Sino ICT Holdings Limited — Proxy Solicitation & Information Statement 2003

Dec 17, 2003

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

This circular is for information purposes only and does not constitute an offer or invitation to acquire or subscribe for securities of SEEC Media Group Limited (the “Company”).

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

If you have sold or transferred all your shares in the Company, you should at once hand this circular together with the accompanying form of proxy to the purchaser or the transferee or to the bank, stockbroker or other agent through whom the sale was effected for transmission to the purchaser or the transferee.

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

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SEEC Media Group Limited 財訊傳媒集團有限公司

(Incorporated in the Cayman Islands with limited liability)

MAJOR AND CONNECTED TRANSACTION ACQUISITION OF 60% INTEREST IN THE REGISTERED CAPITAL OF BEIJING CAIXUN CENTURY INFOTECH CO., LTD.

Financial adviser to the Company

First Shanghai Capital Limited

Independent financial adviser to the Independent Board Committee

Celestial Capital Limited

A letter from Celestial Capital Limited, the independent financial adviser to the independent board committee of SEEC Media Group Limited, containing its opinion to the independent board committee is set out on pages 16 to 29 of this circular.

A letter from the independent board committee of the Company is set out on page 15 of this circular.

A notice convening the extraordinary general meeting of the Company to be held at Room 2502, Alexandra House, 16-20 Chater Road, Central, Hong Kong on 9 January 2004 at 10:00 a.m., is set out on pages 108 to 109 of this circular. A form of proxy for use at the extraordinary general meeting (or any adjournment thereof) of the Company is enclosed. Whether or not you intend to attend the extraordinary general meeting, please complete and return the enclosed form of proxy in accordance with the instructions printed thereon to Secretaries Limited, the branch share registrar and transfer office of the Company in Hong Kong at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong as soon as possible but in any event no later than 48 hours before the time appointed for the holding of the extraordinary general meeting (or any adjourned thereof). Completion and return of the form of proxy will not preclude you from attending and voting at the extraordinary general meeting (or any adjournment thereof) should you so wish.

17 December 2003

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
The Acquisition Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Information on Caixun Century, Beijing Caixun and Shenzhen Caixun . . . . . . . .	9
Corporate structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Reasons for entering into the Acquisition Agreement . . . . . . . . . . . . . . . . . . . . . . .	11
Information on the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
Financial and trading prospects of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
Financial effects of the Acquisition on the Group . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Additional information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
Letter from Celestial Capital Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
Appendix I – Financial information on the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	30
Appendix II – Accountants’ report on the Caixun Group. . . . . . . . . . . . . . . . . . . . . . .	86
Appendix III – General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	102
Notice of Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	108

– i –

DEFINITIONS

In this circular, the following expressions have the meanings set out below unless the context requires otherwise.

• “2002 Caixun Net Profit”

• the unaudited combined net profit after taxation and before extraordinary items of the Caixun Group for the period from 1 January 2002 to 31 December 2002

• “2003 Caixun Net Profit”

• the audited combined net profit after taxation and before extraordinary items of the Caixun Group for the period from 1 January 2003 to 31 December 2003

• “Acquisition”

• the acquisition of 60% interest in the registered capital of Caixun Century by Superfort

• “Acquisition Agreement”

• the conditional agreement dated 24 November 2003 entered into between Shenyang Lianya as vendor and Superfort as purchaser in relation to the acquisition of the 60% interest in the registered capital of Caixun Century

• “associates”

• has the meaning ascribed thereto under the Listing Rules

• “Beijing Caixun”

• 北京財訊廣告有限公司 (Beijing Caixun Advertising Co., Ltd.), a limited liability company established under the laws of the PRC on 7 March 2000, and is currently 70% owned by Hainan Caixun and 30% owned by Caixun Century

• “Board”

the board of the Directors

• “Caixun Century”

• 北京財訊世紀信息科技有限公司 (Beijing Caixun Century InfoTech Co., Ltd.), a domestic company established under the laws of the PRC with limited liability on 30 October 2003 and is currently 33% owned by Shanghai SEEC and 67% owned by Shenyang Lianya

• “Caixun Group”

• Beijing Caixun and Shenzhen Caixun

• “Company”

SEEC Media Group Limited, a company incorporated in the Cayman Islands with limited liability and whose shares are listed on the Stock Exchange

• “connected person”

has the meaning ascribed thereto under the Listing Rules

– 1 –

DEFINITIONS

• “Consideration”

• “Directors”

• “EGM”

• “Group”

• “Hainan Caixun”

• “Hong Kong”

• “HK$” or “HK dollars”

• “Independent Board Committee”

• “Independent Shareholders”

• “Initial Consideration”

• “Latest Practicable Date”

• “Listing Rules”

• the consideration under the Acquisition Agreement shall be HK$19,600,000, subject to adjustment to the maximum of HK$36,000,000, comprising the Initial Consideration and Retained Consideration

• the directors of the Company (including, the independent non-executive directors of the Company)

• an extraordinary general meeting of the Company to be convened on 9 January 2004 to approve, among other things, the Acquisition Agreement

the Company and its subsidiaries

• 海南財訊信息傳播有限公司 (Hainan Caixun Infomedia Co., Ltd.), a limited liability company established under the laws of the PRC on 18 April 2002, and is 70% owned by Superfort and 30% owned by Shanghai SEEC

• the Hong Kong Special Administrative Region of the People’s Republic of China

Hong Kong dollars, the lawful currency of Hong Kong

• the independent board committee of the Company comprising Messrs. Fu Fengxiang and Wang Xiangfei appointed by the Board for the purpose of advising the Independent Shareholders in respect of the Acquisition and the terms of the Acquisition Agreement

• Shareholders other than United Home and its associates

• HK$15,000,000 payable in cash upon completion of the Acquisition Agreement

• 12 December 2003, being the latest practicable date prior to the printing of this circular for ascertaining certain information referred to in this circular

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

– 2 –

DEFINITIONS

• “PRC”

• the People’s Republic of China excluding Hong Kong for the purpose of this circular

• “Retained Consideration” the higher of the Consideration minus the Initial Consideration, subject to a maximum amount of HK$21,000,000; and nil

• “RMB” or “Renminbi” Renminbi, the lawful currency of the PRC

• “SARS”

• severe acute respiratory syndrome

• “SFO” the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)

• “Shanghai SEEC”

• 上海聯辦投資發展有限公司 (Shanghai SEEC Investment and Development Co., Ltd.), a limited liability company established under the laws of the PRC, which is owned as to 59% by Shenyang Lianya, and as to 21% by 昆山中聯綜合開發公司 (Kunshan Zhonglian Comprehensive Development Company) and as to 20% by 海南聯歐投資管理有限公司 (Hainan Lianou Investment Management Company Limited), both are independent from and not connected with the directors, chief executive, substantial shareholders of the Company or any of their respective associates

• “Share(s)”

• share(s) of par value of HK$0.10 (each) in the capital of the Company

• “Share Option Scheme”

• the share option scheme adopted by the Company on 26 August 2002

• “Shareholders” holders of the Shares

• “Shenyang Lianya” or “Vendor”

• 瀋陽聯亞實業發展公司 (Shenyang Lianya Industrial Development Corporation), a collectively-owned enterprise established under the laws of the PRC, 15 among 50 individuals who collectively manage such enterprise are also the ultimate individual shareholders of United Home

• “Shenzhen Caixun”

• 深圳財訊廣告有限公司 (Shenzhen Caixun Advertising Co., Ltd.), a limited liability company established under the laws of the PRC on 27 April 2002, and is 70% owned by Hainan Caixun and 30% owned by Caixun Century

– 3 –

DEFINITIONS

“Stock Exchange”

The Stock Exchange of Hong Kong Limited

• “substantial shareholder”

has the meaning ascribed thereto under the Listing Rules

• “Superfort” or “Purchaser”

• Superfort Management Corp., a company incorporated in the British Virgin Islands with limited liability on 2 January 2001 and a wholly-owned subsidiary of the Company

• “United Home”

• United Home Limited, a company incorporated in the British Virgin Islands with limited liability, which is the substantial shareholder of the Company holding approximately 43.85% of the entire issued share capital of the Company and is beneficially owned by 15 individuals in equal proportions, four of whom are Directors (namely Messrs. Wang Boming, Zhang Zhifang, Li Shijie and Dai Xiaojing)

• “US$” or “US dollar(s)”

• the United States dollar(s), the lawful currency of the Untied States of America

• “WTO” the World Trade Organisation

• “%” per cent.

For the purpose of this circular, conversion of Renminbi into HK dollars is calculated at the approximate exchange rate of RMB1.06 to HK$1.00 and conversion of US dollars into HK dollars is calculated at the approximate exchange rate of US$1.00 to HK$7.80, for the purpose of illustration only and does not constitute a representation that any amounts have been, could have been, or may be, exchanged at this or any other rate.

– 4 –

LETTER FROM THE BOARD

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SEEC Media Group Limited 財訊傳媒集團有限公司

(Incorporated in the Cayman Islands with limited liability)

Executive Directors: Mr. WANG Boming (Chairman) Mr. ZHANG Zhifang Mr. DAI Xiaojing Mr. LI Shijie Mr. XU Xiaolu Mr. YEH Shuen Ji Ms. KAM Anais

Independent non-executive Directors: Mr. FU Fengxiang Mr. WANG Xiangfei

Registered office: P.O. Box 897GT Second Floor One Capital Place Grand Cayman Cayman Islands British West Indies

Principal place of business in Hong Kong: Room 2502 Alexandra House 16–20 Chater Road Central Hong Kong

17 December 2003

To the Shareholders

Dear Sir or Madam,

MAJOR AND CONNECTED TRANSACTION ACQUISITION OF 60% INTEREST IN THE REGISTERED CAPITAL OF BEIJING CAIXUN CENTURY INFOTECH CO., LTD.

INTRODUCTION

The Company announced on 24 November 2003 that the Purchaser, a wholly-owned subsidiary of the Company, entered into the Acquisition Agreement with the Vendor for the acquisition of the 60% interest in the registered capital of Caixun Century, which in turn holds 30% interest in each of Shenzhen Caixun and Beijing Caixun.

The Consideration under the Acquisition Agreement is HK$19,600,000, subject to adjustment as mentioned below, comprising the Initial Consideration and Retained Consideration.

– 5 –

LETTER FROM THE BOARD

As the Vendor is currently holding 59% of the equity interests in Shanghai SEEC, which in turn is the substantial shareholder of Caixun Century and Hainan Caixun, the entering into the Acquisition Agreement constitutes a connected transaction for the Company pursuant to Chapter 14 of the Listing Rules and will be conditional upon the approval by the Independent Shareholders at the EGM. The transactions contemplated under the Acquisition Agreement also constitute a major transaction for the Company under the Listing Rules and is subject to the approval of the Independent Shareholders at the EGM. As certain ultimate beneficial shareholders of United Home are also the shareholders of the Vendor, United Home and its associates will abstain from voting on the Acquisition Agreement at the EGM.

The Independent Board Committee, comprising Messrs. Fu Fengxiang and Wang Xiangfei, the independent non-executive Directors, has been appointed to advise the Independent Shareholders in respect of the Acquisition and the terms of the Acquisition Agreement.

Celestial Capital Limited has been appointed as the independent financial adviser to advise the Independent Board Committee in respect of the Acquisition and the terms of the Acquisition Agreement.

The purpose of this circular is to provide you with further information in respect of, inter alia , the Acquisition Agreement and to set out the opinion of the Independent Board Committee and the independent financial adviser in relation to the Acquisition Agreement, and to give you notice of the EGM at which the resolution will be proposed to seek your approval of the Acquisition Agreement.

THE ACQUISITION AGREEMENT

Date : 24 November 2003 Vendor : Shenyang Lianya Purchaser : Superfort, a wholly-owned subsidiary of the Company Interests to be acquired : 60% interest in the registered capital of Caixun Century, which in turn holds 30% interests in each of Shenzhen Caixun and Beijing Caixun. Consideration : The Consideration under the Acquisition Agreement is HK$19,600,000, subject to adjustment as mentioned below, comprising:

• i. the Initial Consideration of HK$15,000,000, which shall by payable in cash upon completion of the Acquisition Agreement; and

– 6 –

LETTER FROM THE BOARD

• ii. the Retained Consideration, which shall be payable in accordance with the following adjustment.

• (a) Within seven days of the determination of the 2003 Caixun Net Profit, the Consideration will be adjusted based on the following formula:

  • Consideration = 2003 Caixun Net Profit x 9 x 30% x 60%

• (b) Accordingly, the Retained Consideration (if any) shall be paid by the Purchaser in cash.

The adjusted Consideration shall not exceed HK$36 million.

• Basis of the Consideration

• : The Consideration was determined after arm’s length negotiations between the parties to the Acquisition Agreement, and with reference to the 2002 Caixun Net Profit multiplied by a price-earnings multiples, and as adjustable based on the 2003 Caixun Net Profit multiplied by a price-earnings multiples.

• Payment

• : The Initial Consideration of HK$15,000,000 shall be paid in cash by the Company on the date of completion of the Acquisition Agreement, while the Retained Consideration shall be payable within seven days of the determination of the 2003 Caixun Net Profit.

• Conditions precedents : The Acquisition Agreement is conditional upon, inter alia :

  • (i) the passing of the necessary resolution by the Independent Shareholders at the EGM to approve the terms of and the transactions contemplated under the Acquisition Agreement;

  • (ii) the Purchaser notifying the Vendor in writing that it is satisfied upon inspection and investigation as to the respective financial, corporate, taxation and trading positions of Caixun Century and the title of Caixun Century to its respective assets;

– 7 –

LETTER FROM THE BOARD

• (iii) the Vendor having complied fully with the obligations specified in the Acquisition Agreement and otherwise having performed all of the covenants and agreements required to be performed by it under the Acquisition Agreement (other than those to be performed at or after completion of the Acquisition Agreement);

• (iv) the warranties as stated in the Acquisition Agreement having remained true and accurate and not misleading at all time from the date of the Acquisition Agreement up to and including the date of completion of the Acquisition Agreement;

• (v) all necessary consents being granted by third parties (including, governmental or official authorities) for the sale and purchase of the 60% interest in the registered capital of Caixun Century and other transactions contemplated under the Acquisition Agreement; and

• (vi) the Purchaser having received a PRC legal opinion from its lawyers as to the PRC law which is in all respects satisfactory to the Purchaser.

The Purchaser may waive conditions (ii) to (vi) at any time by notice in writing to the Vendor and condition (i) cannot be waived.

The Vendor shall use its best endeavours to procure the fulfillment of conditions (ii) to (vi) on or before 31 March 2004 (or such other date as the parties to the Acquisition Agreement may agree in writing).

In the event that any of the above conditions shall not have been fulfilled or waived (as the case may be) on or before 31 March 2004, then the Vendor and the Purchaser shall not be bound to proceed with the Acquisition Agreement and the Acquisition Agreement shall cease to be of any effect save in respect of claims arising out of any antecedent breach thereof.

Completion of the : Acquisition Agreement

• Completion of the Acquisition Agreement shall take place on the fifth business day immediately after the day on which the last of the conditions is fulfilled. The conditions of the Acquisition Agreement are expected to be fulfilled not later than 31 March 2004 (or such other date as the parties to the Acquisition Agreement may agree in writing).

– 8 –

LETTER FROM THE BOARD

INFORMATION ON CAIXUN CENTURY, BEIJING CAIXUN AND SHENZHEN CAIXUN

Caixun Century is an investment holding company and its sole asset is its 30% interest in each of Beijing Caixun and Shenzhen Caixun. Save for the holding of such 30% interest, Caixun Century has not conducted any business since its establishment on 30 October 2003, therefore, no accounts of Caixun Century has been made as at the Latest Practicable Date. Caixun Century is currently owned as to 33% by Shanghai SEEC and as to 67% by the Vendor.

The Caixun Group is one of the largest advertising companies in the PRC in the financial publication advertising sector.

Beijing Caixun has been granted long-term exclusive advertising publication rights by several of the largest financial and business magazines and newspapers in the PRC, such as Securities Market Weekly, Caijing Magazine, Business Post and New Real Estate Magazine.

Shenzhen Caixun is also engaged in advertising business and assists Beijing Caixun in the sale of advertisements of magazines and newspapers which Beijing Caixun has exclusive advertising publication rights.

As at 31 December 2002, the audited combined net asset value of the Caixun Group was approximately RMB39.2 million (or approximately HK$37.0 million). As at 30 September 2003, the audited combined net asset value of the Caixun Group amounted to approximately RMB28.7 million (or approximately HK$27.1 million).

For the year ended 31 December 2001, the audited net profit before and after taxation of Beijing Caixun both amounted to approximately RMB10.6 million (or approximately HK$10 million).

For the year ended 31 December 2002, the audited combined net profit before and after taxation of the Caixun Group amounted to approximately RMB16.7 million (or approximately HK$15.7 million) and approximately RMB12.8 million (or approximately HK$12.1 million) respectively. For the year ended 31 December 2002, the audited net profit before and after taxation of Shenzhen Caixun amounted to approximately RMB11.8 million (or approximately HK$11.1 million) and approximately RMB10.0 million (or approximately HK$9.5 million) respectively, while that of Beijing Caixun amounted to approximately RMB4.9 million (or approximately HK$4.6 million) and approximately RMB2.8 million (or approximately HK$2.6 million) respectively.

For the nine months ended 30 September 2003, the audited combined net profit before and after taxation of the Caixun Group amounted to approximately RMB21.7 million (or approximately HK$20.5 million) and approximately RMB17.7 million (or approximately HK$16.7 million) respectively. For the nine months ended 30 September 2003, the audited net profit before and after taxation of Shenzhen Caixun amounted to approximately RMB26.2 million (or approximately HK$24.7 million) and approximately RMB22.2 million (or approximately HK$20.9 million) respectively, while the audited net loss for both before and after taxation of Beijing Caixun amounted to approximately RMB4.5 million (or approximately HK$4.2 million) respectively.

– 9 –

LETTER FROM THE BOARD

CORPORATE STRUCTURE

Structure of the Group immediately before completion of the Acquisition Agreement:

==> picture [309 x 292] intentionally omitted <==

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

United Home
43.85%
The Company The Vendor
100% 59% 67%
Superfort Shanghai SEEC
70% and the option to 30% 33%
acquire additional 15.7%
Hainan Caixun Caixun Century
70% 30%
Beijing Caixun
70% 30%
Shenzhen Caixun
----- End of picture text -----

Structure of the Group immediately after completion of the Acquisition Agreement:

==> picture [251 x 237] intentionally omitted <==

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

United Home
43.85%
The Company
100%
Superfort
70% and the option to
acquire additional 15.7%
60%
Hainan Caixun Caixun Century
70% 30%
Shenzhen Caixun Beijing Caixun
----- End of picture text -----

– 10 –

LETTER FROM THE BOARD

REASONS FOR ENTERING INTO THE ACQUISITION AGREEMENT

Following the acquisition of 60% attributable interest in the Caixun Group in 2002, the Group positioned itself as an advertising operator in the PRC. The Directors believe that the proposed acquisition of additional 18% attributable interest in the Caixun Group would position the Group to further benefit from the growth potential of the PRC advertising industry, including the print advertising section, which is currently undergoing liberalisation since the PRC Government has stated its commitment to open domestic markets to foreign business investment in many key industries, including the advertising industry. The Directors believe that the growing economy in the PRC, the entry into the WTO and the host of the 2008 Olympic Games by Beijing, the PRC will continue to create commercial opportunities for the advertising industry, including the print advertising section. Moreover, the Directors believe that, with the Caixun Group’s position as one of the largest advertising companies in the PRC in the financial publication advertising sector and its broad customer base as complemented by the Directors’ substantial experience in the financial industry in the PRC, the Caixun Group will provide the Group with a valuable source of income.

INFORMATION ON THE GROUP

The Group is principally engaged in the provision of advertising agency services in the PRC.

As at 31 December 2002, the audited consolidated net asset value of the Group was approximately HK$140.1 million. As at 30 June 2003, the unaudited consolidated net asset value of the Group amounted to approximately HK$149.7 million.

For the year ended 31 December 2001, the Group recorded an audited loss before and after taxation of approximately HK$73.2 million and HK$70.5 million respectively. For the year ended 31 December 2002, the Group recorded an audited profit before and after taxation of approximately HK$3.0 million and HK$2.2 million respectively. For the six months period ended 30 June 2003, the Group recorded an unaudited profit before and after taxation of approximately HK$12.4 million and approximately HK$10.3 million respectively.

FINANCIAL AND TRADING PROSPECTS OF THE GROUP

As mentioned in the annual report of the Company for the year ended 31 December 2002, the turnover of the Group decreased by approximately 8.7% from approximately HK$85.4 million to approximately HK$78.0 million in 2002. However, the Group achieved an overwhelming turnaround by recording a profit attributable to Shareholders of approximately HK$1.3 million in 2002 as compared to a net loss of approximately HK$70.5 million in 2001. The Directors are of the view that such results are attributable to the Group’s relentless effort in cost control, decrease in material cost purchased during the year ended 31 December 2002, and effective business consolidation.

– 11 –

LETTER FROM THE BOARD

According to the interim report of the Company for the six months ended 30 June 2003, the Group continued to record business growth since its turnaround for the year ended 31 December 2002. Despite the SARS outbreak in the PRC during the period, the Group managed to further improve its operating efficiency and profitability. During the six months ended 30 June 2003, turnover of the Group was approximately HK$68.5 million, representing an increase of approximately 145.8% as compared to that of the corresponding period in 2002. Approximately 67.0% and 33.1% of the total turnover were derived from (i) the design, manufacture and marketing of electronic consumer products (operation had already been discontinued) and (ii) the provision of advertising agency services respectively.

Prior to the acquisition of 60% attributable interest in the Caixun Group in 2002, the Group was principally engaged in the design, manufacture and marketing of electronic consumer products. In view of the fierce competition in the electronic consumer product market, the Group entered into an agreement with Ankson Limited to dispose its electronic consumer products business at a consideration of HK$19,000,000 in March 2003. The transaction was completed on 30 June 2003 and the Group ceased its electronic consumer product business thereafter. The disposal resulted in a loss of approximately HK$1.8 million to the Group, which however enhanced the liquidity and resources available to the Group for further development in its printed media advertising business.

The Group acquired 60% attributable interest in the Caixun Group in November 2002 and positioned itself as an advertising operator in the PRC. At present, the Group owns the exclusive rights of a number of prominent financial print media including Caijing Magazine, Securities Market Weekly (The Integrated Version and The Market Version), Business Post and New Real Estate Magazine. During the six months ended 30 June 2003, the advertising agency service was only slightly affected by the SARS outbreak and achieved a turnover of approximately HK$22.7 million and contributed approximately HK$10.3 million towards the results of the Group. With its strong media portfolio and marketing team, the Group was able to provide advertising consultancy and advertising strategy planning services for its advertising clients, which consist of well-known domestic and multinational companies.

Looking ahead, the Group will continue to leverage its management expertise and exclusive advertising rights to sustain its leading position in the Chinese print media advertising industry.

The Group will help enhance the brand awareness of the publications under the Group’s advertising contracts through aggressive marketing and promotional activities such as by sending free copies of magazines to corporations. The Group will also help expand these publications into the Hong Kong market so as to maximize their advertising value in the Asian region.

– 12 –

LETTER FROM THE BOARD

With the management’s acumen and extensive experience in the finance industry and strong network in the PRC, the Group is well poised to capitalize on the increasing demand of the advertising business and will strive to obtain more exclusive advertising rights and to explore cooperation opportunities with other publication business in the PRC. The Group will also seek business and investment opportunities with international brand names in the publications industry to explore the market in the PRC.

FINANCIAL EFFECTS OF THE ACQUISITION ON THE GROUP

Net tangible assets

Based on the statement of pro forma adjusted unaudited consolidated net tangible assets of the Group as set out in Appendix I to this circular, the pro forma adjusted unaudited consolidated net tangible assets of the Group immediately before and after the completion of the Acquisition Agreement are approximately HK$117.6 million and HK$88.8 million, respectively. Based on 1,545,774,614 Shares in issue as at the Latest Practicable Date, the pro forma adjusted unaudited consolidated net tangible asset value per Share immediately before and after the completion of the Agreements is approximately HK$0.076 and HK$0.057, respectively. Such decreases in net tangible assets of the Group and net tangible asset value per Share is mainly caused by the reduction due to the goodwill arising from the Acquisition of approximately HK$28.9 million in deriving the pro forma adjusted unaudited consolidated net tangible assets of the enlarged Group upon completion of the Acquisition Agreement.

Earnings

Upon completion of the Acquisition Agreement, Caixun Century will be accounted for as a 60% owned subsidiary of the Company. Given that Beijing Caixun and Shenzhen Caixun have made net profits in the amounts as already mentioned in the paragraph headed “Information on Caixun Century, Beijing Caixun and Shenzhen Caixun” in this section, the earnings of the Group as enlarged by the proposed acquisition of additional 18% attributable interest in the Caixun Group will be enhanced.

EGM

A notice convening the EGM to be held at Room 2502, Alexandra House, 16-20 Chater Road, Central, Hong Kong on 9 January 2004 at 10:00 a.m., is set out on pages 108 to 109 of this circular. At the EGM, an ordinary resolution will be proposed to approve, inter alia , the Acquisition Agreement.

– 13 –

LETTER FROM THE BOARD

A form of proxy for use at the EGM (or any adjournment thereof) is enclosed. Whether or not you intend to attend the EGM, please complete and return the enclosed form of proxy in accordance with the instructions printed thereon to Secretaries Limited, the branch share registrar and transfer office of the Company in Hong Kong at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Hong Kong, as soon as possible but in any event no later than 48 hours before the time appointed for the holding of the EGM (or any adjournment thereof). Completion and return of the proxy will not preclude you from attending and voting at the EGM (or any adjournment thereof) in person should you so wish.

RECOMMENDATION

Your attention is drawn to the letter from the Independent Board Committee set out on page 15 of this circular, which contains its recommendation to the Independent Shareholders in connection with the Acquisition and the terms of the Acquisition Agreement and the letter from Celestial Capital Limited set out on pages 16 to 29 of this circular, which contains its advice to the Independent Board Committee and the principal factors and reasons having been taken into consideration by Celestial Capital Limited.

ADDITIONAL INFORMATION

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

By order of the Board SEEC Media Group Limited Wang Boming Chairman

– 14 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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SEEC Media Group Limited 財訊傳媒集團有限公司

(Incorporated in the Cayman Islands with limited liability)

17 December 2003

To the Independent Shareholders

Dear Sir or Madam,

MAJOR AND CONNECTED TRANSACTION ACQUISITION OF 60% INTEREST IN THE REGISTERED CAPITAL OF BEIJING CAIXUN CENTURY INFOTECH CO., LTD.

As the Independent Board Committee, we have been appointed to advise you in respect of the Acquisition and the terms of the Acquisition Agreement, details of the Acquisition are set out in the “Letter from the Board” in the circular dated 17 December 2003 (“Circular”), of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as those defined in the Circular unless the context otherwise requires.

We wish to draw your attention to the “Letter from Celestial Capital Limited” containing its advice to us regarding the Acquisition Agreement as set out on pages 16 to 29 of the Circular. Having considered the advice given by Celestial Capital Limited and the principal factors and reasons taken into consideration by them in arriving at their advice, we are of the opinion that the terms of the Acquisition Agreement are fair and reasonable so far as the Independent Shareholders are concerned and that the Acquisition is in the interests of the Group and the Shareholders as a whole. We therefore recommend the Independent Shareholders to vote in favour of the ordinary resolution to approve, inter alia , the Acquisition Agreement contained in the notice set out on pages 108 to 109 of the Circular.

Yours faithfully,

For and on behalf of

The Independent Board Committee Fu Fengxiang and Wang Xiangfei Independent non-executive Directors

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LETTER FROM CELESTIAL CAPITAL LIMITED

The following is the text of the letter dated 17 December 2003 from Celestial Capital Limited, prepared for the purpose of incorporation in this circular, setting out its advice to the Independent Board Committee.

Celestial Capital Limited

21/F., Low Block, Grand Millennium Plaza 181 Queen’s Road Central Hong Kong

17 December 2003

The Independent Board Committee SEEC Media Group Limited Room 2502 Alexandra House 16–20 Chater Road Central Hong Kong

Dear Sirs

MAJOR AND CONNECTED TRANSACTION ACQUISITION OF 60% INTEREST IN THE REGISTERED CAPITAL OF BEIJING CAIXUN CENTURY INFOTECH CO., LTD.

INTRODUCTION

We refer to our engagement as the independent financial adviser to advise the Independent Board Committee in respect of the Acquisition. Details of the Acquisition are set out in the letter from the Board (“Letter from the Board”) as contained in the circular of the Company dated 17 December 2003 (“Circular”), of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as those defined in the Circular unless otherwise specified.

The Vendor currently holds 59% equity interest in Shanghai SEEC, which is a substantial shareholder of Hainan Caixun, an indirect non-wholly-owned subsidiary of the Company. Accordingly, the entering into the Acquisition Agreement constitutes a connected transaction for the Company pursuant to Chapter 14 of the Listing Rules. The Acquisition also constitutes a major transaction for the Company under the Listing Rules. As the Acquisition Agreement is a major and connected transaction for the Company, it is subject to the approval of the Independent Shareholders at the EGM. Certain ultimate beneficial shareholders of United Home, a substantial shareholder of the Company holding approximately 43.85% shareholding

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interest in the Company, are also the shareholders of the Vendor. Therefore United Home and its associates will abstain from voting on the Acquisition Agreement at the EGM.

Our role as the independent financial adviser to the Independent Board Committee is to give our opinion as to whether the terms of the Acquisition Agreement are fair and reasonable and the Acquisition is in the interests of the Group and the Shareholders as a whole.

In formulating our advice and recommendation, we have relied on the information, opinions, representations and facts contained or referred to in the Circular, and the information and representation separately provided to us by the Directors (altogether the “Information”), for which they are fully responsible. We have sought and received confirmation from the Directors that no material facts have been omitted from the Information, and that the Information is true, accurate, complete and not misleading at the time it is made available and continues to be so at the date of the Circular. We consider that we have received sufficient information to form a reasonable basis for our advice and recommendation as set out in this letter. We have no reason to suspect that any relevant information has been withheld, nor are we aware of any facts or circumstances which would render the Information untrue, inaccurate, incomplete or misleading. The Directors have further confirmed, having made all reasonable enquiries, that to the best of their knowledge and belief, there are no other facts or representations, the omission of which would make any statement in the Circular, including this letter, misleading. We have not, however, carried out any independent verification of the Information nor have we conducted any form of in-depth investigation into the respective businesses and affairs of the Group, Caixun Century and the Caixun Group.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our recommendation in relation to the Acquisition Agreement, we have considered the following principal factors and reasons:

I. Asset to be acquired under the Acquisition Agreement

Pursuant to the Acquisition Agreement, Superfort, a wholly-owned subsidiary of the Company, has conditionally agreed to acquire from the Vendor 60% interest in the registered capital of Caixun Century, an investment holding company which was established in the PRC on 30 October 2003. Caixun Century is currently owned as to 67% by the Vendor and 33% by Shanghai SEEC. As set out in the Letter from the Board, Caixun Century’s sole asset is its 30% interest in each of Beijing Caixun and Shenzhen Caixun, and it has not conducted any business since its establishment other than the holding of these interests in Beijing Caixun and Shenzhen Caixun. Accordingly, Superfort will in effect acquire an attributable interest of 18% in each of Beijing Caixun and Shenzhen Caixun under the Acquisition Agreement. According to the Catalog for Guiding Foreign Investment in Industry 《外商投資產業指導目錄》 and the annexe thereto approved by the State Council (國務院 ) of the PRC on 4 March 2002, pursuant to the commitment in relation to the accession of the PRC into the WTO, foreign investors would be allowed to hold majority equity interest in advertising companies in

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the PRC by no later than 11 December 2003. According to a memorandum issued to Superfort by its PRC legal adviser, in accordance with the Protocol on the Accession of the PRC into the WTO and its annexe, the foreign party to an advertising company would be allowed to hold majority equity interest after 11 December 2003, and Superfort would be entitled to hold the majority equity interest in Beijing Caixun and Shenzhen Caixun after 11 December 2003, subject to the acquisition of Caixun Century (by Superfort) be approved by Ministry of Commerce or its local commission and duly registered with the State Administration for Industry and Commerce.

Beijing Caixun and Shenzhen Caixun are indirect non-wholly-owned subsidiaries of the Group. Superfort currently holds a 70% equity interest together with an option to acquire an additional 15.7% equity interest in Hainan Caixun, which in turn holds a 70% equity interest in each of Beijing Caixun and Shenzhen Caixun. It was set out in the Company’s annual report for the year ended 31 December 2002 (“2002 Annual Report”) as well as Appendix I to this Circular that pursuant to various agreements in place and an agreement entered into between Superfort and Shanghai SEEC dated 12 July 2002 which granted Superfort the right to acquire an additional 15.7% equity interest in Hainan Caixun from Shanghai SEEC, the Group, from the completion date of the acquisition by Superfort of 70% equity interest in Hainan Caixun on 13 November 2002, has been entitled to 85.7% of Hainan Caixun’s results and assets and 60% of Beijing Caixun’s and Shenzhen Caixun’s respective results and assets, and the Group, for accounting purposes, treats Hainan Caixun as an 85.7% owned subsidiary of the Company and Beijing Caixun and Shenzhen Caixun as 60% owned subsidiaries of the Company.

II. Information on Beijing Caixun and Shenzhen Caixun

(i) Business of Beijing Caixun and Shenzhen Caixun

Beijing Caixun is principally engaged in the advertising business in the PRC. Beijing Caixun’s targeted segment is the financial publication advertising sector. It has been granted long-term exclusive advertising publication rights by a total of four financial and business magazines and newspapers in the PRC, namely Securities Market Weekly (證券市場周刊 ), Caijing Magazine (財經 ), Business Post (財經時報 ) and New Real Estate Magazine (新地產 , or as 消費導刊：新 地產 ) respectively expiring in the years 2016 to 2019. As disclosed in the 2002 Annual Report, Caijing Magazine and Securities Market Weekly ranked third and fifth in term of advertising revenue amongst all financial magazines in the PRC in 2002 according to Huicong Media Research Centre (慧聰媒體研究中心 ).

Shenzhen Caixun is also engaged in the advertising business in the PRC. It assists Beijing Caixun in the sale of advertisements of the magazines and newspapers which have granted their exclusive advertising publication rights to Beijing Caixun.

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According to the 2002 China Advertising Yearbook (中國廣告年鑑 ) and the Annual Industry Report posted on the website of China Advertising Association (中國廣告協會 ), print advertising expenditure in the PRC, comprising magazine advertising expenditure and newspaper advertising expenditure, experienced growth during the past few years. During the years from 1997 to 2002, the annual print advertising expenditure in the PRC grew within the range from approximately 7.5% to approximately 30.2%. In 2001 and 2002, the print advertising expenditure in the PRC grew by approximately 7.5% and 20.1%, respectively. The Directors have stated their view in the Letter from the Board that the Acquisition, which in effect is the acquisition of an additional 18% attributable interest in the Caixun Group comprising Beijing Caixun and Shenzhen Caixun, would position the Group to further benefit from the growth potential of the PRC advertising industry, including the print advertising sector, which is currently undergoing liberalisation since the PRC Government has stated its commitment to opening domestic markets to foreign business investment in many key industries, including the advertising industry. The Directors also believe that the growing economy in the PRC, the entry of the PRC into the WTO and the host of the 2008 Olympic Games by Beijing, the PRC will continue to create significant commercial opportunities in the advertising industry, including the print advertising sector.

We note that the advertising permission certificates (廣告經營許可證 ) granted to Beijing Caixun and Shenzhen Caixun for their engagement in the advertising business in the PRC will expire on 6 March 2004 and 27 April 2022, respectively. The Directors have advised that based on their experience and knowledge, they are not aware of any factor that would affect the renewal of Beijing Caixun’s advertising permission certificate upon its expiry. According to the opinion of the PRC legal adviser to the Company, in normal circumstance, the renewal of the advertising permission certificate of an advertising company is usually deemed as a matter of procedure and shall not be subject to any additional approval of the PRC government authority, which is unlikely to be failed. In addition, the PRC legal adviser, after reviewing the agreements (“Advertising Agreement”) in relation to the grant of the long-term exclusive advertising publication rights by Securities Market Weekly, Caijing Magazine, Business Post and New Real Estate Magazine to Beijing Caixun as mentioned above, has also stated its opinion that in case the renewal of Beijing Caixun’s advertising permission certificate is failed, Beijing Caixun has the right to appoint any party which has the capacity to conduct the relevant business (including Shenzhen Caixun which has been granted an advertising permission certificate) to conduct the business and fulfill the obligations under the Advertising Agreements. On that basis, the Directors believe that the Caixun Group will be able to continue its existing advertising business in the coming future, and we concur with such view of the Directors.

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(ii) Financial results of the Caixun Group

Set out below is a summary of the Caixun Group’s pro forma results which have been prepared from the audited financial statements of Beijing Caixun and Shenzhen Caixun, after making such adjustments as the reporting accountants have considered appropriate for the purpose of preparing the accountants’ report on the Caixun Group (“Caixun Group’s Accountants’ Report”) set out in Appendix II to the Circular (note: the pro forma results for the 2000 financial period (as defined below) was prepared from the audited or management accounts of Superfort, Hainan Caixun, Beijing Caixun and Shenzhen Caixun, after making such adjustments as the reporting accountants have considered appropriate for the purpose of preparing the accountants’ report on the group comprising Superfort, Hainan Caixun, Beijing Caixun and Shenzhen Caixun set out in Appendix II to the Company’s circular dated 23 August 2002, from which the pro forma results for the 2000 financial period was extracted) for (1) the period from 7 March 2000 (being the date of establishment of Beijing Caixun) to 31 December 2000 (“2000 financial period”), (2) the two years ended 31 December 2001 and 2002, and (3) the nine-month period ended 30 September 2003, being extracted from the Caixun Group’s Accountants’ Report:

	From 7 March			Nine months
	2000 to 31	Year ended	Year ended	ended
	December	31 December	31 December	30 September
	2000	2001	2002	2003
	(RMB’000)	(RMB’000)	(RMB’000)	(RMB’000)
Turnover	17,239	25,875	39,497	45,751
Gross profit	15,450	22,931	31,293	37,473
Profit before taxation	9,777	10,613	16,689	21,748
Net profit_(Note)_	9,777	10,613	12,815	17,722

Note: For the 2000 financial period, net profit of the Caixun Group (comprising Beijing Caixun and Shenzhen Caixun) refers to the profit of the group comprising Superfort (which holds 70% equity interest together with an option to acquire an additional 15.7% equity interest in Hainan Caixun), Hainan Caixun (which holds 70% equity interest in each of Beijing Caixun and Shenzhen Caixun), Beijing Caixun and Shenzhen Caixun, before minority interests in Beijing Caixun and Shenzhen Caixum.

Turnover and gross profit of the Caixun Group increased by approximately 50.1% to approximately RMB25.9 million and approximately 48.4% to approximately RMB22.9 million, respectively, during the year ended 31 December 2001 as compared with those for the 2000 financial period. After taking into account the shorter 2000 financial period, the Directors consider that the increased turnover of the Caixun Group for the year ended 31 December 2001 was mainly due to the increased number of advertisements placed in 2001. During the year

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ended 31 December 2001, as a result of an increase of approximately 117.3% in the administrative and selling expenses to approximately RMB12.3 million in total, the profit before taxation and the net profit of the Caixun Group only increased by approximately 8.6% to approximately RMB10.6 million as compared with those for the 2000 financial period. The Directors have advised that such increase in the total administrative expenses and selling expenses during the year ended 31 December 2001 was mainly due to (1) the shorter 2000 financial period of the Caixun Group; and (2) the fact that as the Caixun Group achieved profit during its first year of operation in 2000 and in order to further expand the Caixun Group’s business and to consolidate the foundation for its future growth, the Caixun Group’s advertising sales team was expanded and the expense relating to promotion of the business of the Caixun Group increased during 2001.

During the year ended 31 December 2002, the Caixun Group’s turnover increased by approximately 52.6% to approximately RMB39.5 million, while its gross profit increased by approximately 36.5% to approximately RMB31.3 million. The Directors consider that such increase in the turnover was due to the increased number of advertisements placed in 2002 and the full year contribution from additional exclusive advertising rights granted by New Real Estate Magazine in November 2001. In addition, the profit before taxation of the Caixun Group increased by approximately 57.3% to approximately RMB16.7 million during the year ended 31 December 2002. The Directors have advised that Beijing Caixun is recognized as a newly established Third Industry Company and was exempted from PRC income tax during the period from the date of establishment of Beijing Caixun on 7 March 2000 to 31 December 2001. As set out in the Caixun Group’s Accountants’ Report, since 1 January 2002, Beijing Caixun has been subject to PRC income tax at the rate of 33% on its estimated assessable profit. In addition, Shenzhen Caixun was established in Shenzhen, one of the Special Economic Zones in the PRC, in 2002 and it is currently subject to PRC income tax at the rate of 15% on its estimated assessable profit. The net profit of the Caixun Group for the year ended 31 December 2002 amounted to approximately RMB12.8 million, representing an increase of approximately 20.7% as compared with the net profit for the year ended 31 December 2001.

For the nine months ended 30 September 2003, the Caixun Group’s turnover was approximately RMB45.8 million, its profit before taxation was about RMB21.8 million, and its net profit was about RMB17.7 million, respectively representing about 115.8%, 130.3% and 138.3% of the Caixun Group’s turnover, profit before taxation and net profit for the year ended 31 December 2002. The Directors have advised that the rise in turnover during the nine months ended 30 September 2003 was due to (1) increase in advertising rate; (2) increase in number of pages of the magazines for advertising purposes; and (3) rise in advertising revenue from New Real Estate Magazine due to increased circulation of that magazine. The Directors have advised that they are not aware of any material deterioration in the business

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prospects and financial position of the Caixun Group (in particular, they are not aware of any factor that would affect the renewal of Beijing Caixun’s advertising permission certificate upon its expiry on 6 March 2004 (according to the opinion of the PRC legal adviser to the Company, (i) in normal circumstance, the renewal of the advertising permission certificate of an advertising company is usually deemed as a matter of procedure and shall not be subject to any additional approval of the PRC government authority, which is unlikely to be failed; and (ii) in case the renewal of Beijing Caixun’s advertising permission certificate is failed, Beijing Caixun has the right to appoint any party which has the capacity to conduct the relevant business (including Shenzhen Caixun which has been granted an advertising permission certificate) to conduct the business and fulfill the obligations under the Advertising Agreements)), in which the Group has an attributable interest of approximately 60%, since 30 September 2003.

Having considered that (a) the Caixun Group is principally engaged in the advertising business in the PRC by targeting the financial publication advertising sector; (b) the print advertising expenditure in the PRC, comprising magazine advertising expenditure and newspaper advertising expenditure, experienced growth during the past few years, and the Directors are of the view that the acquisition of the additional 18% attributable interest in the Caixun Group would position the Group to further benefit from the growth potential of the PRC advertising industry, including the print advertising sector; (c) the turnover and net profit of the Caixun Group since its establishment up to 30 September 2003 were in an increasing trend; and (d) the Directors are not aware of any material deterioration in business prospects and financial position of the Caixun Group since 30 September 2003, in particular, they are not aware of any factors that would affect the renewal of Beijing Caixun’s advertising permission certificate upon its expiry on 6 March 2004 (according to the opinion of the PRC legal adviser to the Company, (i) in normal circumstance, the renewal of the advertising permission certificate of an advertising company is usually deemed as a matter of procedure and shall not be subject to any additional approval of the PRC government authority, which is unlikely to be failed; and (ii) in case the renewal of Beijing Caixun’s advertising permission certificate is failed, Beijing Caixun has the right to appoint any party which has the capacity to conduct the relevant business (including Shenzhen Caixun which has been granted an advertising permission certificate) to conduct the business and fulfill the obligations under the Advertising Agreements), we are of the view that the Acquisition is in the interests of the Group and the Shareholders as a whole.

III. Consideration for the Acquisition Agreement

We note from the Letter from the Board that the Consideration was determined after arm’s length negotiations between the parties to the Acquisition Agreement, and with reference to the 2002 Caixun Net Profit multiplied by a price-earnings multiple of 9 times (“PE Multiple for the Acquisition”) and is adjustable based on the 2003 Caixun Net Profit multiplied by the PE Multiple for the Acquisition.

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In order to analyse the PE Multiple for the Acquisition, comparison can be made between the PE Multiple for the Acquisition and the price-earnings multiples of listed companies which are engaged in the same or similar business of the Caixun Group. We note that other than the Company, there is no listed company in Hong Kong or the PRC which is engaged in the same business of the Caixun Group, but two companies (“Comparable Companies”) listed on the Shanghai Stock Exchange and the Shenzhen Stock Exchange, respectively, are engaged in the advertising agency business, which is similar to the business of the Caixun Group. The respective price-earnings multiples of the Comparable Companies, based on the closing price per share of each Comparable Company as at the Latest Practicable Date and its audited earnings per share for the year ended 31 December 2002 as set out in its latest published annual report, are summarized in the following table:

		Price-earnings
Comparable Company	Place of listing	multiple
Hunan TV & Broadcast Intermediary Co., Ltd.	Shenzhen Stock Exchange	74.19
Shaanxi Broadcast & TV Network	Shanghai Stock Exchange	140.07
Intermediary Co., Ltd.
PE Multiple for the Acquisition		9

Source: Bloomberg (for closing price per share of each Comparable Company as at Latest Practicable Date) and annual reports of the Comparable Companies for the year ended 31 December 2002 (for the audited earnings per share of each Comparable Company for the year ended 31 December 2002).

As illustrated in the above table, the PE Multiple for the Acquisition of 9 times is substantially lower than the historical price-earnings multiples of the two Comparable Companies, being 74.19 times and 140.07 times, respectively.

In addition, the PE Multiple for the Acquisition of 9 times is lower than the price-earnings multiple of approximately 10 times for the acquisition by the Group of the existing interest in the Caixun Group in 2002 (details of which are disclosed in the Company’s circular dated 23 August 2002). As mentioned in paragraph II above, (1) the turnover and net profit of the Caixun Group since its establishment up to 30 September 2003 were in an increasing trend; (2) according to the 2002 China Advertising Yearbook and the Annual Industry Report posted on the website of China Advertising Association, print advertising expenditure in the PRC, comprising magazine advertising expenditure and newspaper advertising expenditure, experienced growth during the past few years and the Directors believe that the growing economy in the PRC, the entry of the PRC into the WTO and the host of 2008 Olympic Games by Beijing, the PRC will continue to create commercial opportunities in the advertising industry, including the print advertising sector; and (3) the Directors have advised that they are not aware of any material deterioration in the business prospects and financial position of the Caixun Group since 30 September 2003, in particular, they are not aware of any factor that

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would affect the renewal of Beijing Caixun’s advertising permission certificate upon its expiry on 6 March 2004 (according to the opinion of the PRC legal adviser to the Company, (i) in normal circumstance, the renewal of the advertising permission certificate of an advertising company is usually deemed as a matter of procedure and shall not be subject to any additional approval of the PRC government authority, which is unlikely to be failed; and (ii) in case the renewal of Beijing Caixun’s advertising permission certificate is failed, Beijing Caixun has the right to appoint any party which has the capacity to conduct the relevant business (including Shenzhen Caixun which has been granted an advertising permission certificate) to conduct the business and fulfill the obligations under the Advertising Agreements). Therefore, the PE Multiple for the Acquisition of 9 times is in general favourable to the Group as compared to the priceearnings multiple of approximately 10 times for the acquisition of the existing interest in the Caixun Group by the Group in 2002.

According to the Caixun Group’s Accountants’ Report, the pro forma net asset value of the Caixun Group as at 31 December 2002 (which have been prepared from the audited financial statements of Beijing Caixun and Shenzhen Caixun) was approximately RMB39.2 million (equivalent to approximately HK$37.0 million). On that basis, the price-to-book multiple for the acquisition of an attributable interest of 18% in the Caixun Group (“PB Multiple for the Acquisition”) is approximately 2.94 times based on the Consideration of HK$19.6 million before any adjustment, or approximately 5.41 times based on the maximum adjusted Consideration of HK$36 million. Set out below is the price-to-book multiples of the Comparable Companies, based on the closing price per share of each Comparable Company as at the Latest Practicable Date and its audited net asset value per share as at 31 December 2002 being set out in its latest published annual report:

		Price-to-book
Comparable Company	Place of listing	multiple
Hunan TV & Broadcast Intermediary Co., Ltd.	Shenzhen Stock Exchange	1.31
Shaanxi Broadcast & TV Network	Shanghai Stock Exchange	15.10
Intermediary Co., Ltd.
PB Multiple for the Acquisition		2.94 to 5.41

Source: Bloomberg (for closing price per share of each Comparable Company as at the Latest Practicable Date) and annual report of the Comparable Companies for the year ended 31 December 2002 (for the audited net asset value per share of each Comparable Company for the year ended 31 December 2002).

As illustrated in the above table, the PB Multiple for the Acquisition of approximately 2.94 times based on the Consideration of HK$19.6 million before any adjustment, or approximately 5.41 times based on the maximum adjusted Consideration of HK$36 million, is within the range of the historical price-to-book multiples of the Comparable Companies from approximately 1.31 times to approximately 15.10 times.

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According to the terms of the Acquisition Agreement, the Initial Consideration shall be paid in cash by the Group upon completion of the Acquisition Agreement, while the Retained Consideration shall be payable within seven days of the determination of the 2003 Caixun Net Profit. As at 31 December 2002, the audited bank and cash balance of the Group amounted to approximately HK$45.9 million. As at 30 June 2003, the unaudited bank and cash balance of the Group amounted to approximately HK$77.4 million. The Directors have advised that they are not aware of any material deterioration in the cash position of the Group since 30 June 2003. In addition, the Group shall settle the Consideration in cash by its internal resources. As set out in Appendix I, the Directors are of the opinion that upon completion of the transactions contemplated in the Circular and after taking into account the enlarged Group’s internally generated funds, the enlarged Group will have sufficient working capital to satisfy its present requirements.

Having taken into account that (a) the Consideration was determined after arm’s length negotiations between the parties to the Acquisition Agreement; (b) the Consideration was determined with reference to the 2002 Caixun Net Profit multiplied by the PE Multiple for the Acquisition of 9 times, and is adjustable based on the 2003 Caixun Net Profit multiplied by the PE Multiple for the Acquisition; (c) the PE Multiple for the Acquisition is lower than the price-earnings multiples of the Comparable Companies; (d) the PE Multiple for the Acquisition of 9 times is lower than the priceearnings multiple of approximately 10 times for the acquisition by the Group of the existing interest in the Caixun Group in 2002; (e) the PB Multiple for the Acquisition of approximately 2.94 times based on the Consideration of HK$19.6 million before any adjustment, or approximately 5.41 times based on the maximum adjusted Consideration of HK$36 million, is within the range of the historical price-to-book multiples of the Comparable Companies; and (f) the Group shall settle the Consideration in cash by its internal resources, and the Directors are of the opinion that upon completion of the transactions contemplated in the Circular and after taking into account the enlarged Group’s internally generated funds, the enlarged Group will have sufficient working capital to satisfy its present requirements, we consider that the Consideration is fair and reasonable when the Group and the Shareholders are considered as a whole.

IV. Reasons for the Acquisition

According to the 2002 Annual Report, before its initial investment in the Caixun Group in 2002, the Group was principally engaged in the design, manufacture and marketing of electronic consumer products in the PRC, Hong Kong, Far East, North America and Europe, and the Group disposed of that business to an independent third party in 2003. Following the acquisition of approximately 60% attributable interest in the Caixun Group in 2002, the Group has positioned itself as an advertising operating group in the PRC which is principally engaged in the provision of advertising services for quality finance media in the PRC. The Directors have advised that the Group’s advertising agency business has been carried on through the Caixun Group, in which the Group has an attributable interest of approximately 60% at present. As mentioned in

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paragraph II above, the Directors believe that the Acquisition would position the Group to further benefit from the growth potential of the PRC advertising industry, including the print advertising sector, which is currently undergoing liberalisation since the PRC Government has stated its commitment to opening domestic markets to foreign business investment in many key industries, including the advertising industry. The Directors also believe that the growing economy in the PRC, the entry of the PRC into the WTO and the host of 2008 Olympic Games by Beijing, the PRC will continue to create significant commercial opportunities for the advertising industry, including the print advertising sector.

Having considered that the Group is now principally engaged in the provision of advertising services for quality finance media in the PRC through the Caixun Group and the financial results of the Caixun Group as mentioned in paragraph II above, we are of the view that the Acquisition will further consolidate the Group’s interest and control in the Caixun Group, comprising Beijing Caixun and Shenzhen Caixun which are indirect non-wholly-owned subsidiaries of the Company, and are therefore in the interests of the Group and the Shareholders as a whole.

V. Impact of the Acquisition on the Group

(i) Earnings

For the two years ended 31 December 2001 and 2002, the Group recorded an audited net loss of approximately HK$70.49 million and an audited net profit of approximately HK$1.32 million, respectively. The improvement in the financial results of the Group, according to the 2002 Annual Report, was attributable to the Group’s relentless effort in cost control, decrease in material cost purchased during 2002, and effective business consolidation. For the six months ended 30 June 2003, the Group recorded an unaudited net profit of approximately HK$7.02 million, which demonstrated a continuous improvement in the financial performance of the Group as it recorded a net loss of approximately HK$7.76 million during the six months ended 30 June 2002. According to the Company’s interim report for the six months ended 30 June 2003, during the first half of 2003, unaudited revenue from the provision of advertising agency services amounted to approximately HK$22.7 million, representing approximately 33.0% of the unaudited total revenue of the Group, and the unaudited results from this segment amounted to approximately HK$10.3 million, representing approximately 69.1% of the unaudited total segment results of the Group. The Directors believe that the improvement in the financial performance of the Group during the six months ended 30 June 2003 as compared with the corresponding period in 2002 was due to, inter alia , the Group’s provision of advertising agency services since the second half of 2002.

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LETTER FROM CELESTIAL CAPITAL LIMITED

As mentioned in paragraph IV above, the Group is now principally engaged in the provision of advertising services for quality finance media in the PRC through the Caixun Group. In addition, it was mentioned in paragraphs II and III above that (1) the turnover and net profit of the Caixun Group since its establishment up to 30 September 2003 were in an increasing trend; (2) according to the 2002 China Advertising Yearbook and the Annual Industry Report posted on the website of China Advertising Association, print advertising expenditure in the PRC experienced growth during the past few years, and the Directors believe that the growing economy in the PRC, the entry of the PRC into the WTO and the host of the 2008 Olympic Games by Beijing, the PRC will continue to create significant commercial opportunities for the advertising industry, including the print advertising sector; and (3) the Directors have advised that they are not aware of any material deterioration in the business prospects and financial position of the Caixun Group since 30 September 2003, in particular, they are not aware of any factor that would affect the renewal of Beijing Caixun’s advertising permission certificate upon its expiry on 6 March 2004 (according to the opinion of the PRC legal adviser to the Company, (i) in normal circumstance, the renewal of the advertising permission certificate of an advertising company is usually deemed as a matter of procedure and shall not be subject to any additional approval of the PRC government authority, which is unlikely to be failed; and (ii) in case the renewal of Beijing Caixun’s advertising permission certificate is failed, Beijing Caixun has the right to appoint any party which has the capacity to conduct the relevant business (including Shenzhen Caixun which has been granted an advertising permission certificate) to conduct the business and fulfill the obligations under the Advertising Agreements). As a whole, the Directors believe that the Acquisition will further strengthen the Group’s earning position. On the basis that (a) upon completion of the Acquisition Agreement, the Group’s equity interest in Beijing Caixun and Shenzhen Caixun, two non-wholly-owned subsidiaries of the Company, will increase by 18%; and (b) the Caixun Group recorded a pro forma net profit during the nine months ended 30 September 2003 and the Directors are not aware of any material deterioration in the business prospects and financial position of the Caixun Group since 30 September 2003 (we note that the advertising permission certificate of Beijing Caixun will expire on 6 March 2004. According to the Directors, they are not aware of any factor that would affect the renewal of Beijing Caixun’s advertising permission certificate upon its expiry, and according to the opinion of the PRC legal adviser to the Company, (i) in normal circumstance, the renewal of the advertising permission certificate of an advertising company is usually deemed as a matter of procedure and shall not be subject to any additional approval of the PRC government authority, which is unlikely to be failed; and (ii) in case the renewal of Beijing Caixun’s advertising permission certificate is failed, Beijing Caixun has the right to appoint any party which has the capacity to conduct the relevant business (including Shenzhen Caixun which has been granted an advertising permission certificate) to conduct the business and fulfill the obligations under the Advertising Agreements), we concur with the view of the Directors that the Acquisition will further strengthen the Group’s earning position.

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LETTER FROM CELESTIAL CAPITAL LIMITED

(ii) Net tangible asset value

It was set out in the “Statement of the pro forma adjusted unaudited consolidated net tangible assets of the enlarged Group upon completion of the Acquisition Agreement” in Appendix I to the Circular that (i) the unaudited consolidated net tangible assets of the Group immediately before completion of the Acquisition Agreement would be approximately HK$117.6 million, or approximately HK$0.076 per Share (based on a total of 1,545,774,614 Shares in issue); and (ii) the pro forma adjusted unaudited consolidated net tangible assets of the enlarged Group immediately after completion of the Acquisition Agreement would be approximately HK$88.8 million (assuming the maximum adjusted Consideration of approximately HK$36 million will be paid by the Group), or approximately HK$0.057 per Share (based on a total of 1,545,774,614 Shares in issue). As set out in the Letter from the Board, such decrease is mainly caused by the goodwill of approximately HK$28.9 million arising from the Acquisition, which is not included in the pro forma adjusted unaudited consolidated net tangible asset of the enlarged Group immediately after completion of the Acquisition Agreement.

(iii) Gearing

According to the “Statement of the pro forma adjusted unaudited consolidated assets and liabilities of the enlarged Group upon completion of the Acquisition Agreement” as set out in Appendix I to the Circular, (1) the unaudited current liabilities of the Group would be approximately HK$39.3 million and the net asset value of the Group would amount to approximately HK$184.9 million immediately before completion the Acquisition Agreement, and (2) the pro forma unaudited current liabilities of the enlarged Group and the pro forma unaudited net asset value of the enlarged Group immediately after completion of the Acquisition Agreement would be unchanged and would amount to approximately HK$39.3 million and HK$184.9 million, respectively. On that basis, the Acquisition Agreement would not impact on the gearing ratio of the Group.

We note that the pro forma adjusted unaudited consolidated net tangible assets of the Group and pro forma adjusted unaudited consolidated net tangible assets per Share would decrease as a result of the Acquisition as mentioned in sub-paragraph (ii) in this paragraph V. However, we also note (a) the Directors’ opinion that the Acquisition will further strengthen the Group’s earning position based on the Caixun Group’s financial results since its establishment in 2000 up to 30 September 2003; (b) the Directors are not aware of any material deterioration in the business prospects and financial position of the Caixun Group since 30 September 2003, in particular, they are not aware of any factor that would affect the renewal of Beijing Caixun’s advertising permission certificate upon its expiry on 6 March 2004 (according to the opinion of the PRC legal adviser to the Company, (i) in normal circumstance, the renewal of the advertising permission

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LETTER FROM CELESTIAL CAPITAL LIMITED

certificate of an advertising company is usually deemed as a matter of procedure and shall not be subject to any additional approval of the PRC government authority, which is unlikely to be failed; and (ii) in case the renewal of Beijing Caixun’s advertising permission certificate is failed, Beijing Caixun has the right to appoint any party which has the capacity to conduct the relevant business (including Shenzhen Caixun which has been granted an advertising permission certificate) to conduct the business and fulfill the obligations under the Advertising Agreements) and the expected future prospects of the Caixun Group as discussed in paragraph II above; and (c) the Acquisition would not have any impact on the gearing ratio of the Group. Based on the above, we consider that the potential contribution in term of earnings to be further contributed to the Group by the Caixun Group upon completion of the Acquisition Agreement outweighs the decrease in the net tangible assets of the Group and net tangible assets per Share as a result of the Acquisition.

RECOMMENDATION

Having taken into account the above principal factors and reasons, we consider that the terms of the Acquisition Agreement are fair and reasonable and the Acquisition is in the interests of the Group and the Shareholders as a whole. Accordingly, we advise the Independent Board Committee to recommend the Independent Shareholders to vote in favour of the ordinary resolution to approve the Acquisition Agreement at the EGM.

Yours faithfully For and on behalf of

CELESTIAL CAPITAL LIMITED Benson Chan Managing Director

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

1. SHARE CAPITAL

The authorised and issued share capital of the Company as at the Latest Practicable Date were and, following completion of the Acquisition Agreement will be as follows:

Authorised: 3,000,000,000 Shares Issued: 1,545,774,614 Shares	HK$ 300,000,000
	154,577,461

All the issued Shares rank pari passu in all respects including all rights as to dividends, voting and return of capital.

2. SHARE OPTIONS

Pursuant to the Share Option Scheme, the Board is authorised to grant all eligible participants of the Share Option Scheme including any employee (including executive Directors), officer (including non-executive Directors and independent non-executive Directors), consultant, agent, professional adviser, customer, business partner, joint venture partner, strategic partner, landlord or tenant of, or any supplier or provider of goods or services to the Group, or any trustee of a discretionary trust of which one or more beneficiaries belonging to any of the above-mentioned categories of persons.

The grant of options under the Share Option Scheme may be accepted within 28 days from the date of the grant, upon payment of a nominal consideration of HK$10 in total by the grantee. An option may be exercised under the Share Option Scheme at any time within ten years from the date of grant of the options.

The exercise price of the options is determinable by the Board, but may not be less than the highest of (i) the Stock Exchange closing price of the Shares on the date of the grant of the share options; (ii) the average Stock Exchange closing price of the Shares for the five trading days immediately preceding the date of the grant; and (iii) the nominal value of a Share.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

As at the Latest Practicable Date, there were 38,100,000 Shares subject to be subscribed under the options granted remain outstanding, details of which are as follows:

Name of Exercise Exercisable grantees Date of grant price period (HK$) LI Shijie, 25 July 2003 0.21 25 July 2004 executive to 24 July 2009 Director Other 25 July 2003 0.21 25 July 2003 participants to 24 July 2008 in aggregate 25 July 2003 0.21 25 July 2004 to 24 July 2009 22 October 2003 0.35 22 October 2003 to 21 July 2008	Number of Shares subject to be subscribed under the options granted 6,900,000 1,800,000 29,200,000 1,000,000 38,900,000	Number of Shares subscribed and allotted pursuant to the exercised options – (800,000) – – (800,000)	Number of Shares subject to be subscribed under the options granted remain outstanding 6,900,000 1,000,000 29,200,000 1,000,000
			38,100,000

Save as disclosed herein, the Company has no other outstanding options, warrants and conversion rights affecting the Shares.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

3. STATEMENT OF THE PRO FORMA ADJUSTED UNAUDITED CONSOLIDATED NET TANGIBLE ASSETS OF THE ENLARGED GROUP UPON COMPLETION OF THE ACQUISITION AGREEMENT

The following is a statement of the pro forma adjusted unaudited consolidated net tangible assets of the enlarged Group immediately following the completion of the Acquisition Agreement. It is based on the audited consolidated net assets of the Group as at 31 December 2002, adjusted to reflect, inter alia , the effect of the proposed acquisition of 60% interest in the registered capital of Caixun Century pursuant to the Acquisition Agreement.

Audited consolidated net assets of the Group as at 31 December 2002 Add: Unaudited consolidated net profit of the Group for the six months ended 30 June 2003 Less: Exchange loss on translation of overseas operations not recognised in the income statement Add: Conversion of convertible notes during the six months ended 30 June 2003 Unaudited consolidated net assets of the Group as at 30 June 2003 Less: Intangible assets of the Group as at 30 June 2003_(Note 1) Unaudited consolidated net tangible assets of the Group as at 30 June 2003 Add: Net proceeds from placement of Shares as announced on 3 October 2003(Note 2) Unaudited consolidated net tangible assets of the Group immediately before the completion of the Acquisition Agreement Less: Cash consideration to be paid by the Group for the Acquisition (Note 3) Add: Acquisition for 60% interest in Caixun Century(Note 4) Add: Net assets of Caixun Group as at 30 September 2003 to be acquired pursuant to the Acquisition Agreement(Note 5) Pro forma adjusted unaudited consolidated net tangible assets of the enlarged Group immediately after the completion of the Acquisition Agreement Unaudited consolidated net tangible asset value per Share immediately before the completion of the Acquisition Agreement (Note 6) Pro forma adjusted unaudited consolidated net tangible asset value per Share immediately after the completion of the Acquisition Agreement(Note 6)_

HK$’000 140,091 7,024 (5) 2,600 149,710 (67,266) 82,444 35,200 117,644 (36,000) 2,264 4,874 88,782 HK$0.076 HK$0.057

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Notes:

1. This includes goodwill on acquisition of subsidiaries and intangible assets in respect of sole agency rights of advertising on certain newspaper and magazines of HK$36,244,000 and HK$31,022,000 respectively.

2. The Group intends to use the net proceeds of the subscription for the Group’s general working capital purposes or for future investment in media publication advertising agency business in the PRC and will strive to obtain more exclusive advertising rights and to explore cooperation opportunities with their international brandnames and publication business when opportunities are identified and as the Directors think appropriate.

3. On the assumption that the total consideration for the acquisition of 60% interest in the registered capital of Caixun Century is HK$36,000,000.

4. The assets of Caixun Century to be acquired pursuant to the Acquisition Agreement represents 60% interest of the net assets of Caixun Century as at 30 September 2003 attributable to the Group upon the completion of the Acquisition Agreement.

5. The net assets of Caixun Group to be acquired pursuant to the Acquisition Agreement represents 18% interest of the net assets of Caixun Group as at 30 September 2003 attributable to the Group upon the completion of the Acquisition Agreement.

6. It is calculated based on 1,545,774,614 Shares in issue.

4. STATEMENT OF THE PRO FORMA ADJUSTED UNAUDITED CONSOLIDATED ASSETS AND LIABILITIES OF THE ENLARGED GROUP UPON COMPLETION OF THE ACQUISITION AGREEMENT

The pro forma adjusted unaudited consolidated assets and liabilities of the enlarged Group as set out below is prepared based on the unaudited consolidated net assets of the Group as at 30 June 2003 (as set out in Appendix I to this circular) adjusted to reflect, inter alia , the effect of the proposed acquisition of 60% interest in the registered capital of the Caixun Century pursuant to the Acquisition Agreement.

Property, plant and equipment Intangible assets Goodwill Current assets Current liabilities Net current assets/ (liabilities) Total assets less current liabilities Minority interests Net assets	Unaudited consolidated net assets of the Group as at 30 June 2003 HK$’000 11,561 31,022 36,244 78,827 128,952 39,336 89,616 168,443 18,733 149,710	Placement of Shares HK$’000 35,200 – 35,200 35,200 – 35,200	Pro forma unaudited consolidated assets and liabilities of the Group immediately before completion of the Acquisition Agreement HK$’000 11,561 31,022 36,244 78,827 164,152 39,336 124,816 203,643 18,733 184,910	The Acquisition HK$’000 3,774 – 3,774 3,774 1,510 2,264	Caixun Group Notes HK$’000 28,862 (i) 28,862 (36,000) (ii), (iii) – (36,000) (7,138) (4,874) (iv) (2,264)	Pro forma adjusted unaudited consolidated net assets of the enlarged Group upon completion of the Acquisition Agreement HK$’000 11,561 31,022 65,106
						107,689
						131,926
						39,336
						92,590
						200,279
						15,369
						184,910

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Notes:

• (i) This represents the consolidation adjustment of goodwill arising from the acquisition of 18% equity interest in Caixun Group to be capitalised and amortised on a straight-line basis over its estimated useful life of 15 years in accordance with the Group’s accounting policy.

• (ii) This represents the maximum amount of the total consideration to be paid by the Group in respect of the acquisition of 18% equity interest in Caixun Group.

• (iii) The amount represents net proceeds of the subscription of 140,000,000 Shares at HK$0.26 per Share as announced on 3 October 2003.

• (iv) The Group proposed to acquire 18% equity interest in Caixun Group from the Caixun Group’s minority shareholders pursuant to the Acquisition Agreement and accordingly, this adjustment represents 18% equity interest in the net assets of Caixun Group as at 30 September 2003 attributable to the enlarged Group upon the completion of the Acquisition Agreement.

5. INDEBTEDNESS

At the close of business on 31 October 2003, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Group had outstanding borrowings of approximately HK$8.4 million, which represent unsecured amounts due to related companies. The amounts are non-interest bearing.

Save as disclosed and apart from intra-group liabilities, the Group did not have any outstanding mortgages, charges, debentures, bank loans and overdrafts, debt securities or other similar indebtedness, loan capital issued or outstanding or agreed to be issued, finance leases, liabilities under acceptances or acceptance credits or any hire purchase commitments, or any guarantees or other material contingent liabilities.

6. COMMITMENTS

Pursuant to an agreement dated 5 November 2001 entered into between the Group and a magazine publication company, an independent third party, the Group as at 31 October 2003 had commitments to make a total payment of approximately RMB16 million over the period from year 2004 to year 2016 for the sole agency right of the magazine publication company. The payment ranges from RMB600,000 per annum until year 2005 to maximum RMB1,500,000 per annum since year 2011.

7. WORKING CAPITAL

The Directors are of the opinion that, upon completion of the transactions contemplated in this circular and after taking into account the enlarged Group’s internally generated funds, the enlarged Group will have sufficient working capital to satisfy its present requirements.

8. SUMMARY OF FINANCIAL INFORMATION

A summary of the results and the assets, liabilities and minority interests of the Group for the last three financial years, as extracted from the audited financial statements and reclassified as appropriate, is set out below. The amounts for each year in the three-year summary have been adjusted for the effects of the retrospective changes in accounting policy affecting goodwill, as detailed in note 2 to the financial statements as set out in the paragraph headed “Audited financial information” in this appendix.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

RESULTS Turnover Profit/(loss) from operating activities Finance costs Provision for impairment in value of goodwill on acquisition of interest in an associate Provision for impairment loss on interest in an associate Share of profits less losses of associates Profit/(loss) before tax Tax Profit/(loss) before minority interests Minority interests Net profit/(loss) from ordinary activities attributable to shareholders ASSETS, LIABILITIES AND MINORITY INTERESTS Non-current assets Current assets TOTAL ASSETS Current liabilities TOTAL LIABILITIES MINORITY INTERESTS

Year ended 31 December 2002 2001 2000 HK$’000 HK$’000 HK$’000 (Restated) 78,000 85,413 195,635 3,164 (31,583) (21,500) (165) (332) (329) – (5,357) (14,044) – (24,387) – – (11,530) 26,112 2,999 (73,189) (9,761) (798) 2,704 (5,117) 2,201 (70,485) (14,878) (884) – – 1,317 (70,485) (14,878) 146,225 80,177 122,914 75,853 30,675 62,605 222,078 110,852 185,519 (66,263) (32,084) (47,759) (66,263) (32,084) (47,759) (15,724) (300) (300) 140,091 78,468 137,460

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

8. AUDITED FINANCIAL INFORMATION

The following financial information is an extract from the audited financial statements of the Group for the year ended 31 December 2002 together with notes thereto.

CONSOLIDATED PROFIT AND LOSS ACCOUNT

Year ended 31 December 2002

Notes TURNOVER 5 Cost of sales Gross profit Other revenue Selling and distribution costs Administrative expenses Other operating income/(expenses) PROFIT/(LOSS) FROM OPERATING ACTIVITIES 7 Finance costs 8 Provision for impairment in value of goodwill on acquisition of interest in an associate Provision for impairment loss on interest in an associate Share of profits less losses of associates PROFIT/(LOSS) BEFORE TAX Tax 11 PROFIT/(LOSS) BEFORE MINORITY INTERESTS Minority interests NET PROFIT/(LOSS) FROM ORDINARY ACTIVITIES ATTRIBUTABLE TO SHAREHOLDERS 12 EARNINGS/(LOSS) PER SHARE_(HK cents) _13 Basic Diluted	2002 HK$ 77,999,592 (48,668,848) 29,330,744 803,298 (5,419,601) (22,112,364) 562,541 3,164,618 (165,026) – – – 2,999,592 (798,119) 2,201,473 (884,443) 1,317,030 0.13 0.12	2001 HK$ 85,413,402 (85,077,345) 336,057 1,617,080 (3,665,892) (28,697,642) (1,172,449) (31,582,846) (332,020) (5,357,400) (24,387,030) (11,529,656) (73,188,952) 2,703,462 (70,485,490) – (70,485,490) (7.31) N/A

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONSOLIDATED BALANCE SHEET

31 December 2002

Notes NON-CURRENT ASSETS Fixed assets 14 Intangible assets 15 Goodwill 16 Interests in associates 18 Investment in securities 19 CURRENT ASSETS Short term investments 20 Inventories 21 Trade and bills receivables 22 Other receivables and prepayments Due from related companies 23 Pledged deposits 24 Cash and cash equivalents 25 CURRENT LIABILITIES Trade and bills payables 26 Other payables and accruals 27 Deposits received 28 Convertible notes 29 Trust receipt loans, secured 30 Due to related companies 23 Tax payable NET CURRENT ASSETS/(LIABILITIES) TOTAL ASSETS LESS CURRENT LIABILITIES MINORITY INTERESTS CAPITAL AND RESERVES Issued capital 31 Reserves 33(a)	2002 HK$ 36,693,965 32,026,110 37,505,048 – 40,000,000 146,225,123 1,969,920 6,084,930 17,986,516 1,632,468 263,877 2,000,000 45,915,129 75,852,840 9,314,892 18,686,786 18,419,200 10,560,000 84,708 5,546,130 3,651,381 66,263,097 9,589,743 155,814,866 15,724,086 140,090,780 138,697,462 1,393,318 140,090,780	2001 HK$ 40,177,079 – – 40,000,000 – 80,177,079 2,432,000 8,510,641 1,978,791 1,128,049 – 6,000,000 10,625,614 30,675,095 10,777,986 18,359,073 – – 2,947,349 – – 32,084,408 (1,409,313) 78,767,766 300,000 78,467,766 100,452,778 (21,985,012) 78,467,766

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF CHANGES OF EQUITY

31 December 2002

At 1 January 2001 Issue of shares Share issue expenses Share of movements in reserves of associates Net loss for the year At 31 December 2001 and at 1 January 2002 Issue of shares Exchange realignment and net loss not recognised in the profit and loss account Net profit for the year Transfer to reserve funds At 31 December 2002 Retained by: Company and subsidiaries Associates At 31 December 2002 Retained by: Company and subsidiaries Associates At 31 December 2001	Issued share capital HK$ 90,407,500 10,045,278 – – – 100,452,778 38,244,684 – – – 138,697,462 138,697,462 – 138,697,462 100,452,778 – 100,452,778	Share premium account HK$ 296,555,356 1,843,308 (386,988) – – 298,011,676 22,076,916 – – – 320,088,592* 320,088,592 – 320,088,592 298,011,676 – 298,011,676	Capital reserves HK$ 21,977,290 – – – – 21,977,290 – – – – 21,977,290* 21,977,290 – 21,977,290 – 21,977,290 21,977,290	Reserve funds HK$ – – – – – – – – – 51,636 51,636* 51,636 – 51,636 – – –	Retained Exchange profits/ translation (accumulated reserve losses) HK$ HK$ 484,884 (271,964,557) – – – – (8,815) – – (70,485,490) 476,069 (342,450,047) – – (15,616) – – 1,317,030 – (51,636) 460,453 (341,184,653) 460,453 (341,184,653) – – 460,453 (341,184,653) – (353,312,718) 476,069 10,862,671 476,069 (342,450,047)	Total HK$ 137,460,473 11,888,586 (386,988) (8,815) (70,485,490)
						78,467,766 60,321,600 (15,616) 1,317,030 –
						140,090,780
						140,090,780 –
						140,090,780
						45,151,736 33,316,030
						78,467,766

• These reserve accounts comprise the consolidated reserves of HK$1,393,318 (2001: negative reserves of HK$21,985,012) in the consolidated balance sheet.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONSOLIDATED CASH FLOW STATEMENT

Year ended 31 December 2002

Notes CASH FLOWS FROM OPERATING ACTIVITIES Profit/(loss) before tax Adjustments for: Finance costs 8 Provision for impairment in value of goodwill on acquisition of interest in an associate Provision for impairment loss on interest in an associate Share of profits less losses of associates Interest income 7 Depreciation 7 Amortisation of goodwill 7 Amortisation of intangible assets 7 Loss/(gain) on disposal of fixed assets 7 Unrealised holding loss/(gain) on short term investments 7 Provision for doubtful debts/(write-back of bad debt expenses) 7 Operating profit/(loss) before working capital changes Decrease in inventories Decrease/(increase) in trade and bills receivables Decrease in other receivables and prepayments Decrease in amounts due from related companies Decrease in trade and bills payables Increase/(decrease) in other payables and accruals Decrease in amounts due to related companies Cash generated from operations Interest paid Overseas tax paid Net cash outflow from operating activities	2002 HK$ 2,999,592 165,026 – – – (209,860) 2,902,854 317,420 283,669 (222,420) 462,080 (1,123,307) 5,575,054 2,425,711 (1,992,557) 582,693 3,096,254 (2,177,815) (5,608,153) (4,665,398) (2,764,211) (165,026) (107,347) (3,036,584)	2001 HK$ (Restated) (73,188,952) 332,020 5,357,400 24,387,030 11,529,656 (396,451) 4,461,255 892,900 – 232,503 (267,520) 269,963 (26,390,196) 27,085,589 4,122,086 2,145,756 – (10,737,451) (4,172,528) – (7,946,744) (332,020) – (8,278,764)

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Notes CASH FLOWS FROM INVESTING ACTIVITIES Interest received Acquisition of subsidiaries 35(b) Purchases of fixed assets Proceeds from disposal of fixed assets Decrease in pledged deposits Increase in deposits received Net cash outflow from investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of share capital 31 Share issue expenses 31 Proceeds from issue of convertible notes 29 Decrease in trust receipt loans, secured Net cash inflow from financing activities NET INCREASE IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of year Effect of foreign exchange rate changes, net CASH AND CASH EQUIVALENTS AT END OF YEAR ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances 25 Non-pledged time deposits with original maturity of less than three months when acquired 25	2002 HK$ 209,860 (53,349,010) (731,084) 1,773,790 4,000,000 18,419,200 (29,677,244) 60,321,600 – 10,560,000 (2,862,641) 68,018,959 35,305,131 10,625,614 (15,616) 45,915,129 17,816,609 28,098,520 45,915,129	2001 HK$ (Restated) 396,451 – (1,474,127) 44,906 304,685 – (728,085) 11,888,586 (386,988) – (764,458) 10,737,140 1,730,291 8,895,323 – 10,625,614 4,575,614 6,050,000 10,625,614

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

BALANCE SHEET

31 December 2002

Notes NON-CURRENT ASSETS Fixed assets 14 Interests in subsidiaries 17 CURRENT ASSETS Other receivables and prepayments Pledged deposits Cash and cash equivalents 25 CURRENT LIABILITIES Other payables and accruals 27 Deposits received 28 Convertible notes 29 NET CURRENT ASSETS/(LIABILITIES) CAPITAL AND RESERVES Issued capital 31 Reserves 33(b)	2002 HK$ – 138,114,453 138,114,453 294,548 – 26,772,269 27,066,817 511,000 18,419,200 10,560,000 29,490,200 (2,423,383) 135,691,070 138,697,462 (3,006,392) 135,691,070	2001 HK$ 101,533 72,760,437 72,861,970 209,615 2,000,000 6,757,707 8,967,322 1,431,831 – – 1,431,831 7,535,491 80,397,461 100,452,778 (20,055,317) 80,397,461

– 41 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS

31 December 2002

1. CORPORATE INFORMATION

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

• design, manufacture and marketing of electronic consumer products

• provision of advertising agency services

Subsequent to the balance sheet date, the Company decided to dispose of its entire interest in ProdArt Company Limited (“Prod-Art”). The principal activities of the Prod-Art and its subsidiaries (collectively referred as “Prod-Art Group”) are the design, manufacture and marketing of electronic consumer products. Further details of the disposal are included in note 6 to the financial statements.

2. IMPACT OF NEW AND REVISED STATEMENTS OF STANDARD ACCOUNTING PRACTICE

The following recently-issued and revised Statements of Standard Accounting Practice (“SSAPs”) are effective for the first time for the current year’s financial statements:

• SSAP 1 (Revised): “Presentation of financial statements” • SSAP 11 (Revised): “Foreign currency translation” • SSAP 15 (Revised): “Cash flow statements” • SSAP 33: “Discontinuing operations” • SSAP 34: “Employee benefits” • Interpretation 18: “Consolidation and equity method – Potential voting rights and allocation of ownership interests”

These SSAPs prescribe new accounting measurement and disclosure practices. The major effects on the Group’s accounting policies and on the amounts disclosed in these financial statements of those SSAPs which have had a significant effect on the financial statements are summarised as follows:

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

SSAP 11 (Revised) prescribes the basis for the translation of foreign currency transactions and financial statements. The principal impact of this revised SSAP on the consolidated financial statements is that the profit and loss account of overseas subsidiaries are now translated at weighted average exchange rates for the year, whereas previously they were translated at the exchange rates at the balance sheet date. The adoption of the revised SSAP 11 has had no material effect on the financial statements.

SSAP 15 (Revised) prescribes the format for the cash flow statement. The principal impact of the revision of this SSAP is that consolidated cash flow statement now presents cash flows under three headings, cash flows from operating, investing and financing activities, rather than the five headings previously required. In addition, cash flows from overseas subsidiaries arising during the year are now translated to Hong Kong dollars at the exchange rates at the dates of the transactions, or at an approximation thereto, whereas previously they were translated at the exchange rates at the balance sheet date, and the definition of cash equivalents for the purpose of the consolidated cash flow statement has been revised. Further details of these changes and the restatement that have resulted from them are included in the accounting policies for “Cash and cash equivalents” and “Foreign currencies” in note 3 and note 35(a) to the financial statements.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

SSAP 33 replaces the existing disclosure requirements for discontinuing operations, which were previously included in SSAP 2. The SSAP defines a discontinuing operation and prescribes when an enterprise should commence including discontinuing operations disclosures in its financial statements and the disclosures required. The principal impact of the SSAP is that more extensive disclosures concerning the Group’s discontinuing operations are now included in note 6 to the financial statements.

SSAP 34 prescribes the recognition and measurement criteria to apply to employee benefits, together with the required disclosures in respect thereof. The adoption of this SSAP has resulted in no change to the previously adopted accounting treatments for employee benefits. Additional disclosures are now required in respect of the Company’s share option scheme, as detailed in note 32 to the financial statements. These share option scheme disclosures are similar to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) disclosures previously included in the Report of the Directors, and which are now required to be included in the notes to the financial statements as a consequence of the SSAP.

Interpretation 18 prescribes the consolidation and equity method when the existence and effect of potential voting rights are presently exercisable or presently convertible.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of preparation

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

Basis of consolidation

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

Subsidiaries

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

The Company’s interests in subsidiaries are stated at cost less any impairment losses.

Associates

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

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

When the Group ceases to have significant influence in an associate but retains, either in whole or in part, its investment, the carrying amount of the investment at that date is regarded as cost thereafter, and it is accounted for as an investment other than a held-to-maturity security in accordance with SSAP 24 “Accounting for investments in securities”.

– 43 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Goodwill

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

Goodwill arising on acquisition is recognised in the consolidated balance sheet as an asset and amortised on the straight-line basis over its estimated useful life of not exceeding twenty years.

On disposal of subsidiaries, the gain or loss on disposal is calculated by reference to the net assets at the date of disposal, including the attributable amount of goodwill which remains unamortised and any relevant reserves, as appropriate.

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

Impairment of assets

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

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

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

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

Fixed assets and depreciation

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

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Depreciation is calculated on the straight-line basis to write off the cost of each asset over its estimated useful life as follows:

Leasehold land Over the unexpired term of the lease Leasehold buildings 50 years or over the term of the relevant lease, whichever is shorter Plant and machinery 6[2] /3 years Moulds 5 years Motor vehicles 4 years Furniture, fixtures and fittings 10 years Computer and office equipment 3 to 6[2] /3 years

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

Intangible assets

Sole advertising agency rights are stated at cost less any impairment loss and amortised on a straight-line basis over their estimated useful lives of 16 to 17 years.

Research and development costs

All research costs are charged to the profit and loss account as incurred.

Expenditure incurred on projects to develop new products is capitalised and deferred only when the projects are clearly defined; the expenditure is separately identifiable and can be measured reliably; there is reasonable certainty that the projects are technically feasible; and the products have commercial value. Product development expenditure which does not meet these criteria is expensed when incurred.

Deferred development costs are amortised using the straight-line basis over the commercial lives of the underlying products not exceeding five years, commencing from the date when the products are put into commercial production.

Long term investment

Long term investment is a non-trading investment in unlisted equity securities intended to be held on a long term basis.

Unlisted securities are stated at their estimated fair values, on an individual basis. The estimated fair value of unlisted investment is determined by the directors having regard to, inter alia, the prices of the most recent reported sales or purchases of the securities.

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

Short term investments

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

– 45 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Inventories

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

Deferred tax

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

Operating leases

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

Employee benefits

Pension schemes

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

The employees of the Group’s subsidiaries which operate in the PRC are required to participate in a central pension scheme operated by the local municipal government. These PRC subsidiaries are required to contribute the prescribed percentages of its standard salaries to the central pension scheme. The contributions are charged to the profit and loss account as they become payable in accordance with the rules of the central pension scheme.

Employment Ordinance long service payments

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

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

– 46 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Share options scheme

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

Foreign currencies

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

On consolidation, the financial statements of the Group’s subsidiaries registered in the People’s Republic of China (the “PRC”), which are maintained in Renminbi, are translated into Hong Kong dollars using the net investment method. The profit and loss accounts of overseas subsidiaries and associates are translated to Hong Kong dollars at the weighted average exchange rates for the year, and their balance sheets are translated to Hong Kong dollars at the exchange rates at the balance sheet date. The resulting translation differences are included in the exchange translation reserve.

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

Prior to the adoption of the revised SSAPs 11 and 15 during the year, as explained in note 2 to the financial statements, the profit and loss accounts of overseas subsidiaries and associates and the cash flows of overseas subsidiaries were translated to Hong Kong dollars at the exchange rates at the balance sheet date. The adoption of the revised SSAP 11 has had no material effect on the financial statements.

Revenue recognition

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

• (a) from the sale of goods, when the significant risks and rewards of ownership have been transferred to the buyer, provided that the Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold;

• (b) from the provision of advertising agency services, when the related advertisement is published;

• (c) interest income, on a time proportion basis taking into account the principal outstanding and the effective interest rate applicable; and

• (d) dividends, when the shareholders’ right to receive payment is established.

– 47 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Related parties

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

Cash and cash equivalents

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

Prior to the adoption of the revised SSAP 15 during the year, as explained in note 2 to the financial statements, cash equivalents in the consolidated cash flow statement also included advances from banks repayable within three months from the date of the advance, in addition to bank overdrafts. This change in definition has resulted in a restatement relating to trust receipt loans, further details of which are included in note 35(a) to the financial statements.

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

Provisions

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

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

4. SEGMENT INFORMATION

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

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

• (a) design, manufacture and marketing of electronic consumer products; and

• (b) provision of advertising agency services.

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

– 48 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(a) Business segments

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

Group

Design, manufacture and marketing of electronic consumer products (Discontinuing operation) 2002 2001 HK$’000 HK$’000 Segment revenue: Sales to external customers 71,027 85,413 Segment results 6,959 (27,276) Unallocated revenue Unallocated expenses Profit/(loss) from operating activities Finance costs Provision for impairment in value of goodwill on acquisition of interest in an associate Provision for impairment loss on interest in an associate Share of profits less losses of associates Profit/(loss) before tax Tax Profit/(loss) before minority interests Minority interests Net profit/(loss) from ordinary activities attributable to shareholders	Provision of advertising agency services 2002 2001 HK$’000 HK$’000 6,973 – 2,667 –	Consolidated 2002 2001 HK$’000 HK$’000 78,000 85,413 9,626 (27,276) 803 1,617 (7,265) (5,924) 3,164 (31,583) (165) (332) – (5,357) – (24,387) – (11,530) 2,999 (73,189) (798) 2,704 2,201 (70,485) (884) – 1,317 (70,485)	Consolidated 2002 2001 HK$’000 HK$’000 78,000 85,413 9,626 (27,276) 803 1,617 (7,265) (5,924) 3,164 (31,583) (165) (332) – (5,357) – (24,387) – (11,530) 2,999 (73,189) (798) 2,704 2,201 (70,485) (884) – 1,317 (70,485)
			(27,276) 1,617 (5,924)
			(31,583) (332) (5,357) (24,387) (11,530)
			(73,189) 2,704
			(70,485) –
			(70,485)

– 49 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Group

Design, manufacture and marketing of electronic consumer products Provision of (Discontinuing advertising operation) agency services 2002 2001 2002 2001 HK$’000 HK$’000 HK$’000 HK$’000 Segment assets 51,144 47,645 90,552 – Unallocated assets Total assets Segment liabilities (22,787) (30,653) (13,986) – Unallocated liabilities Total liabilities Other segment information: Capital expenditure 725 1,474 6 – Depreciation – segment 2,516 4,024 9 – Depreciation – unallocated Provision for doubtful debts/ (write-back of bad debt expenses) – segment (1,358) 270 199 – Provision for doubtful debts – unallocated Amortisation of goodwill – segment – – 317 – Amortisation of goodwill – unallocated Amortisation of intangible assets – – 284 –	Consolidated 2002 2001 HK$’000 HK$’000 141,696 47,645 80,382 63,207 222,078 110,852 (36,773) (30,653) (29,490) (1,431) (66,263) (32,084) 731 1,474 2,525 4,024 378 437 2,903 4,461 (1,159) 270 36 – (1,123) 270 317 – – 893 317 893 284 –	Consolidated 2002 2001 HK$’000 HK$’000 141,696 47,645 80,382 63,207 222,078 110,852 (36,773) (30,653) (29,490) (1,431) (66,263) (32,084) 731 1,474 2,525 4,024 378 437 2,903 4,461 (1,159) 270 36 – (1,123) 270 317 – – 893 317 893 284 –
		110,852
		(30,653) (1,431)
		(32,084)
		1,474
		4,024 437
		4,461
		270 –
		270
		– 893
		893
		–

– 50 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(b) Geographical segments

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

Group

==> picture [342 x 209] intentionally omitted <==

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

Hong Kong Mainland
and Far East China North America Europe Consolidated
2002 2001 2002 2001 2002 2001 2002 2001 2002 2001
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
Segment revenue:
Sales to external
customers 6,515 13,298 10,466 9,051 36,396 18,477 24,623 44,587 78,000 85,413
Hong Kong Mainland
and Far East China Consolidated
2002 2001 2002 2001 2002 2001
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
Other segment information:
Segment assets 99,831 78,202 122,247 32,650 222,078 110,852
Capital expenditure 629 947 102 527 731 1,474
----- End of picture text -----

5. TURNOVER

Turnover represents the net invoiced value of goods sold or services rendered, after allowances for returns and trade discounts.

Revenue from the following activities has been included in turnover:

Design, manufacture and marketing of electronic consumer products (discontinuing operation) Provision of advertising agency services	2002 HK$ 71,026,762 6,972,830 77,999,592	2001 HK$ 85,413,402 –
		85,413,402

6. DISCONTINUING OPERATION

As detailed in note 40(a) to the financial statements, on 3 March 2003, the Company entered into an unconditional sale and purchase agreement with an independent third party (the “Purchaser”) that the Company agreed to sell and the Purchaser agreed to acquire the entire equity interest of Prod-Art, a wholly-owned subsidiary of the Company, at a consideration of HK$19 million. The principal activities of the Prod-Art Group are the design, manufacture and marketing of electronic consumer products. The disposal constitutes a discontinuing operation of the Group under SSAP 33. The directors expected that the disposal will be completed by 30 June 2003.

– 51 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The turnover, other revenue, expenses and results of the discontinuing operation for the two years ended 31 December 2002 were as follows:

Turnover Cost of sales Gross profit Other revenue Selling and distribution expenses Administrative expenses Other operating income/(expenses) Profit/(loss) from operating activities Finance costs Net profit/(loss) from ordinary activities attributable to shareholders	2002 HK$’000 71,027 (47,144) 23,883 2,250 (3,489) (18,045) 1,669 6,268 (165) 6,103	2001 HK$’000 85,413 (85,077) 336 2,839 (3,666) (27,239) (547) (28,277) (332) (28,609)

The carrying amounts of the total assets and liabilities relating to the discontinuing operations at 31 December are as follows:

Total assets Total liabilities Net liabilities	2002 HK$’000 51,144 (349,024) (297,880)	2001 HK$’000 47,645 (351,628) (303,983)

The net cash flows attributable to the discontinuing operations are as follows:

Operating activities Investing activities Financing activities Net cash inflows/(outflows)	2002 HK$’000 7,261 (892) (2,863) 3,506	2001 HK$’000 (2,772) (1,247) (764) (4,783)

– 52 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

7. PROFIT/(LOSS) FROM OPERATING ACTIVITIES

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

Notes Auditors’ remuneration Staff costs (including directors’ remuneration –note 9): Wages and salaries Pension scheme contributions Depreciation 14 Lease payments under operating leases in respect of land and buildings Research and development costs Amortisation of goodwill 16 Amortisation of intangible assets 15 Exchange losses, net Provision for long service payments 27 Unrealised holding loss/(gain) on short term investments Loss/(gain) on disposal of fixed assets Provision for doubtful debts/ (write-back of bad debt expenses) Dividend income from short term investments Interest income	2002 HK$ 920,000 11,674,511 410,422 12,084,933 2,902,854 1,472,017 – 317,420 283,669 313,261 244,128 462,080 (222,420) (1,123,307) (72,981) (209,860)	2001 HK$ 720,000 18,777,582 566,980
		19,344,562
		4,461,255 1,817,595 184,761 892,900 – 439,340 (155,721) (267,520) 232,503 269,963 (72,725) (396,451)

• The amortisation of goodwill and intangible assets for the year are included in “Other operating expenses” and “Cost of sales” on the face of the consolidated profit and loss account, respectively.

8. FINANCE COSTS

		Group
	2002	2001
	HK$	HK$
Interest on bank loans wholly repayable
within five years	165,026	332,020

– 53 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

9. DIRECTORS’ REMUNERATION

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

Directors’ fees: Executive Non-executive Independent non-executive Other emoluments: Executive: Salaries and other benefits Pension scheme contributions Non-executive: Salaries and other benefits Pension scheme contributions Independent non-executive	2002 HK$ – – 24,000 24,000 1,319,500 103,800 – – – 1,423,300 1,447,300	2001 HK$ – – 24,000
		24,000
		1,356,803 113,493 220,000 18,000 –
		1,708,296
		1,732,296

The remuneration of each of the directors fell within the range of nil to HK$1,000,000.

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

During the year, no share options were granted to any of the directors.

10. FIVE HIGHEST PAID EMPLOYEES

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

Salaries and other benefits Pension scheme contributions	Group 2002 2001 HK$ HK$ 2,355,800 3,319,091 79,620 95,500 2,435,420 3,414,591	Group 2002 2001 HK$ HK$ 2,355,800 3,319,091 79,620 95,500 2,435,420 3,414,591
		3,414,591

– 54 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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

Nil to HK$1,000,000 HK$1,000,001 to HK$1,500,000	2002 3 – 3	2001 3 1
		4

During the year, no options were granted to any of the three non-director, highest paid employees.

11. TAX

No provision for Hong Kong profits tax has been made for the current year (2001: Nil) because the Group did not have any assessable profits arising in Hong Kong during the year.

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

Company and subsidiaries Share of tax credit of associates Tax charge/(credit) for the year	Group 2002 2001 HK$ HK$ 798,119 – – (2,703,462) 798,119 (2,703,462)	Group 2002 2001 HK$ HK$ 798,119 – – (2,703,462) 798,119 (2,703,462)
		(2,703,462)

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

The net loss from ordinary activities attributable to shareholders for the year ended 31 December 2002 dealt with in the financial statements of the Company was HK$5,027,991 (2001: HK$36,227,366).

13. EARNINGS/(LOSS) PER SHARE

The calculation of basic earnings/(loss) per share is based on the net profit attributable to shareholders for the year of HK$1,317,030 (2001: loss of HK$70,485,490) and the weighted average of 1,055,618,449 (2001: 963,796,241) ordinary shares in issue during the year.

The calculation of diluted earnings per share is based on the net profit attributable to shareholders for the year of HK$1,317,030 (2001: loss of HK$70,485,490). The weighted average number of ordinary shares used in the calculation is the 1,055,618,449 ordinary shares in issue during the year, as used in the basic earnings per share calculation; the weighted average of 5,719,616 ordinary shares assumed to have been issued at no consideration on the deemed exercise of certain share options with dilutive effects during the year; and the weighted average of 27,195,616 ordinary shares assumed to have been issued at no consideration on the deemed exercise of all zero coupon convertible notes during the year.

No diluted loss per share for the year ended 31 December 2001 had been disclosed as no diluting events existed that year.

– 55 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

14. FIXED ASSETS

Group

Leasehold land and buildings HK$ Cost: At beginning of year 42,487,149 Additions – Acquisition of subsidiaries – Disposals (2,280,036) At 31 December 2002 40,207,113 Accumulated depreciation: At beginning of year 7,143,058 Provided for the year 921,361 Disposals (820,813) At 31 December 2002 7,243,606 Net book value: At 31 December 2002 32,963,507 At 31 December 2001 35,344,091	Plant and machinery HK$ 27,067,711 75,094 – – 27,142,805 25,646,486 645,025 – 26,291,511 851,294 1,421,225	Moulds HK$ 3,542,539 617,000 – – 4,159,539 1,927,061 687,640 – 2,614,701 1,544,838 1,615,478	Motor vehicles HK$ 2,028,672 – – – 2,028,672 1,884,895 74,479 – 1,959,374 69,298 143,777	Furniture, fixtures and fittings HK$ 7,384,896 11,950 – (80,324) 7,316,522 6,121,510 329,350 (35,461) 6,415,399 901,123 1,263,386	Computer and office equipment HK$ 3,674,043 27,040 240,026 (336,459) 3,604,650 3,284,921 244,999 (289,175) 3,240,745 363,905 389,122	Total HK$ 86,185,010 731,084 240,026 (2,696,819)
						84,459,301
						46,007,931 2,902,854 (1,145,449)
						47,765,336
						36,693,965
						40,177,079

The leasehold land and buildings included above are held under the following lease terms:

		Mainland
	Hong Kong	China	Total
	HK$	HK$	HK$
Medium term leases	11,335,053	21,628,454	32,963,507

– 56 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Company

Cost: At beginning of year Disposals At 31 December 2002 Accumulated depreciation: At beginning of year Provided for the year Disposals At 31 December 2002 Net book value: At 31 December 2002 At 31 December 2001 15. INTANGIBLE ASSETS Group Cost: At beginning of year Acquisition of subsidiaries At 31 December 2002 Accumulated amortisation: At beginning of year Amortisation during the year At 31 December 2002 Net book value: At 31 December 2002 At 31 December 2001	Furniture, fixtures and fittings HK$ 80,324 (80,324) – 33,454 2,007 (35,461) – – 46,870	Computer and office equipment HK$ 336,459 (336,459) – 281,796 7,379 (289,175) – – 54,663 Note 35(b)	Total HK$ 416,783 (416,783) – 315,250 9,386 (324,636) – – 101,533 HK$ – 32,309,779 32,309,779 – 283,669 283,669 32,026,110 –

Intangible assets represent the sole agency rights of advertising on certain newspapers and magazines which are amortised over periods ranging from 16 to 17 years.

– 57 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

16. GOODWILL

The amounts of the goodwill capitalised as an asset in the consolidated balance sheet arising from the acquisition of subsidiaries are as follows:

Group

Cost: At beginning of year Acquisition of subsidiaries At 31 December 2002 Accumulated amortisation: At beginning of year Amortisation during the year At 31 December 2002 Net book value: At 31 December 2002 At 31 December 2001 INTERESTS IN SUBSIDIARIES Unlisted shares, at cost Due from subsidiaries Due to a subsidiary Less: Provision for impairment	Note HK$ – 35(b) 37,822,468 37,822,468 – 317,420 317,420 37,505,048 – Company 2002 2001 HK$ HK$ 70,618,683 8,152,055 400,895,770 398,720,771 – (712,389) 471,514,453 406,160,437 (333,400,000) (333,400,000) 138,114,453 72,760,437

17. INTERESTS IN SUBSIDIARIES

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

– 58 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Particulars of the subsidiaries are as follows:

		Nominal	Percentage	Percentage	Percentage
	Place of	value of issued	of	equity
	incorporation/	ordinary/	interest
	registration	registered	attributable to				Principal
Name	and operations	share capital	the Company				activities
			2002	2001
Artwin Electronics	Hong Kong	HK$1,000,000	100	100			Trading of
Limited*^							electronic
							products
Beijing Caixun	PRC	RMB6,000,000	60			–	Advertising agent
Advertising Co., Ltd.			(Note d)
(“Beijing Caixun”)*#@
Hainan Caixun	PRC	RMB9,000,000	85.7			–	Investment holding
Infomedia Co., Ltd.			(Note d)
(“Hainan Caixun”)*#@
National Infotech	Hong Kong	HK$1,000,000	100	100			Dormant
Company Limited*^
Prod-Art Company	Hong Kong	HK$100	100	100			Investment holding
Limited^		ordinary shares					and trading of
		and HK$300,000					electronic
		fixed-rate					products
		participating
		shares_(Note a)_
Prod-Art (Warehouse)	Cayman Islands/	HK$10	100	100			Property holding
Company Limited*	Hong Kong
Shenzhen Caixun	PRC	RMB1,000,000	60			–	Advertising agent
Advertising Co., Ltd.			(Note d)
(“Shenzhen Caixun”)*#@
Shenzhen GTP Telecom	PRC	HK$35,000,000	90		90		Dormant
& Electronics Ltd.		(Note b)
(“Shenzhen GTP”)*^
Shenzhen Prod-Art	PRC	HK$35,000,000	(Note c)				Development,
Electronics & Telecom							production
Co. Ltd. (“Shenzhen							and marketing
Prod-Art”)*^							of electronic
							products
Sino Communications	British Virgin	US$1	100	100			Investment
Limited	Islands/						holding
	Hong Kong
Sino Foundations Finance	Hong Kong	HK$2	100	100			Dormant
Company Limited
Sino Foundations Network	British Virgin	US$1	100	100			Dormant
Limited	Islands/
	Hong Kong

– 59 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

		Nominal	Percentage	Percentage
	Place of	value of issued	of	equity
	incorporation/	ordinary/	interest
	registration	registered	attributable to		Principal
Name	and operations	share capital	the Company		activities
			2002	2001
Sino Telecommunications	British Virgin	US$1	100	100	Trading of
Limited	Islands/				marketable
	Hong Kong				securities
SDM Technology Limited	Hong Kong	HK$2	100	100	Dormant
Superfort Management	British Virgin	US$100	100	–	Investment
Corp. (“Superfort”)#@	Islands/				holding
(Note d)	Hong Kong

• Indirectly held.

• Not audited by Ernst & Young Hong Kong or other Ernst & Young International member firms. @ Acquired by the Company during the year.

• ^ Disposed of by the Company subsequent to the balance sheet date. Further details of the disposal are set out in notes 6 and 40(a) to the financial statements.

Notes:

• (a) All of the fixed-rate participating shares in Prod-Art Company Limited are held by two former directors, Messrs. Chan Suk Ping and Chan Suk Sing. These shares carry no rights to vote or to participate in a distribution of profits and, on liquidation, have very limited rights to the repayment of the amount paid up on the shares.

• (b) Shenzhen GTP is an equity joint venture company formed by the Group and a company in the PRC (the “PRC party”). The Group has an agreement with the PRC party pursuant to which the PRC party has agreed to accept an annual guaranteed sum in lieu of its 10% share of the operating results of Shenzhen GTP. The PRC party will not be required to make any further capital contribution or to accept further liabilities. Other than the return of the registered capital paid up by the PRC party, the Group will be entitled to all remaining assets upon liquidation of Shenzhen GTP. Accordingly, the Group has included the entire operating results of Shenzhen GTP in its results.

• (c) Shenzhen Prod-Art is a co-operative joint venture company formed by the Group and a company in the PRC (the “PRC partner”). Pursuant to the joint venture agreement, the PRC partner is entitled to an annual guaranteed sum and the Group is entitled to the entire results of Shenzhen Prod-Art. Accordingly, Shenzhen Prod-Art is treated by the Group as a whollyowned subsidiary for accounting purposes and the annual guaranteed sum is treated as an annual expense.

• (d) The Company, through Superfort, indirectly holds 70% equity interest in Hainan Caixun and a right to acquire an additional 15.7% equity interest in Hainan Caixun. Pursuant to various agreements in place and an agreement entered into between Superfort and the Chinese party of Hainan Caixun dated 12 July 2002 which granted Superfort the right to acquire an additional 15.7% equity interest in Hainan Caixun from the Chinese party of Hainan Caixun, the Group from the date of completion of 13 November 2002 is entitled to 85.7% of Hainan Caixun’s results and assets and 60% of Beijing Caixun and Shenzhen Caixun’s respective results and assets. Accordingly, they are treated by the Group for accounting purposes as 85.7% and 60% subsidiaries, respectively.

– 60 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

18. INTERESTS IN ASSOCIATES

Share of net assets Provision for impairment	Group 2002 2001 HK$ HK$ – 64,387,030 – (24,387,030) – 40,000,000	Group 2002 2001 HK$ HK$ – 64,387,030 – (24,387,030) – 40,000,000
		40,000,000

Particulars of the associates are as follows:

			Percentage	Percentage
		Place of	of equity
		incorporation/	interest
	Business	registration and	attributable			Principal
Name	structure	operations	to the Group			activities
			2002	2001
Shenzhen SED	Corporate	PRC	47.5		47.5	Development,
Telecommunication						production and
Technology Co., Ltd.#						marketing of
						communication
						network
						equipment
Wu Holdings Limited	Corporate	British Virgin	(Note)	28.84		Investment
(“Wu Holdings”)#		Islands/PRC				holding

Not audited by Ernst & Young Hong Kong or other Ernst & Young International member firms.

Note:

As detailed in the published 2001 annual report, the Group had conditionally agreed to sell its entire interest in Wu Holdings for HK$40 million. An impairment loss of HK$24,387,030 was charged to the profit and loss account for the year ended 31 December 2001.

On 13 December 2002, the Group ceased to have significant influence over Wu Holdings and accordingly from that date the interest in associate was reclassified to an investment in securities (note 19) .

The carrying value of Wu Holdings before the reclassification represented the Group’s share of the net assets of Wu Holdings of HK$64,387,030 as of 31 December 2001 after a provision for impairment of HK$24,387,030 to write down the carrying value to the amount of the sales consideration of HK$40 million. No share of profit or loss of Wu Holdings has been accounted for by the Group for the period from 1 January to 13 December 2002 because no reliable financial information in respect of Wu Holdings is available and the directors are unable to obtain any other financial information about Wu Holdings for that period. Had any share of profit or loss of Wu Holdings been taken up for the period to 13 December 2002, there would have been an adjustment of the same amount to the provision for impairment such that the resultant carrying value would have been restated to HK$40 million, the contracted selling price of Wu Holdings and, therefore, there would have been no net impact on the net profit for the year attributable to shareholders or the net assets of the Group.

Subsequent to the balance sheet date, on 9 April 2003, the disposal of Wu Holdings was completed. Further details of the disposal are set out in note 38(a) to the financial statements.

– 61 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

19. INVESTMENT IN SECURITIES

Unlisted equity investments elsewhere, at cost 20. SHORT TERM INVESTMENTS Listed equity investments in Hong Kong, at market value 21. INVENTORIES Raw materials Work in progress Finished goods	Group 2002 2001 HK$ HK$ 40,000,000 – Group 2002 2001 HK$ HK$ 1,969,920 2,432,000 Group 2002 2001 HK$ HK$ 4,567,974 6,198,576 184,846 689,781 1,332,110 1,622,284 6,084,930 8,510,641	Group 2002 2001 HK$ HK$ 40,000,000 – Group 2002 2001 HK$ HK$ 1,969,920 2,432,000 Group 2002 2001 HK$ HK$ 4,567,974 6,198,576 184,846 689,781 1,332,110 1,622,284 6,084,930 8,510,641
		8,510,641

The carrying amount of inventories included in the above at the balance sheet date carried at net realisable value amounted to HK$170,145 (2001: HK$505,442).

22. TRADE AND BILLS RECEIVABLES

An aged analysis of the Group’s trade and bills receivables as at the balance sheet date, based on the invoice date, is as follows:

2002 HK$ Within two months 11,247,916 Within two to four months 3,091,931 Within four months to one year 3,695,676 Over one year 5,212,482 23,248,005 Less: Provision (5,261,489) Total after provision 17,986,516	Percentage 48 13 16 23 100	2001 HK$ Percentage 2,141,616 29 258,713 3 1,078,684 15 3,975,581 53 7,454,594 100 (5,475,803) 1,978,791	2001 HK$ Percentage 2,141,616 29 258,713 3 1,078,684 15 3,975,581 53 7,454,594 100 (5,475,803) 1,978,791
			100

The normal credit period granted by the Group is two to three months from the date of recognition of the sale.

– 62 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

23. BALANCES WITH RELATED COMPANIES

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

24. PLEDGED DEPOSITS

The balance represents cash deposits pledged to a bank to secure banking facilities granted to the Group. As at 31 December 2002, such facilities were utilised as to HK$84,708 (2001: HK$2,947,349).

25. CASH AND CASH EQUIVALENTS

Cash and bank balances Time deposits	Group 2002 2001 HK$ HK$ 17,816,609 4,575,614 28,098,520 6,050,000 45,915,129 10,625,614	Company 2002 2001 HK$ HK$ 734,631 757,707 26,037,638 6,000,000 26,772,269 6,757,707	Company 2002 2001 HK$ HK$ 734,631 757,707 26,037,638 6,000,000 26,772,269 6,757,707
			6,757,707

26. TRADE AND BILLS PAYABLES

An aged analysis of the Group’s trade and bills payables as at the balance sheet date, based on the invoice date, is as follows:

Within two months Within two to four months Within four months to one year Over one year OTHER PAYABLES AND Other payables and accruals Provision for long service payments_(Note)_	2002 HK$ Percentage 4,072,948 44 2,573,205 28 2,046,438 22 622,301 6 9,314,892 100 ACCRUALS Group 2002 2001 HK$ HK$ 17,324,192 16,934,996 1,362,594 1,424,077 18,686,786 18,359,073	2001 HK$ Percentage 3,211,344 30 3,424,291 32 3,022,732 28 1,119,619 10 10,777,986 100 Company 2002 2001 HK$ HK$ 511,000 1,431,831 – – 511,000 1,431,831	2001 HK$ Percentage 3,211,344 30 3,424,291 32 3,022,732 28 1,119,619 10 10,777,986 100 Company 2002 2001 HK$ HK$ 511,000 1,431,831 – – 511,000 1,431,831
			1,431,831

27. OTHER PAYABLES AND ACCRUALS

Note : The Group provides for the probable future long service payments expected to be made to employees under the Hong Kong Employment Ordinance, as further explained under the heading “Employee benefits” in note 3 to the financial statements. The provision is based on the best estimate of the probable future payments which have been earned by the employees from their service to the Group to the balance sheet date.

– 63 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

During the year, the movements in the provision for long service payments were as follows:

At beginning of year Additional provision Amount utilised during the year Reversal of unutilised amounts At 31 December 2002	Group 2002 2001 HK$ HK$ 1,424,077 2,001,521 244,128 – (305,611) (421,723) – (155,721) 1,362,594 1,424,077

28. DEPOSITS RECEIVED

The balance represents deposits of HK$18,419,200 received from Bermuda Trust (Cook Islands) Limited, the trustee of The Qiao Xing Trust, regarding the disposal of the Group’s entire interest in Wu Holdings, as at 31 December 2002. Details of the disposal of Wu Holdings are included in notes 18 and 38(a) to the financial statements.

29. CONVERTIBLE NOTES

The one-year zero coupon convertible notes were issued by the Company on 24 July 2002 to the placees in the aggregate amount of HK$10,560,000 which entitles the holders thereof to convert into a maximum of 52,800,000 new ordinary shares of the Company at an initial conversion price of HK$0.2 per new ordinary share (subject to adjustments).

Other principal terms of the convertible notes are as follows:

• (a) The conversion period commences from 24 July 2002 and ends either upon the full conversion of the convertible notes or the maturity date, that is, 23 July 2003, whichever is the earlier.

• (b) The convertible notes can be converted in whole or in part (in an amount not less than HK$200,000 at any one time), at any time during the conversion period.

• (c) The convertible notes cannot be assigned or transferred to a connected person of the Company during the conversion period.

• (d) The whole of the outstanding principal amount of the convertible notes will be repaid by the Company on the maturity date.

Subsequent to the balance sheet date, the principal amount of convertible notes of HK$2,400,000 were converted into 12,000,000 new ordinary shares of HK$0.1 each at a conversion price of HK$0.2 per share. Further details are included in note 40(b) to the financial statements.

30. TRUST RECEIPT LOANS, SECURED

The trust receipt loans were secured by a time deposit of the Group for the year.

– 64 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

31. SHARE CAPITAL

==> picture [371 x 116] intentionally omitted <==

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

2002 2001
HK$ HK$
Shares
Authorised:
3,000,000,000 ordinary shares of HK$0.1 each 300,000,000 300,000,000
Issued and fully paid:
1,386,974,614 (2001: 1,004,527,778)
ordinary shares of HK$0.1 each 138,697,462 100,452,778
----- End of picture text -----

During the year, the movements in share capital were as follows:

• (a) 379,746,836 shares of HK$0.1 each were issued for cash at a subscription price of HK$0.158 each for a total cash consideration of HK$60,000,000.

• (b) The subscription rights attaching to 1,000,000 and 1,700,000 share options were exercised at the subscription prices of HK$0.104 and HK$0.128 per share, respectively (note 32) , resulting in the issue of 2,700,000 shares of HK$0.1 each for a total cash consideration of HK$321,600.

A summary of the transactions during the year with reference to the above movements in the Company’s issued ordinary share capital is as follows:

Number of shares in issue At 1 January 2001 904,075,000 Issue of shares 100,452,778 Share issue expenses – At 31 December 2001 and 1 January 2002 1,004,527,778 Issue of shares_(Note a) 379,746,836 Share options exercised (Note b)_ 2,700,000 At 31 December 2002 1,386,974,614	Issued share capital HK$ 90,407,500 10,045,278 – 100,452,778 37,974,684 270,000 138,697,462	Share premium account HK$ 296,555,356 1,843,308 (386,988) 298,011,676 22,025,316 51,600 320,088,592	Total HK$ 386,962,856 11,888,586 (386,988) 398,464,454 60,000,000 321,600 458,786,054

Subsequent to the balance sheet date, the principal amount of convertible notes of HK$2,400,000 were converted into 12,000,000 new ordinary shares of HK$0.1 each at a conversion price of HK$0.2 per share. Details are included in note 40(b) to the financial statements.

Share options

Details of the Company’s share scheme option are included in note 32 to the financial statements

below.

– 65 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

32. SHARE OPTION SCHEME

SSAP 34 was adopted during the year, as explained in note 2 and under the heading “Employee benefits” in note 3 to the financial statements. As a result, these detailed disclosures relating to the Company’s share option scheme are now included in the notes to the financial statements. In the prior year, these disclosures were included in the Report of Directors, as their disclosure is also a requirement of the Listing Rules.

On 26 August 2002, the share option scheme (the “Old Scheme”) of the Company adopted on 3 December 1992 ceased to operate and a new share option scheme (the “New Scheme”) was adopted on 26 August 2002 to comply with the new requirements of Chapter 17 of the Listing Rules regarding share option schemes of a company. The options granted under the Old Scheme will remain in full force and effect.

The Company operates the New Scheme for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations and to enable the Group to recruit high calibre employees and attract resources that are valuable to the Group. Eligible participants of the New Scheme include any employee (including executive directors), officer (including non-executive directors and independent non-executive directors), consultant, agent, professional adviser, customer, business partner, joint venture partner, strategic partner, landlord or tenant of, or any supplier or provider of goods or services to the Group, or any trustee of a discretionary trust of which one or more beneficiaries belong to any of the above-mentioned categories of persons. The New Scheme became effective on 26 August 2002 and, unless otherwise cancelled or amended, will remain in force for 10 years from that date.

The maximum number of unexercised share options currently permitted to be granted under the New Scheme is an amount equivalent, upon their exercise, to 10% of the Company’s shares in issue at any time. No share options were granted, exercised or lapsed under the New Scheme during the year. At 31 December 2002, the number of shares issuable under share options granted under the Old Scheme was 8,084,000, which represented approximately 0.6% of the Company’s shares in issue as at that date. The maximum number of shares issuable under share options to each eligible participant in the New Scheme within any 12-month period is limited to 1% of the shares of the Company in issue at any time. Any further grant of share options in excess of this limit is subject to shareholders’ approval in a general meeting.

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

The offer of a grant of share options may be accepted within 28 days from the date of the offer, upon payment of a nominal consideration of HK$10 in total by the grantee. An option may be exercised under the New Scheme at any time within 10 years from the date of grant of the options.

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

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

– 66 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The movements in the number of share options outstanding under the Old Scheme during the year were as follows:

Exercise Exercisable Grantee Date of grant price period HK$ Director Mr. Xu Xiaolu 22 January 2001 0.128 29 January 2002 to 21 January 2006 Other employees 31 August 1999 0.225 31 August 2000 in aggregate to 30 August 2004 9 May 2000 0.316 15 May 2001 to 8 May 2005 22 January 2001 0.128 29 January 2002 to 21 January 2006 16 March 2001 0.104 27 March 2002 to 15 March 2006	Balance in issue at 1 January 2002 1,200,000 5,400,000 800,000 3,884,000 1,000,000	Number of share Granted Exercised during during the year the year – (1,200,000) – – – – – (500,000) – (1,000,000)	Number of share Granted Exercised during during the year the year – (1,200,000) – – – – – (500,000) – (1,000,000)	options Cancelled during the year – (1,000,000) – (500,000) – (1,500,000)	Balance in issue at 31 December 2002 – 4,400,000 800,000 2,884,000 –
	12,284,000	–	(2,700,000)		8,084,000

33. RESERVES

(a) Group

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

The revised SSAP 11 was adopted during the year, as explained in note 2 and under the heading “Foreign currencies” in note 3 to the financial statements. As a result, the profit and loss accounts of overseas subsidiaries are now translated to Hong Kong dollars at the weighted average exchange rates for the year, rather than at the exchange rates at the balance sheet date, as was previously the case. This change in accounting policy has had no significant effect on these financial statements.

Capital reserves represent the non-distributable reserves of an associate.

In accordance with the financial regulations applicable in Mainland China, subsidiaries in Mainland China are required to transfer part of their profits after tax to the reserve funds, which are not distributable as dividends without the prior approval by shareholders under certain conditions.

– 67 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(b) Company

At 1 January 2001 Issue of shares Share issue expenses Net loss for the year At 31 December 2001 and at 1 January 2002 Issue of shares Net loss for the year At 31 December 2002	Share premium account HK$ 296,555,356 1,843,308 (386,988) – 298,011,676 22,076,916 – 320,088,592	Accumulated losses HK$ (281,839,627) – – (36,227,366) (318,066,993) – (5,027,991) (323,094,984)	Total HK$ 14,715,729 1,843,308 (386,988) (36,227,366) (20,055,317) 22,076,916 (5,027,991) (3,006,392)

34. DEFERRED TAX

The principal components of the Group’s deferred tax asset not recognised in the financial statements are as follows:

Accelerated depreciation allowances Tax losses At 31 December	2002 HK$ 290,632 (15,589,288) (15,298,656)	2001 HK$ 181,830 (14,494,795) (14,312,965)

Net deferred tax asset has not been recognised in the financial statements because it is uncertain whether the tax losses will be utilised in the foreseeable future.

35. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT

• (a) The definition of “cash equivalents” under the revised SSAP 15 has been revised from that under the previous SSAP 15, as explained under the heading “Cash and cash equivalents” in note 3 to the financial statements. This has resulted in trust receipt loans no longer qualifying as cash equivalents. The amount of cash equivalents in the consolidated cash flow statement at 31 December 2001 has been adjusted to remove trust receipt loans amounting to HK$2,947,349, previously included at that date. The year’s movement in trust receipt loans is now included in cash flows from financing activities and the comparative cash flow statement has been changed accordingly.

– 68 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(b) Acquisition of subsidiaries during the year

Note Net assets acquired: Fixed assets 14 Intangible assets 15 Trade receivables Other receivables and prepayments Due from related companies Cash and cash equivalents Trade payables Other payables and accruals Due to related companies Tax payable Minority interests Goodwill on acquisition 16 Satisfied by: Cash	HK$ 240,026 32,309,779 12,891,861 1,087,112 3,360,131 9,117,618 (714,721) (5,935,866) (10,211,528) (2,960,609) (14,539,643) 24,644,160 37,822,468 62,466,628 62,466,628

An analysis of the net outflow of cash and cash equivalents in respect of the acquisition of subsidiaries is as follows:

Cash consideration Cash and bank balances acquired Net outflow of cash and cash equivalents in respect of the acquisition of subsidiaries	HK$ (62,466,628) 9,117,618 (53,349,010)

On 13 November 2002, the Group acquired the entire interest in Superfort, a wholly-owned subsidiary of United Home Limited (“United Home”), a substantial shareholder of the Company, at a cash consideration of HK$60,000,000, which was included in the above total consideration of HK$62,466,628. The principal activity of Superfort and its subsidiaries (collectively referred as “Caixun Group”) is the provision of advertising agency services. The acquisition was financed by the share proceeds of the same amount received from United Home in accordance with a conditional subscription agreement entered into on 12 July 2002 between the Company and United Home, pursuant to which 379,746,836 ordinary shares were issued by the Company to United Home at a subscription price of HK$0.158 each. Details of movements in the Company’s share capital are included in note 31 to the financial statements.

As United Home is a substantial shareholder of the Company, the above-mentioned agreements constituted connected transactions for the Company under the Listing Rules. Details of connected transactions of the Group are included in note 38(b) to the financial statements.

Since its acquisition, the Caixun Group contributed HK$6,972,830 to the Group’s turnover and HK$1,870,748 to the consolidated profit after tax and before minority interests for the year ended 31 December 2002.

– 69 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

36. COMMITMENTS

(a) Operating lease arrangements

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

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

Within one year In the second to fifth years, inclusive	Group 2002 2001 HK$ HK$ 3,234,613 1,526,664 5,525,843 5,998,629 8,760,456 7,525,293	Group 2002 2001 HK$ HK$ 3,234,613 1,526,664 5,525,843 5,998,629 8,760,456 7,525,293
		7,525,293

(b) Capital commitments

In addition to the operating lease commitments above, pursuant to an agreement between the Group and a magazine publication company, the Group has committed to make a total payment of RMB17 million (equivalent to approximately HK$16 million) over the period from year 2002 to year 2016 for the sole advertising agency right of the magazine publication company. The payment ranges from RMB600,000 (equivalent to approximately HK$565,000) per annum to RMB1,500,000 (equivalent to approximately HK$1,414,000) per annum.

37. CONTINGENT LIABILITIES

The Group and the Company did not have any significant contingent liabilities at the balance sheet

date.

38. CONNECTED TRANSACTIONS

(a) Disposal of Wu Holdings

As disclosed in the published 2001 annual report, on 31 December 2001, the Group entered into an agreement (the “Agreement”) with Bermuda Trust (Cook Islands) Limited (“Bermuda Trust”), the trustee of The Qiao Xing Trust, pursuant to which the Group has conditionally agreed to sell, and Bermuda Trust has conditionally agreed to purchase, the Group’s entire interest in Wu Holdings, the then associate of the Group, for a consideration of approximately HK$40 million. As Mr. Wu Ruilin, the then executive director of the Company, is the protector and one of the discretionary objects of The Qiao Xing Trust, Bermuda Trust is an associate of Mr. Wu Ruilin, and hence, a connected person of the Company. Accordingly, the Agreement constituted a connected transaction for the Company under the Listing Rules.

Subsequent to the balance sheet date, on 9 April 2003, the conditions as specified in the Agreement were fulfilled and the said transaction was completed.

– 70 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(b) Acquisition of Superfort

As detailed in the Company’s circular dated 23 August 2002, on 12 July 2002, the Company entered into a conditional agreement (“Agreement”) with United Home, a substantial shareholder of the Company, for the Company to acquire the entire interest in Superfort, a wholly-owned subsidiary of United Home, at a cash consideration of HK$60 million. The acquisition is financed by the share proceeds with the same amount received from United Home in accordance with a conditional subscription agreement entered into on 12 July 2002 between the Company and United Home, pursuant to which 379,746,836 ordinary shares were issued by the Company to United Home at a subscription price of HK$0.158 each. On 13 November 2002, the conditions as specified in the Agreement had been fulfilled and, accordingly, the said transaction was completed. Further details are also set out in note 35(b) to the financial statements.

As United Home is a substantial shareholder of the Company, the agreements constituted connected transactions for the Company under the Listing Rules.

39. RELATED PARTY TRANSACTIONS

During the year, the Group had the following transactions with companies under common directorship of the Company:

			Group
		2002	2001
	Notes	HK$	HK$
Office rental expenses paid to
Shanghai SEEC Investment and
Development Co., Ltd. (“SHSEEC”)	(a)	154,093	–
Commission income received from
Homeway Information Co., Ltd.
(“Homeway”)	(b)	665,488	–

Notes:

• (a) Pursuant to a rental agreement entered into between the Group and SHSEEC, a monthly rental expenses of RMB108,990 (equivalent to approximately HK$103,000) has been charged since 13 November 2002.

• (b) The commission income from Homeway has been charged at a fixed rate on the advertising revenue of Homeway since 13 November 2002.

40. POST BALANCE SHEET EVENTS

(a) Disposal of the Prod-Art Group

As detailed in the Company’s circular dated 17 March 2003, on 3 March 2003, the Group entered into an unconditional sale and purchase agreement (the “Agreement”) with an independent third party (“the “Purchaser”) that the Company agreed to sell and the Purchaser agreed to acquire the entire equity interest of Prod-Art, a wholly-owned subsidiary of the Company, at a consideration of HK$19 million. The transaction contemplated under the Agreement constitutes a discloseable transaction for the Company under the Listing Rules and discontinuing operation of the Group under SSAP 33. It is expected that the disposal will be completed by 30 June 2003. Further details are also set out in note 6 to the financial statements. The gain or loss on disposal of the discontinuing operation is not expected to be material.

– 71 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

• (b) Subsequent to the balance sheet date, the principal amount of convertible notes of HK$2,400,000 were converted into 12,000,000 new ordinary shares of HK$0.1 each at a conversion price of HK$0.2 per share.

(c) Disposal of Wu Holdings

Further details of the disposal were included in note 38(a) to the financial statements.

41. COMPARATIVE AMOUNTS

As further explained in note 2 to the financial statements, due to the adoption of certain new and revised SSAPs during the current year, the presentation of certain items and balances in the financial statements have been revised to comply with the new requirements. Accordingly, certain comparative amounts have been reclassified to conform with the current year’s presentation.

42. APPROVAL OF THE FINANCIAL STATEMENTS

The financial statements were approved and authorised for issue by the board of directors on 23 April 2003.

– 72 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED INCOME STATEMENT

For the six months ended 30 June 2003

Notes Turnover 2 Cost of sales Gross profit Other operating income Selling and distribution costs Administrative expenses Other operating expenses Profit/(loss) from operating activities 5 Finance costs 6 Profit/(loss) before tax Tax 7 Profit/(loss) before minority interests Minority interests Net profit/(loss) from ordinary activities attributable to shareholders Earnings/(loss) per share_(HK cents) _8 Basic Diluted

(Unaudited) Six months ended 30 June 2003 2002 HK$’000 HK$’000 68,541 27,889 (35,600) (23,574) 32,941 4,315 2,099 2,280 (9,608) (1,934) (10,863) (10,912) (2,153) (1,411) 12,416 (7,662) – (93) 12,416 (7,755) (2,083) – 10,333 (7,755) (3,309) – 7,024 (7,755) 0.50 (0.77) 0.50 (0.77)

– 73 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED BALANCE SHEET

As at 30 June 2003

Notes NON-CURRENT ASSETS Property, plant and equipment Intangible assets Goodwill Investment in securities CURRENT ASSETS Short term investments Inventories Trade and bills receivables 9 Other receivables and prepayments Due from related companies Pledged deposits Bank balances and cash CURRENT LIABILITIES Trade and bills payables 10 Tax payable Other payables and accruals Deposits received Convertible notes Trust receipt loans, secured Due to related companies	(Unaudited) (Audited) As at As at 30 June 31 December 2003 2002 HK$’000 HK$’000 11,561 36,694 31,022 32,026 36,244 37,505 – 40,000 78,827 146,225 2,116 1,970 – 6,085 17,333 17,987 25,094 1,632 7,053 264 – 2,000 77,356 45,915 128,952 75,853 459 9,315 5,323 3,651 4,993 18,687 – 18,419 7,960 10,560 – 85 20,601 5,546 39,336 66,263	(Unaudited) (Audited) As at As at 30 June 31 December 2003 2002 HK$’000 HK$’000 11,561 36,694 31,022 32,026 36,244 37,505 – 40,000 78,827 146,225 2,116 1,970 – 6,085 17,333 17,987 25,094 1,632 7,053 264 – 2,000 77,356 45,915 128,952 75,853 459 9,315 5,323 3,651 4,993 18,687 – 18,419 7,960 10,560 – 85 20,601 5,546 39,336 66,263
		146,225
		1,970 6,085 17,987 1,632 264 2,000 45,915
		75,853
		9,315 3,651 18,687 18,419 10,560 85 5,546
		66,263

– 74 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Notes NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES MINORITY INTERESTS CAPITAL AND RESERVES Issued capital 11 Reserves	(Unaudited) (Audited) As at As at 30 June 31 December 2003 2002 HK$’000 HK$’000 89,616 9,590 168,443 155,815 18,733 15,724 149,710 140,091 139,997 138,697 9,713 1,394 149,710 140,091	(Unaudited) (Audited) As at As at 30 June 31 December 2003 2002 HK$’000 HK$’000 89,616 9,590 168,443 155,815 18,733 15,724 149,710 140,091 139,997 138,697 9,713 1,394 149,710 140,091
		155,815 15,724
		140,091
		138,697 1,394
		140,091

– 75 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 June 2003

At 1 January 2002 Net loss for the period At 30 June 2002 Issue of shares Net profit for the period Exchange loss on translation of overseas operations not recognized in the income statement Transfer to reserve funds At 31 December 2002 Issue of shares Reserves realized upon disposals of an associate Exchange loss on translation of overseas operations not recognized in the income statement Net profit for the period At 30 June 2003	Share capital HK$’000 100,453 – 100,453 38,244 – – – 138,697 1,300 – – – 139,997	Share premium HK$’000 298,011 – 298,011 22,078 – – – 320,089 1,300 – – – 321,389	Capital reserves HK$’000 21,977 – 21,977 – – – – 21,977 – (21,977) – – –	Exchange Reserve translation funds reserve HK$’000 HK$’000 – 477 – – – 477 – – – – – (16) 52 – 52 461 – – – (476) – (5) – – 52 (20)	Accu- mulated losses HK$’000 (342,450) (7,755) (350,205) – 9,072 – (52) (341,185) – 22,453 – 7,024 (311,708)	Total HK$’000 78,468 (7,755)
						70,713 60,322 9,072 (16) –
						140,091 2,600 – (5) 7,024
						149,710

– 76 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

For the six months ended 30 June 2003

NET CASH USED IN OPERATING ACTIVITIES NET CASH FROM (USED IN) INVESTING ACTIVITIES NET CASH (USED IN) FROM FINANCING ACTIVITIES NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF PERIOD EFFECT OF FOREIGN EXCHANGE RATE CHANGES CASH AND CASH EQUIVALENTS AT END OF PERIOD ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Bank balances and cash	(Unaudited) Six months ended 30 June 2003 2002 HK$’000 HK$’000 (8,560) (1,021) 40,090 (356) (85) 2,224 31,445 847 45,915 10,626 (4) – 77,356 11,473 77,356 11,473

– 77 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES

The condensed consolidated financial statements have been prepared in accordance with Statement of Standard Accounting Practice (“SSAP”) 25 (Revised) “Interim Financial Reporting” issued by the Hong Kong Society of Accountants (“HKSA”) and the applicable disclosure requirements set out in Appendix 16 of the Rules Governing the Listing of Securities (“Listing Rules”) on The Stock Exchange of Hong Kong Limited (“Stock Exchange”).

The accounting policies adopted in these condensed consolidated financial statements are consistent with those set out in the Group’s financial statements for the year ended 31 December 2002, except as described below:

In the current period, the Company has adopted SSAP 12 (Revised) “Income Taxes”. The principal effect of the implementation of SSAP 12 (Revised) is in relation to deferred tax. In previous years, partial provision was made for deferred tax using the income statement liability method, i.e. a liability was recognized in respect of timing differences arising, except where those timing differences were not expected to reverse in the foreseeable future. SSAP 12 (Revised) requires the adoption of a balance sheet liability method, whereby deferred tax is recognized in respect of all temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit, with limited exceptions. The adoption of SSAP12 (Revised) has not had any material effect on the results for the current or prior accounting periods.

Taxation

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognized for all taxable temporary differences, and deferred tax assets are recognized 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 recognized for taxable temporary differences arising on investments in subsidiaries except where the Group is able to control the reversal of the temporary difference 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 profit will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realized. 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.

Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

– 78 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

2. TURNOVER

Turnover represents the net invoiced value of goods sold or services rendered, after allowances for returns and trade discounts.

Revenue from the following activities has been included in turnover:

Design, manufacture and marketing of electronic consumer products (discontinued operations) Provision of advertising agency services	(Unaudited) Six months ended 30 June 2003 2002 HK$’000 HK$’000 45,889 27,889 22,652 – 68,541 27,889	(Unaudited) Six months ended 30 June 2003 2002 HK$’000 HK$’000 45,889 27,889 22,652 – 68,541 27,889
		27,889

3. SEGMENT INFORMATION

The Group is currently engaged in provision of advertising agency services.

In prior periods, the Group was also involved in design, manufacture and marketing of electronic consumer products operations, which was discontinued from 30 June 2003 (see note 4).

Segment information about these businesses is presented below.

– 79 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(a)

Business segments

The following table presents revenue and profit/(loss) information of the Group’s business segments.

Group

Six Design, manufacture and marketing of electronic consumer products (Discontinued operation) 2003 2002 HK$’000 HK$’000 Segment revenue: Sales to external customers 45,889 27,889 Segment results 4,611 4,315 Unallocated revenue Unallocated expenses Profit/(loss) from operating activities Finance costs Profit/(loss) before tax Tax Profit/(loss) before minority interests Minority interests Net profit/(loss) from ordinary activities attributable to shareholders

(Unaudited) months ended 30 June Provision of advertising agency services Consolidated 2003 2002 2003 2002 HK$’000 HK$’000 HK$’000 HK$’000 22,652 – 68,541 27,889 10,291 – 14,902 4,315 2,099 2,280 (4,585) (14,257) 12,416 (7,662) – (93) 12,416 (7,755) (2,083) – 10,333 (7,755) (3,309) – 7,024 (7,755)

(b) Geographical segments

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

==> picture [341 x 106] intentionally omitted <==

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

(Unaudited)
Six months ended 30 June
Hong Kong and
Group Far East Mainland China North America Europe Consolidated
2003 2002 2003 2002 2003 2002 2003 2002 2003 2002
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
Segment revenue:
Sales to external
customers 521 1,271 22,740 909 37,777 8,488 7,503 17,221 68,541 27,889
----- End of picture text -----

– 80 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

4. DISCONTINUED OPERATIONS

During the period, the Group entered into an agreement to dispose of Prod-Art Company Limited and its subsidiaries (the “Prod-Art Group”), which carried out all of the Group’s design, manufacture and marketing of electronic consumer products operations. The disposal has completed on 30 June 2003, on which date control of Prod-Art Group passed to the acquirer.

The turnover, other operating income, expenses and results of the discontinued operations were as follows:

Turnover Cost of sales Gross profit Other operating income Selling and distribution expenses Administrative expenses Other operating income/(expenses) Profit/(loss) from operating activities Finance costs Net profit/(loss) from ordinary activities attributable to shareholders	(Unaudited) Six months ended 30 June 2003 2002 HK$’000 HK$’000 45,889 27,889 (32,098) (23,574) 13,791 4,315 618 1,827 (2,117) (1,934) (7,090) (8,270) 27 (1,283) 5,229 (5,345) – (93) 5,229 (5,438)	(Unaudited) Six months ended 30 June 2003 2002 HK$’000 HK$’000 45,889 27,889 (32,098) (23,574) 13,791 4,315 618 1,827 (2,117) (1,934) (7,090) (8,270) 27 (1,283) 5,229 (5,345) – (93) 5,229 (5,438)
		4,315 1,827 (1,934) (8,270) (1,283)
		(5,345) (93)
		(5,438)

The net assets of Prod-Art Group at the date of disposal were as follows:

Net assets disposed of Loss on disposal Total consideration, satisfied by cash consideration Net cash inflow (outflow) arising on disposal: Cash consideration Bank balances and cash disposed of	30 June 2003 HK$’000 20,820 1,820
	19,000
	19,000 (3,630)
	15,370

Prod-Art Group did not make any significant contribution to the results or cash flows of the Group during the six months ended 30 June 2003.

– 81 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

5. PROFIT/(LOSS) FROM OPERATING ACTIVITIES

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

	(Unaudited)	(Unaudited)
	Six months ended 30		June
	2003		2002
	HK$’000	HK$’000
Depreciation	2,100		1,619
Bad debt expenses	–		36
Loss on disposal of subsidiaries	1,820		–
Gain on disposal of an associate	(755)		–
Provision for trade receivables written back	(4)		(411)
Unrealized holding gain on short term investments	(146)		(389)
Amortization of goodwill	1,261		–
Amortization of intangible asset	1,004		–
Interest income	(1,338)		(93)

• The amortization of goodwill and intangible assets for the period are included in “Other operating expenses” and “Cost of sales” on the face of the consolidated income statement, respectively.

6. FINANCE COSTS

Interest on bank loans and other loans wholly repayable within five years TAX Company and subsidiaries Share of tax of associates Tax charge for the period	(Unaudited) Six months ended 30 June 2003 2002 HK$’000 HK$’000 – 93 (Unaudited) Six months ended 30 June 2003 2002 HK$’000 HK$’000 2,083 – – – 2,083 –	(Unaudited) Six months ended 30 June 2003 2002 HK$’000 HK$’000 – 93 (Unaudited) Six months ended 30 June 2003 2002 HK$’000 HK$’000 2,083 – – – 2,083 –
		–

7. TAX

No provision for Hong Kong profits tax has been made for the current period (2002: Nil) because the Group did not have any assessable profits arising in Hong Kong.

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

– 82 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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

Profit/(loss) before tax Tax at PRC income tax rate of 15% Tax effect of tax losses for which deferred tax assets have not been recognised Tax effect of expenses that are not deductible in determining taxable profit Tax for the period	Six months ended 30 June 2003 2002 HK$’000 HK$’000 12,416 (7,755) 1,862 (1,163) – 1,163 221 – 2,083 –

8. Earnings/(Loss) per share

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

Earnings/(Loss) Earnings/(loss) for the purposes of basic and diluted Earnings/(loss) per share Number of shares Weighted average number of ordinary shares for the purpose of basic earnings/(loss) per share Effect of dilutive share options Weighted average number of ordinary shares for the purpose of diluted earnings/(loss) per share	For the Six months ended 30 June 2003 2002 HK$’000 HK$’000 7,024 (7,755) 1,392,444,227 1,004,827,778 1,015,664 – 1,393,459,891 1,004,827,778

The computation of diluted earnings per share does not assume the exercise of the Company’s outstanding convertible notes as the exercise price of these convertible notes is higher than the average market price for shares for the six months ended 30 June 2003.

For the six months ended 30 June 2002, the computation of diluted loss per share did not assume the exercise of the potential ordinary shares since their exercise would result in a reduction in loss per share.

– 83 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

9. Trade and bills receivables

The ageing analysis of the Group’s trade and bills receivables is as follows:

Within three months Within four to six months Within seven months to one year Over one year _Less:_Provision Total after provision	(Unaudited) As at 30 June 2003 HK$’000 10,745 3,607 2,535 2,181 19,068 (1,735) 17,333	Percentage 56 19 13 12 100	(Audited) As at 31 December 2002 HK$’000 14,449 2,915 1,815 4,069 23,248 (5,261) 17,987	Percentage 62 12 8 18
				100

The average credit period granted by the Group is within three months from the date of recognition of the sale.

10. Trade and bills payables

The ageing analysis of the Group’s trade and bills payables is as follows:

(Unaudited) As at 30 June 2003 HK$’000 Within two months 459 Within two to four months – Within four months to one year – Over one year – 459	Percentage 100 – – – 100	(Audited) As at 31 December 2002 HK$’000 4,073 2,573 2,047 622 9,315	Percentage 44 28 22 6
			100

– 84 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

11. Issued capital

Authorised: 3,000,000,000 ordinary shares of HK$0.10 each Issued and fully paid: 1,399,974,614 ordinary shares of HK$0.10 each	(Unaudited) As at 30 June 2003 HK$’000 300,000 139,997	(Audited) As at 31 December 2002 HK$’000 300,000
		138,697

During the six months ended 30 June 2003, the principal amount of convertible notes of HK$2,600,000 were converted into 13,000,000 new ordinary shares of HK$0.10 each at a conversion price of HK$0.20 per share.

Share options

Details of the share options granted during the period and the movements in the number of share options outstanding under the share option scheme of the Company adopted on 3 December 1992 (the “1992 Scheme”) were as follows:

Exercise Exercisable Grantee Date of grant price period HK$ Employees in aggregate 31 August 1999 0.225 31 August 2000 to 30 August 2004 9 May 2000 0.316 15 May 2001 to 8 May 2005 22 January 2001 0.128 29 January 2002 to 21 January 2006	Number of share options Balance in issue at Granted Exercised Cancelled 1 January during during during 2003 the period the period the period 4,400,000 – – (4,400,000) 800,000 – – (800,000) 2,884,000 – – (2,884,000) 8,084,000 – – (8,084,000)	Balance in issue at 30 June 2003 – –
		–

The 1992 scheme was terminated on 26 August 2002. As at 30 June 2003, there was no outstanding options existing under the 1992 scheme. On 26 August 2002, a new share option scheme (“the 2002 scheme”) was adopted. During the six months ended 30 June 2003, the Company has not granted any options under the 2002 scheme.

12. Post balance sheet event

On 23 July 2003, the Company repaid the outstanding aggregate principal amount of HK$6,960,000 of one-year zero coupon convertible notes which carried rights to be converted into shares of the Company at a conversion price of HK$0.20 per share.

– 85 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE CAIXUN GROUP

The following is the text of the accountant’s report dated 17 December 2003 from Deloitte Touche Tohmatsu, Certified Public Accountants, prepared for the purpose of incorporation in this circular, in relation to the Caixun Group.

香港中環干諾道中111號 永安中心26樓

==> picture [90 x 50] intentionally omitted <==

17 December 2003

The Directors SEEC Media Group Limited Room 2502, Alexandra House 16-20 Chater Road Central, Hong Kong

Dear Sirs,

We set out below our report on the pro forma financial information relating to Beijing Caixun Advertising Co., Ltd. (“Beijing Caixun”) and Shenzhen Caixun Advertising Co., Ltd. (“Shenzhen Caixun”) (hereinafter collectively referred to as the “Combined Group”) for each of the two years ended 31 December 2002 and nine months ended 30 September 2003 (the “Relevant Periods”) for inclusion in the circular dated 17 December 2003 issued by SEEC Media Group Limited (“SEEC Media”) in relation to the major and connected transaction relating to the proposed acquisition of 60% interest in the registered capital of Caixun Century InfoTech Co., Ltd. (“Caixun Century”) (the “Circular”).

Caixun Century

Caixun Century was established in the People’s Republic of China (“PRC”) as a limited liability company on 30 October 2003 with registered capital of RMB4,000,000. As at the date of this report, Caixun Century held 30% interest in each of Beijing Caixun and Shenzhen Caixun, and it has not commenced any other activities since its date of establishment other than holding of the interests in the Combined Group. Accordingly, no audited financial statements have been prepared for Caixun Century since its date of establishment.

– 86 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE CAIXUN GROUP

Combined Group

As at the date of this report, particulars of the Combined Group are as follows:

Country and date of establishment Registered capital and Name of company and operations form of business structure Principal activities Beijing Caixun PRC RMB5,000,000 Advertising agent 7 March 2000 Limited liability company Shenzhen Caixun PRC RMB1,000,000 Advertising agent 27 April 2002 Limited liability company

No statutory audited financial statements have been prepared for Beijing Caixun and Shenzhen Caixun since their respective dates of establishment. For the purpose of this report, we have, however, undertaken our own independent audit in accordance with Statements of Auditing Standards issued by the Hong Kong Society of Accountants of the financial statements of Beijing Caixun and Shenzhen Caixun for the Relevant Periods or where appropriate, since the date of establishment to 30 September 2003 where this is a shorter period, which have been prepared in accordance with accounting principles generally accepted in Hong Kong.

We have examined the audited financial statements of the companies now comprising the Combined Group for the Relevant Periods. Our examination was made in accordance with the Auditing Guideline “Prospectuses and the Reporting Accountant” as recommended by the Hong Kong Society of Accountants.

The pro forma financial information of the Combined Group for the Relevant Periods set out in this report has been prepared from the audited financial statements (the “Underlying Financial Statements”) of the companies now comprising the Combined Group, after making such adjustments as we consider appropriate for the purpose of preparing our report for inclusion in the Circular, on the basis set out in note 1 to the pro forma financial information.

The Underlying Financial Statements are the responsibility of the directors of those companies who approved their issues. The directors of SEEC Media are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the pro forma financial information set out in this report from the Underlying Financial Statements, to form an independent opinion on the pro forma financial information and to report our opinion to you.

In our opinion, on the basis of presentation set out in note 1 to the pro forma financial information, the pro forma financial information gives, for the purpose of this report, a true and fair view of the state of affairs of the Combined Group as at 31 December 2001 and 2002, and 30 September 2003 and of the combined results and cash flows of the Combined Group for the Relevant Periods.

– 87 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE CAIXUN GROUP

(A) PRO FORMA FINANCIAL INFORMATION

COMBINED INCOME STATEMENTS

Notes Turnover 4 Cost of services provided Gross profit Other operating income Selling expenses Administrative expenses Profit before taxation 5 Taxation 7 Net profit for the year/period Dividends 8	Nine months Year ended ended 31 December 30 September 2001 2002 2003 RMB’000 RMB’000 RMB’000 25,875 39,497 45,751 (2,944) (8,204) (8,278) 22,931 31,293 37,473 20 81 64 (9,355) (11,584) (13,130) (2,983) (3,101) (2,659) 10,613 16,689 21,748 – (3,874) (4,026) 10,613 12,815 17,722 – – 28,225

– 88 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE CAIXUN GROUP

COMBINED BALANCE SHEETS

Notes Non-current assets Plant and equipment 9 Intangible assets 10 Current assets Trade receivables 11 Prepayments, deposits and other receivables Amounts due from related companies 12 Bank balances and cash Current liabilities Trade payables 13 Other payables and accrued charges Amounts due to related companies 14 Taxation payable Dividend payable Net current (liabilities) assets Capital and reserves Combined paid-in capital 15 Reserves 16

As at As at 31 December 30 September 2001 2002 2003 RMB’000 RMB’000 RMB’000 175 251 954 36,107 33,983 32,390 36,282 34,234 33,344 6,081 12,685 20,888 187 913 880 200 3,280 10,453 1,382 1,918 7,226 7,850 18,796 39,447 – 956 2,282 1,003 2,545 5,618 17,739 6,450 10,013 – 3,874 6,419 – – 19,757 18,742 13,825 44,089 (10,892) 4,971 (4,642) 25,390 39,205 28,702 5,000 6,000 6,000 20,390 33,205 22,702 25,390 39,205 28,702

– 89 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE CAIXUN GROUP

COMBINED STATEMENT OF CHANGES IN EQUITY

At 1 January 2001 Net profit for the year At 31 December 2001 Capital injection Net profit for the year At 31 December 2002 Net profit for the period Dividends At 30 September 2003	Total equity RMB’000 14,777 10,613 25,390 1,000 12,815 39,205 17,722 (28,225) 28,702

– 90 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE CAIXUN GROUP

COMBINED CASH FLOW STATEMENT

COMBINED CASH FLOW STATEMENT
			Nine months
	Year	ended	ended
	31 December		30 September
	2001	2002	2003
	RMB’000	RMB’000	RMB’000
Operating activities
Profit before taxation	10,613	16,689	21,748
Adjustments for:
Interest income	(12)	(8)	(11)
Depreciation	11	42	64
Amortisation of intangible assets	2,123	2,124	1,593
Allowances for bad and doubtful debts	368	920	1,467
Operating cash flows before
movements in working capital	13,103	19,767	24,861
Decrease/(increase) in trade receivables	287	(7,524)	(9,670)
(Increase)/decrease in prepayments,
deposits and other receivables	(187)	(726)	33
Decrease/(increase) in amounts due
from related parties	3,445	(3,080)	(7,173)
Increase in trade payables	–	956	1,326
Increase in other payables and accrued
charges	201	1,542	3,073
Increase/(decrease) in amounts due
to related parties	1,308	(11,289)	3,563
Cash generated from/(used in) operations	18,157	(354)	16,013
Interest received	12	8	11
Income tax paid	–	–	(1,481)
Net cash from/(used in) operating activities	18,169	(346)	14,543
Investing activities
Purchases of plant and equipment	(183)	(118)	(767)
Purchases of intangible assets	(18,350)	–	–
Cash used in investing activities	(18,533)	(118)	(767)
Financing activities
Proceeds from capital injection	–	1,000	–
Dividend paid	–	–	(8,468)
Cash from/(used in) financing activities	–	1,000	(8,468)
(Decrease)/increase in cash and
cash equivalents	(364)	536	5,308
Cash and cash equivalents at beginning
of year/period	1,746	1,382	1,918
Cash and cash equivalents at end of
year/period, represented by bank
balances and cash	1,382	1,918	7,226

– 91 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE CAIXUN GROUP

NOTES TO THE PRO FORMA FINANCIAL INFORMATION

1. BASIS OF PRESENTATION OF PRO FORMA FINANCIAL INFORMATION

• (a) The combined income statements, combined cash flow statements and combined statement of changes in equity of the Combined Group for the Relevant Periods have been prepared as if the companies constitute a group throughout the Relevant Periods or since their dates of establishment to 30 September 2003 where this is a shorter period. The combined balance sheets of the Combined Group as at 31 December 2001 and 2002 and 30 September 2003 have been prepared to present the assets and liabilities of the Combined Group as if the companies constitute a group as at those dates.

• (b) The pro forma financial information has been prepared, for the purpose of this report, on the basis that the Combined Group will continue to operate as a going concern, notwithstanding the fact that the Combined Group had net current liabilities as at 30 September 2003, because SEEC Media, as at the date of this report, has agreed to provide continuing financial support to enable the Combined Group to meet in full its financial obligations as they fall due for the foreseeable future.

2. SIGNIFICANT ACCOUNTING POLICIES

The pro forma financial information has been prepared under the historical cost convention. The principal accounting policies which have been adopted in preparing the financial information set out in this report and which conform with accounting principles generally accepted in Hong Kong are as follows:

Revenue recognition

Advertising agency fee is recognised upon the publication of the related advertisement.

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

Plant and equipment

Plant and equipment are stated at cost less depreciation and accumulated impairment losses.

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

Computer equipment 33% Motor vehicles 20%

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.

Intangible assets

Intangible assets are stated at cost less any identified impairment loss and amortised on a straight-line basis over their estimated useful lives.

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APPENDIX II ACCOUNTANTS’ REPORT ON THE CAIXUN GROUP

Impairment

At each balance sheet date, the Combined 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.

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.

Barter transactions

When goods or services are exchanged or swapped for dissimilar goods or services, the exchange is regarded as a transaction which generates revenue and barter revenue and expenses are recognised. Barter revenue and expenses are measured at the fair value of the goods or services received, adjusted by the amount of any cash or cash equivalents transferred. When the fair value of the goods or services received cannot be measured reliably, barter revenue and expenses are measured at the fair value of the goods or services given up, adjusted by the amount of any cash or cash equivalents transferred.

Taxation

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

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

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

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable 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/period when the liability is settled or the asset is realised. Deferred tax is charged or credited to the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Operating leases

Rentals payable under operating leases are charged to the income statement on a straightline basis over the relevant lease terms.

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APPENDIX II ACCOUNTANTS’ REPORT ON THE CAIXUN GROUP

3. SEGMENT INFORMATION

The Combined Group’s turnover and results are substantially derived from the provision of advertising agency services carried out in the PRC. In addition, the Combined Group’s assets are all located in the PRC. Accordingly, no analysis by business and geographical segments is presented.

4. TURNOVER

Turnover represents the net invoiced value of services rendered net of business tax and other governmental charges and is as follows:

Advertising agency fee Business tax and other governmental charges	Year ended 31 December 2001 2002 RMB’000 RMB’000 28,268 43,063 (2,393) (3,566) 25,875 39,497	Nine months ended 30 September 2003 RMB’000 49,797 (4,046) 45,751

5. PROFIT BEFORE TAXATION

Profit before taxation has been arrived at after charging (crediting):

Auditors’ remuneration Amortisation of intangible assets (included in costs of services provided) Depreciation (included in administrative expenses) Operation lease rentals in respect of rented premises Allowance for bad and doubtful debts Staff costs: Directors’ remuneration Other staff costs – Salaries and other allowances – Retirement benefits scheme contributions Bank interest income	Year ended 31 December 2001 2002 RMB’000 RMB’000 – – 2,123 2,124 11 42 1,308 1,540 368 920 – – 1,821 2,211 – 124 1,821 2,335 (12) (8)	Nine months ended 30 September 2003 RMB’000 – 1,593 64 1,302 1,467 – 2,722 110 2,832 (11)

6. DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS

(A) Directors’ emoluments

The directors did not receive any emoluments during the Relevant Periods.

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APPENDIX II ACCOUNTANTS’ REPORT ON THE CAIXUN GROUP

(B) Employees’ emoluments

During the Relevant Periods, the five highest paid individuals did not include any directors of the Combined Group. The emoluments of the five highest paid individuals of the Combined Group for the Relevant Periods were as follows:

Salaries and other benefits Retirement benefits costs	Year ended 31 December 2001 2002 RMB’000 RMB’000 273 296 – – 273 296	Nine months ended 30 September 2003 RMB’000 328 3
		331

The aggregate emoluments of each of the five highest paid individuals for the two years ended 31 December 2001 and 2002 and the nine months ended 30 September 2003 were less than HK$1,000,000.

During the Relevant Periods, no emoluments were paid by the Combined Group to any of the directors and the five highest paid individuals as a discretionary bonus or an inducement to join or upon joining the Combined Group or as compensation for loss of office. None of the directors waived any emoluments during the Relevant Periods.

7. TAXATION

Pursuant to the relevant laws and regulations in the PRC, Beijing Caixun was recognised as a newly established Third Industry Company and was exempted from PRC income tax for the year ended 31 December 2001. The taxation for the year ended 31 December 2002 and nine months ended 30 September 2003 is calculated at 33% on the estimated assessable profit for the year/period.

Shenzhen Caixun is located in Shenzhen Special Economic Zone and accordingly is subject to PRC income tax at 15% on the estimated assessable profit for the period from 27 April 2002 (date of establishment of Shenzhen Caixun) to 31 December 2002 and nine months ended 30 September 2003.

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

Profit before taxation Taxation at PRC income tax rate of 15% Effect of different PRC income tax rate Tax effect of expenses that are not deductible in determining taxable profit Effect of tax exemption entitled by Beijing Caixun Taxation for the year/period	Year ended 31 December 2001 2002 RMB’000 RMB’000 10,613 16,689 1,592 2,503 1,910 885 – 486 (3,502) – – 3,874	Nine months ended 30 September 2003 RMB’000 21,748
		3,262 – 764 –
		4,026

There was no significant unprovided deferred taxation for the Relevant Periods or at the balance sheet dates.

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APPENDIX II ACCOUNTANTS’ REPORT ON THE CAIXUN GROUP

8. DIVIDENDS

				Nine months
				ended
	Year ended	31 December		30 September
	2001	2002		2003
	RMB’000	RMB’000		RMB’000
Interim dividends declared	–		–	28,225

The rates of dividends are not presented as the directors do not consider such information to be meaningful in the context of the pro forma financial information.

9. PLANT AND EQUIPMENT

COST At 1 January 2001 Additions At 31 December 2001 DEPRECIATION Provided for the year and at 31 December 2001 NET BOOK VALUE At 31 December 2001 COST At 1 January 2002 Additions At 31 December 2002 DEPRECIATION At 1 January 2002 Provided for the year At 31 December 2002 NET BOOK VALUE At 31 December 2002 COST At 1 January 2003 Additions At 30 September 2003 DEPRECIATION At 1 January 2003 Provided for the period At 30 September 2003 NET BOOK VALUE At 30 September 2003	Computer equipment RMB’000 3 183 186 (11) 175 186 118 304 (11) (42) (53) 251 304 332 636 (53) (60) (113) 523	Motor vehicles RMB’000 – – – – – – – – – – – – – 435 435 – (4) (4) 431	Total RMB’000 3 183
			186 (11)
			175
			186 118
			304
			(11) (42)
			(53)
			251
			304 767
			1,071
			(53) (64)
			(117)
			954

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APPENDIX II ACCOUNTANTS’ REPORT ON THE CAIXUN GROUP

10. INTANGIBLE ASSETS

COST At 1 January 2001 and at 31 December 2001 AMORTISATION At 1 January 2001 Charged for the year At 31 December 2001 NET BOOK VALUE At 31 December 2001 COST At 1 January 2002 and at 31 December 2002 AMORTISATION At 1 January 2002 Charged for the year At 31 December 2002 NET BOOK VALUE At 31 December 2002 COST At 1 January 2003 and at 30 September 2003 AMORTISATION At 1 January 2003 Charged for the period At 30 September 2003 NET BOOK VALUE At 30 September 2003

RMB’000 40,000 (1,770) (2,123) (3,893) 36,107 40,000 (3,893) (2,124) (6,017) 33,983 40,000 (6,017) (1,593) (7,610) 32,390

Intangible assets represent the sole agency rights of advertising on certain newspapers and magazines which are amortised over periods ranging from 16 to 17 years depending on their respective licence period.

– 97 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE CAIXUN GROUP

11. TRADE RECEIVABLES

The credit term offered by the Combined Group to its trade customers is within three months from the date of recognition of the sales. The aged analysis of trade receivables is analysed as follows:

0 – 90 days 91 – 120 days 121 – 365 days Over 365 days	At 31 December 2001 2002 RMB’000 RMB’000 2,015 7,659 1,186 3,089 854 1,937 2,026 – 6,081 12,685	At 30 September 2003 RMB’000 13,565 2,457 4,816 50
		20,888

12. AMOUNTS DUE FROM RELATED COMPANIES

Beijing Oriental Rongyan Publishing Information Corporation (“Beijing Oriental”) Shenyang Lianya Industrial Development Corporation (“Shenyang Lianya”) 深圳寶雅電子通訊有限公司(“深圳寶雅”) 和訊信息傳播有限公司(“和訊信息”) Beijing JinZheng RongLian Advertising Co., Ltd. (“Beijing JinZheng”) Shanghai SEEC Investment and Development Co., Ltd. (“SEEC Development”) Hainan Caixun Infomedia Co., Ltd. (“Hainan Caixun”)	At 31 December 2001 2002 RMB’000 RMB’000 200 – – 280 – 3,000 – – – – – – – – 200 3,280	At 30 September 2003 RMB’000 – – – 3,622 2,400 4,339 92
		10,453

The amounts are unsecured, non-interest bearing and have no fixed repayment terms.

All the balances with related companies are non-trading in nature.

Beijing Oriental, Shenyang Lianya, 和訊信息, Beijing JinZheng and SEEC Development are related to the Combined Group since they are under common directorship of the Combined Group.

深圳寶雅 was a fellow subsidiary of the Combined Group.

Hainan Caixun is an immediate holding company of the Combined Group.

13. TRADE PAYABLES

All of the trade payables of the Combined Group as at 31 December 2002 and 30 September 2003 were aged within two months.

– 98 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE CAIXUN GROUP

14. AMOUNTS DUE TO RELATED COMPANIES

Beijing JinZheng SEEC Development Homeway Information Technology Company Limited (“Homeway”) SEEC Media Shanghai SEEC Investment Management Co., Ltd. (“SEEC Management”)	At 31 December 2001 2002 RMB’000 RMB’000 15,450 – 2,289 4,159 – 1,726 – 565 – – 17,739 6,450	At 30 September 2003 RMB’000 4,620 1,079 1,894 1,439 981
		10,013

The amounts are unsecured, non-interest bearing and have no fixed repayment terms.

Except amount due to SEEC Development which is trading in nature, all the balances with related companies are non-trading in nature.

SEEC Development, Homeway and SEEC Management are related to the Combined Group since they are under common directorship of the Combined Group.

SEEC Media is the ultimate holding company of the Combined Group.

15. COMBINED PAID-IN CAPITAL

The combined paid-in capital represented the aggregate amount of the paid-in capital of the Combined Group at the balance sheet dates.

16. RESERVES

At 1 January 2001 Net profit for the year Profit appropriated to reserves At 31 December 2001 Net profit for the year Profit appropriated to reserves At 31 December 2002 Net profit for the period Dividends At 30 September 2003	Statutory revenue reserve RMB’000 978 – 1,061 2,039 – 1,281 3,320 – – 3,320	Statutory public welfare fund RMB’000 489 – 531 1,020 – 640 1,660 – – 1,660	Retained profits RMB’000 8,310 10,613 (1,592) 17,331 12,815 (1,921) 28,225 17,722 (28,225) 17,722	Total RMB’000 9,777 10,613 –
				20,390 12,815 –
				33,205 17,722 (28,225)
				22,702

According to the relevant laws and regulations in the PRC and the articles of association of the Combined Group, they are required to set aside 10% of their profit after taxation for the statutory revenue reserve (except where the reserve has reached 50% of the subsidiaries’ registered capital) and 5% to 10% of their profit after taxation for the statutory public welfare fund. The profit after taxation is determined under accounting principles generally accepted in the PRC. These reserves cannot be used for purposes other than those for which they are created and are not distributable as dividends without the prior approval by shareholders under certain conditions.

– 99 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE CAIXUN GROUP

17. RELATED PARTY TRANSACTIONS

Apart from the amounts due from and to related parties as disclosed in notes 12 and 14 respectively, the Combined Group had the following related party transactions during the Relevant Periods:

				Nine months
				ended
Name of	Nature of	Year ended	31 December	30 September
related parties	transactions	2001	2002	2003
		RMB’000	RMB’000	RMB’000
SEEC Development	Rental expenses_(i)_	1,308	1,308	981
Homeway	Free gift
	advertisement_(ii)_	2,761	3,246	–
	Advertising agency
	fee_(iii)_	–	2,805	3,081

Notes:

• (i) Pursuant to a rental agreement dated 20 March 2000 entered into between the Combined Group and SEEC Development, SEEC Development agreed to grant to the Combined Group the right to use SEEC Development’s office premises for a term of four years and nine months. The rental is charged at RMB108,990 per month by reference to the market prices.

• (ii) The Combined Group provided free advertisement spaces to Homeway in return for the free computer network and related services provided by Homeway. The estimated market value, with reference to the transactions with non-related parties, was approximately RMB2,761,000 and RMB3,246,000 for each of the two years ended 31 December 2002 respectively.

• (iii) Pursuant to an agreement dated 21 December 2001 entered into between the Combined Group and Homeway, the Combined Group became an advertising agent of Homeway and received advertising agency fee from Homeway which is calculated at market prices.

18. COMMITMENTS

At the balance sheet dates, the Combined Group had commitments for future minimum lease payments in respect of rented premises which fall due as follows:

Within one year In the second to fifth year inclusive	At 31 December 2001 2002 RMB’000 RMB’000 1,308 1,367 2,616 1,308 3,924 2,675	At 30 September 2003 RMB’000 1,337 327
		1,664

Leases are negotiated for an average term of 5 years.

In addition, pursuant to an agreement dated 5 November 2001 entered into between the Combined Group and an independent third party, the Combined Group at 30 September 2003 had commitments to make a total payment of approximately RMB16 million over the period from year 2004 to year 2016 for the sole agency right of the magazine publication company. The payment ranges from RMB600,000 per annum until year 2005 to maximum RMB1,500,000 per annum since year 2011.

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APPENDIX II ACCOUNTANTS’ REPORT ON THE CAIXUN GROUP

19. RETIREMENT BENEFITS SCHEME

The employees of the Combined Group are members of the pension scheme operated by the PRC government. The Combined Group is required to contribute a certain percentage of the relevant portion of the payroll of these employees to the pension scheme to fund the benefits. The only obligation of the Combined Group with respect of the pension scheme is the required contributions under the pension scheme.

The Combined Group’s contributions to the retirement benefits scheme are charged to the income statement as they fall due.

==> picture [371 x 89] intentionally omitted <==

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

Nine months
ended
Year ended 31 December 30 September
2001 2002 2003
RMB’000 RMB’000 RMB’000
Retirement benefits scheme contribution
made during the year/period – 124 110
----- End of picture text -----

(B) SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared for any companies comprising the Combined Group in respect of any period subsequent to 30 September 2003.

Yours faithfully, Deloitte Touche Tohmatsu

Certified Public Accountants Hong Kong

– 101 –

GENERAL INFORMATION

APPENDIX III

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 information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief there are no other facts the omission of which would make any statement herein misleading.

2. DISCLOSURE OF INTERESTS

(a) Interests (including short positions) of Directors and chief executive of the Company in the share capital of the Company and its associated corporations

As at the Latest Practicable Date, the interests (including short positions) of each of the Directors and chief executive of the Company in the share capital of the Company and its associated corporations (within the meaning 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 which any such Director was taken to have under such provisions of the SFO) or which were required to be entered in the register required to be kept by the Company pursuant to Section 352 of the SFO or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies (“Model Code”) were as follows:

(i) Long position in Shares

			Approximate
	Nature	Number	percentage of
Name of Director	of interest	of Shares	shareholding
Xu Xiaolu	Personal	3,300,000	0.213%
	Family_(Note)_	3,250,000	0.210%

Note : Ms. Kiu Sun, the spouse of Mr. Xu Xiaolu is beneficially interested in 3,250,000 Shares. Accordingly, Mr. Xu Xiaolu also has a family interest in 3,250,000 Shares.

– 102 –

GENERAL INFORMATION

APPENDIX III

• (ii) Long position in underlying Shares of equity derivatives

Details of the option granted under the Share Option Scheme to Director and remain outstanding are as follows:

					Number
					of Shares
				Number	subject to
				of Shares	be subscribed
				subject to	under
				be subscribed	the option
Name of	Date of	Exercise	Exercisable	under the	granted remain
Director	grant	price	period	option granted	outstanding
		HK$
LI Shijie	25 July 2003	0.21	From	6,900,000	6,900,000
			25 July 2004
			to
			24 July 2009
				6,900,000	6,900,000

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or chief executive of the Company or their respective associates had any interests (including short positions) in the share capital of the Company or any of its associated corporations 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 which they were deemed or taken to have under such provisions of the SFO) or the Model Code or which were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein.

(b) Other interests

(i) Interests in service contracts

As at the Latest Practicable Date, none of the Directors has entered, or is proposing to enter, into a service contract with any member of the Group, excluding contracts expiring or determinable by the Group within one year without payment of compensation (other than statutory compensation).

(ii) Interests in assets of the Group

Save as disclosed in this circular, none of the Directors has, or has had, any direct or indirect interest in any assets which have been, since 31 December 2002, being the date to which the latest published audited consolidated accounts of the Group were made up, acquired or disposed of by or leased to any member of the Group or are proposed to be acquired or disposed of by or leased to, any member of the Group.

– 103 –

GENERAL INFORMATION

APPENDIX III

• (iii) Interests in contracts or arrangements

As at the Latest Practicable Date, none of the Directors is materially interested in any contract or arrangement subsisting at the date of this circular which is significant in relation to the business of the Group taken as a whole.

• (c) As at the Latest Practicable Date, none of Deloitte Touche Tohmatsu or Celestial Capital Limited has, or has had, any direct or indirect interest in any assets which have been acquired or disposed of by, or leased to, or which are proposed to be acquired or disposed of by, or leased to, any member of the Group since 31 December 2002, being the date to which the latest published audited consolidated accounts of the Group were made up.

• (d) As at the Latest Practicable Date, none of Deloitte Touche Tohmatsu or Celestial Capital Limited has any shareholding 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.

3. SUBSTANTIAL SHAREHOLDERS

So far as is known to the Directors, as at the Latest Practicable Date, the following persons (not being Directors or chief executive of the Company) had, or were deemed to have, interests or short positions in the Shares or underlying Shares which would fall to be disclosed to the Company and the Stock Exchange 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 the issued share capital carrying rights to vote in all circumstances at general meetings of any member of the Group:

Name	of Shareholder	Number of Shares	Shareholding
United	Home_(Note)_	677,843,824	43.85%
Carlet	Investments Ltd.(Note)	172,644,210	11.17%

Note : The 172,644,210 Shares held by Carlet Investments Ltd. were indirectly owned by United Home by virtue of its 100% interest in Carlet Investments Ltd. In addition to the 172,644,210 Shares held by Carlet Investments Ltd., 505,199,614 Shares, representing approximately 32.68% of the issued share capital of the Company as at the Latest Practicable Date, were directly owned by United Home.

Save as disclosed above, there is no person known to the Directors who, as at the Latest Practicable Date, had an interest or short position in the Shares or underlying Shares which would fall to be disclosed to the Company under the provisions of Division 2 and 3 of Part XV of the SFO, or was, directly or indirectly, interested in 10% or more of the nominal value of the issued share capital carrying rights to vote in all circumstances at general meetings of any other members of the Group.

– 104 –

GENERAL INFORMATION

APPENDIX III

4. QUALIFICATIONS OF EXPERTS

The following are the qualifications of the experts who have given opinions or advice which are contained in this circular:

Name Qualification Deloitte Touche Tohmatsu Certified public accountants Celestial Capital Limited Investment adviser registered under the SFO

5. CONSENTS

Deloitte Touche Tohmatsu and Celestial Capital Limited have given and have not withdrawn their written consent to the issue of this circular with the inclusion herein of their reports and/or letters and references to their names in the form and context in which they respectively appear.

6. NO MATERIAL CHANGE

The Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2002 (being the date to which the latest published audited consolidated accounts of the Group were made up).

7. LITIGATION

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

8. MATERIAL CONTRACTS

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

• (a) an agreement dated 31 December 2001 entered into between Sino Communications Limited (a wholly-owned subsidiary of the Company), as vendor, and Bermuda Trust (Cook Islands) Limited (in its capacity as the trustee of The Qiao Xing Trust, established and constituted by a deed of settlement dated 17 July 1998), as purchaser, in relation to the sale of 28.84% of the issued share capital of Wu Holdings Limited, at a consideration of approximately US$5.13 million (or approximately HK$40 million);

• (b) a deed of ratification and accession dated 31 December 2001 between, among others, Sino Communications Limited, Bermuda Trust (Cook Islands) Limited (in its capacity as the trustee of The Qiao Xing Trust, which is supplemental to the shareholders’ agreement dated 15 July 1998 entered into between, among others, Sino Communications Limited and Wu Holdings Limited;

– 105 –

GENERAL INFORMATION

APPENDIX III

• (c) a termination deed dated 22 March 2002 entered into among Sino Communications Limited, being a wholly-owned subsidiary of the Company, Wu Holdings Limited, Wu Ruilin, Wu Li Zhi Jian, Wu Zhiyang and Bermuda Trust (Cook Islands) Limited, in its capacity as the trustee of The Qiao Xing Trust to terminate the shareholders’ agreement dated 15 July 1998 entered into among the same parties;

• (d) an escrow deed dated 22 March 2002 entered into among Sino Communications Limited, Bermuda Trust (Cook Islands) Limited, in its capacity as the trustee of The Qiao Xing Trust and Baker & McKenzie, as the escrow agent;

• (e) a placing agreement dated 27 June 2002 entered into amongst the Company, First Shanghai Securities Limited and First Shanghai Capital Limited in relation to the issue of the Convertible Notes amounting to HK$10.56 million;

• (f) an agreement dated 12 July 2002 entered into between the Company and United Home in relation to the subscription of 379,746,000 Shares by United Home;

• (g) an agreement dated 12 July 2002 entered into between the Company and United Home in relation to the acquisition of 10 ordinary shares of US$1.00 each in the issued share capital of Superfort Management Corp.;

• (h) an agreement dated 12 July 2002 entered into between Superfort and Shanghai SEEC in relation to the granting of a right to acquire an additional 15.7% equity interest in Hainan Caixun from Shanghai SEEC to Superfort for an aggregate exercise price of RMB1,413,000;

• (i) an agreement dated 3 March 2003 entered into between the Company and Ankson Limited in relation to the disposal of 100 ordinary shares of HK$1.00 each in the issued share capital (excluding of 300,000 fixed-rate participating shares of HK$1.00 each in) of Prod-Art Company Limited (“Prod-Art Agreement”);

• (j) a supplemental agreement dated 16 April 2003 entered into between the Company and Ankson Limited amending the Prod-Art Agreement;

• (k) a supplemental agreement dated 30 June 2003 entered into between the Company and Ankson Limited further amending the Prod-Art Agreement;

• (l) a subscription agreement dated 3 October 2003 entered into between the Company and United Home in relation to the subscription of 140,000,000 Shares by United Home (“Subscription Agreement 2003”);

• (m) a placing agreement dated 3 October 2003 entered into among United Home, First Shanghai Securities Limited and the Company in relation to the placement of 140,000,000 Shares to the placees at HK$0.26 per share;

• (n) a supplemental agreement dated 15 October 2003 entered into between the Company and United Home amending the Subscription Agreement 2003; and

• (o) the Acquisition Agreement.

– 106 –

GENERAL INFORMATION

APPENDIX III

9. MISCELLANEOUS

• (a) As at the Latest Practicable Date, the authorised share capital of the Company was HK$300,000,000 divided into 3,000,000,000 Shares, of which 1,545,774,614 Shares had been issued and fully paid up.

• (b) The secretary of the Company is Mr. Tseung Sheung Shun, who is an associate member of the Hong Kong Society of Accountants.

• (c) The principal share registrar and transfer office of the Company is The Harbour Trust Company Limited at P.O. Box 897GT, 2nd Floor, One Capital Place, Grand Cayman, Cayman Islands, British West Indies and the branch share registrar and transfer office of the Company in Hong Kong is Secretaries Limited at Ground Floor, Bank of East Asia Habour View Centre, 56 Gloucester Road, Wanchai, Hong Kong.

• (d) In the event of any inconsistency, the English text of this circular shall prevail over the Chinese text.

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours at the Company’s head office at Room 2502, Alexandra House, 16–20 Charter Road, Central, Hong Kong up to and including 31 December 2003:

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

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

• (c) the letter from the Independent Board Committee dated 17 December 2003, the text of which is set out on page 15 of this circular;

• (d) the letter from Celestial Capital Limited dated 17 December 2003, the text of which is set out on pages 16 to 29 of this circular;

• (e) the accountants’ report on the Caixun Group from 1 January 2001 to 30 September 2003 as prepared by Deloitte Touche Tohmatsu, the text of which is set out in appendix II to this circular and the related statement of adjustments;

• (f) the legal opinion and the memorandum prepared by Jingtian & Gongcheng both dated 11 December 2003;

• (g) the annual reports of the Company for the two financial years ended 31 December 2002 and the interim report of the Company for the six months ended 30 June 2003;

• (h) a circular issued by the Company dated 17 March 2003 in relation to a disclosable transaction of the Company involving an agreement dated 3 March 2003 entered into between the Company and Ankson Limited; and

• (i) the written consents referred to in the section headed “Consents” in this appendix.

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NOTICE OF EXTRAORDINARY GENERAL MEETING

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SEEC Media Group Limited 財訊傳媒集團有限公司

(Incorporated in the Cayman Islands with limited liability)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting of SEEC Media Group Limited (“Company”) will be held at 10:00 a.m. on 9 January 2004 at Room 2502, Alexandra House, 16-20 Chater Road, Central, Hong Kong (“EGM”) for the purpose of considering and, if though fit, passing, with or without modifications, the following resolution as an ordinary resolution:

ORDINARY RESOLUTION

“ THAT

• (a) the agreement dated 24 November 2003 entered into between 瀋陽聯亞實業發 展公司 (Shenyang Lianya Industrial Development Corporation) as vendor and Superfort Management Corp. as purchaser in relation to the acquisition of 60% interest in the registered capital of 北京財訊世紀信息科技有限公司 (Beijing Caixun Century Infotech Co., Ltd.) (“Acquisition”) (“Acquisition Agreement”), subject to the terms and conditions of the Acquisition Agreement as more particularly described in the circular to shareholders of the Company dated 17 December 2003 of which this notice forms part (“Circular”), a copy of the Acquisition Agreement marked “A” is tabled before the meeting and signed for identification purpose by the Chairman of the meeting, and all other transactions contemplated under the Acquisition Agreement be and are hereby approved, ratified and confirmed; and

• (b) any one director of the Company be and is hereby authorised to do all such acts and things as he/she may in his/her absolute discretion considered necessary or expedient to implement and give effect to the Acquisition Agreement and all the transactions contemplated thereunder, and any other matter in connection with the Acquisition.”

By order of the Board Wang Boming Chairman

Hong Kong, 17 December 2003

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NOTICE OF EXTRAORDINARY GENERAL MEETING

Notes:

1. A member of the Company entitled to attend and vote at the EGM convened by the above notice is entitled to appoint another person as his proxy to attend and vote on his behalf. A proxy need not be a member of the Company.

2. In order to be valid, the form of proxy and the power of attorney or other authority (if any), under which it is signed or a notarially certified copy of that power of attorney or authority, must be deposited at Secretaries Limited, the branch share registrar and transfer office of the Company in Hong Kong at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong as soon as possible and in any event by no later than 48 hours before the time appointed for the holding of the EGM or any adjournment thereof. Completion and return of the form of proxy will not preclude any member from attending and voting at the EGM (or any adjournment thereof) in person.

3. Where there are joint registered holders of any shares of the Company, any one of such persons may vote at the EGM, either personally or by proxy, in respect of such shares as if he were solely entitled thereto, but if more than one of such joint holders be present at the EGM personally or by proxy, that one of the said persons so present whose name stands first on the register of members of the Company in respect of such shares shall alone be entitled to vote in respect thereof.

4. A form of proxy for use at the EGM is enclosed herewith.

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