Talent Property Group Limited - Proxy Solicitation & Information Statement 2006

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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

If you have sold or transferred all your shares in Tomorrow International Holdings Limited (the “Company”), you should at once hand this circular and the accompanying form of proxy to the purchaser or transferee or to the bank, licensed securities dealer or other agents through whom the sale or transfer was effected for transmission to the purchaser or transferee.

This circular is addressed to the shareholders of the Company for information in connection with the special general meeting of the Company to be held on 30 May 2006. This circular is not and does not constitute an offer of, nor is it intended to invite offers for, securities of the Company.

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Tomorrow International Holdings Limited

(incorporated in Bermuda with limited liability)

(Stock Code: 760)

(1) PROPOSED OPEN OFFER OF 357,585,805 NEW SHARES

ON THE BASIS OF 5 OFFER SHARES FOR EVERY 4 EXISTING SHARES HELD WITH 5 BONUS SHARES FOR EVERY 7 FULLY-PAID OFFER SHARES;

(2) PROPOSED AMENDMENT TO THE BYE-LAWS OF THE COMPANY;

(3) PROPOSED SHARE CONSOLIDATION;

(4) CONNECTED TRANSACTION

Underwriter

Winspark Venture Limited

Independent financial adviser

to the Independent Board Committee and the Independent Shareholders

Barits Securities (Hong Kong) Limited

It should be noted that the Shares will be dealt in on an ex-entitlements basis from Friday, 19 May 2006. If the conditions of the Open Offer are not fulfilled or the Underwriting Agreement is terminated by the Underwriter, the Open Offer will not proceed. Any dealing in Shares will accordingly bear the risk that the Open Offer may not become unconditional or may not proceed.

A notice convening a special general meeting of the Company to be held at Unit 903–906, 9th Floor, Tower 1, Harbour Centre, 1 Hok Cheung Street, Hunghom, Kowloon, Hong Kong at 11:00 a.m. on Tuesday, 30 May 2006 is set out on pages 136 to 140 of this circular. Whether or not you are able to attend the meeting in person, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon and deposit it with the branch share registrar, Computershare Hong Kong Investor Services Limited, Shop 1712–1716, 17/F., Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not later than 48 hours before the time appointed for holding the meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting or any adjournment thereof should you so wish.

A letter from the Board is set out on pages 9 to 30 of this circular. A letter from the Independent Board Committee is set out on page 31 of this circular. A letter of advice from Barits, the independent financial adviser to the Independent Board Committee and the Independent Shareholders is set out on pages 32 to 68 of this circular.

It should be noted that the Underwriting Agreement contains provisions entitling the Underwriter, by notice in writing, to terminate the obligations of the Underwriter at any time prior to 4:00 p.m. on the third business day following the Final Acceptance Date, if in the absolute opinion of the Underwriter (a) the success of the Open Offer would be materially and 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 in the absolute opinion of the Underwriter materially and adversely affect the business or the financial or trading position or prospects of the Group as a whole or is materially adverse in the context of the Open Offer; or (ii) the occurrence of any local, national or international event or change (whether or not forming part of a series of events or changes occurring or continuing before, and/or after the date hereof) of a political, military, financial, economic, currency or other nature (whether or not ejusdem generis with any of the foregoing), or in the nature of any local, national or international outbreak or escalation of hostilities or armed conflict; or affecting local securities market which may, in the absolute opinion of the Underwriter materially and adversely affects the business or the financial or trading position or prospects of the Group as a whole or materially and adversely prejudices the success of the Open Offer or otherwise makes it inexpedient or inadvisable to proceed with the Open Offer; or (iii) any material adverse change in the financial position of the Group as a whole; or (iv) any act of God, war, riot, public disorder, civil commotion, fire, flood, explosion, epidemic or threatened epidemic, terrorism, strike or lock-out; or (b) any material adverse change in market conditions (including without limitation, a change in fiscal or monetary policy, or foreign exchange or currency markets, suspension or restriction of trading in securities) occurs which in the reasonable opinion of the Underwriter is likely to materially and adversely affect the success of the Open Offer or otherwise makes it inexpedient or inadvisable to proceed with the Open Offer. Upon the giving of the notice of termination, all obligations of the Underwriter 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.

28 April 2006

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Expected timetable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Termination of the Underwriting Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . .	31
Letter from Barits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	32
Appendix I – Financial information on the Group . . . . . . . . . . . . . . . . . . . . . . .	69
Appendix II – Unaudited Pro Forma Financial Information . . . . . . . . . . . . . . . .	123
Appendix III – General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	126
Notice of SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	136

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DEFINITIONS

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

“Amendment of the Bye-laws” the proposed amendment to bye-law 148 of the Bye-laws to allow distribution to Shareholders on a non pro-rata basis
“Announcement” the announcement of the Company dated 8 March 2006 relating to, inter alia, the Open Offer, the Bonus Issue, the Share Consolidation and the Amendment of the Bye-laws
“associates” has the meaning ascribed to it under the Listing Rules
“Barits” Barits Securities (Hong Kong) Limited, a licensed corporation to conduct type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO, which is not a connected person (as defined in the Listing Rules) of the Company and is appointed as the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Underwriting Agreement, the Open Offer and the Bonus Issue
“Board” the board of the Directors
“Bonus Issue” the proposed issue of the Bonus Shares on the basis of 5 Bonus Shares for every 7 fully-paid Offer Share issued
“Bonus Shares” the new Shares to be issued to the subscribers of the Offer Shares, credited as fully-paid, pursuant to the Bonus Issue
“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 morning 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
“Bye-laws” bye-laws of the Company
“CCASS” the Central Clearing and Settlement System established and operated by HKSCC
“Companies Act” the Companies Act 1981 of Bermuda

– 1 –

DEFINITIONS

“Companies Ordinance” the Companies Ordinance (Chapter 32 of the Laws of Hong Kong)
“Company” Tomorrow International Holdings Limited, a company incorporated in Bermuda with limited liability, the shares of which are listed on the Stock Exchange
“concert parties” in respect of a person, means parties acting in concert (as defined in the Takeovers Code) with such person in relation to the voting rights of the Shares or the Offer Shares
“Consolidated Share(s)” new ordinary share(s) of HK$0.04 each in the capital of the Company upon the Share Consolidation becoming effective
“controlling shareholder(s)” has the meaning ascribed to it under the Listing Rules
“Director(s)” the director(s) of the Company
“Final Acceptance Date” 15 June 2006 or such other date as may be agreed between the Company and the Underwriter and described as the latest time for acceptance and payment in respect of provisional allotments under the Open Offer
“Group” the Company and its subsidiaries
“HKSCC” the Hong Kong Securities Clearing Company Limited
“Hong Kong” the Hong Kong Special Administrative Region of the PRC
“Independent Board Committee” an independent board committee comprising the three independent non-executive Directors, namely Mr. Ng Wai Hung, Mr. Cheung Chung Leung, Richard and Mr. Wu Wang Li
“Independent Shareholders” Shareholders other than those who are required by the Listing Rules or the Stock Exchange to abstain from voting in respect of the resolutions to approve the Open Offer, the Bonus Issue and the Underwriting Agreement
“Last Trading Date” 27 February 2006, being the last trading day which was immediately prior to the suspension of trading in the Shares on the Stock Exchange pending the release of the Announcement

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DEFINITIONS

“Latest Practicable Date”
26 April 2006, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information contained herein
“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange
“Long Stop Date”
30 June 2006, or such other date as may be agreed between the Company and the Underwriter
“Major Shareholder” or “Underwriter”
Winspark Venture Limited, a company incorporated in the British Virgin Islands with limited liability, being the major shareholder of the Company interested in approximately 61.45% of the existing issued share capital of the Company as at the Latest Practicable Date
“Non-Qualifying Shareholders”
Overseas Shareholders who the Board, after making enquiries, consider it necessary or expedient to exclude from the Open Offer on account either of the legal restrictions under the laws of the relevant place or any requirement of the relevant regulatory body or stock exchange in that place
“Offer Share(s)”
the new Shares to be issued pursuant to the Open Offer
“Open Offer”
the proposed issue by way of Open Offer to Qualifying Shareholders of 357,585,805 Offer Shares at a price of HK$0.485 per Offer Share on the basis of 5 Offer Shares for every 4 existing Shares held by Qualifying Shareholders on the Record Date, subject to the terms and conditions set out in this circular and the Prospectus Documents
“Overseas Letter”
a letter from the Company to the Non-Qualifying Shareholders explaining the circumstances in which they are not entitled to Offer Shares
“Overseas Shareholders”
the Shareholders whose addresses on the register of members of the Company on the Record Date are outside Hong Kong
“Posting Date”
30 May 2006, being the date for the despatch of the Prospectus Documents to the Qualifying Shareholders and the Prospectuses (for information only) and the Overseas Letter to the Non-Qualifying Shareholders or such other date as may be agreed between the Company and the Major Shareholder

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DEFINITIONS

“PRC” the People’s Republic of China and for the purpose of this circular excluding Hong Kong
“Prospectus” the prospectus to be issued by the Company in relation to the Open Offer

“PRC”

“Prospectus Documents” the Prospectus and the provisional allotment letter
“Qualifying Shareholder(s)” Shareholders(s) whose names appear on the register of members of the Company on the Record Date, other than the Non-Qualifying Shareholders
“Record Date” 30 May 2006, being the date for ascertaining Shareholders’ entitlements to the Open Offer, or such other date as may be agreed between the Company and the Major Shareholder
“SFO” The Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
“SGM” the special general meeting of the Company to be convened for the purpose of approving, among other matters, the Open Offer, the Bonus Issue, the Share Consolidation, the Amendment of Bye-laws and the Underwriting Agreement
“Share(s)” share(s) of HK$0.01 each in the share capital of the Company
“Share Consolidation” the proposed consolidation of every 4 Shares of HK$0.01 each into one Consolidated Share of HK$0.04
“Share Option Scheme” the share option scheme adopted by the Company on 29 May 2002
“Shareholder(s)” holder(s) of the Share(s) or Consolidated Share(s) (as the case may be)
“Stock Exchange” The Stock Exchange of Hong Kong Limited
“Subscription Price” the subscription price of HK$0.485 per Offer Share

“Underwriting Agreement” the underwriting agreement dated 8 March 2006 between the Company and the Major Shareholder whereby the Major Shareholder has conditionally agreed to underwrite 137,831,605 Offer Shares

– 4 –

DEFINITIONS

“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“%”	per cent.

– 5 –

EXPECTED TIMETABLE

The expected timetable for the Open Offer, the Bonus Issue and the Share Consolidation is set out below:

2006

Last day of dealings in the Shares on a cum-entitlement basis . . . . . . . . . Thursday, 18 May
First day of dealings in the Shares on an ex-entitlement basis . . . . . . . . . . . Friday, 19 May
Latest time for lodging transfers of Shares in order
to qualify for the Open Offer . . . . . . . . . . . . . . . . . . . . . . 4:00 p.m. on Monday, 22 May
Register of members closed (both dates inclusive) . . . . . . . . . . . . . . . . . . Tuesday, 23 May
to Tuesday, 30 May
Latest time for return of proxy form for SGM . . . . . . . . . . . 11:00 a.m. on Sunday, 28 May
Date of SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11:00 a.m. on Tuesday, 30 May
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tuesday, 30 May
Despatch of the Prospectus Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . Tuesday, 30 May
Register of members re-opens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thursday, 1 June
Latest time for acceptance of and payment
for the Offer Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4:00 p.m. on Thursday, 15 June
Open Offer expected to become unconditional . . . . . . . . . . . 4:00 p.m. on Tuesday, 20 June
Announcement of results of acceptance of the Open Offer . . . . . . . . . . Wednesday, 21 June
Despatch of certificates for the Offer Shares and Bonus
Shares on or before . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wednesday, 21 June
Effective date of Share Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . Wednesday, 21 June
First day of free exchange of new share certificates . . . . . . . . . . . . . . . Wednesday, 21 June
Existing counter for trading in Shares in board
lots of 5,000 Shares temporarily closes . . . . . . . . . . . . 9:30 a.m. on Wednesday, 21 June
Temporary counter for trading in Consolidated Shares
in board lots of 1,250 Consolidated Shares
(in the form of existing share certificates) opens . . . . . 9:30 a.m. on Wednesday, 21 June
Existing counter for trading in Consolidated Shares in
board lots of 5,000 Consolidated Shares (in the form
of new share certificates) re-opens . . . . . . . . . . . . . . . . . 9:30 a.m. on Wednesday, 5 July

– 6 –

EXPECTED TIMETABLE

Parallel trading of Consolidated Shares (in the form of existing and new share certificates) commences . . . . . . . 9:30 a.m. on Wednesday, 5 July First day of availability of odd lot facility . . . . . . . . . . . . . . . . . . . . . . . Wednesday, 5 July Temporary counter for trading in Consolidated Shares in board lots of 1,250 Consolidated Shares (in the form of existing share certificates) closes . . . . . . . . . . . . . . . 4:00 p.m. on Wednesday, 26 July

Parallel trading of Consolidated Shares (in the form of existing and new share certificates) ends . . . . . . . . . . . 4:00 p.m. on Wednesday, 26 July Last day of availability of odd lot facility . . . . . . . . . . . . . . . . . . . . . . . Wednesday, 26 July Last day of free exchange of share certificates . . . . . . . . . . . . . . . . . . . . . Monday, 31 July

Dates stated in this circular for events in the timetable are indicative only and may be extended or varied. Any changes to the anticipated timetable for the Open Offer, the Bonus Issue and the Share Consolidation will be announced as appropriate.

Notes: All times refer to Hong Kong local times in this circular.

The certificates in respect of the Offer Shares and Bonus Shares will, as far as possible, be issued in board lots of 5,000 Shares (i.e. in the form of existing share certificates). The Company has made available arrangements to the Shareholders for the free exchange of existing share certificates for new share certificates for the Consolidated Shares upon the Share Consolidation becoming effective for a period between 21 June, 2006 and 31 July, 2006. Details for free exchange of share certificates are set out in the section headed “Trading arrangement, issue and exchange of share certificates” in the Letter from the Board contained in this circular.

EFFECT OF BAD WEATHER ON THE LATEST TIME FOR ACCEPTANCE OF AND PAYMENT FOR THE OPEN OFFER

The latest time for acceptance of and payment for the Open Offer will not take place if there is:

a tropical cyclone warning signal number 8 or above, or
a “black” rainstorm warning
(i) in force in Hong Kong at any local time before 12:00 noon and no longer in force after 12:00 noon on the Final Acceptance Date. Instead the latest time of acceptance of and payment for the Open Offer will be extended to 5:00 p.m. on the same Business Day;

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EXPECTED TIMETABLE

(ii) in force in Hong Kong at any local time between 12:00 noon and 4:00 p.m. on the Final Acceptance Date. Instead the latest time of acceptance of and payment for the Open Offer will be rescheduled to 4:00 p.m. on the following Business Day which does not have either of those warnings in force at any time between 9:00 a.m. and 4:00 p.m.

If the latest time for acceptance of and payment for the Open Offer does not take place on the Final Acceptance Date, the dates mentioned in the section headed “Expected timetable” in this circular may be affected. A press announcement will be made by the Company in such event.

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LETTER FROM THE BOARD

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Tomorrow International Holdings Limited

(incorporated in Bermuda with limited liability)

(Stock Code: 760)

Executive Directors: Yau Tak Wah, Paul (Chairman) Louie Mei Po Wong Shin Ling, Irene Tam Wing Kin

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

Independent non-executive Directors: Ng Wai Hung Cheung Chung Leung, Richard Wu Wang Li

Principal place of business in Hong Kong: 27th Floor, Henley Building 5 Queen’s Road Central Hong Kong

28 April 2006

To the Shareholders

Dear Sir or Madam,

(1) PROPOSED OPEN OFFER OF 357,585,805 NEW SHARES ON THE BASIS OF 5 OFFER SHARES FOR EVERY 4 EXISTING SHARES HELD WITH 5 BONUS SHARES FOR EVERY 7 FULLY-PAID OFFER SHARES; (2) PROPOSED AMENDMENT TO THE BYE-LAWS OF THE COMPANY; (3) PROPOSED SHARE CONSOLIDATION; (4) CONNECTED TRANSACTION

INTRODUCTION

It was announced on 8 March 2006 that the Company intended to raise approximately HK$173.4 million, before expenses, by issuing 357,585,805 Offer Shares at a price of HK$0.485 per Offer Share by way of the Open Offer, on the basis of 5 Offer Shares for every 4 existing Shares held on the Record Date and payable in full on acceptance. The registered holders of fully-paid Offer Shares will be issued 5 Bonus Shares for every 7 fully-paid Offer Shares.

The Independent Board Committee has been established to advise the Independent Shareholders on the Open Offer, the Bonus Issue and the Underwriting Agreement. Barits has been appointed to advise the Independent Board Committee and the Independent Shareholders on the Open Offer, the Bonus Issue and the Underwriting Agreement.

The purpose of this circular is to provide you with, among others, (i) the details of the Open Offer, the Bonus Issue, the Underwriting Agreement, the Share Consolidation and the Amendment of Bye-laws; (ii) the recommendation from the Independent Board Committee to

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LETTER FROM THE BOARD

the Independent Shareholders on the Open Offer, the Bonus Issue and the Underwriting Agreement; (iii) the recommendation from Barits to the Independent Board Committee and the Independent Shareholders on the Open Offer and the Bonus Issue and the Underwriting Agreement; and (iv) the notice of SGM.

PROPOSED OPEN OFFER AND BONUS ISSUE

Issue statistics

Basis of the Open Offer : an assured entitlement of 5 Offer Shares for every 4 existing Shares held by the Qualifying Shareholders as at the close of business on the Record Date Basis of the Bonus Issue : 5 Bonus Shares for every 7 fully-paid Offer Shares Subscription Price : HK$0.485 per Offer Share Number of existing Shares in issue : 286,068,644 Shares Number of Offer Shares to be issued : 357,585,805 Offer Shares Number of Bonus Shares to be issued : not more than 255,418,430 Bonus Shares Number of Offer Shares undertaken to : 219,754,200 Offer Shares be taken up by the Major Shareholder Number of Offer Shares underwritten : 137,831,605 Offer Shares by the Underwriter Number of Shares in issue : not more than 899,072,879 Shares immediately after completion of the Open Offer and the Bonus Issue (before the Share Consolidation becoming effective)

The Offer Shares represent approximately 125% of the existing issued share capital of the Company and approximately 39.8% of the issued share capital of the Company as enlarged by the Offer Shares and the Bonus Shares. The Bonus Shares represent approximately 89.3% of the existing issued share capital of the Company and approximately 28.4% of the issued share capital of the Company as enlarged by the Offer Shares and the Bonus Shares.

– 10 –

LETTER FROM THE BOARD

The Company has no derivatives, options, warrants and conversion rights or other similar rights which are convertible or exchangeable into Shares as at the Latest Practicable Date and has no intention to issue any new Share or any of the above securities before the Final Acceptance Date, which is expected to be 15 June 2006.

Qualifying Shareholders of the Open Offer

The Open Offer is only available to the Qualifying Shareholders. The Company will send (i) the Prospectus Documents to the Qualifying Shareholders and (ii) the Prospectus, for information only, to the Non-Qualifying Shareholders.

To qualify for the Open Offer, Shareholders must at the close of business on the Record Date:

(i) be registered as a member of the Company; and
(ii) not be Non-Qualifying Shareholders.

In order to be registered as members of the Company on the Record Date, any transfer of Shares (together with the relevant share certificate(s)) must be lodged with the Company’s branch share registrar and transfer office in Hong Kong, Computershare Hong Kong Investor Services Limited, at Shop 1712–1716, 17/F., Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, by no later than 4:00 p.m. (Hong Kong time) on 22 May 2006.

The invitation to subscribe for the Offer Shares to be made to the Qualifying Shareholders will not be transferable. There will not be any trading in nil-paid entitlements on the Stock Exchange.

TERMS OF THE OPEN OFFER

Subscription price

The Subscription Price for the Offer Shares is HK$0.485 per Offer Share, payable in full on acceptance of the provisional allotment under the Open Offer. The Subscription Price was arrived at after arm’s length negotiation between the Company and the Major Shareholder with reference to the prevailing market price of the Shares between the range of HK$0.56 (being the lowest average closing price per Share within the last three calendar months before the date of the Announcement) to HK$0.70 (being the highest average closing price per Share within the last three calendar months before the date of the Announcement) under the prevailing market conditions and recent open offer cases.

The Subscription Price of HK$0.485 represents:

(i) a discount of approximately 13.4% to the closing price of HK$0.56 per Share quoted on the Stock Exchange on the Last Trading Date);

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LETTER FROM THE BOARD

(ii) a premium of approximately 30.7% to the theoretical ex-entitlement price (after taking into consideration of the Bonus Issue) of HK$0.371 per Share based on the closing price per Share on the Last Trading Date;
(iii) a discount of approximately 20.1% to the 10-day average closing price of HK$0.607 per Share up to and including the Last Trading Date;
(iv) a discount of approximately 46.1% to the closing price of HK$0.90 per Share as quoted on the Stock Exchange on the Latest Practicable Date;
(v) a discount of approximately 82.3% to the latest audited net asset value attributable to shareholders per Share of HK$2.74 as at 31 December 2005; and

For those Shareholders who participate in the Open Offer, they would be entitled to approximately 1.25 Offer Shares and approximately 0.89 Bonus Shares for every Share they hold (without taking into account the Share Consolidation). Based on the total subscription monies under the Open Offer and taking into account the aggregate of the Offer Shares and the Bonus Shares, the theoretical subscription price of each Offer Share is approximately HK$0.283. The theoretical subscription price of HK$0.283 represents:

(i) a discount of approximately 49.5% to the closing price of HK$0.56 per Share quoted on the Stock Exchange on the Last Trading Date;
(ii) a discount of approximately 23.7% to the theoretical ex-entitlement price (after taking into consideration of the Bonus Issue) of HK$0.371 per Share based on the closing price per Share on the Last Trading Date;
(iii) a discount of approximately 53.4% to the 10-day average closing price of HK$0.607 per Share up to and including the Last Trading Date;
(iv) a discount of approximately 68.6% to the closing price of HK$0.90 per Share as quoted on the Stock Exchange on the Latest Practicable Date;
(v) a discount of approximately 89.7% to the latest audited net asset value attributable to shareholders per Share of HK$2.74 as at 31 December 2005; and

Further, comparing with the various recent open offer cases within one year prior to the date of the Announcement, the discounts of the subscription price of those cases to their respective closing price on the last trading day prior to their respective dates of announcement ranged from approximately 6.25% to approximately 90.70%, with the mean of approximately 53.17% and median of approximately 54.35%. The discounts of the subscription price of those cases to their respective theoretical ex-entitlement prices per share based on the closing price per share on the last trading day prior to the date of announcement ranged from approximately 5.21% to approximately 77.00%, with the mean of approximately 37.28% and median of approximately 35.27%. After considering the aggregation of the Offer Shares and Bonus Shares, the theoretical subscription price per

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LETTER FROM THE BOARD

Share of approximately $0.283 effectively represents a discount of approximately 49.5% to the closing price on the Last Trading Date, which is generally in line with that of the market practice as represented by other recent open offer cases.

Based on the reasons above, the Directors consider that the terms of the Open Offer (including the Subscription Price and the theoretical subscription price of each Offer Share) are fair and reasonable and in the interest of the Shareholders as a whole.

Status of the Offer Shares

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

Fractions of Offer Shares

The Company will not allot to Shareholders fractions of the Offer Shares. Fractions of Offer Shares will be aggregated and sold for the benefit of the Company.

Certificates of the fully-paid Offer Shares

Subject to the fulfilment of the conditions of the Open Offer, certificates for all fully-paid Offer Shares are expected to be posted to those entitled thereto at their own risk on or before 21 June 2006.

Closure of register of members

The register of members of the Company is expected to be closed from 23 May 2006 to 30 May 2006, both dates inclusive. No transfer of Shares will be registered during this period.

Rights of the Non-Qualifying Shareholders

The Prospectus Documents will not be registered and/or filed under the applicable securities or equivalent legislation of any jurisdictions other than Hong Kong and Bermuda. Based on the register of members of the Company as at the Latest Practicable Date, the Directors noted that there are two Shareholders who maintained addresses outside Hong Kong in the following jurisdictions: Malaysia and Taiwan. As such, the Board has made enquiries as to whether the issue of Offer Shares and Bonus Shares to Overseas Shareholders may contravene the applicable securities legislation of the relevant overseas places or the requirements of the relevant regulatory body or stock exchange pursuant to Rule 13.36(2)(a) of the Listing Rules. Based on the results of the enquiries made with qualified lawyers of these jurisdictions, the Board is of the opinion that it would be necessary or expedient not to offer the Offer Shares and Bonus Shares to the Shareholders whose registered addresses are in Malaysia due to the substantial procedures and costs involved in the registration of the Prospectus. Accordingly, the Shareholders whose registered addresses are in Malaysia would be Non-Qualifying Shareholders and the Open

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LETTER FROM THE BOARD

Offer and the Bonus Issue would not be available to them. The Company will send only the Prospectus to them for their information only. For those Shareholders whose registered addresses are in Taiwan, the Board has been advised by legal advisers in Taiwan that it would be lawful for the Company to offer the Open Offer and the Bonus Issue to the Shareholders in Taiwan even though the Prospectus are not registered in Taiwan. Therefore, the Company will send the Prospectus and the provisional allotment letter to such Qualifying Shareholders in Taiwan.

Application for excess Offer Shares

Under the Open Offer, although the Qualifying Shareholders are not entitled to apply for any Offer Shares which are in excess of their entitlements, the Qualifying Shareholders are offered a chance to subscribe for the Offer Shares at a relatively low price and to maintain their respective pro-rata shareholdings in the Company. In view of the discount of the subscription price per Offer Share to the market price per Share together with the Bonus Shares, the Directors believe that there would be a high level of acceptance of Offer Shares by the Qualifying Shareholders and, accordingly, there would not be a significant number of Offer Shares which are not taken up by the Shareholders and available for excess application should there be any arrangement for excess application. The Directors do not consider it unusual that there is no entitlement for all Qualifying Shareholders to excess application.

Furthermore, the Directors consider that the arrangement of application for excess Offer Shares will involve additional administrative work and costs for the Open Offer . As discussed with the share registrar of the Company and the printer, the Directors was advised that (a) the extra time normally required for providing an arrangement for excess application under an open offer together with a bonus issue is estimated to be around 1-2 days for the purpose of (i) balloting and allotment of offer shares and bonus shares and (ii) refund arrangement, and (b) the extra administrative costs to be incurred for providing an arrangement for excess application under the Open Offer are estimated to be around HK$300,000, which includes charges of printing, translation, and issuing of Excess Application Forms (“EAFs”) and refund cheques, service fees and handling charges payable to the share registrar in (i) acting as receiving agent for EAFs, setting up a computer programme for EAFs, (ii) submitting daily reports in respect of the level of acceptance for EAFs, (iii) preparing allotment scenario in case of over-subscription of Offer Shares, (iv) submitting refund cheque tape to the banker, and (v) processing acceptances of EAFs.

The Major Shareholder, like all other Qualifying Shareholders, is not entitled to any excess application. Nevertheless, Shareholders should note that, in the event that any Qualifying Shareholders give up its right to take up its provisional entitlement, the Major Shareholder is obliged to take up such Offer Shares as underwriter under the Underwriting Agreement (please refer to the section “Underwriting Arrangement” below) which will result in an increase of its shareholding in the Company. The Directors acknowledges that the savings in administrative costs and time may not be very significant. However, taking into account (i) the difficulty to procure a commercial underwriter in view of the low price range and the low liquidity of the Shares; (ii) absence of the arrangement for excess application is not an uncommon market practice and (iii) the Independent Shareholders will be offered a chance to express their view on the terms of the Open Offer, including the absence of the arrangement for application in excess of assured entitlement under the Open Offer (which

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LETTER FROM THE BOARD

has been specifically pointed out for the attention of Independent Shareholders both in this section and in the resolution proposed under the notice of SGM), through voting, the Directors consider that, after balancing the above factors, the current arrangement is fair and reasonable and in the interest of the Shareholders as a whole. Barits, the independent financial adviser, has been appointed to make recommendations to the Independent Shareholders, among other things, in respect of the Open Offer (including whether the current arrangement that the Qualifying Shareholders are not entitled to apply for any Offer Shares in excess of their entitlement) is fair and reasonable and in the interest of the Shareholders as a whole.

Basis of the Bonus Issue

In order to recognise the contribution from the Shareholders who take up the Offer Shares and as an incentive to encourage the Shareholders to participate in the Open Offer, the Bonus Shares will be issued to the registered holders of the fully-paid Offer Shares on the basis of 5 Bonus Shares for every 7 fully-paid Offer Shares issued under the Open Offer.

Qualifying Shareholders of the Bonus Issue

As mentioned above, as the Bonus Shares will only be allotted to the registered holders of the Offer Shares, the Bonus Issue will not be extended to the Non-Qualifying Shareholders and only the Qualifying Shareholders will be qualified for the Bonus Issue.

Conditions of the Bonus Issue

The Bonus Issue is conditional on, inter alia, (i) the approval of the Independent Shareholders at the SGM for the Open Offer, the Bonus Issue and the Underwriting Agreement; (ii) the approval of the Shareholders at the SGM for the Amendment of the Bye-laws, details of which are set out in the section headed “Proposed amendment to the Bye-laws” below; (iii) the Listing Committee of the Stock Exchange granting listing of, and permission to deal in, the Bonus Shares; (iv) the Open Offer becoming unconditional (save as any condition requiring the Bonus Issue to become unconditional) and the Underwriting Agreement not being terminated by the Underwriter; and (v) the Amendment of the Bye-laws becoming effective.

The Open Offer and the Bonus Issue will be inter-conditional to each other and conditional on the Amendment of the Bye-laws becoming effective.

Status of the Bonus Shares

The Bonus Shares, when issued and allotted, will rank pari passu in all respects with the Shares in issue on the date of their issue and allotment.

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LETTER FROM THE BOARD

Listings and dealings of the Offer Shares and Bonus Shares

The maximum number of Shares in issue immediately after the issue of the Offer Shares and the Bonus Shares (but before the Share Consolidation) will be 899,072,879 Shares, assuming no further issue of Shares between the Latest Practicable Date and the issue of the Offer Shares and the Bonus Shares.

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

Subject to the granting of listing of, and permission to deal in, the Offer Shares and the Bonus Shares on the Stock Exchange, the Offer Shares and the Bonus Shares will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the commencement date of dealings in the Offer Shares and the Bonus Shares on the Stock Exchange or such other date 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.

Share certificates for the Bonus Shares

Subject to the fulfillment of the conditions of the Open Offer and the Bonus Issue, certificates for the Bonus Shares are expected to be posted to those entitled thereto at their own risk on or before 21 June 2006.

ACCEPTANCE PROCEDURES FOR THE OFFER SHARES AND THE BONUS SHARES

A provisional allotment letter will be enclosed with the Prospectus which entitles the Qualifying Shareholder to accept any number of Offer Shares provisionally allotted to him/ her/it. Qualifying Shareholders should note that they may accept any number of Offer Shares but will be assured of an allotment only up to the number set out in the provisional allotment letter. If the Shareholder is a Qualifying Shareholder and he/she/it wishes to accept his/her/its assured allotment of Offer Shares to which he/she/it will be entitled as specified in the provisional allotment letter or he/she/it wishes to accept any number less than his/her/ its assured entitlement, the Qualifying Shareholder must complete, sign and lodge the provisional allotment letter in accordance with the instructions printed thereon, together with remittance for the aggregate subscription price in respect of such number of Offer Shares he/ she/it wishes to accept with the branch share registrar, Computershare Hong Kong Investor Services Limited, at Shop 1712-1716, 17/F., Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong by no later than 4:00 p.m. on Thursday, 15 June 2006. 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 “Tomorrow International Holdings Limited – Open Offer Account” and crossed “Account Payee Only”.

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LETTER FROM THE BOARD

It should be noted that unless the provisional allotment letter, together with the appropriate remittance, is lodged with the branch share registrar by not later than 4:00 p.m. on Thursday, 15 June 2006, that assured entitlement and all rights thereunder will be deemed to have been declined and will be cancelled.

If the conditions of the Underwriting Agreement are not fulfilled or the Underwriting Agreement is terminated in accordance with its terms and conditions, the subscription monies will be refunded, without interest, by sending a cheque made out to the relevant Shareholders named on the provisional allotment letter (or in the case of joint Shareholders, to the first named Shareholder) and crossed “Account Payee Only”, through ordinary post at the risk of the relevant Shareholder(s) to the address specified in the register of members of the Company on or before 27 June 2006.

The provisional allotment letter will contain full information regarding the procedures to be followed if the Qualifying Shareholder wish to accept only part of his/her/its assured entitlements under the Open Offer.

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

The provisional allotment letter shall be for use only by the person(s) named therein and will not be transferable.

No receipt will be issued in respect of any acceptance monies received.

The registered holders of fully-paid Offer Shares will be issued 5 Bonus Shares for every 7 fully-paid Offer Shares. Share certificates for the Offer Shares and the Bonus Shares are expected to be despatched to the Shareholders through ordinary post, at their own risk, to the address specified in the register of members of the Company on or before 21 June 2006.

UNDERWRITING ARRANGEMENT

Undertakings from the Major Shareholder

The Major Shareholder, as at the Latest Practicable Date, is interested in 175,803,363 existing Shares, representing approximately 61.45% of the existing issued share capital of the Company. To demonstrate its continual financial support to the Group, 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 the 175,803,363 Shares and to accept its full entitlement of 219,754,200 Offer Shares under the Open Offer and to underwrite the balance of any Offer Shares not taken up by the Qualifying Shareholders pursuant to the Underwriting Agreement as detailed below.

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LETTER FROM THE BOARD

Underwriting Agreement

Date : 8 March 2006 Underwriter : The Major Shareholder Number of Offer Shares Underwritten : 137,831,605 Offer Shares by the Major Shareholder

The number of Offer Shares underwritten by the Major Shares represents approximately 48.18% of the total issued share capital of the Company as at the Latest Practicable Date and approximately 15.33% of the total issued share capital of the Company as enlarged by the Open Offer and the Bonus Issue.

The Major Shareholder is an investment holding company which does not underwrite issues of securities in its normal course of business. The Company will pay to the Underwriter an underwriting commission calculated at 2.5% of the aggregate Subscription Price of the number of Offer Shares underwritten by the Underwriter in cash by not later than the date of despatch of the share certificates in respect of the Offer Shares and the Bonus Shares. Such rate was determined by the Company and the Underwriter after arm’s length negotiation with reference to the market rates between the range of 2% to 3%.

In view of the low price range and the low liquidity of the Shares, the Directors consider that it would be difficult to procure underwriting by a commercial underwriter on a fully underwritten basis. In the circumstances, the Major Shareholder has agreed to act as underwriter for the Open Offer. The Directors consider that it is not an uncommon feature for an open offer to be underwritten by the controlling shareholder. Furthermore, in view of the difficulty in procuring a commercial underwriter, the undertaking from the Major Shareholder to take up in full its provisional allotment and a possible increase in its shareholding interest in the Company by way of underwriting the Offer Shares shows the willingness of the Major Shareholder to make a stronger commitment to the future development of the Group which is beneficial to the Group as a whole. The Directors believe that the participation of the Major Shareholder as the Underwriter would be an indication of confidence and optimism in the Company and its prospect to other Shareholders. The Directors consider that the underwriting arrangement is on normal commercial terms and is fair and reasonable so far as the Shareholders are concerned.

Such underwriting arrangement constitutes a connection transaction of the Company and since the aggregate consideration under the Underwriting Agreement (being the aggregate of the maximum amount of the subscription price for the underwritten shares payable by the Major Shareholder and the maximum amount of the underwriting commission receivable by the Major Shareholder) is more than 25% of the applicable percentage ratios, the Underwriting Agreement will therefore be subject to approval by the Independent Shareholders under Rule 14A.17 of the Listing Rules. For further details, please refer to the paragraph headed “SGM” in this letter.

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LETTER FROM THE BOARD

Conditions of the Open Offer under the Underwriting Agreement

The Open Offer will be conditional upon, among other things, the following:

(i) the passing by the Shareholders (or if required by the Listing Rules, the Independent Shareholders) at the SGM of the requisite resolution(s) approving the Open Offer, the Bonus Issue, the Underwriting Agreement and the Amendment of the Bye-laws;
(ii) the delivery to the Stock Exchange and registration with the Registrar of Companies in Hong Kong one copy of each of the Prospectus Documents duly signed by two Directors (or by their agents duly authorised in writing) as having been approved by resolution of the Directors (and all other documents required to be attached thereto) not later than the Posting Date and otherwise in compliance with the Listing Rules and the Companies Ordinance;
(iii) the filing of the Prospectus Documents with the Registrar of Companies in Bermuda in accordance with the Companies Act on or before the Posting Date;
(iv) the posting of the Prospectus Documents to Qualifying Shareholders on the Posting Date;
(v) the Listing Committee of the Stock Exchange granting or agreeing to grant (subject to allotment), and not having withdrawn or revoked the approval of the listing of, and permission to deal in, the Offer Shares, in their fully-paid form, and the Bonus Shares;
(vi) compliance with all legal and regulatory requirements in respect of the Open Offer and the Bonus Issue under the applicable laws and regulations of Hong Kong and Bermuda; and
(vii) the Bonus Issue becoming unconditional (save as any condition requiring the Open Offer to become unconditional).

None of the above conditions are waivable by the Company or the Underwriter.

In the event of the said conditions not being fulfilled by the Long Stop Date or if the Underwriting Agreement shall be terminated or 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 others (save for any antecedent breaches thereof).

Termination of the Underwriting Agreement

The Underwriter 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 absolute opinion of the Underwriter:

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LETTER FROM THE BOARD

(a) the success of the Open Offer would be materially and 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 in the absolute opinion of the Underwriter materially and adversely affect the business or the financial or trading position or prospects of the Group as a whole or is materially adverse in the context of the Open Offer; or
(ii) the occurrence of any local, national or international event or change (whether or not forming part of a series of events or changes occurring or continuing before, and/or after the date hereof) of a political, military, financial, economic, currency or other nature (whether or not ejusdem generis with any of the foregoing), or in the nature of any local, national or international outbreak or escalation of hostilities or armed conflict; or affecting local securities market which may, in the absolute opinion of the Underwriter materially and adversely affects the business or the financial or trading position or prospects of the Group as a whole or materially and adversely prejudices the success of the Open Offer or otherwise makes it inexpedient or inadvisable to proceed with the Open Offer; or
(iii) any material adverse change in the financial position of the Group as a whole; or
(iv) any act of God, war, riot, public disorder, civil commotion, fire, flood, explosion, epidemic or threatened epidemic, terrorism, strike or lock-out; or
(b) any material adverse change in market conditions (including without limitation, a change in fiscal or monetary policy, or foreign exchange or currency markets, suspension or restriction of trading in securities) occurs which in the reasonable opinion of the Underwriter is likely to materially and adversely affect the success of the Open Offer or otherwise makes it inexpedient or inadvisable to proceed with the Open Offer.

Upon the giving of the notice of termination, all obligations of the Underwriter 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.

WARNING OF THE RISK OF DEALING IN SHARES AND OFFER SHARES

The Open Offer will be subject to the satisfaction of all the conditions as described in the section headed “Conditions of the Open Offer under the Underwriting Agreement” and the Major Shareholder not terminating the Underwriting Agreement (please see the section headed “Termination of the Underwriting Agreement” above). In particular, the Open Offer will be conditional upon the approval of the Independent

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LETTER FROM THE BOARD

Shareholders at the SGM approving the Open Offer and the Bonus Issue and the approval of the Shareholders at the SGM approving the Amendment of the Bye-laws. Accordingly, the Open Offer may or may not proceed.

Shareholders should note that the Shares are expected to be dealt in on an ex-entitlements basis commencing from 19 May 2006 and that dealings in the Shares will take place while the conditions to which the Open Offer is subject remain unfulfilled. Any Shareholder or other person dealing in the Shares up to the date on which all conditions to which the Open Offer is subject are fulfilled (which is expected to be on 20 June 2006), will accordingly bear the risk that the Open Offer cannot become unconditional and may not proceed. Any Shareholder or other person contemplating selling or purchasing the Shares, who is in any doubt about his/her/its position, is recommended to consult his/her/its own professional advisers.

Shareholders and potential investors of the Company are advised to exercise caution when dealing in the Shares.

REASONS FOR THE OPEN OFFER AND USE OF PROCEEDS

The principal activity of the Company is investment holding. The Group’s principal activities consist of the design, development, manufacture and sale of electronic products, the manufacture and sale of printed circuit boards, the trading and distribution of electronic components and parts, the trading of listed equity investments, the provision of loan financing and the manufacture and sale of optical products.

The Company is actively seeking investment projects to diversify its business portfolio. In view of the robust economic growth and increasing commercial activities, the Directors would like to capture the opportunity and believe that making investment projects would bring about rewarding return to the Company and the Shareholders as a whole. The Company is now exploring but has not yet earmarked any suitable investment opportunities as at the Latest Practicable Date.

The Directors have considered other financing alternatives such as debt financing. However, for the avoidance of bearing additional borrowing costs, the Directors consider that debt financing is not the most appropriate choice as long as the need for funding is not at a highly urgent stage. Instead, the Directors intend to raise fund through the equity capital market which may provide the Company with the financial flexibility for future development purpose. In this regard, the Directors have also considered from the perspective of shareholders’ interest and are aware that fund raising by way of placing shall have a dilution effect on the shareholding of the existing shareholders of the Company. In view of the prevailing market conditions, the Directors consider that raising fund through the Open Offer could serve to enlarge the capital base and is therefore in the best interests of the Company and the Shareholders. The Directors also consider that the Open Offer may serve to facilitate the continual development and daily operation of the Group whilst allowing the Group to invest in any potential investment projects when such opportunities arise. Though the Shareholders will not have the opportunity to realize the value of nil-paid rights as in a rights issue, nevertheless, for the avoidance of unnecessary administrative burden and cost in

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LETTER FROM THE BOARD

relation to arranging the trading of nil-paid rights, the Directors consider that the Open Offer is a better option to raise funds through the equity capital market when compared with a rights issue.

The Company proposes to raise approximately HK$173.4 million, before expenses, by way of the Open Offer. The estimated net proceeds of the Open Offer, after deduction of expenses, are expected to amount to approximately HK$170 million and will be applied for future diversified investment opportunities when suitable projects are earmarked and for general working capital purpose. The Company intends to apply approximately HK$160 million for future investment projects and the balance of HK$10 million as working capital. The Company has reviewed various investment projects, such as properties investment in China, but up to the Latest Practicable Date no negotiation has been finalised yet. Such negotiations are in preliminary stage and may or may not proceed. Shareholders and potential investors of the Company are therefore advised to exercise caution when dealing in the Shares. In the event that the Company cannot earmark any suitable investment upon completion of the Open Offer, the net proceeds from the Open Offer shall be deposited in bank temporarily as time deposit.

In view of current favourable economic development, the Directors consider the Open Offer a good opportunity to raise further capital to broaden the capital base of the Company while improving the financial position of the Company without loading the Company any interest burden.

PROPOSED AMENDMENT TO THE BYE-LAWS

PROPOSED SHARE CONSOLIDATION

The Board proposes the Share Consolidation, upon completion of the Open Offer and the Bonus Issue, involving a consolidation of every 4 Shares into one Consolidated Share. No fractions of Consolidated Shares will be issued to any Shareholder. However, fractions of Consolidated Shares will be aggregated and, if possible, sold for the benefit of the Company. The board lot size for trading of the Shares on the Stock Exchange, which is currently 5,000 Shares, will become 5,000 Consolidated Shares after the Share Consolidation becoming effective. The Company has been advised by its Bermuda legal adviser that no amendment to the Bye-laws is necessary as a result of the Share Consolidation.

Effects of the Share Consolidation

As at the Latest Practicable Date, the authorised share capital of the Company amounted to HK$500,000,000 comprising 50,000,000,000 Shares, of which 286,068,644 Shares have been allotted and issued as fully-paid or credited as fully-paid. Upon the Share

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LETTER FROM THE BOARD

Consolidation taking effect, the authorised share capital of the Company will remain at HK$500,000,000 but will comprise 12,500,000,000 Consolidated Shares of which a maximum of 224,768,219 Consolidated Shares will be in issue. The Consolidated Shares will rank pari passu in all respects with each other.

Other than the expenses incurred by the Company in relation to the Share Consolidation, the implementation thereof will not alter the underlying assets, business operations, management or financial position of the Company or the interests or rights of the Shareholders, save that Shareholders will not have any entitlement to fractions of Consolidated Shares.

The following table sets out the effect on the share capital of the Company before and immediately after the Share Consolidation (without taking into account of the Open Offer and Bonus Issue):

		Immediately
	Before Share	After Share
	Consolidation	Consolidation
Nominal value per share	HK$0.01	HK$0.04
Authorised share capital	HK$500,000,000	HK$500,000,000
Issued share capital	HK$2,860,686	HK$2,860,686
Number of issued shares	286,068,644	71,517,161
Number of unissued shares	49,713,931,356	12,428,482,839

Conditions of the Share Consolidation

The Share Consolidation is conditional on:

(i) the passing by the Shareholders of a resolution to approve the Share Consolidation at the SGM;
(ii) the Listing Committee of the Stock Exchange granting or agreeing to grant the listing of, and permission to deal in, Consolidated Shares in issue (including those resulting from the Open Offer and the Bonus Issue) and any Consolidated Shares which may be issued pursuant to the exercise of options granted or to be granted under the Share Option Scheme; and
(iii) the Open Offer and the Bonus Issue becoming unconditional and the Underwriting Agreement not being terminated by the Underwriter.

Reasons for the Share Consolidation

In view of the relatively low price range of the Shares, the Board believes that the Share Consolidation will enhance the attractiveness of the Shares as long as the transaction costs can be reduced for dealing in the shares in the Company including charges with reference to the number of share certificates issued. The following sets out the highest, lowest and average daily turnover of the Shares during the six months ended 28 February

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LETTER FROM THE BOARD

2006, and the percentage of average daily turnover as compared with the total number of Shares in issue prior to completion of the Open Offer, the Bonus Issue and the Share Consolidation.

					Percentage of	Percentage of
					average daily
					turnover to
					total number
	Highest daily	Lowest	daily	Average daily	of Shares in
Month	turnover	turnover		turnover		issue
	(in number of	(in number of		(in number of		(%)
	Shares)	Shares)		Shares)		(Note)
2005
September	500,000		–	51,905		0.018
October	532,000		–	62,330		0.022
November	1,150,000		–	77,818		0.027
December	558,000		–	93,810		0.033
2006
January	111,000		–	21,547		0.008
February	2,265,000		–	170,140		0.059

Source: Bloomberg

Note: Based on the 286,068,644 Shares in issue as at the Latest Practicable Date.

Trading arrangement, issue and exchange of share certificates

Subject to the Share Consolidation becoming effective, dealings in the Consolidated Shares are expected to commence on 21 June 2006. On the assumption that the Share Consolidation will become effective on 21 June 2006, the arrangements for dealings in the Consolidated Shares are expected to be as follows:

(a) with effect from 9:30 a.m. on Wednesday, 21 June 2006, the existing counter for trading in the Shares in board lots of 5,000 Shares will be closed temporarily and a temporary counter for trading in the Consolidated Shares in board lots of 1,250 Consolidated Shares (in the form of existing share certificates in blue colour) will be set up. Accordingly, 4 Shares will represent one Consolidated Share. Existing share certificates for Shares can only be traded at this temporary counter;
(b) with effect from 9:30 a.m. on Wednesday, 5 July 2006, the existing counter will be reopened for trading in the Consolidated Shares in board lots of 5,000 Consolidated Shares (in the form of new share certificates in purple colour). Only new share certificates for the Consolidated Shares will be traded at this counter;
(c) during the period between Wednesday, 5 July 2006 and Wednesday, 26 July 2006, there will be parallel trading in the existing and temporary counters. In order to facilitate the trading of odd lots of the Consolidated Shares which will arise upon

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LETTER FROM THE BOARD

the Share Consolidation becoming effective, the Company has procured Enlighten Securities Limited to stand in the market to provide matching services on a best effort for the holders of odd lots of the Consolidated Shares during the period between Wednesday, 5 July and Wednesday, 26 July 2006. Holders of odd lots of the Consolidated Shares who wish to take advantage of this facility either to dispose of their odd lots of the Consolidated Shares or to top up to board lots of 5,000 Consolidated Shares may contact Mr Lee Wai Keung of Enlighten Securities Limited at telephone number (852) 2152 3382 of Room 3212-13, 32/F., The Center, 99 Queen’s Road Central, Hong Kong as soon as possible during such period;

(d) with effect from 4:00 p.m. on Wednesday, 26 July 2006, trading will only be in the Consolidated Shares in board lots of 5,000 Consolidated Shares (in the form of new share certificates in purple colour) and the temporary counter for the trading in the Consolidated Shares in board lots of 1,250 Consolidated Shares (in the form of existing share certificates in blue colour) will be closed.

Shareholders should note that the matching service as mentioned in paragraph (c) above is on a “best efforts” basis only and successful matching of the sale and purchase of odd lots of Consolidated Shares in not guaranteed and will depend on there being adequate amount of odd lots of Consolidated Shares available for such matching.

Shareholders are recommended to consult their licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser if they are not sure about the matching service described above.

Trading in the Consolidated Shares represented by existing share certificates will cease after the trading hours on Wednesday, 26 July 2006. Existing share certificates for the Shares will only be valid for delivery and settlement in respect of trading for the period up to Wednesday, 26 July 2006 and thereafter will not be acceptable for trading purposes .

New share certificates in purple colour for the Consolidated Shares will be issued in order to distinguish them from existing share certificates in blue for the Shares.

Shareholders are advised to, during business hours from Wednesday, 21 June 2006 to Monday, 31 July 2006, submit their share certificates for the Shares to the Company’s branch registrar in Hong Kong, Computershare Hong Kong Investor Services Limited, at Shop 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, for exchange, free of charge, for certificates in respect of the Consolidated Shares. Thereafter, certificates for the Shares will continue to be good evidence of legal title and may be exchanged for certificates for the Consolidated Shares at any time but on payment of a fee of HK$2.50 (or such higher amounts as may from time to time be allowed by the Stock Exchange) for each new share certificate issued for the Consolidated Shares. A Shareholder will be entitled to aggregate his or her Shares registered in his or her name in order to obtain new share certificates in the board lot size of 5,000 Consolidated Shares.

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LETTER FROM THE BOARD

It is expected that new share certificates for the Consolidated Shares will be available for collection on or after the 10th business day from the date of submission of the existing share certificates. Unless otherwise instructed, new share certificates for the Consolidated Shares will be issued in board lots of 5,000 Consolidated Shares.

Application for listing and dealings in Consolidated Shares

Application will be made to the Listing Committee of the Stock Exchange for the listing of and permission to deal in the Consolidated Shares in issue as a result of the Share Consolidation (including those resulting from the Open Offer and the Bonus Issue) and the Consolidated Shares which may fall to be issued upon the exercise of rights attaching to any option which may be granted under the Share Option Scheme.

No part of the share capital of the Company is listed or dealt in on any other stock exchanges other than the Stock Exchange and no such listing or permission to deal is being or is currently proposed to be sought from any other stock exchange.

Dealings in the Consolidated Shares on the branch register of members of the Company will be subject to Hong Kong stamp duty.

Subject to the granting of listing of, and permission to deal in, the Consolidated Shares on the Stock Exchange, the Consolidated Shares will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the commencement date of dealings in the Consolidated Shares on the Stock Exchange or such other date as determined by HKSCC. Settlements of transactions between participants of the Stock Exchange on any trading day are 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.

EFFECTS ON THE SHAREHOLDING STRUCTURE

The following shows (i) the existing shareholding structure of the Company; (ii) the expected structure immediately after completion of the Open Offer and the Bonus Issue; and (iii) the expected structure immediately after completion of the Open Offer, the Bonus Issue and the Share Consolidation.

Scenario I: Assuming all Offer Shares and Bonus Shares are taken up by Qualifying Shareholders

Name of shareholder Major Shareholder Interest of a Director The public Total	Existing Shareholding Number of Shares approx. % 175,803,363 61.45 2,300,000 0.81 107,965,281 37.74 286,068,644 100.00	Immediately after completion of the Open Offer and Bonus Issue Number of Shares approx. % 552,524,848 61.45 7,228,570 0.81 339,319,461 37.74 899,072,879 100.00	Immediately after completion of the Open Offer, Bonus Issue and Share Consolidation Number of Shares approx. % 138,131,212 61.45 1,807,142 0.81 84,829,865 37.74 224,768,219 100.00	Immediately after completion of the Open Offer, Bonus Issue and Share Consolidation Number of Shares approx. % 138,131,212 61.45 1,807,142 0.81 84,829,865 37.74 224,768,219 100.00
				100.00

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LETTER FROM THE BOARD

Scenario II: Assuming no Offer Shares and Bonus Shares are taken up by Qualifying Shareholders

Name of shareholder Major Shareholder Interest of a Director The public Total	Existing Shareholding Number of Shares approx. % 175,803,363 61.45 2,300,000 0.81 107,965,281 37.74 286,068,644 100.00	Immediately after completion of the Open Offer and Bonus Issue Number of Shares approx. % 788,807,598 87.74 2,300,000 0.26 107,965,281 12.00 899,072,879 100.00	Immediately after completion of the Open Offer, Bonus Issue and Share Consolidation Number of Shares approx. % 197,201,899 87.74 575,000 0.26 26,991,320 12.00 224,768,219 100.00	Immediately after completion of the Open Offer, Bonus Issue and Share Consolidation Number of Shares approx. % 197,201,899 87.74 575,000 0.26 26,991,320 12.00 224,768,219 100.00
				100.00

RESTORATION OF PUBLIC FLOAT

As shown under the section headed “Effects on the shareholding structure” above, immediately upon completion of the Open Offer and the Bonus Issue assuming none of the Qualifying Shareholders (save for the Major Shareholder) takes up any Offer Share and all the Offer Shares are taken up by the Major Shareholder pursuant to the Underwriting Agreement, the public float will drop to 12%.

The Major Shareholder and the Directors undertake that they will put in place necessary measures to ensure minimum public float is maintained upon completion of the Open Offer and Bonus Issue. In the event the minimum public float cannot be maintained on completion of the Open Offer and Bonus Issue, the Major Shareholder will place down part of the underwritten Offer Shares or disposing the Shares held by it to third parties independent of the Group and its connected persons (as defined under the Listing Rules) in order to restore the minimum public float.

In the event that the Company fails to maintain the minimum public float after the Open Offer and the Bonus Issue for whatever reasons, the Company will inform the Shareholders by way of an announcement.

a false market exists or may exist in the trading in the shares of the Company; or
there are too few shares of the Company in public hands to maintain an orderly market;

then it will consider exercising its discretion to suspend trading in the shares of the Company until a sufficient public float is attained.

– 27 –

LETTER FROM THE BOARD

CAPITAL RAISING ACTIVITIES IN THE PAST 12 MONTHS

During the 12 months immediately before the date of the Announcement, the Group did not have any capital raising activities.

SGM

Set out on pages 136 to 140 of this circular is a notice of the SGM to be held at Unit 903–906, 9th Floor, Tower 1, Harbour Centre, 1 Hok Cheung Street, Hunghom, Kowloon, Hong Kong at 11:00 a.m. on 30 May 2006 at which resolutions regarding the (i) Open Offer, (ii) Bonus Issue, (iii) Underwriting Agreement, (iv) Share Consolidation and (v) Amendment of the Bye-laws will be proposed to be considered and, if thought fit, be passed by the Shareholders or the Independent Shareholders (as the case may be).

In accordance with Rule 7.24(5)(a) of the Listing Rules, the Open Offer and the Bonus Issue are conditional upon approval by the Independent Shareholders at the SGM by a resolution on which any controlling shareholders and their associates or, where there are no controlling shareholders, Directors (excluding independent non-executive Directors) and the chief executive of the Company and their respective associates shall abstain from voting in favour of the relevant resolution at the SGM. Furthermore, since the Underwriter is a connected person of the Company and no excess application for the Open Offer is available, the Open Offer does not fall within the exempt connected transaction under Rule 14A.31 of the Listing Rules. As the aggregate consideration under the Underwriting Agreement (being the aggregate of the maximum amount of the subscription price for the underwritten shares payable by the Major Shareholder and the maximum amount of the underwriting commission receivable by the Major Shareholder) is more than 25% of the applicable percentage ratios, the Underwriting Agreement will therefore be subject to approval by the Independent Shareholders under Rule 14A.17 of the Listing Rules. Accordingly, the Open Offer and the Bonus Issue are conditional on approval of the Underwriting Agreement by the Independent Shareholders. Being the controlling shareholder of the Company and the Underwriter, the Major Shareholder and its associates will abstain from voting on the resolution to approve the Open Offer, the Bonus Issue and the Underwriting Agreement at the SGM. As at the Latest Practicable Date, the Major Shareholder held approximately 61.45% of the existing issued share capital of the Company and its associates have no shareholding in the Company.

Having made all reasonable enquiries, the Directors consider that there is (i) no voting trust or other agreement or arrangement or understanding entered into by or binding upon the Major Shareholder; and (ii) no obligation or entitlement of Major Shareholder as at the Latest Practicable Date, whereby it has or may have temporarily or permanently passed control over the exercise of the voting right in respect of its Shares to a third party, either generally or on a case-by-case basis. There is also no discrepancy between the beneficial shareholding interest of Major Shareholder in the Company as disclosed in this circular and the numbers of Shares in respect of which it will control or will be entitled to exercise control over the voting rights at the SGM.

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LETTER FROM THE BOARD

The Independent Board Committee comprising the independent non-executive Directors has been appointed to make recommendations to the Independent Shareholders in respect of voting on the resolutions to approve the Underwriting Agreement, the Open Offer and, since the Bonus Issue and the Open Offer are inter-conditional, the Bonus Issue at the SGM. Barits has been appointed as an independent financial adviser to make recommendations to the Independent Board Committee and the Independent Shareholders in respect of the Underwriting Agreement, the Open Offer and the Bonus Issue.

Enclosed with this circular is a form of proxy for use at the SGM. You are requested to complete the form of proxy and return it to the Company’s branch share registrar in Hong Kong, Computershare Hong Kong Investor Services Limited, at Shop 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong in accordance with the instructions printed thereon not less than 48 hours before the time appointed for holding of the SGM or any adjournment thereof, whether or not you intend to be present in person at the SGM. The completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or any adjournment thereof should you so wish.

PROCEDURE FOR DEMANDING A POLL

Pursuant to Bye-law 66 of the Bye-laws, a resolution put to the vote at a general meeting shall be decided on a show of hands unless (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is demanded:

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

RECOMMENDATION

In relation to (i) the Open Offer and the Bonus Issue and (ii) the Underwriting Agreement, Barits considers that the terms of the Open Offer, the Bonus Issue and the Underwriting Agreement are fair and reasonable so far as the Shareholders are concerned.

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LETTER FROM THE BOARD

The Independent Board Committee, having taken into account the advice of Barits, considers that the terms of the Open Offer, the Bonus Issue and the Underwriting Agreement are fair and reasonable so far as the Shareholders are concerned. Accordingly, the Independent Board Committee recommends the Shareholders to vote in favour of the resolutions to approve Open Offer, the Bonus Issue and the Underwriting Agreement to be proposed at the SGM.

Your attention is drawn to the letter from the Independent Board Committee on page 31 and the letter from Barits set out on pages 32 to 68 of this circular.

GENERAL INFORMATION

Your attention is drawn to the additional information set out in Appendix I, II and III to this circular.

Yours faithfully, For and on behalf of Tomorrow International Holdings Limited Yau Tak Wah, Paul Chairman

– 30 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

The following is the text of the letter of recommendation, prepared for the purpose of incorporation in this circular, from the Independent Board Committee to the Independent Shareholders regarding the terms of the Open Offer, the Bonus Issue and the Underwriting Agreement:

==> picture [61 x 36] intentionally omitted <==

Tomorrow International Holdings Limited

(incorporated in Bermuda with limited liability)

(Stock Code: 760)

28 April 2006

To the Independent Shareholders

Dear Sir or Madam,

PROPOSED OPEN OFFER AND BONUS ISSUE AND THE UNDERWRITING AGREEMENT

We refer to the circular of the Company dated 28 April 2006 (the “Circular”) of which this letter forms part. Unless the context specifies otherwise, capitalized terms used herein have the same meanings as defined in the Circular.

We have been appointed by the Board as the Independent Board Committee to advise the Independent Shareholders as to whether the terms of the Open Offer, the Bonus Issue and the Underwriting Agreement are fair and reasonable insofar as the Independent Shareholders are concerned and whether the Open Offer, the Bonus Issue and the Underwriting Agreement are in the interest of the Company and the Shareholders as a whole. Barits has been appointed as the independent financial adviser to advise you and us in this respect.

RECOMMENDATION

We wish to draw your attention to the letter from the Board and the letter from Barits to the Independent Board Committee and the Independent Shareholders which contains its advice to us in relation to the Open Offer and the Bonus Issue, and the Underwriting Agreement as set out in the Circular.

Having taken into account the principal reasons and factors considered by, and the advice of, Barits as set out in its letter of advice on pages 32 to 68 of the Circular, we are of the opinion that the Open Offer, the Bonus Issue and the Underwriting Agreement are in the interests of the Company and the Shareholders as a whole and the terms of which are fair and reasonable insofar as the Company and the Independent Shareholders are concerned. Accordingly, we recommend the Independent Shareholders to vote in favour of the resolutions to be proposed at the SGM to approve the Open Offer, the Bonus Issue and the Underwriting Agreement.

Yours faithfully, Independent Board Committee

Ng Wai Hung Cheung Chung Leung, Richard Wu Wang Li

Independent non-executive Directors

– 31 –

LETTER OF ADVICE FROM BARITS

The following is the text of the letter of advice from Barits to the Independent Board Committee and the Independent Shareholders dated 28 April 2006 for incorporation in this circular.

BARITS SECURITIES (HONG KONG) LIMITED

Room 3406, 34/F

Edinburgh Tower, The Landmark 15 Queen’s Road Central Hong Kong

28 April 2006

To the Independent Board Committee and the Independent Shareholders of Tomorrow International Holdings Limited

Dear Sir,

(1) PROPOSED OPEN OFFER OF 357,585,805 NEW SHARES ON THE BASIS OF 5 OFFER SHARES FOR EVERY 4 EXISTING SHARES HELD ISSUED WITH 5 BONUS SHARES FOR EVERY 7 FULLY-PAID OFFER SHARES; AND

(2) THE UNDERWRITING AGREEMENT

INTRODUCTION

We refer to our appointment to advise the Independent Board Committee and the Independent Shareholders in respect of the terms of (i) the Open Offer and Bonus Issue; and (ii) the Underwriting Agreement, details of which are set out in the Announcement and this circular of which this letter forms part. Capitalised terms used in this letter shall have the same meanings ascribed to them in this circular unless the context otherwise requires.

Details of, among others, the terms and conditions of (i) the Open Offer and Bonus Issue; and (ii) the Underwriting Agreement are set out in the letter from the Board on pages 32 to 68 of this circular. Pursuant to the Open Offer and Bonus Issue, the Qualifying Shareholders will be provisionally allotted 5 Offer Shares for every 4 existing Shares held on the Record Date and payable in full upon acceptance, and the registered holders of fully-paid Offer Shares will be issued 5 Bonus Shares for every 7 fully-paid Offer Shares. The Company proposes to raise approximately HK$173.4 million, before expenses, by issuing 357,585,805 Offer Shares at a price of HK$0.485 per Offer Share by way of the Open Offer. The estimated net proceeds from the Open Offer are approximately HK$170 million, which are intended to be applied for future diversified investment opportunities when suitable projects are identified and for general working capital purpose.

As at the Latest Practicable Date, the Major Shareholder was interested in 175,803,363 existing Shares, representing approximately 61.45% of the existing issued share capital of the Company. Pursuant to the Underwriting Agreement, the Major Shareholder has

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LETTER OF ADVICE FROM BARITS

irrevocably undertaken to the Company during the period immediately after the Record Date and prior to the Final Acceptance Date not to dispose the 175,803,363 Shares and to accept or procure the acceptance of its full entitlement of 219,754,200 Offer Shares under the Open Offer and to underwrite the balance of any Offer Shares not taken up by the Qualifying Shareholders pursuant to the Underwriting Agreement.

In accordance with Rule 7.24(5)(a) of the Listing Rules, the Open Offer and the Bonus Issue are conditional upon approval by the Independent Shareholders at the SGM by a resolution on which any controlling shareholders and their associates or, where there are no controlling shareholders, the Directors (excluding independent non-executive Directors) and the chief executive of the Company and their respective associates shall abstain from voting in favour at the SGM. Given that (i) the Underwriter, being the Major Shareholder, is a connected person of the Company; and (ii) no excess application for the Open Offer is available, the Open Offer does not fall within the category of exempt connected transactions under Rule 14A.31 of the Listing Rules. As the aggregate consideration under the Underwriting Agreement (being the aggregate of the maximum amount of the subscription price for the underwritten Shares payable by the Major Shareholder and the maximum amount of the underwriting commission receivable by the Major Shareholder) is more than 25% of the applicable percentage ratios and the consideration is more than HK$10,000,000, the Underwriting Agreement will therefore be subject to approval by the Independent Shareholders under Rule 14A.17 of the Listing Rules. Accordingly, the Open Offer and the Bonus Issue are conditional on approval of the Underwriting Agreement by the Independent Shareholders. Being the controlling shareholder of the Company and the Underwriter, the Major Shareholder and its associates will abstain from voting on the resolution to approve the Open Offer, the Bonus Issue and the Underwriting Agreement at the SGM.

In order to facilitate the Open Offer by enabling the Company to allot and issue the Bonus Shares, which will only be issued to registered holders of the fully-paid Offer Shares, the Directors propose the Amendment of the Bye-laws to allow a distribution to Shareholders on a non pro-rata basis. Accordingly, a special resolution will be proposed at the SGM to approve the Amendment of the Bye-laws, the passing of which is one of the conditions of the Open Offer and the Bonus Issue. The Board also proposes the Share Consolidation, upon completion of the Open Offer and the Bonus Issue, involving a consolidation of every 4 Shares into one Consolidated Share. The Share Consolidation is conditional upon, amongst other things, the passing by the Shareholders of a resolution to approve the Share Consolidation at the SGM and the Open Offer and the Bonus Issue becoming unconditional and the Underwriting Agreement not being terminated by the Underwriter. Hence, the resolutions for the Share Consolidation and the Open Offer and the Bonus Issue are conditional upon the passing of the resolutions to approve the Amendment of the Bye-laws.

BASIS OF OUR OPINION

In formulating our opinion and advice, we have relied on the accuracy of the information and representations contained in this circular and information and facts provided to us by the Company, the Directors and the management of the Company. We have also assumed that all statements of belief and intention made by the Directors in this circular were reasonably made after due enquiry. We have assumed that all statements and representations made or referred to in this circular were true at the time they were made and continue to be true at the date of the SGM. We have no reason to doubt the truthfulness,

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LETTER OF ADVICE FROM BARITS

accuracy and completeness of the information and representations provided to us by the Company, the Directors and management of the Company and have no reason to doubt that any relevant material facts have been withheld or omitted.

We have reviewed, among other things, the published information of the Group, including the Group’s audited financial statements for the four years ended 31 December 2005. We have discussed with the Directors the rationale of the Open Offer, the Bonus Issue and the funding requirement of the Group. We have also reviewed the past performance of the Share price since 1 January 2005 up to and including 27 February 2006, being the last trading date of the Shares on the Stock Exchange prior to the suspension of trading of Shares, to the Latest Practicable Date, as well as the open offers of 14 companies listed on the main board of the Stock Exchange announced during the period from 1 March 2005 up to and including 8 March 2006, being the one-year period prior to the Announcement. In addition, we have reviewed the principal terms of the Underwriting Agreement. We consider that we have reviewed sufficient information to reach an informed view and to justify our reliance on the accuracy of the information contained in this letter and to provide a reasonable basis for our opinion. We have not, however, conducted an independent investigation into the business affairs, financial position or future prospects of the Group nor have we carried out any independent verification of the information supplied.

We have not considered any tax implications on Qualifying Shareholders arising from the subscription for, holding of or dealing in the Offer Shares and the Bonus Shares or otherwise, since these are dependent on their individual circumstances. We will not accept responsibility for any tax effect on, or liabilities of, any person resulting from the subscription for, holding of or dealing in the Offer Shares and the Bonus Shares or otherwise. Qualifying Shareholders are urged to consult their own professional advisers if they are in doubt as to the investment value of the Offer Shares and the Bonus Shares or as to their individual tax position.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our recommendation to the Independent Board Committee and the Independent Shareholders in relation to the terms of (i) the Open Offer and the Bonus Issue; and (ii) the Underwriting Agreement, we have considered the following principal factors and reasons:

1. Principal factors considered

1.1 Financial review of the Group

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LETTER OF ADVICE FROM BARITS

1.1.1 Analysis on profit and loss accounts

Set out below is a summary of profit and loss accounts extracted from the audited consolidated results of the Group for the four years ended 31 December 2005:

For the year ended 31 December 2005 2004 2003 2002 (HK$’000) (HK$’000) (HK$’000) (HK$’000) (Audited) (Audited) (restated) (Audited) (Audited) 553,871 691,136 722,782 741,077 (473,975) (599,715) (621,877) (578,723) 79,896 91,421 100,905 162,354 14.4% 13.2% 14.0% 21.9% 26,196 14,089 11,652 13,830 (18,359) (24,050) (27,194) (23,642) (94,712) (102,958) (109,870) (113,632) (2,822) (720) (10,640) (2,957) – 13,062 23,550 24,784 (143) 3,900 – – 42,244 8,458 18,407 3,481 – – (1,015) 22 5,270 3,346 – – 200 3,150 (2,967) (2,200) – 10,900 – – – – (20) (1,480) 2,715 – – – (490) – – – 39,995 20,598 2,808 60,560 (45,000) – – – 1,997 2,791 1,727 5,797 (3,008) 23,389 4,535 66,357 (1,520) (452) (1,778) (4,675) (4,528) 22,937 2,757 61,682 9,307 5,758 8,941 1,165 4,779 28,695 11,698 62,847 0.9% 4.2% 1.6% 8.5%	For the year ended 31 December 2005 2004 2003 2002 (HK$’000) (HK$’000) (HK$’000) (HK$’000) (Audited) (Audited) (restated) (Audited) (Audited) 553,871 691,136 722,782 741,077 (473,975) (599,715) (621,877) (578,723) 79,896 91,421 100,905 162,354 14.4% 13.2% 14.0% 21.9% 26,196 14,089 11,652 13,830 (18,359) (24,050) (27,194) (23,642) (94,712) (102,958) (109,870) (113,632) (2,822) (720) (10,640) (2,957) – 13,062 23,550 24,784 (143) 3,900 – – 42,244 8,458 18,407 3,481 – – (1,015) 22 5,270 3,346 – – 200 3,150 (2,967) (2,200) – 10,900 – – – – (20) (1,480) 2,715 – – – (490) – – – 39,995 20,598 2,808 60,560 (45,000) – – – 1,997 2,791 1,727 5,797 (3,008) 23,389 4,535 66,357 (1,520) (452) (1,778) (4,675) (4,528) 22,937 2,757 61,682 9,307 5,758 8,941 1,165 4,779 28,695 11,698 62,847 0.9% 4.2% 1.6% 8.5%	For the year ended 31 December 2005 2004 2003 2002 (HK$’000) (HK$’000) (HK$’000) (HK$’000) (Audited) (Audited) (restated) (Audited) (Audited) 553,871 691,136 722,782 741,077 (473,975) (599,715) (621,877) (578,723) 79,896 91,421 100,905 162,354 14.4% 13.2% 14.0% 21.9% 26,196 14,089 11,652 13,830 (18,359) (24,050) (27,194) (23,642) (94,712) (102,958) (109,870) (113,632) (2,822) (720) (10,640) (2,957) – 13,062 23,550 24,784 (143) 3,900 – – 42,244 8,458 18,407 3,481 – – (1,015) 22 5,270 3,346 – – 200 3,150 (2,967) (2,200) – 10,900 – – – – (20) (1,480) 2,715 – – – (490) – – – 39,995 20,598 2,808 60,560 (45,000) – – – 1,997 2,791 1,727 5,797 (3,008) 23,389 4,535 66,357 (1,520) (452) (1,778) (4,675) (4,528) 22,937 2,757 61,682 9,307 5,758 8,941 1,165 4,779 28,695 11,698 62,847 0.9% 4.2% 1.6% 8.5%	For the year ended 31 December 2005 2004 2003 2002 (HK$’000) (HK$’000) (HK$’000) (HK$’000) (Audited) (Audited) (restated) (Audited) (Audited) 553,871 691,136 722,782 741,077 (473,975) (599,715) (621,877) (578,723) 79,896 91,421 100,905 162,354 14.4% 13.2% 14.0% 21.9% 26,196 14,089 11,652 13,830 (18,359) (24,050) (27,194) (23,642) (94,712) (102,958) (109,870) (113,632) (2,822) (720) (10,640) (2,957) – 13,062 23,550 24,784 (143) 3,900 – – 42,244 8,458 18,407 3,481 – – (1,015) 22 5,270 3,346 – – 200 3,150 (2,967) (2,200) – 10,900 – – – – (20) (1,480) 2,715 – – – (490) – – – 39,995 20,598 2,808 60,560 (45,000) – – – 1,997 2,791 1,727 5,797 (3,008) 23,389 4,535 66,357 (1,520) (452) (1,778) (4,675) (4,528) 22,937 2,757 61,682 9,307 5,758 8,941 1,165 4,779 28,695 11,698 62,847 0.9% 4.2% 1.6% 8.5%
79,896 14.4% 26,196 (18,359) (94,712) (2,822) – (143) 42,244 – 5,270 200 – – 2,715 (490) 39,995 (45,000) 1,997 (3,008) (1,520) (4,528) 9,307	91,421 13.2% 14,089 (24,050) (102,958) (720) 13,062 3,900 8,458 – 3,346 3,150 10,900 – – – 20,598 – 2,791 23,389 (452) 22,937 5,758	100,905 14.0% 11,652 (27,194) (109,870) (10,640) 23,550 – 18,407 (1,015) – (2,967) – (20) – – 2,808 – 1,727 4,535 (1,778) 2,757 8,941	162,354 21.9% 13,830 (23,642 (113,632 (2,957
			24,784 – 3,481 22 – (2,200 – (1,480 – –
			60,560 – 5,797
			66,357 (4,675
			61,682 1,165
4,779 0.9%	28,695 4.2%	11,698 1.6%

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LETTER OF ADVICE FROM BARITS

(a) Overview

In 2003, the economic condition reached the trough during the first quarter upon the outbreak the war in Iraq. Fuelled by the outbreak of the Severe Acute Respiratory Syndrome (“SARS”), the Hong Kong economy confronted with a recession during the first half of the year. Owing to the SARS outbreak and the war in Iraq, the electronic products business of the Group deteriorated and the sales from the electronic products segment moderately decreased. The printed circuit boards (“PCB”) business of the Group experienced a difficult time whilst the trading of listed equity securities and the provision of loan financing activities remained inactive. The outbreak of SARS and the war in Iraq also led to the decrease in sales order and lowered utilisation of the production facilities of Swank International Manufacturing Company Limited (“Swank”). The Group disposed of approximately 19.0% of interest in Swank to partly realise its investment in the optical industry while maintaining its control over Swank. The transaction gave rise to a total gain of approximately HK$16.0 million, of which approximately HK$7.4 million was booked in 2003 and the remaining gain was booked in 2004.

In 2004, the Hong Kong economy began to recover after the SARS had been over. Although the local retails and property markets together with the service industries were benefited from such recovery, the manufacturing and export businesses in Hong Kong continuously confronted with keen competition from the exporters in other Asian countries including the PRC. Coupled with the weakened US dollar currency and the rising oil prices and accordingly the weakened consumption power in the American market, the performance of the core business of the Group deteriorated in general. Following years of decline, the local property market revived at a fast pace during the year of 2004. To seize this opportunity, the Group invested in luxury residential properties. By the end of 2004, the Group recorded a valuation surplus of HK$9.7 million in respect of its investment properties.

In 2005, the manufacturing and export businesses of the Group faced the challenges of rising interest rates, energy costs and gradual rise in overhead costs in the PRC. The Group’s core businesses confronted fierce market competition and endeavoured to maintain its competitiveness by means of price reduction. As substantial interest in Swank was disposed on 3 June 2005, only about five-month turnover was recorded for 2005. Despite that a gain of approximately HK$42.2 million was recorded as a result of such disposal, the Group on the other hand made a loan provision of HK$45 million which resulted in substantial decline in the net profit for 2005.

Upon our review on the financial performance of the Group for the four financial years ended 31 December 2005, we note that the Group reported a general decline in turnover and gross profit. Both the operating profit and net profit of the Group experienced a substantial decline in 2003 and bounced back in 2004 due to the effects brought about by exceptional items

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LETTER OF ADVICE FROM BARITS

including, among others, (i) the negative goodwill recognized as income arising from the acquisition of interest in Swank in 2002; (ii) gain on disposal of properties held for sale; (iii) gain on subsequent disposal of partial interest in Swank in 2003 to partly realise its investment in the optical business; (iv) surplus or deficit on revaluation of leasehold land and buildings; (v) provision made against properties held for sale; and (vi) gain on disposal of interests in associates. In 2005, gross profit of the Group continued to decline and the net profit of the Group substantially dropped primarily due to the impairment loss on loan receivable.

(b) Comparison between financial years of 2003 and 2002

In 2003, the Group recorded a turnover of approximately HK$722.8 million, representing a drop of approximately 2.4% when compared to the turnover of approximately HK$741.1 million in 2002. Gross profit of the Group decreased from approximately HK$162.4 million in 2002 to approximately HK$100.9 million in 2003, representing a drop of approximately 37.7%, whilst the gross profit margin of the Group reduced from approximately 21.9% in 2002 to approximately 14.0% in 2003. As advised by the Directors and mentioned above, the outbreak of SARS and the war in Iraq affected the overall economy negatively, thereby causing the drop in turnover and gross profit margin in 2003.

We note that other operating expenses of the Group substantially increased from approximately HK$3.0 million in 2002 to approximately HK$10.6 million in 2003, whereas other revenue reduced from approximately HK$13.8 million in 2002 to approximately HK$11.7 million in 2003. The Directors advised that such reduction in other revenue was mainly due to the decrease in interest income. As further advised by the Directors, other operating expenses for 2003 comprised of (i) provision of bad debt which amounted to approximately HK$7.4 million as made according to the accounting policies of the Company; (ii) retrenchment cost which mainly consisted of redundancy payment for Swank during implementation of cost control for Swank amounting to approximately HK$3.0 million; and (iii) loss on disposal of property of approximately HK$240,000. Notwithstanding the exceptional gain on disposal of partial interest in Swank, which was then a subsidiary of the Company, amounting to approximately HK$18.4 million, the operating profit in 2003 reduced to approximately HK$2.8 million, representing a substantial drop of approximately 95.4% as compared to that of the Group in 2002 of approximately HK$60.6 million. Furthermore, share of net profits of associates decreased from approximately HK$5.8 million in 2002 to approximately HK$1.7 million in 2003. As a result, the net profit of the Group decreased substantially by approximately 81.4% from approximately HK$62.8 million in 2002 to approximately HK$11.7 million in 2003.

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LETTER OF ADVICE FROM BARITS

(c) Comparison between the financial years of 2004 and 2003

In 2004, the Group recorded a turnover of approximately HK$691.1 million, representing a drop of approximately 4.4% when compared to the turnover of approximately HK$722.8 million in 2003. Gross profit of the Group decreased from approximately HK$100.9 million in 2003 to approximately HK$91.4 million in 2004, representing a drop of approximately 9.4%. Gross profit margin of the Group reduced from approximately 14.0% in 2003 to approximately 13.2% in 2004. Both the turnover and gross profit in 2004 continued the trend of decline as inherited from the previous year, which depicted the weakened performance in the principal business of the Group. As advised by the Directors, the drop in turnover of 2004 was due to keen market competition and price pressure from customers, and the decrease in gross profit margin was due to rising overhead costs in the PRC.

Notwithstanding the continuous decline in gross profit, the Group demonstrated an improvement in cost control. The aggregate amount of distribution costs, administrative expenses and other operating expenses decreased from approximately HK$147.7 million in 2003 to approximately HK$127.7 million in 2004. Other revenue increased from approximately HK$11.7 million in 2003 to approximately HK$14.1 million in 2004, mainly due to the increase in sales of obsolete inventories and raw materials. Reduction in the aforesaid costs and increase in other revenue, to a certain extent, provided an offsetting effect on the operating profit against the decline in gross profit in 2004, and such an effect was reinforced by other exceptional items including (i) gain on disposal of properties held for sale which amounted to approximately HK$3.9 million; (ii) reversal of previous revaluation deficits of leasehold buildings which amounted to approximately HK$3.3 million; (iii) write back of over-provision against properties held for sale which amounted to approximately HK$3.2 million; and (iv) gain on disposal of interests in associates which amounted to approximately HK$10.9 million. As a result, the operating profit of the Group increased substantially from approximately HK$2.8 million in 2003 to approximately HK$20.6 million in 2004. Net profit of the Group increased accordingly by approximately 145.3% from approximately HK$11.7 million in 2003 to approximately HK$28.7 million in 2004.

(d) Comparison between the financial years of 2005 and 2004

In 2005, the Group reported a turnover of approximately HK$553.9 million, representing a drop of approximately 19.9% when compared to the turnover of approximately HK$691.1 million in 2004. Gross profit of the Group decreased from approximately HK$91.4 million in 2004 to approximately HK$79.9 million in 2005, representing a drop of approximately 12.6%. Gross profit margin of the Group mildly increased from approximately 13.2% in 2004 to approximately 14.4% in 2005. As mentioned in the 2005 annual report of the Company, in spite of the decline

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in turnover primarily resulted from fierce market competition and price pressure from customers, the Group remained vigilant in cost control and directed sales focus to industrial sectors which could offer higher margin, thereby leading to the mild increase in gross profit margin.

According to the 2005 annual report of the Company, in January 2005, Probest Holdings Inc. (“Probest”), a wholly-owned subsidiary of the Company, amongst others, entered into a sale and purchase agreement with China Time Investment Holdings Limited (“China Time”) for the disposal of approximately 46.0% of equity interest of Swank (the “Disposal”). The completion of the Disposal took place on 3 June 2005 and the Group thereby realized a net gain of approximately HK$42.2 million.

Other revenue of the Group amounted to approximately HK$26.2 million, representing an increase of approximately 85.9% as compared to approximately HK$14.1 million in 2004. Such increase was primarily due to (i) the increase in bank interest income; (ii) gain on deregistration of subsidiaries; and (iii) other interests earned. Further, the Group succeeded in capturing the rallying sentiments in the Hong Kong property market and realized a gain of approximately HK$2.7 million upon disposal of certain investment properties. In spite of the operating profit of approximately HK$40.0 million as reported by the Group in 2005, which nearly doubled that of 2004, we noted that the Group has made an impairment loss on loan receivable which amounted to HK$45 million. As disclosed in the 2005 annual report of the Company, a loan agreement amounting to HK$50 million was signed between Active Base Limited (“Active Base”), a wholly owned subsidiary of the Company, and Moulin Global Eyecare Holdings Limited (“Moulin”) during 2005. A debenture was also executed by Moulin in favour of Active Base. In June 2005, Moulin commenced legal proceedings in the High Court against Active Base claiming that the aforesaid loan agreement and debenture were unenforceable. In this regard, ongoing litigations are expected. The Group has accordingly made a provision of HK$45 million against the aforesaid loan for the sake of prudence.

Consequently, the Group’s net profit substantially declined from approximately HK$28.7 million in 2004 to approximately HK$4.8 million in 2005, representing a decline of approximately 83.3%. Net profit margin of the Group accordingly decreased from approximately 4.2% to approximately 0.9%.

(e) Market environment and business prospects of the Group

According to an article recently released by Hong Kong Trade Development Council, despite that Hong Kong continues to be a popular sourcing centre for higher-end consumer products, competition intensified as long as other Asian suppliers have posed an increasing threat to Hong Kong’s electronics exports. Competition from less advanced suppliers is

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confined to low-end mass-market items and simple products, while more advanced competitors like Taiwan and Singapore have different product mixes from Hong Kong. On the other hand, the fast changing consumer pattern has resulted in low inventory levels in major export markets, requiring quick response for inventory replenishment. Product life cycles have also shortened amid the advancement in technology, leading to the need for more frequent changes to product features and cosmetic designs in order to lure consumers.

As disclosed in the 2005 interim report of the Company and upon discussion with the management of the Company, we understand that the Group intended to invest more resources in the research and development for the electronic product division by recruiting high caliber staff. Wireless application and radio-frequency products shall remain the major direction of the Group’s development for this segment. With newly developed product lines, the Group is expected to be better positioned in its target markets with less price sensitivity and competition. For the segment of printed circuit board (“PCB”), the Group planned to expand the existing clientele and explore new customers in the European and U.S. markets, with a continual emphasis on profitable customer segments. In addition, the Group may consider to increase the manufacturing capacity by constructing new factory building and purchasing new equipment for the PCB segment. Although the Directors expressed their optimism and positive expectation for the optical industry, the Directors advised that the results of the optical products division shall not have material impact on the Group’s overall results due to the insignificant shareholding of the Company of 5% in Swank after the Disposal. As further disclosed in the 2005 annual report of the Company, the Directors expected that the loan financing business will remain inactive in 2006. The Directors do not expect the Group’s existing operations in general to bring much surprise to its financial performance in the near future.

Having regard to (i) general decrease in the turnover and gross profit of the existing businesses operated by the Group for the four years ended 31 December 2005; (ii) the fluctuation in net profit brought about by exceptional items during the four years ended 31 December 2005; and (iii) the Company’s vision towards the prospects of the existing business, we are not in a position to conclude that there will be a breakthrough in the existing business operated by the Group.

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1.1.2 Analysis on balance sheet

Set out below is a summary extracted from the audited consolidated balance sheet of the Group for the four years ended 31 December 2005:

	For	the year ended 31 December	the year ended 31 December	the year ended 31 December
	2005	2004	2003	2002
	(HK$’000)	(HK$’000)	(HK$’000)	(HK$’000)
	(Audited)	(Audited)	(Audited)	(Audited)
		(restated)
(1) Net profit	4,779	28,695	11,698	62,847
(2) Net asset value
attributable to
shareholders of the
Group	784,113	739,651	698,215	688,077
Return on equity = (1)/(2)	0.6%	3.9%	1.7%	9.1%
(3) Current assets	594,650	635,798	725,510	676,241
(4) Current liabilities	132,044	155,907	191,046	136,492
Current Ratio = (3)/(4)	4.50	4.08	3.80	4.95
(5) Total liabilities	134,667	159,978	193,722	139,390
(6) Total assets	930,863	920,765	915,062	859,700
Gearing ratio = (5)/(6)	14.5%	17.4%	21.2%	16.2%

As illustrated in the above table, the net asset value of the Group amounted to approximately HK$784.1 million in 2005, representing an increase of approximately 6.0% as compared to approximately HK$739.7 million in 2004. Apart from the net profit of approximately HK$4.8 million generated in 2005, the Directors advised that such increment was due to (i) negative goodwill recognized as equity which amounted to approximately HK$27.0 million; (ii) increase in fair value of available-for-sale financial assets which amounted to approximately HK$15.6 million; and (iii) the net loss not recognized in the consolidated income statement as a result of exchange realignment which amounted to approximately HK$3.0 million. In 2004, the net asset value attributable to shareholders of the Group amounted to approximately HK$739.7 million, representing an increase of approximately 5.9% from approximately HK$698.2 million in 2003. Apart from the net profit of approximately HK$28.7 million, the increase in net asset value in 2004 was also attributable to (i) the opening adjustments of approximately HK$4.3 million due to the adoption of HKAS 17 which resulted in a change of accounting policy relating to leasehold land; (ii) the gain arising from revaluation of investment properties which amounted to approximately HK$8.0 million; and (iii) net gains not recognised in the consolidated income statement as a result of exchange realignment, which amounted to approximately HK$468,000. For 2003, the net asset value of approximately HK$698.2 million depicted a mild increase of approximately 1.5% from approximately HK$688.1 million in 2002. Such increase was mainly attributable to the net profit generated in 2003.

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In terms of return on equity, calculated as a ratio of net profit for the year to net asset value as at the end of the corresponding year, the Group generally reported positive return rates which amounted to approximately 9.1% in 2002, approximately 1.7% in 2003, approximately 3.9% in 2004 and approximately 0.6% in 2005. The substantial drop in return on equity in 2005 was primarily a consequence of the considerable decline in net profit for the Group in 2005, details of which has been set out in the sub-section headed 1.1.1(d). In general, the return on equity of the Group moved up and down despite that it remained positive for the four years ended 31 December 2005.

The current ratio of the Group, calculated as a ratio of its total current assets to total current liabilities, was approximately 4.95 in 2002, approximately 3.80 in 2003, approximately 4.08 in 2004 and approximately 4.50 in 2005. Current ratio generally measures a company’s ability to meet short-term debt obligations. The higher the ratio, the more liquid the company is. Given that the Group’s current assets have been maintained well above its current liabilities for the past four years ended 31 December 2005, we consider that the Group should have no problem in meeting its short-term liabilities.

The gearing ratio of the Group, calculated as a ratio of its total liabilities to its total assets, was approximately 16.2% in 2002, approximately 21.2% in 2003, approximately 17.4% in 2004 and approximately 14.5% in 2005. We note that the gearing ratio for 2003 was comparatively higher as a result of the higher level of total liabilities, which amounted to approximately HK$193.7 million (2002: approximately HK$139.4 million). According to the 2003 annual report of the Company, such increase was primarily due to (i) the increase in accounts payable amounting to approximately HK$119.3 million (2002: approximately HK$71.1 million) which was mainly attributable to the lengthened credit terms offered by its suppliers; and (ii) the increase in due to associates which amounted to approximately HK$12.8 million (2002: approximately HK$8.8 million). As set out in the section headed “4. Indebtedness” in Appendix I to this circular, the Company was free of any borrowings as at the close of business on 28 February 2006 (being the latest practicable date for the purpose of the indebtedness statement prior to printing of this circular).

1.2 Reasons for the Open Offer and intended use of proceeds

As set out in the letter from the Board, the Company is actively seeking investment projects to diversify its business portfolio. The Company proposed to raise approximately HK$173.4 million, before expenses, by way of the Open Offer. The estimated net proceeds of the Open Offer, after deduction of expenses, are expected to amount to approximately HK$170 million and would be applied for future diversified investment opportunities when suitable projects are identified and for general working capital purpose. The Company intended to apply approximately HK$160 million for future investment projects and the balance of approximately HK$10 million as working capital.

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As set out in the Letter from the Board, the Company has reviewed various investment projects, such as property investment in the PRC, but no negotiation has been finalised yet. We have further made enquiries with the Company on the details of the projects under negotiation and were informed that such negotiations were in the preliminary stage and may or may not proceed. We were also advised by the Company that it may be too early and misleading to disclose projects which are yet to be concluded. The Directors consider that funds raised through the Open Offer could serve as a readily available source to finance investment project(s) should appropriate opportunities arise in the future. For reference purpose, we were advised by the Directors that the Group had successfully seized the opportunity to invest in luxury residential properties for asset appreciation in view of the recovering property market in 2004, which is a kind of proven experience and track record of the Company in successfully deriving capital appreciation from its investment properties.

We have conducted some research on the general perception of the capital market. Upon further analysis and discussion with the management of the Company, we understand that property investment projects normally require considerable amount of capital for activation. In addition, projects of larger scale are normally accompanied with a higher potential for exit than projects of smaller scale which could be generally evidenced by the market appetite towards the initial public offerings completed in 2005. Among the 54 corporates which went listed on the main board of the Stock Exchange for fund raising in 2005, there were 33 corporates with market capitalisation of over HK$1 billion at the time of initial public offering. With a view to identifying investment opportunities of higher return or exit potential, the Company tends to procure investment projects of larger scale. In this regard, we consider that the Open Offer could provide the Company with a financial flexibility when funding requirements of the Group arise in future.

Apart from conducting research on the general perception of the capital market, we have also made enquiry with the Company on the procedures of screening projects. We understand that it has been the policy of the Company to conduct market research and feasibility study prior to proceeding with any further negotiations. If the Board preliminarily considers the opportunity under review viable, in particular, from the perspective of future return and exit potential, the Company will proceed with further negotiations and due diligence for an in-depth understanding on the project and terms of investment. We consider that the Company has already taken prudent measures to safeguard the interests of the Company and the Shareholders as a whole. In addition, as governed by the Listing Rules, it is the fiduciary duty of the Directors to apply such degree of skill, care and diligence as may reasonably be expected of a person of his knowledge and experience and holding his office within a listed issuer and to act honestly and in good faith in the interests of the company as a whole. We therefore have reasonable ground to believe that the Directors will ensure that proceeds from the Open Offer will be properly applied for the benefits of the Company and the Shareholders.

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To better illustrate the historical performance of the Group and the business mix of the Group, we set out below a summary on segment results of the Group for (i) each of the four years ended 31 December 2005; and (ii) for each of the two six-month periods ended 30 June 2004 and 30 June 2005 respectively.

Segment Manufacture and sale of electronic products Manufacture and sale of printed circuit boards Trading and distribution of electronic components and parts Trading of listed equity investments Provision of loan financing Manufacture and sale of optical products Total net profit of the Group (Note)	Year ended 31 December 2005 Segment results % of the Group’s total net profit HK$’000 (audited) 18,489 387% (19,739) -413% (223) -5% (3,033) -63% (4,032) -84% (2,098) -44% 4,779	Year ended 31 December 2004 Segment results % of the Group’s total net profit HK$’000 (audited) (restated) 17,288 60% (18,328) -64% 683 2% (3,607) -13% (5,800) -20% (5,345) -19% 28,695	Year ended 31 December 2003 Segment results % of the Group’s total net profit HK$’000 (audited) 17,027 146% (18,342) -157% 673 6% (7,297) -62% (9,177) -78% (21,673) -185% 11,698	Year ended 31 December 2002 Segment results % of the Group’s total net profit HK$’000 (audited) 39,250 62% (1,302) -2% 2,336 4% (6,960) -11% (11,448) -18% 8,712 14% 62,847

Note: As certain items of the income statement could not be allocated to any of the segments, aggregation of segment results is not equal to the total net profit of the Group for the corresponding year, which is quoted herewith for reference only.

As demonstrated in the above table, the segment of manufacture and sale of electronic products had been outperforming the other five segments and reported segmental profits of approximately HK$39.3 million, approximately HK$17.0 million, approximately HK$17.3 million and approximately HK$18.5 million for each of the four years ended 31 December 2005 respectively. The segment of trading and distribution of electronic components and parts reported positive results during the three years ended 31 December 2004 but its contribution to the Group’s results was comparatively less significant than that of the electronic products segment; and this segment reported net loss of approximately HK$223,000 in 2005. The segment of manufacture and sale of optical products recorded a net profit of approximately HK$8.7 million for the year ended 31 December 2002 but experienced a recession to a net loss of approximately HK$21.7 million for the year ended 31 December 2003. The loss-making position for this segment sustained for the two years ended 31 December 2005 which reported net losses of approximately HK$5.3 million and approximately HK$2.1 million respectively. Apart from the aforesaid three segments, the other three segments, namely, manufacture and sale of printed circuit boards, trading of listed equity investments and provision of loan financing, all reported negative results for each of the four years ended 31 December 2005.

As advised by the Directors, competition in the electronic products industry has become more vigorous in recent years and the profit margin for this segment has been on general decline, they therefore considered it commercially viable to diversify the

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Group’s business portfolio instead of expanding its existing business segments. On such basis, we consider that it is justifiable for the Company to make use of the proceeds from the Open Offer for potential investments in order to diversify its business portfolio and enlarge its income base, and we concur with the Directors that such a development direction is in the interest of the Company and the Shareholders as a whole. For reference purpose, we have computed that the profit margin for the electronic products segment, which amounted to approximately 9.0% in 2002, approximately 4.3% in 2003, approximately 4.4% in 2004 and approximately 4.8% in 2005.

From the annual reports of the Company, we note that Swank had contributed to the Group annual turnover of approximately HK$207.7 million, approximately HK$192.2 million, approximately HK$174.9 million and approximately HK$64.0 million in 2002, 2003, 2004 and 2005 respectively, accounting for approximately 28.0%, 26.6%, 25.3% and 11.6% of the Group’s total turnover respectively. However, Swank’s contribution to the Group’s results had been negative since 2003 up to 3 June 2005 on which the Disposal was completed. Although the Disposal, as detailed in the sub-paragraph headed 1.1.1, could improve the net profit of the Group, we note that, on the other hand, a lower degree of diversification in the Group’s business portfolio was resulted, which may intensify the Group’s reliance on each of the remaining business segments. In other words, the elimination of the optical products segment would increase the extent of contribution, represented by percentage of both the turnover and profits, of each of the remaining five segments to the Group’s turnover and profits. In this regard, we consider that it is reasonable for the Group to explore new investment opportunities to compensate for the reduced degree of business diversification of the Group as a result of the Disposal.

As discussed above, the Directors believe that there is a need to explore other investment opportunities with earning potentials in order to diversify the Group’s existing business portfolio and income stream and to enhance Shareholders’ value. As confirmed by the Directors, they had been in negotiations with independent third parties on possible investments. Despite the fact that there was no particular progress in relation to the negotiations as at the Latest Practicable Date, we understand from the Directors that they have been actively exploring opportunities to expand the Group’s business scope and income base. The Directors have confirmed to us that they are fully aware of the risks involved in diversifying the Group’s business and they have and will continue to exercise necessary and due care in accessing any investment opportunities. They have also confirmed to us that, save as disclosed, they at present have not identified any potential investments in which the Group will commit its capital, nor have they earmarked any particular amount of the Group’s cash surplus for any possible investments. Nevertheless, the Directors consider that a wider capital base in the form of readily available cash buffer is necessary for the Group to capitalize on any future investment opportunities that the Directors consider appropriate.

However, Independent Shareholders should note that the aforesaid negotiations are in preliminary stage and may or may not proceed. Shareholders and potential investors of the Company are advised to exercise caution when dealing in the Shares. As further confirmed by the Directors, the proceeds from the Open Offer will not be utilised in

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any specific industry. We therefore cannot ensure that the proceeds from the Open Offer will eventually be applied in property investment. Nevertheless, Independent Shareholders should beware that the success of any future investments to be made by the Company relies mainly on the vision and the capability of the management of the Company. Independent Shareholders could also make reference to the history of the Company for the recent few years which recorded little write-off in investments.

As set out in the Letter from the Board, in the event that the Company cannot earmark any suitable investment upon completion of the Open Offer, the net proceeds from the Open Offer shall be deposited in bank temporarily as time deposit. We consider that such arrangement is fair and reasonable and in the interests of the Company and Shareholders as a whole.

1.3 Principal terms of the Open Offer and the Bonus Issue

For ease of reference, we duplicate and set out below the issue statistics from the letter from the Board:

Basis of the Open Offer	:	an assured entitlement of 5 Offer Shares for
		every 4 existing Shares held by the Qualifying
		Shareholders as at the close of business on the
		Record Date
Basis of the Bonus Issue	:	5 Bonus Shares for every 7 fully-paid Offer
		Shares
Subscription Price	:	HK$0.485 per Offer Share
Number of existing Shares	:	286,068,644 Shares
in issue as at the Latest
Practicable Date
Number of Offer Shares to	:	357,585,805 Offer Shares
be issued
Number of Bonus Shares to	:	not more than 255,418,430 Bonus Shares
be issued

As at the Latest Practicable Date, the Company has no derivatives, options, warrants and conversion rights or other similar rights which are convertible or exchangeable into Shares and has no intention to issue any new Share or any of the above securities before the Final Acceptance Date .

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their assured entitlement under the Open Offer. On such basis and given that the Qualifying Shareholders who take up their entitlements under the Open Offer are entitled to take up the Bonus Shares, we are of the view that the Bonus Issue is fair and reasonable so far as the Shareholders are concerned.

As set out in the letter from the Board, the Subscription Price of $0.485 was arrived at after arm’s length negotiation between the Company and the Major Shareholder with reference to the prevailing market price of the Shares between the range of HK$0.56 (being the lowest average closing price per Share within the last three calendar months before the date of the Announcement) to HK$0.70 (being the highest average closing price per Share within the last three calendar months before the date of the Announcement) under the prevailing market conditions and recent open offer cases.

The Subscription Price of HK$0.485 represents:

(i) a discount of approximately 13.4% to the closing price of HK$0.56 per Share quoted on the Stock Exchange on 27 February 2006, being the last trading day before the suspension of trading in the Shares pending the publication of the Announcement (the “Last Trading Date”);
(ii) a premium of approximately 30.7% to the theoretical ex-entitlement price (after taking into consideration of the Bonus Issue) of HK$0.371 per Share based on the closing price per Share on the Last Trading Date;
(iii) a discount of approximately 81.2% to the audited net asset value per Share of HK$2.58 as at 31 December 2004; and
(iv) a discount of approximately 82.3% to the audited net asset value per Share of HK$2.74 as at 31 December 2005 prior to the Open Offer.

For reference purpose, we set out below the calculation of the theoretical ex-entitlement price of HK$0.371:

Theoretical ex-entitlement price (in HK$)

[p][rice][on][Last][Tradin][g][Date][+][5/4][x][Subscri][p][tion][Price]
=[closin][g] 1 + 5/4 + (5/4 x 5/7)

[+][5/4][x][0.485] =[0.56] 22/7 =[1.166] 3.14 = 0.371

For those Shareholders who would participate in the Open Offer, they would effectively be entitled to approximately 1.25 Offer Shares and approximately 0.89 Bonus Shares for every Share they hold (without taking into account the Share Consolidation). Based on the total subscription monies under the Open Offer and taking

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into account the aggregate of the Offer Shares and the Bonus Issue, the theoretical subscription price of each Offer Share (the “Theoretical Subscription Price”) is approximately HK$0.283.

For reference purpose, we set out below the calculation of the Theoretical Subscription Price of each Offer Share, based on the aggregation of the Offer Shares and Bonus Issue:

Theoretical Subscription Price (in HK$)

[x][Subscri][p][tion][p][rice]
=[1.25] 1.25 + 0.89
= 0.283

The Theoretical Subscription Price of HK$0.283 represents:

(i) a discount of approximately 49.5% to the closing price of HK$0.56 per Share quoted on the Stock Exchange on the Last Trading Date;
(ii) a discount of approximately 23.7% to the theoretical ex-entitlement price (after taking into consideration of the Bonus Issue) of HK$0.371 per Share based on the closing price per Share on the Last Trading Date;
(iii) a discount of approximately 89.0% to the latest audited net asset value attributable to shareholders per Share of HK$2.58 as at 31 December 2004; and
(iv) a discount of approximately 89.7% to the audited net asset value attributable to shareholders per Share of HK$2.74 as at 31 December 2005.

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1.4 Share Performance

The following sets out the average daily closing prices, the monthly highest closing price and the monthly lowest closing price of the Shares during the period from 1 January 2005 to the Latest Practicable Date, excluding the periods from 21 January 2005 to 18 April 2005 (both days inclusive) and from 28 February 2006 to 8 March 2006 (both days inclusive) during which the trading of Shares was suspended (the “Review Period”):

	Highest	Lowest	Monthly
Month	price	price	average
	(HK$)	(HK$)	(HK$)
2005
January (Note 1)	0.70	0.66	0.69
February (Note 1)	N/A	N/A	N/A
March (Note 1)	N/A	N/A	N/A
April (Note 1)	0.75	0.62	0.67
May	0.71	0.62	0.65
June	0.70	0.57	0.62
July	0.62	0.56	0.59
August	0.56	0.53	0.56
September	0.60	0.54	0.56
October	0.59	0.46	0.55
November	0.55	0.48	0.50
December	0.70	0.60	0.67
2006
January	0.68	0.58	0.62
February (Note 2)	0.65	0.56	0.61
March (Note 2)	0.56	0.49	0.52
April (up to the Latest Practicable Date)	0.90	0.50	0.69

Source: Bloomberg

Notes:

Trading in the Shares was suspended on 21 January 2005 upon request by the Company. There was no trading in the Shares from 21 January 2005 until 19 April 2005, on which trading in the Shares was resumed. Days on which trading in the Shares were suspended are excluded in the calculation of highest price, lowest price and the monthly average.
Trading in the Shares was suspended on 28 February 2006 upon request by the Company. There was no trading in the Shares from 28 February 2006 until 9 March 2006, on which trading in the Shares was resumed. The calculation of highest price, lowest price and the monthly average only covered the period from (and inclusive of) 9 March 2006 up to (and inclusive of) 31 March 2006.

During the Review Period, the highest closing price and the lowest closing price of the Shares on the Stock Exchange were HK$0.90 on 25 April 2006 and HK$0.455 on 25 October 2005 respectively. The Subscription Price of HK$0.485 per Offer Share

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represents a discount of approximately 46.1% to the highest closing price of the Shares during the Review Period and a premium of approximately 6.6% to the lowest closing price of the Shares during the Review Period. Taking into account the aggregation of the Offer Shares and the Bonus Shares to be issued under the Offer Share and the Bonus Issue respectively, the Theoretical Subscription Price of HK$0.283 per Offer Share represents a discount of approximately 68.6% and 37.8% to the highest and lowest closing price of the Shares during the Review Period respectively.

The following chart illustrates the closing price of the Shares on the Stock Exchange against the Subscription Price of HK$0.485 and the Theoretical Subscription Price of HK$0.283 during the Review Period.

==> picture [361 x 228] intentionally omitted <==

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

Closing price (HK$)
0.9
0.8
0.7
0.6
0.5
Subscription Price (HK$0.485)
0.4
0.3
Theoretical Subscription Price (HK$0.283)
0.2
0.1
0 Latest
Practicable
Date
Month
Jan-05 Feb-05 Mar-05 Apr-05 May-05 Jun-05 Jul-05 Aug-05 Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06
----- End of picture text -----

Source: Bloomberg

Note: Each of the two shaded regions represents a period during which trading in Shares on the Stock Exchange was suspended, with (i) the first period being from (and inclusive of) 21 January 2005 to 18 April 2005; and (ii) the second period being from (and inclusive of) 28 February 2006 to 8 March 2006.

After the release of the Announcement, the closing price per Share moderately dropped to HK$0.53 on 10 March 2006, representing a decrease of approximately 5.4% when compared to HK$0.56 per Share as quoted on the Stock Exchange on the Last Trading Day. As at the Latest Practicable Date, the closing price of the Share as quoted on the Stock Exchange was HK$0.90.

The Subscription Price of HK$0.485 per Share represents:

(i) a discount of about 13.4% to the closing price of HK$0.56 per Share as quoted on the Stock Exchange on the Last Trading Day;

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(ii) a discount of about 20.5% to the average closing price of HK$0.61 per Share as quoted on the Stock Exchange for the last ten trading days up to and including the Last Trading Day;
(iii) a discount of about 21.8% to the average closing price of HK$0.62 per Share as quoted on the Stock Exchange for the last 30 trading days up to and including the Last Trading Day;
(iv) a discount of about 24.2% to the average closing price of HK$0.64 per Share as quoted on the Stock Exchange for the last 60 trading days up to and including the Last Trading Day;
(v) a discount of about 46.1% to the closing price of HK$0.90 per Share as quoted on the Stock Exchange on the Latest Practicable Date;
(vi) a discount of about 81.2% to the audited net asset value attributable to Shareholders per Share of HK$2.58 as at 31 December 2004; and
(vii) a discount of about 82.3% to the audited net asset value attributable to Shareholders per Share of HK$2.74 as at 31 December 2005 prior to the Open Offer.

The Theoretical Subscription Price of HK$0.283 per Share, which effectively takes into account the aggregation of the Open Offer and the Bonus Issue, represents:

(i) a discount of about 49.5% to the closing price of HK$0.56 per Share as quoted on the Stock Exchange on the Last Trading Day;
(ii) a discount of about 53.6% to the average closing price of HK$0.61 per Share as quoted on the Stock Exchange for the last ten trading days up to and including the Last Trading Day;
(iii) a discount of about 54.4% to the average closing price of HK$0.62 per Share as quoted on the Stock Exchange for the last 30 trading days up to and including the Last Trading Day;
(iv) a discount of about 55.8% to the average closing price of HK$0.64 per Share as quoted on the Stock Exchange for the last 60 trading days up to and including the Last Trading Day;
(v) a discount of about 68.6% to the closing price of HK$0.90 per Share as quoted on the Stock Exchange on the Latest Practicable Date;
(vi) a discount of about 89.0% to the audited net asset value attributable to Shareholders per Share of HK$2.58 as at 31 December 2004; and
(vii) a discount of approximately 89.7% to the audited net asset value attributable to Shareholders per Share of HK$2.74 as at 31 December 2005.

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LETTER OF ADVICE FROM BARITS

Taking into consideration that (i) the Shares have been consistently trading at price levels well above the Subscription Price and the Theoretical Subscription Price during the Review Period; and (ii) the favorable discounts of the Subscription Price and Theoretical Subscription Price relative to the closing prices per Share prior to the Last Trading Day, which means that the Shareholders are offered an opportunity to subscribe for new Shares at a price considerably lower than the prevailing market price of the Shares. For illustration on the open offer cases recently announced in the market, please refer to the sub-paragraph headed 1.5. In this regard, we consider that the Subscription Price is set at a reasonable level and is favorable to the Shareholders.

Further, we have also reviewed the trading volume of the Shares during the Review Period. The following chart sets out the daily trading volume of the Shares on the Stock Exchange during the Review Period:

==> picture [376 x 205] intentionally omitted <==

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

Number of Shares
4,500,000
4,000,000
3,500,000
3,000,000
2,500,000
2,000,000
1,500,000
1,000,000
500,000
0 Latest
Practicable
Date
Month
Jan-05 Feb-05 Mar-05 Apr-05 May-05 Jun-05 Jul-05 Aug-05 Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06
----- End of picture text -----

Source: Bloomberg

Note: Each of the two shaded regions represents a period during which trading in Shares on the Stock Exchange was suspended, with (i) the first period being from (and inclusive of) 21 January 2005 to 18 April 2005; and (ii) the second period being from (and inclusive of) 28 February 2006 to 8 March 2006.

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LETTER OF ADVICE FROM BARITS

The following sets out the highest, lowest and average daily trading volume of the Shares on the Stock Exchange during the Review Period, and the percentage of average daily trading volume as compared with the total number of Shares in issue prior to the completion of the Open Offer, the Bonus Issue and the Share Consolidation.

					Percentage
					of average
					daily
					trading
					volume to
		Highest	Lowest	Average	total
		daily	daily	daily	number of
		trading	trading	trading	Shares in
Month		volume	volume	volume	issue
		(in number	(in number	(in number	(%)
		of Shares)	of Shares)	of Shares)	(Note 1)
2005
January	(Note 2)	1,091,000	0	99,214	0.035
February (Note 2)		N/A	N/A	N/A	N/A
March (Note 2)		N/A	N/A	N/A	N/A
April (Note 2)		167,000	0	65,591	0.023
May		1,020,000	0	72,402	0.025
June		1,380,000	0	150,573	0.053
July		464,200	0	48,040	0.017
August		140,200	0	23,661	0.008
September		500,000	0	51,905	0.018
October		532,000	0	62,330	0.022
November		1,150,000	0	77,818	0.027
December		558,000	0	93,810	0.033
2006
January		111,000	0	21,547	0.008
February (Note 3)		2,265,000	0	179,095	0.063
March (Note 3)		1,251,000	20,000	517,718	0.181
April (up to the Latest
Practicable Date)		4,165,200	394,000	1,942,120	0.679
Source:	Bloomberg

Notes:

Based on the 286,068,644 Shares in issue as at the Latest Practicable Date
Trading in the Shares was suspended on 21 January 2005 upon request by the Company. There was no trading in the Shares from 21 January 2005 until 19 April 2005, on which trading in the Shares was resumed. Days on which trading in the Shares were suspended are excluded in the calculation of average daily turnover.

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LETTER OF ADVICE FROM BARITS

Trading in the Shares was suspended on 28 February 2006 upon request by the Company. There was no trading in the Shares from 28 February 2006 until 9 March 2006, on which trading in the Shares was resumed. The calculation of average daily turnover only covered the period from (and inclusive of) 9 March 2006 up to (and inclusive of) 31 March 2006.

As illustrated in the table above, the average daily trading volume of the Shares in each month during the Review Period was fairly thin and ranged from approximately 21,547 Shares to 1,942,120 Shares, or from only approximately 0.008% to 0.679% of the total number of Shares in issue as at the Latest Practicable Date. The highest daily trading volume during the Review Period, being 4,165,200 Shares on 19 April 2006, represented only approximately 1.456% of the Shares in issue as at the Latest Practicable Date. The average daily trading volume in June 2005, February 2006, March 2006 and April 2006 were comparatively higher and the Directors advised that they were not aware of any reasons for such movement. Furthermore, among the total of 330 trading days during the Review Period, there were 167 days on which no trading in the Shares on the Stock Exchange was recorded.

From 9 March 2006 to the Latest Practicable Date, the trading volume of the Shares remained thin and the proportion of the daily trading volume for this period to the Shares in issue as at the Latest Practicable Date ranged between approximately 0.007% to approximately 1.456%. Given the fairly low liquidity of the Shares, we are of the view that the trading price range may not necessarily be a reasonable representation of the price level in which the Company could expect to raise fund through further placing in the equity capital market. Independent Shareholders should note that it is uncertain as to whether the trading volume of the Shares may increase following completion of the Open Offer and the Bonus Issue.

1.5 Comparison with recent open offers

For comparison purpose, we have identified, to our best knowledge, 14 cases of open offer announced by companies that are listed on the main board of the Stock Exchange (“Comparable Open Offers”) within one year prior to the date of the Announcement, details of which are set out below:

							Discount/
				Closing price			(premium) of
				of shares on	Discount/		subscription
				the last trading	(premium) of		price to
				day prior to	subscription	Theoretical	theoretical
Company Name	Date of		Subscription	the date of	price to closing	ex-entitlement	ex-entitlement
(Stock Code)	announcement	Offer ratio	price per share	announcement	price	price	price
			(HK$)	(HK$)	(%)	(HK$)	(%)
Heng Tai Consumables Group Ltd. (197)	1/3/2006	2 for 5	0.75	1.43	47.60	1.24	39.50
Uni-Bio Science Group Ltd. (690)	15/2/2006	2 for 1	0.50	0.61	18.00	0.54	6.90
South Sea Petroleum Holdings Ltd. (76)	27/1/2006	1 for 2	0.20	0.34	41.18	0.29	31.03
Fortuna Int’l Holdings Ltd. (530)	27/1/2006	2 for 1	0.01	0.10	90.00	0.04	75.00
TCL Communication Technology Holdings	22/12/2005	1 for 1	0.20	0.25	20.00	0.23	11.00
Ltd. (2618)

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LETTER OF ADVICE FROM BARITS

							Discount/
				Closing price			(premium) of
				of shares on	Discount/		subscription
				the last trading	(premium) of		price to
				day prior to	subscription	Theoretical	theoretical
Company Name	Date of		Subscription	the date of	price to closing	ex-entitlement	ex-entitlement
(Stock Code)	announcement	Offer ratio	price per share	announcement	price	price	price
			(HK$)	(HK$)	(%)	(HK$)	(%)
Foundation Group Ltd. (1182)	18/10/2005	3 for 1	0.02	0.10	77.00	0.04	45.63
Earnest Investments Holdings Ltd. (339)	12/10/2005	8 for 1	0.10	1.08	90.70	0.21	52.40
United Power Investment Ltd. (674)	29/8/2005	1 for 1	0.15	0.46	67.39	0.31	50.82
Carico Holdings Ltd. (729)(Note 1)	5/8/2005	3 for 1	0.10	0.25	60.00	0.14	27.54
Shang Hua Holdings Ltd. (371)	7/7/2005	1 for 2	0.10	0.60	83.00	0.43	77.00
Sino Gas Group Ltd. (260)	30/5/2005	2 for 1	0.02	0.04	48.70	0.03	23.10
U-Right Int’l Holdings Ltd. (627)	23/5/2005	1 for 2	0.25	0.37	31.50	0.33	23.48
Ngai Hing Hong Co., Ltd. (1047)	11/5/2005	1 for 5	0.60	0.64	6.25	0.63	5.21
Omnicorp Ltd. (94)	7/4/2005	1 for 2	0.38	1.03	63.10	0.81	53.30
Highest					90.70		77.00
Lowest					6.25		5.21
Mean/Average					53.17		37.28
Median					54.35		35.27
Upper quartile average					87.90		68.43
(Note 2)
Lower quartile average					18.94		11.55
(Note 3)
The Company	8/3/2006	5 for 4	Subscription
			Price:
			0.485	0.56	13.4	0.371	(30.7)
			Theoretical
			Subscription
			Price:
			0.283	0.56	49.5	0.371	23.7

Source: The Stock Exchange

Notes:

Carico Holdings Limited was formerly known as Gorient (Holdings) Limited.
Upper quartile average represents the average of the 3 highest discount percentages.
Lower quartile average represents the average of the 4 lowest discount percentages.

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LETTER OF ADVICE FROM BARITS

As shown in the above table, the discounts of the subscription price of the 14 Comparable Open Offers to their respective closing price on the last trading day prior to their respective date of announcement (the “Market Closing Price Range”) ranged from approximately 6.25% to approximately 90.70%, with the mean of approximately 53.17% and median of approximately 54.35%. The discounts of the subscription price of the Comparable Open Offers to their respective theoretical ex-entitlement prices per share based on the closing price per share on the last trading day prior to the date of announcement (the “Market Theoretical Price Range”) ranged from approximately 5.21% to approximately 77.00%, with the mean of approximately 37.28% and median of approximately 35.27%.

We note that the discount of the Subscription Price to the closing price per Share on the Last Trading Day of approximately 13.4% lies within the Market Closing Price Range, yet is below both the mean and median of the Market Closing Price Range. Nonetheless, the Subscription Price represents a premium of approximately 30.7% to the theoretical ex-entitlement price per Share and is therefore not comparable to the discounts generally represented by the Comparable Open Offers. In this regard, we take into account the fact that, save for the Open Offer, none of the Comparable Open Offers is bundled with a bonus issue. After considering the aggregation of the Offer Shares and Bonus Shares, the theoretical subscription price per Share of approximately $0.283 (please refer to sub-paragraph 1.3 above for the detailed calculation) effectively represents a discount of approximately 49.5% to the closing price on the Last Trading Day, which lies within the Market Closing Price Range. Such discount is of a less extent than both the mean and median of the Market Closing Price Range but is considerably greater than the lower quartile average of approximately 18.94%. Further, the Theoretical Subscription Price represents a discount of approximately 23.7% to the theoretical ex-entitlement price per Share, which lies within the Market Theoretical Price Range. Likewise, such discount is of a less extent than both the mean and median of the Market Theoretical Price Range but is greater than the lower quartile average of approximately 11.55%.

As such, we consider that the pricing of the Open Offer, together with the Bonus Issue, is generally in line with that of the market practice as represented by other recently announced open offers and therefore fair and reasonable so far as the Shareholders are concerned.

1.6 Alternatives to the Open Offer

As stated in the letter from the Board, the Directors considered that debt financing was not the most appropriate choice to raise funds for future investment needs, as it would incur additional borrowing costs to the Company. Such costs were undesirable as long as the need for funding is not at a highly urgent stage. Instead, the Directors intended to raise fund through the equity capital market which can not only provide the Company with the financial flexibility for future development purpose, but also avoid unnecessarily high financing costs should the Company have to solicit funding in a short period of time. Meanwhile, the Directors have also considered from the perspective of Shareholders’ interest and were aware that fund raising by way of placing shall have a dilution effect on the shareholding of the existing Shareholders.

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LETTER OF ADVICE FROM BARITS

Similar to an open offer, a rights issue is an offer to existing shareholders of a company to subscribe for or to purchase securities. One major difference between an open offer and a rights issue is that the rights received by shareholders under open offer are not transferable. Consequently, they cannot be bought and sold in the market and there is no method of trading in the nil-paid entitlements. Thus, other things being equal, a rights issue provides additional flexibility over an open offer in that the rights issue allows shareholders who do not want to participate in the cash call of the company to dispose of their entitlements in the market so as to compensate the dilution effect brought by the increase in the share capital, whereas an open offer does not offer a similar mechanism. Having regarded the features of rights issue as discussed above, we consider that a rights issue could provide additional flexibility in that non-participating Qualifying Shareholders can dispose of their nil-paid entitlements and, therefore, seems to be a more favourable offer method when compared with an open offer.

The Directors advised us that in determining the method of raising funds in the equity capital market, they have taken into account, among others, the relatively thin trading volume of the Shares and do not expect that there to be any strong or active market in any nil-paid entitlements which would have been provisionally allotted to Shareholders had the present fund raising method been a rights issue. In such circumstances and for alleviating the administrative burden of providing arrangement for trading in nil-paid rights, the Directors decided to proceed with the Open Offer. We have reviewed the trading volume of the Shares during the Review Period, and found that the highest daily trading volume during the Review Period represented only about 1.46% of the total issued share capital of the Company. In this regard, we concur with the Directors that historical trading volume of the Shares is one of the parameters that shall be considered in determining the method of fund raising for the Company. Given that the Open Offer, similar to a rights issue, could nonetheless provide equal opportunities to Qualifying Shareholders to participate in the capital enlargement of the Company on a pro-rata basis without loading the Company with an administrative burden arising from the arrangement of trading nil-paid rights, we consider that the Open Offer is an acceptable way to raise fund for the Group under the present circumstances.

1.7 Underwriting arrangement with no excess application

1.7.1 Principal terms of the Underwriting Agreement

The Major Shareholder, at the Latest Practicable Date, was interested in 175,803,363 Shares, representing approximately 61.45% of the existing issued share capital of the Company. As set out in the letter from the Board, to demonstrate its continual financial support to the Group, 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 the 175,803,363 Shares and to accept or procure the acceptance of its full entitlement of 219,754,200 Offer Shares under the Open Offer. Further, the Major Shareholder has agreed to underwrite the balance of any Offer Shares not taken up by the Qualifying Shareholders pursuant to the Underwriting Agreement. The Company

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LETTER OF ADVICE FROM BARITS

will pay to the Underwriter an underwriting commission calculated at 2.5% of the aggregate Subscription Price of the number of Offer Shares underwritten by the Underwriter. As advised by the Directors, such rate was determined by the Company and the Underwriter after arm’s length negotiation with reference to the market rates at the range of 2% to 3%.

In practice, commercial underwriters normally spend time and efforts on risk assessment and having some insights into the target corporate before deciding whether to take up the obligation to underwrite the securities of that corporate. In such sense and taking into account the low price range and low liquidity of the Shares, we concur with the Directors that it is comparatively easier and more convenient to procure the Major Shareholder, who is more familiar with the operation and financial position of the Company, to take up the role as underwriter for the Open Offer. Meanwhile, the participation of the Major Shareholder as the Underwriter would be an indication of confidence and optimism in the Company and its prospect to other Shareholders.

Set out below is a table illustrating the underwriting arrangements of the Comparable Open Offers and whether they offer excess application:

		Underwriting	Excess
Company name	Underwriter(s)	commission	application
Heng Tai Consumables	a commercial underwriter	2.50%	No
Group Ltd. (197)
Uni-Bio Science Group	the controlling	2.00%	Yes
Ltd. (690)	shareholder
South Sea Petroleum	a connected person (Note	2.50%	Yes
Holdings Ltd. (76)	1) and a commercial
	underwriter
Fortuna International	a commercial underwriter	1.00%	Yes
Holdings Ltd. (530)
TCL Communication	a commercial underwriter	2.50%	Yes
Technology Holdings
Ltd. (2618)
Foundation Group Ltd.	a substantial shareholder	1.00%	Yes
(1182)	and 2 commercial
	underwriters
Earnest Investments	a commercial underwriter	1.50%	Yes
Holdings Ltd. (339)
United Power Investment	the controlling	0.28%	No
Ltd. (674)	shareholder and a	(Note 2)
	commercial underwriter
Carico Holdings Ltd. (729)	a commercial underwriter	3.00%	Yes
(Note 3)

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LETTER OF ADVICE FROM BARITS

			Underwriting	Excess
Company name	Underwriter(s)		commission	application
Shang Hua Holdings Ltd.	a	commercial underwriter	2.50%	Yes
(371)
Ngai Hing Hong Co., Ltd.	the controlling		1.00%	Yes
(1047)		shareholder
Sino Gas Group Ltd. (260)	a	commercial underwriter	3.00%	Yes
U-Right International	the controlling		2.00%	Yes
Holdings Ltd. (627)		shareholder
Omnicorp Ltd. (94)	a	commercial underwriter	2.50%	No
Highest	–		3.00%	–
Lowest	–		0.28%	–
Mean/Average	–		1.95%	–
Median	–		2.25%	–
Mode	–		2.5%	–
The Company	the controlling		2.5%	No
		shareholder

Source: The Stock Exchange

Notes:

One of the underwriters, Palmsville Equities Inc., is wholly owned by an executive director of South Sea Petroleum Holdings Limited and is therefore a connected person of the company.
Based on the commercial underwriter’s commission of 1.5% for 135,000,000 underwritten shares and the controlling shareholder’s zero commission for 592,738,593 underwritten shares, the weighted average of 0.28% is presented as the underwriting commission.
Carico Holdings Limited was formerly known as Gorient (Holdings) Limited.

As shown in the above table, among the 14 Comparable Open Offers, (i) 3 were solely underwritten by their respective controlling shareholder; (ii) 1 was underwritten by its controlling shareholder with a commercial underwriter; (iii) 1 was underwritten by a substantial shareholder with two commercial underwriters; and (iv) 1 was jointly underwritten by a connected person and a commercial underwriter. It is not uncommon for a company to procure its controlling shareholder or substantial shareholder to underwrite its open offer in return for an underwriting commission. We therefore consider the Company’s choice of procuring the Major Shareholder as the underwriter for the Open Offer to be in line with normal market practice.

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LETTER OF ADVICE FROM BARITS

As illustrated in the above table, the commission rate of 2.5% receivable by the Underwriter under the Open Offer lies within the range between 0.28% and 3.00% for the underwriting commissions of the Comparable Open Offers. For reference purpose, the commission rate of 2.5% receivable by the Underwriter is above the mean of 1.95% and the median of 2.25%, yet is equal to the mode of 2.5% for the Comparable Open Offers.

We note that there are 6 cases among the Comparable Open Offers in which the underwriter (or one of the underwriters) is a connected person to the respective company, and the respective underwriting commission charged under these cases ranges from 0.28% to 2.5%. We also note that the underwriting commission of 2.5% receivable by the Underwriter lies on the high end of the aforesaid range, yet does not fall outside such range. We were confirmed by the Directors that (i) the underwriting commission has been determined by the Company and the Underwriter after arm’s length negotiation with reference to the market rates at the range of 2% to 3%; and (ii) a commission normally rated and accepted by commercial underwriters in the market is proposed to be offered to the Underwriter. On such basis and having regard to the low liquidity of the Shares, which could be evidenced by the fact that the highest daily trading volume of the Shares during the Review Period represented only about 1.46% of the total issued share capital of the Company (please refer to sub-paragraph 1.4 above for details), we consider that the terms of the Underwriting Agreement is in general acceptable and therefore fair and reasonable so far as the Shareholders are concerned.

1.7.2 No excess application

The Open Offer does not entitle the Qualifying Shareholders to apply for any Offer Shares which are in excess of their assured entitlements. As set out in the letter from the Board, the Directors considered that the arrangement of application for excess Offer Shares would involve additional administrative work and costs for the Open Offer. The Major Shareholder, like other Qualifying Shareholders, would not be entitled to any excess application. However, in the event that any Qualifying Shareholders give up their right to take up their respective assured entitlement, the Major Shareholder is obliged to take up such Offer Shares under the Underwriting Agreement (please refer to the section headed “Underwriting Arrangement” in the letter from the Board) which would result in an increase of its shareholding in the Company.

Given that (i) the Underwriter is a connected person of the Company; and (ii) no excess application is available for the Open Offer, the Open Offer does not fall within the category of exempt connected transactions under Rule 14A.31 of the Listing Rules. We understand that the Major Shareholder will take up the excess Offer Shares under its obligation as the Underwriter in a passive manner only after the Qualifying Shareholders have selected not to accept their assured entitlements. The Qualifying Shareholders have the first right to select whether to accept their assured entitlement and, as a normal practice which commercial underwriters follow, the Major Shareholder is only required to take up those Offer

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LETTER OF ADVICE FROM BARITS

Shares not accepted by the Qualifying Shareholders. Whether the Major Shareholder will be required to discharge its obligation to take up the excess Offer Shares relies on the preference of the Qualifying Shareholders but not at the discretion of the Major Shareholder. We consider that the principle of the underwriting arrangement under the Open Offer makes no difference from a normal underwriting arrangement as generally accepted in the capital market. However, Independent Shareholders should note that the Major Shareholder will have a chance to increase its shareholding in the Company by taking up the excess Offer Shares not taken up by the Qualifying Shareholders in its capacity as an underwriter at a discount to prevailing trading price of the Share whilst other Shareholders do not have such chance given that those Qualifying Shareholders who take up the Offer Shares are not entitled to further participate in the Open Offer due to the lack of arrangement for excess application and only the Major Shareholder has the opportunity to take up excess Offer Shares in its capacity as the Underwriter pursuant to the underwriting arrangement under the Open Offer.

As illustrated in the above table, there are 3 cases among the 14 Comparable Open Offers that no application for excess Offer Shares is allowed for the Qualifying Shareholders. It could be demonstrated that it is not exceptional for a company to implement an open offer without excess application, which is permitted under the Listing Rules. We consider that the absence of excess application is not prejudicial after weighing between (i) the limited effect of enhancing the level of participation by the Qualifying Shareholders in the Open Offer had an excess application been arranged given the low liquidity of the Shares; (ii) the merits of alleviating the administrative burden and avoiding additional costs to be incurred without excess application.

As mentioned in the sub-section headed “1.3 Principal terms of the Open Offer and the Bonus Issue”, for those Shareholders who would participate in the Open Offer, they would effectively be entitled to approximately 1.25 Offer Shares and approximately 0.89 Bonus Shares for every Share they hold (without taking into account the Share Consolidation). Based on the total subscription monies under the Open Offer and taking into account the aggregate of the Offer Shares and the Bonus Shares, the theoretical subscription price of each Offer Share is approximately HK$0.283. Although we cannot find any recent open offer cases which are exactly the same as the Open Offer, we consider that with the Bonus Issue the Open Offer is effectively indifferent from an open offer on a pro-rata basis of 2.14 offer shares to be issued at a price of HK$0.283 per Share for every existing Share held by the Qualifying Shareholders after taking into consideration the effective offer ratio and the theoretical subscription price of each Offer Share. However, Independent Shareholders should note that the Open Offer is one without excess application arrangement and for which the Major Shareholder is an underwriter. In this respect, the Open Offer is different from an ordinary open offer as the Major Shareholder is entitled to take up excess Offer Shares whilst other Qualifying Shareholders are not.

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LETTER OF ADVICE FROM BARITS

For reference purpose, we have also compared (i) the Theoretical Subscription Price against the prevailing market price of the Shares; and (ii) the discount of Theoretical Subscription Price against that of the Comparable Open Offer cases. Details of which have already been set out under the section headed “1.5 Comparison with recent open offers”.

As only the Major Shareholder has the opportunity to take up excess Offer Shares in its capacity as the Underwriter, we consider that the underwriting arrangement in the absence of excess application under the Open Offer is not desirable from the angle of those Qualifying Shareholders who wish to further participate in the Open Offer by taking up excess Offer Shares after taking up their assured entitlements.

1.7.3 Approval by Independent Shareholders

Given that (i) the Underwriter, being the Major Shareholder, is a connected person of the Company; and (ii) no excess application for the Open Offer is available, the Open Offer does not fall within the exempt connected transaction under rule 14A.31 of the Listing Rules. As the aggregate consideration under the Underwriting Agreement (being the aggregate of the maximum amount of the subscription price for the underwritten Shares payable by the Major Shareholder and the maximum amount of the underwriting commission receivable by the Major Shareholder) is more than 25% of the applicable percentage ratios, the Underwriting Agreement will therefore be subject to approval by the Independent Shareholders under Rule 14A.17 of the Listing Rules.

Taking into consideration that:

(i) it is comparatively easier and more convenient for the Company to procure the Major Shareholder, who is more familiar with the operation and financial position of the Company, than a commercial underwriter to underwrite the Open Offer;
(ii) the Major Shareholder had shown its willingness to make a commitment to the future development of the Group by engaging as the Underwriter pursuant to the Underwriting Agreement;
(iii) the underwriting commission of 2.5% receivable by the Underwriter lies within the range of the commission rates of the Comparable Open Offers and is generally in line with the market practice;
(iv) the absence of excess application in an open offer is not exceptional in the market and permitted under the Listing Rules; and
(v) the Underwriting Agreement with no arrangement for excess application under the Open Offer is subject to approval by the Independent Shareholders at the SGM, which is a protective mechanism to safeguard the interests of the Company and the Shareholders as a whole,

we consider that the Underwriting Agreement is in general on normal commercial terms and is fair and reasonable so far as the Independent Shareholders are concerned.

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LETTER OF ADVICE FROM BARITS

However, Independent Shareholders should note that the Major Shareholder will have a chance to increase its shareholding in the Company by taking up the excess Offer Shares not taken up by the Qualifying Shareholders in its capacity as an underwriter at a discount to opportunity trading price of the Share whilst other Shareholders do not have such chance given that those Qualifying Shareholders who take up the Offer Shares are not entitled to further participate in the Open Offer and only the Major Shareholder has the opportunity to take up excess Offer Shares in its capacity as the Underwriter.

1.8 Potential dilution of percentage shareholding

The following sets out the existing shareholding structure of the Company and the expected structure immediately after completion of the Open Offer, the Bonus Issue and the Share Consolidation:

Scenario I: Assuming all Offer Shares and Bonus Shares are taken up by Qualifying Shareholders

Name of shareholder Major Shareholder Interest of a Director (Note 1) The public Total	Existing Shareholding Number of Shares % (Approx) 175,803,363 61.45 2,300,000 0.81 107,965,281 37.74 286,068,644 100.00	Immediately after completion of the Open Offer and Bonus Issue Number of Shares % (Approx) 552,524,848 61.45 7,228,570 0.81 339,319,461 37.74 899,072,879 100.00	Immediately after completion of the Open Offer, Bonus Issue and the Share Consolidation Number of Shares % (Approx) 138,131,212 61.45 1,807,142 0.81 84,829,865 37.74 224,768,219 100.00	Immediately after completion of the Open Offer, Bonus Issue and the Share Consolidation Number of Shares % (Approx) 138,131,212 61.45 1,807,142 0.81 84,829,865 37.74 224,768,219 100.00
				100.00

Scenario II: Assuming no Offer Shares and Bonus Shares are taken up by Qualifying Shareholders

Name of shareholder Major Shareholder Interest of a Director (Note 1) The public Total	Existing Shareholding Number of Shares % (Approx) 175,803,363 61.45 2,300,000 0.81 107,965,281 37.74 286,068,644 100.00	Immediately after completion of the Open Offer and Bonus Issue Number of Shares % (Approx) 788,807,598 87.74 2,300,000 0.26 107,965,281 12.00 899,072,879 100.00	Immediately after completion of the Open Offer, Bonus Issue and the Share Consolidation Number of Shares % (Approx) 197,201,899 87.74 575,000 0.26 26,991,320 12.00 224,768,219 100.00	Immediately after completion of the Open Offer, Bonus Issue and the Share Consolidation Number of Shares % (Approx) 197,201,899 87.74 575,000 0.26 26,991,320 12.00 224,768,219 100.00
				100.00

Note 1: As at the Latest Practicable Date, Mr. Yau Tak Wah, Paul, the chairman of the Company and an executive Director, was interested in 2,300,000 Shares.

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LETTER OF ADVICE FROM BARITS

As illustrated above, immediately upon completion of the Open Offer and the Bonus Issue, assuming none of the Qualifying Shareholders (save for the Major Shareholder) takes up any Offer Share and all the Offer Shares are taken up by the Major Shareholder pursuant to the Underwriting Agreement, the public float will decrease to approximately 12%.

The Major Shareholder and the Directors undertake that they will put in place necessary measures to ensure minimum public float is maintained upon completion of the Open Offer and Bonus Issue. Such measures will include the Major Shareholder placing down part of the Offer Shares underwritten by it or disposing the Shares held by it to third parties independent of the Group and its connected persons (as defined under the Listing Rules) upon completion of the Open Offer and Bonus Issue.

The Stock Exchange has stated that it will closely monitor dealings in the shares of the Company on the Stock Exchange and if, upon completion of the Open Offer and the Bonus Issue, less than 25% of the Shares are held by the public or if the Stock Exchange believes that (i) a false market exists or may exist in the trading in the shares of the Company; or (ii) there are too few shares of the Company in public hands to maintain an orderly market; then it will consider exercising its discretion to suspend trading in the shares of the Company until a sufficient public float is attained.

Due to the lack of entitlement to excess application, for those Non-Qualifying Shareholders who will not be entitled to take part in the Open Offer and the Qualifying Shareholders who do not accept the Open Offer, their shareholdings in the Company will be subject to a maximum dilution of approximately 68.2% upon completion of the Open Offer. Nevertheless, under the Open Offer, the Qualifying Shareholders are offered a chance to subscribe on a pro-rata basis for their Offer Shares at a relatively low price. In other words, the Qualifying Shareholders are, in any event, entitled to choose whether to accept or not to accept their provisional allotments at their own discretion. As such, we consider that the potential dilution in shareholding of the Qualifying Shareholders is not absolute but depends on the preference of the Qualifying Shareholders on whether to take up their assured entitlements.

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LETTER OF ADVICE FROM BARITS

1.9 Financial effects of the Open Offer

1.9.1 Net asset value

The estimated financial effect on the adjusted pro-forma consolidated net asset value of the Group immediately after completion of the Open Offer is summarised as follows:

	HK$ million
Audited net asset value attributable to Shareholders as at 31
December 2005	784
Add: Estimated net proceeds of the Open Offer (Note 1)	170
Adjusted pro-forma consolidated net asset
value attributable to Shareholders after the Open Offer	954
	HK$
Net asset value attributable to Shareholders per Share as at 31
December 2005 prior to the Open Offer (Note 2)	2.74
Percentage of discount represented by the Subscription Price
when compared to net asset value attributable to Shareholders
per Share as at 31 December 2005 prior to the Open Offer	82.3%
Adjusted pro-forma consolidated net asset value attributable to
Shareholders per Share after the Open Offer (Note 3)	1.06
Percentage of discount represented by the Subscription Price
when compared to adjusted pro-forma consolidated net asset
value attributable to Shareholders per Share after the Open
Offer	54.2%
Notes:

Being the estimated net proceeds from the issue of 357,585,805 Offer Shares at HK$0.485 each.
Based on 286,068,644 Shares in issue as at the Latest Practicable Date.
Based on 899,072,879 Shares in issue upon completion of the Open Offer and the Bonus Issue.
For details, please refer to Appendix II to this circular, headed “Unaudited Pro Forma Financial Information”.

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LETTER OF ADVICE FROM BARITS

Following completion of the Open Offer, the pro forma adjusted consolidated net asset value attributable to Shareholders is estimated to increase from approximately HK$784 million to HK$954 million, representing an increase of approximately HK$170 million or approximately 21.7%. As the Offer Shares are issued at a discount to the net asset value attributable to Shareholders per Share as at 31 December 2005, the unaudited pro forma adjusted consolidated net asset value attributable to Shareholders per Share is estimated to decrease from approximately HK$2.74 to approximately HK$1.06 immediately after completion of the Open Offer and the Bonus Issue, representing a decrease of approximately 61.3%. Should a Qualifying Shareholder take up his/her assured entitlement in full under the Open Offer, he/she is expected to experience an increment in net assets of the Group attributable to him/her given the enlargement in asset base as a result of the Open Offer and the Bonus Issue.

Taking into account the favorable discount of the Subscription Price to the net asset value attributable to Shareholders per Share as at 31 December 2005 prior to the Open Offer represents a valuable opportunity for Qualifying Shareholders to take up the Offer Shares at an attractive price while providing the Company with the required funding and given the potential increase in asset base of the Group, we concur with the Directors that the reduction in net asset value attributable to Shareholders per Share upon completion of the Open Offer to be acceptable.

1.9.2 Liquidity

As at 31 December 2005, the cash and cash equivalents, the total current assets and the total current liabilities of the Group amounted to approximately HK$396.8 million (2004: approximately HK$397.7 million), approximately HK$594.7 million (2004: approximately HK$635.8 million) and approximately HK$132.0 million (2004: approximately HK$155.9 million) respectively. The current ratio (being current assets/current liabilities) as at 31 December 2004 and that as at 31 December 2005, prior to completion of the Open Offer, were approximately 4.08 and 4.50 respectively. The net proceeds from the Open Offer, which are expected to be approximately HK$170 million, shall increase the cash reserve and the current assets of the Group, by the same amount. Upon completion of the Open Offer, the current ratio is expected to increase to approximately 5.79, on the basis that the amount of current liabilities remain unchanged. As such, we are of the view that the Open Offer is in the interest of the Company and the Shareholders as a whole.

1.9.3 Gearing ratio

As at 31 December 2005, the Group’s audited total liabilities amounted to approximately HK$134.7 million. Provided that the total assets of the Group shall be increased by the net proceeds from the Open Offer, being approximately HK$170 million and on the basis that the amount of total liabilities remain unchanged, the gearing ratio of the Group (calculated as a ratio of total liabilities to total assets) would improve from approximately 14.5% to 12.2% after

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LETTER OF ADVICE FROM BARITS

completion of the Open Offer and the Bonus Issue. For reference purpose only, there should be no impact on the contingent liabilities as a result of the Open Offer and the Bonus Issue.

2. Recommendation

2.1 The Open Offer

Having considered the above principal factors and reasons, in particular:

(i) the net proceeds from the Open Offer will serve as a readily available source of funds to finance the Group’s future investment needs without loading the Group with borrowing costs and meanwhile, allowing the Qualifying Shareholders to maintain their proportionate interest in the Company;
(ii) the unstable performance of the existing business segments of the Group during the four years ended 31 December 2005, coupled with the Disposal which lowered the degree of diversification of the Group’s business portfolio, together necessitate the Group to seek new investment projects to diversify its business portfolio and broaden its income base; and
(iii) the Subscription Price and the Theoretical Subscription Price are generally at a favorable discount to the Share price during the Review Period and such discounts are in line with that for other recently announced Open Offers,

we consider that the terms of the Open Offer are fair and reasonable so far as the Independent Shareholders are concerned and that the Open Offer is generally in the interests of the Company and the Shareholders as a whole. We therefore recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the SGM to approve the Open Offer and the Bonus Issue.

2.2 The Underwriting Agreement in the absence of arrangement for excess application

Having considered the above principal factors and reasons, in particular:

(i) it is comparatively easier for the Company to procure the Major Shareholder to underwrite the Open Offer given the low price range and the low liquidity of the Shares;
(ii) the commission receivable by the Underwriter under the Underwriting Agreement is determined at a rate which is in line with the market practice;
(iii) the absence of arrangement for excess application is not exceptional and not prejudicial; and
(iv) the Underwriting Agreement will be subject to approval by the Independent Shareholders,

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LETTER OF ADVICE FROM BARITS

we consider that the Underwriting Agreement is on normal commercial terms and is fair and reasonable so far as the Independent Shareholders are concerned notwithstanding that the underwriting arrangement in the absence of excess application arrangement under the Open Offer is not too desirable from the angle of those Qualifying Shareholders who wish to further participate in the Open Offer by taking up excess Offer Shares after taking up their assured entitlements. We therefore recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the SGM to approve the Underwriting Agreement.

Yours faithfully, For and on behalf of

Barits Securities (Hong Kong) Limited Terence Hong Alfred Wong Managing Director Executive Director

– 68 –

FINANCIAL INFORMATION

APPENDIX I

1. FINANCIAL SUMMARY

The following table summarises the results, assets and liabilities of the Group for each of the four financial years ended 31 December 2005 which were extracted from the audited financial statements published by the Group.

CONSOLIDATED PROFIT AND LOSS ACCOUNT

For the year ended 31 December 2005 2004 2003 2002 HK$’000 HK$’000 (restated) HK$’000 HK$’000 553,871 691,136 722,782 741,077 (3,008) 23,389 4,535 66,357 (1,520) (452) (1,778) (4,675) (4,528) 22,937 2,757 61,682 9,307 5,758 8,941 1,165 4,779 28,695 11,698 62,847 1.67 10.03 4.09 22.30 N/A N/A N/A 22.24 As at 31 December 2005 2004 2003 2002 HK$’000 HK$’000 (restated) HK$’000 HK$’000 930,863 920,765 915,062 859,700 134,667 159,978 193,722 139,390 796,196 760,787 721,340 720,310	For the year ended 31 December 2005 2004 2003 2002 HK$’000 HK$’000 (restated) HK$’000 HK$’000 553,871 691,136 722,782 741,077 (3,008) 23,389 4,535 66,357 (1,520) (452) (1,778) (4,675) (4,528) 22,937 2,757 61,682 9,307 5,758 8,941 1,165 4,779 28,695 11,698 62,847 1.67 10.03 4.09 22.30 N/A N/A N/A 22.24 As at 31 December 2005 2004 2003 2002 HK$’000 HK$’000 (restated) HK$’000 HK$’000 930,863 920,765 915,062 859,700 134,667 159,978 193,722 139,390 796,196 760,787 721,340 720,310	For the year ended 31 December 2005 2004 2003 2002 HK$’000 HK$’000 (restated) HK$’000 HK$’000 553,871 691,136 722,782 741,077 (3,008) 23,389 4,535 66,357 (1,520) (452) (1,778) (4,675) (4,528) 22,937 2,757 61,682 9,307 5,758 8,941 1,165 4,779 28,695 11,698 62,847 1.67 10.03 4.09 22.30 N/A N/A N/A 22.24 As at 31 December 2005 2004 2003 2002 HK$’000 HK$’000 (restated) HK$’000 HK$’000 930,863 920,765 915,062 859,700 134,667 159,978 193,722 139,390 796,196 760,787 721,340 720,310	For the year ended 31 December 2005 2004 2003 2002 HK$’000 HK$’000 (restated) HK$’000 HK$’000 553,871 691,136 722,782 741,077 (3,008) 23,389 4,535 66,357 (1,520) (452) (1,778) (4,675) (4,528) 22,937 2,757 61,682 9,307 5,758 8,941 1,165 4,779 28,695 11,698 62,847 1.67 10.03 4.09 22.30 N/A N/A N/A 22.24 As at 31 December 2005 2004 2003 2002 HK$’000 HK$’000 (restated) HK$’000 HK$’000 930,863 920,765 915,062 859,700 134,667 159,978 193,722 139,390 796,196 760,787 721,340 720,310
(3,008) (1,520) (4,528) 9,307	23,389 (452) 22,937 5,758	4,535 (1,778) 2,757 8,941	66,357 (4,675
			61,682 1,165
4,779 1.67 N/A 2005 HK$’000 930,863 134,667 796,196	28,695 10.03 N/A As at 31 2004 HK$’000 (restated) 920,765 159,978 760,787	11,698 4.09 N/A December 2003 HK$’000 915,062 193,722 721,340

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FINANCIAL INFORMATION

APPENDIX I

2. AUDITORS’ REPORT AND FINANCIAL STATEMENTS OF THE COMPANY

Set out below are the full texts of the auditors’ report and the audited financial statements of the Group for the year ended 31 December 2005 as extracted from the 2005 annual report of the Company. Reference to page numbers in the auditors’ report is to the page numbers of the 2005 annual report of the Company.

==> picture [79 x 57] intentionally omitted <==

AUDITORS’ REPORT TO THE SHAREHOLDERS OF TOMORROW INTERNATIONAL HOLDINGS LIMITED

(Incorporated in Bermuda with Limited Liability)

We have audited the financial statements on pages 20 to 77 which have been prepared in accordance with accounting principles generally accepted in Hong Kong.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS

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

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

BASIS OF OPINION

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

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the financial statements are free

– 70 –

FINANCIAL INFORMATION

APPENDIX I

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

OPINION

In our opinion the financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2005 and of its loss and cash flows of the Group for the year then ended and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

CCIF CPA Limited

Certified Public Accountants Hong Kong, 13 April 2006

Choi Man On, Andy

Practising Certificate Number P02410

– 71 –

FINANCIAL INFORMATION

APPENDIX I

CONSOLIDATED INCOME STATEMENT

Year ended 31 December 2005

Note TURNOVER 8 COST OF SALES GROSS PROFIT Other revenue 9 Negative goodwill recognised as income (Loss)/Gain on disposal of properties held for sale Gain on disposal of controlling interest in Swank 36 Gain on disposal of partial interest in Swank Gain on disposal of investment properties Reversal of previous revaluation deficits of leasehold buildings, net Write back of over-provision against properties held for sale Gain on disposal of interests in associates Net loss arising from fair value change of investment properties Distribution costs Administrative expenses Other operating expenses PROFIT FROM OPERATING ACTIVITIES 10 Impairment loss on a loan receivable 25 Share of profits less losses of associates (LOSS)/PROFIT BEFORE TAXATION TAXATION 13 (LOSS)/PROFIT FOR THE YEAR Attributable to: Equity holders of the Company 14 Minority interests Earnings per share for profit attributable to the equity holders of the Company during the year 15 Basic Diluted	2005 HK$’000 553,871 (473,975)	2005 HK$’000 553,871 (473,975)
	79,896 26,196 – (143) 42,244 – 2,715 5,270 200 – (490) (18,359) (94,712) (2,822) 39,995 (45,000) 1,997 (3,008) (1,520)	91,421 14,089 13,062 3,900 – 8,458 – 3,346 3,150 10,900 – (24,050 (102,958 (720
		20,598 – 2,791
		23,389 (452
	(4,528)
	4,779 (9,307)	28,695 (5,758

The notes on pages 27 to 77 form an integral part of these financial statements.

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FINANCIAL INFORMATION

APPENDIX I

CONSOLIDATED BALANCE SHEET

31 December 2005

Note ASSETS Non-current assets Property, plant and equipment 16 Leasehold land and land use rights 17 Investment properties 18 Negative goodwill 19 Interests in associates 21 Prepaid rental 22 Deferred product development costs 23 Available-for-sale financial assets 24 Loans receivable 25 Current assets Cash and cash equivalents 26 Properties held for sale 27 Short term investments 28 Financial assets at fair value through profit or loss 28 Inventories 29 Accounts receivable 30 Bills receivable Loans receivable 25 Interest receivable on loans Prepayments, deposits and other receivables 31 LIABILITIES Current liabilities Accounts payable 32 Amounts due to associates 21 Other payables and accruals Tax payable Net current assets Total assets less current liabilities	2005 HK$’000 103,178 10,307 28,750 – 156,892 1,903 6,819 27,364 1,000	2004 HK$’000 160,971 10,559 93,000 (27,284) 37,220 2,640 5,861 – 2,000 284,967 397,724 6,000 7,491 – 89,410 115,889 574 1,067 19 17,624 635,798 92,704 12,647 30,423 20,133 155,907 479,891 764,858
	336,213 396,775 6,200 – 2,465 67,540 62,892 – 6,046 12 52,720 594,650 71,658 – 40,017 20,369 132,044 462,606 798,819	284,967
		397,724 6,000 7,491 – 89,410 115,889 574 1,067 19 17,624
		635,798
		92,704 12,647 30,423 20,133
		155,907
		479,891
		764,858

– 73 –

FINANCIAL INFORMATION

APPENDIX I

Note Non-current liabilities Provision for long service payments 33 Deferred tax liabilities 34 NET ASSETS CAPITAL AND RESERVES Issued capital 35 Reserves 38(a) Equity attributable to equity holders of the Company Minority interests Total equity	2005 HK$’000 570 2,053 2,623 796,196	2004 HK$’000 949 3,122
		4,071
		760,787

	2,861 781,252 784,113 12,083	2,861 736,790
		739,651 21,136
	796,196	760,787

Approved and authorised for issue by the board of directors on 13 April 2006.

On behalf of the board

Yau	Tak Wah, Paul	Louie Mei Po
	Director	Director

The notes on pages 27 to 77 form an integral part of these financial statements.

– 74 –

FINANCIAL INFORMATION

APPENDIX I

BALANCE SHEET

31 December 2005

Note ASSETS Non-current assets Property, plant and equipment 16 Interests in subsidiaries 20 Current assets Prepayments, deposits and other receivables Tax recoverable Cash and cash equivalents 26 LIABILITIES Current liabilities Other payables and accruals Net current assets Total assets less current liabilities Non-current liabilities Provision for long service payments 33 NET ASSETS CAPITAL AND RESERVES Issued capital 35 Reserves 38(b) Total equity	2005 HK$’000 7 350,360	2004 HK$’000 27 331,772
	350,367 980 14 264,062 265,056 1,889 263,167 613,534 230	331,799
		853 14 276,973
		277,840
		1,606
		276,234
		608,033 230
	613,304	607,803

	2,861 610,443	2,861 604,942
	613,304	607,803

Approved and authorised for issue by the board of directors on 13 April 2006

On behalf of the board

Yau Tak Wah, Paul Louie Mei Po Director Director

The notes on pages 27 to 77 form an integral part of these financial statements.

– 75 –

FINANCIAL INFORMATION

APPENDIX I

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Year ended 31 December 2005

Share capital HK$’000 2,861 –	Share premium HK$’000 200,556 –	Exchange fluctuation reserve HK$’000 1,474 –	Capital reserve HK$’000 801 –	Attr Contributed surplus HK$’000 283,208 –	ibutable to equity holders Capital redemption reserve Property revaluation reserve HK$’000 HK$’000 77 – – –	ibutable to equity holders Capital redemption reserve Property revaluation reserve HK$’000 HK$’000 77 – – –	of the Company Investment property reserve Revaluation reserve for available- for-sale financial assets HK$’000 HK$’000 – – – –	of the Company Investment property reserve Revaluation reserve for available- for-sale financial assets HK$’000 HK$’000 – – – –	Retained profits HK$’000 209,238 4,310	Total HK$’000 698,215 4,310	Minority interests HK$’000 23,126 –	Total equity HK$’000 721,341 4,310
2,861 – – –	200,556 – – –	1,474 – – 468	801 – – –	283,208 – – –	77 – – –	– – – –	– 7,963 – –	– – – –	213,548 – – –	702,525 7,963 – 468	23,126 – – 31	725,651 7,963 – 499
– – –	– – –	468 – –	– – –	– – –	– – –	– – –	7,963 – –	– – –	– – 28,695	8,431 – 28,695	31 3,737 (5,758)	8,462 3,737 22,937
2,861 – –	200,556 – –	1,942 – –	801 – –	283,208 – –	77 – –	– – –	7,963 (7,963) –	– – –	242,243 7,963 27,030	739,651 – 27,030	21,136 – 254	760,787 – 27,284
2,861 – – –	200,556 – – –	1,942 – – (2,973)	801 – – –	283,208 – – –	77 – – –	– 6 – –	– – – –	– – 15,620 –	277,236 – – –	766,681 6 15,620 (2,973)	21,390 – – –	788,071 6 15,620 (2,973
– –	– –	(2,973) –	– –	– –	– –	6 –	– –	15,620 –	– 4,779	12,653 4,779	– (9,307)	12,653 (4,528
2,861	200,556	(1,031)	801	283,208	77	6	–	15,620	282,015	784,113	12,083	796,196

2,861 –	200,556 –	(1,031) –	801 –	283,208 –	77 –	6 –	– –	15,620 –	282,015 –	784,113 –	12,083 –	796,196 –
2,861	200,556	(1,031)	801	283,208	77	6	–	15,620	282,015	784,113	12,083	796,196

2,861 –	200,556 –	1,942 –	801 –	283,208 –	77 –	– –	7,963 –	– –	233,079 9,164	730,487 9,164	21,136 –	751,623 9,164
2,861	200,556	1,942	801	283,208	77	–	7,963	–	242,243	739,651	21,136	760,787

The notes on pages 27 to 77 form an integral part of these financial statements.

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FINANCIAL INFORMATION

APPENDIX I

CONSOLIDATED CASH FLOW STATEMENT

Year ended 31 December 2005

Note (LOSS)/PROFIT FROM ORDINARY ACTIVITIES BEFORE TAXATION Adjustments for: Reversal of previous revaluation deficits of leasehold buildings, net Write back of provision against properties held for sale Share of profits less losses of associates Bank interest income Other interests earned Dividend income from short term investments Negative goodwill recognised as income Gain on disposal of controlling interest in Swank Gain on disposal of partial interest in Swank Gain on deregistration of subsidiaries Gain on disposal of interest in associates Loss/(gain) on disposal of properties held for sale Depreciation Amortisation of leasehold land and land use rights Amortisation of prepaid rental Amortisation of deferred product development costs Write back of provision for impairment loss on accounts receivable Provision against inventories Provision for impairment loss on a loan receivable Loss/(gain) on disposal of fixed assets Exchange difference Gain on disposal of short term investments Gain on disposal of investment properties Net loss arising from fair value change of investment properties Operating profit before working capital changes Additions to deferred product development costs (Increase)/decrease in balances with associates, net Decrease/(increase) in short term investment Decrease in accounts receivable Decrease in bills receivable (Increase)/decrease in loans receivable (Decrease)/increase in interest receivable on loans	2005 HK$’000 (3,008) (5,270) (200) (1,997) (9,025) (7,102) (106) – (42,244) – (2,973) – 143 26,539 252 737 1,641 – 1,190 45,000 44 – (72) (2,715) 490 1,324 (2,599) (2,183) 4,122 9,081 574 (48,979) 7	2004 HK$’000 23,389 (3,346) (3,150) (2,791) (1,575) – (363) (13,062) – (8,458) – (10,900) (3,900) 35,347 252 737 1,421 (1,090) 289 – (21) (184) – – – 12,595 (2,499) 3,648 (7,491) 25,617 1,307 9,254 (7)

– 77 –

FINANCIAL INFORMATION

APPENDIX I

Note (Increase)/decrease in prepayments, deposits and other receivables Increase in inventories Decrease in accounts payable Increase/(decrease) in other payables and accruals Decrease in provision for long services payments Cash (used)/generated from operations Interest received Income tax paid NET CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES INVESTING ACTIVITIES Dividend received from short term investments Purchase of property, plant and equipment Purchase of investment properties Net cash outflow from disposal of controlling interest in Swank 36 Proceeds from disposal of partial interest in Swank Proceeds from disposal of investment properties Purchase of available-for-sale financial assets Proceeds from disposal of short term investments Purchase of properties held for sale Proceeds from disposal of properties held for sale Proceeds from disposal of fixed assets Refund of rental deposit Dividends received from associates Proceeds from disposal of interests in associates NET CASH INFLOW/(OUTFLOW) FROM INVESTING ACTIVITIES NET DECREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR CASH AND CASH EQUIVALENTS, END OF YEAR	2005 HK$’000 (20,156) (6,542) (683) 19,508 –	2004 HK$’000 12,417 (11,789) (26,571) (7,199) (294) 8,988 1,575 (1,687) 8,876 363 (13,956) (83,348) – 12,088 – – – (9,683) 16,433 274 388 5,000 4,700 (67,741) (58,865) 456,589 397,724
	(46,526) 9,025 (1,503) (39,004) 106 (9,632) (6,740) (8,526) – 73,215 (11,744) 976 (5,870) 5,727 543 – – – 38,055 (949) 397,724	8,988 1,575 (1,687
		8,876 363 (13,956 (83,348 – 12,088 – – – (9,683 16,433 274 388 5,000 4,700
		(67,741
		(58,865 456,589
	396,775

The notes on pages 27 to 77 form an integral part of these financial statements.

– 78 –

FINANCIAL INFORMATION

APPENDIX I

NOTES TO THE FINANCIAL STATEMENT

31 December 2005

1. BASIS OF PREPARATION

a) Principal activities

The principal activity of the Company is investment holding. During the year, the Group’s principal activities consisted of the design development, manufacture and sale of electronic products, the manufacture and sale of printed circuit boards (“PCBs”), the trading and distribution of electronic components and parts, the trading of listed equity investments, the provision of loan financing, and the manufacture and sale of optical products. There were no significant changes in the nature of the Group’s principal activities during the year.

b) Basis of consolidation

The Group financial statements include the financial statements of the Company and its subsidiaries for the year ended 31 December 2005. The results of the subsidiaries acquired or disposed of during the year are consolidated from or to their effective dates of acquisition or disposal, respectively. All significant intercompany transactions and balances within the Group are eliminated on consolidation.

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 goodwill or capital reserve which was not previously charged or recognised in the consolidated income statement.

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

2. CHANGES IN ACCOUNTING POLICIES

In the current year, the Group has adopted, for the first time, a number of new Hong Kong Financial Reporting Standards (“HKFRSs”), Hong Kong Accounting Standards (“HKASs”) and Interpretations (hereinafter collectively referred to as “new HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) that are relevant to its operations. This includes the following new, revised and renamed standards:

HKAS 1 Presentation of Financial Statements HKAS 2 Inventories HKAS 7 Cash Flow Statements HKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors HKAS 10 Events after the Balance Sheet Date HKAS 12 Income Taxes HKAS 14 Segment Reporting HKAS 16 Property, Plant and Equipment HKAS 17 Leases HKAS 18 Revenue HKAS 19 Employee Benefits HKAS 21 The Effects of Changes in Foreign Exchange Rates HKAS 23 Borrowing Costs HKAS 24 Related Party Disclosures HKAS 27 Consolidated and Separate Financial Statements HKAS 32 Financial Instruments: Disclosures and Presentation HKAS 33 Earnings Per Share HKAS 36 Impairment of Assets HKAS 37 Provision, Contingent Liabilities and Contingent Assets HKAS 38 Intangible Assets HKAS 39 Financial Instruments: Recognition and Measurement

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HKAS 39 Transition and Initial Recognition of Financial Assets and Financial Liabilities (Amendment) HKAS 40 Investment Properties HKAS-Int 15 Operating Leases-Incentives HKAS-Int 21 Income taxes-recovery of revaluated non-depreciable assets HKFRS 2 Share-based Payments HKFRS 3 Business Combinations HKFRS 4 Insurance Contracts

The adoption of new/revised HKASs 1, 2, 7, 8, 10, 12, 14, 16, 18, 19, 21, 23, 24, 27, 33, 37, HKAS-Int 15, HKFRSs 2 and 4 did not result in substantial changes to the Group’s accounting policies. In summary:

HKAS 1 has affected the presentation of minority interest and other disclosures.
HKASs 2, 7, 8, 10, 12, 14, 16, 18, 19, 23, 27, 33, 37, HKAS-Int 15 and HKFRSs 2 and 4 had no material effect on the Group’s policies.
HKAS 21 had no material effect on the Group’s policy. The functional currency of each of the consolidated entities has been re-evaluated based on the guidance to the revised standard.
HKAS 24 has affected the identification of related parties and some other related-party disclosures.

a) HKAS 17 Leases

The adoption of HKAS 17 has resulted in a change in accounting policy relating to leasehold land. Leasehold land was previously included in leasehold properties which are stated at fair value. In accordance with the provisions of HKAS 17, leasehold properties are split into a lease of land and a lease of building in proportion to the relative fair values of the interests in the land element and the building element of the lease at the inception of the lease. The lease premium for leasehold land is stated at cost and amortised over the period of the lease. HKAS 17 has been applied retrospectively.

Building portion of freehold and leasehold properties was previously stated at fair value. Following the adoption of HKAS 17 where leasehold land is subject to amortisation, the accounting policy on building is changed and buildings are now stated at valuation less accumulated depreciation and impairment. This change in accounting policy has been applied retrospectively.

b) HKAS 40 Investment Properties

In prior years, the Group stated its investment properties at valuation and recorded the increase in valuation to the investment properties revaluation reserve. Decreases in the valuation were first set off against increases on earlier valuations on a portfolio basis and thereafter are expensed in the income statement. Moreover, investment properties held on leases with unexpired period of 20 years or less were depreciated over the remaining period of the lease.

The adoption of HKAS 40 has led to the changes in the fair value of investment properties being recorded in the income statement and the investment properties are no longer subject to depreciation where the unexpired periods of the lease are 20 years or less.

HKAS 40 is applied prospectively from 1 January 2005. Under the transitional provision of HKAS 40, the amount held in the investment property reserve at 1 January 2005 has been transferred to the Group’s retained profits.

c) HKAS-Int 21 Income taxes - recovery of revaluated non-depreciable assets

The adoption of revised HKAS-Int 21 has resulted in a change in the accounting policy relating to the deferred taxation of the Group’s investment property. In accordance with the provision of HKAS-Int 21, the deferred tax liabilities arising from the revaluation of investment properties is

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measured on the basis of tax consequences that would follow from recovery of the carrying amount of that asset through use. In prior years, the carrying amount of that asset is expected to be recovered through sale. The charge in accounting policy has been applied retrospectively.

d) HKAS 32 Financial Instruments: disclosure and presentation and HKAS 39 financial instruments: recognition and measurement

HKAS 32 and HKAS 39 establish principles for disclosure, presentation, recognition and measurement of financial instruments, including non-derivative financial assets, non-derivative financial liabilities and derivative instruments for hedging activities. The Group has adopted HKAS 32 and HKAS 39 prospectively from 1 January 2005.

Under HKAS 39, financial assets are classified as “financial asses at fair value through profit or loss”, “available-for-sale financial assets”, “loans and receivables”, or “held-to-maturity financial assets”. “Financial assets at fair value through profit or loss” and “available-for-sale financial assets” are carried at fair value, with changes in fair values recognised in the income statement and equity respectively. Available-for-sale equity investments that do not have quoted market prices in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments are measured at cost less impairment after initial recognition. “Loans and receivables” and “held-to-maturity financial assets” are measured at amortised cost using the effective interest method after initial recognition.

e) HKFRS 3 Business combinations; HKAS 36 impairment of assets and HKAS 38 intangible assets

The adoption has resulted in a change in accounting policy for goodwill. Goodwill was previously amortised on a straight-line basis over a period not exceeding 20 years, and assessed for impairment at each balance sheet date.

Under HKFRS 3, goodwill is no longer amortised. Instead, it is tested for impairment annually, or more frequently, if events or changes in circumstances indicate a possible impairment. Any excess of fair value of assets and liabilities acquired over cost is recognised immediately as income under HKFRS 3. However, HKFRS 3 requires, if an entity previously recognised goodwill as a deduction from equity, it shall not recognise that goodwill in the income statement when it disposes of all or part of the business to which that goodwill relates or when a cash-generating unit to which the goodwill relates becomes impaired. There is no transitional arrangement for goodwill which has previously been eliminated against reserves as a matter of accounting policy.

HKFRS 3 is applied prospectively from 1 January 2005. Under the transitional provision of HKFRS 3, the Group has to cease amortisation of goodwill from 1 January 2005, and the negative goodwill previously recognised has to be derecognised as at 1 January 2005, with a corresponding adjustment to the opening retained profits.

f) New standards or interpretations that have been issued but are not yet effective

The Group has not early adopted the following Standards or interpretations that have been issued but are not yet effective. The adoption of such Standards and Interpretations will not result in substantial changes to the Group’s accounting policies.

HKAS 1 (Amendment) Capital Disclosures HKAS 19 (Amendment) Employee Benefits - Actuarial Gains and Losses, Group Plans and Disclosures HKAS 39 (Amendment) The Fair Value Option HKAS 39 & HKFRS 4 Financial Instruments: Recognition and Measurement and (Amendment) Insurance Contracts – Financial Guarantee Contracts HKFRS 7 Financial Instruments – Disclosures

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3. SUMMARY OF THE EFFECTS OF THE CHANGES IN ACCOUNTING POLICIES

a) Effect on the consolidated income statement for the year ended 31 December 2005 and 2004

HKAS 17 HK$’000 (418) 97 – (6) – – – (327)	HKAS 40 HK$’000 – – – – (490) – – (490)	Effect of adopting HKAS- Int 21 HKASs 32/39 HK$’000 HK$’000 – – – – – – – – – – (620) – 1,689 – 1,069 –	Effect of adopting HKAS- Int 21 HKASs 32/39 HK$’000 HK$’000 – – – – – – – – – – (620) – 1,689 – 1,069 –	HKFRS 3 HK$’000 – – (13,062) – – – – (13,062)	Total HK$’000 (418) 97 (13,062) (6) (490) (620) 1,689
					(12,810)

(327) –	(490) –	1,069 –	– –	(12,954) (108)	(12,702) (108)
(327)	(490)	1,069	–	(13,062)	(12,810)

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Year ended 31 December 2004 Increase in depreciation of property, plant and equipment Decrease in amortisation of leasehold land and land use right Decrease in reversal of previous revaluation deficits of leasehold buildings, net Decrease in profit for the year Attributable to: Equity holders of the Company Minority interests	HKAS 17 HK$’000 (333) 14 (1,497) (1,816) (1,816) – (1,816)	HKAS 40 HK$’000 – – – – – – –	Effect of adopting HKAS- Int 21 HKASs 32/39 HK$’000 HK$’000 – – – – – – – – – – – – – –	HKFRS 3 HK$’000 – – – – – – –	Total HK$’000 (333) 14 (1,497)
					(1,816)

					(1,816) –
					(1,816)

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b) Effect on the consolidated balance sheet as at 31 December 2005 and 2004

HKAS 17 HK$’000 – – (418) 97 – (321)	HKAS 40 HK$’000 – – – – – –	Effect of adopting HKAS- Int 21 HKASs 32/39 HK$’000 HK$’000 – – – 15,620 – – – – 1,069 – 1,069 15,620	Effect of adopting HKAS- Int 21 HKASs 32/39 HK$’000 HK$’000 – – – 15,620 – – – – 1,069 – 1,069 15,620	HKFRS 3 HK$’000 27,284 – – – – 27,284	Total HK$’000 27,284 15,620 (418) 97 1,069
					43,652

6 – – (327) –	– (7,473) – 7,473 –	– – – 1,069 –	– – 15,620 – –	– – – 27,030 254	6 (7,473) 15,620 35,245 254
(321)	–	1,069	15,620	27,284	43,652

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HKAS 17 HK$’000 (8,440) 10,559 – 2,119	HKAS 40 HK$’000 – – – –	Effect of adopting HKAS- Int 21 HKASs 32/39 HK$’000 HK$’000 – – – – (1,689) – (1,689) –	Effect of adopting HKAS- Int 21 HKASs 32/39 HK$’000 HK$’000 – – – – (1,689) – (1,689) –	HKFRS 3 HK$’000 – – – –	Total HK$’000 (8,440) 10,559 (1,689)
					430

(375) – 2,494	– – –	– (1,689) –	– – –	– – –	(375) (1,689) 2,494
2,119	–	(1,689)	–	–	430

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The financial statements have been prepared in accordance with HKFRSs issued by the HKICPA and the disclosure requirements of the Companies Ordinance. The financial statements are prepared under the historical cost convention as modified by certain properties and financial instruments, which are measured at revalued amounts or fair values. These financial statements also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). A summary of the principal accounting policies adopted by the Group is set out below.

a) Subsidiaries

A subsidiary is a company in which the Group or Company, directly or indirectly, controls more than half of its voting power or issued share capital or controls the composition of its board of directors. Subsidiaries are considered to be controlled if the company has the power, directly or indirectly, to govern the financial and operating policies, so as to obtain benefits from their activities.

Investments in subsidiaries in the balance sheet are stated at cost less provision, if necessary, for any permanent diminution in value. The results of subsidiaries are accounted to the extent of dividends received and receivable.

Intra-group balances and transactions, and any unrealised profits arising from intra-group transactions, are eliminated in full in preparing the consolidated financial statements. Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

b) Joint venture companies

A joint venture company is a company set up by contractual arrangement, whereby the Group and other parties undertake an economic activity. The joint venture company operates as a separate entity in which the Group and the other parties have an interest.

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The joint venture agreement between the venturers stipulates the capital contributions of the joint venture parties, the duration of the joint venture and the basis on which the assets are to be realised upon its dissolution. The profits and losses from the joint venture company’s operations and any distributions of surplus assets are shared by the venturers, either in proportion to their respective capital contributions, or in accordance with the terms of the joint venture agreement.

A joint venture company is treated as:

i) a subsidiary, if the Group has unilateral control, directly or indirectly, over the joint venture company;
ii) an associate, if the Group does not have unilateral or joint control, but holds, directly or indirectly, generally not less than 20% of the joint venture company’s registered capital and is in a position to exercise significant influence over the joint venture company;
iii) a jointly-controlled entity, if the Group does not have unilateral control, but has joint control, directly or indirectly, over the joint venture company; and
iv) a financial asset, if the Group holds, directly or indirectly, less than 20% of the joint venture company’s registered capital and has neither joint control of, nor is in a position to exercise significant influence over, the joint venture company.

c)

Associates

An associate is a company in which the Group or the Company has significant influence and which is neither a subsidiary nor a joint venture of the Group or the Company.

The investments in associates are stated at cost less impairment losses. The results of associates are accounted for to the extent of dividends received and receivable.

The investments in associates are accounted for in the consolidated balance sheet under the equity method whereby the investments are initially recorded at cost and adjusted thereafter for the post acquisition change in the Group’s or the Company’s share of net assets of the associates. The results of the associates are accounted for in the consolidated income statement to the extent of the Group’s or the Company’s share of the associates’ results of operation. However, when the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

d) Goodwill

Goodwill represents the excess of the cost of a business combination or an investment in an associate or a jointly controlled entity over the group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities.

Goodwill is stated at cost less accumulated impairment losses. Goodwill is allocated to cash-generating units and is tested annually for impairment. In respect of associates or jointly controlled entities, the carrying amount of goodwill is included in the carrying amount of the interest in the associate or jointly controlled entity.

Any excess of the group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of a business combination or an investment in an associate or a jointly controlled entity is recognised immediately in the income statement.

On disposal of a cash generating unit, an associate or jointly controlled entity during the year, any attributable amount of purchased goodwill is included in the calculation of the profit or loss on disposal.

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e) Investment property

Investment properties are land and buildings which are owned or held under a leasehold interest to earn rental income and/or for capital appreciation. These include leasehold land held for a currently undetermined future use.

Investment properties are stated in the balance sheet at fair value. Any gain or loss arising from a change in fair value or from the retirement or disposal of an investment property is recognised in the income statement.

f) Property, plant and equipment and depreciation

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

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

Depreciation is calculated on the straight-line basis to write off the cost or valuation of each asset over its estimated useful life. The principal annual rates used for this purpose are as follows:

Leasehold buildings	4%
Leasehold improvements	5 - 50%
Plant and machinery	6.67 - 20%
Furniture, fixtures and office equipment	10 - 20%
Motor vehicles	20%

Changes in the values of property, plant and equipment resulting from revaluations are dealt with, on an individual asset basis, as movements in the asset revaluation reserve. Deficits arising from revaluation, to the extent they cannot be offset against the revaluation surplus in respect of the same asset, are charged to the income statement. Any subsequent revaluation surplus is credited to income statement to the extent of the deficit previously charged.

The gain or loss on disposal or retirement of a property, plant and equipment recognised in the income statement is the difference between the net sales proceeds and the carrying amount of the relevant asset. On disposal or retirement, the attributable revaluation surplus not previously dealt with in retained profits is transferred directly to retained profits.

g) Impairment of assets

The Group’s goodwill, other intangible assets and property, plant and equipment are subject to impairment testing.

For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Goodwill in particular is allocated to those cash-generating units that are expected to benefit from synergies of the related business combination and represent the lowest level within the Group at which management controls the related cash flows.

Individual assets or cash-generating units that include goodwill and other intangible assets with an indefinite useful life of those not yet available for use are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

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An impairment loss is recognized for the amount by which the asset’s or cash-generating unit’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell and value in use, based on an internal discounted cash flow evaluation. Impairment losses recognised for cash-generating units, to which goodwill has been allocated, are credited initially to the carrying amount of goodwill. Any remaining impairment loss is charged pro rata to the other assets in the cash generating unit.

All assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.

h) Properties held for sale

Properties held for sale are stated at the lower of carrying amount and net realisable value. Carrying amount is the lower of cost less impairment losses and valuation.

i) Research and development costs

All research costs are charged to the income statement as incurred.

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

Deferred development costs are stated at cost less any impairment losses and are amortised using the straight-line method over the commercial lives of the underlying products not exceeding seven years, commencing from the date when the products are put into commercial production.

j) Financial assets

From 1 January 2004 to 31 December 2004:

The Group classified its investments in equity securities held for trading purposes as short term investment and were stated at their fair values at the balance sheet date on an individual investment basis. Fair values are determined by reference to quoted market prices net of any discount which is deemed necessary by the directors to reflect the potential impact of the disposal of such shares in the case of substantial shareholdings. The gains or losses arising from changes in the fair value of a security are credited to or charged to the income statement in the period in which they arise.

From 1 January 2005 onwards:

The Group classifies its financial assets in the following categories: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments and available-for-sale financial assets. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition and re-evaluates this designation at every reporting date.

i) Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss comprise financial assets held for trading and derivative financial instruments that are not designated and effective hedging instruments. At each balance sheet date subsequent to initial recognition, financial assets at fair value through profit or loss are measured at fair value, with changes in fair value recognised directly in the income statement in the period in which they arise.

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ii) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. At each balance sheet date subsequent to initial recognition, loans and receivables including accounts receivable, time deposits, staff housing loans and other receivables are carried at amortised cost using the effective interest method, less any identified impairment losses. An impairment loss is recognised in the income statement when there is objective evidence that the asset is impaired, and is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Impairment losses are reversed in subsequent periods when an increase in the asset’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

iii) Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and a fixed date of maturity. Investments are classified as held-to-maturity if it is the intention of the Group’s management to hold them until maturity. Held-to-maturity investments are subsequently measured at amortised cost using the effective interest method. In addition, if there is objective evidence that the investment has been impaired, the financial asset is measured at the present value of estimated cash flows. Any changes to the carrying amount of the investment are recognised in the income statement.

iv) Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated as such or not classified as any of the other categories (set out above). At each balance sheet date subsequent to initial recognition, available-for-sale financial assets are measured at fair value. Changes in fair value are recognised in equity, until the financial asset is disposed of or is determined to be impaired, at which time, the cumulative gain or loss previously recognised in equity is removed from equity and recognised in the income statement. Any impairment losses on available-for-sale financial assets are recognised in the income statement. Impairment losses on available-for-sale equity investments will not be reversed in subsequent periods.

For available-for-sale equity investments that do not have a quotes market price in an active market and whose fair value cannot be reliably measured, they are measured at cost less any identified impairment losses at each balance sheet date subsequent to initial recognition. An impairment loss is recognised in the income statement when there is objective evidence that the asset is impaired. The amount of the impairment loss is measured as the difference between the carrying amount of the asset and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses will not be reversed in subsequent periods.

k) Financial liabilities and equity

Financial liabilities and equity instruments issued by a group entity are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument.

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An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities. The Group’s financial liabilities are generally classified into financial liabilities at fair value through profit or loss and other financial liabilities. The accounting policies adopted in respect of financial liabilities and equity instruments are set out below.

i) Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss has two sub-categories, including financial liabilities held for trading and those designated at fair value through profit or loss on initial recognition. At each balance sheet date subsequent to initial recognition, financial liabilities at fair value through profit or loss are measured at fair value, with changes in fair value recognised directly in profit or loss in the period in which they arise.

ii) Other financial liabilities

Other financial liabilities including bank and other borrowings, floating rate notes, fixed rate notes and zero coupon notes are subsequently measured at amortised cost, using the effective interest rate method.

iii) Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

l) Inventories

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

m) Provisions and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when the Group or the Company or has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditures expected to settle the obligation.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

n) Income tax

Income tax for the year comprises current tax and movements in deferred tax assets and liabilities. Income tax is recognised in the income statement or in equity if it relates to items that are recognised in the same or a different period, directly in equity.

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

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Deferred tax liabilities are recognised for all taxable temporary differences:

except where the deferred tax liability arises from the initial recognition of an asset or liability and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
in respect of taxable temporary differences associated with investments in subsidiaries and associates, except where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, carryforward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward of unused tax assets and unused tax losses can be utilised:

except where the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
in respect of deductible temporary differences associated with investments in subsidiaries and associates, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

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

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

o) Leases (as the lessee)

The economic ownership of a leased asset is transferred to the lessee if the lessee bears substantially all the risks and rewards related to the ownership of the leased asset. The related asset is recognised at the time of inception of the lease at the present value of the lease payments plus incidental payment, if any, to be borne by the lessee. A corresponding amount is recognised as a finance lease liability, irrespective or whether some of these lease payments are payable up-front at the date of inception of the lease.

Subsequent accounting for assets held under finance lease agreement, i.e. depreciation methods and useful lives correspond to those applied to comparable acquired assets. The corresponding finance lease liability is reduced by lease payments less finance charges, which are expensed to finance costs.

All other leases are treated as operating lease agreements. Operating lease payments are recognised as an expense on a straight-line basis. Affiliated costs, such as maintenance and insurance, are expensed as incurred.

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p) Employee benefits

Paid leave carried forward

The Group provides paid annual leave to its employees under their employment contracts on a calendar year basis. Under certain circumstances, such leave which remains untaken as at the balance sheet date is permitted to be carried forward and utilised by the respective employees in the following year. An accrual is made at the balance sheet date for the expected future cost of such paid leave earned during the year by the employees and carried forward.

Employment Ordinance long service payments

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

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

Retirement benefits scheme

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

The employees of the Group’s subsidiaries in the People’s Republic of China (the “PRC”) are members of the state-sponsored retirement scheme operated by the government of the PRC.

Share-based employee compensation

All share-based payment arrangements granted after 7 November 2002 are recognised in the consolidated financial statements. The Group operates equity settled share-based compensation plans for remuneration of its employees.

All employee services received in exchange for the grant of any share-based compensation are measured at their fair values. These are indirectly determined by reference to the share options awarded. Their value is appraised at the grant date and excludes the impact of any non-market vesting conditions (for example, profitability and sales growth targets).

All share-based compensation is ultimately recognised as an expense in income statement with a corresponding credit to additional paid-in capital, net of deferred tax where applicable. If vesting periods or other vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. Estimates are subsequently revised, if there

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is any indication that the number of share options expected to vest differs from previous estimates. No adjustment to expense recognised in prior periods is made if fewer share options ultimately are exercised than originally estimated.

Upon exercise of share options, the proceeds received net of any directly attributable transaction costs up to the nominal value of the share issued are reallocated to share capital with any excess being recorded as additional paid-in capital.

q) Related parties

For the purposes of these financial statements, parties are considered to be related to the group if the group has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the group and the party are subject to common control or common significant influence. Related parties may be individuals (being members of key management personnel, significant shareholders and/or their close family members) or other entities and include entities which are under the significant influence of related parties of the group where those parties are individuals, and post-employment benefit plans which are for the benefit of employees of the group or of any entity that is a related party of the group.

r) Cash and cash equivalents

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

For the purpose of the balance sheet, cash and bank balances and time deposits represent assets which are not restricted as to use.

s) Revenue recognition

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

i) From the sale of goods, when the significant risks and rewards of ownership have been transferred to the buyer, provided that the Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold;
ii) Interest, on a time proportion basis taking into account the principal outstanding and the effective interest rate applicable;
iii) From the sale of listed equity investments, on the trade day;
iv) From the sale of properties, when the legally binding sales contract is signed;
v) Dividends, when the shareholders’ right to receive payment has been established; and
vi) Management fee, when the services are rendered.

t) Foreign currency translation

The consolidated financial statements are presented in Hong Kong Dollars, which is also the functional currency of the parent company.

– 93 –

FINANCIAL INFORMATION

APPENDIX I

In the separate financial statements of the consolidated entities, foreign currency transactions are translated into the functional currency of the individual entity using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year-end exchange rates are recognised in the income statement.

Translation differences on non-monetary items, such as equity instruments held at fair value through profit or loss, are reported as part of the fair value gain or loss. Translation difference on non-monetary items, such as equities classified as available-for-sale financial assets, are included in the fair value reserve in equity.

In the consolidated financial statements, all separate financial statements of subsidiaries and jointly controlled entities, originally presented in a currency different from the Group’s presentation currency, have been converted into Hong Kong dollars. Assets and liabilities have been translated into Hong Kong dollars at the closing rate at the balance sheet date. Income and expenses have been converted into the Group’s presentation currency at the average rates over the reporting period. Any differences arising from this procedure have been charged/(credited) to the currency translation reserve in equity. Goodwill and fair value adjustments arising on the acquisition of a foreign entity have been treated as assets and liabilities of the foreign entity and translated into Hong Kong dollars at the closing rate.

On exchange differences arising from the translation of the net investment in foreign entities, and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders’ equity. When a foreign operation is sold, such exchange differences are recognised in the income statement as part of the gain or loss on sale.

5. CRITICAL ACCOUNTING JUDEGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the process of applying the Group’s accounting policies, management has made various estimates and judgements (other than those involving estimates) based on past experience, expectations of the future and other information. The key source of estimation uncertainty and the critical accounting judgements that can significantly affect the amounts recognised in the financial statements are set out below.

a) Estimate of fair value of investment properties

Investment properties were revalued at the balance sheet date on market value existing use basis by independent professional valuers or determined by the directors of the Company. Such valuations were based on certain assumptions, which are subject to uncertainty and might materially differ from the actual results. In making the judgment, the Group considers information from current prices in an active market for similar properties and uses assumptions that are mainly based on market conditions existing at each balance sheet date.

b) Fair values of financial instruments

Financial instruments such as interest rate, foreign exchange and equity derivative instruments are carried at the balance sheet at fair value. The best evidence of fair value is quoted prices in an active market, where quoted prices are not available for a particular financial instrument, the Group uses the market values determined by independent financial institutions or internal or external valuation models to estimate the fair value. The use of methodologies, models and assumptions in pricing and valuing these financial assets and liabilities is subjective and requires varying degrees of judgement by management, which may result in significantly different fair values and results. All significant financial valuation models are strictly controlled and regularly recalibrated and vetted.

c) Income taxes

The Group is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of

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APPENDIX I

business. The Group recognised liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

6. FINANCIAL RISK MANAGEMENT

The Group’s activities expose it to a variety of financial risks: market risk (including currency risk and price risk), credit risk, liquidity risk and interest-rate risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance.

a) Market risk

i) Foreign currency risk

The Group is exposed to foreign currency risk primarily through sales and purchases that are denominated in a currency other than the functional currency of the operations to which they relate. The currencies giving rise to this risk are primarily United States dollars and Chinese Renminbi Yuan.

As the estimated foreign currency exposure in respect of committed future sales and purchases and estimated foreign currency exposure in respect of highly probable forecast sales and purchases is not significant, no hedging on foreign currency risk has been carried out during the year under review.

In respect of trade receivables and payables held in currencies other than the functional currency of the operations to which they relate, the Group ensures that the net exposure is kept to an acceptable level.

ii) Price risk

The Group is exposed to equity securities price risk because investments held by the Group are classified on the consolidated balance sheet either as available-for-sale financial assets or as financial assets at fair value through profit or loss.

b) Credit risk

The Group’s credit risks are primarily attributable to time deposits, trade and other receivables.

The Group’s time deposits are deposited with banks of high credit quality in Hong Kong and the Group has exposure limit to any single financial institution.

For trade and other receivables, the management has a credit policy in place and the exposures to these credit risks are monitored on an ongoing basis. In respect of trade and other receivables, credit evaluations are performed on all customers requiring credit over a certain amount.

In addition, the Group reviews the recoverable amount of each individual debt at each balance sheet date to ensure that adequate impairment losses are made for irrecoverable amounts.

c) Liquidity risk

Individual operating entities within the Group are responsible for their own cash management, including the raising of loans to cover expected cash demands, subject to approval by the holding company’s board. The Group’s policy is to regularly monitor current and expected liquidity requirements and its compliance with lending covenants, to ensure that it maintains sufficient reserves of cash and adequate committed lines of funding from bankers to meet its liquidity requirements in the short and longer term.

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d) Interest rate risk

The Group manages its interest rate exposure based on interest rate level and outlook as well as potential impact on the Group’s financial position arising from volatility. The Group does not expect any changes in interest rate which might materially affect the Group’s result of operations.

7. SEGMENT INFORMATION

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

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

i) The electronic products segment consists of the manufacture and sale of electronic products;
ii) The PCBs segment consists of the manufacture and sale of PCBs;
iii) The electronic components and parts segment consists of the trading and distribution of electronic components and parts;
iv) The listed equity investments segment consists of the trading of listed equity investments;
v) The provision of finance segment consists of the provision of loan financing services; and
vi) The optical products segment consists of the manufacture and sale of optical products.

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

Inter-segment sales and transfers are transacted with reference to the selling prices used for sales made to the third parties at the then prevailing market prices.

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APPENDIX I

a) Business segments

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

Group

Electronic products PCBs Electronic components and parts Listed equity investments Provision of finance Optical products Eliminations Consolidated 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 386,411 391,632 95,777 108,992 – – 7,342 15,515 296 107 64,045 174,890 – – 553,871 691,136 – – – 4,787 20,066 19,416 – – 4,439 2,887 – – (24,505) (27,090) – – 2,795 3,356 2,963 5,192 – – 132 469 89 – 10,832 2,800 – – 16,811 11,817	Electronic products PCBs Electronic components and parts Listed equity investments Provision of finance Optical products Eliminations Consolidated 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 386,411 391,632 95,777 108,992 – – 7,342 15,515 296 107 64,045 174,890 – – 553,871 691,136 – – – 4,787 20,066 19,416 – – 4,439 2,887 – – (24,505) (27,090) – – 2,795 3,356 2,963 5,192 – – 132 469 89 – 10,832 2,800 – – 16,811 11,817	Electronic products PCBs Electronic components and parts Listed equity investments Provision of finance Optical products Eliminations Consolidated 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 386,411 391,632 95,777 108,992 – – 7,342 15,515 296 107 64,045 174,890 – – 553,871 691,136 – – – 4,787 20,066 19,416 – – 4,439 2,887 – – (24,505) (27,090) – – 2,795 3,356 2,963 5,192 – – 132 469 89 – 10,832 2,800 – – 16,811 11,817
389,206 394,988 98,740 118,971 20,066 19,416 7,474 15,984 4,824 2,994 74,877 177,690 (24,505) (27,090) 570,682 702,953

18,489 17,288 (19,739) (18,328) (223) 683	(3,033) (3,607) (4,032) (5,800) (2,098) (5,345) (4,469) 642	(15,105) (14,467)

		9,385 2,272 – 13,062 (143) 3,900 42,244 – – 8,458 2,715 – 5,270 3,346 – 10,900 200 3,150 (490) – (4,081) (10,023)
		39,995 20,598 (45,000) – 1,997 2,791
		(3,008) 23,389 (1,520) (452)
		(4,528) 22,937

– 97 –

APPENDIX I

FINANCIAL INFORMATION

Group

Electronic products PCBs Electronic components and parts Listed equity investments Provision of finance Optical products Eliminations Consolidated Group 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 228,602 183,207 110,409 123,474 3,909 1,222 40,704 23,884 51,769 101,612 – 195,056 (56,676) (16,641) 378,717 611,814 – – – – – – – – – – 156,892 37,220 – – 156,892 37,220 – – – – – – – – – – – – – – 395,254 271,731	Electronic products PCBs Electronic components and parts Listed equity investments Provision of finance Optical products Eliminations Consolidated Group 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 228,602 183,207 110,409 123,474 3,909 1,222 40,704 23,884 51,769 101,612 – 195,056 (56,676) (16,641) 378,717 611,814 – – – – – – – – – – 156,892 37,220 – – 156,892 37,220 – – – – – – – – – – – – – – 395,254 271,731	Electronic products PCBs Electronic components and parts Listed equity investments Provision of finance Optical products Eliminations Consolidated Group 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 228,602 183,207 110,409 123,474 3,909 1,222 40,704 23,884 51,769 101,612 – 195,056 (56,676) (16,641) 378,717 611,814 – – – – – – – – – – 156,892 37,220 – – 156,892 37,220 – – – – – – – – – – – – – – 395,254 271,731	Electronic products PCBs Electronic components and parts Listed equity investments Provision of finance Optical products Eliminations Consolidated Group 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 228,602 183,207 110,409 123,474 3,909 1,222 40,704 23,884 51,769 101,612 – 195,056 (56,676) (16,641) 378,717 611,814 – – – – – – – – – – 156,892 37,220 – – 156,892 37,220 – – – – – – – – – – – – – – 395,254 271,731	Electronic products PCBs Electronic components and parts Listed equity investments Provision of finance Optical products Eliminations Consolidated Group 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 228,602 183,207 110,409 123,474 3,909 1,222 40,704 23,884 51,769 101,612 – 195,056 (56,676) (16,641) 378,717 611,814 – – – – – – – – – – 156,892 37,220 – – 156,892 37,220 – – – – – – – – – – – – – – 395,254 271,731	Electronic products PCBs Electronic components and parts Listed equity investments Provision of finance Optical products Eliminations Consolidated Group 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 228,602 183,207 110,409 123,474 3,909 1,222 40,704 23,884 51,769 101,612 – 195,056 (56,676) (16,641) 378,717 611,814 – – – – – – – – – – 156,892 37,220 – – 156,892 37,220 – – – – – – – – – – – – – – 395,254 271,731	Electronic products PCBs Electronic components and parts Listed equity investments Provision of finance Optical products Eliminations Consolidated Group 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 228,602 183,207 110,409 123,474 3,909 1,222 40,704 23,884 51,769 101,612 – 195,056 (56,676) (16,641) 378,717 611,814 – – – – – – – – – – 156,892 37,220 – – 156,892 37,220 – – – – – – – – – – – – – – 395,254 271,731	Electronic products PCBs Electronic components and parts Listed equity investments Provision of finance Optical products Eliminations Consolidated Group 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 228,602 183,207 110,409 123,474 3,909 1,222 40,704 23,884 51,769 101,612 – 195,056 (56,676) (16,641) 378,717 611,814 – – – – – – – – – – 156,892 37,220 – – 156,892 37,220 – – – – – – – – – – – – – – 395,254 271,731	Electronic products PCBs Electronic components and parts Listed equity investments Provision of finance Optical products Eliminations Consolidated Group 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 228,602 183,207 110,409 123,474 3,909 1,222 40,704 23,884 51,769 101,612 – 195,056 (56,676) (16,641) 378,717 611,814 – – – – – – – – – – 156,892 37,220 – – 156,892 37,220 – – – – – – – – – – – – – – 395,254 271,731	Electronic products PCBs Electronic components and parts Listed equity investments Provision of finance Optical products Eliminations Consolidated Group 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 228,602 183,207 110,409 123,474 3,909 1,222 40,704 23,884 51,769 101,612 – 195,056 (56,676) (16,641) 378,717 611,814 – – – – – – – – – – 156,892 37,220 – – 156,892 37,220 – – – – – – – – – – – – – – 395,254 271,731	Electronic products PCBs Electronic components and parts Listed equity investments Provision of finance Optical products Eliminations Consolidated Group 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 228,602 183,207 110,409 123,474 3,909 1,222 40,704 23,884 51,769 101,612 – 195,056 (56,676) (16,641) 378,717 611,814 – – – – – – – – – – 156,892 37,220 – – 156,892 37,220 – – – – – – – – – – – – – – 395,254 271,731
44,170 –										930,863 920,765

	31,309 87,895 80,327 3,875 1,396 11 – – – – – –			42 –	122 –	123 –	– –	41,356 (29,000) (16,600) 107,073 137,953 – – – 27,594 22,025
11,986 14,303 9,267 4,386 – 3,820 10,216 3,696 3,154 – – – – – – – – – – – – – – (1,090) – (650) (291) (540) 240 – 1,530 419 – – – – – – – –		119 – – – – – – –	– – – – – – – –	– – – – – – – –	– – – – (45,000) – – – – – – – – – – –		3,798 13,645 – 832 3,000 – – – – – – – – – – – (238) – – – – – – –		– – – – – – – –	134,667 159,978

										25,051 32,453 1,488 2,646
										26,539 35,099

										8,348 16,370 1,284 85
										9,632 16,455

										(45,000) – 200 3,150 – (1,090 (1,190) (289 1,530 419 3,740 2,927
										5,270 3,346

										(490) 9,652

b) Geographical segments

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

==> picture [426 x 78] intentionally omitted <==

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

Group
Europe North America Hong Kong Japan Others Eliminations Consolidated
2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
Segment revenue:
Sales to external
customers 51,357 89,922 130,442 189,345 146,836 183,782 196,340 180,807 28,896 47,280 – – 553,871 691,136
----- End of picture text -----

– 98 –

APPENDIX I

FINANCIAL INFORMATION

Other segment information: Segment assets Interests in associates Capital expenditure	Hong 2005 HK$’000 532,496 – 1,945	Kong 2004 HK$’000 673,940 (10,165) 160	Mainlan 2005 HK$’000 197,662 – 5,787	d China 2004 HK$’000 197,400 47,224 16,295	Oth 2005 HK$’000 43,813 156,892 1,900	ers 2004 HK$’000 12,205 161 –	Elimin 2005 HK$’000 – – –	ations 2004 HK$’000 – – –	Consol 2005 HK$’000 773,971 156,892 930,863 9,632	idated 2004 HK$’000 883,545 37,220
										920,765

										16,455

8. TURNOVER

Turnover represents the invoiced value of goods sold, net of returns and allowances, the proceeds from sales of listed equity investments and the interest income from the provision of loan financing.

Revenue from the following activities has been included in turnover:

Manufacture and sale of electronic products Manufacture and sale of PCBs Trading of listed equity investments Provision of loan financing Manufacture and sale of optical products	2005 HK$’000 386,411 95,777 7,342 296 64,045 553,871	2004 HK$’000 391,632 108,992 15,515 107 174,890
		691,136

9. OTHER REVENUE

Bank interest income Gain on deregistration of subsidiaries Dividends income from listed investments Sales of obsolete inventories Management fee received Product development income Rental income Sales of raw materials Other interests earned Others	2005 HK$’000 9,025 2,973 106 558 256 2,520 137 1,084 7,102 2,435 26,196	2004 HK$’000 1,575 – 363 2,795 1,908 2,678 1,024 1,778 – 1,968
		14,089

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10. PROFIT FROM OPERATING ACTIVITIES

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

Cost of inventories Depreciation Amortisation of leasehold land and land use rights Amortisation of prepaid rental Amortisation of deferred product development costs Minimum lease payments under operating leases: Land and buildings Office equipment Staff costs (including directors’ remuneration-note 11): Wages and salaries Pension contributions Less: Forfeited contributions Auditors’ remuneration Write back of provision for impairment loss on accounts receivable Provision against inventories Loss/(Gain) on disposal of fixed assets Exchange (gain)/loss, net Net (gain)/loss on disposal of short term investments	2005 HK$’000 466,424 26,539 252 737 1,641 7,876 209 91,117 1,443 –	2004 HK$’000 583,563 35,347 252 737 1,421 9,495 233 114,775 1,818 (562) 1,256 116,031 1,370 (1,090) 289 (21) 1,068 88
	1,443 92,560	1,256
		116,031
	880 – 1,190 44 (653) (72)

The cost of inventories sold includes HK$62,754,000 (2004: HK$102,679,000) relating to direct staff costs, provision against inventories, amortisation of prepaid rental, amortisation of deferred product development costs, operating lease rentals of land and buildings and depreciation of the manufacturing activities, which are also included in the respective total amounts disclosed above for each of these types of expenses.

At 31 December 2005, the Group had no forfeited contributions available to reduce its contributions to the pension scheme in future years (2004: Nil).

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11. DIRECTORS’ REMUNERATION

Directors’ remuneration for the year, disclosed pursuant to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and Section 161 of the Hong Kong Companies Ordinance is as follows:

Directors’ emoluments

The remuneration of every director for the year ended 31 December 2005 is set out below:

Name of director Executive Directors Yau Tak Wah, Paul Louie Mei Po Wong Shin Ling, Irene Tam Wing Kin Tam Ping Wah (resigned on 1 June 2005) Independent non-executive Director Cheung Chung Leung, Richard Ng Wai Hung Wu Wang Li	Fees HK$’000 – – – – – 150 180 120 450	Salary Discretionary bonuses HK$’000 HK$’000 1,847 150 1,430 150 780 – 819 13 400 – – – – – – – 5,276 313	Other benefits HK$’000 – – – – – – – – –	Employer’s contribution to pension scheme HK$’000 90 68 39 42 – – – – 239	Total HK$’000 2,087 1,648 819 874 400 150 180 120
					6,278

The remuneration of every director for the year ended 31 December 2004 is set out below:

Name of director Executive Directors Yau Tak Wah, Paul Louie Mei Po Wong Shin Ling, Irene Tam Wing Kin Tam Ping Wah (resigned on 1 June 2005) Independent non-executive Directors Cheung Chung Leung, Richard Ng Wai Hung Wu Wang Li	Fees HK$’000 – – – – – 150 180 31 361	Salary Discretionary bonuses HK$’000 HK$’000 2,600 – 1,430 – 780 – 819 – 1,560 – – – – – – – 7,189 –	Other benefits HK$’000 – – – – – – – – –	Employer’s contribution to pension scheme HK$’000 120 51 39 35 50 – – – 295	Total HK$’000 2,720 1,481 819 854 1,610 150 180 31
					7,845

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12. FIVE HIGHEST PAID EMPLOYEES

The five highest paid employees during the year included three (2004: two) directors, details of whose remuneration are set out in note 11 above. The details of the remuneration of the remaining two (2004: three) non-director, highest paid employees for the year are as follows:

Salaries, allowances and benefits in kind Pension contributions	Group 2005 2004 HK$’000 HK$’000 1,903 3,520 73 103 1,976 3,623	Group 2005 2004 HK$’000 HK$’000 1,903 3,520 73 103 1,976 3,623
		3,623

The remuneration of the non-director, highest paid employees fell within the following bands:

Nil-HK$1,000,000 HK$1,000,001-HK$1,500,000	Number of employees 2005 2004 1 1 1 2 2 3	Number of employees 2005 2004 1 1 1 2 2 3
		3

13. TAXATION

Hong Kong profits tax has been provided at the rate of 17.5% (2004: 17.5%) on the estimated assessable profits arising in Hong Kong during the year. Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the countries in which the Group operates, based on existing legislation, interpretations and practices in respect thereof.

Current tax Hong Kong – Current year provision – Overprovision in prior year Mainland China Deferred tax (note 34) Total tax charge for the year	Group 2005 2004 HK$’000 HK$’000 1,602 976 (393) (750 1,380 226	Group 2005 2004 HK$’000 HK$’000 1,602 976 (393) (750 1,380 226
	2,589 (1,069)	452 –
	1,520	452

In accordance with the applicable enterprise income tax law of the PRC, the Group’s subsidiaries registered in Mainland China, Dongguan Yifu Circuit Board Factory (“Yifu”) and Gaojin Electronics (Shenzhen) Co., Ltd (“Gaojin”), are exempt from income tax for their first two profitable years of operations and are entitled to 50% relief on the income tax that would otherwise be charged for the succeeding three years.

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APPENDIX I

The foregoing tax concession for Yifu has expired. Pursuant to a further tax concession granted to high technology enterprises, the income tax rate applicable to Yifu remained at 15% for 2005 (2004: 15%). Gaojin began its first profitable year as the year ended 31 December 2002 and entitled to the 50% relief on the income tax. The income tax applicable rate to Gaojin is 15% for 2005 (2004: 15%).

A reconciliation of the tax expense applicable to profit before tax using the statutory rates for the countries in which the Company, its subsidiaries and associates are domiciled to the tax expense at the effective tax rates, and a reconciliation of the applicable rates (i.e. the statutory tax rates) to the effective tax rates, are as follows:

(Loss)/Profit before tax Tax at the statutory tax rate Adjustments in respect of current tax of previous years Income not subject to taxation Expenses not deductible for taxation Tax losses utilised from previous years Effect of different taxation rates in other countries Tax charge at the Group’s effective rate	Group 2005 2004 HK$’000 HK$’000 (3,008) 23,389 (526) 4,093 (393) (750) (8,668) (5,240) 6,745 2,475 (386) (759) 4,748 633 1,520 452	Group 2005 2004 HK$’000 HK$’000 (3,008) 23,389 (526) 4,093 (393) (750) (8,668) (5,240) 6,745 2,475 (386) (759) 4,748 633 1,520 452
	(526) (393) (8,668) 6,745 (386) 4,748	4,093 (750 (5,240 2,475 (759 633
	1,520

14. PROFIT ATTRIBUTABLE TO EQUITY HOLDERS

The profit attributable to equity holders of the Company for the year ended 31 December 2005 dealt with in the financial statements is HK$5,501,000 (2004: HK$1,538,000).

15. EARNINGS PER SHARE

The calculation of basic earnings per share is based on the profit attributable to equity holders of the Company for the year of HK$4,779,000 (2004: HK$28,695,000) and the weighted average of 286,068,644 (2004: 286,068,644) ordinary shares in issue during the year.

A diluted earnings per share for the year ended 31 December 2005 and 2004 have not been disclosed as no diluting events existing during these years.

– 103 –

FINANCIAL INFORMATION

APPENDIX I

16. PROPERTY, PLANT AND EQUIPMENT

Group

										Furniture,	Furniture,
											fixtures
	Leasehold				Leasehold			Plant and		& office			Motor
	Buildings				improvements			machinery		equipments			vehicles			Total
	2005		2004		2005	2004		2005	2004	2005	2004	2005	2004		2005	2004
	HK$’000	HK$’000			HK$’000	HK$’000	HK$’000		HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000		HK$’000
Cost or valuation
At 1 January, as previously
reported	39,100		34,900		49,619	45,671	188,242		181,048	50,151	48,235	3,335	3,667	330,447		313,521
Effect on adopting
HKAS 17	(8,440)		(6,500)		–	–		–	–	–	–	–	–		(8,440) (6,500)
	30,660		28,400		49,619	45,671	188,242		181,048	50,151	48,235	3,335	3,667	322,007		307,021
Additions	–			–	1,095	4,025		6,306	7,836	1,251	2,095	980	–		9,632	13,956
Disposals	–			–	(880) (77)			(736) (642)		(306) (179)		(800) (332)			(2,722) (1,230)
Disposals of subsidiaries	–			–	–	–	(46,520) –			(25,878) –		(2,189) –		(74,587) –
Surplus on revaluation	3,970		2,260		–	–		–	–	–	–	–	–		3,970	2,260
At 31 December	34,630		30,660		49,834	49,619	147,292		188,242	25,218	50,151	1,326	3,335	258,300		322,007

Accumulated depreciation
At 1 January, as previously
reported	–			–	25,422	19,481	105,196		86,027	27,802	19,715	2,616	2,529	161,036		127,752
Effect on adopting
HKAS 17	–			–	–	–		–	–	–	–	–	–		–	–
	–			–	25,422	19,481	105,196		86,027	27,802	19,715	2,616	2,529	161,036		127,752
Provided during the year	1,306		1,086		4,139	5,955		16,793	19,663	3,905	8,261	396	382		26,539	35,347
Disposals	–			–	(880) (14)			(192) (494)		(263) (174)		(800) (295)			(2,135) (977)
Disposals of subsidiaries	–			–	–	–	(15,269) –			(11,554) –		(2,189) –		(29,012) –
Write-back on revaluation	(1,306)		(1,086)		–	–		–	–	–	–	–	–		(1,306) (1,086)
At 31 December	–			–	28,681	25,422	106,528		105,196	19,890	27,802	23	2,616	155,122		161,036

Net book value
At 31 December	34,630		30,660		21,153	24,197		40,764	83,046	5,328	22,349	1,303	719	103,178		160,971

An analysis of cost or
valuation
At cost	–			–	49,834	49,619	147,292		188,242	25,218	50,151	1,326	3,335	223,670		291,347
At valuation	34,630		30,660		–	–		–	–	–	–	–	–		34,630	30,660
	34,630		30,660		49,834	49,619	147,292		188,242	25,218	50,151	1,326	3,335	258,300		322,007

– 104 –

APPENDIX I

FINANCIAL INFORMATION

Company

Leasehold improvements 2005 2004 HK$’000 HK$’000 13 13	Leasehold improvements 2005 2004 HK$’000 HK$’000 13 13	Furniture and fixtures 2005 2004 HK$’000 HK$’000 144 144	Furniture and fixtures 2005 2004 HK$’000 HK$’000 144 144	Total 2005 2004 HK$’000 HK$’000 157 157	Total 2005 2004 HK$’000 HK$’000 157 157
10 3	8 2	120 17	93 27	130 20	101 29
13 –	10 3	137 7	120 24	150 7	130

					27

The Group’s leasehold buildings have been revalued on an open market value basis, based on their existing use, by B.I. Appraisals Limited, an independent firm of qualified professional valuers, on 31 December 2005 at HK$34,630,000. Revaluation surplus of HK$5,270,000 (2004: HK$3,346,000) and HK$6,000 (2004: Nil) resulting from these valuations have been credited to income statement as a reversal of previous revaluation deficits of leasehold buildings and credited to the property revaluation reserve, respectively.

Had the Group’s leasehold buildings stated at valuation been carried at cost less accumulated depreciation, they would have been included in the financial statements at approximately HK$24,903,000 (2004: HK$25,985,000).

Certain of the Group’s leasehold buildings were pledged to secure banking facilities granted to the Group. The net book values of the pledged assets included in the total amount of property, plant and equipment at 31 December 2005 amounted to HK$13,800,000 (2004: HK$10,860,000).

17. LEASEHOLD LAND AND LAND USE RIGHTS

The Group’s interests in leasehold land and land use rights represent prepaid operating lease payments and their net book value are analysed as follows:

In Hong Kong held on: Leases of between 10 to 50 years Outside Hong Kong, held on: Leases of between 10 to 50 years	2005 HK$’000 7,955 2,352 10,307	2004 HK$’000 8,145 2,414
		10,559

– 105 –

FINANCIAL INFORMATION

APPENDIX I

Opening Amortisation Net book value	2005 HK$’000 10,559 (252) 10,307	2004 HK$’000 10,811 (252)
		10,559

At 31 December 2005, certain of the Group’s leasehold land with net book value of HK$7,955,000 (2004: HK$8,145,000) was pledged to secure banking facilities granted to the Group.

18. INVESTMENT PROPERTIES

At 1 January Additions Disposal Net (loss)/gain arising from fair value change At 31 December	Group 2005 2004 HK$’000 HK$’000 93,000 – 6,740 83,348 (70,500) – (490) 9,652 28,750 93,000	Group 2005 2004 HK$’000 HK$’000 93,000 – 6,740 83,348 (70,500) – (490) 9,652 28,750 93,000
		93,000

Investment property with fair value of HK$7,100,000 was revalued at its open market value at 31 December 2005 by B.I. Appraisals Limited, an independent firm of qualified professional valuers. The fair values of the Group’s other investment properties as at 31 December 2005 have been determined by the directors of the Company, no valuation has been performed by independent qualified professional valuers. The valuation performed by the directors of the Company was arrived at by reference to the market prices for similar properties.

All investment properties are held under long-term lease in Hong Kong.

19. NEGATIVE GOODWILL

The amounts of the negative goodwill recognised in the consolidated balance sheet, arising from the acquisition of Swank International Manufacturing Company Limited (“Swank”) and additional investment in Electronics Tomorrow Manufactory Inc. 2002, are as follows:.

Group

GROSS AMOUNT At 1 January 2004 and 31 December 2004 RELEASED TO INCOME At 1 January 2004 Released for the year At 31 December 2004 Derecognised upon the adoption of HKFRS 3 At 1 January 2005 and 31 December 2005	HK$’000 88,680 (48,334) (13,062)
	27,284 (27,284)
	–

– 106 –

FINANCIAL INFORMATION

APPENDIX I

20. INTERESTS IN SUBSIDIARIES

Unlisted shares, at cost Due from subsidiaries Due to subsidiaries Provision for impairment	2005 HK$’000 93,316 298,444 (2,772)	2004 HK$’000 93,316 279,862 (2,778) 370,400 (38,628) 331,772
	388,988 (38,628)	370,400 (38,628
	350,360

The balances with the subsidiaries are unsecured, interest-free and are not repayable within the next twelve months from the balance sheet date.

Particulars of the subsidiaries are as follows:

		Nominal value
		of issued	Percentage
	Place of	ordinary share	of equity
	incorporation/	capital/	attributable
	registration	registered	to the Company		Principal
Name	and operations	share capital	2005	2004	activities
Active Base Limited	Hong Kong	HK$2	100%	100%	Provision of loan
					financing
Allied Trade Limited	The British	US$1	100%	100%	Investment
	Virgin Islands				holding
Allied Success Inc.	The British	US$10,000	88%	88%	Investment
	Virgin Islands				holding
Connion Limited	Hong Kong	HK$2	100%	100%	Securities
					investment and
					property
					holding
E-Top PCB Limited	Hong Kong	HK$100	57%	57%	Trading of
					printed circuit
					boards
Eastec Purchasing	The British	US$1	100%	100%	Trading of
Limited	Virgin				electronic
	Islands/Japan				components
					and parts
Eastec Technology	Hong Kong	HK$2	100%	100%	Trading of
Limited					electronic
					components
					and parts
Electronics Tomorrow	The British	US$600	100%	100%	Investment
International Limited	Virgin Islands				holding

– 107 –

APPENDIX I

FINANCIAL INFORMATION

		Nominal value
		of issued	Percentage
	Place of	ordinary share	of equity
	incorporation/	capital/	attributable
	registration	registered	to the Company		Principal
Name	and operations	share capital	2005	2004	activities
Electronics Tomorrow	Hong Kong	HK$500,000	100%	100%	Manufacture and
Limited					sale of
					electronic
					products
Electronics Tomorrow	The British	US$350	57%	57%	Investment
Manufactory Inc.	Virgin Islands				holding
Fortune Dynamic	The British	US$1	100%	100%	Investment
Group Corporation	Virgin Islands				holding
Good Order	The British	US$100	100%	100%	Investment
International Inc.	Virgin Islands				holding
Issegon Company	Hong Kong	HK$300,000	100%	100%	Investment
Limited					holding
Master Base Limited	The British	US$1	100%	100%	Investment
	Virgin Islands				holding
Maxwood Limited	Hong Kong	HK$2	100%	100%	Securities
					investment
Merit Team Limited	Hong Kong	HK$2	100%	100%	Property holding
Plentiful Light Limited	The British	US$100	57%	57%	Manufacture of
	Virgin				printer circuit
	Islands/ The				boards
	PRC
Probest Holdings Inc.	The British	US$1	100%	100%	Investment
	Virgin Islands				holding
Dongguan Yifu Circuit	The PRC	HK$64,160,000	48%	48%	Manufacture of
Board Factory					printed circuit
(“Yifu”) (i)					boards
Gaojin Electronics	The PRC	US$5,000,000	100%	100%	Manufacture of
(Shenzhen) Company					electronic
Limited (“Gaojin”)					products
(ii)
Electronics Tomorrow	The British	US$100	100%	100%	Investment
Holdings	Virgin Islands				holding
Corporation
ETL (Macao)	Macau	MOP500,000	100%	100%	Trading of
Commercial					electronic
Offshore Limited					components
					and parts
Team Force	The British	US$100	100%	100%	Investment
Corporation	Virgin Islands				holding

– 108 –

APPENDIX I

FINANCIAL INFORMATION

		Nominal value
		of issued	Percentage
	Place of	ordinary share	of equity
	incorporation/	capital/	attributable
	registration	registered	to the Company		Principal
Name	and operations	share capital	2005	2004	activities
Electronics Tomorrow	The British	US$100	100%	100%	Investment
Property Holdings	Virgin Islands				holding
Limited
Account Centre	Hong Kong	HK$2	100%	100%	Provision of
Limited					accountancy
					services to
					group
					companies
Maxson Services	Hong Kong	HK$2	100%	100%	Provision of
Limited					accountancy
					and
					management
					services to
					group
					companies
Eastec Property	Hong Kong	HK$100	100%	100%	Provision of loan
Holding Limited					financing
Art Ray Investments	Hong Kong	HK$1	100%	–	Property holding
Limited
Merit Style	Hong Kong	HK$1	100%	–	Property holding
Development
Limited

Other than Electronics Tomorrow International Limited, Fortune Dynamic Group Corporation and Master Base Limited, which are held directly by the Company, all subsidiaries are held indirectly by the Company.

(i) Yifu is a Sino-foreign owned joint venture enterprise under the PRC law. The Company has the power to cast the majority of votes at meetings of the board of directors of the entity and therefore it is regarded as subsidiary of the Company.
(ii) Gaojin is registered as a wholly foreign owned enterprise under the PRC law.

– 109 –

FINANCIAL INFORMATION

APPENDIX I

21. INTERESTS IN ASSOCIATES

Unlisted shares, at cost Share of net assets Due from associates Promissory note Provision for impairment	Group 2005 2004 HK$’000 HK$’000 – – – 128,876 47,716 8,467 119,388 – 167,104 137,343 (10,212) (100,123) 156,892 37,220	Group 2005 2004 HK$’000 HK$’000 – – – 128,876 47,716 8,467 119,388 – 167,104 137,343 (10,212) (100,123) 156,892 37,220
	167,104 (10,212)	137,343 (100,123
	156,892

The amounts due from associates are unsecured, interest-free and are not repayable within the next twelve months from the balance sheet date.

The promissory note receivable from associate is unsecured, except for the guarantee given by Swank, with maturity date on 2 December 2007 and bearing interest at the rate equivalent to 1% over the prevailing Hong Kong prime rate per annum. Further details are set out in note 36(b).

The amounts due to associates were unsecured, interest-free and had no fixed terms of repayment.

Particulars of the principal associates are as follows:

			Nominal value of	Percentage
		Place of	issued ordinary	of equity
		incorporation	share capital/	attributable
	Business	and	registered share	to the Group	Principal
Name	structure	operations	capital	2005	activities
Profitown Investment	Corporate	The British	US$1,000	30%	Investment
Corporation		Virgin Islands			holding
Shenzhen Henggang Swank	Joint Venture	The PRC	US$30,000,000	24%	Manufacture of
Optical Industrial	Enterprise				optical products
Company Limited
Dongguan De Bao Optical	Wholly Foreign	The PRC	HK$58,550,910	15%	Manufacture of
Company Limited	Owned				multi-coating
	Enterprise				lenses
Dongguan Hamwell Glasses	Joint Venture	The PRC	HK$62,504,800	25%	Manufacture of
Company Limited	Enterprise				optical products
Global Origin Limited	Corporate	Hong Kong	HK$75,000,000	27%	Investment
					holding
Profit Trend International	Corporate	Hong Kong	HK$1,000,000	15%	Investment
Limited					holding
Prowin Commercial &	Corporate	Hong Kong	HK$2	30%	Property holding
Industrial Limited					in the PRC

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

Upon completion of disposal of Swank as further detailed in note 36(a) below, these companies have been classified as associates of the Group.

– 110 –

FINANCIAL INFORMATION

APPENDIX I

22. PREPAID RENTAL

Cost At beginning and end of the year Amortisation At beginning of the year Provided during the year At end of the year Net book value At end of the year	Group 2005 2004 HK$’000 HK$’000 10,500 10,500	Group 2005 2004 HK$’000 HK$’000 10,500 10,500
	7,860 737 8,597	7,123 737
		7,860
	1,903	2,640

The prepaid rental represents the capital contribution made by the joint venture partner of Yifu in the form of a right to use the property owned by the joint venture partner within the terms of the joint venture.

The prepaid rental is amortised on a straight-line basis over the underlying initial term of the joint venture of 15 years.

23. DEFERRED PRODUCT DEVELOPMENT COSTS

Cost At beginning of the year Additions At end of the year Accumulated amortisation and impairment At beginning of the year Amortisation provided during the year At end of the year Net book value At end of the year	Group 2005 2004 HK$’000 HK$’000 21,875 19,376 2,599 2,499 24,474 21,875	Group 2005 2004 HK$’000 HK$’000 21,875 19,376 2,599 2,499 24,474 21,875
		21,875

	16,014 1,641 17,655	14,593 1,421
		16,014
	6,819	5,861

– 111 –

FINANCIAL INFORMATION

APPENDIX I

24. AVAILABLE-FOR-SALE FINANCIAL ASSETS

Listed securities – Listed equity securities in Hong Kong (note (a)) Unlisted debt security – Debt security traded on inactive markets and of private issuers (note (b)) Market value of listed securities	Group 2005 2004 HK$’000 HK$’000 15,620 – 11,744 – 27,364 – 15,620 –	Group 2005 2004 HK$’000 HK$’000 15,620 – 11,744 – 27,364 – 15,620 –
		–

		–

(a) Upon Completion of disposal of Swank as further detailed in note 36(a) below, the Group will hold approximately 5% of the existing issued shares of Swank and the Group’s interest in Swank has been classified as available-for-sale financial asset.
(b) The unlisted debt security has an effective interest rate of 12.5% and will mature on 29 April 2010. The unlisted debt security not publicly traded is secured by the issued capital of the issuer on a pro rata basis, and there is no material difference between the carrying amount of the asset and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset.

25. LOANS RECEIVABLE

Secured – Moulin Loan (note (a)) – Others (note (b)) Unsecured (note (b)) Provision for impairment (note (a)) Less: Non-current portion	Group 2005 2004 HK$’000 HK$’000 50,000 – 2,000 3,000 46 67	Group 2005 2004 HK$’000 HK$’000 50,000 – 2,000 3,000 46 67
	52,046 (45,000) 7,046 (1,000)	3,067 –
		3,067 (2,000)
	6,046	1,067

(a) In February 2005, Active Base Limited (“Active Base”), a subsidiary of the Company, entered into a loan agreement with Moulin Global Eyecare Holdings Limited which was subsequently put into provisional liquidation in June 2005 (“Moulin”), under which, Active Base advanced HK$50 million to Moulin (“Moulin Loan”) in February 2005. As security for the Moulin Loan, the following security documents, amongst the others, were executed in favour of Active Base:
(i) A debenture agreement executed between Moulin and Active Base (“Moulin Debenture”), under which a first floating charge over all Moulin’s undertaking, property, assets, goodwill, rights and revenues, whatsoever and whatsoever, both present and future, in favour of Active Base;

– 112 –

FINANCIAL INFORMATION

APPENDIX I

(ii) Guarantee over the liabilities of Moulin dated by Sharp Merit International Limited; and

(iii) Guarantee over the liabilities of Moulin dated by Mr. Ma Bo Kee, Mr. Ma Lit Kin and Mr. Ma Hon Kin.

In or about June 2005, Moulin filed a legal claim against Active Base to challenge that both the Moulin Loan and Moulin Debenture are not enforceable.

This legal litigation is currently at early stage.

However, the directors of the Company have also carefully considered the current progress on the realization of assets by Moulin’s provisional liquidators and the financial position of Moulin as released by Moulin up to the date of this report, and as a result, an impairment loss of HK$45 million has been recognised against the Moulin Loan in these financial statements.

(b) The loans receivable bears interest ranging from 3% to 12% per annum for both years.

26. CASH AND CASH EQUIVALENTS

Cash and cash equivalents include the following components:

Cash at bank and in hand Short-term bank deposits	Group 2005 2004 HK$’000 HK$’000 65,453 107,255 331,322 290,469 396,775 397,724	Company 2005 2004 HK$’000 HK$’000 2,445 3,930 261,617 273,043 264,062 276,973	Company 2005 2004 HK$’000 HK$’000 2,445 3,930 261,617 273,043 264,062 276,973
			276,973

The effective interest rate of short-term bank deposits is 4.0% (2004: 0.5%). They have a maturity of 15 days and are eligible for immediate cancellation without receiving any interest for the last deposit period.

Included in bank and cash balances of the Group is HK$ 4,226,000 (2004: HK$ 6,838,000) of bank balances denominated in Renminbi (“RMB”) placed with banks in the PRC. RMB is not a freely convertible currency.

27. PROPERTIES HELD FOR SALE

At cost Provision for impairment	Group 2005 2004 HK$’000 HK$’000 6,333 6,333 (133) (333) 6,200 6,000	Group 2005 2004 HK$’000 HK$’000 6,333 6,333 (133) (333) 6,200 6,000
		6,000

The properties held for sale are situated in Hong Kong and are held under medium term leases.

– 113 –

FINANCIAL INFORMATION

APPENDIX I

28. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS/SHORT TERM INVESTMENTS

Trading securities – Listed equity securities in Hong Kong Market value of listed securities	Group 2005 2004 HK$’000 HK$’000 2,465 7,491 2,465 7,491	Group 2005 2004 HK$’000 HK$’000 2,465 7,491 2,465 7,491

		7,491

29. INVENTORIES

Raw materials Work in progress Finished goods	Group 2005 2004 HK$’000 HK$’000 37,577 54,121 17,720 10,168 12,243 25,121 67,540 89,410	Group 2005 2004 HK$’000 HK$’000 37,577 54,121 17,720 10,168 12,243 25,121 67,540 89,410
		89,410

As at 31 December 2005 and 2004, all inventories are stated at cost.

30. ACCOUNTS RECEIVABLE

The aged analysis of the Group’s accounts receivable is as follows:

2005 HK$’000 Percentage 48,196 70 106 0 943 1 19,824 29 69,069 100 (6,177)	2005 HK$’000 Percentage 48,196 70 106 0 943 1 19,824 29 69,069 100 (6,177)	2004 HK$’000 Percentage 93,523 75 2,597 2 14,532 12 13,533 11 124,185 100	2004 HK$’000 Percentage 93,523 75 2,597 2 14,532 12 13,533 11 124,185 100
			100

	)	(8,296)
62,892		115,889

The normal credit period granted by the Group to customers ranges from 21 days to 120 days.

31. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

Included in the balance is an amount of HK$ 20 million (2004: Nil) which represents the balance of the consideration on the disposal of controlling interest in Swank as referred to note 36 below. The directors consider that the balance of prepayments, deposits and other receivables approximate their fair value.

– 114 –

FINANCIAL INFORMATION

APPENDIX I

32. ACCOUNTS PAYABLE

The aged analysis of the Group’s accounts payable is as follows:

Current to three months Four to six months Seven months to one year Over one year	Group 2005 2004 HK$’000 HK$’000 46,809 52,736 12,189 34,148 6,629 5,298 6,031 522 71,658 92,704	Group 2005 2004 HK$’000 HK$’000 46,809 52,736 12,189 34,148 6,629 5,298 6,031 522 71,658 92,704
		92,704

Accounts payable aged less than four months accounted for 65% (2004: 57%) of the total accounts payable.

33. PROVISION FOR LONG SERVICE PAYMENTS

At beginning of year Amount utilised during the year At end of year	Group 2005 2004 HK$’000 HK$’000 949 1,243 (379) (294) 570 949	Company 2005 2004 HK$’000 HK$’000 230 240 – (10) 230 230	Company 2005 2004 HK$’000 HK$’000 230 240 – (10) 230 230
			230

The Group provides for the probable future long service payments expected to be made to employees under the Hong Kong Employment Ordinance, as further explained under the heading “Employee benefits” in note 4(p) to the financial statements. The provision is based on the best estimate of the probable future payments which have been earned by the employees from their service to the Group to the balance sheet date.

34. DEFERRED TAX LIABILITIES

Group

At 1 January Charge to equity for the year Credit to income statement for the year At 31 December	Accelerated tax depreciation 2005 2004 HK$’000 HK$’000 3,122 1,433 – 1,689 (1,069) – 2,053 3,122	Accelerated tax depreciation 2005 2004 HK$’000 HK$’000 3,122 1,433 – 1,689 (1,069) – 2,053 3,122
		3,122

The Group has tax losses arising in Hong Kong of approximately HK$142,700,000 (2004: HK$177,890,000) that are available indefinitely for offsetting against future taxable profits of the companies in which the losses arose. Deferred tax assets have not been recognised in respect of these losses as they have arisen in subsidiaries that have been loss-making for some time.

– 115 –

FINANCIAL INFORMATION

APPENDIX I

35. ISSUED CAPITAL

Authorised: 50,000,000,000 (2004: 50,000,000,000) ordinary shares of HK$0.01 (2004: HK$0.01) each Issued and fully paid: 286,068,644 (2004: 286,068,644) ordinary shares of HK$0.01 each (2004: HK$0.01) each	2005 HK$’000 500,000 2,861	2004 HK$’000 500,000

		2,861

There was no repurchase of any shares during the year.

36. NOTE TO THE CONSOLIDATED CASH FLOW STATEMENT

Disposal of controlling interest in Swank

Net assets disposed of: Property, plant and equipment Interests in associates Cash and bank balances Time deposits Accounts receivable Prepayment, deposits and other receivables Inventories Accounts payable Amounts due to associates Other payables and accruals Tax payable Provision for long service payments Amount due to a shareholder Promissory note payable Gain on disposal Total consideration Satisfied by: Cash received Other receivable (note 31)	2005 HK$’000 45,575 31,656 31,226 379 43,916 5,060 27,222 (20,363) (2,904) (9,914) (850) (379) (47,716) (102,073) 835 42,244 43,079	2004 HK$’000 – – – – – – – – – – – – – –
		– –
		–

	23,079 20,000	– –
	43,079	–

– 116 –

APPENDIX I

FINANCIAL INFORMATION

An analysis of net outflow of cash and cash equivalents in respect of the disposal of controlling interest in Swank is as follows:

Cash consideration received Cash and bank balance disposed Time deposits disposed Net cash outflow	2005 HK$’000 23,079 (31,226) (379) (8,526)	2004 HK$’000 – – –
		–

(a) On 20 January 2005, Probest Holdings Inc (“Probest”) which is a wholly-owned subsidiary of the Company, amongst the others, entered into a conditional sale and purchase agreement (as amended by the supplemental agreement dated 13 April 2005) (“Swank Disposal Agreement”) with an independent third party, China Time Investment Holdings Limited (“China Time”), pursuant to which Probest disposed of 1,437,396,440 issued shares of the Swank International Manufacturing Company Limited (“Swank”), representing approximately 46% of the existing issued shares of Swank at the consideration of approximately HK$43 million which are to be received by two instalments as follows:
(i) as to HK$23 million within six months of completion; and
(ii) as to HK$20 million on the anniversary of completion.

The Swank Disposal Agreement was completed on 3 June 2005.

(b) Upon completion of the Swank Disposal Agreement on 3 June 2005, Profitown issued and delivered a new Promissory Note of HK$ 112,285,435 to Probest, which is guaranteed by Swank (“Swank Guarantee”). The obligations of Swank under the Swank Guarantee are unsecured and will cease to be effective if the Put Option, as referred to (c) below, is exercised and the transaction contemplated under the Put Option is completed.
(c) On completion of the Swank Disposal Agreement, Swank, Probest and the Company, and Profitown entered into a shareholder agreement to regulate the management of Profitown (“Profitown Shareholders Agreement”). Pursuant to principal terms of the Proftown Shareholders Agreement, Swank will have the right to request Probest or an independent third party procured by Probest to purchase (the “Put Option”) all (but not part of only) of its shares, being 70% of all the existing issued shares of Profitown exercisable at any time before the expiry of 30 months from the Completion Date of the Share Disposal Agreement at a price equal to the net tangible asset value of Profitown as at the date of exercise of such put option attributable to such shares and such purchaser will assume all the liabilities due from Swank to any member of the Profitown Group incurred prior to the date of Profitown Shareholders Agreement at nil consideration. If the net tangible asset value of Profitown as determined on the same basis and accounting policies adopted by Profitown in its latest audited accounts shall fall below zero during the 30-month period from the Completion Date, Probest will indemnify Profitown on demand for the deficit in the event that such deficit exceeds the outstanding principal amount of the new Promissory Note due to Probest and the interest accrued. The Put Option and such indemnity by Probest will cease and Probest shall have no further obligations in respect thereto if (i) the aggregate shareholding of China Time in the Company falls below 51%; (ii) there is any change to the majority of the board of directors of China Time since the date of and as disclosed in the Share Disposal Agreement; and (iii) Mr. Wang An Kang ceases to be the legal and beneficial owner of at least 75% of and in China Time.

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FINANCIAL INFORMATION

APPENDIX I

(d) Upon completion of the Swank Disposal Agreement, the Company and its wholly-owned subsidiary, Probest, executed a deed in favour of China Time (“Tomorrow Group Deed”), pursuant to which, Probest shall indemnify China Time for an amount of HK$56,247,530 upon demand in case Swank ceases to be listed on the Stock Exchange under certain circumstances as detailed in the joint announcement dated 18 April 2005 made by the Company, Swank and China Time.

Upon completion of the above Swank Disposal Agreement and its related loan restructuring agreement, the Group realized a net gain of approximately HK$42 million.

37. SHARE OPTION SCHEME

The Company operates a share option scheme (the “Tomorrow Scheme”) for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations. Eligible participants of the Tomorrow Scheme include the Company’s directors, including independent non-executive directors, other employees of the Group, suppliers of goods or services to the Group, customers of the Group, the Company’s shareholders, and any minority shareholder of the Company’s subsidiaries. The Tomorrow Scheme became effective on 29 May 2002 and, unless otherwise cancelled or amended, will remain in force for 10 years from that date.

The maximum number of unexercised share options currently permitted to be granted under the Tomorrow Scheme is an amount equivalent, upon their exercise, to 10% of the shares of the company in issue at any time. The maximum number of shares issuable under share options to each eligible participant in the Tomorrow Scheme within any 12-month period, is limited to 1% of the shares of the Company in issue at any time. Any further grant of share options in excess of this limit is subject to shareholders’ approval in a general meeting.

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

The offer of a grant of share options may be accepted within 21 days from the date of the offer, upon payment of a nominal consideration of HK$1 in total by the grantee. An option may be exercised under the Tomorrow Scheme at any time during a period not exceeding five years after the date when the option is granted and expiring on the last date of such period.

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

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

No share options have been granted during the year and no share options outstanding as at the balance sheet date.

38. RESERVES

(a) Group

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

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APPENDIX I

FINANCIAL INFORMATION

(b) Company

At 1 January 2004 Net profit for the year At 31 December 2004 and at 1 January 2005 Net profit for the year At 31 December 2005	Share premium HK$’000 200,556 –	Capital redemption reserve Contributed surplus HK$’000 HK$’000 77 368,125 – –	Capital redemption reserve Contributed surplus HK$’000 HK$’000 77 368,125 – –	Retained profits HK$’000 34,646 1,538	Total HK$’000 603,404 1,538
	200,556 –	77 –	368,125 –	36,184 5,501	604,942 5,501
	200,556	77	368,125	41,685	610,443

At 31 December 2005, the aggregate amount of reserve available for distribution to equity holders of the Company, calculated in accordance with the Companies Act 1981 of Bermuda (as amended), was HK$409,810,000 (2004: HK$404,309,000). In addition, the Company’s share premium account, in the amount of HK$200,556,000 may be distributed in the form of fully paid bonus shares.

39. CONTINGENT LIABILITIES

							Company	Company
							2005	2004
							HK$’000	HK$’000
Guarantees	of	banking	facilities	granted	to	subsidiaries	15,300	28,300

The Group had no other significant contingent liabilities at the balance sheet date (2004: Nil).

40. COMMITMENTS

(a) Capital commitments

Property, plant and equipment – Contracted but not provided for Deferred product development costs – Contracted but not provided for – Authorised but not contracted for Commitments to contribute to subsidiaries registered in the PRC	Group 2005 2004 HK$’000 HK$’000 6,075 – 583 – – 811 27,958 4,618 34,616 5,429	Group 2005 2004 HK$’000 HK$’000 6,075 – 583 – – 811 27,958 4,618 34,616 5,429
		5,429

The Company had no significant commitments at the balance sheet date (2004: Nil).

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FINANCIAL INFORMATION

APPENDIX I

(b) Operating lease commitments

The Group leases certain of its office properties, factory premises, warehouses and office equipment under operating lease arrangements. Leases for office properties, factory premises and warehouses are negotiated for terms ranging from one to fifteen years, and those office equipment for a term of three years.

At 31 December 2005, the Group and the Company had future minimum lease under non-cancellable operating leases falling committed for due as follows:

Group 2005 2004 HK$’000 HK$’000 6,144 10,010 16,828 19,258 1,580 3,538	Group 2005 2004 HK$’000 HK$’000 6,144 10,010 16,828 19,258 1,580 3,538	Company 2005 2004 HK$’000 HK$’000 1,756 1,756 3,371 5,127 – –	Company 2005 2004 HK$’000 HK$’000 1,756 1,756 3,371 5,127 – –
24,552 89 – 89	32,806 210 89 299	5,127 – – –	6,883
			– –
			–
24,641	33,105	5,127	6,883

41. CONNECTED AND RELATED PARTY TRANSACTIONS

During the year, the Group had the following connected and related party transactions:

(a) A loan of HK$24,100,000 (2004: HK$16,000,000) was granted by a wholly-owned subsidiary of the Group to E-Top PCB Limited (“E-Top”), a 57% owned subsidiary of the Group, for its general working capital. The loan was unsecured, bore interest at the one-month Hong Kong dollar time deposit rate and had no fixed terms of repayment.
(b) In addition, the Group had certain banking facilities, with a total limit of HK$15 million (2004: HK$28 million), which were used by a wholly-owned subsidiary of the Group. These banking facilities were secured by corporate guarantees executed by E-Top and Plentiful, both of which are 57% owned subsidiaries of the Group, and certain wholly-owned subsidiaries of the Group, and certain leasehold buildings of the Group (note 16), and certain leasehold land of the Group (note 17).

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FINANCIAL INFORMATION

APPENDIX I

(c) In addition to the transactions and balances detailed elsewhere in these financial statements, the Group had the following material transactions with related parties during the year:

		2005	2004
	Note	HK$’000	HK$’000
Sales of products to associates	(i)	3,746	10,224
Purchases of products from associates	(ii)	6,327	14,807
Management fee income from associates	(iii)	256	585

(i) The sale to the associates were made according to the published prices, terms and conditions offered to the major third party customers of the Group.
(ii) The purchases from the associates were made according to the published prices, terms and conditions offered by the associates to their major third party customers.
(iii) The management fee income was charged according to the management’s estimation on costs of office premises and utilities used by the associates.

42. POST BALANCE SHEET EVENTS

On 8 March 2006, the Company announced and proposed to raise approximately HK$173.4 million, before expenses, by issuing 357,585,805 offer shares at a price of HK$0.485 per offer share by way of the open offer, on the basis of an assured entitlement of 5 offer shares for every 4 existing shares held on the record date and payable in full on acceptance. The registered holders of fully-paid offer shares will be issued 5 bonus shares for every 7 fully-paid offer shares. In order to facilitate the open offer by enabling the Company to allot and issue the bonus shares, which will only be issued to registered holders of the fully-paid offer shares, the Board proposed the amendment of the bye-laws of the Company to allow a distribution to shareholders on a non pro-rata basis. The Board further proposed the share consolidation, upon completion of the open offer and the bonus issue, involving a consolidation of every 4 existing shares into one consolidated share. For details, please refer to the announcement of the Company dated 8 March 2006. A circular, among others, in relation to the open offer, the bonus issue and the share consolidation will be despatched to shareholders of the Company as soon as possible.

43. COMPARATIVE FIGURES

Certain comparative figures have been adjusted or re-classified as a result of the changes in accounting policies. Further details are disclosed in note 2 and 3.

44. PARENT ENTERPRISE

The directors consider Winspark Venture Limited, which is incorporated in the British Virgin Islands, to be its parent enterprise.

– 121 –

FINANCIAL INFORMATION

APPENDIX I

4. INDEBTEDNESS

At the close of business on 28 February 2006 (being the latest practicable date for the purpose of this indebtedness statement prior to printing of this circular), the Group had nil outstanding borrowings.

In addition, as at 28 February 2006, the Company had contingent liabilities in respect of guarantees of banking facilities of approximately HK$15 million.

Save as set out in the preceding paragraph and apart from intra-group liabilities and normal trade payables and bills payable, none of the companies of the Group had outstanding as at the close of business of 28 February 2006 any mortgages, charges, debentures, loan capital, debt securities (whether issued and outstanding, and authorised or otherwise created but unissued), term loans and overdrafts, or other similar indebtedness, finance leases or hire purchase commitments, liabilities under acceptances or acceptances credits or other borrowings or indebtedness in the nature of borrowings or any guarantees or other material contingent liabilities.

For the purpose of the above indebtedness statement, foreign currency amounts have been translated into Hong Kong dollars at the approximate exchange rates prevailing at the close of business on 28 February 2006.

There has been no material change in the indebtedness or contingent liabilities of the Group since 28 February 2006.

5. WORKING CAPITAL

The Directors are of the opinion that, after taking into account the internal resources available to the Group, the net estimated proceeds of the Open Offer and in the absence of unforeseen circumstances, the Group has sufficient working capital for its present requirements for the next twelve months from the date of this circular.

6. MATERIAL ADVERSE CHANGES

Save as the Open Offer and Bonus Issue” and the information set out under Appendix II “Unaudited pro forma financial information”, the Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2005, being the date to which the latest published audited financial statements of the Group were made up.

– 122 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX II

==> picture [79 x 56] intentionally omitted <==

28 April 2006

The Board of Directors Tomorrow International Holdings Limited 27th Floor Henley Building 5 Queen’s Road Central Hong Kong

Dear Sirs

We report on the unaudited pro forma financial information set out in page 123 under the heading of “Unaudited Pro Forma Financial Information” of Tomorrow International Holdings Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) set out in Appendix II of the Company’s circular dated 28 April 2006 (the “Circular”) in connection with the proposed open offer of 357,585,805 new shares on the basis of 5 offer shares for every 4 existing shares held with 5 bonus shares for every 7 fully-paid offer shares (the “Open Offer and Bonus Issue”), which has been prepared by the directors of the Company, for illustrative purposes only, to provide information about how the Open Offer might have affected the relevant financial information presented.

Responsibilities

It is the responsibility solely of the directors of the Company to prepare the unaudited pro forma financial information in accordance with Rule 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (“Listing Rules”).

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

Basis of opinion

We conducted our work in accordance with the Statements of Investment Circular Reporting Standards and Bulletin 1998/8 “Reporting on pro forma financial information pursuant to the Listing Rules” issued by the Auditing Practices Board in the United Kingdom, where applicable. Our work, which involved on independent examination of any of the underlying financial information, consisted primarily of comparing the unadjusted

– 123 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX II

financial information with the source documents, considering the evidence supporting the adjustments and discussing the unaudited pro forma financial information with the directors of the Company.

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

The unaudited pro forma financial information has been prepared on the bases set out in Appendix II in the Circular for illustrative purpose only and because of its nature, it may not be indicative of:

the results and earnings per share of the Group for any future periods.
the financial position of the Group at any future date.

Opinion

In our opinion:

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

Yours faithfully For and on behalf of CCIF CPA Limited Andy Choi Director

– 124 –

APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION

The estimated financial effect on the unaudited pro forma adjusted consolidated net asset value attributable to shareholder of the Group immediately after completion of the Open Offer is summarised as follows:

Audited net asset value		Unaudited pro forma adjusted
attributable to shareholder		consolidated net asset value
of the Group as	Estimated net proceeds of the	attributable to shareholder of the
at 31 December 2005	Open Offer	Group after Open Offer
HK$ million	HK$ million	HK$ million
784	170	954

– 125 –

GENERAL INFORMATION

APPENDIX III

1. RESPONSIBILITY STATEMENT

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

2. SHARE CAPITAL

The authorised and issued share capital of the Company as at the Latest Practicable Date were and immediately following the Open Offer and the Bonus Issue and the Share Consolidation (assuming the Open Offer and the Bonus Issue becoming unconditional and the Share Consolidation becoming effective) will be as follows:

Authorised: 50,000,000,000 Shares	HK$’000 500,000

Issued, to be issued and fully paid or credited as fully paid up: 286,068,664 Shares in issue as at the Latest Practicable Date 357,585,805 Shares to be issued pursuant to the Open Offer 255,418,430 Shares to be issued pursuant to the Bonus Issue	2,861 3,576 2,554
899,072,879 224,768,219 Consolidated Shares in issue upon the Share Consolidation becoming effective	8,991 8,991

All existing Shares rank equally in all respects, including in particular as to dividend, voting rights and return on capital.

The Offer Shares and the Bonus Shares will, when allotted and issued, rank pari passu in all respects with the 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 issue and allotment of the fully-paid Offer Shares and the Bonus Shares.

All of the Consolidated Shares, when allotted and issued, shall rank pari passu in all respects with each other, including in particular as to dividends, voting rights and return on capital.

The Shares 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.

– 126 –

GENERAL INFORMATION

APPENDIX III

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

3. CORPORATE INFORMATION AND PARTIES INVOLVED IN THE OPEN OFFER

Registered office	Clarendon House, 2 Church Street
	Hamilton HM 11, Bermuda
Head office and principal place	27th Floor, Henley Building
of business	5 Queen’s Road Central
	Hong Kong
Authorised representatives	Louie Mei Po
	Tam Wing Kin
Company secretary & qualified	Tam Wing Kin FCCA
accountant
Underwriter	Winspark Venture Limited
Legal advisers to the Company	As to Hong Kong Law:
	Vincent T.K. Cheung, Yap & Co.
	15th Floor
	Alexandra House
	18 Chater Road
	Hong Kong
	As to Bermuda law:
	Conyers Dill & Pearman
	2901, One Exchange Square
	8 Connaught Place
	Central
	Hong Kong
Auditors	CCIF CPA Limited
	Certified Public Accountants
	37th Floor, Hennessy Centre
	500 Hennessy Road
	Causeway Bay
	Hong Kong
Principal share registrar	The Bank of Bermuda Limited
	6 Front Street
	Hamilton HM11
	Bermuda

– 127 –

GENERAL INFORMATION

APPENDIX III

Hong Kong branch share	Computershare Hong Kong Investor
registrar	Services Limited
	Shop 1712-1716
	17th Floor
	Hopewell Centre
	183 Queen’s Road East
	Wanchai
	Hong Kong
Principal bankers	Credit Suisse
	UBS
	The Hongkong and Shanghai Banking
	Corporation Limited
	Fubon Bank (Hong Kong) Limited
	Industrial and Commercial Bank of
	China (Asia) Limited

4. PARTICULARS OF DIRECTORS

The brief biographies of the Directors are set out below:

Executive Directors

Mr. YAU Tak Wah, Paul – Chairman, aged 50, is the founder of the Group and is primarily responsible for corporate strategic planning. He holds a bachelor of science degree in mechanical engineering and has more than 20 years’ experience in the electronics industry. Before he established the Group, Mr. Yau worked as design engineer in a renowned US electronics company operating in Hong Kong where he gained invaluable experience in production design and established close business relationships with various electronics manufacturers in Hong Kong.

Ms. LOUIE Mei Po – Director, aged 38, is responsible for business investment and development of the Group. Ms. Louie holds a master’s degree in Business Administration and a bachelor’s degree in Social Science from the Chinese University of Hong Kong. Prior to joining the Group, Ms. Louie was the executive director of two listed companies in Hong Kong specialising in mortgage loan financing, property investment and development. She has over ten years’ experience in business investment and development. She joined the Group in February 2000.

Ms. WONG Shin Ling, Irene – Director, aged 45, is responsible for management and administration of the Group. Ms. Wong has over 13 years of experience in the field of property development and management. Prior to joining the Group, she was an executive director of two listed companies in Hong Kong specializing in mortgage loan financing, property investment and development. She joined the Group in February 2000.

– 128 –

GENERAL INFORMATION

APPENDIX III

Mr. TAM Wing Kin – Director, aged 40, is responsible for finance of the Group. He is a member of The Chartered Institute of Management Accountants, The Association of Chartered Certified Accountants and The Hong Kong Institute of Certified Public Accountants. He is also a Certified Public Accountant (Practising). Prior to joining the Group, he worked for an international accountancy firm and two listed companies in Hong Kong. He has over 16 years of experience in accounting field. He joined the Group in February 2000.

Independent Non-Executive Directors

Mr. NG Wai Hung – Director, aged 42, is a practicing solicitor and a partner in Iu, Lai & Li, a Hong Kong firm of solicitors and notaries. Mr. Ng has extensive experience in the area of securities law, corporate law and commercial law in Hong Kong and has been involved in initial public offerings of securities in Hong Kong as well as corporate restructuring, mergers and acquisitions and takeovers of listed companies. He frequently advises multinational and Hong Kong corporations on private equity investments, joint ventures as well as regulatory compliance. He joined the Group in March 2000.

Mr. CHEUNG Chung Leung, Richard – Director, aged 52, has over 20 years of experience as an architect and real estate investment adviser. He is also the Executive Chairman of China SMS Limited. He graduated from the University of Hong Kong with degrees of Bachelor of Arts (Architectural Studies) and Bachelor in Architecture. He is a member of the Hong Kong Institute of Architects and a Registered Architect pursuant to the Architects Registration Ordinance. He joined the Group in March 2000.

Mr. WU Wang Li – Director, aged 31, has over 8 years of experience in the auditing and accounting profession and consulting services. He is a director of GK Asia Capital Limited and is admitted to the status of Certified Practising Accountant of CPA Australia. He is also an independent non-executive director of Swank International Manufacturing Company Limited. He joined the Group in September 2004.

The business addresses of the Directors are as follows:

Name of Director	Address
Mr. YAU Tak Wah, Paul	27th Floor, Henley Building,
	5 Queen’s Road Central, Hong Kong
Ms. LOUIE Mei Po	27th Floor, Henley Building,
	5 Queen’s Road Central, Hong Kong
Ms. WONG Shin Ling, Irene	27th Floor, Henley Building,
	5 Queen’s Road Central, Hong Kong
Mr. TAM Wing Kin	27th Floor, Henley Building,
	5 Queen’s Road Central, Hong Kong

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GENERAL INFORMATION

APPENDIX III

Name of Director	Address
Mr. NG Wai Hung	20/F., Gloucester Tower,	The	Landmark,
	Central, Hong Kong
Mr. CHEUNG Chung Leung,	Unit 17D, Sing Tech Fty	Bldg,	49 Wong
Richard	Chuk Hang Road, Hong Kong
Mr. WU Wang Li	Flat 410, Yiu Hei House,	Tung	Hei Court,
	Sai Wan Ho, Hong Kong

As at the Latest Practicable Date, there is no director or proposed director who is a director or employee of a company which has an interest or short position in the shares and underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part VX of the SFO.

5. DIRECTORS’ INTERESTS

As at the Latest Practicable Date, the interests and short positions of the Directors and chief executive of the Company in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which are required (a) to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they are taken or deemed to have under such provision of the SFO); or (b) pursuant to section 352 of the SFO to be entered into the register referred to therein; or (c) pursuant to the Model Code for Securities Transactions by the Directors of Listed Companies in Listing Rules to be notified to the Company and the Stock Exchange were as follows:–

Long positions in the Shares and the underlying shares (in respect of equity derivatives) of the Company

			Number of
			underlying Shares
		Number of Shares	in respect of the
		and approximate	options granted
Name of		percentage of total	under the Share
Director	Capacity	shareholding	Option Scheme
Mr. Yau Tak	Interest of a	2,300,000 Shares	Nil
Wah, Paul	controlled	(0.8%)
	corporation (Note)

Note: These Shares are held through Pacific Shore Profits Limited, a company beneficially wholly owned by Mr. Yau Tak Wah, Paul.

Save as disclosed above, as at the Latest Practicable Date, none of the directors or chief executive of the Company had any interests or short positions in any shares, underlying shares and debentures of the Company or any of its associated corporations (within the measuring of Part XV of the SFO) which are required (a) to be notified to the

– 130 –

GENERAL INFORMATION

APPENDIX III

Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they are taken or deemed, to have such provisions of the SFO); (b) pursuant to Section 352 of the SFO, to be entered in the register referred to therein; or (c) pursuant the Model Code for Securities Transactions by Directors of Listed Companies in the Listing Rules relating to securities transactions by directors to be notified to the Company and the Stock Exchange.

6. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as it is known to any Directors and the chief executive of the Company, Shareholders (other than Directors or chief executive of the Company) who have interests or short positions in the Shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or which were required, pursuant to section 336 of Part XV of the SFO, to be entered in the register referred to therein, or who is interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meeting of any other member of the Group were as follows:

(i) Long position in the Shares

			Percentage of
		Number of	issued share
		Shares	capital of the
Name of shareholder	Capacity	interested	Company
			(Note 1)
Winspark Venture Limited	Beneficial	788,807,598	87.74%
	owner	Shares
	(Note 2)
Mr. Chan Yuen Ming	Interest of a	788,807,598	87.74%
	controlled	Shares
	corporation
	(Note 3)

Notes:

For the purpose of this circular, the shareholding percentage is calculated on the basis of 899,072,879 Shares in issue immediately after completion of the Open Offer and the Bonus Issue assuming that (i) none of the Qualifying Shareholders (except for the Underwriter) takes up any provisional allotments of the Offer Shares and (ii) the Underwriter has taken up all the Offer Shares underwritten by it under the Underwriting Agreement.
The entire issued share capital of Winspark Venture Limited is beneficially wholly owned by Mr. Chan Yuen Ming. These Shares comprise 175,803,363 existing Shares held by the Underwriter, the full entitlement of 219,754,200 Offer Shares which the Major Shareholder has undertaken to accept, the 137,831,605 Offer Shares underwritten by it under the Underwriting Agreement and the Bonus Shares to be issued to it as a result of the Offer Shares subscribed by it.
Mr. Chan Yuen Ming wholly and beneficially owns Winspark Venture Limited. Mr Chan is therefore deemed to be interested in the Shares under the provisions of Divisions 2 and 3 of Part XV of the SFO.

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GENERAL INFORMATION

APPENDIX III

(ii) Long position in shares of other members of the Group

The parties, other than members of the Group, directly or indirectly, having 10% or more interests in the subsidiaries of the Company as at the Latest Practicable Date were as follows:

		Approximate
		percentage of
		total issued share
		capital or the
		total registered
		capital of the
Name of substantial		respective
shareholder	Name of subsidiary	subsidiary
Electronics Tomorrow	Limbrick Investment	26%
Manufactory Inc.	Limited
Allied Success Inc.	Prime Star Industries	12%
	Limited
Dongguan Yifu Circuit	Wanjiang Development	16.37%
Board Factory
Profitown Investment	Swank International	70%
Corporation	Manufacturing Co. Ltd

Save as disclosed above, as at the Latest Practicable Date, the Directors or chief executive of the Company were not aware of any other person (other than Directors or chief executive of the Company) who has an interest or short positions in the Shares or underlying shares of the Company or any option in relation thereto which would fall to be disclosed to the Company under Divisions 2 and 3 of Part XV of the SFO or which were required, pursuant to section 336 of Part XV of the SFO, to be entered in the register referred to therein, or who is interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meeting of any other member of the Group.

7. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors has entered into any service contracts with the Company or any of its subsidiaries or associated companies, excluding contracts expiring within one year without payment of compensation other than statutory compensation.

– 132 –

GENERAL INFORMATION

APPENDIX III

8. INTERESTS IN CONTRACT OR ARRANGEMENT

As at the Latest Practicable Date, none of the Directors was materially interested in contract or arrangement subsisting which is significant in relation to the business of the Group.

9. INTERESTS IN ASSETS

As at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any assets acquired or disposed of by or leased to any member of the Group or is proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2004, being the date to which the latest published audited accounts of the Company were made up.

10. COMPETING INTEREST

None of the Directors has any interest in any business which competes or is likely to compete, either directly or indirectly, with the Group’s business.

11. LITIGATION

On 11 July 2005, Moulin Global Eyecare Holdings Limited (in provisional liquidation) (“Moulin”) brought an action in the High Court of Hong Kong against Active Base Limited, a wholly owned subsidiary of the Company, in respect of a loan agreement dated 24 February 2005 relating to a loan of HK$50 million (“Loan”) and a debenture executed by Moulin. Moulin is seeking for a declaration that the Loan and the debenture are invalid, unenforceable or otherwise not binding on itself and/or any liquidator. As at the Latest Practicable Date, the pleadings stage had been completed, the parties had made mutual discovery of their respective documents relating to the issues in the proceedings and witness statements were also exchanged. The parties are yet to apply for the court’s direction to set the case down for trial.

Save as disclosed above, as at the Latest Practicable Date, neither the Company nor any of its subsidiaries was engaged in any litigation or arbitration of material importance and there was no litigation or claim of material importance known to the Directors to be pending or threatened against the Company or any of its subsidiaries.

12. EXPERTS AND CONSENT

The qualifications of the experts who have given opinion in this circular are as follows:

Name Qualification

Barits

a licensed corporation to conduct type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities registered under the SFO

CCIF CPA Limited Certified Public Accountants (“CCIF”)

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GENERAL INFORMATION

APPENDIX III

As at the Latest Practicable Date, Barits and CCIF had no shareholding in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group and had no direct or indirect interest in any assets acquired or disposed of by or leased to any member of the Group since 31 December 2005, being the date to which the latest published audited accounts of the Company were made up.

Each of Barits and CCIF has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and the reference to its name in the form and context in which they appear.

13. MATERIAL CONTRACTS

The following contracts, not being contracts in the ordinary course of business, have been entered into by the Group within two years preceding the Latest Practicable Date and are or may be material:

a. the Underwriting Agreement; and
b. the agreement for the sale and purchase of an aggregate of 1,874,917,645 share(s) of HK$0.01 each in the issued share capital of Swank International Manufacturing Company Limited (“ Swank ”) dated 20 January 2005 (the “ Swank Agreement ”) entered into between China Time Investment Holdings Limited, Probest Holdings Inc. (“ Probest ”, an indirect wholly owned subsidiary of the Company), Rich Global Investments Limited, Kingsway Lion Spur Technology Limited, the Company and SW Kingsway Capital Holdings Limited, at a total consideration of approximately HK$56,247,530;
c. the loan restructuring agreement dated 20 January 2005 as varied and supplemented by the supplemental loan restructuring agreement dated 13 April 2005 entered into between Probest, Swank and Profitown Investment Corporation in relation to, inter alia, the restructuring of the loan in the principal amount of HK$163,000,000 due and owing by Swank to Probest under the promissory note dated 3 November 2003; and
d. the supplemental agreement in relation to the Swank Agreement dated 13 April 2005.

14. MISCELLANEOUS

(i) The expenses in connection with the Open Offer, including underwriting commission, printing, registration, legal, professional and accounting charges are estimated to amount to approximately HK$3.4 million and will be payable by the Company.
(ii) The English text of this circular shall prevail over the Chinese text in the case of any inconsistency.

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GENERAL INFORMATION

APPENDIX III

15. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at the offices of the Company at 15/F, Alexandra House, 18 Chater Road, Hong Kong, during normal business hours up to and including 12 May 2006:

(a) the memorandum of association of the Company and Bye-laws;
(b) the material contracts referred to in this appendix;
(c) the annual report of the Company for the two financial years ended 31 December 2005;
(d) the letter from the Independent Board Committee contained in this circular;
(e) the letter of advice from Barits contained in this circular;
(f) the letter from CCIF CPA Limited contained in this circular;
(g) the written consents referred to in the section headed “Experts and consent” of this appendix; and
(h) the circular of the Company dated 10 May 2005 in relation to the agreements referred to in paragraph (b), (c) and (d) of the section headed “material contracts” in this circular.

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NOTICE OF SGM

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Tomorrow International Holdings Limited

(incorporated in Bermuda with limited liability)

(Stock Code: 760)

NOTICE IS HEREBY GIVEN that a special general meeting of Tomorrow International Holdings Limited (the “Company”) will be held at Unit 903 – 906, 9th Floor, Tower 1, Harbour Centre, 1 Hok Cheung Street, Hunghom, Kowloon, Hong Kong at 11:00 a.m. on 30 May 2006 or any adjournment thereof for the purpose of considering and, if thought fit, passing, with or without amendment or modification, the following resolutions as ordinary or special resolutions (as the case may be) of the Company:

SPECIAL RESOLUTION

“ THAT the existing Bye-law 148 of the bye-laws of the Company be and is hereby amended by inserting the following words immediately after the words “in the same proportions” on line 6:

“or such other proportions as the Members may by ordinary resolution determine”

ORDINARY RESOLUTIONS

“ THAT:
(i) subject to the passing of resolutions numbered 1 above and 3 below and conditional upon (a) the Listing Committee of The Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”) granting or agreeing to grant (subject to allotment) and not having withdrawn or revoked the approval of the listing of and permission to deal in the Offer Shares (as defined below) in their fully-paid forms to be allotted and issued to the shareholders of the Company pursuant to the terms and conditions of the Open Offer (as defined below); (b) the delivery to the Stock Exchange and registration of all documents relating the Open Offer required by law to be registered with the Registrar of Companies in Hong Kong and filing of the documents relating to the Open Offer with the Registrar of Companies in Bermuda and posting of the document relating to the Open Offer to its shareholders; (c) the Bonus Issue (as defined in resolution numbered 3 below) becoming unconditional (save as any condition requiring the Open Offer to become unconditional); and (d) the obligations of Winspark Venture Limited (the “ Underwriter ”) under the underwriting agreement (the “ Underwriting Agreement ” a copy of which has been produced to the meeting marked “A” and signed by the chairman of the meeting for the purpose of identification) dated 8 March 2006 becoming unconditional and the Underwriting Agreement not being terminated in accordance with the terms thereof on or before 4:00 p.m. on the third business day following the last day for acceptance of the provisional allotments of the Offer Shares,

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NOTICE OF SGM

(a) the issue by way of an open offer (the “ Open Offer ”) of 357,585,805 new ordinary shares (the “ Offer Shares ”) of HK$0.01 each in the capital of the Company to the shareholders of the Company whose names appear on the register of members of the Company on 30 May 2006 (excluding those shareholders whose registered address as shown in the register of members of the Company on that date are outside Hong Kong whom the board of directors consider it necessary or expedient to exclude after making the relevant enquiries) on the basis of five Offer Shares for every four existing shares of HK$0.01 each in the capital of the Company (“ Shares ”) held on such date together with the Bonus Shares (as defined in resolution numbered 3 below) and otherwise pursuant to and in accordance with the terms and conditions set out in the circular dated 28 April 2006 despatched to shareholders of the Company (the “ Circular ” a copy of which has been produced to the meeting marked “B” and signed by the chairman of the meeting for the purpose of identification) be and it is hereby approved;
(b) the absence of any arrangement for application for Offer Shares that are in excess of the provisional allotments be and the same is hereby approved;
(c) the directors (the “ Directors ”) of the Company be and they are hereby authorised to allot and issue the Offer Shares pursuant to or in connection with the Open Offer notwithstanding that the same may be offered, allotted or issued otherwise than pro rata to the existing shareholders of the Company and, in particular, the Directors be and they are hereby authorised to make such exclusions or other arrangements in relation to fractional entitlements or overseas shareholders as they deem necessary or expedient having regard to any restrictions or obligations under the laws of, or the requirements of or the likely expenses and delay that may be incurred in determining the extent of any such restrictions, obligations or requirement of any recognised regulatory body or any stock exchange in any territory applicable to the Company;
(d) the Underwriting Agreement and the transactions contemplated thereby be and the same are hereby approved, confirmed and ratified; and
(e) the Directors be and they are hereby authorised to sign and execute such documents and do all such acts and things incidental to the Open Offer or as they consider necessary or expedient in connection with the implementation of or giving effect to the Open Offer, the Underwriting Agreement and the transactions contemplated thereunder, including the satisfaction or fulfilment of any conditions to which the Underwriting Agreement is subject (subject to such variations which the Directors may consider necessary, desirable and in the interest of the Company).”

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NOTICE OF SGM

“ THAT subject to the passing of resolutions numbered 1 and 2 above and conditional upon (a) the Listing Committee of The Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”) granting or agreeing to grant (subject to allotment) and not having withdrawn or revoked the approval of the listing of and permission to deal in the new ordinary shares of HK$0.01 each in the capital of the Company (the “ Shares ”) to be issued pursuant to this resolution; and (b) the Open Offer (as defined in the resolution numbered 2 above) becoming unconditional (save as any condition requiring the Bonus Issue (as defined below) to become unconditional) and the Underwriting Agreement (as defined in the resolution numbered 2 above) not being terminated by the Underwriter:
(a) a sum of not more than HK$2,554,184.30 being part of the amount standing to the credit of the contributed surplus account of the Company be capitalised and the directors (the “ Directors ”) of the Company be and they are hereby authorised and directed to appropriate the said sum in paying up in full at par not more than 255,418,430 new Shares (the “ Bonus Shares ”), such Bonus Shares to be allotted, issued and distributed, credited as fully paid, to and among the registered holders of the Offer Shares (as defined in resolution numbered 2 above) on the basis of five Bonus Shares for every seven Offer Shares held (“ Bonus Issue ”) and that the Bonus Shares shall rank for all purposes pari passu with the then existing issued Shares notwithstanding that the same may be allotted, issued or distributed otherwise than pro rata to the existing shareholders of the Company;
(b) the Directors be and they are hereby authorised to sign and execute such documents and do all such acts and things incidental to the issue of the Bonus Shares or as they consider necessary or expedient in connection with the issue of the Bonus Shares (subject to such amendments which the Directors may consider necessary, desirable and in the interest of the Company).”

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NOTICE OF SGM

“ THAT subject to the passing of resolutions numbered 1, 2 and 3 above and conditional upon (a) the Listing Committee of The Stock Exchange of Hong Kong Limited granting the listing of, and permission to deal in, the shares of HK$0.04 each in the capital of the Company arising from the Share Consolidation (as defined below) (including those resulting from the Open Offer (as defined in the resolution numbered 2 above) and the Bonus Issue (as defined in the resolution numbered 3 above)); and (b) the Open Offer and the Bonus Issue becoming unconditional and the Underwriting Agreement (as defined in resolution numbered 2 above) not being terminated by the Underwriter (as defined in the resolution numbered 2 above), with effect from 9:30 a.m. on the business day immediately after the date on which the Open Offer and the Bonus Issue become unconditional, every 4 shares of HK$0.01 each in the issued and unissued share capital of the Company be consolidated into one share of HK$0.04 (the “ Share Consolidation ”) and the directors of the Company be authorised to do such things and acts as they consider necessary or appropriate to implement the same, including arrangements in relation to fractional Consolidated Shares which may arise from the Share Consolidation.”

By Order of the Board Tomorrow International Holdings Limited Yau Tak Wah, Paul Chairman

Hong Kong, 28 April 2006

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

Principal place of business in Hong Kong: 27/F., Henley Building 5 Queen’s Road Central Hong Kong

Notes:

(1) A member entitled to attend and vote at the above meeting may appoint a proxy to attend and vote on his behalf and such proxy need not be a member of the Company. A form of proxy for use at the meeting is enclosed.
(2) In order to be valid, the form of proxy, together with any power of attorney or authority under which it is signed or a certified copy of that power of attorney or authority, must be deposited at the Company’s branch share registrar in Hong Kong, Computershare Hong Kong Investor Services Limited, at Shop 1712-1716, 17th Floor., Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time appointed for holding the meeting or any adjournment thereof.
(3) Completion and return of the form of proxy will not preclude a shareholder of the Company from attending and voting in person at the meeting convened or any adjournment thereof and in such event, the authority of the proxy shall be deemed to be revoked.
(4) In case of joint holders of any share, if more than one of such joint holders be present at any meeting, the vote of the senior who tenders a vote, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the register in respect of the joint holding.

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NOTICE OF SGM

(5) Special resolution no. 1 and ordinary resolutions Nos. 2 and 3 shall be voted by way of poll by Shareholders who are not interested or involved in the Underwriting Agreement, being Shareholders other than Winspark Venture Limited and its associates.

As at the date hereof, the board of directors of the Company comprises Mr Yau Tak Wah, Paul, Ms. Louie Mei Po, Ms. Wong Shin Ling, Irene and Mr. Tam Wing Kin as executive Directors, and Mr. Ng Wai Hung, Mr. Cheung Chung Leung, Richard and Mr. Wu Wang Li as independent non-executive Directors.

– 140 –

AI assistant

Talent Property Group Limited — Proxy Solicitation & Information Statement 2006

49450_rns_2006-05-02_d87baa6f-c6e6-4c31-bb57-ebd4657da590.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

Tomorrow International Holdings Limited

Underwriter

Winspark Venture Limited

Barits Securities (Hong Kong) Limited

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

EXPECTED TIMETABLE

EXPECTED TIMETABLE

Notes: All times refer to Hong Kong local times in this circular.

EFFECT OF BAD WEATHER ON THE LATEST TIME FOR ACCEPTANCE OF AND PAYMENT FOR THE OPEN OFFER

EXPECTED TIMETABLE

Tomorrow International Holdings Limited

To the Shareholders

(1) PROPOSED OPEN OFFER OF 357,585,805 NEW SHARES ON THE BASIS OF 5 OFFER SHARES FOR EVERY 4 EXISTING SHARES HELD WITH 5 BONUS SHARES FOR EVERY 7 FULLY-PAID OFFER SHARES; (2) PROPOSED AMENDMENT TO THE BYE-LAWS OF THE COMPANY; (3) PROPOSED SHARE CONSOLIDATION; (4) CONNECTED TRANSACTION

INTRODUCTION

PROPOSED OPEN OFFER AND BONUS ISSUE

Issue statistics

Qualifying Shareholders of the Open Offer

TERMS OF THE OPEN OFFER

Subscription price

Status of the Offer Shares

Fractions of Offer Shares

Certificates of the fully-paid Offer Shares

Closure of register of members

Rights of the Non-Qualifying Shareholders

LETTER FROM THE BOARD

Application for excess Offer Shares

LETTER FROM THE BOARD

Basis of the Bonus Issue

Qualifying Shareholders of the Bonus Issue

Conditions of the Bonus Issue

Status of the Bonus Shares

Listings and dealings of the Offer Shares and Bonus Shares

Share certificates for the Bonus Shares

ACCEPTANCE PROCEDURES FOR THE OFFER SHARES AND THE BONUS SHARES

UNDERWRITING ARRANGEMENT

Undertakings from the Major Shareholder

Underwriting Agreement

Conditions of the Open Offer under the Underwriting Agreement

Termination of the Underwriting Agreement

WARNING OF THE RISK OF DEALING IN SHARES AND OFFER SHARES

REASONS FOR THE OPEN OFFER AND USE OF PROCEEDS

PROPOSED AMENDMENT TO THE BYE-LAWS

PROPOSED SHARE CONSOLIDATION

Effects of the Share Consolidation

Conditions of the Share Consolidation

Reasons for the Share Consolidation

LETTER FROM THE BOARD

Trading arrangement, issue and exchange of share certificates

LETTER FROM THE BOARD

Application for listing and dealings in Consolidated Shares

EFFECTS ON THE SHAREHOLDING STRUCTURE

LETTER FROM THE BOARD

RESTORATION OF PUBLIC FLOAT

CAPITAL RAISING ACTIVITIES IN THE PAST 12 MONTHS

SGM

LETTER FROM THE BOARD

PROCEDURE FOR DEMANDING A POLL

RECOMMENDATION

LETTER FROM THE BOARD

GENERAL INFORMATION

Tomorrow International Holdings Limited

PROPOSED OPEN OFFER AND BONUS ISSUE AND THE UNDERWRITING AGREEMENT

RECOMMENDATION

Ng Wai Hung Cheung Chung Leung, Richard Wu Wang Li

BARITS SECURITIES (HONG KONG) LIMITED

(1) PROPOSED OPEN OFFER OF 357,585,805 NEW SHARES ON THE BASIS OF 5 OFFER SHARES FOR EVERY 4 EXISTING SHARES HELD ISSUED WITH 5 BONUS SHARES FOR EVERY 7 FULLY-PAID OFFER SHARES; AND

(2) THE UNDERWRITING AGREEMENT

INTRODUCTION

LETTER OF ADVICE FROM BARITS

BASIS OF OUR OPINION

LETTER OF ADVICE FROM BARITS

Talent Property Group Limited Proxy Solicitation & Information Statement 2006