PDF《CHANGE OF USE OF PROCEEDS FROM IPO》

and (ii) failing to comply with the various reporting, disclosure and/or the Independent Shareholders'

approval requirements under the GEM Listing Rules in relation to the SHP Agreements and the Profit Oasis Sales. The EGM will be convened and held to consider and, if thought fit, passing the necessary resolution to approve the SHP Agreements and the transactions contemplated thereunder. In the event the SHP Agreements are not approved by the Independent Shareholders in the EGM, the Company will not proceed with completion of the SHP Agreements. Pursuant to the GEM Listing Rules, any Connected Person with a material interest in the SHP Agreements, any Shareholder with a material interest in the same, and their respective associate(s) will abstain from voting at the EGM on the relevant resolution to approve the SHP Agreements. As such, the Controlling Shareholder, which is beneficially interested in approximately 33.77% of the issued share capital of the Company, will abstain from voting at the EGM on the relevant resolution to approve the SHP Agreements. Further, any votes taken at the EGM in respect of such resolution are required by the GEM Listing Rules to be taken by way of poll. The Independent Board Committee has been established to make recommendation to the Independent Shareholders and First Shanghai has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in relation to the SHP Agreements. C

3 C A circular containing, among other things, details of the Transactions, the recommendations of the Independent Board Committee to the Independent Shareholders and a letter of advice from the independent financial adviser to the Independent Board Committee and the Independent Shareholders and the notice of the EGM, will be despatched to the Shareholders as soon as possible. At the request of the Company, trading in the shares of the Company has been suspended from 9:30 a.m. on

31 March 2005. Application has been made to the Stock Exchange for the resumption of trading in the shares of the Company with effect from 9:30 a.m. on

27 July 2005. Reference is made to the Company'

s announcement dated

22 March

2005 in relation to the resignation of the Auditors. While performing the audit of the Company'

s financial statements for the year ended

31 December 2004, it was brought to the attention of the Directors by the Auditors that the Company had failed to strictly comply with the relevant requirements of the GEM Listing Rules in respect of the Transactions and concerns over, among other matters, the valuation of the Equipment were raised by the Auditors. Each of the Transactions is subject to various reporting, disclosure and/or Independent Shareholders'

approval requirements under the GEM Listing Rules. Details of each of the Transactions and the GEM Listing Rules in respect of which the Company had failed to strictly comply with are set out below. (A) THE TRANSACTIONS AND GEM LISTING RULES REQUIREMENTS (1) THE HUA DONG AGREEMENT C CHANGE IN USE OF PROCEEDS Following a marketing trip, the Company as purchaser and Hua Dong as supplier entered into an agreement on

5 July

2004 in respect of the provision of 4,050 tonnes of raw materials over a period of around one year for the production of the Company'

s products. Hua Dong is an Independent Third Party. Prior to the Hua Dong Agreement, the Company had had no prior business relationship with Hua Dong. The Directors considered that the price of seamless steel pipes in the PRC was rising and the entering into of a long term supply contract would be in the interest of the Company as that would allow the Company to lock in the purchase price of such raw materials at a lower level over a period of time. Under the Hua Dong Agreement, the total consideration payable by the Company was RMB25,515,000. Upon signing of the Hua Dong Agreement, the Company paid RMB12,812,690 to Hua Dong as deposit. Since the supply of seamless steel pipes was tight in the PRC, it was normal practice at the time in the industry to pay a large proportion of the total consideration as deposit to secure the supply. The payment was financed out of the proceeds from the IPO. Since the supply of seamless steel pipes was tight in the PRC, it was normal practice at the time in the industry to pay a large proportion of the total consideration as deposit to secure the supply. As the decision to enter into the Hua Dong Agreement by the Company was made in early July 2004, a few days after the shares of the Company had listed on GEM, Mr. Wang Liang Fa (an executive Director) did not have the experience in identifying and dealing with such transactions. As a result, the Directors did not realise that the reporting requirements under the GEM Listing Rules would have been applicable to the financing of the Hua Dong Agreement and the Company did not make any announcement in relation to the Hua Dong Agreement and the change of use of C