REPT BATTERO Energy Co., Ltd. - Proxy Solicitation & Information Statement 2004

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold all your shares in Jackley Holdings Limited (the “Company”), you should at once hand this circular and the accompanying form of proxy to the purchaser or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee. This circular does not constitute an offer of, nor is it calculated to invite offers for, shares of the Company.

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

JACKLEY HOLDINGS LIMITED 美吉利國際控股有限公司[*]

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 353)

(1) PROPOSED CHANGE OF COMPANY NAME;

(2) PROPOSED CAPITAL REORGANISATION;

(3) PROPOSED OPEN OFFER OF NEW SHARES ON THE BASIS OF ONE OFFER SHARE FOR EVERY TWO NEW SHARES HELD ON RECORD DATE WITH BONUS SHARES AND BONUS WARRANTS TO BE ISSUED WITH THE OFFER SHARES ON THE BASIS OF ONE BONUS SHARE FOR EVERY FULLY PAID OFFER SHARE AND EIGHT BONUS WARRANTS FOR EVERY TEN FULLY PAID OFFER SHARES; AND

(4) PROPOSED AMENDMENT TO THE ARTICLES

Financial advisers to the Company

Underwriter

Kingston Securities Limited

Independent financial adviser to the Independent Board Committee

The Underwriter (as defined herein) may terminate the Underwriting Agreement (as defined herein) by notice in writing to the Company if, prior to 4:00 p.m. on the third business day after the latest date for acceptance of the Offer Shares (as defined herein), or such later time or date as may be agreed between the Company and the Underwriter, any of the following grounds of termination happens:

(1) in the reasonable opinion of the Underwriter, the success of the Open Offer (as defined herein) would be materially and adversely affected by:
(a) the introduction of any new law or regulation or any change in existing law or regulation (or the judicial interpretation thereof) or other occurrence of any nature whatsoever which may in the reasonable opinion of the Underwriter, materially and adversely affect the business or the financial or trading position or prospects of the Group as a whole or is materially adverse in the context of the Open Offer; or
(b) the occurrence of any local, national or international event or change (whether or not forming part of a series of events or changes occurring or continuing before, and/or after the date of the Underwriting Agreement) of a political, military, financial, economic or other nature (whether or not ejusdem generis with any of the foregoing), or in the nature of any local, national or international outbreak or escalation of hostilities or armed conflict, or affecting local securities markets which may, in the reasonable opinion of the Underwriter materially and adversely affect the business or the financial or trading position or prospects of the Group as a whole or materially and adversely prejudice the success of the Open Offer or otherwise makes it inexpedient or inadvisable to proceed with the Open Offer; or
(2) any adverse change in market conditions (including, without limitation, any change in fiscal or monetary policy, or foreign exchange or currency markets, suspension or material restriction or trading in securities) occurs which in the reasonable opinion of the Underwriter is likely to materially or adversely affect the success of the Open Offer or otherwise makes it inexpedient or inadvisable to proceed with the Open Offer; or
(3) there is any change in the circumstances of the Company or any member of the Group (as defined herein) which in the reasonable opinion of the Underwriter will adversely affect the prospects of the Company, including without limiting the generality of the foregoing the presentation of a petition or the passing of a resolution for the liquidation or winding up or similar event occurring in respect of any member of the Group or the destruction of any material asset of the Group; or
(4) any suspension in the trading of securities generally or the Company’s securities on the Stock Exchange for a period of more than five consecutive business days, excluding any suspension in connection with the clearance of the announcement, this circular and the proxy form for use at the EGM (as defined herein) or the Prospectus Documents (as defined herein) or other announcements or circulars in connection with the Capital Reorganisation (as defined herein) and/or the Open Offer.

If the Underwriter terminates the Underwriting Agreement, or if the conditions of the Underwriting Agreement have not been fulfilled in accordance with the terms thereof, the Open Offer will not proceed. Shareholders and potential investors should therefore exercise caution when dealing in the Shares, and if they are in any doubt about their position, they should consult their professional advisers.

Shareholders should note that the Shares will be dealt with on an ex-entitlement basis commencing from 23 March 2005, Wednesday and that dealings in such Shares will take place while the conditions to which the Underwriting Agreement is subject remain unfulfilled. Any Shareholder or other person dealing in such Shares up to the date on which all conditions to which the Open Offer is subject are fulfilled (which is expected to be 27 April 2005, Wednesday), will accordingly bear the risk that the Open Offer cannot become unconditional and may not proceed. Any Shareholder or other person contemplating selling or purchasing Shares who is in any doubt about his/her/its position is recommended to consult his/her/its own professional adviser. A letter of advice from Ample Capital Limited, the independent financial adviser to the independent board committee of the Company, containing its opinion regarding the Open Offer is set out on pages 25 to 37 of this circular.

A notice convening a EGM to be held at 8/F., Luk Kwok Centre, No. 72 Gloucester Road, Wan Chai, Hong Kong on Friday, 31 December 2004 at 10:00 a.m. is set out on pages 115 to 119 of this circular. If you are not able to attend the meeting, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return it to the Company’s branch registrar and transfer office in Hong Kong, Tengis Limited at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding the meeting or any adjourned meeting. Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting should you so wish.

6 December 2004

for identification purpose only

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Expected timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Proposed change of Company name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Proposed Capital Reorganisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Proposed Open Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Warning of risks of dealing in Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Free exchange of New Share certificates and trading arrangements . . . . . . . . . . . . . .	21
Proposed amendment to the Articles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	21
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	22
The EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	22
Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	22
Further information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24
Letter from Independent Financial Adviser. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	25
Appendix I – Financial Information on the Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	38
Appendix II – General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	103
Notice of EGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	115

– i –

DEFINITIONS

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

“Announcement” the announcement dated 17 November 2004 made by the Company in relation to the proposed (1) change of Company name; (2) Capital Reorganisation; (3) Open Offer; and (4) amendment to the Articles
“Application Form(s)” the application form(s) for use by the Qualifying Shareholders to apply for the Offer Shares
“Articles” the articles of association of the Company
“associates” has the meaning ascribed thereto in the Listing Rules
“Board” the board of Directors
“Bonus Issue” the bonus issue of Bonus Shares and Bonus Warrants with the Offer Shares on the basis of one Bonus Share for every fully paid Offer Share and eight Bonus Warrants for every ten fully paid Offer Shares
“Bonus Shares” not less than 67,000,000 but not more than 69,500,000 New Shares to be allotted and issued to the first registered holders of the Offer Shares on the basis of one bonus share (credited as fully paid) for every fully paid Offer Share
“Bonus Warrants” not less than 53,600,000 but not more than 55,600,000 warrants conferring rights to subscribe for one New Share each at the initial subscription price of HK$0.40 to be allotted and issued to the first registered holders of the Offer Shares on the basis of eight bonus warrants for every ten fully paid Offer Shares
“Capital Reduction”
the proposed reduction of the nominal value of each of the issued Shares from HK$0.10 each to HK$0.001 each by the cancellation of HK$0.099 paid up on each issued Share
“Capital Reorganisation”
the Capital Reduction, the Share Subdivision and the Share Consolidation
“CCASS”
the Central Clearing and Settlement System established and operated by HKSCC
“Companies Law”
The Companies Law, Cap. 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands
“Companies Ordinance”
Companies Ordinance (Chapter 32 of the Laws of Hong Kong)

– 1 –

DEFINITIONS

“Company”
“Director(s)”
“DNTC Shares”
“DNTC Vendors “
“EGM”
“Excess Application Form(s)”
“Excluded Shareholders”
“Group”
“HSH Shares”

“HKSCC”

“Hong Kong”
“Independent Board Committee”
Jackley Holdings Limited, a company incorporated in the Cayman Islands under the Companies Law, the issued Shares of which are listed on the Stock Exchange
the director(s) of the Company, including the independent nonexecutive directors of the Company
a total of 95,000,000 Shares allotted and issued to the DNTC Vendors on 10 November 2004 (as to 47,500,000 Shares each) as consideration for the acquisition by the Company of an aggregate 51% equity interests in DNTC Investment Limited
Mr. Ng Yau Wah and Mr. Choi Hok Ya
the extraordinary general meeting of the Company to be convened to approve the (1) proposed change of Company name; (2) proposed Capital Reorganisation; (3) proposed Open Offer; and (4) proposed amendment to the Articles
the excess application form(s) for use by the Qualifying Shareholders to apply for excess Offer Shares not initially taken up under the Open Offer
the Shareholder(s) whose name(s) appear/appears on the register of members of the Company on the Record Date and whose address(es) is/are outside Hong Kong where, the Directors, based on legal opinions provided by legal advisers of the Company, consider it necessary or expedient to exclude any such Shareholder on account either of the legal restrictions under the laws of the jurisdiction of his/her/its registered address or the requirements of the relevant regulatory body or stock exchange in that jurisdiction
the Company and its subsidiaries
the 50,000,000 Shares to be allotted and issued to SZHSH as consideration for the acquisition of the remaining 49% interests in 惠陽協凱晟地毯有限公司 (Hui Yang Xie Kai Cheng Carpet Co. Ltd.), a subsidiary of the Company

Hong Kong Securities Clearing Company Limited

the Hong Kong Special Administrative Region of the PRC

an independent committee of the Board comprising Mr. Liu Ngai Wing, Mr. Lee Siu Leung and Mr. Ha Chun, Michael, the independent non-executive Directors, formed for the purpose of advising the Shareholders in relation to the Open Offer

– 2 –

DEFINITIONS

“Independent Financial Adviser”
Ample Capital Limited, a deemed licensed corporation to carry out type 6 regulated activities (advising on corporate finance) under the SFO
“Latest Practicable Date” 3 December 2004, being the latest practicable date for the purpose of ascertaining certain information for inclusion in this circular
“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange
“Mr. Lam”
Mr. Lam Shu Chung, an executive Director and the beneficial owner of the entire issued share capital of Prime Orient
“New Share(s)” share(s) of HK$0.01 each in the share capital of the Company upon the Capital Reorganisation becoming effective
“Offer Shares” not less than 67,000,000 New Shares and not more than 69,500,000 New Shares proposed to be offered to the Qualifying Shareholders for subscription pursuant to the Open Offer
“Open Offer” the proposed issue of the Offer Shares by way of open offer with Bonus Issue to the Qualifying Shareholders on the terms to be set out in the Prospectus Documents and summarised herein
“PRC” the People’s Republic of China
“Prime Orient”
Prime Orient International Limited, a company incorporated in the British Virgin Islands with limited liability, which is wholly and beneficially owned by Mr. Lam
“Prospectus”

the Open Offer prospectus

“Prospectus Documents” the Prospectus, the Application Form and the Excess Application Form
“Qualifying Shareholders”
the Shareholders other than Excluded Shareholders whose names appear on the register of members of the Company as at the close of business on the Record Date and whose addresses as shown on the register of members of the Company are in Hong Kong
“Record Date”
31 March 2005, being the date by reference to which entitlements to the Open Offer will be determined
“Reduced Share(s)”
share(s) of HK$0.001 each in the issued and unissued share capital of the Company upon the Capital Reduction and the Share Subdivision becoming effective

– 3 –

DEFINITIONS

“Registrar”	Tengis Limited of Ground Floor, Bank of East Asia Harbour
	View Centre, 56 Gloucester Road, Wanchai, Hong Kong, the
	Company’s branch share registrar and transfer office in Hong
	Kong

“SFC” the Securities and Futures Commission of Hong Kong “SFO” the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
“Share Consolidation” the proposed consolidation of every 10 Reduced Shares into 1 New Share
“Share(s)” share(s) of HK$0.10 each in the share capital of the Company prior to the Capital Reorganisation
“Shareholder(s)” holder(s) of Shares or, after the Capital Reorganisation becoming effective, holder(s) of New Shares
“Share Subdivision” the proposed subdivision of each unissued Share into 100 Reduced Shares
“Stock Exchange” The Stock Exchange of Hong Kong Limited
“Subscription Price” the subscription price of HK$0.25 per Offer Share pursuant to the Open Offer
“SZHSH” 深圳市豪盛和實業有限公司 (transliterated as Shenzhen Hao Sheng He Industrial Company Limited)
“Underwriter” Kingston Securities Limited, a licensed corporation to carry on business in types 1, 4, 6 and 9 regulated activities (dealing in securities, advising on securities and corporate finance and asset management) under the SFO
“Underwriting Agreement” the underwriting agreement dated 3 November 2004 entered into between the Company, Prime Orient and the Underwriter in relation to the Open Offer
“Underwritten Shares” not less than 36,663,750 but not more than 39,163,750 Offer Shares underwritten by the Underwriter pursuant to the Underwriting Agreement
“HK$” Hong Kong dollars, the lawful currency of Hong Kong
“%” per cent.

– 4 –

EXPECTED TIMETABLE

Latest time for lodging forms of proxy for the purpose of the EGM (not less than 48 hours before the EGM) . . . . . . 10:00 am on 29 December 2004, Wednesday

Time and date of EGM . . . . . . . . . . . . . . . . . . . . . . . . . . 10:00 a.m. on 31 December 2004, Friday

Expected date on which the new Company name becomes effective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 December 2004, Friday Last day of dealings in Shares on cum-entitlement basis . . . . . . . . . . . . 22 March 2005, Tuesday First day of dealings in Shares on ex-entitlement basis. . . . . . . . . . . 23 March 2005, Wednesday

Latest time for lodging transfers of Shares in order to be entitled to the Open Offer . . . . . . . . . . . . . . . . . . 4:00 p.m. on 24 March 2005, Thursday Register of members closes (both dates inclusive) . . . . . . . . . . . . . . . . . 29 March 2005, Tuesday to 31 March 2005, Thursday Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 March 2005, Thursday Expected date on which the Capital Reorganisation becomes effective (Hong Kong time) . . . . . . . . . . . . . 4:00 p.m. on 31 March 2005, Thursday Register of members reopens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 April 2005, Friday Free exchange of existing Share certificates for New Share certificates commences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 April 2005, Friday Existing counter for trading in existing Shares in board lot of 2,000 Shares closes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9:30 a.m. on 1 April 2005, Friday Temporary counter for trading in existing Shares in board lot of 200 consolidated Shares opens . . . . . . . . . . . . . . . . . . 9:30 a.m. on 1 April 2005, Friday First day of availability of odd lot facility . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 April 2005, Friday Despatch of the Prospectus Documents . . . . . . . . . . . . . . . . . . . . . . . . . 6 April 2005, Wednesday Existing counter for trading in New Shares in board lot of 2,000 New Shares reopens . . . . . . . . . . . . . . . . . . . . 9:30 a.m. on 18 April 2005, Monday Parallel trading in the New Shares and existing Shares commences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9:30 a.m. on 18 April 2005, Monday Latest time for lodging application for Offer Shares and payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4:00 p.m. on 22 April 2005, Friday Latest time for the Open Offer to become unconditional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4:00 p.m. on 27 April 2005, Wednesday

– 5 –

EXPECTED TIMETABLE

Announcement of results of the Open Offer. . . . . . . . . . . . . . . . . . . . . . . . . 29 April 2005, Friday

Certificates for Offer Shares, Bonus Shares and

Bonus Warrants to be posted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 May 2005, Tuesday

Dealings in Offer Shares, Bonus Shares and

Bonus Warrants commences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 May 2005, Thursday Temporary counter for trading in existing Shares in board

lot of 200 consolidated shares closes . . . . . . . . . . . . . . . . 4:00 p.m. on 10 May 2005, Tuesday Parallel trading in New Shares and existing Shares ends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4:00 p.m. on 10 May 2005, Tuesday Last day of availability of odd lot facility . . . . . . . . . . . . . . . . . . . . . . . . . 10 May 2005, Tuesday Free exchange of existing Share certificates for New Share certificates ends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 May 2005, Friday

Since the Capital Reduction requires the sanction of the Cayman Islands court under Cayman Islands law, it is expected that it will take three months from the date of EGM to complete the necessary court proceedings and obtain the requisite order from the Cayman Islands court for the implementation of the Capital Reorganisation. However, it should be noted that court hearing dates are subject always to the discretion of the court.

Dates stated in this circular for events in the timetable for are indicative only and may be extended or varied. Any changes to the anticipated timetable for the change of Company name, the Capital Reorganisation, the amendment to the Articles and the Open Offer will be announced accordingly.

– 6 –

LETTER FROM THE BOARD

JACKLEY HOLDINGS LIMITED 美吉利國際控股有限公司[*]

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 353)

Executive Directors: Mr. Lam Shu Chung Mr. Law Fei Shing

Independent non-executive Directors: Mr. Liu Ngai Wing Mr. Lee Siu Leung Mr. Ha Chun, Michael

Registered office: Codan Trust Company (Cayman) Limited Century Yard, Cricket Squares Hutchins Drive, P.O. Box 2681GT George Town Grand Cayman Cayman Islands British West Indies

Head office and principal place of business in Hong Kong: 8th Floor Luk Kwok Centre No. 72 Gloucester Road Wanchai Hong Kong 6 December, 2004

To Shareholders

Dear Sir or Madam,

(1) PROPOSED CHANGE OF COMPANY NAME;

(2) PROPOSED CAPITAL REORGANISATION;

(4) PROPOSED AMENDMENT TO THE ARTICLES

INTRODUCTION

It was announced on 17 November 2004 that the Board intended to put forward proposals to the Shareholders in relation to the: (1) proposed change of Company name; (2) proposed Capital Reorganisation; (3) proposed Open Offer; and (4) proposed amendment to the Articles.

The Independent Board Committee has been established to advise the Shareholders in relation to the Open Offer. Ample Capital Limited has been appointed as the independent financial adviser to advise the Independent Board Committee in this respect. The purpose of

* For identification purpose only

– 7 –

LETTER FROM THE BOARD

this circular is to provide you with further information regarding, among other things, the (1) proposed change of Company name; (2) proposed Capital Reorganisation; (3) proposed Open Offer; and (4) proposed amendment to the Articles, the financial and other information of the Group, to set out the advice of Ample Capital Limited to the Independent Board Committee in respect of the Open Offer, the recommendation of the Independent Board Committee to the Shareholders and the notice of the EGM, which shall be convened for the purpose of considering and, if thought fit, approving the resolutions in relation to the aforesaid proposals.

PROPOSED CHANGE OF COMPANY NAME

The Board proposes to change its English name from “Jackley Holdings Limited” to “Orient Industries Holdings Limited” and to change its Chinese name adopted for identification purposes only from “美吉利國際控股有限公司 ” to “東方工業控股有限公司 ” for registration purpose under Part XI of the Companies Ordinance. Such change is subject to the approval of the Shareholders by passing the relevant special resolution at the EGM and will take effect from the date on which such resolution is passed. The Board considers that the proposed adoption of the new English and Chinese names will better reflect the change in the single largest Shareholder to Prime Orient (a company wholly and beneficially owned by Mr. Lam) as detailed in the announcements of the Company dated 5 July 2004, 6 August 2004 and 23 August 2004.

PROPOSED CAPITAL REORGANISATION

The Board also proposes to implement the Capital Reorganisation in the following manner:

(i) the nominal value of the issued Shares shall be reduced from HK$0.10 each to HK$0.001 each by the cancellation of HK$0.099 paid up on each issued Share;
(ii) every authorised but unissued Share shall be subdivided into 100 Reduced Shares; and
(iii) every 10 Reduced Shares shall be consolidated into one New Share.

Based on the number of Shares in issue as at the Latest Practicable Date, the Capital Reduction will result in the issued share capital of the Company being reduced from HK$134,000,000 consisting of 1,340,000,000 Shares to HK$1,340,000 consisting of 1,340,000,000 Reduced Shares. As a result, an amount of approximately HK$132,660,000 standing to the credit of the issued share capital of the Company will be cancelled and credited to a distributable reserve account of the Company, from which distribution shall be at the discretion of the Directors. It is intended that such amount will be applied to set off the accumulated losses of the Company as at 31 December 2003, which, as set out in the latest annual report of the Company, is audited to be approximately HK$8.75 million (on an unconsolidated basis). Further, following the Capital Reduction and the Share Subdivision, the Share Consolidation will result in every 10 Reduced Shares being consolidated into one New Share. Accordingly, every 10 Reduced Shares held by a Shareholder whose name appears on the register of members of the Company on the effective date of the Capital Reorganisation will be consolidated into one New Share. Fractional New Shares will not be issued by the Company to the Qualifying Shareholders. In order to alleviate the difficulties arising from the existence of odd lots of New Shares, the Company has agreed to procure an agent to arrange for matching service regarding the sale and purchase of odd lots of New Shares.

– 8 –

LETTER FROM THE BOARD

As at the Latest Practicable Date, the authorised share capital of the Company was HK$200,000,000 divided into 2,000,000,000 Shares of HK$0.10 each, of which 1,340,000,000 Shares were issued. On the assumption that no further Shares will be issued following the Latest Practicable Date, (i) immediately upon the Capital Reduction and the Share Subdivision having become effective, the authorised share capital of the Company would be HK$67,340,000 divided into 67,340,000,000 Reduced Shares and (ii) immediately upon the Capital Reorganisation having become effective, the authorised share capital of the Company would be HK$67,340,000 divided into 6,734,000,000 New Shares, of which 134,000,000 New Shares would have been issued. Reference is made to the announcement of the Company dated 18 September 2003 in relation to the allotment and issue, subject to certain conditions precedent, of the 50,000,000 HSH Shares. If such issue of HSH Shares takes place before the effective date of the Capital Reorganisation, the number of Shares in issue after completion of the Capital Reorganisation will be different from that set out above. Other than the issue of the HSH Shares and the issue of Offer Shares, Bonus Shares and New Shares which may fall to be allotted and issued pursuant to the exercise of the Bonus Warrants pursuant to the Open Offer, the Directors have no current intention to issue any part of the unissued share capital of the Company. For details of the conditional allotment and issue of HSH Shares, please refer to the said announcement.

The following table shows the total authorised capital of the Company after the Capital Reorganisation, but before the completion of the Open Offer, in the event that the HSH Shares are/are not allotted and issued before the effective date of the Capital Reorganisation:

	HSH Shares not allotted	HSH Shares allotted
	and issued	and issued
	Number of New Shares	Number of New Shares
Total authorised	6,734,000,000	6,239,000,000
Total issued	134,000,000	139,000,000
Total unissued	6,600,000,000	6,100,000,000

Conditions of the Capital Reorganisation

The implementation of the Capital Reorganisation is conditional upon:

(i) the passing of the necessary special resolutions by the Shareholders at the EGM;
(ii) compliance with the relevant legal procedures and requirements under Cayman Islands laws, which include, among other things, the sanction of the Cayman Islands court, to effect the Capital Reduction; and
(iii) the Listing Committee of the Stock Exchange granting the listing of, and permission to deal in, the New Shares.

– 9 –

LETTER FROM THE BOARD

Reasons for and effect of the Capital Reorganisation

The Company had accumulated losses of approximately HK$8.75 million (on an unconsolidated basis) as at 31 December, 2003. With the implementation of the Capital Reduction, the Company will be able to apply the amount (being approximately HK$132,660,000 based on the issued share capital of the Company as at the Latest Practicable Date) credited to a distributable reserve as a result of the Capital Reduction to set off such losses. The Share Consolidation is also intended to reduce the transaction costs for dealing in the Reduced Shares as well as to increase the market value per New Share.

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

The Capital Reorganisation is not conditional on the implementation of the Open Offer. Application will be made to the Stock Exchange for the listing of, and permission to deal in, the New Shares.

Shareholders and investors are advised to exercise caution in dealing in Shares.

PROPOSED OPEN OFFER

Issue statistics:

Basis of the Open Offer : One Offer Share for every two New Shares held on the Record Date Number of Shares in issue : 1,340,000,000 Shares on the Latest Practicable Date Number of Shares upon : 134,000,000 New Shares the completion of Capital Reorganisation

Number of Offer Shares : Not less than 67,000,000 Offer Shares but not more than 69,500,000 Offer Shares

Number of Bonus Shares : Not less than 67,000,000 Bonus Shares but not more than 69,500,000 Bonus Shares

Number of Bonus Warrants Not less than 53,600,000 Bonus Warrants but not more than 55,600,000 Bonus Warrants

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LETTER FROM THE BOARD

Number of New Shares in : Not less than 268,000,000 New Shares but not more than issue immediately 278,000,000 New Shares upon completion of the Open Offer

Number of Offer Shares : Prime Orient, has undertaken to take up all its entitlement undertaken to be taken up under the Open Offer (being 25,586,250 Offer Shares). by Prime Orient and the In addition, each of the DNTC Vendors, Mr. Ng Yau Wah DNTC Vendors and Mr. Choi Hok Ya, has also undertaken to take up all of his respective entitlements under the Open Offer (being an aggregate of 4,750,000 Offer Shares).
Number of Offer Shares underwritten by the Underwriter
: Pursuant to the Underwriting Agreement, the Underwriter has conditionally agreed to underwrite the Underwritten Shares, being not less than 36,663,750 but not more than 39,163,750 Offer Shares, subject to and upon the terms and conditions of the Underwriting Agreement. The Underwriter is not a connected person (as defined in the Listing Rules) of the Company and is an independent third party not connected with the directors, chief executive or substantial shareholders of the Company or its subsidiaries or any of their respective associates.

The Company has no outstanding options, warrants or convertible instruments to subscribe for any Share.

Qualifying Shareholders

The Company will send (i) the Prospectus Documents to the Qualifying Shareholders; and (ii) the Prospectus, for information only, to the Excluded Shareholders. To qualify for the Open Offer, Shareholders must, at the close of business on the Record Date, be registered on the register of members of the Company and not be an Excluded Shareholder.

In order to be registered as members of the Company on the Record Date, Shareholders must lodge any transfer of Shares (with the relevant Share certificates) for registration with the Registrar by 4:00 p.m. on 24 March 2005, Thursday.

The branch share registrar and transfer office of the Company in Hong Kong is:

Tengis Limited Ground Floor, Bank of East Asia Harbour View Centre 56 Gloucester Road, Wanchai, Hong Kong

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

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LETTER FROM THE BOARD

Application for excess Offer Shares

Qualifying Shareholders are entitled to apply for any unsold entitlements and any Offer Share provisionally allotted but not accepted by completing the Excess Application Form and lodging the same with a separate remittance for the excess Offer Shares being applied for. The Offer Shares allotted and issued pursuant to Excess Application Forms will also be allotted and issued with Bonus Shares and Bonus Warrants on the basis of one Bonus Share for every fully paid Offer Share and eight Bonus Warrants for every ten fully paid Offer Shares.

The Directors will allocate excess Offer Shares at their discretion, on a fair and equitable basis by reference to the number of excess Offer Shares applied for by each Qualifying Shareholder, but will give preference to topping-up odd lots to whole board lots.

Closure of register of members

The register of members of the Company will be closed from 29 March 2005, Tuesday to 31 March 2005, Thursday (both dates inclusive) to determine the eligibility of Shareholders to the Open Offer. No transfer of New Shares will be registered during this period.

Subscription Price

HK$0.25 per Offer Share, payable in full on application. The Subscription Price represents:

(i) a discount of approximately 58.33% to the closing price of HK$0.60 per New Share (assuming the Capital Reorganisation has become effective) as quoted on the Stock Exchange on 3 November 2004, being the last trading day before the suspension of trading in the Shares pending the publication of the Announcement;
(ii) a discount of approximately 31.03% to the theoretical ex-entitlement price of approximately HK$0.3625 per New Share (assuming the Capital Reorganisation has become effective) based on the aforesaid closing price per Share;
(iii) a discount of approximately 49.70% to the average closing price of HK$0.497 per New Share (assuming the Capital Reorganisation has become effective) as quoted on the Stock Exchange for the last 10 consecutive trading days up to and including 3 November 2004 being the last trading day before the suspension of trading in the Shares pending the publication of the Announcement; and
(iv) a discount of approximately 37.50% to the closing price to HK$0.40 per New Share (assuming the Capital Reorganisation has become effective) as quoted on the Stock Exchange on the Latest Practicable Date.

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LETTER FROM THE BOARD

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

Status of the Offer Shares and the Bonus Shares

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

Status of the Bonus Warrants

The Bonus Warrants confer rights in registered form to subscribe for up to not less than 53,600,000 New Shares but not more than 55,600,000 New Shares at an initial subscription price of HK$0.40 per New Share (subject to adjustments upon a capital reorganisation of the Company such as a sub-division or consolidation of its Shares, capitalisation issue, rights issue and capital reduction). Further details of such adjustment events will be set out in the Prospectus.

The initial subscription price of HK$0.40 per New Share for the Bonus Warrants represents:

(i) a discount of approximately 33.3% to the closing price of HK$0.60 per New Share (assuming the Capital Reorganisation has become effective) as quoted on the Stock Exchange on 3 November 2004, being the last trading day before the suspension of trading in the Shares pending the publication of the Announcement;
(ii) a discount of approximately 19.51% to the average closing price of HK$0.497 per New Share (assuming the Capital Reorganisation has become effective) as quoted on the Stock Exchange for the last 10 consecutive trading days up to and including 3 November 2004 being the last trading day before the suspension of trading in the Shares pending the publication of the Announcement; and
(iii) the closing price to HK$0.40 per New Share (assuming the Capital Reorganisation has become effective) as quoted on the Stock Exchange on the Latest Practicable Date.

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LETTER FROM THE BOARD

The initial subscription price of HK$0.40 per New Share for the Bonus Warrants is determined with reference to the closing price of approximately HK$0.60 per New Share (assuming the Capital Reorganisation has become effective). The Directors are of the view that a discount of approximately 33% to the closing price of HK$0.60 per New Share (assuming the Capital Reorganisation and become effective) can encourage Shareholders to participate in the Open Offer.

The subscription rights attaching to the Bonus Warrants may be exercised within a two-year period from the date of issue of the Bonus Warrants, which is currently expected to be on 3 May 2005, Tuesday. Any subscription rights attaching to the Bonus Warrants which have not been exercised on or before the last day of the subscription period (which is currently expected to be on 2 May 2007) will lapse following such date and the Bonus Warrants will cease to be valid for all purposes. For the purpose of dealings on the Stock Exchange, the board lot of the Bonus Warrants will be 10,000 at the initial subscription price of HK$0.40 per New Share.

The New Shares to which the Bonus Warrants relate currently represent about 20% of the issued share capital of the Company after the completion of the Open Offer and about 16.67% of the issued share capital of the Company as enlarged by the allotment and issue of the New Shares to which the Bonus Warrants relate.

The New Shares to be issued pursuant to the exercise of the Bonus Warrants, when allotted and issued, will rank pari passu in all respects with the New Shares in issue on the date of allotment and issue of the New Shares to be issued pursuant to the exercise of the Bonus Warrants and will entitled to receive all future dividends and distributions which are declared, made or paid in respect thereof on or after the date of allotment and issue of the New Shares to be issued pursuant to the exercise of the Bonus Warrants. The holders of Bonus Warrant will not have any right to attend or vote at any meeting of the Company by virtue of their being the holders of Bonus Warrants.

The Bonus Warrants will be issued with the Offer Shares upon approval by Shareholders at the EGM. As at the Latest Practicable Date, there are no outstanding warrants of the Company in issue.

Transfers of Bonus Warrants

Warrants may only be transferred by delivery of a transfer form for registration to the Registrar in such form as may from time to time be in use and obtainable from the Registrar together with the relevant certificates of Bonus Warrants.

Currently, Hong Kong stamp duty is chargeable on contract notes evidencing the sale or purchase of Bonus Warrants at a rate of HK$2.00 per HK$1,000 or part thereof (of which HK$1.00 per HK$1,000 is payable by the seller and HK$1.00 per HK$1,000 is payable by the purchaser) by reference to the value of the consideration or market value, whichever is higher.

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LETTER FROM THE BOARD

Exercise of Bonus Warrants

The Bonus Warrants are exercisable only in amount of the initial subscription price or in integral multiples thereof. A Bonus Warrant may only be exercised by the delivery of a completed and signed subscription form attached to the instruments of Bonus Warrants together with the certificate of the Bonus Warrants to the Registrar and a remittance for the aggregate subscription price for the subscription rights attached to the Bonus Warrants exercised.

Certificates for the Offer Shares, Bonus Shares and Bonus Warrants

Subject to fulfillment of the conditions of the Open Offer, certificates for the Offer Shares, Bonus Shares and Bonus Warrants are expected to be posted on or before 3 May 2005, Tuesday to those Qualifying Shareholders who have validly applied and paid for the Offer Shares at their own risks. No fractional entitlements or allotments are expected to arise as a result of the Open Offer. In case that fractions of Offer Shares arised, the Company will not provisionally allot fractions of Offer Shares and will sell such Offer Shares created from the aggregation of Offer Shares for the benefit of the Company.

Rights of Excluded Shareholders

The Prospectus Documents will not be registered under the applicable securities legislation of any jurisdiction other than Hong Kong. The Company will comply with Rule 13.36(2)(a) (including Note 1 and 2) of the Listing Rules and make enquiries regarding the feasibility of extending the Open Offer to Excluded Shareholders and the details of the Excluded Shareholders will also be disclosed in a further announcement of the Company and the Prospectus. If, based on legal opinions provided by the legal advisors to the Company, the Directors consider that, in compliance with Rule 13.36(2)(a) of the Listing Rules, it is necessary or expedient not to extend the Open Offer to the Excluded Shareholders on account either of the legal restrictions under the laws of the place of his registered address or the requirements of the relevant regulatory body or stock exchange in that place, the Open Offer will not be available to the Excluded Shareholders.

The Company has made enquiry regarding Excluded Shareholder. As at the Latest Practicable Date, there is one Shareholder in British Virgin Islands. As the Capital Reorganisation is expected to be completed approximately four months after the date of this circular, i.e. 31 March 2005, the Directors are in the process of seeking legal enquiries as compliance with Rule 13.36(2)(a) (including Note 1 and 2) on Excluded Shareholders (including the Shareholder located in the British Virgin Islands). Should any Excluded Shareholders be excluded after legal enquires, the Company will make a further announcement, including, among other things, the number of the Excluded Shareholders, such overseas countries involved in and explanations for the exclusions on or before the posting date of the Prospectus.

The Company will send the Prospectus to the Excluded Shareholders for their information only. The Company will not send the Application Forms or the Excess Application Forms to the Excluded Shareholders. The Excluded Shareholders will be entitled to vote at the EGM to consider and, if thought fit, passing the resolutions approving, among others, the Open Offer.

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LETTER FROM THE BOARD

Application for listing

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

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

Underwriting Agreement dated 3 November 2004

Pursuant to the Underwriting Agreement, the Underwriter has agreed to underwrite the Underwritten Shares, being not less than 36,663,750 but not more than 39,163,750 Offer Shares.

The Underwriter is independent of and not connected with any of the directors, chief executive or substantial shareholders of the Company, its subsidiaries or any of their respective associates. The Company will pay to the Underwriter an underwriting commission calculated at 1.5% of the aggregate Subscription Price of the maximum number of Offer Shares to be underwritten by the Underwriter.

Termination of the Underwriting Agreement

The Underwriter may terminate the Underwriting Agreement by notice in writing to the Company if, prior to 4:00 p.m. on the third business day after the latest date for acceptance of the Offer Shares, or such later time or date as may be agreed between the Company and the Underwriter, any of the following grounds of termination happens:

(1) in the reasonable opinion of the Underwriter, the success of the Open Offer would be materially and adversely affected by:
(a) the introduction of any new law or regulation or any change in existing law or regulation (or the judicial interpretation thereof) or other occurrence of any nature whatsoever which may in the reasonable

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LETTER FROM THE BOARD

opinion of the Underwriter, materially and adversely affect the business or the financial or trading position or prospects of the Group as a whole or is materially adverse in the context of the Open Offer; or

(b) the occurrence of any local, national or international event or change (whether or not forming part of a series of events or changes occurring or continuing before, and/or after the date of the Underwriting Agreement) of a political, military, financial, economic or other nature (whether or not ejusdem generis with any of the foregoing), or in the nature of any local, national or international outbreak or escalation of hostilities or armed conflict, or affecting local securities markets which may, in the reasonable opinion of the Underwriter materially and adversely affect the business or the financial or trading position or prospects of the Group as a whole or materially and adversely prejudice the success of the Open Offer or otherwise makes it inexpedient or inadvisable to proceed with the Open Offer; or
(2) any adverse change in market conditions (including, without limitation, any change in fiscal or monetary policy, or foreign exchange or currency markets, suspension or material restriction or trading in securities) occurs which in the reasonable opinion of the Underwriter is likely to materially or adversely affect the success of the Open Offer or otherwise makes it inexpedient or inadvisable to proceed with the Open Offer; or
(3) there is any change in the circumstances of the Company or any member of the Group which in the reasonable opinion of the Underwriter will adversely affect the prospects of the Company, including without limiting the generality of the foregoing the presentation of a petition or the passing of a resolution for the liquidation or winding up or similar event occurring in respect of any member of the Group or the destruction of any material asset of the Group; or
(4) any suspension in the trading of securities generally or the Company’s securities on the Stock Exchange for a period of more than five consecutive business days, excluding any suspension in connection with the clearance of the announcement, this circular and the proxy form for use at the EGM or the Prospectus Documents or other announcements or circulars in connection with the Capital Reorganisation and/or the Open Offer.

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

Conditions of the Underwriting Agreement

The Underwriting Agreement is conditional upon, among other things,:

(i) the passing by Shareholders at the EGM of the necessary resolutions to approve the Capital Reorganisation, the amendment to the Articles and the Open Offer;

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LETTER FROM THE BOARD

(ii) compliance with the relevant legal procedures and requirements under Cayman Islands laws, which include, among other things, the sanction of the Cayman Islands court, to effect the Capital Reduction;
(iii) the delivery to the Stock Exchange for authorisation and the registration with the Registrar of Companies in Hong Kong, respectively, of one copy of each of the Prospectus Documents in compliance with the Listing Rules and the Companies Ordinance not later than the posting date of the Prospectus;
(iv) the posting of the Prospectus Documents to the Qualifying Shareholders on or before the posting date of the Prospectus; and
(v) the Listing Committee of the Stock Exchange granting or agreeing to grant (subject to allotment) and not having withdrawn or revoked listing of, and permission to deal in, the Offer Shares, the Bonus Shares, the Bonus Warrants and New Shares to be issued pursuant to the exercise of the Bonus Warrants.

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

WARNING OF RISKS OF DEALING IN SHARES

Shareholders should note that the Shares will be dealt with on an ex-entitlement basis commencing from 23 March 2005, Wednesday and that dealings in such Shares will take place while the conditions to which the Underwriting Agreement is subject remain unfulfilled. Any Shareholder or other person dealing in Shares up to the date on which all conditions to which the Open Offer is subject are fulfilled (which is expected to be 27 April 2005, Wednesday), will accordingly bear the risk that the Open Offer cannot become unconditional and may not proceed. Any Shareholder or other person contemplating selling or purchasing Shares who is in any doubt about his/her/its position is recommended to consult his/her/its own professional adviser.

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LETTER FROM THE BOARD

Shareholding structure of the Company

The following is the shareholding structure of the Company immediately before and after completion of the Open Offer with the issue of Bonus Shares assuming the Capital Reorganisation has become effective and the HSH Shares have not been issued:

Prime Orient Underwriter Public DNTC Vendors Other public Shareholders Total	Immediately before completion of the Open Offer New Shares Percentage (approximately) 51,172,500 38.19% 0 0.00% 9,500,000 7.09% 73,327,500 54.72% 134,000,000 100.00%	Immediately before completion of the Open Offer New Shares Percentage (approximately) 51,172,500 38.19% 0 0.00% 9,500,000 7.09% 73,327,500 54.72% 134,000,000 100.00%	Immediately after completion of the Open Offer and issue of Bonus Shares (assuming all Qualifying Shareholders take up their respective entitlements under the Open Offer) New Shares Percentage (approximately) 102,345,000 38.19% 0 0.00% 19,000,000 7.09% 146,655,000 54.72% 268,000,000 100.00%	Immediately after completion of the Open Offer and issue of Bonus Shares (assuming all Qualifying Shareholders take up their respective entitlements under the Open Offer) New Shares Percentage (approximately) 102,345,000 38.19% 0 0.00% 19,000,000 7.09% 146,655,000 54.72% 268,000,000 100.00%	Immediately after completion of the Open Offer and the issue of Bonus Shares (assuming no Qualifying Shareholder takes up his/her /its entitlement under the Open Offer and all Offer Shares and Bonus Shares are taken up by the Underwriter New Shares Percentage (approximately) 102,345,000 38.19% 73,327,500 27.36% 19,000,000 7.09% 73,327,500 27.36% 268,000,000 100.00%	Immediately after completion of the Open Offer and the issue of Bonus Shares (assuming no Qualifying Shareholder takes up his/her /its entitlement under the Open Offer and all Offer Shares and Bonus Shares are taken up by the Underwriter New Shares Percentage (approximately) 102,345,000 38.19% 73,327,500 27.36% 19,000,000 7.09% 73,327,500 27.36% 268,000,000 100.00%
	134,000,000	100.00%	268,000,000	100.00%	268,000,000	100.00%

Prime Orient Underwriter Public DNTC Vendors SZHSH Other public Shareholders Total	Immediately before completion of the Open Offer New Shares Percentage (approximately) 51,172,500 36.81% 0 0.00% 9,500,000 6.83% 5,000,000 3.60% 73,327,500 52.76% 139,000,000 100.00%	Immediately before completion of the Open Offer New Shares Percentage (approximately) 51,172,500 36.81% 0 0.00% 9,500,000 6.83% 5,000,000 3.60% 73,327,500 52.76% 139,000,000 100.00%	Immediately after completion of the Open Offer and the issue of Bonus Shares (assuming all Qualifying Shareholders take up their respective entitlements under the Open Offer) New Shares Percentage (approximately) 102,345,000 36.81% 0 0.00% 19,000,000 6.83% 10,000,000 3.60% 146,655,000 52.76% 278,000,000 100.00%	Immediately after completion of the Open Offer and the issue of Bonus Shares (assuming all Qualifying Shareholders take up their respective entitlements under the Open Offer) New Shares Percentage (approximately) 102,345,000 36.81% 0 0.00% 19,000,000 6.83% 10,000,000 3.60% 146,655,000 52.76% 278,000,000 100.00%	Immediately after completion of the Open Offer and issue of Bonus Shares (assuming no Qualifying Shareholder takes up his/her /its entitlement under the Open Offer and all Offer Shares and Bonus Shares are taken up by the Underwriter New Shares Percentage (approximately) 102,345,000 36.81% 78,327,500 28.18% 19,000,000 6.83% 5,000,000 1.80% 73,327,500 26.38% 278,000,000 100.00%	Immediately after completion of the Open Offer and issue of Bonus Shares (assuming no Qualifying Shareholder takes up his/her /its entitlement under the Open Offer and all Offer Shares and Bonus Shares are taken up by the Underwriter New Shares Percentage (approximately) 102,345,000 36.81% 78,327,500 28.18% 19,000,000 6.83% 5,000,000 1.80% 73,327,500 26.38% 278,000,000 100.00%
	139,000,000	100.00%	278,000,000	100.00%	278,000,000	100.00%

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LETTER FROM THE BOARD

Reasons for the Open Offer and use of proceeds

The Group is principally engaged in the design, manufacture and sale of a wide range of carpets under its own brand name and trading of carpets of various brand names.

In view of the financial needs of the Company for repaying certain outstanding loans, which has been used as general working capital, due to certain bankers and independent third parties, the Board considers that it is a suitable time to raise funds for the above purposes through the Open Offer, which is an appropriate means through which the Group can raise funds with no dilutive effects on the shareholding of the Shareholders.

The estimated net proceeds from the Open Offer will be not less than approximately HK$15.5 million, of which approximately 70% being not less than HK$10.8 million will be applied to the repayment of outstanding loans and the remaining balance of not less than approximately HK$4.7 million will be used as the general working capital of the Group. The Board considers that, compared with debt financing, the Open Offer is a better way to raise funds without causing any interest liability to the Company.

The estimated expense of the Open Offer and Capital Reorganisation is about HK$1.2 million, which will be borne by the Company. The estimated expenses will include the underwriting commission, professional fees and all other related expenses to the Open Offer and Capital Reorganisation.

Funds raising activities and share transactions of the Company during the 12 months ended on the Latest Practicable Date

There has not been any rights issue or open offer of Shares for the past 24 months ended on the Latest Practicable Date. The following table summaries the capital raising activities and Share transactions of the Group for the 12 months immediately before the Latest Practicable Date:

						Percentage
						of number
						of Shares
						issued/total		Use of	Use of
				Amount	Number of	number of		proceeds	proceeds
				of funds	Shares issued	existing Shares	Intended	according	other
Date of	Date of	Nature of	Subscriber/	raised (net)	from the	of the Company	use of	to the	than the
announcement	agreement	transaction	Allotee	(approximately)	activities	(approximately)	proceeds	intended use	intended use
20 September	10 September	Discloseable	DNTC	Not	95,000,000	7.09%	Not	Not	Not
2004	2004	transaction for	Vendors	applicable	Shares		applicable	applicable	applicable
		the acquisition of
		an aggregate 51%
		equity interests in
		DNTC Investment
		Limited
18 September	15 September	Connected	SZHSH	Not	50,000,000	Not	Not	Not	Not
2003	2003	and		applicable	Shares	applicable	applicable	applicable	applicable
		discloseable			(Not issued	as the HSH
		transaction for			as at the	Shares
		the acquisition of			Latest	have not
	the remaining 49%				Practicable	yet issued
		interests in			Date)	on the Latest
	惠陽協凱晟地毯					Practicable
		有限公司				Date
		(Hui Yang Xie
		Kai Cheng Carpet
		Co. Ltd.), a
		subsidiary of the
		Company

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LETTER FROM THE BOARD

						Percentage
						of number
						of Shares
						issued/total		Use of	Use of
				Amount	Number of	number of		proceeds	proceeds
				of funds	Shares issued	existing Shares	Intended	according	other
Date of	Date of	Nature of	Subscriber/	raised (net)	from the	of the Company	use of	to the	than the
announcement	agreement	transaction	Allotee	(approximately)	activities	(approximately)	proceeds	intended use	intended use
8 March	5 March	Subscription of	An	HK$18.2	200,000,000	14.92%	General	General	Nil
2004	2004	200,000,000	independent	million	Shares		working	working
		Shares at	third party				capital	capital
		HK$0.1 per
		Share

FREE EXCHANGE OF NEW SHARE CERTIFICATES AND TRADING ARRANGEMENTS

Upon the change of Company name and the Capital Reorganisation becoming effective, Shareholders may, on or after 4 April 2005, Monday and until 6 May 2005, Friday, submit certificates for the existing Shares to the Registrar for exchange, at the expense of the Company, for certificates for the New Shares. Thereafter, certificates for the Shares will be accepted for exchange only on payment of a fee of HK$2.50 (or such higher amount as may from time to time to be allowed by the Stock Exchange) for each new certificate issued for the New Shares. Nevertheless, certificates for the existing Shares will continue to be good evidence of legal title and valid for registration purpose.

Upon the Capital Reorganisation becoming effective, the arrangement proposed for dealings in the New Shares are expected to be as follows:

From 1 April 2005, the existing counter for trading in the Shares in board lots of 2,000 Shares will be temporarily closed. A temporary counter will be established for trading in the existing Shares in board lots of 200 consolidated Shares. Certificates for the Shares may only be traded at this temporary counter.

With effect from 18 April 2005, the existing counter for trading in Shares will be reopened for trading in the New Shares in board lots of 2,000 New Shares.

From 18 April 2005 to 10 May 2005, both days inclusive, there will be parallel trading at the above two counters.

The temporary counter for trading in the existing Shares in board lots of 200 consolidated Shares will be removed after the close of trading on 10 May 2005. Thereafter, trading will be in the New Shares only and the existing share certificates for the Shares will cease to be marketable and will not be acceptable for dealing and settlement purposes. However, such share certificates will remain effective as documents of title.

PROPOSED AMENDMENT TO THE ARTICLES

In order to facilitate the Open Offer by enabling the Company to allot and issue the Bonus Shares and the Bonus Warrants and to provide the Company with flexibility to raise capital from its Shareholders in the future, the Directors propose to amend article 153 of the Articles to allow a distribution to Shareholders on such non pro-rata basis as the Directors may approve. Such amendment requires the sanction of a special resolution passed by the Shareholders at the EGM, which is one of the conditions to which the Open Offer is subject.

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LETTER FROM THE BOARD

GENERAL

The EGM will be held to consider and, if thought fit, pass resolutions to approve, among others, the (1) proposed change of Company name; (2) proposed Capital Reorganisation; (3) proposed Open Offer; and (4) proposed amendment to the Articles.

Prime Orient and its associates control or are entitled to exercise control over the voting rights in respect of 511,725,000 Shares, representing about 38.19% of the total issue share capital of the Company as at the Latest Practicable Date. Prime Orient and its associates will abstain from voting for the Open Offer in the EGM pursuant to the Listing Rules and the voting on the Open Offer will be taken on a poll and the result of the EGM will be announced by publication in the newspapers on the business day following the EGM.

THE EGM

Set out in this circular is a notice convening the EGM which will be held at 8/F., Luk Kwok Centre, No. 72 Gloucester Road, Wanchai, Hong Kong on Friday, 31 December 2004 at 10:00 a.m. at which resolutions will be proposed to approve the (1) proposed change of Company name; (2) proposed Capital Reorganisation; (3) proposed Open Offer; and (4) proposed amendment to the Articles.

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

RECOMMENDATIONS

Ample Capital Limited has been appointed to advise the Independent Board Committee with regard to the terms and conditions of the Open Offer. Ample Capital Limited considers that the terms of the Open Offer are fair and reasonable so far as the Shareholders are concerned. The text of the letter of advice from Independent Financial Adviser to the Independent Board Committee containing its recommendation and the principal factors it has taken into account in arriving at its recommendation are set out on pages 25 to 37 of this circular.

The Independent Board Committee, having taken into account the advice of Ample Capital Limited, considers that the terms of the Open Offer are fair and reasonable so far as the Shareholders are concerned. Accordingly, the Independent Board Committee recommends the Shareholders to vote in favour of the Open Offer. The text of the letter from the Independent Board Committee is set out on page 24 of this circular.

The Directors consider that the (1) proposed change of Company name; (2) proposed Capital Reorganisation; (3) proposed Open Offer; and (4) proposed amendment to the Articles, are in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of the resolutions to be proposed at the EGM.

– 22 –

LETTER FROM THE BOARD

Subject to the necessary resolutions approving the Open Offer and the Capital Reorganisation being passed at the EGM, it is expected that the Prospectus Documents will be despatched to the Qualifying Shareholders on or about Wednesday, 6 April 2005.

FURTHER INFORMATION

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

On behalf of the Board Lam Shu Chung Director

– 23 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

JACKLEY HOLDINGS LIMITED 美吉利國際控股有限公司[*]

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 353)

6 December 2004

To the independent Shareholders

Dear Sir or Madam,

PROPOSED OPEN OFFER OF NEW SHARES ON THE BASIS OF ONE OFFER SHARE FOR EVERY TWO NEW SHARES HELD ON RECORD DATE WITH BONUS SHARES AND BONUS WARRANTS TO BE ISSUED WITH THE OFFER SHARES ON THE BASIS OF ONE BONUS SHARE FOR EVERY FULLY PAID OFFER SHARE AND EIGHT BONUS WARRANTS FOR EVERY TEN FULLY PAID OFFER SHARES

As the Independent Board Committee, we have been appointed to advise you in connection with the Open Offer, details of which are set out in the letter from the Board contained in the circular to the Shareholders dated 6 December 2004 (the “Circular”), of which this letter forms part. Terms defined in the Circular shall have the same meanings when used herein unless the context otherwise requires.

Having considered the terms of the Open Offer and the advice of Independent Financial Adviser in relation thereto as set out on pages 25 to 37 of the Circular, we are of the opinion that the terms of the Open Offer are fair and reasonable so far as the Shareholders are concerned. We therefore recommend that you vote in favour of resolution in relation to the Open Offer to be proposed at the EGM to approve the Open Offer.

Yours faithfully,

Mr. Liu Ngai Wing Mr. Lee Siu Leung Mr. Ha Chun, Michael Independent Board Committee

For identification purpose only

– 24 –

LETTER FROM INDEPENDENT FINANCIAL ADVISER

The following is the text of the letter of advice to the Independent Board Committee from Ample Capital Limited setting out their opinion regarding the Open Offer and the Bonus Issue for the purpose of inclusion in this circular.

==> picture [144 x 47] intentionally omitted <==

Ample Capital Limited Unit B, 9th Floor Two Chinachem Plaza 135 Des Voeux Road Central Central Hong Kong 6 December 2004

To the Independent Board Committee and the Shareholders of Jackley Holdings Limited

Dear Sirs,

PROPOSED OPEN OFFER OF NEW SHARES ON THE BASIS OF ONE OFFER SHARE FOR EVERY TWO NEW SHARES HELD ON RECORD DATE WITH BONUS SHARES AND BONUS WARRANTS TO BE ISSUED WITH THE OFFER SHARES ON THE BASIS OF ONE BONUS SHARE FOR EVERY FULLY PAID OFFER SHARE AND EIGHT BONUS WARRANTS FOR EVERY TEN FULLY PAID OFFER SHARES

INTRODUCTION

We refer to our engagement by the Company to advise the Independent Board Committee and the Shareholders in respect of the Open Offer and the Bonus Issue, particulars of which have been set out in a circular to the Shareholders dated 6 December 2004 (the “Circular”) and in which this letter is reproduced. Unless the context requires otherwise, terms used in this letter shall have the same meanings as given to them under the definitions section of the Circular.

Ample Capital Limited has been appointed as the independent financial adviser to the Independent Board Committee and the Shareholders to give our recommendation as to whether the terms of the Open Offer and Bonus Issue are fair and reasonable so far as the Shareholders are concerned. Details of the reasons for the Open Offer and Bonus Issue are set out in the section headed “Letter from the Board” in the Circular (the “Board Letter”).

In formulating our opinion, we have relied on the accuracy of the information and representations contained in the Circular and the information and representations provided to us by the Directors and management of the Group and have assumed that all information and representations made by the Group and the Directors were true, accurate and complete at the time they were made and continue to be so as at the date of the Circular. We consider that we have been provided with sufficient information on which to form a reasonable basis for our opinion. We have also assumed that all statements of belief, opinion and intention made by the Directors in the Circular were reasonably made after due enquiry. We have no reason to suspect that any material facts have been omitted or withheld from the information contained or opinions expressed in the Circular nor to doubt the truth, accuracy and completeness of the information and representations provided to us by the Directors. We have not, however, conducted an independent in-depth investigation into the affairs of the Group nor have we carried out any independent verification of the information supplied.

– 25 –

LETTER FROM INDEPENDENT FINANCIAL ADVISER

PRINCIPAL FACTORS CONSIDERED

In arriving at our opinion in relation to the Open Offer and Bonus Issue, we have taken into consideration the following factors:

1. Background information

As stated in the Board Letter, the Group is principally engaged in the design, manufacture and sale of a wide range of carpets under its own brand name and trading of carpets of various brand names. Upon a review of the Company’s annual report for the year ended 31 December 2003 (the “Annual Report”), we note that the Group recorded a consolidated turnover of approximately HK$127,338,000 for the year ended 31 December 2003, representing an approximately 30.06% decrease when compared with the consolidated turnover of approximately HK$182,062,000 recorded during the year ended 31 December 2002. During the year ended 31 December 2003, the Group also suffered net loss of approximately HK$31,853,000 as compared net profit of approximately HK$4,879,000 recorded during the year ended 31 December 2002. The Company’s interim report for the six months ended 30 June 2004 (the “Interim Report”) reveals that the Group recorded consolidated unaudited turnover and unaudited net loss of approximately HK$6,871,000 and HK$2,401,000 respectively during the six months ended 30 June 2004. As at 30 June 2004, the Group had consolidated unaudited net assets of approximately HK$141,985,000.

We note from the Annual Report that the Company’s auditors were unable to form an opinion as to whether the financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2003 and of the loss and cash flows of the Group for the year then ended.

The Company announced on 5 July 2004 that Prime Orient, a company which is beneficially wholly owned by an executive Director Mr. Lam, acquired 511,725,000 Shares on 18 June 2004 and became the controlling Shareholder interested in approximately 41.10% of the issued share capital of the Company and that Prime Orient made a mandatory cash offer to acquire the Company’s remaining issued share capital. On 23 August 2004, the Company announced that Prime Orient’s shareholding in the Company remains unchanged following the close of the offer. The change in control of the Company has also resulted in change in the Company’s management with the resignation of 3 executive Directors also announced on 23 August 2004. On 20 September 2004, the Company announced that the Group and the DNTC Vendors have entered into a sale and purchase agreement on 10 September 2004 regarding the Group’s acquisition of a 51% interest in DNTC for a consideration of HK$9,500,000. DNTC is the authorized dealer in Hong Kong and the PRC to a number of major carpet manufacturers.

2. Reasons for the Open Offer

It is stated in the Board Letter that in view of the financial needs of the Company for repaying certain outstanding loans due to certain bankers and independent third parties, the Board considers that it is a suitable time to raise funds for the above purposes through the Open Offer, which is an appropriate means through which the Group can raise funds with no dilutive effects on the shareholding of the Shareholders.

– 26 –

LETTER FROM INDEPENDENT FINANCIAL ADVISER

The Board Letter further explains that the estimated net proceeds from the Open Offer will be not less than approximately HK$15.5 million, of which approximately 70% being not less than HK$10.8 million will be applied to the repayment of outstanding loans and the remaining balance of not less than approximately HK$4.7 million will be used as general working capital of the Group. The Board considers that, compared with debt financing, the Open Offer is a better way to raise funds without causing any interest liability to the Company.

According to the Interim Report, the Group had current assets and current liabilities of approximately HK$62,058,000 and HK$41,185,000 respectively as at 30 June 2004. Out of the Group’s current assets, approximately HK$1,195,000 and HK$52,077,000 were attributable to cash and bank balances and trade receivables respectively as at 30 June 2004. As for the Group’s current liabilities as at 30 June 2004, approximately HK$8,583,000, HK$6,015,000 and HK$22,983,000 were attributable to interest-bearing bank borrowings, trade payables and other payables and accruals. Judging from the Group’s financial position as at 30 June 2004, it appears that the Group is relying on the timely settlement of its trade receivables to meet the obligations of its current liabilities. In view of that, we consider it is beneficial for the Group to raise further funding to meet its short term cash flow requirements.

Apart from the Open Offer, other fund raising options such as debt financing and private placement of Shares are also available to the Company. For debt financing, we believe it defeats the main purpose of this fund raising exercise which is the repayment of outstanding loans. Under the Open Offer, existing Shareholders can elect to subscribe for the Offer Shares (and receive the Bonus Shares) and maintain their existing shareholding in the Company. A private placement of Shares would not give the existing Shareholders such an opportunity to maintain their existing shareholding.

3. Terms of the Open Offer

3.1 Basis of the Open Offer

As stated in the Board letter, the Company proposes to issue not less than 67,000,000 but not more than 69,500,000 Offer Shares by way of the Open Offer on the basis of one Offer Share for every two New Shares held on the Record Date.

3.2 Subscription Price

The Subscription Price is HK$0.25 per Offer Share and is payable in full on application. The Subscription Price represents:

a discount of approximately 58.33% to the closing price of HK$0.60 per New Share (assuming the Capital Reorganisation has become effective) as quoted on the Stock Exchange on 3 November 2004, being the last trading day before the suspension of trading in the Shares;
a discount of approximately 31.03% to the theoretical ex-entitlement price of approximately HK$0.3625 per New Share (assuming the Capital Reorganisation has become effective) based on the aforesaid closing price per Share;

– 27 –

LETTER FROM INDEPENDENT FINANCIAL ADVISER

a discount of approximately 49.70% to the average closing price of HK$0.497 per New Share (assuming the Capital Reorganisation has become effective) as quoted on the Stock Exchange for the last 10 consecutive trading days up to and including 3 November 2004 being the last trading day before the suspension of trading in the Shares; and
a discount of approximately 37.50% to the closing price to HK$0.40 per New Share (assuming the Capital Reorganisation has become effective) as quoted on the Stock Exchange on the Latest Practicable Date.

The Board Letter states that the Subscription Price has been determined based on arm’s length negotiations between the Company and the Underwriter, with reference to the prevailing market prices of the Shares as well as the subscription prices offered in certain recent open offers with discounts of over 50% to the relevant closing prices of the relevant shares. We set out below the average closing price per New Share, the highest trading price per New Share and the lowest trading price per New Share as quoted on the Stock Exchange for each of the months during the 12 months ended 3 November 2004 (the last trading day before the suspension of trading in the Shares).

	Average daily
	closing price per
	New Share in the
	period / discount
	of the Subscription	Highest trading	Lowest trading
	Price to average daily	price per	price per
	closing price per New	New Share	New Share
Period	Share in the period	in the period	in the period
	HK$ / %	HK$	HK$
2003
November (starting	1.36/81.62	1.70	0.94
from 4 November 2003)
December	1.34/81.34	1.48	1.25
2004
January	0.87/71.26	1.36	0.50
February	0.75/66.67	0.86	0.63
March	0.74/66.22	0.85	0.60
April	0.68/63.24	0.77	0.60
May	0.70/64.29	0.79	0.65
June	0.71/64.79	0.72	0.69
July	0.68/63.24	0.71	0.64
August	0.40/37.50	0.60	0.29
September	0.35/28.57	0.38	0.30
October	0.39/35.90	0.60	0.34
November (up to	0.60/58.33	0.60	0.60
and including
3 November 2004)

Source: Reuters

– 28 –

LETTER FROM INDEPENDENT FINANCIAL ADVISER

The charts below illustrate the historical closing price per New Share and the daily trading volume of the New Shares during the 12 months ended 3 November 2004 (the last trading day before the suspension of trading in the Shares).

==> picture [368 x 482] intentionally omitted <==

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

1.80
1.60
1.40
1.20
1.00
0.80
0.60
Subscription Price of HK$0.25
0.40
0.20
0.00
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
Source: Reuters
4-Nov-0318-Nov-032-Dec-0316-Dec-0330-Dec-0313-Jan-0427-Jan-0410-Feb-0424-Feb-049-Mar-0423-Mar-046-Apr-0420-Apr-044-May-0418-May-041-Jun-0415-Jun-0429-Jun-0413-Jul-0427-Jul-0410-Aug-0424-Aug-047-Sep-0421-Sep-045-Oct-0419-Oct-042-Nov-04
4-Nov-0318-Nov-032-Dec-0316-Dec-0330-Dec-0313-Jan-0427-Jan-0410-Feb-0424-Feb-049-Mar-0423-Mar-046-Apr-0420-Apr-044-May-0418-May-041-Jun-0415-Jun-0429-Jun-0413-Jul-0427-Jul-0410-Aug-0424-Aug-047-Sep-0421-Sep-045-Oct-0419-Oct-042-Nov-04
Price per New Share (HK$)
Trading Volume (New Shares)
----- End of picture text -----

As shown above, the closing price of the New Shares has experienced a downward trend since November 2003. The closing price per New Share recorded a high of HK$1.70 on 5 November 2003 and reached its low at HK$0.29 on 13 August 2004 during the year ended 3 November 2004 (the last trading day before the suspension of trading in the Shares).

– 29 –

LETTER FROM INDEPENDENT FINANCIAL ADVISER

For the purpose of comparison, we have identified 7 open offers or rights issues conducted by listed companies in Hong Kong announced from August 2004 to October 2004. These comparables are all of the companies identified by us in our research and may not contain all of the open offers or rights issues conducted by listed issuers during the said period. The principal terms of these open offers and rights issues are set out in the table below for your reference.

				Approximate
				discount of
				Subscription
				Price to
			Approximate	theoretical
			discount of	ex-entitlement/
			Subscription	ex-rights price
			Price to	based on
			closing price	closing price
			on last trading	on last trading
			day prior to	day prior to
	Date of	Basis of	date of	date of
Listed company	announcement	allotment	announcement	announcement
			%	%
The Company	17 November	1 Offer Share	58.32	21.03
	2004	for 2 New
		Shares
China City Natural	25 October	2 rights shares	44.44	33.33
Gas Holdings Limited	2004	for 10 existing
		shares
Tse Sui Luen Jewellery	6 October	1 offer share	80	77
(International) Limited	2004	for 5 existing
		shares
Theme International	17 September	1 offer share	42.3	26.8
Holdings Limited	2004	for 1 existing
		share
Polytec Asset Holdings	10 September	1 rights share	11.3	8.0
Limited	2004	for 1 existing
		share
Yangtzekiang Garment	30 August	1 rights share	18.2	12.9
Manufacturing Company	2004	for 2 existing
Limited		shares
Pricerite Group Limited	25 August	1 rights share	58.82	53.33
	2004	for 4 existing
		shares
Daqing Petroleum &	5 August	1 rights share	21.1	15.1
Chemical Group Limited	2004	for 2 existing
		shares
		Mean:	39.45	32.35
		Median:	42.3	26.8

Source: http://www.hkex.com.hk/

– 30 –

LETTER FROM INDEPENDENT FINANCIAL ADVISER

As illustrated above, the approximate discounts of the subscription price to the closing price and the theoretical ex-entitlement or ex-rights price of the comparables we have identified vary widely. The approximate discounts of the subscription price to closing price range from 11.3% to 80% and the approximate discounts of the theoretical ex-entitlement or ex-rights price range from 8.0% to 77%. The mean and median discount of the subscription price to closing price are approximately 39.45% and 42.3% respective while the mean and median discount of the theoretical ex-entitlement or ex-rights price are 32.35% and 26.8% respectively.

Considering that the respective discounts of the Subscription Price to the closing price per Share on the last trading day prior to the announcement date and the theoretical ex-entitlement price per Share fall within the ranges of the comparables, we are of the view that the discounts of the Subscription Price are in line with market practice. Moreover, since all Qualifying Holders can participate in the Open Offer, the discounts of the Subscription Price would not pose any financial disadvantage to a particular group of Qualifying Holders. Accordingly, we are of the view that the Subscription Price is fair and reasonable to the Shareholders.

3.3 Underwriting commission

We set out below the underwriting commissions of the 7 comparables identified in section 3.2 of this letter.

	Underwriting
Listed company	commission
	%
The Company	1.5
China City Natural Gas Holdings Limited	1
Tse Sui Luen Jewellery (International) Limited	2.0
Theme International Holdings Limited	2.5
Polytec Asset Holdings Limited_(Note 1)_	2
Yangtzekiang Garment Manufacturing Company Limited_(Note 2)_	2.0
Pricerite Group Limited_(Note 1)_	2.5
Daqing Petroleum & Chemical Group Limited	2.75
Mean:	2.11
Median:	2.0

Note 1: The rights issue is underwritten by a connected person of the relevant company.

Note 2: The rights issue is underwritten by a substantial shareholder of the relevant company.

Source: http://www.hkex.com.hk/

– 31 –

LETTER FROM INDEPENDENT FINANCIAL ADVISER

As demonstrated above, the underwriting commissions of the comparables range from 1% to 2.75% with the mean and median underwriting commission being 2.11% and 2.0% respectively. In view that the underwriting commission charged by the Underwriter is 1.5%, we consider that the underwriting commission is in line with market practice and is fair and reasonable to the Shareholders.

4. Terms of the Bonus Issue

4.1 Bonus Shares

Under the Bonus Issue, the Company proposes to issue not less than 67,000,000 but not more than 69,500,000 New Shares to be allotted and issued to the first registered holders of the Offer Shares on the basis of one Bonus Share for every fully paid Offer Share. In effect, Qualifying Holders who elect to subscribe for any number of the Offer Shares shall receive the same amount of Bonus Shares under the Bonus Issue. If the Open Offer and the issue of the Bonus Shares are treated as one transaction, the basis of allotment of the Open Offer can be viewed as 1 Offer Share for 1 New Share. The Company has confirmed that the issue of the Bonus Shares forms part of the Open Offer.

We consider that the most significant impact of the Bonus Shares is that the Bonus Shares effectively changes the basis of allotment of the Open Offer from 1 Offer Share for 2 New Shares to 1 Offer Share for 1 New Share. With such a change, the dilution effect of Qualifying Holders who elect not to subscribe for any Offer Shares as discussed in section 5 in this letter is increased. Due to the Bonus Shares, Qualifying Holders who subscribe for the Offer Shares shall receive 2 New Shares (1 Offer Share and 1 Bonus Share) for every Offer Share they subscribe for. This will effectively halve the Subscription Price per Offer Share from the original HK$0.25 to HK$0.125. The Shareholders should note that the discounts of the effective subscription price per Offer Share of HK$0.125 to the closing price of HK$0.60 per New Share as quoted on the Stock Exchange on 3 November 2004 (being the last trading day before the suspension of trading in the Shares) and the theoretical ex-entitlement price of approximately HK$0.3635 per New Share will be increased from approximately 58.33% and 31.03% respectively to approximately 79.17% and 65.52% respectively. We believe the Bonus Shares are proposed to be issued by the Company as an incentive for the Shareholders to subscribe for the Offer Shares and enjoy the benefits of any potential future growth of the Group and are therefore fair and reasonable to the Shareholders.

4.2 The Bonus Warrants

In addition to the Bonus Shares, the Company also proposes to issue not less than 53,600,000 but not more than 55,600,000 Bonus Warrants conferring rights to subscribe for one New Share each at the initial subscription price of HK$0.40 to be allotted and issued to the first registered holders of the Offer Shares on the basis of eight bonus warrants for every ten fully paid Offer Shares. The initial subscription price of HK$0.40 per New Share for the Bonus Warrants represents:

a discount of approximately 33.33% to the closing price of HK$0.60 per New Share (assuming the Capital Reorganisation has become effective) as quoted on the Stock Exchange on 3 November, being the last trading day before the suspension of trading in the Shares;

– 32 –

LETTER FROM INDEPENDENT FINANCIAL ADVISER

a discount of approximately 19.51% to the average closing price of HK$0.497 per New Share (assuming the Capital Reorganisation has become effective) as quoted on the Stock Exchange for the last 10 consecutive trading days up to and including 3 November 2004, being the last trading day before the suspension of trading in the Shares; and
the closing price to HK$0.40 per New Share (assuming the Capital Reorganisation has become effective) as quoted on the Stock Exchange on the Latest Practicable Date.

For the purpose of comparison, we have identified 8 listed companies in Hong Kong which have conducted bonus issue of warrants from October 2003 to August 2004. These comparables are all of the companies identified by us in our research and may not contain all of the bonus issues of warrants conducted by listed issuers during the said period. Details of these bonus issues of warrants are set out in the table below.

			Premium/
			(discount) of
			subscription
			price to
			closing price
			on last trading
			day prior to
		Exercisable	date of
	Date of	period	announcement
Listed company	announcement	Years	%
The Company	17 November 2004	2	(33.3)
Champion Technology	21 October 2004	1	6.73
Holdings Limited
Man Yue International	23 September 2004	2	(1.04)
Holdings Limited
Heng Fung Holdings	26 August 2004	<5	(25)
Limited
QPL International	24 August 2004	3	9.64
Holdings Limited
Kingboard Chemical	16 August 2004	<3	45.45
Holdings Limited
Global Bio-chem Technology	30 March 2004	3	50.76
Group Company Limited
Quality HealthCare Asia	14 November 2003	3	23.8
Limited
Allied Properties (H.K.)	13 October 2003	1	(12.28)
Limited
	Mean:	approximately 2.63	12.26
	Median:	approximately 3	8.19

Source: http://www.hkex.com.hk/

– 33 –

LETTER FROM INDEPENDENT FINANCIAL ADVISER

As illustrated above, the exercisable period of the Bonus Warrants fall within the range of the comparable companies. We note that the subscription price of most of the comparables were at a premium to the closing price on the last trading day prior to the date of announcement with the mean premium being approximately 12.26%. The discount of the subscription price of HK$0.40 per New Share for the Bonus Warrants of approximately 33.3% is outside of the range of the comparables as illustrated above. Similar to the Bonus Shares, we believe the Bonus Warrants are proposed by the Company as further incentive for the Shareholders to subscribe for the Offer Shares. The Company has confirmed that the issue of the Bonus Warrants forms part of the Open Offer. In view of this and the discounts of the subscription price of the Bonus Warrants can be enjoyed by all Qualifying Holders, we believe that the proposed issue of the Bonus Shares is fair and reasonable to the Shareholders. The Shareholders should note that full exercise of the Bonus Warrants will bring to the Company additional proceeds of approximately HK$21,440,000 and is beneficial to the Group.

5. Dilution effect on Shareholders who do not subscribe for the Offer Shares

We set out below a table showing the shareholding structure of the Company immediately before and after the completion of the Open Offer with the issue of Bonus Shares assuming the Capital Reorganisation has become effective.

Prime Orient Underwriter Public DNTC Vendors Other public Shareholders	Immediately before completion of the Open Offer New Shares % 51,172,500 38.19 0 0.00 9,500,000 7.09 73,327,500 54.72 134,000,000 100.00	Immediately after completion of the Open Offer and the issue of Bonus Shares (assuming all Qualifying Holders take up their respective entitlements under the Open Offer) New Shares % 102,345,000 38.19 0 0.00 19,000,000 7.09 146,655,000 54.72 268,000,000 100.00	Immediately after completion of the Open Offer and the issue of Bonus Shares (assuming no public Shareholder other than the DNTC Vendors takes up his/her/its entitlement under the Open Offer and all Offer Shares and Bonus Shares are taken up by the Underwriter) New Shares % 102,345,000 38.19 73,327,500 27.36 19,000,000 7.09 73,327,500 27.36 268,000,000 100.00	Immediately after completion of the Open Offer and the issue of Bonus Shares (assuming no public Shareholder other than the DNTC Vendors takes up his/her/its entitlement under the Open Offer and all Offer Shares and Bonus Shares are taken up by the Underwriter) New Shares % 102,345,000 38.19 73,327,500 27.36 19,000,000 7.09 73,327,500 27.36 268,000,000 100.00
				100.00

Source: http://www.hkex.com.hk/

– 34 –

LETTER FROM INDEPENDENT FINANCIAL ADVISER

As explained in the Board Letter, Prime Orient and the DNTC Vendors have undertaken to take up all of their entitlement under the Open Offer of 25,586,250 Offer Shares and 4,750,000 Offer Shares respectively. In the table above, it is demonstrated that following the issue of the Offer Shares and the Bonus Shares, the shareholding of the other public Shareholders in the Company will be diluted from approximately 54.72% to 27.36% if none of them subscribe for any of the Offer Shares. This represents a dilution of 50% on their existing shareholding in the Company.

The effect on the shareholding structure of the Company from the exercise of the Bonus Warrants, on the assumption that none of the other public Shareholders have subscribed to any of the Offer Shares and are not entitled to the Bonus Shares and Bonus Warrants, is set out in the table below.

Prime Orient Underwriter Public DNTC Vendors Other public Shareholders	Immediately after completion of the Open Offer and the issue of Bonus Shares (assuming all Qualifying Holders take up their respective entitlements under the Open Offer) New Shares % 102,345,000 38.19 0 0.00 19,000,000 7.09 146,655,000 54.72 268,000,000 100.00	Immediately after completion of the Open Offer and the issue of Bonus Shares (assuming all Qualifying Holders take up their respective entitlement under the Open Offer) and the full exercise of the Bonus Warrants New Shares % 122,814,000 38.19 0 0.00 22,800,000 7.09 175,985,500 54.72 321,600,000 100.00	Immediately after completion of the Open Offer and the issue of Bonus Shares (assuming no public Shareholder other than the DNTC Vendors takes up his/her/its entitlement under the Open Offer and all Offer Shares and Bonus Shares are taken up by the Underwriter) and the full exercise of the Bonus Warrants New Shares % 122,814,000 38.19 102,658,500 31.92 22,800,000 7.09 73,327,500 22.80 321,600,000 100.00	Immediately after completion of the Open Offer and the issue of Bonus Shares (assuming no public Shareholder other than the DNTC Vendors takes up his/her/its entitlement under the Open Offer and all Offer Shares and Bonus Shares are taken up by the Underwriter) and the full exercise of the Bonus Warrants New Shares % 122,814,000 38.19 102,658,500 31.92 22,800,000 7.09 73,327,500 22.80 321,600,000 100.00
				100.00

As illustrated above, the other public Shareholder’s shareholding in the Company will be further diluted from approximately 54.72% immediately before the completion of the Open Offer to approximately 22.80% upon the full exercise of the Bonus Warrants if no other public Shareholder subscribe for any of the Offer Shares and is not entitled to any of the Bonus Shares and the Bonus Warrants, representing a dilution of approximately 58.33%. As mentioned in section 2 of this letter, the Group had approximately HK$1,195,000 and HK$52,077,000 of cash and bank balances and trade receivables respectively as at 30 June 2004. In addition, the Group had approximately HK$8,583,000, HK$6,015,000 and HK$22,983,000 of interestbearing bank borrowings, trade payables and other payables and accruals as at 30 June 2004. We believe that it is beneficial for the Group to raise further funding to meet its short term cash

– 35 –

LETTER FROM INDEPENDENT FINANCIAL ADVISER

flow requirements. In view of the Group’s financial position and that all Qualifying Holders are entitled to participate in the Open Offer to avoid dilution of their respective shareholding in the Company, we believe the substantial dilution to Shareholders’ interests in the Company in the event that they do not subscribe for any of the Offer Shares (and hence not entitled to any of the Bonus Shares and Bonus Warrants) is acceptable to the Shareholders.

6. Financial effects of the Open Offer

6.1 Net asset value

The consolidated unaudited net assets of the Company amounted to approximately HK$141,985,000 as at 30 June 2004. As stated in the Board Letter, the estimated net proceeds from the Open Offer will be not less than approximately HK$15.5 million and not more than HK$16.5 million. We expect that the Company’s net asset value will be enhanced as a result of the Open Offer. However, Shareholders should note that with the issue of the Offer Shares, the Bonus Shares and the New Shares that can be issued by the exercise of the Bonus Warrants, the total issued share capital of the Company is set to be increased following the completion of the Open Offer. As a result the Company’s net asset value per Share will be diluted as a result of the Open Offer. This dilution should not affect Shareholders who take up their entire entitlement of the Offer Shares as the dilution will be offset by the increased number of New Shares held. However, Shareholders who do not take up their entire entitlement of the Offer Shares will be adversely affected.

6.2 Gearing

Based on the Interim Report, the Group had consolidated unaudited total assets and unaudited total debts of approximately HK$133,497,000 and HK$22,833,000 respectively, translating into a gearing ratio (total debts / total assets x 100%) of approximately 17.10%. With the injection of the net proceeds to be raised under the Open Offer, it is expected that the Group’s gearing ratio will be decreased as the Company intends to apply not less than HK$10.8 million and not more than HK$11.6 million, representing approximately 70% of the estimated net proceeds, to the repayment of outstanding loans.

6.3 Liquidity

As mentioned in section 2 of this letter, the Group had unaudited current assets and unaudited current liabilities of approximately HK$62,058,000 and HK$41,185,000 respectively as at 30 June 2004, translating into a current ratio (current assets / current liabilities) of approximately 1.51. It is expected the Open Offer will have the immediate effect of increasing the Group’s current asset or decreasing the Group’s current liabilities if the proceeds are used to repay part of the Group’s current liabilities and thus enhancing its current ratio.

– 36 –

LETTER FROM INDEPENDENT FINANCIAL ADVISER

CONCLUSION

Having considered the above principal factors, we are of the opinion that the Open Offer is in the interest of the Group and the Shareholders so far as the Shareholders as a whole are concerned and the terms of the Open Offer, the issue of the Offer Shares, Bonus Shares and Bonus Warrants are fair and reasonable. Accordingly, we would recommend (1) the Independent Board Committee to advise the Shareholders and (2) the Shareholders, to vote in favour of the ordinary resolution to approve the Open Offer at the EGM.

Yours faithfully, For and on behalf of Ample Capital Limited Andrew Cheng Director

– 37 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

A. SUMMARY OF FINANCIAL RESULTS FOR THE THREE YEARS ENDED 31 DECEMBER 2003

The following financial information has been extracted from the audited financial statements of the Group for each of the three years ended 31 December 2003:

TURNOVER Cost of sales Gross profit Other revenue and gains Selling and distribution expenses Administrative expenses Other operating expenses Bad debts written off Deposits paid written off Provision for bad and doubtful debts Provision for loans receivable Long term lease rights written off Revaluation deficit on fixed assets (LOSS)/PROFIT FROM OPERATING ACTIVITIES Finance costs (LOSS)/PROFIT BEFORE TAX Tax (LOSS)/PROFIT BEFORE MINORITY INTERESTS Minority interests NET (LOSS)/PROFIT FROM ORDINARY ACTIVITIES ATTRIBUTABLE TO SHAREHOLDERS (LOSS)/EARNINGS PER SHARE	2003 HK$’000 127,338 (91,252) 36,086 3,382 (6,450) (24,119) (11,507) (4,272) (9,161) (12,479) (1,200) (7,524) (6,332) (43,576) (2,168) (45,744) (3,500) (49,244) 17,391 (31,853) (HK2.6 cents)	2002 HK$’000 182,062 (134,542) 47,520 2,732 (10,075) (24,485) (1,892) – – (1,418) – – (752) 11,630 (1,728) 9,902 (1,053) 8,849 (3,970) 4,879 HK0.4 cent	2001 HK$’000 275,168 (183,613) 91,555 1,401 (9,565) (21,800) (550) – – – – – – 61,041 (676) 60,365 (18,070) 42,295 2,053 44,348 HK3.9 cents

– 38 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Save for interim dividends in the aggregate amount of HK$10,000,000 declared and paid for the year ended 31 December 2001 to Shareholders prior to the listing of the Shares on the Stock Exchange, no dividends have been paid or declared by the Company for the three years ended 31 December 2003. There were neither extraordinary nor exceptional items during each of the three years ended 31 December 2003.

The Company’s then auditors, Ernst and Young and RSM Nelson Wheeler have both issued a disclaimer of opinion on the Company’s consolidated financial statements for the year ended 31st December, 2002 and 2003 respectively, the texts of which are reproduced below.

– 39 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

B. AUDITORS’ REPORT CONTAINED IN THE COMPANY’S 2002 ANNUAL REPORT

Set out below is the reproduction of the text of the qualified auditors’ report for the year ended 31 December 2002 contained in the Company’s 2002 annual report:

“For the year ended 31 December 2002

==> picture [124 x 33] intentionally omitted <==

To the members

JACKLEY HOLDINGS LIMITED

(Incorporated in the Cayman Islands with limited liability)

We have audited the financial statements on pages 30 to 84 which have been prepared in accordance with accounting principles generally accepted in Hong Kong.

Respective responsibilities of directors and auditors

The Company’s directors are responsible for the preparation of financial statements which give a true and fair view. In preparing financial statements which give a true and fair view it is fundamental that appropriate accounting policies are selected and applied consistently. It is our responsibility to form an independent opinion, based on our audit, on those statements and to report our opinion to you.

Basis of opinion

We conducted our audit in accordance with Statements of Auditing Standards issued by the Hong Kong Society of Accountants, except that the scope of our work was limited as explained below.

An audit includes an examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Company’s and the Group’s circumstances, consistently applied and adequately disclosed.

– 40 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

1. Scope limitation – Availability of Books and Records

(a) Hui Yang Xie Kai Cheng Carpet Co., Ltd. (“Hui Yang”)

As further explained in note 2(a) to the financial statements, the underlying books and records of Hui Yang, a 51% owned subsidiary of the Company located in Guangdong, the People’s Republic of China (the “PRC”), have not been made available to either the management of the Company or, hence, ourselves.

Consequently, management has consolidated Hui Yang based on its unaudited management accounts for the year ended 31 December 2002. We have been unable to obtain adequate audit evidence to satisfy ourselves as to the reliability of the amounts so consolidated in respect of Hui Yang during the year ended 31 December 2002 and the related balances as at 31 December 2002, as included in the consolidated financial statements. In particular, we have been unable to perform any satisfactory audit procedures to substantiate the transactions entered into by Hui Yang during the year and the assets and liabilities of Hui Yang as at 31 December 2002; and to determine as to whether all appropriate disclosures have been included in the financial statements in accordance with the disclosure requirements of the Hong Kong Companies Ordinance and Hong Kong Statements of Standard Accounting Practice.

The operating results of Hui Yang consolidated in the Group’s financial statements and assets and liabilities as at 31 December 2002 are summarised in note 2(a) to the financial statements.

Furthermore, as explained in note 2(a) to the financial statements, the inventory records of another subsidiary of the Company are maintained in Hui Yang. The relevant audit evidence to support the inventory balances has not been available to either the directors or ourselves for the same reason stated above. Consequently, we have not been able to satisfy ourselves as to the validity, completeness and accuracy in respect of the net carrying value of certain Group’s inventories of approximately HK$28.4 million included in the consolidated balance sheet at 31 December 2002.

In addition, for the same reason stated above, we have not been able to obtain all necessary information for us to complete our review of subsequent events from the balance sheet date up to the date of this report. Such procedures might have resulted in the identification of adjustments to the amounts reported in and/or disclosed as notes to the financial statements and the disclosure of commitments and contingent liabilities of the Group as at 31 December 2002.

– 41 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(b) Existence Limited (“Existence”)

As further explained in note 2(b) to the financial statements, copies of the underlying books and records of Existence, which was disposed of during the year at no gain or loss, have not been retained by the Company. Nor has the Company had access to Existence’s books and records in the preparation of these financial statements. Consequently, management has consolidated Existence based on available unaudited management accounts, but we have not been provided with adequate audit evidence to satisfy ourselves as to the nature, completeness, appropriateness, classification and disclosure in respect of the transactions undertaken by Existence for the period from 1 January 2002 up to the date when the Group disposed of Existence (the “Period”), as included in the consolidated financial statements. We have been unable to perform any satisfactory audit procedures to substantiate the transactions entered into by Existence during the Period and the assets and liabilities at the date of disposal. To the extent that the consolidated results might have required adjustments, there would be a corresponding opposite resulting in a gain or loss arising from the disposal of Existence for the year.

The operating results of Existence consolidated in the Group’s financial statements and assets and liabilities as at the date of disposal are summarised in note 2(b) to the financial statements.

2. Scope limitation – Trade receivables

Included in the consolidated balance sheet of the Group as at 31 December 2002 are trade receivables of approximately HK$11 million, which are due from customers located in Malaysia. The directors are negotiating settlements with these debtors and believe that these balances will be settled in fiscal year 2003. However, no reliable information to assess the financial position of these debtors is available. Accordingly, we have been unable to obtain sufficient audit evidence either to ascertain if these debts can be recovered in full, or to determine the amount of provision, if any, required to be reflected in the financial statements.

3. Scope limitation – Deposit for investment

As further explained in note 17 to the financial statements, the Group paid a deposit of approximately HK$8.8 million (the “Deposit”) for the acquisition of a company which holds a trademark and certain technology knowhow. An independent professional valuer (the “Valuer”) issued a valuation report in December 2002 to support the consideration to be paid by the Group in acquiring this company. However, we have been unable to carry out the necessary audit procedures we considered necessary to satisfy ourselves as to the adequacy of the scope of the Valuer’s work, and we have also been unable to obtain sufficient reliable information, or carry out alternate auditing procedures to satisfy ourselves as to the directors’ assessment in connection with the carrying value of the Deposit. Accordingly, we have been unable to ascertain the appropriateness of the carrying value of the Deposit as at 31 December 2002.

– 42 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

4. Scope limitation – Amount due from an associate

Included in the consolidated balance sheet of the Group as at 31 December 2002 is an amount due from an associate of approximately HK$1.8 million. There is no reliable information available to us to assess the financial position of this associate. Accordingly, we have been unable to obtain sufficient audit evidence either to ascertain if the amount can be recovered in full, or to determine the amount of provision, if any, required to be reflected in the financial statements.

Any adjustments that might have been found to be necessary in respect of matters set out in paragraphs 1 to 4 above would have a consequential effect on the net assets of the Group as at 31 December 2002 and the net profit attributable to the shareholders and cash flows for the year then ended, the classification of such items and their related disclosures in the financial statements, and the disclosure of commitments and contingent liabilities of the Group as at 31 December 2002.

5. Scope limitation – Interests in subsidiaries

Included in the balance sheet of the Company as at 31 December 2002 are interests in subsidiaries of HK$153,884,000 which include an indirect investment in Hui Yang of HK$20,541,000 and amount due from Hui Yang of HK$79,387,000, respectively. As set out in paragraph 1(a) above, we have been unable to obtain sufficient reliable information, or to carry out alternative audit procedures to satisfy ourselves regarding the financial position and results of Hui Yang. Accordingly, we were unable to determine whether any provision for impairment loss is necessary as at 31 December 2002.

Any adjustments that might have been found to be necessary in respect of the above would have a consequential effect on the net assets of the Company as at 31 December 2002 and the Company’s net profit for the year then ended.

In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. We believe that our audit provides a reasonable basis for our opinion.

DISCLAIMER OF OPINION

Because of the significance of the possible effects of the limitation in evidence available to us as set out in paragraphs 1 and 5 of the basis of opinion section of this report, we are unable to form an opinion as to whether the financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2002 and of the profit and cash flows of the Group for the year then ended and as to whether the financial statements have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

– 43 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Had there been no limitation in the evidence available to us as set out in paragraphs 1 and 5 of the basis of opinion section of this report, we would have reported that except for any adjustments that might have been found to be necessary had we been able to obtain sufficient evidence relating to the matters discussed in paragraphs 2 to 4 of the basis of opinion section of this report, in our opinion the financial statements give a true and fair view of the state of the affairs of the Company and of the Group as at 31 December 2002 and of the profit and cash flows of the Group for the year then ended and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

In respect alone of the limitations on our work as set out in the basis of opinion section of this report:

(i) we have not obtained all the information and explanations that we considered necessary for the purpose of our audit; and
(ii) we were unable to determine whether proper books of accounts have been kept.

Ernst & Young Certified Public Accountants

Hong Kong 6 June 2003”

– 44 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

C. AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE GROUP FOR THE YEAR ENDED 31 DECEMBER 2003

Set out below is the reproduction of the text of the qualified auditors’ report and the audited financial statements for the year ended 31 December 2003 contained in the Company’s 2003 annual report:

“For the year ended 31 December 2003

==> picture [170 x 55] intentionally omitted <==

TO THE MEMBERS OF

JACKLEY HOLDINGS LIMITED

(Incorporated in the Cayman Islands with limited liability)

We have audited the financial statements on pages 25 to 78 which have been prepared in accordance with accounting principles generally accepted in Hong Kong.

Respective responsibilities of directors and auditors

The Company’s directors are responsible to prepare financial statements which give a true and fair view. In preparing financial statements which give a true and fair view it is fundamental that appropriate accounting policies are selected and applied consistently.

It is our responsibility to form an independent opinion, based on our audit, on those statements and to report our opinion solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

Basis of opinion

We conducted our audit in accordance with Statements of Auditing Standards issued by the Hong Kong Society of Accountants. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group’s and the Company’s circumstances, consistently applied and adequately disclosed.

We planned our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the financial statements are free from material misstatement. However, the evidence regarding the opening figures and comparative figures available to us was limited. We draw your attention to the fact that the financial statements for the year ended 31 December 2002 were audited by another firm of accountants who have expressed a disclaimer opinion as to whether the financial statements gave a true and fair view of the state of affairs of the Company and of the Group and of the profit and cash flows of the Group.

– 45 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

We are required to satisfy ourselves as to the accuracy of the figures brought forward as at 1 January 2003 and the comparative figures included in these financial statements. The work we normally carry out to enable us to confirm the accuracy of these figures includes a review of prior year audit files. We were not given access to the audit files of the previous auditors for the year ended 31 December 2002 and we have not been able to carry out alternative audit procedures covering the year ended 31 December 2002 to enable us to express an opinion on the figures brought forward as at 1 January 2003 and the comparative figures in these financial statements.

Any adjustment to the opening figures would have a consequential significant effect on the results of the Group for the years ended 31 December 2002 and 2003.

In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. We believe that our audit provides a reasonable basis for our opinion.

Fundamental uncertainty relating to going concern basis

In forming our opinion we have considered the adequacy of the disclosures made in note 2 to the financial statements which explains that in preparing the financial statements, the directors have given consideration to the future operations and financing of the Group. The financial statements have been prepared on a going concern basis, the validity of which is subject to the successful outcome of the measures to be implemented by the Company and the Group. The financial statements do not include any adjustments that would result from the failure of these measures. We consider that appropriate disclosures have been made but the inherent uncertainties surrounding the circumstances under which the Group might successfully continue to adopt the going concern basis are so extreme that we have disclaimed our opinion.

Disclaimer of opinion

Because of the significance of the possible effects of the limitation in evidence available to us regarding the figures brought forward as at 1 January 2003 and of the fundamental uncertainty relating to appropriateness of the going concern basis as set out above, we are unable to form an opinion as to whether the financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2003 and of the loss and cash flows of the Group for the year then ended and as to whether the financial statements have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

In respect alone of the limitation on our work relating to the basis of opinion section of this report referred above:

we have not obtained all the information and explanations that we considered necessary for the purpose of our audit; and
we were unable to determine whether proper books and records had been kept.

RSM Nelson Wheeler Certified Public Accountants

Hong Kong 29 April 2004”

– 46 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

FINANCIAL STATEMENTS

The following is a summary of the audited consolidated accounts of the Company for the year ended 31 December 2003 as extracted from pages 25 to 78 of the 2003 annual report of the Company.

Consolidated Profit and Loss Account

For the year ended 31 December 2003

Note TURNOVER 6 Cost of sales Gross profit Other revenue and gains 6 Selling and distribution expenses Administrative expenses Other operating expenses Bad debts written off Deposits paid written off Provision for bad and doubtful debts Provision for loans receivable Long term lease rights written off Revaluation deficit on fixed assets (LOSS)/PROFIT FROM OPERATING ACTIVITIES 7 Finance costs 10 (LOSS)/PROFIT BEFORE TAX Tax 11 (LOSS)/PROFIT BEFORE MINORITY INTERESTS Minority interests NET (LOSS)/PROFIT FROM ORDINARY ACTIVITIES ATTRIBUTABLE TO SHAREHOLDERS 12 (LOSS)/EARNINGS PER SHARE 14 – Basic	2003 HK$’000 127,338 (91,252) 36,086 3,382 (6,450) (24,119) (11,507) (4,272) (9,161) (12,479) (1,200) (7,524) (6,332) (43,576) (2,168) (45,744) (3,500) (49,244) 17,391 (31,853) (HK2.6 cents)	2002 HK$’000 182,062 (134,542) 47,520 2,732 (10,075) (24,485) (1,892) – – (1,418) – – (752) 11,630 (1,728) 9,902 (1,053) 8,849 (3,970) 4,879 HK0.4 cent

– 47 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Balance Sheet

As at 31 December 2003

Note NON-CURRENT ASSETS Fixed assets 15 Long term lease rights 16 Deposits paid 17 Interest in an associate 19 Loan to a director 20 CURRENT ASSETS Loan to a director 20 Amounts due from an ex-director and related parties 21 Prepayments, deposits and other receivables Inventories 22 Trade receivables 23 Loans receivable 24 Short term investments 25 Pledged time deposits Cash and bank balances 26 CURRENT LIABILITIES Interest-bearing bank borrowings 27 Finance lease payable 28 Trade payables 29 Other payables and accruals 30 Tax payables NET CURRENT (LIABILITIES)/ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Interest-bearing bank borrowings 27 Finance lease payable 28 MINORITY INTERESTS CAPITAL AND RESERVES Share capital 31 Reserves 33(a)	2003 HK$’000 114,159 – 47,000 67 – 161,226 83 211 1,128 3,392 52,209 1,201 297 – 1,143 59,664 40,021 78 13,230 19,118 3,601 76,048 (16,384) 144,842 – 139 139 317 144,386 124,500 19,886 144,386	2002 HK$’000 93,529 9,208 15,905 1,828 415
		120,885
		105 211 19,287 45,614 33,741 6,653 3,632 30,000 22,822
		162,065
		65,001 84 7,702 6,157 132
		79,076
		82,989
		203,874 17,293 199
		17,492
		14,223
		172,159

		124,500 47,659
		172,159

– 48 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Statement of Changes in Equity

For the year ended 31 December 2003

Reserves	Reserves		Total HK$’000 167,280 – 4,879
Statutory Assets reserve revaluation fund reserve HK$’000 HK$’000 11 – – – – – 11 – – 10,027 – (117) – (4,856) – – 24 – – – 35 5,054	Exchange reserve HK$’000 – – – – – – 954 (2,045) – – (1,091)	Retained profits HK$’000 120,945 (78,176) 4,879 47,648 – 117 – – (24) (31,853) 15,888
			172,159 10,027 – (3,902) (2,045) – (31,853)
			144,386

– 49 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Cash Flow Statement

For the year ended 31 December 2003

Note CASH FLOWS FROM OPERATING ACTIVITIES (Loss)/Profit before tax Adjustments for: Finance costs 10 Depreciation 7 Amortisation of long term lease rights 7 Revaluation deficit on fixed assets Net unrealised loss on short term investments 7 Long term lease rights written off Fixed assets written off 7 Deposits paid written off Provision for an amount due from an associate 7 Bad debts written off Loss on disposals of fixed assets 7 Provision for slow-moving and net realisable value of inventories 7 Provision for loans receivable Provision for bad and doubtful debts Gain on disposals of short term investments 6 Gain on written off of investment in a subsidiary 6 Revaluation surplus on fixed assets 6 Bad debts written back 6 Provision for obsolete inventories written back 6 Net unrealised gain on short term investments 6 Interest income 6 Operating profit before working capital changes Decrease/(Increase) in prepayments, deposits and other receivables Decrease/(Increase) in inventories Increase in trade receivables Purchases of short term investments Proceeds from disposals of short term investments Increase/(Decrease) in trade payables Increase in other payables and accruals Cash generated from/(used in) operations Interests received Hong Kong profits tax refunded/(paid) Net cash inflow/(outflow) from operating activities	2003 HK$’000 (45,744) 2,168 11,346 1,700 6,332 3,335 7,524 3,710 9,161 1,782 4,272 2,274 279 1,200 12,479 – (71) (777) (329) (1,498) – (277) 18,866 12,950 18,441 (48,487) – – 5,528 12,380 19,678 277 143 20,098	2002 HK$’000 9,902 1,728 14,661 1,700 752 – – – – – – 80 1,812 – 1,418 (41) – – – – (553) (1,088) 30,371 (1,690) (3,149) (15,932) (3,392) 354 (10,044) 101 (3,381) 1,088 (161) (2,454)

– 50 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Cash Flow Statement

For the year ended 31 December 2003

CASH FLOWS FROM INVESTING ACTIVITIES Long term deposits paid Purchases of fixed assets Proceeds from disposals of fixed assets Disposals of subsidiaries Advances to an associate Advances of loan to a director Repayment of loan from a director Advances of loans to third parties Repayment of loans from third parties Decrease/(Increase) in pledged time deposits Net cash inflow/(outflow) from investing activities CASH FLOWS FROM FINANCING ACTIVITIES New bank loans (Decrease)/Increase in trust receipt loans Repayment of bank loans Capital element of finance lease rental payments Interest paid Net cash (outflow)/inflow from financing activities NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of year Effect on foreign exchange rate changes CASH AND CASH EQUIVALENTS AT END OF YEAR ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances Bank overdrafts, secured	2003 HK$’000 – (26,203) 375 – (21) – 437 – 110 30,000 4,698 – (6,090) (5,895) (66) (2,168) (14,219) 10,577 (11,187) (1,968) (2,578) 1,143 (3,721) (2,578)	2002 HK$’000 (15,905) (21,261) 170 (57) (1,828) (594) 74 (10,672) 4,019 (6,000) (52,054) 27,688 16,910 (4,789) (279) (1,728) 37,802 (16,706) 5,519 – (11,187) 22,822 (34,009) (11,187)

– 51 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Balance Sheet

As at 31 December 2003

Note NON-CURRENT ASSETS Fixed assets 15 Interests in subsidiaries 18 CURRENT ASSETS Prepayments, deposits and other receivables Loans receivable 24 Pledged time deposits Cash and bank balances CURRENT LIABILITIES Interest-bearing bank borrowings 27 Other payables and accruals NET CURRENT LIABILITIES NET ASSETS CAPITAL AND RESERVES Share capital 31 Reserves 33(b)	2003 HK$’000 343 124,472 124,815 93 1,095 – 4 1,192 746 6,449 7,195 (6,003) 118,812 124,500 (5,688) 118,812	2002 HK$’000 467 153,884 154,351 293 6,047 24,000 11 30,351 28,012 2,451 30,463 (112) 154,239 124,500 29,739 154,239

– 52 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Notes to Financial Statements

For the year ended 31 December 2003

1. CORPORATE INFORMATION

The principal place of business of the Company is located at 12th Floor, Tai Sang Commercial Building, Nos. 24- 34 Hennessy Road, Wanchai, Hong Kong.

The principal activity of the Company is investment holding. The principal activities of the Company’s principal subsidiaries are set out in note 18 to the financial statements. There were no significant changes in the nature of the Group’s principal activities during the year.

2. BASIS OF PRESENTATION OF THE FINANCIAL STATEMENTS

At 31 December 2003, the Group had net current liabilities of approximately HK$16 million which included current bank obligation of HK$40 million. In addition, the Company and one of its wholly-owned subsidiaries were also brought into litigation by a previous major supplier for the Group’s carpet tiles business with a winding-up intention over some disputed trade debts, amounting to approximately HK$8 million (“judgment debts”) of which HK$7 million was provided in the Group’s financial statements. On the other hand, the Group is counter-claiming the same supplier for the premature termination of a distribution agreement with a claim for damages exceeding the judgment debts. The Group is also currently negotiating with certain of its bankers to either extend the credit facilities, or to reschedule the Group’s indebtedness. However, as of the date of approved of the financial statements, no formal arrangements have been concluded.

The markets and economic conditions for 2003 particularly in Hong Kong have continued to be adversely affected by uncertain economic conditions which in turn seriously affected the Group’s business and consequently the Group’s turnover, profitability and liquidity. These conditions primarily included international issues such as the continued effects of terrorism and SARS.

Having regard to this background and in order to improve the Group’s financial position, cash flows, profitability and operations, the directors have adopted the following measures:

(a) the directors have taken action to tighten cost controls over the staff costs, overheads and various general and administrative expenses;
(b) the directors have taken steps to establish export markets by selling into the Middleeast, USA, Japan and Korea;
(c) the directors have taken action to restructure the sales organization throughout China and Hong Kong by improving the quality of the sales team, and training them to sell carpet tiles and broadloom products;
(d) subsequent to the balance sheet date, the Group entered into agreements to disposed of two properties for a total cash consideration of HK$29.5 million. Further details regarding the disposals are set out in note 39 to the financial statements. The net cash proceeds, after the repayment of the corresponding secured bank borrowings and related expenses, of approximately HK$13.9 million, have been used to further pay down other bank borrowings of the Group; and

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(e) as at the date of this report the directors are in the final stage of negotiations with two independent third parties for a proposed loan facility to be made available to the Company of approximately HK$15 million. The loan proceeds from the proposed loan facility will be utilised to reduce bank debts, trade payables and to provide additional working capital for the Group.

The directors are confident that following the pay down of outstanding bank borrowings, the Group will continue to receive continued support from its bankers, in particular the extension of the credit facilities and/or rescheduling of the loan tenure, for the Group’s continued operations.

In the opinion of the directors, in the light of the measures taken to-date and on the basis of the continued support from the bankers and trade suppliers, the Group will have sufficient working capital for its current and future requirements and it is reasonable to expect that the Group will quickly return to a commercially viable concern. Accordingly, the directors are satisfied that it is appropriate to prepare the financial statement on a going concern basis, notwithstanding the Group’s position and tight cash flows position as at 31 December 2003 and at the date of approval of these financial statements.

Should the Group be unable to continue its business as going concern, adjustments would have to be made to restate the values of assets to their recoverable amounts, to provide for any further liabilities which might arise, including those contingent liabilities as set out in note 35 to the financial statements, and to reclassify non-current assets and liabilities as current assets and liabilities, respectively. The effect of these potential adjustments has not been reflected in these financial statements.

3. IMPACT OF REVISED STATEMENT OF STANDARD ACCOUNTING PRACTICE (“SSAP”)

SSAP 12 (Revised) “Income Taxes” is effective for the first time for the current year’s financial statements.

In the current year, the Group has changed its accounting policy for deferred tax, as set out in note 4, following its adoption of SSAP 12 (Revised) issued by the Hong Kong Society of Accountants which is effective for accounting periods commencing on or after 1 January 2003. SSAP 12 (Revised) requires the adoption of a balance sheet liability method, whereby deferred tax is recognised in respect of all temporary differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit, with limited exceptions. The adoption of SSAP 12 (Revised) has not had any material effect on the results for the current year or prior accounting periods.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of preparation

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

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries for the year ended 31 December 2003. The results of subsidiaries acquired or disposed of during the year are consolidated from or to their effective dates of acquisition or disposal, respectively. All significant intercompany transactions and balances within the Group are eliminated on consolidation.

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

Revenue recognition

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

(a) from the sale of goods, when the significant risks and rewards of ownership have been transferred to the buyers, provided that the Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold;
(b) interest income, on a time proportion basis, taking into account the principal outstanding and the effective interest rate applicable; and
(c) rental income is recognised on a time proportion basis in accordance with the terms and conditions of the tenancy agreement.

Leased assets

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

Operating leases

Leases where substantially all the risks and rewards of ownership of assets remain with the leasing company are accounted for as operating leases. Rentals applicable to such operating leases are charged to the profit and loss account on a straight line basis over the lease term.

Borrowing costs

Borrowing costs are expensed in the financial statements in the period in which they are incurred.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Employee benefits

Employment Ordinance long service payments

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

A provision has not been recognised in respect of such possible payments, as it is not considered probable that the situation will result in a material future outflow of resources from the Group.

Pension schemes and other retirement benefits

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

The employees of the Group’s subsidiaries which operate in Mainland China are required to participate in the retirement benefits scheme (the “RB Scheme”) operated by the respective local municipal government in Mainland China. These subsidiaries are required to contribute a certain percentage of their payroll costs to the RB Scheme to fund the benefits. The only obligation of the Group with respect to the RB Scheme is to pay the ongoing required contributions under the RB Scheme. Contributions under the RB Scheme are charged to the profit and loss account as they become payable in accordance with the rules of the RB Scheme.

Share option scheme

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

Dividends

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

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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

Impairment of assets

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

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

A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the recoverable amount of an asset, however not to an amount higher than the carrying amount that would have been determined (net of any depreciation/ amortisation), had no impairment loss been recognised for the asset in prior years.

A reversal of an impairment loss is credited to the profit and loss account in the period in which it arises, unless the asset is carried at a revalued amount, when the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

Investment properties

Investment properties are interests in land and buildings in respect of which construction work and development have been completed and which are held for their investment potential, any rental income being negotiated at arm’s length.

Investment properties are stated at cost less impairment losses, if any. Investment properties are not depreciated except where the unexpired term of the lease is 20 years or less in which case depreciation is provided on the carrying amount over the remaining term of the lease.

Fixed assets and depreciation

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

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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

Depreciation is calculated on the straight-line basis to write off the cost or valuation of each asset over the following estimated useful lives:

Leasehold land and buildings The shorter of the lease terms and/or 50 years Plant and machinery 15 years Leasehold improvements, furniture, 4 to 10 years office equipment and motor vehicles

The gain or loss on disposal or retirement of a fixed asset recognised in the profit and loss account is the difference between the net sales proceeds and the carrying amount of the relevant asset. Any revaluation reserves balance remaining attributable to the relevant asset is transferred to retained profits as a movement in reserves.

Long term lease rights

Long term lease rights represent prepayments made for the operating lease rentals of certain leasehold buildings in Mainland China, and are amortised to the profit and loss account on the straight-line basis over the lease term from 1 January 1995 to 31 May 2008.

Short term investments

Short term investments are investments in equity securities held for trading purposes and are stated at their fair values on the basis of their quoted market prices at the balance sheet date, on an individual investment basis. The gains or losses arising from changes in the fair value of a security are credited or charged to the profit and loss account in the period in which they arise.

Subsidiaries

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

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

Associate

An associate is a company, not being a subsidiary or a jointly-controlled entity, in which the Group has a long term interest of generally not less than 20% of the equity voting rights and over which it is in a position to exercise significant influence.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The Group’s share of the post-acquisition results and reserves of associates is included in the consolidated profit and loss account and consolidated reserves, respectively. The Group’s interest in an associate is stated in the consolidated balance sheet at the Group’s share of net assets under the equity method of accounting, less any impairment losses.

Inventories

Inventories are stated at the lower of cost and net realisable value after allowances for obsolete or slow-moving items. Cost is determined on the first-in, first-out basis and, in the case of work in progress and finished goods, comprises direct materials, direct labour and an appropriate proportion of overheads based on a normal level of operating activities. Net realisable value is based on the estimated selling prices less any estimated costs to be incurred to completion and disposal.

Deferred tax

Deferred tax is provided in full, using the liability method, on all significant temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts in the financial statements.

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

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 taxation profit will be available to allow all or part of the deferred tax asset to be utilised. Conversely, previously unrecognised deferred tax assets are recognised to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised.

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

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to period when the asset is realised or the liability settled, based on the tax rates (and tax laws) that have been enacted or substantially enacted at balance sheet date.

Contingent liabilities and contingent assets

A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. It can be a present obligation arising from past events that is not recognised because it is not probable that outflow of economic resources will be required or the amount of obligation cannot be measured reliably. A contingent liability is not recognised but is disclosed in the notes to the financial statements. When a change in the probability of an outflow occurs so that outflow is probable, they will then be recognised as a provision.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain events not wholly within the control of the Group. A contingent asset is not recognised but is disclosed in the notes to the financial statements when an inflow of economic benefits is probable. When inflow is virtually certain, an asset is recognised.

Foreign currencies

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

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

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

Related parties

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

Cash and cash equivalents

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

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

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

5. SEGMENT INFORMATION

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

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

(a) the manufacture of carpets segment represents the manufacture and sale of carpets; and
(b) the trading of carpets segment represents the trading of carpets of other renowned brand names.

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

(a) Business segments

The following tables present revenue, results and certain asset, liability and expenditure information for the Group’s business segments.

Segment revenue: Sales to external customers Segment results Unallocated revenue Unallocated expenses (Loss)/Profit from operating activities Finance costs (Loss)/Profit before tax Tax (Loss)/Profit before minority interests Minority interests Net (loss)/profit from ordinary activities attributable to shareholders	Manufacture of carpets 2003 2002 HK$’000 HK$’000 87,334 105,174 (7,447) 22,950	Trading of carpets 2003 2002 HK$’000 HK$’000 40,004 76,888 (4,884) (911)	Consolidated 2003 2002 HK$’000 HK$’000 127,338 182,062 (12,331) 22,039 3,382 2,732 (34,627) (13,141) (43,576) 11,630 (2,168) (1,728) (45,744) 9,902 (3,500) (1,053) (49,244) 8,849 17,391 (3,970) (31,853) 4,879	Consolidated 2003 2002 HK$’000 HK$’000 127,338 182,062 (12,331) 22,039 3,382 2,732 (34,627) (13,141) (43,576) 11,630 (2,168) (1,728) (45,744) 9,902 (3,500) (1,053) (49,244) 8,849 17,391 (3,970) (31,853) 4,879

				22,039 2,732 (13,141)
				11,630 (1,728)
				9,902 (1,053)
				8,849 (3,970)
				4,879

– 61 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Segment assets Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities Other segment information: Depreciation Unallocated depreciation Amortisation Capital expenditure Unallocated capital expenditure Non-cash expenses	Manufacture of carpets 2003 2002 HK$’000 HK$’000 140,367 145,595 – – 140,367 145,595 5,801 2,139 – – 5,801 2,139 10,464 13,535 – – 10,464 13,535 1,700 1,700 26,532 6,505 – – 26,532 6,505 26,999 61	Trading of carpets 2003 2002 HK$’000 HK$’000 7,259 37,901 – – 7,259 37,901 29,412 8,368 – – 29,412 8,368 455 509 – – 455 509 – – 30 720 – – 30 720 3,468 3,170	Unallocated 2003 2002 HK$’000 HK$’000 – – 73,264 99,454 73,264 99,454 – – 40,974 86,061 40,974 86,061 – – 427 617 427 617 – – – – 7,419 17,992 7,419 17,992 21,881 831	Consolidated 2003 2002 HK$’000 HK$’000 147,626 183,496 73,264 99,454 220,890 282,950 35,213 10,507 40,974 86,061 76,187 96,568 10,919 14,044 427 617 11,346 14,661 1,700 1,700 26,562 7,225 7,419 17,992 33,981 25,217 52,348 4,062	Consolidated 2003 2002 HK$’000 HK$’000 147,626 183,496 73,264 99,454 220,890 282,950 35,213 10,507 40,974 86,061 76,187 96,568 10,919 14,044 427 617 11,346 14,661 1,700 1,700 26,562 7,225 7,419 17,992 33,981 25,217 52,348 4,062
					282,950

					10,507 86,061
					96,568

					14,044 617
					14,661

					1,700

					7,225 17,992
					25,217

					4,062

(b) Geographical segments

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

==> picture [359 x 163] intentionally omitted <==

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

Hong Kong Macau Mainland China South East Asia Middle-East Consolidated
2003 2002 2003 2002 2003 2002 2003 2002 2003 2002 2003 2002
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
Segment revenue:
Sales to external
customers 19,650 39,522 – – 59,490 131,450 25 11,090 48,173 – 127,338 182,062
Other segment
information:
Segment assets 27,490 90,364 85 78 143,477 162,456 1,884 30,052 47,954 – 220,890 282,950
– – – – –
Capital expenditure 7,433 17,135 26,548 6,785 1,297 33,981 25,217
----- End of picture text -----

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

6. TURNOVER, REVENUE AND GAINS

Turnover represents the net invoiced value of goods sold, after allowances for returns and trade discounts during the year.

An analysis of the Group’s turnover, other revenue and gains is as follows:

Turnover Sale of goods Other revenue Interest income Bad debts written back Provision for obsolete inventories written back Rental income Others Gains Gain on written off of investment in a subsidiary Revaluation surplus on fixed assets Gain on disposals of short term investments Net unrealised gain on short term investments	2003 HK$’000 127,338 277 329 1,498 54 376 2,534 71 777 – – 848 3,382	2002 HK$’000 182,062

		1,088 – – – 1,050
		2,138
		– – 41 553
		594
		2,732

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

7. (LOSS)/PROFIT FROM OPERATING ACTIVITIES

The Group’s (loss)/profit from operating activities is arrived at after charging and crediting:

Charging: Cost of inventories sold Depreciation owned fixed assets leased fixed assets Amortisation of long term lease rights Minimum lease payments under operating leases on leasehold land and buildings office equipment Staff costs (excluding directors’ remuneration – note 8) Wages and salaries Retirement benefits scheme contributions Auditors’ remuneration Net exchange losses Loss on disposals of fixed assets Net unrealised loss on short term investments Provision for an amount due from an associate Fixed assets written off Provision for slow-moving and net realisable value of inventories* Crediting: Gross rental income Less: outgoings	2003 HK$’000 73,015 11,261 85 11,346 1,700 2,797 148 6,576 338 800 470 2,274 3,335 1,782 3,710 279 54 (353) (299)	2002 HK$’000 109,143 14,576 85
		14,661 1,700 3,696 – 5,808 134 950 51 80 – – – 1,812 – –
		–

Included in “Cost of sales” on the face of the consolidated profit and loss account.

** Included in “Other operating expenses” on the face of the consolidated profit and loss account.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

8. DIRECTORS’ REMUNERATION

Details of the remuneration of the directors of the Company for the year disclosed pursuant to the Rules Governing the Listing of Securities on the Stock Exchange (the “Listing Rules”) and Section 161 of the Hong Kong Companies Ordinance are as follows:

Fees: Executive directors Non-executive directors Independent non-executive directors Basic salaries, housing benefits, other allowances and benefits in kind: Executive directors Non-executive directors Independent non-executive directors Retirement benefits scheme contributions: Executive directors Non-executive directors Independent non-executive directors	Group 2003 2002 HK$’000 HK$’000 – – – – 360 378 360 378 3,485 4,774 – 179 – – 3,485 4,953 58 65 – – 18 – 76 65 3,921 5,396	Group 2003 2002 HK$’000 HK$’000 – – – – 360 378 360 378 3,485 4,774 – 179 – – 3,485 4,953 58 65 – – 18 – 76 65 3,921 5,396
		378
		4,774 179 –
		4,953
		65 – –
		65
		5,396

The number of directors whose remuneration fell within the following bands is as follows:

HK$Nil – HK$1,000,000 HK$1,000,001 – HK$1,500,000	Number of directors 2003 2002 9 9 1 2 10 11	Number of directors 2003 2002 9 9 1 2 10 11
		11

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

During the year, none of the directors or chief executives of the Company had any share options granted under the share option scheme adopted by the Company.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

During the year, no emoluments were paid by the Group to the directors as an inducement to join, or upon joining the Group, or as compensation for loss of office (2002: HK$Nil).

9. FIVE HIGHEST PAID EMPLOYEES

The five highest paid employees during the year included four (2002: five) directors, details of whose remuneration are out in note 8 above. Details of the remuneration of the remaining one (2002: Nil) senior management, highest paid employee during the year which fell within the HK$Nil – HK$1,000,000 disclosure band, are as follows:

Basic salaries, housing benefits, other allowances and benefits in kind Retirement benefits scheme contributions	Group 2003 2002 HK$’000 HK$’000 650 – 12 – 662 –	Group 2003 2002 HK$’000 HK$’000 650 – 12 – 662 –
		–

10. FINANCE COSTS

Interest on bank loans and overdrafts: Wholly repayable within five years Repayable beyond five years Interest on finance leases Other interests	Group 2003 2002 HK$’000 HK$’000 1,685 1,404 419 274 21 50 43 – 2,168 1,728	Group 2003 2002 HK$’000 HK$’000 1,685 1,404 419 274 21 50 43 – 2,168 1,728
		1,728

11. TAX

(a) The amount of taxation charged to the consolidated profit and loss account represents:

Current year provision: Hong Kong Overseas Tax charge for the year	Group 2003 2002 HK$’000 HK$’000 – 84 3,500 969 3,500 1,053	Group 2003 2002 HK$’000 HK$’000 – 84 3,500 969 3,500 1,053
		1,053

No provision for Hong Kong profits tax is required since the Group has no estimated assessable profit for the year. The amount provided for the year ended 31 December 2002 was calculated at 16% based on the estimated assessable profit for that year.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Taxes on profits assessable overseas have been calculated at the applicable rates of tax prevailing in the jurisdictions in which the Group operates, based on existing legislation, interpretations and practices in respect thereof.

One of the Company’s subsidiaries operating in Mainland China is exempt from the income tax of Mainland China for two years starting from the first profitable year of its operations, and is entitled to a 50% relief from the income tax of Mainland China for the following three years under the Income Tax Law of Mainland China. Upon expiry of the tax relief period, the subsidiary will be subject to the full income tax rate of 33%. This subsidiary has not commenced to generate any assessable profits arising in Mainland China since the date of its establishment.

(b) Reconciliation between tax expenses and the Group’s (loss)/profit before tax at applicable tax rates:

(Loss)/Profit before tax Tax at the applicable rate of 17.5% (2002: 16%) Tax effect of different tax rates in other jurisdictions Tax effect of non-taxable income Tax effect of non-deductible expenses Unrecognised temporary differences Tax losses not recognised Tax surcharge Taxation	2003 HK$’000 (45,744) (8,005) (5,500) (131) 14,287 (185) 3,034 – 3,500	2002 HK$’000 9,902 1,584 (194) (15,711) 13,613 (13) 1,773 1 1,053

In 2003 the Hong Kong government enacted a change in the profits tax rate from 16% to 17.5% for the year of assessment 2003/2004.

Tax losses	Group 2003 2002 HK$’000 HK$’000 (36,584) (25,127)	Company 2003 2002 HK$’000 HK$’000 (12,987) (12,987)

Deferred tax asset has not been recognised in respect of the above tax losses carried forward because it is not probable that future taxable profits will be available against which the Group and the Company can utilise the benefits. The Group’s tax losses amounting to HK$12,939,000 (2002: HK$6,257,000) expire 5 years from the year the tax losses were incurred. The remaining tax losses do not expire under the respective countries’ tax legislation.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

12. NET (LOSS)/PROFIT FROM ORDINARY ACTIVITIES ATTRIBUTABLE TO SHAREHOLDERS

The net loss from ordinary activities attributable to shareholders for the year ended 31 December 2003 dealt with in the financial statements of the Company, is approximately HK$35,427,000 (2002: profit of HK$1,084,000).

13. DIVIDENDS

No dividends have been paid or declared by the Company for the year ended 31 December 2003 (2002: HK$ Nil).

14. (LOSS)/EARNINGS PER SHARE

The calculation of basic (loss)/earnings per share is based on the net (loss)/profit attributable to shareholders for the year of approximately HK$31,853,000 (2002: profit of HK$4,879,000), and the weighted average of 1,245,000,000 ordinary shares (2002: 1,245,000,000 shares after adjusting for bonus issue) in issue during the year.

Diluted (loss)/earnings per share amount has not been disclosed as no diluting events existed in both 2002 and 2003.

– 68 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

15. FIXED ASSETS

Group

Investment property HK$’000 Cost or valuation: At 1 January 2003 – Additions 7,406 Disposals/written off – Revaluation – Exchange realignment – At 31 December 2003 7,406 Analysis of cost or valuation At cost 7,406 At valuation – 7,406 Accumulated depreciation and impairment: At 1 January 2003 – Charge for the year – Disposals/written off – Written back on revaluation – Exchange realignment – At 31 December 2003 – Net book value: At 31 December 2003 7,406 At 31 December 2002 –	Leasehold land and buildings HK$’000 16,500 26,401 – 435 – 43,336 – 43,336 43,336 – 342 – (342) – – 43,336 16,500	Leasehold improvements, furniture, office equipment and Plant and motor machinery vehicles HK$’000 HK$’000 124,921 14,776 34 140 (2,422) (5,295) (61,366) (2,333) – (3) 61,167 7,285 – – 61,167 7,285 61,167 7,285 57,614 5,054 9,351 1,653 (133) (1,225) (64,753) (2,524) – (2) 2,079 2,956 59,088 4,329 67,307 9,722	Total HK$’000 156,197 33,981 (7,717) (63,264) (3) 119,194 7,406 111,788 119,194 62,668 11,346 (1,358) (67,619) (2) 5,035 114,159 93,529

– 69 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Company

	Leasehold improvements,
	furniture, office
	equipment and
	motor vehicles
	HK$’000
Cost:
At 1 January 2003	584
Additions	13
Disposals	(29)
At 31 December 2003	568
Accumulation depreciation:
At 1 January 2003	117
Charge for the year	114
Disposals	(6)
At 31 December 2003	225
Net book value:
At 31 December 2003	343
At 31 December 2002	467

(a) The Group’s investment property and leasehold land and buildings included above at their net book values are as follows:

In Hong Kong, held on: Medium term leases Long term leases Outside Hong Kong, held on medium term leases	Group 2003 2002 HK$’000 HK$’000 7,406 – 16,635 15,600 24,041 15,600 26,701 900	Group 2003 2002 HK$’000 HK$’000 7,406 – 16,635 15,600 24,041 15,600 26,701 900
		15,600

		900

(b) Leasehold land and buildings of the Group include land and buildings located in Mainland China with net book value of HK$26,401,000 (2002: HK$ Nil) in respect of which the Group is in the process of obtaining the relevant land use rights and building ownership certificates as at 31 December 2003.
(c) The net book value of the Group’s motor vehicle held under a finance lease included in the total amount of leasehold improvements, furniture, office equipment and motor vehicles at 31 December 2003, amounted to approximately HK$256,000 (2002: HK$342,000).

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(d) During the year, except for investment property, the Group’s fixed assets have been revalued as follows:
(i) part of the fixed assets was revalued on the basis of fair market value in continued use, by LCH (Asia-Pacific) Surveyors Limited, independent professionally qualified valuers, at HK$68,320,000 (2002: HK$ Nil). The resulting revaluation surplus of approximately HK$10,027,000 (2002: HK$ Nil) has been transferred to assets revaluation reserve and the resulting revaluation deficit of approximately HK$6,332,000 (2002: HK$ Nil) has been charged to the profit and loss account.
(ii) the balance of the fixed assets were revalued by the directors at HK$16,935,000 (2002: HK$16,500,000). The resulting revaluation surplus of HK$777,000 (2002: revaluation deficit of HK$752,000) has been credited to the profit and loss account.
(e) Had the Group’s leasehold land and buildings, leasehold improvements, furniture, office equipment and motor vehicles been carried at historical cost less accumulated depreciation and impairment losses, their carrying amount would have been approximately HK$72,690,000 (2002: HK$17,540,000).
(f) At 31 December 2003, the Group’s investment property and leasehold land and buildings, with net book value amounted to approximately HK$24,341,000 (2002: HK$16,500,000) were pledged to secure banking facilities granted to the Group (note 27).
(g) The Group’s total future minimum lease payments of approximately HK$135,000 under non-cancellable operating lease are receivable within one year.
(h) Subsequent to the balance sheet date, the investment property and certain leasehold land and buildings were disposed (see note 39).

– 71 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

16. LONG TERM LEASE RIGHTS

Cost: At 1 January 2003 Written off At 31 December 2003 Accumulation amortisation and impairment: At 1 January 2003 Amortisation during the year Written off Exchange realignment At 31 December 2003 Net book value: At 31 December 2003 At 31 December 2002	Group HK$’000 22,808 (22,808
	–
	13,600 1,700 (15,284 (16
	–
	–

	9,208

17. DEPOSITS PAID

Deposits for investment (Note) Deposits for purchases of investment property in Hong Kong	Group 2003 2002 HK$’000 HK$’000 47,000 8,771 – 7,134 47,000 15,905	Group 2003 2002 HK$’000 HK$’000 47,000 8,771 – 7,134 47,000 15,905
		15,905

Note:

The Company through its wholly owned subsidiary, Jackley International of America, Limited (“JIA”) entered into a conditional share acquisition agreement (“Agreement”) with a minority equity holder of Hui Yang Xie Kai Cheng Carpet Co., Ltd., a subsidiary of the Group (“Hui Yang Xie Kai Cheng”) on 15 September 2003 for the acquisition by JIA of the remaining 49% equity interest of Hui Yang Xie Kai Cheng for a consideration of HK$62 million (notes 34 and 38).

– 72 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

As at 31 December 2003, certain conditions specified in the Agreement have not been fulfilled and, accordingly, the partial consideration paid by the Group amounted to HK$47,000,000 is classified as deposits for investment.

In prior year, deposits for investment represented amounts paid for a proposed acquisition of a 100% equity interest in a company incorporated in the British Virgin Islands, which holds a trademark and technology knowhow for the manufacturing of biotechnology-based nutrition products. During the year, the directors conducted a detail review of the earning potential and financial position of this investment and decided to cease the acquisition of this investment. As a result, the deposit was fully written off and charged to the profit and loss account in the current year.

18. INTERESTS IN SUBSIDIARIES

Unlisted shares, at cost Amounts due from subsidiaries Amounts due to subsidiaries Impairment losses	Company 2003 2002 HK$’000 HK$’000 77,479 77,479 161,202 160,721 (94,080) (84,316) 144,601 153,884 (20,129) – 124,472 153,884

The balances with the subsidiaries are unsecured, interest-free and have no fixed terms of repayment.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Particulars of the principal subsidiaries are as follows:

	Place of	Paid-up	Percentage
	incorporation/	share/	of equity
	establishment	registered	attributable
Name	and operations	capital	to the Company	Principal activities
Directly held
Jackley China Limited	British Virgin	Ordinary	100%	Investment holding
	Islands	US$100
Pharmasys Biotech Limited	Hong Kong	Ordinary	100%	Investment holding
		HK$10,000
Indirectly held
Best Capital International	Hong Kong	Ordinary	100%	Securities
Limited		HK$100		investment
Charvix Jackley Company	Hong Kong	Ordinary	100%	Trading and installation
Limited		HK$8,000,000		of carpets
Charvix Jackley International	The People’s	US$200,000	100%	Trading of carpets
Trading (Shanghai)	Republic of
Co., Ltd. /*	China (“PRC”)/
	Mainland China
Hui Yang Xie Kai	PRC/	US$4,940,000	51%	Manufacture and sale
Cheng /**	Mainland China			of carpets
Jackley Finance Limited	Hong Kong	Ordinary	100%	Provision of finance
		HK$10,000
JIA	Hong Kong	Ordinary	100%	Investment holding
		HK$10,000
Jackley Macao Commercial	Macau	Ordinary	100%	Trading of carpets
Offshore Limited		MOP1,000,000
Sino Development	Hong Kong	Ordinary	100%	Property holding
Holdings Limited		HK$10,000

Statutory financial statements not audited by RSM Nelson Wheeler
** Registered as a wholly-owned foreign enterprise under the PRC law
*** Registered as a sino-foreign equity joint venture under the PRC law

– 74 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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

19. INTEREST IN AN ASSOCIATE

Share of net assets Amount due from an associate Provision for an amount due from an associate	Group 2003 2002 HK$’000 HK$’000 – – 1,849 1,828 (1,782) – 67 1,828	Group 2003 2002 HK$’000 HK$’000 – – 1,849 1,828 (1,782) – 67 1,828
		1,828

The amount due from an associate is unsecured, interest-free and has no fixed terms of repayment.

Particulars of the associate are as follows:

				Percentage
				of ownership
		Place of		interest
	Business	incorporation	Paid-up	attributable
Name	structure	and operations	share capital	to the Group	Principal activity
Pharmasys Holdings	Corporation	Malaysia	Ringgit	50%	Trading of nutrition
Sdn. Bhd.*			Malaysia 2		products

Not audited by RSM Nelson Wheeler

The shareholding in an associate comprises equity shares held through a wholly-owned subsidiary.

– 75 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

20. LOAN TO A DIRECTOR

Particulars of the loan to a director, disclosed pursuant to Section 161B of the Hong Kong Companies Ordinance, are as follows:

Name Mr. Khoo Chuan Teng (executive director) Portion classified as current assets Long term portion	Group Maximum amount 31 December outstanding 2003 during the year HK$’000 HK$’000 83 520 (83) –	1 January 2003 HK$’000 520 (105
		415

The loan granted to Mr. Khoo Chuan Teng is secured by freehold land and building in Malaysia, bears interest at 3% to 4% per annum and is repayable in instalments in accordance with terms stipulated in the loan agreement.

The loan to a director constituted a connected transaction for the purpose of the Listing Rules.

21. AMOUNTS DUE FROM AN EX-DIRECTOR AND RELATED PARTIES

Details of amounts due from an ex-director and related parties are as follows:

Name Mr. LAM Yat Sing (Note 1) Mr. LAM Chi Hung (Note 2) Mr. LAM Chi On (Note 2)	Group Maximum amount 31 December outstanding 2003 during the year HK$’000 HK$’000 121 121 71 71 19 19 211	1 January 2003 HK$’000 121 71 19
		211

Note 1:

Mr. LAM Yat Sing (“Ex-director”) resigned as a director of the Company on 8 July 2003.

Note 2:

Mr. LAM Chi Hung and Mr. LAM Chi On are the brothers of Mr. LAM Yat Sing.

– 76 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Note 3:

The amounts due from an ex-director and related parties are unsecured, non-interest bearing and are repayable on demand.

22. INVENTORIES

Raw materials Work in progress Finished goods	Group 2003 2002 HK$’000 HK$’000 760 7,168 657 661 1,975 37,785 3,392 45,614	Group 2003 2002 HK$’000 HK$’000 760 7,168 657 661 1,975 37,785 3,392 45,614
		45,614

At 31 December 2003 the carrying amount of inventories that are carried at net realisable value amounted to HK$779,000 (2002: HK$Nil).

23. TRADE RECEIVABLES

The Group normally allows credit terms ranging from 30 to 120 days to established customers.

An aging analysis of the trade receivables, net of provisions, as at the balance sheet date, based on the date of recognition of the sale is as follows:

1 – 90 days 91 – 120 days 121 – 365 days Over 1 year	Group 2003 2002 HK$’000 HK$’000 51,554 10,916 42 8,107 393 14,718 220 – 52,209 33,741	Group 2003 2002 HK$’000 HK$’000 51,554 10,916 42 8,107 393 14,718 220 – 52,209 33,741
		33,741

24. LOANS RECEIVABLE

Loans receivable Provision for bad and doubtful debts	Group 2003 2002 HK$’000 HK$’000 2,401 6,653 (1,200) – 1,201 6,653	Company 2003 2002 HK$’000 HK$’000 1,995 6,047 (900) – 1,095 6,047	Company 2003 2002 HK$’000 HK$’000 1,995 6,047 (900) – 1,095 6,047
			6,047

– 77 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The prior year balance included an interest-bearing loan advanced to a third party (“Immediate borrower”) of HK$6 million. The Immediate borrower subsequent advanced the said sum to the ultimate borrower. On 19 December 2003, a deed of settlement and compromise was entered into between the Immediate borrower and the ultimate borrower in which a compromised balance of HK$1,995,000 is agreed to be repaid in four installments. Provisions have been made in the current year’s financial statements to the extent considered necessary by the directors of the Company.

25. SHORT TERM INVESTMENTS

Listed equity investments, at market value – Hong Kong	Group 2003 2002 HK$’000 HK$’000 297 3,632

26. CASH AND BANK BALANCES

At the balance sheet date, the cash and bank balances of the Group denominated in Renminbi (“RMB”) amounted to approximately HK$708,000 (2002: HK$22,449,000). The RMB is not freely convertible into other currencies, however, under Mainland China’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the Group is permitted to exchange RMB for other currencies through banks authorised to conduct foreign exchange business.

27. INTEREST-BEARING BANK BORROWINGS

Bank overdrafts, secured Trust receipt loans, secured Bank loans secured and repayable: Within one year In the second year In the third to fifth years, inclusive Over five years Portion classified as current liabilities Long term portion	Group 2003 2002 HK$’000 HK$’000 3,721 34,009 18,990 25,081 17,310 5,911 – 2,118 – 5,045 – 10,130 17,310 23,204 40,021 82,294 (40,021) (65,001) – 17,293	Company 2003 2002 HK$’000 HK$’000 746 28,012 – – – – – – – – – – – – 746 28,012 (746) (28,012 – –	Company 2003 2002 HK$’000 HK$’000 746 28,012 – – – – – – – – – – – – 746 28,012 (746) (28,012 – –
			–
			28,012 (28,012
			–

– 78 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

At 31 December 2003, the Group’s banking facilities were secured by the following:

(i) first legal charges on the Group’s investment property, leasehold land and buildings; and
(ii) corporate guarantees given by the Company and subsidiaries of the Company.

28. FINANCE LEASE PAYABLE

The Group leases a motor vehicle for its general business purposes. The lease is classified as a finance lease and has a remaining lease term of three years.

At 31 December 2003, the total future minimum lease payments under the finance lease and its present value, were as follows:

Amounts payable: Within one year In the second year In the third to fifth years, inclusive Total minimum finance lease payments Future finance charges Total net finance lease payable Portion classified as current liabilities Long term portion	Minimum lease payments 2003 HK$’000 88 88 66 242 (25) 217 (78) 139	Group Present value of minimum Minimum lease lease payments payments 2003 2002 HK$’000 HK$’000 78 88 75 88 64 153 217 329 (46) 283 (84) 199	Present value of minimum lease payments 2002 HK$’000 84 77 122
			283

– 79 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

29. TRADE PAYABLES

The Group normally obtains credit terms ranging from 30 to 120 days from its suppliers.

An aging analysis of the trade payables as at the balance sheet date, based on the receipt of goods purchased, is as follows:

1 – 90 days 91 – 120 days 121 – 365 days Over 1 year	Group 2003 2002 HK$’000 HK$’000 3,513 5,636 496 677 7,251 1,389 1,970 – 13,230 7,702	Group 2003 2002 HK$’000 HK$’000 3,513 5,636 496 677 7,251 1,389 1,970 – 13,230 7,702
		7,702

Included in trade payable was an amount of approximately HK$7 million due to a creditor, Interface Heuga Singapore Pte Ltd. (“Interface”). During the year, Interface applied for a winding up petition against the Company for the outstanding debts and interest accrued on the debts (note 35(b)).

30. OTHER PAYABLES AND ACCRUALS

Included in other payables and accruals of the Group and the Company were amounts of approximately HK$1,685,000 (2002: HK$655,000) and HK$1,447,000 (2002: HK$580,000) due to six directors and an exdirector of the Company respectively. The amounts were unsecured, interestfree and have no fixed terms of repayments.

31. SHARE CAPITAL

Authorised: 2,000,000,000 (2002: 2,000,000,000) ordinary shares of HK$0.1 each Issued and fully paid: 1,245,000,000 (2002: 1,245,000,000) ordinary shares of HK$0.1 each	2003 HK$’000 200,000 124,500	2002 HK$’000 200,000

		124,500

– 80 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

32. SHARE OPTION SCHEME

The Company operates a share option scheme (the “Scheme”) for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations. Eligible participants of the Scheme include the Company’s directors, independent nonexecutive directors, other employees of the Group, suppliers of goods or services to the Group, customers of the Group, any person or entity that provides research, development or other technological support to the Group and any minority shareholder in the Company’s subsidiaries. The Scheme adopted on 6 June 2002 and, unless otherwise cancelled or amended, will remain in force for 10 years from that date.

The maximum number of unexercised share options currently permitted to be granted under the Scheme is an amount equivalent, upon their exercise, to 10% of the shares of the Company in issued at any time. On 2 December 2003, options carrying the rights to subscribe for 84,896,000 shares, representing approximately 6.82% of the issued share capital of the Company as at the date of adoption of the Scheme, have been lapsed following the expiry of the exercise period of share options. Subsequently, no share options were granted under the Scheme. Therefore, at 31 December 2003, the number of share issuable under share options granted under the Scheme was zero.

The maximum number of shares issuable under share options to each eligible participant in the Scheme within any 12-month period, is limited to 1% of the shares of the Company in issue at any time. Any further grant of share options in excess of this limited is subject to shareholders’ approval in a general meeting.

Share options granted to a director, chief executive or substantial shareholder of the Company, or to any of their associates, are subject to approval in advance by the independent nonexecutive directors. In addition, any share options granted to a substantial shareholder or an independent non-executive director of the Company, or to any of their associates, in excess of 0.1% of the shares of the Company in issue at any time or with an aggregate value (based on the price of the Company’s shares at the date of the grant) in excess of HK$5 million, within any 12- month period, are subject to shareholders’ approval in advance in a general meeting.

The offer of a grant of share options may be accepted within 28 days from the date of the offer, upon payment of a nominal consideration of HK$1 in total by the grantee. The exercise period of the share options granted is determinable by the directors, and commences after a certain vesting period and ends on a date which is not later than 10 years from the date of the offer of the share options or the expiry date of the Scheme, if earlier.

The exercise price of the share options is determinable by the directors, but may not be less than the higher of (i) the Stock Exchange closing price of the Company’s shares on the date of the offer of the share options; (ii) the average Stock Exchange closing price of the Company’s shares for the five trading days immediately preceding the date of the offer; and (iii) the nominal value of the shares.

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

– 81 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The following table represents the share options under the Scheme during the year:

Category or name of participant Executive directors Mr. Lam Yat Sing Mr. Chew Kean Eng Mr. Khoo Chuan Teng Mr .Wong Kwai Wah Independent non-executive directors Mr. Ong Hong Hoon Mr. Liu Ngai Wing Other employees In aggregate Suppliers of goods or services In aggregate Person or entity that provides research, development or other technological support In aggregate	Number of share options At Granted Exercised Expired/lapsed At Date of Exercise 1 January during during during 31 December grant of period of 2003 the year the year the year 2003 share options share options 1,244,000 – – 1,244,000*** – 2 December 2002 2 December 2002 to 1 December 2003 4,962,000 – – 4,962,000 – 2 December 2002 2 December 2002 to 1 December 2003 4,962,000 – – 4,962,000 – 2 December 2002 2 December 2002 to 1 December 2003 5,956,000 – – 5,956,000 – 2 December 2002 2 December 2002 to 1 December 2003 1,244,000 – – 1,244,000 – 2 December 2002 2 December 2002 to 1 December 2003 1,244,000 – – 1,244,000 – 2 December 2002 2 December 2002 to 1 December 2003 45,152,000 – – 45,152,000 – 2 December 2002 2 December 2002 to 1 December 2003 6,000,000 – – 6,000,000 – 2 December 2002 2 December 2002 to 1 December 2003 15,376,000 – – 15,376,000 – 2 December 2002 2 December 2002 to 1 December 2003	Price of Company’s shares***
		Exercise At At price of grant date exercise date share options of options of options** HK$ HK$ HK$ 0.30 0.30 – 0.30 0.30 – 0.30 0.30 – 0.30 0.30 – 0.30 0.30 – 0.30 0.30 – 0.30 0.30 – 0.30 0.30 – 0.30 0.30 –

The vesting period of the share options is from the date of the grant until the commencement of the exercise period.
** The exercise price of the share options is subject to adjustment in the case of rights or bonus issues, or other similar changes in the Company’s share capital.
*** The price of the Company’s shares disclosed as at the date of the grant of the share options is the Stock Exchange closing price on the trading day immediately prior to the date of the grant of the options. The price of the Company’s shares disclosed as at the date of the exercise of the share options is the weighted average of the Stock Exchange closing prices over all of the exercises of options within the disclosure category.
**** The share options granted to Mr. Lam Yat Sing have been lapsed following the resignation of Mr. Lam on 8 July 2003.

At the balance sheet date, all share options outstanding under the Scheme were expired.

– 82 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

33. RESERVES

(a) Group

The amounts of the Group’s reserves and the movements therein for the current and prior years are presented in the consolidated statement of changes in equity on page 28 of the financial statements.

The share premium account of the Group includes: (i) the difference between the nominal value of the share capital of the subsidiaries acquired pursuant to the Group reorganisation in 2001 over the nominal value of the share capital of the Company issued in exchange therefor; (ii) the premium arising from the capitalisation issue in the previous year; and (iii) the premium arising from the new issue in the previous year.

In accordance with the Companies Law (Revised) of the Cayman Islands, the share premium account is distributable to the shareholders of the Company provided that immediately following the date on which the dividend is proposed to be distributed, the Company will be in a position to pay off its debts as they fall due in the ordinary course of business. The share premium may also be distributed in the form of fully paid bonus shares.

One of the Company’s subsidiaries established in the PRC is required to transfer 10% of its profit after tax, calculated in accordance with Mainland China accounting regulations, to the statutory reserve fund until the reserve reaches 50% of its registered capital, upon which any further appropriation will be at the directors’ recommendation. Such reserve may be used to reduce any losses incurred by the subsidiary or be capitalised as paid-up capital of the subsidiary.

(b) Company

At 1 January 2002 Bonus issue of share Net profit for the year At 31 December 2002 and 1 January 2003 Net loss for the year At 31 December 2003	Share premium account HK$’000 86,057 (83,000) – 3,057 – 3,057	Retained profits/ (Accumulated losses) HK$’000 25,598 – 1,084 26,682 (35,427) (8,745)	Total HK$’000 111,655 (83,000) 1,084 29,739 (35,427) (5,688)

The share premium account of the Company includes: (i) the difference between the then combined net asset value of the subsidiaries acquired pursuant to the Group reorganisation in 2001, over the nominal value of the share capital of the Company issued in exchange therefore; (ii) the premium arising from the capitalisation issue in the previous year; and (iii) the premium arising from the new issue in the previous year.

– 83 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

34. MAJOR NON-CASH TRANSACTION

As detailed in note 17 to the financial statements, deposits of HK$47 million have paid as part of the consideration for acquisition a 49% interest in a subsidiary which was satisfied by the transfer of Group’s inventories of HK$25 million and the assignment of the Group’s trade receivables of HK$22 million.

35. CONTINGENT LIABILITIES

As at 31 December 2003, the Group did not have any significant contingent liabilities except as described below:

(a) In November 2003, one of the Company’s wholly-owned subsidiaries had entered into a sale and purchase contract for disposal of its leasehold land and buildings situated at Shun Tak Centre with an independent third party.

Subsequent to the financial year-end, the subsidiary has received a Writ of Summons for liquidated damages for breach of the sale and purchase contract. The Directors are of the opinion that the outcome of the case has no significant impact on the Group and thus no provision is necessary.

(b) In December 2003, the Company and one of its wholly-owned subsidiaries were brought into litigation by a major supplier for the Group’s carpet-tile business for a winding-up intention over some disputed trade debts, amounting to approximately HK$8 million (“judgment debts”) of which HK$7 million was provided in the Group’s financial statements. The Company had filed in an application to the High Court for an interim stay of execution in respect of the judgment debts and has successfully obtained a court order in early February 2004. The Company had opposed to litigation on grounds that its abovementioned subsidiary has a counterclaim against the said supplier for breach of a distribution agreement with a claim for damages exceeding the judgment debts.
(c) As at 31 December 2003, the Company had provided corporate guarantees to banks for banking facilities extended to certain subsidiaries of approximately HK$59,710,000 (2002: HK$97,447,000). These banking facilities had been utilised to the extent of approximately HK$39,264,000 (2002: HK$54,456,000) as at the balance sheet date.

36. OPERATING LEASE ARRANGEMENTS

The Group leases certain leasehold land and buildings under operating lease arrangements. The original lease terms for these leasehold land and buildings range from one year to two years.

At 31 December 2003, the Group had total future minimum lease payments under noncancellable operating leases falling due as follows:

Within one year In the second to fifth years, inclusive After five years	Group 2003 2002 HK$’000 HK$’000 603 4,900 58 15,609 – 1,000 661 21,509	Company 2003 2002 HK$’000 HK$’000 – 996 – 3,284 – – – 4,280	Company 2003 2002 HK$’000 HK$’000 – 996 – 3,284 – – – 4,280
			4,280

– 84 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

37. COMMITMENTS

In addition to the capital commitments as disclosed in note 38 below and the operating lease commitments detailed in note 36 above, the Group and the Company did not have any significant commitments as at 31 December 2003 (2002: HK$ Nil).

38. RELATED PARTY TRANSACTIONS

Pursuant to a conditional share acquisition agreement (“Agreement”) entered into on 15 September 2003, the Company, through its indirectly wholly-owned subsidiary, has conditionally agreed to acquire from Shenzhen Hao Sheng He Industrial Company Limited (“Vendor”), its 49% minority equity interest in Hui Yang Xie Kai Cheng for a total consideration of HK$62 million. A substantial amount of the consideration in the forms of inventory and trade receivables, valued at HK$47 million has been satisfied by the Group to the Vendor before the balance sheet date. The balance of the consideration, being HK$15 million, shall be satisfied by the allotment and issue by the Company of the consideration shares to the Vendor at HK$0.30 per Share. The consideration shares being approved by the Hong Kong Stock Exchange represent approximately 4.02% of the existing issued share capital of the Company and approximately 3.86% of the issue share capital of the Company as enlarged by the issue of the consideration shares upon completion of the transactions contemplated by the Agreement.

The completion of the acquisition is conditional upon the condition under the Agreement being satisfied on or before 31 October 2003. As at the balance sheet date, the acquisition is yet to be completed due to the delay caused by the Vendor in fulfilling some of the conditions as stated under the Agreement. The Vendor has agreed to extend the completion date for the Agreement to a later date.

Apart from the above and the transactions and balances detailed in note 17, 19, 20, 21 and 30 in these financial statements, the Group had no other material transaction with related parties during the year.

39. POST BALANCE SHEET EVENTS

(a) Subsequent to the balance sheet date, the appointed receiver of a property owned by a wholly-owned subsidiary entered into a sale and purchase agreement to dispose of the property for a total consideration of HK$22 million. The consideration thereof upon completion of the sale will be utilised to settle the corresponding secured bank borrowing and related expenses of approximately HK$9.2 million of the said subsidiary. The remaining balances of the proceeds will be utilised to repay an outstanding bank borrowing indebtedness by an another wholly-owned subsidiary that had given a corporate guarantee to the bank.
(b) On April 2004, the abovementioned wholly-owned subsidiary has entered into another provisional sale and purchase agreement to dispose of the investment property for a total cash consideration of HK$7.5 million. The proceed from the sale will be utilised partly to settle the corresponding secured bank borrowing and related expenses of approximately HK$4.7 million of the said subsidiary and remaining thereof will be applied to pay down the bank borrowing for another subsidiary of the Company that has given a corporate guarantee to the bank.

Upon completion of the abovementioned sale of properties, the Group’s bank borrowing exposure will be reduced from HK$40 million to approximately HK$11 million.

– 85 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(c) Pursuant to a subscription agreement entered subsequent to the balance sheet date, an independent party has agreed to subscribe at HK$0.10 per share in cash for 200,000,000 new shares of the Company. The Subscription upon completion represent 16.06% of the existing issued share capital and approximately 13.84% of the issued share capital of the Company enlarged by the subscription. The net proceeds from the subscription upon completion amounting to approximately HK$18 million will be used as general working capital for the Group. The subscription is conditional and as at the date of this report the transaction has yet to be completed.

40. COMPARATIVE AMOUNTS

The comparative figures were audited by another firm of Certified Public Accountants in Hong Kong. Certain figures have been reclassified to conform with the current year’s presentation.

41. APPROVAL OF THE FINANCIAL STATEMENTS

The financial statements were approved and authorised for issue by the board of directors on 29 April 2004.”

– 86 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

D. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF THE GROUP

Set out below is the unaudited condensed consolidated financial statements of the Group for the six months ended 30 June 2004 extracted from pages 3 to 12 of 2004 interim report of the Company.

Condensed Consolidated Profit And Loss Account

For the period ended 30 June 2004

		Six months ended 30 June	Six months ended 30 June	Six months ended 30 June
		2004		2003
		(Unaudited)	(Unaudited)
	Notes	HK$’000		HK$’000
Turnover	2	6,871		67,862
Cost of sales		(9,747)		(55,336)
Gross (loss)/profit		(2,876)		12,526
Other revenue and gains		547		177
Selling and distribution expenses		(612)		(1,101)
Administrative expenses		(6,371)		(9,312)
Other operating income		14		–
Gain on disposal of properties		5,340		–
Write back of provision for
loan receivables		900		–
(Loss)/profit from
operating activities	4	(3,058)		2,290
Finance costs	5	(1,583)		(965)
(Loss)/profit before taxation		(4,641)		1,325
Taxation	6	–		–
(Loss)/profit before minority interests		(4,641)		1,325
Minority interests		2,240		9
(Loss)/profit attributable to Shareholders		(2,401)		1,334

Dividend	7	–		–

(Loss)/profit per Share	8	(0.2 cents)		0.1 cent

– 87 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Condensed Consolidated Statement of Changes in Equity For the period ended 30 June 2004

At 1 January 2003 Revaluation surplus on fixed assets Transfer to the profit and loss account on disposals Reserves attributable to minority shareholders Exchange difference on translation of financial statements of foreign entities Transfer to statutory reserve fund Net loss for the year At 1 January 2004 (Audited) Net loss for the Period At 30 June 2004 (Unaudited)	Assets Share Statutory revaluation Exchange capital reserve reserve reserve HK$’000 HK$’000 HK$’000 HK$’000 124,500 11 – – – – 10,027 – – – (117) – – – (4,856) 954 – – – (2,045) – 24 – – – – – – 124,500 35 5,054 (1,091) – – – – 124,500 35 5,054 (1,091)	Retained profits HK$’000 47,648 – 117 – – (24) (31,853) 15,888 (2,401) 13,487	Total HK$’000 172,159 10,027 – (3,902) (2,045) – (31,853) 144,386 (2,401) 141,985

– 88 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Condensed Consolidated Balance Sheet

As at 30 June 2004

		30 June	31 December
		2004	2003
		(Unaudited)	(Audited)
	Notes	HK$’000	HK$’000
NON-CURRENT ASSETS
Fixed assets		86,350	114,159
Deposits paid		47,000	47,000
Interest in associate		89	67
		133,439	161,226
CURRENT ASSETS
Loan to a director		83	83
Amount due from an
ex-director and related parties		–	211
Prepayments, deposits and other receivables		5,498	1,128
Inventories		3,205	3,392
Trade receivables	9	52,077	52,209
Loan receivables		–	1,201
Short term investments		–	297
Cash and bank balances		1,195	1,143
		62,058	59,664
CURRENT LIABILITIES
Interest-bearing bank borrowings		8,583	40,021
Finance lease payable		–	78
Trade payables	10	6,015	13,230
Other payables and accruals		22,983	19,118
Tax payables		3,604	3,601
		41,185	76,048
Net current assets/(liabilities)		20,873	(16,384)
		154,312	144,842

CAPITAL AND RESERVES
Share capital	11	124,500	124,500
Reserves		17,485	19,886
		141,985	144,386
Finance lease payable		–	139
Other loan	15	14,250	–
Minority interests		(1,923)	317
		154,312	144,842

– 89 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Condensed Consolidated Cash Flow Statement

For the period ended 30 June 2004

	Six months ended 30 June	Six months ended 30 June	Six months ended 30 June
	2004		2003
	(Unaudited)	(Unaudited)
	HK$’000		HK$’000
Net cash (outflow)/inflow from operating activities	(15,173)		1,460
Net cash inflow from investing activities	29,453		9
Net cash (outflow)/inflow from financing activities	(12,460)		1,036
INCREASE IN CASH AND
CASH EQUIVALENTS	1,820		2,505
Cash and cash equivalents at beginning of period	(2,578)		(11,187)
CASH AND CASH EQUIVALENTS
AT END OF PERIOD	(758)		(8,682)

ANALYSIS OF BALANCES OF CASH AND
CASH EQUIVALENT
Cash and bank balances	1,195		24,577
Bank overdrafts	(1,953)		(33,259)
	(758)		(8,682)

– 90 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Notes to Condensed Consolidated Financial Statements

For the period ended 30 June 2004

1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of preparation

These unaudited condensed consolidated financial statements for the Period of the Group have been prepared in accordance with Statement of Standard Accounting Practice (“SSAP”) 2.125 “Interim financial reporting” issued by the Hong Kong Institute of Certified Public Accountants. These condensed financial statements should be read in conjunction with the 2003 annual report of the Company.

2. TURNOVER

Turnover represents the net invoiced value of goods sold, after allowances for returns and trade discounts during the Period. All significant transactions among the companies comprising the Group have been eliminated on consolidation.

3. SEGMENT INFORMATION

Segment information is presented by way of two segment formats:

(i) on a primary segment reporting basis, by business segment; and
(ii) on a secondary segment reporting basis, by geographical segment.

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

(a) the manufacture of carpets segment represents the manufacture and sale of carpets under the Group’s own brand name; and
(b) the trading of carpets segment represents the trading of carpets of other renowned brand names.

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

– 91 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(a) Business segments

The following table presents revenue and results for the Group’s business segments.

	Manufacture of	Manufacture of	Manufacture of	Trading of	Trading of	Trading of
	carpets			carpets			Consolidated
	six months			six	months		six	months
	ended 30 June			ended 30 June			ended 30 June
	2004		2003	2004		2003	2004	2003
(Unaudited)		(Unaudited)		(Unaudited)	(Unaudited)		(Unaudited)	(Unaudited)
	HK$’000	HK$’000		HK$’000		HK$’000	HK$’000	HK$’000
Segment revenue:
Sales to external customers	5,122		52,929	1,749		14,933	6,871	67,862

Segment results	(4,570)		7,904	(3,649)		(1,893)	(8,219) 6,011

Unallocated revenue							135	177
Unallocated expenses							(1,214) (3,898)
(Loss) /profit from operating activities							(9,298) 2,290
Finance costs							(1,583) (965)
Gain on disposal of properties							5,340	–
Write back of provision for loan receivables							900	–
(Loss)/profit before tax							(4,641) 1,325
Taxation							–	–
(Loss)/profit before minority interests							(4,641) 1,325
Minority interests							2,240	9
(Loss)/profit attributable to Shareholders							(2,401) 1,334

(b) Geographical segments

The following table presents revenue and results for the Group’s geographical segments.

			Elsewhere in
			The people’s Republic
	Hong Kong		of China (the “PRC”)	Consolidated
	Six	months	Six months	Six	months
	ended 30 June		ended 30 June	ended 30 June
	2004	2003	2004 2003	2004	2003
	(Unaudited)	(Unaudited)	(Unaudited) (Unaudited)	(Unaudited)	(Unaudited)
	HK$’000	HK$’000	HK$’000 HK$’000	HK$’000	HK$’000
Segment revenue:
Sales to external customers	1,843	11,838	5,028 56,024	6,871	67,862

Segment results	(2,932) (1,173)		(5,287) 7,184	(8,219) 6,011

– 92 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

4. (LOSS)/PROFIT FROM OPERATING ACTIVITIES

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

Cost of inventories sold Depreciation Amortisation of long term lease rights Loss on disposal of short term investment Interest income Write back of staff and directors’ salaries	Six months ended 30 June 2004 2003 (Unaudited) (Unaudited) HK$’000 HK$’000 5,583 55,336 3,848 7,328 – 850 88 – – (171 2,913 –

5. FINANCE COSTS

Interest on bank loans and overdrafts Wholly repayable: Within five years After five years Interest on finance leases	Six months ended 30 June 2004 2003 (Unaudited) (Unaudited) HK$’000 HK$’000 1,583 756 – 198 – 11 1,583 965	Six months ended 30 June 2004 2003 (Unaudited) (Unaudited) HK$’000 HK$’000 1,583 756 – 198 – 11 1,583 965
		965

6. TAX

No provision for Hong Kong profits tax is required since the Group has no estimated assessable profit for the Period. Taxes on profits assessable elsewhere have been calculated at the applicable rates of tax prevailing in the jurisdictions in which the Group operates, based on existing legislating, interpretations and practices in respect thereof.

7. DIVIDEND

The Directors do not recommend the payment of any interim dividend in respect of the Period (2003: Nil).

8. (LOSS)/PROFIT PER SHARE

The calculation of basic (loss)/profit per share for the Period is based on the net loss from ordinary activities attributable to shareholders for the Period of HK$2,401,000 (2003: Profit of HK$1,334,000) and the weighted average number of 1,245,000,000 (2003: 1,245,000,000) ordinary shares in issue during the Period.

There were no potential dilutive ordinary shares in existence for the six months ended 30 June 2004 and 2003 and accordingly, no diluted earnings per share amounts have been presented for either of the two periods.

– 93 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

9. TRADE RECEIVABLES

The Group normally allows credit terms ranging from 30 to 120 days to established customers.

An aging analysis of the trade receivables, net of provisions, as at the balance sheet date, based on the date of recognition of the sales, is as follows:

1-90 days 91-120 days 121-365 days Over 1 year	30 June 2004 (Unaudited) HK$’000 671 213 51,193 – 52,077	31 December 2003 (Audited) HK$’000 51,554 42 393 220
		52,209

10. TRADE PAYABLES

The Group normally obtains credit terms ranging from 30 to 120 days from its suppliers.

An aging analysis of the trade payables as at the balance sheet date, based on the receipt of goods purchased, is as follows:

1-90 days 91-120 days 121-365 days Over 1 year SHARE CAPITAL Authorised: 2,000,000,000 ordinary shares of HK$0.10 each Issued and fully paid: 1,245,000,000 ordinary shares of HK$0.10 each	30 June 2004 (Unaudited) HK$’000 518 593 3,268 1,636 6,015 30 June 2004 (Unaudited) HK$’000 200,000 124,500	31 December 2003 (Audited) HK$’000 3,513 496 7,251 1,970
		13,230

		31 December 2003 (Audited) HK$’000 200,000

		124,500

11. SHARE CAPITAL

There was no movement in the share capital of the Company for the six months ended 30 June 2004.

– 94 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

12. CONTINGENT LIABILITIES

The Group did not have any significant contingent liabilities at the balance sheet date (2003: Nil).

At 30 June 2004, the Company had provided corporate guarantees to banks for banking facilities provided to certain subsidiaries of approximately HK$27,000,000. These banking facilities had been utilized to the extent of approximately HK$8,582,884 (31 December 2003: HK$39,264,000) as at 30 June 2004.

13. OPERATING LEASE ARRANGEMENTS

The Group leases certain leasehold land and buildings under operating lease arrangements. The original lease terms for these leasehold land and buildings range from one to thirteen years.

At 30 June 2004, the Group had total future minimum lease payments under non-cancellable operating leases falling due as follows:

Within one year In the second to fifth years, inclusive	30 June 2004 (Unaudited) HK$’000 40 – 40	31 December 2003 (Audited) HK$’000 603 58
		661

14. CAPITAL COMMITMENTS

The Group did not have any significant commitments as at 30 June 2004 (31 December 2003: Nil).

15. OTHER LOAN

The loan is secured by way of first fixed and floating charges on all the fixed and floating assets of the Group. The loan is repayable within three months after date of the drawdown and bearing interest at the rate of 20% per annum. Subsequent to the balance sheet date ended 30 June 2004, the Company has procured an extension to the tenure of the loan until 31st December 2005 and a revised interest rate of 10% per-annum.

16. POST BALANCE SHEET EVENTS

On July 2004, the Company has principally completed its acquisition under a conditional share acquisition agreement entered into on 15 September 2003 through its indirectly wholly-owned subsidiary, in respect of the remaining 49% minority equity interest in Hui Yang Xie Kia Cheng Carpet Company Limited in which the Group already owns 51% equity interest. Out of the total consideration of HK$62 million, HK$47 million was already settled last year in the forms of inventory and trade receivables, and the remaining HK$15 million will be satisfied pending the allotment and issue by the Company of the consideration shares valued at HK$0.30 per Share;

– 95 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

On July 2004, Prime Orient International Limited make a mandatory conditional cash offer to acquire all the remaining issued shares capital in the Company which its has not already owned. The offer was closed and lapsed on 23 August 2004 and the shareholding structure of the Company remained unchanged throughout and upon the lapse of the said Offer. As a result of the change in control of the Company, three executive Directors namely Mr. Anthony Henry Serra, Mr. Khoo Chuan Teng and Mr. Chew Kean Eng has resigned from their respective positions with effect from 24 August 2004.
On September 2004, the Company through an indirectly wholly owned subsidiary entered into a conditional agreement for the acquisition of 51% equity interest in a company incorporated in Hong Kong and engaged in the supply, design, installation, trading and contracting of a wide range of carpet products in Hong Kong and the PRC for a total consideration of HK$9,500,000 to be satisfied by the allotment and issue by the Company of the consideration shares at HK$0.10 per share under the general mandate granted to the Directors of the Company. Completion of the agreement is conditional upon the Listing Committee of the Stock Exchange granting the listing of, and the permission to deal in, the Consideration Shares.

E. MATERIAL ADVERSE CHANGE

Save as disclosed in the unaudited condensed consolidated financial statements of the Group for the six months ended 30 June 2004, the Directors confirm that there were no material change in the financial or trading position or prospects of the Group subsequent to 31 December 2003, being the date to which the last audited financial statements of the Company were made up, up to the Latest Practicable Date.

F. STATEMENT OF INDEBTEDNESS

Borrowings

At the close of business on 31 October 2004, being the latest practicable date for purpose of this indebtedness statement prior to the printing of this circular, the Group had outstanding borrowings of approximately HK$36.2 million comprising secured bank loans of approximately HK$10.1 million, other unsecured loans of approximately HK$26.0 million and obligations under finance leases of approximately HK$0.1 million.

Securities

As at 31 October 2004, the Group’s bank borrowings were secured/supported by corporate guarantees given by the Company and subsidiaries of the Company and pledged of fixed deposits of HK$5,000,000 of held by some third parties.

Contingent liabilities

As at 31 October 2004, the Group did not have any material contingent liabilities.

Disclaimer

Save as aforesaid or as otherwise disclosed in this circular and apart from intragroup liabilities, no companies within the Group had outstanding as at 31 October 2004 any loan capital issued and outstanding or agreed to be issued, bank overdrafts, loans or other

– 96 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

similar indebtedness, obligation under finance lease contracts, liabilities under acceptance (other than normal trade bills), acceptance credits, mortgages, charges, finance leases or hire purchase commitments, guarantees or other material contingent liabilities.

G. WORKING CAPITAL

The Directors are of the opinion that, taking into account the cashflow generated from the operating activities, the financial resources available for the Group, including internally generated funds, the available credit facilities and the estimated net proceeds of the Open Offer, the Group has sufficient working capital for its present requirements, that is for at least the next 12 months from the date of this circular.

H. UNAUDITED PRO FORMA NET TANGIBLE ASSETS

The following is a statement of the unaudited pro forma net tangible assets of the Group which has been prepared in accordance with Rule 4.29 of the Listing Rules to illustrate the effect of the Open Offer as if it had taken place on 31 December 2003. The unaudited pro forma financial information has been prepared for illustrative purpose only, and because of its nature, it may not give a true picture of the Company’s financial position following the Open Offer. This statement is based on the audited consolidated net tangible assets of the Group as at 31 December 2003 as shown in the audited financial statements of the Group for the year ended 31 December 2003, and adjusted to reflect the effect of the Open Offer as follows:

Audited net tangible assets of the Group as at 31 December 2003 HK$’000 Base on the Subscription Price of HK$0.25 per Offer Shares – lower limit of 67,000,000 Offer Shares 144,386 – upper limit of 69,500,000 Offer Shares 144,386	Unaudited pro Estimated net Unaudited pro forma net proceeds from forma net tangible the Open tangible assets per Offer assets share HK$’000 HK$’000 HK cents (note 1) (note 2) 15,550 159,936 7.96 16,175 160,561 7.89	Unaudited pro Estimated net Unaudited pro forma net proceeds from forma net tangible the Open tangible assets per Offer assets share HK$’000 HK$’000 HK cents (note 1) (note 2) 15,550 159,936 7.96 16,175 160,561 7.89

		7.89

Notes:

The estimated net proceeds from the Open Offer are based on the Subscription Price of HK$0.25 per Offer Share after deduction of the estimated related expenses in connection with the Open Offer.

– 97 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The calculation of the unaudited pro forma net tangible assets of the Group per share is based on 134,000,000 Shares in issue as at the Latest Practicable Date and after the completion of the Capital Reorganisation but without taking into account for any issue of the HSH shares. The unaudited pro forma net tangible assets per share of the Group is arrived at after the adjustments referred to above and is calculated based on:

	Issue of 67,000,000	Issue of 69,500,000
	Offer Shares	Offer Shares
Shares in issue as at the Latest
Practicable Date and after the
completion of Capital Reorganisation
but without taking into account
for any issue of the HSH shares	134,000,000	134,000,000
Offer Shares issued	67,0000,000	69,500,000
Total Shares in issue immediately
following the completion of Open Offer	201,000,000	203,500,000

– 98 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

I. COMFORT LETTER FROM GRANT THORNTON

==> picture [151 x 34] intentionally omitted <==

6 December 2004

The Directors Jackley Holdings Limited 8/F, Luk Kwok Centre 72 Gloucester Road Wanchai Hong Kong

Dear Sirs,

We report on the unaudited pro forma financial information of Jackley Holdings Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) set out under the heading of “unaudited pro forma net tangible assets” in section H of Appendix I to the circular of the Company dated 6 December 2004 in connection with, amongst other things, the proposed open offer (“Open Offer”) of new shares of the Company (the “Circular”). The unaudited pro forma financial information has been prepared by the Directors of the Company, for illustrative purposes only, to provide information about how the Open Offer might have affected the relevant financial information of the Group.

Responsibilities

It is the responsibility solely of the Directors of the Company to prepare the unaudited pro forma financial information in accordance with paragraph 29 of Chapter 4 and paragraph 13 of Appendix 1B 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 the paragraph 29 of Chapter 4 and paragraph 13 of Appendix 1B of the Listing Rules, on the unaudited pro forma financial information and to report our opinion to you.

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 unaudited pro forma financial information with the Directors of the Company.

– 99 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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 unaudited pro forma financial information.

The unaudited pro forma financial information has been prepared on the bases set out on page 97 to the Circular for illustrative purposes only and because of its nature, it may not be indicative of the financial position of the Group at any future date.

Opinion

In our opinion:

(i) the unaudited pro forma financial information has been properly compiled by the Directors of the Company on the basis stated;
(ii) such basis is consistent with the accounting policies of the Group; and
(iii) the adjustments are appropriate for the purposes of the unaudited pro forma financial information as disclosed pursuant to paragraph 29 of Chapter 4 of the Listing Rules.

Yours faithfully,

Grant Thornton Certified Public Accountants Hong Kong

– 100 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

J. BUSINESS REVIEW AND PROSPECTS

The Group is principally engaged in the design, manufacture and sale of a wide range of carpets under its own brand name and trading of carpets of various brand names for the financial year ended 31 December 2003 up to the date of this prospectus.

During the period for the six months ended 30th June 2004, being the latest published unaudited financial period (since 31 December 2003, the latest published audit financial period) under review the Group recorded a substantial decrease in sales and profit margin both in the manufacturing division based at PRC and trading division in Hong Kong as a result of the Group’s liquidity position and uncertain economic conditions in which the business segment operate. In addition, the negative effect resulted from the change of the Group then major distribution product has also contributes significant to the loss of revenue and profit for the trading arm business.

Based on the unaudited management account for the six months ended 30th June 2004, the Group’s recorded a turnover of HK$6.9 million and the result from ordinary activities attributable to Shareholders was decreased from HK$ 1.3 millions in the 2nd half of 2003 to HK$ (2.4 millions) for the six months ended 30th June 2004 represent a decreased of approximately of 280%. The turnover of the Group was substantially decreased by approximately 89.9% as compared to the corresponding period of last year. Although the Group has reported gains of approximately HK$5.3 millions from disposal of properties but the favourable effect was offset by the loss from operation activities. Accordingly, the earning per share was decreased from HK0.1 cents in the 2nd half of 2003 cents to (HK0.20) cents for the six months ended 30th June 2004, but a 92% improvement as compare to the financial result ended 31st December 2003. The Group has also reduced its cost of operation by 33% over the corresponding period of last year.

For the six months period ended 30 th June 2004, the principal market of the Group continues to be the PRC, which accounted for approximately 75% (2003: 83%) of the Group turnover. Sales to the PRC amounted to approximately HK$5.0millions, representing a decrease approximately 91.0% compared to the corresponding period of last year. Sales to Hong Kong region amounted to approximately HK$1.8 millions, representing a decrease of approximately 84.4% as compared to the corresponding period last year.

Nevertheless, the Group continued to focus on the existing core business carpet manufacturing and distribution and is undergoing restructuring to position itself for future growth and profitability.

Carpet manufacturing

The Group has in principal completed its acquisition of the remaining 49% minority equity interest in Hui Yang Xie Kia Cheng Carpet Company Limited (HYXKC) in which the Group already owns 51% equity interest, pending the allotment and issue by the Company of the HK$15 million consideration shares. During the period under review HYXKC is in the negotiation to close a significant long-term export order with a major carpet distributor operate in the USA territories. In addition, the Group newly acquired 51% subsidiary, International Carpet Company Limited (ICC) (formerly known as DNTC Investment Limited) established sales network and marketing team will assist in boosting the sales of broadloom carpets manufactured by HYXKC both in Hong Kong and PRC.

– 101 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Carpet distribution

Over the carpet distribution division, as mentioned above the Group has on September 2004 through an indirectly wholly owned subsidiary entered into a conditional agreement for the acquisition of 51% equity interest in a company incorporated in Hong Kong namely International Carpet Company Limited (ICC) (formerly knows as DNTC Investment Limited). ICC is the authorized dealer in Hong Kong and the PRC to a number of major carpet manufacturers. In addition to trading and distribution of carpet, ICC also provides consultation services including design, selection and carpet installation to institutional customers such as international hotel groups, service apartment management companies, governments as well as to private homes in Hong Kong and PRC.

The value of ICC lies in its comprehensive range of products and services as well as its experienced marketing team. The senior management of DNTC has more than 20 years of experience in the carpet industry and ICC has an experienced marketing team with more than 20 personnel, which are based in Hong Kong, Beijing and Shanghai. Having considered the current operating environment which is highly competitive in terms of price, quality and services and the merits of ICC as described above, the Director consider that ICC established sales network and marketing team will assist in boosting the sale of carpet and strengthen the Group’s market position both in Hong Kong and PRC. ICC’s presence in the PRC may also facilitate the Group’s marketing efforts and facilitate its business expansion in this market.

In addition, the expected significant cost savings that can be achieved through reduction in overhead cost duplication following the acquisition of ICC will further enhance the Group’s profitability.

– 102 –

GENERAL INFORMATION

APPENDIX II

1. RESPONSIBILITY STATEMENT

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

2. SHARE CAPITAL OF THE COMPANY

(1) Authorised and issued share capital

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

HK$

Authorised: 2,000,000,000 Shares Issued and fully paid up or credited as fully paid up: 1,340,000,000 Shares Issued and fully paid up or credited as fully paid up (assuming the HSH shares have been issued): 1,390,000,000 Shares	200,000,000

	134,000,000

	139,000,000

All existing Shares rank equally in all respects, including in particular as to dividend, voting rights and return on capital. The Shares in issue are listed on the Stock Exchange.

All of the Offer Shares, the Bonus Shares and New Shares to be allotted to be issued pursuant to the exercise of the Bonus Warrants will rank pari passu in all respects, including in particular as to dividend, voting rights and return on capital, with all Shares in issue as at the date of allotment and issue of the Offer Shares. All of the Offer Shares, the Bonus Shares and New Shares to be allotted to be issued pursuant to the exercise of the Bonus Warrants will be listed on the Stock Exchange. There are no arrangement under which future dividends are waived or agreed to be waived.

No share or loan capital of the Company or any member of the Group has been put under option or agreed conditionally or unconditionally to be put under option and no warrant or conversion right affecting the Shares has been issued or granted or agreed conditionally, or unconditionally to be issued or granted.

– 103 –

GENERAL INFORMATION

APPENDIX II

No part of the share or loan capital of the Company is listed or dealt in, nor is listing or permission to deal in the share or loan capital of the Company being, or proposed to be, sought on any other stock exchange.

(2) Share options

As at the Latest Practicable Date, there was no outstanding option under the share option scheme of the Company adopted on 6 June 2002.

(3) Convertible securities

As at the Latest Practicable Date, there was no outstanding option, warrants or securities convertible or exchangeable into Shares.

3. DISCLOSURE OF INTERESTS

As at the Latest Practicable Date, the Directors and the chief executive of the Company and their respective associates had the following interests and short positions in the equity and debt securities of the Company and its associated corporations (within the meaning of Part XV of the SFO) which require notification to the Company and the Stock Exchange pursuant to the Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which any such Directors and chief executive of the Company was taken or deemed to have under such provisions of the SFO) or which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein or which were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies contained in the Listing Rules, to be notified to the Company and the Stock Exchange:

			Approximate
		Number of	percentage of total
Name of Director	Nature of interest	shares held	shareholding (%)
Lam Shu Chung_(note)_	Corporate	122,814,000	41.10

Note: The Shares were held by Prime Orient International Limited which is wholly and beneficially owned by Mr. Lam Shu Chung

Save as disclosed in this circular, as at the Latest Practicable Date, none of the Directors and chief executive of the Company were interested, or were deemed to be interested in the long and short positions in the shares, underlying shares and debentures of the Company or any associated corporation (within the meaning of the SFO) which (a) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO; or (b) were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (c) were required, pursuant to the Code for Securities Transactions by Directors adopted by the Company to be notified to the Company and the Stock Exchange.

Save as disclosed herein, none of the Directors has or had any direct or indirect interest in any assets acquired or disposed of by or leased to or by or proposed to be acquired or disposed of by or leased to or by any member of the Group since 31 December, 2003, being the date to which the latest published audited financial statements of the Company were made up.

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None of the Directors or any of their respective associates had any business or interest that directly or indirectly competes or may compete with the business of the Group or had or might have any other conflict of interest.

None of the Directors has any existing or proposed service contract (excluding contracts expiring or determinable by the Group within one year without payment of compensation (other than statutory compensation)) with any member of the Group.

None of the Directors is materially interested in any contract or arrangement subsisting at the date of this circular which is significant in relation to the business of the Group.

4. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, according to the register of interests in long positions and short positions kept by the Company pursuant to Divisions 2 and 3 of Part XV and section 336 of the SFO and so far as the Directors were aware, the following persons had a long position or short position in the Shares, underlying shares or debentures of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who was interested, directly or indirectly, in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group:

Long positions in the Shares

		Number of
Name of Shareholder	Nature of interest	Shares held	%
Lam Shu Chung_(note 1)_	Corporate	122,814,000	41.10
Choi Hing Lin, Lori_(note 1)_	Corporate	122,814,000	41.10
Prime Orient International Limited
(note 1)	Beneficial	122,814,000	41.10
The Underwriter_(note 2)_	Beneficial	109,658,500	32.87
Chu Yuet Wah_(note 2)_	Interests of controlled	109,658,500	32.87
	corporation
Ma Siu Fong_(note 2)_	Interests of controlled	109,658,500	32.87
	corporation

Notes:

Ms. Choi Hing Lin, Lori is the wife of Mr. Lam Shu Chung who wholly and beneficially owns Prime Orient International Limited. Ms. Choi is deemed to be interested in the Shares which Mr. Lam Shu Chung is interested under the provisions of Divisions 2 and 3 of Part XV of the SFO.
The Underwriter is deemed to be interested in these shares by venture of the Underwriting Agreement. The entire issued share capital of the Underwriter is beneficially owned as to 51% by Chu Yuet Wah and as to 49% by Ma Siu Fong.

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Save as disclosed in this circular, the Directors were not aware of any person as at the Latest Practicable Date who had a long position or short position in the Shares, underlying shares or debentures which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who was interested, directly or indirectly, in 5% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group.

5. EXPERTS

The following are the qualifications of the experts who have been named in this document or have given opinions, letters or advice which are contained in this document:

Name	Qualification
Ample Capital Limited	a deemed licensed corporation to carry out type 6
	regulated activities (advising on corporate finance)
	under the SFO
Grant Thornton	certified public accountants

As at the Latest Practicable Date, neither of Ample Capital Limited nor Grant Thornton have any beneficial interest in the share capital of any member of the Group or had any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the group and have any interest, either directly or indirectly, in any assets which have been, since 31 December 2003, being the date to which the latest published audited accounts of the Company were made up, acquired or disposed of by or leased to or are proposed to be acquired or disposed of by or leased to any member of the Group.

Each of Ample Capital Limited and Grant Thornton has given and has not withdrawn its written consent to the issue of this document with the inclusion herein of its letter and/or references to its names, in the form and context in which it respectively appears.

6. LITIGATION

(1) Claims for arrears of payroll by the Company’s former employees

On 19 May 2004, a total of five former employees of the Company brought claims numbered LBTC 3383/2004 and LBTC 3387/2004 against the Company at the Labour Tribunal (the “Tribunal”) claiming arrears of payroll in the aggregate amount of HK$349,952.40. Agreements in full and final settlement of both these claims have been reached and made Orders of the Tribunal in the following manner:

(a) one of the claimants voluntarily withdrew her claim after reaching an out of court settlement with the Company;
(b) settlements with the remaining four claimants:
(i) under LBTC3383/2004 on 11 June 2004 in the amount of HK$179,320.00;
(ii) under LBTC3387/2004 on 11 June 2004 in the amount of HK$72,944.30; and

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(iii) also under LBTC3387/2004 on 6 July 2004 in the amount of HK$40,639.03.

As at the Latest Practicable Date, partial payments had been made in respect of (i) and (ii) above and the outstanding balances were HK$67,245 and HK$27,354.15 respectively. The scheduled payment under (iii) above will commence on 25 December 2004. The Company shall make the scheduled payments in accordance with the terms of the said Orders and upon the full compliance of which, these claims will be dismissed.

(2) Claims for arrears of payroll against Charvix Jackley Co., Ltd. (“Charvix”), a wholly owned subsidiary of the Company
(a) On 23 April 2004, four former employees of Charvix brought claim numbered LBTC 2972/2004 against Charvix at the Tribunal claiming arrears of payroll in the aggregate amount of HK$323,715.71. Agreements in full and final settlement of this claim has been reached and made an Order of the Tribunal in the following manner:
- (i) on 25 May 2004 in the amount of HK$210,000.00;
- (ii) on 11 June 2004 in the amount of HK$7,092.30; and
- (iii) on 22 July 2004 in the amount of HK$39,452.53.

As at the Latest Practicable Date, partial payments had been made and the outstanding balances under these claims were HK$146,750.00. Upon the full compliance of the scheduled payments in accordance with the terms of the said Orders, these claims will be dismissed.

(b) On 19 May 2004, another four former employees of Charvix brought claim numbered LBTC 3386/2004 against Charvix at the Tribunal claiming arrears of payroll in the aggregate amount of HK$442,621.39. Agreement in full and final settlement of this claim has been reached and made an Order of the Tribunal in the following manner:
(i) one of these claimants voluntarily withdrew her claim after reaching an out of court settlement with Charvix;
(ii) on 11 June 2004 in the amount of HK$162,647.99; and
(iii) on 6 July 2004 in the amount of HK$195,715.49.

As at the Latest Practicable Date, partial payments had been made under the Order dated 11 June 2004 and the balance outstanding was HK$60,880.54. The scheduled payments under the Order dated 6 July 2004 will commence on 25 December 2004. The Company shall make the scheduled payments in accordance with the terms the said Orders upon the full compliance of which, these claims will be dismissed.

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(3) Proceedings against Sino Development Holdings Limited (“Sino Development”), a wholly owned subsidiary of the Company, in respect of a property situated at Shun Tak Centre (the “Shun Tak Property”)

On 30 January 2004, Fordpointer Shipping Company Limited (“Fordpointer”) brought proceedings in the High Court against Sino Development under HCMP 292 of 2004 in respect of a sale and purchase agreement made between Sino Development as vendor and Fordpointer as purchaser regarding the Shun Tak Property. Further details of the said contract are set out under item 5 in section 8 headed “Material contracts” of this Appendix. The said sale and purchase was not completed and the mortgagee thereafter took over and sold the Shun Tak Property under a mortgagee sale. Fordpointer is, inter alia, claiming for return of the deposit paid to Sino Development but held by a solicitor firm. A property agent has also, on 11 March 2004, brought an action in the District Court under DCCJ 1352 of 2004 against Sino Development claiming HK$244,750 as compensation, being unpaid agent’s fee.

As at the Latest Practicable Date, the actions in respect of the Shun Tak Property are still pending.

(4) Proceedings against Sino Development in respect of a property situated at the Victoria Towers (the “Victoria Towers Property”)

DBS Bank (Hongkong) Limited has, on 8 April 2004, brought an action in the High Court under HCMP 918 of 2004 against Sino Development in respect of a mortgage over the Victoria Towers Property. Sino Development has sold the Victoria Towers Property and repaid the mortgage in part and is negotiating with DBS Bank (Hongkong) Limited as regards the balance of their claim by instalments. Further details of the said sale are set out under item 8 in section 8 headed “Material contracts” of this Appendix.

As at the Latest Practicbale Date , the negotiation with DBS Bank (Hongkong) Limited is still in progress and the Company shall keep Shareholders informed of the outcome of the negotiations.

(5) DCCJ 3291 of 2004

On 24 June 2004, A. Plus Financial Press Limited brought the above proceedings against the Company, claiming HK$208,290 for services rendered. On 7 September 2004, following negotiations with the Company, the proceedings was stayed by consent order of the District Court., thereby the Company was ordered to pay HK$208,290.00 by four equal monthly instalments of HK$52,072.50 each, commencing from the date of the said consent order.

As at the Latest Practicable Date, partial payments had been made and the balance outstanding under the said consent order is HK$52,072.50. Upon the full compliance of which, these claims will be dismissed.

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(6) DCCJ1164 of 2004

On 20 August 2004, Synchronic Communications Limited brought the above proceedings against the Company, claiming HK$150,000.00 for services rendered. As at the Latest Practicable Date, the Company has reached an settlement agreement with Synchronic Communications Limited to repay the claim by six equal monthly instalments of HK$25,000.00 each, commencing from the month of October 2004. As at the Latest Practicable Date, partial payments had been made and the balance outstanding under the consent order is HK$125,000. Upon the full compliance of which, these claims will be dismissed.

(7) DCCJ 5913 of 2004

The Company was recently served within a writ by Messrs. Boughton Peterson Yang Anderson on 19 November 2004 claiming outstanding professional charges in the sum of HK$536,048.03. The Company is taking legal advice as to the merits of the proceedings.

(8) PRC litigations

A wholly-owned subsidiary of the Company, namely 惠陽協凱晟地毯有限公司 (transliterated as Hui Yang Xie Kai Cheng Carpet Co. Ltd.) (“Xie Kai Cheng”) has been made defendant to two sets of proceedings in the PRC. The first set of proceedings was brought by 深圳華興建設有限公司 against Xie Kai Cheng at the People’s Court of the Hui Yang District, Hui Zhou City, Guangdong Province in respect of installation costs due and payable. The amount claimed under this set of proceedings is HK$1,420,560 (¥D1,520,000). The second set of proceedings was brought by 廣州美吉利地毯有限公司 (a company not related or connected with the Company) against Xie Kai Cheng at the Intermediate People’s Court of the Hui Zhou City, Guangdong Province in respect of dispute over a sale and distribution agreement. The amount claimed under this set of proceedings is HK$413,092 (¥D442,009). Further, freezing orders have been obtained by the plaintiff in this second set of proceedings and are in place against the bank accounts of Xie Kai Cheng. Xie Kai Cheng denies both claims, as at the Latest Practicable Date the first set of proceeding was adjourned for hearing on a day to be fixed in due course and the second set of proceeding is fixed and pending to judgement.

The Company shall keep Shareholders informed of the outcome of the above pending proceedings and/or the out-of-court negotiations.

Save as aforesaid, neither the Company nor any other member of the Group is engaged in any litigation or arbitration of material importance and no litigation or claim of material importance is at present known to the Directors to be pending or threatened against any member of the Group as at the Latest Practicable Date.

7. PROCEDURE BY WHICH A POLL MAY BE DEMANDED PURSUANT TO THE ARTICLES

Pursuant to articles 72 and 73 of the Articles, a resolution put to vote of the meeting shall be decided on a show of hands unless a poll is (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) demanded:

(i) by the chairman of the meeting; or

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(ii) by at least three Shareholders present in person (or, in the case of a Shareholder being a corporation, by its duly authorised representative) or by proxy for the time being entitled to vote at the general meeting; or
(iii) by any Shareholder or Shareholders present in person (or, in the case of a Shareholder being a corporation, by its duly authorised representative) or by proxy and representing not less than one-tenth of the total voting rights of all the Shareholders having the right to vote at the meeting; or
(iv) by any Shareholder or Shareholders present in person (or, in the case of a Shareholder being a corporation, by its duly authorised representative) or by proxy and holding Shares conferring a right to vote at the meeting being Shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all the Shares conferring that right.

Unless a poll be so demanded and not withdrawn, a declaration by the chairman of the meeting that a resolution has on a show of hands been carried or carried unanimously, or by a particular majority, or lost, and an entry to that effect made in the book containing the minutes of the proceedings of the Company shall be conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favour or against such resolution.

8. MATERIAL CONTRACTS

The following contracts, not being contracts in the ordinary course of business, have been entered into by members of the Group after the date falling two years prior to the Announcement and up to the Latest Practicable Date and are or may be material:

(1) settlement agreement dated 17 December 2002 and entered into between Jackley Finance Limited, a wholly owned subsidiary of the Company, and two Independent Third Parties in full and final settlement of a loan owed to Jackley Finance Limited. Under the settlement agreement, the Group acquired the entire issued share capital of Biolink Asia Limited, a company incorporated in the British Virgin Islands, which holds the intellectual property rights in a health food product, the acquisition of which were disclosed in the Company’s 2002 annual report;
(2) subscription agreement dated 15 April 2003 entered into by Chricton Holdings Sdn. Bdh. As subscriber and the Company as issuer (as supplemented by a supplemental agreement dated 17 April 2003, extension letters dated 25 April 2003, 3 May 2003 and 17 May 2003 respectively, a second supplemental agreement dated 31 May 2003 and an extension letter dated 30 June 2003) in relation to the subscription of 249,000,000 new Shares at the price of HK$0.30 Share each, the total consideration of which is HK$74,700,000. The agreement was cancelled on 11 July 2003. Please refer to the Company’s announcements dated 23 April 2003, 25 April 2003, 5 May 2003, 22 May 2003, 16 June 2003 and 17 July 2003;
(3) joint venture agreement dated 31 July 2003 between the Company and Chricton Holdings Sdn. Bdh. in relation to the forming a strategic alliance for the purpose of making investments in business and projects identified by the Company in Asia and the China but which had become null and void on 31 August 2003 for nonfulfillment of condition precedent. Please refer to the Company’s announcements dated 17 July 2003, 29 July 2003 and 15 August 2003;

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(4) sale and purchase agreement dated 15 September 2003 and entered into by Jackley America as purchaser and Hao Sheng He as vendor for the acquisition of the remaining 49% equity interest in Xie Kai Cheng for a consideration of HK$62,000,000. Please refer to the Company’s announcements dated 18 September 2003 and the Company’s circular dated 9 October 2003;
(5) sale and purchase agreement dated 28 November 2003 and entered into by Sino Development Holdings Limited, a wholly owned subsidiary of the Company, and an Independent Third Party in relation to the disposal of commercial leasehold land and buildings situated at Shun Tak Centre, Sheung Wan, Hong Kong at a consideration of HK$13,475,000 but which was not completed and thereafter sold by the mortgagee under a mortgagee sale;
(6) sale and purchase agreement dated 12 December 2003 and entered into between Xie Kai Cheng as purchaser and an Independent Third Party as vendor in respect of certain land and structure in the PRC at a consideration of HK$26,000,000;
(7) subscription agreement dated 5 March 2004 entered into by Cheertop Limited as subscriber and the Company as issuer in relation to the allotment and issue of 200 million new Shares at the subscription price of HK$0.10 each Share, but which was subsequently terminated by Cheertop Limited on 11 May 2004. Please refer to the Company’s announcements dated 8 March 2004;
(8) sale and purchase agreement dated 5 May 2004 and entered into by Sino Development Holdings Limited, a wholly owned subsidiary of the Company, and an Independent Third Party, in relation to the disposal of residential leasehold land and buildings situated at The Victoria Towers, Tsim Sha Tsui, Kowloon, Hong Kong at a consideration of HK$7,500,000;
(9) settlement agreements by way of consent orders of the High Court both dated 4 May 2004 entered into by the Company and Charvix respectively and Interface Heuga Singapore Pte. Ltd. in relation to winding up petitions presented by Interface Heuga Singapore Pte. Ltd. against each of them on 24 December 2003. Under the consent orders, the petitions were dismissed upon payment by the Company of the HK$7,366,589.75 to Interface Heuga Singapore Pte. Ltd. in full and final satisfaction of the said summary judgment and two other supporting creditors of the petitions ordered to withdraw upon the Company paying a total of HK$3,200,000 to them;
(10) various settlement agreements with employees of the Group as detailed in the section headed “Litigation” in this Appendix;
(11) on 10 September 2004, the Company through an indirectly wholly owned subsidiary entered into a conditional agreement for the acquisition of 51% equity interest in DNTC Investment Ltd. for a total consideration of HK$9,500,000 by the allotment and issue by the Company of 95,000,000 consideration shares at HK$0.10 per share. Please refer to the Company’s announcement dated 20 September 2004 and the Company’s circular dated 26 October 2004; and
(12) the Underwriting Agreement.

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Save as disclosed above, there are no other contracts (not being contracts in the ordinary course of business) being entered into by the members of the Group after the date falling two years prior to the Announcement and up to the Latest Practicable Date, which are or may be material.

9. MISCELLANEOUS

The English text of this circular shall prevail over the Chinese text in the case of any inconsistency.

10. CORPORATE INFORMATION

COMPANY SECRETARY AND QUALIFIED ACCOUNTANT

Mr. Law Fei Shing, CPA, AHKSA, AICPA

AUTHORISED REPRESENTATIVES

Mr. Lam Shu Chung 8th Floor Luk Kwok Centre No.72 Gloucester Road Wanchai Hong Kong

Mr. Law Fei Shing 8th Floor Luk Kwok Centre No.72 Gloucester Road Wanchai Hong Kong

PRINCIPAL BANKER

Wang Hang Bank Limited 161 Queen’s Road Central Hong Kong

LEGAL ADVISERS

Tanner De Witt Room 2308-2309,23rd Floor Tower Two Lippo Centre 89 Queensway Hong Kong Pansy Leung Tang & Chua Solicitors 21st Floor Regend Centre No.88 Queen’s Road Central Hong Kong

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HONG KONG BRANCH SHARE REGISTRAR

Tengis Limited G/F, BEA Harbour View Centre 56 Gloucester Road Wanchai Hong Kong

PRINCIPAL SHARE REGISTRAR

Bank of Bermuda (Cayman) Limited P.O.Box 513 G.T. 36C Bermuda House British American Centre George Town Grand Cayman Cayman Islands

AUDITORS

RSM Nelson Wheeler Certified Public Accountants 7th Floor, Allied Kajima Building 138 Gloucester Road Hong Kong

FINANCIAL ADVISERS TO THE COMPANY

Kingston Corporate Finance Limited Suite 2801 28th Floor One International Finance Centre 1 Harbour View Street Central Hong Kong Regal Oriental Capital Limited 55/F Bank of China Tower 1 Garden Road Hong Kong

INDEPENDENT FINANCIAL ADVISER TO THE INDEPENDENT BOARD COMMITTEE

Ample Capital Limited Unit B, 9th Floor Two Chinachem Plaza 135 Des Voeux Road Central Hong Kong

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THE UNDERWRITER

Kingston Securities Limited Suite 2801 28th Floor One International Finance Centre 1 Harbour View Street Central Hong Kong

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be made available for inspection during normal business hours on any weekday (except for public holidays) at the head office and principal place of business of the Company at 8th Floor, Luk Kwok Centre, 72 Gloucester Road, Wanchai, Hong Kong up to and including the Closing Date:

(1) the memorandum and articles of association of the Company;
(2) the annual reports of the Company for the two years ended 31 December 2003;
(3) unaudited condensed consolidated financial statements of the Group for the six months ended 30 June 2004;
(4) the letter from the Independent Board Committee, the text of which is set out on page 24 of this document;
(5) the letter from Ample Capital Limited, the text of which is set out on pages 25 to 37 of this circular;
(6) the comfort letter from Grant Thornton, the texts of which are reproduced in Appendix I to this circular; and
(7) the material contracts referred to the section headed “Material contracts” in this Appendix and the respective circular (if applicable) in relation to the material contracts.

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NOTICE OF EGM

JACKLEY HOLDINGS LIMITED 美吉利國際控股有限公司[*]

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 353)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting of Jackley Holdings Limited (the “Company”) will be held at 10:00 a.m. on 31 December 2004 at 8/F, Luk Kwok Centre, No. 72 Gloucester Road, Wanchai, Hong Kong for the purpose of considering and, if thought fit, passing the following resolutions numbered 1 to 4 as special resolutions of the Company:

1. SPECIAL RESOLUTION 1

“THAT

(i) the English name of “Jackley Holdings Limited “ be and is hereby changed to “Orient Industries Holdings Limited” and the Chinese name of “美吉利國際控股有限公司 ” be and is hereby changed to “東方工業控股有限公司 ” for identification purposes only and for registration purpose under Part XI of the Companies Ordinance (Chapter 32 of the Laws of Hong Kong); and
(ii) the Directors be and are hereby authorised to do all such acts and things and execute all such documents they consider necessary or expedient to give effect to the change in the English and Chinese names of the Company.”

2. SPECIAL RESOLUTION 2

“ THAT , subject to and conditional upon (i) confirmation of the Capital Reduction (as hereinafter defined) by the Grand Court of the Cayman Islands (the “Court”), the registration by the Registrar of Companies in the Cayman Islands of a copy of the order of the Court and a copy of the minute approved by the Court, both confirming the Capital Reduction and the compliance with any conditions as may be imposed by the Court in relation to the Capital Reduction; and (ii) the Listing Committee of The Stock Exchange of Hong Kong Limited granting the listing of, and permission to deal in, the new ordinary shares of HK$0.01 each (the “New Shares”) in the share capital of the Company arising upon the Capital Reorganisation (as hereinafter defined) becoming unconditional and effective (the “Effective Date”) :

(a) the issued share capital of the Company be reduced (the “Capital Reduction”) by cancelling paid-up capital to the extent of HK$0.099 on each existing share of HK$0.10 of the Company (the “Existing Share”) in issue as at the effective date of the Capital Reduction (the “Effective Date”) so that each such share shall be treated as one fully paid up share of HK$0.001 each (the “Reduced Share”) in the issued share capital of the Company and that the amount of issued capital hereby cancelled be made available for the issue of the New Shares;

For identification purpose only

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NOTICE OF EGM

(b) subject to and forthwith upon the Capital Reduction taking effect, each of the authorised but unissued Existing Shares in the capital of the Company be subdivided into one hundred (100) Reduced Shares so that the authorised capital of the Company of HK$200,000,000 remains unchanged on the Effective Date (the “Subdivision”);
(c) subject to and forthwith upon the Capital Reduction and Subdivision taking effect, every ten (10) Reduced Shares be consolidated into one New Share (the “Consolidation”); and
(d) the Directors be and are hereby authorised to apply the credit arising from the Capital Reduction to a distributable reserve of the Company to be applied in such manner as the Directors consider appropriate in accordance with the articles of association of the Company (the “Application of Credit”),

and the Directors be and are hereby authorised generally to do all such acts, deeds and things as they shall, in their absolute discretion, deem fit, necessary, desirable or expedient to effect or to give effect to the Capital Reduction, the Subdivision, the Consolidation and the Application of Credit (collectively, the “Capital Reorganisation”).”

3. SPECIAL RESOLUTION 3

“THAT subject to the passing of special resolution numbered 2 and conditional upon: (a) the Listing Committee of the Stock Exchange granting or agreeing to grant (subject to allotment) and not having revoked the listing of and permission to deal in the Offer Shares (as defined below) to be allotted and issued to the shareholders of the Company (the “ Shareholders ”) pursuant to the terms and conditions of the Open Offer (as defined below); (b) the registration of all documents relating to the Open Offer required by law to be registered with the Registrar of Companies in Hong Kong on or before 31 March 2005 or such later date as the Company and Kingston Securities Limited (the “ Underwriter ”) may agree and the filing of all relevant documents with the Registrar of Companies in the Cayman Islands on or before 31 March 2005 or such later date as the Company and the Underwriter may agree; and (c) the obligations of the Underwriter under the underwriting agreement dated 3 November 2004 (the “ Underwriting Agreement ” including, if any, all supplemental agreements relating thereto) between the Company and the Underwriter becoming unconditional and the Underwriting Agreement not being terminated in accordance with the terms thereof prior to 4:00 p.m. on the third business day after the last day for acceptance of Offer Shares (as defined below),

(i) the issue by way of open offer (the “ Open Offer ”) of not less than 67,000,000 New Shares (the “ Offer Shares ”) and not more than 69,500,000 Offer Shares to the Shareholders whose names appear on the register of members of the Company on 31 March 2005 (excluding those Shareholders with registered addresses outside Hong Kong) in the proportion of one Offer Share for every two New Shares then held with Bonus Shares to be issued with the Offer Shares and otherwise pursuant to and in accordance with the terms and conditions set out in the circular dated 6 December 2004 despatched by the Company to the Shareholders (the “ Circular ”), a copy of which had been produced to the

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NOTICE OF EGM

meeting marked “A” and signed by the chairman of the meeting for the purpose of identification, be and is hereby approved and the Directors be and are hereby authorised to allot and issue the Bonus Shares pursuant to or in connection with the Open Offer notwithstanding that the same may be offered, allotted or issued otherwise than pro rata to the existing Shareholders and, in particular, the Directors be and are hereby authorised to make such exclusions or other arrangements in relation to fractional entitlements or overseas Shareholders as they deem necessary or expedient having regard to any restrictions or obligations under the articles of association of the Company or the laws of, or the requirements of any recognised regulatory body or any stock exchange in, any territory outside Hong Kong;

(ii) the issue (the “ Bonus Share Issue ”) by way of bonus shares (the “ Bonus Shares ”) of not less than 67,000,000 Bonus Shares and not more than 69,500,000 Bonus Shares to the first registered holders of the Offer Shares on the basis of one Bonus Share for every fully paid Offer Share taken up under the Open Offer, in accordance with the terms and condition set out in the Circular be and is hereby approved and the Directors be and are hereby authorised to allot and issue the Bonus Shares pursuant to or in connection with the Bonus Shares Issue notwithstanding that the same may be offered, allotted or issued otherwise than pro rata to the existing Shareholders and, in particular, the Directors be and are hereby authorised to make such exclusions or other arrangements in relation to fractional entitlements or overseas Shareholders as they deem necessary or expedient having regard to any restrictions or obligations under the articles of association of the Company or the laws of, or the requirements of any recognised regulatory body or any stock exchange in, any territory outside Hong Kong;
(iii) the issue (the “ Bonus Warrant Issue ”) by way of bonus warrants (the “ Bonus Warrants ”) of not less than 53,600,000 Bonus Warrants of the Company and not more than 55,600,000 Bonus Warrants which shall be in registered form to the first registered holders of the Offer Shares on the basis of eight Bonus Warrants for every ten fully paid Offer Shares taken up under the Open Offer, which Bonus Warrants will confer rights on holders thereof to subscribe for Shares at any time from the date of issue of the Bonus Warrants (expected to be on or about 3 May 2005) up to and including 2 May 2007, in cash at an initial subscription price of HK$0.40 per Share, subject to adjustments, in or substantially in accordance with the terms and conditions set out in the instrument creating the Bonus Warrants, a copy of which has been produced to this meeting marked “B” and signed by the chairman of the meeting for the purpose of identification, be and is hereby approved and the Directors be and are hereby authorised to allot and issue the Bonus Warrants pursuant to or in connection with the Bonus Warrants Issue notwithstanding that the same may be offered, allotted or issued otherwise than pro rata to the existing Shareholders and, in particular, the Directors be and are hereby authorised to make such exclusions or other arrangements in relation to fractional entitlements or overseas Shareholders as they deem necessary or expedient having regard to any restrictions or obligations under the articles of association of the Company or the laws of, or the requirements of any recognised regulatory body or any stock exchange in, any territory outside Hong Kong; and

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(iv) the Directors be and are hereby authorised to do all such acts and things as they consider necessary or expedient in connection with the Open Offer and the Bonus Share Issue and the Bonus Warrant Issue.”

4. SPECIAL RESOLUTION 4

“THAT the articles of association of the Company be amended by substituting the existing article 153(A) with the following new article 153(A):

“ 153.(A) The Company in general meeting may, upon the recommendation of the Directors, resolve to capitalise any sum standing to the Company’s reserves (including any share premium account or undistributable reserve,) or any undivided profits not required for the payment or provision of the dividend on any shares with a preferential right to dividend, by appropriating such sum or profits to the holders of shares on the register at the close of business on the date of the relevant resolution (or such other date as may be specified therein or determined as provided therein) in the proportion in which such sum would have been divisible amongst them had the same been a distribution of profits by way of dividend on shares or in such proportion as the Board may, from time to time, determine either in or towards paying up any amounts for the time being unpaid on any shares held by such shareholders respectively or paying up in full unissued shares or debentures or other securities of the Company to be allotted and distributed credited as fully paid to and amongst such shareholders in the proportion aforesaid, or partly in one way and partly in the other.”

And that the directors be and are herely authorised to do all such acts, deeds and things as the directors shall in their absolute discretion, deem fit in order to effect the foregoing.”

By Order of the Board Lam Shu Chung Director

Hong Kong, 6 December 2004

Registered Office:

Codan Trust Company (Cayman) Limited Century Yard, Cricket Squares Hutchins Drive, P.O. Box 2681GT George Town Grand Cayman Cayman Islands British West Indies

– 118 –

NOTICE OF EGM

Head office and principal place of business in Hong Kong: 8th Floor

Luk Kwok Centre No. 72 Gloucester Road Wanchai Hong Kong

Notes:

Any member of the Company entitled to attend and vote at the meeting convened by the above notice is entitled to appoint another person as his proxy to attend and vote instead of him. A proxy need not be a member of the Company but must be present in person to represent the member.
Where there are joint registered holders of any Share, any one of such persons may vote at any meeting, either personally or by proxy, in respect of such Shares as if he is solely entitled thereto, but if more than one of such joint holders be present at any meeting personally or by proxy, that one of the said persons so present whose name stands first in the register of members in respect of such Share shall alone be entitled to vote in respect thereof.
A form of proxy for use at the meeting is enclosed with the Circular.
The form of proxy and power of attorney or other authority, if any, under which it is signed, or a notarially certified copy of such power or authority must be delivered to the office of Tengis Limited, Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wan Chai, Hong Kong, not less than 48 hours before the time appointed for holding the meeting or adjourned meeting (as the case may be) and in default the form of proxy shall not be treated as valid. Completion and return of the form of proxy shall not preclude members from attending and voting in person at the meeting or at any adjourned meeting (as the case may be) should they so wish. If a member who has lodged a form of proxy attends the meeting, his form of proxy will be deemed to have been revoked.

– 119 –

AI assistant

REPT BATTERO Energy Co., Ltd. — Proxy Solicitation & Information Statement 2004

49377_rns_2004-12-06_1fdfc703-bace-469a-b34f-c5b8d697a605.pdf

JACKLEY HOLDINGS LIMITED 美吉利國際控股有限公司[*]

Financial advisers to the Company

Underwriter

Kingston Securities Limited

Independent financial adviser to the Independent Board Committee

CONTENTS

DEFINITIONS

DEFINITIONS

“HKSCC”

DEFINITIONS

DEFINITIONS

EXPECTED TIMETABLE

EXPECTED TIMETABLE

JACKLEY HOLDINGS LIMITED 美吉利國際控股有限公司[*]

(1) PROPOSED CHANGE OF COMPANY NAME;

INTRODUCTION

PROPOSED CHANGE OF COMPANY NAME

PROPOSED CAPITAL REORGANISATION

LETTER FROM THE BOARD

Conditions of the Capital Reorganisation

Reasons for and effect of the Capital Reorganisation

Shareholders and investors are advised to exercise caution in dealing in Shares.

PROPOSED OPEN OFFER

Issue statistics:

Qualifying Shareholders

Application for excess Offer Shares

Closure of register of members

Subscription Price

LETTER FROM THE BOARD

Status of the Offer Shares and the Bonus Shares

Status of the Bonus Warrants

Transfers of Bonus Warrants

Exercise of Bonus Warrants

Certificates for the Offer Shares, Bonus Shares and Bonus Warrants

Rights of Excluded Shareholders

Application for listing

Underwriting Agreement dated 3 November 2004

Termination of the Underwriting Agreement

Conditions of the Underwriting Agreement

WARNING OF RISKS OF DEALING IN SHARES

Shareholding structure of the Company

Reasons for the Open Offer and use of proceeds

Funds raising activities and share transactions of the Company during the 12 months ended on the Latest Practicable Date

LETTER FROM THE BOARD

FREE EXCHANGE OF NEW SHARE CERTIFICATES AND TRADING ARRANGEMENTS

PROPOSED AMENDMENT TO THE ARTICLES

GENERAL

THE EGM

RECOMMENDATIONS

LETTER FROM THE BOARD

FURTHER INFORMATION

JACKLEY HOLDINGS LIMITED 美吉利國際控股有限公司[*]

INTRODUCTION

PRINCIPAL FACTORS CONSIDERED

1. Background information

2. Reasons for the Open Offer

3. Terms of the Open Offer

3.2 Subscription Price

3.3 Underwriting commission

4. Terms of the Bonus Issue

4.1 Bonus Shares

4.2 The Bonus Warrants

5. Dilution effect on Shareholders who do not subscribe for the Offer Shares

6. Financial effects of the Open Offer

6.1 Net asset value

6.2 Gearing

6.3 Liquidity

CONCLUSION

A. SUMMARY OF FINANCIAL RESULTS FOR THE THREE YEARS ENDED 31 DECEMBER 2003

B. AUDITORS’ REPORT CONTAINED IN THE COMPANY’S 2002 ANNUAL REPORT

JACKLEY HOLDINGS LIMITED

Respective responsibilities of directors and auditors

Basis of opinion

1. Scope limitation – Availability of Books and Records

(b) Existence Limited (“Existence”)

2. Scope limitation – Trade receivables

3. Scope limitation – Deposit for investment

REPT BATTERO Energy Co., Ltd. Proxy Solicitation & Information Statement 2004