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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


FORM 20-F

(Mark One)

|  |  |                                                                                               
|- |  | ----------------------------------------------------------------------------------------------
|o |  | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF
THE SECURITIES EXCHANGE ACT OF 1934
|  |  |                                                                                               
|  |  | OR                                                                                            
|  |  |                                                                                               
|x |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934          
|  |  |                                                                                               
|  |  | For the fiscal year ended December 31, 2002                                                   
|  |  |                                                                                               
|  |  | OR                                                                                            
|  |  |                                                                                               
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934      

Commission file number

TRAMFORD INTERNATIONAL LIMITED

---

(Exact name of Registrant as specified in its charter)




---

(Translation of Registrants name into English)


British Virgin Islands

---

(Jurisdiction of incorporation or organisation)


34th Floor, West Tower, Shun Tak Centre, Hong Kong

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(Address of principal executive offices)


Securities registered or to be registered pursuant to Section 12(b) of the Act.

|                    |  |                                          
|------------------- |  | -----------------------------------------
|Title of each class |  | Name of each exchange on which registered
|                    |  |                                          
|None                |  | Not Applicable                           
|                    |  |                                          
|                    |  |                                          
|                    |  |                                          
|                    |  |                                          

Securities registered or to be registered pursuant to Section 12(g) of the Act.

Common Stock, Par Value US$0.01 each

---

(Title of Class)


Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.

None

---

(Title of Class)


As of June 15, 2003, there were 6,895,697 shares of Common Stock outstanding,
with par value of US$0.01 each.

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

|       |  |      
|------ |  | -----
|x  Yes |  | o  No

Indicate by check mark which financial statement item the registrant has
elected to follow

|           |  |           
|---------- |  | ----------
|o  Item 17 |  | x  Item 18



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TABLE OF CONTENTS



|                                                               |                                                                                        |  |  |  |  |  |  | 
|-------------------------------------------------------------- | -------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                                        
|                                                               | Item 1. Identity of Directors, Senior Management and Advisers                         
|                                                               | Item 2. Offer Statistics and Expected Timetable                                       
|                                                               | Item 3. Key Information                                                               
|                                                               | Item 4. Information on the Company                                                    
|                                                               | Item 5. Operating and Financial Review and Prospects                                  
|                                                               | Item 6. Directors, Senior Management and Employees                                    
|                                                               | Item 7. Major Shareholders and Related Party Transactions                             
|                                                               | Item 8. Financial Information                                                         
|                                                               | Item 9. The Offer and Listing.                                                        
|                                                               | Item 11. Quantitative and Qualitative Disclosures About Market Risk.                  
|                                                               | Item 12. Description of Securities Other than Equity Securities.                      
|                                                               | Item 13. Default, Dividend Arrearages and Delinquencies.                              
|                                                               | Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds.
|                                                               | Item 15. Controls and Procedures                                                      
|                                                               | Item 16. [Reserved]                                                                   
|                                                               | Item 17. Financial Statements.                                                        
|                                                               | Item 18. Financial Statements.                                                        
|                                                               | Item 19. Exhibits.                                                                    
|SIGNATURES                                                    
|Report of Independent Auditors                                
|CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
|CONSOLIDATED BALANCE SHEETS                                   
|CONSOLIDATED STATEMENTS OF CASH FLOWS                         
|CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY    
|EXHIBITS INDEX                                                
|EX-1 List of Company Significant Subsidiaries                 
|EX-2 Certification of CEO and CFO by SEC 302                  
|EX-3 Certification of CEO and CFO by SEC 906                  



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PART I




Item 1. Identity of Directors, Senior Management and Advisers

Not Applicable.




Item 2. Offer Statistics and Expected Timetable

Not Applicable.




Item 3. Key Information



|A. |  | Selected financial data.
|-- |  | ------------------------

The following selected financial data should be read in conjunction with
the Managements Discussion and Analysis of Financial Condition and Results of
Operations, and the Financial Statements and Notes thereto included elsewhere
in this Annual Report.

The selected financial data at December 31, 2001 and 2002 and years ended
December 31, 2000, 2001 and 2002 have been derived from and should be read with
our audited consolidated financial statements, including notes to the
consolidated financial statements, included in this Annual Report beginning on
page [F-1]. We derived the selected financial data at December 31, 2000, 1999
and 1998 and for the years ended December 31, 1999 and 1998 from our
consolidated financial statements, which have been prepared in according with
U. S. GAAP, but have not been included in this Annual Report.

All financial data included elsewhere in this Annual Report are expressed,
unless otherwise stated, in the nearest thousand of Renminbi (Rmb). In this
Annual Report, references to Reminbi or Rmb are to the currency of the
Peoples Republic of China, and references to U.S. dollars or US$ are to
the currency of the United States of America. This Annual Report contains
translations of Reminbi amounts into U.S. dollar amounts, solely for your
convenience. Unless otherwise indicated, the translations have been made at
Rmb8.28 = US$1.00, which was the noon buying rate in The City of New York for
cable transfers in Reminbi as certified for customs purposes by the Federal
Reserve Bank of New York on December 31, 2002. See Item 3 Key Information 
Selected Financial Data  Exchange Rate Information for historical information
regarding this noon buying rate. You should not construe these translations as
representations that the Reminbi actually represents such U.S. dollar amounts
or could have been or could be converted into U.S. dollars at the rate
indicated or at any other rates.

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|                                                                                            |                                                         |  |                                               |         |              |  |              |         |              |  |              |   |              |  |         |   |  |  |         |   |  |  |        |   | 
|------------------------------------------------------------------------------------------- | ------------------------------------------------------- |  | --------------------------------------------- | ------- | ------------ |  | ------------ | ------- | ------------ |  | ------------ | - | ------------ |  | ------- | - |  |  | ------- | - |  |  | ------ | - | 
|                                                                                            |                                                         |  | (Amounts in thousands, except per share data)
|                                                                                            |                                                         |  |                                              
|                                                                                            |                                                         |  | Year Ended                                    |         | Year Ended   |  | Year Ended   |         | Year Ended   |  | Year Ended   |   | Year Ended  
|                                                                                            |                                                         |  | December 31,                                  |         | December 31, |  | December 31, |         | December 31, |  | December 31, |   | December 31,
|                                                                                            |                                                         |  |                                               |         |              |  |              |         |              |  |              |   |             
|                                                                                            |                                                         |  | 1998                                          |         | 1999         |  | 2000         |         | 2001         |  | 2002         |   | 2002        
|                                                                                            |                                                         |  | Rmb                                           |         | Rmb          |  | Rmb          |         | Rmb          |  | Rmb          |   | US$(1)      
|                                                                                            |                                                         |  |                                               |         |              |  |              |         |              |  |              |   |             
|Statement of Operations
Data:                                                               |                                                         |  |                                               |         |              |  |              |         |              |  |              |   |              |  |         |   |  |  |         |   |  |  |        |  
|Operating loss                                                                              |                                                         |  | (4,325                                        | )       |              |  | (4,717       | )       |              |  | (2,029       | ) |              |  | (13,361 | ) |  |  | (19,910 | ) |  |  | (2,404 | )
|Non-operating income                                                                        |                                                         |  | 4,334                                         |         |              |  | 2,862        |         |              |  | 3,373        |   |              |  | 2,555   |   |  |  | 2,456   |   |  |  | 297    |  
|Income/(loss) from continuing
operations before income
tax provision and minority interests |                                                         |  | 9                                             |         |              |  | (1,855       | )       |              |  | 1,344        |   |              |  | (10,806 | ) |  |  | (17,595 | ) |  |  | (2,124 | )
|Discontinued operations                                                                     |                                                         |  |                                               |         |              |  |              |         |              |  |              |   |              |  |         |   |  |  |         |   |  |  |        |  
|                                                                                            | Profits/(Loss) from operations
of disposed subsidiaries |  |                                               | (37,760 | )            |  |              | (14,875 | )            |  |              |  |              |  |         |  |  |  |         |  |  |  |        |  | 
|                                                                                            | Gain on disposal of subsidiaries                        |  |                                               |        |              |  |              | 20,011  |              |  |              |  |              |  |         |  |  |  |         |  |  |  |        |  | 
|Net income/(loss) for the year                                                              |                                                         |  | (37,751                                       | )       |              |  | 3,281        |         |              |  | 1,440        |   |              |  | (9,141  | ) |  |  | (15,446 | ) |  |  | (1,864 | )
|(Loss)/earnings per share                                                                   |                                                         |  | (4.20                                         | )       |              |  | 0.42         |         |              |  | 0.21         |   |              |  | (1.32   | ) |  |  | (2.24   | ) |  |  | (0.27  | )
|Earnings/(loss) per share from
continuing operations                                        |                                                         |  | 0.01                                          |         |              |  | (0.23        | )       |              |  | 0.21         |   |              |  | (1.32   | ) |  |  | (2.24   | ) |  |  | (0.27  | )
|(Loss)/earnings per share from
discontinued operations                                      |                                                         |  | (4.20                                         | )       |              |  | 0.65         |         |              |  | N/A          |   |              |  | N/A     |   |  |  | N/A     |   |  |  | N/A    |  
|Supplemental data to Statements
of Operations                                               |                                                         |  |                                               |         |              |  |              |         |              |  |              |   |              |  |         |   |  |  |         |   |  |  |        |  
|Net sales (2)                                                                               |                                                         |  | 43,080                                        |         |              |  | 19,226       |         |              |  | 15,727       |   |              |  | 7,305   |   |  |  | 8,283   |   |  |  | 1,000  |  
|Cost of goods sold (2)                                                                      |                                                         |  | 42,943                                        |         |              |  | 17,680       |         |              |  | 12,612       |   |              |  | 5,203   |   |  |  | 4,825   |   |  |  | 583    |  
|Gross Profit/(loss)(2)                                                                      |                                                         |  | 137                                           |         |              |  | 1,545        |         |              |  | 3,115        |   |              |  | 2,102   |   |  |  | 3,458   |   |  |  | 417    |  
|Balance Sheet Data:                                                                         |                                                         |  |                                               |         |              |  |              |         |              |  |              |   |              |  |         |   |  |  |         |   |  |  |        |  
|Total assets                                                                                |                                                         |  | 74,503                                        |         |              |  | 74,803       |         |              |  | 104,128      |   |              |  | 93,407  |   |  |  | 55,208  |   |  |  | 6,667  |  
|Total liabilities                                                                           |                                                         |  | 3,063                                         |         |              |  | 4,562        |         |              |  | 27,743       |   |              |  | 27,846  |   |  |  | 7,818   |   |  |  | 944    |  
|Shareholders equity                                                                        |                                                         |  | 71,440                                        |         |              |  | 70,241       |         |              |  | 71,681       |   |              |  | 62,522  |   |  |  | 46,500  |   |  |  | 5,616  |  

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|(1) |  | For the convenience of the reader, translation of amounts from Renminbi
(Rmb) into United States Dollars (US$) has been made at the noon
buying rate in New York City for cable transfer in foreign currencies as
certified for customs purposes by the Federal Reserve Bank of New York on
December 31, 2002 of Rmb 8.28 = $1.00. No representation is made that the
Renminbi amounts could have been, or could be, converted into United
States Dollars at that rate or at any other certain rate. The table set
forth the average, high, low and period-end noon buying rate between the
Rmb and the U.S. dollar (in Rmb per U.S.dollar) is set out in Item 10 (D).
The Renminbi is not freely convertible into foreign currencies. The China
government has instituted a single regulated floating exchange rate system
principally based on market supply and demand. Under this system, a
nationwide inter-bank foreign exchange banks where Renminbi can be
converted into foreign currencies subject to prior approval from the China
State Administration of Exchange Control.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Net sales, cost of goods sold and gross profit/(loss) for each of the two
years in the period ended December 31, 1998 and 1999 refers to that of
Linyi Baoquan Bathtub Company Limited (Baoquan) and Linyi Xinhua
Building Ceramics Company Limited (Xinhua) disposed in July 2, 1999.
Baoquan and Xinhua are hereinafter referred to, collectively, as the PRC
Operations. Net sales, cost of goods and gross profit/(loss) for each of
the three years in the period ended December 31, 2000, 2001 and 2002
refers to that of the BHL Networks Technology Co. Ltd. (BHLNet) and
Beijing BHL Networks Technology Co. Ltd. (BBHL) acquired in June 30,
2000. BHLNet and BBHL are hereinafter referred to, collectively, as the
Newly Acquired Operations.                                                                                                                                                                                                                                                                                                                      
|   
|(3) |  | Readers may refer to Item 4 (A)  Information of the Company to obtain
additional information of the change of business of the Company in 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          



|B. |  | Capitalization and indebtedness.
|-- |  | --------------------------------



| |  | Not Applicable.
| |  | ---------------



|C. |  | Reasons for the offer and use of proceeds.
|-- |  | ------------------------------------------

| |  | Not Applicable.
| |  | ---------------



|D. |  | Risk factors.
|-- |  | -------------

| |  | Certain risks associated with your investment in our common stock are
described below. These risks and other additional risks not presently known to
us or that we deem immaterial may impair our business operations and could
materially adversely affect our business, operating results and financial
condition and could result in a complete loss of your investment. You should
carefully consider the risks described below and other information in this
annual report before deciding to invest in the Company.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our business is facing a highly competitive market in China.

We are subject to all of the risks, uncertainties, expenses, delays,
problems and difficulties frequently encountered in the establishment of a
software and technology business on the Internet in China which is generally
characterized by intense competition.

Our potential competitors may come from:

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| |  |  | competitors who have greater financial and marketing
resources and greater name recognition;               
| | - |  | -----------------------------------------------------------------------------------------------------------
|
| |  |  | competitors have similar definition in their products;                                                     
|
| |  |  | the large global competitors, especially after Chinas entry
into the World Trade Organisation (the WTO).

The Internet market is subject to continuing definition and new
competitors may better position themselves to compete in the market as it
matures. Following the execution of the WTO agreement by China, entry barriers,
even it is still unclear presently, are executed to be eliminated in coming
years, which may intensify the competition. If we fail to continuously
maintain our leadership in the market, our results may be adversely materially
affected.

It is hard to estimate our financial results

Our revenues, gross margins and operating results may fluctuate
significantly due to, among other things:



| |  |  | our ability to obtain timely and accurate user sales information;                                                                     
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the effectiveness of our distribution channel;                                                                                        
|
| |  |  | product upgrading or updating progress by us or our competitors;                                                                      
|
| |  |  | the mix of products sold;                                                                                                             
|
| |  |  | Our price changes and those of our competitors;                                                                                      
|
| |  |  | our research and development and marketing abilities;                                                                                 
|
| |  |  | the acquisition costs of technology or businesses;                                                                                    
|
| |  |  | employee wages pressure arising from increased competition
for skilled employees and increased governmental staff welfare
regulations;
|
| |  |  | extraordinary costs incurred for acquisitions or any reductions in forces, if any; and                                                
|
| |  |  | the number of new projects led by the Chinese government bureaus.                                                                     

These
facts make predicting revenues more difficult. Although we believe
more contracts will be entered into in future, there is no assurance that these
contracts can be successfully signed, or even successfully signed, we may not
control our costs effectively. The operating results would be adversely
materially affected in case the contracts are not successfully signed and costs
are not effectively controlled.

There are risks of employee retention and new employee assimilation

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Many of our employees are located in areas and have skills in fields where
there is high worker mobility and work force turnover. The departure of a
large number of our employees or a meaningful number of key non-executive
employees, or additions of new employees can be disruptive and could materially
adversely impact our business, including our ability of new products
development, existing products upgrading and products sales and marketing.
Competition for these employees is intense and is expected to remain so for the
foreseeable future. We have seen upward pressure on wages as a result of this
intense competition for employees, which could cause an increase in our
operating expenses. We expect to rely, and will continue to rely, on a number
of key technical and management employees. If any of our key employees leave,
our business, results of operations and financial condition could suffer.

Our success also depends in large part upon the continued contributions of
Li Xiao Hong, our Chairman of the Board and President, and Jiang Xinhao, our
Chief Executive Officer. The loss of their services or the services of certain
other key employees could materially adversely affect our business and
prospects.

We are subject to risk of hackers attacks

Following the increase in computer crimes in China, computer hackers may
create viruses to sabotage or otherwise attack our products. Although no such
event has occurred or discovered to date, the adverse impact arising from any
virus sabotage or attacks cannot be ignored. If sabotage or attacks on our
products do happen, our customers computer systems could be seriously damaged.
Consequently, our business will be adversely impacted as a result of damaged
professional image.

Risks of acquisition of new business, products and technologies

Our industry has experienced, and is expected to continue to experience, a
significant amount of consolidation. Even we do not expect new acquisition in
the foreseeable future, acquisition may also be one of our long-term strategy
to synergize our market growth and technology advancement.

Our acquisitions and strategic investments, if any in the future, however,
may involve a number of risks and the expected benefits of these transactions
may not be realized. We may lose all or a portion of our investment and our
available cash and securities, if used as part of the acquisition
consideration, could result in, respectively, significant acquisition-related
charges to earnings and dilution to our shareholders. We may also be adversely
affected if contingent or off balance sheet liabilities exist.

We are subject to risks of rapid technological change in the market and
the risks associated with the product development

The network security and network management market is highly fragmented
and characterized by ongoing technological developments, evolving industry
standards and rapid changes in customer requirements. Our success will depend
on our ability to:



| |  |  | provide a broad range of network security and network
management software products;                                                                             
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | timely develop and introduce new products with technological advances;                                                                                          
|
| |  |  | respond promptly to new customer requirements;                                                                                                                  
|
| |  |  | comply promptly with evolving industry standards;                                                                                                               
|
| |  |  | provide upgrades and updated to users frequently at the lowest costs; and                                                                                       
|
| |  |  | maintain compatibility of our products with popular operating
systems and develop products that are compatible with new or
otherwise emerging operating systems.

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Our product enhancements or new products may not adequately address the
changing needs of the marketplace. New products with new technological
capabilities could replace or shorten the life cycle of our products or cause
our customers to defer or cancel purchases of our existing products.

Our product development efforts are impacted by the adoption or evolution
of industry standards and currently, no uniform industry standard had developed
in the market for encryption security products. As industry standards are
adopted or evolve, we may have to modify existing products or develop and
support new versions of existing products. In addition, if no industry
standard develops, our products and our competitors products could be
incompatible, which could prevent or delay overall development of the market
for a particular product. If our products fail to comply with existing or
evolving industry standards in a timely fashion, if any in the future, our
business, results of operation and financial condition could materially and
adversely affected.

Our long-term success depends on our ability to upgrade and update
existing product offerings, modify and enhance acquired products and introduce
new products, which meet our customers needs. Future upgrades and updates may
include additional functionality, respond to user problems or address
compatibility problems with changing operating systems and environments. We
believe that our ability to provide these upgrades and updated frequently and
at low costs is key to our success. Failure to release upgrades and updated
could have a material adverse effect on our business, results of operations and
financial condition. In addition, future changes in popular operating systems
could cause compatibility problems with our products. Further, delays in the
introduction of future versions of operating systems or lack of market
acceptance of these future versions would delay or reduce demand for our future
products which were designed to operate with these future operating systems.
Our failure to introduce in a timely manner new products that are compatible
with operating systems and environments preferred by users would materially
adversely affect our business, results of operation and financial condition.

We will suffer if the markets evolve out of our anticipation

The markets for network management and network security products are
evolving, and their growth depends upon broader market acceptance. Although
the number of networks has increased dramatically in China, the network
management and network security markets continue to be emerging markets. These
markets may not continue to develop or may not develop rapidly enough to
benefit our business significantly. In addition, there are a number of
potential approaches to network management and network security, including the
incorporation of management and security products into network operating
systems. Therefore, even if network management and network security tools gain
broader market acceptance, potential purchasers may not select our products.
To the extent that either the network management or network security market
does continue to develop, we expect that competition will increase.

We do not intend to pay dividends

The future payment of dividends is within the discretion of the Board of
Directors. The Board does not intend to declare any dividends in the
foreseeable future, but instead intends to retain all future earnings, if any,
for use in our business operations.

We are subject to joint venture risks

Our joint venture agreements provide for an initial term of 50 years. In
the event the term of the joint venture agreements is not extended, the joint
ventures will be dissolved and liquidated pursuant to the provisions of the
applicable law and the applicable joint venture agreement. In addition, joint
ventures may be terminated prior to the expiration of the joint venture
agreement upon the occurrence of

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certain events, including without limitation, the inability of the
enterprise to conduct its business due to financial losses or a breach of the
joint venture agreement by one of the parties.

We expect the volatility of our stock price will continue

Our stock price was volatile and ranged from a per-share high of US$1.00
to low of US$0.01. On June 19, 2003, the per share closing price for common
stock was US$0.28. Announcements and our ability to meet the expectations of
investors with respect to our operating and financial results may contribute to
current and future stock price volatility. It is a general situation in the
United States, even currently there existed no such litigation, following
periods of volatility in the market price of a companys stock, securities
class action litigation has often been instituted. Any litigation, if
instituted, could cause substantial costs incurred and the diversion of
managements attention and resources.

Our business may be adversely affected by Chinese government regulation of
Internet companies.

China has begun to regulate its Internet sector by making pronouncements
or enacting regulations regarding the legality of foreign investment in the
Chinese Internet sector, the existence and enforcement of content restrictions
on the Internet and the availability of securities offerings by companies
operating in the Chinese Internet sector. There are substantial uncertainties
regarding the proper interpretation of current and future Chinese Internet laws
and regulations. Although we believe and have been advised that many current
regulations will not apply to us, we cannot assure you that existing or future
regulations will be interpreted differently.

A majority of Chinese laws, regulations and legal requirements governing
the Internet are relatively new and untested, their interpretation and
enforcement of what is deemed to be socially destabilizing by Chinese
authorities may involve significant uncertainty. In addition, the Chinese
legal system is a civil law system in which decided legal cases have little
precedential value. As a result, we cannot predict the actions of Chinese
legal authorities, particularly with regard to the Internet and software,
including the promulgation of new laws, changes to existing laws or the
interpretation or enforcement of local regulations by national laws.

Besides, the interpretation and application of existing Chinese laws and
regulations, the stated positions of the MII and the possible new laws or
regulations have created substantial uncertainties regarding the legality of
existing and future foreign investments in, and the businesses and activities
of, Chinese Internet businesses. Accordingly, it is possible that the relevant
Chinese authorities could, at any time, assert that any portion or all of our
existing or future ownership structure and businesses violates Chinese laws and
regulations. It is also possible that the new laws or regulations governing the
Chinese Internet sector that may be adopted in the future will prohibit or
restrict foreign investment in, or other aspects of, any of our current or
proposed businesses and operations.

If we are found to be in violation of any existing or future Chinese laws
or regulations, the relevant Chinese authorities would have broad discretion in
dealing with such a violation, including, without limitation, the following:



| |  |  | levying fines;                                                          
| | - |  | ------------------------------------------------------------------------
|
| |  |  | revoking our business license;                                          
|
| |  |  | requiring us to restructure our ownership structure or operations; and  
|
| |  |  | requiring us to discontinue any portion or all of our Internet business.

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We are subject to risks relating to operating a business in China

Chinas entry into the WTO.China formally became a member of the WTO in
2002. China is required to reduce tariffs and to eliminate other trade
restrictions, which may lead to increased foreign investment and foreign
competition in Chinas markets from international companies and the impact of
which on Chinas economy and our business would remain uncertain. The foreign
competitors are usually characterized by better research and development and
financial backup who can bear a longer period of net operating loss and have
larger scaled marketing campaign. Even we have optimistic expectation because
of customers preference in using locally developed products and our technical
strength, our operation may also be adversely affected if eventually the
foreign competitors form joint ventures with certain local competitors.

Chinese government controls the conversion of the Chinese currency, the
Renminbi.We must rely on the Chinese governments foreign currency conversion
policies, which may change at any time, in regard to our currency exchange
needs. In 2002, a 77.4% of total revenue is received in Renminbi, which is not
freely convertible into other foreign currencies. In China, the government has
control over Renminbi reserves through, among other things, direct regulation
of the conversion of Renminbi into other foreign currencies and restrictions on
foreign imports. Although foreign currencies which are required for current
account transactions, such as the payment of dividends to shareholders to
foreign invested enterprises such as ourselves, can be bought freely at
authorized Chinese banks, the proper procedural requirements prescribed by
Chinese law must be met. At the same time, Chinese companies are also required
to sell their foreign exchange earnings to authorized Chinese banks and the
purchase of foreign currencies for capital account transactions still requires
prior approval of the Chinese government. This type of heavy regulation by the
Chinese government of foreign currency exchange restricts certain of our
business operations and a change in any of these government policies, or any
other, could further negatively impact our operations.

Rights of Shareholders under British Virgin Islands Law May Be Less than
in U.S. Jurisdictions

General.Our corporate affairs are governed by our Memorandum and
Articles of Association and by the International Business Companies Act of the
British Virgin Islands. Principles of law relating to such matters as the
validity of corporate procedures, the fiduciary duties of our management,
directors and controlling shareholders and the rights of our shareholders
differ from those that would apply if we were incorporated in a jurisdiction
within the United States. Further, the rights of shareholders under British
Virgin Islands law are not as clearly established as the rights of shareholders
under legislation or judicial precedent in existence in most United States
jurisdictions. Thus, our public shareholders may have more difficulty in
protecting their interests in the face of actions by the management, directors
or controlling shareholders than they might have as shareholders of a
corporation incorporated in a United States jurisdiction.

Fiduciary Duties.Under the laws of most jurisdictions in the United
States, majority and controlling shareholders generally have certain
fiduciary responsibilities to the minority shareholders. Shareholder action
must be taken in good faith and actions by controlling shareholders which are
obviously unreasonable may be declared null and void. British Virgin Islands
law protecting the interests of minority shareholders may not be as protective
in all circumstances as the law protecting minority shareholders in United
States jurisdictions. In addition, in most United States jurisdictions,
directors owe a fiduciary duty to the corporation and its shareholders,
including a duty of care, pursuant to which directors must properly apprise
themselves of all reasonably available information, and a duty of loyalty,
pursuant to which they must protect the interests of the corporation and
refrain from conduct that injures the corporation or its shareholders or that
deprives the corporation or its shareholders of any profit or

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advantage. Many United States jurisdictions have enacted various
statutory provisions which permit the monetary liability of directors to be
eliminated or limited. Under British Virgin Islands law, liability of a
corporate director to the corporation is basically limited to cases of willful
malfeasance in the performance of his duties or to cases where the director has
not acted honestly and in good faith and with a view to the best interests of
the corporation.

Enforcement of Civil Liabilities.There is doubt that the courts of the
British Virgin Islands would enforce, either in an original action or in an
action for enforcement of judgments of United States courts, liabilities which
are predicated upon the securities laws of the United States.

Our results may be affected by the Severe Accute Respiratory Syndrome
(SARS)

The SARS happened since the beginning of 2003 had caused significant
impact on us. Since our market was focused on Beijing and Northern China, the
most infected areas in China, the entire withholding of the government and
customers tenders had hampered our business operation and development. Also
due to the close of offices by most customers, we were unable to perform duties
as stipulated in our agreements, which may eventually delay our completion and
thus affect the receipt of contract sums due. Even the SARS is now under
control, there is no assurance that it will not re-emerge in the coming winter.
Our results may be materially and adversely affected if another SARS or similar
epidemic happens.




Item 4.  Information on the Company

Except as otherwise required by the context, references in this Annual
Report to Tramford, Company, us or we refer to Tramford International
Limited. The term you refers to holders of Common Stocks. The terms Hong
Kong and the Government refer to the Hong Kong Special Administration Region
of the Peoples Republic of China and its government, respectively. The term
PRC, China and The PRC government refers to the Peoples Republic of
China and its government.

Some of the statements contained in this annual report contain
forward-looking information within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements are found in Item 3, this Item
4, Item 5 and other sections in which the future prospects of the Company are
discussed. These statements include information concerning:



| |  |  | growth and operating strategy,     
| | - |  | -----------------------------------
|
| |  |  | liquidity and capital expenditures,
|
| |  |  | the Companys financing plans,     
|
| |  |  | industry trends, and               
|
| |  |  | payment of dividends.              

You can identify these statements by forward-looking words such as
expect, believe, goal, plan, intend, estimate, may, can,
could, will and would or similar words. These forward-looking statements
involve known and unknown risks, uncertainties and other factors, including
those described in this Item 4 and elsewhere in this annual report that could
cause our actual results to differ materially from those anticipated in these
forward-looking statements. For a further discussion of such risks and
uncertainties, see Item 3 Key Information  Risk Factors. You should consider
these factors carefully in evaluating any forward-looking statements and should
not place any undue reliance on

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any forward-looking statement. You should keep in mind that any
forward-looking statement made by us in this Annual Report or elsewhere speaks
only as of the date on which we made it. New risks and uncertainties come up
from time to time, and it is impossible for us to predict these events or how
they may affect us. We are under no obligation to, and do not intend, to
update or revise our forward-looking statements made herein to reflect actual
results or changes in assumptions or other factors that could affect those
statements.



|A. |  | History and development of the Company.
|-- |  | ---------------------------------------

The Company was incorporated as an International Business Company under
the laws of the British Virgin Islands (BVI) in September 1995. The Company
previously owned, through its wholly owned subsidiaries, Jing Tai Industrial
Investment Company Limited (Jing Tai) and Jolly Mind Company Limited (Jolly
Mind), both Hong Kong companies, 95% equity interests in each of Linyi Baoquan
Bathtub Company Limited (Baoquan) and Linyi Xinhua Building Ceramics Company
Limited (Xinhua) (collectively, the PRC Operations). The PRC Operations are
Sino-foreign equity joint ventures incorporated under the laws of China. A
wholly owned subsidiary of Jing Tai, Beijing Taigong Sanitary Wares Company
Limited (Taigong), was also incorporated in Beijing in 1997 under the laws of
China as our administrative and sales support office of the PRC Operations.

Pursuant to certain sales and purchases agreements entered into among Jing
Tai, Shandong Linyi Industrial Enamel Joint Stock Company (Linyi Industrial),
Jolly Mind and Shandong Luozhang Group Company (Shandong Luozhang), on July
2, 1999, the Jing Tais interest in the PRC Operations were disposed of through
the sale by Jing Tai of its 60% interests in each of Baoquan and Xinhua to
Shandong Luozhang in cash consideration of Rmb28 million. Pursuant to a Share
Purchase Agreement dated July 2, 1999 entered into between the Company and
Linyi Industrial, the Company sold all of its interest in Jolly Mind, which
owns a 35% interest in each of Baoquan and Xinhua, to Linyi Industrial in
consideration of 1,952,291 shares (the Consideration Shares) of Common Stock
of the Company. In January, 2000, Taigong applied for a voluntary dissolution
which was approved in March, 2000.

On June 30, 2000, the Companys wholly owned subsidiary, Jingle Technology
Co., Ltd., entered into an agreement with China Internet Technology Co., Ltd.
(China Internet) and Great Legend Internet Technology and Service Co., Ltd.
(Great legend) to acquire the entire outstanding shares of BHL Networks
Technology Co. Ltd. (BHLNet), a company incorporated under the laws of the
BVI, which owns a 76% interest in Beijing BHL Networks Technology Co. Ltd.
(BBHL), a company incorporated under the laws of China. BHLNet and BBHL are
hereinafter referred to, collectively, as the Newly Acquired Operations

The Companys registered office is located at P.O. Box 71, Craigmuir
Chambers, Road Town, Tortola, BVI. Only corporate administrative matters are
conducted at this office, through the Companys registered agent, HWR Services
Limited. The Companys principal executive office is located at 34th Floor,
West Tower, Shun Tak centre, 200 Connaught Road Central, Hong Kong.



|B. |  | Business overview.
|-- |  | ------------------

Company Overview

The Company was transformed to a network technology service provider after
our acquisition of the BHLNet in 2000. Our new business focuses on the network
security and related software development. Our long-term goal is to maximise
the value of the Company and thus the shareholders value, with an operating
strategy focused on technology innovation. We stress innovation, reliability,
flexibility and efficiency to ensure high degree of advancement in technology
and commercialisation of research results. We believe the existing market
preference of local products and services, the

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governmental regulations and our technological advancement will create
good market opportunities for our business.

Upon the acquisition of the BHLNet, we positioned ourselves as a provider
of system integration services, network security and network management
solutions. With limited investment in research and development at the initial
stage, which is caused by our difficulties in recruiting qualified staff and
our reliance on shift of mature technologies from the Institute of Computing
Technology (ICT), our products are generally similar to those provided by our
competitors. In order to pioneer ourselves, we switched our business focus to
self-developed security software in 2001 and had established a research and
development team formed by experienced research staff recruited from
universities and competitors. This change was proved successfully, in
particular in the development of the Intranet/Internet Physical Separation
Security Solution (the IPSSS), a unique product which was generally
recognized and certified by the relevant government agencies and had accounted
for the majority of the 2002 sales.

We are now developing a series of IPSSS related products to meet the
requirements of different users. We expect the different mix of new products,
once available, will further strengthen our relatively unique position in the
Chinese network security market. Due to the government attention on network
security and the preference in using locally-developed products, our business
opportunities expected to further expand.

Business Strategy

Tramford intends to achieve our business goal primarily through the
following strategies:

Be unique, be specific and be professional

We always emphasize that professional service shall be characterized by
the ability to develop unique technology and products to satisfy our customers
specific needs. In 2001, we successfully developed the IPSSS. Due to our
speciality in technique, we are protected by some entry barrier. We expect our
existing research and development capability will maintain competitive in the
near future. As a policy of the Company, we reward employees contributing to
the development of new technology and products. We will utmost efforts to
maintain our technology position in the market.

Co-operations with other leading local providers

To further expand our market into other business sectors, we had tried
near the end of 2002 to co-operate with certain leading system integration
service providers in China, like the Legend Group, the largest local computer
manufacturer in China, to tie up our security products into their products for
sale to customers. Since 2003, the Company will tailor our security products
according to the requirements of the customers sourced by the Legend Group. The
Legend Group is currently providing solutions to a number of large local
enterprises and we are one of its nominated sub-contractors in the respect of
network security. We believe our co-operation with the Legend Group is an
efficient way to extend our products to the business sector and is a good
opportunity for us to understand more about the sectors needs for our future
expansion.

Capitalise on the strengths of Beijing Holdings

Beijing, being the capital of China, is the base of headquarters of large
local and overseas enterprises and government agencies. Beijing Holdings, the
controlling shareholder of the Company, is the sole window company of the
Beijing Municipal Government established in Hong Kong. Since its incorporation
in 1979, Beijing Holdings and its management, all of them were ex-government
senior officials, had established long-term and good relationships with
majority of local enterprises and

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government agencies. Mr. Li Xiao Hong, the Board Chairman and the
president of the Company and also the Deputy General Manager of Beijing
Holdings, has agreed to utilise his extensive business relationships with the
senior management of potential customers in the Companys business development.
Besides, Beijing Holdings expressed support to the Company in our future
development.

As we expect the government agencies and universities will remain in the
foreseeable future as our major customers, we believe our specific
relationships with Beijing Holdings, especially the personal relationships
established between the management of Beijing Holdings and the leaders of these
potential customers, may contribute positively in our business development.

Capitalise on the strengths of ICT

ICT is a shareholder of BBHL. ICT, an institution under the Chinese
Academy of Sciences (CAS), is well recognized in China and globally in terms
of its academic reputation and specializes in the research and development of
high-performance computer systems. The mission of ICT is Invigorate China
through Science and Education. The research of ICT is divided into fundamental
research, key technology research and application research. These research
fields supplement each other and work in coordination to develop key
technologies for the national economy and the peoples livelihood and to
transform research results into high technology products to meet the market
needs. The management of ICT highly appreciates the cooperation with Beijing
Holdings and the Company. They have agreed as a matter of priority to sell
well-established techniques, at a lower than normal price, to the Company of
their latest research results.

The Company believes the support from ICT, even though not our main source
for advanced technology, serves as one of the technology platforms of our
company. We can launch new products faster than certain competitors and have
savings in research and development costs , and thus, higher margin can be
obtained.

Description of Products and Services

Our products focus on three important areas of Internet application:
network security, network management and e-business software development. We
are focusing our effort on building a line of complementary network security
and network management solutions. Except the e-business software development is
separately performed in the Zhuhai Branch, for reason of easy access, fast
reaction and better communications with our Hong Kong customers, the network
management and network security products will complement each other in order to
provide a full range services to our customers. We usually provide solutions to
our customers which include the design, installation, testing, consulting and
training services.

Network security, which primarily includes the IPSSS, Secure Channel,
Secure Server and the Secure Suite CA V1.1 Certified Service System. These
products are currently largely sold to government authorities and universities.
We believe the potential for this market is growing as the trend of using
locally developed software by enterprises in China is increasing.

Network management, which primarily includes the BHL LDAP Catalogue
Server, BHL Search Engine V2.0, BHL Charging Proxy of Network Expenses and BHL
Re-broadcasting system V2.0. These products are highly efficient, intelligent
and provide high performance in assisting the enterprises in increasing the
automatic abstracting and classification of information influx and controlling
network expenses.

E-business software development, which primarily includes the tailor-made
software developed, according to the specific requirements of the customers in
Hong Kong by the Zhuhai Branch. Through

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years of experience, we have accumulated thorough understandings of these
businesses and the specific requirements in port business, on-line banking and
on-line brokerage.



|C. |  | Organizational structure.
|-- |  | -------------------------

Control of the Company

Except as disclosed in the footnotes to the table contained in paragraph
(b) of this Item 4 below, the Company, to the best of its knowledge, is not
directly or indirectly owned or controlled by another corporation or by any
foreign government.

The following table sets forth as of June 24, 2003, (i) all persons known
to the Company to be the owner of more than ten percent of the Companys Common
Stock and the Common Stock owned by the officers and directors as a group.

|             |  |                                              |  |  |           |  |  |  |       |  
|------------ |  | -------------------------------------------- |  |  | --------- |  |  |  | ----- | -
|Common Stock |  | Beijing Holdings                             |  |  | 4,372,882 |  |  |  | 63.41 | %
|             |  | 34th Floor, West Tower, Shun Tak Centre,     |  |  |           |  |  |  |       |  
|             |  | 200 Connaught Road Central, Hong Kong        |  |  | (2)(3)    |  |  |  |       |  
|             |  |                                              |  |  |           |  |  |  |       |  
|Common Stock |  | Great Legend                                 |  |  | 1,186,441 |  |  |  | 17.21 | %
|             |  | c/o 34th Floor, West Tower, Shun Tak Centre, |  |  |           |  |  |  |       |  
|             |  | 200 Connaught Road Central, Hong Kong        |  |  | (4)       |  |  |  |       |  
|             |  |                                              |  |  |           |  |  |  |       |  
|Common Stock |  | China Internet                               |  |  | 508,474   |  |  |  | 7.37  | %
|             |  | c/o 34th Floor, West Tower, Shun Tak Centre, |  |  |           |  |  |  |       |  
|             |  | 200 Connaught Road Central, Hong Kong        |  |  | (4)       |  |  |  |       |  
|             |  |                                              |  |  |           |  |  |  |       |  
|Common Stock |  | All officers and directors                   |  |  | 6,067,797 |  |  |  | 87.99 | %
|             |  | As a group ([three] persons)                 |  |  | (2)(3)(4) |  |  |  |       |  



---

|(1) |  | Unless otherwise noted, the Company believes that all persons
named in the table have sole voting and investment power with respect
to all shares of Common Stock beneficially owned by them.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Included in the 4,372,882 shares owned by Beijing Holdings are
974,576 shares and 849,576 shares owned by, respectively, CMEC
Ceramics Holdings Limited (CMEC) and Perfect Capital Holdings
Limited (Perfect Capital). CMEC was previously owned by CMEC-GE
Capital China Industrial Holding Limited. Pursuant to a sale and
purchase agreement dated June 30, 2000, Beijing Holdings acquired the
entire interest of CMEC. Pursuant to another sale and purchase
agreement dated May 30, 2002, Beijing Holdings, through Perfect
Capital, a 100% subsidiary, acquired the entire shares of the Company
held by Oriental Patron China Investment Limited, an initial
shareholder of the Company.
|   
|(3) |  | Mr. Li Xiao Hong, Chairman of the Board and President of the
Company, is the Deputy General Manager of Beijing Holdings and
therefore he may be deemed to beneficially own the                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

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|    |  | shares of Common Stock owned by Beijing Holdings. Mr. Li disclaims any
beneficial interest in the shares of Common Stock owned by Beijing
Holdings. In addition to Mr. Li, the Beijing Municipal Government of
the PRC, the principal shareholder of Beijing Holdings, may be deemed
to beneficially own the shares of Common Stock owned by Beijing
Holdings.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(4) |  | Pursuant to a sale and purchase agreement dated June 30, 2002,
China Internet and Great Legend acquired, respectively, 1,186,441
shares and 508,474 shares from China C&Y International Holdings
Limited, another initial shareholder of the Company.                                                                                                         

Significant Subsidiaries

The Company owns 100% interest in Jing Tai. Jing Tai was previously the
holding vehicle of the 60% interest in each of Baoquan and Xinhua, subsidiaries
engaged in bathtub and ceramic tiles business. Since the disposals of Baoquan
and Xinhua in 1999, Jing Tai became the cash management vehicle of the Company,
holding the foreign currencies of our cash assets in Hong Kong.

The Company owns 76% interest, through BHLNet, a wholly owned Cayman
Island incorporated subsidiary, in BBHL, an equity joint venture incorporated
in China. BHLNet is wholly owned by Jingle, a wholly owned subsidiary of the
Company incorporated in the BVI. BHLNet and Jingle are investment-holding
vehicles. All principal activities of the Company are done through BBHL in
China.

BBHL is specialized in network technology. With network security and
information security technology and support software as its main engagement,
the company has established its brand image with specialized technology, system
products and comprehensive service. The principal technology of the company
include: accreditation and encryption, coding, information protection and
testing, network security technical standard and related technology as well as
products and solutions in the aspect of network information processing.



|D |  | Property, plants and equipment.
|- |  | -------------------------------

The Company shares its office, free of charge, with Beijing Holdings, the
controlling shareholder, which is situated at 34th Floor, West Tower, Shun Tak
Centre, 200 Connaught Road Central, Hong Kong. Jing Tai, Jingle and BHL
Networks are situated at the same office of the Company.

BBHL leases its office at Room 214-216, Tai Li Min Yuan Office Building,
No. 1, Wai Guan Xie Street, Chaoyang District, Beijing, 100011, China at a
monthly rent of Rmb 53 for a period of two years commencing from September 20,
2002. Prior to this movement, BBHL leased 8th Floor, Anhua Development Building
No.35, Anding Street, Chaoyang District, Beijing, 100029, China at a monthly
rent of Rmb89.

The Companys principal fixed assets is computer equipment. As at December
31, 2002, the total net book value of the computer equipments amounted to
approximately Rmb 0.34 million, which represented 63.7% of the total fixed
assets of the Company.

The Company believes that the physical facilities are adequate to conduct
the Companys business during the next 12 months.



|E |  | Corporate governance
|- |  | --------------------

The Company is committed to ensuring high standards of corporate
governance in the interests of shareholders and devotes considerable effort to
identifying and formalising best practices.

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The overall management of the Companys business is vested in the Board of
Directors, with attention focused on matters affecting the Companys finances
and shareholders. These include financial statements, dividend policy,
significant changes in accounting policy, the annual operating budget, certain
material contracts, major investments, risk management strategy and treasury
policies. Through delegation of responsibilities to the President and the Chief
Executive Officer, who are also members of the Board, the day-to-day management
of the Companys business is closely monitored by the Board.

The members of the Board of Directors communicate frequently to access the
development of the Companys business. All members of the Board of Directors
have full and timely access to relevant information and may take independent
professional advice if necessary. Due to the simple business nature of the
Company, it does not formally establish the audit committee, remuneration
committee and nomination committee but the Board of Directors are performing
informally the functions of these committees as the matters related to these
committees, according to the Companys policies, must be approved by the Board.
However in light of the new requirement provided when Sarbanes-Oxley Act 2002,
the Company is considering the issues in the set up of audit and compensation
committees and establishing internal governance and ethics procedures and code
of conduct.

The Company is committed to ensure the existence of high standard of
business ethics and integrity. Due to limited staff and functional departments
in previous years, closer monitoring control, which is considered more
effective and efficient in ensuring the control procedures, is exercised
instead of a formal code of conducts issued, trained and communicated to our
staffs,. However, along with the Companys growth and expansion, the Company is
intending to issue a code of conducts in the coming year. The Company will
carry out extensive training to ensure all levels of staff understanding the
content of the code and the philosophy behind an ethical working culture.

The legislation of the U.S. Sarbanes-Oxley Act 2002, which seeks to
enhance the transparency and accountability of companies in the areas of
corporate governance and financial reporting, was signed into law by the
President of the United States on July 30, 2002. As the Company is listed on
the US market and is a SEC reporting company, it is generally bound by this new
legislation. The Company is in the process of reviewing the existing internal
systems and practices and taking other steps to comply with the relevant
provisions.




Item 5. Operating and Financial Review and Prospects

MANAGEMENTS DISCUSSION AND ANALYSIS

The following discussion of the financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and related notes thereto. The following discussion contains certain
forward-looking statements that involve risk and uncertainties. Our actual
results could differ materially from those discussed herein. Factors that could
cause or contribute to such differences include, but are not limited to, risks
and uncertainties related to the need for additional funds, the rapid growth of
the operations and our ability to operate profitably in future.

All financial data referred to in the following managements discussion
has been prepared in accordance with U.S. GAAP. Results of operations for the
years ended December 31, 2000, 2001 and 2002 refers to the audited consolidated
results of the Company for the years ended December 31, 2000, 2001 and 2002.
The results of operations for the year ended December 31, 2000 incorporate the
results of the Newly Acquired Operations since July 1, 2000, the effective date
of its acquisition.

The Company believes the following critical accounting policies may affect
its judgments and estimates used in the preparation of this consolidated
financial statements: -

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Revenue recognition.Revenue for product sale is recognized upon the title
of the good passed to the customer. Should the contract include product sale
together with the installation service, revenue is recognized after the
successful installation of the product. Revenue from rendering of service is
charged on a monthly basis, which is based on contracted professional fee
multiplied by number of staff assigned to the project. Number of professional
staff required is usually determined two months in advance according to the
progress of the project managed by our customers

Software development cost. The Company follows the suggested accounting
treatment of the Statement of Financial Accounting Standard (SFAS) No. 2,
Accounting for Research and Development Costs to account for the research and
development costs. Costs that are related to the conceptual formulation and
design of licensed programs are expensed as research and development costs in
the consolidated income statements. The Company will capitalize the direct
costs attributable to the research and development of software as assets during
the period commencing from the establishment of technical feasibility of the
licensed program and ending when the products are generally released to the
market for sale. Capitalized costs will be amortized over the lesser of the
amount computed based on the estimated revenue distribution over the products
revenue-producing lives, or the straight line method, and is applied over
periods ranging up to two years, starting from the year when the product is
released to the market. Accordingly, a total of Rmb 0.2 million was capitalized
in the year ended December 31, 2001 (the 2001 Period) and amortization of
Rmb0.1 million was charged for the year ended December 31, 2002 (the 2002
Period). There is no software development cost capitalized in the 2002 Period.

Goodwill and intangible assets.Prior to January 1, 2002, the Company
periodically reviewed and evaluated the amortization policy of goodwill and
intangible assets, with reference to the lives of techniques acquired, the
acceptance of the products by the market, the policies adopted by other
companies in the same industry and the estimated future economic benefits
generated by the products. Impairment loss will be recognized in the
consolidated income statements if the anticipated undiscounted cash flow from
these assets is less than its carrying value. In the 2001 Period, the Company
performed a review of the amortization period and had reassessed the
amortization period of goodwill and intangible asset from twenty years and five
years to, respectively, five years to three years. The revised accounting
estimates had been adopted prospectively from January 1, 2001 and the effect to
the change was to increase amortization charge of goodwill and intangible asset
for the 2001 Period by, respectively, Rmb 2.9 million and Rmb 0.7 million.
Effective January 1, 2002, upon the adoption of SFAS No. 142, Goodwill and
Other Intangible Assets, the Company has ceased the amortization of its
goodwill. Instead, it performs periodic evaluation on the carrying value of
goodwill and intangible assets, as described below.

Impairment Review.Prior to January 1, 2002, the Company periodically
evaluates the carrying value of its long-lived assets, including property,
plant and equipment, goodwill and intangible assets, for impairment. The
carrying value of a long-lived asset is considered impaired by the Company when
the anticipated undiscounted cash flow from such asset is separately
identifiable and less than its carrying value. In that event, a loss is
recognized based on the amount by which the carrying value exceeds the fair
market value of the long-lived asset. Fair market value is determined primarily
using the anticipated cash flows discounted at a rate commensurate with the
risk involved or based on independent appraisals. Effective January 1, 2002. we
do not amortize goodwill. Instead, we perform tests for impairment of goodwill
annually or more frequently if events or circumstances indicate it might be
impaired. Such tests include comparing the fair value of a reporting unit with
its carrying amount, including goodwill. Impairment assessments are performed
using discounted cash flow estimates. An estimated discount rate is applied
considering the Companys cost of capital rate and specific country and
industry risk factors. Based on our impairment assessment under SFAS No. 142,
it prompted a re-assessment of all key assumptions underlying our goodwill
valuation judgments. As result of our review, we determined that goodwill
impairment charges of Rmb 7.2 million was required on the goodwill recorded in
our Beijing segment of the Company. The amount of the charge was equal to the
difference between the carrying

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amount of goodwill and its implied fair value, which is based on the fair
value of the net assets in respect of reporting units. Management estimates
the future cash flows expected to derive from the use and, if applicable, the
terminal value of the assets. The key variables that management estimate
include, among other factors, growth rate and profitability margin. Although
the assumptions used are consistent with our internal planning, significant
management judgment is involved in estimating these variables, which include
inherent uncertainties. If such assets are considered impaired, they are
written down to fair value as appropriate.

The assumptions and conditions for goodwill and other intangible assets
reflect managements best assumptions and estimates. However, these items
involve inherent uncertainties, as described above, that may or may not be
controllable by management. Economic and political conditions, represent
uncertainties that are not controllable by management. As a result, if other
assumptions and conditions had been used in the current period, the carrying
amount of goodwill and other intangible assets could have been materially
different. Furthermore, if management uses different assumptions or if
different conditions occur in future periods, future operating results could be
materially impacted.

Recent accounting pronouncements

In April 2002, the FASB issued SFAS No. 145, Rescission of FAS Nos. 4,
44, and 64, Amendment of FAS 13, and Technical Corrections as of April 2002.
This Statement rescinds FASB Statement No. 4, Reporting Gains and Losses from
Extinguishment of Debt, and an amendment of that Statement, FASB Statement No.
64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. This
Statement also rescinds FASB Statement No. 44, Accounting for Intangible
Assets of Motor Carriers. This Statement amends FASB Statement No. 13,
Accounting for Leases, to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. The provisions of this Statement related to the
rescission of Statement 4 shall be applied in fiscal years beginning after May
15, 2002 with early application encouraged.

In July 2002, the Financial Accounting Standards Board (FASB) issued
SFAS No. 146 Accounting for Costs Associated with Exit or Disposal
Activities. The standard requires companies to recognize costs associated with
exit or disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. This standard is effective for exit or
disposal activities that are initiated after December 31, 2002. The adoption of
SFAS No. 146 does not have any significant impact on the consolidated financial
statements.

In December 2002, the FASB issued SFAS No. 148 Accounting for Stock-Based
Compensation-Transition and disclosure-an amendment of FAS 123. SFAS No. 148
amends SFAS No. 123 to provide alternative methods of transition for an entity
that voluntarily changes to the fair value based method of accounting for
stock-based employee compensation. It also amends the disclosure provisions of
SFAS No. 123 to require prominent disclosure about the effects on reported net
income of an entitys accounting policy decisions with respect to stock-based
employee compensation. Finally, SFAS No. 148 amends APB Opinion No. 28 Interim
Financial Reporting to require disclosure about those effects in interim
financial information. SFAS No. 148 is effective for financial statements for
fiscal years ending after and for interim period beginning December 15, 2002.
The adoption of SFAS No. 148 will not significantly impact the Groups current
disclosures.

In January 2003, the FASB issued FASB Interpretation No. 46,
Consolidation of Variable Interest Entities  An Interpretation of ARB No. 51
(FIN 46). FIN 46 addresses consolidation by

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business enterprises of variable interest entities. FIN 46 provides guidance on
the identification of entities for which control is achieved through means
other than through voting rights (variable interest enterprises or VIEs)
and to determine when and which business enterprise should consolidate VIE (the
primary beneficiary). This new model for consolidation applies to an entity
in which either (i) the equity investors (if any) do not have a controlling
financial interest or (ii) the equity investment at risk is insufficient to
finance that entitys activities without receiving additional subordinated
financial support from other parties. In addition, FIN 46 requires that both
the primary beneficiary and all other enterprises with a significant variable
interest in a VIE make additional disclosures. The provisions of the statement
apply immediately to variable interest entities created beginning after January
31, 2003, and to variable interest entities in which an enterprise obtains an
interest after that date, FIN 46 applies in the first fiscal year beginning
after June 15, 2003, to variable interest entities in which an enterprise holds
a variable interest that it acquired before February 1, 2003. The directors do
not expect a material impact on the financial statements upon adoption of the
above pronouncements.



|A. |  | Results of Operations
|-- |  | ---------------------

The following table presents selected statement of operations data
expressed as a percentage of net sales for the years ended December 31, 2000,
2001 and 2002.

|                                            |  |      |       |      |  |      |        |    |  |  |        |   
|------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ------ | -- |  |  | ------ | --
|                                            |  | 2000 |       | 2001 |  | 2002
|                                            |  |      |       |      |  |     
|Net sales                                   |  |      | 100.0 | %    |  |      | 100.0  | %  |  |  | 100.0  | % 
|Cost of goods sold                          |  |      | 80.2  | %    |  |      | 71.2   | %  |  |  | 58.3   | % 
|Gross profit                                |  |      | 19.8  | %    |  |      | 28.8   | %  |  |  | 41.7   | % 
|General and administrative expenses         |  |      | 32.7  | %    |  |      | 211.7  | %  |  |  | 144.6  | % 
|Impairment of goodwill                      |  |      |      |      |  |      |       |    |  |  | 87.5   | % 
|Bad debts expense                           |  |      |      |      |  |      |       |    |  |  | 50.0   | % 
|Non-operating income                        |  |      | 21.4  | %    |  |      | 35.0   | %  |  |  | 29.7   | % 
|Net income/(loss) before minority interests |  |      | 8.5   | %    |  |      | (147.9 | %) |  |  | (212.4 | %)
|Net income/(loss) for the year              |  |      | 9.2   | %    |  |      | (125.1 | %) |  |  | (186.5 | %)

Year ended December 31, 2002 compared to year ended December 31, 2001

Net sales.Net sales increased by Rmb 1.0 million, or 13.4%, from Rmb 7.3
million of 2001 Period, to Rmb 8.3 million of the 2002 Period. Analysed by
activities, net product sales, which were mainly represented by our
self-developed software, amounted to Rmb 5.7 million in the 2002 Period, which
was increased by Rmb 5.0 million, or 700%, from Rmb 0.7 million of the 2001
Period. Sales of services rendering represented principally professional fee
charged to our customers, which is based on

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the actual number of professional staffs assigned to the projects. Net sales of
which for the 2002 Period amounted to Rmb 2.6 million, which was decreased by
Rmb 4.0 million, or 60.2%, from Rmb 6.6 million of the 2001 Period. The
decrease was mainly due to the termination of service contract for one customer
which closed its of business.

We expect the product sales will grow along with the increasing importance
attached to and awareness of network security by government agencies,
universities, banks and securities firms in China due to the continuous efforts
of the Chinese government in network security in recent years. This expectation
is also supported by users preference in choosing local products due to their
data sensitivity.

For service rendering sales, moderate growth is expected in the coming
year even though most of the customers had terminated their contracts in the
2002 Period because of more sales made to existing customers. The existing sole
customer is an global enterprise who require substantial and extensive
application of internet network in their day-to-day operations. Due to good
relationships maintained through years of co-operation, we expect this contract
can be maintained in the foreseeable future although the contract is renewed
annually. The overall loss in the 2002 Period was mainly caused by the
operating loss incurred before May 2002 due to higher level of fixed costs,
such as the rental expenses and utility expenses, of our old offices
established in Zhuhai and an one time write off of leasehold improvements and
equipments was made before we move our offices to the self-established data
center of our customer in May 2002. Since our the opening of our new office in
May 2002, we had saved the above fixed expenses and due to increase in number
of professional staff assigned, the operation regained profit. The operation
currently is able to generate stable sales income, cost of sales and cash
inflow.

Cost of sales. Cost of sales of product sales represented the direct
material costs of our self-developed software sold to customers. Cost of sales
of services rendering represented the direct costs such as staff costs, rental
expenses, depreciation of the equipments and other related charges. Cost of
sales of product sales increased by Rmb 2.5 million, or 487.8%, from Rmb 0.5
million of the 2001 Period to Rmb 3.0 million of the 2002 Period. Cost of sales
of services rendering decreased by Rmb 2.9 million, or 60.8%, from Rmb 4.7
million of the 2001 Period to Rmb 1.8 million of the 2002 Period.

Gross profit.Gross profit of product sales was increased by Rmb 2.5
million, or 12.4 times, from Rmb 0.2 million of the 2001 Period to Rmb 3.0
million of the 2002 Period. As a percentage of sales, gross profit of product
sales increased by 19.1%, from 28.1% of the 2001 Period to 47.2% of the 2002
Period. The increase was due primarily to the increasing sales of
self-developed products which had higher profit margin caused by better cost
control and close monitoring of development costs incurred in previous years.
Gross profit of services rendering decreased by Rmb 1.1 million, or 58.7%, from
profit of Rmb 1.9 million of the 2001 Period to Rmb 0.8 million of the 2002
Period. However, as a percentage of sales, gross profit of services rendering
remained stable, and increased slightly by 1.1%, from 28.8% of the 2001 Period
to 29.9% of the 2002 Period.

General and administrative expenses.General and administrative expenses
decreased by Rmb 3.5 million, or 22.5%, from Rmb 15.4 million of the 2001
Period to Rmb 12.0 million of the 2002 Period. The decrease was due primarily
to the decrease of Rmb 3.8 million in goodwill amortization as a result of the
Companys change in accounting policy from a regular annual amortization
according to its useful life to annual assessment of impairment. The impairment
loss on goodwill of Rmb 7.2 million for the 2002 Period was assessed based on
the requirements of SFAS No.142, of which the Group adopted during the year.
The impairment loss on goodwill for the businesses was due to deteriorating
economic condition in the PRC and the competitive environment for the groups
businesses.

Non-operating income.Non-operating income decreased by Rmb 0.1 million,
or 3.8%, from Rmb 2.6 million of the 2001 Period to Rmb 2.5 million of the 2002
Period. The decrease was due primarily to the combined effect of the following
factors: -

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| | (1) |  | reduction in bank interest income by Rmb 1.1 million, from
Rmb 1.3 million of the 2001 Period to Rmb 0.2 million of the 2002
Period, as a result of the continuous decrease in bank deposit
interest rate in Hong Kong during the 2002 Period;                                               
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | reduction in realized gain on trading securities by Rmb 0.9
million, from Rmb 1.2 million of the 2001 Period to Rmb 0.3 million
of the 2002 Period because of lesser security trading in new listing
subscription by the Company in view of poorer market performance in
the 2002 Period; and
|
| | (3) |  | increase in gain of Rmb 1.7 million arising from adjustment
on consideration paid for the acquisition of the Newly Acquired
Operations.                                                                                                                                                      

Net loss.Net loss for the 2002 Period was Rmb 15.4 million, which
increased by Rmb 6.3 million, or 69.0%, from Rmb 9.1 million in the 2001
Period, due primarily to the reasons as described above.

Year ended December 31, 2001 compared to year ended December 31, 2000

Net sales.Net sales decreased by Rmb 8.4 million, or 53.5%, from Rmb 15.7
million of the year ended December 31, 2000 (2000 Period), to Rmb 7.3 million
of the 2001 Period. Analysed by activities, net sales of products, which was
mainly represented by our self-developed software, amounted to Rmb 0.7 million
in the 2001 Period, which decreased by Rmb 9.6 million, or 93.2%, from Rmb 10.3
million of the 2000 Period, as a result of our termination of the system
integration business and the agency business in 2001 due to the keen
competitions and unacceptable low profit margins of these markets. Sales of
services rendering represented professional fee charged to our customers are
based on the actual number of professional staffs assigned to the projects of
which net sales for the 2001 Period amounted to Rmb 6.6 million, increasing by
Rmb 1.2 million, or 22.7%, from Rmb 5.4 million of the 2000 Period to Rmb 6.6
million of the 2001 Period, as a result of the increase in the number of
professional staffs hired by our customers. The termination of the system
integration and agency businesses represented our shift to the market of
self-developed security software. Security software market is still in an
infant stage in China. The Chinese government stressed has network security in
China. Its acceptance and awareness in the government institutions and
universities has been growing. Among the products in the market, users prefer
the locally developed products. This has created good market potentials for
our future growth. Also due to the fact that existing customers are usually
sponsored by the government, they are not price sensitive and thus higher
profit margin can be obtained from the services provided if satisfactory
solutions are provided.

Currently, Kong De, a related company incorporated in Macau, was the sole
agent of all service contracts since the acquisition of the Newly Acquired
Operations in the 2000 Period. All contracts expired in 2002 and, as agreed by
the customers, will be renewed in name of the BHLNet or BBHL

Cost of sales. Cost of product sales represented the direct material costs
of our self-developed software sold to customers. Cost of sales of services
represented the direct costs such as staff costs, rental expenses, depreciation
of the equipment and other related charges. Cost of product sales decreased by
Rmb 9.2 million, or 94.8%, from Rmb 9.7 million of the 2000 Period to Rmb 0.5
million of the 2001 Period. The decrease was primarily due to the termination
of the system integration business. Cost of sales of services increased by
Rmb1.8 million, or 63.0%, from Rmb 2.9 million of the 2000 Period to Rmb 4.7
million of the 2001 Period. The increase was due primarily to the increase in
number of professional staff assigned to the projects and the increase in staff
salaries and benefits.

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Gross profit.Gross profit of product sales decreased by Rmb 0.4 million,
or 67.9%, from Rmb 0.6 million of the 2000 Period to Rmb 0.2 million of the
2001 Period. As a percentage of sales, gross profit of product sales increased
by 22%, from 6.0% of the 2000 Period to 28.0% of the 2001 Period. The increase
was due primarily to higher margin generated from the sales of self-developed
products. Gross profit of services decreased by Rmb 591 million, or 23.7%, from
Rmb 2.4 million of the 2000 Period to Rmb 1.9 million of the 2001 Period. As a
percentage of sales, gross profit of services decreased by 17.6% from 46.4% of
the 2000 Period to 28.8% of the 2001 Period. The decrease was due primarily to
increased staff salaries and benefits.

Selling, general and administrative expenses.Selling, general and
administrative expenses increased by Rmb 10.3 million, or 200.6%, from Rmb 5.1
million of the 2000 Period to Rmb 15.4 million of the 2001 Period. The increase
was due primarily to: -



| |  |  | a revision to the amortization period of the intangible
assets and goodwill from 5 years and 20 years to 3 years and 5
years, respectively, after managements review on the product life
with reference to the techniques acquired and policies adopted by
other companies in the same industry. The effect of the changes were
accounted for prospectively in the 2001 Period. Accordingly, the
full year amortization of intangible assets and goodwill incurred in
the 2001 Period amounted to, respectively, Rmb 1.5 million and Rmb
3.8 million, which increased by, respectively, Rmb 1.3 million and
Rmb 3.7 million, compared to a three months effect of, respectively,
Rmb 0.2 million and Rmb 0.1 million of the 2000 Period; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | all expenses of the 2000 Period were incurred after September
1, 2000, the date of the acquisitions completed, while the expenses
of the 2001 Period reflected a full year result of the expenses
incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

Non-operating income.Non-operating income decreased by Rmb 0.8 million,
or 24.3%, from Rmb 3.4 million of the 2000 Period to Rmb 2.6 million of the
2001 Period. The decrease was due primarily to the significant decrease in the
bank deposit interest rate in Hong Kong, which was directly caused by the
global economic recession in the 2001 Period, especially after the 911
disaster.

Net loss.Net loss for the 2001 Period was Rmb 9.1 million, which
increased by Rmb 10.5 million, or 735%, from a profit of Rmb 1.4 million in the
2000 Period, due primarily to the reasons as described above.

Taxation

No Hong Kong taxation is charged for Jing Tai as there is no estimated
assessable profit for the 2000, 2001 and 2002 Periods. The Company was
incorporated under the laws of the British Virgin Islands (BVI), and under
current BVI law, was not subject to tax on income or capital gains as the
Company did not carry out business in BVI. For BBHL, pursuant to the
applicable PRC income tax laws, they were fully exempt from the PRC state
income tax for two years, starting from the first profit-making year followed
by a 50% reduction over the ensuing three years (tax holidays). BBHL incurred
loss for both 2001 and 2002 Periods, therefore, the tax holidays were not
started.



|B. |  | Liquidity and capital resources
|-- |  | -------------------------------

The Company is neither engaged in any kind of off-balance sheet
arrangements and other relationships with unconsolidated entities or other
persons that are reasonably likely to affect materially liquidity and the
availability of or requirements for capital resources, nor any trading
activities that include non-exchange traded contracts accounted for at fair
value. Except for the operating lease

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commitment, as fully disclosed in the financial statements, we are not
involved in any kind of other commitments, both expressed or contingent, which
may cause us to make future payments under contracts.

The Companys cash and cash equivalents on hand as at December 31, 2002
was Rmb 12.2 million, which decreased by Rmb 41.8 million, or 77.4%, from Rmb
54.0 million at the beginning of the year.

The net cash outflow of the operating activities of the 2002 Period was
Rmb 7.6 million, which increased by Rmb 11.5 million, from an inflow of Rmb
3.8 million of the 2001 Period. The increase in outflow was mainly the combined
results of the following changes in working capital during the year: -



| | (1) |  | Increase in year end accounts receivable balance caused a
decrease in cash inflow of Rmb2.9 million as compared to last year.                                                         
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | Increase in year end inventory balance caused an increase in
cash outflow of Rmb1.3 million as compared to last year                                                                  
|
| | (3) |  | Movements in amounts due from related parties and other
assets has resulted in a smaller net cash inflow of Rmb1.6 million
as compared to a net cash inflow of Rmb7.9 million in 2001.

The net cash outflow of the investing activities of the 2002 Period was
Rmb 34.1 million, which increased by Rmb 33.0 million, or 2868.5%, from a cash
outflow of Rmb 1.1 million of the 2001 Period. The increase was mainly
represented by: -



| | (1) |  | an outflow of Rmb 18.3 million for settling the acquisition
consideration due;                                               
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | an outflow of Rmb 7.7 million being funds advanced to a
related company for security investment on behalf of the Company;
and
|
| | (3) |  | an outflow of Rmb 9.1 million for available-for-sale
securities purchased in the 2002 Period.                                

At December 31, 2002, the Company, after deducting the total liabilities,
had cash resources of Rmb 4.4 million, which was decreased by Rmb 21.7 million,
or 83.1%, from Rmb 26.1 million of the 2001 Period. The Company believes that
even lower level of cash balance was retained, the liquidity of the Company
remains strong. Apart from the net cash balance of Rmb 4.4 million, the Company
has other sources of cash inflow as follows: -



| | (1) |  | Cash balance of Rmb 13.5 million kept in the security trust
account;                  
| | --- |  | --------------------------------------------------------------------------------------
|
| | (2) |  | Cash balance of Rmb 8.5 million deposited into related
companies; and                 
|
| | (3) |  | Cash of Rmb 7.6 million from disposal of available-for-sale
securities when necessary.

The cash balances retained in the security trust account and related
companies and fund kept in available-for-sale securities can be, respectively,
withdrawn and realized without any restriction. All the above sources of cash
inflow are under the entire control of the Company and are not subject to any
pledge, mortgage and encumbrance. Following the expected improvement in
business in 2003, we believe the improvement in operating cash inflow can help
ceasing the cash burning situation of the Company. We have succeeded in the
turnaround of the Zhuhai operation in 2003 by entering into a new contract with
our customer and is trying to minimize the operating loss of the Beijing
operation.

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The Company anticipates, based on managements internal forecasts and
assumptions relating to its operations, that its existing cash and funds
retained will be sufficient to meet the Companys working capital and capital
expenditure requirements for the foreseeable future. In the event that the
Companys plans change, its assumption change or prove inaccurate, or if other
capital resources and projected cash flow otherwise prove to be insufficient to
fund operations (due to unanticipated expenses, technical problems,
difficulties or otherwise), the Company may have to seek additional financing
sooner than currently anticipated. The Company has no current arrangements with
respect to sources of additional financing and there can be no assurance that
the Company would be able to obtain additional financing on terms acceptable to
the Company.



|C. |  | Research and development, patents and licenses, etc.
|-- |  | ----------------------------------------------------

The Company acquired, through BBHL, a technological platform for the
development of internet security devices from ICT of the CAS at a cash
consideration of Rmb 4 million in 2000.




Item 6. Directors, Senior Management and Employees



|A. |  | Directors and senior management.
|-- |  | --------------------------------

The directors and executive officers of the Company are as follows:

|              |  |     |    |          |  |                                      
|------------- |  | --- | -- | -------- |  | -------------------------------------
|Name          |  | Age |    | Position
|              |  |     |    |         
|Li Xiao Hong  |  |     | 50 |          |  | Chairman of the Board and President  
|Jiang Xin Hao |  |     | 38 |          |  | Director and Chief Executive Officer 
|Li Guo Jie    |  |     | 60 |          |  | Director                             
|Jin De Zhen   |  |     | 58 |          |  | Director                             
|Yu Xiang Dong |  |     | 37 |          |  | Director                             
|Benjamin Wah  |  |     | 52 |          |  | Director                             
|Michael Siu   |  |     | 34 |          |  | Secretary and Chief Financial Officer

Li Xiao Hong, as nominee of Beijing Holdings, was appointed the Chairman
of the Board and President of the Company and Jing Tai in March 2000. Mr. Li
also served as the Deputy General Manager of Beijing Holdings. Mr. Li
graduated form the Chinese University of Industry with a master degree. From
1992 to 2000, he served as the Vice-Chairman of the Beijing First Light
Industry Corporation. Prior thereto, he served as the general manager of the
Beijing Glasses Corporation. Mr. Li has over fifteen years experience in
enterprise management.

Jiang Xinhao, as a nominee of Beijing Holdings, is the Chief Executive
Officer and a Director of the Company and the General Manager of Jing Tai since
July 1996. Mr. Jiang graduated from the Fudan University with a master degree.
From 1995 to 1996, he served as a manager of the Beijing Holdings and Vice
President of Jing Tai. From 1992 to 1995, he served as the Manager of the
securities department of Dong Fong Finance Company Limited, which was the first
finance company incorporated by large enterprise in the PRC. He also served as
the General Manager of investment department of Heng Tong

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Group, the first public listed company of the China Staq Exchange. Prior
thereto, Mr. Jiang was a tutor of Beijing University. Mr. Jiang has more than
ten years experience in investment and corporate management

Li Guo Jie was appointed a Director of the Company since September 2000.
Mr. Li is the Dean of ICT of the CAS since 1999. From 1987 to 1999, he worked
in the CAS as senior researcher and was responsible for advanced and
intelligent computing technology projects of China. Mr. Li regularly releases
research reports and valuable articles to international journals and currently
is the Chief Editor of the Journal of Computer Science and Technology. Mr. Li
obtained a bachelors degree from the Faculty of Physics in the Beijing
University in 1968. He later obtained his masters degree at the University of
Science and Technology in Beijing in 1981 and a Doctorate Degree at Purdue
University in 1985.

Jin De Zhen was appointed a Director of the Company since September 2000.
Ms. Jin is the General Manager of the Beijing Enterprise Development
Corporation (BEDC) since 1997. In 1985, she joined the Beijing Municipal
Bureau of Supervision as a supervision officer and was promoted as a senior
officer in 1987. Since 1997, she was appointed the Committee Member of the
Beijing Municipal Peoples Political Consultative Conference. Ms. Jin was
engaged as an Assistant Professor at Beijing Institute of Economics since 1974
and was promoted as the Vice Dean in 1984.

Yu Xiang Dong, was appointed an Independent Director of the Company since
June 2000. Mr. Yu graduated from the Fudan University with a masters degree.
In September 1997, he was appointed the Vice-President of the China
Communications Securities Co. Ltd. and was appointed in April 2000 the
President of the 21st High-tech Investment Co. Ltd., a fund company
specializing in investments in the high-tech industry. In 1995, he was
appointed the General Manager of the Shanghai Branch of the CMS. He served
from 1991 to 1994, as an assistant to the General Manager and the Manager of
the IPO Division of the China Merchant Securities Ltd. (CMS), the third
largest securities company in China, with a registered capital of Rmb 3.2
billion. Mr. Yu has over ten years experience in investing banking.

Profession Benjamin W. Wah was appointed an Independent Director of the
Company since June 2000. Mr. Wah graduated from the University of California,
Berkley with a doctorate degree. Mr. Wah was appointed the Vice President for
publications of the IEEE Computer Society in 1998 and he became its President
in 2000. In 1990, Mr. Wah was appointed the professor of the Department of ECE
of the University of Illinois in Urbana and later became the R.T. Chien
Professor of Engineering in the same university. From 1988 to 1989, Mr. Wah
served as the Program Director of the National Science Foundation in Washington
DC. He served from 1979 to 1988 as the associate professor in the Purdue
University of the United States of America. Mr. Wahs research has focused on
the development and improvement of non-linear optimization algorithms, parallel
algorithms, design of computer network protocols and automated design of
algorithms using high-speed computers. Mr. Wah is also a keen contributor of
articles published in well-recognized international journals and magazines.

Michael Siu was appointed the Chief Financial Officer and Secretary of the
Company since September 1997 and is responsible for the financial planning of
the Company and our joint ventures in China. Mr. Siu graduated from the City
University of Hong Kong with a bachelors degree. He is a fellow member of the
Association of Chartered Certified Accountants and an associate member of the
Hong Kong Society of Accountants. Prior to his service with the Company, Mr.
Siu served in international accounting firms and has over six years experience
in business assurance and advisory services.



|B. |  | Compensation.
|-- |  | -------------

The Company did not paid any compensation to directors in the 2002 Period.

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The Company has granted stock options to certain officers and directors as
described in Item 6E. There was no any new grants of option in the 2002
Period.



|C. |  | Board practices.
|-- |  | ----------------

The directors listed above were elected to serve as directors at the
annual meeting of the shareholders held on March 15, 2002 for the ensuing year
until the next annual meeting of the shareholders. There are no employment
contracts signed with the directors.

The Companys By-laws did not require the establishment of an audit
committee. The Company has chosen not to separately designate an audit
committee since 2001. Alternatively, the entire board of directors is acting as
the Companys audit committee.



|D. |  | Employees.
|-- |  | ----------

As at December 31, 2002, total staff of the Company consisted of 59
employees, compared to 80 staff as at December 31, 2001. The decrease was due
to the decrease in number of staff maintained for services rendering business
caused by termination of contracts by customers in the 2002 Period.

An analysis of the employees by function and by education background is as
follows: -

|                                 |  |  |       |  |  |                                  |  |  |      | 
|-------------------------------- |  |  | ----- |  |  | -------------------------------- |  |  | ---- | 
|                                 |  |  |       |  |  | Analysed by education            |  |  |      | 
|Analysed by function             |  |  |       |  |  | background                       |  |  |      | 
|                                 |  |  |       |  |  |                                  |  |  |      | 
|Corporate administration
Finance |  |  | 6
4   |  |  | Secondary school
Bachelor degree |  |  | 2
52 | 
|Technology
Sales and services    |  |  | 39
10 |  |  | Master degree
Doctorate degree   |  |  | 5
  | 
|                                 |  |  |       |  |  |                                  |  |  |      | 
|                                 |  |  | 59    |  |  |                                  |  |  | 59   | 

There is no collective bargaining agreement in China. We have never
experienced any material labour disruption and are unaware of any current
efforts or plans to organize employees. The Company believes we have good
relationships with our employees.



|E. |  | Share ownership.
|-- |  | ----------------

The following table sets out the names and titles of the executive
officers and directors of the Company and their respective share ownership in
the Company as at June 23, 2003:

Common Shares

|             |  |                                     |  |                       |   |  
|------------ |  | ----------------------------------- |  | --------------------- | - | -
|             |  |                                     |  | As a % of Outstanding
|Name         |  | Title/Office                        |  | Shares               
|             |  |                                     |  |                      
|Li Xiao Hong |  | Chairman of the Board and
President |  |                       | 0 | %

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|              |  |                                       |  |                       |   |  
|------------- |  | ------------------------------------- |  | --------------------- | - | -
|              |  |                                       |  | As a % of Outstanding
|Name          |  | Title/Office                          |  | Shares               
|              |  |                                       |  |                      
|Jiang Xin Hao |  | Chief Executive Officer
and Director  |  |                       | 0 | %
|Yu Xiang Dong |  | Director                              |  |                       | 0 | %
|Benjamin Wah  |  | Director                              |  |                       | 0 | %
|Li Guo Jie    |  | Director                              |  |                       | 0 | %
|Jin De Zhen   |  | Director                              |  |                       | 0 | %
|Michael Siu   |  | Chief Financial Officer
and Secretary |  |                       | 0 | %

The names and titles of the executive officers and directors of the
Company to whom options have been granted by the Company which are outstanding
as of June 23, 2003 and the number of Common Shares subject to such options are
set forth in the following table:

Common Shares

|              |  |                                       |  |              |         |                     |  |             |      |  |  |                  
|------------- |  | ------------------------------------- |  | ------------ | ------- | ------------------- |  | ----------- | ---- |  |  | -----------------
|              |  |                                       |  | Number       |         |                     |  |             |      | 
|Name          |  | Title/Office                          |  | of Shares(1) |         | Exercise Price(US$) |  | Expiry Date
|              |  |                                       |  |              |         |                     |  |            
|Li Xiao Hong  |  | Chairman, President
and Director      |  |              | 50,000  |                     |  |             | 1.15 |  |  | December 28, 2009
|Jiang Xin Hao |  | Chief Executive
Officer and
Director  |  |              | 50,000  |                     |  |             | 1.15 |  |  | December 28, 2009
|Michael Siu   |  | Chief Financial
Officer and
Secretary |  |              | 40,000  |                     |  |             | 1.15 |  |  | December 28, 2009
|              |  |                                       |  |              |         |                     |  |             |      |  |  |                  
|              |  |                                       |  |              | 140,000 |                     |  |             |      |  |  |                  
|              |  |                                       |  |              |         |                     |  |             |      |  |  |                  



---

|(1) |  | All options were granted pursuant to a board resolution
passed on December 28, 1999.
|--- |  | ------------------------------------------------------------------------------------

Executive Officers and Directors

1996 Stock Option Plan

Pursuant to a members resolution passed on October 10, 1996, the 1996
Stock Option Plan was approved, authorizing the Board of Directors to grant
option to employees and directors of the Company up to a maximum of 200,000
shares. The 1996 Stock Option Plan is to be administered by the Board of
Directors or a committee of the Board of Directors, which determines the terms
of the options exercised, including the exercise price, the number of shares
subject to the option and the terms and conditions of exercise. No option
granted under the 1996 Stock Option Plan is transferable by the optionee other
than by will or the laws of descent and distribution and each option is
exercisable during the lifetime of the optionee only by such optionee.

The exercise price of all stock options under the 1996 Stock Option Plan
must be at least equal to the fair market value of such shares on the date of
grant. With respect to any participant who owns stock possessing more than 10%
of the voting rights of the Companys outstanding capital stock, the exercise
price of any Incentive Stock Option must be not less than 110% of the fair
market value on the date of grant. The term of each option granted pursuant to
the Stock Option Plan may be established by the Board

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of Directors, or a committee of the board in its sole discretion;
provided, however, that the maximum term of each Incentive Stock Option granted
pursuant to the 1996 Stock Option Plan is ten years. With respect to any
Incentive Stock Option granted to a participant who owns stock possessing more
than 10% of the total combined voting power of all classes of the Companys
outstanding capital sock, the maximum term is five years. Options shall become
exercisable at such times and in such installments as the Board of Directors,
or a committee of the Board of Directors, shall provide in the terms of each
individual option.

Please refer to the above for details of the options granted under the
1996 Stock Option plan. No options were granted in the 2000 Period, 2001 Period
and 2002 Period in respect of the 1996 Stock Options Plan.

2000 Stock Option Plan

Pursuant to another members resolution passed on September 20, 2000 at
the 2000 Members Meeting, the 2000 Stock Option Plan was approved. The details
of the option plan are as follows: -

Types of Grants and Eligibility

The 2000 Stock Option Plan is designed to provide an incentive to key
employees (including officers and directors who are key employees) of the
Company and to consultants and directors who are not employees of the Company
and its present and future subsidiaries and to offer an additional inducement
in obtaining the services of such individuals.

Shares Subject to the 2000 Stock Option Plan

The aggregate number of shares of Common Stock for which options may be
granted under the 2000 Stock Option Plan may not exceed 400,000; provided,
however, that the maximum number of shares of Common Stock with respect to
which options may be granted to any individual in any fiscal year may not
exceed 100,000. Such shares of Common Stock may consist either in whole or in
part of authorized but unissued shares of Common Stock or shares of Common
Stock held in the treasury of the Company. Shares of Common Stock subject to
an option which for any reason expires, is canceled or is terminated
unexercised or which ceases for any reason to be exercisable may again become
available for the granting of options under the 2000 Stock Option Plan.

Administration of the 2000 Stock Option Plan

Except in the case of non-employee director options, in which case the
Stock Option Plan is administered by the Board of Directors, the 2000 Stock
Option Plan is administered by a committee of the Board of Directors (the
Committee) consisting of not less than two directors, each of whom shall be a
non-employee director within the meaning of rules and regulations promulgated
by the Securities and Exchange Commission.

Subject to the express provisions of the 2000 Stock Option Plan, the
Committee has the authority, in its sole discretion, with respect to options,
to determine, among other things: the key employees, consultants and advisors
who are to receive options; the times when they may receive options; the number
of shares of Common Stock to be subject to each option; the term of each
option; the date each option is to become exercisable; whether an option is to
be exercisable in whole, in part or in installments, and, if in installments,
the number of shares of Common Stock to be subject to each installment; whether
the installments are to be cumulative; the date each installment is to become
exercisable and the term of each installment; whether to accelerate the date of
exercise of any installment; whether shares of Common Stock may be issued on
exercise of an option as partly paid, and, if so, the dates when future
installments of the exercise price are to become due and the amounts of such
installments; the exercise price of each

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option; the form of payment of the exercise price; whether to restrict the
sale or other disposition of the shares of Common Stock acquired upon the
exercise of an option and to waive any such restriction; and whether to subject
the exercise of all or any portion of an option to the fulfillment of
contingencies as specified in an applicable stock option contract. With
respect to all options, the Committee has such discretion to determine the
amount, if any, necessary to satisfy the Companys obligation to withhold
taxes; with the consent of the optionee, to cancel or modify an option,
provided such option as modified would be permitted to be granted on such date
under the terms of the 2000 Stock Option Plan; to prescribe, amend and rescind
rules and regulations relating to the 2000 Stock Option Plan; and to make all
other determinations necessary or advisable for administering the 2000 Stock
Option Plan. The Board of Directors has the authority described above with
respect to the granting of non-employee director options.

Exercise Price

The exercise price of the shares of Common Stock under each option is to
be determined by the Committee. The exercise price of the shares of Common
Stock under each non-employee director option is to be equal to the fair market
value of the Common Stock subject to such option on the date of grant.

Term

The term of each option granted pursuant to the 2000 Stock Option Plan is
established by the Committee, in its sole discretion, at or before the time
such option is granted. Subject to early termination, each non-employee
director option is to be exercisable on a term of ten years from the date of
grant.

Exercise

An option (or any part or installment thereof), to the extent then
exercisable, is to be exercised by giving written notice to the Company at its
principal office. Payment in full of the aggregate exercise price may be made
(a) in cash or by certified check, or (b) if the applicable stock option
contract at the time of grant so permits, with the authorization of the
Committee, with previously acquired shares of Common Stock having an aggregate
fair market value, on the date of exercise, equal to the aggregate exercise
price of all options being exercised, or (c) with any combination of cash,
certified check or shares of Common Stock.

The Committee may, in its discretion, permit payment of the exercise price
of an option by delivery by the optionee of a properly executed exercise
notice, together with a copy of his irrevocable instructions to a broker
acceptable to the Committee to deliver promptly to the Company the amount of
sale or loan proceeds sufficient to pay such exercise price.

Termination of Relationship

Any employee holder of an option whose employment or relationship with the
Company (and its parent and subsidiaries) has terminated for any reason other
than his death or disability may exercise such option, to the extent
exercisable on the date of such termination, at any time within three months
after the date of termination, but not thereafter and in no event after the
date the option would otherwise have expired; provided, however, that if his
employment is terminated either (a) for cause, or (b) without the consent of
the Company, said option terminates immediately. Options granted to employees
under the 2000 Stock Option Plan are not affected by any change in the status
of the holder so long as he or she continues to be a full-time employee of the
Company, its parent or any of its subsidiaries (regardless of having been
transferred from one corporation to another).

Death or Disability

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If an optionee dies (a) while he is an employee or consultant to, the
Company, its parent or any of its subsidiaries, (b) within three months after
the termination of such relationship (unless such termination was for cause or
without the consent of the Company), or (c) within one year following the
termination of such relationship by reason of disability, an option may be
exercised, to the extent exercisable on the date of death, by an executor,
administrator or other person at the time entitled by law to the rights of the
optionee under such option, at any time within one year after death, but not
thereafter and in no event after the date the option would otherwise have
expired.

Any optionee whose relationship has terminated by reason of disability may
exercise his option, to the extent exercisable upon the effective date of such
termination, at any time within one year after such date, but not thereafter
and in no event after the date the option would otherwise have expired.

Adjustments Upon Changes in Common Stock

Notwithstanding any other provisions of the 2000 Stock Option Plan, in the
event of any change in the outstanding Common Stock by reason of a share
dividend, recapitalization, merger or consolidation in which the Company is the
surviving corporation, split-up, combination or exchange of shares or the like,
the aggregate number and kind of shares subject to the 2000 Stock Option Plan,
the aggregate number and kind of shares subject to each outstanding option and
the exercise price thereof will be appropriately adjusted by the Board of
Directors, whose determination will be conclusive.

In the event of (a) the liquidation or dissolution of the Company or (b) a
merger or consolidation in which the Company is not the surviving corporation,
any outstanding options will terminate, unless other provision is made therefor
in the transaction.

Amendments and Termination of the 2000 Stock Option Plan

No option may be granted under the 2000 Stock Option Plan after October
2007. The Board of Directors, without further approval of the Companys
stockholders, may at any time suspend or terminate the 2000 Stock Option Plan,
in whole or in part, or amend it from time to time in such respects as it may
deem advisable, including, without limitation, to comply with the provisions of
certain rules and regulations promulgated by the Securities and Exchange
Commission, among other things; provided, however, that no amendment may be
effective without the requisite prior or subsequent shareholder approval which
would (a) except as required for anti-dilution adjustments, increase the
maximum number of shares of Common Stock for which options may be granted under
the 2000 Stock Option Plan, (b) materially increase the benefits to
participants under the 2000 Stock Option Plan, or (c) change the eligibility
requirements for individuals entitled to receive options under the 2000 Stock
Option Plan.

Non-Transferability of Options

No option granted under the 2000 Stock Option Plan may be transferable
otherwise than by will or the laws of descent and distribution, and options may
be exercised, during the lifetime of the holder thereof, only by such holder or
such holders legal representatives. Except to the extent provided above,
options may not be assigned, transferred, pledged, hypothecated or disposed of
in any way (whether by operation of law or otherwise) and may not be subject to
execution, attachment or similar process.

No optionee has any rights as a shareholder with respect to any shares
subject to an option prior to the date of the issuance of a certificate or
certificates for such shares.

No options were granted under the 2000 Stock Option Plan since its
inception.

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Item 7. Major Shareholders and Related Party Transactions



|A. |  | Major shareholders.
|-- |  | -------------------

See Item 4 (C) of the details of the major shareholders. Except as
disclosed below, there was no significant related party transactions made with
major shareholders



|B. |  | Related party transactions.
|-- |  | ---------------------------

(a)  During the years ended December 31, 2000, 2001 and 2002, the Company had
related party transactions with certain related parties as follows: -

|                                                  |  |                         |       |         |  |         |       |  |  |  |     | 
|------------------------------------------------- |  | ----------------------- | ----- | ------- |  | ------- | ----- |  |  |  | --- | 
|                                                  |  | Year ended December 31,
|                                                  |  |                        
|                                                  |  | 2000                    |       | 2001    |  | 2002   
|                                                  |  |                         |       |         |  |        
|                                                  |  | Rmb000                 |       | Rmb000 |  | Rmb000
|Transactions with related parties                 |  |                         |       |         |  |         |       |  |  |  |     | 
|Service income received from Kang De              |  |                         | 8,265 |         |  |         | 6,598 |  |  |  | 754 | 
|Purchase of technology from ICT                   |  |                         | 4,000 |         |  |         |      |  |  |  |    | 
|Interest income received from fellow subsidiaries |  |                         | 433   |         |  |         |      |  |  |  |    | 
|Rental expenses paid to holding company           |  |                         | 267   |         |  |         | 248   |  |  |  |    | 
|Service fee paid to a fellow subsidiary           |  |                         |      |         |  |         | 142   |  |  |  | 41  | 

|                                                                            |  |                   |     |                   |  |  |       | 
|--------------------------------------------------------------------------- |  | ----------------- | --- | ----------------- |  |  | ----- | 
|                                                                            |  | December 31, 2001 |     | December 31, 2002
|                                                                            |  |                   |     |                  
|                                                                            |  | Rmb000           |     | Rmb000          
|Balances with related parties                                               |  |                   |     |                   |  |  |       | 
|Funds held in trust by related companies as
short-term investments          |  |                   | 868 |                   |  |  | 1,846 | 
|Funds held by the ultimate holding company for
security investment purposes |  |                   |    |                   |  |  | 6,590 | 

Note

(a)  Other than information already disclosed elsewhere in this Form 20-F,
no person who has been an insider of the Company since January 1, 2002 or any
associate or affiliate of such insider has had any material direct or indirect
interest in any transaction with the Company since January 1, 2001 or in any

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proposed transaction which has materially affected or would materially affect
the Company or its subsidiaries.

(b)  Except for the above disclosed, there is no other amounts due from any
fellow subsidiaries and related companies which are not part of the
consolidated entity.



|C. |  | Interests of experts and counsel.
|-- |  | ---------------------------------

Not Applicable.




Item 8. Financial Information



|A. |  | Consolidated Statements and Other Financial Information.
|-- |  | --------------------------------------------------------

The Companys consolidated financial statements are included herein under
Item 18.

Except an interim dividend was paid in 1997, the Company has not paid any
dividends on its Common Shares. The payment of dividends in the future, if
any, is within the discretion of the Board of Directors of the Company and will
depend upon the Companys earnings, its capital requirements and financial
condition and other relevant factors. The Company does not anticipate
declaring or paying any dividends in the foreseeable future.



|B. |  | Significant Changes.
|-- |  | --------------------

Not Applicable




Item 9. The Offer and Listing.



|A. |  | Offer and listing details.
|-- |  | --------------------------

The annual high and low market prices for the five most recent full
financial years are as set forth below:

|                        |  |               |       |          |  |      |       |     |  |  |       |  |  |  |       | 
|----------------------- |  | ------------- | ----- | -------- |  | ---- | ----- | --- |  |  | ----- |  |  |  | ----- | 
|                        |  | Common Stocks |       | Warrants
|NASDAQ Small Cap Market |  |               |       |         
|(Year Ending)           |  | High          |       | Low      |  | High |       | Low
|                        |  |               |       |          |  |      |       |    
|December 31, 2002       |  |               | 0.430 |          |  |      | 0.010 |     |  |  | N/A   |  |  |  | N/A   | 
|December 31, 2001       |  |               | 0.444 |          |  |      | 0.090 |     |  |  | N/A   |  |  |  | N/A   | 
|December 31, 2000       |  |               | 2.500 |          |  |      | 0.219 |     |  |  | 0.938 |  |  |  | 0.031 | 
|December 31, 1999       |  |               | 0.938 |          |  |      | 0.094 |     |  |  | 0.188 |  |  |  | 0.063 | 
|December 31, 1998       |  |               | 3.125 |          |  |      | 0.313 |     |  |  | 0.438 |  |  |  | 0.063 | 

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The high and low market prices for each financial quarter over the two
most recent full financial years are as set forth below:

|                        |  |               |       |     |  |  |       | 
|----------------------- |  | ------------- | ----- | --- |  |  | ----- | 
|                        |  | Common Stocks
|NASDAQ Small Cap Market |  |              
|(Quarter Ending)        |  | High          |       | Low
|                        |  |               |       |    
|December 31, 2002       |  |               | 0.160 |     |  |  | 0.010 | 
|September 30, 2002      |  |               | 0.430 |     |  |  | 0.150 | 
|June 30, 2002           |  |               | 0.430 |     |  |  | 0.160 | 
|March 31, 2002          |  |               | 0.430 |     |  |  | 0.170 | 
|December 31, 2001       |  |               | 0.400 |     |  |  | 0.130 | 
|September 30, 2001      |  |               | 0.400 |     |  |  | 0.150 | 
|June 30, 2001           |  |               | 0.444 |     |  |  | 0.090 | 
|March 31, 2001          |  |               | 0.375 |     |  |  | 0.188 | 

For the most recent six months, the high and low market prices of the
Companys Common Shares and Warrants are as set forth below:

|                        |  |               |       |     |  |  |       | 
|----------------------- |  | ------------- | ----- | --- |  |  | ----- | 
|                        |  | Common Stocks
|NASDAQ Small Cap Market |  |              
|(Month Ending)          |  | High          |       | Low
|                        |  |               |       |    
|May 30, 2003            |  |               | 1.000 |     |  |  | 0.110 | 
|April 30, 2003          |  |               | 0.490 |     |  |  | 0.030 | 
|March 31, 2003          |  |               | 0.130 |     |  |  | 0.130 | 
|February 28, 2003       |  |               | 0.130 |     |  |  | 0.130 | 
|January 31, 2003        |  |               | 0.470 |     |  |  | 0.050 | 
|December 31, 2002       |  |               | 0.060 |     |  |  | 0.047 | 

According to the terms of issuance, the Companys Warrants had expired on
December 13, 1999 and was subsequently extended for additional two years to
December 13, 2001 pursuant to a Board resolution passed on December 3, 1999.
The Companys Warrants were de-listed from the NASDAQ Small Cap Market on May
15, 2001 due to the Companys failure in complying the NASD Marketplace Rules
4310 (c) (1), which requires the Company to maintain two active market makers
for the Warrants. On December 13, 2001, the Companys Warrants expired.

N/A: Information not available.



|B. |  | Plan of Distribution.
|-- |  | ---------------------

Not Applicable.

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|C. |  | Markets.
|-- |  | --------

The Companys Common Stock and Warrants were included for quotation on the
NASDAQ National Market on December 13, 1996 under the symbols TRFDF and
TRFWF respectively. Pursuant to the implementation of the new listing
requirements since February 1998, the Company moved the listing of Common Stock
and Warrants to the NASDAQ Small Cap Market on October 12, 1998 under the same
symbols.

Subsequent to the de-listing of the Companys Warrants from the NASDAQ
Small Cap Market as stated in Item 9A above. As at December 31, 2001, the
Companys Common Shares were listed for quotation on the NASDAQ Small Cap
Market and not on any other public trading market.



|D. |  | Selling Shareholders.
|-- |  | ---------------------

Not applicable

Dilution.

The following warrants were issued by the Company: -

Common Stock Purchase Warrants- As of May 31, 1999, the Company had
issued 513,950 Common Stock Purchase warrants, of which 13,950 Common Stock
Purchase warrants were issued to the underwriters who had exercised their
over-allotment options in January 1997 upon the completion of the Initial
Public Offering of the Company. The warrants were delisted by the NASDAQ
market on May 7, 2001 and were expired on December 13, 2001.

Bridge Warrants- The Company also issued 1,500,000 Bridge warrants in
October 1996. The terms of which were identical to that of the Common Stock
Purchase Warrants. The warrants were delisted by the NASDAQ market on May 7,
2001 and were expired on December 13, 2001.

Class C Warrants- The Company had also authorized the issuance of up to
1,000,000 Class C Warrants to purchase Common Stock to the Companys existing
shareholders and management at terms identical to other issued Warrants except
that they may not be registered or publicly traded. The warrants were expired
on December 31, 2001.

1996 Stock Option Plan- The Company had authorized the issuance, pursuant
to the 1996 Stock Option Plan, of options to purchase 200,000 shares of Common
Stock to the Companys existing shareholders, employees, officers, directors
and consultants. Pursuant to a board resolution passed on December 28, 1999,
options were granted, for an exercise period of ten years, to certain directors
and officers at an exercise price of US$1.15 each.



|E. |  | Expenses of the issue.
|-- |  | ----------------------

Not Applicable.

Item 10.  Additional Information.



|A. |  | Share capital.
|-- |  | --------------

Not Applicable.



|B. |  | Memorandum and articles of association.
|-- |  | ---------------------------------------

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The Memorandum and articles of association of the Company was included in
the Form 1 Registration Statement filed to the Securities and Exchange
Commission upon the Initial Public Offering of the Company. Its subsequent
amendments were included as resolutions in the proxy statements for the
shareholders meeting filed to the Securities and Exchange Commission when
occurred.

Our corporate affairs are governed by our Memorandum and Articles of
Association and by the International Business Companies Act of the British
Virgin Islands. Principles of law relating to such matters as the validity of
corporate procedures, the fiduciary duties of our management, directors and
controlling shareholders and the rights of our shareholders differ from those
that would apply if we were incorporated in a jurisdiction within the United
States. Further, the rights of shareholders under British Virgin Islands law
are not as clearly established as the rights of shareholders under legislation
or judicial precedent in existence in most United States jurisdictions. Thus,
our public shareholders may have more difficulty in protecting their interests
in the face of actions by the management, directors or controlling shareholders
than they might have as shareholders of a corporation incorporated in a United
States jurisdiction. Please refer to Item 3(D) for a detailed discussion of
such risk.



|C. |  | Material contracts.
|-- |  | -------------------

Not Applicable



|D. |  | Exchange controls.
|-- |  | ------------------

Exchange Rates

The following table sets forth-certain information concerning exchange
rate between Renminbi and U. S. dollars for the periods indicated:

|              |  |                      |        |             |  |      |        |     |  |  |        |  |  |  |        | 
|------------- |  | -------------------- | ------ | ----------- |  | ---- | ------ | --- |  |  | ------ |  |  |  | ------ | 
|              |  | Noon Buying Rate (1)
|              |  |                     
|              |  | Period               |        |            
|Period        |  | End                  |        | Average (2) |  | High |        | Low
|              |  |                      |        |             |  |      |        |    
|              |  | (RMB Per US$)       
|1996          |  |                      | 8.3284 |             |  |      | 8.3387 |     |  |  | 8.5000 |  |  |  | 8.3267 | 
|1997          |  |                      | 8.3255 |             |  |      | 8.3247 |     |  |  | 8.3283 |  |  |  | 8.3200 | 
|1998          |  |                      | 8.2789 |             |  |      | 8.2969 |     |  |  | 8.3000 |  |  |  | 8.2778 | 
|1999          |  |                      | 8.2795 |             |  |      | 8.2797 |     |  |  | 8.2785 |  |  |  | 8.2276 | 
|2000          |  |                      | 8.2774 |             |  |      | 8.2784 |     |  |  | 8.2799 |  |  |  | 8.2773 | 
|2001          |  |                      | 8.2766 |             |  |      | 8.2772 |     |  |  | 8.2786 |  |  |  | 8.2676 | 
|2002          |  |                      | 8.280  |             |  |      | 8.2770 |     |  |  | 8.280  |  |  |  | 8.2669 | 
|January 2003  |  |                      | 8.2768 |             |  |      | 8.2774 |     |  |  | 8.2800 |  |  |  | 8.2766 | 
|February 2003 |  |                      | 8.2775 |             |  |      | 8.2780 |     |  |  | 8.280  |  |  |  | 8.2772 | 

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|           |  |               |        |             |  |                      |        |     |  |  |        |  |  |  |        | 
|---------- |  | ------------- | ------ | ----------- |  | -------------------- | ------ | --- |  |  | ------ |  |  |  | ------ | 
|           |  |               |        |             |  | Noon Buying Rate (1)
|           |  |              
|           |  | Period        |        |            
|Period     |  | End           |        | Average (2) |  | High                 |        | Low
|           |  |               |        |             |  |                      |        |    
|           |  | (RMB Per US$)
|March 2003 |  |               | 8.2771 |             |  |                      | 8.2773 |     |  |  | 8.2776 |  |  |  | 8.2770 | 
|April 2003 |  |               | 8.2771 |             |  |                      | 8.2772 |     |  |  | 8.2774 |  |  |  | 8.2769 | 
|May 2003   |  |               | 8.2768 |             |  |                      | 8.2769 |     |  |  | 8.2771 |  |  |  | 8.2768 | 



---

|(1) |  | The noon buying rate in New York for cable transfers payable in foreign
currencies as certified for customs purposes by the Federal Reserve Bank
of New York.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Determined by averaging the rates on the last business day of each month
during the relevant period.                                                         



|E. |  | Taxation.
|-- |  | ---------

The following discussion is a summary of certain anticipated, British
Virgin Islands, Cayman Islands, Hong Kong and PRC tax consequences of an
investment in the Common Stock and warrants. The discussion does not deal with
all possible tax consequences relating to an investment in the Common Stock and
warrants and does not purport to deal with the tax consequences applicable to
all categories of investors, some of which (such as dealers in securities,
insurance companies and tax-exempt entities) may be subject to special rules.
In particular, the discussion does not address the tax consequences under
state, local and other national (e.g., United States, non-British Virgin Island
and non-Hong Kong) tax laws. Accordingly, each prospective investor should
consult its own tax advisor regarding the particular tax consequences to it of
an investment in the Common Stock and warrants. The following discussion is
based upon laws and relevant interpretations there of in effect as of the date
of this Annual Report, all of which are subject to change.

British Virgin Islands Taxation.

Under the International Business Companies Act of the British Virgin
Islands as currently in effect, a holder of Common Stock who is not a resident
of the British Virgin Islands is exempt from British Virgin Islands income tax
on dividends paid with respect to the Common Stock and all holders of Common
Stock are not liable to British Virgin Islands income tax on gains realized
during the year on sale or disposal of such shares; the British Virgin Islands
does not impose a withholding tax on dividends paid by the Company incorporated
under the International Business Companies Act.

There are no capital gains, gift or inheritance taxes levied by the
British Virgin Islands on companies incorporated under the International
Business Companies Act. In addition, the Common Stock is not subject to
transfer taxes, stamp duties or similar charges.

There is no income tax treaty or convention currently in effect between
the United States and the British Virgin Islands.

Hong Kong Taxation

Under the laws of Hong Kong, as currently in effect, a holder of Common
Stock is not subject to Hong Kong tax on dividends paid with respect to such
shares and no holder of Common Stock is liable for Hong Kong tax on gains
realized on sale or other disposition of such Common Stock except that those
persons who are classified for Hong Kong purposes as dealers in securities in
Hong Kong may be subject to Hong Kong tax in respect of any gain resulting on
the disposition of Common Stock. Hong Kong does not impose a withholding tax
on dividends paid by the Company or its subsidiaries. In addition, the

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Company will not be subject to Hong Kong taxes as a result of its receipt
of dividends from any of its subsidiaries.

PRC Taxation

There are no material PRC tax consequences to holders of Common Stock
solely as a result of the purchase, ownership and disposition of such Common
Stock. There is income tax treaty in effect between the United States and the
PRC.

Cayman Island Taxation

The Cayman Islands currently have no exchange control restrictions and no
income, corporate or capital gains tax, estate duty, inheritance tax, gift tax
or withholding tax applicable to the Company or any holder of shares.
Accordingly, payment of dividends on, and any transfer of, the shares will not
be subject to taxation in the Cayman Islands, no Cayman Islands withholding tax
will be required on such payments to any holder of a share and gains derived
from the sale of shares will not be subject to Cayman Islands income or
corporation tax. The Cayman Islands are not party to any double taxation
treaties.



|F. |  | Dividends and paying agents.
|-- |  | ----------------------------

The future payment of dividends is within the discretion of the Board of
Directors and will be dependent, upon among other factors, earnings capital
requirements, financing agreement covenants, the financial condition of the
Company and applicable law. The Board does not intend to declare any dividends
further in the foreseeable future, but instead intends to retain all future
earning, if any, for use in the Companys business operations. To the extent
that the Board may decide to pay cash dividends in the future, such dividends
will be declared from the retained earnings, i.e., surplus, as determined by
resolution of the Board of Directors, subject to the availability and existence
of such retained earnings will also be limited by the amount of dividends which
can be declared by its subsidiaries.

Applicable PRC laws and regulations required that before a Sino-foreign
equity joint venture enterprise distributes profits to its joint venture
partners, it must first satisfy all tax liabilities, provide for losses in
previous years and make allocations, in proportions determined at the
discretion of the Board of Directors, to a capital reserve fund and a public
welfare fund. Distribution of profits is required to be in proportion of each
partys investment in the joint venture.



|G. |  | Statement by experts.
|-- |  | ---------------------

Not Applicable.



|H. |  | Documents on display.
|-- |  | ---------------------

Documents concerning the Company that are referred to in this document may
be inspected at the office of the Company, which is 34th Floor, West Tower,
Shun Tak Centre, 200 Connaught Road Central, Hong Kong.



|I. |  | Subsidiary Information.
|-- |  | -----------------------

Not Applicable

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Item 11. Quantitative and Qualitative Disclosures About Market Risk.

The Company is exposed to risk of foreign currency exchange rate
fluctuation. The Company has never used derivative instruments to hedge its
exchange rate risks, does not plan to do so, and may not be successful should
it attempt to do so in the future. Nevertheless, the Company believes such risk
is low due to no foreign currency liabilities are incurred and the principal
operations are limited solely to the China market. The Companys trading
securities are not subject to any foreign currency and interest rate risks.

In the normal course of business, we also face risks that are either
non-financial or non-quantifiable. Such risks principally include country
risk, credit risk and legal risk.




Item 12. Description of Securities Other than Equity Securities.

Not Applicable.




Item 13. Default, Dividend Arrearages and Delinquencies.

None




Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds.

Not applicable




Item 15. Controls and Procedures

We evaluated the design and operation of our disclosure controls and
procedures to determine whether they are effective in ensuring that we disclose
the required information in a timely manner and in accordance with the
Securities Exchange Act of 1934, as amended, or the Exchange Act, and the rules
and forms of the Securities and Exchange Commission. Management, including the
Chief Executive Officer and the Chief Financial Officer, supervised and
participated in the evaluation. The evaluation was completed within 90-day
period prior to the filing of this Annual Report on Form 20-F.

The Chief Executive Officer and the Chief Financial Officer concluded,
based on their review, that our disclosure controls and procedures, as defined
by Exchange Act Rules 13a-14(c) and 15d-14(c), are effective and ensure that we
disclose the required information in reports that we file under the Exchange
Act and that the filings are recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms. No significant were made to our internal controls or other factors
that could significantly affect these controls subsequent to the date of their
evaluation.

It should be noted that any system of controls, however well designed and
operated, can provide only reasonable, and not absolute, assurance that the
objectives of the system are met. In addition, the design of any control system
is based in part upon certain assumptions about the likelihood of future
events. Because of these and other inherent limitations of control systems,
there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions, regardless of how remote.

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Item 16. [Reserved]




Item 17. Financial Statements.

The Company has elected to provide Financial Statements pursuant to Item 18 (see below).




Item 18. Financial Statements.

The following documents are filed as Attachment A hereto and are included as
part of this Annual report on Form 20-F.



| |  |  | Financial Statements.                                                                                                                                    
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Report of Independent Auditors.                                                                                                                          
|
| |  |  | Consolidated Statements of Operations and Comprehensive Income of the
Group for each of the three years in the period ended December 2000, 2001
and 2002.
|
| |  |  | Consolidated Balance Sheets of the Group as of December 31, 2001 and
2002.                                                                               
|
| |  |  | Consolidated Statements of Cash Flows of the Group for each of the three
years in the period ended December 31, 2000, 2001 and 2002.                     
|
| |  |  | Consolidated Statements of Changes in Shareholders Equity of the Group
for each of the three years in the period ended December 31, 2000, 2001
and 2002.
|
| |  |  | Notes to consolidated Financial Statements.                                                                                                              




Item 19. Exhibits.

The following exhibits are filed as part of this annual report:

1.     List of Companys significant subsidiaries, their jurisdiction of
incorporation and the names under which they do business, if different
from their name.

2.     Certification of Chief Executive Officer and Chief Financial Officer
required by Section 302 of the Sarbanes-Oxley Act

3.     Certification of Chief Executive Officer and Chief Financial Officer
required by Section 906 of the Sarbanes-Oxley Act

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SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Company certifies that it meets all of the requirements for filing
Form 20-F and has duly caused this Annual Report to be signed on its behalf by
the undersigned, thereunto duly authorised.

|                    |  |                                |  |                                                                                 
|------------------- |  | ------------------------------ |  | --------------------------------------------------------------------------------
|                    |  | TRAMFORD INTERNATIONAL LIMITED
|                   
|                    |  |                                |  |                                                                                 
|                   
|Date: July 14, 2003 |  | By:                            |  | /s/ Michael SiuName:  Michael Siu
Title:   Chief Financial Officer and Secretary

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TRAMFORD INTERNATIONAL LIMITED
(Incorporated in the British Virgin Islands)
 CONSOLIDATED
FINANCIAL STATEMENTS December 31,
2002





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TRAMFORD INTERNATIONAL LIMITED

INDEX TO FINANCIAL STATEMENTS

|                                                                                                                                               |  |      |      | 
|---------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---- | 
|                                                                                                                                               |  | Page
|                                                                                                                                               |  |     
|Report of Independent Auditors                                                                                                                 |  |      | 2    | 
|Consolidated Statements of Operations and Comprehensive Income of the
Group for each of the three years ended December 31, 2000, 2001 and 2002 |  |      | 3    | 
|Consolidated Balance Sheets of the Group as of December 31, 2001 and 2002                                                                      |  |      | 4    | 
|Consolidated Statements of Cash Flows of the Group for each of the three
years ended December 31, 2000, 2001 and 2002                          |  |      | 5    | 
|Consolidated Statements of Changes in Shareholders Equity of the Group
for each of the three years ended December 31, 2000, 2001 and 2002     |  |      | 6    | 
|Notes to Consolidated Financial Statements                                                                                                     |  |      | 7-19 | 

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Report of Independent Auditors

To the Board of Directors and
Shareholders of Tramford International Limited:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and comprehensive income, cash flows and
changes in shareholders equity present fairly, in all material respects, the
financial position of Tramford International Limited and its subsidiaries (the
Group) at December 31, 2001 and 2002, and the results of their operations and
their cash flows for each of the three years in the period ended December 31,
2002 in conformity with accounting principles generally accepted in the United
States of America. These financial statements are the responsibility of the
Companys management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

As more fully discussed in Note 2 to the consolidated financial statements, the
Group adopted, on January 1, 2002, the Statement of Financial Accounting
Standard No. 142, Goodwill and Other Intangible Assets.



PricewaterhouseCoopers
Certified Public Accountants
Hong Kong, June 26, 2003

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TRAMFORD INTERNATIONAL LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Amounts in thousands, except per share data)
for the years ended December 31, 2000, 2001 and 2002

|                                                 |                                                      |  |      |  |      |  |         |        |      |  |         |        |     |  |         |        |   |  |        |       |  
|------------------------------------------------ | ---------------------------------------------------- |  | ---- |  | ---- |  | ------- | ------ | ---- |  | ------- | ------ | --- |  | ------- | ------ | - |  | ------ | ----- | -
|                                                 |                                                      |  | Note |  | 2000 |  | 2001    |        | 2002 |  | 2002   
|                                                 |                                                      |  |      |  |      |  |         |        |      |  |        
|                                                 |                                                      |  |      |  |      |  | Rmb     |        | Rmb  |  | Rmb     |        | US$
|Revenues                                         |                                                      |  |      |  |      |  |         |        |      |  |         |        |     |  |         |        |   |  |        |      
|                                                 | Product sales                                        |  |      |  |      |  |         | 10,353 |      |  |         | 707    |     |  |         | 5,658  |   |  |        | 683   |  
|                                                 | Rendering of services                                |  |      |  |      |  |         | 5,374  |      |  |         | 6,598  |     |  |         | 2,625  |   |  |        | 317   |  
|                                                 |                                                      |  |      |  |      |  |         |        |      |  |         |        |     |  |         |        |   |  |        |      
|                                                 |                                                      |  |      |  |      |  | 15,727  |        |      |  | 7,305   |        |     |  | 8,283   |        |   |  | 1,000  |      
|Costs of sales                                   |                                                      |  |      |  |      |  |         |        |      |  |         |        |     |  |         |        |   |  |        |      
|                                                 | Product sales                                        |  |      |  |      |  |         | (9,732 | )    |  |         | (508   | )   |  |         | (2,986 | ) |  |        | (361  | )
|                                                 | Rendering of services                                |  |      |  |      |  |         | (2,880 | )    |  |         | (4,695 | )   |  |         | (1,839 | ) |  |        | (222  | )
|                                                 |                                                      |  |      |  |      |  |         |        |      |  |         |        |     |  |         |        |   |  |        |      
|                                                 |                                                      |  |      |  |      |  | (12,612 | )      |      |  | (5,203  | )      |     |  | (4,825  | )      |   |  | (583   | )    
|                                                 |                                                      |  |      |  |      |  |         |        |      |  |         |        |     |  |         |        |   |  |        |      
|Gross profit                                     |                                                      |  |      |  |      |  | 3,115   |        |      |  | 2,102   |        |     |  | 3,458   |        |   |  | 417    |      
|General and administrative expenses              |                                                      |  |      |  |      |  | (5,144  | )      |      |  | (15,463 | )      |     |  | (11,977 | )      |   |  | (1,446 | )    
|Impairment of goodwill                           |                                                      |  |      |  |      |  |        |        |      |  |        |        |     |  | (7,249  | )      |   |  | (875   | )    
|Bad debt expense                                 |                                                      |  |      |  |      |  |        |        |      |  |        |        |     |  | (4,142  | )      |   |  | (500   | )    
|                                                 |                                                      |  |      |  |      |  |         |        |      |  |         |        |     |  |         |        |   |  |        |      
|Operating loss                                   |                                                      |  |      |  |      |  | (2,029  | )      |      |  | (13,361 | )      |     |  | (19,910 | )      |   |  | (2,404 | )    
|Non-operating income                             |                                                      |  | 4    |  |      |  | 3,373   |        |      |  | 2,555   |        |     |  | 2,456   |        |   |  | 297    |      
|Non-operating expenses                           |                                                      |  | 5    |  |      |  |        |        |      |  |        |        |     |  | (141    | )      |   |  | (17    | )    
|                                                 |                                                      |  |      |  |      |  |         |        |      |  |         |        |     |  |         |        |   |  |        |      
|Income/(loss) before income tax
provision        |                                                      |  |      |  |      |  | 1,344   |        |      |  | (10,806 | )      |     |  | (17,595 | )      |   |  | (2,124 | )    
|Income tax provision                             |                                                      |  | 6    |  |      |  |        |        |      |  |        |        |     |  |        |        |   |  |       |      
|                                                 |                                                      |  |      |  |      |  |         |        |      |  |         |        |     |  |         |        |   |  |        |      
|Net income/(loss) before minority
interests      |                                                      |  |      |  |      |  | 1,344   |        |      |  | (10,806 | )      |     |  | (17,595 | )      |   |  | (2,124 | )    
|Minority interests                               |                                                      |  |      |  |      |  | 96      |        |      |  | 1,665   |        |     |  | 2,149   |        |   |  | 260    |      
|                                                 |                                                      |  |      |  |      |  |         |        |      |  |         |        |     |  |         |        |   |  |        |      
|Net income/(loss) for the year                   |                                                      |  |      |  |      |  | 1,440   |        |      |  | (9,141  | )      |     |  | (15,446 | )      |   |  | (1,864 | )    
|Other comprehensive
income/(losses), net of tax: |                                                      |  |      |  |      |  |         |        |      |  |         |        |     |  |         |        |   |  |        |      
|                                                 | Net unrealized loss on
available-for-sale securities |  |      |  |      |  |         |       |      |  |         |       |     |  |         | (587   | ) |  |        | (71   | )
|                                                 | Foreign currency translation
adjustment              |  |      |  |      |  |         |       |      |  |         |       |     |  |         | 14     |   |  |        | 2     |  
|                                                 |                                                      |  |      |  |      |  |         |        |      |  |         |        |     |  |         |        |   |  |        |      
|Comprehensive income/(losses)                    |                                                      |  |      |  |      |  | 1,440   |        |      |  | (9,141  | )      |     |  | (16,019 | )      |   |  | (1,933 | )    
|                                                 |                                                      |  |      |  |      |  |         |        |      |  |         |        |     |  |         |        |   |  |        |      
|Earnings/(loss) per share                        |                                                      |  | 13   |  |      |  |         |        |      |  |         |        |     |  |         |        |   |  |        |      
|                                                 | - Basic and dilutive                                 |  |      |  |      |  |         | 0.21   |      |  |         | (1.32  | )   |  |         | (2.24  | ) |  |        | (0.27 | )
|                                                 |                                                      |  |      |  |      |  |         |        |      |  |         |        |     |  |         |        |   |  |        |      

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TRAMFORD INTERNATIONAL LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
at December 31, 2001 and 2002

|                                           |                                                 |  |      |    |      |  |        |          |      |  |        |          |   |  |       |         |  
|------------------------------------------ | ----------------------------------------------- |  | ---- | -- | ---- |  | ------ | -------- | ---- |  | ------ | -------- | - |  | ----- | ------- | -
|                                           |                                                 |  | Note |    | 2001 |  | 2002   |          | 2002
|                                           |                                                 |  |      |    |      |  |        |          |     
|                                           |                                                 |  |      |    |      |  | Rmb    |          | Rmb  |  | US$   
|ASSETS                                     |                                                 |  |      |    |      |  |        |          |      |  |        |          |   |  |       |        
|CURRENT ASSETS                             |                                                 |  |      |    |      |  |        |          |      |  |        |          |   |  |       |        
|                                           | Cash and cash equivalents                       |  |      |    |      |  |        | 54,025   |      |  |        | 12,203   |   |  |       | 1,474   |  
|                                           | Short-term investments  security trust account |  |      |    |      |  |        | 14,354   |      |  |        | 13,540   |   |  |       | 1,635   |  
|                                           | Trading securities                              |  |      |    |      |  |        |         |      |  |        | 49       |   |  |       | 6       |  
|                                           | Available-for-sale securities                   |  |      |    |      |  |        |         |      |  |        | 8,560    |   |  |       | 1,034   |  
|                                           | Trade accounts receivable, net                  |  |      |    |      |  |        | 13       |      |  |        | 2,589    |   |  |       | 312     |  
|                                           | Inventories  merchandise for resale            |  |      |    |      |  |        | 80       |      |  |        | 1,219    |   |  |       | 147     |  
|                                           | Due from related parties                        |  |      | 15 |      |  |        | 5,689    |      |  |        | 8,492    |   |  |       | 1,036   |  
|                                           | Other assets                                    |  |      | 7  |      |  |        | 2,183    |      |  |        | 1,190    |   |  |       | 144     |  
|                                           |                                                 |  |      |    |      |  |        |          |      |  |        |          |   |  |       |        
|TOTAL CURRENT ASSETS                       |                                                 |  |      |    |      |  | 76,344 |          |      |  | 47,842 |          |   |  | 5,778 |        
|Property, plant and equipment, net         |                                                 |  | 8    |    |      |  | 1,564  |          |      |  | 534    |          |   |  | 64    |        
|Intangible asset                           |                                                 |  | 9    |    |      |  | 2,333  |          |      |  | 1,000  |          |   |  | 121   |        
|Goodwill                                   |                                                 |  | 10   |    |      |  | 12,996 |          |      |  | 5,747  |          |   |  | 694   |        
|Software development costs                 |                                                 |  | 11   |    |      |  | 170    |          |      |  | 85     |          |   |  | 10    |        
|                                           |                                                 |  |      |    |      |  |        |          |      |  |        |          |   |  |       |        
|TOTAL ASSETS                               |                                                 |  |      |    |      |  | 93,407 |          |      |  | 55,208 |          |   |  | 6,667 |        
|                                           |                                                 |  |      |    |      |  |        |          |      |  |        |          |   |  |       |        
|LIABILITIES AND SHAREHOLDERS EQUITY       |                                                 |  |      |    |      |  |        |          |      |  |        |          |   |  |       |        
|CURRENT LIABILITIES                        |                                                 |  |      |    |      |  |        |          |      |  |        |          |   |  |       |        
|                                           | Trade accounts payable                          |  |      |    |      |  |        | 387      |      |  |        | 139      |   |  |       | 17      |  
|                                           | Due to a related party                          |  |      | 15 |      |  |        | 321      |      |  |        | 830      |   |  |       | 100     |  
|                                           | Other liabilities and accrued expenses          |  |      | 12 |      |  |        | 27,138   |      |  |        | 6,849    |   |  |       | 827     |  
|                                           |                                                 |  |      |    |      |  |        |          |      |  |        |          |   |  |       |        
|TOTAL CURRENT LIABILITIES                  |                                                 |  |      |    |      |  | 27,846 |          |      |  | 7,818  |          |   |  | 944   |        
|Contingencies and commitments              |                                                 |  | 18   |    |      |  |        |          |      |  |        |          |   |  |       |        
|Minority interests                         |                                                 |  |      |    |      |  | 3,039  |          |      |  | 890    |          |   |  | 107   |        
|SHAREHOLDERS EQUITY                       |                                                 |  |      |    |      |  |        |          |      |  |        |          |   |  |       |        
|                                           | Share capital                                   |  |      | 17 |      |  |        | 187,733  |      |  |        | 187,730  |   |  |       | 22,673  |  
|                                           | Accumulated losses                              |  |      |    |      |  |        | (125,141 | )    |  |        | (140,587 | ) |  |       | (16,979 | )
|                                           | Accumulative other comprehensive losses         |  |      |    |      |  |        | (70      | )    |  |        | (643     | ) |  |       | (78     | )
|                                           |                                                 |  |      |    |      |  |        |          |      |  |        |          |   |  |       |        
|TOTAL SHAREHOLDERS EQUITY                 |                                                 |  |      |    |      |  | 62,522 |          |      |  | 46,500 |          |   |  | 5,616 |        
|                                           |                                                 |  |      |    |      |  |        |          |      |  |        |          |   |  |       |        
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |                                                 |  |      |    |      |  | 93,407 |          |      |  | 55,208 |          |   |  | 6,667 |        
|                                           |                                                 |  |      |    |      |  |        |          |      |  |        |          |   |  |       |        

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TRAMFORD INTERNATIONAL LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
for the years ended December 31, 2000, 2001 and 2002

|                                                             |                                                                                                   |                                                                           |        |        |       |      |        |        |        |      |         |         |        |   |        |        |      |  
|------------------------------------------------------------ | ------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------- | ------ | ------ | ----- | ---- | ------ | ------ | ------ | ---- | ------- | ------- | ------ | - | ------ | ------ | ---- | -
|                                                             |                                                                                                   |                                                                           |        | 2000   |       | 2001 |        | 2002   |        | 2002
|                                                             |                                                                                                   |                                                                           |        |        |       |      |        |        |        |     
|                                                             |                                                                                                   |                                                                           |        | Rmb    |       | Rmb  |        | Rmb    |        | US$ 
|Cash flows from operating activities                         |                                                                                                   |                                                                           |        |        |       |      |        |        |        |      |         |         |        |   |        |       
|                                                             | Net income/(loss)                                                                                 |                                                                           |        | 1,440  |       |      |        | (9,141 | )      |      |         | (15,446 | )      |   |        | (1,864 | )   
|                                                             | Adjustments to reconcile net income/(loss)
to net cash provided by/(used in)
operating activities |                                                                           |        |        |       |      |        |        |        |      |         |         |        |   |        |        |     
|                                                             |                                                                                                   | Minority interests in loss of consolidated subsidiaries                   |        |        | (96   | )    |        |        | (1,665 | )    |         |         | (2,149 | ) |        |        | (260 | )
|                                                             |                                                                                                   | Amortization of intangible asset, goodwill and
software development costs |        |        | 341   |      |        |        | 5,281  |      |         |         | 1,418  |   |        |        | 171  |  
|                                                             |                                                                                                   | Impairment of goodwill                                                    |        |        |      |      |        |        |       |      |         |         | 7,249  |   |        |        | 875  |  
|                                                             |                                                                                                   | Depreciation                                                              |        |        | 432   |      |        |        | 1,133  |      |         |         | 816    |   |        |        | 98   |  
|                                                             |                                                                                                   | Unrealized loss on trading securities                                     |        |        |      |      |        |        |       |      |         |         | 10     |   |        |        | 1    |  
|                                                             |                                                                                                   | Loss on disposal of fixed assets                                          |        |        | 21    |      |        |        |       |      |         |         | 198    |   |        |        | 24   |  
|                                                             |                                                                                                   | Gain on adjustment to consideration for the
acquisition of subsidiaries   |        |        |      |      |        |        |       |      |         |         | (1,697 | ) |        |        | (205 | )
|                                                             |                                                                                                   | Bad debt expense                                                          |        |        |      |      |        |        |       |      |         |         | 4,142  |   |        |        | 500  |  
|                                                             | Changes in assets and liabilities, net of effects from
acquisitions and disposals:                |                                                                           |        |        |       |      |        |        |        |      |         |         |        |   |        |        |     
|                                                             |                                                                                                   | Decrease/(increase) in trade accounts receivable                          |        |        | 466   |      |        |        | 294    |      |         |         | (2,576 | ) |        |        | (311 | )
|                                                             |                                                                                                   | Increase in trading securities                                            |        |        |      |      |        |        |       |      |         |         | (59    | ) |        |        | (7   | )
|                                                             |                                                                                                   | Decrease/(increase) in inventories                                        |        |        | 1,055 |      |        |        | 12     |      |         |         | (1,139 | ) |        |        | (137 | )
|                                                             |                                                                                                   | Decrease/(increase) in due from related parties and
other assets          |        |        | 4,272 |      |        |        | 7,876  |      |         |         | 1,616  |   |        |        | 194  |  
|                                                             |                                                                                                   | Increase/(decrease) in other liabilities and accrued
expenses             |        |        | 2,204 |      |        |        | 103    |      |         |         | (19    | ) |        |        | (2   | )
|                                                             |                                                                                                   |                                                                           |        |        |       |      |        |        |        |      |         |         |        |   |        |       
|Net cash provided/(used in) operating activities             |                                                                                                   |                                                                           | 10,135 |        |       |      | 3,893  |        |        |      | (7,636  | )       |        |   | (923   | )     
|Cash flows from investing activities                         |                                                                                                   |                                                                           |        |        |       |      |        |        |        |      |         |         |        |   |        |       
|                                                             | Settlement of investment in subsidiaries                                                          |                                                                           |        |       |       |      |        |       |        |      |         | (18,312 | )      |   |        | (2,212 | )   
|                                                             | Security trust account                                                                            |                                                                           |        |       |       |      |        |       |        |      |         | 814     |        |   |        | 98     |     
|                                                             | Funds held by related parties for security investment
purposes (note 15)                          |                                                                           |        |       |       |      |        | (868   | )      |      |         | (7,568  | )      |   |        | (915   | )   
|                                                             | Acquisition of subsidiaries, net of cash acquired (note
14)                                       |                                                                           |        | 794    |       |      |        |       |        |      |         |        |        |   |        |       |     
|                                                             | Purchases of available-for-sale securities                                                        |                                                                           |        |       |       |      |        |       |        |      |         | (9,147  | )      |   |        | (1,105 | )   
|                                                             | Purchases of property, plant and equipment                                                        |                                                                           |        | (2,430 | )     |      |        | (114   | )      |      |         | (70     | )      |   |        | (8     | )   
|                                                             | Proceeds from disposal of property, plant and equipment                                           |                                                                           |        |       |       |      |        |       |        |      |         | 86      |        |   |        | 10     |     
|                                                             | Payment for software development cost capitalized                                                 |                                                                           |        |       |       |      |        | (170   | )      |      |         |        |        |   |        |       |     
|                                                             | Purchase of intangible asset                                                                      |                                                                           |        | (4,000 | )     |      |        |       |        |      |         |        |        |   |        |       |     
|                                                             |                                                                                                   |                                                                           |        |        |       |      |        |        |        |      |         |         |        |   |        |       
|Net cash used in investing activities                        |                                                                                                   |                                                                           | (5,636 | )      |       |      | (1,152 | )      |        |      | (34,197 | )       |        |   | (4,132 | )     
|Cash flows from financing activities                         |                                                                                                   |                                                                           |        |        |       |      |        |        |        |      |         |         |        |   |        |       
|                                                             | Purchase of treasury shares                                                                       |                                                                           |        |       |       |      |        | (18    | )      |      |         | (3      | )      |   |        |       |     
|                                                             |                                                                                                   |                                                                           |        |        |       |      |        |        |        |      |         |         |        |   |        |       
|Net cash used in financing activities                        |                                                                                                   |                                                                           |       |        |       |      | (18    | )      |        |      | (3      | )       |        |   |       |       
|Effect of exchange rate changes on cash and cash
equivalents |                                                                                                   |                                                                           |       |        |       |      |       |        |        |      | 14      |         |        |   | 2      |       
|                                                             |                                                                                                   |                                                                           |        |        |       |      |        |        |        |      |         |         |        |   |        |       
|Net increase/(decrease) in cash and cash equivalents         |                                                                                                   |                                                                           | 4,499  |        |       |      | 2,723  |        |        |      | (41,822 | )       |        |   | (5,053 | )     
|Cash and cash equivalents at beginning of year               |                                                                                                   |                                                                           | 46,803 |        |       |      | 51,302 |        |        |      | 54,025  |         |        |   | 6,527  |       
|                                                             |                                                                                                   |                                                                           |        |        |       |      |        |        |        |      |         |         |        |   |        |       
|Cash and cash equivalents at end of year                     |                                                                                                   |                                                                           | 51,302 |        |       |      | 54,025 |        |        |      | 12,203  |         |        |   | 1,474  |       
|                                                             |                                                                                                   |                                                                           |        |        |       |      |        |        |        |      |         |         |        |   |        |       

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##### Table of Contents






TRAMFORD INTERNATIONAL LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
(Amounts in thousands)
for the years ended December 31, 2000, 2001 and 2002

|                                                     |  |      |    |        |  |        |         |      |  |             |          |               |  |               |      |       |  |  |         |  
|---------------------------------------------------- |  | ---- | -- | ------ |  | ------ | ------- | ---- |  | ----------- | -------- | ------------- |  | ------------- | ---- | ----- |  |  | ------- | -
|                                                     |  |      |    |        |  |        |         |      |  |             |          |               |  | Accumulated   |      |       |  | 
|                                                     |  |      |    |        |  |        |         |      |  |             |          |               |  | other         |      | Total
|                                                     |  |      |    |        |  |        |         |      |  | Accumulated |          | comprehensive |  | Shareholders'
|                                                     |  | Note |    | Equity |  | losses |         | loss |  | Equity     
|                                                     |  |      |    |        |  |        |         |      |  |            
|                                                     |  |      |    |        |  | Rmb    |         | Rmb  |  | Rmb         |          | Rmb          
|Balance at December 31, 1999                         |  |      |    |        |  |        | 187,751 |      |  |             | (117,440 | )             |  |               | (70  | )     |  |  | 70,241  |  
|Net income                                           |  |      |    |        |  |        |        |      |  |             | 1,440    |               |  |               |     |       |  |  | 1,440   |  
|                                                     |  |      |    |        |  |        |         |      |  |             |          |               |  |               |      |       |  |  |         |  
|Balance at December 31, 2000                         |  |      |    |        |  |        | 187,751 |      |  |             | (116,000 | )             |  |               | (70  | )     |  |  | 71,681  |  
|Net loss                                             |  |      |    |        |  |        |        |      |  |             | (9,141   | )             |  |               |     |       |  |  | (9,141  | )
|Purchase of treasury shares                          |  |      |    |        |  |        | (18     | )    |  |             |         |               |  |               |     |       |  |  | (18     | )
|                                                     |  |      |    |        |  |        |         |      |  |             |          |               |  |               |      |       |  |  |         |  
|Balance at December 31, 2001                         |  |      |    |        |  |        | 187,733 |      |  |             | (125,141 | )             |  |               | (70  | )     |  |  | 62,522  |  
|Net loss                                             |  |      |    |        |  |        |        |      |  |             | (15,446  | )             |  |               |     |       |  |  | (15,446 | )
|Purchase of treasury shares                          |  |      | 17 |        |  |        | (3      | )    |  |             |         |               |  |               |     |       |  |  | (3      | )
|Net unrealized loss on
available-for-sale
securities |  |      |    |        |  |        |        |      |  |             |         |               |  |               | (587 | )     |  |  | (587    | )
|Translation adjustment                               |  |      |    |        |  |        |        |      |  |             |         |               |  |               | 14   |       |  |  | 14      |  
|                                                     |  |      |    |        |  |        |         |      |  |             |          |               |  |               |      |       |  |  |         |  
|Balance at December 31, 2002                         |  |      |    |        |  |        | 187,730 |      |  |             | (140,587 | )             |  |               | (643 | )     |  |  | 46,500  |  
|                                                     |  |      |    |        |  |        |         |      |  |             |          |               |  |               |      |       |  |  |         |  
|                                                     |  |      |    |        |  | US$    |         | US$  |  | US$         |          | US$          
|Balance at December 31, 2002                         |  |      |    |        |  |        | 22,673  |      |  |             | (16,979  | )             |  |               | (78  | )     |  |  | 5,616   |  
|                                                     |  |      |    |        |  |        |         |      |  |             |          |               |  |               |      |       |  |  |         |  

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##### Table of Contents



TRAMFORD INTERNATIONAL LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts expressed in thousands, unless otherwise stated)



|1 |  | Nature of operations and basis of presentation
|- |  | ----------------------------------------------

Tramford International Limited (Tramford) was incorporated under the
laws of the British Virgin Islands on September 19, 1995 as a holding company.
The consolidated financial statements include the accounts of the Tramford and
its subsidiaries (hereinafter collectively referred to as the Group).

Effective July 1, 2000, a wholly owned subsidiary of Tramford, Jingle
Technology Limited (JTL), purchased 100% interests in BHL Networks Technology
Co. Ltd. (BHL), which holds 76% interest in Beijing BHL Networks Technology
Co. Ltd (BBHL), for a consideration of Rmb18,964. In the same year, but
before the acquisition of BHL by JTL, BHL acquired the business of an
information technology business in Beijing for a consideration of Rmb2,995. JTL
was formed by Tramford on 8 May 2000 to act as investment holding company.
BBHL is a Sino-foreign equity joint venture and is principally engaged in the
provision of information technology and network security consultancy services
and sales of computer related products in the PRC. BHL and BBHL are
collectively referred to as the PRC Operations in these financial statements.
The PRC Operations continue to engage in the provision of information
technology and network security consultancy services and the development of
network security software for the year ended December 31, 2001 and 2002. The
other wholly owned subsidiary of Tramford, Jing Tai Investment Company Limited,
acts as the treasury center for the Group.

Pursuant to agreements entered into among the Group and the vendors in
September 2002 in respect of the above acquisitions, the consideration was
reduced from Rmb21,959 to Rmb20,262 in aggregate. This change in consideration
resulted in the recognition of a gain of Rmb1,697 which is classified as
non-operating income in the statement of operations for the year ended December
31, 2002.

The accompanying financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States
of America (US GAAP), present the consolidated results of the operations of
the Group. All intercompany balances and transactions have been eliminated in
the consolidated financial statements of the Group.

The preparation of financial statements in conformity with US GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses and the disclosure of
contingent assets and liabilities at the date of the financial statements as
well as the reported amounts of revenues and expenses during the reporting
period. Accounting estimates have been employed in these financial statements
to determine reported amounts, including realizability of receivables and other
assets, useful lives of assets and income taxes. Actual results could differ
from those estimates.

The financial information has been prepared in Renminbi (Rmb), the
national currency of the PRC and also the functional currency of the Group (see
also footnote 2(d)). Unless indicated otherwise, amounts in Renminbi have been
rounded to the nearest thousand.

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##### Table of Contents



TRAMFORD INTERNATIONAL LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts expressed in thousands, unless otherwise stated)



|2 |  | Summary of significant accounting policies
|- |  | ------------------------------------------

The following is a summary of significant accounting policies followed by
the Group in the preparation of the financial statements.



|(a) |  | Revenues
|--- |  | --------

Revenues arise from product sales and rendering of services. Revenue is
generally recognized when all of the following criteria are met (i) persuasive
evidence of an arrangement exists; (ii) delivery has occurred or services have
been rendered; (iii) the sellers price to the buyer is fixed or determinable,
and (iv) collectibility is reasonably assured. Specifically, product sales
represent the invoiced value of goods, net of discounts, supplied to customers.
Sales are recognized upon delivery to customers and when title has passed.
Rendering of services represent fees charged on the provision of information
technology and network security consultancy services. Fees on such services
are recognized upon the completion of the underlying services.



|(b) |  | Taxation
|--- |  | --------

Deferred income taxes are provided using the liability method under
Statement of Financial Accounting Standards (SFAS) No.109, Accounting for
Income Taxes. Under the liability method, deferred tax assets and liabilities
are recognized for the estimated future tax consequences attributable to
differences between the carrying amounts of existing assets and liabilities in
the financial statements and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. The tax consequences of
these differences are classified as current or non-current based on the
classification of the related asset or liability for financial reporting.



|(c) |  | Concentration of credit risk and major customers
|--- |  | ------------------------------------------------

The Group is engaged in the provision of information technology and
network security services to a wide range of industries and end users within
the PRC. All the Groups revenue is derived from sales to customers located in
the PRC. Accordingly, the Groups trade accounts receivable are concentrated
with respect to geography. The Group performs ongoing credit evaluations of
its customers and generally does not require collateral.



|(d) |  | Foreign currency transaction gains and losses and translation of foreign
currencies
|--- |  | -----------------------------------------------------------------------------------

All foreign currency transaction gains and losses are recognized as other
non-operating (expense)/income in the Statements of Operations.

The Renminbi is not freely convertible into foreign currencies. The PRC
Government has instituted a single regulated floating exchange rate system
principally based on market supply and demand. Under this system, a nationwide
inter-bank foreign market has been established by designating certain banks as
authorized foreign exchange banks where Renminbi can be converted into foreign
currencies subject to prior approval from the PRC State Administration of
Exchange Control.

The functional currency of BBHL was Renminbi. The financial statements of
BBHL had therefore not required translation in the preparation of the
consolidated financial statements of the Group.

The functional currency of Tramford and its other subsidiaries is the Hong
Kong dollar. The financial statements of Tramford and these subsidiaries are
translated into Renminbi using exchange rates in effect at period end, wherever
appropriate, for assets and liabilities and average exchange rates during each
reporting period for results of operations. Adjustments resulting from the
translation of financial statements are reflected as a separate component of
shareholders equity.

The consolidated statements of operations and comprehensive income and of
cash flows for the year ended December 31, 2002 and the consolidated balance
sheet as of December 31, 2002 contain certain translations of Hong Kong
dollars. For the convenience of the reader, translation of amounts from
Renminbi (Rmb) into United States Dollars (US$) has been made at the noon
buying rate in New York City for cable transfer in foreign currencies as
certified for customs purposes by the Federal Reserve Bank of New York on
December 31, 2002 of Rmb 8.28 = US$1.00. Such translations should not be
construed as representations that the Renminbi amounts represent or have been
or could have been converted into United States dollars at that or any other
rate.



|(e) |  | Property, plant and equipment
|--- |  | -----------------------------

Property, plant and equipment are stated at historical cost less
accumulated depreciation. Depreciation is computed using the straight-line
method over the estimated useful lives of the respective assets. Upon
retirement or sale, the cost of disposed assets and the related accumulated
depreciation are deducted from the respective accounts and the resulting gain
or loss is included as other non-operating (expense)/income in the Statement of
Operations. Maintenance and repair costs are expensed as incurred. The
estimated useful lives of property, plant and equipment are as follows:

|                                                   |  |                                       
|-------------------------------------------------- |  | --------------------------------------
|Motor vehicles                                     |  | 5 years                               
|Furniture, fixtures, office and computer equipment |  | 3 years                               
|Leasehold improvements                             |  | shorter of 3 years or over leased term

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##### Table of Contents



TRAMFORD INTERNATIONAL LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts expressed in thousands, unless otherwise stated)





|2 |  | Summary of significant accounting policies (continued)
|- |  | ------------------------------------------------------

|   
|---
|(f)

Intangible asset represents technology platform for the development of
server switch and network security device acquired by the Group for cash. It
is recognized at cost and is amortized on a straight-line basis over its
estimated useful life of three years.



|(g) |  | Software development costs
|--- |  | --------------------------

Costs that are related to the conceptual formulation and design of
licensed programs are expensed as incurred. Capitalization of costs will
happen during the period when a technological feasibility of the licensed
program is established and the product is produced for general release to the
market. The annual amortization of the capitalized amounts is the greater of
the amount computed based on the estimated revenue distribution over the
products revenue-producing lives, or the straight-line method, and is applied
over periods ranging up to two years commencing when the products are generally
released to the market.



|(h) |  | Goodwill
|--- |  | --------

Goodwill represents cost in excess of the fair value of net assets
acquired and was amortized on a straight-line basis over a period of five years
prior to January 1, 2002. The Group adopted Statement of Financial Accounting
Standard (SFAS) No. 142, Goodwill and Other Intangible Assets,effective
January 1, 2002, and ceased the amortization of goodwill. Instead it is tested
at least annually for impairment.



|(i) |  | Impairment
|--- |  | ----------

Annual impairment test for goodwill is carried out in two steps. The
first step of the impairment test is used to identify potential impairment,
compares the fair value of the reporting unit with its carrying amount,
including goodwill. The fair value is determined by the forecasted discounted
net cash inflow of the reporting unit for a period of five years. If the
carrying amount of the reporting unit exceeds its fair value, goodwill of the
reporting unit is considered impaired, and step two of the impairment test is
performed. The second step of the impairment test quantifies the amount of the
impairment loss by comparing the carrying amount of goodwill to its implied
fair value. An impairment loss is recorded to the extent the carrying amount
of goodwill exceeds its implied fair value. Goodwill must be tested for
impairment at least annually, or more frequently if warranted. The Group has
performed the required impairment test and recognized an impairment loss of
Rmb7,249 during the fourth quarter of the year ended December 31, 2002.

The carrying value of a long-lived asset is considered impaired by the
Group when the anticipated undiscounted cash flow from such asset is separately
identifiable and less than its carrying value. In that event, a loss is
recognized based on the amount by which the carrying value exceeds the fair
market value of the long-lived asset. Fair market value is determined
primarily using the anticipated cash flows discounted at a rate commensurate
with the risk involved or based on independent appraisals.

Long-lived assets, including certain identifiable intangibles with
finite-lives, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable.



|(j) |  | Inventories
|--- |  | -----------

Inventories are valued at the lower of cost or net realizable value. Cost
includes the purchase cost of products at invoiced value using a first-in
first-out method. Net realizable value is determined by reference to the sales
proceeds of items sold in the ordinary course of business subsequent to the
balance sheet date or to a management estimate based on prevailing market
conditions.



|(k) |  | Cash and cash equivalents
|--- |  | -------------------------

Cash and cash equivalents include cash on hand, demand deposits with banks
and liquid investments with an original maturity of three months or less. The
book value of cash equivalents approximates their fair value because of the
short-term maturity of these instruments.



|(l) |  | Short-term investments
|--- |  | ----------------------

The Group invests in highly liquid investments with maturity less than one
year, at the time of purchase that are considered to be short-term investments.
The carrying amount of the investments approximates fair value due to their
short maturity. The Group maintains cash and cash equivalents and security
investments with a PRC security firm. Periodic evaluations are performed on
the relative credit standing of these parties that are considered in the
Groups investment strategy.

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##### Table of Contents



TRAMFORD INTERNATIONAL LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts expressed in thousands, unless otherwise stated)



|2   |  | Summary of significant accounting policies (continued)
|--- |  | ------------------------------------------------------
|   
|(m) |  | Securities                                            

Securities held principally for resale in the near term are classified as
trading securities upon acquisition and recorded at their fair values.
Unrealized gains and losses on trading securities are included in non-operating
income and expenses. Other securities are defined as securities
available-for-sale under the provisions of Statement of Financial Accounting
Standards (SFAS) No. 115 Accounting for Certain Investments in Debt and
Equity Securities. Available-for-sale securities are carried at fair value,
with unrealized gains and losses, if any, reported, net of tax, in other
comprehensive income until realized.



|(n) |  | Earnings per share
|--- |  | ------------------

Basic earnings per share represents income available to common
shareholders divided by the weighted-average number of common stocks
outstanding during the period. Diluted earnings per share reflects additional
common stocks that would have been outstanding if dilutive potential common
stocks have been issued, as well as any adjustment to income that would result
from the assumed issuance. Dilutive potential common stocks that may be issued
by the Group relate solely to outstanding stock options and bonds with stock
purchase warrants, and are determined using the treasury stock method. Effects
of stock options and bonds with stock purchase warrants are excluded from the
computation if the effect would be antidilutive.



|(o) |  | Stock options
|--- |  | -------------

The Group applies Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees and related interpretations in
accounting for its employee stock options. Under APB Opinion No. 25, because
the exercise price of all the options issued by the Company equals or is higher
than the market price of the underlying stock on the date of grant, no
compensation expense is recognized.



|(p) |  | Comparative balances
|--- |  | --------------------

Certain 2001 balances have been reclassified to conform with the 2002
consolidated financial statements presentation.



|(q) |  | Recent accounting pronouncements
|--- |  | --------------------------------

In April 2002, the FASB issued SFAS No. 145, Rescission of FAS Nos. 4,
44, and 64, Amendment of FAS 13, and Technical Corrections as of April 2002.
This Statement rescinds FASB Statement No. 4, Reporting Gains and Losses from
Extinguishment of Debt, and an amendment of that Statement, FASB Statement No.
64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. This
Statement also rescinds FASB Statement No. 44, Accounting for Intangible
Assets of Motor Carriers. This Statement amends FASB Statement No. 13,
Accounting for Leases, to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. The provisions of this Statement related to the
rescission of Statement 4 shall be applied in fiscal years beginning after May
15, 2002 with early application encouraged.

In July 2002, the Financial Accounting Standards Board (FASB) issued
SFAS No. 146 Accounting for Costs Associated with Exit or Disposal
Activities. The standard requires companies to recognize costs associated with
exit or disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. This standard is effective for exit or
disposal activities that are initiated after December 31, 2002. The adoption of
SFAS No. 146 does not have any significant impact on the consolidated financial
statements.

In December 2002, the FASB issued SFAS No. 148 Accounting for Stock-Based
Compensation-Transition and disclosure-an amendment of FAS 123. SFAS No. 148
amends SFAS No. 123 to provide alternative methods of transition for an entity
that voluntarily changes to the fair value based method of accounting for
stock-based employee compensation. It also amends the disclosure provisions of
SFAS No. 123 to require prominent disclosure about the effects on reported net
income of an entitys accounting policy decisions with respect to stock-based
employee compensation. Finally, SFAS No. 148 amends APB Opinion No. 28 Interim
Financial Reporting to require disclosure about those effects in interim
financial information. SFAS No. 148 is effective for financial statements for
fiscal years ending after and for interim period beginning December 15, 2002.
The adoption of SFAS No. 148 will not significantly impact the Groups current
disclosures.

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##### Table of Contents



TRAMFORD INTERNATIONAL LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts expressed in thousands, unless otherwise stated)



|2   |  | Summary of significant accounting policies (continued)
|--- |  | ------------------------------------------------------
|   
|(q) |  | Recent accounting pronouncements (continued)          

In January 2003, the FASB issued FASB Interpretation No. 46,
Consolidation of Variable Interest Entities  An Interpretation of ARB No. 51
(FIN 46). FIN 46 addresses consolidation by business enterprises of variable
interest entities. FIN 46 provides guidance on the identification of entities
for which control is achieved through means other than through voting rights
(variable interest enterprises or VIEs) and to determine when and which
business enterprise should consolidate VIE (the primary beneficiary). This
new model for consolidation applies to an entity in which either (i) the equity
investors (if any) do not have a controlling financial interest or (ii) the
equity investment at risk is insufficient to finance that entitys activities
without receiving additional subordinated financial support from other
parties. In addition, FIN 46 requires that both the primary beneficiary and all
other enterprises with a significant variable interest in a VIE make additional
disclosures. The provisions of the statement apply immediately to variable
interest entities created beginning after January 31, 2003, and to variable
interest entities in which an enterprise obtains an interest after that date,
FIN 46 applies in the first fiscal year beginning after June 15, 2003, to
variable interest entities in which an enterprise holds a variable interest
that it acquired before February 1, 2003. The directors do not expect a
material impact on the financial statements upon adoption of the above
pronouncements.



|2 |  | Business acquisition
|- |  | --------------------

As discussed in Note 1, Tramford acquired controlling interests in the PRC
Operations on July 1, 2000. The purchase price for the acquisition is
Rmb20,262. The acquisition was accounted for using the purchase method of
accounting. Accordingly, a portion of the acquisition costs has been allocated
to the assets acquired and liabilities assumed based upon their estimated fair
values at the date of acquisition. The excess of the purchase price over the
fair value of net assets acquired was Rmb16,951 and has been recorded as
goodwill which is being amortized over a period of anticipated economic benefit
inflow.

The following unaudited information presents a summary of the consolidated
results of operations of the Group as if the acquisition had occurred at the
beginning of the fiscal year for the year presented.

|                   |  |              |        | 
|------------------ |  | ------------ | ------ | 
|                   |  | Year ended  
|                   |  | December 31,
|                   |  | 2000        
|                   |  |             
|                   |  | Rmb         
|Net sales          |  |              | 23,585 | 
|Net income         |  |              | 1,822  | 
|Earnings per share |  |              | 0.26   | 

The pro forma results have been prepared for comparative purposes only and
include certain adjustments such as amortization expense as a result of
goodwill. They do not purport to be indicative of the results of operations
which actually would have resulted had the combination been in effect on
January 1, 2000 or future results of operations of the consolidated entities.

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TRAMFORD INTERNATIONAL LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts expressed in thousands, unless otherwise stated)



|4 |  | Non-operating income
|- |  | --------------------

Non-operating income consisted of the following:

|                                                                               |  |                         |       |      |  |      |       |  |  |  |       | 
|------------------------------------------------------------------------------ |  | ----------------------- | ----- | ---- |  | ---- | ----- |  |  |  | ----- | 
|                                                                               |  | Year ended December 31,
|                                                                               |  |                        
|                                                                               |  | 2000                    |       | 2001 |  | 2002
|                                                                               |  |                         |       |      |  |     
|                                                                               |  | Rmb                     |       | Rmb  |  | Rmb 
|Gain on adjustment to consideration for the acquisition of subsidiaries (note) |  |                         |      |      |  |      |      |  |  |  | 1,697 | 
|Realized gains on trading securities                                           |  |                         | 300   |      |  |      | 1,242 |  |  |  | 347   | 
|Bank interest                                                                  |  |                         | 3,066 |      |  |      | 1,286 |  |  |  | 169   | 
|Compensation received from a supplier on goods returned                        |  |                         |      |      |  |      |      |  |  |  | 182   | 
|Others                                                                         |  |                         | 7     |      |  |      | 27    |  |  |  | 61    | 
|                                                                               |  |                         |       |      |  |      |       |  |  |  |       | 
|                                                                               |  |                         | 3,373 |      |  |      | 2,555 |  |  |  | 2,456 | 
|                                                                               |  |                         |       |      |  |      |       |  |  |  |       | 

Note:

During the year, the Group renegotiated the consideration in respect of
the acquisition of the PRC Operations made in 2000. The revised consideration
is Rmb20,262, representing a discount on the original consideration of
Rmb21,959. This change in consideration resulted in the recognition of a gain
of Rmb1,697 in 2002.



|5 |  | Non-operating expenses
|- |  | ----------------------

Non-operating expenses consisted of the following:

|                                      |  |                         |   |      |  |      |   |  |  |  |     | 
|------------------------------------- |  | ----------------------- | - | ---- |  | ---- | - |  |  |  | --- | 
|                                      |  | Year ended December 31,
|                                      |  |                        
|                                      |  | 2000                    |   | 2001 |  | 2002
|                                      |  |                         |   |      |  |     
|                                      |  | Rmb                     |   | Rmb  |  | Rmb 
|Unrealized loss on trading securities |  |                         |  |      |  |      |  |  |  |  | 9   | 
|Others                                |  |                         |  |      |  |      |  |  |  |  | 132 | 
|                                      |  |                         |   |      |  |      |   |  |  |  |     | 
|                                      |  |                         |  |      |  |      |  |  |  |  | 141 | 
|                                      |  |                         |   |      |  |      |   |  |  |  |     | 



|6 |  | Income tax provision
|- |  | --------------------

Tramford was incorporated under the laws of the British Virgin Islands
(BVI), and under current BVI law, is not subject to tax on income or capital
gains as it does not carry out business in the BVI.

The Companys subsidiary operating in Hong Kong acts only as an investment
holding company and does not generate assessable profits or incur deductible
expenses for Hong Kong profits tax purposes.

The Companys subsidiary operating in the PRC incurred a loss and
therefore no PRC income tax has been provided for. Tax credit from this PRC
subsidiary can be carried forward for 5 years. As the realization of the
current tax credit is uncertain, full valuation allowance against deferred tax
assets as at December 31, 2002 has been provided.



|7 |  | Other assets
|- |  | ------------

Other assets consisted of the following:

|                            |  |              |       |              |  |  |       | 
|--------------------------- |  | ------------ | ----- | ------------ |  |  | ----- | 
|                            |  | December 31, |       | December 31,
|                            |  | 2001         |       | 2002        
|                            |  |              |       |             
|                            |  | Rmb          |       | Rmb         
|Rental and utility deposits |  |              | 781   |              |  |  | 399   | 
|Prepayment for inventories  |  |              | 962   |              |  |  | 312   | 
|Advance to staff            |  |              | 279   |              |  |  | 224   | 
|Others                      |  |              | 161   |              |  |  | 255   | 
|                            |  |              |       |              |  |  |       | 
|                            |  |              | 2,183 |              |  |  | 1,190 | 
|                            |  |              |       |              |  |  |       | 

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TRAMFORD INTERNATIONAL LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts expressed in thousands, unless otherwise stated)



|8 |  | Property, plant and equipment, net
|- |  | ----------------------------------

|                                         |  |              |        |              |  |  |        |  
|---------------------------------------- |  | ------------ | ------ | ------------ |  |  | ------ | -
|                                         |  | December 31, |        | December 31,
|                                         |  | 2001         |        | 2002        
|                                         |  |              |        |             
|                                         |  | Rmb          |        | Rmb         
|Leasehold improvements                   |  |              | 805    |              |  |  |       |  
|Computer equipment                       |  |              | 2,596  |              |  |  | 1,912  |  
|Furniture, fixtures and office equipment |  |              | 1,429  |              |  |  | 576    |  
|Motor vehicles                           |  |              | 107    |              |  |  | 107    |  
|Less: accumulated depreciation           |  |              | (3,373 | )            |  |  | (2,061 | )
|                                         |  |              |        |              |  |  |        |  
|                                         |  |              | 1,564  |              |  |  | 534    |  
|                                         |  |              |        |              |  |  |        |  

Depreciation for the year ended December 31, 2000, 2001 and 2002 amounted
to Rmb432, Rmb1,133 and Rmb816 respectively.



|9 |  | Intangible asset
|- |  | ----------------

The intangible asset on network security and server switch technology
acquired in 2000 is as follows:

|                               |  |              |        |              |  |  |        |  
|------------------------------ |  | ------------ | ------ | ------------ |  |  | ------ | -
|                               |  | December 31, |        | December 31,
|                               |  | 2001         |        | 2002        
|                               |  |              |        |             
|                               |  | Rmb          |        | Rmb         
|Gross carrying amount          |  |              | 4,000  |              |  |  | 4,000  |  
|Less: accumulated amortization |  |              | (1,667 | )            |  |  | (3,000 | )
|                               |  |              |        |              |  |  |        |  
|                               |  |              | 2,333  |              |  |  | 1,000  |  
|                               |  |              |        |              |  |  |        |  

Amortization expense for the years ended December 31, 2000, 2001 and 2002
amounted to Rmb200, Rmb1,467 and Rmb1,333 respectively. The intangible asset
is expected to be fully amortized in the year ending December 31, 2003.



|10 |  | Goodwill
|-- |  | --------

The Group recorded goodwill of Rmb16,951, in connection with the
acquisition of its PRC Operations in 2000. The carrying amount of goodwill has
been assigned to the network security and information technology consultancy
reporting units, which also are reportable segments. The change in goodwill
for the year ended December 31, 2002 is as follows:

|                                |  |          |        |             |  |       |       |   |  |  |        |  
|------------------------------- |  | -------- | ------ | ----------- |  | ----- | ----- | - |  |  | ------ | -
|                                |  | Network  |        | Information |  |       |       |  
|                                |  | security |        | technology  |  | Total
|                                |  |          |        |             |  |      
|                                |  | Rmb      |        | Rmb         |  | Rmb  
|Goodwill acquired in 2000       |  |          | 15,112 |             |  |       | 1,839 |   |  |  | 16,951 |  
|Less: accumulated amortization  |  |          | (3,526 | )           |  |       | (429  | ) |  |  | (3,955 | )
|                                |  |          |        |             |  |       |       |   |  |  |        |  
|Balance as of January 1, 2002   |  |          | 11,586 |             |  |       | 1,410 |   |  |  | 12,996 |  
|Impairment loss                 |  |          | (7,249 | )           |  |       |      |   |  |  | (7,249 | )
|                                |  |          |        |             |  |       |       |   |  |  |        |  
|Balance as of December 31, 2002 |  |          | 4,337  |             |  |       | 1,410 |   |  |  | 5,747  |  
|                                |  |          |        |             |  |       |       |   |  |  |        |  

The network security consultancy segment is tested for impairment in the
fourth quarter of 2002, after the annual forecasting process. Due to economic
recession in the region, operating profits and cash flows were lower than
expected. Based on the trend, the earning forecast for the next five years was
revised. In 2002, goodwill impairment loss of Rmb7,249 was recognized in the
network security consultancy reporting unit. The fair value of that reporting
unit was estimated using present value of future cash flows.

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TRAMFORD INTERNATIONAL LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts expressed in thousands, unless otherwise stated)



|10 |  | Goodwill (continued)
|-- |  | --------------------

The amortization expense and net income of the Group for the year of
initial application and prior two years, in which no extraordinary items were
recognized, are as follows:

|                                 |  |                                 |       |      |  |      |        |   |  |  |         |  
|-------------------------------- |  | ------------------------------- | ----- | ---- |  | ---- | ------ | - |  |  | ------- | -
|                                 |  | For the year ended December 31,
|                                 |  |                                
|                                 |  | 2000                            |       | 2001 |  | 2002
|                                 |  |                                 |       |      |  |     
|                                 |  | Rmb                             |       | Rmb  |  | Rmb 
|Net income/(loss)                |  |                                 | 1,440 |      |  |      | (9,141 | ) |  |  | (15,446 | )
|Add back: goodwill amortization  |  |                                 | 141   |      |  |      | 3,955  |   |  |  |        |  
|                                 |  |                                 |       |      |  |      |        |   |  |  |         |  
|Adjusted net income              |  |                                 | 1,581 |      |  |      | (5,186 | ) |  |  | (15,446 | )
|                                 |  |                                 |       |      |  |      |        |   |  |  |         |  
|Basic earnings/(loss) per share: |  |                                 |       |      |  |      |        |   |  |  |         |  
|                                 |  |                                 |       |      |  |      |        |   |  |  |         |  
|Reported net income/(loss)       |  |                                 | 0.21  |      |  |      | (1.32  | ) |  |  | (2.24   | )
|Add back: goodwill amortization  |  |                                 | 0.02  |      |  |      | 0.57   |   |  |  |        |  
|                                 |  |                                 |       |      |  |      |        |   |  |  |         |  
|Adjusted net income/(loss)       |  |                                 | 0.23  |      |  |      | (0.75  | ) |  |  | (2.24   | )
|                                 |  |                                 |       |      |  |      |        |   |  |  |         |  



|11 |  | Software development costs
|-- |  | --------------------------

|                                       |  |              |     |              |  |  |     |  
|-------------------------------------- |  | ------------ | --- | ------------ |  |  | --- | -
|                                       |  | December 31, |     | December 31,
|                                       |  | 2001         |     | 2002        
|                                       |  |              |     |             
|                                       |  | Rmb          |     | Rmb         
|Balance at beginning of year           |  |              |    |              |  |  | 170 |  
|Software development costs capitalized |  |              | 170 |              |  |  |    |  
|Less: accumulated amortization         |  |              |    |              |  |  | (85 | )
|                                       |  |              |     |              |  |  |     |  
|                                       |  |              | 170 |              |  |  | 85  |  
|                                       |  |              |     |              |  |  |     |  



|12 |  | Other liabilities and accrued expenses
|-- |  | --------------------------------------

|                                                                         |  |              |        |              |  |  |       | 
|------------------------------------------------------------------------ |  | ------------ | ------ | ------------ |  |  | ----- | 
|                                                                         |  | December 31, |        | December 31,
|                                                                         |  | 2001         |        | 2002        
|                                                                         |  |              |        |             
|                                                                         |  | Rmb          |        | Rmb         
|Consideration payable on the acquisition of the PRC Operations (note 14) |  |              | 21,959 |              |  |  | 1,850 | 
|Accrued professional fees                                                |  |              | 1,172  |              |  |  | 1,070 | 
|Deposits received                                                        |  |              | 819    |              |  |  | 880   | 
|Accrued salaries and staff benefits                                      |  |              | 1,472  |              |  |  | 674   | 
|Value added tax and business tax payable                                 |  |              | 783    |              |  |  | 1,434 | 
|Others                                                                   |  |              | 933    |              |  |  | 941   | 
|                                                                         |  |              |        |              |  |  |       | 
|                                                                         |  |              | 27,138 |              |  |  | 6,849 | 
|                                                                         |  |              |        |              |  |  |       | 

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TRAMFORD INTERNATIONAL LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts expressed in thousands, unless otherwise stated)



|13 |  | Earnings/(loss) per share
|-- |  | -------------------------

Basic earnings per share represents income available to common
stockholders divided by the weighted-average number of common stocks
outstanding during the period. Diluted earnings per share reflects additional
common stocks that would have been outstanding if dilutive potential common
stocks have been issued, as well as any adjustment to income that would result
from the assumed issuance. Dilutive potential common stocks that may be issued
by the Group relate solely to outstanding stock options and bonds with stock
purchase warrants, and are determined using the treasury stock method. Effects
of stock options and bonds with stock purchase warrants are excluded from the
computation if the effect would be antidilutive.

The following table is a summary of the computation of earnings/(loss) per
share for the years ended December 31:

|                                                                                      |                      |  |                         |      |      |  |        |       |   |  |         |       |  
|------------------------------------------------------------------------------------- | -------------------- |  | ----------------------- | ---- | ---- |  | ------ | ----- | - |  | ------- | ----- | -
|                                                                                      |                      |  | Year ended December 31,
|                                                                                      |                      |  |                        
|                                                                                      |                      |  | 2000                    |      | 2001 |  | 2002  
|                                                                                      |                      |  |                         |      |      |  |       
|                                                                                      |                      |  | Rmb                     |      | Rmb  |  | Rmb   
|Net income/(loss)                                                                     |                      |  | 1,440                   |      |      |  | (9,141 | )     |   |  | (15,446 | )    
|                                                                                      |                      |  |                         |      |      |  |        |       |   |  |         |      
|Weighted-average shares used in
computing basic and diluted
earnings/(loss) per share |                      |  | 6,906                   |      |      |  | 6,902  |       |   |  | 6,895   |      
|                                                                                      |                      |  |                         |      |      |  |        |       |   |  |         |      
|Earnings/(loss) per share                                                             |                      |  |                         |      |      |  |        |       |   |  |         |      
|                                                                                      | - Basic and dilutive |  |                         | 0.21 |      |  |        | (1.32 | ) |  |         | (2.24 | )
|                                                                                      |                      |  |                         |      |      |  |        |       |   |  |         |      

In 2000, 2001 and 2002, exercise of the warrants and stock options would
have been antidilutive and, therefore, was not considered in the computation of
diluted earnings per share.



|14 |  | Supplemental cash flow disclosure
|-- |  | ---------------------------------

On July 1, 2000, a wholly owned subsidiary of Tramford, Jingle Technology
Limited (JTL), purchased 100% interests in BHL Networks Technology Co. Ltd.
(BHL), which holds 76% interest in Beijing BHL Networks Technology Co. Ltd
(BBHL). The following table summarizes non-cash investing and financing
activities related to this acquisition:

|                                                            |  |              |        |  
|----------------------------------------------------------- |  | ------------ | ------ | -
|                                                            |  | Year ended  
|                                                            |  | December 31,
|                                                            |  | 2000        
|                                                            |  |             
|                                                            |  | Rmb         
|Fair value of assets acquired:                              |  |              |        |  
|Cash and cash equivalents                                   |  |              | 794    |  
|Trade accounts receivable, net                              |  |              | 773    |  
|Inventories                                                 |  |              | 1,147  |  
|Due from related parties                                    |  |              | 3,180  |  
|Due from minority shareholders                              |  |              | 4,800  |  
|Prepaid expenses and other assets                           |  |              | 1,321  |  
|Property, plant and equipment, net                          |  |              | 606    |  
|Due to a related party                                      |  |              | (3,795 | )
|Other liabilities and accrued expenses                      |  |              | (2,013 | )
|Minority interests                                          |  |              | (4,800 | )
|                                                            |  |              |        |  
|                                                            |  |              | 2,013  |  
|Goodwill arising on acquisition (note 10)                   |  |              | 16,951 |  
|                                                            |  |              |        |  
|Cash consideration payable as at December 31, 2001(note 12) |  |              | 18,964 |  
|                                                            |  |              |        |  
|Cash consideration paid as at 31 December 2000              |  |              |       |  
|Less : cash acquired                                        |  |              | 794    |  
|                                                            |  |              |        |  
|Net cash acquired in the acquisition                        |  |              | 794    |  
|                                                            |  |              |        |  

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TRAMFORD INTERNATIONAL LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts expressed in thousands, unless otherwise stated)



|14 |  | Supplemental cash flow disclosure (continued)
|-- |  | ---------------------------------------------

Pursuant to agreements entered into among the Group and the vendors in
September 2002 in respect of the above acquisition, the above consideration was
reduced from Rmb18,964 to Rmb18,312, and the revised amount was fully settled
during the year.



|15 |  | Related party transactions
|-- |  | --------------------------

The transactions and balances with related parties are analyzed as follows:-

|                                  |  |                         |       |      |  |      |       |  |  |  |     | 
|--------------------------------- |  | ----------------------- | ----- | ---- |  | ---- | ----- |  |  |  | --- | 
|                                  |  | Year ended December 31,
|                                  |  |                        
|                                  |  | 2000                    |       | 2001 |  | 2002
|                                  |  |                         |       |      |  |     
|                                  |  | Rmb                     |       | Rmb  |  | Rmb 
|Transactions with related parties |  |                         |       |      |  |      |       |  |  |  |     | 
|Sales                             |  |                         | 8,265 |      |  |      | 6,598 |  |  |  | 754 | 
|Purchase of technology (note 9)   |  |                         | 4,000 |      |  |      |      |  |  |  |    | 
|Interest income                   |  |                         | 433   |      |  |      |      |  |  |  |    | 
|Rental income                     |  |                         |      |      |  |      |      |  |  |  |    | 
|Rental expense                    |  |                         | 267   |      |  |      | 248   |  |  |  |    | 
|Service fee                       |  |                         |      |      |  |      | 142   |  |  |  | 41  | 

|                                                                            |  |              |       |              |  |  |       | 
|--------------------------------------------------------------------------- |  | ------------ | ----- | ------------ |  |  | ----- | 
|                                                                            |  | December 31, |       | December 31,
|                                                                            |  | 2001         |       | 2002        
|                                                                            |  |              |       |             
|                                                                            |  | Rmb          |       | Rmb         
|Balances with related parties                                               |  |              |       |              |  |  |       | 
|Funds held by a related company for security investment purposes            |  |              | 868   |              |  |  | 1,846 | 
|Funds held by the ultimate holding company for security investment
purposes |  |              |      |              |  |  | 6,590 | 
|Due from related companies                                                  |  |              | 4,596 |              |  |  |      | 
|Due from fellow subsidiaries                                                |  |              | 225   |              |  |  | 56    | 
|                                                                            |  |              |       |              |  |  |       | 
|Total due from related parties                                              |  |              | 5,689 |              |  |  | 8,492 | 
|                                                                            |  |              |       |              |  |  |       | 
|Due to a related company                                                    |  |              | 321   |              |  |  | 830   | 
|                                                                            |  |              |       |              |  |  |       | 

Apart from sales to a related company of Rmb754 and Rmb6,598 in 2002 and
2001 respectively, substantially all related party transactions are entered
into with fellow subsidiaries of the Group. The balances with related parties
are unsecured and interest-free, and have no fixed terms of repayment.



|16 |  | Retirement plans
|-- |  | ----------------

As stipulated by the regulations of PRC, the PRC subsidiary is required to
make contributions to the retirement plan at rates of 19% of the base salaries
of their staff. Contributions made in connection with the plan, which are
expensed as incurred, were Rmb95, Rmb272 and Rmb233 for the years 2000, 2001
and 2002 respectively. The PRC subsidiary has no obligation for the payment of
pension benefits beyond the annual contributions described above.

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TRAMFORD INTERNATIONAL LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts expressed in thousands, unless otherwise stated)



|17 |  | Share capital
|-- |  | -------------

Changes in share capital of Tramford are analyzed as follows:

|                       |  |     |    |        |  |              |           |            |  |          |     |       |  |     |         |     |  |  |        |   |  |  |         |  
|---------------------- |  | --- | -- | ------ |  | ------------ | --------- | ---------- |  | -------- | --- | ----- |  | --- | ------- | --- |  |  | ------ | - |  |  | ------- | -
|                       |  |     |    |        |  | Common Stock |           |            |  |          |     |       |  |     |         |     |  | 
|                       |  |     |    |        |  |              |           | Additional |  |          |     |       |  |     |         |    
|                       |  |     |    |        |  | No. of       |           | (par       |  | paid-in  |     |       |  |     |         |     |  | 
|                       |  | Ref |    | shares |  | US$0.01)     |           | capital    |  | Warrants |     | Total
|                       |  |     |    |        |  |              |           |            |  |          |     |      
|                       |  |     |    |        |  |              |           |            |  | Rmb      |     | Rmb   |  | Rmb |         | Rmb
|January 1, 2000        |  |     |    |        |  |              | 6,905,707 |            |  |          | 575 |       |  |     | 184,265 |     |  |  | 2,911  |   |  |  | 187,751 |  
|                       |  |     |    |        |  |              |           |            |  |          |     |       |  |     |         |     |  |  |        |   |  |  |         |  
|December 31, 2000      |  |     |    |        |  |              | 6,905,797 |            |  |          | 575 |       |  |     | 184,265 |     |  |  | 2,911  |   |  |  | 187,751 |  
|                       |  |     |    |        |  |              |           |            |  |          |     |       |  |     |         |     |  |  |        |   |  |  |         |  
|January 1, 2001        |  |     |    |        |  |              | 6,905,797 |            |  |          | 575 |       |  |     | 184,265 |     |  |  | 2,911  |   |  |  | 187,751 |  
|Purchase of own shares |  |     | (a | )      |  |              | (10,100   | )          |  |          | (1  | )     |  |     | (17     | )   |  |  |       |   |  |  | (18     | )
|Expiration of warrants |  |     | (b | )      |  |              |          |            |  |          |    |       |  |     | 2,911   |     |  |  | (2,911 | ) |  |  |        |  
|                       |  |     |    |        |  |              |           |            |  |          |     |       |  |     |         |     |  |  |        |   |  |  |         |  
|December 31, 2001      |  |     |    |        |  |              | 6,895,697 |            |  |          | 574 |       |  |     | 187,159 |     |  |  |       |   |  |  | 187,733 |  
|                       |  |     |    |        |  |              |           |            |  |          |     |       |  |     |         |     |  |  |        |   |  |  |         |  
|January 1, 2002        |  |     |    |        |  |              | 6,895,697 |            |  |          | 574 |       |  |     | 187,159 |     |  |  |       |   |  |  | 187,733 |  
|Purchase of own shares |  |     | (c | )      |  |              | (1,200    | )          |  |          | (3  | )     |  |     |        |     |  |  |       |   |  |  | (3      | )
|                       |  |     |    |        |  |              |           |            |  |          |     |       |  |     |         |     |  |  |        |   |  |  |         |  
|December 31, 2002      |  |     |    |        |  |              | 6,894,497 |            |  |          | 571 |       |  |     | 187,159 |     |  |  |       |   |  |  | 187,730 |  
|                       |  |     |    |        |  |              |           |            |  |          |     |       |  |     |         |     |  |  |        |   |  |  |         |  

(a)  For the year ended December 31, 2001, a total of 10,100 shares of
Common Stock were repurchased at an average price of US$0.20 per share.

(b)  All warrants issued by the Company were expired during the year ended
December 31, 2001.

(c)  For the year ended December 31, 2002, a total of 1,200 shares of
Common Stock were repurchased at an average price of US$0.28 per share.

(d)  On October 10, 1996, a stock option plan was set up to grant options
to certain employees and directors of the Company for a maximum of 200,000
shares. The stock option plan provides for a grant of options to employees,
officers, directors and consultants of the Group. The stock option plan, which
was established in October 1996, is administered by the Board of Directors or a
committee appointed by the Board, which determines the terms of options grant,
including the exercise price, the number of shares subject to the option and
options exercisability. The exercise price of all options granted under the
stock option plan must be at least equal to the fair market value of such
shares on the date of grant. The maximum term of options granted under the
stock option plan is 10 years. As of December 31, 1998, no options had been
granted under the stock option plan. Pursuant to a board resolution passed on
December 28, 1999, 200,000 options were granted to certain directors and
officers at that time at an exercise price of US$1.15 each. Of the 200,000
options granted, 140,000 options were still held by certain directors and
officers of the Company as of December 31, 2002. These options are exercisable
within ten years commencing from December 28, 1999. Apart from 60,000 options
which were forfeited upon the resignation of the relevant directors, no other
options were issued, exercised, forfeited or expired under this stock option
plan for the years ended December 31, 2000, 2001 and 2002.

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##### Table of Contents



TRAMFORD INTERNATIONAL LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts expressed in thousands, unless otherwise stated)



|17 |  | Share capital (continued)
|-- |  | -------------------------

(e)  The Company applies Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees and related interpretations in
accounting for its employee stock options. Under APB Opinion No. 25, because
the exercise price of all the options issued by the Company equals or is higher
than the market price of the underlying stock on the date of grant, no
compensation expense is recognized.

(f)  Pro forma information regarding net income and earnings per share is
required by SFAS No. 123 Accounting for Stock-Based Compensation, and has
been determined as if the Group had accounted for its employee stock options
under the fair value method of SFAS No. 123. The fair value of options granted
during the year ended December 31, 1999 was RMB720. The fair value for these
options was estimated at the date of grant using a Black-Scholes option
valuation model with the following weighted-average assumptions for the year
ended December 31, 1999; risk-free interest rate of 5.3%; no dividend yield;
volatility factor of the expected market price of the Companys common share of
233.5%; and a weighted-average expected life of the option of ten years.

For purposes of pro forma disclosure, the estimated fair value of the
options is amortized to expense over the options vesting period. The pro
forma information of the Group is as follows:

|                                |  |              |       |              |  |              |        |   |  |  |         |  
|------------------------------- |  | ------------ | ----- | ------------ |  | ------------ | ------ | - |  |  | ------- | -
|                                |  | December 31, |       | December 31, |  | December 31,
|                                |  | 2000         |       | 2001         |  | 2002        
|                                |  |              |       |              |  |             
|                                |  | Rmb          |       | Rmb          |  | Rmb         
|Net income/(loss)               |  |              |       |              |  |              |        |   |  |  |         |  
|As reported                     |  |              | 1,440 |              |  |              | (9,141 | ) |  |  | (15,446 | )
|Pro forma                       |  |              | 1,440 |              |  |              | (9,141 | ) |  |  | (15,446 | )
|Basic earnings/(loss) per share |  |              |       |              |  |              |        |   |  |  |         |  
|As reported                     |  |              | 0.21  |              |  |              | (1.32  | ) |  |  | (2.24   | )
|Pro forma                       |  |              | 0.21  |              |  |              | (1.32  | ) |  |  | (2.24   | )

Because compensation expense associated with an award is recognized over
the vesting period, the initial impact on pro forma net income/(loss) may not
be representative of compensation expense in future years, when the effect of
the amortization of multiple awards would be reflected in the income statement.



|18 |  | Contingencies and commitments
|-- |  | -----------------------------

The Group had no material contingencies as at December 31, 2002. As of
December 31, 2002, the aggregate future minimum lease payments under
non-cancelable operating leases are as follows:

|                              |  |              |  | 
|----------------------------- |  | ------------ |  | 
|                              |  | December 31,
|                              |  | 2002        
|                              |  |             
|                              |  | Rmb         
|Year ending December 31, 2003 |  | 284         

Lease rental costs incurred by the Group for the year ended December 31,
2000, 2001 and 2002 amounted to Rmb1,121, Rmb2,014 and Rmb1,047 respectively.

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##### Table of Contents



TRAMFORD INTERNATIONAL LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts expressed in thousands, unless otherwise stated)



|19 |  | Segment information
|-- |  | -------------------

Segments were determined based on products and services provided by each
segment. Accounting policies of the segments are the same as those described
in the summary of significant accounting policies. Segment performance is
evaluated based on profit or loss from operations before interest, other
income/expense and taxes. Product sales constitute the sale of network
security softwares and devices. Rendering of services represents the provision
of information technology services. The Groups operations have been
classified into two business segments: product sales and rendering of services.
Summarized financial information by business segment for 2002, 2001 and 2000
is as follows:

|                         |  |         |        |        |  |               |         |              |  |              |        |         |  |  |       |  |  |  |        | 
|------------------------ |  | ------- | ------ | ------ |  | ------------- | ------- | ------------ |  | ------------ | ------ | ------- |  |  | ----- |  |  |  | ------ | 
|                         |  |         |        |        |  |               |         |              |  | Net          |        |         |  |  |       |  |  | 
|                         |  |         |        |        |  | Operating     |         | identifiable |  | Depreciation |        |         |  | 
|                         |  |         |        |        |  | profit/       |         | assets/      |  | and          |        | Capital
|                         |  | Revenue |        | (loss) |  | (liabilities) |         | amortization |  | expenditures
|                         |  |         |        |        |  |               |         |              |  |             
|                         |  | Rmb     |        | Rmb    |  | Rmb           |         | Rmb          |  | Rmb         
|Year 2002                |  |         |        |        |  |               |         |              |  |              |        |         |  |  |       |  |  |  |        | 
|Product sales            |  |         | 5,658  |        |  |               | (9,778  | )            |  |              | 9,718  |         |  |  | 2,075 |  |  |  | 70     | 
|Rendering of services    |  |         | 2,625  |        |  |               | (5,085  | )            |  |              | (61    | )       |  |  | 159   |  |  |  |       | 
|                         |  |         |        |        |  |               |         |              |  |              |        |         |  |  |       |  |  |  |        | 
|Total operating segments |  |         | 8,283  |        |  |               | (14,863 | )            |  |              | 9,657  |         |  |  | 2,234 |  |  |  | 70     | 
|Corporate                |  |         |       |        |  |               | (583    | )            |  |              | 31,986 |         |  |  |      |  |  |  |       | 
|                         |  |         |        |        |  |               |         |              |  |              |        |         |  |  |       |  |  |  |        | 
|Group                    |  |         | 8,283  |        |  |               | (15,446 | )            |  |              | 41,643 |         |  |  | 2,234 |  |  |  | 70     | 
|                         |  |         |        |        |  |               |         |              |  |              |        |         |  |  |       |  |  |  |        | 
|Year 2001                |  |         |        |        |  |               |         |              |  |              |        |         |  |  |       |  |  |  |        | 
|Product sales            |  |         | 707    |        |  |               | (6,330  | )            |  |              | 13,443 |         |  |  | 2,238 |  |  |  | 97     | 
|Rendering of services    |  |         | 6,598  |        |  |               | (610    | )            |  |              | 5,024  |         |  |  | 362   |  |  |  | 16     | 
|                         |  |         |        |        |  |               |         |              |  |              |        |         |  |  |       |  |  |  |        | 
|Total operating segments |  |         | 7,305  |        |  |               | (6,940  | )            |  |              | 18,467 |         |  |  | 2,600 |  |  |  | 113    | 
|Corporate                |  |         |       |        |  |               | (2,201  | )            |  |              | 34,098 |         |  |  | 3,814 |  |  |  |       | 
|                         |  |         |        |        |  |               |         |              |  |              |        |         |  |  |       |  |  |  |        | 
|Group                    |  |         | 7,305  |        |  |               | (9,141  | )            |  |              | 52,565 |         |  |  | 6,414 |  |  |  | 113    | 
|                         |  |         |        |        |  |               |         |              |  |              |        |         |  |  |       |  |  |  |        | 
|Year 2000                |  |         |        |        |  |               |         |              |  |              |        |         |  |  |       |  |  |  |        | 
|Product sales            |  |         | 10,353 |        |  |               | (1,565  | )            |  |              | 19,773 |         |  |  | 433   |  |  |  | 6,001  | 
|Rendering of services    |  |         | 5,374  |        |  |               | 1,164   |              |  |              | 5,634  |         |  |  | 199   |  |  |  | 429    | 
|                         |  |         |        |        |  |               |         |              |  |              |        |         |  |  |       |  |  |  |        | 
|Total operating segments |  |         | 15,727 |        |  |               | (401    | )            |  |              | 25,407 |         |  |  | 632   |  |  |  | 6,430  | 
|Corporate                |  |         |       |        |  |               | 1,841   |              |  |              | 34,168 |         |  |  | 141   |  |  |  | 16,951 | 
|                         |  |         |        |        |  |               |         |              |  |              |        |         |  |  |       |  |  |  |        | 
|Group                    |  |         | 15,727 |        |  |               | 1,440   |              |  |              | 59,575 |         |  |  | 773   |  |  |  | 23,381 | 
|                         |  |         |        |        |  |               |         |              |  |              |        |         |  |  |       |  |  |  |        | 

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##### Table of Contents






EXHIBIT INDEX

|   |  |                                                                                                                                                          
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|1. |  | List of Companys significant subsidiaries, their jurisdiction of
incorporation and the names under which they do business, if different
from their name.
|   |  |                                                                                                                                                          
|2. |  | Certification of Chief Executive Officer and Chief Financial Officer
required by Section 302 of the Sarbanes-Oxley Act                                   
|   |  |                                                                                                                                                          
|3. |  | Certification of Chief Executive Officer and Chief Financial Officer
required by Section 906 of the Sarbanes-Oxley Act