Matrix Holdings Limited

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in Matrix Holdings Limited, you should at once hand this circular to the purchasers or other transferees or to the bank, the licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchasers or to the transferees.

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

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(Incorporated in Bermuda with limited liability)

(Stock code: 1005)

MAJOR TRANSACTION

PROPOSED ACQUISITION OF THE SHELCORE GROUP

Financial adviser to Matrix Holdings Limited

* For identification purposes only

31 January 2005

CONTENTS

				Page
Definitions . . . . . . .		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . .	1
Letter from the	Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		. . . . . . . . . .	5
Appendix I	–	Financial information of the Shelcore Group	. . . . . . . . . .	17
Appendix II	–	Financial information of the Group . . . . . . . .	. . . . . . . . . .	87
Appendix III	−	Unaudited pro forma financial information of
		the Enlarged Group. . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . .	113
Appendix IV	–	General information . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . .	119

−i −

DEFINITIONS

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

“Acquisition”	the proposed transactions contemplated under the Asset
	Purchase Agreement and the Share Acquisition
	Agreement
“Announcement”	the announcement made by the Company dated 18
	November 2004 in relation to, inter alia, the Acquisition
“Asset Purchase Agreement”	the conditional asset purchase agreement dated 16
	November 2004 entered into amongst Maxguard,
	Shelcore US, Shelcore HK and warrantors relating to the
	acquisition of certain assets of Shelcore US and Shelcore
	HK, as further described in the Announcement
“Assets”	the assets to be acquired under the Asset Purchase
	Agreement
“associate”	has the meaning ascribed to it under the Listing Rules
“Board”	the board of Directors
“Company”	Matrix Holdings Limited, a company incorporated in
	Bermuda with limited liability, the shares of which are
	listed on the Stock Exchange
“Director(s)”	the director(s) of the Company
“Enlarged Group”	the Group as enlarged by the Shelcore Group
	immediately after completion of the Acquisition
“Group”	the Company and its subsidiaries
“HK$”	Hong Kong dollar(s)
“Hong Kong”	the Hong Kong Special Administrative Region of the
	PRC
“ISO”	International Organisation for Standardisation
“Keysuccess”	Keysuccess International Limited, a company
	incorporated in the British Virgin Islands with limited
	liability and indirectly wholly-owned by the Company

−1 −

DEFINITIONS

“Latest Practicable Date”

28 January 2005, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein

“Listing Rules”

the Rules Governing the Listing of Securities on the Stock Exchange

“Material Adverse Effect”

any fact, event or development that, individually or when taken together with any other fact, event, or development, has a material adverse effect on the business (as currently conducted or contemplated to be conducted after completion of the Share Acquisition Agreement and Asset Purchase Agreement), operations, financial conditions, assets or liabilities of any member of the Shelcore Group (it being understood and agreed that the phrase “material adverse effect” when used with respect to business, operations, financial conditions, asset or liabilities shall mean such material adverse effect that causes or will cause the net asset value of the Shelcore Group as shown in the management accounts of the Shelcore Group as at the close of the calendar month immediately preceding the thirty-fifth day prior to the completion date of the Share Acquisition Agreement and Asset Purchase Agreement to be less than 80% of such net asset value of the Shelcore Group as shown in the management accounts of the Shelcore Group as at 31 July 2004 which amounts to approximately US$9.5 million (equivalent to approximately HK$74.1 million))

“Maxguard”

Maxguard Limited, a company incorporated in the British Virgin Islands with limited liability and a wholly-owned subsidiary of Keysuccess

“PRC” the People’s Republic of China
“Retained Consideration”

the remaining balance of the consideration of US$0.5 million (equivalent to approximately HK$3.9 million) to be held and administered by an escrow agent pursuant to the Share Acquisition Agreement

“RMB”

Renminbi, the lawful currency of the PRC and the exchange rate for the purpose of this circular is HK$1 = RMB1.06

−2 −

DEFINITIONS

“SFO”	Securities and Futures Ordinance (Chapter 571 of	the
	Law of Hong Kong)
“Share(s)”	share(s) of HK$0.10 each in the share capital of	the
	Company
“Share Acquisition Agreement”	the conditional sale and purchase agreement dated	16
	November 2004 among Keysuccess, the Vendors	and
	warrantors, relating to the acquisition of the entire issued
	share capital of each of the Shelcore Companies
“Shareholder(s)”	the holder(s) of the Shares
“Shelcore Canada”	Shelcore Canada Ltd., a company incorporated	in
	Ontario, Canada and wholly-owned by the Estate	of
	Sheldon Greenberg
“Shelcore Companies”	Shelcore US, Shelcore Canada, Shelcore UK	and
	Shelcore HK
“Shelcore Group”	the Shelcore Companies and their subsidiaries
“Shelcore HK”	Shelcore Hong Kong Limited, a company incorporated in
	Hong Kong and is wholly-owned by the Estate	of
	Sheldon Greenberg
“Shelcore UK”	Shelcore UK Limited, a company incorporated in	the
	United Kingdom and is wholly-owned by the Estate of
	Sheldon Greenberg
“Shelcore US”	Shelcore, Inc., a company incorporated under the laws of
	the State of New Jersey, the United States of America	and
	is owned as to 85%, 15% and 5% by the Estate of Sheldon
	Greenberg, Richard Jason Greenberg and Michael Adam
	Greenberg respectively
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Suncorp”	Suncorp Investments Group Limited, which is 100%
	beneficially owned by Mr. Cheng Yung Pun,	the
	Chairman of the Company and the controlling
	Shareholder holding approximately 67.80% of the entire
	issued share capital of the Company as at the Latest
	Practicable Date

−3 −

DEFINITIONS

“Trustees”	Richard Jason Greenberg and Edward Rosenthal, solely
	in their respective capacities as co-trustees of each of the
	Will Trusts
“US$”	United States dollar(s), the lawful currency of the United
	States, and the exchange rate for the purpose of this
	circular is US$1 = HK$7.8
“Vendors”	Richard Jason Greenberg, Michael Adam Greenberg and
	the Estate of Sheldon Greenberg
“Will Trusts”	collectively, the trusts formed by the last will of Sheldon
	Greenberg of which Richard Jason Greenberg; Michael
	Adam Greenberg; James Greenberg and Robertson D
	Greenberg are the beneficiaries of the corresponding trust
	and the trustees are duly appointed trustees of such trusts
“%”	per cent

−4 −

LETTER FROM THE BOARD

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MATRIX HOLDINGS LIMITED

(Incorporated in Bermuda with limited liability)

Executive Directors: Cheng Yung Pun (Chairman) Yu Sui Chuen Cheng Wing See, Nathalie

Independent non-executive Directors: Loke Yu alias Loke Hoi Lam Mak Shiu Chung, Godfrey Wan Hing Pui

Registered office: Canon’s Court 22 Victoria Steet Hamilton HM 12 Bermuda

Principal place of business: Rooms 1201 & 1222 12th Floor, Peninsula Centre 67 Mody Road Tsimshatsui East Kowloon Hong Kong

31 January 2005

To the Shareholders

Dear Sir or Madam,

MAJOR TRANSACTION

PROPOSED ACQUISITION OF THE SHELCORE GROUP

INTRODUCTION

On 16 November 2004, Maxguard, an indirect wholly-owned subsidiary of the Company, and the Company entered into the Asset Purchase Agreement with, amongst others, Shelcore US and Shelcore HK to acquire certain assets of Shelcore US and Shelcore HK. As there are no material assets under Shelcore UK and Shelcore Canada, there is no arrangement for acquisition of their assets similar to that of Shelcore US and Shelcore HK under the Asset Purchase Agreement. On the same date, Keysuccess, an indirect wholly-owned subsidiary of the Company, and the Company entered into the Share Acquisition Agreement with, amongst others, the Vendors pursuant to which Keysuccess agreed to acquire and the Vendors agreed to sell the entire issued share capital of each of the Shelcore Companies.

To the best of the Directors’ knowledge, all of the vendors and their warrantors under the Asset Purchase Agreement and the Share Acquisition Agreement and their ultimate beneficial owners are third parties independent of the Company and of any connected persons of the Company as defined under the Listing Rules.

For identification purposes only

−5 −

LETTER FROM THE BOARD

The total consideration for the Acquisition payable by the Group is US$8.5 million (equivalent to approximately HK$66.3 million). The Company intends to use its internal resources to finance the Acquisition.

The consideration has been arrived at after arm’s length negotiations amongst the Company, Shelcore US, Shelcore HK and the Vendors. The Directors have taken into consideration, amongst other things, the unaudited adjusted combined net asset value (assuming a combined cash and bank balances and marketable securities of US$0.5 million (equivalent to approximately HK$3.9 million)) of the Shelcore Group (which includes the assets set out under the Asset Purchase Agreement) as at 31 July 2004 of approximately US$9.5 million (equivalent to approximately HK$74.1 million). Pursuant to the Share Acquisition Agreement, the Shelcore Group is allowed to dispose of the marketable securities held by it and declare and pay any dividends to their shareholders prior to the completion date of the Share Acquisition Agreement, provided that such payment shall not result in the aggregate amount of cash and bank balances held by the Shelcore Group becoming less than US$0.5 million (equivalent to approximately HK$3.9 million) as at the completion date of the Share Acquisition Agreement.

A. THE ASSET PURCHASE AGREEMENT

Date

16 November 2004

Parties

(a) Maxguard as the purchaser;
(b) the Company as the warrantor for the purchaser;
(c) Shelcore US and Shelcore HK as the vendors; and
(d) Richard Jason Greenberg, Michael Adam Greenberg and the Will Trusts as the warrantors for the vendors.

Assets to be acquired

Computers, software, list of customers, intellectual property rights, intellectual properties and goodwill of Shelcore US and Shelcore HK.

Consideration

US$1.1 million (equivalent to approximately HK$8.6 million) was determined with reference to the net book value and the market value of the Assets.

Payment arrangement

The consideration for the Assets was satisfied in the following manner:

Upon the signing of the Asset Purchase Agreement, a deposit of US$165,000 (equivalent to approximately HK$1.3 million) was paid to an escrow agent who holds the deposit as stakeholder for the purchaser and the vendors under the Asset Purchase Agreement.

−6 −

LETTER FROM THE BOARD

On 26 January 2005, the date on which the completion of the Asset Purchase Agreement took place, the deposit of US$165,000 (equivalent to approximately HK$1.3 million) was released by the escrow agent to the vendors and the balance of the consideration of US$935,000 (equivalent to approximately HK$7.3 million) was paid by the purchaser to the vendors.

Conditions

(a) The obligation of Shelcore US and Shelcore HK to consummate the transactions contemplated under the Asset Purchase Agreement was conditional upon the satisfaction of the following conditions:
(i) Maxguard’s warranties set forth in the Asset Purchase Agreement remaining true and accurate and not misleading in any material respect as given as of the date of the Asset Purchase Agreement and as of the completion date of the Asset Purchase Agreement and as if given at all times between the signing date of the Asset Purchase Agreement and the completion date of the Asset Purchase Agreement;
(ii) each of the Company and Maxguard having complied fully with the obligations as stated in the Asset Purchase Agreement and otherwise having performed, in all material respects, all of the covenants and agreements required to be performed by it under the Asset Purchase Agreement on or prior to the completion date of the Asset Purchase Agreement;
(iii) all necessary consents required to be given by the third parties to Maxguard for the consummation by Maxguard under the Asset Purchase Agreement have been granted and being in full force and effect for the sale and purchase of the Assets, if applicable;
(iv) no bona fide investigation, action, suit, injunction, order or proceedings being in effect, pending or genuinely threatened as of the completion date of the Asset Purchase Agreement; and
(v) all conditions precedent to the obligations of the Vendors under the Share Acquisition Agreement (other than the condition that requiring completion of the Asset Purchase Agreement having occurred) to consummate the transactions contemplated under the Share Acquisition Agreement having been fulfilled or waived in accordance with the terms and conditions thereof.

−7 −

LETTER FROM THE BOARD

(b) The obligation of Maxguard to consummate the transactions contemplated under the Asset Purchase Agreement was conditional upon the satisfaction of the following conditions:
(i) the warranties of Shelcore US and Shelcore HK set forth in the Asset Purchase Agreement remaining true and accurate and not misleading in any material respect as given as of the date of the Asset Purchase Agreement and as of the completion date of the Asset Purchase Agreement and as if given at all times between the date of Asset Purchase Agreement and the completion date of the Asset Purchase Agreement;
(ii) Shelcore US, Shelcore HK, Michael Adam Greenberg, Richard Jason Greenberg and the Will Trusts having complied fully with the obligations set out in the Asset Purchase Agreement in all material respects and otherwise having performed, in all material respects, all of the covenants and agreements required to be performed by them under the Asset Purchase Agreement on or prior to the completion date of the Asset Purchase Agreement;
(iii) all necessary consents required to be given by third parties to Shelcore US and Shelcore HK for the consummation by Shelcore US and Shelcore HK under the Asset Purchase Agreement having been granted, and being in full force and effect, for the sale and purchase of the Assets;
(iv) no bona fide investigation, action, suit, injunction, order or proceedings being in effect, pending or genuinely threatened as of the completion date of the Asset Purchase Agreement;
(v) all conditions precedent to the obligation of Keysuccess to consummate the transactions contemplated under the Share Acquisition Agreement (other than the condition that requiring completion of the Asset Purchase Agreement having occurred) having been fulfilled or waived in accordance with the terms and conditions thereof;
(vi) during the period from the date of the Asset Purchase Agreement to the completion date of the Asset Purchase Agreement, there not having occurred and there not being in existence any Material Adverse Effect; and
(vii) the Superior Court of New Jersey having issued a final written order granting its approval in relation to the transactions contemplated under the Asset Purchase Agreement and the Share Acquisition Agreement.

−8 −

LETTER FROM THE BOARD

Completion

Completion of the Asset Purchase Agreement shall take place on the business day following the conditions to the Asset Purchase Agreement are fulfilled and/or waived. All conditions to the Asset Purchase Agreement have been fulfilled and completion of the Asset Purchase Agreement took place on 26 January 2005.

B. THE SHARE ACQUISITION AGREEMENT

Date

16 November 2004

Parties

(a) Keysuccess as the purchaser;
(b) the Company as the warrantor for the purchaser;
(c) the Vendors as the vendors; and
(d) Richard Jason Greenberg, Michael Adam Greenberg, the Trustees and the Will Trusts as the warrantors for the Vendors.

Shares to be acquired

The entire issued share capital of each of the Shelcore Companies.

Consideration

US$7.4 million (equivalent to approximately HK$57.7 million).

Payment arrangement

The consideration for the entire issued share capital of each of the Shelcore Companies was satisfied in the following manner:

(a) a deposit of US$1.11 million (equivalent to approximately HK$8.7 million) was paid to an escrow agent upon signing of the Share Acquisition Agreement;
(b) US$5.79 million (equivalent to approximately HK$45.2 million) and the deposit of US$1.11 million (equivalent to approximately HK$8.7 million) was paid and was released to the vendors on 27 January 2005, the date on which the completion date of the Share Acquisition Agreement took place, by Keysuccess and the escrow agent respectively; and

−9 −

LETTER FROM THE BOARD

(c) the remaining balance of US$0.5 million (equivalent to approximately HK$3.9 million) was paid to an escrow agent as the Retained Consideration on the completion date of the Share Acquisition Agreement.

The Retained Consideration is held and administered by the escrow agent for a period from the completion date of the Share Acquisition Agreement to five business days after the combined audited financial statements of the Shelcore Companies for the accounting period ended 31 December 2004 are made available to the Company, Keysuccess and the Vendors or, if there is any dispute on the part of the Company, Keysuccess or the Vendors in respect of such audited financial statements, five business days after such dispute is resolved in accordance to the terms under the Share Acquisition Agreement. The escrow agent shall, upon the expiration of the escrow period and provided that there are no outstanding or unresolved claim by Keysuccess pursuant to the Share Acquisition Agreement, pay to the Vendors the amount held in the escrow account.

Consideration adjustment mechanism

The consideration shall be subject to downward adjustment if any of the following events occurs:

(a) if the combined audited net asset value of the Shelcore Companies as of 31 December 2004 shall be less than US$10.95 million (equivalent to approximately HK$85.4 million), the consideration shall be reduced on a dollar-for-dollar basis by an amount equal to the shortfall difference between US$10.95 million (equivalent to approximately HK$85.4 million) and such audited net asset value; or
(b) if the combined audited net profit of the Shelcore Companies as of 31 December 2004 shall be less than zero, the consideration shall be reduced on a dollar-for-dollar basis by an amount equal to such amount of consolidated net loss; or
(c) if the combined audited turnover of the Shelcore Companies as of 31 December 2004 shall be less than US$34.2 million (equivalent to approximately HK$266.8 million), the consideration shall be reduced by an amount equal to the entire Retained Consideration,

provided that the aggregate adjustment made pursuant to the above circumstances shall not exceed the Retained Consideration.

−10 −

LETTER FROM THE BOARD

Conditions

(a) The obligation of the Vendors to consummate the transactions contemplated under the Share Acquisition Agreement was conditional upon the satisfaction of the following conditions:
(i) Keysuccess’s warranties remaining true and accurate and not misleading in any material respects as given as of the date of the Share Acquisition Agreement and as of the completion date of the Share Acquisition Agreement and as if given at all times between the date of the Share Acquisition Agreement and the completion date of the Share Acquisition Agreement;
(ii) each of the Company and Keysuccess having performed, in all material respects, all of the covenants and agreements required to be performed by it under the Share Acquisition Agreement on or prior to the completion date of the Share Acquisition Agreement;
(iii) all necessary consents required to be given by the third parties to Keysuccess for the consummation by Keysuccess of the transaction contemplated under the Share Acquisition Agreement having been granted and being in full force and effect for the sale and purchase of the entire issued share capital of each of the Shelcore Companies, if applicable;
(iv) no bona fide investigation, action, suit, injunction, order or proceedings being in effect, pending or genuinely threatened as of the completion date of the Share Acquisition Agreement;
(v) the transactions contemplated in the Share Acquisition Agreement and the Asset Purchase Agreement having been approved by the Shareholders in accordance with the applicable requirements under the Listing Rules;
(vi) the completion contemplated by the Asset Purchase Agreement having occurred; and
(vii) the unconditional and irrevocable undertaking duly executed by Suncorp and Mr. Cheng Yung Pun, the sole shareholder of Suncorp, to exercise all voting rights in the capacity as a shareholder of the Company in favour of the respective resolutions having been delivered to the Vendors.
(b) The obligation of Keysuccess to consummate the transactions contemplated under the Share Acquisition Agreement was conditional upon the satisfaction of the following conditions:
(i) the Vendors’ warranties remaining true and accurate and not misleading in any material respects as given as of the date of the Share Acquisition Agreement and as of the completion date of the Share Acquisition Agreement and as if given at all times between the date of the Share Acquisition Agreement and the completion date of the Share Acquisition Agreement;

−11 −

LETTER FROM THE BOARD

(ii) each of the Vendors having complied fully with the obligations specified in the Share Acquisition Agreement in all material respects and otherwise having performed, in all material respects, all of the covenants and agreements required to be performed by it under the Share Acquisition Agreement on or prior to the completion date of the Share Acquisition Agreement;
(iii) all necessary consents required to be given by third parties to the Vendors for the consummation by the Vendors under the Share Acquisition Agreement having been granted and being in full force and effect for the sale and purchase of the entire issued share capital of each of the Shelcore Companies;
(iv) no bona fide investigation, action, suit, injunction, order or proceedings being in effect, pending or genuinely threatened as of the completion date of the Share Acquisition Agreement;
(v) the completion contemplated by the Asset Purchase Agreement having occurred;
(vi) during the period from the date of the Share Acquisition Agreement to the completion date of Share Acquisition Agreement, there not having occurred and there not being in existence on the completion date of the Share Acquisition Agreement, any Material Adverse Effect;
(vii) each of the beneficiaries of the Estate of Sheldon Greenberg having given its approval to the consummation by the Vendors, the Trustees and the Will Trusts of the transactions contemplated under the Share Acquisition Agreement;
(viii) the Superior Court of New Jersey having issued a final written order granting its approval in relation to the transactions contemplated under the Asset Purchase Agreement and the Share Acquisition Agreement;
(ix) the Vendors having delivered to Keysuccess a legal opinion pursuant to which the Will Trusts or any of them have been established or are subject, confirming that the Share Acquisition Agreement constitute valid and binding obligations on each of the Will Trusts and Trustees and are enforceable against it and no approval, authorisation or other action by, or filing with, any government authority of the United States of America or the State of New Jersey is required in connection with the execution and delivery;
(x) a written release from the relevant shareholders of the relevant members of the Shelcore Group confirming that all outstanding shareholders loans of all members of the Shelcore Group have been fully repaid.

−12 −

LETTER FROM THE BOARD

Completion

Completion of the Share Acquisition Agreement shall take place on the business day following the conditions to the Share Acquisition Agreement are fulfilled and/or waived. All conditions to the Share Acquisition Agreement have been fulfilled and completion of the Share Acquisition Agreement took place on 27 January 2005.

INFORMATION ABOUT THE GROUP

The Group is principally engaged in the manufacturing of plastic, die-cast and plush toys. The major market of the Group is the United States.

INFORMATION ABOUT THE SHELCORE GROUP

Shelcore US, the head office of the Shelcore Group, was founded in New Jersey, the United States in 1975. The Shelcore Group is principally engaged in the design, manufacturing and sale of plastic toys for infant and pre-school children. Its products are sold under its own brand name “Shelcore Toys” and also under private label for various customers.

The majority of the Shelcore Group’s customers are located in the United States. Based on the information available to the Group, the Shelcore Group also sells its products in 64 countries through an extensive global distribution network.

The Shelcore Group’s production facilities occupy a site area of approximately 280,000 square feet in Shenzhen, the PRC. The production facilities achieved ISO 9002 certification in 1998. The Shelcore Group out-sources excess production to other manufacturers during peak seasons. The Shelcore Group currently employs about 1,000 staff.

Based on the unaudited combined management accounts of the Shelcore Group for the year ended 31 December 2003, the unaudited loss before taxation and after taxation of the Shelcore Group was approximately US$2.1 million (equivalent to approximately HK$16.4 million) and US$2.2 million (equivalent to approximately HK$17.2 million) respectively. It is noted that the loss was mainly attributed from the fall in sales due to an internal administration matter suffered by one of Shelcore Group’s major customers, which the Company considers as a one-off event that occurred during the financial year ended 31 December 2003. For the year ended 31 December 2002, the unaudited profit before taxation and after taxation of the Shelcore Group was approximately US$2.4 million (equivalent to approximately HK$18.7 million) and US$2.6 million (equivalent to approximately HK$20.3 million) respectively.

−13 −

LETTER FROM THE BOARD

SHAREHOLDING STRUCTURE OF THE SHELCORE GROUP

Set out below are the simplified shareholding structures of the Shelcore Companies prior to and immediately following the Acquisition.

Shareholding structure immediately before the Acquisition

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

Richard Jason Michael Adam
The Estate of Sheldon Greenberg
Greenberg Greenberg
10% 5%
85% 100% 100% 100%
Shelcore US Shelcore HK Shelcore Canada Shelcore UK
----- End of picture text -----

Shareholding structure immediately following the Acquisition

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

The Company
100%
Keysuccess
100% 100% 100% 100% 100%
Shelcore US Shelcore HK Shelcore Canada Shelcore UK Maxguard
Assets acquired
under the
Asset Purchase
Agreement
----- End of picture text -----

−14 −

LETTER FROM THE BOARD

REASONS FOR AND THE BENEFITS OF THE ACQUISITION

Shelcore Group has established a worldwide reputation over the last thirty years as a well known and trusted brand in the preschool, infant, juvenile, and seasonal toy markets. The Acquisition will therefore expand considerably the product range and design capability of the Group thereby broadening the Group’s revenue source and customer base. In particular the Acquisition is expected to help further develop the Group’s market position and distribution network in the United States.

Consistent with the acquisition strategy of the Group as set out in the 2004 interim report, the Board believes that the Group’s operations and development will benefit from the Acquisition.

Based on the above, the Board (including the independent non-executive Directors) is of the view that the terms of the Acquisition are fair and reasonable and in the interests of both the Company and the Shareholders.

FUTURE PROSPECTS

As stated in the annual report of the Group for the year ended 31 December 2003 and the interim report for the six months ended 30 June 2004, the Group has focused on its expertise in toy manufacturing to spearhead its business growth. It is expected that the Group will continue to explore marketing opportunities for ODM products in domestic and international markets. Proven by the successful implementation of the new production plant in Vietnam, the Group will continue improving its performance, diversifying the Group’s product range and broadening the Group’s customer base by exploring suitable acquisition opportunities that complement and add value to the Group’s existing businesses.

FINANCIAL EFFECTS OF THE ACQUISITION ON THE GROUP

Earnings

For the year ended 31 December 2003, the Group recorded an audited net profit of approximately HK$131 million.

Upon completion of the Acquisition, each of the Shelcore Companies is beneficially owned as to 100% by the Company and, therefore, is a subsidiary of the Company. Accordingly, the financial results of the Shelcore Companies will be consolidated into those of the Group.

−15 −

LETTER FROM THE BOARD

Net asset value

As at 30 June 2004, the unaudited consolidated net asset value of the Group amounted to approximately HK$284 million. Based on the unaudited pro forma statement of assets and liabilities of the Enlarged Group as set out in Appendix III to this circular, the unaudited pro forma consolidated net asset value of the Enlarged Group immediately after completion of the Acquisition would be approximately HK$290 million.

IMPLICATIONS UNDER THE LISTING RULES

The Acquisition constitutes a major transaction of the Company under the Listing Rules and must be made conditional on approval by the Shareholders.

Written approval of the Acquisition has been obtained from Suncorp, which holds 396,494,800 Shares, representing approximately 67.80%, of the entire issued share capital of the Company as at the Latest Practicable Date. Suncorp and its ultimate beneficial owner are not interested parties in the Acquisition and their interests in the Acquisition are no different from the other Shareholders. Therefore, it is not required to abstain from voting if the Company was to convene a general meeting for the approval of the Acquisition. As such, pursuant to Rule 14.44 of the Listing Rules, the written approval provided by Suncorp constitutes a valid approval of the Acquisition and the Company will not be required to convene a physical meeting to approve the Acquisition.

ADDITIONAL INFORMATION

Your attention is also drawn to the additional information contained in the Appendices to this circular.

Yours faithfully, By Order of the Board Matrix Holdings Limited Cheng Yung Pun

Chairman

−16 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

FINANCIAL INFORMATION OF SHELCORE US

For the purpose of this circular, the following is the text of a report prepared by Deloitte Touche Tohmatsu (Certified Public Accountants) based on the audited financial statements which were audited by Cogen Sklar LLP. (Certified Public Accountants) for the two years ended 31 March 2003, the nine months ended 31 December 2003 and eight months ended 31 August 2004.

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31 January 2005

The Directors Matrix Holdings Limited

Dear Sirs,

We set out below our report on the financial information regarding Shelcore, Inc. for the two years ended 31 March 2002 and 2003, nine months ended 31 December 2003 and eight months ended 31 August 2004 (the “Relevant Periods”) for inclusion in a circular issued by Matrix Holdings Limited dated 31 January 2005 (the “Circular”) in connection with the major transaction in respect of the proposed acquisition of Shelcore Group.

Shelcore, Inc. is a private limited company incorporated in the United States of America (“USA”) on 5 May 1975. The principal activities of Shelcore, Inc. are designing and marketing children’s toys. It also acts as an investment holding company.

As at the date of this report, Shelcore, Inc. has a wholly owned subsidiary, Arche Limited, a limited company incorporated in Hong Kong on 6 January 1976 with share capital of HK$1,000. Arche Limited is inactive with no manufacturing or sales activities throughout the Relevant Periods.

Shelcore, Inc. and its subsidiary are collectively hereafter referred to as the “Group”.

The audited financial statements of the Group for the Relevant Periods (the “Underlying Financial Statements”), which were prepared in accordance with the International Financial Reporting Standards, were audited by Cogen Sklar LLP., Certified Public Accountants in the USA.

We have examined the Underlying Financial Statements of the Group for the Relevant Periods. Our examination was made in accordance with the Auditing Guideline “Prospectuses and the Reporting Accountant” as recommended by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).

−17 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

The financial information of the Group for the Relevant Periods set out in this report has been prepared from the Underlying Financial Statements, on the basis set out in note 1 to the financial information.

The Underlying Financial Statements are the responsibility of the director of Shelcore, Inc. The directors of Matrix Holdings Limited are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the financial information set out in this report from the Underlying Financial Statements, to form an independent opinion on the financial information and to report our opinion to you.

In our opinion, the financial information gives, for the purpose of this report, a true and fair view of the state of affairs of the Group and Shelcore, Inc. as at 31 March 2002 and 2003, 31 December 2003 and 31 August 2004 and of the consolidated results and cash flows of the Group for the Relevant Periods.

The comparative consolidated income statements, statements of changes in equity and cash flow statements of the Group for the eights months ended 31 August 2003 together with the notes thereon (the “31 August 2003 Financial Information”) have been extracted from the Group’s financial information for the same period which was prepared by the director of Shelcore, Inc. solely for the purpose of this report. We have reviewed the financial information for the eight months ended 31 August 2003 in accordance with the Statement of Auditing Standards 700 “Engagements to review interim financial reports” issued by the HKICPA. A review consists principally of making enquires of the management and applying analytical procedures to the financial information and based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the 31 August 2003 Financial Information. On the basis of our review which does not constitute an audit, we are not aware of any material modifications that should be made to the 31 August 2003 Financial Information.

−18 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

(A) FINANCIAL INFORMATION

Consolidated income statements

Year ended 31 March 2002 2003 USD USD 7,891,568 5,860,144 (5,531,273) (4,180,170)	Year ended 31 March 2002 2003 USD USD 7,891,568 5,860,144 (5,531,273) (4,180,170)	Nine months ended 31 December Eight months ended 31 August 2003 2003 2004 USD USD USD (Unaudited) 2,360,247 1,963,645 1,039,077 (1,917,373) (1,356,563) (731,026) 442,874 607,082 308,051 187,613 184,637 126,364 (941,256) (1,363,294) (410,850) 484,044 (201,567) 25,548 173,275 (773,142) 49,113 (73,942) (143,117) (25,107) 99,333 (916,259) 24,006 (1,563) – – 97,770 (916,259) 24,006	Nine months ended 31 December Eight months ended 31 August 2003 2003 2004 USD USD USD (Unaudited) 2,360,247 1,963,645 1,039,077 (1,917,373) (1,356,563) (731,026) 442,874 607,082 308,051 187,613 184,637 126,364 (941,256) (1,363,294) (410,850) 484,044 (201,567) 25,548 173,275 (773,142) 49,113 (73,942) (143,117) (25,107) 99,333 (916,259) 24,006 (1,563) – – 97,770 (916,259) 24,006	Nine months ended 31 December Eight months ended 31 August 2003 2003 2004 USD USD USD (Unaudited) 2,360,247 1,963,645 1,039,077 (1,917,373) (1,356,563) (731,026) 442,874 607,082 308,051 187,613 184,637 126,364 (941,256) (1,363,294) (410,850) 484,044 (201,567) 25,548 173,275 (773,142) 49,113 (73,942) (143,117) (25,107) 99,333 (916,259) 24,006 (1,563) – – 97,770 (916,259) 24,006
2,360,295 52,366 (2,570,737) 326,220 168,144 (866,148) (698,004) 1,877	1,679,974 1,620,515 (2,282,435) (200,699) 817,355 (232,071) 585,284 (1,731)	442,874 187,613 (941,256) 484,044 173,275 (73,942) 99,333 (1,563)	607,082 184,637 (1,363,294) (201,567) (773,142) (143,117) (916,259) –	308,051 126,364 (410,850 25,548
				49,113 (25,107
				24,006 –
(696,127)	583,553	97,770	(916,259)

−19 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

Consolidated balance sheets

THE GROUP

31 March 2002 2003 USD USD 474,180 437,642 4,707,000 4,707,000 52,344 53,794	31 March 2002 2003 USD USD 474,180 437,642 4,707,000 4,707,000 52,344 53,794	31 December 2003 USD 386,745 5,107,000 52,294	31 August 2004 USD 352,991 – 55,194
5,233,524 1,272,770 1,596,435 5,811,514 – 675,276 2,091 558,135 9,916,221 496,821 10,928,562 5,896 11,431,279 (1,515,058)	5,198,436 924,482 194,402 4,260,647 875,000 696,863 – 410,125 7,361,519 754,247 7,503,689 6,212 8,264,148 (902,629)	5,546,039 455,668 315,735 2,371,914 – 769,316 – 181,617 4,094,250 578,578 4,666,627 1,507 5,246,712 (1,152,462)	408,185
			1,025,272 416,558 1,823,705 – 849,233 – 824,637
			4,939,405
			700,953 229,054 –
			930,007
			4,009,398
3,718,466	4,295,807	4,393,577	4,417,583

1,000 3,711,254 3,712,254 6,212	1,000 4,294,807 4,295,807 –	1,000 4,392,577 4,393,577 –	1,000 4,416,583
			4,417,583 –
3,718,466	4,295,807	4,393,577	4,417,583

−20 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

Balance sheets

THE COMPANY

31 March 2002 2003 USD USD 474,180 437,642 73,927 73,927 4,707,000 4,707,000 2,600 4,050	31 March 2002 2003 USD USD 474,180 437,642 73,927 73,927 4,707,000 4,707,000 2,600 4,050	31 December 2003 USD 386,745 73,927 5,107,000 2,550	31 August 2004 USD 352,991 101,764 – 5,450
5,257,707 1,272,770 1,596,435 5,811,514 – 675,276 2,091 557,358 9,915,444 492,334 10,916,003 5,896 11,414,233 (1,498,789)	5,222,619 924,482 194,402 4,260,647 875,000 696,863 – 409,348 7,360,742 749,760 7,485,704 6,212 8,241,676 (880,934)	5,570,222 455,668 315,735 2,371,914 – 769,316 – 180,840 4,093,473 577,425 4,639,943 1,507 5,218,875 (1,125,402)	460,205
			1,025,272 416,558 1,823,705 – 849,233 – 823,860
			4,938,628
			700,953 229,054 –
			930,007
			4,008,621
3,758,918	4,341,685	4,444,820	4,468,826

1,000 3,751,706 3,752,706 6,212	1,000 4,340,685 4,341,685 –	1,000 4,443,820 4,444,820 –	1,000 4,467,826
			4,468,826
			–
3,758,918	4,341,685	4,444,820	4,468,826

−21 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

Consolidated statements of changes in equity

At 1 April 2001 Net loss for the year At 31 March 2002 Net profit for the year At 31 March 2003 Net profit for the period At 31 December 2003 Net profit for the period At 31 August 2004 At 1 January 2003 (Unaudited) Net loss for the period (Unaudited) At 31 August 2003 (Unaudited)	Total USD 4,408,381 (696,127) 3,712,254 583,553 4,295,807 97,770 4,393,577 24,006 4,417,583 5,117,949 (916,259) 4,201,690

−22 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

Consolidated cash flow statements

Year ended 31 March 2002 2003 USD USD (698,004) 585,284 97,332 87,408 – (6,000) (27,366) (1,589,517) 866,148 232,071 (326,220) 200,699	Year ended 31 March 2002 2003 USD USD (698,004) 585,284 97,332 87,408 – (6,000) (27,366) (1,589,517) 866,148 232,071 (326,220) 200,699	Nine months ended 31 December Eight months ended 31 August 2003 2003 2004 USD USD USD (Unaudited) 99,333 (916,259) 24,006 63,144 57,203 39,064 – – – (162,416) (152,732) (109,697) 73,942 143,117 25,107 (484,044) 201,567 (25,548) (410,041) (667,104) (47,068) 1,500 2,125 (2,900) 468,814 (2,913) (569,604) (121,333) 352,211 (100,823) (72,453) – (79,917) (2,837,062) (2,091,436) (4,437,573) (175,669) (7,581) 122,375 (3,146,244) (2,414,698) (5,115,510) (1,563) – – – – – (3,147,807) (2,414,698) (5,115,510)	Nine months ended 31 December Eight months ended 31 August 2003 2003 2004 USD USD USD (Unaudited) 99,333 (916,259) 24,006 63,144 57,203 39,064 – – – (162,416) (152,732) (109,697) 73,942 143,117 25,107 (484,044) 201,567 (25,548) (410,041) (667,104) (47,068) 1,500 2,125 (2,900) 468,814 (2,913) (569,604) (121,333) 352,211 (100,823) (72,453) – (79,917) (2,837,062) (2,091,436) (4,437,573) (175,669) (7,581) 122,375 (3,146,244) (2,414,698) (5,115,510) (1,563) – – – – – (3,147,807) (2,414,698) (5,115,510)	Nine months ended 31 December Eight months ended 31 August 2003 2003 2004 USD USD USD (Unaudited) 99,333 (916,259) 24,006 63,144 57,203 39,064 – – – (162,416) (152,732) (109,697) 73,942 143,117 25,107 (484,044) 201,567 (25,548) (410,041) (667,104) (47,068) 1,500 2,125 (2,900) 468,814 (2,913) (569,604) (121,333) 352,211 (100,823) (72,453) – (79,917) (2,837,062) (2,091,436) (4,437,573) (175,669) (7,581) 122,375 (3,146,244) (2,414,698) (5,115,510) (1,563) – – – – – (3,147,807) (2,414,698) (5,115,510)
(88,110) 44,059 224,111 979,637 (675,276) 672,752 (3,148) 1,154,025 – 10,291 1,164,316	(490,055) (1,450) 348,288 1,402,033 (21,587) (3,424,873) 257,426 (1,930,218) – 360 (1,929,858)	(410,041) 1,500 468,814 (121,333) (72,453) (2,837,062) (175,669) (3,146,244) (1,563) – (3,147,807)	(667,104) 2,125 (2,913) 352,211 – (2,091,436) (7,581) (2,414,698) – – (2,414,698)	(47,068 (2,900 (569,604 (100,823 (79,917 (4,437,573 122,375
				(5,115,510 – –
				(5,115,510

−23 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

Year ended 31 March 2002 2003 USD USD 419,839 201,211 25,298 13,555 – 6,000 27,366 1,589,517 (4,707,000) (875,000) (135,006) (50,870) 9,568,062 3,812,687 (5,431,663) (2,677,285)	Year ended 31 March 2002 2003 USD USD 419,839 201,211 25,298 13,555 – 6,000 27,366 1,589,517 (4,707,000) (875,000) (135,006) (50,870) 9,568,062 3,812,687 (5,431,663) (2,677,285)	Nine months ended 31 December Eight months ended 31 August 2003 2003 2004 USD USD USD (Unaudited) 82,539 128,046 28,248 9,459 9,847 6,755 – – – 162,416 152,732 109,697 475,000 875,000 5,107,000 (12,247) (31,303) (5,310) 4,373,644 4,788,323 2,577,330 (2,092,865) (3,358,303) (2,038,576) 2,997,946 2,564,342 5,785,144 (73,942) (143,117) (25,107) (4,705) – (1,507) (78,647) (143,117) (26,614) (228,508) 6,527 643,020 410,125 158,804 181,617 181,617 165,331 824,637 181,617 165,331 824,637	Nine months ended 31 December Eight months ended 31 August 2003 2003 2004 USD USD USD (Unaudited) 82,539 128,046 28,248 9,459 9,847 6,755 – – – 162,416 152,732 109,697 475,000 875,000 5,107,000 (12,247) (31,303) (5,310) 4,373,644 4,788,323 2,577,330 (2,092,865) (3,358,303) (2,038,576) 2,997,946 2,564,342 5,785,144 (73,942) (143,117) (25,107) (4,705) – (1,507) (78,647) (143,117) (26,614) (228,508) 6,527 643,020 410,125 158,804 181,617 181,617 165,331 824,637 181,617 165,331 824,637	Nine months ended 31 December Eight months ended 31 August 2003 2003 2004 USD USD USD (Unaudited) 82,539 128,046 28,248 9,459 9,847 6,755 – – – 162,416 152,732 109,697 475,000 875,000 5,107,000 (12,247) (31,303) (5,310) 4,373,644 4,788,323 2,577,330 (2,092,865) (3,358,303) (2,038,576) 2,997,946 2,564,342 5,785,144 (73,942) (143,117) (25,107) (4,705) – (1,507) (78,647) (143,117) (26,614) (228,508) 6,527 643,020 410,125 158,804 181,617 181,617 165,331 824,637 181,617 165,331 824,637
(233,104) (866,148) (5,490) (871,638) 59,574 498,561	2,019,815 (232,071) (5,896) (237,967) (148,010) 558,135	2,997,946 (73,942) (4,705) (78,647) (228,508) 410,125	2,564,342 (143,117) – (143,117) 6,527 158,804	5,785,144
				(25,107 (1,507
				(26,614
				643,020 181,617
558,135 558,135	410,125 410,125	181,617 181,617	165,331 165,331

−24 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

(B) NOTES TO THE FINANCIAL INFORMATION

1. BASIS OF PRESENTATION OF FINANCIAL INFORMATION

Effective with the financial period beginning on 1 April 2003, the Company changed its financial year end date from 31 March to 31 December. The financial information presented therefore cover the nine month period from 1 April 2003 to 31 December 2003.

2. SIGNIFICANT ACCOUNTING POLICIES

The financial information has been prepared under the historical cost convention as modified for the revaluation of investment in securities and in accordance with accounting principles generally accepted in Hong Kong. The principal accounting policies adopted are as follows:

Basis of consolidation

The consolidated financial information incorporated the financial information of the Company and its subsidiary made up to the balance sheet date of each year/period. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the date of disposal, as appropriate.

All significant intercompany transactions and balances are eliminated on consolidation.

Revenue recognition

Sales of goods are recognised when goods are delivered and title has passed.

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

Rental income under operating leases is recognises on a straight-line basis over the terms of the relevant leases.

Investment in a subsidiary

Investment in a subsidiary is included in the Company’s balance sheet at cost less any identified impairment loss.

Property, plant and equipment

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

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

Leasehold improvements	2.5%
Furniture and fixtures	14 – 20%
Automotive equipment	20%
Moulds	33%

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

Investments in securities

Investments in securities are recognised on a trade-date basis and are initially measured at cost.

At subsequent reporting dates, debt securities that Shelcore, Inc. has the expressed intention and ability to hold to maturity (held-to-maturity debt securities) are measured at amortised cost, less any impairment loss recognised to reflect irrecoverable amounts. The annual amortisation of any discount or premium on the acquisition of a held-to-maturity security is aggregated with other investment income receivable over the term of the instrument so that the revenue recognised in each period represents a constant yield on the investment.

−25 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

Investments other than held-to-maturity debt securities are classified as investment securities and other investments.

Investment securities, which are securities held for an identified long-term strategic purpose, are measured at subsequent reporting dates at cost, as reduced by any impairment loss that is other than temporary.

Other investments are measured at fair value, with unrealised gains and losses included in net profit or loss for the year/period.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the first-in, first-out method.

Research and development expenditure

Expenditure on research activities is recognised as an expense in the year/period in which it is incurred.

Impairment

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

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

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year/period. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years, and it further excludes income statement items that are never taxable or deductible.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill (or negative goodwill) or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the asset to be recovered.

Foreign currencies

Transactions in foreign currencies are initially recorded at the rates prevailing on the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are re-translated at the rates prevailing on the balance sheet date. Profits and losses arising on exchange are included in net profit or loss for the year/period.

−26 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

Operating leases

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

Retirement benefit costs

Payments to retirement benefit scheme are charged as expenses as they fall due.

3. TURNOVER

Turnover represents the net amounts received and receivable for goods sold during the year/period.

4. SEGMENT INFORMATION

Business segments

The Group is principally engaged in the designing and marketing of children’s toys and operates in the USA. Accordingly, no business segment is presented.

Geographical segments

All identifiable assets of the Group are located in the USA. Accordingly, no analysis of geographical segments is presented.

5. OTHER OPERATING INCOME

Gain on disposal of property, plant and equipment Other interest income Refund of interest previously charged by related companies (note 25) Sundry income	Year ended 31 March 2002 2003 USD USD – 6,000 27,366 253,981 – 1,335,536 25,000 24,998 52,366 1,620,515	Nine months ended 31 December Eight months ended 31 August 2003 2003 2004 USD USD USD (Unaudited) – – – 162,416 152,732 109,697 – – – 25,197 31,905 16,667 187,613 184,637 126,364	Nine months ended 31 December Eight months ended 31 August 2003 2003 2004 USD USD USD (Unaudited) – – – 162,416 152,732 109,697 – – – 25,197 31,905 16,667 187,613 184,637 126,364
			126,364

−27 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

6. NET INVESTMENT INCOME (LOSS)

Net realised (loss) gain on disposal of other investments Net unrealised holding gain (loss) of other investments Interest income from debt securities Dividend income from other investments Less: Investment management charges	Year ended 31 March 2002 2003 USD USD (501,380) (1,136) 444,726 (383,320) 419,839 201,211 25,298 13,555 (62,263) (31,009) 326,220 (200,699)	Nine months ended 31 December Eight months ended 31 August 2003 2003 2004 USD USD USD (Unaudited) 122,537 63,582 217,659 286,981 (383,320) (218,524) 82,539 128,046 28,248 9,459 9,847 6,755 (17,472) (19,722) (8,590) 484,044 (201,567) 25,548

7. PROFIT (LOSS) FROM OPERATIONS

Profit (loss) from operations has been arrived at after charging (crediting): Auditors’ remuneration Directors’ remuneration Other staff costs Contributions to retirement benefits scheme of other staff Total staff costs Cost of inventories recognised as expenses Depreciation and amortisation Research and development costs Operating lease charges in respect of rented premises Rental income	Year ended 31 March 2002 2003 USD USD 102,373 73,426 102,525 87,919 1,637,458 1,641,874 48,760 58,462 1,788,743 1,788,255 5,531,273 4,180,170 97,332 87,408 419,000 220,000 477,522 475,405 (263,396) (243,034)	Year ended 31 March 2002 2003 USD USD 102,373 73,426 102,525 87,919 1,637,458 1,641,874 48,760 58,462 1,788,743 1,788,255 5,531,273 4,180,170 97,332 87,408 419,000 220,000 477,522 475,405 (263,396) (243,034)	Year ended 31 March 2002 2003 USD USD 102,373 73,426 102,525 87,919 1,637,458 1,641,874 48,760 58,462 1,788,743 1,788,255 5,531,273 4,180,170 97,332 87,408 419,000 220,000 477,522 475,405 (263,396) (243,034)	Year ended 31 March 2002 2003 USD USD 102,373 73,426 102,525 87,919 1,637,458 1,641,874 48,760 58,462 1,788,743 1,788,255 5,531,273 4,180,170 97,332 87,408 419,000 220,000 477,522 475,405 (263,396) (243,034)
	102,525 1,637,458 48,760	87,919 1,641,874 58,462	31,729 454,731 51,412	26,881 1,088,649 45,699
	1,788,743 5,531,273 97,332 419,000 477,522 (263,396)	1,788,255 4,180,170 87,408 220,000 475,405 (243,034)	537,872 1,917,373 63,144 112,000 366,244 (211,127)	1,161,229 1,356,563 57,203 81,000 159,150 (174,798)

−28 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

8. DIRECTORS’ EMOLUMENTS

Fees Other emoluments Contributions to retirement benefits scheme	Year ended 31 March 2002 2003 USD USD – – 101,250 86,063 1,275 1,856 102,525 87,919	Nine months ended 31 December Eight months ended 31 August 2003 2003 2004 USD USD USD (Unaudited) – – – 31,279 26,481 14,019 450 400 217 31,729 26,881 14,236	Nine months ended 31 December Eight months ended 31 August 2003 2003 2004 USD USD USD (Unaudited) – – – 31,279 26,481 14,019 450 400 217 31,729 26,881 14,236
			14,236

There was only one director who received emoluments during the Relevant Periods which falls within USD128,205 (HK$ equivalent: HK$1,000,000).

No director waived any emoluments in the Relevant Periods.

9. EMPLOYEES’ REMUNERATION

During the Relevant Periods, the five highest paid individuals included one director of Shelcore, Inc. for each of the two years ended 31 March 2003, the nine months ended 31 December 2003 and the eight months ended 31 August 2003 and 2004, details of whose emoluments are set out above. The emoluments of the remaining highest paid individuals were as follows:

Salaries and other benefits Contributions to retirement benefits scheme	Year ended 31 March 2002 2003 USD USD 217,647 369,754 3,825 9,976 221,472 379,730	Nine months ended 31 December Eight months ended 31 August 2003 2003 2004 USD USD USD (Unaudited) 311,096 261,206 104,860 6,738 5,966 1,587 317,834 267,172 106,447	Nine months ended 31 December Eight months ended 31 August 2003 2003 2004 USD USD USD (Unaudited) 311,096 261,206 104,860 6,738 5,966 1,587 317,834 267,172 106,447
			106,447

The emoluments paid to the each of the remaining individuals during the Relevant Periods fall within USD128,205 (HK$ equivalent: HK$1,000,000).

During the Relevant Periods, no emoluments were paid by the Group to the five highest paid individuals (including directors and employees) as an inducement to join or upon joining the Group or as compensation for loss of office.

−29 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

10. FINANCE COSTS

Interests on: Other loans Interest on trade payables	Year ended 31 March 2002 2003 USD USD 30,958 18,361 835,190 213,710 866,148 232,071	Nine months ended 31 December Eight months ended 31 August 2003 2003 2004 USD USD USD (Unaudited) 11,197 24,776 7,014 62,745 118,341 18,093 73,942 143,117 25,107	Nine months ended 31 December Eight months ended 31 August 2003 2003 2004 USD USD USD (Unaudited) 11,197 24,776 7,014 62,745 118,341 18,093 73,942 143,117 25,107
			25,107

11. TAXATION

The (credit) charge comprises: USA Corporate Income Tax Overprovision in prior years	Year ended 31 March 2002 2003 USD USD – 1,731 (1,877) – (1,877) 1,731	Nine months ended 31 December Eight months ended 31 August 2003 2003 2004 USD USD USD (Unaudited) 1,563 – – – – – 1,563 – –	Nine months ended 31 December Eight months ended 31 August 2003 2003 2004 USD USD USD (Unaudited) 1,563 – – – – – 1,563 – –
			–

No provision for USA Corporate Income Tax has been made in the financial statements for the year ended 31 March 2002 and eight months ended 31 August 2003 and 2004 as Shelcore, Inc. has no assessable profits in those periods.

−30 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

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

(Loss) profit before taxation Tax at the domestic income tax rate (Note) Tax effect of expenses not deductible for tax purpose Tax effect of income not taxable for tax purpose Tax effect of tax losses not recognised Utilisation of tax loss Overprovision in prior years Tax (credit) charge for the year/period	Year ended 31 March 2002 2003 USD USD (698,004) 585,284 (265,000) 199,500 1,877 1,023 (16,477) – 279,600 – – (198,792) (1,877) – (1,877) 1,731	Nine months ended 31 December Eight months ended 31 August 2003 2003 2004 USD USD USD (Unaudited) 99,333 (916,259) 24,006 35,563 (320,000) 8,400 – – – − – (76,142) − 320,000 67,742 (34,000) – – – – – 1,563 – –

Note: The applicable domestic income tax rates for the years ended 31 March 2002 and 2003, nine months ended 31 December 2003 and eight months ended 31 August 2003 and 2004 were 38.0%, 34.1%, 35.8%, 34.9% and 35.0% respectively.

At 31 August 2004, the Group has Federal net operating loss (“NOL”) carryforward of approximately USD3,427,000 (31.12.2003: USD3,427,000, 31.3.2003: USD3,018,000 and 31.3.2002: USD4,571,000), on Federal capital loss carryforward of approximately USD380,000 (31.12.2003: USD380,000, 31.3.2003: USD502,000 and 31.3.2002: Nil) and a State of New Jersey NOL carryforward of approximately USD5,195,000 (31.12.2003: USD5,195,000, 31.3.2003: USD4,792,000 and 31.3.2002: USD6,540,000). No deferred tax assets has been recognised in respect of the tax losses due to unpredictability of future profits stream. The Federal NOL will expire in the years 2018 through 2023, the Federal capital loss will expire in years 2006 and 2007, and the State of New Jersey NOL will expire between the years 2004 and 2012.

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APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

12. PROPERTY, PLANT AND EQUIPMENT

THE GROUP AND THE COMPANY

Leasehold improvements USD COST At 1 April 2001 375,099 Additions 5,070 At 31 March 2002 380,169 Additions 10,350 Disposals – At 31 March 2003 390,519 Additions – At 31 December 2003 390,519 Additions – At 31 August 2004 390,519 DEPRECIATION At 1 April 2001 72,124 Provided for the year 10,296 At 31 March 2002 82,420 Provided for the year 10,488 Eliminated on disposals – At 31 March 2003 92,908 Provided for the period 7,965 At 31 December 2003 100,873 Provided for the period 7,080 At 31 August 2004 107,953 NET BOOK VALUES At 31 August 2004 282,566 At 31 December 2003 289,646 At 31 March 2003 297,611 At 31 March 2002 297,749	Furniture and fixtures Automotive equipment USD USD 1,122,301 42,257 27,646 –	Furniture and fixtures Automotive equipment USD USD 1,122,301 42,257 27,646 –	Moulds USD 2,782,036 102,290	Total USD 4,321,693 135,006 4,456,699 50,870 (27,284) 4,480,285 12,247 4,492,532 5,310 4,497,842 3,885,187 97,332 3,982,519 87,408 (27,284) 4,042,643 63,144 4,105,787 39,064 4,144,851 352,991 386,745 437,642 474,180
380,169 10,350 – 390,519 – 390,519 – 390,519 72,124 10,296 82,420 10,488 – 92,908 7,965 100,873 7,080 107,953	1,149,947 20,520 – 1,170,467 12,247 1,182,714 5,310 1,188,024 1,003,673 55,092 1,058,765 42,826 – 1,101,591 27,108 1,128,699 16,177 1,144,876	42,257 – (27,284) 14,973 – 14,973 – 14,973 42,252 – 42,252 – (27,284) 14,968 – 14,968 – 14,968	2,884,326 20,000 – 2,904,326 – 2,904,326 – 2,904,326 2,767,138 31,944 2,799,082 34,094 – 2,833,176 28,071 2,861,247 15,807 2,877,054	4,456,699 50,870 (27,284
				4,480,285 12,247
				4,492,532 5,310
				4,497,842
				3,885,187 97,332
				3,982,519 87,408 (27,284
				4,042,643 63,144
				4,105,787 39,064
				4,144,851
282,566 289,646 297,611 297,749	43,148 54,015 68,876 91,182	5 5 5 5	27,272 43,079 71,150 85,244

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APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

13. AMOUNT DUE FROM A SHAREHOLDER

THE GROUP AND THE COMPANY

Amount due from a shareholder Less: amount due within one year shown as current assets Amount due after one year	31 March 2002 2003 USD USD 4,707,000 5,582,000 – (875,000) 4,707,000 4,707,000	31 December 2003 USD 5,107,000 – 5,107,000	31 August 2004 USD – –
			–

The non-current amount was unsecured, interest-bearing at 3.39% to 4.55% per annum and repayable from January 2007 to November 2008. During the eight months ended 31 August 2004, the amount was fully settled.

The current amount was unsecured, interest-bearing at 3.39% to 4.55% per annum and repayable within one year.

14. INVENTORIES

THE GROUP AND THE COMPANY

At cost: Raw materials Finished goods	31 March 2002 2003 USD USD 67,232 71,065 1,205,538 853,417 1,272,770 924,482	31 December 2003 USD 34,951 420,717 455,668	31 August 2004 USD 34,372 990,900
			1,025,272

15. TRADE AND OTHER RECEIVABLES

THE GROUP

The Group allows a credit period of 65 days to its trade customers.

The following is an aged analysis of trade and other receivables at the balance sheet date:

0 – 60 days 61 – 90 days > 90 days Trade receivables Other receivables	31 March 2002 2003 USD USD 806,660 22,812 646,862 104,340 14,130 5,085	31 March 2002 2003 USD USD 806,660 22,812 646,862 104,340 14,130 5,085	31 December 2003 USD 102,756 60,657 28,141	31 August 2004 USD 225,949 7,857 4,036
	1,467,652 128,783	132,237 62,165	191,554 124,181	237,842 178,716
	1,596,435	194,402	315,735	416,558

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APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

16. INVESTMENTS IN SECURITIES

THE GROUP AND THE COMPANY

Other investments, listed – Equity securities – Debts securities – Government mutual fund Market value of listed investments	31 March 2002 2003 USD USD 2,194,143 1,358,756 3,617,371 2,901,891 – – 5,811,514 4,260,647 5,811,514 4,260,647	31 December 2003 USD 1,595,360 776,554 – 2,371,914 2,371,914	31 August 2004 USD – – 1,823,705
			1,823,705

			1,823,705

17. AMOUNTS DUE FROM RELATED COMPANIES

Details of amounts due from related companies are as follows:

THE GROUP AND THE COMPANY

Name of related company Shelcore Canada Limited Shelcore (UK) Limited	31 March 2002 2003 USD USD 675,276 696,863 – – 675,276 696,863	31 December 2003 USD 752,128 17,188 769,316	31 August 2004 USD 832,045 17,188
			849,233

The amounts due are unsecured, interest free and have no fixed terms of repayment.

Richard Jason Greenberg, director of Shelcore, Inc. is a director of the both companies.

−34 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

18. TRADE AND OTHER PAYABLES

THE GROUP

The following is an aged analysis of trade and other payables at the balance sheet date:

0 – 60 days 61 – 90 days > 90 days Trade payables Other payables	31 March 2002 2003 USD USD 106,588 171,518 2,812 14,766 6,130 40,698	31 March 2002 2003 USD USD 106,588 171,518 2,812 14,766 6,130 40,698	31 December 2003 USD 118,038 – 48,541	31 August 2004 USD 77,274 17,735 121,137
	115,530 381,291	226,982 527,265	166,579 411,999	216,146 484,807
	496,821	754,247	578,578	700,953

19. AMOUNT DUE TO A RELATED COMPANY

Details of amount due to a related company are as follows:

THE GROUP

Name of related company Shelcore Hong Kong Limited THE COMPANY Name of related company Shelcore Hong Kong Limited	31 March 2002 2003 USD USD 10,928,562 7,503,689 31 March 2002 2003 USD USD 10,916,003 7,485,704	31 December 2003 USD 4,666,627 31 December 2003 USD 4,639,943	31 August 2004 USD 229,054

			31 August 2004 USD 229,054

The amount due is unsecured, interest bearing at 1.52% -12% per annum and has no fixed terms of repayment.

Richard Jason Greenberg, director of Shelcore, Inc. is a director of the related company.

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APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

20. BORROWINGS

THE GROUP AND THE COMPANY

31 March 2002 2003 USD USD 12,108 6,212 is as follows: 31 March 2002 2003 USD USD 5,896 4,705 4,705 1,507 1,507 –	31 March 2002 2003 USD USD 12,108 6,212 is as follows: 31 March 2002 2003 USD USD 5,896 4,705 4,705 1,507 1,507 –	31 December 2003 USD 1,507 31 December 2003 USD 1,507 – –	31 August 2004 USD –

			31 August 2004 USD – – –
12,108 (5,896)	6,212 (6,212)	1,507 (1,507)	– –
6,212 – 31 March 2002 2003 USD USD 1,000 1,000		– 31 December 2003 USD 1,000	–

			31 August 2004 USD 1,000

There was no movement in the share capital of Shelcore, Inc. for the year/period.

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APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

22. RESERVES

THE GROUP

Share premium USD 284,500 –	Treasury shares USD (286,250) –	Accumulated profits USD 4,409,131 (696,127)	Total USD 4,407,381 (696,127) 3,711,254 583,553 4,294,807 97,770 4,392,577 24,006 4,416,583 5,116,949 (916,259) 4,200,690
284,500 – 284,500 – 284,500 –	(286,250) – (286,250) – (286,250) –	3,713,004 583,553 4,296,557 97,770 4,394,327 24,006	3,711,254 583,553
			4,294,807 97,770
			4,392,577 24,006
284,500	(286,250)	4,418,333
284,500 –	(286,250) –	5,118,699 (916,259)	5,116,949 (916,259
284,500	(286,250)	4,202,440

THE COMPANY

Share premium USD 284,500 –	Treasury shares USD (286,250) –	Accumulated profits USD 4,443,017 (689,561)	Total USD 4,441,267 (689,561) 3,751,706 588,979 4,340,685 103,135 4,443,820 24,006 4,467,826
284,500 – 284,500 – 284,500 –	(286,250) – (286,250) – (286,250) –	3,753,456 588,979 4,342,435 103,135 4,445,570 24,006	3,751,706 588,979
			4,340,685 103,135
			4,443,820 24,006
284,500	(286,250)	4,469,576

Shelcore, Inc.’s reserves available for distribution to shareholders as at 31 August 2004 comprised the accumulated profits of USD4,469,576 (31 December 2003: USD4,445,570; 31 March 2003: USD4,342,435; 31 March 2002: USD3,753,456).

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APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

23. LEASE COMMITMENTS

The Group as a lessee

At the balance sheet date, the Group had commitments for future minimum lease payments for land and buildings under non-cancellable operating leases which fall due as follows:

Within one year In the second to fifth year inclusive Over five years	31 March 2002 2003 USD USD 467,155 382,234 714,870 463,936 175,324 67,315 1,357,349 913,485	31 December 2003 USD 67,961 272,400 22,701 363,062	31 August 2004 USD 70,387 258,084 –
			328,471

Operating lease payments represent rentals payable by the Group for certain of its office properties and factories. Leases are negotiated for a period of six years.

The Group as a lessor

At the balance sheet date, the Group had contracted with tenants for the following future minimum lease payments:

Within one year In the second to fifth year inclusive	31 March 2002 2003 USD USD 207,019 282,533 67,261 419,636 274,280 702,169	31 December 2003 USD 268,906 223,340 492,246	31 August 2004 USD 219,357 101,178
			320,535

All the leased assets have committed tenants for the next five years.

The Group has sublet certain of its office properties and factories.

24. CONTINGENT LIABILITIES

THE GROUP AND THE COMPANY

The Company has guaranteed the repayment of debts due to Shelcore Hong Kong Limited from Shelcore Canada Limited and Shelcore (UK) Limited of USD4,035,000, USD4,347,000, USD4,292,000 and USD4,060,000 as at 31 March 2002 and 2003, 31 December 2003 and 31 August 2004 respectively.

−38 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

25. RELATED PARTY TRANSACTIONS

During the Relevant Periods, the Group entered into the following transactions with related parties of which Richard Jason Greenberg, the director of Shelcore, Inc., is a director:

			Nine months
	Year	ended	ended	Eight months	ended
	31 March		31 December	31 August
	2002	2003	2003	2003	2004
	USD	USD	USD	USD	USD
				(Unaudited)
Sales	130,914	93,699	44,257	50,353	–
Purchases	3,835,737	2,473,522	973,606	732,996	1,128,868
Interest expense	835,190	213,710	62,745	118,341	18,093
Refund of interest (Note)	–	1,335,536	–	–	–
Reimbursement of
operating expenses	3,086,632	3,350,572	3,317,164	2,604,061	3,250,235

Note: The Group has recorded an income of USD1,335,536 for the year ended 31 March 2003 as a result of using inappropriate interest rate to its related parties for its trade payables for the year ended 31 March 1997 through 31 March 2002.

The Group has recorded interest income of USD27,366, USD253,981, USD162,416, USD152,732 and USD109,697 in respect of loans to a shareholder for the years ended 31 March 2002 and 2003 the nine months ended 31 December 2003 and the eight months ended 31 August 2003 and 2004 respectively.

Details of the Group and the Company’s guarantees granted to related companies are set out in note 24.

The above transactions were carried out in the ordinary course of business and at prices/rates determined by reference to prevailing market price/rates.

(C) DIRECTORS’ REMUNERATION

Save as disclosed in this report, no remuneration has been paid or is payable in respect of the period covered by this report to Shelcore, Inc.’s director.

(D) SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of the Group have been prepared in respect of any period subsequent to 31 August 2004.

Yours faithfully, Deloitte Touche Tohmatsu

Certified Public Accountants Hong Kong

−39 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

FINANCIAL INFORMATION OF SHELCORE CANADA

For the purpose of this circular, the following is the text of a report prepared by Deloitte Touche Tohmatsu (Certified Public Accountants) based on the audited financial statements which were audited by Cogen Sklar LLP. (Certified Public Accountants) for the three years ended 31 December 2003 and eight months ended 31 August 2004.

==> picture [63 x 48] intentionally omitted <==

==> picture [77 x 34] intentionally omitted <==

31 January 2005

The Directors Matrix Holdings Limited

Dear Sirs,

We set out below our report on the financial information regarding Shelcore Canada Limited (“Shelcore Canada”) for the three years ended 31 December 2001, 2002 and 2003 and eight months ended 31 August 2004 (the “Relevant Periods”) for inclusion in a circular issued by Matrix Holdings Limited dated 31 January 2005 (the “Circular”) in connection with the major transaction in respect of the proposed acquisition of Shelcore Group.

Shelcore Canada is a private limited company incorporated in Canada on 2 October 1989. The principal activities of Shelcore Canada are the designing and marketing of children’s toys.

The audited financial statements of Shelcore Canada for each of the three years ended 31 December 2001, 2002 and 2003 and the eight months ended 31 August 2004 (the “Underlying Financial Statements”), which were prepared in accordance with the International Financial Reporting Standards, were audited by Cogen Sklar LLP., Certified Public Accountants in the United States of America.

We have examined the Underlying Financial Statements of Shelcore Canada for the Relevant Periods. Our examination was made in accordance with the Auditing Guideline “Prospectuses and the Reporting Accountant” as recommended by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).

The financial information of Shelcore Canada for the Relevant Periods set out in this report has been prepared from the Underlying Financial Statements on the basis set out in note 1 to the financial information.

−40 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

The Underlying Financial Statements are the responsibility of the director of Shelcore Canada. The directors of Matrix Holdings Limited are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the financial information set out in this report from the Underlying Financial Statements, to form an independent opinion on the financial information and to report our opinion to you.

In our opinion, the financial information gives, for the purpose of this report, a true and fair view of the state of affairs of Shelcore Canada as at 31 December 2001, 2002 and 2003 and 31 August 2004 and of the results and cash flows of Shelcore Canada for the Relevant Periods.

The comparative income statements, statements of changes in equity and cash flow statements of Shelcore Canada for the eights months ended 31 August 2003 together with the notes thereon (the “31 August 2003 Financial Information”) have been extracted from Shelcore Canada’s financial information for the same period which was prepared by the director of Shelcore Canada solely for the purpose of this report. We have reviewed the financial information for the eight months ended 31 August 2003 in accordance with the Statement of Auditing Standards 700 “Engagements to review interim financial reports” issued by the HKICPA. A review consists principally of making enquires of the management and applying analytical procedures to the financial information and based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the 31 August 2003 Financial Information. On the basis of our review which does not constitute an audit, we are not aware of any material modifications that should be made to the 31 August 2003 Financial Information.

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APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

(A) FINANCIAL INFORMATION

Income statements

Year ended 31 December Eight months ended 31 August 2001 2002 2003 2003 2004 CAD CAD CAD CAD CAD (Unaudited) 2,053,463 1,669,176 1,054,810 523,175 392,629 (1,724,032) (1,522,677) (1,019,861) (496,650) (350,605) 329,431 146,499 34,949 26,525 42,024 2,658 239 331,440 290,085 109,984 (471,667) (363,180) (117,514) (92,919) (85,221) (139,578) (216,442) 248,875 223,691 66,787 (162,226) (182,116) (120,387) (82,455) (32,585) (301,804) (398,558) 128,488 141,236 34,202 – 47,860 – – – (301,804) (350,698) 128,488 141,236 34,202	Year ended 31 December Eight months ended 31 August 2001 2002 2003 2003 2004 CAD CAD CAD CAD CAD (Unaudited) 2,053,463 1,669,176 1,054,810 523,175 392,629 (1,724,032) (1,522,677) (1,019,861) (496,650) (350,605) 329,431 146,499 34,949 26,525 42,024 2,658 239 331,440 290,085 109,984 (471,667) (363,180) (117,514) (92,919) (85,221) (139,578) (216,442) 248,875 223,691 66,787 (162,226) (182,116) (120,387) (82,455) (32,585) (301,804) (398,558) 128,488 141,236 34,202 – 47,860 – – – (301,804) (350,698) 128,488 141,236 34,202	Year ended 31 December Eight months ended 31 August 2001 2002 2003 2003 2004 CAD CAD CAD CAD CAD (Unaudited) 2,053,463 1,669,176 1,054,810 523,175 392,629 (1,724,032) (1,522,677) (1,019,861) (496,650) (350,605) 329,431 146,499 34,949 26,525 42,024 2,658 239 331,440 290,085 109,984 (471,667) (363,180) (117,514) (92,919) (85,221) (139,578) (216,442) 248,875 223,691 66,787 (162,226) (182,116) (120,387) (82,455) (32,585) (301,804) (398,558) 128,488 141,236 34,202 – 47,860 – – – (301,804) (350,698) 128,488 141,236 34,202	Year ended 31 December Eight months ended 31 August 2001 2002 2003 2003 2004 CAD CAD CAD CAD CAD (Unaudited) 2,053,463 1,669,176 1,054,810 523,175 392,629 (1,724,032) (1,522,677) (1,019,861) (496,650) (350,605) 329,431 146,499 34,949 26,525 42,024 2,658 239 331,440 290,085 109,984 (471,667) (363,180) (117,514) (92,919) (85,221) (139,578) (216,442) 248,875 223,691 66,787 (162,226) (182,116) (120,387) (82,455) (32,585) (301,804) (398,558) 128,488 141,236 34,202 – 47,860 – – – (301,804) (350,698) 128,488 141,236 34,202	Year ended 31 December Eight months ended 31 August 2001 2002 2003 2003 2004 CAD CAD CAD CAD CAD (Unaudited) 2,053,463 1,669,176 1,054,810 523,175 392,629 (1,724,032) (1,522,677) (1,019,861) (496,650) (350,605) 329,431 146,499 34,949 26,525 42,024 2,658 239 331,440 290,085 109,984 (471,667) (363,180) (117,514) (92,919) (85,221) (139,578) (216,442) 248,875 223,691 66,787 (162,226) (182,116) (120,387) (82,455) (32,585) (301,804) (398,558) 128,488 141,236 34,202 – 47,860 – – – (301,804) (350,698) 128,488 141,236 34,202
329,431 2,658 (471,667) (139,578) (162,226) (301,804) –	146,499 239 (363,180) (216,442) (182,116) (398,558) 47,860	34,949 331,440 (117,514) 248,875 (120,387) 128,488 –	26,525 290,085 (92,919) 223,691 (82,455) 141,236 –	42,024 109,984 (85,221
				66,787 (32,585
				34,202 –
(301,804)	(350,698)	128,488	141,236

−42 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

Balance sheets

At 2001 CAD 6,487 2,572	31 December 2002 2003 CAD CAD 4,429 2,714 2,498 12,436	31 December 2002 2003 CAD CAD 4,429 2,714 2,498 12,436	At 31 August 2004 CAD 1,570 9,103 10,673 234,093 81,077 – 119,031 434,201 15,285 1,828,798 1,844,083 (1,409,882) (1,399,209) 1 (1,399,210) (1,399,209)
9,059 351,481 803,961 59,505 42,009 1,256,956 53,005 2,424,211 2,477,216 (1,220,260)	6,927 748,070 611,445 71,865 124,879 1,556,259 35,160 3,089,925 3,125,085 (1,568,826)	15,150 390,003 430,533 – 132,586 953,122 35,348 2,366,335 2,401,683 (1,448,561)	10,673
			234,093 81,077 – 119,031
			434,201
			15,285 1,828,798
			1,844,083
			(1,409,882
(1,211,201)	(1,561,899)	(1,433,411)
1 (1,211,202)	1 (1,561,900)	1 (1,433,412)	1 (1,399,210
(1,211,201)	(1,561,899)	(1,433,411)

−43 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

Statements of changes in equity

At 1 January 2001 Net loss for the year At 31 December 2001 Net loss for the year At 31 December 2002 Net profit for the year At 31 December 2003 Net profit for the period At 31 August 2004 At 1 January 2003 Net profit for the period (Unaudited) At 31 August 2003 (Unaudited)	Share capital CAD 1 – 1 – 1 – 1 – 1	(Deficit) Profits CAD (909,398) (301,804) (1,211,202) (350,698) (1,561,900) 128,488 (1,433,412) 34,202 (1,399,210)	Total CAD (909,397) (301,804) (1,211,201) (350,698) (1,561,899) 128,488 (1,433,411) 34,202 (1,399,209) (1,561,899) 141,236 (1,420,663)
	1 –	(1,561,900) 141,236	(1,561,899 141,236
	1	(1,420,664)

−44 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

Cash flow statements

Year ended 31 December Eight months ended 31 August 2001 2002 2003 2003 2004 CAD CAD CAD CAD CAD (Unaudited) (301,804) (398,558) 128,488 141,236 34,202 (2,658) (239) (152) (151) – 162,226 182,116 120,387 82,455 32,585 2,075 2,058 1,715 1,143 1,144 (140,161) (214,623) 250,438 224,683 67,931 522,072 (396,589) 358,067 71,182 155,910 (100,003) 192,516 180,912 410,537 349,456 (48,329) (12,286) 61,927 70,728 3,333 (7,295) (17,845) 188 (16,626) (20,063) 226,284 (448,827) 851,532 760,504 556,567 2,658 239 152 151 – – 47,860 – – – 228,942 (400,728) 851,684 760,655 556,567 (2,915) – – – – (162,226) (182,116) (120,387) (82,455) (32,585) (145,542) 665,714 (723,590) (669,934) (537,537) (307,768) 483,598 (843,977) (752,389) (570,122) (81,741) 82,870 7,707 8,266 (13,555) 123,750 42,009 124,879 124,879 132,586 42,009 124,879 132,586 133,145 119,031 42,009 124,879 132,586 133,145 119,031	Year ended 31 December Eight months ended 31 August 2001 2002 2003 2003 2004 CAD CAD CAD CAD CAD (Unaudited) (301,804) (398,558) 128,488 141,236 34,202 (2,658) (239) (152) (151) – 162,226 182,116 120,387 82,455 32,585 2,075 2,058 1,715 1,143 1,144 (140,161) (214,623) 250,438 224,683 67,931 522,072 (396,589) 358,067 71,182 155,910 (100,003) 192,516 180,912 410,537 349,456 (48,329) (12,286) 61,927 70,728 3,333 (7,295) (17,845) 188 (16,626) (20,063) 226,284 (448,827) 851,532 760,504 556,567 2,658 239 152 151 – – 47,860 – – – 228,942 (400,728) 851,684 760,655 556,567 (2,915) – – – – (162,226) (182,116) (120,387) (82,455) (32,585) (145,542) 665,714 (723,590) (669,934) (537,537) (307,768) 483,598 (843,977) (752,389) (570,122) (81,741) 82,870 7,707 8,266 (13,555) 123,750 42,009 124,879 124,879 132,586 42,009 124,879 132,586 133,145 119,031 42,009 124,879 132,586 133,145 119,031	Year ended 31 December Eight months ended 31 August 2001 2002 2003 2003 2004 CAD CAD CAD CAD CAD (Unaudited) (301,804) (398,558) 128,488 141,236 34,202 (2,658) (239) (152) (151) – 162,226 182,116 120,387 82,455 32,585 2,075 2,058 1,715 1,143 1,144 (140,161) (214,623) 250,438 224,683 67,931 522,072 (396,589) 358,067 71,182 155,910 (100,003) 192,516 180,912 410,537 349,456 (48,329) (12,286) 61,927 70,728 3,333 (7,295) (17,845) 188 (16,626) (20,063) 226,284 (448,827) 851,532 760,504 556,567 2,658 239 152 151 – – 47,860 – – – 228,942 (400,728) 851,684 760,655 556,567 (2,915) – – – – (162,226) (182,116) (120,387) (82,455) (32,585) (145,542) 665,714 (723,590) (669,934) (537,537) (307,768) 483,598 (843,977) (752,389) (570,122) (81,741) 82,870 7,707 8,266 (13,555) 123,750 42,009 124,879 124,879 132,586 42,009 124,879 132,586 133,145 119,031 42,009 124,879 132,586 133,145 119,031	Year ended 31 December Eight months ended 31 August 2001 2002 2003 2003 2004 CAD CAD CAD CAD CAD (Unaudited) (301,804) (398,558) 128,488 141,236 34,202 (2,658) (239) (152) (151) – 162,226 182,116 120,387 82,455 32,585 2,075 2,058 1,715 1,143 1,144 (140,161) (214,623) 250,438 224,683 67,931 522,072 (396,589) 358,067 71,182 155,910 (100,003) 192,516 180,912 410,537 349,456 (48,329) (12,286) 61,927 70,728 3,333 (7,295) (17,845) 188 (16,626) (20,063) 226,284 (448,827) 851,532 760,504 556,567 2,658 239 152 151 – – 47,860 – – – 228,942 (400,728) 851,684 760,655 556,567 (2,915) – – – – (162,226) (182,116) (120,387) (82,455) (32,585) (145,542) 665,714 (723,590) (669,934) (537,537) (307,768) 483,598 (843,977) (752,389) (570,122) (81,741) 82,870 7,707 8,266 (13,555) 123,750 42,009 124,879 124,879 132,586 42,009 124,879 132,586 133,145 119,031 42,009 124,879 132,586 133,145 119,031	Year ended 31 December Eight months ended 31 August 2001 2002 2003 2003 2004 CAD CAD CAD CAD CAD (Unaudited) (301,804) (398,558) 128,488 141,236 34,202 (2,658) (239) (152) (151) – 162,226 182,116 120,387 82,455 32,585 2,075 2,058 1,715 1,143 1,144 (140,161) (214,623) 250,438 224,683 67,931 522,072 (396,589) 358,067 71,182 155,910 (100,003) 192,516 180,912 410,537 349,456 (48,329) (12,286) 61,927 70,728 3,333 (7,295) (17,845) 188 (16,626) (20,063) 226,284 (448,827) 851,532 760,504 556,567 2,658 239 152 151 – – 47,860 – – – 228,942 (400,728) 851,684 760,655 556,567 (2,915) – – – – (162,226) (182,116) (120,387) (82,455) (32,585) (145,542) 665,714 (723,590) (669,934) (537,537) (307,768) 483,598 (843,977) (752,389) (570,122) (81,741) 82,870 7,707 8,266 (13,555) 123,750 42,009 124,879 124,879 132,586 42,009 124,879 132,586 133,145 119,031 42,009 124,879 132,586 133,145 119,031
(140,161) 522,072 (100,003) (48,329) (7,295) 226,284 2,658 – 228,942 (2,915) (162,226) (145,542) (307,768) (81,741) 123,750	(214,623) (396,589) 192,516 (12,286) (17,845) (448,827) 239 47,860 (400,728) – (182,116) 665,714 483,598 82,870 42,009	250,438 358,067 180,912 61,927 188 851,532 152 – 851,684 – (120,387) (723,590) (843,977) 7,707 124,879	224,683 71,182 410,537 70,728 (16,626) 760,504 151 – 760,655 – (82,455) (669,934) (752,389) 8,266 124,879	67,931 155,910 349,456 3,333 (20,063
				556,567 – –
				556,567
				–
				(32,585 (537,537
				(570,122
				(13,555 132,586
42,009 42,009	124,879 124,879	132,586 132,586	133,145 133,145

−45 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

(B) NOTES TO THE FINANCIAL INFORMATION

1. BASIS OF PREPARATION

The financial information have been prepared on a going concern basis because a related company has agreed to provide adequate funds to enable Shelcore Canada to meet in full its financial obligations as they fall due for the foreseeable future.

2. SIGNIFICANT ACCOUNTING POLICIES

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

Revenue recognition

Sales of goods are recognised when goods are delivered and title has passed.

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

Property, plant and equipment

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

Inventories

Inventories, representing the finished goods, are stated at the lower of cost and net realisable value. Cost is calculated using the first-in, first-out method.

Impairment

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

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

−46 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

Deferred tax is calculated at the tax rates that are expected to apply in the year/period when the liability is settled or the asset is realised. Deferred tax is charged or credited to the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Foreign currencies

3. TURNOVER

Turnover represents the net amounts received and receivable for goods sold during the year/period.

4. SEGMENT INFORMATION

Business segments

Shelcore Canada is engaged in the designing and marketing of children’s toys in Canada. Accordingly, no analysis of business segment is presented.

Geographical segments

All identifiable assets of Shelcore Canada are located in Canada. Accordingly, no analysis of geographical segments is presented.

5. OTHER OPERATING INCOME

Interest income Exchange gain Refund of interest previously charged by related companies (note 15)	Year ended 31 December 2001 2002 2003 CAD CAD CAD 2,658 239 152 – – 96,307 – – 234,981 2,658 239 331,440	Eight months ended 31 August 2003 2004 CAD CAD (Unaudited) 151 – 54,953 109,984 234,981 – 290,085 109,984	Eight months ended 31 August 2003 2004 CAD CAD (Unaudited) 151 – 54,953 109,984 234,981 – 290,085 109,984
			109,984

−47 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

6. (LOSS) PROFIT FROM OPERATIONS

				Eight months ended	Eight months ended
	Year ended 31 December			31 August
	2001	2002	2003	2003	2004
	CAD	CAD	CAD	CAD	CAD
				(Unaudited)
(Loss) profit from operations has
been arrived at after charging:
Auditors’ remuneration	6,000	7,000	8,810	8,084	4,000
Directors’ remuneration	–	–	–	–	–
Depreciation	2,075	2,058	1,715	1,143	1,144
Exchange loss	95,215	89,418	–	–	–

7. DIRECTORS’ EMOLUMENTS AND EMPLOYEES’ EMOLUMENTS

No emolument was paid to Shelcore Canada’s director and the employee during the Relevant Periods.

8. FINANCE COSTS

Interests paid to related companies TAXATION Overprovision in prior years	Year ended 31 December 2001 2002 2003 CAD CAD CAD 162,226 182,116 120,387 Year ended 31 December 2001 2002 2003 CAD CAD CAD – 47,860 –	Eight months ended 31 August 2003 2004 CAD CAD (Unaudited) 82,455 32,585 Eight months ended 31 August 2003 2004 CAD CAD (Unaudited) – –

9. TAXATION

No provision for Canada Corporate Income Tax has been made in the financial information during the Relevant Periods. Shelcore Canada has no assessable profits in those periods.

Canada Corporate Income Tax was provided at 38% on the estimated assessable profit for the Relevant Periods.

−48 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

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

(Loss) profit before taxation Tax at the domestic income tax rate of 38% Tax effect of expenses not deductible for tax purpose Tax effect of income not taxable for tax purpose Tax effect of tax losses not recognised Utilisation of tax losses Overprovision in prior years Others Taxation for the year/period	Year ended 31 December 2001 2002 2003 CAD CAD CAD (301,804) (398,558) 128,488 (114,686) (151,452) 48,825 67,031 80,422 – – – (41,388) – 71,030 – – – (7,437) – 47,860 – 47,655 – – – 47,860 –	Eight months ended 31 August 2003 2004 CAD CAD (Unaudited) 141,236 34,202 53,670 12,997 – 12,382 (57,960) – 4,290 − − (25,379) – – – – – –	Eight months ended 31 August 2003 2004 CAD CAD (Unaudited) 141,236 34,202 53,670 12,997 – 12,382 (57,960) – 4,290 − − (25,379) – – – – – –

			12,997 12,382 – − (25,379) – –
			–

At the balance sheet date, the estimated unused tax losses available for offset against future profits of Shelcore Canada are as follows:

					December		At 31	August
				2001	2002	2003	2003	2004
				CAD	CAD	CAD	CAD	CAD
							(Unaudited)
Estimated	unused	tax	losses	–	186,920	167,350	198,210	100,563

No deferred taxation asset has been recognised due to the unpredictability of future profit streams. The estimated unused tax losses may be carried forward for 7 years.

−49 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

10. PROPERTY, PLANT AND EQUIPMENT

COST At 1 January 2001 Addition At 31 December 2001, 31 December 2002, 31 December 2003 and 31 August 2004 ACCUMULATED DEPRECIATION At 1 January 2001 Provided for the year At 31 December 2001 Provided for the year At 31 December 2002 Provided for the year At 31 December 2003 Provided for the period At 31 August 2004 NET BOOK VALUES At 31 August 2004 At 31 December 2003 At 31 December 2002 At 31 December 2001	Furniture and fixtures CAD 16,972 2,915
	19,887
	11,325 2,075
	13,400 2,058
	15,458 1,715
	17,173 1,144
	18,317
	1,570

	2,714

	4,429

	6,487

11. TRADE RECEIVABLES

Shelcore Canada allows a credit period of 65 days to its trade customers.

The following is an aged analysis of trade receivables at the balance sheet date:

0 – 30 days 31 – 60 days 61 – 90 days Over 90 days	At 31 December 2001 2002 CAD CAD 137,176 91,373 320,671 364,836 337,058 112,803 9,056 42,433 803,961 611,445	2003 CAD 111,840 197,123 120,188 1,382 430,533	At 31 August 2004 CAD 43,511 24,567 12,240 759
			81,077

−50 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

12. TRADE AND OTHER PAYABLES

The following is an aged analysis of trade and other payables at the balance sheet date:

0 – 60 days Trade payables Other payables and accrued charges	At 31 December 2001 2002 CAD CAD 26,880 35,160	At 31 December 2001 2002 CAD CAD 26,880 35,160	2003 CAD 22,838	At 31 August 2004 CAD 14,744
	26,880 26,125	35,160 –	22,838 12,510	14,744 541
	53,005	35,160	35,348	15,285

13. AMOUNTS DUE TO RELATED COMPANIES

Details of amounts due to related companies are as follows:

Name of related company Shelcore, Inc. Shelcore Hong Kong Limited	At 31 December 2001 2002 CAD CAD 999,789 1,203,646 1,424,422 1,886,279 2,424,211 3,089,925	2003 CAD 1,141,358 1,224,977 2,366,335	At 31 August 2004 CAD 1,106,999 721,799
			1,828,798

The amounts are unsecured, interest bearing at 0% to 6% per annum and has no fixed terms of repayment.

Richard Jason Greenberg, a director of Shelcore Canada, is a director of Shelcore, Inc. and Shelcore Hong Kong Limited.

14. SHARE CAPITAL

				At
		At 31 December		31 August
	2001	2002	2003	2004
	CAD	CAD	CAD	CAD
Authorised, issued and fully paid:
ordinary shares of CAD1 each	1	1	1	1

There was no movement in Shelcore Canada’s share capital during the Relevant Periods.

−51 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

15. RELATED PARTY TRANSACTIONS

During the Relevant Periods, Shelcore Canada entered into the following transactions with related parties in which Richard Jason Greenberg, a director of Shelcore Canada, is a director of the related parties:

				Eight months ended	Eight months ended
	Year	ended 31 December		31 August
	2001	2002	2003	2003	2004
	CAD	CAD	CAD	CAD	CAD
				(Unaudited)
Interest expenses	162,226	182,116	120,387	82,455	32,585
Management fee paid	36,000	39,996	39,996	26,667	21,504
Refund of interest (Note)	–	–	234,981	234,981	–

Note: Shelcore Canada has recorded an income of CAD234,981 for the year ended 31 December 2003 and eight months ended 31 August 2003 as a result of using inappropriate interest rate for the amount due to related companies.

The above transactions were carried out in the ordinary course of business and at prices agreed between the parties.

16. SUBSEQUENT EVENT

Subsequent to 31 August 2004, an agreement was reached with Shelcore Hong Kong Limited to waive the interest payable accrued up to 31 August 2004, totalling CAD656,827.

(C) DIRECTORS’ REMUNERATION

Save as disclosed in this report, no remuneration has been paid or is payable in respect of the periods covered by this report to Shelcore Canada’s director.

(D) SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of Shelcore Canada have been prepared in respect of any period subsequent to 31 August 2004.

Yours faithfully, Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong

−52 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

FINANCIAL INFORMATION OF SHELCORE UK

For the purpose of this circular, the following is the text of a report prepared by Deloitte Touche Tohmatsu (Certified Public Accountants) based on the audited financial statements which were audited by Ernst & Young LLP (Registered Auditor) for the three years ended 31 December 2003 and eight months ended 31 August 2004.

==> picture [63 x 48] intentionally omitted <==

==> picture [77 x 34] intentionally omitted <==

31 January 2005

The Directors Matrix Holdings Limited

Dear Sirs,

We set out below our report on the financial information regarding Shelcore (UK) Limited (“Shelcore UK”) for the three years ended 31 December 2001, 2002 and 2003 and eight months ended 31 August 2003 and 2004 (the “Relevant Periods”) for inclusion in a circular issued by Matrix Holdings Limited dated 31 January 2005 (the “Circular”) in connection with the major transaction in respect of the proposed acquisition of the Shelcore Group.

Shelcore UK is a private limited company incorporated in the United Kingdom (“UK”) on 28 February 1989. The principal activities of Shelcore UK are the marketing and distribution of infant and pre-school toys in the UK.

The financial statements of Shelcore UK for each of the three years ended 31 December 2001, 2002 and 2003 and the eight months ended 31 August 2003 and 2004 (the “Underlying Financial Statements”), which were prepared in accordance with the UK Financial Reporting Standard for Smaller Entities (effective June 2002), were audited by Ernst & Young LLP, Registered Auditor in the UK.

We have examined the Underlying Financial Statements of Shelcore UK for the Relevant Periods. Our examination was made in accordance with the Auditing Guideline “Prospectuses and the Reporting Accountant” as recommended by the Hong Kong Institute of Certified Public Accountants.

The financial information of Shelcore UK for the Relevant Periods set out in this report has been prepared from the Underlying Financial Statements on the basis set out in note 1 to the financial information.

−53 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

The Underlying Financial Statements are the responsibility of the director of Shelcore UK. The directors of Matrix Holdings Limited are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the financial information set out in this report from the Underlying Financial Statements, to form an independent opinion on the financial information and to report our opinion to you.

In our opinion, the financial information gives, for the purpose of this report, a true and fair view of the state of affairs of Shelcore UK as at 31 December 2001, 2002 and 2003 and 31 August 2004 and of the results and cash flows of Shelcore UK for the Relevant Periods.

−54 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

(A) FINANCIAL INFORMATION

Income statements

Year ended 31 December 2001 2002 2003 GBP GBP GBP – 5,154 17,073 – (5,579) (20,842)	Year ended 31 December 2001 2002 2003 GBP GBP GBP – 5,154 17,073 – (5,579) (20,842)	Year ended 31 December 2001 2002 2003 GBP GBP GBP – 5,154 17,073 – (5,579) (20,842)	Eight months ended 31 August 2003 2004 GBP GBP 7,985 2,824 (9,228) (6,896) (1,243) (4,072) 7 10,028 (39,987) (4,840) (41,223) 1,116 (80,777) (77,277) (122,000) (76,161) – – (122,000) (76,161)	Eight months ended 31 August 2003 2004 GBP GBP 7,985 2,824 (9,228) (6,896) (1,243) (4,072) 7 10,028 (39,987) (4,840) (41,223) 1,116 (80,777) (77,277) (122,000) (76,161) – – (122,000) (76,161)
– 332 (54,810) (54,478) (124,558) (179,036) –	(425) 211,212 (5,059) 205,728 (127,564) 78,164 (1,349)	(3,769) 212,408 (9,199) 199,440 (122,448) 76,992 (55,881)	(1,243) 7 (39,987) (41,223) (80,777) (122,000) –	(4,072 10,028 (4,840
				1,116 (77,277
				(76,161 –
(179,036)	76,815	21,111	(122,000)

−55 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

Balance sheets

At 2001 GBP – – 20,272	31 December 2002 2003 GBP GBP 8,738 5,895 – – 12,685 13,125	31 December 2002 2003 GBP GBP 8,738 5,895 – – 12,685 13,125	At 31 August 2004 GBP – 2,119 749 2,868 4,228 1,965,029 57,230 2,026,487 (2,023,619) 10,000 (2,033,619) (2,023,619)
20,272 3,500 2,062,156 – 2,065,656 (2,045,384) 10,000 (2,055,384)	21,423 4,148 1,984,495 1,349 1,989,992 (1,968,569) 10,000 (1,978,569)	19,020 11,468 1,897,780 57,230 1,966,478 (1,947,458) 10,000 (1,957,458)	2,868
			4,228 1,965,029 57,230
			2,026,487
			(2,023,619
			10,000 (2,033,619
(2,045,384)	(1,968,569)	(1,947,458)

−56 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

Statements of changes in equity

At 1 January 2001 Net loss for the year At 31 December 2001 Net profit for the year At 31 December 2002 Net profit for the year At 31 December 2003 Net loss for the period At 31 August 2004 At 1 January 2003 Net loss for the period At 31 August 2003	Share capital GBP 10,000 – 10,000 – 10,000 – 10,000 – 10,000	(Deficit) profit GBP (1,876,348) (179,036) (2,055,384) 76,815 (1,978,569) 21,111 (1,957,458) (76,161) (2,033,619)	Total GBP (1,866,348) (179,036) (2,045,384) 76,815 (1,968,569) 21,111 (1,947,458) (76,161) (2,023,619) (1,968,569) (122,000) (2,090,569)
	10,000 –	(1,978,569) (122,000)	(1,968,569 (122,000
	10,000	(2,100,569)

−57 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

Cash flow statements

Year ended 31 December 2001 2002 2003 GBP GBP GBP (179,036) 78,164 76,992 (332) (29) (7) 124,558 127,564 122,448	Year ended 31 December 2001 2002 2003 GBP GBP GBP (179,036) 78,164 76,992 (332) (29) (7) 124,558 127,564 122,448	Year ended 31 December 2001 2002 2003 GBP GBP GBP (179,036) 78,164 76,992 (332) (29) (7) 124,558 127,564 122,448	Eight months ended 31 August 2003 2004 GBP GBP (122,000) (76,161) (7) – 80,777 77,277 (41,230) 1,116 (2,083) 5,895 (2,653) (2,119) 9,602 (7,240) (36,364) (2,348) 7 – (80,777) (77,277) 108,428 67,249 27,651 (10,028) (8,706) (12,376) 12,685 13,125 3,979 749 3,979 749	Eight months ended 31 August 2003 2004 GBP GBP (122,000) (76,161) (7) – 80,777 77,277 (41,230) 1,116 (2,083) 5,895 (2,653) (2,119) 9,602 (7,240) (36,364) (2,348) 7 – (80,777) (77,277) 108,428 67,249 27,651 (10,028) (8,706) (12,376) 12,685 13,125 3,979 749 3,979 749
(54,810) – – (2,468) (57,278) 332 (124,558) 165,728 41,170 (15,776) 36,048	205,699 (8,738) – 648 197,609 29 (127,564) (77,661) (205,225) (7,587) 20,272	199,433 2,843 – 7,320 209,596 7 (122,448) (86,715) (209,163) 440 12,685	(41,230) (2,083) (2,653) 9,602 (36,364) 7 (80,777) 108,428 27,651 (8,706) 12,685	1,116 5,895 (2,119 (7,240
				(2,348
				–
				(77,277 67,249
				(10,028
				(12,376 13,125
20,272 20,272	12,685 12,685	13,125 13,125	3,979 3,979

−58 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

(B) NOTES TO THE FINANCIAL INFORMATION

1. BASIS OF PREPARATION

The financial information has been prepared on a going concern basis because a related company has agreed to provide adequate funds to enable Shelcore UK to meet in full its financial obligations as they fall due for the foreseeable future.

2. SIGNIFICANT ACCOUNTING POLICIES

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

Revenue recognition

Sales of goods are recognised when goods are delivered and title has passed.

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

Inventories

Inventories, representing the finished goods, are stated at the lower of cost and net realisable value. Cost is calculated using the first-in, first-out method.

Impairment

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

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

−59 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

Foreign currencies

3. TURNOVER

Turnover represents the net amounts received and receivable for goods sold during the year/period.

4. SEGMENT INFORMATION

Business segments

Shelcore UK is engaged in the marketing and distribution of infant and pre-school toys in the UK. Accordingly, no analysis of business segment is presented.

Geographical segments

All identifiable assets of Shelcore UK are located in the UK. Accordingly, no analysis of geographical segments is presented.

5. OTHER OPERATING INCOME

Interest income Exchange gain	Year ended 31 December 2001 2002 2003 GBP GBP GBP 332 29 7 – 211,183 212,401 332 211,212 212,408	Eight months ended 31 August 2003 2004 GBP GBP 7 – – 10,028 7 10,028	Eight months ended 31 August 2003 2004 GBP GBP 7 – – 10,028 7 10,028
			10,028

6. (LOSS) PROFIT FROM OPERATIONS

				Eight months ended	Eight months ended
	Year ended 31 December			31 August
	2001	2002	2003	2003	2004
	GBP	GBP	GBP	GBP	GBP
(Loss) profit from operations has
been arrived at after charging:
Auditors’ remuneration	1,500	1,750	2,000	2,000	2,000
Directors’ remuneration	–	–	–	–	–
Exchange loss	45,275	–	–	36,303	–

7. DIRECTORS’ EMOLUMENTS AND EMPLOYEES’ EMOLUMENTS

No emolument was paid to Shelcore UK’s director and the employee during the Relevant Periods.

−60 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

8. FINANCE COSTS

									Eight months ended	Eight months ended
						Year	ended 31 December		31 August
						2001	2002	2003	2003	2004
						GBP	GBP	GBP	GBP	GBP
Interests	paid	to	a	related	company	124,558	127,564	122,448	80,777	77,277

9. TAXATION

The charge comprises: Current tax UK Corporation Tax Overprovision in prior year	Year ended 31 December 2001 2002 2003 GBP GBP GBP – 1,349 57,230 – – (1,349) – 1,349 55,881	Eight months ended 31 August 2003 2004 GBP GBP – – – – – –	Eight months ended 31 August 2003 2004 GBP GBP – – – – – –
			–

No provision for UK Corporation Tax has been made in the financial information for the year ended 31 December 2001 and eight months ended 31 August 2003 and 2004 as Shelcore UK has no assessable profits for those periods.

UK Corporation Tax was provided at 20% and 30% on the estimated assessable profit for the years ended 31 December 2002 and 2003 respectively.

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

Year ended 31 December 2001 2002 2003 GBP GBP GBP (179,036) 78,164 76,992	Year ended 31 December 2001 2002 2003 GBP GBP GBP (179,036) 78,164 76,992	Year ended 31 December 2001 2002 2003 GBP GBP GBP (179,036) 78,164 76,992	Eight months ended 31 August 2003 2004 GBP GBP (122,000) (76,161	Eight months ended 31 August 2003 2004 GBP GBP (122,000) (76,161

(35,807) 24,912 10,895 – – –	15,633 25,410 – (41,140) – 1,446	23,098 36,884 – – (1,349) (2,752)	(36,600) 24,233 12,367 – – –	(22,848 22,513 – – – 335
–	1,349	55,881	–	–

Note: The domestic income tax rate is 20%, 20%, 30%, 30% and 30% for the years ended 31 December 2001, 2002 and 2003 and the eight months ended 31 August 2003 and 2004 respectively.

−61 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

At the balance sheet date, the estimated unused tax losses available for offset against future profits of Shelcore UK are as follows:

					31 December		At 31	August
				2001	2002	2003	2003	2004
				GBP	GBP	GBP	GBP	GBP
							(Unaudited)
Estimated	unused	tax	losses	1,603,509	1,397,810	1,397,810	1,439,033	1,397,810

No deferred taxation asset has been recognised due to the unpredictability of future profit streams. The estimated unused tax losses may be carried forward indefinitely.

10. TRADE RECEIVABLES

Shelcore UK allows a credit period of 30 days to its trade customers.

The following is an aged analysis of trade receivables at the balance sheet date:

										At
					At	31	December		31	August
				2001			2002	2003		2004
				GBP			GBP	GBP		GBP
31	–	60	days	–			–	–		2,119

11. TRADE AND OTHER PAYABLES

The following is an aged analysis of trade and other payables at the balance sheet date:

0 – 30 days 31 – 60 days > 90 days Trade payables Other payables and accrued charges	At 31 December 2001 2002 GBP GBP – 1,516 – 882 – –	At 31 December 2001 2002 GBP GBP – 1,516 – 882 – –	2003 GBP – – 704	At 31 August 2004 GBP – 4,228 –
	– 3,500	2,398 1,750	704 10,764	4,228 –
	3,500	4,148	11,468	4,228

12. AMOUNTS DUE TO RELATED COMPANIES

Details of amounts due to related companies are as follows:

Name of related company Shelcore, Inc. Shelcore Hong Kong Limited	At 31 December 2001 2002 GBP GBP – 10,676 2,062,156 1,973,819 2,062,156 1,984,495	2003 GBP 9,656 1,888,124 1,897,780	At 31 August 2004 GBP 9,656 1,955,373
			1,965,029

The amounts due are unsecured, interest bearing at 0% to 6% per annum and has no fixed terms of repayment.

Richard Jason Greenberg, the director of Shelcore UK, is a director of Shelcore, Inc. and Shelcore Hong Kong Limited.

−62 −

FINANCIAL INFORMATION OF THE SHELCORE GROUP

APPENDIX I

13. SHARE CAPITAL

Authorised: 11,000 ordinary shares of GBP1 each Issued and fully paid: 10,000 ordinary shares of GBP1 each	At 31 December 2001 2002 GBP GBP 11,000 11,000 10,000 10,000	2003 GBP 11,000 10,000	At 31 August 2004 GBP 11,000

			10,000

There was no movement in Shelcore UK’s share capital during the Relevant Periods.

14. RELATED PARTY TRANSACTIONS

During the Relevant Periods, Shelcore UK entered into the following transactions with Shelcore Hong Kong Limited:

					Eight months ended	Eight months ended
		Year	ended 31 December		31 August
		2001	2002	2003	2003	2004
		GBP	GBP	GBP	GBP	GBP
Interest	expenses	124,558	127,564	122,448	80,777	77,277

The above transactions were carried out in the ordinary course of business and interest was charged at a rate of 6% per annum.

15. SUBSEQUENT EVENT

Subsequent to 31 August 2004, an agreement was reached with Shelcore Hong Kong Limited to waive the interest payable accrued up to 31 August 2004, totalling GBP796,032.

(C) DIRECTORS’ REMUNERATION

No remuneration has been paid or is payable in respect of the periods covered by this report to Shelcore UK’s director.

(D) SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of Shelcore UK have been prepared in respect of any period subsequent to 31 August 2004.

Yours faithfully,

Deloitte Touche Tohmatsu

Certified Public Accountants Hong Kong

−63 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

FINANCIAL INFORMATION OF SHELCORE HK

For the purpose of this circular, the following is the text of a report prepared by Deloitte Touche Tohmatsu (Certified Public Accountants) based on the audited financial statements which were audited by Grant Thornton (Certified Public Accountants) for the three years ended 31 December 2003 and Deloitte Touche Tohmatsu (Certified Public Accountants) for the eight months ended 31 August 2004 respectively.

==> picture [63 x 49] intentionally omitted <==

==> picture [77 x 33] intentionally omitted <==

31 January 2005

The Directors Matrix Holdings Limited

Dear Sirs,

We set out below our report on the financial information regarding Shelcore Hong Kong Limited (“Shelcore HK”) for the three years ended 31 December 2001, 2002 and 2003 and eight months ended 31 August 2004 (the “Relevant Periods”) for inclusion in a circular issued by Matrix Holdings Limited dated 31 January 2005 (the “Circular”) in connection with the major transaction in respect of the proposed acquisition of the Shelcore Group.

Shelcore HK is a private limited company incorporated in Hong Kong on 12 January 1988. The principal activities of Shelcore HK are manufacturing and sale of baby toys.

The statutory financial statements of Shelcore HK for each of the three years ended 31 December 2001, 2002 and 2003 were audited by Grant Thornton, Certified Public Accountants.

We have acted as auditors of Shelcore HK for the eight months ended 31 August 2004.

We have examined the audited financial statements (the “Underlying Financial Statements”) of Shelcore HK for the Relevant Periods. Our examination was made in accordance with the Auditing Guideline “Prospectuses and the Reporting Accountant” as recommended by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).

The financial information of Shelcore HK for the Relevant Periods set out in this report has been prepared from the Underlying Financial Statements.

−64 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

The Underlying Financial Statements are the responsibility of the directors of Shelcore HK. The directors of Matrix Holdings Limited are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the financial information set out in this report from the Underlying Financial Statements, to form an independent opinion on the financial information and to report our opinion to you.

In our opinion, the financial information gives, for the purpose of this report, a true and fair view of the state of affairs of Shelcore HK as at 31 December 2001, 2002 and 2003 and 31 August 2004 and of the results and cash flows of Shelcore HK for the Relevant Periods.

The comparative income statements, statements of changes in equity and cash flow statements of Shelcore HK for the eights months ended 31 August 2003 together with the notes thereon (the “31 August 2003 Financial Information”) have been extracted from Shelcore HK’s financial information for the same period which was prepared by the directors of Shelcore HK solely for the purpose of this report. We have reviewed the financial information for the eight months ended 31 August 2003 in accordance with the Statement of Auditing Standards 700 “Engagements to review interim financial reports” issued by the HKICPA. A review consists principally of making enquires of the management and applying analytical procedures to the financial information and based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the 31 August 2003 Financial Information. On the basis of our review which does not constitute an audit, we are not aware of any material modifications that should be made to the 31 August 2003 Financial Information.

−65 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

(A) FINANCIAL INFORMATION

Income statements

Year ended 31 December Eight months ended 31 August 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 215,339 270,910 194,650 136,153 175,890 (138,042) (168,824) (134,037) (89,781) (119,114) 77,297 102,086 60,613 46,372 56,776 2,186 4,325 3,096 2,358 1,472 1,658 (2,377) 5,572 3,401 1,261 (42,100) (43,124) (45,154) (30,172) (34,690) (35,454) (35,551) (41,278) (26,482) (27,231) 3,587 25,359 (17,151) (4,523) (2,412) (403) (268) (105) (105) – 3,184 25,091 (17,256) (4,628) (2,412) (120) 65 (255) (81) (233) 3,064 25,156 (17,511) (4,709) (2,645) 2,940 13,650 6,630 5,460 56,800	Year ended 31 December Eight months ended 31 August 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 215,339 270,910 194,650 136,153 175,890 (138,042) (168,824) (134,037) (89,781) (119,114) 77,297 102,086 60,613 46,372 56,776 2,186 4,325 3,096 2,358 1,472 1,658 (2,377) 5,572 3,401 1,261 (42,100) (43,124) (45,154) (30,172) (34,690) (35,454) (35,551) (41,278) (26,482) (27,231) 3,587 25,359 (17,151) (4,523) (2,412) (403) (268) (105) (105) – 3,184 25,091 (17,256) (4,628) (2,412) (120) 65 (255) (81) (233) 3,064 25,156 (17,511) (4,709) (2,645) 2,940 13,650 6,630 5,460 56,800	Year ended 31 December Eight months ended 31 August 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 215,339 270,910 194,650 136,153 175,890 (138,042) (168,824) (134,037) (89,781) (119,114) 77,297 102,086 60,613 46,372 56,776 2,186 4,325 3,096 2,358 1,472 1,658 (2,377) 5,572 3,401 1,261 (42,100) (43,124) (45,154) (30,172) (34,690) (35,454) (35,551) (41,278) (26,482) (27,231) 3,587 25,359 (17,151) (4,523) (2,412) (403) (268) (105) (105) – 3,184 25,091 (17,256) (4,628) (2,412) (120) 65 (255) (81) (233) 3,064 25,156 (17,511) (4,709) (2,645) 2,940 13,650 6,630 5,460 56,800	Year ended 31 December Eight months ended 31 August 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 215,339 270,910 194,650 136,153 175,890 (138,042) (168,824) (134,037) (89,781) (119,114) 77,297 102,086 60,613 46,372 56,776 2,186 4,325 3,096 2,358 1,472 1,658 (2,377) 5,572 3,401 1,261 (42,100) (43,124) (45,154) (30,172) (34,690) (35,454) (35,551) (41,278) (26,482) (27,231) 3,587 25,359 (17,151) (4,523) (2,412) (403) (268) (105) (105) – 3,184 25,091 (17,256) (4,628) (2,412) (120) 65 (255) (81) (233) 3,064 25,156 (17,511) (4,709) (2,645) 2,940 13,650 6,630 5,460 56,800	Year ended 31 December Eight months ended 31 August 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 215,339 270,910 194,650 136,153 175,890 (138,042) (168,824) (134,037) (89,781) (119,114) 77,297 102,086 60,613 46,372 56,776 2,186 4,325 3,096 2,358 1,472 1,658 (2,377) 5,572 3,401 1,261 (42,100) (43,124) (45,154) (30,172) (34,690) (35,454) (35,551) (41,278) (26,482) (27,231) 3,587 25,359 (17,151) (4,523) (2,412) (403) (268) (105) (105) – 3,184 25,091 (17,256) (4,628) (2,412) (120) 65 (255) (81) (233) 3,064 25,156 (17,511) (4,709) (2,645) 2,940 13,650 6,630 5,460 56,800
77,297 2,186 1,658 (42,100) (35,454) 3,587 (403) 3,184 (120)	102,086 4,325 (2,377) (43,124) (35,551) 25,359 (268) 25,091 65	60,613 3,096 5,572 (45,154) (41,278) (17,151) (105) (17,256) (255)	46,372 2,358 3,401 (30,172) (26,482) (4,523) (105) (4,628) (81)	56,776 1,472 1,261 (34,690 (27,231
				(2,412 –
				(2,412 (233
3,064 2,940	25,156 13,650	(17,511) 6,630	(4,709) 5,460

−66 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

Balance sheets

At 2001 HK$’000 49,771 63,756	31 December 2002 2003 HK$’000 HK$’000 47,513 46,328 66,007 64,889	31 December 2002 2003 HK$’000 HK$’000 47,513 46,328 66,007 64,889	At 31 August 2004 HK$’000 46,008 9,312
113,527 23,035 13,166 105,754 588 142,543 20,717 – 173 8,438 29,328 113,215	113,520 29,858 25,716 101,689 3,090 160,353 32,742 – 23 2,860 35,625 124,728	111,217 23,421 13,976 70,028 16,576 124,001 21,034 – 77 – 21,111 102,890	55,320
			29,086 45,153 64,004 12,795
			151,038
			43,783 7,400 44 469
			51,696
			99,342
226,742	238,248	214,107	154,662

10 226,732	10 238,238	10 214,097	10 154,652
226,742	238,248	214,107	154,662

−67 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

Statements of changes in equity

Share capital HK$’000 10 – –	Accumulated profits HK$’000 226,608 3,064 (2,940)	Total HK$’000 226,618 3,064 (2,940) 226,742 25,156 (13,650) 238,248 (17,511) (6,630) 214,107 (2,645) (56,800) 154,662 238,248 (4,709) (5,460) 228,079
10 – – 10 – – 10 – –	226,732 25,156 (13,650) 238,238 (17,511) (6,630) 214,097 (2,645) (56,800)	226,742 25,156 (13,650
		238,248 (17,511 (6,630
		214,107 (2,645 (56,800
10	154,652
10 – –	238,238 (4,709) (5,460)	238,248 (4,709 (5,460
10	228,069

−68 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

Cash flow statements

Year ended 31 December Eight months ended 31 August 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 3,184 25,091 (17,256) (4,628) (2,412) 15,541 15,121 14,539 9,706 10,132 (57) (7) (5) (5) – (2,084) (4,198) (2,972) (2,353) (1,472) 403 268 105 105 – 6 2 2 – – – – – (304) (3,541) 390 624 3,486 – – (1,658) 2,377 (5,572) (3,401) (1,261) 15,725 39,278 (7,673) (880) 1,446 (2,733) (7,447) 2,951 (3,271) (2,124) 4,065 (12,550) 11,740 (11,446) (31,177) 775 4,065 31,661 20,545 6,024 (3,038) 12,025 (11,708) 5 22,749 – – – – 7,400 14,794 35,371 26,971 4,953 4,318 2,084 4,198 2,972 2,353 1,472 (403) (268) (105) (105) – (137) (109) (201) (84) (266) – 24 – – – 16,338 39,216 29,637 7,117 5,524	Year ended 31 December Eight months ended 31 August 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 3,184 25,091 (17,256) (4,628) (2,412) 15,541 15,121 14,539 9,706 10,132 (57) (7) (5) (5) – (2,084) (4,198) (2,972) (2,353) (1,472) 403 268 105 105 – 6 2 2 – – – – – (304) (3,541) 390 624 3,486 – – (1,658) 2,377 (5,572) (3,401) (1,261) 15,725 39,278 (7,673) (880) 1,446 (2,733) (7,447) 2,951 (3,271) (2,124) 4,065 (12,550) 11,740 (11,446) (31,177) 775 4,065 31,661 20,545 6,024 (3,038) 12,025 (11,708) 5 22,749 – – – – 7,400 14,794 35,371 26,971 4,953 4,318 2,084 4,198 2,972 2,353 1,472 (403) (268) (105) (105) – (137) (109) (201) (84) (266) – 24 – – – 16,338 39,216 29,637 7,117 5,524	Year ended 31 December Eight months ended 31 August 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 3,184 25,091 (17,256) (4,628) (2,412) 15,541 15,121 14,539 9,706 10,132 (57) (7) (5) (5) – (2,084) (4,198) (2,972) (2,353) (1,472) 403 268 105 105 – 6 2 2 – – – – – (304) (3,541) 390 624 3,486 – – (1,658) 2,377 (5,572) (3,401) (1,261) 15,725 39,278 (7,673) (880) 1,446 (2,733) (7,447) 2,951 (3,271) (2,124) 4,065 (12,550) 11,740 (11,446) (31,177) 775 4,065 31,661 20,545 6,024 (3,038) 12,025 (11,708) 5 22,749 – – – – 7,400 14,794 35,371 26,971 4,953 4,318 2,084 4,198 2,972 2,353 1,472 (403) (268) (105) (105) – (137) (109) (201) (84) (266) – 24 – – – 16,338 39,216 29,637 7,117 5,524	Year ended 31 December Eight months ended 31 August 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 3,184 25,091 (17,256) (4,628) (2,412) 15,541 15,121 14,539 9,706 10,132 (57) (7) (5) (5) – (2,084) (4,198) (2,972) (2,353) (1,472) 403 268 105 105 – 6 2 2 – – – – – (304) (3,541) 390 624 3,486 – – (1,658) 2,377 (5,572) (3,401) (1,261) 15,725 39,278 (7,673) (880) 1,446 (2,733) (7,447) 2,951 (3,271) (2,124) 4,065 (12,550) 11,740 (11,446) (31,177) 775 4,065 31,661 20,545 6,024 (3,038) 12,025 (11,708) 5 22,749 – – – – 7,400 14,794 35,371 26,971 4,953 4,318 2,084 4,198 2,972 2,353 1,472 (403) (268) (105) (105) – (137) (109) (201) (84) (266) – 24 – – – 16,338 39,216 29,637 7,117 5,524	Year ended 31 December Eight months ended 31 August 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 3,184 25,091 (17,256) (4,628) (2,412) 15,541 15,121 14,539 9,706 10,132 (57) (7) (5) (5) – (2,084) (4,198) (2,972) (2,353) (1,472) 403 268 105 105 – 6 2 2 – – – – – (304) (3,541) 390 624 3,486 – – (1,658) 2,377 (5,572) (3,401) (1,261) 15,725 39,278 (7,673) (880) 1,446 (2,733) (7,447) 2,951 (3,271) (2,124) 4,065 (12,550) 11,740 (11,446) (31,177) 775 4,065 31,661 20,545 6,024 (3,038) 12,025 (11,708) 5 22,749 – – – – 7,400 14,794 35,371 26,971 4,953 4,318 2,084 4,198 2,972 2,353 1,472 (403) (268) (105) (105) – (137) (109) (201) (84) (266) – 24 – – – 16,338 39,216 29,637 7,117 5,524
15,725 (2,733) 4,065 775 (3,038) – 14,794 2,084 (403) (137) – 16,338	39,278 (7,447) (12,550) 4,065 12,025 – 35,371 4,198 (268) (109) 24 39,216	(7,673) 2,951 11,740 31,661 (11,708) – 26,971 2,972 (105) (201) – 29,637	(880) (3,271) (11,446) 20,545 5 – 4,953 2,353 (105) (84) – 7,117	1,446 (2,124 (31,177 6,024 22,749 7,400
				4,318 1,472 – (266 –
				5,524

−69 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

Year ended 31 December Eight months ended 31 August 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 4,127 2,221 2,019 1,545 1,850 57 7 5 5 – (12,671) (12,865) (13,356) (8,818) (9,812) 157,454 59,884 98,547 89,681 119,075 (111,302) (66,733) (93,876) (85,721) (64,087) 37,665 (17,486) (6,661) (3,308) 47,026 (50,211) (13,650) (6,630) (5,460) (56,800) 3,792 8,080 16,346 (1,651) (4,250) (11,642) (7,850) 230 230 16,576 (7,850) 230 16,576 (1,421) 12,326 588 3,090 16,576 360 12,795 (8,438) (2,860) – (1,781) (469) (7,850) 230 16,576 (1,421) 12,326	Year ended 31 December Eight months ended 31 August 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 4,127 2,221 2,019 1,545 1,850 57 7 5 5 – (12,671) (12,865) (13,356) (8,818) (9,812) 157,454 59,884 98,547 89,681 119,075 (111,302) (66,733) (93,876) (85,721) (64,087) 37,665 (17,486) (6,661) (3,308) 47,026 (50,211) (13,650) (6,630) (5,460) (56,800) 3,792 8,080 16,346 (1,651) (4,250) (11,642) (7,850) 230 230 16,576 (7,850) 230 16,576 (1,421) 12,326 588 3,090 16,576 360 12,795 (8,438) (2,860) – (1,781) (469) (7,850) 230 16,576 (1,421) 12,326	Year ended 31 December Eight months ended 31 August 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 4,127 2,221 2,019 1,545 1,850 57 7 5 5 – (12,671) (12,865) (13,356) (8,818) (9,812) 157,454 59,884 98,547 89,681 119,075 (111,302) (66,733) (93,876) (85,721) (64,087) 37,665 (17,486) (6,661) (3,308) 47,026 (50,211) (13,650) (6,630) (5,460) (56,800) 3,792 8,080 16,346 (1,651) (4,250) (11,642) (7,850) 230 230 16,576 (7,850) 230 16,576 (1,421) 12,326 588 3,090 16,576 360 12,795 (8,438) (2,860) – (1,781) (469) (7,850) 230 16,576 (1,421) 12,326	Year ended 31 December Eight months ended 31 August 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 4,127 2,221 2,019 1,545 1,850 57 7 5 5 – (12,671) (12,865) (13,356) (8,818) (9,812) 157,454 59,884 98,547 89,681 119,075 (111,302) (66,733) (93,876) (85,721) (64,087) 37,665 (17,486) (6,661) (3,308) 47,026 (50,211) (13,650) (6,630) (5,460) (56,800) 3,792 8,080 16,346 (1,651) (4,250) (11,642) (7,850) 230 230 16,576 (7,850) 230 16,576 (1,421) 12,326 588 3,090 16,576 360 12,795 (8,438) (2,860) – (1,781) (469) (7,850) 230 16,576 (1,421) 12,326	Year ended 31 December Eight months ended 31 August 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 4,127 2,221 2,019 1,545 1,850 57 7 5 5 – (12,671) (12,865) (13,356) (8,818) (9,812) 157,454 59,884 98,547 89,681 119,075 (111,302) (66,733) (93,876) (85,721) (64,087) 37,665 (17,486) (6,661) (3,308) 47,026 (50,211) (13,650) (6,630) (5,460) (56,800) 3,792 8,080 16,346 (1,651) (4,250) (11,642) (7,850) 230 230 16,576 (7,850) 230 16,576 (1,421) 12,326 588 3,090 16,576 360 12,795 (8,438) (2,860) – (1,781) (469) (7,850) 230 16,576 (1,421) 12,326
37,665 (50,211) 3,792 (11,642)	(17,486) (13,650) 8,080 (7,850)	(6,661) (6,630) 16,346 230	(3,308) (5,460) (1,651) 230	47,026
				(56,800
				(4,250 16,576
(7,850)	230	16,576	(1,421)
588 (8,438)	3,090 (2,860)	16,576 –	360 (1,781)	12,795 (469
(7,850)	230	16,576	(1,421)

−70 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

(B) NOTES TO THE FINANCIAL INFORMATION

1. SIGNIFICANT ACCOUNTING POLICIES

The financial information has been prepared under the historical cost convention, as modified for the revaluation of investments in securities and in accordance with accounting principles generally accepted in Hong Kong. The principal accounting policies adopted are as follows:

Revenue recognition

Sales of goods are recognised when goods are delivered and title has passed.

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

Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established.

Property, plant and equipment

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

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

Leasehold land Over the lease term Buildings Over the shorter of the lease periods and the estimated useful lives Plant and machinery 14% – 33.33% Furniture and equipment 20% Moulds 33.33% Motor vehicles 33.33% Computer equipment 20%

Investments in securities

Investments in securities are recognised on a trade-date basis and are initially measured at cost.

At subsequent reporting dates, debt securities that Shelcore HK has the expressed intention and ability to hold to maturity (held-to-maturity debt securities) are measured at amortised cost, less any impairment loss recognised to reflect irrecoverable amounts. The annual amortisation of any discount or premium on the acquisition of a held-to-maturity security is aggregated with other investment income receivable over the term of the instrument so that the revenue recognised in each period represents a constant yield on the investment.

Investments other than held-to-maturity debt securities are classified as investment securities and other investments.

Other investments are measured at fair value, with unrealised gains and losses included in net profit or loss for the year/period.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the first-in, first-out method.

−71 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

Research and development expenditure

Expenditure on research activities is recognised as an expense in the year/period in which it is incurred.

Impairment

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

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

Foreign currencies

Operating leases

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

Retirement benefit costs

Payments to retirement benefit scheme are charged as expenses as they fall due.

2. TURNOVER

Turnover represents the net amounts received and receivable for goods sold during the year/period.

−72 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

3. SEGMENT INFORMATION

Shelcore HK is engaged in the manufacture and sale of baby toys. The nature of the products and the production processes and the methods used to distribute the products to customers in different geographical locations are similar. Shelcore HK’s production facilities are located in the People’s Republic of China excluding Hong Kong (the “PRC”). The Directors of Shelcore HK consider that geographical segments by location of customers are the primary source of the Shelcore HK’s risk and returns.

Income statement for the year ended 31 December 2001

TURNOVER External sales RESULTS Segment results Unallocated corporate income and expenses Profit from operations Finance costs Profit before taxation Taxation Net profit for the year	United States HK$’000 139,187 57,188	Canada HK$’000 25,071 10,354	United Kingdom HK$’000 18,655 7,863	Others HK$’000 32,426 14,395	Consolidated HK$’000 215,339

					89,800
					(86,213
					3,587 (403
					3,184 (120
					3,064

Balance sheet as at 31 December 2001

United States Canada United Kingdom Others HK$’000 HK$’000 HK$’000 HK$’000 ASSETS Segment assets 2,978 61 1,589 6,472 Unallocated corporate assets LIABILITIES Unallocated corporate liabilities	Consolidated HK$’000 11,100 244,970
	256,070

	29,328

Other information for the year ended 31 December 2001

		Consolidated
		HK$’000
Unallocated	additions to property, plant and equipment	12,671
Unallocated	depreciation	15,541

−73 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

Income statement for the year ended 31 December 2002

TURNOVER External sales RESULTS Segment results Unallocated corporate income and expenses Profit from operations Finance costs Profit before taxation Taxation Net profit for the year	United States HK$’000 193,403 78,972	Canada HK$’000 28,538 11,662	United Kingdom HK$’000 17,896 7,024	Others HK$’000 31,073 13,750	Consolidated HK$’000 270,910

					111,408
					(86,049
					25,359 (268
					25,091 65
					25,156

Balance sheet as at 31 December 2002

United States Canada United Kingdom Others HK$’000 HK$’000 HK$’000 HK$’000 ASSETS Segment assets 13,834 376 1,236 5,654 Unallocated corporate assets LIABILITIES Unallocated corporate liabilities	Consolidated HK$’000 21,100 252,773
	273,873

	35,625

Other information for the year ended 31 December 2002

		Consolidated
		HK$’000
Unallocated	additions to property, plant and equipment	12,865
Unallocated	depreciation	15,121

−74 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

Income statement for the year ended 31 December 2003

TURNOVER External sales RESULTS Segment results Unallocated corporate income and expenses Loss from operations Finance costs Loss before taxation Taxation Net loss for the year	United States HK$’000 126,623 48,784	Canada HK$’000 21,038 8,205	United Kingdom HK$’000 20,124 7,388	Others HK$’000 26,865 13,231	Consolidated HK$’000 194,650

					77,608
					(94,759
					(17,151 (105
					(17,256 (255
					(17,511

Balance sheet as at 31 December 2003

United States Canada United Kingdom Others HK$’000 HK$’000 HK$’000 HK$’000 ASSETS Segment assets 3,067 539 1,258 4,195 Unallocated corporate assets LIABILITIES Unallocated corporate liabilities	Consolidated HK$’000 9,059 226,159
	235,218

	21,111

Other information for the year ended 31 December 2003

		Consolidated
		HK$’000
Unallocated	additions to property, plant and equipment	13,356
Unallocated	depreciation	14,539

−75 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

Income statement for the eight months ended 31 August 2003 (Unaudited)

TURNOVER External sales RESULTS Segment results Unallocated corporate income and expenses Loss from operations Finance costs Loss before taxation Taxation Net loss for the period	United States HK$’000 85,575 32,925	Canada HK$’000 13,648 5,198	United Kingdom HK$’000 14,098 5,049	Others HK$’000 22,832 9,109	Consolidated HK$’000 136,153 52,281 (56,804) (4,523) (105) (4,628) (81) (4,709)
					(56,804
					(4,523 (105
					(4,628 (81

Income statement for the eight months ended 31 August 2004

TURNOVER External sales RESULTS Segment results Unallocated corporate income and expenses Loss from operations Finance costs Loss before taxation Taxation Net loss for the period	United States HK$’000 115,927 44,417	Canada HK$’000 11,223 3,740	United Kingdom HK$’000 19,552 7,258	Others HK$’000 29,188 12,312	Consolidated HK$’000 175,890 67,727 (70,139) (2,412) – (2,412) (233) (2,645)
					(70,139
					(2,412 –
					(2,412 (233

−76 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

Balance sheet as at 31 August 2004

United States Canada United Kingdom Others HK$’000 HK$’000 HK$’000 HK$’000 ASSETS Segment assets 22,427 3,236 8,737 6,653 Unallocated corporate assets LIABILITIES Unallocated corporate liabilities Other information for the eight months ended 31 August 2004 Unallocated additions to property, plant and equipment Unallocated depreciation	Consolidated HK$’000 41,053 165,305
	206,358

	51,696

	Consolidated HK$’000 9,812 10,132

Shelcore HK’s operations are principally carried out in PRC and Hong Kong and Shelcore’s assets are substantially located in PRC and Hong Kong. Accordingly, no analysis of the carrying amount of segment assets, additions to property, plant and equipment and depreciation analysed by the geographical segment is presented.

4. OTHER OPERATING INCOME

Gain on disposal of property, plant and equipment Interest income Commission income Sundry income	Year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 57 7 5 2,084 4,198 2,972 45 – – – 120 119 2,186 4,325 3,096	Eight months ended 31 August 2003 2004 HK$’000 HK$’000 (Unaudited) 5 – 2,353 1,472 – – – – 2,358 1,472	Eight months ended 31 August 2003 2004 HK$’000 HK$’000 (Unaudited) 5 – 2,353 1,472 – – – – 2,358 1,472
			1,472

−77 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

5. INVESTMENT INCOME, NET

Income from listed overseas investments Gain (loss) on disposal of listed overseas investments Unrealised (loss) gain on listed overseas investments Investment management charges	Year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 4,127 2,221 2,019 2,079 30 (624) (4,132) (4,321) 4,557 (416) (307) (380) 1,658 (2,377) 5,572	Eight months ended 31 August 2003 2004 HK$’000 HK$’000 (Unaudited) 1,545 1,850 (1,054) (326) 3,186 – (276) (263) 3,401 1,261

6. PROFIT (LOSS) FROM OPERATIONS

Profit (loss) from operations has been arrived at after charging (crediting): Auditors’ remuneration Directors’ remuneration Other staff costs Contributions to retirement benefits scheme of other staff Total staff costs Depreciation Written back of allowance for slow-moving inventories Allowance for slow-moving inventories Research and development costs Operating lease charges in respect of rented premises Exchange loss	Year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 368 399 369 1,518 1,531 1,902 30,310 32,279 32,745 958 1,000 1,350 32,786 34,810 35,997 15,541 15,121 14,539 – – – 390 624 3,486 15,302 12,202 11,993 351 815 1,443 161 278 504	Year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 368 399 369 1,518 1,531 1,902 30,310 32,279 32,745 958 1,000 1,350 32,786 34,810 35,997 15,541 15,121 14,539 – – – 390 624 3,486 15,302 12,202 11,993 351 815 1,443 161 278 504	Year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 368 399 369 1,518 1,531 1,902 30,310 32,279 32,745 958 1,000 1,350 32,786 34,810 35,997 15,541 15,121 14,539 – – – 390 624 3,486 15,302 12,202 11,993 351 815 1,443 161 278 504	Year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 368 399 369 1,518 1,531 1,902 30,310 32,279 32,745 958 1,000 1,350 32,786 34,810 35,997 15,541 15,121 14,539 – – – 390 624 3,486 15,302 12,202 11,993 351 815 1,443 161 278 504
	1,518 30,310 958	1,531 32,279 1,000	1,902 32,745 1,350	1,423 20,912 750
	32,786 15,541 – 390 15,302 351 161	34,810 15,121 – 624 12,202 815 278	35,997 14,539 – 3,486 11,993 1,443 504	23,085 9,706 (304) – 8,090 915 146

−78 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

7. DIRECTORS’ EMOLUMENTS

Fees Other emoluments Contributions to retirement benefits scheme	Year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 – – – 1,445 1,458 1,811 73 73 91 1,518 1,531 1,902	Eight months ended 31 August 2003 2004 HK$’000 HK$’000 (Unaudited) – – 1,355 1,003 68 50 1,423 1,053	Eight months ended 31 August 2003 2004 HK$’000 HK$’000 (Unaudited) – – 1,355 1,003 68 50 1,423 1,053
			1,053

Directors’ emoluments are within the following bands:

Number of directors

				Eight months ended	Eight months ended
	Year ended 31 December			31 August
	2001	2002	2003	2003	2004
				(Unaudited)
Nil to HK$1,000,000	2	2	2	3	3
HK$1,000,001 to HK$1,500,000	1	1	1	–	–

No director waived any emoluments in the Relevant Periods.

8. EMPLOYEES’ EMOLUMENTS

During the Relevant Periods, the five highest paid individuals included one director of Shelcore HK for each of three years ended 31 December 2003 and the eight months ended 31 August 2003 and 2004, details of whose emoluments are set out above. The emoluments of the remaining four highest paid individuals were as follows:

Salaries and other benefits Contributions to retirement benefits scheme	Year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 3,062 3,080 3,184 152 153 158 3,214 3,233 3,342	Eight months ended 31 August 2003 2004 HK$’000 HK$’000 (Unaudited) 2,141 2,037 106 101 2,247 2,138	Eight months ended 31 August 2003 2004 HK$’000 HK$’000 (Unaudited) 2,141 2,037 106 101 2,247 2,138
			2,138

−79 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

The emoluments were paid to the remaining individuals as follows:

Nil to HK$1,000,000	Number of individuals
	Year ended 31 December Eight months ended 31 August 2001 2002 2003 2003 2004 (Unaudited) 4 4 4 4 4

During the Relevant Periods, no emoluments were paid by Shelcore HK to the five highest paid individuals (including directors and employees) as an inducement to join or upon joining Shelcore HK or as compensation for loss of office.

9. FINANCE COSTS

Interests on: Bank overdrafts Bank packing credit	Year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 326 167 95 77 101 10 403 268 105	Eight months ended 31 August 2003 2004 HK$’000 HK$’000 (Unaudited) 95 – 10 – 105 –	Eight months ended 31 August 2003 2004 HK$’000 HK$’000 (Unaudited) 95 – 10 – 105 –
			–

10. TAXATION

The charge (credit) comprises: Current tax Hong Kong Profits Tax Overseas taxes (Over)underprovision in prior years	Year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 – 12 – 120 11 238 – (88) 17 120 (65) 255	Eight months ended 31 August 2003 2004 HK$’000 HK$’000 (Unaudited) – – 81 236 – (3 81 233	Eight months ended 31 August 2003 2004 HK$’000 HK$’000 (Unaudited) – – 81 236 – (3 81 233
			233

No provision for Hong Kong Profits Tax has been made in the financial statements for the years ended 31 December 2001 and 2003 and eight months ended 31 August 2003 and 2004 as Shelcore has no assessable profits in those periods.

Hong Kong Profits Tax was provided at 16% on the estimated assessable profit of the year ended 31 December 2002.

Overseas taxes are provided for in accordance with the legislation and tax rates prevailing in the respective overseas countries.

−80 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

The tax charge (credit) for the year/period can be reconciled to the profit (loss) before taxation per the income statement as follows:

Year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 3,184 25,091 (17,256)	Year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 3,184 25,091 (17,256)	Year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 3,184 25,091 (17,256)	Eight months ended 31 August 2003 2004 HK$’000 HK$’000 (Unaudited) (4,628) (2,412	Eight months ended 31 August 2003 2004 HK$’000 HK$’000 (Unaudited) (4,628) (2,412

509 12,161 (12,883) 11 – – 322	4,015 12,729 (16,932) – (3) (88) 214	(3,020) 14,776 (12,042) 42 – 17 482	(810) 9,773 (9,074) 16 – – 176	(422 10,636 (10,379 8 – (3 393
120	(65)	255	81	233

At the balance sheet date, the estimated unused tax losses available for offset against future profits of Shelcore HK are as follows:

					31 December		At 31	August
				2001	2002	2003	2003	2004
				HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
							(Unaudited)
Estimated	unused	tax	losses	21	–	241	92	287

No deferred taxation asset has been recognised due to the unpredictability of future profit streams. The estimated unused tax losses may be carried forward indefinitely.

Note: The tax rate is 16%, 16%, 17.5%, 17.5% and 17.5% for the year ended 31 December 2001, 2002 and 2003 and for the eight months ended 31 August 2003 and 2004 respectively.

11. DIVIDENDS

						Eight months	ended
			Year	ended 31 December		31 August
			2001	2002	2003	2003	2004
			HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
						(Unaudited)
Interim	dividends,	paid	2,940	13,650	6,630	5,460	56,800

−81 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

12. PROPERTY, PLANT AND EQUIPMENT

Land and buildings in Hong Kong HK$’000 8,386 – –	Land and buildings outside Hong Kong HK$’000 34,348 – –	Leasehold improvement HK$’000 24,114 130 –	Plant and machinery HK$’000 30,012 306 (72)	Furniture and equipment HK$’000 5,363 169 (49)	Moulds HK$’000 73,350 11,245 –	Motor vehicles HK$’000 1,704 521 (394)	Computer equipment HK$’000 7,325 300 (126)	Total HK$’000 184,602 12,671 (641)
8,386 – – 8,386 – – 8,386 – – 8,386 8,386 – – 8,386 – – 8,386 – – 8,386 – – 8,386	34,348 – – 34,348 – – 34,348 – – 34,348 11,182 554 – 11,736 554 – 12,290 555 – 12,845 369 – 13,214	24,244 962 – 25,206 2,021 – 27,227 189 – 27,416 18,359 2,506 – 20,865 1,564 – 22,429 1,381 – 23,810 981 – 24,791	30,246 1,635 (705) 31,176 937 (345) 31,768 2,131 (1,825) 32,074 21,834 2,434 (67) 24,201 1,992 (703) 25,490 1,684 (344) 26,830 1,087 (1,825) 26,092	5,483 214 (78) 5,619 175 (33) 5,761 93 (7) 5,847 4,798 233 (48) 4,983 198 (78) 5,103 205 (32) 5,276 145 (7) 5,414	84,595 9,290 – 93,885 9,401 – 103,286 7,286 – 110,572 59,287 9,246 – 68,533 10,248 – 78,781 10,013 – 88,794 7,130 – 95,924	1,831 344 (336) 1,839 475 (130) 2,184 – (116) 2,068 1,610 215 (394) 1,431 216 (336) 1,311 383 (130) 1,564 211 (116) 1,659	7,499 420 (64) 7,855 347 (36) 8,166 113 (245) 8,034 6,499 353 (126) 6,726 349 (64) 7,011 318 (36) 7,293 209 (245) 7,257	196,632 12,865 (1,183)
								208,314 13,356 (544)
								221,126 9,812 (2,193)
								228,745
								131,955 15,541 (635)
								146,861 15,121 (1,181)
								160,801 14,539 (542)
								174,798 10,132 (2,193)
								182,737
– – – –	21,134 21,503 22,058 22,612	2,625 3,417 2,777 3,379	5,982 4,938 5,686 6,045	433 485 516 500	14,648 14,492 15,104 16,062	409 620 528 400	777 873 844 773	46,008

								46,328

								47,513

								49,771

−82 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

Leasehold land in Hong Kong is held under a lease term for 99 years from 1 July 1898 to 30 June 1997. The cost of leasehold land in Hong Kong was fully amortised as at 30 June 1997. The aforesaid depreciation has not taken into account the extension of lease terms by 50 years from 1 July 1997 as set out in the Sino British Joint Declaration.

Leasehold land outside Hong Kong is held under medium term lease.

13. INVESTMENTS IN SECURITIES

Other investments Listed overseas government money funds Listed overseas investments – Equity securities – Debts securities Market value of listed investments INVENTORIES Raw materials Work in progress Finished goods Less: Allowance for slow-moving inventories At net realisable value: Raw materials Work in progress Finished goods	At 31 December 2001 2002 HK$’000 HK$’000 3,410 23,717 19,434 15,116 40,912 27,174 63,756 66,007 63,756 66,007 At 31 December 2001 2002 HK$’000 HK$’000 7,932 10,444 9,598 10,276 6,675 10,932	At 31 December 2001 2002 HK$’000 HK$’000 3,410 23,717 19,434 15,116 40,912 27,174 63,756 66,007 63,756 66,007 At 31 December 2001 2002 HK$’000 HK$’000 7,932 10,444 9,598 10,276 6,675 10,932	2003 HK$’000 2,990 18,159 43,740 64,889 64,889 2003 HK$’000 8,281 10,162 10,258	At 31 August 2004 HK$’000 9,312 – – 9,312 9,312 At 31 August 2004 HK$’000 8,306 7,725 14,794 30,825 (1,739) 29,086 At 31 August 2004 HK$’000 – – – –
	24,205 (1,170)	31,652 (1,794)	28,701 (5,280)	30,825 (1,739
	23,035 29,858 At 31 December 2001 2002 HK$’000 HK$’000 406 1,087 1,442 2,061 298 596 2,146 3,744		23,421 2003 HK$’000 – – – –

14. INVENTORIES

−83 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

15. TRADE AND OTHER RECEIVABLES

Shelcore HK allows a credit period of 30 days to its trade customers.

The following is an aged analysis of trade and other receivables at the balance sheet date:

0 – 30 days 31 – 90 days > 90 days Trade receivables Other receivables	At 31 December 2001 2002 HK$’000 HK$’000 7,052 19,290 1,506 1,810 2,542 –	At 31 December 2001 2002 HK$’000 HK$’000 7,052 19,290 1,506 1,810 2,542 –	2003 HK$’000 8,663 390 6	At 31 August 2004 HK$’000 40,809 236 8
	11,100 2,066	21,100 4,616	9,059 4,917	41,053 4,100
	13,166	25,716	13,976	45,153

16. AMOUNTS DUE FROM RELATED COMPANIES

The details of amounts due from related companies are disclosed as follows:

Name of related company Shelcore Inc. Shelcore Canada Ltd. Shelcore (UK) Ltd. Arche Limited	At 31 December 2001 2002 HK$’000 HK$’000 73,711 66,389 8,547 10,374 23,410 24,786 86 140 105,754 101,689	2003 HK$’000 36,340 7,116 26,364 208 70,028	At 31 August 2004 HK$’000 32,147 4,232 27,437 188
			64,004

The amounts due are unsecured, have no fixed terms of repayment and interest bearing at the following interest rate per annum:

							Eight months
							ended
				Year	ended 31 December		31 August
				2001	2002	2003	2004
Interest	rate	per	annum	4.9%-6.24%	2.78%-6%	1.52%-6%	1.56%-7.2%

Richard Jason Greenberg, the director of Shelcore HK, is a director of the above companies. Michael Adam Greenberg, the director of Shelcore HK, is a director of Arche Limited.

−84 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

17. TRADE AND OTHER PAYABLES

The following is an aged analysis of trade and other payables at the balance sheet date:

0 – 60 days 61 – 90 days > 90 days Trade payables Other payables and accrued charges	At 31 December 2001 2002 HK$’000 HK$’000 12,349 23,327 1,237 282 467 139	At 31 December 2001 2002 HK$’000 HK$’000 12,349 23,327 1,237 282 467 139	2003 HK$’000 8,065 1 –	At 31 August 2004 HK$’000 31,892 – 110
	14,053 6,664	23,748 8,994	8,066 12,968	32,002 11,781
	20,717	32,742	21,034	43,783

18. SHARE CAPITAL

				At
		At 31 December		31 August
	2001	2002	2003	2004
	HK$’000	HK$’000	HK$’000	HK$’000
Authorised, issued and fully paid:
10,000 shares of HK$1 each	10	10	10	10

There was no movement in Shelcore HK’s share capital during the Relevant Periods.

19. PLEDGE OF ASSETS

At 31 December 2001, 2002 and 2003 and 31 August 2004, Shelcore HK had executed in favour of a bank an all monies legal charge over its leasehold land and buildings in Hong Kong to secure general banking facilities granted by the bank to Shelcore HK. The bank also holds counter indemnities for the issuance of guarantees to third parties on behalf of Shelcore HK.

20. LEASE COMMITMENTS

At the balance sheet date, Shelcore HK had commitments for future minimum lease payments for land and buildings under non-cancellable operating leases which fall due as follows:

Within one year In the second to fifth year inclusive	At 31 December 2001 2002 HK$’000 HK$’000 313 1,291 106 3,342 419 4,633	2003 HK$’000 1,482 3,561 5,043	At 31 August 2004 HK$’000 1,203 2,322
			3,525

Operating lease payments represent rentals payable by the Company for certain of its office properties and factories. Leases are negotiated for a period of two to five years, with options to renew the lease terms at the expiry dates.

−85 −

APPENDIX I FINANCIAL INFORMATION OF THE SHELCORE GROUP

21. CAPITAL COMMITMENTS

					At
		At	31 December		31 August
	2001		2002	2003	2004
	HK$’000		HK$’000	HK$’000	HK$’000
Contracted but not provided for:
Acquisition of property,
plant and equipment	1,323		1,457	2,376	1,484

22. RELATED PARTY TRANSACTIONS

During the Relevant Periods, Shelcore HK entered into the following transactions with related parties in which Richard Jason Greenberg and Michael Adam Greenberg, directors of Shelcore HK, are directors of the related parties:

				Eight months ended 31	Eight months ended 31
	Year	ended 31 December		August
	2001	2002	2003	2003	2004
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(Unaudited)
Sales	34,497	32,778	11,149	7,145	9,809
Interest income	1,794	4,083	2,939	2,333	1,466
Commission income	45	–	–	–	–
Commission expenses	687	902	756	513	387
Research and development cost	13,433	10,732	11,313	7,642	8,586

The above transactions were carried out in the ordinary course of business and at prices agreed between the parties.

23. SUBSEQUENT EVENTS

(1) Subsequent to 31 August 2004, an agreement was reached with Shelcore Canada Ltd. and Shelcore (UK) Ltd. to waive the interest receivable up to 31 August 2004, totalling HK$3,972,000 and HK$11,033,000 respectively.
(2) Subsequent to 31 August 2004, Shelcore HK declared and paid dividends of HK$40,187,000 to the shareholder of Shelcore HK.

(C) DIRECTORS’ REMUNERATION

Save as disclosed in this report, no remuneration has been paid or is payable in respect of the period covered by this report to Shelcore HK’s directors.

(D) SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of Shelcore HK have been prepared in respect of any period subsequent to 31 August 2004.

Yours faithfully,

Deloitte Touche Tohmatsu

Certified Public Accountants Hong Kong

−86 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

1. AUDITED FINANCIAL INFORMATION

The following is a summary of the audited consolidated results and the assets and liabilities of the Group for each of the last three financial years ended 31 December 2003 as extracted from the respective published audited financial statements and unaudited consolidated results and the assets and liabilities of the Group for the six months period ended 30 June 2004 as extracted from the interim report of the Group for the period ended 30 June 2004:

(Unaudited) (Audited) For the six months ended 30 June Year ended 31 December 2004 2003 2003 2002 2001 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 375,629 239,587 500,357 395,644 195,039 105,295 70,680 158,631 116,567 38,378 (82) (662) (1,153) (1,626) (2,210) – – – – 4,654 105,213 70,018 157,478 114,941 40,822 (15,750) (7,764) (26,312) (13,002) (5,147) 89,463 62,254 131,166 101,939 35,675 (Unaudited) (Audited) As at 30 June As at 31 December 2004 2003 2002 2001 HK$’000 HK$’000 HK$’000 HK$’000 (Restated) (Restated) 122,423 127,304 115,594 70,551 278,736 236,444 150,398 107,310 113,108 110,213 73,741 63,148 165,628 126,231 76,657 44,162 288,051 253,535 192,251 114,713 284,068 237,298 163,817 70,713 3,983 16,237 28,434 44,000 288,051 253,535 192,251 114,713	(Unaudited) For the six months ended 30 June 2004 2003 HK$’000 HK$’000 375,629 239,587	(Unaudited) For the six months ended 30 June 2004 2003 HK$’000 HK$’000 375,629 239,587	(Unaudited) For the six months ended 30 June 2004 2003 HK$’000 HK$’000 375,629 239,587	(Unaudited) For the six months ended 30 June 2004 2003 HK$’000 HK$’000 375,629 239,587	(Unaudited) For the six months ended 30 June 2004 2003 HK$’000 HK$’000 375,629 239,587	(Unaudited) For the six months ended 30 June 2004 2003 HK$’000 HK$’000 375,629 239,587
	105,295 (82) – 105,213 (15,750)	70,680 (662) – 70,018 (7,764)	158,631 (1,153) – 157,478 (26,312)		116,567 (1,626) – 114,941 (13,002)	38,378 (2,210 4,654
						40,822 (5,147
		62,254 131,166 101,939 (Audited) As at 31 December 2003 2002 HK$’000 HK$’000 (Restated) 127,304 115,594 236,444 150,398 110,213 73,741
165,628		126,231		76,657		44,162
288,051		253,535		192,251

284,068 3,983		237,298 16,237		163,817 28,434		70,713 44,000
288,051		253,535		192,251

−87 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

The following is an extract of the audited financial statements of the Group for the year ended 31 December 2003 together with notes thereto:

Consolidated Income Statement

For the year ended 31 December 2003

Notes Turnover 5 Cost of sales Gross profit Other operating income 6 Distribution costs Administrative expenses Profit from operations 7 Finance costs 8 Profit before taxation Taxation 11 Net profit for the year Dividends 12 Earnings per share 13 Basic Diluted	2003 HK$’000 500,357 (316,618)	2002 HK$’000 395,644 (245,652) 149,992 5,645 (2,359) (36,711) 116,567 (1,626) 114,941 (13,002) 101,939 54,863 HK$0.39 HK$0.18
	183,739 8,476 (2,522) (31,062) 158,631 (1,153) 157,478 (26,312)	149,992 5,645 (2,359 (36,711
		116,567 (1,626
		114,941 (13,002
	131,166 92,325 HK$0.36 HK$0.23

−88 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Consolidated Balance Sheet

At 31 December 2003

Notes Non-current asset Property, plant and equipment 14 Current assets Inventories 16 Trade and other receivables 17 Pledged bank deposit 18 Bank balances and cash Current liabilities Trade and other payables 19 Obligations under a finance lease 24 Amount due to ultimate holding company Amount due to a director 20 Dividend payable Tax payable Net current assets Capital and reserves Share capital 21 Reserves Non-current liabilities Convertible loan stock 23 Obligations under a finance lease 24 Deferred tax liabilities 25	2003 HK$’000 127,304	2002 HK$’000 (Restated) 115,594
	110,857 42,344 29,227 54,016 236,444 57,105 106 661 – 13,882 38,459 110,213 126,231	57,874 42,197 – 50,327
		150,398
		47,038 98 985 7,620 – 18,000
		73,741
		76,657
	253,535	192,251

	46,272 191,026 237,298 12,200 173 3,864	32,272 131,545
		163,817 26,200 279 1,955
	253,535	192,251

−89 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Consolidated Statement of Changes in Equity

For the year ended 31 December 2003

Share capital HK$’000 14,472 –	Share premium HK$’000 55,708 –	Special reserve HK$’000 771 –	Shareholder’s contribution HK$’000 – –	Other asset revaluation reserves HK$’000 14,280 (2,285)	Translation reserve HK$’000 – –	Accumulated (losses) profit HK$’000 (14,518) –	Total HK$’000 70,713 (2,285)
14,472 – – – – – – 17,800 – – 32,272 – – – – – 14,000 – –	55,708 – – – – – – – – – 55,708 – – – – – – – –	771 – – – – – – – – – 771 – – – – – – – –	– – – – – – – – 6,901 – 6,901 – – – – – – – –	11,995 (20) – (20) – (2,043) – – – 330 10,262 – – (933) – – – 163 (183)	– – (5,743) (5,743) – – – – – – (5,743) (2,920) – – – – – – –	(14,518) – – – 101,939 2,043 (25,818) – – – 63,646 – 131,166 933 (54,863) (13,882) – – –	68,428
							(20) (5,743)
							(5,763)
							101,939 – (25,818) 17,800 6,901 330
							163,817 (2,920) 131,166 – (54,863) (13,882) 14,000 163 (183)
46,272	55,708	771	6,901	9,309	(8,663)	127,000	237,298

The special reserve of the Group represents the difference between the nominal amount of the share capital issued by the Company and the aggregate nominal amount of the share capital of subsidiaries acquired in exchange under the group reorganisation in 1994.

−90 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Consolidated Cash Flow Statement

For the year ended 31 December 2003

Note OPERATING ACTIVITIES Profit from operations Adjustments for: Loss (profit) on disposal of property, plant and equipment Interest income Depreciation Impairment losses on property, plant and equipment Operating cash flows before movements in working capital (Increase) decrease in inventories Increase in trade and other receivables Decrease in amount due from a former shareholder Increase (decrease) in trade and other payables Decrease in amount due to a related company Decrease in amount due to a director Effect of foreign exchange rate changes Cash generated from operations Income taxes paid Interest paid NET CASH FROM OPERATING ACTIVITIES INVESTING ACTIVITIES Interest received Proceeds from disposal of property, plant and equipment Purchases of property, plant and equipment Acquisition of subsidiaries 26 Increase in pledged bank deposit NET CASH USED IN INVESTING ACTIVITIES FINANCING ACTIVITIES Dividends paid Repayment of obligations under a finance lease CASH USED IN FINANCING ACTIVITIES NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS AT END OF THE YEAR ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS Bank balances and cash	2003 HK$’000 158,631 35 (647) 17,658 –	2002 HK$’000 116,567 (176) (97) 13,949 451 130,694 2,894 (12,207) 4,654 (11,108) (60) (4,530) (4,545) 105,792 (1,411) (2,118) 102,263 97 1,066 (29,611) (26,990) – (55,438) (25,818) (46) (25,864) 20,961 29,366 50,327 50,327
	175,677 (52,983) (147) – 10,067 – (7,620) (2,362) 122,632 (3,964) (1,477) 117,191 647 603 (30,564) – (29,227) (58,541) (54,863) (98) (54,961) 3,689 50,327	130,694 2,894 (12,207 4,654 (11,108 (60 (4,530 (4,545
		105,792 (1,411 (2,118
		102,263
		97 1,066 (29,611 (26,990 –
		(55,438
		(25,818 (46
		(25,864
		20,961 29,366
	54,016 54,016

−91 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Notes to the Financial Statements

For the year ended 31 December 2003

1. GENERAL

The Company was incorporated in Bermuda on 24 November 1993 as an exempted company under the Companies Act 1981 of Bermuda (as amended). The Company is a public limited company and its shares are listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). Its ultimate holding company is Suncorp Investments Group Limited (“Suncorp”), a company incorporated in the British Virgin Islands.

The principal activities of the Company are investment holding and those of its principal subsidiaries are set out in note 15.

2. BASIS OF PREPARATION OF FINANCIAL STATEMENTS

In October 1999, there was a court judgment regarding the ownership of Matrix Plastic Manufacturing (Zhongshan) Co., Ltd. (“MPMZ”), an indirect wholly-owned major subsidiary of the Company, in connection with a claim made by a trade creditor, which had subsequently been settled. The Company has made an application for a judicial review of the judgment regarding the ownership of MPMZ. In 2002, the Company received an acknowledgement from Zhongshan Intermediate People’s Court that Guangdong High People’s Court has transferred the Company’s application to Zhongshan Intermediate People’s Court for processing. The directors have sought independent legal advice and are of the opinion that the aforesaid judgment can be overruled and will have no material impact on the financial position and operations of the Group. Accordingly, MPMZ is still treated as an indirect subsidiary of the Company.

3. ADOPTION OF HONG KONG FINANCIAL REPORTING STANDARDS

In the current year, the Group has adopted, for the first time, the following Hong Kong Financial Reporting Standards (HKFRSs) issued by the Hong Kong Society of Accountants (HKSA), the term of HKFRS is inclusive of Statements of Standard Accounting Practice (SSAPs) and Interpretations approved by the HKSA:

SSAP 12 (Revised) Income taxes

In the current year, the Group has adopted SSAP 12 (Revised) Income Taxes. The principal effect of the implementation of SSAP 12 (Revised) is in relation to deferred tax. 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 bases 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. As a result of this change in policy, the balance on the Group’s other asset revaluation reserves at 1 January 2002 has been decreased by HK$2.3 million, representing the deferred tax liability recognised in respect of the revaluation surplus on the Group’s property, plant and equipment at that date. The change has resulted in an increase in other asset revaluation reserves by HK$0.3 million for the year ended 31 December 2002 and a decrease in other asset revaluation reserves by HK$0.02 million for the year ended 31 December 2003.

4. SIGNIFICANT ACCOUNTING POLICIES

The financial statements have been prepared under the historical cost convention as modified for the revaluation of certain property, plant and equipment.

The financial statements have been prepared in accordance with accounting principles generally accepted in Hong Kong. The principal accounting policies adopted are as follows:

Basis of consolidation

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

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

−92 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Investments in subsidiaries

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

Turnover

Turnover represents the amounts received and receivable for goods sold, less returns, to outside customers during the year.

Revenue recognition

Sales of goods are recognised when goods are delivered and title has passed.

Interest income is accrued on a time basis by reference to the principal outstanding and at the interest rate applicable.

Property, plant and equipment

Leasehold land and buildings and plant and machinery are stated in the balance sheet at their revalued amount, being the fair value on the basis of their existing use at the date of revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Revaluations are performed with sufficient regularity such that the carrying amount does not differ materially from that which would be determined using fair values at the balance sheet date.

Any revaluation increase arising on revaluation of leasehold land and buildings and plant and machinery is credited to the other asset revaluation reserves, except to the extent that it reverses a revaluation decrease of the same asset previously recognised as an expense, in which case the increase is credited to the income statement to the extent of the decrease previously charged. A decrease in net carrying amount arising on revaluation of an asset is charged as an expense to the income statement to the extent that it exceeds the balance, if any, on the revaluation reserve relating to a previous revaluation of that asset. On the subsequent sale or retirement of a revalued asset, the attributable revaluation surplus is transferred to accumulated profits.

Construction in progress represents buildings in the course of development for production or administrative purposes or for the purposes not yet determined, and is carried at cost, less any identified impairment losses. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

Other assets are stated at cost less depreciation and accumulated impairment losses.

Depreciation is provided to write off the cost or valuation of items of property, plant and equipment, other than construction in progress, over their estimated useful lives, using the straight line method, at the following rates per annum:

Leasehold land	2% or over the lease term, if shorter
Buildings	2% – 4% or over the lease term, if shorter
Leasehold improvement	2% or over the lease term, if shorter
Plant and machinery	20%
Furniture and equipment	10% – 20%
Motor vehicle	30%

−93 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Impairment

At each balance sheet date, the Group reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Impairment losses are recognised as an expense immediately, unless the relevant asset is carried at a revalued amount under another standard, in which case the impairment loss is treated as a revaluation decrease under that standard.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount under another standard, in which case the reversal of the impairment loss is treated as a revaluation increase under that standard.

Leased assets

Leases are classified as finance leases when the terms of the lease transfer substantially all the risks and rewards of ownership of the assets concerned to the Group. Assets held under finance leases are capitalised at their fair values at the date of acquisition. The corresponding liability to the lessor, net of interest charges, is included in the balance sheet as a finance lease obligation. Finance costs, which represent the difference between the total leasing commitments and the fair value of the assets acquired, are charged to the income statement over the period of the relevant lease so as to produce a constant periodic rate of charge on the remaining balance of the obligations for each accounting period.

All other leases are classified as operating leases and the annual rentals are charged to the income statement on a straight line basis over the relevant lease term.

Foreign currencies

On consolidation, the assets and liabilities of subsidiaries which are denominated in currencies other than Hong Kong dollars are translated at the rates ruling on the balance sheet date. Income and expenses items are translated at the average exchange rates for the period. Exchange differences arising, if any, are classified as equity and transferred to the Group’s translation reserve. Such translation differences are recognised to income or as expenses in the period in which the operation is disposed of.

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years, and it further excludes income statement items that are never taxable or deductible.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill (or negative goodwill) or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that effects neither the taxable profit nor the accounting profit.

−94 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the first-in, first-out method. Net realisable value represents the estimated selling price less all estimated costs to completion and costs to be incurred in marketing, selling and distribution.

Retirement benefits scheme

The retirement benefits costs charged in the income statement represent the contributions payable in respect of the current year to the Mandatory Provident Fund Scheme (“MPFS”) and other schemes by the Group.

5. SEGMENT INFORMATION

The Group is engaged in the manufacture and trading of gifts and novelties. The nature of products, the production processes and the methods used to distribute the products to customers in different geographical areas are similar. Accordingly, no analysis on the basis of business segment is presented. The Group’s production facilities are located in the People’s Republic of China (the “PRC”) (other than Hong Kong) and the Socialist Republic of Vietnam (“Vietnam”). The directors of the Company consider the geographical segments by location of customers as primary source of the Group’s risks and returns.

−95 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

The Group’s customers are mainly located in United States. The following table provides an analysis of the Group’s segment information by geographical location of the Group’s customers:

2003

United States HK$’000 REVENUE External sales 448,983 RESULTS Segment results 166,018 Unallocated income and expenses Profit from operations Finance costs Profit before taxation Taxation Net profit for the year ASSETS Segment assets 120,163 Unallocated corporate assets LIABILITIES Segment liabilities 35,379 Unallocated corporate liabilities OTHER INFORMATION Unallocated additions to property, plant and equipment Unallocated depreciation	Canada HK$’000 14,824 4,043 1,559 262	Taiwan HK$’000 11,713 3,476 1,196 12	Hong Kong HK$’000 23,254 8,554 12,111 1,671	Others HK$’000 1,583 508 313 13	Consolidated HK$’000 500,357 182,599 (23,968) 158,631 (1,153) 157,478 (26,312) 131,166 135,342 228,406 363,748 37,337 89,113 126,450 30,564 17,658

−96 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

2002

United States HK$’000 REVENUE External sales 351,796 RESULTS Segment results 136,849 Unallocated income and expenses Profit from operations Finance costs Profit before taxation Taxation Net profit for the year ASSETS Segment assets 81,296 Unallocated corporate assets LIABILITIES Segment liabilities 27,748 Unallocated corporate liabilities OTHER INFORMATION Unallocated additions to property, plant and equipment Unallocated depreciation Impairment losses recognised	Canada HK$’000 22,943 6,435 3,295 824	Taiwan HK$’000 18,018 5,316 2,863 2,504	Hong Kong HK$’000 2,887 1,036 512 57	Others HK$’000 – – 461 24	Consolidated HK$’000 395,644 149,636 (33,069) 116,567 (1,626) 114,941 (13,002) 101,939 88,427 177,565 265,992 31,157 71,018 102,175 30,034 13,949 471

−97 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

The following is an analysis of the carrying amount of segment assets and additions to property, plant and equipment analysed by the geographical area in which the assets are located:

PRC Vietnam Hong Kong Macau	Carrying amount of segment assets 2003 2002 HK$’000 HK$’000 166,922 132,348 77,801 67,894 82,573 55,028 36,452 10,722 363,748 265,992	Additions to property, plant and equipment 2003 2002 HK$’000 HK$’000 16,155 15,870 14,250 13,330 159 834 – – 30,564 30,034	Additions to property, plant and equipment 2003 2002 HK$’000 HK$’000 16,155 15,870 14,250 13,330 159 834 – – 30,564 30,034
			30,034

6. OTHER OPERATING INCOME

Interest income on bank deposits Net exchange gain Profit on disposal of property, plant and equipment Others	2003 HK$’000 647 5,927 – 1,902 8,476	2002 HK$’000 97 3,478 176 1,894
		5,645

7. PROFIT FROM OPERATIONS

Profit from operations has been arrived at after charging: Auditors’ remuneration – current year – underprovision in previous year Impairment losses recognised in respect of property, plant and equipment Loss on disposal of property, plant and equipment Depreciation of property, plant and equipment – owned assets – assets held under a finance lease Staff costs (including wages and directors’ remuneration)	2003 HK$’000 728 138 – 35 17,531 127 17,658 91,244	2002 HK$’000 601 70 451 – 13,822 127
		13,949 66,384

−98 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

8. FINANCE COSTS

Interest on convertible loan stock Finance lease charges Interest on bank overdraft	2003 HK$’000 1,091 24 38 1,153	2002 HK$’000 1,612 14 –
		1,626

9. DIRECTORS’ EMOLUMENTS

Directors’ emoluments are analysed as follows:

Fees Independent non-executive directors Other emoluments (executive directors) Salaries and allowances Contributions to MPFS Directors’ emoluments are within the following bands: Nil to HK$1,000,000 HK$1,000,001 to HK$1,500,000	2003 HK$’000 120 2,202 60 2,382 Number of 2003 3 1	2002 HK$’000 120 2,551 65
		2,736

		directors 2002 3 1

No director waived any emoluments in the two years ended 31 December 2003.

−99 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

10. HIGHEST PAID EMPLOYEES

The five highest paid individuals included two (2002: two) directors, details of whose emoluments are set out above. The emoluments of the remaining three (2002: three) highest paid individuals are as follows:

Salaries and allowances Contributions to MPFS Employees’ emoluments are within the following bands: Nil to HK$1,000,000 HK$1,000,001 to HK$1,500,000	2003 HK$’000 2,029 24 2,053 Number of 2003 3 –	2002 HK$’000 2,930 28
		2,958

		employees 2002 2 1

11. TAXATION

Current tax: Hong Kong Other jurisdiction Overprovision in prior year: Hong Kong Deferred tax: Current year (Note 25) Taxation attributable to the Company and its subsidiaries	2003 HK$’000 24,147 1,277	2002 HK$’000 11,650 1,400
	25,424 (1,014) 1,902	13,050 (48) –
	26,312	13,002

Hong Kong Profits Tax is calculated at 17.5% (2002: 16%) on the estimated assessable profit for the year. In June 2003, the Hong Kong Profits Tax rate was increased from 16% to 17.5% with effect from the 2003/2004 year of assessment. The effect of this increase has been reflected in the calculation of current and deferred tax balances at 31 December 2003.

According to the Investment License granted by Vietnam authority to the Vietnam subsidiaries, the Vietnam enterprise income tax rate is 10% on the estimated assessable profits during the operating period. The Vietnam subsidiaries are eligible for exemption from Vietnam enterprise income tax for four years from the first profit-making year followed by a 50% reduction in the Vietnam enterprise income tax for the next four years.

−100 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Vietnam enterprise income tax is calculated at 5% (2002: 5%) on the estimated assessable profit for the year.

According to the Investment License, the tax for transferring profits of Vietnam subsidiaries outside Vietnam is calculated at 3% on the profits transferred. No provision for such tax has been made as the Group currently has no intention of transferring profits of the Vietnam subsidiaries outside Vietnam.

The tax charge for the year can be reconciled to the profit per the income statement as follows:

Profit before taxation Tax at the domestic income tax rate Tax effect of expenses not deductible for tax purpose Tax effect of income not taxable for tax purpose Overprovision in respect of prior year Tax effect of tax losses/ deferred tax assets not recognised Utilisation of tax losses/ deferred tax assets previously not recognised Others Tax effect for the year	Hong Kong 2003 2002 HK$’000 HK$’000 133,109 75,331	Hong Kong 2003 2002 HK$’000 HK$’000 133,109 75,331	Other jurisdictions 2003 2002 HK$’000 HK$’000 24,369 39,610	Other jurisdictions 2003 2002 HK$’000 HK$’000 24,369 39,610	Total 2003 2002 HK$’000 HK$’000 157,478 114,941	Total 2003 2002 HK$’000 HK$’000 157,478 114,941
	23,294 1,114 (1,104) (1,014) 1,530 (28) 1,376	12,053 553 (19) (48) 595 – (1,532)	3,182 339 (8) – 138 (2,540) 33	3,495 35 (465) – – (1,988) 323	26,476 1,453 (1,112) (1,014) 1,668 (2,568) 1,409	15,548 588 (484 (48 595 (1,988 (1,209
	25,168	11,602	1,144	1,400	26,312	13,002

12. DIVIDENDS

Ordinary shares: Interim, paid – HK8 cents (2002: HK8 cents) per share Special, declared – HK3 cents (2002: nil) per share Final, proposed – HK9 cents (2002: HK9 cents) per share	2003 HK$’000 25,818 13,882 52,625 92,325	2002 HK$’000 25,818 – 29,045
		54,863

The final dividend of HK9 cents (2002: HK9 cents) per share has been proposed by the directors and is subject to approval by the shareholders in the annual general meeting.

−101 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

13. EARNINGS PER SHARE

The calculation of basic and diluted earnings per share is based on the following data:

Earnings Earnings for the purposes of basic earnings per share Effect of dilutive potential ordinary shares: Interest on convertible loan stock Earnings for the purposes of diluted earnings per share Number of shares Weighted average number of ordinary shares for the purposes of basic earnings per share Effect of dilutive potential ordinary shares: Convertible loan stock Weighted average number of ordinary shares for the purposes of diluted earnings per share	2003 HK$’000 131,166 1,091 132,257 2003 ’000 366,830 217,890 584,720	2002 HK$’000 101,939 1,612
		103,551

		2002 ’000 262,366 322,354
		584,720

−102 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

14. PROPERTY, PLANT AND EQUIPMENT

Leasehold land and buildings Construction in progress Leasehold improvement HK$’000 HK$’000 HK$’000 70,454 7,392 4,935 (191) (111) – 4,553 – 751 7,281 (7,281) – – – – 82,097 – 5,686	Leasehold land and buildings Construction in progress Leasehold improvement HK$’000 HK$’000 HK$’000 70,454 7,392 4,935 (191) (111) – 4,553 – 751 7,281 (7,281) – – – – 82,097 – 5,686	Leasehold land and buildings Construction in progress Leasehold improvement HK$’000 HK$’000 HK$’000 70,454 7,392 4,935 (191) (111) – 4,553 – 751 7,281 (7,281) – – – – 82,097 – 5,686	Plant and machinery HK$’000 46,434 (369) 22,411 – (896) 67,580	Furniture and equipment HK$’000 1,055 (1) 2,849 – (10) 3,893	Motor vehicle HK$’000 423 – – – – 423	Total HK$’000 130,693 (672) 30,564 – (906) 159,679 95,616 64,063 159,679 15,099 (114) 17,658 (268) 32,375 127,304 115,594
24,897 57,200 82,097 2,800 (14) 2,678 – 5,464	– – – – – – – –	5,686 – 5,686 277 – 195 – 472	60,717 6,863 67,580 11,448 (99) 13,905 (264) 24,990	3,893 – 3,893 447 (1) 753 (4) 1,195	423 – 423 127 – 127 – 254	95,616 64,063
						159,679
						15,099 (114 17,658 (268
						32,375
76,633 67,654	– 7,392	5,214 4,658	42,590 34,986	2,698 608	169 296

Leasehold land are held outside Hong Kong on medium term leases.

Other than the plant and machinery acquired and disposed of during the year, the Group’s leasehold land and buildings in the PRC and the plant and machinery were revalued at 31 December 2001 by RHL Appraisal Ltd., Chartered Surveyors, at open market value on a continued use basis. RHL Appraisal Ltd. is not connected with the Group. The directors consider that the open market value of the leasehold land and buildings and plant and machinery at 31 December 2003 was not significantly different from their carrying values.

At 31 December 2003, had all of the leasehold land and buildings and plant and machinery of the Group been carried at historical cost less accumulated depreciation, their carrying amounts would have been HK$125,424,000 (2002: HK$117,656,000) and HK$40,382,000 (2002: HK$30,771,000) respectively.

The motor vehicle is held under a finance lease.

The Group has pledged land and buildings having a net book value of approximately HK$54,352,000 (2002: HK$55,776,000) to secure its banking facilities.

−103 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

15. INTERESTS IN SUBSIDIARIES

Unlisted shares, at cost Less: Impairment losses recognised Amounts due from subsidiaries Less: Allowance	THE COMPANY 2003 2002 HK$’000 HK$’000 88,090 88,090 (88,089) (88,089) 1 1 153,878 152,898 (43,901) (43,901) 109,977 108,997 109,978 108,998

The cost of the unlisted shares is based on the book value of the underlying net tangible assets of the subsidiaries attributable to the Group as at the date on which the Company became the ultimate holding company of the Group under the group reorganisation in 1994.

−104 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Details of the principal subsidiaries at 31 December 2003 are as follows:

		Issued and		Proportion of
		fully paid		nominal value of
		share capital/		issued capital/
	Place/country of	registered		registered capital/
	incorporation or	capital/		contributed legal
	registration/	contributed	Class of	capital held by	Principal
Name of subsidiary	operation	legal capital	share held	the Company	activities
Associated Traders Hong Kong	Hong Kong	HK$10,000	Ordinary	100%	Trading of gifts
Limited					and novelties
Besco Enterprises Limited	Hong Kong	HK$10,000	Ordinary	100%	Manufacture of
					gifts and
					novelties
Goldpex Technology Limited	The British	US$10	Ordinary	100%	Products design
	Virgin Islands
Keengold Enterprises Limited	The British	US$10	Ordinary	100%	Investment holding
	Virgin Islands
Keyhinge Holdings Limited	Hong Kong	HK$10,000	Ordinary	100%	Investment holding
Keyhinge Procurement Limited	Hong Kong	HK$10,000	Ordinary	100%	Purchasing
Keyhinge Toys Company	The British	US$10	Ordinary	100%	Trading of gifts
Limited	Virgin Islands
Keyhinge Toys Vietnam	Vietnam	US$5,085,864	Capital	100%	Manufacture of
Company Limited			contribution		gifts and
					novelties
Matrix International Holdings	The British	US$6	Ordinary	100%	Investment holding
Limited	Virgin Islands
Matrix Investments Group	The British	US$10	Ordinary	100%	Investment holding
Limited	Virgin Islands
Matrix Manufacturing Limited	The British	US$1	Ordinary	100%	Investment holding
	Virgin Islands
Matrix Manufacturing Vietnam	Vietnam	US$2,635,864	Capital	100%	Manufacture of
Company Limited			contribution		gifts and
					novelties
Matrix Plastic Manufacturing	PRC	US$5,910,000	Capital	100%	Manufacture of
(Zhongshan) Co., Ltd.			contribution		gifts and
					novelties
Matrix Resources Enterprise	Hong Kong	HK$10,000	Ordinary	100%	Provision of
Limited					management
					services
Toytrix Company Limited	Hong Kong	HK$2	Ordinary	100%	Manufacture of
					printing
					materials

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

All of the subsidiaries are owned indirectly by the Company except for Matrix International Holdings Limited and Matrix Investments Group Limited which are owned directly.

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

−105 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

16. INVENTORIES

Raw materials Work in progress Finished goods	THE GROUP 2003 2002 HK$’000 HK$’000 21,012 15,880 22,631 11,382 67,214 30,612 110,857 57,874	THE GROUP 2003 2002 HK$’000 HK$’000 21,012 15,880 22,631 11,382 67,214 30,612 110,857 57,874
		57,874

All of the inventories above are carried at cost.

17. TRADE AND OTHER RECEIVABLES

The trade and other receivables include trade receivables of HK$34,917,000 (2002: HK$39,122,000). The Group allows a credit period of 14 to 60 days to its trade customers.

The following is an aged analysis of trade receivables at the balance sheet date:

0 – 60 days 61 – 90 days > 90 days	THE GROUP 2003 2002 HK$’000 HK$’000 34,871 38,794 – 56 46 272 34,917 39,122	THE GROUP 2003 2002 HK$’000 HK$’000 34,871 38,794 – 56 46 272 34,917 39,122
		39,122

18. PLEDGED BANK DEPOSIT

The amount represents deposit pledged to a bank to secure a bank overdraft facility granted to the Group and is therefore classified as a current asset.

19. TRADE AND OTHER PAYABLES

The trade and other payables include trade payables of HK$40,924,000 (2002: HK$29,683,000).

The following is an aged analysis of trade payables at the balance sheet date:

0 – 60 days 61 – 90 days > 90 days	THE GROUP 2003 2002 HK$’000 HK$’000 40,213 28,686 174 488 537 509 40,924 29,683	THE GROUP 2003 2002 HK$’000 HK$’000 40,213 28,686 174 488 537 509 40,924 29,683
		29,683

−106 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

20. AMOUNT DUE TO A DIRECTOR

THE GROUP

The amount due to Mr. Cheng Yung Pun (“Mr. Cheng”), a director of the Company, was unsecured, interest free and was fully repaid during the year.

21. SHARE CAPITAL

Number of shares 2003 2002 ’000 ’000 700,000 700,000	Number of shares 2003 2002 ’000 ’000 700,000 700,000	2003 HK$’000 70,000	2002 HK$’000 70,000

322,720 140,000	144,720 178,000	32,272 14,000	14,472 17,800
462,720	322,720	46,272	32,272

During the year, the Company issued 140,000,000 (2002: 178,000,000) new shares to Suncorp as mentioned in note 23 below.

22. RESERVES

THE COMPANY At 1 January 2002 Net profit for the year Transfer Dividends paid At 31 December 2002 Net profit for the year Dividends paid Special dividend declared At 31 December 2003	Share premium HK$’000 55,708 – – –	Contributed surplus HK$’000 56,202 – (52,541) –	Accumulated (losses) profits HK$’000 (52,541) 65,088 52,541 (25,818)	Total HK$’000 59,369 65,088 – (25,818
	55,708 – – –	3,661 – – –	39,270 107,682 (54,863) (13,882)	98,639 107,682 (54,863 (13,882
	55,708	3,661	78,207	137,576

The contributed surplus of the Company represents the difference between the nominal amount of the share capital issued by the Company and the book value of the underlying consolidated net tangible assets of subsidiaries acquired as a result of the group reorganisation.

Under the Companies Act 1981 of Bermuda (as amended), the contributed surplus account of the Company is available for distribution. However, the Company cannot declare or pay a dividend, or make a distribution out of contributed surplus if:

(a) it is, or would after the payment be, unable to pay its liabilities as they become due; or
(b) the realisable value of its assets would thereby be less than the aggregate of its liabilities and its issued share capital and share premium accounts.

−107 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

The Company’s reserves available for distribution to the shareholders as at the balance sheet date are set out as follows:

Contributed surplus Accumulated profits	2003 HK$’000 3,661 78,207 81,868	2002 HK$’000 3,661 39,270
		42,931

23. CONVERTIBLE LOAN STOCK

THE GROUP AND THE COMPANY

The convertible loan stock issued on 30 April 2000 carries an interest at 5% per annum on the principal amount from time to time and shall be payable annually in arrears. The convertible loan stock is unsecured and can be converted into new shares by the holder at a pre-determined fixed price of HK$0.10 per share from 23 May 2001 to 30 April 2005. At the end of its five years term, all the outstanding amount of the convertible loan stock must be converted into new shares in the Company at a pre-determined fixed price of HK$0.10 per share. Suncorp has the entire interest in the convertible loan stock.

During the year, Suncorp has converted an aggregate amount of HK$14,000,000 (2002: HK$17,800,000) convertible loan stock into 140,000,000 (2002: 178,000,000) shares of HK$0.10 each in the Company.

24. OBLIGATIONS UNDER A FINANCE LEASE

THE GROUP Minimum lease payments Present value of minimum lease payments 2003 2002 2003 2002 HK$’000 HK$’000 HK$’000 HK$’000 121 121 106 98 182 243 173 219 – 61 – 60	THE GROUP Minimum lease payments Present value of minimum lease payments 2003 2002 2003 2002 HK$’000 HK$’000 HK$’000 HK$’000 121 121 106 98 182 243 173 219 – 61 – 60	THE GROUP Minimum lease payments Present value of minimum lease payments 2003 2002 2003 2002 HK$’000 HK$’000 HK$’000 HK$’000 121 121 106 98 182 243 173 219 – 61 – 60	THE GROUP Minimum lease payments Present value of minimum lease payments 2003 2002 2003 2002 HK$’000 HK$’000 HK$’000 HK$’000 121 121 106 98 182 243 173 219 – 61 – 60
303 (24)	425 (48)	279 –	377 –
279	377	279	377
		(106)	(98
		173	279

It is the Group’s policy to lease its motor vehicle under finance lease. The lease term is 4 years. For the year ended 31 December 2003, the effective borrowing rate was 3.68% per annum. Interest rate is fixed at the contract date. The lease is on a fixed repayment basis and no arrangement has been entered into for contingent rental payments.

The Group’s obligations under a finance lease are secured by the lessor’s charge over the leased asset.

−108 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

25. DEFERRED TAXATION

The following are the major deferred tax liabilities and (assets) recognised and movements thereon during the current and prior reporting periods:

THE GROUP

Accelerated tax depreciation HK$’000 – –	Accelerated accounting depreciation HK$’000 – –	Revaluation of property, plant and equipment HK$’000 – 2,285	Retirement benefit obligation HK$’000 – –	Others HK$’000 – –	Total HK$’000 – 2,285
– – – 2,035 – – –	– – – (103) – – –	2,285 (330) 1,955 – (163) – 183	– – – (43) – – –	– – – 13 – (13) –	2,285 (330
					1,955 1,902 (163 (13 183
2,035	(103)	1,975	(43)	–	3,864

For the purposes of balance sheet presentation, certain deferred tax assets and liabilities have been offset in accordance with the conditions set out in SSAP 12 (Revised). The following is the analysis of the deferred tax balances for financial reporting purposes:

Deferred tax liabilities Deferred tax assets	2003 HK$’000 4,010 (146) 3,864	2002 HK$’000 1,955 –
		1,955

At the balance sheet date, the Group has unused estimated tax losses of HK$44,990,000 (2002: HK$43,050,000) available for offset against future profits. No deferred tax asset has been recognised in respect of the estimated tax losses due to the unpredictability of future profit streams. Included in unrecognised tax losses are losses of HK$25,409,000 (2002: 34,817,000) that will expired in 2005. Other losses may be carried forward indefinitely.

At the balance sheet date, the aggregate amount of temporary differences associated with undistributed earnings of subsidiaries for which deferred tax liabilities have not been recognised was HK$159,841,000 (2002: HK$137,931,000). No liability has been recognised in respect of these differences because the Group is in a position to control the timing of the reversal of the temporary differences and it is probable that such differences will not reverse in the foreseeable future.

The Company has no material deferred taxation for the year and at the balance sheet date.

−109 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

26. ACQUISITION OF SUBSIDIARIES

During the year ended 31 December 2002, the Group acquired 100% interest in Keyhinge Holdings Limited and its subsidiary (“Keyhinge Group”). The acquisition has been accounted for by the acquisition method of accounting.

Net assets acquired Property, plant and equipment Inventories Trade and other receivables Amount due from a related company Bank balances and cash Trade and other payables Amount due to a director Tax payable Shareholder’s contribution Total consideration Satisfied by: Cash Net cash outflow arising on acquisition: Cash consideration Bank balances and cash acquired	2002 HK$’000 31,517 16,896 572 769 647 (3,287) (11,424) (1,152) 34,538 (6,901) 27,637 27,637 (27,637) 647 (26,990)

The Keyhinge Group was acquired from Mr. Cheng, a substantial shareholder of the Company. The excess of the fair value of the assets acquired over the consideration paid has been treated as an equity contribution from Mr. Cheng and credited to equity.

The subsidiary acquired during the year ended 31 December 2002 contributed insignificantly to the Group’s cash flows, turnover and profit from operations.

27. MAJOR NON-CASH TRANSACTIONS

During the year ended 31 December 2002, the Group entered into a finance lease arrangement in respect of a motor vehicle with a total capital value at the inception of the finance lease of HK$423,000.

During the year ended 31 December 2003, convertible loan stock of HK$14,000,000 (2002: HK$17,800,000) was converted into 140,000,000 (2002: 178,000,000) shares of HK$0.10 each in the Company.

28. CONTINGENT LIABILITIES

THE COMPANY

The Company has given guarantee to a bank in respect of general facilities granted to its subsidiary which has not been utilised at the balance sheet date.

−110 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

29. OPERATING LEASE COMMITMENTS

	THE GROUP
	2003	2002
	HK$’000	HK$’000
Minimum lease payments in respect of land and buildings under
operating leases recognised in the income statement for the year	3,645	4,545

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

Within one year In the second to fifth year inclusive After five years	THE GROUP 2003 2002 HK$’000 HK$’000 955 2,370 720 1,470 4,636 2,183 6,311 6,023	THE GROUP 2003 2002 HK$’000 HK$’000 955 2,370 720 1,470 4,636 2,183 6,311 6,023
		6,023

Operating lease payments represent rentals payable by the Group for its factory properties and office properties. Leases are negotiated for a term of 8 to 20 years for factory properties and a term of 2 years for office properties. The rentals are fixed throughout the lease period.

30. CAPITAL COMMITMENT

THE GROUP

As at 31 December 2003, the Group had capital expenditure amounting to HK$68,000 (2002: HK$1,990,000) in respect of the acquisition of property, plant and equipment contracted for but not provided in the financial statements.

31. RELATED PARTY TRANSACTIONS

During the year, the Group entered into the following related party transactions:

Interest paid or payable on convertible loan stock to ultimate holding company (Note a) Rental paid or payable to a related company (Note b)	2003 HK$’000 1,091 160	2002 HK$’000 1,612

		192

Notes:

a. The interest paid or payable on convertible loan stock to Suncorp is calculated at 5% per annum on the principal amount outstanding from time to time and shall be payable annually in arrears.
b. The rental paid or payable to a related company is determined in accordance with a tenancy agreement entered between a wholly owned subsidiary of the Group and a related company.

−111 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

On 18 January 2002, the acquisition of Keyhinge Group, which constituted a major and connected transaction of the Company, was approved by the independent shareholders. Details of the acquisition of Keyhinge Group are set out in note 26.

Mr. Cheng, a director of the Company, has beneficial interest in Suncorp and the related company and was the beneficial shareholder of Keyhinge Holdings Limited before the acquisition by the Group.

32. SHARE OPTION SCHEME

On 17 December 2002, the shareholders of the Company passed an ordinary resolution regarding the termination of the Old Scheme and adopted a new share option scheme (the “New Scheme”) for the primary purpose of providing incentives to directors and eligible employees. Under the New Scheme, the Company’s directors may grant options to any full-time employees, executives or officers, directors of the Group and any suppliers, consultants, agents or advisers who have contributed to the business and operation of the Group to subscribe for the shares in the Company at a price equal to the highest of (i) the closing price of the shares as stated in the Stock Exchange’s daily quotation sheets on the date of grants; (ii) the average of the closing prices of the shares as stated in the Stock Exchange’s daily quotation sheets for the five business days immediately preceding the date of grant; and (iii) the nominal value of a share.

The total number of shares in respect of which options may be granted under the New Scheme is not permitted to exceed 10% of the shares of the Company in issue at any point in time, without prior approval from the Company’s shareholders. The number of shares to be issued to each participant in any twelve-month period must not exceed 1% of the share capital of the Company in issue, without prior approval from the Company’s shareholders. Options granted to substantial shareholders or independent non-executive directors in excess of 0.1% of the Company’s share capital and with a value in excess of HK$5 million must be approved in advance by the Company’s shareholders.

Options granted must be taken up not later than 28 days after the date of grant, upon payment of HK$1 per option. The period during which an option may be exercised will be determined by the board of directors of the Company at its absolute discretion, save that no option may be exercised more than 10 years after it has been granted. No option may be granted more than 10 years after the date of approval of the New Scheme.

No options have been granted since the establishment of the New Scheme.

33. RETIREMENT BENEFIT SCHEMES AND MANDATORY PROVIDENT FUND

The Group operates a MPFS for all qualifying employees in Hong Kong. The assets of the scheme are held separately from those of the Group, in funds under the control of trustees. The Group contributes 5% of relevant payroll cost to the scheme which is matched by the employee.

The eligible employees of the subsidiaries in the PRC are members of pension schemes operated by the Chinese local government. The subsidiaries are required to contribute certain percentages of the relevant part of the payroll of these employees to the pension schemes to fund the benefits.

Eligible employees in Vietnam currently participate in a defined contribution pension scheme operated by the local municipal government. The calculation of contributions is based on certain percentages of the employees’ payroll.

The retirement benefits cost charged to income statement of approximately HK$1,862,000 (2002: HK$791,000) represents contributions payable to the schemes by the Group at the rates specified in the rules of the various schemes.

34. POST BALANCE SHEET EVENT

In February 2004, Suncorp has converted the remaining HK$12,200,000 convertible loan stock into 122,000,000 shares of HK$0.10 each in the Company.

−112 −

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

1. UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES OF THE ENLARGED GROUP

Set out below is the statement of the unaudited pro forma statement of assets and liabilities of the Enlarged Group which has been prepared in accordance with Rule 4.29 of the Listing Rules, for illustration purpose only, as if the Acquisition had been completed on 31 August 2004 and based on the unaudited consolidated balance sheet of the Group as at 30 June 2004 and the combined balance sheet of the Shelcore Group as at 31 August 2004, adjusted only to the effect to the pro forma adjustments described in the notes thereto. A narrative description of the pro forma adjustments of the Acquisition that are (i) directly attributable to the Acquisition; (ii) expected to have a continuing impact on the Group, and (iii) factually supportable, are summarized in the accompanying notes.

The statement of the unaudited pro forma statement of assets and liabilities of the Enlarged Group is based on a number of assumptions, estimates and uncertainties. The accompanying statement of the unaudited pro forma statement of assets and liabilities of the Enlarged Group does not purport to describe the actual financial position of the Enlarged Group that would have been attained had the Acquisition been completed on 31 August 2004. The statement of the unaudited pro forma statement of assets and liabilities of the Enlarged Group does not purport to predict the future financial position of the Enlarged Group.

The accompanying statement of the unaudited pro forma statement of assets and liabilities of the Enlarged Group should be read in conjunction with the historical financial information of the Group as set out in the Interim Report of the Company for the six months ended 30 June 2004 and other financial information included elsewhere in this Circular.

−113 −

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

The Group as at 30 June 2004 HK$’000 (unaudited) 122,423 – –	Shelcore Group as at 31 August 2004 HK$’000 (Note a) 48,771 9,312 484	Pro forma HK$’000 (Note b) – (9,312) –	adjustments HK$’000 (Note c) – – –	Pro forma balance HK$’000 171,194 – 484
122,423 99,006 46,781 – 5,001 127,948 278,736	58,567 38,471 48,912 14,225 – 50,512 152,120	(9,312) – – (14,225) – (46,612) (60,837)	– – – – – (76,300) (76,300)	171,678
				137,477 95,693 – 5,001 55,548
				293,719
401,159	210,687	(70,149)	(76,300)	465,397

60,148 110 52,850 – 113,108 118 3,865 3,983	56,855 – 848 469 58,172 – – –	– – – (469) (469) – – –	– – – – – – – –	117,003 110 53,698 –
				170,811
				118 3,865
				3,983
117,091 284,068	58,172 152,515	(469) (69,680)	– (76,300)	174,794

				290,603

−114 −

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Notes:

(a) The combined assets and liabilities of Shelcore Group as at 31 August 2004 are derived from the respective Accountants’ Report at Appendix I and translated at the exchange rate of US$1 to HK$7.8 of US$ into HK$, CAD1 to HK$5.928 of Canadian dollars into HK$, and GBP1 to HK$13.99 of Great Britain pounds into HK$.
(b) The adjustment reflects the disposal of investments in securities of the Shelcore Group with carrying value of approximately HK$23.5 million at 31 August 2004 and declaration and payments of dividends (including the sales proceeds of the disposal of investments in securities as mentioned above) amounting to approximately HK$69.7 million to their shareholders prior to the completion date of the Share Acquisition Agreement up to the remaining aggregate amount of cash and bank balances held by the Shelcore Group of US$0.5 million (equivalent to approximately HK$3.9 million) pursuant to the Share Acquisition Agreement.
(c) The adjustment reflects the total consideration for the asset purchase and share acquisition in the Shelcore Group of US$8.5million (equivalent to approximately HK$66.3million) and the estimated professional fees of approximately HK$10million. The total consideration has not taken into account the possible downward adjustment pursuant to the Share Acquisition Agreement.
(d) Negative goodwill arising from the acquisition of the Shelcore Group amounting to approximately HK$6.5 million which represents the difference between the total consideration of acquisition in the Shelcore Group and the acquired net asset value of the Shelcore Group as at 31 August 2004, is credited to the income statement.

−115 −

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

2. REPORT ON UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES

==> picture [63 x 48] intentionally omitted <==

==> picture [77 x 34] intentionally omitted <==

31 January 2005

The Directors Matrix Holdings Limited Rooms 1201 & 1222 Peninsula Centre 67 Mody Road Tsimshatsui East Kowloon Hong Kong

Dear Sirs,

We report on the unaudited pro forma financial information of Matrix Holdings Limited (the “Company”) and its subsidiaries (the “Group”) and the entire interest in Shelcore, Inc. and its subsidiary, Shelcore Canada Limited, Shelcore (UK) Limited and Shelcore Hong Kong Limited (the “Shelcore Group”) (hereinafter collectively referred to as the “Enlarged Group”) set out in section 1 of Appendix III to the circular dated 31 January 2005 issued in connection with the major transaction of the proposed acquisition of the Shelcore Group (the “Circular”), which has been prepared, for illustrative purposes only, to provide information about how the acquisition might have affected the financial information presented.

Responsibilities

It is the responsibility solely of the Directors of the Company to prepare the pro forma financial information in accordance with Rule 29 of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (the “Listing Rules”).

It is our responsibility to form an opinion, as required by Rule 29(7) of the Listing Rules, on the pro forma financial information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the pro forma financial information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

−116 −

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Basis of opinion

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

Our work does not constitute an audit or a review in accordance with Statements of Auditing Standards issued by the Hong Kong Institute of Certified Public Accountants and accordingly, we do not express any such assurance on the pro forma financial information.

The pro forma financial information has been prepared on the basis set out in section 1 of Appendix III to the Circular for illustrative purpose only and, because of its nature, it may not give an indicative financial position of the Enlarged Group as at 30 June 2004 or at any future date.

Opinion

In our opinion:

the pro forma financial information has been properly compiled on the basis stated;
such basis is consistent with the accounting policies of the Group; and
the adjustments are appropriate for the purposes of the pro forma financial information as disclosed pursuant to Rule 4.29(1) of the Listing Rules.

Yours faithfully,

Deloitte Touche Tohmatsu

Certified Public Accountants Hong Kong

−117 −

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

3. INDEBTEDNESS STATEMENT

As at the close of business on 30 November 2004, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Enlarged Group had a total outstanding borrowings of approximately HK$1,213,000, representing the obligations under a hire purchase contract of approximately HK$182,000 and bank overdraft of approximately HK$1,031,000. The Enlarged Group’s obligations under a hire purchase contract and bank overdraft were secured by certain property, plant and equipment of the Enlarged Group with net book value of approximately HK$53,000.

As at the close of business on 30 November 2004, the Enlarged Group had pledged its land and buildings with carrying value of approximately HK$35 million and deposits of HK$5 million for banking facilities granted to the Enlarged Group. The outstanding loan amount was nil at 30 November 2004.

Save as aforesaid or as otherwise disclosed herein, and apart from intra-group liabilities, none of the companies in the Enlarged Group had outstanding at the close of business on 30 November 2004 any mortgages, charges or debentures, loan capital issued and outstanding or agreed to be issued, bank overdrafts, loans, debt securities or other similar indebtedness or any hire purchase commitments, liabilities under acceptance or acceptable credits or any guarantees or other material contingent liabilities.

For the purpose of the above indebtedness statement, foreign currency amounts have been translated into Hong Kong dollars at the approximate rates of exchange prevailing at the close of business on 30 November 2004.

The Directors are not aware of any material changes in the Enlarged Group’s indebtedness and contingent liabilities since the close of business on 30 November 2004.

4. WORKING CAPITAL

After due and careful enquiry on the available internal resources, banking and other facilities, the Directors are of the opinion that, upon completion of the Acquisition, the Enlarged Group has sufficient working capital for its current requirements and for the period ending 12 months from the date of this circular.

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GENERAL INFORMATION

APPENDIX IV

1. RESPONSIBILITY STATEMENT

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

2. SHARE CAPITAL

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

Authorised 1,000,000,000 Shares of HK$0.10 each Issued and fully paid or credited as fully paid 584,720,000 Shares of HK$0.10 each	HK$ 100,000,000

	58,472,000

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GENERAL INFORMATION

APPENDIX IV

3. DISCLOSURE OF DIRECTORS’ INTERESTS

As at the Latest Practicable Date, the interests and short position of the Directors and the chief executive of the Company in the Shares, underlying shares and debentures of the Company and its associated corporation (within the meaning of Part XV of the SFO), which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO), or which were required to be recorded in the register maintained by the Company pursuant to section 352 of the SFO, or which were otherwise required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies, were as follows:

Long position

(i) Ordinary shares of HK$0.10 each of the Company

			Approximate
			percentage
			of the issued
		Number of	share capital of
Name of Directors	Capacity	Shares held	the Company
Cheng Yung Pun	Held by controlled	396,494,800	67.80%
	corporations (Note 1)
Yu Sui Chuen	Beneficial owner	604,000	0.10%
Cheng Wing See, Nathalie	Beneficial owner	700,000	0.12%

Note 1: The Shares are held by Suncorp.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors and chief executive of the Company or their respective associates had any interests or short positions in the Shares, underlying shares or debentures of the Company or any of its associated corporation (within the meaning of Part XV of the SFO) which are required and are due to be notified to the Company and the Stock Exchange pursuant to Division 7 and 8 of Part XV of the SFO (including interest and short position which they are deemed or taken to have under such provisions of the SFO) and to be entered in the register referred to therein or which are required and are due, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies, to be notified to the Company and the Stock Exchange.

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GENERAL INFORMATION

APPENDIX IV

4. INTERESTS OF SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as the Directors or chief executive of the Company are aware (other than certain Directors or chief executive of the Company or any other member of the Group), the interests or short position of the persons or corporations in the Shares or underlying shares of the Company which have been disclosed to the Company under the provisions of Division 2 and 3 of Part XV of the SFO were as follows:

Long position

(i) Ordinary Shares of HK$0.10 each of the Company

		Approximate
		percentage
		of the issued
		share capital
	Number of	of the
Name of substantial shareholders	Shares held	Company
Arisaig Greater China Fund Limited
(“Arisaig China”)	29,756,000	5.09%
Arisaig Partners (Mauritius) Ltd.
(“Arisaig Partners”) (Note 1)	29,756,000	5.09%
Lindsay William Ernest Cooper
(“Lindsay Cooper”) (Note 2)	29,756,000	5.09%

Notes:

The Shares are held by Arisaig China of which Arisaig Partners is the fund manager.
The Shares are held by Arisaig China. Arisaig Partners which is indirectly owned as to 33.33% by Lindsay Cooper is the fund manager of Arisaig China.

Save as disclosed above, as at the Latest Practicable Date, so far as the Directors or the chief executives of the Company are aware, no person (other than certain Directors or chief executive of the Company or any other member of the Group), has an interest or short position in the Shares or underlying shares of the Company which would fall to be disclosed under the provision of Division 2 and 3 of Part XV of the SFO (including interests and short position which they are taken or deemed to have under such provision of the SFO) or who is directly or indirectly interested in 10 per cent or more of the nominal value of any class of shares carrying rights to vote in all circumstances at general meetings of any member of the Group.

5. DIRECTORS’ INTERESTS IN ASSETS

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

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GENERAL INFORMATION

APPENDIX IV

6. DIRECTORS’ INTERESTS IN COMPETING BUSINESS

As at the Latest Practicable Date, none of the Directors nor their respective associates had any business apart from the business of the Group which competes or is likely to compete, either directly or indirectly, with any business of the Group.

7. DIRECTORS’ INTERESTS IN CONTRACTS

Save as disclosed below, as at the Latest Practicable Date, none of the Directors is materially interested, directly or indirectly, in any contract or arrangement entered into by any member of the Group subsisting at the Latest Practicable Date and which is significant in relation to the business of the Group:

(a) a tenancy agreement was entered into on 1 May 2001 and was renewed on 22 May 2003 after arm’s length negotiation between Matrix Resources Enterprise Limited and Kwok Lung Industrial Company Limited (an associate of Mr. Cheng Yung Pun as defined under the Listing Rules) in respect of the premises in Hong Kong. The monthly rental in respect of this tenancy agreement amounted to HK$12,000; and
(b) a sale contract was entered into on 1 December 2004 between Matrix Enterprises (Macao Commercial Offshore) Company Limited (“MCO”) (a wholly owned subsidiary of the Company) and Asia Machinery Agency Company Limited (“AMA”) (an associate of Mr. Cheng Yung Pun as defined under the Listing Rules) in respect of the purchase of five sets of machines by MCO from AMA at a consideration of HK$920,000.

8. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contract with the Company or any member of the Group which is not expiring or determinable by the Company within one year without payment of compensation other than statutory compensation.

9. MATERIAL CONTRACTS

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

(a) an agreement dated 22 April 2004, amended by a supplemental agreement dated 27 July 2004 and a second supplemental agreement dated 12 August 2004 in relation to the sale and purchase of the registered capital of and the registered capital of entered into between Wai Siu Huen and Matrix Development (China) Limited (now known as Matrix Media Communications Limited) (an indirect wholly owned subsidiary of the Company) for a total consideration of RMB3,639,300 (equivalent to approximately HK$3,433,302);

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GENERAL INFORMATION

APPENDIX IV

(b) the Asset Purchase Agreement; and
(c) the Share Acquisition Agreement.

10. MATERIAL CHANGE

As at the Latest Practicable Date, the Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2003, the date to which the latest audited financial statements of the Group were made up.

11. LITIGATION

Matrix Plastic Manufacturing (Zhongshan) Company Limited (“MPMZ”), a wholly foreign-owned enterprise established in the PRC and an indirect wholly-owned major subsidiary of the Company, has been sued by Nam Guang Trading Company (“Nam Guang”) regarding a breach of a five-year distribution agreement signed between China Win Universal Group Ltd., the subsidiary of Nam Guang, and MPMZ on 8 March 1999. In March 2003, the Intermediate People’s Court of Zhongshan Municipality, Guangdong Province ( ) has made judgment on damages for failure to perform the agreement by MPMZ and MPMZ subsequently appealed. As at the Latest Practicable Date, the appeal made by MPMZ is still in progress. A provision of US$122,555, which is the full amount as ordered by the court, has been made in the audited consolidated financial statements of the Group for the year ended 31 December 2003.

Save as disclosed above, no member of the Group was engaged in any litigation or arbitration of material importance and no litigation or claim of material importance was known to the Directors to be pending or threatened by or against any member of the Group as at the Latest Practicable Date.

12. EXPERT’S QUALIFICATION AND CONSENT

The following is the qualification of the expert whose opinion or advice which is contained in this circular:

Name Qualification

Deloitte Touche Tohmatsu Certified Public Accountants

As at the Latest Practicable Date, Deloitte Touche Tohmatsu has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letters and references to its name in the form and context in which they appear.

−123 −

GENERAL INFORMATION

APPENDIX IV

13. EXPERT’S INTERESTS

As at the Latest Practicable Date, the expert referred to in section 12 above:

(a) did not have any direct or indirect interest in any asset which had been acquired, or dispose of by, or leased to any member of the Group, or was proposed to be acquired, or disposed, or leased to any member of the Group, since 31 December 2003, the date to which the latest published audited financial statements of the Group were made up; and
(b) was not beneficially interested in the share capitals of any member of the Group and did not 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.

14. GENERAL

(a) The registered office of the Company is Canon’s Court, 22 Victoria Street, Hamilton HM12, Bermuda. The principal place of business of the Company in Hong Kong is located at Rooms 1201 & 1222, 12th Floor, Peninsula Centre, 67 Mody Road, Tsimshatsui East, Kowloon, Hong Kong. The Company’s Hong Kong branch share registrar is Secretaries Limited at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong.
(b) The secretary of the Company is Ms. Lai Mei Fong, who holds a master degree of business administration and is an associate member of the Hong Kong Institute of Company Secretaries and the Institute of Chartered Secretaries and Administrator.
(c) The qualified accountant of the Company is Ms. Chu Chor Lin who is a fellow member of Hong Kong Institute of Certified Public Accountants.
(d) The English text of this circular shall prevail over the Chinese text in case of any inconsistency.

15. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during business hours at the Company’s principal place of business in Hong Kong at Rooms 1201 & 1222, 12th Floor, Peninsula Centre, 67 Mody Road, Tsimshatsui East, Kowloon, Hong Kong for 14 days after the date of this circular:

(a) the memorandum and articles of association of the Company;
(b) the Asset Purchase Agreement;
(c) the Share Acquisition Agreement;

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GENERAL INFORMATION

APPENDIX IV

(d) the material contracts referred to in the paragraph headed “Material contracts” in this appendix;
(e) the contracts and arrangement referred to in the paragraph headed “Directors’ interests in contracts” in this appendix;
(f) the written consent referred to in the paragraph headed “Expert’s qualification and consent” in this appendix;
(g) the annual reports of the Group for the two years ended 31 December 2003;
(h) the interim report of the Group for the six months ended 30 June 2004;
(i) the accountants’ reports on each of the Shelcore Companies;
(j) the letter on the unaudited pro forma financial information of the Enlarged Group; and
(k) written approval by major shareholder(s).

−125 −

AI assistant

Matrix Holdings Limited — M&A Activity 2005

49622_rns_2005-01-31_1e4d7367-0ef7-4dfb-959a-909e15f23997.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

MATRIX HOLDINGS LIMITED

MAJOR TRANSACTION

PROPOSED ACQUISITION OF THE SHELCORE GROUP

DEFINITIONS

DEFINITIONS

DEFINITIONS

MATRIX HOLDINGS LIMITED

To the Shareholders

MAJOR TRANSACTION

PROPOSED ACQUISITION OF THE SHELCORE GROUP

INTRODUCTION

A. THE ASSET PURCHASE AGREEMENT

Date

Parties

Assets to be acquired

Consideration

Payment arrangement

Conditions

Completion

B. THE SHARE ACQUISITION AGREEMENT

Date

Parties

Shares to be acquired

Consideration

Payment arrangement

Consideration adjustment mechanism

Conditions

LETTER FROM THE BOARD

Completion

INFORMATION ABOUT THE GROUP

INFORMATION ABOUT THE SHELCORE GROUP

SHAREHOLDING STRUCTURE OF THE SHELCORE GROUP

Shareholding structure immediately before the Acquisition

Shareholding structure immediately following the Acquisition

REASONS FOR AND THE BENEFITS OF THE ACQUISITION

FUTURE PROSPECTS

FINANCIAL EFFECTS OF THE ACQUISITION ON THE GROUP

Earnings

Net asset value

IMPLICATIONS UNDER THE LISTING RULES

ADDITIONAL INFORMATION

FINANCIAL INFORMATION OF SHELCORE US

(A) FINANCIAL INFORMATION

Consolidated income statements

Consolidated balance sheets

THE GROUP

Balance sheets

THE COMPANY

Consolidated statements of changes in equity

Consolidated cash flow statements

(B) NOTES TO THE FINANCIAL INFORMATION

1. BASIS OF PRESENTATION OF FINANCIAL INFORMATION

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of consolidation

Revenue recognition

Investment in a subsidiary

Property, plant and equipment

Investments in securities

Inventories

Research and development expenditure

Impairment

Taxation

Foreign currencies

Operating leases

Retirement benefit costs

3. TURNOVER

4. SEGMENT INFORMATION

Business segments

Geographical segments

5. OTHER OPERATING INCOME

6. NET INVESTMENT INCOME (LOSS)

7. PROFIT (LOSS) FROM OPERATIONS

8. DIRECTORS’ EMOLUMENTS

9. EMPLOYEES’ REMUNERATION

10. FINANCE COSTS

11. TAXATION

Matrix Holdings Limited M&A Activity 2005