THIS CIRCULAR IS IMPORTANT AND REQUIRED YOURS IMMEDIATE ATTENTION

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

If you have sold or transferred all your securities in Riche Multi-Media Holdings Limited (the "Company"), you should at once hand this circular to the purchaser or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

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

RICHE MULTI-MEDIA HOLDINGS LIMITED

(incorporated in Bermuda with limited liability)

(Stock Code: 764)

MAJOR TRANSACTION

A letter from the board of directors of the Company is set out on pages 5 to 32 of this circular.

A notice convening a special general meeting to be held at Units 609-610, 6th Floor, Miramar Tower, 132 Nathan Road, Tsimshatsui, Kowloon, Hong Kong on Monday, 18th July 2005 at 3:00 p.m. is set out on pages 100 to 101 of this circular. A form of proxy for use at the special general meeting is also enclosed with this circular.

If you are not able to attend the special general meeting, you are requested to complete the enclosed form of proxy in accordance with the instructions printed thereon and return the same to the Company's branch share registrar in Hong Kong, Standard Registrars Limited, at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong, as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the meeting or any adjourned meeting as the case may be. Completion and delivery of the enclosed form of proxy will not preclude you from attending and voting at the meeting should you so wish.

24th June 2005

CONTENTS

Page

Definitions 1

Letter from the Board

Introduction 5
The S&P Agreement 7
Risk factors. 17
Service Agreement. 18
Changes in shareholding structure of the Company 21
Reasons and benefits for the Acquisition 22
Financial effects of the Acquisition on the Group. 24
Business review and prospects of the Group 24
Implication of the laws of Hong Kong and the Listing Rules and relevant laws in other jurisdiction 25
Regulations and internal control in relation to money laundering issues. 26
General 31
Procedures for demanding a poll 31
Recommendation 32
Additional information 32

Appendix I — Accountants' report on Best Winning 33

Appendix II — Financial information on the Group 43

Appendix III — General information 93

Notice of the SGM 100

DEFINITIONS

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

"Acquisition"
the acquisition of the entire issued share capital of Best Winning by Dragon Leader pursuant to the S&P Agreement

"APG"
Asia Pacific Group Money Laundering body

"associate"
has the meaning as ascribed to it under the Listing Rules

"Best Winning"
Best Winning Group Limited, a company incorporated in the British Virgin Islands and is beneficially owned by Leadfirst

"BK Share Option"
the share option, which is exercisable for a period of 5 years commencing from the Completion Date, to be granted by the Company to Mr. Ki to subscribe for 500,000,000 Shares (subject to adjustment) at an exercise price of HK$0.25 per Share

"Board"
board of Directors

"Business Day"
a day (other than a Saturday or days on which a typhoon signal 8 or above or black rainstorm signal is hoisted in Hong Kong at 10:00 a.m.) on which banks in Hong Kong are generally open for business

"Casino"
the casino and gaming establishment on board the Vessel

"Commencement Date"
the actual date of the full operation of the Casino, which is expected to be on or about 15th August 2005

"Company"
Riche Multi-Media Holdings Limited, a company incorporated in Bermuda, the Shares of which are listed on the Main Board of the Stock Exchange

"Completion"
completion of the S&P Agreement

"Completion Date"
on 1st August 2005 or the fifth Business Day after the date of receipt of written notice from Best Winning to Dragon Leader stating that the full operation of the Casino will commence within one month thereafter, whichever is the later, but subject always to the fulfilment (or waiver) of the conditions set out under the S&P Agreement on or before that date

— 1 —

DEFINITIONS

“Consideration”	the consideration payable by Dragon Leader for the Acquisition pursuant to the S&P Agreement, being HK$600,000,000
“Conversion Price”	HK$0.50 per Share
“Conversion Shares”	the Shares to be issued by the Company under the Convertible Note upon exercise of the conversion rights pursuant to the terms of the Convertible Note
“Convertible Note”	the 4% per annum convertible note in the aggregate principal amount of HK$500,000,000 to be issued by the Company upon Completion as part of the Consideration
“Directors”	the directors of the Company
“Dragon Leader”	Dragon Leader Limited, a company incorporated in the British Virgin Islands and is wholly-owned by the Company
“Effective Date”	the date on which the appointment of Leadfirst by the sole operator of the Casino as the sole and exclusive provider for the promotion and introduction of customers to the Vessel and the provision of Rolling and Settlement Services for customers of the Casino became effective, being 6th June 2005
“Enlarged Group”	the Group including Best Winning
“Escrowed Certificate”	the certificate evidencing title to HK$250,000,000 of the Convertible Note escrowed with Dragon Leader’s solicitors
“FATF”	Financial Action Task Force
“Group”	the Company and its subsidiaries
“Hong Kong”	the Hong Kong Special Administrative Region of the People’s Republic of China
“Last Trading Day”	24th March 2005, being the last trading day of the Shares on the main board of the Stock Exchange immediately prior to the announcement of the Company dated 15th April 2005, relating to, among other things, the Acquisition
“Latest Practicable Date”	23rd June 2005, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information contained herein

— 2 —

DEFINITIONS

"Leadfirst" Leadfirst Limited, a company incorporated in the British Virgin Islands and is wholly-owned by Mr. Ki

"Listing Rules" the Rules Governing the Listing of Securities on the Stock Exchange

"Macau" the Macau Special Administrative Region of the People's Republic of China

"Management Fee" a monthly management fee calculated at 1.7% of the total rolling turnover of the Casino based on the records of Best Winning and to be received by it under the Sub-Marketing Agreement

"Mr. Ki" Mr. Benny Ki, an independent third party who is not a connected person (as defined under the Listing Rules) of the Company

"Noteholder(s)" the person(s) who is/are for the time being the registered holder(s) of the Convertible Note(s)

"Options" the options granted under the share option scheme adopted by the Company on 21st January 2002 to subscribe for Shares in accordance with the terms therein

"PRC" The People's Republic of China, which for the purpose of this circular shall exclude Hong Kong, Macau and Taiwan

"Rolling and Settlement Services" the provision of services involving the exchanging of non-negotiable gambling chips of the customers of the Casino with Leadfirst where no money in any form is settled by Best Winning in its own capacity and provided always that such non-negotiable gambling chips are given to the customers against (i) production of a bank-in slip demonstrating equivalent amount of money having been deposited in the designated accounts of Leadfirst; or (ii) cash payment of equivalent sum having been received by Best Winning for and on behalf of Leadfirst; or (iii) cash gambling chips of equivalent sum having been received by Best Winning for and on behalf of Leadfirst

"S&P Agreement" a conditional sale and purchase agreement entered into between Dragon Leader, Leadfirst and Mr. Ki dated 9th April 2005 in respect of the Acquisition

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DEFINITIONS

"Service Agreement" the service agreement to be entered into between the Company and Mr. Ki upon Completion

"SGM" the special general meeting of the Company to be convened and held at Unit 609-610, 6th Floor, Miramar Tower, 132 Nathan Road, Tsimshatsui, Hong Kong on Monday, 18th July 2005 at 3:00 p.m. to consider and approve, among other matters, the transactions contemplated in the S&P Agreement, the issue of the Convertible Note and the grant of the BK Share Option to Mr. Ki and the allotment and issue of the Shares pursuant to the exercise of the conversion right under the Convertible Note and the exercise of the BK Share Option

"Share(s)" ordinary share(s) of HK$0.01 each in the capital of the Company

"Shareholder(s)" holder(s) of Share(s)

"Stock Exchange" The Stock Exchange of Hong Kong Limited

"Sub-Marketing Agreement" the agreement entered into between Leadfirst and Best Winning under which Leadfirst has appointed Best Winning as its sole and exclusive service provider for the promotion and introduction of customers to the Vessel and the provision of Rolling and Settlement Services for the customers of the Casino. The Sub-Marketing Agreement was effective on 6th June 2005 although Best Winning will only commence the provision of Rolling and Settlement Services on the Commencement Date

"Takeovers Code" the Hong Kong Code on Takeovers and Mergers

"Vessel" a passenger vessel named Radisson Diamond (to be renamed as Omar Star), with casino, gaming and other facilities

"HK$" Hong Kong dollar, the lawful currency of Hong Kong

"US$" United States dollar, the lawful currency of the United States of America

"sq.ft." square feet

"%" per cent.

— 4 —

LETTER FROM THE BOARD

RICHE MULTI-MEDIA HOLDINGS LIMITED

(incorporated in Bermuda with limited liability)

(Stock Code: 764)

Executive Directors:
Mr. Heung Wah Keung (Chairman)
Ms. Chen Ming Yin, Tiffany (Vice Chairman)
Mr. Lei Hong Wai

Independent non-executive Directors:
Mr. Tang Chak Lam, Gilbert
Mr. Ho Wai Chi, Paul
Mr. Lien Wai Hung

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

Head office and principal place of
business in Hong Kong:
Units 609-610, 6th Floor
Miramar Tower
132 Nathan Road
Tsimshatsui
Kowloon
Hong Kong

24th June 2005

To the Shareholders and, for information only,
the holders of the Options

Dear Sir or Madam,

MAJOR TRANSACTION

INTRODUCTION

On 9th April 2005, the S&P Agreement was entered into between Dragon Leader, as purchaser, Leadfirst, as seller, and Mr. Ki, as guarantor, pursuant to which Dragon Leader would acquire 100% of the issued share capital of Best Winning from Leadfirst at a consideration of HK$600,000,000. The Consideration shall be satisfied by the issue of the Convertible Note in the principal amount of HK$500,000,000 by the Company and the payment of cash of HK$100,000,000. The amount of HK$100,000,000 represents part of the Consideration of the Acquisition. As at the Latest Practicable Date, the Group has paid refundable deposits of HK$40,000,000 to Leadfirst. The remaining balance of the cash Consideration of

LETTER FROM THE BOARD

HK$60,000,000 will be satisfied by realising all the Group’s investments in securities and cash generated from the Group’s operating activities and by realising the Group’s leasehold land and buildings.

As at 30th April 2005, based on the Group’s unaudited consolidated management accounts, the cash and bank balances of the Group was approximately HK$2,800,000, the value of the Group’s investments in listed and unlisted securities amounted to approximately HK$42,441,000, the Group had trade receivables amounted to approximately HK$10,400,000 and the net book value of the leasehold land and buildings of the Group amounted to approximately HK$7,000,000, with reference to a valuation as at 31st December 2004.

Prior to the entering into of the S&P Agreement, the Board had, on an informal basis, enquired as to the current nature of the junket business, the feasibility of the proposed transaction, the risk involved and whether the numbers put forth by Mr. Ki regarding the annual rolling turnover were realistic. Based on these information, the Board made an informal decision to enter into the S&P Agreement. Furthermore, the Chairman of the Company, Mr. Heung Wah Keung, has extensive experience in the rolling and settlement services business as between 1992 and 1996, he was appointed as one of two junket operators for the Kingsway Casino in Macau.

Best Winning is a company incorporated in the British Virgin Islands and is beneficially owned by Leadfirst. Leadfirst has been appointed by the sole operator of the Casino as the sole and exclusive service provider for the promotion and introduction of customers to the Vessel and the provision of rolling and settlement services for customers of the Casino under a binding memorandum of understanding. Such functions have been subcontracted to Best Winning under the Sub-Marketing Agreement entered into between Best Winning and Leadfirst whereby Best Winning is being appointed by Leadfirst as the sole and exclusive service provider for the provision of these services in accordance with its terms. Best Winning will be entitled to (i) the Management Fee; and (ii) 40% of the monthly profit of the Casino (net win of the Casino after deducting the Management Fee, the rental of the Casino and other expenses of the Casino).

As the Consideration represents more than 25% but less than 100% under the applicable percentage ratios under Chapter 14 of the Listing Rules, the transactions contemplated under the S&P Agreement constitute a major transaction for the Company under the Listing Rules and will be subject to the approval of the Shareholders at the SGM.

The purpose of this circular is to provide Shareholders with further information relating to the S&P Agreement, the Convertible Note and the BK Option and to give notice of the SGM at which resolution as set out in the notice of the SGM will be proposed to approve the S&P Agreement (including the entering into of the Service Agreement, the issue of the Convertible Note, the grant of the BK Share Option, and the allotment and issue of Shares pursuant to the exercise of the conversion rights under the Convertible Note and the exercise of BK Share Option).

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LETTER FROM THE BOARD

THE S&P AGREEMENT

Date: 9th April 2005

Parties: (i) Purchaser: Dragon Leader;
(ii) Vendor: Leadfirst; and
(iii) Guarantor: Mr. Ki.

To the best of the knowledge, information and belief of the Directors having made all reasonable enquiry, Leadfirst and its ultimate beneficial owner, Mr. Ki, are not connected persons of the Company and are independent third parties not connected with the directors, chief executive and substantial shareholders of the Company, any of its subsidiaries and their respective associates.

The Acquisition

Pursuant to the S&P Agreement, Dragon Leader has agreed to acquire and Leadfirst has agreed to dispose of the entire issued share capital of Best Winning. Best Winning is a company incorporated in the British Virgin Islands on 2nd March 2005 and is beneficially owned by Leadfirst.

To the best of the knowledge of the Directors, the current principal activity of Leadfirst is investments holding. Leadfirst has been appointed by the sole operator of the Casino as the sole and exclusive service provider for the promotion and introduction of customers to the Vessel and the provision of rolling and settlement services for customers of the Casino under a binding memorandum of understanding. The term of which is for three years from the Effective Date with an option to renew for another three years. Such functions have been subcontracted to Best Winning under the Sub-Marketing Agreement. So far as the Directors are aware, the appointment of Leadfirst as the sole and exclusive service provider for the promotion and introduction of customers to the Vessel and of rolling and settlement services and its term of appointment by the sole operator of the Casino mirrors that of the Sub-Marketing Agreement. Save for the entering into the Sub-Marketing Agreement with Leadfirst, Best Winning has not commenced any significant business operations since its incorporation. The paid-up capital of Best Winning is US$1.

Information relating to the Vessel

The Vessel was built in 1992 with a carrying capacity of 354 guests. Owing to its unique, twin-hull design, the Directors believe that the Vessel provides the most stable ride of any ship at sea. It had been a cruise liner in Caribbean and Mediterranean. The Vessel possesses ocean-view accommodation, dining facilities and functions rooms. Other facilities include the

LETTER FROM THE BOARD

Casino, private club, spa & beauty salon, fitness center facilities and lounge. The Vessel was accredited as the "World's Best Small Cruise Line" by Travel & Leisure in 2001. The Casino will have 20 gambling tables upon the Commencement Date. The Directors consider that the target customers of the Casino will be high-end rollers who gamble, on average, at least HK$20,000 per bet. So far as the Directors are aware, there is no Rolling and Settlement Services currently in operation at the Casino.

The Vessel is owned by a private company which is owned indirectly as to approximately 12% by Mr. Ki and as to the remaining by various independent third parties. Under certain agreements, the owner of the Vessel leases the Vessel to the operator of the Vessel and the operator of the Vessel leases the Casino to the operator of the Casino. The operator of the Casino appoints Leadfirst as the sole and exclusive service provider for the promotion and introduction of customers to the Vessel and the provision of rolling and settlement services for customers of the Casino. The Directors have confirmed that (i) save as aforesaid, the owners of the Vessel are independent of and not connected with, and do not have any business relationship with, the Company, its directors, chief executive or substantial shareholders and their associates; and (ii) the Company is not entering into contracts or dealing with the owners of the Vessel and the owners of the Vessel play no role in the proposed transactions as stated in this circular.

To the best of the knowledge of the Directors, the shareholders of the Vessel, the shareholders of the operator of the Vessel and the shareholders of the operator of the Casino are not connected persons of the Company and are independent third parties not connected with the directors, chief executive and substantial shareholders of the Company, any of its subsidiaries and their respective associates. Save that Mr. Ki, being the beneficial shareholder of Leadfirst, owns an approximately 12% interest in the Vessel and an approximately 30% interest in the operator of the Vessel, the other shareholders of the Vessel, the other shareholders of the operator of the Vessel and the shareholders of the operator of the Casino are not related to any party to the proposed transactions as stated in this circular. Furthermore, save for the above, the Directors do not recognise the relationship among the shareholders of the Vessel, the operator of the Vessel and the operator of the Casino. Neither the Company nor Best Winning were privy to the relevant leasing arrangements of the Vessel and the Casino. To the best of the knowledge of the Directors, the leases in question were entered into between the owner of the Vessel and the operator of the Vessel and between the operator of the Casino and the operator of the Vessel which shall be for a term of three years from the Effective Date with an option to renew for another term of three years.

The Company will also enter into the Service Agreement with Mr. Ki upon Completion, pursuant to which Mr. Ki will be engaged as the general manager of the Company for the provision of the foregoing management and consultancy services relating to the promotion and introduction of customers to the Vessel and the Rolling and Settlement Services of the Casino. Details of the Service Agreement are set out under the paragraph headed "Service Agreement" to this circular.

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LETTER FROM THE BOARD

Sub-Marketing Agreement

Under the Sub-Marketing Agreement, Best Winning is being appointed by Leadfirst as the sole and exclusive service provider for the promotion and introduction of customers to the Vessel and the provision of Rolling and Settlement Services for customers of the Casino for a term of three years commencing from the Effective Date. Upon expiry of the three-year term of the Sub-Marketing Agreement, Best Winning shall have the option to renew the term for another three years pursuant to the terms under the Sub-Marketing Agreement provided that the lease for the Casino, the term of which is for three years with an option to renew for another three years, entered into by the operator of the Casino and the operator of the Vessel shall remain in force. Best Winning will not be involved in the direct operation or management of the Casino and gaming activities on board the Vessel. As at the Latest Practicable Date, the Directors confirm that, save for the services as aforesaid, Best Winning does not intend to engage in any other business activities.

In consideration for the services to be provided by Best Winning, Best Winning shall be entitled to receive (i) the Management Fee; and (ii) 40% of the monthly profit of the Casino (the net win of the Casino after deducting the Management Fee, the rental of the Casino and other operating expenses of the Casino) (the "Profit-linked Fee"). The rolling turnover of the Casino is based on the management accounts of Best Winning computed on a daily basis, which is verified together with the sole operator of the Casino at the end of each day. The Management Fee is calculated based on the verified rolling turnover. In the event that the Casino records a net deficit in any calendar month, Leadfirst shall not be required to pay any such Profit-linked Fee for that calendar month to Best Winning.

The Sub-Marketing Agreement is terminable by Best Winning by giving nine months' notice in writing to Leadfirst, save for any claim by one party against the other party arising from any breach of the terms in the Sub-Marketing Agreement. Save for the occurrence of the usual events of default (such as the material breach of the Sub-Marketing Agreement by a party or the liquidation of either party thereof), the Sub-Marketing Agreement is terminable prior to the expiry of the term thereof by Best Winning only. Should the appointment of Leadfirst by the sole operator of the Casino be terminated or expired without renewal after the three-year term, the Sub-Marketing Agreement will be terminated automatically. Pursuant to the S&P Agreement, Leadfirst and Mr. Ki will indemnify Dragon Leader for any losses which may be incurred or suffered in the event that the appointment of Leadfirst by the operator of the Casino is terminated prior to the expiry of the term of the Sub-Marketing Agreement.

Best Winning is a company formed solely for the purpose of engaging in the business of promoting and introducing customers to the Vessel and the provision of Rolling and Settlement Services for customers of the Casino. Save for the paid up capital of US$1 and the Sub-Marketing Agreement, Best Winning does not have any assets or liabilities as at the Latest Practicable Date.

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LETTER FROM THE BOARD

Consideration

The Consideration, being HK$600,000,000, was arrived at after arm’s length negotiation between the Company and Leadfirst with reference to (i) the amount of the guaranteed annual rolling turnover as detailed in the section headed “Guarantee and undertakings on rolling turnover by Leadfirst” below; and (ii) the prospects of the booming gaming and entertainment industry. The Directors, including the independent non-executive Directors, consider that the terms of the S&P Agreement are fair and reasonable and are in the interests of the Company and the Shareholders as a whole.

The Consideration will be settled as follows:

(a) a refundable deposit of HK$20,000,000 (the “Initial Deposit”), which has been paid by Dragon Leader to Leadfirst prior to the signing of the S&P Agreement;

(b) a further refundable deposit of HK$20,000,000 (the “Further Deposit”) has been paid to Leadfirst or it’s nominee by Dragon Leader by way of a banker’s draft (or such other manner as the parties may mutually agree) within 7 days after the signing of the S&P Agreement; and

(c) the balance of the Consideration of HK$560,000,000 shall be paid as to HK$60,000,000 by a cashier’s order to Leadfirst or its nominee on or before Completion, and as to the remaining HK$500,000,000 by way of the issue of the Convertible Note by the Company to Leadfirst on Completion.

The Initial Deposit and the Further Deposit will be applied towards payment of part of the Consideration upon Completion. Should the S&P Agreement be terminated or fails to complete in accordance with its terms and conditions, Leadfirst shall immediately refund and repay Dragon Leader the Initial Deposit and Further Deposit. Under the S&P Agreement, Leadfirst and Mr. Ki will indemnify Dragon Leader for any losses in the event that the appointment of Leadfirst by the sole operator of the Casino is terminated prior to the term of the Sub-Marketing Agreement.

Guarantee and undertakings on rolling turnover by Leadfirst

Under the S&P Agreement, Leadfirst has agreed to use its best endeavours to procure that the annual rolling turnover (the “Relevant Rolling Turnover”) of the Casino for the period of one year commencing from the Commencement Date (or such other date as may be agreed between the parties) (the “Relevant Period”) shall be not less than HK$60,000,000,000. In the event the Relevant Rolling Turnover as shown in the management accounts of Best Winning as at the last day of the Relevant Period is less than HK$60,000,000,000, Leadfirst shall pay to Dragon Leader for the sum calculated in accordance with the following formula under the S&P Agreement (the “Adjustment”) (provided that the Adjustment shall not be more than HK$500,000,000).

LETTER FROM THE BOARD

Adjustment = A x (1 - B/60,000,000,000) - C

where:

A is the Consideration;

B is the Relevant Rolling Turnover;

C is the Profit-linked Fee actually received by Best Winning for the Relevant Period,

and if the resulting Adjustment shall be a negative figure, Leadfirst shall not be required to pay any Adjustment.

The maximum amount of the Adjustment shall be HK$500,000,000. There is a HK$100,000,000 unsecured exposure on part of the Consideration if the rolling turnover for the term of the Sub-Marketing Agreement is zero.

In this regard, Leadfirst has undertaken that, and Mr. Ki shall procure that, at least HK$500,000,000 face value of the Convertible Note shall not be converted into Shares for the period commencing from the Completion Date up to and including the earlier of (i) the Early Fulfillment Day (as defined hereinafter) or (ii) 21 Business Days after the last day of the Relevant Period. As security for such arrangement, a certificate with face value of HK$250,000,000 will be held in escrow by the lawyers of Dragon Leader during such period. Nevertheless, in the event that (i) the total rolling turnover for the first six months of the Relevant Period exceeds HK$30,000,000,000; or (ii) the accumulated total rolling turnover for any period within the Relevant Period reaches HK$60,000,000,000 or more ("Early Fulfillment Day"), the certificate, in the amount of HK$250,000,000, which is held in escrow by Dragon Leader's lawyers shall be released to Leadfirst.

In the event of an Adjustment, the Adjustment shall be satisfied by the Noteholder(s) within 21 Business Days after receipt of a written notice issued by Best Winning to Leadfirst and copied to Dragon Leader's solicitors notifying the Adjustment by cancelling the face value of the Escrowed Certificate by the sum equal to the Adjustment. In the event that the face value of the Escrowed Certificate is insufficient to meet the full Adjustment, a sum of such shortfall shall be cancelled and deducted (on a pro-rata basis) from the face value of the then outstanding Convertible Note automatically with effect from the date of the said written notice, and the certificate(s) in respect of the balance of the then outstanding Convertible Note will be reissued to the relevant Noteholder(s). The Convertible Note contains provision permitting the cancellation of the Convertible Note to cater for the Adjustment and the restriction on the conversion of the Convertible Note as stated in the paragraph above. These provisions will be binding on the Noteholders, whether or not such Noteholder will be Leadfirst at the time when such event of Adjustment occurs. Save as mentioned herein, there is no restriction on transfer but conversion of the Convertible Note before settlement of the Adjustment.

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LETTER FROM THE BOARD

Mr. Ki is acting as the guarantor of Leadfirst pursuant to the S&P Agreement and in that capacity has agreed to guarantee the performance and obligations of Leadfirst under the S&P Agreement.

Conditions

The Completion is conditional upon, among other things, the following conditions being fulfilled, remaining fulfilled or waived by Dragon Leader as at the Completion Date:

(a) the Shares remaining listed and traded on the Stock Exchange at all times from the date of the S&P Agreement and on the Completion Date, save for (i) suspension of less than 20 consecutive Business Days or (ii) the suspension (other than on the Completion Date) on account of clearance of any announcement in respect of any of the transactions contemplated under the S&P Agreement;

(b) the Sub-Marketing Agreement becoming effective, and remaining valid and enforceable;

(c) Dragon Leader obtaining such legal opinions as it may in its absolute discretion require on, among others, the legality of Best Winning performing under the Sub-Marketing Agreement;

(d) all licences, consents, approvals (including listing approvals), authorisations, permissions, waivers, orders or exemptions of the Shareholders, the Stock Exchange and the Securities and Futures Commission (if necessary) in connection with the transactions contemplated in the S&P Agreement (including the entering into of the Service Agreement and the transaction contemplated thereby, the issue of the Convertible Note and the grant of the BK Share Option, and the allotment and issue of Shares pursuant to the exercise of the conversion rights under the Convertible Note and the exercise the BK Share Option) having been obtained;

(e) Leadfirst’s warranties given in the S&P Agreement remaining true and accurate in all material respects;

(f) the Stock Exchange not having notified Dragon Leader or the Company that the Company shall be treated as a new applicant for listing or that listing of the Company’s securities on the Stock Exchange shall or may be cancelled (or conditions will or may be attached thereto), or the transactions contemplated in the S&P Agreement may constitute a reverse takeover (as defined in the Listing Rules), as a result of completion of the Acquisition or in connection with the terms of or any transaction contemplated in the S&P Agreement (including, but not limited to, in connection with an allegation that the Company is no longer suitable for listing); and

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LETTER FROM THE BOARD

(g) Dragon Leader undertaking and completing a due diligence investigation in respect of Best Winning (including but not limited to the affairs, business, assets legality of all business and commercial activities conducted on board the Vessel, encumbrances against the Vessel and any other due diligence relevant to the sale and purchase of the share of Best Winning and the performance under the Sub-Marketing Agreement) liabilities, operations, records, financial position, value of assets, accounts, results, legal and financing structure of Best Winning and Dragon Leader being satisfied in its absolute discretion with the results of such due diligence investigation.

If the conditions of the S&P Agreement are not fulfilled, or waived in whole or in part by Dragon Leader in writing, in its absolute discretion (save for conditions (d) and (f) above which are not waivable) by no later than 5:00 p.m. on 31st December 2005, then all liabilities of the parties thereto will cease and determine and no party will have any claim against the others (except in respect of any antecedent breaches and any matters or things arising out of or in connection with the S&P Agreement).

Under the S&P Agreement, Leadfirst has warranted that it was appointed by the sole operator of the Casino as the sole and exclusive service provider for the promotion and introduction of customers to the Vessel and the provision of rolling and settlement services for customers of the Casino for a term of three years from the Effective Date. Such appointment shall, at Completion, have become effective, and remain valid and enforceable. Leadfirst has also warranted that it has full power to enter into the Sub-Marketing Agreement and to exercise its rights and perform its obligations thereunder.

A due diligence review, which covers various aspects including, Best Winning, Leadfirst, the operator of the Casino, the operator of the Vessel, the owner of the Vessel, the Casino, Mr. Ki and money laundering and security issues arising from the Rolling and Settlement Services, is being conducted and the document in relation to the appointment of Leadfirst has been reviewed by the Company to ensure the capacity of Leadfirst. The Company has reviewed (i) various aspects of Best Winning and Leadfirst's corporate structure, financial and operational structure; (ii) the identity of the owner and operator of the Vessel and the Casino; (iii) the experience of Mr. Ki in the rolling and settlement services industry; (iv) contracts appointing Leadfirst as the provider of rolling and settlement services at the Casino and (v) possible money laundering and security issues relating to the Casino and Rolling and Settlement Services. Based on the information received/available to the Company in connection with the due diligence, the results on ownership of the parties involved, the financial position of Best Winning and Leadfirst, the legality of the rolling and settlement services to be carried out by Best Winning and the experience of Mr. Ki in this industry are so far satisfactory to the Company. A physical inspection of the Vessel, including the Casino and its operations, will commence once the Vessel is docked in Hong Kong, which is expected to be in early July 2005.

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LETTER FROM THE BOARD

As at the Latest Practicable Date, conditions (a), (b), (c), (e) and (f) have been fulfilled. Part of condition (g) has been fulfilled. However, the physical inspection and due diligence of the Vessel and the operations of the Casino has yet to commence as the Vessel is only expected to dock in Hong Kong early July 2005.

Completion

Completion shall take place on 1st August 2005 or the fifth Business Day after the date of receipt of written notice from Best Winning to Dragon Leader stating that the full operation of the Casino will commence within one month thereafter, whichever is the later, but subject to the fulfilment (or waiver) of the conditions above on or before that date.

Principal Terms of the Convertible Note

Amount: HK$500,000,000.

Interest: 4% per annum.

Conversion Price: HK$0.50 per Share, subject to adjustment.

The Conversion Price is subject to adjustment provisions which are standard terms for convertible securities of similar nature. The adjustment events will arise as a result of certain change in the share capital of the Company including consolidation or sub-division of Shares, capitalisation of profits or reserves, capital distributions in cash or specie or subsequent issue of securities in the Company.

Maturity Date: On the tenth anniversary of the date of issue of the Convertible Note.

Transferability: The Noteholder may transfer or assign the Convertible Note subject to the consent of the Company, except in respect of a transfer to wholly owned subsidiaries or holding companies of the Noteholder. The Board will decide whether such consent will be given at the relevant time depending on the identity of the transferee.

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LETTER FROM THE BOARD

Conversion:

Subject to certain restrictions, at any time during the period commencing from the Commencement Date to the maturity date as mentioned above, the whole or any part of the principal amount of the Convertible Note in the amount of HK$5,000,000 or the multiples thereof may be converted into Shares at the Conversion Price and if any time, the principal outstanding amount of each Convertible Note shall be less than HK$5,000,000, the whole (but not part only) of the principal amount of each Convertible Note may be converted provided that the Company shall not issue any Shares if upon such issue, Leadfirst and Mr. Ki and the parties acting in concert with them, shall be interested in 30% of the voting rights (or such amount as may from time to time be specified in the Takeovers Code as being the level for triggering a mandatory general offer) or more of the then issued share capital of the Company at the date of the relevant exercise.

Assuming there is an immediate exercise in full of the conversion rights attaching to the Convertible Notes in aggregate of HK$500,000,000 at the Conversion Price by the Noteholder, the Company will issue an aggregate of 1,000,000,000 new Shares, representing approximately 21.03% of existing issued share capital of the Company, and approximately 17.38% of the enlarged issued share capital of the Company (before the exercise of any BK Share Option). The Conversion Shares will be issued pursuant to the passing of the relevant resolution at the SGM. The market value of the total Conversion Shares will be in aggregate of HK$350,000,000 based on the closing price of HK$0.35 per Share on 23rd March 2005, being the Last Trading Day and HK$365,000,000 based on the closing price of HK$0.365 per Share on the Latest Practicable Date.

Ranking:

The Conversion Shares will rank pari passu in all respects with all the existing Shares in issue at the date of the conversion of the Convertible Note.

Redemption:

Prior to the maturity of the Convertible Note, the Noteholder shall not have the right to require the Company to redeem the whole or part of the outstanding principal amount of the Convertible Note.

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LETTER FROM THE BOARD

Unless notice for conversion shall have been previously given by the Noteholder to the Company, the Company shall have the right to redeem (in amount of not less not a whole multiple of HK$5,000,000) the whole or part of the outstanding principal amount of the Convertible Note (other than the part of the principal amount of the Convertible Note which the notice of conversion relates) by giving the Noteholder not less than seven days' prior notice to make such redemption at any time prior to the maturity of the Convertible Note. The Company will have to pay an amount equal to 100% of the outstanding amount of the Convertible Note to be redeemed together with the interest accrued thereon up to and including the date on which payment of such principal amount of the redeemed Convertible Note and the interest accrued thereon have been paid by the Company in full.

Cancellation and restriction:

The Convertible Note contains provision permitting the cancellation of the Convertible Note to cater for the Adjustment and the restriction on the conversion of the Convertible Note as stated in the paragraph headed "Guarantee and undertakings on rolling turnover by Leadfirst" above.

Voting:

Noteholders shall not be entitled to attend or vote at any meetings of the Company by reason only of it being the Noteholder.

Listing:

No application will be made for the listing of the Convertible Note on the Stock Exchange or any other stock exchange. An application will be made for the listing of the Shares to be issued on exercise of the conversion rights attaching to the Convertible Note.

The Shares falling to be allotted and issued upon the conversion of the Convertible Note will be issued under a specific mandate and the approval of such mandate will be sought from the Shareholders in the SGM.

The Conversion Price was arrived at after arm's length negotiation between Leadfirst and the Company. The Conversion Price represents:

(i) a premium of approximately 42.9% to the closing price of HK$0.35 per Share quoted on the Stock Exchange on the Last Trading Day;

(ii) a premium of approximately 42.0% to the average closing price of approximately HK$0.352 per Share quoted on the Stock Exchange for the five consecutive trading days up to and including the Last Trading Day;

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LETTER FROM THE BOARD

(iii) a premium of approximately 43.3% to the average closing price of approximately HK$0.349 per Share quoted on the Stock Exchange for the ten consecutive trading days up to and including the Last Trading Day; and

(iv) a premium of approximately 37.0% to the closing price of HK$0.365 per Share quoted on the Stock Exchange on the Latest Practicable Date.

RISK FACTORS

(A) The income of Best Winning, under the Rolling and Settlement Services, relies on, among other factors, the attractiveness of the Vessel and the Casino to the prospective players of the Casino and Mr. Ki's ability to procure customers to the Vessel and players at the Casino. Despite the vast experience of Mr. Ki in the gaming and junket business, there is no assurance that rolling turnover at the Casino of HK$60,000,000,000 for the relevant period can be achieved. Although the Group can be compensated by the Adjustment as referred to in the section "Guarantee and undertakings on rolling turnover by Leadfirst" above, if Mr. Ki and/or Leadfirst fails to procure any rolling turnover for the term of the Sub-Marketing Agreement and Best Winning cannot obtain its fees under the Sub-Marketing Agreement during the entire term, the Group is subject to a HK$100,000,000 unsecured exposure on part of the Consideration. Furthermore, in the event that Mr. Ki ceases to be committed to Best Winning's business, Best Winning's business may be adversely affected.

(B) The provision of junket business is competitive in general. To the best of knowledge of the Directors, as there are approximately 7 vessels with casinos which are based in Hong Kong and that have junket operators that also provide rolling and settlement services (namely Omar III, Macau Success Neptune, Star Pisces, Golden Princess, Ji Mei and Wasa Queen), there is no guarantee that targeted players of the Casino will not be lured away by other junket operators.

(C) The Sub-Marketing Agreement will automatically terminate if the appointment of Leadfirst by the operator of the Casino is terminated or expired without renewal. There is no assurance that Leadfirst's appointment will not be terminated prior to its expiry or will be renewed upon expiry of its initial term. However, Mr. Ki and Leadfirst have agreed to indemnify Dragon Leader for any losses in the event that the appointment of Leadfirst by the operator of the Casino is terminated prior to the expiry of the term of the Sub-Marketing Agreement.

LETTER FROM THE BOARD

(D) The gaming business is a cash business and there is a possibility that players may seek to cheat at the Casino, particularly if players collude with employees of the Casino and/or Best Winning. In the event that such cheating cannot be detected in time or at all, the Group may suffer as Best Winning has an interest in the profit of the Casino. Any negative publicity arising from such incidents could also tarnish the Casino’s reputation and may result in a decline in business, in which event Best Winning’s operating results and profits would be adversely affected.

(E) Money laundering involves conduct or acts designed in whole or in part to conceal or disguise the nature, location, source, ownership, movement or control of money to avoid a transaction reporting requirement under applicable national and international laws or to disguise the fact that the money was acquired by illegal means.

The Casino or Best Winning may fail to detect money laundering transactions. In the event that the Casino becomes the target for carrying out money laundering, the Rolling and Settlement Services provided by Best Winning may be affected and/or interrupted.

SERVICE AGREEMENT

Under the S&P Agreement, Mr. Ki will enter into the Service Agreement with the Company upon Completion. Under the Service Agreement, Mr. Ki will be engaged as the general manager of the Company for the provision of, in particular but without prejudice to the generality of the foregoing management and consultancy services relating to the promotion and introduction of customers to the Vessel, Rolling and Settlement Services of the Casino (including their calculation) and all other matters related and/or incidental thereto.

The Service Agreement will commence from the Effective Date and will have a term of three years which is renewable for another three years thereafter, unless and until terminated in accordance with the terms thereof. The Company will ensure the compliance with all applicable requirements under the Listing Rules before such renewal.

On 20th December 2004, Guo Xin Group Limited announced, inter alia, that Mr. Ki is providing rolling and settlement services to a vessel named Omar III. The Company was aware that Mr. Ki was the vendor in that transaction but had no details of the level of business procured by Mr. Ki save as those announced by Guo Xin Group Limited on 20th December 2004. The Board does not believe that there is a conflict of interest issue as it is expected that the target group of players for the Vessel and Omar III will be different although there may be slight possibility for an overlapping of players may occur. With respect to future opportunities, Mr. Ki has, subject to completion, given a first right of refusal to the Company on any future gaming and entertainment projects for a period of the later of (i) so long as Mr. Ki remains as the general manager of the Company and (ii) six years from the date of the S&P Agreement. So far as the Directors are aware, the only other vessel to which Mr. Ki currently provides rolling and settlement services is the Omar III. The Board has been informed by Mr. Ki that he does not provide rolling and settlement services to any other parties save in relation to the Omar III.

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LETTER FROM THE BOARD

Remuneration

In consideration of entering into the Service Agreement and the services to be rendered thereunder, the Company shall:

(i) grant Mr. Ki the BK Share Option, subject to the approval of the Shareholders at the SGM, upon signing of the Service Agreement;

(ii) pay Mr. Ki a monthly salary of HK$10,000 for a term of one-year from the date of the Service Agreement (subject to such increase as the Company may determine from time to time at its absolute discretion to a maximum of HK$100,000 per month); and

(iii) starting from the date next following the first anniversary of the date of the Service Agreement and for every year of services by Mr. Ki thereafter ("Service Year"), the monthly salary payable to Mr. Ki shall be equal to the higher of (a) HK$10,000; or (b) one-twelfths of 5% of the net profit of the Group (after taxation and the payment such salary but before extraordinary items) for the immediately preceding Service Year.

The BK Share Option, which is exercisable for a period of five years commencing from the Completion Date, to be granted by the Company to Mr. Ki to subscribe for 500,000,000 Shares (the "Option Shares"), which represent approximately 10.52% of the existing issued share capital of the Company as at the Latest Practicable Date (subject to adjustment) at an exercise price of HK$0.25 per Share (the "Option Price") which is made by reference to the current market price of the Shares. The Option Price represents a discount of approximately 28.6% to the closing price of HK$0.35 per Share quoted on the Stock Exchange on the Last Trading Day and a discount of approximately 31.5% to the closing price of HK$0.365 per Share quoted on the Stock Exchange on the Latest Practicable Date. Exercise of the BK Share Option (if in parts) shall be in minimum amounts of 10,000,000 Option Shares each time. The number of Shares subject to any BK Share Option so far as such BK Share Option or any part thereof remains unexercised and/or the Option Price is subject to adjustment provisions which are standard terms for options of similar nature. The adjustment events will arise whilst any BK Share Option remains exercisable as a result of alteration in the capital structure of the Company by way of capitalisation of profits or reserves, rights issue or other offer of securities to holders of Shares (including any securities convertible into share capital or warrants or options to subscribe for any share capital of the Company), consolidation, sub-division or reduction of the share capital of the Company, which in the opinion of the auditors of the Company shall be fair and reasonable. The BK Share Option is non-transferrable. Upon the expiry of the period of the BK Share Option or the termination of the Service Agreement whichever is earlier, the BK Share Option shall lapse to the extent not exercised and no compensation will be provided to Mr. Ki. The Directors confirm that they will ensure the compliance of the BK Share Option with Chapter 15 of the Listing Rules from time to time. The Shares issued upon the exercise of the BK Share Option will rank pari passu in all respects with all the existing Shares in issue. No application will be made for the listing of the BK Share Option on the Stock Exchange or any other stock exchange.

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LETTER FROM THE BOARD

The Service Agreement is terminable, subject to the terms therein, by either party by giving the other party not less than 90 days prior written notice, although that Mr. Ki is not entitled to terminate such agreement within the first twelve months of the Service Agreement. Any unexercised BK Share Option shall automatically and immediately lapse upon such termination although the BK Share Option may be exercised during the period from the notice up to the date of termination of the Service Agreement.

If the exercise of the BK Share Option and the allotment and issue of any Share pursuant thereto will result in Mr. Ki and his parties acting in concert with him in 30% of the voting rights (or such amount as may from time to time be specified in the Takeovers Code as being the level for triggering a mandatory general offer) or more of the issued share capital of the Company, the Company shall not be obliged to allot and issue any Share to Mr. Ki pursuant to such exercise of the BK Share Option.

Furthermore, subject to Completion taking place, the Company will have a first right of refusal on any future gaming and entertainment projects identified by/offered to/or be involved with by Mr. Ki (i) as long as Mr. Ki remains as the general manager of the Company or (ii) six years from the date of the S&P Agreement, whichever is later.

The Shares falling to be allotted and issued upon the exercise of the BK Share Option will be allotted and issued under a specific mandate and the approval of such mandate will also be sought from the Shareholders in the SGM. Application will be made to the Stock Exchange for listing of, and permission to deal in, the Shares to be allotted and issued pursuant to the exercise of the BK Share Option.

Upon the commencement of the provision of the Rolling and Settlement Services, Mr. Ki, who has been in the gaming business for over 12 years, will at all times contribute his expertise and knowledge, in particular, to those relating to anti-money laundering measures with a view to formulate the relevant internal control system and risk management measures to counter and prevent any potential money laundering activities or other crimes that are related to the rolling and settlement services. Mr. Ki has over 12 years' experience in the provision of rolling and settlement services and in owning and/or operating casino vessels including the following: Dolphin Star, Oriental Princess, Dragon Star, HK Dragon Star, Haven Star, Omar I, Omar II and Omar III. The Company will also use its best endeavours to procure that effective internal control systems and risk management measures will be in place to avoid any money laundering activities being carried out on the Rolling and Settlement Services for customers of the Casino.

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LETTER FROM THE BOARD

CHANGES IN SHAREHOLDING STRUCTURE OF THE COMPANY

As at the Latest Practicable Date, there were no outstanding options, warrants or securities convertible or exchangeable into Shares other than the following:

(i) 190,000,000 Options carrying rights to subscription for 190,000,000 Shares at an exercise price of HK$0.26 per Share which are granted under the share option scheme of the Company; and

(ii) 275,700,000 Options carrying rights to subscription for 275,700,000 Shares at an exercise price of HK$0.194 per Share which are granted under the share option scheme of the Company.

Based on the Convertible Note in the principal amount of HK$500,000,000, the Conversion Price, the BK Share Option and 4,754,018,000 Shares in issue as at the Latest Practicable Date and assuming Leadfirst and Mr. Ki will not acquire any Shares from the open market, the respective shareholdings of the substantial Shareholders will be as follows:

Shareholders	Prior to the conversion of the Convertible Note and the exercise of the BK Share Option		After the full conversion of the Convertible Note only		After the exercise of the BK Share Option only		After the full conversion of the Convertible Note and the exercise of the BK Share Option
	No. of Shares	%	No. of Shares	%	No. of Shares	%	No. of Shares	%
Classical Statue Limited	2,022,530,000	42.54	2,022,530,000	35.15	2,022,530,000	38.49	2,022,530,000	32.34
Top Vision Management Limited	792,000,000	16.66	792,000,000	13.76	792,000,000	15.07	792,000,000	12.66
Lucky Star Consultants Limited	354,000,000	7.45	354,000,000	6.15	354,000,000	6.74	354,000,000	5.66
Leadfirst and parties acting in concert with it	—	—	1,000,000,000	17.38	—	—	1,000,000,000	15.99
Mr. Ki	—	—	—	—	500,000,000	9.52	500,000,000	7.99
Public Shareholders	1,585,488,000	33.35	1,585,488,000	27.56	1,585,488,000	30.18	1,585,488,000	25.36
Total	4,754,018,000	100.00	5,754,018,000	100.00	5,254,018,000	100.00	6,254,018,000	100.00

LETTER FROM THE BOARD

Note: Under the respective terms of the Convertible Note and the BK Share Option, the Company shall not be required to issue any Shares upon the exercise of the conversion rights under the Convertible Note or, as the case may be, the exercise of the BK Share Option if, upon such issue, Leadfirst and Mr. Ki and parties acting in concert with them, shall be interested in 30% of the voting rights (or such amount as may from time to time be specified in the Takeovers Code as being the level for triggering a mandatory general offer) or more of the then enlarged issued share capital of the Company at the date of the relevant exercise. Based on the Convertible Note in the principal amount of HK$500,000,000, the Conversion Price, the BK Share Option and 4,754,018,000 Shares in issue as at the Latest Practicable Date and assuming Leadfirst and Mr. Ki will not acquire any Shares from the open market, the conversion of the Convertible Note and the exercise of the BK Share Option shall not result in a change in control (as defined in the Takeovers Code) of the Company. Immediately following the full conversion of the Convertible Note and the exercise of the BK Share Option, Mr. Ki will be directly and indirectly interested in 23.98% of the enlarged issued share capital of the Company (including the interest held via Leadfirst). Should the conversion of the Convertible Note or the exercise of the BK Share Option and the allotment and issue of any Share pursuant thereto result in Mr. Ki and parties acting in concert with him holding in aggregate 30% of the voting rights or more of the issued share capital of the Company, the Company shall not be obliged to allot and issue any Share to Mr. Ki pursuant to the Convertible Note or the exercise of the BK Share Option. Mr. Ki may only exercise the BK Share Option after disposing of part of his Shares.

REASONS AND BENEFITS FOR THE ACQUISITION

The principal activity of the Company is investment holding. The principal subsidiaries of the Company are principally engaged in the distribution of films, sub-licensing of film rights and sale of advertising rights or otherwise related to the entertainment industry.

The Board has been proactively identifying suitable investment opportunities to develop the Group’s business. Given the prospects of the gaming industry, the Board is considering in investing in Macau and other places or in the gaming/entertainment business. The Acquisition matches the business development strategy of the Group in diversifying its businesses. By investing in Best Winning, the Group’s revenue base could be strengthened which would have a positive impact on the Group’s earning potential.

The Directors are of the view that the risks associated with the Acquisition as further detailed on pages 17 and 18 herein are acceptable taking into the following factors:

(a) Mr. Ki and Mr. Heung’s experience in the gaming industry and thereby knowledge of the rolling and settlement services business and its competition can be ascertained and contained at the outset. Furthermore, Mr. Ki’s experience in owning and/or operating casino vessels will also assist Best Winning in overcoming competition from potential competitors.

(b) Leadfirst shall use its best endeavours to procure that the annual rolling turnover of the Casino for the period of one year from the Commencement Date shall not be less than HK$60,000,000,000. In this regard, Mr. Ki has agreed to procure that at least HK$500,000,000 face value of the Convertible Note shall not be converted into Shares during the Relevant Period. Therefore, the risk of any conversion under the Convertible Note is limited.

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LETTER FROM THE BOARD

In the event that the HK$60,000,000,000 annual rolling turnover cannot be attained, the Company is protected by the adjustment mechanism to the Consideration as further detailed on page 10 of this circular.

(c) Although the maximum adjustment pursuant to the adjustment mechanism mentioned on page 10 is only HK$500,000,000, the Board believes that the unsecured part of the Consideration, being HK$100,000,000, can readily be attained from the Rolling and Settlement Services because Best Winning would only need to attain an approximate HK$5,880,000,000 rolling turnover over the 3 years term of the Sub-Marketing Agreement (ie. approximately HK$1,960,000,000 per year) in order to recuperate this amount from the Management Fee. Based on facts and figures obtained by the Company on the Macau gaming industry, the Directors believe that these numbers are relatively small by industry standards.

(d) Mr. Ki and Leadfirst have agreed to indemnify Dragon Leader for any losses in the event that the appointment of Leadfirst by the operator of the Casino is terminated prior to the expiry of the term of the Sub-Marketing Agreement. Therefore the risk of incurring losses as a result of early termination of the Sub-Marketing Agreement is limited.

(e) Best Winning is not prohibited from appointing third parties to procure Rolling and Settlement Services. Accordingly, it can itself appoint additional parties to provide rolling and settlement services for the Casino.

(f) The Company had compiled informal valuations on numbers which can be generated from the rolling and settlement services industry based on research reports of investment banks on the Macau gaming industry. Accordingly, the Company was able to informally ascertain that the numbers put forward by Leadfirst in relation to the Rolling and Settlement Services at the Casino were realistic and attainable.

The Board has been proactively identifying suitable investment opportunities to develop the Group's business. Given the prospects of the gaming industry, the Board has proposed to invest in the gaming/entertainment business. The Acquisition matches the business development strategy of the Group in diversifying its businesses. By investing in Best Winning, which will become a wholly-owned subsidiary of the Group and its accounts will be consolidated into the accounts of the Group, the Group's revenue base could be strengthened which would have a positive impact on the Group's earning potential. The benefit of issuing the Convertible Note and the BK Options are so that upfront cash payment by the Company is reduced to a minimum and the services of Mr. Ki can be obtained without the substantial payment of a cash retainer.

Best Winning will become a wholly-owned subsidiary of the Group and its accounts will be consolidated into the accounts of the Group.

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LETTER FROM THE BOARD

FINANCIAL EFFECTS OF THE ACQUISITION ON THE GROUP

Net tangible asset value

As at 31st December 2004, the audited consolidated net tangible assets of the Group amounted to approximately HK$56,080,000. Based on the unaudited pro forma statement of adjusted combined assets and liabilities of the Enlarged Group as set out in Appendix II to this circular, the unaudited pro forma adjusted consolidated net liabilities of the Enlarged Group will be approximately HK$543,917,000. The decrease is mainly attributable to the expected goodwill arising from the Acquisition of HK$600,000,000.

Earnings

The Group recorded an audited consolidated net loss of approximately HK$268,400,000 for the year ended 31st December 2004. Given the prospects of Best Winning and the gaming industry, the Directors consider the Acquisition could benefit the results of the Enlarged Group in future.

BUSINESS REVIEW AND PROSPECTS OF THE GROUP

The Group recorded a turnover of HK$58,382,000 for the year ended 31st December 2004, a 72% decrease from HK$206,996,000 for the previous year. The decrease was mainly attributed to a decrease in the number of films distributed and sub-licensed, and a decrease in average income per new film. Of the total turnover amount, HK$27,285,000 or 47% was generated from distribution of films, HK$16,319,000 or 28% was generated from sub-licensing of film rights and HK$14,778,000 or 25% was generated from investment in securities. The operating loss before depreciation, amortisation of other asset and goodwill, impairment losses in respect of film rights, other asset and goodwill, and allowance for advances to an associate was HK$26,569,000. The net loss attributable to Shareholders for the year ended 31st December 2004 was HK$268,390,000.

The drop in license fees in the PRC is stabilized in the first quarter of 2005. Recent visits with the PRC distributors reveal that there is still a market for high quality Hong Kong films with distinctive genres and well-developed marketing and promotion plans. With the efforts being made by the industry to revitalize Hong Kong films, the Directors believe that the market consolidation is nearly completed.

The Directors will continue to cautiously monitor the business environment and continue to strengthen its business foundations by implementing prudent cost control and adopting a more cautious approach in acquiring film rights and exploring new distribution media to protect the interests of the Shareholders.

LETTER FROM THE BOARD

With the downturn of Hong Kong films in the PRC, the Group has been proactively identifying suitable investment opportunities to develop its business. Given the prospects of the gaming industry, the investment in Best Winning matches with the Group’s business development strategy in diversifying its businesses. The Directors believe that Best Winning will provide the Group with a more reliable revenue stream and will have a positive impact on the Group’s earning potential.

IMPLICATION OF THE LAWS OF HONG KONG AND THE LISTING RULES AND RELEVANT LAWS IN OTHER JURISDICTION

The operation of the casino activities on the Vessel will take place in the high seas in Asia near but outside Hong Kong, which are beyond the legal restrictions of Hong Kong or any other countries. The Board considers that none of the S&P Agreement or the operation of casino activities on the Vessel to be carried out in the high seas will constitute unlawful activities under the laws of Hong Kong, including the Gambling Ordinance (Chapter 148 of the Laws of Hong Kong). The Company will use its reasonable endeavour to ensure that throughout the holding of its investment in Best Winning and the operation of Best Winning will comply with the applicable laws in the relevant jurisdiction. Opinion from counsel has been obtained by the Company opining that the transactions contemplated by the Company pursuant to the S&P Agreement do not contravene the Gambling Ordinance of Hong Kong.

The Company has been advised by its legal advisers that in respect of the Vessel, once it is outside territorial waters, the governing law of what occurs on board is that of the Vessel’s registration. The Vessel is registered in the Bahamas and as such Bahamas laws would govern what occurs on the Vessel in international waters.

The Company has obtained an opinion from Bahamas lawyers stating that a ship registered under the Bahamian flag (as is the Vessel) and which operates gambling activities in international waters does not require a licence under Bahamian law. Furthermore, the owning or chartering of a ship that conducts gambling activities in international waters would not contravene any laws or regulations currently in force in the Bahamas.

Shareholders are reminded that, in accordance with the Stock Exchange’s guidelines in relation to “Gambling Activities Undertaken by Listing Applicants and/or Listed Issuers”, should the Company be in breach of any laws or regulations of Hong Kong, the Stock Exchange may, depending on the circumstances of the case, direct the Company to take remedial action, and/or may suspend dealings in, or may cancel the listing of, Shares under Rule 6.01 of the Listing Rules. If the Company cannot take the requisite remedial action in the circumstance aforementioned, it is the Company’s intention to maintain active trading and listing status of the Shares through the Group’s existing business and divests its investment in Best Winning in accordance with applicable laws and regulations.

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LETTER FROM THE BOARD

REGULATIONS AND INTERNAL CONTROL IN RELATION TO MONEY LAUNDERING ISSUES

The FATF is an inter-governmental body established at the G-7 summit held in Paris, France in 1989 and whose purpose is to develop and promote policies both nationally and internationally to prevent money laundering and terrorist financing.

The FATF encourages countries to adopt and implement measures designed to counter the use of financial systems by criminals. In 1990 it established the FATF Forty Recommendations that set out a basic framework for anti money laundering ("AML") efforts which are intended to be of universal application. Since then, the FATF has revised the Forty Recommendations to ensure that they remain up to date and relevant to counter money laundering activities.

Following the terrorist attacks in the United States on 11th September 2001, the FATF expanded its mandate and issued additional standards namely, the Nine Special Recommendations for the prevention of terrorist financing in October 2001. In June 2003, FATF published a revised version of the recommendations with changes made to cover non-financial sectors such as casino operations.

The FATF Forty and Nine Special Recommendations (together, the "Recommendations") have been recognised by the International Monetary Fund and the World Bank as the international standards for combating money laundering and the financing of terrorism.

The Recommendations set the standards of action for countries to implement according to their particular circumstances, constitutional frameworks, social, economic and political background, on a country best practice approach.

The FATF monitors members' progress in implementing measures, reviews money laundering and terrorist financing techniques and counter-measures, and promotes the adoption and implementation of appropriate measures globally. In performing these activities, the FATF collaborates with other international bodies involved in combating money laundering and the financing of terrorism.

As at the Latest Practicable Date, the FATF has 33 members of which there are 31 countries and governments and two international organisations, more than 20 observers and seven FATF-style regional bodies (which also have observers status with the FATF). In Asia, members include Hong Kong and Singapore. APG is one of the seven FATF-style regional bodies.

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LETTER FROM THE BOARD

APG

APG is an FATF-style regional body recognised by the FATF. APG was formally set-up in 1997 and Hong Kong was one of its founding members. FATF representatives sit in APG meetings as observers and vice-versa. APG adopts the FATF international standards on AML and terrorist financing. Its purpose is to ensure the adoption, implementation and enforcement of the standards contained in the Recommendations within the Asia Pacific region. The APG conducts evaluations of its members and co-ordinates and provides practical support, where possible, to member and observer jurisdictions on request.

The following is a summary of some of the recommendations which will be adopted by Best Winning upon the Commencement Date in order to monitor and safeguard its operations against money laundering and terrorist financing. The Directors are of the view that once the following internal control procedures of Best Winning are in place, such internal controls will address all the areas covered by the Recommendations as set out below.

Customer due diligence and record keeping

Customer due diligence ("CDD") and anonymous accounts

Best Winning will not keep anonymous accounts or accounts in obviously fictitious names. Best Winning will undertake customer due diligence measures, including identifying and verifying the identity of their customers, when providing the Rolling and Settlement Services.

The measures to be taken by Best Winning are as follows:

(a) Identifying the customer and verifying that customer’s identity using reliable, independent source documents, data or information.

(b) Identifying the beneficial owner of the customer and/or the player, and taking reasonable measures to verify the identity of the beneficial owner such that Best Winning is satisfied that it knows who the beneficial owner is. For corporations, this will include Best Winning taking reasonable measures to understand the ownership and control structure of the customer.

Best Winning will apply each of the CDD measures under (a) to (b) above, but may determine the extent of such measures on a risk sensitive basis depending on the type of customer, business relationship or transaction.

Best Winning will verify the identity of the customer and beneficial owner before or during the course of establishing a business relationship or conducting transactions for occasional customers.

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LETTER FROM THE BOARD

Where Best Winning is unable to identify and verify the identify of the customer, it will not provide the Rolling and Settlement Services to that customer and will consider making a report on the suspicious transactions to the operators of the Vessel and the Casino, the Vessel owner and the relevant authorities.

These requirements will apply to all new customers, though Best Winning will also apply this recommendation to existing customers on the basis of materiality and risk, and will conduct due diligence on such existing relationships at appropriate times.

Exposure to politically exposed persons

Best Winning will, in relation to politically exposed persons, in addition to performing normal due diligence measures:

(a) Have appropriate risk management systems to determine whether the customer is a politically exposed person (being individuals who are or have been entrusted with prominent public functions in a foreign country, for example Heads of State or of government, senior politicians, senior government, judicial or military officials, senior executives of state owned corporations, important political party officials, save for middle ranking or more junior individuals in the foregoing categories).

(b) Obtain senior management approval for establishing business relationships with such customers.

(d) Conduct ongoing monitoring of the business relationship.

New and developing technologies that favour anonymity & non face to face transactions

Best Winning will pay special attention to any money laundering threats that may arise from new or developing technologies that might favour anonymity, and take measures, if needed, to prevent their use in money laundering schemes.

In particular, Best Winning will have policies and procedures in place to address any specific risks associated with non-face to face business relationships or transactions.

Use of intermediaries or other third parties to perform customers due diligence

Best Winning may rely on intermediaries or other third parties to perform the customer identification and verification measures specified above provided that the criteria set out below are met.

— 28 —

LETTER FROM THE BOARD

Where such reliance is permitted, the ultimate responsibility for customer identification and verification remains with Best Winning relying on the third party.

The criteria that will be met are as follows:

(a) Best Winning relying upon a third party will immediately obtain the necessary information concerning elements to identity of the relevant customers.

Best Winning will take adequate steps to satisfy itself that copies of identification data and other relevant documentation relating to the CDD requirements will be made available from the third party upon request without delay.

(b) Best Winning will satisfy itself that the third party is regulated and supervised for, and has measures in place to comply with CDD requirements.

Record keeping and reconstruction of transactions

Best Winning will maintain, for at least seven years, all necessary records on transactions, both domestic or international, to enable them to comply swiftly with information requests from the competent authorities. Such records must be sufficient to permit reconstruction of individual transactions (including the amounts and types of currency involved if any) so as to provide, if necessary, evidence for prosecution of criminal activity.

Best Winning will keep records on the identification data obtained through the customer due diligence process (e.g. copies or records of official identification documents like passports, identity cards, driving licenses or similar documents), account files and business correspondence for at least seven years after the business relationship is ended.

The identification data and transaction records will be available to domestic competent authorities upon appropriate authorities.

Suspicious Transactions

Pay special attention to all settlement of unusually large sums, and all unusual patterns of transactions which have no apparent economic or visible lawful purpose

Best Winning will pay special attention to all settlement of unusually large transactions, and all unusual patterns of transactions which have no apparent economic or visible lawful purpose. The background and purpose of such settlement and the source of funds will, as far as possible, be examined, and any findings of suspicious transactions will be made available in writing to the relevant authorities and auditors.

— 29 —

LETTER FROM THE BOARD

Reporting of suspicious transactions

If Best Winning suspects or has reasonable grounds to suspect that the money that it deals with when providing its settlement services are the proceeds of a criminal activity, or is related to terrorist financing, or otherwise is linked to or related to, or is to be used for terrorism it will be required to report promptly its suspicions to competent authorities.

Prohibition by law from disclosure of a suspicious transaction or related information that has been reported to a competent authority

Directors, officers and employees of Best Winning should be:

(a) Protected by legal provisions from criminal and civil liability for breach of any restriction on disclosure of information imposed by contract or by any legislative, regulatory or administrative provision, if they report their suspicions in good faith to the competent authority, even if they did not know precisely what the underlying criminal activity was, and regardless of whether illegal activity actually occurred.

(b) Prohibited by law from disclosing the fact that a suspicious transaction report or related information is being reported to the competent authority.

Internal Controls and Procedures

Programmes against money laundering and terrorist financing

Best Winning will develop programmes against money laundering and terrorist financing.

These programmes will include:

(a) The development of internal policies, procedures and controls, including appropriate compliance management arrangements, and adequate screening procedures to ensure high standards when hiring employees.

(b) An ongoing employee training programme.

— 30 —

LETTER FROM THE BOARD

GENERAL

Under the Listing Rules, the Acquisition constitutes a major transaction for the Company and, together with the issue of the Convertible Note and the granting of the BK Share Option, is subject to the approval by the Shareholders. None of Leadfirst, Mr. Ki and any of its/his associates has any shareholding interest in the Company. None of the Shareholders is connected or associated with Leadfirst, Mr. Ki or any of its/his associates nor has any material interest in the issue of the Convertible Note or the granting of the BK Share Option and is required to abstain from voting in the SGM to approve the Acquisition.

PROCEDURES FOR DEMANDING A POLL

A resolution put to the vote in a general meeting of the Shareholders shall be determined by a show of hands of the Shareholders present in person or by proxy, but a poll may be demanded by:

(a) the Chairman of the meeting; or
(b) at least three Shareholders present in person (or, in the case of the Shareholder being a corporation, by its duly authorised representative) or by proxy for the time being entitled to vote at the meeting; or
(c) by 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
(d) 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 in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less one-tenth of the total sum paid up on all the shares conferring that right.

— 31 —

LETTER FROM THE BOARD

RECOMMENDATION

The Directors, including the independent non-executive Directors, consider that the Acquisition, the issue of the Convertible Note and the granting of the BK Share Option, including its terms, are in the best interests of the Company and the Shareholders as a whole and that the terms and conditions thereof are fair and reasonable so far as the Company and the Shareholders are concerned.

ADDITIONAL INFORMATION

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

Yours faithfully,
By order of the Board
Heung Wah Keung
Chairman

— 32 —

APPENDIX I

ACCOUNTANTS' REPORT ON BEST WINNING

The following is the text of an accountants' report, prepared for the sole purpose of inclusion in this circular, received from the reporting accountants of Best Winning, HLB Hodgson Impey Cheng, Chartered Accountants, Certified Public Accountants.

Chartered Accountants
Certified Public Accountants

31st Floor
Gloucester Tower
The Landmark
11 Pedder Street
Central
Hong Kong

24th June 2005

The Directors
Riche Multi-Media Holdings Limited
Units 609-610 Miramar Tower
132 Nathan Road
Tsimshatsui
Kowloon
Hong Kong

Dear Sirs,

We set out below our report on the financial information regarding Best Winning Group Limited ("Best Winning") at the close of business on 30th April 2005 prepared on the basis as set out in Note 1 below, for inclusion in the circular of Riche Multi-Media Holdings Limited (the "Company") dated 24th June 2005 (the "Circular").

On 9th April 2005, the Company, through its wholly owned subsidiary, Dragon Leader Limited which is a company incorporated in the British Virgin Islands ("Dragon Leader"), Leadfirst Limited ("Leadfirst"), as seller, and Mr Benny Ki ("Mr Ki"), as guarantor entered into a conditional sale and purchase agreement (the "S&P Agreement") in relation to the sale and purchase of 100% of the issued share capital of Best Winning from Leadfirst (the "Acquisition") at a consideration of HK$600,000,000 (the "Consideration"). The Consideration shall be satisfied by the issue of the 4% per annum convertible note in the aggregate principal amount of HK$500,000,000 to be issued by the Company upon completion of S&P Agreement (the "Convertible Note") and the payment of cash of HK$100,000,000. Leadfirst is a company incorporated in the British Virgin Islands and is wholly owned by Mr Ki.

— 33 —

APPENDIX I

ACCOUNTANTS' REPORT ON BEST WINNING

Best Winning was incorporated in the British Virgin Islands on 2nd March 2005 with limited liability. Best Winning is beneficially owned by Leadfirst. Leadfirst has been appointed by the sole operator of the casino and gaming establishment (the "Casino") on board of Radisson Diamond (to be renamed as Omar Star), a passenger vessel with casino, gaming and other facilities (the "Vessel") as the sole and exclusive service provider for the promotion and introduction of customers to the Vessel and the provision of rolling and settlement services for customers of the Casino under a binding memorandum of understanding.

Such functions have been subcontracted to Best Winning under the agreement entered into between Leadfirst and Best Winning (the "Sub-Marketing Agreement") under which Leadfirst has appointed Best Winning as its sole and exclusive service provider for the promotion and introduction of customers to the Vessel and the provision of services involving the exchanging of non-negotiable gambling chips of the customers of the Casino with Leadfirst where no money in any form is settled by Best Winning in its own capacity and provided always that such non-negotiable gambling chips are given to the customers against (i) production of a bank-in slip demonstrating equivalent amount of money having been deposited in the designated accounts of Leadfirst; or (ii) cash payment of equivalent sum having been received by Best Winning for and on behalf of Leadfirst; or (iii) cash gambling chips of equivalent sum having been received by Best Winning for and on behalf of Leadfirst (the "Rolling and Settlement Services") for the customers of Casino in accordance with the terms of the Sub-Marketing Agreement.

Best Winning will be entitled to (i) a monthly management fee calculated at 1.7% of the total rolling turnover of the Casino based on the records of Best Winning and to be received by it under the Sub-Marketing Agreement (the "Management Fee") (ii) 40% of the monthly profit of the Casino (net win of the Casino after deducting the Management Fee, the rental of the Casino and other expenses of the Casino).

Upon completion of the S&P Agreement, Best Winning will be held as a indirectly wholly-owned subsidiary of the Company.

No audited financial statements of Best Winning were prepared since its incorporation date.

For the purpose of this report, the director of Best Winning has prepared the unaudited management accounts of Best Winning as at 30th April 2005 in accordance with the accounting principles generally accepted in Hong Kong for which the director of Best Winning is solely responsible. The income statement, the statement of changes in equity, the cash flow statement of Best Winning for the period from 2nd March 2005 (date of incorporation) to 30th April 2005 and the balance sheet of Best Winning as at 30th April 2005 together with the notes thereto (the "Financial Information") set out in this report are prepared on the basis as set out in Note 1 below. For the purpose of this report, we have undertaken an independent audit of

— 34 —

APPENDIX I

ACCOUNTANTS' REPORT ON BEST WINNING

the Financial Information in accordance with the Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants (the "HKICPA") and have carried out such additional procedures as we considered necessary in accordance with the Auditing Guidelines 3.340 "Prospectuses and the Reporting Accountant" issued by the HKICPA and, where appropriate, made adjustments and/or additional disclosures in order for the Financial Information and the notes thereto to conform with the generally accepted accounting principles in Hong Kong.

Since the Casino has not commenced full operation (which is expected to be on or about 15th August 2005) and currently the Rolling and Settlement Services has not commenced operation at the Casino, only the Financial Information of Best Winning as at 30th April 2005 has been presented.

Best Winning has not commenced operation since the date of incorporation.

No statement of adjustment is considered necessary.

The director of Best Winning is responsible for the Financial Information, together with the notes thereto. In preparing the Financial Information, which gives a true and fair view, it is fundamental that appropriate accounting policies are selected and applied consistently. The directors of the Company are responsible for the contents of the Circular in which this report is included. It is our responsibility to form an independent opinion, based on our examination, on the Financial Information.

In our opinion, the Financial Information, for the purpose of this report and prepared on the basis as set out in Note 1 below, gives a true and fair view of the results and cash flows of Best Winning for the period from 2nd March 2005 (date of incorporation) to 30th April 2005 and of the state of affairs of Best Winning as at 30th April 2005.

— 35 —

APPENDIX I

ACCOUNTANTS' REPORT ON BEST WINNING

A. MANAGEMENT ACCOUNTS

Income Statement

| | Notes | For the period from
2nd March 2005
(date of incorporation) to
30th April 2005
HK$ |
| --- | --- | --- |
| Turnover | 2 | — |
| Expenses | | — |
| Profit from operations | 3 | — |
| Finance costs | | — |
| Profit on ordinary activities before taxation | | — |
| Taxation | 4 | — |
| Profit for the period | | — |
| Earnings per share | 6 | — |

The accompanying notes form an integral part of the Financial Information.

APPENDIX I

ACCOUNTANTS' REPORT ON BEST WINNING

Balance Sheet

| | Note | As at
30th April 2005
HK$ |
| --- | --- | --- |
| Current assets | | |
| Cash balance | | 8 |
| Total assets | | 8 |
| Net assets | | 8 |
| Representing: | | |
| Share capital | 7 | 8 |

The accompanying notes form an integral part of the Financial Information.

Statement of Changes in Equity

| | Note | For the period from
2nd March 2005
(date of incorporation) to
30th April 2005
HK$ |
| --- | --- | --- |
| Issue of shares upon incorporation | 7 | 8 |
| Profit for the period | | — |
| Total equity at the end of the period | | 8 |

The accompanying notes form an integral part of the Financial Information.

APPENDIX I

ACCOUNTANTS' REPORT ON BEST WINNING

Cash Flow Statement

For the period from
2nd March 2005
(date of incorporation) to
30th April 2005
HK$

Cash flows from operating activities

Profit before taxation
—

Net cash used in operating activities
—

Cash flows from financing activities

Issue of share capital
8

Net cash generated from financing activities
8

Cash and cash equivalents at the end of the period

Analysis of the balances of cash and cash equivalents

Cash balance at 30th April 2005
8

The accompanying notes form an integral part of the Financial Information.

— 38 —

APPENDIX I

ACCOUNTANTS' REPORT ON BEST WINNING

Notes to Financial Statements

1. Summary of principal accounting policies

The Financial Information has been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (“HKFRS”) (which includes all applicable Statements of Standard Accounting Practice and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), accounting principles generally accepted in Hong Kong and the disclosure requirements of the Listing Rule as applicable to Accountant’s Reports including in the listing documents of circulars. The Financial Information is prepared under the historical cost convention.

In 2004, HKICPA issued a number of new or revised Hong Kong Accounting Standard (“HKAS”) and Hong Kong Financial Reporting Standards (“HKFRSs”) (herein collectively referred as to “New HKFRSs”) which are effective for accounting period beginning on or after 1st January 2005. Best Winning has not adopted these New HKFRSs in the Financial Information.

The director of Best Winning has assessed the potential impact of these New HKFRSs. Based on Best Winning’s director’s latest assessment, there would be no material impact on Best Winning’s shareholders’ equity as at 30th April 2005 and Best Winning’s results for the period then ended had the New HKFRSs been adopted.

A summary of the significant accounting policies adopted in the preparation of the Financial Information is set out below:

(a) Basis of preparation

The Financial Information is prepared on a going concern basis. Best Winning’s continuance in business as a going concern is dependent upon the future profitable operations of Best Winning and the continuing financial support from Leadfirst and Mr. Ki. The Financial Information has been prepared on a going concern basis as Leadfirst and Mr. Ki have confirmed their intention in writing to provide continuing financial support to Best Winning to enable it to continue as a going concern and to settle its liabilities as and when they fall due.

(b) Current assets and liabilities

Current assets are expected to be realised within twelve months of the balance sheet date or in the normal course of Best Winning’s operating cycle. Current liabilities are expected to be settled within twelve months of the balance sheet date or in the normal course of Best Winning’s operating cycle.

(c) Translation of foreign currencies

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

— 39 —

APPENDIX I

ACCOUNTANTS' REPORT ON BEST WINNING

(d) Taxation

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

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

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

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

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

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

(e) 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.

(f) Related party transactions

A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.

(g) Cash and cash equivalents

Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand and deposits held at call with banks.

— 40 —

APPENDIX I

ACCOUNTANTS' REPORT ON BEST WINNING

(h) Provisions

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

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

(i) 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 Best Winning. It can also 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, it will then be recognised as a provision.

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 Best Winning. Contingent assets are not recognised but are 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.

(j) Borrowing costs

Borrowing costs are interests and other costs incurred in connection with the borrowing of funds. All borrowing costs are charged to the profit and loss account in the year in which they are incurred.

Turnover

Best Winning has not commenced business since incorporation.

Best Winning did not have revenue during the period.

Profit from operations

Best Winning has not commenced business since incorporation and did not incur any expenses for the period.

No director's emoluments were paid by Best Winning during the period.

No auditors' remuneration and employees' emoluments were paid by Best Winning during the period.

Taxation

No provision for profits tax has been made as Best Winning did not have any assessable profit for the period.

There are no material unprovided deferred tax assets and liabilities as at the balance sheet date.

— 41 —

APPENDIX I

ACCOUNTANTS' REPORT ON BEST WINNING

Dividend

No dividends have been paid or declared during the period.

Earnings per share

Best Winning has not commenced business and did not earn any profit for the period. Accordingly, no earnings per share information is presented.

Share capital

	US$	HK$
Authorised:
At 30th April 2005, 50,000 ordinary shares of US$1 each	50,000	390,000
Issued and fully paid
At 30th April 2005 1 ordinary share Of US$1 each	1	8

Best Winning was incorporated in the British Virgin Islands with an authorised share capital of US$50,000 divided into 50,000 ordinary shares of US$1 each. On the date of incorporation, Best Winning issued 1 ordinary share of US$1 each at par for cash to a subscriber.

Contingent liabilities

Best Winning did not have any significant contingent liabilities as at the balance sheet date.

Subsequent events

No significant subsequent events took place subsequent to 30th April 2005 except that upon the commencement of the full operation of the Casino on the Vessel, which is expected to be on or about 15th August 2005, Best Winning will commence the operation as the sole and exclusive service provider for promotion and introduction of customers to the Vessel and the provision of Rolling and Settlement Services for customers of the Casino pursuant to the Sub-Marketing Agreement.

B. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared for Best Winning in respect of any period subsequent to 30th April 2005 and no dividends or other distributions have been declared by Best Winning in respect of any period subsequent to 30th April 2005.

Yours faithfully

HLB Hodgson Impey Cheng

Chartered Accountants

Certified Public Accountants

Hong Kong

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

1. SUMMARY OF AUDITED FINANCIAL STATEMENTS OF THE GROUP

(A) The following is a summary of the audited financial results of the Group for each of the three years ended 31st December 2004 as extracted from the audited accounts of the Group for the relevant years.

Three Years Financial Summary

Results

	Year ended 31st December
	2004	2003	2002
	HK$'000	HK$'000	HK$'000
Turnover	58,382	206,996	89,443
Cost of sales	(48,674)	(61,180)	(39,608)
Gross profit	9,708	145,816	49,835
Other operating income	390	1,849	1,218
Administrative expenses	(36,309)	(29,608)	(28,738)
Selling expenses	(234)	(166)	(272)
Impairment loss recognised in respect of film rights	(16,213)	(1,462)	(7,579)
Impairment loss recognised in respect of other asset	(46,512)	—	(25,087)
Impairment loss recognised in respect of goodwill	(28,072)	—	—
Impairment loss recognised in respect of investments in securities	(12,000)	—	—
Allowance for advances to an associate	(138,531)	—	—
Loss on disposal of property, plant and equipment	—	—	(14,508)
(Loss) profit from operations	(267,773)	116,429	(25,131)
Finance costs	(340)	(340)	(240)
Loss on disposal of a subsidiary	—	—	(1,100)
(Loss) profit before taxation	(268,113)	116,089	(26,471)
Taxation (charge) credit	(277)	1,040	1,186
Net (loss) profit for the year attributable to shareholders	(268,390)	117,129	(25,285)
(Loss) earnings per share
Basic	HK(5.65) cents	HK2.47 cents	HK(5.32) cents
Diluted	HK(5.65) cents	HK2.41 cents	HK(5.32) cents

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

Consolidated balance sheet

	At at 31st December
	2004
HK$'000	2003
HK$'000	2002
HK$'000
Non-current assets
Property, plant and equipment	11,808	11,429	10,573
Film rights	9,236	22,134	26,172
Other asset	—	53,156	59,800
Goodwill	4,400	36,425	—
Interests in associates	—	160,000	160,000
Club memberships	172	172	172
Deposit with a related company	—	5,000	5,000
Deposit for investment	—	—	23,000
	25,616	288,316	284,717
Current assets
Inventories	15	1,469	656
Film rights	1,105	3,986	14,857
Film rights deposits	14	3,970	8,812
Trade receivables	23,308	56,502	8,209
Other receivables, prepayments and deposits	4,584	9,633	4,531
Deposit with a related company	5,000	—	—
Investments in securities	59,732	—	—
Amount due from an associate	300	1,801	1,410
Taxation recoverable	—	702	702
Bank balances and cash	15,460	80,722	7,598
	109,518	158,785	46,775
Current liabilities
Trade payables	1,983	15,961	8,503
Other payables and accruals	3,797	2,469	1,415
Deferred income	—	22,887	16,953
Receipt in advance	1,204	11,613	26,723
Amounts due to related companies	549	—	—
Obligations under a finance lease — amount due within one year	8	23	24
Convertible notes payable	33,800	—	—
Taxation payable	22,969	22,685	22,238
Bank overdraft	—	—	214
	64,310	75,638	76,070
Net current assets (liabilities)	45,208	83,147	(29,295)
	70,824	371,463	255,422

— 44 —

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

	At at 31st December
	2004	2003	2002
	HK$'000	HK$'000	HK$'000
Capital and reserves
Share capital	47,520	47,520	47,520
Reserves	23,304	290,135	172,584
	70,824	337,655	220,104
Non-current liabilities
Obligations under a finance lease
— amount due after one year	—	8	31
Convertible notes payable	—	33,800	33,800
Deferred taxation	—	—	1,487
	—	33,808	35,318
	70,824	371,463	255,422

— 45 —

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

(B) The following is the audited financial statements of the Group for the year ended 31st December 2004 (the date to which the latest audited accounts were made up), together with the comparative figures for the year ended 31st December 2003 and the accompanying notes to the audited accounts of the Group for the year ended 31st December 2004 as extracted from the annual report of the Company for the year ended 31st December 2004.

Consolidated Profit and Loss Account
Year ended 31st December 2004

| | Notes | 2004
HK$'000 | 2003
HK$'000 |
| --- | --- | --- | --- |
| Turnover | 4 | 58,382 | 206,996 |
| Cost of sales | | (48,674) | (61,180) |
| Gross profit | | 9,708 | 145,816 |
| Other operating income | 6 | 390 | 1,849 |
| Administrative expenses | | (36,309) | (29,608) |
| Selling expenses | | (234) | (166) |
| Impairment loss recognised
in respect of film rights | 14 | (16,213) | (1,462) |
| Impairment loss recognised
in respect of other asset | 16 | (46,512) | — |
| Impairment loss recognised
in respect of goodwill | 17 | (28,072) | — |
| Impairment loss recognised
in respect of investments
in securities | 21 | (12,000) | — |
| Allowance for advances to
an associate | | (138,531) | — |
| (Loss) profit from operations | 7 | (267,773) | 116,429 |
| Finance costs | 8 | (340) | (340) |
| (Loss) profit before taxation | | (268,113) | 116,089 |
| Taxation (charge) credit | 11 | (277) | 1,040 |
| Net (loss) profit for the year
attributable to shareholders | | (268,390) | 117,129 |
| (Loss) earnings per share
Basic | 12 | HK(5.65) cents | HK2.47 cents |
| Diluted | | HK(5.65) cents | HK2.41 cents |

— 46 —

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

At 31st December 2004

Consolidated Balance Sheet

	Notes	2004	2003
		HK$'000	HK$'000
Non-current assets
Property, plant and equipment	13	11,808	11,429
Film rights	14	9,236	22,134
Other asset	16	—	53,156
Goodwill	17	4,400	36,425
Interests in associates	18	—	160,000
Club memberships		172	172
Deposit with a related company	33(a)	—	5,000
		25,616	288,316
Current assets
Inventories	19	15	1,469
Film rights	14	1,105	3,986
Film rights deposits		14	3,970
Trade receivables	20	23,308	56,502
Other receivables, prepayments and deposits		4,584	9,633
Deposit with a related company	33(a)	5,000	—
Investments in securities	21	59,732	—
Amount due from an associate	22	300	1,801
Taxation recoverable		—	702
Bank balances and cash		15,460	80,722
		109,518	158,785
Current liabilities
Trade payables	23	1,983	15,961
Other payables and accruals		3,797	2,469
Deferred income		—	22,887
Receipt in advance		1,204	11,613
Amounts due to related companies	24	549	—
Obligations under a finance lease — amount due within one year	25	8	23
Convertible notes payable	26	33,800	—
Taxation payable		22,969	22,685
		64,310	75,638
Net current assets		45,208	83,147
		70,824	371,463

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

	Notes	2004	2003
		HK$'000	HK$'000
Capital and reserves
Share capital	27	47,520	47,520
Reserves		23,304	290,135
		70,824	337,655
Non-current liabilities
Obligations under a finance lease
— amount due after one year	25	—	8
Convertible notes payable	26	—	33,800
		—	33,808
		70,824	371,463

— 48 —

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

At 31st December 2004

Balance Sheet

	Notes	2004	2003
		HK$'000	HK$'000
Non-current assets
Interests in subsidiaries	15	96,025	242,730
Current assets
Other receivables, prepayments and deposits		—	2,137
Bank balances and cash		117	144
		117	2,281
Current liabilities
Trade payables		85	170
Other payables and accruals		1,113	1,101
Amounts due to subsidiaries		771	936
Convertible notes payable	26	33,800	—
		35,769	2,207
Net current (liabilities) assets		(35,652)	74
		60,373	242,804
Capital and reserves
Share capital	27	47,520	47,520
Reserves	28	12,853	161,484
		60,373	209,004
Non-current liabilities
Convertible notes payable	26	—	33,800
		60,373	242,804

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

Consolidated Statement of Changes in Equity

For the year ended 31st December 2004

	Share capitalHK$'000	Share premiumHK$'000(Note 28)	Capital reserveHK$'000(Note 28)	Contributed surplusHK$'000(Note 28)	Properties revaluation reserveHK$'000	(Accumulated losses) retained profitsHK$'000	TotalHK$'000
At 1st January 2003	47,520	186,682	19,834	—	4,651	(38,583)	220,104
Revaluation surplus on leasehold land and buildings not recognised in the consolidated income statement	—	—	—	—	422	—	422
Cancellation of share premium account and transfer to contributed surplus account	—	(186,682)	—	186,682	—	—	—
Transfer from contributed surplus account to accumulated losses account	—	—	—	(106,579)	—	106,579	—
Net profit for the year	—	—	—	—	—	117,129	117,129
At 31st December 2003 and 1st January 2004	47,520	—	19,834	80,103	5,073	185,125	337,655
Revaluation surplus on leasehold land and buildings not recognised in the consolidated income statement	—	—	—	—	1,559	—	1,559
Net loss for the year	—	—	—	—	—	(268,390)	(268,390)
At 31st December 2004	47,520	—	19,834	80,103	6,632	(83,265)	70,824

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

Consolidated Cash Flow Statement

For the year ended 31st December 2004

| | 2004
HK$'000 | 2003
HK$'000 |
| --- | --- | --- |
| OPERATING ACTIVITIES | | |
| (Loss) profit from operations | (267,773) | 116,429 |
| Adjustments for: | | |
| Interest income | (14) | (1,655) |
| Income from sub-licensing of hotel and intranet distribution rights | — | (20,733) |
| Allowance for bad and doubtful debts | 1,648 | 88 |
| Allowance for film rights deposits | 1,000 | — |
| Allowance for inventory obsolescence | 917 | 487 |
| Amortisation of film rights | 17,894 | 57,818 |
| Amortisation of goodwill | 3,953 | 3,105 |
| Amortisation of other asset | 6,644 | 6,644 |
| Depreciation of property, plant and equipment | 1,279 | 1,316 |
| Impairment loss recognised in respect of film rights | 16,213 | 1,462 |
| Impairment loss recognised in respect of other asset | 46,512 | — |
| Impairment loss recognised in respect of goodwill | 28,072 | — |
| Impairment loss recognised in respect of investments in securities | 12,000 | — |
| Allowance for advances to an associate | 138,531 | — |
| Loss on disposal of property, plant and equipment | — | 4 |
| Unrealised gain on sales to associates eliminated | 1,337 | — |
| Operating cash flows before movements in working capital | 8,213 | 164,965 |
| Decrease (increase) in inventories | 537 | (1,300) |
| Additions of film rights | (18,328) | (44,371) |
| Decrease in film rights deposits | 2,956 | 4,842 |
| Decrease (increase) in trade receivables | 31,546 | (48,381) |
| Decrease (increase) in other receivables, prepayments and deposits | 5,049 | (3,632) |
| Increase in investments in securities | (41,732) | — |
| (Increase) decrease in amount due from an associate | (2,854) | 74 |
| (Decrease) increase in trade payables | (13,978) | 7,458 |
| Increase in other payables and accruals | 1,328 | 1,054 |
| (Decrease) increase in receipt in advance | (10,409) | 11,557 |
| Increase in amounts due to related companies | 549 | — |

— 51 —

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

| | 2004
HK$'000 | 2003
HK$'000 |
| --- | --- | --- |
| Cash (used in) from operations | (37,123) | 92,266 |
| Hong Kong Profits Tax refunded | 709 | — |
| NET CASH (USED IN) FROM OPERATING ACTIVITIES | (36,414) | 92,266 |
| INVESTING ACTIVITIES | | |
| Interest received | 1,614 | 1,190 |
| Acquisition of an associate | (30,000) | — |
| Acquisitions of subsidiaries | — | (18,000) |
| Purchase of property, plant and equipment | (99) | (1,754) |
| NET CASH USED IN INVESTING ACTIVITIES | (28,485) | (18,564) |
| FINANCING ACTIVITIES | | |
| Interest paid | (340) | (340) |
| Payment of capital element of a finance lease | (23) | (24) |
| NET CASH USED IN FINANCING ACTIVITIES | (363) | (364) |
| NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (65,262) | 73,338 |
| CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR | 80,722 | 7,384 |
| CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR | 15,460 | 80,722 |
| ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS | | |
| Bank balances and cash | 15,460 | 80,722 |

— 52 —

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

Notes to the Financial Statements

For the year ended 31st December 2004

1. GENERAL

The Company was incorporated in Bermuda as an exempted company with limited liability and its shares are listed on The Stock Exchange of Hong Kong Limited.

The principal activities of the Group are distribution of films, sub-licensing films rights, sale of advertising rights for advertisements placing on video products and videos, and investments in securities.

2. POTENTIAL IMPACT ARISING FROM THE RECENTLY ISSUED ACCOUNTING STANDARDS

In 2004, the Hong Kong Institute of Certified Public Accountants, (the "HKICPA") issued a number of new or revised Hong Kong Accounting Standards ("HKASs") and Hong Kong Financial Reporting Standards ("HKFRSs") (herein collectively referred to as "New HKFRSs") which are effective for accounting periods beginning on or after 1st January 2005. The Group has not early adopted these New HKFRSs in the financial statements for the year ended 31st December 2004.

The Group has commenced considering the potential impact of these New HKFRSs. Based on management's preliminary assessment, the adoption of HKFRS 3 "Business Combinations" and HKAS 36 "Impairment of Assets" in the accounting period beginning on 1st January 2005 will result in cessation of amortisation of goodwill to the income statement. Pursuant to HKFRS 3 "Business Combinations" and HKAS 36 "Impairment of Assets", goodwill is to be recognised as an asset and reviewed for impairment at least annually and any impairment is recognised immediately in the income statement while the Group's current policy is to amortise goodwill on a straight-line basis over its useful economic life and reviewed for impairment if there are indicators of impairment at the year end. During the year ended 31st December 2004, the amortisation of goodwill charged to the income statement amounted to approximately HK$3,953,000.

The Group is still considering the potential impact of other New HKFRSs but is not yet in a position to determine whether other New HKFRSs would have a significant impact on how its results of operations and financial position are prepared and presented. Other New HKFRSs may result in changes in the future as to how the results and financial position are prepared and presented.

3. SIGNIFICANT ACCOUNTING POLICIES

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

Basis of consolidation

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

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

— 53 —

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

Revenue recognition

Revenue from the distribution of films is recognised when the video products or master materials of films are delivered to customers and the title has passed.

Revenue from sub-licensing of film rights is recognised upon delivery of the master materials of films to customers.

Revenue from sale of advertising rights is recognised when the right to receive payment is established.

Proceeds from trading of securities are recognised when sale and purchase contracts became unconditional.

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

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

Impairment

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

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

Taxation

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

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises

— 54 —

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

from goodwill (or negative goodwill) or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

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

Property, plant and equipment

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

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

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

Depreciation is provided to write off the cost or valuation of items of property, plant and equipment over their estimated useful lives and after taking into account their estimated residual value, at the following rates per annum:

Leasehold land	Over the unexpired period of the lease
Buildings	2% on straight-line basis
Leasehold improvements	33.3% on reducing balance basis
Office equipment	20% on reducing balance basis
Motor vehicles	20% on reducing balance basis
Furniture and fixtures	15% on reducing balance basis

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

— 55 —

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

Film rights

Film rights, which are rights for the reproduction and distribution of films and sub-licensing of film rights, are stated at cost less accumulated amortisation and any accumulated impairment losses.

The cost of film rights is amortised in the proportion that actual income earned during the year bears to the total estimated income from the reproduction and distribution of films and sub-licensing of film rights. The amortisation period will not exceed twenty years.

The portion of film rights expected to be amortised within twelve months from the balance sheet date is reported as a current asset. The portion of film rights expected not to be amortised within twelve months from the balance sheet date is reported as a non-current asset.

Investments in subsidiaries

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

Other asset

Other asset is measured at cost less accumulated amortisation and any identified impairment losses, and is amortised on a straight-line basis over its estimated useful life.

Goodwill

Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities of a subsidiary at the date of acquisition.

Goodwill is capitalised and amortised on a straight-line basis over its useful economic life. Goodwill arising on the acquisition of subsidiaries is presented separately in the consolidated balance sheet.

Interests in associates

The consolidated income statement includes the Group’s share of the post-acquisition results of its associates for the year. In the consolidated balance sheet, interests in associates are stated at the Group’s share of the net assets of the associates, less any identified impairment loss.

When the Group transacts with its associates, unrealised profits and losses are eliminated to the extent of the Group’s interest in the relevant associates, except where unrealised loss provide evidence of an impairment of the asset transferred.

Club memberships

Club memberships are stated at cost less any identified impairment loss.

Inventories

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

— 56 —

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

Film rights deposits

Licence fees paid in advance and/or by instalments during the production of films under licensing agreements for the reproduction and distribution of films and sub-licensing of film rights, in specific geographical areas and time periods, are accounted for as film rights deposits. The balance payable under the licensing agreement is disclosed as a commitment.

In those cases where the Group is unable to exercise its rights under a licensing agreement because the film producer fails to complete the film, the Group writes off the difference between the advances made and the estimated recoverable amount from the film producer.

When the Group decides not to exercise its rights under a particular licensing agreement after the licensor has fulfilled all the terms and conditions of a licensing agreement, all advances made under that licensing agreement will be written off to the income statement.

Investments in securities

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

All securities are measured at fair value at subsequent reporting date.

Where securities are held for trading purpose, unrealised gain and losses included in net profit or loss for the year. For other securities, unrealised gains and losses are dealt with in equity, until the securities are disposed of or are determined to be impaired, at which time the cumulative gain or loss is included in net profit or loss for the year.

Deferred income

Deferred income represents unrealised profit arising from the delivery of master materials in respect of the sub-licensing of film rights to an associate under the sub-licensing agreement. Unrealised profit arising from delivery of master materials will be recognised by the Group when the cost of the relevant portion of film rights has been charged to the associate's income statement.

Leased assets

Leases are classified as finance leases when the terms of the lease transfer substantially all the risks and rewards of ownership of the assets concerned to the Group. Assets held under finance leases are capitalised at the lower of fair values or the present value of the minimum lease payments. The corresponding liability to the lessor, net of interest charges, is included in the balance sheet as a finance lease obligation. Finance costs are charged to the income statement over the term of the relevant lease so as to produce a constant periodic rate of charge on the remaining balance of the obligations for each accounting period.

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

Convertible notes payable

Convertible notes payable are recognised as liabilities unless conversion actually occurs. The finance cost recognised in the income statement in respect of the convertible notes payable is calculated so as to produce a constant periodic rate of charge on the remaining balance of the convertible notes payable for each financial year.

— 57 —

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

The costs, if any, incurred in connection with the issue of convertible notes are charged to the income statement in the period of issue.

Retirement benefits costs

Payments to the Group’s retirement benefits scheme are charged as an expense as they fall due.

Foreign currencies

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

4. TURNOVER

	2004	2003
	HK$’000	HK$’000
Distribution of films	27,285	163,722
Sub-licensing of film rights	16,319	38,006
Proceeds from sale of securities	14,778	—
Sale of advertising rights	—	5,268
	58,382	206,996

5. BUSINESS AND GEOGRAPHICAL SEGMENTS

Business segments

For management purposes, the Group is currently organised into four operating divisions, namely distribution, sub-licensing, sale of advertising rights and investments. These divisions are the basis on which the Group reports its primary segment information.

Principal activities are as follows:

Distribution
Distribution of films

Sub-licensing
Sub-licensing of film rights

Sale of advertising rights
Sale of advertising rights for advertisements placing on video products and videos

Investments
Investments in listed and unlisted equity securities

Segment information about these businesses for the years ended 31st December 2004 and 2003 is presented below.

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

Consolidated income statement for the year ended 31st December 2004

| | Distribution
HK$'000 | Sub-licensing
HK$'000 | Sale of advertising rights
HK$'000 | Investments
HK$'000 | Consolidated
HK$'000 |
| --- | --- | --- | --- | --- | --- |
| Turnover | 27,285 | 16,319 | — | 14,778 | 58,382 |
| Segment loss before amortisation of other asset, impairment losses recognised in respect of film rights, other asset, goodwill and investments in securities and allowance for advances to an associate | (3,222) | (216) | — | (1,460) | (4,898) |
| Amortisation of other asset | — | (6,644) | — | — | (6,644) |
| Impairment loss recognised in respect of film rights | (980) | (15,233) | — | — | (16,213) |
| Impairment loss recognised in respect of other asset | — | (46,512) | — | — | (46,512) |
| Impairment loss recognised in respect of goodwill | (20,000) | (8,072) | — | — | (28,072) |
| Impairment loss recognised in respect of investments in securities | — | — | — | (12,000) | (12,000) |
| Allowance for advances to an associate | — | (138,531) | — | — | (138,531) |
| Segment loss | (24,202) | (215,208) | — | (13,460) | (252,870) |
| Unallocated corporate income | | | | | 390 |
| Unallocated corporate expenses | | | | | (15,293) |
| Loss from operations | | | | | (267,773) |
| Finance costs | | | | | (340) |
| Loss before taxation | | | | | (268,113) |
| Taxation charge | | | | | (277) |
| Net loss for the year attributable to shareholders | | | | | (268,390) |

— 59 —

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

Consolidated balance sheet at 31st December 2004

| | Distribution
HK$'000 | Sub-licensing
HK$'000 | Sale of advertising rights
HK$'000 | Investments
HK$'000 | Consolidated
HK$'000 |
| --- | --- | --- | --- | --- | --- |
| ASSETS | | | | | |
| Segment assets | 22,974 | 25,192 | 2,108 | 59,732 | 110,006 |
| Unallocated corporate assets | | | | | 25,128 |
| Consolidated total assets | | | | | 135,134 |
| LIABILITIES | | | | | |
| Segment liabilities | 1,254 | 5,057 | — | — | 6,311 |
| Unallocated corporate liabilities | | | | | 57,999 |
| Consolidated total liabilities | | | | | 64,310 |

Other information for the year ended 31st December 2004

| | Distribution
HK$'000 | Sub-licensing
HK$'000 | Sale of advertising rights
HK$'000 | Investments
HK$'000 | Unallocated
HK$'000 | Consolidated
HK$'000 |
| --- | --- | --- | --- | --- | --- | --- |
| Additions of property, plant and equipment | 54 | 5 | — | — | 40 | 99 |
| Additions of film rights | 13,358 | 4,970 | — | — | — | 18,328 |
| Allowance for bad and doubtful debts | 147 | 1,445 | — | — | 56 | 1,648 |
| Allowance for inventory obsolescence | 917 | — | — | — | — | 917 |
| Allowance for film rights deposits | 1,000 | — | — | — | — | 1,000 |
| Allowance for advances to an associate | — | 138,531 | — | — | — | 138,531 |
| Depreciation and amortisation | 10,270 | 18,905 | — | — | 595 | 29,770 |
| Impairment losses recognised | 20,980 | 69,817 | — | 12,000 | — | 102,797 |

— 60 —

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

Consolidated income statement for the year ended 31st December 2003

| | Distribution
HK$'000 | Sub-licensing
HK$'000 | Sale of advertising rights
HK$'000 | Consolidated
HK$'000 |
| --- | --- | --- | --- | --- |
| Turnover | 163,722 | 38,006 | 5,268 | 206,996 |
| Segment profit before amortisation of other asset, and impairment loss recognised in respect of film rights | 118,077 | 12,310 | 3,126 | 133,513 |
| Amortisation of other asset | — | (6,644) | — | (6,644) |
| Impairment loss recognised in respect of film rights | (62) | (1,400) | — | (1,462) |
| Segment profit | 118,015 | 4,266 | 3,126 | 125,407 |
| Unallocated corporate income | | | | 1,849 |
| Unallocated corporate expenses | | | | (10,827) |
| Profit from operations | | | | 116,429 |
| Finance costs | | | | (340) |
| Profit before taxation | | | | 116,089 |
| Taxation credit | | | | 1,040 |
| Net profit for the year | | | | 117,129 |

Consolidated balance sheet at 31st December 2003

| | Distribution
HK$'000 | Sub-licensing
HK$'000 | Sale of advertising rights
HK$'000 | Consolidated
HK$'000 |
| --- | --- | --- | --- | --- |
| ASSETS | | | | |
| Segment assets | 85,397 | 98,166 | 5,269 | 188,832 |
| Interests in associates | — | 160,000 | — | 160,000 |
| Unallocated corporate assets | | | | 98,269 |
| Consolidated total assets | | | | 447,101 |
| LIABILITIES | | | | |
| Segment liabilities | 18,437 | 32,343 | — | 50,780 |
| Unallocated corporate liabilities | | | | 58,666 |
| Consolidated total liabilities | | | | 109,446 |

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

Other information for the year ended 31st December 2003

| | Distribution
HK$'000 | Sub-licensing
HK$'000 | Sale of advertising rights
HK$'000 | Unallocated
HK$'000 | Consolidated
HK$'000 |
| --- | --- | --- | --- | --- | --- |
| Additions of property, plant and equipment | — | — | — | 1,754 | 1,754 |
| Additions of film rights | 18,145 | 26,226 | — | — | 44,371 |
| Allowance for bad and doubtful debts | — | 88 | — | — | 88 |
| Allowance for inventory obsolescence | 487 | — | — | — | 487 |
| Depreciation and amortisation | 31,375 | 37,031 | — | 477 | 68,883 |

Geographical segments

The Group's operations are substantially located in Hong Kong and Macau. Thus, no geographical analysis for the carrying amount of segment assets and additions to property, plant and equipment and intangible assets is presented.

The following table provides an analysis of the Group's sales by location of markets:

	TURNOVER
	2004	2003
	HK$'000	HK$'000
The People's Republic of China excluding Hong Kong, Macau and Taiwan (the "PRC")	42,404	203,883
Hong Kong and Macau	15,978	3,113
	58,382	206,996

6. OTHER OPERATING INCOME

	2004	2003
	HK$'000	HK$'000
Dividend income from investments in securities	315	—
Interest income on bank deposits	14	55
Sundry income	61	194
Interest income on convertible notes	—	1,600
	390	1,849

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

7. (LOSS) PROFIT FROM OPERATIONS

| | 2004
HK$'000 | 2003
HK$'000 |
| --- | --- | --- |
| (Loss) profit from operations has been arrived at after charging: | | |
| Allowance for bad and doubtful debts
(included in administrative expenses) | 1,648 | 88 |
| Allowance for film right deposits
(included in administrative expenses) | 1,000 | — |
| Allowance for inventory obsolescence
(included in cost of sales) | 917 | 487 |
| Amortisation of film rights (included in cost of sales) | 17,894 | 57,818 |
| Amortisation of goodwill
(included in administrative expenses) | 3,953 | 3,105 |
| Amortisation of other asset
(included in administrative expenses) | 6,644 | 6,644 |
| Auditors’ remuneration | 720 | 700 |
| Cost of inventories sold (included in cost of sales) | 1,904 | 4,912 |
| Depreciation of property, plant and equipment: | | |
| — owned assets | 1,269 | 1,303 |
| — leased assets | 10 | 13 |
| | 1,279 | 1,316 |
| Operating lease rental in respect of rented premises | 1,616 | 1,300 |
| Staff costs including directors’ emoluments: | | |
| — salaries, allowances and benefits in kind | 10,008 | 8,310 |
| — contributions to retirement benefits scheme | 212 | 152 |
| | 10,220 | 8,462 |
| Unrealised loss on investments in securities
(included in cost of sales) | 852 | — |
| Loss on disposal of property, plant and equipment | — | 4 |

8. FINANCE COSTS

| | 2004
HK$'000 | 2003
HK$'000 |
| --- | --- | --- |
| Interest on borrowings wholly repayable within five years: | | |
| — convertible notes payable | 338 | 338 |
| — a finance lease | 2 | 2 |
| | 340 | 340 |

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

9. DIRECTORS' EMOLUMENTS

	2004	2003
	HK$'000	HK$'000
Fees:
— Executive directors	—	—
— Independent non-executive directors	270	240
Other emoluments paid to executive directors:
— Salaries, allowances and benefits in kind	1,548	1,548
— Contributions to retirement benefits scheme	12	12
	1,830	1,800

The emoluments of the directors were within the following bands:

	2004	2003
	Number of directors	Number of directors
Nil to HK$1,000,000	5	4
HK$1,500,001 to HK$2,000,000	1	1

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. None of the directors has waived any emoluments during the year.

10. EMPLOYEES' EMOLUMENTS

Of the five individuals with highest emoluments of the Group, one (2003: one) was director of the Company, whose emoluments are set out in note 9 above. The emoluments of the remaining four (2003: four) individuals were as follows:

	2004	2003
	HK$'000	HK$'000
Salaries, allowances and benefits in kind	2,364	1,443
Contributions to retirement benefits scheme	48	35
	2,412	1,478

The emoluments of the remaining four (2003: four) highest paid individuals fell within the following bands:

	2004	2003
	Number of employees	Number of employees
Nil to HK$1,000,000	3	4
HK$1,000,001 to HK$1,500,000	1	—

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

11. TAXATION (CHARGE) CREDIT

| | 2004
HK$'000 | 2003
HK$'000 |
| --- | --- | --- |
| The taxation (charge) credit are as follows: | | |
| Hong Kong Profits Tax | | |
| — current year | (284) | (283) |
| — over(under) provision in prior years | 7 | (164) |
| | (277) | (447) |
| Transfer from deferred taxation (note 29) | — | 1,487 |
| Taxation (charge) credit attributable to the Company and its subsidiaries | (277) | 1,040 |

Hong Kong Profits Tax is calculated at 17.5% (2003: 17.5%) on the estimated assessable profit for the year.

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

| | 2004
HK$'000 | 2003
HK$'000 |
| --- | --- | --- |
| (Loss) profit before taxation | (268,113) | 116,089 |
| Taxation at income tax rate of 17.5% | 46,920 | (20,316) |
| Tax effect of income that is not taxable
in determining taxable profit | 606 | 23,641 |
| Tax effect of expenses that are not deductible
in determining taxable profit | (45,640) | (444) |
| (Over)underprovision in respect of prior years | 7 | (164) |
| Tax effect of estimated tax losses for
which deferred tax assets
have not been recognised | (2,170) | (1,538) |
| Increase in opening deferred tax liabilities
resulting from an increase in
Hong Kong Profits Tax rate | — | (139) |
| Taxation (charge) credit for the year | (277) | 1,040 |

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

12. (LOSS) EARNINGS PER SHARE

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

| | 2004
HK$'000 | 2003
HK$'000 |
| --- | --- | --- |
| (Loss) earnings for the purposes of
basic (loss) earnings per share —
net (loss) profit for the year | (268,390) | 117,129 |
| Effect of dilutive potential
ordinary shares: | | |
| Interest on convertible notes payable | — | 338 |
| (Loss) earnings for the purposes of
diluted (loss) earnings per share | (268,390) | 117,467 |
| | '000 | '000 |
| Weighted average number of ordinary
shares for the purposes of
basic (loss) earnings per share | 4,752,000 | 4,752,000 |
| Effect of dilutive potential
ordinary shares: | | |
| Share options | — | 29,717 |
| Convertible notes payable | — | 84,500 |
| Weighted average number of ordinary
share for the purposes of
diluted (loss) earnings per share | 4,752,000 | 4,866,217 |

Subsequent to the balance sheet date, the Company's issued and unissued shares of HK$0.10 each was subdivided into 10 new shares of HK$0.01 each. The share subdivision took effect on 17th January 2005. The weighted average number of ordinary shares for both years for the purposes of basic and diluted (loss) earnings per share have been adjusted accordingly.

The computation of diluted loss per share for the year ended 31st December 2004 did not assume the exercise of the Company's warrants, convertible notes payable and share options because the effect of exercising a warrant, a convertible note payable and an option to subscribe for an additional share in the Company would result in a decrease of net loss per share.

The computation of diluted earnings per share for the year ended 31st December 2003 did not assume the exercise of the Company's warrants as the exercise price of these warrants was higher than the average market price for shares.

— 66 —

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

13. PROPERTY, PLANT AND EQUIPMENT

The Group	Leasehold		Office equipment	Motor vehicles	Furniture and fixtures	Total
	land and buildings	Leasehold improvements
COST OR VALUATION
At 1st January 2004	5,930	2,136	3,971	1,633	2,116	15,786
Additions	—	—	87	—	12	99
Surplus on revaluation	1,440	—	—	—	—	1,440
At 31st December 2004	7,370	2,136	4,058	1,633	2,128	17,325
Comprising
At cost	—	2,136	4,058	1,633	2,128	9,955
At 2004 valuation	7,370	—	—	—	—	7,370
	7,370	2,136	4,058	1,633	2,128	17,325
DEPRECIATION
At 1st January 2004	—	1,290	1,990	312	765	4,357
Charged for the year	119	282	410	264	204	1,279
Written back on revaluation	(119)	—	—	—	—	(119)
At 31st December 2004	—	1,572	2,400	576	969	5,517
NET BOOK VALUES
At 31st December 2004	7,370	564	1,658	1,057	1,159	11,808
At 31st December 2003	5,930	846	1,981	1,321	1,351	11,429

The leasehold land and buildings of the Group are situated in Hong Kong and are held under medium-term leases.

The leasehold land and buildings of the Group were revalued at 31st December 2004 by Grant Sherman Appraisal Limited, an independent firm of professional valuers, on an open market existing use basis. The surplus arising on valuation has been credited to the properties revaluation reserve account.

Had the leasehold land and buildings been included in these financial statements at historical cost less accumulated depreciation, the carrying value of these properties at 31st December 2004 would have been stated at approximately HK$2,232,000 (2003: HK$2,306,000).

The aggregate net book value of assets held under a finance lease at 31st December 2004 amounted to HK$42,000 (2003: HK$52,000).

— 67 —

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

14. FILM RIGHTS

| | The Group
HK$'000 |
| --- | --- |
| COST | |
| At 1st January 2004 | 163,682 |
| Additions | 18,328 |
| At 31st December 2004 | 182,010 |
| AMORTISATION AND IMPAIRMENT | |
| At 1st January 2004 | 137,562 |
| Charged for the year | 17,894 |
| Impairment loss recognised | 16,213 |
| At 31st December 2004 | 171,669 |
| CARRYING AMOUNTS | |
| At 31st December 2004 | 10,341 |
| At 31st December 2003 | 26,120 |
| | 2004 2003
HK$'000 HK$'000 |
| Analysed as: | |
| Non-current portion | 9,236 22,134 |
| Current portion | 1,105 3,986 |
| | 10,341 26,120 |

The directors reassessed the recoverable amount of the film rights at 31st December 2004 and recognised a total impairment loss of approximately HK$16,213,000, which was determined with reference to the estimated amount obtainable from the sale of these assets less cost of disposal.

15. INTERESTS IN SUBSIDIARIES

	The Company
	2004	2003
	HK$'000	HK$'000
Unlisted shares, at cost	83,553	83,553
Amounts due from subsidiaries	255,472	258,177
Allowance for amounts due from subsidiaries	(243,000)	(99,000)
	12,472	159,177
	96,025	242,730

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

The amounts due from subsidiaries are unsecured, non-interest bearing and have no fixed terms of repayment. In the opinion of directors, the amounts will not be repaid in the next twelve months.

Details of the Company's subsidiaries, all of which are wholly-owned, at 31st December 2004 are as follows:

Name of subsidiary	Country/ place of incorporation	Particulars of issued share capital	Principal activities and place of operation
Bluelagoon Investment Holdings Limited	British Virgin Islands	1 ordinary share of US$1	Investment holding, distribution of films, sub-licensing of film rights and sale of advertising rights in the PRC and investments in securities
Legend Rich Limited	British Virgin Islands	1 ordinary share of US$1	Distribution of video products in the PRC through a PRC agent
Riche Advertising Limited	British Virgin Islands	1 ordinary share of US$1	Sale of advertising rights in the PRC and investments in securities
Riche (BVI) Limited	British Virgin Islands	1,000 ordinary shares of US$1 each	Investment holding in Hong Kong
Riche Distribution Limited	Hong Kong	1,000,000 ordinary shares of HK$1 each	Sub-licensing of film rights in Hong Kong and investments in securities
Riche International (Macao Commercial Offshore) Limited	Macau	1 share of MOP100,000	Distribution of films, sub-licensing of film rights and sale of advertising rights in the PRC
Riche Multi-Media Limited	Hong Kong	2 ordinary shares of HK$1 each	Distribution of films and other video features in the PRC
Riche Pictures Limited	British Virgin Islands	1 ordinary share of US$1	Investment holding in Hong Kong
Riche Video Limited	Hong Kong	10 ordinary shares of HK$100 each
20,000 non-voting deferred shares of HK$100 each*	Distribution of video products in Hong Kong
World East Investments Limited	British Virgin Islands	1 ordinary share of US$1	Distribution of films and sub-licensing of film in the PRC through a PRC agent

The non-voting deferred shares, which are not held by the Group, carry practically no rights to dividends nor to receive notice of nor to attend or vote at any general meeting of the relevant company nor to participate in any distribution on winding up.

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

The Company directly holds the interest in Riche (BVI) Limited. All other subsidiaries are indirectly held by the Company.

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

16. OTHER ASSET

| | The Group
HK$'000 |
| --- | --- |
| COST | |
| At 1st January 2004 and 31st December 2004 | 152,064 |
| AMORTISATION AND IMPAIRMENT | |
| At 1st January 2004 | 98,908 |
| Charged for the year | 6,644 |
| Impairment loss recognised | 46,512 |
| At 31st December 2004 | 152,064 |
| CARRYING AMOUNTS | |
| At 31st December 2004 | — |
| At 31st December 2003 | 53,156 |

Other asset represents rights and benefits arising from the licensing agreement with a distributor in the PRC. It is amortised over a period of 10 years.

The directors reassessed the recoverable amount of the other asset at 31st December 2004 and recognised an impairment loss of approximately HK$46,512,000.

17. GOODWILL

	HK$'000
COST
At 1st January 2004 and 31st December 2004	39,530
AMORTISATION
At 1st January 2004	3,105
Charged for the year	3,953
Impairment loss recognised	28,072
At 31st December 2004	35,130
CARRYING AMOUNTS
At 31st December 2004	4,400
At 31st December 2003	36,425

The amortisation period adopted for goodwill is 10 years.

— 70 —

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

Due to continuous losses incurred by the subsidiaries, the directors reassessed the recoverable amount of the goodwill arising on acquisition of these subsidiaries and recognised an impairment loss of approximately HK$28,072,000 which was determined with reference to the estimated amount obtainable from the sale of these subsidiaries less cost of disposal.

18. INTERESTS IN ASSOCIATES

	The Group
	2004	2003
	HK$'000	HK$'000
Convertible notes issued by an associate	160,000	160,000
Less: Allowance for convertible notes	(160,000)	—
	—	160,000

At 31st December 2004, the Group had interests in the following associates:

Name of associate	Form of business structure	Country of incorporation	Class of share held	Proportion of nominal value of issued share capital held by the Group	Nature of business and place of operation
Gainful Fortune Limited (“Gainful”)	Incorporated	British Virgin Islands	Ordinary	40	Sub-licensing of hotel and and intranet distribution rights in the PRC
Ocean Shores Licensing Limited *	Incorporated	British Virgin Islands	Ordinary	40	Sub-licensing of film rights outside Hong Kong and Macau

Ocean Shores Licensing Limited is a wholly-owned subsidiary of Gainful.

The convertible notes bear interest at 1% per annum, which is payable yearly in arrears, and will mature on 17th April 2005. Prior to the maturity, only Gainful has the right to redeem early part or all of the amount of the convertible notes. The convertible notes carry the right to convert the outstanding principal amount of the convertible notes into ordinary shares of HK$1 each in the share capital of Gainful at a conversion price of HK$1 per share on the maturity date. However, prior to the maturity, the Group may convert the convertible notes with the consent of Gainful.

At 31st December 2004, the directors assessed the financial position of Gainful and considered that the convertible notes cannot be recovered in the future, therefore, an allowance of HK$160,000,000 had been made.

The following details were extracted from the audited consolidated financial statements of Gainful for the year ended 31st December 2004.

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

Results for the year ended 31st December 2004

| | 2004
HK$'000 |
| --- | --- |
| Turnover | 419 |
| Loss from ordinary activities before taxation | 152,385 |
| Loss from ordinary activities before taxation attributable to the Group | — |
| Financial position at 31st December 2004 | |
| | 2004
HK$'000 |
| Current assets | 5,541 |
| Current liabilities | 177,397 |
| Net liabilities | 171,856 |
| Net assets attributable to the Group | — |

19. INVENTORIES

	The Group
	2004
HK$'000	2003
HK$'000
Finished goods	15	1,469

Finished goods of HK$15,000 (2003: HK$127,000) are carried at net realisable value.

20. TRADE RECEIVABLES

The granting of distribution rights and sub-licensing of film rights are covered by customers' deposits placed with the Group. The balance is receivable upon delivery of the master materials to customers.

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

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

	The Group
	2004	2003
	HK$'000	HK$'000
0 — 30 days	3,054	42,074
31 — 60 days	92	5,387
61 — 90 days	1,979	6,221
Over 90 days	18,183	2,820
	23,308	56,502

21. INVESTMENTS IN SECURITIES

	The Group Trading securities
	2004	2003
	HK$'000	HK$'000
Unlisted other equity securities, at cost (note i)	30,000	—
Impairment loss recognised	(12,000)	—
	18,000	—
Listed trading equity securities, at market value:
— Hong Kong (note ii)	38,911	—
— Overseas	2,821	—
	41,732	—
	59,732	—

Notes:

(i) Unlisted other equity securities represent the Group’s investment in Rainbow Choice Enterprises Limited (“Rainbow Choice”), a company incorporated in the British Virgin Islands. The Group’s investment represents a holding of 40% of the ordinary shares of Rainbow Choice. The principal activities of Rainbow Choice are the production and distribution of entertainment news. Rainbow Choice started operations in July 2004 and its operations and assets were controlled by the other shareholder. Although the Group appointed a representative to the board of directors of Rainbow Choice, the Company found that its representative encountered significant difficulty in influencing the management of Rainbow Choice in practice. As a result, Rainbow Choice is reclassified from an associate of the Group to an other investment of the Group.

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

Subsequent to the balance sheet date, the Group entered into an agreement with the other shareholder of Rainbow Choice pursuant to which both parties agreed that the ownership of all the television programs produced by Rainbow Choice would be transferred to the Group and the other shareholder of Rainbow Choice agreed to pay HK$18,000,000 to the Group. Upon signing the agreement, the Group received HK$6,600,000 from the other shareholder of Rainbow Choice and the remaining balance of HK$11,400,000 will be paid to the Group by 4 equal quarterly instalments.

(ii) Included in listed trading equity securities in Hong Kong is the Group’s investment in Mainland Headwear Holdings Limited, a company incorporated in Bermuda. The Group’s investment represents a holding of 3.29% of the ordinary shares of Mainland Headwear Holdings Limited.

22. AMOUNT DUE FROM AN ASSOCIATE

The Group

The amount is unsecured, non-interest bearing and has no fixed terms of repayment.

23. TRADE PAYABLES

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

	The Group
	2004	2003
	HK$’000	HK$’000
China Star Entertainment Limited and its subsidiaries (“China Star Group”):
0 — 30 days	123	1,010
31 — 60 days	116	3,834
61 — 90 days	85	595
Over 90 days	1	8,864
	325	14,303
Others:
0 — 30 days	—	975
61 — 90 days	—	683
Over 90 days	1,658	—
	1,658	1,658
	1,983	15,961

China Star Entertainment Limited (“China Star”) is a substantial shareholder of the Company.

24. AMOUNTS DUE TO RELATED COMPANIES

The amounts are due to China Star Group and are unsecured, non-interest bearing and have no fixed repayment terms.

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

25. OBLIGATIONS UNDER A FINANCE LEASE

	Minimum lease payments		Present value of minimum lease payments
	2004 HK$’000	2003 HK$’000	2004 HK$’000	2003 HK$’000
The Group
Amounts payable under a finance lease:
Within one year	10	25	8	23
In the second to fifth year inclusive	—	10	—	8
	10	35	8	31
Less: Future finance charges	2	4	—	—
Present value of lease obligations	8	31	8	31
Less: Amount due for payment within one year			8	(23)
Amount due for payment after one year			—	8

The Group has leased certain of its equipment under a finance lease. The lease term is 5 years. Interest is charged at commercial rates and is fixed at the contract date. The lease is on a fixed repayment basis and no arrangement has been entered into for contingent rental payments.

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

26. CONVERTIBLE NOTES PAYABLE

The Group and the Company

On 5th February 2002, the Group and China Star Group entered into a licensing agreement pursuant to which China Star Group granted to the Group the licensing rights in the PRC and Mongolia in respect of 116 motion pictures for a term of 10 years from 8th April 2002 at a total consideration of HK$33,800,000. The consideration was settled by the issue of convertible notes in an aggregate amount of HK$33,800,000 by the Company.

The convertible notes bear interest at 1% per annum which is payable semi-annually in arrears and will mature on 19th April 2005. Prior to the maturity, neither the holder nor the Company has the right to redeem or request for redemption of the notes. The convertible notes carry the right to convert the whole or any part of the outstanding principal amount of the convertible notes into ordinary shares of HK$0.10 each in the share capital of the Company at HK$4.00 per share at any time on or before 19th April 2005. The convertible notes may be transferred in whole or in part of the outstanding principal amount into the share capital of the Company by the holder.

— 75 —

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

27. SHARE CAPITAL

| | Number of shares
'000 | Amount
HK$'000 |
| --- | --- | --- |
| Ordinary shares of HK$0.10 each | | |
| Authorised:
At 31st December 2003 and 31st December 2004 | 2,000,000 | 200,000 |
| Issued and fully paid:
At 31st December 2003 and 31st December 2004 | 475,200 | 47,520 |

There was no movement in the issued share capital of the Company during both years.

Warrants

During the year ended 31st December 2002, the Company issued 95,040,000 warrants by way of bonus to the shareholders on the basis of one warrant for every five shares of HK$0.10 each in the share capital of the Company held on 27th May 2002. Such warrants carry the subscription rights to subscribe for shares in the Company at the subscription price of HK$3.60 per share of HK$0.10 each in the Company. The warrants may be exercised at any time on or after 17th June 2002 up to and including 16th June 2005. During the year, no holders of the warrants exercised their rights to subscribe for shares in the Company. Exercise in full of such warrants would result in the issue of 95,040,000 additional ordinary shares of HK$0.10 each.

28. RESERVES

	The Company
	Share premium
HK$'000	Contributed surplus
HK$'000
(Note)	Accumulated losses
HK$'000	Total
HK$'000
At 1st January 2003	186,682	83,353	(106,579)	163,456
Cancellation of share premium account and transfer to contributed surplus account	(186,682)	186,682	—	—
Transfer from contributed surplus account to accumulated losses account	—	(106,579)	106,579	—
Net loss for the year	—	—	(1,972)	(1,972)
At 31st December 2003	—	163,456	(1,972)	161,484
Net loss for the year	—	—	(148,631)	(148,631)
At 31st December 2004	—	163,456	(150,603)	12,853

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

Note: The contributed surplus of the Company represents the difference between the underlying net assets of the subsidiaries acquired by the Company as at the date of the group reorganisation and the nominal amount of the Company's share capital issued as consideration for the acquisition as well as the net amount transferred from the share premium account and to the accumulated losses account pursuant to the special resolution passed at a special general meeting on 22nd August 2003.

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

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

The Group

The capital reserve of the Group represents the difference of the share capital and share premium of the subsidiaries and the nominal value of the 880 shares issued by Ocean Shores (BVI) Limited (now renamed Riche (BVI) Limited) prior to the allotment of 120 shares to Classical Statue Limited and the amount arising from issue of shares by a subsidiary.

The contributed surplus of the Group represents the net amount transferred from the share premium account and to the accumulated losses account pursuant to the special resolution passed at a special general meeting on 22nd August 2003.

All the reserves of the Group are attributable to the Company and its subsidiaries.

29. DEFERRED TAXATION

The followings are the major deferred tax liabilities and assets recognised by the Group and movements thereon:

	Accelerated tax depreciation HK$’000	Estimated tax losses HK$’000	Total HK$’000
At 1st January 2003	1,487	—	1,487
Credit to income statement for the year (note 11)	(937)	(550)	(1,487)
At 31st December 2003 and 1st January 2004	550	(550)	—
Credit to income statement for the year (note 11)	(123)	123	—
At 31st December 2004	427	(427)	—

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

At the balance sheet date, the Group had unused estimated tax losses of approximately HK$51,200,000 (2003: HK$38,800,000) available for offset against future profits. A deferred tax asset of approximately HK$427,000 (2003: HK$550,000) has been recognised. No deferred tax asset has been recognised in respect of the remaining balance of approximately HK$8,533,000 (2003: HK$6,240,000) due to the unpredictability of future profit streams.

30. COMMITMENTS

(a) Lease commitments

As leasee

At 31st December 2004, the Group had commitments for future minimum lease payments under non-cancellable operating leases in respect of land and buildings which fall due as follows:

	The Group
	2004	2003
	HK$'000	HK$'000
Within one year	981	1,007
In the second to fifth year inclusive	463	108
	1,444	1,115

Operating lease payments represent rentals payable by the Group for its office premises. Leases are mainly negotiated for a term of two years and rentals are fixed for two years.

As lessor

At 31st December 2004 the Group had contracted with tenants for future minimum lease payments under non-cancellable operating leases in respect of group's property which fall due as follows:

	The Group
	2004	2003
	HK$'000	HK$'000
Within one year	26	—

At the balance sheet date, the Company did not have any lease commitments.

(b) Other commitments

At 31st December 2004, the Group had the following commitments contracted but not provided for in the financial statements:

	2004	2003
	HK$'000	HK$'000
Purchase of film rights	56	4,330

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

In addition, pursuant to the undertaking letters issued by the owners of 天津市星灘音像制品銷售有限公司 and 上海昇平文化發展有限公司 during the year ended 31st December 2003, they will transfer their ownership in these two companies to the Group at prices determined by the valuers in the PRC when the laws in the PRC allow foreign investors own more than 51% in these two companies.

31. SHARE OPTION SCHEME

Pursuant to an ordinary resolution passed at a special general meeting of the Company held on 21st January 2002, the Company adopted a share option scheme (the "Option Scheme") to replace the share option scheme adopted by the Company on 19th January 2000.

The major terms of the Option Scheme are summarised as followings:

(a) The purpose was to provide incentives to:

(i) award and retain the participants who have made contributions to the Group; or
(ii) attract potential candidates to serve the Group for the benefit of the development of the Group.

(b) The participants included:

(i) any director or proposed director (whether executive or non-executive, including any independent non-executive director), employee or proposed employee (whether full time or part time) of, or
any individual for the time being seconded to work for,

any member of the Group or any controlling shareholder or any company controlled by a controlling shareholder.

(ii) any holder of any securities issued by any member of the Group or any controlling shareholder or any company controlled by a controlling shareholder.
(iii) any business or joint venture partner, contractor, agent or representative of,

any person of entity that provides research, development or other technological support or any advisory, consultancy, professional or other services to,
any supplier, producer or licensor of films, television programmes, video features, goods or services to,
any customer, licensee (including any sub-licensee) or distributor of films, television programmes, video features, goods or services of, or
any landlord or tenant (including any sub-tenant) of,

— 79 —

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

any member of the Group or any controlling shareholder or a company controlled by a controlling shareholder.

and, for the purposes of the Option Scheme, shall include any company controlled by one or more persons belonging to any of the above classes of participants.

(c) The maximum number of shares in respect of which share options might be granted under the Option Scheme must not exceed 10% of the issued share capital of the Company as at the date of approval of the Option Scheme and such limit might be refreshed by shareholders in general meeting. The total maximum number of shares which might be issued upon exercise of all outstanding share options granted and yet to be exercised under the Option Scheme and any other share option scheme must not exceed 30% of the shares in issue from time to time. The total number of shares available for issue under the Option Scheme at the date of this annual report was approximately 465,700,000, which represented 9.8% of the issued share capital of the Company at the date of this annual report.

(d) The maximum number of shares in respect of share which share options might be granted to a participant, when aggregate with shares issued and issuable (including exercised and outstanding options and the options cancelled) under any share option granted to the same participant under the Option Scheme or any other share option scheme within any 12 month period, must not exceed 1% of the shares in issue from time to time.

(e) The exercise period should be any period fixed by the board of directors upon grant of the share option but in any event the share option period should not go beyond 10 years from the date of offer for grant.

(f) There was no requirement for a grantee to hold the share option for a certain period before exercising the share option save as determined by the board of directors and provided in the offer of grant of share option.

(g) The acceptance of a share option, if accepted, must be made within 30 days from the date of grant with a non-refundable payment of HK$1 from the grantee to the Company.

(h) The exercise price of a share option must be highest of:

(i) the closing price of the share of the Company on the date of grant which day must be a trading day;

(ii) the average closing price of the share of the Company for the 5 trading days immediately preceding the date of grant; and

(iii) the nominal value of the share of the Company.

(i) The life of the Option Scheme is effective for 10 years from the date of adoption until the date of expiry.

— 80 —

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

The following table discloses details of the Company's share options granted under the Option Scheme held by the directors and the employees and movements in such holdings during the year:

Category of participants	Date of grant	Exercise price per share HK$	Exercisable period (Note i)	Number of share options
				Outstanding at 1.1.2003 and 1.1.2004	Granted during 2004 (Note ii)	Outstanding at 31.12.2004
Directors	8.3.2002	2.6	8.3.2002 — 7.3.2012	4,750,000	—	4,750,000
Employees	8.3.2002	2.6	8.3.2002 — 7.3.2012	14,250,000	—	14,250,000
Employees	13.12.2004	1.94	13.12.2004 — 12.12.2014	—	27,570,000	27,570,000
				19,000,000	27,570,000	46,570,000

Notes:

(i) The exercisable period commenced on the date of grant of the relevant share options.
(ii) The closing price of the Company's shares immediately before the date of grant of share options in 2004 was HK$1.94 per share.
(iii) No share option was cancelled and exercised during the year.

32. RETIREMENT BENEFITS SCHEME

With effect from the 1st December 2000, the Group has set up a defined contribution retirement scheme, the Mandatory Provident Fund Scheme (the "MPF Scheme"), for all the eligible employees of the Group. The Group did not provide retirement benefits for its employees prior to set up of the MPF Scheme.

Under the MPF Scheme, the employees are required to contribute 5% of their monthly salaries up to maximum of HK$1,000 per employee and they can choose to make additional contributions. The employer's monthly contributions are calculated at 5% of each employee's monthly salaries up to a maximum of HK$1,000 (the "Mandatory Contribution"). The employees are entitled to 100% of the employer's Mandatory Contribution upon their retirement at the age of 65 years old, death or total incapacity.

33. RELATED PARTY TRANSACTIONS

(a) On 5th February 2002, the Group and China Star Group entered into a territory supply agreement whereby China Star Group, during the term of 3 years from 8th April 2002, granted in favour of the Group a first right of refusal to acquire the exclusive distribution rights excluding the theatrical and internet rights in respect of each film in the PRC and Mongolia ("Distribution Rights") and an option to acquire the theatrical rights.

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

Pursuant to the territory supply agreement, the Group paid an amount of HK$5,000,000 to China Star Group as a deposit for the grant of the first right of refusal to acquire the Distribution Rights and as security for the licence fees payable under the territory distribution agreements to be entered into. If the Group elects to acquire the Distribution Rights, a territory distribution agreement in respect of the film will be entered into pursuant to which the Group shall pay a licence fee in respect of each film ranging from approximately HK$200,000 to HK$1,000,000, calculated by reference to its grading. The Distribution Rights in respect of a film will be for a period of 10 years. In relation to the option to acquire the theatrical rights, the additional license fee shall be equal to the balance of the total income received by the Group in respect of the exploitation of such theatrical rights before payment of any distribution expenses but after deducting a sum equal to 20% of the said total income which shall be retained by the Group.

During the years ended 31st December 2003 and 2004, the Group acquired the Distribution Rights of 15 and 10 films respectively from China Star Group at a total consideration of approximately HK$9,700,000 and HK$8,500,000 respectively and the Group acquired the theatrical rights of 7 and 6 films respectively from China Star Group at a total license fee of approximately HK$15,453,000 and HK$4,970,000 respectively pursuant to the relevant territory distribution agreements.

At 31st December 2003, the Group paid a deposit of approximately HK$720,000 to China Star Group for the acquisition of the Distribution Rights. There was no deposit paid to China Star Group as at 31st December 2004.

(b) During the year, the Group entered into the following transactions with China Star Group:

	2004	2003
	HK$'000	HK$'000
Nature of transactions
Interest expense (Note i)	338	338
Post-production expense (Note ii)	1,781	1,269

Notes:

(i) Interest expense was calculated at 1% per annum in accordance with the terms of the convertible notes issued by the Company.

(ii) The amounts were determined at prices agreed between the parties.

(c) On 3rd December 2002, the Group entered into a cyber cinema rights supply agreement with China Star Group pursuant to which China Star Group agreed to distribute the cyber cinema rights of the films within the PRC for the Group subject to such other terms as may be agreed by the parties to the relevant future distribution agreements to be entered into. In consideration of the provision of services by China Star Group, the Group would pay China Star Group distribution commission equivalent to 35% of the total income received by China Star Group on behalf of the

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

Group. During the year ended 31st December 2003, the Group paid distribution commission of approximately HK$527,000 to China Star Group pursuant to the relevant Cyber Cinema rights distribution agreements. There was no distribution commission paid or payable to China Star Group during the year ended 31st December 2004.

(d) Details of the amounts due to and convertible notes payable to China Star Group are set out in notes 24 and 26 respectively.

(e) During the year, the Group had interest receivable of approximately HK$1,600,000 (2003: HK$1,600,000) from an associate. The interest was calculated at 1% per annum in accordance with the terms of the convertible notes issued by the associate. Details of the convertible notes issued by the associate and the amount due from the associate are set out in notes 18 and 22 respectively.

(f) During the year, the Group granted the hotel and intranet distribution rights in the PRC in respect of 24 (2003: 100) motion pictures to an associate at a total consideration of HK$6,384,000 (2003: HK$26,667,000) in accordance with the agreements entered into between the parties.

34. POST BALANCE SHEET EVENTS

(a) On 21st December 2004, the Company announced that every one share of HK$0.10 each in the issued and unissued share capital of the Company be subdivided into 10 shares of HK$0.01 each in the issued and unissued share capital of the Company. This share subdivision was approved by the shareholders on the special general meeting held on 14th January 2005. The share subdivision took effect on 17th January 2005.

(b) On 9th April 2005, the Group entered into a conditional sale and purchase agreement with Leadfirst Limited, a company wholly-owned by Mr. Benny Ki, as a seller, and Mr. Benny Ki, as a guarantor, pursuant to which the Group agreed to acquire 100% of the issued share capital of Best Winning Group Limited from Leadfirst Limited at a consideration of HK$600,000,000. The consideration will be satisfied by the issue of the convertible note in the principal amount of HK$500,000,000 by the Company and the payment of cash of HK$100,000,000.

Leadfirst Limited has been appointed by the sole operator of a casino and gaming establishment ("Casino") on board the vessel named Radisson Diamond (to be renamed as Asia Star) ("Vessel") as the sole and exclusive service provider for the promotion and introduction of customers to the Vessel and the provision of rolling and settlement services for customers of the Casino under a binding memorandum of understanding for a term of 3 years with an option to renew for another 3 years. Such functions have been subcontracted to Best Winning Group Limited for a term of 3 years with an option to renew for another 3 years under the sub-marketing agreement entered into between Best Winning Group Limited and Leadfirst Limited whereby Best Winning Group Limited is being appointed as the sole and exclusive service provider for the provision of these services in accordance with its terms.

— 83 —

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

Under the conditional sale and purchase agreement, Mr. Benny Ki will enter into a service agreement and will be engaged as the general manager of the Company upon completion of the conditional sale and purchase agreement. In consideration of entering into the service agreement and the services to be rendered thereunder, the Company will grant Mr. Benny Ki the share options to subscribe for 500,000,000 shares of HK$0.01 each of the Company at an exercise price of HK$0.25 per share, and pay Mr. Benny Ki a monthly salary of HK$10,000 for a term of one-year from the date of the service agreement (subject to the increase determined by the board of directors of the Company from time to time) and the monthly salary of the highest of HK$10,000 or one-twelfths of 5% of the net profit of the Group for the immediately preceding service year starting from the date next following the first anniversary of the date of the service agreement.

(c) On 17th April 2005, the Group exercised the right under the convertible notes issued by Gainful to convert the outstanding principal amount of HK$160,000,000 into share capital of Gainful. Since then, Gainful becomes a subsidiary of the Group.

(d) On 19th April 2005, the convertible notes of HK$33,800,000 issued by the Company to First-Up Investments Limited ("First-Up"), a wholly-owned subsidiary of China Star, matured. First-Up did not exercise the right to convert the outstanding principal amount of HK$33,800,000 into share capital of the Company and the Company repaid HK$33,800,000 to First-Up. On the same date, China Star granted a one-year term loan of HK$33,800,000 to the Company. The loan is unsecured, bears interest at 1% per annum and repayable on demand.

— 84 —

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

2. UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(a) Introduction to the Unaudited Pro Forma Financial Information of the Enlarged Group

The accompanying unaudited pro forma statement of adjusted combined assets and liabilities of the Enlarged Group has been prepared to illustrate the effect of the Group’s Acquisition of 100% of the issued share capital of Best Winning at a consideration of HK$600,000,000, which shall be satisfied by the issue of the Convertible Note in the principal amount of HK$500,000,000 by the Company and the payment of cash of HK$100,000,000. The amount of HK$100,000,000 represents part of the Consideration of the Acquisition. As at the Latest Practicable Date, the Group has paid refundable deposits of HK$40,000,000 to Leadfirst. The remaining balance of the cash Consideration of HK$60,000,000 will be satisfied by realising all the Group’s investments in securities and cash generated from the Group’s operating activities and by realising the Group’s leasehold land and buildings.

The accompanying unaudited pro forma statement of adjusted combined assets and liabilities of the Enlarged Group gives effect to the above transaction as if they have been consummated on 31st December 2004.

The accompanying unaudited pro forma statement of adjusted combined assets and liabilities of the Enlarged Group is prepared based upon the historical financial information of the Group as at 31st December 2004 and Best Winning as at 30th April 2005 after giving effect to the pro forma adjustments described in the accompanying notes. Narrative descriptions of the pro forma adjustments are summarised in the accompanying notes.

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

The accompanying unaudited pro forma statement of adjusted combined assets and liabilities of the Enlarged Group is prepared and is provided for illustrative purpose only. Accordingly, as a result of the nature of the accompanying unaudited pro forma statement of adjusted combined assets and liabilities of the Enlarged Group, it may not give a true picture of the actual financial position of the Enlarged Group that would have been attained had the Acquisition actually occurred on the dates indicated herein. Furthermore, the accompanying unaudited pro forma statement of adjusted combined assets and liabilities of the Enlarged Group does not purport to predict the Enlarged Group’s future financial position.

The accompanying unaudited pro forma statement of adjusted combined assets and liabilities of the Enlarged Group should be read in conjunction with the Accountants’ Report on Best Winning as set out in Appendix I, the financial information on the Group as set out in Appendix II and other financial information included elsewhere in this circular.

— 86 —

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

(b) Unaudited pro forma statement of adjusted combined assets and liabilities of the Enlarged Group

	The Group (Note 1) HK$'000	Best Winning (Note 2) HK$'000	Sub-total HK$'000	Pro forma adjustments HK$'000	Notes	Pro forma Enlarged Group (Note 1) HK$'000
Non-current assets
Property, plant and equipment	11,808	—	11,808			11,808
Film rights	9,236	—	9,236			9,236
Goodwill	4,400	—	4,400	600,000	3	604,400
Club memberships	172	—	172			172
	25,616	—	25,616			625,616
Current assets
Inventories	15	—	15			15
Film rights	1,105	—	1,105			1,105
Film rights deposits	14	—	14			14
Trade receivables	23,308	—	23,308			23,308
Other receivables, prepayments and deposits	4,584	—	4,584			4,584
Deposit with a related company	5,000	—	5,000			5,000
Investments in securities	59,732	—	59,732			59,732
Amount due from an associate	300	—	300			300
Bank balances and cash	15,460	—	15,460	(100,000)	4	(84,540)
	109,518	—	109,518			9,518
Current liabilities
Trade payables	1,983	—	1,983			1,983
Other payables and accruals	3,797	—	3,797			3,797
Receipt in advance	1,204	—	1,204			1,204
Amounts due to related companies	549	—	549			549
Obligations under a finance lease — amount due within one year	8	—	8			8
Convertible notes payable	33,800	—	33,800	500,000	5	533,800
Taxation payable	22,969	—	22,969			22,969
	64,310	—	64,310			564,310
Net current assets/ (liabilities)	45,208	—	45,208			(554,792)
Net assets	70,824	—	70,824			70,824
Capital and reserves
Share capital	47,520	—	47,520			47,520
Reserves	23,304	—	23,304			23,304
	70,824	—	70,824			70,824

— 87 —

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

Notes:

In 2004, the Hong Kong Institute of Certified Public Accountants, (the "HKICPA") issued a number of new or revised Hong Kong Accounting Standards ("HKAS") and Hong Kong Financial Reporting Standards ("HKFRSs") (herein collectively referred to as "New HKFRSs") which are effective for accounting periods beginning on or after 1st January 2005. The Group has not early adopted these New HKFRSs in the financial statements for the year ended 31st December 2004.

The Enlarged Group has commenced considering the potential impact of these New HKFRSs. Based on management's preliminary assessment, the adoption of HKFRS 3 "Business Combinations" and HKAS 36 "Impairment of Assets" in the accounting period beginning on 1st January 2005 will result in cessation of amortization of goodwill to the income statement. Pursuant to HKFRS 3 "Business Combinations" and HKAS 36 "Impairment of Assets", goodwill is to be recognised as an asset and reviewed for impairment at least annually and any impairment is recognised immediately in the income statement while the Group's current policy is to amortise goodwill on a straight-line basis over its useful economic life and reviewed for impairment if there are indicators of impairment at the year end. According to HKFRS 3 and HKAS 36, these New HKFRSs shall be applied prospectively.

The Enlarged Group is still in the process of making an assessment of the impact of these new HKFRSs and has so far concluded that other than the adoption of HKFRS 3 and HKAS 36, the adoption of the New HKFRSs is unlikely to have a significant impact on the unaudited pro forma statement of adjusted combined assets and liabilities of the Enlarged Group had the New HKFRSs been adopted.

The unaudited pro forma statement of adjusted combined assets and liabilities of the Enlarged Group has been prepared based on the audited consolidated balance sheet of the Group as at 31st December 2004 as extracted from the audited financial statements of the Group for the year ended 31st December 2004 and adjusted for the balance sheet of Best Winning as at 30th April 2005 as extracted from the Appendix I "Accountants' Report on Best Winning" of this Circular.

Best Winning is a company formed solely for the purpose of engaging in the business of promoting and introducing customers to the Vessel and the provision of Rolling and Settlement Services for customers of the Casino. Best Winning has not commenced operations since incorporation and the paid-up capital of Best Winning is US$1.

Goodwill of approximately HK$600,000,000 represents the cost of acquisition of Best Winning which has the right to act as the sole and exclusive service provider for the promotion and introduction of customers to the Vessel and the provision of rolling and settlement services for customers of the Casino. Pursuant to HKFRS 3 "Business Combinations" and HKAS 36 "Impairment of Assets", goodwill is to be recognised as an asset and reviewed for impairment at least annually and any impairment is recognised immediately in the income statement while the Group's current policy is to amortise goodwill on a straight-line basis over its useful economic life and reviewed for impairment if there are indicators of impairment at the year end.
The amount of HK$100,000,000 represents part of the Consideration of the Acquisition. As at the Latest Practicable Date, the Group has paid refundable deposits of HK$40,000,000 to Leadfirst. The remaining balance of the cash Consideration of HK$60,000,000 will be satisfied by realising all the Group's investments in securities, cash generated from the Group's operating activities and by realising the Group's leasehold land and buildings.

— 88 —

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

The Convertible Note of HK$500,000,000 represents part of the Consideration of the Acquisition.

The convertible notes of HK$33,800,000 recorded by the Group as at 31st December 2004 was matured on 19th April 2005. Upon its maturity, First-Up Investments Limited, a wholly owned subsidiary of China Star Entertainment Limited, did not exercise the right to convert the outstanding principal amount of HK$33,800,000 into Share and the Company repaid HK$33,800,000 to First-Up Investment Limited. On the same date, China Star Entertainment Limited granted a term loan of HK$33,800,000 to the Company.

— 89 —

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

Chartered Accountants
Certified Public Accountants

31st Floor
Gloucester Tower
The Landmark
11 Pedder Street
Central
Hong Kong

24th June 2005

The Directors
Riche Multi-Media Holdings Limited
Unit 609-610 Miramar Tower
132 Nathan Road
Tsimshatsui
Kowloon
Hong Kong

Dear Sirs,

We set out below our report on the unaudited pro forma financial information (the "Pro Forma Financial Information") of Riche Multi-Media Holdings Limited (the "Company") and its subsidiaries (collectively referred to as the "Group") and Best Winning Group Limited ("Best Winning") (together with the Group hereinafter referred to as the "Enlarged Group") set out in Appendix II of the circular of the Company dated 24th June 2005 (the "Circular") in connection with the acquisition of 100% issued share capital of Best Winning (the "Acquisition"), which has been prepared, for illustrative purposes only, to provide information about how the Acquisition might have affected the historical financial information of the Group as at 31st December 2004 presented therein. The basis of preparation for the Pro Forma Financial Information is set out in the accompanying introduction thereto.

Responsibilities

It is the responsibility solely of the directors of the Company to prepare the Pro Forma Financial Information in accordance with Rules 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the "Listing Rules").

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

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

Basis of opinion

We conducted our work in accordance with 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 Practice Board in the United Kingdom. Our work, which involved no independent examination of any of the underlying financial information, consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments and discussing the Pro Forma Financial Information with the directors of the Company.

Because the above work does not constitute an audit or review made in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants, we do not express any such assurance on the Pro Forma Financial Information.

The Pro Forma Financial Information has been prepared in accordance with the basis set out in the Introduction to the Unaudited Pro Forma Financial Information of the Enlarged Group in Appendix II for illustrative purposes only and, because of its nature, it does not provide any assurance or indication that any event will take place in the future and it may not be indicative of the financial position of the Enlarged Group on 31st December 2004 or at any future date.

Opinion

In our opinion:

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

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

(c) the adjustments are appropriate for the purposes of the Pro Forma Financial Information as disclosed pursuant to Rule 4.29(1) of the Listing Rules.

Yours faithfully,

HLB Hodgson Impey Cheng

Chartered Accountants

Certified Public Accountants

Hong Kong

APPENDIX II

FINANCIAL INFORMATION ON THE GROUP

3. INDEBTEDNESS OF THE ENLARGED GROUP

Borrowings

As at the close of business on 30th April 2005, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Enlarged Group had no outstanding bank borrowings.

As at 30th April 2005, the Enlarged Group had outstanding one-year term loan of HK$33,800,000 due to China Star Entertainment Limited, which holds approximately 42.54% of the issued share capital of the Company indirectly. The loan is unsecured, bears interest at 1% per annum and repayable on demand.

Disclaimer

Save as aforesaid above and apart from intra-group liabilities, at the close of business on 30th April 2005, the Enlarged Group did not have any outstanding mortgages, charges, debentures or other loan capital or bank overdrafts, loans, debt securities or other similar indebtedness, liabilities under acceptances or acceptances credits or hire purchase commitments, or any guarantees or other commitment or any contingent liabilities.

4. WORKING CAPITAL

As at the Latest Practicable Date, after taking into account the internal resources (for example, the proceeds from the proposed realisation of the Group’s investment in securities and leasehold land and buildings and cash generated from operating activities) of the Enlarged Group, the Directors are of the opinion that the Enlarged Group has sufficient working capital for at least twelve months from the date of this circular, including financing the acquisition of Best Winning.

5. MATERIAL ADVERSE CHANGES

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31st December 2004 (being the date to which the latest published audited financial statements of the Company were made up).

APPENDIX III

GENERAL INFORMATION

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. DIRECTORS' AND CHIEF EXECUTIVE'S INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES

As at the Latest Practicable Date, the interests and short positions of the Directors and chief executive of the Company in the Shares, underlying Shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) were as follows:

Name of Director	Company/Name of associated corporation	Capacity	Number and class of securities
Mr. Lei Hong Wai	Riche Multi-Media Holdings Limited	Beneficial owner	47,500,000 Share Options

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or chief executive of the Company had or was deemed to have interests or short position in the Shares, underlying Shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they were 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 of the Listing Rules, to be notified to the Company and the Stock Exchange.

— 93 —

APPENDIX III

GENERAL INFORMATION

3. INTERESTS AND SHORT POSITIONS OF SUBSTANTIAL SHAREHOLDERS

Save as disclosed below, as at the Latest Practicable Date, according to the register of interest kept by the Company under Section 336 of the SFO and so far as was known to the Directors, no other person or companies (other than a Director or chief executive of the Company whose interests are disclosed above) had an interest or short positions in the Shares or underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group or had any option in respect of such capital:

Long positions

Name	Notes	Capacity	Interest in Shares	Interest in underlying Shares (if any)	Total interest in Shares	Percentage of the issued capital of the Company
China Star Entertainment Limited	1, 7	Interest of corporation	2,022,530,000	nil	2,022,530,000	42.54%
China Star Entertainment (BVI) Limited	1, 7	Interest of corporation	2,022,530,000	nil	2,022,530,000	42.54%
Classical Statue Limited	7	Beneficial owner	2,022,530,000	nil	2,022,530,000	42.54%
Top Vision Management Limited		Beneficial owner	792,000,000	nil	792,000,000	16.66%
Mr. Chan Kam Sum	2	Interest of corporation	792,000,000	nil	792,000,000	16.66%
Lucky Star Consultants Limited		Beneficial owner	354,000,000	nil	354,000,000	7.45%
Mr. Lau Tung Hoi	3	Interest of	354,000,000	nil	354,000,000	7.45%
Leadfirst	5	Beneficial owner	nil	1,000,000,000	1,000,000,000	21.03%
Mr. Ki	5	Interest of corporation	nil	1,000,000,000	1,000,000,000	21.03%
Mr. Ki	6	Beneficial owner	nil	500,000,000	500,000,000	10.52%

APPENDIX III

GENERAL INFORMATION

Short positions

Name	Notes	Capacity	Interest in Shares	Interest in underlying Shares	Total interest in Shares	Percentage of the issued capital of the Company
Top Vision Management Limited	4	Beneficial owner	420,000,000	nil	420,000,000	8.83%
Mr. Chan Kam Sum	4	Interest of corporation	420,000,000	nil	420,000,000	8.83%

Notes:

2,022,530,000 Shares are beneficially owned by Classical Statue Limited. Classical Statue Limited is a wholly-owned subsidiary of China Star Entertainment (BVI) Limited. China Star Entertainment (BVI) Limited is a wholly-owned subsidiary of China Star Entertainment Limited. China Star Entertainment Limited and China Star Entertainment (BVI) Limited are deemed to be interested in shares owned by Classical Statue Limited.
792,000,000 Shares are held by Top Vision Management Limited, which is wholly-owned by Mr. Chan Kam Sum.
354,000,000 Shares are held by Lucky Star Consultants Limited, which is wholly-owned by Mr. Lau Tung Hoi.
420,000,000 Shares for short positions are held by Top Vision Management Limited, which is wholly-owned by Mr. Chan Kam Sum.
1,000,000,000 underlying Shares to be issued upon full conversion of the Convertible Notes held by Leadfirst, which is wholly-owned by Mr. Ki.
500,000,000 Shares to be issued upon exercise of the BK Share Option.
Mr. Heung Wah Keung, Ms. Chen Ming Yin, Tiffany and Mr. Ho Wai Chi, Paul are directors of the Company and China Star Entertainment Limited. Mr. Heung Wah Keung and Ms. Chen Ming Yin, Tiffany are directors of the Company, China Star Entertainment (BVI) Limited and Classical Statue Limited.
DIRECTORS' INTERESTS IN ASSETS

None of the Directors has or has had any direct or indirect interest in any assets which have been acquired or disposed of by or leased to any member of the Enlarged Group or are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group since 31st December 2004, being the date to which the latest published audited accounts of the Group were made up.

APPENDIX III

GENERAL INFORMATION

5. DIRECTORS' INTERESTS IN CONTRACTS

None of the Directors was materially interested, directly or indirectly, in any contract or arrangement entered into by any member of the Enlarged Group which was subsisting as at the Latest Practicable Date and which was significant in relation to the business of the Enlarged Group.

6. COMPETING INTEREST

As at the Latest Practicable Date, none of the Directors nor their respective associates had any business or interest that competes or may compete with the business of the Group or any other conflicts of interest with the Group.

7. LITIGATION

As at the Latest Practicable Date, save as disclosed below, neither the Company nor any of its subsidiaries nor Best Winning was engaged in any litigation or arbitration of material importance and no litigation or claim of material importance known to the Directors to be pending or threatened against any member of the Enlarged Group.

The Commissioner of Inland Revenue had issued proceedings on 30th March 2005 against Ocean Shores Licensing Limited, a subsidiary of the Company, in respect of an aggregate amount of outstanding taxation of HK$12,575,614 in respect of the financial years ended 1999, 2000 and 2001. Provision for this amount has been made in the Company's audited financial statements for the year ended 31st December, 2004 and the Company is currently in discussions with the Inland Revenue as to whether such taxation is payable.

8. EXPERTS AND CONSENTS

The followings are the qualifications of the experts who have given opinion or advise, which is contained in this circular:

Name	Qualifications
HLB Hodgson Impey Cheng	Chartered Accountants, Certified Public Accountants

HLB Hodgson Impey Cheng has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its respective letter and references to its name in the form and context in which they appear.

— 96 —

APPENDIX III

GENERAL INFORMATION

9. EXPERT'S INTERESTS IN ASSETS

As at the Latest Practicable Date, HLB Hodgson Impey Cheng:

(a) was not interested, directly or indirectly, in any assets which have been acquired or disposed of by or leased to any member of the Enlarged Group or are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group since 31st December 2004, being the date to which the latest published audited accounts of the Company were made up; and

(b) did not have any shareholding interest in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

10. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had entered into any service contracts with any member of the Enlarged Group which was not determinable by the Company within one year without payment of compensation, other than statutory compensation.

11. MATERIAL CONTRACTS

The following contracts (not being contracts in the ordinary course of business) have been entered into by the members of the Enlarged Group within the two years immediately preceding the Latest Practicable Date:

(i) an agreement dated 3rd July 2003 entered into between Riche (BVI) Limited ("Riche BVI"), a wholly-owned subsidiary of the Company, and Mr. Lai Miao Yuan, an independent third party, pursuant to which Riche BVI agreed to purchase the entire issued share capital of World East Investments Limited for a consideration of HK$15,000,000;

(ii) a letter of undertaking dated 3rd July 2003 read together with a supplemental of undertaking dated 7th November 2003 from Mr. Lai Miao Yuan pursuant to which Mr. Lai Miao Yuan undertook to transfer his 49% interest in the registered capital of 上海昇平文化發展有限公司("Shanghai Shengping") to World East Investments Limited or its designated legal entity at a transfer price based on a valuation to be made by an asset valuation organization when the laws and regulations in the PRC allow for an enterprise with more than 51% foreign ownership to engage in the business scope as stipulated in Shanghai Shengping's business license;

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APPENDIX III

GENERAL INFORMATION

(iii) a letter of undertaking dated 3rd July 2003 read together with a supplemental letter of undertaking dated 7th November 2003 from Ms. Chen Ping pursuant to which Ms. Chen Ping undertook to transfer her 51% interest in the registered capital of Shanghai Shengping to World East Investments Limited or its designated legal entity at a transfer price based on a valuation to be made by an asset valuation organization once the laws and regulations in the PRC allow for an enterprise with more than 51% foreign ownership to engage in the business scope as stipulated in Shanghai Shengping’s business license;

(iv) a shareholders’ agreement dated 26th March 2004 entered into between Bluelagoon Investment Holdings Limited (“Bluelagoon”), a wholly-owned subsidiary of the Company, and Mr. Liu Shu Jin, an independent third party, pursuant to which Bluelagoon agreed to invest HK$30,000,000 as production and distribution fees for a 40% equity interest in Rainbow Choice Enterprises Limited (“Rainbow Choice”), a company which principally engaged in production and distribution of entertainment news programmes in the PRC;

(v) an agreement dated 23rd April 2005 entered into between Bluelagoon and Mr. Liu Shu Jin, pursuant to which both parties agreed to cease the operations of Rainbow Choice and the ownership of all entertainment news programmes produced by Rainbow Choice would be transferred to Bluelagoon, and Mr. Liu Shu Jin agreed to repay the production and distribution fees of HK$18,000,000 to Bluelagoon; and

(vi) the S&P Agreement.

As Mr. Lai Miao Yuan (refer to (ii) above) and Ms. Chen Ping (refer to (iii) above) have not transferred their interests in the registered capital of Shanghai Shengping to World East Investments Limited, the transfer prices have not yet been valued and agreed upon.

12. MISCELLANEOUS

(a) The Company has established an audit committee on 19th January 2000 in accordance with the requirements of the Code of Best Practice, for the purposes of reviewing and providing supervision over the Group’s financial reporting process and internal controls. The present members of the audit committee are three of the independent non-executive Directors, namely Mr. Tang Chak Lam, Gilbert, Mr. Ho Wai Chi, Paul and Mr. Lien Wai Hung;

(b) The register office of the Company is situated at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda and the principal office of the Company is situated at Units 609-610, 6th Floor, Miramar Tower, 132 Nathan Road, Tsimshatsui, Kowloon, Hong Kong;

APPENDIX III

GENERAL INFORMATION

(c) The Hong Kong branch share registrar and transfer office of the Company is Standard Registrars Limited at 28th Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong;

(d) Mr. Chan Kin Wah, Billy, the company secretary and qualified accountant of the Company, is an associate member of the Hong Kong Institute of Certified Public Accountants, a CPA member of CPA Australia and a non-practicing member of the Chinese Institute of Certified Public Accountants. He holds a Bachelor of Administration Degree from the University of Ottawa in Canada and a Master of Commerce Degree in Professional Accounting from the University of New South Wales in Australia; and

(e) The English text of this circular shall prevail over the Chinese text in the case of inconsistency.

13. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at the principal place of business of the Company at Units 609-610, 6th Floor, Miramar Tower, 132 Nathan Road, Tsimshatsui, Kowloon, Hong Kong during normal business hours on any weekday other than public holidays, up to and including 18th July 2005:

(a) the Memorandum and Bye-Laws of the Company;
(b) the material contracts referred to in the paragraph headed “Material Contracts” to this Appendix;
(c) the annual reports of the Group for the three financial years ended 31st December 2002, 2003 and 2004;
(d) the accountant’s report of Best Winning from HLB Hodgson Impey Cheng, the text of which is set out in Appendix I to this circular;
(e) the letter from HLB Hodgson Impey Cheng regarding the pro forma financial information of the Enlarged Group as set out in Appendix II of this circular; and
(f) the written consents referred to in paragraph 8 of this Appendix.

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NOTICE OF THE SGM

RICHE MULTI-MEDIA HOLDINGS LIMITED

(incorporated in Bermuda with limited liability)

(Stock Code: 764)

NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that a special general meeting of the Company will be held at Units 609-610, 6th Floor, Miramar Tower, 132 Nathan Road, Tsimshatsui, Kowloon, Hong Kong on Monday, 18th July 2005 at 3:00 p.m. to consider and, if thought fit, pass the following resolution as an ordinary resolution:

"THAT (i) the sale and purchase agreement dated 9th April 2005 entered into between Dragon Leader Limited, Leadfirst Limited and Mr. Benny Ki in relation to the acquisition (the "Acquisition") by Dragon Leader Limited of the entire issued share capital of Best Winning Group Limited; (ii) the issue of a 4% convertible note in the principal amount of HK$500,000,000 as part consideration of the Acquisition; and (iii) the grant of share options to Mr. Benny Ki to subscribe for 500,000,000 shares of the Company at an exercise price of HK$0.25 per share be and are hereby approved, ratified and confirmed in all respects and that all transactions contemplated under the Acquisition be and are hereby approved and that any one director of the Company be and is hereby authorised to do or execute all such acts or such other documents which the director may deem to be necessary, desirable or expedient to carry into effect or to give effect to the Acquisition."

By Order of the Board

Riche Multi-Media Holdings Limited

Lei Hong Wai

Executive Director

Hong Kong, 24th June 2005

NOTICE OF THE SGM

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

Head Office and Principal Place of Business:
Units 609-610, 6th Floor.
Miramar Tower
132 Nathan Road
Tsimshatsui
Kowloon
Hong Kong

Notes:

Any member of the Company entitled to attend and vote at the meeting is entitled to appoint proxy to attend and vote in his stead. A proxy need not be a member of the Company.
To be valid, the form of proxy, together with any power of attorney or other authority (if any) under which it is signed, or a notarially certified copy thereof, must be lodged with the Company's branch share registrar in Hong Kong, Standard Registrars Limited, at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong not less than 48 hours before the time appointed for holding the meeting or any adjournment thereof.

As at the date hereof, the executive directors of the Company are Mr. Heung Wah Keung, Ms. Chen Ming Yin, Tiffany and Mr. Lei Hong Wai and the independent non-executive directors of the Company are Mr. Lien Wai Hung, Mr. Tang Chak Lam, Gilbert and Mr. Ho Wai Chi, Paul.

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AI assistant

Samsonite Group S.A. — Proxy Solicitation & Information Statement 2005

50259_rns_2005-06-24_5cf5e97e-0acb-48ee-b719-436956444ea9.pdf

RICHE MULTI-MEDIA HOLDINGS LIMITED

MAJOR TRANSACTION

RICHE MULTI-MEDIA HOLDINGS LIMITED

MAJOR TRANSACTION

INTRODUCTION

THE S&P AGREEMENT

The Acquisition

Information relating to the Vessel

Sub-Marketing Agreement

Consideration

Guarantee and undertakings on rolling turnover by Leadfirst

Conditions

Completion

Principal Terms of the Convertible Note

Conversion:

Ranking:

Redemption:

RISK FACTORS

SERVICE AGREEMENT

Remuneration

CHANGES IN SHAREHOLDING STRUCTURE OF THE COMPANY

REASONS AND BENEFITS FOR THE ACQUISITION

FINANCIAL EFFECTS OF THE ACQUISITION ON THE GROUP

Net tangible asset value

Earnings

BUSINESS REVIEW AND PROSPECTS OF THE GROUP

IMPLICATION OF THE LAWS OF HONG KONG AND THE LISTING RULES AND RELEVANT LAWS IN OTHER JURISDICTION

REGULATIONS AND INTERNAL CONTROL IN RELATION TO MONEY LAUNDERING ISSUES

APG

Customer due diligence and record keeping

Customer due diligence ("CDD") and anonymous accounts

Exposure to politically exposed persons

New and developing technologies that favour anonymity & non face to face transactions

Use of intermediaries or other third parties to perform customers due diligence

Record keeping and reconstruction of transactions

Suspicious Transactions

Reporting of suspicious transactions

Prohibition by law from disclosure of a suspicious transaction or related information that has been reported to a competent authority

Internal Controls and Procedures

Programmes against money laundering and terrorist financing

GENERAL

PROCEDURES FOR DEMANDING A POLL

RECOMMENDATION

ADDITIONAL INFORMATION

A. MANAGEMENT ACCOUNTS

Balance Sheet

Statement of Changes in Equity

Cash Flow Statement

Cash flows from operating activities

Cash flows from financing activities

Cash and cash equivalents at the end of the period

Analysis of the balances of cash and cash equivalents

Notes to Financial Statements

1. Summary of principal accounting policies

(a) Basis of preparation

(b) Current assets and liabilities

(c) Translation of foreign currencies

1. SUMMARY OF AUDITED FINANCIAL STATEMENTS OF THE GROUP

Three Years Financial Summary

Results

Consolidated Statement of Changes in Equity

Consolidated Cash Flow Statement

Notes to the Financial Statements

1. GENERAL

2. POTENTIAL IMPACT ARISING FROM THE RECENTLY ISSUED ACCOUNTING STANDARDS

3. SIGNIFICANT ACCOUNTING POLICIES

Basis of consolidation

Revenue recognition

Impairment

Taxation

Property, plant and equipment

Film rights

Investments in subsidiaries

Other asset

Goodwill

Interests in associates

Club memberships

Samsonite Group S.A. Proxy Solicitation & Information Statement 2005