Central Development Holdings Limited - Proxy Solicitation & Information Statement 2003

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult licensed dealer in securities, a bank manager, solicitor, professional accountant or other professional adviser.

If you have sold all your shares in Seapower Resources International Limited (Provisional Liquidators Appointed), you should at once hand this circular and the accompanying form of proxy to the purchaser or to the bank, licensed dealer or other agent through whom the sale was effected for transmission to the purchaser.

The Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

SEAPOWER RESOURCES INTERNATIONAL LIMITED 海暉國際實業有限公司

MANY RETURNS LIMITED

(Incorporated in the British Virgin Islands with limited liability)

(Provisional Liquidators Appointed)

(Incorporated in the Cayman Islands with limited liability)

RESTRUCTURING OF SEAPOWER RESOURCES INTERNATIONAL LIMITED (PROVISIONAL LIQUIDATORS APPOINTED) INVOLVING, INTER ALIA, CAPITAL RESTRUCTURING, DEBT RESTRUCTURING INVOLVING CREDITORS’ SCHEMES OF ARRANGEMENT IN ACCORDANCE WITH SECTION 86 OF THE CAYMAN COMPANIES LAW AND SECTION 166 OF THE COMPANIES ORDINANCE, SUBSCRIPTION OF NEW SHARES AND WARRANTS, WHITEWASH WAIVER AND GENERAL MANDATES TO ISSUE AND REPURCHASE NEW SHARES

FINANCIAL ADVISER TO FINANCIAL ADVISER TO SEAPOWER RESOURCES INTERNATIONAL LIMITED MANY RETURNS LIMITED

(PROVISIONAL LIQUIDATORS APPOINTED)

==> picture [155 x 43] intentionally omitted <==

Independent financial adviser to the Independent Shareholders

A letter from AMS Corporate Finance Limited, the independent financial adviser to the Independent Shareholders, containing its recommendations to the Independent Shareholders, is set out on pages 42 to 56 of this circular.

A notice convening the EGM to be held at Plaza I-III, Lower Lobby, Novotel Century Hong Kong, 238 Jaffe Road, Wanchai, Hong Kong, on 14th November, 2003 at 10:00 a.m. is set out on pages 136 to 143 of this circular. A form of proxy for use at the EGM is enclosed. Regardless of whether you intend to attend the EGM, you must complete and return the enclosed form of proxy in accordance with the instructions printed thereon as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the EGM or any adjournment thereof. Under Article 95 of the New Memorandum and New Articles of Association of the Company, a vote given in accordance with the terms of the proxy shall be valid notwithstanding the revocation of the proxy or power of attorney or other authority under which the proxy was executed provided that no intimation in writing of such revocation shall have been received by the Company at 7th Floor, Allied Kajima Building, 138 Gloucester Road, Wanchai, Hong Kong not less than two hours before the holding of the EGM or any adjourned EGM.

21st October, 2003

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Expected Timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Letter from the Provisional Liquidators
Introduction and Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Existing Business of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
The Restructuring Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
Conditions Precedent to the Restructuring Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24
Effects of the Restructuring Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	25
Use of Proceeds from the Subscription . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	28
Directors and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	28
Intention of the Investor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	29
General Mandates to Issue and Repurchase New Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	29
Publication and Despatch of Audited Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	29
Termination of the Former Restructuring Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	30
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	30
Trading Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	31
Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	33
Creditors’ Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	34
Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	34
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	34
Letter from the Investor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	35
Letter from the Independent Financial Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	42
Appendix I – Financial information of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	57
Appendix II – Cashflow Projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	115
Appendix III – Valuation report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	122
Appendix IV – Explanatory statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	125
Appendix V – General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	128
Notice of Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	136

DEFINITIONS

In this document, the following expressions have the following meanings:

“Allied National” Allied National Limited, a wholly owned subsidiary of the Company incorporated in the British Virgin Islands with limited liability, and its subsidiaries
“AMS” AMS Corporate Finance Limited, a deemed licensed corporation under the SFO and the independent financial adviser to the Independent Shareholders in respect of the Restructuring Proposal and the Whitewash Waiver
“Asian Capital” Asian Capital (Corporate Finance) Limited, a licensed corporation under the SFO and the financial adviser to the Company
“Beijing Jitai” Beijing Jitai Construction Installation Engineering Company Limited (北京基泰建築安裝工程有限公司 ), the contractor of the 24 townhouses of Pentagon Profits. Beijing Jitai was the selling party in each of the sale and purchase agreements in relation to the 24 townhouses
“Beijing Xinglong ” Beijing Xinglong Park Company Limited (北京興隆公園有限公司 ), the developer of the 24 townhouses of Pentagon Profits
“Board”

the board of Directors of the Company

“Capital Restructuring” the proposed (a) reduction of the par value of every issued Shares from HK$0.05 each to HK$0.0006 each and cancellation of all unissued Shares; (b) consolidation of every 100 issued shares reduced pursuant to (a) above of HK$0.0006 each into 1 share of HK$0.06; (c) subdivision of each of the issued share reduced and consolidated pursuant to (a) and (b) above into 6 New Shares of HK$0.01 each; and (d) reduction of the authorised share capital to HK$100,000,000 divided into 10,000,000,000 New Shares of HK$0.01 each
“Cayman Companies Law”

the Companies Law (2003 Revision) of the Cayman Islands

“Cayman Islands Court” the Grand Court of the Cayman Islands

“CCASS”

the Central Clearing and Settlement System established and operated by HKSCC

“CCIF”

Charles Chan, Ip & Fung CPA Ltd., Certified Public Accountants, Hong Kong

“Code”

the Hong Kong Code on Takeovers and Mergers

DEFINITIONS

“Companies Ordinance” the Companies Ordinance (Chapter 32 of the Laws of Hong Kong) “Company” Seapower Resources International Limited (Provisional Liquidators Appointed), a company incorporated in the Cayman Islands with limited liability and the securities of which are listed on the Stock Exchange
“Completion” the closing of the transactions under the Restructuring Agreement and the Subscription Agreement
“Courts” the Cayman Islands Court and the HK Court
“Creditors” any person to whom the Company owes a claim other than the Investor and the preferential creditors (which means any creditor of the Company with a claim which would be treated as a preferential claim and have priority in winding-up commenced on 11th December, 2001 in Hong Kong pursuant to section 265 of the Companies Ordinance or would have priority in the Cayman Islands pursuant to section 162 of the Cayman Companies Law). For the avoidance of doubt, the Investor is not a creditor of the Company
“Creditors’ Indebtedness” the indebtedness owing to the Creditors by the Company as at the Latest Practicable Date and estimated at approximately HK$1,589 million
“Debt Restructuring” the proposed restructuring of the indebtedness and liabilities of the Company pursuant to the Restructuring Proposal
“Directors” directors of the Company
“EGM” the extraordinary general meeting of the Company to be held at Plaza I-III, Lower Lobby, Novotel Century Hong Kong, 238 Jaffe Road, Wanchai, Hong Kong, on 14th November, 2003 at 10:00 a.m., the notice of which is set out on pages 136 to 143 of this circular
“Eligible Participant” means any employee (whether full-time or part-time) or executive, non-executive or independent non-executive directors, or consultants or advisers who provide advisory services to the Company or any of its subsidiaries in connection with their businesses from time to time
“Escrow Agent” RSM Nelson Wheeler Corporate Advisory Services Limited, a company incorporated in Hong Kong, the registered office of which is situated at 7th Floor, Allied Kajima Building, 138 Gloucester Road, Wan Chai, Hong Kong
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DEFINITIONS

“Executive”	the Executive Director of the Corporate Finance Division of the
	SFC or any delegate of the Executive Director
“Former Investors”	Leader Glory Holdings Limited, a company incorporated in the
	British Virgin Islands with limited liability and Pang Man Kin,
	Nixon
“Former Restructuring Agreement”	the restructuring agreement dated 22nd June, 2002 entered into
	between the Provisional Liquidators and the Former Investors and
	was terminated by the Provisional Liquidators on 5th March, 2003
	in accordance with its terms
“Group”	the Company and its subsidiaries
“Guarantors”	the Operators and the Company
“HKSCC”	Hong Kong Securities Clearing Company Limited
“HK Court”	the Court of First Instance of the High Court of Hong Kong, SAR
“Hong Kong”	the Hong Kong Special Administrative Region of the PRC
“Horwath Capital”	Horwath Capital Asia Limited, a deemed licensed corporation
	under the SFO and the financial adviser to the Investor
“Independent Shareholders”	Shareholders who are not involved or have no interest in the
	Restructuring Agreement, the Subscription Agreement and the
	Schemes other than their interest as a Shareholder
“Investor”	Many Returns Limited, a company incorporated in the British
	Virgin Islands with limited liability. The Investor, its sole
	shareholder and sole director, Mr. Kenneth Chan, are independent
	of and not connected with and not parties acting in concert with
	the Company, the directors, chief executive or substantial
	shareholder of the Company and its subsidiaries and their
	respective associates (as defined in the Listing Rules) and concert
	parties, Mr. Kenneth Chan is the principal member of the Investor’s
	concert group
“iPower”	iPower Warehousing Management System Limited, a company
	incorporated in the British Virgin Islands with limited liability
	and wholly owned by the Company. iPower owns the rights to the
	software programs which provide warehousing management system
	and services to operators of local and overseas warehouses. It
	receives license fees from granting non-exclusive rights to the
	operators to use the software programs

DEFINITIONS

“Latest Practicable Date” 17th October, 2003, being the latest practicable date prior to the printing of this circular for ascertaining certain information referred to this circular
“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange
“Long Stop Date” 15th November, 2003 or such later date up to and including 31st December, 2003 as the Investor, the Company and the Provisional Liquidators may agree in writing
“New Share(s)” ordinary shares of HK$0.01 each in the capital of the Company upon the Capital Restructuring becoming effective
“Operators” Yiu Fung, Yiu Fai and Seapower Resources Cold Storage which are wholly-owned by the Company and operated cold storage and warehousing business from three properties located in Hong Kong.
“Pentagon Profits” Pentagon Profits Limited, the Company’s wholly-owned subsidiary incorporated in the British Virgin Islands with an 100% investment in 24 townhouses in Beijing
“Petitioning Creditor” Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., Hong Kong Branch, on its own behalf and as an agent for Wing Hang Bank Limited, Wing Lung Bank Limited and Standard Chartered Bank in connection with a syndicated loan agreement dated 3rd December, 1998
“PRC” the People’s Republic of China which, for the purpose of this circular, excludes Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan
“Provisional Liquidators” collectively Messrs. Cosimo Borrelli and Fan Wai Kuen of RSM Nelson Wheeler Corporate Advisory Services Limited, the joint and several provisional liquidators of the Company
“Receivables” the Company’s outstanding receivables with a principal amount of approximately HK$187 million as at the Latest Practicable Date
“Relevant Period” the period commencing on 18th December, 2002 (the date of commencement of the six month period prior to the date of the joint announcement dated 18th June, 2003 in relation to the Restructuring Proposal) and ending on the Latest Practicable Date
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	DEFINITIONS
“Restructuring Agreement”	the conditional agreement dated 14th May, 2003 among the
	Company, the Provisional Liquidators, the Investor and the Escrow
	Agent
“Restructuring Proposal”	the proposed restructuring of the Company through Capital
	Restructuring, Debt Restructuring involving the Schemes, as well
	as Subscription contemplated under the Restructuring Agreement
	and the Subscription Agreement
“Scheme Administrators”	such persons appointed pursuant to the terms of the Schemes
“Scheme(s)”	the proposed schemes of arrangement in relation to the Company
	under section 86 of the Cayman Companies Law and section 166
	of the Companies Ordinance made between the Company and the
	Creditors, to be approved or imposed by the Courts and the
	Creditors with or without modification
“SDI”	Seapower Developments (Indonesia) Limited, the Company’s
	wholly owned subsidiary incorporated in the British Virgin Islands,
	its sole investment being various plots of land in Indonesia
“Seapower Resources Cold Storage”	Seapower Resources Cold Storage & Warehousing Limited (In
	Compulsory Liquidation), a company incorporated in Hong Kong
	with limited liability and is a wholly-owned subsidiary of the
	Company
“Seapower Finance”	Seapower Finance Limited, a company incorporated in Hong Kong
	with limited liability and is wholly owned by the Company
“Seapower Logistics”	Seapower Logistics Limited, a company incorporated in Hong
	Kong with limited liability and is wholly owned by the Company
“SFC”	Securities and Futures Commission in Hong Kong
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the Laws of
	Hong Kong)
“Share(s)”	ordinary share(s) of HK$0.05 each in the existing capital of the
	Company
“Share Option Scheme”	the share option scheme of the Company accepted on 30th
	September, 1999, all the options granted pursuant to which have
	lapsed in accordance with its terms as at the Latest Practicable
	Date

DEFINITIONS

“Shareholders”

the shareholders of the Company

“Stock Exchange”
The Stock Exchange of Hong Kong Limited
“Subscription”
the proposed subscription of 4,600,000,000 New Shares at par value of HK$0.01 each by the Investor, representing approximately 96.06% of the issued share capital of the Company upon Completion, for an aggregate amount of HK$46 million and the proposed subscription of Warrants by the Investor pursuant to the Subscription Agreement
“Subscription Agreement” the conditional agreement dated 11th August, 2003 entered into between the Company, the Provisional Liquidators, the Investors and the Escrow Agent in connection with the Subscription
“Supplemental Agreement” a supplemental agreement dated 11th August, 2003 and entered into between the Company, the Provisional Liquidators, the Investors and the Escrow Agent which is supplemental to and amends the Restructuring Agreement
“Warrants” 3-year unlisted and transferable warrants of the Company to be issued to the Investor upon Completion pursuant to the Subscription Agreement, which entitle the holder(s) to subscribe for a number of New Shares representing 20% of the enlarged issued share capital of the Company immediately upon Completion, or such other number of warrants as the Stock Exchange or any other regulatory authority may approve, at an exercise price of HK$0.01 per New Share (subject to adjustment), for a total consideration of HK$1.00
“Warrants Instrument” the instrument which sets out the terms and conditions of the Warrants
“Whitewash Waiver” a waiver by the Executive pursuant to Note 1 of the Notes on dispensations from Rule 26 of the Code from the obligation of the Investor and parties acting in concert with it to make a general offer for all the New Shares of the Company not already owned or agreed to be acquired by them upon Completion or the exercise of the Warrants
“Yiu Fai” Yiu Fai Warehousing Limited (In Compulsory Liquidation), a company incorporated in Hong Kong with limited liability and is a wholly-owned subsidiary of the Company
6 -

DEFINITIONS

“Yiu Fung”	Yiu Fung Cold Storage & Warehousing Limited (In Compulsory
	Liquidation), a company incorporated in Hong Kong with limited
	liability and is a wholly-owned subsidiary of the Company
“HK$ and cents”	Hong Kong dollars and cents, the lawful currency of Hong Kong

EXPECTED TIMETABLE

2003

Announcement of the interim results for the six months ended 30th September 2002 . . . . . . 31st October Latest time for lodging forms of proxy for the EGM . . . . . . . . . . . . . . . . . . 10:00 a.m. on 12th November EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10:00 a.m. on 14th November

The following events are conditional on, amongst other things, the availability of the HK Court and the Cayman Islands Court, results of the EGM, and the restoration of sufficient public float of not less than 25% of the enlarged issued share capital of the Company. Accordingly, there is no guarantee that trading in the shares of the Company can be resumed in accordance with the timetable set out below. Further announcements will be made to update the Shareholders and potential investors as and when appropriate.

HK Court hearing of petition to sanction the Scheme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14th November Completion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15th November Announcement of results of the EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17th November Announcement of the Completion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17th November Existing counter for trading in the Shares in board lots of 5,000 Shares closes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17th November Temporary counter for trading in New Shares in board lots of 300 New Shares in the form of existing share certificates for existing Shares opens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17th November First day of free exchange of existing share certificates for new share certificates for New Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17th November First day of operation of odd lot trading facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17th November Existing counter for trading in New Shares in board lots of 100,000 New Shares in the form of new shares certificates for New Shares re-opens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1st December Parallel trading in New Shares (in the form of new share certificates and existing share certificates) starts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1st December Temporary counter for trading in New Shares in board lots of 300 New Shares (in the form of existing share certificates) closes . . . . . . . . . . . . . . . . . . 22nd December Parallel trading in New Shares (in the form of new share certificates and existing share certificates) ends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22nd December Last day of operation of odd lot trading facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22nd December Free exchange of existing share certificates for new share certificates for New Shares ends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29th December

Note: Hearing is being sought in the Cayman Islands Court to approve the petition to sanction the Scheme. Further announcement in relation to the date of the hearing by the Cayman Islands Court will be made as and when appropriate.

LETTER FROM THE PROVISIONAL LIQUIDATORS

21st October, 2003

To the Shareholders,

Dear Sirs,

1. INTRODUCTION AND BACKGROUND

The Provisional Liquidators and the Investor jointly announced on 18th June, 2003 that the Restructuring Agreement regarding the Restructuring Proposal for the Company was signed on 14th May, 2003. The Restructuring Agreement was amended by the Supplemental Agreement dated 11th August, 2003 which sets out minor amendments to the definition of the Long Stop Date, the manner by which the resolution in respect of the authorized share capital will be passed at the EGM and the allocation of payments by the Investor and all these amendments have been reflected in this circular. The Subscription Agreement regarding the Subscription by the Investor was also entered into on 11th August, 2003.

The Company was incorporated in the Cayman Islands in 1989. It was originally engaged in the cold storage warehousing business and from 1992 to 1995 diversified into financial services, food related businesses, logistic management services and property holding. This rapid expansion into other non-core businesses utilised substantial financial and human resources. As a result of the lack of proper operational and financial management of the overall business operations and the Asian financial crisis, recession and weakened consumer sentiment, the Group’s turnover and the financial performance of the Company began to deteriorate in 1998. The Group’s audited turnover decreased from about HK$956.29 million for the financial year ended 31st March, 1998 to about HK$201.11 million for the financial year ended 31st March, 2001. The Group’s audited loss for the financial year ended 31st March, 2001 was HK$239.05 million.

On 11th December, 2001, winding up petitions were served on the Guarantors and South East Asia Overseas Finance Limited (In Compulsory Liquidation) by the Petitioning Creditor as disclosed in the Company’s announcement dated 14th December, 2001. Pursuant to a loan agreement dated 3rd December, 1998, the Petitioning Creditor agreed to make available to South East Asia Overseas Finance Limited (In Compulsory Liquidation) a loan facility of up to HK$480 million, and the Guarantors guaranteed the loan facility. South East Asia Overseas Finance Limited (In Compulsory

LETTER FROM THE PROVISIONAL LIQUIDATORS

Liquidation) used a total of HK$453 million of the loan facility but failed to repay to the Petitioning Creditor in four instalments between December 1999 and October 2000 in accordance with the repayment schedule. As at 5th December, 2001, the outstanding borrowings including interest, approximated HK$491 million. The Petitioning Creditor filed the winding-up petition to recover the amount due and outstanding under the loan facility against South East Asia Overseas Finance Limited (In Compulsory Liquidation) as borrower and the Guarantors. On 31st December, 2001, the HK Court ordered the Provisional Liquidators be appointed to the Company, the other Guarantors and South East Asia Overseas Finance Limited (In Compulsory Liquidation).

Prior to the appointment of the Provisional Liquidators, receivers were appointed to the three properties located at Kwai Chung Town Lot Nos. 286, 288 and 360 in Hong Kong from which the Group operated its cold storage warehousing business. The properties located at Kwai Chung Town Lot Nos. 288 and 360, at which Yiu Fung and Seapower Resources Cold Storage were located, were mortgaged to the Petitioning Creditor to secure the loan facility of HK$480 million. Due to the non-repayment of the loan of approximately HK$475 million as at 31st May, 2001, receivers were appointed to the mortgaged properties by notices dated 11th June, 2001. The remaining property located at Kwai Chung Town Lot No 286, at which Yiu Fai was located, was mortgaged to other banks to secure bank loans for an aggregate amount of HK$324 million, and as a result of defaulting on their bank loans, a receiver was also appointed over the remaining property by a notice dated 9th August, 2001. The receivers disposed of the three properties for a total cash consideration of HK$560 million between 28th January, 2002 and 11th March, 2002 and after deducting costs incurred by mortgages in connection with the disposal of the three properties of approximately HK$7 million, the net sale proceeds of HK$553 million were applied to repay the indebtedness due to banks, including the Petitioning Creditor, which held a first mortgage over the three properties. The interest accrued for the non-payment of the abovementioned loans up to 25th August, 2003 was approximately HK$65 million. As at the Latest Practicable Date, about HK$311 million of the abovementioned bank loans remains outstanding. The Provisional Liquidators also sold certain plant and machinery located on these properties and trade receivables owned by the Operators and Seapower Logistics, to the purchasers of the three properties for them to carry on the cold storage warehousing business, for a total cash consideration of approximately HK$36.04 million between 8th February, 2002 and 4th March, 2002 and the Group discontinuing its cold storage warehousing operation in Hong Kong. Details of these disposals were announced by the Company between 1st February, 2002 and 8th March, 2002. The HK Court ordered the winding up of South East Asia Overseas Finance Limited (In Compulsory Liquidation) on 25th February, 2002, and the Operators on 27th March, 2002.

Following their appointment, the Provisional Liquidators focused on carrying on, stabilising and enhancing the operations of the Group, including by facilitating a restructuring of the Company. On 22nd June, 2002, the Provisional Liquidators entered into the Former Restructuring Agreement with the Former Investors. On 5th March, 2003, the Former Restructuring Agreement was terminated due to, inter alia, the on-going default by the Former Investors in relation to the subscription proceeds and the post closing working capital. Details in relation to the termination were set out in full in the public announcement dated 5th March, 2003 and in the paragraph headed “Termination of the Former Restructuring Agreement” as set out on page 30 of this circular. Since the termination of the Former Restructuring Agreement, the Provisional Liquidators have been actively searching for potential investors to facilitate the necessary restructuring of the Company.

10 -

LETTER FROM THE PROVISIONAL LIQUIDATORS

On 7th March, 2003, the Stock Exchange informed the Company that the Company had been placed into the second stage of the delisting procedures in accordance with Practice Note 17 of the Listing Rules and that the Company was required to submit a resumption proposal to the Stock Exchange within the following six months.

On 4th April, 2003, the Provisional Liquidators and the Investor jointly submitted a resumption proposal to the Stock Exchange.

After taking into consideration the current financial position of the Group and other alternative restructuring proposals received by the Company since the termination of the Former Restructuring Agreement, the Provisional Liquidators are of the view that the present Restructuring Proposal represents the best option available to the Company, its Creditors and its Shareholders having regard to all relevant factors, including the returns available to both the Creditors and the Shareholders, the availability of alternatives for the Creditors to recover their debts and the time required to conclude the Restructuring Proposal. On 14th May, 2003, the Provisional Liquidators and the Investor entered into the Restructuring Agreement.

Meetings of Creditors to consider and approve the Schemes were held on 25th August, 2003 at Plaza V, Lower Lobby, Novotel Century Hong Kong, 238 Jaffe Road, Wanchai, Hong Kong Special Administrative Region. As announced in the Company’s announcement dated 25 August 2003, the Schemes were approved unanimously by the Creditors with claims of HK$1,516,015,040 in value and who were present and voting in person or by proxy at the Creditors’ meetings.

The Restructuring Proposal, if successfully implemented, will, amongst other things, result in:

(i) an adjustment of the nominal value of Shares in the Company through the Capital Restructuring;
(ii) the Investor’s injection of new capital of HK$46 million into the Company by subscribing for 4,600,000,000 New Shares which represents approximately 96.06% of the enlarged issued share capital of the Company;
(iii) the Creditors’ Indebtedness due by the Company of approximately HK$1,589 million being released and discharged in its entirety (as detailed in the subsection headed “Debt Restructuring” under the section headed “The Restructuring Proposal”);
(iv) the Group’s financial position being improved from net liabilities of approximately HK$1,304 million as at 31st March, 2003 to unaudited net assets of approximately HK$17.6 million immediately upon Completion but before full exercise of Warrants; and
(v) the resumption of trading in the New Shares of the Company upon Completion subject to sufficient public float being restored.

The purpose of this circular is to provide you with further information in relation to the Restructuring Proposal and the position concerning the termination of the Former Restructuring Agreement, to include a letter from AMS to set out its advice to the Independent Shareholders in respect of the Restructuring Proposal and the Whitewash Waiver and to give you notice of the EGM at which

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resolutions will be proposed to seek your approval of, amongst other things, (i) the Capital Restructuring; (ii) the Restructuring Agreement; (iii) the Subscription Agreement; (iv) the Whitewash Waiver; (v) the appointment of new Directors to be nominated by the Investor conditional on Completion; (vi) the removal of all current Directors; (vii) the granting of general mandate to future Directors to exercise the powers of the Company to issue, allot or deal with additional New Shares as set out in the notice of the EGM; (viii) the granting of general mandate to future Directors to repurchase New Shares as set out in the notice of the EGM; and (ix) the removal and appointment of the Company’s auditor on Completion as requested by the Investor. The notice of the EGM is set out on pages 136 to 143 of this circular.

Trading in the shares of the Company has been suspended at the request of the Company since 2:30 p.m. on 28 December 2001 and will remain suspended until Completion and a sufficient public float has been restored.

2. EXISTING BUSINESS OF THE GROUP

Since the appointment of the Provisional Liquidators on 31st December, 2001, the Group’s noncore business operations have been discontinued and only the core businesses of logistics management services and cold storage and warehousing have been maintained, albeit on a lesser scale than in previous years, as the Company has Provisional Liquidators appointed and is suffering from a lack of working capital. The turnovers of the Group for each of the financial years ended 31st March, 2001, 2002 and 2003 were approximately HK$191.8 million, HK$165.3 million and HK$16.9 million respectively.

(A) Core Businesses of the Group

The Group’s current principal businesses are the provision of logistics management services and the operation of cold storage and warehousing businesses in Australia. According to the valuation report dated 13th August, 2003 as set out in Appendix III of this circular the value of the cold storage warehouse in Australia was approximately AUD$3.1 million. The Group has about 20 years of experience in providing specialized storage services for climate-controlled products to importers, traders, wholesalers and manufacturer/processors in Hong Kong and Australia.

Given the Company currently has Provisional Liquidators appointed and is suffering from a lack of working capital, only the core businesses of logistics management services and cold storage and warehousing have continued and are able to support the current operations themselves albeit on a smaller scale after the Company discontinued its cold storage warehousing business in Hong Kong in March 2002 than in previous years. Turnovers from cold storage warehousing and logistics management for the years ended 31st March, 2001, 2002 and 2003 were HK$178,861,000, HK$159,158,000, and HK$16,881,000, respectively. The profit or (loss) in respect of this business for each of the three financial years ended 31st March, 2003 were HK$(57,588,000), HK$(529,906,000), and HK$5,977,000, respectively. Geographically, the turnovers derived from the cold storage and warehousing business located in Australia for each of the three years ended 31st March, 2003 were HK$17,078,000, HK$13,701,000, and HK$16,881,000, while the respective profit or (loss) were HK$(1,878,000), HK$(790,000), and HK$8,079,000. The deterioration in the turnover and the results was mainly attributable to the cessation of the cold storage and warehousing

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operations in Hong Kong during January 2002 to March 2002, which represented over 90% of the consolidated turnover of the Group in the two financial years ended 31st March, 2001 and 2002. The Group’s turnover for the year ended 31 March 2003 was derived from the cold storage and warehousing businesses in Australia.

The Provisional Liquidators maintained the business development division which was set up in 2000 for the purpose of developing logistic business in the PRC in light of the interest in this division displayed by those parties who expressed an interest in the rescue of the Company, including the Investor. Since their appointment on 31 December 2001, the Provisional Liquidators have paid total costs of HK$660,000 in respect of the maintenance of this division. The monthly cost required to maintain the division is about HK$30,000. There has been no turnover generated by this division since its establishment. Details of why the Investor would like to keep this division can be found in the Letter from the Investor.

The Investor and its sole director intend to focus on the Group’s core businesses of providing logistics management services and the operations of warehousing and cold storage businesses post Completion.

The Investor will also conduct a detailed review of the financial position, business operations and asset portfolio of the Group upon Completion with a view to developing a corporate strategy to revitalize the Group’s existing businesses of logistics management services and cold storage warehousing and enhance the profitability of the Group. The Investor and its sole director do not have any plans to layoff of any employees of the Group.

(B) Under the Restructuring Proposal, the entire equity interest in Pentagon Profits and SDI will continue to remain with the Company.

(i) Pentagon Profits

Set out below is a summary of the work undertaken by the Provisional Liquidators in relation to Pentagon Profits since March 2002.

(a) An investigation of the available books and records of the Company in relation to Pentagon Profits, including management accounts, banking records, the sale and purchase agreements in relation to the 24 townhouses in Beijing dated 2nd March 1995 and 22nd May 1995, the audited financial statements of the Group from 1995 to 2001 and the previous valuation report of the 24 townhouses prepared by Chesterton Petty Limited dated 31st May 2001.
(b) Further enquiries of the Company’s bankers and auditors in connection with the payments made by Pentagon Profits for the 24 townhouses.
(c) Meeting with, and interviewing, Choi Siu Lui, Shirley, Choi Sung Fung, Norman and Choi Sai Leung, the former directors of the Company and Pentagon Profits who were primarily responsible for the affairs of Pentagon Profits.
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(d) Meeting with, and interviewing, other former directors of Pentagon Profits and former senior managers and consultants of the Company who were involved in the affairs of Pentagon Profits.
(e) Undertaking preliminary enquiries in the PRC until August 2002 and engaging PRC legal advisers to further these investigations.
(f) Physical site visit of Xinglong Lakeview Villas by one of the Provisional Liquidators.

Around May 2002, that is, prior to the entering into of the Former Restructuring Agreement, the Former Investors advised the Provisional Liquidators verbally that they had undertaken their own enquiries in relation to the 24 townhouses located at Xinglong Lakeview Villas, Xinglong Centre, Xinglong Zhuang, Gaobeidian, Chaoyang District, Beijing (北京朝陽區高碑店興隆莊興隆中心興隆湖景別墅) which Pentagon Profits was believed to have purchased in 1995. In early August 2002, the Former Investors advised the Provisional Liquidators verbally that they were confident that they could recover the titles to 24 townhouses (or compensation for the 24 townhouses) more effectively than the Provisional Liquidators prior to completion of the Former Restructuring Agreement and the Scheme Administrator following completion of the Former Restructuring Agreement. In addition, the Former Investors were concerned that further enquiries by the Provisional Liquidators, at that time, might jeopardize the Former Investors obtaining title to the 24 townhouses and the possible recovery available to the Former Investors in respect of the 24 townhouses post completion of the Former Restructuring Agreement and, therefore, requested that the Provisional Liquidators cease their investigations.

Based on the verbal advice and requests of the Former Investors as set out above and the results of the work undertaken by the Provisional Liquidators up to early August 2002, and having taken into account (a) the time that had elapsed since the first purchase and sale agreement in connection with the 24 townhouses was signed, (b) the inherent risks associated with litigation in the PRC, (c) limited funds available to the Provisional Liquidators, and (d) the Former Investors’ verbal representation on their ability to recover the titles to 24 townhouses (or compensation for the 24 townhouses) more effectively than the Provisional Liquidators post Completion, the Provisional Liquidators informed the committee of Creditors in their letter dated 12th August, 2002 that any recovery from Pentagon Profits would involve further investigations and possible legal proceedings to obtain title to, and/or possession of, the townhouses and suspended their investigations in relation to Pentagon Profits at around the end of August 2002.

The valuation report as at 31st August, 2002, that was included in Appendix III of the Company’s circular dated 14th November, 2002, stated “the Group is in the process of obtaining Certificate for Housing Ownership and land use right title in respect of the investment properties”. It was also at around the end of August 2002 that the Provisional Liquidators, at the request of the Former Investors, formally ceased their investigations on behalf of the Group in relation to Pentagon Profits. However, this was only a cessation by the Provisional Liquidators of their efforts on behalf of the Group. At the same time, it was intended that the Former Investors would thereafter assume this role on behalf of the Group,

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with the intention of their procuring the Group to obtain Certificate for Housing Ownership and land use right title in respect of the 24 townhouses in Beijing following Completion. Indeed, the Former Investors expressed optimism that this could be achieved. Neither the Provisional Liquidators nor the Former Investors could themselves have obtained Certificate for Housing Ownership and land use right title in respect of the 24 townhouses. Only the Group had any prospect of doing so. Accordingly, the statement contained in the valuation report as set out in Appendix III of the Company’s circular dated 14th November, 2002 that the “Group” was in the process of obtaining Certificate for Housing Ownership and land use right title in respect of the investment properties was accurate. This process involved the steps/enquiries that had already been taken in this connection by the Provisional Liquidators (as set out in paragraphs (a) to (f) on pages 13 and 14 of the circular) and by the Former Investors prior to 31st August, 2002 and the future steps that the Former Investors were expected to take thereafter and that they expressed optimism would be successful.

Only the Group had the prospect of obtaining Certificate for Housing Ownership and land use right title in respect of the investment properties. Accordingly, the steps taken by the Provisional Liquidators and the Former Investors in the process that were designed to achieve that goal were taken by them on behalf of the “Group”. Ascertaining the matters set out in paragraphs (a) to (f) on pages 13 and 14 of the circular was an essential element in the process of the Group obtaining the Certificate for Housing Ownership and land use right title in respect of the investment properties. Plainly, it is correct to characterize this as a part of the process adopted by the Group. Having ascertained the information in question and having then sought advice from a PRC legal adviser, no approaches were made to the relevant government agencies in the PRC by the Provisional Liquidators or PRC legal advisers on behalf of the Group because, in so far as the Provisional Liquidators were concerned, the process was halted at the request of the Former Investors who indicated that they would continue the process by seeking to procure Certificate for Housing Ownership and land use right title on behalf of the Group. Precisely what they did in this connection to further this process on behalf of the Group is not known. However, as at 14th November, 2002, it was envisaged by the parties that the process that had been commenced and advanced prior to 31st August, 2002 was intended to be an on-going one after that date.

Based on the information available to the Provisional Liquidators, the valuer had been performing the valuation in respect of the 24 townhouses for the Group for each of the financial years between 1996 to 2001 and it was reasonable to expect that the valuer would have already acquired sufficient knowledge and was familiar with the background in respect of the 24 townhouses. With the benefit of hindsight, it might well be correct to say that the valuer should have been provided with additional information. However, at the time in question, the Provisional Liquidators considered it was prudent not to provide information to the valuer which had not been verified and which required further investigation.

The process described by the valuer of the Group obtaining Certificate for Housing Ownership and land use right title in respect of the investment properties was commenced by the Provisional Liquidators and carried forward by the Former Investors in the manner already described on pages 13 and 14 of this circular in some detail. Each of them carried out this process on behalf of the Company and the Group. Accordingly, even though the Provisional

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Liquidators halted their part in the process at the request of the Former Investors, the process was nonetheless a continuing one through the efforts of the Former Investors. Both the Provisional Liquidators and the Former Investors knew this to be the position as at 14th November, 2002. After the Former Investors took over this process, the Provisional Liquidators stood ready, willing and able, to the extent that budgetary constraints made it possible, to assist the Former Investors in this process. Their main role was to provide the Former Investors with information that they had gathered during the time that they were actively involved in the process. The Former Investors did not formally report to the Provisional Liquidators concerning the steps that it was taking, but regularly advised the Provisional Liquidators verbally after 31st August, 2002 that their efforts were ongoing. This was very much an exercise that the Former Investors had taken over and, at the time, there was no reason for the Provisional Liquidators to be seeking verification as to whether the statements of the Former Investors were true and as to the nature of their efforts.

Following the termination of the Former Restructuring Agreement, and in response to various statements in relation to Pentagon Profits made by the Former Investors in an announcement dated 10th March, 2003, the Provisional Liquidators appointed a PRC legal adviser, East Rain Law Office (華意律師事務所) to further investigate Pentagon Profits’ title to the 24 townhouses. The PRC legal adviser, in its legal opinion dated 21st August, 2003, stated that notwithstanding the payments made by Pentagon Profits (to parties other than Beijing Xinglong), in its opinion, Pentagon Profits had entered into the sale and purchase agreements with unauthorized entities and, accordingly that there was little prospect of the Group obtaining title to the 24 townhouses without substantial legal proceedings. The Provisional Liquidators did not know Beijing Jitai was an unauthorised entity prior to 14th November, 2002 despite Beijing Jitai denied knowledge of the sale and purchase agreements in relation to the 24 townhouses.

The Provisional Liquidators only received confirmation from their PRC legal adviser in its legal opinion dated 21st August, 2003 that Beijing Jitai, the selling party to whom Pentagon Profits entered into the sale and purchase agreements in 1995 in respect of the 24 townhouses was not the owner/developer of those townhouses. The PRC legal adviser also confirmed in the same opinion that the statement made by Beijing Jitai claiming that they had obtained the relevant authority/rights to the townhouse through the developer and the necessary legal procedures, was not accurate and concluded that Beijing Jitai was not the authorised entity.

On the basis of the above advice of the PRC legal adviser, there is little prospect of the Certificate for Housing Ownership and land use right title being obtained in respect of the 24 townhouses. Accordingly, no value is attributed to Pentagon Profits upon Completion.

The Provisional Liquidators had limited information in relation to Pentagon Profits at the time when the circular dated 14th November, 2002 was despatched to Shareholders as compared to the information that was discovered following the termination of the Former Restructuring Agreement. Based on (a) the verbal advice and requests of the Former Investors referred to above and the resulting suspension of the investigation by the Provisional Liquidators in relation to Pentagon Profits, (b) the fact that the 24 townhouses have been recorded as an asset in the audited accounts of the Group since 1995 and there had been no qualifications made by the auditors of the Company or any comment by the Directors in respect of the townhouses, (c) the

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valuation report prepared as at 31st August, 2002, and having taken into account the information set out in the second paragraph on page 14 of this circular, there was no basis for the Provisional Liquidators to make any adjustments to Pentagon Profits before the despatch of the circular dated 14th November, 2002.

The following findings and information in relation to Pentagon Profits and the 24 townhouses were obtained by the Provisional Liquidators in the period from their appointment on 31st December, 2001 to the Latest Practicable Date and are primarily based on the books and records of the Company available to the Provisional Liquidators, the Provisional Liquidators’ interview with and enquiries of various former directors of Pentagon Profits, the former directors and senior management of the Company and the investigations carried out by the PRC legal adviser of the Provisional Liquidators, East Rain Law Office (華意律師事務所):

(a) the 24 townhouses were recorded as an asset in the audited accounts of the Group from mid 1995 until 2001 and no qualifications had been made by the auditors in respect of this asset;
(b) the books and records of the Group contain fewer than 50 pages of documents and correspondence in relation to the 24 townhouses, which recorded a book value of HK$135 million in the audited accounts prior to the appointment of the Provisional Liquidators on 31st December, 2001;
(c) Pentagon Profits entered into two separate sale and purchase agreements with Beijing Jitai on 2nd March, 1995 and 22nd May, 1995 to purchase 24 townhouses in total. Pentagon Profits entered into the second sale and purchase agreement notwithstanding the non-delivery of the title associated with the first purchase. Furthermore, the payments to a total amount of US$7 million due in respect of the second purchase were made on 23rd May, 1995 and 24th May, 1995 (that being before the due date for completion of the second purchase) to party other than the seller as stipulated in the second sale and purchase agreement;
(d) In early March 2002, one of the Provisional Liquidators conducted a site visit to the Xinglong Lakeview Villas (“Villas”) in Xinglong Centre, Xinglong Zhuang, Gaobeidian, Chaoyang District, Beijing (北京朝陽區高碑店興隆莊興隆中心興隆湖景別墅 ). During his site visit, the Provisional Liquidator met with representatives of the management office of the Villas and was informed that the company currently developing the Villas was not the original developer who entered into the sale and purchase agreements in relation to the 24 townhouses with the Company. The Provisional Liquidator was not able to identify which of those townhouses were the subject of the sales and purchase agreements.

The Provisional Liquidators’ preliminary enquiries also indicated that the Company had paid the purchase monies for the 24 townhouses and these monies had been received by Beijing Jitai (and other parties designated by Beijing Jitai) who entered into the sale and purchase agreements in relation to the 24 townhouses with the Company. The Provisional Liquidators enquiries also indicated that such funds might not have been received by them for the purchase of 24 townhouses.

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On 20th June, 2002, Beijing Jitai confirmed that it was the main sub-contractor of the 24 townhouses but that it has no knowledge of any sale and purchase agreements in relation to the 24 townhouses. Beijing Jitai advised however that its company chop was “lent” to an officer of Beijing Xinglong in 1995 to facilitate various funds transfers. The Provisional Liquidators considered this unusual. Beijing Jitai also confirmed the receipt of the two payments for US$955,000 and US$4,774,375, but has advised that these payments by Beijing Xinglong made were to settle outstanding construction liabilities. Notwithstanding Beijing Jitai denied knowledge of the sale and purchase agreements in relation to the 24 townhouses, Beijing Jitai was the selling party as stipulated in the sale and purchase agreements in relation to the 24 townhouses and the recipient of those payments made pursuant to the sale and purchase agreements, the Provisional Liquidators at that time were unable to determine the validity of the confirmation by Beijing Jitai.

The Provisional Liquidators had limited information in relation to Pentagon Profits at the time when the circular dated 14th November, 2002 was despatched to Shareholders. Information that was discovered following the termination of the Former Restructuring Agreement was not available then to the Provisional Liquidators. Given the circumstances of the Company at that time and based on (a) the fact that Beijing Jitai was the selling party as stipulated in the sale and purchase agreements as well as the recipient of those payment made pursuant to the sale and purchase agreements, (b) the fact that the 24 townhouses have been recorded as an asset in the audited accounts of the Group since 1995 and there had been no qualifications made by the auditors of the Company nor any adverse comment made by the Directors in respect of the townhouses, and (c) the work being undertaken by the Former Investors, the Provisional Liquidators consider it was a prudent approach to adopt at that time. Similarly, there was insufficient information available to make any provisions in relation to Pentagon Profits.

On 28th June, 2002, China National Precision Machinery Import & Export Corporation (“China National”) confirmed that they received US$4,980,000 from the Company in 1995 for the purchase of machinery. China National has denied any association or connection with the purchase of the 24 townhouses. China National has refused to provide any further information. There was no evidence of any substantial machinery purchase by the Group in 1995 or 1996.

(e) on 3rd April, 2003, the PRC legal adviser of the Provisional Liquidators advised that Mr. Choi Sai Leung has been the chairman of Beijing Xinglong, the developer of the townhouses at Xinglong Lakeview Villas since 9th February, 1993 and controls 77% of the shareholding in Beijing Xinglong via Carrie Investment Company Limited (加力置業有限公司), a company incorporated in Hong Kong;
(f) on 12th May, 2003, the PRC legal adviser of the Provisional Liquidators advised that, of the 24 townhouses supposedly acquired by Pentagon Profits, 11 have been sold by Beijing Xinglong to a third party and registered with the Beijing Housing Department in the PRC on 10th December, 1999 and 21st April, 2000;
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(g) in its legal opinion dated 21st August, 2003, the PRC legal adviser of the Provisional Liquidators advised that, as at 10th June, 2003, the purported purchase of the 24 townhouses by Pentagon Profits was not registered with the Beijing Municipal Administration of States Land Resources and Housing (“Beijing Housing Department”) in accordance with the applicable PRC laws. It is unlikely that Pentagon Profits will be able to register the purchase of the 24 townhouses with Beijing Housing Department in the PRC as required;
(h) in its legal opinion dated 21st August, 2003, the PRC legal adviser of the Provisional Liquidators advised that, notwithstanding the payments made by Pentagon Profits (to parties other than Beijing Xinglong), it is the opinion of the PRC legal adviser that Pentagon Profits entered into the sale and purchase agreements with unauthorized entities and, accordingly that there is little prospect of the Group obtaining title to the 24 townhouses without substantial legal proceedings;
(i) in light of the above, the Provisional Liquidators consider it prudent to attribute zero value to the 24 townhouses.

The information as set out in paragraphs (a), (b), (c) and (d) above was available to the Provisional Liquidators before the despatch of the circular of the Company dated 14th November, 2002. All other information set out in paragraphs (e), (f), (g), (h) and (i) above was only available after the despatch of the Company’s circular dated 14th November, 2002.

The information set out in paragraphs (a) and (b) above was previously disclosed in the audited reports as set out in Appendix I to the circular dated 14th November, 2002. The information in paragraph (c) and (d) above was not disclosed in the circular dated 14th November, 2002 as the Provisional Liquidators at that time had not completed their investigations of the sale and purchase agreements and the payments made pursuant to those agreements for the reasons set out in the second paragraph on page 14 of this circular.

Notwithstanding the findings as set out in paragraphs (a) to (d) on pages 17 and 18, the Provisional Liquidators had not completed their investigations concerning the sale and purchase agreements and the payments made pursuant to those agreements prior to 14th November, 2002. This, together with the verbal advice and the representations of the Former Investors that they were optimistic that they could obtain Certificate for Housing Ownership and land use right title in respect of the investment properties, meant that the Provisional Liquidators could not have attributed zero value to the townhouses at the time when the Company’s circular dated 14th November, 2002 was issued.

The findings as set out in paragraphs (a) to (d) on pages 17 and 18 were not provided to the valuer of the 24 townhouses when the Company’s circular dated 14th November, 2002 was prepared for the following reasons: (1) the information set out in paragraphs (a) and (b) was extracted from the annual reports of the Company, for which purpose the valuer had valued the 24 townhouses, as the valuer had done for the entire period between 1996 and up to 2001. (2) the information set out in paragraphs (c) and (d) was not provided to the valuer as the Provisional Liquidators at that time had not completed their investigations and were unable to determine the validity of those findings. The Provisional Liquidators considered this is prudent in respect of the value of the 24 townhouses as at 14th November, 2002.

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(ii) SDI

SDI made investments in 111 plots of land located in Indonesia. Based on the legal advice obtained by the Provisional Liquidators from the Indonesian legal adviser on 9 January 2003, 111 plots of land are held by 19 Indonesian trustees as the legal title holders on trust for the Group. The 111 plots of land have been recorded as an asset in the audited accounts of the Group from 31st March, 1998 until 31st March, 2001. As at 31st March, 2001, this asset was recorded in the audited accounts of the Group with a carrying amount of approximately HK$53,546,000.

The following statement was included in the audited accounts of the Group for the year ended 31st March, 2001, “The Group will proceed to obtain the legal title of the properties held for development in Indonesia when an extensive plan for development is formulated.”

Based on the information available to the Provisional Liquidators to date and legal advice obtained by the Provisional Liquidators from the Indonesian legal adviser, SDI does not possess the legal title to the various plots of land located in Indonesia. There is little evidence that the Company will be able to recover the legal title without incurring substantial time and legal costs. Similarly, as set out on pages 63 and 68 of this circular, the auditors who conducted the audits of the Group for the two financial years ended 31st March, 2002 and 2003 have not been able to obtain direct confirmation from the Indonesian trustees as to whether the land is still held in trust for the Group and to satisfy themselves as to whether SDI can exercise its rights to obtain the legal title of the land. In light of the above, the Provisional Liquidators considered it prudent to attribute zero value to the 111 plots of land in which SDI has made investments.

As stated in the auditors’ reports for the years ended 31st March, 2002 and 2003 as set out in Appendix I of the circular, the Group had fully provided for the carrying value of the land for the year ended 31st March, 2002 on the basis that the Group may not be able to obtain the title of the land.

On Completion, it is anticipated that the financial position of the Company will be improved as all liabilities of the Company will be compromised and discharged through the Schemes pursuant to section 86 of the Cayman Companies Law and section 166 of the Hong Kong Companies Ordinance and the Group will have sufficient working capital for on-going operations and pro forma unaudited net tangible asset value of approximately HK$17.6 million immediately upon Completion but before full exercise of Warrants.

3. THE RESTRUCTURING PROPOSAL

The Restructuring Proposal contemplated under the Restructuring Agreement and the Subscription Agreement involves the Capital Restructuring, the Debt Restructuring involving the Schemes, and the Subscription.

(A) Capital Restructuring

The existing authorised share capital of the Company is HK$1,000,000,000 divided into 20,000,000,000 Shares, of which 1,547,042,829 Shares of par value of HK$0.05 each are

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issued and credited as fully paid up. The Company’s share capital will be reorganised as follows:

(a) the par value of every issued Share will be reduced from HK$0.05 to HK$0.0006 and every unissued Share will be cancelled;
(b) every 100 issued shares reduced pursuant to (a) above of HK$0.0006 will be consolidated into 1 share of HK$0.06;
(c) each issued share reduced and consolidated pursuant to (a) and (b) above will be divided into 6 New Shares of HK$0.01 each; and
(d) the Company’s authorised share capital will be reduced to HK$100,000,000 divided into 10,000,000,000 New Shares.

After the completion of the Capital Restructuring, the authorised share capital of the Company will be HK$100,000,000 divided into 10,000,000,000 New Shares comprising of 9,907,177,430 unissued New Shares and 92,822,570 issued New Shares.

The Capital Restructuring will reduce part of the Company’s accumulated loss of approximately HK$1,606 million as at 31st March, 2003 to approximately HK$1,530 million.

The Capital Restructuring is subject to:

(a) the Shareholders’ approval at the EGM;
(b) the publication of the relevant notice in the Cayman Islands and all steps being taken as required by the Cayman Companies Law for the Capital Restructuring to become effective; and
(c) the Stock Exchange granting the listing of, and permission to deal in, the New Shares in issue upon the Capital Restructuring becoming effective.

Upon the Capital Restructuring becoming effective, the trading in the Shares in board lots of 5,000 Shares will be changed to the trading in the New Shares in board lots of 100,000 New Shares.

(B) Debt Restructuring

The Creditors’ Indebtedness is estimated to be approximately HK$1,589 million as at the Latest Practicable Date. This estimate is for indicative purposes only and will be subject to formal adjudication by the Scheme Administrators once the Schemes have been implemented.

The Schemes:

(i) Key Terms
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In consideration of the Creditors’ discharging and waiving all their claims against the Company, the Scheme Administrators will receive the following with an estimated value of HK$39 million (being the cash amount and the value of New Shares estimated at par value) from the Company for distribution to the Creditors pursuant to the Schemes. It is anticipated that the Creditors could recoup approximately HK$2.50 on every HK$100 claims through the following:

a) HK$38 million in cash from the Subscription proceeds to be paid by the Investor upon Completion;
b) 96,000,000 New Shares of HK$0.01 each (representing approximately 2.0% of the issued share capital of the Company upon Completion); and
c) any cash held by the Company as at the date of Completion. As the Company has a number of outstanding legal and other costs associated with the termination of the Former Restructuring Agreement and the adjudication of claims against the Company and its subsidiaries, the Provisional Liquidators expect the cash available on Completion to be minimal.
(ii) Other Terms
(a) Pursuant to the Restructuring Agreement, save for the subsidiaries remaining with the Company for the on-going operations of the Group post Completion as set out in note 2 to section 5 of Appendix I for the particulars of remaining principal subsidiaries, all other subsidiaries of the Company, most of which are either dormant or inactive and have net liabilities of approximately HK$664 million as at 31st March, 2003, will be transferred to the Provisional Liquidators and/or Scheme Administrators for the benefit of the creditors of those excluded subsidiaries on Completion. The cash amount held by those excluded subsidiaries as at the Latest Practicable Date is estimated to be HK$1.59 million.

As more detailed in sections 5 and 6 of Appendix I, as a result of the exclusion of those subsidiaries, the financial position of the Group will be further improved and therefore it is in the interests of the Shareholders. In light of the financial position of these excluded subsidiaries, the Creditors are entitled to the assets of these subsidiaries rather than the Shareholders of the Company.

(b) The Provisional Liquidators, on behalf of the Company, entered into the Restructuring Agreement with the Investor. Pursuant to the Restructuring Agreement, the Company (not the Investor) undertakes that it will use its best endeavours to realise in full and make all possible recoveries in connection with the Receivables within 12 months following Completion. The Receivables of the Company are mainly comprised of amounts due from former joint venture partners and margin clients. Approximately 80% of the Receivables are in relation to amounts due from the margin clients of Seapower Finance Limited. Based on the available books and records of the Company and the interviews and discussions between the Provisional Liquidators and the directors and
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LETTER FROM THE PROVISIONAL LIQUIDATORS

employees of the Company, none of the debtors are connected with the Company. At the date of the appointment of the Provisional Liquidators, there was no evidence to support any pledged securities or personal guarantees in respect of the margin loans that would provide any realisation. Based on the limited books and records of the Company in respect of the Receivables, the Provisional Liquidators have insufficient evidence to commence legal action against the margin customers.

In the event that the Company or the Group, within 12 months following Completion, makes any recoveries or realisations in connection with the Receivables, the Creditors will be entitled to 50% of the net proceeds from such recoveries and/or realisations whenever the aggregate entitlements of the Scheme Administrators to receive such recoveries and/or realisations not already paid to them exceed HK$200,000. The remaining 50% will be retained by the Company. Further announcement will be made in this respect as and when appropriate.

The Investor has undertaken to the Company that the Company will not dispose of any of the Group’s assets after Completion if such disposal will result in the Company breaching paragraph 38 of its Listing Agreement with the Stock Exchange.

(C) Subscription

The Investor will subscribe for 4,600,000,000 New Shares at HK$0.01 in accordance with the terms of the Subscription Agreement for an aggregate amount of HK$46 million in cash. The number of New Shares to be subscribed for by the Investor pursuant to the terms of the Subscription Agreement represents approximately 96.06% of the enlarged issued share capital of the Company immediately after Completion.

In addition, the Investor will, in accordance with the terms of the Subscription Agreement, subscribe for Warrants which entitle the holder(s) thereof to subscribe for a number of New Shares representing 20% of the enlarged issued share capital of the Company upon Completion, at an exercise price of HK$0.01 per New Share (subject to adjustment), for a total consideration of HK$1.00. The Warrants, if fully exercised by the Investor at the exercise price of HK$0.01 per New Share, will provide additional capital of approximately HK$9.58 million to the Company and approximately 957,764,000 New Shares will be issued upon full exercise of the Warrants.

All New Shares to be issued pursuant to the Subscription and upon exercise of the Warrants will rank pari passu in all respects, including all rights in relation to dividends, voting and return of capital, with the New Shares in issue upon Capital Restructuring becoming effective.

There is no verbal agreement or understanding between the Provisional Liquidators and the Investor relating to the restructuring of the Company.

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LETTER FROM THE PROVISIONAL LIQUIDATORS

4. CONDITIONS PRECEDENT TO THE RESTRUCTURING PROPOSAL

Completion of the Restructuring Proposal will be subject to, amongst others, the fulfillment of the following:

(a) the Subscription Agreement being executed;
(b) the Warrant Instrument being executed;
(c) the Courts sanctioning the Schemes;
(d) the Cayman Islands Court sanctioning the Capital Restructuring;
(e) all necessary resolutions being passed by the Shareholders (other than those who are not allowed to vote pursuant to the Listing Rules or the Code) approving:
(i) the Investor’s Subscription of New Shares and Warrants;
(ii) the Capital Restructuring;
(iii) the appointment of a number of new Directors to the Company (such number to be agreed between the Investor and the Company) and the removal of a number of current Directors (such number to be agreed between the Investor and the Company) conditional only upon Completion taking place;
(iv) the removal and appointment of the Company’s auditor on Completion as requested by the Investor;
(v) the Whitewash Waiver being granted by the Executive; and
(vi) all transactions contemplated under the Restructuring Agreement and the Subscription Agreement;
(f) either: (i) conditional approval by the Stock Exchange of the resumption of trading in the Shares and trading of the New Shares; or (ii) approval by the Stock Exchange of the Company’s draft announcement in respect of, inter alia, the resumption of trading in the Shares and trading of the New Shares;
(g) the Listing Committee of the Stock Exchange granting the listing of, and permission to deal in, the New Shares in issue on Completion and to be issued pursuant to the Restructuring Agreement and the Subscription Agreement;
(h) confirmation that the Executive has granted the Whitewash Waiver (either unconditionally or subject to conditions to which the Investor does not object) to the Investor pursuant to Note 1 on Dispensations from Rule 26 of the Code;
(i) the Petitioning Creditor withdrawing the petition to wind up the Company; and
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LETTER FROM THE PROVISIONAL LIQUIDATORS

(j) the discharge of the Provisional Liquidators conditional only on Completion.

If any of the above conditions have not been fulfilled or waived in writing on or before 15th November, 2003 (that is, within 150 days of the date of the publication of the announcement regarding the Restructuring Proposal) or such later date up to and including 31st December, 2003 as the Investor, the Company and the Provisional Liquidators may agree, in writing, pursuant to the terms of the Restructuring Agreement, the Restructuring Agreement will lapse.

The Provisional Liquidators and the Investor have agreed that they will not waive or amend conditions (f) and (h). Hence, the Restructuring Agreement will lapse if the conditions (f) and (h) are not fulfilled before Completion.

5. EFFECTS OF THE RESTRUCTURING PROPOSAL

(a) Share Capital

The proposed changes of the share capital of the Company are illustrated in section 1 of Appendix I to this circular.

(b) Shareholding Structure

The following table shows the estimated changes in the shareholding of the Company upon Completion under different scenarios:

Investor and its concert parties Creditors I-China Holdings Limited (Provisional Liquidators Appointed) Other Existing Public Shareholders Total	Upon Upon Completion Completion but before and after Existing full exercise full exercise Shareholding of Warrants of Warrants (million (million New (million New Shares) % Shares) % Shares) % – – 4,600.00 96.06 5,557.76 96.71 – – 96.00 2.00 96.00 1.67 426.19 27.55 25.57 0.53 25.57 0.45 1,120.85 72.45 67.25 1.41 67.25 1.17 1,547.04 100.00 4,788.82 100.00 5,746.58 100.00	Upon Upon Completion Completion but before and after Existing full exercise full exercise Shareholding of Warrants of Warrants (million (million New (million New Shares) % Shares) % Shares) % – – 4,600.00 96.06 5,557.76 96.71 – – 96.00 2.00 96.00 1.67 426.19 27.55 25.57 0.53 25.57 0.45 1,120.85 72.45 67.25 1.41 67.25 1.17 1,547.04 100.00 4,788.82 100.00 5,746.58 100.00
		100.00

As set out in the above shareholding table, immediately upon Completion, the Investor together with parties acting in concert with it will be interested in approximately 96.06% and 96.71% of the enlarged issued share capital of the Company before and after the full exercise of the Warrants respectively. The Investor has applied to the SFC for a waiver from its obligation under the Code to make a general offer for all the New Shares of the Company

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LETTER FROM THE PROVISIONAL LIQUIDATORS

other than those to be owned by the Investor together with parties acting in concert with it. The Executive has agreed, subject to the approval by the Independent Shareholders on a vote taken by way of a poll, to waive any obligation to make a general offer which might result from the implementation of the Restructuring Proposal.

If the Investor and parties acting in concert with it acquire further voting rights after Completion, the Whitewash Waiver, to the extent applicable to the Warrants, will only apply to subscription for, such number of voting rights as, when added to the purchases, does not exceed the number originally approved by the Independent Shareholders. The Company will put forward a resolution in relation to this, to be taken by poll, to the Independent Shareholders at the EGM.

As the Investor and parties acting in concert with it will hold more than 50% of the voting rights of the Company upon Completion, the creeper provisions of the Code will not apply and they will be free to acquire further voting rights in the Company without triggering a general offer obligation pursuant to paragraph 4(c) of Schedule VI of the Code.

(c) Maintaining the Listing of the Company

In view of the Investor and the parties acting in concert with it holding in aggregate more than 75% of the enlarged issue share capital of the Company upon Completion, the Investor and the proposed directors of the Company have undertaken to the Stock Exchange that they will use their best endeavours to ensure that a sufficient number of New Shares will be sold, placed or otherwise disposed of to independent third parties to restore the public float of not less than 25% of the enlarged issued share capital of the Company as required under Rule 8.08 of the Listing Rules before the resumption of trading of the Company’s Shares. The Investor will make arrangements for the restoration of the public float of the Company.

The Investor has undertaken to the Stock Exchange that it will not exercise the conversion rights of the Warrants and the Company has undertaken to the Stock Exchange that the Company will not issue New Shares pursuant to the exercise of the conversion rights of the Warrants if such conversion would result in the public float falling below 25% as required under the Listing Rules.

If the Stock Exchange believes that a false market exists or may exist in the New Shares or there are insufficient New Shares in public hands to maintain an orderly market, it will consider exercising its discretion to suspend trading in the New Shares.

The Stock Exchange has further stated that, if the Company remains listed on the Stock Exchange, any asset dispositions or asset acquisitions by the Group will be subject

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LETTER FROM THE PROVISIONAL LIQUIDATORS

to the provisions of the Listing Rules. Under the Listing Rules, the Stock Exchange has the discretion to require the Company to issue an announcement and/or a circular to its Shareholders irrespective of the size of the proposed transactions. The Stock Exchange also has the power under the Listing Rules to aggregate a series of transactions and any such transactions may result in the Company being treated as if it were a new applicant for listing and subject to the requirements for new listing applicants as set out in the Listing Rules.

(d) Working Capital

An aggregate amount of HK$0.6 million from the Subscription Proceeds will be applied to meet the general working capital requirements of the Group up to Completion.

Pursuant to the Restructuring Agreement, the interim working capital of HK$0.6 million will be held in a designated working capital account and be used by the Provisional Liquidators to meet the working capital requirement of the Company during the restructuring. Any unused portion of the interim working capital, i.e. cash, will be paid by the Provisional Liquidators to the Company and will not be transferred to the Scheme Administrators upon Completion.

Subject to Completion, the Investor will, if necessary, advance up to HK$5 million to the Company by way of shareholders’ loan to satisfy the working capital requirements of the Group for the 12 month period following Completion.

The Provisional Liquidators refer to the cashflow projections set out in Appendix II of this circular (“Cashflow Projections”) which the Provisional Liquidators have prepared with input from the Investor and its sole director in relation to their future plans and on the basis of the assumptions of the Investor and its sole director. The Investor and its sole director have reviewed and agreed the Cashflow Projections of the Group.

The Provisional Liquidators also refer to the statement by the Investor and its sole director as set out in the Letter from the Investor referring to the sufficiency of working capital for the on-going operation of the Group for 12 month period following Completion.

The Provisional Liquidators consider that subject to Completion and in the absence of unforeseen circumstances and the assumptions underlying the Cashflow Projections remaining valid, the Group will have sufficient working capital for the on-going operation of the Group for 12 month period following Completion.

(e) Indebtedness

As at the Latest Practicable Date, the Company’s indebtedness (i.e. the Creditors’ Indebtedness) was approximately HK$1,589 million. Approximately HK$657.3 million of the Company’s indebtedness is due to outside creditors and is part of the Group’s indebtedness. The balance is

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LETTER FROM THE PROVISIONAL LIQUIDATORS

due to the Company’s subsidiaries. The indebtedness of the Group was approximately HK$1,347 million as at the Latest Practicable Date. As a result of the Debt Restructuring, all the Company’s indebtedness, including approximately HK$657.3 million of the Group’s indebtedness, will be discharged as against the Company. After the Debt Restructuring, the Group will continue to be liable for approximately HK$8.1 million.

None of the companies in the Group had any outstanding mortgage, charge or debenture, loan capital, bank overdraft, loan, debt security or other similar indebtedness or any hire purchase commitment, finance lease commitment, guarantee or other material contingent liability at the close of business on the Latest Practicable Date other than those in respect of the above indebtedness and intra-group liabilities.

(f) Net Assets

As detailed in section 5 headed “Pro forma Adjusted Consolidated Net Tangible Assets of the Group” in Appendix I to this circular, the Pro forma adjusted net tangible assets of the Group upon Completion but before full exercise of Warrants will be approximately HK$17.6 million, representing approximately 0.37 cents per New Share. This represents an improvement of approximately HK$1,321.6 million to the net liabilities of the Group as at 31st March, 2003 which amounted to approximately HK$1,304 million or 84.29 cents per Share.

6. USE OF PROCEEDS FROM THE SUBSCRIPTION

The proceeds from the Subscription for an aggregate amount of HK$46 million will be applied as follow:

(a) HK$38 million cash payment to the Scheme Administrators for distribution to the Creditors pursuant to the Schemes;
(b) HK$1 million to be paid to the Petitioning Creditor to settle all or part of the Petitioning Creditor’s costs outstanding upon Completion;
(c) HK$6.4 million to be applied towards the costs and expenses of the Restructuring Proposal; and
(d) an aggregate amount of HK$0.6 million to be applied to meet the general working capital requirements of the Group up to Completion.

7. DIRECTORS AND MANAGEMENT

The current Board comprises Ms. Shirley Choi Siu Lui, Ms. Ou Yirong, Mr. Norman Choi Sung Fung, Mr. Choi Sai Leung, Ms. Judy Wong Tak Kwan and Mr. Ronald Lau Kin Hon. The powers of the Directors have been suspended since the appointment of the Provisional Liquidators. The Investor intends that, upon Completion, all existing Directors will be removed from the Board and new Directors will be appointed. Details of the proposed new Directors are contained in the section headed “Future Intention Regarding the Company” in the Letter from the Investor.

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LETTER FROM THE PROVISIONAL LIQUIDATORS

8. INTENTION OF THE INVESTOR

Further details of the intention of the Investor with respect to the Group after Completion are set out in the Letter from the Investor on pages 35 to 41.

9. GENERAL MANDATES TO ISSUE AND REPURCHASE NEW SHARES

At the EGM, ordinary resolutions will be proposed to grant (i) a general mandate to the future Directors to allot, issue and deal with additional New Shares not exceeding 20% of the aggregate nominal amount of the issued share capital of the Company immediately following Completion; and (ii) add to such general mandate so granted to the future Directors any New Shares representing 10% of the aggregate nominal amount of the share capital of the Company repurchased by the Company pursuant to the repurchase mandate as detailed in Appendix IV to this circular. Please refer to the resolutions set out in the notice convening the EGM.

In addition, the future Directors will seek Shareholders’ approval of the repurchase mandate to be proposed at the EGM. The repurchase mandate grants to the future Directors a general and unconditional mandate to exercise all the powers of the Company to repurchase New Shares subject to the criteria set out in Appendix IV to this circular. The repurchase mandate will be valid for such number of New Shares as representing 10% of the aggregate nominal amount of the issued share capital of the Company immediately following Completion.

The results of the resolutions to be proposed at the EGM in relation to such general mandate and repurchase mandate will not affect Completion.

10. PUBLICATION AND DESPATCH OF AUDITED RESULTS

The financial results of the Group for the financial years ended 31st March, 2002 and 31st March, 2003 were published on 24th September, 2003 in accordance with the Listing Rules and the respective annual reports were despatched on 17th October, 2003. The financial results of the Group for the six months ended 30th September, 2002 will be published on or before 31st October, 2003 and the outstanding interim report for the six months then ended is expected to be despatched before the resumption of trading in the New Shares of the Company. The Company will convene its annual general meetings for the two financial years ended 31st March, 2002 and 31st March, 2003 on 10th November, 2003.

In its letter dated 17th September, 2003, the Stock Exchange advised the Company that constitute a breach of paragraphs 8(1), 10(1), 11(1) and 11(6) of the Listing Agreement. The Stock Exchange reminded the Company of its obligations to fully comply with the aforesaid requirements and that the Company should take all necessary steps to ensure compliance with all the requirements of the Listing Rules. The Stock Exchange reserves its right to take action against the Company and/or its Directors (excluding the new Directors to be appointed to the Company after Completion, the Investor and its sole Director, their associates and parties acting in concert with them) in respect of the delay in publishing the Company’s audited accounts for the two financial years ended 31st March, 2002 and 2003 and the interim accounts for the period ended 30th September, 2002 to its Shareholders and convening the Company’s annual general meetings for the two financial years ended 31st March, 2002 and 31st March, 2003.

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LETTER FROM THE PROVISIONAL LIQUIDATORS

11. TERMINATION OF THE FORMER RESTRUCTURING AGREEMENT

On 5th March, 2003, the Provisional Liquidators terminated the Former Restructuring Agreement following the on-going defaults by the Former Investors in relation to payment of the subscription proceeds and the post closing working capital. Details of the termination were set out in the public announcement dated 5th March, 2003. The Former Investors advised the Company on 10th March, 2003 that they disputed the validity of the termination of the Former Restructuring Agreement.

Pursuant to a summons dated 30th July, 2003, the Former Investors applied to the HK Court for leave to commence proceedings against the Company. On 2nd October, 2003, the HK Court dismissed the application of the Former Investors and refused them leave to commence proceedings against the Company.

The Former Investors filed a notice of appeal on 14 October 2003 in respect of the order made by the HK Court on 13 October 2003 (“Order”). The Provisional Liquidators have 21 days from the date of the appeal notice to file a notice responding to the notice of appeal if Counsel considers this to be necessary. After that time has elapsed, the Former Investors should apply to the Court to fix a date for the hearing of the appeal. If they do not do so, the legal advisers to the Provisional Liquidators will apply for a date to be fixed in order to have the appeal dismissed as soon as possible. The legal advisers to the Provisional Liquidators and the Counsel have reviewed the notice of appeal filed by the Former Investors and have confirmed their earlier advice that the Provisional Liquidators were entitled to terminate the Former Restructuring Agreement and that the Former Investors have no grounds upon which they could successfully appeal against the Order.

12. GENERAL

The Restructuring Agreement, the Capital Restructuring, the Subscription Agreement, the Whitewash Waiver and all the transactions contemplated thereunder will be subject to the approval of the Independent Shareholders at the EGM according to the Code.

Asian Capital has been appointed as the financial adviser to the Company. Horwath Capital has been appointed as the financial adviser to the Investor. AMS has been appointed as the independent financial adviser in respect of the Restructuring Proposal and the Whitewash Waiver. Details of the advice and recommendations of AMS, together with the principal factors and reasons considered in arriving at such advice and recommendations, are set out on pages 42 to 56 of this circular.

An application will be made to the Stock Exchange for the listing of, and permission to deal in, the New Shares which will be issued pursuant to the Restructuring Agreement, the Schemes, the Subscription Agreement and the exercise of the Warrants. Subject to the granting of listing of, and permission to deal in, the New Shares on the Stock Exchange, the New Shares will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the commencement date of dealings in such New Shares on the Stock Exchange or such other date as determined by HKSCC. Settlement of transactions between participants of the Stock Exchange on any trading day is required to take place in CCASS on the second trading day thereafter. All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time.

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LETTER FROM THE PROVISIONAL LIQUIDATORS

All New Shares to be issued pursuant to the Subscription and upon exercise of the Warrants will rank pari passu in all respects, including all rights as regards dividends, voting and return of capital, with the New Shares in issue upon the Capital Restructuring becoming effective.

Except for the Warrants, the Company has no other outstanding securities convertible into New Shares, no share or loan capital of the Company has been put under option or agreed conditionally or unconditionally to be put under option, and no other conversion right affecting the New Shares or other derivatives in respect of securities which are being offered for or which carry voting rights have been issued or granted or agreed conditionally or unconditionally to be issued or granted.

No part of the equity or debt securities of the Company is listed or dealt in or is proposed for listing or dealing in on any stock exchange other than the Stock Exchange.

13. TRADING ARRANGEMENTS

Subject to the Capital Restructuring becoming effective, the Investor has advised that it will procure the Company to adopt the following trading arrangements to facilitate trading in existing Shares and the New Shares by the Shareholders following Completion:

(a) Documents of Title

Upon the Capital Restructuring becoming effective, the nominal value of the issued Shares will be reduced from $0.05 to $0.01 each. Accordingly, the Provisional Liquidators consider it in the best interests of the Company and the public to reduce the risk of confusion by replacing all existing share certificates (which are light blue in colour) with new share certificates for the purposes of trading on the Stock Exchange.

Upon completion of the Capital Restructuring, every certificate for Shares in issue immediately before the Capital Restructuring will be deemed to be certificates and valid documents of title.

(b) Trading arrangements

Following the effective date of the Capital Restructuring and subject to the resumption of trading in the New Shares, the Company proposes the following trading arrangements for the Shareholders:

(i) from 17th November, 2003, the present counter for trading in the Shares in board lots of 5,000 Shares will be removed temporarily and a temporary counter for trading in New Shares in board lots of 300 New Shares in the form of existing share certificates for existing Shares will be set up. Certificates for the Shares may only be traded at this temporary counter;
(ii) with effect from 1st December, 2003, the present counter for trading in New Shares in board lots of 100,000 New Shares will be re-opened. Only new share certificates for New Shares can be traded at this counter;
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LETTER FROM THE PROVISIONAL LIQUIDATORS

(iii) during the period from 1st December, 2003 to 22nd December, 2003 (both dates inclusive), there will be parallel trading at the above two counters; and
(iv) the temporary counter for trading in the New Shares in board lots of 300 New Shares (in the form of existing share certificates) will be removed after the close of trading on 22nd December, 2003. Thereafter, trading will only be in New Shares in board lots of 100,000 New Shares and existing share certificates will cease to be acceptable for dealing and settlement purposes. However such certificates will continue to be good evidence of legal title to the New Shares and may be exchanged for new certificates for New Shares at any time.

Any fractional entitlement to a New Share will not be issued but will be aggregated and the resulting New Share(s) will be sold for the benefit of the Company.

Shareholders are urged to exchange their certificates for Shares for certificates for New Shares as soon as possible on or after 17th November, 2003. This may be done, at no cost, up to and including 29th December, 2003 by delivering the existing share certificates to the branch share registrar of the Company in Hong Kong, Progressive Registration Limited at G/F., BEA Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong. Thereafter, existing share certificates will be accepted for exchange only on payment of a fee of HK$2.50 (or such higher amount as may from time to time be allowed by the Stock Exchange) for each certificate for each new certificate issued for New Shares.

The new share certificates are expected to be available for collection on or after the 10th business day from the date of submission of the existing light blue share certificates to the branch share registrar of the Company in Hong Kong. Unless otherwise instructed, new share certificates will be issued in board lots of 100,000 New Shares.

(c) Facilities for odd lot holders

In order to alleviate the difficulties arising from the existence of odd lots as a result of the Capital Restructuring, the Company has appointed TIS Securities (HK) Limited to assist the Shareholders to match the sale and purchase of odd lots during the period from 17th November, 2003 to 22nd December, 2003, both dates inclusive. Holders of the New Shares in odd lots (i.e. lots which are not in integral multiples of 100,000 New Shares) may through their broker contact Mr. Leung Wai Kuen of TIS Securities (HK) Limited (telephone number: 2501 0182) during such period. Holders of the New Shares in odd lots should note that the matching of the sale and purchase of odd lots is not guaranteed.

The Provisional Liquidators recommend that the Shareholders consult their own professional advisers if they are in any doubt about the facility described above.

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LETTER FROM THE PROVISIONAL LIQUIDATORS

(d) Taxation

Shareholders having a registered address or being resident outside of Hong Kong may be subject to overseas taxation or deemed profits or capital gains arising from the exchange of the Shares for the New Shares. Shareholders, whether in Hong Kong or in other jurisdictions, are recommended to consult their own professional advisers if they are in any doubt as to the tax implications of the Schemes and, in particular, whether the receipt of the New Shares for their Shares would render such holders liable to taxation in Hong Kong or in other jurisdictions. It is emphasised that the taxation implications of the Schemes are personal matters for the Shareholders themselves and none of the Company, its Directors, its future Directors after Completion and officers, the Provisional Liquidators or the Investor or any of the other parties involved in the Restructuring Proposal accepts any responsibility for the taxation or any other liability of the Shareholders arising from the exchange of the Shares for the New Shares or any other aspect of the Schemes.

Further announcements in relation to the trading arrangement of the New Shares will be made as and when appropriate.

14. EXTRAORDINARY GENERAL MEETING

Set out on pages 136 to 143 of this circular is a notice convening the EGM to be held at 10:00 a.m. on 14th November, 2003 at Plaza I-III, Lower Lobby, Novotel Century Hong Kong, 238 Jaffe Road, Wanchai, Hong Kong, at which resolutions will be proposed to consider and approve, inter alia, (i) the Capital Restructuring; (ii) the Restructuring Agreement; (iii) the Subscription Agreement; (iv) the Whitewash Waiver; (v) the appointment of new Directors to be nominated by the Investor conditional on Completion; (vi) the removal of all current Directors; (vii) the granting of general mandate to future Directors to exercise the powers of the Company to issue, allot or deal with additional New Shares as set out in the notice of EGM; (viii) the granting of general mandate to future Directors to repurchase New Shares as set out in the notice of EGM; and (ix) the removal and appointment of the Company’s auditors on Completion as requested by the Investor. The results of the ordinary resolutions to be proposed at the EGM in relation to the general mandate to issue New Shares and the repurchase mandate will not affect Completion.

A form of proxy for use at the EGM is enclosed. Regardless of whether you are able to attend the EGM, you must complete and return the form of proxy in accordance with the instructions printed thereon to the Company c/o the Provisional Liquidators, 7th Floor, Allied Kajima Building, 138 Gloucester Road, Wanchai, Hong Kong (for the attention of Messrs Cosimo Borrelli/Fan Wai Kuen) as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the EGM. Under Article 95 of the New Memorandum and New Articles of Association of the Company, a vote given in accordance with the terms of the proxy shall be valid notwithstanding the revocation of the proxy or power of attorney or other authority under which the proxy was executed provided that no intimation in writing of such revocation shall have been received by the Company at 7th Floor, Allied Kajima Building, 138 Gloucester Road, Wanchai, Hong Kong not less than two hours before the holding of the EGM or any adjourned EGM.

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15. CREDITORS’ MEETINGS

Meetings of Creditors convened at the direction of both the HK Court and the Cayman Islands Court were held at 10:00 a.m. on 25th August, 2003 at Plaza V, Lower Lobby, Novotel Century Hong Kong, 238 Jaffe Road, Wanchai, Hong Kong for the purpose of considering and, if thought fit, approving the Schemes with or without modification. As announced in the Company’s announcement dated 25th August, 2003, the Schemes were approved unanimously by the Creditors with claims of HK$1,516,015,040 in value and who were present and voting in person or by proxy at the Creditors’ meetings.

16. RECOMMENDATIONS

If the Restructuring Proposal is successfully implemented, all the Company’s indebtedness of approximately HK$1,589 million as at the Latest Practicable Date will be discharged and waived pursuant to the Schemes. If the Company is unable to restructure its indebtedness with its Creditors as set out in the Restructuring Proposal, the Provisional Liquidators believe that there is a strong likelihood that the Company will be wound up. Should the Company be wound up, the return to the Creditors will be minimal and there is unlikely to be any return to the Shareholders.

AMS has been appointed as the independent financial adviser to advise the Independent Shareholders in relation to the fairness and reasonableness of the terms of the Restructuring Proposal and the Whitewash Waiver. Details of the advice and recommendations of AMS together with the principal factors and reasons taken into consideration in arriving at such advice and recommendations are set out on pages 42 to 56 of this circular. Independent Shareholders are strongly advised to consider the letter from the independent financial adviser before deciding to vote in favour of or against the resolutions to be proposed at the EGM.

17. ADDITIONAL INFORMATION

Please refer to the Appendices to this circular for additional information.

Yours faithfully, For and on behalf of

SEAPOWER RESOURCES INTERNATIONAL LIMITED

(Provisional Liquidators Appointed) Cosimo Borrelli

Fan Wai Kuen

Joint and Several Provisional Liquidators

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LETTER FROM THE INVESTOR

MANY RETURNS LIMITED

(Incorporated in the British Virgin Islands with limited liability)

21st October, 2003

To the Shareholders,

Dear Sirs,

INTRODUCTION

This letter forms part of the circular dated 21st October, 2003 issued by Seapower Resources International Limited (Provisional Liquidators Appointed) to its Shareholders. Terms used in the letter shall, unless the context otherwise requires, have the same meaning as those defined in the circular.

On 18th June, 2003, the Company, the Provisional Liquidators and the Investor jointly announced that the Restructuring Agreement which sets out the major terms of the Restructuring Proposal had been entered into. The Restructuring Proposal aims to restructure the Group through:

the Capital Restructuring by way of reduction, share consolidation and share subdivision;
the Debt Restructuring and the Schemes; and
the Subscription of 4,600,000,000 New Shares and the Warrants by the Investor.

INFORMATION ON THE INVESTOR

The Investor is a company incorporated in the British Virgin Islands with limited liability. Mr. Kenneth Chan, the sole beneficial shareholder and sole director of the Investor, is a chartered surveyor and has over 14 years experience in the real estate industry in Hong Kong and the Asia Pacific. Mr. Chan was educated in Hong Kong and received his undergraduate degree in the United Kingdom and obtained a Master of Business Administration degree from Australia. The Investor and Mr. Kenneth Chan, the sole beneficial shareholder and sole director of the Investor, are independent of, not connected with and not acting in concert with the Company, the directors, chief executive or substantial shareholder of the Company and its subsidiaries and their respective associates as defined in the Listing Rules.

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LETTER FROM THE INVESTOR

REASONS FOR THE SUBSCRIPTION BY THE INVESTOR

The Group has provided specialized storage services for climate-controlled products for about 20 years to importers, traders, wholesalers and manufacturer/processors. The Group is also engaged in the provision of logistics management services for local and foreign-based manufacturers, traders, distributors and importers in the PRC. Its substantial experience in the storage of refrigerated and frozen meat in New South Wales, Australia, and the recent growth rate of the PRC economy of about 8% in year 2002 led the Investor and its sole director to believe that the Group can provide the necessary leverage to reestablish the Company’s core businesses of providing logistics management services and the operation of warehousing and cold storage businesses and its revenue base.

Given the current development of the PRC economy, growing internal demand throughout PRC and China’s entry into the World Trade Organisation (“WTO”), many multinational companies propose selling their products to China and to increase their market share in the mainland China. This will lead to require direct trade links and businesses between China and other parts of the world. Operational efficiency is particularly important in moving high quality fresh climate-controlled products to designated markets. Hence, there will be increasing demand for logistics services by both PRC based and overseas enterprises.

At present, there is little integration in the provision of logistics and warehousing services in China according to an article dated 28 May 2002 and titled “China’s WTO Accession – Enhancing Supply Chain Efficiency: Transportation and Logistics” provided by Hong Kong Trade Development Council. Most companies in China participate in one or a few of the sub-sectors, rather than providing a total service for the whole logistics flow. Integrated logistics and warehousing services is still a new concept in China. Also, no logistics company has more than 2% share of the China market. There are thus considerable untapped opportunities in a period of extended market growth.

Being a transportation and logistics and warehousing hub to link the Mainland with the world, Hong Kong is an advantageous position to capture the opportunities offered by the unprecedented opening of the mainland markets. With bilingual capability and business know-how, Hong Kong’s total logistics services providers can enter the mainland market, either by themselves, or through partnership with other overseas companies. Mainland logistics and warehousing companies are also eager to use experienced Hong Kong companies as strategic partners, since the latter are particularly suited to play the role of a catalyst in this transformation process by providing technical expertise and marketing skills, as well as facilitating access to funding.

Since Hong Kong companies are major investors in developing mainland ports, a lot of logistics facilities, including logistics centres and warehouses, around these ports are also funded by Hong Kong companies. The growing demand for third-party logistics and warehousing management services, e- logistics support and western development will provide further opportunities for Hong Kong’s services providers.

Competition in warehousing and cold storage as well as logistics market is considerably intense. There are a large number of national and regional players including state-owned enterprises and foreign investment enterprises in this market.

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LETTER FROM THE INVESTOR

Having considered the current situation of the Group, the Investor does not believe that the Group currently has strong competitive advantages over other competitors. Notwithstanding this, the Investor will revitalize the Group’s business based on the results of the Investor’s detailed review of the Group after Completion.

The Investor and its sole director believe that the previous deterioration of the Group’s financial position has been largely caused by the Group’s over-diversification into other non-core businesses and the downturn in Asian economies. However, the Investor and its sole director believe that the Company and the industries in which it operates have tremendous business potential. The existing core businesses of the Group have survived and are able to support the current operations in Australia themselves albeit on a lesser scale than in previous years given that the Company is currently in provisional liquidation and is suffering from a lack of working capital.

There is no verbal agreement or understanding between the Provisional Liquidators and the Investor relating to the restructuring of the Company.

FUTURE INTENTION REGARDING THE COMPANY

The Investor stated the following in the joint announcement made by the Investor and the Company dated 18 June 2003 in relation to the Restructuring Proposal:

“In view of the Group having provided specialized storage services for climate-controlled products for about 20 years to importers, traders, wholesalers and manufacturer/processors and its substantial experience in the storage of refrigerated and frozen meat in New South Wales, Australia, the Investor and its sole director consider the Group has the capability to provide value added services to the existing customers by extending its existing cold storage business to associated businesses, such as providing total logistics solutions, including warehousing, inventory management, transportation and distribution, and door-to-door logistics management services for the local and foreign-based manufacturers, traders, importers, fast food shops and supermarket chains. The Investor and its sole director consider that the current cold storage warehousing business presents an opportunity for developing storage logistics businesses and offering a one-stop cold storage warehousing and logistics services in Australia and the Asia Pacific region.”

But after thorough consideration, the Investor and its sole director believe that a more prudent approach and conservative business plan is more appropriate for a Group which has just been restructured and therefore the original plans as stated above were changed. Nevertheless, the Investor’s and its sole director’s intention to focus on the Group’s core businesses of providing logistics management services and the operation of warehousing and cold storage businesses is unchanged.

The Investor and its sole director will conduct a detailed review of the financial position, business operations and assets of the Group following Completion with a view to developing a corporate strategy to revitalize the Group’s existing businesses and enhance the profitability of the Group. Subject to this review, the Investor and its sole director intend to continue the Group’s principal businesses of cold storage warehousing and logistics management services and will not involve the Group in property related businesses. The Investor and its sole director may also explore new and appropriate investment opportunities along similar lines as the existing businesses in order to strengthen the earnings, cashflow

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and liquidity of the Company. The Investor and its sole director have no intention to divest any assets of the Group other than the realization of the Receivables. The Investor and its sole director do not have any plan as to the layoff of any employees of the Group.

The current Board comprises six Directors, Ms. Shirley Choi Siu Lui, Ms. Ou Yirong, Mr. Norman Choi Sung Fung, Mr. Choi Sai Leung, Ms. Judy Wong Tak Kwan and Mr. Ronald Lau Kin Hon. The powers of the directors have been suspended since the appointment of the Provisional Liquidators. The Investor intends that, upon Completion, all existing Directors will be removed from the Board. Mr. Kenneth Chan, Mr. Steven Wong, Mr. Christie Yau, Mr. Francis K Tung and Ms. Kitty Wong will be appointed as the new Directors to the Company and to the subsidiaries of the Company upon Completion and the board will appoint other directors as appropriate or necessary following the Completion. Mr. Kenneth Chan, Mr. Steven Wong, Mr. Francis K Tung and Ms. Kitty Wong will be appointed as the new executive Directors upon Completion. Mr. Christie Yau will be appointed as an independent non-executive Director upon Completion. One more independent non-executive director will be appointed once the nomination is finalised. Mr. Francis K Tung will be appointed as the Chairman of the Company upon Completion. In view of Mr. Francis K Tung’s over 20 years of experience in international corporate finance, investment banking and accountancy, Mr. Kenneth Chan considers that Mr. Tung has the ability to form and implement corporate strategies and explore new and appropriate investment opportunities to strengthen the earning, cash flow and liquidity of the Company. Accordingly, Mr. Tung, as a chairman of the Company after Completion, will be able to lead the Group to operate in a financial healthy condition.

Mr. Kenneth Chan BSc, MBA, AHKIS, ACIArb, RPS is a chartered surveyor and qualified project manager. He possesses a BSc degree and a MBA degree and has over 14 years experience in the real estate industry in Hong Kong and the Asia Pacific. Mr. Chan has experience in managing organisations including as an Associate of Spence Robinson Ltd, an architectural firm in Hong Kong for 8 years. Following this, he was Senior Associate Director managing the Project and Development Department of Jones Lang LaSalle Ltd for 5 years, a global company listed in the New York Stock Exchange. Most recently, Mr. Chan was director and Head of the Hong Kong Office of CityAxis Ltd for 1 year until December of 2002, a company providing interior fitting out services listed in the Singapore Stock Exchange. Mr. Chan has been a director for 1 year at, and is still a director of Integrated Project Solutions Limited which is engaged in project management and consultancy services.

Mr. Steven Wong, B.E.S., MARCH, RIBA, RMAIC, AAA, is a qualified architect and has over 28 years of experience in property development projects in Hong Kong, China and Canada. He also has experience in organizations including the role of Managing Director in DLS Management, an international consultancy company for 5 years, as Project Director in City University for 4 years, as Property Development Manager in HK and China Gas for 5 years, as Development Manager in University of Science and Technology for 1 and a half years until October 1990, and as Manager in Sun Hung Kai Real Estate Ltd for 1 year until November 1989. Mr. Wong has been a director for 13 years until now at Steven C S Wong Associates Limited which is engaged in project management and consultancy services.

Mr. Christie Yau, BSc (Hons), is an experienced project manager and building surveyor. He was graduated from City University of Hong Kong with a degree in building surveying. He has 6 years of experience in project management in Jones Lang LaSalle Ltd until July of 2002 and is currently a director at Luyisi International Company Limited which is engaged in trading of building materials.

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LETTER FROM THE INVESTOR

Mr. Francis K Tung has over 20 years’ experience in international corporate finance, investment banking and accountancy. Starting his early career as an auditor with Price Waterhouse, Mr. Tung practiced as a Chartered Accountant for seven years. In 1988, Mr. Tung began his merchant banking career with Bankers Trust Company of New York, in which he had worked for 2 years until 1990. He was subsequently appointed as Chief Financial Officer of a conglomerate in Hong Kong for 3 years from 1991 to 1994 to head its corporate finance and investment functions in the Asian region, developing extensive experience during this period in both corporate and advisory roles. He continued his career in corporate finance and investment banking after he left the Hong Kong conglomerate through two private companies involved in financial advisory of non listed securities. In 1996, Mr. Tung founded Horwath Capital Asia Limited which became licensed with the SFC in 1997 as investment adviser. Mr. Francis K Tung is currently a group managing director of Horwath Capital Asia Group Limited.

Ms. Kitty Wong has over 8 years of corporate finance experience in Hong Kong. She is admitted as a solicitor of the High Court of Hong Kong SAR and a solicitor of the Supreme Court of England and Wales and she is also a member of the Hong Kong Securities Institute. Before she joined Horwath Capital Asia Limited in January of 2003, HCAL, she worked in other local financial services groups as financial adviser and legal counsel from 1994 to 2001. Ms. Wong is currently a director of HCAL.

Although the new executive Directors have no experience in the core businesses of the Group, they possess the capability of determining corporate objectives, planning strategies for future business development and reviewing the overall operations and business plans of the Group as they are involved in senior management of the organization engaged in business consultancy and project and financial management as mentioned in the paragraphs above. Moreover, the Investor and its sole director will reestablish a strong professional management team for the Company by recruiting employees with relevant experience in cold storage warehousing and logistics businesses in Australia, Hong Kong and the PRC.

The Investor and its sole director will retain the Group’s current key senior managers Ms. Olivia Wai Yee Yung and Ms. Rosie Song Yue to oversee the daily operations of the cold storage warehousing and logistics divisions of the Group. The Group intends to retain Ms. Olivia Wai Yee Yung to oversee the cold storage and warehousing operation in Australia and Ms. Rosie Song Yue to run the logistic operation in the PRC. Ms. Yung joined Australian Division of the Group in September 1992. She is currently the executive manager of the Australian division and has over 10 years’ experience in managing cold storage, storage and logistic operations in Australia. Ms. Rosie Song Yue is the senior manager of the China business development division of the Group which is a new division set up in mid 2000 and is responsible for developing the logistics business in China. Mr. Song has over eight years of experience in sale and marketing of medical products and is especially familiar with the business development in the PRC. Since the establishment of the division when Ms. Song joined, Ms. Song started the business development and marketing activities in China. However, the division has not generated any business and revenue as a result of the financial difficulties that the Group has been facing. Since their appointment on 31st December, 2001, the Provisional Liquidators have paid total costs of HK$660,000 in respect of the maintenance of this division. The monthly cost required to maintain the division is about HK$30,000. The Investor does not believe that this division can currently contribute substantial benefits to the Group, but as the monthly cost required to maintain the division is not large, the Investor and its sole director would like to keep the division hoping that the Investor will revitalize the division’s business based on the results of the Investor’s detailed review of the Group including this division after Completion. The Investor also intends to keep the existing employees of the Group subject to its operational and business

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review after Completion. The Group currently has 13 employees in Hong Kong, PRC and Australia. Ms Rosie Song is responsible for the existing operation of the China business development division. 3 employees are responsible for the administrative, accounting and company secretarial functions of the Group in Hong Kong. Ms Olivia Yung is responsible for the operation of the cold storage warehousing and logistics divisions in Australia. The remaining employees are all engaged in the operation of the cold storage warehousing and logistics divisions in Australia.

WORKING CAPITAL

The Investor and its sole director refer to the cashflow projections set out in Appendix II of this circular (“Cashflow Projections”) which the Provisional Liquidators have prepared with input from the Investor and its sole director in relation to their future plans and on the basis of the assumptions of the Investor and its sole director. The Investor and its sole director have reviewed and agreed the Cashflow Projections of the Group.

The Investor and its sole director also refer to the statement made by the Provisional Liquidators as set out in the Letter from the Provisional Liquidators referring to the sufficiency of working capital for the on-going operation of the Group for 12 month period following Completion.

The Investor and its sole director are of the opinion that, in light of the following advance of up to HK$5 million as well as in the absence of unforeseen circumstances, the assumptions underlying the Cashflow Projections remaining valid and subject to Completion, the Group will have sufficient working capital for on-going operations for the 12 month period following Completion.

The Investor will, if necessary, advance up to HK$5 million to the Company by way of shareholders’ loan to satisfy the working capital requirements of the Group for the 12 month period following Completion. As mentioned in the first paragraph under the section headed “Future Intention Regarding the Company” in this letter, the Investor and its sole director intend to focus on the Group’s existing core businesses of providing logistics management services and the operations of warehousing and cold storage business in Australia immediately after Completion. In addition, the Group will continue to engage in the existing businesses on the existing operations scale during the 12 month period following Completion as stated in the principle assumptions of the Cashflow Projections in Appendix II to this circular. Given such intention and assumptions, there will be an expected net cash inflow from operating activities over the 12 month period immediately following Completion of approximately HK$715,000 without taking into account of the financial accommodation of HK$5 million. The financial accommodation of HK$5 million is a buffer in case there is any shortfall of the working capital requirements of the Group during the 12 month period following Completion.

WHITEWASH WAIVER

Immediately upon Completion, the Investor together with parties acting in concert with it, will be interested in approximately 96.06% and 96.71% of the enlarged issued share capital of the Company before and after the full exercise of the Warrants respectively. The Executive has agreed, subject to the approval by the Independent Shareholders on a vote taken by way of a poll, to waive the Investor and parties acting in concert with it from any obligation to make a general offer which might result from the implementation of the Restructuring Proposal. Completion of the Restructuring Proposal is conditional

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upon, among other things, the granting of the Whitewash Waiver by the Executive. If the Whitewash Waiver is not approved by the Independent Shareholders, the Investor will not proceed with the Restructuring Agreement.

Pursuant to paragraph 8 of Schedule VI of the Code, where the Independent Shareholders approve the issue of the Warrants where no immediate voting rights are obtained, the Executive will view the approval as sanctioning the maximum subscription at the earliest possible moment without the necessity for the making of an offer under Rule 26 of the Code. After the subscription for New Shares as contemplated by the Warrants, the Investor and parties acting in concert with it shall be interested in an aggregate of approximately a percentage of 96.71% of the enlarged issued share capital of the Company. If the Investor and parties acting in concert with it acquire further voting rights after Completion, the Whitewash Waiver, to the extent applicable to the Warrants, will only apply to subscription for, such number of voting rights as, when added to the purchases, does not exceed the number originally approved by the Independent Shareholders. The Company will put forward a resolution in relation to this, to be taken by poll, to the Independent Shareholders at the EGM.

Prior to and as at the Latest Practicable Date, the Investor together with its director and parties acting in concert with it are not interested in any securities of the Company and none of them have dealt in any securities of the Company during the Relevant Period. The Executive has agreed, subject to the approval by the Independent Shareholders on a vote taken by way of a poll, to waive the Investor and parties acting in concert with it from any obligation to make a general offer which might result from the implementation of the Restructuring Proposal. Completion of the Restructuring Proposal is conditional upon, among other things, the granting of the Whitewash Waiver by the Executive.

As the Investor together with parties acting in concert with it will hold in excess of 50% of the voting rights of the Company immediately following Completion, the creeper provisions of the Code will not be applicable and they will be free to acquire further voting rights in the Company without triggering a general offer obligation pursuant to paragraph 4(c) of Schedule VI of the Code.

Prior to and as at the Latest Practicable Date, the Investor together with parties acting in concert with it are not interested in any securities of the Company and none of them have dealt in any securities of the Company during the six-month period immediately preceding 18th June, 2003, being the date of the joint announcement by the Company and the Investor in relation to the Restructuring Agreement, and undertake that they will not deal in the existing securities of the Company before the EGM.

Yours faithfully, By order of the board

MANY RETURNS LIMITED Kenneth Chan

Director

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

==> picture [282 x 39] intentionally omitted <==

20th Floor

Hong Kong Diamond Exchange Building 8-10 Duddell Street Central, Hong Kong

21st October, 2003

To the Independent Shareholders of Seapower Resources International Limited

Dear Sirs,

PROPOSED RESTRUCTURING PROPOSAL

We refer to our appointment as the independent financial adviser to the Independent Shareholders in respect of the Restructuring Proposal and the Whitewash Waiver, details of which are set out in the circular to the Shareholders dated 21st October, 2003 (the “Circular”), of which this letter forms part. Unless the context otherwise requires, terms used in this letter have the same meanings as those defined in the Circular.

In formulating our opinion, we have relied upon the accuracy of the information and representations contained in the Circular. We have considered, among others, the financial information of the Group contained in Appendix I to the Circular and the agreements related and incidental to the Restructuring Proposal. Independent Shareholders are advised, in particular, to read carefully the auditor’s report and an extract of the audited consolidated financial statements of the Company for the year ended 31st March, 2003 contained in sections 3 and 4, respectively, of Appendix I to the Circular. We have not participated in the selection process of the restructuring proposals and we are therefore not in the position to comment on such process or the terms of any other proposals. We have assumed that all statements and representations made or referred to in the Circular were true at the time they were made and will continue to be true as at the date of the Circular and the date of the EGM. We have assumed that all statements of belief and opinions and intention made by the Provisional Liquidators and the Investor in the Circular were reasonably made after due care and enquiry.

We consider that we have reviewed sufficient information to enable us to reach an informed view and to justify our reliance on the information provided so as to provide a reasonable basis for our opinions. The Provisional Liquidators and the Investor have confirmed respectively that there are no other facts not contained in the Circular the omission of which would make any statement in the Circular misleading. We have no reason to doubt the truth, accuracy or completeness of the information provided to us by the Provisional Liquidators and the financial adviser of the Company. We have not, however, conducted an independent verification of the information provided, nor have we carried out an in-depth investigation into the affairs of the Group or the prospects of the markets in which the Group operates.

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PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our recommendation, we have taken into consideration the following principal factors and reasons:

A. THE RESTRUCTURING PROPOSAL

(i) Background

Prior to March 2002, the principal businesses of the Group were the provision of logistics services in Hong Kong and the PRC, the operation of cold storage facilities in Hong Kong and Australia and property holding. However, the Group no longer operates cold storage and warehousing businesses in Hong Kong after properties and assets owned by certain subsidiaries were disposed of by their receivers and/or the Provisional Liquidators between January and March 2002. As at the Latest Practicable Date, the principal businesses of the Group were the provision of logistics services in the PRC and the operation of cold storage facilities in Australia.

The Group has been incurring net losses since 1998. As a result of the losses sustained over the years, the Group has been operating in a tight liquidity position and receivers were appointed by the Group’s creditors over certain properties of the Group in mid 2001 when it failed to make scheduled repayments. On 11th December, 2001, winding up petitions were served by the Petitioning Creditor on the Company and four of its wholly-owned subsidiaries, namely, Yiu Fung Cold Storage & Warehousing Limited (in Compulsory Liquidation), Yiu Fai Warehousing Limited (In Compulsory Liquidation), Seapower Resources Cold Storage & Warehousing Limited (In Compulsory Liquidation) and South East Asia Overseas Finance Limited (In Compulsory Liquidation) and the Provisional Liquidators were appointed by orders of the HK Court on 31st December, 2001.

Further information on the events leading to the current situation of the Group is described in the letter from the Provisional Liquidators contained in the Circular. In particular, Independent Shareholders should note that the Former Restructuring Agreement was subsequently terminated by the Provisional Liquidators in accordance with the terms therein. Reason for such termination has been reported in the letter from the Provisional Liquidators contained in the Circular. As stated in the letter from the Provisional Liquidators, the Former Investors applied on 30th July, 2003 to the HK Court for leave to commence proceedings against the Company. On 2nd October, 2003, the HK Court dismissed the application of the Former Investors and refused them leave to commence proceedings against the Company. The Former Investors subsequently filed a notice of appeal on 14 October 2003 against such court decision. The procedures of any further legal proceedings are set out in the letter from the Provisional Liquidators.

As completion of the Restructuring Agreement is not conditional upon the dispute with the Former Investors being resolved, we consider such dispute irrelevant for the purpose of assessing the terms of the Restructuring Proposal so far as the Independent Shareholders are concerned. Independent Shareholders should, however, note that the Restructuring Proposal may be hindered from implementation or in any way be prevented from completion if any court decision is against the Company.

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(ii) Current financial position of the Group

(a) Results of operations

The audited and consolidated results of the Group for the two financial years ended 31st March, 2003, as disclosed in Appendix I to the Circular, are summarised as follows:

	Year	ended 31 March
	2003	2002
	audited	audited
	*(HK$’ million)*	(HK$’ million)
Turnover	16.9	165.3
Net loss for the year	47.7	1,516.2

For the year ended 31st March, 2003, the Company recorded a turnover and a net loss of approximately HK$16.9 million and HK$47.7 million, respectively. The shrinkage of business turnover was mainly attributable to the cessation of the Group’s cold storage and warehousing business in Hong Kong, while the loss was mainly attributable to the operating loss of approximately HK$4.9 million and finance costs of approximately HK$45.9 million.

For the year ended 31st March, 2002, loss incurred by the Company amounted to approximately HK$1,516.2 million. Such substantial loss was mainly attributable to the operating loss of approximately HK$1,394.2 million (after accounting for, inter alia, the loss arising from liquidation and disposal of subsidiaries of approximately HK$650.3 million, loss on disposal of leasehold properties and investment properties of approximately HK$628.5 million and provision for impairment loss of properties pending development of approximately HK$60.0 million) and finance costs of approximately HK$91.0 million.

Independent Shareholders should refer to section 4 of Appendix I to the Circular for further details on the financial information of the Group for the two years ended 31st March, 2003.

As set out in the paragraph headed “Background” above, the Group’s cold storage and warehousing businesses in Hong Kong had ceased after the properties on which the Group’s subsidiaries operated and the fixed assets used by them were disposed of by the receivers in early 2002. Having considered the Group’s continuous losses and the shrinkage in business operations under the present circumstances, we consider that without implementing any restructuring proposal or taking corporate actions, the Group would not be able to continue as a going concern and may likely be wound up.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(b) Net assets

As at 31st March, 2003, the Group had total current assets of approximately HK$23.1 million and total current liabilities of approximately HK$1,347.0 million, representing a net current liabilities of approximately HK$1,323.9 million. Taking into account the total fixed assets and minority interests of approximately HK$20.3 million and HK$0.5 million respectively, the Group had net liabilities of approximately HK$1,304.1 million as at 31st March, 2003, equivalent to approximately HK$0.84 per Share. Such net liabilities were mainly resulted from the losses accumulated over the last six years.

(c) Indebtedness of the Group

As at 31st March, 2003, the Group had net current liabilities of approximately HK$1,323.9 million. Total liabilities amounted to approximately HK$1,347.0 million of which approximately HK$515.6 million was bank and other borrowings and approximately HK$652.6 million was due to subsidiaries under liquidation. The bank borrowings are interestbearing at annual rates ranged from 4% plus Hong Kong Inter Bank Offered Rate to 8% plus the best lending rate as quoted by The Hong Kong and Shanghai Banking Corporation Limited and due for immediate repayment following the Group’s failure to make repayments according to the schedule set by the creditor banks.

The total indebtedness due by the Company to the Creditors was estimated by the Provisional Liquidators at about HK$1,589 million as at the Latest Practicable Date. Since the Group relies primarily on bank financing, finance costs have been a significant source of cash outflow and expense.

Based on the above, it can be noted that the financial resources which will be available to the Company indirectly through its indebtedness being discharged and waived by the Creditors as a result of the Restructuring Proposal will significantly improve the Company’s financial predicament and restore its cashflow position.

(iii) The Restructuring Proposal

The Restructuring Proposal involves, among others, i) the Capital Restructuring; ii) the Debt Restructuring which includes the Schemes; and iii) the Subscription.

(a) Capital Restructuring

The Capital Restructuring comprises the reduction of the par value of the issued Shares, the cancellation of all unissued Shares, the consolidation of the reduced shares, the subdivision of the consolidated and reduced shares into the New Shares and the reduction of the authorised share capital, details of which are set out in the letter from the Provisional Liquidators contained in the Circular. Each of the above arrangements will be subject to, among other conditions, the passing of the resolutions by the Shareholders at the EGM and whose approval as a whole represents one of the conditions precedent to implementing the Restructuring Proposal.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As a result of the Capital Restructuring, a credit of approximately HK$76 million arising from the capital reduction will be applied to reduce part of the Company’s accumulated losses. Furthermore, the Capital Restructuring will enable the Company to issue New Shares at a price below the par value of the Shares now in issue. We consider such arrangement reasonable in facilitating the implementation of the Restructuring Proposal.

(b) Debt Restructuring

The total indebtedness due by the Company to the Creditors was estimated at approximately HK$1,589 million as at the Latest Practicable Date and will be restructured by way of the Schemes. Details of the Debt Restructuring are set out in the letter from the Provisional Liquidators contained in the Circular and a summary of which is set out below:

The Schemes

In exchange for the Creditors’ agreement to discharge and waive all their claims against the Company, the Creditors will receive from the Company, via the Scheme Administrators, (i) HK$38 million in cash; (ii) 96,000,000 New Shares of HK$0.01 each (representing approximately 2.0% of the enlarged issued share capital of the Company upon Completion; and (iii) any cash (after deducting the costs and expenses incurred by the Provisional Liquidators during the restructuring period) held by the Company as at the date of Completion. In addition, if the Company or the Group, within 12 months following Completion, makes any recoveries or realisations in connection with Receivables, the Creditors will be entitled to 50% of the net proceeds from such recoveries and/or realisations whenever the aggregate entitlements of the Scheme Administrators to receive such recoveries and/or realisations not already paid to them exceed HK$200,000. The remaining 50% of the net proceeds will be retained by the Company.

As stated in the letter from the Provisional Liquidators contained in the Circular, the Receivables are mainly due from the former margin customers of the Company’s financial services subsidiary, Seapower Finance Limited.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We have attempted to quantify the total amount to be received by the Creditors under the Schemes and compared it with the amount to be discharged and waived by the Creditors upon the successful implementation of the Restructuring Agreement and have set out the results in the table below:

	HK$’ million
Cash	38.0
96,000,000 New Shares_(note 1)_	0.3
Cash held by the Company at Completion_(note 2)_	–
Amount available to Creditors before any recoveries and/or
realisations of the Receivables	38.3 (A)
50% net proceeds from recovery and/or realisation of the
Receivables_(note 3)_	93.5 (B)
Total amount available to the Creditors
– without recovery and/or realisation of the Receivables
within 12 months from Completion = (A)	38.3
– with full recovery and/or realisation of the Receivables
within 12 months from Completion = (A) + (B)	131.8 (C)
Total amount to be discharged and waived by the Creditors	1,589.0 (D)
Amount unrecoverable by the Creditors
– without recovery and/or realisation of the Receivables within
12 months from Completion = (D) – (A)	1,550.7
– with full recovery and/or realisation of the Receivables
within 12 months from Completion = (D) – (C)	1,457.2

Notes:

Based on the pro forma adjusted consolidated net tangible asset value of the New Shares immediately after Completion (but before any exercise of the Warrants) of approximately HK$0.0037 per New Share.
As the Provisional Liquidators expect the cash held by the Company on Completion to be minimal due to a number of the Company’s outstanding legal and other costs associated with the termination of the Former Restructuring Agreement and the adjudication of claims against the Group, we have assumed such cash amount to be zero.
Receivables represent the Company’s receivables with a principal amount of approximately HK$187 million outstanding as at the Latest Practicable Date.
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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We have used the pro forma adjusted consolidated net tangible asset value per New Share instead of the par value in calculating the value of the 96,000,000 New Shares to be issued to the Creditors as we consider that the net tangible asset value is more indicative of the value to be received by the Creditors upon Completion. On the basis as set out in the above table, the amount to be waived by the Creditors will be approximately HK$1,457.2 million if the Receivables are fully recovered within 12 months from Completion. Such amount will be increased to approximately HK$1,550.7 million if the Receivables cannot be recovered at all within 12 months from Completion. We consider the amount to be discharged and waived by the Creditors substantial as compared to the amount to be received and recovered by them under the Schemes. Accordingly, we are of the opinion that the Schemes are in the interests of the Company and the Shareholders as a whole because of the significant amount of indebtedness discharged and waived by the Creditors upon the successful implementation of the Restructuring Proposal.

As mentioned above, the Company’s total indebtedness due to the Creditors which was estimated by the Provisional Liquidators at approximately HK$1,589 million as at the Latest Practicable Date will be completely discharged and waived by the Creditors upon the successful implementation of the Debt Restructuring and the tight working capital position of the Group will be relieved. However, the Restructuring Proposal will lapse if the Debt Restructuring fails to proceed and the Creditors and the Provisional Liquidators may proceed with the liquidation of the Company if the Restructuring Proposal is not approved by the Shareholders. The Provisional Liquidators have indicated in their letter contained in the Circular that, should the Company be liquidated, the return to the Creditors will be minimal and there will unlikely be any return to the Shareholders. On the basis of the current circumstances, we are of the opinion that the Restructuring Proposal is more likely to provide a higher return to the Shareholders over a shorter time period than if the Company is forced into liquidation and is therefore in the interests of the Company and the Shareholders as a whole.

(c) Subscription

Pursuant to the terms of the Subscription Agreement, the Investor will agree to subscribe for 4,600,000,000 New Shares at an issue price of HK$0.01 per New Share to raise an aggregate amount of approximately HK$46 million in cash. The number of New Shares to be issued to the Investor represents approximately 96.06% of the enlarged issued share capital of the Company immediately upon Completion.

Pursuant to the terms of the Subscription Agreement, the Investor will also subscribe for Warrants with an exercise price of HK$0.01 per New Share (subject to adjustment), which entitle the holder(s) thereof to subscribe for a number of New Shares representing 20% of the enlarged issued share capital of the Company upon Completion for a total consideration of HK$1.00. Assuming full exercise of the Warrants by the Investor at the exercise price of HK$0.01 per New Share, approximately 957,764,000 additional New Shares will be issued and an additional capital of approximately HK$9.58 million will be provided to the Company.

48 -

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The issue price per New Share of HK$0.01 each represents a discount of approximately 63.0% to the closing price of the Shares of HK$0.027 each on 28th December, 2001 which was the last trading day prior to the suspension of the trading in the Shares and a discount of approximately 58.8% to the average closing price of HK$0.0243 per Share for the period of ten trading days ended 28th December, 2001. Based on the proposed consolidation of every 100 issued Shares and the subdivision of such consolidated shares into six New Shares, the subscription price of HK$0.01 each represents a discount of approximately 97.8% to the theoretical closing price of the New Shares of HK$0.45 each on 28th December, 2001 and a discount of approximately 97.5% to the theoretical average closing price of the New Shares of HK$0.405 each for the period of ten trading days ended 28th December, 2001.

However, we consider such discount of the issue price as stated above to be irrelevant in the evaluation of the issue price under the Subscription. Since the Shares were suspended from trading from 28th December, 2001, the Group’s cashflow problem deteriorated and its cold storage and warehousing businesses in Hong Kong ceased completely in March 2002 as a result of the disposals of the properties on which the Company’s subsidiaries operated. Given the fact that the Shares were suspended from trading for more than one year, we consider that the closing price of the Shares prior to the suspension of trading is not reflective of the current financial condition and value of the Company and it is, therefore, inappropriate to use the share prices recorded prior to the suspension of trading as a benchmark for comparison. Furthermore, in view of a possible involuntary liquidation of the Company and its existing net liabilities position, we are of the view that the closing prices of the Shares prior to the suspension of trading will not provide a fair basis for the evaluation of the issue price under the Subscription.

We consider that given the current financial conditions of the Company, it would unlikely be able to raise any funds from debt or equity issue at the then prevailing market prices of the Shares. Based on the pro forma adjusted consolidated net tangible assets of the Group upon Completion as set out in section 5 of Appendix I to the Circular, the adjusted consolidated net liabilities of the Group prior to implementation of the Restructuring Proposal amounted to about HK$1,304.1 million or equivalent to about HK$0.84 per Share. The issue price of HK$0.01 per New Share therefore represents a significant premium over the net liabilities attributed to each existing Share of the Company. The Group’s net asset position immediately after Completion will be discussed in detail in the section headed “Effects of the Restructuring Proposal” below.

In view of the above, as well as the positive financial effects as discussed in the section headed “Effects of the Restructuring Proposal” below and the avoidance of a possible involuntary liquidation of the Company, we consider that it is fair and reasonable in a corporate rescue exercise for the subscription price of the New Shares, which was arrived at after arm’s length negotiations, to be lower than the closing price immediately prior to the suspension of trading.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(iv) Effects of the Restructuring Proposal

(a) Net assets

In assessing the financial position of the Group as set out in sections 3, 4 and 5 of Appendix I to the Circular, Independent Shareholders should note that zero value has been attributed to the Group’s investment properties (i.e. the 24 townhouses in Beijing purchased by Pentagon Profits) and properties held for development (i.e. the 111 plots of land in Indonesia in which SDI had invested). Particulars of the relevant property interests and the reasons for attributing zero value thereto have been reported in the letter from the Provisional Liquidators contained in the Circular. Given the circumstances as reported by the Provisional Liquidators that there is little prospect of the Group obtaining legal title to such property interests, we concur with the Provisional Liquidators’ view that the accounting treatment in respect of the property interests concerned was appropriate. It should however be noted that should the Group be able to recover or realise any value from the property interests concerned in the future, such value could be retained by the Group and the Restructuring Agreement does not provide for any arrangement for any such value that might be recovered or realised. On this basis, we consider the accounting treatment for those property interests not of material significance for the purposes of assessing the fairness and reasonableness of the terms of the Restructuring Proposal.

Based on the pro forma adjusted consolidated net tangible assets of the Group upon Completion as set out in section 5 of Appendix I to the Circular, the pro forma adjusted consolidated net tangible assets of the Group upon Completion but before any exercise of the Warrants will amount to approximately HK$17.6 million, which is equivalent to approximately HK$0.0037 per New Share. This represents a significant improvement compared with the net liabilities of approximately HK$1,304.1 million, or about HK$0.84 per Share prior to the implementation of the Restructuring Proposal.

The Restructuring Proposal will improve the net asset position of the Group by an amount of HK$1,321.7 million as a result of debts compromised and discharged by the Creditors in the amount of approximately HK$657.3 million and net liabilities excluded from the Restructuring Proposal in the amount of approximately HK$664.4 million.

In the event that the Warrants to be issued under the Subscription are fully exercised by the Investor, the pro forma adjusted net tangible assets of the Group will increase further by approximately HK$9.58 million to approximately HK$27.2 million.

Independent Shareholders should also note that information on the pro forma adjusted consolidated net tangible assets of the Group as mentioned above has been prepared on a going concern basis whereas the actual value of its assets may depreciate if the Company is forced into liquidation. However, the Restructuring Proposal will be a means to preserve the value of the Company’s assets because it will prevent the Company from being liquidated. Given this benefit and the enhancement of the overall pro forma net asset position of the Group as a result of the Restructuring Proposal, we consider that the Restructuring Proposal is in the interests of the Company and the Shareholders as a whole.

50 -

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(b) Working capital

The Subscription is expected to raise approximately HK$46 million in cash. Based on such amount, HK$38 million will be applied to the cash payment to the Scheme Administrators for distribution to the Creditors pursuant to the Schemes, HK$1 million will be paid to the Petitioning Creditor to settle all or part of the Petitioning Creditors’ costs outstanding upon Completion and HK$6.4 million will be applied towards the restructuringrelated expenses. The remaining balance of approximately HK$0.6 million will be retained by the Company to meet the Group’s general working capital requirement up to Completion. Assuming that the Warrants are exercised in full at the subscription price of HK$0.01 per New Share, an additional equity of HK$9.58 million will be generated for use by the Group. In addition, as stated in the Circular, the Investor will, if necessary, advance up to HK$5 million to the Company by way of shareholders’ loan to satisfy the working capital requirement of the Group for a period of 12 months after Completion.

As mentioned in section 2 of Appendix II to the Circular in respect of the Group’s cashflow projections for the 12-month period following Completion, the Group is expected to have net cash inflow from operating activities of approximately HK$0.7 million over such period. Based on the information contained in Appendix II to the Circular, we consider that the undertaking of additional advance, if necessary, of up to HK$5 million to the Company by the Investor provides the Company with a contingent measure against unforeseen circumstances which may adversely affect the Group’s working capital position for the 12month period following Completion. Given the expected positive cash inflow from operating activities, we are of the view that the amount of additional advance by the Investor, which is only a contingent measure, is not a material factor in arriving at our overall recommendation.

(c) Operating results

Upon the successful implementation of the Restructuring Proposal, the Company’s indebtedness due to the Creditors of approximately HK$1,589 million as at the Latest Practicable Date will be fully discharged and waived and the Company’s interest expenses are expected to decrease significantly as a result of the reduction in the overall level of indebtedness. Assuming conservatively a bank borrowing rate at the prevailing prime rate for Hong Kong dollars of 5% per annum, approximately HK$79.5 million of interest expenses on an annualised basis would have been saved on the total indebtedness of HK$1,589 million as a result of the Restructuring Proposal.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(d) Dilution effect on the shareholding

Details of the existing shareholding structure of the Company and the possible shareholding structure following the Completion are set out in the paragraph headed “Shareholding Structure” in the letter from the Provisional Liquidators contained in the Circular. In order to assess the fairness and reasonableness of the dilution effect on the Company’s existing shareholding structure under the Restructuring Proposal, we have identified those companies which are listed on the main board of the Stock Exchange and underwent similar debts restructuring exercises in the 18-month period immediately before the announcement of the Restructuring Proposal as comparables (the “Comparables”). The table below summarises the dilution effect of the restructuring exercises carried out by the Comparables:

% holding of general public shareholders

		Immediately		Amount
	Before	after	Dilution	of equity	Total
restructuring		restructuring	effect	provided	Indebtedness
Company	(A)	(B)	(B)/(A)-1	by investor	involved
				(Note 1)	(Note 2)
				HK$ million	HK$ million
Innovative International
(Holdings) Limited	73.85	0.29	-99.60%	65.0	883.0
Tem Fat Hing Fung
(Holdings) Limited	82.33	1.43	-98.26%	48.0	1,472.0
Kessel International
Holdings Ltd	34.00	0.93	-97.28%	40.0	95.5
Baker Group International
Holdings Limited	77.30	3.31	-95.72%	45.0	128.0
CIL Holdings Limited	78.72	5.24	-93.34%	35.0	220.0
Wireless InterNetworks
Limited	52.99	3.73	-92.95%	40.0	995.3
Wah Nam Group Limited	100.00	9.01	-90.99%	40.0	440.7
RNA Holdings Limited	98.48	9.88	-89.97%	304.3	829.0
Kin Don Holdings Limited	72.46	22.91	-68.38%	34.0	157.4
Dransfield Holdings Ltd	50.90	20.72	-59.29%	53.7	131.8
Fu Hui Holdings Limited	62.84	26.53	-57.78%	100.0	125.6
Hung Fung Group
Holdings Ltd	35.78	16.21	-54.71%	30.0	233.8
Wah Lee Resources Holdings
Limited	50.91	23.89	-53.08%	55.0	212.6
The Company	72.45	1.41	-98.05%	46.0	1,589

52 -

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Notes:

The amount of equity represents the total amount of cash provided by the relevant investor as equity, and does not include the amounts provided as loan capital or to be provided under option, warrant or other convertible instruments.
The amount of indebtedness represents the total amount of outstanding indebtedness estimated by the investor at the time of announcement of the rescue proposal.

As indicated above, the magnitude of the dilution effect of the Restructuring Proposal is the third largest among the Comparables and the shareholding of existing Shareholders will be diluted from approximately 72.45% to approximately 1.41% of the enlarged issued share capital of the Company immediately upon the Completion but before the exercise of any Warrants. Such a dilution is a result of the issue of 4,696,000,000 New Shares to the Investor and the Creditors pursuant to the Restructuring Agreement. As illustrated under the paragraph headed “Effects of the Restructuring Proposal” in the letter from the Provisional Liquidators contained in the Circular, if the Warrants are exercised in full, approximately 957,764,000 New Shares will be further issued and the existing public Shareholders’ interests will be diluted further to approximately 1.17% of the enlarged issued share capital of the Company.

It was also shown in the above table that, except in the case of one Comparable, the amounts of equity provided by investors under the restructuring exercises of the other 12 Comparables ranged from approximately HK$30.0 million to HK$100 million and the average amount was approximately HK$48.8 million. Thus the equity amount of HK$46 million provided by the Investor under the Restructuring Proposal appears to be substantially in line with those under the Comparables. Further, it should be noted that the amount of indebtedness of approximately HK$1,589 million to be released and discharged under the Restructuring Proposal is the highest as compared to the Comparables. Except in the case of one Comparable which restructuring exercise involved an indebtedness amount of approximately HK$1,472.0 million, the amounts of indebtedness involved in all of the other 12 Comparables were under HK$1,000 million, ranging from approximately HK$95.5 million to HK$995.3 million, and the average amount was approximately HK$371.1 million. On the basis of the results of our comparison as indicated above and the fact that a reasonable equity amount to be provided and a substantial amount of indebtedness to be released and discharged in full under the Restructuring Proposal, we consider the Investor’s percentage of equity interest in the Company in exchange for its investments in the Group to be acceptable.

Furthermore, in view of the Group’s indebtedness of approximately HK$1,589 million as at the Latest Practicable Date and its net liability position, it would be very difficult for the Company to raise capital by way of debt issue or from the equity market. In the absence of a viable restructuring proposal which includes prompt cash injection for settlement of large amount of debts and general operation needs, it is very likely that the Creditors and the Provisional Liquidators may proceed with the liquidation of the Company if the Restructuring Proposal is not approved by the Shareholders. The Provisional Liquidators have indicated that there will unlikely be any return to the Shareholders if the Company is wound up. Taking the above factors into consideration, we consider the dilution effect on the Independent Shareholders’ shareholding interests to be fair and reasonable.

53 -

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(v) Future management of the Group and intentions of the Investor

Following the Completion, all existing Directors, namely, Ms Shirley Choi Siu Lui, Ms. Ou Yirong, Mr. Norman Choi Sung Fung, Mr. Choi Sai Leung, Ms. Judy Wong Tak Kwan and Mr. Ronald Lau Kin Hon are expected to be removed from the Board. The composition of the future Board and particulars of the proposed Directors are contained in the letter from the Investor in the Circular.

Particulars of the Investor and its sole director are also contained in the letter from the Investor in the Circular.

As mentioned in the letter from the Investor, none of the Investor, its sole director and the proposed Directors has any experience in the provision of logistics management services and the operation of warehousing and cold storage businesses. However, the Investor considers that the proposed Directors possess the capability of determining corporate objectives, planning strategies for future business development of the Group as they have been involved in senior management of organisations engaged in business consultancy and project and financial management. The Investor also intends to retain the Group’s current key senior managers, namely Ms. Olivia Wai Yee Yung and Ms. Rosie Song Yue, to oversee the daily operations of logistics management services and cold storage warehousing business of the Group. Ms. Olivia Wai Yee Yung joined the Group in 1992 and is currently the executive manager of the Australian division. She has over 10 years’ experience in managing cold storage, warehousing and logistic operations in Australia. Ms. Rosie Song Yue is currently the senior manager of the China business development division of the Group and has over 8 years of experience in sales and marketing and is especially familiar with the business development in the PRC. The Investor will re-establish a strong professional management team for the Company by recruiting employees with relevant experience in cold storage warehousing and logistic businesses in Australia, Hong Kong and the PRC after Completion. The Investor also intends to retain the existing employees of the Company subject to its operational and business review after Completion.

Despite the proposed retention of the Group’s current key senior managers as mentioned above, Shareholders should note that none of the proposed Directors has relevant experience in directly managing the Group’s principal businesses. We consider such management structure as proposed by the Investor may place too much reliance on the two existing senior managers. Should they, or any of them, cease to be involved in the Group’s management and daily operations and the Group fails to find a replacement for their positions, the overall management of the Group’s businesses may be adversely affected. There is also the possibility that the current senior management could not perform effectively without the guidance of a competent Board with relevant experience in managing the Group’s principal businesses. Shareholders are therefore advised to note that the Group’s businesses may not be properly and effectively managed following Completion and there is no guarantee that the Company’s operating results will improve or the Company will revert to profitability in the near future.

54 -

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The intention of the Investor regarding the business operations and future development of the Group is described in the letter from the Investor contained in the Circular. While we are at present unable to comment on the prospects of the restructured Group, we consider that the Restructuring Proposal will introduce to the Company a new controlling shareholder who has the financial resources to restore the Group to a stable financial condition and continue its normal business operations and is therefore in the interests of the Company and the Shareholders as a whole.

B. THE WHITEWASH WAIVER

Immediately upon Completion, the Investor together with parties acting in concert with it will be interested in approximately 96.06% of the enlarged issued share capital of the Company and its shareholding will be increased further to approximately 96.71% by the exercise of the Warrants in full. In accordance with Rule 26 of the Code, the Investor is obliged to make a general offer for all the Shares other than those already held by the Investor and parties acting in concert with it.

The Investor has applied to the Executive for the waiver from its obligations to comply with the requirement pursuant to Note 1 on dispensation from Rule 26 of the Code. The Restructuring Proposal is conditional on the approval of the Whitewash Waiver by the Independent Shareholders by way of a poll at the EGM and on the grant of the Whitewash Waiver by the Executive. The Executive has indicated, subject to the approval by the Independent Shareholders on a vote taken by way of a poll, to waive any obligations of the Investor and the parties acting in concert with it to make a general offer which might result from the Completion or the exercise of the Warrants. As mentioned in the Circular, the Investor has indicated that it will not waive or amend the Whitewash Waiver condition. In the event that the Whitewash Waiver is not approved by the Independent Shareholders, the Restructuring Proposal will not proceed and the Company will not receive the funds from the Subscription. For reasons as discussed under the section headed “The Restructuring Proposal” above, we concur with the Provisional Liquidators that the Company will be wound up if the Restructuring Proposal is not implemented and the Creditors take legal actions to recover their claims. Under such circumstances and given the current financial conditions of the Group, the Shareholders will unlikely be able to realise any returns. As the requirement for the Whitewash Waiver is a common feature in rescue proposals for companies which are in financial difficulties and revived as a result of injection of funds by new investors, we are in the opinion that the grant of the Whitewash Waiver is in the interests in the Company and its Shareholders as a whole for the purposes of implementing the Restructuring Proposal.

55 -

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

RECOMMENDATION

Having considered the factors and reasons set out above and, in particular, the following:

(i) the discharge and waiver of all indebtedness due to the Creditors by the Company immediately after Completion;
(ii) the improvement in the working capital and financial position of the Group from a net liability position to a net asset position upon Completion;
(iii) the strong likelihood of an involuntary liquidation of the Company if it fails to restructure its indebtedness; and
(iv) there will unlikely be any return to the Shareholders in case of a liquidation of the Company,

we consider that the Restructuring Proposal is in the interests of the Company and the Shareholders as a whole and that the terms of the Restructuring Proposal and the Whitewash Waiver are fair and reasonable so far as the Independent Shareholders are concerned. Independent Shareholders are, however, advised to note the dilution effect of the Restructuring Proposal on their shareholding interests in the Company. On balance, we recommend the Independent Shareholders to vote in favour of the resolutions in relation to the Restructuring Proposal and the Whitewash Waiver to be proposed at the EGM.

Yours faithfully,

For and on behalf of

AMS Corporate Finance Limited Jinny Mok

Director

56 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. SHARE CAPITAL

The authorised and issued share capital of the Company as at the Latest Practicable Date were, and following Completion, will be as follows:

Authorised:		HK$
20,000,000,000	Shares of HK$0.05 each as at
	the Latest Practicable Date	1,000,000,000.00
10,000,000,000	New Shares of HK$0.01 each upon the Capital
	Restructuring becoming effective	100,000,000.00
Issued and fully paid:
1,547,042,829	Shares of HK$0.05 each as at
	the Latest Practicable Date	77,352,141.45
92,822,570	New Shares of HK$0.01 each upon the Capital
	Restructuring becoming effective	928,225.70
4,788,822,570	New Shares of HK$0.01 each upon Completion
	but prior to full exercise of Warrants	47,888,225.70

There has been no alteration in the number of issued Shares since 31st March, 2003 which is the last financial year end date of the Company to the Latest Practicable Date.

As at the Latest Practicable Date, all issued Shares ranked pari passu in all respects, including, in particular, as to dividends, voting rights and return of capital. All New Shares to be issued will rank pari passu in all respects with the Shares, including in particular, as to dividends, voting rights and return of capital.

According to the Company’s last audited accounts for the year ended 31st March, 2003, all the options granted under the Share Option Scheme of the Company have lapsed in accordance with the terms of the Share Option Scheme.

Except for the Warrants, the Company has no other outstanding securities convertible into New Shares, and no share or loan capital of the Company has been put under option or agreed conditionally or unconditionally to be put under option and no other conversion right affecting the Shares or other derivatives in respect of securities which are being offered for or which carry voting rights have been issued or granted or agreed conditionally or unconditionally to be issued or granted.

57 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. FINANCIAL SUMMARY

The table set out below summaries the consolidated results of the Group for the preceding three financial years ended 31st March, 2003, as derived from the audited consolidated financial statements of the Company.

RESULTS
Turnover
Loss from operations
Finance costs
Other non-operating losses
and expenses
Gain/(loss) on disposal of leasehold properties
Loss arising from liquidation of subsidiaries
Loss on disposal of investment properties
Provision for impairment loss of
properties held for development
Share of results of associates and
jointly controlled entities
Loss before taxation
Taxation – credit/(charge)
Extraordinary items
Loss before minority interests
Minority interests
Net loss for the year
Dividend per share
Loss per share
ASSETS AND LIABILITIES
Total assets
Total liabilities
Minority interests
Shareholders’ funds

For the year ended 31 March
2003
2002
2001
HK$’000
HK$’000
HK$’000
16,881
165,272
191,767
(14,243)
(30,591)
(105,888)
(45,948)
(91,046)
(121,902)
–
(26,795)
(10,847)
9,341
(537,800)
–
–
(648,330)
–
–
(90,664)
–
–
(60,041)
–
–
–
362
(50,850)
(1,485,267)
(238,275)
3,200
(31,224)
407
–
–
–
(47,650)
(1,516,491)
(237,868)
–
246
(1,186)
(47,650)
(1,516,245)
(239,054)
–
–
–
(3.08 cents) (98.01 cents) (15.45 cents)
At 31 March
2003
2002
2001
HK$’000
HK$’000
HK$’000
43,398
83,533
1,565,406
(1,346,979) (1,335,279) (1,343,754)
(509)
(509)
(4,303)
(1,304,090) (1,252,255)
217,349

58 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. AUDITORS’ REPORTS FOR THE THREE FINANCIAL YEARS ENDED 31ST MARCH 2001, 2002 AND 2003

(a) Set out below is the text of the auditors’ report on the financial statements of the Company for the year ended 31st March, 2001. References to page numbers are to page numbers of such audited financial statements of the Company for the year ended 31st March, 2001.

TO THE SHAREHOLDERS OF

SEAPOWER RESOURCES INTERNATIONAL LIMITED

(Incorporated in the Cayman Islands with limited liability)

We have audited the financial statements on pages 26 to 85 which have been prepared in accordance with accounting principles generally accepted in Hong Kong.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS

The Company’s Directors are responsible for the preparation of financial statements which give a true and fair view. In preparing financial statements which give a true and fair view it is fundamental that appropriate accounting policies are selected and applied consistently.

It is our responsibility to form an independent opinion, based on our audit, on those statements and to report our opinion to you.

BASIS OF OPINION

We conducted our audit in accordance with Statements of Auditing Standards issued by the Hong Kong Society of Accountants, except that the scope of our work was limited as explained below.

An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the Directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the circumstances of the Company and of the Group, consistently applied and adequately disclosed.

We planned our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the financial statements are free from material misstatement.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

However, the evidence available to us was limited as follows:

(1) Included in the consolidated income statement is a loss on disposal of a subsidiary of approximately HK$3 million. However, we were unable to obtain the sale and purchase agreement or other documentary evidence in respect of the disposal. Also, full provision has been made in respect of the outstanding receivable arising from the disposal of approximately HK$27 million. Against this background, we were unable to satisfy ourselves as to the validity of the disposal and as to whether the recorded loss on disposal and the subsequent provision are fairly stated.
(2) As explained in note 15 to the financial statements, included in the Group’s property, plant and machinery as at 31st March, 2001 were properties held for development of approximately HK$54 million. We were unable to obtain sufficient information and explanations regarding the valuation of the properties under development as at 31st March, 2001 to assess whether any provision is required for impairment in value.

Any adjustments to the figures mentioned above would affect the net assets of the Company and the Group as at 31st March, 2001 and the results of the Group for the year then ended.

In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. We believe that our audit provides a reasonable basis for our opinion.

FUNDAMENTAL UNCERTAINTY RELATING TO THE GOING CONCERN BASIS

In forming our opinion, we have considered the adequacy of the disclosures made in note 2 to the financial statements which explain the current liquidity difficulties of the Group.

The Group’s servicing of borrowings from certain financial creditors (the “Financial Creditor”) were not made according to the schedules set by the Financial Creditors such that the Group’s total borrowings from these Financial Creditors have become due for immediate repayment. As a result, receivers have been appointed by certain of the Financial Creditors (the “Banking Syndicate”) in respect of two of the Group’s three cold storage warehouses (the “Properties”). Also, one member of the Banking Syndicate has taken action in connection with their specific security over certain Group assets. At the same time, the Group has put certain of its investment properties to tender with a view for sale so as to repay the borrowings from a secured financial creditor (not a member of Banking Syndicate).

The financial statements have been prepared on a going concern basis on the basis that in the context of the events described above, agreement can be reached with the Financial Creditors to provide the Group with sufficient funding for its requirements.

The financial statements have been prepared on a going concern basis, the validity of which depends upon future funding being available. The financial statements do not include any adjustments that may result from the failure to obtain such funding. We consider that the fundamental uncertainty has been adequately disclosed in the financial statements and our opinion is not qualified in this respect.

60 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

QUALIFIED OPINION ARISING FROM LIMITATIONS OF AUDIT SCOPE

Except for any adjustments that might have been found to be necessary had we been able to obtain sufficient evidence concerning the disposal of a subsidiary and concerning the valuation of properties held for development, in our opinion the financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31st March, 2001 and of the loss and cash flows of the Group for the year then ended and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

In respect alone of the limitations on our work set out in the basis of opinion section of this section of this report:

we have not obtained all the information and explanations that we considered necessary for the purpose for our audit; and
we were unable to determine whether proper books of accounts have been kept.

Deloitte Touche Tohmatsu Certified Public Accountants

Hong Kong, 26th July, 2001

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Set out below is the text of the auditors’ report on the financial statements of the Company for the year ended 31st March, 2002. References to page numbers are to page numbers of such audited financial statements of the Company for the year ended 31st March, 2002.

TO THE SHAREHOLDERS OF

SEAPOWER RESOURCES INTERNATIONAL LIMITED

(Provisional Liquidators Appointed)

(Incorporated in the Cayman Islands with limited liability)

We have audited the financial statements on pages 18 to 56 which have been prepared in accordance with accounting principles generally accepted in Hong Kong.

RESPECTIVE RESPONSIBILITIES OF PROVISIONAL LIQUIDATORS AND AUDITORS

The Company’s Provisional Liquidators are responsible for the preparation of financial statements which give a true and fair view. In preparing financial statements which give a true and fair view it is fundamental that appropriate accounting policies are selected and applied consistently.

It is our responsibility to form an independent opinion, based on our audit, on those statements and to report our opinion to you.

BASIS OF OPINION

We conducted our audit in accordance with Statements of Auditing Standards issued by the Hong Kong Society of Accountants, except that the scope of our work was limited as explained below.

An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the Provisional Liquidators in the preparation of the financial statements, and of whether the accounting policies are appropriate to the circumstances of the Group and the Company, consistently applied and adequately disclosed.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

However, the evidence available to us was limited due to the following:

Scope limitations arising from the prior year’s audit scope limitations affecting opening balances

The former auditors issued an “Except For” qualified opinion on the financial statements of the Group and the Company for the year ended 31 March 2001 for the significance of possible effects of certain limitations on the scope of their audit as further detailed in their auditors’ report dated 26 July 2001.

In summary those scope limitations included:

a) Neither sale and purchase agreement nor other necessary documentary evidence was available to confirm the validity of disposal of a former subsidiary which resulted in a recorded loss on the disposal of approximately HK$3 million;
b) Insufficient information to confirm the full provision of approximately HK$27 million made against the outstanding receivable arising from the said disposal of that former subsidiary as referred to (a) above; and
c) Insufficient information to confirm the carrying value of certain properties held for development in Indonesia of approximately HK$54 million.

Any adjustments found to be necessary to the opening net assets of the Group and the Company would have a consequential effect on the accumulated losses and, for (c) as referred to above, the translation reserve, brought forward from the prior year, and on the net liabilities of the Group and the Company as at 31 March 2002.

Scope limitations arising from the audit for the current year

Ownership and carrying value for certain properties held for development in Indonesia

The Company’s wholly-owned subsidiary, Seapower Developments (Indonesia) Limited (“SDI”), made investments in 111 lots of land in Indonesia which are held directly by 19 Indonesian trustees (“Trustees”) as the registered title-owners on trust of the Group based on certain agreements made. Subsequent to the balance sheet date, a legal opinion had been obtained by the Provisional Liquidators of the Company, which indicates that although SDI may have the rights, based on the available agreements made with the Trustees, it currently does not have the legal title of the land.

We have been unable to obtain confirmation directly from these Trustees whether these properties are still held on trust of the Group and to satisfy ourselves as to whether SDI can exercise its rights to obtain the legal title of the land.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

In addition, the Group had fully provided for the carrying value of the land of approximately HK$53,141,000 and written off the related translation reserve of approximately HK$6,900,000, as referred to note 16(b) to the financial statements, by charging an impairment loss of approximately HK$60,041,000 to the consolidated income statement for the year ended 31 March 2002 on the basis that the Group may not be able to obtain the title of the land.

There were no other satisfactory auditing procedures that we could adopt to satisfy ourselves regarding the ownership of the land and whether the provision for the impairment loss of the land was appropriate. Any adjustment to the amount would have a consequential effect on the Group’s net liabilities as at 31 March 2002 and the loss of the Group for the year then ended.

Prior year’s loss and provision for outstanding receivable arising from the sale of a former subsidiary

As more detailed in the former auditors’ report dated 26 July 2001 in respect of the financial statements for the year ended 31 March 2001, there was neither sale and purchase agreement nor other information for confirming the sale of a former subsidiary and consequently, the loss of approximately HK$3 million on the disposal, and there were no sufficient evidence and explanations for assessing the appropriateness of making full provision for the outstanding receivable of approximately HK$27 million arising from the sale of the former subsidiary previously made in the prior year.

In respect of our audits for the year ended 31 March 2002, the same scope limitations as noted by the former auditors in respect of their audit for the year ended 31 March 2001 as referred to in the preceding paragraph have continued to exist and consequently, we have been unable to confirm the prior year’s disposal loss of approximately HK$3 million and whether the full provision for the outstanding receivable arising from the disposal of the former subsidiary of approximately HK$27 million previously made for the year ended 31 March 2001 was appropriate and still required at the balance sheet date. Any adjustments to these amounts would have a consequential effect on the net liabilities position of the Group and the Company as at 31 March 2002 and the accumulated losses of the Group and the Company brought forward from the prior year.

Certain margin and other loans receivable of approximately HK$240 million

There are certain margin and other loans receivable of approximately HK$171 million and HK$69 million respectively recorded in the accounts of the Company and Seapower Finance Limited, its wholly-owned subsidiary, for which full provisions had been made in the previous years. We have been unable to carry out auditing procedures to confirm the completeness and accuracy of these margin and other loans receivable for which we have also been unable to obtain sufficient documentary evidence and explanations necessary for assessing their recoverability. Therefore, we have been unable to confirm the carrying value of the margin and other loans receivable and whether the provisions previously made were appropriate and still required at the balance sheet date. Any adjustments to these amounts would have a consequential effect on the net liabilities position of the Group and the Company as at 31 March 2002 and the loss of the Group and the Company for the year then ended.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Interests in an associate

The Group made investment of approximately HK$53 million in one associate, namely P.T. Inatai Golden Furniture Industries in which the Group has equity interest of 32%, against which full provision had been made in the prior years. The Group has no significant influence on the operational and financial decisions of this associate and as such, equity method had been discontinued for accounting the Group’s share of results and the interest in this associate in the previous years. There were neither audited financial statements nor other financial information available concerning the financial position of this associate. We have been unable to confirm the existence, ownership and carrying value of the interest in this associate and whether the provision previously made against the interest in this associate was appropriate and still required at the balance sheet date. Any adjustment to the amount of provision would have a consequential impact on the Group’s net liabilities as at 31 March 2002 and the loss of the Group for the year then ended.

6. Deposits paid for two other investments

The Company made aggregate payments of approximately HK$34.5 million for the investments in two companies, namely Fujian Tel Network and 廣州粵鋼物資供應有限公司 , against which full provisions had been made in the prior years. We have been unable to obtain the documentary evidence for ascertaining the commercial substance of these two payments and sufficient information and representation necessary for assessing the recoverability of these deposits. Therefore, we have been unable to satisfy ourselves as to whether the full provisions for these deposits previously made were appropriate and still required at the balance sheet date. Any adjustment to these provisions would have a consequential effect on the net liabilities of the Group and the Company as at 31 March 2002 and the loss of the Group and the Company for the year then ended.

Fundamental uncertainty relating to the going concern basis of the Group

In forming our opinion, we have considered the adequacy of the disclosures made on note 2(b) to the financial statements concerning the basis of their preparation by the Provisional Liquidators of the Company. As more fully disclosed in note 2(b) to the financial statements, the Group’s financial statements have been prepared on a going concern basis, the validity of which is dependent on the successful completion in full of the terms and conditions of the conditional restructuring agreement made by the Provisional Liquidators, on behalf of the Company, with an investor on 14 May 2003 (“Restructuring Agreement”) as detailed in note 34(a) to the financial statements and, in particular:

(i) that issuance of certain new shares of the Company to the investor at the consideration of HK$46 million (“Subscription Proceeds”), pursuant to the subscription agreement as a part of the Restructuring Agreement, will be completed;
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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(ii) that indebtedness of the Company’s creditors (other than the preferential creditors) to be discharged in full, pursuant to the schemes under debt restructuring as part of the Restructuring Agreement, at the consideration of making distribution to the scheme creditors on the pro-rata basis which comprises a cash payment of HK$38 million from the abovementioned Subscription Proceeds plus any cash held by the Company on the completion date, and issuance of 96,000,000 new shares of the Company; and
(iii) that working capital facilities to be provided and procured by the investor to the Company, at terms to be agreed from time to time, such that the Group will have sufficient working capital for its operations for a period of 12 months after the completion of the Restructuring Agreement.

The Provisional Liquidators consider that the Restructuring Agreement can be completed in accordance with its terms, but at this stage, there is insufficient evidence to confirm whether the terms and conditions of the conditional Restructuring Agreement can be completed in full. The financial statements do not include any adjustments that would result from the failure of the said conditional Restructuring Agreement.

In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. We believe that our audit provides a reasonable basis for our opinion.

DISCLAIMER OF OPINION

Because of the significance of each of (a) the fundamental uncertainty relating to the going concern basis of the Group and (b) the possible effect of the limitations in evidence available to us as referred to in the basis of opinion section of this report, we are unable to form an opinion as to whether the financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31 March 2002 or of the loss and cash flows of the Group for the year then ended and as to whether the financial statements have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

In respect alone of the limitations on our work set out in the basis of opinion section of this report:

we have not obtained all the information and explanations that we considered necessary for the purpose for our audit; and
we were unable to determine whether proper books of accounts have been kept.

Charles Chan, Ip & Fung CPA Ltd.

Certified Public Accountants

Hong Kong 23 September 2003

Chan Wai Dune, Charles

Practising Certificate Number P00712

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(c) Set out below is the text of the auditors’ report on the financial statements of the Company for the year ended 31st March, 2003. References to page numbers are to page numbers of such audited financial statements of the Company for the year ended 31st March, 2003.

TO THE SHAREHOLDERS OF

SEAPOWER RESOURCES INTERNATIONAL LIMITED

(Provisional Liquidators Appointed)

(Incorporated in the Cayman Islands with limited liability)

We have audited the financial statements on pages 18 to 56 which have been prepared in accordance with accounting principles generally accepted in Hong Kong.

RESPECTIVE RESPONSIBILITIES OF PROVISIONAL LIQUIDATORS AND AUDITORS

The Company’s Provisional Liquidators are responsible for the preparation of financial statements which give a true and fair view. In preparing financial statements which give a true and fair view, it is fundamental that appropriate accounting policies are selected and applied consistently.

It is our responsibility to form an independent opinion, based on our audit, on those statements and to report our opinion to you.

BASIS OF OPINION

We conducted our audit in accordance with Statements of Auditing Standards issued by the Hong Kong Society of Accountants, except that the scope of our work was limited as explained below.

An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the Provisional Liquidators in the preparation of the financial statements, and of whether the accounting policies are appropriate to the circumstances of the Group and the Company, consistently applied and adequately disclosed.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

However, the evidence available to us was limited due to the following:

Scope limitations arising from audit scope limitations for the year ended 31 March 2001 affecting opening balances

The former auditors issued an “Except For” qualified opinion on the financial statements of the Group and the Company for the year ended 31 March 2001 for the significance of possible effects of certain limitations on the scope of their audit as further detailed in their auditors’ report dated 26 July 2001. In summary those scope limitations included:
a) Neither sale and purchase agreement nor other necessary documentary evidence was available to confirm the validity of disposal of a former subsidiary which resulted in a recorded loss on the disposal of approximately HK$3 million;
b) Insufficient information to confirm the full provision of approximately HK$27 million made against the outstanding receivable arising from the said disposal of that former subsidiary as referred to (a) above; and
c) Insufficient information to confirm the carrying value of certain properties held for development in Indonesia of approximately HK$54 million.

Scope limitations arising from our audits for the two years ended 31 March 2003 and 2002

In addition, we issued a disclaimer opinion on the financial statements of the Group and the Company for the year ended 31 March 2002 due to the scope limitations for reasons as set out in our report dated 23 September 2003, which have continued to affect the current year’s audits as explained below:

Ownership and carrying value for certain properties held for development in Indonesia

The Company’s wholly-owned subsidiary, Seapower Developments (Indonesia) Limited (“SDI”), made investments in 111 lots of land in Indonesia which are held directly by 19 Indonesian trustees (“Trustees”) as the registered title-owners on trust of the Group based on certain agreements made. During the year ended 31 March 2003, a legal opinion had been obtained by the Provisional Liquidators of the Company, which indicates that although SDI may have the rights, based on the certain agreements made with the Trustees, it currently does not have the legal title on the land.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

There were no other satisfactory auditing procedures that we could adopt to satisfy ourselves regarding the ownership of the land and whether the full provision for the impairment loss of the land previously made in the last year was appropriate. Any adjustment to the amounts would have a consequential effect on the Group’s net liabilities as at 31 March 2003, the accumulated losses and translation reserve of the Group brought forward from the last year.

Prior year’s loss and provision for outstanding receivable arising from the sale of a former subsidiary

As more detailed in the former auditors’ report dated 26 July 2001 for the financial statements for the year ended 31 March 2001, there was neither sale and purchase agreement nor other information for confirming the sale of a former subsidiary and consequently, the loss of approximately HK$3 million on the disposal, and there were no sufficient evidence and explanations for assessing the appropriateness of making full provisions for the outstanding receivable of approximately HK$27 million arising from the sale of the former subsidiary previously made in the prior years.

In respect of our audits for the years ended 31 March 2003 and 2002, the same scope limitations as noted by the former auditors in respect of their audit for the year ended 31 March 2001 as referred to in the preceding paragraph have continued to exist and consequently, we have been unable to confirm the prior year’s disposal loss of approximately HK$3 million and whether the full provision for the outstanding receivable arising from the disposal of the former subsidiary of approximately HK$27 million previously made for the year ended 31 March 2001 was appropriate and still required at the balance sheet date. Any adjustments to these amounts would have a consequential effect on the net liabilities position of the Group and the Company as at 31 March 2003 and the accumulated losses of the Group and the Company brought forward from the prior years.

Certain margin and other loans receivable of approximately HK$240 million

There are certain margin and other loans receivable of approximately HK$171 million and HK$69 million recorded respectively in the accounts of the Company and Seapower Finance Limited, its wholly-owned subsidiary, for which full provisions had been made in the previous years. We have been unable to carry out auditing procedures to confirm the completeness and accuracy of these margin and other loans receivable for which we have also been unable to obtain sufficient documentary evidence and explanations necessary for assessing their recoverability. Therefore, we

69 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

have been unable to confirm the carrying value of the margin and other loans receivable and whether the provisions previously made were appropriate and still required at the balance sheet date. Any adjustments to these amounts of provisions previously made would have a consequential effect on the net liabilities position of the Group and the Company as at 31 March 2003 and the accumulated losses of the Group and the Company brought forward from the prior years.

5. Interests in an associate

The Group made investment of approximately HK$53 million in one associate, namely P.T. Inatai Golden Furniture Industries in which the Group has equity interests of 32%, against which full provision had been made in the prior years. The Group has no significant influence on the operational and financial decisions of this associate and as such, equity method had been discontinued for accounting the Group’s share of results and the interests in this associate in the previous years. There were neither audited financial statements nor financial information available concerning the financial position of this associate. We have been unable to confirm the existence, ownership and carrying value of the interest in this associate and whether the provisions previously made by the Group were appropriate and still required at the balance sheet date. Any adjustment to this amount of the provision would have a consequential effect on the Group’s net liabilities as at 31 March 2003 and the accumulated losses of the Group brought forward from the prior years.

6. Deposits paid for two other investments

The Company made aggregate payments of approximately HK$34.5 million for the investments in two companies, namely Fujian Tel Network and 廣州粵鋼物資供應有限公司 , against which full provisions had been made in the prior years. We have been unable to obtain the documentary evidence for ascertaining the commercial substance of these two payments and sufficient information and representation necessary for assessing the recoverability of these deposits. Therefore, we have been unable to satisfy ourselves as to whether the full provisions for these deposits previously made were appropriate and still required at the balance sheet date. Any adjustments to these provisions would have a consequential effect on the net liabilities of the Group and the Company as at 31 March 2003 and the accumulated losses of the Group and the Company brought forward from the last year.

Fundamental uncertainty relating to the going concern basis of the Group

In forming our opinion, we have considered the adequacy of the disclosures made on note 2(b) to the financial statements concerning the basis of their preparation by the Provisional Liquidators of the Company. As more fully disclosed in note 2(b) to the financial statements, the Group’s financial statements have been prepared on a going concern basis, the validity of which is dependent on the successful completion in full of the terms and conditions of the conditional restructuring agreement made by the Provisional Liquidators, on behalf of the Company, with an investor on 14 May 2003 (“Restructuring Agreement”) as detailed in note 32(a) to the financial statements and, in particular:

70 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(i) that issuance of certain new shares of the Company to the investor at the consideration of HK$46 million (“Subscription Proceeds”), pursuant to the subscription agreement as a part of the Restructuring Agreement, will be completed;
(ii) that indebtedness of the Company’s creditors (other than the preferential creditors) to be discharged in full, pursuant to the schemes under debt restructuring as part of the Restructuring Agreement, at the consideration of making distribution to the scheme creditors on the pro-rata basis which comprises a cash payment of HK$38 million from the abovementioned Subscription Proceeds plus any cash held by the Company on the completion date, and issuance of 96,000,000 new shares of the Company; and
(iii) that working capital facilities to be provided and procured by the investor to the Company, at terms to be agreed from time to time, such that the Group will have sufficient working capital for its operations for a period of 12 months after the completion of the Restructuring Agreement.

In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. We believe that our audit provides a reasonable basis for our opinion.

DISCLAIMER OF OPINION

Because of the significance of each of (a) the fundamental uncertainty relating to the going concern basis of the Group and (b) the possible effect of the limitations in evidence available to us as referred to in the basis of opinion section of this report, we are unable to form an opinion as to whether the financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31 March 2003 or of the loss and cash flows of the Group for the year then ended and as to whether the financial statements have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

In respect alone of the limitations on our work set out in the basis of opinion section of this report:

we have not obtained all the information and explanations that we considered necessary for the purpose for our audit; and
we were unable to determine whether proper books of accounts have been kept.
71 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Without further qualifying our opinion, we draw attention to the fact that because our opinion dated 23 September 2003 on the financial statements in respect of the Group and the Company for the prior year ended 31 March 2002 was disclaimed on the account of various scope limitations for reasons as referred to that report for the year ended 31 March 2002, the comparative amounts shown in these financial statements may not be comparable with the amounts for the current year.

Charles Chan, Ip & Fung CPA Ltd.

Certified Public Accountants Hong Kong 23 September 2003

Chan Wai Dune, Charles

Practising Certificate Number P00712

72 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. FINANCIAL INFORMATION

The following information is extracted and amended as appropriate from the audited consolidated financial statements of the Company for the respective years ended 31st March, 2002 and 2003:

Consolidated Income Statement

Note
TURNOVER
5
DIRECT OPERATING EXPENSES
OTHER REVENUE
5
OTHER INCOME
6
SELLING AND ADMINISTRATIVE EXPENSES
GAIN/(LOSS) ON DISPOSAL OF
LEASEHOLD PROPERTIES
2(a)
LOSS ARISING FROM LIQUIDATION
OF SUBSIDIARIES
2(a)
LOSS ON DISPOSAL OF INVESTMENT
PROPERTIES
2(a)
PROVISION FOR IMPAIRMENT LOSS OF
PROPERTIES HELD FOR DEVELOPMENT
16(b)
GAIN/(LOSS) ON DISPOSAL
OF SUBSIDIARIES
OTHER OPERATING EXPENSES
LOSS FROM OPERATIONS
7
FINANCE COSTS
8
SHARE OF RESULTS OF ASSOCIATES
LOSS BEFORE TAXATION
TAXATION – CREDIT/(CHARGE)
9
LOSS BEFORE MINORITY INTERESTS
MINORITY INTERESTS
LOSS ATTRIBUTABLE TO SHAREHOLDERS
12
DIVIDENDS
13
LOSS PER SHARE
BASIC
14

Year ended 31 March
2003
2002
2001
HK$’000
HK$’000
HK$’000
16,881
165,272
191,767
(13,737)
(119,739)
(152,963)
411
1,257
9,343
7,352
10,402
64,891
(21,456)
(85,022)
(91,099)
9,341
(537,800)
–
–
(648,330)
–
–
(90,664)
–
–
(60,041)
–
656
(1,991)
(10,847)
(4,350)
(27,565)
(127,827)
(4,902) (1,394,221)
(116,735)
(45,948)
(91,046)
(121,902)
–
–
362
(50,850) (1,485,267)
(238,275)
3,200
(31,224)
407
(47,650) (1,516,491)
(237,868)
–
246
(1,186)
(47,650) (1,516,245)
(239,054)
–
–
–
(3.08 cents) (98.01 cents) (15.45 cents)

73 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Balance Sheet

Note
NON-CURRENT ASSETS
Property, plant and equipment
16
Other investments
18
CURRENT ASSETS
Trade and other receivables
19
Amounts due from I-China Group
20
Other investments
Tax recoverable
Restricted bank deposits
Cash and bank balances
CURRENT LIABILITIES
Trade and other payables
21
Amount due to a jointly controlled entity
Taxation payable
Obligations under finance leases
– due within one year
23
Bank and other borrowings
24
Amounts due to subsidiaries under liquidation
22
NET CURRENT LIABILITIES
TOTAL ASSETS LESS CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Obligations under finance leases
– due after one year
23
MINORITY INTERESTS
CAPITAL AND RESERVES
Share capital
25
Reserves

As at 31 March
2003
2002
2001
HK$’000
HK$’000
HK$’000
20,298
32,858
1,464,119
–
6,510
25,100
20,298
39,368
1,489,219
14,708
34,498
40,257
–
–
–
52
52
565
–
4
6,013
1,692
1,715
17,378
6,648
7,896
11,974
23,100
44,165
76,187
151,533
117,624
92,580
1,007
1,007
1,007
26,302
26,053
846
–
312
283
515,584
534,242
1,248,624
652,553
655,824
–
1,346,979
1,335,062
1,343,340
(1,323,879) (1,290,897) (1,267,153)
(1,303,581) (1,251,529)
222,066
–
(217)
(414)
(509)
(509)
(4,303)
(1,304,090) (1,252,255)
217,349
77,352
77,352
77,352
(1,381,442) (1,329,607)
139,997
(1,304,090) (1,252,255)
217,349

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Balance Sheet

Note
NON-CURRENT ASSETS
Property, plant and equipment
16
Interests in subsidiaries
17
CURRENT ASSETS
Trade and other receivables
19
Other Investments
Taxation recoverable
Amount due from I-China Group
20
Cash and bank balances
CURRENT LIABILITIES
Trade and other payables
Amounts due to subsidiaries
22
Tax payable
Bank and other borrowings
24
NET CURRENT LIABILITIES
TOTAL ASSETS LESS CURRENT LIABILITIES
CAPITAL AND RESERVES
Share capital
25
Reserves

As at 31 March
2003
2002
2001
HK$’000
HK$’000
HK$’000
–
76
1,973
521,896
545,571
1,687,572
521,896
545,647
1,689,545
442
2,576
4,821
–
–
513
–
–
1,837
–
–
–
3,594
1,961
152
4,036
4,537
7,323
137,233
99,083
39,456
896,533
915,940
658,087
9,400
9,349
–
510,653
514,082
759,051
1,553,819
1,538,454
1,456,594
(1,549,783) (1,533,917) (1,449,271)
(1,027,887)
(988,270)
240,274
77,352
77,352
77,352
(1,105,239) (1,065,622)
162,922
(1,027,887)
(988,270)
240,274

75 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Statements Of Changes In Equity

Issued capital HK$’000 THE GROUP At 1 April 2000, previously reported 77,352 Prior year adjustments_(note 4) – At 1 April 2000, as restated 77,352 Exchange differences arising from translation of overseas operations – Deficit on revaluation – Surplus on revaluation – Realised on disposals of subsidiaries – Realised on disposal of a property – Net loss for the year – At 31 March 2001 and 1 April 2001 77,352 Exchange differences – Reversal of exchange deficit to income statement(note 16(b))_ – Surplus on revaluation – Realised on disposal of properties – Realised on liquidation of subsidiaries – Negative goodwill arising from increasing interest in a subsidiary – Net loss for the year – At 31 March 2002 and 1 April 2002 77,352 Exchange differences – Surplus on revaluation – Realised on disposals of properties – Net loss for the year – At 31 March 2003 77,352 Attributable to: – the Company and subsidiaries 77,352	Share premium HK$’000 432,722 – 432,722 – – – – – – 432,722 – – – – – – – 432,722 – – – – 432,722 432,722	Capital redemption reserve HK$’000 3,800 – 3,800 – – – – – – 3,800 – – – – – – – 3,800 – – – – 3,800 3,800	Capital reserve HK$’000 49,991 – 49,991 – – – (3) – – 49,988 – – – – (2,669) 3,548 – 50,867 – – – – 50,867 50,867	Asset revaluation reserve HK$’000 718,888 (27,736) 691,152 – (249,817) 119 – (1,684) – 439,770 – – 177 (428,277) – – – 11,670 – 2,882 (7,031) – 7,521 7,521	Translation Accumulated reserve losses HK$’000 HK$’000 2,543 (444,386) – (96,164) 2,543 (540,550) (20,716) – – – – – 9,810 – – 1,684 – (239,054) (8,363) (777,920) (360) – 6,900 – – – – 467,322 – – – – – (1,516,245) (1,823) (1,826,843) (88) – – – 52 – – (47,650) (1,859) (1,874,493) (1,859) (1,874,493)	Total HK$’000 840,910 (123,900) 717,010 (20,716) (249,817) 119 9,807 – (239,054) 217,349 (360) 6,900 177 39,045 (2,669) 3,548 (1,516,245) (1,252,255) (88) 2,882 (6,979) (47,650) (1,304,090) (1,304,090)

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APPENDIX I

THE COMPANY At 1 April 2000 Net loss for the year At 31 March 2001 and 1 April 2001 Net loss for the year At 31 March 2002 and 1 April 2002 Net loss for the year At 31 March 2003	Issued capital HK$’000 77,352 – 77,352 – 77,352 – 77,352	Share premium HK$’000 432,722 – 432,722 – 432,722 – 432,722	Retained Capital profits/ redemption Contributed (accumulated reserve surplus losses) HK$’000 HK$’000 HK$’000 3,800 64,314 60,900 – – (398,814) 3,800 64,314 (337,914) – – (1,228,544) 3,800 64,314 (1,566,458) – – (39,617) 3,800 64,314 (1,606,075)	Total HK$’000 639,088 (398,814) 240,274 (1,228,544) (988,270) (39,617) (1,027,887)

The contributed surplus of the Company represents the difference between the consolidated shareholders’ funds of subsidiaries when they were acquired by the Company and the nominal amount of the Company’s share capital issued for the acquisition.

In accordance with the provision of the Company’s New Articles of Association, there was no reserve available for distribution to shareholders of the Company as at 31 March 2003, 2002 and 2001.

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APPENDIX I

Consolidated Cash Flow Statement

Consolidated Cash Flow Statement
	Year	ended 31 March
	2003	2002	2001
Note	HK$’000	HK$’000	HK$’000
LOSS FROM OPERATING ACTIVITIES
BEFORE TAXATION	(50,850)	(1,485,267)	(238,275)
Adjustments for:
Interest expenses	45,948	91,046	121,902
Interest income	(411)	(1,257)	–
Depreciation	2,032	32,768	49,588
Net realised loss/(gain) on other investments	443	(21)	(51,088)
Provision for bad and doubtful debts	3,046	2,486	59,260
Share of results of associates and jointly
controlled entities	–	–	(362)
Deficit arising on revaluation of cold storage warehouse
and other land and buildings	–	–	30,933
Deficit arising on revaluation of investment properties	–	–	28,990
Net (gain)/loss on disposals of property,
plant and equipment	(8,825)	538,398	5,985
(Gain)/loss on disposals of subsidiaries	(656)	1,991	10,847
Unrealised loss/(gain) on other investments	–	263	(11,197)
Provision for impairment losses of goodwill	–	–	85
Provision for bad and doubtful debts written back	(1)	(918)	–
Provision for impairment loss of properties
held for development	–	60,041	–
Loss on disposal of investment properties	–	90,664	–
Loss arising from liquidation of subsidiaries	–	648,330	–
Fixed assets written off	33	–	–
Liabilities written back	(938)	–	–
Loss on disposal of club membership	1,340	–	–
	42,011	1,463,791	244,943
OPERATING (LOSS)/PROFIT BEFORE
WORKING CAPITAL CHANGES	(8,839)	(21,476)	6,668
Decrease in inventories	–	–	1,764
Decrease/(increase) in trade and other receivables	16,914	(405)	19,192
(Increase)/decrease in amounts due from I-China Group	–	(61)	6,166
Increase in trade and other payables	3,694	63,407	4,757
Decrease in amounts due to I-China Group	–	–	(3,063)
Decrease in amounts due to subsidiaries
under liquidation	(3,271)	–	–
Increase in amount due to jointly controlled entity	–	–	940
	17,337	62,941	29,756
CASH INFLOW FROM OPERATING ACTIVITIES	8,498	41,465	36,424
Interest paid	(1,357)	(87,884)	(92,807)
Interest received	40	822	–
Hong Kong profits tax paid	(2)	(8)	(890)
Hong Kong profits tax refunded	973	–	3,233
NET CASH INFLOW/(OUTFLOW) FROM
OPERATING ACTIVITIES CARRIED FORWARD	8,152	(45,605)	(54,040)

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APPENDIX I

Note
NET CASH INFLOW/(OUTFLOW) FROM
OPERATING ACTIVITIES BROUGHT
FORWARD
INVESTING ACTIVITIES
Proceeds from disposal of other investments
Net cash (outflow)/inflow on disposal of
subsidiaries and subsidiaries under liquidation
33
Proceeds from disposals of property,
plant and equipment
Net cash inflow on acquisition of subsidiaries
(net of cash equivalents acquired)
Purchase of property, plant and equipment
Decrease/(increase) in restricted bank deposits
Net proceeds from disposal of investment properties
Net proceeds from disposal of club membership
NET CASH INFLOW FROM INVESTING
ACTIVITIES
NET CASH INFLOW BEFORE FINANCING
FINANCING
Repayment of bank borrowings
Repayment of obligations under finance leases
NET CASH OUTFLOW FROM FINANCING
(DECREASE)/INCREASE IN CASH AND CASH
EQUIVALENTS
EFFECT OF FOREIGN EXCHANGE
RATE CHANGES
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR
CASH AND CASH EQUIVALENTS
AT END OF YEAR
ANALYSIS OF THE BALANCES OF CASH
AND CASH EQUIVALENTS
Cash and bank balances
Short-term bank borrowings with less than three
months to maturity when raised
Bank overdrafts

Year ended 31 March
2003
2002
2001
HK$’000
HK$’000
HK$’000
8,152
(45,605)
(54,040)
6,066
18,861
70,599
–
(33,967)
26,968
19,839
623,021
2,977
–
–
10
(492)
(1,866)
(13,167)
23
15,163
(47)
–
137,082
–
360
–
–
25,796
758,294
87,340
33,948
712,689
33,300
(34,642)
(709,251)
(22,336)
(602)
(775)
(2,049)
(35,244)
(710,026)
(24,385)
(1,296)
2,663
8,915
48
67
(231)
7,896
5,166
(3,518)
6,648
7,896
5,166
6,648
7,896
11,974
–
–
(3,291)
–
–
(3,517)
6,648
7,896
5,166

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS

1. GENERAL

The Company is an exempted company incorporated in the Cayman Islands with limited liability. Its shares are listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”).

2. BASIS OF PREPARATION

a) Background and principal activities

The Company is an investment holding company. The Group is principally engaged in cold storage warehousing and logistics management, and property investment.

In view of the severe financial difficulties of the Group, Provisional Liquidators were appointed to the Company by the High Court of the Hong Kong SAR (“Court”) on 31 December 2001 to implement the restructuring for the Company. Provisional Liquidators were also appointed to the Company’s four major wholly-owned subsidiaries, namely South East Asia Overseas Finance Limited (“SEAOF”), Yiu Fung Cold Storage & Warehousing Limited (“YFCSW”), Yiu Fai Warehousing Limited (“YFWL”) and Seapower Resources Cold Storage & Warehousing Limited (“SRCSW”) on 31 December 2001. Subsequently the Court ordered that SEAOF be wound-up on 20 February 2002, and YFCSW, YFWL and SRCSW be wound up on 27 March 2002. The Provisional Liquidators of the Company disposed of the Group’s logistics assets in Hong Kong prior to 31 March 2002.

In the last year, in order to the liabilities of the Group, the Group had disposed of most of its properties including all those leasehold properties previously used for the Group’s cold storage operations in Hong Kong, and all its investment properties except for the 24 townhouses located in Beijing for which the Group would be unlikely to obtain the legal title based on an legal opinion obtained. The Group had also closed its cold storage warehousing and logistics operation in Hong Kong in the last year. As a result of these restructuring exercise, the Group recorded losses of approximately HK$537.8 million and approximately HK$90.7 million arising on the disposal of the leasehold properties and investment properties, respectively, and a loss of approximately HK$648.3 million arising from the winding up of the above four subsidiaries for the year ended 31 March 2002.

The Group disposed of its property located at Lidcombe, Sydney in May 2002 and immediately leased back the property for one year in order to continue its cold storage warehousing and logistics operations. Accordingly, the Group has fully recognised the gain on disposal of this property of approximately HK$9.3 million in the consolidated income statement for the year ended 31 March 2003.

At the date of this report, the Group consolidated its cold storage warehousing and logistics operation located at Lidcombe with West Gosford, New South Wales of Australia.

As disclosed in note 34(b), a creditor bank has been granted an enforcement order by the court of Shenzhen, PRC enabling it to take possession of one of the Group’s properties in Shenzhen, PRC.

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APPENDIX I

b) Going concern basis

In preparing the financial statements, the Provisional Liquidators of the Company have given careful consideration to the future liquidity of the Group in light of the Group’s current financial difficulties including its net liabilities of approximately HK$1,304 million as at 31 March 2003 and the background set out in (a) above.

As set out in note 34(a) to the financial statements, a conditional restructuring agreement in relation to the restructuring proposal for the Company was entered into with an independent third party investor, Many Returns Limited (“MRL”), (“Restructuring Proposal”) on 14 May 2003 (“Restructuring Agreement”). On 11 August 2003, the Restructuring Agreement was amended by a supplemental agreement, and on the same date, the Provisional Liquidators on behalf of the Company entered into with MRL a subscription agreement in relation to the subscription of new shares by MRL upon completion of the Restructuring Proposal. The Restructuring Proposal includes, inter alia, a capital restructuring, debt restructuring involving Schemes of Arrangement (“Schemes”) and a subscription of new shares and warrants.

Completion of the Restructuring Agreement will require the fulfillment of the certain conditions including the relevant approvals from the regulatory authorities, such as the Stock Exchange and the Securities and Futures Commission.

MRL has agreed to provide and procure working capital for the Company such that the Group will have sufficient working capital for its operations for 12 months after the completion of the Restructuring Agreement. MRL has also agreed to undertake to the Company that the Company will not dispose of any of the Group assets after completion if such disposal will result in the Company breaching paragraph 38 of its listing agreement with the Stock Exchange.

In light of the above, the Provisional Liquidators of the Company have prepared the financial statements on a going concern basis on the basis that the Restructuring Agreement will be implemented in full on completion and the Group will have sufficient working capital to carry on its business.

c) Group financial statements

The Group financial statements include the financial statements of the Company and its subsidiaries made up to 31 March. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement 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.

The gain or loss on the disposal of a subsidiary represents the difference between the proceeds of the sale and the Group’s share of its net assets together with any goodwill or negative goodwill (capital reserve) which was not previously charged or recognised in the consolidated income statement.

3. PRINCIPAL ACCOUNTING POLICIES

The financial statements have been prepared in accordance with generally accepted accounting principles in Hong Kong and comply with Statements of Standard Accounting Practice (“SSAP”) and Interpretations issued by the Hong Kong Society of Accountants (“HKSA”) and the disclosure requirements of the Hong Kong Companies Ordinance. The financial statements are prepared under the historical cost convention except that, as disclosed in the policies below and as modified by the revaluation of investment properties, properties held for development,

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APPENDIX I

other land and buildings, interests in subsidiaries and certain investments in securities. These financial statements also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on the Stock Exchange. A summary of the significant accounting policies adopted by the Group is set out below:

The Group has also early adopted the following SSAPs, which are effective for periods commencing on or after 1 January 2002:

SSAP 1 (revised) : Presentation of financial statements SSAP 11 (revised) : Foreign currency translation SSAP 15 (revised) : Cash flow statements SSAP 33 : Discontinuing operations SSAP 34 : Employee benefits

a) Revenue recognition

i) Cold storage service income is recognised pro-rata over the life of the agreement and on an accrual basis.
ii) Logistics service income is recognised on the services rendered.
iii) Interest income is recognised on a time proportion basis, taking into account the principal amounts outstanding and the interest rates applicable.
iv) Dividend income is recognised when the shareholders’ rights to receive payment is established.
v) Operating lease rental income is recognised on a straight-line basis over the period of the respective leases.
vi) Gains and losses on investments from securities trading, on the trade date basis, is calculated on the average cost basis.

b)

Goodwill

Goodwill arising on acquisition of subsidiaries, associates and jointly controlled entities represents the excess of the cost of the acquisition over the fair value of the Group’s share of the identifiable assets and liabilities acquired as at the date of acquisition. Negative goodwill arising from the acquisition of subsidiaries, associates and jointly controlled entities, being the capital reserve, represents the excess of the fair value ascribed to the Group’s share of the identifiable assets and liabilities at the date of acquisition of a subsidiary, over the cost of acquisition.

Goodwill arising on acquisition is recognised as an asset and is amortised using the straight-line method over its estimated useful economic life of not exceeding twenty years. To the extent that negative goodwill relates to expectations of future losses and expenses that are identified in the acquisition plan and that can be measured reliably, but which do not represent identifiable liabilities as at the date of acquisition, that portion of negative goodwill is recognised as income in the consolidated income statement when the future losses and expenses are recognised. To the extent that negative goodwill does not relate to identifiable expected future losses and expenses as at the date of acquisition, negative goodwill is recognised in the consolidated income statement on a systematic basis over the remaining average useful life of the acquired depreciable/amortisable assets. The amount of any negative goodwill in excess of the fair values of the acquired non-monetary assets is recognised as income immediately.

In case of associates and jointly controlled entities, any unamortised goodwill/negative goodwill (not yet recognised in the consolidated income statement) is included in the carrying amount thereof, rather than as a separately identified asset on the consolidated balance sheet.

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On disposal of subsidiaries, associates or jointly controlled entities, the gain or loss on disposal is calculated by reference to the net assets at the date of disposal, including the attributable amount of goodwill/negative goodwill which remains unamortised/has not been recognised in the consolidated income statement and any relevant capital reserve, as appropriate. Any attributable goodwill/negative goodwill previously eliminated against consolidated reserves at the time of acquisition is written back and included in the calculation of the gain or loss on disposal.

The carrying amount of goodwill, including goodwill remaining eliminated against consolidated reserves, is reviewed annually and written down for impairment when it is considered necessary. A previously recognised impairment loss for goodwill is not reversed unless the impairment loss was caused by a specific external event of an exceptional nature that was not expected to recur, and subsequent external events have occurred which have reversed the effect of that event.

c)

Property, plant and equipment

Properties held for development, which are those properties being developed for production, rental or administrative purposes or for purposes not yet determined, are stated at valuation less provision for permanent diminution in value, if necessary. Cost comprises acquisition cost and other incidental costs. Depreciation of these assets, on the same basis as other property assets, commences when the assets are put into use.

Property, plant and equipment, other than investment properties and properties held for development, are stated at cost or valuation less depreciation (or amortisation) and impairment losses. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its present working condition and location for its intended use. Expenditure incurred after the asset has been put into operation, such as repairs and maintenance and overhaul cost, is normally charged to the consolidated income statement in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the asset, the expenditure is capitalised as an additional cost of the asset.

The gain or loss arising from the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the consolidated income statement.

Where the recoverable amount of an asset has declined below its carrying amount, the carrying amount is reduced to reflect the decline in value. In determining the recoverable amount of the assets, expected future cash flow are not discount to their present values.

Cold storage warehouses and other land and buildings are stated at their revalued amount, being the fair value on the basis of their existing use at the date of revaluation less any subsequent accumulated depreciation and amortisation. Revaluation is performed with sufficient regularity such that the carrying value does not differ materially from that which would be determined using the fair values at the balance sheet date.

Any surplus arising on revaluation of the property, plant and equipment is credited to the asset revaluation reserve, except to the extent that it reverses a revaluation decrease of the same asset previously recognised as an expense, in which case this surplus is credited to the consolidated income statement to the extent of the deficit previously charged. A decrease in the net carrying amount arising on the revaluation of such properties is charged to the consolidated income statement to the extent that it exceeds the surplus, if any, held in the asset revaluation reserve relating to the previous revaluation of that particular asset. On the subsequent disposal of the asset, the attributable revaluation surplus not yet transferred to deficit in prior years is transferred to deficit.

Amortisation is provided to write off the valuation of leasehold land over the terms of the respective leases using the straight line method. Freehold land is not amortised.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The valuation of buildings is depreciated over their estimated useful lives of fifty years or, where shorter, the terms of the respective leases using the straight line method.

Depreciation and amortisation are provided to write off the costs of other assets over their estimated useful lives, using the straight line method, at the following rates per annum:

Furniture, machinery and equipment 10% to 33% Motor vehicles 20%

Assets held under finance leases are depreciated over their estimated useful lives on the same basis as assets owned by the Group or, where shorted, the terms of the respective leases.

d)

Investment properties

Investment properties are interests in land and buildings in respect of which construction work and development have been completed and which are held for their investment potential with rental income being negotiated at arm’s length.

Investment properties are stated in the balance sheet at their open market value on the basis of period end valuation carried out annually by persons holding a recognised professional qualification in valuing properties and having recent post-qualification experience in valuing properties in the location and in the category of the properties concerned. Investment properties held on leases with unexpired periods of 20 years or less are depreciated over the remaining periods of the leases.

Changes in the value of investment properties is treated as movements in an investment property revaluation reserve, unless the total of this reserve is insufficient to cover a deficit on a portfolio basis, in which case the amount by which the deficit exceeds the total amount in the investment property revaluation reserve is charged to the income statement. Where a deficit has previously been charged to the income statement and a revaluation surplus subsequently arises, this surplus is credited to the income statement to the extent of the deficit previously charged. Upon the disposal of an investment property, the relevant portion of the revaluation reserve realised in respect of previous valuations is released from the investment property revaluation reserve to the income statement.

e) Assets under leases

i) Finance leases

Leases that substantially transfer to the Group all the rewards and risks 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 debited to the income statement over the periods of the leases so as to produce an approximately constant periodic rate of charge on the remaining balances of the obligation for each accounting period.

Assets held under finance leases are depreciated over the shorter of the lease terms and their estimated useful lives on the same basis as owned assets. Impairment losses are accounted for in accordance with the accounting policy as set out in note 3(f).

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

ii) Operating leases

Leases where substantially all the rewards and risks of ownership of assets remain with the leasing company are accounted for as operating leases. Rental receivables/payables under such operating leases are accounted for in the income statement on a straight-line basis over the periods of the respective lease.

f) Impairment of assets

Internal and external sources of information are reviewed at each balance sheet date to identify indications that those assets may be impaired or an impairment loss previously recognised no longer exists or may have decreased.

If any such indication exists, the asset’s recoverable amount is estimated. For goodwill that is amortised over 20 years from initial recognition, the recoverable amount is estimated at each balance sheet date. An impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount.

(i) Calculation of recoverable amount

The recoverable amount of an asset is the greater of its net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit).

(ii) Reversals of impairment losses

In respect of assets other than goodwill, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss in respect of goodwill is reversed only if the loss was caused by a specific external event of an exceptional nature that is not expected to recur, and the increase in recoverable amount relates clearly to the reversal of the effect of that specific event.

A reversal of impairment losses is limited to the asset’s carrying amount that would have been determined had no impairment loss been recognised in prior years. Reversals of impairment losses are credited to the income statement in the year in which the reversals are recognised.

g) Subsidiaries

A subsidiary is a company in which the Group or the Company, directly or indirectly, controls more than half of its voting power or issued share capital or controls the composition of its board of directors. Subsidiaries are considered to be controlled if the Group or the Company has the power, directly or indirectly, to govern the financial and operating policies, so as to obtain benefits from their activities.

Investments in subsidiaries are included in the Company’s balance sheet at cost less any identified impairment loss. The results of subsidiaries are accounted for by the Company on the basis of dividends received and receivable.

Intra-group balances and transactions, and any unrealised profits arising from intra-group transactions, are eliminated in full in preparing the consolidated financial statements. Unrealised losses resulting from intragroup transactions are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

h) Associates

An associate is a company, not being a subsidiary or a joint venture, in which an equity interest is held for the long-term and significant influence is exercised in its management.

The consolidated income statement includes the Group’s share of the results of associates for the year, and the consolidated balance sheet includes the Group’s share of the net assets of the associates and goodwill/ negative goodwill (net of accumulated amortisation) on acquisition.

In the Company’s balance sheet, the investments in associates are stated at cost less provision for impairment losses. The results of associates are accounted for by the Company on the basis of the dividends received and receivable.

Equity accounting is discontinued when the carrying amount of the investment in an associate reaches zero, unless the Group has incurred obligations or guaranteed obligations in respect of the associate.

i) Joint Ventures

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 income statement includes the Group’s share of the results of the jointly controlled entities for the year, and the consolidated balance sheet includes the Group’s share of the net asset jointly controlled entities and goodwill/negative goodwill (net of accumulative amortisation) on acquisition.

In the Company’s balance sheet, the investments in jointly controlled entities are stated at cost less provision for impairment losses. The results of jointly controlled entities are accounted for by the Company on the basis of dividends received and receivable.

j) Investments in securities

Security is a bond or share or other negotiable instrument evidencing debts or ownership which is distinguished between equity and debt securities, is classified as held-to-maturity securities, trade and nontrade securities.

Debt securities intended to be held-to-maturity are stated at amortised cost, less provision for impairment losses. Investments in other than held-to-maturity securities are accounted for using the alternative treatment and are stated at fair values. Where securities are held for trading purposes, unrealised gains and losses are included in net profit or loss for the year. For securities not held for trading purposes, unrealised gains and losses are dealt with in investment revaluation reserve, until the securities are disposed of or are determined to be impaired, at which time the cumulative gains or losses are included in net profit or loss for the year.

Gain or loss on disposal of investments in securities, representing the difference between the net sale proceeds and the carrying amount of the securities, together with any surplus/deficit transferred from the investment revaluation reserve, is recognised in the income statement in the period in which the disposal occurs.

All other securities (whether held for trading or otherwise) are stated in the balance sheet at fair value. Changes in fair value are recognised in the income statement as they arise. Securities are presented as trading securities when they were acquired principally for the purpose of generating a profit from short term fluctuations in price or dealer’s margin.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

k) Related parties

Two parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence.

l) Cash equivalents

Cash equivalents are short-term, highly liquid investments which are readily convertible into known amounts of cash without notice and which were within three months of maturity when acquired. Cash equivalents include investments and advances denominated in foreign currencies provided that they fulfill the above criteria.

For the purposes of the cash flow statement, cash equivalents exclude bank overdrafts and advances from banks originally repayable within three months from the date of the advance, due to the Group’s defaults in the repayment.

m) Provisions and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when the Company or Group has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditures expected to settle the obligation.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

n) Deferred taxation

Deferred taxation is accounted for under the liability method 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 asset is expected with reasonable probability to crystallise in the foreseeable future. Deferred tax asset is not recognised unless its realisation is assured beyond reasonable doubt.

o) Translation of foreign currencies

Transactions in foreign currencies during the year are translated at exchange rates ruling at the transaction dates. Monetary assets and liabilities expressed in foreign currencies at the balance sheet date are translated at rates of exchange ruling at the balance sheet date. Exchange differences arising in these cases are dealt with in the income statement.

The balance sheet of subsidiaries expressed in foreign currencies are translated at the rates of exchange ruling at the balance sheet date whilst the profit and loss is translated at an average rate. Exchange differences are dealt with as a movement in reserves.

In prior years, the profit and loss of foreign enterprises was translated at closing rate. This is a change in accounting policy, however, the translation of the profit and loss of foreign enterprises in prior years has not been restated as the effect of this change is not material to the current and prior years.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

p)

Retirement costs

The Group operates a defined contribution Mandatory Provident Fund Exempted ORSO retirement benefits scheme (“ORSO Scheme”) under the Mandatory Provident Fund Schemes Ordinance for those employees who are eligible to participate in the ORSO Scheme. Contributions are made based on a percentage of the participating employees’ basic salaries and are charged to the income statement as they become payable in accordance with the rules of the ORSO Scheme. The assets of the ORSO Scheme are held separately from those of the Group in an independently administered fund. When an employee leaves the ORSO Scheme prior to his/her interests in the Group’s employer contributions vesting fully, the ongoing contributions payable by the Group may be reduced by the relevant amount of forfeited contributions.

q)

Employee benefits

Salaries, annual bonuses, paid annual leave, leave passage and the cost to the Group of non-monetary benefits are accrued in the year in which the associated services are rendered by employees of the Group. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values.

r)

Segment reporting

A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments.

In accordance with the Group’s internal financial reporting, the Group has chosen business segment information as the primary reporting format and geographical segment information as the secondary reporting format.

Segment revenue, expenses, results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis to that segment. For example, segment assets may include inventories, trade receivables and property, plant and equipment. Segment revenue, expenses, assets, and liabilities are determined before intra-group balances and intra-group transactions are eliminated as part of the consolidation process, except to the extent that such intra-group balances and transactions are between group enterprises within a single segment. Inter-segment pricing is based on similar terms as those available to other external parties.

Segment capital expenditure is the total cost incurred during the period to acquire segment assets (both tangible and intangible) that are expected to be used for more than one period.

Unallocated items mainly comprise financial and corporate assets, interest-bearing loans, borrowings, corporate and financing expenses and minority interests.

s)

Borrowing costs

Borrowing costs are expensed in the income statement in the period in which they are incurred, except to the extent that they are capitalised as being directly attributable to the acquisition, construction or production of an asset which necessarily takes substantial period of time to get ready for its intended use or sale.

The capitalisation of borrowing costs as part of the cost of a qualifying asset commences when expenditures for the assets are being incurred, borrowing costs are being incurred and activities that are necessary to prepare the asset to its intended use or sale are in progress. Capitalisation of borrowing costs is suspended or ceases when substantially all the activities necessary to prepare the qualifying asset to its intended use or sale are interrupted or complete.

All other borrowing costs are charged to the income statement in the year in which they are incurred.

88 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. PRIOR YEAR ADJUSTMENTS

In March and May 1995, the Company’s wholly-owned subsidiary, Pentagon Profits Limited (“Pentagon Profits”), entered into two sale and purchase agreements (“Purchase Agreements”) in the PRC to acquire 24 townhouses under construction located in Beijing, PRC for total consideration of approximately HK$96 million. This consideration was paid in full by the Group in 1995. However, the Certificate of Housing Ownership has never been obtained by Pentagon Profits for these townhouses. A legal opinion has been obtained by the Provisional Liquidators of the Company subsequent to the balance sheet date which expresses considerable doubts as to whether Pentagon Profits will ever obtain title to the townhouses.

As a result, the Provisional Liquidators of the Company have fully provided for these townhouses which were previously classified as investment properties with a carrying value of approximately HK$135 million as at 31 March 2001.

The effects of the retrospective prior year adjustments include (i) the reversal of previously recorded asset revaluation surpluses of approximately HK$39,046,000 by reducing an amount of approximately HK$27,736,000 brought forward from the period prior to 1 April 2000 and by eliminating the revaluation surplus of approximately HK$11,310,000 in the year ended 31 March 2001, respectively, as and when they arose and were previously recorded in the asset revaluation reserve (which includes the investment property revaluation reserve), and (ii) charging HK$96,164,000, which represented the amounts paid by the Group in the previous years, to accumulated losses brought forward from 1 April 2000.

5. TURNOVER AND OTHER REVENUE

The Company is an investment holding company. The principal activities of the Group are the provision of cold storage warehousing and logistics management services and property investment.

Turnover: Income from cold storage warehousing and logistics management (noted below) Rental income Other revenue Interest income Income from food retailing and distribution	2003 HK$’000 16,881 – 16,881 411 – 411 17,292	2002 HK$’000 159,158 6,114 165,272 1,257 – 1,257 166,529	2001 HK$’000 178,861 12,906
			191,767
			2,207 7,136
			9,343
			201,110

As set out in note 2(a) above, the cold storage warehousing and logistics management services in Hong Kong had been closed down right before the year ended 31 March 2002 and as such, the service income decreased significantly for the current year.

89 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. OTHER INCOME

Other income comprises:

Contributions to overheads from a former investor Refund received from terminated provident fund Deposits from a former investor forfeited Dividend income Exchange gain Overprovision for long service payments written back Net realised gain on other investments Unrealised gain on other investments Storage income Others	2003 HK$’000 1,260 1,465 2,001 – 1,554 – – – – 1,072 7,352	2002 HK$’000 – – – 599 946 1,461 21 – 3,762 3,613 10,402	2001 HK$’000 – – – – – – 51,088 11,197 – 2,606
			64,891

7. LOSS FROM OPERATIONS

Loss from operations is stated after crediting and charging:

Crediting: Gross rental income from properties Provision for bad and doubtful debts written back Charging: Loss on disposal of club membership Provision for bad and doubtful debts Provisional Liquidators’ remuneration Auditors’ remuneration – Current year_(note 1) – Underprovision in previous years Depreciation – Owned fixed assets – Assets held under finance leases Staff costs including retirement costs of HK$76,000 (2002: HK$2,867,000; 2001: HK$2,333,000) Deficit arising on revaluation of cold storage warehouses and other land and buildings Deficit arising on revaluation of investment properties Rental expenses under operating leases(note 2)_ Provision for a claim Unrealised loss on other investments Loss on disposal of fixed assets (other than properties)	2003 HK$’000 – 1 1,340 3,046 6,425 – 3 2,032 – 5,598 – – – – – 516	2002 HK$’000 6,114 918 – 2,486 4,872 814 171 32,404 364 70,322 – – 912 24,804 263 598	2001 HK$’000 12,906 – – 59,260 – 1,146 294 49,364 224 73,681 30,933 28,990 3,599 – – 5,985

90 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Note 1: The auditors’ remuneration amounted to HK$150,000 for the year (2002:HK$150,000; 2001: nil) is borned by MRL pursuant to the Restructuring Agreement.

Note 2: Rental expenses under operating leases in respect of :

Premises Others Rental expenses payable to I-China Group Rental expenses payable to outsiders 8. FINANCE COSTS Interest payable on bank and other borrowings wholly repayable within five years Obligations under finance leases 9. TAXATION – CREDIT/(CHARGE) The credit/(charge) comprises: Overprovision/(Underprovision) for Hong Kong Profits Tax in prior years Overseas taxation Deferred taxation – overseas Taxation attributable to the Company and its subsidiaries Share of taxation on results of associates	2003 HK$’000 – – – – – 2003 HK$’000 45,898 50 45,948 2003 HK$’000 2,609 – 2,609 591 3,200 – 3,200	2002 HK$’000 416 496 912 (94) 818 2002 HK$’000 90,924 122 91,046 2002 HK$’000 (31,224) – (31,224) – (31,224) – (31,224)	2001 HK$’000 2,907 692 3,599 (2,213) 1,386 2001 HK$’000 121,670 232 121,902 2001 HK$’000 (91) – (91) 500 409 (2) 407

No provision for Hong Kong Profits Tax and taxation in overseas countries, in which the Group operates, have been made in the financial statements as the Group did not have any assessable profits derived in the respective jurisdictions for all the three years.

No provision for deferred taxation has been made in respect of the surplus or deficit arising on the revaluation of properties outside Hong Kong as the amount involved is not significant.

91 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group and the Company did not have any other significant unprovided deferred taxation in respect of timing differences arising during the years or as at the balance sheet dates of 31 March 2003 and 2002.

10. DIRECTORS’ REMUNERATION

Remuneration of the Company’s directors disclosed pursuant to Section 161 of the Hong Kong Companies Ordinance is as follows:

Fees – Executive directors – Non-executive directors – Independent non-executive directors Other emoluments Salaries and other benefits-in-kind – Executive directors – Non-executive directors – Independent non-executive directors Retirement benefit costs – Executive directors – Non-executive directors – Independent non-executive directors Severance payments – Executive directors – Non-executive directors – Independent non-executive directors	2003 HK$’000 – – – – – – – – – – – – –	2002 HK$’000 36 9 18 6,815 3,270 – 236 148 – – – – 10,532	2001 HK$’000 55 12 24 6,940 2,805 – 491 231 – – – –
			10,558

The emoluments of the directors are within the following bands:

	Number of Directors	Number of Directors
	2003	2002	2001
Nil to HK$1,000,000	6	4	4
HK$1,000,001 – HK$2,000,000	–	2	2
HK$2,000,001 – HK$2,500,000	–	–	2
HK$2,500,001 – HK$3,000,000	–	–	–
HK$3,000,001 – HK$3,500,000	–	2	1

During the years ended 31 March 2003, 2002 and 2001, no emoluments were paid by the Group to the directors as an inducement to join or upon joining the Group or as compensation for loss of office. None of the directors waived any emoluments during the years then ended.

92 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

11. INDIVIDUALS WITH HIGHEST EMOLUMENTS

During the year, the five highest paid individuals included no (2002: three; 2001: four) directors, details of whose emoluments are set out above. The emoluments of the five (2002: two; 2001: one) individuals are as follows:

Salaries and other benefits Retirement benefit scheme and MPF contributions	2003 HK$’000 2,482 36 2,518	2002 HK$’000 3,647 156 3,803	2001 HK$’000 1,920 96
			2,016

The emoluments of the employees are within the following bands:

	Number of employees	Number of employees
	2003	2002	2001
Nil – HK$1,000,000	5	–	–
HK$1,000,001 – HK$1,500,000	–	1	–
HK$1,500,001 – HK$2,000,000	–	–	–
HK$2,000,001 – HK$2,500,000	–	1	1

During the years ended 31 March 2003, 2002 and 2001, no emoluments were paid by the Group to the five individuals with the highest emoluments as an inducement to join or upon joining the Group or as compensation for loss of office.

12. LOSS ATTRIBUTABLE TO SHAREHOLDERS

The consolidated loss attributable to shareholders includes a loss of approximately HK$39,617,000 (2002: HK$1,228,544,000; 2001: HK$398,814,000) which has been dealt with in the financial statements of the Company.

13. DIVIDENDS

The Provisional Liquidators and Directors of the Company do not recommend the payment of a dividend for the year ended 31 March 2003 (2002: nil; 2001: nil).

14. LOSS PER SHARE

The calculation of the basic loss per share is based on the net loss for the year of approximately HK$47,650,000 (2002: HK$1,516,245,000; 2001: HK$239,054,000) and on 1,547,042,829 (2002: 1,547,042,829; 2001: 1,547,042,829) shares in issue during the year.

No amount has been presented for the diluted loss per share for the years ended 31 March 2003, 2002 and 2001 as the exercise of the outstanding share options of the Company during the years ended 31 March 2003, 2002 and 2001 would result in reducing loss per share.

15. SEGMENT INFORMATION

SSAP 26 was adopted during the year, as detailed in note 3 to the financial statements. Segment information is presented by way of two segment formats: (i) on primary segment reporting basis, by business segment; and (ii) on a secondary segment reporting basis, by geographical segment.

93 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group’s business segments were classified as follows:

(a) cold storage warehousing and logistics management segment; and
(b) the property investment segment.

In determining the Group’s geographical segments, revenues and results are attributed to the segments based on the location of the assets. There were no intersegment sales and transfers during the year.

(a) Business Segments

Revenue, results and certain assets, liabilities and expenditure information for the Group’s business segment for the three years ended 31 March 2003, 2002 and 2001 are set out below:

Cold storage warehousing and Property logistics management investment HK$’000 HK$’000 2003 2002 2001 2003 2002 2001 16,881 159,158 178,861 – 6,114 12,906 407 1,218 9,245 4 39 98 17,288 160,376 188,106 4 6,153 13,004 5,977 (529,906) (57,588) (321) (152,761) (56,775) 25,803 63,333 1,228,548 1,803 2,160 311,758 646,178 689,297 1,302,531 1,455 2,261 9,795 491 2,338 13,643 – – – 2,032 31,054 47,467 – 940 2,121 – – – – 60,041 –	Cold storage warehousing and Property logistics management investment HK$’000 HK$’000 2003 2002 2001 2003 2002 2001 16,881 159,158 178,861 – 6,114 12,906 407 1,218 9,245 4 39 98 17,288 160,376 188,106 4 6,153 13,004 5,977 (529,906) (57,588) (321) (152,761) (56,775) 25,803 63,333 1,228,548 1,803 2,160 311,758 646,178 689,297 1,302,531 1,455 2,261 9,795 491 2,338 13,643 – – – 2,032 31,054 47,467 – 940 2,121 – – – – 60,041 –	Cold storage warehousing and Property logistics management investment HK$’000 HK$’000 2003 2002 2001 2003 2002 2001 16,881 159,158 178,861 – 6,114 12,906 407 1,218 9,245 4 39 98 17,288 160,376 188,106 4 6,153 13,004 5,977 (529,906) (57,588) (321) (152,761) (56,775) 25,803 63,333 1,228,548 1,803 2,160 311,758 646,178 689,297 1,302,531 1,455 2,261 9,795 491 2,338 13,643 – – – 2,032 31,054 47,467 – 940 2,121 – – – – 60,041 –	2003 – 4	2003 – 4	2003 – 4	2003 – –	Corporate HK$’000 2002 2001 – – – – – – – – (63,224) (2,372) (648,330) – (91,046) (121,902) – 362 (31,224) 407 246 (1,186) 18,040 25,100 643,721 31,428 88 229 774 – – –	Corporate HK$’000 2002 2001 – – – – – – – – (63,224) (2,372) (648,330) – (91,046) (121,902) – 362 (31,224) 407 246 (1,186) 18,040 25,100 643,721 31,428 88 229 774 – – –	Consolidated HK$’000 2003 2002 2001 16,881 165,272 191,767 411 1,257 9,343 17,292 166,529 201,110 5,656 (682,667) (114,363) (10,558) (63,224) (2,372) – (648,330) – (45,948) (91,046) (121,902) – – 362 3,200 (31,224) 407 – 246 (1,186) (47,650)(1,516,245) (239,054) 43,398 83,533 1,565,406 1,346,979 1,335,279 1,343,754 491 2,426 13,872 2,032 32,768 49,588 – 60,041 –	Consolidated HK$’000 2003 2002 2001 16,881 165,272 191,767 411 1,257 9,343 17,292 166,529 201,110 5,656 (682,667) (114,363) (10,558) (63,224) (2,372) – (648,330) – (45,948) (91,046) (121,902) – – 362 3,200 (31,224) 407 – 246 (1,186) (47,650)(1,516,245) (239,054) 43,398 83,533 1,565,406 1,346,979 1,335,279 1,343,754 491 2,426 13,872 2,032 32,768 49,588 – 60,041 –	Consolidated HK$’000 2003 2002 2001 16,881 165,272 191,767 411 1,257 9,343 17,292 166,529 201,110 5,656 (682,667) (114,363) (10,558) (63,224) (2,372) – (648,330) – (45,948) (91,046) (121,902) – – 362 3,200 (31,224) 407 – 246 (1,186) (47,650)(1,516,245) (239,054) 43,398 83,533 1,565,406 1,346,979 1,335,279 1,343,754 491 2,426 13,872 2,032 32,768 49,588 – 60,041 –
17,288	160,376	188,106	4	6,153	13,004	–	–	–	17,292	166,529	201,110

5,977						–	–	–	5,656 (10,558) – (45,948) – 3,200 –	(682,667) (63,224) (648,330) (91,046) – (31,224) 246	(114,363) (2,372) – (121,902) 362 407 (1,186)

25,803 646,178 491 2,032 –	63,333 689,297 2,338 31,054 –	1,228,548 1,302,531 13,643 47,467 –	1,803 1,455 – – –	2,160 2,261 – 940 60,041	311,758 9,795 – 2,121 –	(10,558) – (45,948) – 3,200 – 15,792 699,346 – – –	(63,224) (648,330) (91,046) – (31,224) 246 18,040 643,721 88 774 –	(2,372) – (121,902) 362 407 (1,186) 25,100 31,428 229 – –

									43,398 1,346,979 491 2,032 –	83,533 1,335,279 2,426 32,768 60,041	1,565,406 1,343,754 13,872 49,588 –

94 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Geographical Segments

The following table presents revenue, result and certain assets and expenditure for the Group’s geographical segments for the three years ended 31 March 2003, 2002 and 2001:

Hong Kong and PRC HK$’000 2003 2002 2001 2003 – 151,571 174,689 16,881 386 1,238 2,208 25 386 152,809 176,897 16,906 (12,981)(1,333,390) (102,190) 8,079 20,614 50,452 1,479,022 22,784 – 2,337 13,872 491	Hong Kong and PRC HK$’000 2003 2002 2001 2003 – 151,571 174,689 16,881 386 1,238 2,208 25 386 152,809 176,897 16,906 (12,981)(1,333,390) (102,190) 8,079 20,614 50,452 1,479,022 22,784 – 2,337 13,872 491	Hong Kong and PRC HK$’000 2003 2002 2001 2003 – 151,571 174,689 16,881 386 1,238 2,208 25 386 152,809 176,897 16,906 (12,981)(1,333,390) (102,190) 8,079 20,614 50,452 1,479,022 22,784 – 2,337 13,872 491	2003 16,881 25	Australia HK$’000 2002 2001 13,701 17,078 19 7,135 13,720 24,213 (790) (1,878) 33,081 32,838 89 –	Australia HK$’000 2002 2001 13,701 17,078 19 7,135 13,720 24,213 (790) (1,878) 33,081 32,838 89 –	2003 – –	Indonesia HK$’000 2002 2001 – – – – – – (60,041) (12,667) – 53,546 – –	Indonesia HK$’000 2002 2001 – – – – – – (60,041) (12,667) – 53,546 – –	2003 16,881 411	2003 16,881 411	2003 16,881 411
386	152,809	176,897	16,906	13,720	24,213	–	–	–	17,292	166,529	201,110

						–

20,614 –	50,452 2,337	1,479,022 13,872	22,784 491	33,081 89	32,838 –	– –	– –	53,546 –	43,398 491	83,533 2,426	1,565,406 13,872

95 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

16. PROPERTY, PLANT AND EQUIPMENT

THE GROUP

Cost or valuation At 1 April 2001 - As previously reported - Prior year adjustments (note (4)) - As restated Impairment loss_(note (b)_) Exchange adjustments Additions Disposals At 31 March 2002 and 1 April 2002 Exchange adjustments Revaluation adjustments Additions Written off Disposals At 31 March 2003 Depreciation and amortisation At 1 April 2001 Exchange adjustments Charge for the year Eliminated on disposals Write back on revaluation At 31 March 2002 and 1 April 2002 Exchange adjustments Charge for the year Eliminated on disposals Written off Write back on revaluation At 31 March 2003 Net book value At 31 March 2003 At 31 March 2002 At 31 March 2001 (as restated)	Properties Investment held for properties development HK$’000 HK$’000 (note (a)) (note (b)) 323,910 53,546 (135,210) – 188,700 53,546 – (53,141) – (405) – – (188,700) – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 188,700 53,546	Cold storage warehouses HK$’000 1,144,725 – 1,144,725 – 2,204 665 (1,120,665) 26,929 3,717 1,886 – – (17,916) 14,616 – – 27,577 (26,479) (177) 921 127 683 (477) – (997) 257 14,359 26,008 1,144,725	Other land and buildings HK$’000 (note (c)) 63,620 – 63,620 – – – (60,700) 2,920 – – – – – 2,920 – – 997 (934) – 63 – 61 – – – 124 2,796 2,857 63,620	Furniture, machinery and equipment HK$’000 38,730 – 38,730 – 743 1,192 (25,442) 15,223 1,282 – 491 (4,779) (1,525) 10,692 25,727 411 3,894 (18,487) – 11,545 792 1,211 (972) (4,746) – 7,830 2,862 3,678 13,003	Motor vehicles HK$’000 2,996 – 2,996 – 45 569 (789) 2,821 75 – – – (625) 2,271 2,471 12 300 (277) – 2,506 32 77 (625) – – 1,990 281 315 525	Total HK$’000 1,627,527 (135,210) 1,492,317 (53,141) 2,587 2,426 (1,396,296) 47,893 5,074 1,886 491 (4,779) (20,066) 30,499 28,198 423 32,768 (46,177) (177) 15,035 951 2,032 (2,074) (4,746) (997) 10,201 20,298 32,858 1,464,119

96 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

THE COMPANY

Furniture, machinery and equipment HK$’000 Cost At 1 April 2001 4,836 Additions 88 Disposals (2,851) At 31 March 2002 and 1 April 2002 2,073 Disposals (2,073) At 31 March 2003 – Depreciation At 1 April 2001 2,863 Charge for the year 709 Eliminated on disposals (1,575) At 31 March 2002 and 1 April 2002 1,997 Charge for the year 76 Eliminated on disposals (2,073) At 31 March 2003 – Net book value At 31 March 2003 – At 31 March 2002 76 At 31 March 2001 1,973	Motor vehicles HK$’000 1,658 – – 1,658 – 1,658 1,658 – – 1,658 – – 1,658 – – –	Total HK$’000 6,494 88 (2,851)
		3,731 (2,073)
		1,658
		4,521 709 (1,575)
		3,655 76 (2,073)
		1,658
		–

		76

		1,973

The net book value of properties held by the Group at the balance sheet date comprises:

Held in Hong Kong under medium-term lease Held outside Hong Kong Under freehold Under long lease Under medium-term lease	2003 Cold Other storage land and warehouses buildings HK$’000 HK$’000 – – 14,359 – – 1,561 – 1,235 14,359 2,796	2002 Cold Other storage land and warehouses buildings HK$’000 HK$’000 – – 26,008 – – 1,590 – 1,267 26,008 2,857	2001 Cold Other storage land and warehouses buildings HK$’000 HK$’000 1,120,000 60,700 24,725 – – 1,620 – 1,300 1,144,725 63,620	2001 Cold Other storage land and warehouses buildings HK$’000 HK$’000 1,120,000 60,700 24,725 – – 1,620 – 1,300 1,144,725 63,620
				63,620

97 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(a) In March and May 1995, the Company’s wholly-owned subsidiary, Pentagon Profits entered into two sales and purchase agreements (“Purchase Agreements”) in the PRC to acquire 24 townhouses under construction located in Beijing, PRC for total consideration of approximately HK$96 million. This consideration was paid in full by the Group in 1995. However, the Certificate of Housing Ownership has never been obtained by Pentagon Profits for these townhouses. A legal opinion has been obtained in June 2003 by the Provisional Liquidators of the Company based on which there are considerable doubts as to whether Pentagon Profits will ever obtain the title to the townhouses.

As a result, the Provisional Liquidators of the Company had fully written off, retrospectively, as prior year adjustments, the carrying value of approximately HK$135 million of these properties as carried forward from 31 March 2001, against the accumulated losses (approximately HK$96,164,000) and the asset revaluation reserve arose in the previous years prior to 2000 (approximately HK$27,736,000) and in the year ended 31 March 2001 (approximately HK$11,310,000), respectively.

(b) Properties held for development in Indonesia represent 111 lots of land held by various Indonesian trustees on trust of the Group, based on certain agreement made with these trustees. Based on a legal opinion obtained by the Provisional Liquidators of the Company in January 2003, the Group may have rights to but not the legal title in respect of the land. Consequently, the Group has fully provided for these properties resulting in an aggregate impairment loss of approximately HK$60,041,000 charged to the consolidated income statement for the year ended 31 March 2002, which represented the carrying value of approximately HK$53,141,000 and the related previous accumulated exchange deficit of approximately HK$6,900,000 in respect of these properties.
(c) Certain other land and buildings of the Group located outside Hong Kong were revalued by Chesterton International (NSW) PTY Limited as at 31 March 2001, on an open market existing use basis, at approximately HK$1,620,000. The remaining other land and buildings located outside Hong Kong were valued as at 31 March 2001 by the directors of the Company at approximately HK$1,300,000, which were subsequently foreclosed by a creditor bank pursuant to an enforcement order awarded by the court of Shenzhen, PRC as referred to note 34(b) to the financial statements.

17. INTERESTS IN SUBSIDIARIES

Unlisted shares, at cost Amounts due from subsidiaries Less: Impairment losses recognised	2003 HK$’000 392,541 1,987,174 2,379,715 (1,857,819) 521,896	The Company 2002 2001 HK$’000 HK$’000 392,541 408,087 2,010,849 2,193,236 2,403,390 2,601,323 (1,857,819) (913,751) 545,571 1,687,572

Particulars of the Company’s principal subsidiaries as at 31 March 2003 are set out in note 32 to the financial statements.

The amounts due from subsidiaries have no fixed terms of repayment, are unsecured and interest free except for amounts due from certain subsidiaries of approximately HK$93,721,000 (2002: HK$220,623,000; 2001: HK$356,728,000) which bear interest at the rates ranging from 1% to 1.75% (2002 and 2001: 0.25% to 1.75%) above the prevailing Hong Kong prime interest rate per annum.

None of the subsidiaries had any loan capital outstanding at the end of the year or at any time during the year.

98 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

18. OTHER INVESTMENTS

Listed shares in Hong Kong Market value of listed securities at 31 March	2003 HK$’000 – –	The Group 2002 2001 HK$’000 HK$’000 6,510 25,100 6,510 25,100	The Group 2002 2001 HK$’000 HK$’000 6,510 25,100 6,510 25,100

			25,100

19. TRADE AND OTHER RECEIVABLES

Included in the Group’s trade and other receivables were current account with the Provisional Liquidators of the Company for funds arising from realisation of assets of approximately HK$8,217,000 (2002: HK$3,400,000; 2001: nil), and trade receivables as follows:

Trade receivables

The Group allows an average credit period of 60 days to its trade customers.

Details of the aged analysis of trade receivables of the Group are as follows:

0 – 30 days 31 – 60 days 61 – 180 days More than 180 days	2003 HK$’000 1,138 417 227 37 1,819	The Group 2002 2001 HK$’000 HK$’000 1,365 12,535 611 7,247 78 4,297 213 215 2,267 24,294	The Group 2002 2001 HK$’000 HK$’000 1,365 12,535 611 7,247 78 4,297 213 215 2,267 24,294
			24,294

At 31 March 2003 and 2002, the Group and the Company did not have any short-term loans receivable. At 31 March 2001, the Group and the Company had short-term loans receivable of HK$3,519,000 and HK$180,000 respectively.

At 31 March 2001, the majority of the securities held as collateral for short-term loans receivable were re-pledged to financial institutions to secure general credit facilities granted to the Group.

99 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

20. AMOUNTS DUE FROM I-CHINA GROUP

Nature of the advances Amounts due from I-China Group – Interest bearing_(Note)_ Secured Unsecured – Interest-free Unsecured Less: Provision	Balance at 31/3/2003 HK$’000 1,655 4,465 246 6,366 (6,366) –	Balance at 1/4/2002 HK$’000 1,655 4,465 247 6,367 (6,367) –	The Group Maximum debit balance Balance outstanding at during 1/4/2001 2003 HK$’000 HK$’000 1,655 1,655 4,465 4,465 932 247	The Group Maximum debit balance Balance outstanding at during 1/4/2001 2003 HK$’000 HK$’000 1,655 1,655 4,465 4,465 932 247	Maximum debit balance outstanding during 2002 HK$’000 1,655 4,465 932	Balance at 31/3/2003 HK$’000 – – 246 246 (246) –	Balance at 1/4/2002 HK$’000 – – 247 247 (247) –	The Company Maximum debit balance Balance outstanding at during 1/4/2001 2003 HK$’000 HK$’000 – – – – 158 247 158 (158) –	Maximum debit balance outstanding during 2002 HK$’000 – – 247

			7,052 (7,052) –

Note:

The amounts represent secured loans granted by Seapower Finance Limited, a subsidiary of the Company and a licensed money lender whose principal activity is money lending. The loans bear interest at prevailing market rates and are secured by certain shares and property, plant and equipment of the I-China Group as at 31 March 2003 and 2002.

The amounts due from the I-China Group at 31 March 2003 and 2002 had no fixed terms of repayment.

21. TRADE AND OTHER PAYABLES

Included in trade and other payables were interests payable of approximately HK$77,436,000 (2002: HK$45,975,000; 2001: HK$42,812,000) and trade payables of approximately HK$919,000 (2002: HK$2,137,000; 2001: HK$8,166,000) with aged analysis as follows:

0 – 30 days 31 – 60 days 61 – 90 days More than 90 days	2003 HK$’000 680 98 2 139 919	The Group 2002 2001 HK$’000 HK$’000 986 6,046 560 1,365 341 263 250 492 2,137 8,166	The Group 2002 2001 HK$’000 HK$’000 986 6,046 560 1,365 341 263 250 492 2,137 8,166
			8,166

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

22. AMOUNTS DUE TO SUBSIDIARIES AND SUBSIDIARIES UNDER LIQUIDATION

The amounts due to subsidiaries have no fixed repayment terms, are unsecured and interest free except for approximately HK$67,493,000 (2002: HK$67,493,000; 2001:HK$67,493,000) due to Seapower Finance Limited which bears interest at the rate of 8% (2002:8%; 2001:8%) per annum.

The amounts due to subsidiaries under liquidation are interest free, unsecured and have no fixed term of repayment.

23. OBLIGATIONS UNDER FINANCE LEASES

Obligations under finance leases are repayable as follows:

2003 HK$’000 Within one year – More than one year, but not exceeding two years – More than two years, but not exceeding five years – – Less: Amounts due within one year and shown under current liabilities – Amounts due after one year – 24. BANK AND OTHER BORROWINGS Bank and other borrowings comprise: The Group 2003 2002 2001 2003 HK$’000 HK$’000 HK$’000 HK$’000 Bank and other loans (including interest capitalised of HK$13,130,000 (2002: nil; 2001: nil)) 512,956 529,745 1,245,107 508,025 Bank overdrafts 2,628 4,497 3,517 2,628 515,584 534,242 1,248,624 510,653 Analysed as: Secured 170,334 185,375 1,230,713 165,404 Unsecured 345,250 348,867 17,911 345,249 515,584 534,242 1,248,624 510,653		The Group 2002 2001 HK$’000 HK$’000 312 283 136 97 81 317 529 697 (312) (283) 217 414 The Company 2002 2001 HK$’000 HK$’000 509,782 756,981 4,300 2,070 514,082 759,051 165,215 758,906 348,867 145 514,082 759,051

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APPENDIX I

The Group’s and the Company’s borrowings from the creditor banks were not repaid according to the schedules set by the creditor banks and, consequently, were due for immediate repayment, and accordingly, the entire outstanding amounts were reclassified as current liabilities.

25. SHARE CAPITAL

Authorised: At 31 March 2003, 31 March 2002 and 31 March 2001 at HK$0.05 each Issued and fully paid: At 31 March 2003, 31 March 2002 and 31 March 2001 at HK$0.05 each	Number of share 20,000,000,000 1,547,042,829	Value HK$’000 1,000,000

		77,352

26. SHARE OPTION SCHEME

Pursuant to the Company’s share option scheme adopted on 30 September 1999 (“Share Option Scheme”), the Board of Directors of the Company may, at their discretion, grant options to any eligible employees of the Company or any of its subsidiaries (including Executive Directors and other officers of the Company or its subsidiaries) to subscribe for shares in the Company in accordance with the terms of the Share Option Scheme.

The exercise price of the options shall be determined by the Directors of the Company, being not less than 80% of the average closing prices of the shares in the Company for the five trading days immediately preceding the date of offer of the option, or the nominal value of the shares, whichever is higher. The maximum number of shares in respect of which options may be granted under the Share Option Scheme shall not exceed 10% of the issued share capital of the Company from time to time.

A summary of the movements in the share options granted under the Share Option Scheme during the year is as follows:

Balance in issue at 1 April 2000 Granted during the year ended 31 March 2001_(note a) Lapsed during the year ended 31 March 2001 Balance in issue at 31 March 2001 and 1 April 2001 Lapsed during the year ended 31 March 2002(note b) Balance in issue at 31 March 2002 Lapsed during the year(note b)_ Balance in issue at 31 March 2003	Share options with a HK$0.125 per share Number Value HK$’000 153,129,386 19,141 830,000 104 (30,000) (4) 153,929,386 19,241 (4,840,521) (605) 149,088,865 18,636 (149,088,865) (18,636) – –	n exercise price of HK$0.223 per share Number Value HK$’000 – – 200,000 45 – – 200,000 45 – – 200,000 45 (200,000) (45) – –	n exercise price of HK$0.223 per share Number Value HK$’000 – – 200,000 45 – – 200,000 45 – – 200,000 45 (200,000) (45) – –
			45 –
			45 (45)
			–

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes:

(a) On 19 October 2000 and 5 August 2000, 830,000 and 200,000 share options, respectively, were granted at a consideration of HK$1 for each grantee and can be exercised at any time during the period of four and a half years, commencing six months after their respective dates of acceptance at an exercise price of HK$0.125 per share and HK$0.223 per share, respectively, subject to adjustment.
(b) Due to the financial difficulties of the Group, the employment contracts of the staff were terminated before the year ended 31 March 2002 and the outstanding options previously granted to the staff were not exercised and thus lapsed in accordance with the Share Option Scheme.

27. RETIREMENT BENEFIT SCHEMES

(a) The Company together with certain subsidiaries operates a defined contribution retirement benefit scheme for all qualifying employees. The assets of the scheme are held separately under a provident fund managed by an independent trustee. Pursuant to the rules of the scheme, the employer is required to make contributions to the scheme calculated at the range of 5% to 10% of the employees’ basic salaries on a monthly basis. The employees are entitled to 100% of the employer’s contributions and the accrued interest after ten complete years service, or at an increasing scale of between 30% to 90% after completion of three to nine years’ service.

Where there are employees who leave the scheme prior to vesting fully in the contributions in accordance with the terms of the scheme, the contributions payable by the Group are reduced by the amount of forfeited employer’s contributions.

As at the balance sheet date, there were no significant forfeited contributions, which arose when employees left the retirement benefit scheme before they were fully vested in the contributions and which were available to reduce the contributions payable by the Group in future years. The retirement benefit scheme was terminated in February 2002.

(b) With effect from 1 December 2000, the Group has also joined a MPF scheme for all employees in Hong Kong (“MPF Scheme”). The MPF Scheme is registered with the Mandatory Provident Fund Scheme Authority under the Mandatory Provident Fund Schemes Ordinance. The assets of the MPF Scheme are held separately from those of the Group in funds under the control of an independent trustee. Under the rule of the MPF Scheme, the employer and its employees are each required to make contributions to the scheme at rate specified in the rules. The only obligation of the Group with respect to MPF Scheme is to make the required contributions under the scheme.

The MPF Scheme is available to all employees aged 18 to 64 and with at least 60 days of service under the employment of the Group in Hong Kong. Contributions are made by the Group at 5% based on the staff’s relevant income. The maximum relevant income for contribution purpose is HK$20,000 per month. Staff members are entitled to 100% of the Group’s contributions together with accrued returns irrespective of their length of service with the Group, but the benefits are required by law to be preserved until the retirement age of 65.

28. COMMITMENTS

The Group and Company did not have any significant capital and operating lease commitments as at the balance sheet date.

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APPENDIX I

29. CONTINGENT LIABILITIES

The Company’s guarantees given to the financial institutions in respect of credit facilities utilised by its subsidiaries amounting to approximately HK$193 million (2002: HK$200 million) out of which approximately HK$188 million (2002: HK$180 million) have been fully crystallised and converted into liabilities upon default in repayment by the subsidiaries.

30. CHARGES ON ASSETS

At the balance sheet date, the following assets of the Group have been pledged to secure credit facilities granted to and utilised by the Group:

Other property, plant and equipment Investment properties Other receivables Bank deposits	2003 HK$’000 16,802 – 52 1,692 18,546	The Group 2002 2001 HK$’000 HK$’000 29,247 1,208,841 – 188,700 52 25,665 1,715 17,378 31,014 1,440,584	The Group 2002 2001 HK$’000 HK$’000 29,247 1,208,841 – 188,700 52 25,665 1,715 17,378 31,014 1,440,584
			1,440,584

31. RELATED PARTY TRANSACTIONS

Details of significant related party transactions during the year disclosed pursuant to SSAP 20 “Related party disclosures” issued by the Hong Kong Society of Accountants are as follows:

(a) Interest income other than those on Convertible Notes from I-China Group Rental from I-China Group Purchase of property, plant and equipment from I-China Group Purchase of subsidiaries from I-China Group Interest expense to I-China Group Management fee to I-China Group Rental expenses to I-China Group Secretarial fee from I-China Group	2003 HK$’000 372 – – – – – – –	The Group 2002 2001 HK$’000 HK$’000 435 396 6 – – 145 – 305 – 263 – 2,336 94 2,213 161 –	2003 HK$’000 – – – – – – – –	The Company 2002 2001 HK$’000 HK$’000 – – – – – 145 – – – 263 – 2,336 94 2,213 – –

Interest income and expense were calculated with reference to prevailing market rates. Management fee and secretarial fee were based on the time spent and cost incurred. Rental income and expenses will determined based on market rates and at floor area. Purchase of property, plant and equipment and subsidiaries were carried out at terns determined and agreed by both parties.

(b) The Group’s bank borrowings amounting to approximately HK$35 million (2002: HK$27 million; 2001: HK$41 million) were guaranteed by I-China Holdings Limited (Provisional Liquidators Appointed).

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Details of the balances with related parties are set out in note 20 to the financial statements.

Save as disclosed above and elsewhere in the financial statements, there were no other significant transactions with related parties during the year or significant balances with them at the end of the year.

32. PARTICULARS OF PRINCIPAL SUBSIDIARIES

Particulars of the Company’s principal subsidiaries as at 31 March 2003 and 31 March 2002 are as follows:

			Percentage of	Percentage of
			issued share capital
	Place of	Issued and	held by the attributable
	incorporation/	fully paid	*Company/**	to the
Name of subsidiary	operation	ordinary share	subsidiaries	Group	Principal activities
			%	%
Allied National Limited	British Virgin	US$1	100 *	100	Investment holding
	Islands/	share
	Hong Kong
Australian Service Cold	Australia	A$2,500,002	100	100	Cold storage warehousing
Storage (NSW) Pty Ltd.		shares
Billion Limited	British Virgin	US$1	100 *	100	Investment holding
	Islands/PRC	share
Fu Shing Realty Development	Hong Kong	HK$1,000,000	100 *	100	Dormant
Company Limited		shares
Gainful Company Limited	British Virgin	US$1	100 *	100	Dormant
	Islands/	share
	Hong Kong
Gold Enterprise Holdings	Hong Kong	HK$2	100 *	100	Dormant
Limited		shares
Grand United Holdings	Hong Kong	HK$2	100 *	100	Dormant
Limited		shares
iPower Alliance Limited	British Virgin	US$1	100	100	Dormant
	Islands/	share
	Hong Kong
iPowerB2B.com Limited	Hong Kong	HK$2	100	100	Investment holding
		shares
iPower Holdings Limited	British Virgin	US$45,000	100	100	Investment holding
	Islands/	shares
	Hong Kong
iPower Logistics Management	British Virgin	US$1	100	100	Dormant
System Limited	Islands/	share
	Hong Kong

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

			Percentage of	Percentage of
			issued share capital
	Place of	Issued and	held by the attributable
	incorporation/	fully paid	*Company/**	to the
Name of subsidiary	operation	ordinary share	subsidiaries	Group	Principal activities
			%	%
iPower Warehousing Management	British Virgin	US$1	100	100	Warehousing management
System Limited	Islands/	share			system holding
	Hong Kong
iPower Website Limited	British Virgin	US$1	100	100	Dormant
	Islands/	share
	Hong Kong
iPower Services Limited	British Virgin	US$1	100	100	Dormant
	Islands/	share
	Hong Kong
Jolly Target Limited	Hong Kong	HK$1,000	100 *	100	Dormant
		shares
Manfair Holdings Limited	Hong Kong	HK$2	100 *	100	Dormant
		shares
New Success Investments	British Virgin	US$1	100	100	Dormant
Limited	Islands/	share
	Hong Kong
Ocean World Holdings	Hong Kong	HK$2	100 *	100	Dormant
Limited		shares
Pearlway Holdings Limited	Hong Kong	HK$2	100 *	100	Dormant
		shares
Pentagon Profits Limited	British Virgin	US$1	100 *	100	Property holding
	Islands/PRC	share
Seapower China	Hong Kong/	HK$2	100	100	PRC
Investments Limited	PRC	shares			representative
					offices holding
Seapower Corporate	Hong Kong	HK$2	100	100	Property holding
Finance (China)		shares
Company Limited
Seapower Developments	British Virgin	US$1	100 *	100	Land development
(Indonesia) Limited	Islands/	share
	Indonesia
Seapower Finance Limited	Hong Kong	HK$171,000,000	100	100	Money lending
		shares

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

			Percentage of	Percentage of
			issued share capital
	Place of	Issued and	held by the attributable
	incorporation/	fully paid	*Company/**	to the
Name of subsidiary	operation	ordinary share	subsidiaries	Group	Principal activities
			%	%
Seapower Financial	Hong Kong	HK$100,000	99	99	Investment holding
Services Group Limited		shares
Seapower Goodland	Hong Kong/	HK$1,000	65	65	Dormant
Holding Limited	PRC	shares
Seapower Logistics Limited	Hong Kong	HK$30,000	100	100	Dormant
		shares
Seapower Resources	Australia	A$7,000,002	100	100	Investment holding
Australia Pty Ltd		shares
Seapower Resources	Hong Kong	HK$1,000,000	100	100	Dormant
Freight Forwarding		shares
Limited
Seapower Resources	Australia	A$4,200,002	100	100	Cold storage warehousing
Gosford Pty Ltd.		shares
Seapower Resources	Australia	A$2,000,002	100	100	Investment holding
Investment Pty Ltd.		shares
Seapower Resources Management	Hong Kong	HK$500,000	100	100	Dormant
Company Limited		shares
Seapower Resources Overseas	Cayman	US$1,000	100 *	100	Group financing
Finance Limited	Islands/	shares
	Hong Kong
Shing Wai Holdings	Hong Kong	HK$2	100 *	100	Dormant
Limited		shares
Siu Wai Holdings Limited	Hong Kong	HK$2	100 *	100	Dormant
		shares
Topcrown Investments Limited	Hong Kong/	HK$10,000	100	100	Property holding
	PRC	shares
Toppy Luck Limited	British Virgin	US$1	100 *	100	Dormant
	Islands/	share
	Hong Kong
Wandy Holdings Limited	Hong Kong	HK$2	100 *	100	Dormant
		shares
Winbond Holdings Limited	Hong Kong	HK$2	100 *	100	Dormant
		shares

107 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The above tables list the subsidiaries of the Company and of the Group which, in the opinion of the Provisional Liquidators of the Company, principally affected the results for the year or formed a substantial portion of the net assets of the Group. To give details of other subsidiaries, associates and jointly controlled entities would, in the opinion of the Provisional Liquidators of the Company, result in particulars of excessive length.

33. DISPOSAL OF SUBSIDIARIES AND SUBSIDIARIES UNDER LIQUIDATION

Net assets disposed of: Property, plant and equipment Interests in an associate Trade and other receivables Amounts due from group companies Restricted deposit Cash and bank balances Trade and other payables Amounts due to group companies Amount due to I-China Group Provision for taxation Translation reserve realised on disposal Capital reserve realised on disposal Gain/(loss) on disposal of subsidiaries and arising from liquidation of subsidiaries Satisfied by: Accounts receivable – others Cash consideration received	2003 HK$’000 – – – – – – – (14) – (642) (656) – – 656 – – –	2002 HK$’000 – – 5,464 655,824 501 33,967 (22,048) (20,633) – (1) 653,074 – (2,669) (650,321) 84 84 –	2001 HK$’000 6,440 41,175 586 345 – 3 (6,613) (13,154) (771) – 28,011 9,810 (3) (10,847) 26,971 – 26,971

Analysis of the net (outflow)/inflow of cash and cash equivalents in respect of the disposal of subsidiaries:

Cash consideration received Cash and bank balances disposed of	2003 HK$’000 – – –	2002 HK$’000 – (33,967) (33,967)	2001 HK$’000 26,971 (3) 26,968

The subsidiaries disposed of during the years ended 31 March 2003 and 2002 did not have a material contribution to the net cash flows or results of the Group for the respective years.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

34. SUBSEQUENT EVENTS

Subsequent to the balance sheet date and up to the date of approval of the financial statements by the Provisional Liquidators of the Company, the Group entered into the following major transactions:

(a) On 14 May 2003, the Company entered into a conditional Restructuring Agreement with an independent third party, MRL, in relation to the Restructuring Proposal for the Company. On 11 August 2003, the Restructuring Agreement was amended by a supplemental agreement, and on the same date, the Provisional Liquidators on behalf of the Company entered into with MRL a subscription agreement in relation to the subscription of new shares by MRL upon completion of the Restructuring Proposal. The Restructuring Proposal involves, amongst other things, a capital restructuring, debt restructuring involving the Schemes, and a subscription of new shares and warrants as detailed below:

(i) capital restructuring

The existing authorized share capital of the Company is HK$1,000,000,000 divided into 20,000,000,000 shares, of which 1,547,042,829 shares of par value HK$0.05 each are issued and credited as fully paid up. The Company’s share capital will be re-organised as follows:

(1) the par value of every issued share capital will be reduced from HK$0.05 to HK$0.0006 and every un-issued share will be cancelled;
(2) every 100 issued shares reduced pursuant to (i)(1) above of HK$0.0006 will be consolidated into 1 share of HK$0.06 each;
(3) each issued share reduced and consolidated pursuant to (i)(1) and (i)(2) above will be divided into 6 new shares of HK$0.01 each; and
(4) the Company’s authorised share capital will be reduced to HK$100,000,000 divided into 10,000,000,000 new shares.

(ii) debt restructuring

The debt restructuring will involve proposed Schemes under which in the consideration of the Company’s creditors’ (other than the preferential creditors) discharging and waiving all their claims against the Company, the scheme administrators will receive the following with estimated value of approximately HK$39 million (being the cash and value of new shares of the Company estimated at par value) for the distribution, on pro-rata basis, to the admitted schemes creditors:

(1) HK$38 million in cash from the subscription proceeds for HK$46 million (as referred to below) to be paid by MRL upon completion;
(2) 96,000,000 new shares of the Company at par value of HK$0.01 each;
(3) any cash held by the Company as at the date of completion.

(iii) subscription

MRL will subscribe, in accordance with the terms of Subscription Agreement before the completion, for 4,600,000,000 new shares of the Company at HK$0.01 representing approximately 96.06% of the enlarged issued share capital of the Company immediately after the completion, for an aggregate consideration of HK$46 million in cash (“Subscription Proceeds”), HK$38 million of the Subscription Proceeds will be applied to the cash payments to the scheme administrators for distribution to the schemes creditors of the Company on pro-rata basis, HK$1 million will be paid to a petitioning creditor for the settlement of the petitioning costs upon completion, HK$6.4 million will be applied towards the costs and expenses of Restructuring Proposal and the remaining balance of HK$0.6 million will be retained as working capital of the Company up to the completion of the Restructuring Agreement.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

In addition, MRL will in accordance with the terms of the Subscription Agreement, subscribe for warrants of the Company which entitle the holder(s) to subscribe for a number of new shares of the Company representing 20% of the enlarged issued share capital of the Company upon completion for a total consideration of HK$1 (“Warrants”). The Warrants if fully exercised at the exercise price of HK$0.01 per new share (subject to adjustment), will result in the issuance of approximately 957,764,000 new shares of the Company and additional capital of approximately HK$9 million to the Company.

All the new shares to be issued pursuant to the Subscription Agreement and the exercise of the Warrants will rank pari passu in all respects with the existing new shares of the Company upon the capital restructuring becoming effective.

If requested, MRL agrees to undertake that for a period of 12 months after the completion of the Restructuring Agreement it will make financial accommodation available to the Company for the working capital requirements of the Group on such terms and conditions as MRL and the Company may from time to time agree.

Other precedent conditions are disclosed in the Company’s announcement dated 18 June 2003.

(b) Subsequent to the balance sheet date and in June 2003, an enforcement order was granted by the court of Shenzhen, PRC in favour of a creditor bank, pursuant to a judgement order awarded in December 2002, to take possession of the Group’s property at Shenzhen, PRC. The property is stated at a carrying value of approximately HK$1,235,000 (2002: HK$1,267,000) at the balance sheet date.
(c) On 22 June 2002, the Provisional Liquidators, on behalf of the Company, entered into a restructuring agreement regarding the restructuring proposal as amended by a supplemental agreement dated 3 October 2002, and a subscription agreement dated 13 November 2002 (collectively “Former Agreements”), with the Former Investors (“Former Investors”). The Former Agreements were subsequently terminated as the Former Investors breached the stipulated terms. The non-refundable deposits of approximately HK$2,001,000 and contributions paid for the administrative expenses of approximately HK$1,260,000 were forfeited by the Company and credited to income statement as other income for the year ended 31 March 2003.

Subsequent to the balance date, the Former Investor applied for leave to commence proceedings against the Company for specific performance of the Former Agreement, an injunction to restrain the Company from progressing a restructuring proposal with any other investor, and in the alternative, damages. The Provisional Liquidators, their legal advisor, and Counsel are of the view that the Former Investors’ claim is without merit and no provision for the claim is made in the financial statements accordingly.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. PRO FORMA ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS OF THE GROUP UPON COMPLETION

Set out below is the pro forma adjusted consolidated net tangible assets of the restructured Group upon Completion which is based on the audited consolidated net liabilities of the existing Group as at 31st March, 2003 and after adjustments:

Audited Consolidated Net Liabilities of the existing
Group as at 31st March, 2003
Net liabilities of the companies excluded from the Restructuring Proposal
(Notes 1 & 2)
Debt to be compromised and discharged under the Debt Restructuring
upon Completion
Pro forma adjusted consolidated net tangible asset value
of the Group after Debt Restructuring
Proceeds from the Subscription
Cash payment to Creditors and Petitioning Creditor
Restructuring costs paid and payable
Interim working capital requirement of the Company prior to Completion
Pro forma adjusted net tangible assets upon Completion
but before full exercise of Warrants
Issuance of New Shares to the Investor upon full exercise
of Warrants at an excise price of HK$0.01 per New Share
Pro forma adjusted net tangible assets upon full exercise of Warrants
Pro forma adjusted net tangible assets per New Share
upon Completion but before full exercise of Warrants(Note 3)
Pro forma adjusted net tangible assets per New Share upon
Completion and after full exercise of Warrants(Note 4)

Amount
HK$’000
(1,304,090)
664,401
657,286
17,597
46,000
(39,000)
(6,400)
(600)
17,597
9,578
27,175
0.37 cents
0.47 cents

111 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Note 1: Save for the subsidiaries remaining with the Company for the on-going operations of the Group post Completion, all other subsidiaries of the Company, most of which are dormant or inactive, will be transferred to the Scheme Administrators on Completion, hence the net liabilities relating to these excluded subsidiaries are excluded;
Note 2: Particulars of the Company’s principal subsidiaries as at 31 March 2003 which would remain with the Company post Completion are as follows:

Name of subsidiary	Principal activities
Allied National Limited	Investment holding
Australian Service Cold Storage (NSW) Pty Ltd.	Cold storage warehousing
iPower Alliance Limited	Dormant
iPowerB2B.com Limited	Investment holding
iPower Warehousing Management System Limited	Warehousing management system holding
Pentagon Profits Limited	Property holding
Seapower China Investments Limited	PRC representative offices holding
Seapower Developments (Indonesia) Limited	Land development
Seapower Resources Australia Pty Ltd	Investment holding
Seapower Resources Gosford Pty Ltd.	Cold storage warehousing
Seapower Resources Investment Pty. Ltd	Investment holding
Seapower Resources Mackay Pty. Ltd	Dormant
Seapower Secretaries Limited	Provision of secretarial services
Topcrown Investments Limited	Property holding

Note 3: This is based on 4,788.82 million New Shares in issue upon Completion but before full exercise of Warrants;

Note 4: This is based on 5,746.58 million New Shares in issue upon Completion and after full exercise of Warrants.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. PRO FORMA UNAUDITED CONSOLIDATED BALANCE SHEET OF THE GROUP

The following pro forma unaudited consolidated balance sheet of the Group, which has been reviewed by the auditors of the Company, is based on the audited consolidated balance sheet of the Group as at 31st March, 2003, which was prepared on a basis consistent with the accounting policies normally adopted by the Group, and adjusted to reflect the financial effect of the Restructuring Proposal.

					Effect of
	Audited				Debt
	consolidated			Restructuring
	balance				and			The Group
	sheet as at		Capital	Exclusion of					upon
31	March 2003	Restructuring		Subsidiaries		Subscription		Completion
	HK$’000		HK$’000		HK$’000		HK$’000		HK$’000
			(note 1)		(note 2)		(note 3)
Non-Current Assets
Property, plant
and equipment	20,298		–		(1,235)		–		19,063
Current Assets
Trade and other receivables	14,708		–		(9,541)		–		5,167
Amount due from I-China
Group_(note 4)_	–		–		0		–		–
Other investments	52		–		(52)		–		–
Restricted bank deposits	1,692		–		(1,692)		–		–
Cash and bank balances	6,648		–		(44,184)		39,000		1,464
Total Current Assets	23,100		–		(55,469)		39,000		6,631
Current liabilities
Trade and other payables	151,533		–		(148,363)		–		3,170
Amount due to a jointly
controlled entity	1,007		–		(1,007)		–		–
Taxation payable	26,302		–		(26,302)		–		–
Bank and other borrowings	515,584		–		(510,657)		–		4,927
Amounts due to subsidiaries
under liquidation	652,553		–		(652,553)		–		–
Total Current Liabilities	1,346,979		–		(1,338,882)		–		8,097
Net Current Liabilities	(1,323,879)		–		1,283,413		39,000		(1,466)
Total Assets less Current
Liabilities	(1,303,581)		–		1,282,178		39,000		17,597
Minority Interests	(509)		–		509		–		–
	(1,304,090)		–		1,282,687		39,000		17,597

Capital and Reserves
Share capital	77,352		(76,424)		960		46,000		47,888
Reserves	(1,381,442)		76,424		1,281,727		(7,000)		(30,291)
	(1,304,090)		–		1,282,687		39,000		17,597

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes:

The Company will undertake a capital reduction exercise to reduce its issued and paid-up share capital from HK$77,352,141 to HK$928,226 by the reduction of the par value of its existing issued Share of 1,547,042,829 Shares from HK$0.05 each to HK$0.0006 each. The credit arising from the capital reduction of approximately HK$76 million will be applied so as to reduce, by an equivalent amount, the accumulated losses.
This reflects full settlement of Creditors’ Indebtedness by cash of HK$39 million and issuance of 96 million New Shares to the Creditors and the removal of the assets and liabilities of those subsidiaries that will not remain with the Group post Completion. The amount of the Group’s indebtedness adjusted herein include claims by the creditors of the subsidiaries which will not remain with the Group post Completion.
Restructuring costs and interim working capital advanced by the Investor during the course of the restructuring were estimated to be approximately HK$7 million. The entire loan balance will be capitalised by issuing up to 700 million New Shares to the Investor.
The secured loans of HK$1,655,000 were granted by Seapower Finance Limited to Trinity Rent A Car Limited (“Trinity”), which is a wholly owned subsidiary of I-China Holdings Limited (Provisional Liquidators Appointed), and were secured by motor vehicles. Since their appointment, the Provisional Liquidators have been unable to make to any recovery/realisation in respect of those loans as Trinity is also experiencing financial difficulties. Full provision has been made against this amount according to the latest audited accounts of the Group for the year ended 31st March, 2003.
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CASHFLOW PROJECTIONS

APPENDIX II

Set out below is a summary of the cashflow projections (“Cashflow Projections”) for the Group for the 12 months period following Completion (“Projection Period”).

1. BASIS AND ASSUMPTIONS:

The Provisional Liquidators prepared the Cashflow Projections of the Group with input from the Investor and its sole director in relation to their future plans and on the basis of the assumptions of the Investor and its sole director as set out below. The Investor and its sole director have reviewed and agreed with the Cashflow Projections of the Group. Please note that actual cashflow may differ substantially from the Cashflow Projections since actual events frequently do not occur as expected and such variation may be material. The Provisional Liquidators will leave office, subject to Court approval, on Completion and the future operations of the Group post Completion will be the sole responsibility of the Investor and its sole director as the controlling shareholder and the director of the Company post Completion.

Principal assumptions:

The Restructuring Proposal is successfully implemented.
The Group will, under the control of the new Directors, continue to engage in the existing businesses on the existing operations scale upon Completion and as a result, no additional material expenses will be incurred during the 12 month period following Completion.
No material expenditure for purchases of fixed assets, new businesses investments or other acquisitions will be incurred during the period for the 12 months period after Completion under the control of the new Directors.
No expenditure for directors’ fees will be incurred during the 12 months period following Completion.
There will be no material changes in the existing political, legal, fiscal, foreign trade or economic conditions in Hong Kong or other countries in which the Group carries on or intends to carry on business.
There will be no material changes in the bases or rates of taxation in those countries in which the Group operates or intends to operate.
There will be no disasters, natural, political or otherwise, which would materially disrupt the business or operations of the Group or cause substantial loss, damage or destruction to its facilities.
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2. CASHFLOW PROJECTIONS

The following is the Cashflow Projections for the Projection Period. As mentioned above, the actual cashflow may defer substantially from the Cashflow Projections since actual events frequently do not occur as expected and such variation may be material.

	HK$’000
Expected bank balance and cash upon Completion_(Note 1)_	2,200
Expected net cash inflow from operating activities over
the Projection Period_(Note 2)_	715
Proceeds from Subscription by the Investor	46,000
Cash payment to the Creditors and Petitioning Creditor	(39,000)
Payment of restructuring costs	(6,400)
Interim working capital injected into the Company by the
Investor prior to Completion	(600)
Expected bank balance and cash at the end of
the Projection Period	2,915

Note 1: As at 31st March, 2003, the cash balance as per the audited accounts set out on page 74 was approximately HK$6.6 million. The expected bank balance of approximately HK$2.2 million as stated in above, represents the expected cash balance of the Company and the subsidiaries which will continue to remain in the Group after Completion. The difference between these two amounts represents the funds held by the subsidiaries which will be transferred to the Scheme Administrators upon Completion, after deducting all the costs paid and payable in connection with the cold storage and warehousing operations in Australia and all priority costs including legal and other costs associated with the termination of the Former Restructuring Agreement and the adjudication of claims against the Group.
Note 2: The expected net cash inflow from operating activities over the Projection Period is based upon the existing business of the Group continuing at current levels on and on the basis of the assumptions set out on page 115 of this circular.

The expected cash inflow would be primarily derived from the cold storage warehousing and logistics management operations in Australia although on a lesser scale when compared to preceding financial years pending on the implementation of the future plans by the Investor.

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CASHFLOW PROJECTIONS

APPENDIX II

3. COMFORT LETTER FROM CCIF IN RELATION TO THE GROUP’S WORKING CAPITAL ADEQUACY

Set out below is the text of the letter received by the Provisional Liquidators from CCIF, in connection with the Group’s working capital adequacy and is prepared for the purpose of inclusion in this circular.

The Provisional Liquidators of Seapower Resources International Limited (Provisional Liquidators Appointed)

Many Returns Limited and

its sole director

The Board of Directors of Asian Capital (Corporate Finance) Limited

The Board of Directors of Horwath Capital Asia Limited

21st October, 2003

Dear Sirs

We refer to the circular dated 21st October, 2003 (the “Circular”) issued by Seapower Resources International Limited (Provisional Liquidators Appointed) (the “Company”) in connection with the restructuring of the Company involving, inter alia, capital restructuring, debt restructuring involving creditors’ schemes of arrangement in accordance with Section 86 of the Cayman Companies Law and Section 166 of the Companies Ordinance, subscription of new shares and warrants and whitewash waiver (the “Restructuring Proposal”).

In accordance with the instructions of the Provisional Liquidators of the Company, we have reviewed the compilation of the cash flow projections of the Company and its subsidiaries (hereinafter collectively referred to as the “Group”) for the 12 months period immediately following Completion (the “Cash Flow Projections”) and the cash flow requirements of the Group for the same period, taking into consideration of the intention of the Investors regarding the Company as described on pages 37 to 40 of this circular. The Cash Flow Projections have been complied by the Provisional Liquidators on the basis of certain principal assumptions (the “Assumptions”) as set out on page 115 of this circular made by Many Returns Limited (the “Investor”) and its sole director.

In the opinion of the Investor and its sole director, as set out in the section headed “Working Capital” in the “Letter from the Investor” on page 40 of this Circular, in light of the advance of up to HK$5 million by the Investor as well as in the absence of unforeseen circumstances, the Assumptions underlying the Cash Flow Projections remaining valid and subject to Completion, the Group will have sufficient working capital for ongoing operations for the 12 month period following Completion.

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CASHFLOW PROJECTIONS

APPENDIX II

In addition, in the opinion of the Provisional Liquidators as set out in the section headed “Working Capital” in the “Letter from the Provisional Liquidators” on page 27 of this Circular, that subject to Completion and in the absence of unforeseen circumstances and the Assumptions underlying the Cash Flow Projections remaining valid, the Group will have sufficient working capital for the on-going operation of the Group for 12 month period following Completion.

We emphasize that the Cash Flow Projections and the Assumptions relate to the future and actual cash flows are likely to be different since anticipated events frequently do not occur as expected and the variation may be material. Accordingly, the Cash Flow Projections cannot be relied upon to the same extent as information derived from the audited financial statements for completed financial accounting periods. For this reason, we express no opinion on how closely the cash flows eventually achieved will correspond with the Cash Flow Projections.

In our opinion, based on our review, so far as the accounting policies and calculations are concerned, the Cash Flow Projections, prepared by the Provisional Liquidators and with input from the Investor and its sole director in respect of the future plans, have been properly compiled by the Provisional Liquidators on the basis of the Assumptions made by the Investor and its sole director and the above statements referred to in paragraph 3 on page 117 of and paragraph 1 on page 118 of this Circular as to the sufficiency of working capital have been made by the Provisional Liquidators, and the Investor and its sole directors, respectively, with due care and consideration.

Yours faithfully For and on behalf of

Charles Chan, Ip & Fung CPA Ltd. Certified Public Accountants Hong Kong

Chan Wai Dune, Charles

Practising Certificate Number P00712

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CASHFLOW PROJECTIONS

APPENDIX II

4. COMFORT LETTER FROM ASIAN CAPITAL IN RELATION TO THE GROUP’S WORKING CAPITAL ADEQUACY

Set out below is the text of the letter received by the Company from Asian Capital in connection with the Group’s working capital adequacy and is prepared for the purpose of inclusion in this circular.

==> picture [146 x 38] intentionally omitted <==

21st October, 2003

The Provisional Liquidators of Seapower Resources International Limited (Provisional Liquidators Appointed)

Dear Sirs,

Seapower Resources International Limited (Provisional Liquidators Appointed) (the “Company”) and its subsidiaries (collectively the “Group”)

Terms used herein shall have the same meaning as defined in the circular of the Company dated 21st October, 2003 (“Circular”) unless stated otherwise.

We refer to the letter by CCIF dated 21st October, 2003 addressed to you, the Investor and its sole director, Horwath Capital and ourselves.

We also refer to your statement regarding the sufficiency of working capital for the 12 months immediately following Completion as set out under the heading of “Working Capital” contained on page 27 of the Circular (“Statement”) issued in relation to the Company’s restructuring involving, inter alia, Capital Restructuring, Debt Restructuring involving Creditors’ Schemes in accordance with section 86 of the Cayman Companies Law and section 166 of the Companies Ordinance, Subscription of New Shares and Warrants, Whitewash Waiver and general mandates to issue and repurchase New Shares.

You have prepared the Statement and the cashflow projections for the Group for the 12 months immediately following Completion (“Cashflow Projections”) as set out on pages 115 and 116 of the Circular based on the books and records available to the Provisional Liquidators and information provided by the Investor and its sole director in relation to their future plans and underlying assumptions. The Investor and its sole director have reviewed and agreed with the Cashflow Projections. We have discussed those assumptions with you.

We do not express any opinion in relation to the information provided by the Investor and its sole director regarding their future plans and underlying assumptions which may impact on the Cashflow Projections.

We emphasize that the Cashflow Projections and the assumptions on which they are based relate to the future, over which the Provisional Liquidators will have no control and influence as the Provisional Liquidators will leave office upon Completion. The business operations post Completion, which will impact on the Cashflow Projections, will be the sole responsibility of the Investor and its sole director, as the controlling shareholder, and the then directors of the Group. For these reasons, we express no opinion on how closely the actual cash flows eventually achieved will correspond with the Cashflow Projections.

Subject to the foregoing and based on the review performed by CCIF on the Cashflow Projections and the Statement, we are satisfied that the Cashflow Projections prepared by the Provisional Liquidators based on the information provided by the Investor and its sole director, as well as the Statement, have been made with due care and consideration and that the requirements set out under Rule 10.2 of the Code, and the notes thereto, have been complied with by the Provisional Liquidators.

Yours truly, For and on behalf of Asian Capital (Corporate Finance) Limited

Patrick K. C. Yeung Managing Director

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CASHFLOW PROJECTIONS

APPENDIX II

5.

601 Dah Sing Financial Centre 108 Gloucester Road Wanchai, Hong Kong

21st October, 2003

The Director

Many Returns Limited East Asia Chambers P.O. Box 901, Road Town, Tortola, British Virgin Islands.

Dear Sirs,

We refer to the statement (the “ Statement ”) made by the Investor and its sole director regarding the sufficiency of working capital for the Group’s requirements for the twelve-month period following Completion (the “ Projection Period ”) as set out under the section headed “Working Capital” in the “Letter from the Investor” of the circular dated 21st October, 2003 (the “ Circular ”) issued by the Company in connection with the restructuring of the Company. Terms used in this letter shall have the same meaning as defined in the Circular unless otherwise defined.

We also refer to the cashflow projections (the “ Cashflow Projections ”) of the Group for the Projection Period prepared by the Provisional Liquidators with input from the Investor and its sole director in relation to their future plans and on the basis of the assumptions (the “ Assumptions ”) of the Investor and its sole director as set out in Appendix II of the Circular. The Investor and its sole director have reviewed and agreed with the Cashflow Projections of the Group. We have discussed the Assumptions with the sole director of the Investor.

We note that the Investor will, if necessary, advance up to HK$5 million to the Company by way of shareholders’ loan to satisfy the working capital requirements of the Group for the 12 month period following Completion.

We have considered the letter dated 21st October, 2003 (the “ Reporting Accountants’ Letter ”) addressed to the Provisional Liquidators, Asian Capital, the Investor and its sole director and ourselves by CCIF, the reporting accountants (the “ Reporting Accountants ”) of the Company. The Reporting Accountants are of the opinion, based on their review, so far as the accounting policies and calculations are concerned, that the Cashflow Projections, prepared by the Provisional Liquidators and with input from the Investor and its sole director in respect of the future plans, have been properly compiled by the Provisional Liquidators on the basis of the Assumptions made by the Investor and its sole director and the statements referred to in the third and fourth paragraph of the Reporting Accountants’ Letter as to the

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CASHFLOW PROJECTIONS

APPENDIX II

sufficiency of working capital of the Group have been made by the Investor and its sole director and the Provisional Liquidators respectively with due care and consideration; and that they express no opinion as to how closely the cash flows eventually achieved will correspond with the Cashflow Projections.

We emphasize that the Cashflow Projections and the Assumptions relate to the future and actual cashflows are likely to be different since anticipated events frequently do not occur as expected and the variation may be material. For this reason, we express no opinion on how closely the cashflows eventually achieved will correspond with the Cashflow Projections.

Subject to the foregoing and based on the review performed by the Reporting Accountants, we are satisfied that the Assumptions and the Statement has been made by the Investor and its sole director with due care and consideration.

Yours faithfully, For and on behalf of

Horwath Capital Asia Limited Francis K. Tung Managing Director

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VALUATION REPORT

APPENDIX III

PROPERTIES INTEREST HELD BY THE GROUP IN AUSTRALIA

The following is the text of a letter, summary of values and valuation certificate received from Chesterton International (NSW) PTY. Limited, an independent valuer, prepared for the purpose of inclusion in this circular, in connection with its valuation of the property held by the Group in Australia as at 23rd July, 2003.

13th August, 2003

Dear Sirs

Re: The Provisional Liquidators of Seapower Resources International Limited

(Provisional Liquidators Appointed)

In accordance with your instructions, we have inspected the property Lots 11 and 120, Racecourse Road, West Gosford NSW 2250 for the purpose of providing you with our opinion of market value for the existing use of such property as at 23rd July, 2003.

We have assessed our valuation on the basis of freehold title, with vacant possession on an “existing use basis”. This basis assumes the current entity, the owner-occupier will continue in operational existence for the foreseeable future, there is no intention to cease the “existing use” of the property in the foreseeable future, and is subject to adequate potential profitability of the enterprise.

Our valuation has been ascribed in accordance with the Australian Property Institute’s definition relating to market value for the existing use:

“The market value for the existing use is the value of an asset based on the continuation of its existing use, assuming the asset could be sold as part of a continuing business operation”.

Our valuation is determined on the basis that the property, the title thereto, and its use are not affected by any matter other than that mentioned in our full report. It has been assessed through utilisation of the depreciated replacement cost valuation approach with secondary regard to a direct comparison valuation approach.

Depreciated Replacement Cost (DRC) is based on the estimated current cost of replacement of the asset with a similar asset which is not necessarily an exact reproduction but which has similar service

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VALUATION REPORT

APPENDIX III

potential and function, less an amount for depreciation in the form of accrued physical wear and tear, economic functional obsolescence plus the value of the land.

We have searched the property within the Local Government area of Gosford, Parish of Gosford and County of Northumberland. We have relied on information given by you and have accepted advice given to us on such matters as planning approvals, statutory notices, easements, tenure, completion date of buildings, particulars of occupancy, tenancy agreements, floor areas and all other relevant matters. Dimensions, measurements and areas included in the valuation certificate are based on information contained in the documents provided to us and are therefore only approximations.

We have not been able to carry out detailed on site measurements to verify the correctness of the floor areas of the improvements and we have assumed that the floor areas shown on the documents provided to us are correct. We have no reason to doubt the truth and accuracy of the information provided to us by the company which is material to the valuation. We were also advised by the company that no material facts have been omitted from the valuation provided.

We have inspected the exterior and where possible the interior of the improvements. No structural survey has been made, however, in the course of our inspection, we did not note any services defects. We are not, however, able to report that the improvements are not free from rot, infestation or any other structural defects. No tests were carried out on any of the services.

No allowances have been made in our valuation for any charges, mortgages or amounts owing on any property interests nor for any expenses or taxation which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that the property interests are free from encumbrances, restrictions and outgoings of an onerous nature which could affect their values.

Unless otherwise stated, all monetary amounts contained within our valuation report are in Australian dollars (AUD).

Our valuation certificate is herewith attached.

Yours sincerely

CHESTERTON INTERNATIONAL (NSW) PTY. LIMITED

Col Sorensen AAPI	Andy Kennard	AAPI
Registered Valuer No 2619	Registered Valuer	No 4070
Manager,	Senior Advisor,
Corporate Property Advisors	Corporate Property Advisors

Note 1: Colin Sorensen has over 20 years experience within the property valuation profession and has extensive knowledge and experience in residential, commercial and industrial markets valuation in Australia. He has specialised expertise for accounting standards and insurance purposes.
Note 2: Andy Kennard is experienced in the valuation of a wide range of asset classes including industrial, commercial and retail investment properties in Australia. He is also specialised in high density residential developments and feasibilities and has extensive market knowledge in Australia to support his technical skills.
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VALUATION REPORT

APPENDIX III

VALUATION CERTIFICATE

Property

Description and tenure

Particulars of occupancy

Market value For the existing use as at 23rd July, 2003

Lots 11 and 120 The property comprises a purpose Racecourse Road built cold storage warehouse facility West Gosford with associated offices, loading NSW 2250 docks and amenities. Part of the Sydney structure was originally constructed Australia 30 years ago with extensions carried out in 1980.

Details of the floor areas of the property are set out as follows:

Use Floor Area (sq m) Freezer 2,450.0 Rooms Ancillary 2,107.0 Total: 4,557.0	Volume (cu m) 21,914.1
	21,914.1

The land comprises two lots with a total site area of 11,525 sq m held under the provisions of the Real Property Act, within the Local Government area of Gosford, Parish of Gosford and County of Northumberland.

Currently the property is substantially owneroccupied as a cold storage warehouse.

The remaining premises comprising boning room, attached chiller, passageway and office situated in the front dock is subject to a licence agreement for a period of 4 years expiring on 20th March, 2004, yielding an annual licence fee of AUD $81,756 exclusive of GST plus $165 per week for a separate chiller area use.

AUD $3,100,000 (exclusive of GST if any)

The land as prescribed above is freehold in tenure and the registered proprietor is Seapower Resources Gosford Pty Ltd.

The land is rectangular in shape, and is generally level.

Note:

The property at the time of disposal will be subject to, amongst others, Goods and Services Tax and Capital Gains Tax. The precise tax implication will be subject to formal tax advice based any tax losses brought forward, prevailing rules and regulations at the time of disposal. However, in light of the future plan of the Investor as set out in the “Letter from the Investor”, the likelihood of any tax liability being crystallized is remote. For indicative purpose and based on prevailing rules and information available as at the Latest Practicable Date, the potential tax obligation arising from the disposal of this property is estimated to be AU$55,700.

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EXPLANATORY STATEMENT

APPENDIX IV

LISTING RULES FOR REPURCHASE OF SECURITIES

The Listing Rules permit companies whose primary listing are on the Stock Exchange to repurchase their securities on the Stock Exchange subject to certain restrictions amongst which the Listing Rules provide that the shares proposed to be repurchased by a company must be fully paid-up and all repurchases of shares by a company with a primary listing on the Stock Exchange must be approved in advance by an ordinary resolution of shareholders, either by way of a specific approval or a general mandate to the directors of the company to make such repurchases.

The information set out below serves as the explanatory statement required under Rule 10.06(1)(b) of the Listing Rules to provide Shareholders with all the information reasonably necessary for them to make an informed decision on whether to vote for or against the ordinary resolution approving the repurchase mandate and constitutes the memorandum of the terms of the proposed repurchases required under the articles of association of the Company.

SHARE CAPITAL OUTSTANDING

As at the Latest Practicable Date, the aggregate nominal amount of issued share capital of the Company was HK$77,352,141.45 comprising 1,547,042,829 Shares. Immediately upon Completion, the aggregate nominal amount of issued share capital of the Company will be HK$47,888,225.70 comprising 4,788,822,570 New Shares. Subject to Completion and the passing of the relevant ordinary resolution approving the repurchase mandate at the EGM and no further Shares are issued prior to the EGM, the Company will be allowed under the repurchase mandate to repurchase a maximum of 478,882,257 New Shares immediately following Completion.

REASONS FOR REPURCHASES

The proposed new Directors believe that the repurchase mandate is in the interests of the Company and the Shareholders since it will give the restructured Company the flexibility to do so if and when appropriate. Such repurchases may, depending on market conditions and funding arrangements at the time, lead to an enhancement of the net asset value per New Share and/or its earnings per New Share. The proposed new Directors of the restructured Company will only exercise such power in such circumstances that they believe such repurchase will benefit the Company and the Shareholders.

FUNDING OF REPURCHASE

Repurchases of the Company’s securities must be funded out of funds legally available for the purpose in accordance with the new memorandum and new articles of association of the Company and the applicable laws of the Cayman Islands.

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EXPLANATORY STATEMENT

APPENDIX IV

There may be a material adverse impact on the working capital or gearing position of the Company (as compared with the position disclosed in the latest published audited financial statement as at 31st March, 2003) in the event that the repurchase mandate is exercised in full. However, the proposed new Directors do not propose to exercise the repurchase mandate to such an extent as would, in the circumstances, have a material adverse effect on the working capital requirements of the Company or the gearing levels which in the opinion of the proposed new Directors are from time to time appropriate for the Company.

DISCLOSURE OF INTEREST

None of the proposed new Directors nor, to the best of their knowledge having made all reasonable enquiries, any of their respective associates (as defined in the Listing Rules), has a present intention to sell securities to the Company if the repurchase mandate is approved by the Shareholders.

No connected person (as defined in the Listing Rules) of the Company has notified the Company that he/she has a present intention to sell securities to the Company, or has undertaken not to do so, in the event that the Company is authorized to make repurchases of its own securities.

UNDERTAKING OF THE PROPOSED NEW DIRECTORS

The Investor and its sole director and the Provisional Liquidators will procure the proposed new Directors to undertake to the Stock Exchange that they will exercise the power of the Company to make repurchases pursuant to the repurchase mandate in accordance with the Listing Rules and the laws of Cayman Islands. The Provisional Liquidators emphasize that they have no control or influence on the future operations and management of the Group post Completion as the Provisional Liquidators will leave office, subject to Court approval, on Completion.

During each of the six months preceding the date of this circular, the Company has not repurchased any securities of the Company.

SHARE PRICES

Trading in the Company’s Shares has been suspended at the request of the Company since 2:30 p.m. on 28th December, 2001. The closing price before suspension was HK$0.027 per Share.

126 -

EXPLANATORY STATEMENT

APPENDIX IV

The highest and lowest prices at which the Shares were traded on the Stock Exchange during each of the previous 12 calendar months preceding the suspension were as follows:

	Highest	Lowest
	HK$	HK$
2001
January	0.140	0.091
February	0.145	0.118
March	0.129	0.085
April	0.140	0.107
May	0.160	0.110
June	0.140	0.092
July	0.114	0.057
August	0.065	0.028
September	0.038	0.025
October	0.039	0.028
November	0.035	0.021
December	0.038	0.015

Trading in the Company’s Shares has been suspended since 2:30 p.m. on 28th December, 2001 and the closing price before suspension was HK$0.027 per Share which is therefore the closing price immediately preceding on the date of the joint announcement of the Company and the Investor in relation to the Restructuring Proposal and that of the Latest Practicable Date.

GENERAL

If as a result of a repurchase of the New Shares, a Shareholder’s proportionate interest in the voting rights of the Company increases, such increase will be treated as an acquisition for the purpose of the Code. As a result, a Shareholder or a group of Shareholders, acting in concert with each other could, depending on the level of increase of the Shareholders’ interest, obtain or consolidate control of the Company and become obliged to make a mandatory offer in accordance with Rule 26 of the Code. The proposed new Directors have no intention to exercise the repurchase mandate to such an extent that will result in a requirement of a Shareholder, or a group of Shareholders acting in concert, to make a general offer under the Code.

As at the Latest Practicable Date, there is no controlling Shareholder of the Company who is beneficially interested in more than 30% of the existing share capital of the Company. Immediately upon Completion, the Investor together with parties acting in concert with it will be interested in approximately 96% of the enlarged issued share capital of the Company. The proposed new Directors are not aware of any consequences which would arise under the Code as a result of any repurchases pursuant to the Repurchase Mandate.

The Listing Rules prohibit a company from making repurchase on the Stock Exchange if the result of the repurchase would be that less than 25 per cent. (or such other prescribed minimum percentage as determined by the Stock Exchange) of the issued share capital would be in public hands. The proposed new Directors do not propose to repurchase New Shares which would result in less than the prescribed minimum percentage of Shares in public hands

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GENERAL INFORMATION

APPENDIX V

1. RESPONSIBILITY STATEMENTS

This circular includes particulars given in compliance with the Code and the Listing Rules for the purpose of giving information with regard to the Company and the Investor. The Provisional Liquidators jointly and severally accept full responsibility for the accuracy of the information contained in this circular (other than that relating to the Investor but include the Cashflow Projections as set out on pages 115 and 116 of this circular) and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, opinions expressed in this circular (other than those relating to the Investor but include the working capital sufficiency statement made by the Provisional Liquidators as set out on page 27 of this circular) have been arrived at after due and careful consideration and there are no other facts not contained in this circular the omission of which would make any statement in this circular misleading.

The information contained in this circular relating to the Investor has been supplied by the Investor and its sole director. The Investor and its sole director accept full responsibility for the accuracy of information contained in this circular (other than that relating to the Group but include the Cashflow Projections as set out in this circular) and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, the opinions expressed in this circular (other than those relating to the Group but include the working capital sufficiency statement made by the Investor and its sole director as set out under the section headed “Working Capital” in the “Letter from the Investor” of this circular) have been arrived at after due and careful consideration and there are no other facts not contained in this circular, the omission of which would make any statement in this circular misleading.

2. MARKET PRICES

Trading in the Company’s Shares has been suspended since 2:30 p.m. on 28th December, 2001 and will remain suspended until Completion and sufficient public float has been restored. The closing price before suspension was HK$0.027 per Share which is therefore the closing price prior to the date of the joint announcement of the Company and the Investor in relation to the Restructuring Proposal and the Latest Practicable Date.

As the trading in the Company’s Shares has been suspended since 28th December, 2001, information about the closing prices of the Shares on the Stock Exchange at the end of each of the 6 calendar months preceding the date of the joint announcement made by the Company and the Investor on 18th June, 2003 are not available, and so are the highest and lowest closing prices of the Shares during the Relevant Period.

3. INTEREST IN SECURITIES OF THE COMPANY

(a) Directors

As at the Latest Practicable Date, the interest of the Directors in the securities of the Company and its associated corporations were as follows:

Name		Type of interest	Number of Shares held
Ms. Shirley Choi Siu Lui		Personal interests	500,000
Mr. Choi	Sai Leung_(Note 1)_	Personal interests	9,000,000
Note 1:	Mr. Choi Sai Leung was declared bankrupt by the High Court of Hong Kong on 3rd April, 2002.

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GENERAL INFORMATION

APPENDIX V

Note 2: The above information is based on the Company’s records as at the Latest Practicable Date.

Save as disclosed above, to the best of the knowledge of the Provisional Liquidators having made all reasonable enquiries, as at the Latest Practicable Date, none of the chief executive or Directors had any interest in the securities of the Company or any associated corporations (within the meaning in the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to section 341 of the SFO (including interests which they were deemed or taken to have under section 344 of the SFO) or which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein or which were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies to be notified to the Company and the Stock Exchange.

(b) Substantial Shareholders

Save as disclosed below, to the best of the knowledge of the Provisional Liquidators, having made all reasonable enquiries, as at the Latest Practicable Date, there was no person who was, directly or indirectly, interested in 5% or more of the nominal value of any class of issued share capital carrying rights to vote in all circumstances at general meetings of the Company or any other member of the Group or had any options in respect of such issued capital required to be recorded under Section 336 of the SFO:

	Number of	% interest in
Name	Shares held	the Company	Note
I-China Holdings Limited	426,191,518	27.55	2
(Provisional Liquidators Appointed)(Note 1)
KG Investments Holdings Limited	187,346,664	12.11	3

Note 1: Messrs. Cosimo Borrelli and Fan Wai Kuen were appointed as the joint and several provisional liquidators of I-China Holdings Limited by the High Court of Hong Kong on 5th December, 2002.
Note 2: This represents the deemed interest in 426,191,518 shares of the Company held by Felcasa International Limited and Fordit Limited which are wholly-owned subsidiaries of I-China Holdings Limited (Provisional Liquidators Appointed) as at the Latest Practicable Date. According to the records available to the Provisional Liquidators and also in the capacity as the joint and several provisional liquidators of I-China Holdings Limited (Provisional Liquidators Appointed), approximately 199,680,000 Shares have been charged to Kingston Securities Limited (“Kingston”), approximately 3,000,000 Shares charged to KGI Finance Limited (“KGI Finance”), approximately 54,196,518 Shares charged to KG Investments Holdings Limited (“KG Investments”) and approximately 159,315,000 Shares charged to Peregrine Brokerage Limited (in Members’ Voluntary Liquidation) (“Peregrine”). The Company has written to each of the above entities on 3rd October, 2003 to confirm their shareholding in the Company and the nature of the voting rights attached to those Shares.

As at the Latest Practicable Date, the Provisional Liquidators have received responses from Peregrine, KGI Finance, KG Investments and Kingston. Peregrine, KGI Finance and KG Investment confirmed that they control the voting rights attached to the above charged Shares. The information provided to date by Kingston in relation to I-China’s shareholding in the Company in response to the inquiries of the Provisional Liquidators of the Company made on 3rd October, 2003 is incomplete and enquiries are continuing. It is currently impossible to ascertain whether

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the voting rights attached to those Shares charged to Kingston have changed. Further announcement will be made in respect of these interests once the necessary information becomes available to the Company.

Note 3: According to the Disclosure of Interests report, KG Investments, through KGI Finance and Jubilant Dynasty Limited, holds 187,346,664 Shares of the Company (including aggregate approximately 57,196,518 shares charged by Felcasa International Limited and Fordit Limited as referred to in Note 2 above), representing approximately 12.11% of the issued share capital of the Company as at the Latest Practicable Date.
Note 4: The Executive considers that the Provisional Liquidators are interested parties in the transaction under the Code and are of the view that the Provisional Liquidators should not vote at the EGM. The provisional liquidators of I-China do not consider that they are interested parties in this regard as they will heed the directions of I-China’s major creditor, China Merchants Bank which is not a Creditor of the Company and is not an interested party to the Company, in relation to any voting and this matter remains the subject of further investigations and legal advice. Subject to the legal advice to be obtained by the Provisional Liquidators in this regard, the Provisional Liquidators will not vote at the EGM. Further announcements will be made as and when appropriate.

(c) The Investor

As at the Latest Practicable Date, none of the Investor, its sole director, and parties acting in concert with them had any interest in the securities of the Company, other than the agreement to subscribe for the New Shares and Warrants by the Investor pursuant to the Subscription Agreement.

(d) Others

As at the Latest Practicable Date, to the best of the knowledge of the Provisional Liquidators having made all reasonable enquiries indicate the following:

(i) none of the subsidiaries or associates of the Company, nor any pension funds of the Company or of any of its subsidiaries, nor the Provisional Liquidators, Asian Capital, AMS, Horwath Capital, CCIF, Chesterton International (NSW) PTY. Limited or advisers (as defined under the Code) to the Company and the Investor had any interest in the securities of the Company.
(ii) no person who had any arrangement of the kind referred to in Note 8 to Rule 22 of the Code with the Company, the Investor, or any party acting in concert with any of them had any interest in the securities of the Company.
(iii) no shareholding in the Company is managed on a discretionary basis by fund managers connected with the Company.
(iv) no person who, prior to the posting of this circular, has irrevocably committed themselves to accept or reject the Restructuring Proposal had any interest in any securities of the Company.
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4. DEALINGS IN SECURITIES OF THE COMPANY

(a) Directors

To the best of the knowledge of the Provisional Liquidators, having made all reasonable enquiries, none of the Directors nor parties acting in concert with them had dealt in any securities of the Company during the Relevant Period.

(b) The Investor

None of the Investor, its sole director, and any party acting in concert with them had dealt in any securities of the Company during the Relevant Period.

(c) Others

During the Relevant Period, to the best of the knowledge of the Provisional Liquidators, having made all reasonable enquiries,

(i) none of the subsidiaries or associates of the Company, nor any pension funds of the Company or of any of its subsidiaries, nor the Provisional Liquidators, Asian Capital, AMS, Horwath Capital, CCIF, Chesterton International (NSW) PTY. Limited or advisers (as defined under the Code) to the Company and the Investor had dealt in any interest in the securities of the Company;
(ii) no person who had any arrangement of the kind referred to in Note 8 to Rule 22 of the Code with the Company or the Investor or with any persons acting in concert with any of them had dealt in any securities of the Company;
(iii) no person who, prior to the posting of this circular, has irrevocably committed themselves to accept or reject the Restructuring Proposal had dealt in any securities of the Company; and
(iv) no fund managers connected with the Company or any of its subsidiaries had dealt in any securities of the Company.

5. INTERESTS AND DEALINGS IN THE INVESTOR

To the best of the knowledge of the Provisional Liquidators, having made all reasonable enquiries, neither the Company and the Directors nor parties acting in concert with any of them had any interest in the securities of the Investor and none of them had dealt in any such securities during the Relevant Period.

6. ARRANGEMENTS AFFECTING DIRECTORS OR PROVISIONAL LIQUIDATORS

To the best of the knowledge of the Provisional Liquidators, having made all reasonable enquiries,

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(a) none of the Directors or Provisional Liquidators have any service contract with any member of the Group which (excluding contracts expiring or determinable by the employer) is not terminable within one year without payment of compensation (other than statutory compensation) and no service contract has been entered into or amended within six months before the joint announcement of the Company and the Investor dated 18th June, 2003;
(b) since 31st March, 2003 (being the date to which the latest published audited accounts of the Company were made up), none of the Directors or Provisional Liquidators have any interest, direct or indirect, in any assets which have been acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group;
(c) Except for the Restructuring Agreement and the Subscription Agreement, there is no agreement or arrangement between the Investor or any person acting in concert with it and any of the Provisional Liquidators, Directors or recent directors, shareholders or recent shareholders of the Company which is conditional on or dependent upon the outcome of the Restructuring Proposal or otherwise in connection therewith;
(d) Except for the Restructuring Agreement and the Subscription Agreement, there is no agreement or arrangement between any of the Provisional Liquidators, Directors and any other person which is conditional on or dependent upon the outcome of the Restructuring Proposal or otherwise in connection therewith;
(e) there is no material contract or arrangement entered into by any of the Provisional Liquidators, Directors and the Investor or parties acting in concert with them which any of the Provisional Liquidators or Director have a material personal interest; and
(f) no other benefits have been or will be given to the Directors as compensation for loss of office or otherwise in connection with the Restructuring Proposal.
(g) except for the remuneration to be paid out of the assets of the Company pursuant to the Court’s order and such amount to be subject to the Court approval, there are no other benefits have been or will be given to the Provisional Liquidators as compensation for loss of office or otherwise in connection with the Restructuring Proposal.

7. EXPERTS

(a) The following are the qualifications of the experts who have given an opinion or advice which is contained or referred to in this circular:

Qualification

Name Qualification Provisional Liquidators Officers of the High Court of Hong Kong, SAR and the Grand Court of the Cayman Islands Asian Capital a licensed corporation under the SFO Horwath Capital a deemed licensed corporation under the SFO CCIF Certified Public Accountants, Hong Kong Chesterton International property valuers (NSW) PTY. Limited AMS a deemed licensed corporation under the SFO

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(b) Each of the Provisional Liquidators, Asian Capital, Horwath Capital, AMS, CCIF and Chesterton International (NSW) PTY. Limited or other adviser which falls under presumption (5) of the definition of “Acting in concert” under the Code (i) has no shareholding in any member of the Group nor any right to subscribe for or to nominate persons to subscribe for securities in any member of the Group; (ii) has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its respective letter and references to its name, as the case may be, in the form and context in which they respectively appear; and (iii) does not have any direct or indirect interest in any assets which have been, since 31st March, 2003, the date to which the latest published audited accounts of the Group were made up, acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group.

8. MATERIAL LITIGATION

Save as disclosed in Section 11 headed “Termination of the Former Restructuring Agreement” of the “Letter from the Provisional Liquidators”, to the best knowledge of the Provisional Liquidators having made all reasonable enquiries, neither the Company nor any other members of the Group is engaged in any litigation or arbitration of material importance and no material litigation or claim of material importance is pending or threatened against any member of the Group as at the Latest Practicable Date.

9. MATERIAL CONTRACTS

Save for the Former Restructuring Agreement entered into on 22nd June, 2002, which was subsequently terminated on 5th March, 2003 in accordance with its terms, the Restructuring Agreement, the Supplemental Agreement and the Subscription Agreement, to the best of the knowledge of the Provisional Liquidators, having made all reasonable enquiries, neither the Company nor any other members of the Group have entered into any material contracts (not being contracts entered into in the ordinary course of business carried out by the Group) within the two years preceding the Latest Practicable Date.

10. MATERIAL CHANGES IN THE FINANCIAL OR TRADING POSITION

To the best of the knowledge of the Provisional Liquidators having made all reasonable enquires, as at the Latest Practicable Date, there is no other material change in the financial or trading position or prospects of the Group subsequent to the last published audited accounts of the Company for the year ended 31st March, 2003.

11. MISCELLANEOUS

(a) Save for the undertaking of the Investor and its sole director to the Stock Exchange dated 5th June, 2003 to restore the public float of not less than 25% of the enlarged issued share capital of the Company as required under Rule 8.08 of the Listing Rules before the resumption of trading in the Shares of the Company as set out in the first paragraph under the subsection headed “Maintaining the Listing of the Company” on page 26 of this circular, as at the Latest Practicable Date, there are no agreements, arrangements or understanding as to the transfer of any New Shares to be acquired by the Investor or parties acting in concert with it pursuant to the Restructuring Proposal to any other persons.
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(b) The Company’s Hong Kong branch share registrar is Progressive Registration Limited at G/F., BEA Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong.
(c) The registered office of the Company is Caledonian House, George Town, Grand Cayman, Cayman Islands.
(d) The registered office of the Investor is East Asia Chambers P.O. Box 901, Road Town, Tortola, British Virgin Islands.
(e) The registered office of Asian Capital is Suite 1006, Bank of American Tower, 12 Harcourt Road, Central, Hong Kong.
(f) The registered office of Horwath Capital is 601 Dah Sing Financial Centre, 108 Gloucester Road, Wanchai, Hong Kong.
(g) The registered office of AMS is 20/F., Hong Kong Diamond Exchange Building, 8-10 Duddell Street, Central, Hong Kong.
(h) The registered office of CCIF is 37th Floor, Hennessy Centre, 500 Hennessy Road, Causeway Bay, Hong Kong.
(i) The English text of this circular and form of proxy shall prevail over the Chinese text in the case of any inconsistency.

12. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours at the office of the Provisional Liquidators at 7th Floor, Allied Kajima Building, 138 Gloucester Road, Wanchai, Hong Kong up to and including 13th November, 2003:

(a) the New Memorandum and New Articles of Association of the Company;
(b) the memorandum and articles of association of the Investor;
(c) the annual reports of the Company for the two financial years ended 31st March, 2002 and 2003;
(d) the Restructuring Agreement, the Supplemental Agreement and the Subscription Agreement;
(e) the letter of advice from AMS, the text of which is set out on pages 42 to 56 of this circular;
(f) the letter from the Provisional Liquidators, the text of which are set out on pages 9 to 34 of this circular;
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(g) the letter from CCIF, the text of which are set out on pages 117 and 118 of this circular;
(h) the letter from Asian Capital, the text of which are set out on page 119 of this circular;
(i) the letters, summaries of valuation and valuation certificates prepared by Chesterton International (NSW) PTY Limited relating to the property interests of the Group, the texts of which are set out in Appendix III to this circular;
(j) the written consents referred to in the paragraph 7(b) under the section headed “Experts” in this Appendix;
(k) the Court Summons and the order of the HK Court of 2nd October, 2003 dismissing the Former Investors’ application; and
(l) the letter from Horwath Capital, the text of which are set out on pages 120 and 121 of this circular.
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NOTICE OF EXTRAORDINARY GENERAL MEETING

SEAPOWER RESOURCES INTERNATIONAL LIMITED 海暉國際實業有限公司

(Provisional Liquidators Appointed)

(Incorporated in the Cayman Islands with limited liability)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting of Seapower Resources International Limited (Provisional Liquidators Appointed) will be held at Plaza I-III, Lower Lobby, Novotel Century Hong Kong, 238 Jaffe Road, Wanchai, Hong Kong, on 14th November, 2003, at 10:00 a.m. for the purpose of considering and, if though fit, passing, with or without modification, the resolutions numbered 1 and 11 as special resolutions and the resolutions numbered from 2 to 10 as ordinary resolutions, as set out below:

SPECIAL RESOLUTION

“ THAT , conditional upon approval of resolutions No. 2 and 5 set out in the notice dated 21st October, 2003 (“ Notice ”) convening the extraordinary general meeting (“ EGM ”) of Seapower Resources International Limited (Provisional Liquidators Appointed) (“ Company ”) and conditional upon the Listing Committee of The Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”) granting their approval to the listing of, and permission to deal in, the new ordinary shares of the Company of HK$0.01 each (“ New Shares ”) resulting from the reorganisation of the share capital of the Company (“ Capital Reorganisation ”) to be effected pursuant to the restructuring agreement dated 14th May, 2003 as may be amended from time to time (“ Restructuring Agreement ”) and in compliance with the Companies Law (2003 Revision) of the Cayman Islands (“ Cayman Law ”),
(a) the nominal value of each issued share will be reduced from HK$0.05 to HK$0.0006 so that the Company’s issued share capital of HK$77,352,141.45 will be reduced by HK$76,423,915.75 to HK$928,225.70 and every unissued share will be cancelled;
(b) the authorised share capital of the Company will be reduced to HK$100,000,000 divided into 10,000,000,000 New Shares of HK$0.01 each;
(c) conditional upon completion of the Capital Reorganisation, clause 8 of the Company’s existing New Memorandum of Association be amended by the deletion of its entirety and by its replacement with the following provision:
- “8. The authorised capital of the Company is HK$100,000,000 divided into 10,000,000,000 shares of a nominal or par value of HK$0.01 each provided always that subject to the provisions of The Companies Law Cap. 22 as amended and the New Articles of Association the Company shall have power to redeem or purchase any or all of such shares and to sub-divide or consolidate the said shares or any of them and to issue all or any part of its capital whether original,
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NOTICE OF EXTRAORDINARY GENERAL MEETING

redeemed, increased or reduced with or without any preference, priority or special privilege or subject to any postponement or rights or to any conditions or restrictions whatsoever and so that unless the conditions of issue shall otherwise expressly provide every issue of shares whether stated to be Ordinary, Preference or otherwise shall be subject to the powers on the part of the Company hereinbefore provided.”;

(d) conditional upon completion of the Capital Reorganisation, article 3 of the existing New Articles of Association of the Company be amended by the deletion of its entirety and by its replacement with the following provision:
“3. The authorised share capital of the Company shall be HK$100,000,000 divided into 10,000,000,000 shares of a par value of HK$0.01 each”;
(e) the provisional liquidators of the Company (“Provisional Liquidators”) and future directors of the Company appointed pursuant to resolution numbered 8 as set out in the Notice be and are hereby authorised generally to do all things appropriate to effect and implement any of the foregoing.”

ORDINARY RESOLUTIONS

“ THAT , conditional upon approval of resolutions No. 1 and 5 set out in the Notice and conditional upon the Listing Committee of the Stock Exchange granting the listing of, and permission to deal in, the New Shares and in compliance with the Cayman Law,
(a) every 100 issued reduced shares of HK$0.0006 each will be consolidated into one share of HK$0.06;
(b) each of the issued reduced and consolidated shares of HK$0.06 each will be subdivided into six New Shares of HK$0.01 each such that the authorised unissued share capital of the Company will comprise 92,822,568 New Shares of HK$0.01 each;
(c) any fractions of New Shares arising on the share consolidation pursuant to paragraph (a) of this resolution shall not be allocated to the holders of the existing shares of the Company otherwise entitled thereto but such fractions shall be aggregated and sold for the benefit of the Company;
(d) all of the New Shares of $0.01 each in the capital of the Company after completion of the Capital Reorganisation shall rank pari passu in all respects with each other and have the same rights and privileges and be subject to the restrictions contained in the Amended Memorandum and Articles;
(e) the credit which will arise as a result of the reduction of the capital of the Company to be effected pursuant to resolution numbered 1(a) above shall be applied to eliminate the same amount of the Company’s accumulated loss on a dollar for dollar basis and the future directors of the Company appointed pursuant to resolution numbered 8 as
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set out in the Notice be and are hereby authorised to apply such credit in such manner as may be permitted by the existing New Memorandum and New Articles of Association of the Company as amended pursuant to the resolution numbered 1 ( “Amended Memorandum and Articles” ); and

(f) the Provisional Liquidators and future directors of the Company appointed pursuant to resolution numbered 8 as set out in the Notice be and are hereby authorised generally to do all things appropriate to effect and implement any of the foregoing.”
“ THAT , conditional upon approval of resolution No. 5 set out in the Notice,
(a) the entry by the Company into the Restructuring Agreement as defined in the resolution numbered 1 as set out in the Notice, a copy of which together with a copy of the composite document sent to the Company’s shareholders dated 21st October, 2003 (“ Composite Document ”) have been produced to the EGM marked “A” and “B” respectively and in each case signed by the chairman of the EGM for identification purposes, the transactions contemplated by the Restructuring Agreement and the performance thereof by the Company, be and are hereby confirmed, ratified and approved; and
(b) the Provisional Liquidators and future directors of the Company appointed pursuant to resolution numbered 8 as set out in the Notice be and are hereby authorised to the extent of their authority so to act, to do all such things and take all such action as they may consider to be necessary or desirable to give effect to the terms of the Restructuring Agreement including, without limiting the foregoing, to complete the transactions contemplated by the Restructuring Agreement.”
“ THAT , conditional upon approval of resolution No. 5 set out in the Notice,
(a) the entry by the Company into the Subscription Agreement (as defined in the Composite Document referred to in resolution numbered 3 as set out in the Notice), a copy of which has been produced to the EGM marked “C” and signed by the chairman of the EGM for identification purposes, the transactions contemplated by the Subscription Agreement and the performance thereof by the Company, be and are hereby confirmed ratified and approved;
(b) conditional upon the Capital Reorganisation (as defined in resolution numbered 1 of the Notice) being effected, the Provisional Liquidators and future directors of the Company appointed pursuant to resolution numbered 8 as set out in the Notice be and are hereby authorised to allot and issue New Shares (as defined in resolution numbered 1 of the Notice) and Warrants (as defined in the Composite Document) pursuant to the terms of the Subscription Agreement and upon exercise of the Warrants and to execute and affix the common seal of the Company to the instrument constituting the Warrants (“ Warrant Instrument ”); and
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NOTICE OF EXTRAORDINARY GENERAL MEETING

(c) the future directors of the Company appointed pursuant to resolution numbered 8 as set out in the Notice be and are hereby authorised from time to time to issue New Shares upon exercise of the Warrants by the holders thereof subject to the terms of the Warrants and the Warrant Instrument and to take all such actions as they may consider to be necessary or desirable to give effect to the terms of the Warrants and the Warrant Instrument.”
“ THAT , the waiver (“ Whitewash Waiver ”) granted or to be granted by the Executive Director of the Corporate Finance Division of the Securities and Futures Commission pursuant to Note 1 of the Notes on Dispensations from Rule 26 of the Hong Kong Code on Takeovers and Mergers waiving any obligation on the part of Many Returns Limited and parties acting in concert with it, to make a general offer for all the shares of the Company not already owned by it or agreed to be acquired upon Completion (as defined in the Composite Document referred to in resolution numbered 3), including without limitation, upon the exercise of the Warrants, be and is hereby approved and the Provisional Liquidators and future directors of the Company appointed pursuant to resolution numbered 8 as set out in the Notice be and are hereby authorised to do all such things and take all such action as they may consider to be necessary or desirable to give effect to any of the matters relating to, or incidental to, the Whitewash Waiver.”
“ THAT , conditional upon Completion (as defined in the Composite Document referred to in resolution numbered 3):
(a) subject to paragraph (b) below, the future directors of the Company appointed pursuant to resolution numbered 8 as set out in the Notice be and are hereby generally and unconditionally authorised to exercise during the Relevant Period (as defined below) all the powers of the Company to allot, issue and deal with additional New Shares and to make or grant offers, agreements and options (including warrants, bonds and debentures, notes and any securities which carry rights to subscribe for or are convertible into ordinary shares of the Company) which would or might require the exercise of any of such powers during or after the end of the Relevant Period;
(b) the aggregate nominal amount of the New Shares of the Company allotted, issued or otherwise dealt with or agreed conditionally or unconditionally to be allotted, issued or otherwise dealt with (whether pursuant to an option or otherwise) by the future directors of the Company appointed pursuant to resolution numbered 8 as set out in the Notice pursuant to approval of paragraph (a) above, other than pursuant to (i) a Rights Issue (as defined below); or (ii) an issue of ordinary shares of the Company upon the exercise of rights of subscription or conversion under the terms of any warrants of the Company or any securities which are convertible into ordinary shares of the Company; or (iii) an issue of ordinary shares of the Company by way of scrip dividend pursuant to the Amended Memorandum and Articles of Association of the Company from time to time; or (iv) the exercise of any option granted under any option scheme or similar arrangement for the time being adopted for the grant or issue to eligible participants of the Company and/or its subsidiaries, of options to
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NOTICE OF EXTRAORDINARY GENERAL MEETING

subscribe for, or rights to acquire, shares of the Company, shall not in total exceed 20% of the aggregate nominal amount of the share capital of the Company in issue immediately following Completion (as defined in the Composite Document referred to in resolution numbered 3);

(c) for the purpose of this resolution, “ Relevant Period ” means the period from Completion (as defined in the Composite Document referred to in resolution numbered 3) until whichever is the earliest of:
(i) the conclusion of the next annual general meeting of the Company; or
(ii) the revocation of variation of the authority given under this resolution by ordinary resolution of the shareholders in general meeting; and

the expiration of the period within which the next annual general meeting of the Company is required by the Amended Memorandum and Articles, or any applicable laws, to be held.”

“ Rights Issue ” means an offer of shares for subscription open for a fixed period by the Company to holders of shares on the register of members of the Company on a fixed record date in proportion to their holdings of shares (subject to such exclusion or other arrangements as the future directors of the Company appointed pursuant to resolution numbered 8 as set out in the Notice may deem necessary or expedient in relation to fractional entitlements or having regard to any restrictions or obligations under the laws of, or the requirements of any recognized regulatory body or any stock exchange in, any territory outside Hong Kong).”

“ THAT , conditional upon Completion (as defined in the Composite Document referred to in resolution numbered 3),
(a) the future directors of the Company appointed pursuant to resolution numbered 8 as set out in the Notice be and are hereby generally and unconditionally authorised to exercise during the Relevant Period (as defined below) all the powers of the Company to purchase its New Shares in the capital of the Company, subject to and in accordance with applicable laws:
(b) the aggregate nominal amount of the New Shares which may be purchased pursuant to the approval in paragraph (a) above shall not in total exceed 10% of the aggregate nominal amount of the share capital of the Company in issue immediately following Completion (as defined in the Composite Document referred to in resolution numbered 3;
(c) for the purpose of this resolution, “ Relevant Period ” means the period from Completion (as defined in the Composite Document referred to in resolution numbered 3) until whichever is the earliest of:
- (i) the conclusion of the next annual general meeting of the Company; or
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NOTICE OF EXTRAORDINARY GENERAL MEETING

(ii) the revocation or variation of the authority given under this resolution by ordinary resolution of the shareholders in general meeting; and

the expiration of the period within which the next annual general meeting of the Company is required by the Amended Memorandum and Articles, or any applicable laws, to be held.”

“ THAT , with effect from Completion (as defined in the Composite Document referred to in resolution numbered 3) in the place of Messrs Shirley Choi Siu Lui, Ou Yirong, Norman Choi Sung Fung, Choi Sai Leung and Ronald Lau Kin Hon;
(a) each of Messrs Kenneth Chan, Steven Wong, Francis K Tung and Kitty Wong or such other nominees to be determined by Many Returns Limited upon Completion (as defined in the Composite Document referred to in resolution numbered 3) be appointed as executive directors of the Company; and
(b) Mr. Christie Yau or such other nominees to be determined by Many Returns Limited upon Completion (as defined in the Composite Document referred to in resolution numbered 3) be appointed as independent non-executive director of the Company,

and that the future directors appointed pursuant to this resolution be and are hereby generally and unconditionally authorised to appoint such other new executive directors, new non-executive directors and new independent non-executive directors of the Company during the Relevant Period (such number of new executive, new nonexecutive and new independent non-executive directors to be determined by the future directors of the Company appointed pursuant to this resolution during the Relevant period.

(c) for the purpose of this resolution, “ Relevant Period ” means the period from Completion (as defined in the Composite Document referred to in resolution numbered 3) until whichever is the earliest of:
(i) the conclusion of the next annual general meeting of the Company; or
(ii) the revocation or variation of the authority given under this resolution by ordinary resolution of the shareholders in general meeting; and

the expiration of the period within which the next annual general meeting of the Company is required by the Amended Memorandum and Articles, or any applicable laws, to be held.”

“ THAT , with effect from Completion (as defined in the Composite Document referred to in resolution numbered 3), the future directors of the Company appointed pursuant to resolution numbered 8 as set out in the Notice be and are hereby generally and unconditionally authorised to remove the current auditor of the Company during the Relevant Period,
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For the purpose of this resolution, “ Relevant Period ” means the period from Completion (as defined in the Composite Document referred to in resolution numbered 3) until whichever is the earliest of:

(i) the conclusion of the next annual general meeting of the Company; or
(ii) the revocation for variation of the authority given under this resolution by ordinary resolution of the shareholders in general meeting; and

the expiration of the period within which the next annual general meeting of the Company is required by the Amended Memorandum and Articles, or any applicable laws, to be held.”

“ THAT , with effect from Completion (as defined in the Composite Document referred to in resolution numbered 3) the future directors of the Company appointed pursuant to resolution numbered 8 as set out in the Notice be and are hereby generally and unconditionally authorised to appoint new auditors of the Company during the Relevant Period.

(i) the conclusion of the next annual general meeting of the Company; or
(ii) the revocation or variation of the authority given under this resolution, by ordinary resolution of the shareholders in general meeting; and

the expiration of the period within which the next annual general meeting of the Company is required by the Amended Memorandum and Articles, or any applicable laws, to be held.”

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NOTICE OF EXTRAORDINARY GENERAL MEETING

SPECIAL RESOLUTION

“ THAT , with effect from Completion (as defined in the Composite Document referred to in resolution numbered 3), each of Messrs Shirley Choi Siu Lui, Ou Yirong, Norman Choi Sung Fung, Choi Sai Leung, Judy Wong Tak Kwan and Ronald Lau Kin Hon be removed as directors of the Company and that the Provisional Liquidators be and are hereby generally and unconditionally authorised to remove all other current directors of the Company (if any) with effect from Completion.”

For and on behalf of SEAPOWER RESOURCES INTERNATIONAL LIMITED (Provisional Liquidators Appointed) Cosimo Borrelli

Fan Wai Kuen

Joint and Several Provisional Liquidators

Hong Kong 21st October, 2003

Notes:

A member entitled to attend and vote at the EGM by the above notice is entitled to appoint another person as his proxy to attend and vote on his behalf. A member may appoint more than one proxy to attend the EGM or any adjournment thereof. A proxy need not be a member of the Company.
In order to be valid, the form of proxy, together with the power of attorney or other authority (if any) under which it is signed, or a notorially certified copy of such power of attorney or authority, MUST be deposited at the office of the Provisional Liquidators, at 7th Floor, Allied Kajima Building, 138 Gloucester Road, Wanchai, Hong Kong, not less than 48 hours before the time appointed for holding the EGM or any adjournment thereof. Under Article 95 of the New Memorandum and New Articles of Association of the Company, a vote given in accordance with the terms of the proxy shall be valid notwithstanding the revocation of the proxy or power of attorney or other authority under which the proxy was executed provided that no intimation in writing of such revocation shall have been received by the Company at 7th Floor, Allied Kajima Building, 138 Gloucester Road, Wanchai, Hong Kong not less than two hours before the holding of the EGM or any adjourned EGM.
Where there are joint holders of any Share of the Company, any one of such persons may vote at the EGM either personally or by proxy in respect of such Share as if he were solely entitled thereto, but if more than one of such joint holders be present at the EGM personally or by proxy, the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the register of members of the Company in respect of such joint holding.
A form of proxy for use in connection with the EGM is enclosed.
Resolutions numbered 1 to 5 shall be voted by way of a poll of the Independent Shareholders (as defined in the document in which the notice convening this meeting is contained).
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AI assistant

Central Development Holdings Limited — Proxy Solicitation & Information Statement 2003

49236_rns_2003-10-22_38c8a120-cb00-42c7-b438-779ea0d96e42.pdf

SEAPOWER RESOURCES INTERNATIONAL LIMITED 海暉國際實業有限公司

MANY RETURNS LIMITED

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

1. INTRODUCTION AND BACKGROUND

2. EXISTING BUSINESS OF THE GROUP

(A) Core Businesses of the Group

(i) Pentagon Profits

(ii) SDI

3. THE RESTRUCTURING PROPOSAL

(A) Capital Restructuring

(B) Debt Restructuring

(C) Subscription

4. CONDITIONS PRECEDENT TO THE RESTRUCTURING PROPOSAL

5. EFFECTS OF THE RESTRUCTURING PROPOSAL

(a) Share Capital

(b) Shareholding Structure

(c) Maintaining the Listing of the Company

(d) Working Capital

(e) Indebtedness

(f) Net Assets

6. USE OF PROCEEDS FROM THE SUBSCRIPTION

7. DIRECTORS AND MANAGEMENT

8. INTENTION OF THE INVESTOR

9. GENERAL MANDATES TO ISSUE AND REPURCHASE NEW SHARES

10. PUBLICATION AND DESPATCH OF AUDITED RESULTS

11. TERMINATION OF THE FORMER RESTRUCTURING AGREEMENT

12. GENERAL

13. TRADING ARRANGEMENTS

(a) Documents of Title

(b) Trading arrangements

(c) Facilities for odd lot holders

(d) Taxation

14. EXTRAORDINARY GENERAL MEETING

15. CREDITORS’ MEETINGS

16. RECOMMENDATIONS

17. ADDITIONAL INFORMATION

SEAPOWER RESOURCES INTERNATIONAL LIMITED

Fan Wai Kuen

MANY RETURNS LIMITED

INTRODUCTION

INFORMATION ON THE INVESTOR

REASONS FOR THE SUBSCRIPTION BY THE INVESTOR

LETTER FROM THE INVESTOR

FUTURE INTENTION REGARDING THE COMPANY

LETTER FROM THE INVESTOR

WORKING CAPITAL

WHITEWASH WAIVER

MANY RETURNS LIMITED Kenneth Chan

PROPOSED RESTRUCTURING PROPOSAL

PRINCIPAL FACTORS AND REASONS CONSIDERED

A. THE RESTRUCTURING PROPOSAL

(i) Background

(ii) Current financial position of the Group

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(b) Net assets

(c) Indebtedness of the Group

(iii) The Restructuring Proposal

(a) Capital Restructuring

(b) Debt Restructuring

The Schemes

(c) Subscription

(iv) Effects of the Restructuring Proposal

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(b) Working capital

(c) Operating results

% holding of general public shareholders

(v) Future management of the Group and intentions of the Investor

B. THE WHITEWASH WAIVER

RECOMMENDATION

AMS Corporate Finance Limited Jinny Mok

1. SHARE CAPITAL

2. FINANCIAL SUMMARY

Central Development Holdings Limited Proxy Solicitation & Information Statement 2003