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2000

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Annual Report

2000

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1

Contents

Pages

CORPORATE INFORMATION 2

CHAIRMAN’S STATEMENT 3-11

REPORT OF THE DIRECTORS 12-28

REPORT OF THE AUDITORS 29-30

AUDITED FINANCIAL STATEMENTS

CONSOLIDATED:

Profit and loss account 31

Balance sheet 32-33

Cash flow statement 34-35

COMPANY:

Balance sheet 36

NOTES TO FINANCIAL STATEMENTS 37-82

Corporate Information

Universal Appliances LimitedAnnual Report 2000

2

Board of Directors

Mr. Ko Chun Shun, Johnson

Mr. Lui Pan, Terry

Mr. Cheong Chow Yin

Dr. Wong Yau Kar, David

Mr. Wilton Timothy Carr Ingram

Company Secretary

Mr. Ho Te Hwai, Cecil

Auditors

Ernst & Young

Solicitors

Baker & McKenzie (Hong Kong)

Hamilton Downing (United Kingdom)

Registered Office

Room 6301-06, The Center,

99 Queen’s Road Central,

Central,

Hong Kong

Share Registrars and TransferOffices

Tengis Limited

4/F Hutchison House,

10 Harcourt Road,

Central,

Hong Kong

Principal Bankers

Hang Seng Bank Limited

3

Chairman’s Statement

We have achieved our goal to focus on the high

growth media and te lecommunicat ions

industries despite the last year having been a

difficult one for the Group.

We have completed our divestment from the

m a n u f a c t u r i n g b u s i n e s s a s t h e O E M

manu fac tu r ing marke t was becoming

increasingly competitive offering very low profit

margins, which would likely cause a significant

drain on resources going forward. Faced with

this dire circumstance, management disposed

of its manufacturing operation resulting in a

significant one off loss affecting our results for

the year. Our media and communication

businesses continue to develop as discussed

below. Our high-end audio distribution business

continues to expand its presence in Hong Kong

and China. In addition, we have cut back on

our overheads so that our leaner operation can

meet the uncertain market challenges of

tomorrow.

Looking forward, the Group is very confident

that it can bring together the media and

communications industries in Mainland China,

and given its current business development, the

Group is well placed to capitalize on their

growth and opportunities when these markets

open up upon China’s entry to the World Trade

Organisation.

For our digital transmission business, as of 31

March 2001, our Hong Kong listed subsidiary,

DVN (Holdings) Limited (“DVN”), has installed

altogether 13 digital broadcasting platforms in

seven prov inces and s ix munic ipa l i t ies

throughout China, providing access to over 34

million existing cable subscribers in Mainland

China.

For our communications business, headed by

our subsidiary, Smart Asia Limited (“SAL”),

which engages in:

• Providing telephone banking and other

computer telephony integration (“CTI”)

solutions in China;

• Providing outsourc ing serv ices for

management of automated payment

systems and services;

• Marketing of Telco services for major

carriers in China and overseas;

• Marketing and provision of extensive

range of customer centric and proprietary

Value Added Services using the latest IP

based communication solutions; and

• Marketing and provision of IP Telephony

Virtual Private Network (VPN) solutions

and services in the Greater China Region

and other Asia districts.



4

Our Group will be well placed to capitalize on

the growth of these two industries and the

convergence of the media, telecommunications

and data industries as we move to the new

media era.

Digital Media Transmission Business

Digital broadcasting platforms in China

We are rolling out our digital broadcasting

platforms in the Eastern Coastal areas. During

the year, DVN has already installed digital

broadcasting platforms in four provinces and

four municipalities giving us potential access to

over 19 million cable TV subscribers. DVN

continues to install its platforms in new locations

throughout China. As of 31 March 2001, DVN

had s igned one new contract and was

negotiating another to install its systems

through long term leases, and had entered into

arrangements for the sale of 4 platforms to its

strategic partner, giving DVN access to a further

15 million CATV subscribers.

Platform provider

DVN sells or leases its digital broadcasting

platforms direct to CATVs (Cable TV operators)

enabling them to deliver interactive pay TV

services to their subscribers. At the operator

level, DVN provides all the system components,

including the broadcast control system,

cond i t iona l acces s sy s tem, subsc r ibe r

management system software and the hardware

that enable CATVs to inexpensively upgrade

their broadcast network from one way analogue

systems to digital interactive systems. In

addition, DVN sells the STBs (set top boxes) to

CATV subscribers via CATV operators. DVN’s set

top boxes are one of the only three that have

received full regulatory approval in Mainland

China.

When DVN sells the system outright, in addition

to the sales price of the platform, it receives an

annual maintenance fee over the contractual

period, normally ten years. When systems are

leased, DVN receives a percentage of the

subscription fees collected for digital broadcasts

over the contractual period in return for the lease

of its platform, continuous platform maintenance

and application software upgrades.

Premium content

DVN recognizes that, to attract sufficient users,

operators need to provide premium content. As

part of its package for CATVs, DVN provides

premium Chinese language content ie. video,

5


data and text, much of it on exclusive basis. This

raises additional royalty and commission

revenue for the Group in addition to the

revenues earned from equipment sales. DVN has

a 30-year exclusive licensing contract with China

Star Entertainment Limited, a Hong Kong listed

film producing company, to broadcast their titles

over the DVN platform in the PRC. DVN also

has license rights to a library of over 1,000

movies and educational titles, plus over 1,000

hours of documentaries from content providers.

Through its strategic partner, DVN is also able

to introduce content from Discovery Channel,

the Fashion Channel and MTV. DVN also receives

commission revenues from on-line news and

financial information it provides to the CATVs.

Value added interactive services

DVN’s system overcomes many of the barriers

to on-line trading in the PRC. Its set top boxes

are equipped with a Smart Card system

providing a readily available low risk point of

sale device to all subscribers. The system’s open

architecture enables DVN to develop multiple

interactive applications including on-line

trading, on-line shopping, and home banking.

As well as providing premium services to its

users, DVN will also benefit from receiving fee

revenues from organisations generating sales

transacted over its platforms. DVN is already

developing the applications for a major PRC

brokerage firm to enable stock trading over the

interactive TV platform. This is an area where

we believe we will see strong growth with the

opening up of China’s stock markets and

continued improvement in the China economy.

In addition, negotiations are also underway to

provide interactive TV subscribers with a home

shopping service.

Exciting market potential

At the end of 2000, DVN had entered into

contracts to gain potential access to over 19

mi l l ion of China ’s 80 mi l l ion cable TV

households. In the first quarter of 2001, DVN is

negotiating a further six contracts which will

increase its potential reach by a further 15

million cable TV households. With the number

of cable TV households in China increasing by

over 10% per annum, we believe that the



6

revenue growth potential is enormous. Even

capturing just 10% of the growth currently in

our coverage area would increase our

subscribers by over 3 million per annum.

Unlike other significant markets, China’s near

100% TV penetration rate as compared with less

than 0.5% for in-home computers makes the

television sets the most likely vehicle for on line

commerce in the future. There is already a solid

potential and growing subscriber base of some

80 million cable TV households. China’s cable

networks that are mainly fibre-optic and hybrid

fiber coaxial (“HFC”), providing broadband

transmission speeds of over 2 megabytes per

second (“mbps”). This compares with speeds

for personal computer modems of 56 kilobytes

per second, Integrated Service Digital Networks

(“ISDN”) of 128 kilobytes per second and

Asymmetric Digital Subscriber Line (“ADSL”) of

between 1.5 mbps and 8 mbps within 5

kilometers of the telephone company’s local

exchange. In general, on line access via the

Internet is considerably more expensive than our

proposed subscription charges for cable TV.

Cable subscribers in DVN’s Territory

Number of

Province/ Cable Sale or

Municipality Households Lease

(millions)

Suzhou 0.3 Lease

Shandong 6.0 Lease

Hebei 3.0 Lease

Zhongshan* 0.8 Lease

Zhejiang** 4.0 Lease

Shengli Oil Field 0.1 Sale

Shanghai 3.4 Sale

Foshan 0.6 Sale

Henan^ 4.0 Sale

Shaanxi^ 2.5 Sale

Hunan** 3.8 Sale

Hubei** 4.5 Sale

Tianjin** 1.5 Sale

Guangzhou*** 1.2 Sale

Total 35.7

* Signed in 2001

** Systems installed pending finalisation

*** under negotiation

^ Installed in 2000 but to be commissioned in 2001

7


Risk Management

DVN’s exposure to China’s broadcasting industry

brings about a degree of uncertainty. Due to

the newness of digital broadcasting technology

and its capabilities, the broadcasting industry’s

structure and regulations are evolving. However,

the trend in China, as promoted by the State

Administration of Radio, Film and Television, is

to upgrade China’s broadcasting industry from

analogue to digital. DVN’s technology supports

this switch. Furthermore, as DVN’s business

model is in accordance to China’s current rules

and regulations, it has minimized the inherent

risk. However, DVN will closely monitor changes

in the market and adopt a prudent and adaptive

approach in order to maximize shareholder’s

value.

Communication Business

Telecommunications in China

SAL operates in Mainland China through its

j o i n t l y - c o n t r o l l e d e n t i t y B e i j i n g J i y a

Telecommunications Engineering Co. Limited

(“ J iya”) and subsidiary Beij ing E-Pay Net

Technology Co. Limited (“Epay”).

J iya was formed in 1994 and has s ince

established a name in the market as a well-

respected CTI systems integrator. Its wide range

of customers includes banks, telecommunication

companies, insurance companies, and airport

authorities. Jiya is now developing modular

telephone banking system providing rapid and

cost effective deployment of new applications

and enhancements while maintaining a high

quality standard.

Continuing on the success and network

established by Jiya, we formed another sino-

foreign joint venture, Epay. Epay manages the

daily operation and customer database of “299”

telephone bill pay-by-phone service jointly

provided by Bank of China and Beijing Telecom

in Beijing. The system for this was originally built



8

by Jiya, demonstrating our expertise at all stages

in payment systems implementation. Epay,

through its local partner, markets and collects

fees for Beijing Telecom’s IP and traditional long

di s tance ca l l s , and other va lue added

telecommunication services.

Our Chinese partner has an eight-year exclusive

contract with Beijing Telecom Development

Corporation, the business arm of Beij ing

Telecom, to market its IP telephony, as well as

traditional IDD and other services. Epay receives

a percentage of revenue from call charges as

agency fees within this agreement.

Our Chinese Partner is also negotiating a

partnership agreement with a Beijing Telecom

subsidiary and Bank of China to jointly operate

“299” service. There are over four million

telephone subscribers in Beijing, providing a

huge potential customer base for SAL services.

Epay is a lso negotiat ing market agency

arrangements with other major carriers. Basic

groundwork has been la id in Shanghai,

Guangzhou and Shenzhen to replicate SAL’s

Beijing business model. We are within weeks of

signing a contract to be the nationwide

marketing agent for one of China’s leading

telecom company’s IP and traditional IDD

services. These new regional businesses would

be able to commence operations in relatively

short time once all aspects of the business are

confirmed, including funding.

Services beyond China

For the markets outside of China and beyond,

the Group has acquired a controlling interest in

a next generation Integrated Communication

Service Provider, Webway Communications

Holdings Inc. (“Webway”). The business mission

of Webway is to be the premier service provider

of IP based telecom services for enterprises and

a fu l l range of va lue added indiv idua l

communication services. Our strategic investors

include VocalTec Communication Limited, a

NASDAQ listed company based in Israel, known

to be the founder of VoIP.

Aiming to enhance the reach and extending the

connectivity of frequent executive travelers and

mobile roamers, Webway will be launching a

new suite of customer centric and personalized

IP based integrated communication services in

Greater China. This new service will allow our

subscribers to stay in-touch and achieve

substantial savings in communication expenses.

9


For the marketing of our IP Telephony VPN

solution and services, Webway establishes

strategic alliances with prominent ISPs in Greater

China to focus on the enterprises user market.

Target customers are heavy IDD users in Greater

China with Internet/Broadband access provided

by the ISPs. They are typically multi-location

enterprises in Hong Kong and Taiwan with

manufacturing and other operations in China

where they require to communicate and travel

frequently. Our selling proposition is fully

integrated VPN services based on IP technology

that delivers communications and value added

services at a fraction of the cost of the equivalent

services delivered on a switched network.

Typically these savings are between 45% and

75% of costs, depending on the number of sites.

Webway has completed the development of

their solution and already have a number of

enterprises using the IP Telephony VPN services,

including Asian branches of Fortune 500

companies. Webway has established inter-

connection arrangement with leading global

carriers, l ike Concert and ITXC and have

established POPs (Points of Presence) in Hong

Kong, United States and China.

Future market and prospects

Industry trends indicate the Internet Protocol

platform will displace public switched telephone

networks, or PSTNs, as the pre-eminent

communications platform within 10 years.

Yankee Group predicts IP IDD will account for

41% of overall IDD demand as early as 2004. A

recent repor t f rom Inte rnat iona l Data

Corporation predicted the worldwide IP revenue

will amount to US$59 billion by 2004. As an

early mover in this market place serving the mass

market in China and niche markets in the rest

of Greater China, we are well placed to capitalize

on this growth.

Challenges ahead

With DVN and SAL and their subsidiaries starting

to implement their business plans, we are poised

to capitalise on the huge growth in demand for

media and communications services in the

Greater China region. However, we are not the

only players in the market and more competitors

are starting to emerge as the opportunity

becomes more apparent. We expect further

competition as markets liberalise.



10

Even so we are well placed to meet that

challenge and will also benefit from the increase

in demand that greater competition will bring.

We are already investing to enhance our

techno logy fu r ther w i th re sea rch and

development centres in Shanghai, Hong

Kong and, most recently, Shenzhen. Our

developments to date reflect the talent and

commitment of our people.

Management Discussion and Analysis

The year 2000 was a trying year for the Group.

Faced with increasing competition and falling

marg ins , the Group d ives ted f rom i t s

manufacturing operation to refocus in the

growth industries of digital media transmission

and communications. In addition, the downturn

in Internet stock prices negatively affected our

remaining interests in a former subsidiary.

Results

During the year under review, the Group recorded

a consolidated turnover of HK$119,275,000 as

compared to HK$727,726,000 in 1999, and a loss

of approximately of HK$492,869,000 as compared

to a profit of approximately HK$70,559,000 in

1999. The decrease in turnover was mainly due

to the discontinuation of the manufacturing

businesses and the loss for the year was mainly

attributable to the provision for the unrealized

holding loss of approximately HK$294 million

(1999: $17 million) on the short-term investments

in a former subsidiary as mentioned above, write-

off of intangible assets of HK$97 million (1999:

$67 mi l l ion) and loss f rom c losure of

manufacturing business of HK$40 million.

Significant Corporate Events

In January 2000, the Group had disposed

50,000,000 exist ing ordinary shares of

netalone.com Limited (“Netalone”) at a price

of HK$3 per share .

In the same month, the Group entered into a

sale and purchase agreement with DII Group

(BVI)., Ltd. (“DII”) to purchase 15,000,000

convertible preference shares of DVN (Group)

L imited f rom DI I at a cons iderat ion of

US$19,471,233. Such preference shares are

exchangeable to 24,218,750 ordinary shares of

DVN, subject to adjustment.

11


In the same month, in a top-up subscription,

the Company and Prime Pacific International

Limited (“Prime Pacific”) placed an aggregate

of 17,014,000 ordinary shares of DVN at HK$6

per share to independent investors. The

Company and Prime Pacific then subscribed for

an aggregate of 34,700,000 new ordinary shares

of DVN at HK$6.

In February 2000, in a top-up subscription, the

Company entered into a conditional share

subscription agreement under which the

Company issued and allotted 390,000,000

ordinary shares at a consideration of HK$0.6 per

share to Techral Holdings Limited, raising

approximately HK$228 million for the Company.

Liquidity

UAL has financed its growth primarily through

the issuance of new shares and internally

generated cash. In February, UAL placed 390

million new shares, raising approximately

HK$228 million. At the end of year 2000, its

cash and cash equivalents amount to HK$61.7

million. The Group had no long term bank loan,

no bank overdrafts, nor any material contingent

liabilities outstanding as at year end. The Group

is exploring opportunities to strengthen the

capital base of the Company.

Employees

As at 31 December 2000, the Group employed

approximately 400 staf f . Remunerat ion

packages are reviewed either annually or by

special increment. In addition to the salary

payment, other staff benefits include medical

subsidies and retirement scheme contributions.

Bonuses are made available to the staff of the

Group and are based on individual performance.

Appreciation

I would like to thank all the staff of UAL, DVN

and SAL for their efforts and dedication in what

has proven to be a difficult year. I would also

like to extend my appreciation to the other

Board members for their invaluable contribution

and to our shareholders, customers and business

associates for their continued support.

By Order of the Board

Johnson Ko

Chairman

25 April 2001

Report of the Directors


12

The directors present their report and the audited financial statements of the Company and the Group for

the year ended 31 December 2000.

Principal activities

The principal activity of the Company is investment holding.

The principal activities of the Group were changed during the year by the addition of the trading of digital

broadcasting equipment and related products, and retail and distribution of home audio and video

equipment.

During the year, the Group has discontinued its businesses of the manufacture and distribution of

telecommunication and video-media products, the trading of computer monitors and related products,

further details of which are included in note 9 to the financial statements. The principal activities of the

Company’s principal subsidiaries are set out in note 17 to the financial statements.

13


Segmental information

An analysis of the Group’s turnover and contribution to loss from operating activities by principal activities

and principal market for the year ended 31 December 2000 is as follows:

By activities:

Turnover Contribution

2000 1999 2000 1999

HK$’000 HK$’000 HK$’000 HK$’000

Continuing operations:

Trading of digital broadcasting

equipment and related products 27,936 — (174,272) —

Retail and distribution of home audio

and video equipment 28,459 — (4,641) —

Provision of international financial

market information and selective

consumer data services 15,779 16,722 (4,020) (335)

Sale of electronic payment

and collection systems 16,971 15,726 1,030 (1,119)

Others 608 3 (298,033) 8,409

89,753 32,451 (479,936) 6,955

Discontinued operations:

Manufacture and distribution of

telecommunication and

video-media products 29,522 421,475 (79,383) 118,237

Trading of computer monitors

and related products — 273,800 — (126,428)

29,522 695,275 (79,383) (8,191)

119,275 727,726 (559,319) (1,236)



14

Segmental information (continued)

By geographical area:

Turnover Contribution

2000 1999 2000 1999

HK$’000 HK$’000 HK$’000 HK$’000

Continuing operations:

Hong Kong Special Administrative

Region (“HKSAR”) 27,376 22,245 (388,742) (1,333)

Other part of the People’s

Republic of China (“PRC”) 58,044 — (91,651) 8,409

Other parts of Asia 4,333 10,206 457 (121)

89,753 32,451 (479,936) 6,955

Discontinued operations:

HKSAR 4,145 99,560 2,284 343,695

PRC 7,692 75,309 (73,976) (24,467)

United States of America 11,359 469,621 (7,525) (230,165)

Europe 6,326 48,713 (166) (6,581)

Other parts of Asia — 2,072 — (90,673)

29,522 695,275 (79,383) (8,191)

119,275 727,726 (559,319) (1,236)

Results and dividends

The Group’s loss for the year ended 31 December 2000 and the state of affairs of the Company and of the

Group as at that date are set out in the accompanying financial statements on pages 31 to 82.

The directors do not recommend the payment of any dividend in respect of the year (1999: Nil).

15


Summary financial information

A summary of the published results and of the assets and liabilities of the Group for the last five financial

years, as extracted from the audited financial statements and reclassified/restated as appropriate, is set

out below:

Results

2000 1999 1998 1997 1996

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

(Restated) (Restated) (Restated)

Turnover

Continuing operations 89,753 32,451 21,121 22,870 16,101

Discontinued operations 29,522 695,275 747,659 766,171 651,711

119,275 727,726 768,780 789,041 667,812

Profit/(loss) before tax (585,056) (8,809) (122,448) 8,179 (75,627)

Tax 645 1,164 — (2,980) (1,919)

Profit/(loss) before

minority interests (584,411) (7,645) (122,448) 5,199 (77,546)

Minority interests 91,542 78,204 2,292 — 3,111

Net profit/(loss)

attributable to

shareholders (492,869) 70,559 (120,156) 5,199 (74,435)



16

Summary financial information (continued)

Assets and liabilities

2000 1999 1998 1997 1996

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

(Restated) (Restated) (Restated)

Fixed assets 43,213 69,597 165,885 335,559 251,948

Interests in a jointly-

controlled entity

and an associate 6,735 13,972 — — 17,489

Other long-term assets 195,058 238,452 132,213 140,147 132,482

Current assets 361,957 742,901 549,884 278,751 328,373

Total assets 606,963 1,064,922 847,982 754,457 730,292

Current liabilities 95,869 238,586 465,418 266,487 273,659

Long-term liabilities 45,119 756 220 17,080 155,470

Total liabilities 140,988 239,342 465,638 283,567 429,129

Minority interests 111,030 206,679 33,243 — 1,200

Net assets 354,945 618,901 349,101 470,890 299,963

The net profit/(loss) attributable to shareholders for each of the three years ended 31 December 1998 and

the net assets as at the respective balance sheet dates have been restated as a result of the change in the

accounting policy for pre-operating expenses in the prior years. The restatement has retrospective effect

to conform with the requirements of the Statement of Standard Accounting Practice (“SSAP”) 2 “Net

Profit or Loss For the Period, Fundamental Errors and Changes in Accounting Policies”.

17


Fixed assets

Details of movements in the fixed assets of the Company and the Group during the year are set out in

note 13 to the financial statements.

Subsidiaries

Particulars of the Company’s principal subsidiaries are set out in note 17 to the financial statements.

Associate and jointly-controlled entity

Particulars of the Group’s interests in an associate and a jointly-controlled entity are set out in notes 18

and 19 to the financial statements, respectively.

Borrowings

Details of the Group’s borrowings as at 31 December 2000 are set out in notes 30 to 32 to the financial

statements.

Share capital, share options and share premium

Details of movements in the Company’s share capital, share options and share premium during the year,

together with reasons therefore, are set out in notes 33 and 34 to the financial statements.



18

Reserves

Details of movements in the reserves of the Company and the Group during the year are set out in note 34

to the financial statements.

Distributable reserves

The Company had no reserves available for distribution to shareholders of the Company as at 31 December

2000, as computed under the provisions of Section 79B of the Companies Ordinance.

Major customers and suppliers

Sales to the Group’s five largest customers accounted for approximately 39% of the Group’s aggregate

turnover for the year and sales to the largest customer included therein amounted to approximately 12%.

Purchases from the Group’s five largest suppliers accounted for approximately 43% of the Group’s aggregate

purchases for the year and purchases from the largest supplier included therein amounted to approximately

14%.

As far as the directors are aware, neither the directors, their associates, nor those shareholders which, to

the knowledge of the directors, owned more than 5% of the Company’s share capital had any beneficial

interests in the Group’s five largest customers and/or five largest suppliers mentioned in the preceding

paragraph.

Directors’ remuneration and five highest paid employees

Details of the remuneration of the directors and the five highest paid employees are set out in notes 7 and

8 to the financial statements, respectively.

19


Directors

The directors of the Company during the year and up to the date of this annual report were as follows:

Executive directors:


Mr. Lui Pan, Terry

Mr. Wu Zheng, Bruno (resigned on 31 August 2000)

Ms. Patty Chang (resigned on 10 July 2000)

Non-executive director:

Mr. Cheong Chow Yin (appointed on 10 July 2000)

Independent non-executive directors:

Mr. Wilton Timothy Carr Ingram

Dr. Wong Yau Kar, David (appointed on 28 December 2000)

Professor Derek Roebuck (resigned on 8 June 2000)

In accordance with article 77 of the Company’s articles of association, Mr. Ko Chun Shun, Johnson retires

by rotation and, being eligible, will offer himself for re-election at the forthcoming annual general meeting.

In accordance with article 73 of the Company’s articles of association, Messrs. Cheong Chow Yin and

Wong Yau Kar, David retire and, being eligible, will offer themselves for re-election at the forthcoming

annual general meeting.



20

Directors’ interests in shares

At 31 December 2000, the interests of the directors, the chief executive and their associates in the share

capital of the Company and its associated corporations as recorded in the register (the “Register”)

maintained by the Company pursuant to Section 29 of the Securities (Disclosure of Interests) Ordinance

(the “SDI Ordinance”) or notified to the Company, pursuant to the Model Code for Securities Transactions

by Directors of Listed Companies, were as follows:

(A) The Company

Number of ordinary shares of HK$0.18 each and nature of interests

Personal Family Corporate Other

Names Note interests interests interests interests


(“Mr. Ko”) (i) 18,640,000 — 1,000,437,150 —

(B) DVN (Holdings) Limited (“DVN”) (Formerly known as DVB (Holdings) Limited)

Number of ordinary shares of HK$1.50 each and nature of interests


Names Note interests interests interests interests

Mr. Ko (ii) — — 138,052,940 —

Mr. Lui Pan, Terry (“Mr. Lui”) 198,000 — — —

Number of convertible preference shares of HK$1.50 each

and nature of interest


Name Note interests interests interests interests

Mr. Ko (iii) — 2,000,000 — —

21


Directors’ interests in shares (continued)

(C) DVN (Group) Limited, a wholly-owned subsidiary of DVN

Number of exchangeable preference shares of US$1 each


Name Note interests interests interests interests

Mr. Ko (iv) — — 15,000,000 —

Notes:

(i) Kwan Wing Holdings Limited (“Kwan Wing”) and Techral Holdings Limited (“Techral”), a subsidiary of Kwan

Wing, beneficially owned 360,399,000 and 640,038,150 ordinary shares in the Company, respectively. Mr. Ko

has 100% direct interest in Kwan Wing and approximately 96% beneficial interest in Techral.

(ii) 103,603,418 ordinary shares of DVN are held by Prime Pacific International Limited, which is owned as to 67%

by Gold Pagoda Incorporated, a wholly-owned subsidiary of the Company which in turn is controlled by Mr. Ko

and as to 33% by Prime Gold International Limited in which Mr. Ko has a 82.45% beneficial interest. 31,032,522

shares of DVN are held by the Company. Kwan Wing and Peninsula Resources Limited, companies wholly-owned

by Mr. Ko, also own 1,817,000 and 1,600,000 shares of DVN, respectively.

(iii) These convertible preference shares of DVN are held by Ms. Cheung Yat Kwan, the spouse of Mr. Ko.

(iv) These non-voting cumulative exchangeable preference shares are held by Million Way Enterprises Limited, a

wholly-owned subsidiary of the Company. These preference shares are exchangeable to approximately 24,218,750

ordinary shares of DVN.

Save as disclosed above and other than certain nominee shares in the subsidiaries held in trust for the

Group by certain directors, at 31 December 2000, none of the directors, the chief executive or their

associates had any personal, family, corporate or other interests in any securities of the Company, its

holding company or any of its associated corporations which were recorded in the Register as defined in

the SDI Ordinance.



22

Directors’ rights to acquire shares or debentures

Pursuant to a share option scheme adopted on 4 August 1999, the board of directors of the Company

may grant options to eligible employees of the Group, including executive directors, to subscribe for

ordinary shares in the Company. Further details of the share option scheme are set out in note 33 to the

financial statements.

The Company has granted options of the Company’s and its subsidiaries’ ordinary shares in favour of

certain directors, the details of which are as follows:

(A) The Company

Number Number Number Number Number

of share of share of share of share of share

options options options options options Exercise

at granted exercised lapsed outstanding Exercise price

Name of 1 January during during during at end period of of share

director 2000 the year the year the year of year share options options

HK$

Mr. Ko 18,000,000 — — — 18,000,000 1-1-00 to 31-12-02 0.26

Mr. Lui 9,000,000 25,000,000 — — 34,000,000 1-1-00 to 06-03-03 0.26 - 0.31

Mr. Bruno Wu 15,000,000 — — — 15,000,000 1-1-00 to 31-12-02 0.26

Ms. Patty Chang 9,000,000 — — — 9,000,000 1-1-00 to 31-12-02 0.26

51,000,000 25,000,000 — — 76,000,000

The share option of the Company held by Mr. Bruno Wu and Ms. Patty Chang remained outstanding

at 31 December 2000 following their resignation as directors of the Company on 31 August 2000

and 10 July 2000, respectively.

23


Directors’ rights to acquire shares or debentures (continued)

(B) DVN

Number of Number of Number of Number of Number of

share share share share share

options options options options options Exercise

at granted exercised lapsed outstanding Exercise price

Name of 1 January during during during at end period of of share

director 2000 the year the year the year of year share options options

HK$

Mr. Ko 2,450,000 — — — 2,450,000 1-1-00 to 31-12-02 2.25

Mr. Lui 3,000,000 2,500,000 250,000 — 5,250,000 1-1-00 to 06-03-03 2.25 - 9.89

Mr. Bruno Wu 2,450,000 — — — 2,450,000 1-1-00 to 31-12-02 2.25

Ms. Patty Chang 2,000,000 — 350,000 1,650,000 — 1-1-00 to 31-12-02 2.25

9,900,000 2,500,000 600,000 1,650,000 10,150,000

Apart from the foregoing, at no time during the year was the Company, its holding company or any of its

subsidiaries and fellow subsidiaries a party to any arrangement to enable the Company’s directors, or their

respective spouse, or children under 18 years of age to acquire benefits by means of the acquisition of

shares in or debentures of the Company or any other body corporate.

Substantial shareholders

At 31 December 2000, save as disclosed in “Directors’ Interests in Shares” above, no other person had

registered an interest of 10% or more in the issued share capital of the Company that would be required

to be recorded under Section 16(1) of the SDI Ordinance.



24

Directors’ service contracts

No director proposed for re-election at the forthcoming annual general meeting has a service contract

with the Company which is not determinable by the Company within one year without payment other

than statutory compensation.

Directors’ interests in contracts

Saved as disclosed in note 3 to the financial statements, no director had a significant beneficial interest,

either direct or indirect, in any significant contract to which the Company, its holding company or any of

its subsidiaries and fellow subsidiaries was a party during the year.

Brief biographical details in respect of directors and senior management staff

Number of

years of

Name Age Position held service Business experience

Executive directors

Mr. Ko Chun Shun, Johnson 49 Chairman 7 International trading,

direct investment and

financial services

Mr. Lui Pan, Terry 46 Executive Director 2 Engineering and

marketing

Mr. Wu Zheng, Bruno 35 Vice Chairman and 2 Media, investment

(Resigned on Executive Director banking and

31 August 2000) strategic planning

Ms. Patty Chang 44 Managing Director 1 Strategic planning,

(Resigned on manufacturing

10 July 2000) and marketing

25


Brief biographical details in respect of directors and senior management staff(continued)

Number of

years of


Non-executive directors

Mr. Cheong Chow Yin 45 Director 1 Manufacturing

(Appointed on

10 July 2000)

Independent non-executive directors

Mr. Wilton Timothy Carr 53 Director 5 Investment, brokerage

Ingram and direct investment

Professor Derek Roebuck 66 Director 6 Solicitor

(Resigned on 8 June 2000)

Dr. Wong Yau Kar David 43 Director 1 Manufacturing,

(Appointed on international trade

28 December 2000) and corporate finance

Senior management

Ms. Susanna Chiu 40 Chief 1 Information technology,

Operating Officer media and operations

of DVN (Holdings) management

Limited

Mr. Samuel Lui 46 Managing Director 6 Brokerage,

of Telequote Data direct investment and

International financial services

Limited



26

Brief biographical details in respect of directors and senior management staff(continued)

Number of

years of


Senior management (continued)

Mr. William Tong 40 Managing Director 1 Banking,

of Webway investment

Communications management and

Holdings Inc. communication

services

Mr. Wong Siu Kang 49 Managing Director 1 Telecommunication,

of Smart Asia manufacturing and

Limited international trade

Mr. Zhang Bin 35 Managing Director 6 Telecommunication

of Beijing Jiya services, engineering

Telecommunication and management

Engineering Co.

Limited

Mr. Dominic Yuen 41 Group Financial 2 Finance and accounting

Controller

Mr. Cecil Ho 40 Company Secretary 7 Finance and accounting

Related party transactions and connected transactions

Details of the related party transactions and connected transactions of the Group are set out in note 3 to

the financial statements.

27


Purchase, redemption or sale of listed securities

Neither the Company, nor any of its subsidiaries purchased, redeemed or sold any of the Company’s listed

securities during the year.

Audit Committee

The Company has established an audit committee (the “Committee”) in 1999 in accordance with paragraph

14 of the Code of Best Practice. The Audit Committee comprises the Company’s independent non-executive

directors. The Committee has reviewed and discussed with management the audit report and other relevant

matters.

Compliance with the Code of Best Practice

In the opinion of the directors, the Company has complied with the Code of Best Practice, as set out in

Appendix 14 of the Rules Governing the Listing of Securities of The Stock Exchange of Hong Kong Limited,

throughout the accounting period covered by the annual report.

Independent non-executive directors are not appointed for specific terms but are subject to retirement by

rotation at annual general meetings in accordance with the Company’s articles of association.



28

Post balance sheet events

Details of the significant post balance sheet events of the Group are set out in note 40 to the financial

statements.

Auditors

Ernst & Young retire and a resolution for their reappointment as auditors of the Company will be proposed

at the forthcoming annual general meeting.

ON BEHALF OF THE BOARD

Johnson Ko

Chairman

Hong Kong

25 April 2001

29

Report of the Auditors

To the members

Universal Appliances Limited

(Incorporated in Hong Kong with limited liability)

We have audited the financial statements on pages 31 to 82 which have been prepared in accordance

with accounting principles generally accepted in Hong Kong.

Respective responsibilities of directors and auditors

The Companies Ordinance requires the directors to prepare financial statements which give a true and fair

view. In preparing financial statements which give a true and fair view it is fundamental that appropriate

accounting policies are selected and applied consistently. It is our responsibility to form an independent

opinion, based on our audit, on those statements and to report our opinion to you.

Basis of opinion

We conducted our audit in accordance with Statements of Auditing Standards issued by the Hong Kong

Society of Accountants. An audit includes an 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 and performed our audit so as to obtain all the information and explanations which we

considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to

whether the financial statements are free from material misstatement. In forming our opinion we also

evaluated the overall adequacy of the presentation of information in the financial statements. We believe

that our audit provides a reasonable basis for our opinion.

Report of the Auditors


30

Opinion

In our opinion the financial statements give a true and fair view of the state of affairs of the Company and

of the Group as at 31 December 2000 and of the loss and cash flows of the Group for the year then ended

and have been properly prepared in accordance with the Companies Ordinance.

Ernst & Young

Certified Public Accountants

Hong Kong

25 April 2001

31

Consolidated Profit and Loss AccountYear ended 31 December 2000

Notes 2000 1999HK$’000 HK$’000

TURNOVER 4Continuing operations 89,753 32,451Discontinued operations 29,522 695,275

119,275 727,726

Cost of sales (129,936) (888,619)

Gross loss (10,661) (160,893)

Other revenue 106,902 453,721Distribution costs (10,134) (21,170)Administrative expenses (129,370) (138,918)Other operating expenses (475,907) (235,295)Net gain/(loss) on disposal of discontinued operations 9 (40,149) 101,319

LOSS FROM OPERATING ACTIVITIES 5Continuing operations (479,936) 6,955Discontinued operations (79,383) (8,191)

(559,319) (1,236)

Finance costs 6 (7,077) (9,623)

Share of profits less losses of:A jointly-controlled entity (3,628) 2,041An associate (15,032) 9

LOSS BEFORE TAX (585,056) (8,809)

Tax 10 645 1,164

LOSS BEFORE MINORITY INTERESTS (584,411) (7,645)

Minority interests 91,542 78,204

NET PROFIT/(LOSS) FROM ORDINARY ACTIVITIESATTRIBUTABLE TO SHAREHOLDERS 11 (492,869) 70,559

EARNINGS/(LOSS) PER SHARE 12 HK cents HK cents

Basic (18.2) 3.3

Diluted N/A N/A

Other than the net loss for the year attributable to shareholders, the Group had no recognised gains or losses. Accordingly,a consolidated statement of recognised gains and losses is not presented in the financial statements.


32

Notes 2000 1999HK$’000 HK$’000

NON-CURRENT ASSETSFixed assets 13 43,213 69,597Deferred development costs 14 15,700 14,009Film rights 15 7,796 —Goodwill 16 46,161 115,433Interest in an associate 18 — 3,609Interest in a jointly-controlled entity 19 6,735 10,363Investment securities 20 58,414 32,055Other assets 21 66,987 76,955

245,006 322,021

CURRENT ASSETSDue from a jointly-controlled entity 19 19,420 5,887Promissory note receivable 22 — 87,724Pledged deposits 30 10,337 12,186Inventories 23 78,831 48,387Contract work in progress 24 — 2,648Accounts and bills receivable 25 43,902 6,847Deposits, prepayments and other receivables 26 106,660 72,653Short-term investments 27 38,966 482,881Cash and bank balances 63,841 23,688

361,957 742,901

CURRENT LIABILITIESAccounts and bills payable 28 10,625 29,476Tax payable 2,082 2,607Accrued liabilities and other payables 29 71,002 161,763Interest-bearing bank and other borrowings 30 12,160 44,740

95,869 238,586

NET CURRENT ASSETS 266,088 504,315

TOTAL ASSETS LESS CURRENT LIABILITIES 511,094 826,336

NON-CURRENT LIABILITIESDue to a shareholder of a subsidiary 31 3,989 —Due to a fellow subsidiary 31 40,947 —Finance lease payables 32 183 756

465,975 825,580

Minority interests 111,030 206,679

354,945 618,901

Continued/......

Consolidated Balance Sheet31 December 2000

33

Notes 2000 1999HK$’000 HK$’000

CAPITAL AND RESERVES/(DEFICIT)Issued capital 33 542,710 471,529Reserves / (deficit) 34 (187,765) 147,372

354,945 618,901

Johnson Ko Terry LuiDirector Director

Consolidated Balance Sheet (continued)

31 December 2000


34

Consolidated Cash Flow StatementYear ended 31 December 2000

Notes 2000 1999HK$’000 HK$’000

NET CASH OUTFLOW FROM OPERATING ACTIVITIES 35(a) (167,999) (290,298)

RETURNS ON INVESTMENTS AND SERVICING OF FINANCEInterest received 7,213 3,719Interest paid (6,997) (11,053)Interest element of finance lease payments (80) (176)

Net cash inflow/(outflow) from returns oninvestments and servicing of finance 136 (7,510)

TAXHong Kong profits tax refunded 120 57

INVESTING ACTIVITIESAcquisition of additional interest in a subsidiary — (1,240)Acquisition of subsidiaries 35(b) — (13,026)Expenditure incurred for acquisition of additional interest

in subsidiaries — (1,756)Proceeds/(cash outflow) from disposal of subsidiaries 35(c) 496 (28,984)Decrease/(increase) in long-term deposits 1,888 (49,750)Additions of deferred development costs (6,468) (25,819)Additions to film rights (15,168) —Proceeds from disposal of an associate 5,000 —Additional investment in an associate (120,000) —Advance to an investee company (23,000) —Repayment of advance to an investee company 3,000 —Purchases of fixed assets (65,252) (98,995)Proceeds from disposal of fixed assets 2,479 1,741Purchases of club debentures — (1,825)Purchases of short-term investments — (10,794)Purchase of preference shares of a subsidiary (151,853) —Proceeds from disposal of short-term investments 206,000 43,961Loss on disposal of short-term investments (4,149) —Purchase of an associate — (3,600)Deferred consideration received from disposal of subsidiaries — 101,319Repayment of promissory note receivable 87,724 —Purchases of investment securities (23,414) —

Net cash outflow from investing activities (102,717) (88,768)

NET CASH OUTFLOW BEFORE FINANCING ACTIVITIES (270,460) (386,519)

Continued/......

35

Consolidated Cash Flow Statement (continued)

Year ended 31 December 2000

Notes 2000 1999HK$’000 HK$’000

NET CASH OUTFLOW BEFORE FINANCING ACTIVITIES (270,460) (386,519)

FINANCING ACTIVITIES 35(d)Proceeds from issue of shares 234,000 100,000Share issue expenses (5,992) (2,440)Receipts on exercise of share options 1,417 —Receipts on exercise of share options by minority shareholders 5,241 —Drawdown of bank loans 13,832 49,813Repayment of bank loans (20,187) (3,738)Repayment of other loans — (2,804)Repayment of loan from a shareholder (11,833) —Advance from shareholder of a subsidiary 3,989 —Advances from fellow subsidiaries 8,325 20,961Repayment of advance from a fellow subsidiary — (7,069)Repayment of advance from a former minority shareholder (2,480) —Contributions from minority shareholders 109,781 167,976Advance from a related company — 70Repayment of finance lease obligations (605) (1,595)Release/(pledge) of bank deposits 1,849 (12,186)

Net cash inflow from financing activities 337,337 308,988

INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 66,877 (77,531)

Cash and cash equivalents at beginning of year (5,044) 72,487Effect of foreign exchange rate changes, net (86) —

CASH AND CASH EQUIVALENTS AT END OF YEAR 61,747 (5,044)

ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTSCash and bank balances 63,841 23,688Bank overdrafts, unsecured — (3,276)Trust receipt loans of original maturity of less than three months (2,094) (25,456)

61,747 (5,044)


36

Balance Sheet31 December 2000

Notes 2000 1999HK$’000 HK$’000

NON-CURRENT ASSETSFixed assets 13 — 1,539Interests in subsidiaries 17 337,698 323,927

337,698 325,466

CURRENT ASSETSPromissory note receivable 22 — 87,724Deposits, prepayments and other receivables 20,210 5,423Cash and bank balances 45 405

20,255 93,552

CURRENT LIABILITIESAccrued liabilities and other payables 29 3,652 20,411

NET CURRENT ASSETS 16,603 73,141

TOTAL ASSETS LESS CURRENT LIABILITIES 354,301 398,607

CAPITAL AND DEFICITIssued capital 33 542,710 471,529Deficit 34 (188,409) (72,922)

354,301 398,607

Johnson Ko Terry LuiDirector Director

37

Notes to Financial Statements31 December 2000

1. Corporate information

The Company was incorporated in Hong Kong with limited liability. The registered office of the Company is locatedat Room 6301-06, The Centre, 99 Queen’s Road Central, Hong Kong. During the year, the Group was involved inthe following principal activities:

• Trading of digital broadcasting equipment and related products

• Retail and distribution of home audio and video equipment

• Provision of finanicial market information and consumer data services

• Sale of electronic payment and collection systems

During the year, the Group has discontinued its businesses of the manufacture and distribution of telecommunicationand video-media products, and the trading of computer monitors and related products.

In the opinion of the directors, the ultimate holding company is Kwan Wing Holdings Limited (“Kwan Wing”), acompany incorporated in the British Virgin Islands.

2. Summary of significant accounting policies

Basis of preparation

These financial statements have been prepared in accordance with Hong Kong Statements of Standard AccountingPractice, accounting principles generally accepted in Hong Kong and with the Companies Ordinance. They havebeen prepared under the historical cost convention, except for the periodic revaluation of certain fixed assets andequity investments, as further explained below.

Basis of consolidation

The consolidated financial statements include the financial statements of the Company and all its subsidiaries forthe year ended 31 December 2000. The results of subsidiaries acquired or disposed of are included or excludedfrom or to the effective dates of their acquisition or disposal, as applicable. All significant intercompany transactionsand balances are eliminated on consolidation.

Subsidiaries

A subsidiary is a company other than a jointly-controlled entity in which the Company, directly or indirectly,controls more than half of its voting power or issued share capital or controls the composition of its board ofdirectors.

Interests in subsidiaries are stated at cost unless, in the opinion of the directors, there have been permanentdiminutions in values, when they are written down to values determined by the directors.


38


2. Summary of significant accounting policies (continued)

Associates

An associate is a company, not being a subsidiary or a joint venture, in which the Group has a long-term interest ofgenerally not less than 20% in the equity voting rights and over which it is in a position to exercise significantinfluence.

The Group’s share of the post-acquisition results and reserves of its associate is included in the consolidated profitand loss account and consolidated reserves, respectively. The Group’s interest in the associate is stated in theconsolidated balance sheet at the Group’s share of net assets under the equity method of accounting less anyprovision for diminution in value other than that considered to be temporary in nature deemed necessary by thedirectors.

Jointly-controlled entity

A joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activitywhich is subject to joint control and none of the participating parties has unilateral control over the economicactivity.

Joint venture arrangements which involve the establishment of a separate entity in which the Group and otherparties have an interest are referred to as jointly-controlled entities.

The Group’s share of the post acquisition results and reserves of its jointly-controlled entity is included in theconsolidated profit and loss account and consolidated reserves, respectively. Where the profit sharing ratio isdifferent to the Group’s equity interest, the share of post acquisition results of the jointly-controlled entity isdetermined based on the agreed profit sharing ratio. The Group’s interest in the jointly-controlled entity is statedin the consolidated balance sheet at the Group’s share of net assets under the equity method of accounting lessany provision for diminution in value other than that considered to be temporary in nature deemed necessary bythe directors.

Goodwill

Goodwill arising on consolidation of subsidiaries and on acquisition of associate and jointly-controlled entityrepresents the excess purchase consideration paid over the fair values ascribed to the net underlying assets acquiredand is amortised on a straight-line basis over the useful lives of the assets not exceeding ten years.

During the year, the Group revised the amortisation life of goodwill from forty years to ten years. In the opinion ofthe directors, the revised life reflects more accurately the useful life of the goodwill. Had the amortisation life of thegoodwill remained unchanged from that of prior year, the amortisation charge for the year would have beenreduced by HK$1,053,000.

Upon disposal of subsidiaries, associate or jointly-controlled entity, the relevant portion of attributable goodwillpreviously eliminated against reserves is realised and accounted for in arriving at the gain or loss on disposal.

39



Fixed assets and depreciation

Fixed assets are stated at cost or valuation less accumulated depreciation. The cost of an asset comprises its purchaseprice and any directly attributable costs of bringing the asset to its working condition and location for its intendeduse. Expenditure incurred after fixed assets have been put into operation, such as repairs and maintenance, isnormally charged to the profit and loss account in the period in which it is incurred. In situations where it can beclearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected tobe obtained from the use of the fixed asset, the expenditure is capitalised as an additional cost of that asset.

Advantage has been taken of the transitional provisions set out in paragraph 72 of SSAP 17 “Property, Plant andEquipment” from the requirement to make revaluation on a regular basis of the leasehold land and buildings of theGroup and the Company. Accordingly, no further revaluation of these fixed assets will be carried out.

On disposal of a revalued asset, the relevant portion of the revaluation reserve realised in respect of previousvaluations is transferred to retained earnings as a movement in reserves.

Depreciation is calculated on the straight-line basis to write off the cost or valuation of each asset over the followingestimated useful lives:

Medium term leasehold land in Hong Kong Over the lease termsMedium term leasehold buildings in Hong Kong 25 yearsLong and medium term leasehold land and buildings 25 to 50 years or over the lease

outside Hong Kong terms, whichever is shorterPlant, equipment and other assets 2 to 15 yearsMoulds 4 to 10 years

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

Research and development costs

All research costs are charged to the profit and loss account as incurred.

Expenditure incurred on projects in developing new products is capitalised and deferred only when the projectsare clearly defined, the expenditure is separately identifiable and there is reasonable certainty that the projects aretechnically feasible and the products have commercial value. Product development expenditure which does notmeet these criteria is expensed when incurred.

Deferred development costs are amortised, using the straight-line method, over the expected useful lives of theproducts of generally two to five years, commencing in the year when the products are put into commercialproduction.


40



Deferred pre-operating expenses

Deferred pre-operating expenses represent expenses incurred prior to the commencement of commercial operationsand are charged to the profit and loss account as incurred.

Film rights

Expenditure incurred for the acquisition of film rights is capitalised and stated at cost less accumulated amortisation.Amortisation is provided using the sum-of-digit method to write off the cost of the licensed film rights over theterms of the licensing period.

Leased assets

Leases that transfer substantially all the rewards and risks of ownership of assets to the Group, other than legal title,are accounted for as finance leases. At the inception of a finance lease, the cost of the leased asset is capitalised atthe present value of the minimum lease payments and recorded together with the obligation, excluding the interestelement, to reflect the purchase and financing. Assets held under capitalised finance leases are included in fixedassets and depreciated over the shorter of the lease terms and the estimated useful lives of the assets. The financecosts of such leases are charged to the profit and loss account so as to produce a constant periodic rate of chargeover the lease terms.

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted foras operating leases. Rentals applicable to such operating leases are charged to the profit and loss account on thestraight-line basis over the lease terms.

Investments

Investments in listed and unlisted equity securities which are intended to be held for a continuing strategic orlong-term purpose are classified as investment securities, and are stated at costs, less any provisions for impairmentsin values deemed necessary by the directors, other than temporary in nature, on an individual basis.

When such impairments in values have occurred, the carrying amounts of the securities are reduced to their fairvalues, as estimated by the directors, and the amounts of the impairments are charged to the profit and lossaccount for the period in which they arise. When the circumstances and events which led to the impairments invalues cease to exist and there is persuasive evidence that the new circumstances and events will persist for theforeseeable future, the amounts of the impairments previously charged are credited to the profit and loss accountto the extent of the amounts previously charged.

Investments other than investment securities are classified as short-term investments, and are carried at their fairvalues as at the balance sheet date. The unrealised gains or losses arising from changes in fair values of theseinvestments are included in the profit and loss account for the period in which they arise.

41



Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined on the first-in, first-out basis.In the case of work in progress and finished goods, cost comprises direct materials, direct labour, an appropriateproportion of manufacturing overheads, and/or the subcontracting charges, where appropriate. Net realisablevalue is based on estimated selling prices less any further costs expected to be incurred to completion and disposal.

Contract work in progress

Contract work in progress is stated at cost less foreseeable losses and progress payments received and receivable.Cost includes all direct materials, labour, subcontracting costs, and an appropriate proportion of overheadsattributable to bringing the contract work in progress to its present condition.

The Group makes claims for additional work done which may arise either under specific circumstances provided forin its contract or due to variations to the contract specifications made by the customer. Where the amounts of suchclaims have not been formally agreed at the balance sheet date, the likely amounts receivable as estimated bymanagement, based on all the information available at the time, have been included in the contract value indetermining the foreseeable loss on the contract. Foreseeable losses are fully provided for when they are identified.

Deferred tax

Deferred tax is provided, using the liability method, on all significant timing differences, in the recognition ofrevenue and expenses for tax and financial reporting purposes, to the extent it is probable that the liability willcrystallise in the foreseeable future. A deferred tax asset is not recognised unless its realisation is assured beyondreasonable doubt.

Foreign currencies

Foreign currency transactions are recorded at the applicable rates of exchange ruling at the transaction dates.Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at therates of exchange ruling at that date. Exchange differences are dealt with in the profit and loss account.

On consolidation, the financial statements of overseas subsidiaries are translated to Hong Kong dollars at theapplicable rates of exchange ruling at the balance sheet date. The resulting translation differences are included inthe currency translation reserve.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, i.e. assetsthat necessarily take a substantial period of time to get ready for their intended use or sale, are capitalised as partof the cost of those assets. Capitalisation of such borrowing costs ceases when the assets are substantially ready fortheir intended use or sale. Investment income earned on the temporary investment of specific borrowings pendingtheir expenditure on qualifying assets is deducted from the borrowing costs capitalised.


42



Retirement benefits scheme

The Group operates a defined contribution Mandatory Provident Fund retirement benefits scheme (the “Scheme”)under the Mandatory Provident Fund Schemes Ordinance, for those employees who are eligible to participate inthe Scheme. The Scheme became effective from 1 December 2000. Contributions are made based on a percentageof the employees’ basic salaries and are charged to the profit and loss account as they become payable in accordancewith the rules of the Scheme. The assets of the Scheme are held separately from those of the Group in anindependently-administered fund. The Group’s employer contributions vest fully with the employees whencontributed into the Scheme.

Prior to the Scheme being effective, the Group operated a defined contributions retirement benefits scheme forthose employees who were eligible to participate in the scheme. This scheme operated in a similar way as MandatoryProvident Fund retirement benefits scheme, except that when an employee left the scheme prior to his/her interestin the Group’s employee contributions vesting fully, the ongoing contributions payable by the Group were reducedby the relevant amount of forfeited contributions. With effect from 1 December 2000 this scheme was terminated.

The Company’s subsidiaries in the People’s Republic of China except Hong Kong (the “PRC”) are members of thestate-managed retirement benefits scheme operated by the PRC government. The retirement scheme contributions,which are based on a certain percentage of the salaries of the PRC subsidiaries’ employees, are charged to theprofit and loss account in the period to which they relate and represent the amount of contributions payable bythese subsidiaries to the scheme.

Revenue recognition

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

— from the sale of goods, when the significant risks and rewards of ownership have been transferred to thebuyer;

— for the rendering of services, when the services are performed; and

— interest income, on a time proportion basis taking into account the principal outstanding and the effectiveinterest rate applicable.

Related parties

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party orexercise significant influence over the other party in making financing and operating decisions. Parties are alsoconsidered to be related if they are subject to common control or common significant influence. Related partiesmay be individuals or corporate entities.

43



Cash equivalents

For the purpose of the consolidated cash flow statement, cash equivalents represent short-term highly liquidinvestments which are readily convertible into known amounts of cash and which were within three months ofmaturity when acquired, less advances from banks repayable within three months from the date of the advances.

3. Related party transactions and connected transactions

During the year, the Group has entered into the following related party transactions in addition to those disclosedelsewhere in these financial statements:

(a) On 3 June 1999, the Company entered into an agreement with DVN (Group) Limited (formerly DVB (Group)Limited) (“DVN (Group)”), a wholly-owned subsidiary of DVN (Holdings) Limited (“DVN”) which is a non-wholly owned subsidiary and listed on the Stock Exchange of Hong Kong Limited (the “SEHK”), to grantDVN (Group) the rights to design and to authorise the manufacture of set top boxes, and to provide certainbroadcasting centre and telephone banking and subscriber management services to DVN (Group). Inaccordance with the agreement, a deposit of US$770,000 (equivalent to approximately HK$6,022,000) wasreceived by the Group from DVN (Group) in last year. During the year, a further amount of US$83,000(equivalent to approximately HK$643,000) was received.

Further, in accordance with the agreement, a licensing fee of US$200,000 (equivalent to HK$1,560,000) anda royalty fee of US$50,000 (equivalent to HK$390,000) were received during the year.

(b) During the year, the Group received a corporate management fee of HK$750,000 from a wholly-ownedsubsidiary of DVN.

(c) During the year, the Group paid rentals amounting to HK$192,000 and sold materials amounting toHK$660,000 to Bali (Zhuhai) Electronics Limited (“Bali”), a wholly-owned subsidiary of netalone.com Limited(“Netalone”), an investee company of the Group listed on the SEHK, in which a director of Company is alsoa director. The Group also received HK$160,000 from Bali for maintaining and upgrading the computersystem of Bali.

(d) During the year, the Group made advances amounting to HK$14 million in aggregate to certain subsidiariesof Netalone. The maximum amount outstanding during the year amounted to HK$14 million.

The Group also received advances from certain subsidiaries of Netalone. The balances at 31 December 2000amounted to HK$476,000.

The balances due from/to the subsidiaries of Netalone are unsecured, bear interest at Hong Kong dollarprime rate plus 2% per annum and have no fixed terms of repayment. The Group paid interest expenseamounting to HK$647,000 and received interest income amounting to HK$1,232,000 on advances from/tocertain Netalone subsidiaries.


44


3. Related party transactions and connected transactions (continued)

(e) During the year, a wholly-owned subsidiary of Kwan Wing had made advances to the maximum amount ofapproximately HK$28 million to the Group (note 29).

The balance due to the above-mentioned fellow subsidiary is unsecured, bears interest at Hong Kong dollarprime rate plus 2.5% per annum and has no fixed terms of repayment. The total interest paid on the advancesamounted to HK$1,379,000.

(f) During the year, the Group received advances amounting to HK$28 million in aggregate from a fellowsubsidiary. The balance is unsecured, interest-free and repayable beyond one year (note 31).

(g) During the year, the Group sold finished goods amounting to HK$1,970,000 to a former associate. Thesesales were made according to the price and conditions similar to those of non-related customers.

The transactions of (a), (b), (e), (f) and (g) are connected transactions.

The directors, including the independent non-executive directors, of the Company are of the opinion and haveconfirmed to the Company that the above transactions were carried out in the ordinary and normal course ofbusiness of the Group.

4. Turnover

Turnover represents the net invoiced value of products sold after allowances for returns and trade discounts, andservice fees received for the provision of international financial market information and selective consumer dataservices.

Revenue from the following activities has been included in the Group’s turnover:

2000 1999HK$’000 HK$’000

Continuing operations:Sales of goods 73,974 15,729Provision of international financial market information

and selective consumer data services 15,779 16,722

89,753 32,451Discontinued operations:

Sales of goods 29,522 695,275

Total 119,275 727,726

45


5. Loss from operating activities

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

2000 1999HK$’000 HK$’000

Cost of inventories sold 121,593 880,495Cost of services provided 8,343 8,124Depreciation:

Owned assets 14,761 33,174Assets held under finance leases 500 433Less: Amount capitalised as deferred development costs — (2,422)

15,261 31,185

Provision against inventories 1,878 89,396Auditors’ remuneration 2,700 1,615Staff costs (excluding directors’ remuneration — note 7):

Wages and salaries 52,773 66,628Pension contributions 146 745Less: Forfeited contributions (1,023) (338)

51,896 67,035

Operating lease rentals:Land and buildings 16,143 16,686Equipment 1,137 219

17,280 16,905

Other operating expenses including:Amortisation of film rights 7,372 —Amortisation of goodwill 3,340 3,894Provision for impairment of goodwill 94,862 56,725Write off of fixed assets 3,950 4,552Provision for legal costs — 15,500Write off of inventories 3,437 9,406Provision for bad and doubtful debts 44,230 108,621Research and development costs:

Amortisation of deferred development costs (note 14) 3,195 13,490Current year expenditure 3,313 5,275Write off of deferred development costs (note 14) 1,582 10,675

8,090 29,440


46


5. Loss from operating activities (continued)

2000 1999HK$’000 HK$’000

Provision for losses on contract work in progress — 2,789Loss on partial divestment of subsidiaries — 5,596Net unrealised holding loss of short-term investments 294,132 16,742Loss on disposal of short-term investments 8,821 4,431Net loss/(gain) on dilution of interest in subsidiaries 3,922 (1,272)Gain on conversion of investment in preference shares (27,200) —Net gain on disposal of investment in preference shares (40,745) —Gain on disposal of fixed assets (496) (943)Net gain on disposal of subsidiaries (10,876) (430,296)Gain on disposal of an associate (7,679) —Interest income (7,213) (3,719)Dividend income from preference shares of a listed company (1,609) —Exchange losses, net 3,981 894

Loss/(gain) on discontinued operations:Net loss/(gain) on disposal of subsidiaries (note 9) 14,177 (101,319)Write off of fixed assets, inventories and

deferred development costs 7,084 —Loss on disposal of scrap inventories 18,888 —

40,149 (101,319)

47


6. Finance costs

Group2000 1999

HK$’000 HK$’000Interest expense on:

Bank loans and overdrafts wholly repayable within five years 1,161 7,301Other loans wholly repayable within five years (note (a) below) 3,810 72Amount due to an investee company (note (b) below) — 2,074Finance leases 80 176Amount due to a fellow subsidiary 1,379 —Amounts due to related companies – note 3(d) 647 —

Total finance costs 7,077 9,623

Notes:

(a) Interest on other loans represent HK$3,810,000 paid for a loan raised from a financial institution during the year to financethe subscription of new shares of a subsidiary. The loan bore interest at 1.5% per month and was fully repaid during theyear.

(b) Last year’s balance represented interest paid to an investee company, the investment in which was disposed of during theyear.

7. Directors’ Remuneration

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

Group2000 1999

HK$’000 HK$’000

Fees:Executive — —Non-executive — —Independent non-executive 141 234

Other emoluments of executive directors:Basic salaries, housing, other allowances and

benefits in kind 5,678 4,845

5,819 5,079


48


7. Directors’ Remuneration (continued)

The number of directors whose remuneration fell within the bands set out below is as follows:

2000 1999Number of Number of

directors directors

Nil - HK$1,000,000 6 6HK$1,000,001 - HK$1,500,000 — 1HK$1,500,001 - HK$2,000,000 1 1HK$3,000,001 - HK$4,000,000 1 —

8 8

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

No value is included in directors’ remuneration in respect of share options granted during the year because, in theabsence of a readily available market value for the options on the Company’s shares, the directors are unable toarrive at an accurate assessment of the value of the options granted. Details of the options granted to the directorsduring the year are set out in the section “Directors’ rights to acquire shares or debentures” in the Report of theDirectors on page 22.

8. Five highest paid employees

The five highest paid individuals included two (1999: two) directors, details of whose remuneration are set out innote 7 to the financial statements. The remuneration of the remaining three (1999: three) non-director, highestpaid individuals is analysed as follows:

2000 1999HK$’000 HK$’000

Basic salaries, housing, other allowances and benefits in kind 3,392 4,540Retirement scheme contribution 1 —

3,393 4,540

49


8. Five highest paid employees (continued)

The number of non-director, highest paid employees fell within the bands set out below is as follows:

2000 1999Number Number

of employees of employees

HK$1,000,001 - HK$1,500,000 3 2HK$1,500,001 - HK$2,000,000 — 1

3 3

There was no share option granted to the above three employees during the year.

9. Discontinued operations

During the year, the Group discontinued its operations in the manufacture and distribution of telecommunicationand video-media products business and the trading of computer monitors business. The discontinuance wasaccomplished by the disposal of the Group’s entire investments in the issued share capital in Jumpec TechnologyLimited, a then wholly-owned subsidiary of the Company and the holding company of Bali (Zhuhai) TelephoneTechnology Company Limited, and Capetronic Computer Products (PRC) Limited, a wholly-owned subsidiary ofDVN (the “Disposed Subsidiaries”), and by cessation of the operations of other group companies in relation to thebusinesses. The net loss on disposal of the subsidiaries, which represents the aggregate sale proceeds less the netassets in respect of the Disposed Subsidiaries as at the respective dates of disposals, with due allowance for theexpenses incurred for the disposals, amounted to HK$14,177,000 (note 5).

In August 1998, the Group discontinued its operations in the trading and manufacture of printed circuit boards(“PCB Business”). The discontinuance was accomplished by the disposal of the Group’s entire investments in theissued share capital in, and the net shareholder’s loans and/or advances to, Valenta Holdings Limited, the thenwholly-owned subsidiary of the Company and the then holding company of a group of companies being disposedof (the “Disposed Group”). In addition to the initial consideration of HK$344.8 million, the Group was also entitledto a deferred consideration of not more than HK$345.2 million, which was basically calculated by reference to theresults of the PCB Business for the 12 months ended 31 August 1999. Further details of this major transaction wereset out in a circular issued by the Company dated 14 September 1998 (the “Circular”).

The gain on the disposal of the subsidiaries, which represented the sale proceeds (being the initial consideration ofHK$344.8 million received and the first instalment payment of the deferred consideration of HK$69.8 millionreceivable) less the consolidated net assets and the unamortised goodwill in respect of the Disposed Group as atthe date of disposal, with due allowance for the expenses incurred for the disposal, amounted to HK$123,829,000(restated) was taken up in 1998. The remaining net balances of the deferred consideration amounted toHK$101,319,000 was received and taken up as in 1999.


50


10. Tax

Hong Kong profits tax has not been provided (1999: Nil) as the Group did not generate any assessable profitsarising in Hong Kong during the year. The tax credit for the year represents Hong Kong profits tax over-providedin the prior years. Overseas profits tax has not been provided (1999: Nil) as the foreign subsidiaries did not generateany assessable profits attributable to their operations in their respective countries of operation or are still exemptedfrom income tax during the year.

No deferred tax has been provided for the Company and the Group because there were no significant timingdifferences at the balance sheet date.

The principal components of deferred tax assets/(liabilities) of the Group and the Company provided for and notprovided for at the balance sheet date were as follows:

GroupProvided Not provided

2000 1999 2000 1999HK$’000 HK$’000 HK$’000 HK$’000

Accelerated depreciation allowances — — (982) (213)Tax losses carried forward — — 83,611 40,970

At 31 December — — 82,629 40,757

CompanyProvided Not provided

2000 1999 2000 1999HK$’000 HK$’000 HK$’000 HK$’000

Tax losses carried forwardat 31 December — — 21,762 21,923

11. Net profit/(loss) from ordinary activities attributable to shareholders

The net loss from ordinary activities attributable to shareholders dealt with in the financial statements of theCompany for the year ended 31 December 2000 was HK$273,305,000 (1999: HK$159,566,000).

51


12. Earnings/(loss) per share

The calculation of basic loss (1999: earnings) per share for the year ended 31 December 2000 is based on the netloss attributable to shareholders of HK$492,869,000 (1999: net profit of HK$70,559,000) and the weighted averagenumber of 2,710,537,000 (1999: 2,168,341,486) ordinary shares deemed to have been in issue during the year.

There were no dilutive potential ordinary shares in 1999 and 2000 and therefore, no diluted earnings/(loss) pershare for the years is shown.

13. Fixed assets

GroupPlant,

Leasehold equipmentland and and otherbuildings assets Moulds Total

HK$’000 HK$’000 HK$’000 HK$’000Cost or valuation:

At beginning of year 4,657 136,519 10,001 151,177Additions — 65,180 72 65,252Disposals (1,750) (35,226) — (36,976)Write off — (42,761) (8,814) (51,575)Transfer — (14,312) — (14,312)Disposal of subsidiaries — note 35(c) — (42,309) (1,259) (43,568)

At 31 December 2000 2,907 67,091 — 69,998

Accumulated depreciation:At beginning of year 443 76,464 4,673 81,580Provided during the year 139 13,569 1,553 15,261Disposals (234) (5,036) — (5,270)Write off — (41,714) (5,911) (47,625)Write back on transfer — (3,072) — (3,072)Disposal of subsidiaries — note 35(c) — (13,774) (315) (14,089)

At 31 December 2000 348 26,437 — 26,785

Net book value:At 31 December 2000 2,559 40,654 — 43,213

At 31 December 1999 4,214 60,055 5,328 69,597

The net book value of assets held under finance leases included in the total amount of fixed assets as at 31 December2000 amounted to Nil (1999: HK$1,685,000).


52


13. Fixed assets (continued)

CompanyLeaseholdland andbuildings

HK$’000Valuation:

At beginning of year 1,750Disposal (1,750)

At 31 December 2000 —

Accumulated depreciation:At beginning of year 211Provided during the year 23Disposal (234)

At 31 December 2000 —

Net book value:At 31 December 2000 —

At 31 December 1999 1,539

The cost or valuation of leasehold land and buildings comprises:

Group Company2000 1999 2000 1999

HK$’000 HK$’000 HK$’000 HK$’000

Medium-term leasehold landand buildings inHong Kong, at 1989 valuation — 1,750 — 1,750

Long-term leasehold landand buildings outsideHong Kong, at cost 2,907 2,907 — —

Total cost or valuation 2,907 4,657 — 1,750

Had all leasehold land and buildings as at 31 December 1999 been stated at cost less accumulated depreciation,their carrying value would have been restated as HK$4,031,000.

53


14. Deferred development costs

Group2000 1999

HK$’000 HK$’000

At beginning of year 14,009 15,822Additions 6,468 28,241Write off — note 5 (1,582) (10,675)Disposal of subsidiaries — note 35(c) — (5,889)Amortisation for the year — note 5 (3,195) (13,490)

At 31 December 15,700 14,009

15. Film rights

GroupHK$’000

At cost:Additions during the year and at 31 December 2000 15,168

Accumulated amortisation:Provided during the year and at 31 December 2000 7,372

Net book value:At 31 December 2000 7,796


54


16. Goodwill

GroupHK$’000

Cost:At beginning of year 117,492Additions 35,603Reversal on dilution of interest in a subsidiary (6,801)Write off (94,862)

At 31 December 2000 51,432

Accumulated amortisation:At beginning of year 2,059Provided during the year 3,340Reversal on dilution of interest in a subsidiary (128)

At 31 December 2000 5,271

Net book value:

At 31 December 2000 46,161

At 31 December 1999 115,433

17. Interests in subsidiariesCompany

2000 1999HK$’000 HK$’000

Listed shares in Hong Kong, at cost 117,440 93,000Unlisted shares, at cost 116,435 116,429Due from subsidiaries 1,021,384 735,059Due to subsidiaries (26,000) —Provisions for diminutions in values (891,561) (620,561)

337,698 323,927

Market value of listed shares 60,824 97,043

Balances with subsidiaries are unsecured, interest-free and are repayable on demand.

55


17. Interests in subsidiaries (continued)

Particulars of the principal subsidiaries at the balance sheet date are as follows:

Issued andPlace of paid-up

incorporation/ share capital/ Percentage heldregistration/ registered by the Company Principal

Name (operations) capital Direct Indirect activities

Beijing E-Pay Net People’s US$2,680,000 70% — Provision ofTechnology Co. Ltd. Republic of communication

China services(PRC)

Central Base Enterprises Hong Kong HK$2,000,000 — 100% Sourcing ofLimited # materials for

manufacturing ofconsumerproducts

Cybertech Communications Hong Kong HK$1,000,000 100% — Design,Company Limited manufacturing(Formerly Kao Yao and marketingPrinting Company of tele-Limited) # communication

products

Rich Asia Holdings Hong Kong HK$10,000 100% — InvestmentLimited holding

Smart Asia Limited Hong Kong HK$10,000 100% — Provision of(PRC) internet related

services

Smoothline Limited ## Hong Kong HK$7,500,000 — 100% Design,manufacturingand marketing

of tele-communication

products


56






Sound View International Hong Kong HK$10,000 — 50% Marketing andLimited sales of home audio/

video products

Systems Asia Limited Hong Kong HK$10,000 100% — Provision ofadministrative

services

Celestial Electric Hong Kong HK$2,000,000 — 100% Trading ofManufacturing Co. Ltd. electronic

component

Multinet Technology British US$1 — 100% Sourcing ofLimited * # Virgin Islands materials for

(“BVI”) manufacturing(Hong Kong) of consumer

products

Multinet Digital Media Hong Kong US$2 — 100% Provision ofLimited * # administrative

services

Systems Asia BVI US$100 100% — InvestmentTechnology Limited holding

Million Way Enterprises BVI US$1 100% — InvestmentLimited * holding

Webway Communications BVI HK$15,340,000 — 78% InvestmentHoldings Inc. * holding

Webway Communications Hong Kong HK$6,000,000 — 78% Provision of(HK) Limited * marketing

services

Webway Communications Hong Kong HK$2,000,000 — 78% Provision of(ETS) Limited * integrated

communicationservices

57






Webway Communications United US$300,000 — 78% Provision ofLLC * States of communication

America services

Unitech Holdings Hong Kong HK$2 100% — Provision ofLimited # research and

developmentand technical

support services

Galvin Associates BVI US$1 100% — InvestmentLimited holding

Greatsino Electronic BVI US$1 — 100% Design,Limited ## manufacturing

and marketingof consumer

electronic products

Tecbond Manufacturing BVI US$1,000 100% — InvestmentLimited holding

Super China BVI US$1 100% — InvestmentDevelopment holdingLimited

Prime Pacific BVI US$50,000 — 67% InvestmentInternational holdingLimited

DVN (Holdings) Limited Bermuda HK$406,779,647 11.44% 38.20%** Investment(Formerly DVB ordinary holding(Holdings) Limited) HK$71,004,136 — —

preference


58






DVN (Group) Limited BVI US$10 — 37.03%** Investment(Formerly DVB ordinary holding(Group) Limited) US$15,000,000

preference(note (ii))

Dynamic Network BVI US$1 — 37.03%** InvestmentLimited holding

DVN (Management) Hong Kong HK$2 — 37.03%** Provision ofLimited administrative(Formerly DVB services(Management) Limited)

Cyber Cinema Hong Kong HK$2 — 37.03%** InvestmentTechnology Co., Ltd. holding

Telequote Data Hong Kong HK$10,000 — 37.03%** ProvisionInternational Limited of international

financial marketinformation

and selectiveconsumer data

services

DVN Technology Ltd. * Hong Kong HK$2 — 37.03% ** Trading of digital(Formerly broadcastingSilkroadOnNet.com equipmentCompany and relatedLimited) products

59






DVB Technology PRC RMB100,000,000 — 25.92%** Digital sound(Suzhou) Co. Limited (note (i)) transmission and

related softwarebusiness

DVB Education PRC US$800,000 — 25.92%** Provision ofTechnology(Suzhou) (note (i)) Internet basedCo., Limited VOD and financial

data services

Digital Video Networks PRC US$1,600,000 — 37.03%** Provision ofCompany Limited (note (i)) Internet based(Formerly DVB VOD and financialMedia.com Technology. data services(Suzhou) Co., Limited)

* Subsidiaries established / acquired during the year.** These companies are subsidiaries of non-wholly-owned subsidiaries of the Company and, accordingly, are accounted for as

subsidiaries by virtue of the effective control over the entities.# Companies ceased operations and became dormant during the year.## Companies ceased manufacturing operations and became dormant during the year.

Notes:

(i) Companies registered in the PRC have registered capital. All other companies’ issued and paid-up share capital is ordinaryunless otherwise stated.

(ii) The convertible non-voting preference shares of DVN and DVN (Group) Limited are convertible/exchangeable into ordinaryshares of DVN at a price of HK$1.5 and HK$4.8, respectively, subject to adjustment.

The above table lists the subsidiaries of the Company as at 31 December 2000 which, in the opinion of thedirectors, principally affected the results for the year or formed a substantial portion of the net assets of the Group.To give details of the other subsidiaries would, in the opinion of the directors, result in particulars of excessivelength.

The subsidiaries disposed of during the year contributed HK$383,000 to the Group’s turnover and a net loss ofHK$12,082,000 to the Group’s results.


60


18. Interest in an associate

Group2000 1999

HK$’000 HK$’000

Unlisted shares, at cost — 3,600Share of net assets — 9

— 3,609

The prior year’s balance represented the Group’s 33.3% equity interests in HiTV Limited (“HiTV”).

On 14 March 2000, the Group’s interest in HiTV increased from 33.3% to 36.4% through the subscription of1,200,000 new shares of HiTV for HK$120,000,000. Further details of the transaction are disclosed in a pressannouncement of DVN dated 15 March 2000.

On 12 December 2000, the Group entered into a sales and purchase agreement (the “Agreement”) with anindependent third party (the “Buyer”), for the disposal of the Group’s 24.3% equity interests in HiTV at a considerationof approximately HK$81,256,000.

Pursuant to the terms of the Agreement, the consideration consisted of HK$5,000,000 in cash, a HK$25,000,000interest-free promissory note issued by the Buyer due on 11 March 2001, the rights to a film library of HK$17,060,000,valued at cost and beneficially owned by the Buyer, and the assumption by the Buyer of a debt owed by the Groupto HiTV of HK$34,196,000. Further details of the transaction are disclosed in a press announcement of DVN dated12 December 2000.

On 27 December 2000, the Group entered into a share swap agreement with another independent third party (the“Purchaser”), to exchange the Group’s remaining 12.1% interests in HiTV for a 9.9% equity interest in a companyat a consideration of HK$35,000,000. Further details of the Group’s 9.9% equity interests in such unlisted sharesare set out in note 20 below.

After the completion of the above disposal transactions, the Group has disposed of all its interests in HiTV and hadno further interests in any associate as at 31 December 2000.

During the year, the Group’s share of net loss of HiTV for the year amounted to HK$15,032,000 (1999: net profitof HK$9,000).

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19. Interest in a jointly-controlled entity

Group2000 1999

HK$’000 HK$’000

Share of net assets 6,735 10,363

The amount due from a jointly-controlled entity is unsecured, interest-free and has no fixed terms of repayment.

Particulars of the jointly-controlled entity are as follows:

Place ofPercentage ofregistration

Business and Ownership Voting Profit PrincipalName structure operations interest power sharing activity

Beijing Jiya Corporate PRC (Note) 57% (Note) Provision ofTelecommunication telecommunicationEngineering Co. Limited programming

services

The interest in a jointly-controlled entity is indirectly held by the Company.

Note:

Under the terms of the original joint venture agreement, the Group is entitled to 70% of the results of the jointly-controlled entityfor the first five years from 26 November 1994, the date of the issuance of business licence, and 51% of the results for theremaining tenure of the joint venture. The tenure of the joint venture is 30 years. During this period, in the event of dissolution,the Group is entitled to share the net assets of the jointly-controlled entity in accordance with the above-mentioned prevailingprofit sharing ratio. Upon the expiry of the tenure of the joint venture, all the fixed assets and 49% of the net current assets of thejoint venture will be vested on the PRC joint venture partner and the Group will only be entitled to 51% of the net current assets.

On 6 September 1996, the joint venture partner entered into a supplementary agreement whereby the profit sharing ratiobetween the Group and the PRC joint venture partner was amended. In accordance with the supplementary agreement, theGroup is entitled to 80% of the results of the jointly-controlled entity up to and until the full recovery of the capital contributedby the Group to the jointly-controlled entity, and thereafter 70% of the results of the jointly-controlled entity until the end of itstenure.

According to the joint venture agreement, the board of directors of the jointly-controlled entity consists of seven directors, ofwhich four were nominated by the Group. The joint venture agreement stipulates that certain major operating and financingdecisions require the approval of at least two thirds of the directors in a board meeting. As the Group does not have unilateralcontrol on the financial and operating policies of the jointly-controlled entity, the jointly-controlled entity has not been accountedfor as a subsidiary and is equity accounted for in accordance with SSAP 21 “Accounting for Interests in Joint Ventures”.


62


20. Investment securities

Group2000 1999

HK$’000 HK$’000

Investment securities:Listed equity investment outside

Hong Kong, at cost (note a) 23,414 —

Unlisted equity investment, at cost (note b) 6,884 6,884Less: Provision for impairment in value (6,884) (6,884)

— —

Unlisted equity investment outsideHong Kong, at cost (note c) 35,000 —

Unlisted preference shares (note 27) — 32,055

58,414 32,055

Listed equity investment outside Hong Kong,at market value (note a) 34,875 —

Notes:

(a) The listed equity investment outside Hong Kong represents investment in 1,500,000 shares, representing 6.8% of thecommon stock of a company which was incorporated in the the United States of America and was listed on the NationalAssociation of Securities Dealer Over-The-Counter Bulletin Board (“OTCBB”). The investee company has been temporarilydelisted on OTCBB since 3 October 1998. The market value of the investment was based on US$3 per share as at 3 October1998, the date on which the investee company was delisted on the OTCBB.

63


20. Investment securities (continued)

Notes: (continued)

(b) The investment represents the equity shares of an investee company in which the percentage of equity attributable to theGroup amounted to over 20%. The investment, however, has not been equity accounted for in accordance with SSAP 10“Accounting for Investments in Associates” as the investment has been fully provided for and the Group has no significantinfluence on the investee company. In addition, the Group neither intends to provide further financial support to theinvestee company, nor has any further guarantees or obligations in respect of the operations of the investee company.

The particulars of the investee company are as follows:

Percentageof equity

Place of Issued attributable PrincipalName incorporation share capital to the Company activity

Beijing United BVI HK$12,500,000 40% InvestmentInternational Limited holding

(c) The unlisted equity investment outside Hong Kong represents investment in 990 ordinary shares, representing approximately9.9% equity interest in a company as at 31 December 2000. During the year, the Group had entered into the followingtransactions with the investee company:

2000 1999Notes HK$’000 HK$’000

Loan to the investee company (i) 23,000 —Interest income from loan to the investee company (i) 1,718 —Sales of digital broadcasting equipment and

related products to the investee company (ii) 8,233 —

(i) During the year, the Group advanced HK$23,000,000 to the investee company. Out of the total loan advance ofHK$23,000,000, HK$3,000,000 was unsecured, bore interest at 9.5% per annum and was repaid by the investeecompany during the year. The remaining balance of HK$20,000,000 was secured, bore interest at 1.5% above HongKong dollar prime rate per annum and was due on 30 June 2001. Interest income of HK$1,718,000 was earned bythe Group during the year.

(ii) The sales to the investee company during the year amounted to HK$8,233,000 and were made according to theprices and conditions negotiated at arm’s length.


64


21. Other assets

Group2000 1999

HK$’000 HK$’000

Deposit for purchasing of film rights 37,862 39,750Deposit for film library 17,060 —Deposit for film distribution rights 10,000 10,000Loan receivable from an investee company — 25,140Club debentures 2,065 2,065

66,987 76,955

The loan receivable from an investee company is unsecured, interest bearing and is repayable beyond one year. Afull provision has been made for this loan receivable.

The deposit for film library represents part of the consideration for the disposal of HiTV. Further details regardingthe disposal of HiTV are set out in note 18.

22. Promissory note receivable

The promissory note receivable was interest-free and secured by preference shares of an investee company. Thepromissory note was fully repaid during the year.

23. Inventories

Group2000 1999

HK$’000 HK$’000

Raw materials 11,990 18,533Work in progress — 15,691Finished goods 66,841 14,163

78,831 48,387

There was no significant amount (1999: HK$33,005,000) of inventories included in the above that are carried atnet realisable value as at 31 December 2000.

65


24. Contract work in progress

Group2000 1999

HK$’000 HK$’000

Costs plus recognised profitsless foreseeable losses — 15,727

Progress payments received and receivable — (13,079)

— 2,648

25. Accounts and bills receivable

The ageing analysis of accounts and bills receivable (net of provisions for bad and doubtful debts) is as follows:

Group2000 1999

HK$’000 HK$’000

0-3 months 39,481 6,1504-6 months 3,586 256Over 6 months 835 441

43,902 6,847

Trading terms with customers are largely on credit, except for retail or new customers where cash on sale orpayment in advance is normally required. Invoices are normally payable from 30 to 60 days of issuance, except forcertain well established customers, for whom the credit terms are extended to 90 days. Each customer has a creditlimit. The Group seeks to maintain strict control over its outstanding receivables and has a credit control departmentto minimize credit risk. Overdue balances are regularly reviewed by senior management.

The credit terms given to the customers vary and are generally based on the financial strengths of individualcustomers. In order to effectively manage the credit risks associated with trade debtors, credit evaluations ofcustomers are performed periodically.


66


26. Prepayments, Deposits and other receivables

The following balances were included in the Group’s prepayments, deposits and other receivables as at 31 December2000:

(i) A HK$25,000,000 interest-free promissory note from the Buyer arising in connection with the disposal of a24.3% equity interest in HiTV by the Group as set out in note 18 above. The promissory note was secured,interest-free and due on 11 March 2001. Subsequent to the balance sheet date, on 2 April 2001, a revisedrepayment schedule was agreed between the Group and the Buyer. Under the revised repayment schedule,the full amount is to be repaid on or before 2 October 2001. Subsequent to the balance sheet date,HK$12,000,000 has been repaid and a provision of approximately HK$6,500,000 against the receivable wasmade as at 31 December 2000.

(ii) A receivable of approximately HK$16,600,000 in relation to the disposal of as set out in note 27 below. Thereceivable was unsecured, interest-free and due on 17 April 2000. Subsequent to the balance sheet date, arevised repayment schedule was agreed between the the parties to repay in full on or before 31 December2001, bearing interest at 15% per annum. HK$2,000,000 has been repaid in accordance with the revisedrepayment schedule. A provision of approximately HK$7,300,000 against the receivable was made as at 31December 2000.

(iii) A HK$20,000,000 loan advanced to a company of which the Group held 9.9% equity interests, the details ofwhich are set out in note 20(c) above.

27. Short-term investments

Group2000 1999

HK$’000 HK$’000

Listed equity shares, at market value:Hong Kong 20,621 431,633Elsewhere — 51,248

20,621 482,881

Unlisted preference shares 18,345 —

38,966 482,881

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27. Short-term investments (continued)

Unlisted preference shares represent convertible cumulative non-voting preference shares of Netalone. The preferenceshares, which will expire on 22 October 2001, have a dividend rate of 5% per annum for the year ended on 22October 1999 and the year ended on 22 October 2000 and 15% per annum for the year ending on 22 October2001. These preference shares are convertible into ordinary shares of Netalone at the adjusted conversion rate ofone ordinary share for every HK$0.22 nominal amount of preference shares, subject to further adjustments.

At the date of approval of the financial statements, the Group held 127,289,300 ordinary shares, representing17.15% equity interest in Netalone, with an aggregate market value of approximately HK$26,731,000.

Particulars of the investee companies included in short-term investments are as follows:

Percentageof equity

Place of Issued attributableincorporation/ share to the Nature of

Name (operations) capital Group business2000 1999

netalone.com Limited Bermuda Ordinary shares 17.15% 42.9% Investment(Hong Kong) HK$7,421,000 holding

Convertible 99.9% 99.9%preference shares

(HK$1 each)HK$24,178,700

Convertible — —preference shares

(HK$0.10 each)HK$118,333,333

Capetronic International Thailand Baht 2,686,849,250 — 14% Manufacture(Thailand) Public of computerCompany Limited (“CITL”) monitors

Capetronic Computer BVI US$50,000 — 19% InvestmentProducts Holdings holdingLimited (“CCPH”)

During the year, the Group had disposed of its entire equity interests in both CITL and CCPH.


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28. Accounts and bills payable

The ageing analysis of accounts and bills payable is as follows:

Group2000 1999

HK$’000 HK$’000

0-3 months 6,580 22,6684-6 months 1,069 2,898Over 6 months 2,976 3,910

10,625 29,476

29. Accrued liabilities and other payables

Group Company2000 1999 2000 1999

HK$’000 HK$’000 HK$’000 HK$’000

Deposits received, accruedcharges and other payables 67,407 111,233 2,537 1,990

Due to a former minority shareholderof a subsidiary 2,480 4,960 — 4,960

Due to fellow subsidiaries 1,115 20,961 1,115 13,461Due to a shareholder — 11,833 — —Due to a minority shareholder

of a subsidiary — 12,776 — —

71,002 161,763 3,652 20,411

The balances with a former minority shareholder of a subsidiary and fellow subsidiaries are unsecured, interest-freeand have no fixed terms of repayment, except for an amount due to a fellow subsidiary of HK$1,115,000 in thecurrent year which bears interest at Hong Kong dollar prime rate plus 2.5% per annum.

The amount due to a shareholder and a minority shareholder of a subsidiary were unsecured, interest-free and hadno fixed terms of repayment.

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30. Interest-bearing bank and other borrowings

GroupNotes 2000 1999

HK$’000 HK$’000

Bank loans — secured 6,075 12,430Bank overdrafts — unsecured — 3,276Trust receipt loans — secured 39 5,512 28,429Current portion of finance lease payables 32 573 605

12,160 44,740

The bank loans and overdrafts and trust receipt loans are secured by bank deposits amounting to HK$10,337,000(1999: HK$12,186,000).

31. Due to a shareholder of a subsidiary and a fellow subsidiary

The balances due to a shareholder of a subsidiary and a fellow subsidiary are unsecured, interest-free and arerepayable beyond one year.

32. Finance lease payables

There are non-cancellable commitments under finance leases at the balance sheet date as set out below:

Group2000 1999

HK$’000 HK$’000

Amounts payable:Within one year 616 704In the second to fifth years, inclusive 186 806

Total minimum lease payments 802 1,510Future finance charges (46) (149)

Total net finance lease payables 756 1,361Portion classified as current liabilities — note 30 (573) (605)

Long-term portion of finance lease payables 183 756


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33. Share capital

Number of Number ofordinary preferenceshares of shares of

HK$0.18 each HK$0.18 each Amount2000 1999 2000 1999 2000 1999

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Authorised:At beginning of year 3,409,240 2,500,000 240,760 — 657,000 450,000Increase in authorised

capital — 909,240 — 240,760 — 207,000

At 31 December 3,409,240 3,409,240 240,760 240,760 657,000 657,000

Issued and fully paid:At beginning of year 2,378,843 1,983,689 240,760 — 471,529 357,064Exercise of share options 5,450 — — — 981 —Issued pursuant to a

subscription agreement 390,000 312,500 — — 70,200 56,250Issued on acquisition of

additional interest insubsidiaries — 82,654 — 240,760 — 58,215

At 31 December 2,774,293 2,378,843 240,760 240,760 542,710 471,529

On 16 February 2000, arrangements were made by Techral Holdings Limited (“Techral”), a substantial shareholderof the Company, for a private placement of 390,000,000 ordinary shares of the Company of HK$0.18 each at aprice of HK$0.60 per share to independent private investors. On the same date, the Company entered into asubscription agreement for the allotment of 390,000,000 new ordinary shares of HK$0.18 each of the Company ata price of HK$0.60 per share to Techral.

On 1 March 2000, 390,000,000 new ordinary shares of HK$0.18 each were issued to Techral pursuant to thesubscription agreement. The excess of the shares issue proceeds over the nominal value of the shares issued, net ofshare issue expenses of approximately HK$5,992,000, amounting to HK$157,808,000 was credited to the sharepremium account (note 34).

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33. Share capital (continued)

Preference shares

The preference shares were issued on 4 August 1999. The preference shareholders are entitled to convert a specificnumber of their preference shares into ordinary shares of the Company on a one-for-one basis (subject to adjustments)during the specified periods. The preference shareholders are also entitled to receive a non-cumulative cash dividendwhich will be paid at the same rate and at the same time as any dividend declared by the Company in respect ofthe ordinary shares. Further details of the terms are set out in the circular dated 12 July 1999 issued by theCompany to its shareholders.

Share options

Pursuant to a share option scheme adopted on 4 August 1999, the board of directors of the Company may grantoptions to eligible employees of the Group, including executive directors, to subscribe for shares in the Company.The subscription price is the higher of the nominal value of the Company’s shares and 80% of the average of theclosing prices of the Company’s shares on SEHK for the five trading days immediately preceding the offer of theoption. The maximum number of shares in respect of which options may be granted under the scheme is limitedto 10% of the number of issued shares in the Company from time to time. In addition, no eligible employee maybe granted an option or options where the number of options would exceed 25% of the aggregate number of totaloption granted at time of issue.

125,950,000 options were granted to certain directors and employees of the Group in 1999 for subscription in theordinary shares in the Company at HK$0.26 per share.

25,000,000 share options were granted to a director of the Company in February 2000, at a cash consideration ofHK$1 for subscription in the ordinary shares of HK$0.18 each in the Company at HK$0.31 per share.

145,500,000 (1999: 125,950,000) share options were outstanding at 31 December 2000. The exercise in full ofsuch share options would, under the present capital structure of the Company, result in the issue of 145,500,000(1999: 125,950,000) additional ordinary shares of HK$0.18 each in the Company.


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34. Reserves/(Deficit)

Capitalreserve Currency

Share arising on Revaluation translation Accumulatedpremium consolidation reserve reserve deficit Total

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000Group

At 1 January 1999 267,531 43 426 464 (276,427) (7,963)Issue of shares 43,750 — — — — 43,750Acquisitions of additional

interests in subsidiaries 43,785 10 — — — 43,795Issue of share expenses (2,440) — — — — (2,440)Disposals of subsidiaries — (10) — — — (10)Divestment and dilution of

interests in subsidiaries — (43) — (276) — (319)Net profit for the year — — — — 70,559 70,559

At 31 December 1999 352,626 — 426 188 (205,868) 147,372

Issue of shares 163,800 — — — — 163,800Issue of share expenses (5,992) — — — — (5,992)Released on disposal of

property — — (426) — — (426)Arising on exercise of options 436 — — — — 436Net loss for the year — — — — (492,869) (492,869)Exchange realignments — — — (86) — (86)

At 31 December 2000 510,870 — — 102 (698,737) (187,765)

Reserves retained by:

Company and subsidiaries 510,870 — — 102 (697,150) (186,178)Jointly-controlled entity — — — — (1,587) (1,587)

At 31 December 2000 510,870 — — 102 (698,737) (187,765)

Company and subsidiaries 352,626 — 426 188 (207,918) 145,322Jointly-controlled entity — — — — 2,041 2,041Associate — — — — 9 9

At 31 December 1999 352,626 — 426 188 (205,868) 147,372

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34. Reserves/(Deficit) (continued)

Share Revaluation Accumulatedpremium reserve deficit Total

HK$’000 HK$’000 HK$’000 HK$’000

Company

At 1 January 1999 267,531 426 (266,408) 1,549Issue of shares 43,750 — — 43,750Acquisition of additional

interest in subsidiaries 43,785 — — 43,785Share issue expenses (2,440) — — (2,440)Net loss for the year — — (159,566) (159,566)

At 31 December 1999 andat beginning of year 352,626 426 (425,974) (72,922)

Issue of shares 163,800 — — 163,800Share issue expenses (5,992) — — (5,992)Arising on exercise of options 436 — — 436Release on sale of property — (426) — (426)Net loss for the year — — (273,305) (273,305)

At 31 December 2000 510,870 — (699,279) (188,409)


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35. Notes to the consolidated cash flow statement

(a) Reconciliation of operating loss to net cash outflow from operating activities

2000 1999HK$’000 HK$’000

Loss from operating activities (559,319) (1,236)Interest income (7,213) (3,719)Depreciation 15,261 31,185Amortisation of deferred development costs 3,195 13,490Write off of deferred development costs 1,582 10,675Amortisation of goodwill 3,340 3,894Provisions for impairment of goodwill 94,862 56,725Deferred consideration on disposal of subsidiaries — (101,319)Net loss recognised on contract work in progress — 2,789Provisions against inventories 1,878 89,396Gain on disposal of an associate (7,679) —Write off of inventories 3,437 9,406Amortisation of film rights 7,372 —Provisions for bad and doubtful debts 44,230 108,621Write off of fixed assets 3,950 4,552Net gain on disposal of fixed assets (496) (943)Gain on disposal of subsidiaries 1,591 (430,296)Loss on disposal of short-term investments 8,821 4,413Net loss/(gain) on dilution of interests in subsidiaries 3,922 (1,272)Loss on partial divestment of subsidiaries — 5,596Gain on waiver of debt due to a former minority shareholder — (4,375)Loss on transfer of current assets to interests in a

jointly-controlled entity — 1,898Amortisation of investment cost in a jointly-controlled entity — 195Write down of value of property held for sale — 2,000Provisions for diminution in values of club debentures — 280Net unrealised holding loss of short-term investments 294,132 16,742Payments for costs of construction work — (47,620)Reimbursement of costs of construction work 2,648 54,665Increase in an amount due to a jointly-controlled entity (13,533) (5,887)Decrease/(increase) in inventories (26,540) 21,393Decrease/(increase) in accounts and bills receivable (37,793) 17,386Decrease in deposits, prepayments and other receivables 30,826 110,043Decrease in accounts and bills payable (13,240) (100,580)Increase/(decrease) in accrued liabilities and other payables 44,267 (68,876)Increase/(decrease) in trust receipt loans 445 (89,519)Gain on disposal of investment in preference shares (40,745) —Gain on conversion of preference shares (27,200) —

Net cash outflow from operating activities (167,999) (290,298)

75


35. Notes to consolidated cash flow statement (continued)

(b) Acquisitions of subsidiaries

2000 1999HK$’000 HK$’000

Net assets acquired:Fixed assets — 188Loan receivable from an investee company — 25,140Due from an investee company — 79,101Inventories — 7,987Accounts and bills receivable — 74,491Deposits, prepayments and other receivables — 213Short term investments — 90,438Cash and bank balances — 547Trade and bills payable — (15,809)Accrued liabilities and other payables — (21,400)Amount due to an investee company — (48,856)Bank overdrafts — (73)Minority interests — (154,456)

— 37,511Goodwill arising on acquisition — 17,481

— 54,992

Satisfied by:Cash consideration — 13,500Accounts and bills receivable — 16,883Due to a minority shareholder — 12,776Due to a shareholder — 11,833

— 54,992


76



(b) Acquisitions of subsidiaries (continued)

The subsidiaries acquired in prior year utilised HK$64,522,000 of the Group’s net operating cash outflow,received HK$743,000 in respect of net returns on investments and servicing of finance, utilised HK$56,411,000in respect of investing activities and contributed HK$139,410,000 to financing activities.

An analysis of the net inflow of cash and cash equivalents in respect of the acquisitions of subsidiaries is asfollows:

2000 1999HK$’000 HK$’000

Cash consideration paid — 13,500Cash and bank balances of acquired subsidiaries — (547)Bank overdrafts of acquired subsidiaries — 73

— 13,026

77



(c) Disposals of subsidiaries

2000 1999HK$’000 HK$’000

Net assets disposed of:Fixed assets 29,479 157,996Technical know-how — 28,400Deferred development costs — 5,889Property held for sale — 21,000Inventories 2,021 30,489Accounts and bills receivable 738 42,218Deposits, prepayments and other receivables 4,242 6,640Cash and bank balances 159 36,436Trade and bills payable (5,611) (16,318)Accrued liabilities and other payables (24,601) (56,981)Due to a related company — (9,000)Bank loans — (37,383)Minority interests (128) (51,030)

6,299 158,356Goodwill — 19,597Reserve released on disposal:

— Capital reserve previously deducted on consolidation as included in goodwill — (10,123)

— Capital reserve — (10)Gain/(Loss) on disposals (1,591) 430,296

4,708 598,116

Represented by:Cash consideration 655 7,452Long-term investments — 32,055Promissory note receivable — 87,724Other receivable 4,053 30,143Short-term investments — 446,765Accrued liabilities and other payables — (6,023)

4,708 598,116


78



(c) Disposals of subsidiaries (continued)

An analysis of the net inflow/(outflow) of cash and cash equivalents in respect of the disposals of subsidiariesis as follows:

2000 1999HK$’000 HK$’000

Cash consideration received 655 7,452Cash and bank balances of disposed subsidiaries (159) (36,436)

496 (28,984)

The subsidiaries disposed of during the year ended 31 December 2000 utilised HK$9,768,000 (1999:HK$28,384,000) of the Group’s net operating cash flows, received HK$395,000 (1999: paid HK$1,757,000)in respect of net returns on investments and servicing of finance, utilised HK$5,867,000 (1999: HK$57,145,000)in respect of investing activities and contributed HK$128,000 (1999: HK$114,632,000) to financing activities.

(d) Analysis of changes in financing during the year

Loan fromShare Loan from a Advance a minority

capital Finance Bank loans shareholder Loan from a from Pledged Loan shareholderand share lease and other of a related fellow Minority bank from a of apremium obligations loans subsidiary company subsidiaries interests deposits shareholder subsidiary

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At 1 January 1999 624,595 1,474 6,542 — 8,930 7,069 33,243 — — —Net cash inflow/(outflow)

from financing 97,560 (1,595) 43,271 — 70 13,892 167,976 (12,186) — —Inception of new finance

lease contracts — 1,482 — — — — — — — —Arising on acquisition of

subsidiaries — — — — — — 154,456 — 11,833 12,776Acquisitions of additional

interests in subsidiaries 102,000 — — — — — 2,058 — — —Share of capital reserve — — — — — — 6 — — —Arising on dilution of

interests in subsidiaries — — — — — — (21,826) — — —Share of net loss for

the year — — — — — — (78,204) — — —Arising on disposal of

subsidiaries — — (37,383) — (9,000) — (51,030) — — —

At 31 December 1999 824,155 1,361 12,430 — — 20,961 206,679 (12,186) 11,833 12,776

79



(d) Analysis of changes in financing during the year (continued)

Loan fromShare Loan from a Advance a minority

capital Finance Bank loans shareholder Loan from a from Pledged Loan shareholderand share lease and other of a related fellow Minority bank from a of apremium obligations loans subsidiary company subsidiaries interests deposits shareholder subsidiary

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At 1 January 2000 824,155 1,361 12,430 — — 20,961 206,679 (12,186) 11,833 12,776Net cash inflow/(outflow) 229,425 (605) (6,355) 3,989 — 8,325 109,781 1,849 (11,833) —

from financingShare of net loss for

the year — — — — — — (91,542) — — —Issue of preference

shares of a subsidiary — — — — — — (116,250) — — —Capital contribution on

exercise of shareoptions — — — — — — 5,241 — — —

Arising on dilution ofinterests in subsidiaries — — — — — — (2,751) — — —

Arising on disposals ofsubsidiaries — — — — — — (128) — — —

Transfer to advance fromfellow subsidiaries — — — — — 12,776 — — — (12,776)

At 31 December 2000 1,053,580 756 6,075 3,989 — 42,062 111,030 (10,337) — —

(e) Major non-cash transactions

(1) As further detailed in note 18, the Group disposed of its 24.3% equity interests in HiTV to the Buyer, ata consideration of approximately HK$81,256,000. Part of the consideration is to be settled by theBuyer (i) by transferring the rights in a film library valued at HK$17,060,000, based on its original cost,and (ii) the assumption by the Buyer of a debt owed to HiTV by the Group of HK$34,196,000.

(2) As further detailed in note 18, the Group disposed of its remaining 12.1% equity interests in HiTV tothe Purchaser through a share swap arrangement in exchange for a 9.9% equity interests in a companyincorporated in the BVI at a consideration of HK$35,000,000.

(3) The proceeds from disposal of fixed assets amounting to HK$29,297,000 were settled through thecurrent account with HiTV.


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36. Commitments

At the balance sheet date, the Group had the following commitments:

Group2000 1999

HK$’000 HK$’000

(a) Payment for non-cancellable operatingleases committed to be made duringthe next year by the Groupin respect of land and buildings expiring:

Within one year 1,619 4,692In the second to fifth years, inclusive 11,607 6,756

13,226 11,448

(b) Capital commitments:Contracted for (Note) 21,431 94,503Authorised, but not contracted for 6,820 —

28,251 94,503

Note:

At the balance sheet date, the Group had uncontributed registered capital commitments in two (1999: three) PRCsubsidiaries of an aggregate amount of RMB17,243,000 (approximately HK$16,115,000), (1999: HK$94,503,000),of which RMB13,905,328 (approximately HK$12,996,000) was paid before the balance sheet date. The capitalverification process has not been completed and accordingly, the corresponding amount was disclosed as acommitment to the Group.

As at 31 December 2000, the Company did not have any significant commitments.

37. Contingent liabilities

Group Company2000 1999 2000 1999

HK$’000 HK$’000 HK$’000 HK$’000

Guarantees for banking facilitiesutilised by subsidiaries — — 5,512 90,000

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38. Pending litigation

(a) On 24 August 1997, Smoothline Limited (“Smoothline”), a wholly-owned subsidiary of the Company, receiveda Demand for Arbitration from a customer (the “Customer”) for resolution of a dispute by arbitration beforethe American Arbitration Association (“AAA”) in New York. The dispute relates to the sale of certain cordlesstelephones by certain suppliers (collectively referred to as the “Supplier”) to the Customer under an agreementdated 31 March 1993 in which Smoothline had certain secondary obligations as one of the guarantors forthe Supplier’s performance. The Customer had previously issued a Demand for Arbitration to the Supplier on2 October 1996 for breach of contract.

As the dispute at issue is primarily between and among the Customer and the Supplier, a finding of liabilityon the part of Smoothline is necessarily dependent upon a prior finding of liability on the part of the Supplierand, further, upon the failure of the Supplier to satisfy such a judgement.

Accordingly, Smoothline has, in response to the Customer’s arbitration demand, advised the AAA that theCustomer’s demand for arbitration against Smoothline should be heard, if at all, only after the Customer hasobtained an award against the Supplier, and only to the extent that such award remains unsatisfied.

Counsel for both parties have agreed to wait for the outcome of other issues mentioned in paragraph (d)below before proceeding to arbitration, if at all. Having considered legal counsel’s advice, the directorsbelieve that the Group has substantial legal and factual defences against the claim. Accordingly, the directorsconsider that provision for the claim is not necessary.

(b) On 9 September 1998, Smoothline was notified that the Customer and a party holding certain patents hadagreed to settle a patent infringement dispute relating to the distribution of certain products, includingcertain cordless telephones manufactured by Smoothline, by payment by the Customer of US$1.25 million(equivalent to approximately HK$9.7 million) and the granting by such party to the Customer and its suppliers(including Smoothline) of a licence for such products. Smoothline has been requested by the Customer tocontribute a portion of the costs associated with the granting of the licence and related legal costs ofapproximately US$800,000 (equivalent to approximately HK$6.2 million). The directors believe that theGroup has valid defences against the claim. Accordingly, the directors consider that a provision for the claimis not necessary as this matter has been dormant for over three years.

(c) On 12 October 1999, Cybiotronics Limited. (“Cybiotronics”), a Hong Kong company commenced litigationin the United States District Court, Central District of California, claiming that, inter alia, Smoothline hadinfringed certain patents relating to telephones and consequential damages, and injunctive relief. On 12February 2001, Smoothline obtained a summary judgement against Cybiotronics on the claim for patentinfringement. The case can therefore be considered closed, except in so far as Smoothline is seeking recoveryof legal costs. In the circumstances the directors do not consider any provision for this claim necessary.


82


38. Pending litigation (continued)

(d) On 21 December 1999, in relation to the Customer referred to note 38(a) above, two subsidiaries of theGroup sought to clarify their obligations relating to the Customer and issued mediation proceedings seekingleave to commence an action in The Princely District Court of Liechtenstein against both the Customer andFHA Handelsanstalt (“FHA”). Leave to issue an action was duly granted on 10 March 2000 with costs awardedin favour of the two subsidiaries against the Customer and FHA. The two subsidiaries filed their full pleadingsin Liechtenstein on or before 10 May 2000. On 14 March 2000, in connection with the Liechtensteinproceedings the two subsidiaries petitioned The District Court of The Southern District of New York for adiscovery order pursuant to 28 U.S.C. 1782 against the Customer. The petition was granted but has beenopposed by the Customer who also seeks to refer some of the matters raised in the Liechtenstein action toarbitration under AAA in New York. As the two subsidiaries claim damages of US$14 million and Declaratoryjudgement in Liechtenstein the directors do not consider any provision for this claim necessary.

39. Banking facilities

As at 31 December 2000, the Group’s banking facilities were secured by the following:

(a) corporate guarantees to the extent of HK$178,000,000 executed by the Company in respect of bankingfacilities utilised by three of its subsidiaries amounting to HK$5,512,000; and

(b) pledges of bank deposits aggregating HK$10,337,000.

40. Post balance sheet events

Subsequent to the balance sheet date, during the period from 5 March 2001 to 12 March 2001, the Grouppurchased 2,956,000 ordinary shares of DVN thereby raising its shareholding from 49.6% to 50.7%.

Subsequent to the balance sheet date, the Company had undertaken to provide financial support to a non-whollyowned subsidiary up to the amount of HK$20,000,000 during the period up to 20 April 2002.

41. Comparative amounts

Provision of bad and doubtful debts, write off and amortisation of goodwill totalling HK$112,945,000 has beenreclassified from administrative expenses to other operating expenses for the 1999 comparative amounts. In theopinion of the directors, the reclassification provides a better presentation of these expenses and is consistent withthe presentation adopted for the current year.

42. Approval of the financial statements

The financial statements were approved by the board of directors on 25 April 2001.

Documents

Annual Report 2000 2000 Annual Report 2000 - E.pdf · manufacturing market was becoming increasingly competitive offering very low profit margins, which would likely cause a significant