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As filed with the U.S. Securities and Exchange Commission on June 30, 2003



SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




---

FORM 20-F

|    |  |                                                                                                                                 
|--- |  | --------------------------------------------------------------------------------------------------------------------------------
|[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

Commission file number [                ]

SUNDAY Communications Limited

(Exact name of registrant as specified in its charter)


Cayman Islands
(Jurisdiction of incorporation or organization)

13/F Warwick House
TaiKoo Place
979 Kings Road, Quarry Bay
Special Administrative Region of Hong Kong
The Peoples Republic of China
(Address of principal executive offices)

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

None.

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

Ordinary Shares, par value of HK$0.10 per share.

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

None.

Indicate the number of outstanding shares of each of the issuers classes of
capital or common stock as of the close of the period covered by the annual report:

|                                             |  |                          |               | 
|-------------------------------------------- |  | ------------------------ | ------------- | 
|                                             |  | Number outstanding as of
|Class                                        |  | December 31, 2002       
|                                             |  |                         
|Ordinary Shares, par value HK$0.10 per share |  |                          | 2,990,000,000 | 

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:

Yes   [X]     No   [   ]

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

Item 17   [   ]     Item 18   [X]







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TABLE OF CONTENTS



|                                                  |                                                                                       |  |  |  |  |  |  | 
|------------------------------------------------- | ------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|GENERAL INFORMATION                              
|FORWARD-LOOKING STATEMENTS                       
|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 10. ADDITIONAL INFORMATION                                                      
|                                                  | Item 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS                 
|                                                  | Item 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                      
|PART II                                          
|                                                  | Item 13. DEFAULTS, 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]                                                                  
|PART III                                         
|                                                  | Item 17. FINANCIAL STATEMENTS                                                        
|                                                  | Item 18. FINANCIAL STATEMENTS                                                        
|                                                  | Item 19. EXHIBITS                                                                    
|SIGNATURE                                        
|CERTIFICATIONS                                   
|INDEX TO CONSOLIDATED FINANCIAL STATEMENTS       
|APPENDIX A                                       
|EX-8 SUBSIDIARIES OF THE REGISTRANT              
|EX-99.1 CERTIFICATION OF GROUP MANAGING DIRECTOR 
|EX-99.2 CERTIFICATION OF GROUP DIRECTOR - FINANCE



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TABLE OF CONTENTS

|                                           |          |                                                                              |     |      |    | 
|------------------------------------------ | -------- | ---------------------------------------------------------------------------- | --- | ---- | -- | 
|                                           |          |                                                                              |     | Page
|                                           |          |                                                                              |     |     
|GENERAL INFORMATION                        |          | ii                                                                           |    
|FORWARD-LOOKING STATEMENTS                 |          | ii                                                                           |    
|PART I                                    
|                                           | Item 1.  | Identity of Directors, Senior Management and Advisers                        |     |      | 1  | 
|                                           | Item 2.  | Offer Statistics and Expected Timetable                                      |     |      | 1  | 
|                                           | Item 3.  | Key Information                                                              |     |      | 1  | 
|                                           | Item 4.  | Information on the Company                                                   |     |      | 12 | 
|                                           | Item 5.  | Operating and Financial Review and Prospects                                 |     |      | 22 | 
|                                           | Item 6.  | Directors, Senior Management and Employees                                   |     |      | 34 | 
|                                           | Item 7.  | Major Shareholders and Related Party Transactions                            |     |      | 41 | 
|                                           | Item 8.  | Financial Information                                                        |     |      | 42 | 
|                                           | Item 9.  | The Offer and Listing                                                        |     |      | 43 | 
|                                           | Item 10. | Additional Information                                                       |     |      | 44 | 
|                                           | Item 11. | Quantitative and Qualitative Disclosures about Market Risks                  |     |      | 55 | 
|                                           | Item 12. | Description of Securities other than Equity Securities                       |     |      | 55 | 
|PART II                                   
|                                           | Item 13. | Defaults, Dividend Arrearages and Delinquencies                              |     |      | 55 | 
|                                           | Item 14. | Material Modifications to the Rights of Security Holders and Use of Proceeds |     |      | 56 | 
|                                           | Item 15. | Control and Procedures                                                       |     |      | 56 | 
|                                           | Item 16. | [Reserved]                                                                   |     |      | 56 | 
|PART III                                  
|                                           | Item 17. | Financial Statements                                                         |     |      | 56 | 
|                                           | Item 18. | Financial Statements                                                         |     |      | 56 | 
|                                           | Item 19. | Exhibits                                                                     |     |      | 57 | 
|SIGNATURE                                  |          |                                                                              |     | S-1  |   
|CERTIFICATIONS                             |          |                                                                              |     | S-2  |   
|INDEX TO CONSOLIDATED FINANCIAL STATEMENTS |          |                                                                              | F-1 |     
|APPENDIX A  GLOSSARY OF TECHNICAL TERMS   |          |                                                                              | A-1 |     
|EXHIBITS                                   |          |                                                                              | E-1 |     

i



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GENERAL INFORMATION

Except as otherwise required by the context, references in this Annual
Report to SUNDAY, Company, us or we refer to SUNDAY Communications
Limited. The term you refers to holders of ordinary shares and American
depositary shares, or ADSs, representing the ordinary shares. The terms Hong
Kong and the Government refer to Hong Kong Special Administrative Region of
The Peoples Republic of China and its government, respectively. See Appendix
A  Glossary of Technical Terms for definitions of technical terms used in
this Annual Report.

We publish our financial statements in Hong Kong dollars. In this Annual
Report, references to Hong Kong dollars or HK$ are to the currency of Hong
Kong, and references to U.S. dollars or US$ are to the currency of the
United States of America. This Annual Report contains translations of Hong Kong
dollar amounts into U.S. dollar amounts, solely for your convenience. Unless
otherwise indicated, the translations have been made at HK$7.7988 = US$1.00,
which was the noon buying rate in The City of New York for cable transfers in
Hong Kong dollars 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 Hong Kong dollars actually represent 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.




FORWARD-LOOKING STATEMENTS

Some statements made in this Annual Report are forward-looking statements,
which are subject to various risks and uncertainties. These include statements
with respect to us, our corporate plans, strategies and beliefs and other
statements that are not historical facts. These statements can be identified by
the use of forward-looking terminology such as may, will, expect,
anticipate, intend, estimate, continue, plan or other similar words.
The statements are based on our managements assumptions and beliefs in light
of the information currently available to us.

These assumptions involve risks and uncertainties which may cause the
actual results, performance or achievements to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Potential risks and uncertainties include, without
limitation:



| |  |  | the lack of substantial revenue from some of our businesses;                                                                                      
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the pace of change of the wireless communications and data marketplace in Hong Kong;                                                              
|
| |  |  | increased competition in the communications and wireless data services in Hong Kong;                                                              
|
| |  |  | the demand for wireless communications and data services in Hong Kong and other relevant markets;                                                 
|
| |  |  | our ability to maintain growth and successfully introduce new products and services;                                                              
|
| |  |  | our churn rate, liquidity and capital resources and expenditure;                                                                                  
|
| |  |  | our ability to obtain requisite licenses, technologies and funding on
timely and acceptable terms for our existing, new and future businesses;    
|
| |  |  | our ability to realize usage and subscription fees from our services;
and                                                                         
|
| |  |  | the continued development, convergence and stability of technology
infrastructure we use to provide our wireless communications and data
services.

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 any forward-looking statements. 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.

ii



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##### Table of Contents






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

SELECTED FINANCIAL DATA

The selected financial data as of and for each of the three years ended
December 31, 2000, 2001 and 2002 are derived from and should be read with our
audited consolidated financial statements, including the notes to the
consolidated financial statements, included in this Annual Report beginning on
page F-1. We derived the selected financial data for each of the two years
ended December 31, 1998 and 1999 from our audited consolidated financial
statements, which are not included in this Annual Report.

Our consolidated financial statements are prepared and presented in
accordance with generally accepted accounting principles in Hong Kong, or HK
GAAP, which differ in some material respects from generally accepted accounting
principles in the United States of America, or US GAAP. For a discussion of
relevant differences between HK GAAP and US GAAP, see note 27 of the notes to
our audited consolidated financial statements.

|                                                                 |                              |                                                |                          |   |                                                      |       |           |   |        |         |           |   |        |         |           |   |         |         |           |   |         |         |           |   |       |       | 
|---------------------------------------------------------------- | ---------------------------- | ---------------------------------------------- | ------------------------ | - | ---------------------------------------------------- | ----- | --------- | - | ------ | ------- | --------- | - | ------ | ------- | --------- | - | ------- | ------- | --------- | - | ------- | ------- | --------- | - | ----- | ----- | 
|                                                                 |                              |                                                |                          |   | Year Ended December 31,                             
|                                                                 |                              |                                                |                          |   |                                                     
|                                                                 |                              |                                                |                          |   | 1998                                                 |       | 1999      |   | 2000   |         | 2001      |   | 2002   |         | 2002(1)  
|                                                                 |                              |                                                |                          |   |                                                      |       |           |   |        |         |           |   |        |         |          
|                                                                 |                              |                                                |                          |   | HK$                                                  |       | HK$       |   | HK$    |         | HK$       |   | HK$    |         | US$      
|                                                                 |                              |                                                |                          |   |                                                      |       |           |   |        |         |           |   |        |         |          
|                                                                 |                              |                                                |                          |   | (in millions, except for per share and per ADS data)
|Consolidated income statement data:                              |                              |                                                |                          |   |                                                      |       |           |   |        |         |           |   |        |         |           |   |         |         |           |   |         |         |           |  
|HK GAAP:                                                         |                              |                                                |                          |   |                                                      |       |           |   |        |         |           |   |        |         |           |   |         |         |           |   |         |         |           |  
|                                                                 | Operating revenues:          |                                                |                          |   |                                                      |       |           |   |        |         |           |   |        |         |           |   |         |         |           |   |         |         |           |   |      
|                                                                 |                              | Mobile services                                |                          |   | 337.1                                                |       |           |   | 825.5  |         |           |   | 988.7  |         |           |   | 1,165.4 |         |           |   | 1,217.7 |         |           |   | 156.1 |      
|                                                                 |                              | Sales of mobile phones and accessories         |                          |   | 220.2                                                |       |           |   | 190.7  |         |           |   | 404.4  |         |           |   | 242.9   |         |           |   | 115.3   |         |           |   | 14.8  |      
|                                                                 |                              | Other services(2)                              |                          |   |                                                     |       |           |   | 9.2    |         |           |   | 57.2   |         |           |   | 14.1    |         |           |   | 9.7     |         |           |   | 1.2   |      
|                                                                 |                              |                                                | Total operating revenues |   |                                                      | 557.3 |           |   |        | 1,025.4 |           |   |        | 1,450.3 |           |   |         | 1,422.4 |           |   |         | 1,342.7 |           |   |       | 172.1 | 
|                                                                 | Costs of sales and services: |                                                |                          |   |                                                      |       |           |   |        |         |           |   |        |         |           |   |         |         |           |   |         |         |           |   |      
|                                                                 |                              | Cost of services(2)(3)                         |                          |   | (70.6                                                | )     |           |   | (181.2 | )       |           |   | (235.5 | )       |           |   | (224.2  | )       |           |   | (221.1  | )       |           |   | (28.2 | )    
|                                                                 |                              | Cost of sales of mobile phones and accessories |                          |   | (319.1                                               | )     |           |   | (507.6 | )       |           |   | (424.5 | )       |           |   | (245.0  | )       |           |   | (113.4  | )       |           |   | (14.6 | )    
|Gross profit                                                     |                              |                                                | 167.6                    |   |                                                      |       | 336.6     |   |        |         | 790.3     |   |        |         | 953.2     |   |         |         | 1,008.2   |   |         |         | 129.3     |  
|Other revenues                                                   |                              |                                                |                         |   |                                                      |       |          |   |        |         | 8.7       |   |        |         | 2.6       |   |         |         | 1.9       |   |         |         | 0.2       |  
|Operating expenses(4)                                            |                              |                                                | (884.5                   | ) |                                                      |       | (1,084.5  | ) |        |         | (1,179.7  | ) |        |         | (1,119.0  | ) |         |         | (1,052.5  | ) |         |         | (135.0    | )
|Loss from operations                                             |                              |                                                | (716.9                   | ) |                                                      |       | (747.9    | ) |        |         | (380.7    | ) |        |         | (163.2    | ) |         |         | (42.4     | ) |         |         | (5.5      | )
|Interest income                                                  |                              |                                                | 1.8                      |   |                                                      |       | 2.2       |   |        |         | 51.1      |   |        |         | 21.6      |   |         |         | 3.5       |   |         |         | 0.4       |  
|Finance costs                                                    |                              |                                                | (87.8                    | ) |                                                      |       | (178.2    | ) |        |         | (136.9    | ) |        |         | (70.1     | ) |         |         | (59.8     | ) |         |         | (7.6      | )
|Share of losses of joint ventures                                |                              |                                                |                         |   |                                                      |       |          |   |        |         |          |   |        |         |          |   |         |         | (18.6     | ) |         |         | (2.3      | )
|Net loss                                                         |                              |                                                | (802.9                   | ) |                                                      |       | (923.9    | ) |        |         | (466.5    | ) |        |         | (211.7    | ) |         |         | (117.3    | ) |         |         | (15.0     | )
|Number of shares used to calculate loss
per share (in thousands) |                              |                                                | 2,300,000                |   |                                                      |       | 2,300,000 |   |        |         | 2,850,492 |   |        |         | 2,990,000 |   |         |         | 2,990,000 |   |         |         | 2,990,000 |  
|Basic loss per share (in cents)(5)                               |                              |                                                | (34.9                    | ) |                                                      |       | (40.2     | ) |        |         | (16.4     | ) |        |         | (7.1      | ) |         |         | (3.9      | ) |         |         | (0.5      | )
|US GAAP:                                                         |                              |                                                |                          |   |                                                      |       |           |   |        |         |           |   |        |         |           |   |         |         |           |   |         |         |           |  
|                                                                 | Operating revenues:          |                                                |                          |   |                                                      |       |           |   |        |         |           |   |        |         |           |   |         |         |           |   |         |         |           |   |      
|                                                                 |                              | Mobile services                                |                          |   | 337.1                                                |       |           |   | 825.5  |         |           |   | 988.7  |         |           |   | 1,155.0 |         |           |   | 1,215.8 |         |           |   | 155.9 |      
|                                                                 |                              | Sales of mobile phones and accessories         |                          |   | 220.2                                                |       |           |   | 190.7  |         |           |   | 404.4  |         |           |   | 242.9   |         |           |   | 115.3   |         |           |   | 14.8  |      
|                                                                 |                              | Other services(2)                              |                          |   |                                                     |       |           |   | 9.2    |         |           |   | 57.2   |         |           |   | 14.1    |         |           |   | 9.7     |         |           |   | 1.2   |      
|                                                                 |                              |                                                | Total operating revenues |   |                                                      | 557.3 |           |   |        | 1,025.4 |           |   |        | 1,450.3 |           |   |         | 1,412.0 |           |   |         | 1,340.8 |           |   |       | 171.9 | 
|                                                                 | Costs of sales and services: |                                                |                          |   |                                                      |       |           |   |        |         |           |   |        |         |           |   |         |         |           |   |         |         |           |   |      
|                                                                 |                              | Cost of services(2)                            |                          |   | (310.8                                               | )     |           |   | (460.4 | )       |           |   | (577.7 | )       |           |   | (548.3  | )       |           |   | (547.7  | )       |           |   | (70.2 | )    
|                                                                 |                              | Cost of sales of mobile phones and accessories |                          |   | (319.1                                               | )     |           |   | (507.6 | )       |           |   | (424.5 | )       |           |   | (245.0  | )       |           |   | (113.4  | )       |           |   | (14.5 | )    
|Gross (loss) profit                                              |                              |                                                | (72.6                    | ) |                                                      |       | 57.4      |   |        |         | 448.1     |   |        |         | 618.7     |   |         |         | 679.7     |   |         |         | 87.2      |  
|Other revenues                                                   |                              |                                                |                         |   |                                                      |       |          |   |        |         | 8.7       |   |        |         | 2.6       |   |         |         | 1.9       |   |         |         | 0.2       |  
|Operating expenses                                               |                              |                                                | (644.3                   | ) |                                                      |       | (805.3    | ) |        |         | (841.3    | ) |        |         | (798.7    | ) |         |         | (725.7    | ) |         |         | (93.1     | )
|Loss from operations                                             |                              |                                                | (716.9                   | ) |                                                      |       | (747.9    | ) |        |         | (384.5    | ) |        |         | (177.4    | ) |         |         | (44.1     | ) |         |         | (5.7      | )
|Interest income                                                  |                              |                                                | 1.8                      |   |                                                      |       | 2.2       |   |        |         | 51.1      |   |        |         | 21.6      |   |         |         | 3.5       |   |         |         | 0.4       |  
|Finance costs                                                    |                              |                                                | (87.8                    | ) |                                                      |       | (178.2    | ) |        |         | (136.9    | ) |        |         | (70.1     | ) |         |         | (59.8     | ) |         |         | (7.6      | )
|Share of losses of joint ventures                                |                              |                                                |                         |   |                                                      |       |          |   |        |         |          |   |        |         |          |   |         |         | (18.6     | ) |         |         | (2.3      | )
|Deferred tax credit                                              |                              |                                                | 1.8                      |   |                                                      |       |          |   |        |         |          |   |        |         |          |   |         |         |          |   |         |         |          |  
|Net loss                                                         |                              |                                                | (801.1                   | ) |                                                      |       | (923.9    | ) |        |         | (470.3    | ) |        |         | (225.9    | ) |         |         | (119.0    | ) |         |         | (15.2     | )
|Number of shares used to calculate loss per share
(in thousands) |                              |                                                | 2,300,000                |   |                                                      |       | 2,300,000 |   |        |         | 2,850,492 |   |        |         | 2,990,000 |   |         |         | 2,990,000 |   |         |         | 2,990,000 |  
|Number of ADSs used to calculate loss per ADS
(in thousands)(5)  |                              |                                                | 23,000                   |   |                                                      |       | 23,000    |   |        |         | 28,505    |   |        |         | 29,900    |   |         |         | 29,900    |   |         |         | 29,900    |  
|Basic loss per share (in cents)(5)                               |                              |                                                | (34.8                    | ) |                                                      |       | (40.2     | ) |        |         | (16.5     | ) |        |         | (7.6      | ) |         |         | (4.0      | ) |         |         | (0.5      | )
|Basic loss per ADS (in dollars)(5)                               |                              |                                                | (34.8                    | ) |                                                      |       | (40.2     | ) |        |         | (16.5     | ) |        |         | (7.6      | ) |         |         | (4.0      | ) |         |         | (0.5      | )
|Cash dividends declared per ordinary share                       |                              |                                                |                         |   |                                                      |       |          |   |        |         |          |   |        |         |          |   |         |         |          |   |         |         |          |  

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|                                 |                                |  |                                                      |         |      |  |      |         |         |  |      |         |         |  |  |         |  |  |  |         |  |  |  |       | 
|-------------------------------- | ------------------------------ |  | ---------------------------------------------------- | ------- | ---- |  | ---- | ------- | ------- |  | ---- | ------- | ------- |  |  | ------- |  |  |  | ------- |  |  |  | ----- | 
|                                 |                                |  | As of December 31,                                  
|                                 |                                |  |                                                     
|                                 |                                |  | 1998                                                 |         | 1999 |  | 2000 |         | 2001(6) |  | 2002 |         | 2002(1)
|                                 |                                |  |                                                      |         |      |  |      |         |         |  |      |         |        
|                                 |                                |  | HK$                                                  |         | HK$  |  | HK$  |         | HK$     |  | HK$  |         | US$    
|                                 |                                |  |                                                      |         |      |  |      |         |         |  |      |         |        
|                                 |                                |  | (in millions, except for per share and per ADS data)
|Consolidated balance sheet data: |                                |  |                                                      |         |      |  |      |         |         |  |      |         |         |  |  |         |  |  |  |         |  |  |  |      
|HK GAAP:                         |                                |  |                                                      |         |      |  |      |         |         |  |      |         |         |  |  |         |  |  |  |         |  |  |  |      
|                                 | Total assets                   |  |                                                      | 1,481.7 |      |  |      | 1,704.2 |         |  |      | 2,375.2 |         |  |  | 1,936.2 |  |  |  | 1,810.9 |  |  |  | 232.2 | 
|                                 | Long-term debt                 |  |                                                      | 1,079.6 |      |  |      | 1,224.7 |         |  |      | 753.7   |         |  |  | 556.7   |  |  |  | 546.9   |  |  |  | 70.1  | 
|                                 | Total liabilities              |  |                                                      | 1,514.9 |      |  |      | 2,661.3 |         |  |      | 1,375.5 |         |  |  | 1,148.2 |  |  |  | 1,140.2 |  |  |  | 146.2 | 
|                                 | Shareholders (deficit)/equity |  |                                                      | (33.2   | )    |  |      | (957.1  | )       |  |      | 999.7   |         |  |  | 788.0   |  |  |  | 670.7   |  |  |  | 86.0  | 
|US GAAP:                         |                                |  |                                                      |         |      |  |      |         |         |  |      |         |         |  |  |         |  |  |  |         |  |  |  |      
|                                 | Total assets                   |  |                                                      | 1,600.4 |      |  |      | 1,841.0 |         |  |      | 2,512.8 |         |  |  | 2,049.4 |  |  |  | 1,913.9 |  |  |  | 245.4 | 
|                                 | Long-term debt                 |  |                                                      | 1,079.6 |      |  |      | 1,224.7 |         |  |      | 753.7   |         |  |  | 556.7   |  |  |  | 546.9   |  |  |  | 70.1  | 
|                                 | Total liabilities              |  |                                                      | 1,633.6 |      |  |      | 2,798.1 |         |  |      | 1,513.1 |         |  |  | 1,271.8 |  |  |  | 1,245.1 |  |  |  | 159.7 | 
|                                 | Shareholders (deficit)/equity |  |                                                      | (33.2   | )    |  |      | (957.1  | )       |  |      | 999.7   |         |  |  | 777.6   |  |  |  | 668.8   |  |  |  | 85.7  | 

|                                                   |                                                 |                      |  |                                                      |        |      |  |         |        |      |  |         |         |         |  |         |        |   |  |         |        |   |  |      |       |  
|-------------------------------------------------- | ----------------------------------------------- | -------------------- |  | ---------------------------------------------------- | ------ | ---- |  | ------- | ------ | ---- |  | ------- | ------- | ------- |  | ------- | ------ | - |  | ------- | ------ | - |  | ---- | ----- | -
|                                                   |                                                 |                      |  | Year Ended December 31,                             
|                                                   |                                                 |                      |  |                                                     
|                                                   |                                                 |                      |  | 1998                                                 |        | 1999 |  | 2000    |        | 2001 |  | 2002    |         | 2002(1)
|                                                   |                                                 |                      |  |                                                      |        |      |  |         |        |      |  |         |         |        
|                                                   |                                                 |                      |  | HK$                                                  |        | HK$  |  | HK$     |        | HK$  |  | HK$     |         | US$    
|                                                   |                                                 |                      |  |                                                      |        |      |  |         |        |      |  |         |         |        
|                                                   |                                                 |                      |  | (in millions, except for per share and per ADS data)
|Cash flows data:                                   |                                                 |                      |  |                                                      |        |      |  |         |        |      |  |         |         |         |  |         |        |   |  |         |        |   |  |     
|HK GAAP:                                           |                                                 |                      |  |                                                      |        |      |  |         |        |      |  |         |         |         |  |         |        |   |  |         |        |   |  |     
|                                                   | Net cash inflow (outflow) from:                 |                      |  |                                                      |        |      |  |         |        |      |  |         |         |         |  |         |        |   |  |         |        |   |  |      |      
|                                                   |                                                 | Operating activities |  |                                                      | (552.4 | )    |  |         | (417.1 | )    |  |         | (324.4  | )       |  |         | (88.3  | ) |  |         | 129.3  |   |  |      | 16.6  |  
|                                                   |                                                 | Investing activities |  |                                                      | (207.0 | )    |  |         | (99.5  | )    |  |         | (203.4  | )       |  |         | (441.0 | ) |  |         | (109.5 | ) |  |      | (14.0 | )
|                                                   |                                                 | Financing activities |  |                                                      | 801.6  |      |  |         | 526.5  |      |  |         | 1,065.0 |         |  |         | (49.5  | ) |  |         | (17.6  | ) |  |      | (2.3  | )
|US GAAP:                                           |                                                 |                      |  |                                                      |        |      |  |         |        |      |  |         |         |         |  |         |        |   |  |         |        |   |  |     
|                                                   | Net cash inflow (outflow) from:                 |                      |  |                                                      |        |      |  |         |        |      |  |         |         |         |  |         |        |   |  |         |        |   |  |      |      
|                                                   |                                                 | Operating activities |  |                                                      | (552.4 | )    |  |         | (417.1 | )    |  |         | (324.4  | )       |  |         | (88.3  | ) |  |         | 129.3  |   |  |      | 16.6  |  
|                                                   |                                                 | Investing activities |  |                                                      | (207.0 | )    |  |         | (99.5  | )    |  |         | (203.4  | )       |  |         | (441.0 | ) |  |         | (109.5 | ) |  |      | (14.0 | )
|                                                   |                                                 | Financing activities |  |                                                      | 801.6  |      |  |         | 526.5  |      |  |         | 1,065.0 |         |  |         | (49.5  | ) |  |         | (17.6  | ) |  |      | (2.3  | )
|Other financial data:                              |                                                 |                      |  |                                                      |        |      |  |         |        |      |  |         |         |         |  |         |        |   |  |         |        |   |  |     
|                                                   | EBITDA (HK GAAP)(7)                             |                      |  | (529.5                                               | )      |      |  | (520.6  | )      |      |  | (119.4  | )       |         |  | 101.9   |        |   |  | 214.0   |        |   |  | 27.4 |      
|                                                   | EBITDA (US GAAP)(7)                             |                      |  | (529.5                                               | )      |      |  | (520.6  | )      |      |  | (123.2  | )       |         |  | 87.7    |        |   |  | 212.3   |        |   |  | 27.2 |      
|Operating data for mobile communications business: |                                                 |                      |  |                                                      |        |      |  |         |        |      |  |         |         |         |  |         |        |   |  |         |        |   |  |     
|                                                   | Number of subscribers                           |                      |  | 195,000                                              |        |      |  | 287,000 |        |      |  | 410,000 |         |         |  | 551,000 |        |   |  | 603,000 |        |   |  |      |      
|                                                   | Average monthly ARPU(HK$)(8)                    |                      |  | 249                                                  |        |      |  | 292     |        |      |  | 272     |         |         |  | 219     |        |   |  | 209     |        |   |  |      |      
|                                                   | Average monthly minutes of usage per subscriber |                      |  | 404                                                  |        |      |  | 329     |        |      |  | 353     |         |         |  | 415     |        |   |  | 476     |        |   |  |      |      
|                                                   | Average monthly churn rate(9)                   |                      |  | 4.8                                                  | %      |      |  | 5.8     | %      |      |  | 6.1     | %       |         |  | 8.3     | %      |   |  | 5.4     | %      |   |  |      |      



---

|(1) |  | Our financial statements are maintained in Hong Kong dollars. For
convenience, the U.S. dollar information as of and for the year ended
December 31, 2002 has been translated into U.S. dollars at the exchange
rate of HK$7.7988 = US$1.00, the noon buying rate on December 31, 2002.
You should not construe these translations as representations that the
Hong Kong dollars actually represent such U.S. dollar amounts or could
have been converted into U.S. dollars at the rate indicated or at any
other rates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | We launched our SUNDAY 1622 retail international long distance calling
service business in September 1999 and outsourced the sales, service and
billing functions in August 2000. The outsourcing arrangement was then
terminated in September 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|(3) |  | Cost of services consists of cost of mobile services and cost of other
services.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(4) |  | Operating expenses consist of network costs, depreciation, rent and
related costs, salaries and related costs, advertising, promotion and
other selling costs, and other operating expenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|(5) |  | Basic loss per share amounts for each of the two years ended December 31,
1998 and 1999 have been calculated as if there were 2,300,000,000 ordinary
shares in issue (comprising (a) 8,000 ordinary shares which were issued
and outstanding following our reorganization in February 2000 and (b)
2,299,992,000 ordinary shares issued to our five shareholders in the bonus
issue made as part of the restructuring of our capital upon the completion
of our global offering). Basic loss per share amounts for the year ended
December 31, 2000 have been calculated as if the 2,300,000,000 ordinary
shares were in issue on January 1, 2000 and on the basis that the
690,000,000 ordinary shares were issued on March 15, 2000 pursuant to the
global offering. See note 1(a) to our audited consolidated financial
statements. Basic loss per share amounts for each of each of the two years
ended December 31, 2001 and 2002 have been calculated based on the
weighted average number of 2,990,000,000 ordinary shares in issue during
the year. The ADS to share ratio was changed from 1:30 to 1:100 in July
2002. The comparative basic loss per ADS amounts for each of the four
years ended December 31, 1998, 1999, 2000 and 2001 had been restated based
on the new ADS to share ratio to conform with the 2002 presentation.

2



---



##### Table of Contents



|(6) |  | We changed the method of accounting on the 3G license acquired in October
2001 and the consolidated balance sheet as of December 31, 2001 had been
restated to reflect the adjustments. Note 3 to our audited consolidated
financial statements provides a description of the change in accounting
policy and the restatements made.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(7) |  | EBITDA represents earnings (loss) before interest income and finance
costs, income tax expense (benefit), depreciation, amortization and share
of losses from joint ventures. EBITDA is presented because we believe it
is an accepted financial indicator of a companys ability to meet its
future debt service, capital expenditure and working capital requirements.
Since the telecommunications business is capital intensive, capital
expenditure and level of debt and interest expenses may have a significant
impact on net income for companies with similar operating results.
Therefore, for a telecommunications company such as ourselves, we believe
that EBITDA provides a useful reflection of our operating results.
However, EBITDA should not be considered in isolation or as an alternative
to net income (loss) as determined under HK GAAP or US GAAP as an
indicator of operating performance or as an alternative to cash flow as
determined under HK GAAP or US GAAP as a measure of liquidity. In
addition, our EBITDA, which is not a measure under HK GAAP or US GAAP, is
not comparable to that of other companies, which may determine EBITDA
differently.
|   
|    |  | As a measure of our operating performance, we believe that the most directly
comparable HK GAAP and US GAAP measure to EBITDA is net income. The following
table reconciles our net loss under HK GAAP to our definition of EBITDA on a
consolidated basis for each of the five years ended December 31, 1998, 1999,
2000, 2001 and 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

|            |                                     |  |                         |        |      |  |        |        |      |  |               |        |         |  |        |        |   |  |        |        |   |  |       |       |  
|----------- | ----------------------------------- |  | ----------------------- | ------ | ---- |  | ------ | ------ | ---- |  | ------------- | ------ | ------- |  | ------ | ------ | - |  | ------ | ------ | - |  | ----- | ----- | -
|            |                                     |  | Year Ended December 31,
|            |                                     |  |                        
|            |                                     |  | 1998                    |        | 1999 |  | 2000   |        | 2001 |  | 2002          |        | 2002(1)
|            |                                     |  |                         |        |      |  |        |        |      |  |               |        |        
|            |                                     |  | HK$                     |        | HK$  |  | HK$    |        | HK$  |  | HK$           |        | US$    
|            |                                     |  |                         |        |      |  |        |        |      |  |               |        |        
|            |                                     |  |                         |        |      |  |        |        |      |  | (in millions) |        |         |  |        |        |   |  |       
|EBITDA      |                                     |  | (529.5                  | )      |      |  | (520.6 | )      |      |  | (119.4        | )      |         |  | 101.9  |        |   |  | 214.0  |        |   |  | 27.4  |      
|Add (less): |                                     |  |                         |        |      |  |        |        |      |  |               |        |         |  |        |        |   |  |        |        |   |  |       |      
|            | Depreciation                        |  |                         | (187.4 | )    |  |        | (227.3 | )    |  |               | (261.3 | )       |  |        | (265.1 | ) |  |        | (256.4 | ) |  |       | (32.9 | )
|            | Interest income                     |  |                         | 1.8    |      |  |        |        |      |  |               | 51.1   |         |  |        | 21.6   |   |  |        | 3.5    |   |  |       | 0.4   |  
|            | Finance costs                       |  |                         | (87.8  | )    |  |        | (178.2 | )    |  |               | (136.9 | )       |  |        | (70.1  | ) |  |        | (59.8  | ) |  |       | (7.6  | )
|            | Share of losses from joint ventures |  |                         |       |      |  |        |       |      |  |               |       |         |  |        |       |   |  |        | (18.6  | ) |  |       | (2.3  | )
|Net loss    |                                     |  | (802.9                  | )      |      |  | (923.9 | )      |      |  | (466.5        | )      |         |  | (211.7 | )      |   |  | (117.3 | )      |   |  | (15.0 | )    



| |  | The following table reconciles our net loss under US GAAP to our definition
of EBITDA on a consolidated basis for each of the five years ended December
31, 1998, 1999, 2000, 2001 and 2002.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|            |                                     |  |                         |        |      |  |        |        |      |  |               |        |         |  |        |        |   |  |        |        |   |  |       |       |  
|----------- | ----------------------------------- |  | ----------------------- | ------ | ---- |  | ------ | ------ | ---- |  | ------------- | ------ | ------- |  | ------ | ------ | - |  | ------ | ------ | - |  | ----- | ----- | -
|            |                                     |  | Year Ended December 31,
|            |                                     |  |                        
|            |                                     |  | 1998                    |        | 1999 |  | 2000   |        | 2001 |  | 2002          |        | 2002(1)
|            |                                     |  |                         |        |      |  |        |        |      |  |               |        |        
|            |                                     |  | HK$                     |        | HK$  |  | HK$    |        | HK$  |  | HK$           |        | US$    
|            |                                     |  |                         |        |      |  |        |        |      |  |               |        |        
|            |                                     |  |                         |        |      |  |        |        |      |  | (in millions) |        |         |  |        |        |   |  |       
|EBITDA      |                                     |  | (529.5                  | )      |      |  | (520.6 | )      |      |  | (123.2        | )      |         |  | 87.7   |        |   |  | 212.3  |        |   |  | 27.2  |      
|Add (less): |                                     |  |                         |        |      |  |        |        |      |  |               |        |         |  |        |        |   |  |        |        |   |  |       |      
|            | Depreciation                        |  |                         | (187.4 | )    |  |        | (227.3 | )    |  |               | (261.3 | )       |  |        | (265.1 | ) |  |        | (256.4 | ) |  |       | (32.9 | )
|            | Interest income                     |  |                         | 1.8    |      |  |        | 2.2    |      |  |               | 51.1   |         |  |        | 21.6   |   |  |        | 3.5    |   |  |       | 0.4   |  
|            | Finance costs                       |  |                         | (87.8  | )    |  |        | (178.2 | )    |  |               | (136.9 | )       |  |        | (70.1  | ) |  |        | (59.8  | ) |  |       | (7.6  | )
|            | Share of losses from joint ventures |  |                         |       |      |  |        |       |      |  |               |       |         |  |        |       |   |  |        | (18.6  | ) |  |       | (2.3  | )
|            | Deferred tax credit                 |  |                         | 1.8    |      |  |        |       |      |  |               |       |         |  |        |       |   |  |        |       |   |  |       |      |  
|Net loss    |                                     |  | (801.1                  | )      |      |  | (923.9 | )      |      |  | (470.3        | )      |         |  | (225.9 | )      |   |  | (119.0 | )      |   |  | (15.2 | )    



---

|(8) |  | Monthly average revenue per user (ARPU), or the monthly average revenue
from mobile services per post-paid subscriber, is computed by dividing
total revenue from mobile services for the month (including airtime
revenue, value-added and enhanced services revenue, revenue from airtime
for roaming and international long distance calls that terminate at our
subscribers mobile phone numbers, as well as from airtime revenue arising
from foreign subscribers roaming on our mobile network, but excluding
subscription fees paid in advance, deposit payments and revenue from sales
of mobile phones and accessories and prepaid SIM cards) by the daily
weighted average number of mobile services subscribers for the month.
Average monthly ARPU is the sum of ARPU for each month in the period
divided by the number of months in the period.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(9) |  | The monthly churn rate is calculated by expressing the net number of
post-paid subscriber deactivations or disconnections for the month as a
percentage of the number of post-paid subscribers at the beginning of such
month. The average monthly churn rate is the sum of the monthly churn
rates in the period divided by the number of months in the period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

3



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##### Table of Contents



Exchange Rate Information

The Hong Kong dollar is freely convertible into other currencies
(including the U.S. dollar). Since 1983, the Hong Kong dollar has effectively
been officially linked to the U.S. dollar at the rate of approximately HK$7.80
= US$1.00. However, the market exchange rate of the Hong Kong dollar against
the U.S. dollar continues to be influenced by the forces of supply and demand
in the foreign exchange market. Exchange rates between the Hong Kong dollar and
other currencies are influenced by the rate between the U.S. dollar and the
Hong Kong dollar.

The Basic Law of Hong Kong provides that the Hong Kong dollar is to remain
the legal tender in Hong Kong after July 1, 1997 when Hong Kong became a
Special Administrative Region of The Peoples Republic of China, or the PRC.
The Basic Law also provides that no foreign exchange control policies will be
applied in Hong Kong and that the Hong Kong dollar is to be freely convertible.
During the Asian regional economic crisis in 1998, however, the Hong Kong
government intervened on several occasions in the foreign exchange market by
purchasing the Hong Kong dollar and selling the U.S. dollar to support the
value of the Hong Kong dollar.

The following table sets forth the average, high, low and period-end noon
buying rate between the Hong Kong dollar and the U.S. dollar (in Hong Kong
dollars per U.S. dollar) for the periods indicated:

|     |          |  |                              |        |      |  |        |        |            |  |        |        |  |  |        |        | 
|---- | -------- |  | ---------------------------- | ------ | ---- |  | ------ | ------ | ---------- |  | ------ | ------ |  |  | ------ | ------ | 
|     |          |  | Hong Kong dollar/U.S. dollar
|     |          |  | Noon Buying Rate            
|     |          |  |                             
|     |          |  | Average                      |        | High |  | Low    |        | Period-End
|     |          |  |                              |        |      |  |        |        |           
|     |          |  | HK$                          |        | HK$  |  | HK$    |        | HK$       
|1998 |          |  | 7.7465                       | (1)    |      |  | 7.7595 |        |            |  | 7.7355 |        |  |  | 7.7476 |       
|1999 |          |  | 7.7599                       | (1)    |      |  | 7.7814 |        |            |  | 7.7210 |        |  |  | 7.7740 |       
|2000 |          |  | 7.7936                       | (1)    |      |  | 7.8008 |        |            |  | 7.7765 |        |  |  | 7.7999 |       
|2001 |          |  | 7.7996                       | (1)    |      |  | 7.8004 |        |            |  | 7.7970 |        |  |  | 7.7980 |       
|2002 |          |  | 7.7996                       | (1)    |      |  | 7.8095 |        |            |  | 7.7970 |        |  |  | 7.7988 |       
|     | December |  |                              | 7.7988 |      |  |        | 7.7992 |            |  |        | 7.7980 |  |  |        | 7.7988 | 
|2003 |          |  |                              |        |      |  |        |        |            |  |        |        |  |  |        |       
|     | January  |  |                              | 7.7994 |      |  |        | 7.8001 |            |  |        | 7.7988 |  |  |        | 7.8001 | 
|     | February |  |                              | 7.7995 |      |  |        | 7.8000 |            |  |        | 7.7989 |  |  |        | 7.7991 | 
|     | March    |  |                              | 7.7991 |      |  |        | 7.7995 |            |  |        | 7.7987 |  |  |        | 7.7995 | 
|     | April    |  |                              | 7.7996 |      |  |        | 7.7998 |            |  |        | 7.7991 |  |  |        | 7.7991 | 
|     | May      |  |                              | 7.7991 |      |  |        | 7.7995 |            |  |        | 7.7985 |  |  |        | 7.7987 | 



---

|Source: Bloomberg
|-----------------
|                 
|(1)              

RISK FACTORS

Risks Relating to Our Businesses and Operations

Current profitability is a
recent development.

SUNDAY
has generated positive cash flow from operating activities since 2002
and in January 2003 started earning net income on a month-to-month
basis. This is the first period since we commenced commercial
operations in September 1997 that we have been profitable and had
positive operating cash flow and as of December 31,
2002, we had accumulated losses of approximately HK$3,006.7 million.

We cannot be certain as to whether our
profitability is sustainable. We may incur net losses and negative
operating cash flows again as we expand our business, including
enhancing our wireless network to accommodate increased usage and new
technologies, developing our wireless data services, and incurring
increased sales and marketing costs associated with our new
businesses and services. To achieve sustained profitability, we will need in
particular to continue to expand our mobile subscriber base, attract users and
subscribers to our new services and increase the average revenue per user of
our services. Whether we will continue to be profitable will also depend on our ability to
develop new services successfully. We also expect our operating expenses to
increase significantly as our business grows. The level of these expenses is
based largely on anticipated organizational growth and revenue trends and a
high percentage of these operational expenses are, and will continue to be,
fixed. As a result, any delays in generating revenue could result in
substantial operating losses. If we do not stay profitable and cash
flow positive, our business and financial condition would be materially
adversely affected. Our ability to service our debt could be also materially
adversely affected.

4



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##### Table of Contents



We cannot assure you that when we introduce the third generation, or 3G,
wireless services, we will be successful in developing the 3G services as
currently required by our 3G license or the quality and levels of 3G services
currently planned.

We were awarded one of Hong Kongs four 3G licenses in October 2001. We
expect that we would not begin to invest significantly in the construction and
implementation of 3G services until 2004. Our 3G license currently requires
that our 3G network and services will cover at least 50% of the population of
Hong Kong by the end of 2006.

Critical issues in 3G, such as the availability of mobile phones and
international roaming capabilities, are still being resolved by wireless
operators worldwide. As is common with undertakings of this scale and
complexity, we may experience various difficulties, including software,
network, mobile phones and other technical problems and we cannot be certain
that we will be able to fully resolve the problems currently experienced by
other wireless operators or that we will not encounter new problems. For
example, we cannot be certain that:



| |  |  | when completed, our 3G network and services will deliver the quality
and levels of services as currently planned;                                                                                       
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | we will be able to provide all planned 3G services, or that we will
be able to provide such services on schedule, and that developing and
providing such services will not be more costly than expected;
|
| |  |  | manufacturers and content providers will create and offer products,
including mobile phones for our 3G system and contents for our 3G
services, on a timely basis;                                      
|
| |  |  | there will be sufficient demand for 3G services to offer these services profitably; or                                                                                                                  
|
| |  |  | our competitors will not be able to offer similar services at lower prices.                                                                                                                             

If we experience substantial problems with the rollout of our 3G network
or our 3G services in the future, it may adversely affect the range of our
wireless voice and data services offered to our subscribers and may hinder our
business growth.

Our wireless data services present us with unique risks and challenges and we
can give no assurance that we will succeed.

The use of wireless devices for accessing the internet is still in an
early stage of development. There is no current proven business model for the
provision of wireless data services in Hong Kong. The success of our data
services will depend on the application of new technologies, the development of
new and innovative service plans and products as well as the successful
introduction of mobile devices which can provide fast and easy access to the
internet. We cannot be certain that our strategy in this area will succeed or
that we will be able to compete and achieve market acceptance for our products
and services.

We may require additional funds.

Our business requires significant capital expenditures, as well as
marketing, development and other operating expenditures. We will need to
continually expend capital to maintain and upgrade our network, develop our new
business lines, and market our existing and new services. On October 22, 2001,
we were awarded a 3G license from the Hong Kong Telecommunications Authority,
or the HKTA, of which the minimum annual fees aggregate to approximately
HK$1,306.8 million, payable over its 15-year license period. We are also
required to provide a rolling performance bond to the HKTA covering the next
five years minimum annual fees. Details of such requirements are set out in
Item 4 Information on the Company  Business Overview  Regulation. We expect
that the impact of capital expenditure and other expenses relating the rollout
of the 3G network would not be significant until 2004.

In addition, as of December 31, 2002, we had debt service requirements
(excluding interest and obligations under our finance leases) of HK$785.3
million which is repayable in quarterly payments through September 11, 2004.

Our expenditure plans and financing needs may grow faster than expected.
If we are unable to maintain adequate financing, we will be unable to fund our
capital expenditures, expand our business lines or meet our debt service
obligations.

We have pledged substantially all of our assets to secure vendor and bank
financing.

Substantially all our assets, including the 3G license, are pledged to
secure debt arising from a vendor loan received from Nortel Networks (Asia)
Limited, or Nortel, and a bank loan received from Union Overseas Bank Limited,
or UOB (formerly Overseas Union Bank Limited or OUB). As of December 31, 2002,
the outstanding debt under these facilities totalled approximately HK$785.3
million. These security arrangements, together with restrictive covenants in
the Nortel and UOB financing agreements, will limit our ability to obtain new
financing. If we default on the repayment of the underlying debt, Nortel and
UOB could enforce their security interests by seizing our assets or forcing us
to sell our assets to repay the debt. In the event of a liquidation of our
company, Nortel and UOB will have priority over our unsecured creditors and our
ordinary share and ADS holders.

5



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We have and expect to continue to have substantial debt, which will require us
to improve our cash flow to satisfy the related debt service obligations,
increases our vulnerability to adverse developments and creates other risks.

We have fully utilized the Nortel and UOB facilities of approximately
HK$1.8 billion. We used US$130 million (HK$1,012.7 million) to temporarily
repay part of our debt to Nortel in 2000, and at the same time Nortel provided
us with a revolving loan facility of the same amount. The outstanding debt
amounted to HK$785.3 million as of December 31, 2002, which is repayable in
quarterly payments through September 11, 2004. The available amount of Nortels
revolving loan facility as of December 31, 2002 was US$61.7 million. Therefore,
our debt repayment obligations are substantial and will require us to dedicate
a substantial portion of our cash flow to pay interest and principal. Our cash
flow is, in large part, generated from operations and utilizing existing
financing facilities. We cannot give you any assurance that our operating cash
flow will improve sufficiently or that we will be able to satisfy the required
conditions to enable us to obtain funds under our existing facilities.
Furthermore, if our operating cash flow does not grow as expected, we will need
to raise additional financing, which may not be available on attractive terms
or at all.

Our debt service requirements will consume cash that might otherwise be
available to maintain and expand our business. Furthermore, our leverage and
the covenants imposed under certain financing agreements increase our
vulnerability to adverse developments in our company, the industry, market
interest rates and the general economy, limit our ability to take advantage of
or react to new trends and challenges in our business, and place us at a
competitive disadvantage relative to competitors with less debt.

We are subject to covenants in our financing agreements that restrict our
financial and operating flexibility.

Our financing arrangements with our principal lenders, Nortel and UOB,
subject us to a number of covenants that restrict our financial and operating
flexibility and include financial and operating targets that Mandarin
Communications Limited, or Mandarin, our principal operating subsidiary, must
satisfy to avoid default. In particular:



| |  |  | Mandarin must operate its business in accordance with business plans
approved by Nortel and UOB except for variations that would not have a
material adverse effect on Mandarins financial condition, its
operations or its ability to repay the debt;                                         
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Mandarin cannot incur capital expenditures in any budgeted period
greater than 15% above the levels specified in its business plan then in
effect;                                                                                                                                              
|
| |  |  | Mandarin is required to continuously meet certain subscriber, EBITDA, tangible net worth and debt service ratio targets;                                                                                                                                                                        
|
| |  |  | Mandarin is required to maintain a minimum of six-months debt service in a reserve account;                                                                                                                                                                                                    
|
| |  |  | Mandarin is required to apply 50% of all its excess cash flow to the
repayment of debt. Excess cash flow means gross revenues less the
payment of agreed levels of operating expenses, working capital, capital
expenditures, debt service reserve requirements and debt service
payments; and
|
| |  |  | without the consent from Nortel and UOB, Mandarin generally cannot
incur new debt except for certain permitted indebtedness incurred in the
ordinary course of business.                                                                                                                        

Failure to comply with these covenants would entitle the lenders to
accelerate the maturity of Mandarins outstanding debt under the Nortel and UOB
facilities and exercise their security rights over substantially all of our
assets. See Item 5 Operating and Financial Review and Prospects  Liquidity
and Capital Resources  Certain Indebtedness for a more complete summary of
the terms of these facilities.

In the past, our shareholders and their affiliates have provided us with
significant financial assistance in the form of shareholder loans, guarantees
and other support, including in connection with the Nortel and UOB facilities.
Although we do not expect to need such shareholders support in the future, we
can give no assurance that it will be available if needed.

Our limited resources may cause delays in implementing our plan of aggressive
growth and expansion.

The launch of our new products and services is critical to the success of
our business plan. The implementation of this plan will impose a greater burden
on our systems and may strain our administrative, operational and financial
resources. We will have to cope with managing the simultaneous implementation
of our infrastructure development and marketing plans, while expanding our
internal management, technical, information and accounting systems. We face the
risk of unforeseen complications in the deployment of new technologies, such as
GPRS and 3G. Our failure to achieve these objectives in a timely manner and on
a cost effective basis could delay the implementation of new services, reduce
the quality and functionality of the services, increase our operational costs,
reduce our actual and potential market share, hinder us from realizing our
revenue streams and otherwise materially adversely affect our results of
operations, prospects and financial condition.

6



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We are dependent on key personnel and our business and growth will suffer if we
were unable to hire or retain them.

We depend upon the continued contributions of our directors, senior
management and other key personnel, many of whom would be difficult to replace.
We have entered into service contracts with all of our executive directors
which are terminable within one year without payment of compensation, other
than statutory compensation. We have also entered into employment contracts
with other senior officers and key personnel, most of which are terminable on
three months notice. In addition, competition for qualified personnel in the
communications industry is intense. We may not be able to attract, retain or
adequately motivate qualified technical and management executives and other key
personnel. Our business development strategies, business and prospects would be
adversely affected if we were not able to recruit and retain such personnel.

We are dependent on interconnection with our competitors networks and
gateways.

We are dependent on interconnection with our competitors mobile and
fixed-line networks, gateways and private lease circuits for our businesses.
For example, we rely on such interconnections or facilities when:



| |  |  | our mobile subscribers receive or send calls from or to subscribers of other Hong Kong mobile or fixed-line operators; 
| | - |  | -----------------------------------------------------------------------------------------------------------------------
|
| |  |  | our mobile subscribers make or receive international long distance calls to and from destinations outside of Hong Kong;
|
| |  |  | non-SUNDAY mobile users access our sunday.com web site; and                                                          
|
| |  |  | fixed-line users access our sunday.com web site.                                                                     

PCCW Limited (formerly Pacific Century CyberWorks Limited) is the dominant
fixed-line service provider in Hong Kong and until January 1, 1999 was the
exclusive provider of basic international long distance calling services in
Hong Kong. Although we have interconnection agreements with all of the
fixed-line networks in Hong Kong, substantially almost all our mobile and
internet traffic is connected through the networks, gateways and other
facilities of PCCW. Regulations of the Office of Telecommunications Authority,
or the OFTA, require that PCCW and other fixed line operators make
interconnections in Hong Kong generally available to other communications
companies. Until adequate alternative networks or substitute facilities are
more fully developed, we will continue to be dependent on our competitors for
interconnections. If for any reason such interconnection arrangements are
terminated or not renewed, or any of the interconnections or facilities become
unavailable to us or experience capacity problems, one or more of our services
may be delayed, interrupted or stopped, the quality of our services may be
lowered, or our subscriber churn rates may increase, any of which could
adversely affect our results of operations, our business and our prospects.

We may not be able to deliver our services if we experience system failure or
shutdown in communications networks.

Our mobile communications, international long distance calling, and data
and internet services are currently carried through our mobile network, the
circuits of local fixed-line network operators, international private lease
circuits, our own switching systems, other fixed international long distance
operators and the switching systems of international long distance operators
and other network-related infrastructure. The provision of our services and
products depends on the stability of this integrated network. This network may
be vulnerable to damage or interruptions in operation due to earthquake, fire,
power loss, telecommunications failures, network software flaws, transmission
cable cuts, or similar events. Any failure of this integrated network, our
servers, or any link in the delivery chain that results in an interruption in
our operations or our provision of any service, whether from operational
disruption, natural disaster or otherwise, could lead to significant negative
publicity, reduce our ability to attract and retain subscribers and adversely
affect our results of operations and financial condition.

We rely on third-party vendors and delays in lead times or problems with supply
may adversely affect our operations.

We rely on third-party vendors with respect to many aspects of the
development and operation of our mobile network. The principal supplier of our
radio and switching infrastructure and equipment is Nortel. The principal
suppliers of our mobile phones and accessories are Nokia, Sony Ericsson,
Alcatel, Samsung, Siemens and Motorola, which collectively accounted for 99% of
the mobile phones supplied to us in 2002. We expect that this trend will
continue in 2003. Failure by any of these or other suppliers to provide
equipment, software and services in accordance with specifications and in a
timely manner could materially adversely affect our operations and business
prospects and increase our costs.

We rely on sophisticated billing and credit control systems.

Sophisticated billing and credit control systems are critical to our
ability to increase revenue streams, avoid revenue loss, monitor costs and
potential credit problems, and bill customers properly and in a timely manner.
If adequate billing and credit control systems and software programs are
unavailable or if upgrades are delayed or not introduced in a timely manner or
if we are unable to integrate such systems and software programs into our
billing and credit systems, we may be unable to offer services to certain
customers. In addition, we may experience delayed billing which may negatively
affect our cash flow and other aspects of our operations.

7



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We may need to expand and adapt our billing and credit control systems to
capture revenue streams as our businesses continue to grow. Our failure to do
so could adversely affect our business, prospects, financial condition and
results of operations. We expect new technologies and applications arising in
particular from the convergence of our communications and data businesses to
create increasing demands on our billing and credit control systems. We may
decide to launch certain services and products even though we do not have the
ability to capture revenue in full at the time of launch.

We may have conflicts of interest with Distacom, our controlling shareholder.

As the controlling shareholder, the Distacom group of companies is likely
to be able to elect a majority of its representatives to our board of directors
and to control the outcome of any action requiring shareholders approval.

Because the Distacom group of companies has interests in other
communications service and internet related service providers, it is possible that it may direct suitable
business opportunities to other companies under its control. We have entered
into a non-competition agreement with Distacom Communications Limited in which
Distacom has agreed that, subject to certain conditions, neither Distacom nor
any of its subsidiaries will be interested or engaged in any Hong Kong mobile
or fixed line telecommunications business or in any Hong Kong-focused
internet-related business. No assurance can be given that such agreement will
be adequate to protect our interests. If members of the Distacom group enter
into any of the businesses in which we are currently involved or enter into any
future businesses into which we may wish to enter, our revenue, financial
condition and results of operations may be adversely affected. See Item 7
Major Shareholders and Related Party Transactions  Related Party Transactions
 Transactions with Principal Shareholders and Their Affiliates  Shareholder
Non-competition Agreement.

Our shareholders may face difficulties in protecting their interests under the
laws of the Cayman Islands or Hong Kong.

Our corporate affairs are governed by our Memorandum and Articles of
Association and by the Companies Law (Revised) of the Cayman Islands. The laws
of the Cayman Islands relating to the protection of the interests of minority
shareholders and to the fiduciary responsibilities of directors may differ from
the laws in certain jurisdictions in the United States and the corresponding
remedies available to such shareholders may differ accordingly. A summary of
the laws of the Cayman Islands relating to protection of minority shareholders
is set out in Item 10 Additional Information  Memorandum and Articles of
Association. The rights of our shareholders and the fiduciary responsibilities
of our directors under Cayman Islands and Hong Kong law may not be as clearly
established as under statutes or judicial precedent in existence in certain
jurisdictions in the United States. Therefore, our public shareholders may have
more difficulty in protecting their interests in the face of actions by our
directors, management or controlling shareholders than would shareholders of a
corporation incorporated in certain jurisdictions in the United States.

All of our directors and senior officers and our large shareholders live
outside the United States. Also, all or most of our assets are located outside
the United States. As a result, you may not be able to:



| |  |  | effect service of process upon us or these persons within the United
States; or                                                                                                                                 
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | enforce against us or these persons in the United States courts,
judgments obtained in the United States courts. These judgments include
judgments relating to the federal securities laws of the United States.

There is doubt as to whether Hong Kong courts or Cayman Islands courts
will enforce judgments of United States courts, based only upon the civil
liability provisions of the federal securities laws of the United States or the
securities laws of any state of the United States.

Industry Risks

If we are unable to stay ahead of technology trends and evolving industry
standards, our services and products may become obsolete.

Our mobile communications and wireless data businesses are characterized
by rapidly changing technology and industry standards, subscriber needs and new
products and services. The emerging nature of these products and services,
their rapid evolution and increasingly shorter life cycles require us to
continually improve our performance, products, services, network and our
ability to respond to offerings by competitors.

We cannot be certain that we can continue to be successful in responding
in a timely and cost-effective way to keep up with these developments.
Furthermore, changing our services in response to market demand may require the
adoption of new technologies that could render many of the technologies that we
are currently implementing less competitive or obsolete. To respond
successfully to technological advances and emerging industry standards, we may
require substantial capital expenditure and access to related or enabling
technologies in order to integrate the new technology with our existing
technology. We may not be successful in modifying our network infrastructure in
a timely and cost-effective manner to facilitate such integration, which could
adversely affect our quality of services, our results of operations and our
business and prospects.

8



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Our success depends on increased wireless data usage.

Our future success depends on more people and businesses in Hong Kong
using wireless data services. Commercial use of wireless data services is still
developing and subject to many uncertainties. The data transmission speed for
accessing to the internet through mobile telephones or other wireless devices
is still low. Critical issues such as cost, security, reliability, ease of
deployment, administration, availability of access devices, data transmission
speed and quality of service may affect the adoption of wireless data
applications and the internet to solve business needs in such markets. Our
profitability could depend greatly on a sustained growth of wireless data
applications in such markets.

We operate in an increasingly competitive environment in Hong Kong in the
mobile communications industry.

The Hong Kong mobile communications industry is highly competitive,
particularly since the March 1, 1999 introduction of mobile number portability,
or MNP, which enables mobile subscribers in Hong Kong to retain their telephone
numbers when they switch to different service providers. We believe that
currently the three largest operators collectively have a market share of
approximately 60%. Their pricing policies have affected and could significantly
affect our tariff pricing and our ability to generate sufficient revenue. There
have been periods of extreme price competition or price wars among Hong Kong
wireless communications providers, which have generally been initiated by our
competitors. If our competitors adopt further tariff lowering strategies, such
as providing substantial handset subsidies and free airtime, our subscriber
churn rates may increase and our tariff revenue will be adversely affected.

Many of our competitors have longer operating histories, larger customer
bases and databases and significantly greater financial, technical, marketing,
human and other resources than us. These competitors may also provide products
and services that provide significant performance, price, creative, integrated
or other advantages over those that we offer or plan to offer. Accordingly, our
competitors may be better positioned than us to absorb operating losses and
launch competitive products and services.

We expect competition to intensify as a results of possible entry of new
competitors, consolidation of market leaders and the rapid development of new
technologies, products and services. Our ability to compete successfully will
depend on our ability to anticipate and respond to various competitive factors
affecting the industry, including new services that may be introduced, changes
in consumer preferences, economic conditions and discount pricing strategies by
competitors. Future business combinations and alliances in the
telecommunications industry may create significant new competitors and could
harm our business and results of operations.

Health risk concerns about mobile phones could adversely affect our business.

Allegations that serious health risks have resulted from the use of mobile
phones have adversely affected share prices of certain mobile communications
companies in the United States in the past. The actual or perceived risk of
using mobile phones or any related litigation could adversely affect us through
reduced subscriber growth or a reduction in the number of subscribers or usage
per subscriber. In addition, we could be subject to liability or incur
significant costs defending lawsuits brought by our subscribers or other
parties who claim to have been harmed by or as a result of our services.

Security concerns could limit our ability to generate revenues from our
wireless data businesses and subject us to legal liability.

Our infrastructure is potentially vulnerable to computer viruses,
break-ins and similar disruptive problems caused by our subscribers. Computer
viruses, break-ins or other problems could lead to the following problems:



| |  |  | interruption, delay or cessation in service to our customers;                                 
| | - |  | ----------------------------------------------------------------------------------------------
|
| |  |  | compromised security of confidential information stored in our customers computer system; and
|
| |  |  | costly litigation.                                                                            

It is critical that our wireless data services maintain secure, high
quality data transmission with minimal service disruptions or interference. Our
failure to maintain a consistent level of secure, high quality service could
harm our reputation and have a material adverse effect on our ability to
realize revenue from our wireless data businesses and in turn adversely affect
our operating results, financial condition, business and prospects.

Until more comprehensive security technologies are developed, the security
and privacy concerns of existing and potential customers may inhibit the growth
of such businesses in general and our subscriber base and revenues from
wireless data services in particular. We also may be required to spend
substantial resources or discontinue certain services or content offerings,
which could adversely affect our operating results, financial condition,
business or prospects.

Our exposure to such security concerns is heightened as Hong Kong and PRC
law relating to liability under such circumstances is relatively new and
untested. In addition, we do not carry errors and omissions or other
insurance covering losses or liability caused by computer viruses or security
breaches, which under certain circumstances could mitigate damages that we may
suffer. If we incur any such losses or liability, our operating results,
financial condition, business and prospects also may be adversely affected.

9



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We may be held liable for information retrieved from or sent through our
internet web site.

Because our mobile communications and data services can be used to
download and distribute information to others, there is a risk that we may face
claims for defamation, negligence, copyright or trademark infringement or other
claims based on the nature and content of such material. Our insurance may not
cover potential claims of this type, or may not be adequate to indemnify us for
all liability that may be imposed. Any imposition of liability that is not
covered by our insurance or is in excess of our insurance coverage could have a
material adverse effect on our business, results of operations and financial
condition.

Regulatory, Economic and Political Risks

We are in a highly regulated business and we require licenses from the Hong
Kong Telecommunications Authority, or HKTA, without which we would be unable to
operate.

We are subject to the rules and regulations of the HKTA which regulates
the telecommunications industry in Hong Kong and OFTA which assists the HKTA in
enforcing and administering the Telecommunications Ordinance. The HKTAs
authority includes regulating and licensing telecommunications facilities and
managing the radio frequency spectrum. If the HKTA determines that we have
violated Hong Kongs telecommunications laws or regulations or the conditions
of our licenses, the HKTA may suspend or cancel our licenses or take other
action detrimental to us. We are also subject to various other rules, laws and
ordinances applicable to companies operating in Hong Kong, including, for
example, laws relating to obscenity and privacy. If we are found to be in
violation of these laws, we may face judgments or consequences detrimental to
our business. In addition, our licenses have fixed duration, and we may not be
granted renewals. The Chief Executive in Council may also cancel or suspend
licenses if he considers it in the public interest to do so. Furthermore, if
the HKTA changes its existing telecommunications regulations or policies such
as those governing interconnection or competition, our results of operations,
our financial condition, business and prospects could be adversely affected.

If we are found to be in violation of our license conditions or any
applicable laws or regulations enacted in the future, our business may be
severely affected. See Item 4 Information on the Company  Business Overview 
Regulation.

There may be political risks associated with doing business in Hong Kong.

Our primary facilities and operations are located in Hong Kong. Hong Kong
is a Special Administrative Region of the PRC with independent executive,
judicial and legislative branches of government. While Hong Kong presently
enjoys a high degree of autonomy from the PRC under the principle of one
country, two systems, developments in the PRC have in the past adversely
affected and may in the future adversely affect the political and economic
environment in Hong Kong.

The state of Hong Kongs economy may affect our performance and financial
condition.

The Hong Kong economy has experienced considerable volatility since the
second half of 1997. Hong Kongs primary economic sectors, such as real estate,
retail and finance, have generally declined and recovery is slow.

We generate substantially all of our revenue from operations in Hong Kong.
Our future performance will depend in large part on Hong Kongs future economic
growth. Adverse developments in Hong Kongs economy or in political or social
conditions in Hong Kong may have an adverse effect on our number of
subscribers, usage per subscriber and results of operations. In addition, a
deterioration of economic, political or social conditions in Hong Kong could
have an adverse effect on the prices of our ordinary shares and the ADSs.

The economy of Hong Kong is significantly affected by developments in the
PRC and elsewhere in the Asia-Pacific region and the United States. The PRC
economy may experience adverse economic developments and other regional or
local economies may deteriorate further and this would have an adverse impact
on Hong Kongs economy.

In addition, as the economy in Hong Kong continues to evolve, the Hong
Kong government may increase the currently prevailing tax rates or the types of
taxes imposed or change the tax structure. If any of these occur, they may
adversely affect our sales and revenue, as well as our results of operations,
business and prospects, including our ability to operate profitably.

Effect of Severe Acute Respiratory Syndrome on the Hong Kong Economy

In March 2003, several countries, including Hong Kong, experienced an
outbreak of a new and highly contagious form of atypical pneumonia now known as
severe acute respiratory syndrome or SARS. While the long-term impact of
the SARS outbreak is unclear at this time, the prolonged existence of SARS
could have a negative impact on the Hong Kong economy and, in turn, have a
material adverse effect on our operating results, financial condition, business
and prospect. These adverse effects may result from several factors, including
travel restrictions, reduction in economic activity and confidence in the
affected regions. Although the number of new cases in Hong Kong has recently
abated, we are unable to predict the long-term effects that these factors may
have on our business.

10



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Fluctuations in currency exchange rates could increase our costs relative to revenues.

Substantially all of our operating revenues, expenses and liabilities are
denominated in Hong Kong dollars. However, we also incur significant expenses
and liabilities in U.S. dollars, mainly in connection with financing our
capital expenditure. Also, the Nortel loan facility is denominated in U.S.
dollar. As a result, we could be exposed to adverse effects of exchange rate
fluctuations, particularly against the U.S. dollar. Significant fluctuations in
the U.S. dollar to Hong Kong dollar exchange rate would be likely to have an
adverse effect on our operating results and financial condition.

The Basic Law of Hong Kong provides that the Hong Kong dollar is to remain
the legal tender in Hong Kong after July 1, 1997. The Basic Law also provides
that no foreign exchange control policies will be applied in Hong Kong and that
the Hong Kong dollar is to be freely convertible. During the Asian regional
economic crisis in 1998, however, the Hong Kong government intervened on
several occasions in the foreign exchange market by purchasing the Hong Kong
dollar and selling the U.S. dollar to support the value of the Hong Kong
dollar.

While the Hong Kong government has continued to support a pegged value at
approximately HK$7.80 = US$1.00 and the PRC government has not devalued the
Renminbi, or RMB, since January 1, 1994, we cannot assure you that these
policies will not change. As of December 31, 2002, the exchange rate between
Hong Kong dollars and Reminbi was approximately HK$1 = RMB1.06.

The unpredictability of our periodic results may adversely affect the trading price of our securities.

Our revenues and operating results may vary significantly from period to
period due to a number of factors, some of which are outside of our control.
Some of these factors include:



| |  |  | fluctuation in demand for our services;                                                                                    
| | - |  | ---------------------------------------------------------------------------------------------------------------------------
|
| |  |  | introduction of new technologies and services by our competitors;                                                          
|
| |  |  | changes in our pricing policies, particularly in response to aggressive pricing by our competitors;                        
|
| |  |  | our ability to introduce, develop and deliver our products and services that meet customer requirements in a timely manner;
|
| |  |  | abnormally high marketing expenses associated with new services; and                                                       
|
| |  |  | general economic conditions in Hong Kong and elsewhere in Asia.                                                            

Due to the foregoing factors, we believe that period-to-period comparisons
of our operating results are not a good indication of our future performance
and should not be relied upon. It is possible that our operating results in
some periods will be below the expectations of public market analysts and
investors. In this event, the prices of our ordinary shares and ADSs may
decline, perhaps significantly more in percentage terms than the decline in
operating results.

Risks Relating to the Ordinary Shares and the ADSs

Like other companies in the telecommunications industries, our stock price may be volatile.

The price of our ordinary shares or ADSs may fluctuate as a result of
variations in our operating results. If the trading volume of our ordinary
shares or the ADSs is low, the price fluctuations may be exacerbated. Since our
viability is intricately linked with technology and our businesses are to a
great extent driven by technology, the price of our ordinary shares or ADSs may
rise and fall in tandem with announcements of technological or competitive
developments, acquisitions or strategic alliances by us or our competitors. The
prices of our ordinary shares or ADSs, as are typical of those of companies in
the high technology and telecommunications sectors, are also prone to news
regarding the gain or loss of a significant customer, key personnel or sales
orders as well as changes in securities analysts estimates of our financial
results or recommendations.

The sale or the possible sale of a substantial number of our ordinary shares or ADSs in the public market could adversely affect the prices of our ordinary shares and ADSs.

Currently, we have 2,990 million ordinary shares outstanding (including
those represented by ADSs). A substantial amount of our ordinary shares are
held by shareholders who may be considered to be our affiliates pursuant to
Rule 144 of the U.S. Securities Act of 1933, as amended, or the Securities
Act. The ordinary shares held by the shareholders other than by the affiliates
are freely tradeable. The ordinary shares held by our controlling shareholders
may also be sold in the United States subject to the restrictions of Rule 144
under the Securities Act or outside the United States. If any shareholder sells
or is perceived as intending to sell a substantial amount of their ordinary
shares, the market prices for our ordinary shares and ADSs could be adversely
affected.

All of our shareholders may sell their ordinary shares on The Stock
Exchange of Hong Kong Limited without restriction.

11



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We do not have any intention of paying dividends on the ordinary shares for the foreseeable future.

Our loan agreements have covenants that restrict the ability of Mandarin
to pay dividends or make other distributions, which may in turn restrict our
ability to pay dividends or make other distributions. In any event, we do not
anticipate paying any cash dividends in the near future.




Item 4. INFORMATION ON THE COMPANY

HISTORY AND DEVELOPMENT

SUNDAY Communications Limited was incorporated in the Cayman Islands on
November 24, 1999 as a company with limited liability under the Companies Laws
(Revised) of the Cayman Islands. Our principal executive office is located at
13/F Warwick House, TaiKoo Place, 979 Kings Road, Quarry Bay, Special
Administrative Region of Hong Kong, the PRC.

Pursuant to a group reorganization, or the Reorganization, completed on
February 24, 2000 to rationalize the group structure in preparation for the
dual listing of SUNDAYs ordinary shares on The Stock Exchange of Hong Kong
Limited and The Nasdaq National Market, SUNDAY became the holding company of
the SUNDAY group. Details of the Reorganization are set out in note 1(a) of the
notes to our audited consolidated financial statements.

Mandarin Communications Limited was incorporated in Hong Kong as a company
with limited liability in November 1994. Mandarin holds a public
radiocommunication service license for personal communications service, or PCS,
and is engaged in the provision of wireless communications, data services and
the sales of mobile phones and accessories in Hong Kong. Mandarin is the main
operating entity in the group.

Mandarin is wholly owned by SUNDAY Holdings (Hong Kong) Corporation which
itself is a wholly-owned subsidiary of SUNDAY. SUNDAY Holdings (Hong Kong) was
incorporated in the British Virgin Islands in August 1997 and was formerly
known as SUNDAY Holdings Corporation.

SUNDAY 3G (Hong Kong) Limited, or SUNDAY 3G, is wholly owned by Mandarin
and was incorporated in Hong Kong on July 16, 1997. SUNDAY 3G holds a 3G
license in Hong Kong, which was issued by the HKTA on October 22, 2001. SUNDAY
3G was formerly known as SUNDAY Telecommunications (Hong Kong) Limited.

SUNDAY Investment Limited is a wholly-owned subsidiary of Mandarin, which
was incorporated as a limited liability company in the Cayman Islands in
November 1999 for the sole purpose of the issuance of convertible notes of
HK$700 million in December 1999. It became a dormant company after all
convertible notes had been either converted into our ordinary shares upon the
completion of the global offering or repaid in cash in March 2000.

SUNDAY Communications Services (Shenzhen) Limited, or SUNDAY Shenzhen, is
wholly-owned by SUNDAY Holdings (China) Corporation which itself is a
wholly-owned subsidiary of SUNDAY. SUNDAY Shenzhen was established in
Shenzhen, the PRC in December 2001 for providing various support services to
SUNDAY group companies.

We are an innovative developer and provider of wireless communications and
data services in Hong Kong. We were granted a license in July 1996 to construct
and operate a digital PCS network, and began commercial operations in September
1997 when we introduced our GSM 1800 mobile telephone services. We offer our
services under the brand name SUNDAY, a highly recognized brand name in Hong
Kong. Since early 2000, we have started launching various wireless data
services through which our subscribers could enjoy ringtone or logo downloads,
quiz games, message dedication or participate in mobile community chat by the
use of short messaging services or media messaging services. We were also
granted a mobile carrier license in Hong Kong in October 2001 to construct and
operate a 3G network.

On March 15, 2000, we successfully completed a global offering of our
shares, raising net proceeds of approximately HK$2.1 billion, which were net of
related expenses and the conversion of the convertible notes. Our ADSs and
ordinary shares were listed on The Nasdaq National Market in the U.S. on March
15, 2000, and The Stock Exchange of Hong Kong Limited on March 16, 2000,
respectively.

Business Development

We expect that the mobile service market in Hong Kong will offer less
opportunity for expansion by subscriber numbers; future revenue growth will
increasingly depend on developing and delivering tailor-made services that more
directly meet customer needs and desires. We are committed to a strategy of
differentiating our products and services through market segmentation. We
believe that the new technologies being introduced would unleash expanded
possibilities to develop and direct personalized and targeted services to
specific market segments.

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We introduced a broad range of new wireless data applications and services
based on the GPRS technology in the fourth quarter of 2002 targeting a wide
variety of customer segments. Such services include SUNDAY Games for a
collection of interactive games, My Album for personalized MMS (or
multi-media messaging) photographs, SUNDAY Look!Hear! for downloads of
popular MMS contents, Location Based Services for corporate customers to
monitor effectively their fleets of vehicles, field staff or valuable parcels
on a real time basis, and Handy Workstation for mobile users to access
corporate e-mail accounts.

More mobile phones supporting MMS or other data services based on GPRS
technology were introduced to the market in 2002, and we expect that this trend
will continue in 2003. Combined with the launch of inter-operator MMS services
among the six wireless operators in Hong Kong in December 2002, we believe that
both the usage and revenue of wireless data services would grow at faster rates
in 2003.

We believe that introducing a broad range of wireless data services is an
important development in providing specialized products to individual customer
segments, and is a vital step to ensure a successful future with 3G.

We have followed the developments in 3G around the world with close
attention and are convinced that 3G would not become a significant market
reality before 2004 and that the key to success in 3G services would be a
cost-effective platform that delivers creative and tailored services. We have
performed comprehensive planning of all network, IT and service delivery
systems required for the launch of 3G services and are in active discussion
with a number of vendors and financial institutions to ensure we can roll out
our 3G services on schedule and on a sound commercial basis, when the time is
right.

We also pay close attention to the possibilities for investment, expansion
and efficiency gains offered by our proximity to mainland China. China is now
the largest mobile phone market in the world, with a continuing high rate of
growth. In addition, it offers the opportunity to source certain support
aspects of our operations in Hong Kong at lower cost than in Hong Kong itself.
In 2002, we therefore set up an operations centre in Shenzhen, a city adjoining
Hong Kong in mainland China, to provide various support services to SUNDAY and
to better position SUNDAY for future opportunities to provide services in
China. We have relocated a number of functions to this centre and expect to
realize significant cost savings in 2003, as outlined in Item 5 Operating and
Financial Review and Prospects  Operating Environment and Overview  Results
of Operations.

As a group operating in Hong Kong, we believe SUNDAY will be in an
advantageous position to exploit opportunities in the China market, which is
steadily liberalizing following the countrys accession to the World Trade
Organization. We may also benefit from the increasingly close economic links
between Hong Kong and mainland China. For example, the PRC government and the
Hong Kong SAR government are negotiating a Closer Economic Partnership
Arrangement (CEPA) with the aim of fostering increased economic links between
the two regions.

Capital Expenditure

Our PCS digital mobile network is substantially complete, which is also
GPRS ready. While we will continue to allocate capital expenditures to further
develop and maintain our existing mobile network, we expect total capital
expenditure for such traditional mobile network purposes to decline relative to
the total amounts spent since our inception. From 2000 to 2002, we incurred
capital expenditure of approximately HK$1 billion, consisting of approximately
HK$339 million in 2000, HK$119 million in 2001 and HK$168 million in 2002.
Following the investment already made to expand coverage and provide capacity
for GPRS services, we expect that capital expenditure in 2003 will further
decline. No substantial capital spending or business development in relation to
the 3G infrastructure or services occurred up to May 31, 2003, and we expect
that the expenditure for the 3G network rollout would not be significant until
2004.

The capital expenditures are mainly funded by cash flows generated from
operating activities and the revolving loan facility provided by Nortel.

BUSINESS OVERVIEW

We operate mainly in the mobile communications business (including the
sales of mobile phones and wireless data services) in Hong Kong.

Mobile Communications Business

We are an innovative wireless service provider in Hong Kong, having
commenced commercial operations in mobile communications in September 1997. We
operate a GSM 1800 network which is also GPRS ready, and offer a broad range of
wireless communications and data services targeted to specific market segments
in Hong Kong. We have established a strong and unique identity for our SUNDAY
brand and received numerous awards for our marketing and advertising efforts.

Subscribers

For the years ended December 31, 2000, 2001 and 2002, our total
subscribers grew at rates of 43%, 34% and 9%, respectively. Our subscriber
growth has significantly slowed in 2002 because the mobile communications
market in Hong Kong during the past two years has shifted from a high-growth
mass market to one characterized by saturation of penetration.

The following table sets out selected information regarding our mobile
subscriber base for the years ended December 31, 2000, 2001 and 2002:

|                                                   |  |                         |           |      |  |      |           |  |  |  |           | 
|-------------------------------------------------- |  | ----------------------- | --------- | ---- |  | ---- | --------- |  |  |  | --------- | 
|                                                   |  | Year Ended December 31,
|                                                   |  |                        
|                                                   |  | 2000                    |           | 2001 |  | 2002
|                                                   |  |                         |           |      |  |     
|Average monthly churn rate(%)(1)                   |  |                         | 6.1       |      |  |      | 8.3       |  |  |  | 5.4       | 
|Total number of prepaid and post-paid subscribers  |  |                         | 410,000   |      |  |      | 551,000   |  |  |  | 603,000   | 
|Total number of mobile subscribers in Hong Kong(2) |  |                         | 5,234,000 |      |  |      | 5,702,000 |  |  |  | 6,219,000 | 
|Market share(%)(3)                                 |  |                         | 7.8       |      |  |      | 9.7       |  |  |  | 9.7       | 
|Hong Kong market penetration(%)(4)                 |  |                         | 77.8      |      |  |      | 84.3      |  |  |  | 91.8      | 
|Average monthly ARPU (HK$)(5)                      |  |                         | 272       |      |  |      | 219       |  |  |  | 209       | 

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---

|(1) |  | The monthly churn rate is calculated by expressing the net number of
post-paid subscriber deactivations or disconnections for the month as a
percentage of the number of post-paid subscribers at the beginning of such
month. The average monthly churn rate is the sum of the monthly churn
rates in the period divided by the number of months in the period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Source: OFTA.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(3) |  | Total number of our mobile subscribers divided by the total number of
mobile subscribers in Hong Kong.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|(4) |  | Total number of mobile subscribers in Hong Kong divided by the estimated
population of Hong Kong.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(5) |  | Monthly average revenue per user (ARPU), or the monthly average revenue
from mobile services per post-paid subscriber, is computed by dividing
total revenue from mobile services for the month (including airtime
revenue, value-added and enhanced services revenue, revenue from airtime
for roaming and international long distance calls that terminate at our
subscribers mobile phone numbers, as well as from airtime revenue arising
from foreign subscribers roaming on our mobile network, but excluding
subscription fees paid in advance, deposit payments and revenue from sales
of mobile phones and accessories and prepaid SIM cards) by the daily
weighted average number of mobile services post-paid subscribers for the
month. Average monthly ARPU is the sum of ARPU for each month in the
period divided by the number of months in the period.

Services and Products

We offer our mobile subscribers basic airtime services, value-added
services, enhanced services, short messaging services, wireless data services,
roaming services and international long distance calling services. We also sell
mobile phones and accessories.

Basic Services

Our basic services include connecting a subscribers mobile phone to our
network and providing airtime for incoming and outgoing voice and data
transmissions whenever the subscriber makes or receives a call on the mobile
phone. We charge customers for these basic services and other services through
our tariff plans and prepaid cards.

Tariff Plans

We bill our subscribers on a monthly basis for the basic fee in advance
and for any additional airtime used in arrears. Subscribers pay for both
incoming and outgoing calls. From June 3, 1998 to January 2, 2000, we charged
each of our subscribers a flat monthly fee of HK$88 per month for 100 minutes
of airtime, and additional minutes would be charged at specific rates depending
on the total minutes used during the month.

In July 2000, we introduced a number of new tariff plans based on usage,
which offered more choices to our subscribers to select a plan most suited to
their needs. Starting February 2001, we charge each post-paid subscriber a
monthly fee of HK$10 to cover part of the MTR/tunnels/mobile service license
fees payable to the relevant third parties. We have also started charging new
post-paid subscribers a one-off service registration fee of HK$100 since July
2001.

We launch promotional plans to new subscribers by our retail shops and
dealers from time to time to keep our rates competitive and attractive. We also
offer promotional plans to some of our existing customers. Such promotional
plans may offer additional airtime, free value-added services for a specified
period and/or waiver of certain charges. We expect that we may adjust our
tariffs more frequently and continue to launch promotional plans from time to
time based on market conditions and other factors.

As of December 31, 2002, the basic tariff plans offered to new subscribers
(excluding the $10 monthly fee for MTR/tunnels/mobile service license fees) are
set out below:

|       |  |                |       |                       |  |  |       | 
|------ |  | -------------- | ----- | --------------------- |  |  | ----- | 
|       |  | Free Airtime  
|       |  |               
|Plan   |  | Normal Airtime |       | Intra-network Airtime
|       |  |                |       |                      
|       |  | (minutes)      |       | (minutes)            
|HK$88  |  |                | 200   |                       |  |  | 300   | 
|HK$128 |  |                | 600   |                       |  |  | 600   | 
|HK$198 |  |                | 1,200 |                       |  |  | 800   | 
|HK$258 |  |                | 1,800 |                       |  |  | 1,200 | 

In early 2003, some of our competitors launched tariff plans which offered
lower monthly fees and more airtime. To respond to competitors offers, our
basic tariff plans have been re-packaged. As of May 31, 2003, our basic tariff
plans offered to new subscribers (excluding the $10 monthly fee for
MTR/tunnels/mobile service license fees) are set out below:

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|       |  |                |       |                       |  |  |       | 
|------ |  | -------------- | ----- | --------------------- |  |  | ----- | 
|       |  | Free Airtime  
|       |  |               
|Plan   |  | Normal Airtime |       | Intra-network Airtime
|       |  |                |       |                      
|       |  | (minutes)      |       | (minutes)            
|HK$50  |  |                | 200   |                       |  |  |      | 
|HK$88  |  |                | 500   |                       |  |  |      | 
|HK$108 |  |                | 600   |                       |  |  | 600   | 
|HK$138 |  |                | 800   |                       |  |  | 800   | 
|HK$198 |  |                | 1,200 |                       |  |  | 800   | 
|HK$258 |  |                | 1,800 |                       |  |  | 1,200 | 
|HK$388 |  |                | 2,500 |                       |  |  | 2,000 | 

Prepaid Cards

In April 2000, we launched rechargeable prepaid SUNDAY SIM cards so that
users are able to access our wireless services, including international long
distance calling services, through any mobile phone. A SIM card, or subscriber
identity module card, is a smart card that carries subscriber identity and
authentication information and is used by inserting it into a mobile phone.
Users are able to purchase prepaid SUNDAY SIM cards and refill cards as and
when they require them at our retail shops and participating supermarkets and
convenience stores. As of December 31, 2002, 189,000 subscribers among our
603,000 subscribers used the rechargeable prepaid SIM cards.

Value-added Services

In addition to the basic airtime tariff plans, subscribers may pay an
additional monthly fee to subscribe to certain value-added services, including
voicemail, call forwarding, call waiting, call holding, caller ID, call
barring, conference calls, and secretarial services. Certain value-added
services may be free to new subscribers during the first 12 months.

Roaming and International Long Distance Calling Services

We were the first GSM 1800 operator in Hong Kong to provide roaming
facilities in China. We offer roaming on over 140 networks in more than 110
countries and territories. Our roaming services are automatic in all these
regions except for Japan and South Korea. We rent mobile phones to our
subscribers for use in Japan and South Korea. We sell tri-band mobile phones
that provide automatic GSM 1900 roaming in Canada and the United States in
addition to GSM 900 and 1800 access. We may require a refundable HK$1,000
deposit for mobile international long distance calling services and an
additional HK$1,500 refundable deposit from mobile subscribers requesting
roaming capabilities for China.

Wireless Data Services

With the advent of new technologies, we believe that demand for wireless
data services will continue to grow as data transmission speed and ease of use
improve. We have seen an increase in both the awareness and the usage of data
services since of launch of the inter-operator short messaging services, or
SMS, among the wireless operators in Hong Kong in December 2001. We believe
that the next step forward would be the widespread application of the GPRS
technology, which is also commonly known as 2.5G technology.

We launched a series of new wireless data applications and services based
on the GPRS technology in the fourth quarter of 2002:



| |  |  | My Albumis a one-stop shop for personalized MMS photos, with music,
voice and text to MMS-enabled mobile phones, as well as e-mail and with
made-to-order printouts available at over 450 Hong Kong locations.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Location Based Servicesenable corporate customers to monitor effectively their fleets of vehicles, field staff or valuable parcels on a real time basis.                                                      
|
| |  |  | SUNDAY Look!Hear!features MMS entertainment through popular content downloads of celebrity photos, cartoon and comic characters and e-cards.                                                                  
|
| |  |  | SUNDAY Gamesbring a real life game store experience to mobile phones through new collections of Java games.                                                                                                 
|
| |  |  | Handy Workstationis a complete mobile e-mail and personal
information management solution enabling mobile users to access
corporate e-mail accounts and up to 10 POP3/IMAP4 internet e-mail
accounts.         
|
| |  |  | ICQ for SMSallows users to stay in touch with ICQ friends 24 hours a
day through the mobile phone with a short messaging function.                                                                            

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| |  |  | MSN Mobile Messengerallows users to send, receive and reply to
instant messages from their online contacts who are using MSN Messenger
on a computer or a mobile phone.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

All of these services follow the principles laid down in our four core
values of simplicity, transparency, quality and value-for-money. They should be
readily usable and understandable by the customers, of high quality as regards
to both the products or services as well as any support services, and offered
at an attractive and reasonable price.

We expect that more mobile phones supporting MMS or other data services
based on the GPRS technology will be introduced to the market in 2003. Combined
with the launch of inter-operator MMS services among the six wireless operators
in Hong Kong in December 2002, these should allow both the usage and the
revenue of wireless data services to grow at faster rates in 2003. Revenue of
wireless data services accounted for approximately 5% of mobile services
revenue by December 2002.

We believe that introducing a broad range of wireless data services is an
important development in providing specialized products and services to
individual consumer segments, and is a vital step to ensure a successful future
with 3G.

Services Offered Through Our Web Site sunday.com"

We launched our internet services under the brand name sunday.com in
February 2000 as an extension of our strategy to serve consumers lifestyle
needs through innovative commercial applications of wireless communications
technology and to capitalize on the convergence of mobile communications and
data technologies.

In 2001, we launched the SUNDAY eShop on our web site, through which
customers could subscribe our mobile services and/or purchase mobile phones or
prepaid SIM cards online by credit card payments. We also face-lifted our web
site and introduced a number of new services for our subscribers to subscribe
online. We have partnered with a number of content providers to allow our
subscribers to download various ringtones, logos or games to their mobile

phones or other mobile devices (such as PDAs). We also launched a range of
short messaging services that offer our subscribers the latest news and
information, such as weather and news, share prices, flight schedules, horse
racing, new movies and music releases. Each of our subscribers can access his
or her service subscription profile and make changes any time through the
internet.

Sales of Mobile Phones

Through our direct sales force, our retail shops and our independent
dealers, we sell mobile phones equipped with a SUNDAY GSM 1800 SIM card, a
smart card with personalized subscriber information. We also sell mobile phones
(without service subscription) through our retail shops and direct sales force,
generally at a higher price. We buy substantially all of our mobile phones from
Nokia, Motorola, Sony Ericsson, Alcatel, Siemens and Samsung. We believe that
we are not dependent on any single mobile phone supplier. In 2002, we purchased
approximately 80% of our mobile phones from our largest mobile phone supplier
and the top five mobile phone suppliers, together, accounted for approximately
98% of our mobile phone purchases.

Historically, we have resisted offering routine handset subsidies but
would offer subsidy programs from time to time to respond to handset rebate
programs introduced by our competitors. For a discussion of our handset
subsidies, see Item 5 Operating and Financial Review and Prospects  Operating
Environment and Overview  Operating Revenues  Sales of mobile phones and
accessories.

Network

We operate an intelligent mobile network on the GSM 1800 MHz frequency
with over 1,050 cell sites located throughout Hong Kong. Nortel is our
principal network infrastructure equipment supplier and to date has accounted
for approximately 70% of the total costs of our infrastructure and equipment.
The network is designed to provide ubiquitous network coverage in Hong Kong and
extensive roaming coverage worldwide. With the infrastructure provided by
Nortel, together with our applications, we are able to pinpoint the location of
a wireless communication device within a fairly precise geographic range. The
cell site is mainly connected via a leased fixed transmission link to a base
station controller, which provides connection to a number of cell sites. We
currently have 22 base station controllers and five mobile switches located in
two switching centers.

The Hong Kong government initially granted us 2 x 5 MHz of frequency
spectrum in the 1800 MHz waveband for our network, and increased the spectrum
by 2 x 2.5 MHz in February 1998. In March 1999, we were allocated a further 2 x
2.5 MHz, increasing the total spectrum allocation to 2 x 10 MHz. The Hong Kong
government granted us the additional spectrum in recognition of our efficient
use of previously allocated spectrum. In March 2002, additional spectrum of 2 x
1.6 MHz was allocated to us.

Our network covers approximately 99% of the populated areas in Hong Kong,
including Hong Kong Island, Kowloon and the New Territories. The focus of our
network rollout has been on providing quality coverage of high usage
areas. Our network also provides coverage in all major vehicular tunnels in
Hong Kong and in the KCRC, MTR and Airport Express mass rail transport systems.

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In 2002, we established a dedicated task force to monitor enhancement of
our network performance. Although our cell site operating cost did not rise, we
increased the number of cell sites by 17% to over 1,050 sites to improve
network quality and coverage. The high quality of our network enabled us to be
named the Official Mobile Network Operator at the ITU Telecom Asia 2002, a
major international telecommunications event.

Part of the strategy for our mobile communications business involves our
selective investment in and incorporation of technologies. Technologies we have
incorporated into our business include:



| |  |  | IN platform We believe we have been a leader in using intelligent
network technology that permits us to offer a number of lifestyle
services, including some real-time location-specific services.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | EFR We were one of the first GSM 1800 operators in the world to
adopt this Enhanced Full Rate technology to provide good and stable
voice quality in our network in September 1997.               
|
| |  |  | SIM Toolkit We were one of the first operators in Hong Kong to adopt this 16 Kb SIM card technology in 1998.                                                                                      
|
| |  |  | Java SIM Card We adopted this 32 Kb Java SIM Card technology in December 1999.                                                                                                                    
|
| |  |  | WAP We integrated Wireless Application Protocol-related software
and WAP-related applications into our network and servers and started
offering our SO WAP data services in January 2000.       
|
| |  |  | GPRS Our network has been GPRS ready since 2000 and we launched
commercial services in October 2002.                                                                                              

Competition

We compete with five other digital mobile operators who are licensed to
provide mobile communications services in Hong Kong. Of these, the largest
operators are Hutchison Telecommunications (Hong Kong) Limited (which operates
under the brand Orange), Hong Kong CSL Limited (which operates under the
brands 1010 and One2free) and SmarTone Telecommunications Holdings Limited
(which operates under the brand SmarTone). Both Hong Kong CSL and SmarTone
were unsuccessful in obtaining PCS licenses in 1996 but later acquired two
companies which were successful in doing so. We believe that currently these
three operators collectively have a market share of approximately 60%. The
eight networks of these three operators utilize different technologies and
frequency bands, namely GSM 900, GSM 1800, TDMA and CDMA, and these companies
have merged some of their networks to allow subscribers with dual band and
tri-band mobile phones to roam seamlessly between such networks. As operators
of the older GSM 900 networks, these three operators commenced operating mobile
services between four and 12 years earlier than us.

The three remaining operators are SUNDAY, Peoples Phone and New World.
These operators all operate the GSM 1800 networks, which were licensed by OFTA
in 1996, and all commenced commercial operations during 1997.

In October 2001, the HKTA granted four 3G licenses to SUNDAY 3G, Hong Kong
CSL Limited, Hutchison 3G HK Limited and SmarTone 3G Limited for the
construction of the 3G network and provision for 3G services and applications
in Hong Kong. No 3G services have been launched in Hong Kong so far since the
grant of the 3G licenses. However, in May 2003, Hutchison announced that it
will launch its 3G services in Hong Kong in 2003.

Retail International Long Distance Calling Services Business

Starting September 1999, we provided retail international long distance
calling services using the name SUNDAY 1622. Any wireline or non-SUNDAY
mobile user who has registered for our SUNDAY 1622 service can access our
international long distance calling services by dialing 1622 followed by the
number they wish to reach. In addition, international calls from Hong Kong
originating from our mobile subscribers have been routed automatically through
our international switching facilities since July 1999. In December 1999, we
launched a prepaid card service that enables purchasers of the card,
denominated in stored values of HK$50 or HK$100, to use our SUNDAY 1622 service
on a prepaid basis without the need to register as a subscriber.

As part of an ongoing commitment to improving operating results, we
outsourced the sales, service and billing functions of the SUNDAY 1622 services
to a subsidiary of e-Kong Group Limited in August 2000 and received a referral
revenue of approximately HK$7.6 million. The outsourcing arrangement was
subsequently terminated in September 2001 pursuant to a revised arrangement. We
continue to operate the international telecommunications infrastructure and the
SUNDAY 1622 brand.

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Marketing, Sales and Distribution

Marketing

Since inception, we have pursued a strategy of producing a single, strong
and highly visible brand name. We have marketed SUNDAY as a provider of
wireless communications and data services suitable for a highly active and
mobile way of living. We use original, bright, unconventional and humorous
advertising by direct mailing and via various media, including billboards,
television, magazines and newspapers.

Since we launched our commercial operations in late 1997, the SUNDAY
brand name has become and continues to be one of the most well-recognized brand
names in Hong Kong.

We continue to receive many awards from the advertising industry in
recognition of our brand. In 2001, we were awarded the well recognized Kam Fan
Award for our strategic brand building campaign by the Association of
Accredited Advertising Agents of Hong Kong. We were awarded the Gold Prize and
Citation for Outstanding TV Campaign in the Hong Kong Management
Association/TVB Awards for Marketing Excellence 2000. In an annual survey
reported in Media,we also ranked second (after McDonalds) in Hong Kong in
television advertisement recall for 2000 and won Medias Asian Advertising
Campaign of the Year in 2000.

Sales and Distribution

We sell our mobile services and handsets and provide after-sales service
to customers primarily through our retail outlets and the customer service
center. In 2000, we began directing our successful marketing and brand strategy
to focus on expanding distribution and sales channels, and we were aggressive
in expanding our distributions network coverage and broadening the use of
different distribution channels during 2000 and 2001. As of December 31, 2002,
our number of retail shops located at high-traffic locations increased to 27
from 12 at the start of 2000. We also sell mobile services and handsets to our
corporate and individual customers through our own direct sales force.

We have entered into agreements with various independent dealers in Hong
Kong to sell our mobile services and handsets on a non-exclusive basis. Dealer
commission rates are based on quality and quantity targets. We defer commission
payments and pay our dealers in installments, provided that the relevant
subscriber account is still active at the time the commission payment is due.

Our rechargeable stored value SIM cards were carried in over 1,000 retail
outlets, including dealers shops, convenience stores and chain stores, as of
December 31, 2002.

Our retail shops generated approximately 46% of our new mobile subscribers
in 2002. For the same period, our direct sales team generated approximately 23%
of our new subscribers, and independent dealers generated approximately 31% of
our new subscribers.

We provide training, quality assurance and incentive programs (including a
commission scheme) for our sales force. We also provide marketing support for
independent dealers through advertising product demonstrations and our mystery
shopper evaluation program, which monitors customer and sales service in our
retail stores on a sampling basis.

Customer Service

We aim to provide good quality customer service. We provide user-friendly
and easy-to-access customer service through our 24-hour hotline and our retail
outlets. Inquiries regarding account balances, billing and service information
and usage are handled by an IVRS system and customer service operators. We also
provide limited repair services of certain mobile telephones at our repair
center.

We established an operations center in Shenzhen, the PRC in 2002 to
provide various support services, including the customer service hotline and
administration functions. This new center helps reduce operating costs as well
as provide high productivity and better service quality of our customer service
function by leveraging the lower labor costs in mainland China.

Billing and Subscriber Management

We have a billing and customer management system that handles our mobile
and wireless data services from a common, convergent platform. The billing
system is designed by LHS GmbH, a specialized software and maintenance provider
whose systems are widely used by mobile service providers in Asia, Europe and
elsewhere around the world. In addition to enhancing our customer service
levels, our integrated billing system also permits us to analyze the effect of
tariff packages, promotional and advertising campaigns and subscriber usage
patterns thereby assisting in the development of new services and marketing
strategies.

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We bill our mobile subscribers on a monthly basis in arrears for excess
airtime and enhanced services, and in advance for fixed monthly charges,
including value-added services. All of our billings are in Hong Kong dollars
and may be settled in cash, or by credit card, auto payment, check, electronic
payment system or payment by phone. In 2001, we launched e-bills whereby
instead of mailing the monthly statements of account to our customers, we send
short messages to our subscribers or e-mails to the registered e-mail addresses
of most of our customers informing them the outstanding amounts payable. Our
customers may also inquire their usage and outstanding balances by calling our
hotline, or accessing the sunday.com web site through the internet, or by
fax-on-demand.

In 2002, we further introduced new billing tools, achieving greater
efficiency and cost savings in billing management and providing better response
to billing related inquiries from subscribers. As a result, we received
Outstanding Billing Implementation  Telecoms award in Tarificas Billing
Magazine Globe Awards 2002.

We generally terminate services for subscribers who have accounts that are
more than 45 days overdue. Accounts are reinstated only if the subscriber pays
all due amounts and a reconnection fee. If a subscribers account is terminated
before its handset subsidy balance is fully rebated, the balance of the amounts
to be rebated will be forfeited.

We have credit control procedures to minimize bad debt. Such procedures
include requiring up-front deposits for roaming and international long distance
calling services, requiring the provision of credit card details upon
registration of retail international long distance services, and encouraging
subscribers to use auto-deduct or direct debit for paying their bills. When
payments for an account are overdue, we send short messages to the mobile
phones of such delinquent customers and reminder calls and invoices,
accompanied by monitoring and service cut-off for customers with unreliable
payment track records. We also engage debt collection agencies to pursue
invoiced amounts after internal collection efforts are exhausted.

We have also established internal controls to manage our cash sales. Sales
receipts recorded in our cash register systems are reconciled on a daily basis
with actual bank receipts, and discrepancies are investigated.

Our provision for bad debts for 2000, 2001 and 2002 were HK$28.5 million
(approximately 2.7% of service revenues), HK$19.6 million (approximately 1.7%
of service revenues), and HK$31.0 million (approximately 2.5% of service
revenue), respectively. The significant improvement in 2001 was due to tighter
credit controls and increased use of auto-pay arrangements. The increase in bad
debt provision in 2002 was mainly caused by prolonged poor economic conditions
in Hong Kong and much higher bad debts from wireless data services. For a
discussion of our bad debt experience and what measures we have taken, see Item
5 Operating and Financial Review and Prospects.

Intellectual Property

We rely on a combination of trade marks, service marks and domain name
registrations, copyright protection and contractual restrictions to establish
and protect our technologies, brand name and logos, marketing designs and
internet domain names. We have registered and applied to register certain trade
marks and service marks with the Hong Kong Trade Marks Registry in connection
with our mobile communications and international long distance businesses. We
also have registered and applied to register certain trade marks and/or service
marks with the relevant trade marks registration bodies in Canada, China,
Macau, Malaysia, Singapore, South Korea, Taiwan and Thailand. Our registered
trade marks and service marks include our brand name, logos and certain
advertising features. In relation to domain names, we have registered the
sunday.com domain name with Network Solutions, which is a principal domain
name registration operator for the internet. Our copyrights are principally in
the area of computer software for service applications developed in connection
with our wireless and wireline communications network platform. We have
copyrights to certain designs and materials used in marketing and advertising
our mobile communications and enhanced services in Hong Kong.

Regulation

HKTA is the telecommunications regulator in Hong Kong and is responsible
for administering the Telecommunication Ordinance.

OFTA was established in 1993 under the Telecommunication Ordinance to
assist the HKTA in administering and enforcing the provisions of the
Telecommunication Ordinance. OFTAs responsibility and functions also include
regulating and licensing telecommunication network services and regulating the
telecommunications markets in Hong Kong.

Our indirectly wholly-owned subsidiary, Mandarin Communications Limited,
was one of six successful applicants to which the Hong Kong government awarded
Public Radiocommunication Service, or PRS, licenses in 1996. This license
permits us, among other things, to:



| |  |  | provide a public mobile radiocommunication service using mobile
communication technology in accordance with the PCS standard;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------
|
| |  |  | establish and maintain a PCS network; and                                                                                    

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| |  |  | sell mobile telephone and other equipment to subscribers.
| | - |  | ---------------------------------------------------------

Each PCS license has a duration of ten years and will expire in 2006,
although it may be extended for an additional period of up to three years under
the Telecommunication Ordinance. A PRS license is non-exclusive, and the
licensee must operate in a manner satisfactory to the HKTA in accordance with
the specifications contained in the license. Under the terms of the PRS
license, we may only operate our PCS network on the radio frequencies assigned
to us.

The Telecommunication (Amendment) Ordinance, or the TAO, came into
operation on June 16, 2000. The TAO brought significant amendments to the
Telecommunications Ordinance in certain areas. In particular, the TAO seeks to
enhance competition safeguards in the telecommunications sector, which will be
administered and enforced by the HKTA, and, unusually for Hong Kong
legislation, embraces antitrust law principles. The competitive safeguards
include provisions dealing with anti-competitive practices, abuse of a dominant
position, misleading and deceptive conduct and discrimination. The amendment
made to the Telecommunication Ordinance also significantly increases penalties
for breach of license conditions and legislation. The TAO also aims to improve
interconnection and access arrangements to telecommunications services,
streamline licensing procedures and provide the HKTA with powers over 3G
spectrum auction and certain telecommunications services and technical areas,
such as radio spectrum management. The TAO also makes amendments which are
important for mobile operators, strengthening existing rights to access
suitable sites for radio communications installations, provided that an
operator fulfills certain criteria, such as public interest requirements, and
the HKTA grants authorization. The HKTA will have increased powers to intervene
in disputes between operators and those having a legal interest in the
potential installation sites, in order to determine the fees payable for site
access.

The Hong Kong government announced in February 2001 that the licensing
framework for 3G mobile services consisting of a total of four mobile carrier
licenses for building 3G network and providing 3G services, or 3G licenses,
would be issued by auction. As there were only four applicants, including
SUNDAY 3G, no auction took place and each applicant was granted a 3G license on
October 22, 2001. Each licensee was allocated a block of paired band spectrum
of 2 x 14.8 MHz plus one 5 Hz block of unpaired band spectrum. Pursuant to the
Special Conditions of the 3G license, SUNDAY 3G is required to install,
maintain and use equipment for the purposes of the network and the services to
be provided under the 3G license such that by no later than December 31, 2006
(and for all dates thereafter during the term of the 3G license), the 3G
network and services will cover at least 50% of the population of Hong Kong.
Further, all base stations to be installed must be capable of supporting
services at a minimum of 144 kbits per second. In addition, the licensees must
open up at least 30% of their 3G network capacity for use by non-affiliated
companies to operate as a mobile virtual network operator, or MVNO, and/or
content providers.

The 3G license is valid for 15 years from the date of grant, expiring in
2016. Pursuant to the 3G license, each licensee is required to pay the minimum
guaranteed annual fees in arrears. For each of the first five years, the
minimum annual fee is HK$50 million. In each of the remaining 10 years, the
annual fee would be the higher of 5% of the licensees turnover attributable to
the provision of 3G services or the minimum annual fee amounts indicated below:

|          |  |           |         | 
|--------- |  | --------- | ------- | 
|          |  | (HK$'000)
|          |  |          
|6th year  |  |           | 60,124  | 
|7th year  |  |           | 70,249  | 
|8th year  |  |           | 80,373  | 
|9th year  |  |           | 90,497  | 
|10th year |  |           | 100,622 | 
|11th year |  |           | 110,746 | 
|12th year |  |           | 120,870 | 
|13th year |  |           | 130,995 | 
|14th year |  |           | 141,119 | 
|15th year |  |           | 151,243 | 

On the grant of the 3G license, the licensee was required to provide the
HKTA with a performance bond covering the next five years minimum annual fees
or the minimum annual fees for the remaining life of the 3G license, whichever
is higher. SUNDAY 3G paid HK$250 million in cash upon the grant of the 3G
license in lieu of the performance bond for the first five years minimum
annual fees. In accordance with the 3G license, we were required to provide a
performance bond, equivalent to the 6th years minimum annual fee, on October
22, 2002. On October 11, 2002, OFTA granted a one-year waiver to us and the
other three 3G licensees on the submission of such performance bond.

In early May 2002, the Secretary of the Information Technology and
Broadcasting Bureau proposed the Telecommunications (Amendment) Bill 2002, or
the Bill, to provide a legislative framework for the regulation of merger and
acquisition activities in the Hong Kong telecommunications industry. Under the
Bill, the HKTA may direct a telecom carrier licensee to take such actions as
the HKTA considers necessary to eliminate any anti-competitive effect where the
HKTA determines that a change in ownership or control over a telecom carrier
licensee has, or is likely to have, the effect of substantially lessening the
competition in the telecommunications market.

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The key features of the proposals under the Bill as of May 31, 2003 are as
follows:



| |  |  | Where the HKTA is of the opinion that a change in ownership or
control over a carrier licensee (which includes, among other things, a
person becoming the beneficial owner of more than 15% of the voting
shares in the carrier licensee or a person becoming a voting controller
of more than 15% of the voting shares in the carrier licensee) had, or
is likely to have, the effect of substantially lessening the competition
in the telecommunications market, the carrier licensee will take such
actions as the HKTA considers necessary (including directing the carrier
licensee to procure modifications to its ownership or control) to
eliminate any such anti-competitive effect;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Failure to take such action would constitute a breach of the relevant
provisions of the Telecommunications Ordinance and sanctions available
under the Telecommunication Ordinance could then be imposed upon the
carrier licensee (including suspension or cancellation of the license).                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  |  | Alternatively, prior to a proposed change in ownership or control, a
carrier licensee may on a voluntary basis seek the consent of the HKTA
to the proposed change. The carrier licensees would have a choice as to
whether it will seek prior consent or not, taking into account the risk
of being penalized subsequently if the activity is found to be
anti-competitive.                                                                                                                                                                                                                                                                                                                  

The Bill is approaching the second reading and may be passed by the end of
2003.

The Hong Kong government liberalized the telecommunications market by
introducing more competition to various sectors of the communications industry
including the public mobile radio services in the 1980s, the provision and
operation of local fixed wireline network services in 1995 and more recently in
the real time voice international long distance services.

Our international long distance business, operated under our SUNDAY 1622
brand, is carried out under a PNETS (ETS) license. OFTA does not restrict the
number of PNETS (ETS) licenses that it will issue. As of May 31, 2003, OFTA had
issued around 220 such licenses. A PNETS license is issued for a term of 12
months upon submission of an application to OFTA and the payment of the
prescribed fee. It is renewable annually upon payment of a small licensing fee.
The HKTA may cancel a PNETS license, including ours, at any time or suspend it
for up to 12 months, if a licensee contravenes any provision of the
Telecommunication Ordinance or any condition of the license.

Generally, companies using web sites or the internet to sell products must
comply with applicable Hong Kong consumer protection laws (for example, the
Sale of Goods Ordinance (Chapter 26 of the Laws of Hong Kong)).

The Electronic Transactions Ordinance (Chapter 553 of the Laws of Hong
Kong) came into effect in January 2000. This ordinance is intended to recognize
the legal status and effect of certain electronic records and signatures and to
govern the certification authorities established in Hong Kong.

ORGANIZATIONAL STRUCTURE

SUNDAY has the following principal wholly-owned subsidiaries as of
December 31, 2002:

|                                                            |  |                        |  |                                                                                       |  |                                                                                    |  |  |  |  |  | 
|----------------------------------------------------------- |  | ---------------------- |  | ------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------- |  |  |  |  |  | 
|                                                            |  | Place of               |  | Issued and Fully Paid Up                                                              |  |                                                                                    |  | 
|Name                                                        |  | Incorporation          |  | Share Capital                                                                         |  | Principal Activities                                                              
|                                                            |  |                        |  |                                                                                       |  |                                                                                   
|Shares held directly                                        |  |                        |  |                                                                                       |  |                                                                                    |  |  |  |  |  | 
|SUNDAY HOLDINGS (HONG KONG) CORPORATION                     |  | British Virgin Islands |  | 100 ordinary shares of US$1 each                                                      |  | Investment holding                                                                
|SUNDAY HOLDINGS (CHINA) CORPORATION                         |  | British Virgin Islands |  | 1 ordinary share of US$1                                                              |  | Investment holding                                                                
|SUNDAY IP HOLDINGS CORPORATION                              |  | British Virgin Islands |  | 1 ordinary share of US$1                                                              |  | Investment holding                                                                
|Shares held indirectly                                      |  |                        |  |                                                                                       |  |                                                                                    |  |  |  |  |  | 
|MANDARIN COMMUNICATIONS LIMITED                             |  | Hong Kong              |  | 100 ordinary shares of HK$1 each and 1,254,000,000 non-voting
deferred shares of HK$1 |  | Provision of mobile and other services, and
sales of mobile phones and accessories
|                                                            |  |                        |  |                                                                                       |  | each                                                                               |  |  |  | 
|SUNDAY 3G HOLDINGS (HONG KONG) CORPORATION                  |  | British Virgin Islands |  | 1 ordinary share of US$1                                                              |  | Investment holding                                                                
|SUNDAY 3G (HONG KONG) LIMITED                               |  | Hong Kong              |  | 2 ordinary shares of HK$1 each                                                        |  | Licensee of Hong Kong 3G license                                                  
|SUNDAY IP LIMITED                                           |  | British Virgin Islands |  | 1 ordinary share of US$1                                                              |  | Holding our intellectual property rights and trade marks                          
|SUNDAY COMMUNICATIONS SERVICES
(SHENZHEN) Limited, or SCSSL |  | The PRC                |  | (1)                                                                                   |  | Provision of back office support services
to the SUNDAY group                     

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---

|(1) |  | SCSSL is registered as a wholly foreign-owned enterprise in the PRC. The
registered capital of SCSSL is US$1.5 million which have been fully paid
up as of December 31, 2002.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our principal activities, except for SCSSL which is operated in the PRC,
are undertaken in one geographic area, Hong Kong.

PROPERTY, PLANTS AND EQUIPMENT

We lease and occupy around 30 properties in Hong Kong and the PRC, which
we use as offices, retail shops, switching centers, customer service center and
warehouse. We also lease and operate over 1,050 cell sites in Hong Kong.

All of our fixed assets have been pledged as security for our bank loan
and vendor loan facilities.

We have substantially completed our mobile network but we will continue to
allocate capital expenditure to expand our capacity and further enhance and
maintain the network. Also, we will incur capital expenditures for the
implementation of new wireless data services based on new technologies.




Item 5.   OPERATING AND FINANCIAL REVIEW AND PROSPECTS

You should read the following discussion, together with our consolidated
financial statements and the related notes, beginning on page F-1. Our
consolidated financial statements have been prepared in accordance with HK
GAAP, which differs in certain significant respects from US GAAP. Note 27 of
the notes to our audited consolidated financial statements provides a
description of the significant differences between HK GAAP and US GAAP as they
relate to us. Note 27 also provides a reconciliation to US GAAP of consolidated
net loss and consolidated shareholders equity. You should also read the
information under Forward-looking Statements for special information about
our forward-looking information.

Introduction

We are an innovative developer and provider of wireless communications and
wireless data services in Hong Kong. Since our formation in 1994, we have
pursued a vision that wireless communications would become increasingly
pervasive and integrated into consumers lives. We were one of the first mobile
operators in Hong Kong to develop personalized wireless-based services designed
for a highly active and mobile way of living. We have used these services to
differentiate ourselves from our competitors and attract new subscribers who
tend to be responsive to lifestyle marketing and quick to adopt technological
innovation.

We began commercial operation in September 1997 with the introduction of
our digital GSM 1800 mobile telephone services under the SUNDAY brand name. We
have invested significant resources to build our SUNDAY brand name and have
succeeded in making it one of the most well-known brand names in Hong Kong. Our
marketing strategy assisted us in building a mobile subscriber base of 603,000
subscribers as of December 31, 2002.

The Hong Kong mobile communications industry is highly competitive. We
believe that currently the three largest operators collectively have a market
share of approximately 60%. There have been periods of intense price
competition or price wars among Hong Kongs wireless communications and other
telecommunications service providers. These activities have generally been
initiated by our competitors. Many of our competitors have greater resources
than we do and may be better positioned than us to launch competitive products
and services and to absorb operating losses.

Since we commenced commercial operations, we have experienced net losses.
As of December 31, 2002, we had accumulated losses of HK$3 billion. To achieve
profitability, we will need in particular to continue to grow our subscriber
base, increase ARPU of our services, improve customer retention and enhance
productivity, and to develop and introduce new services.

The successful dual listing of our ADSs and ordinary shares on The Nasdaq
National Market and The Stock Exchange of Hong Kong Limited, respectively, in
March 2000 raised HK$2.6 billion new share capital and helped to substantially
strengthen our financial position to cater for future network expansion and
enhancement, and the development and introduction of new services and
applications based on new technologies.

We have installed the GPRS network infrastructure and we have dedicated
resources to develop and launch wireless data services and applications using
the GPRS platform. We have launched a broad range of new wireless data services
in 2002 and expect that more data services will be launched in 2003.

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Winning a 3G license in Hong Kong in October 2001 was another important
milestone for us. Acquiring the 3G license is an integral part of our long-term
strategy to offer an enhanced range of wireless services under the SUNDAY
brand. In addition to the 3G license, we were allocated 2 x 1.6 MHz of
additional 2G spectrum in the 1800 MHz range in March 2002. This has increased
our network capacity and has allowed us to further expand our subscriber base
and enhance our service quality.

While revenues from wireless voice services were still the dominant source
of revenue in 2002, we expect that wireless data services will play a more
important role in the near future.

We do not engage in any trading activities that include non-exchange
traded contracts accounted for at fair value.

OPERATING ENVIRONMENT AND OVERVIEW

Critical Accounting Policies

The discussion and analysis of our financial conditions and results of
operations are based upon our consolidated financial statements which have been
prepared in accordance with HK GAAP. Our principal accounting policies are set
out in Note 2 of the notes to our consolidated financial statements. The
preparation of the consolidated financial statements requires us to make
estimates and judgments that affect the reported amounts of assets,
liabilities, revenues, expenses as well as the disclosure of contingent assets
and liabilities.

We continually evaluate our estimates and judgments including those
related to revenue recognition, provisions for doubtful debts, useful lives of
plant and equipment and intangible assets, deferred tax and contingencies. We
base our estimates and judgments on historical experience and other factors
that are believed to be reasonable under the circumstances. Actual results may
differ from these estimates under different assumptions and conditions. We
believe that the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of the consolidated
financial statements.

The 3G license granted to us during 2001 requires the payments of certain
prescribed minimum annual fees over its 15-year license period. In 2001, the
discounted value of the minimum annual fees of the 3G license was recorded both
as an intangible asset and as a long-term liability in our consolidated
financial statements. During 2002, our directors re-evaluated the existing
accounting policy for the 3G license and believe that it is not an appropriate
treatment, as it does not reflect fully the underlying legal and financial
obligations and therefore our commercial position given the provisions of the
3G license. Accordingly, the license fees payable prior to the launch of
commercial services are regarded as integral to the development and
construction of the 3G network and are deferred and included within fixed
assets. Depreciation of the fixed assets will be provided from the commencement
of the 3G services over the shorter of the remaining life of the 3G license or
the estimated useful life of the fixed assets.

The plant and equipment used in our network is long-lived but may be
subject to technical obsolescence. The annual depreciation charge is sensitive
to the estimated economic useful lives we allocate to each type of fixed
assets. We perform annual reviews to assess the appropriateness of their
estimated economic useful lives. For the three years ended December 31, 2000,
2001 and 2002, there was no change in the useful lives of the fixed assets.
Such reviews take into account the technological changes, prospective economic
utilization and physical condition of the assets concerned. We also regularly
review whether there are any indications of impairment. We will recognize an
impairment loss if the carrying amount of an asset is lower than its
recoverable amount which is the greater of its net selling price or its value
in use. In determining the value in use, we assess the present value of the
estimated future cash flows expected to arise from the continuing use of the
asset and from its disposal at the end of its useful life. We use estimates and
judgment in determining these future cash flows and the discount rate. We
estimate the future cash flows based on certain assumptions, such as the market
competition and development and the expected growth in subscribers and APRU.

We engage dealers for selling mobile services to new subscribers and pay
commissions to the dealers based on the number of subscribers who remain active
after a prescribed period of time. Therefore, the amount of commission payable
would depend on the churn rate of such subscribers. We estimate the average
churn rate of such subscribers periodically based on past experience and market
conditions and accrue dealer commissions accordingly. If the actual churn rate
is lower than our estimate, additional accrual of the dealer commissions may be
required.

We provide services to our subscribers mainly on credit terms. We know
that certain debts due to us will not be paid through the default of a small
number of our customers. We perform regular reviews to estimate, based on our
write-off historical experience, the aging of our accounts receivable and the
general economic conditions and industry trends, the level of debts that we
believe will not be collected.

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Deferred taxation is accounted for at the current tax rate in respect of
timing differences between profit as computed for taxation purposes and profit
as stated in the financial statements to the extent that a liability or an
asset is expected to be payable or receivable in the foreseeable future under
HK GAAP. Under US GAAP, we recognize deferred tax assets and liabilities using
enacted tax rates for the effect of temporary differences between the book and
tax bases of assets and liabilities, and record a valuation allowance on
deferred tax assets to reduce the carrying amount of deferred tax asset unless
it is more likely than not that such asset can be realized. As of December 31,
2002, we did not record any deferred tax asset due to the uncertainty that any
resultant deferred tax asset can be recoverable in the foreseeable future.

Overview

Operating Revenues

Our operating revenues in 2002 declined by 6% as compared with 2001,
mainly due to a 53% decrease in revenue from the sales of mobile phones and
accessories. While such revenues decreased by 53%, we earned a gross profit of
HK$2 million from the sales of mobile phones and accessories as compared with a
gross loss of HK$2 million in 2001 and HK$20 million in 2000. Revenues from
mobile services increased by 5% in 2002, mainly attributable to a steady and
sustained growth in the subscriber base, despite intense market competition. We
experienced subscriber growth rates of 43%, 34% and 9% for the years ended
December 31, 2000, 2001 and 2002, respectively. The number of subscribers grew
from approximately 410,000 subscribers as of December 31, 2000 to approximately
603,000 subscribers as of December 31, 2002.

During 1998 and 1999, many of our competitors initiated aggressive tariff
reductions and heavy handset subsidy schemes because of the introduction of
mobile number portability, or MNP, which allows mobile telephone subscribers in
Hong Kong to change their mobile telephone operator and still keep their mobile
telephone number, in March 1999. During this period, we did not lower our
tariffs, but we started offering heavy handset subsidies in February 1999 and
continued these subsidy schemes until the third quarter of 1999 when the
competitors started phasing out their heavy handset subsidies. In 2000, we
introduced new postpaid and prepaid tariffs which are designed to suit
different peoples needs, and were aggressive in expanding our distribution
network and broadening the use of different distribution channels to extend our
coverage and to target new market segments. While the heavy handset subsidies
were phased out in 2001, market competition remained intense as aggressive
tariff promotional plans were launched to retain existing subscribers as well
as attracting new subscribers in an increasingly saturating market. As a
result, the ARPU of the industry, including ours, continued to decrease while
the churn rate increased during the past few years.

Mobile Services

We recognize revenues from mobile services when the services are rendered.
A substantial majority of the revenue from mobile services has consisted of
revenue from local airtime. Subscribers pay local airtime charges for both
incoming and outgoing calls. Revenue from mobile services also includes revenue
from international long distance calls made over our subscribers mobile
telephones, inbound and outbound roaming, value-added services, enhanced
services and data services. As of December 2002, revenue of wireless data
services accounted approximately 5% of mobile services revenue.

We calculate ARPU by dividing revenue from post-paid mobile services for
the month by the daily weighted average number of post-paid mobile service
subscribers for the month. The ARPU for the years ended December 31, 2000, 2001
and 2002 were HK$272, HK$219 and HK$209, respectively. This decrease in ARPU
was in line with the industry as a whole.

The rechargeable stored value prepaid SIM cards continued to record
significant growth since its launch in April 2000. The number of subscribers
using such prepaid SIM cards grew from 132,000 in 2001 to 189,000 by December
31, 2002. The ARPU of these prepaid subscribers was HK$92 in 2002, which was
similar to 2001.

Our mobile communications business can be significantly affected by churn,
which represents net subscriber deactivation or disconnection, whether
voluntary or not, during a period. Our average monthly churn rate for our
mobile subscribers is the total of the monthly churn rates for the period,
which is calculated as a percentage of opening subscribers, divided by the
number of months in such period. Along with other mobile telephone operators in
Hong Kong, we have experienced relatively high churn rates since MNP became
available, which increased subscribers willingness to switch among operators.
Our average monthly churn rates of post-paid subscribers for the years ended
December 31, 2000, 2001 and 2002 were 6.1%, 8.3% and 5.4%, respectively. During
2002, we made churn a priority and considerable efforts were put into retention
programs based on market research which allowed us to gain greater insight into
the reasons behind customers changing service. As of December 2002, the churn
rate was reduced to 3.5%. We will continue to make customer retention a
priority in 2003 and are confident of maintaining a tight control over churn
although churn may rise modestly in response to periodic changes in market
conditions.

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Sales of Mobile Phones and Accessories

We recognize revenues from the sales of mobile phones and accessories at
the time of sale. In response to subsidies offered by our competitors that in
many cases effectively gave away the handsets for free, in February 1999, we
also began offering heavy subsidies on our mobile phones. Typically, our
subsidy arrangements involved selling mobile phones at discounts of up to the
full cost of the handsets in exchange for subscribers making an upfront
prepayment for credit against future monthly airtime charges. We rebate the
upfront prepayment in equal installments over an agreed period. The upfront
prepayment amount is not transferable and any amount outstanding is forfeited
by the subscriber if the account is closed. As our competitors began phasing
out the heavy handset subsidies during the third quarter of 1999, we have also
significantly scaled back our handset subsidies and currently only offer heavy
discounts for retention programs and sales of older models of mobile phones or
mobile phones in the low to medium price range.

We account for subsidized handset sales by recognizing the purchase price
paid by the subscriber, excluding any upfront prepayment amount. We
simultaneously recognize our full cost of the mobile phone, which sometimes
substantially exceeds our sales revenue. The upfront prepayment amount is
recorded as deferred revenue and included in the balance sheet as a liability.
The monthly rebate is recognized as revenue from mobile services in the month
when access to our network and facilities is provided to the subscriber and is
deducted from subscriptions received in advance. The amount of our total
deferred revenue in connection with handset sales was HK$17.6 million as of
December 31, 2002, which was included in the balance sheet as part of the
subscriptions received in advance which amounted to HK$127.0 million. The
amount of our deferred revenue in connection with handset sales was HK$47.1
million as of December 31, 2001 and was included as part of the subscriptions
received in advance which amounted to HK$153.3 million. The decrease in
deferred revenue in 2002 as compared with 2001 was due to less handset
subsidies offered to our subscribers.

Other Services

Revenues of other services mainly consisted of revenues from our retail
international long distance calling services for 2000 and 2001. We commenced
our retail SUNDAY 1622 international long distance calling services in
September 1999. The retail international telecommunications services revenues
consist of revenues from international calls by non-SUNDAY mobile service users
and revenues from international calls by registered fixed line subscribers
using our SUNDAY 1622 services. Revenues from our mobile service subscribers
making international long distance calls from their mobile phones are excluded
from the retail international telecommunications services revenues but are
included in revenues from mobile services as described above.

We outsourced the sales, service and billing functions of the SUNDAY 1622
services to a subsidiary of e-Kong Group Limited in August 2000 and received a
referral revenue of approximately HK$7.6 million in 2000, which had also been
included in revenues of other services. The arrangement was terminated
effective from September 26, 2001 pursuant to a revised arrangement and
therefore the revenues from our retail international long distance calling
services were insignificant in 2002.

Revenues of other services of HK$9.7 million in 2002 were mainly generated
through the provision of certain consultancy services, which were not of a
recurring nature.

Cost of Sales and Services

Our cost of sales and services consists of costs directly associated with
generating revenues. Cost of sales consists almost entirely of mobile phones
and accessories costs and related collection charges. Cost of services relates
to the cost of mobile services and the costs of other services, which consists
primarily of a variety of interconnection charges, including PNETS charges
(interconnection charges for local calls payable to an FTNS operator); dipping
charges (payable to a FTNS operator under certain MNP arrangements); outbound
roaming charges; revenue-sharing payments made to Mass Transit Railway
Corporation, or MTR, for calls made by our mobile subscribers in MTRs
facilities; billing related costs; collection charges; provision for bad debts;
and cost of prepaid cards. Cost of mobile services accounted for 19%, 19% and
18% of revenue from mobile services in 2000, 2001 and 2002, respectively.

Our provision for bad debts is based on the aging of the receivables from
the billing cutoff date and occurrence of fraud cases. Our provision for bad
debts was 2.7%, 1.7% and 2.5% of service revenue in 2000, 2001 and 2002,
respectively. The reduction in provision for bad debts in 2001 resulted from
tight credit controls and increased use of auto-pay arrangements. The provision
for bad debts increased in 2002 due to the prolonged poor economic conditions
in Hong Kong and an increase in bad debts from wireless data services.

Operating Expenses

Our operating expenses consist primarily of network costs which include

rental for leased lines (between cell sites and our two switching centers,
between our switching centers, and for interconnection to FTNS operators and to
international carriers), cell sites acquisition and rental and maintenance
costs, depreciation, advertising, promotion and other selling costs, salaries
and related costs, and other operating costs. Advertising, promotion and other
selling costs consist primarily of advertising costs and dealer and salesperson
commissions.

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Total operating expenses for the three years ended December 31, 2000, 2001
and 2002 amounted to HK$1,179.7 million, HK$1,119.0 million and HK$1,052.5
million, respectively. The operating expenses in 2002 has included a one-time
restructuring cost of HK$26.6 million in relation to an operations
restructuring implemented in December 2002. The total operating expenses showed
a decreasing trend during the three years from 2000 to 2002 due to our
continued focus on cost controls.

Income Taxes

We have not paid Hong Kong profits tax since inception because of losses
incurred to date.

Foreign Exchange Exposure

Substantially all our income, expenses, assets and liabilities are
denominated in Hong Kong dollars except for our US$155 million long-term vendor
loan facility provided by Nortel. As of December 31, 2002, our outstanding U.S.
dollar-denominated debt amounted to US$47 million, but we also had a U.S.
dollar bank deposit of US$24 million. The international roaming payables and
receivables are netted and settled on a monthly basis in Special Drawing
Rights, or SDRs. As of December 31, 2002, the net SDR-denominated payables were
insignificant. We have not experienced significant foreign exchange movements
and do not anticipate significant foreign exchange losses as long as the Hong
Kong governments policy to link the Hong Kong dollar to the U.S. dollar
remains in effect. To date, we have not hedged our foreign exchange exposure
and will continue to monitor the foreign exchange exposure and market
conditions to determine if any hedging is required.

Results of Operations

The following table summarizes our results of operations for the three
years ended December 31, 2000, 2001 and 2002.

|                                         |                                                |                                   |                          |        |                         |          |       |   |             |       |         |        |             |          |       |   |       |       |         |        |         |          |       |   |       |       |  
|---------------------------------------- | ---------------------------------------------- | --------------------------------- | ------------------------ | ------ | ----------------------- | -------- | ----- | - | ----------- | ----- | ------- | ------ | ----------- | -------- | ----- | - | ----- | ----- | ------- | ------ | ------- | -------- | ----- | - | ----- | ----- | -
|                                         |                                                |                                   |                          |        | Year Ended December 31,
|                                         |                                                |                                   |                          |        |                        
|                                         |                                                |                                   |                          |        | 2000                    |          | 2001  |   | 2002       
|                                         |                                                |                                   |                          |        |                         |          |       |   |            
|                                         |                                                |                                   |                          |        | HK$ million             |          | %(1)  |   | HK$ million |       | %(1)    |        | HK$ million |          | %(1) 
|                                         |                                                |                                   |                          |        |                         |          |       |   |             |       |         |        |             |          |      
|Operating revenues:                      |                                                |                                   |                          |        |                         |          |       |   |             |       |         |        |             |          |       |   |       |       |         |        |         |          |       |  
|Mobile services                          |                                                |                                   | 988.7                    |        |                         |          | 68.2  |   |             |       | 1,165.4 |        |             |          | 81.9  |   |       |       | 1,217.7 |        |         |          | 90.7  |  
|Sales of mobile phones and accessories   |                                                |                                   | 404.4                    |        |                         |          | 27.9  |   |             |       | 242.9   |        |             |          | 17.1  |   |       |       | 115.3   |        |         |          | 8.6   |  
|Other services                           |                                                |                                   | 57.2                     |        |                         |          | 3.9   |   |             |       | 14.1    |        |             |          | 1.0   |   |       |       | 9.7     |        |         |          | 0.7   |  
|                                         |                                                | Total operating revenues          |                          |        | 1,450.3                 |          |       |   | 100.0       |       |         |        | 1,422.4     |          |       |   | 100.0 |       |         |        | 1,342.7 |          |       |   | 100.0 |      
|Total operating revenues growth          |                                                |                                   | 41.4                     | %      |                         |          |       |   |             |       | (1.9    | )%     |             |          |       |   |       |       | (5.6    | )%     |         |          |       |  
|Costs of sales and services:             |                                                |                                   |                          |        |                         |          |       |   |             |       |         |        |             |          |       |   |       |       |         |        |         |          |       |  
|Mobile services                          |                                                |                                   | (184.7                   | )      |                         |          | (12.7 | ) |             |       | (216.9  | )      |             |          | (15.3 | ) |       |       | (220.5  | )      |         |          | (16.4 | )
|Sales of mobile phones and accessories   |                                                |                                   | (424.5                   | )      |                         |          | (29.3 | ) |             |       | (245.0  | )      |             |          | (17.2 | ) |       |       | (113.4  | )      |         |          | (8.4  | )
|Other services                           |                                                |                                   | (50.8                    | )      |                         |          | (3.5  | ) |             |       | (7.3    | )      |             |          | (0.5  | ) |       |       | (0.6    | )      |         |          | (0.1  | )
|                                         |                                                | Total costs of sales and services |                          |        | (660.0                  | )        |       |   | (45.5       | )     |         |        | (469.2      | )        |       |   | (33.0 | )     |         |        | (334.5  | )        |       |   | (24.9 | )    
|Total costs of sales and services growth |                                                |                                   | (4.2                     | )%     |                         |          |       |   |             |       | (28.9   | )%     |             |          |       |   |       |       | (28.7   | )%     |         |          |       |  
|Gross profit                             |                                                |                                   | 790.3                    |        |                         |          | 54.5  |   |             |       | 953.2   |        |             |          | 67.0  |   |       |       | 1,008.2 |        |         |          | 75.1  |  
|Gross profit growth                      |                                                |                                   | 134.8                    | %      |                         |          |       |   |             |       | 20.6    | %      |             |          |       |   |       |       | 5.8     | %      |         |          |       |  
|Other revenues                           |                                                |                                   | 8.7                      |        |                         |          | 0.6   |   |             |       | 2.6     |        |             |          | 0.2   |   |       |       | 1.9     |        |         |          | 0.1   |  
|Operating expenses:                      |                                                |                                   |                          |        |                         |          |       |   |             |       |         |        |             |          |       |   |       |       |         |        |         |          |       |  
|                                         | Network costs                                  |                                   |                          | (328.0 | )                       |          |       |   |             |       |         | (301.7 | )           |          |       |   |       |       |         | (303.6 | )       |          |       |   |      
|                                         | Depreciation                                   |                                   |                          | (261.3 | )                       |          |       |   |             |       |         | (265.1 | )           |          |       |   |       |       |         | (256.4 | )       |          |       |   |      
|                                         | Rent and related costs                         |                                   |                          | (46.4  | )                       |          |       |   |             |       |         | (58.5  | )           |          |       |   |       |       |         | (61.1  | )       |          |       |   |      
|                                         | Salaries and related costs                     |                                   |                          | (255.2 | )                       |          |       |   |             |       |         | (233.2 | )           |          |       |   |       |       |         | (243.9 | )       |          |       |   |      
|                                         | Advertising, promotion and other
selling costs |                                   |                          | (195.2 | )                       |          |       |   |             |       |         | (180.4 | )           |          |       |   |       |       |         | (127.8 | )       |          |       |   |      
|                                         | Other operating costs                          |                                   |                          | (93.6  | )                       |          |       |   |             |       |         | (80.1  | )           |          |       |   |       |       |         | (59.7  | )       |          |       |   |      
|                                         |                                                |                                   | Total operating expenses |        |                         | (1,179.7 | )     |   |             | (81.3 | )       |        |             | (1,119.0 | )     |   |       | (78.7 | )       |        |         | (1,052.5 | )     |   |       | (78.4 | )
|Total operating expenses growth          |                                                |                                   | 8.8                      | %      |                         |          |       |   |             |       | (5.1    | )%     |             |          |       |   |       |       | (5.9    | )%     |         |          |       |  
|Loss from operations                     |                                                |                                   | (380.7                   | )      |                         |          | (26.2 | ) |             |       | (163.2  | )      |             |          | (11.5 | ) |       |       | (42.4   | )      |         |          | (3.2  | )
|Interest income                          |                                                |                                   | 51.1                     |        |                         |          | 3.5   |   |             |       | 21.6    |        |             |          | 1.5   |   |       |       | 3.5     |        |         |          | 0.3   |  
|Finance costs                            |                                                |                                   | (136.9                   | )      |                         |          | (9.4  | ) |             |       | (70.1   | )      |             |          | (4.9  | ) |       |       | (59.8   | )      |         |          | (4.4  | )
|Share of losses of joint ventures        |                                                |                                   |                         |        |                         |          |      |   |             |       |        |        |             |          |      |   |       |       | (18.6   | )      |         |          | (1.4  | )
|Net loss                                 |                                                |                                   | (466.5                   | )      |                         |          | (32.1 | ) |             |       | (211.7  | )      |             |          | (14.9 | ) |       |       | (117.3  | )      |         |          | (8.7  | )



---

|(1) |  | Percentage of total operating revenues for the year.
|--- |  | ----------------------------------------------------

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2002 Compared with 2001

Total operating revenues for 2002 declined 6% to HK$1,342.7 million as
compared with HK$1,422.4 million in 2001, mainly due to a 53% decrease in
revenues from the sales of mobile phones and accessories. Because sales of
mobile phones have not been profitable historically, the decline in revenues
from sales of mobile phones and accessories is favorable to us as less handset
subsidies are required. Revenues from mobile services continued to grow in
2002. Revenues from mobile services and sales of mobile phones and accessories
accounted for 91% and 8%, respectively, of total operating revenues in 2002,
compared to 82% and 17% in 2001.

Revenue from mobile services increased by 5% from HK$1,165.4 million to
HK$1,217.7 million in 2002. The growth was mainly attributable to a sustained
increase in our subscriber base. Our subscriber base grew 9% to 603,000 in 2002
as compared with 551,000 in 2001. During 2002, we implemented various
initiatives to improve further our service to subscribers, such as enhancing
the network quality and coverage, improving customer service and strengthening
our sales and marketing functions. We also made churn a priority in 2002 and
reduced the monthly churn rate to 3.5% in December 2002 from 7.8% in December
2001, with the implementation of effective retention programs, including the
Superstar Club. While the churn may increase modestly in response to market
conditions, we will continue to make customer retention a priority and maintain
a tight control over churn.

In addition to continued subscriber growth and significantly improved
churn, monthly ARPU during 2002 has shown a modest rising trend following
increasing revenue from wireless data and an easing of market conditions in
2002. Monthly APRU for postpaid subscribers for December 2002 was HK$207 as
compared with HK$205 in December 2001. Average ARPU for 2002 was HK$209 as
compared with HK$219 in 2001. Revenues of wireless data services accounted for
approximately 5% of mobile services revenue by December 2002.

The prepaid SIM cards have continued to record significant growth in 2002.
The subscriber number grew by 57,000, or 43%, to 189,000 in 2002 over 2001.
ARPU for prepaid subscribers was HK$92 in 2002, comparable to that of 2001.

Revenues from the sales of mobile phones and accessories continued to
decrease, mainly owing to a reduction in sales volume as the handset subsidy
level has been significantly reduced since 2000. As a result, while such
revenues decreased by 53% to HK$115.3 million in 2002, we earned a gross profit
of HK$1.9 million as compared with a gross loss of HK$2.1 million in 2001.

Cost of sales and services decreased by HK$134.7 million, or 29%, from
HK$469.2 million in 2001 to HK$334.5 million in 2002. The decrease was mainly
attributable to a reduction in the cost of sales of mobile phones and
accessories.

Due to the factors mentioned above, despite a lower operating revenue, the
gross profit improved by HK$55.0 million, or 6%, from HK$953.2 million in 2001
to HK$1,008.2 million in 2002. Gross profit as a percentage to total operating
revenues also increased from 67% in 2001 to 75% in 2002 due to the steady
growth in subscribers and reduction in handset subsidies.

Operating expenses decreased by HK$66.5 million, or 6%, from HK$1,119.0
million in 2001 to HK$1,052.5 million in 2002. The decrease was primarily due
to a reduction in advertising, promotion and other selling costs and other
operating costs. As a percentage to operating revenues, operating expenses
declined from 79% in 2001 to 78% in 2002. The decrease was a direct result of
stringent cost controls and continued improvements in operating efficiencies
that come with an expanded subscriber base and lowering marginal costs.

In December 2002, we restructured our operations to revamp our
organizational structure and reprioritize functions and responsibilities. The
organizational changes and reduction in workforce will help us take advantage
of the next phase in wireless communications with a lean but efficient
operating structure and a more focused employee team to strive for our
objective of improved profitability. Total restructuring costs, mainly
severance pay and payments in lieu of notice to redundant or terminated
employees, amounted to HK$26.6 million and were included in total
operating expenses. If such restructuring costs were excluded, the total
reduction in total operating expenses in 2002 would have been HK$93.1 million.

We also established an operations center in Shenzhen in mainland China in
2002 to provide various support services. The new center helps reduce operating
costs as well as provide higher productivity and better service quality by
leveraging the lower labor costs in China. We expect that the real benefits
from this new operations center in Shenzhen and the organizational
restructuring mentioned above will be better reflected in our 2003 results.

Share of losses from joint ventures of HK$18.6 million in 2002 was mainly
attributable to the closure of the joint venture with the Shell group. In
January 2002, we formed a 50:50 joint venture with the Shell group to operate
as a MVNO on a pilot basis. The joint venture ceased operations in September
2002 as the operating results of this pilot
project indicated that MVNOs had limited potential. The joint venture is
currently under voluntary liquidation. Our investment in this joint venture of
HK$16.7 million had been fully written off and included in the share of losses
from joint ventures.

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Interest income and finance costs decreased by HK$18.1 million and HK$10.3
million, respectively, in 2002. The decrease in interest income was mainly
attributable to a decrease in average cash balance and the drop in average
interest rate. The decrease in finance costs was mainly attributable to a
reduction in interest expenses due to a drop in market interest rate in
general.

Net loss for the year was reduced by 45% from HK$211.7 million in 2001 to
HK$117.3 million in 2002. Before restructuring costs, our net loss for the year
amounted to HK$90.7 million for 2002.

2001 Compared with 2000

Total operating revenues were flat at HK$1,422.4 million in 2001 as
compared with HK$1,450.3 million in 2000. Revenue from mobile services
continued to grow but the revenues from sales of mobile phones and accessories
decreased in 2001. As a result, revenue from mobile services accounted for 82%
of total operating revenues in 2001 while it accounted for only 68% of
operating revenues in 2000.

Revenue from mobile services increased by 18% from HK$988.7 million in
2000 to HK$1,165.4 million in 2001. The growth was mainly attributable to
steady growth in the subscriber base. Our subscriber base grew 34% to 551,000
in 2001 as compared with 2000. However, ARPU for post-paid subscribers
decreased and the churn rate increased in line with the industry as a whole due
to fierce price competition in the market. ARPU for 2001 decreased by 19% from
HK$272 in 2000 to HK$219 in 2001, and the average monthly churn rate in 2001
was 8.3% as compared with 6.1% in 2000.

Revenue from the sales of mobile phones and accessories decreased by 40%
to HK$243 million in 2001. The decrease was mainly attributable to a reduction
in sales volume as only a few new models of mobile phones were launched in
2001. Its share of total operating revenues decreased from 28% in 2000 to 17%
in 2001.

Cost of sales and services decreased by HK$190.8 million, or 28.9%, from
HK$660.0 million in 2000 to HK$469.2 million in 2001. The decrease was a
combination of an increase in the cost of services of mobile services (HK$32.2
million) offset by a reduction in the cost of sales of mobile phones and
accessories (HK$179.5 million) and the cost of services of international
telecommunications and other services (HK$43.5 million). The 42% reduction in
cost of sales of mobile phones and accessories was attributable to a decrease
in sales volume.

Cost of mobile services is mainly a variable cost based on the volume of
mobile services. The increase in the cost of mobile services was mainly
attributable to an increase in subscriber base from 410,000 in 2000 to 551,000
in 2001. The gross profit margin of mobile services remained to be
approximately 81% both in 2000 and 2001.

The decrease in revenues from other services in 2001 as compared with 2000
was mainly caused by the decrease in our promotional activities after we
outsourced the retail SUNDAY 1622 services in August 2000. However, the
direct cost of service also decreased and the gross profits for 2001 and 2000
remained relatively stable.

Due to factors mentioned above, the gross profit has improved by HK$163
million, or 21%, from HK$790.3 million in 2000 to HK$953.2 million in 2001.
Gross profit as a percentage to total operating revenues also increased from
55% in 2000 to 67% in 2001 due to steady growth in subscribers and reduction in
handset subsidies.

Operating expenses decreased by HK$60.7 million, or 5.1%, from HK$1,179.7
million in 2000 to HK$1,119.0 million in 2001. The decrease was primarily due
to a combination of an increases in rent and related costs offset by a
reduction in network costs, salaries and related costs, advertising, promotion
and other selling costs and other operating costs. As a percentage to operating
revenues, operating expenses declined from 81% in 2000 to 79% in 2001. The
decrease was a direct result of stringent cost controls and continued
improvements in operating efficiencies that come with an expanded subscriber
base and lowering marginal costs. The increase in rent and related costs was
mainly attributable to an increase in the number of our retail outlets.

As a result, we recorded an EBITDA of HK$101.9 million, an improvement of
HK$221.3 million as compared with 2000.

Interest income and finance costs decreased by HK$29.5 million and HK$66.8
million, respectively in 2001. The decrease in interest income was mainly
attributable to a decrease in cash balance and the drop in interest rate. The
decrease in finance costs was mainly attributable to a reduction in interest
expenses due to a reduction in loan balances and the drop in market interest
rate in general.

Net loss for the year was reduced by 55% from HK$466.5 million in 2000 to
HK$211.7 million in 2001.

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LIQUIDITY AND CAPITAL RESOURCES

The wireless communications and data businesses are capital intensive.
Development of mobile, international long distance calling and data networks
and service applications requires significant capital expenditures as well as
considerable marketing, administrative and other expenditures that give rise to
negative operating cash flow in the initial years of operation. Year 2002 was
the first year we generated positive cash flows from operations since the start
of our commercial operations in September 1997.

In March 2000, we raised net proceeds of approximately HK$2.1 billion from
a global offering of ordinary shares and ADSs. See Item 14 Material
Modifications to the Rights of Security Holders and Use of Proceeds  Use of
Proceeds for details of the use of proceeds.

Cash Flow from Operating Activities

We recorded positive cash flow from operating activities of HK$129.3
million in 2002 as compared with net cash outflows of HK$88.3 million and
HK$324.4 million for 2001 and 2000, respectively. The improvement in cash
outflow from operating activities primarily resulted from the improved
operating performance due to continued growth in subscriber base and revenues,
reduced handset subsidies, effective cost reductions, and improved operational
efficiency.

The increase of HK$217.6 million in net cash flow generated from operating
activities in 2002 over 2001 was mainly attributable to both an increase in
operating profit before depreciation (HK$112.1 million) and a smaller increase
in working capital (HK$113.4 million) mainly due to smaller decreases in trade
payables, other payables and accrued charges and an increase in inventories.

The decrease of HK$236.1 million in net cash outflow from operating
activities in 2001 was mainly attributable to a combination of a change from
operating loss before interest and depreciation in 2000 to profit before
interest and depreciation in 2001 (HK$221.3 million) and a decrease in net
interest expenses (HK$56.6 million), offset by a bigger increase in working
capital in 2001 as compared with 2000 (HK$43.1 million). The bigger increase in
working capital in 2001 was mainly due to a decrease in trade payables, other
payables and accrued charges resulted from a decrease in mobile phone purchases
and certain expenses and timing differences in certain payments.

Cash Flow from Investing Activities

Net cash outflow from investing activities for the years ended December
31, 2000, 2001 and 2002 were HK$203.4 million, HK$441.0 million and HK$109.5
million, respectively. The decrease in cash outflow of HK$331.5 million in 2002
as compared with 2001 was mainly due to smaller capital expenditure, partly
attributable to a direct non-cash drawdown of HK$49.5 million from the
revolving loan facility from Nortel for equipment purchases, and the fact that
in 2001, there was an one-time HK$250 million 3G license payment.

The increase in cash outflow of HK$237.6 million in 2001 as compared with
2000 was mainly due to the payment of HK$250 million of the first five years
minimum annual fees of the 3G license.

Cash Flow from Financing Activities

The amount of bank loans, vendor loans and the capital element of finance
leases repaid in 2002 amounted to HK$195 million. During the year, HK$179.4
million was drawn down from the revolving loan facilities from Nortel. As a
result, the net cash outflow from financing activities in 2002 was HK$17.6
million, less than the 2001 amount of HK$49.5 million which was used to repay
the bank loans, vendor loans and the capital element of finance leases.

In 2000, there was a net cash inflow of HK$1,065.0 million. The cash
inflow was mainly attributable to the global offering of our ADSs and ordinary
shares in March 2000, which raised net proceeds of approximately HK$2,137.2
million and drawdown of the loan facilities for cash of HK$380 million. Part of
the net proceeds of HK$430.9 million was used to repay holders of convertible
notes to the extent they did not elect to receive shares in the global
offering. We also used part of the net proceeds of approximately HK$1,012.7
million to repay the Nortel loans in 2000 to save interest.

Funding Arrangements

Historically, we funded our capital expenditures, operating expenses,
working capital requirements and negative cash flow with share capital,
unsecured shareholders loans and short-term debt financing. Subsequently, we
obtained long-term debts, including secured vendor financing and bank loans and
raised equity capital for our working capital and capital expenditure needs. In
2000 and 2001, we funded our capital expenditures, working capital requirements
and negative cash flow with long-term bank debt, vendor financing and proceeds
from the global offering. In 2002, we recorded positive cash flow from
operating activities, which partly covered our capital expenditure and loan
repayments.

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The loan facilities from UOB and Nortel were both fully utilized in 2000.
We then temporarily repaid Nortel an aggregate of US$130.0 million
(approximately HK$1,012.7 million) in 2000 to save interest expenses and at the
same time, Nortel granted a revolving facility of the same amount to us for
general corporate purposes with an expiry date on March 12, 2001, which was
extended until March 11, 2002, and subsequently further extended to September
11, 2004 pursuant to an agreement signed among Nortel, UOB and us dated May 17,
2002.

On July 30, 2002, we entered into various documents to amend the bank
loans and vendor loans facilities in order to accommodate changes to our group
structure, as well as to vary certain financial covenants. The maturity date of
the loans, amounts lent and interest provisions have not been altered. For a
description of the various covenants, see Certain Indebtedness below.

As of December 31, 2002, the outstanding loan balances from UOB and Nortel
were HK$420.0 million and HK$365.3 million, respectively and are repayable in
quarterly instalments through September 2004. The available revolving facility
was US$61.7 million, or HK$480.9 million, as of December 31, 2002. The UOB
loans and Nortel loans were repayable within two years and were secured by a
charge over all the assets, revenues and shares of Mandarin. The bank loans and
vendor loans bear interest at prevailing interest rates.

As of December 31, 2002, we had total bank and vendor loans of HK$785.3
million, a cash reserve of HK$208.2 million and an available revolving facility
of HK$480.9 million. Our net debt (total bank loans and vendor loans less cash
reserves) amounted to HK$577.1 million and the net debt to equity ratio was 86%
as of December 31, 2002.

We expect that the financial impact of our 3G rollout would not be felt
until 2004 and we are in discussion with a number of vendors and financial
institutions to ensure we can roll out our 3G services on a sound commercial
basis, when the time is right.

Contractual Obligations

The following table sets forth certain information regarding our
contractual obligations to make future payments as of December 31, 2002:

|                                   |       |       |                                     |         |  |           |           |           |  |       |       |       |  |  |   |   |         |  |   |   | 
|---------------------------------- | ----- | ----- | ----------------------------------- | ------- |  | --------- | --------- | --------- |  | ----- | ----- | ----- |  |  | - | - | ------- |  | - | - | 
|                                   |       |       | Payment Due by Period (HK$ million)
|                                   |       |       |                                    
|                                   |       |       |                                     |         |  |           | Less Than |           |  |       |       |       |  |  |   |   | After 5
|Contractual Obligations            |       | Total |                                     | 1 Year  |  | 1-3 Years |           | 4-5 Years |  | Years
|                                   |       |       |                                     |         |  |           |           |           |  |      
|Trade payables                     |       |       | 56.4                                |         |  |           | 56.4      |           |  |       |      |       |  |  |  |   |         |  |  |  
|Other payables and accrued charges |       |       | 171.3                               |         |  |           | 171.3     |           |  |       |      |       |  |  |  |   |         |  |  |  
|Short-term debts                   |       |       | 362.1                               |         |  |           | 362.1     |           |  |       |      |       |  |  |  |   |         |  |  |  
|Long-term debts                    |       |       | 550.4                               |         |  |           |          |           |  |       | 550.4 |       |  |  |  |   |         |  |  |  
|                                   | Total |       |                                     | 1,140.2 |  |           |           | 589.8     |  |       |       | 550.4 |  |  |   |  |         |  |   |  | 

The following table sets forth certain information regarding our other
commercial commitments as of December 31, 2002:

|                            |       |                                     |       |        |  |           |           |           |  |       |      |      |  |  |     |     |         |  |     |     | 
|--------------------------- | ----- | ----------------------------------- | ----- | ------ |  | --------- | --------- | --------- |  | ----- | ---- | ---- |  |  | --- | --- | ------- |  | --- | --- | 
|                            |       | Amount of Commitments              
|                            |       | Expiration per Period (HK$ million)
|                            |       |                                     |      
|                            |       |                                     |       |        |  |           | Less Than |           |  |       |      |      |  |  |     |     | After 5
|Commercial Commitments      |       | Total                               |       | 1 Year |  | 1-3 Years |           | 4-5 Years |  | Years
|                            |       |                                     |       |        |  |           |           |           |  |      
|Operating lease commitments |       |                                     | 303.1 |        |  |           | 200.3     |           |  |       | 95.5 |      |  |  | 7.1 |     |         |  | 0.2 |    
|Capital commitments         |       |                                     | 56.1  |        |  |           | 56.1      |           |  |       |     |      |  |  |    |     |         |  |    |    
|                            | Total |                                     |       | 359.2  |  |           |           | 256.4     |  |       |      | 95.5 |  |  |     | 7.1 |         |  |     | 0.2 | 

As of December 31, 2002, we did not have any off-balance sheet
arrangements or any written options on non-financial assets.

Certain Indebtedness

Loan Facilities

As of December 31, 2002, we had bank and other borrowings of approximately
HK$785.4 million. This comprised:



| |  |  | long-term guaranteed and secured bank loan of HK$420.0 million from
UOB which were used for capital expenditures and working capital
purposes;                                                             
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | U.S. dollar-denominated long-term secured vendor loan of US$46.8
million (approximately HK$365.3 million) from Nortel, which was used in
connection with the purchase of network equipment from Nortel; and
|
| |  |  | obligations under finance leases of approximately HK$0.1 million.                                                                                                                                          

30



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All such debt was long-term debt, except HK$238.6 million would be
repayable in 2003. Our long-term debt (other than our obligations under finance
leases) was secured by charges on most of our assets, which included our bank
accounts, revenues and receivables, plant and equipment, intellectual property
rights, rights under our telecommunications licenses (including our 3G license)
and goodwill.

Our long-term loan facilities consist of:



| |  |  | Nortel facility:a US$155 million (approximately HK$1,209 million)
term loan facility issued in favor of Mandarin by Nortel as arranger and
principal lender; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | UOB facility:a HK$600 million term loan facility issued in favor of
Mandarin by UOB as arranger and principal lender.                                           

Before the global offering, the interest rates applicable to the Nortel
facility ranged from LIBOR plus 4.0% to LIBOR plus 5.5%. The interest rates
applicable to the UOB facility ranged from the higher of the Hong Kong
interbank offer rate, HIBOR, or the cost of funds plus 3.5% to the higher of
HIBOR or the cost of funds plus 5.0%. After the global offering, the interest
rates applicable to the UOB facility have ranged from the higher of HIBOR or
the cost of funds plus 4.0% to the higher of HIBOR or the cost of funds plus
5.5%. Each facility matures in September 2004 with repayments of principal due
in quarterly installments commencing in March 2001. Both facilities contain a
number of covenants that restrict our ability to take certain actions without
the prior approval of Nortel and UOB.

On July 30, 2002, we entered into various agreements to effect certain
amendments to the bank loan and vendor loan facilities in order to accommodate
changes to our group structure for business development and/or cost saving
measures, including the provision of a corporate guarantee by SUNDAY
Communications to secure all the obligations and liabilities of its
wholly-owned subsidiaries, as well as to vary the required targets for
subscribers, earnings, tangible net worth and debt service ratio. The maturity
of the loans, amounts lent and interest provisions have not been altered.

Some of the covenants under the Nortel and UOB facilities restrict us and
our subsidiaries from taking certain actions without prior approval of Nortel
and UOB. These covenants include the following:



| |  |  | Mandarin must operate its business in accordance with business plans
approved by Nortel and UOB except for variations that would not have a
material adverse effect on Mandarins financial condition, operations or
ability to repay the debt;                                                                                                                                                                                                                                                                                                                   
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Mandarin cannot incur capital expenditures in any budget period
greater than 15% above the levels specified in the business plan then in
effect;                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  |  | Mandarin is required to continuously meet certain subscriber,
earnings, tangible net worth and debt service ratio targets;                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  |  | Mandarin must continue to be managed by such person or persons who,
in the reasonable opinion of Nortel and UOB, have sufficient expertise
and experience in the Hong Kong or international communications industry
so as to be able to provide adequate managerial personnel to implement
and execute Mandarins business plan then in effect in accordance with
good industry practice;                                                                                                                                                                         
|
| |  |  | Mandarin is prohibited from declaring or paying dividends unless it
makes a prepayment to the facilities which equals the total amount of a
dividend, and that dividend and the matching pre-payment can only be
funded from our excess cash flow;                                                                                                                                                                                                                                                                                                                
|
| |  |  | Mandarin is required to deposit all of its revenues into an account
from which it may only withdraw amounts for its operating expenses,
working capital and capital expenditures, as provided in the business
plan then in effect. The rest of its revenue goes toward paying
principal and interest on the facilities and into a minimum six months
debt service reserve account for future payments. If there is any excess
cash flow after these commitments, Mandarin may use 50% of that excess
cash, but it must use the other 50% to prepay the facilities;
|
| |  |  | Mandarin generally cannot, without the consent of Nortel and UOB,
incur new debt except for certain permitted indebtedness incurred in the
ordinary course of business;                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  |  | Mandarin cannot use its assets to secure any additional debt, subject to certain exceptions; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  |  | Mandarin will be in default:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      



| | (a) |  | if it defaults on any other loan in excess of US$2 million;                                       
| | --- |  | --------------------------------------------------------------------------------------------------
|
| | (b) |  | if the Company or certain group companies default on any other
loan in excess of US$10 million; or

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| | (c) |  | if, in the opinion of Nortel and OUB, an event occurs which has a
material adverse effect on our financial condition, operations or
ability to repay our debt.
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------

Failure to comply with these covenants and restrictions, subject to a
14-day grace period in the case of a remediable event, would entitle the
lenders to accelerate the maturity of the outstanding debt under the facilities
and exercise their security rights over substantially all of Mandarins assets.

SUNDAY Holdings (Hong Kong) Corporation, Mandarins immediate holding
company, has created mortgages and charges on all of its shares in Mandarin to
Nortel and UOB.

As of December 31, 2002, the outstanding loan balances from UOB and Nortel
were HK$420.0 million and HK$365.3 million, respectively. The available
revolving loan facility from Nortel was US$61.7 million as of December 31,
2002.

The table below sets out the repayment schedule for our borrowings
(excluding our obligations under our finance leases) as of December 31, 2002:

|                |           |  |              |       | 
|--------------- | --------- |  | ------------ | ----- | 
|                |           |  | HK$ millions
|                |           |  |             
|Balance due in: |           |  |              |      
|                | Year 2003 |  |              | 238.5 | 
|                | Year 2004 |  |              | 546.8 | 
|                |           |  |              |      
|                |           |  | 785.3        |      
|                |           |  |              |      

Finance Leases

We entered into several finance leases for certain computer and network
equipment. As of December 31, 2002, we had outstanding finance lease
obligations of HK$138,000, which is required to be fully settled in 2003.

Guarantees and Pledges

Mandarin has pledged a fixed deposit to UOB to obtain a guarantee of
HK$1.7 million to the Hong Kong Airport Authority in relation to our network
facilities installed at the Chek Lap Kok airport. The guarantee will expire in
March 2007.

Future Funding Requirements

Our ability to meet our future debt service obligations will in large part
depend on our improving cash from operations and utilizing existing financing
facilities. We cannot give any assurance that we can generate sufficient
operating cash flow or that we will be able to satisfy the required conditions
in order to obtain funds under our existing financing facilities.

The actual amount of our financing requirements will depend on our future
performance, market conditions and other factors, many of which are beyond our
control and cannot be predicted with certainty. We may need to raise additional
funds, however, to finance more rapid expansion, unanticipated operating
losses, and new investments for the development of new or enhanced services and
technologies. We would expect to seek such additional funds, if necessary,
through new issuance of shares and debt financing from banks, vendors or
private placements. If we do not have access to adequate capital on terms
favorable to us or at all in a timely manner, our ability to service our debt,
our business, financial condition and prospects could be severely adversely
affected.

Our high debt level could also have important adverse consequences,
including reducing our ability to obtain additional financing for working
capital, capital expenditures, debt service and other purposes, requiring us to
divert a substantial portion of our operating cash flow to debt service,
limiting our flexibility in reacting and taking advantage of developments and
opportunities in the industry and our business, and placing us at a competitive
disadvantage to our competitors that have less debt.

Inflation

We have not experienced any significant inflationary pressure in Hong Kong
during the three years ended December 31, 2002. We expect that inflation would
not have a material impact on our business, financial condition or results of
operations in 2003. However, if Hong Kong experiences significant inflation in
the future, we may not be able to fully offset the related higher costs through
tariff increases. The inability of failure to do so could adversely affect our
business, financial condition and results of operations.

32



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US GAAP Reconciliation

We prepare our consolidated financial statements in accordance with HK
GAAP which differs in certain material respects from US GAAP. Note 27 to our
audited consolidated financial statements provides a description of the
significant differences between HK GAAP and US GAAP.

The differences between HK GAAP and US GAAP include significant
differences in the presentation of our results of operations. Under HK GAAP,
consolidated statements of operations are reported by nature whereby network
costs are presented separately under operating expenses and bad debt expenses
are presented under cost of services. Under US GAAP, however, statements of
operations are reported by function and the network costs and salaries and
related costs, excluding depreciation, which are directly related to the
generation of revenue are included in cost of services. Rental, salaries and
related costs and bad debt expenses are presented under selling, general and
administrative expenses.

Other differences between HK GAAP and US GAAP include accounting for and
disclosure of deferred taxation and compensation costs in respect of grant of
share options to employees, the accounting treatment of connection fee of
mobile services and the 3G license.

A reconciliation of net loss and total shareholders equity as of and for
the years ended December 31, 2000, 2001 and 2002 under HK GAAP to the
comparable amounts determined under US GAAP is also provided in note 27 to our
consolidated financial statements.

RESEARCH AND DEVELOPMENT

We believe that our success depends on our ability to improve applications
in anticipation of emerging technologies. We will introduce new services and
products through:



| |  |  | internal R&D efforts;                                                 
| | - |  | ----------------------------------------------------------------------
|
| |  |  | market research; and                                                  
|
| |  |  | incorporation of new technologies and applications from third parties.

Since our inception, we have envisaged the convergence of mobile
communications and data technologies and in anticipation of such convergence,
we have, in conjunction with Nortel, improved and installed onto our mobile
network a number of enhanced and location based services and products, such as
Mobile Cupid, Jetso and Mobile Concierge, which were not previously available
elsewhere in Southeast Asia when we launched our services.

Our product development, principally relating to improvement of
commercially available service applications, is undertaken primarily by a
dedicated team which worked closely with both devices and software vendors to
develop innovative and user friendly wireless data and applications and
services to our subscribers based on existing and the GPRS technologies to our
subscribers.

TREND INFORMATION

The wireless communications industry in Hong Kong is highly volatile and
intensely competitive, and has shifted from being a high-growth mass market to
one characterized by saturation of penetration. Industry participants, from
time to time, confront aggressive pricing practices by competitors, fast
changing customer demand patterns and rapid technological developments. Our
financial condition and future results may be subject to a number of factors
that could cause actual results differ materially from the our estimates or
projected results contained in any forward-looking statements in this report.
Such factors are discussed in Item 3 Key Information  Risk Factors.

We expect 2003 to continue to be a competitive year for the industry. In
2003, we will focus our attention on profitability through improving customer
retention, maintaining and slowly growing the subscriber base,
maintaining ARPU and enhancing
productivity. Market segmentation will continue to be our strategic theme as we
pursue these growth objectives. The new wireless data services and MMS
interoperability are expected to provide additional revenue growth in 2003.
More mobile phones supporting MMS and other data services based on GPRS
technology were introduced to the market in late 2002 and this trend will
continue.

We believe that 3G would not become a significant market reality before
2004 and that the key to success in 3G services would be a cost-effective
platform that delivers creative and tailored services. We have performed
comprehensive planning on all network, IT and service delivery systems required
for the launch of 3G services and are in discussion with various vendors and
financial institutions to ensure we can roll out our 3G services on a sound
commercial basis, when the time is right.

33



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We have followed the developments in 3G around the world with close
attention and are convinced that our vision and strategic remain effective. In
particular, it is ever more evident that a 3G license will be essential for
success in future in Hong Kong and that alternative ways of delivering wireless
communications services based on either older technology or mobile virtual
network operations would not be competitive. We expect that the arrival of 3G
commercially to be a catalyst for the long-expected consolidation in the
industry in Hong Kong, to the benefit of our shareholders as well as other 3G
license holders.

We believe that our competitive strengths are becoming ever more relevant
as new generation of technologies begins to transform the way people use and
think about mobile communications.




Item 6.   DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

DIRECTORS AND SENIOR MANAGEMENT

Directors

Our directors are as follows:

|                            |  |        |    |          |  |                         |  |                    |  |  |  | 
|--------------------------- |  | ------ | -- | -------- |  | ----------------------- |  | ------------------ |  |  |  | 
|Name                        |  | Age(1) |    | Position |  | Position Held Since    
|                            |  |        |    |          |  |                        
|Richard John Siemens        |  |        | 58 |          |  | Co-Chairman and         |  | November 24, 1999 
|                            |  |        |    |          |  | Executive Director      |  |                    |  | 
|Edward Wai Sun Cheng        |  |        | 47 |          |  | Co-Chairman and         |  | November 24, 1999 
|                            |  |        |    |          |  | Executive Director      |  |                    |  | 
|William Bruce Hicks         |  |        | 41 |          |  | Group Managing Director |  | January 1, 2002(2)
|Kuldeep Saran               |  |        | 51 |          |  | Executive Director      |  | November 24, 1999 
|Andrew Chun Keung Leung     |  |        | 46 |          |  | Executive Director      |  | November 24, 1999 
|Henry Michael Pearson Miles |  |        | 66 |          |  | Non-executive Director  |  | January 27, 2000  
|Simon Murray                |  |        | 63 |          |  | Non-executive Director  |  | January 27, 2000  
|Robert John Richard Owen    |  |        | 63 |          |  | Non-executive Director  |  | January 27, 2000  
|Hongqing Zheng              |  |        | 55 |          |  | Non-executive Director  |  | November 24, 1999 



---

|(1) |  | Ages as of March 25, 2003                                                                                                                      
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | William Bruce Hicks has been an Executive Director since November 24,
1999 and was appointed as the Group Managing Director on January 1, 2002.

Mr. Richard John Siemens,Co-Chairman and Executive Director, has been
with the SUNDAY group since 1995. Mr. Siemens is chairman and a founding member
of Distacom Communications Limited and co-chairman and a founding member of
Mandarin Communications Limited. He is also the chairman of e-Kong Group
Limited, a company listed on the Stock Exchange of Hong Kong. Born and raised
in Canada, Mr. Siemens was trained as a Chartered Accountant and came to Hong
Kong in 1979. In 1984, he formed Hutchison Telephone Company Limited in
partnership with Hutchison Whampoa and Motorola. Mr. Siemens, as group managing
director of Hutchison Telecommunications Limited, was instrumental in the
establishment of other well-known companies including AsiaSat, STAR TV and
Metro Radio and Hutchisons move into the European wireless business with
Orange. Mr. Siemens is a member of the Companys remuneration committee.

Mr. Edward Wai Sun Cheng,Co-Chairman and Executive Director, is a
founding member of Mandarin Communications Limited and has been with the SUNDAY
group since 1995. Mr. Cheng is also currently the chief executive of USI
Holdings Limited. USI, a publicly listed company on the Stock Exchange of Hong
Kong, is a member of the Wing Tai Asia group. Mr. Cheng is a member of the Hong
Kong SAR Governments Council of Advisors on Innovation and Technology, the
Council of City University of Hong Kong, Mandatory Provident Fund Schemes
Appeal Board, the Securities and Futures Commissions Takeovers and Mergers
Panel and the Takeovers Appeal Committee, the Operations Review Committee of
the Independent Commission Against Corruption, the Provisional Construction
Industry Co-Ordination Board, and the Executive Committee of the Hong Kong
Housing Society. Mr. Cheng is a member of the Companys remuneration committee.

Mr. William Bruce Hicks,Group Managing Director, has been with the SUNDAY
group since the inception of Mandarin Communications Limited in 1995 when he
led the team which successfully acquired SUNDAYs PCS license. He has been a
partner and director of Distacom Communications Limited of Hong Kong since
1994. Prior to joining Distacom, Mr. Hicks was at Hutchison Telecom, where he
was responsible for technical operations in Hong Kong and actively involved in
new business development in Asia and Europe. Mr. Hicks, a Canadian, began his
career with Motorola Inc. in the United States. He received his B.S.E.E. degree
from Michigan Technological University in 1983 and an M.B.A. from the
International Management Institute in Geneva, Switzerland in 1987.

34



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Mr. Kuldeep Saran,Executive Director, has been a director of Mandarin
Communications Limited since 1998 and is an executive director of Distacom
Communications Limited. He is also deputy chairman of e-Kong Group Limited. Mr.
Saran joined Distacom from Deutsche Bank where he was the head of the Asia
Pacific telecoms group. Prior to that, Mr. Saran was director of planning at
Hutchison Telecommunications responsible for the development and execution of
new businesses in Europe and Asia. Before moving to Hong Kong in 1992, Mr.
Saran was the country head of Motorola for India. He holds a Bachelors degree
in engineering and an M.B.A.

Mr. Andrew Chun Keung Leung,Executive Director, has been a director of
Mandarin Communications Limited since 1997. He graduated from the University of
Hong Kong with an Honours Bachelors degree in Laws and a Post Graduate
Certificate in Laws. Between 1980 and 1987, Mr. Leung practiced corporate
finance law in Hong Kong and Sydney, Australia. Thereafter, until 1990, Mr.
Leung served as a banker in the Asian investment banking divisions of two major
international investment banks. Between 1990 and 1993, Mr. Leung initiated and
structured a number of key infrastructure projects in Thailands communications
and mass transit sectors. From 1993 to 1997, he was the executive director of
World-Wide (Holdings) Limited, a company specializing in direct investment
activities for the Worldwide Investment Group, which was founded by Sir Y.K.
Pao. Mr. Leung is responsible for overseeing USIs communications and
technology investments, including its interests in the SUNDAY group.

Mr. Henry Michael Pearson Miles OBE,Non-executive Director, has been with
the Company since January 2000. He is currently chairman of Johnson Matthey
plc, and Schroders plc, and a non-executive director of BP; all companies
registered in the United Kingdom. Between 1984 and 1988, he was chairman of
Swire Pacific Limited and Cathay Pacific Airways Ltd. He was also a
non-executive director of Hong Kong Bank 1984/88. Between 1976 and 1999, he was
a director of John Swire and Sons (Hong Kong) Limited. Between 1988 and 1999,
he was an executive director of John Swire & Sons Limited, to which he is now
an advisor. Mr. Miles is a member of the Companys audit committee and
remuneration committee.

Mr. Simon Murray CBE,Non-executive Director, has been with the Company
since January 2000. Mr. Murray is a co-founder and shareholder of Distacom
International Limited. Mr. Murray was the executive chairman in Asia Pacific of
Deutsche Bank group until early 1998 when he established his own business. He
is the chairman of GEMS (General Enterprise Management Services), a private
equity fund management company sponsored by Simon Murray and Associates. He is
also a director of a number of public companies including Hutchison Whampoa
Limited, Cheung Kong Holdings Limited, Hermes International and Sino Forest
Corporation. Mr. Murray is a member of the Former Directors Committee of The
Community Chest and is involved in a number of other charitable organizations
including The China Coast Community Association. In 1994, Mr. Murray, who is
British, was awarded the CBE by HM The Queen of England for his contribution to
the Hong Kong community. Mr. Murray is a member of the Companys audit
committee.

Mr. Robert John Richard Owen,Non-executive Director, has been with the
Company since January 2000. From 1979 to 1987, Mr. Owen held various positions
with Lloyds Bank, including chairman of Lloyds Merchant Bank and director of
Investment Banking of the Lloyds Bank group. In 1988, Mr. Owen was recruited by
the Hong Kong Government as advisor on securities markets to lead the
implementation of extensive reforms to the regulation and operation of Hong
Kongs securities and futures markets. From 1989 to 1992, he served as the
first chairman of the Securities and Futures Commission of Hong Kong. Since
1992, Mr. Owen has held a number of concurrent positions which include chairman
of TechPacific.com Limited (from 1999), chairman of Crosby Limited (from 2001),
director of Nomura International (Hong Kong) Limited (from 1994), member of
the Regulatory Council of the Dubai International Financial Centre (since
2002), council member, Lloyds of London (1993-1996), chairman of the
International Securities Consultancy Ltd. (from 2000) and director of various
other companies and investment funds. Mr. Owen is chairman of the Companys
audit committee.

Mr. Hongqing Zheng,Non-executive Director, has been with the SUNDAY group
since 1996 when he was appointed a director of Mandarin Communications Limited.
He graduated from the planning and statistics department of the Peoples
University of China and holds a Masters degree in economics. Mr. Zheng has
over 23 years experience in economic development work and is a qualified senior
economist. Prior to joining the SUNDAY group, Mr. Zheng was a committee member
of the State Commission for Restructuring Economic System and director of the
Comprehensive Planning Department and general manager of the China Container
Corporation. Mr. Zheng is also a director and deputy general manager of China
Travel Service (Holdings) Hong Kong Limited and holds chairmanships and
directorships in various subsidiaries of China Travel Service (Holdings) Hong
Kong Limited.

The following persons served as directors during the year ended December
31, 2002 and had resigned/retired on or before May 31, 2003:

|                     |  |                        |  |                             |  |  |  | 
|-------------------- |  | ---------------------- |  | --------------------------- |  |  |  | 
|Name                 |  | Position               |  | Resignation/Retirement Date
|                     |  |                        |  |                            
|Craig Edward Ehrlich |  | Non-executive Director |  | May 22, 2003(1)            
|Peter Kin Ngok Lam   |  | Non-executive Director |  | May 22, 2003               
|Tak Sing Yip         |  | Non-executive Director |  | March 28, 2003(2)          

35



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---

|(1) |  | Craig Edward Ehrlich was the Group Managing Director since November 24,
1999 and his position was changed to Executive Director on January 1,
2002. On January 1, 2003, he became a Non-executive Director.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Tak Sing Yip was appointed on June 11, 2002.                                                                                                                                                               

Senior Management

Our senior management is as follows:

|                        |  |                                                |  |                   |      |  |  | 
|----------------------- |  | ---------------------------------------------- |  | ----------------- | ---- |  |  | 
|Name                    |  | Position                                       |  | With SUNDAY Since
|                        |  |                                                |  |                  
|Wilson Bun Chu          |  | Group Director  Sales & Marketing             |  |                   | 2000 | 
|Janet Ching Man Fung    |  | Group Director  Finance and Company Secretary |  |                   | 1997 | 
|Frankie Chun Keung Wong |  | Group Director  Network Operations            |  |                   | 1996 | 
|Henry Kam Heng Wong     |  | Group Director  New Technologies              |  |                   | 1996 | 
|Wai Lok Cheung          |  | Director  Legal & Regulatory                  |  |                   | 2000 | 
|Irene Kar Ling Ho       |  | Director  Marketing & Communications          |  |                   | 2003 | 
|Frienty Wai Fong Ko     |  | Director  Customer Care                       |  |                   | 2003 | 
|Agnes Pik Yee Tang Mak  |  | Director  Information Technology              |  |                   | 2003 | 
|Pauline Poh Gaik Ooi    |  | Director  Internal Audit                      |  |                   | 2001 | 
|Michael Sui Wing Wong   |  | Director  Dealer Sales                        |  |                   | 2002 | 

Mr. Wilson Bun Chu,Group Director  Sales & Marketing, brings to SUNDAY
20 years of valuable management experience. Wilson is a member of the Hong Kong
Society of Accountants and Canadian Institute of Chartered Accountants. He also
holds a B.A. (Economics) degree and an M.B.A. from the University of Western
Ontario and York University in Canada, respectively. Before joining SUNDAY in
2000, Mr. Chu was president of admart. Prior to that, he was the managing
director for The Body Shops Hong Kong and Macau operations, executive director
of Giordano International Limited and director and executive vice president of
Tiger Enterprises Limited (Giordanos joint venture in China).

Ms. Janet Ching Man Fung,Group Director  Finance and Company Secretary,
has over 18 years experience in public accounting, financial consultancy and
management in Hong Kong and the PRC. She was the finance director of the Far
East operations of Liz Claiborne group before joining the SUNDAY group in 1997.
She holds a first class honors degree in management studies from the University
of Hong Kong and is a fellow member of the Association of Chartered Certified
Accountants (UK), the Hong Kong Society of Accountants, and a member of CPA
Australia.

Mr. Frankie Chun Keung Wong,Group Director  Network Operations, joined
the SUNDAY group in 1996. He has over 15 years experience in planning,
development, engineering and operations in mobile and fixed networks. Prior to
joining the SUNDAY group, Mr. Wong worked for Hutchison Telecom (Hong Kong) and
was responsible for building the GSM and CDMA networks. Earlier, he was
involved in a number of projects with Cable & Wireless HKT in switching,
intelligent network, transmission and network management areas. He holds a
first class honors degree in electrical & electronic engineering from the City
University (London), and he is a Chartered Engineer, member of Institute of
Electrical Engineers (UK) and The Hong Kong Institution of Engineers.

Dr. Henry Kam Heng Wong,Group Director  New Technologies, joined the
SUNDAY group in 1996 following seven years at Hutchison Telecom (Hong Kong)
Ltd. where he was senior manager in the Radio Systems Engineering Department of
Hutchison Telephone Company Ltd. He was involved in the building of network,
the first CDMA commercial system in the world. His academic qualifications
include a B.Sc. (Hons) in computer engineering (University of Manchester), a
Ph.D. in mobile radio telecommunications (University of Southampton) and an
M.B.A. (University of Hull).

Mr. Wai Lok Cheung,Director  Legal & Regulatory, joined the SUNDAY
group in 2000. Mr. Cheung brings with him a wealth of experience in the legal
and regulatory side of the telecommunications industry. Prior to joining
SUNDAY, he was the general manager, legal, administration and procurement at
Peoples Telephone Company. Mr. Cheung graduated from the Lingnan University
with an Honors Diploma in company secretaryship and administration and received
an M.B.A. degree from Leicester University, U.K. He also earned his LL.B. from
the University of Wolverhampton, U.K.

Ms. Irene Kar Ling Ho,Director  Marketing & Communications, joined the
SUNDAY group in 2003 and brought with her over 12 years experience in areas of
public relations and marketing program design. Prior to joining SUNDAY, Irene
worked for PCCW Ltd. as Assistant Vice President, Corporate Communications,
where she took the role of identifying promotional opportunities for the PCCW
group and overseeing the implementation of public relations programs for a wide
spectrum of telecom products. She is also experienced in event marketing both
in the telecom and the quasi-government sector including Hong Kong Trade
Development Council and Hong Kong Tourist Association (now renamed as Hong Kong
Tourism Board), where she managed a range of large-scale promotional events and
trade fairs, both in Hong Kong and overseas.

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Ms. Frienty Wai Fong Ko,Director  Customer Care, joined the SUNDAY
group in 2003. She has over 17 years experience in sales, marketing and
customer service in the banking services and telecoms industries. Prior to
joining SUNDAY, Ms. Ko worked for PCCW as general manager, business development
 banking where she managed new business opportunities in mainland China. She
has also served as the head of direct banking at Citibank (HK) and was a branch
manager for Standard Chartered Bank (HK). Ms. Ko graduated from Simmons College
in Boston with a Bachelor degree in business administration.

Mrs. Agnes Pik Yee Tang Mak, JP,Director  Information Technology,
joined the SUNDAY group in 2003. Mrs. Mak has over 20 solid years of experience
in information technology. Prior to joining the SUNDAY group, Mrs. Mak was head
of IT of Mandatory Provident Fund Schemes Authority, Head IT  Asia Pacific
North of British American Tobacco China and the director of MIS of The Gap (Far
East) Ltd. Mrs. Mak is a fellow and past president of Hong Kong Computer
Society. Mrs. Mak is a council member of Hong Kong Productivity Council, member
of the Finance Committee of Hong Kong Housing Authority, and the IT Projects
Vetting Committee and General Support Program Vetting Committee of the
Innovation and Technology Fund.

Ms. Pauline Poh Gaik Ooi,Director  Internal Audit, joined the SUNDAY
group in 2001. She has over 15 years of experience in audit and business
development in the Asia/Pacific region. Prior to joining SUNDAY, Ms. Ooi was a
manager of the internal audit team at PCCW (previously Hong Kong Telecom)
responsible for a wide variety of audit related assignments, fraud & ad hoc
investigations and special review projects. Ms. Ooi started her early career in
the major accounting firms in the Asia/Pacific region, Deloittes Touche
Tohmatsu and PricewaterhouseCoopers. She also has business development
experience in the radiopharmaceutical/biomedical industry, which is a part of
an organization belonging to the Australian Commonwealth Government. Ms. Ooi
holds a Bachelor degree, major in accounting & information system, from the
University of New South Wales in Australia and is a Certified Practicing
Accountant of CPA Australia and a member of the Hong Kong Society of
Accountants.

Mr. Michael Sui Wing Wong,Director  Dealer Sales, joined the Group in
January 2002. Mr. Wong has 18 years experience in the mobile communications
industry with strong expertise in sales and strategic investment. He was a
sales manager at Hutchison Telephone Company Limited and helped Motorola Inc.
to develop dealer sales business in China. Prior to joining SUNDAY, he was a
senior vice president of Strategic Investment of Distacom Communications
Limited, focusing on business development in China.

COMPENSATION

For the years ended December 31, 2000, 2001 and 2002, the aggregate
amounts of compensation incurred for all of our senior officers and directors
were approximately HK$54.1 million, HK$39.0 million and HK$44.7 million,
respectively. The 2002 compensation amount included termination benefits
(mainly severance pay and payments in lieu of notice) of HK$6.0 million, which
were for certain senior officers whose employment were terminated during the
restructuring in December 2002.

For the years ended December 31, 2000, 2001 and 2002, the aggregate amount
of pension retirement or similar benefits for our directors and senior officers
incurred was approximately HK$0.7 million, HK$0.7 million and HK$0.4 million,
respectively.

We paid each of our independent Non-executive Directors approximately
HK$186,000, HK$200,000 and HK$200,000 for the years ended December 31, 2000,
2001 and 2002, respectively, as compensation for acting in such capacity and
will review the amount of compensation annually.

BOARD PRACTICES

As of May 31, 2003, our board consisted of nine members. There are four
Non-executive Directors, three of whom are independent Non-executive Directors.
Pursuant to our Articles of Association, at each general meeting one-third of
our directors shall retire from office by rotation. If the number of directors
on the board is not a multiple of three, the number of directors to retire
shall be decreased to the number nearest to but not greater than one-third. The
chairman of our board and/or our managing director shall not, while holding
such office, be subject to retirement by rotation or be taken into account in
determining the number of directors to retire in each year. A retiring director
shall be eligible for re-election. None of the Directors has entered into or is
proposing to enter into a service contract with the Company or its
subsidiaries, which is not determinable by the employer within one year without
payment of compensation (other than statutory compensation). There are no
provisions relating to retirement of directors upon reaching any age limit.

Our board is scheduled to meet at least three times a year to determine
overall strategic direction and objectives and approve interim and annual
results, budgets and other significant matters. All directors are able to take
independent professional advice at the Companys expense in furtherance of
their duties if necessary. During the year ended December 31, 2002, three board
meetings were held with an average attendance rate of 76%.

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The board appointed an executive management committee which consists of
our executive directors. The principal functions of this committee include
formulating strategies and overseeing our operational matters under the direct
authority of the board. The committee meets regularly each month and on an ad
hoc basis as required with senior management, and engages in frequent informal
discussions.

Our board also appointed an audit committee, which consists of three
independent Non-executive Directors. Its principal responsibilities include
selecting and engaging on our behalf independent public accountants to audit
our financial statements, reviewing and approving the nature and scope of both
the statutory and internal audits, considering and approving our interim and
annual accounts, and reviewing the adequacy and effectiveness of our accounting
and financial controls. The committee also meets regularly with the external
auditors and our internal audit personnel and follows up with management
regularly regarding management actions arising from the audits. The members of
the audit committee are Mr. Robert Owen, Mr. Michael Miles and Mr. Simon
Murray. During the year ended December 31, 2002, two committee meetings were
held with an average attendance rate of 83%.

The board has also appointed a remuneration committee which consists of
three members, namely Mr. Richard Siemens, Mr. Edward Cheng and Mr. Michael
Miles to review matters relating to compensation of the directors and officers
and such other matters relating to remuneration as directed by the board from
time to time. No director plays a part in any discussion regarding his own
remuneration. It meets at least once a year.

In 2000, the board appointed a share option scheme committee which
currently comprises Mr. Richard Siemens and Mr. Edward Cheng to deal with the
granting of share options under the share option scheme approved by the
shareholders. Two independent Non-executive Directors, Mr. Michael Miles and
Mr. Robert Owen, had been delegated with full powers of the board to deal with
granting of share options to our two Co-Chairmen before the amendment of
Chapter 17 of the Rules Governing the Listing of Securities on The Stock
Exchange of Hong Kong Limited, or the Listing Rules, in September 2001. In
accordance with the amended Chapter 17 of the Listing Rules, the granting of
share options to our directors, the chief executive, and substantial
shareholders requires approval by the independent Non-executive Directors.

EMPLOYEES

We had a total of 683 employees as of December 31, 2002, of which 510
employees were in Hong Kong and 173 employees were in Shenzhen, the PRC. We
offer comprehensive remuneration and benefits packages to all employees.
Remuneration of employees is maintained at competitive levels, and promotion
and salary increments are assessed based on individual and Group performance.
Other staff benefits include Mandatory Provident Fund schemes, subsidized
medical care and subsidies for external educational and training programs.

We adopted an employee share option scheme on March 1, 2000, or the Old
Scheme, and have since issued share options to most of our permanent employees.
On May 22, 2002, our shareholders approved the adoption of a new share option
scheme, or the New Scheme, and the termination of the operation of the Old
Scheme. Upon termination of the Old Scheme, no further options will be offered
under the Old Scheme but the provisions of the Old Scheme will remain in full
force and effect in respect of the existing options granted.

Share Ownership

The following table shows the number and class of voting securities of the
Company owned by the directors and senior management who had interests as of
May 31, 2003.

|                        |  |                                     |  |                    |  |                       |  |  |  |  |  | 
|----------------------- |  | ----------------------------------- |  | ------------------ |  | --------------------- |  |  |  |  |  | 
|                        |  |                                     |  |                    |  | Percentage of Total   |  |  |  | 
|Name                    |  | Position                            |  | Shares Outstanding |  | Special Voting Rights
|                        |  |                                     |  |                    |  |                      
|Richard John Siemens    |  | Co-Chairman and Executive Director  |  | Less than 1%*      |  | None                 
|Edward Wai Sun Cheng    |  | Co-Chairman and Executive Director  |  | Less than 1%*      |  | None                 
|William Bruce Hicks     |  | Group Managing Director             |  | Less than 1%*      |  | None                 
|Kuldeep Saran           |  | Executive Director                  |  | Less than 1%*      |  | None                 
|Simon Murray            |  | Non-executive Director              |  | Less than 1%*      |  | None                 
|Hongqing Zheng          |  | Non-executive Director              |  | Less than 1%**     |  | None                 
|Janet Ching Man Fung    |  | Group Director  Finance            |  | Less than 1%       |  | None                 
|Frankie Chun Keung Wong |  | Group Director  Network Operations |  | Less than 1%       |  | None                 
|Henry Kam Heng Wong     |  | Group Director  New Technologies   |  | Less than 1%       |  | None                 



---

|* |  | Each of Mr. Richard John Siemens, Mr. William Bruce Hicks, Mr. Kuldeep
Saran and Mr. Simon Murray may be deemed to beneficially own all the
shares owned by Distacom due to their status as directors, senior officers
or controlling persons of Distacom. Mr. Edward Wai Sun Cheng may be deemed
to beneficially own all the shares owned by USI due to his status as
director, senior officer or controlling person of USI. See Item 7 Major
Shareholders and Related Party Transactions  Major Shareholders.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|** |  | Mr. Honqing Zheng may be deemed to beneficially own all the shares owned
by China Travel Service (Holdings) Hong Kong Limited, one of the
shareholders prior to our global offering, due to his status as director,
senior officer or controlling person of China Travel Service (Holdings)
Hong Kong Limited.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Statements as to securities beneficially owned by directors and senior
management, or as to securities over which they exercise control or direction,
are based upon information obtained from such directors and senior management
and from records available to us.

Share Option Scheme

Share Option Scheme Adopted on March 1, 2000

We adopted an employee share option scheme on March 1, 2000. Under the
terms of the scheme, our board of directors may, in its discretion from time to
time, and subject to such conditions as it may determine, within 10 years
beginning on the adoption date, offer to grant qualifying employees and
directors of our company or our subsidiaries options to subscribe for our
ordinary shares. Upon accepting an option, a grantee must pay HK$1.00 to us as
consideration for the grant.

The maximum number of ordinary shares over which options may be granted
under this scheme may not, when aggregated with any shares subject to any other
executive and employee share option scheme involving the issue or grant of
options over our shares and other securities, exceed 10% of our issued share
capital from time to time (excluding for this purpose from the issued share
capital any shares which have been issued on the exercise of any option granted
under this scheme). The number of shares over which an option may be granted to
any one person at any time is limited such that no person may be granted an
option, which, if exercised in full, would result in such person becoming
entitled to subscribe for shares which, when aggregated with the total number
of shares subscribed under options previously granted to that employee, would
exceed 25% of the aggregate number of shares over which all options may be
granted under the scheme.

Our board of directors may determine, in its discretion, the consideration
for a share payable by a participant upon the exercise of any option granted
under the share option scheme, save such price will not be less than the higher
of: (1) the nominal value of a share; or (2) 80% of the average of the closing
prices of our shares on The Stock Exchange of Hong Kong Limited on the five
trading days immediately preceding the date of grant of the option on which
there were dealings in our shares on The Stock Exchange of Hong Kong.

Our board of directors has absolute discretion to determine the exercise
period of any option, except that no option may be exercised more than 10 years
after its grant.

Where there is any change in our capital structure, such corresponding
alterations shall be made in the number of shares subject to any option, the
subscription price, the method of exercise of any option and/or the maximum
number of shares available for subscription under the scheme as independent
auditors shall certify in their opinion to be fair and reasonable. No change in
our capital structure is permitted where it will cause shares to be issued
below their nominal value.

Our board of directors may in certain circumstances alter our share option
scheme by resolution, except that any material alterations to the terms are
subject to prior approval by The Stock Exchange of Hong Kong Limited. No
alteration is permitted to certain provisions to the extent such alteration
adversely affects any options granted or agreed to be granted before the date
of such alteration, save with the consent of the holders of not less than
two-thirds of the shares to be issued on exercise of the relevant options.

On March 23, 2000, we granted 39,586,616 share options to all employees
hired on or before March 22, 2000 for a total consideration of HK$630. The
share options are exercisable at HK$3.05 per share. On May 31, 2000, we granted
146,483,120 share options to all employees and Executive Directors for a total
consideration of HK$682, exercisable at HK$1.01 per share, and 3,108,961 share
options to employees hired after March 22, 2000 for a total consideration of
HK$93, exercisable at HK$3.05 per share. On January 19, 2001, we granted
4,213,147 share options to employees hired after May 30, 2000 for a total
consideration of HK$178, exercisable at HK$1.01 per share. Of the options
granted, generally, 40% become exercisable after one year from the grant date
and 30% per annum during the following two years.

During the year ended December 31, 2002, no options were exercised and
options over 35.4 million shares were forfeited upon termination of employment
of certain employees. No compensation cost to employees is required to be
recognized in 2002 in respect of the grant of the share options under HK GAAP.
Under US GAAP, there was a write-back of compensation cost of HK$111,000. The
US GAAP accounting treatment and the basis of amortization are set out in note
27(a)(iii) to our audited consolidated financial statements.

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In March 2003, options over 75 million shares of the five Executive
Directors were cancelled at a total consideration of HK$5. As of May 31, 2003,
no options were held by our directors. The table below sets out the share
options granted to senior management to purchase our ordinary shares, which are
outstanding as of May 31, 2003.

|                |  |                 |  |                      |           |                |  |                 |       |  |  |                 
|--------------- |  | --------------- |  | -------------------- | --------- | -------------- |  | --------------- | ----- |  |  | ----------------
|                |  | Securities      |  | Number of Securities |           |                |  |                 |       | 
|                |  | Called for      |  | Underlying Options   |           | Exercise Price |  | Expiration Date
|                |  |                 |  |                      |           |                |  |                
|Senior officers |  | Ordinary Shares |  |                      | 7,472,998 |                |  |                 | $3.05 |  |  | March 23, 2010  
|                |  | Ordinary Shares |  |                      | 1,084,813 |                |  |                 | $3.05 |  |  | May 31, 2010    
|                |  | Ordinary Shares |  |                      | 9,642,623 |                |  |                 | $1.01 |  |  | May 31, 2010    
|                |  | Ordinary Shares |  |                      | 362,919   |                |  |                 | $1.01 |  |  | January 19, 2011

Share Option Scheme Adopted on May 22, 2002

Chapter 17 of the Listing Rules, which governs the operation of share
option schemes of companies listed in Hong Kong, was amended in September 2001.
In response to such changes, on May 22, 2002, our shareholders at an
extraordinary general meeting approved the adoption of the New Scheme which
complies with the amended Chapter 17 and termination of the operation of the
share option scheme adopted on March 1, 2000, or the Old Scheme. Upon the
termination of the Old Scheme, no further options will be offered under the Old
Scheme but the provisions of the Old Scheme will remain in full force and
effect in respect of existing options granted.

Under the New Scheme, our board of directors may, at its discretion,
within ten years commencing on the date of adoption of the New Scheme, grant
options to the eligible participants that include (i) any director, employee,
consultant, customer, supplier, agent, partner or adviser of or contractor to
the SUNDAY group or a company in which the SUNDAY group holds an interest or a
subsidiary of such company, or an affiliate; or (ii) the trustee of any trust
the beneficiary of which or any discretionary trust the discretionary objects
of which include any director, employee, consultant, customer, supplier, agent,
partner or adviser of or contractor to the SUNDAY group or an Affiliate; or
(iii) a company beneficially owned by any director, employee, consultant,
customer, supplier, agent, partner, adviser of or contractor to the SUNDAY
group or an affiliate. Each grant of options to a director, chief executive or
substantial shareholder or any of their respective associates must be approved
in accordance with the requirements of the Listing Rules. Upon accepting an
option, a grantee must pay HK$1.00 to us as consideration for the grant.

The maximum number of ordinary shares which may be issued upon exercise of
all outstanding options granted and yet to be exercised under the New Scheme
and any other schemes must not, in aggregate, exceed 30% of our ordinary shares
in issue from time to time. No options may be granted under any share option
scheme (including the New Scheme) if this will result in the said 30% limit
being exceeded.

The total number of ordinary shares available for issue pursuant to
options which may be granted under the New Scheme and any other share option
schemes must not, in aggregate, exceed 10% of our issued share capital as at
the date of approval of the New Scheme by our shareholders, or the Scheme
Mandate Limit, unless shareholders approval is obtained to refresh the Scheme
Mandate Limit, provided that the Scheme Mandate Limit so refreshed must not
exceed 10% of our issued share capital on the date of the shareholders
approval. Upon any such refreshment, all options granted under the New Scheme
and any other share option schemes (including those outstanding, cancelled, or
lapsed in accordance with the New Scheme or any other share option scheme and
exercised options) prior to the approval of such refreshment will not be
counted for the purpose of calculating whether the refreshed Scheme Mandate
Limit has been exceeded. Our board may also seek separate shareholders
approval in general meeting to grant options beyond the Scheme Mandate Limit
(whether or not refreshed) provided that the options in excess of the Scheme
Mandate Limit are granted only to the eligible participants specified by us
before such approval is sought.

No option may be granted to any eligible participant which, if exercised
in full, would result in the total number of ordinary shares issued and to be
issued upon exercise of the share options already granted or to be granted to
such eligible participant under the New Scheme (including exercised, cancelled
and outstanding share options) in the 12-month period up to and including the
new option grant date to exceed one per cent. of our issued share capital as of
the new option grant date. Any grant of further share options above this limit
shall be subject to certain requirements provided under the Listing Rules.

The exercise price for any ordinary share under the New Scheme will be
determined by our board of directors and notified to each grantee and will be
not less than the highest of (i) the closing price of our ordinary share as
stated on The Stock Exchange of Hong Kong Limiteds daily quotations sheet on
the date of grant of the relevant option, which must be a business day, (ii) an
amount equivalent to the average closing price of a share for the five business
days immediately preceding the option grant date and (iii) the nominal value of
a share.

As of May 31, 2003, no options were granted under the New Scheme.

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Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

MAJOR SHAREHOLDERS

The following table contains information concerning the ownership of our
ordinary shares by each person whom we know beneficially owns 5% or more of our
ordinary shares as of May 31, 2003.

|                                   |  |                           |               |                               |  |  |      |  
|---------------------------------- |  | ------------------------- | ------------- | ----------------------------- |  |  | ---- | -
|                                   |  | Number of Ordinary Shares |               | Percentage of Ordinary Shares
|Name of Beneficial Owner           |  | Beneficially Owned        |               | Beneficially Owned           
|                                   |  |                           |               |                              
|Distacom Communications Limited(1) |  |                           | 1,380,000,000 |                               |  |  | 46.2 | %
|USI Holdings Limited(2)            |  |                           | 359,230,000   |                               |  |  | 12.0 | %



---

|(1) |  | Held through its wholly-owned subsidiary, Distacom Hong Kong Limited.
Each of Mr. Richard John Siemens, Mr. William Bruce Hicks, Mr. Kuldeep
Saran and Mr. Simon Murray may be deemed to beneficially own all the
shares owned by Distacom due to their status as directors, senior officers
or controlling persons of Distacom.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Held through its wholly-owned subsidiary, Townhill Enterprises Limited.
Mr. Edward Wai Sun Cheng may be deemed to beneficially own all the shares
owned by USI due to his status as director, senior officer or controlling
person of USI.                                                                                      

As of May 31, 2003, there were approximately 469,800 ADSs (representing
46,980,000 ordinary shares) in issue, which were held by approximately 900
beneficial holders in the U.S.

Our five shareholders prior to the global offering together owned
1,254,000,000 non-voting deferred shares, par value HK$1.00 per share, of
Mandarin, which is our principal operating subsidiary. If Mandarin is wound up,
after distribution of the first HK$100,000 trillion in value of the return on
Mandarins assets to the holders of ordinary shares of Mandarin, the holders of
the non-voting deferred shares of Mandarins assets to the holders of ordinary
shares of Mandarin, the holders of the non-voting deferred shares of Mandarin
are entitled to share in 1% of the balance of the remaining such assets.
Non-voting deferred shares of Mandarin are not entitled to share in any other
distributions or returns of assets or capital, or to participate in any share
of income or assets. As of March 2000, Mandarins authorized share capital
consisted of 2,000,000,000 shares of par value HK$1.00 per share, divided into
1,254,000,000 non-voting deferred shares and 746,000,000 ordinary shares. All
issued ordinary shares of Mandarin are held by SUNDAY Holdings (Hong Kong),
which is our wholly-owned subsidiary incorporated in the British Virgin
Islands, or its nominee.

Distacom is a private holding company with interests in multiple wireless
investments. The Distacom group currently has holdings in Hong Kong, India and
Madagascar. In addition to its shareholding in our company, the Distacom group
is also the major shareholder (holding a 42% interest) and operating partner of
Spice Communications Limited, a GSM 900 operator in the Indian States of
Karnataka and Punjab. Distacom also holds 20% interest in Hutchison Max Telecom
Limited, a GSM operator in Bombay, India.

For a description of these agreements and arrangements between the
Distacom group of companies and us, see Transactions with Principal
Shareholders and Their Affiliates below.

RELATED PARTY TRANSACTIONS

We have entered into a number of transactions with our shareholders,
beneficial shareholders, their respective affiliates and a related company. We
believe that such transactions have generally been as favorable to us as
similar transactions with third parties would have been. Set forth below is a
summary of such transactions.

Transactions with Principal Shareholders and Their Affiliates

Management Services

For the years ended December 31, 2000 and 2001, Distacom charged us HK$0.5
million and HK$0.9 million, respectively, for sales and marketing services
provided based on the resources spent, expertise allocated and actual staff
costs incurred.

Leases

We lease various premises for our warehouses, switching centers and repair
center and have obtained property license rights for certain cell sites from
affiliates
of our shareholders and companies controlled by the father of Peter Kin
Ngok Lam who was one of our directors in 2002. For the years ended December 31,
2000, 2001 and 2002, we have made lease payments to such affiliates amounted to
HK$5.3 million, HK$4.9 million and HK$4.3 million, respectively.

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Shareholder Undertakings

Our beneficial shareholders prior to the global offering, Distacom, USI,
Lai Sun Development, China Travel Service (Holdings) Hong Kong Limited and The
Hong Kong Parkview Group Limited, are bound by a number of non-financial
undertakings for the following loan facilities: the US$155 million loan
facility provided by Nortel and the HK$600 million loan facility provided by
UOB. Pursuant to the Sponsor Support Agreement dated as of September 11, 1998,
and as modified by the Deed of Release dated February 18, 2000, the Amended and
Restated Sponsor Support Agreement dated as of February 18, 2000, and the
Second Amendment and Restatement Agreement to the Sponsor Support Agreement
dated July 30, 2002, by and among UOB, Nortel, Mandarin, and these five
beneficial shareholders, such undertakings include an undertaking by Distacom
not to change the general nature, or the scope, of both its and our business.
To date, we are not aware of any breach of these undertakings. These
undertakings will terminate on repayment of such facilities.

Shareholder Non-competition Agreement

We have entered into a non-competition agreement with Distacom pursuant to
which Distacom agreed that neither Distacom nor its subsidiaries will compete
with our businesses in Hong Kong in mobile or fixed line telecommunications or
in any internet-related businesses. The agreement allows Distacom, among other
things, to acquire or hold up to 15% of the securities of a competing company
that is listed on a recognized exchange. The parties are entitled to amend any
material provision of the agreement only with a resolution of our shareholders
other than Distacom and certain related parties.

The agreement will terminate on the first date on which the Distacom group
is no longer our substantial shareholder (as defined in accordance with the
Listing Rules of Hong Kong).

Shareholders Agreement

Our five shareholders prior to the global offering completed in March 2000
and beneficial shareholders and Mandarin were parties to a shareholders
agreement. This agreement terminated on commencement of dealings in our shares
except for a restriction on disposals of our ordinary shares by our existing
shareholders without obtaining any necessary consent of the HKTA.

Transactions with Related Companies

During the year ended December 31, 2000, we entered into certain
agreements based on standard commercial terms with a wholly-owned subsidiary of
a related company, e-Kong Group Limited, or e-Kong. Under these agreements, we
enabled the customers of e-Kong to make international calls by providing their
customers interconnection to our international telecommunications service
facility and referred our subscribers of international telecommunications
service to make international calls directly through a subsidiary of e-Kong.
Such arrangement was terminated effective from September 26, 2001 pursuant to a
revised agreement entered on the same date. The revenues from international
telecommunications service for the year ended December 31, 2000 and 2001 were
approximately HK$4.5 million and HK$6.5 million, respectively. We received a
one-time referral revenue of approximately HK$7.6 million from e-Kong, which
was included in other revenues in 2000. Messrs. Richard John Siemens, Kuldeep
Saran and William Bruce Hicks are directors of both SUNDAY and e-Kong.

We entered into certain agreements based on normal commercial terms with
Lifetree Convergence Limited, or Lifetree, during the years ended December 31,
2001 and 2002. Lifetree provided various software development and consulting
services to us, for which we paid approximately HK$0.8 million and HK$1.6
million to Lifetree in 2001 and 2002, respectively. Messrs. Richard John
Siemens, Edward Wai Sun Cheng, William Bruce Hicks and Kuldeep Saran are
directors of both SUNDAY and Lifetree.




Item 8. FINANCIAL INFORMATION

See Item 18 Financial Statements.

Legal Proceedings

We are not a party to, nor are we aware of, any threatened or pending
litigation, legal or arbitration proceedings which we believe would,
individually or taken as a whole, have a material adverse effect on our
business, financial condition or results of operation.

Significant Changes

In March 2003, several countries, including Hong Kong and the PRC,
experienced an outbreak of a new and highly contagious form of atypical
pneumonia now known as severe acute respiratory syndrome or SARS. While
the long-term impact of the SARS outbreak is unclear at this time, the
prolonged existence of SARS could have a negative impact on the Hong Kong
economy and, in turn, have a material adverse effect on our operating results,
financial condition, business
and prospect.

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In May 2003, as a response to our competitors lowering of their monthly
fees, we have revised our basic tariff plans. See Item 4 Information on the
Company  Business Overview  Mobile Communications  Tariff Plans.




Item 9. THE OFFER AND LISTING

MARKETS

Market Price Information  Ordinary Shares

Our ordinary shares have been listed and traded on the main board of The
Stock Exchange of Hong Kong Limited under the stock code 866 since March 16,
2000. The following table shows, for the period indicated, the high and low
closing prices for the ordinary shares as quoted on the main board of the Stock
Exchange.

|            |                |  |       |       |     |  |       |       | 
|----------- | -------------- |  | ----- | ----- | --- |  | ----- | ----- | 
|            |                |  | High  |       | Low
|            |                |  |       |       |    
|            |                |  | (HK$)
|Year 2000*  |                |  | 3.575 |       |     |  | 0.550 |      
|Year 2001   |                |  | 0.700 |       |     |  | 0.275 |      
|            | First quarter  |  |       | 0.700 |     |  |       | 0.400 | 
|            | Second quarter |  |       | 0.570 |     |  |       | 0.415 | 
|            | Third quarter  |  |       | 0.460 |     |  |       | 0.275 | 
|            | Fourth quarter |  |       | 0.350 |     |  |       | 0.280 | 
|Year 2002   |                |  | 0.330 |       |     |  | 0.125 |      
|            | First quarter  |  |       | 0.330 |     |  |       | 0.270 | 
|            | Second quarter |  |       | 0.265 |     |  |       | 0.190 | 
|            | Third quarter  |  |       | 0.184 |     |  |       | 0.092 | 
|            | Fourth quarter |  |       | 0.140 |     |  |       | 0.084 | 
|            | December       |  |       | 0.140 |     |  |       | 0.125 | 
|Months 2003 |                |  |       |       |     |  |       |      
|            | January        |  |       | 0.189 |     |  |       | 0.131 | 
|            | February       |  |       | 0.196 |     |  |       | 0.163 | 
|            | March          |  |       | 0.167 |     |  |       | 0.139 | 
|            | April          |  |       | 0.139 |     |  |       | 0.122 | 
|            | May            |  |       | 0.165 |     |  |       | 0.137 | 



---

|* |  | beginning March 16, 2000
|- |  | ------------------------

Market Price Information  American Depositary Shares (ADSs)

Our ADSs have been listed and traded on The Nasdaq National Market under
the symbol SDAY since March 15, 2000. The Bank of New York acts as the
depositary of our ADSs. Prior to July 25, 2002, each ADS represents ownership
interests in 30 ordinary shares (or the right to receive 30 ordinary shares).
On July 25, 2002, our ADS to share ratio was changed from 1:30 to 1:100.

The following table shows, for the period indicated, the high and low
closing prices for the ADSs.

|              |                   |  |         |        |     |  |        |        | 
|------------- | ----------------- |  | ------- | ------ | --- |  | ------ | ------ | 
|              |                   |  | High    |        | Low
|              |                   |  |         |        |    
|              |                   |  | (US$)  
|Year 2000(1)* |                   |  | 69.1667 |        |     |  | 6.2500 |       
|Year 2001(1)  |                   |  | 8.9583  |        |     |  | 3.3333 |       
|              | First quarter(1)  |  |         | 8.9583 |     |  |        | 5.0000 | 
|              | Second quarter(1) |  |         | 7.0000 |     |  |        | 4.7917 | 
|              | Third quarter(1)  |  |         | 6.1667 |     |  |        | 3.3333 | 
|              | Fourth quarter(1) |  |         | 4.3333 |     |  |        | 3.3667 | 
|Year 2002(1)  |                   |  | 4.2000  |        |     |  | 1.0000 |       
|              | First quarter(1)  |  |         | 4.2000 |     |  |        | 3.4333 | 
|              | Second quarter(1) |  |         | 3.7667 |     |  |        | 2.2667 | 
|              | Third quarter(1)  |  |         | 2.1667 |     |  |        | 1.0000 | 
|              | Fourth quarter    |  |         | 1.4800 |     |  |        | 1.0000 | 
|              | December          |  |         | 1.0400 |     |  |        | 1.0000 | 
|Months 2003   |                   |  |         |        |     |  |        |       
|              | January           |  |         | 2.6400 |     |  |        | 1.2500 | 
|              | February          |  |         | 2.5000 |     |  |        | 2.0000 | 
|              | March             |  |         | 1.8500 |     |  |        | 1.8000 | 
|              | April             |  |         | 1.6700 |     |  |        | 1.4100 | 
|              | May               |  |         | 2.1000 |     |  |        | 1.6400 | 

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---

|*   |  | beginning March 15, 2000                                                                                                               
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) |  | The prices quoted on The Nasdaq National Market prior to July 25, 2002,
had been adjusted based on the new ADS to share ratio of 1:100.




Item 10. ADDITIONAL INFORMATION

SHARE CAPITAL

We were incorporated on November 24, 1999 with an authorized share capital
of HK$380,000 divided into 3,800,000 ordinary shares of HK$0.10 each, of which
one ordinary share was allotted and issued at par for cash on incorporation. On
the same date, this share was transferred to a shareholder of Mandarin and 99
ordinary shares of HK$0.10 each were issued at par for cash to the shareholders
of Mandarin. These 100 ordinary shares were issued to the shareholders of
Mandarin in the same proportion to their shareholding interests in Mandarin.

Pursuant to the Reorganization, on February 24, 2000, we issued 7,900
ordinary shares of HK$0.10 each, fully paid to the shareholders of SUNDAY
Holdings Corporation in exchange for the issued shares of SUNDAY Holdings
Corporation on that date following which our issued share capital increased to
HK$800 represented by 8,000 ordinary shares with a par value of HK$0.10 each.

Pursuant to special resolutions in writing passed on March 1, 2000, our
authorized share capital was increased from HK$380,000 to HK$1,000,000,000 by
the creation of 9,996,200,000 ordinary shares of HK$0.10 each, and the
directors were authorized to issue 2,299,992,000 ordinary shares of HK$0.1 each
to the shareholders on the register of members as of that date by capitalizing
part of the share premium resulting from the global offering.

On March 15, 2000, pursuant to the global offering, 690,000,000 ordinary
shares of HK$0.10 each were issued to the public and institutional investors at
HK$3.78 per share, or the New Issue, for cash. The excess of the issue proceeds
over the par value of the shares issued was credited to the share premium
account.

Immediately following the New Issue, a bonus issue of 2,299,992,000
ordinary shares of HK$0.10 each were issued, or the Bonus Issue, and allotted
as fully paid at par to the shareholders on our register of members as of March
1, 2000 by way of capitalization of a sum of HK$229,999,200 standing to the
credit of the share premium account.

Our share capital has been restated retroactively as of December 31, 1999,
for the 8,000 ordinary shares in issue and outstanding after the Reorganization
completed on February 24, 2000. The Bonus Issue of 2,299,992,000 ordinary
shares to the existing shareholders of SUNDAY was treated as unpaid because
this Bonus Issue was effected by capitalizing part of the share premium
resulting from the issue of shares pursuant to the global offering which was
not reflected in the consolidated financial statements for year ended December
31, 1999.

MEMORANDUM AND ARTICLES OF ASSOCIATION

Set forth below is a brief summary of the material provisions of our
Memorandum and Articles of Association and of the material applicable laws of
the Cayman Islands.

Meetings

An annual general meeting and any extraordinary general meeting called for
the passing of a special resolution shall be called by not less than 21 clear
days notice and any other extraordinary general meeting shall be called by not
less than 14 clear days notice. Notice of every general meeting shall be given
to all our members other than such as, under the provisions of the Articles of
Association or the terms of issue of the shares they hold, are not entitled to
receive such notices from us, and also to our auditors for the time being.

Notwithstanding that a meeting is called by shorter notice than that
mentioned above, it shall be deemed to have been duly called, if it is so
agreed (i) in the case of a meeting called as an annual general meeting by all
our members entitled to attend and vote at the meeting; and (ii) in the case of
any other meeting, by a majority in number of the members having a right to
attend and vote at the meeting, being a majority together holding not less than
95% in nominal value of the issued shares giving that right.

No business other than the appointment of a chairman shall be transacted
at any general meeting unless a quorum is present at the commencement of
business.

44



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Two of our members present in person or by proxy or (in case of a member
being a corporation) by its duly authorized corporate representative
representing not less than one third in nominal value of the total issued
voting shares throughout the meeting shall be a quorum.

A corporation being a member shall be deemed for the purpose of the
Articles of Association to be present in person if represented by its duly
authorized representative being the person appointed by resolution of the
directors or other governing body of such corporation to act as its
representative at the relevant general meeting or at any relevant general
meeting of any class of our members. Such duly authorized representative shall
be entitled to exercise the same powers on behalf of the corporation which he
represents as that corporation could exercise if it were our individual member.

The quorum for a separate general meeting of the holders of a separate
class of our ordinary shares is described in Modification of Rights below.

Voting Rights Attaching to the Ordinary Shares

Subject to any special rights or restrictions as to voting for the time
being attached to any shares, at any general meeting every member who is
present in person or by proxy (or, in the case of a member being a corporation,
by its duly authorized representative) shall have one vote, and on a poll every
member present in person or by proxy (or, in the case of a member being a
corporation, by its duly appointed representative) shall have one vote for each
share which such member is the holder. Notwithstanding anything contained in
the Articles of Association, where more than one proxy is appointed by a member
which is a recognized clearing house or its nominee, each such proxy shall have
one vote on a show of hands.

No member shall be entitled to vote or be reckoned in a quorum, in respect
of any share unless such member is registered as our shareholder at the
applicable record date for that meeting and all calls or other sums due by such
member to us have been paid.

If a recognized clearing house or its nominee is our member, it may
authorize such person or persons as it thinks fit to act as its representative
or representatives at any meeting or at any meeting of any class of our members
provided that the authorization shall specify the number and class of shares in
respect of which each such person is so authorized. A person authorized
pursuant to this provision shall be entitled to exercise the same powers on
behalf of the recognized clearing house (or its nominee) which he represents as
that clearing house (or its nominee) could exercise if it were our individual
shareholder.

Protection of Minorities

The Grand Court of the Cayman Islands may, on the application of members
holding not less than one fifth of our shares in issue, appoint an inspector to
examine into our affairs and to report thereon in a manner as the Grand Court
shall direct.

Any shareholder may petition the Grand Court of the Cayman Islands which
may make a winding up order, if the court is of the opinion that it is just and
equitable that we should be wound up.

Claims against us by our shareholders must, as a general rule, be based on
the general laws of contract or tort applicable in the Cayman Islands or their
individual rights as shareholders as established by our memorandum and articles
of association.

The Cayman Islands courts ordinarily would be expected to follow English
case law precedents including the exceptions to the rule in Foss v. Harbottle
which permit a minority shareholder to commence a class action against, or
derivative actions in our name to challenge (i) an act which is ultra viresor
illegal, (ii) an act which constitutes a fraud against the minority and the
wrongdoers are themselves in control of us, and (iii) an irregularity in the
passing of a resolution which requires a qualified (or special) majority.

Pre-emption Rights

There are no pre-emption rights applicable to the issue of new shares
under either Cayman Islands law or our Memorandum and Articles of Association.

Liquidation Rights

Subject to any special rights, privileges or restrictions as to the
distribution of available surplus assets on liquidation for the time being
attached to any class or classes of shares (i) if we are wound up and the
assets available for distribution among our members shall be more than
sufficient to repay the whole of the capital paid up at the commencement of the
winding up, the excess shall be distributed pari passuamongst those members in
proportion to the amount paid up at the commencement of the winding up on the
shares held by them, respectively and (ii) if we are wound up and the assets
available for distribution among the members as such shall be insufficient to
repay the whole of the paid-up capital, these assets shall be distributed so
that, as nearly as may be, the losses shall be borne by the members in
proportion to the capital paid up at the commencement of the winding up on the
shares held by them, respectively.

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If we are wound up, the liquidator may with the sanction of our special
resolution and any other sanction required by the Companies Law, divide among
our members in specie or kind the whole or any part of our assets (whether they
shall consist of property of the same kind or not) and may, for such purpose,
set such value as he deems fair upon any property to be divided as aforesaid
and may determine how such division shall be carried out as between the members
or different classes of members. The liquidator may, with the like sanction,
vest the whole or any part of such assets in trustees upon such trusts for the
benefit of the members as the liquidator, with the like sanction, shall think
fit, but so that no member shall be compelled to accept any assets, shares or
other securities upon which there is a liability.

Modification of Rights

Except with respect to share capital (as described below) and the location
of the registered office, alterations to our Memorandum and Articles of
Association may only be made by special resolution.

Subject to the Companies Law of the Cayman Islands, all or any of the
special rights attached to shares or any class (unless otherwise provided for
by the terms of issue of the shares of that class) may, be varied, modified or
abrogated either with the consent in writing of the holders of not less than
three-fourths in nominal value of the issued shares of that class or with the
sanction of a special resolution passed at a separate general meeting of the
holders of the shares of that class. The provisions of the Articles of
Association relating to general meetings shall apply mutatis mutandisto every
such separate general meeting, but so that the quorum for the purposes of any
such separate general meeting other than an adjourned meeting shall be a person
or persons together holding (or represented by proxy) on the date of the
relevant meeting not less than one-third in nominal value of the issued shares
of that class, every holder of shares of the class shall be entitled on a poll
to one vote for every such share held by such holder and that any holder of
shares of that class present in person or by proxy may demand a poll. At an
adjourned meeting of such holders, two holders present in person or by proxy
(whatever the number of shares held by them) shall be a quorum.

The special rights conferred upon the holders of any class of shares shall
not, unless otherwise expressly provided in the rights attaching to or the
terms of issue of such shares, be deemed to be varied by the creation or issue
of further shares ranking pari passutherewith.

Alteration of Capital

We may from time to time by ordinary resolution:



| |  |  | increase our capital by such sum, to be divided into shares of such amounts, as the resolution shall prescribe;                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | consolidate and divide all or any of our share capital into shares of larger amount than our existing shares;                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  |  | divide shares into several classes and without prejudice to any
special rights previously conferred on the holders of existing shares,
attach to the shares respectively as preferential, deferred, qualified
or special rights, privileges, conditions or such restrictions which in
the absence of any such determination in general meeting may be
determined by the directors;                                                                                                                                                                                    
|
| |  |  | sub-divide our shares or any of them into shares of smaller amount
than is fixed by the Memorandum of Association, subject nevertheless to
the Companies Law, and so that the resolution whereby any share is
sub-divided may determine that, as between the holders of the share
resulting from such sub-division, one or more of the shares may have any
such preferred or other special rights, over, or may have such deferred
rights or be subject to any such restrictions as compared with the
others as we have power to attach to unissued or new shares; and
|
| |  |  | cancel any shares which at the date of the passing of the resolution
have not been taken or agreed to be taken by any person, and diminish
the amount of its share capital by the amount of the shares so canceled
subject to the provisions of the Companies Law.                                                                                                                                                                                                                                                                                                    

We may, by special resolution, subject to any confirmation or consent
required by the Companies Law, reduce our share capital, share premium account
or any capital redemption reserve in any manner authorized by law.

Transfer of Shares

Subject to such of the restrictions of the Articles of Association as may
be applicable, any of our members may transfer all or any of his or her shares
by an instrument of transfer in the usual or common form or in any other form
which the directors may approve.

Our directors may decline to register any transfer of any share which is
not paid up or any share issued under any share incentive scheme for employees
upon which there is a restriction and they may also refuse to register any
transfer of any share to more than four joint holders or on which we have a
lien. Our directors may also decline to register any transfer of any share
unless:

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| | (a) |  | the instrument of transfer is lodged with us accompanied by the
certificate for the shares to which it relates and such other evidence
as the directors may reasonably require to show the right of the
transferor to make the transfer;
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | the instrument of transfer is in respect of only one class of share;                                                                                                                                                                    
|
| | (c) |  | the instrument of transfer is properly stamped (in circumstances
where stamping is required);                                                                                                                                           
|
| | (d) |  | a fee of such maximum sum as The Stock Exchange of Hong Kong Limited
may determine to be payable or such lesser sum as the directors may from
time to time require is paid to us in respect thereof.                                    

If the directors refuse to register a transfer they shall, within two
months after the date on which the instrument of transfer was lodged, send to
each of the transferor and the transferee notice of such refusal.

The registration of transfers may, on notice being given by advertisement
in one or more newspapers designated by The Stock Exchange of Hong Kong
Limited, be suspended and the register closed at such times and for such
periods as the directors may from time to time determine, provided, however,
that the registration of transfers shall not be suspended nor the register
closed for more than 30 days in any year as our directors may determine.

Share Repurchase

We are empowered by the Companies Law and the Articles of Association to
purchase our own shares subject to certain restrictions. Our directors may only
exercise this power on our behalf, subject to the Companies Law, our Memorandum
and Articles of Association and to any applicable requirements imposed from
time to time by The Stock Exchange of Hong Kong Limited, the Securities and
Futures Commission of Hong Kong, the United States Securities and Exchange
Commission or by any other recognized stock exchange.

Dividends

Subject to the Companies Law, in a general meeting we may declare
dividends in any currency but no dividends shall exceed the amount recommended
by our directors. Dividends may be declared and paid out of our profits,
realized or unrealized, or from any reserve set aside from profits which our
directors determine is no longer needed. With the sanction of an ordinary
resolution, dividends may also be declared out of the share premium account or
any other fund or account which can be authorized for this purpose in
accordance with the Companies Law.

Except in so far as the rights attaching to or the terms of issue of, any
share otherwise provide (i) all dividends shall be declared and paid according
to the amounts paid up on the shares in respect of which the dividend is paid,
but no amount paid up on a share in advance of calls shall be treated for this
purpose as paid up on that share; and (ii) all dividends shall be apportioned
and paid pro rata according to the amounts paid upon the shares during any
portion or portions of the period in respect of which the dividend is paid.

Our directors may also pay interim dividends, whenever our position, in
the opinion of the directors, justifies such payment.

Our directors may deduct from any dividend or bonus payable to any member
all sums of money (if any) presently payable by him to us on account of calls,
installments or otherwise.

No dividend or other monies payable by us on or in respect of any share
shall bear interest against us.

In respect of any dividend proposed to be paid or declared on our share
capital, our directors may resolve and direct that; (i) such dividend be
satisfied wholly or in part in the form of an allotment of shares credited as
fully paid up, provided that our members entitled thereto will be entitled to
elect to receive such dividend (or part thereof if our directors so determine)
in cash in lieu of such allotment; or (ii) that the members entitled to such
dividend will be entitled to elect to receive an allotment of shares credited
as fully paid up in lieu of the whole or such part of the dividend as the
directors may think fit. The directors may also, with the sanction or by an
ordinary resolution of our members in general meeting, resolve in respect of
any particular dividend that, notwithstanding the foregoing, it may be
satisfied wholly in the form of an allotment of shares credited as fully paid
up without offering any right of members to elect to receive such dividend in
cash in lieu of such allotment.

Any dividend, interest or other sum payable in cash to the holder of
shares may be paid by check or warrant sent by mail addressed to the holder or,
in the case of joint holders, addressed to the holder whose name stands first
in the register, at such holders registered address, or addressed to such
person and at such addresses as the holder may direct. Every such check or
warrant shall, unless the holder or joint holders otherwise direct, be made
payable to the order of the holder or, in the case of joint holders, to the
order of the holder whose name stands first on the register in respect of such
shares, and shall be sent at his or their risk and payment of the check or
warrant by the bank on which it is drawn shall constitute a good discharge to
us.

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Any dividend unclaimed after a period of six years from the date of
declaration of such dividend may be forfeited by our board of directors and, if
so forfeited, shall revert to us.

Whenever our directors or the members in general meeting have resolved
that a dividend be paid or declared, the directors may further resolve that
such dividend be satisfied by direct payment or satisfaction wholly or in part
by the distribution of specific assets of any kind, and in particular of paid
up shares, debentures or warrants to subscribe for our securities or securities
of any other company, and where any difficulty arises with regard to such
distribution, the directors may settle it as they think expedient, and in
particular may issue fractional certificates, disregard fractional entitlements
or round the same up or down, and may fix the value for distribution purposes
of any such specific assets and may determine that cash payments shall be made
to any of our members upon the footing of the value so fixed in order to adjust
the rights of the parties and may vest any such specific assets in trustees as
may seem expedient to the directors.

Untraceable Shareholders

We are entitled to sell any share of a member who is untraceable, provided
that:



| | (i)   |  | all checks or warrants, not being less than three in number, for any
sums payable in cash to the holder of such shares have remained uncashed
for a period of 12 years and the three-month period referred to in
paragraph (iv) below has expired;                                                                                                               
| | ----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (ii)  |  | we have not during that time or before the expiry of the three-month
period referred to in paragraph (iv) below received any indication of
the whereabouts or existence of the member or person entitled to such
shares by death, bankruptcy or operation of law;                                                                                                
|
| | (iii) |  | upon expiry of the 12-year period and three-month period referred to
in paragraph (iv) at least three dividends in respect of the shares in
question have become payable and no dividend during that period has been
claimed by the member; and                                                                                                                  
|
| | (iv)  |  | upon expiry of the 12-year period, we have caused an advertisement to
be published in newspapers in the manner stipulated by our Articles of
Association, giving notice of its intention to sell these shares, and a
period of three months has elapsed since such advertisement and The
Stock Exchange of Hong Kong Limited has been notified of such intention.

The net proceeds of any such sale shall belong to us and when we receive
these net proceeds we shall become indebted to the former member for an amount
equal to such net proceeds.

Board of Directors

We are managed by a board of directors which, unless otherwise determined
by us in general meeting, must consist of not less than two members. As of May
31, 2003, our board of directors consisted of nine members. Other than the
chairman of our board and our managing director who are not required to retire,
one-third of the rest of our directors are subject to retirement from office by
rotation at each general meeting. Retiring directors are eligible for
re-election.

Meetings of the board of directors may be convened at any time deemed
necessary by any members of the board of directors. Advance notice of a meeting
is not required if all the directors are present or represented at the meeting
concerned and consent to the holding of such meeting.

A meeting of the board of directors shall be competent to make lawful and
binding decisions if any two members of the board of directors are present or
represented. At any meeting of the directors, each director, be it by his
presence or by his alternate, is entitled to one vote.

Questions arising at a meeting of the board of directors are required to
be decided by simple majority votes of the members of the board of directors
present or represented at the meeting. In the case of a tie vote, the chairman
of the meeting shall have a second or deciding vote. Our board of directors may
also pass resolutions without a meeting by unanimous written consent.

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Directors Interests

Any of our directors may hold any other office or place of profit with us
(except that of the auditor of) in conjunction with his or her office of
director for such period and, subject to the Articles of Association, upon such
terms as the board may determine, and may be paid such extra remuneration
therefor (whether by way of salary, commission, participation in profits or
otherwise) in addition to any remuneration provided for by or pursuant to any
other Articles of Association. A director may be or become a director or other
officer of, or otherwise interested in, any company promoted by us or any other
company in which we may be interested, and shall not be liable to account to us
or the members for any remuneration, profits or other benefits received by him
or her as a director, officer or member of, or from his or her interest in,
such other company. Subject as otherwise provided by the Articles of
Association, the board may also cause the voting power conferred by the shares
in any other company held or owned by us to be exercised in such manner in all
respects as it thinks fit, including the exercise thereof in favor of any
resolution appointing our board or any of them to be directors or officers of
such other company, or voting or providing for the payment of remuneration to
the directors or officers of such other company.

Subject to the Companies Law and our Articles of Association, no director
or proposed or intended director shall be disqualified by his or her office
from contracting with us, either with regard to his or her tenure of any office
or place of profit or as vendor, purchaser or in any other manner whatsoever,
nor shall any such contract or any other contract or arrangement in which any
director is in any way interested be liable to be avoided, nor shall any
director so contracting or being so interested be liable to account to us or
the members for any remuneration, profit or other benefits realized by any such
contract or arrangement by reason of such director holding that office or the
fiduciary relationship thereby established. A director who to his or her
knowledge is in any way, whether directly or indirectly, interested in a
contract or arrangement or proposed contract or arrangement with us shall
declare the nature of his or her interest at the meeting of the board at which
the question of entering into the contract or arrangement is first taken into
consideration, if such director knows his or her interest then exists, or in
any other case, at the first meeting of the board after such director knows
that he or she is or has become so interested.

A director shall not vote (nor be counted in the quorum) on any resolution
of our board in respect of any contract or arrangement or other proposal in
which he is to his or her knowledge materially interested but this prohibition
shall not apply to any of the following matters, namely:



| | (a) |  | any contract or arrangement for giving of any security or indemnity
to the director in respect of money lent or obligations incurred or
undertaken by such director at the request of or for our benefit or any
of our subsidiaries;                                                                                                                                                                                                                                                                                                                                                
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | any contract or arrangement in which we provide any security or
indemnity to a third party in respect of our debt or our obligation or
any of our subsidiaries for which such director has assumed
responsibility in whole or in part whether alone or jointly under a
guarantee or indemnity or by the giving of security;                                                                                                                                                                                                                                                         
|
| | (c) |  | any contract or arrangement concerning an offer of our shares or
debentures or other securities or any other company which we may promote
or be interested in for subscription or purchase, where such director is
or is to be interested as a participant in the underwriting or
sub-underwriting of the offer;                                                                                                                                                                                                                                                                    
|
| | (d) |  | any contract or arrangement in which such director is interested in
the same manner as other holders of shares or debentures or other
securities of our company or any of our subsidiaries by virtue only of
such directors interest in shares or debentures or other securities of
our Company;                                                                                                                                                                                                                                                                                   
|
| | (e) |  | any contract or arrangement concerning any other company in which
such director is interested only, whether directly or indirectly, as an
officer or executive or a shareholder other than a company in which such
director together with any of his or her associates (as defined by the
rules, where applicable, of The Stock Exchange of Hong Kong Limited is
beneficially interested in five percent or more of the issued shares or
of the voting rights of any class of shares of such company (or of any
third company through which such directors interest is derived); or
|
| | (f) |  | any proposal concerning the adoption, modification or operation of a
share option scheme, a pension fund or retirement, death, or disability
benefits scheme or other arrangement which relates both to directors and
employees of our company or of any of our subsidiaries and does not
provide in respect of any director as such any privilege or advantage
not accorded to the employees to which such scheme or fund relates.                                                                                                                                                 

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Directors Fees and Expenses

The ordinary remuneration of our directors shall from time to time be
determined by our shareholders in general meeting, such sum (unless otherwise
directed by the resolution on which it is voted) to be divided amongst our
board in such proportions and in such manner as the board may agree or, failing
agreement, equally, except that any director holding office for part only of
the period in respect of which the remuneration is payable shall only rank in
such division in proportion to the time during such period for which such
director held office. Our board members shall also be entitled to be prepaid or
repaid all travelling, hotel and incidental expenses reasonably expected to be
incurred or incurred by them in attending any board meetings, committee
meetings or general meetings or separate meetings of any class of shares or of
debentures of our company or otherwise in connection with the discharge of
their duties as directors. Any director who, by request, goes or resides abroad
for any purpose of our company or who performs services which in the opinion of
the board go beyond the ordinary duties of a director may be paid such extra
remuneration (whether by way of salary, commission, participation in profits or
otherwise) as the board may determine and such extra remuneration shall be in
addition to or in substitution for any ordinary remuneration as a director. An
executive director appointed to be a managing director, joint managing
director, deputy managing director or other executive officer shall receive
such remuneration (whether by way of salary, commission or participation in
profits or otherwise or by all or any of those modes) and such other benefits
(including pension and/or gratuity and/or other benefits on retirement) and
allowances as the board may from time to time decide. Such remuneration may be
either in addition to or in lieu of his or her remuneration as a director.

General Powers of the Directors

Our board may establish or concur or join with other companies (being
subsidiary companies of our company or companies with which it is associated in
business) in establishing and making contributions out of our companys monies
to any schemes or funds for providing pensions, sickness or compassionate
allowances, life assurance or other benefits for employees (which expression as
used in this and the following paragraph shall include any director or
ex-director who may hold or have held any executive office or any office of
profit with our company or any of our subsidiaries) and ex-employees of our
company and their dependents or any class or classes of such persons.

The board may pay, enter into agreements to pay or make grants of
revocable or irrevocable, and either subject or not subject to any terms or
conditions, pensions or other benefits to employees and ex-employees and their
dependents, or to any of such persons, including pensions or benefits
additional to those, if any, to which such employees or ex-employees or their
dependents are or may become entitled under any such scheme or fund as is
mentioned in the previous paragraph. Any such pension or benefit may, as the
board considers desirable, be granted to an employee either before and in
anticipation of, or upon or at any time after, his actual retirement.

The board may exercise all the powers of our company to raise or borrow
money, to mortgage or charge all or any part of the undertaking, property and
assets (present and future) and uncalled capital of our company and, subject to
the Companies Law, to issue debentures, bonds and other securities of our
company, whether outright or as collateral security for any debt, liability or
obligation of our company or of any third party.

EXCHANGE CONTROLS AND OTHER LIMITATIONS

The laws of the Cayman Islands where the Company is incorporated and those
of Hong Kong where the Company operates its businesses and the Memorandum and
Articles of Association of the Company do not impose exchange control or
restrictions on the remittance of dividends or other payments to nonresident
holders of the ordinary shares and American depositary shares.

For a discussion on exchange rate information relating to Hong Kong
dollars, see Item 3 Key Information  Selected Financial Data  Exchange Rate
Information in this Annual Report.

TAXATION

The following summary of the material United States federal income, Hong
Kong and the Cayman Islands tax consequences of beneficial ownership of the
ordinary shares or ADSs is based upon laws, regulations, rulings, income tax
conventions (treaties), administrative practice and judicial decisions in
effect on the date of this Annual Report. Subsequent legislative, judicial or
administrative changes or interpretations may be retroactive and could affect
these tax consequences.

Your tax treatment as a holder of ordinary shares or ADSs may vary
depending upon your particular situation, and you may be subject to special
rules not discussed below. State, local and foreign (other than Hong Kong and
the Cayman Islands) tax consequences of ownership and disposition of the
ordinary shares or ADSs are not discussed.

You should consult your own tax advisors about the particular tax
consequences of the ownership and disposition of ordinary shares or ADSs,
including the applicability and effect of any state, local or foreign tax laws.

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United States Federal Income Taxation

The following is a discussion under present law of the material United
States federal income tax consequences of the purchase, ownership and
disposition of American depositary shares or ordinary shares by a U.S. Holder
(as defined below). The discussion deals only with American depositary shares
or ordinary shares held by a U.S. Holder as capital assets as defined in the
Internal Revenue Code of 1986, as amended, and does not address all of the tax
consequences that may be relevant to prospective purchasers of American
depositary shares or ordinary shares in light of their particular circumstances
or to persons subject to special tax rules, such as insurance companies,
financial institutions, dealers in securities or foreign currencies, tax-exempt
investors, foreign persons, persons holding American depositary shares or
ordinary shares as a position in a straddle, as a part of a short-sale, or as
part of a hedging or conversion transaction, persons owning, directly,
indirectly or constructively, 10% or more of our voting stock or persons whose
functional currency is not the United States dollar. Prospective purchasers of
American depositary shares or ordinary shares should consult with their tax
advisors regarding the application of the United States federal income tax laws
to their particular situations as well as to any additional tax consequences of
purchasing, holding or disposing of American depositary shares or ordinary
shares, including the applicability and effect of the tax laws of any state,
local or foreign jurisdiction.

For purposes of this summary, a U.S. Holder is any beneficial owner of
American depositary shares or ordinary shares that is:



| |  |  | a citizen or resident of the United States,                                                                                                                                                                                        
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | a corporation, partnership or other entity organized under the laws of the United States or any state thereof,                                                                                                                     
|
| |  |  | an estate the income of which is subject to United States federal income tax without regard to its source, or                                                                                                                      
|
| |  |  | a trust (a) subject to the primary supervision of a United States
court and the control of one or more United States persons or (b) that
has elected to be treated as a United States person under applicable
Treasury regulations.

In general, for United States federal income tax purposes, U.S. Holders of
American depositary shares will be treated as the owners of the ordinary shares
represented by the American depositary shares. Accordingly, no gain or loss
will be recognized upon the exchange of American depositary shares for the
holders proportionate interest in the ordinary shares represented by such
American depositary shares. A U.S. Holders tax basis in the withdrawn shares
will be the same as its tax basis in the American depositary shares surrendered
therefor, and the holding period in the withdrawn shares will include the
period during which the holder held the American depositary shares.

Distributions on American Depositary Shares or Ordinary Shares

Except as otherwise noted in the passive foreign investment company
discussion below, to the extent that a distribution on American depositary
shares or ordinary shares is paid to a U.S. Holder out of our current or
accumulated earnings and profits, as determined for United States federal
income tax purposes, such distribution will be includible in the U.S. Holders
gross income as ordinary foreign source dividend income in an amount equal to
the United States dollar value of such distribution without reduction for any
applicable foreign withholding tax. Dividends paid to a U.S. Holder that is a
corporation are not eligible for the dividends received deduction available to
corporations. New tax legislation signed into law on May 28, 2003, provides
for a maximum 15% United States tax rate on the dividend income of an
individual U.S. Holder with respect to dividends paid by a domestic corporation
or qualified foreign corporation. A qualified foreign corporation generally
includes a foreign corporation if (i) its shares (or, according to the
legislative history of the new legislation, its American depositary shares) are
readily tradable on an established securities market in the United States or
(ii) it is eligible for benefits under a comprehensive United States income tax
treaty. The American depositary shares are traded on The Nasdaq National
Market. As a result, we believe that we should be treated as a qualified
foreign corporation and therefore, dividends paid to an individual U.S. Holder
with respect to American depositary shares or ordinary shares should, subject
to generally applicable limitations, be taxed at a maximum rate of 15%. The
maximum 15% tax rate is effective with respect to dividends included in income
during the period beginning on or after January 1, 2003, and ending December
31, 2008. However, due to the absence of specific statutory or regulatory
provisions addressing the American depositary shares, there can be no assurance
that such reduced rate will apply and each U.S. Holder should consult its own
tax advisor regarding the treatment of dividends. To the extent that the amount
of any distribution on American depositary shares or ordinary shares exceeds
our current and accumulated earnings and profits, as determined for United
States federal income tax purposes, a U.S. Holders pro rata share of such
excess amount would be treated:



| |  |  | as a non-taxable return of capital that would be applied against and
would reduce the U.S. Holders tax basis in its American depositary
shares or ordinary shares until this basis is equal to zero; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | to the extent excess distributions remain, as capital gain.                                                                                                                                              

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Subject to certain conditions and limitations, including certain minimum
holding period requirements, the United States dollar value of the foreign
income taxes, if any, withheld from a distribution to a U.S. Holder on American
depositary shares or ordinary shares may be claimed as a credit against the
U.S. Holders United States federal income tax liability. Alternatively, a U.S.
Holder may claim a deduction for such amount of foreign income taxes withheld
in a taxable year, but only if such U.S. Holder does not elect to claim a
foreign tax credit in respect of any foreign taxes paid by it in the taxable
year. Dividends on American depositary shares or ordinary shares generally will
constitute passive income or, in the case of certain U.S. Holders, financial
services income for United States foreign tax credit purposes.

A U.S. Holder will be entitled to a foreign tax credit for withholding
taxes that are imposed, subject to generally applicable limitations and
restrictions. In the case of U.S. individuals, if the reduced rate of tax on
dividends applies to such holder, such limitations and restrictions will
appropriately take into account the rate differential under rules similar to
section 904(b)(2)(B) of the Internal Revenue Code. The rules governing foreign
tax credits are complex and U.S. Holders should consult their tax advisors
regarding their application to the particular circumstances of such holder.

The rules relating to foreign tax credits are extremely complex and the
availability of a foreign tax credit depends on numerous factors. Prospective
purchasers of American depositary shares or ordinary shares should consult
their tax advisors concerning the application of the United States foreign tax
credit rules to their particular situations.

The amount of any distribution paid in Hong Kong dollars will be the
United States dollar value of the payment made, determined at the spot Hong
Kong dollar/United States dollar rate on the date such payment is includible in
the income of the U.S. Holder, regardless of whether the payment is in fact
converted into United States dollars. Any gain or loss resulting from currency
exchange fluctuations during the period from the date the dividend payment is
includible in income to the date such payment is converted into United States
dollars will be treated as United States source ordinary income or loss.

A corporate U.S. Holder will not be entitled to a dividends received
deduction with respect to distributions on American depositary shares or
ordinary shares.

Sale, Exchange of Other Disposition

A U.S. Holder generally will recognize gain or loss upon a sale or other
taxable disposition of American depositary shares or ordinary shares in an
amount equal to the difference between the United States dollar value of the
amount realized on the sale or other taxable disposition and the U.S. Holders
adjusted tax basis in the American depositary shares or ordinary shares, as
applicable. Subject to the passive foreign investment company discussion below,
such gain or loss will generally be capital gain or loss and, in the case of
certain non-corporate U.S. Holders, may be subject to United States federal
income tax at a preferential rate where the U.S. Holders holding period
exceeds one year. With respect to sales occurring on or after May 6, 2003, but
before January 1, 2009, the long-term capital gain tax rate for an individual
U.S. Holder is 15%. For sales occurring before May 6, 2003, or after December
31, 2008, under current law the long-term capital gain rate for an individual
U.S. Holder is 20%. Any gain or loss recognized by a U.S. Holder on a sale or
other taxable disposition of American depositary shares or ordinary shares will
generally be treated as United States source gain or loss for foreign tax
credit purposes. A U.S. Holders ability to deduct capital losses in respect of
American depositary shares or ordinary shares is subject to limitations.

Passive Foreign Investment Company

In general, a foreign corporation is a passive foreign investment company
for any taxable year in which (i) 75% or more of its gross income consists of
passive income (such as dividends, interest, rents and royalties) or (ii) 50%
or more of the average quarterly value of its assets consists of assets that
produce, or are held for the production of, passive income. We believe that we
will not be treated as a passive foreign investment company under either of
these tests in the current or subsequent taxable years. In reaching this
conclusion, we have assumed that our available cash will be expended in
accordance with a projected capital expenditure budget. However, the actual
expenditure of these amounts will depend on business exigencies and may differ
from the projected expenditures. If we were to retain more cash than we have
projected, this could cause us to be a passive foreign investment company.
Because the passive foreign investment company determination is made annually
on the basis of facts and circumstances that may be beyond our control, we
cannot assure you that we will not become a passive foreign investment company.

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If we were a passive foreign investment company for any taxable year, a
U.S. Holder that held American depositary shares or ordinary shares in that
taxable year would generally be subject to special rules with respect to
certain distributions made by us on the American depositary shares or ordinary
shares and with respect to gains from dispositions of American depositary
shares or ordinary shares. In general, such a U.S. Holder would be required to
allocate such distributions or gains, as the case may be, ratably over its
holding period for such American depositary shares or ordinary shares. That
portion of any such distributions or gains allocated to a prior taxable year,
other than a year prior to the first year in which we were a passive foreign
investment company, would effectively be taxed at the highest United States
federal income tax rate in effect for such year with respect to ordinary
income. In addition, the U.S. Holder would be subject to an interest charge on
the resulting tax liability determined as if such tax liability had been due
with respect to the particular taxable year. The portion, if any, of such
distributions or gains not so allocated to a prior taxable year of the U.S.
Holder in which we were a passive foreign investment company would be included
in the U.S. Holders income for the taxable year of the particular distribution
or disposition and taxed as ordinary income.

The foregoing rules with respect to distributions and dispositions may be
avoided if a U.S. Holder is eligible for and timely makes either a valid
qualifying electing fund election, in which case the U.S. Holder generally
would be required to include in income on a current basis its pro rata share of
our ordinary income and net capital gains, or a valid mark-to-market
election. We do not currently intend to complete the actions necessary for U.S.
Holders to make a qualifying electing fund election in the event that we were
to be considered a passive foreign investment company for any taxable year. If
a mark-to-market election is made, the U.S. Holder will include in ordinary
income each year the excess, if any, of the fair market value over the adjusted
tax basis of its American depositary shares or ordinary shares. The U.S. Holder
also will be allowed an ordinary loss each year of the excess, if any, of the
adjusted tax basis over the fair market value of its American depositary shares
or ordinary shares, but only to the extent of the net amount of previously
included income as a result of the mark-to-market election. The U.S. Holders
tax basis in the American depositary shares or ordinary shares will be adjusted
to reflect any such income or loss amounts. Assuming the ordinary shares are
regularly traded on a qualified exchange or other market for purposes of the
passive foreign investment company rules, the mark-to-market election would be
available with respect to the American depositary shares and the ordinary
shares. Prospective purchasers are urged to consult their tax advisors
regarding the consequences of an investment in a passive foreign investment
company.

Backup Withholding and Information Reporting

Backup withholding and information reporting requirements may apply to
payments made within the United States of dividends on American depositary
shares or ordinary shares and to certain payments of proceeds of a sale or
redemption of American depositary shares or ordinary shares paid to a U.S.
Holder. We, our agent, a broker or any paying agent, as the case may be, may be
required to withhold tax from any payment that is subject to backup withholding
at a rate of 28% of such payment if the U.S. Holder fails to furnish the U.S.
Holders taxpayer identification number, to certify that such U.S. Holder is
not subject to backup withholding, or to otherwise comply with the applicable
requirements of the backup withholding rules. Certain U.S. Holders, including,
among others, corporations, are not subject to the backup withholding and
information reporting requirements. Any amounts withheld under the backup
withholding rules from a payment to a U.S. Holder may generally be claimed as a
credit against such U.S. Holders United States federal income tax liability
provided that the required information is furnished to the United States
Internal Revenue Service.

Hong Kong Taxation

The following provides a general outline of the material tax
considerations that may be relevant to a decision to purchase, own or dispose
of the ADSs or ordinary shares but does not purport to deal with the tax
consequences applicable to all categories of investors. Prospective investors
should consult their own professional advisers on the Hong Kong and overall tax
implications of investing, holding or disposing the ADSs or ordinary shares
under the laws of the countries in which they are liable to taxation. The
discussion below is applicable to both U.S. and non-U.S. citizens as an
investor.

Tax on Dividends

Under the current practices of the Inland Revenue Department, no tax is
payable in Hong Kong by withholding or otherwise in respect of dividends paid
by us.

Profits Tax

No tax is imposed in Hong Kong in respect of gains from the sale of
property, including shares and ADSs, unless all the following three factors are
present:



| | (i)   |  | such gain is derived from or arises in Hong Kong;                                                              
| | ----- |  | ---------------------------------------------------------------------------------------------------------------
|
| | (ii)  |  | such gain is attributable to a trade, profession or business carried
on in Hong Kong; and                      
|
| | (iii) |  | the property in question such as shares and ADSs was not a capital
asset of that trade, profession or business.

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Taxable gains will be subject to Hong Kong profits tax which is currently
imposed on corporations at a rate of 16% and on individuals at a rate of 15%.

Gains from sales of shares effected on The Stock Exchange of Hong Kong
Limited will be considered to be derived from or to arise in Hong Kong.
Liability to Hong Kong profits tax in respect of such gains would arise if the
shares were not held as capital assets and the gains are attributable to a
business, trade or profession carried out in Hong Kong.

Gains from sales of ADSs will be considered to be derived from or to arise
in Hong Kong if the relevant purchase or sales contracts are negotiated and
concluded in Hong Kong, and such gains will be subject to Hong Kong profits tax
in the case of those persons dealing or trading in the ADSs as part of their
business being carried out in Hong Kong.

Stamp Duty

A sale or purchase of shares is subject to Hong Kong stamp duty if the
transfer of such shares is required to be registered in Hong Kong. The ordinary
shares will be registered in our Hong Kong branch register of members and,
therefore, will constitute Hong Kong stock for the purposes of Hong Kong
stamp duty. For such purposes any person who effects a sale or purchase of Hong
Kong stock such as the ordinary shares registered on our Hong Kong register of
members, whether as principal or agent, is required to execute a contract note
evidencing such sale or purchase and to have that note stamped. Contract notes
attract stamp duty, payable by the seller and the purchaser in equal shares, at
the aggregate rate of HK$2.00 per HK$1,000 by reference to the value of the
consideration paid or the market value of the shares on The Stock Exchange of
Hong Kong Limited or otherwise on the date the contract note is executed,
whichever is greater. If, in the case of a sale or purchase of the shares by a
person who is not resident in Hong Kong, the stamp duty on either or both of
the contract notes is not paid, the transferee will be liable to pay stamp duty
on the instrument of transfer in an amount equal to the unpaid duty. If the
stamp duty is not paid on or before the due date, a penalty of up to ten times
the duty payable may be imposed. In addition, a fixed duty of HK$5.00 is
currently payable on any instrument of transfer of shares.

Upon the exchange of any ADRs evidencing ADSs for certificates
representing shares, or exchange of shares for ADRs evidencing ADSs, stamp duty
aggregating HK$2.00 per HK$1,000 or part thereof is payable in addition to the
depositarys charges, if any, unless the exchange does not result in any change
in the beneficial ownership of the shares under Hong Kong law. Investors are
not liable for stamp duty on the issuance of the ADSs upon the initial deposit
of shares issued directly to the depositary or for the account of the
depositary. No Hong Kong stamp duty is payable upon the transfer of ADRs
evidencing ADSs if such ADRs are not maintained on a register in Hong Kong.

Estate Duty

The ordinary shares, being registered on our branch register of members in
Hong Kong, are property in relation to which Hong Kong estate duty will be
chargeable on the death of the owner of such shares regardless of the place of
the owners residence, citizenship or domicile, unless there is an applicable
exemption under the Estate Duty Ordinance (Ch. 111 of the Laws of Hong Kong).
We cannot assure you that the Hong Kong Inland Revenue Department will not
treat the ADSs as Hong Kong property that may be subject to estate duty on the
death of the beneficial owner of the ADSs even if the ADSs are located outside
Hong Kong at the date of such death. Hong Kong estate duty is imposed on a
progressive scale from 5% to 15%. The rate of and the threshold for estate duty
has, in the past, been adjusted on a fairly regular basis. No estate duty is
payable when the aggregate value of the dutiable estate does not exceed HK$7.5
million, and the maximum rate of duty of 15% applies when the aggregate value
of the dutiable estate exceeds HK$10.5 million.

Where shares registered on the Hong Kong branch register, and possibly
ADSs, are owned by a controlled company which is defined under the Estate Duty
Ordinance as a company under the control of not more than five persons (certain
classes of persons being treated as a single person for this purpose), the
death of a person who made at any time a transfer of property to such company
and who received or could have received benefits from that company in the three
years ending with that persons death may expose the company to an estate duty
liability.

Cayman Islands Taxation

Pursuant to section 6 of the Tax Concessions Law (1999 Revision) of the
Cayman Islands, we have obtained an undertaking from the Governor-in-Council:



| |  |  | that no law enacted in the Cayman Islands imposing any tax to be levied on profits or income or gains or appreciation shall apply to us or our operations; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | that such tax or any tax in the nature of estate duty or inheritance tax shall not be payable on our shares, debentures or other obligations.                 

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Our undertaking is effective for a period of 20 years from December 7,
1999.

The Cayman Islands currently levies no taxes applicable to us or our
nominees based upon profits, income, gains or appreciation and there is no
taxation in the nature of inheritance tax or estate duty payable by us or our
members with respect to the ordinary shares. There are no other taxes likely to
be material to us levied by the Cayman Islands government except for stamp
duties which may be applicable on instruments executed in, or after execution
brought within the jurisdiction of, the Cayman Islands. The Cayman Islands are
not party to any double tax treaties. There are no exchange control regulations
or currency restrictions in the Cayman Islands applicable to us.

DOCUMENTS ON DISPLAY

We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended. Accordingly, we will file reports and other
information with the Securities and Exchange Commission. You may inspect and
copy the reports and other information we file at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, DC 20549, and at the regional offices of the Commission located in
Chicago and New York. You may also obtain copies of such material by mail from
the Public Reference Branch of the Commission at 450 Fifth Street, N.W.,
Washington, DC 20549, at prescribed rates. The Commission also maintains a web
site at http://www.sec.gov that contains reports, proxy statements and other
information regarding registrants that file electronically with the Commission.
Our annual reports and some of the other information submitted by us to the
Commission may be accessed through this web site.




Item 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Our market risk is related to changes in foreign exchange rates and
interest rates.

The foreign exchange risk results primarily from movements of the Hong
Kong dollar against the U.S. dollar. Our revenues are generated in Hong Kong
dollars while a significant proportion of all our network equipment costs are
denominated in U.S. dollars. As of December 31, 2002, substantially all the
assets and liabilities are denominated in Hong Kong dollars; except that the
outstanding vendor loan amounted to US$47 million but we also had a bank
deposit of US$24 million. We have not experienced significant foreign exchange
movements primarily because the Hong Kong dollar has remained stable against
the U.S. dollar, which is officially linked at HK$7.80 = US$1.00 by the Hong
Kong government. We will continue to monitor our foreign exchange exposure and
market conditions and determine if any hedging is required.

Substantially all of our outstanding debts bear interest at floating rates
based on the Hong Kong interbank offer rate, or HIBOR, and the London interbank
offer rate, or LIBOR, and is subject to interest rate exposure resulting from
changes in interest rates in the Hong Kong dollar and the U.S. dollar markets.
Depending on the outlook on interest rates, we may hedge our interest
rate-related transactions to manage such exposure.

The table below provides information about our debt obligations that are
sensitive to changes in interest rates. The table represents principal cash
flows and related weighted average interest rates by expected maturity dates.
The information is presented in the Hong Kong dollar equivalents, which is our
reporting currency. The debts actual cash flows are denominated in both U.S.
dollars and Hong Kong dollars as indicated in parentheses.

|               |                     |                       |  |                         |  |            |  |                |  |            |  |         |  |  |  |         |  | 
|-------------- | ------------------- | --------------------- |  | ----------------------- |  | ---------- |  | -------------- |  | ---------- |  | ------- |  |  |  | ------- |  | 
|               |                     |                       |  | As of December 31, 2002
|               |                     |                       |  |                        
|               |                     |                       |  | 2003                    |  | 2004       |  | Total          |  | Fair Value
|               |                     |                       |  |                         |  |            |  |                |  |           
|               |                     |                       |  | HK$                     |  | HK$        |  | HK$            |  | HK$       
|               |                     |                       |  |                         |  |            |  | (in thousands) |  |            |  |        
|Liabilities:   |                     |                       |  |                         |  |            |  |                |  |            |  |         |  |  |  |        
|Long-term debt |                     |                       |  |                         |  |            |  |                |  |            |  |         |  |  |  |        
|               | Variable rate (US$) |                       |  | 58,491                  |  |            |  | 306,825        |  |            |  | 365,316 |  |  |  | 364,498 | 
|               |                     | Average interest rate |  | LIBOR+5.5%              |  | LIBOR+5.5% |  |                |  |            |  |         |  | 
|               | Variable rate (HK$) |                       |  | 180,000                 |  |            |  | 240,000        |  |            |  | 420,000 |  |  |  | 412,883 | 
|               |                     | Average interest rate |  | HIBOR+5.5%              |  | HIBOR+5.5% |  |                |  |            |  |         |  | 




Item 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.




PART II




Item 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

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Item 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

USE OF PROCEEDS

We completed the global offering of 690,000,000 ordinary shares and ADSs
representing the ordinary shares on The Stock Exchange of Hong Kong Limited and
The Nasdaq National Market, respectively, in March 2000. The registration
statement (No. 333-11470) relating to the ordinary shares and ADSs was declared
effective by the Securities and Exchange Commission on March 10, 2000 and the
closing for the global offering was held on March 15, 2000. The lead U.S.
managing underwriters were Credit Suisse First Boston Corporation and Credit
Lyonnais Securities (USA) Inc. and the lead international underwriters were
Credit Lyonnais Securities (Asia) Limited and Credit Suisse First Boston (Hong
Kong) Limited.

The table below sets forth information on the amount of securities
registered and sold, the aggregate price of the offering amount registered and
sold:

|                |  |                      |             |                 |  |                  |             |                       |  |                    |             |  |  |  |             | 
|--------------- |  | -------------------- | ----------- | --------------- |  | ---------------- | ----------- | --------------------- |  | ------------------ | ----------- |  |  |  | ----------- | 
|                |  |                      |             |                 |  |                  |             |                       |  | Aggregate Price of |             |  |  | 
|                |  | Amount of Securities |             | Amount of       |  | Securities       |             | Aggregate Price of   
|                |  | Registered           |             | Securities Sold |  | Registered (US$) |             | Securities Sold (US$)
|                |  |                      |             |                 |  |                  |             |                      
|ADS             |  |                      | 23,000,000  |                 |  |                  | 3,283,343   |                       |  |                    | 338,491,000 |  |  |  | 48,306,242  | 
|Ordinary shares |  |                      | 690,000,000 |                 |  |                  | 591,529,710 |                       |  |                    | 338,449,423 |  |  |  | 290,149,114 | 

We paid an aggregate amount of HK$142 million to the underwriters as
commissions, discounts and expenses. No direct or indirect payment has been
paid to directors, officers of the Company or their associates or to persons
owning 10% or more of any class of our equity securities or to any affiliates.

The net proceeds from the global offering was approximately HK$2,137
million. As of December 31, 2002, the net proceeds had been fully utilized. The
net proceeds were used as follows:



| |  |  | HK$461 million for the repayment of holders of convertible notes to the extent they did not elect to receive shares in the global offering.                                                                                                                     
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | HK$251 million for the payment of 3G license fees in advance and certain related expenses.                                                                                                                                                                      
|
| |  |  | HK$1,012.7 million (US$130 million) for the repayment of part of our
vendor loans and acquired a US$130 million revolving loan facility from
Nortel in return. By December 2002, the available facility amount was
approximately HK$481 million (US$62 million).
|
| |  |  | For capital expenditures and working capital and general corporate
purposes.                                                                                                                                                                                    




Item 15. CONTROLS AND PROCEDURES

Our Group Managing Director and our Group Director  Finance have
evaluated the effectiveness of our disclosure controls and procedures (as
defined in Rules 13a-14(c) and 15d-14(c) of the United States Securities
Exchange Act of 1934, as amended) within 90 days of the filing date of this
Annual Report. Based on the evaluation, under the supervision and with the
participation of our management, they have concluded that these disclosure
controls and procedures are effective.

There were no significant changes in our internal controls or other
factors that could significantly affect these disclosure controls and
procedures, nor were there any significant deficiencies or material weaknesses
in our internal controls subsequent to the date our Group Managing Director and
our Group Director  Finance completed their evaluation. As a result, no
corrective actions were required or undertaken.




Item 16. [RESERVED]




PART III




Item 17. FINANCIAL STATEMENTS

We have responded to Item 18 in lieu of responding to this item.




Item 18. FINANCIAL STATEMENTS

See pages F-1 through F-44 incorporated herein by reference.

56



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Item 19. EXHIBITS

|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1.1*    |  | Memorandum and Articles of Association of the Registrant.                                                                                                                                                                                                                                                                                                                                                                                                                                                
|1.2*    |  | Certificate of Incorporation of the Registrant.                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|2.1*    |  | Form of Deposit Agreement among the Registrant, The Bank of New York, as depositary bank, and holders and beneficial holders of the American depositary shares.                                                                                                                                                                                                                                                                                                                                          
|2.2*    |  | Form of American depositary receipt evidencing American depositary shares.                                                                                                                                                                                                                                                                                                                                                                                                                               
|2.3*    |  | Specimen certificate of the Ordinary Shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.1*    |  | Amendment and Restatement Agreement dated as of February 18, 2000 to the Mortgage of Shares, Subordination Deed, Sponsor Support Agreement, all dated as of
September 11, 1998 and the SUNDAY Investments Subordination Deed, SUNDAY Holdings Subordination Deed and Second Mortgage of Shares, all dated as of February
18, 2000, among Mandarin Communications Limited, Nortel Networks (Asia) Limited, Overseas Union Bank Limited and certain corporations and financial
institutions.               
|4.2*    |  | Borrower Amendment and Restatement Agreement dated as of February 18, 2000 to the Debenture, Intercreditor Agreement, Agreement for the HK$600,000,000 Term
Loan Facility for Mandarin Communications Limited and Agreement for the US$155,000,000 Term Loan Facility for Mandarin Communications Limited, all dated as of
February 18, 2000 among Mandarin Communications Limited, Nortel Networks (Asia) Limited, Overseas Union Bank Limited and certain corporations and financial
institutions.     
|4.3*    |  | Tenancy Agreement dated as of December 20, 1999 between Taikoo Place Holdings Limited and Mandarin Communications Limited relating to the lease of 13th and
16th floor of Warwick House.                                                                                                                                                                                                                                                                                                                 
|4.4*    |  | Tenancy Agreement dated as of February 14, 1997 between Lai Sun Textiles Company Limited and Mandarin Communications Limited.                                                                                                                                                                                                                                                                                                                                                                            
|4.5*    |  | Tenancy Agreement dated as of November 10, 1998 between Better Chief Limited and Mandarin Communications Limited relating to the lease of workshops numbers
1, 2, 3, 4, 5, 6,7 and 8 on the second floor of Po Hing Centre, No. 18 Wang Chiu Road.                                                                                                                                                                                                                                                       
|4.6*    |  | License Agreement dated as of November 10, 1998 between Better Chief Limited and Mandarin Communications Limited relating to the lease of the roofs of Po Hing
Centre, No. 18 Wang Chiu Road.                                                                                                                                                                                                                                                                                                            
|4.7*    |  | Rules of the Share Option Scheme adopted on March 1, 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                               
|4.8*    |  | Non-Competition Agreement dated as of March 3, 2000 between Distacom Communications Limited and the Registrant.                                                                                                                                                                                                                                                                                                                                                                                          
|4.9*    |  | PCN System Purchase Agreement dated as of October 10, 1996 between Mandarin Communications Limited and Northern Telecom (Asia) Limited.                                                                                                                                                                                                                                                                                                                                                                  
|4.10*   |  | Master Purchase Agreement dated as of September 11, 1998 between Mandarin Communications Limited and Northern Telecom (Asia) Limited.                                                                                                                                                                                                                                                                                                                                                                    
|4.11*   |  | Reorganisation Agreement dated as of February 10, 2000 among Distacom Hong Kong Limited, Townhill Enterprises Limited, Parkertex Enterprises Limited, CTS
Telecommunications Limited, Interlink Associates Limited and SUNDAY Holdings Corporation relating to the conversion of the then existing shares in Mandarin
Communications Limited into non-voting deferred shares and the issue of new ordinary shares in Mandarin Communications Limited to SUNDAY Holdings Corporation.                     
|4.12*   |  | Sale and Purchase Agreement dated as of February 24, 2000 among Distacom Hong Kong Limited, Townhill Enterprises Limited, Parkertex Enterprises Limited, CTS
Telecommunications Limited, Interlink Associates Limited, Distacom Communications Limited, USI Holdings Limited, Lai Sun Development Company Limited, China
Travel Service (Holdings) Hong Kong Limited, The Hong Kong Parkview Group Limited and the Registrant relating to the entire issued share capital of SUNDAY
Holdings Corporation.
|4.13*   |  | An instrument by way of deed poll dated as of December 3, 1999 among SUNDAY Investment Limited, Mandarin Communications Limited and the Registrant relating to
the issue of the 24% Subordinated Mandatorily Convertible Guaranteed Notes due 2000, as amended by a supplemental instrument by way of deed poll dated
February 10, 2000.                                                                                                                                                                 
|4.14*   |  | Subscription Agreements dated as of December 1999 among SUNDAY Investment Limited, Mandarin Communications Limited and each of the subscribers to 24%
Subordinated Mandatorily Convertible Guaranteed Notes due 2000.                                                                                                                                                                                                                                                                                    
|4.15**  |  | Rules of the Share Option Scheme, adopted on May 22, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                               
|4.16**  |  | Mobile Carrier License dated as of October 22, 2001 issued by the Telecommunications Authority to SUNDAY 3G (Hong Kong) Limited.                                                                                                                                                                                                                                                                                                                                                                         
|8***    |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|99.1*** |  | Certification of Group Managing Director pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                           
|99.2*** |  | Certification of Group Director  Finance pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                          



---

|*   |  | Incorporated by reference to the registrants Registration Statement on
Form F-1, filed on March 9, 2000 (Registration No. 333-11470).
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------
|   
|**  |  | Incorporated by reference to the registrants Form 20-F for the year
ended December 31, 2001.                                         
|   
|*** |  | Filed herewith.                                                                                                                       

57



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##### Table of Contents






SIGNATURE

Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, as amended, the registrant hereby certifies that it meets all of the
requirements for filing on Form 20-F and has duly caused and authorized the
undersigned to sign this Annual Report on its behalf.

| |  |                                |  | 
| |  | ------------------------------ |  | 
| |  | SUNDAY Communications Limited 
| |  |                                |  | 
| |  | By: /s/ WILLIAM BRUCE HICKS    |  | 
| |  |                                |  | 
| |  | Name: William Bruce Hicks      |  | 
| |  | Title: Group Managing Director |  | 
| |  | Date: June 30, 2003            |  | 

S-1



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##### Table of Contents






CERTIFICATIONS

I, William Bruce Hicks, certify that:



|1. |  | I have reviewed this annual report on Form 20-F of SUNDAY Communications
Limited;                                                                                                                                                                                                                                       
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the period presented in this annual report;                    
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                  



| | (a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the Evaluation Date); and                                                                                                  
|
| | (c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function);
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) |  | all significant deficiencies in the design or operation of internal
controls which would adversely affect the registrants ability to
record, process, summarize and report financial data and have identified
for the registrants auditors any material weakness in internal
controls; and
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                      



|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: June 30, 2003

| |  |                                                                                     
| |  | ------------------------------------------------------------------------------------
| |  | By:  /s/ WILLIAM BRUCE HICKSName: William Bruce Hicks
Title: Group Managing Director

S-2



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##### Table of Contents



I, Janet Ching Man Fung, certify that:



|1. |  | I have reviewed this annual report on Form 20-F of SUNDAY Communications
Limited;                                                                                                                                                                                                                                       
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the period presented in this annual report;                    
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                  



| | (a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the Evaluation Date); and                                                                                                  
|
| | (c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function);
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) |  | all significant deficiencies in the design or operation of internal
controls which would adversely affect the registrants ability to
record, process, summarize and report financial data and have identified
for the registrants auditors any material weakness in internal
controls; and
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                      



|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: June 30, 2003

| |  |                                                                                        
| |  | ---------------------------------------------------------------------------------------
| |  | By:  /s/ JANET CHING MAN FUNGName: Janet Ching Man Fung
Title: Group Director  Finance

S-3



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##### Table of Contents






INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                                                                                            |  |     
|--------------------------------------------------------------------------------------------------------------------------- |  | ----
|CONSOLIDATED FINANCIAL STATEMENTS:                                                                                          |  |     
|Report of Independent Auditors                                                                                              |  | F-2 
|Consolidated Statements of Losses for the years ended December 31, 2000, 2001 and 2002                                      |  | F-3 
|Consolidated Balance Sheets as of December 31, 2001 and 2002                                                                |  | F-4 
|Consolidated Statements of Changes in Shareholders (Deficit) / Equity for the years ended
December 31, 2000, 2001 and 2002 |  | F-5 
|Consolidated Statements of Cash Flows for the years ended December 31, 2000, 2001 and 2002                                  |  | F-6 
|Notes to the Consolidated Financial Statements                                                                              |  | F-10

F-1



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##### Table of Contents



REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholders of
SUNDAY Communications Limited

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of losses, of changes in shareholders (deficit) equity
and of cash flows present fairly, in all material respects, the financial position of SUNDAY Communications Limited (the Company) and its
subsidiaries (hereafter collectively referred to as 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 Hong Kong. These financial
statements are the responsibility of the Group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 and in
Hong Kong, 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.

Accounting principles generally accepted in Hong Kong vary in certain
significant respects from accounting principles generally accepted in the
United States of America. The application of the latter would have affected the
determination of consolidated net loss for each of the three years in the
period ended December 31, 2002 and the determination of consolidated
shareholders equity at December 31, 2001 and 2002 to the extent summarized in
note 27 to the consolidated financial statements.

As more fully discussed in note 3 to the consolidated financial statements, in
2002, the Group changed its method of accounting for the 3G License which was
acquired in 2001. In addition, the consolidated financial statements for the
year ended December 31, 2001 have been restated.

/s/PricewaterhouseCoopersPricewaterhouseCoopers
Certified Public Accountants

Hong Kong, March 25, 2003

F-2



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##### Table of Contents



SUNDAY COMMUNICATIONS LIMITED AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF LOSSES
(Amounts in thousands except per share data)

|                                                                    |                                                |  |      |    |     |  |                         |          |      |  |           |           |      |  |           |           |   |  |           |         |  
|------------------------------------------------------------------- | ---------------------------------------------- |  | ---- | -- | --- |  | ----------------------- | -------- | ---- |  | --------- | --------- | ---- |  | --------- | --------- | - |  | --------- | ------- | -
|                                                                    |                                                |  |      |    |     |  | Year ended December 31,
|                                                                    |                                                |  |      |    |     |  |                        
|                                                                    |                                                |  |      |    |     |  | 2000                    |          | 2001 |  | 2002      |           | 2002
|                                                                    |                                                |  | Note |    | HK$ |  | HK$                     |          | HK$  |  | US$      
|Revenues from                                                       |                                                |  |      |    |     |  |                         |          |      |  |           |           |      |  |           |           |   |  |           |        
|                                                                    | Mobile services                                |  |      |    |     |  |                         | 988,718  |      |  |           | 1,165,399 |      |  |           | 1,217,677 |   |  |           | 156,136 |  
|                                                                    | Sales of mobile phones and accessories         |  |      |    |     |  |                         | 404,444  |      |  |           | 242,901   |      |  |           | 115,291   |   |  |           | 14,783  |  
|                                                                    | Other services                                 |  |      |    |     |  |                         | 57,231   |      |  |           | 14,093    |      |  |           | 9,722     |   |  |           | 1,247   |  
|                                                                    |                                                |  |      |    |     |  |                         |          |      |  |           |           |      |  |           |           |   |  |           |        
|Total operating revenues                                            |                                                |  | 24   |    |     |  | 1,450,393               |          |      |  | 1,422,393 |           |      |  | 1,342,690 |           |   |  | 172,166   |        
|Cost of services                                                    |                                                |  | 4    |    |     |  | (235,501                | )        |      |  | (224,262  | )         |      |  | (221,071  | )         |   |  | (28,347   | )      
|Cost of sales of mobile phones and accessories                      |                                                |  |      |    |     |  | (424,549                | )        |      |  | (244,981  | )         |      |  | (113,414  | )         |   |  | (14,542   | )      
|                                                                    |                                                |  |      |    |     |  |                         |          |      |  |           |           |      |  |           |           |   |  |           |        
|Gross profit                                                        |                                                |  |      |    |     |  | 790,343                 |          |      |  | 953,150   |           |      |  | 1,008,205 |           |   |  | 129,277   |        
|Other revenues                                                      |                                                |  |      |    |     |  | 8,702                   |          |      |  | 2,602     |           |      |  | 1,917     |           |   |  | 246       |        
|Operating expenses                                                  |                                                |  |      |    |     |  |                         |          |      |  |           |           |      |  |           |           |   |  |           |        
|                                                                    | Network costs                                  |  |      |    |     |  |                         | (328,007 | )    |  |           | (301,668  | )    |  |           | (303,577  | ) |  |           | (38,926 | )
|                                                                    | Depreciation                                   |  |      | 12 |     |  |                         | (261,291 | )    |  |           | (265,102  | )    |  |           | (256,393  | ) |  |           | (32,876 | )
|                                                                    | Rent and related costs                         |  |      |    |     |  |                         | (46,378  | )    |  |           | (58,502   | )    |  |           | (61,074   | ) |  |           | (7,831  | )
|                                                                    | Salaries and related costs                     |  |      | 5  |     |  |                         | (255,201 | )    |  |           | (233,202  | )    |  |           | (243,890  | ) |  |           | (31,273 | )
|                                                                    | Advertising, promotion and other selling costs |  |      |    |     |  |                         | (195,246 | )    |  |           | (180,363  | )    |  |           | (127,798  | ) |  |           | (16,387 | )
|                                                                    | Other operating costs                          |  |      |    |     |  |                         | (93,605  | )    |  |           | (80,125   | )    |  |           | (59,765   | ) |  |           | (7,664  | )
|                                                                    |                                                |  |      |    |     |  |                         |          |      |  |           |           |      |  |           |           |   |  |           |        
|Loss from operations                                                |                                                |  | 24   |    |     |  | (380,683                | )        |      |  | (163,210  | )         |      |  | (42,375   | )         |   |  | (5,434    | )      
|Interest income                                                     |                                                |  |      |    |     |  | 51,053                  |          |      |  | 21,592    |           |      |  | 3,553     |           |   |  | 456       |        
|Finance costs                                                       |                                                |  | 5    |    |     |  | (136,938                | )        |      |  | (70,130   | )         |      |  | (59,833   | )         |   |  | (7,672    | )      
|Share of losses from joint ventures                                 |                                                |  |      |    |     |  |                        |          |      |  |          |           |      |  | (18,609   | )         |   |  | (2,386    | )      
|                                                                    |                                                |  |      |    |     |  |                         |          |      |  |           |           |      |  |           |           |   |  |           |        
|Net loss                                                            |                                                |  | 5    |    |     |  | (466,568                | )        |      |  | (211,748  | )         |      |  | (117,264  | )         |   |  | (15,036   | )      
|                                                                    |                                                |  |      |    |     |  |                         |          |      |  |           |           |      |  |           |           |   |  |           |        
|Basic and diluted loss per share (in cents)                         |                                                |  | 7    |    |     |  | (16.4                   | )        |      |  | (7.1      | )         |      |  | (3.9      | )         |   |  | (0.5      | )      
|                                                                    |                                                |  |      |    |     |  |                         |          |      |  |           |           |      |  |           |           |   |  |           |        
|Shares outstanding for basic and diluted
loss per share (thousands) |                                                |  | 7    |    |     |  | 2,850,492               |          |      |  | 2,990,000 |           |      |  | 2,990,000 |           |   |  | 2,990,000 |        
|                                                                    |                                                |  |      |    |     |  |                         |          |      |  |           |           |      |  |           |           |   |  |           |        

The accompanying notes are an integral part of these consolidated financial statements.

F-3



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##### Table of Contents



SUNDAY COMMUNICATIONS LIMITED AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)

|                                           |                                                        |  |      |    |            |  |              |            |      |  |           |            |   |  |         |          |  
|------------------------------------------ | ------------------------------------------------------ |  | ---- | -- | ---------- |  | ------------ | ---------- | ---- |  | --------- | ---------- | - |  | ------- | -------- | -
|                                           |                                                        |  |      |    |            |  | December 31,
|                                           |                                                        |  |      |    |            |  |             
|                                           |                                                        |  |      |    |            |  | 2001         |            | 2002 |  | 2002     
|                                           |                                                        |  |      |    |            |  | HK$          |            | HK$  |  | US$      
|                                           |                                                        |  | Note |    | (restated) |  |              |            |      |  |           |            |  
|ASSETS                                     |                                                        |  |      |    |            |  |              |            |      |  |           |            |   |  |         |         
|Current assets                             |                                                        |  |      |    |            |  |              |            |      |  |           |            |   |  |         |         
|                                           | Cash and cash equivalents                              |  |      | 21 |            |  |              | 47,328     |      |  |           | 49,577     |   |  |         | 6,357    |  
|                                           | Restricted cash deposits                               |  |      | 8  |            |  |              | 132,706    |      |  |           | 156,939    |   |  |         | 20,123   |  
|                                           | Trade receivables, net of provision for doubtful debts |  |      | 9  |            |  |              | 88,462     |      |  |           | 87,409     |   |  |         | 11,208   |  
|                                           | Prepayment of 3G License fees                          |  |      | 14 |            |  |              | 50,000     |      |  |           | 50,000     |   |  |         | 6,411    |  
|                                           | Inventories                                            |  |      | 10 |            |  |              | 20,448     |      |  |           | 9,995      |   |  |         | 1,282    |  
|                                           | Deposits, prepayments and other receivables            |  |      | 11 |            |  |              | 95,608     |      |  |           | 96,355     |   |  |         | 12,355   |  
|                                           |                                                        |  |      |    |            |  |              |            |      |  |           |            |   |  |         |         
|Total current assets                       |                                                        |  |      |    |            |  | 434,552      |            |      |  | 450,275   |            |   |  | 57,736  |         
|Non-current assets                         |                                                        |  |      |    |            |  |              |            |      |  |           |            |   |  |         |         
|                                           | Fixed assets, net of accumulated depreciation          |  |      | 12 |            |  |              | 1,302,633  |      |  |           | 1,213,897  |   |  |         | 155,652  |  
|                                           | Investment in a joint venture                          |  |      | 13 |            |  |              | 4,940      |      |  |           | 3,322      |   |  |         | 426      |  
|                                           | Prepayment of 3G License fees                          |  |      | 14 |            |  |              | 191,667    |      |  |           | 141,667    |   |  |         | 18,165   |  
|                                           | Restricted cash deposits                               |  |      | 8  |            |  |              | 2,385      |      |  |           | 1,682      |   |  |         | 216      |  
|                                           |                                                        |  |      |    |            |  |              |            |      |  |           |            |   |  |         |         
|Total assets                               |                                                        |  |      |    |            |  | 1,936,177    |            |      |  | 1,810,843 |            |   |  | 232,195 |         
|                                           |                                                        |  |      |    |            |  |              |            |      |  |           |            |   |  |         |         
|LIABILITIES AND SHAREHOLDERS
EQUITY       |                                                        |  |      |    |            |  |              |            |      |  |           |            |   |  |         |         
|Current liabilities                        |                                                        |  |      |    |            |  |              |            |      |  |           |            |   |  |         |         
|                                           | Trade payables                                         |  |      |    |            |  |              | 47,932     |      |  |           | 56,348     |   |  |         | 7,225    |  
|                                           | Other payables and accrued charges                     |  |      | 15 |            |  |              | 193,311    |      |  |           | 171,313    |   |  |         | 21,967   |  
|                                           | Subscriptions received in advance                      |  |      |    |            |  |              | 145,795    |      |  |           | 123,469    |   |  |         | 15,832   |  
|                                           | Current portion of obligations under finance leases    |  |      | 16 |            |  |              | 1,970      |      |  |           | 138        |   |  |         | 18       |  
|                                           | Current portion of bank and vendor loans               |  |      | 17 |            |  |              | 194,990    |      |  |           | 238,491    |   |  |         | 30,580   |  
|                                           |                                                        |  |      |    |            |  |              |            |      |  |           |            |   |  |         |         
|Total current liabilities                  |                                                        |  |      |    |            |  | 583,998      |            |      |  | 589,759   |            |   |  | 75,622  |         
|Long-term liabilities                      |                                                        |  |      |    |            |  |              |            |      |  |           |            |   |  |         |         
|                                           | Subscriptions received in advance                      |  |      |    |            |  |              | 7,530      |      |  |           | 3,527      |   |  |         | 452      |  
|                                           | Obligations under finance leases                       |  |      | 16 |            |  |              | 188        |      |  |           |           |   |  |         |         |  
|                                           | Bank loans                                             |  |      | 17 |            |  |              | 420,000    |      |  |           | 240,000    |   |  |         | 30,774   |  
|                                           | Vendor loans                                           |  |      | 17 |            |  |              | 136,465    |      |  |           | 306,825    |   |  |         | 39,342   |  
|                                           |                                                        |  |      |    |            |  |              |            |      |  |           |            |   |  |         |         
|Total liabilities                          |                                                        |  |      |    |            |  | 1,148,181    |            |      |  | 1,140,111 |            |   |  | 146,190 |         
|                                           |                                                        |  |      |    |            |  |              |            |      |  |           |            |   |  |         |         
|Commitments and contingencies              |                                                        |  | 18   |    |            |  |              |            |      |  |           |            |   |  |         |         
|Shareholders equity                       |                                                        |  |      |    |            |  |              |            |      |  |           |            |   |  |         |         
|                                           | Share capital                                          |  |      | 19 |            |  |              | 299,000    |      |  |           | 299,000    |   |  |         | 38,339   |  
|                                           | Reserve arising from the Reorganization                |  |      | 19 |            |  |              | 1,254,000  |      |  |           | 1,254,000  |   |  |         | 160,794  |  
|                                           | Share premium                                          |  |      | 19 |            |  |              | 2,124,424  |      |  |           | 2,124,424  |   |  |         | 272,404  |  
|                                           | Accumulated losses                                     |  |      |    |            |  |              | (2,889,428 | )    |  |           | (3,006,692 | ) |  |         | (385,532 | )
|                                           |                                                        |  |      |    |            |  |              |            |      |  |           |            |   |  |         |         
|Total shareholders equity                 |                                                        |  |      |    |            |  | 787,996      |            |      |  | 670,732   |            |   |  | 86,005  |         
|                                           |                                                        |  |      |    |            |  |              |            |      |  |           |            |   |  |         |         
|Total liabilities and shareholders equity |                                                        |  |      |    |            |  | 1,936,177    |            |      |  | 1,810,843 |            |   |  | 232,195 |         
|                                           |                                                        |  |      |    |            |  |              |            |      |  |           |            |   |  |         |         

The accompanying notes are an integral part of these consolidated financial statements.

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##### Table of Contents



SUNDAY COMMUNICATIONS LIMITED AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS (DEFICIT) / EQUITY
(Amounts in thousands)

|                                                         |  |      |    |     |  |         |         |                |  |         |           |             |  |                  |           |   |  |  |            |       |  |  |           |  
|-------------------------------------------------------- |  | ---- | -- | --- |  | ------- | ------- | -------------- |  | ------- | --------- | ----------- |  | ---------------- | --------- | - |  |  | ---------- | ----- |  |  | --------- | -
|                                                         |  |      |    |     |  |         |         |                |  | Reserve |           |             |  |                  |           |   |  |  |            |       |  | 
|                                                         |  |      |    |     |  |         |         |                |  | arising |           |             |  |                  |           |   |  |  |            | Total
|                                                         |  |      |    |     |  | Share   |         | from the       |  | Share   |           | Accumulated |  | shareholders'   
|                                                         |  |      |    |     |  | capital |         | Reorganization |  | premium |           | losses      |  | (deficit)/equity
|                                                         |  | Note |    | HK$ |  | HK$     |         | HK$            |  | HK$     |           | HK$        
|As of January 1, 2000                                    |  |      |    |     |  |         | 1       |                |  |         | 1,254,000 |             |  |                  |          |   |  |  | (2,211,112 | )     |  |  | (957,111  | )
|Shares issued in respect of
the Global Offering          |  |      | 19 |     |  |         | 69,000  |                |  |         |          |             |  |                  | 2,539,200 |   |  |  |           |       |  |  | 2,608,200 |  
|Bonus Issue                                              |  |      | 19 |     |  |         | 229,999 |                |  |         |          |             |  |                  | (229,999  | ) |  |  |           |       |  |  |          |  
|Expenses incurred in
connection
with the issue of shares |  |      |    |     |  |         |        |                |  |         |          |             |  |                  | (184,777  | ) |  |  |           |       |  |  | (184,777  | )
|Net loss for the year                                    |  |      |    |     |  |         |        |                |  |         |          |             |  |                  |          |   |  |  | (466,568   | )     |  |  | (466,568  | )
|                                                         |  |      |    |     |  |         |         |                |  |         |           |             |  |                  |           |   |  |  |            |       |  |  |           |  
|As of December 31, 2000                                  |  |      |    |     |  |         | 299,000 |                |  |         | 1,254,000 |             |  |                  | 2,124,424 |   |  |  | (2,677,680 | )     |  |  | 999,744   |  
|                                                         |  |      |    |     |  |         |         |                |  |         |           |             |  |                  |           |   |  |  |            |       |  |  |           |  
|As of January 1, 2001                                    |  |      |    |     |  |         | 299,000 |                |  |         | 1,254,000 |             |  |                  | 2,124,424 |   |  |  | (2,677,680 | )     |  |  | 999,744   |  
|Net loss for the year                                    |  |      |    |     |  |         |        |                |  |         |          |             |  |                  |          |   |  |  | (211,748   | )     |  |  | (211,748  | )
|                                                         |  |      |    |     |  |         |         |                |  |         |           |             |  |                  |           |   |  |  |            |       |  |  |           |  
|As of December 31, 2001                                  |  |      |    |     |  |         | 299,000 |                |  |         | 1,254,000 |             |  |                  | 2,124,424 |   |  |  | (2,889,428 | )     |  |  | 787,996   |  
|                                                         |  |      |    |     |  |         |         |                |  |         |           |             |  |                  |           |   |  |  |            |       |  |  |           |  
|As of January 1, 2002                                    |  |      |    |     |  |         | 299,000 |                |  |         | 1,254,000 |             |  |                  | 2,124,424 |   |  |  | (2,889,428 | )     |  |  | 787,996   |  
|Net loss for the year                                    |  |      |    |     |  |         |        |                |  |         |          |             |  |                  |          |   |  |  | (117,264   | )     |  |  | (117,264  | )
|                                                         |  |      |    |     |  |         |         |                |  |         |           |             |  |                  |           |   |  |  |            |       |  |  |           |  
|As of December 31, 2002                                  |  |      |    |     |  |         | 299,000 |                |  |         | 1,254,000 |             |  |                  | 2,124,424 |   |  |  | (3,006,692 | )     |  |  | 670,732   |  
|                                                         |  |      |    |     |  |         |         |                |  |         |           |             |  |                  |           |   |  |  |            |       |  |  |           |  

The accompanying notes are an integral part of these consolidated financial statements.

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##### Table of Contents



SUNDAY COMMUNICATIONS LIMITED AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)

|                                                             |                                                          |  |                         |            |      |  |          |          |      |  |          |          |   |  |         |         |  
|------------------------------------------------------------ | -------------------------------------------------------- |  | ----------------------- | ---------- | ---- |  | -------- | -------- | ---- |  | -------- | -------- | - |  | ------- | ------- | -
|                                                             |                                                          |  | Year ended December 31,
|                                                             |                                                          |  |                        
|                                                             |                                                          |  | 2000                    |            | 2001 |  | 2002     |          | 2002
|                                                             |                                                          |  | HK$                     |            | HK$  |  | HK$      |          | US$ 
|Net cash (used in)/provided by operating activities (note a) |                                                          |  | (324,354                | )          |      |  | (88,355  | )        |      |  | 129,343  |          |   |  | 16,585  |        
|                                                             |                                                          |  |                         |            |      |  |          |          |      |  |          |          |   |  |         |        
|Investing activities                                         |                                                          |  |                         |            |      |  |          |          |      |  |          |          |   |  |         |        
|                                                             | Investment in joint ventures                             |  |                         |           |      |  |          | (4,940   | )    |  |          | (16,991  | ) |  |         | (2,178  | )
|                                                             | Payment of 3G License fee                                |  |                         |           |      |  |          | (250,000 | )    |  |          |         |   |  |         |        |  
|                                                             | Payment of 3G License related expenses                   |  |                         |           |      |  |          | (821     | )    |  |          |         |   |  |         |        |  
|                                                             | Purchases of fixed assets                                |  |                         | (122,247   | )    |  |          | (146,664 | )    |  |          | (68,995  | ) |  |         | (8,847  | )
|                                                             | Proceeds from disposals of fixed assets                  |  |                         | 11,689     |      |  |          | 504      |      |  |          | 42       |   |  |         | 5       |  
|                                                             | Increase in restricted cash deposits                     |  |                         | (93,640    | )    |  |          | (39,066  | )    |  |          | (23,530  | ) |  |         | (3,017  | )
|                                                             | Repayment of restricted cash deposits                    |  |                         | 815        |      |  |          |         |      |  |          |         |   |  |         |        |  
|                                                             |                                                          |  |                         |            |      |  |          |          |      |  |          |          |   |  |         |        
|Net cash used in investing activities                        |                                                          |  | (203,383                | )          |      |  | (440,987 | )        |      |  | (109,474 | )        |   |  | (14,037 | )      
|                                                             |                                                          |  |                         |            |      |  |          |          |      |  |          |          |   |  |         |        
|Financing activities (note b)                                |                                                          |  |                         |            |      |  |          |          |      |  |          |          |   |  |         |        
|                                                             | Repayment of convertible notes                           |  |                         | (430,900   | )    |  |          |         |      |  |          |         |   |  |         |        |  
|                                                             | Issue of shares                                          |  |                         | 2,321,935  |      |  |          |         |      |  |          |         |   |  |         |        |  
|                                                             | Expenses incurred in connection with the issue of shares |  |                         | (184,777   | )    |  |          |         |      |  |          |         |   |  |         |        |  
|                                                             | Repayment of long-term bank loans                        |  |                         |           |      |  |          | (24,000  | )    |  |          | (156,000 | ) |  |         | (20,003 | )
|                                                             | Repayment of long-term vendor loans                      |  |                         | (1,012,685 | )    |  |          | (19,543  | )    |  |          | (39,000  | ) |  |         | (5,001  | )
|                                                             | Increase in long-term vendor loans                       |  |                         | 380,174    |      |  |          |         |      |  |          | 179,400  |   |  |         | 23,003  |  
|                                                             | Capital element of finance lease payments                |  |                         | (8,753     | )    |  |          | (5,927   | )    |  |          | (2,020   | ) |  |         | (259    | )
|                                                             |                                                          |  |                         |            |      |  |          |          |      |  |          |          |   |  |         |        
|Net cash provided by/(used in) financing activities          |                                                          |  | 1,064,994               |            |      |  | (49,470  | )        |      |  | (17,620  | )        |   |  | (2,260  | )      
|                                                             |                                                          |  |                         |            |      |  |          |          |      |  |          |          |   |  |         |        
|Increase/(decrease) in cash and cash equivalents             |                                                          |  | 537,257                 |            |      |  | (578,812 | )        |      |  | 2,249    |          |   |  | 288     |        
|Cash and cash equivalents at the beginning of the year       |                                                          |  | 88,883                  |            |      |  | 626,140  |          |      |  | 47,328   |          |   |  | 6,069   |        
|                                                             |                                                          |  |                         |            |      |  |          |          |      |  |          |          |   |  |         |        
|Cash and cash equivalents at the end of the year             |                                                          |  | 626,140                 |            |      |  | 47,328   |          |      |  | 49,577   |          |   |  | 6,357   |        
|                                                             |                                                          |  |                         |            |      |  |          |          |      |  |          |          |   |  |         |        

The accompanying notes are an integral part of these consolidated financial statements.

F-6



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##### Table of Contents



SUNDAY COMMUNICATIONS LIMITED AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS  (Continued)
(Amounts in thousands)



|(a) |  | Reconciliation of loss from operations to net cash (used in)/provided by
operating activities:
|--- |  | ----------------------------------------------------------------------------------------------

|                                                                           |  |                         |          |      |  |      |          |   |  |  |         |  
|-------------------------------------------------------------------------- |  | ----------------------- | -------- | ---- |  | ---- | -------- | - |  |  | ------- | -
|                                                                           |  | Year ended December 31,
|                                                                           |  |                        
|                                                                           |  | 2000                    |          | 2001 |  | 2002
|                                                                           |  | HK$                     |          | HK$  |  | HK$ 
|Loss from operations                                                       |  |                         | (380,683 | )    |  |      | (163,210 | ) |  |  | (42,375 | )
|Depreciation                                                               |  |                         | 261,291  |      |  |      | 265,102  |   |  |  | 256,393 |  
|(Gain)/loss on disposals of fixed assets                                   |  |                         | (60      | )    |  |      | 1,126    |   |  |  | 377     |  
|                                                                           |  |                         |          |      |  |      |          |   |  |  |         |  
|Operating (loss)/profit before working capital changes                     |  |                         | (119,452 | )    |  |      | 103,018  |   |  |  | 214,395 |  
|(Increase)/decrease in inventories                                         |  |                         | (8,255   | )    |  |      | (4,373   | ) |  |  | 10,453  |  
|Decrease
in trade receivables, deposits, prepayments and other receivables |  |                         | 19,127   |      |  |      | 1,228    |   |  |  | 666     |  
|Decrease in trade payables, other payables and accrued charges             |  |                         | (15,011  | )    |  |      | (75,538  | ) |  |  | (13,852 | )
|Decrease in subscriptions received in advance                              |  |                         | (95,212  | )    |  |      | (63,758  | ) |  |  | (26,329 | )
|                                                                           |  |                         |          |      |  |      |          |   |  |  |         |  
|Cash (used in)/provided by operations                                      |  |                         | (218,803 | )    |  |      | (39,423  | ) |  |  | 185,333 |  
|Interest received                                                          |  |                         | 47,018   |      |  |      | 25,488   |   |  |  | 3,422   |  
|Interest paid                                                              |  |                         | (150,669 | )    |  |      | (72,990  | ) |  |  | (58,307 | )
|Interest element of finance lease payments                                 |  |                         | (814     | )    |  |      | (413     | ) |  |  | (129    | )
|Other incidental borrowing costs paid                                      |  |                         | (1,086   | )    |  |      | (1,017   | ) |  |  | (976    | )
|                                                                           |  |                         |          |      |  |      |          |   |  |  |         |  
|Net cash (used in)/provided by operating activities                        |  |                         | (324,354 | )    |  |      | (88,355  | ) |  |  | 129,343 |  
|                                                                           |  |                         |          |      |  |      |          |   |  |  |         |  

The accompanying notes are an integral part of these consolidated financial statements.

F-7



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##### Table of Contents



SUNDAY COMMUNICATIONS LIMITED AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Amounts in thousands)



|(b) |  | Analysis of changes in financing during the years:
|--- |  | --------------------------------------------------

|                                                                      |  |         |         |         |  |           |           |             |  |               |           |   |  |  |          |   |  |             |        |  
|--------------------------------------------------------------------- |  | ------- | ------- | ------- |  | --------- | --------- | ----------- |  | ------------- | --------- | - |  |  | -------- | - |  | ----------- | ------ | -
|                                                                      |  |         |         |         |  |           |           |             |  |               |           |   |  |  |          |   |  | Obligations
|                                                                      |  | Share   |         | Share   |  | Long-term |           | Convertible |  | under finance
|                                                                      |  | capital |         | premium |  | loans     |           | notes       |  | leases       
|                                                                      |  | HK$     |         | HK$     |  | HK$       |           | HK$         |  | HK$          
|As of January 1, 2000                                                 |  |         | 1       |         |  |           |          |             |  |               | 1,221,517 |   |  |  | 700,000  |   |  |             | 8,746  |  
|Net cash provided by/(used in) financing                              |  |         | 61,502  |         |  |           | 2,075,656 |             |  |               | (632,511  | ) |  |  | (430,900 | ) |  |             | (8,753 | )
|Convertible notes converted into shares                               |  |         | 7,498   |         |  |           | 278,767   |             |  |               |          |   |  |  | (269,100 | ) |  |             |       |  
|Bonus Issue                                                           |  |         | 229,999 |         |  |           | (229,999  | )           |  |               |          |   |  |  |         |   |  |             |       |  
|Inception of finance leases                                           |  |         |        |         |  |           |          |             |  |               |          |   |  |  |         |   |  |             | 8,092  |  
|Purchases of fixed assets by directly
assuming long-term vendor loans |  |         |        |         |  |           |          |             |  |               | 205,992   |   |  |  |         |   |  |             |       |  
|                                                                      |  |         |         |         |  |           |           |             |  |               |           |   |  |  |          |   |  |             |        |  
|As of December 31, 2000                                               |  |         | 299,000 |         |  |           | 2,124,424 |             |  |               | 794,998   |   |  |  |         |   |  |             | 8,085  |  
|                                                                      |  |         |         |         |  |           |           |             |  |               |           |   |  |  |          |   |  |             |        |  
|As of January 1, 2001                                                 |  |         | 299,000 |         |  |           | 2,124,424 |             |  |               | 794,998   |   |  |  |         |   |  |             | 8,085  |  
|Net cash used in financing                                            |  |         |        |         |  |           |          |             |  |               | (43,543   | ) |  |  |         |   |  |             | (5,927 | )
|                                                                      |  |         |         |         |  |           |           |             |  |               |           |   |  |  |          |   |  |             |        |  
|As of December 31, 2001                                               |  |         | 299,000 |         |  |           | 2,124,424 |             |  |               | 751,455   |   |  |  |         |   |  |             | 2,158  |  
|                                                                      |  |         |         |         |  |           |           |             |  |               |           |   |  |  |          |   |  |             |        |  
|As of January 1, 2002                                                 |  |         | 299,000 |         |  |           | 2,124,424 |             |  |               | 751,455   |   |  |  |         |   |  |             | 2,158  |  
|Net cash used in financing                                            |  |         |        |         |  |           |          |             |  |               | (15,600   | ) |  |  |         |   |  |             | (2,020 | )
|Purchases of fixed assets by directly
assuming long-term loans        |  |         |        |         |  |           |          |             |  |               | 49,461    |   |  |  |         |   |  |             |       |  
|                                                                      |  |         |         |         |  |           |           |             |  |               |           |   |  |  |          |   |  |             |        |  
|As of December 31, 2002                                               |  |         | 299,000 |         |  |           | 2,124,424 |             |  |               | 785,316   |   |  |  |         |   |  |             | 138    |  
|                                                                      |  |         |         |         |  |           |           |             |  |               |           |   |  |  |          |   |  |             |        |  

The accompanying notes are an integral part of these consolidated financial statements.

F-8



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##### Table of Contents



SUNDAY COMMUNICATIONS LIMITED AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Amounts in thousands)



|(c) |  | Supplemental cash flow information:
|--- |  | -----------------------------------

| |                                                                       |  |                         |         |      |  |      |   |  |  |  |        | 
| | --------------------------------------------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | - |  |  |  | ------ | 
| |                                                                       |  | Year ended December 31,
| |                                                                       |  |                        
| |                                                                       |  | 2000                    |         | 2001 |  | 2002
| |                                                                       |  | HK$                     |         | HK$  |  | HK$ 
| | Non-cash transactions                                                 |  |                         |         |      |  |      |   |  |  |  |        | 
| | Inception of finance leases                                           |  |                         | 8,092   |      |  |      |  |  |  |  |       | 
| | Purchases of fixed assets by directly assuming long-term vendor loans |  |                         | 205,992 |      |  |      |  |  |  |  | 49,461 | 
| | Convertible notes and interest converted into shares                  |  |                         | 286,265 |      |  |      |  |  |  |  |       | 
| |                                                                       |  |                         |         |      |  |      |   |  |  |  |        | 

The accompanying notes are an integral part of these consolidated financial statements.

F-9



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##### Table of Contents



SUNDAY COMMUNICATIONS LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|1   |  | Reorganization of the Company, description of business and basis of presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(a) |  | Reorganization of the Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    |  | SUNDAY Communications Limited (the
Company) was incorporated in the
Cayman Islands on November 24, 1999 as a company with limited liability
under the Companies Law (Revised) of the Cayman Islands.                                                                                                                                                                                                                                                                                                                                                                                          
|   
|    |  | Pursuant to a group reorganization
(the Reorganization) completed on
February 24, 2000 to rationalize the group structure in preparation for
the listing of the Companys shares on The Stock Exchange of Hong Kong
Limited (the Stock Exchange) in Hong Kong and the NASDAQ National Market
(the NASDAQ) in the United States of America, the Company became the
holding company of its subsidiaries (the Group). The Companys shares
were successfully listed on the NASDAQ and the Stock Exchange on March 15
and 16, 2000 respectively. The Reorganization was effected as follows:



| | (i)   |  | The Company issued one ordinary share of HK$0.1 each at par for
cash on November 24, 1999, the date of incorporation. On the same
date, this share was transferred to a shareholder of Mandarin
Communications Limited (Mandarin), the then holding company of the
Group and 99 ordinary shares of HK$0.1 each were issued at par for
cash to the shareholders of Mandarin. These 100 ordinary shares were
issued to the shareholders of Mandarin in the same proportion as
their shareholding interests in Mandarin.                                                                                                                                                               
| | ----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (ii)  |  | On January 26, 2000, Mandarin transferred the one share in
SUNDAY Holdings Corporation, which was incorporated in the British
Virgin Islands on August 1, 1997, to a shareholder of Mandarin.
SUNDAY Holdings Corporation was formerly a wholly-owned subsidiary of
Mandarin and was known as SUNDAY (Holdings) Limited. On February 10,
2000, SUNDAY Holdings Corporation issued 99 ordinary shares of US$1
each to the shareholders of Mandarin. The 100 shares were issued or
transferred to the shareholders of Mandarin in the same percentages
as their shareholding interests in Mandarin.                                                                                     
|
| | (iii) |  | On February 10, 2000, the shareholders of Mandarin converted
their shares in Mandarin into non-voting deferred shares which have
no voting rights and no dividend and distribution rights except in
the event of winding up. If Mandarin is wound up, after the
distribution of the first HK$100,000 trillion in value of Mandarins
assets to the holders of the ordinary shares, the holders of the
non-voting deferred shares will be entitled to 1% of the remaining
balance of such assets. On the same date, Mandarin issued for cash 99
ordinary shares of HK$1 each to SUNDAY Holdings Corporation and one
ordinary share of HK$1 to a nominee of SUNDAY Holdings Corporation.
|
| | (iv)  |  | On February 24, 2000, the shareholders of SUNDAY Holdings
Corporation exchanged their shares in SUNDAY Holdings Corporation for
7,900 issued and fully paid ordinary shares of HK$0.1 each in the
Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                            



|    |  | The respective shareholders percentage interests in the Company following
the Reorganization remained the same as their percentage interests in
Mandarin prior to the Reorganization. Share capital on the consolidated
balance sheet as of December 31, 1999 has been restated on the basis of
the share capital of the Company following the Reorganization.                                                                                                                                                                                                       
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | On March 15, 2000, 690,000,000 ordinary shares of HK$0.10 each were issued
to the public and institutional investors at HK$3.78 per share pursuant to
the global offering of the Companys shares (the Global Offering). On
the same date, 2,299,992,000 ordinary shares of HK$0.10 each were issued
and allotted as fully paid at par to the shareholders on the register of
members of the Company as of March 1, 2000 by way of capitalization of a
sum of HK$229,999,200 standing to the credit of the share premium account
of the Company (the Bonus Issue).
|   
|(b) |  | Description of business                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|    |  | The Company and its wholly-owned subsidiaries are engaged in the provision
of mobile and other services in Hong Kong. The Group commenced its
operations in November 1996 and commercial operations on September 21,
1997.                                                                                                                                                                                                                                                                                                                                            

F-10



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##### Table of Contents



SUNDAY COMMUNICATIONS LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|(c) |  | Basis of presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The Company and Mandarin were under common control as of the date when the
Company was incorporated on November 24, 1999.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|    |  | The Reorganization has been accounted for as a reorganization of business
under common control in a manner similar to a pooling of interests on the
basis that the shareholders percentage interests in the Company after the
Reorganization were the same as their percentage interests in Mandarin
prior to the Reorganization. Accordingly, the consolidated financial
statements have been prepared on the basis of historical costs and as if
the consolidated companies had been part of the Group throughout the years
presented. All intra-group transactions and balances have been eliminated
on consolidation.
|   
|    |  | The consolidated financial statements have been prepared using accounting
principles which conform with accounting principles generally accepted in
Hong Kong (HK GAAP) and with accounting standards issued by the Hong
Kong Society of Accountants. These principles differ in certain
significant respects from accounting principles generally accepted in the
United States of America (US GAAP), details of the differences are set
out in note 27.                                                                                                                                                             
|   
|    |  | The consolidated financial statements do not represent the Hong Kong
statutory financial statements of the Group or Mandarin as certain
reclassifications and changes in presentation have been made to the
financial statements in order to conform more closely to presentations
customary in filings with the Securities and Exchange Commission of the
United States of America.                                                                                                                                                                                                                                      
|   
|    |  | Unless indicated otherwise, all amounts are expressed in Hong Kong
Dollars.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|2   |  | Principal accounting policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|    |  | The principal accounting policies adopted in the preparation of the
consolidated financial statements are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(a) |  | Group accounting                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          



| | (i)  |  | Consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |      |  | The consolidated financial statements of the Group incorporate the
financial statements of the Company and its subsidiaries made up to
31st December. A subsidiary is a company in which the Company,
directly or indirectly, holds more than half of the issued share
capital, controls more than half of the voting power, or controls the
composition of the board of directors. The results of subsidiaries
acquired or disposed of during the year are included in the statement
of losses from the effective date of acquisition or up to the
effective date of disposal as appropriate.
|
| |      |  | All significant intercompany transactions and balances within the
Group are eliminated on consolidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | (ii) |  | Joint venture                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |      |  | A joint venture is a contractual arrangement whereby the Group and
other parties undertake an economic activity which is subject to
joint control and none of the participating parties has unilateral
control over the economic activity.                                                                                                                                                                                                                                                                                                                                                    
|
| |      |  | The consolidated statement of losses includes the Groups share of
the results of joint ventures for the year, and the consolidated
balance sheet includes the Groups share of the net assets of a
joint venture.                                                                                                                                                                                                                                                                                                                                                                            

F-11



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##### Table of Contents



SUNDAY COMMUNICATIONS LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



|(b) |  | Revenue recognition                                  
|--- |  | -----------------------------------------------------
|   
|    |  | The Group recognizes revenues on the following bases:



| | (i)   |  | Mobile services                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |       |  | Revenue from mobile services comprises connection fees and fees for
usage of the Groups network and facilities by SUNDAY subscribers and
international calls by such subscribers from mobile phones.
Connection fee revenue is recognized when received upon completion of
activation services. Subscribers pay monthly fees for usage of the
Groups network and facilities which include an agreed minimum amount
of free airtime available for local and international calls. Fees
for airtime in excess of the agreed minimum and international calls
are charged based on usage. Revenue for usage of the Groups network
and facilities is recognized in the period in which usage of such
network and facilities is provided and collectibility can be
reasonably assured. Revenue in respect of international calls and
mobile airtime in excess of the minimum agreed amount is recognized
when the respective calls are made and collectibility can be
reasonably assured.
|
| |       |  | Subscriptions received in advance comprises prepaid subscription fees
received from subscribers and the up-front subscription fees received
from subscribers upon purchase of mobile phones. They are for
provision of mobile airtime and access to the Groups network for an
agreed period of time in accordance with the terms of the sales and
services agreements and are deferred and amortized on a straight-line
basis over the agreed period, except for prepaid subscription fees
from prepaid mobile services which are recognized as revenue based on
usage of the Groups network and facilities.                                                                                                                                                                                                                                                                                                                                                                       
|
| | (ii)  |  | Sales of mobile phones and accessories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |       |  | Revenue from sales of mobile phones and accessories is recognized
when the mobile phones and accessories are delivered to customers and
collectibility can be reasonably assured. Where a customer signs a
sales and services agreement in connection with the purchase of a
mobile phone and accessories from the Group and the provision of
mobile services, revenue in respect of the service element of the
agreement is recognized based on the fair value of the service
element, which is the price the Group charges to customers who
subscribe for mobile services only, without purchase of a mobile
phone and accessories. The remainder of the total revenues from the
agreement is allocated to revenue from the sale of the mobile phone
and accessories.                                                                                                                                                                                                              
|
| | (iii) |  | Interest income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |       |  | Interest income is recognized on a time proportion basis, taking into
account the principal amounts outstanding and the interest rates
applicable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   



|(c) |  | Subscriber acquisition costs                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The direct costs of acquisition of subscribers, which comprise the loss on
sales of mobile phones and accessories to the Group and commission
expenses, are expensed as incurred. Revenue and cost of sales in respect
of sales of mobile phones and accessories are included in revenue from
sales and cost of sales of mobile phones and accessories respectively.
Commission expenses are included in advertising, promotion and other
selling costs.
|   
|(d) |  | Advertising and promotion costs                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|    |  | Advertising and promotion costs are charged to the statement of losses as
incurred.                                                                                                                                                                                                                                                                                                                                                                     

F-12



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##### Table of Contents



SUNDAY COMMUNICATIONS LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



|(e) |  | Warranty costs                                                                                                                                                                                                                                                                                                                                                                    
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The Group is provided with warranty from manufacturer in respect of the
manufacturers defects of mobile phones and accessories. The Group
provides warranty to customers upon sales of mobile phones and accessories
with similar terms and conditions to the warranty offered by the
manufacturers. Provision is made for warranty costs not recoverable from
the manufacturers.
|   
|(f) |  | Borrowing costs                                                                                                                                                                                                                                                                                                                                                                   
|   
|    |  | Borrowing costs that are directly attributable to the acquisition,
construction or production of an asset that necessarily takes a
substantial period of time to get ready for its intended use or sale are
capitalized as part of the cost of that asset.                                                                                                                        
|   
|    |  | All other borrowing costs are charged to the statement of losses in the
year in which they are incurred.                                                                                                                                                                                                                                                                          
|   
|(g) |  | Employee benefits                                                                                                                                                                                                                                                                                                                                                                 



| | (i)   |  | Employee leave entitlements                                                                                                                                                                                                                                                                                                                                        
| | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |       |  | Employee entitlements to annual leave are recognized when they accrue
to employees. A provision is made for the estimated liability for
annual leave as a result of services rendered by employees up to the
balance sheet date.                                                                                                                                   
|
| | (ii)  |  | Bonus plans                                                                                                                                                                                                                                                                                                                                                        
|
| |       |  | The expected bonus payments are recognized as a liability when the
Group has a present legal or constructive obligation as a result of
services rendered by employees and a reliable estimate of the
obligation can be made.                                                                                                                                       
|
| |       |  | Liabilities for bonus plans are expected to be settled within 12
months and are measured at the amounts expected to be paid when they
are settled.                                                                                                                                                                                                                 
|
| | (iii) |  | Retirement benefit costs                                                                                                                                                                                                                                                                                                                                           
|
| |       |  | The Groups contributions to the defined contribution retirement
schemes are expensed as incurred and are reduced by contributions
forfeited by those employees who leave the schemes prior to vesting
fully in the contributions. The assets of the schemes are held
separately from those of the Group in independently administered funds
of respective schemes.



|(h) |  | Deferred taxation                                                                                                                                                                                                                                                                                                                                                                                                             
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Deferred taxation is provided in full, using the liability method, on
temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the accounts. The principal
temporary differences arise from depreciation on fixed assets and tax
losses carried forward. Taxation rates enacted or substantively enacted
by the balance sheet date are used to determine deferred taxation.
|   
|    |  | Deferred tax assets are recognized to the extent that it is probable that
future taxable profit will be available against which the temporary
differences can be utilized.                                                                                                                                                                                                                                                    
|   
|(i) |  | Operating leases                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    |  | Leases where substantially all the risks and rewards of ownership of
assets remain with the leasing company are accounted for as operating
leases. Rentals applicable to such operating leases are charged to
statement of losses on a straight-line basis over the lease term.                                                                                                                                               

F-13



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##### Table of Contents



SUNDAY COMMUNICATIONS LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



|(j) |  | Fixed assets
|--- |  | ------------



| | (i) |  | Fixed assets are stated at cost less accumulated depreciation
and accumulated impairment losses, if any. Depreciation of fixed
assets is calculated to write off their cost over their estimated
useful lives, using a straight-line basis. Estimated useful lives
are summarized as follows:
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                       |  |                                                    
|---------------------- |  | ---------------------------------------------------
|Network equipment      |  | Shorter of 10 years or lease period of 1 to 3 years
|Computer equipment     |  | Shorter of 5 years or lease period of 1 to 3 years 
|Leasehold improvements |  | Lease period of 2 to 10 years                      
|Furniture and fixtures |  | 5 years                                            
|Office equipment       |  | 5 years                                            
|Motor vehicles         |  | 5 years                                            



| |       |  | The cost of network equipment comprises the purchase cost of network
assets and equipment and direct expenses in respect of the
development of the network.                                                                                                                                            
| | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |       |  | Major costs incurred in restoring fixed assets to their normal
working condition are charged to the statement of losses.
Improvements are capitalized and depreciated over their expected
useful lives to the Group.                                                                                   
|
| | (ii)  |  | The gain or loss on disposal of a fixed asset is the difference
between the net sale proceeds and the carrying amount of the relevant
asset, and is recognized in the statement of losses.                                                                                                             
|
| | (iii) |  | Leases that substantially transfer to the Group all the risks
and rewards of ownership of assets are accounted for as finance
leases. At the inception of a finance lease, the fair value of the
asset is recorded together with the obligation, excluding the
interest element, to pay future rentals.
|
| |       |  | Payments to the lessor are treated as consisting of capital and
interest elements. Finance charges are charged to the statement of
losses in proportion to the capital balances outstanding.                                                                                                           
|
| |       |  | Assets held under finance leases are depreciated over the shorter of
their estimated useful lives or the lease periods.                                                                                                                                                                                



|(k) |  | Long-lived assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Long-lived assets are comprised of intangible assets and fixed assets.
Under HK GAAP, at each balance sheet date, both internal and external
sources of information are considered to assess whether there is any
indication that long-lived assets are impaired. If any such indication
exists, the recoverable amount of the long-lived assets are estimated and
where relevant, an impairment loss is recognized to reduce the long-lived
asset to its recoverable amount. Such impairment losses are recognized in
the statement of losses. In determining the recoverable amount, expected
future cash flows generated by the long-lived assets are discounted to
their present values.                                                                                                                                
|   
|    |  | Under US GAAP, long-lived assets, including certain identifiable
intangible assets related to those assets to be held and used, are
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. If the total
expected future undiscounted cash flows is less than the carrying amount
of the asset, an impairment loss is recognized for the difference between
the quoted market price in active markets, if available, and carrying
value of the asset. If quoted market prices are not available, the
estimated fair value is based on various valuation techniques, including a
discounted value of estimated future cash flows and fundamental analysis.
No such impairment losses were required in the years ended December 31,
2000, 2001 and 2002.

F-14



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##### Table of Contents



SUNDAY COMMUNICATIONS LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



|(l) |  | Trade receivables                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Provision is made against trade receivables to the extent which they are
considered to be doubtful. Trade receivables in the balance sheet are
stated net of such provision.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|(m) |  | Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    |  | Inventories are stated at the lower of cost and net realizable value. Cost
is calculated on the weighted average basis. Net realizable value is
determined on the basis of anticipated sales proceeds less estimated
selling expenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|(n) |  | Refundable deposits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    |  | Refundable deposits are received from customers who require mobile
international calls and roaming services. The refundable deposits are
retained by the Group and are included in other payables and accrued
charges for as long as the customers require these services.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|(o) |  | Cash and cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|    |  | Cash and cash equivalents are short-term highly liquid investments, which
are readily convertible into cash and have original maturities of three
months or less at the date of acquisition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|(p) |  | Translation of foreign currencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|    |  | Transactions in foreign currencies during the year are translated into
Hong Kong dollars at the rates of exchange ruling at the transaction
dates. Monetary assets and liabilities denominated in foreign currencies
are incorporated into the accounts by translating foreign currencies into
Hong Kong dollars at rates of exchange ruling at the balance sheet date.
All exchange differences arising are included in the statement of losses.                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|    |  | The balance sheet of subsidiaries and joint venture expressed in foreign
currencies are translated at the rates of exchange ruling at the balance
sheet date whilst the statement of losses is translated at an average
rate. Exchange differences are dealt with as a movement in reserves.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|(q) |  | Use of estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    |  | The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
reported during the year. Actual results could differ from these
estimates.                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|(r) |  | Risks and uncertainties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|    |  | The Group participates in a volatile industry with a concentration of
customers in one geographic area that are characterized by industry-wide
competition for market share resulting in aggressive pricing practices,
continually changing customer demand patterns, growing competition and
rapid technological development. The Groups operating results could be
adversely affected should the Group be unable to anticipate customer
demand accurately, to maintain short design cycles while meeting evolving
industry performance standards, to manage its product or services
transitions and inventory levels, to distribute its products and services
quickly in response to customer demand, to differentiate its products and
services from those of its competitors, or to compete successfully in the
market for its new products and services.

F-15



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##### Table of Contents



SUNDAY COMMUNICATIONS LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



|    |  | The Group provides mobile service and sells mobile phones to a diversified
group of customers within a concentrated geographical area. Credit
evaluations of customers are performed by the Group, and collateral is
generally not required. Credit related losses are provided for as
estimated by the Group.                                                                                                                                     
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(s) |  | Convenience translations                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    |  | The consolidated statements of losses 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 at the rate of
HK$7.7988 to U.S. dollars. Such translations should not be construed as
representations that the Hong Kong dollar amounts represent or have been
or could have been converted into U.S. dollars at that or any other rate.



|3 |  | Restatement
|- |  | -----------



| |  | In 2001, the discounted value of the Minimum Annual Fees of the
mobile carrier license to establish and maintain a third-generation (3G)
mobile telecommunications network and to provide 3G services in Hong Kong
(3G License) was recorded both as an intangible asset and as a long-term
liability.                                                                                                          
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | During 2002, the directors have re-evaluated the Groups existing
accounting policy for the 3G License and believe that it is not an
appropriate treatment, as it does not reflect fully the underlying legal
and financial obligations and therefore the commercial position of the
Group given the provisions of the 3G License.                                                                                  
|
| |  | Accordingly, the license fees payable prior to the launch of commercial
services are regarded as integral to the development and construction of
the 3G network and are deferred and included within fixed assets.
Depreciation of the fixed assets will be provided from the commencement of
3G services over the shorter of the remaining life of the 3G License or
the estimated useful life of the fixed assets.
|
| |  | Therefore, the consolidated balance sheet as of December 31, 2001 has been
restated to reflect the following adjustments:                                                                                                                                                                                                                                                                                           



| | (i)   |  | Decrease in the intangible asset by HK$583,930,000;                                                                             
| | ----- |  | --------------------------------------------------------------------------------------------------------------------------------
|
| | (ii)  |  | Decrease in the 3G License fees liability by HK$333,109,000
under long-term liabilities;                                        
|
| | (iii) |  | Increase in the fixed assets by HK$9,154,000; and                                                                               
|
| | (iv)  |  | Increase in the prepayment of 3G License fees by HK$191,667,000
under non-current assets and HK$50,000,000 under current assets.



| |  | The directors believe that the adjustments result in a more appropriate
presentation of the fees paid under the terms of the 3G License.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------



|4 |  | Cost of services
|- |  | ----------------



| |  | Cost of services represents interconnection charges, cost of
out-bound roaming services, provision for doubtful debts, billing
materials charges, bill collection charges, cost of prepaid cards and
revenue sharing expenses.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | F-16                                                                                                                                                                                                                          



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##### Table of Contents



SUNDAY COMMUNICATIONS LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



|5 |  | Net loss
|- |  | --------

|                                                                            |  |                         |         |      |  |      |         |  |  |  |         | 
|--------------------------------------------------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- |  |  |  | ------- | 
|                                                                            |  | Year ended December 31,
|                                                                            |  |                        
|                                                                            |  | 2000                    |         | 2001 |  | 2002
|                                                                            |  | HK$                     |         | HK$  |  | HK$ 
|                                                                            |  |                         |         |      |  |     
|                                                                            |  | (Amounts in thousands) 
|Net loss is stated after charging:                                          |  |                         |         |      |  |      |         |  |  |  |         | 
|Advertising and promotion costs                                             |  |                         | 138,947 |      |  |      | 43,727  |  |  |  | 41,551  | 
|Depreciation of owned fixed assets                                          |  |                         | 253,480 |      |  |      | 258,641 |  |  |  | 253,668 | 
|Depreciation of fixed assets under finance leases                           |  |                         | 7,811   |      |  |      | 6,461   |  |  |  | 2,725   | 
|Operating lease charges on land and buildings,
including transmission sites |  |                         | 190,983 |      |  |      | 209,370 |  |  |  | 220,207 | 
|Operating lease charges on leased lines                                     |  |                         | 102,265 |      |  |      | 94,777  |  |  |  | 87,130  | 
|                                                                            |  |                         |         |      |  |      |         |  |  |  |         | 
|Salaries and related costs comprise:                                        |  |                         |         |      |  |      |         |  |  |  |         | 
|Salaries, bonuses and allowances                                            |  |                         | 250,661 |      |  |      | 223,330 |  |  |  | 212,338 | 
|Retirement scheme contributions                                             |  |                         | 4,540   |      |  |      | 9,872   |  |  |  | 6,653   | 
|Termination benefits                                                        |  |                         |        |      |  |      |        |  |  |  | 24,899  | 
|                                                                            |  |                         |         |      |  |      |         |  |  |  |         | 
|                                                                            |  |                         | 255,201 |      |  |      | 233,202 |  |  |  | 243,890 | 
|                                                                            |  |                         |         |      |  |      |         |  |  |  |         | 
|Finance costs comprise:                                                     |  |                         |         |      |  |      |         |  |  |  |         | 
|Interest on bank loans and overdrafts                                       |  |                         | 65,102  |      |  |      | 52,160  |  |  |  | 37,923  | 
|Interest on vendor loans                                                    |  |                         | 35,508  |      |  |      | 16,540  |  |  |  | 20,816  | 
|Interest on convertible notes                                               |  |                         | 34,428  |      |  |      |        |  |  |  |        | 
|Interest element of finance lease payments                                  |  |                         | 814     |      |  |      | 413     |  |  |  | 129     | 
|Other incidental borrowing costs                                            |  |                         | 1,086   |      |  |      | 1,017   |  |  |  | 965     | 
|                                                                            |  |                         |         |      |  |      |         |  |  |  |         | 
|                                                                            |  |                         | 136,938 |      |  |      | 70,130  |  |  |  | 59,833  | 
|                                                                            |  |                         |         |      |  |      |         |  |  |  |         | 



|6 |  | Taxation
|- |  | --------



| |  | The Group is subject to tax on an entity basis on income arising in or
derived from Hong Kong. The rate of taxation of the companies within the
Group operating in Hong Kong for the years ended December 31, 2000, 2001
and 2002 is 16%. No provision for Hong Kong and overseas profits tax has
been made during the years presented as the Group has no assessable profit
for each of the three years.                                                                                                                                        
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Group has not recorded a deferred tax in its consolidated statements
of losses for the years ended December 31, 2000, 2001 and 2002 in respect
of tax losses due to the uncertainty that the resultant deferred tax asset
will be recovered in the foreseeable future. The differences between the
effective tax rate of 0% and the Hong Kong tax rate of 16% were primarily
due to valuation allowances for deferred tax assets in respect of tax loss
carryforwards, the effect of non-deductible expenses and other temporary
differences.

F-17



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##### Table of Contents



SUNDAY COMMUNICATIONS LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



| |  | The income tax credit attributable to the loss for each of the years ended
December 31, 2000, 2001 and 2002 differed from the amounts computed by
applying the Hong Kong statutory rate to the pre-tax loss as a result of
the following differences:
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                      |  |                         |         |      |  |      |         |   |  |  |         |  
|----------------------------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- | - |  |  | ------- | -
|                                                      |  | Year ended December 31,
|                                                      |  |                        
|                                                      |  | 2000                    |         | 2001 |  | 2002
|                                                      |  | HK$                     |         | HK$  |  | HK$ 
|                                                      |  |                         |         |      |  |     
|                                                      |  | (Amounts in thousands) 
|Hong Kong statutory tax rate                          |  |                         | 16      | %    |  |      | 16      | % |  |  | 16      | %
|                                                      |  |                         |         |      |  |      |         |   |  |  |         |  
|Income tax credit at the Hong Kong statutory tax rate |  |                         | (72,102 | )    |  |      | (33,880 | ) |  |  | (18,762 | )
|Effect of temporary differences                       |  |                         | (30,366 | )    |  |      | (2,250  | ) |  |  | 2,333   |  
|Effect of non-deductible expenses                     |  |                         | 5,535   |      |  |      | 1,534   |   |  |  | 8,000   |  
|Effect of non-taxable income                          |  |                         |        |      |  |      | (2,631  | ) |  |  | (431    | )
|Valuation allowance on tax loss                       |  |                         | 96,933  |      |  |      | 37,227  |   |  |  | 8,860   |  
|                                                      |  |                         |         |      |  |      |         |   |  |  |         |  
|Provision for income taxes                            |  |                         |        |      |  |      |        |   |  |  |        |  
|                                                      |  |                         |         |      |  |      |         |   |  |  |         |  



| |  | The potential deferred tax assets/(liabilities) not provided for as of
December 31, 2001 and 2002 amounted to:
| |  | --------------------------------------------------------------------------------------------------------------

|                                    |  |                        |          |      |  |  |          |  
|----------------------------------- |  | ---------------------- | -------- | ---- |  |  | -------- | -
|                                    |  | December 31,          
|                                    |  |                       
|                                    |  | 2001                   |          | 2002
|                                    |  | HK$                    |          | HK$ 
|                                    |  |                        |          |     
|                                    |  | (Amounts in thousands)
|Accelerated depreciation allowances |  |                        | (113,160 | )    |  |  | (102,991 | )
|Tax losses                          |  |                        | 478,119  |      |  |  | 476,859  |  
|Other temporary differences         |  |                        | 49       |      |  |  |         |  
|                                    |  |                        |          |      |  |  |          |  
|                                    |  |                        | 365,008  |      |  |  | 373,868  |  
|                                    |  |                        |          |      |  |  |          |  



| |  | Deferred income tax assets are recognized for tax loss carryforwards to
the extent that realization of the related tax benefit through the future
taxable profits is probable. The Group has net unrecognized tax losses of
HK$2,327,444,000 (2001: HK$2,281,300,000) to carry forward against future
taxable income. This tax loss has no expiry date.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|7 |  | Loss per share
|- |  | --------------



| |  | Basic loss per share for the year ended December 31, 2000 has been
calculated as if the 2,300,000,000 ordinary shares were in issue on
January 1, 2000 and on the basis that the 690,000,000 ordinary shares were
issued on March 15, 2000 pursuant to the Global Offering in determining
the weighted-average number of shares in issue for the year.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Basic loss per share for the year ended December 31, 2001 and 2002 has
been calculated based on the weighted average number of 2,990,000,000
shares in issue during the year.                                                                                                                                                                         
|
| |  | There is no dilutive effect upon exercise of the share options on the loss
per share for the years ended December 31, 2000, 2001 and 2002.                                                                                                                                                                                                            

F-18



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##### Table of Contents



SUNDAY COMMUNICATIONS LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



|8 |  | Restricted cash deposits
|- |  | ------------------------



| |  | As of December 31, 2002, a bank deposit of HK$1,682,000 (2001:
HK$2,385,000) has been pledged to a bank in return for a bank guarantee
issued in respect of the use of facilities at the Hong Kong International
Airport for the provision of mobile services. The guarantee will expire in
March 2007.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | As of December 31, 2002, another bank deposit of HK$156,939,000 (2001:
HK$132,706,000) was restricted to settle the bank loans, vendor loans and
the relevant interest repayable within six months.                                                                                                    



|9 |  | Trade receivables, net
|- |  | ----------------------



|                                   |  |                        |        |      |  |  |        |  
|---------------------------------- |  | ---------------------- | ------ | ---- |  |  | ------ | -
|                                   |  | December 31,          
|                                   |  |                       
|                                   |  | 2001                   |        | 2002
|                                   |  | HK$                    |        | HK$ 
|                                   |  |                        |        |     
|                                   |  | (Amounts in thousands)
|Trade receivables                  |  |                        | 93,728 |      |  |  | 95,251 |  
|Less: Provision for doubtful debts |  |                        | (5,266 | )    |  |  | (7,842 | )
|                                   |  |                        |        |      |  |  |        |  
|                                   |  |                        | 88,462 |      |  |  | 87,409 |  
|                                   |  |                        |        |      |  |  |        |  



| |  | Changes in the provision for doubtful debts consist of:
| |  | -------------------------------------------------------

|                                     |  |                         |         |      |  |      |         |   |  |  |         |  
|------------------------------------ |  | ----------------------- | ------- | ---- |  | ---- | ------- | - |  |  | ------- | -
|                                     |  | Year ended December 31,
|                                     |  |                        
|                                     |  | 2000                    |         | 2001 |  | 2002
|                                     |  | HK$                     |         | HK$  |  | HK$ 
|                                     |  |                         |         |      |  |     
|                                     |  | (Amounts in thousands) 
|Balance at the beginning of the year |  |                         | 19,323  |      |  |      | 4,747   |   |  |  | 5,266   |  
|Additions charged to expense         |  |                         | 29,542  |      |  |      | 19,791  |   |  |  | 30,883  |  
|Write-off                            |  |                         | (43,077 | )    |  |      | (19,060 | ) |  |  | (28,307 | )
|Write back of provision              |  |                         | (1,041  | )    |  |      | (212    | ) |  |  |        |  
|                                     |  |                         |         |      |  |      |         |   |  |  |         |  
|Balance at the end of the year       |  |                         | 4,747   |      |  |      | 5,266   |   |  |  | 7,842   |  
|                                     |  |                         |         |      |  |      |         |   |  |  |         |  

F-19



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##### Table of Contents



SUNDAY COMMUNICATIONS LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



|10 |  | Inventories
|-- |  | -----------

|                                   |  |                        |        |      |  |  |        |  
|---------------------------------- |  | ---------------------- | ------ | ---- |  |  | ------ | -
|                                   |  | December 31,          
|                                   |  |                       
|                                   |  | 2001                   |        | 2002
|                                   |  | HK$                    |        | HK$ 
|                                   |  |                        |        |     
|                                   |  | (Amounts in thousands)
|Mobile phones and accessories
Cost |  |                        | 26,233 |      |  |  | 13,155 |  
|Less: Provision                    |  |                        | (5,785 | )    |  |  | (3,160 | )
|                                   |  |                        |        |      |  |  |        |  
|                                   |  |                        | 20,448 |      |  |  | 9,995  |  
|                                   |  |                        |        |      |  |  |        |  



| |  | As of December 31, 2002, the carrying amount of inventories that were
stated at net realizable value amounted to HK$3,129,000 (2001:
HK$19,830,000).
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | All inventories were pledged as security for the bank loan and vendor loan
facilities of the Group.                                                 



|11 |  | Deposits, prepayments and other
receivables
|-- |  | -------------------------------------------

|                                         |  |                        |        |      |  |  |        | 
|---------------------------------------- |  | ---------------------- | ------ | ---- |  |  | ------ | 
|                                         |  | December 31,          
|                                         |  |                       
|                                         |  | 2001                   |        | 2002
|                                         |  | HK$                    |        | HK$ 
|                                         |  |                        |        |     
|                                         |  | (Amounts in thousands)
|Rental deposits for transmission sites   |  |                        | 31,536 |      |  |  | 33,790 | 
|Deposits for acquisition of fixed assets |  |                        | 5,617  |      |  |  | 5,848  | 
|Other deposits                           |  |                        | 20,863 |      |  |  | 20,303 | 
|Prepayments                              |  |                        | 29,953 |      |  |  | 27,687 | 
|Others                                   |  |                        | 7,639  |      |  |  | 8,727  | 
|                                         |  |                        |        |      |  |  |        | 
|                                         |  |                        | 95,608 |      |  |  | 96,355 | 
|                                         |  |                        |        |      |  |  |        | 

F-20



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##### Table of Contents



SUNDAY COMMUNICATIONS LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

12         Fixed assets, net of accumulated depreciation

FurnitureNetwork
    
    and
    
    Office
    Computer
    Motor
    

    Leaseholdequipment
    
    fixtures
    
    equipment
    
    equipment
    
    vehicles
    
    improvements
    
    TotalHK$
    
    HK$
    
    HK$
    
    HK$
    
    HK$
    
    HK$
    
    HK$(Amounts in thousands)CostAs of January 1, 2001
    
    
    1,620,051
    
    
    
    7,433
    
    
    
    12,732
    
    
    
    202,905
    
    
    
    3,354
    
    
    
    299,815
    
    
    
    2,146,290Additions
    
    
    80,338
    
    
    
    74
    
    
    
    460
    
    
    
    17,931
    
    
    
    
    
    
    
    11,420
    
    
    
    110,223Disposals
    
    
    (221
    )
    
    
    (96
    )
    
    
    (774
    )
    
    
    (1,082
    )
    
    
    (483
    )
    
    
    (7,526
    )
    
    
    (10,182
    )As of December 31, 2001
aspreviously reported
    
    
    1,700,168
    
    
    
    7,411
    
    
    
    12,418
    
    
    
    219,754
    
    
    
    2,871
    
    
    
    303,709
    
    
    
    2,246,331Restatement (note 3)
    
    
    9,154
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,154As of December 31, 2001,
as restated
    
    
    1,709,322
    
    
    
    7,411
    
    
    
    12,418
    
    
    
    219,754
    
    
    
    2,871
    
    
    
    303,709
    
    
    
    2,255,485As of January 1, 2002
    
    
    1,709,322
    
    
    
    7,411
    
    
    
    12,418
    
    
    
    219,754
    
    
    
    2,871
    
    
    
    303,709
    
    
    
    2,255,485Additions
    
    
    125,827
    
    
    
    883
    
    
    
    6,389
    
    
    
    4,378
    
    
    
    585
    
    
    
    30,014
    
    
    
    168,076Disposals
    
    
    (13
    )
    
    
    (845
    )
    
    
    (859
    )
    
    
    (2,392
    )
    
    
    (376
    )
    
    
    (9,459
    )
    
    
    (13,944
    )As of December 31, 2002
    
    
    1,835,136
    
    
    
    7,449
    
    
    
    17,948
    
    
    
    221,740
    
    
    
    3,080
    
    
    
    324,264
    
    
    
    2,409,617Accumulated depreciationAs of January 1, 2001
    
    
    374,896
    
    
    
    3,141
    
    
    
    6,055
    
    
    
    109,190
    
    
    
    1,882
    
    
    
    201,138
    
    
    
    696,302Charge for the year
    
    
    172,345
    
    
    
    1,493
    
    
    
    2,541
    
    
    
    44,461
    
    
    
    644
    
    
    
    43,618
    
    
    
    265,102Disposals
    
    
    (150
    )
    
    
    (76
    )
    
    
    (564
    )
    
    
    (839
    )
    
    
    (317
    )
    
    
    (6,606
    )
    
    
    (8,552
    )As of December 31, 2001
    
    
    547,091
    
    
    
    4,558
    
    
    
    8,032
    
    
    
    152,812
    
    
    
    2,209
    
    
    
    238,150
    
    
    
    952,852As of January 1, 2002
    
    
    547,091
    
    
    
    4,558
    
    
    
    8,032
    
    
    
    152,812
    
    
    
    2,209
    
    
    
    238,150
    
    
    
    952,852Charge for the year
    
    
    180,433
    
    
    
    1,256
    
    
    
    2,830
    
    
    
    36,702
    
    
    
    354
    
    
    
    34,818
    
    
    
    256,393Disposals
    
    
    (11
    )
    
    
    (660
    )
    
    
    (733
    )
    
    
    (2,363
    )
    
    
    (351
    )
    
    
    (9,407
    )
    
    
    (13,525
    )As of December 31, 2002
    
    
    727,513
    
    
    
    5,154
    
    
    
    10,129
    
    
    
    187,151
    
    
    
    2,212
    
    
    
    263,561
    
    
    
    1,195,720Net book valueAs of December 31, 2002
    
    
    1,107,623
    
    
    
    2,295
    
    
    
    7,819
    
    
    
    34,589
    
    
    
    868
    
    
    
    60,703
    
    
    
    1,213,897As of December 31, 2001
    
    
    1,162,231
    
    
    
    2,853
    
    
    
    4,386
    
    
    
    66,942
    
    
    
    662
    
    
    
    65,559
    
    
    
    1,302,633


F-21



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##### Table of Contents



SUNDAY COMMUNICATIONS LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



| |  | Certain network equipment and computer equipment are held under finance
leases. The total cost of these assets and the related accumulated
depreciation as of December 31, 2001 and 2002 are as follows:
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                         |  |                        |         |      |  |  |         |  
|------------------------ |  | ---------------------- | ------- | ---- |  |  | ------- | -
|                         |  | December 31,          
|                         |  |                       
|                         |  | 2001                   |         | 2002
|                         |  | HK$                    |         | HK$ 
|                         |  | (Amounts in thousands)
|Cost                     |  |                        | 18,553  |      |  |  | 18,553  |  
|Accumulated depreciation |  |                        | (15,590 | )    |  |  | (18,315 | )
|                         |  |                        |         |      |  |  |         |  
|                         |  |                        | 2,963   |      |  |  | 238     |  
|                         |  |                        |         |      |  |  |         |  



|   |  | All fixed assets were pledged as security for the bank loan and vendor
loan facilities of the Group.
|-- |  | ----------------------------------------------------------------------------------------------------
|  
|13 |  | Investment in a joint venture                                                                       

|                                  |  |                        |       |      |  |  |        |  
|--------------------------------- |  | ---------------------- | ----- | ---- |  |  | ------ | -
|                                  |  | December 31,          
|                                  |  |                       
|                                  |  | 2001                   |       | 2002
|                                  |  | HK$                    |       | HK$ 
|                                  |  | (Amounts in thousands)
|Share of net assets/(liabilities) |  |                        | 1     |      |  |  | (1,905 | )
|Advance                           |  |                        | 4,939 |      |  |  | 5,227  |  
|                                  |  |                        |       |      |  |  |        |  
|                                  |  |                        | 4,940 |      |  |  | 3,322  |  
|                                  |  |                        |       |      |  |  |        |  



| |  | Details of the joint venture as of December 31, 2002 are as follows:
| |  | --------------------------------------------------------------------

|              |  |           |  |               |  |              |  |                                  
|------------- |  | --------- |  | ------------- |  | ------------ |  | ---------------------------------
|              |  |           |  | Place of      |  |              |  | Principal activities and place of
|Name          |  | Nature    |  | incorporation |  | Voting power |  | operation                        
|              |  |           |  |               |  |              |  |                                  
|Atria Limited |  | Corporate |  | Hong Kong     |  | 50%          |  | Development of                   
|              |  |           |  |               |  |              |  | applications for wireless        
|              |  |           |  |               |  |              |  | communications in Hong Kong      



| |  | The advance to Atria Limited is unsecured, interest free and has no fixed
repayment terms.                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In January 2002, the Group formed a joint venture, Shell & SUNDAY Mobile
Communications Limited (Shell Mobile), with Shell Hong Kong Limited to
operate as a mobile virtual network operator on a pilot basis. After the
completion of the pilot period, Shell Mobile ceased its operation
effective from September 26, 2002 and commenced members voluntary
liquidation on December 12, 2002. The Groups investment in Shell Mobile
of HK$16,703,000 had been fully written off as of December 31, 2002.
|

F-22



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##### Table of Contents



SUNDAY COMMUNICATIONS LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

|14 |  | Prepayment of 3G License fees
|-- |  | -----------------------------

|                                                    |  |                        |         |      |  |  |         |  
|--------------------------------------------------- |  | ---------------------- | ------- | ---- |  |  | ------- | -
|                                                    |  | 2001                   |         | 2002
|                                                    |  | HK$                    |         | HK$ 
|                                                    |  | (Amounts in thousands)
|At January 1                                        |  |                        |        |      |  |  | 241,667 |  
|Addition                                            |  |                        | 250,000 |      |  |  |        |  
|Amount capitalized as fixed assets                  |  |                        | (8,333  | )    |  |  | (50,000 | )
|                                                    |  |                        |         |      |  |  |         |  
|At December 31                                      |  |                        | 241,667 |      |  |  | 191,667 |  
|Less: Current portion included under current assets |  |                        | (50,000 | )    |  |  | (50,000 | )
|                                                    |  |                        |         |      |  |  |         |  
|                                                    |  |                        | 191,667 |      |  |  | 141,667 |  
|                                                    |  |                        |         |      |  |  |         |  



| |  | In 2001, the Group paid an amount of HK$250,000,000, equivalent to the
aggregate of the first five years annual fees for the 3G License, to the
Office of Telecommunications Authority (OFTA). For the remaining 10
years of the 3G License, the fees payable shall be the higher of 5% of the
turnover attributable to the provision of the 3G services and the Minimum
Annual Fees (as defined in the 3G License) for each year of the 3G
License. The total Minimum Annual Fees over the remaining term of the 3G
License is HK$1,056,838,000, the net present value of which, at an assumed
cost of capital of the Group at 11.2%, is HK$333,109,000.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In accordance with the 3G License, the Group was required to provide a
performance bond, equivalent to the 6th years Minimum Annual Fee due, on
October 22, 2002. On October 11, 2002, OFTA granted a one-year waiver to
the Group on the submission of such performance bond.                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | On October 22, 2003, the Group will be required to provide performance
bonds in amounts equivalent to the 6th and 7th years Minimum Annual Fees
due. From October 22, 2004 onwards, the Group will be required to provide
additional performance bonds in amounts such that the total of such
performance bonds and the Minimum Annual Fees prepaid is equivalent to the
next five years Minimum Annual Fees due (or the remaining Minimum Annual
Fees due where less than five years remains).                                                                                                                                                           



|15 |  | Other payables and accrued charges
|-- |  | ----------------------------------

|                                      |  |                        |         |      |  |  |         | 
|------------------------------------- |  | ---------------------- | ------- | ---- |  |  | ------- | 
|                                      |  | December 31,          
|                                      |  |                       
|                                      |  | 2001                   |         | 2002
|                                      |  | HK$                    |         | HK$ 
|                                      |  | (Amounts in thousands)
|Provision for commission              |  |                        | 31,447  |      |  |  | 11,385  | 
|Deposits received                     |  |                        | 46,562  |      |  |  | 35,702  | 
|Accrual for network costs             |  |                        | 42,548  |      |  |  | 57,084  | 
|Accrual for purchases of fixed assets |  |                        | 24,296  |      |  |  | 7,965   | 
|Interest payable                      |  |                        | 4,807   |      |  |  | 5,239   | 
|Others                                |  |                        | 43,651  |      |  |  | 53,938  | 
|                                      |  |                        |         |      |  |  |         | 
|                                      |  |                        | 193,311 |      |  |  | 171,313 | 
|                                      |  |                        |         |      |  |  |         | 

F-23



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##### Table of Contents



SUNDAY COMMUNICATIONS LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED
FINANCIAL  STATEMENTS  (Continued)



|16 |  | Obligations under finance leases
|-- |  | --------------------------------

|                                                                   |  |                        |       |      |  |  |     |  
|------------------------------------------------------------------ |  | ---------------------- | ----- | ---- |  |  | --- | -
|                                                                   |  | December 31,          
|                                                                   |  |                       
|                                                                   |  | 2001                   |       | 2002
|                                                                   |  | HK$                    |       | HK$ 
|                                                                   |  | (Amounts in thousands)
|Future minimum payments for finance leases payable                 |  |                        |       |      |  |  |     |  
|- within one year                                                  |  |                        | 2,123 |      |  |  | 155 |  
|- in the second year                                               |  |                        | 209   |      |  |  |    |  
|                                                                   |  |                        |       |      |  |  |     |  
|                                                                   |  |                        | 2,332 |      |  |  | 155 |  
|Less: amounts representing interest                                |  |                        | (174  | )    |  |  | (17 | )
|                                                                   |  |                        |       |      |  |  |     |  
|                                                                   |  |                        | 2,158 |      |  |  | 138 |  
|                                                                   |  |                        |       |      |  |  |     |  
|Obligations under finance leases repayable in the
following years: |  |                        |       |      |  |  |     |  
|- within one year                                                  |  |                        | 1,970 |      |  |  | 138 |  
|- in the second year                                               |  |                        | 188   |      |  |  |    |  
|                                                                   |  |                        |       |      |  |  |     |  
|                                                                   |  |                        | 2,158 |      |  |  | 138 |  
|                                                                   |  |                        |       |      |  |  |     |  



|17 |  | Banking and other borrowing facilities                                                                      
|-- |  | ------------------------------------------------------------------------------------------------------------
|  
|   |  | The Groups banking and other borrowing facilities as of December 31, 2001
and 2002 are analyzed as follows:

Amount available
    
    Amount utilized
    
    Terms as of December 31, 2002December 31,
    
    December 31,
    
    Interest rate
    
    Repayment terms2001
    
    2002
    
    2001
    
    2002Note
    
    HK$
    
    HK$
    
    HK$
    
    HK$(Amounts in thousands)Banking facilitiesLong-term bank
loans
    
    
    (a
    )
    
    
    576,000
    
    
    
    420,000
    
    
    
    576,000
    
    
    
    420,000
    
    
    HIBOR + 5.5%
    
    15 quarterly
installments from March 11, 2001Other borrowing
facilitiesVendor loans
    
    
    (b
    )
    
    
    1,087,821
    
    
    
    846,167
    
    
    
    175,455
    
    
    
    365,316
    
    
    LIBOR + 5.5%
    
    15 quarterly
installments from March 11, 20011,663,821
    
    
    
    1,266,167
    
    
    
    751,455
    
    
    
    785,316 The HIBOR and LIBOR rates were 1.4978% and 1.38%, respectively as of December
31, 2002. Apart from the vendor loans which are U.S. dollar denominated debts, all other
facilities are denominated in Hong Kong dollars. F-24




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##### Table of Contents



SUNDAY COMMUNICATIONS LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |  | As of December 31, 2002, the bank loans and the vendor loans were secured,
amongst other things, by a charge over all the assets, revenue and shares
of certain wholly-owned subsidiaries of the Company, including Mandarin,
the main operating subsidiary.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Maturities of long-term loans as of December 31, 2002 are as follows:                                                                                                                                                                                       

|                  |  |                        |         |              |  |  |         | 
|----------------- |  | ---------------------- | ------- | ------------ |  |  | ------- | 
|                  |  | Bank loans             |         | Vendor loans
|                  |  | HK$                    |         | HK$         
|                  |  | (Amounts in thousands)
|December 31, 2003 |  |                        | 180,000 |              |  |  | 58,491  | 
|December 31, 2004 |  |                        | 240,000 |              |  |  | 306,825 | 
|                  |  |                        |         |              |  |  |         | 
|                  |  |                        | 420,000 |              |  |  | 365,316 | 
|                  |  |                        |         |              |  |  |         | 



|(a) |  | The weighted-average interest rates of the long-term bank loans of the
Group are 7.06% and 7.00% as of December 31, 2001 and 2002 respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | Nortel Networks (Asia) Limited (''Nortel), a major vendor of the Group,
provided a long-term loan facility (the vendor loan facility) of
US$155,000,000 (approximately HK$1,209,000,000) to the Group for financing
certain of its capital and other expenditures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    |  | During the year ended December 31, 2000, the vendor loan facility was
fully utilized. The Group then temporarily repaid Nortel an aggregate of
US$130,000,000 (approximately HK$1,013,000,000) and at the same time
Nortel granted a short-term revolving facility of the same amount (the
revolving loan facility) to the Group with an expiry date on March 12,
2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    |  | On March 8, 2001, the Group extended the expiry date of the revolving
facility of US$130,000,000 (approximately HK$1,013,000,000) granted by
Nortel to March 11, 2002. During the extended period to March 11, 2002,
there were four scheduled repayments of the vendor loans on March 11, June
11, September 11 and December 11, 2001 (the Repayment Dates)
respectively. On these Repayment Dates, the scheduled loan repayments to
Nortel were reduced by a cancellation of the revolving facility of an
amount equal to 2.5% of the available revolving facility. On the expiry
date, the outstanding principal of the revolving facility will become part
of the vendor loan facility. As of December 31, 2002, the unutilized
amount of the revolving facility was US$61,657,000,000 (approximately
HK$480,851,000). The revolving facility has been further extended to
September 11, 2004.
|   
|    |  | The weighted-average interest rates of the vendor loans of the Group are
7.02% and 6.88% as of December 31, 2001 and December 31, 2002
respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|(c) |  | Bank and vendor loans covenants                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|    |  | Pursuant to the Amended and Restated Sponsor Support Agreement dated
February 18, 2000 entered into between the bank, Nortel and Distacom
Communications Limited, USI Holdings Limited, Lai Sun Development Company
Limited, The Hong Kong Parkview Group Limited and China Travel Service
(Holdings) Hong Kong Limited (Sponsors), these Sponsors have certain
non-financial obligations under the Sponsor Support Agreement. Any breach
of the obligations under the Sponsor Support Agreement provides the bank
and Nortel with rights of actions against these sponsors only and has no
impact on the bank loan and vendor loan facilities.                                                                                                                                                                                                                                                   
|   
|    |  | On February 18, 2000, the Group renegotiated the terms, in particular the
covenants, of the bank loans and the vendor loans with the bank and Nortel
respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

F-25



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##### Table of Contents



SUNDAY COMMUNICATIONS LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The revised bank loan and the vendor loan facilities effective from
February 18, 2000 contain a number of covenants that restrict Mandarins
ability to take certain actions without the prior approval of the bank and
Nortel. These covenants include the following:



| |  | Mandarin must operate its business in accordance with business
plans approved by the bank and Nortel except for variations that
would not have a material adverse effect on Mandarins financial
condition, its operations or its ability to repay the debt;                                                                                                                                                                                                                                                                                                      
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Mandarin cannot incur capital expenditure in any budget period
greater than 15% above the levels specified in its business plan then
in effect;                                                                                                                                                                                                                                                                                                                                                                                                                   
| 
| |  | Mandarin is required to continuously meet certain subscriber,
earnings, tangible net worth and debt service ratio targets;                                                                                                                                                                                                                                                                                                                                                                                                                                        
| 
| |  | Mandarin must continue to be managed by such person or persons
who, in the reasonable opinion of the bank and Nortel, have
sufficient expertise and experience in the Hong Kong or international
telecommunications industry so as to be able to provide adequate
managerial personnel to implement and execute Mandarins business
plan then in effect in accordance with good industry practice;                                                                                                                                                                
| 
| |  | Mandarin is prohibited from declaring or paying dividends until
the combined outstanding balance of the facilities is less than
HK$600,000,000. When Mandarin pays a dividend, it is required to make
a prepayment to the facilities which equals the total amount of a
dividend, and that dividend and the matching prepayment can only be
funded from the excess cash flow of Mandarin;                                                                                                                                                                         
| 
| |  | Mandarin is required to deposit all of its revenues into an
account from which it may only withdraw amounts for its operating
expenses, working capital and capital expenditures, as provided in
the business plan then in effect. The rest of its revenue goes toward
paying principal and interest on the facilities and into a minimum
six months debt service reserve account for future payments. If there
is any excess cash flow after these commitments, Mandarin may use 50%
of that excess cash, but it must use the other 50% to prepay the
facilities;
| 
| |  | Mandarin generally cannot, without consent from the bank and
Nortel, incur new debt except for certain permitted indebtedness
incurred in the ordinary course of business;                                                                                                                                                                                                                                                                                                                                                                                        
| 
| |  | Mandarin cannot use its assets to secure any additional debt, subject to certain exceptions; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| 
| |  | Mandarin will be in default:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      



| | (i)   |  | if it defaults on any other loan in excess of
US$2,000,000 (approximately HK$15,597,600);                                                                             
| | ----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (ii)  |  | if the Company, SUNDAY Holdings Corporation or SUNDAY
Investment Limited default on any other loan in excess of
US$10,000,000 (approximately HK$77,988,000); or       
|
| | (iii) |  | if, in the opinion of the bank and Nortel, an event
occurs which has a material adverse effect on Mandarins
financial condition, operations or ability to repay debt.

Failure to comply with these covenants and restrictions, subject to a
14-day grace period in the case of a remediable event, would entitle the
bank and Nortel to accelerate the maturity of the outstanding debt under
the facilities and exercise their security rights over substantially all
of Mandarins assets.

F-26



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##### Table of Contents



SUNDAY COMMUNICATIONS LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|    |  | On July 30, 2002, the Group entered into various documents to effect
certain amendments to the bank loan and vendor loan facilities in order to
accommodate changes to the structure of the Group for business development
and/or cost saving measures, including the provision of a corporate
guarantee by the Company to secure all the obligations and liabilities of
its wholly-owned subsidiaries, as well as to vary the required targets for
subscriber, earnings, tangible net worth and debt service ratio. The
maturity of the loans, amounts lent and interest provisions have not been
altered.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|18  |  | Commitments and contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(a) |  | Capital commitments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

|                                         |  |                        |         |      |  |  |        | 
|---------------------------------------- |  | ---------------------- | ------- | ---- |  |  | ------ | 
|                                         |  | December 31,          
|                                         |  |                       
|                                         |  | 2001                   |         | 2002
|                                         |  | HK$                    |         | HK$ 
|                                         |  | (Amounts in thousands)
|In respect of purchases of fixed assets: |  |                        |         |      |  |  |        | 
|- contracted but not provided for        |  |                        | 118,044 |      |  |  | 53,898 | 
|- authorized but not contracted for      |  |                        | 70,510  |      |  |  | 2,223  | 
|                                         |  |                        |         |      |  |  |        | 
|                                         |  |                        | 188,554 |      |  |  | 56,121 | 
|                                         |  |                        |         |      |  |  |        | 



|(b) |  | Commitments under operating leases                                                                                                       
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | As of December 31, 2001 and 2002, the Group had future aggregate minimum
lease payments under non-cancelable operating leases as follows:

|                                                                |  |                        |         |      |  |  |         | 
|--------------------------------------------------------------- |  | ---------------------- | ------- | ---- |  |  | ------- | 
|                                                                |  | December 31,          
|                                                                |  |                       
|                                                                |  | 2001                   |         | 2002
|                                                                |  | HK$                    |         | HK$ 
|                                                                |  | (Amounts in thousands)
|In respect of land and buildings, including transmission sites: |  |                        |         |      |  |  |         | 
|- within one year                                               |  |                        | 170,948 |      |  |  | 156,473 | 
|- in the second year                                            |  |                        | 78,823  |      |  |  | 69,269  | 
|- in the third year                                             |  |                        | 23,054  |      |  |  | 21,141  | 
|- in the fourth year                                            |  |                        | 6,054   |      |  |  | 5,869   | 
|- in the fifth year                                             |  |                        | 3,772   |      |  |  | 1,203   | 
|- after the fifth year                                          |  |                        | 2,034   |      |  |  | 236     | 
|                                                                |  |                        |         |      |  |  |         | 
|                                                                |  |                        | 284,685 |      |  |  | 254,191 | 
|                                                                |  |                        |         |      |  |  |         | 
|In respect of leased lines:                                     |  |                        |         |      |  |  |         | 
|- within one year                                               |  |                        | 55,145  |      |  |  | 43,871  | 
|- in the second year                                            |  |                        | 29,457  |      |  |  | 5,048   | 
|- in the third year                                             |  |                        | 3,664   |      |  |  |        | 
|                                                                |  |                        |         |      |  |  |         | 
|                                                                |  |                        | 88,266  |      |  |  | 48,919  | 
|                                                                |  |                        |         |      |  |  |         | 
|                                                                |  |                        | 372,951 |      |  |  | 303,110 | 
|                                                                |  |                        |         |      |  |  |         | 

F-27



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##### Table of Contents



SUNDAY COMMUNICATIONS LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|19 |  | Share capital, reserve arising from the Reorganization and share premium
|-- |  | ------------------------------------------------------------------------

|                                        |  |                        |           |      |  |      |           |  |  |  |           | 
|--------------------------------------- |  | ---------------------- | --------- | ---- |  | ---- | --------- |  |  |  | --------- | 
|                                        |  | December 31,          
|                                        |  |                       
|                                        |  | 2000                   |           | 2001 |  | 2002
|                                        |  | HK$                    |           | HK$  |  | HK$ 
|                                        |  | (Amounts in thousands)
|Share capital                           |  |                        | 299,000   |      |  |      | 299,000   |  |  |  | 299,000   | 
|                                        |  |                        |           |      |  |      |           |  |  |  |           | 
|Reserve arising from the Reorganization |  |                        | 1,254,000 |      |  |      | 1,254,000 |  |  |  | 1,254,000 | 
|                                        |  |                        |           |      |  |      |           |  |  |  |           | 
|Share premium                           |  |                        | 2,124,424 |      |  |      | 2,124,424 |  |  |  | 2,124,424 | 
|                                        |  |                        |           |      |  |      |           |  |  |  |           | 



| |  | The Company was incorporated on November 24, 1999 with an authorized share
capital of HK$380,000 divided into 3,800,000 ordinary shares of HK$0.1
each, of which one ordinary share was allotted and issued at par for cash
on incorporation. On the same date, this share was transferred to a
shareholder of Mandarin and 99 ordinary shares of HK$0.1 each were issued
at par for cash to the shareholders of Mandarin. These 100 ordinary shares
were issued to the shareholders of Mandarin in the same proportion to
their shareholding interests in Mandarin.            
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Pursuant to the Reorganization as described in note 1(a) on February 24,
2000, the Company issued 7,900 ordinary shares of HK$0.1 each, fully paid
to the shareholders of SUNDAY Holdings Corporation in exchange for the
issued shares of SUNDAY Holdings Corporation at that date following which
the issued share capital of the Company increased to HK$800 represented by
8,000 ordinary shares with a par value of HK$0.1 each.                                                                                                                                           
|
| |  | Pursuant to special resolutions in writing passed on March 1, 2000, the
authorized share capital of the Company was increased from HK$380,000 to
HK$1,000,000,000 by the creation of 9,996,200,000 ordinary shares of
HK$0.1 each, and the directors were authorized to issue 2,299,992,000
ordinary shares of HK$0.1 each to the shareholders on the register of
members as of that date by capitalizing part of the share premium arising
from the Global Offering.                                                                                                           
|
| |  | On March 15, 2000, pursuant to the Global Offering, 690,000,000 ordinary
shares of HK$0.1 each were issued to the public and institutional
investors at HK$3.78 per share (the New Issue) for cash. The excess of
the issue proceeds over the par value of the shares issued was credited to
the share premium account.                                                                                                                                                                                                                                                       
|
| |  | Immediately following the New Issue, the Bonus Issue of 2,299,992,000
ordinary shares of HK$0.1 each were issued and allotted as fully paid at
par to the shareholders on the register of members of the Company as of
March 1, 2000 by way of capitalization of a sum of HK$229,999,200 standing
to the credit of the share premium account of the Company.                                                                                                                                                                                                                    
|
| |  | The share capital of the Company has been restated retroactively as of
December 31, 1999, for the 8,000 ordinary shares in issue and outstanding
after the Reorganization completed on February 24, 2000. The Bonus Issue
of 2,299,992,000 ordinary shares to the existing shareholders of the
Company was treated as unpaid because this Bonus Issue was effected by
capitalizing part of the share premium arising from the issue of shares
pursuant to the Global Offering which was not reflected in the
consolidated financial statements for year ended December 31, 1999.
|
| |  | Reserve arising from the Reorganization represents the difference between
the nominal value of the share capital of the subsidiaries and the nominal
value of the Companys shares issued pursuant to the Reorganization
completed on February 24, 2000.                                                                                                                                                                                                                                                                                                                        

F-28



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##### Table of Contents



SUNDAY COMMUNICATIONS LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|   |  | Mandarin was incorporated on November 24, 1994 with an authorized share
capital of HK$10,000 divided into 10,000 ordinary shares of HK$1 each. Two
ordinary shares of HK$1 each were issued upon incorporation. By a special
resolution passed on February 16, 1995, the authorized share capital of
Mandarin was increased from HK$10,000 to HK$1,000,000 by the creation of
an additional 990,000 ordinary shares of HK$1 each. On March 1, 1995, a
total of 999,988 ordinary shares of HK$1 each were issued at par for cash.
By an ordinary resolution passed on September 11, 1998, the authorized
share capital of Mandarin was increased from HK$1,000,000 to
HK$2,000,000,000 by the creation of an additional 1,999,000,000 ordinary
shares of HK$1 each. On the same date, the issued share capital of
Mandarin was increased to HK$1,254,000,000 by the issue of 1,253,000,000
ordinary shares of HK$1 each at par. These shares rank pari passu with
the existing shares of Mandarin and were paid up by conversion of the
loans from shareholders of an equivalent amount. On February 10, 2000,
all these shares were converted into non-voting deferred shares of HK$1
each and another 100 ordinary shares of HK$1 each were issued as described
in note 1(a).
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|20 |  | Share option scheme                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | On March 1, 2000, the shareholders of the Company approved and adopted a
share option scheme (the Share Option Scheme). Under the Share Option
Scheme, the board of directors may offer to grant qualifying employees and
directors of the Company or its subsidiaries options to subscribe for
ordinary shares of the Company. Upon accepting an option, a grantee must
pay HK$1 to the Company as consideration for the grant within 28 days from
the offer date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|   |  | The board of directors may determine, in its discretion, the consideration
for a share payable by a participant upon the exercise of any option
granted under the Share Option Scheme and such price will not be less than
the higher of: (1) the nominal value of the Companys share; or (2) 80% of
the average of the closing prices of the Companys shares on the Stock
Exchange on the five trading days immediately preceding the date of grant
of the option on which there were dealings in the Companys shares on the
Stock Exchange.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   |  | The board of directors has absolute discretion to determine the exercise
period of any option, except that no option may be exercised more than 10
years after its grant. Subject to earlier termination by the Company in a
general meeting of shareholders, the Share Option Scheme will remain in
force for 10 years from its adoption date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   |  | On May 22, 2002, the shareholders of the Company approved the adoption of
a new share option scheme (the New Option Scheme) and the termination of
the operation of the Share Option Scheme. Upon the termination of the
Share Option Scheme, no further options will be granted under the Share
Option Scheme but the provisions of the Share Option Scheme will remain in
full force and effect in respect of the existing options granted.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   |  | Under the New Option Scheme, the board may, in its discretion, grant
options to any director, employee, consultant, customer, supplier, agent,
partner, shareholder or adviser of or contractor to the Group or a company
in which the Group holds an interest or a subsidiary of such company.
Each grant of options to a director, chief executive or substantial
shareholder or any of their respective associates must be approved in
accordance with the requirements of the Rules Governing the Listing of
Securities on The Stock Exchange of Hong Kong Limited (Listing Rules).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   |  | The exercise price for any particular option under the New Option Scheme
will be determined by the board but will be not less than the highest of
(i) the closing price of shares on the date of grant of the option, (ii)
an amount equivalent to the average closing price of a share for the five
business days immediately preceding the date of grant of the option and
(iii) the nominal value of a share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   |  | The maximum number of shares which may be issued upon exercise of all
outstanding options granted and yet to be exercised under both the New
Option Scheme and Share Option Scheme must not, in aggregate, exceed 30%
of the shares of the Company in issue.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

F-29



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##### Table of Contents



SUNDAY COMMUNICATIONS LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |  | The total number of shares available for issue under options which may be
granted under the New Option Scheme (excluding those options that have
been granted by the Company prior to the date of approval of the New
Option Scheme) must not in aggregate, exceed 10% of the issued share
capital of the Company as of the date of approval of the New Option Scheme
(Scheme Mandate Limit). The Scheme Mandate Limit may be refreshed by
shareholders of the Company in general meeting provided that the Scheme
Mandate Limit so refreshed must not exceed 10% of the issued share capital
of the Company at the date of approval of the refreshment by the
shareholders. The board may also seek separate shareholders approval in
general meeting to grant option beyond the Scheme Mandate Limit (whether
or not refreshed) provided that the options in excess of the Scheme
Mandate Limit are granted only to the eligible participants specified by
the Company before such approval is sought.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | No option may be granted under the New Option Scheme to any eligible
participant which, if exercised in full, would result in the total number
of shares issued and to be issued upon exercise of the options already
granted or to be granted to such eligible participant (including
exercised, cancelled and outstanding options) in the 12-month period up to
and including the date of such new grant exceeding 1% of the issued share
capital of the Company. As of the date of such new grant, any grant of
further options above this limit will be subject to certain requirements
provided under the Listing Rules, including the approval of shareholders
at general meeting.                                                                                                                                                                                                                                                                                                                   
|
| |  | No share options were granted under the New Option Scheme or the Share
Option Scheme during the year ended December 31, 2002. Details of the
share options outstanding as of December 31, 2002 which have been granted
under the Share Option Scheme are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

|                              |  |                              |            |                              |  |                                |   |                                |  |                                |   |                  |  |              |            |                  |  |  |            |  |  |  |      |  |  |  |            |  |  |  |            | 
|----------------------------- |  | ---------------------------- | ---------- | ---------------------------- |  | ------------------------------ | - | ------------------------------ |  | ------------------------------ | - | ---------------- |  | ------------ | ---------- | ---------------- |  |  | ---------- |  |  |  | ---- |  |  |  | ---------- |  |  |  | ---------- | 
|                              |  | Optionsheld atJanuary 1,2002 |            | Optionsgrantedduringthe year |  | Optionsexercisedduringthe year |   | Optionslapsedduringthe year(1) |  | Optionsheld atDecember 31,2002 |   | ExercisepriceHK$ |  | Grantdate(2) |            | Exercisableuntil | 
|                              |  |                              |            |                              |  |                                |   |                                |  |                                |   |                  |  |              |            |                 
|Executive Directors           |  |                              | 90,000,000 |                              |  |                                |  |                                |  |                                |  |                  |  |              |           |                  |  |  | 90,000,000 |  |  |  | 1.01 |  |  |  | 05/31/2000 |  |  |  | 05/30/2010 | 
|Chief Executive               |  |                              | 15,000,000 |                              |  |                                |  |                                |  |                                |  |                  |  |              | 15,000,000 |                  |  |  |           |  |  |  | 1.01 |  |  |  | 05/31/2000 |  |  |  | 05/30/2010 | 
|Continuous contract
employees |  |                              | 26,265,646 |                              |  |                                |  |                                |  |                                |  |                  |  |              | 8,266,569  |                  |  |  | 17,999,077 |  |  |  | 3.05 |  |  |  | 03/23/2000 |  |  |  | 03/22/2010 | 
|                              |  |                              | 30,551,857 |                              |  |                                |  |                                |  |                                |  |                  |  |              | 9,619,312  |                  |  |  | 20,932,545 |  |  |  | 1.01 |  |  |  | 05/31/2000 |  |  |  | 05/30/2010 | 
|                              |  |                              | 2,096,009  |                              |  |                                |  |                                |  |                                |  |                  |  |              | 645,377    |                  |  |  | 1,450,632  |  |  |  | 3.05 |  |  |  | 05/31/2000 |  |  |  | 05/30/2010 | 
|                              |  |                              | 3,828,177  |                              |  |                                |  |                                |  |                                |  |                  |  |              | 1,868,616  |                  |  |  | 1,959,561  |  |  |  | 1.01 |  |  |  | 01/19/2001 |  |  |  | 01/18/2011 | 



| | Notes: |  |                                                                                                                                          
| | ------ |  | -----------------------------------------------------------------------------------------------------------------------------------------
|
| | (1)    |  | These share options lapsed during the year upon the cessation
of employment of certain employees.                                        
|
| | (2)    |  | Of the share options granted, 40% become exercisable after one
year from the grant date and 30% per annum during the following two
years.



|21 |  | Cash and cash equivalents
|-- |  | -------------------------

|                       |  |                        |        |      |  |  |        | 
|---------------------- |  | ---------------------- | ------ | ---- |  |  | ------ | 
|                       |  | December 31,          
|                       |  |                       
|                       |  | 2001                   |        | 2002
|                       |  | HK$                    |        | HK$ 
|                       |  | (Amounts in thousands)
|Cash and bank balances |  |                        | 18,533 |      |  |  | 14,782 | 
|Bank deposits          |  |                        | 28,795 |      |  |  | 34,795 | 
|                       |  |                        |        |      |  |  |        | 
|                       |  |                        | 47,328 |      |  |  | 49,577 | 
|                       |  |                        |        |      |  |  |        | 

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SUNDAY COMMUNICATIONS LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|22 |  | Related party transactions                                                                                                                
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The following is a summary of significant related party transactions which

were carried out in the normal course of the Groups business:

|                                                                                          |  |                         |        |      |  |      |        |   |  |  |        |  
|----------------------------------------------------------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ | - |  |  | ------ | -
|                                                                                          |  | Year ended December 31,
|                                                                                          |  |                        
|                                                                                          |  | 2000                    |        | 2001 |  | 2002
|                                                                                          |  | HK$                     |        | HK$  |  | HK$ 
|                                                                                          |  | (Amounts in thousands) 
|International telecommunications service revenue received from a
related company (note a) |  |                         | 12,045 |      |  |      | 6,564  |   |  |  |       |  
|Operating lease charges paid to related companies (note b)                                |  |                         | (5,304 | )    |  |      | (4,870 | ) |  |  | (4,334 | )
|Consulting service fees paid to a related company (note c)                                |  |                         |       |      |  |      | (833   | ) |  |  | (1,580 | )
|Sales and marketing service fees paid to a beneficial shareholder
(note d)                |  |                         | (510   | )    |  |      | (910   | ) |  |  |       |  
|                                                                                          |  |                         |        |      |  |      |        |   |  |  |        |  



|(a) |  | The Group entered into certain agreements based on normal commercial
terms with a wholly-owned subsidiary of a related company, e-Kong Group
Limited (e-Kong), during the year ended December 31, 2000. Under these
agreements the Group enabled the customers of e-Kong to make international
calls by providing it interconnection to the Groups international
telecommunications service facility and referred the Groups subscribers
of 1622 international telecommunications service to make international
calls directly through a web site of e-Kong. Such arrangement was
terminated effective from September 26, 2001 pursuant to a revised
agreement entered on the same date.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Messrs. Richard John Siemens, Kuldeep Saran and William Bruce Hicks are
directors of both the Company and e-Kong.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(b) |  | The Group entered into various operating lease agreements based on normal
commercial terms with subsidiaries of certain beneficial shareholders of
the Company to lease a number of premises for the Groups operating
activities.                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(c) |  | The Group entered into certain agreements based on normal commercial
terms with Lifetree Convergence Limited (Lifetree) during the year ended
December 31, 2002, which provided various software development and
consulting services to the Group.                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|    |  | Messrs. Richard John Siemens, Edward Wai Sun Cheng, William Bruce Hicks
and Kuldeep Saran are directors of both the Company and Lifetree.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(d) |  | Distacom Communications Limited (Distacom), a beneficial shareholder of
the Company, provided the Group with sales and marketing services for fees
which were agreed based on the resources spent, expertise allocated and
actual staff costs incurred by Distacom for providing these services.                                                                                                                                                                                                                                                                                                                                                                                            
|   
|    |  | Messrs. Richard John Siemens, William Bruce Hicks, Kuldeep Saran, Simon
Murray and Tak Sing Yip are directors of both the Company and Distacom.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

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SUNDAY COMMUNICATIONS LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|23 |  | Retirement benefit arrangements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Pursuant to a trust deed entered into by the Group on April 1, 1998, the
Group has set up a defined contribution scheme to provide retirement
benefits for its employees in Hong Kong with retrospective effect from
July 1, 1997 (the Retirement Scheme).                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   |  | All permanent full time employees in Hong Kong were eligible to join the
Retirement Scheme before the Mandatory Provident Fund (MPF) Scheme was
set up on December 1, 2000. Under the Retirement Scheme, the employees
were required to choose to contribute either nil or 5% of their monthly
salaries. The Groups contributions were calculated at 5% of the
employees monthly salaries.                                                                                                                                                                                                                                                                                    
|  
|   |  | With effect from December 1, 2000, the Group has set up another defined
contribution scheme, the MPF Scheme, for all the eligible employees of the
Group in Hong Kong including the employees under the Retirement Scheme.
The contributions from the employees and employer are made to the MPF
Scheme only and are no longer made to the Retirement Scheme.                                                                                                                                                                                                                                                                                                                     
|  
|   |  | Under the MPF Scheme, the employees are required to contribute 5% of their
monthly salaries up to a maximum of HK$1,000 and they can choose to make
additional contributions. The Groups monthly contributions are calculated
at 5% of the employees monthly salaries up to a maximum of HK$1,000 (the
mandatory contributions). The Group makes certain additional
contributions if the employees monthly salaries exceed HK$20,000 (the
voluntary contributions).                                                                                                                                                                                                        
|  
|   |  | Under the MPF Scheme, the employees are entitled to 100% of the employers
mandatory contributions upon their retirement at the age of 65 years old,
death or total incapacity. The employees are entitled to 100% of the
Groups voluntary contributions after seven years of completed service or
at a reduced scale of the Groups voluntary contributions after completion
of two to six years service. Under the Retirement Scheme, the employees
are entitled to 100% of the employers contributions after seven years of
completed service, or at a reduced scale after completion of two to six
years service. Forfeited contributions are to be refunded to the Group.
|  
|   |  | The Groups contributions for the years ended December 31, 2000, 2001 and
2002 amounted to HK$4,511,000, HK$9,872,000 and HK$6,653,000 respectively.
The scheme assets are held separately from those of the Group under
respective provident funds managed by independent administrators.                                                                                                                                                                                                                                                                                                                                                                                        
|  
|   |  | The pension scheme which covers the employees in the Peoples Republic of
China (PRC) is a defined contribution scheme at various applicable rates
of monthly salary that are in accordance with the local practice and
regulations.                                                                                                                                                                                                                                                                                                                                                                                                                                            

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SUNDAY COMMUNICATIONS LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|24 |  | Business segment information                                                                                                                                                                                                                                                                                            
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The following segment reporting information is prepared based on the
segmental operating results regularly reviewed by the Groups chief
operating decision maker. The Group is principally engaged in three
business segments in Hong Kong: mobile services, sales of mobile phones
and accessories and other services.

|                     |  |          |           |                 |  |                        |         |       |  |  |          |   |  |  |           |  
|-------------------- |  | -------- | --------- | --------------- |  | ---------------------- | ------- | ----- |  |  | -------- | - |  |  | --------- | -
|                     |  |          |           |                 |  | Sales of               |         |       |  |  |          |   |  | 
|                     |  | Mobile   |           | mobile phones   |  |                        |         |       |  |  |          |  
|                     |  | services |           | and accessories |  | Other services         |         | Group
|                     |  | HK$      |           | HK$             |  | HK$                    |         | HK$  
|2000                 |  |          |           |                 |  | (Amounts in thousands) |         |       |  | 
|Turnover             |  |          | 988,718   |                 |  |                        | 404,444 |       |  |  | 57,231   |   |  |  | 1,450,393 |  
|                     |  |          |           |                 |  |                        |         |       |  |  |          |   |  |  |           |  
|Loss from operations |  |          | (146,150  | )               |  |                        | (96,092 | )     |  |  | (138,441 | ) |  |  | (380,683  | )
|                     |  |          |           |                 |  |                        |         |       |  |  |          |   |  |  |           |  
|Interest income      |  |          |           |                 |  |                        |         |       |  |  |          |   |  |  | 51,053    |  
|Finance costs        |  |          |           |                 |  |                        |         |       |  |  |          |   |  |  | (136,938  | )
|                     |  |          |           |                 |  |                        |         |       |  |  |          |   |  |  |           |  
|Net loss             |  |          |           |                 |  |                        |         |       |  |  |          |   |  |  | (466,568  | )
|                     |  |          |           |                 |  |                        |         |       |  |  |          |   |  |  |           |  
|Segment assets       |  |          | 1,491,947 |                 |  |                        | 70,903  |       |  |  | 86,223   |   |  |  | 1,649,073 |  
|Unallocated assets   |  |          |           |                 |  |                        |         |       |  |  |          |   |  |  | 726,199   |  
|                     |  |          |           |                 |  |                        |         |       |  |  |          |   |  |  |           |  
|Total assets         |  |          |           |                 |  |                        |         |       |  |  |          |   |  |  | 2,375,272 |  
|                     |  |          |           |                 |  |                        |         |       |  |  |          |   |  |  |           |  
|Capital expenditure  |  |          | 293,623   |                 |  |                        | 12,133  |       |  |  | 33,517   |   |  |  | 339,273   |  

F-33



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##### Table of Contents



SUNDAY COMMUNICATIONS LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

|                              |  |            |           |                 |  |                        |         |       |  |  |         |            |  |  |           |  
|----------------------------- |  | ---------- | --------- | --------------- |  | ---------------------- | ------- | ----- |  |  | ------- | ---------- |  |  | --------- | -
|                              |  |            |           |                 |  | Sales of               |         |       |  |  |         |            |  | 
|                              |  | Mobile     |           | mobile phones   |  |                        |         |       |  |  |         |           
|                              |  | services   |           | and accessories |  | Other services         |         | Group
|                              |  | HK$        |           | HK$             |  | HK$                    |         | HK$  
|                              |  | (Restated) |           |                 |  |                        |         |       |  |  |         | (Restated)
|2001                          |  |            |           |                 |  | (Amounts in thousands) |         |       |  | 
|Turnover                      |  |            | 1,165,399 |                 |  |                        | 242,901 |       |  |  | 14,093  |            |  |  | 1,422,393 |  
|                              |  |            |           |                 |  |                        |         |       |  |  |         |            |  |  |           |  
|Loss from operations          |  |            | (38,127   | )               |  |                        | (52,958 | )     |  |  | (72,125 | )          |  |  | (163,210  | )
|                              |  |            |           |                 |  |                        |         |       |  |  |         |            |  |  |           |  
|Interest income               |  |            |           |                 |  |                        |         |       |  |  |         |            |  |  | 21,592    |  
|Finance costs                 |  |            |           |                 |  |                        |         |       |  |  |         |            |  |  | (70,130   | )
|                              |  |            |           |                 |  |                        |         |       |  |  |         |            |  |  |           |  
|Net loss                      |  |            |           |                 |  |                        |         |       |  |  |         |            |  |  | (211,748  | )
|                              |  |            |           |                 |  |                        |         |       |  |  |         |            |  |  |           |  
|Segment assets                |  |            | 1,641,795 |                 |  |                        | 47,904  |       |  |  | 57,167  |            |  |  | 1,746,866 |  
|Investment in a joint venture |  |            |           |                 |  |                        |         |       |  |  |         |            |  |  | 4,940     |  
|Unallocated assets            |  |            |           |                 |  |                        |         |       |  |  |         |            |  |  | 184,371   |  
|                              |  |            |           |                 |  |                        |         |       |  |  |         |            |  |  |           |  
|Total assets                  |  |            |           |                 |  |                        |         |       |  |  |         |            |  |  | 1,936,177 |  
|                              |  |            |           |                 |  |                        |         |       |  |  |         |            |  |  |           |  
|Capital expenditure           |  |            | 114,744   |                 |  |                        | 3,604   |       |  |  | 1,029   |            |  |  | 119,377   |  

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SUNDAY COMMUNICATIONS LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

|                                    |  |          |           |                 |  |                        |         |       |  |  |        |   |  |  |           |  
|----------------------------------- |  | -------- | --------- | --------------- |  | ---------------------- | ------- | ----- |  |  | ------ | - |  |  | --------- | -
|                                    |  |          |           |                 |  | Sales of               |         |       |  |  |        |   |  | 
|                                    |  | Mobile   |           | mobile phones   |  |                        |         |       |  |  |        |  
|                                    |  | services |           | and accessories |  | Other services         |         | Group
|                                    |  | HK$      |           | HK$             |  | HK$                    |         | HK$  
|2002                                |  |          |           |                 |  | (Amounts in thousands) |         |       |  | 
|Turnover                            |  |          | 1,217,677 |                 |  |                        | 115,291 |       |  |  | 9,722  |   |  |  | 1,342,690 |  
|                                    |  |          |           |                 |  |                        |         |       |  |  |        |   |  |  |           |  
|Profit/(loss) from operations       |  |          | 1,128     |                 |  |                        | (38,239 | )     |  |  | (5,264 | ) |  |  | (42,375   | )
|                                    |  |          |           |                 |  |                        |         |       |  |  |        |   |  |  |           |  
|Interest income                     |  |          |           |                 |  |                        |         |       |  |  |        |   |  |  | 3,553     |  
|Finance costs                       |  |          |           |                 |  |                        |         |       |  |  |        |   |  |  | (59,833   | )
|Share of losses from joint ventures |  |          |           |                 |  |                        |         |       |  |  |        |   |  |  | (18,609   | )
|                                    |  |          |           |                 |  |                        |         |       |  |  |        |   |  |  |           |  
|Net loss                            |  |          |           |                 |  |                        |         |       |  |  |        |   |  |  | (117,264  | )
|                                    |  |          |           |                 |  |                        |         |       |  |  |        |   |  |  |           |  
|Segment assets                      |  |          | 1,557,242 |                 |  |                        | 28,823  |       |  |  | 12,987 |   |  |  | 1,599,052 |  
|Investment in a joint venture       |  |          |           |                 |  |                        |         |       |  |  |        |   |  |  | 3,322     |  
|Unallocated assets                  |  |          |           |                 |  |                        |         |       |  |  |        |   |  |  | 208,469   |  
|                                    |  |          |           |                 |  |                        |         |       |  |  |        |   |  |  |           |  
|Total assets                        |  |          |           |                 |  |                        |         |       |  |  |        |   |  |  | 1,810,843 |  
|                                    |  |          |           |                 |  |                        |         |       |  |  |        |   |  |  |           |  
|Capital expenditure                 |  |          | 164,701   |                 |  |                        | 3,375   |       |  |  |       |   |  |  | 168,076   |  



| |  | The Groups principal activities are undertaken in one geographic area,
Hong Kong.
| |  | ----------------------------------------------------------------------------------

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SUNDAY COMMUNICATIONS LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



|25 |  | Particulars of subsidiaries                                                               
|-- |  | ------------------------------------------------------------------------------------------
|  
|   |  | The Company has the following principal wholly-owned subsidiaries as of
December 31, 2002:

|                                                            |  |                        |  |                                                                                            |  |                                                                                   
|----------------------------------------------------------- |  | ---------------------- |  | ------------------------------------------------------------------------------------------ |  | ----------------------------------------------------------------------------------
|                                                            |  | Place of               |  | Issued and fully                                                                           |  |                                                                                   
|Name                                                        |  | incorporation          |  | paid up capital                                                                            |  | Principal activities                                                              
|                                                            |  |                        |  |                                                                                            |  |                                                                                   
|Shares held directly                                        |  |                        |  |                                                                                            |  |                                                                                   
|                                                            |  |                        |  |                                                                                            |  |                                                                                   
|SUNDAY HOLDINGS (HONG KONG)
CORPORATION                     |  | British Virgin
Islands |  | 100 ordinary shares of
US$1 each                                                           |  | Investment holding                                                                
|                                                            |  |                        |  |                                                                                            |  |                                                                                   
|SUNDAY HOLDINGS (CHINA)
CORPORATION                         |  | British Virgin
Islands |  | 1 ordinary shares of US$1                                                                  |  | Investment holding                                                                
|                                                            |  |                        |  |                                                                                            |  |                                                                                   
|SUNDAY IP HOLDING
CORPORATION                               |  | British Virgin
Islands |  | 1 ordinary share of US$1                                                                   |  | Investment holding                                                                
|                                                            |  |                        |  |                                                                                            |  |                                                                                   
|Shares held indirectly                                      |  |                        |  |                                                                                            |  |                                                                                   
|                                                            |  |                        |  |                                                                                            |  |                                                                                   
|MANDARIN COMMUNICATIONS
LIMITED                             |  | Hong Kong              |  | 100 ordinary shares of
HK$1 each and
1,254,000,000 non-voting
deferred shares of HK$1
each |  | Provision of mobile and
other services, and sales of
mobile phones and
accessories
|                                                            |  |                        |  |                                                                                            |  |                                                                                   
|SUNDAY 3G HOLDINGS (HONG
KONG) CORPORATION                  |  | British Virgin
Islands |  | 1 ordinary share of US$1                                                                   |  | Investment holding                                                                
|                                                            |  |                        |  |                                                                                            |  |                                                                                   
|SUNDAY 3G (HONG KONG) LIMITED                               |  | Hong Kong              |  | 2 ordinary shares of HK$1
each                                                             |  | Licensee of Hong Kong 3G
License                                                  
|                                                            |  |                        |  |                                                                                            |  |                                                                                   
|SUNDAY IP Limited                                           |  | British Virgin
Islands |  | 1 ordinary share of US$1                                                                   |  | Holding the Groups
intellectual property rights
and trade marks                  
|                                                            |  |                        |  |                                                                                            |  |                                                                                   
|SUNDAY COMMUNICATIONS
SERVICES (SHENZHEN) LIMITED
(SCSSL) |  | The PRC                |  | US$1,500,000
(Note below)                                                                  |  | Provision of back office
support services to the
Group                            



| |  | The principal activities of the subsidiaries, except for SCSSL which is
operated in the PRC, are undertaken in Hong Kong.                                      
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Note:      SCSSL is registered as a wholly foreign-owned enterprise in
the PRC. The registered capital of SCSSL had been fully paid up as
of December 31, 2002.

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SUNDAY COMMUNICATIONS LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



|26  |  | Financial instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(a) |  | Fair value                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    |  | Financial assets of the Group include restricted cash deposits, cash and
cash equivalents, trade receivables, deposits, prepayments and other
receivables. The fair values of the financial assets approximate carrying
amount due to the short-term nature of these items. Financial liabilities
of the Group include bank loans, vendor loans, obligations under finance
leases, trade payables, other payables and accrued charges, and
subscriptions received in advance.
|   
|    |  | The fair values of the Groups bank loans, vendor loans and obligations
under finance leases are estimated based on applying a discounted cash
flow using current market rates for similar financial instruments. The
carrying amounts and fair values of the Groups bank loans, vendor loans
and obligations under finance leases are as follows:                                                                                                                          

|                                 |  |                        |         |                        |  |      |         |      |  |  |         |  |  |  |         | 
|-------------------------------- |  | ---------------------- | ------- | ---------------------- |  | ---- | ------- | ---- |  |  | ------- |  |  |  | ------- | 
|                                 |  | Carrying amount        |         | Fair value            
|                                 |  | December 31,           |         | December 31,          
|                                 |  |                        |         |                       
|                                 |  | 2001                   |         | 2002                   |  | 2001 |         | 2002
|                                 |  | HK$                    |         | HK$                    |  | HK$  |         | HK$ 
|                                 |  | (Amounts in thousands) |         | (Amounts in thousands)
|Bank loans                       |  |                        | 576,000 |                        |  |      | 420,000 |      |  |  | 565,424 |  |  |  | 412,883 | 
|Vendor loans                     |  |                        | 175,455 |                        |  |      | 365,316 |      |  |  | 175,442 |  |  |  | 364,498 | 
|Obligations under finance leases |  |                        | 2,158   |                        |  |      | 138     |      |  |  | 2,213   |  |  |  | 138     | 
|                                 |  |                        |         |                        |  |      |         |      |  |  |         |  |  |  |         | 



|(b) |  | Concentration of credit risk                                                                                                                                                                                                                                                                                   
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Financial instruments which potentially subject the Group to concentration
of credit risk consist principally of cash and cash equivalents, trade
receivables, deposits, prepayments and other receivables.                                                                                                    
|   
|    |  | Restricted cash deposits, cash and cash equivalents are substantially all
the Groups cash and bank balances. They are placed with a number of
international banks in Hong Kong to which the Group believes its exposure
to risk is limited.                                                                   
|   
|    |  | Trade receivables mainly represent service fee receivables from the
Groups subscribers in Hong Kong. No major customers make up more than
10% of the Groups trade receivables or revenue at December 31, 2001 and
2002 or each of the three years in the period ended December 31, 2002.                     
|   
|    |  | Deposits, prepayments and other receivables are spread among numerous
third parties.                                                                                                                                                                                                                           
|   
|(c) |  | Interest rate risk                                                                                                                                                                                                                                                                                             
|   
|    |  | The interest rates and terms of repayment of loans of the Group are set
out in note 17.                                                                                                                                                                                                                        
|   
|27  |  | Summary of differences between HK GAAP and US GAAP                                                                                                                                                                                                                                                             
|   
|    |  | The Groups consolidated financial statements are prepared in accordance
with HK GAAP, which differ in certain significant respects from US GAAP.
Differences between HK GAAP and US GAAP which have significant effects on
the net loss and total shareholders equity of the Group are summarized as
follows:

F-37



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SUNDAY COMMUNICATIONS LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



|(a) |  | Net loss and total shareholders equity
|--- |  | ---------------------------------------

|                                                                                                                     |  |                         |           |      |  |      |           |   |  |  |           |  
|-------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | --------- | ---- |  | ---- | --------- | - |  |  | --------- | -
|                                                                                                                     |  | Year ended December 31,
|                                                                                                                     |  |                        
|                                                                                                                     |  | 2000                    |           | 2001 |  | 2002
|                                                                                                                     |  | HK$                     |           | HK$  |  | HK$ 
|                                                                                                                     |  | (Amounts in thousands) 
|Net loss under HK GAAP                                                                                               |  |                         | (466,568  | )    |  |      | (211,748  | ) |  |  | (117,264  | )
|US GAAP adjustments:                                                                                                 |  |                         |           |      |  |      |           |   |  |  |           |  
|Deferred tax on accelerated depreciation allowances (i)                                                              |  |                         | (795      | )    |  |      | 24,459    |   |  |  | 10,169    |  
|Deferred tax assets on tax loss and others (i)                                                                       |  |                         | 795       |      |  |      | (24,459   | ) |  |  | (10,169   | )
|Amortization of net connection fees (ii)                                                                             |  |                         |          |      |  |      | (10,390   | ) |  |  | (1,878    | )
|(Charge)/write-back of compensation cost in respect of amortization
of deferred compensation for share options (iii) |  |                         | (3,752    | )    |  |      | (3,800    | ) |  |  | 111       |  
|                                                                                                                     |  |                         |           |      |  |      |           |   |  |  |           |  
|Net loss under US GAAP                                                                                               |  |                         | (470,320  | )    |  |      | (225,938  | ) |  |  | (119,031  | )
|                                                                                                                     |  |                         |           |      |  |      |           |   |  |  |           |  
|Basic and diluted loss per share under US GAAP (in cents)                                                            |  |                         | (16.5     | )    |  |      | (7.6      | ) |  |  | (4.0      | )
|                                                                                                                     |  |                         |           |      |  |      |           |   |  |  |           |  
|Shares outstanding for basic and diluted loss per share (thousands)                                                  |  |                         | 2,850,492 |      |  |      | 2,990,000 |   |  |  | 2,990,000 |  
|                                                                                                                     |  |                         |           |      |  |      |           |   |  |  |           |  

|                                                                                              |  |                        |          |      |  |      |          |   |  |  |          |  
|--------------------------------------------------------------------------------------------- |  | ---------------------- | -------- | ---- |  | ---- | -------- | - |  |  | -------- | -
|                                                                                              |  | As of December 31,    
|                                                                                              |  |                       
|                                                                                              |  | 2000                   |          | 2001 |  | 2002
|                                                                                              |  | HK$                    |          | HK$  |  | HK$ 
|                                                                                              |  | (Amounts in thousands)
|Total shareholders equity under HK GAAP                                                      |  |                        | 999,744  |      |  |      | 787,996  |   |  |  | 670,732  |  
|US GAAP adjustments:                                                                          |  |                        |          |      |  |      |          |   |  |  |          |  
|Deferred tax liabilities (i)                                                                  |  |                        | (137,619 | )    |  |      | (113,160 | ) |  |  | (102,991 | )
|Deferred tax assets (i)                                                                       |  |                        | 466,000  |      |  |      | 481,038  |   |  |  | 478,349  |  
|Valuation allowance on deferred tax asset (i)                                                 |  |                        | (328,381 | )    |  |      | (367,878 | ) |  |  | (375,358 | )
|Deferred net connection fees (ii)                                                             |  |                        |         |      |  |      | (10,390  | ) |  |  | (1,878   | )
|Share premium in respect of deferred compensation for
share options (iii)                     |  |                        | 9,896    |      |  |      | 9,573    |   |  |  | 7,854    |  
|Deferred compensation not yet amortized for share options (iii)                               |  |                        | (6,144   | )    |  |      | (2,021   | ) |  |  | (413     | )
|Compensation cost in respect of amortization of deferred
compensation for share options (iii) |  |                        | (3,752   | )    |  |      | (7,552   | ) |  |  | (7,441   | )
|                                                                                              |  |                        |          |      |  |      |          |   |  |  |          |  
|Total shareholders equity under US GAAP                                                      |  |                        | 999,744  |      |  |      | 777,606  |   |  |  | 668,854  |  
|                                                                                              |  |                        |          |      |  |      |          |   |  |  |          |  

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SUNDAY COMMUNICATIONS LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



| | (i)   |  | Under both HK GAAP and US GAAP, the Group is required to
recognize deferred tax assets and liabilities for the expected future
tax consequences of all events that have been included in the
financial statements or tax returns. Under this method, deferred tax
assets and liabilities are recognized for future tax consequences
attributable to differences between the financial statements
carrying amounts of existing assets and liabilities, and their
respective tax bases and tax credit carryforwards using enacted tax
rates in effect for the year in which the differences are expected to
be recovered or settled. Under HKGAAP, deferred tax asset is
recognized to the extent that it is probable that future taxable
profit will be available against which the temporary differences can
be utilized. The unrecognized deferred tax asset is disclosed in the
note to the financial statements. Under US GAAP, a valuation
allowance is recorded to reduce the carrying amount of deferred tax
asset unless it is more likely than not that such asset will be
realized.
| | ----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |       |  | Details of deferred income taxes provided under US GAAP are disclosed
in note 27(c).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | (ii)  |  | During 2001 and 2002, new subscribers are charged a connection
fee upon contracting with the Group for mobile services. Under HK
GAAP, connection fee revenue is recognized when received upon
completion of activation services.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |       |  | Under US GAAP, connection fee of the mobile services, net of the
direct incremental costs incurred, is deferred and recognized over
the estimated customer service periods, which are estimated based on
the expected stabilized churn rates. Connected fee revenue for 2001
and 2002 amounted to HK$16,319,000 and HK$16,254,000, respectively,
of which HK$10,390,000 and HK$10,788,000 was deferred as of December
31, 2001 and 2002 respectively. Connected fee revenue of
HK$8,910,000 deferred in 2001 has been credited to the consolidated
statement of losses during 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | (iii) |  | Under HK GAAP, no compensation cost to employees is required to
be recognized in respect of the grant of share options. Proceeds from
issue of shares upon the exercise of share options are credited to
share capital and share premium account respectively and there is no
effect on the results of the Group in connection with the Share
Option Scheme.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |       |  | Under US GAAP, intrinsic value of stock options issued to employees
has been used in the computation of the compensation cost for
outstanding share options granted to the Groups employees.
Accordingly, deferred compensation of HK$10,254,000 was recognized on
options granted with an exercise price lower than the fair market
value of the Companys shares at the grant date. The deferred
compensation is amortized over the three-year vesting period.
Deferred compensation of HK$2,400,000 for the options forfeited are
reversed in shareholders equity. No compensation is recognized for
options which are granted with an exercise price equal to or greater
than the fair market value of the Companys shares at the grant date.
Compensation costs charged/(write-back) to the consolidated
statements of losses and credited/(debited) to the deferred
compensation for the years ended December 31, 2000, 2001 and 2002
were HK$3,752,000, HK$3,800,000 and (HK$111,000) respectively in
respect of amortization of the deferred compensation.                        

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##### Table of Contents



SUNDAY COMMUNICATIONS LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



| |  |  | A summary of the status of the Companys Share Option Scheme is as
follows:
| |  |  | ---------------------------------------------------------------------------

|                                    |  |              |             |                  |  |  |      | 
|----------------------------------- |  | ------------ | ----------- | ---------------- |  |  | ---- | 
|                                    |  | Number of    |             | Weighted average
|                                    |  | shares to be |             | exercise price  
|                                    |  | subscribed   |             | per option      
|                                    |  |              |             |                 
|Outstanding as of January 1, 2001   |  |              | 175,140,136 |                  |  |  | 1.40 | 
|Granted                             |  |              | 4,213,147   |                  |  |  | 1.01 | 
|Exercised                           |  |              |            |                  |  |  |     | 
|Forfeited                           |  |              | (11,611,594 | )                |  |  | 1.96 | 
|                                    |  |              |             |                  |  |  |      | 
|Outstanding as of December 31, 2001 |  |              | 167,741,689 |                  |  |  | 1.36 | 
|                                    |  |              |             |                  |  |  |      | 
|Outstanding as of January 1, 2002   |  |              | 167,741,689 |                  |  |  | 1.36 | 
|Granted                             |  |              |            |                  |  |  |     | 
|Exercised                           |  |              |            |                  |  |  |     | 
|Forfeited                           |  |              | (35,399,874 | )                |  |  | 1.79 | 
|                                    |  |              |             |                  |  |  |      | 
|Outstanding as of December 31, 2002 |  |              | 132,341,815 |                  |  |  | 1.31 | 
|                                    |  |              |             |                  |  |  |      | 



| |  |  | The following table summarizes information about share options
outstanding as of December 31, 2002:
| |  |  | ---------------------------------------------------------------------------------------------------

|               |  |                   |             |                  |  |                   |      |  |  |  |            | 
|-------------- |  | ----------------- | ----------- | ---------------- |  | ----------------- | ---- |  |  |  | ---------- | 
|               |  | Number            |             | Weighted-average |  | Number           
|Exercise price |  | outstanding as of |             | remaining        |  | exercisable as of
|HK$            |  | December 31, 2002 |             | contractual life |  | December 31, 2002
|1.01           |  |                   | 112,892,106 |                  |  |                   | 7.43 |  |  |  | 78,436,606 | 
|3.05           |  |                   | 19,449,709  |                  |  |                   | 7.24 |  |  |  | 13,614,796 | 
|               |  |                   |             |                  |  |                   |      |  |  |  |            | 
|               |  |                   | 132,341,815 |                  |  |                   |      |  |  |  |            | 
|               |  |                   |             |                  |  |                   |      |  |  |  |            | 



| |  |  | The Company has also computed, for pro forma disclosure purposes, the
fair value of all share options granted to employees of the Company
and its subsidiaries using the Black-Scholes option pricing model and
the following weighted average assumptions for the year ended
December 31, 2002:
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                |  |          |      |          |  |  |      |  
|--------------------------------------------------------------- |  | -------- | ---- | -------- |  |  | ---- | -
|                                                                |  | 2001     |      | 2002    
|                                                                |  |          |      |         
|Risk-free interest rate                                         |  |          | 6.20 | %        |  |  | 6.49 | %
|Expected dividend yield                                         |  |          | 0    | %        |  |  | 0    | %
|Expected volatility of the market price of the Companys shares |  |          | 56   | %        |  |  | 70   | %
|Weighted-average expected life of the options                   |  | 10 years |      | 10 years

F-40



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##### Table of Contents



SUNDAY COMMUNICATIONS LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



| |  |  | The weighted-average fair value of options granted to employees
during the year ended December 31, 2002 was HK$1.01 per share. If
the Company had accounted for the plan using the fair value method,
the Groups net loss would have increased as follows:
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                            |  |                         |          |      |  |  |          |  
|------------------------------------------- |  | ----------------------- | -------- | ---- |  |  | -------- | -
|                                            |  | Year ended December 31,
|                                            |  |                        
|                                            |  | 2001                    |          | 2002
|                                            |  | HK$                     |          | HK$ 
|                                            |  | (Amounts in thousands) 
|Net loss                                    |  |                         |          |      |  |  |          |  
|As reported                                 |  |                         | (225,938 | )    |  |  | (119,031 | )
|Pro forma                                   |  |                         | (289,555 | )    |  |  | (139,836 | )
|                                            |  |                         |          |      |  |  |          |  
|Basic and diluted loss per share (in cents) |  |                         |          |      |  |  |          |  
|As reported                                 |  |                         | (7.6     | )    |  |  | (4.0     | )
|Pro forma                                   |  |                         | (9.7     | )    |  |  | (4.7     | )
|                                            |  |                         |          |      |  |  |          |  



| | (iv) |  | Accounting for 3G License                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |      |  | Under HK GAAP, the HK$250,000,000 which represents the annual fees
for the first five years of the 3G License term is recorded as a
prepayment with the license fees charge prior to the launch of the 3G
services being included in fixed assets. Depreciation of the fixed
assets will be provided from the commencement of 3G services over the
shorter of the remaining life of the 3G License or the estimated
useful lives of the fixed assets.
|
| |      |  | Under US GAAP, the amount paid for the 3G License fees is classified
as intangible asset which will be amortized commencing upon the
launch of the 3G services over the remaining 3G License period or the
estimated useful lives of the related 3G network assets, whichever is
the shorter. The intangible asset is reviewed for impairment. No
impairment charge is required for 2002.                                                            



|(b) | Consolidated statements of losses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | Under HK GAAP, the consolidated statement of losses is reported by nature
whereby network costs are presented separately under operating expenses
and bad debts expenses are presented under costs of services. Under US
GAAP, however, the statement of losses is reported by function and the
network costs and salaries and related costs, excluding depreciation,
which are directly related to the generation of revenue are included in
cost of services, is separately shown. Rental, salaries and related costs
and bad debts expenses are included in selling, general and administration
expenses.

F-41



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SUNDAY COMMUNICATIONS LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



| |  |  | Under US GAAP, the consolidated statements of losses, including the US
GAAP adjustments as set out in note 27(a), would be reported as follows:
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------

|                                               |  |                         |           |      |  |      |           |   |  |  |           |  
|---------------------------------------------- |  | ----------------------- | --------- | ---- |  | ---- | --------- | - |  |  | --------- | -
|                                               |  | Year ended December 31,
|                                               |  |                        
|                                               |  | 2000                    |           | 2001 |  | 2002
|                                               |  | HK$                     |           | HK$  |  | HK$ 
|                                               |  | (Amounts in thousands) 
|Revenues from                                  |  |                         |           |      |  |      |           |   |  |  |           |  
|Mobile services                                |  |                         | 988,718   |      |  |      | 1,155,009 |   |  |  | 1,215,799 |  
|Sales of mobile phones and accessories         |  |                         | 404,444   |      |  |      | 242,901   |   |  |  | 115,291   |  
|Other services                                 |  |                         | 57,231    |      |  |      | 14,093    |   |  |  | 9,722     |  
|                                               |  |                         |           |      |  |      |           |   |  |  |           |  
|Total operating revenues                       |  |                         | 1,450,393 |      |  |      | 1,412,003 |   |  |  | 1,340,812 |  
|Cost of sales of mobile phones and accessories |  |                         | (424,549  | )    |  |      | (244,981  | ) |  |  | (113,414  | )
|Cost of services                               |  |                         | (577,728  | )    |  |      | (548,342  | ) |  |  | (547,676  | )
|                                               |  |                         |           |      |  |      |           |   |  |  |           |  
|Gross profit                                   |  |                         | 448,116   |      |  |      | 618,680   |   |  |  | 679,722   |  
|Other revenues                                 |  |                         | 8,702     |      |  |      | 2,602     |   |  |  | 1,917     |  
|Operating costs                                |  |                         |           |      |  |      |           |   |  |  |           |  
|Depreciation                                   |  |                         | (261,291  | )    |  |      | (265,102  | ) |  |  | (256,393  | )
|Selling, general and administrative costs      |  |                         | (579,962  | )    |  |      | (533,580  | ) |  |  | (469,388  | )
|                                               |  |                         |           |      |  |      |           |   |  |  |           |  
|Loss from operations                           |  |                         | (384,435  | )    |  |      | (177,400  | ) |  |  | (44,142   | )
|Interest income                                |  |                         | 51,053    |      |  |      | 21,592    |   |  |  | 3,553     |  
|Finance costs                                  |  |                         | (136,938  | )    |  |      | (70,130   | ) |  |  | (59,833   | )
|Share of losses of joint ventures              |  |                         |          |      |  |      |          |   |  |  | (18,609   | )
|                                               |  |                         |           |      |  |      |           |   |  |  |           |  
|Net loss                                       |  |                         | (470,320  | )    |  |      | (225,938  | ) |  |  | (119,031  | )
|                                               |  |                         |           |      |  |      |           |   |  |  |           |  

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SUNDAY COMMUNICATIONS LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



|(c) |  | Deferred tax                                                                
|--- |  | ----------------------------------------------------------------------------
|   
|    |  | Under US GAAP, deferred tax (liabilities) and assets comprise the
following:

|                                    |  |                         |          |      |  |  |          |  
|----------------------------------- |  | ----------------------- | -------- | ---- |  |  | -------- | -
|                                    |  | Year ended December 31,
|                                    |  |                        
|                                    |  | 2001                    |          | 2002
|                                    |  | HK$                     |          | HK$ 
|                                    |  | (Amounts in thousands) 
|Deferred tax liabilities            |  |                         |          |      |  |  |          |  
|Accelerated depreciation allowances |  |                         | (113,160 | )    |  |  | (102,991 | )
|                                    |  |                         |          |      |  |  |          |  
|Deferred tax assets                 |  |                         |          |      |  |  |          |  
|Tax losses carried forward          |  |                         | 480,989  |      |  |  | 478,349  |  
|Other temporary differences         |  |                         | 49       |      |  |  |         |  
|Valuation allowance                 |  |                         | (367,878 | )    |  |  | (375,358 | )
|                                    |  |                         |          |      |  |  |          |  
|Deferred tax assets                 |  |                         | 113,160  |      |  |  | 102,991  |  
|                                    |  |                         |          |      |  |  |          |  
|Net deferred tax liabilities        |  |                         |         |      |  |  |         |  
|                                    |  |                         |          |      |  |  |          |  



| |  | As of December 31, 2002, the Group has accumulated tax losses, with no
definite period of expiration, amounting to HK$2,989,682,000 (the tax
effect thereon is HK$478,349,000) which may be carried forward and applied
to reduce future taxable income which is earned in or derived from Hong
Kong. Management believes it is more likely than not that the results of
future operations will generate sufficient taxable income to realize
deferred tax assets, therefore valuation allowance of HK$367,878,000 and
HK$375,358,000 at December 31, 2001 and 2002, respectively has been
established.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Changes in the valuation allowance consist of:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

|                                     |  |                         |         |      |  |  |         | 
|------------------------------------ |  | ----------------------- | ------- | ---- |  |  | ------- | 
|                                     |  | Year ended December 31,
|                                     |  |                        
|                                     |  | 2001                    |         | 2002
|                                     |  | HK$                     |         | HK$ 
|                                     |  | (Amounts in thousands) 
|Balance at the beginning of the year |  |                         | 328,381 |      |  |  | 367,878 | 
|Additions to income tax expenses     |  |                         | 39,497  |      |  |  | 7,480   | 
|                                     |  |                         |         |      |  |  |         | 
|Balance at the end of the year       |  |                         | 367,878 |      |  |  | 375,358 | 
|                                     |  |                         |         |      |  |  |         | 

F-43



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##### Table of Contents



SUNDAY COMMUNICATIONS LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



|(d) |  | Recent accounting pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | In April 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 145, Rescission
of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13,
and Technical Corrections. This statement rescinds SFAS No. 4,
Reporting Gains and Losses from Extinguishment of Debt, and an amendment
of that Statement, SFAS No. 64, Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements. This Statement also rescinds SFAS No. 44,
Accounting for Intangible Assets of Motor Carriers. This Statement
amends SFAS 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. This Statement
also amends other existing authoritative pronouncements to make various
technical corrections, clarify meanings or describe their applicability
under changed conditions. The provisions of this statement related to the
rescission of SFAS No. 4 will be applied in fiscal years beginning after
May 15, 2002.                                                                                                                                                                                                                                                                         
|   
|    |  | In June 2002, the FASB issued SFAS No. 146 Accounting for Costs
Associated with Exit or Disposal Activities. This statement addresses
financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issue Task Force No. 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (Including Certain Costs Incurred in a
Restructuring). This statement is effective for exit or disposal
activities that are initiated after December 31, 2002, with early adoption
encouraged.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|    |  | In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure  an amendment of
SFAS No. 123. SFAS No. 148 provides alternative methods of transition for
a voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, this statement amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures
in financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported
results. Most provisions of SFAS No. 148 are effective for fiscal years
beginning after December 15, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|    |  | In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others  An
Interpretation of SFAS No. 5, 57 and 107 and Rescission of FASB
Interpretation No. 34. FIN 45 (i) elaborates on the disclosures to be
made by a guarantor about its obligations under certain guarantees that it
has issued; (ii) clarifies that a guarantor is required to recognize, at
the inception of guarantee, a liability for the fair value of the
obligation undertaken in issuing the guarantee. The initial recognition
and initial measurement provisions of the interpretation are applicable on
a prospective basis to guarantees issued or modified beginning after
December 31, 2002 and the disclosure requirements are effective for fiscal
years beginning after December 15, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|    |  | In January 2003, the FASB issued FASB Interpretation No. 46,
Consolidation of Variable Interest Entities  An Interpretation of
Accounting Research Bulletins 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 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 Group believes the adoption of these pronouncements would not have a
material impact on its consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

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APPENDIX A

GLOSSARY OF TECHNICAL TERMS

This glossary contains certain definitions and other terms as they relate
to our businesses and as they are used in this Annual Report. As such, these
definitions may not correspond to standard industry definitions.

|                               |  |                                                                                                                                                                                                                                                                                 
|------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2G                             |  | Second Generation, a type of wireless communications technology based on
the digital technology, including GSM, CDMA and D-AMPS technology, and
which was developed primarily for voice applications.                                                                         
|                               |  |                                                                                                                                                                                                                                                                                 
|3G                             |  | Third Generation, the next wave of wireless communications technology
based on the UMTS standard that has broadband transmission capability to
support multimedia services, such as real time interactive video.                                                              
|                               |  |                                                                                                                                                                                                                                                                                 
|analog                         |  | a method of storing, processing and transmitting information through the
continuous variation of a signal.                                                                                                                                                                      
|                               |  |                                                                                                                                                                                                                                                                                 
|bandwidth                      |  | the relative range of analog frequencies or digital signals that can be
passed through a transmission medium without distortion. The greater the
bandwidth, the greater the information carrying capacity. Bandwidth is
measured in Hertz (analog) or bits per second (digital).
|                               |  |                                                                                                                                                                                                                                                                                 
|base station                   |  | fixed transceiver (transmitter and receiver) equipment, containing base
transceiver stations, used for communicating between mobile phones within
a certain area in a mobile network and a fixed link base station
controller.                                                  
|                               |  |                                                                                                                                                                                                                                                                                 
|base station controller (BSC)  |  | a switch controlling a number of base stations.                                                                                                                                                                                                                                 
|                               |  |                                                                                                                                                                                                                                                                                 
|base transceiver station (BTS) |  | radio equipment, contained in a base station, used for transmitting and
receiving signals to and from mobile phones within a single cell.                                                                                                                                       
|                               |  |                                                                                                                                                                                                                                                                                 
|broadband                      |  | a service or connection allowing a considerable amount of information to
be conveyed. Broadband is generally defined as bandwidth of at least 1.5
Mbps.                                                                                                                         
|                               |  |                                                                                                                                                                                                                                                                                 
|browser                        |  | a software program that retrieves, displays, and prints information from
the World Wide Web.                                                                                                                                                                                    
|                               |  |                                                                                                                                                                                                                                                                                 
|CDMA                           |  | code division multiple access, a digital cellular technology developed in
the United States which is a way of multiplying a variety of signals onto
a single communications channel.                                                                                            
|                               |  |                                                                                                                                                                                                                                                                                 
|cell                           |  | coverage area for a single base transceiver station.                                                                                                                                                                                                                            
|                               |  |                                                                                                                                                                                                                                                                                 
|cell site                      |  | the location of a base station.                                                                                                                                                                                                                                                 
|                               |  |                                                                                                                                                                                                                                                                                 
|digital                        |  | in recording or computing, the use of binary code to represent information.                                                                                                                                                                                                     
|                               |  |                                                                                                                                                                                                                                                                                 
|e-mail                         |  | electronic messages sent via the internet.                                                                                                                                                                                                                                      
|                               |  |                                                                                                                                                                                                                                                                                 
|EFR                            |  | enhanced full rate, a technology which enables voice transmission quality
over digital mobile systems, which is equivalent to voice transmission
quality over a landline, by filtering background noise.                                                                        
|                               |  |                                                                                                                                                                                                                                                                                 
|ETS                            |  | external telecommunication services, which are regulated and licensed in
Hong Kong by the Hong Kong Telecommunications Authority for external
telecommunications services over IPLCs.                                                                                           
|                               |  |                                                                                                                                                                                                                                                                                 
|FTNS                           |  | fixed telecommunication network services, which are regulated and licensed
in Hong Kong by the Hong Kong Telecommunications Authority for
telecommunications services between fixed points.                                                                                     

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|                      |  |                                                                                                                                                                                                                                                                                                                
|--------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|GPRS                  |  | general packet radio services, an evolved version of 2G GSM technology which
transmits and receives packets of data in bursts instead of using a continuous open
radio channel. GPRS bandwidth is 115.2 Kbps.                                                                                                  
|                      |  |                                                                                                                                                                                                                                                                                                                
|GSM 1800              |  | global system for mobile communications standard, which uses the 1800 MHz frequency
band. This standard was previously known as DCS 1800 and is the standard for PCS
networks in Hong Kong.                                                                                                                    
|                      |  |                                                                                                                                                                                                                                                                                                                
|GSM 900               |  | global system for mobile communications standard, which uses the 900 MHz frequency
band.                                                                                                                                                                                                                       
|                      |  |                                                                                                                                                                                                                                                                                                                
|HTML                  |  | hypertext mark-up language, the language used to write pages for the World Wide Web.                                                                                                                                                                                                                           
|                      |  |                                                                                                                                                                                                                                                                                                                
|HTTP                  |  | hypertext transfer protocol, the data exchange protocol used for the World Wide
Web. HTTP allows for the transfer of multimedia and hyperlinked data.                                                                                                                                                          
|                      |  |                                                                                                                                                                                                                                                                                                                
|IN                    |  | intelligent network.                                                                                                                                                                                                                                                                                           
|                      |  |                                                                                                                                                                                                                                                                                                                
|international roaming |  | a service which permits subscribers to use their existing mobile phone and
telephone number when travelling in other countries outside their local network.                                                                                                                                                    
|                      |  |                                                                                                                                                                                                                                                                                                                
|internet              |  | international computer network, a worldwide electronic communication network.                                                                                                                                                                                                                                  
|                      |  |                                                                                                                                                                                                                                                                                                                
|intranet              |  | a private version of the Internet usually created for use within an organization.                                                                                                                                                                                                                              
|                      |  |                                                                                                                                                                                                                                                                                                                
|IP                    |  | internet protocol.                                                                                                                                                                                                                                                                                             
|                      |  |                                                                                                                                                                                                                                                                                                                
|IPLC                  |  | international private leased circuit.                                                                                                                                                                                                                                                                          
|                      |  |                                                                                                                                                                                                                                                                                                                
|ISR                   |  | International Simple Resale, a mechanism enabling operators who are licensed to
provide external telecommunications services which enable international long
distance calls using external telecommunications facilities of fixed
telecommunication network service operators who are licensed to provide them.
|                      |  |                                                                                                                                                                                                                                                                                                                
|Java                  |  | object-oriented programming language for creating software applications which are
independent of operating systems and can be uploaded from servers to subscribers
allowing, for example, the functionality of browsers to be increased.                                                                       
|                      |  |                                                                                                                                                                                                                                                                                                                
|Java SIM card         |  | a rewriteable SIM Card with 32K memory.                                                                                                                                                                                                                                                                        
|                      |  |                                                                                                                                                                                                                                                                                                                
|Kbps                  |  | kilobits per second, which is a measurement of speed for digital signal
transmission expressed in thousands of bits per second.                                                                                                                                                                                
|                      |  |                                                                                                                                                                                                                                                                                                                
|LAN                   |  | local area network.                                                                                                                                                                                                                                                                                            
|                      |  |                                                                                                                                                                                                                                                                                                                
|Mbps                  |  | megabits per second, which is a measurement of speed for digital signal
transmission expressed in millions of bits per second.                                                                                                                                                                                 
|                      |  |                                                                                                                                                                                                                                                                                                                
|MHz                   |  | megahertz, million hertz.                                                                                                                                                                                                                                                                                      
|                      |  |                                                                                                                                                                                                                                                                                                                
|MNP                   |  | mobile number portability, which was introduced by OFTA in March 1999. This allows
mobile telephone users in Hong Kong to switch service providers and keep their
existing mobile telephone numbers without penalty.                                                                                           
|                      |  |                                                                                                                                                                                                                                                                                                                
|mobile switch         |  | a switch in a GSM network responsible for telephony switching functions.                                                                                                                                                                                                                                       
|                      |  |                                                                                                                                                                                                                                                                                                                
|PCS                   |  | personal communication service or system, the generic term for the type of digital
cellular network constructed in Hong Kong using frequency bands at 1800 MHz.                                                                                                                                                

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|                        |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|----------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|PDA                     |  | personal digital assistant, a hand-held device that functions as a
personal organizer, containing calendar, address and perhaps e-mail or
fax capabilities.                                                                                                                                                                                                                                               
|                        |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|PNETS                   |  | public non-exclusive telecommunications services, which are regulated and
licensed by the Hong Kong Telecommunications Authority for services such
as international value-added network services (which also covers the
licensing of ISPs), virtual private network services (or VPNs) and
external telecommunications services (or ETS).                                                                 
|                        |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|PNETS (ETS) license     |  | a public non-exclusive telecommunications services (external
telecommunications service) license, which is required to be obtained by
an international long distance service provider in order to provide
customers short code access to that service providers international long
distance services, and permits such a service provider to use ISR to
provide the international long distance services.
|                        |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|PRS License             |  | a public radiocommunication service license, which permits the provision
by a mobile operator of PCS public mobile telecommunication services.                                                                                                                                                                                                                                                            
|                        |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|PSTN                    |  | public switched telephone network, a generic term for a fixed network to
which a cellular network is interconnected in order to be able to send
and receive calls to and from fixed network subscribers.                                                                                                                                                                                                  
|                        |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|router                  |  | hardware designed to look at the destination addresses of passing data
packets and to direct the data to the proper destination.                                                                                                                                                                                                                                                                          
|                        |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|server                  |  | a computer that allows other computers to connect to it. Servers store
information and allow client computers to retrieve information for users.                                                                                                                                                                                                                                                          
|                        |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|SIM card                |  | subscriber identity module card, a smart card which stores the subscriber
identity information and authentication key and which needs to be
inserted into a GSM mobile phone to make it operable.                                                                                                                                                                                                         
|                        |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|SIM toolkit             |  | a technology which allows subscribers to access services on a mobile
telephone in a simple and direct way. Subscribers can select services
from the menu of their telephone without having to memorize service
numbers.                                                                                                                                                                                   
|                        |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|switch                  |  | a node in a telephony network in which circuits are connected
automatically in response to signals generated by subscribers mobile
phones.                                                                                                                                                                                                                                                               
|                        |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|switching center        |  | the physical location of one or several switching systems.                                                                                                                                                                                                                                                                                                                                                
|                        |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|TDMA                    |  | time division multiple access, a digital cellular technology, which is
deployed on the 800 MHz and 1900 MHz frequencies.                                                                                                                                                                                                                                                                                  
|                        |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|UMTS                    |  | universal mobile telephony system or service, a standard for 3G networks.                                                                                                                                                                                                                                                                                                                                 
|                        |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|WAP                     |  | wireless application protocol, an open, global specification that allows
internet access and other broadband services on mobile wireless devices.                                                                                                                                                                                                                                                         
|                        |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|web site                |  | the virtual location for an organizations presence on the World Wide Web.                                                                                                                                                                                                                                                                                                                                
|                        |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|WWW (or World Wide Web) |  | a world wide network of servers that supports hypertext connections
using, among others, HTML and HTTP.                                                                                                                                                                                                                                                                                                   

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