Zhongguancun Science-Tech Leasing Co., Ltd. - Proxy Solicitation & Information Statement 2007

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in EPI (Holdings) Limited , you should at once hand this circular to the purchaser or transferee or to the bank, licensed securities dealer or registered institution in securities or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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

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(Incorporated in Bermuda with limited liability)

(Stock Code: 689)

MAJOR TRANSACTION IN RELATION TO

FORMATION OF A JOINT VENTURE COMPANY WITH JIANGXI COPPER AND CYTD

Financial adviser to EPI (Holdings) Limited

* For identification purpose only

24 January 2007

	Pages
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
The JV Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Information on Jiangxi Copper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Information on CYTD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Reasons for the Formation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Financial effects of the Formation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Financial and trading prospects of the Enlarged Group. . . . . . . . . . . . . . . . . . . . .	7
Continuing connected transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Listing Rules implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Additional information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Appendix I – Financial information on the Group . . . . . . . . . . . . . . . . . . . . . .	10
Appendix II – General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	69

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DEFINITIONS

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

“Board” the board of Directors “Company” EPI (Holdings) Limited, a company incorporated in Bermuda with limited liability, the Shares of which are listed on the Main Board of the Stock Exchange
“Completion” the establishment of Jiangxi Copper EPI after the conditions precedent to the JV Agreement have been fulfilled
“connected person” has the meaning ascribed to it under the Listing Rules
“CYTD” (Qingyuan Tongde Electric
Industrial Co. Ltd.), a company incorporated in the PRC with limited liability
“Directors” directors of the Company
“Enlarged Group” the Group as enlarged by the Formation
“EPI Metals” EPI Metals Limited, a company incorporated in Hong Kong with limited liability and a wholly owned subsidiary of the Company
“Formation” the formation of Jiangxi Copper EPI pursuant to the terms of the JV Agreement
“Group” the Company and its subsidiaries
“Hong Kong” the Hong Kong Special Administrative Region of the PRC
“HK$” Hong Kong dollars, the lawful currency of Hong Kong
“Jiangxi Copper” Jiangxi Copper Company Limited, a sino-foreign joint venture joint stock limited company incorporated in the PRC, the H shares of which are listed on the Main Board of the Stock Exchange
“Jiangxi Copper EPI” (Qingyuan JCCL EPI Copper Limited), an equity joint venture company to be established in accordance with the terms of the JV Agreement and incorporated in the PRC with limited liability

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DEFINITIONS

“JV Agreement” the joint venture agreement entered into among the JV Parties on 26 November 2006 and supplemented by the Supplemental Agreement regarding the Formation
“JV Board” the board of directors of Jiangxi Copper EPI
“JV Parties” collectively EPI Metals, Jiangxi Copper and CYTD “Latest Practicable Date” 19 January 2007, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained in this circular
“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange
“PRC” the People’s Republic of China and for the purpose of this circular, excludes Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan
“RMB” Renminbi, the lawful currency of the PRC

“SFO” Securities and Futures Ordinance, Chapter 571 of the Laws of Hong Kong “Shares” ordinary shares of HK$0.01 each in the share capital of the Company “Shareholders” holders of the Shares “Stock Exchange” The Stock Exchange of Hong Kong Limited “Supplemental Agreement” the supplemental agreement entered into among the JV parties on 21 December 2006 regarding the change of the name of Jiangxi Copper EPI from (Jiangxi Copper EPI (Qingyang) Limited) to (Qingyang JCCL EPI Copper Limited) and the chairman of the JV Board will be appointed by EPI Metals instead of by Jiangxi Copper

“%” per cent.

For illustration purposes, an exchange rate of HK$1.00 to RMB1.015 has been adopted in this circular.

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LETTER FROM THE BOARD

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(Incorporated in Bermuda with limited liability)

(Stock Code: 689)

Executive Directors: Mr. Wong Chi Wing, Joseph Mr. Cheng Hairong Mr. Chu Kwok Chi, Robert

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

Non-executive Director:

Mr. Leung Hon Chuen

Independent non-executive Directors: Mr. Xu Mingshe Mr. Wu Xiaoke Mr. Poon Kwok Shin, Edmond

Head office and principal place of business in Hong Kong: Room 6303, 63/F Central Plaza 18 Harbour Road Wanchai Hong Kong 24 January 2007

To the Shareholders

Dear Sirs,

MAJOR TRANSACTION IN RELATION TO FORMATION OF A JOINT VENTURE COMPANY WITH JIANGXI COPPER AND CYTD

INTRODUCTION

On 27 November 2006, the Directors announced that on 26 November 2006, EPI Metals, a wholly owned subsidiary of the Company, entered into the JV Agreement with Jiangxi Copper and CYTD to form Jiangxi Copper EPI. Upon Completion, Jiangxi Copper EPI will be owned as to 51% by EPI Metals, 40% by Jiangxi Copper and 9% by CYTD.

On 29 December 2006, the Directors further announced that on 21 December 2006, the JV Parties entered into the Supplemental Agreement pursuant to which the JV Parties agreed to change the name of Jiangxi Copper EPI from (Jiangxi Copper EPI (Qingyang) Limited) to (Qingyang JCCL EPI Copper Limited) and the chairman of the JV Board will be appointed by EPI Metals instead of by Jiangxi Copper.

* For identification purpose only

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LETTER FROM THE BOARD

Based on the registered capital of Jiangxi Copper EPI of RMB90.0 million (equivalent to approximately HK$88.7 million), the Formation constitutes a major transaction for the Company.

Under Rule 14.44 of the Listing Rules, a written approval has been provided by Climax Associates Limited, who is holding 2,001,810,000 Shares, representing approximately 55.09% of the issued share capital of the Company as at the Latest Practicable Date, in lieu of holding a general meeting of the Company to approve the Formation.

The purpose of this circular is to provide you with information regarding the Formation and other information required under the Listing Rules.

THE JV AGREEMENT

Date:

26 November 2006

Parties:

(i) EPI Metals, a wholly owned subsidiary of the Company;
(ii) Jiangxi Copper; and
(iii) CYTD.

The Directors confirm that to the best of their knowledge, information and belief and having made all reasonable enquiries, save for their respective proposed interests in the JV Agreement, each of Jiangxi Copper, CYTD and the ultimate beneficial owners of CYTD are third parties independent of the Company and its connected persons. Save for their respective proposed investments in Jiangxi Copper EPI, neither Jiangxi Copper nor CYTD has any prior business relationship and/or transaction with the Group.

Name of the joint venture company

(Qingyuan JCCL EPI Copper Limited), an equity joint venture company to be formed and incorporated in Qingyuan province of the PRC with limited liability.

Business scope

Jiangxi Copper EPI will be engaged in the production and sales of copper anodes.

Registered capital and capital contribution

The registered capital of Jiangxi Copper EPI will be RMB90.0 million (equivalent to approximately HK$88.7 million). Each of EPI Metals, Jiangxi Copper and CYTD will contribute respectively RMB45.9 million (equivalent to approximately HK$45.2 million),

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LETTER FROM THE BOARD

RMB36.0 million (equivalent to approximately HK$35.5 million) and RMB8.1 million (equivalent to approximately HK$8.0 million), being their shares of the registered capital of Jiangxi Copper EPI, in cash. Upon Completion, Jiangxi Copper EPI will be owned as to 51% by EPI Metals, 40% by Jiangxi Copper and 9% by CYTD. Any future increase in the registered capital will be contributed by the JV Parties in proportion to their respective equity interests in Jiangxi Copper EPI.

The total investment amount of Jiangxi Copper EPI is RMB180.0 million (equivalent to approximately HK$177.3 million). As at the Latest Practicable Date, none of the JV Parties was committed to contribute the difference between the total investment amount and the registered capital of Jiangxi Copper EPI.

Each of the JV Parties is required to contribute 20% of its share of the registered capital of Jiangxi Copper EPI within 10 days after the business licence of Jiangxi Copper EPI has been issued and the balance within three months after the business licence of Jiangxi Copper EPI has been issued. As at the Latest Practicable Date, the business licence of Jiangxi Copper EPI has been issued but approval of other relevant PRC government authorities in relation to the JV Agreement has not yet been obtained.

As at the Latest Practicable Date, the capital contribution of RMB45.9 million (equivalent to approximately HK$45.2 million) attributable to EPI Metals has been paid entirely by EPI Metals and has been financed by the Group’s internal resources.

Term

Jiangxi Copper EPI will have a term of 15 years from the date of issue of its business licence. The term of Jiangxi Copper EPI may be extended by the JV Parties subject to the approval of the relevant PRC government authorities.

Board composition

The JV Board will comprise 5 directors, 3 of whom will be appointed by EPI Metals and 2 of whom will be appointed by Jiangxi Copper. The chairman of the JV Board will be appointed by EPI Metals.

Profit and loss sharing

The JV Parties will be entitled to share the profits and will bear the losses of Jiangxi Copper EPI in proportion to their respective equity interests in Jiangxi Copper EPI.

Transfer of equity interests

Each of the JV Parties may transfer its equity interests in Jiangxi Copper EPI, in whole or in part, subject to the pre-emption rights of other JV Parties and after obtaining all the necessary approvals from the relevant PRC government authorities.

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LETTER FROM THE BOARD

Competing interests

During the term of Jiangxi Copper EPI, each of the JV Parties undertakes that each of them (including companies within their respective groups) shall not engage in the production of copper anode in Guangdong province in the PRC on their own or jointly with any other JV Parties or any other third party other than through Jiangxi Copper EPI.

Conditions precedent

Completion shall be conditional upon the following conditions being fulfilled:

(i) all relevant rules of the stock exchanges and/or all necessary approvals and processes of the relevant authorities for the Formation has been obtained and complied with by the Company and/or Jiangxi Copper; and
(ii) the approval of the relevant PRC government authorities in relation to the JV Agreement has been obtained.

Each of the JV Parties shall use their respective best endeavours to procure the satisfaction of all of the above conditions. None of the JV Parties have the right to waive any of the above conditions precedent. In the event that any of the above conditions have not been fulfilled within three months from the date of the JV Agreement (or such later date as is otherwise agreed by the JV Parties), each of the JV Parties is entitled to terminate the JV Agreement.

As at the Latest Practicable Date, none of the above conditions precedent has been fulfilled.

INFORMATION ON JIANGXI COPPER

Based on the annual report of Jiangxi Copper for the year ended 31 December 2005, Jiangxi Copper is an integrated producer of copper in the PRC. Its operations consist of copper mining, milling, smelting and refining to produce copper cathode and other related products, including pyrite concentrates, sulphuric acid and electrolytic gold and silver. It also provides smelting and refining services pursuant to tolling arrangements for customers.

INFORMATION ON CYTD

Developed in 1998, CYTD is currently principally engaged in (i) trading metals (including (a) acquiring scrap metals from both overseas and local markets; (b) contracting scrap metals reprocessing work to local factories; and (c) selling refined metals to local customers as raw materials); and (ii) exporting home appliances and consumer electronic products, such as air conditioners, televisions and refrigerators.

REASONS FOR THE FORMATION

The Group is principally engaged in the sale and marketing of consumer electronic products including television sets, DVD players and home theatre systems. The Directors are of the view that Jiangxi Copper EPI will be a platform for the Group to diversify into and

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LETTER FROM THE BOARD

capture the prospects from the fast growing non-ferrous metal business sector. The Directors consider that Jiangxi Copper and CYTD are suitable business partners in this area since Jiangxi Copper is a leading copper producer in the PRC, while CYTD has established a solid business network in sourcing scrap coppers in both the PRC and overseas. With both the ability to source scrap copper and technological know-how in copper anode production, the Group, through Jiangxi Copper EPI, may be able to capture the growing prospects of non-ferrous metals trading business in the PRC. Accordingly, the Group entered into the JV Agreement with Jiangxi Copper and CYTD to form Jiangxi Copper EPI.

The terms of the JV Agreement have been agreed after arm’s length negotiations among the JV Parties. The Directors (including the independent non-executive Directors) consider that the JV Agreement and the Formation are on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole.

FINANCIAL EFFECTS OF THE FORMATION

Upon Completion, Jiangxi Copper EPI will be owned as to 51% by the Group, the results of which will be consolidated into the Group’s consolidated financial statements. The Directors consider that the entering into of the JV Agreement will enlarge the earnings base of the Group but the magnitude of such impact will depend on the future performance of Jiangxi Copper EPI.

Save for the incidental costs in relation to the Formation , the Formation will increase the total assets of the Group by approximately HK$43.5 million.

FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP

The Directors are of the view that Jiangxi Copper EPI will be a platform for the Group to diversify into and capture the prospects from the fast growing non-ferrous metal business sector.

As stated in the circular of the Company dated 29 May 2006, the aggregate net proceeds from the subscription, the open offer and the new Shares placing, as part of the restructuring proposal, of approximately HK$105 million would be applied by the Company as follows:

(i) HK$21.5 million (the “Creditors’ Scheme Amount”) for the settlement of the indebtedness pursuant to the creditors’ schemes, subject to a maximum deduction of approximately HK$1 million for payment for the scheme administration costs and related petition costs;
(ii) where suitable manufacturing facility is identified, up to HK$20 million (the “Facility Amount”) for such investment; and
(iii) the remaining balance of HK$63.5 million (the “Working Capital Amount”) for general working capital of the Group.

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LETTER FROM THE BOARD

Up to the Latest Practicable Date, the Creditors’ Scheme Amount has been entirely applied as intended, while the Facility Amount has been retained as bank deposits of the Company as suitable manufacturing facility has not yet been identified. Out of the Working Capital Amount, approximately HK$45.2 million were applied to the Formation, approximately HK$10.3 million has been applied for repurchase of the Shares and the balance of approximately HK$8.0 million has been retained for general working capital of the Group. Particulars of the restructuring proposal were set out in the circular of the Company dated 29 May 2006.

In addition, as detailed in the announcement of the Company dated 5 December 2006, out of the net proceeds from the subscription of 605,000,000 new Shares by Climax Associates Limited of HK$172 million, approximately HK$152 million were intended to apply to the non-ferrous metal trading business and the balance of approximately HK$20 million for general working capital of the Group. Up to the Latest Practicable Date, approximately HK$83.9 million of the net proceeds of HK$172 million has been used for the non-ferrous metal trading business and the balance has been kept as deposits of the Company. There is no change in the intended use of such net proceeds.

The Group has recruited two management staff with more than 15 years of experience in metal trading business to handle the new business. The Group has no intention to discontinue its existing business.

Taking into consideration that: (i) there is a growing demand for non-ferrous metals, in particular, copper products in the PRC; (ii) the prices of non-ferrous metals increased significantly during the recent years; and (iii) Jiangxi Copper is a leading integrated producer of copper in the PRC and is experienced in producing copper related products, the Directors are confident in Jiangxi Copper EPI’s growth which would contribute positively to the financial results of the Enlarged Group.

In addition to the commodities business, the Group will continue its principal activities of manufacturing and sales of consumer electronic products which mainly include conventional television, home theatre and DVD. At present, the Group is principally engaged in providing customers with product design, specification and solution in the manufacturing process while the production is subcontracted to subcontractors. The Directors are of the view that the turnover attributable to this business segment will continue to grow steadily and healthily in the forthcoming year.

CONTINUING CONNECTED TRANSACTIONS

It is intended that Jiangxi Copper EPI will sell all of its products to Jiangxi Copper as the products are expected to be produced according to the required specifications of Jiangxi Copper and such sales will be based on the market prices of the products. Upon Completion, Jiangxi Copper will become a substantial shareholder of Jiangxi Copper EPI and accordingly a connected person of the Company. The supply of copper anodes to Jiangxi Copper by Jiangxi Copper EPI will therefore constitute continuing connected transaction for the Company under the Listing Rules. The Group is still in the process of discussing the terms

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LETTER FROM THE BOARD

of such supply arrangement with Jiangxi Copper, further information in relation to the supply of copper anodes to Jiangxi Copper by Jiangxi Copper EPI will be announced by the Company as and when appropriate.

LISTING RULES IMPLICATIONS

Based on the registered capital of Jiangxi Copper EPI of RMB90.0 million (equivalent to approximately HK$88.7 million), the Formation constitutes a major transaction of the Company.

Pursuant to Rule 14.44 of the Listing Rules, in the event that (i) a written Shareholders’ approval has been obtained from a Shareholder who holds more than 50% in the issued share capital of the Company; and (ii) no Shareholder is required to abstain from voting at the general meeting of the Company to approve the Formation, a written Shareholders’ approval may be accepted in lieu of holding a general meeting of the Company for Shareholders to approve the Formation. Climax Associates Limited, who is holding 2,001,810,000 Shares, representing approximately 55.09% of the issued share capital of the Company as at the Latest Practicable Date, has provided a written approval in respect of the Formation to the Company and no Shareholder would be required to abstain from voting at a general meeting of the Company to approve the Formation. Accordingly, under Rule 14.44 of the Listing Rules, the Company is not required to convene a general meeting to approve the Formation.

RECOMMENDATION

The Directors (including the independent non-executive Directors) consider that the terms of the JV Agreement are fair and reasonable, and that entering into of the JV Agreement by the Company and the Formation are in the best interests of the Company and the Shareholders as a whole. The Directors (including the independent non-executive Directors) therefore would recommend the Shareholders to vote in favour of the resolution to approve the Formation if a general meeting of the Company is to be held for such purpose. As disclosed above, Climax Associates Limited has provided to the Company a written approval of the Formation and no general meeting will be convened.

ADDITIONAL INFORMATION

On the basis that Jiangxi Copper EPI has not been established in accordance with the terms of the JV Agreement as at the date of this circular, no accountants’ report on Jiangxi Copper EPI nor pro forma statement on the assets and liabilities on the Enlarged Group has been prepared for incorporation in this circular.

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

For and on behalf of EPI (Holdings) Limited Wong Chi Wing, Joseph Chairman

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

1. FINANCIAL SUMMARY

The following information has been extracted from the audited financial statements of the Group for each of the three years ended 31 December 2005 and six months ended 30 June 2005 and 30 June 2006.

Consolidated profit and loss account

Turnover Profit/(loss) before taxation Taxation Profit/(loss) attributable to shareholders Earnings/(loss) per Share	Six months ended 30 June 2006 2005 HK$’000 HK$’000 (unaudited) (unaudited) 190,613 174,290	Six months ended 30 June 2006 2005 HK$’000 HK$’000 (unaudited) (unaudited) 190,613 174,290	Year ended 31 December 2005 2004 2003 HK$’000 HK$’000 HK$’000 (audited) (audited) (audited) 513,610 119,677 59,070 10,011 200,507 (35,697) (1,810) (57) – 8,201 200,450 (35,697) 0.1 cent 2.4 cents (0.4 cent)	Year ended 31 December 2005 2004 2003 HK$’000 HK$’000 HK$’000 (audited) (audited) (audited) 513,610 119,677 59,070 10,011 200,507 (35,697) (1,810) (57) – 8,201 200,450 (35,697) 0.1 cent 2.4 cents (0.4 cent)	Year ended 31 December 2005 2004 2003 HK$’000 HK$’000 HK$’000 (audited) (audited) (audited) 513,610 119,677 59,070 10,011 200,507 (35,697) (1,810) (57) – 8,201 200,450 (35,697) 0.1 cent 2.4 cents (0.4 cent)
	1,287 (212)	4,012 (741)	10,011 (1,810)	200,507 (57)	(35,697 –
	1,075 0.01 cent	3,271 0.04 cent	8,201 0.1 cent	200,450 2.4 cents

Consolidated balance sheet

As at 30 June 2006 HK$’000 (unaudited) Total assets 13,001 Total liabilities (306,303) Total equity attributable to the Shareholders (293,302)	As at 31 December 2005 2004 2003 HK$’000 HK$’000 HK$’000 (audited) (audited) (audited) 13,982 2,532 48,037 (308,359) (305,110) (545,595) (294,377) (302,578) (497,558)

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

2. REPORT OF THE AUDITORS

Set out below are the reproduction of the report of the auditors for the two years ended 31 December 2004 as extracted from the 2003 and 2004 annual reports of the Company respectively.

(a) for the year ended 31 December 2004

TO THE SHAREHOLDERS OF GREAT WALL CYBERTECH LIMITED (Provisional Liquidators Appointed)

(incorporated in Bermuda with limited liability)

We have audited the accounts on pages 15 to 38 which have been prepared in accordance with accounting principles generally accepted in Hong Kong, other than as set out below.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS

The 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, that judgement and estimates are made which are prudent and reasonable and that the reasons for any significant departure from applicable accounting standards are stated.

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 Institute of Certified Public Accountants (“HKICPA”) except that the scope of our work was limited as explained below.

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 Company’s and the Group’s circumstances, consistently applied and adequately disclosed.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

We planned 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. However, the evidence available to us was limited because of the following:

Our report on the accounts of the Group for the year ended 31 December 2003 was disclaimed in view of the pervasive nature of the limitations on the scope of our audit resulting from the inability of the Directors to locate sufficient documentary information. It was explained by the Directors that due to liquidation of certain significant subsidiaries or their immediate holding companies and the seizure of the major assets and production facilities of certain significant subsidiaries under the court orders and most of the accounting personnel of the Group have left, the Directors have been unable to obtain sufficient documentary information for audit purposes. Accordingly, we were unable to form an opinion as to whether the net liabilities of the Company and the Group as at 31 December 2003 and the results of the Group for the year ended 31 December 2003 were fairly stated. Any adjustments to the opening balances as at 1 January 2004 would affect the net liabilities of the Company and the Group as at 31 December 2004 and the results of the Group for the year ended 31 December 2004. Also the comparative figures in respect of the net liabilities of the Company and the Group as at 31 December 2003 and the results of the Group for the year ended 31 December 2003 may not be comparable with the figures for the current year.

As shown in note 3(ii)(a) to the accounts, the Directors confirmed that they had not received any further information concerning the progress and possible outcome of the liquidation or seizure of the assets of the aforesaid subsidiaries or their immediate holding companies since the date of approval of the last year’s accounts. Any changes to the above status of liquidation or possible outcome from the seizure of assets of these subsidiaries or their immediate holding companies might have a consequential effect on the net liabilities of the Group and the Company as at 31 December 2004 and the results of the Group for the year ended 31 December 2004.

As explained by the Directors in note 3(ii) & (iii) to the accounts that due to liquidation of certain significant subsidiaries or their immediate holding companies and the seizure of the major assets and production facilities of certain significant subsidiaries under the court orders and most of the accounting personnel of the Group have left, the Directors have been unable to obtain

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

sufficient documentary information to satisfy themselves regarding the treatment of various balances of the Group and the Company as at 31 December 2004 and have formed the opinion as follows:

(a) As further explained by the Directors in note 3(iii)(a) to the accounts, the Directors were unable to obtain sufficient documentary evidence to support other payables and accruals of approximately HK$293,978,000 (2003: HK$307,557,000) and HK$293,978,000 (2003: HK$291,827,000) included in the Group’s and the Company’s balance sheet respectively, including the liabilities under indemnities given to subsidiaries not consolidated of approximately HK$291,130,000 (2003: HK$291,130,000). Accordingly the Directors were unable to satisfy themselves as to whether these amounts are fairly stated in the accounts.
(b) As further explained by the Directors in note 3(iii)(b) to the accounts, the Directors were unable to satisfy themselves as to whether the amounts due to subsidiaries not consolidated of approximately HK$5,983,000 (2003: HK$219,752,000) included in the Group’s balance sheet and the amounts due to subsidiaries of approximately HK$5,983,000 (2003: HK$5,983,000) included in the Company’s balance sheet and in note 15 to the accounts are fairly stated.
(c) As further explained by the Directors in note 3 (ii)(a) to the accounts, the subsidiaries, Great Wall France SA, which was put into liquidation during the year ended 31 December 2004, together with its immediate holding companies were deconsolidated from the consolidated accounts as of 1 January 2004, being the date the Directors considered that control to have been lost. In the absence of reliable financial information in respect of these subsidiaries, the Directors were unable to obtain sufficient documentary and other adequate evidence to satisfy themselves as to the correctness of the gain on deconsolidation of these subsidiaries amounting to HK$205,229,000 approximately. Accordingly the Directors were also unable to satisfy themselves as to whether the gain on deconsolidation of these subsidiaries included in the consolidated profit and loss account and in note 6 to the accounts are fairly stated.
(d) As further explained by the Directors in note 3(iii)(c) to the accounts, the accounts have been prepared based on the books and records maintained by the Company and its subsidiaries. However, in view of the lack of evidence available, the Directors were unable to represent as to the completeness of recording of all transactions entered into by

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

the Company and its subsidiaries for the years ended 31 December 2003 and 2004. In this context, the Directors are also unable to represent as to the completeness of identification and disclosures of directors’ and employees’ emoluments in note 9, taxation in note 10 and inventories in note 18 to the accounts.

(e) The Directors have formed the opinion that the amounts due from subsidiaries not consolidated to the Group of approximately HK$1,285,690,000 (2003: HK$1,584,758,000) and amounts due from subsidiaries to the Company of approximately HK$1,285,670,000 (2003: HK$1,285,670,000) included in the Group’s and the Company’s balance sheet respectively as at 31 December 2004 cannot be recovered. Accordingly, the Directors have made provisions against these amounts. However, we were unable to obtain sufficient information and explanations regarding the basis upon which the Directors have determined the amount of such provisions. Accordingly, we were unable to satisfy ourselves as to whether the provisions against these amounts as included in the consolidated profit and loss account in current and prior years were appropriate and the amounts due from these subsidiaries, after net of provisions, are fairly stated at the balance sheet date.

In addition, for the same reasons stated above, we have not been able to obtain all necessary information for us to complete our review of subsequent events from the balance sheet date up to the date of this report. Such procedures might have resulted in the identification of adjustments to the amounts reported in and/or disclosed as notes to the accounts of the Group as at 31 December 2004.

There were no other satisfactory audit procedures that we could adopt to satisfy ourselves as to the matters set out in paragraph 2 above. Any adjustments to the above figures would as appropriate affect the net liabilities of the Company and the Group as at 31 December 2004 and the profit of the Group for the year ended 31 December 2004.

In forming our opinion, we also evaluated the overall adequacy of the presentation of information in the accounts. We believe that our audit provide a reasonable basis for our opinion.

– 14 –

FINANCIAL INFORMATION ON THE GROUP

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FUNDAMENTAL UNCERTAINTY RELATED TO THE GOING CONCERN BASIS

In forming our opinion, we have considered the adequacy of the disclosures in note 3(i) to the accounts concerning the adoption of the going concern basis on which the accounts have been prepared. As explained in note 3(i) to the accounts, the Company has experienced financial difficulties and is currently negotiating with a potential investor for the purpose of restructuring of the Company’s indebtedness and revitalising the Group’s financial position and business. The accounts have been prepared on a going concern basis, the validity of which depends upon the successful outcome of the measures to be implemented and in process by the Group to improve the financial position and business of the Group. The accounts do not include any adjustments that would result from the failure of these measures. We consider that the appropriate disclosures have been made but, because of the significant uncertainties relating to the outcome of the restructuring proposal are so extreme, we are not able to determine whether the going concern basis used in preparing these accounts is appropriate. Accordingly, we have disclaimed our opinion.

QUALIFICATION ARISING FROM DISAGREEMENT ABOUT ACCOUNTING TREATMENT

As detailed in note 16(a) to the accounts, the consolidated accounts do not include the results of certain subsidiaries, which either themselves or their immediate holding companies are in the course of liquidation or their major assets and production facilities located in the People’s Republic of China were seized under court orders as security for unsettled claims, up to the respective dates of appointment of liquidators as ordered by the courts. This treatment is not in accordance with the requirements of Statement of Standard Accounting Practice (“SSAP”) 32 “Consolidated Financial Statements and Accounting for Investments in Subsidiaries” issued by the HKICPA and the Hong Kong Companies Ordinance. In our opinion, there is insufficient information concerning these subsidiaries in the accounts to give a true and fair view of the state of affairs of the Group as at 31 December 2004 and of the results of the Group for the year ended 31 December 2004. It is not practicable to quantify the effect of the departure from this requirement.
As detailed in note 16(b) to the accounts, the accounts of the Group do not consolidate the accounts of certain subsidiaries. This treatment is not in accordance with the requirements of SSAP 32 and the Hong Kong Companies Ordinance. In our opinion, there is insufficient information concerning these subsidiaries in the accounts to give a true and fair view of the state of affairs of the Group as at 31 December

– 15 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

2004 and of the results of the Group for the year ended 31 December 2004. It is not practicable to quantify the effect of the departure from this requirement.

As explained in note 3(iii)(e) to the accounts, the accounts do not contain a cash flow statement. This is not in accordance with the requirements of SSAP 15 “Cash flow statements”. In our opinion, information about the Group’s cash flows is necessary for a proper understanding of the Group’s state of affairs and profit for the year ended 31 December 2004. It is not practicable to quantify the effect of the departure from this requirement.

QUALIFICATION ARISING FROM DISAGREEMENTS ABOUT THE EXTENT OF DISCLOSURES

As explained in note 3(iii)(d) to the accounts, due to limited books and records available to the Directors, the following disclosures have not been made in the accounts:

Disclosures in respect of subsidiaries excluded from consolidation as required by SSAP 32 “Consolidated Financial Statements and Accounting for Investments in Subsidiaries”;
Disclosures in respect of finance lease obligations as required by SSAP 14 (Revised) “Leases”;
Details of the share option scheme as required by the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (“Listing Rules”);
4 Details of the retirement benefit scheme and the employee benefits as required by SSAP 34 “Employee benefits”;
Segment information disclosures as required by SSAP 26 (Revised) “Segment Reporting” and the Listing Rules;
Details of analysis of pledge of assets as required by the Hong Kong Companies Ordinance;
Details of deferred taxation as required by SSAP12 (Revised) “Income Taxes”;
Details of related party disclosures as required by SSAP 20 “Related Party Disclosures”;
Details of the Group’s credit risk and ageing of debtors and creditors as required by the Listing Rules; and

– 16 –

FINANCIAL INFORMATION ON THE GROUP

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Details of contingent liabilities and commitments as required by the Hong Kong Companies Ordinance and relevant SSAPs.

DISCLAIMER OF OPINION

Because of the significance of each of (i) the possible effect of the limitations in evidence available to us as set out in the basis of opinion section of this report; (ii) the fundamental uncertainty relating to the going concern basis and (iii) the non-compliance of certain disclosure requirements as mentioned above, we are unable to form an opinion as to whether the accounts give a true and fair view of the state of affairs of the Company and of the Group at 31 December 2004 and of the profit of the Group for the year then ended and as to whether the accounts have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

In respect alone of the limitations on our work as set out in the basis of opinion section of this report:

We have not obtained all the information and explanations that we consider necessary for the purpose of our audit; and
We were unable to determine whether proper books of accounts have been kept.

TING HO KWAN & CHAN Certified Public Accountants

Hong Kong 20 July 2005

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(b) for the year ended 31 December 2003

TO THE SHAREHOLDERS OF GREAT WALL CYBERTECH LIMITED (Provisional Liquidators Appointed)

(incorporated in Bermuda with limited liability)

We have audited the accounts on pages 16 to 40 which have been prepared in accordance with accounting principles generally accepted in Hong Kong, other than as set out below.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS

BASIS OF OPINION

Our report on the accounts of the Group for the nine-months ended 31 December 2002 was disclaimed in view of the pervasive nature of the limitations on the scope of our audit resulting from

– 18 –

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APPENDIX I

the inability of the Directors to locate sufficient documentary information. It was explained by the Directors that due to liquidation of certain significant subsidiaries or their immediate holding companies and the seizure of the major assets and production facilities of certain significant subsidiaries under the court orders and most of the accounting personnel of the Group have left, the Directors have been unable to obtain sufficient documentary information. Accordingly, we were unable to form an opinion as to whether the net liabilities of the Company and the Group as at 31 December 2002 and the results of the Group for the nine-month ended 31 December 2002 were fairly stated. Any adjustments to the opening balances as at 1 January 2003 would affect the net liabilities of the Company and the Group as at 31 December 2003 and the results of the Group for the year ended 31 December 2003. Also the comparative figures in respect of the net liabilities of the Company and of the Group as at 31 December 2002 and the results of the Group for the nine-months ended 31 December 2002 may not be comparable with the figures for the current year.

As explained by the Directors in note 3 (iii) to the accounts, the underlying books and records of a subsidiary, Great Wall France SA (“GW France”), have not been made available to the management of the Company as GW France went into liquidation pursuant to a France court order in 2004. Consequently, the operations of GW France so consolidated are based on its unaudited management accounts for the year ended 31 December 2003, since the unaudited management accounts are the only financial information made available to the Directors. We have been unable to obtain adequate audit evidence to satisfy ourselves as to the reliability of the amounts consolidated in respect of GW France during the year ended 31 December 2003 and the related balances as at 31 December 2003, as included in the consolidated accounts. In particular, we have been unable to perform any satisfactory audit procedures to substantiate the transactions entered into by GW France during the year ended 31 December 2003 and the assets and liabilities of GW France as at 31 December 2003; and to determine as to whether all appropriate disclosures have been included in the accounts in accordance with the disclosure requirements of the Hong Kong Companies Ordinance and Statements of Standard Accounting Practice (“SSAPs”) issued by HKICPA. The results of GW France consolidated in the Group’s accounts and assets and liabilities as at 31 December 2003 are summarised in note 3(iii) to the accounts.

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As explained by the Directors in note 3(ii) & (iv) to the accounts that due to liquidation of certain significant subsidiaries or their immediate holding companies and the seizure of the major assets and production facilities of certain significant subsidiaries under the court orders and most of the accounting personnel of the Group have left, the Directors have been unable to obtain sufficient documentary information to satisfy themselves regarding the treatment of various balances of the Group and the Company as at 31 December 2003 and have formed the opinion as follows:
(a) As further explained by the Directors in note 3(iv)(a) to the accounts, the Directors were unable to obtain sufficient documentary evidence to support the Group’s and the Company’s other payables and accruals of approximately HK$307,557,000 (2002: HK$305,343,000) and HK$291,827,000 (2002: HK$292,267,000) respectively, including the liabilities under indemnities given to subsidiaries not consolidated of approximately HK$291,130,000 (2002: HK$291,130,000). Accordingly the Directors were unable to satisfy themselves as to whether these amounts are fairly stated in the accounts.
(b) As further explained by the Directors in note 3(iv)(b) to the accounts, the Directors were unable to satisfy themselves as to whether the amounts due to subsidiaries not consolidated of approximately HK$219,752,000 (2002: HK$222,305,000) and HK$5,983,000 (2002: HK$8,086,000) included in the Group’s and the Company’s balance sheet respectively as at 31 December 2003 are fairly stated in the accounts.
(c) As further explained by the Directors in note 3(iv)(c) to the accounts, the accounts have been prepared based on the available books and records maintained by the Company and its subsidiaries. However, in view of the lack of evidence available, the Directors were unable to represent that all transactions entered into by the Company and its subsidiaries for the year ended 31 December 2003 have been properly reflected in the books and records and in the accounts. In this context, the Directors are also unable to represent as to the completeness and correctness of the disclosures of directors’ and employees’ emoluments in note 8, taxation in note 9 and inventories in note 17 to the accounts.
(d) The Directors have formed the opinion that the amounts due from subsidiaries not consolidated to the Group of approximately HK$1,584,758,000 (2002: HK$1,578,703,000) and amounts due from subsidiaries to the Company of approximately HK$1,285,670,000 (2002: HK$1,285,670,000)

– 20 –

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APPENDIX I

included in the Group’s and the Company’s balance sheet respectively as at 31 December 2003 cannot be recovered. Accordingly, the Directors have made provisions against these amounts. However, we were unable to obtain sufficient information and explanations regarding the basis upon which the Directors have determined the amount of such provisions. Accordingly, we were unable to satisfy ourselves as to whether the provisions against these amounts were appropriate and the amounts due from these subsidiaries, after net of provisions, are fairly stated at the balance sheet date.

In addition, for the same reasons stated above, we have not been able to obtain all necessary information for us to complete our review of subsequent events from the balance sheet date up to the date of this report. Such procedures might have resulted in the identification of adjustments to the amounts reported in and/ or disclosed as notes to the accounts of the Group as at 31 December 2003.

There were no other satisfactory audit procedures that we could adopt to satisfy ourselves as to the matters set out in paragraphs 2 and 3 above. Any adjustments to the above figures would as appropriate affect the net liabilities of the Company and the Group as at 31 December 2003 and the loss of the Group for the year ended 31 December 2003.

In forming our opinion, we also evaluated the overall adequacy of the presentation of information in the accounts. We believe that our audit provide a reasonable basis for our opinion.

FUNDAMENTAL UNCERTAINTY RELATED TO THE GOING CONCERN BASIS

– 21 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

QUALIFICATION ARISING FROM DISAGREEMENT ABOUT ACCOUNTING TREATMENT

As detailed in note 15(a) to the accounts, the consolidated accounts do not include the results of certain subsidiaries, which are in the course of liquidation or their immediate holding companies are in the course of liquidation or their major assets and production facilities located in the People’s Republic of China were seized under court orders as security for unsettled claims, up to the respective dates of appointment of liquidators as ordered by the courts. This treatment is not in accordance with the requirements of SSAP 32 “Consolidated Financial Statements and Accounting for Investments in Subsidiaries” issued by the HKICPA and the Hong Kong Companies Ordinance. In our opinion, there is insufficient information concerning these subsidiaries in the accounts to give a true and fair view of the results and cash flows of the Group for the year ended 31 December 2003. It is not practicable to quantify the effect of the departure from this requirement.
As detailed in note 15(b) to the accounts, the accounts of the Group do not consolidate the accounts of certain subsidiaries. This treatment is not in accordance with the requirements of SSAP 32 and the Hong Kong Companies Ordinance. In our opinion, there is insufficient information concerning these subsidiaries in the accounts to give a true and fair view of the state of affairs of the Group as at 31 December 2003 and of the results and cash flows of the Group for the year ended 31 December 2003. It is not practicable to quantify the effect of the departure from this requirement.
As explained in note 3(iv)(e) to the accounts, the accounts do not contain a cash flow statement. This is not in accordance with the requirements of SSAP 15 “Cash flow statements”. In our opinion, information about the Group’s cash flows is necessary for a proper understanding of the Group’s state of affairs and loss for the year ended 31 December 2003. It is not practicable to quantify the effect of the departure from this requirement.

QUALIFICATION ARISING FROM DISAGREEMENTS ABOUT THE EXTENT OF DISCLOSURES

As explained in note 3(iv)(d) to the accounts, due to limited books and records available to the Directors, the following disclosures have not been made in the accounts:

Disclosures in respect of subsidiaries excluded from consolidation as required by SSAP 32 “Consolidated Financial Statements and Accounting for Investments in Subsidiaries”;

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APPENDIX I

Disclosures in respect of finance lease obligations as required by SSAP 14 (Revised) “Leases”;
Details of the share option scheme as required by the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (“Listing Rules”);
Details of the retirement benefit scheme and the employee benefits as required by SSAP 34 “Employee benefits”;
Segment information disclosures as required by SSAP 26 (Revised) “Segment Reporting” and the Listing Rules;
Details of analysis of pledge of assets as required by the Hong Kong Companies Ordinance;
Details of deferred taxation as required by SSAP12 (Revised) “Income Taxes”;
Details of related party disclosures as required by SSAP 20 “Related Party Disclosures”;
Details of the Group’s credit risk and ageing of debtors and creditors as required by the Listing Rules; and
Details of contingent liabilities and commitments as required by the Hong Kong Companies Ordinance and relevant SSAPs.

DISCLAIMER OF OPINION

Because of the significance of each of (i) the possible effect of the limitations in evidence available to us as set out in the basis of opinion section of this report; (ii) the fundamental uncertainty relating to the going concern basis and (iii) the non-compliance of certain disclosure requirements as mentioned above, we are unable to form an opinion as to whether the accounts give a true and fair view of the state of affairs of the Company and of the Group at 31 December 2003 and of the loss of the Group for the year then ended and as to whether the accounts have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

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In respect alone of the limitations on our work as set out in the basis of opinion section of this report:

We have not obtained all the information and explanations that we consider necessary for the purpose of our audit; and
We were unable to determine whether proper books of accounts have been kept.

TING HO KWAN & CHAN Certified Public Accountants

Hong Kong 5 November 2004

– 24 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

3. AUDITED FINANCIAL INFORMATION

Set out below is the reproduction of the report of the auditors and the audited financial statements of the Group for the year ended 31 December 2005 as extracted from the 2005 annual report of the Company:

“TO THE SHAREHOLDERS OF GREAT WALL CYBERTECH LIMITED

(Provisional Liquidators Appointed)

(incorporated in Bermuda with limited liability)

We have audited the financial statements on pages 15 to 42 which have been prepared in accordance with accounting principles generally accepted in Hong Kong, other than as set out below.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS

The Directors are responsible for the preparation of financial statements which give a true and fair view. In preparing financial statements which give a true and fair view it is fundamental that appropriate accounting policies are selected and applied consistently, that judgement and estimates are made which are prudent and reasonable and that the reasons for any significant departure from applicable accounting standards are stated.

It is our responsibility to form an independent opinion, based on our audit, on those financial statements and to report our opinion solely to you, as a body, 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 Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) except that the scope of our work was limited as explained below.

An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the Directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Company’s and the Group’s circumstances, consistently applied and adequately disclosed.

We planned our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the financial statements are free from material misstatement. However, the evidence available to us was limited as set out below.

Our report on the financial statements of the Group for the year ended 31 December 2004 was disclaimed in view of the pervasive nature of the limitations on the scope of our audit resulting from the inability of the Directors to locate

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APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

sufficient documentary information. It was explained by the Directors that due to liquidation of certain significant subsidiaries or their immediate holding companies and the seizure of the major assets and production facilities of certain significant subsidiaries under the court orders and most of the accounting personnel of the Group have left, the Directors have been unable to obtain sufficient documentary information for audit purposes. Accordingly, we were unable to form an opinion as to whether the net liabilities of the Company and the Group as at 31 December 2004 and the results of the Group for the year ended 31 December 2004 were fairly stated. Any adjustments to the opening balances as at 1 January 2005 would affect the net liabilities of the Company and the Group as at 31 December 2005 and the results and cash flows of the Group for the year ended 31 December 2005. Also the comparative figures in respect of the net liabilities of the Company and of the Group as at 31 December 2004 and the results and cash flows of the Group for the year ended 31 December 2004 may not be comparable with the figures for the current year.

As shown in note 3(ii)(a) to the financial statements, the Directors confirmed that they had not received any further information concerning the progress and possible outcome of the liquidation or seizure of the assets of the aforesaid subsidiaries or their immediate holding companies since the date of approval of the last year’s financial statements. Any changes to the above status of liquidation or possible outcome from the seizure of assets of these subsidiaries or their immediate holding companies might have a consequential effect on the net liabilities of the Group and the Company as at 31 December 2005 and the results and cash flows of the Group for the year ended 31 December 2005.

As explained by the Directors in note 3(ii) & (iii) to the financial statements that due to liquidation of certain significant subsidiaries or their immediate holding companies and the seizure of the major assets and production facilities of certain significant subsidiaries under the court orders and most of the accounting personnel of the Group have left, the Directors have been unable to obtain sufficient documentary information to satisfy themselves regarding the treatment of various balances of the Group and the Company as at 31 December 2005 and have formed the opinion as follows:
(a) As further explained by the Directors in note 3(iii)(a) to the financial statements, the Directors were unable to obtain sufficient documentary evidence to support other payables of approximately HK$293,807,000 (2004: HK$293,978,000) included in the Group’s and the Company’s balance sheet as at 31 December 2005, including the liabilities under indemnities given to subsidiaries not consolidated of approximately HK$291,130,000 (2004: HK$291,130,000). Accordingly the Directors were unable to satisfy themselves as to whether these amounts are fairly stated in the financial statements.
(b) As further explained by the Directors in note 3(iii)(b) to the financial statements, the Directors were unable to satisfy themselves as to whether the amounts of approximately HK$5,983,000 (2004: HK$5,983,000) due to

– 26 –

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APPENDIX I

certain subsidiaries not consolidated and subsidiaries of the Company included in the Group’s and Company’s balance sheet respectively are fairly stated as at 31 December 2005.

(c) As further explained by the Directors in note 3(iii)(c) to the financial statements, the financial statements have been prepared based on the available books and records maintained by the Company and its subsidiaries. However, in view of the lack of evidence available, the Directors were unable to represent as to the completeness of recording of all transactions entered into by the Company and its subsidiaries for the years ended 31 December 2004 and 2005. In this context, the Directors are also unable to represent as to the correctness and completeness of identification and disclosures of directors’ and employees’ emoluments in note 9, property, plant and equipment in note 14, details of the retirement benefits scheme and employee benefits in note 22 and taxation in note 10 to the financial statements.
(d) The Directors have formed the opinion that the amounts due from subsidiaries not consolidated to the Group of approximately HK$1,285,720,000 (2004: HK$1,285,690,000) and amounts due from subsidiaries to the Company of approximately HK$1,285,670,000 (2004: HK$1,285,670,000) included in the Group’s and the Company’s balance sheet respectively as at 31 December 2005 cannot be recovered. Accordingly, the Directors have made provisions against these amounts. However, we were unable to obtain sufficient information and explanations regarding the basis upon which the Directors have determined the amount of such provisions. Accordingly, we were unable to satisfy ourselves as to whether the provisions against these amounts as included in the consolidated income statement in current and prior years were appropriate and the amounts due from these subsidiaries, after net of provisions, are fairly stated at the balance sheet date.
(e) As further explained by the Directors in note 3(iii)(e) to the financial statements, in the absence of sufficient information and documentary evidence concerning details of share options of the Company as disclosed in note 19 to the financial statements, we are unable to ascertain whether the Company is in compliance with the Hong Kong Financial Reporting Standard (“HKFRS”) 2 “Share-based Payments” issued by the HKICPA and it is also not practicable to quantify the effect of the non-compliance with HKFRS 2. In addition, because of insufficient information and documentary evidence available to us, we are unable to ascertain the completeness of the disclosures of the Company’s share options as required by the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

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APPENDIX I

There were no other satisfactory audit procedures that we could adopt to satisfy ourselves as to the matters set out in paragraph 2 above. Any adjustments to the above figures would as appropriate affect the net liabilities of the Company and the Group as at 31 December 2005 and the profit and cash flows of the Group for the year ended 31 December 2005.

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

FUNDAMENTAL UNCERTAINTY RELATED TO THE GOING CONCERN BASIS

In forming our opinion, we have considered the adequacy of the disclosures in note 3(i) to the financial statements concerning the adoption of the going concern basis on which the financial statements have been prepared. As explained in note 3(i) to the financial statements, the Company has experienced financial difficulties and is currently negotiating with a potential investor for the purpose of restructuring of the Company’s indebtedness and revitalising the Group’s financial position and business. The financial statements have been prepared on a going concern basis, the validity of which depends upon the successful outcome of the measures to be implemented and in process by the Group to improve the financial position and business of the Group. The financial statements do not include any adjustments that would result from the failure of these measures. We consider that the appropriate disclosures have been made but, because of the significant uncertainties relating to the outcome of the restructuring proposal are so extreme, we are not able to determine whether the going concern basis used in preparing these financial statements is appropriate. Accordingly, we have disclaimed our opinion.

QUALIFICATION ARISING FROM DISAGREEMENT ABOUT ACCOUNTING TREATMENT

As detailed in note 16(a) to the financial statements, the consolidated financial statements do not include the results and cash flows of certain subsidiaries, which either themselves or their immediate holding companies are in the course of liquidation or their major assets and production facilities located in the People’s Republic of China were seized under court orders as security for unsettled claims, up to the respective dates of appointment of liquidators as ordered by the courts. This treatment is not in accordance with the requirements of Hong Kong Accounting Standard (“HKAS”) 27 “Consolidated and Separate Financial Statements” issued by the HKICPA and the Hong Kong Companies Ordinance. In our opinion, there is insufficient information concerning these subsidiaries in the financial statements to give a true and fair view of

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APPENDIX I

the state of affairs of the Group as at 31 December 2005 and of the results and cash flows of the Group for the year ended 31 December 2005. It is not practicable to quantify the effect of the departure from this requirement.

As detailed in note 16(b) to the financial statements, the financial statements of the Group do not consolidate the financial statements of certain subsidiaries. This treatment is not in accordance with the requirements of HKAS 27 and the Hong Kong Companies Ordinance. In our opinion, there is insufficient information concerning these subsidiaries in the financial statements to give a true and fair view of the state of affairs of the Group as at 31 December 2005 and of the results and cash flows of the Group for the year ended 31 December 2005. It is not practicable to quantify the effect of the departure from this requirement.

QUALIFICATION ARISING FROM DISAGREEMENTS ABOUT THE EXTENT OF DISCLOSURES

As explained in note 3(iii)(d) to the financial statements, due to limited books and records available to the Directors, the following disclosures have not been made in the financial statements:

Disclosures in respect of finance lease obligations as required by HKAS 17 “Leases”;
Segment information disclosures as required by HKAS 14 “Segment Reporting” and the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited;
Details of analysis of pledge of assets as required by the Hong Kong Companies Ordinance;
Details of deferred taxation as required by HKAS 12 “Income Taxes”;
Details of related party disclosures as required by HKAS 24 “Related Party Disclosures”;
Details of the Group’s financial risk management objectives and policies as required by HKAS 32 “ Financial Instruments: Disclosure and Presentation”; and
Details of contingent liabilities and commitments as required by the Hong Kong Companies Ordinance and relevant HKASs.

DISCLAIMER OF OPINION

Because of the significance of each of (i) the possible effect of the limitations in evidence available to us as set out in the basis of opinion section of this report; and (ii) the fundamental uncertainty relating to the going concern basis and (iii) the non-compliance of certain disclosure requirements as mentioned above, we are unable to form an opinion as to whether the financial statements give a true and fair view of the state of affairs of the

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APPENDIX I

Company and of the Group as at 31 December 2005 and of the profit and cash flows of the Group for the year then ended and as to whether the financial statements have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

In respect of the limitations on our work as set out in the basis of opinion section of this report:

We have not obtained all the information and explanations that we consider necessary for the purpose of our audit; and
We were unable to determine whether proper books of accounts have been kept.

TING HO KWAN & CHAN

Certified Public Accountants (practising)

Hong Kong, 28 April 2006

– 30 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated income statement

for the year ended 31 December 2005

Notes TURNOVER 5 COST OF SALES GROSS PROFIT OTHER INCOME AND GAINS, NET 5 SELLING AND DISTRIBUTION COSTS ADMINISTRATIVE EXPENSES GAIN ON DECONSOLIDATION OF SUBSIDIARIES 6 FINANCE COSTS 7 PROFIT BEFORE TAXATION 8 TAXATION 10 PROFIT FOR THE YEAR ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY 12 EARNINGS PER SHARE FOR PROFIT ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE COMPANY DURING THE YEAR 13 Basic Diluted	2005 HK$’000 513,610 (498,221)	2004 HK$’000 119,677 (117,147) 2,530 – (202) (7,008) 205,229 (42) 200,507 (57) 200,450 2.4 cents N/A
	15,389 2,139 (236) (6,981) – (300) 10,011 (1,810)	2,530 – (202 (7,008 205,229 (42
		200,507 (57
	8,201 0.1 cents N/A

– 31 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated balance sheet

at 31 December 2005

Notes ASSETS NON-CURRENT ASSETS Property, plant and equipment 14 CURRENT ASSETS Interests in subsidiaries not consolidated 16 Trade and other receivables 17 Bank balances CURRENT LIABILITIES Amounts due to subsidiaries not consolidated Trade and other payables 18 Profits tax payable NET CURRENT LIABILITIES TOTAL ASSETS LESS CURRENT LIABILITIES/NET LIABILITIES EQUITY CAPITAL AND RESERVES ATTRIBUTABLE TO THE COMPANY’S EQUITY HOLDERS Issued capital 19 Reserves 20	2005 HK$’000 67	2004 HK$’000 72 – 1,301 1,159 2,460 7,696 297,357 57 (305,110) (302,650) (302,578) 80,763 (383,341) (302,578)
	– 13,856 59 13,915 7,885 298,607 1,867 (308,359) (294,444)	– 1,301 1,159
		2,460
		7,696 297,357 57
		(305,110
		(302,650
	(294,377)
	80,763 (375,140)	80,763 (383,341
	(294,377)

Wu Shaozhang Chairman

Tse On Kin

Vice-chairman

– 32 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Balance sheet

at 31 December 2005

Notes ASSETS NON-CURRENT ASSETS Interests in subsidiaries 15 CURRENT LIABILITIES Trade and other payables 18 TOTAL ASSETS LESS CURRENT LIABILITIES/NET LIABILITIES EQUITY CAPITAL AND RESERVES ATTRIBUTABLE TO THE COMPANY’S EQUITY HOLDERS Issued capital 19 Reserves 20	2005 HK$’000 (7,333) (293,807) (301,140) 80,763 (381,903) (301,140)	2004 HK$’000 (6,870) (293,978) (300,848) 80,763 (381,611) (300,848)

Wu Shaozhang Chairman

Tse On Kin Vice-chairman

– 33 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated statement of changes in equity

for the year ended 31 December 2005

At 1 January 2004 Realised upon deconsolidation Profit for the year At 31 December 2004 Profit for the year At 31 December 2005	Share capital HK$’000 80,763 – – 80,763 – 80,763	Attributable t Share premium account Capital redemption reserve C HK$’000 HK$’000 792,011 9,924 – – – – 792,011 9,924 – – 792,011 9,924	o equity holde ontributed surplus account HK$’000 145,372 – – 145,372 – 145,372	rs of the Company Exchange fluctuation reserve Accumulated losses HK$’000 HK$’000 5,470 (1,531,098) (5,470) – – 200,450 – (1,330,648) – 8,201 – (1,322,447)	Total HK$’000 (497,558) (5,470) 200,450
					(302,578) 8,201
					(294,377)

– 34 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated cash flow statement

for the year ended 31 December 2005

Notes CASH FLOWS FROM OPERATING ACTIVITIES Profit for the year Adjustments for: Taxation 10 Depreciation 14 Impairment losses for: Trade and other receivables 8 Amounts due from subsidiaries not consolidated 8 Gain on deconsolidation of subsidiaries 6 Finance costs 7 Changes in working capital: Trade and other receivables Amounts due from subsidiaries not consolidated Amounts due to subsidiaries not consolidated Trade and other payables Net cash (used in)/generated from operations Interest paid Net cash (used in)/generated from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Net cash outflow in respect of deconsolidation of subsidiaries 21 Purchase of property, plant and equipment Net cash used in investing activities NET (DECREASE)/ INCREASE IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of the year CAH AND CASH EQUIVALENTS AT END OF THE YEAR Bank balances	2005 HK$’000 8,201 1,810 24 661 37 – 300	2004 HK$’000 200,450 57 3 11 19 (205,229) 42 (4,647) (1,301) (19) 1,712 5,529 1,274 (42) 1,232 (753) (75) (828) 404 755 1,159
	11,033 (13,216) (37) 189 1,250 (781) (300) (1,081) – (19) (19) (1,100) 1,159	(4,647 (1,301 (19 1,712 5,529
		1,274 (42
		1,232
		(753 (75
		(828
		404 755
	59

– 35 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Notes to the financial statements

for the year ended 31 December 2005

1. CORPORATE INFORMATION AND UPDATE

The Company was incorporated in Bermuda with limited liabilities and its shares are listed on the Main Board of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). The registered office of the Company in Hong Kong is located at Canon’s Court, 22 Victoria Street, Hamilton HM12, Bermuda. The address of the principal place of business of the Company is 26th Floor, Wing On Centre, 111 Connaught Road Central, Hong Kong. The Company’s shares have been suspended for trading on the Stock Exchange since 24 March 2003.

The Company is an investment holding company. The principal activities of the Company’s subsidiaries of which their financial statements have been consolidated at 31 December 2005 are set out in note 15 to the financial statements.

2. WINDING-UP PETITION AND APPOINTMENT OF PROVISIONAL LIQUIDATORS

As explained in the Group’s 2002 annual report, the Group has been experiencing financial difficulties since about 2002. On 25 March 2003, the Bank of East Asia Limited (“BEA”), petitioned for the winding-up of the Company as the Company failed to comply with the statutory demand issued by BEA on 2 December 2002. Upon the application of the Company by summons filed on 30 April 2003, Mr. Derek K.Y.Lai and Mr. Joseph K.C.Lo of Deloitte Touche Tohmatsu were appointed as joint and several provisional liquidators of the Company by the High Court of Hong Kong Special Administrative Region on 21 June, 2003 so as to preserve the assets of the Company and to consider and review restructuring proposals or scheme of arrangement to be proposed by any interested party. On 22 July 2004, the Company was placed in its third stage of the delisting procedure under Practice Note 17 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (“Listing Rules”). In addition, the winding up petition was further adjourned to 29 May 2006.

3. BASIS OF PREPARATION

(i) GOING CONCERN

In addition to the Company’s financial difficulties as mentioned in note 2 to the financial statements, the Company announced on 10 June 2004 that, inter alia, an escrow and exclusivity agreement (“Escrow Agreement”) was entered into on 4 June 2004 amongst (i) the Company, (ii) the potential investor, (iii) the provisional liquidators and (iv) the escrow agent. In the Escrow Agreement, the potential investor submitted a restructuring proposal which outlined the major terms for restructuring of the Company. Pursuant to the Escrow Agreement, it was agreed to grant the potential investor an exclusivity period for finalisation of the restructuring proposal.

On 26 September 2005, the Review Committee of the Stock Exchange has granted conditional approval for the restructuring proposal, subject to the fulfillment of certain conditions.

As set out in the Company’s announcement dated 21 April 2006, the Company, the investor and the provisional liquidators entered into a restructuring agreement on 13 April 2006 for implementation of the restructuring proposal.

The principal elements of the restructuring proposal are as follows:

(a) Capital reorganisation

The Company will implement capital reorganisation, involving share consolidation, capital reduction and capital reserve reduction.

(i) Share consolidation

Every 100 issued shares of HK$0.01 each will be consolidated into one consolidated share of HK$1 each. Fractional consolidated shares will not be issued to the shareholders but will be aggregated and sold for the benefit of the Company.

– 36 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(ii) Capital reduction

Immediately upon the share consolidation becoming effective, the Company will carry out a reduction of the nominal value of each consolidated share from HK$1 each to HK$0.01 each by cancelling the paid-up capital to the extent of HK$0.99 on each issued consolidated share. The adjusted shares will have par value of HK$0.01 each upon the capital reduction becoming effective.

(iii) Capital reserve reduction

The Company will carry out a cancellation of the entire amount standing to the credit of its share premium account, capital redemption reserve account and capital reserve account.

(b) Subscription

Pursuant to the subscription agreement with the Company’s potential investor, the investor will subscribe for 2,075,000,000 subscription shares at a consideration of HK$83 million. In addition, 352,750,000 additional shares will be issued and allotted to the investor, credited as fully paid, on the basis of 17 additional shares for every 100 subscription shares subscribed by the investor.

An amount of HK$21.5 million out of the subscription proceeds will then be transferred to the scheme administrators for the creditors’ settlement and the balance of the subscription proceeds will be used for working capital and investments of the Company.

(c) Creditors’ schemes

It is proposed that all indebtedness of the Company will be restructured pursuant to the creditors’ schemes. An amount of HK$21.5 million out of the subscription proceeds as stated in (b) above and the entire interests in the Scheme HK Group and Scheme BVI Group (comprising members of the Group which will be excluded from the restructured group but some of which are either in the process of winding up and/ or the Company considers control to have been lost) as defined and detailed in the Company’s announcement dated 21 April 2006, will be transferred to the scheme administrators for administration. According to the creditors’ schemes, all the Company’s secured debts will be satisfied by their respective collateralised property or assets and all the unsecured debts will be settled by way of a cash payment on a pro-rata basis out of the HK$21.5 million from the proceeds of the subscription as mentioned in (b) above (“Distribution Proceeds”), subject to deduction of the related petition costs and the scheme administration cost up to HK$1 million in aggregate. The Distribution Proceeds and, if any, amounts raised from realisation of assets of the Scheme HK Group and Scheme BVI Group will be used to repay the scheme creditors for the discharge and settlement in full of the indebtedness. Upon the implementation of the creditors’ schemes, the Company’s indebtedness will then be fully discharged and settled.

(d) Open offer

As part of the measures to restore the 25% public float and as required under the Listing Rules and to enable the existing shareholders to participate in the restructuring proposal, an open offer of 9 offer shares for every 5 adjusted shares held by the qualifying shareholders on the record date at the price of HK$0.06 per offer share will be made.

(e) Placings

As part of the measures to restore the 25% public float and as required under the Listing Rules, 374,627,374 new shares and 156,500,000 sale shares will be placed to no less than six independent investors who are third parties independent of the Company and its connected persons and the investor at no less than HK$0.06 each by the placing agent on a best effort basis.

The completion of the above restructuring agreement is conditional upon the fulfillment of certain terms and conditions, details of which have been included in the Company’s announcement dated 21 April 2006.

– 37 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The Directors have prepared the financial statements on the basis that the restructuring proposal of the Company will be successfully implemented and that the Group will be able to improve its financial position and business upon completion of restructuring. As at the date of approval of the financial statements, the Directors are not aware of any circumstances or reasons that would likely affect the successful implementation of the restructuring proposal and the intention of the potential investor. In light of the foregoing, the Directors opined that it is appropriate to prepare the financial statements on a going concern basis. The financial statements do not incorporate any adjustments for possible failure of the above mentioned restructuring proposal and the continuance of the Group as a going concern.

Should the Group be unable to continue as a going concern, adjustments would have to be made to restate the value of the Group’s assets to their recoverable amounts, to provide for any further liabilities which might arise and to reclassify non-current assets and non-current liabilities as current assets and current liabilities. The effect of these potential adjustments has not been incorporated in the financial statements.

(ii) SUBSIDIARIES NOT CONSOLIDATED

(a) The financial statements have been prepared based on the books and records maintained by the Company and its subsidiaries. However, due to (a) the liquidation of certain significant subsidiaries or their immediate holding companies; or (b) the seizure of the major assets and production facilities of the major subsidiaries under the court orders as security for the unsettled claims, the Directors have not been able to obtain access to the books and records of these subsidiaries and considered that control to have been lost. The results, cash flows, assets and liabilities of these subsidiaries were not consolidated into the financial statements of the Group. Details of these subsidiaries deconsolidated from the group financial statements are set out in note 16(a).

In the opinion of the Directors, the financial statements for the year ended 31 December 2005 prepared on the aforementioned basis present more fairly the results and cash flows and state of affairs of the Group as a whole in light of liquidation or seizure of the assets of subsidiaries.

As explained by the Directors, since 20 July 2005, being the date on which last year’s financial statements approved by the Directors, they had not received any further information concerning the progress and possible outcome of the liquidation or seizure of the assets of the aforesaid subsidiaries or their immediate holding companies. Any changes to the above status of liquidation or possible outcome from the seizure of assets of these subsidiaries or their immediate holdings companies might have a consequential effect on net liabilities of the Group and the Company as at 31 December 2005 and the results and cash flows of the Group for the year ended 31 December 2005.

(b) In addition, the Directors considered that the non-consolidation of the results, cash flows, assets and liabilities of subsidiaries as set out in note 16(b) to the financial statements would not significantly affect the results and cash flows and state of affairs of the Group for the current year as the cost of obtaining this information would exceed the value of this information to the members of the Company.

Details of subsidiaries not consolidated in the financial statements are set out in note 16(a) and 16(b) to the financial statements.

(iii) In addition to the limited financial information available concerning certain subsidiaries due to liquidation or seizure of assets of certain major subsidiaries as detailed in note 3(ii)(a) to the financial statements, the Directors have used their best endeavours to relocate all the financial and business records of the Group as most of the former accounting personnel of the Group have left. The Directors were unable to obtain sufficient documentary information to satisfy themselves regarding the treatment of various balances of the Group and of the Company as at 31 December 2005.

– 38 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(a) The Directors were unable to obtain sufficient documentary evidence to support other payables of approximately HK$293,807,000 included in the Group’s and the Company’s balance sheet as at 31 December 2005, including the liabilities under indemnities given to subsidiaries not consolidated of approximately HK$291,130,000 as at 31 December 2005. Accordingly the Directors were unable to satisfy themselves as to whether these amounts are fairly stated in the financial statements.
(b) The Directors were unable to satisfy themselves as to whether the amounts of approximately HK$5,983,000 due to certain subsidiaries not consolidated and subsidiaries of the Company included in the Group’s and Company’s balance sheet respectively are fairly stated as at 31 December 2005.
(c) The financial statements have been prepared based on the available books and records maintained by the Company and its subsidiaries. However, in view of the lack of evidence available, the Directors were unable to represent as to the completeness of recording of all transactions entered into by the Company and its subsidiaries for the years ended 31 December 2004 and 2005. Accordingly, the Directors were also unable to represent as to the correctness and completeness of identification and disclosure of directors’ and employees’ emoluments in note 9, property, plant and equipment in note 14, details of the retirement benefits scheme and employee benefits in note 22 and taxation in note 10 to the financial statements.
(d) Due to limited books and records available to the Directors, the following have not been made in the financial statements:
Disclosures in respect of finance lease obligations as required by Hong Kong Accounting Standard (“HKAS”) 17 “Leases”;
- Details of analysis of pledge of assets as required by the Hong Kong Companies Ordinance;
Segment information disclosures as required by HKAS 14 “Segment Reporting” and the Listing Rules;
Details of deferred taxation as required by HKAS 12 “Income Taxes”;
Details of related party disclosures as required by HKAS 24 “Related Party Disclosures”;
Details of the Group’s financial risk management objectives and policies as required by HKAS 32 “ Financial Instruments: Disclosure and Presentation”; and
Details of contingent liabilities and commitments as required by the Hong Kong Companies Ordinance and the relevant HKASs.
(e) Due to insufficient information and documentary evidence available to the Directors, they were unable to ascertain the completeness of the disclosures of the Company’s share options as required by the Listing Rules.

Any adjustments arising from the matters described in above would affect the net liabilities of the Company and the Group as at 31 December 2005 and the profit and cash flows of the Group for the year then ended.

Also, as a result of the matters described in above, the comparative figures at 31 December 2004 shown in the consolidated balance sheet on page 16, the Company’s balance sheet on page 17 and in the consolidated income statement and consolidated cash flow statement for the year then ended on page 15 and page 19 respectively may not be comparable with the figures for the current year.

– 39 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting polices adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

Basis of preparation

The consolidated financial statements have been prepared under the historical cost convention.

Application of new/revised Hong Kong Financial Reporting Standards

In 2005, the Group adopted the following new/revised standards of Hong Kong Financial Reporting Standards (“HKFRS”) (including Hong Kong Accounting Standards (“HKAS”) and interpretations (“Int”)) issued by the Hong Kong Institute of Certified Public Accountants, which are relevant to its operations. The 2004 comparatives have been amended as required, in accordance with the relevant requirements.

HKAS 1	Presentation of Financial Statements
HKAS 7	Cash Flow Statements
HKAS 8	Accounting Policies, Changes in Accounting Estimates and Errors
HKAS 10	Events after the Balance Sheet Date
HKAS 12	Income Taxes
HKAS 16	Property, Plant and Equipment
HKAS 17	Leases
HKAS 21	The Effects of Changes in Foreign Exchange Rates
HKAS 23	Borrowing Costs
HKAS 27	Consolidated and Separate Financial Statements
HKAS 32	Financial Instruments: Disclosure and Presentation
HKAS 33	Earnings per Share
HKAS 36	Impairment of Assets
HKAS 38	Intangible Assets
HKAS 39	Financial Instruments: Recognition and Measurement
HKAS-Int15	Operating leases – Incentive
HKFRS 2	Share-based Payments
HKFRS 3	Business Combinations

The adoption of the above HKASs did not result in substantial changes to the Group’s accounting policies. In summary:

The adoption of HKAS 1 has resulted in a change of presentation of the consolidated income statement, consolidated balance sheet and consolidated statement of changes in equity. The changes in presentation have been applied retrospectively.

HKAS 7, 8, 10, 12, 16, 17, 23, 27, 32, 33, 36, 38, 39, HKAS-Int 15 and HKFRS 3 had no material effect on the Group’s policies.

HKAS 21 had no material effect on the Group’s policy. All the Group entities have the same functional currency as the presentation currency for respective entity financial statements.

In the absence of sufficient information and documentation evidence available to us regarding share options of the Company, it is not practicable to quantify the effect of the non-compliance with HKFRS 2.

– 40 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The Group has not early applied the following new standards and interpretations that have been issued but are not yet effective. The Group has commenced considering the potential impact of these new standards and interpretations but is not yet in a position to determine whether these new statements and interpretations would have a significant impact on how its results of operations and financial position are prepared and presented.

HKAS 1 (Amendment)	Capital disclosure 1
HKAS 19 (Amendment)	Actuarial gains and losses, group plans and disclosures 2
HKAS 21 (Amendment)	Net investment in a foreign operation 2
HKAS 39 (Amendment)	Cash flow hedge accounting of forecast intragroup transactions 2
HKAS 39 (Amendment)	The fair value option 2
HKAS 39 & HKFRS 4 (Amendments)	Financial guarantee contracts 2
HKFRS 6	Exploration for and evaluation of mineral resources 2
HKFRS 7	Financial instruments: Disclosures 1
HK(IFRIC) - INT 4	Determining whether an arrangement contains a lease 2
HK(IFRIC) - INT 5	Rights to interests arising from decommissioning, restoration and
	environmental rehabilitation funds 2
HK(IFRIC) - INT 6	Liabilities arising from participating in a specific market, waste
	electrical and electronic equipment 3
HK(IFRIC) - INT 7	Applying the restatement approach under HKAS 29 Financial
	Reporting in Hyperinflationary Economies 4

1 Effective for annual periods beginning on or after 1 January 2007
2 Effective for annual periods beginning on or after 1 January 2006
3 Effective for annual periods beginning on or after 1 December 2005
4 Effective for annual periods beginning on or after 1 March 2006

Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries made up to the balance sheet date, other than those excluded for the reasons referred to note 16 to the financial statements. The results of the subsidiaries acquired or disposed of during the year are consolidated from or to their effective dates of acquisition or disposal, respectively.

Where the Company holds more than half of the issued share capital of a subsidiary, but does not control the composition of the board of directors or equivalent governing body, the financial statements of that subsidiary are not consolidated because it would be misleading to do so. Where the Company is in a position to exercise significant influence, such investments are dealt with as associates as appropriate. Otherwise, they are dealt with as available-for-sale investments.

Certain subsidiaries within the Group have not been consolidated from the consolidated financial statements as of 1 April 2002 or the date the Company has been unable to obtain access to any financial information of these subsidiaries because in the opinion of the Directors, the Group has lost control over these subsidiaries and it will be misleading to the users if these subsidiaries are consolidated into the Group’s results, cash flows and assets and liabilities.

Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

– 41 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Subsidiaries

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

Investments in subsidiaries are included in the Company’s balance sheet at cost, less any accumulated impairment losses. The results of subsidiaries are accounted for by the Company on the basis of dividend received and receivable.

Intangible assets

Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary/ associate entity at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisitions of associates is included in investments in associates. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Property, plant and equipment

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

Depreciation of property, plant and equipment is calculated using the straight-line method to allocate cost to their residual values (if, there are any) over their estimated useful lives, as follows:

Plant and machinery	10%–331⁄3%
Furniture, fixtures and equipment	20%–331⁄3%

No depreciation is provided on properties under development until they are completed and put into use.

The assets’ residual values (if any) and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset.

The gain or loss on disposal or retirement of property, plant and equipment recognised in the income statement is the difference between the net sales proceeds and the carrying amount of the relevant asset.

Impairment of assets

Assets that have an indefinite useful life are not subject to amortisation, which are at least tested annually for impairment and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).

– 42 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Trade and other receivables

Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade and other receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in the income statement.

Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within bank and other borrowings in current liabilities on the balance sheet.

Leases

Finance lease (as the lessee)

Leases of assets where the Group has substantially obtained all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in current and non-current liabilities. The interest element of the finance cost is recognised in the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases are depreciated over the shorter of the useful lives of the assets or the lease terms.

Operating lease (both as the lessor and lessee)

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the Group is the lessor, assets leased by the Group under operating leases are included in non-current assets and rentals receivable under the operating leases are credited to the income statement on the straight-line basis over the lease terms. Where the Group is the lessee, rentals payable under the operating leases are charged to the income statement on the straight-line basis over the lease terms.

Provisions

Provisions for environmental restoration, restructuring costs and legal claims are recognised when the Group has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operating losses.

Revenue recognition

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

the sale of goods

Revenue is recognised when the significant risks and rewards of ownership have been transferred to the buyer, provided that the Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold;

Consultancy and management services

Revenue is recognised when the relevant consultancy and management services are rendered.

– 43 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Gain on disposal of know-how technology

Foreign currency translation

(a) Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are presented in HK dollars, which is the Company’s functional and presentation currency.

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in equity as qualifying cash flow hedges or qualifying net investment hedges.

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

Retirement benefits costs

The Group operates a defined contribution retirement benefits scheme set up under the Mandatory Provident Fund Schemes Ordinance (“MPF Scheme”) for its employees who are eligible to participate. Contributions are made based on a percentage of the employees’ basic salaries and are charged to the income statement as they become payable in accordance with the rules of the scheme. The Group’s employer contributions vest fully with the employees when contributed into the MPF Scheme.

Income tax

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

Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, if the deferred tax arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not accounted for. Deferred tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.

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 tax is provided on temporary differences arising on investments in subsidiaries, associates and jointly controlled entities, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

– 44 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Related parties

A party is related to the Group if:

(i) directly, or indirectly through one or more intermediaries, the party:
(1) controls, is controlled by, or is under common control with, the Group;
(2) has an interest in the Group that gives its significant influence over the Group; or
(3) has joint control over the Group;
(ii) the party is a jointly-controlled entity;
(iii) the party is an associate;
(iv) the party is a member of the key management personnel of the Company or its parent;
(v) the party is a close member of the family of any individual referred to in (i) or (iv);
(vi) the party is an entity that is controlled, jointly-controlled or significantly influenced by or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (iv) or (v); or
(vii) the party is a post-employment benefit plan for the benefit of employees of the Group, or of any entity that is a related party of the Group.

5. TURNOVER, OTHER INCOME AND GAINS, NET

Turnover represents the net amounts received and receivable from goods sold to customers, less returns and discounts, during the year. An analysis of the Group’s turnover, other income and gains, net is as follows:

Turnover Sale of consumer electronic products Other income Consultancy and management fees income Sundry income Gains, net Gain on disposal of know-how technology	2005 HK$’000 513,610	2004 HK$’000 119,677
	42 97 139 2,000 2,139	– –
		– –
		–
	515,749	119,677

GAIN ON DECONSOLIDATION OF SUBSIDIARIES
	2005	2004
	HK$’000	HK$’000
Gain on deconsolidation of subsidiaries	–	205,229

The above amount represented a gain on deconsolidation of the subsidiaries, Great Wall France SA which has been put into liquidation during the year ended 31 December 2004, together with its immediate holding companies, after the release of exchange fluctuation reserve of approximately HK$5,470,000.

– 45 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

7. FINANCE COSTS

Interest on: Other loans wholly repayable within five years PROFIT BEFORE TAXATION The Group’s profit before taxation is arrived at after charging: Staff costs: Wages and salaries Director’s remuneration (note 9) Mandatory provident fund contributions Staff welfare and related expenses Depreciation Management fee Operating leases: Rental of premises Auditors’ remuneration Impairment losses for: Trade and other receivables Amounts due from subsidiaries not consolidated	2005 HK$’000 300 2005 HK$’000 2,056 14 76 6 2,152 24 350 740 140 661 37	2004 HK$’000 42

		2004 HK$’000 2,225 – 67 1
		2,293 3 – 803 90 11 19

8. PROFIT BEFORE TAXATION

9. DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS

Directors Fees: Executive directors Independent non-executive directors – Mr. Poon Kwok Shin Other emoluments for executive directors: Salaries, allowances, benefits in kind and provident fund contributions	2005 HK$’000 – 14	2004 HK$’000 – –
	14 –	– –
	14	–

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

– 46 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

In 2005 and 2004, the five highest paid individuals did not include any directors of the Company. The emoluments of the five highest paid individuals were as follows:

Salaries and benefits in kind	2005 HK$’000 1,355 1,355	2004 HK$’000 850
		850

The number of the five highest paid employees whose remuneration fell within the following bands is as follows:

			2005	2004
			Number of	Number of
			employees	employees
Nil	to	HK$1,000,000	5	5

10. TAXATION

Hong Kong profits tax has been provided at the rate of 17.5% (2004: 17.5%) on the estimated assessable profits for the year.

Hong Kong Profits Tax	2005 HK$’000 1,810	2004 HK$’000 57

The taxation on the Group’s profit before taxation differs from the theoretical amount that would arise using the taxation rate applicable to profits of the consolidated companies as follows:

Profit before taxation Calculated at a taxation rate of 17.5% (2004:17.5%) Tax effect of income not subject to taxation Tax effect of expenses not deductible for taxation purposes Tax effect of tax losses unrecognised for the year Tax effect of temporary differences unrecognised for the year Taxation charge	2005 HK$’000 10,011	2004 HK$’000 200,507
	1,752 – 6 51 1	35,089 (35,915 536 358 (11
	1,810	57

11. INDEMNIFIED LIABILITIES OF SUBSIDIARIES NOT CONSOLIDATED

The Company has given indemnities to certain bankers and vendors of its subsidiaries, which are at present under liquidation or their assets are now under seizure pursuant to the court orders for the unsettled claims, in respect of loans advanced and services rendered to those subsidiaries. The Company’s obligations under these indemnities crystallised upon default payment on the part of those subsidiaries.

– 47 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

12. PROFIT FOR THE YEAR ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY

The profit for the year attributable to equity holders of the Company dealt with in the financial statements of the Company was the loss of HK$292,000 (2004: the loss of HK$3,049,000).

13. EARNINGS PER SHARE

The calculation of the basic earnings per share for the year ended 31 December 2005 is based on the profit for the year attributable to equity holders of the Company of HK$8,201,000 (2004: HK$200,450,000) and the weighted average number of 8,076,257,020 ordinary shares (for the year ended 31 December 2004: 8,076,257,020 ordinary shares) in issue.

No diluted earnings per share has been presented for the both years as there were no outstanding dilutive potential ordinary shares.

14. PROPERTY, PLANT AND EQUIPMENT

Group

Freehold land and buildings outside Hong Kong HK$’000 31,917 – (31,917)	Plant and machinery HK$’000 41,206 – (41,206)	Furniture, fixtures and equipment HK$’000 7,382 75 (7,382)	Total HK$’000 80,505 75 (80,505) 75 19 94 59,391 3 (59,391) 3 24 27 67 72
– – – 13,789 – (13,789) – – –	– – – 39,017 – (39,017) – – –	75 19 94 6,585 3 (6,585) 3 24 27	75 19
			94
			59,391 3 (59,391
			3 24
			27
– –	– –	67 72

– 48 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

15. INTERESTS IN SUBSIDIARIES

Unlisted shares, at cost Due from subsidiaries Impairment losses Due to subsidiaries	Company 2005 2004 HK$’000 HK$’000 5,001 5,001 1,285,670 1,285,670 1,290,671 1,290,671 (1,290,671) (1,290,671) – – (7,333) (6,870) (7,333) (6,870)	Company 2005 2004 HK$’000 HK$’000 5,001 5,001 1,285,670 1,285,670 1,290,671 1,290,671 (1,290,671) (1,290,671) – – (7,333) (6,870) (7,333) (6,870)
	1,290,671 (1,290,671) – (7,333)	1,290,671 (1,290,671
		– (6,870
	(7,333)

The Directors had formed the opinion that the carrying amount of the Company’s investments in subsidiaries of approximately HK$5,001,000 had been impaired and amounts due from these subsidiaries of approximately HK$1,285,670,000 could not be recovered and, accordingly, such impairment losses had already been recognised in the financial statements.

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

Details of the Company’s subsidiaries as at 31 December 2005 which have been consolidated in these financial statements are as follows:

	Nominal value of	Attributable	Attributable
	issued and fully	equity interest of
	paid ordinary	the Company
Name	share capital	Direct	Indirect	Principal activities
Fortune Hand Industries Limited	USD1	100%	–	Investment holding
Great Wall Infrastructure Limited	USD1	–	100%	Dormant
Innovision Enterprises Limited	HK$1	–	100%	Sales, marketing,
				product design of
				audio-visual
				products

Notes:

The subsidiaries, Fortune Hand Industries Limited and Great Wall Infrastructure Limited, were incorporated in the British Virgin Islands and operated in Hong Kong.
The subsidiary, Innovision Enterprises Limited, was incorporated and operated in Hong Kong.

– 49 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

16. INTERESTS IN SUBSIDIARIES NOT CONSOLIDATED

(a) The consolidated financial statements for the year ended 31 December 2005 do not include the following subsidiaries, which (i) are either themselves or their immediate holding companies are in the course of liquidation or (ii) the major assets and production facilities of the subsidiaries have been under seizure by the Mainland China Court Orders as a security for the unsettled claims against the Group. Accordingly, the Directors of the Company were unable to have access to the books and records of these subsidiaries.

Details of these subsidiaries where the Directors considered that control to have been lost are as follows:

	Proportion of nominal value
	of issued capital held by the
Name of the principal subsidiaries	Company indirectly
Video Epoch Limited (*)	100%
Video Epoch Electronic (Huizhou) Limited	100%
Huizhou City Caixing Electrical Appliance Limited	75%
Huizhou City Hua Xing Packing Material Company Limited	88%
Huizhou City Hang Tung Paper Products Printing Limited	70%
Brilliant Plastic Manufacturing Limited (*)	100%
Brilliant Plastic and Mould Manufacturing (Huizhou) Limited	90%
Brilliant Plastic Industrial (Huizhou) Limited	100%
Art-Tech Speakers Manufacturing (Huizhou City) Limited	67%
Art-Tech Electronics (Huizhou) Limited	100%
Great Wall Industries Company Limited	100%
Guangzhou Rowa Electronics Company Limited	60%
Great Wall France SA (**)	100%

private companies incorporated and operated in Hong Kong
** private company incorporated and operated in France

The above subsidiaries were incorporated and operated in the People’s Republic of China, except as otherwise noted.

The consolidated financial statements do not include the results and cash flows of these subsidiaries up to the respective dates of appointment of liquidators as ordered by the courts as, in the opinion of the Directors, the financial statements prepared on the captioned basis present more fairly the results and cash flows and state of affairs of the Group as a whole in light of liquidation and seizure of the assets of subsidiaries.

– 50 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(b) The financial statements of the Group do not consolidate the financial statements of the following subsidiaries set out below as in the opinion of the Directors, the non-consolidation of the results, cash flows and assets and liabilities of these subsidiaries would not significantly affect the results and cash flows and state of affairs of the Group for the year and the cost of obtaining this information would exceed the value of this information to the members of the Company.

Details of these principal subsidiaries not consolidated as at 31 December 2005 are as follows:

	Proportion of nominal	Proportion of nominal
	value of issued capital held
Name of the principal subsidiaries	by the Company
	Directly	Indirectly
Great Wall Capital Management Limited	–	100%
Great Wall Electronics Holding Limited	100%	–
Great Wall Strategic Holdings (BVI) Limited #	–	100%
Shenzhen Rowa Digital Network Technology Limited*	–	90%
Star Source Industries Limited	–	100%
Well Concur Limited	–	100%
Lipon Products Limited	–	100%
Great Wall Electronics Group Limited #	100%	–

# incorporated in the British Virgin Islands
registered and operating in the People’s Republic of China as a sino-foreign equity joint venture

The above subsidiaries were incorporated and operating in Hong Kong, except as otherwise noted.

(c) The Directors have formed the opinion that the Group’s interests in the above subsidiaries had been fully impaired and such impairment losses had been recognised in the financial statements in previous years.

17. TRADE AND OTHER RECEIVABLES

Trade receivables Less: impairment loss of receivables Other receivables and prepayments	Group 2005 2004 HK$’000 HK$’000 8,585 1,080 655 –	Group 2005 2004 HK$’000 HK$’000 8,585 1,080 655 –	Company 2005 2004 HK$’000 HK$’000 – – – –	Company 2005 2004 HK$’000 HK$’000 – – – –
	7,930 5,926	1,080 221	– –	– –
	13,856	1,301	–	–

– 51 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Included in trade and other receivables are trade debtors (net of impairment losses) with the following aging analysis as of the balance sheet date:

Current 1 to 3 months 4 to 6 months More than 6 months	Group 2005 2004 HK$’000 HK$’000 1,965 803 3,668 179 2,252 98 45 – 7,930 1,080	Company 2005 2004 HK$’000 HK$’000 – – – – – – – – – –	Company 2005 2004 HK$’000 HK$’000 – – – – – – – – – –
			–

The Group has recognised a loss of HK$661,000 (2004: HK$11,000) for the impairment of its trade and other receivables during the year ended 31 December 2005. The loss has been included in the income statement.

The fair value of the Group’s trade and other receivables at 31 December 2005, which are mainly denominated in United States dollar, approximates to the corresponding carrying amount.

18. TRADE AND OTHER PAYABLES

Trade payables Other payables and accruals	Group 2005 2004 HK$’000 HK$’000 2,791 – 295,816 297,357 298,607 297,357	Company 2005 2004 HK$’000 HK$’000 – – 293,807 293,978 293,807 293,978	Company 2005 2004 HK$’000 HK$’000 – – 293,807 293,978 293,807 293,978
			293,978

Included in other payables and accruals were the liabilities under indemnities given to subsidiaries not consolidated of approximately HK$291,130,000 (2004: HK$291,130,000)

At 31 December 2005, the aging analysis of the trade payables was as follows:

1 to 3 months 19. SHARE CAPITAL Shares	Group 2005 2004 HK$’000 HK$’000 2,791 –	Company 2005 2004 HK$’000 HK$’000 – –	Company 2005 2004 HK$’000 HK$’000 – –

Authorised: 25,000,000,000 ordinary shares of HK$0.01 each Issued and fully paid: 8,076,257,020 ordinary shares of HK$0.01 each	Company 2005 2004 HK$’000 HK$’000 250,000 250,000 80,763 80,763	Company 2005 2004 HK$’000 HK$’000 250,000 250,000 80,763 80,763

		80,763

– 52 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Share options

On 15 April 2002, the Company terminated the old share option schemes, which had been adopted in 1991 and 1997, and adopted a new share option scheme (the “New Scheme”). The exercisable period for all the options granted under the old share option schemes which entitled the holder to subscribe for the shares of the Company had been expired on 6 March 2003.

The New Scheme shall be valid and effective for a period of 10 years from 15 April 2002, after which period no further share will be granted but the provisions of the New Scheme shall remain in full force and effect in all other respects.

The exercise price of the share options is determinable by the Directors, but may not be less than the higher of (i) the Stock Exchange closing price of the Company’s shares on the date of the offer of the share options which must be a business day; (ii) the average Stock Exchange closing price of the Company’s shares for the five trading days immediately preceding the date of the offer; and (iii) the nominal value of the Company’s shares. Since the date of the adoption of New Scheme, no options have ever been granted.

20. RESERVES

Share premium account HK$’000 792,011 – –	Capital redemption reserve Contributed surplus account HK$’000 HK$’000 (Note) 9,924 145,372 – – – –	Capital redemption reserve Contributed surplus account HK$’000 HK$’000 (Note) 9,924 145,372 – – – –	Exchange fluctuation reserve Accumulated losses HK$’000 HK$’000 5,470 (1,531,098) (5,470) – – 200,450	Exchange fluctuation reserve Accumulated losses HK$’000 HK$’000 5,470 (1,531,098) (5,470) – – 200,450	Total HK$’000 (578,321 (5,470 200,450
792,011 –	9,924 –	145,372 –	– –	(1,330,648) 8,201	(383,341 8,201
792,011 Share premium account HK$’000 792,011 –	9,924 145,372 Capital redemption reserve Contributed surplus account HK$’000 HK$’000 (Note) 9,924 145,372 – –		– (1,322,447) Capital reserve Accumulated losses HK$’000 HK$’000 71,382 (1,397,251) – (3,049)		(375,140

					Total HK$’000 (378,562 (3,049
792,011 –	9,924 –	145,372 –	71,382 –	(1,400,300) (292)	(381,611 (292
792,011	9,924	145,372	71,382	(1,400,592)	(381,903

Note: The contributed surplus account of the Company and the Group represents the credit arising from capital reduction.

– 53 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

21. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT

Deconsolidation of subsidiaries

Net liabilities deconsolidated: Property, plant and equipment Inventories Trade and other receivables Cash and bank balances Finance lease obligations Trade and other payables Amounts due to subsidiaries not consolidated Realisation of exchange fluctuation reserve Gain on deconsolidation of subsidiaries Satisfied by Cash consideration Analysis of the net outflow of cash and cash equivalents in respect of deconsolidation of subsidiaries: Cash and bank balances	2005 HK$’000 – – – – – – –	2004 HK$’000 21,114 16,889 9,268 753 (13,627) (20,388) (213,768)
	– – – –	(199,759) (5,470)
		(205,229) 205,229
	– –	–

		753

22. RETIREMENT BENEFIT SCHEME

The Group contributes to a MPF Scheme for all qualifying employees employed under the jurisdiction of the Hong Kong Employment Ordinance. Contributions to the scheme by the Group and the employees are calculated as a percentage of employee’s relevant income. The retirement benefit scheme costs charged to income statement represent contributions payable by the Group to the fund. The assets of the scheme are held separately from those of the Group in an independently administered fund.

23. POST BALANCE SHEET EVENTS

Details of post balance sheet events are summarised in notes 2 and 3 to the financial statements.

24. APPROVAL OF THE FINANCIAL STATEMENTS

The financial statements were approved and authorised for issue by the board of directors on 28 April 2006.

– 54 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

4. INTERIM FINANCIAL STATEMENTS

Set out below are the unaudited consolidated financial statements of the Group together with accompanying notes as extracted from the interim report of the Group for the six months ended 30 June 2006:

CONDENSED CONSOLIDATED INCOME STATEMENT

Note Sales turnover 5 Cost of goods sold Gross profit Selling and marketing costs Administrative expenses Operating profit 6 Finance costs Profit before income tax Income tax expense 7 Profit for the period Attributable to: Equity holders of the Company Minority interest Earnings per share for profit attributable to the equity holders of the Company during the period (expressed in HK$ per share) 10 – basic – diluted	(Unaudited) Six months ended 30 June 2006 2005 HK$’000 HK$’000 190,613 174,290 (185,559) (167,542) 5,054 6,748 (116) (85) (3,636) (2,548) 1,302 4,115 (15) (103) 1,287 4,012 (212) (741) 1,075 3,271 1,075 3,271 – – 1,075 3,271 0.01 cent 0.04 cent N/A N/A	(Unaudited) Six months ended 30 June 2006 2005 HK$’000 HK$’000 190,613 174,290 (185,559) (167,542) 5,054 6,748 (116) (85) (3,636) (2,548) 1,302 4,115 (15) (103) 1,287 4,012 (212) (741) 1,075 3,271 1,075 3,271 – – 1,075 3,271 0.01 cent 0.04 cent N/A N/A
	5,054 (116) (3,636) 1,302 (15) 1,287 (212)	6,748 (85 (2,548
		4,115 (103
		4,012 (741
	1,075
	1,075 –	3,271 –
	1,075 0.01 cent N/A

– 55 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED BALANCE SHEET

Note ASSETS Non-current assets Property, plant and equipment Current assets Trade and other receivables 13 Cash and cash equivalents Total assets EQUITY Capital and reserves attributable to the Company’s equity holders Share capital 14 Other reserves Retained earnings Total equity LIABILITIES Current liabilities Trade and other payables 15 Amount due to subsidiaries not consolidated Current income tax liabilities Total equity and liabilities Net current liabilities Total assets less current liabilities	At 30 June 2006 (Unaudited) HK$’000 53	At 31 December 2005 (Audited) HK’000 67 67 13,856 59 13,915 13,982 80,763 947,307 (1,322,447) (294,377) 298,607 7,885 1,867 308,359 13,982 (294,444) (294,377)
	53 12,785 163 12,948	67
		13,856 59
		13,915
	13,001
	80,763 947,307 (1,321,372) (293,302) 296,192 7,881 2,230 306,303	80,763 947,307 (1,322,447
		(294,377
		298,607 7,885 1,867
		308,359
	13,001 (293,355) (293,302)

– 56 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 June 2006

At 1 January 2006 Profit for the period At 30 June 2006 At 1 January 2005 Profit for the period At 30 June 2005	Share capital HK$’000 80,763 – 80,763	(Unaudited) Attributable to equity holders of the parent Share premium account Capital redemption reserve Contributed surplus account Accumulated losses HK$’000 HK$’000 HK$’000 HK$’000 792,011 9,924 145,372 (1,322,447) – – – 1,075 792,011 9,924 145,372 (1,321,372)	(Unaudited) Attributable to equity holders of the parent Share premium account Capital redemption reserve Contributed surplus account Accumulated losses HK$’000 HK$’000 HK$’000 HK$’000 792,011 9,924 145,372 (1,322,447) – – – 1,075 792,011 9,924 145,372 (1,321,372)	(Unaudited) Attributable to equity holders of the parent Share premium account Capital redemption reserve Contributed surplus account Accumulated losses HK$’000 HK$’000 HK$’000 HK$’000 792,011 9,924 145,372 (1,322,447) – – – 1,075 792,011 9,924 145,372 (1,321,372)	(Unaudited) Attributable to equity holders of the parent Share premium account Capital redemption reserve Contributed surplus account Accumulated losses HK$’000 HK$’000 HK$’000 HK$’000 792,011 9,924 145,372 (1,322,447) – – – 1,075 792,011 9,924 145,372 (1,321,372)	Total HK$’000 (294,377) 1,075 (293,302) (302,578) 3,271 (299,307)
	80,763 –	792,011 –	9,924 –	145,372 –	(1,330,648) 3,271	(302,578 3,271
	80,763	792,011	9,924	145,372	(1,327,377)

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

For the six months ended 30 June 2006

Net cash used in operating activities Net cash used in investing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 30 June Analysis of balances of cash and cash equivalents Cash and bank balances	(Unaudited) Six months ended 30 June 2006 2005 HK$’000 HK$’000 104 (1,102) – (19) 104 (1,121) 59 1,159 163 38 163 38	(Unaudited) Six months ended 30 June 2006 2005 HK$’000 HK$’000 104 (1,102) – (19) 104 (1,121) 59 1,159 163 38 163 38
	104 59	(1,121 1,159
	163 163

– 57 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO CONDENSED FINANCIAL STATEMENTS

1. CORPORATE INFORMATION AND UPDATE

The Company was incorporated in Bermuda with limited liabilities and its shares are listed on the Main Board of the Stock Exchange of Hong Kong Limited (the “Stock Exchange”). The registered office of the Company is located at Clarendon House, 2 Church Street, Hamilton HM11, Bermuda.

2. COMPLETION OF THE RESTRUCTURING PROPOSAL

The Company and its subsidiaries have been experiencing financial difficulties since about 2002. A subsidiary’s creditor, the Bank of East Asia Limited (“BEA”), had issued statutory demands to the Company and the subsidiary, Video Epoch Limited (“VEL”), on 2 December 2002 and 27 November 2002 respectively. In the statutory demand, BEA has demanded the Company to settle a total outstanding debt of approximately HK$17.8 million which the Company as a guarantor had guaranteed for VEL.

On 25 March 2003, BEA petitioned for the winding-up of the Company as the Company failed to comply with the statutory demand issued by BEA on 2 December 2002. Upon the application of the Company by summons filed on 30 April 2003, Mr. Derek K. Y. Lai and Mr. Joseph K. C. Lo of Deloitte Touche Tohmatsu were appointed as joint and several provisional liquidators of the Company by the High Court of Hong Kong Special Administrative Region (the “High Court”) on 21 June 2003 so as to enforce and preserve the assets and business of the Company, to consider and review all Restructuring Proposals and/or Scheme of Arrangement to be proposed by any party.

An investor has expressed his interest to invest in the Company and has submitted a Restructuring Proposal to the Provisional Liquidators for the restructuring of the Company. Details of which refer to the announcements of the Company dated 10 June 2004.

On 26 September 2005, the Review Committee of the Stock Exchange has granted conditional approval for the Restructuring Proposal subject to the fulfillment of certain conditions. Details of which refer to the announcement of the Company dated 2 December 2005.

The SGM held on 22 June 2006 duly passed the resolutions approving the Capital Reorganization, the Restructuring Agreement, the Subscription Agreement, the Open Offer, the Underwriting Agreement, the New Shares Placing Agreement, the Capital Reorganization, the Whitewash Waiver and the General Mandates.

The Creditors Schemes were duly approved by the Scheme Creditors at the Scheme Creditors’ meetings held on 17 July 2006.

On 20 September 2006, by two respective orders of the Court, the Petition lodged against the Company on 25 March 2003 was withdrawn and the Provisional Liquidators were released. Accordingly, the Company has emerged from provisional liquidation. On the same date, the Restructuring Proposal including the Capital Reorganization, the Subscription, the Creditors’ Schemes, the Open Offer, the Placing and the Group Reorganization, was also completed.

Upon completion of the Open offer, the placing and the Group reorganization, the Group has no debt and has bank balances amounting to HK$90 million after providing for the restructuring expenses.

3. BASIS OF PRESENTATION

(I) Going Concern

– 58 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Agreement, the potential investor submitted a restructuring proposal which outlined the major terms for restructuring of the Company. Pursuant to the Escrow Agreement, it was agreed to grant the potential investor an exclusivity period for finalisation of the restructuring proposal.

On 26 September 2005, the Review Committee of the Stock Exchange has granted conditional approval for the restructuring proposal, subject to the fulfillment of certain conditions.

The principal elements of the restructuring proposal are as follows:

(a) Capital reorganisation

The Company will implement capital reorganisation, involving share consolidation, capital reduction and capital reserve reduction.

(i) Share consolidation

(ii) Capital reduction

(iii) Capital reserve reduction

The Company will carry out a cancellation of the entire amount standing to the credit of its share premium account, capital redemption reserve account and capital reserve account.

(b) Subscription

(c) Creditors’ schemes

– 59 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

creditors’ schemes, all the Company’s secured debts will be satisfied by their respective collateralised property or assets and all the unsecured debts will be settled by way of a cash payment on a pro-rata basis out of the HK$21.5 million from the proceeds of the subscription as mentioned in (b) above (“Distribution Proceeds”), subject to deduction of the related petition costs and the scheme administration cost up to HK$1 million in aggregate. The Distribution Proceeds and, if any, amounts raised from realisation of assets of the Scheme HK Group and Scheme BVI Group will be used to repay the scheme creditors for the discharge and settlement in full of the indebtedness. Upon the implementation of the creditors’ schemes, the Company’s indebtedness will then be fully discharged and settled.

(d) Open offer

(e) Placings

The Directors have prepared the financial statements on the basis that the restructuring proposal of the Company will be successfully implemented and that the Group will be able to improve its financial position and business upon completion of restructuring. As at the date of compilation of the financial statements, the Directors are not aware of any circumstances or reasons that would likely affect the successful implementation of the restructuring proposal and the intention of the potential investor. In light of the foregoing, the Directors opined that it is appropriate to prepare the financial statements on a going concern basis. The financial statements do not incorporate any adjustments for possible failure of the above mentioned restructuring proposal and the continuance of the Group as a going concern.

(II) Subsidiaries Not Consolidated

(a) The financial statements have been prepared based on the books and records maintained by the Company and its subsidiaries. However, due to (a) the liquidation of certain significant subsidiaries or their immediate holding companies; or (b) the seizure of the major assets and production facilities of the major subsidiaries under the court orders as security for the unsettled claims, the Directors have not been able to obtain access to the books and records of these subsidiaries and considered that control to have been lost. The results, cash flows, assets and liabilities of these subsidiaries were not consolidated into the financial statements of the Group.

In the opinion of the Directors, the financial statements for the period ended 30 June 2006 prepared on the aforementioned basis present more fairly the results and cash flows and state of affairs of the Group as a whole in light of liquidation or seizure of the assets of subsidiaries.

– 60 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(b) In addition, the Directors considered that the non-consolidation of the results, cash flows, assets and liabilities of subsidiaries would not significantly affect the results and cash flows and state of affairs of the Group for the current year as the cost of obtaining this information would exceed the value of this information to the members of the Company.
(c) Due to limited books and records available to the Directors, the following have not been made in the financial statements:
Disclosures in respect of finance lease obligations as required by Hong Kong Accounting Standard (“HKAS”) 17 “Leases”;
Details of analysis of pledge of assets as required by the Hong Kong Companies Ordinance;
Segment information disclosures as required by HKAS 14 “Segment Reporting” and the Listing Rules;
Details of deferred taxation as required by HKAS 12 “Income Taxes”;
Details of related party disclosures as required by HKAS 24 “Related Party Disclosures”;
Details of the Group’s financial risk management objectives and policies as required by HKAS 32 “Financial Instruments: Disclosure and Presentation”; and
Details of contingent liabilities and commitments as required by the Hong Kong Companies Ordinance and the relevant HKASs.
(d) Due to insufficient information and documentary evidence available to the Directors, they were unable to ascertain the completeness of the disclosures of the Company’s share options as required by the Listing Rules.

Any adjustments arising from the matters described in above would affect the net liabilities of the Company and the Group as at 30 June 2006 and the profit and cash flows of the Group for the period then ended.

4. PRINCIPAL ACCOUNTING POLICIES

The consolidated financial statements have been prepared under the historical cost convention. These unaudited condensed consolidated interim financial statements have been prepared in accordance with the disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities (the “Listing Rules”) on The Stock Exchange of Hong Kong Limited and is in compliance with Hong Kong Accounting Standard (“HKAS”) 34 “interim financial reporting” issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).

The accounting policies used in the unaudited condensed consolidated financial statements are consistent with those followed in the preparation of the Group’s annual consolidated financial statements for the year ended 31 December 2005 except as described below.

The Group had not appointed the auditors to carry out any review of the comparative interim financial statements for the six months ended 30 June 2006 in accordance with SAS 700 in respect of the comparative figures.

In the current period, the Group has applied for the first time, a number of new standards, amendments and interpretations (hereinafter collectively referred to as “new HKFRSs”) issued by the HKICPA that are effective for accounting periods beginning on or after 1 January 2006. The application of these new HKFRSs did not have any material impact on how the financial statements of the Group are prepared and presented for the current or prior accounting period.

– 61 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

HKAS 1 (Amendment) Capital disclosure[1] HKFRS 7 Financial instruments: Disclosures[1] HK(IFRIC) – INT 7 Applying the restatement approach under HKAS 29 Financial Reporting in Hyperinflationary Economies[2] HK(IFRIC) – INT8 Scope of HKFRS 2[3] HK(IFRIC) – INT9 Reassessment of embedded derivatives[4] HK(IFRIC) – INT10 Interim financial reporting and impairment[5]

1 Effective for annual periods beginning on or after 1 January 2007
2 Effective for annual periods beginning on or after 1 March 2006
3 Effective for annual periods beginning on or after 1 May 2006
4 Effective for annual periods beginning on or after 1 June 2006
5 Effective for annual periods beginning on or after 1 November 2006

5. TURNOVER AND SEGMENT INFORMATION

a) Sales turnover

Sales Turnover represents the net amounts received and receivable from sale of consumer electronic products to customers, less returns and discounts.

b) Segment information

For the six month ended 30 June 2006, the Group only has a single business segment, which is the sale of various models of DVD players. Any analysis of the Group’s unaudited revenue and results by geographical segment, which is its primary reporting format basis, is as follows:

Six months ended June 2006:

The People’s Republic of China including HK HK$’000 Turnover External Sales 129,463 Results Segment Results 1,879 Restructuring expenses Finance costs Income tax expenses Profit for the period	United States of America HK$’000 53,929 648	Europe HK$’000 7,221 189	Total HK$’000 190,613 2,716 (1,414) (15) (212) 1,075
			(1,414 (15 (212

Due to insufficient accounting information available to the Directors, there is no segment analysis for the corresponding period ended 30 June 2005.

– 62 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

6. OPERATING PROFIT

Operating profit is arrived at after charging:

	(Unaudited)	(Unaudited)
	Six months ended 30		June
	2006		2005
	HK$’000	HK$’000
Staff cost
– Salaries, bonus, allowances and benefits in kind	1,271		1,522
Depreciation	14		11
Operating leases on land and buildings	370		371
Restructuring expenses	1,414		400

7. INCOME TAX EXPENSE

Hong Kong profits tax has been provided at the rate of 17.5% (2005: 17.5%) on the estimate assessable profits for the six months ended 30 June 2006 and the six months period ended 30 June 2005.

8. INDEMNIFIED LIABILITIES OF SUBSIDIARIES NOT CONSOLIDATED

The Company has given indemnities to certain bankers and vendors of its subsidiaries and associates, which are at present under liquidation or their assets are now under seizure pursuant to the court orders for the unsettled claims, in respect of loans advanced and services rendered to those subsidiaries and associates. The Company’s obligations under these indemnities crystallized upon default payment on the part of those subsidiaries and associates.

9. DIVIDENDS

The Directors have resolved not to declare an interim dividend for the six months ended 30 June 2006 (2005: NIL).

10. EARNINGS PER SHARE

The calculation of basic earnings per share is based on the net profit attributable to equity holders for the period of HK$1,075,000 (for the period ended 30 June 2005: HK$3,271,000) and the weighted average number of 8,076,257,020 ordinary shares (for the period ended 30 June 2005: 8,076,257,020 ordinary shares) in issue.

– 63 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

11. INTERESTS IN SUBSIDIARIES

Details of the Company’s subsidiaries as at 30 June 2006 which have been consolidated in these financial statements are as follows:

	Nominal value of
	issued and fully	Attributable
	paid ordinary	equity interest of
Name	share capital	the Company			Principal activities
		Direct	Indirect
Fortune Hand Industries Limited	USD1	100%		–	Investment holding
Great Wall Infrastructure Limited	USD1	–	100%		Dormant
Innovision Enterprises Limited	HK$1	–	100%		Sales, marketing,
					product design of
					audio-visual
					products

Note:

The subsidiaries, Fortune Hand Industries Limited and Great Wall Infrastructure Limited, were incorporated in the British Virgin Islands and operated in Hong Kong.
The subsidiary, Innovision Enterprises Limited, was incorporated and operated in Hong Kong.

12. INTERESTS IN SUBSIDIARIES NOT CONSOLIDATED

(a) The consolidated financial statements for the year ended 30 June 2006 do not include the following subsidiaries, which (i) are either themselves or their immediate holding companies are in the course of liquidation or (ii) the major assets and production facilities of the subsidiaries have been under seizure by the Mainland China Court Orders as a security for the unsettled claims against the Group. Accordingly, the Directors of the Company were unable to have access to the books and records of these subsidiaries.

– 64 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Details of these subsidiaries where the Directors considered that control to have been lost are as follows:

Proportion of nominal value	Proportion of nominal value
of	issued capital held by the
Name of the principal subsidiaries	Company indirectly
Video Epoch Limited (*)	100%
Video Epoch Electronic (Huizhou) Limited	100%
Huizhou City Caixing Electrical Appliance Limited	75%
Huizhou City Hua Xing Packing Material Company Limited	88%
Huizhou City Hang Tung Paper Products Printing Limited	70%
Brilliant Plastic Manufacturing Limited (*)	100%
Brilliant Plastic and Mould Manufacturing (Huizhou) Limited	90%
Brilliant Plastic Industrial (Huizhou) Limited	100%
Art-Tech Speakers Manufacturing (Huizhou City) Limited	67%
Art-Tech Electronics (Huizhou) Limited	100%
Great Wall Industries Company Limited	100%
Guangzhou Rowa Electronics Company Limited	60%
Great Wall France SA (**)	100%
* private companies incorporated and operated in Hong Kong
** private company incorporated and operated in France

The above subsidiaries were incorporated and operated in the People’s Republic of China, except as otherwise noted.

(b) The financial statements of the Group do not consolidate the financial statements of the following subsidiaries set out below as in the opinion of the Directors, the non-consolidation of the results, cash flows and assets and liabilities of these subsidiaries would not significantly affect the results and cash flows and state of affairs of the Group for the year and the cost of obtaining this information would exceed the value of this information to the members of the Company.

– 65 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Details of these principal subsidiaries not consolidated as at 30 June 2006 are as follows:

	Proportion of nominal	Proportion of nominal	value
	of issued capital held
Name of the principal subsidiaries	by the Company
	Directly	Indirectly
Great Wall Capital Management Limited	–		100%
Great Wall Electronics Holding Limited	100%		–
Great Wall Strategic Holdings (BVI) Limited #	–		100%
Shenzhen Rowa Digital Network Technology Limited*	–		90%
Star Source Industries Limited	–		100%
Well Concur Limited	–		100%
Lipon Products Limited	–		100%
Great Wall Electronics Group Limited #	100%		–

incorporated in the British Virgin Islands
registered and operating in the People’s Republic of China as a sino-foreign equity joint venture

The above subsidiaries were incorporated and operating in Hong Kong, except as otherwise noted.

(c) The Directors have formed the opinion that the Group’s interests in the above subsidiaries had been fully impaired and such impairment losses had been recognized in the financial statements in previous years.

13. TRADE AND OTHER RECEIVABLES

The Group normally allows credit terms of 60 days after delivery to its trade customers.

An analysis of the trade receivables, net of provision, as at the balance sheet date, based on the invoice date of the sale is as follows:

Trade receivables Due: Within 30 days 1 to 3 months 4 to 6 months More than 6 months Other receivables and prepayments	(Unaudited) 30/06/2006 HK$’000 2,910 2,038 1,971 –	(Audited) 31/12/2005 HK$’000 1,965 3,668 2,252 45
	6,919 5,866	7,930 5,926
	12,785	13,856

– 66 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

14. SHARE CAPITAL

Authorised: 25,000,000,000 ordinary shares of HK$0.01 each Issued and fully paid: 8,076,257,020 ordinary shares of HK$0.01 each	(Unaudited) 30/6/2006 HK$’000 250,000 80,763	(Audited) 31/12/2005 HK$’000 250,000

		80,763

Share options

15. TRADE AND OTHER PAYABLES

The following is an ageing analysis of trade payables as at the balance sheet date:

Trade payables Due: 1 to 3 months Other payables and accruals	(Unaudited) 30/06/2006 HK$’000 251 295,941 296,192	(Audited) 31/12/2005 HK$’000 2,791 295,816
		298,607

Included in other payables and accruals were the liabilities under indemnities given to subsidiaries not consolidated of approximately HK$291,130,000.

– 67 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

5. INDEBTEDNESS

At the close of business on 30 November 2006, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this Circular, the Group had an aggregate outstanding indebtedness of approximately HK$1.9 million.

Save as aforesaid, the Group did not have, at the close of business on 30 November 2006, any outstanding mortgages, charges, debentures, bank loans and overdrafts, debt securities or convertible loan notes or other similar indebtedness, loan capital issued or outstanding or agreed to be issued, finance leases, liabilities under acceptances or acceptance credits or any finance leases commitments, or any guarantees or other material contingent liabilities.

The Directors have confirmed that there have been no material changes in the indebtedness and contingent liability of the Group since 30 November 2006.

6. WORKING CAPITAL

The Directors are satisfied after due and careful enquiry that after taking into account the completion of the restructuring proposal on 20 September 2006 and the completion of the placing of existing Shares and the subscription of new Shares by Climax Associates Limited (the “Top-up Subscription”) on 18 December 2006 (particulars of the completion of the restructuring proposal and the Top-up Subscription are set out in the announcements of the Company dated 21 September 2006 and 19 December 2006 respectively), the existing cash and bank balances and the expected internally generated funds, the Enlarged Group has sufficient working capital for its present requirements, that is for at least the next 12 months from the date of this circular, in the absence of unforeseeable circumstances.

– 68 –

GENERAL INFORMATION

APPENDIX II

RESPONSIBILITY STATEMENT

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

DISCLOSURE OF INTERESTS

Interests of Directors

(i) As at the Latest Practicable Date, the interests and short positions of the Directors and the chief executive of the Company or any of their respective associates in any Shares, underlying Shares and debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO) which are required: (a) to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which he is taken or deemed to have under such provisions of the SFO); (b) pursuant to Section 352 of the SFO, to be entered in the register referred to therein; or (c) to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (“Model Code”) contained in the Listing Rules were as follows:

Long positions in Shares

					Approximate
					% of the
				Number of	issued share
			Nature of	Shares	capital of the
Name of Director	Position	Capacity	interest	held	Company
Mr. Wong Chi	Long	Interest of	Corporate	2,001,810,000	55.09%
Wing, Joseph		controlled	interest
(Note)		corporation

Note: These Shares are held by Climax Associates Limited which is 51% owned by Rich Concept Worldwide Limited, a company wholly owned by Mr. Wong Chi Wing, Joseph, 29% owned by Mr. Cheng Hairong, a Director and 20% by Mr. Chu Kwok Chi Robert, a Director.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors and the chief executive of the Company had any interest or short position in the Shares, underlying Shares and debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO) which are required: (a) to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV and the SFO (including interests or short positions which he is taken or deemed to have under such provisions of the SFO); (b) pursuant to Section 352 of the SFO, to be entered in the register referred to therein; or (c) to be notified to the Company and the Stock Exchange pursuant to the Model Code.

– 69 –

GENERAL INFORMATION

APPENDIX II

(ii) As at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any assets which were, since 31 December 2005 (being the date to which the latest published audited consolidated financial statements of the Group were made up), acquired or disposed of by or leased to, or were proposed to be acquired or disposed of by or leased to, any member of the Group.
(iii) None of the Directors was materially interested in any contract or arrangement subsisting at the Latest Practicable Date which is significant in relation to the business of the Group.
(iv) As at the Latest Practicable Date, other than Mr. Wong Chi Wing, Joseph being a Director, a director of Climax Associates Limited which is interested in 2,001,810,000 Shares and a director of Rich Concept Worldwide Limited, which is interested in 51% of the issued share capital of Climax Associates Limited and Mr. Cheng Hairong being a Director and a director of Climax Associates Limited, none of the Directors and the chief executive of the Company was a director or employee of a company which has an interest or short position in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.

Interests of substantial Shareholders

As at the Latest Practicable Date, according to the register of interests maintained by the Company pursuant to section 336 of the SFO and so far as is known to the Directors and the chief executive of the Company, the persons, other than the Directors and the chief executive of the Company, who had an interest or a short position in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group and the amount of each of such persons’ interest in such securities, together with any options in respect of such capital, were as follows:

The Company

				Approximate
				% of the
			Number	issued share
Name of			of Shares	capital of the
Shareholders	Position	Capacity	held	Company
Climax Associates	Long	Beneficial	2,001,810,000	55.09%
Limited (Note 1)		owner
Rich Concept	Long	Interest of a	2,001,810,000	55.09%
Worldwide Limited		controlled
(Note 2)		corporation

– 70 –

GENERAL INFORMATION

APPENDIX II

Notes

1. Climax Associates Limited is 51% owned by Rich Concept Worldwide Limited.

2. Rich Concept Worldwide Limited is wholly owned by Mr. Wong Chi Wing, Joseph, a Director and Chairman of the Company.

Save as disclosed above, as at the Latest Practicable Date, the Directors or the chief executive of the Company were not aware of any other persons or corporations (other than a Director or the chief executive of the Company and the respective companies controlled by them whose interests have been disclosed above) who had an interest or short position in the Shares or underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who was, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other members of the Group, or in any options in respect of such capital.

COMPETING INTEREST

As at the Latest Practicable Date, so far as the Directors are aware, none of the Directors or their respective associates had any direct or indirect interest in a business which competed or was likely to compete with the business of the Group.

LITIGATION

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

SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had entered, or proposed to enter, into a service contract with any member of the Group which does not expire or is not determinable by the relevant member of the Group within one year without payment of compensation, other than statutory compensation.

MATERIAL CONTRACTS

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

(i) a conditional agreement dated 13 April 2006 entered into among the Company, Messrs. Derek K.Y. Lai and Joseph K.C. Lo of Deloitte Touche Tohmatsu in their capacity as joint and provisional liquidators (the “Provisional Liquidators”) of the Company and Climax Associates Limited for the implementation of the restructuring proposal and as supplemented by a supplemental agreement dated 11 August 2006;

– 71 –

GENERAL INFORMATION

APPENDIX II

(ii) an escrow and exclusivity agreement entered into, among others, among the Company, the Provisional Liquidators and Climax Associates Limited on 4 June 2004 and as supplemented by four supplemental agreements dated 29 October 2004, 4 March 2005, 13 April 2006 and 11 August 2006 respectively;
(iii) a conditional agreement dated 13 April 2006 entered into among Climax Associates Limited, the Company and the Provisional Liquidators in relation to, a subscription of 2,075,000,000 Shares by Climax Associates Limited and the issue and allotment of an additional 352,750,000 Shares to Climax Associates Limited, and as supplemented by a supplemental agreement dated 11 August 2006;
(iv) an underwriting agreement dated 13 April 2006 entered into among the Company, the Provisional Liquidators and Grand Vinco Capital Limited (the “Placing Agent”) and as supplemented by two supplemental agreements dated 17 July 2006 and 11 August 2006 respectively in relation to the open offer of 145,372,626 Shares on the basis of nine Shares for every five Shares;
(v) a placing agreement dated 13 April 2006 entered into among Climax Associates Limited, the Company and the Placing Agent in respect of the placing of 156,500,000 Shares and as supplemented by a supplemental agreement dated 11 August 2006;
(vi) a placing agreement dated 13 April 2006 entered into among the Company, the Provisional Liquidators and the Placing Agent in respect of the placing of 374,627,374 Shares and as supplemented by a supplemental agreement dated 11 August 2006;
(vii) a second supplemental agreement dated 19 September 2006 entered into among Climax Associates Limited, the Company, the Placing Agent and Emperor Securities Limited in relation to the placing of 156,500,00 Shares;
(viii) a second supplemental agreement dated 19 September 2006 entered into among the Company, the Provisional Liquidators, the Placing Agent and Emperor Securities Limited in relation to the placing of 374,627,374 Shares;
(ix) a placing agreement dated 5 December 2006 made among the Company, Climax Associates Limited and CLSA Limited in relation to the placing of 605,000,000 Shares;
(x) a subscription agreement dated 5 December 2006 made between the Company and Climax Associates Limited in relation to the top-up subscription of 605,000,000 Shares by Climax Associates Limited;
(xi) the JV Agreement; and
(xii) the Supplemental Agreement.

– 72 –

GENERAL INFORMATION

APPENDIX II

MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2005 (being the date to which the latest published audited consolidated financial statements of the Group were made up).

GENERAL

(i) The branch share registrar and transfer office of the Company in Hong Kong is Tengis Limited at 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.
(ii) The secretary and qualified accountant of the Company is Mr. Hong Kin Choy, a fellow member of the Hong Kong Institute of Certified Public Accountants and the Association of Chartered Certified Accountants.
(iii) The English text of this circular shall prevail over the Chinese text thereof.

DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at the office of the Company at Room 6303, 63/F Central Plaza, 18 Harbour Road, Wanchai, Hong Kong, during normal business hours on any weekdays other than public holidays up to and including 9 February 2007:

(i) the memorandum and bye-laws of the Company;
(ii) the annual reports of the Company for each of the two years ended 31 December 2004 and 2005 and the interim report of the Company for the six months ended 30 June 2006; and
(iii) the material contracts as referred to in the section headed “Material contracts” in this appendix.

– 73 –

AI assistant

Zhongguancun Science-Tech Leasing Co., Ltd. — Proxy Solicitation & Information Statement 2007

50032_rns_2007-01-24_84d05345-46f7-49d3-8882-9c1d73066840.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

(Stock Code: 689)

MAJOR TRANSACTION IN RELATION TO

FORMATION OF A JOINT VENTURE COMPANY WITH JIANGXI COPPER AND CYTD

Financial adviser to EPI (Holdings) Limited

CONTENTS

DEFINITIONS

DEFINITIONS

(Stock Code: 689)

MAJOR TRANSACTION IN RELATION TO FORMATION OF A JOINT VENTURE COMPANY WITH JIANGXI COPPER AND CYTD

INTRODUCTION

THE JV AGREEMENT

Date:

Parties:

Name of the joint venture company

Business scope

Registered capital and capital contribution

LETTER FROM THE BOARD

Term

Board composition

Profit and loss sharing

Transfer of equity interests

Competing interests

Conditions precedent

INFORMATION ON JIANGXI COPPER

INFORMATION ON CYTD

REASONS FOR THE FORMATION

LETTER FROM THE BOARD

FINANCIAL EFFECTS OF THE FORMATION

FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP

LETTER FROM THE BOARD

CONTINUING CONNECTED TRANSACTIONS

LISTING RULES IMPLICATIONS

RECOMMENDATION

ADDITIONAL INFORMATION

1. FINANCIAL SUMMARY

Consolidated profit and loss account

Consolidated balance sheet

2. REPORT OF THE AUDITORS

(a) for the year ended 31 December 2004

TO THE SHAREHOLDERS OF GREAT WALL CYBERTECH LIMITED (Provisional Liquidators Appointed)

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS

BASIS OF OPINION

FUNDAMENTAL UNCERTAINTY RELATED TO THE GOING CONCERN BASIS

QUALIFICATION ARISING FROM DISAGREEMENT ABOUT ACCOUNTING TREATMENT

QUALIFICATION ARISING FROM DISAGREEMENTS ABOUT THE EXTENT OF DISCLOSURES

DISCLAIMER OF OPINION

(b) for the year ended 31 December 2003

TO THE SHAREHOLDERS OF GREAT WALL CYBERTECH LIMITED (Provisional Liquidators Appointed)

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS

BASIS OF OPINION

APPENDIX I

FUNDAMENTAL UNCERTAINTY RELATED TO THE GOING CONCERN BASIS

QUALIFICATION ARISING FROM DISAGREEMENT ABOUT ACCOUNTING TREATMENT

QUALIFICATION ARISING FROM DISAGREEMENTS ABOUT THE EXTENT OF DISCLOSURES

DISCLAIMER OF OPINION

3. AUDITED FINANCIAL INFORMATION

“TO THE SHAREHOLDERS OF GREAT WALL CYBERTECH LIMITED

(Provisional Liquidators Appointed)

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS

BASIS OF OPINION

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

FUNDAMENTAL UNCERTAINTY RELATED TO THE GOING CONCERN BASIS

QUALIFICATION ARISING FROM DISAGREEMENT ABOUT ACCOUNTING TREATMENT

QUALIFICATION ARISING FROM DISAGREEMENTS ABOUT THE EXTENT OF DISCLOSURES

DISCLAIMER OF OPINION

TING HO KWAN & CHAN

Consolidated income statement

Consolidated balance sheet

Balance sheet

Consolidated statement of changes in equity

Consolidated cash flow statement

Notes to the financial statements

1. CORPORATE INFORMATION AND UPDATE

2. WINDING-UP PETITION AND APPOINTMENT OF PROVISIONAL LIQUIDATORS

3. BASIS OF PREPARATION

Zhongguancun Science-Tech Leasing Co., Ltd. Proxy Solicitation & Information Statement 2007