Sinopec Engineering Group Co Ltd. - Capital/Financing Update 2003

THIS PROSPECTUS IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt about this prospectus 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 Universe International Holdings Limited (the “Company”), you should at once hand this prospectus and the accompanying provisional allotment letter in relation to the Rights Issue (as defined herein) and form of application for excess Rights Shares (as defined herein) to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

A copy of this prospectus, together with copies of the provisional allotment letter in relation to the Rights Issue and form of application for excess Rights Shares, have been registered with the Registrar of Companies in Hong Kong pursuant to Section 342C of the Companies Ordinance of Hong Kong. A copy of this prospectus, together with copies of the provisional allotment letter in relation to the Rights Issue and form of application for excess Rights Shares, have also been filed with the Registrar of Companies in Bermuda in accordance with the requirements of the Companies Act 1981 of Bermuda. The Securities and Futures Commission in Hong Kong, the Registrar of Companies in Hong Kong and the Registrar of Companies in Bermuda take no responsibility for the contents of any of these documents.

Subject to the granting of the listings of, and permission to deal in, the Rights Shares in both their nil-paid and fully-paid forms on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”), the Rights Shares in both their nil-paid and fully-paid forms will be accepted as eligible securities by Hong Kong Securities Clearing Company Limited (“HKSCC”) for deposit, clearance and settlement in CCASS with effect from the respective commencement dates of dealings in the Rights Shares in their nil-paid and fully-paid forms or such other dates as determined by HKSCC. Settlement of transactions between participants of the Stock Exchange on any trading day is required to take place in the CCASS on the second trading day thereafter. All activities under the CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time. You should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser for details of those settlement arrangements and how such arrangements may affect your rights and interests.

The Stock Exchange and HKSCC take no responsibility for the contents of this prospectus, make no representation as to their respective accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this prospectus.

�� **[*] UNIVERSE INTERNATIONAL HOLDINGS LIMITED**

(Incorporated in Bermuda with limited liability)

RIGHTS ISSUE OF

478,201,790 RIGHTS SHARES

OF HK$0.02 EACH ON THE BASIS OF ONE RIGHTS SHARE FOR EVERY TWO SHARES HELD ON THE RECORD DATE AT HK$0.08 PER RIGHTS SHARE PAYABLE IN FULL ON ACCEPTANCE

The latest time for acceptance and payment for the Rights Shares is 4:00 p.m. (Hong Kong time) on 3rd September, 2003. The procedure for acceptance and/or transfer of the Rights Shares are set out on pages 15 and 16 of this prospectus.

The Major Shareholder (as defined herein) reserves the right to terminate the arrangements set out in the Underwriting Agreement (as defined herein) by notice in writing given by it to the Company at any time prior to 4:00 p.m. on the third business day following the Final Acceptance Date (as defined herein), if in the sole and absolute opinion of the Major Shareholder, after full consultation with the Company: (a) the success of the Rights Issue or the taking up of the Rights Shares by the Shareholders (as defined herein) would be adversely affected by: (i) the introduction of any new law or regulation or any change in existing law or regulation (or the judicial interpretation thereof) or other occurrence of any nature whatsoever which may adversely affect the business or the financial or trading position or prospects of the Group (as defined herein) as a whole; or (ii) the occurrence, development or coming into effect of any local, national or international event or change (whether or not forming part of a series of events or changes occurring or continuing before, and/or after the date of the Underwriting Agreement) of a political, military, financial, economic, currency or other nature (whether or not sui generis with any of the foregoing), or in the nature of any local, national or international outbreak or escalation of hostilities or armed conflict; or affecting local securities market or any local, national or international event or series of events (including, without limitation, strikes, lockouts, fire, explosion, flooding, acts of God, accident) or the occurrence of any combination of circumstances which adversely affects the business or the financial or trading position or prospects of the Group as a whole or adversely prejudices the success of the Rights Issue or the taking up of the Rights Shares by the members of the Company or otherwise makes it inexpedient or inadvisable for the Company or the Major Shareholder to proceed with the Rights Issue; or (b) any change in market conditions or combination of circumstances in Hong Kong or elsewhere (including without limitation suspension or material restriction or trading in securities) occurs which may adversely affect the success of the Rights Issue (such success being the taking up of the Rights Shares by members of the Company). Upon the giving of the notice of termination, all obligations of the Major Shareholder under the Underwriting Agreement shall cease and determine and no party shall have any claim against any other parties in respect of any matter or thing arising out of or in connection with the Underwriting Agreement.

It should be noted that the Shares (as defined herein) have been dealt in on an ex-rights basis from 13th August, 2003 and that the Rights Shares will be dealt in their nil-paid form from 21st August, 2003 to 29th August, 2003 (both dates inclusive). Such dealings will take place whilst the conditions to which the Rights Issue is subject remain unfulfilled. Any person dealing in the Shares on an ex-rights basis during the period from 13th August, 2003 to the date on which all such conditions are expected to be fulfilled and any person dealing in nil-paid Rights Shares from 21st August, 2003 to 29th August, 2003 (both dates inclusive) will accordingly bear the risk that the Rights Issue may not become unconditional and may not proceed. Any person dealing or contemplating any dealing in the Shares or the Rights Shares in their nil-paid form during such periods who is in any doubt about his position is recommended to consult his own professional adviser.

19th August, 2003

* For identification purposes only

	Page
Definitions..................................................................................................................................	1
Summary of the Rights Issue ....................................................................................................	4
Termination of the Underwriting Agreement...........................................................................	5
Expected timetable ....................................................................................................................	6
Letter from the Board ................................................................................................................	7
Appendix I — Financial Information on the Group ..........................................................	22
Appendix II — General Information ...................................................................................	68

– i –

DEFINITIONS

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

“Allotment Posting Date”	19th August, 2003, being the date for the despatch of the Prospectus
	Documents to the Qualifying Shareholders and this prospectus (for
	information only) and the Overseas Letter to each of the Non-
	Qualifying Shareholders or such other date as may be agreed between
	the Company and the Major Shareholder
“BMA”	Bermuda Monetary Authority
“Board”	the board of Directors
“business day”	a day (other than a Saturday or a day on which a tropical cyclone
	warning signal no. 8 or above or a “black” rainstorm warning signal
	is hoisted in Hong Kong at any time between 9:00 a.m. and 4:00 p.m.)
	on which banks in Hong Kong are generally open for business
“CCASS”	the Central Clearing and Settlement System established and operated
	by HKSCC
“Company”	Universe International Holdings Limited, a company incorporated in
	Bermuda with limited liability on 26th March, 1999, the shares of
	which are listed on the Stock Exchange
“Companies Act”	the Company Act 1981 of Bermuda
“Companies Ordinance”	the Companies Ordinance (Chapter 32 of the Laws of Hong Kong)
“Director(s)”	the director(s) of the Company
“Final Acceptance Date”	3rd September, 2003 or such other date as may be agreed between the
	Company and the Major Shareholder and described as the latest time
	for acceptance and payment in respect of provisional allotments under
	the Rights Issue
“Group”	the Company and its subsidiaries
“Hong Kong”	the Hong Kong Special Administrative Region of the People’s Republic
	of China
“HKSCC”	Hong Kong Securities Clearing Company Limited
“Latest Practicable Date”	14th August, 2003, being the latest practicable date prior to the printing
	of this prospectus for ascertaining certain information in this
	prospectus

– 1 –

DEFINITIONS

“Listing Rules”	the Rules Governing the Listing of Securities on the Stock Exchange
“Major Shareholder”	Globalcrest Enterprises Limited, a company incorporated in the British
	Virgin Islands with limited liability, being the major shareholder of
	the Company interested in approximately 60.3 per cent. of the existing
	issued share capital of the Company, which is owned by a discretionary
	trust of which certain immediate family members of Mr. Lam and
	Ms. Chiu are discretionary objects
“Mr. Lam”	Mr. Lam Shiu Ming, Daneil, the Chairman of the Company
“Ms. Chiu”	Ms. Chiu Suet Ying, an executive Director
“Non-Qualifying	Shareholders whose addresses as shown on the branch register of
Shareholders”	members of the Company on the Record Date are outside Hong Kong
“Overseas Letter”	a letter from the Company to the Non-Qualifying Shareholders
	advising them of the arrangement of their entitlements under the Rights
	Issue
“PRC”	the People’s Republic of China and for the purpose of this prospectus
	excluding Hong Kong
“Prospectus”	this prospectus in relation to the Rights Issue
“Prospectus Documents”	the Prospectus, the provisional allotment letter in relation to the Rights
	Issue and form of application for excess Rights Shares
“Qualifying Shareholder(s)”	Shareholder(s) whose names appear on the branch register of members
	of the Company on the Record Date, other than the Non-Qualifying
	Shareholders
“Record Date”	19th August, 2003, being the date for ascertaining entitlements to the
	Rights Issue or such other date as may be agreed between the Company
	and the Major Shareholder
“Rights Issue”	the issue by the Company by way of rights to Qualifying Shareholders
	of 478,201,790 Rights Shares at a price of HK$0.08 per Rights Share
	on the basis of one Rights Share for every two Shares held by
	Qualifying Shareholders on the Record Date, subject to the terms and
	conditions set out in the Prospectus Documents

– 2 –

DEFINITIONS

“Rights Shares” the new Shares to be issued pursuant to the Rights Issue “SFO” the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) “Share(s)” share(s) of HK$0.02 each in the share capital of the Company “Shareholder(s)” holder(s) of the Share(s) “Stock Exchange” The Stock Exchange of Hong Kong Limited “Underwriting Agreement” the underwriting agreement entered into on 28th July, 2003 between the Company and the Major Shareholder whereby the Major Shareholder agreed to underwrite 189,824,555 Rights Shares

“HK$” Hong Kong dollars, the lawful currency of Hong Kong “US$” United States dollars, the lawful currency of the United States of America

– 3 –

SUMMARY OF THE RIGHTS ISSUE

The following information is derived from, and should be read in conjunction with, the full text of this prospectus.

Number of Rights Shares to be issued : 478,201,790 Rights Shares Amount to be raised : approximately HK$37.7 million, net of expenses Subscription price : HK$0.08 per Rights Share payable in full on acceptance Final Acceptance Date : on or before 4:00 p.m. on 3rd September, 2003 Basis of the Rights Issue : one Rights Share for every two Shares held on the Record Date Status of the Rights Shares : when allotted and fully paid, the Rights Shares will rank pari passu in all respects with the then existing issued Shares Excess application : Qualifying Shareholders may apply for Rights Shares in excess of their provisional allotments

– 4 –

TERMINATION OF THE UNDERWRITING AGREEMENT

The Major Shareholder reserves the right to terminate the arrangements set out in the Underwriting Agreement by notice in writing given by it to the Company at any time prior to 4:00 p.m. on the third business day following the Final Acceptance Date, if in the sole and absolute opinion of the Major Shareholder, after full consultation with the Company:

(a) the success of the Rights Issue or the taking up of the Rights Shares by Shareholders would be adversely affected by:
(i) the introduction of any new law or regulation or any change in existing law or regulation (or the judicial interpretation thereof) or other occurrence of any nature whatsoever which may adversely affect the business or the financial or trading position or prospects of the Group as a whole; or
(ii) the occurrence, development or coming into effect of any local, national or international event or change (whether or not forming part of a series of events or changes occurring or continuing before, and/or after the date of the Underwriting Agreement) of a political, military, financial, economic, currency or other nature (whether or not sui generis with any of the foregoing), or in the nature of any local, national or international outbreak or escalation of hostilities or armed conflict; or affecting local securities market or any local, national or international event or series of events (including, without limitation, strikes, lockouts, fire, explosion, flooding, acts of God, accident) or the occurrence of any combination of circumstances which adversely affects the business or the financial or trading position or prospects of the Group as a whole or adversely prejudices the success of the Rights Issue or the taking up of the Rights Shares by the members of the Company or otherwise makes it inexpedient or inadvisable for the Company or the Major Shareholder to proceed with the Rights Issue; or
(b) any change in market conditions or combination of circumstances in Hong Kong or elsewhere (including without limitation suspension or material restriction or trading in securities) occurs which may adversely affect the success of the Rights Issue (such success being the taking up of the Rights Shares by members of the Company).

Upon the giving of the notice of termination, all obligations of the Major Shareholder under the Underwriting Agreement shall cease and determine and no party shall have any claim against any other parties in respect of any matter or thing arising out of or in connection with the Underwriting Agreement.

– 5 –

EXPECTED TIMETABLE

The expected timetable for the Rights Issue is set out below:

Last day of dealings in Shares on a cum-rights basis ..............................Tuesday, 12th August, 2003 First day of dealings in Shares on an ex-rights basis .........................Wednesday, 13th August, 2003 Latest time for lodging transfers of Shares in order to qualify for the Rights Issue ........................ 4:00 p.m. on Thursday, 14th August, 2003 Book closure period (both dates inclusive) .................................................Friday, 15th August, 2003 to Tuesday, 19th August, 2003 Record Date ...............................................................................................Tuesday, 19th August, 2003 Prospectus Documents expected to be despatched on .............................Tuesday, 19th August, 2003 First day of dealings in nil-paid Rights Shares ...................................... Thursday, 21st August, 2003 Latest time for splitting nil-paid Rights Shares .................4:00 p.m. on Tuesday, 26th August, 2003 Last day of dealings in nil-paid Rights Shares ...........................................Friday, 29th August, 2003 Latest time for acceptance of and payment for Rights Shares and application for excess Rights Shares .......................................................... 4:00 p.m. on Wednesday, 3rd September, 2003 Rights Issue expected to become unconditional on ....... 4:00 p.m. on Monday, 8th September, 2003 Refund cheques in respect of wholly or partially unsuccessful applications for excess Rights Shares expected to be despatched on or before ....................................... Thursday, 11th September, 2003 Certificates for fully-paid Rights Shares expected to be despatched on or before ....................................................... Thursday, 11th September, 2003 Dealings in fully-paid Rights Shares expected to commence on ............................................................... Monday, 15th September, 2003

– 6 –

LETTER FROM THE BOARD

�� **[*] UNIVERSE INTERNATIONAL HOLDINGS LIMITED**

(Incorporated in Bermuda with limited liability)

Executive Directors: Mr. Lam Shiu Ming, Daneil, Chairman Ms.Chiu Suet Ying

Non-Executive Directors:

Mr. Ng Kwok Tung Mr. Chiu Shin Koi

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

Head office and principal place of business in Hong Kong: 18th Floor Wyler Centre Phase II 192-200 Tai Lin Pai Road Kwai Chung New Territories Hong Kong 19th August, 2003

To the Qualifying Shareholders and

for information only, the Non-Qualifying Shareholders

Dear Sir or Madam,

RIGHTS ISSUE OF

478,201,790 RIGHTS SHARES OF HK$0.02 EACH ON THE BASIS OF ONE RIGHTS SHARE FOR EVERY TWO SHARES HELD ON THE RECORD DATE AT HK$0.08 PER RIGHTS SHARE PAYABLE IN FULL ON ACCEPTANCE

INTRODUCTION

On 29th July, 2003, the Board announced that, subject to the satisfaction of certain conditions of the Rights Issue as set out in the section headed “Conditions of the Underwriting Agreement” in this prospectus, the Company proposed to raise approximately HK$38.3 million, before expenses, by way of a rights issue of 478,201,790 Rights Shares, representing 50 per cent. of the existing issued share capital of the Company and approximately 33.33 per cent. of the issued share capital of the Company as enlarged by the Rights Issue, at HK$0.08 per Rights Share. The Company will provisionally allot one Rights Share (in nil-paid form) for every two Shares held by the Qualifying Shareholders on the Record Date. The Rights Issue is only available to the Qualifying Shareholders.

* For identification purposes only

– 7 –

LETTER FROM THE BOARD

The purpose of this prospectus is to give you further information regarding the Rights Issue, including information on dealings in and transfer and acceptance of the Rights Shares, and certain financial and other information in respect of the Group.

RIGHTS ISSUE

Issue statistics

Basis of the Rights Issue

: One Rights Share (in nil-paid form) for every two Shares held by the Qualifying Shareholders as at the close of business on the Record Date at a subscription price of HK$0.08 per Rights Share

Number of authorised Shares : 5,000,000,000 Shares

Number of existing Shares in issue : 956,403,580 Shares

Number of Rights Shares : 478,201,790 Rights Shares

Qualifying Shareholders

The Company will send the provisional allotment letters in relation to the Rights Issue and application forms for excess Rights Shares to the Qualifying Shareholders only.

To qualify for the Rights Issue, a Shareholder must as at the close of business on the Record Date:

(i) be registered as a member of the Company; and
(ii) have an address in Hong Kong which appears on the branch register of members of the Company.

In order to be registered as members of the Company on the Record Date, Shareholders must lodge any transfer of Shares (together with the relevant share certificate(s)) with the Company’s branch share registrar and transfer office in Hong Kong, Abacus Share Registrars Limited at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong, by not later than 4:00 p.m. (Hong Kong time) on 14th August, 2003.

– 8 –

LETTER FROM THE BOARD

TERMS OF THE RIGHTS ISSUE

Subscription price

HK$0.08 per Rights Share, payable in full when a Qualifying Shareholder accepts his/her provisional allotment under the Rights Issue or applies for excess Rights Shares or when a transferee of a nil-paid Rights Shares subscribes for the Rights Shares.

The subscription price was arrived at after arm’s length negotiation between the Company and the Major Shareholder with reference to the market price of the Shares under the prevailing market conditions. The Directors consider the terms of the Rights Issue to be fair and reasonable so far as the Shareholders are concerned.

The subscription price of HK$0.08 represents:-

(i) a discount of approximately 32.20 per cent. to the closing price of HK$0.118 per Share quoted on the Stock Exchange on 28th July, 2003, being the date of the Underwriting Agreement;
(ii) a discount of approximately 23.81 per cent. to the theoretical ex-rights price of HK$0.105 per Share based on the closing price per Share on 28th July, 2003;
(iii) a discount of approximately 23.81 per cent. to the 10-day average closing price of HK$0.105 per Share up to and including 28th July, 2003;
(iv) a discount of approximately 39.39 per cent. to the 30-day average closing price of HK$0.132 per Share up to and including 28th July, 2003; and
(v) a discount of approximately 17.53 per cent. to the closing price of HK$0.097 per Share quoted on the Stock Exchange as at the Latest Practicable Date.

Status of the Rights Shares

When fully paid, issued and allotted, the fully-paid Rights Shares will rank pari passu in all respects with the then existing issued Shares. Holders of the fully-paid Rights Shares will be entitled to receive all future dividends and distributions which are declared, made or paid on or after the date of allotment and issue of the fully-paid Rights Shares.

Rights of the Non-Qualifying Shareholders

The Prospectus Documents will not be registered or filed under the applicable securities or equivalent legislation of any jurisdictions other than Hong Kong and Bermuda. The Directors will exercise the discretion granted to them under the bye-laws of the Company not to offer the Rights Shares to the Non-Qualifying Shareholders with registered addresses as shown on the branch register of members of the Company on the Record Date in territories outside Hong Kong where, in the opinion of the Directors, it would or might, be unlawful or impracticable to offer Rights Shares in territories outside Hong Kong. Therefore, the Company will send copies of the Overseas Letters and the Prospectuses to the Non-Qualifying Shareholders for their information only. The Company will not send provisional allotment letters in relation to the Rights Issue and application forms for excess Rights Shares to the Non-Qualifying Shareholders.

– 9 –

LETTER FROM THE BOARD

The Company will make arrangements for the Rights Shares, which would otherwise have been provisionally allotted to the Non-Qualifying Shareholders, to be sold in the market in their nil-paid form as soon as practicable after dealing in the nil-paid Rights Shares commences, if a premium (net of expenses) can be obtained. The proceeds of each sale, less expenses, of HK$100 or more will be paid to the Non-Qualifying Shareholders in Hong Kong dollars pro rata to their respective shareholdings as soon as possible. The Company will retain individual amounts of less than HK$100 for its own benefit.

Fractions of Rights Shares

The Company will not provisionally allot fractions of Rights Shares. All fractions of Rights Shares will be aggregated and all nil-paid Rights Shares arising from such aggregation will be sold in the market, if a premium (net of expenses) can be achieved, and the Company will keep the proceeds from such sales.

UNDERWRITING ARRANGEMENT

Undertakings from the Major Shareholder

The Major Shareholder, as at the Latest Practicable Date, is interested in 576,754,470 Shares, representing approximately 60.3 per cent. of the existing issued share capital of the Company. The Major Shareholder has irrevocably undertaken to the Company during the period immediately after the Record Date and prior to the Final Acceptance Date not to dispose of 576,754,470 Shares and to accept or procure the acceptance of its entitlement of 288,377,235 Rights Shares under the Rights Issue. As at the Latest Practicable Date, the Major Shareholder has indicated that it has not decided whether or not to apply for any excess Rights Shares.

Underwriting Agreement

Date : 28th July, 2003 Underwriter : The Major Shareholder Number of Rights Shares underwritten : 189,824,555 Rights Shares

The Major Shareholder does not underwrite issues of securities in its normal course of business and will not receive any fee or underwriting commission under the Underwriting Agreement.

In the event that no Rights Shares are subscribed for by the Qualifying Shareholders and the Major Shareholder itself subscribes for all of the Rights Shares under its underwriting obligation pursuant to the Underwriting Agreement, the shareholding of the Major Shareholder will increase to approximately 73.54 per cent. of the total issued share capital of the Company as enlarged by the Rights Issue. Upon the completion of the Rights Issue, the maximum shareholding of the Major Shareholder in the Company would be approximately 73.54 per cent. of the total issued share capital of the Company as enlarged by the Rights Issue. Public float would be maintained given that more than 25 per cent. of the issued Shares are held by the public.

– 10 –

LETTER FROM THE BOARD

Termination of the Underwriting Agreement

(a) the success of the Rights Issue or the taking up of the Rights Shares by Shareholders would be adversely affected by:
(i) the introduction of any new law or regulation or any change in existing law or regulation (or the judicial interpretation thereof) or other occurrence of any nature whatsoever which may adversely affect the business or the financial or trading position or prospects of the Group as a whole; or
(ii) the occurrence, development or coming into effect of any local, national or international event or change (whether or not forming part of a series of events or changes occurring or continuing before, and/or after the date of the Underwriting Agreement) of a political, military, financial, economic, currency or other nature (whether or not sui generis with any of the foregoing), or in the nature of any local, national or international outbreak or escalation of hostilities or armed conflict; or affecting local securities market or any local, national or international event or series of events (including, without limitation, strikes, lockouts, fire, explosion, flooding, acts of God, accident) or the occurrence of any combination of circumstances which adversely affects the business or the financial or trading position or prospects of the Group as a whole or adversely prejudices the success of the Rights Issue or the taking up of the Rights Shares by the members of the Company or otherwise makes it inexpedient or inadvisable for the Company or the Major Shareholder to proceed with the Rights Issue; or
(b) any change in market conditions or combination of circumstances in Hong Kong or elsewhere (including without limitation suspension or material restriction or trading in securities) occurs which may adversely affect the success of the Rights Issue (such success being the taking up of the Rights Shares by members of the Company).

– 11 –

LETTER FROM THE BOARD

Conditions of the Underwriting Agreement

The Underwriting Agreement is conditional on:

(i) the delivery to and filing with the Registrar of Companies in Bermuda of one printed copy of each of the Prospectus Documents (duly signed by one Director for and on behalf of all the Directors in accordance with the requirements of the Companies Act) after having been approved by resolution of the Board, together with all the documents required to be annexed thereto by the Companies Act by not later than the day before the Allotment Posting Date;
(ii) the delivery to and filing with the Stock Exchange of one printed copy of each of the Prospectus Documents (duly certified by two Directors (or their duly authorised agents) in writing in accordance with section 342C of the Companies Ordinance) after having been approved by resolution of the Board, together with all other documents required to be annexed thereto and issue by the Stock Exchange of a certificate of authorisation of registration by not later than the Allotment Posting Date;
(iii) the delivery to and filing with the Registrar of Companies in Hong Kong of one printed copy of each of the Prospectus Documents (duly certified by or on behalf of two Directors (or their duly authorised agents) in writing in accordance with section 342C of the Companies Ordinance) after having been approved by resolution of the Board, together with all the documents required to be annexed thereto by not later than the Allotment Posting Date;
(iv) the posting of the Prospectus Documents to Qualifying Shareholders on the Allotment Posting Date and the posting of the Overseas Letter to each of the Non-Qualifying Shareholders accompanied by a copy of the Prospectus stamped “For Information Only” on the Allotment Posting Date;
(v) all requirements imposed by the Stock Exchange under the Listing Rules or otherwise in connection with the transactions contemplated by the Underwriting Agreement having been fully complied with by not later than 15th September, 2003 (or such other date as may be agreed between the Company and the Major Shareholder); and
(vi) the Listing Committee of the Stock Exchange granting or agreeing to grant (subject to allotment), and not having revoked, the approval of the listings of, and permission to deal in the Rights Shares, in their nil-paid form and fully-paid form by no later than 9:00 a.m. on 21st August, 2003, (being the expected date of commencement of dealings in the Rights Shares in their nilpaid form) (or such other time and date as may be agreed between the Company and the Major Shareholders) and 9:00 a.m. on 15th September, 2003 (being the expected date of commencement of dealings in the Rights Shares in their fully-paid form) (or such other time and date as may be agreed between the Company and the Major Shareholder), respectively,

and so that in the event of the said conditions not being fulfilled by the times and/or dates specified above or waived in accordance with the terms of the Underwriting Agreement or if the Underwriting Agreement shall be rescinded in accordance with the terms of the Underwriting Agreement all obligations and liabilities of the parties to the Underwriting Agreement will forthwith cease and determine and no party will have any claim against the other (save for any antecedent breaches thereof).

– 12 –

LETTER FROM THE BOARD

PERMISSION OF THE BMA

Permission under the Exchange Control Act 1972 of Bermuda (and regulations made thereunder) has been received from the BMA in respect of the issue of the Rights Shares to persons regarded as nonresidents of Bermuda for exchange control purposes subject to the requirements that the Rights Shares are listed on the Stock Exchange. In granting such permission and in accepting the Prospectus Documents for filing, neither the BMA nor the Registrar of Companies in Bermuda accepts any responsibility for the financial soundness of the Group or for the correctness of any statements made or opinions expressed in the Prospectus Documents.

LISTINGS AND DEALINGS

Application has been made to the Listing Committee of the Stock Exchange for the listings of, and permission to deal in, the Rights Shares in both their nil-paid and fully-paid forms. It is expected that dealings in the Rights Shares in their nil-paid form will commence on 21st August, 2003 and will end on 29th August, 2003 (both dates inclusive). Dealings in the Rights Shares in their fully-paid form are expected to commence on 15th September, 2003.

No securities of the Company are listed or dealt in on any stock exchange other than the Stock Exchange and no application has been made or is currently proposed to be made for the Shares or for any securities of the Company to be listed or dealt in on any other stock exchange.

Subject to the granting of the listings of, and permission to deal in, the Rights Shares in both their nilpaid and fully-paid forms on the Stock Exchange, as well as compliance with the stock admission requirements of HKSCC, the Rights Shares in both their nil-paid and fully-paid forms will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the respective commencement dates of dealings in the Rights Shares in their nil-paid and fully-paid forms (as the case may be) or such other dates as determined by HKSCC. Settlement of transactions between participants of the Stock Exchange on any trading day is required to take place in CCASS on the second trading day thereafter. All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time.

The Rights Shares in both nil-paid and fully-paid forms will be traded in board lots of 5,000 Shares each. Dealings in the Rights Shares in both nil-paid and fully-paid forms will be subject to payment of stamp duty in Hong Kong.

WARNING OF THE RISK OF DEALING IN SHARES AND RIGHTS SHARES

It should be noted that the Shares have been dealt in on an ex-rights basis from 13th August, 2003 and that the Rights Shares will be dealt in their nil-paid form from 21st August, 2003 to 29th August, 2003 (both dates inclusive). Such dealings will take place whilst the conditions to which the Rights Issue is subject remain unfulfilled. Any person dealing in the Shares on an exrights basis during the period from 13th August, 2003 to the date on which all such conditions are expected to be fulfilled and any person dealing in nil-paid Rights Shares from 21st August, 2003 to 29th August, 2003 (both dates inclusive) will accordingly bear the risk that the Rights Issue may not become unconditional and may not proceed. Any person dealing or contemplating any dealing in the Shares or the Rights Shares in their nil-paid form during such periods who is in any doubt about his position is recommended to consult his own professional adviser.

– 13 –

LETTER FROM THE BOARD

REASONS FOR THE RIGHTS ISSUE AND USE OF PROCEEDS

The principal activities of the Group are video distribution, film licensing, film sub-licensing, film exhibition and leasing of property and machinery for replication of optical discs.

Despite the unpromising economic situation in Hong Kong and other Asian countries, the audited consolidated turnover of the Group was maintained at approximately HK$306.7 million for the year ended 30th June, 2002 compared with approximately HK$306.6 million for the year ended 30th June, 2001. Although the audited consolidated net profit of the Company was reduced from approximately HK$40.2 million for the year ended 30th June, 2001 to approximately HK$10.0 million for the year ended 30th June, 2002, it is noted that such decline was mainly due to the provision of approximately HK$22.4 million made on the non-recurring impairment for film rights and additional interest of approximately HK$7.0 million on convertible notes accrued for the redemption of the notes in July 2002.

For the six months ended 31st December, 2002, the Group’s unaudited consolidated turnover amounted to approximately HK$158.4 million, representing a slight decrease of approximately 1.2 per cent. over the corresponding period for the previous financial year. Though, a substantial decline in the net profit of approximately 83.1 per cent. down to approximately HK$4.1 million was recorded given the stagnant and sluggish local retail market. In order to maintain the competitiveness of the Group in the industry, the management of the Company intends to explore more business opportunity in the PRC market by strengthening film co-production with film production companies in the PRC and it is believed that such co-operation will enable the Group to capture a considerable share in the PRC market.

In July 2002, the Company has redeemed the outstanding convertible notes of approximately HK$54.1 million out of its internal resources. Given the significant decrease in free cash held by the Company, and for the purpose of implementing the aforesaid corporate strategy, it is commercially justifiable for the Group to secure additional cash resources for further development of its business in the PRC, in particular, any business opportunities arising from the deregulation and reformation of laws or regulations governing the films production industry in the PRC and for general working capital of the Group. The Directors consider that the Rights Issue will provide a fair means of fund raising, which all Shareholders can participate, and will enlarge the capital base of the Company.

The net proceeds of the Rights Issue, after deduction of expenses, are expected to amount to approximately HK$37.7 million and will be applied as to approximately HK$35.0 million for coproducing films with independent film production companies in the PRC. The remaining balance of the net proceeds will be used for general working capital of the Group.

– 14 –

LETTER FROM THE BOARD

PROCEDURE FOR ACCEPTANCE AND/OR TRANSFER OF THE RIGHTS SHARES

If you are a Qualifying Shareholder, a provisional allotment letter in relation to the Rights Issue is enclosed with this prospectus, which entitles you to take up the number of Rights Shares shown thereon. If you wish to accept all the Rights Shares provisionally allotted to you as specified in the enclosed provisional allotment letter in relation to the Rights Issue, you must lodge the provisional allotment letter in relation to the Rights Issue in accordance with the instructions printed thereon, together with a remittance for the full amount payable on acceptance, with the Company’s branch share registrar and transfer office in Hong Kong, Abacus Share Registrars Limited at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong, by not later than 4:00 p.m. on 3rd September, 2003 (Hong Kong time). All remittances must be made in Hong Kong dollars and cheques or cashier’s orders must be drawn on a bank account in Hong Kong and made payable to “Universe International Holdings Limited - Rights Issue Account” and crossed “Account Payee Only”.

It should be noted that unless the provisional allotment letter in relation to the Rights Issue, together with the appropriate remittance, has been lodged with Abacus Share Registrars Limited at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong, by not later than 4:00 p.m. on 3rd September, 2003 (Hong Kong time), whether by the original allottee or any person in whose favour the provisionally allotted Rights Shares have been validly transferred, that provisional allotment and all rights thereunder will be deemed to have been declined and will be cancelled.

If you wish to accept only part of your provisional allotment or transfer part of your rights to take up the Rights Shares provisionally allotted to you under the provisional allotment letter in relation to the Rights Issue or to transfer your rights to more than one person, the entire provisional allotment letter in relation to the Rights Issue must be surrendered by not later than 4:00 p.m. on 26th August, 2003 (Hong Kong time) to the Company’s branch share registrar and transfer office in Hong Kong, Abacus Share Registrars Limited at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong, which will cancel the original provisional allotment letter in relation to the Rights Issue and issue new provisional allotment letters in the denominations required which will be available for collection at the Company’s branch share registrar and transfer office in Hong Kong, Abacus Share Registrars Limited at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong, on or before the second business day from the date of lodging such request.

All cheques or cashier’s orders will be presented for payment immediately following receipt and all interest earned on such moneys will be retained for the benefit of the Company. Any provisional allotment letter in relation to the Rights Issue in respect of which the cheque or cashier’s order is dishonoured on first presentation is liable to be rejected, and in that event the provisional allotment and all rights thereunder will be deemed to have been declined and will be cancelled.

If the conditions of the Rights Issue are not fulfilled in accordance with the section headed “Conditions of the Underwriting Agreement” in this prospectus, the monies received in respect of acceptances of Rights Shares will be refunded, without interest, by sending a cheque made out to the relevant applicant named on the provisional allotment letter in relation to the Rights Issue or the application form for excess Rights Shares, or in the case of joint applicants, to the first-named applicant, and crossed “Account Payee Only”, through ordinary post at the risk of such person to the address specified in the relevant form.

– 15 –

LETTER FROM THE BOARD

No action has been taken to permit the offering of the Rights Shares or the distribution of any of the Prospectus Documents in any territory other than Hong Kong. Accordingly, no person receiving this prospectus or a provisional allotment letter in relation to the Rights Issue or a form of application for excess Rights Shares in any territory outside Hong Kong may treat it as an offer or invitation to apply for Rights Shares, unless in the relevant territory such an offer or invitation could lawfully be made without compliance with any registration or other legal and regulatory requirements. It is the responsibility of anyone outside Hong Kong wishing to make an application for Rights Shares to satisfy himself or herself as to the observance of the laws and regulations of all relevant territories, including the obtaining of any government or other consents, and to pay any taxes and duties required to be paid in such territories in connection therewith. No application for Rights Shares will be accepted from any person whose registered address as shown on the branch register of members of the Company on the Record Date is in a place outside Hong Kong where in the Directors’ opinion the Rights Shares may not be offered without compliance with registration and/or other legal or regulatory requirements. The Company reserves the right to refuse to accept any application for Rights Shares where it believes that doing so would violate any applicable securities or other laws or regulations of any territory or jurisdictions.

APPLICATION FOR EXCESS RIGHTS SHARES

Qualifying Shareholders may apply for any unsold entitlement of the Non-Qualifying Shareholders, any unsold Rights Shares created by adding together fractions of Rights Shares and any Rights Shares provisionally allotted but not accepted. Application for excess Rights Shares may be made by completing the appropriate application form. The Board will allocate the excess Rights Shares on a fair and reasonable basis but preference will be given to applications for less than one board lot of Shares where it appears to the Directors that such applications have been made to round up an existing holding of an odd lot of Shares.

The remaining excess Rights Shares after the aforesaid preferential allotment will be allotted on the following basis:

If the Rights Shares are undersubscribed

The Directors will allot the remaining excess Rights Shares according to such amount of excess Rights Shares applied for by the Qualifying Shareholders.

If the Rights Shares are oversubscribed

The Directors will firstly allot the remaining excess Rights Shares in proportion to the amount of nilpaid Rights Shares provisionally allotted to those Qualifying Shareholders who apply for excess Rights Shares. Any application for such amount of excess Rights Shares which is less than the amount as calculated herein will be satisfied in full.

Any further remaining excess Rights Shares will be allotted to applicants in proportion to the excess Rights Shares applied by them after netting off their respective entitlements as calculated in the previous paragraph.

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LETTER FROM THE BOARD

If you are a Qualifying Shareholder and wish to apply for any unsold entitlement of the Non-Qualifying Shareholders, any unsold Rights Shares created by adding together fractions of Rights Shares and any Rights Shares provisionally allotted but not accepted under the Rights Issue in addition to your allotment, you must complete and sign the enclosed application form for excess Rights Shares as indicated therein and lodge it, together with a separate remittance for the amount payable on application in respect of the excess Rights Shares applied for, with the Company’s branch share registrar and transfer office in Hong Kong, Abacus Share Registrars Limited at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong by not later than 4:00 p.m. on 3rd September, 2003 (Hong Kong time). All remittances must be made in Hong Kong dollars and cheques or cashier’s orders must be drawn on a bank account in Hong Kong and made payable to “Universe International Holdings Limited - Excess Application Account” and crossed “Account Payee Only”. The Company’s branch share registrar and transfer office in Hong Kong, Abacus Share Registrars Limited, will notify you of any allotment of excess Rights Shares made to you by the Company on a fair and reasonable basis as mentioned above.

If no excess Rights Shares are allotted to you or if the conditions of the Rights Issue are not fulfilled, the amount tendered on application is expected to be returned to you in full without interest by means of cheques despatched in the ordinary post at your own risk on or before 11th September, 2003 (Hong Kong time). If the number of excess Rights Shares allotted to you is less than that applied for, the surplus application moneys are also expected to be returned to you without interest by means of cheques despatched in the ordinary post at your own risk on or before 11th September, 2003 (Hong Kong time).

The form of application for excess Rights Shares is for use only by the person(s) to whom it is addressed and is not transferable. All documents, including cheques or cashier’s orders for refund, will be sent at the risk of the person(s) entitled thereto to their registered addresses by the Company’s branch share registrar and transfer office in Hong Kong, Abacus Share Registrars Limited.

CERTIFICATES AND REFUND CHEQUES FOR THE RIGHTS SHARES

It is expected that certificates for the fully-paid Rights Shares and refund cheques in respect of wholly and partially unsuccessful applications for excess Rights Shares will be posted to those entitled thereto (and in the case of joint applicants, to the first-named applicant) at their own risk to their addresses shown on the branch register of members of the Company on or before 11th September, 2003.

Where entitlements to Rights Shares exceed one board lot, it is proposed, so far as is practicable, to issue certificates for Shares in board lots of 5,000 Shares, with a certificate for the balance, if any.

– 17 –

LETTER FROM THE BOARD

BUSINESS REVIEW AND FUTURE PROSPECTS OF THE GROUP

During the year ended 30th June, 2002, whilst the Group’s audited consolidated turnover of HK$306.7 million was maintained at a similar level to last year, the profit attributable to shareholders experienced a decline by 75.1 per cent. to approximately HK$10.0 million. The major reasons for such decline are: (a) gross profit ratio of video distribution and film licensing decreased by 6.2 per cent. and 1.9 per cent. respectively; (b) provision made for film right deposits and film rights amounted to HK$24.3 million due to the reduced buying power of overall film licensing markets and stagnant retail market; and (c) additional interest of HK$7.0 million payable to convertible note holder on redemption of convertible notes subsequent to the financial year end.

As mentioned in the interim report of the Group for the six months ended 31st December, 2002, the Group’s unaudited consolidated turnover for the six months ended 31st December, 2002 was approximately HK$158.4 million, decreasing marginally by approximately 1.2 per cent. over the corresponding period in 2001. Profit attributable to shareholders was approximately HK$4.1 million, representing a reduction of 83.1 per cent. compared with the corresponding period in 2001. Earnings per share for the period were HK0.43 cents compared with HK2.57 cents in 2001.

The unaudited turnover figure of video distribution achieved during the six months ended 31st December, 2002 is satisfactory despite of the then economic environment in Hong Kong. The unaudited turnover from video distribution has increased by 4.3 per cent. to HK$117.9 million, as compared with the corresponding period in 2001, accounting for approximately 74.4 per cent. of the Group’s total turnover. The local retail market has remained stagnant and sluggish during the period under review. Consumers’ spending sentiment has been adversely affected by high unemployment rate. Undoubtedly these are negative factors affecting generally the retail and films productions industry in which the Group is participated in. In view of this persistent deflationary economic downturn, the Group has implemented aggressive pricing policy in order to maintain its market share while sacrificing profit margin to some extent.

Although the turnover generated from the video distribution business has increased continuously, the gross profit of this business segment for the period has significantly decreased by 43.1 per cent., compared with the corresponding period in 2001. As a result of an aggressive pricing policy and escalating royalty costs for video distribution rights due to keen competition within the industry which results in the increased amortisation of film rights for the six months period ended 31st December, 2002, the gross profit margin of the video-distribution business for the same period was reduced. Amortisation of film rights for the video distribution business was approximately HK$62.3 million, which is approximately HK$18.9 million or 43.4 per cent. higher than the corresponding period in 2001. During the period for the six months ended 31st December, 2002, the unaudited turnover from film exhibition, film licensing and sub-licensing decreased by 12.2 per cent. to HK$39.1 million compared with corresponding period in 2001. In view of the overall contracted film exhibition business of Chinese language films, the Group has been adopting a more prudent approach in investing in film productions since early 2002, so that the number of films produced and available for film exhibition and film licensing has been reduced for the six months ended 31st December, 2002, resulting in the decrease in the turnover for this business segment.

– 18 –

LETTER FROM THE BOARD

During the six months ended 31st December, 2002, the turnover generated from the PRC has increased by approximately HK$1.1 million compared with the corresponding period in 2001.

As the turnover and profitability of the replication of optical discs services have also been adversely affected by severe price competition within the industry during the six months ended 31st December, 2002, the results of this business segment have significantly decreased compared with the corresponding period in 2001. In view of the keen competition and uncertain outlook within the industry, the Group decided not to concentrate on the development of this business in order to achieve a better allocation of the Group’s resources and secure a stable rental income by leasing replication machinery and property to a third party starting from 1st December, 2002.

As mentioned in the announcement of the Company dated 7th August, 2003, due to additional provision required to be made on certain film rights and reduction in turnover as a result of poor operating environment in the film industry, in particular, after the outbreak of Severe Acute Respiratory Syndrome in the second quarter of this year, the Directors expect that the Group will record an operating loss for the year ended 30th June, 2003. It is expected that the operating loss of the Group for the year ended 30th June, 2003 will not have material adverse impact on the business operation of the Group as a whole. The Company is presently unable to quantify precisely the extent of the losses for the year. The Company intends to release its audited annual results for the year ended 30th June, 2003, which will contain further details of these losses, by the end of October 2003, being the latest time required for the release of the annual results of the Company for the year ended 30th June, 2003.

The management of the Company expects the difficult operating environment in Hong Kong to continue in the foreseeable future as deflationary threat persists. Price competition will probably remain keen affecting the profit margins of the Group. In such circumstances, the Group will continue to develop its business in a pragmatic and prudent approach so as to maintain its profitability. The Group has realised its expansion plan and diversification strategy by setting up a joint venture company with a third party in Hong Kong for the production of television series in early 2003. The management of the Company is confident that this new division will generate positive contribution in the foreseeable future. In view of the increasing demand for quality Chinese-language films from overseas markets and the PRC, particularly the latter in which there is still immense potential for further growth after its entry to the World Trade Organisation (“WTO”), the Group plans to co-produce more films with film production companies in the PRC in the coming year. The management believes that such cooperation, coupled with our expertise and experience in the industry will enable the Group to capture a considerable share of the market in the PRC.

– 19 –

LETTER FROM THE BOARD

It is also expected that the de-regulation for the film industry in the PRC following the entry to the WTO and the recently-announced Mainland and Hong Kong Closer Economic Partnership Agreement (“CEPA”) will make available further business opportunities to the Group. As such, the Company intends to explore more business opportunities in the PRC market by strengthening film co-production with film production companies in the PRC.

According to the summary of CEPA published by the Trade and Industry Department of Hong Kong, Hong Kong companies are permitted to establish joint ventures in the PRC with majority ownership (not exceeding 70 per cent.) to engage in the distribution of audiovisual products (including products on motion pictures which are not covered in China’s WTO commitments).

Chinese language motion pictures produced by Hong Kong companies can be imported for distribution in the PRC, and exempted from the quota of 20 foreign films per year as inscribed in China’s WTO commitments. Motion pictures co-produced with the PRC partners will be treated as PRC movies for distribution in the PRC.

For motion pictures co-produced with the PRC partners, the ceiling on the proportion of Hong Kong personnel is relaxed. The restriction on requiring the story of the motion picture has to take place in the PRC is removed, though the plots or leading characters must be related to the PRC.

Hong Kong companies are also permitted to construct and/or renovate cinema theatres in the form of joint venture or co-operation with foreign party having a majority stake instead of minority interest as inscribed in China’s WTO commitments.

The Directors believe that the Group would be benefited from all such arrangements which would enable the Group to expand its business in the PRC for its future growth and regional diversification.

LITIGATION

A Court of First Instance Action 1438 of 2002 (the “1st Action”) was commenced in Hong Kong on 17th April, 2002 by The Star Overseas Limited (“Star”), an independent third party, against Universe Entertainment Limited (“UEL”), a wholly-owned subsidiary of the Company.

By the 1st Action, Star alleges that a sum of US$935,871.65 (equivalent to HK$7,299,798.84) was payable by UEL to Star as its share of the revenue of the movie entitled “Shaolin Soccer” (the “Movie”).

Pursuant to an Order (the “Order”) made by Recorder Edward Chan S.C. of High Court on 21st February, 2003, UEL was ordered and has paid to Star a sum of HK$5,495,699.80, being part of the licence fee of the Movie received by UEL from Miramax Films (being the licencee of the Movie) and which was also part of the sum claimed by Star. Pursuant to the Order, UEL is also liable to pay Star interest in the sum of HK$350,905.30 and some of the costs of the application leading to the making of the Order, all of which has not been settled though due and payable as from 21st February, 2003. As the Order has not disposed of all the claims of US$935,871.65 (equivalent to HK$7,299,798.84) by Star, UEL is entitled to continue to defend the claim by Star for recovering the remaining balance in the sum of approximately HK$1,804,099.04 (HK$7,299,798.84 less HK$5,495,699.80) (the “Pending Claim”).

– 20 –

LETTER FROM THE BOARD

On the other hand, UEL commenced Court of First Instance Action 1642 of 2002 (the “2nd Action”) against Star on 30th April, 2002, whereby UEL claimed against Star for inter alia unliquidated damages or account of profits for:—

(a) breach of a production agreement dated 23rd August, 2000 made between UEL and Star in respect of the Movie; and
(b) passing off of the goodwill and title of the Movie, that is, up to this stage known to UEL, by having licenced some third parties to publish comic books and manufacture computer games entitled “Shaolin Soccer ��” without the consent of UEL.

The Directors consider that UEL is not liable to Star for the Pending Claim and UEL is vigorously defending the same and therefore no provision is made in the account of the Group. The Directors also consider that any amount that UEL may recover from Star under the 2nd Action may be used to offset part of any amount that UEL may be further ordered to pay Star in the 1st Action.

As at the Latest Practicable Date, the Directors however believe that it is not practicable to assess the outcome of the Pending Claim.

Save as disclosed above, as at the Latest Practicable Date, no litigation or claim of material importance is known to the Directors to be pending or threatened against either the Company or any of its subsidiaries.

ADDITIONAL INFORMATION

Your attention is drawn to the appendices to this prospectus for additional information.

Yours faithfully, By order of the Board Lam Shiu Ming, Daneil Chairman

– 21 –

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 and immediately following the Rights Issue (assuming the Rights Issue becoming unconditional) will be as follows:

Authorised: 5,000,000,000 Shares Issued, to be issued and fully paid: 956,403,580 Shares in issue as at the Latest Practicable Date 478,201,790 Rights Share to be issued_(Note)_ 1,434,605,370 Shares in issue immediately following the Rights Issue	HK$ 100,000,000.00 19,128,071.60 9,564,035.80
	28,692,107.40

Note: Assuming the Rights Issue becomes unconditional.

All of the Shares in issue rank pari passu in all respects with each other, including in particular as to rights to dividends, voting rights and return of capital.

The Rights Shares, when allotted, issued and fully-paid, will rank pari passu in all respects with the then existing Shares in issue including the right to receive all future dividends and distributions which are declared, made or paid on or after the date of allotment and issue of the fully-paid Rights Shares.

The Shares in issue are listed on the Stock Exchange. No part of the share capital or any other securities of the Company is listed or dealt in on any stock exchange other than the Stock Exchange and no application is being made or is currently proposed or sought for the Shares or any other securities of the Company to be listed or dealt in on any other stock exchange.

As at the Latest Practicable Date, the Company has no other outstanding options, warrants or other securities in issue which are convertible into Shares.

– 22 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

2. SUMMARY OF FINANCIAL INFORMATION

Set out below is a summary of the audited consolidated profit and loss accounts of the Group for the three years ended 30th June, 2002 extracted from the annual reports of the Company for the two years ended 30th June, 2002.

RESULTS

Turnover Cost of sales Gross profit Other revenue Other operating income Selling expenses Administrative expenses Other operating expenses Operating profit Finance costs Profit before taxation Taxation Profit attributable to shareholders Dividends Basic earnings per share (HK cents) Fully diluted earnings per share (HK cents)	2002 *HK$’000* 306,741 (224,129) 82,612 1,248 2,150 (6,265) (27,429) (27,659) 24,657 (9,792) 14,865 (4,838) 10,027 — 1.05 1.04	For the year 2001 *HK$’000* 306,576 (214,551) 92,025 1,170 2,195 (3,690) (30,392) (4,796) 56,512 (6,573) 49,939 (9,751) 40,188 2,859 4.24 3.87	2000 *HK$’000* 282,820 (183,601) 99,219 2,117 3,842 (7,709) (24,184) (2,799) 70,486 (2,767) 67,719 (6,656) 61,063 5,670 6.80 N/A

The Group did not have minority interest and any extraordinary items for the three years ended 30th June, 2002.

– 23 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

3. FINANCIAL INFORMATION

Set out below is a summary of the audited consolidated profit and loss accounts and consolidated cash flow statement of the Group for the two years ended 30th June, 2002 and the audited consolidated balance sheet of the Group and the balance sheet of the Company as at 30th June, 2001 and 30th June, 2002 together with explanatory notes as extracted from the annual report of the Company for the year ended 30th June, 2002.

CONSOLIDATED PROFIT AND LOSS ACCOUNT

For the year ended 30th June 2002

Note Turnover 2 Cost of sales Gross profit Other revenue 2 Other operating income Selling expenses Administrative expenses Other operating expenses Operating profit 3 Finance costs 4 Profit before taxation Taxation 5 Profit attributable to shareholders 6, 21 Dividends 7 Basic earnings per share (HK cents) 8 Fully diluted earnings per share (HK cents) 8	2002 *HK$’000* 306,741 (224,129) 82,612 1,248 2,150 (6,265) (27,429) (27,659) 24,657 (9,792) 14,865 (4,838) 10,027 — 1.05 1.04	2001 HK$’000 306,576 (214,551) 92,025 1,170 2,195 (3,690) (30,392) (4,796) 56,512 (6,573) 49,939 (9,751) 40,188 2,859 4.24 3.87

No statement of recognised gains and losses is presented as profit attributable to shareholders of HK$10,027,000 (2001: HK$40,188,000) shown above is the only component.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONSOLIDATED BALANCE SHEET

As at 30th June 2002

Note Fixed assets 11 Film rights and films in progress 12 Current assets Film deposits Inventories 14 Accounts receivable 15 Deposits paid and prepayments Pledged bank deposits 26 Bank balances and cash Current liabilities Accounts payable 16 Other payables, deposits received and accrued charges Due to the ultimate holding company 17 Obligations under finance leases 18 Taxation payable Convertible notes 22 Secured bank loans 19 Net current assets Financed by: Share capital 20 Reserves 21 Total capital and reserves Convertible notes 22 Other long-term liabilities 23 Deferred taxation 24	2002 *HK$’000* 101,102 124,823 21,931 21,987 23,382 14,117 7,000 91,623 180,040 -------------- 14,243 39,506 212 9,496 7,620 54,110 4,815 130,002 -------------- 50,038 -------------- 275,963 19,128 229,815 248,943 — 21,349 5,671 275,963	2001 HK$’000 122,874 129,611 23,454 23,458 31,321 3,274 2,000 56,031
		139,538 -------------- 15,534 13,824 219 11,445 7,875 — 8,149
		57,046 --------------
		82,492 --------------
		334,977
		19,060 220,961
		240,021 54,110 35,778 5,068
		334,977

– 25 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

BALANCE SHEET

As at 30th June 2002

Note Investments in subsidiaries 13 Current assets Prepayments Bank balances and cash Current liabilities Accrued charges Convertible notes 22 Net current liabilities Financed by: Share capital 20 Reserves 21 Total capital and reserves Convertible notes 22	2002 *HK$’000* 199,218 -------------- 97 64 161 -------------- 7,329 54,110 61,439 -------------- (61,278) -------------- 137,940 19,128 118,812 137,940 — 137,940	2001 HK$’000 193,467 -------------- 97 61 158 -------------- 483 — 483 -------------- (325) -------------- 193,142 19,060 119,972 139,032 54,110 193,142

– 26 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONSOLIDATED CASH FLOW STATEMENT

For the year ended 30th June 2002

Note Net cash inflow from operating activities 25(a) Returns on investments and servicing of finance Interest received Interest on bank loans and overdrafts Interest element of convertible notes Interest element of finance lease payments Dividends paid Net cash outflow from returns on investments and servicing of finance Taxation Hong Kong profits tax paid Investing activities Purchase of fixed assets Proceeds from sale of fixed assets Payment for film rights and films in progress Net cash outflow from investing activities Net cash inflow before financing Financing Capital element of finance lease repayment Bank loans repaid Issue of convertible notes Net cash (outflow)/inflow from financing 25(b) Increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year Analysis of balances of cash and cash equivalents: Bank balances and cash	2002 *HK$’000* 216,597 -------------- 1,248 (925) (1,092) (916) (1,105) (2,790) -------------- (4,490) -------------- (2,846) 13 (150,880) (153,713) -------------- 55,604 -------------- (11,560) (8,452) — (20,012) -------------- 35,592 56,031 91,623 91,623	2001 HK$’000 195,047 -------------- 1,170 (2,673) (1,004) (2,896) (1,426) (6,829) -------------- (6,385) -------------- (9,170) 177 (163,836) (172,829) -------------- 9,004 -------------- (10,942) (10,544) 54,110 32,624 -------------- 41,628 14,403 56,031 56,031

– 27 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE ACCOUNTS

For the year ended 30th June 2002

1 PRINCIPAL ACCOUNTING POLICIES

The principal accounting policies adopted in the preparation of these accounts are set out below:

(a) Basis of preparation

The accounts have been prepared in accordance with accounting principles generally accepted in Hong Kong and comply with accounting standards issued by the Hong Kong Society of Accountants (“HKSA”). They have been prepared under the historical cost convention.

In the current year, the Group adopted the following new or revised Statements of Standard Accounting Practice (“SSAPs”) issued by the HKSA which are effective for accounting periods commencing on or after 1st January 2001:

SSAP	9 (revised)	:	Events after the balance sheet date
SSAP	26	:	Segment reporting
SSAP	28	:	Provisions, contingent liabilities and contingent assets
SSAP	29	:	Intangible assets
SSAP	30	:	Business combinations
SSAP	31	:	Impairment of assets
SSAP	32	:	Consolidated financial statements and accounting for investments in
			subsidiaries

The effect of adopting these new or revised standards is set out in the accounting policies below. Certain comparative figures have been reclassified to conform with the current year’s presentation.

(b) Consolidation

The consolidated accounts include the accounts of the Company and its subsidiaries made up to 30th June. Subsidiaries are those entities in which the Group controls the composition of the board of directors, controls more than half of the voting power or holds more than half of the issued share capital.

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

All significant intercompany transactions and balances within the Group are eliminated on consolidation.

The gain or loss on the disposal of a subsidiary represents the difference between the proceeds of the sale and the Group’s share of its net assets together with any unamortised goodwill or negative goodwill or goodwill/negative goodwill taken to reserves and which was not previously charged or recognised in the consolidated profit and loss account.

In the Company’s balance sheet, the investments in subsidiaries are stated at cost less provision for impairment losses. The results of subsidiaries are accounted for by the Company on the basis of dividends received and receivable.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(c) Fixed assets

(i) Fixed assets are stated at cost less accumulated depreciation and accumulated impairment losses. Depreciation of fixed assets is calculated to write off their cost less accumulated impairment losses on the straight-line basis over the unexpired periods of the leases or their expected useful lives to the Group. The principal annual rates used for this purpose are:—

Leasehold land and buildings	2%
Leasehold improvements	20% to 50%
Machinery and equipment	20% to 331/3%
Others	20%

(ii) Impairment of fixed assets

At each balance sheet date, both internal and external sources of information are considered to assess whether there is any indication that fixed assets are impaired. If any such indication exists, the recoverable amount of the asset is estimated and where relevant, an impairment loss is recognised to reduce the asset to its recoverable amount. Such impairment losses are recognised in the profit and loss account.

(iii) Gain or loss on disposal of fixed assets

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

(iv) Cost of restoring and improving fixed assets

Major costs incurred in restoring fixed assets to their normal working condition are charged to the profit and loss account. Improvements are capitalised and depreciated over their expected useful lives to the Group.

(v) Leased assets
(i) Finance leases

Leases that substantially transfer to the Group all the risks and rewards of ownership of assets are accounted for as finance leases. Finance leases are capitalised at the inception of the leases at the lower of the fair value of the leased assets or the present value of the minimum lease payments. Each lease payment is allocated between the capital and finance charges so as to achieve a constant rate on the capital balances outstanding. The corresponding rental obligations, net of finance charges, are included in long-term liabilities. The finance charges are charged to the profit and loss account over the lease periods.

Assets held under finance leases are depreciated over the shorter of their estimated useful lives or the lease periods.

(ii) Operating leases

Leases where substantially all the risks and rewards of ownership of assets remain with the leasing company are accounted for as operating leases. Payments made under operating leases net of any incentives received from the leasing company are charged to the profit and loss account on a straight-line basis over the lease periods.

– 29 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(d) Inventories

Inventories are stated at the lower of cost and net realisable value. Cost comprises materials, direct labour and an appropriate proportion of all production overheads. In general, costs are assigned to individual item on a weighted average basis.

Net realisable value is determined on the basis of anticipated sales proceeds less estimated selling expenses.

(e) Film rights and films in progress

(i) Film rights

Film rights comprise fees paid in advance and/or by instalments under agreements and direct expenses incurred during the production of films, for the reproduction and distribution of films in various formats, film exhibition, licensing and sub-licensing of film titles.

Film rights are stated at cost less accumulated amortisation and accumulated impairment losses.

The cost of film rights is amortised over the shorter of the underlying license period or their economic life, with reference to projected revenues, or 10 years.

At each balance sheet date, both internal and external market information are considered to assess whether there is any indication that assets included in film rights and films in progress are impaired. If any such indication exists, the carrying amount of such assets is assessed and where relevant, an impairment loss is recognised to reduce the asset to its recoverable amount. Such impairment losses are recognised in the profit and loss accounts.

(ii) Films in progress

Films in progress are stated at cost less any provision for impairment losses. Cost includes all direct costs associated with the production of films. Cost of films is transferred to film rights upon completion.

In accordance with SSAP 29, the Group no longer recognises films rights and films in progress as current assets at the balance sheet date. This change in accounting policy has been applied retrospectively and the comparatives presented have been restated. The effect of this change is to increase non-current assets at 30th June 2002 and 2001 by HK$103,051,000 and HK$110,715,000 respectively and a decrease in current assets by the same amount.

(f)

Film deposits

Fees paid in advance prior to the production of films under agreements for reproduction and distribution of films in various formats, film exhibition, licensing and sub-licensing of film rights are accounted for as film deposits. The balance payable under agreements is disclosed as a commitment. Provision for film deposits is made to the extent that they are not expected to generate any future revenue for the Group.

– 30 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(g) Accounts receivable

Provision is made against accounts receivable to the extent which they are considered to be doubtful. Accounts receivable in the balance sheet are stated net of such provision.

(h) Cash and cash equivalents

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

(i) Provisions

In accordance with SSAP 28, provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain.

(j) Contingent liabilities

A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that outflow of economic resources will be required or the amount of obligation cannot be measured reliably.

A contingent liability is not recognised but is disclosed in the notes to the accounts. When a change in the probability of an outflow occurs so that outflow is probable, they will then be recognised as a provision.

(k) Deferred taxation

Deferred taxation is accounted for at the current tax rate in respect of timing differences between profit as computed for taxation purposes and profit as stated in the accounts to the extent that a liability or an asset is expected to be payable or recoverable in the foreseeable future.

(l) Translation of foreign currencies

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

– 31 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(m) Revenue recognition

(i) Revenue from the sale of goods is recognised on the transfer of risks and rewards of ownership, which generally coincides with the time when the goods are delivered to customers and the title has passed.
(ii) Income from the licensing and sub-licensing of film rights is recognised upon the delivery of the pre-recorded audio visual products and the materials for video features including the master tapes to the customers, in accordance with the terms of the underlying contracts.
(iii) Film exhibition income is recognised when the right to receive payment is established.
(iv) Income from the optical disc replication service is recognised when the relevant services are rendered.
(v) Interest income is recognised on a time proportion basis, taking into account the principal amounts outstanding and the interest rates applicable.

(n) Segment reporting

In accordance with the Group’s internal financial reporting the Group has determined that business segments be presented as the primary reporting format and geographical as the secondary reporting format.

Unallocated costs represent corporate expenses. Segment assets consist primarily of films rights, films in progress, fixed assets, inventories and receivables and exclude items such as operating cash. Segment liabilities comprise operating liabilities and exclude items such as taxation and certain corporate borrowings. Capital expenditure comprises additions to fixed assets (note 11), and film rights and films in progress (note 12).

In respect of geographical segment reporting, sales are based on the country in which the customer is located. Total assets and capital expenditure are where the assets are located.

(o) Dividends

In accordance with the revised SSAP 9, the Group no longer recognises dividends proposed or declared after the balance sheet date as a liability at the balance sheet date. This change in accounting policy has been applied retrospectively so that the comparatives presented have been restated to conform with the changed policy.

As detailed in Note 21, this change has resulted in an increase in opening retained earnings at 1st July 2001 by HK$2,859,000 (1st July 2000: HK$5,670,000) which is the reversal of the provision for 2000/2001 (1999/2000) proposed final dividend previously recorded as a liability as at 30th June 2001 (30th June 2000) although not declared until after the balance sheet date.

– 32 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

2 TURNOVER, REVENUES AND SEGMENT INFORMATION

The Group is principally engaged in the distribution of films in various videogram formats, licensing and sub-licensing of film rights, film exhibition and replication of optical discs. Revenues recognised during the year are as follows:

Turnover Sale of goods and replication of optical discs Licensing, sub-licensing of film rights and film exhibition Other revenue Interest income Total revenues	Group 2002 2001 *HK$’000* HK$’000 244,494 229,788 62,247 76,788 306,741 306,576 1,248 1,170 307,989 307,746	Group 2002 2001 *HK$’000* HK$’000 244,494 229,788 62,247 76,788 306,741 306,576 1,248 1,170 307,989 307,746
		306,576 1,170
		307,746

Primary reporting format — business segments

The Group is organised into two main business segments:

Distribution of films in various videogram formats and replication of optical discs
Licensing, sub-licensing of films rights and film exhibition

The Group’s inter-segment transactions mainly consist of licensing of film rights, which are transferred at cost.

Secondary reporting format — geographical segments

Distribution of films in various formats and replication of optical discs are solely operated in Hong Kong and Macau, while the Group operates its licensing, sub-licensing of film rights and film exhibition in five main geographical areas.

There are no sales between geographical segments.

– 33 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Primary reporting format — business segments

Licensing,
Sale of
sub-licensing
goods and
of film rights
replication of
and film
optical discs
exhibition
Elimination
2002
2002
2002
HK$’000
HK$’000
HK$’000
Turnover
External sales
244,494
62,247
—
Inter-segment sales
—
21,518
(21,518)
244,494
83,765
(21,518)
Segment results before
impairment losses
39,691
6,118
Less: impairment losses
of film rights
(13,775)
(8,625)
Segment results
25,916
(2,507)
Add: other revenue
Operating profit
Less: finance costs
Profit before taxation
Taxation
Profit attributable to shareholders
Segment assets
228,971
40,204
Unallocated assets
Total assets
Segment liabilities
16,979
27,403
Unallocated liabilities
Total liabilities
Capital expenditures
92,836
5,442
Unallocated capital expenditures
Total capital expenditures
Depreciation
22,722
49
Unallocated depreciation
Total depreciation
Amortisation charge
94,893
37,433

Group
2002
HK$’000
306,741
—
306,741
45,809
(22,400)
23,409
1,248
24,657
(9,792)
14,865
(4,838)
10,027
269,175
136,790
405,965
44,382
112,640
157,022
98,278
55,748
154,026
22,771
2,118
24,889
132,326

– 34 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Licensing,
Sale of
sub-licensing
goods and
of film rights
replication of
and film
optical discs
exhibition
Elimination
2001
2001
2001
HK$’000
HK$’000
HK$’000
Turnover
External sales
229,788
76,788
—
Inter-segment sales
—
41,308
(41,308)
229,788
118,096
(41,308)
Segment results
48,273
7,069
Add: other revenue
Operating profit
Less: finance costs
Profit before taxation
Taxation
Profit attributable to shareholders
Segment assets
250,604
50,215
Unallocated assets
Total assets
Segment liabilities
17,348
8,986
Unallocated liabilities
Total liabilities
Capital expenditures
66,956
3,607
Unallocated capital expenditures
Total capital expenditures
Depreciation
21,957
47
Unallocated depreciation
Total depreciation
Amortisation charge
75,918
47,989

Group
2001
HK$’000
306,576
—
306,576
55,342
1,170
56,512
(6,573)
49,939
(9,751)
40,188
300,819
91,204
392,023
26,334
125,668
152,002
70,563
103,380
173,943
22,004
2,038
24,042
123,907

– 35 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Secondary reporting format — geographical segments

Hong Kong and Macau Asia (other than Hong Kong and Macau) North America Australia and New Zealand Eastern and Northern Europe Add: other revenue Operating profit Hong Kong and Macau Asia (other than Hong Kong and Macau) North America Australia and New Zealand Eastern and Northern Europe Add: other revenue Operating profit	Turnover 2002 *HK$’000* 279,029 18,544 8,730 150 288 306,741 Turnover 2001 HK$’000 278,937 25,159 2,081 380 19 306,576	Segment results 2002 *HK$’000* 19,167 3,793 239 20 190 23,409 1,248 24,657 Segment results 2001 HK$’000 48,178 6,604 451 106 3 55,342 1,170 56,512	Total Capital assets expenditures 2002 2002 *HK$’000* *HK$’000* 404,355 154,026 1,150 — 436 — — — 24 — 405,965 154,026 Total Capital assets expenditures 2001 2001 HK$’000 HK$’000 385,039 173,943 6,984 — — — — — — — 392,023 173,943	Total Capital assets expenditures 2002 2002 *HK$’000* *HK$’000* 404,355 154,026 1,150 — 436 — — — 24 — 405,965 154,026 Total Capital assets expenditures 2001 2001 HK$’000 HK$’000 385,039 173,943 6,984 — — — — — — — 392,023 173,943
				173,943

– 36 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

3 OPERATING PROFIT

Operating profit is stated after crediting and charging the following:

Crediting Net exchange gains Charging Amortisation of film rights Impairment losses of film rights Write-off of film rights Provision for irrecoverable film deposits Auditors’ remuneration Staff costs (including directors’ emoluments) Cost of inventories sold Write-off of inventories Depreciation on owned fixed assets Depreciation on fixed assets held under finance leases Operating lease rental in respect of land and buildings Retirement benefits costs_(note 9)_ Loss on disposal of fixed assets	Group 2002 2001 *HK$’000* HK$’000 57 613 132,326 123,907 22,400 — 942 932 1,865 — 600 585 33,517 35,921 76,258 72,708 1,918 3,608 11,979 12,458 12,910 11,584 756 720 1,221 756 16 33	Group 2002 2001 *HK$’000* HK$’000 57 613 132,326 123,907 22,400 — 942 932 1,865 — 600 585 33,517 35,921 76,258 72,708 1,918 3,608 11,979 12,458 12,910 11,584 756 720 1,221 756 16 33
		123,907 — 932 — 585 35,921 72,708 3,608 12,458 11,584 720 756 33

4 FINANCE COSTS

Interest on bank loans and overdrafts wholly repayable — within five years — after five years Interest element of finance leases wholly repayable within five years Interest element of convertible notes wholly repayable within five years	Group 2002 2001 *HK$’000* HK$’000 7 239 918 2,434 916 2,896 7,951 1,004 9,792 6,573	Group 2002 2001 *HK$’000* HK$’000 7 239 918 2,434 916 2,896 7,951 1,004 9,792 6,573
		6,573

5 TAXATION

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

Hong Kong profits tax — current year — (over)/underprovision in prior years Deferred taxation_(note 24)_	Group 2002 2001 *HK$’000* HK$’000 4,326 6,217 (91) 489 603 3,045 4,838 9,751	Group 2002 2001 *HK$’000* HK$’000 4,326 6,217 (91) 489 603 3,045 4,838 9,751
		9,751

– 37 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

6 PROFIT ATTRIBUTABLE TO SHAREHOLDERS

The profit attributable to shareholders is dealt with in the accounts of the Company to the extent of a profit of HK$13,000 (2001: HK$2,893,000).

7 DIVIDENDS

Final proposed dividend — Nil (2001: HK0.3 cents) per ordinary share	2002 *HK$’000* —	2001 HK$’000 2,859

The previously recorded final dividends proposed and declared after the balance sheet date but accrued in the accounts for the years ended 30th June 2000 and 2001 were HK$5,670,000 and HK$2,859,000 respectively. Under the Group’s new accounting policy as described in Note 1(o), these have been written back against opening retained earnings as at 1st July 2000 and 2001 respectively in Note 21 and are now charged in the period in which they were proposed.

8 EARNINGS PER SHARE

The calculation of basic earnings per share is based on the Group’s profit attributable to shareholders of approximately HK$10,027,000 (2001: HK$40,188,000) and on the weighted average number of 954,619,681 ordinary shares in issue (2001: 948,802,551 ordinary shares) during the year.

The calculation of diluted earnings per share for the year ended 30th June 2002 was based on the Group’s profit attributable to shareholders of approximately HK$10,027,000, and on 967,417,025 ordinary shares which is the weighted average number of ordinary shares in issue during the year plus the weighted average number of 12,797,344 ordinary shares deemed to be issued at no consideration if all outstanding options had been exercised.

The potential shares arising from the exercise of the convertible notes would increase the earnings per share of the Group for the year ended 30th June 2002 and would be regarded as anti-dilutive.

The calculation of diluted earnings per share for the year ended 30th June 2001 was based on the Group’s profit attributable to shareholders plus the interest on convertible notes after taxation of approximately HK$843,000, and on 1,059,394,887 ordinary shares which is the weighted average number of ordinary shares in issue during the year plus the weighted average number of 110,592,336 ordinary shares deemed to be issued at no consideration if all outstanding options and convertible notes had been exercised.

9 RETIREMENT BENEFITS COSTS

On 1st December 2000, a Mandatory Provident Fund scheme (“the MPF scheme”) has been set up for employees, including executive directors. Under the MPF scheme, the Group’s contributions are at 5% of employees’ relevant income as defined in the Hong Kong Mandatory Provident Fund Schemes Ordinance up to a maximum of HK$1,000 per employee per month. The employees also contribute a corresponding amount to the MPF scheme if their relevant income is more than HK$4,000 per month. The MPF contributions are fully and immediately vested in the employees as accrued benefits once they are paid.

– 38 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

10 DIRECTORS’ AND SENIOR MANAGEMENT’S EMOLUMENTS

(a) Directors’ emoluments

The aggregate amounts of emoluments payable to directors of the Company during the year are as follows:

Fees Basic salaries, housing allowances, other allowances and benefits in kind Contributions to retirement scheme	Group 2002 2001 *HK$’000* HK$’000 200 240 3,227 3,389 33 22 3,460 3,651	Group 2002 2001 *HK$’000* HK$’000 200 240 3,227 3,389 33 22 3,460 3,651
		3,651

Directors’ fees disclosed above include HK$160,000 (2001: HK$160,000) paid to the independent non-executive directors.

(b) The number of directors whose emoluments fell within the following bands are as follows:

Emolument bands Nil to HK$1,000,000 HK$1,000,001 to HK$1,500,000	Number of directors 2002 2001 5 8 1 1 6 9	Number of directors 2002 2001 5 8 1 1 6 9
		9

No directors waived emoluments in respect of the years ended 30th June 2002 and 2001.

The five individuals whose emoluments were the highest in the Group for the year included two directors (2001: two) whose emoluments are reflected in the analysis presented above. The emoluments payable to the remaining three (2001: three) individuals during the year are as follows:

Basic salaries, housing allowances, other allowances and benefits in kind Contributions to retirement scheme	Group 2002 2001 *HK$’000* HK$’000 1,976 1,768 35 21 2,011 1,789	Group 2002 2001 *HK$’000* HK$’000 1,976 1,768 35 21 2,011 1,789
		1,789

The emoluments of each of these individuals fall within the emolument band of Nil to HK$1,000,000.

(d) Details of the share option scheme granted to the executive directors of the Group are set out in Note 20(c).

– 39 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

11 FIXED ASSETS

	Leasehold	Leasehold	Machinery	Furniture
	land and	improve-	and	and	Motor	Office
	buildings	ments	equipment	fixtures	vehicles	equipment	Total
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Group
Cost
At 1st July 2001	47,406	10,434	99,786	1,476	1,134	6,665	166,901
Additions	—	14	2,301	45	147	639	3,146
Disposals	—	—	—	—	(118)	(8)	(126)
At 30th June 2002	47,406	10,448	102,087	1,521	1,163	7,296	169,921
	-----------	-----------	-----------	-----------	-----------	-----------	-----------
Accumulated
depreciation
At 1st July 2001	1,220	2,979	36,643	515	441	2,229	44,027
Charge for the year	948	2,091	19,999	267	228	1,356	24,889
Disposals	—	—	—	—	(94)	(3)	(97)
At 30th June 2002	2,168	5,070	56,642	782	575	3,582	68,819
	-----------	-----------	-----------	-----------	-----------	-----------	-----------
Net book value
At 30th June 2002	45,238	5,378	45,445	739	588	3,714	101,102
At 30th June 2001	46,186	7,455	63,143	961	693	4,436	122,874

(a) The Group’s leasehold land and buildings are situated in Hong Kong under medium term leases. At 30th June 2002, all the leasehold land and buildings were pledged as securities for the Group’s bank loans (See also note 26).
(b) At 30th June 2002, net book value of machinery and equipment held by the Group under finance leases amounted to HK$31,270,000 (2001: HK$43,880,000).

– 40 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

12 FILM RIGHTS AND FILMS IN PROGRESS

Film rights HK$’000 Group Cost At 1st July 2001 441,460 Additions 95,713 Transfers 64,056 Write-off (44,428) At 30th June 2002 556,801 ------------- Accumulated amortisation and impairment At 1st July 2001 336,206 Charge for the year 132,326 Impairment loss 22,400 Write-off (43,486) At 30th June 2002 447,446 ------------- Net book value At 30th June 2002 109,355 At 30th June 2001 105,254 13 INVESTMENTS IN SUBSIDIARIES Unlisted shares, at cost Due from subsidiaries Due to subsidiaries	Films in progress HK$’000 24,357 55,167 (64,056) — 15,468 ------------- — — — — — ------------- 15,468 24,357 Company 2002 *HK$’000* 52,052 147,241 (75) 199,218	Films in progress HK$’000 24,357 55,167 (64,056) — 15,468 ------------- — — — — — ------------- 15,468 24,357 Company 2002 *HK$’000* 52,052 147,241 (75) 199,218	Total HK$’000 465,817 150,880 — (44,428) 572,269 ------------- 336,206 132,326 22,400 (43,486) 447,446 ------------- 124,823 129,611 2001 HK$’000 52,052 141,486 (71) 193,467

(a) Details of subsidiaries are set out in note 31 to the accounts.

(b) The amounts due from/to subsidiaries are unsecured and interest-free, except for an amount due from a subsidiary of HK$70,780,000 (2001: HK$74,460,000) which is interest bearing.

– 41 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

14 INVENTORIES

Raw materials Finished goods Less: provision for slow-moving inventories	Group 2002 2001 *HK$’000* HK$’000 3,850 1,811 19,046 22,043 22,896 23,854 (909) (396) 21,987 23,458	Group 2002 2001 *HK$’000* HK$’000 3,850 1,811 19,046 22,043 22,896 23,854 (909) (396) 21,987 23,458
		23,854 (396)
		23,458

15 ACCOUNTS RECEIVABLE

At 30th June 2002, the ageing analysis of the accounts receivable was as follows:

Current to 90 days 90 days to 180 days Over 180 days	Group 2002 2001 *HK$’000* HK$’000 16,660 23,428 556 3,562 6,166 4,331 23,382 31,321	Group 2002 2001 *HK$’000* HK$’000 16,660 23,428 556 3,562 6,166 4,331 23,382 31,321
		31,321

Sale of video products and provision of replication service are with credit terms of 7 days to 60 days. Sale from sub-licensing and film exhibition are on open account terms.

16 ACCOUNTS PAYABLE

At 30th June 2002, the ageing analysis of the accounts payable was as follows:

Current to 90 days 90 days to 180 days Over 180 days	Group 2002 2001 *HK$’000* HK$’000 5,688 6,058 1,638 1,883 6,917 7,593 14,243 15,534	Group 2002 2001 *HK$’000* HK$’000 5,688 6,058 1,638 1,883 6,917 7,593 14,243 15,534
		15,534

17 DUE TO THE ULTIMATE HOLDING COMPANY

The amount due is unsecured, interest-free and repayable on demand.

– 42 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

18 OBLIGATIONS UNDER FINANCE LEASES

At 30th June 2002, the Group’s obligations under finance leases were repayable as follows:

			Group
		2002	2001
		*HK$’000*	HK$’000
	Within one year	9,864	12,565
	In the second year	4,862	9,943
	In the third to fifth year	264	5,085
		14,990	27,593
	Future finance charges on obligations under finance leases	(430)	(1,773)
	Present value of obligations under finance leases	14,560	25,820
	The present value of obligations under finance leases is as follows:
	Within one year	9,496	11,445
		--------------	--------------
	In the second year	4,801	9,387
	In the third to fifth year	263	4,988
		5,064	14,375
		--------------	--------------
		14,560	25,820
19	SECURED BANK LOANS
			Group
		2002	2001
		*HK$’000*	HK$’000
	Trust receipt loans	—	3,909
	Bank loans, not wholly repayable within five years	21,100	25,643
		21,100	29,552
	At 30th June 2002, the above bank loans were repayable as follows:
			Group
		2002	2001
		*HK$’000*	HK$’000
	Within one year	4,815	8,149
		--------------	--------------
	In the second year	4,967	4,468
	In the third to fifth year	11,318	14,899
	After the fifth year	—	2,036
		16,285	21,403
		--------------	--------------
		21,100	29,552

For details of securities for the above banking facilities, please refer to note 26.

– 43 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

20 SHARE CAPITAL

Authorised: At 1st July Subdivision of 1 share into 5 shares (Note (a)) At 30th June Issued and fully paid: At 1st July Subdivision of 1 share into 5 shares (Note (a)) Issue of shares as scrip dividends_(Note (b))_ At 30th June	2002 No. of ordinary shares 5,000,000,000 — 5,000,000,000 952,976,616 — 3,426,964 956,403,580	Company 2001 No. of ordinary *HK$’000* shares 100,000 1,000,000,000 — 4,000,000,000 100,000 5,000,000,000 19,060 189,000,000 — 756,000,000 68 7,976,616 19,128 952,976,616	HK$’000 100,000 —
			100,000
			18,900 — 160
			19,060

(a) Pursuant to a shareholders’ resolution passed at the Special General Meeting of the Company on 27th November 2000, each of the existing issued and unissued shares of HK$0.1 of the Company was subdivided into five shares of HK$0.02 each.
(b) By an ordinary resolution passed at the Annual General Meeting of the Company held on 26th November 2001, a final dividend of HK0.3 cents per ordinary share was declared in the form of scrip dividend with option to receive such dividend wholly or partly thereof in cash in lieu of such allotment for the year ended 30th June 2001. On 7th January 2002, 3,426,964 shares of HK$0.02 each were issued at HK$0.512 per share as final scrip dividend. The excess over the par value of the shares issued was credited to the share premium account.

By an ordinary resolution passed at the Annual General Meeting of the company held on 27th November 2000, a final dividend of HK0.3 cents per ordinary share was declared in the form of scrip dividend with option to receive such dividend wholly or partly thereof in cash in lieu of such allotment for the year ended 30th June 2000. On 8th January 2001, 7,976,616 shares of HK$0.02 each were issued at HK$0.532 per share as final scrip dividend. The excess over the par value of the shares issued was credited to the share premium account.

– 44 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(c) Under a Share Option Scheme approved by the shareholders of the Company on 28th June 1999, the directors of the Company may, at their discretion, invite employees and executive directors of the Group, to take up options to subscribe for shares in the Company subject to the terms and conditions stipulated therein. Details of options outstanding as at 30th June 2002 are as follows:

	Number of	Number of	Number of
	options	options	options
	held at	cancelled	held at
	1st July	during	30th June	Exercise		Exercisable	Exercisable
	2001	the year	2002	price	Grant date	from	until
	’000	’000	’000	HK$
Directors:
Mr Lam Shiu Ming Daneil	22,500	—	22,500	0.4	19th June 2000	19th June 2000	18th June 2005
Ms Chiu Suet Ying	22,500	—	22,500	0.4	19th June 2000	19th June 2000	18th June 2005
Mr Yeung Kim Piu	6,000	—	6,000	0.5	19th June 2000	19th December 2000	18th June 2005
Continuous contract employees	16,500	(16,500)	—	0.5	19th June 2000	19th December 2000	18th June 2005
	10,450	(10,450)	—	0.5	19th June 2000	19th June 2001	18th June 2005
	2,500	(2,500)	—	0.5	19th June 2000	19th December 2001	18th June 2005

On 30th January 2002, all share options held by the continuous contract employees were surrendered and cancelled.

21 RESERVES

Group At 1st July 2000, as previously reported Effect of adopting SSAP 9 (Revised) At 1st July 2000, as restated Shares issued as scrip dividends (note 20 (b)) Profit attributable to shareholders 2000 final dividend paid At 30th June 2001 Representing: Retained earnings at 30th June 2001 2001 final dividend proposed_(Note 7)_ At 30th June 2001	Reserve Share arising on premium consolidation HK$’000 HK$’000 60,484 821 — — 60,484 821 4,084 — — — — — 64,568 821	Retained earnings HK$’000 115,384 5,670 121,054 — 40,188 (5,670) 155,572 155,572 (2,859) 152,713	Total HK$’000 176,689 5,670
			182,359 4,084 40,188 (5,670)
			220,961

– 45 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

At 1st July 2001, as previously reported Effect of adopting SSAP 9 (Revised) At 1st July 2001, as restated Shares issued as scrip dividends (note 20 (b)) Profit attributable to shareholders 2001 final dividend paid At 30th June 2002 Company At 1st July 2000, as previously reported Effect of adopting SSAP 9 (Revised) At 1st July 2000, as restated Shares issued as scrip dividends (note 20 (b)) Profit attributable to shareholders 2000 final dividend paid At 30th June 2001 Representing: Retained earnings at 30th June 2001 2001 final dividend proposed_(Note 7)_ At 30th June 2001	Reserve Share arising on premium consolidation HK$’000 HK$’000 64,568 821 — — 64,568 821 1,686 — — — — — 66,254 821 Share Contributed premium surplus HK$’000 HK$’000 60,484 51,852 — — 60,484 51,852 4,084 — — — — — 64,568 51,852	Retained earnings HK$’000 152,713 2,859 155,572 — 10,027 (2,859) 162,740 Retained earnings HK$’000 659 5,670 6,329 — 2,893 (5,670) 3,552 3,552 (2,859) 693	Total HK$’000 218,102 2,859 220,961 1,686 10,027 (2,859) 229,815 Total HK$’000 112,995 5,670 118,665 4,084 2,893 (5,670) 119,972

– 46 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

At 1st July 2001, as previously reported Effect of adopting SSAP 9 (Revised) At 1st July 2001, as restated Shares issued as scrip dividends (note 20 (b)) Profit attributable to shareholders 2001 final dividend paid At 30th June 2002	Share Contributed premium surplus HK$’000 HK$’000 64,568 51,852 — — 64,568 51,852 1,686 — — — — — 66,254 51,852	Retained earnings HK$’000 693 2,859 3,552 — 13 (2,859) 706	Total HK$’000 117,113 2,859 119,972 1,686 13 (2,859) 118,812

The contributed surplus of the Company represents the difference between the nominal value of the Company’s shares issued in exchange for the issued shares of Universe Films (Holdings) Limited and the value of net assets of the underlying subsidiaries acquired on 28th June 1999. Under the Companies Act of 1981 of Bermuda (as amended), the contributed surplus shall not be distributed to the shareholders if there are reasonable grounds for believing that:

(i) the Company is, or would after the payment be, unable to pay its liabilities as they become due; or

(ii) the realisable value of the Company’s assets would thereby be less than the aggregate of its liabilities and its issued share capital and share premium accounts.

At the Group level, the contributed surplus is reclassified into its components of reserves of the underlying subsidiaries.

22 CONVERTIBLE NOTES

CONVERTIBLE NOTES
	Group	and Company
	2002	2001
	*HK$’000*	HK$’000
Convertible notes	54,110	54,110

On 26th July 2000, the Company issued unsecured convertible notes in the aggregate principal amount of US$7,000,000 (the “Notes”). The Notes was issued by the Company to Multimedia Group Limited (a company wholly-owned by a fund under the management of HSBC Private Equity (Asia) Limited) (the “Noteholder”) for cash amounting to US$7,000,000. The Notes is interest-bearing at the rate of 2% per annum and can be converted into ordinary shares of HK$0.02 each of the Company at the conversion price of HK$0.51 per share during the period from 26th July 2000 to 25th July 2002.

Unless converted or redeemed earlier, all the Notes outstanding shall be redeemed by the Company on 25th July 2002. In addition to the principal amount outstanding and any accrued but unpaid interest under the Notes, the Company is required to pay an additional amount (the “Additional Interest”) calculated as provided in the conditions of the Notes which would give the Noteholder an 8% internal rate of return in the case of redemption of the Notes.

Interest expense, including the Additional Interest, in relation to such redemption and for the year ended 30th June 2002 amounted to HK$7,951,000. Subsequent to the year end date, the Notes has been redeemed by the Company on 25th July 2002.

– 47 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

23 OTHER LONG-TERM LIABILITIES

Bank loans_(note 19) Obligations under finance leases(note 18)_	Group 2002 2001 *HK$’000* HK$’000 16,285 21,403 5,064 14,375 21,349 35,778	Group 2002 2001 *HK$’000* HK$’000 16,285 21,403 5,064 14,375 21,349 35,778
		35,778

24 DEFERRED TAXATION

The movements in deferred taxation, arising from accelerated depreciation allowances, are as follows:

At 1st July Charge for the year_(note 5)_ At 30th June	Group 2002 2001 *HK$’000* HK$’000 5,068 2,023 603 3,045 5,671 5,068	Group 2002 2001 *HK$’000* HK$’000 5,068 2,023 603 3,045 5,671 5,068
		5,068

The potential deferred taxation liability/(asset) which is not expected to be crystallised in the foreseeable future and has not been provided for in these accounts amounts to:

Accelerated depreciation allowances Tax losses	2002 *HK$’000* 798 (941) (143)	2001 HK$’000 2,508 —
		2,508

– 48 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

25 NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT

(a) Reconciliation of profit before taxation to net cash inflow from operating activities

Profit before taxation
Depreciation of owned fixed assets
Depreciation of fixed assets held under finance leases
Interest income
Amortisation of film rights
Impairment losses of film rights
Write-off of film rights
Interest on bank loans and overdrafts
Interest element of convertible notes
Interest element of finance leases
Loss on disposal of fixed assets
(Increase)/decrease in film deposits
Provision for irrecoverable film deposits
Decrease/(increase) in inventories
Decrease in accounts receivable
(Increase)/decrease in deposits paid and prepayments
(Increase)/decrease in pledged bank deposit
(Decrease)/increase in accounts payable
Increase/(decrease) in other payables, deposits received,
accrued charges and amount due to the ultimate
holding company
Net cash inflow from operating activities

Group
2002
2001
HK$’000
HK$’000
14,865
49,939
11,979
12,458
12,910
11,584
(1,248)
(1,170)
132,326
123,907
22,400
—
942
932
925
2,673
7,951
1,004
916
2,896
16
33
(342)
1,552
1,865
—
1,471
(8,389)
7,939
412
(10,843)
923
(5,000)
2,000
(1,291)
2,783
18,816
(8,490)
216,597
195,047

(b) Analysis of changes in financing during the year

			2002					2001
	Share		Obligations			Share		Obligations
	capital		under			capital		under
	including	Bank	finance	Convertible		including	Bank	finance	Convertible
	premium	loans	leases	notes	Total	premium	loans	leases	notes	Total
	*HK$’000*	*HK$’000*	*HK$’000*	*HK$’000*	*HK$’000*	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
At 1st July	83,628	29,552	25,820	54,110	193,110	79,384	40,096	35,825	—	155,305
Issue of shares as
scrip dividends
(note 20(b))	1,754	—	—	—	1,754	4,244	—	—	—	4,244
Net cash (outflow)/
inflow from
financing	—	(8,452)	(11,560)	—	(20,012)	—	(10,544)	(10,942)	54,110	32,624
Inception of
finance leases	—	—	300	—	300	—	—	937	—	937
At 30th June	85,382	21,100	14,560	54,110	175,152	83,628	29,552	25,820	54,110	193,110

– 49 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

26 BANKING FACILITIES

As at 30th June 2002, banking facilities for approximately HK$102 million (2001: HK$91 million) were granted by banks to the Group, of which approximately HK$35 million (2001: HK$55 million) have been utilised by the Group, which were secured by the following:

(i) first legal charges over all properties held by the Group;
(ii) charge on time deposit of a subsidiary of the Company of HK$7 million (2001: HK$2 million); and
(iii) corporate guarantees given by the Company.

27 PENDING LITIGATIONS

On 17th April 2002, a Writ of Summons was issued against Universe Entertainment Limited (“UEL”), a wholly owned subsidiary of the Company, by a third party alleging a breach of contract by UEL and the third party claimed that it had sustained economic loss as a result of UEL’s breach.

On 30th April 2002, UEL issued a Writ of Summons against the third party above for the latter’s wrongful exploitation of certain rights in a film co-owned by both parties. UEL claimed to recover loss and damages suffered by UEL as a result of the wrongful exploitation.

Subsequent to 30th June 2002, Universe Laser & Video Co. Limited (“ULV”), a wholly owned subsidiary of the Company issued a Writ of Summons against the same third party for the latter’s infringement of the licensed rights in the film above held by ULV. ULV claimed to recover all loss and damages suffered by ULV as a result of the said infringement.

In the opinion of legal counsel, it is premature to predict the outcome of the above claims against UEL. However, the directors are of the opinion that even if the claims are to be upheld, there will be no material financial impact on the Group and consequently no provision has been made in these accounts.

28 COMMITMENTS

(a) Capital commitments

As at 30th June 2002, the Group had commitments contracted but not provided for in these accounts as follows:

Purchase of film rights	Group 2002 2001 *HK$’000* HK$’000 44,482 68,828

– 50 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(b) Commitments under operating leases

At 30th June 2002, the Group had future aggregate minimum lease payments under non-cancellable operating leases as follows:

Land and buildings Not later than one year Later than one year and not later than five years	Group 2002 2001 *HK$’000* HK$’000 108 — 72 — 180 —	Group 2002 2001 *HK$’000* HK$’000 108 — 72 — 180 —
		—

The Company did not have any commitments at 30th June 2002 (2001: Nil).

29 RELATED PARTY TRANSACTIONS

During the year ended 30th June 2002, Universe Laser & Video Co. Limited, a subsidiary of the Company, had paid rental on apartment leased for directors of HK$720,000 (2001: HK$720,000) to Mass Express Development Limited, a wholly owned company of Globalcrest Enterprises Limited.

Save as disclosed above, no other material related party transactions have been entered into by the Group. The directors are of the opinion that the above transactions were conducted on normal commercial terms in the ordinary and usual course of business.

30 SUBSEQUENT EVENT

On 5th September 2002, the Group purchased a property at a consideration of HK$13,500,000 which was financed by a mortgage loan and internal cash of HK$9,500,000 and HK$4,000,000 respectively.

31 SUBSIDIARIES

As at 30th June 2002, the Company held interests in the following subsidiaries:—

	Place of	Issued and	Percentage of	Percentage of
	incorporation/	fully paid up	equity held by
Name	operation	share capital	the Company		Principal activities
			Direct	Indirect
Universe Films (Holdings)	British Virgin	Ordinary	100	—	Investment holding
Limited	Islands/Hong	US$100
	Kong
Universe Laser & Video	Hong Kong	Ordinary	—	100	Distribution of films
Co. Limited		HK$1,000,000			in various formats and
					sub-licensing of film
					rights
Universe Films	Hong Kong	Ordinary	—	100	Sub-licensing of
Distribution Company		HK$2			film rights and film
Limited					exhibition

– 51 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

	Place of	Issued and	Percentage of	Percentage of
	incorporation/	fully paid up	equity held by
Name	operation	share capital	the Company		Principal activities
			Direct	Indirect
Universe Interactive	Hong Kong	Ordinary	—	100	Operation of a web site
Limited		HK$100
Universe Information	Hong Kong	Ordinary	—	100	Distribution of films
Technology Limited		HK$10,000			in various formats
		5% deferred
		HK$10,000
Simple Trading Company	Hong Kong	Ordinary	—	100	Inactive
Limited		HK$2
Universe Information &	Hong Kong	Ordinary	—	100	Inactive
Entertainment Limited		HK$2
Universe Industrial	Hong Kong	Ordinary	—	100	Leasing of machinery
Development Limited		HK$2			and equipment
Universe Optical Disk	Hong Kong	Ordinary	—	100	Manufacture of optical
Limited		HK$2			discs
Universe Management	Hong Kong	Ordinary	—	100	Provide management
Services Limited		HK$10,000			services for the Group
		5% deferred
		HK$10,000
Universe Entertainment	British Virgin	Ordinary	—	100	Investment in films
Limited	Islands/Hong	US$2			production
	Kong
Universe Pictures	British Virgin	Ordinary	—	100	Film acquisition agent
International Limited	Islands/Hong	US$2			for the Group
(Formerly known as	Kong
East Glory International
Group Ltd.)
Universe Property	Hong Kong	Ordinary	—	100	Properties holding
Investment Limited		HK$2
Universe (China)	Hong Kong	Ordinary	—	100	Inactive
Development Limited		HK$2
Globalink Advertising	Hong Kong	Ordinary	—	100	Advertising agent
Limited		HK$2			for the Group
Century Creator Company	Hong Kong	Ordinary	—	100	Investment in films
Limited		HK$2			production
Matrix Productions	Hong Kong	Ordinary	—	100	Investment in films
Company Limited		HK$2			production

– 52 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

	Place of	Issued and	Percentage of	Percentage of
	incorporation/	fully paid up	equity held by
Name	operation	share capital	the Company		Principal activities
			Direct	Indirect
Digital Programme	Hong Kong	Ordinary	—	100	Production of
Production Limited		HK$2			infotainment
					programme
Universe International	Hong Kong	Ordinary	—	100	Purchasing agent
Technology Limited		HK$2			for the Group
Universe Artiste	Hong Kong	Ordinary	—	100	Management of
Management Limited		HK$2			contracted artistes
(Formerly known as
Good Year Hong Kong
Limited)
Films Station Production	Hong Kong	Ordinary	—	100	Films production
Limited (Formerly known		HK$2
as Topline Shipping
Limited)
Universe Music Limited	Hong Kong	Ordinary	—	100	Inactive
		HK$2
Universe Films Limited	Hong Kong	Ordinary	—	100	Inactive
		HK$2

32 ULTIMATE HOLDING COMPANY

The directors regard Globalcrest Enterprises Limited, a company incorporated in the British Virgin Islands, as being the ultimate holding company of the Company.

– 53 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

4. UNAUDITED INTERIM RESULTS

The following is an extract from the unaudited consolidated interim report of the Group for the six months ended 31st December, 2002:

CONDENSED CONSOLIDATED PROFIT AND LOSS ACCOUNT

Note Turnover 2 Cost of sales Gross profit Other revenue Other operating income Selling expenses Administrative expenses Other operating expenses Operating profit 3 Finance costs Profit before taxation Taxation 5(a) Profit attributable to shareholders Dividends 6 Basic earnings per share (HK cents) 7 Fully diluted earnings per share (HK cents) 7	Unaudited For the six months ended 31st December 2002 2001 *HK$’000* HK$’000 158,444 160,440 (134,615) (114,716) 23,829 45,724 291 594 958 1,107 (2,328) (2,098) (15,154) (13,094) (1,765) (1,470) 5,831 30,763 (603) (1,685) 5,228 29,078 (1,097) (4,619) 4,131 24,459 — 2,859 0.43 2.57 N/A 2.33

– 54 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED BALANCE SHEET

Note Fixed assets 8 Film rights and films in progress 8 Current assets Film deposits Inventories Accounts receivable 9 Deposits paid and prepayments Pledged bank deposits Bank balances and cash Current liabilities Accounts payable 10 Other payables, deposit received and accrued charges Due to the ultimate holding company Obligations under finance leases 12 Taxation payable 5(b) Convertible notes 13 Secured bank loans 11 Net current assets Financed by: Share capital 14 Reserves Shareholders’ fund Non-current liabilities Other long-term liabilities 11 Deferred taxation	Unaudited At 31st December 2002 *HK$’000* 103,969 91,417 15,129 17,485 32,682 23,513 4,000 59,395 152,204 -------------- 16,467 31,823 82 8,726 2,717 — 6,165 65,980 -------------- 86,224 281,610 19,128 233,946 253,074 22,865 5,671 281,610	Audited At 30th June 2002 HK$’000 101,102 124,823 21,931 21,987 23,382 14,117 7,000 91,623
		180,040 -------------- 14,243 39,506 212 9,496 7,620 54,110 4,815
		130,002 -------------- 50,038
		275,963
		19,128 229,815
		248,943 21,349 5,671
		275,963

– 55 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

Net cash inflow from operating activities Net cash used in investing activities Net cash used in financing activities (Decrease)/increase in cash and cash equivalents Cash and cash equivalents at 30th June Cash and cash equivalents at 31st December	Unaudited Six months ended 31st December 2002 2001 *HK$’000* HK$’000 90,705 97,740 (70,909) (60,389) (52,024) (12,277) (32,228) 25,074 91,623 56,031 59,395 81,105

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

At 1st July 2002 Profit for the period At 31st December 2002 At 1st July 2001 Profit for the period 2001 Final Dividend declared At 31st December 2001			Unaudited		Total HK$’000 248,943 4,131 253,074 Total HK$’000 240,021 24,459 (2,859) 261,621
		Share capital HK$’000 19,128 — 19,128	Share Exchange premium difference HK$’000 HK$’000 66,254 821 — — 66,254 821 Unaudited	Retained earnings HK$’000 162,740 4,131 166,871
		Share capital HK$’000 19,060 — — 19,060	Share Exchange premium difference HK$’000 HK$’000 64,568 821 — — — — 64,568 821	Retained earnings HK$’000 155,572 24,459 (2,859) 177,172

– 56 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE ACCOUNTS

For the six months ended 31st December, 2002

1. Basis of preparation and principal accounting policies

These unaudited consolidated condensed financial statements are prepared in accordance with Hong Kong Statement of Standard Accounting Practice (“SSAP”) 25, Interim Financial Reporting, issued by the Hong Kong Society of Accountants (“HKSA”).

These condensed financial statements should be read in conjunction with the 2002 annual financial statements.

The accounting policies and methods of computation used in the preparation of these condensed financial statements are consistent with those used in the annual financial statements for the year ended 30th June 2002 except that the Group has changed certain of its accounting policies following its adoption of the following Statements of Standard Accounting Practice (SSAPs) issued by the HKSA which are effective for accounting periods commencing on or after 1st January 2002:

SSAP 1 (revised) : Presentation of financial statements SSAP 15 (revised) : Cash flow statements SSAP 25 (revised) : Interim financial reporting SSAP 34 : Employee benefits

The adoption of the above SSAPs does not have a material effect on the Group’s financial statements except for the changes in presentation resulting from the adoption of SSAP 1 (revised), SSAP 15 (revised) and SSAP 25 (revised).

2. Segment information

The Group is principally engaged in the distribution of films in various videogram formats, licensing and sub-licensing of film rights, film exhibition and leasing of property and machinery for replication of optical discs.

The Group is organised into three segments:

Distribution of films in various videogram formats and replication of optical discs
Licensing, sub-licensing of film rights and film exhibition
Leasing of property and machinery for replication of optical discs.

The Group’s inter-segment transactions mainly consist of licensing of film rights, which are transferred at cost.

– 57 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

An analysis of the Group’s turnover and results for the period by business segments is as follows:—

Unaudited
6 months ended 31st December 2002
HK$’000
Rental
Sale of
Licensing,
income
goods and
sub-licensing
from
replication
of film rights
property
of optical
and film
and
discs
exhibition
machinery
Elimination
Turnover
External sales
117,963
39,139
1,342
—
Inter-segment sales
—
10,178
—
(10,178)
117,963
49,317
1,342
(10,178)
Segment results
3,758
1,813
(31)
Other revenue
Finance costs
Profit before taxation
Taxation
Profit attributable
to shareholders

Group
158,444
—
158,444
5,540
291
(603)
5,228
(1,097)
4,131

Due to keen price competition within the industry of replication of optical discs, the Group disposed its replication business and leased its replication machinery and property to a third party starting from 1st December 2002, in order to achieve a better allocation of the Group’s resources and secure a stable rental income.

– 58 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Unaudited
6 months ended 31st December 2001
HK$’000
Rental
Sale of
Licensing,
income
goods and
sub-licensing
from
replication
of film rights
property
of optical
and film
and
discs
exhibition
machinery
Elimination
Turnover
External sales
115,877
44,563
—
—
Inter-segment sales
—
4,001
—
(4,001)
115,877
48,564
—
(4,001)
Segment results
22,147
8,022
—
Other revenue
Finance costs
Profit before taxation
Taxation
Profit attributable
to shareholders

Group
160,440
—
160,440
30,169
594
(1,685)
29,078
(4,619)
24,459

Distribution of films in various videogram formats, replication of optical discs and leasing of property and machinery are solely operated in Hong Kong and Macau, while the Group operates its licensing, sublicensing of films and film exhibition in five main geographical areas.

An analysis of the Group’s turnover and contribution to operating profit for the period by geographical segments is as follows:—

Geographical segment : Hong Kong and Macau Asia (other than Hong Kong and Macau) North America Others Other revenue Operating profit	Unaudited Turnover 6 months ended 31st December 2002 2001 *HK$’000* HK$’000 149,832 143,837 7,347 8,568 1,165 7,930 100 105 158,444 160,440	Unaudited Operating profit 6 months ended 31st December 2002 2001 *HK$’000* HK$’000 4,485 26,590 854 2,434 190 1,087 11 58 5,540 30,169 291 594 5,831 30,763

– 59 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

3. Operating profit

Operating profit is stated after crediting and charging the following:

Crediting Interest income Charging Depreciation: — owned fixed assets — leased fixed assets Cost of inventories sold Write-off of film rights Amortisation of film rights Loss on disposal of fixed assets	Unaudited 6 months ended 31st December 2002 2001 *HK$’000* HK$’000 291 594 6,452 6,452 5,850 6,037 36,675 37,915 260 — 88,389 70,623 196 5	Unaudited 6 months ended 31st December 2002 2001 *HK$’000* HK$’000 291 594 6,452 6,452 5,850 6,037 36,675 37,915 260 — 88,389 70,623 196 5
		6,452 6,037 37,915 — 70,623 5

4. Staff costs

Wages and salaries Pension costs - defined contribution plans	Unaudited 6 months ended 31st December 2002 2001 *HK$’000* HK$’000 15,950 15,604 247 252 16,197 15,856	Unaudited 6 months ended 31st December 2002 2001 *HK$’000* HK$’000 15,950 15,604 247 252 16,197 15,856
		15,856

5. Taxation

(a) Hong Kong profits tax has been provided at the rate of 16% (2001: 16%) on the estimated assessable profits for the period.

(b) Taxation in the consolidated balance sheet represents the amount of Hong Kong profits tax provided at the rate of 16% (2001: 16%) on the estimated assessable profit for the current period and previous years less the amount of provisional tax paid.

– 60 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

6. Dividends

Final dividend, declared, of nil (2001: HK 0.3 cents) per ordinary share	Unaudited 6 months ended 31st December 2002 2001 *HK$’000* HK$’000 — 2,859

7. Earnings per share

The calculation of basic earnings per share is based on the profit for the period attributable to shareholders of approximately HK$4,131,000 (2001: HK$24,459,000) and the weighted average of 956,403,580 (2001: 952,976,616) ordinary shares in issue during the period.

The diluted earnings per share for the period was not shown as there was no dilution effect after taking into account of all potential ordinary shares under the share option scheme.

8. Capital expenditure

Opening net book amount Additions Disposals Amortisation charge/depreciation_(note 3)_ Written off Closing net book amount	Unaudited 6 months ended 31st December 2002 Film rights and films Fixed in progress assets *HK$’000* *HK$’000* 124,823 101,102 55,243 15,550 — (381) (88,389) (12,302) (260) — 91,417 103,969	Unaudited 6 months ended 31st December 2002 Film rights and films Fixed in progress assets *HK$’000* *HK$’000* 124,823 101,102 55,243 15,550 — (381) (88,389) (12,302) (260) — 91,417 103,969
		103,969

The Group purchased a property at a consideration of HK$13,500,000 during the period.

– 61 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

9. Accounts receivable

At 31st December 2002, the ageing analysis of the accounts receivable was as follows:—

Unaudited 31st December 2002 *HK$’000* Current to 90 days 25,713 90 to 180 days 3,730 Over 180 days 3,239 32,682	Audited 30th June 2002 HK$’000 16,660 556 6,166
	23,382

Sales from licensing and sub-licensing of film rights and film exhibition are on open account terms. The sale of video products and other services are with credit terms of 7 days to 60 days.

10. Accounts payable

At 31st December 2002, the ageing analysis of the accounts payable was as follows:—

Unaudited 31st December 2002 *HK$’000* Current to 90 days 7,624 90 to 180 days 1,250 Over 180 days 7,593 16,467	Audited 30th June 2002 HK$’000 5,688 1,638 6,917
	14,243

11. Other long-term liabilities

Unaudited 31st December 2002 *HK$’000* Secured bank loans 27,902 Obligations under finance leases_(note 12)_ 9,854 37,756 Current portion of long-term liabilities (14,891) 22,865	Audited 30th June 2002 HK$’000 21,100 14,560
	35,660 (14,311)
	21,349

– 62 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

At 31st December 2002, the Group’s bank loans (excluding obligations under finance leases) were repayable as follows:


	Unaudited	Audited
	31st December	30th June
	2002	2002
	*HK$’000*	HK$’000
Within one year	6,165	4,815
In the second year	6,348	4,967
In the third to fifth year	12,848	11,318
After the fifth year	2,541	—
	27,902	21,100

12. Obligations under finance leases

Unaudited 31st December 2002 *HK$’000* Within one year 8,912 In the second year 988 In the third to fifth year 150 10,050 Future finance charges on finance leases (196) Present value of obligations under finance leases 9,854 The present value of obligations under finance leases is as follows: Within one year 8,726 In the second year 978 In the third to fifth year 150 9,854	Audited 30th June 2002 HK$’000 9,864 4,862 264
	14,990 (430)
	14,560
	9,496 4,801 263
	14,560

13. Convertible notes

On 25th July 2002, the Company had redeemed the Notes with funding from internal resources.

– 63 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

14. Share capital

At 1st July 2002 and 31st December 2002 At 1st July 2002 and 31st December 2002	Authorised Ordinary shares	Authorised Ordinary shares
	No. of shares HK$’000 5,000,000,000 100,000 Issued and fully paid Ordinary shares	HK$’000 100,000
	No. of shares HK$’000 956,403,580 19,128

15. Commitments

(a) Commitments under operating leases

At 31st December 2002, the Group had total future aggregate minimum lease payments under noncancellable operating leases in respect of land and buildings as follows:

Unaudited 31st December 2002 *HK$’000* Within one year 120 In the second to fifth inclusive — 120	Audited 30th June 2002 HK$’000 108 72
	180

(b) Other commitments

At 31st December 2002, the Group had commitments contracted but not provided for in these accounts as follows:

Unaudited 31st December 2002 *HK$’000* Purchase of film rights/film productions 28,591	Audited 30th June 2002 HK$’000 44,482

– 64 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

16. Contingent liabilities

Pending litigations

On 9th September 2002, Universe Laser & Video Co. Limited (“ULV”), a wholly owned subsidiary of the Company issued a Writ of Summons against the same third party for the latter’s infringement of the licensed rights in the film above held by ULV. ULV claimed to recover all loss and damages suffered by ULV as a result of said infringement.

Save as above disclosed, the Group did not have material contingent liabilities as at 31st December 2002.

17. Related party transactions

There is no material related party transaction undertaken by the Group at any time of during the six months ended 31st December 2002.

– 65 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

5. STATEMENT OF PRO FORMA UNAUDITED ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS

The following statement of pro forma unaudited adjusted consolidated net tangible assets of the Group is based on the audited consolidated net assets of the Group as at 30th June, 2002, the unaudited profit of the Group for the six months ended 31st December, 2002 and adjustments to reflect the effect of the Rights Issue:

Audited consolidated net assets of the Group as at 30th June, 2002
Add:
Unaudited profit for the six months ended 31st December, 2002
Less:
Film rights and films in progress as at 31st December, 2002
Pro forma unaudited adjusted consolidated net tangible assets
of the Group before Rights Issue_(Note)
Add:
Estimated net proceeds from the Rights Issue
Pro forma unaudited adjusted consolidated net tangible assets
of the Group after Rights Issue(Note)_
Pro forma unaudited adjusted consolidated net tangible
assets value per Share before Rights Issue
(Based on 956,403,580 Shares in issue before the Rights Issue)
Pro forma unaudited adjusted consolidated net tangible
assets value per Share after Rights Issue
(Based on 956,403,580 Shares in issue
and 478,201,790 Rights Shares to be issued
pursuant to the Rights Issue)

HK$’000
248,943
4,131
(91,417)
161,657
37,700
199,357
HK$0.169
HK$0.139

Note: The Directors announced on 7th August, 2003 that the Group will record an operating loss for the year ended 30th June, 2003. Details of the announcement are set out on page 19 of this prospectus. Given the Company is presently unable to quantify the operating loss for the year ended 30th June, 2003, such operating loss figure has not been taken into account in the pro forma unaudited adjusted consolidated net tangible assets of the Group before and after the Rights Issue.

– 66 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

6. INDEBTEDNESS

At the close of business on 30th June, 2003, being the latest practicable date for the purpose of ascertaining certain information relating to this indebtedness statement, the Group had outstanding borrowings of approximately HK$29.9 million, comprising long term bank loans of approximately HK$18.6 million, short term bank loans of approximately HK$6.2 million, and obligation under finance lease of approximately HK$5.1 million. Bank loans totalling HK$24.8 million are secured by legal charges over the Group’s properties with carrying amount of approximately HK$58.3 million as at 30th June, 2003 and also secured by corporate guarantee from the Company.

Save as aforesaid and apart from the contingent liabilities in respect of the litigation as set out on page 73 of this prospectus, the Group did not have, at the close of business on 30th June, 2003, any loan capital issued and outstanding or agreed to be issued, bank overdrafts, loans or other similar indebtedness, liabilities under acceptances or acceptance credits, debentures, mortgages, charges, hire purchase commitments, guarantees, or other material contingent liabilities.

7. MATERIAL CHANGE

Except for material adverse changes from the reduction in turnover and the operating loss for the year ended 30th June, 2003 as disclosed in the announcement of the Company dated 7th August, 2003 which was restated in the section headed “Business Review and Future Prospects of the Group” on page 19 in this prospectus, the Directors are not aware of any other material adverse change in the financial or trading position of the Group since 30th June, 2002, being the date to which the latest published audited consolidated accounts of the Group were made up.

8. WORKING CAPITAL

Based on the audited financial statements of the Group for the year ended 30th June, 2002, the net current assets of the Group as at 30th June, 2002 was approximately HK$50.04 million.

As at the Latest Practicable Date, after taking into account the existing banking facilities, the internal resources of the Group and the estimated net proceeds of the Rights Issue of approximately HK$37.7 million, the Directors are of the opinion that the Group has sufficient working capital for its present requirements.

– 67 –

GENERAL INFORMATION

APPENDIX II

RESPONSIBILITY STATEMENTS

This prospectus 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 the full responsibility for the accuracy of the information contained in this prospectus 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.

PARTICULARS OF DIRECTORS

Name	Residential Address	Nationality
Lam Shiu Ming, Daneil	House No.1, 7th Street	Chinese
	Hong Lok Yuen
	Tai Po
	New Territories
	Hong Kong
Chiu Suet Ying	House No.1, 7th Street	Chinese
	Hong Lok Yuen
	Tai Po
	New Territories
	Hong Kong
Ng Kwok Tung*	24B, La Vogue Court	Canadian
	29-31 Village Road
	Happy Valley
	Hong Kong
Chiu Shin Koi*	Flat 3E	Australian
	27 Broadcast Drive
	Kowloon
	Hong Kong

* Independent Non-executive Directors

(b) Qualifications

Executive Directors

Mr. LAM Shiu Ming, Daneil, aged 41, is the founder, Chairman and Managing Director of the Group. He is involved in marketing, corporate strategy, business planning and development and overall management of the Group. Mr. Lam has 21 years’ experience in the home video entertainment industry in Hong Kong.

Ms. CHIU Suet Ying, aged 41, is responsible for the formulation of sales and marketing strategies. She is the wife of Mr. Lam Shiu Ming, Daneil.

– 68 –

GENERAL INFORMATION

APPENDIX II

Independent Non-executive Directors

Mr. NG Kwok Tung, aged 53, is a practising accountant. He holds a Bachelor of Commerce degree and a licentiate in accountancy from McGill University, Canada and a diploma in Chinese law from the University of East Asia, Macau. He is a member of the Hong Kong Society of Accountants, the Institute of Chartered Accountants of British Columbia, the Order of Chartered Accountants of Quebec, the Canadian Institute of Chartered Accountants and the Taxation Institute of Hong Kong. He was appointed as an independent non-executive Director in 1999.

Mr. CHIU Shin Koi, aged 67, is a tax consultant in a certified public accountant firm in Hong Kong. He worked for the Inland Revenue Department for over 17 years. After retirement from the Hong Kong government, Mr. Chiu joined an international accounting firm. From June 1988 to February 1990, Mr. Chiu was the financial controller of a large organization. Mr. Chiu later worked at a regulatory authority in Hong Kong from March 1991 to March 1993. He is a fellow member of the Hong Kong Society of Accountants and a fellow member of the Taxation Institute of Hong Kong. He was appointed as an independent non-executive Director in 2002.

PARTIES INVOLVED IN THE RIGHTS ISSUE AND CORPORATE INFORMATION

Registered office Clarendon House 2 Church Street Hamilton HM 11 Bermuda Head office and principle place of 18th Floor business in Hong Kong Wyler Centre Phase II 192-200 Tai Lin Pai Road Kwai Chung New Territories Hong Kong Authorised representatives Lam Shiu Ming, Daneil Chan Hau Chuen Company secretary Chan Hau Chuen, FCCA, AHKSA Auditors PricewaterhouseCoopers Certified Public Accountants 22nd Floor Prince’s Building Central Hong Kong Underwriter Globalcrest Enterprises Limited P.O. Box 116 Road Town Tortola British Virgin Islands

– 69 –

GENERAL INFORMATION

APPENDIX II

Legal advisers


Legal advisers	As to Hong Kong Law:
	So Keung Yip & Sin
	17th Floor
	Standard Chartered Bank Building
	4 Des Voeux Road Central
	Hong Kong
	As to Bermuda law:
	Conyers Dill & Pearman
	2901, One Exchange Square
	8 Connaught Place
	Central
	Hong Kong
Principal share registrar and	The Bank of Bermuda Limited
transfer office in Bermuda	Bank of Bermuda Building
	6 Front Street
	Hamilton HM 11
	Bermuda
Hong Kong branch share registrar	Abacus Share Registrars Limited
and transfer office	Ground Floor
	Bank of East Asia Harbour View Centre
	56 Gloucester Road
	Wanchai
	Hong Kong
Principal bankers	The Hongkong and Shanghai Banking Corporation Limited
	HSBC Building Tsim Sha Tsui
	82-84 Nathan Road
	Tsim Sha Tsui
	Kowloon
	Hong Kong
	Wing Hang Bank, Limited
	161 Queen’s Road Central
	Hong Kong
	Liu Chong Hing Bank Limited
	Ground Floor
	New World Tower
	16-18 Queen’s Road Central
	Hong Kong
	Citic Ka Wah Bank Limited
	232 Des Voeux Road Central
	Hong Kong

– 70 –

GENERAL INFORMATION

APPENDIX II

DISCLOSURE OF DIRECTORS’ INTERESTS

(a) 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 Sections 341, 342 and 343 of the SFO (including interests which any such Director was taken to have under Sections 344 and 345 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 (the “Model Code”) were as follows:

		Number of	Percentage of
Name of Director	Nature of interest	Shares held	Shareholding
Lam Shiu Ming, Daneil	Founder of a	576,754,470	60.3 per cent.
	discretionary trust
	(Note)

Note: The trustee of the discretionary trust is Central Core Resources Limited which owns the entire issued share capital of the Major Shareholder which in turn is interested in 576,754,470 Shares.

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 where were required to be notified to the Company and the Stock Exchange pursuant to Sections 341, 342 and 343 of the SFO (including interests which they were deemed or taken to have under Sections 344 and 345 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) None of the Directors has, or has had, any direct or indirect interest in any assets which have been acquired, disposed of by or leased to or which are proposed to be acquired, disposed of by or leased to, any member of the Group.
(c) None of the Directors is materially interested in any contract or arrangement subsisting at the date of this prospectus which is significant in relation to the business of the Group taken as a whole.

– 71 –

GENERAL INFORMATION

APPENDIX II

SUBSTANTIAL SHAREHOLDERS’ INTERESTS

As at the Latest Practicable Date, in accordance with the register kept by the Company under Section 336 of the SFO, the following persons were interested in the issued share capital of the Company (including short positions) representing 5 per cent. or more of the issued share capital of the Company:

the Company:
		Percentage of
		Shareholding
Name	Number of Shares held	(approximately)
The Major Shareholder_(Note)_	576,754,470	60.3 per cent.
Central Core Resources Limited_(Note)_	576,754,470	60.3 per cent.
Pan Asia Special Opportunities Fund	83,464,285	8.73 per cent.

Note: The entire issued share capital of the Major Shareholder is held by Central Core Resources Limited, the trustee of a discretionary trust under which certain immediate family members of Mr. Lam and Ms. Chiu are discretionary objects.

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 Divisions 2 and 3 of Part XV of the SFO, or was, directly or indirectly, interested in 10 per cent. or more of the nominal value of the issued share capital carrying rights to vote in all circumstances at general meeting of any other member of the Group.

SERVICE CONTRACT

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contract with any member of the Group (other than contracts expiring or determinable by the Group within one year without payment of compensation, other than statutory compensation).

MATERIAL CONTRACTS

The following contracts are contracts that are or may be material, not being contracts entered into during the ordinary course of business, and have been entered into by the Company or its subsidiaries within two years preceding the date of this prospectus:

(a) agreement for the sale and purchase dated 17th August, 2002 entered into between White Cloud Limited, an independent third party, and Universe Property Investment Limited, a wholly-owned subsidiary of the Company, in respect of the sale and purchase of All That 20th Floor (for use by the Group as warehouse) and All That Parking Spaces Nos. P1 and P26 on the 2nd Floor of Wyler Centre Phase II, 192-200 Tai Lin Pai Road, Kwai Chung, New Territories, Hong Kong (the “Property”) at a consideration of HK$13,500,000;
(b) assignment dated 5th September, 2002 entered into between White Cloud Limited and Universe Property Investment Limited in respect of the Property; and
(c) the Underwriting Agreement.

– 72 –

GENERAL INFORMATION

APPENDIX II

LITIGATION

(a) breach of a production agreement dated 23rd August, 2000 made between UEL and Star in respect of the Movie; and
(b) passing off of the goodwill and title of the Movie, that is, up to this stage known to UEL, by having licenced some third parties to publish comic books and manufacture computer games entitled “Shaolin Soccer ��” without the consent of UEL.

As at the Latest Practicable Date, the Directors however believe that it is not practicable to assess the outcome of the Pending Claim.

– 73 –

GENERAL INFORMATION

APPENDIX II

EXPENSES

The expenses in connection with the Rights Issue, including the documentation fee, financial advisory fee, printing, registration, translation, legal and accounting charges are estimated to amount to approximately HK$600,000 and are payable by the Company.

LEGAL EFFECT

The Prospectus Documents, and all acceptances of any offer or application contained in such documents, are governed by and shall be construed in accordance with the laws of Hong Kong. Where an acceptance or application is made in pursuance of any such documents, the relevant document(s) shall have the effect of rendering all persons concerned bound by all of the provisions (other than the penal provisions) of sections 44A and 44B of the Companies Ordinance, so far as applicable.

DOCUMENTS REGISTERED/FILED WITH THE REGISTRAR OF COMPANIES IN HONG KONG AND BERMUDA

A copy of each of the Prospectus Documents have been registered with the Registrar of Companies in Hong Kong pursuant to Section 342C of the Companies Ordinance and have been filed with the Registrar of Companies in Bermuda pursuant to the Companies Act.

GENERAL

(i) As at the Latest Practicable Date, no share or loan capital of the Company or of any of its subsidiaries is under option or is agreed conditionally or unconditionally to be subject to option.
(ii) Save as disclosed on page 52 of the annual report of the Company for the year ended 30th June, 2002 as regard the deferred shares in each of Universe Information Technology Limited and Universe Management Services Limited, there are no founder, management or deferred shares in the Company or any of its subsidiaries.
(iii) The English text of the Prospectus Documents shall prevail over the Chinese text of such documents.

DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours at the offices of So Keung Yip & Sin at 17th Floor, Standard Chartered Bank Building, 4 Des Voeux Road Central, Hong Kong, up to and including 2nd September, 2003:

(a) the memorandum of association and bye-laws of the Company;
(b) the annual reports of the Company for the two years ended 30th June, 2002;
(c) the interim report of the Company for the six months ended 31st December, 2002; and
(d) the material contracts referred to in section headed “Material Contracts” in this Appendix.

– 74 –

AI assistant

Sinopec Engineering Group Co Ltd. — Capital/Financing Update 2003

14896_rns_2003-08-28_c85ce2bb-8bb7-4f75-b158-6b69b9de8402.pdf

THIS PROSPECTUS IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

���������� [*] UNIVERSE INTERNATIONAL HOLDINGS LIMITED

RIGHTS ISSUE OF

478,201,790 RIGHTS SHARES

OF HK$0.02 EACH ON THE BASIS OF ONE RIGHTS SHARE FOR EVERY TWO SHARES HELD ON THE RECORD DATE AT HK$0.08 PER RIGHTS SHARE PAYABLE IN FULL ON ACCEPTANCE

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

EXPECTED TIMETABLE

���������� [*] UNIVERSE INTERNATIONAL HOLDINGS LIMITED

RIGHTS ISSUE OF

INTRODUCTION

LETTER FROM THE BOARD

RIGHTS ISSUE

Issue statistics

Qualifying Shareholders

TERMS OF THE RIGHTS ISSUE

Subscription price

Status of the Rights Shares

Rights of the Non-Qualifying Shareholders

LETTER FROM THE BOARD

Fractions of Rights Shares

UNDERWRITING ARRANGEMENT

Undertakings from the Major Shareholder

Underwriting Agreement

LETTER FROM THE BOARD

Termination of the Underwriting Agreement

Conditions of the Underwriting Agreement

PERMISSION OF THE BMA

LISTINGS AND DEALINGS

WARNING OF THE RISK OF DEALING IN SHARES AND RIGHTS SHARES

LETTER FROM THE BOARD

REASONS FOR THE RIGHTS ISSUE AND USE OF PROCEEDS

PROCEDURE FOR ACCEPTANCE AND/OR TRANSFER OF THE RIGHTS SHARES

LETTER FROM THE BOARD

APPLICATION FOR EXCESS RIGHTS SHARES

LETTER FROM THE BOARD

CERTIFICATES AND REFUND CHEQUES FOR THE RIGHTS SHARES

LETTER FROM THE BOARD

BUSINESS REVIEW AND FUTURE PROSPECTS OF THE GROUP

LETTER FROM THE BOARD

LITIGATION

LETTER FROM THE BOARD

ADDITIONAL INFORMATION

1. SHARE CAPITAL

2. SUMMARY OF FINANCIAL INFORMATION

RESULTS

3. FINANCIAL INFORMATION

CONSOLIDATED PROFIT AND LOSS ACCOUNT

CONSOLIDATED BALANCE SHEET

BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

NOTES TO THE ACCOUNTS

1 PRINCIPAL ACCOUNTING POLICIES

(a) Basis of preparation

(b) Consolidation

APPENDIX I

(c) Fixed assets

(ii) Operating leases

(d) Inventories

(e) Film rights and films in progress

(f)

Film deposits

(g) Accounts receivable

(h) Cash and cash equivalents

(i) Provisions

(j) Contingent liabilities

(k) Deferred taxation

(l) Translation of foreign currencies

APPENDIX I

(m) Revenue recognition

(n) Segment reporting

(o) Dividends

2 TURNOVER, REVENUES AND SEGMENT INFORMATION

Primary reporting format — business segments

Secondary reporting format — geographical segments

Sinopec Engineering Group Co Ltd. Capital/Financing Update 2003

�� **[*] UNIVERSE INTERNATIONAL HOLDINGS LIMITED**

�� **[*] UNIVERSE INTERNATIONAL HOLDINGS LIMITED**