unconditional and not being terminated in accordance with its terms. For details on the conditions of the Open Offer, please refer to the section headed “Conditions of the Underwriting Agreement” in the Letter from the Board.

Shareholders are advised to note that the Underwriting Agreement in respect of the Open Offer contains provisions entitling the Underwriter to terminate its obligations thereunder on the occurrence of certain events, including (but not limited to) force majeure, occurring at or before 4:00 p.m. on the third business day after the latest date for acceptance of the Offer Shares. Should any of the conditions under the Underwriting Agreement are not satisfied and/or waived in whole or in part by the Underwriter on or before the time and dates as specified in the Underwriting Agreement (or such other date as the Company and the Underwriter may mutually agree), the Open Offer will not proceed.

6. Dilution effect of the Open Offer on shareholding interests

It should be noted that there will be no trading of nil-paid Offer Shares or splitting of entitlements under the proposed Open Offer. Accordingly, Qualifying Holders may either take up or waive their entitlements under the Open Offer. Any Qualifying Holders who choose not to take up in full their entitlements under the Open Offer will have their shareholdings in the Company diluted by up to approximately 83.3%.

7. Underwriting arrangements

As stated in the Letter from the Board, subject to the terms and conditions of the Underwriting Agreement, the Open Offer is fully underwritten by the Underwriter who is independent of and not connected with any of the directors, chief executive or substantial shareholders of the Company, its subsidiaries or any of their respective associates.

33 -

LETTER FROM AMS

Pursuant to the Underwriting Agreement, the Underwriter has committed to underwrite a maximum of 2,206,875,000 Offer Shares, representing approximately 83.33% of the issued share capital of the Company following completion of the Open Offer. As stated in the Letter from the Board, the Underwriter has undertaken to the SFC that it will sub-underwrite and/or place all the Offer Shares underwritten by the Underwriter pursuant to the Underwriting Agreement to independent investors before the close of the Open Offer.

If as a result of the Open Offer less than 25% of the issued New Shares are in the hands of the public, the Company may breach rule 8.08 of the Listing Rules. The Stock Exchange has stated that, if less than 25% of the issued New Shares are in public hands following completion of the Open Offer, or if the Stock Exchange believes that a false market exists or may exist in the trading of the New Shares or that there are insufficient Shares in public hands to maintain an orderly market, it will consider exercising its discretion to suspend dealings in the New Shares. In this connection, it should be noted that upon completion of the Open Offer, there may be insufficient public float for the New Shares and, therefore, trading in the New Shares may be suspended until a sufficient level of public float is attained.

Pursuant to the Underwriting Agreement, the Company will pay the Underwriter an underwriting commission of 6% of the aggregate Subscription Price of the maximum number of Offer Shares to be underwritten by the Underwriter. We notice that the underwriting commission of 6% of the Subscription Price is relatively high compared to the usual market rate of 2% to 4%. However, we have noted that in most open offers or rights issues by listed companies on the Stock Exchange, the respective substantial shareholders would usually provide an undertaking to take up at least their proportional entitlements under the open offers or rights issues, and some substantial shareholders may even underwrite excess shares. In the present case, Shareholders should note that none of the substantial shareholders of the Company has indicated whether or not it will subscribe for the Offer Shares to which it will be entitled under the Open Offer. Given that (i) the Underwriter will be faced with more uncertainty in respect of the shareholding structure of the Company following completion of the Open Offer; (ii) the Underwriter has given an undertaking to the SFC, as mentioned above, to sub-underwrite and/or place the Offer Shares to be underwritten under the Open Offer to independent investors; (iii) the size of the Open Offer is significant compared to the financial strength of the Group; and (iv) the stock market is volatile, we consider that the underwriting commission of 6% of the Subscription Price is fair and reasonable.

III. RECOMMENDATION

Having considered the above principal factors and reasons, and in particular the fact that the Open Offer will strengthen the capital base and financial position of the Group and that Qualifying Holders will be offered an equal opportunity to participate in funding the operations of the Group and to maintain their proportionate shareholding interests in the Company, we are of the opinion that the Open Offer is in the interest of the Company and the terms of which are fair and reasonable so far as the Shareholders are concerned. Accordingly, we advise the Independent Board Committee to recommend the Shareholders to vote in favour of the ordinary resolution to be proposed at the SGM to approve the Open Offer.

Yours faithfully, For and on behalf of

AMS Corporate Finance Limited

Jinny Mok

Director

34 -

FINANCIAL INFORMATION

APPENDIX I

CONSOLIDATED PROFIT AND LOSS ACCOUNT

Year ended 31st December, 2002

Notes TURNOVER 6 Cost of sales Gross profit Other revenue and gains 6 Selling expenses Administrative expenses Other operating expenses LOSS FROM OPERATING ACTIVITIES 7 Finance costs 8 LOSS BEFORE TAX Tax 11 LOSS BEFORE MINORITY INTERESTS Minority interests NET PROFIT/(LOSS) FOR THE YEAR ATTRIBUTABLE TO SHAREHOLDERS 12 EARNINGS/(LOSS) PER SHARE 13 Basic Diluted	2002 HK$’000 122,692 (98,664) 24,028 4,915 (10,218) (35,174) (64,801) (81,250) (2,594) (83,844) (787) (84,631) 2,296 (82,335) (23.83 cents) N/A	2001 HK$’000 124,027 (84,875) 39,152 14,683 (7,007) (38,802) (8,759) (733) (1,665) (2,398) (642) (3,040) 3,104 64 0.02 cents N/A

35 -

FINANCIAL INFORMATION

APPENDIX I

CONSOLIDATED BALANCE SHEET

31st December, 2002

Notes NON-CURRENT ASSETS Fixed assets 14 Goodwill 15 Deferred development expenditure 17 Long term investments 18 Long term receivable 19 CURRENT ASSETS Inventories 20 Television programmes and sub-licensing rights 21 Trade receivables 22 Prepayments, deposits and other receivables 23 Cash and cash equivalents 24 CURRENT LIABILITIES Accounts payable and accrued liabilities 25 Tax payable Other loans, unsecured 26 Interest-bearing bank loans and overdrafts, secured 27 Finance lease payables 28 Due to a minority shareholder of a subsidiary 29 Dividend payable to a minority shareholder of a subsidiary 19 NET CURRENT ASSETS/(LIABILITIES) TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Non interest-bearing other loans 16(b) Interest-bearing bank loans and overdrafts, secured 27 Finance lease payables 28 Deferred tax 11 MINORITY INTERESTS	2002 HK$’000 116,891 – 1,493 – 2,000 120,384 13,900 5,456 18,967 14,850 6,912 60,085 37,108 824 13,009 12,348 1,941 848 2,000 68,078 (7,993) 112,391 601 2,666 428 – 3,695 – 108,696	2001 HK$’000 119,600 2,533 2,128 1,132 –
		125,393
		15,599 5,557 50,978 28,567 18,187
		118,888
		25,304 127 4,900 11,198 2,021 – 2,000
		45,550
		73,338
		198,731
		601 5,634 2,374 273
		8,882
		1,536
		188,313

36 -

FINANCIAL INFORMATION

APPENDIX I

Note CAPITAL AND RESERVES Issued capital 30 Reserves	2002 HK$’000 34,550 74,146 108,696	2001 HK$’000 34,550 153,763
		188,313

37 -

FINANCIAL INFORMATION

APPENDIX I

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Year ended 31st December, 2002

Notes At 1st January, 2001 Issue of shares Share issue expenses Exchange realignment arising from retranslation of subsidiaries Net gains and losses not recognised in the profit and loss account Net profit for the year At 31st December, 2001 and 1st January, 2002 Deficit on revaluation 14 Net gains and losses not recognised in the profit and loss account Impairment of goodwill remaining eliminated against contributed surplus 15 Net loss for the year At 31st December, 2002	Issued share capital HK$’000 29,100 5,450 – – – – 34,550 – – – – 34,550	Share premium account HK$’000 48,956 10,900 (550) – – – 59,306 – – – – 59,306*	Contributed surplus HK$’000 21,241 – – – – – 21,241 – – 2,800 – 24,041*	Revaluation reserve HK$’000 37,105 – – – – – 37,105 (82) (82) – – 37,023*	Retained profits/ Exchange (Accumulated reserve losses) HK$’000 HK$’000 (48) 35,881 – – – – 214 – 214 – – 64 166 35,945 – – – – – – – (82,335) 166 (46,390)	Total HK$’000 172,235 16,350 (550) 214 214 64 188,313 (82) (82) 2,800 (82,335) 108,696

* These reserve accounts comprise the consolidated reserves of HK$74,146,000 (2001: HK$153,763,000) in the consolidated balance sheet.

38 -

FINANCIAL INFORMATION

APPENDIX I

CONSOLIDATED CASH FLOW STATEMENT

Year ended 31st December, 2002

Notes CASH FLOWS FROM OPERATING ACTIVITIES Loss before tax Adjustments for: Finance costs 8 Interest income 6 Loss on disposal of fixed assets 7 Depreciation 7 Amortisation of deferred development expenditure 7 Amortisation of goodwill 7 Impairment of goodwill 7 Provisions for bad and doubtful long term receivable 7 Provisions for bad and doubtful trade receivables 7 Provisions for bad and doubtful other receivables 7 Provision for impairment of long term unlisted investments 7 Loss on disposal of interest in a subsidiary 7 Operating profit/(loss) before working capital changes Decrease/(increase) in inventories Decrease/(increase) in television programmes and sub-licensing rights Increase in trade receivables Increase in prepayments, deposits and other receivables Decrease in accounts payable and accrued liabilities Cash used in operations Interest paid Interest element on finance lease rental payments Hong Kong profits tax paid Net cash outflow from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Interest received Purchases of fixed assets 14 Proceeds from disposal of fixed assets Proceeds from disposal of long term investments Proceeds from disposal of interest in a subsidiary Deferred development expenditure incurred 17 Net cash outflow from investing activities	2002 HK$’000 (83,844) 2,594 (110) 6 7,061 724 543 4,790 6,400 33,999 17,885 1,132 46 (8,774) 1,699 101 (1,988) (12,568) 11,804 (9,726) (1,667) (187) (363) (11,943) 110 (4,440) – – 714 (89) (3,705)	2001 HK$’000 (Restated) (2,398) 1,665 (2,637) – 5,807 709 181 – – 8,578 – – – 11,905 (1,960) (923) (6,069) (23,650) 4,522 (16,175) (1,382) (283) (7) (17,847) 2,637 (18,228) 21 1,200 – (53) (14,423)

39 -

FINANCIAL INFORMATION

APPENDIX I

Notes CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of ordinary shares Share issue expenses New other loans Repayment of other loans Repayment of bank loans Proceeds from sale and lease back transactions Capital element of finance lease rental payments Contributions from minority interests Advance from a minority shareholder of a subsidiary Repayment of an amount due to a minority shareholder of a subsidiary Net cash inflow from financing activities NET DECREASE IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of year Effect of foreign exchange rate changes, net CASH AND CASH EQUIVALENTS AT END OF YEAR ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances 24 Bank overdrafts 27	2002 HK$’000 – – 14,009 (6,640) (4,532) – (2,026) – 848 – 1,659 (13,989) 18,187 – 4,198 6,912 (2,714) 4,198	2001 HK$’000 (Restated) 16,350 (550) 17,566 (1,000) (4,392) 5,899 (1,504) 952 – (1,225) 32,096 (174) 18,236 125 18,187 18,187 – 18,187

40 -

FINANCIAL INFORMATION

APPENDIX I

BALANCE SHEET

31st December, 2002

Notes NON-CURRENT ASSETS Interests in subsidiaries 16 CURRENT ASSETS Prepayments and other receivables Cash and cash equivalents CURRENT LIABILITIES Accrued liabilities NET CURRENT ASSETS CAPITAL AND RESERVES Issued capital 30 Reserves 32	2002 HK$’000 107,573 279 17 296 141 155 107,728 34,550 73,178 107,728	2001 HK$’000 168,191
		268 413
		681
		175
		506
		168,697

		34,550 134,147
		168,697

41 -

FINANCIAL INFORMATION

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31st December, 2002

1. CORPORATE INFORMATION

The Company was incorporated in Bermuda on 11th June, 1996 as an exempted company with limited liability under the Companies Act of Bermuda 1981 (as amended).

The registered office of the Company is located at Clarendon House, 2 Church Street, Hamilton HM11, Bermuda.

During the year, the Group was involved in the following principal activities:

design, manufacture and sale of life-like plants and other products for decorative purposes, specialising in life-like Christmas trees;
production, acquisition and distribution of television programmes and the provision of related multimedia services;
sale of festival gift products through an internet portal; and
provision of anti-theft car alarm and tracking services.

2. FUNDAMENTAL ACCOUNTING CONCEPT

The Group recorded a consolidated net loss from ordinary activities attributable to shareholders of HK$82,335,000 for the year ended 31st December, 2002. The Group also had a net cash outflow from operations of HK$11,943,000 and an overall net cash outflow of HK$13,989,000 for the same period. The directors have been (i) in negotiations with new or existing bankers and third parties with a view to obtaining new facilities and/or renewals of the existing banking facilities granted to the Group; and (ii) closely monitoring the settlement of the Group’s receivables. Subsequent to the balance sheet date, on 25th January, 2003 and 18th June, 2003, respectively, the Group obtained from independent third parties new loan facilities of HK$16,000,000 in aggregate.

Provided that the Group’s existing bankers renew the existing facilities, or to the extent that existing facilities are not renewed they are replaced by new facilities made available from existing or new bankers, the directors consider the Group will have sufficient funds to support its ongoing operations.

Should the Group fail to obtain the required banking facilities, the Group may not have adequate financial resources to support its ongoing operations, and therefore, adjustments would have to be made to restate the value of the Group’s assets to their recoverable amounts, to provide for any further liabilities which might arise and to reclassify the non-current assets and liabilities as current assets and liabilities.

3. IMPACT OF NEW AND REVISED STATEMENTS OF STANDARD ACCOUNTING PRACTICE (“SSAPs”)

The following new and revised SSAPs are effective for the first time for the current year’s financial statements:

SSAP 1 (Revised): “Presentation of financial statements”
• SSAP 11 (Revised): “Foreign currency translation”
SSAP 15 (Revised): “Cash flow statements”
• SSAP 34: “Employee benefits”
42 -

FINANCIAL INFORMATION

APPENDIX I

These SSAPs prescribe new accounting measurement and disclosure practices. The major effects on the Group’s accounting policies and on the amounts disclosed in these financial statements of adopting these SSAPs, are summarised as follows:

SSAP 1 prescribes the basis for the presentation of financial statements and sets out guidelines for their structure and minimum requirements for the content thereof. The principal impact of the revision to this SSAP is that a consolidated statement of changes in equity is now presented on page 38 of this circular in place of the consolidated statement of recognised gains and losses that was previously required and in place of the Group’s reserves note.

SSAP 11 prescribes the basis for the translation of foreign currency transactions and financial statements. The principal impact of the revision of this SSAP on the consolidated financial statements is that the profit and loss accounts of overseas subsidiaries are now translated into Hong Kong dollars at the weighted average exchange rates for the year, whereas previously they were translated at the exchange rates ruling at the balance sheet date. Further details of these changes are included in the accounting policy for “Foreign currencies” in note 4 to the financial statements. The adoption of the revised SSAP 11 has had no material effect on the financial statements.

SSAP 15 prescribes the revised format for the cash flow statement. The principal impact of the revision of this SSAP is that the consolidated cash flow statement now presents cash flows under three headings, cash flows from operating, investing and financing activities, rather than the five headings previously required. In addition, cash flows from overseas subsidiaries arising during the year are now translated to Hong Kong dollars at the exchange rates at the dates of the transactions, or at an approximation thereto, whereas previously they were translated at the exchange rates at the balance sheet date, and the definition of cash equivalents for the purpose of the consolidated cash flow statement has been revised. Further details of these changes are included in the accounting policies for “Cash and cash equivalents” and “Foreign currencies” in note 4, and also in note 33 to the financial statements.

SSAP 34 prescribes the recognition and measurement criteria to apply to employee benefits, together with the required disclosures in respect thereof. The adoption of this SSAP has resulted in no change to the previously adopted accounting treatments for employee benefits except that additional disclosures are now required in respect of the Company’s share option scheme, as detailed in note 31 to the financial statements. These share option scheme disclosures are similar to the disclosures pursuant to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) previously included in the Report of the Directors, which are now included in the notes to the financial statements as a consequence of the SSAP.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of preparation

These financial statements have been prepared in accordance with Hong Kong Statements of Standard Accounting Practice, accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. They have been prepared under the historical cost convention, except for the periodic remeasurement of certain fixed assets and equity investments, as further explained below.

Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries for the year ended 31st December, 2002. The results of subsidiaries acquired or disposed of during the year are consolidated from or to their effective dates of acquisition or disposal, respectively. All significant intercompany transactions and balances within the Group are eliminated on consolidation.

43 -

FINANCIAL INFORMATION

APPENDIX I

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

Subsidiaries

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

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

Joint venture companies

A joint venture company is a company set up by contractual arrangement, whereby the Group and other parties undertake an economic activity. The joint venture company operates as a separate entity in which the Group and the other parties have an interest.

The joint venture agreement between the venturers stipulates the capital contributions of the joint venture parties, the duration of the joint venture and the basis on which the assets are to be realised upon its dissolution. The profits and losses from the joint venture company’s operations and any distributions of surplus assets are shared by the venturers, either in proportion to their respective capital contributions, or in accordance with the terms of the joint venture agreement.

A joint venture company is treated as:

(a) a subsidiary, if the Company has unilateral control, directly or indirectly, over the joint venture company;
(b) a jointly-controlled entity, if the Company does not have unilateral control, but has joint control, directly or indirectly, over the joint venture company;
(c) an associate, if the Company does not have unilateral or joint control, but holds, directly or indirectly, generally not less than 20% of the joint venture company’s registered capital and is in a position to exercise significant influence over the joint venture company; or
(d) a long term investment, if the Company holds, directly or indirectly, less than 20% of the joint venture company’s registered capital and has neither joint control of, nor is in a position to exercise significant influence over, the joint venture company.

Goodwill

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

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

SSAP 30 ‘’Business combinations’’ was adopted as at 1st January, 2001. Prior to that date, goodwill arising on acquisitions was eliminated against consolidated reserves in the year of acquisition. On the adoption of SSAP 30, the Group applied the transitional provision of SSAP 30 that permitted such goodwill to remain eliminated against consolidated reserves. Goodwill on acquisitions subsequent to 1st January, 2001 is treated according to the SSAP 30 goodwill accounting policy above.

44 -

FINANCIAL INFORMATION

APPENDIX I

On disposal of subsidiaries, the gain or loss on disposal is calculated by reference to the net assets at the date of disposal, including the attributable amount of goodwill which remains unamortised and any relevant reserves, as appropriate. Any attributable goodwill previously eliminated against consolidated reserves at the time of acquisition is written back and included in the calculation of the gain or loss on disposal.

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

Impairment of assets

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

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

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

Fixed assets and depreciation

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

Construction in progress represents an anti-theft car alarm and tracking system under construction and is stated at cost less any impairment losses, and is not depreciated. Cost comprises the direct costs of construction and interest charges on related borrowed funds during the period of construction. The construction in progress is reclassified to the appropriate category of fixed assets and depreciated thereafter when completed and ready for use.

Changes in the values of fixed assets are dealt with as movements in the revaluation reserve. If the total of this reserve is insufficient to cover a deficit, on an individual asset basis, the excess of the deficit is charged to the profit and loss account. Any subsequent revaluation surplus is credited to the profit and loss account to the extent of the deficit previously charged. On disposal or retirement, the attributable revaluation surplus realised in respect of previous valuations is transferred directly to retained profits as a movement in reserves.

45 -

FINANCIAL INFORMATION

APPENDIX I

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

Land Over the lease terms Buildings 2% Plant and machinery 6[2] /3% Furniture, fixtures and equipment 20% to 30% Motor vehicles 20% to 30%

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

Television programmes and sub-licensing rights

(a) Television programmes (“TV programmes”)

TV programmes produced by the Group are stated at cost less amortisation and any impairment losses deemed necessary by the directors. Costs represent the carrying amount transferred from TV programmes in progress upon completion and are amortised at rates calculated to write off these costs in proportion to the expected revenues from the distribution and the licensing of video and other broadcasting of these TV programmes following their release. Impairment losses are recognised against the carrying amounts of TV programmes if the carrying amounts exceed their expected future revenue.

(b) TV programmes in progress

TV programmes in progress are stated at cost less impairment losses deemed necessary by the directors. Costs include all direct costs associated with the production of TV programmes. Impairment losses are recognised against costs which are in excess of the future revenue expected to be generated by the TV programmes. The costs of TV programmes in progress are transferred to TV programmes upon completion.

(c) Sub-licensing rights

Licence fees paid to acquire the rights for the sub-licensing of TV programmes produced by third parties in specified geographical areas and time periods are accounted for as sub-licensing rights. Upon the release of these purchased TV programmes, the relevant portion of the licence fees are charged to the profit and loss account on a systematic basis, with reference to the projected revenue and the underlying licence periods. Impairment losses are recognised against the sub-licensing rights if the carrying amounts of the sub-licensing rights are considered to exceed their expected future revenue.

Deferred development expenditure

This represents the expenditure incurred to develop a new product and the direct costs incurred to register the patent for the new product. The expenditure and the cost of the patent capitalised are amortised using the straight-line method over the estimated useful life of four years from the date when the product is put into commercial production.

46 -

FINANCIAL INFORMATION

APPENDIX I

Leased assets

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

Assets acquired through hire purchase contracts of a financing nature are accounted for as finance leases, but are depreciated over their estimated useful lives.

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

Long term investments

Long term investments are non-trading investments in listed and unlisted equity securities intended to be held on a long term basis.

Listed securities are stated at their fair values on the basis of their quoted market prices at the balance sheet date, on an individual investment basis. Unlisted securities are stated at their estimated fair values, on an individual basis. These are determined by the directors having regard to, inter alia, the prices of the most recent reported sale or purchase of the securities, or the comparison of price/earnings ratios and dividend yields of the securities with those of similar listed securities, with allowance made for the lower liquidity of the unlisted securities.

The gains or losses arising from changes in the fair values of a security are dealt with as movements in the long term investment revaluation reserve, until the security is sold, collected, or otherwise disposed of, or until the security is determined to be impaired, when the cumulative gain or loss derived from the security recognised in the long term investment revaluation reserve, together with the amount of any further impairment, is charged to the profit and loss account for the period in which the impairment arises.

Inventories

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

Cash and cash equivalents

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

47 -

FINANCIAL INFORMATION

APPENDIX I

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

Provisions

A provision is recognised when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation.

When the effect of discounting is material, the amount recognised for a provision is the present value at the balance sheet date of the future expenditures expected to be required to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in finance costs in the profit and loss account.

Deferred tax

Deferred tax is provided, using the liability method, on all significant timing differences to the extent it is probable that the liability will crystallise in the foreseeable future. A deferred tax asset is not recognised until its realisation is assured beyond reasonable doubt.

Revenue recognition

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

(a) from the sale of goods, when the significant risks and rewards of ownership have been transferred to the buyer;
(b) income from the licensing and sub-licensing of TV programmes, upon the delivery of master tapes to customers;
(c) income from the sale of advertising air-time granted by television stations through the licensing and sub-licensing of TV programmes, when the TV programmes are telecast;
(d) commission and other service fees, when services are rendered;
(e) interest income, on a time proportion basis taking into account the principal outstanding and the effective interest rate applicable; and
(f) guaranteed profit, when the right to receive payment is established.

Dividends

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

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

48 -

FINANCIAL INFORMATION

APPENDIX I

Employee benefits

Paid leave carried forward

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

Employment Ordinance long service payments

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

A provision is recognised in respect of the probable future long service payments expected to be made. The provision is based on the best estimate of the probable future payments which have been earned by the employees from their service to the Group to the balance sheet date.

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

Pension scheme and other retirement benefits

The Group operates a defined contribution Mandatory Provident Fund retirement benefits scheme (the “MPF Scheme”) under the Mandatory Provident Fund Schemes Ordinance, for those employees who are eligible to participate in the Scheme. Contributions are made based on a percentage of the employees’ basic salaries and are charged to the profit and loss account as they become payable in accordance with the rules of the MPF Scheme. The assets of the MPF Scheme are held separately from those of the Group in an independently administered fund. The Group’s employer contributions vest fully with the employees when contributed into the MPF Scheme.

The employees of the Group’s subsidiaries, which operates in Mainland China are required to participate in a central pension scheme operated by the local municipal government. This subsidiary is required to contribute 11% of its payroll costs to the central pension scheme. The contributions are charged to the profit and loss account as they become payable in accordance with the rules of the central pension scheme.

Share option scheme

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

49 -

FINANCIAL INFORMATION

APPENDIX I

Related parties

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

Foreign currencies

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

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

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

Prior to the adoption of the revised SSAPs 11 and 15 during the year, as explained in note 3 to the financial statements, the profit and loss accounts of overseas subsidiaries and the cash flows of overseas subsidiaries were translated into Hong Kong dollars at the exchange rates ruling at the balance sheet date. The adoption of the revised SSAP 11 has had no material effect on the financial statements. The adoption of the revised SSAP 15 has had no material effect on the amounts of the previously-reported cash flows of the prior year.

5. SEGMENT INFORMATION

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

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

(a) the design, manufacture, sale of life-like plants and sale of other decorative products segment comprises manufacturing of life-like Christmas trees, flowers and other foliaged products for decoration purposes;
(b) the production, acquisition and distribution of television programmes and the provision of related multi-media services segment comprises sales of licensing rights of self-produced drama series and the sub-licensing of cartoon series and TV drama series;
(c) the sale of festival gift products through an internet portal segment; and
(d) the provision of anti-theft car alarm and tracking services segment.
50 -

FINANCIAL INFORMATION

APPENDIX I

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

Intersegment sales and transfers are transacted with reference to the selling prices used for sales made to third parties at the then prevailing market prices.

(a) Business segments

The following tables present revenue, profit/(loss) and certain asset, liability and expenditure information for the Group’s business segments.

Group Design, manufacture, sale of life-like plants and sale of other decorative products 2002 2001 HK$’000 HK$’000 Segment revenue: Sales to external customers 101,816 91,259 Intersegment sales 2,534 5,046 Other revenue 2,914 3,758 Total revenue 107,264 100,063 Segment results (18,983) 6 Interest income and unallocated gains Unallocated expenses Loss from operating activities Finance costs Loss before tax Tax Loss before minority interests Minority interests Net profit/(loss) for the year attributable to shareholders	Production, acquisition and distribution of television programmes and the provision of related multi-media services 2002 2001 HK$’000 HK$’000 17,436 30,262 – – 1,687 2,406 19,123 32,668 (15,134) 1,619	Sale of festival gift products through an internet portal 2002 2001 HK$’000 HK$’000 2,893 2,496 – – 17 17 2,910 2,513 (5,081) (4,578)	Provision of anti-theft car alarm and tracking services 2002 2001 HK$’000 HK$’000 547 10 – – 286 6 833 16 (17,942) (5,171)	Eliminations 2002 2001 HK$’000 HK$’000 – – (2,534) (5,046) – – (2,534) (5,046) – –	Consolidated 2002 2001 HK$’000 HK$’000 122,692 124,027 – – 4,904 6,187 127,596 130,214 (57,140) (8,124) 11 8,496 (24,121) (1,105) (81,250) (733) (2,594) (1,665) (83,844) (2,398) (787) (642) (84,631) (3,040) 2,296 3,104 (82,335) 64	Consolidated 2002 2001 HK$’000 HK$’000 122,692 124,027 – – 4,904 6,187 127,596 130,214 (57,140) (8,124) 11 8,496 (24,121) (1,105) (81,250) (733) (2,594) (1,665) (83,844) (2,398) (787) (642) (84,631) (3,040) 2,296 3,104 (82,335) 64
						130,214

						(8,124) 8,496 (1,105)
						(733) (1,665)
						(2,398) (642)
						(3,040) 3,104
						64

51 -

FINANCIAL INFORMATION

APPENDIX I

Group Design, manufacture, sale of life-like plants and sale of other decorative products 2002 2001 HK$’000 HK$’000 Segment assets 124,516 168,916 Unallocated assets Total assets Segment liabilities 29,346 18,154 Unallocated liabilities Total liabilities Other segment information: Depreciation 4,903 5,014 Amortisation of deferred development expenditure 724 709 Amortisation of goodwill – – Provisions for bad and doubtful debts – allocated assets 21,309 7,052 – unallocated assets Impairment of goodwill recognised in the profit and loss account – – Impairment of long term unlisted investments – – Capital expenditure 1,144 630	Production, acquisition and distribution of television programmes and the provision of related multi-media services 2002 2001 HK$’000 HK$’000 29,661 39,668 7,778 8,601 173 166 – – – – 14,688 1,526 – – – – 8 72	Sale of festival gift products through an internet portal 2002 2001 HK$’000 HK$’000 2,731 5,284 2,802 5,378 142 121 – – – – 287 – – – 1,132 – 86 146	Provision of anti-theft car alarm and tracking services 2002 2001 HK$’000 HK$’000 24,095 27,059 3,989 1,218 1,843 506 – – 543 181 – – 4,790 – – – 3,291 17,433	Eliminations 2002 2001 HK$’000 HK$’000 (2,534) (5,046) (2,534) (5,046) – – – – – – – – – – – – – –	Consolidated 2002 2001 HK$’000 HK$’000 178,469 235,881 2,000 8,400 180,469 244,281 41,381 28,305 30,392 26,127 71,773 54,432 7,061 5,807 724 709 543 181 36,284 8,578 22,000 – 58,284 8,578 4,790 – 1,132 – 4,529 18,281	Consolidated 2002 2001 HK$’000 HK$’000 178,469 235,881 2,000 8,400 180,469 244,281 41,381 28,305 30,392 26,127 71,773 54,432 7,061 5,807 724 709 543 181 36,284 8,578 22,000 – 58,284 8,578 4,790 – 1,132 – 4,529 18,281
						244,281

						28,305 26,127
						54,432

						5,807 709 181 8,578 –
						8,578 – – 18,281

52 -

FINANCIAL INFORMATION

APPENDIX I

(b) Geographical segments

The following table presents revenue and certain asset and expenditure information for the Group’s geographical segments.

==> picture [371 x 174] intentionally omitted <==

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

United
Group States of America Hong Kong Mainland China Europe Other Eliminations Consolidated
2002 2001 2002 2001 2002 2001 2002 2001 2002 2001 2002 2001 2002 2001
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
Segment revenue:
Sales to external
customers 85,092 66,827 11,188 19,932 17,983 25,391 8,293 11,732 136 145 – – 122,692 124,027
Other segment
information:
Segment assets 8,889 28,893 71,534 95,183 140,547 154,253 167 247 – – (40,668) (34,295) 180,469 244,281
Capital expenditure 169 74 83 333 4,277 17,874 – – – – – – 4,529 18,281
----- End of picture text -----

53 -

FINANCIAL INFORMATION

APPENDIX I

6. TURNOVER, REVENUE AND GAINS

Turnover represents the invoiced value of goods sold, net of discounts and returns, gross receipts from the licensing and sub-licensing of TV programmes and the provision of related multi-media services, net of applicable business taxes and gross receipts from the provision of anti-theft car alarm and tracking services.

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

Note Turnover Production and distribution of life-like Christmas trees, floral and other foliaged products and other decorative products Production, acquisition and distribution of TV programmes and the provision of related multi-media services, net of applicable business taxes of HK$943,000 (2001: HK$1,592,000) Provision of anti-theft car alarm and tracking services Other revenue Interest income on bank balances and overdue receivables Sale of samples Income from video recording services Consultancy fees Others Gains Exchange gains, net Write back of accounts payable Guaranteed profit from a minority shareholder of a subsidiary 19	2002 HK$’000 104,709 17,436 547 122,692 110 1,806 194 – 1,283 3,393 359 1,163 – 1,522 4,915	2001 HK$’000 93,755 30,262 10
		124,027

		2,637 546 844 1,500 756
		6,283
		– – 8,400
		8,400
		14,683

54 -

FINANCIAL INFORMATION

APPENDIX I

7. LOSS FROM OPERATING ACTIVITIES

The Group’s loss from operating activities is arrived at after charging:

Notes Cost of inventories sold Cost of TV programmes and sub-licensing rights Depreciation 14 Amortisation of goodwill 15 Impairment of goodwill 15 Loss on disposal of interests in a subsidiary 16 Amortisation of deferred development expenditure 17 Impairment of long term unlisted investments 18 Provisions for bad and doubtful long term receivable 19 Provisions for bad and doubtful trade receivables 22 Provisions for bad and doubtful other receivables 23 Minimum lease payments under operating leases on land and buildings Staff costs (excluding directors’ remuneration,note 9) Wages and salaries Pension scheme contributions Less: Forfeited contributions Net pension contributions Auditors’ remuneration Exchange losses, net Provision for obsolete inventories Loss on disposal of fixed assets*	2002 HK$’000 85,581 12,249 7,061 543 4,790 46 724 1,132 6,400 33,999 17,885 2,693 22,111 702 – 702 930 – 110 6	2001 HK$’000 64,686 18,696 5,807 181 – – 709 – – 8,578 – 3,611 24,137 820 –
		820
		830 91 – –

Included in “Cost of sales” on the face of the consolidated profit and loss account.
** Included in “Other operating expenses” on the face of the consolidated profit and loss account.
*** At 31st December, 2002, the Group had no forfeited contributions available to reduce its contributions to the pension scheme in future years (2001: Nil).
55 -

FINANCIAL INFORMATION

APPENDIX I

8. FINANCE COSTS

FINANCE COSTS
Interest on bank loans and overdrafts wholly repayable within five years Interest on loans from minority shareholders of a subsidiary Interest on finance leases Interest on other loans	Group 2002 2001 HK$’000 HK$’000 1,021 1,072 – 45 187 283 1,386 265 2,594 1,665
		1,665

9. DIRECTORS’ REMUNERATION

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

Executive: Fees Other emoluments: Salaries, housing, other allowances and benefits in kind Pension scheme contributions Independent non-executive: Fees Other emoluments	Group 2002 2001 HK$’000 HK$’000 – – 7,248 7,228 48 52 7,296 7,280 320 320 – – 320 320 7,616 7,600	Group 2002 2001 HK$’000 HK$’000 – – 7,248 7,228 48 52 7,296 7,280 320 320 – – 320 320 7,616 7,600
		7,280
		320 –
		320
		7,600

56 -

FINANCIAL INFORMATION

APPENDIX I

The number of directors whose remuneration fell within the following bands is set out below:

Executive: Nil – HK$1,000,000 HK$1,000,001 – HK$1,500,000 HK$1,500,001 – HK$2,000,000 HK$2,000,001 – HK$2,500,000 HK$4,000,001 – HK$4,500,000 Independent non-executive: Nil - HK$1,000,000	Number of 2002 – 1 – 1 1 3 2 5	directors 2001 – 1 – 1 1
		3 2
		5

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

10. FIVE HIGHEST PAID EMPLOYEES

The five highest paid individuals during the year included three (2001: three) directors, details of whose remuneration are set out in note 9 above. Details of the remuneration of the remaining two (2001: two) non-director, highest paid employees are as follows:

Basic salaries, housing, other allowances and benefits in kind Pension scheme contributions	Group 2002 2001 HK$’000 HK$’000 2,447 3,080 21 26 2,468 3,106	Group 2002 2001 HK$’000 HK$’000 2,447 3,080 21 26 2,468 3,106
		3,106

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

Nil – HK$1,000,000 HK$1,000,001 – HK$1,500,000 HK$1,500,001 – HK$2,000,000 HK$2,000,001 – HK$2,500,000	Number of individuals 2002 2001 – – 2 1 – – – 1 2 2	Number of individuals 2002 2001 – – 2 1 – – – 1 2 2
		2

57 -

FINANCIAL INFORMATION

APPENDIX I

11. TAX

Hong Kong profits tax has been provided at the rate of 16% (2001: 16%) on the estimated assessable profits arising in Hong Kong during the year.

Provision for the year: Hong Kong Underprovision in the prior year Deferred Tax charge for the year	Group 2002 2001 HK$’000 HK$’000 508 208 552 361 (273) 73 787 642	Group 2002 2001 HK$’000 HK$’000 508 208 552 361 (273) 73 787 642
		642

The movement in deferred tax is analysed below:

Balance at beginning of year Charge/(credit) for the year Balance at end of year	Group 2002 2001 HK$’000 HK$’000 273 200 (273) 73 – 273	Group 2002 2001 HK$’000 HK$’000 273 200 (273) 73 – 273
		273

The provision for deferred tax has been made at 16% (2001: 16%) in respect of accelerated depreciation allowances to the extent that a liability was expected to crystallise in the foreseeable future. As at 31st December, 2002, the Group had an unprovided deferred tax assets of HK$505,000, which is mainly attributable to tax losses carried forward. In the prior year, the Group had an unprovided deferred tax liability of HK$900,000, relating to accelerated depreciation allowances, which was not expected to crystallise in the foreseeable future.

The revaluations of the Group’s properties did not constitute timing differences and, consequently, the amount of potential deferred tax thereon has not been quantified.

Company

The Company had no significant unprovided deferred tax assets or liabilities at the balance sheet date.

12. NET PROFIT/(LOSS) FOR THE YEAR ATTRIBUTABLE TO SHAREHOLDERS

The net loss attributable to shareholders for the year ended 31st December, 2002 dealt with in the financial statements of the Company, was HK$60,969,000 (2001: HK$2,059,000).

58 -

FINANCIAL INFORMATION

APPENDIX I

13. EARNINGS/(LOSS) PER SHARE

The calculation of basic earnings/(loss) per share is based on the net loss for the year attributable to shareholders of HK$82,335,000 (2001: net profit of HK$64,000), and 345,500,000 (2001: weighted average of 313,695,890) ordinary shares in issue during the year.

No diluted earnings/(loss) per share amounts have been presented for the current and prior years as the share options outstanding had an anti-dilutive effect on the basic earnings/(loss) per share for these years.

14. FIXED ASSETS

Group

Cost or valuation: At beginning of year Additions Transfers Disposals Deficit on revaluation At 31st December, 2002 Accumulated depreciation and impairment: At beginning of year Depreciation provided during the year Disposals Written back on revaluation At 31st December, 2002 Net book value: At 31st December, 2002 At 31st December, 2001	Land and buildings HK$’000 90,560 297 – – (5,044) 85,813 12,724 2,012 – (4,962) 9,774 76,039 77,836	Plant and machinery HK$’000 30,801 406 11,701 – – 42,908 11,469 2,742 – – 14,211 28,697 19,332	Furniture, fixtures and equipment HK$’000 16,878 466 – (11) – 17,333 9,932 1,892 (5) – 11,819 5,514 6,946	Motor vehicles HK$’000 3,879 54 – – – 3,933 2,354 415 – – 2,769 1,164 1,525	Construction in progress HK$’000 13,961 3,217 (11,701) – – 5,477 – – – – – 5,477 13,961	Total HK$’000 156,079 4,440 – (11) (5,044) 155,464 36,479 7,061 (5) (4,962) 38,573 116,891 119,600

The Group has entered into certain sale and lease back contracts with a financial institution. The net book value of the Group’s fixed assets held under finance leases included in the total amount of plant and machinery and motor vehicles at 31st December, 2002, amounted to HK$7,225,000 (2001: HK$8,077,000) and HK$638,000 (2001: HK$914,000), respectively.

59 -

FINANCIAL INFORMATION

APPENDIX I

The Group’s land and buildings are held under the following lease terms:

Medium term leases: At cost At valuation	Hong Kong HK$’000 – 19,200 19,200	Elsewhere HK$’000 15,222 51,391 66,613	Total HK$’000 15,222 70,591
			85,813

At 31st October, 1996, the leasehold land and buildings situated in Hong Kong and Mainland China were revalued by American Appraisal Hong Kong Limited, independent professionally qualified valuers. The leasehold land and buildings situated in Hong Kong were revalued at an open market value, based on their existing use. The leasehold land and buildings situated in Mainland China were revalued on a depreciated replacement cost basis.

Had there been no revaluations of the leasehold land and buildings, the net carrying amount of cost less accumulated depreciation and impairment losses for leasehold land and buildings at 31st December, 2002 would have been HK$41,526,000 (2001: HK$42,315,000). The additional depreciation charge for the year arising in respect of the revalued amount was HK$789,000 (2001: HK$789,000).

The directors requested Chung, Chan & Associates, independent professionally qualified valuers, to conduct a valuation of the Group’s leasehold land and buildings situated in Hong Kong and Mainland China at 31st December, 2002. A revaluation deficit of HK$82,000 has been debited to the asset revaluation reserve as a result of the valuation.

The Group’s land and buildings situated in Hong Kong and certain of the Group’s land and buildings situated in Mainland China, with an aggregate net book value of approximately HK$66,524,000 (2001: HK$67,939,000), have been pledged to its banker as security for long term bank loans granted to the Group (see note 27).

60 -

FINANCIAL INFORMATION

APPENDIX I

15. GOODWILL

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

Cost: At beginning of year and at 31st December, 2002 Accumulated amortisation and impairment: At beginning of year Amortisation provided during the year Impairment provided during the year At 31st December, 2002 Net book value: At 31st December, 2002 At 31st December, 2001	Goodwill HK$’000 2,714
	181 543 1,990
	2,714
	–

	2,533

As detailed in note 4 to the financial statements, on the adoption of SSAP 30, the Group applied the transitional provision of SSAP 30 that permitted goodwill in respect of acquisitions which occurred prior to 1st January, 2001, to remain eliminated against consolidated reserves.

The amount of the goodwill remaining in consolidated reserves as at 31st December, 2002, arising from the acquisition of subsidiaries prior to 1st January, 2001, are as follows:

Cost: At beginning of year and at 31st December, 2002 Accumulated impairment: At beginning of year Provided during the year At 31st December, 2002 Net book value: At 31st December, 2002 At 31st December, 2001	Goodwill eliminated against contributed surplus HK$’000 18,382
	15,582 2,800
	18,382
	–

	2,800

61 -

FINANCIAL INFORMATION

APPENDIX I

16. INTERESTS IN SUBSIDIARIES

Unlisted shares, at cost Due from subsidiaries Provision for impairment	Company 2002 2001 HK$’000 HK$’000 73,218 73,218 97,355 96,918 170,573 170,136 (63,000) (1,945) 107,573 168,191

The amounts due from subsidiaries are unsecured, interest-free and have no fixed terms of repayment except as detailed below:

(i) An amount advanced to a non-wholly owned subsidiary of HK$14,293,000 (2001: HK$12,020,000) bears interest at 10% per annum, and is due and repayable on 8th February, 2003. Subsequent to the balance sheet date, negotiation has been commenced for the extension of the repayment date; and
(ii) An amount advanced to another non-wholly owned subsidiary of HK$39,561,000 (2001: HK$31,959,000) bears interest at the rate of 2% above the best lending rate quoted by a bank in Hong Kong and has no fixed terms of repayment.

Particulars of the principal subsidiaries are as follows:

		Nominal value	Nominal value
	Place of		of issued	Percentage
	incorporation/		ordinary/	of	equity
	registration		registered	attributable		Principal
Name	and operations	share capital		to the	Company	activities
				Direct	Indirect
FT Far East	Hong Kong		HK$2	–	100	Trading of
Limited						life-like
						decorative plants
FT China	Hong Kong		HK$2	–	100	Manufacture
Limited						of life-like
						decorative plants
FT Properties	Hong Kong		HK$2	–	100	Holding of
Limited						properties for
						rental purposes
Dongguan	Mainland	HK$49,000,000		–	100	Manufacture
United Art	China				(note (a))	of life-like
Plastic Products						Christmas trees
Limited*
Weihai FT	Mainland	RMB13,000,000		–	100	Manufacture
Plastic Products	China				(note (b))	of life-like
Co., Ltd.*						decorative plants

62 -

FINANCIAL INFORMATION

APPENDIX I

		Nominal value
	Place of	of issued	Percentage
	incorporation/	ordinary/	of	equity
	registration	registered	attributable		Principal
Name	and operations	share capital	to the	Company	activities
			Direct	Indirect
FT Strategic	British Virgin	US$1	–	100	Investment
Investments	Islands				holding
Limited
FT Multi-Media	British Virgin	US$10,000	–	60	Production,
Limited	Islands/			(note (c))	acquisition and
	Mainland China				distribution of
					television
					programmes and
					provision of related
					multi-media services
e-Business Integrated	Hong Kong	HK$100	–	80	Sale of festival gift
Technology Limited					products through an
					internet portal
Guangdong Yong	Mainland	RMB30,000,000	–	70	Provision of
Hua New Electronic	China			(note (d))	anti-theft car
Network Investment					alarm and tracking
Co., Ltd.*					services in
(“Guangdong Yong Hua”)					Mainland China
陝西永華新盾安全科技	Mainland	RMB5,000,000	–	42	Provision of
有限公司(previously	China			(note (e))	anti-theft car
known as陝西新盾安					alarm and tracking
全科技有限公司) *					services in
(“陝西新盾”)					Mainland China

Not audited by Ernst & Young Hong Kong or other Ernst & Young International member firms.
(a) Pursuant to a joint venture agreement dated 8th September, 1993 (the “Joint Venture Agreement”) entered into between FT China Limited and a party in Mainland China, FT China Limited held a 75% equity interest in Dongguan United Art Plastic Products Limited (“DUAP”).

On 28th March, 1996, the relevant PRC authorities approved the increase of the equity interest held by FT China Limited in DUAP from 75% to 90%, pursuant to an agreement signed between FT China Limited and the PRC joint venture partner on 22nd March, 1996. Following the approval of this agreement, the PRC joint venture partner is entitled to a 10% share of the assets and liabilities of DUAP. FT China Limited provided a loan in the amount of HK$4.9 million to the PRC joint venture partner for the payment of its capital contribution. The recovery of this loan is guaranteed by Mr. Lai Kam Wing, Jimmy. The directors consider that this arrangement does not have any significant impact on the operating results and the financial position of the Group and the operation and management of DUAP.

63 -

FINANCIAL INFORMATION

APPENDIX I

Pursuant to the Joint Venture Agreement, the PRC joint venture partner agreed to waive its entitlement to share in the profits and losses of DUAP in return for an annual management fee of HK$55,556 (2001: HK$55,556). Pursuant to a supplemental agreement to the Joint Venture Agreement, all of the assets of DUAP will be assigned to FT China Limited upon the expiry of the Joint Venture Agreement. Accordingly, all assets, liabilities and the operating results of DUAP are consolidated into these financial statements as if it is a wholly-owned subsidiary of the Group.

(b) Pursuant to a joint venture agreement dated 25th April, 1997 entered into between FT China Limited and a PRC party, FT China Limited invested RMB19,000,000 in Weihai FT Plastic Products Co., Ltd. (“Weihai FT”), representing a 95% interest in Weihai FT, and the PRC joint venture partner invested RMB1,000,000 in Weihai FT, representing a 5% interest. The registered capital of Weihai FT is RMB13,000,000. The difference between the amount invested and the registered capital represents loans to Weihai FT.

Pursuant to this agreement, the PRC joint venture partner agreed to waive its entitlement to share in the profits and losses of Weihai FT in return for an annual management fee of RMB78,000 (2001: RMB78,000), with the PRC joint venture partner being entitled to the return of its capital invested upon the expiry of the joint venture agreement without the sharing of any undistributed profits. Accordingly, all of the assets, liabilities and the operating results of Weihai FT are consolidated into these financial statements as if it is a wholly-owned subsidiary of the Group and the capital invested by the PRC joint venture partner is treated as a long term loan payable.

On 19th June, 1998, the capital invested by the PRC joint venture partner was decreased from RMB1,000,000 to RMB650,000 following the approval of the relevant PRC authority. As at the balance sheet date, the long term loan payable to the PRC joint venture partner therefore amounted to RMB650,000 (equivalent to HK$601,000).

(c) Pursuant to an agreement dated 9th February, 2000, the minority shareholders have the option to purchase a further 30% equity interest in FT Multi-Media Limited from the Group within the period from 9th February, 2002 to 8th February, 2005, at a purchase price stipulated in the agreement.
(d) The Group holds a 93.4% equity interest in a subsidiary, which in turn holds a 75% equity interest in Guangdong Yong Hua.
(e) Guangdong Yong Hua holds a 60% (2001: 80%) equity interest in 陝西新盾. Pursuant to an agreement dated 3rd July, 2002 entered into between Guangdong Yong Hua and a PRC joint venture partner, Guangdong Yong Hua disposed of a 20% equity interest in 陝西新盾 to the PRC joint venture partner at a consideration of RMB750,000, which has given rise to a loss of approximately HK$46,000 to the Group (note 7).

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

64 -

FINANCIAL INFORMATION

APPENDIX I

17. DEFERRED DEVELOPMENT EXPENDITURE

Cost: At beginning of year Additions At 31st December, 2002 Accumulated amortisation: At beginning of year Provided during the year At 31st December, 2002 Net book value: At 31st December, 2002 At 31st December, 2001 LONG TERM INVESTMENTS Unlisted equity investments, at fair value Provision for impairment	Group HK$’000 2,837 89 2,926 709 724 1,433 1,493 2,128 Group 2002 2001 HK$’000 HK$’000 1,132 1,132 (1,132) – – 1,132	Group HK$’000 2,837 89
		2,926
		709 724
		1,433

		1,493

		2,128

		1,132

18. LONG TERM INVESTMENTS

19. LONG TERM RECEIVABLE/DIVIDEND PAYABLE TO A MINORITY SHAREHOLDER OF A SUBSIDIARY

Included in prepayments, deposits and other receivables as at 31st December, 2001 was a guaranteed profit receivable from a minority shareholder of a subsidiary amounting to HK$8,400,000. The balance was secured by a share charge over the shares held by the minority shareholder in the subsidiary, and was interest-free and due on 31st March, 2003. Subsequent to the balance sheet date, on 25th April, 2003, the Group received from the minority shareholder a request to accept the HK$2,000,000 dividend receivable by the minority shareholder of the subsidiary as at 31st December, 2002 as partial settlement of the receivable and extend the repayment of the balance of the receivable of HK$6,400,000 for two years to 31st March, 2005. A full provision against the guaranteed profit receivable, net of the dividend payable of HK$2,000,000 to be set off, amounting to HK$6,400,000 has been made by the directors (see note 7).

65 -

FINANCIAL INFORMATION

APPENDIX I

20. INVENTORIES

INVENTORIES
Raw materials Work in progress Finished goods	Group 2002 2001 HK$’000 HK$’000 5,741 7,122 4,520 4,789 3,639 3,688 13,900 15,599
		15,599

As at the balance sheet date, none of the inventories included in the above balance were carried at net realisable value (2001: Nil).

21. TELEVISION PROGRAMMES AND SUB-LICENSING RIGHTS

TV programmes TV programmes in progress Sub-licensing rights	Group 2002 2001 HK$’000 HK$’000 1,900 1,600 3,456 2,739 100 1,218 5,456 5,557	Group 2002 2001 HK$’000 HK$’000 1,900 1,600 3,456 2,739 100 1,218 5,456 5,557
		5,557

22. TRADE RECEIVABLES

Credit is offered to customers following a financial assessment and the demonstration of an established payment record. The Group usually allows an average credit period of 30 to 120 days to its customers and seeks to maintain strict control over its outstanding receivables. Overdue balances are regularly reviewed by senior management and collections are followed up by accounting personnel. The following is an aged analysis of trade receivables (net of provision for bad and doubtful debts).

Aged Less than 90 days 91-180 days Over 180 days Total	Group 2002 2001 HK$’000 HK$’000 16,805 22,844 282 4,371 1,880 23,763 18,967 50,978	Group 2002 2001 HK$’000 HK$’000 16,805 22,844 282 4,371 1,880 23,763 18,967 50,978
		50,978

The above analysis ages trade receivables, stated net of the provision for bad and doubtful debts, based on the due dates for settlement after revenue is recognised from the trade transactions.

66 -

FINANCIAL INFORMATION

APPENDIX I

23. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

Included in prepayments, deposits and other receivables as at 31st December, 2002 is an other receivable due from an independent third party of HK$19,667,000. The balance represents a receivable for goods purchased by the Group during the year on behalf of the independent third party, in return for commission income.

Subsequent to the balance sheet date, HK$4,030,000 of this other receivable was settled which resulted in a net receivable balance of HK$15,637,000 at the date of the annual report. On 25th April, 2003, the independent third party agreed to a repayment schedule whereby the outstanding balance was to be settled by two instalments in May and June, 2003. However, the May instalment was not paid on the due date and has not been paid up to the date on which these financial statements were approved and, consequently, the repayment schedule remains in default. A provision of HK$15,637,000 has been made by the directors against this receivable (see note 7).

24. CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS
		Group
	2002		2001
	HK$’000		HK$’000
Cash and bank balances	6,912		18,187

At the balance sheet date, the cash and bank balances of the Group denominated in Renminbi (“RMB”) amounted to HK$447,000 (2001: HK$262,000). The RMB is not freely convertible into other currencies, however, under Mainland China’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the Group is permitted to exchange RMB for other currencies through banks authorised to conduct foreign exchange business.

25. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Included in accounts payable and accrued liabilities are the following trade payables.

Aged Less than 90 days 91 – 180 days Over 180 days Total accounts payable Accrued liabilities	Group 2002 2001 HK$’000 HK$’000 7,945 5,948 1,359 2,904 4,890 3,416 14,194 12,268 22,914 13,036 37,108 25,304	Group 2002 2001 HK$’000 HK$’000 7,945 5,948 1,359 2,904 4,890 3,416 14,194 12,268 22,914 13,036 37,108 25,304
		12,268 13,036
		25,304

The above analysis ages trade payables based on the invoice dates after receipts of the goods and services purchased.

67 -

FINANCIAL INFORMATION

APPENDIX I

26. OTHER LOANS, UNSECURED

The other loans are unsecured, repayable within one year and bear interest at rates ranging from 1% above the best lending rate to 36% per annum, except for loans amounting to HK$3,069,000, which are interestfree.

The other loans in the prior year were unsecured, repayable within six months from the balance sheet date and bore interest at rates ranging from 1% above the best lending rate to 15% per annum, except for a loan amounting to HK$1,000,000, which was interest-free.

27. INTEREST-BEARING BANK LOANS AND OVERDRAFTS

Bank overdrafts, secured Bank loans, secured Bank overdrafts repayable within one year or on demand Bank loans repayable: Within one year or on demand In the second year In the third to fifth years, inclusive Portion classified as current liabilities Long term portion	Group 2002 2001 HK$’000 HK$’000 2,714 – 12,300 16,832 15,014 16,832 2,714 – 9,634 11,198 2,274 2,966 392 2,668 12,300 16,832 15,014 16,832 (12,348) (11,198) 2,666 5,634

The bank loans and other banking facilities of the Group are secured by:

(i) all monies and legal charges over the land and buildings of certain subsidiaries (see note 14); and
(ii) unlimited corporate guarantees from the Company and certain subsidiaries.

As a result of the Group’s losses and the Group’s prevailing financial position, certain financial and other covenants specified in a bank loan agreement were not maintained as at 31st December, 2002. The Group has not received any indication from the relevant lending bank that early loan repayment would be demanded in connection with the bank loan agreement.

68 -

FINANCIAL INFORMATION

APPENDIX I

28. FINANCE LEASE PAYABLES

The Group leases certain of its plant and machinery and a motor vehicle for its manufacturing and sale of life-like plants business. These leases are classified as finance leases and have remaining lease terms ranging from two to five years.

At 31st December, 2002, the total future minimum lease payments under finance leases and their present values were as follows:

			Present value of	Present value of
	Minimum lease	Minimum lease	minimum lease	minimum lease
	payments	payments	payments	payments
Group	2002	2001	2002	2001
	HK$’000	HK$’000	HK$’000	HK$’000
Amounts payable:
Within one year	1,994	2,212	1,941	2,021
In the second year	452	1,999	428	1,945
In the third to fifth years,
inclusive	–	453	–	429
Total minimum
finance lease payments	2,446	4,664	2,369	4,395
Future finance charges	(77)	(269)
Total net finance lease payables	2,369	4,395
Portion classified as current
liabilities	(1,941)	(2,021)
Long term portion	428	2,374

29. DUE TO A MINORITY SHAREHOLDER OF A SUBSIDIARY

The balance is unsecured, interest-free and has no fixed terms of repayment.

69 -

FINANCIAL INFORMATION

APPENDIX I

30. SHARE CAPITAL

Authorised: 500,000,000 (2001: 500,000,000) ordinary shares of HK$0.10 each Issued and fully paid: 345,500,000 (2001: 345,500,000) ordinary shares of HK$0.10 each	Company 2002 2001 HK$’000 HK$’000 50,000 50,000 34,550 34,550	Company 2002 2001 HK$’000 HK$’000 50,000 50,000 34,550 34,550

		34,550

The movement in the Company’s issued ordinary share capital in the prior year was as follows:

At 1st January, 2001 Issue of 54,500,000 new ordinary shares At 31st December, 2001 and 31st December, 2002	Issued Number of share capital shares in issue HK$’000 29,100 291,000,000 5,450 54,500,000 34,550 345,500,000	Issued Number of share capital shares in issue HK$’000 29,100 291,000,000 5,450 54,500,000 34,550 345,500,000
		345,500,000

31. SHARE OPTION SCHEME

SSAP 34 was adopted during the year, as explained in note 3 and under the heading “Employee benefits” in note 4 to the financial statements. As a result, the following detailed disclosures relating to the Company’s share option scheme are now included in the notes to the financial statements. In the prior year, these disclosures were included in the Report of the Directors, as their disclosure is also a requirement of the Listing Rules.

The Company operates a share option scheme (the “Scheme”) for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations.

Under the Scheme, the directors may, at their discretion, grant to full-time employees and executive directors of the Group, the right to take up options to subscribe for shares of the Company. The Scheme became effective on 3rd January, 1997 and, unless otherwise cancelled or amended, will remain in force for 10 years from that date. The subscription price of options is subject to a minimum which is the higher of the nominal value of a share and 80% of the average of the closing prices of the shares on the Stock Exchange on the five trading days immediately preceding the grant date of the options.

Subsequent to the adoption of the Scheme, the Stock Exchange has introduced a number of changes to the Listing Rules on share option schemes. These new rules came into effect on 1st September, 2001. No share options have been granted under the Scheme since the adoption of these new rules on 1st September, 2001. However, any option to be granted under the Scheme is subject to the new changes which include, inter alia, the following:–

70 -

FINANCIAL INFORMATION

APPENDIX I

(a) the maximum number of shares issuable under share options to each eligible participant within any 12-month period is limited to 1% of the shares in issue at any time. Any further grant of share options in excess of this limit is subject to shareholders’ approval in a general meeting;
(b) share options granted to a director, chief executive or substantial shareholder, or to any of their associates, are subject to approval in advance by independent non-executive directors; and
(c) the exercise price of share options is determined by directors, but may not be less than the higher of: (i) the Stock Exchange closing price of the shares on the date of grant of the share options; and (ii) the average Stock Exchange closing price of the Company’s shares for the five trading days immediately preceding the date of the grant.

The Company will amend, in due course, the terms of the Scheme to comply with the requirements of the amended Listing Rules on share option schemes.

The maximum number of unexercised share options permitted to be granted under the Scheme must not exceed 10% of the shares of the Company in issue at any time. At 31st December, 2002, the number of shares issuable under share options granted under the Scheme was 14,000,000, which represented approximately 4% of the Company’s shares in issue as at that date. No option may be granted to any person which, if exercised in full, would result in the total number of shares already issued and issuable to him under the Scheme exceeding 25% of the aggregate number of shares subject to the Scheme, at the time it is proposed to grant the relevant option to such person.

Share options do not confer rights on the holders to dividends or to vote at shareholders’ meetings.

The following share options were outstanding under the Scheme during the year:

Number of share options At 1st January, Lapsed during 2002 the year Directors Lai Ma Yuk Wah, Monita 4,000,000 – Leung Mei Yee 4,000,000 – 8,000,000 – Other employees* 7,000,000 (1,000,000) 15,000,000 (1,000,000)	Share price at date of At 31st December, Exercise options 2002 Exercise period price granted ** HK$ HK$ 4,000,000 7/3/1997 - 6/3/2007 0.7056 0.87 4,000,000 7/3/1997 - 6/3/2007 0.7056 0.87 8,000,000 6,000,000 7/3/1997 - 6/3/2007 0.7056 0.87 14,000,000

* The share options were granted on 7th March, 1997.

** The price of the Company’s shares at the date of the grant of these share options is the Stock Exchange closing price on the trading day immediately prior to the date of the grant of the options.

At the balance sheet date, the Company had 14,000,000 share options outstanding under the Scheme. The exercise in full of the remaining share options would, under the present capital structure of the Company, result in the issue of 14,000,000 additional ordinary shares of the Company and an additional share capital of HK$1,400,000 and share premium of HK$8,478,000 (before issue expenses). No share options were granted or exercised during the year.

71 -

FINANCIAL INFORMATION

APPENDIX I

32. RESERVES

(a) Group

The amounts of the Group’s reserves and the movements therein for the current and prior years are presented in the consolidated statement of changes in equity on page 38 of this circular.

The contributed surplus of the Group represents the difference between the nominal value of the shares acquired pursuant to the Group reorganisation prior to the listing of the Company’s shares on 3rd January, 1997, over the nominal value of the Company’s shares issued in exchange therefor, net of HK$100,000 being 1,000,000 shares issued nil paid upon the incorporation of the Company, less goodwill arising on the acquisition of subsidiaries written off in the prior year.

Certain amounts of goodwill arising on the acquisition of subsidiaries in prior years remain eliminated against the contributed surplus, respectively, as explained in note 15 to the financial statements.

(b) Company

At 1st January, 2001 Issue of shares Share issue expenses Net loss for the year At 31st December, 2001 and beginning of year Net loss for the year At 31st December, 2002	Share premium account HK$’000 48,956 10,900 (550) – 59,306 – 59,306	Retained profits/ Contributed (Accumulated surplus losses) HK$’000 HK$’000 73,018 3,882 – – – – – (2,059) 73,018 1,823 – (60,969) 73,018 (59,146)	Total HK$’000 125,856 10,900 (550 (2,059
			134,147 (60,969
			73,178

The contributed surplus of the Company represents the difference between the consolidated net asset value of FT Holdings Limited on 31st October, 1996, when its entire issued share capital was acquired by the Company pursuant to the reorganisation referred to in note 32(a), over the nominal value of the Company’s shares issued in exchange therefor. Under the Companies Act of Bermuda 1981 (as amended), a company may make distributions to its members out of the contributed surplus in certain circumstances. The share premium of the Company is distributable in the form of fully paid bonus shares.

72 -

FINANCIAL INFORMATION

APPENDIX I

33. NOTE TO THE CONSOLIDATED CASH FLOW STATEMENT

Changes to the layout of the consolidated cashflow statement

SSAP 15 (Revised) was adopted during the current year, as detailed in note 3 to the financial statements, which has resulted in a change to the layout of the consolidated cash flow statement. The consolidated cash flow statement is now presented under three headings: cash flows from operating activities, investing activities and financing activities. Previously five headings were used, comprising the three headings listed above, together with cash flows from returns on investments and servicing of finance and from taxes paid. The significant reclassifications resulting from the change in presentation are that taxes paid are now included in cash flows from operating activities and interest received is now included in cash flows from investing activities. The presentation of the 2001 comparative consolidated cash flow statement has been changed to accord with the new layout.

The method of calculation of certain items in the consolidated cash flow statement has changed under the revised SSAP 15, as explained under the heading “Foreign currencies” in note 4 to the financial statements. Cash flows of overseas subsidiaries are now translated into Hong Kong dollars at the exchange rates ruling at the dates of the cash flows. Frequently recurring cash flows of overseas subsidiaries which arise throughout the year are translated into Hong Kong dollars at the weighted average exchange rates for the year. Previously, the cash flows of overseas subsidiaries were translated into Hong Kong dollars at the exchange rates ruling at the balance sheet date. This has had no effect on amounts previously reported in prior year’s financial statements.

Also, the definition of “cash equivalents” under the revised SSAP 15 has been revised from that under the previous SSAP 15, as explained under the heading “Cash and cash equivalents” in note 4 to the financial statements. This has resulted in trust receipt loans no longer qualifying as cash equivalents. This has had no effect on amounts previously reported in prior year’s financial statements.

34. CONTINGENT LIABILITIES

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


	2002	2001
	HK$’000	HK$’000
Bills discounted with recourse	5,271	2,807

At the balance sheet date, there were unlimited corporate guarantees issued by the Company to certain banks to secure a bank loan and other banking facilities granted to certain subsidiaries of the Company.

(b) The Group has a contingent liability in respect of possible future long service payments to employees under the Hong Kong Employment Ordinance, with a maximum possible amount of HK$2,321,000 as at 31st December, 2002, as further explained under the heading “Employee benefits” in note 4 to the financial statements. The contingent liability has arisen because, at the balance sheet date, a number of current employees have achieved the required number of years of service to the Group in order to be eligible for long service payments under the Employment Ordinance if their employment is terminated under certain circumstances. A provision has not been recognised in respect of such possible payments, as it is not considered probable that the situation will result in a material future outflow of resources from the Group.

The Company did not have any material contingent liabilities at the balance sheet date.

73 -

FINANCIAL INFORMATION

APPENDIX I

35. OPERATING LEASE ARRANGEMENTS

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

At 31st December, 2002, the Group had total future minimum lease payments under non-cancellable operating leases falling due as follows:

Within one year In the second to fifth years, inclusive	Group 2002 2001 HK$’000 HK$’000 873 1,304 427 1,174 1,300 2,478	Group 2002 2001 HK$’000 HK$’000 873 1,304 427 1,174 1,300 2,478
		2,478

36. COMMITMENTS

In addition to the operating lease commitments detailed in note 35 above, the Group had the following commitments at the balance sheet date:

Capital commitments: Contracted, but not provided for	Group 2002 2001 HK$’000 HK$’000 4,808 6,072

The Company had no significant commitments at the balance sheet date.

37. POST BALANCE SHEET EVENTS

The following significant post balance sheet events took place subsequent to 31st December, 2002:

(a) On 25th January, 2003, the Company entered into a loan agreement with an independent third party pursuant to which the independent third party agreed to advance to the Company a loan of HK$8,000,000, which was drawn down on 27th January, 2003. The loan bears interest at the rate of 18.27% per annum and is secured by a personal guarantee given by a director, Lai Kam Wing, Jimmy. On 26th June, 2003, the Company received a letter from the independent third party confirming that the repayment of the loan will be extended to 27th January, 2004.
(b) As detailed in note 16(i) to the financial statements, subsequent to the balance sheet, negotiations have commenced to extend the repayment date of the amount of HK$14,293,000 advanced by the Group to a non-wholly owned subsidiary, which became due on 8th February, 2003.
(c) On 16th February, 2003, the Group entered into an agreement with an independent third party pursuant to which the Group agreed to dispose part of its leasehold land located at Weihai, Mainland China, at a consideration of RMB2,500,000 (equivalent to HK$2,381,000). The amount of HK$2,381,000 was received by the Group before the balance sheet date and has been included in “accounts payable and accrued liabilities” in the consolidated balance sheet as at 31st December, 2002.
74 -

FINANCIAL INFORMATION

APPENDIX I

(d) As detailed in note 19 to the financial statements, on 25th April, 2003, the Group received from the minority shareholder of a subsidiary a request to accept the HK$2,000,000 dividend receivable by the minority shareholder as at 31st December, 2002 as partial settlement of the guaranteed profit receivable from the minority shareholder amounting to HK$8,400,000, and to extend the repayment of the balance of the receivable of HK$6,400,000 for two years to 31st March, 2005. A full provision against the HK$6,400,000 balance has been made by the directors (note 19).
(e) On 18th June, 2003, FT China Limited (“FT China”), a wholly-owned subsidiary of the Group, entered into a loan agreement with an independent third party pursuant to which the independent third party agreed to provide to FT China a loan facility up to a limit of HK$8,000,000. At the date of the annual report, an amount of HK$4.5 million has been drawn down by FT China. The balance is guaranteed by the Company, bears interest at the Hong Kong dollar prime rate plus 1% per annum and is repayable in nine months from the date on which the facilities are drawn.

38. COMPARATIVE AMOUNTS

As further explained in note 3 to the financial statements, due to the adoption of certain new and revised SSAPs during the current year, the accounting treatment and presentation of certain items and balances in the financial statements have been revised to comply with the new requirements. Accordingly, certain prior year adjustments have been made and certain comparative amounts have been reclassified to conform with the current year’s presentation.

39. APPROVAL OF THE FINANCIAL STATEMENTS

The financial statements were approved and authorised for issue by the board of directors on 27th June, 2003.

75 -

FINANCIAL INFORMATION

APPENDIX I

Set out below is an extract of the financial information of the Group from its interim results announcement for the six months ended 30th June, 2003, which were published on 26th September, 2003.

CONDENSED CONSOLIDATED PROFIT AND LOSS ACCOUNT

Notes Turnover 3 Cost of sales Gross profit/(loss) Other revenue 4 Selling expenses Administrative expenses Other operating expenses Loss from operating activities 5 Finance costs 6 Loss before taxation Taxation 7 Loss before minority interests Minority interest Net loss from operating activities attributable to shareholders Dividend 8 Losses per share 9 – Basic – Diluted	Six months ended 30th June, 2003 (unaudited) HK$’000 11,654 (17,908) (6,254) 614 (1,153) (16,102) (26,751) (49,646) (4,508) (54,154) – (54,154) – (54,154) – 15.67 cents N/A	Six months ended 30th June, 2002 (unaudited) HK$’000 40,495 (25,942) 14,553 3,321 (1,682) (19,928) – (3,736) (1,064) (4,800) (130) (4,930) 2,380 (2,550) – 0.74 cents N/A

76 -

FINANCIAL INFORMATION

APPENDIX I

CONDENSED CONSOLIDATED BALANCE SHEET

Notes
NON-CURRENT ASSETS
Fixed assets
Deferred development expenditure
Long term receivable
CURRENT ASSETS
Inventories
10
Television programmes and
sub-licensing rights
11
Trade receivables
12
Prepayments, deposits and
other receivables
Cash and cash equivalents
CURRENT LIABILITIES
Accounts payable and
accrued liabilities
13
Tax payable
Other loans, unsecured
Interest-bearing bank loan and
overdraft, secured
Finance lease payables
Amount due by a subsidiary to a
minority shareholder
Dividend payable by a subsidiary
to a minority shareholder
NET CURRENT LIABILITIES
TOTAL ASSETS LESS CURRENT
LIABILITIES

31st December,
30th June,
2002
2003
(audited and
(unaudited)
restated)
HK$’000
HK$’000
80,261
116,891
1,390
1,493
2,000
2,000
83,651
120,384
13,220
13,900
13,738
5,456
9,575
18,967
16,230
14,850
2,836
6,912
55,599
60,085
31,378
37,108
710
824
33,999
13,009
11,335
12,348
1,514
1,941
1,465
848
2,000
2,000
82,401
68,078
(26,802)
(7,993)
56,849
112,391

77 -

FINANCIAL INFORMATION

APPENDIX I

Notes NON-CURRENT LIABILITIES Non interest-bearing other loan Interest-bearing bank loan, secured Finance lease payables Deferred tax 7 MINORITY INTEREST CAPITAL AND RESERVES Share capital 14 Reserves 15	31st December, 30th June, 2002 2003 (audited and (unaudited) restated) HK$’000 HK$’000 411 601 1,546 2,666 350 428 900 900 3,207 4,595 – – 53,642 107,796 34,550 34,550 19,092 73,246 53,642 107,796	31st December, 30th June, 2002 2003 (audited and (unaudited) restated) HK$’000 HK$’000 411 601 1,546 2,666 350 428 900 900 3,207 4,595 – – 53,642 107,796 34,550 34,550 19,092 73,246 53,642 107,796
		4,595
		–
		107,796

		34,550 73,246
		107,796

78 -

FINANCIAL INFORMATION

APPENDIX I

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Issued share capital HK$’000 At 1st January, 2002 As previously reported 34,550 Prior year adjustment – (see note 2) As restated 34,550 Net loss for the period – At 30th June, 2002 34,550 Deficit on revaluation – Impairment of goodwill remaining eliminated against contributed surplus – Net loss for the period – At 31st December, 2002 34,550 Net loss for the period – At 30th June, 2003 34,550	Share Contributed premium surplus HK$’000 HK$’000 59,306 21,241 – – 59,306 21,241 – – 59,306 21,241 – – – 2,800 – – 59,306 24,041 – – 59,306 24,041	Revaluation reserve HK$’000 37,105 – 37,105 – 37,105 (82) – – 37,023 – 37,023	Retained profits/ Exchange (Accumulated reserve losses) HK$’000 HK$’000 166 35,945 – (900) 166 35,045 – (2,550) 166 32,495 – – – – – (79,785) 166 (47,290) – (54,154) 166 (101,444)	Total HK$’000 188,313 (900) 187,413 (2,550) 184,863 (82) 2,800 (79,785) 107,796 (54,154) 53,642

79 -

FINANCIAL INFORMATION

APPENDIX I

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

NET CASH OUTFLOW FROM OPERATING ACTIVITIES NET CASH INFLOW/(OUTFLOW) FROM INVESTING ACTIVITIES NET CASH INFLOW FROM FINANCING ACTIVITIES NET DECREASE IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of period CASH AND CASH EQUIVALENTS AT END OF PERIOD ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances Bank overdraft	Six months Six months ended ended 30th June, 30th June, 2002 2003 (unaudited (unaudited) and restated) HK$’000 HK$’000 (29,111) (6,302) 6,256 (1,735) 19,034 2,089 (3,821) (5,948) 4,198 18,187 377 12,239 2,836 12,239 (2,459) – 377 12,239

80 -

FINANCIAL INFORMATION

APPENDIX I

Notes To The Condensed Consolidated Financial Statements

For the six months ended 30th June, 2003

1. Basis of preparation

The condensed consolidated interim financial statements have been prepared in accordance with Statement of Standard Accounting Practice (“SSAP”) No. 25 (Revised) “Interim Financial Reporting” issued by the Hong Kong Society of Accountants and provisions set out in Appendix 16 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) (the “Listing Rules”).

2. Principal accounting policies

The accounting policies adopted in the preparation of these unaudited condensed consolidated interim financial statements are consistent with those used in the Group’s audited financial statements for the year ended 31st December, 2002 except the adoption of SSAP 12 (Revised) “Income taxes” which is effective for the first time for the accounting period commencing on or after 1st January, 2003.

The principal effect of the implementation of SSAP 12 (Revised) is in relation to deferred tax. In previous years, partial provision was made for deferred tax using the income statement liability method, i.e. a liability was recognised in respect of timing differences arising, expect where those timing differences were not expected to reverse in the foreseeable future. SSAP 12 (Revised) requires the adoption of a balance sheet liability method, whereby deferred tax is recognised in respect of all temporary differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit, with limited exceptions. In the absence of any specific transitional requirements in SSAP 12 (Revised), the new accounting policy has been applied retrospectively. Comparative amounts for 2002 have been restated accordingly. Opening retained earnings at 1st January, 2002 have been decreased by HK$900,000, which is the cumulative effect of the change in policy on the results for periods prior to 2002. The effect of the change is not significant for the six months ended 30th June, 2002 and for the year ended 31st December, 2002.

81 -

FINANCIAL INFORMATION

APPENDIX I

3. Segmental information

An analysis of the Group’s turnover and contribution to loss from operating activities by principal activity and geographical area is as follows:

By principal activity:

Six months ended 30th June, 2003

(unaudited)

Sales to external customers Intersegment sales Other revenue Total revenue Segment results Interest income and unallocated gains Unallocated expenses Loss from operating activities Finance costs Loss before tax Tax Loss before minority interests Minority interests Net loss for the period attributable to shareholders	Production, acquisition and distribution of television programmes Design, and the manufacture provision of and sale of related life-like multi-media plants services HK$’000 HK$’000 10,916 389 – – 468 103 11,384 492 (19,366) (2,465)	Sale of festival gift products through an internet portal HK$’000 137 – – 137 (1,378)	Provision of anti-theft car alarm and tracking services HK$’000 212 – 2 214 (25,090)	Eliminations HK$’000 – – – – –	Consolidated HK$’000 11,654 – 573 12,227 (48,299) 41 (1,388) (49,646) (4,508) (54,154) – (54,154) – (54,154)

82 -

FINANCIAL INFORMATION

APPENDIX I

Six months ended 30th June, 2002 (unaudited and restated)

Sales to external customers Intersegment sales Other revenue Total revenue Segment results Interest income and unallocated gains Unallocated expenses Loss from operating activities Finance costs Loss before tax Tax Loss before minority interests Minority interests Net loss for the period attributable to shareholders	Production, acquisition and distribution of television programmes Design, and the manufacture provision of and sale of related life-like multi-media plants services HK$’000 HK$’000 35,550 3,431 1,171 – 3,168 91 39,889 3,522 3,331 (1,030)	Sale of festival gift products through an internet portal HK$’000 1,335 – 6 1,341 (1,570)	Provision of anti-theft car alarm and tracking services HK$’000 179 – – 179 (3,979)	Eliminations HK$’000 – (1,171) – (1,171) –	Consolidated HK$’000 40,495 – 3,265 43,760 (3,248) 56 (544) (3,736) (1,064) (4,800) (130) (4,930) 2,380 (2,550)

By geographical area:

Sales to external customers Segment results	United States of America HK$’000 3,420 (7,202)	Hong Kong HK$’000 2,535 (4,497)	Six months ended 30th June, 2003 (unaudited) Mainland China Europe Elsewhere HK$’000 HK$’000 HK$’000 601 4,659 439 (27,555) (8,266) (779)	Eliminations Consolidated HK$’000 HK$’000 – 11,654 – (48,299)

83 -

FINANCIAL INFORMATION

APPENDIX I

Six months ended 30th June, 2002 (unaudited)

United
States of
Mainland
America
Hong Kong
China
HK$’000
HK$’000
HK$’000
Sales to external
customers
25,658
5,666
3,610
Segment results
1,225
271
(5,009)
4.
Other revenue
Interest income
Sales of sample
Commission income
Rental income
Exchange gain, net
Others
5.
Loss from operating activities
Loss from operating activities is arrived at after charging:
Cost of inventories sold
Amortization of TV programmes and
sub-licensing rights
Amortization of deferred development cost
Amortization of goodwill
Depreciation
Impairment on fixed assets
Loss on disposal of fixed assets/assets written off

Europe
Elsewhere Eliminations Consolidated
HK$’000
HK$’000
HK$’000
HK$’000
5,561
–
–
40,495
265
–
–
(3,248)
Six months ended
Six months ended
30th June, 2003
30th June, 2002
(unaudited)
(unaudited)
HK$’000
HK$’000
41
1,554
359
815
6
597
–
75
90
115
118
165
614
3,321
Six months ended
Six months ended
30th June, 2003
30th June, 2002
(unaudited)
(unaudited)
HK$’000
HK$’000
17,259
25,278
414
600
374
358
–
271
3,533
2,028
21,960
–
4,650
–

84 -

FINANCIAL INFORMATION

APPENDIX I

6. Finance costs

	Six months ended	Six months ended
	30th June, 2003	30th June, 2002
	(unaudited)	(unaudited)
	HK$’000	HK$’000
Interest on bank loans wholly repayable
within five years	528	648
Interest on other loans	3,930	306
Interest on finance lease	50	110
	4,508	1,064

7. Taxation

	Six months ended	Six months ended
	30th June, 2003	30th June, 2002
	(unaudited)	(unaudited)
	HK$’000	HK$’000
Current Taxation
Hong Kong	–	130
Elsewhere	–	–
Deferred taxation	–	–
Taxation charge for the period	–	130

No provision for income tax has been made for the six months ended 30th June, 2003, as there was no assessable profit arising in Hong Kong or elsewhere. Hong Kong profits tax has been provided at the rate of 16% on the estimated assessable profits arising in Hong Kong for the six months ended 30th June, 2002.

The provision for deferred tax is made in respect of accelerated deprecation allowances to the extent that a liability was expected to crystallize in the foreseeable future. The Group had an unprovided deferred tax assets of approximately HK$3,000,000 relating to tax losses carried forward and accelerated depreciation allowance, which is not expected to crystallize in the foreseeable future.

8. Dividend

The Directors have resolved not to recommend the payment of any interim dividend for the six months ended 30th June, 2003 (2002: nil).

9. Losses per share

The calculation of basic losses per share is based on the net loss attributable to shareholders for the six months ended 30th June, 2003 of HK$54,154,000 (2002: HK$2,550,000) and on the weighted average of 345,500,000 ordinary shares (2002: 345,500,000 shares) in issue during the period.

The diluted losses per share for both of the six months ended 30th June, 2003 and 2002 has not been prepared as the exercise of the Company’s outstanding option will have anti-dilutive effect on the basic losses per share.

85 -

FINANCIAL INFORMATION

APPENDIX I

10. Inventories

Raw materials Work in progress Finished goods	30th June, 2003 (unaudited) HK$’000 5,647 3,936 3,637 13,220	31st December, 2002 (audited) HK$’000 5,741 4,520 3,639
		13,900

11. Television programmes and sub-licensing rights

TV programmes TV programmes in progress Sub-licensing rights	30th June, 2003 (unaudited) HK$’000 3,602 10,036 100 13,738	31st December, 2002 (audited) HK$’000 1,900 3,456 100
		5,456

12. Trade receivables

Credit is offered to customers following a financial assessment and the demonstration of an establishing payment record. The Group usually allows an average credit period of 30 to 120 days to its customers and seeks to maintain strict control over its outstanding receivables. Overdue balances are regularly reviewed by senior management and collections are followed up by accounting personnel. The following is aging analysis of trade receivables (net of provision for bad and doubtful debts).

Aging Less than 90 days 91 – 180 days Over 180 days	30th June, 2003 (unaudited) HK$’000 746 36 8,793 9,575	31st December, 2002 (audited) HK$’000 16,805 282 1,880
		18,967

The above analysis ages trade receivables, stated net of provision for bad and doubtful debts, based on the due dates after revenue is recognized from the trade transactions.

86 -

FINANCIAL INFORMATION

APPENDIX I

13. Account payable and accrued liabilities

Included in accounts payable and accrued liabilities are the following trade payables:

Aging Less than 90 days 91 – 180 days Over 180 days Total accounts payable Accrued liabilities	30th June, 2003 (unaudited) HK$’000 3,071 1,301 8,697 13,069 18,309 31,378	31st December, 2002 (audited) HK$’000 7,945 1,359 4,890
		14,194 22,914
		37,108

The above analysis ages trade payables based on the invoice dates after receipts of the goods and services purchased.

14. Share capital

Authorised: 500,000,000 ordinary shares of HK$0.10 each Issued and fully paid: 345,500,000 ordinary shares of HK$0.10 each	30th June, 2003 (unaudited) HK$’000 50,000 34,550	31st December, 2002 (audited) HK$’000 50,000

		34,550

15. Reserves

At the balance sheet date the Group had the following reserves:

Share premium Contributed surplus Revaluation reserve Exchange reserve Accumulated losses	30th June, 2003 (unaudited) HK$’000 59,306 24,041 37,023 166 (101,444) 19,092	31st December, 2002 (audited and restated) HK$’000 59,306 24,041 37,023 166 (47,290
		73,246

87 -

FINANCIAL INFORMATION

APPENDIX I

16. Commitments and contingent liabilities

At the balance sheet date the Group had the following commitments and contingent liabilities:

(a) Contracted capital commitment (b) Commitment under operating lease Annual commitments payable under non- cancellable operating leases in respect of land and buildings expiring: Within one year In the second to fifth years, inclusive (c) Contingent liabilities in respect of bills discounted with recourse	30th June, 2003 (unaudited) HK$’000 3,570 929 1,633 2,562 156	31st December, 2002 (audited) HK$’000 4,808

		873 427
		1,300

		5,271

17. Related party transactions

(a) The Group had the following transactions with companies with common directors and/or shareholders of the Company’s subsidiaries for the period:

Six months ended	Six months ended
30th June, 2003	30th June, 2002
(unaudited)	(unaudited)
HK$’000	HK$’000
Rental Income received –	75

The Group had the following outstanding balances with companies with common directors and/or
shareholders of the Company’s subsidiaries at the balance sheet date:
30th June,	30th June,
2003	2002
(unaudited)	(unaudited)
HK$’000	HK$’000
Amount due from a related company 107	107

(b) The Group had the following outstanding balances with companies with common directors and/or shareholders of the Company’s subsidiaries at the balance sheet date:

18. Comparative amounts

Certain comparative amounts have been reclassified to conform with the current period’s presentation.

88 -

FINANCIAL INFORMATION

APPENDIX I

MANAGEMENT DISCUSSION AND ANALYSIS

Business Review And Prospects

During the six months ended 30th June, 2003, the Group’s unaudited turnover and loss attributable to shareholders was around HK$11.7 million (2002: HK$40.5 million) and HK$54.2 million (2002: HK$2.6 million), respectively.

The significant increase in net loss this period was mainly attributed by the decline in revenue by approximately 71% and the provision for impairment of assets for the anti-theft car alarm and tracking system of HK$22 million.

Sale of life-like plants

The business volume of core business of the Company was decreased significantly from last period’s approximately HK$36.7 million to the current period’s HK$10.9 million. Like many other companies in Hong Kong, the decrease in business volume was mainly hit by the Severe Acute Respiratory Syndrome epidemic, which resulted in the cancellation of certain appointments by our customers from the United States and we have to defer our production schedules correspondingly. Unlike other industries, the SARS was outbreak during the traditional seasons where our customers placed their annual orders for the Christmas products. Accordingly, the impact of the SARS to the Group’s business and production schedule was material and orders may not be easily picked up in the second half of the year.

As the business volume decreased, the Group’s production capacity cannot be fully utilised during the period under review and thus resulting in the record of a loss of HK$19.4 million as compared to a profit of HK$3.3 million in last period.

The tighten cash flow position also affected the performance of the Group’s operation and production planning. Accordingly, the Directors were actively seeking opportunities to raise funds from the capital and debt markets. The Directors were pleased to report that new banking facilities and placement of new shares were successfully secured subsequent to the balance sheet date. The Directors are of confident that the Group’s financial position and performance will be improved gradually.

The management has decided to place more resource in strengthening the Group’s marketing team, with the aid of the e-commerce facilities that have been well established in prior years. The Group will take a more active and direct role in penetrating different market segments of the industry. Apart from the premium market segment, the Group will seriously considers the engagement in the middle to low end product segments where the business volume is much higher than that the Company engaged nowadays.

The Group will also participate in more trade shows and be actively contact with potential customers by offing each of them with a distinguish program. The management has confident to increase its market share in the industry in the coming years.

89 -

FINANCIAL INFORMATION

APPENDIX I

Multi-media business

Consistent with the revenue pattern over the past years, turnover for the first half of the year remains low, resulting in an operation loss of HK$2.5 million (2002: HK$1 million). Most of the distribution revenue will be realized in the second half of the year.

On the operation front, the management would like to report on the following key events.

Due to a weak advertising market, resulting in reduced ad budget and longer collection time, 9:30 Theater turned in a result that is below expectation. The project is breaking even. The management believes it is still a strong business model and expect it to generate strong profit on the up turn of the ad market. In fact, management is still looking at expanding the 9:30 Theater concept into other provinces next years, provided that the terms offered by the TV station are favourable.
The 36 episode period drama that we produced and distributed at the end of last year is being shown by many major TV stations in the PRC during the first half period. The drama series received very good review and ratings among the TV stations. Since the project was a success, it will benefit us in the distribution of self-produced TV dramas in the future.
The shooting of a new 30 episode period drama began in May of this year and was completed in August. Currently, post-production work is in progress. After government censorship approval, distribution can commence by November of this year.
At the end of last year and the beginning of this year, the company purchased the rights to 80 hours of imported dramas from both Hong Kong and Taiwan producers. To date, government approval has been granted for 1x20 episode series. Distribution effort is already in progress. Management expects the approval for the remaining 60 hours to be granted in the third and fourth quarter and distribution will commence immediately thereafter.

To sum up core business of the Company i.e. TV drama production, importation and distribution, is in good shape. We are guarding and nourishing the 9:30 Theater and are confident that it will deliver strong profit on the up swinging of the advertising market.

The return on investment on purchasing imported dramas and distributing them in the PRC is lower than our own productions. Yet, the sales cycle is much shorter and the pressure on cash flow is lower. Besides, with our commitment on 9:30 Theater, it gives us an edge on programming, thus strengthening our ad revenue stream.

Since collection of aged receivables continue to create a problem for us, our cash flow continue to be tight. We are controlling our expenses very tightly and are very cautious and conservative in making any investments in new project or producing new TV dramas this year.

The Company will remain focused on our core business and despite high finance cost, the Company is still confident of maintaining a solid business with a reasonable return.

90 -

FINANCIAL INFORMATION

APPENDIX I

Anti-theft car alarm and tracking system

The performance of the operation in the anti-theft car alarm and tracking system was still poor during the period under review. Since positive cash inflow was not expected to be generated by the project in the near future, the Directors became more conservative in further financing its operation. The management of the project was also required to secure its own funding from the market to support its operation.

In view of the extreme poor performance of the project which was out of the original schedule and expectation, a full provision for impairment on the set up cost of the system had been made in the current period, resulting in the record of a loss of HK$25 million (2002: HK$4 million) for this division.

STATEMENT OF INDEBTEDNESS

As at the close of business on 30th September, 2003, being the latest practicable date for the purpose of this indebtedness statement, the Group had outstanding borrowings of approximately HK$56.4 million comprising the secured bank loans of approximately HK$9.9 million, unsecured bank overdraft of approximately HK$1.3 million, unsecured trust receipt loans of approximately HK$6.5 million, finance lease payable of approximately HK$1.3 million and other unsecured loans of approximately HK$37.4 million. Of the total outstanding borrowings of approximately HK$56.4 million, approximately HK$1.7 million was long term loans. Certain land and buildings and plant and machinery and motor vehicle with net book value of approximately HK$65.3 million and HK$6.9 million respectively were pledged to secure the mentioned facilities. As at 30th September, 2003, the Group also has contingent liabilities in relation to bills discounted with recourse of approximately HK$8.8 million.

Save as aforesaid above and apart from intra-group liabilities, no member of the Group at the close of business on 30th September, 2003 had outstanding mortgages, charges, debentures or other loan capital or bank overdrafts, loans, debt securities or other similar indebtedness, liabilities under acceptances or acceptances credits or hire purchase commitments, or any guarantees or other material commitment or any material contingent liabilities.

WORKING CAPITAL

The Directors are of the opinion that the working capital available to the Group is sufficient for its present requirements.

MATERIAL CHANGES

As at the Latest Practicable Date, the Directors are not aware of any material change in the financial or trading position of the Group since 31st December, 2002, the date to which the latest published financial statements of the Group were made up.

91 -

GENERAL INFORMATION

APPENDIX II

1. RESPONSIBILITY STATEMENT

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

2. DISCLOSURE OF INTERESTS OF DIRECTORS

(a) Directors’ interests and short positions in the securities of the Company and its associated corporations

As at the Latest Practicable Date, the interests and short positions of the Directors and chief executive of the Company in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) (a) 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 the Directors or the chief executive were taken or deemed to have under such provisions of the SFO); or (b) which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (c) which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies contained in the Listing Rules were as follows:

			Number of	% of issued
	Nature of	Name of	shares or	share capital
Name of Director	interests	company	debentures	(approximate)
Leung Mei Yee	beneficial	The Company	4,000,000 Shares	0.90
			(Note)

Note: Ms. Leung Mei Yee has outstanding Options to subscribe for 4,000,000 Shares, in which Ms. Leung Mei Yee was deemed to be having an interest pursuant to the SFO.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors and chief executive of the Company had or was deemed to have any interests or short position in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) (a) 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 the Directors or the chief executives were taken or deemed to have under such provisions of the SFO); or (b) which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (c) which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies contained in the Listing Rules.

92 -

GENERAL INFORMATION

APPENDIX II

(b) Interests of substantial Shareholders

As at the Latest Practicable Date, so far as is known to any Director or chief executive of the Company, the following persons (other than a Director or chief executive of the Company) had interests or short position in the Shares or underlying Shares 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, 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 member of the Group:

			Number of
Name	Name of company	Capacity	Shares
Ma Siu Fong	The Company	Corporate interests	149,514,000
		(Note 1)
	The Company	Corporate interests	2,206,875,000
		(Note 2)
	The Company	Interests of spouse	14,776,000
		(Note 3)
Lee Wai Man	The Company	Beneficial interests	14,776,000
	The Company	Interests of spouse	2,356,389,000
		(Note 4)
Chu Yuet Wah	The Company	Corporate interests	149,514,000
		(Note 1)
	The Company	Corporate interests	2,206,875,000
		(Note 2)
The Underwriter	The Company	Beneficial interests	2,206,875,000
		(Note 2)
Kingston Finance	The Company	Security interests	149,514,000
Limited		(Note 1)
Lai Kam Wing,	The Company	Corporate interests	120,900,000
Jimmy		(Note 5)

93 -

GENERAL INFORMATION

APPENDIX II

			Number of
Name	Name of company	Capacity	Shares
Raffles	The Company	Beneficial interests	120,900,000
China Star	The Company	Corporate interests	86,375,000
		(Note 6)
China Star HK	The Company	Beneficial interests	86,375,000
Wong Chi Keung,	The Company	Beneficial interests	28,754,000
Kenjie
Mak Tai Wo	The Company	Beneficial interests	22,660,000

Note 1: These Shares represent the security interests held by Kingston Finance Limited which is owned as to 49% by Ma Siu Fong and as to 51% by Chu Yuet Wah. Accordingly, Ma Siu Fong and Chu Yuet Wah are deemed to be interested in these Shares.
Note 2: These Shares represent the maximum number of Offer Shares to be underwritten by the Underwriter pursuant to the Underwriting Agreement, to which the Underwriter is deemed to be interested pursuant to the SFO. The Underwriter is owned as to 49% by Ma Siu Fong and as to 51% by Chu Yuet Wah. Accordingly, Ma Siu Fong and Chu Yuet Wah are deemed to be interested in these Shares.
Note 3: These Shares are beneficially owned by Lee Wai Man, who is the spouse of Ma Siu Fong. Accordingly, Ma Siu Fong is deemed to be interested in these Shares.
Note 4: These Shares are deemed to be interested by Ma Siu Fong, the spouse of Lee Wai Man, as set out in notes 1 and 2 above. Accordingly, Lee Wai Man is deemed to be interested in these Shares.
Note 5: These Shares are beneficially owned by Raffles, the issued shares of which are wholly and beneficially owned by Lai Kam Wing, Jimmy. Accordingly, Lai Kam Wing, Jimmy is deemed to be interested in these Shares.
Note 6: These Shares are beneficially owned by China Star HK, the issued shares of which are wholly and beneficially owned by China Star. Accordingly, China Star is deemed to be interested in these Shares.
94 -

GENERAL INFORMATION

APPENDIX II

3. EXPERT

AMS has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter or opinion as set out in this circular and reference to its name in the form and context in which they appear respectively.

The qualification of the expert who has given its opinion or advice, which are contained in this circular, is as follows:

Name Qualification

AMS a deemed licensed corporation under the SFO

As at the Latest Practicable Date, AMS was not beneficially interested in the share capital of any member of the Group nor did it have any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group nor did it have any interest, either direct or indirect, in any assets which have been, since the date to which the latest published audited financial statements of the Company were made up, acquired or disposed of by or leased to or are proposed to be acquired or disposed of by or leased to any member of the Group.

4. LITIGATION

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

5. MATERIAL CONTRACTS

The following contracts have been entered into by the Company and its subsidiaries (not being contracts entered into in the ordinary course of business) within the two years immediately preceding the date of this circular and are or may be material:

(a) the Underwriting Agreement; and
(b) the subscription agreement dated 26th August, 2003 entered into between the Company and China Star HK pursuant to which the Company agreed to allot and issue and China Star HK agreed to subscribe for, 86,375,000 Shares at HK$0.10 per Share.

Save as aforesaid, no material contracts (not being contracts entered into in the ordinary course of business) have been entered into by any member of the Group within the two years immediately preceding the date of this circular which are or may be material.

95 -

GENERAL INFORMATION

APPENDIX II

6. MISCELLANEOUS

(a) As at the Latest Practicable Date, none of the Directors had any existing or proposed service contract with any member of the Group (excluding contracts expiring or determinable by the Group within one year without payment of compensation (other than statutory compensation)).
(b) Save as disclosed in this circular, there was no contract or arrangement entered into by any member of the Group subsisting at the Latest Practicable Date in which any Director was materially interested and which was significant in relation to the business of the Group.
(c) Save as disclosed in this circular, none of the Directors has, or has had, any direct or indirect interest in any assets which have been acquired, disposed of or leased to, or which are proposed to be acquired, disposed of or leased to, the Company or any of its subsidiaries since 31st December, 2002, the date to which the latest published audited consolidated financial statements of the Group were made up.
(d) The registered office of the Company is at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda.
(e) The head office and principal place of business of the Company in Hong Kong is at Unit 501, 5th Floor, Riley House, 88 Lei Muk Road, Kwai Chung, New Territories, Hong Kong.
(f) The Company’s branch share registrar and transfer offer in Hong Kong is Tengis Limited of Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong.
(g) The secretary of the Company is Mr. Chan Chi Yuen, A.H.K.S.A., F.C.C.A., C.P.A..
(h) The English texts of this circular and the accompanying form of proxy shall prevail over their respective Chinese texts.
96 -

GENERAL INFORMATION

APPENDIX II

7. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours at the head office and principal place of business of the Company in Hong Kong at Unit 501, 5th Floor, Riley House, 88 Lei Muk Road, Kwai Chung, New Territories, Hong Kong from the date of this circular up to and including 28th November, 2003 and at the SGM:

(a) the memorandum of association and bye-laws of the Company;
(b) the annual reports of the Company for the two years ended 31st December, 2002 and the interim report of the Company for the six months ended 30th June, 2003;
(c) the letter from the Independent Board Committee, the text of which is set out on page 21 of this circular;
(d) the letter of advice from AMS, the text of which is set out on pages 22 to 34 of this circular;
(e) the rules of the New Share Option Scheme;
(f) the written consent referred to in the paragraph headed “Expert” in this appendix; and
(g) all material contracts referred to in the paragraph headed “Material contracts” in this appendix.
97 -

TERMS OF THE NEW SHARE OPTION SCHEME

APPENDIX III

SHARE OPTION SCHEME

The following is a summary of the principal terms of the New Share Option Scheme but does not form part of, nor was it intended to be, part of the New Share Option Scheme nor should it be taken as affecting the interpretation of the rules of the New Share Option Scheme:

(a) Purpose of the New Share Option Scheme

The purpose of the New Share Option Scheme is to enable the Company to grant Options to the Eligible Participants in order to reward or provide incentives to its employees or any person who has contributed or will contribute to the Group.

(b) Grant and acceptance of Options

Subject to the terms of the New Share Option Scheme, the Directors may, at their absolute discretion, invite any associate of the Company or substantial Shareholder, any full-time or parttime employees of the Group, associate of the Company or substantial Shareholder (including executive directors, the non-executive directors and the independent non-executive directors of any of them), any advisers, consultants, suppliers, distributors, contractors, agents, business partners, service providers or customers of the Group who, in the sole discretion of the Board, have contributed or will contribute to the Group, to take up Options to subscribe for New Shares at a price calculated in accordance with paragraph (c) below.

An offer of the grant of an Option shall be made to Eligible Participants by letter in such form as the Board may from time to time determine and shall remain open for acceptance by the Eligible Participant concerned for a period of 21 days from the date upon which it is made provided that no such offer shall be open for acceptance after the earlier of the 10th anniversary of the Adoption Date or the termination of the New Share Option Scheme or the Eligible Participant to whom such offer is made has ceased to an Eligible Participant.

A non-refundable nominal consideration of HK$1.00 is payable by the grantee upon acceptance of an Option. An Option shall be deemed to have been accepted when the duplicate letter comprising acceptance of the Option duly signed by the Eligible Participant together with the said consideration of HK$1.00 is received by the Company.

Any offer of the grant of an Option may be accepted in respect of less than the number of New Shares in respect of which it is offered provided that it is accepted in such number of New Shares as represents a board lot for the time being for the purpose of trading on the Stock Exchange or an integral multiple thereof.

(c) Price of Shares

The exercise price for New Shares under the New Share Option Scheme may be determined by the Board at its absolute discretion but in any event will not be less than the highest of: (i) the closing price of the New Shares as stated in the daily quotations sheet of the Stock Exchange on the date of grant, which must be a business day; (ii) the average closing price of the New Shares as stated in the daily quotations sheets of the Stock Exchange for the five business days immediately preceding the date of grant; and (iii) the nominal value of the New Shares on the date of offer.

98 -

TERMS OF THE NEW SHARE OPTION SCHEME

APPENDIX III

(d) Maximum number of Shares

(i) Subject to (iii) below, the maximum number of New Shares which may be issued upon exercise of all Options to be granted under the New Share Option Scheme shall not, when aggregated with any other schemes subject, exceed 10% of the issued New Shares as at the date of approval of the New Share Option Scheme (the “ Scheme Mandate Limit ”). The Company may seek approval from the Shareholders in a general meeting to refresh the Scheme Mandate Limit. However, the total number of New Shares which may be issued upon exercise of all Options to be granted under all of the schemes of the Company (or its subsidiary) under the limit as refreshed must not exceed 10% of the New Shares in issue as at the date of approval of the Scheme Mandate Limit. For the purpose of refreshment, Options previously granted under the New Share Option Scheme (including those outstanding, cancelled, lapsed in accordance with the New Share Option Scheme or any other share option schemes and exercised Options) will not be counted for the purpose of calculating the Scheme Mandate Limit;
(ii) Subject to (iii) below, the Company may issue Options to Eligible Participants specifically identified over and above the Scheme Mandate Limit subject to Shareholders’ approval in a general meeting and the issue of a circular; and
(iii) The total number of New Shares which may be issued upon exercise of all outstanding Options granted and yet to be exercised under the New Share Option Scheme and any other scheme of the Company must not exceed 30% of the total issued New Shares from time to time.

The total number of New Shares issued and to be issued on the exercise of Options granted and to be granted (including exercised, cancelled and outstanding Options) in any 12-month period up to the date of grant of each Eligible Participant shall not exceed 1% of the total issued New Shares unless (i) a circular is despatched to the Shareholders; (ii) the Shareholders approve the grant of the Options in excess of the 1% limit referred to in this paragraph; and (iii) the relevant Eligible Participant and its associates abstain from voting on such resolution.

The exercise of any Option shall be subject to Shareholders’ approval in a general meeting of any necessary increase in the authorised share capital of the Company. Subject thereto, the Board shall make available sufficient authorised but unissued share capital of the Company to allot the New Shares on the exercise of Options.

(e) Exercise of Options

An Option may be exercised at any time during the period to be determined and identified by the Board to each grantee at the time of making an offer for the grant of an Option, but in any event no later than 10 years from the date of offer but subject to the early termination of the New Share Option Scheme (the “ Option Period ”).

An Option may be exercised in whole or in part by the grantee giving notice in writing to the Company stating that the Option is thereby exercised and the number of New Shares in respect of which it is exercised. Each such notice must be accompanied by a remittance for the full

99 -

TERMS OF THE NEW SHARE OPTION SCHEME

APPENDIX III

amount of the subscription price for the New Shares in respect of which the notice is given. Within 21 days after receipt of the notice and the remittance and, where appropriate, receipt of the certificate of the Company’s auditors, the Company shall allot and issue the relevant New Shares to the grantee (or his legal personal representative(s)) credited as fully paid.

There is no performance target which must be achieved before any of the Options can be exercised.

(f) Restrictions on the time of grant of Options

Grant of Options may not be made after a price sensitive event has occurred or a price sensitive matter has been the subject of a decision until such price sensitive information has been published in the newspapers. In particular, no Option may be granted during the period commencing one month immediately preceding the earlier of (i) the date of the Board meeting for the approval of the Company’s quarterly, interim or annual results and (ii) the deadline for the Company to publish its quarterly, interim or annual results announcement and ending on the date of such results announcement.

(g) Rights are personal to grantees

An Option is personal to the grantee and shall not be assignable. An Option shall not be sold, transferred, charged, mortgaged, encumbered or created with any interest in favour of any third party.

(h) Rights on dismissal or ceasing employment

If the grantee of an Option, being an employee of a member of the Group or an employee of an associate of the Company or substantial Shareholder ceases to be an Eligible Participant for any reason other than his death, ill-health or retirement in accordance with his contract of employment or the termination of his employment on one or more of the grounds of persistent or serious misconduct, bankruptcy, insolvency, composition with his creditors generally or conviction of any criminal offence or other ground on which an employer would be entitled to terminate his employment pursuant to any applicable law, his Option (to the extent not already exercised) will lapse on the date of cessation of his employment.

If the grantee of an Option who is an employee of the Group or an employee of an associate of the Company or substantial Shareholder ceases to be an Eligible Participant by resignation, retirement, expiry of employment contract or termination of employment for any reason other than any of the events specified above and in paragraph (i) below before exercising the Option in full, the grantee of the Option or as appropriate, his personal representative(s), may exercise the Option (to the extent not already exercised) in whole or in part within a period of three months following the date of such cessation or termination or, if any of the events referred to in paragraph (l) or (m) below occurs during such period, exercise the Option pursuant to paragraph (l) or (m) respectively. The date of cessation or termination as aforesaid shall be the last day on which the grantee of the Option is actually at work with the Company, the relevant subsidiary, associate of the Company or substantial Shareholder whether salary is paid in lieu of notice or not.

100 -

TERMS OF THE NEW SHARE OPTION SCHEME

APPENDIX III

(i) Rights on death

If the grantee of an Option, being an employee of a member of the Group or an employee of an associate of the Company or substantial Shareholder ceases to be an employee of the Group or an employee of an associate of the Company or substantial Shareholder by reason of his death and none of the events which would be ground for termination of his employment under paragraph (h) above occurs, his personal representative(s) may exercise the Option in full (to the extent not already exercised) within a period of 12 months following the date of his death (or such longer period as the Board may determine).

(j) Cancellation of Options

Any cancellation of Options granted but not exercised and the issuance of new Options to the same grantee may only be made under the New Share Option Scheme with available unissued Options (excluding the cancelled Options) within the Scheme Mandate Limit referred to in paragraph (d)(i) above. Options lapsed in accordance with the terms of the New Share Option Scheme will not be counted for the purpose of calculating the Scheme Mandate Limit.

(k) Effect of alterations to share capital

In the event of any alteration in the capital structure of the Company by way of capitalisation of profits or reserved, rights issue, consolidation, subdivision or reduction of the share capital of the Company (other than an issue of New Shares as consideration in respect of a transaction while any Option remains exercisable), such corresponding alterations (if any) will be made in (i) the numbers or nominal amount of New Shares subject to any Option so far as such Option remains unexercised and/or (ii) the subscription price per New Share and/or (iii) the maximum number of New Shares available for subscription as the auditors for the time being of the Company shall at the request of the Company or any grantee certify in writing to be in their opinion fair and reasonable, provided that any such alterations shall be made on the basis that the grantee shall have the same proportion of the issued share capital of the Company to which he was entitled before such alteration and the aggregate subscription price payable by the grantee on the full exercise of any Option shall remain as nearly as possible the same as (but not greater than) it was before such event, but so that no such alterations shall be made the effect of which would be to enable a New Share to be issue at less than its nominal value. Save in the case of a capitalisation issue, the auditors for the time being of the Company must confirm to the Directors in writing that such adjustment(s) satisfy the aforesaid requirements.

(l) Rights on a general offer

In the event of a general offer being made to all Shareholders (or all such holders other than the offeror and/or person controlled by the offeror and/or any person acting in concert (as defined in the Takeovers Code) with the offeror) and such offer becomes or is declared unconditional during the Option Period of the relevant Option, the grantee (or his personal representative(s)) shall be entitled to exercise the Option in full (to the extent not already exercised) at any time within thereafter and up to the close of such offer.

101 -

TERMS OF THE NEW SHARE OPTION SCHEME

APPENDIX III

(m) Rights on winding up

In the event a notice is given by the Company to its members to convene a general meeting for the purpose of considering and, if thought fit, approving a resolution to voluntarily wind-up the Company, the Company shall on the same date as it despatches such notice to each member of the Company give notice thereof to all grantees and any grantee (or his personal representative(s) may by notice in writing to the Company accompanied by a remittance for the full amount of the aggregate subscription price in respect of the relevant Option (such notice to be received by the Company no later than two business days prior to the propose general meeting) exercise the Option (to the extent not already exercised) either to its full extent or to the extent that he may specify in his notice and the Company shall as soon as possible and in any event no later than the business day immediately prior to the date of the proposed general meeting referred to above, allot and issue such number of New Shares to the grantee credited as fully paid.

(n) Rights on reconstruction, compromise or arrangement

If a compromise or arrangement between the Company and its members or creditors is proposed for the purpose of or in connection with a scheme for the reconstruction or amalgamation of the Company, the Company shall give notice to the grantee on the same date as it despatched the notice to each member or creditor of the Company to consider such a compromise or arrangement, and thereupon the grantee (or his personal representative(s)) may by notice in writing to the Company accompanied by a remittance of the full amount of the subscription price in respect of which the notice is given (such notice to be received by the Company no later than two business days prior to the proposed meeting) exercise the Option (to the extent not already exercised) either to its full extent or to the extent specified in the notice and the Company shall as soon as possible and in any event no later than the business day immediately prior to the date of the proposed general meeting allot and issue such number of New Shares to the grantee credited as fully paid.

(o) Ranking of Shares

The New Shares to be allotted upon the exercise of an Option will be subject to all the provisions of the bye-laws of the Company for the time being in force and will rank pari passu in all respects with the fully paid New Shares in issue on the date on which the Option is exercised and accordingly will entitle the holders of New Shares to participate in all dividends or other distributions paid or made on or after the date on which the Option is exercised other than any dividends or other distributions previously declared or recommended or resolved to be paid or made with respect to a record date which shall be before the date of allotment.

(p) Duration and administration of the New Share Option Scheme

The New Share Option Scheme shall continue in force for the period commencing from the Adoption Date and expiring at the close of business on the tenth anniversary thereof, after such period no further Options will be granted but the provisions of the New Share Option Scheme shall remain in full force and effect in respect of any Options granted before its expiry or termination

102 -

TERMS OF THE NEW SHARE OPTION SCHEME

APPENDIX III

but not yet exercised. The New Share Option Scheme shall be subject to the administration of a committee of the Directors which comprises independent non-executive Directors whose decision (save as otherwise provided therein and in the absence of manifest error) shall be final and binding on all parties.

(q) Alterations to the terms of the New Share Option Scheme

(i) The provisions relating to the matters set out in rule 17.03 of the Listing Rules cannot be altered to the advantage of Eligible Participants without the prior approval of Shareholders in a general meeting;
(ii) Any alterations to the terms and conditions of the New Share Option Scheme which are of a material nature or any change to the terms of Options granted must be approved by Shareholders, except where the alterations take effect automatically under the existing terms of the New Share Option Scheme;
(iii) The amended terms of the New Share Option Scheme or the Options must still comply with the relevant requirements of Chapter 17 of the Listing Rules; and
(iv) Any change to the authority of the Directors or the administrator of the New Share Option Scheme in relation to any alteration to the terms of the New Share Option Scheme must be approved by Shareholders in a general meeting.

(r) Conditions of the New Share Option Scheme

The New Share Option Scheme is conditional upon:

(i) the Listing Committee of the Stock Exchange granting the listing of and permission to deal in any New Shares to be issued by the Company pursuant to the exercise of Options in accordance with the terms and conditions of the New Share Option Scheme; and
(ii) the passing of the necessary resolution to approve and adopt the New Share Option Scheme by the Shareholders at SGM.

(s) Grant of Options to connected persons or any of their associates

Any grant of Options to a connected person or its associates must be approved by the independent non-executive Directors (excluding any independent non-executive Director who is the grantee of the Options). Where Options are proposed to be granted to a connected person who is also a substantial Shareholder or an independent non-executive Director or their respective associates and if such grant would result in the total number of New Shares issued and to be issued upon exercise of the Options granted and to be granted (including Options exercised, cancelled and outstanding) in any 12-month period up to and including the date of grant to such person representing in aggregate over 0.1% of the total issued New Shares and having an aggregate value, based on the closing price of the securities at the date of each grant, in excess of HK$5 million,

103 -

TERMS OF THE NEW SHARE OPTION SCHEME

APPENDIX III

then the proposed grant must be subject to the approval of Shareholders taken on a poll in a general meeting. All connected persons of the Company must abstain from voting at such general meeting (except where any connected person intends to vote against the proposed grant provided that his intention to do so has been stated in the Shareholders’ circular to be issued as stated below).

A circular must be prepared by the Company explaining the proposed grant, disclosing (i) the number and terms of the Options to be granted, (ii) containing a recommendation from the independent non-executive Directors (excluding any independent non-executive Director who is a grantee) on whether or not to vote in favour of the proposed grant, (iii) containing information relating to any Directors who are trustees of the New Share Option Scheme or have a direct or indirect interest in the trustees.

Any change in the terms of Options granted to a connected person or its associates must be approved by the Shareholders in a general meeting.

(t) Lapse of Options

An Option shall lapse automatically (to the extent not already exercised) on the earliest of:

(i) the expiry of the Option Period;
(ii) the expiry of any of the periods referred to in paragraph (h), (i), (l), (m) or (n);
(iii) the date on which the grantee of an Option who is an employee of the Group or an employee of an associate of the Company or substantial Shareholder ceases to be an Eligible Participant by reason of a termination of his employment on any one or more of the grounds that he has been guilty of persistent or serious misconduct, or has become bankrupt or has become insolvent or has made any arrangement or composition with his creditors generally, or has been convicted of any criminal offence (other than an offence which in the opinion of the Directors does not bring the grantee of the Option or the Company and any member of the Group into disrepute);
(iv) the date on which the Directors shall exercise the Company’s right to cancel the Option by reason of a breach of paragraph (g) by the grantee of the Option in respect of that or any other Option; and
(v) the date of the commencement of the winding-up of the Company.

(u) Termination

The Company by ordinary resolution in a general meeting may at any time terminate the operation of the New Share Option Scheme and in such event no further Options will be offered but in all other respects the provisions of the New Share Option Scheme shall remain in force to the extent necessary to give effect to the exercise of any Options granted prior to such termination.

104 -

TERMS OF THE NEW SHARE OPTION SCHEME

APPENDIX III

Details of the Options granted, including Options exercised or outstanding, under the New Share Option Scheme shall be disclosed in the circular to Shareholders seeking approval of any subsequent share option scheme to be established after such termination.

(v) Miscellaneous

The terms of the New Share Option Scheme (and any other schemes adopted by the Company from time to time) shall be in accordance with the requirements set out in Chapter 17 of the Listing Rules.

The Company will comply with the relevant statutory requirements and the Listing Rules from time to time in force on a continuing basis in respect of the New Share Option Scheme and any other schemes of the Company.

Any dispute arising in connection with the number of New Shares of an Option and any of the matters referred to in paragraph (k) above shall be referred to the decision of the auditors of the Company who shall act as experts and not as arbitrators and whose decision, in the absence of manifest error, shall be final and binding.

105 -

REPURCHASE MANDATE

APPENDIX IV

This Appendix serves as an explanatory statement, as required by the Listing Rules, to provide the requisite information to you for your consideration of the Repurchase Mandate.

1. REPURCHASE OF SECURITIES FROM CONNECTED PARTIES

The Listing Rules prohibit a company from knowingly purchasing securities on the Stock Exchange from a “connected person”, that is, a director, chief executive or substantial shareholder of the Company or any of its subsidiaries or their respective associates and a connected person is prohibited from knowingly selling his securities to the Company.

No connected person of the Company has notified the Company that he has a present intention to sell any securities to the Company nor has any such connected person undertaken not to sell any of the securities held by him to the Company in the event that the Repurchase Mandate is passed.

2. SHARE CAPITAL

As at the Latest Practicable Date, the issued share capital of the Company comprised (i) 431,875,000 Shares; or (ii) assuming the Capital Reorganisation has become effective, 431,875,000 New Shares; or (iii) assuming the Open Offer has been completed (on the assumption that no Options have been exercised prior to the Record Date), 2,591,250,000 New Shares; or (iv) assuming the Open Offer has been completed (on the assumption that all Options have been exercised prior to the Record Date), 2,648,250,000 New Shares.

Subject to the passing of the proposed resolutions for the approval of the Capital Reorganisation, the Open Offer and the Repurchase Mandate and on the basis that (i) no Options have been exercised prior to the date of SGM; and (ii) no Shares are issued or repurchased by the Company prior to the SGM, the Company will be allowed under the Repurchase Mandate to repurchase a maximum of 259,125,000 New Shares, fully paid or credited as fully paid, being 10% of the issued share capital of the Company as at the Latest Practicable Date as enlarged by the allotment and issue of the Offer Shares.

Alternatively, subject to the passing of the proposed resolutions for the approval of the Capital Reorganisation, the Open Offer and the Repurchase Mandate and on the basis that (i) all outstanding Options have been exercised prior to the date of SGM; and (ii) no Shares are issued or repurchased by the Company prior to the SGM other than pursuant to the exercise of all outstanding Options, the Company will be allowed under the Repurchase Mandate to repurchase a maximum of 264,825,000 New Shares, fully paid or credited as fully paid, being 10% of the issued share capital of the Company as at the Latest Practicable Date as enlarged by the allotment and issue of the Offer Shares.

3. REASONS FOR THE REPURCHASE

The Directors believe that the Repurchase Mandate is in the best interests of the Company and the Shareholders. An exercise of the Repurchase Mandate may, depending on market conditions and funding arrangements at the time, lead to an enhancement of the net asset per New Share and/or earnings per New Share and will only be made when the Directors believe that a repurchase will benefit the Company and the Shareholders.

106 -

REPURCHASE MANDATE

APPENDIX IV

4. FUNDING OF REPURCHASES

Pursuant to the Repurchase Mandate, repurchase would be funded entirely from the Company’s available cash flow or working capital facilities which will be funds legally available under Bermuda law and the memorandum of association and bye-laws of the Company for this purpose.

An exercise of the Repurchase Mandate in full could have a material adverse impact on the working capital and gearing position of the Company compared with that as at 31st December, 2002, being the date to which its latest audited consolidated financial statements had been made up. The Directors do not, however, intend to make any repurchase in circumstances that would have a material adverse impact on the working capital or gearing position of the Company.

5. SHARE PRICES

The highest and lowest closing prices at which the Shares have traded on the Stock Exchange in each of the twelve months immediately preceding the Latest Practicable Date of this circular were as follows:

	Highest	Lowest
	HK$	HK$
November 2002	0.153	0.126
December 2002	0.124	0.100
January 2003	0.112	0.108
February 2003	0.145	0.092
March 2003	0.114	0.069
April 2003	0.072	0.058
May 2003	0.070	0.035
June 2003	0.060	0.038
July 2003	0.056	0.036
August 2003	0.134	0.043
September 2003	0.140	0.121
October 2003	0.132	0.061
November 2003 (up to the Latest Practicable Date)	0.062	0.044

6. DISCLOSURE OF INTERESTS, MINIMUM PUBLIC HOLDING AND EFFECT OF THE TAKEOVERS CODE

None of the Directors or, to the best of their knowledge, having made all reasonable enquiries, any associates of the Directors, have any present intention to sell to the Company or its subsidiaries any of the New Shares if the Repurchase Mandate is approved at the SGM exercised.

The Directors have undertaken to the Stock Exchange that, so far as the same may be applicable, they will exercise the powers of the Company to make repurchases pursuant to the Repurchase Mandate in accordance with the Listing Rules and applicable laws of Bermuda.

107 -

REPURCHASE MANDATE

APPENDIX IV

If a Shareholder’s proportionate interest in the voting rights of the Company increases on the Company exercising its powers to repurchase securities pursuant to the Repurchase Mandate, such increase will be treated as an acquisition for the purposes of Rule 32 of the Takeovers Code. As a result, a Shareholder or group of Shareholders acting in concert could obtain or consolidate control of the Company and become obliged to make a mandatory offer in accordance with Rules 26 and 32 of the Takeover Code.

To the best of the knowledge and belief of the Directors, assuming (i) the Capital Reorganisation has become effective and the Open Offer has been completed; (ii) no outstanding Options have been exercised prior to the date of SGM; and (iii) Raffles and China Star have taken up their respective entitlements under the Open Offer, (i) Raffles and parties acting in concert with it will hold approximately 27.99% of the issued share capital of the Company as at the Latest Practicable Date as enlarged by the allotment of issue of the offer shares; and (ii) China Star and parties acting in concert with it will hold approximately 20.00% of the issued share capital of the Company as at the Latest Practicable Date as enlarged by the allotment and issue of the Offer Shares. On this basis if the Repurchase Mandate were exercised in full, the percentage shareholding of Raffles in the Company would be increased to approximately 31.10% of the then issued share capital of the Company and the percentage shareholding of China Star in the Company would be increased to approximately 22.22% of the then issued share capital of the Company.

On the basis of the current shareholding of Raffles and China Star, an exercise of the Repurchase Mandate in full will result in Raffles and parties acting in concert with it becoming obliged to make a mandatory offer under Rule 26 of the Takeover Code. However, the Directors have no intention to exercise the Repurchase Mandate to such an extent that will result in Raffles and parties acting in concert with it required to make a general offer under the Takeovers Code or the number of Shares in the hands of public falling below the prescribed minimum percentage of 25%.

7. SHARE REPURCHASE MADE BY THE COMPANY

The Company had not repurchased any of the Shares (whether on the Stock Exchange or otherwise) during the six calendar months immediately preceding the date of this circular.

108 -

NOTICE OF SPECIAL GENERAL MEETING

FT HOLDINGS INTERNATIONAL LIMITED 精藝集團國際有限公司[*]

(Incorporated in Bermuda with limited liability)

NOTICE IS HEREBY GIVEN that a special general meeting of FT Holdings International Limited (the “Company”) be held at 10:00 a.m. on Thursday, 4th December, 2003 at Unit 501, 5th Floor, Riley House, 88 Lei Muk Road, Kwai Chung, New Territories, Hong Kong for the purpose of considering and, if thought fit, passing the following resolutions numbered 2 and 8 as special resolutions and resolutions numbered 1, 3 to 7 as ordinary resolutions of the Company:

1. ORDINARY RESOLUTION 1

“ THAT the authorised share capital of the Company be and is hereby increased from HK$50,000,000 divided into 500,000,000 shares of HK$0.10 each to HK$100,000,000 by the creation of an additional 500,000,000 unissued shares of HK$0.10 each.”

2. SPECIAL RESOLUTION 2

“ THAT conditional upon the Listing Committee of The Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”) granting the listing of and permission to deal in, the share of par value of HK$0.01 each in the issued share capital of the Company upon the Capital Reorganisation (as defined below) becoming effective, with effect from 4:00 p.m. on the date on which this resolution is passed (the “ Effective Date ”):

(a) the issued share capital of the Company be reduced by cancelling the paid up capital to the extent of HK$0.09 on each of the shares of HK$0.10 each issued on the Effective Date (the “ Capital Reduction ”) so that each issued share in the capital of the Company shall be treated as one (1) fully-paid up ordinary share of par value HK$0.01 in the capital of the Company (each a “ New Share ”) and any liability of the holders of the New Shares to make any further contribution to the capital of the Company on each such New Share shall be treated as satisfied;
(b) each of the shares of HK$0.10 each in the unissued share capital of the Company be subdivided into 10 New Shares (the “ Share Subdivision ”);
(c) the credit arising from the Capital Reduction be transferred to the contributed surplus account of the Company which may be utilised in accordance with the bye-laws of the Company and the Companies Act 1981 of Bermuda (the “ Application of Credit ”); and

* For identification purpose only

109 -

NOTICE OF SPECIAL GENERAL MEETING

(d) the directors (the “ Directors ”) of the Company be and are hereby authorised generally to do all such acts and things or execute all such documents they consider necessary or expedient to effect and implement the Capital Reduction, the Share Subdivision and the Application of Credit (the “ Capital Reorganisation ”).”

3. ORDINARY RESOLUTION 3

“ THAT subject to the passing of special resolution numbered 2 and conditional upon: (a) the Listing Committee of the Stock Exchange granting or agreeing to grant (subject to allotment) and not having revoked the listing of and permission to deal in the Offer Shares (as defined below) to be allotted and issued to the shareholders of the Company (the “ Shareholders ”) pursuant to the terms and conditions of the Open Offer (as defined below); (b) the registration of all documents relating to the Open Offer required by law to be registered with the Registrar of Companies in Hong Kong on or before 4th December, 2003 or such later date as the Company and Kingston Securities Limited (the “ Underwriter ”) may agree and registration and the filing of all relevant documents with the Registrar of Companies in Bermuda on or before 4th December, 2003 or such later date as the Company and the Underwriter may agree; and (c) the obligations of the Underwriter under the underwriting agreement dated 21st October, 2003 (the “ Underwriting Agreement ” including, if any, all supplemental agreements relating thereto) between the Company and the Underwriter becoming unconditional and the Underwriting Agreement not being terminated in accordance with the terms thereof prior to 4:00 p.m. on the third business day after the last day for acceptance of Offer Shares (as defined below),

(i) the issue by way of open offer (the “ Open Offer ”) of not less than 2,159,375,000 New Shares (the “ Offer Shares ”) and not more than 2,206,875,000 Offer Shares to the Shareholders whose names appear on the register of members of the Company on 4th December, 2003 (excluding those Shareholders with registered addresses outside Hong Kong) in the proportion of five Offer Shares for every New Share then held and otherwise pursuant to and in accordance with the terms and conditions set out in the circular dated 11th November, 2003 despatched by the Company to the Shareholders (the “ Circular ”, a copy of which had been produced to the meeting marked “A” and signed by the chairman of the meeting for the purpose of identification) be and is hereby approved and the Directors be and are hereby authorised to allot and issue the Offer Shares pursuant to and in accordance with the Open Offer notwithstanding that the same may be offered, allotted or issued otherwise than pro rata to the existing Shareholders and, in particular, the Directors be and are hereby authorised to make such exclusions or other arrangements in relation to fractional entitlements or overseas Shareholders as they deem necessary or expedient having regard to any restrictions or obligations under the laws of, or the requirements of any recognised regulatory body or any stock exchange in any territory outside Hong Kong; and
(ii) the Directors be and are hereby authorised to do all such acts and things or execute all such documents as they consider necessary or expedient in connection with the Open Offer.”
110 -

NOTICE OF SPECIAL GENERAL MEETING

4. ORDINARY RESOLUTION 4

“ THAT:

(a) the general mandate granted to the Directors to exercise the power of the Company to allot, issue and deal with shares as approved by the Shareholders at the special general meeting of the Company held on 26th September, 2003 be and is hereby revoked (without prejudice to any valid exercise of such general mandate prior to the passing of this resolution);
(b) subject to paragraph (d) below, the exercise by the Directors during the Relevant Period (as defined below) of all powers of the Company to allot, issue and deal with additional New Shares and to make or grant offers, agreements and options (including bonds, warrants, and debentures convertible into New Shares) which would or might require the exercise of such powers during or after the end of the Relevant Period, subject to and in accordance with all applicable laws, be and is hereby generally and unconditionally approved;
(c) the approval in paragraph (b) of this resolution shall authorise the Directors during the Relevant Period to make or grant offers, agreements and options (including bonds, warrants and debentures convertible into New Shares) which would or might require the exercise of such power after the end of the Relevant Period;
(d) the aggregate nominal amount of share capital of the Company allotted or agreed conditionally or unconditionally to be allotted (whether pursuant to any option or otherwise) and issued by the Directors pursuant to the approval in paragraph (b) of this resolution, otherwise than pursuant to: (i) a rights issue (as defined below), or (ii) an issue of New Shares upon the exercise of the subscription rights or conversion rights attaching to any warrants issued by the Company or any securities which are convertible into New Shares, the issue of which warrants and other securities having been previously approved by the Shareholders, or (iii) an issue of New Shares upon the exercise of any options granted under any share option scheme or similar arrangement for the time being adopted for the grant or issue to eligible persons of New Shares or rights to acquire New Shares; or (iv) any scrip dividend or similar arrangement of the Company providing for the allotment of New Shares in lieu of the whole or part of a dividend on New Shares in accordance with the bye-laws of the Company, shall not exceed the aggregate of 20 per cent. of the aggregate nominal amount of the share capital of the Company in issue at the date of this resolution or subject to the passing of ordinary resolution numbered 3 above and completion of the Open Offer, the share capital of the Company in issue as enlarged by the issue of the Offer Shares and the said approval shall be limited accordingly; and
111 -

NOTICE OF SPECIAL GENERAL MEETING

(e) for the purpose of this resolution:

“ Relevant Period ” means the period from the date of passing of this resolution until whichever is the earliest of:

(i) the conclusion of the next annual general meeting of the Company; or
(ii) the expiration of the period within which the next annual general meeting of the Company is required by the bye-laws of the Company or the Companies Act 1981 of Bermuda or any other applicable laws to be held; or
(iii) the passing of an ordinary resolution by the Shareholders in general meeting revoking or varying the authority given to the Directors by this resolution; and
“ rights issue ” means an offer of New Shares or an offer of warrants, options or other securities giving rights to subscribe for New Shares open for a period fixed by the Directors to holders of New Shares or any class thereof whose names appear on the register of members of the Company on a fixed record date in proportion to their then holdings of such New Shares or class thereof (subject to such exclusion or other arrangements as the Directors may deem necessary or expedient in relation to fractional entitlements or having regard to any restrictions or obligations under the laws of, or the requirements of any recognised regulatory body or any stock exchange in any territory applicable to the Company).”

5. ORDINARY RESOLUTION 5

“ THAT :

(a) subject to paragraph (b) below the exercise by the Directors during the Relevant Period (as defined below) of all powers of the Company to repurchase New Shares on the Stock Exchange or on any other stock exchange on which the New Shares may be listed and which is recognised by the Securities and Future Commission of Hong Kong and the Stock Exchange for this purpose (the “ Recognised Stock Exchange ”), subject to and in accordance with all applicable laws and/or the requirements of the Rules Governing the Listing of Securities on the Stock Exchange (the “ Listing Rules ”) as amended from time to time or those of any other Recognised Stock Exchange, be and is hereby generally and unconditionally approved;
(b) the aggregate nominal amount of New Shares to be repurchased by the Company pursuant to paragraph (a) above during the Relevant Period shall not exceed 10 per cent. of the aggregate nominal amount of the share capital of the Company in issue as at the date of this resolution, or, subject to the passing of ordinary resolution numbered 3 above and completion of the Open Offer, the share capital of the Company in issue as enlarged by the issue of the Offer Shares and the said approval shall be limited accordingly; and
112 -

NOTICE OF SPECIAL GENERAL MEETING

(c) for the purpose of this resolution:
“ Relevant Period ” means the period from the date of passing of this resolution until whichever is the earliest of:
(i) the conclusion of next annual general meeting of the Company; or
(ii) the expiration of the period within which the next annual general meeting of the Company is required by the bye-laws of the Company or the Companies Act 1981 of Bermuda or any other applicable laws to be held; or
(iii) the passing of an ordinary resolution by Shareholders in general meeting revoking or varying the authority given to the Directors by this resolution.”

6. ORDINARY RESOLUTION 6

“ THAT subject to the passing of ordinary resolutions numbered 4 and 5 and their becoming unconditional, the general mandate granted to the Directors and for the time being in force to exercise the powers of the Company to allot, issue and deal with additional New Shares pursuant to ordinary resolution numbered 4 be and is hereby extended by the addition to the aggregate nominal amount of the New Shares which may be allotted or agreed conditionally or unconditionally to be allotted by the Directors pursuant to such general mandate of an amount representing the aggregate nominal amount of the New Shares repurchased by the Company under the authority granted pursuant to ordinary resolution numbered 5, provided that such extended amount shall not exceed 10 per cent. of the aggregate nominal amount of the share capital of the Company in issue as at the date of this resolution, or, subject to the passing of ordinary resolution numbered 3 above and the completion of the Open Offer, the issued share capital of the Company in issue as enlarged by the issue of the Offer Shares.”

7. ORDINARY RESOLUTION 7

“ THAT the existing share option scheme of the Company adopted on 13th December, 1996 be and is hereby terminated and conditional upon the Listing Committee of the Stock Exchange granting the listing of and permission to deal in the New Shares falling to be issued pursuant to the new share option scheme (the “ New Share Option Scheme ”), the terms of which are set out in the document marked “B” which has been produced to this meeting and signed by the chairman of this meeting for the purpose of identification, the rules of the New Share Option Scheme be and are hereby approved and adopted and the Directors be and are hereby authorised to grant options and to allot, issue and deal with New Shares pursuant to the exercise of any option granted thereunder and to take all such steps as they may consider necessary or expedient to implement the New Share Option Scheme.”

113 -

NOTICE OF SPECIAL GENERAL MEETING

8. SPECIAL RESOLUTION 8

“ THAT

(i) the Chinese name of “星采控股有限公司” be and is hereby adopted for identification purpose and for registration purpose under Part XI of the Companies Ordinance (Chapter 32 of the Laws of Hong Kong); and
(ii) the Directors be and are hereby authorised to do all such acts and things and execute all such documents they consider necessary or expedient to give effect to the adoption of Chinese name of the Company.”

By Order of the Board Lei Hong Wai Executive Director

Hong Kong, 11th November, 2003

Registered office:

Clarendon House 2 Church Street Hamilton HM 11 Bermuda

Head office and principal place of business in Hong Kong: Unit 501, 5th Floor Riley House 88 Lei Muk Road Kwai Chung New Territories Hong Kong

Notes:

A member of the Company entitled to attend and vote at the meeting convened by the above notice is entitled to appoint one or more proxy to attend and, subject to the provisions of the bye-laws of the Company, to vote on his behalf. A proxy need not be a member of the Company but must be present in person at the meeting to represent the member. If more than one proxy is so appointed, the appointment shall specify the number and class of Shares in respect of which each such proxy is so appointed.
A form of proxy for use at the meeting is enclosed. In order to be valid, the form of proxy must be duly completed and signed in accordance with the instructions printed thereon and deposited together with a power of attorney or other authority, if any, under which it is signed, or a notarially certified copy of such power or authority, at the office of the Company’s branch share registrar in Hong Kong, Tengis Limited at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong not less than 48 hours before the time appointed for holding the meeting or any adjournment thereof. Completion and return of a form of proxy will not preclude a member from attending in person and voting at the above meeting or any adjournment thereof, should he so wish.
114 -

NOTICE OF SPECIAL GENERAL MEETING

In the case of joint holders of shares, any one of such holders may vote at the meeting, either personally or by proxy, in respect of such shares as if he was solely entitled thereto, but if more than one of such joint holders as present at the meeting personally or by proxy, that one of the said persons so present whose name stands first in the register of members of the Company in respect of such shares shall alone be entitled to vote in respect thereof.
In relation to proposed resolutions nos. 4 and 6 above, approval is being sought from the Shareholders for the grant to the Directors of a general mandate to authorise the allotment and issue of New Shares under the Listing Rules. The Directors have no immediate plans to issue New Shares other than the New Shares to be issued under the Open Offer and New Shares which may fall to be issued pursuant to the exercise of options granted under the Existing Share Option Scheme or any scrip dividend scheme or similar arrangement providing for the allotment and issue of New Shares in lieu of whole or part of a dividend in accordance with the bye-laws of the Company which may be approved by the shareholders.
115 -

AI assistant

Kingwell Group Limited — Proxy Solicitation & Information Statement 2003

49757_rns_2003-11-11_07e63038-ddf6-4f02-8534-8e36c462ea35.pdf

FT HOLDINGS INTERNATIONAL LIMITED 精藝集團國際有限公司[*]

CONTENTS

“Adoption Date”

FT HOLDINGS INTERNATIONAL LIMITED 精藝集團國際有限公司[*]

INTRODUCTION

PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL

PROPOSED CAPITAL REORGANISATION AND CHANGE OF BOARD LOT SIZE

Capital Reoganisation

Reasons for and effect of the Capital Reorganisation

Conditions of the Capital Reorganisation

Change of board lot size

PROPOSED OPEN OFFER

Issue statistics:

Qualifying Holders:

Closure of register of members:

Subscription Price:

Warning of the risks of dealing in Shares:

Status of the Offer Shares:

Certificates of the Offer Shares:

Rights of the Excluded Shareholders:

Application for listing:

Permission of the Bermuda Monetary Authority:

The Underwriting Agreement:

If the Underwriter terminates the Underwriting Agreement, the Open Offer will not proceed.

Undertaking from the Underwriter:

Shareholding structure of the Company:

Reasons for the Open Offer and use of proceeds:

PROPOSED TERMINATION OF EXISTING SHARE OPTION SCHEME AND ADOPTION OF NEW SHARE OPTION SCHEME

PROPOSED CHANGE OF CHINESE NAME

FREE EXCHANGE OF NEW SHARE CERTIFICATES AND TRADING ARRANGEMENTS

PROPOSED GRANT OF GENERAL MANDATES TO ISSUE AND REPURCHASE NEW SHARES

GENERAL

THE SGM

RECOMMENDATIONS

FURTHER INFORMATION

FT HOLDINGS INTERNATIONAL LIMITED 精藝集團國際有限公司[*]

PROPOSED OPEN OFFER OF NEW SHARES ON THE BASIS OF FIVE OFFER SHARES FOR EVERY NEW SHARE HELD ON THE RECORD DATE

PROPOSED OPEN OFFER OF NEW SHARES OF HK$0.01 EACH AT HK$0.04 PER OFFER SHARE PAYABLE IN FULL ON ACCEPTANCE (ON THE BASIS OF FIVE OFFER SHARES FOR EVERY NEW SHARE HELD)

I. INTRODUCTION

LETTER FROM AMS

II. PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Background information on the Group

LETTER FROM AMS

2. Principal terms of the Open Offer

a. Basis for the Open Offer

LETTER FROM AMS

3. Reasons for the Open Offer and use of net proceeds

LETTER FROM AMS

b. Alternative means of fund raising

LETTER FROM AMS

4. Financial effects of the Open Offer

b. Effect on gearing ratio

5. Conditions of the Open Offer

6. Dilution effect of the Open Offer on shareholding interests

7. Underwriting arrangements

III. RECOMMENDATION

CONSOLIDATED PROFIT AND LOSS ACCOUNT

CONSOLIDATED BALANCE SHEET

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED CASH FLOW STATEMENT

BALANCE SHEET

NOTES TO FINANCIAL STATEMENTS

1. CORPORATE INFORMATION

2. FUNDAMENTAL ACCOUNTING CONCEPT

3. IMPACT OF NEW AND REVISED STATEMENTS OF STANDARD ACCOUNTING PRACTICE (“SSAPs”)

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of preparation

Basis of consolidation

Subsidiaries

Joint venture companies

Goodwill

Impairment of assets

Fixed assets and depreciation

Television programmes and sub-licensing rights

Deferred development expenditure

Leased assets

Long term investments

Kingwell Group Limited Proxy Solicitation & Information Statement 2003