Heng Tai Consumables Limited
(Stock Code: 0197)

Major Shareholder:

• Mr. Lam Kwok Hing & his wife Mrs. Lee Choi Lin ¡V 46.2% interest

Company Subsidiaries:

• Hurdle Limited (100%): Provision of quality control services
• Sui Tai & Associates Limited(HK) (100%): Provision of administrative services
• Heng Yui & Associates Limited (100%): Distribution of packaged food, beverages and household consumable products
• Step First Limited (100%): Trademark holding
• Jigsaw Group Limited (100%): provision of marketing services
• Alfe Trading Limited (100%): Debenture holding.
• Yi Hin Limited (100%): Provision of procurement services
• Kelso Lake (Tianjin) Beverages Co., Ltd (PRC): Manufacture and sale of non-carbonated beverages.

The Group is engaged principally in the distribution of packaged food, beverages, household consumer products and food ingredients to the PRC market. The Group currently distributes about 400 products including candy, chocolate, biscuits, beverages, chicken essence, milk powder, margarine, condiments and batteries.

The Group's products are mainly sourced from overseas such as Southeast Asia, the USA, Europe, Australia and New Zealand. In addition, the Group commenced the production of a non-carbonated beverage for the PRC markets in January 2000. The production facilities of the Group are located in Tianjin the PRC.

The Group has a customer base of over 250 wholesalers based in the PRC, which the Directors believe, re-sell the products to retailers such as hyper-markets, supermarkets and department stores as well as hotels, restaurants and food manufacturers. The Group has established an extensive distribution network with wholesalers located in various municipalities and major cities in the PRC including Beijing, Changchun, Chendu, Chongqing, Guanzhou, Hefei, Nanchang, Nanjing, Shanghai, Shenzhen, Suzhou, Wuhan, Wuxi and Xian.

The Group seeks to secure exclusive distribution rights for products distributed by the Group within defined geographical areas. For the year ended 30^th June 2001, about 69.6% of the Group's turnover were attributable to the distribution of products on an exclusive basis and about 8.4% were attributable to the distribution of products on a non-exclusive basis. The balance was attributable to the distribution of products on a transactional basis as well as the sale of a type of non-carbonated beverage.

In line with the continuous increase in the per capita GDP and the per capita annual disposable income of urban households in the PRC, the per capita annual living expenditure for consumption of urban households has been experiencing growth.

According to the China Statistical Yearbook 2000, retail sales of consumer goods increased from about Rmb2,062 billion in 1995 to about RMB3,114 billion in 1999, representing an increase of over 50%. The Directors believe that the economic growth in the PRC in the past decade has created a growing appetite for consumer products as well as greater demand for products of a higher standard and quality.

The Consumer market in the PRC expanded in line with the improvement of living standard of the consumers in the PRC. Food consumption has traditionally been a major item in household expenditure in the PRC.

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

• The established reputation of the Group in the consumer products market in the PRC, especially in the wholesale sector;
• The experience and expertise of the Group's management team in the wholesale sector of the consumer products market in the PRC;
• The Group's extensive and well-established network with its wholesaler customers covering an extensive area in the PRC;
• The Group's large supplier base and established relationship with its suppliers;
• The Group's ability to introduce new products and identify changing consumer preferences; and
• The Group's ability to act as a platform for overseas suppliers to access the PRC consumer market.

• The Group is unable to source such products as a result of increased competition, the Group's future profitability might be adversely affected.
• The Group's success it's principally attributable to Mr. Lam's ability to identify the trends in the consumer products market in the PRC. There may be an adverse impact on the Group's business should Mr. Lam for any reason cease to be involved in the management of the Group.
• The Group has engaged the Macau Agent for handing sales orders form the Groups customers and the Group's purchase order to its suppliers. In the event that the Macau Agent discontinues its service with the Group, the operations of the Group may be adversely affected.
• The Directors believe that any unauthorized distribution activities in the PRC in which the Group has distribution rights will have an adverse effect on the Group's profitability.

The Group will seek to further expand its product range by obtaining distribution rights of a greater variety of consumer products. In particular, the Director believes that there is a good supply of quality branded beverages. Recently, the Group has obtained an exclusive distribution right for the full range of Mitsubishi batteries in the PRC. The Directors also intends to expand the product range by including chilled and frozen food products, household novelties and home and gardening items.

The Group also tends to source more new products for distribution in the PRC markets from suppliers in New Zealand, Australia and Europe. As part of its future plan, the Group is planning to organize function in the PRC for the promotion of new products from these regions. The Group organized consumer products exhibition in September 2001 in Shanghai, the PRC for promoting the products of a supplier form New Zealand.

While the Group has already established a distribution network through its wholesaler customer in the PRC, the Group plans to broaden its market coverage by setting up offices in smaller PRC cities. These offices will enable the Group to further improve its penetration into the PRC market and to maintain closer contact with, and to provide marketing supports to, the Group's customers.

Capitalizing on the Group's extensive trade relationships in the PRC and experience in the field of trading consumer products, the Group intends to distribute PRC made consumer products to overseas markets. The Group is at present souring quality

PRC-made consumer products that are suitable for suitable for export and has started liaising with overseas customers on this new business opportunity. The Directors expect New Zealand to be the first target overseas market for the Group.

The net proceeds from the Placing, after deducting the related expenses, are estimated to amount to approximately HK$29 million (based on the offer price HK$0.40 per share). The Group at present intends to apply the net proceeds as follows: