Walnut Capital Limited — Capital/Financing Update 2005

Apr 6, 2005

THE PROSPECTUS IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

A copy of this prospectus, together with the Application Form (as defined herein) and the written consent by Grant Thornton, have been registered by the Registrar of Companies in Hong Kong as required by Section 342C of the Companies Ordinance in Hong Kong. The Registrar of Companies in Hong Kong and the Securities and Futures Commission in Hong Kong, take no responsibility as to the contents of any of these documents.

Dealings in the shares in Haywood Investments Limited may be settled through the Central Clearing and Settlement System (“CCASS”) and you should consult your licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser for details of those settlement arrangements and how such arrangements may affect your rights and interests.

The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) and the Hong Kong Securities Clearing Company Limited (“HKSCC”) take no responsibility for the contents of this prospectus, 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 prospectus.

Subject to the granting of the listing of, and permission to deal in, the Offer Shares (as defined herein) on the Stock Exchange, the Offer 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 on the Stock Exchange or under contingent situation, 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.

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HAYWOOD INVESTMENTS LIMITED

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 905)

OPEN OFFER OF NEW SHARES ON THE BASIS OF ONE OFFER SHARE FOR EVERY NEW SHARE HELD ON RECORD DATE

Financial adviser to the Company

KINGSTON CORPORATE FINANCE LIMITED

Underwriters

KINGSTON SECURITIES LIMITED

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The latest time for acceptance and payment for the Offer Shares is 4:00 p.m. on Friday, 8 April 2005. The procedures for acceptance are set out on page 16 of this prospectus.

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

• (1) in the reasonable opinion of Kingston (for and on behalf of the Underwriters), the success of the Open Offer would be materially and adversely affected by:

• (a) the introduction of any new law or regulation or any change in existing law or regulation (or the judicial interpretation thereof) or other occurrence of any nature whatsoever which may in the reasonable opinion of Kingston (for and on behalf of the Underwriters), materially and adversely affect the business or the financial or trading position or prospects of the Group as a whole; or

• (b) the occurrence of any local, national or international event or change, whether or not forming part of a series of events or changes occurring or continuing before, and/or after the date of the Underwriting Agreement, of a political, military, financial, economic or other nature (whether or not ejusdem generis with any of the foregoing), or in the nature of any local, national or international outbreak or escalation of hostilities or armed conflict, or affecting local securities markets which may, in the reasonable opinion of Kingston (for and on behalf of the Underwriters) materially and adversely affect the business or the financial or trading position or prospects of the Group as a whole; or

• (2) any adverse change in market conditions (including, without limitation, any change in fiscal or monetary policy, or foreign exchange or currency markets, suspension or material restriction of trading in securities) occurs which, in the reasonable opinion of Kingston (for and on behalf of the Underwriters), is likely to materially or adversely affect the success of the Open Offer or otherwise makes it inexpedient or inadvisable to proceed with the Open Offer; or

• (3) there is any change in the circumstance of the Company or any member of the Group which, in the reasonable opinion of Kingston (for and on behalf of the Underwriters), will adversely affect the prospects of the Company, including without limiting the generality of the foregoing the presentation of a petition or the passing of a resolution for the liquidation or winding up or similar event occurring in respect of any member of the Group or the destruction of any material asset of the Group; or

• (4) any suspension in the trading of securities generally or the Company’s securities on the Stock Exchange for a period of more than five consecutive business days, excluding any suspension in connection with the clearance of the Announcement, the circular and the proxy form for use at the EGM or the Prospectus Documents or other announcements or circulars in connection with the proposed increase in authorised share capital of the Company, the Share Consolidation and the Open Offer.

If Kingston (for and on behalf of the Underwriters) terminates the Underwriting Agreement, the Open Offer will not proceed.

Shareholders should note that the Shares has been dealt with on an ex-entitlement basis commencing from Friday, 11 March 2005 and that dealings in such Shares take place while the conditions to which the Underwriting Agreement is subject remain unfulfilled. Any Shareholder or other person dealing in such Shares up to the date on which all conditions to which the Open Offer is subject are fulfilled (which is expected to be on Tuesday, 12 April 2005), will accordingly bear the risk that the Open Offer cannot become unconditional and may not proceed. Any Shareholder or other person contemplating selling or purchasing Shares who is in any doubt about his/her/its position is recommended to consult his/her/its own professional adviser.

21 March 2005

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Expected timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Open Offer of New Shares on the basis of
one Offer Share for every New Share held on Record Date . . . . . . . . . . . . . . . . . . .	8
Warning of risks of dealings in Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Procedure for Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
Appendix I – Financial Information on the Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Appendix II – General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	57

– i –

DEFINITIONS

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

• “Announcement” the announcement dated 7 February 2005 made by the Company in relation to the proposed (1) increase in authorised share capital of the Company; (2) Share Consolidation and change in board lot size; and (3) Open Offer

• “Application Form(s)” the application form(s) for use by the Qualifying Shareholders to apply for the Offer Shares

• “associates” has the meaning ascribed thereto in the Listing Rules

• “business day”

• a day on which banks in Hong Kong are open for general business other than a Saturday or Sunday or a day on which a black rainstorm warning or tropical cyclone warning signal number 8 or above is hoisted in Hong Kong at any time between 9:00 a.m. and 12:00 noon and is not lowered at or before 12:00 noon

• “Board” the board of Directors

• “CCASS”

• the Central Clearing and Settlement System established and operated by HKSCC

• “Companies Law” the Companies Law, Cap.22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands

• “Companies Ordinance” the Companies Ordinance (Chapter 32 of the Laws of Hong Kong)

• “Company” Haywood Investments Limited, a company incorporated in the Cayman Islands under the Companies Law, the issued shares of which are listed on the Stock Exchange

• “Director(s)” the director(s) of the Company, including the independent nonexecutive directors of the Company

• “EGM”

• the extraordinary general meeting of the Company held on Thursday, 17 March 2005 at which the increase in authorised share capital of the Company, the Share Consolidation and the Open Offer have been approved

– 1 –

DEFINITIONS

• “Excluded Shareholders”

• the Shareholder(s) whose name(s) appear on the register of members of the Company on the Record Date and whose address is/are in (a) place(s) outside Hong Kong where, the Directors, based on legal opinions provided by legal advisers of the Company, consider it necessary or expedient to exclude any such Shareholder(s) on account either of the legal restrictions under the laws of the place of his/her/its respective registered address or the requirements of the relevant regulatory body or stock exchange in that place

• “Group” the Company and its subsidiaries

• “HKSCC” Hong Kong Securities Clearing Company Limited

• “Hong Kong”

• the Hong Kong Special Administrative Region of the PRC

• “Latest Practicable Date” 18 March 2005, being the latest practicable date for the purpose of ascertaining certain information for inclusion in this prospectus

• “Kingston” Kingston Securities Limited, a licensed corporation to carry out type 1 regulated activity (dealing in securities) under the SFO

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

• “Mr. Lee” or

  • Mr. Lee Wing On, Samuel, the substantial Shareholder

• “Substantial Shareholder”

• “New Share(s)” share(s) of HK$0.025 each in the share capital of the Company upon the increase in authorised share capital of the Company and Share Consolidation becoming effective

• “Offer Shares” 80,000,000 New Shares proposed to be offered to the Qualifying Shareholders for subscription pursuant to the Open Offer

• “Open Offer” the issue of the Offer Shares by way of open offer to the Qualifying Shareholders on the terms to be set out in the Prospectus Documents and the terms of which are summarised herein

• “Orient”

• Orient Securities Limited, a licensed corporation to carry out types 1, 4, 6, 7 and 9 regulated activities (dealing in securities, advising on securities and corporate finance, providing automated trading services and asset management) under the SFO

– 2 –

DEFINITIONS

• “PRC”

the People’s Republic of China

• “Prospectus” the prospectus to be issued in connection with the Open Offer

• “Prospectus Documents” the Prospectus and the Application Form

• “Prospectus Posting Date” 21 March 2005 or such later date as may be agreed between the Company, the Substantial Shareholder and Kingston (for and on behalf of the Underwriters) for the despatch of the Prospectus Documents

• “Qualifying Shareholders” the Shareholder(s) other than Excluded Shareholders whose names appear on the register of members of the Company as at the close of business on the Record Date

• “Record Date” 17 March 2005, being the date by reference to which entitlements to the Open Offer have been determined

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

• “SFC” the Securities and Futures Commission of Hong Kong

• “SFO”

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

• “Share Consolidation” the consolidation of every five Shares into two New Shares

• “Shares”

• shares of HK$0.01 each in the share capital of the Company prior to completion of the Share Consolidation

• “Shareholder(s)” holder(s) of Shares or, where the context so requires, after the Share Consolidation becoming effective, holder(s) of New Shares

• “Stock Exchange” The Stock Exchange of Hong Kong Limited

• “Subscription Price”

• the subscription price of HK$0.065 per Offer Share pursuant to the Open Offer

• “Underwriters”

together Kingston and Orient

• “Underwriting Agreement”

• the underwriting agreement dated 28 January 2005 as amended by a supplemental underwriting agreement dated 4 February 2005 entered into among the Company, the Substantial Shareholder and the Underwriters in relation to the Open Offer

– 3 –

	DEFINITIONS
“Underwritten Shares”	63,604,800 Offer Shares underwritten by the Underwriters, of
	which 31,802,400 Offer Shares were underwritten by Kingston
	and 31,802,400 Offer Shares were underwritten by Orient,
	pursuant to the Underwriting Agreement
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“%”	per cent.

– 4 –

EXPECTED TIMETABLE

Last day of dealings in Shares on cum-entitlement basis . . . . . . . . . . . Thursday, 10 March 2005 First day of dealings in Shares on ex-entitlement basis. . . . . . . . . . . . . . . Friday, 11 March 2005 Latest time for lodging transfers of Shares in order to be entitled to the Open Offer. . . . . . . . . . . . . . . . . . . . . . . . . . 4:00 p.m. on Monday, 14 March 2005 Latest time for lodging forms of proxy for the purpose of the EGM (not less than 48 hours before the time for the EGM) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.00 a.m. on Tuesday, 15 March 2005 Register of members closes (both dates inclusive) . . . . . . . . . . . . . . . . . Tuesday, 15 March 2005 to Thursday, 17 March 2005 Time and date of the EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.00 a.m. on Thursday, 17 March 2005 Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thursday, 17 March 2005 Date on which the increase in authorised share capital becomes effective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Friday, 18 March 2005 Date on which the Share Consolidation becomes effective. . . . . . . . . . . . Friday, 18 March 2005 Free exchange of existing Share certificates for new share certificates commences . . . . . . . . . . . . . . . . . . . . . . . . . . Friday, 18 March 2005 Existing counter for trading in existing shares in board lots of 2,000 Shares temporarily closes . . . . . . . 9:30 a.m. on Friday, 18 March 2005 Temporary counter for trading in New Shares in board lots of 800 New Shares (in the form of existing share certificates) opens . . . . . . 9:30 a.m. on Friday, 18 March 2005 Register of members reopens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Friday, 18 March 2005 Despatch of the Prospectus Documents . . . . . . . . . . . . . . . . . . . . . . . . . . Monday, 21 March 2005 Existing counter for trading in New Shares in board lots of 20,000 New Shares (in form of new share certificates) reopens . . . . . . . . . 9:30 a.m. on Wednesday, 6 April 2005 Parallel trading of New Shares (in the form of existing Shares and new share certificates) commences . . . . . . . . . . . . 9:30 a.m. on Wednesday, 6 April 2005

– 5 –

EXPECTED TIMETABLE

First day of availability of odd lot trading facility . . . . . . . . . . . . . . . . . Wednesday, 6 April 2005

Latest time for lodging application

for Offer Shares and payment . . . . . . . . . . . . . . . . . . . . . . . . 4:00 p.m. on Friday, 8 April 2005

Latest time for the Open Offer

to become unconditional . . . . . . . . . . . . . . . . . . . . . . . . . . 4:00 p.m. on Tuesday, 12 April 2005

Announcement of results of the Open Offer. . . . . . . . . . . . . . . . . . . . . . . Thursday, 14 April 2005

Share certificates for Offer Shares to be posted . . . . . . . . . . . . . . . . . . . . . Friday, 15 April 2005

Dealings in Offer Shares commences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Monday, 18 April 2005

Last day of availability of odd lot trading facility . . . . . . . . . . . . . . . . Wednesday, 27 April 2005

Temporary counter for trading in New Shares

in board lots of 800 New Shares

(in the form of existing share certificates) ends . . . . 4:00 p.m. on Wednesday, 27 April 2005

Parallel trading of New Shares

(in the form of existing Shares

and new share certificates) ends . . . . . . . . . . . . . . . . . 4:00 p.m. on Wednesday, 27 April 2005

Free exchange of existing Share certificates

for New Share certificates ends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Friday, 29 April 2005

Dates or deadlines specified in this prospectus for events in the timetable are for indicative purpose only and may be extended or varied. Any changes to the anticipated timetable for the Open Offer will be published by way of public announcement.

– 6 –

LETTER FROM THE BOARD

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HAYWOOD INVESTMENTS LIMITED

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 905)

Executive Directors: Mr. Wong Fong Kim Mr. Tai Ah Lam, Michael Mr. Phang Yul Cher Yeow Mr. Tham Ming Yong Mr. Tsun Kok Chung, Richard

Registered office: Ugland House P.O. Box 309 George Town Grand Cayman Cayman Islands

Non-executive Director: Mr. Cui Zanming Independent non-executive Directors: Dr. Wong Yun Kuen, Edward Mr. Hsieh Dominick Mr. Chang Kin Man Mr. Wong Wing Hang, Henry

Head office and principal place of business in Hong Kong:

17th Floor Shiu Fung Commercial Building 51-53 Johnston Road Wanchai Hong Kong 21 March 2005

To the Qualifying Shareholders

Dear Sir or Madam,

OPEN OFFER OF NEW SHARES ON THE BASIS OF ONE OFFER SHARE FOR EVERY NEW SHARE HELD ON RECORD DATE

INTRODUCTION

The Directors have announced on 7 February 2005 that, among other things, the Company proposes to raise HK$5.2 million before expenses, by issuing 80,000,000 Offer Shares at the price of HK$0.065 per Offer Share by way of the Open Offer, payable in full on application, on the basis of one Offer Share for every New Share held on the Record Date.

Under the Listing Rules, the Open Offer is required to be made conditional on the approval of the Shareholders and it is also conditional upon the passing of the resolutions in respect of the increase in authorised share capital and Share Consolidation. On 28 February 2005, a circular containing details regarding, among other things, the increase in authorised share capital, Share Consolidation and Open Offer and a notice of the EGM was despatched to the Shareholders. A copy of such circular is available for inspection at such place and times as set out in the section headed “Documents available for inspection” in Appendix II to this prospectus. Resolutions were duly passed at the EGM by the Shareholders to approve the

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LETTER FROM THE BOARD

increase in authorised share capital of the Company, the Share Consideration and the Open Offer and the increase in authorised share capital of the Company and the share consolidation have become effective on 18 March 2005.

This prospectus sets out further information regarding the Open offer, including information on dealings and application for the Offer Shares and other financial information in respect of the Group.

OPEN OFFER OF NEW SHARES ON THE BASIS OF ONE OFFER SHARE FOR EVERY NEW SHARE HELD ON RECORD DATE

Issue statistics

Basis of the Open Offer : One Offer Share for every New Share held on the Record Date Number of New Shares in issue : 80,000,000 New Shares as at the Latest Practicable Date Subscription Price : HK$0.065 per Offer Share Number of Offer Shares to be offered : 80,000,000 Offer Shares for subscription Number of New Shares in issue : 160,000,000 New Shares immediately upon the completion of the Open Offer Number of Offer Shares undertaken : 16,395,200 Offer Shares to be taken up by Mr. Lee Number of Offer Shares : Pursuant to the Underwriting Agreement, underwritten by the Underwriters the Underwriters have conditionally agreed to underwrite the Underwritten Shares, being 63,604,800 Offer Shares, subject to and upon the terms and conditions of the Underwriting Agreement. Each of the Underwriters is not a connected person (as defined in the Listing Rules) of the Company and is an independent third party not connected with the directors, chief executive or substantial shareholders of the Company or its subsidiaries or any of their respective associates.

– 8 –

LETTER FROM THE BOARD

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 or New Shares.

Pursuant to the Underwriting Agreement, the Company has undertaken that it shall not from the date of the Underwriting Agreement until after the latest time for the Underwriting Agreement becoming unconditional (which is expected on Tuesday, 12 April 2005), issue any Shares or issue or grant any share options or other securities convertible into, exchangeable for or which carry rights to acquire Shares (other than the Offer Shares).

Qualifying Shareholders

The Company will make the Open Offer and send the Prospectus Documents to the Qualifying Shareholders.

To be qualified for the Open Offer, Shareholders must be registered as members of the Company on the Record Date. In order to be registered as members of the Company on the Record Date, Shareholders must lodge any transfer of Shares (with the relevant Share certificates) for registration with the Secretaries Limited located at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong by 4:00 p.m. on Monday, 14 March 2005.

The invitation to apply for the Offer Shares will not be transferable and there will be no trading in nil-paid entitlements on the Stock Exchange and the Qualifying Shareholders will not be entitled to subscribe for any Offer Shares in excess of their respective entitlements. The Director consider that as the additional administrative work is saved by not offering the Shareholders to trade in nil-paid entitlements on the Stock Exchange or to subscribe for any Offer Shares in excess of the Qualifying Shareholders’ respective entitlements, after evaluating on the cost and benefit, the aforesaid arrangements shall be in the best interest of the Company and the Shareholders as a whole.

Any Offer Shares not taken up by the Qualifying Shareholders will be taken up by the Underwriters pursuant to the Underwriting Agreement at the Subscription Price.

Fraction of Offer Shares

Given the Open Offer is on the basis of one Offer Share for every New Share held by the Qualifying Shareholders on the Record Date, there will be no fractions of Offer Shares created as result of the Open Offer.

Closure of register of members

The register of members of the Company has been closed from Tuesday, 15 March 2005 to Thursday, 17 March 2005 (both dates inclusive) to determine the eligibility of Shareholders to the Open Offer. No transfer of Shares have been registered during this period.

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LETTER FROM THE BOARD

Subscription Price

HK$0.065 per Offer Share, payable in full on application. The Subscription Price represents:

• (i) a discount of approximately 52.9% to the adjusted closing price of HK$0.138 per New Share as quoted on the Stock Exchange on 28 January 2005, being the last trading day before the suspension of trading in the Shares pending the publication of the Announcement;

• (ii) a discount of approximately 35.6% to the theoretical ex-entitlement price of approximately HK$0.101 per New Share based on the aforesaid adjusted closing price per New Share;

• (iii) a discount of approximately 54.5% to the average adjusted closing price of HK$0.143 per New Share as quoted on the Stock Exchange for the last 10 consecutive trading days up to and including 28 January 2005, being the last trading day before the suspension of trading in the Shares pending the publication of the Announcement; and

• (iv) a discount of approximately 26.1% to the closing price of HK$0.088 per New Share as quoted on the Stock Exchange on the Latest Practicable Date.

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

Status of the Offer Shares

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

Certificates for the Offer Shares

Subject to fulfillment of the conditions of the Open Offer, share certificates for the Offer Shares are expected to be posted on or before Friday, 15 April 2005 to those Qualifying Shareholders who have validly applied and paid for the Offer Shares by ordinary post and at their own risks.

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LETTER FROM THE BOARD

Rights of Excluded Shareholders

The Prospectus Documents will not and have not been registered under the applicable securities legislation of any jurisdiction other than Hong Kong. Having reviewed the register of members of the Company and based on its register of members on the Record Date, the Directors noted that none of the shareholders has maintained an address outside Hong Kong on the Company’s register of members.

Application for listing

The Company has applied to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the New Shares and Offer Shares. Dealings in the New Shares and the Offer Shares will be subject to the payment of stamp duty in Hong Kong and is expected to commence on Friday, 18 March 2005 and on Monday, 18 April 2005 respectively.

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

Underwriting Agreement

Date:	28 January 2005
			Approximate
			percentage of
			Underwritten Shares
			to be underwritten
			pursuant to the
			Underwriting
				Agreement
Underwriters:	Orient Securities Limited			50.00%
	Kingston Securities Limited			50.00%
	Total:			100.00%
Number of Offer
Shares underwritten or			As percentage
undertaken to be				of total
taken up:		Offer Shares	Offer Shares
	Offer Shares undertaken
	to be taken up by
	Mr. Lee Wing On Samuel	16,395,200		20.50%
	Orient Securities Limited	31,802,400		39.75%
	Kingston Securities Limited	31,802,400		39.75%
		80,000,000		100.00%

– 11 –

LETTER FROM THE BOARD

Pursuant to the Underwriting Agreement, the Underwriters has agreed to underwrite the Underwritten Shares, being 63,604,800 Offer Shares.

The Underwriters are not connected persons (as defined in the Listing Rules) of the Company and are independent of and not connected with any of the directors, chief executive or substantial shareholders of the Company, its subsidiaries or any of their respective associates. The Company will pay to the Underwriters an underwriting commission in the aggregate amount of about HK$82,600 which is calculated at 2.0% of the aggregate Subscription Price of the number of Offer Shares to be underwritten by the Underwriters.

Termination of the Underwriting Agreement

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

• (1) in the reasonable opinion of Kingston (for and on behalf of the Underwriters), the success of the Open Offer would be materially and adversely affected by:

• (a) the introduction of any new law or regulation or any change in existing law or regulation (or the judicial interpretation thereof) or other occurrence of any nature whatsoever which may in the reasonable opinion of Kingston (for and on behalf of the Underwriters), materially and adversely affect the business or the financial or trading position or prospects of the Group as a whole; or

• (b) the occurrence of any local, national or international event or change, whether or not forming part of a series of events or changes occurring or continuing before, and/or after the date of the Underwriting Agreement, of a political, military, financial, economic or other nature (whether or not ejusdem generis with any of the foregoing), or in the nature of any local, national or international outbreak or escalation of hostilities or armed conflict, or affecting local securities markets which may, in the reasonable opinion of Kingston (for and on behalf of the Underwriters) materially and adversely affect the business or the financial or trading position or prospects of the Group as a whole; or

• (2) any adverse change in market conditions (including, without limitation, any change in fiscal or monetary policy, or foreign exchange or currency markets, suspension or material restriction of trading in securities) occurs which, in the reasonable opinion of Kingston (for and on behalf of the Underwriters), is likely to materially or adversely affect the success of the Open Offer or otherwise makes it inexpedient or inadvisable to proceed with the Open Offer; or

• (3) there is any change in the circumstance of the Company or any member of the Group which, in the reasonable opinion of Kingston (for and on behalf of the Underwriters), will adversely affect the prospects of the Company, including without limiting the generality of the foregoing the presentation of a petition or

– 12 –

LETTER FROM THE BOARD

the passing of a resolution for the liquidation or winding up or similar event occurring in respect of any member of the Group or the destruction of any material asset of the Group; or

• (4) any suspension in the trading of securities generally or the Company’s securities on the Stock Exchange for a period of more than five consecutive business days, excluding any suspension in connection with the clearance of the Announcement, the associated circular and the proxy form for use at the EGM or the Prospectus Documents or other announcements or circulars in connection with the proposed increase in authorised share capital of the Company, the Share Consolidation and the Open Offer.

If Kingston (for and on behalf of the Underwriters) terminates the Underwriting Agreement, the Open Offer will not proceed.

Conditions of the Underwriting Agreement

The Underwriting Agreement is conditional upon, among other things:

• (i) the passing by Shareholders at the EGM of resolutions to approve the increase in authorised share capital of the Company, the Share Consolidation and the Open Offer;

• (ii) the delivery to the Stock Exchange for authorisation and the registration with the Registrar of Companies in Hong Kong respectively one copy of each of the Prospectus Documents in compliance with the Listing Rules and the Companies Ordinance not later than the Prospectus Posting Date;

• (iii) the posting of the Prospectus Documents to the Qualifying Shareholders on or before the Prospectus Posting Date; and

• (iv) the Listing Committee of the Stock Exchange granting or agreeing to grant (subject to allotment) and not having withdrawn or revoked listing of and permission to deal in, the Offer Shares by no later than the Prospectus Posting Date.

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

WARNING OF RISKS OF DEALINGS IN SHARES

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

– 13 –

LETTER FROM THE BOARD

Shareholders should note that the Shares were dealt with on an ex-entitlement basis commencing from Friday, 11 March 2005 and that dealings in such Shares will take place while the conditions to which the Underwriting Agreement is subject remain unfulfilled. Any Shareholder or other person dealing in such Shares up to the date on which all conditions to which the Open Offer is subject are fulfilled (which is expected to be Tuesday, 12 April 2005) will accordingly bear the risk that the Open Offer cannot become unconditional and may not proceed. Any Shareholder or other person contemplating selling or purchasing Shares who is in any doubt about his/her/its position is recommended to consult his/her/its own professional adviser.

Shareholding structure of the Company

The following is the shareholding structure of the Company immediately before and after completion of the Open Offer:

Mr. Lee Orient Kingston Public Other public Shareholders Total	Immediately Immediately after completion of after completion the Open Offer of the Open Offer (assuming no (assuming all Qualifying Shareholders Qualifying Shareholders takes up his/her /its Immediately before take up their respective entitlement under completion of entitlements under the Open Offer except the Open Offer the Open Offer) for Mr. Lee) New Shares Percentage New Shares Percentage New Shares Percentage (approximately) (approximately) (approximately) 16,395,200 20.49% 32,790,400 20.49% 32,790,400 20.49% 0 0.00% 0 0.00% 31,802,400 19.88% 0 0.00% 0 0.00% 31,802,400 19.88% 63,604,800 79.51% 127,209,600 79.51% 63,604,800 39.75% 80,000,000 100.00% 160,000,000 100.00% 160,000,000 100.00%	Immediately Immediately after completion of after completion the Open Offer of the Open Offer (assuming no (assuming all Qualifying Shareholders Qualifying Shareholders takes up his/her /its Immediately before take up their respective entitlement under completion of entitlements under the Open Offer except the Open Offer the Open Offer) for Mr. Lee) New Shares Percentage New Shares Percentage New Shares Percentage (approximately) (approximately) (approximately) 16,395,200 20.49% 32,790,400 20.49% 32,790,400 20.49% 0 0.00% 0 0.00% 31,802,400 19.88% 0 0.00% 0 0.00% 31,802,400 19.88% 63,604,800 79.51% 127,209,600 79.51% 63,604,800 39.75% 80,000,000 100.00% 160,000,000 100.00% 160,000,000 100.00%
		100.00%

Reasons for the Open Offer and use of proceeds

The Group is an investment company listed under Chapter 21 of the Listing Rules and is principally engaged in investment in listed and unlisted companies in Hong Kong and in the PRC.

The estimated net proceeds from the Open Offer will be approximately HK$4.5 million and will be used for future investment purposes which will be invested in accordance with the Company’s investment policy of investing in listed and unlisted companies in Hong Kong and the PRC to achieve medium term capital appreciation. At present, no particular investment target has been identified by the Company. Should any investment be made, the Company will comply with the Listing Rules.

– 14 –

LETTER FROM THE BOARD

The Board considers that the Open Offer provides a good opportunity for the Group to strengthen its capital base and to enhance its financial position under the current favourable market sentiment. In addition, since the Open Offer will allow the Qualifying Shareholders to maintain their respective pro rata shareholdings in the Company, the Board considers that it is in the interests of the Company and the Shareholders as a whole to raise capital through the Open Offer.

The estimated expenses of the Open Offer are about HK$0.7 million, which comprise professional fees payable to the financial advisers and legal advisers and certain printing and advertisement fee, and will be borne by the Company.

Fund raising activities of the Company during the 12 months immediately before the date of the Announcement and the Latest Practicable Date

There has not been any rights issue or open offer of Shares in the last 24 months immediately before the date of the Announcement and the Latest Practicable Date. The following table summaries the capital raising activities of the Group for the 12 months immediately before the date of the Announcement and the Latest Practicable Date:

				Actual use of proceeds
Date of		Net proceeds	Intended use	as at the Latest
announcement	Event	(approximately)	of proceeds	Practicable Date
19 July 2004	Subscription of	HK$2.5 million	Investment in	Approximately
	27,200,000 new Shares		accordance	HK$0.5 million
	at the subscription price		with the Company’s	for the investment
	of HK$0.10 per Share		investment policy	in accordance
			of investing in listed	with the Company’s
			and unlisted	investment policy
			companies	and approximately
			in Hong Kong	HK$2.0 million
			and the PRC	was designated
				for the future
				investment.
				The aforesaid
				investment of
				HK$0.5 million
				did not constitute
				a notifiable
				transaction
				of the Company.

11 March 2004 Placing of 28,800,000 HK$3.38 million General working capital As intended use Shares at the placing price of HK$0.124 per Share

– 15 –

LETTER FROM THE BOARD

PROCEDURE FOR APPLICATION

If you are a Qualifying Shareholder, you will find an Application Form being enclosed with this prospectus, which entitles you to apply for the number of Offer Shares in your assured allotment shown thereon. If you are a Qualifying Shareholder and you wish to apply for Offer Shares, you must complete, sign and lodge the Application Form in accordance with the instructions printed thereon, together with remittance for full amount payable on application with the Registrar, Secretaries limited, at Ground floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong by not later than 4:00 p.m. on Friday, 8 April 2005. 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 “Kingston Securities Limited – Open Offer Account (Haywood)” and crossed “Account Payee Only”.

It should be noted that unless the Application Form, together with the appropriate remittance, has been lodged with the Registrar by not later than 4:00 p.m. on Friday, 8 April 2005 by a Qualifying Shareholder, his/her/its entitlement to apply under the Open Offer 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 Application Form (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 Friday, 15 April 2005.

All cheques or cashier orders will be presented for payment immediately following receipt and all interest earned on such application monies will be retained for the benefit of the Company. Any Application Form in respect of which the cheque or cashier order is dishonoured on first presentation is liable to be rejected, and in that event the relevant entitlements of the Qualifying Holders under the Open Offer will be deemed to have been declined and will be cancelled.

The Application Form is for use only by the person(s) named therein and is not transferable.

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

GENERAL

Your attention is drawn to the information set out in the Appendices to this prospectus.

Yours faithfully For and on behalf of the Board Phang Yul Cher Yeow

Director

– 16 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

A. SUMMARY OF FINANCIAL RESULTS AND ASSETS AND LIABILITIES FOR THE LAST THREE YEARS ENDED 31 DECEMBER 2003

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

Results Turnover Profit/(loss) from operations Finance costs Profit/(loss) before taxation Taxation Profit/(loss) for the year Assets and liabilities Property, plant and equipment Investments in securities Current assets Current liabilities Shareholders’ funds	Year ended 31 December 2003 2002 2001 HK$’000 HK$’000 HK$’000 4 876 369 (11,799) (27,075) (40,621) (61) (148) – (11,860) (27,223) (40,621) 52 – – (11,808) (27,223) (40,621) As at 31 December 2003 2002 2001 HK$’000 HK$’000 HK$’000 – 69 243 9,714 23,323 39,537 3,282 2,240 4,973 (652) (2,801) (1,151) 12,344 22,831 43,602

– 17 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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

The following is a summary of the audited consolidated accounts of the Company for the year ended 31 December 2003 as extracted from pages 32 to 59 of the 2003 annual report of the Company.

Consolidated Income Statement

For the year ended 31 December 2003

Notes Turnover 4 Other revenue Administrative expenses Impairment loss recognised in respect of investments in securities Loss on disposal of listed investments 5 Loss from operations 6 Interest expense on secured loan wholly repayable within five years Loss before taxation Taxation 8 Loss attributable to shareholders Loss per share – basic 10	2003 2002 HK$’000 HK$’000 4 876 280 84 (2,269) (6,559) (8,800) (20,995) (1,014) (481) (11,799) (27,075) (61) (148) (11,860) (27,223) 52 – (11,808) (27,223) (8.56 cents) (23.60 cents)

– 18 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Balance Sheet

As at 31 December 2003

Notes ASSETS AND LIABILITIES Non-current assets Property, plant and equipment 11 Investments in securities 13 Current assets Trade and other receivables 14 Amount due from a related company 15 Cash at banks Current liabilities Other payables Secured loan – due within one year 16 Amounts due to directors 17 Amount due to a related company Provision for taxation Net current assets/(liabilities) Net assets CAPITAL AND RESERVES Share capital 18 Reserves 19 Shareholders’ funds Net asset value per share 20	2003 HK$’000 – 9,714 9,714 176 – 3,106 3,282 322 – 330 – – 652 2,630 12,344 1,440 10,904 12,344 HK$0.09	2002 HK$’000 69 23,323 23,392 1,948 178 114 2,240 1,541 1,000 94 114 52 2,801 (561) 22,831 1,200 21,631 22,831 HK$0.19

– 19 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Balance Sheet

As at 31 December 2003

Notes ASSETS AND LIABILITIES Non-current assets Property, plant and equipment 11 Interests in subsidiaries 12 Investments in securities 13 Current assets Trade and other receivables 14 Amount due from a related company 15 Cash at banks Current liabilities Other payables Secured loan – due within one year 16 Amounts due to directors 17 Amount due to a related company Net current assets/(liabilities) Net assets CAPITAL AND RESERVES Share capital 18 Reserves 19 Shareholders’ funds	2003 HK$’000 – 9,658 53 9,711 176 – 3,101 3,277 310 – 330 – 640 2,637 12,348 1,440 10,908 12,348	2002 HK$’000 69 17,553 11,860 29,482 1,948 178 108 2,234 1,447 1,000 94 114 2,655 (421) 29,061 1,200 27,861 29,061

– 20 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Statement of Changes in Equity

For the year ended 31 December 2003

At 1 January 2002 Unrealised loss arising on revaluation of investments not recognised in the consolidated income statement Deficit released on disposal of other securities_(note 5) Shares issued at premium Share issue expenses Loss for the year At 31 December 2002 and 1 January 2003 Unrealised gain arising on revaluation of investments not recognised in the consolidated income statement Deficit released on disposal of other securities(note 5) Shares issued at premium (note 18)_ Share issue expenses Loss for the year At 31 December 2003	Share capital HK$’000 1,000 – – 200 – – 1,200 – – 240 – – 1,440	Investment Share revaluation Accumulated premium reserve losses HK$’000 HK$’000 HK$’000 94,117 (270) (51,245) – (426) – – 270 – 6,800 – – (392) – – – – (27,223) 100,525 (426) (78,468) – 53 – – 426 – 720 – – (118) – – – – (11,808) 101,127 53 (90,276)	Total HK$’000 43,602 (426) 270 7,000 (392) (27,223) 22,831 53 426 960 (118) (11,808) 12,344

– 21 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Cash Flow Statement

For the year ended 31 December 2003

Operating activities Loss before taxation Adjustments for: Depreciation Interest expense Loss on disposal of listed investments Loss on disposal of property, plant and equipment Impairment loss recognised in respect of other securities Property, plant and equipment written off Provision for amount due from a related company Operating loss before working capital changes Decrease/(Increase) in trade and other receivables Increase in amount due from a related company (Decrease)/Increase in other payables Increase/(Decrease) in amounts due to directors (Decrease)/Increase in amount due to a related company Net cash used in operating activities Investing activities Purchases of investments in securities Net proceeds from disposal of investments in securities Purchases of property, plant and equipment Proceeds from disposal of property, plant and equipment Net cash from/(used in) investing activities Financing activities Interest paid Net proceeds from placement of ordinary shares New loan raised Repayment of secured loan Net cash (used in)/from financing activities Net increase/(decrease) in cash at banks Cash at banks at 1 January Cash at banks at 31 December	2003 HK$’000 (11,860) – 61 1,014 – 8,800 69 178 (1,738) 1,772 – (1,219) 236 (114) (1,063) – 4,274 – – 4,274 (61) 842 – (1,000) (219) 2,992 114 3,106	2002 HK$’000 (27,223) 107 148 481 267 20,995 – – (5,225) (1,613) (178) 502 (6) 114 (6,406) (13,978) 8,560 (208) 8 (5,618) (108) 6,608 1,000 – 7,500 (4,524) 4,638 114

– 22 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Notes to the Financial Statements

For the year ended 31 December 2003

1. GENERAL INFORMATION

The Company was incorporated in the Cayman Islands as an exempted company with limited liability on 21 April 1998 under the Companies Law (Revised) of the Cayman Islands. Its shares were listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) with effect from 17 July 1998.

The principal activity of the Company is to act as an investment holding company. The principal activities of the Company’s subsidiaries are set out in note 12 to the financial statements. The Group principally invests in listed and unlisted companies in Hong Kong and in other parts of the People’s Republic of China (the “PRC”).

2. PRINCIPAL ACCOUNTING POLICIES

(a) Basis of preparation

The financial statements on pages 32 to 59 are prepared in accordance with all applicable Hong Kong Financial Reporting Standards, which include all applicable Statements of Standard Accounting Practice (“SSAPs”) and Interpretations, issued by the Hong Kong Society of Accountants and the disclosure requirements of the Hong Kong Companies Ordinance. The financial statements also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on the Stock Exchange (the “Listing Rules”). The financial statements are prepared under the historical cost convention as modified by the revaluation of certain investments in securities.

Adoption of a revised SSAP:

In the current year, the Group has adopted, for the first time, SSAP 12 (Revised) Income taxes. The principal effect of the implementation of SSAP 12 (Revised) is in relation to deferred tax. In prior years, partial provision was made for deferred tax using the income statement liability method, i.e. a liability was recognised in respect of timing differences arising, except where timing differences were not expected to reverse in the foreseeable future. Deferred tax assets were not recognised unless their realisation was assured beyond reasonable doubt. SSAP 12 (Revised) requires the adoption of a balance sheet liability method, whereby deferred tax is recognised in respect of all temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, with limited exceptions.

In the absence of any specific transitional requirements in SSAP 12 (Revised), the new accounting policy has been applied retrospectively. However, the adoption of SSAP 12 (Revised) has not resulted in any significant change to the current and prior years’ net assets and results and accordingly, no prior year adjustment is required.

(b) Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to 31 December each year. All material intercompany transactions and balances within the Group are eliminated on consolidation.

– 23 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(c) Subsidiaries

Subsidiaries are those enterprises controlled by the Company.

Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of enterprises so as to obtain benefits from their activities.

Subsidiaries are carried at cost less any impairment loss.

(d) Investments in securities

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

At subsequent reporting dates, debt securities that the Group has the expressed intention and ability to hold to maturity (held-to-maturity debt securities) are measured at amortised cost, less any impairment loss recognised to reflect irrecoverable amounts. The annual amortisation of any discount or premium on the acquisition of a held-to-maturity security is aggregated with other investment income receivable over the term of the instrument so that the revenue recognised in each period represents a constant yield on the investment.

All securities other than held-to-maturity debt securities are measured at subsequent reporting dates at fair value, as follows:

• (i) Securities quoted, listed, traded or dealt in on any market are stated at the last transacted price on that market as at the official close of such market at the balance sheet date or the trading date immediately prior to the balance sheet date if it is not a trading date on that market.

• (ii) Each unquoted security is stated at fair value as determined by the investment manager.

Where securities are held for trading purposes, unrealised gains and losses are included in net profit or loss for the year. For other securities, changes in fair value are recognised in the investment revaluation reserve until the security is sold, collected or otherwise disposed of, or until there is objective evidence that the security has been impaired, at which time the relevant cumulative gain or loss is transferred from the investment revaluation reserve to the income statement.

Transfers from the investment revaluation reserve to the income statement as a result of impairments are reversed when the circumstances and events that led to the impairment cease to exist and there is persuasive evidence that the new circumstances and events will persist for the foreseeable future.

(e) Impairment

The carrying amounts of the Group’s assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement unless the relevant asset is carried at a revalued amount under another SSAP, in which case the impairment loss is treated as a revaluation decrease under that SSAP.

– 24 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(i) Calculation of recoverable amount

The recoverable amount of an asset is the greater of its net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

(ii) Reversals of impairment

An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount.

An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

(f) Income tax

Income tax for the year comprises current and deferred tax.

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

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

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

Deferred tax assets and liabilities are not discounted. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

– 25 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(g) Recognition of Revenue

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

Dividend income is recognised when the Group’s right as a shareholder to receive payment is established.

Proceeds from the disposal of investments are recognised when a sale and purchase contract is entered into and title has been passed.

(h) Retirement benefits costs

The retirement benefits costs charged in the income statement represent the contributions payable to the Company’s defined contribution scheme for the year.

(i) Foreign currencies

Transactions in foreign currencies are translated into Hong Kong dollars at the rates of exchange ruling at the dates of transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into Hong Kong dollars at the rates of exchange ruling at that date. Gains and losses arising on exchange are dealt with in the income statement.

(j) Related parties

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

– 26 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

3. SEGMENT INFORMATION

All of the Group’s turnover and contribution to operating results are attributable to its investment activities.

The Group invests in listed and unlisted companies in Hong Kong and in other parts of the PRC. These geographical markets are the basis on which the Group reports its primary segment information.

Segment information about these geographical markets is presented below:

Turnover Results Segment results Unallocated corporate expenses Loss from operations Interest expense Loss before taxation Taxation Loss attributable to shareholders Assets Segment assets Unallocated corporate assets Total assets Liabilities Segment liabilities Unallocated corporate liabilities Total liabilities Other information Capital expenditure Depreciation Impairment loss recognised in income statement	Hong Kong 2003 2002 HK$’000 HK$’000 4 598 (3,271) (12,058) 3,190 8,473 (145) (1,776) – 208 – (107) (2,000) (10,495)	PRC 2003 2002 HK$’000 HK$’000 – 278 (6,800) (10,839) 9,661 17,005 – – – – – – (6,800) (10,500)	Total 2003 2002 HK$’000 HK$’000 4 876 (10,071) (22,897) (1,728) (4,178) (11,799) (27,075) (61) (148) (11,860) (27,223) 52 – (11,808) (27,223) 12,851 25,478 145 154 12,996 25,632 (145) (1,776) (507) (1,025) (652) (2,801) – 208 – (107) (8,800) (20,995)

– 27 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

4. TURNOVER

Interest income Dividend income from listed investments	2003 HK$’000 4 – 4	2002 HK$’000 698 178
		876

5. LOSS ON DISPOSAL OF LISTED INVESTMENTS

The loss on disposal of listed investments arose from the disposal of investments in equity securities listed in Hong Kong. For the year ended 31 December 2003, included in the loss on disposal is a deficit of HK$426,000 (2002: HK$270,000) in respect of amounts released from the investment revaluation reserve at the time of the disposal as set out in the consolidated statement of changes in equity.

6. LOSS FROM OPERATIONS

2003 HK$’000 Loss from operations is arrived at after charging/(crediting): Auditors’ remuneration: – current year 180 – overprovision in prior year (36) Bad debts written off 52 Depreciation – Investment management fee_(Note 21(a)) 335 Loss on disposal of property, plant and equipment – Property, plant and equipment written off 69 Provision for amount due from a related company(Note 21(c))_ 178 Provision for bad and doubtful debts – Rental expenses 106 Retirement benefits scheme contributions 14 Staff costs (including directors’ remuneration but excluding retirements benefits scheme contributions) 566

2002 HK$’000 217 – – 107 691 267 – – 420 360 33 1,308

– 28 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

7. DIRECTORS’ AND EMPLOYEES’ REMUNERATION

(a) Remuneration of the directors for the year is as follows:

Fees Executive directors Non-executive directors Other emoluments Salaries, allowances and benefits in kind Retirement benefits scheme contributions	2003 HK$’000 60 79 139 427 14 441 580	2002 HK$’000 965 147
		1,112 – 23
		23
		1,135

The aggregate emoluments of each of the directors during both years were within the band ranging from Nil to HK$1,000,000.

(b) Remuneration of the employees for the year is as follows:

During the year, all five highest paid individuals are the directors, details of whose emoluments are set out in note 7(a) to the financial statements. During the year ended 31 December 2002, the five highest paid individuals included four directors, details of whose emoluments are set out in note 7(a) to the financial statements. The emoluments of the remaining individual were as follows:

Salaries, allowances and benefits in kind Retirement benefits scheme contributions	2002 HK$’000 107 5
	112

The aggregate emoluments of this remaining individual in prior year were within the band ranging from Nil to HK$1,000,000.

– 29 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

8. TAXATION

The tax credit comprises: Hong Kong Profits Tax – overprovision in prior year	2003 HK$’000 52	2002 HK$’000 –

No Hong Kong Profits Tax has been provided in the financial statements as the Group incurred losses for both years.

Reconciliation between accounting loss and tax credit at applicable tax rates:

Loss before taxation Tax at applicable rate of 17.5% (2002: 16%) Tax effect of non-deductible expenses Tax losses not recognised as deferred tax asset Over provision in prior year Actual tax credit	2003 HK$’000 (11,860) (2,076) 1,316 760 52 52	2002 HK$’000 (27,223
		(4,356 2,492 1,864 –
		–

In March 2003, the Hong Kong government announced an increase in the profits tax rate from 16% to 17.5%. This increase has been taken into account in the preparation of the Group’s 2003 financial statements.

At 31 December 2003, a deferred tax asset of approximately HK$4,353,000 (2002: HK$3,593,000) in respect of tax losses available to offset future profits was not recognised in the financial statements as it is not certain that the Group will generate future taxable profits to enable it to utilise such tax losses.

9. LOSS ATTRIBUTABLE TO SHAREHOLDERS

Of the consolidated loss attributable to shareholders of HK$11,808,000 (2002: HK$27,223,000), HK$18,036,000 (2002: HK$20,848,000) has been dealt with in the financial statements of the Company.

10. LOSS PER SHARE

The calculation of the basic loss per share is based on the loss for the year of HK$11,808,000 (2002: HK$27,223,000) and on the weighted average number of 137,884,932 (2002: 115,342,466) shares in issue during the year.

– 30 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

11. PROPERTY, PLANT AND EQUIPMENT

Group and Company

Cost At 1 January 2003 Written off during the year At 31 December 2003 Accumulated depreciation At 1 January 2003 Written off during the year At 31 December 2003 Net book value At 31 December 2003 At 31 December 2002	Furniture, fixtures and equipment HK$’000 179 (179) – 110 (110) – – 69

12. INTERESTS IN SUBSIDIARIES

Unlisted shares, at cost Amounts due from subsidiaries Less: Impairment loss recognised	Company 2003 2002 HK$’000 HK$’000 – – 49,003 48,857 (39,345) (31,304) 9,658 17,553

The amounts due from subsidiaries are unsecured, interest free and have no fixed repayment terms. In the opinion of the directors, no part of the amount will be repayable within one year from the balance sheet date and the balances are therefore shown as non-current.

– 31 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Details of the Company’s subsidiaries at 31 December 2003 are as follows:

		Nominal	Proportion of nominal
		value of	value of issued
	Place of	issued and	capital held
	incorporation/	fully paid	by the Company
Name	operations	share capital	directly/indirectly*	Principal activity
			2003 2002
Double Dragon Profits Limited	Hong Kong	HK$2	100% 100%	Inactive
Gold Canal International Limited	British Virgin Islands	US$10	100% 100%	Investment holding
(“Gold Canal”)
Good Place Investments Limited	Hong Kong	HK$2	100% 100%	Inactive
New Portfolio Limited	British Virgin Islands/	US$1	100% 100%	Investment holding
	Hong Kong
Speedy Zone Limited	British Virgin Islands	US$1	100% 100%	Inactive

13. INVESTMENTS IN SECURITIES

Equity securities listed in Hong Kong, at cost Unrealised gain/(loss) Market value at 31 December (Note 13(a)) Unlisted equity security, at fair value_(Note 13(b)) Unlisted convertible loan notes, at fair value(Note 13(c))_	Group 2003 2002 HK$’000 HK$’000 – 5,288 53 (426) 53 4,862 9,661 11,461 – 7,000 9,714 23,323	Company 2003 2002 HK$’000 HK$’000 – 5,288 53 (428) 53 4,860 – – – 7,000 53 11,860

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Details of the Group’s investments at 31 December 2003 are as follows:

(a) Equity securities listed on the Stock Exchange in Hong Kong:

Number Proportion of shares/ of investee’s Place of warrants capital Name of investee company incorporation held owned Cost HK$’000 At 31 December 2003 Shares: DIGITALHONGKONG.COM Cayman Islands 648 0.0004% – Riche Multi-Media Holdings Bermuda 220,000 0.046% – Limited – At 31 December 2002 Shares: DIGITALHONGKONG.COM Cayman Islands 648 0.0004% – Kin Don Holdings Limited Cayman Islands 28,400,000 0.477% 1,151 Kowloon Development Hong Kong 241,000 0.05% 1,067 Company Limited Riche Multi-Media Holdings Bermuda 960,000 0.202% 2,982 Limited 5,200 Number Proportion of shares/ of investee’s Place of warrants capital Name of investee company incorporation held owned Warrants: Champion Technology Holdings 200,000 Limited renren Holdings Limited ** 44,000,000 Riche Multi-Media Holdings 220,000 Limited **	Unrealised Net assets (loss)/gain attributable Market arising on to the value revaluation Group HK$’000 HK$’000 HK$’000 – – – Note 53 53 156 Note 53 53 – – – Note 539 (612) 165 Note 850 (217) 1,624 Note 2,976 (6) 520 Note 4,365 (835) Unrealised (loss)/gain Market arising on Cost value revaluation HK$’000 HK$’000 HK$’000 – 2 2 88 440 352 – 55 55 88 497 409 5,288 4,862 (426)	Unrealised Net assets (loss)/gain attributable Market arising on to the value revaluation Group HK$’000 HK$’000 HK$’000 – – – Note 53 53 156 Note 53 53 – – – Note 539 (612) 165 Note 850 (217) 1,624 Note 2,976 (6) 520 Note 4,365 (835) Unrealised (loss)/gain Market arising on Cost value revaluation HK$’000 HK$’000 HK$’000 – 2 2 88 440 352 – 55 55 88 497 409 5,288 4,862 (426)	Unrealised Net assets (loss)/gain attributable Market arising on to the value revaluation Group HK$’000 HK$’000 HK$’000 – – – Note 53 53 156 Note 53 53 – – – Note 539 (612) 165 Note 850 (217) 1,624 Note 2,976 (6) 520 Note 4,365 (835) Unrealised (loss)/gain Market arising on Cost value revaluation HK$’000 HK$’000 HK$’000 – 2 2 88 440 352 – 55 55 88 497 409 5,288 4,862 (426)
		88
		5,288

• ** Equity securities directly held by the Company.

• Note: The calculation of net assets attributable to the Group is based on the latest published interim reports or annual reports of the respective investee companies as available at the reporting date.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(b) Unlisted equity security:

Place of Name of investee company incorporation 2003 HK$’000 天津標準國際建材工業有限公司 Tianjin Standard International Building Materials Industry Co., Ltd. (“Tianjin Standard”)(Note 13(d)(i)) The PRC 9,661	2002 HK$’000 11,461

(c) Unlisted convertible loan notes:

Issuer (a) Assets Planning Limited (“Assets Planning”) Unsecured (Note 13(d)(ii)) (b) Dynamic Venture Enterprises Limited (“Dynamic Venture”) Secured (Note 13(d)(iii)) (c) Kellerton Industries Limited (“Kellerton”) Unsecured (Note 13(d)(iv)) (d) JRB Limited (“JRB”) Unsecured (Note 13(d)(v)) (e) IPO43.com Limited (“IPO43.com”) Unsecured (Note 13(d)(vi))	Principal amount 2003 2002 HK$’000 HK$’000 9,500 9,500 13,500 13,500 9,500 9,500 – 9,000 2,995 2,995 35,495 44,495	Impairment loss recognised 2003 2002 HK$’000 HK$’000 (9,500) (7,500) (13,500) (13,500) (9,500) (4,500) – (9,000) (2,995) (2,995) (35,495) (37,495)	Fair value Interest rate Maturity date 2003 2002 HK$’000 HK$’000 – 2,000 5% On default per annum – – 8% On default per annum – 5,000 2.5%–5% On default per annum – – 16% – per annum – – 5% On default per annum – 7,000

• Unlisted convertible loan notes directly held by the Company.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(d) Notes:

• (i) Pursuant to various agreements entered into in December 2000, the Group acquired all the issued share capital of Gold Canal for a nominal value, changed the terms of the convertible loan note such that it has become interest-free and has neither fixed repayment terms nor the right to conversion. Gold Canal’s sole asset is a 21% equity interest in Tianjin Standard, which is principally engaged in the manufacture and trading of building materials and the provision of related consultancy services. In the opinion of the directors, since the acquisition of Gold Canal by the Group, the Group has not been in a position to exercise any significant influence over the financial and operating policies of Tianjin Standard. Accordingly, Tianjin Standard is accounted for as an unlisted equity security. The Group has made a further provision of HK$1,800,000 during the year to reduce the carrying value of its investment in Tianjin Standard to the Group’s attributable share of the investee’s net assets as at the balance sheet date, based on the audited financial statements of Tianjin Standard for the year ended 31 December 2003.

• (ii) Pursuant to the subscription agreement entered into on 13 December 2001, the Group acquired a convertible loan note in the principal amount of HK$9,500,000 carrying the right to convert the loan note into shares in Assets Planning. The loan note was unsecured, bore interest at 5% per annum and had a maturity date on 31 December 2003. The Group had the right on any business day before the maturity date to convert the whole or part of the outstanding principal amount of the loan note into shares in Assets Planning using a predetermined formulae. On the maturity date, all outstanding principal amount together with any unpaid interest should be automatically converted into shares. In the event that upon full conversion of the loan note, the aggregate interest of the Group in the issued share capital of Assets Planning should be less than 2%, Assets Planning should issue and allot additional shares to the Group to make up for any shortfall. Assets Planning had defaulted on the payment of interest since 31 December 2002 and had not made any repayment of the outstanding principal as at 31 December 2003. No conversion of loan note into shares was made at the maturity date. The directors were unable to obtain the latest financial statements or any other pertinent financial information relating to Assets Planning from the investee’s management. In light of the above, the directors have accordingly made a further impairment write down of HK$2,000,000 during the year to reduce the carrying value of this investment to Nil as at 31 December 2003. Subsequent to the year end on 16 April 2004, the Group disposed of this investment to a third party for a nominal sum of HK$1.

• (iii) Pursuant to the subscription agreement entered into on 14 January 1999 (the “Subscription Agreement”), the Group acquired a convertible loan note in the principal amount of HK$13,500,000 carrying the right to subscribe for the conversion shares in Dynamic Venture. The convertible loan note was secured on the entire share capital of Dynamic Venture, bore interest at 15% per annum and had a maturity date on 31 December 2000. The Group had the right on 31 March, 30 September and 31 December of each year, after the fulfillment of the conditions set out in the Subscription Agreement but before the maturity date to convert the whole or part of the outstanding principal amount of the loan note into shares in Dynamic Venture using a predetermined formulae. On the maturity date, all outstanding principal amount together with any unpaid interest should be

– 35 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

repaid. On 21 March 2001, the Group entered into a deed of variation to change the interest rate from 15% per annum to 8% per annum. The maturity date was extended from 31 December 2000 to 31 December 2001, but from which date onwards, Dynamic Venture defaulted on the repayment of the convertible loan note. The Group had made a full impairment provision against this investment in the previous year. Subsequent to the year end on 16 April 2004, the Group disposed of its interest in this investment to a third party for a nominal sum of HK$1.

• (iv) Pursuant to the subscription agreement entered into on 13 December 2001, the Group acquired a convertible loan note in the principal amount of HK$9,500,000 carrying the right to convert the loan note into shares in Kellerton. On 15 April 2003, the Group entered into an agreement with Kellerton to change the interest rate from 5% per annum to 2.5% per annum. The loan note was unsecured, bore interest at 2.5% per annum and had a maturity date on 31 December 2003. The Group had the right on any business day before the maturity date to convert the whole or part of the outstanding principal amount of the loan note into shares in Kellerton using a predetermined formulae and with reference to the valuation of Kellerton’s investments. On the maturity date, all outstanding principal amount together with any unpaid interest should automatically be converted. Kellerton defaulted on the payment of interest for the year ended 31 December 2003 and had not made any repayment of the outstanding principal as at 31 December 2003. No conversion of loan note into shares was made at the maturity date. The directors were unable to obtain the latest financial statement or any other pertinent financial information relating to Kellerton from the investee’s management. In light of the above, the directors have accordingly made a further impairment write down of HK$5,000,000 during the year to reduce the carrying value of this investment to Nil as at 31 December 2003. Subsequent to the year end on 16 April 2004, the Group disposed of this investment to a third party for a nominal sum of HK$1.

• (v) Pursuant to the subscription agreement entered into on 30 November 1998, the Group acquired a convertible loan note in the principal amount of HK$9,000,000 carrying the right to convert the loan note into shares in JRB. The convertible loan note was secured, bore interest at 16% per annum and had a maturity date on 31 May 1999. On the maturity date, all outstanding principal amount together with any unpaid interest should be repaid. However JRB defaulted on the repayment of its convertible loan note in the sum of approximately HK$9,363,000 including accrued interest to the scheduled date of repayment. The Company had filed a legal action against JRB for the recovery of the debt. A full impairment provision was made against the carrying value of this investment in the previous year. On 29 December 2003, the Group assigned all the rights and title to claim against JRB Limited of the sum of HK$19,657,000 (which comprises the above sum of HK$9,363,000 and the overdue interest of HK$10,294,000) to a third party at a consideration of HK$30,000. On 22 March 2004, a consent order was signed and all legal claims were dismissed.

• (vi) Pursuant to the subscription agreement entered into 13 December 2001, the Group acquired a convertible loan note in the principal amount of HK$2,995,000 carrying the right to convert the loan note into shares in IPO43.com. The loan note was unsecured, bore interest at 5% per annum and had a maturity date on 31 December 2003. The Group had the right on any business day before the maturity date to convert the whole or part of the outstanding principal amount of the loan note into shares in IPO43.com using a predetermined formulae. On the maturity

– 36 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

date, all outstanding principal amount together with any unpaid interest should automatically be converted. In the event that upon full conversion of the loan note, the aggregate interest of the Group in the issued share capital of IPO43.com was less than 3%, IPO43.com should issue and allot additional shares to the Group to make up for any shortfall. IPO43.com had defaulted on the payment of interest since 31 December 2002 and had not made any repayment of the outstanding principal as at 31 December 2003. No conversion of loan note was made into shares at the maturity date. The Group had made a full impairment provision against this investment in the previous year. Subsequent to the year end on 16 April 2004, the Group disposed of this investment to a third party for a nominal sum of HK$1.

14. TRADE AND OTHER RECEIVABLES

Included in trade and other receivables of the Group and the Company at 31 December 2003 are trade receivables of Nil (2002: HK$25,000) which was aged within 0 – 60 days. The Group has no credit policy on trade receivables which represent interest income and dividend income receivable from investments.

15. AMOUNT DUE FROM A RELATED COMPANY

At 31 December 2003 HK$’000 SAR Capital Limited –	At 1 January 2003 HK$’000 178	Maximum balance outstanding during the year HK$’000 178

Mr. Tai Ah Lam, Michael, a director of the Company, is a director of and has beneficial interests in the above company.

16. SECURED LOAN – DUE WITHIN ONE YEAR

The loan was secured by certain of the Group’s equity securities listed in Hong Kong with market value of approximately HK$1,389,000 as at 31 December 2002 and was interest bearing at 24% per annum. The loan was fully repaid during the year.

17. AMOUNTS DUE TO DIRECTORS

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

– 37 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

18. SHARE CAPITAL

Authorised: Ordinary shares of HK$0.01 each Issued and fully paid: At 1 January Shares issued on 15 March 2002 Shares issued on 3 April 2003 At 31 December	Number of ordinary shares 2003 2002 200,000,000 200,000,000 120,000,000 100,000,000 – 20,000,000 24,000,000 – 144,000,000 120,000,000	Amount 2003 2002 HK$’000 HK$’000 2,000 2,000 1,200 1,000 – 200 240 – 1,440 1,200	Amount 2003 2002 HK$’000 HK$’000 2,000 2,000 1,200 1,000 – 200 240 – 1,440 1,200
			1,000 200 –
			1,200

On 27 February 2003, the Company entered into a placing agreement for the placing of 24,000,000 new shares (“Placing Shares”) at a price of HK$0.04 per Placing Share (the “Placement”). The Placing Shares represented 20% of the then existing issued share capital of the Company. Upon completion of the Placement on 3 April 2003, the Placing shares represented approximately 16.67% of the issued share capital of the Company as enlarged by the issue of the Placing Shares. The net proceeds of the Placement of approximately HK$842,000 have been used as additional working capital of the Company and have not been utilised for investment. The Placing Shares ranked pari passu with the existing shares in all respects.

19. RESERVES

Share premium Investment revaluation reserve Accumulated losses	Group 2003 2002 HK$’000 HK$’000 101,127 100,525 53 (426) (90,276) (78,468) 10,904 21,631	Group 2003 2002 HK$’000 HK$’000 101,127 100,525 53 (426) (90,276) (78,468) 10,904 21,631
		21,631

– 38 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Movements in the Group’s reserves during the year are set out in the consolidated statement of changes in equity on page 35 to the financial statements.

Company

At 1 January 2002 Unrealised loss arising on revaluation of investments Shares issued at premium Share issue expenses Loss for the year At 31 December 2002 and 1 January 2003 Unrealised gain arising on revaluation of investments Deficit released on disposal of other securities_(note 5)_ Shares issued at premium Share issue expenses Loss for the year At 31 December 2003	Share premium HK$’000 94,117 – 6,800 (392) – 100,525 – – 720 (118) – 101,127	Investment revaluation reserve HK$’000 – (428) – – – (428) 53 428 – – – 53	Accumulated losses HK$’000 (51,388) – – – (20,848) (72,236) – – – – (18,036) (90,272)	Total HK$’000 42,729 (428) 6,800 (392) (20,848) 27,861 53 428 720 (118) (18,036) 10,908

The investment revaluation reserve represents the net unrealised gain on revaluation of nontrading investments at the balance sheet date.

In accordance with the Company’s Articles of Association, as at the balance sheet date, the Company’s reserves available for distribution to shareholders is its share premium less accumulated losses.

Under the Companies Law (Revised) of the Cayman Islands, the share premium of the Company is available for paying distributions or dividends to shareholders subject to the provisions of its Memorandum or Articles of Association and provided that immediately following the distribution or dividend the Company is able to pay its debts as they fall due in the ordinary course of business.

20. NET ASSET VALUE PER SHARE

The calculation of the net asset value per share is based on the net assets of the Group as at 31 December 2003 of HK$12,344,000 (2002: HK$22,831,000) and 144,000,000 (2002: 120,000,000) ordinary shares in issue as at that date.

– 39 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

21. RELATED PARTY TRANSACTIONS

During the year, the Company had the following related party transactions:

Haywood Investment Management Limited: Management fee expenses_(Note a) SAR Capital Limited: Rental income(Note b) Provision against amount due from related company (Note c)_	2003 HK$’000 335 – 178	2002 HK$’000 691 81 –

Notes:

• (a) The management fee was charged in accordance with the management agreement dated 6 July 1988 (the “Agreement”). Management fees and incentive fees are calculated at 1.5% per annum of the net asset value of the Company at each preceding month end as defined in the Agreement and 10% of the surplus in the net asset value (with appropriate adjustment) over the preceding financial year, respectively, in accordance with the Agreement.

No incentive fee was paid in the current or previous year as the Group’s net asset value decreased in both years.

Haywood Investment Management Limited is a company in which Mr. Wong Fong Kim, a director of the Company had a 9% beneficial interests as at 31 December 2003.

• (b) The rental income was earned on the lease of furniture, fixtures and equipment to SAR Capital Limited. Mr. Tai Ah Lam, Michael, a director of the Company, is also a director of and has beneficial interests in this company.

• (c) During the year, the Company made full provision of HK$178,000 due from SAR Capital Limited, a related company in which a director of the Company, Mr. Tai Ah Lam, Michael has a beneficial interest.

22. OPERATING LEASE COMMITMENTS

At 31 December 2003, the total future minimum lease payments under a non-cancellable operating lease in respect of rented premises are payable as follows:

Within one year	2003 HK$’000 –	2002 HK$’000 339

23. COMPARATIVE FIGURES

Certain comparative figures have been reclassified to conform with the current year’s presentation.

– 40 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

24. POST BALANCE SHEET EVENT

On 10 March 2004, the Company entered into a placing agreement for the placing of 28,800,000 new shares (“Placing Shares”) through a placing agent, Koffman Securities Limited, to more than six independent investors who were not connected persons of the Company (as defined under the Listing Rules), at a price of HK$0.124 per Placing Share (the “Placement”). The Placing Shares represented 20% of the then existing issued share capital of the Company and approximately 16.67% of the issued share capital of the Company as enlarged by the issue of 28,800,000 placing shares. The Placing Shares, when fully paid, ranked pari passu in all respects with the existing issued share capital of the Company. The Placement was completed on 29 March 2004. The net proceeds from the Placement of approximately HK$3,370,000 will be used as additional working capital of the Company.

25. APPROVAL OF THE FINANCIAL STATEMENTS

The financial statements on pages 32 to 59 were approved by the board of directors on 28 April 2004.

– 41 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

C. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF THE GROUP

Set out below is the unaudited condensed consolidated financial statements of the Group for the six months ended 30 June 2004 extracted from pages 1 to 9 of 2004 interim report of the Company.

Condensed Consolidated Income Statement

For the six months ended 30th June,

Notes Turnover 3 Other revenue Loss on disposal of listed investments Administrative expenses Loss from operations 5 Interest on secured loan wholly repayable within five years Interest on unsecured loan Loss before taxation Taxation 6 Loss for the period Loss per share – Basic 7	Six months ended 30th June, 2004 2003 (unaudited) (unaudited) HK$’000 HK$’000 14 119 42 – – (909) (1,477) (972) (1,421) (1,762) – (56) (2) – (1,423) (1,818) – – (1,423) (1,818) HK$(0.90)cents HK$(1.38)cents

– 42 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Condensed Consolidated Balance Sheet

At 30th June, 2004

Notes ASSETS AND LIABILITIES Non-current assets Property, plant and equipment 8 Investments in securities 9 Current assets Other receivables and prepayments Bank and cash balances Current liabilities Other payables and accrued expenses Unsecured loan 10 Amounts due to directors 11 Net current assets Net assets CAPITAL AND RESERVES Share capital 12 Reserves Shareholders’ funds NET ASSET VALUE PER SHARE 13	30th June, 2004 (unaudited) HK$’000 209 12,767 12,976 267 2,633 2,900 1,198 360 – 1,558 1,342 14,318 1,728 12,590 14,318 HK$0.08	31st December, 2003 (audited) HK$’000 – 9,714
		9,714
		176 3,106
		3,282
		322 – 330
		652
		2,630
		12,344
		1,440 10,904
		12,344
		HK$0.09

– 43 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Condensed Consolidated Statement of Changes in Equity

For the six months ended 30th June,

THE GROUP At 1st January, 2003 Unrealised loss arising on revaluation of investments not recognised in the income statement Loss released on disposal of non-trading investments Shares issued at premium Share issue expenses Loss for the period At 30th June, 2003 At 1st January, 2004 Shares issued at premium (note 12) Share issued expenses_(note 12)_ Unrealised loss arising on revaluation of investments not recognised in the income statement Loss for the period At 30th June, 2004	Share capital HK$’000 1,200 – – 240 – – 1,440 1,440 288 – – – 1,728	Investment Share revaluation Accumulated premium reserve losses HK$’000 HK$’000 HK$’000 100,525 (426) (78,468) – (97) – – 466 – 720 – – (118) – – – – (1,818) 101,127 (57) (80,286) 101,127 53 (90,276) 3,283 – – (163) – – – (11) – – – (1,423) 104,247 42 (91,699)	Total HK$’000 22,831 (97) 466 960 (118) (1,818) 22,224 12,344 3,571 (163) (11) (1,423) 14,318

– 44 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Condensed Consolidated Cash Flow Statement

For the six months ended 30th June,

	Six months ended	30th June,
	2004	2003
	(unaudited)	(unaudited)
	HK$’000	HK$’000
Net cash (used in) from operating activities	(1,158)	291
Net cash from (used in) financing activities	3,749	(254)
Net cash (used in) from investing activities	(3,064)	1,738
Net increase/(decrease) in bank and cash balances	(473)	1,775
Bank and cash balances at beginning of the period	3,106	114
Bank and cash balances at end of the period	2,633	1,889

– 45 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Notes to the Condensed Consolidated Financial Statements

For the six months ended 30th June, 2004

1. BASIS OF PREPARATION

The unaudited condensed consolidated financial statements of the Group have been prepared in accordance with the applicable disclosure requirements of Appendix 16 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with Hong Kong Statement of Standard Accounting Practice 25 “Interim Financial Reporting” issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”). The condensed consolidated financial statements are unaudited but have been reviewed by the Audit Committee of the Company.

2. PRINCIPAL ACCOUNTING POLICIES

The condensed consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of certain investments in securities. The accounting policies and methods of computation used in the preparation of the condensed consolidated financial statements as at and for the six months ended 30th June, 2004 are consistent with those applied in the preparation of the Group’s annual report as at and for the year ended 31st December, 2003. The unaudited condensed consolidated financial statement should be read in conjunction with the Group’s annual report as at and for the year ended 31st December, 2003.

3. TURNOVER

	Six months ended	30th June,
	2004	2003
	HK$’000	HK$’000
An analysis of the Group’s turnover is as follows:
Interest income	14	119

– 46 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

4. SEGMENTS INFORMATION

All of the Group’s turnover and contribution to operating results are attributable to its investment activities.

The Group invests in listed and unlisted companies in Hong Kong and in other parts of the People’s Republic of China (the “PRC”). These geographical markets are the basis on which the Group reports its primary segment information.

Segment information about these geographical markets is presented below:

TURNOVER Segment results Unallocated revenue Unallocated corporate expenses Loss for the period	Hong Kong Six months ended 30th June, 2004 2003 HK$’000 HK$’000 14 2 (1,454) (991)	PRC Six months ended 30th June, 2004 2003 HK$’000 HK$’000 – 117 (3) 93	Total Six months ended 30th June, 2004 2003 HK$’000 HK$’000 14 119 (1,457) (898 42 – (8) (920 (1,423) (1,818	Total Six months ended 30th June, 2004 2003 HK$’000 HK$’000 14 119 (1,457) (898 42 – (8) (920 (1,423) (1,818
				(898 – (920
				(1,818

5. LOSS FROM OPERATIONS

Loss from operations has been arrived at after charging: Depreciation Investment management fees_(note 14)_ Retirement benefits scheme contributions Staff costs (including directors’ remuneration)	Six months ended 30th June, 2004 2003 HK$’000 HK$’000 7 21 146 169 – 1 447 152

6. TAXATION

No provision for Hong Kong Profits Tax has been made in the financial statements as the Group incurred losses for both periods.

7. LOSS PER SHARE

The calculation of the loss per share is based on the loss for the period of HK$1,423,000 (six months ended 30th June, 2003: loss of HK$1,818,000) and on the weighted average number of 158,874,725 (six months ended 30th June, 2003: 131,668,508) shares in issue during the period.

– 47 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

8. PROPERTY, PLANT AND EQUIPMENT

Cost At 1st January 2004 Addition during the period At 30th June 2004 Accumulated depreciation At 1st January 2004 Depreciation for the period At 30th June 2004 Net book value At 30th June 2004 At 31st December 2003 INVESTMENTS IN SECURITIES Equity securities listed in Hong Kong, at cost Unrealised loss Market value Unlisted equity security, at fair value	Equipment and fixtures HK$’000 – 216 216 – 7 7 209 – 30th June, 31st December, 2004 2003 HK$’000 HK$’000 – – 42 53 42 53 12,725 9,661 12,767 9,714	Equipment and fixtures HK$’000 – 216
		216
		– 7
		7
		209
		–
		53 9,661
		9,714

9. INVESTMENTS IN SECURITIES

10. UNSECURED LOAN

The unsecured loan with no fixed term of repayment was interest bearing at 5% per annum.

11. AMOUNTS DUE TO DIRECTORS

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

– 48 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

12. SHARE CAPITAL

Number of ordinary shares Authorised Ordinary shares of HK$0.01 each 200,000,000 Issued and fully paid Balance at 1st January, 2004 144,000,000 New shares issued on 29th March, 2004 28,800,000 Balance at 30th June, 2004 172,800,000	Share capital HK$’000 2,000
	1,440 288
	1,728

On 10th March, 2004, the Company entered into a placing agreement for the placing of 28,800,000 new shares (“Placing Shares”) through a placing agent, to more than six independent investors at a price of HK$0.124 per Placing Share (the “Placement”). The Placing Shares represented 20% of the then existing issued share capital of the Company and approximately 16.67% of the issued share capital of the Company as enlarged by the issue of the Placing Shares. The Placement was completed on 29th March, 2004. The net proceeds of the Placement of approximately HK$3,408,000 have been used as additional working capital of the Company. The Placing Shares ranked pari passu in all respect with the existing issued share capital of the Company.

13. NET ASSET VALUE PER SHARE

The calculation of the net asset value per share is based on the net assets of the Group as at 30th June, 2004 of HK$14,318,000 (31st December, 2003: HK$12,344,000) and 172,800,000 (31st December, 2003: 144,000,000) shares in issue as at that date.

14. RELATED PARTY TRANSACTION

For the six months ended 30th June, 2004, the Group paid investment management fees of approximately HK$169,000 (six months ended 30th June, 2003: approximately HK$342,000) to the former investment manager, Haywood Investment Management Limited (“HIML”), a company in which a director of the Company, Mr. Wong Fong Kim, had an approximately nil% of beneficial interest as at 30th June, 2004 (31st December, 2003: 9%).

Investment management fees are calculated at 1.5% per annum of the net asset value of the Company at each preceding month end in accordance with an investment management agreement.

15. CHANGE OF INVESTMENT MANAGER

In March 2004, the Company entered into agreements to terminate HIML and appoint Altus Capital Limited (“ACL”) as the investment manager to provide the investment management services to the Company. The agreements were conditional upon the Stock Exchange approving an announcement relating thereto being made in accordance with the Listing Rules, which approval had been obtained on 13th July, 2004. ACL should be deemed as a connected person of the Company pursuant to the Listing Rules upon the agreement became effective on 13th July, 2004.

Investment management fees to ACL are charged on a similar basis as the previous investment management agreement with HIML and are calculated at 1.5% per annum of the net asset value of the Company at each preceding month end.

– 49 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

16. CONTINGENCIES

The Group had no material contingent liabilities at the balance sheet date.

17. POST BALANCE SHEET EVENT

On 10th June, 2004, the Company entered into a subscription agreement to allot and issue 27,200,000 new shares (“Subscription Shares”) under the General Mandate to a subscriber in cash at a subscription price of HK$0.10 per Subscription Share. The Subscription Shares represented approximately 15.7% of the then existing issued share capital of the Company and approximately 13.6% of the issued share capital of the Company as enlarged by the issue of 27,200,000 Subscription Shares. The Subscription Shares, when fully paid, ranked pari passu in all respects with the existing issued share capital of the Company. The subscription was completed on 4th August, 2004. The net proceeds from the subscription of approximately HK$2,500,000 will be applied for future investment purposes.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

D. MATERIAL ADVERSE CHANGE

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

E. STATEMENT OF INDEBTEDNESS

Borrowings

At the close of business on 31 January 2005, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this prospectus, the Group had obligations under hire purchase contracts amounting to HK$290,000.

Contingent liabilities

As at 31 January 2005, the Group did not have any material contingent liabilities.

Disclaimer

Save as aforesaid or as otherwise stated in this prospectus and apart from intragroup liabilities, no companies within the Group had outstanding as at 31 January 2005 in respect of any loan capital issued and outstanding or agreed to be issued, bank overdrafts, loans or other similar indebtedness, obligation under finance lease contracts, liabilities under acceptance (other than normal trade bills), acceptance credits, mortgages, charges, finance leases or hire purchase commitments guarantees or other material contingent liabilities.

F. WORKING CAPITAL

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

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

G. UNAUDITED PRO FORMA NET TANGIBLE ASSETS

The following is a statement of the unaudited pro forma net tangible assets of the Group which has been prepared in accordance with Rule 4.29 of the Listing Rules to illustrate the effect of the Open Offer as if it had taken place on 30 June 2004. The unaudited pro forma financial information has been prepared for illustrative purpose only, and because of its nature, it may not give a true picture of the Company’s financial position following the Open Offer. This statement is based on the unaudited consolidated net tangible assets of the Group as at 30 June 2004 as shown in the interim financial statements of the Group for the six-months ended 30 June 2004, and adjusted to reflect the effect of the Open Offer as follows:

	Unaudited net	Estimated		Unaudited
	tangible assets	net proceeds	Unaudited	pro forma net
	of the Group	from the	pro forma net	tangible assets
	as at 30 June 2004	Open Offer	tangible assets	per New Share
	HK$’000	HK$’000	HK$’000	HK cents
		(note 1)		(note 2)
Based on 80,000,000
Offer Shares at the
Subscription Price
of HK$0.065 each	14,318	4,500	18,818	11.76

Notes:

1. The estimated net proceeds from the Open Offer are based on the Subscription Price of HK$0.065 each for 80,000,000 Offer Shares after deduction of the estimated related expenses of approximately HK$0.7 million in connection with the Open Offer.

2. The calculation of the unaudited pro forma adjusted net tangible assets of the Group per New Share is based on 160,000,000 New Shares in issue as at the Latest Practicable Date and after the completion of the Share Consolidation.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

H. REPORT FROM GRANT THORNTON

Certified Public Accountants Member of Grant Thornton International

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21 March 2005

The Directors Haywood Investments Limited 17/F, Shiu Fung Commercial Building 51-53 Johnston Road Wanchai Hong Kong

Dear Sirs,

We report on the unaudited pro forma financial information of Haywood Investments Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”), set out under the heading of “Unaudited pro forma net tangible assets” in Appendix I of the Company’s prospectus dated 21 March 2005 (the “Prospectus”) in connection with the proposed open offer of new shares of the Company on the Main Board of the Stock Exchange of Hong Kong Limited (“Open Offer”). The Pro Forma Financial Information has been prepared by the Directors of the Company, solely for illustrative purposes only, to provide information about how the Open Offer might have affected the net tangible assets of the Group as at 30 June 2004. The basis of preparation of the Pro Forma Financial Information is set out in the section headed “Unaudited pro form net tangible assets” in Appendix I to the Prospectus.

Responsibilities

It is the responsibility solely of the Directors of the Company to prepare the Pro Forma Financial Information in accordance with paragraph 4.29 and paragraph 13 of Appendix 1B of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”).

It is our responsibility to form an opinion, as required by the paragraph 4.29 of the Listing Rules, on the Pro Forma Financial Information and to report our opinion to you.

Basis of opinion

We conducted our work with reference to the Statements of Investment Circular Reporting Standards and Bulletin 1998/8 “Reporting on pro forma financial information pursuant to the Listing Rules” issued by the Auditing Practices Board in the United Kingdom, where applicable. Our work, which involved no independent examination of any of the underlying financial information, consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments and discussing the Pro Forma Financial Information with the Directors of the Company.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Our work does not constitute an audit or a review in accordance with Statements of Auditing Standards issued by the Hong Kong Institute of Certified Public Accountants and, accordingly, we do not express any such audit or review on the Pro Forma Financial Information.

The Pro Forma Financial Information is for illustrative purposes only, based on the directors’ judgements and assumptions, and because of its nature, it may not give any assurance or indication that any event will take place in the future and may not be indicative of the financial position of the Group at any future date, had the Open Offer actually occurred on 30 June 2004.

Opinion

In our opinion:

• (i) the Pro Forma Financial Information has been properly compiled by the Directors of the Company on the basis stated;

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

• (iii) the adjustments are appropriate for the purposes of the Pro Forma Financial Information as disclosed pursuant to paragraph 4.29 of the Listing Rules.

Yours faithfully,

Grant Thornton

Certified Public Accountants Hong Kong

– 54 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

I. BUSINESS REVIEW AND PROSPECTS

The Group is an investment company listed under Chapter 21 of the Listing Rules and is principally engaged in investment in listed and unlisted companies in Hong Kong and in the PRC.

For the period ended 30 June 2004, the Group recorded a loss of HK$1,423,000 which was mainly attributable to the administrative expenses incurred during the period. The improved results which represented a reduction of approximately 22% as compared to the loss of HK1,818,000 for the corresponding period last year. The Group’s turnover for the six months ended 30 June 2004 represented interest income generated from its financing activities.

The Group’s investment portfolio as at 30 June 2004 remained largely unchanged from that disclosed in the Group 2003 Annual Report, except that the Company subscribed for approximately 9.09% equity interest of a company principally involved in the insurance brokerage business operated in Hong Kong for a consideration of about HK$3 million in May 2004. The Group disposed all of its investments in convertible loan notes which was fully provided for in the 2002 and 2003 annual reports to third parties for a nominal sum of HK$1 each.

As at 30 June 2004, about 0.3% in value of the Group’s investment portfolio was constituted by investments in Hong Kong listed securities, about 23.7% was represented by an equity interest in a company principally involved in the insurance brokerage business operated in Hong Kong and the remaining 76% was represented by an equity interest in a building materials manufacturing company in the PRC. The Group’s investment portfolio was mainly financed by Shareholders’ funds of HK$14,318,000. As at 30 June 2004, the Group’s cash and bank balances were HK$2,633,000 and the net asset value per Share was approximately HK$0.08.

On 29 March 2004, the Company raised net proceeds of approximately HK$3,408,000 following the placement of 28,800,000 new Shares (“Placing Shares”) through a placing agent, to more than six independent investors. The net proceeds from the placement have been used as additional working capital of the Company.

As a complement to the Group’s management team, the newly appointed investment manager Altus Capital Limited (“ACL”) with its diversified track records in Hong Kong and the PRC would certainly enrich the Group’s portfolio. The appointment of ACL was approved by the Stock Exchange and the relevant announcement of its appointment was duly published on 13 July 2004.

Subsequent to the period ended 30 June 2004, the Company raised further net proceeds of approximately of HK$2,500,000 from a new allotment and issuance of 27,200,000 new Shares under the general mandate granted by Shareholders on 1 June 2004 to an independent subscriber. The allotment and issuance was completed on 4 August 2004. In October 2004, the Company subscribed for approximately 25% equity interest of a company based in Hong Kong principally involved in the trading of flooring materials for a consideration of about HK$0.5 million. Given the remaining unutilized net proceeds raised and other liquid assets on hand, the Directors are satisfied that the Group has sufficient financial resources to meet its ongoing operational requirements.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The directors of the Company consider that with the introduction of the significant policies such as CEPA, Individual Travel Scheme can be integrated with the economic dynamics of southern China and accordingly it is expected that these favourable developments will benefit the Group’s investment portfolio and enhance its return to the Shareholders.

Looking ahead, the Group’s prospects are to revive and thrive in this encouraging market sentiment, on the strength of revised investment policies, fresh funding sources, and competent human resources.

– 56 –

GENERAL INFORMATION

APPENDIX II

1. RESPONSIBILITY STATEMENT

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

2. SHARE CAPITAL OF THE COMPANY

(1) Authorised and issued share capital

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

HK$

Authorised:

400,000,000 New Shares (after (i) increase in authorized Share Capital; and (ii) Share Consolidation have becoming effective on 18 March 2005) Issued and fully paid up or credited as fully paid up: 80,000,000 New Shares	10,000,000
	2,000,000

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

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

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

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

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GENERAL INFORMATION

APPENDIX II

(2) Share options

As at the Latest Practicable Date, there were no outstanding options under the share option scheme of the Company adopted on 23 May 2002.

(3) Convertible securities

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

3. DISCLOSURE OF INTERESTS

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

Interests and short positions in shares, underlying shares and debentures of the Company

		Number of Shares held,	Number of Shares held,
	capacity and nature of interest
			Approximate
			percentage of
	Directly		the Company’s
	beneficially	Long Position/	issued shares
Name of director	owned	Short Position	capital
Cui Zanming	12,000,000	Long position	6.00%

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

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

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GENERAL INFORMATION

APPENDIX II

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

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

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

4. SUBSTANTIAL SHAREHOLDERS

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

Long positions in the Shares

		Number of
Name of Shareholder	Nature of interest	Shares held	%
Lee Wing On, Samuel_(note 1)_	Beneficial	32,790,400	20.49
Hung Fung Man_(note 1)_	Beneficial	32,790,400	20.49
Kingston Securities Limited_(note 2)_	Beneficial	31,802,400	19.88
Chu Yuet Wah_(note 2)_	Interests of controlled	31,802,400	19.88
	corporation
Ma Siu Fong_(note 2)_	Interests of controlled	31,802,400	19.88
	corporation
Cui Zanming	Beneficial	12,000,000	6.00

Notes:

1. Ms. Hung Fung Man is the wife of Mr. Lee Wing On, Samuel. Ms. Hung is deemed to be interested in the Shares which Mr. Lee Wing On, Samuel is interested under the provisions of Divisions 2 and 3 of Part XV of the SFO.

2. Kingston Securities Limited is deemed to be interested in these Shares by virtue of the Underwriting Agreement. The entire issued share capital of the Underwriter is beneficially owned as to 51% by Chu Yuet Wah and as to 49% by Ma Siu Fong.

Save as disclosed in this prospectus, the Directors were not aware of any person as at the Latest Practicable Date who had a long position or short position in the Shares, underlying shares or debentures which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who was interested, directly or indirectly, in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group.

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GENERAL INFORMATION

APPENDIX II

5. EXPERTS

The following is the qualification of the expert who has been named in this document or has given opinions, letters or advice which are contained in this prospectus:

Name Qualification Grant Thornton Certified Public Accountants

As at the Latest Practicable Date, Grant Thornton had no any beneficial interest in the share capital of any member of the Group or had any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the group or had any interest, either directly or indirectly, in any assets which have been, since 31 December 2003, being the date to which the latest published audited accounts of the Company were made up, acquired or disposed of by or leased to or are proposed to be acquired or disposed of by or leased to, any member of the Group.

On 21 March 2005, Grant Thornton has given and has not withdrawn its written consent to the issue of this document with the inclusion herein of its letter and/or references to its names, in the form and context in which it respectively appears.

6. LITIGATION

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

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

Pursuant to the articles of association of the Company, at any general meeting, a resolution put to vote of the 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:

• (i) by the chairman of the meeting; or

• (ii) by at least five Shareholders present in person or by proxy and entitled to vote; or

• (iii) any Shareholder or Shareholders present in person or by proxy and representing not less than one-tenth of the total voting rights of all Shareholders having the right to attend and vote at the meeting; or

• (iv) any Shareholder or Shareholders present in person or by proxy and holding Shares conferring a right to attend and vote at the meeting on which there have been paid up sums in the aggregate equal to not less than one-tenth of the total sum paid up on all Shares conferring that right.

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GENERAL INFORMATION

APPENDIX II

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

8. MATERIAL CONTRACTS

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

• (i) the Company entered into a placing agreement with its placing agent, Upbest Securities Company Limited on 27 February 2003 for the placement of 24,000,000 Shares on a fully underwritten basis to more than six professional investors who are not connected persons of the Company (as defined under the Listing Rules) at a price of HK$0.04 per placing Share;

• (ii) the Company entered into placing agreement with its placing agent, Koffman Securities Limited on 10 March 2004 to place 28,800,000 Shares on a best effort basis to more than six independent investors at the price of HK$0.124 per placing Share;

• (iii) the Company entered into an agreement on 4 March 2004 with Haywood Investment Management Limited wherein both parties agreed to terminate the investment management agreement dated 6 July 1998. On the same day, the Company entered into a new investment management agreement with Altus Capital Limited, wherein the latter agreed to provide investment management services to the Company; and

• (iv) the Underwriting Agreement.

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

9. MISCELLANEOUS

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

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GENERAL INFORMATION

APPENDIX II

10. CORPORATE INFORMATION

Company Secretary and Qualified Accountant

Mr. Chu Kin Wang, Peleus, HKICPA, HKICS

Authorised Representatives

Mr. Chu Kin Wang, Peleus Flat 1, 10/F, Tower D Galaxia, 3 Lung Poon Street Diamond Hill Kowloon, Hong Kong

Mr. Wong Fong Kim Room 2211, 23/F Wise Mansion 28 Connaught Road West Hong Kong

Principal Banker

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

DBS Bank (Hong Kong) Limited 16/F, The Center 99 Queen’s Road Central Hong Kong

Hong Kong Branch Share Registrar Secretaries Limited Ground Floor, BEA Harbour View Centre 56 Gloucester Road Wanchai Hong Kong

Principal Share Registrar

Bank of Butterfield International (Cayman) Limited Butterfield House P.O. Box 705 George Town Grand Cayman Cayman Islands

– 62 –

GENERAL INFORMATION

APPENDIX II

Auditors

Grant Thornton Certified Public Accountants 13th Floor Gloucester Tower The Landmark 11 Pedder Street Central Hong Kong

Financial Adviser to the Company Kingston Corporate Finance Limited Suite 2801 28th Floor One International Finance Centre 1 Harbour View Street Central Hong Kong

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

Orient Securities Limited 8th Floor, Luk Kwok Centre No. 72 Gloucester Road Wanchai Hong Kong

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be made available for inspection during normal business hours on any weekday (except for public holidays) at the head office and principal place of business of the Company at 17th Floor, Shiu Fung Commercial Building, 51-53 Johnston Road, Wanchai, Hong Kong up to and including 8 April 2005:

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

• (2) the annual reports of the Company for the two years ended 31 December 2002 and 2003;

• (3) unaudited condensed consolidated financial statements of the Group for the six months ended 30 June 2004;

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GENERAL INFORMATION

APPENDIX II

• (4) the report on unaudited pro forma financial information from Grant Thornton, the text of which are reproduced in appendix I to this prospectus;

• (5) the material contracts referred to the section headed “Material Contracts” in this appendix;

• (6) a circular of Company issued on 28 February 2005 containing details regarding, among other things, the increase in authorised share capital, Share Consolidation and Open Offer; and

• (7) this prospectus.

– 64 –