Artel Solutions Group Holdings Limited
(Stock Code: 0931)

Major Shareholder:

• Mr. Yu Pen Hung ¡V 75.0% interest

Company Subsidiaries:

• ASEP Solutions Ltd (100%): Provision of e-enabling solution and technical services
• Ariel International Technology Company Ltd (100%): Trading of networking equipment
• Bast Hero Ltd (100%): Trading of computer components
• Artel Industrial Ltd (100%): Trading of computer components and networking equipment
• Advance Great Ltd (100%): Trading of computer components
• ¨È¨¹¹q¸£°ê»Ú¶T(¤W®ü)¦³­­¤½¥q(100%): Trading of computer components and networking products and provision of related technical support and after-sales services.

The Group is one of the leading distributions of computer components, mainly boxed CPUs, in Hong Kong and the PRC. The Group is also engaged in the distribution of IT products such as networking products and servers, and the provision of integrated en-enabling solutions in Hong Kong and the PRC. The Group is one of the principal authorized distributors of Intel to distribution Intel's products including boxed CPUs, motherboards and networking products in the PRC and Hong Kong.

Headquartered in Hong Kong the Group has direct access to over 700 non-exclusive Hong Kong based GIDs. The Group also has nine exclusive PRC sub-distributors, covering 17 major cities in the PRC to access over 5,000 non-exclusive GIDs, 700 VARs, and corporate customers across the PRC.

With the successful development of the Group's distribution business, the Group has extended its business focus to the provision of e-enabling solutions and technical support services to its customers. Utilizing reliable network infrastructure and software applications provided by renowned hardware and software developers.

As at the Latest Practicable Date, Intel has 10 and 5 authorized distributors in Hong Kong and the PRC respectively, each of which has equal access to the GIDs and VARs in their respective distribution regions, and the Group is one of the authorized distributors of Intel both in Hong Kong and the PRC. Its founder and chairman, Mr. Yu, in Hong Kong for trading of computer components established the Group in 1995.

According to IDC, the total turnover in the PRC IT products, software and consulting services markets increased from about US$7.8 billion in 1997 to about US$10.9 billion in 1999, representing a CAGR of about 17.9% between 1997 and 1999, which was significantly higher than the world wide CAGR of about 10.7% during the same period.

The PRC IT turnover is expected to reach about US$29.6 billion by 2003 from about US$7.9 billion in 1997, representing a CAGR of 24.6% between 1997 and 2003, as compared with a CAGR of about 11.0% in the Asia Pacific region during the same period.

The sale turnover of micro computers in the PRC during the between 1996 and 2000, had increased from about RMB24.8 billion to RMB64.9 billion, or representing a CAGR of approximately 27.2% in the same period.

In China, the rapid growth in the popularity Internet market has increase the demand for desktop PCs. CCID estimates that the number of Internet users had reached approximately 23.6 million by the end of the 2000 and is expected to increase at an annual growth rate of over 30% in the years after.

The Directors believe that the Group has the following competitive advantages:

• The Group has a solid track record in the distribution of computer components, IT and networking products and has successfully developed effective distribution networks and strong client connections.
• The established business relationship with Intel, one of the World's leading semi-conductor manufacturers and various renowned hardware and software developers, will facilitate the Group's development of its total solution capability in the growing Internet and e-Business market.
• The Directors believe that the Group can prevail or maintain its market position due to its quick responsiveness to the changes in the demands of customers.
• The Group's vision of gradually shifting its development focus to the provision of e-enabling solutions by increasing investment in R&D and co-operations with renowned hardware and software developers and universities will allow the Group to diversify its product base and eventually reduce its reliance on Intel.

• The Group's success is to a great extent, relied upon the dominant market influence of Intel and the consistent supply of Intel's products to the Group.
• There is no guarantee that the Group will be able to maintain a close working relationship with Intel at all time and any changes in the current relationship.
• Because of the characteristics of the IT distribution industry, should the Group fail to manage its inventory properly, which may lead to stock obsolescence, provision will have to be made, and it may adversely affect the Group's profitability.
• The sustainability of the profitability of the Group's distribution business is not certain in the future because of rapid changes in technological development and consumer habit in the market.
• If the Group continues to experience significant increase in accounts receivable and doubtful debts, the Group's cash flow position and profitability would be adversely affected.

Following the accession of the PRC into the WTO, the Group intends to develop and expand its distribution network by establishing a number of wholly owned subsidiaries of acquiring capable and developed companies in major cities in the PRC. The Group will also explore the possibility of developing other overseas market by negotiating the distributorship with existing and potential hardware and software providers in other developing countries in Asia such Thailand, Vietnam, India and the Philippines.

With the economic development and gradual opening of the PRC market, the Directors anticipate that here will be an increasing number of overseas hardware ad software developer striving to enter into the PRC market. These developers will look for strategic partnership with companies, which have strong local sales network and solid track record in the distribution business.

The Group will enhance its capability in the development and provision of e-enabling solutions and related consulting and training services. This can be achieved by joint development of research and training program with related developers and renowned universities in the PRC and Hong Kong. In fact, the Group has collaborated with Hong Kong Polytechnic University, Lanzhou University and China Technology University since July 2001 in the collaboration and development of e-enabling solutions.

The Group plans to offer online truncations to its existing and potential customers through its Internet platform. The Directors believe that such platform not only enables the customers to transact via the Internet but also allows the suppliers to manage their inventory effectively and efficiently. The Directors also believe that such platform will also facilitate a more efficient operation flow within the Group.

The net proceeds from the Placing, after deducting the related expenses, are estimated to amount to approximately HK$179.1 million (based on the offer price HK$0.60 per share). The Group at present intends to apply the net proceeds as follows: