WEIli Holdings Limited - Proxy Solicitation & Information Statement 2005

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in Daiwa Associate Holdings Limited , you should at once hand this circular and the accompanying form of proxy to the purchaser or transferee, or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

A copy of this circular has been registered with the Registrar of Companies in Hong Kong as required by Section 342C of the Companies Ordinance of Hong Kong. A copy of this circular, has been or will be as soon as practicable, filed with the Registrar of Companies in Bermuda pursuant to the Companies Act 1981 of Bermuda (as amended). The Registrar of Companies in Hong Kong, the Securities and Future Commission of Hong Kong and the Registrar of Companies in Bermuda take no responsibility as to the contents of this circular.

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

DAIWA ASSOCIATE HOLDINGS LIMITED

(Incorporated in Bermuda with limited liability)

(Stock code: 1037)

INTERIM DIVIDEND WITH WARRANT ALTERNATIVE AND WHITEWASH WAIVER

Financial adviser to Daiwa Associate Holdings Limited

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Independent financial adviser to the Independent Board Committee and the Independent Shareholders

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A letter from the Independent Board Committee containing its advice to the Independent Shareholders is set out on pages 15 to 16 of this circular. A letter from VC Capital containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 17 to 26 of this circular.

A notice convening the SGM to be held at 10:00 a.m. on Tuesday, 25 January 2005 at the office of the Company at 11th Floor, Block G, East Sun Industrial Centre, 16 Shing Yip Street, Kwun Tong, Kowloon, Hong Kong or any adjourned meeting is set out on pages 99 to 101 of this circular. A form of proxy for used by the Shareholders at the SGM is enclosed with this circular. Whether or not you are able to attend the SGM in person, you are requested to complete the enclosed form of proxy in accordance with the instructions printed thereon and return the same to the Registrar at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong as soon as practicable but in any event not less than 48 hours before the time appointed for the holding of the SGM or any adjourned meeting. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or any adjourned meeting should you so desire.

6 January 2005

		Page
Definitions	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Expected timetable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		5
Letter from	the Board
1.	Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
2.	Subscription price and Subscription Period . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
3.	Shares to be issued upon exercise of the Subscription Rights . . . . . . . . . . .	7
4.	Rights of the Overseas Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
5.	Conditions to the Warrant Alternative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
6.	Form of Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
7.	Information on the Group and reasons for the Warrant Alternative . . . . . . .	9
8.	Takeovers Code implications and Whitewash Waiver . . . . . . . . . . . . . . . . . .	10
9.	Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
10.	Closure of register of members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
11.	Certificates of the Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
12.	SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
13.	Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
14.	Additional information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Letter from	the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
Letter from	VC Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Appendix I	— Financial information of the Group. . . . . . . . . . . . . . . . . . . . . . . . . .	27
Appendix II — General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		77
Appendix III — Summary of the terms and conditions of the Warrants . . . . . . . .		89
Notice of SGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		99

— i —

DEFINITIONS

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

“Announcement”	the announcement of the Company dated 16 December
	2004 in relation to, among other things, the Warrant
	Alternative and the Whitewash Waiver
“associates”	has the meaning ascribed to it under the Listing Rules
“Board”	the board of Directors
“Business Day”	any day (other than Saturday and Sunday) on which banks
	are generally open for business in Hong Kong
“Company”	Daiwa Associate Holdings Limited, an exempted
	company incorporated in Bermuda with limited liability,
	the shares of which are listed on the Stock Exchange
“Director(s)”	the director(s), including independent non-executive
	director(s), of the Company
“Executive”	the Executive Director of the Corporate Finance Division
	of the SFC or any delegate of the Executive Director
“Form of Election”	the form of election to be sent to the Qualifying
	Shareholders to elect to receive the Warrant(s) in lieu of
	cash as Interim Dividend
“Group”	the Company and its subsidiaries
“Hong Kong”	the Hong Kong Special Administrative Region of the
	People’s Republic of China
“Independent Board Committee”	independent board committee of the Company comprising
	Mr. Barry John Buttifant, Mr. Choi Yuk Fan and Mr.
	Liu Ngai Wing, established for the purpose of advising
	the Independent Shareholders in relation to the
	Whitewash Waiver
“Independent Shareholders”	Shareholders who are not involved or interested in
	matters relating to the Warrants, being Shareholders other
	than Mr. Lau, Ms. Chan and Mr. Yuen and parties acting
	in concert with any of them

— 1 —

DEFINITIONS

“Instrument”	the deed poll to be executed by the Company creating
	the Warrants
“Interim Dividend”	an interim dividend of HK$0.01 per Share for the six
	months ended 30 September 2004
“Latest Practicable Date”	4 January 2005, being the Latest Practicable Date prior
	to the printing of this circular for the purpose of
	ascertaining certain information contained in this circular
“Listing Rules”	the Rules Governing the Listing of Securities on The
	Stock Exchange of Hong Kong Limited
“Mr. Lau”	Mr. Lau Tak Wan, an executive Director and a
	Shareholder who, together with Ms. Chan, are
	beneficially interested in 112,828,062 Shares representing
	approximately 42.63% of the existing issued share capital
	of the Company as at the Latest Practicable Date
“Mr. Yuen”	Mr. Yuen Che Bun, a Shareholder who is beneficially
	interested in 13,119,999 Shares, representing
	approximately 4.96% of the existing issued share capital
	of the Company as at the Latest Practicable Date
“Ms. Chan	Ms. Chan Yuen Mei, Pinky, an executive Director and a
	Shareholder who, together with Mr. Lau, are beneficially
	interested in 112,828,062 Shares representing
	approximately 42.63% of the existing issued share capital
	of the Company as at the Latest Practicable Date. Ms.
	Chan is Mr. Lau’s spouse
“Overseas Shareholder(s)”	those Shareholders whose addresses (as shown on the
	branch register of members of the Company in Hong
	Kong at the close of business on the Record Date) are
	outside Hong Kong
“PRC”	the People’s Republic of China

— 2 —

DEFINITIONS

“Qualifying Shareholders”	the Shareholders on the branch register of members of
	the Company in Hong Kong at the close of business on
	the Record Date, other than those Overseas Shareholders
	who the Directors are of the view that, after the necessary
	legal enquiry regarding the legal restrictions under the
	laws of the relevant place and the requirements of the
	relevant regulatory body or stock exchange, in relation
	to the offer of the Warrant Alternative to such Overseas
	Shareholders, an exclusion of such Overseas Shareholders
	are necessary or expedient on account either of the legal
	restrictions under the laws of the relevant place or the
	requirements of the relevant regulatory body or stock
	exchange in that place
“Record Date”	Tuesday, 25 January 2005, being the record date for the
	purpose of ascertaining the entitlements of Shareholders
	to the Warrant Alternative
“Registrar”	Abacus Share Registrars Limited, the Company’s Hong
	Kong share registrar
“Relevant Period”	the period between 17 June 2004, being the date falling
	six months prior to the date of the Announcement, and
	the Latest Practicable Date
“SFC”	the Securities and Futures Commission in Hong Kong
“SFO”	the Securities and Future Ordinance (Chapter 571 of the
	Laws of Hong Kong)
“SGM”	the special general meeting of the Company to be held
	on Tuesday, 25 January 2005 for the purpose of
	approving (i) the Warrant Alternative; (ii) the issue of
	the Warrants and the new Shares falling to be issued
	pursuant to the exercise of the Subscription Rights; and
	(iii) the Whitewash Waiver
“Share(s)”	ordinary share(s) of par value of HK$0.10 each in the
	capital of the Company
“Shareholder(s)”	the shareholder(s) of the Company
“Stock Exchange”	The Stock Exchange of Hong Kong Limited

— 3 —

DEFINITIONS

“Subscription Period”	the three year period during which the Subscription
	Rights may be exercised which is expected to commence
	on Friday, 25 February 2005 and end on Sunday, 24
	February 2008 (both days inclusive)
“Subscription Right(s)”	the subscription right(s) attaching to the Warrant(s)
“Takeovers Code”	the Hong Kong Code of Takeovers and Mergers
“VC Capital”	VC Capital Limited, a licensed corporation to conduct
	type 1 (dealing in securities), type 4 (advising on
	securities), type 6 (advising on corporate finance) and
	type 9 (asset management) regulated activities under the
	SFO and the independent financial adviser giving advice
	to the Independent Board Committee and the Independent
	Shareholders in relation to the Whitewash Waiver
“Warrant(s)”	the warrant(s) to be issued by the Company, in unit(s) of
	HK$0.50 of Subscription Rights, to subscribe for new
	Shares at the initial subscription price of HK$0.50 per
	new Share, subject to adjustment, at any time during the
	Subscription Period
“Warrant Alternative”	the option under which Qualifying Shareholders are
	entitled to elect to receive Warrants in lieu of cash as
	Interim Dividend
“Warrantholder(s)”	registered holder(s) of the Warrant(s)
“Whitewash Waiver”	a waiver by the Executive pursuant to Note 1 to Notes
	on dispensations from Rule 26 of the Takeovers Code in
	respect of the obligation of Mr. Lau to make a mandatory
	general offer for all the Shares of the Company not
	already owned by him and parties acting in concert with
	him which would otherwise arise as a result of the
	exercise of the Subscription Rights held by such parties
“HK$” and “cents”	Hong Kong dollar(s), the lawful currency of Hong Kong
“RMB”	Renminbi, the lawful currency of the PRC
“USD”	United States dollar(s), the lawful currency of the United
	States of America
“Yen”	Japanese Yen, the lawful currency of Japan

— 4 —

2005

EXPECTED TIMETABLE

Last day of dealings in Shares on a

cum entitlement to the Interim Dividend....................................................... Friday, 14 January

First day of dealings in Shares on a

ex-entitlement to the Interim Dividend....................................................... Monday, 17 January

Latest time for lodging transfers of Shares

in order to qualify for the Interim Dividend ....................... 4:30 p.m. on Tuesday, 18 January

Register of members closes (both dates inclusive) ..................................... Wednesday, 19 January to Tuesday, 25 January Latest time for lodging forms of proxy for the SGM .................................................................10:00 a.m. on Sunday, 23 January

Record Date for entitlement of Interim Dividend ......................................... Tuesday, 25 January SGM ........................................................................................... 10:00 a.m. on Tuesday, 25 January Despatch of the Form of Election.................................................................... Tuesday, 25 January Announcement of results of the SGM....................................................... Wednesday, 26 January Register of members re-opens.................................................................... Wednesday, 26 January

Latest time for return of Form of Election

by Qualifying Shareholders........................................... 4:00 p.m. on Wednesday, 16 February

Despatch of Warrants certificates

and cheques for cash Interim Dividend .............................................. Wednesday, 23 February

Dates or deadlines stated in this circular for events in the timetable are indicative only and may be extended or varied. Any changes to the anticipated timetable will be announced as appropriate.

— 5 —

LETTER FROM THE BOARD

DAIWA ASSOCIATE HOLDINGS LIMITED

(Incorporated in Bermuda with limited liability) (Stock code: 1037)

Directors

Executive Directors: Lau Tak Wan Wan Chor Fai Mak Hon Kai, Stanly Chan Yuen Mei, Pinky

Independent non-executive Directors: Barry John Buttifant Mr. Choi Yuk Fan Mr. Liu Ngai Wing

Registered Office

Canon’s Court 22 Victoria Street Hamilton HM12 Bermuda

Head Office and Principal Place of Business

11th Floor Block G East Sun Industrial Centre 16 Shing Yip Street Kwun Tong Kowloon Hong Kong

6 January 2005

To Shareholders

Dear Sir or Madam,

INTERIM DIVIDEND WITH WARRANT ALTERNATIVE AND WHITEWASH WAIVER

1. INTRODUCTION

On 16 December 2004, it was announced that the Board recommended an Interim Dividend of HK$0.01 per Share for the six months ended 30 September 2004 to be paid in cash with the Warrant Alternative, under which Qualifying Shareholders can elect to receive part or all of their dividend entitlements in form of Warrants on the basis of one Warrant for every five Shares held.

The purpose of this circular is to provide you with further details relating to, among other things, the Warrant Alternative, and to give you the notice of the SGM.

— 6 —

LETTER FROM THE BOARD

2. SUBSCRIPTION PRICE AND SUBSCRIPTION PERIOD

The Warrants will be issued in registered form at an issue price of HK$0.05 per Warrant and each Warrant will entitle the holder thereof to subscribe in cash for one Share at an initial subscription price of HK$0.50, subject to adjustment, at any time during the Subscription Period.

The total of the issue price and the exercise price of HK$0.55 has been arrived at after taking into account, among other things, time allowed for exercising the Subscription Rights, the recent share price of the Company and the Interim Dividend of HK$0.01 per Share.

The total of the issue price and the exercise price of HK$0.55 represents:

(i) a premium of approximately 22.22% to the closing price of HK$0.45 per Share as quoted on the Stock Exchange on the date of the Announcement;
(ii) a premium of approximately 22.22% to the average closing price of approximately HK$0.45 per Share as quoted on the Stock Exchange for the past ten trading days ended up to and including the date of the Announcement;
(iii) a premium of approximately 17.02% to the closing price of HK$0.47 per Share as quoted on the Stock Exchange on the Latest Practicable Date; and
(iv) a premium of approximately 17.02% to the average closing price of approximately HK$0.47 per Share as quoted on the Stock Exchange for the past ten trading days ended up to and including the Latest Practicable Date.

3. SHARES TO BE ISSUED UPON EXERCISE OF THE SUBSCRIPTION RIGHTS

On the basis of 264,682,666 Shares in issue as at the Latest Practicable Date, a maximum of 52,936,533 Warrants will be issued. Should all Shareholders elect to receive Warrants, full exercise of the Subscription Rights attaching to the 52,936,533 Warrants at the initial subscription price of HK$0.50 per Share would result in the issue of a total of 52,936,533 new Shares, representing approximately 20.00% of the issued share capital of the Company as at the Latest Practicable Date and approximately 16.67% of the enlarged issued share capital of the Company after the issue of such new Shares, and would raise a total proceeds of approximately HK$26,468,000 before expenses.

The new Shares falling to be issued upon exercise of the Subscription Rights will rank pari passu in all respects with the then existing issued Shares.

— 7 —

LETTER FROM THE BOARD

4. RIGHTS OF THE OVERSEAS SHAREHOLDERS

As at the Latest Practicable Date, the Company has no Overseas Shareholders and the Warrant Alternative will be available to all Shareholders. If there are Overseas Shareholders on the Record Date, the Directors will make the necessary legal enquiry regarding the legal restrictions under the laws of the relevant place and the requirements of the relevant regulatory body or stock exchange in relation to the offer of the Warrant Alternative to the Overseas Shareholders. If after such enquiry, the Directors are of the view that the exclusion of such Overseas Shareholders are necessary or expedient on account either of the legal restrictions under the laws of the relevant place or the requirements of the relevant regulatory body or stock exchange in that place, the Warrant Alternative will not be available to such Overseas Shareholders and those Overseas Shareholders will only be entitled to receive the Interim Dividend in cash. An announcement in this regard will be made accordingly. The Overseas Shareholders will be entitled to vote at the SGM to consider and, if thought fit, pass the resolutions approving, among other things, the Warrant Alternative.

5. CONDITIONS TO THE WARRANT ALTERNATIVE

The Warrant Alternative is conditional upon:

(i) the passing at the SGM (or any adjournment thereof) of the necessary ordinary resolutions by the Shareholders to approve (i) the Warrant Alternative; and (ii) the issue of the Warrants and the new Shares falling to be issued pursuant to the exercise of the Subscription Rights;
(ii) the passing at the SGM (or any adjournment thereof) of the necessary ordinary resolution by the Independent Shareholders to approve the Whitewash Waiver;
(iii) the Bermuda Monetary Authority granting permission for the issue and transferability of the Warrants;
(iv) the Executive granting to Mr. Lau the Whitewash Waiver and the satisfaction of any conditions attached to the Whitewash Waiver thereof; and
(v) the Listing Committee of the Stock Exchange granting the approval for the listing of, and permission to deal in the new Shares falling to be issued upon exercise of the Subscription Rights.

As at the Latest Practicable Date, condition (iii) above has been fulfilled.

— 8 —

LETTER FROM THE BOARD

None of the above conditions can be waived. Hence, if the Whitewash Waiver is not granted by the Executive and any of the above conditions is not fulfilled, the Warrant Alternative will not proceed and all Shareholders will receive the Interim Dividend in cash. In the absence of the Warrant Alternative, total cash dividend to be payable to the Shareholders will be approximately HK$2,647,000 which will be funded by internal resources of the Company.

6. FORM OF ELECTION

If all relevant resolutions to be proposed at the SGM in relation to the Warrant Alternative and the Whitewash Waiver are approved by the Shareholders/Independent Shareholders (as the case may be) by way of a poll, the Form of Election will then be sent to the Qualifying Shareholders as soon as practicable thereafter, which is expected to be on Tuesday, 25 January 2005.

No action is required if you wish to receive the Interim Dividend entirely in cash.

If you elect to receive the Interim Dividend wholly in Warrants or partly in Warrants and the balance in cash, you must complete the Form of Election in accordance with the instructions printed thereon and lodge it to the Registrar at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong not later than 4:00p.m. on Wednesday, 16 February 2005. No acknowledgement of receipt of the Form of Election will be issued.

7. INFORMATION ON THE GROUP AND REASONS FOR THE WARRANT ALTERNATIVE

The Company is an investment holding company and its subsidiaries are principally engaged in (i) the design, development, manufacture and distribution of electronic components and electronic manufacturing services in Hong Kong and the PRC; and (ii) the sale and distribution of computer goods and electronic products in Canada.

The Directors consider that the Warrant Alternative will provide the Qualifying Shareholders with an opportunity to either receive immediate cash dividend or to participate in the longer term growth of the Company via the subscription of the Warrants. The Warrant Alternative will also conserve working capital by reducing the immediate cash outlay required for the Interim Dividend, strengthen the equity base of the Company and provide future working capital if and when the Subscription Rights under the Warrant Alternative are exercised.

— 9 —

LETTER FROM THE BOARD

The Company intends to apply any subscription moneys received as and when the Subscription Rights are exercised towards the general working capital of the Group or for such other purposes as the Directors deem necessary, taking into consideration the requirements of the Company prevailing at the relevant time. Such other purposes may include future development and expansion of the business of the Group, as and when opportunities arise in the future that are consistent with growth plans of the Group, and depending on the amount of subscription moneys the Company may receive as a result of the exercise of Subscription Rights at the relevant time. As at the Latest Practicable Date, there are no specific plans with respect to any such development or expansion.

8. TAKEOVERS CODE IMPLICATIONS AND WHITEWASH WAIVER

The shareholding structure, of the Company immediately before and after exercise of the Subscription Rights are as follows:

Immediately following full exercise of the Subscription Rights (assuming all Shareholders are Qualifying Shareholders and all Qualifying Shareholders elect to Existing receive the Warrants) Shares % Shares % Mr. Lau and 112,828,062 42.63% 135,393,673 42.63% Ms. Chan (Note 1) Mr. Yuen 13,119,999 4.96% 15,743,998 4.96% (Note 2) Subtotal — Mr. Lau 125,948,061 47.59% 151,137,671 47.59% and parties acting in concert with him Public Shareholders 138,734,605 52.41% 166,481,528 52.41% Total 264,682,666 100.00% 317,619,199 100.00%	Immediately following full exercise of the Subscription Rights (assuming only Mr. Lau and parties acting in concert with him elect to receive the Warrants) Shares % 135,393,673 46.71% 15,743,998 5.43% 151,137,671 52.14% 138,734,605 47.86% 289,872,276 100.00%	Immediately following full exercise of the Subscription Rights (assuming only Mr. Lau and parties acting in concert with him elect to receive the Warrants) Shares % 135,393,673 46.71% 15,743,998 5.43% 151,137,671 52.14% 138,734,605 47.86% 289,872,276 100.00%
		52.14% 47.86%
		100.00%

Notes:

Out of these Shares, (i) 2,666,666 Shares are individually owned by Mr. Lau; (ii) 833,332 Shares are individually owned by Ms. Chan; (iii) 2,520,000 Shares are jointly held by Mr. Lau and Ms. Chan; (iv) 46,868,832 Shares are owned by China Capital Holdings Investment Limited, a company 60% owned by Mr. Lau and 40% by Ms. Chan; and (v) the remaining 59,939,232 Shares are owned by Smartco United Limited, a company owned as to 89.10% by Mr. Lau, as to 2.24% by Mr. Yuen, as to 0.67% by Mr. Patrick Lee, as to 3.33% by Mr. Albert Poon and as to 4.66% by Ms. Wong Yuk Ying. Under the Listing Rules, Mr. Patrick Lee, Mr. Albert Poon and Ms. Wong Yuk Ying are independent third parties who are not connected persons (as defined in the Listing Rules) of the Company. Mr. Yuen, Mr. Patrick Lee, Mr. Albert Poon and Ms. Wong Yuk Ying are considered as parties acting in concert with Mr. Lau under the Takeovers Code. The directors of China Capital Holdings Investment Limited and Smartco United Limited are Mr. Lau and Ms. Chan.

— 10 —

LETTER FROM THE BOARD

Mr. Yuen is personally interested in 3,332 Shares whereas the remaining 13,116,667 Shares are owned by Cyber Concept Limited, a company wholly owned by Mr. Yuen.

Mr. Lau and parties acting in concert with him are entitled to receive 25,189,610 Warrants based on an aggregate of 125,948,061 Shares held by them as at the Latest Practicable Date. Mr. Lau and parties acting in concert with him intend to elect to receive the Interim Dividend in form of Warrants. Assuming there are no further issue or repurchases of Shares by the Company from the Latest Practicable Date other than in relation to the exercise of Subscription Rights as provided below in the event that:

(i) all Shareholders elect to receive Warrants and the Subscription Rights are exercised in full by all Shareholders, the collective holding of Mr. Lau and the parties acting in concert with him in the voting rights of the Company would remain the same as their collective holding immediately prior to the Warrant Alternative; and
(ii) only Mr. Lau and parties acting in concert with him elect to receive Warrants and Mr. Lau and parties acting in concert with him exercise in full the Subscription Rights held by them, the collective holding of Mr. Lau and parties acting in concert with him in the voting rights of the Company would increase from approximately 47.59% immediately prior to the exercise of such Subscription Rights to approximately 52.14% immediately after the exercise of such Subscription Rights.

Under Rule 26 of the Takeovers Code, the exercise in full of the Subscription Rights by Mr. Lau, either alone or together with parties acting in concert with him, may trigger a mandatory general offer to be made by Mr. Lau for all the Shares in issue other than those already owned or agreed to be acquired by Mr. Lau and/or parties acting in concert with him.

An application has been made by Mr. Lau to the Executive for the Whitewash Waiver in connection with the exercise by any of them the Subscription Rights pursuant to Note 1 to Notes on dispensations from Rule 26 of the Takeovers Code. The Executive has indicated that the Whitewash Waiver will be granted, subject to the approval of the Independent Shareholders on a vote taken by way of a poll at the SGM.

If the Whitewash Waiver is not granted by the Executive, the Company will not proceed with the Warrant Alternative and all Shareholders will receive the Interim Dividend in cash.

As at the Latest Practicable Date, Mr. Lau, Ms. Chan, Mr. Yuen and their associates and any parties acting in concert with them are in aggregate interested in approximately 47.59% of the total issued share capital of the Company and all of them have control over the voting rights in respect of their Shares. As at the Latest Practicable Date, no

— 11 —

LETTER FROM THE BOARD

voting trust or other agreement or arrangement or understanding was entered into by or binding upon any of the above Shareholders which has passed or may result in temporarily or permanently passing control over the exercise of the voting right in respect of any of their Shares to a third party. Mr. Lau, his associates and parties acting in concert with him will abstain from voting on the resolution in relation to the Whitewash Waiver at the SGM.

If the aggregate interest of Mr. Lau and parties acting in concert with him after full exercise of the Subscription Rights exceed 50% of the enlarged issued share capital of the Company. Mr. Lau and parties acting in concert with him can acquire further Shares without triggering a mandatory general offer under the Takeovers Code.

On 24 September 2004, the Company completed a rights issue to finance an overseas acquisition under which Smartco United Limited acted as the underwriter for the rights issue. Smartco United Limited is a company owned as to 89.10% by Mr. Lau, as to 2.24% by Mr. Yuen, as to 0.67% by Mr. Patrick Lee, as to 3.33% by Mr. Albert Poon and as to 4.66% by Ms. Wong Yuk Ying. Under the Listing Rules, Mr. Patrick Lee, Mr. Albert Poon and Ms. Wong Yuk Ying are independent third parties who are not connected persons (as defined in the Listing Rules) of the Company. The rights issue had resulted in an increase in the aggregate interest of Mr. Lau and parties acting in concert with him in the Company from 24.94% to 47.59%. As a condition to the completion of the rights issue, Mr. Lau sought a whitewash waiver from the Executive waiving the obligation of Mr. Lau and parties acting in concert with him to make a mandatory general offer as a result of the rights issue. Such waiver was granted on 13 August 2004 by the Executive.

Under the rights issue, 105,873,066 rights shares were allotted and issued at HK$0.45 per rights share on the basis of two rights shares for every three Shares held at the time of the rights issue. The net proceeds from the rights issue amounted to approximately HK$47,043,000, of which HK$47,000,000 was used to fund an overseas acquisition and the balance for general working capital of the Company. Details of the rights issue and the overseas acquisition are disclosed in the circular of the Company dated 5 August 2004.

Save for the subscription of Shares and the underwriting by Smartco United Limited under the rights issue as mentioned above, none of Mr. Lau, Ms. Chan, Mr. Yuen and parties acting in concert with any of them have dealt in any securities of the Company for the period of six months prior to the date of the Announcement.

Save for the rights issue mentioned above, the Company has no capital raising activities during the past twelve-month period immediately preceding the date of the Announcement.

— 12 —

LETTER FROM THE BOARD

9. LISTING

The Warrants are freely transferable but will not be listed on the Stock Exchange or any other stock exchange. No application will be made to the Stock Exchange for the listing of, and the permission to deal in the Warrants on the Stock Exchange. An application will be made to the Stock Exchange for the listing of, and permission to deal in the new Shares falling to be issued upon exercise of the Subscription Rights.

10. CLOSURE OF REGISTER OF MEMBERS

The register of members of the Company will be closed from Wednesday, 19 January 2005 to Tuesday, 25 January 2005 (both days inclusive) to determine the entitlements to the Interim Dividend. No transfer of Shares will be registered during this period.

11. CERTIFICATES OF THE WARRANTS

Subject to fulfillment of the conditions of the Warrant Alternative, the Warrant certificates are expected to be posted on Wednesday, 23 February 2005 to those entitled thereto at their own risks.

12. SGM

Set out on pages 99 to 101 of this circular is a notice convening the SGM to be held at 10:00 a.m. on Tuesday, 25 January 2005 at the office of the Company at 11th Floor, Block G, East Sun Industrial Centre, 16 Shing Yip Street, Kwun Tong, Kowloon, Hong Kong or any adjourned meeting at which the resolutions will be proposed to the Shareholders to consider and, if thought fit, to approve, (i) the Warrant Alternative; (ii) the issue of the Warrants and the new shares falling to be issued pursuant to the exercise of the Subscription Rights, and Independent Shareholders to consider and, if thought fit, to approve the Whitewash Waiver.

Mr. Lau, his associates and any parties acting in concert with him will abstain from voting on the resolution approving the Whitewash Waiver at the SGM.

A form of proxy for use by the Shareholders at the SGM is enclosed with this circular. Whether or not you are able to attend the SGM in person, you are requested to complete the enclosed form of proxy in accordance with the instructions printed thereon and return it to the Registrar at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong as soon as practicable but in any event not less than 48 hours before the time appointed for the holding of the SGM or any adjourned meeting. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or any adjourned meeting should you so desire.

— 13 —

LETTER FROM THE BOARD

The votes to be taken at the SGM in respect to, (i) the Warrant Alternative; (ii) the issue of the Warrants and the new Shares falling to be issued pursuant to the exercise of the Subscription Rights; and (iii) the Whitewash Waiver will be taken by way of a poll, the results of which will be announced as soon as practicable.

Under the bye-laws of the Company, a poll can be demanded by:

(a) the chairman;
(b) at least 3 members present in person or by proxy or authorised representative for the time being entitled to vote at the meeting;
(c) any member or members present in person or by proxy or authorised representative and holding between them not less than one-tenth of the total voting rights of all members having the right at attend and vote at the meeting; or
(d) any member or members present in person or by proxy or authorised representative and holding shares in the Company conferring a right to attend and vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all the shares conferred that rights.

The chairman will demand a poll at the SGM and will be scrutinised by the Registrar.

13. RECOMMENDATIONS

VC Capital has been appointed to advise the Independent Board Committee and the Independent Shareholders with regard to the terms and conditions of the Whitewash Waiver. The text of letter of the advice from VC Capital containing its recommendation and the principal factors it has taken into account in arriving at its recommendation are set out on pages 17 to 26 of this circular. The text of the letter from the Independent Board Committee containing its recommendation to the Independent Shareholders is set out on pages 15 and 16 of this circular.

The Directors consider that the terms of the Warrant Alternative are fair and reasonable and are in the interest of the Company and its shareholders as a whole. Accordingly, the Directors recommend that the Shareholders to vote in favour of the relevant resolution to be proposed at the SGM.

14. ADDITIONAL INFORMATION

Your attention is drawn to the appendices to this circular.

Yours faithfully, By order of the Board Daiwa Associate Holdings Limited Lau Tak Wan President

— 14 —

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

DAIWA ASSOCIATE HOLDINGS LIMITED

(Incorporated in Bermuda with limited liability) (Stock code: 1037)

6 January 2005

To the Independent Shareholders

Dear Sir or Madam,

WHITEWASH WAIVER

We refer to the circular of the Company dated 6 January 2005 (the “Circular”) to the Shareholders, of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as defined in the Circular unless the context otherwise requires.

We have been appointed by the Board as members to form the Independent Board Committee and to advise you on the terms of the Whitewash Waiver, whether such terms are in the interest of the Company and its shareholders as a whole and to advise the Independent Shareholders on how to vote on the resolution to approve the Whitewash Waiver.

VC Capital has been appointed to advise the Independent Board Committee as to whether the terms of the Whitewash Waiver are fair and reasonable so far as the Independent Shareholders are concerned, whether such terms are in the interest of the Company and its Shareholders as a whole and to advise the Independent Shareholders on how to vote on the resolution to approve the Whitewash Waiver. Details of its advice, together with the principal factors taken into consideration in arriving at such advice, are set out on pages 17 to 26 of the Circular.

Your attention is also drawn to the letter from the Board set out on pages 6 to 14 of the Circular and the additional information set out in the appendices of the Circular.

— 15 —

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Having considered the terms of the Whitewash Waiver and the advice of VC Capital, we are of the opinion that the terms of the Whitewash Waiver are fair and reasonable so far as the Independent Shareholders are concerned and are in the interest of the Company and the Independent Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the resolution to be proposed at the SGM to approve the Whitewash Waiver.

Yours faithfully,

Independent Board Committee of Daiwa Associate Holdings Limited

Barry John Buttifant

Independent Non-executive Director

Mr. Choi Yuk Fan Independent Non-executive Director

Mr. Liu Ngai Wing Independent Non-executive Director

— 16 —

LETTER FROM VC CAPITAL

The following is the text of a letter of advice from VC Capital to the Independent Board Committee and the Independent Shareholders prepared for the purpose of inclusion in this circular.

==> picture [24 x 24] intentionally omitted <==

==> picture [141 x 35] intentionally omitted <==

6 January 2005

Independent Board Committee and the Independent Shareholders of Daiwa Associate Holdings Limited 11/F., Block G East Sun Industrial Centre 16 Shing Yip Street Kwun Tong Hong Kong

Dear Sirs,

WHITEWASH WAIVER

INTRODUCTION

We refer to our appointment as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the granting of the Whitewash Waiver. Details of the Whitewash Waiver are set out in a circular to the Shareholders dated 6 January 2005 (the “Circular”), of which this letter forms part. Terms used in this letter shall have the same meanings as defined in the Circular unless the context requires otherwise.

On 16 December 2004, the Company announced its interim results for the six months ended 30 September 2004 and that the Board recommended the Interim Dividend to be paid in cash with the Warrant Alternative. The Warrant Alternative is conditional upon, amongst other things, the approval by the Shareholders at the SGM and the Whitewash Waiver being granted by the Executive and approved by the Independent Shareholders at the SGM.

For the purpose of the Takeovers Code, Mr. Lau, Ms. Chan and Mr. Yuen (collectively, the “Concert Parties”) are considered parties acting in concert with respect to the Company. The lowest shareholding interest in the Company collectively held by the Concert Parties was approximately 24.94% in the 12-month period immediately before the date of the Announcement. This was increased to approximately 47.59% after completion of a rights issue of the Company in September 2004 in which the Concert Parties subscribed for their entitlements and Smartco United Limited, a company which is controlled by Mr. Lau, took up

— 17 —

LETTER FROM VC CAPITAL

59,939,232 unsubscribed rights shares pursuant to an underwriting agreement dated 10 June 2004 entered into between the Company and Smartco United Limited. As at the Latest Practical Date, the Concert Parties were interested in an aggregate of 125,948,061 Shares, representing approximately 47.59% of the total issued share capital of the Company. The Concert Parties intend to elect to receive Warrants for all of their Interim Dividend entitlements. Pursuant to Rule 26 of the Takeovers Code, the exercise in full or in part of their Subscription Rights by the Concert Parties may give rise to an obligation to make a general offer to the Independent Shareholders for all the Shares not already held by them should their aggregate interest in the Company increases by more than 2% immediately after they have exercised all or part of the Warrants they receive under the Warrant Alternative.

Mr. Lau has made an application to the Executive for the granting of the Whitewash Waiver. The Executive has indicated that he would grant the Whitewash Waiver, subject to approval by Independent Shareholders at the SGM.

Both Mr. Lau and Ms. Chan are interested in the Whitewash Waiver. Mr. Wan Chor Wai and Mr. Mak Hon Kai, Stanley are executive Directors and salaried employees of the Group. Therefore, none of them is considered to be independent to advise the Independent Shareholders with respect to the Whitewash Waiver. Mr. Barry John Buttifant, Mr. Choi Yuk Fan and Mr. Liu Ngai Wing, the independent non-executive Directors, have been appointed by the Board as members of the Independent Board Committee to advise the Independent Shareholders with respect to the granting of the Whitewash Waiver.

BASIS OF OUR OPINION

Our role as the independent financial adviser to the Independent Board Committee and the Independent Shareholders is to express our opinion and recommendation as to whether the granting of the Whitewash Waiver is fair and reasonable in so far as the interests of the Independent Shareholders are concerned.

In formulating our recommendation, we have relied on the accuracy of the information and representations contained in the Circular which have been provided to us by the Directors and have also assumed that all information and representations made or referred to in the Circular were true and correct in all respects at the time when they were made and continued to be true and correct in all respects as at the date of dispatch of the Circular.

We have also assumed that all statements of belief, opinion and intention made by the Directors in the Circular were reasonably made after due and careful enquiry and were based on honestly held opinions. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Directors and have been advised by the Directors that no material facts have been omitted from the information and representations provided in and referred to in the Circular.

— 18 —

LETTER FROM VC CAPITAL

We consider that we have reviewed sufficient information to reach an informed view and to justify our reliance on the accuracy of the information and representations contained in the Circular and to provide a reasonable basis for our advice.

We have not, however, carried out any independent verification of the information provided by the Directors, nor have we conducted an independent in-depth investigation into the business and affairs or the future prospects of the Group.

PRINCIPAL FACTORS CONSIDERED

In arriving our recommendation in respect of the granting of the Whitewash Waiver, we have considered the following principal factors:

(a) The background of the Whitewash Waiver

On 16 December 2004, the Company announced its interim results for the six months ended 30 September 2004 and that the Board recommended the Interim Dividend to be paid in cash with the Warrant Alternative under which Shareholders may elect to receive part or all of their dividend entitlements in form of Warrants on the basis of one Warrant for every five Shares held. The Warrant Alternative is conditional upon, amongst other things, the approval by the Shareholders at the SGM and the Whitewash Waiver being granted by the Executive and approved by the Independent Shareholders at the SGM.

We have been given to understand that the Concert Parties intend to elect the Warrant Alternative for all of their Interim Dividend entitlements. Mr. Lau’s possible general offer obligation is dependent upon the choices of the Independent Shareholders over the cash Interim Dividend and the Warrant Alternative and the extent to which the Warrants are ultimately exercised. For the purpose of our analysis, we assume that: (i) all Warrants issued are exercised before expiry of the Subscription Period; and (ii) there are no further issue of new Share or Share repurchases by the Company from now on until all the Warrants are exercised.

If Independent Shareholder(s) who hold an aggregate of not more than 74,678,521 Shares (representing approximately 28.21% of the existing issued share capital of the Company) elect to receive the Warrant Alternative, the collective shareholding interest in the Company held by the Concert Parties would increase by more than 2% from the current level of approximately 47.59% immediately after the Concert Parties have fully exercised the Warrants they receive under the Warrant Alternative. Under such circumstances, Mr. Lau would be required under Rule 26.1 of the Takeovers Code to make a general offer (the “Offer”) for all the Shares not already held by the Concert Parties. In the absence of any other acquisition of Shares made by the Concert Parties from now on until the materialization of the Offer obligation, the offer price would be HK$0.55, being the issue price of HK$0.05 per Warrant plus the subscription price of HK$0.50 per new Share payable upon exercise of the Warrants.

— 19 —

LETTER FROM VC CAPITAL

Mr. Lau does not intend to make the Offer and has applied to the Executive for the Whitewash Waiver. The Executive has indicated that he would grant the Whitewash Waiver, subject to approval by the Independent Shareholders at the SGM.

(b) The Warrant Alternative

(i) The subscription price of the new Shares to be issued upon exercise of the Warrants

The effective subscription price per new Share upon exercise of the Warrants of HK$0.55, being the issue price of HK$0.05 per Warrant plus the subscription price of HK$0.50 per new Share payable upon exercise of the Warrant, represents:

a premium of approximately 22.2% over the closing price of HK$0.45 per Share as quoted on the Stock Exchange on 15 December 2004, the date immediately before the date of the Announcement;
a premium of approximately 22.2% over the average closing price of HK$0.45 per Share as quoted on the Stock Exchange for the 10 consecutive trading days immediately prior to the date of the Announcement; and
a premium of approximately 17.02% over the closing price of HK$0.47 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

We note that the effective subscription price of the Warrants represents a premium of approximately 22.2% over the market price per Share prevailing at the time immediately before the Announcement.

— 20 —

LETTER FROM VC CAPITAL

We have also reviewed the daily closing price of the Shares as quoted on the Stock Exchange during the six-month period commencing from 4 July 2004 up to and including the Latest Practicable Date (the “Review Period”) as illustrated in the following chart:

==> picture [362 x 234] intentionally omitted <==

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

HK$
0.60
Effective subscription price per new Share upon exercise of the Warrants
0.55
0.50
0.45
0.40
2004 2005
Jul Aug Sep Oct Nov Dec Jan
Closing price of the Shares
----- End of picture text -----

As illustrated above, the Shares had been trading consistently below the effective subscription price per Share of the Warrants and within a range of HK$0.43 to HK$0.51 during the Review Period. The effective subscription price per Share of the Warrants therefore represents a premium of approximately 27.9% to 7.8% over the market price of the Shares during the Review Period.

In view of the above, we consider that the effective subscription price per Share of the Warrants is acceptable so far as the Company is concerned.

— 21 —

LETTER FROM VC CAPITAL

(ii) Dilution on shareholding of Independent Shareholders

The dilution effect on the shareholding of the Independent Shareholders as a result of their election of the Warrant Alternative is illustrated below:

Scenario 1: All Shareholders elect the Warrant Alternative

The Concert Parties Independent Shareholders Total	Number of Shares Approximate currently Shareholding held percentage 125,948,061 47.59% 138,734,605 52.41% 264,682,666 100%	New Shares to be issued pursuant to full exercise of the Warrants 25,189,610 27,746,923 52,936,533	Number of Shares held immediately after full Approximate exercise of Shareholding the Warrants percentage 151,137,671 47.59% 166,481,528 52.41% 317,619,199 100%	Number of Shares held immediately after full Approximate exercise of Shareholding the Warrants percentage 151,137,671 47.59% 166,481,528 52.41% 317,619,199 100%
				100%

Note: There will not be any dilution effect if all Shareholders elect the Warrant Alternative.

Scenario 2: If Independent Shareholder(s) who hold an aggregate of 74,678,521 Shares (representing approximately 28.21% of the existing issued share capital of the Company) elect the Warrant Alternative

The Concert Parties Other Shareholders	Number of Shares Approximate currently shareholding held percentage 125,948,061 47.59% 138,734,605 52.41% 264,682,666 100%	New Shares to be issued pursuant to full exercise of the Warrants 25,189,610 14,935,704 40,125,314	Number of Shares held immediately after full Approximate exercise of shareholding the Warrants percentage 151,137,671 Note (1) 153,670,309 50.41% 304,807,980 100%	Number of Shares held immediately after full Approximate exercise of shareholding the Warrants percentage 151,137,671 Note (1) 153,670,309 50.41% 304,807,980 100%
				100%

Notes: (1) The collective shareholding interest in the Company held by the Concert Parties would increase by more than 2% from the current level of approximately 47.59% immediately after the Concert Parties have fully exercised the Warrants they receive under the Warrant Alternative.

(2) The aggregate shareholding of the Independent Shareholders will be diluted by approximately 2% (from 52.41% to 50.41%). Pursuant to Rule 26.1 of the Takeovers Code, Mr. Lau would be required to make a general offer to all Shareholders for all the Shares not already held by the Concert Parties under this scenario.

— 22 —

LETTER FROM VC CAPITAL

Scenario 3: All Independent Shareholders elect to receive cash for the Interim Dividend

The Concert Parties Independent Shareholders	Number of Shares Approximate currently shareholding held percentage 125,948,061 47.59% 138,734,605 52.41% 264,682,666 100%	New Shares to be issued pursuant to exercise of the Warrants 25,189,610 — 25,189,610	Number of Shares held immediately following full Approximate exercise of shareholding the Warrants percentage 151,137,671 52.14% 138,734,605 47.86% 289,872,276 100%	Number of Shares held immediately following full Approximate exercise of shareholding the Warrants percentage 151,137,671 52.14% 138,734,605 47.86% 289,872,276 100%
				100%

Note: The aggregate shareholding of the Independent Shareholders will be diluted by approximately 4.55% (from 52.41% to 47.86%).

Based on the above analyses, the extent of the dilution effect to the aggregate shareholding of the Independent Shareholders, depending on the quantity of Warrants elected by the Independent Shareholders for the Interim Dividend, will be up to a maximum of approximately 4.55% (from 52.41% to 47.86%).

Notwithstanding the possible dilution on their shareholding interest in the Company and the fact that the shareholding interest of the Concert Parties may be increased by a maximum of approximately 4.55% to approximately 52.14% should the Warrant Alternative proceed, the Independent shareholders should note that the Warrant Alternative will not result in change in control of the Company. Mr. Lau has also confirmed that he has no intention to change the composition of the Board and/or the senior management team of the Group and/or to make major change to the business and/or any other aspects of the Group (including without limitation the continuation of the business, the redeployment of the fixed assets, and the employment of the employees of the Group) upon completion of the exercise by the Concert Parties of the Warrants they received under the Warrant Alternative, save and except for those normal and ordinary changes to the business operations of the Group, if any, that may arise with or without the Warrant Alternative.

— 23 —

LETTER FROM VC CAPITAL

(iii) Financial Impact on the Company

Cashflow

Should the Warrant Alternative proceed, the Group’s cash position will be enhanced by a minimum of approximately HK$1.26 million, being the cash Interim Dividend that would have been paid to the Concert Parties to a maximum of approximately HK$29.11 million, being the cash Interim Dividend that would have been paid to all the Shareholders (approximately HK$2.65 million) and the subscription monies for the new Shares to be issued pursuant to full exercise of the maximum number of Warrants issued under the Warrant Alternative (approximately HK$26.46 million). Given the Concert Parties’ stated intention to elect the Warrant Alternative, we believe that, barring unforeseen circumstances, there is a reasonable chance that they would exercise the Warrants they receive under the Warrant Alternative in full before expiry of the Subscription Period. This would represent a cash inflow of approximately HK$13.9 million for the Group. Although the Group is in a relatively strong cash position as evidenced by its approximately HK$68 million cash and bank balances as stated in the audited financial statements as at 31 March 2004, which was further increased to approximately HK$83 million (with net cash after bank borrowings of approximately HK$20 million) as at 30 September 2004 as revealed in its interim report dated 16 December 2004, the Directors consider the cash flow benefits to be brought about by the Warrant Alternative would further enhance the Group’s liquidity position, better position the Group for continued business development and contribute to reducing the Group’s financing costs. We concur with the Directors’ view in this regard.

Capital Structure and gearing

We note that the Group has a healthy capital structure. Total liabilities and shareholders’ funds as stated in the Group’s consolidated audited accounts as at 31 March 2004 amounted to approximately HK$193 million and HK$280 million respectively. As revealed in the Company’s interim report for the six months ended 30 September 2004, the gearing ratio, which is defined as total borrowings of approximately HK$63.6 million, excluding minority interests and deferred taxation, to shareholders’ funds of approximately HK$338.4 million, was 19%. We concur with the Directors’ proposition that should the Warrant Alternative proceed, the capital structure of the Group would be further strengthened as part or all of the Shareholders who elect the Warrant Alternative, most possibly the Concert Parties, would exercise their Warrants and thus increase the shareholders’ equity while the subscription monies could be used for repaying part of the Group’s borrowings.

— 24 —

LETTER FROM VC CAPITAL

(iv) Benefits to the Shareholders

The Directors consider that the Warrant Alternative has the merits of providing an option to Shareholders as to the choice of (i) obtaining an immediate cash return on their investments in the Company; or (ii) participating in the longer term growth of the Company via the exercise of the Warrants. We note that the Group experienced continuous profit growth in the past two financial years and recorded net profit of HK$11.8 million and HK$14.5 million for each of the two years ended 31 March 2004 respectively. The Warrant Alternative therefore provides an opportunity for the Shareholders who are confident in the Group’s future prospect to reinvest in the Company in the next three years with a predetermined price.

Whilst the approval of the Warrant Alternative would not affect the rights of the Shareholders to opt for a cash dividend, we concur with the Directors’ view that it brings the added benefit of providing an alternative means to cater for different investment objectives of the Shareholders.

RECOMMENDATION

Taking into consideration the above principal factors, in particular:

(i) The effective subscription price of the Warrants of HK$0.55 represents a premium of approximately 22.2% over the market price per Share prevailing at the time immediately before the date of the Announcement. Accordingly, the Concert Parties would subscribe for the Shares at a premium over the prevailing market price once they exercise the Subscription Rights. This would be beneficial to the Company and the Shareholders as a whole, including the Independent Shareholders who opt for the cash Interim Dividend;
(ii) The Warrant Alternative, if proceeds, may enhance the Group’s cash flow position and capital structure while the effective subscription price per Share of the Warrants is acceptable so far as the Company is concerned. Accordingly, we are of the view that the Warrant Alternative is in the interest of the Company and its Shareholders as a whole;
(iii) The dilution effect on the shareholding interest of the Independent Shareholders who choose the cash Interim Dividend or not to exercise the Warrants received under the Warrant Alternative will not be significant;
(iv) The Warrant Alternative will not affect the Shareholders’ rights to opt for the cash dividend but on the other hand provides an alternative means to cater for their different investment objectives. Independent Shareholders who consider the Warrant Alternative attractive have equal rights as the Concert Parties to opt for the Warrant Alternative and exercise the Warrants received thereunder to retain their shareholding interest in the Company; and

— 25 —

LETTER FROM VC CAPITAL

(v) The Warrant Alternative is conditional upon, amongst other things, the approval by the Shareholders at the SGM and the granting of the Whitewash Waiver by the Executive which, in turn requires approval by the Independent Shareholders. The approval of the Whitewash Waiver will, therefore, be necessary for the Group and the Shareholders, including the Independent Shareholders, to enjoy the benefits arising from the Warrant Alternative.

Taking the Warrant Alternative and the Whitewash Waiver as a whole, we consider that it is fair and reasonable for and in the interests of the Independent Shareholders to approve the Whitewash Waiver. Accordingly, we advise the Independent Board Committee to recommend the Independent Shareholders to vote in favour of the resolutions which will be proposed at the SGM to approve the Whitewash Waiver.

Yours faithfully, For and on behalf of

VC Capital Limited Philip Chau Managing Director

— 26 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. SUMMARY OF AUDITED FINANCIAL INFORMATION

Set out below is a summary of the audited consolidated results and financial positions of the Group for each of the three years ended 31 March 2002, 2003 and 2004 as extracted from the annual report of the Company and the unaudited consolidated results and financial positions of the Group for the six months ended 30 September 2004 as extracted from the interim report of the Company.

The Company’s auditors have not issued any qualified opinion on the Group’s financial statements for the three preceding years.

CONSOLIDATED RESULTS

Turnover Cost of sales Gross Profit Other revenue/income Selling and distribution expenses General and administrative expenses Operating profit Finance costs Share of losses of jointly controlled entities Profit before taxation Taxation Profit after taxation Minority interests Profit attributable to Shareholders Dividends Basic earnings per Share_(Note 3) Diluted earnings per Share(Note 3)_	For the	year ended 31 March For the six (Restated) months ended (Note 2) 30 September 2003 2004 2004 HK$’000 HK$’000 HK$’000 773,487 841,606 616,518 (669,581) (727,632) (543,907) 103,906 113,974 72,611 809 1,833 196 (21,551) (25,524) (12,968) (64,949) (73,863) (45,783) 18,215 16,420 14,056 (764) (1,074) (513) (3,298) (160) (1) 14,153 15,186 13,542 (2,507) (1,924) (925) 11,646 13,262 12,617 150 1,240 15 11,796 14,502 12,632 4,764 3,970 — 7.42 cents 9.13 cents 7.84 cents 7.41 cents 9.13 cents 7.84 cents
	(Restated) (Notes 1 & 2) 2002 HK$’000 733,574 (636,706) 96,868 5,202 (19,630) (65,644) 16,796 (3,701) (1,363) 11,732 (1,710) 10,022 573 10,595 4,777 6.66 cents 6.65 cents	(Restated) (Note 2) 2003 HK$’000 773,487 (669,581) 103,906 809 (21,551) (64,949) 18,215 (764) (3,298) 14,153 (2,507) 11,646 150 11,796 4,764 7.42 cents 7.41 cents

The Group did not have any extraordinary or exceptional items for each of the three years ended 31 March 2002, 2003 and 2004 and for the six months ended 30 September 2004.

— 27 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED FINANCIAL POSITION

(Restated) (Notes 1 & 2) 2002 HK$’000 Non-current assets Goodwill 774 Fixed assets 119,695 Construction-in-progress 2,498 Interest in jointly controlled entity 11,541 Long-term investments 1,050 Deferred tax assets 321 135,879 ------------- Current assets Inventories 82,790 Trade receivables 79,341 Prepayments, deposits and other receivables 16,785 Cash and bank balance 60,405 239,321 ------------- Current liabilities Short-term bank borrowings 20,431 Trade payables 70,654 Accruals and other payables 14,591 Current portion of long-term liabilities 143 105,819 ------------- Net current assets 133,502 Total assets less current liabilities 269,381 ------------- Non-current liabilities Long-term liabilities 1,236 Deferred tax liabilities 4,173 ------------- 5,409 ------------- Net assets 263,972 Financed by: Share capital 15,912 Reserves 246,275 Shareholders’ equity 262,187 Minority interests 1,785 263,972		As at 31 March	2004 HK$’000 — 128,100 5,141 1,658 1,050 1,812 137,761 ------------- 131,573 121,328 14,878 67,953 335,732 ------------- 47,358 119,444 16,648 1,901 185,351 ------------- 150,381 288,142 ------------- 1,910 5,446 ------------- 7,356 ------------- 280,786 15,881 264,229 280,110 676 280,786	As at 30 September 2004 HK$’000 26,152 145,723 — 1,657 1,050 1,980
		(Restated) (Note 2) 2003 HK$’000 469 124,888 2,511 8,243 1,050 331 137,492 ------------- 121,275 94,262 16,927 60,799 293,263 ------------- 37,803 95,759 14,198 1,937 149,697 ------------- 143,566 281,058 ------------- 4,054 4,724 ------------- 8,778 ------------- 272,280 15,881 254,464 270,345 1,935 272,280
				176,562 ------------- 169,795 178,485 15,023 83,566
				446,869 ------------- 58,710 186,374 28,627 2,904
				276,615 -------------
				170,254
				346,816 -------------
				2,518 5,211 -------------
				7,729 -------------
				339,087

				26,468 311,958
				338,426 661
				339,087

— 28 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes:

Commencing from 1 April 2002, the Group adopted the Statements of Standard Accounting Practice (“SSAP”) Number 34 “Employee benefits” issued by the Hong Kong Institute of Public Accountants (“HKICPA”) which became effective for accounting periods commencing on or after 1 January 2002. Such accounting policy was applied retrospectively so that the consolidated financial statements of the Group for the year ended 31 March 2002 had been restated to reflect the change. Effect of change is disclosed in Note 1(a) on page 30 of the annual report for the year ended 31 March 2003.
Commencing from 1 April 2003, the Group adopted SSAP12 (revised) “Income taxes” issued by the HKICPA which became effective for accounting periods commencing on or after 1 January 2003. Such accounting policy was applied retrospectively so that the consolidated financial statements of the Group for the two years ended 31 March 2002 and 2003 had been restated to reflect the change. Effect of change is disclosed in Note 1(d) on pages 31 and 32 of the annual report for the year ended 31 March 2004.
The calculation of basic earnings per Share is based on the Group’s profit attributable to shareholders for the years ended 31 March 2002, 2003 and 2004 and for the six months ended 30 September 2004 of approximately HK$10,595,000, HK$11,796,000, HK$14,502,000 and HK$12,632,000, respectively.

The basis earnings per Share is based on the weighted average of Shares issued during the year ended 31 March 2002, 2003 and 2004 and for the six months ended 30 September 2004 of approximately 159,122,000 Shares, 159,033,000 Shares, 158,810,000 Shares and 161,124,000 Shares, respectively.

The diluted earnings per Share is based on the total number of Shares in issued during each respective year ended 31 March 2002, 2003 and 2004 and for the six months ended 30 September 2004 plus the weighted average of approximately 319,000 Shares, 86,000 Shares, nil Shares and nil Shares for each of the year ended 31 March 2002, 2003 and 2004 and for the six months ended 30 September 2004, respectively.

— 29 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. AUDITORS’ REPORT

Set out below is auditor’s report extracted from the annual report of the Company for the year ended 31 March 2004. References to the page numbers refer to the page number of the Company’s annual report for the year ended 31 March 2004.

PricewaterhouseCoopers 22/F, Prince's Building Central, Hong Kong Telephone (852) 2289 8888 Facsimile (852) 2810 9888 www.pwchk.com

Auditor’s Report to the Shareholders of DAIWA ASSOCIATE HOLDINGS LIMITED

(incorporated in Bermuda with limited liability)

We have audited the accounts on pages 23 to 67 which have been prepared in accordance with accounting principles generally accepted in Hong Kong.

Respective responsibilities of directors and auditors

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

It is our responsibility to form an independent opinion, based on our audit, on those accounts and to report our opinion solely to you, as a body, in accordance with Section 90 of the Companies Act 1981 of Bermuda, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

Basis of opinion

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

— 30 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the accounts are free from material misstatement. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the accounts. We believe that our audit provides a reasonable basis for our opinion.

Opinion

In our opinion the accounts give a true and fair view of the state of affairs of the Company and of the Group as at 31 March 2004 and of the Group’s profit and cash flows for the year then ended and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

PricewaterhouseCoopers

Certified Public Accountants

Hong Kong, 23 July 2004

— 31 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE GROUP FOR THE YEAR ENDED 31 MARCH 2004

Set out below is the extract from the audited consolidated financial statements of the Group for the year ended 31 March 2004, which is the reproduction of pages 23 to 67 of the 2004 annual report of the Company

Consolidated Profit and Loss Account

For the year ended 31 March 2004

Note Turnover 2 Cost of sales Gross profit Other revenue/income 2 Selling and distribution expenses General and administrative expenses Operating profit 3 Finance costs 5 Share of losses of jointly controlled entities Profit before taxation Taxation 6 Profit after taxation Minority interests Profit attributable to shareholders 9 Dividends 10 Earnings per share — Basic 11 — Diluted 11	2004 HK$’000 841,606 (727,632) 113,974 1,833 (25,524) (73,863) 16,420 (1,074) (160) 15,186 (1,924) 13,262 1,240 14,502 3,970 9.13 cents 9.13 cents	(Restated) 2003 HK$’000 773,487 (669,581) 103,906 809 (21,551) (64,949) 18,215 (764) (3,298) 14,153 (2,507) 11,646 150 11,796 4,764 7.42 cents 7.41 cents

— 32 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Balance Sheet

31 March 2004

Note Non-current assets Goodwill 12 Fixed assets 13 Construction-in-progress 14 Interests in jointly controlled entity 16 Long-term investments 1(i) Deferred tax assets 23 Current assets Inventories 17 Trade receivables 18 Prepayments, deposits and other receivables Cash and bank balances 19 Current liabilities Short-term bank borrowings 20 Trade payables 21 Accruals and other payables Current portion of long-term liabilities 22 Net current assets Total assets less current liabilities Non-current liabilities Long-term liabilities 22 Deferred tax liabilities 23 Net assets Financed by: Share capital 24 Reserves 26 Shareholders’ equity Minority interests	2004 HK$’000 — 128,100 5,141 1,658 1,050 1,812 137,761 --------------- 131,573 121,328 14,878 67,953 335,732 --------------- 47,358 119,444 16,648 1,901 185,351 --------------- 150,381 288,142 --------------- 1,910 5,446 7,356 --------------- 280,786 15,881 264,229 280,110 676 280,786	(Restated) 2003 HK$’000 469 124,888 2,511 8,243 1,050 331
		137,492 --------------- 121,275 94,262 16,927 60,799
		293,263 --------------- 37,803 95,759 14,198 1,937
		149,697 ---------------
		143,566
		281,058 ---------------
		4,054 4,724
		8,778 ---------------
		272,280

		15,881 254,464
		270,345 1,935
		272,280

— 33 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Balance Sheet

31 March 2004

Note Non-current assets Investments in subsidiaries 15 Current assets Other receivables Cash and bank balances Current liabilities Accruals and other payables Net current liabilities Net assets Financed by: Share capital 24 Reserves 26 Shareholders’ equity	2004 HK$’000 264,042 --------------- 166 16 182 --------------- 283 --------------- (101) --------------- 263,941 15,881 248,060 263,941	2003 HK$’000 258,206 --------------- 157 24 181 --------------- 245 --------------- (64) --------------- 258,142 15,881 242,261 258,142

— 34 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Cash Flow Statement

For the year ended 31 March 2004

Note Operating activities Net cash inflow/(outflow) from operations 27(a) Interest paid Interest received Hong Kong profits tax paid Hong Kong profits tax refunded Mainland China enterprise income tax paid Net cash inflow/(outflow) from operating activities Investing activities Purchases of fixed assets Proceeds from disposal of fixed assets Payments for construction-in-progress Purchase of additional interests in a jointly controlled entity 27(c) Net cash outflow from investing activities Net cash inflow/(outflow) before financing Financing activities 27(b) Proceeds from issue of shares Repurchase of shares Contribution from minority shareholders of a subsidiary New short-term bank borrowings Repayment of short-term bank borrowings Payment of capital element of finance lease obligations Dividends paid Net cash inflow from financing activities Increase in cash and cash equivalents Effect of foreign exchange rate changes Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year 27(d)	2004 HK$’000 21,484 (1,074) 318 (689) 76 (151) 19,964 --------------- (12,809) 11 (2,630) (1,224) (16,652) --------------- 3,312 --------------- — — 1,000 163,017 (153,462) (1,976) (4,764) 3,815 --------------- 7,127 27 60,799 67,953	(Restated) 2003 HK$’000 (1,855) (764) 467 (348) 237 (248) (2,511) --------------- (8,912) 43 (1,736) — (10,605) --------------- (13,116) --------------- 168 (327) 300 97,631 (80,259) (143) (3,977) 13,393 --------------- 277 117 60,405 60,799

— 35 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statement of Changes in Equity

For the year ended 31 March 2004

Note Balance as at beginning of year, as previously reported Effect of change in an accounting policy 1(d) Balance as at beginning of year, as restated Profit attributable to shareholders Translation adjustment 26 Dividends paid 26 Issue of shares 24 & 26 Repurchase of shares 24 & 26 Balance as at end of year	2004 HK$’000 274,373 (4,028) 270,345 14,502 27 (4,764) — — 280,110	(Restated) 2003 HK$’000 266,039 (3,490) 262,549 11,796 136 (3,977) 168 (327) 270,345

— 36 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Accounts

31 March 2004

1. Principal accounting policies

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

(a) Basis of preparation

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

In the current year, the Group adopted the revised Statement of Standard Accounting Practice Number 12 “Income taxes” (“SSAP 12”) issued by the HKSA which is effective for accounting periods commencing on or after 1 January 2003. The changes to the Group’s accounting policy and the effect of adopting this revised policy is set out in note 1(d) below.

(b) Group accounting

(i) Consolidation

The consolidated accounts include the accounts of the Company and its subsidiaries made up to 31 March.

Subsidiaries are those entities in which the Company, directly or indirectly, controls more than one half of the voting power; has the power to govern the financial and operating policies, to appoint or remove the majority of the members of the board of directors, or to cast majority of votes at the meetings of the board of directors.

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

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

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

Minority interests represent the interests of outside shareholders in the operating results and net assets of subsidiaries.

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

— 37 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(ii) Jointly controlled entities

A jointly controlled entity is a contractual arrangement whereby the Group and other parties undertake an economic activity which is subject to joint control and none of the participating parties has unilateral control over the economic activity.

The consolidated profit and loss account includes the Group’s share of the results of jointly controlled entities for the year, and the consolidated balance sheet includes the Group’s share of net assets of the jointly controlled entities and goodwill on acquisition net of accumulated amortisation.

(c) Revenue recognition

(i) Sales of goods

Revenue from the sale of goods is recognised on the transfer of risks and rewards of ownership, which generally coincides with the time when the goods are delivered to customers and title has passed.

(ii) Interest income

Interest income is recognised on a time proportion basis, taking into account the principal amounts outstanding and the interest rates applicable.

(d) Deferred taxation

Deferred taxation is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the accounts. Taxation rates enacted or substantively enacted by the balance sheet date are used to determine deferred taxation.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred taxation is provided on temporary differences arising on investments in subsidiaries and jointly controlled entities, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

In prior years, deferred taxation was accounted for at the current taxation rate in respect of timing differences between profit as computed for taxation purposes and profit as stated in the accounts to the extent that a liability or an asset was expected to be payable or recoverable in the foreseeable future. The adoption of the revised SSAP 12 represents a change in accounting policy, which has been applied retrospectively so that the comparatives presented have been restated to conform to the changed policy.

As indicated in Note 26, opening retained profits at 1 April 2002 and 2003 have been reduced by HK$3,490,000 and HK$4,028,000, respectively, which represent the unprovided net deferred tax liabilities. This change has resulted in an increase in deferred tax assets and deferred tax liabilities at 31 March 2003 by approximately HK$331,000 and HK$4,359,000, respectively.

— 38 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(e) Intangible assets

(i) Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net assets of the acquired subsidiary jointly controlled entity at the date of acquisition.

Goodwill on acquisitions occurring on or after 1 January 2001 is included in intangible assets and is amortised using the straight-line method over its estimated useful life. Goodwill arising on major strategic acquisitions of the Group to expand its product or geographical market coverage is amortised over a maximum period of 10 years. For all other acquisitions, goodwill is generally amortised over 5 years.

Goodwill on acquisitions that occurred prior to 1 January 2001 was eliminated against reserves. Any impairment arising on such goodwill is accounted for in the profit and loss account.

(ii) Research and development costs

Research costs are expensed as incurred. Costs incurred on development projects relating to the design and testing of new or improved products are recognised as an intangible asset where the technical feasibility and intention of completing the product under development has been demonstrated and the resources are available to do so, costs are identifiable and there is an ability to sell or use the asset that will generate probable future economic benefits. Such development costs are recognised as an asset and amortised on a straight-line basis over a period of not more than 5 years to reflect the pattern in which the related economic benefits are recognised. Development costs that do not meet the above criteria are expensed as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.

(iii) Impairment of intangible assets

Where an indication of impairment exists, the carrying amount of any intangible asset, including goodwill previously written off against reserves, is assessed and written down immediately to its recoverable amount.

(f) Fixed assets

Fixed assets are stated at cost less accumulated depreciation and accumulated impairment losses, if any.

Leasehold land is depreciated on a straight-line basis over the period of the lease, while other fixed assets are depreciated at rates sufficient to write off their cost less accumulated impairment losses over their estimate useful lives on a reducing balance basis. The principal annual rates are as follows:

Leasehold land	2% (lease period)
Buildings	2%
Plant and machinery	15%
Leasehold improvements,
furniture and equipment	10% to 33%
Motor vehicles	15%
Moulds and tooling	15%

— 39 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Fixed assets held under finance leases are recorded and depreciated on the same basis as described above.

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

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

(g) Assets under leases

(i) Finance leases

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

(ii) Operating leases

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

(h) Construction-in-progress

Construction-in-progress represents factory premises under construction and moulds and toolings under development and is stated at cost less accumulated impairment losses, if any. Cost includes cost of land, construction expenditure incurred and interest and other direct costs attributable to the construction. Construction-in-progress is not depreciated, and will be reclassified as fixed assets when construction is completed.

(i) Long-term investments

Long-term investments represent club memberships and are stated at cost less accumulated impairment losses, if any.

(j) Inventories

Inventories are stated at the lower of cost and net realisable value. Cost, calculated on the weighted average basis, comprises materials, direct labour and an appropriate proportion of all production overhead expenditure. Net realisable value is determined on the basis of anticipated sales proceeds less estimated selling expenses.

— 40 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(k) Accounts receivable

Provision is made against trade and other receivables to the extent that they are considered to be doubtful. Accounts receivable in the balance sheet is stated net of such provision.

(l) Translation of foreign currencies

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

The balance sheet of subsidiaries and jointly controlled entities expressed in foreign currencies are translated at the rates of exchange ruling at the balance sheet date, whilst the profit and loss account is translated at an average rate. Exchange differences arising in these cases are dealt with as a movement in reserves.

(m) Cash and cash equivalents

Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks, cash investments with a maturity of three months or less from date of investment and bank overdrafts.

(n) Provisions

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

(o) Contingent liabilities and contingent assets

A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that outflow of economic resources will be required or the amount of obligation cannot be measured reliably. A contingent liability is not recognised but is disclosed in the notes to the accounts. When a change in the probability of an outflow occurs so that outflow is probable, it will then be recognised as a provision.

A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain events not wholly within the control of the Group. Contingent assets are not recognised but are disclosed in the notes to the accounts when an inflow of economic benefits is probable. When inflow is virtually certain, an asset is recognised.

— 41 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(p) Employee benefits

(i) Employee leave entitlements

Employee entitlements to annual leave and long service leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave and long-service leave as a result of services rendered by employees up to the balance sheet date.

Employee entitlements to sick leave and maternity leave are not recognised until the time of leave.

(ii) Pension obligations

The Group’s contributions to defined contribution retirement schemes are expensed as incurred.

(q) Segment reporting

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

Unallocated costs represent corporate expenses. Segment assets consist primarily of intangible assets, fixed assets, inventories, receivables and operating cash, and mainly exclude investments and certain corporate assets. Segment liabilities comprise operating liabilities and exclude items such as taxation, corporate accruals and corporate borrowings. Capital expenditure comprises additions to intangible assets and fixed assets, including additions resulting from acquisitions through purchases of subsidiaries.

In respect of geographical segment reporting, sales are based on the country in which the products are delivered to under customers’ instructions. Total assets and capital expenditure are where the assets are located.

2. Turnover, Revenue and segment information

The Group is principally engaged in the design, development, manufacture and distribution of electronic components and the provision of manufacturing services for electronic products. Revenues recognised are as follows:

Turnover Manufacturing and distribution of electronic components Manufacturing services for electronic products Other revenue Interest income Gain resulting from acquisition of additional interest in a subsidiary Others Total revenue	2004 HK$’000 530,126 311,480 841,606 ------------------ 318 1,023 492 1,833 ------------------ 843,439	2003 HK$’000 493,556 279,931
		773,487 ------------------ 467 — 342
		809 ------------------
		774,296

— 42 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

(a) Primary reporting format — business segments:

Manufacturing and distribution of electronic components 2004 2003 HK$’000 HK$’000 Turnover External sales 530,126 493,556 Inter-segment sales 2,796 5,042 532,922 498,598 Segment results 5,873 6,638 Finance costs Share of losses of jointly controlled entities Taxation Minority interests Profit attributable to shareholders Assets Segment assets 255,105 228,088 Unallocated assets Total assets Liabilities Segment liabilities 116,217 91,500 Unallocated liabilities Total liabilities Other information Capital expenditure 8,081 10,065 Depreciation, amortisation and impairments 7,884 5,161	Manufacturing services for electronic products 2004 2003 HK$’000 HK$’000 311,480 279,931 266 1,470 311,746 281,401 10,547 11,577 180,079 166,203 71,044 61,205 11,977 5,607 8,045 5,401	Eliminations 2004 2003 HK$’000 HK$’000 (3,062) (6,512) (3,062) (6,512)	Group 2004 2003 HK$’000 HK$’000 841,606 773,487 16,420 18,215 (1,074) (764) (160) (3,298) (1,924) (2,507) 1,240 150 14,502 11,796 435,184 394,291 38,309 36,464 473,493 430,755 187,261 152,705 5,446 5,770 192,707 158,475 20,058 15,672 15,929 10,562	Group 2004 2003 HK$’000 HK$’000 841,606 773,487 16,420 18,215 (1,074) (764) (160) (3,298) (1,924) (2,507) 1,240 150 14,502 11,796 435,184 394,291 38,309 36,464 473,493 430,755 187,261 152,705 5,446 5,770 192,707 158,475 20,058 15,672 15,929 10,562

				18,215 (764) (3,298) (2,507) 150
				11,796

				394,291 36,464
				430,755

				152,705 5,770
				158,475

				15,672 10,562

— 43 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Secondary reporting format — geographical segments:

Turnover 2004 2003 HK$’000 HK$’000 Hong Kong and Mainland China 536,690 484,165 United States of America 107,610 115,598 Europe 78,200 70,178 Japan 111,576 87,267 Other Asian countries 7,530 16,279 841,606 773,487	Capital expenditure 2004 2003 HK$’000 HK$’000 20,058 15,672 — — — — — — — — 20,058 15,672	Total assets (Restated) 2004 2003 HK$’000 HK$’000 473,493 430,755 — — — — — — — — 473,493 430,755	Total assets (Restated) 2004 2003 HK$’000 HK$’000 473,493 430,755 — — — — — — — — 473,493 430,755
			430,755

3. Operating Profit

Operating profit is stated after charging the following:

	2004	2003
	HK$’000	HK$’000
Staff costs (including of directors’ emoluments)(Note 4)	69,585	65,810
Operating lease rental in respect of
— office premises	1,628	1,034
— machineries	—	720
Depreciation
— owned fixed assets	12,641	10,150
— fixed assets held under finance leases	923	107
Loss on disposal of fixed assets	641	185
Amortisation and impairment loss of goodwill
(included in general and administrative expenses)	2,365	305
Provision for bad and doubtful debts	621	1,025
Provision for inventory losses	3,572	180
Auditors’ remuneration	750	729

4. Staff Costs

Staff costs including directors’ emoluments, consisted of:

Wages, salaries and allowances Benefits Bonus Pension costs — defined contribution plans	2004 HK$’000 55,703 9,596 3,266 1,020 69,585	2003 HK$’000 52,216 10,448 2,048 1,098
		65,810

— 44 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. Finance Costs

Interest expense on bank loans wholly repayable within five years Interest element of finance leases	2004 HK$’000 988 86 1,074	2003 HK$’000 746 18
		764

6. Taxation

The Company is exempted from taxation in Bermuda. Hong Kong profits tax has been provided at the rate of 17.5% (2003: 16%) on the estimated assessable profits arising in or derived from Hong Kong. Mainland China enterprise income tax is calculated at the rates applicable to the respective subsidiaries.

Current taxation: Hong Kong profits tax — Current year — Over provision in previous years Mainland China enterprise income tax Deferred taxation relating to the origination and reversal of temporary differences Deferred taxation resulting from an increase in tax rate	2004 HK$’000 2,310 (217) 590 (1,171) 412 1,924	(Restated) 2003 HK$’000 1,514 (65) 520 538 —
		2,507

The taxation on the Group’s profit before taxation differs from the theoretical amount that would arise using the profits tax rate in Hong Kong, the home country of the Group, and the reconciliation is as follows:

Profit before taxation Calculated at a taxation rate of 17.5% (2003: 16%) Effect of different taxation rates in other countries Tax effect of income not subject to taxation Tax effect of expenses not deductible for taxation purpose Deferred tax assets not recognised Recognition of previously unrecognised tax assets Increase in opening net deferred tax liabilities resulting from an increase in tax rate Over provision in previous years Taxation charge	2004 HK$’000 15,186 2,658 182 (1,952) 1,744 265 (1,168) 412 (217) 1,924	2003 HK$’000 14,153

		2,264 524 (2,203) 1,572 415 — — (65)
		2,507

— 45 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

7. Directors’ and Senior Management’s Emoluments

(a) Directors’ emoluments

The aggregate amounts of the emoluments paid and payable to directors of the Company are as follows:

Fees for independent non-executive directors Other emoluments for executive directors — basic salaries and allowances — discretionary bonus — pension scheme contribution	2004 HK$’000 120 5,785 1,121 268 7,294	2003 HK$’000 140 5,052 950 249
		6,391

No director waived any emoluments during the year (2003: nil). No emolument was paid to any directors as inducement to join or as compensation for loss of office during the year (2003: nil). No director has granted or exercised any share option during the year (2003: nil).

The emoluments of the directors fell within the following bands:

Independent non-executive directors Nil — HK$1,000,000 Executive directors HK$1,000,001 — 1,500,000 HK$2,500,001 — 3,000,000 HK$3,000,001 — 3,500,000	Number of directors 2004 2003 2 3 3 3 — 1 1 — 6 7	Number of directors 2004 2003 2 3 3 3 — 1 1 — 6 7
		7

(b) Five highest paid individuals

The five individuals whose emoluments were the highest in the Group for the year include four (2003: four) directors whose emoluments are reflected in the analysis presented above. The emoluments paid and payable to the remaining one (2003: one) individual are as follows:

Basic salaries and allowances Discretionary bonus Pensions scheme contribution	2004 HK$’000 506 143 24 673	2003 HK$’000 546 68 26
		640

— 46 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The emoluments fell within the following band:

	Number	of individual
	2004	2003
Nil — HK$1,000,000	1	1

During the year, no emolument was paid to the five highest paid individuals (including directors and other employees) as inducement to join or as compensation for loss of office (2003: nil).

8. Pension Schemes

The Group has two pension schemes, the ORSO Scheme and the MPF Scheme, for its employees in Hong Kong.The assets of the ORSO Scheme and the MPF Scheme are held separately from those of the Group under independently administered funds.

Under the ORSO Scheme, the Group and its employee make monthly contribution to the scheme of approximately 5% and 5% respectively, of the employees’ salary. The unvested benefits of employees who have terminated employment are utilised by the Group to reduce its future contributions. The unvested benefit so utilised under the scheme during the year ended 31 March 2004 amounted approximately HK$57,000 (2003: HK$23,000), and the amount of unvested benefits that are available to reduce the Group’s future contributions was approximately HK$52,000 as at 31 March 2004 (2003: HK$57,000).

Under the MPF Scheme, each of the Group and its employees makes monthly contributions to the scheme at 5% of the employee’s relevant income, as defined in the Mandatory Provident Fund Schemes Ordinance. Both the Group’s and the employee’s contributions and subjected to a cap of HK$1,000 per month. The contributions are fully and immediately vested with the employee.

As stipulated by rules and regulations in Mainland China, the Group contributes to state-sponsored retirement plans for its employees in Mainland China. The Group’s employees make monthly contributions to plans at approximately 5% of the relevant income (comprising salaries, allowances and bonus), while the Group makes monthly contribution at approximately 8-10% of such relevant income and has no further obligations for the actual payment of pensions beyond its contribution. The state-sponsored retirement plans are responsible for the entire pension obligations payable to retired employees.

9. Profit Attributable to Shareholders

The consolidated profit attributable to shareholders included a profit of approximately HK$10,563,000 (2003: HK$52,000) dealt with in the accounts of the Company.

10. Dividends

Interim of HK$0.015 (2003: HK$0.015) per share Final of HK$0.01 (2003: HK$0.015) per share	2004 HK$’000 2,382 1,588 3,970	2003 HK$’000 2,382 2,382
		4,764

— 47 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

At a meeting held on 23 July 2004, the Company’s directors proposed a final dividend of HK$0.01 per share. This proposed dividend is not reflected as a dividend payable in these accounts and will be reflected as an appropriation of retained profits during the year ending at 31 March 2005.

11. Earnings Per Share

The calculation of basic and diluted earnings per share are based on the Group’s consolidated profit attributable to shareholders of HK$14,502,000 (restated 2003: HK$11,796,000).

The basic earnings per share is based on the weighted average of approximately 158,810,000 shares in issue during the year (2003: 159,033,000 shares).The diluted earnings per share is based on approximately 158,810,000 shares (2003: 159,119,000 shares), which is the weighted average number of shares in issue during the year plus the weighted average of nil share (2003: 86,000 shares) deemed to be issued at no consideration if all outstanding share options had been exercised.

12. Goodwill

Movements were:

Cost Beginning of year Addition End of year Accumulated amortisation and impairment losses Beginning of year Amortisation for the year Impairment loss End of year Net book value End of year Beginning of year	2004 HK$’000 1,523 1,896 3,419 ------------------ 1,054 848 1,517 3,419 ------------------ — 469	2003 HK$’000 1,523 —
		1,523 ------------------ 749 305 —
		1,054 ------------------
		469

		774

— 48 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

13. Fixed Assets

Movements were:

Cost Beginning of year Additions Acquisition of a subsidiary_(Note 27(c))_ Disposals End of year Accumulated depreciation Beginning of year Charge for the year Write-back on disposals End of year Net book value End of year Beginning of year	Leasehold improve- ments furniture, Leasehold fixtures land and Plant and and buildings machinery equipment HK$’000 HK$’000 HK$’000 85,130 74,497 29,062 — 8,973 1,349 — 4,619 — — — (618) 85,130 88,089 29,793 ------------ ----------- ----------- 20,329 36,551 12,903 2,346 8,263 1,696 — — (318) 22,675 44,814 14,281 ------------ ----------- ----------- 62,455 43,275 15,512 64,801 37,946 16,159	Motor Moulds vehicles and tooling HK$’000 HK$’000 5,602 4,175 816 1,671 — — (560) (349) 5,858 5,497 ----------- ----------- 2,707 1,088 553 706 (426) (131) 2,834 1,663 ----------- ----------- 3,024 3,834 2,895 3,087	Total HK$’000 198,466 12,809 4,619 (1,527)
			214,367 ----------- 73,578 13,564 (875)
			86,267 -----------
			128,100

			124,888

The Group’s leasehold land and buildings were located on land held under medium term leases of 10 to 50 years and were located as follows:

At 31 March 2004 At 31 March 2003	Hong Kong Mainland China HK$’000 HK$’000 15,078 47,377 15,601 49,200	Total HK$’000 62,455

		64,801

At 31 March 2004, the Group had plant and machinery with net book value of approximately HK$4,912,000 (2003: HK$6,177,000) held under finance leases.

— 49 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

14. Construction-In-Progress

Movements were:

Cost Beginning of year Additions Transfer to fixed assets End of year	2004 HK$’000 2,511 2,630 — 5,141	2003 HK$’000 2,498 1,736 (1,723
		2,511

15. Investments in Subsidiaries

In the Company’s balance sheet, investment in subsidiaries consisted of:

Unlisted shares, at cost Due from subsidiaries _Less:_Impairment losses	2004 HK$’000 44,715 228,811 (9,484) 264,042	2003 HK$’000 44,715 213,491 —
		258,206

The amounts due from subsidiaries are unsecured, non-interest bearing and not repayable within the next twelve months .

The following is a list of the significant subsidiaries as at 31 March 2004:

			Issued and
	Place of	Principal place	fully paid up	Percentage of
Company	incorporation	of operation	share capital	equity interest held	Principal activities
*Shares held directly —*
Daiwa BVI Limited	British Virgin	British Virgin	US$10,000	100%	Investment holding
	Islands	Islands
*Shares held indirectly —*
Chiasso Inc.	British Virgin	Mainland China	US$2	100%	Manufacturing
	Islands				services of
					products
Cypress Distribution	Hong Kong	Hong Kong	HK$2	100%	Manufacture of
Limited					consumer
					electronics

— 50 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

			Issued and
	Place of	Principal place	fully paid up		Percentage of
Company	incorporation	of operation	share capital	equity interest held		Principal activities
Daiwa Associate	Hong Kong	Hong Kong	HK$2		100%	Property holding
(China) Limited
Daiwa Associate	Hong Kong	Hong Kong	Ordinary shares		100%	Management and
(H.K.) Limited			HK$100			finance
			Non-voting		—
			deferred shares
			HK$3,000,000
			(Note (iii))
Daiwa Distribution	Hong Kong	Hong Kong	HK$2		100%	Distribution of
Limited						electronic
						components
Daiwa Imtec	Hong Kong	Hong Kong	HK$2		100%	Distribution of
Electronics Ltd.						electronic
						components
Daiwa Manufacturing	Hong Kong	Hong Kong	HK$2		100%	Manufacture of
Limited						electronic
						components
						and
						manufacturing
						services
						of electronic
						products
Daiwa System	Hong Kong	Hong Kong	HK$2		100%	Trading of computer
Limited						components
1Daiwa (Zhaoqing)	Mainland China	Mainland China	Registered capital		100%	Manufacture of
Electronics			US$3,384,000			electronic
Industrial Limited						components
(Note (ii))
1Dongguan Wafer	Mainland China	Mainland China	Registered capital		100%	Manufacture of
Semi-Conductor			HK$56,200,000			electronic
Co., Ltd.(Note (ii))						components
Unity Electrical	Hong Kong	Hong Kong	HK$2,000,000		100%	Manufacture of
Industrial Ltd.						electric wire
Vastpoint	Hong Kong	Hong Kong	Ordinary shares		100%	Trading of
Industrial Limited			HK$100			electronic
			Non-voting			components
			deferred shares
			HK$1,300,000

1 Companies not audited by PricewaterhouseCoopers

— 51 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes—

(i) The above list includes the subsidiaries of the Company which, in the opinion of the Company’s directors and the Group’s management, principally contributed the results or formed a substantial portion of the net assets of the Group. To give details of other subsidiaries would result in particulars of excessive length.
(ii) Dongguan Wafer Semi-Conductor Co., Ltd. was established as a cooperative joint venture enterprise established in Mainland China to be operated for of 20 years up to October 2015. The Group is responsible to manage the operations of the company and accounts for this company as a wholly-owned subsidiary as it is entitled to all of the results and assets and liabilities of the company.

Daiwa (Zhaoqing) Electronics Industrial Limited was established as a foreign investment established in Mainland China to be operated for of 20 years up to May 2023. The Group is responsible to manage the operations of the company and accounts for this company as a wholly-owned subsidiary as it is entitled to all of the results and assets and liabilities of the company.

(iii) The non-voting deferred shares have no voting rights, are not entitled to any dividends, and are not entitled to any distributions upon winding up unless a sum of HK$100,000,000,000,000 has been distributed to the holders of ordinary shares.
(iv) None of the subsidiaries had any loan capital in issue at any time during the year ended 31 March 2004.

16. Interests in Jointly Controlled Entity

Share of net assets other than goodwill Goodwill on acquisition less accumulated amortisation	2004 HK$’000 1,658 — 1,658	2003 HK$’000 7,547 696
		8,243

The Group has interests in the following jointly controlled entity which is established and operating in Mainland China:

				Percentage of
	Nature of	Principal	Ownership	Voting	Profit/loss
Name	entity	activities	interest	power	sharing
Daiwa (Southern)	Sino-Foreign	Manufacture of	60%	60%	60%
Precision Industrial	cooperative joint	electronic
Limited	venture enterprise	components

The above jointly controlled entity adopted 31 December as its financial year end date. The Group’s consolidated profit and loss account for the year ended 31 March 2004 includes the Group’s share of the results of this jointly controlled entity for the year from 1 January 2003 to 31 December 2003. The Company’s directors and the Group’s management consider that there have been no material changes in the financial position in respect of this jointly controlled entity during the period from 1 January 2004 to 31 March 2004 which would materially affect the view given by the Group’s accounts.

— 52 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

17. Inventories

Trading stocks Raw materials Work-in-progress Finished goods	2004 HK$’000 53,488 56,778 10,801 10,506 131,573	2003 HK$’000 50,438 46,978 7,120 16,739
		121,275

At 31 March 2004, the carrying amount of inventories that was carried at net realisable value amounted to HK$651,000 (2003: HK$1,901,000).

Certain inventories were held under the trust receipts bank loan arrangements (Note 20) .

18. Trade Receivables

Majority of the Group’s sales is on open account terms, with credit terms generally ranging from 30 days to 60 days. The ageing analysis of trade receivables was as follows:

Less than 60 days 60 days to 119 days 120 days to 365 days	2004 HK$’000 93,234 15,501 12,593 121,328	2003 HK$’000 73,824 15,570 4,868
		94,262

19. Cash and Bank Balances

As at 31 March 2004, the Group’s cash and bank balances of approximately HK$11,324,000 (2003: HK$5,351,000) were denominated in Chinese Renminibi, which is not a freely convertible currency in the international market and its exchange rate is determined by the Government of the People’s Republic of China.

20. Short-term Bank Borrowings

Trust receipts bank loans Short-term bank loans	2004 HK$’000 45,358 2,000 47,358	2003 HK$’000 37,803 —
		37,803

— 53 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

21. Ageing Analysis of Trade Payables

The ageing analysis of trade payables was as follows:

Less than 60 days 60 days to 119 days 120 days to 365 days	2004 HK$’000 103,691 12,760 2,993 119,444	2003 HK$’000 73,518 15,127 7,114
		95,759

22. LONG-TERM LIABILITIES

Finance lease obligations Provision for long service payments Total amounts payable _Less:_Current portion Long-term portion	2004 HK$’000 3,219 592 3,811 1,901 1,910	2003 HK$’000 5,195 796
		5,991 1,937
		4,054

The Group’s finance lease obligations were analysed as follows:

2004 HK$’000 Total minimum lease payments — Within one year 1,919 — In the second year 1,331 — In the third to fifth year — 3,250 _Less:_Future finance charges (31) 3,219 The present value of finance lease liabilities is analysed as follows: Within one year 1,901 In the second year 1,318 In the third to fifth year — 3,219	2003 HK$’000 2,071 1,919 1,425
	5,415 (220
	5,195

	1,937 1,847 1,411
	5,195

— 54 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

23. Deferred Taxation

Deferred taxation are calculated in full on temporary differences under the liability method using a principal taxation rate of 17.5% (2003: 16%).

The movement on the deferred tax assets is as follows—

Beginning of year Deferred taxation credited to profit and loss account_(Note 6)_ End of year	2004 HK$’000 331 1,481 1,812	(Restated) 2003 HK$’000 319 12
		331

The movement on the deferred liabilities is as follows—

Beginning of year Deferred taxation charged to profit and loss account_(Note 6)_ End of year	2004 HK$’000 4,724 722 5,446	(Restated) 2003 HK$’000 4,174 550
		4,724

Deferred income tax assets are recognised for tax loss carry forwards to the extent that realisation of the related tax benefit through the future taxable profits is probable. The Group has unrecognised tax losses of HK$11,136,000 (2003:HK$9,713,000) to carry forward against future taxable income; these tax losses have no expiring date.

The movement in deferred tax assets and liabilities prior to offsetting of balances within the same taxation jurisdiction is as follows:

Deferred tax assets Beginning of year Credited to profit and loss account End of year	Tax losses 2004 2003 HK$’000 HK$’000 421 420 2,190 1 2,611 421	Tax losses 2004 2003 HK$’000 HK$’000 421 420 2,190 1 2,611 421
		421

— 55 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Deferred tax liabilities Beginning of year Charged to profit and loss account End of year	Accelerated tax 2004 HK$’000 4,814 1,431 6,245	depreciation 2003 HK$’000 4,275 539
		4,814

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority. The following amounts, determined after appropriate offsetting, are shown in the consolidated balance sheet:

Deferred tax assets Deferred tax liabilities	2004 HK$’000 1,812 (5,446) (3,634)	2003 HK$’000 331 (4,724)
		(4,393)

24. Share Capital — Company

Movements were:

2004 Number of shares ’000 HK$’000 1,000,000 100,000 158,810 15,881 — — — — 158,810 15,881	2003	2003
Number of shares ’000 1,000,000 158,810 — — 158,810	Number of shares ’000 1,000,000 159,122 350 (662) 158,810	HK$’000 100,000

		15,912 35 (66)
		15,881

— 56 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

25. Employee Share Options

In August 2002, the Company has adopted an employee share options scheme (“the Options Scheme”). Under the Options Scheme, the Company may grant options to employees (including executive directors of the Company) subject to a maximum of 30% of the nominal value of the issued share capital of the Company from time to time excluding for this purpose any shares issued upon exercise of employee share options. The exercise price will be determined by the Company’s board of directors and shall at least be the highest if (i) the closing price of the Company’s shares on the date of grant of the options, (ii) any average closing price of the Company’s shares for the five days immediately preceding the date of grant of the options, and (iii) the nominal value of the Company’s shares of HK$0.10 each.

No share options were granted during the year ended 31 March 2004. No share options were exercised during the year ended 31 March 2004 (2003: 350,000 share options were exercised). No share options were outstanding as at 31 March 2004 (2003: nil).

26. Reserves

Movements were:

Consolidated

Share premium HK$’000 At 1 April 2003, as previously reported 160,944 Effect of change in an accounting policy (Note 1(d)) — At 1 April 2003, as restated 160,944 Profit for the year — Translation adjustments — 2003/2004 interim dividend — 2003/2004 proposed final dividend — Dividends paid — At 31 March 2004 160,944 Representing — Company and subsidiaries 160,944 Jointly controlled entity — 160,944	Cumulative Capital translation Contributed reserves adjustments surplus HK$’000 HK$’000 HK$’000 90 (827) 41,201 — — — 90 (827) 41,201 — — — — 27 — — — — — — — — — — 90 (800) 41,201 90 (800) 41,201 — — — 90 (800) 41,201	Retained profits HK$’000 54,702 (4,028) 50,674 14,502 — (2,382) (1,588) — 61,206 68,211 (7,005) 61,206	Proposed dividends HK$’000 2,382 — 2,382 — — 2,382 1,588 (4,764) 1,588 1,588 — 1,588	Total HK$’000 258,492 (4,028)
				254,464 14,502 27 — — (4,764)
				264,229

				271,234 (7,005)
				264,229

— 57 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Share premium HK$’000 At 1 April 2002, as previously reported 161,072 Effect of change in an accounting policy (Note 1(d)) — At 1 April 2002, as restated 161,072 Profit for the year — Translation adjustments — Issue of shares 133 Repurchase of shares (261) 2002/2003 interim dividend paid — 2002/2003 proposed final dividend — Dividends paid — At 31 March 2003 160,944 Representing — Company and subsidiaries 160,944 Jointly controlled entities — 160,944	Cumulative Capital translation Contributed reserves adjustments surplus HK$’000 HK$’000 HK$’000 90 (963) 41,201 — — — 90 (963) 41,201 — — — — 136 — — — — — — — — — — — — — — — — 90 (827) 41,201 90 (827) 41,201 — — — 90 (827) 41,201	Retained profits HK$’000 47,132 (3,490) 43,642 11,796 — — — (2,382) (2,382) — 50,674 57,519 (6,845) 50,674	Proposed dividends HK$’000 1,595 — 1,595 — — — — 2,382 2,382 (3,977) 2,382 2,382 — 2,382	Total HK$’000 250,127 (3,490)
				246,637 11,796 136 133 (261) — — (3,977)
				254,464

				261,309 (6,845)
				254,464

— 58 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Company

At 1 April 2003 Profit for the year 2003/2004 interim dividend 2003/2004 proposed final dividend Dividends paid At 31 March 2004 At 1 April 2002 Profit for the year Issue of shares Repurchase of shares 2002/2003 interim dividend 2002/2003 proposed final dividend Dividends paid At 31 March 2003	Share Contributed premium surplus HK$’000 HK$’000 160,944 72,309 — — — — — — — — 160,944 72,309 161,072 72,309 — — 133 — (261) — — — — — — — 160,944 72,309	Retained profits HK$’000 6,626 10,563 (2,382) (1,588) — 13,219 11,338 52 — — (2,382) (2,382) — 6,626	Proposed dividends HK$’000 2,382 — 2,382 1,588 (4,764) 1,588 1,595 — — — 2,382 2,382 (3,977) 2,382	Total HK$’000 242,261 10,563 — — (4,764) 248,060 246,314 52 133 (261) — — (3,977) 242,261

Notes —

(i) Capital reserve represents statutory surplus reserve of a subsidiary in Mainland China and can be used to offset future losses or increase in capital of the subsidiary.
(ii) Under the Companies Act 1981 of Bermuda, contributed surplus is distributable to shareholders, subject to the condition that the Company cannot declare or pay a dividend, or make a distribution out of contributed surplus if (i) it is, or make after the payment be, unable to pay its liabilities as they become due, or (ii) the realisable value of its assets would thereby be less than the aggregate of its liabilities and its issued share capital and share premium account.

— 59 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

27. Notes to the Consolidated Cash Flow Statement

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

Operating profit Adjustment for — Interest income Depreciation of fixed assets Loss on disposal of fixed assets Amortisation and impairment loss of goodwill Gain resulting from acquisition of additional interest in a subsidiary Increase in inventories Increase in trade receivables Decrease/(increase) in prepayments, deposits and other receivables Increase in trade payables Decrease in accruals and other payables Net cash inflow/(outflow) from operating activities	2004 HK$’000 16,420 (318) 13,564 641 2,365 (1,023) 31,649 (7,944) (16,476) 4,152 20,944 (10,841) 21,484	(Restated) 2003 HK$’000 18,215 (467) 10,257 185 305 — 28,495 (38,485) (14,921) (1,752) 25,105 (297) (1,855)

— 60 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Analysis of changes in financing :

At 1 April Issue of shares for cash Repurchase of shares Contribution from minority shareholders of a subsidiary Minority interests in share of losses of subsidiaries Acquisition of additional interest in a subsidiary New finance leases Payment of capital element of finance lease obligations New short-term bank borrowings Repayment of short-term bank borrowings	Share capital and share premium 2004 2003 HK$’000 HK$’000 176,825 176,984 — 168 — (327) — — — — — — — — — — — — — — 176,825 176,825	Finance lease obligations 2004 2003 HK$’000 HK$’000 5,195 314 — — — — — — — — — — — 5,024 (1,976) (143) — — — — 3,219 5,195	Short-term bank borrowings 2004 2003 HK$’000 HK$’000 37,803 20,431 — — — — — — — — — — — — — — 163,017 97,631 (153,462) (80,259) 47,358 37,803	Minority interests 2004 2003 HK$’000 HK$’000 1,935 1,785 — — — — 1,000 300 (1,240) (150) (1,019) — — — — — — — — — 676 1,935	Minority interests 2004 2003 HK$’000 HK$’000 1,935 1,785 — — — — 1,000 300 (1,240) (150) (1,019) — — — — — — — — — 676 1,935
					1,935

— 61 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(c) Purchase of additional interest in a jointly controlled entity:

As at 31 March 2003, the Group had 61% interest in Daiwa (Zhaoqing) Electronics Industrial Limited, which was accounted for as a jointly controlled entity. Effective from 1 April 2003, the Group acquired the remaining 39% in Daiwa (Zhaoqing) Electronics Industrial Limited. Therefore, Daiwa (Zhaoqing) Electronics Industrial Limited has became a wholly owned subsidiary of the Group. Details of the net assets acquired are:

Net assets acquired:
Fixed assets
Inventories
Trade receivables
Prepayments, deposits and other receivables
Cash and bank balances
Trade payables
Accruals and other payables
Interests held immediately
prior to the acquisition of additional interests
Goodwill
Purchase consideration
Satisfied by:
Cash
Analysis of the net cash outflow in respect of
the acquisition of additional interest
in Daiwa (Zhaoqing) Electronics Industrial Limited:
Cash consideration
_Less:_Cash and bank balances
Net cash outflow in respect of the purchase of subsidiary

HK$’000
4,619
2,354
10,590
2,103
195
(2,741)
(10,908)
6,212
(6,425)
(213)
1,632
1,419
1,419
HK$’000
1,419
(195)
1,224

(d) Cash and cash equivalents:

Cash and cash equivalents consisted of cash and bank balances.

— 62 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

28. Contingent Liabilities

(a) At 31 March 2004, the Group had contingent liabilities in respect of guarantees issued by banks to the Group’s suppliers amounting to HK$24,111,000 (2003: HK$18,111,000).
(b) As at 31 March 2004, the Company has provided corporate guarantees in respect of banking facilities of its subsidiaries totaling of HK$113,940,000 (2003: HK$147,940,000). At 31 March 2004, the Group utilised banking facilities of HK$71,469,000 (2003: HK$57,193,000).

29. Commitments

(a) Capital commitments

The Group had the following commitments:

Contracted but not provided for — purchase of additional interest in a jointly controlled entity — purchase of fixed assets	2004 HK$’000 — 382 382	2003 HK$’000 1,500 345
		1,845

(b) Operating lease commitments

The Group has operating lease commitment in respect of rented office premises under noncancellable operating lease agreements. The total commitments are analysed as follows:

Not later than one year Later than one year and not later than five years	2004 HK$’000 540 195 735	2003 HK$’000 633 203
		836

30. Subsequent Events

The following significant events have taken place subsequent to 31 March 2004:

(i) In June 2004, a wholly owned subsidiary of the Group entered into a conditional agreement to acquire the entire interest in Elite Century Holdings Limited (“Elite”) for approximately HK$47,000,000. The acquisition is subject to several conditions, including completion of the rights issue as described in (ii) below. Elite and its subsidiaries are engaged in sales and distribution of computer products primarily in North America. Elite was majority owned and controlled by Mr. Lau Tak Wan, a director of the Company.

— 63 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(ii) In July 2004, the Company announced a rights issue at HK$0.45 per share, on the basis of 2 rights shares of every 3 shares held on the rights issue date, which will raise a net proceeds of approximately HK$47,043,000. The rights issue is underwritten by Smartco United Limited, which is majority owned and controlled by Mr. Lau Tak Wan, a director of the company.

31. APPROVAL OF ACCOUNTS

The accounts were approved by the Board of Directors on 23 July 2004.

— 64 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. EXTRACT OF THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE GROUP FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2004

Set out below is the extract from the unaudited consolidated financial statements of the Company for the six months ended 30 September 2004.

Condensed Consolidated Profit and Loss Account

For the six months ended 30 September 2004

Note Turnover 2 Cost of sales Gross profit Other revenue/income Selling and distribution expenses General and administrative expenses Operating profit 3 & 4 Finance costs Share of loss of jointly controlled entity Profit before taxation Taxation 5 Profit after taxation Minority interests Profit attributable to shareholders Interim dividends 7 Earnings per share — Basic 8 — Diluted 8	Unaudited Six months ended 30 September 2004 2003 HK$’000 HK$’000 616,518 409,934 (543,907) (352,507) 72,611 57,427 196 469 (12,968) (8,775) (45,783) (39,053) 14,056 10,068 (513) (599) (1) (2) 13,542 9,467 (925) (1,377) 12,617 8,090 15 98 12,632 8,188 — 2,382 7.84 cents 5.16 cents 7.84 cents 5.16 cents

— 65 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Condensed Consolidated Balance Sheet

As at 30 September 2004

Unaudited 30 September 2004 Note HK$’000 Non-current assets Goodwill 9 & 14 26,152 Fixed assets 9 145,723 Construction-in-progress — Interest in jointly controlled entity 1,657 Long-term investments 1,050 Deferred tax assets 6 1,980 176,562 --------------- Current assets Inventories 169,795 Trade receivables 10 178,485 Prepayments, deposits and other receivables 15,023 Cash and bank balances 83,566 446,869 Current liabilities Short-term bank borrowings 58,710 Trade payables 11 186,374 Accruals and other payables 28,627 Current portion of long-term liabilities 12 2,904 276,615 --------------- Net current assets 170,254 Total assets less current liabilities 346,816 Non-current liabilities Long-term liabilities 12 2,518 Deferred tax liabilities 6 5,211 7,729 --------------- Net Assets 339,087 Financed by: Share capital 13 26,468 Reserves 311,958 Shareholders’ equity 338,426 Minority interests 661 339,087	Audited 31 March 2004 HK$’000 — 128,100 5,141 1,658 1,050 1,812
	137,761 --------------- 131,573 121,328 14,878 67,953
	335,732
	47,358 119,444 16,648 1,901
	185,351 ---------------
	150,381
	288,142

	1,910 5,446
	7,356 ---------------
	280,786

	15,881 264,229
	280,110 676
	280,786

— 66 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Condensed Consolidated Cash Flow Statement

For the six months ended 30 September 2004

Net cash inflow from operating activities Net cash outflow from investing activities Net cash inflow/(outflow) from financing activities Increase/(decrease) in cash and cash equivalents Cash and cash equivalents at 1 April Effect of foreign exchange rate changes Cash and cash equivalents at the end of the period Analysis of balances of cash and cash equivalents: Cash and bank balances	Unaudited Six months ended 30 September 2004 2003 HK$’000 HK$’000 13,016 2,682 (53,327) (4,894) 55,695 (1,049) 15,384 (3,261) 67,953 60,799 229 109 83,566 57,647 83,566 57,647

— 67 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Condensed Consolidated Statement of Changes in Equity

For the six months ended 30 September 2004

At 1 April 2004 Translation adjustments Profit for the period Final dividend paid for 2004 Right Issue At 30 September 2004 At 1 April 2003 Translation adjustments Profit for the period Final dividend paid for 2003 Interim dividend proposed At 30 September 2003	Share premium HK$'000 160,944 36,457 197,401 160,944 160,944	Cumulative Capital translation Contributed reserves adjustments surplus HK$'000 HK$'000 HK$'000 90 (800) 41,201 228 90 (572) 41,201 90 (496) 41,201 109 90 (387) 41,201	Retained profits HK$'000 61,206 12,632 73,838 50,343 8,188 (2,382) 56,149	Proposed dividend HK$’000 1,588 (1,588) — 2,382 (2,382) 2,382 2,382	Total HK$'000 264,229 228 12,632 (1,588) 36,457 311,958 254,464 109 8,188 (2,382) — 260,379

— 68 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to condensed interim accounts

1. Basis of preparation and accounting policies

The unaudited condensed consolidated interim financial statements of the Group are prepared in accordance with Hong Kong Statement of Standard Accounting Practice (“SSAP”) No.25 “Interim financial reporting” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”). The accounting policies and basis of presentation used in the preparation of these condensed consolidated interim financial statements are consistent with those used in the preparation of the audited financial statements of the Group for the year ended 31 March 2004.

2. Revenues and segment information

The Group is principally engaged in the design, development, manufacture and distribution of electronic components and the provision of manufacturing services for electronic products.

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

(a) Primary reporting format — business segments:

Manufacturing and distribution of electronic components Six months ended 30 September 2004 2003 HK$’000 HK$’000 Turnover External sales 358,594 258,242 Inter-segment sales 19,557 798 378,151 259,040 Segments results 5,911 3,454 Finance costs Share of loss of jointly controlled entity Profit before taxation Taxation Profit after taxation Minority interests Profit attributable to shareholders	Manufacturing services for electronic products Six months ended 30 September 2004 2003 HK$’000 HK$’000 257,924 151,692 9 246 257,933 151,938 8,145 6,614	Eliminations Six months ended 30 September 2004 2003 HK$’000 HK$’000 (19,566) (1,044) (19,566) (1,044)	Group Six months ended 30 September 2004 2003 HK$’000 HK$’000 616,518 409,934 14,056 10,068 (513) (599) (1) (2) 13,542 9,467 (925) (1,377) 12,617 8,090 15 98 12,632 8,188	Group Six months ended 30 September 2004 2003 HK$’000 HK$’000 616,518 409,934 14,056 10,068 (513) (599) (1) (2) 13,542 9,467 (925) (1,377) 12,617 8,090 15 98 12,632 8,188

				10,068 (599) (2)
				9,467 (1,377)
				8,090 98
				8,188

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Secondary reporting format — geographical segments:

Hong Kong and Mainland China North America Europe Japan Other Asian countries	Turnover Six months ended 30 September 2004 2003 HK$’000 HK$’000 346,914 256,580 144,496 58,173 52,687 31,146 66,078 60,656 6,343 3,379 616,518 409,934	Turnover Six months ended 30 September 2004 2003 HK$’000 HK$’000 346,914 256,580 144,496 58,173 52,687 31,146 66,078 60,656 6,343 3,379 616,518 409,934
		409,934

3. Operating profit

Operating profit is stated after charging and crediting the following:

	Six months	ended
	30 September
	2004	2003
	HK$’000	HK$’000
Charging:
Depreciation of fixed assets	7.064	6,706
Provision for slow moving stock	2,105	2,076
Crediting:
Interest income	56	159

4. Staff costs

Wages and salaries Other allowances and benefits Retirement benefit costs — defined contribution plans	Six months ended 30 September 2004 2003 HK$’000 HK$’000 39,952 32,281 1,248 1,949 1,462 443 42,662 34,673	Six months ended 30 September 2004 2003 HK$’000 HK$’000 39,952 32,281 1,248 1,949 1,462 443 42,662 34,673
		34,673

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. Taxation

Hong Kong profits tax has been provided at the rate of 17.5% (2003: 17.5%) on the estimated assessable profits for the period. Mainland China enterprise income tax and oversea income tax are calculated at the rates applicable to the respective subsidiaries.

The amount of taxation charged to the condensed consolidated profit and loss account represents:

Hong Kong profits tax Mainland China enterprise income tax Oversea income tax Deferred tax — relating to the origination and reversal of temporary differences	Six months ended 30 September 2004 2003 HK$’000 HK$’000 479 532 338 102 67 — 884 634 41 743 925 1,377	Six months ended 30 September 2004 2003 HK$’000 HK$’000 479 532 338 102 67 — 884 634 41 743 925 1,377
		634 743
		1,377

6. Deferred taxation

Deferred taxation are calculated in full on temporary differences under the liability method using a principal taxation rate of 17.5% (2003: 17.5%).

The movement on the Group’s deferred tax assets and liabilities are as follows:

Six months ended 30 September 2004 HK$’000 Deferred tax assets Opening balance 1,812 (Charged)/credited to profit and loss account_(Note 5) (276) Acquisition 444 Closing balance 1,980 Deferred tax liabilities Opening balance 5,446 (Credited)/charged to profit and loss account(Note 5)_ (235) Closing balance 5,211	Year ended 31 March 2004 HK$’000 331 1,481 —
	1,812

	4,724 722
	5,446

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Deferred tax assets Deferred tax liabilities	30 September 2004 HK$’000 1,980 (5,211) (3,231)	31 March 2004 HK$’000 1,812 (5,446
		(3,634

7. Dividends

	Six months	ended
	30 September
	2004		2003
	HK$’000	HK$’000
2003/2004 Final dividend, paid, of HK$0.01
(2002/2003 final paid: HK$0.015) per ordinary share_(Note (i))_	1,588		2,382
2004/2005 Interim dividend of HK$0.01 (2003/2004: HK$0.015)
per ordinary shares with option to elect Warrant Alternative,
proposed on 16 December 2004_(Note (ii))_	—		2,382
	1,588		4,764

Note (i): At a meeting held on 23 July 2004 the directors proposed a final dividend of HK$0.01 per ordinary share for the year ended 31 March 2004, which was paid on 28 September 2004 and has been reflected as an appropriation of retained earnings for the six months ended 30 September 2004.
Note (ii): At a meeting held on 16 December 2004 the directors proposed an interim dividend of HK$0.01 per ordinary share for the six months ended 30 September 2004 to be paid in cash with the alternative to the shareholders to elect to receive part or all of their dividend entitlement in form of warrants on the basis of one warrant for every five shares held. This proposed dividend is not reflected as a dividend payable in these condensed interim accounts, but will be reflected as an appropriation of retained earnings for the year ending 31 March 2005. The Warrant Alternative is subject to approval of shareholders at special general meeting to be held on Tuesday, 25 January 2005.

8. Earnings per share

The calculation of basic and diluted earnings per share are based on the Group’s profit attributable to shareholders of HK$12,632,000 (2003: HK$8,188,000).

The basic earnings per share is based on the weighted average of 161,123,765 (2003: 158,809,600) ordinary shares in issue during the period. The diluted earnings per share is based on 161,123,765 (2003: 158,809,600) ordinary shares which is the weighted average number of ordinary shares in issue during the period plus the weighted average of nil (2003: nil) ordinary shares deemed to be issued at no consideration if all outstanding share options had been exercised.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

9. Capital expenditure

As at six months ended 30 September 2004

Opening net book value Acquisition of subsidiaries Other additions Disposals Depreciation/amortisation charge Closing net book value	Goodwill HK$’000 — 26,152 — — — 26,152	Fixed assets HK$’000 128,100 1,919 22,959 (191 (7,064
		145,723

10. Trade receivables

Trade receivables and their ageing analysis is as follows:

Less than 60 days 60 to 119 days 120 days or more	30 September 2004 HK$’000 115,894 47,430 15,161 178,485	31 March 2004 HK$’000 93,234 15,501 12,593
		121,328

Majority of the Group’s sales is on open account terms, with credit terms generally ranging from 30 days to 60 days.

11. Trade payables

Trade payables and their ageing analysis is as follows:

Less than 60 days 60 to 119 days 120 days or more	30 September 2004 HK$’000 142,611 33,687 10,076 186,374	31 March 2004 HK$’000 103,691 12,760 2,993
		119,444

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

12. Long-term liabilities

30 September 2004 HK$’000 Obligations under finance leases 4,846 Provision for long service payments 576 Total amounts payable 5,422 Less:_Current portion 2,904 Long-term portion 2,518 13. Share capital Number of Ordinary Shares Authorised: Ordinary shares of HK$0.10 each At 1 April 2004 and 30 September 2004 1,000,000,000 Issued and fully paid: Ordinary shares of HK$0.10 each At 1 April 2004 158,809,600 Right issue(Note)_ 105,873,066 At 30 September 2004 264,682,666	31 March 2004 HK$’000 3,219 592
	3,811 1,901
	1,910

	*HK$’000* 100,000

	15,881 10,587
	26,468

Note : The Company issued by way of 105,873,066 rights shares of HK$0.10 each in the share capital of the Company (the “Rights Share(s)”) on the basis of two Right Shares for every three issued share held on the close of business on 30 August 2004 at a subscription price of HK$0.45 per Right Share payable in full on acceptance. The right issue was completed on 24 September 2004 and the Group raised a net amount of approximately HK$47,044,000 of which HK$47,000,000 was used to acquire Elite Century Holdings Limited (“Elite”) and the balance will be used for general working capital for the Group. The acquisition of Elite was completed on 24 September 2004.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

14. Acquisition

In September 2004, the Group acquired 100% of the ownership interest of Elite Century Holdings Limited (“Elite”) which sells and distributes personal computer products mainly in Canada. In August 2004, the Group acquired the remaining 30% interest of a subsidiary, Daiwa Microtech Limited. After the acquisition, the entity became a wholly owned subsidiary. The consideration of these acquisitions were settled in cash. The resulting goodwill of the acquisitions will be amortised on a straight-line basis over 10 years.

Assets and liabilities arising from the acquisitions are as follows:

Fixed assets_(Note 9) Cash and bank balance Other assets less liabilities Fair value of net assets Goodwill(Note 9)_ Total purchase consideration	HK$’000 1,919 10,156 10,249
	22,324 26,152
	48,476

15. Contingent liabilities

At 30 September 2004, the Group and the Company had contingent liabilities in respect of bank guarantees amounting to HK$24,111,000 (at 31 March 2004: HK$24,111,000).

16. Commitments

(a) Capital commitments

	30 September	31 March
	2004	2004
	HK$’000	HK$’000
Contracted but not provided for
— purchase of fixed assets	8,302	382

(b) Operating lease commitments

At 30 September 2004, the Group had total future aggregate minimum lease payments under non-cancellable operating leases as follows:

Within one year In the second to fifth year inclusive	30 September 2004 HK$’000 1,809 3,498 5,307	31 March 2004 HK$’000 540 195
		735

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. INDEBTEDNESS

Borrowings

As at the close of business on 30 November 2004, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Group had outstanding borrowings of approximately HK$69,853,000, comprising the following:

(i) short-term bank loans of approximately HK$59,270,000. These loans were denominated in Hong Kong dollars and bore interest at floating rate.
(ii) finance leases of approximately HK$10,583,000. These finance leases were denominated in Hong Kong dollars and bore interest at floating rate.

Contingent liabilities

As at 30 November 2004, the Group has contingent liabilities in respect of guarantees issued by banks to certain suppliers of the Group in the amount of approximately HK$24,111,000 and has committed to buy USD and Yen under currency forwards contracts totalling approximately HK$58,052,000. These amounts have not provided in the accounts.

Disclaimer

Save as aforesaid and apart from intra-group liabilities, neither the Group nor any of the companies comprising the Group had, at the close of business on 30 November 2004, any loan capital issued and outstanding or agreed to be issued, bank overdrafts, loans, debt securities or other similar indebtedness, liabilities under acceptance (other than normal trade bills and payables) or acceptance credits, debentures, mortgages, charges, hire purchase or other finance lease commitments, guarantees or other material contingent liabilities.

The Directors have confirmed that there has been no material change in the indebtedness and contingent liabilities of the Group since 30 November 2004.

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GENERAL INFORMATION

APPENDIX II

1. RESPONSIBILITY STATEMENTS

This circular includes particulars given in compliance with the Takeovers Code and the Listing Rules for the purpose of giving information with regard to the Company. The information contained in this circular has been supplied by the Directors who have taken all reasonable care to ensure that the information stated herein is accurate. The Directors jointly and severally accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in this circular have been arrived at after due and careful consideration and there are no other facts not contained in this circular, the omission of which would make any statement in this circular misleading.

2. SHARE CAPITAL

The authorised and issued share capital of the Company as at the Latest Practicable Date and immediately upon exercise of all Subscription Rights are set out below:

Authorised:	Authorised:		HK$
	1,000,000,000	Shares as at the Latest Practicable Date	100,000,000

Issued and fully paid:			HK$
	264,682,666	Shares as at the Latest Practicable Date	26,468,266
	52,936,533	Shares to be issued upon exercise of	5,293,653
		all Subscription Rights (assuming all
		Shareholders are Qualifying Shareholders
		and all of them elect to receive the Warrants)
	317,619,199		31,761,919

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

Save for an issue of 105,873,066 Share through a rights issue completed on 24 September 2004, no Shares were issued during the period commencing on 31 March 2004, being the date to which the latest published audited accounts of the Group were made up, and ending on the Latest Practicable Date.

As at the Latest Practicable Date, the Company had no outstanding options, warrants, derivatives or other securities that are convertible into the Shares.

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GENERAL INFORMATION

APPENDIX II

3. MARKET PRICES

The table below shows the closing prices of the Shares on the Stock Exchange (i) on the last trading day of each of the six calendar months immediately preceding the date of the Announcement; (ii) on the date of the Announcement; and (iii) on the Latest Practicable Date.

Date	Price per Share
	(HK$)
31 May 2004	0.504
30 June 2004	0.450
30 July 2004	0.450
31 August 2004	0.455
30 September 2004	0.450
29 October 2004	0.445
30 November 2004	0.455
16 December 2004, being the date of the Announcement	0.450
Latest Practicable Date	0.470

The highest and lowest closing prices of the Shares recorded on the Stock Exchange during the Relevant Period were HK$0.475 on 9 November 2004, 10 November 2004, 12 November 2004, 15 November 2004 and 28 December 2004, and HK$0.43 on 19 October 2004 and 20 October 2004, respectively.

4. DISCLOSURE OF INTEREST

As at the Latest Practicable Date, the interests and short positions of Directors and chief executives of the Company in the shares, underlying shares and debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO) which were required, 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 taken under such provisions of the SFO), to be notified to the Company and the Stock Exchange, or which were required, pursuant to Section 352 of the SFO, to be entered in the register kept by the Company, or which were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies in the Listing Rules, to be notified to the Company and the Stock Exchange were as follows:

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GENERAL INFORMATION

APPENDIX II

(a) Directors’ interests in the Company

Long positions:

					Percentage
					of total
	Personal	Family	Corporate	Total	issued share
Name of Director	interests	interests	interests	interest	capital
Mr. Lau Tak Wan	5,186,666	—	119,924,731	125,111,397	42.73%
	(Note 1)		(Note 2)
Mr. Chan Yuen Mei,	3,353,332	—	46,868,832	50,222,164	18.97%
Pinky	(Note 1)		(Note 3)
Mr. Wan Chor Fai	150,000	—	—	150,000	0.06%
Mr. Barry John Buttifant	500,000	—		500,000	0.19%

Notes:

Out of these Shares, 2,520,000 Shares were jointly held by Mr. Lau and Ms. Chan.
Out of these Shares, (i) 46,868,832 Shares are held by China Capital Holdings Investment Limited whose issued share capital is 60% owned by Mr. Lau and 40% by Ms. Chan. The (ii) 59,939,232 Shares are held by Smartco United Limited, a company owned as to 89.10% by Mr. Lau, as to 2.24% by Mr. Yuen, as to 0.67% by Mr. Patrick Lee, as to 3.33% by Mr. Albert Poon and as to 4.66% by Ms. Wong Yuk Ying; and (iii) the remaining 13,116,667 Shares are beneficially owned by Cyber Concept Limited, a company wholly-owned by Mr. Yuen and the corporate decisions of which are significantly influenced by Mr. Lau. Mr. Yuen, Mr. Patrick Lee, Mr. Albert Poon and Ms. Wong Yuk Ying are considered as parties acting in concert with Mr. Lau under the Takeovers Code.
These Shares are held by China Capital Holdings Investment Limited.

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GENERAL INFORMATION

APPENDIX II

(b) Directors’ interests in associated corporations

Dominion International Limited which is wholly owned by a trustee for the benefit of a discretionary trust the beneficiaries of which include Mr. Lau, Ms. Chan and certain of his family member, has beneficial interests in the following subsidiaries of the Company:

Long positions:

	Number of non-voting
	deferred shares held
Cosmos Wires and Connectors Manufacturing Limited	50,000
Westpac Digital Limited	1
Vastpoint Industrial Limited	455,000
Daiwa Associate (H.K.) Limited	1,500,000

In addition, each of Mr. Lau and Ms. Chan beneficially owns 140,000 and 10,000 non-voting deferred shares respectively in Cosmotec Precision Industrial Limited.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or chief executives of the Company had any interests or short positions in any shares, underlying shares and debentures of the Company or any of their associated corporations (within the meaning of the SFO) which were required, 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 taken under such provisions of the SFO), to be notified to the Company and the Stock Exchange, or which were required, pursuant to Section 352 of the SFO, to be entered in the register kept by the Company, or which were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies of the Listing Rules, to be notified to the Company and the Stock Exchange.

(c) Other interests in the Company

As at the Latest Practicable Date,

(i) none of the subsidiaries or associates of the Company, nor any pension funds of the Company or of any of its subsidiaries, nor any fund managed on a discretionary basis by any fund manager connected with the Company, nor any advisers to the Company as specified in class (2) of the definition of associate in the Takeovers Code had any interest in the securities of the Company;

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GENERAL INFORMATION

APPENDIX II

(ii) no person who, prior to the posting of this circular, has irrevocably committed itself to accept or reject the Warrant Alternative and/or the Whitewash Waiver; and
(iii) no person had any arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code with the Company or with any person who is an associate of the Company by virtue of classes (1), (2), (3) and (4) of the definition of associate as defined in the Takeovers Code.

5. SUBSTANTIAL SHAREHOLDERS

As at the latest Practicable Date, to the best knowledge of the Directors, the following parties (other than a Director or chief executive of the Company), had an interest or short position in the shares, underlying shares or debentures of the Company which are required to be disclosed to the Company under the provision of Divisions 2 and 3 and Part XV of the SFO, or, who was, directly or indirectly, interested in 10% or more of the norminal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group:

Long positions:

		Percentage of
	Number of	total issued
Name of Shareholder	Shares held	share capital
Smartco United Limited_(Note 1 & 2)_	59,939,232	22.65%
Daiwa Electronics Inc.(Note 1)	59,939,232	22.65%
Westpac Digital Inc.(Note 2)	59,939,232	22.65%
China Capital Holdings Investment Limited	46,868,832	17.71%

Notes:

Daiwa Electronics Inc. is the holding company of Smartco United Limited. Accordingly, Daiwa Electronics Inc. is deemed to be interested in the same parcel of Shares held by Smartco United Limited.
Westpac Digital Inc. is interested in 52.11% of the issued share capital of Daiwa Electronics Inc., holding company of Smartco United Limited. Accordingly, Westpac Digital Inc. is deemed to be interested in the same parcel of Shares held by Smartco United Limited.

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GENERAL INFORMATION

APPENDIX II

6. DEALINGS IN SECURITIES

On 24 September 2004, the Company completed a rights issue. The following table set out the subscription of Shares by Directors under the Rights Issue:

Name	Number of Share	Price per Share
		HK$
Mr. Lau Tak Wan	20,822,198	0.45
Ms. Chan Yuen Mei, Pinky	20,088,864	0.45
Mr. Barry John Buttifant	400,000	0.45
Mr. Wan Chor Fai	60,000	0.45

Smartco United Limited, a company owned as to 89.10% by Mr. Lau, acted as the underwriter of the rights issue and subscribed for 59,939,232 Share at HK$0.45 per Share.

Save as disclosed above, none of the Directors and any party acting in concert with them had dealt in any securities of the Company during the Relevant Period.

7. ARRANGEMENTS AFFECTING DIRECTORS

(a) Mr. Mak Ho Kai, Stanly as an executive director of the Company and CEO (distribution) of the Group entered into a service contract with the Company for an initial terms of two years commencing on 1 October 2004 and thereafter until terminated by either party giving to the other not less than six months’ notice in writing terminating on or after the expiry of the initial terms of two years. Mr. Mak is current entitled to an annual emolument of HK$1,300,000. Pursuant to his service contract with the Company, Mr. Mak may be entitled to discretionary management bonus as determined by the Board in its absolute discretion depending on the performance of Mr. Mak and the operating results of the Group for each financial year provided that the total amount of the management bonus, if any, to be allocated to be among all the Directors shall not be greater than 10% of the audited consolidated net profit attributable to shareholders (after exceptional items, extraordinary items and taxation) of the Group as reflected in its consolidated audited accounts for the relevant financial year.

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GENERAL INFORMATION

APPENDIX II

(b) Mr. Wan Chor Fai as an executive director of the Company and CEO (Manufacturing) of the Group entered into a service contract with the Company for an initial terms of two years commencing on 1 October 2004 and thereafter until terminated by either party giving to the other not less than six months’ notice in writing terminating on or after the expiry of the initial terms of two years. Mr. Wan is current entitled to an annual emolument of HK$1,300,000. Pursuant to his service contract with the Company, Mr. Wan may be entitled to discretionary management bonus as determined by the Board in its absolute discretion depending on the performance of Mr. Wan and the operating results of the Group for each financial year provided that the total amount of the management bonus, if any, to be allocated to be among all the Directors shall not be greater than 10% of the audited consolidated net profit attributable to shareholders (after exceptional items, extraordinary items and taxation) of the Group as reflected in its consolidated audited accounts for the relevant financial year.

Save as disclosed above, no Director has a service contract with the Company which is not determinable by the Group within one year without payment of compensation, other than statutory compensation or which has been entered into or amended with 6 months before the date of the Announcement.

(c) Save for the acquisition of the entire issued share capital of Elite Century Holdings Limited from Smartco United Limited, a shareholder of the Company interested in 22.65% of the entire issued share capital of the Company as at the Latest Practicable Date and is owned as to 89.10% by Mr. Lau, at a consideration of HK$47,000,000, none of the Directors has, or has had any direct or indirect interest in any assets which have been acquired, disposed of or leased to or which are proposed to be acquired, disposed of or leased to the Company or any member of the Group since 31 March 2004, being the date to which the latest published audited accounts of the Company were made up.
(d) No benefit (other than statutory compensation) have been or will be given to the Directors as compensation for loss of office or otherwise in connection with the Warrant Alternative and/or Whitewash Waiver.
(e) No material contract or arrangement entered into by any of the Directors or any party acting in concert with him which any Director has a material interest.
(f) As at the Latest Practicable Date, there was no agreement or arrangement between any Director and any other person which is conditional on or dependent upon or otherwise connected with the Warrant Alternative and/or the Whitewash Waiver.

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GENERAL INFORMATION

APPENDIX II

8. MATERIAL LITIGATION

As at the Latest Practicable Date, neither the Company nor any other member of the Group is engaged in any litigation or arbitration of material importance and there was no litigation or claims of material importance known to the Directors to be pending or threatened against the Company or any of its members.

9. MATERIAL CONTRACTS

Save for disclosed below, neither the Company nor any other members of the Group has entered into any material contracts (not being contracts entered into in the ordinary course of business carried out by the Group) within the two years preceding the Latest Practicable Date:

(a) the sale and purchase agreement dated 2 June 2004 entered into between Daiwa Trading (Guangdong) Limited, a wholly owned subsidiary of the Company, and Heyuan Hi-Tech Development Zone Co. Ltd. in relation to an acquisition of a land use right on a piece of industrial land in the PRC at RMB12,000,000 (equivalent to approximately HK$11,321,000). Heyuan Hi-Tech Development Zone Co. Ltd. is not a connected person of the directors, chief executive or substantial shareholders of the Company and its subsidiaries and associates of any of them. Details of the acquisition are disclosed in the circular of the Company dated 15 July 2004.
(b) the sale and purchase agreement dated 10 June 2004 (amended by a supplemental agreement dated 7 July 2004) entered into amongst the Company, Daiwa BVI Limited, a wholly-owned subsidiary of the Company, Smartco United Limited and Mr. Lau for the acquisition of the entire issued share capital of Elite Century Holdings Limited at a consideration of HK$47,000,000. Details of the acquisition is disclosed in the circular of the Company dated 5 August 2004; and
(c) the underwriting agreement dated 10 June 2004 (amended by the supplemental agreement dated 7 July 2004) entered into between the Company and Smartco United Limited, as the underwriter, in relation to the rights issue of the Company of 105,873,066 rights shares at HK$0.45 per rights share on the basis of two rights shares for every three Shares held at the time of the rights issue. Details of the rights issue are disclosed in the circular of the Company dated 5 August 2004.

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GENERAL INFORMATION

APPENDIX II

10. MATERIAL CHANGES IN THE FINANCIAL OR TRADING POSITION

Save as disclosed below, as at the Latest Practicable Date, the Directors are not aware of any circumstance or events that may give rise to a material change in the financial or trading position or prospect of the Group since 31 March 2004, being the date to which the latest published audited accounts of the Company were made up:

(a) the acquisition of a land use right on a piece of industrial land located in the PRC at RMB12,000,000 (equivalent to approximately HK$11,321,000), details of which are disclosed in the circular of the Company dated 15 July 2004;
(b) the acquisition of the entire issued share capital of Elite Century Holdings Limited at a consideration of HK$47,000,000, details of which are disclosed in the circular of the Company dated 5 August 2004; and
(c) the rights issue of 105,873,066 rights shares at HK$0.45 per rights share on the basis of two rights shares for every three Shares held at the time of the rights issue, details of which are disclosed in the circular of the Company dated 5 August 2004.

The Directors consider that the above transactions will not give rise to any material adverse impact on the financial or trading position or prospect of the Group.

11. EXPERTS AND CONSENTS

The following is the qualification of the experts who have given an opinion or advice, which is contained or referred to in this circular:

Name Qualification

VC Capital

a licensed corporation to conduct type 1 (dealing in securities), type 4 (advising on securities), type 6 (advising on corporate finance) and type 9 (asset management) regulated activities under the SFO

PricewaterhouseCoopers Certified Public Accountants, Hong Kong

Neither of VC Capital nor PricewaterhouseCoopers had any interest in the securities of the Company as at the Latest Practicable Date nor had dealt in any interest in the securities of the Company during the Relevant Period.

As at the Latest Practicable Date, neither of VC Capital nor PricewaterhouseCoopers was beneficially interested in the share capital of any member of the Group or had any rights, whether legally enforceable or not, to subscribe for or to nominate persons to

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GENERAL INFORMATION

APPENDIX II

subscribe for securities in any member of the Group and have any interest, either directly or indirectly, in any assets which have been, since 31 March 2004, 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.

Each of the experts above has given and has not withdrawn its written consent to the issue of this circular with the inclusion therein of its opinion or letter, as the case may be, and the references to its name, opinion or letter in the form and context in which it respectively appears.

12. MISCELLANEOUS

(a) As at the Latest Practicable Date, none of the Shareholders, who are entitled to vote has irrevocably committed themselves to vote for or against the Warrant Alternative and/or the Whitewash Waiver.
(b) Mr. Lau and parties acting in concert with him have no intention to:
(i) discontinue the business of the Company;
(ii) introduce any major changes to the business of the Company, including any redeployment of fixed assets of the Company; or
(iii) discontinue the employment of the employees of the Company and of its subsidiaries.
(c) As at the Latest Practicable Date, there was no agreement or arrangement or understanding (including compensation arrangement) existed between Mr. Lau and parties acting in concert with him and the Directors or recent Directors and Shareholders or recent Shareholders which was dependent upon or otherwise connected with the Warrant Alternative and/or the Whitewash Waiver.
(d) The company secretary of the Company is Mr. Ho Chui Sing, Derek, CPA .
(e) The qualified accountant of the Company under Rule 3.24 of the Listing Rules is Mr. Ho Chui Sing, Derek, CPA .
(f) The Company’s Hong Kong branch share registrar is Abacus Share Registrars Limited at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong.

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GENERAL INFORMATION

APPENDIX II

(g) The registered office of the Company is Canon’s Court, 22 Victoria Street, Hamilton HM12, Bermuda and the principal place of business of the Company in Hong Kong is at 11th Floor, Block G, East Sun Industrial Centre, 16 Shing Yip street, Kwun Tong, Kowloon, Hong Kong.
(h) The registered office of VC Capital is 38th Floor, The Centrium, 60 Wyndham Street, Central, Hong Kong.
(i) The registered office of PricewaterhouseCoopers is 22nd Floor, Prince’s Building, Central, Hong Kong.
(j) The English text of this circular and form of proxy shall prevail over the Chinese text in the case of any inconsistency.

13. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours at the office of the Company at 11th Floor, Block G, East Sun Industrial Centre,16 Shing Yip Street, Kwun Tong, Kowloon, Hong Kong up to and including 25 January 2005:

(a) the memorandum of association and Bye-laws of the Company;
(b) the letter from the Independent Board Committee, the text of which is set out on pages 15 to 16 of this circular;
(c) a copy of the draft (subject to modification, if necessary) of the Instrument;
(d) the letter of advice from VC Capital the text of which is set out on pages 17 to 26 of this circular;
(e) the annual report of the Company for the financial year ended 31 March 2004;
(f) the interim report of the Company for the six months ended 30 September 2004;
(g) the material contracts referred to in the section headed “Material Contracts” in this appendix;
(h) a copy of the circular of the Company dated 15 July 2004 in relation to a disclosable transaction of the Company;

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GENERAL INFORMATION

APPENDIX II

(i) a copy of the circular of the Company dated 5 August 2004 in relation to a major and connected transaction and rights issue of the Company; and
(j) the consent letters referred to under the section headed “Experts and consents” in this Appendix.

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APPENDIX III SUMMARY OF THE TERMS AND CONDITIONS OF THE WARRANTS

The Warrants will be issued subject to and with benefit of the Instrument and they will be issued in registered form and will form one class and rank pari passu in all respects with each other.

The principal terms and conditions of the Warrants will be set out in the Warrant Certificates (as defined in the Instrument) and will include provisions to the effect set out below. Warrantholders will be entitled to the benefit of, be bound by, and be deemed to have notice of all such terms and conditions of the Instrument, copies of which will be available form the principal place of business for the time being of the Company in Hong Kong.

1. EXERCISE OF SUBSCRIPTION RIGHTS

(A) The registered holder for the time being of a Warrant will have the right (the “Subscription Rights”) for each unit of the Warrants to subscribe in cash the whole or part (in integral multiples of HK$0.50) of the amount in respect of which the Warrant is issued for fully paid new Shares at an initial subscription price of HK$0.50 per Share (subject to the adjustments referred to below) (the “Subscription Price”). The Subscription Rights attaching to the Warrants may be exercised during the Subscription Period. The business day falling during the Subscription Period on which any of the Subscription Rights are duly exercised is referred to in this summary as a “Subscription Date”. Any Subscription Rights which have not been exercised during the Subscription Period will lapse and the relevant Warrant Certificates (as defined in the Instrument) will cease to be valid for any purpose. Reference in this summary to “Shares” are to the existing Shares of the Company and all other (if any) Shares from time to time and for the time being ranking pari passu therewith.
(B) Each Warrant Certificate (as defined in the Instrument) will contain a subscription form. In order to exercise his Subscription Rights, a Warrantholder must complete and sign the subscription form (which shall, once signed and completed, be irrevocable) and deliver the Warrant Certificate (as defined in the Instrument) (and, if the subscription form used is not the form endorsed on the Warrant Certificate, the separate subscription form) to the Registrar, together with a remittance for the relevant subscription monies (or in a case of a partial exercise, the relevant portion of the subscription monies), for the new Shares in respect of which the Subscription Rights are being exercised. In each case compliance must also be made with any exchange control, fiscal or other laws or regulations for the time being applicable.
(C) No fraction of a Share will be allotted but any balance representing fractions of the subscription moneys paid on the exercise of the Subscription Rights will be refunded to the person or persons whose name(s) stand(s) in the register of Warrantholders as the holder(s) of the relevant Warrant, provided always that if

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APPENDIX III SUMMARY OF THE TERMS AND CONDITIONS OF THE WARRANTS

the Subscription Rights comprised in two or more Warrant Certificate (as defined in the Instrument) are exercised at the same time by the same Warrantholder then, for the purpose of determining whether any (and if so, what) fraction of a Share arises, the Subscription Rights represented by such Warrant Certificate (as defined in the Instrument) shall be aggregated.

(D) The Company has undertaken in the Instrument that Shares falling to be issued upon the exercise of the Subscription Rights will be issued and allotted, subject to any shorter period as prescribed or required by the Stock Exchange from time to time, not later than 28 days after the relevant Subscription Date and will rank pari passu with the fully-paid Shares in issue on the relevant Subscription Date and accordingly shall entitle the holders to participate in all dividends or other distributions paid or made on or after the relevant Subscription Date other than any dividend or other distribution previously declared or recommended or resolved to be paid or made if the record date therefor shall be before the relevant Subscription Date and notice of the amount and record date for which shall have been given to the Stock Exchange prior to the relevant Subscription Date.
(E) As soon as practicable after the relevant allotment of Shares (and, subject to any shorter period as prescribed by the Stock Exchange from time to time, not later than 28 days after the relevant Subscription Date) there will be issued free of charge to the Warrantholder of the Warrant represented by this Warrant Certificate (as defined in the Instrument):
(i) a certificate (or certificates) for the relevant Shares in the name of such Warrantholder;
(ii) (if applicable) a balance Warrant Certificate (as defined in the Instrument) in registered form in the name of such Warrantholder in respect of any Subscription Rights represented by this Warrant Certificate (as defined in the Instrument) and remaining unexercised; and
(iii) (if applicable) a refund cheque representing the fractional entitlement to Shares not allotted as mentioned in sub-paragraph (C) above.

The certificate(s) for Shares arising on the exercise of Subscription Rights, the balance Warrant Certificate (as defined in the Instrument) (if any) and the refund cheque in respect of the fractional entitlement (if any) will be sent by post at the risk of such Warrantholder to the address of such Warrantholder or (in the case of a joint holding) to that one of them whose name stands first in the Register. If the Company agrees, such certificates and cheques may by prior arrangement be retained by the Registrar to await collection by the relevant Warrantholder.

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APPENDIX III SUMMARY OF THE TERMS AND CONDITIONS OF THE WARRANTS

2. ADJUSTMENTS OF SUBSCRIPTION PRICE

The Instrument contains detailed provisions relating to the adjustment of the Subscription Price. The following is a summary of, and is subject to, the adjustment provisions of the Instrument:

(A) The Subscription Price shall (except as mentioned in sub-paragraphs (B) and (C) below) be adjusted as provided in the Instrument in each of the following cases:
(i) an alteration of the nominal amount of the Shares by reason of any consolidation or sub-division;
(ii) an issue (other than in lieu of a cash dividend) by the Company of Shares credited as fully-paid by way of capitalisation of profits or reserves (including any share premium account or capital redemption reserve fund);
(iii) a Capital Distribution (as defined in the Instrument) being made by the Company, whether on a reduction of capital or otherwise, to holders of its Shares in their capacity as such;
(iv) a grant by the Company to the Shareholders (in their capacity as such) of rights to acquire for cash assets of the Company or any of its Subsidiaries;
(v) an offer or grant being made by the Company to Shareholders of new Shares by way of rights or of options or warrants to subscribe for new Shares at a price which is less than 90 per cent. of the market price (calculation as provided in the Instrument);
(vi) an issue wholly for cash being made by the Company or any other company of securities convertible into or exchangeable for or carrying rights of subscription for new Shares, if in any case the total Effective Consideration (as defined in the Instrument) per Share is less than 90 per cent. of the market price (calculation as provided in the Instrument), or the terms of any such issue being altered so that the said total Effective Consideration is less than 90 per cent. of the market price;
(vii) an issue being made wholly for cash of Shares (other than pursuant to an Employee Share Option Scheme (as defined in the Instrument)) at a price less than 90 per cent. of the market price (calculation as provided in the Instrument); and

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APPENDIX III SUMMARY OF THE TERMS AND CONDITIONS OF THE WARRANTS

(viii) the purchase by the Company of Shares or securities convertible into Shares or any rights to acquire Shares (excluding any such purchases made on the Stock Exchange or any recognised stock exchange, being a stock exchange recognised for this purpose by the SFC and the Stock Exchange) in circumstances where the directors of the Company consider that it may be appropriate to make an adjustment to the Subscription Price.
(B) Except as mentioned in sub-paragraph (C) below, no such adjustment as is referred to in sub-paragraphs (ii) to (vii) of sub-paragraph (A) above shall be made in respect of:
(i) an issue of fully-paid Shares upon the exercise of any conversion rights attached to securities convertible into Shares or upon the exercise of any rights (including the Subscription Rights) to acquire Shares;
(ii) an issue of Shares or other securities of the Company or any of its subsidiaries wholly or partly convertible into, or rights to acquire, Shares to directors or employees of the Company or any of its subsidiaries pursuant to an Employee Share Option Scheme (as defined in the Instrument);
(iii) an issue by the Company of Shares or by the Company or any of its subsidiaries of securities wholly or partly convertible into or rights to acquire Shares, in any such case in consideration or part consideration for the acquisition of any other securities, assets or business;
(iv) an issue of fully-paid Shares by way of capitalisation of all or part of the Subscription Right Reserve (as defined in the Instrument) (or other profits or reserves) to be established in certain circumstances pursuant to the terms and conditions contained in the Instrument (or any similar reserve which has been or may be established pursuant to the terms of any other securities wholly or partly convertible into, or rights to acquire, Shares); or
(v) an issue of Shares pursuant to a scrip dividend scheme where an amount not less than the nominal amount of the Shares so issued is capitalised and the market value (calculation as provided in the Instrument) of such Shares is not more than 110 per cent. of the amount of dividend which Shareholders could elect to or would otherwise receive in cash.

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APPENDIX III SUMMARY OF THE TERMS AND CONDITIONS OF THE WARRANTS

(C) Notwithstanding the provisions referred to in sub-paragraphs (A) and (B) above, in any circumstances where the directors of the Company shall consider that an adjustment to the Subscription Price provided for under the said provisions should not be made or should be calculated on a different basis or that an adjustment to the Subscription Price should be made notwithstanding that no such adjustment is required under the said provisions or that an adjustment should take effect on a different date or with a different time from that provided for under the said provisions, the Company may appoint either an approved merchant bank (as defined in the Instrument) or the auditors of the Company to consider whether for any reason whatever the adjustment to be made (or the absence of adjustment) would or might not fairly and appropriately reflect the relative interests of the persons affected thereby and, if such approved merchant bank (as defined in the Instrument) or the auditors of the Company (as the case may be) shall consider this to be the case, the adjustment shall be modified or nullified or an adjustment made instead of no adjustment in such manner (including, without limitation, making an adjustment calculated on a different basis) and/or the adjustment shall take effect from such other date and/or time as shall be certified by such approved merchant bank (as defined in the Instrument) or the auditors of the Company (as the case may be) to be in their opinion appropriate.
(D) Any adjustment to the Subscription Price shall be made to the nearest one cent so that any amount under half a cent shall be rounded down and any amount of half a cent or more shall be rounded up. No adjustment shall be made to the Subscription Price in any case in which the amount by which the same would be reduced would be less than one cent and any adjustment which would otherwise then be required shall not be carried forward. No adjustment may be made (except on a consolidation of Shares into Shares of a larger nominal amount) which would increase the Subscription Price.
(E) Every adjustment to the Subscription Price will be certified by the auditors of the Company or an approved merchant bank (as defined in the Instrument) in accordance with sub-paragraph (C) above and notice of each adjustment (giving the relevant particulars) will be given to the Warrantholders. In giving any certificate or making any adjustment hereunder, the auditors of the Company or the approved merchant bank (as defined in the Instrument) shall be deemed to be acting as experts and not as arbitrators and, in the absence of manifest error, their decision shall be conclusive and binding on the Company and the Warrantholders and all persons claiming through or under them respectively. Any such certificates of the auditors of the Company and/or approved merchant bank (as defined in the Instrument) will be available at the principal place of business for the time being of the Company in Hong Kong, where copies may be obtained without charge.

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APPENDIX III SUMMARY OF THE TERMS AND CONDITIONS OF THE WARRANTS

3. REGISTERED WARRANTS

The Warrants are issued in registered form. The Company shall be entitled to treat the registered holder of any Warrant as the absolute owner thereof and accordingly shall not except as ordered by a Court of competent jurisdiction or required by law be bound to recognise any equitable or other claim to or interest in such Warrant on the part of any other person, whether or not it shall have express or other notice thereof.

4. WINDING-UP OF THE COMPANY

(a) In the event a notice is given by the Company to its shareholders to convene a shareholders’ meeting for the purposes of considering, and if thought fit approving, a resolution to voluntarily wind-up the Company, the Company shall forthwith give notice thereof to each Warrantholder and thereupon, every Warrantholder shall be entitled by irrevocable surrender of his Warrant Certificate(s) (as defined in the Instrument) to the Company (such surrender to occur not later than 2 business days prior to the proposed shareholders’ meeting referred to above) with the subscription form(s) duly completed, together with payment of the subscription moneys or the relative portion thereof, to exercise the Subscription Rights represented by such Warrant and the Company shall as soon as possible and in any event no later than the day immediately prior to the date of the proposed shareholders’ meeting allot such number of Shares to the Warrantholder which fall to be issued pursuant to the exercise of the Subscription Rights represented by such Warrant. The Company shall give notice to the Warrantholders of the passing of such resolution within 7 days after the passing thereof.
(b) If an effective resolution is passed during the Subscription Period for the voluntary winding-up of the Company for the purpose of reconstruction or amalgamation pursuant to a scheme of arrangement to which the Warrantholders, or some persons designated by them for such purpose by special resolution, shall be a party or in conjunction with which a proposal is made to the Warrantholders and is approved by special resolution, the terms of such scheme of arrangement or (as the case may be) proposal shall be binding on all the Warrantholders.

Subject to the foregoing, if the Company is wound up, all Subscription Rights which have not been exercised at the commencement of the winding-up shall lapse and each Warrant Certificate (as defined in the Instrument) will cease to be valid for any purpose.

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APPENDIX III SUMMARY OF THE TERMS AND CONDITIONS OF THE WARRANTS

5. TRANSFER, TRANSMISSION AND REGISTER

The Subscription Rights represented by the Warrant Certificate (as defined in the Instrument) are transferable, in whole amounts or integral multiples of the Subscription Price for the time being in force, by instrument of transfer in any usual or common form or such other form as may be approved by the directors of the Company, by an instrument of transfer executed under the hands by the authorised person(s). For this purpose, the Company shall maintain the Register and the provisions of the Company’s Bye-laws for the time being in relation to the registration, transfer and transmission of Shares shall apply, mutantis mutandi, to the registration, transfer and transmission of the Warrants and shall have full effect as if the same had been incorporated herein. Additional costs and expenses may be incurred by the Warrantholders in connection with any expedited re-registration of the Warrants prior to transfer or exercise of the Warrants, in particular during the period commencing 10 business days prior to and including the last day of the Subscription Period, being 24 February 2008.

6. CLOSURE OF REGISTER OF WARRANTHOLDERS

The registration of transfers may be suspended and the Register may be closed for such period as the directors of the Company may from time to time direct, provided that the same shall not be closed for a period of more than 60 days in any one year. Any transfer or exercise of the Subscription Rights attached to the Warrants made while the Register is so closed shall, as between the Company and the person claiming under the relevant transfer of Warrants or, as the case may be, as between the Company and the Warrantholder who has so exercised the Subscription Rights attached to his Warrants (but not otherwise), be considered as made immediately after the reopening of the Register.

7. PURCHASE AND CANCELLATION

The Company or any of its subsidiaries may at any time purchase Warrants:

(i) in the open market or by tender (available to all Warrantholders alike) at any price; or
(ii) by private treaty upon terms to be agreed between the parties, but the price of which shall in any event not exceeding 110 per cent of the Exercise Moneys (as defined in the Instrument),

but not otherwise.

All Warrants purchased as aforesaid shall be cancelled forthwith and may not be reissued or re-sold.

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APPENDIX III SUMMARY OF THE TERMS AND CONDITIONS OF THE WARRANTS

8. MEETINGS OF WARRANTHOLDERS AND MODIFICATION OF RIGHTS

(A) The Instrument contains provisions for convening meetings of Warrantholders to consider any matter affecting the interests of Warrantholders, including the modification by special resolution of the provisions of the Instrument and/or the terms and conditions endorsed in the Warrant Certificate (as defined in the Instrument). A special resolution duly passed at any such meeting shall be binding on the Warrantholders, whether present or not.
(B) All or any of the rights for the time being attached to the Warrants (including any of the provisions of the Instrument) may from time to time (whether or not the Company is being wound up) be altered or abrogated (including but without prejudice to that generality by waiving compliance with, or by waiving or authorising any past or proposed breach of, any of the provisions of these conditions and/or the Instrument) and the sanction of a special resolution shall be necessary and sufficient to effect such alteration or abrogation.

9. REPLACEMENT OF WARRANT CERTIFICATES

If a Warrant certificate is mutilated, defaced, lost or destroyed, it may, at the discretion of the Company, be replaced at the principal office of the Registrar on payment of such costs as may be incurred in connection therewith and on such terms as to evidence, indemnity and/or security as the Company may require and on payment of such scrip fee not exceeding HK$2.50 (or such higher fee as may from time to time be permitted under the rules prescribed by the Stock Exchange) as the Company may determine. Mutilated or defaced Warrant Certificates (as defined in the Instrument) must be surrendered before replacements will be issued.

In the case of lost Warrant Certificates (as defined in the Instrument), sections 71A(2), (3), (4), (6), (7) and (8) of the Companies Ordinance (Chapter 32 of the Laws of Hong Kong) shall apply as if reference to “shares” therein included Warrants.

10. PROTECTION OF SUBSCRIPTION RIGHTS

The Instrument contains certain undertakings by and restrictions on the Company designed to protect the Subscription Rights.

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APPENDIX III SUMMARY OF THE TERMS AND CONDITIONS OF THE WARRANTS

11. CALL

If at any time Warrants which have not been exercised carry rights to subscribe less than 10 per cent. in value of all Subscription Rights, being HK$2,646,826.65, the Company may, on giving not less than 3 months’ notice, require Warrantholders either to exercise their Subscription Rights or to allow them to lapse. On expiry of such notice, all unexercised Warrants will be automatically cancelled without compensation to holders of such Warrants.

12. FURTHER ISSUES

The Company shall be at liberty to issue further subscription warrants, including warrants ranking pari passu with the Warrants.

13. UNDERTAKINGS BY THE COMPANY

In addition to the undertakings given by it in relation to the grant and exercise of the Subscription Rights and the protection thereof the Company has undertaken in the Instrument that:

(i) it will send to each Warrantholder, at the same time as the same are sent to the holders of Shares, its audited accounts and all other notices, reports and communications despatched by it to the holders of the Shares generally;
(ii) it will pay (if applicable) all Bermuda and Hong Kong stamp duties, registration fees or similar charges in respect of the execution of the Instrument, the creation and initial issue of the Warrants in registered form, the exercise of the Subscription Rights and the issue of Shares upon exercise of the Subscription Rights;
(iii) it will keep available for issue sufficient ordinary capital to satisfy in full all rights for the time being outstanding of subscription for and conversion into Shares; and
(iv) it will use all reasonable efforts to procure that all Shares allotted upon exercise of the Warrants may, upon allotment or as soon as reasonably practicable thereafter, be dealt in on the Stock Exchange (save that this obligation shall lapse in the event that the listing of the Shares on the Stock Exchange is withdrawn following an offer for all or any of the Shares (whether by way of scheme of arrangement or otherwise) where a like offer is extended to holders of the Warrants or to holders of any Shares issued on exercise of the Warrants during the period of the offer (whether by way of proposal to the Warrantholders or otherwise)).

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APPENDIX III SUMMARY OF THE TERMS AND CONDITIONS OF THE WARRANTS

14. NOTICES

(A) The Instrument contains provisions relating to notices to be given to the Warrantholders.
(B) Every Warrantholder shall register with the Company an address in Hong Kong or elsewhere to which notices can be sent and if any Warrantholder shall fail so to do notice may be given to such Warrantholder in any of the manners hereinafter mentioned to his last known place of business or residence or, if there be none, by posting the same for 3 days at the principal place of business for the time being of the Company in Hong Kong.
(C) A notice may be given by advertisement of the same in both an English language newspaper circulating in Hong Kong and a Chinese language newspaper circulating in Hong Kong or by delivery, prepaid letter (airmail in the case of an overseas address), cable or telex message.
(D) All notices with respect to Warrants standing in the names of joint holders shall be given to whichever of such persons is named first in the Register and notice so given shall be sufficient notice to all the holders of such Warrants.

15. GOVERNING LAW

The Instrument and the Warrants are governed by and will be construed in accordance with the laws of Hong Kong.

— 98 —

NOTICE OF SPECIAL GENERAL MEETING

DAIWA ASSOCIATE HOLDINGS LIMITED

(Incorporated in Bermuda with limited liability) (Stock code: 1037)

NOTICE IS HEREBY GIVEN that a special general meeting (“ SGM ”) of Daiwa Associate Holdings Limited will be held at 11th Floor, Block G, East Sun Industrial Centre, 16, Shing Yip Street, Kwun Tong, Kowloon, Hong Kong on Tuesday, 25 January, 2005 at 10:00 a.m. for the purpose of considering and, if thought fit, passing the following resolutions which will be proposed as ordinary resolutions:

ORDINARY RESOLUTIONS

“ THAT , subject to the Listing Committee of The Stock Exchange of Hong Kong Limited granting the listing of, and permission to deal in, the new ordinary shares of par value of HK$0.10 each (the “ Shares ”) in the capital of Daiwa Associate Holdings Limited (the “ Company ”) which may fall to be issued upon exercise of the subscription rights attaching to the Warrants (as hereinafter defined) and the Securities and Future Commission of Hong Kong granting the whitewash waiver pursuant to Note 1 to the Notes on dispensation from Rule 26 of the Hong Kong Code on Takeovers and Mergers to Mr. Lau Tak Wan (“ Mr. Lau ”), the controlling shareholder and a director of the Company, in respect of his mandatory obligation to make a general offer for all the Shares not already owned by him and his concert parties arising as a result of Mr. Lau and/ or his concert parties exercising their respective subscription rights under the Warrants, the directors of the Company be and are hereby authorised:
(a) to create and issue warrants (“ Warrants ”) carrying aggregate subscription rights of up to HK$26,468,266.50 which shall be in registered form and shall be exercisable at any time from 25 February 2005 to 24 February 2008 (both dates inclusive), carrying rights to subscribe at an initial subscription price of HK$0.50 per Share, subject to adjustments, for new Shares on the terms and conditions set out in the warrant instrument (a copy of a draft of which marked “A” is produced to this meeting and signed for the purpose of identification by the Chairman of this meeting) and to issue the same as an alternative to the recommended interim dividend of HK$0.01 per Share for the six months ended 30 September 2004 to be paid by the Company in cash to holders of its Shares (the “ Shareholders ”) at the close of business on 25 January 2005 (“ Record Date ”), on the basis of one Warrant for every five Shares held (i.e. at an issue price of HK$0.05 per Warrant) and upon the terms and conditions as set out in the circular of the Company dated 6 January 2005 (a copy of which marked “B” is produced to this meeting and signed for the purpose of identification by the Chairman of this meeting) provided

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NOTICE OF SPECIAL GENERAL MEETING

that in the case of persons whose registered addresses, as shown in the Company’s register of members at the close of business on the Record Date, are outside the Hong Kong Special Administrative Region of the People’s Republic of China and the directors of the Company are of the view that the exclusion of such persons is necessary or expedient on account either of the legal restrictions under the laws of the relevant place or the requirements of the relevant regulatory body or stock exchange in that place in relation to the issue of the Warrants, the Warrants will not be made available to those persons and those persons will only be entitled to receive the recommended interim dividend for the six months ended 30 September 2004 of HK$0.01 per Share in cash;

(b) to allot and issue new Shares upon exercise of the subscription rights attaching to the Warrants or any of them, such new Shares shall rank pari passu in all respects with the then existing issued Shares; and
(c) to do all such acts and things as they consider necessary or expedient to give effect to the foregoing arrangements.”
THAT the waiver pursuant to Note 1 on the Notes dispensation of Rule 26 of the Hong Kong Code on Takeovers and Mergers (the “ Takeovers Code ”) waiving any obligation on the part of Mr. Lau Tak Wan, the controlling shareholder and director of the Company, to make a mandatory general offer for all the issued shares in the capital of the Company not already owned by him or parties acting in concert with him which would otherwise arise under Rule 26.1 of the Takeovers Code as a result of Mr. Lau Tak Wan and/or his concert parties exercising their respective subscription rights under the Warrants be and is hereby approved.”

By order of the Board of

Daiwa Associate Holdings Limited Lau Tak Wan President

Hong Kong, 6 January 2005

Registered Office:

Canon’s Court 22 Victoria Street Hamilton HM12 Bermuda

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NOTICE OF SPECIAL GENERAL MEETING

Notes:

A member entitled to attend and vote at the SGM is entitled to appoint a proxy or proxies to attend and vote on his behalf. A proxy need not be a member of the Company. Completion and return of a form of proxy will not preclude a member from attending and voting in person at the meeting.
In order to be valid, a form of proxy together with a power of attorney or other authority (if any) under which it is signed, or a notarially certified copy thereof, must be deposited at the office of the Company’s branch registrar in Hong Kong, Abacus Share Registrars Limited, G/F, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong, not less than 48 hours before the time appointed for holding the meeting or adjourned meeting or poll (as the case may be).
In the case of joint holders, the vote of the senior who tenders a vote shall be accepted to the exclusion of the votes of the other joint holders and for this purpose seniority shall be determined by the order in which the names stand in the register.
Pursuant to Bye-law 69 of the Company, at any general meeting a resolution put to vote of the meeting shall be decided on a show of hands, unless a poll is (before or on the declaration of the result of the show of hands) demanded by:
(i) the chairman;
(ii) at least 3 members present in person or by proxy or authorized representative for the time being entitled to vote at the meeting;
(iii) any member or members present in person or by proxy or authorized representative and holding between them not less than one-tenth of the total voting rights of all the members having the right at attend and vote at the meeting; or
(iv) any member or members present in person or by proxy or authorized representative and holding shares in the Company conferring a right to attend and vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all the shares conferring that right.

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

— 101 —

AI assistant

WEIli Holdings Limited — Proxy Solicitation & Information Statement 2005

50558_rns_2005-01-06_094c27fb-03b7-473a-8264-043b3d57d417.pdf

DAIWA ASSOCIATE HOLDINGS LIMITED

INTERIM DIVIDEND WITH WARRANT ALTERNATIVE AND WHITEWASH WAIVER

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

EXPECTED TIMETABLE

DAIWA ASSOCIATE HOLDINGS LIMITED

Directors

Registered Office

Head Office and Principal Place of Business

INTERIM DIVIDEND WITH WARRANT ALTERNATIVE AND WHITEWASH WAIVER

1. INTRODUCTION

2. SUBSCRIPTION PRICE AND SUBSCRIPTION PERIOD

3. SHARES TO BE ISSUED UPON EXERCISE OF THE SUBSCRIPTION RIGHTS

4. RIGHTS OF THE OVERSEAS SHAREHOLDERS

5. CONDITIONS TO THE WARRANT ALTERNATIVE

6. FORM OF ELECTION

No action is required if you wish to receive the Interim Dividend entirely in cash.

7. INFORMATION ON THE GROUP AND REASONS FOR THE WARRANT ALTERNATIVE

LETTER FROM THE BOARD

8. TAKEOVERS CODE IMPLICATIONS AND WHITEWASH WAIVER

LETTER FROM THE BOARD

LETTER FROM THE BOARD

9. LISTING

10. CLOSURE OF REGISTER OF MEMBERS

11. CERTIFICATES OF THE WARRANTS

12. SGM

13. RECOMMENDATIONS

14. ADDITIONAL INFORMATION

DAIWA ASSOCIATE HOLDINGS LIMITED

WHITEWASH WAIVER

Yours faithfully,

Independent Board Committee of Daiwa Associate Holdings Limited

Barry John Buttifant

WHITEWASH WAIVER

INTRODUCTION

LETTER FROM VC CAPITAL

BASIS OF OUR OPINION

PRINCIPAL FACTORS CONSIDERED

(a) The background of the Whitewash Waiver

(b) The Warrant Alternative

(ii) Dilution on shareholding of Independent Shareholders

(iii) Financial Impact on the Company

Cashflow

Capital Structure and gearing

(iv) Benefits to the Shareholders

RECOMMENDATION

1. SUMMARY OF AUDITED FINANCIAL INFORMATION

CONSOLIDATED RESULTS

CONSOLIDATED FINANCIAL POSITION

2. AUDITORS’ REPORT

Auditor’s Report to the Shareholders of DAIWA ASSOCIATE HOLDINGS LIMITED

Respective responsibilities of directors and auditors

Basis of opinion

Opinion

PricewaterhouseCoopers

3. AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE GROUP FOR THE YEAR ENDED 31 MARCH 2004

Consolidated Profit and Loss Account

Consolidated Balance Sheet

Balance Sheet

Consolidated Cash Flow Statement

Consolidated Statement of Changes in Equity

Notes to the Accounts

31 March 2004

1. Principal accounting policies

(a) Basis of preparation

(b) Group accounting

(i) Consolidation

(c) Revenue recognition

(d) Deferred taxation

(e) Intangible assets

(f) Fixed assets

(g) Assets under leases

(i) Finance leases

(ii) Operating leases

(h) Construction-in-progress

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