Central Development Holdings Limited - Proxy Solicitation & Information Statement 2006

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 your licensed securities dealer or registered institution in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you are have sold or transferred all your Shares, you should at once hand this circular and the enclosed form of proxy to the purchaser(s) or the transferee(s), or to the bank, licensed securities dealer or registered institution in securities or other agent through whom the sale or the transfer was effected for transmission to the purchaser(s) or the transferee(s).

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

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SEAPOWER RESOURCES INTERNATIONAL LIMITED （凱暉國際實業有限公司[*] ）

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 269)

VERY SUBSTANTIAL ACQUISITION IN RELATION TO PROPOSED ACQUISITION OF 51% INTEREST IN A UTILITIES COMPANY AND CONTINUING CONNECTED TRANSACTIONS

Financial adviser to Seapower Resources International Limited

Financial Services Group

Independent financial adviser to the Independent Board Committee and the Independent Shareholders

CIMB-GK Securities (HK) Limited

A letter of advice from the independent financial adviser, CIMB-GK Securities (HK) Limited, to the Independent Board Committee and the Independent Shareholders is set out on pages 28 to 34 of this circular, The recommendation of the Independent Board Committee to the Independent Shareholders is set out on page 27 of this circular.

A notice convening the SGM to be held at Falcon Room II, Basement Floor, Luk Kwok Hotel, 72 Gloucester Road, Wanchai, Hong Kong, on 12 June 2006 (or any adjournment thereof) at 11:00 a.m. is set out on pages N-1 to N-3 of this circular. The form of proxy for use in the SGM is enclosed with this circular. Whether or not you propose to attend the SGM, you are requested to 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 holding of the SGM or any adjourned meeting thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or any adjourned meeting thereof, should you so desire.

For identification purposes only

26 May 2006

	Page
Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
The Acquisition Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Shareholding structure of the Target prior to and after Completion . . . . . . . . . . . .	11
Information on the Target . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
Reasons for the Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Management discussion and analysis on the Target . . . . . . . . . . . . . . . . . . . . . . . . .	14
Financial and trading prospect of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Financial effects of the Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Continuing Connected Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
Implications under the Listing Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
The SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24
Procedures for demanding a poll by Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . .	25
The Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	26
Independent financial adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	26
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	26
Additional information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	26
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	27
Letter from CIMB-GK Securities (HK) Limited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	28
Appendix I — Financial information of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-1
Appendix II — Accountants’ report on the Target. . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-1
Appendix III — Pro forma financial information on the Enlarged Group . . . . . . . .	III-1
Appendix IV — Property valuation report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	IV-1
Appendix V — General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	V-1
Notice of Special General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	N-1

— i —

DEFINITION

In this circular, unless the context otherwise requires, the following terms shall have the following meanings:

“Acquisition” acquisition of 51% equity interest in the Target by the Investor pursuant to the Acquisition Agreement

“Acquisition Agreement” the conditional capital injection agreement entered into between the Target and the Investor in respect of the Acquisition

“associate” has the meaning ascribed thereto in the Listing Rules

“Beijing Zhong You” 北京中油瀚峰偉業石油有限公司 (Beijing Zhongyou Hanfeng Weiye Petroleum Company Limited*), a private company incorporated in the PRC, being a 51% substantial shareholder of the Target

“Beijing Zhong You the proposed conditional sales and purchase agreement Purchase Agreement” to be entered between the Target and Beijing Zhong You in relation to the continuing connected transactions whereby the Target is the purchaser and Beijing Zhong You is the supplier

“Beijing Zhong You the proposed caps for the continuing connected Purchase Caps” transactions contemplated under the Beijing Zhong You Purchase Agreement

“Beijing Zhong You Purchase the continuing connected transactions to be entered into Connected Transactions” as contemplated under the Beijing Zhong You Purchase Agreement

“Beijing Zhong You the proposed conditional sales and purchase agreement Sales Agreement” to be entered between the Target and Beijing Zhong You in relation to the continuing connected transactions whereby the Target is the supplier and Beijing Zhong You is the purchaser

“Beijing Zhong You Sales Caps” the proposed caps for the continuing connected transactions contemplated under the Beijing Zhong You Sales Agreement

— 1 —

DEFINITION

“Beijing Zhong You Sales	the continuing connected transactions to be entered into
Connected Transactions”	as contemplated under the Beijing Zhong You Sales
	Agreement
“Board”	the board of Directors
“Business Day”	a day (other than Saturday) on which banks in Hong
	Kong are generally open for business
“Caps”	Beijing Zhong You Purchase Caps, Beijing Zhong You
	Sales Caps and Xinan Sales Caps
“Company” or “Investor”	Seapower Resources International Limited, a company
	incorporated in Cayman Islands with limited liability,
	the Shares of which are listed on the main board of the
	Stock Exchange
“Completion”	completion of the Acquisition Agreement
“connected person”	has the meaning ascribed thereto in the Listing Rules
“Connected Transaction	Beijing Zhong You Sales Agreement, Beijing Zhong You
Agreements”	Purchase Agreement and Xinan Sales Agreement
“Consideration”	an amount equal to 51% of the enlarged registered capital
	of the Target upon its transformation into the Joint
	Venture
“Continuing Connected	Beijing Zhong You Sales Connected Transactions,
Transactions”	Beijing Zhong You Purchase Connected Transactions and
	Xinan Sales Connected Transactions
“Directors”	directors of the Company
“Enlarged Group”	the Company and its subsidiaries post Completion
“Group”	the Company and its subsidiaries
“Hong Kong”	the Hong Kong Special Administrative Region of the
	PRC
“HKAS(s)”	Hong Kong Accounting Standards issued by Hong Kong
	Institute of Certified Public Accountants

— 2 —

DEFINITION

“Independent Board Committee” an independent committee of the Board comprising Mr. Jing Baoli, Mr. Liu Ka Lim and Mr. Yip Tak On, all being independent non-executive Directors established for the purpose of reviewing, the Continuing Connected Transactions contemplated under the terms of the Connected Transaction Agreements and the Caps “Independent Shareholders” Shareholders who and whose associates are not involved in or have material interest in the Acquisition and the Continuing Connected Transactions “Joint Venture” the sino foreign joint venture formed upon restructuring of the Target and being owned as to 51% by the Company and 49% by the existing equityholder of the Target “Latest Practicable Date” 24 May 2006, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained in this circular “Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange

“Luo Yang Boyangda” 洛陽博洋達石油化工有限公司 (Luo Yang Bo Yang Da Petroleum and Chemical Engineering Company Limited*), a private company incorporated in the PRC on 11 June 2004 with limited liability, is held as to 41% by the Target with registered capital of RMB5,000,000
“Luo Yang Xinan” 洛陽新安電力集團有限公司 (Luo Yang Xinan Light and Power Group Limited*), a private company incorporated in the PRC, being a substantial shareholder holding 49% equity interest of Xinan Han Yuan

“PRC”	The People’s Republic of China, which for the purpose
	of this circular only, exclude Hong Kong, the Macau
	Special Administrative Region of the PRC and Taiwan

“SGM” the special general meeting of the Company to be convened, among others, for the purpose to consider and, if thought fit, to approve (1) the Acquisition; (2) the Continuing Connected Transactions; and (3) the Caps

— 3 —

DEFINITION

“Share(s)”	ordinary share(s) of HK$0.01 each in the issued share
	capital of the Company
“Shareholder(s)”	holder(s) of the Share(s)
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Tahe Shengxin”	漯河市盛新石化有限公司(Tahe Shi Shengxin Shi Hua
	Company Limited*), a private company incorporated in
	the PRC on 10 December 2003 with limited liability and
	is owned as to 30% by the Target with registered capital
	of RMB5,000,000
“Target”	河南阜源石油化工有限公司(Henan Fu Yuan Petroleum
	and Chemical Engineering Company Limited*), a private
	company incorporated in the PRC with an existing
	registered capital of RMB5,080,000
“Target Group”	the Target, its subsidiary and associates
“Xinan Group”	Luo Yang Xinan and its subsidiaries and associates
“Xinan Han Yuan”	新安瀚源石油有限公司(Xinan Han Yuan Petroleum
	Company Limited*), a private company incorporated in
	the PRC on 19 September 2002 with limited liability
	and being a 51%-owned subsidiary of the Target with
	registered capital of RMB650,000
“Xinan Sales Agreement”	the proposed conditional sales and purchase agreement
	to be entered between Xinan Han Yuan and Luo Yang
	Xinan in relation to the continuing connected transactions
	whereby Xinan Han Yuan is the supplier and Xinan
	Group is the purchaser
“Xinan Sales Caps”	the proposed caps for the continuing connected
	transactions contemplated under the Xinan Sales
	Agreement
“Xinan Sales Connected	the continuing connected transactions to be entered into
Transactions”	as contemplated under the Xinan Sales Agreement

— 4 —

DEFINITION

“HK$” Hong Kong dollar(s), the lawful currency of Hong Kong “RMB” Renminbi, the lawful currency of the PRC “%” per cent.

Unless otherwise specified, for the purpose of illustration in this circular, amounts denominated in RMB are translated into Hong Kong dollars at HK$1=RMB1.04.

For identification purposes only

— 5 —

LETTER FROM THE BOARD

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SEAPOWER RESOURCES INTERNATIONAL LIMITED （凱暉國際實業有限公司[*] ）

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 269)

Executive Directors: Mr. Fung Tsun Pong Mr. Tsang Kam Ching, David

Independent non-executive Directors: Mr. Yip Tak On Mr. Liu Ka Lim Mr. Jing Baoli

Registered office: The Office of Caledonian Bank & Trust Limited Caledonian House George Town Grand Cayman Cayman Islands

Principal place of business in Hong Kong: Room 3308, Office Tower Convention Plaza Wanchai Hong Kong 26 May 2006

To the Shareholders

Dear Sir or Madam,

VERY SUBSTANTIAL ACQUISITION IN RELATION TO PROPOSED ACQUISITION OF 51% INTEREST IN A UTILITIES COMPANY AND CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

It was announced by the Board that, on 7 January 2006, the Company entered into the Acquisition Agreement with the Target, a private company incorporated in the PRC, in relation to the proposed investment of approximately RMB23 million for a 51% equity interest in the enlarged registered capital of the Target. The Acquisition constitutes a very substantial acquisition of the Company under the Listing Rules and is conditional upon, among others,

For identification purposes only

— 6 —

LETTER FROM THE BOARD

the approval by the Shareholders at the SGM. Furthermore, upon Completion, the Target will become a non-wholly owned subsidiary of the Company. Sales and purchases between the Target and Beijing Zhong You, a substantial shareholder of the Target; and sales by Xinan Han Yuan, a subsidiary of the Target, to the Xinan Group, a substantial shareholder of Xinan Han Yuan together with its subsidiaries and associates, will constitute non-exempt continuing connected transactions of the Company under Chapter 14A of the Listing Rules. Accordingly, the abovementioned Continuing Connected Transactions are subject to the reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

The purpose of this circular is to provide you with further information regarding, among others, (1) the Acquisition; (2) the Continuing Connected Transactions; and (3) the Caps. This circular also contains a notice of SGM which shall be convened for the purpose of considering and, if thought fit, approving the resolutions in relation to the Acquisition being a very substantial acquisition, the Continuing Connected Transactions and the Caps.

THE ACQUISITION AGREEMENT

Date : 7 January 2006 Investor : the Company Target : 河南阜源石油化工有限公司 (Henan Fu Yuan Petroleum and Chemical Engineering Company Limited*), a private company incorporated in the PRC with an existing registered capital of RMB5,080,000.

Assets to be acquired

51% equity interest in the registered capital of the Target as enlarged by the Consideration.

Consideration

The Consideration shall be an amount equal to 51% of the enlarged registered capital of the Target upon transformation of the Target to a sino-foreign joint venture. Pursuant to the Acquisition Agreement, the existing equityholders of the Target shall inject to the registered capital of the Joint Venture by way of asset, being the net asset value of the Target as at 31 December 2005, and the Company shall inject the Consideration to the registered capital of the Joint Venture by way of cash, to the intent that the Joint Venture shall ultimately be owned as to 49% by the existing equityholders and 51% by the Company.

The Consideration is in fact an amount pro rata to the capital contribution to be made by the existing equityholders of the Target to the Joint Venture and thus subject to a dollar-to-dollar adjustment, depending on the net asset value of the Target as at 31 December 2005.

— 7 —

LETTER FROM THE BOARD

At the date of entering into the Acquisition Agreement, the Company estimated that it should contribute approximately RMB23 million (equivalent to approximately HK$22.1 million) to the registered capital of the Joint Venture in order to own a 51% equity interest of the Joint Venture. The said contribution was based on the net asset value of the Target of approximately RMB21.8 million (equivalent to approximately HK$21.0 million) as at 30 November 2005 and assuming that there was no material change to the net asset value of the Target as at 31 December 2005.

Although the Acquisition Agreement does not stipulate that the asset contribution to the Joint Venture by the existing equityholders of the Target, being the net asset value of the Target as at 31 December 2005, shall be audited, it is a mutual understanding between the Company and the Target that an audit report of the Target Group would be prepared as a reference for and a basis of assessment of the accuracy and fairness of net asset value of the Target as at 31 December 2005.

Based on the audited financial statements of the Target for the year ended 31 December 2005, the net asset value of the Target was approximately RMB13.4 million (equivalent to approximately HK$12.9 million) as at 31 December 2005. In accordance with the provisions of HKAS 17, leasehold properties are divided into a lease of land and a lease of building in proportion to the relative fair values of the interests in the land element and the building element of the lease at the inception of the lease. The lease premium for leasehold land is stated at cost and amortised over the period of the lease. As at 31 December 2005, the carrying value of land use rights held by the Target was approximately RMB957,000 (equivalent to approximately HK$920,000). It is noted that at the time when the management accounts of the Target was prepared, the management of the Target had taken into account the perceived market value of the leasehold land. As a result, there is a difference between the net asset value of the Target in the audit report and the unaudited management accounts.

In light of the abovementioned and with reference to the aggregate land value of approximately RMB14.1 million (equivalent to approximately HK$13.6 million) as at 31 December 2005 as disclosed in the accountants’ report of the Target set out in Appendix II to this circular, the Directors consider that it is more appropriate to take into consideration of such fair market value of the leasehold land when computing the net asset value of the Target. Accordingly, the net asset value of the Target as at 31 December 2005, as adjusted by the fair market value of the land, is approximately RMB26.5 million (equivalent to approximately HK$25.5 million) and shall be treated as a 49% capital injection by the existing equityholders of the Target upon transformation of the Target to the Joint Venture. The Company which intends to acquire a 51% equity interest in the Joint Venture shall make a proportional contribution to the registered capital of the Joint Venture by way of settlement of the Consideration which shall accordingly be approximately RMB27.6 million (equivalent to approximately HK$26.5 million).

In light of the above, the Directors consider that the final Consideration is fair and reasonable so far as the Company and the Shareholders as a whole are concerned.

— 8 —

LETTER FROM THE BOARD

On 9 March 2006, the Company entered into five separate subscription agreements with five independent subscribers whereby the Company agreed to issue and allot a total of 195,312,500 new Shares, representing approximately 2.96% of the issued share capital of the Company, to the subscribers at a subscription price of HK$0.128 per Share. Completion of the abovementioned subscription agreements took place on 24 March 2006 and a total of approximately HK$24.8 million net proceeds was raised for the purpose of funding the Acquisition.

In accordance with the PRC laws governing the incorporation of sino-foreign joint venture, payment of the final Consideration shall be completed within six months from the issue date of the business registration certificate of a sino-foreign joint venture in the PRC. As at the Latest Practicable Date, the Company’s obligation of paying the final Consideration had not arisen and thus the Company had not made any payment towards the settlement of the final Consideration to the Target. The Company’s payment obligation will only arise after the fulfillment of all conditions precedent, in particular the approval from the Shareholders.

Following the execution of the Acquisition Agreement, the Target intended to apply to the Foreign Trade Bureau of Henan province, the PRC, for the approval of restructuring the Target from a private company to a sino-foreign joint venture. It was expected that the approval process will take three to six months and the issuance of a business registration certificate to the sino-foreign joint venture was expected to take another three months upon the receipt of the restructuring approval. However, during the legal due diligence on the Target, the Company was advised that foreign ownership in PRC companies engaging in the wholesale of processed oil products (namely, gasoline, diesel oil and coal oil) will only be allowed and granted after the wholesale market of processed oil products is opened to foreign ownership, on 11 December 2006, according to the schedule set out in the Catalogue for the Guidance of Foreign Investment Industries enforced on 1 January 2005 by Ministry of Commerce of the PRC. On the other hand, foreign ownership of enterprise engaging in retail of processed oil products has been permitted since 11 December 2004 according to the Measures for the Administration of Foreign Investment in the Commercial Sector（外商投資商業領域管理辦法）promulgated on 16 April 2004 by Ministry of Commerce of the PRC. In light of the said schedule enforced by the Ministry of Commerce of the PRC, the Directors expect that approval for the transformation of the Target to a sino-foreign joint venture will be obtained between March and June 2007 and the business registration certificate shall be issued around September 2007.

Condition precedent

Completion of the Acquisition Agreement is subject to the fulfillment of the following conditions:

the approval by the Target’s shareholders in relation to the increase in the Target’s registered capital and of which to be contributed by the Investor;

— 9 —

LETTER FROM THE BOARD

the receipt of all governmental and regulatory approvals, permissions and registrations required to give effect to the Acquisition (including, but not limited to, the increase in the registered capital of the Target, the change of the Target’s legal status from a PRC private enterprise to a sino-foreign joint venture and renewal of business registration) and all other issues contemplated under the Acquisition Agreement;
the receipt by the Company of a legal opinion issued by a PRC law firm in relation to, among other things, the Acquisition Agreement and the status of the Target, in a form acceptable to the Company;
the approval of the Target’s shareholders in relation to the appointment(s) of representative(s) nominated by the Investor as the legal representative(s) and director(s) of the Target;
completion of legal, financial (including assets, liabilities and taxation) and operational due diligence reviews on the Target in a manner satisfactory to the Company;
completion of the audited financial statements of the Target for the three financial years ended 31 December 2005 by the auditors to be appointed by the Investor;
the passing of the board resolution(s) by the Board to approve the Acquisition Agreement; and
the passing of resolution(s) by the Shareholders at the SGM to approve the Acquisition Agreement and the transactions contemplated thereunder in accordance with the Listing Rules requirements.

The conditions specified above, save for precedent number 8, can be waived only by the Company as it may think fit. Completion shall take place on the third Business Day following fulfillment of all the abovementioned conditions at the registered office of the Company (or another date, time and place the parties to the Acquisition Agreement may agree in writing). The Directors expect Completion to take place within 12 months from the date of the Acquisition Agreement. In the event that the conditions are not fulfilled within 12 months from the date of the Acquisition Agreement (or such other date as the parties to the Acquisition Agreement may agree), the Acquisition Agreement shall be terminated and ceased to have any effect whatsoever. The Company will issue a separate announcement if Completion does not take place in accordance to the terms of the Acquisition Agreement.

Furthermore, given the said constraints in relation to the approval for the transformation of the Target to the Joint Venture, the Company and the Target have reached a mutual consent that Completion shall be postponed to a date to be agreed before the expiry of the long stop date to cater for the time frame required for Completion. The Directors will use their best endeavor to seek the approval for the establishment of the Target as a sino-foreign joint venture from the respective governmental authorities as soon as practicable and further announcement will be made accordingly.

— 10 —

LETTER FROM THE BOARD

SHAREHOLDING STRUCTURE PRIOR TO AND AFTER COMPLETION

Set out below are the simplified shareholding structures of the Target prior to and immediately following the Acquisition.

Before Completion:

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----- Start of picture text -----

張建設王玉峰張芳
Beijing Zhong You
(Zhang Jian She) (Wang Yu Feng) (Zhang Fang)
51% 27% 11% 11%
The Target
51% 30% 41%
Xinan Han Yuan Tahe Shengxin Luo Yang Boyangda
----- End of picture text -----

After Completion:

==> picture [399 x 170] intentionally omitted <==

----- Start of picture text -----

張建設王玉峰張芳
The Company Beijing Zhong You
(Zhang Jian She) (Wang Yu Feng) (Zhang Fang)
51% 24.99% 13.23% 5.39% 5.39%
The Target
51% 30% 41%
Xinan Han Yuan Tahe Shengxin Luo Yang Boyangda
----- End of picture text -----

Note:

To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, the ultimate beneficial owners of Beijing Zhong You, 張建設 (Zhang Jian She), 王玉峰 (Wang Yu Feng) and 張芳 (Zhang Fang) are third parties independent from the Company and its connected persons.

INFORMATION ON THE TARGET

The Target (previously known as 新安縣石油公司 (Xinan County Petroleum Company*)) was established in the PRC and became a joint stock company in 1995. Upon a reorganisation of its assets, the Target was incorporated in the PRC as a private company in 2002 with a registered capital of RMB5.08 million (equivalent to approximately HK$4.88 million), in which Beijing Zhong You, 張建設 (Zhang Jian She), 王玉峰 (Wang Yu Feng) and 張芳 (Zhang Fang) were interested as to 51%, 27%, 11% and 11% respectively. After Completion,

— 11 —

LETTER FROM THE BOARD

each of Beijing Zhong You and 張建設 (Zhang Jian She) will become a connected person to the Company by virtue of them being a substantial shareholder of the Target. To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, the ultimate beneficial owners of each of Beijing Zhong You and the Target are third parties independent of the Company and its connected persons. The board of directors of the Target shall resolve to increase the registered capital of the Target by approximately RMB27.6 million (equivalent to approximately HK$26.5 million), being an amount equivalent to 51% of the registered capital of the Target as enlarged by such amount, and such additional capital shall be contributed by the Investor upon Completion.

The Target is principally engaged in wholesale and retail of oil and gas products, including gasoline, petroleum, diesel oil and lubricating oil, in Henan province, the PRC. It is noted that such oil and gas products are distributed to individual customers through its eight retail petrol filling stations in Henan province, and sold to governmental departments, private factories and state-owned enterprises. The Target is also allowed to engage in wholesale and retail of construction materials and provision of transportation services. For the year ended 31 March 2004, the Target recorded an audited consolidated net loss before and after taxation of approximately RMB14,000 (equivalent to approximately HK$13,000) and RMB296,000 (equivalent to approximately HK$285,000) respectively. For the year ended 31 March 2005, the Target recorded an audited net profit before and after taxation of approximately RMB10 million (equivalent to approximately HK$9.6 million) and RMB6.5 million (equivalent to approximately HK$6.3 million) respectively. For the nine months ended 31 December 2005, the Target recorded an audited consolidated net profit before and after taxation of approximately RMB543,000 (equivalent to approximately HK$522,000) and RMB138,000 (equivalent to approximately HK$133,000) respectively. As at 31 December 2005, the Target has an audited net asset value of approximately RMB13.4 million (equivalent to approximately HK$12.9 million).

Risk factors associated with certain properties occupies by the Target

The Target currently occupies 11 properties (eight self-owned and three leased properties), the details of which are set out in property valuation report in Appendix IV to this circular. It is noted that two out of the eight petrol filling stations of the Target (being property no. 1 and 2 as set out in the property valuation report in Appendix IV to this circular) were build on collectively-owned land purchased by the Target. Based on the PRC legal opinion, the State laws prohibit the transfer of collectively-owned land use rights while the provincial government of Henan permits such transfer by way of sale, let and injection as capital asset. Accordingly, if the State policy becomes rigid and replaced the relevant policy in Henan province, the PRC, the two petrol filling stations may be forbidden from operation.

It should be noted that the land use rights certificates obtained by the Target for the abovementioned two petrol filling stations will be free from legal impediment upon change of State policy, i.e. allowing the free transfer of collectively-owned land. The Directors (including the independent non-executive Directors) are of the view that the State policy is on the track

— 12 —

LETTER FROM THE BOARD

of allowing free transfer of collectively-owned land as various provinces have issued similar policies allowing free transfer of collectively-owned land. As such the risk of the two petrol filling stations being prohibited from operation is minimal. Notwithstanding the abovementioned, the turnover of each station was only approximately 2% of the total turnover of the Target for the year ended 31 March 2004 and approximately 3% of the total turnover of the Target for both the year ended 31 March 2005 and the nine months ended 31 December 2005, the effect of the closing of the stations on the turnover of the Target is not material.

In addition, the land use rights granted for property no. 1 is for industrial use while a petrol filling station should operate on commercial land. The land’s usage can be changed upon application to the relevant government authorities and the Target is in the process of changing the use of the said land from industrial use to commercial use.

It is noted that two petrol filling stations (being property no. 9 and 10 as set out in the property valuation report in Appendix IV to this circular), which were established in June 2004, were built on collectively-owned lands leased by the Target under certain tenancy agreements. As aforesaid, collectively-owned lands may not be transferred or leased. As such, the relevant tenancy agreements may become invalid and the operation of the said petrol filling stations may be affected. However, as the turnover of each station only represents approximately 0.3% of the total turnover of the Target for both the year ended 31 March 2005 and the nine months ended 31 December 2005, the Directors consider that the risk of suspension of operation for the said petrol filling stations will have no material effect on the turnover or financial status of the Target.

Futhermore, some of the buildings, which are mainly ancillary structures, such as toilet, kitchen, back office and kiosk, in four petrol filling stations (being property no. 3, 4, 5 and 6 as set out in the property valuation report in Appendix IV to this circular) and one oil depot (being property no. 7 as set out in the property valuation report in Appendix IV to this circular) were not granted with proper building ownership certificates. However, it should be noted that these buildings are not pertinent to the operation of the petrol filling stations nor the oil depot. Notwithstanding the abovementioned, the Directors confirmed that the Company will apply for the respective building ownership certificates upon Completion and the Directors were advised that there are no legal impediment to obtain such certificates.

It is noted that the land use rights for the aforesaid property no. 3, 4, 5, 6 and 7 are subject to a mortgage in favour of 新安縣投資開發中心 (Xinan County Investment and Development Centre) for a period of two years commencing from 20 January 2006 and expiring on 19 January 2008 as security for a bank loan of RMB10 million. These mortgaged land use rights are freely transferable subject to a condition that any proceeds received upon transfer shall be utilised to settle the secured indebtedness.

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In relation to the vacant property (being property no. 8 as set out in the property valuation report in Appendix IV to this circular), the Target was advised that a separate land certificate should be obtained from the Land Administrative Bureau. Notwithstanding the abovementioned, the Target has obtained a building ownership certificate granting legal ownership of the property to the Target. It is the intention of the Company to apply for a separate land certificate for its own units instead of relying on the land use rights certificate issued to the developer of the whole building upon Completion.

REASONS FOR THE ACQUISITION

The Group is principally engaged in the operation of cold storage warehousing and logistics management services. However, the Company has been searching for business opportunities to expand the Group’s scope of business. The Target has established a good reputation in Henan province, the PRC, as a well known and trusted distributor of oil and gas products. The distribution network of the Target is also well positioned for further expansion thereby broadening the revenue source and customer base of the Target and the Group.

Consistent with the acquisition strategy of the Group as set out in its 2005 interim report, the Directors believe that the Group’s operations and development will benefit from the Acquisition by advancing its business in the energy industry in the PRC. It is noted that the executive Directors have extensive experience in logistics, property, company and financial management. In light of the Directors’ experience, together with the experienced management team of the Target, whom the Company intends to retain upon Completion, the Directors are confident that the Company is able to manage the Target’s business and operations successfully and in the most efficient way. Furthermore, depends on the requirements of the Target’s operations, the Company may recruit additional qualified professionals in the energy industry to join the Target’s management team if necessary.

Based on the above, the Directors, including the independent non-executive Directors, are of the view that the terms of the Acquisition are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET

The Target is a limited liability company incorporated in the PRC and is solely engaged in the wholesale and retail (partly through its 8 petrol filling stations) of oil and gas products, including gasoline, petroleum, diesel oil and lubricating oil in Henan province, the PRC. All operations of the Target Group are conducted in the PRC.

The Target was incorporated on 4 July 2002 and commenced its business in October 2002. Accordingly, the results of the Target for the year ended 31 March 2003 only accounted for results of the period from October 2002 to 31 March 2003, during which the Target Group recorded a turnover and a net profit after taxation of approximately RMB194.5 million (equivalent to approximately HK$187.0 million) and RMB1.8 million (equivalent to approximately HK$1.7 million) respectively.

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For the year ended 31 March 2004, the Target Group recorded a turnover and a net loss of approximately RMB296.7 million (equivalent to approximately HK$285.3 million) and RMB296,000 (equivalent to approximately HK$285,000) respectively. The net loss for the period was mainly caused by the increase in cost of sales and general operation expenses as well as financing cost of the Target Group. It is noted that salary package of the staff of the Target was reviewed on 7 January 2003 and additional incentives were granted. Together with the set up of three new petrol filling stations in 2003, salary expenses increased to approximately RMB2.3 million (equivalent to approximately HK$2.2 million) for that year, representing approximately 193% increase as compared to that of the previous year. Furthermore, sales and marketing costs and expenses incurred by the sales department of the Target also increased significantly due to the implementation of an active and dynamic marketing strategy by the Target Group to broaden its customers and suppliers bases. During the period, there was a recovery of bad debts of approximately RMB355,000 (equivalent to approximately HK$341,000) which was recorded as other income. The bad debts recovered represents the old debts previously impaired by the Target’s predecessor which was treated as impaired and deducted from the other receivables in determining the net value of the assets less liabilities acquired from the predecessor. The amounts recovered were credited to the income statement in the year of receipt for the year ended 31 March 2004.

For the year ended 31 March 2005, there was a moderate increase in the turnover to approximately RMB297.2 million (equivalent to approximately HK$285.8 million) as compared to the previous year. This was mainly due to the increasing prices of oil and gas products and the reduction in selling quantities resulting from the tightening of credit policy adopted by suppliers of the Target Group. However, the Target Group recorded a net profit after taxation of approximately RMB6.5 million (equivalent to approximately HK$6.3 million) as compared to a net loss of RMB296,000 (equivalent to approximately HK$285,000) for the year ended 31 March 2004. The increase in net profit of the Target Group was contributed by the high gross profit margin of oil and gas products of approximately 6.4% achieved during the year, which was more than double of approximately 2.7% in the previous year. The increase in gross profit margin was due to a general shortage of supply in the oil and gas market during the year ended 31 March 2005 which led to an increase in cost of sales to the suppliers. However, as the Target had maintained a sufficient stock level to satisfy the demand during such period and the Target was able to control its cost of sales resulting in a higher profit margin as compared to 2004.

For the nine months ended 31 December 2005, the Target Group recorded a turnover and a net profit of approximately RMB293.1 million (equivalent to approximately HK$281.8 million) and RMB138,000 (equivalent to approximately HK$133,000) respectively. During this period, the wholesale prices for crude oil in the international market as well as the local market continued its increasing trend. In particular, the National Development and Reform Committee made four adjustments to the wholesale prices of the oil refineries between May and July 2005. On the other hand, the National Development and Reform Committee also imposed stringent price control on the local distribution prices, especially for the retail prices. As a

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consequence, the retail business of the Target was affected, and such loss could not be compensated by the profit generated from its wholesale business. As a result, the profit from operation and the net profit of the Target Group dropped significantly during the period.

Since the incorporation of the Target, the Target had not made any investments other than incorporating and investing in a 51%-owned subsidiary, namely Xinan Han Yuan, on 19 September 2002 and two associated companies, namely Tahe Shengxin and Luo Yang Boyangda on 10 December 2003 and 11 June 2004 respectively. As at the Latest Practicable Date, only Xinan Han Yuan was in operation and had generated turnover of approximately RMB7.9 million, RMB17.5 million and RMB20.4 million (equivalent to approximately HK$7.6 million, HK$16.8 million and HK$19.6 million respectively) for each of the three years ended 31 March 2005 and approximately RMB27.0 million (equivalent to approximately HK$26.0 million) for the nine months ended 31 December 2005. Save for the abovementioned, the Target had no other significant acquisition or disposal of subsidiaries or associated companies during the relevant financial years.

As at 31 March 2003, 2004, 2005 and 31 December 2005, the total assets of the Target Group were approximately RMB54.2 million, RMB63.5 million, RMB68.9 million and RMB58.2 million, respectively (equivalent to approximately HK$52.1 million, HK$61.1 million, HK$66.3 million and HK$56.0 million respectively), while the net assets of Target Group were approximately RMB7.0 million, RMB6.5 million, RMB11.9 million and RMB13.4 million respectively (equivalent to approximately HK$6.7 million, HK$6.3 million, HK$11.4 million and HK$12.9 million respectively).

As at 31 March 2003, 2004 and 2005 and 31 December 2005, the cash and bank balances of the Target Group were approximately RMB6.2 million, RMB15.6 million, RMB3.4 million and RMB3.2 million respectively (equivalent to approximately HK$6.0 million, HK$15.0 million, HK$3.3 million and HK$3.1 million respectively). The decrease in cash and bank balances as at 31 March 2005 and 31 December 2005 were due to the tightened credit control by the banks. The Target has been financing its operations mainly through internally generated cash flow, trading finance from its holding company and short-term loans from bank and independent third parties. For the year ended 31 March 2004, the Target obtained trading finance from Beijing Zhong You, its holding company, and secured short-term loans from banks and other loans from certain independent third parties, which were unsecured, having no fixed repayment terms and bearing annual interest rates ranging from 5.3% to 6.9%. For the year ended 31 March 2005, the Target raised funds by short-term loans from about 70 employees of various rank and background, holding company, associated companies and independent third parties. Such short-term loans were unsecured, having no fixed repayment terms and bearing annual interest rates ranging from 5.3% to 10%.

As at 31 March 2003, 2004, 2005, the Target Group’s interest-bearing borrowings (including loans from third parties, banks, employees and directors) amounted to approximately RMB18.4 million, 16.2 million and 8.4 million respectively (equivalent to approximately HK$17.7 million, HK$15.6 million and HK$8.1 million respectively). As at 31 December 2005, loans from third parties, directors, and 75 employees of various rank and background amounted to approximately RMB18.2 million (equivalent to approximately HK$17.5 million).

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For each of the year ended 31 March 2003, 2004 and 2005 and the nine months ended 31 December 2005, the Target Group did not have any contingent liabilities and it was not exposed to any exchange rate fluctuation as all transactions were denominated in RMB only.

As at 31 March 2005, a deposit of RMB10 million (equivalent to approximately HK$9.6 million) was pledged to a bank as guarantee for bills payables (amounted to RMB20 million) issued to suppliers by the Target. Moreover, the Target also pledged one piece of land use right and certain buildings to 新安縣投資開發中心 (Xinan County Investment and Development Centre*) which provided guarantees to the Target’s banker as security for the Target’s bills payables to its suppliers. As at 31 March 2005, the carrying value of the pledged land use right and buildings of the Target amounted to approximately RMB251,000 (2004: RMB259,000) (equivalent to approximately HK$241,000 and HK$249,000 respectively) and RMB1,491,000 (2004: RMB1,397,000) (equivalent to approximately HK$1,434,000 and HK$1,343,000 respectively) respectively. In addition, as at 31 March 2004, buildings, plant and machinery with carrying value of approximately RMB584,000 and RMB3,447,000 (equivalent to approximately HK$562,000 and HK$3,314,000 respectively) were pledged to secure a bank loan of RMB2,050,000 (equivalent to approximately HK$1,971,000). As at 31 December 2005, no assets of the Target Group were pledged to secure facilities or loans to the Target Group.

As at 31 March 2003, 2004 and 2005 and 31 December 2005, the gearing ratio of the Target Group, being the ratio of total liabilities to total assets were approximately 0.87, 0.90, 0.83 and 0.77 times respectively.

As at 31 March 2005, save for the capital commitment in respect of construction of a building, which amounted to approximately RMB2.2 million (2004: RMB3.5 million; 2003: Nil) (equivalent to approximately HK$2.1 million, HK$3.4 million and nil respectively), the Target Group had no other capital commitments. As at December 2005, the Target Group had no capital commitment.

As at 31 March 2004 and 2005 and 31 December 2005, the Target Group had approximately 130, 150 and 160 employees respectively in the PRC and the Target Group had adopted a competitive remuneration package based on performance of the employee. The total staff costs (including director’s emoluments) of the Target Group amounted to approximately RMB780,000, RMB2,286,000, RMB2,381,000 and RMB1,944,000 (equivalent to approximately HK$750,000, HK$2,198,000, HK$2,289,000 and HK$1,869,000 respectively) for the three years ended 31 March 2005 and the nine months ended 31 December 2005 respectively.

The Directors and the directors of the Target confirmed that the Target will continue its existing business in the wholesale and retail of oil and gas products, including gasoline, petroleum, diesel oil and lubricating oil in the PRC. Furthermore, the directors of the Target expect that demand for oil and gas products will continue to have a stable rise in Henan province, the PRC, in line with the country’s economic growth and the increase in energy consumption.

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FINANCIAL AND TRADING PROSPECT OF THE GROUP

Apart from the Acquisition, on 10 April 2006, Wide Forest Limited, a wholly-owned subsidiary of the Company, entered into an acquisition agreement to acquire 51% equity interest of Jaling Forest Industries Inc. (“Jaling”), a private company incorporated in Guyana, South America, for a consideration of HK$154 million. Jaling is principally engaged in logging and forest exploitation, operation and management. The consideration shall be settled by cash of HK$39 million and issue of new Shares, the aggregate value of which shall be equivalent to HK$115 million. Details of the said acquisition have been disclosed by an announcement of the Company dated 20 April 2006. This acquisition constitutes a very substantial acquisition to the Company under the Listing Rules and will be subject to, and conditional on, among others, the approval of the Shareholders. A circular in relation to the said forestry acquisition will be despatched to the Shareholders as soon as practicable.

In addition, on 16 May 2006, the Company and Mr. Danny Chan entered into an option agreement, pursuant to which the Company has been granted an option, at a consideration of HK$1.00, exercisable by the Company within 5 years after the completion of the acquisition of Jaling, to purchase from Mr. Danny Chan 51% equity interest of Garner Forest Industries Inc. (“Garner”) at a total price of HK$60 million. Details of the said option agreement have been disclosed by an announcement of the Company dated 17 May 2006. Garner is also engaged in logging and forest exploitation, operation and management in Guyana, South America. It is the intention of the Company to exercise the said option to further expand its forestry production capacity if the acquisition of Jaling is proven to be profitable.

The proposed acquisitions that the Company recently entered into as set out above are consistent with the Company’s intention to advance its business in the energy industry and natural resources market in the PRC and other countries with a view to diversify its business scope and strengthen the Group’s earning base and asset quality. However, the Directors have no intention to discontinue the Company’s existing businesses and expect that these businesses will continue in the foreseeable future.

FINANCIAL EFFECTS OF THE ACQUISITION

Earnings

For the year ended 31 March 2005, the Group’s audited consolidated loss attributable to Shareholders was approximately HK$7.8 million. As shown in sub-section (i) of the section headed “Unaudited pro forma financial information of the Enlarged Group” in Appendix III to this circular, the unaudited pro forma consolidated loss attributable to Shareholders of the Enlarged Group for the year ended 31 March 2005 is adjusted to approximately HK$1.7 million. Please refer to Appendix III of this circular for details of the unaudited pro forma income statement of the Enlarged Group.

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Asset and liabilities

Based on the pro forma statement of assets and liabilities of the Enlarged Group which has been prepared to illustrate the effect of the Acquisition as shown in Appendix III to this circular, upon Completion, the unaudited pro forma consolidated total assets and total liabilities of the Enlarged Group will be approximately HK$100.9 million and HK$63.5 million respectively. The unaudited pro forma consolidated net assets of the Enlarged Group would be approximately HK$37.5 million equivalent to approximately HK$0.0057 per Share on the basis of 6,602,293,667 Shares in issue as at the Latest Practicable Date.

CONTINUING CONNECTED TRANSACTIONS

Beijing Zhong You Sales Connected Transactions

There had been sales of oil and gas products by the Target to Beijing Zhong You, prior to entering into the Acquisition Agreement. Beijing Zhong You, a limited liability company incorporated in the PRC, is principally engaged in wholesale distribution and retail of oil and gas products in the PRC. Upon Completion, the Target will become a non-wholly owned subsidiary of the Company. Sale transactions between the Target and Beijing Zhong You, a substantial shareholder of the Target as defined under the Listing Rules holding approximately 25% equity interest of the Target upon Completion, will constitute non-exempt continuing connected transactions of the Company under Chapter 14A of the Listing Rules and are subject to the reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

It is noted that Beijing Zhong You purchases oil and gas products from, as well as sells oil and gas products (as described in the section headed “Beijing Zhong You Purchase Connected Transactions” below) to the Target. As both the Target and Beijing Zhong You are authorised wholesaler of oil and gas products, whenever there are shortage of oil and gas products in the market, it is a common practice for them to purchase oil and gas products from an authorised wholesaler which has sufficient inventory to satisfy the demand of their own customers. As a result, similar type of products may be purchased and sold between Beijing Zhong You and the Target. The prices of such products are determined with reference to the prevailing market prices at the relevant time.

Beijing Zhong You Sales Agreement

The Target and Beijing Zhong You have agreed that, following the Completion, both parties will enter into the Beijing Zhong You Sales Agreement based on the following general principles:

the Target agrees to sell and Beijing Zhong You agrees to purchase oil and gas products on normal commercial terms and the prices payable shall be agreed between the parties by reference to the prevailing market prices of each product at the relevant time;

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no obligations to accept any order from Beijing Zhong You by the Target and any acceptance will be based on terms and conditions that are not less favorable to the Target than those agreed between the Target and its other customers that are independent third parties; and
the Company shall comply with all relevant requirements under the Listing Rules, where required.

Basis of the Beijing Zhong You Sales Caps

It is expected that the Beijing Zhong You Sales Caps for the Beijing Zhong You Sales Connected Transactions for each of the three years ending 31 March 2009 shall be approximately RMB110 million, RMB132 million and RMB159 million respectively (equivalent to approximately HK$105.8 million, HK$126.9 million and HK$152.9 million respectively). Given that the transaction volume, specifications and price of various products vary in line with market demand, the Beijing Zhong You Sales Caps were determined based on historic sales volume with reference to the potential price fluctuation, cost of transportation and storage and the expected increase in sales to Beijing Zhong You on a year on year basis. In particular, the estimated increase of approximately 60% in the Beijing Zhong You Sales Cap for the year ending 31 March 2007 from the historic sales for the year ended 31 December 2005 is determined mainly based on estimation by management of the Target that the cost, which translates into pricing, of oil products will continue to increase as the management of the Target noted that crude oil prices have been on an upward trend since 2002. It is noted that in 2005, the average unit cost of gasoline and diesel oil products recorded an increase of more than 20%. However, the management of the Target anticipates that the price increment will become less severe after the financial year ending 2007, resulting in an estimated increase of approximately 20% in the Beijing Zhong You Sales Caps for each of the two years ending 31 March 2009.

For the three years ended 31 December 2005, the sales of the Target contributed by Beijing Zhong You amounted to approximately RMB19 million, RMB0 and RMB69 million respectively. The sudden decrease in sales to Beijing Zhong You for the year ended 31 December 2004 was mainly due to the shortage in oil supply by the Target. As a result, the Target had to purchase from other authorised oil suppliers (including Beijing Zhong You, whose sales to the Target for the year ended 31 December 2004 amounted to approximately RMB86 million (equivalent to approximately HK$82.7 million), as set out under the section headed “Beijing Zhong You Purchase Connected Transactions” below) in order to meet the demand of its customers. However, for the year ended 31 December 2005, the Target was able to obtain sufficient oil supply while Beijing Zhong You had encountered a shortage of supply, resulting in large sales volume from the Target to Beijing Zhong You.

Reasons for Sales Agreement

Since October 2002, the Target has supplied oil and gas products to Beijing Zhong You under normal commercial terms. The Directors believe that the sales to Beijing Zhong You will

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continue to contribute to the revenue of the Target and the Group. The Directors consider that the Beijing Zhong You Sales Agreement is on normal commercial terms and the transactions involved are entered into in the ordinary and usual course of business of the Target and is fair and reasonable, as such it will be in the interests of the Company and the Shareholders as a whole.

Beijing Zhong You Purchase Connected Transactions

The Target had purchased oil and gas products from Beijing Zhong You, from time to time in its ordinary course of business prior to entering into the Acquisition Agreement. Upon Completion, the purchases from Beijing Zhong You, will constitute non-exempt continuing connected transactions of the Company under Chapter 14A of the Listing Rules and are subject to the reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

Beijing Zhong You Purchase Agreement

The Target and Beijing Zhong You have agreed that, following the Completion, both parties will enter into the “Beijing Zhong You Purchase Agreement”, covering a period of three years, based on the following general principles:

the Target agrees to purchase and Beijing Zhong You agrees to sell oil and gas products to the Target on normal commercial terms and with prices to be agreed between the parties by reference to the prevailing market prices of each product at the relevant time;
the Target has no obligation to place any purchase orders with Beijing Zhong You and any purchase orders made by the Target will be based on terms and conditions that are not less favorable to the Target than those offered to the Target by other suppliers that are independent third parties; and
the Company shall comply with all relevant requirements under the Listing Rules, where required.

Basis of the Beijing Zhong You Purchase Caps

The Beijing Zhong You Purchase Caps for the Beijing Zhong You Purchase Connected Transactions for each of the three years ending 31 March 2009 shall be approximately RMB48 million, RMB57 million and RMB69 million respectively (equivalent to approximately HK$46.2 million, HK$54.8 million and HK$66.3 million respectively). These caps were calculated based on the historic transaction volume adjusted by potential price fluctuation and increase in cost of transportation and storage. The proposed increase of caps was formulated by reference to historical records, in particularly of about 50% increase in 2007 is mainly attributed to the rapid increase in unit cost of oil and gas products since mid 2005. It is noted that the unit cost of the oil and gas products recorded an increase of over 20% in 2005. Accordingly, the

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management of the Target is of the view that such trend will continue for the three years ending 31 March 2009. In addition, the management of the Target also expects that there will be a general increase in the quantity of sales of approximately 10% for all oil and gas products for the said period. For each of the three years ended 31 December 2005, the Target had purchased approximately RMB39 million, RMB86 million and RMB32 million (equivalent to approximately HK$37.5 million, HK$82.7 million and HK$30.8 million respectively) of oil and gas products from Beijing Zhong You respectively. As advised by the management of the Target, the historical fluctuation in trading volume was a result of the volatile nature of supply and demand in the oil and gas industry.

Reason for the Beijing Zhong You Purchase Agreement

Since October 2002, it has been a practice for the Target to purchase oil and gas products from Beijing Zhong You, from time to time when there was a shortage of such product. The Directors are of the view that continuous purchase from Beijing Zhong You will enable the Target to secure stable oil supply especially during oil shortage and thus will inevitably benefit the Target in the long run. The Directors consider that the Beijing Zhong You Purchase Agreement is on normal commercial terms and the transactions involved are engaged in the ordinary and usual course of business of the Target and is fair and reasonable, as such it will be in the interests of the Company and the Shareholders as a whole.

Xinan Sales Connected Transactions

There have been sales of oil and gas products by Xinan Han Yuan, a 51% subsidiary of the Target, to the Xinan Group. As Luo Yang Xinan is holding 49% interest in Xinan Han Yuan, being a substantial shareholder pursuant to the Listing Rules, sales transactions entered into between Xinan Han Yuan and the Xinan Group upon Completion will constitute non-exempt continuing connected transactions of the Company under Chapter 14A of the Listing Rules and are subject to the reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

Xinan Sales Agreement

Xinan Han Yuan and the Xinan Group have agreed to enter into the Xinan Sales Agreement covering a period of three years, following the Completion, based on the following general principles:

Xinan Han Yuan agrees to sell and the Xinan Group agrees to purchase oil and gas products from Xinan Han Yuan on normal commercial terms with prices to be agreed between the parties by reference to the prevailing market prices of each product at the relevant time;
Xinan Han Yuan has no obligation to accept any sales order from the Xinan Group and any acceptance of sales order by Xinan Han Yuan will be based on terms and conditions that are not less favorable to Xinan Han Yuan than those offered by Xinan Han Yuan to other customers that are independent third parties;

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Luo Yang Xinan shall represent the Xinan Group and all terms and conditions agreed shall be applicable to all members of the Xinan Group; and
the Company shall comply with all relevant requirements under the Listing Rules, where required.

Basis of the Xinan Sales Caps

The Xinan Sales Caps for the Xinan Sales Connected Transactions for each of the three years ending 31 March 2009 shall be approximately RMB42 million, RMB55 million and RMB66 million respectively (equivalent to approximately HK$40.4 million, HK$52.9 million and HK$63.5 million respectively). Given that the transaction volume, specifications and price of various products vary in line with market demand, the Xinan Sales Caps were determined based on consolidated historic sales volume adjusted by potential price fluctuation, increase in cost of transportation and storage and the expected increase in sales to the Xinan Group on a year on year basis. It is noted that the Xinan Group set up a new power supply company in mid 2005. The management of the Target expects that the demand for the year ending 31 March 2007 will increase significantly by approximately 35%, which together with the price increment factor, will lead to the estimated increase in turnover. However, as the production of the new power supply company stabilises, increase in demand is expected to slowdown to approximately 20% and 10% for the financial year ending 31 March 2008 and 2009 respectively. For each of the three years ended 31 December 2005, the Target had sold approximately RMB13 million, RMB9 million and RMB24 million (equivalent to approximately HK$12.5 million, HK$8.7 million and HK$23.1 million respectively) of oil and gas products to the Xinan Group respectively.

Reason for the Xinan Sales Agreement

Xinan Han Yuan is principally engaged in the distribution and sale of oil and gas products and it has supplied such products to the Xinan Group under normal commercial terms since September 2002, the date of its incorporation. To formalise this arrangement and to comply with the requirements under Chapter 14A of the Listing Rules, the Xinan Sales Agreement will be entered into between the parties. The Directors consider that the Xinan Sales Agreement is on normal commercial terms and the transactions involved are engaged in the ordinary and usual course of business of Xinan Han Yuan and is fair and reasonable, accordingly it will be in the interests of the Company and the Shareholders as a whole.

IMPLICATIONS UNDER THE LISTING RULES

The Acquisition constitutes a very substantial acquisition for the Company under the Listing Rules and will be subject to, and conditional on, among others, the approval of the Shareholders at the SGM.

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As each of the Caps represents more than 2.5% of the applicable percentage ratios under the Listing Rules, the respective Continuing Connected Transactions constitutes non-exempt continuing connected transaction for the Company under Rule 14A.35 of the Listing Rules and is required to comply with the reporting and announcement requirements set out in Rules 14A.45 to 14A.47 of the Listing Rules and the prior Independent Shareholders’ approval by poll at the SGM requirement set out in Rule 14A.48 of the Listing Rules.

In accordance with the requirements of the Listing Rules, each of the Continuing Connected Transactions and the Caps are subject to approval by the Independent Shareholders, being Shareholders who and whose associates are not involved in or having any interest in any of the said connected transactions, at the SGM. An Independent Board Committee has been established to advise the Independent Shareholders as to whether the Continuing Connected Transactions are in the interest of the Company and the Caps are fair and reasonable so far as the Independent Shareholders are concerned.

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, no Shareholder is required by the Listing Rules to abstain from voting on any resolution that would be proposed to approve the above said acquisition and connected transactions at the SGM.

THE SGM

A notice of the SGM to be held at Falcon Room II, Basement Floor, Luk Kwok Hotel, 72 Gloucester Road, Wanchai, Hong Kong at 11:00 a.m. on 12 June 2006 is set out on page N-1 to N-3 of this circular, among others, for the purpose to consider and, if thought fit, to approve (1) the Acquisition; (2) the Continuing Connected Transactions; and (3) the Caps.

The form of proxy for use in the SGM is enclosed with this circular. Whether or not you propose to attend the SGM, you are requested to 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 holding of the SGM or any adjourned meeting thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or any adjourned meeting thereof, should you so desire.

GENERAL

Shareholders and potential investors should note that the Acquisition, which is subject to a number of conditions precedent, may or may not be completed. Shareholders and the investing public should exercise caution when dealing in the Shares, and if they are in any doubt about their position, they should consult their professional advisers.

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PROCEDURES FOR DEMANDING A POLL BY SHAREHOLDERS

Under Article 81 of the Articles of Association of the Company, at any general meeting of the Company, resolutions put to the vote of the meeting shall be decided on a show of hands unless a poll is (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for poll) demanded by:

(i) the chairman of the meeting; or
(ii) at least three Shareholders present in person (or, in the case of a Shareholder being a corporation, by its duly authorized representative) or by proxy for the time being entitled to vote at the meeting; or
(iii) any Shareholder(s) present in person (or, in the case of a Shareholder being a corporation, by its duly authorized representative) or by proxy and representing not less than onetenth of the total voting rights of all the Shareholders having the right to vote at the meeting; or
(iv) any Shareholder(s) present in person (or, in the case of a Shareholder being a corporation, by its duly authorized representative) or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all the shares conferring that right.

Unless a poll is duly demanded in accordance with the foregoing provisions, a declaration by the chairman of the general meeting that a resolution has been carried or lost or has or has not been carried by any particular majority, and an entry to that effect in the minutes of the proceedings of the Company, shall be conclusive evidence of the fact without proof of the number, proportion or validity of the votes recorded in favour of or against such resolution.

On a poll, every Shareholder present in person (or, in the case of a Shareholder being a corporation, by its duly authorized representative) or by proxy, shall have one vote for every share of which he is the holder which is fully paid or credited as fully paid (but so that no amount paid or credited as paid on a share in advance of calls or installments shall be treated as paid on the share). A Shareholder entitled to more than one vote need not, if he votes, use all his votes or cast all his votes in the same way.

— 25 —

LETTER FROM THE BOARD

THE INDEPENDENT BOARD COMMITTEE

The Independent Board Committee, comprising Mr. Jing Baoli, Mr. Liu Ka Lim and Mr. Yip Tak On, has been established to give recommendation to the Independent Shareholders in respect of the Beijing Zhong You Sales Connected Transactions; the Beijing Zhong You Purchase Connected Transactions; and the Xinan Sales Connected Transactions. Your attention is drawn to the recommendation of the Independent Board Committee set out in its letter on page 27 of this circular.

INDEPENDENT FINANCIAL ADVISER

CIMB-GK Securities (HK) Limited has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Beijing Zhong You Sales Connected Transactions, the Beijing Zhong You Purchase Connected Transactions and the Xinan Sales Connected Transactions. Your attention is drawn to its advice letter to the Independent Board Committee and the Independent Shareholders set out on pages 28 to 34 of this circular.

RECOMMENDATION

The Directors believe that (1) the Acquisition; (2) the Continuing Connected Transactions; and (3) the Caps are fair and reasonable and in the interest of the Company and the Shareholders as a whole and therefore recommend the Shareholders to vote in favour of the relevant resolutions to be proposed at the SGM to approve these transactions.

You are advised to read carefully the letter from the Independent Board Committee on page 27 of this circular. The Independent Board Committee, having taken into account the advice of CIMB-GK Securities (HK) Limited, the text of which is set out on pages 28 to 34 of this circular, considers that the terms of the Continuing Connected Transactions, and the Caps are fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the resolutions to approve these transactions.

ADDITIONAL INFORMATION

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

By order of the Board

Seapower Resources International Limited Tsang Kam Ching, David Executive Director

— 26 —

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

The following is the text of a letter from the Independent Board Committee setting out its recommendation to the Independent Shareholders in relation to the Beijing Zhong You Sales Connected Transactions, the Beijing Zhong You Purchase Connected Transactions, the Xinan Sales Connected Transactions; and the Caps:

==> picture [56 x 52] intentionally omitted <==

SEAPOWER RESOURCES INTERNATIONAL LIMITED （凱暉國際實業有限公司[*] ）

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 269)

26 May 2006

To the Independent Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS

As the Independent Board Committee, we have been appointed to advise you in connection with the Beijing Zhong You Sales Connected Transactions; the Beijing Zhong You Purchase Connected Transactions; the Xinan Sales Connected Transactions and the Caps, details of which are set out in the letter from the Board contained in the circular of the Company dated 26 May 2006 (the “Circular”), of which this letter forms part. Terms defined in the Circular shall have the same meanings when used herein unless the context otherwise requires.

Having considered the terms of the Beijing Zhong You Sales Connected Transactions; the Beijing Zhong You Purchase Connected Transactions; the Xinan Sales Connected Transactions and the Caps and the advice of CIMB-GK Securities (HK) Limited in relation thereto as set out in pages 28 to 34 of the Circular, we are of the opinion that the terms are fair and reasonable to the Company and the Shareholders as a whole. We therefore recommend that you vote in favour of the ordinary resolution no. 2 to be proposed at the SGM to approve the proposed transactions.

Yours faithfully,

Independent Board Committee

Mr. Jing Baoli Mr. Liu Ka Lim Independent Independent non-executive Director non-executive Director

Mr. Yip Tak On

Independent non-executive Director

For identification purposes only

— 27 —

LETTER FROM CIMB-GK SECURITIES (HK) LIMITED

The following is the text of a letter of advice from CIMB-GK Securities (HK) Limited, the independent financial adviser to the Independent Board Committee and the Independent Shareholders, which has been prepared for the purpose of incorporation into this circular, setting out its advise to the Independent Board Committee and the Independent Shareholders in relation to the Beijing Zhong You Sales Connected Transactions, the Beijing Zhong You Purchase Connected Transactions, the Xinan Sales Connected Transactions; and the Caps.

CIMB-GK Securities (HK) Limited

25/F., Central Tower 28 Queen’s Road Central Hong Kong 26 May 2006

To the Independent Board Committee and the Independent Shareholders of Seapower Resources International Limited

Dear Sirs,

CONTINUING CONNECTED TRANSACTIONS

We refer to our engagement as the independent financial adviser to the Independent Board Committee and the Independent Shareholders in relation to the Continuing Connected Transactions, details of which are contained in a circular (the “Circular”) to the Shareholders dated 26 May 2006, of which this letter forms part. Expressions used in this letter have the same meanings as defined in the Circular unless the context otherwise requires.

An independent board committee comprising Messrs. Liu Ka Lim, Yip Tak On and Jing Baoli, being the independent non-executive Directors, has been formed to advise the Independent Shareholders in relation to the Continuing Connected Transactions. Any vote of the Independent Shareholders at the SGM shall be taken by poll.

In formulating our recommendation, we have relied on the information and facts contained or referred to in the Circular. The Directors have declared in a responsibility statement set out in the Appendix V to the Circular that they jointly and severally accept full responsibility for the accuracy of the information contained in the Circular. We have also assumed that the information and representations contained or referred to in the Circular were true and accurate at the time they were made and continue to be so at the date of the dispatch of the Circular. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Directors. We have also been advised by the Directors and believe that no material facts have been omitted from the Circular.

— 28 —

LETTER FROM CIMB-GK SECURITIES (HK) LIMITED

We consider that we have reviewed sufficient information to reach an informed view, to justify reliance on the accuracy of the information contained in the Circular and to provide a reasonable basis for our recommendation. We have not, however, conducted an independent verification of the information nor have we conducted any form of in-depth investigation into the businesses and affairs or the prospects of the Company, the Target, Beijing Zhong You, Xinan Han Yuan and Luo Yang Xinan or any of their respective subsidiaries or associates.

PRINCIPAL FACTORS CONSIDERED

In arriving at our opinion in respect of the Continuing Connected Transactions, we have considered the following principal factors and reasons:

Background and rationale

The Company is principally engaged in the operation of cold storage warehousing and logistics management services. As stated in the interim report of the Company for the six months ended 30 September 2005, the Company has been searching for business opportunities in clear energy industry in the PRC with an aim of expanding the scope of its operation.

Upon Completion, the Target will become a subsidiary of the Company. The Target is principally engaged in wholesale and retail of oil and gas products, including gasoline, petroleum, diesel oil and lubricating oil in Henan province, the PRC. The Continuing Connected Transactions are principally related to i) supply of oil and gas products by the Target to Beijing Zhong You, a substantial shareholder of the Target; ii) purchase of oil and gas products by the Target from Beijing Zhong You; and iii) sales of oil and gas products by Xinan Han Yuan (a 51% owned subsidiary of the Target) to the Xinan Group, a substantial shareholder of Xinan Han Yuan.

As noted from the Letter from the Board, the Target has been supplying to and purchasing from Beijing Zhong You oil and gas products since October 2002. The following table sets out the approximate sales value of the Target contributed by Beijing Zhong You and the approximate purchase value purchased by the Target from Beijing Zhong You for the three years ended 31 December 2005:

		Year ended 31 December	Year ended 31 December
	2003	2004	2005
	RMB’ million	RMB’ million	RMB’ million
Sales of the Target contributed
by Beijing Zhong You	19	0	69
Amount purchased by the Target
from Beijing Zhong You	39	86	32

— 29 —

LETTER FROM CIMB-GK SECURITIES (HK) LIMITED

As both the Target and Beijing Zhong You are authorized wholesaler of oil and gas products, whenever there are shortage of oil and gas products in the market, it is a common practice for them to purchase oil and gas products from an authorized wholesaler which has sufficient inventory to satisfy the demand of their own customers. As a result, similar type of products may be purchased and sold between Beijing Zhong You and the Target. The prices of such products are determined with reference to the prevailing market prices at the relevant time. With a view to setting out the principal terms of these transactions and to comply with the requirements under Chapter 14A of the Listing Rules, the Target will enter into i) the Beijing Zhong You Sales Agreement; and ii) the Beijing Zhong You Purchase Agreement, with Beijing Zhong You to govern the terms of the Continuing Connected Transactions. We have been advised by the Directors that they believe the Beijing Zhong You Sales Connected Transactions and Beijing Zhong You Purchase Connected Transactions will broaden the revenue source and customer base of the Target, as well as securing a stable oil and gas supply particularly during oil and gas shortages period, which in turn is in the interests of the Group. As noted from the Beijing Zhong You Sales Agreement, the Target has no obligation to accept any order from Beijing Zhong You and any acceptance by the Target will be based on terms and conditions that are not less favorable to the Target than those agreed between the Target and other independent customers. As noted from the Beijing Zhong You Purchase Agreement, the Target has no obligation to place any purchase orders with Beijing Zhong You and any purchase orders made by the Target will be based on terms and conditions that are not less favorable to the Target than those offered to the Target by other independent suppliers.

As advised by the Company, Xinan Sales Connected Transactions have commenced since September 2002. For each of the three years ended 31 December 2005, the Target had sold approximately RMB13 million, RMB9 million and RMB24 million of oil and gas products to the Xinan Group respectively. To formalise this arrangement and to comply with the requirements under Chapter 14A of the Listing Rules, the Xinan Sales Agreement will be entered into between the parties. As Xinan Han Yuan is a 51% owned subsidiary of the Target, we concur with the views of the Directors that the Xinan Sales Connected Transactions will also broaden the revenue source of the Target. As noted from the Xinan Sales Agreement, Xinan Han Yuan has no obligation to accept any order from the Xinan Group and any acceptance of sales order by Xinan Han Yuan will be based on terms and conditions that are not less favorable to Xinan Han Yuan than those offered by Xinan Han Yuan to other independent customers.

Given the above in particular the fact that (i) the Continuing Connected Transactions will be conducted within the ordinary and normal course of business of the Target and Xinan Han Yuan; and (ii) the Continuing Connected Transactions will be based on market and normal commercial terms or at no less favourable terms than those quoted by/to independent third parties, we concur with the views of the Directors that the Continuing Connected Transactions are in the interests of the Company and the Shareholders as a whole.

— 30 —

LETTER FROM CIMB-GK SECURITIES (HK) LIMITED

Basis of determination

We note that under the Beijing Zhong You Sales Agreement, i) the Target agrees to sell and Beijing Zhong You agrees to purchase oil and gas products from the Target on normal commercial terms and with prices to be agreed between the parties by reference to the prevailing market prices of each product at the relevant time; and ii) any acceptance by the Target will be based on terms and conditions that are not less favorable to the Target than those agreed between the Target and its other independent customers.

Under the Beijing Zhong You Purchase Agreement, i) the Target agrees to purchase and Beijing Zhong You agrees to sell oil and gas products to the Target on normal commercial terms and with prices to be agreed between the parties by reference to the prevailing market prices of each product at the relevant time; and ii) any purchase orders made by the Target will be based on terms and conditions that are not less favorable to the Target than those offered to the Target by other independent suppliers.

We note that under the Xinan Sales Agreement, i) Xinan Han Yuan agrees to sell and the Xinan Group agrees to purchase oil and gas products from Xinan Han Yuan on normal commercial terms with prices to be agreed between the parties by reference to the prevailing market prices of each product at the relevant time; and ii) any acceptance of sales order by Xinan Han Yuan will be based on terms and conditions that are not less favorable to Xinan Han Yuan than those offered by Xinan Han Yuan to other independent customers.

Given the above, we consider that the bases of the Beijing Zhong You Sales Agreement, the Beijing Zhong You Purchase Agreement and the Xinan Sales Agreement are fair and reasonable so far as the Company and the Independent Shareholders are concerned.

The Beijing Zhong You Sales Caps and The Beijing Zhong You Purchase Caps

The Board projects the aggregate amount of the Beijing Zhong You Sales Connected Transactions and the Beijing Zhong You Purchase Connected Transactions for each of the three financial years ending 31 March 2009 of the Group shall not exceed the following amount:

	Year ending 31 March	Year ending 31 March	Year ending 31 March
	2007	2008	2009
	RMB’ million	RMB’ million	RMB’ million
The Beijing Zhong You Sales Caps	110	132	159
The Beijing Zhong You Purchase Caps	48	57	69

— 31 —

LETTER FROM CIMB-GK SECURITIES (HK) LIMITED

We note that in determining the Beijing Zhong You Sales Caps and the Beijing Zhong You Purchase Caps, the Board has taken into account the following factors:

(i) the historical amounts of the Beijing Zhong You Sales Connected Transactions and the Beijing Zhong You Purchase Connected Transactions;
(ii) the potential fluctuation in price of oil and gas products and the cost of transportation and storage for the oil and gas products; and
(iii) the expected sales quantities of the Beijing Zhong You Sales Connected Transactions and the expected purchase quantities of the Beijing Zhong You Purchase Connected Transactions for the three years ending 31 March 2009 as projected by Beijing Zhong You.

In assessing the fairness of the Beijing Zhong You Sales Caps and the Beijing Zhong You Purchase Caps, we have reviewed the projected amount of the Beijing Zhong You Sales Connected Transactions and the Beijing Zhong You Purchase Connected Transactions for the three years ending 31 March 2009 provided by the Company and the underlying principal bases (including the estimated sales quantities and the estimated unit selling prices) for the anticipated growth in such sales and purchase volume during such period. We have discussed with the management of the Company on the principal assumptions and bases underlying the above factors in the determination of the Beijing Zhong You Sales Caps and the Beijing Zhong You Purchase Caps. As advised by the Directors, in determining the proposed Beijing Zhong You Sales Caps and the Beijing Zhong You Purchase Caps, they have taken into account the continued increase in unit cost of oil and gas products since mid 2005 and the Target managements expected that such price trend will continue in the future. We noted the crude oil price quoted on the West Texas Intermediate Cushing Crude Oil Spot Price index (“WTI”) has been on an upward trend since 2002.

In addition, as advised by the Directors, in determining the proposed Beijing Zhong You Sales Caps and the Beijing Zhong You Purchase Caps, they have also taken into account the expected increase in the general demand of oil and gas products in the PRC in the near future and expected that there will be a general increase in the quantity sales and purchase of approximately 10% for all oil and gas products for the three years ending 31 March 2009. We noted from the China Statistic Year Book 2005 compiled by the National Bureau of Statistics of China that the demands for oil and gas products in the PRC were in an upward trend for the previous few years and the average daily consumption for certain oil products, consisting of crude oil, fuel oil, gasoline and diesel oil has recorded an annual increases of approximately 10% for the year ended 31 December 2003. We also noted from various public domains that the oil demand trend is expected to increase in the near future. Based on the above, we concur with the views of the Directors that the general demand of oil and gas products in the PRC is expected to increase in the near future.

— 32 —

LETTER FROM CIMB-GK SECURITIES (HK) LIMITED

Views

Based on the factors above, we regard the Beijing Zhong You Sales Caps and the Beijing Zhong You Purchase Caps and their bases thereof to be fair and reasonable so far as the Company and the Independent Shareholders are concerned. However, as the Beijing Zhong You Sales Caps and the Beijing Zhong You Purchase Caps relate to future events and are based on assumptions which may or may not remain valid for the entire period up to 31 March 2009, we express no opinion as to how closely the actual sales volume of the Beijing Zhong You Sales Connected Transactions and the Beijing Zhong You Purchase Connected Transactions corresponds with the Beijing Zhong You Sales Caps and the Beijing Zhong You Purchase Caps.

The Xinan Sales Caps

The Board projects that the aggregate amount of the Xinan Sales Connected Transactions for each of the three consecutive financial years ending 31 March 2009 shall not exceed RMB42 million, RMB55 million and RMB66 million respectively.

We note that in determining the Xinan Sales Caps, the Board has taken into account the following factors:

(i) the historical amount of the Xinan Sales Connected Transactions;
(ii) the potential price fluctuation of oil and gas products and the cost of transportation and storage for the oil and gas products;
(iii) the expected sales quantities of the Xinan Sales Connected Transactions for the three years ending 31 March 2009 as projected by Xinan Han Yuan; and
(iv) the setting up of a new power supply company by Xinan Group in mid 2005 which leads to increase in demand of oil and gas products.

We have reviewed the projected amount of the Xinan Sales Connected Transactions for the three years ending 31 March 2009 respectively provided by the Company and underlying bases (including the estimated sales quantities and the estimated unit selling prices) for the anticipated growth in sales to the Xinan Group during this period. We have also discussed with the management of the Company on the principal assumptions and bases underlying the above factors considered in the determination of the Xinan Sales Caps. As advised by the Directors, in determining the proposed Xinan Sales Caps, they have taken into account the continued increase in the unit cost of oil and gas products since mid 2005 and the management of the Target is of the view that such trend will continue in the future. As explained in the section headed “The Beijing Zhong You Sales Caps and The Beijing Zhong You Purchase Caps” of this letter, we noted the crude oil price quoted on the WTI has been on an upward

— 33 —

LETTER FROM CIMB-GK SECURITIES (HK) LIMITED

trend since 2002. In addition, the management of the Target expects that demand for oil and gas products by the Xinan Group will experience a more significant percentage of increase for the year ending 31 March 2007 as compares to those in 2006, which is due to the establishment of a new power supply company by the Xinan Group in mid 2005.

Views

Based on the factors above, we regard the Xinan Sales Caps and their bases thereof to be fair and reasonable so far as the Company and the Independent Shareholders are concerned. However, as the Xinan Sales Caps relate to future events and are based on assumptions which may or may not remain valid for the entire period up to 31 March 2009, we express no opinion as to how closely the actual sales volume of the Xinan Sales Connected Transactions corresponds with the Xinan Sales Caps.

RECOMMENDATION

Having taken into account the principal factors and reasons referred to the above, we are of the opinion that the Continuing Connected Transactions are in the interests of the Company and the Shareholders as a whole and the terms thereof as well as the Caps are fair and reasonable so far as the Company and the Independent Shareholders are concerned. Accordingly, we advise the Independent Board Committee to recommend the Independent Shareholders, to vote in favour of the ordinary resolutions to be proposed at the SGM to approve the Continuing Connected Transactions and the Caps.

Yours faithfully, For and on behalf of CIMB-GK Securities (HK) Limited Alex Lau Flavia Hung Executive Vice President Senior Vice President

— 34 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL SUMMARY

The following financial information has been extracted from the audited financial statements of the Group for each of the three years ended 31 March 2005 and unaudited condensed consolidated financial statement of the Group for the six months ended 30 September 2005.

(i) Results

Turnover
Direct operating expenses
Other revenue
Other income
Selling and administrative expenses
Gain on disposal of subsidiaries
Gain/(loss) on disposal of
leasehold properties
Other operating expenses
Loss from operations
Finance costs
Net gain arising from debts
discharged under Schemes of
Arrangement (“the Schemes”)
Gain on de-consolidation of
subsidiaries under the Schemes
(Loss)/profit before taxation
Taxation — Credit/(charge)
(Loss)/profit before minority interests
Minority interests
(Loss)/profit attributable to shareholders
Dividends
(Loss)/earnings per share
basic

(Unaudited)
(Audited)
Six months ended
Year ended Year ended Year ended
30 September
31 March
31 March
31 March
2005
2004
2005
2004
2003
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
2,805
4,173
8,521
9,996
16,881
(2,412)
(3,091)
(6,623)
(8,489)
(13,737)
48
21
56
269
411
—
47
1,257
3,562
7,352
(6,791)
(5,608)
(10,732)
(11,502)
(21,456)
—
—
—
—
656
—
—
—
—
9,341
—
(514)
—
(2,195)
(4,350)
(6,350)
(4,972)
(7,521)
(8,359)
(4,902)
(193)
(198)
(476)
(23,572)
(45,948)
—
—
—
632,718
—
—
—
—
706,083
—
(6,543)
(5,170)
(7,997)
1,306,870
(50,850)
—
—
185
(7,809)
3,200
(6,543)
(5,170)
(7,812)
1,299,061
(47,650)
—
—
—
18
—
(6,543)
(5,170)
(7,812)
1,299,079
(47,650)
—
—
—
—
—
(0.16 cents)
(0.10 cents)
(0.15 cents) 81.50 cents (51.33 cents)

— I-1 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(ii) Asset and liabilities

(Unaudited) As at 30 September 2005 HK$’000 NON-CURRENT ASSETS Property, plant and equipment 19,628 CURRENT ASSETS Trade and other receivables 2,818 Other investments — Restricted bank deposits — Cash and bank balances 14,391 17,209 CURRENT LIABILITIES Trade and other payables 3,534 Amount due to a jointly controlled entity — Amounts due to subsidiaries under liquidation 490 Taxation payable — Convertible note — Bank and other borrowings — due within one year 1,903 5,927 NET CURRENT LIABILITIES 11,282 TOTAL ASSETS LESS CURRENT LIABILITIES 30,910 NON-CURRENT LIABILITIES Bank and other borrowings — due after one year (4,067) MINORITY INTERESTS — 26,843 CAPITAL AND RESERVES Share capital 63,530 Reserves (36,687) 26,843	2005 HK$’000 19,501 2,401 — — 6,820 9,221 3,127 — 490 — — 603 4,220 5,001 24,502 (4,435) — 20,067 62,466 (42,399) 20,067	(Audited) As at 31 March 2004 2003 HK$’000 HK$’000 19,741 20,298 2,703 14,708 — 52 — 1,692 6,089 6,648 8,792 23,100 3,802 151,533 — 1,007 490 652,553 185 26,302 5,000 — 742 515,584 10,219 1,346,979 (1,427) (1,323,879) 18,314 (1,303,581) (4,968) — — (509) 13,346 (1,304,090) 47,888 77,352 (34,542) (1,381,442) 13,346 (1,304,090)

— I-2 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(iii) Reports of the auditors for the financial statements of the Group for the three years ended 31 March 2005

Auditors’ Report — for year ended 31 March 2003

==> picture [86 x 64] intentionally omitted <==

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.

— I-3 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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.

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.

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 2003.

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

— I-4 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 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.

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 15(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 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.

— I-5 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 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.

— I-6 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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.

7. 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

— I-7 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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:

(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 above-mentioned 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.

— I-8 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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.

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

— I-9 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Auditors’ Report — for year ended 31 March 2004

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To the Shareholders of

Seapower Resources International Limited

(Incorporated in the Cayman Islands with limited liability)

We have audited the financial statements on pages 16 to 62 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 solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability towards any other person for the contents of this report.

Basis of Opinion

We conducted our audit in accordance with Statements of Auditing Standards issued by the Hong Kong Society of Accountants. 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 Group and the Company, consistently applied and adequately disclosed.

— I-10 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

misstatement. 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(c) to the financial statements concerning the adoption of the going concern basis on which the financial statements have been prepared. As at 31 March 2004, the Group and the Company had net current liabilities of approximately HK$1,427,000 and HK$2,310,000 respectively. The financial statements have been prepared on a going concern basis, the validity of which depends upon future funding being available to meet the debts as and when they fall due in the foreseeable future. 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.

Opinion

In our opinion the financial statements give a true and fair view of the state of affairs of the Company and the Group as at 31 March 2004 and of the profit and cash flows of the Group for the year then ended and have been prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

Charles Chan, Ip & Fung CPA Ltd.

Certified Public Accountants

Hong Kong, 7 June 2004

Chan Wai Dune, Charles

Practising Certificate Number P00712

— I-11 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Auditors’ Report — for year ended 31 March 2005

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To the Shareholders of

Seapower Resources International Limited

(Incorporated in the Cayman Islands with limited liability)

We have audited the financial statements on pages 15 to 49 which have been prepared in accordance with accounting principles generally accepted in Hong Kong.

Respective Responsibilities of Directors and Auditors

Basis of Opinion

We conducted our audit in accordance with Statements of Auditing Standards issued by the Hong Kong Institute of Certified Public Accountants. 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 Group and the Company, consistently applied and adequately disclosed.

— I-12 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

Opinion

In our opinion the financial statements give a true and fair view of the state of affairs of the Company and the Group as at 31 March 2005 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.

CCIF CPA Limited

Certified Public Accountants Hong Kong, 28 June 2005

Chan Wai Dune, Charles

Practising Certificate Number P00712

— I-13 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. AUDITED CONSOLIDATED FINANCIAL STATEMENT OF THE GROUP FOR THE YEAR ENDED 31 MARCH 2005

The following financial information has been extracted from the annual report of the Company for the year ended 31 March 2005 together with notes thereto:

Consolidated Income Statement

For the year ended 31 March 2005

Note TURNOVER 5 DIRECT OPERATING EXPENSES OTHER REVENUE 5 OTHER INCOME 6 SELLING AND ADMINISTRATIVE EXPENSES OTHER OPERATING EXPENSES LOSS FROM OPERATIONS 7 FINANCE COSTS 8 NET GAIN ARISING FROM DEBTS DISCHARGED UNDER SCHEMES OF ARRANGEMENT (“THE SCHEMES”) 9 GAIN ON DE-CONSOLIDATION OF SUBSIDIARIES UNDER THE SCHEMES 10 (LOSS)/PROFIT BEFORE TAXATION TAXATION — CREDIT/(CHARGE) 11 (LOSS)/PROFIT BEFORE MINORITY INTERESTS MINORITY INTERESTS (LOSS)/PROFIT ATTRIBUTABLE TO SHAREHOLDERS 14 DIVIDENDS 15 (LOSS)/EARNINGS PER SHARE BASIC 16	2005 HK$’000 8,521 (6,623) 56 1,257 (10,732) — (7,521) (476) — — (7,997) 185 (7,812) — (7,812) — (0.15 cents)	2004 HK$’000 9,996 (8,489) 269 3,562 (11,502) (2,195) (8,359) (23,572) 632,718 706,083 1,306,870 (7,809) 1,299,061 18 1,299,079 — 81.50 cents

— I-14 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Balance Sheet

At 31 March 2005

Note Non-current assets Property, plant and equipment 18 Current assets Trade and other receivables 20 Cash and bank balances Current liabilities Trade and other payables 21 Amounts due to subsidiaries under liquidation Taxation payable Convertible note 23 Bank loan — due within one year 24 Net current assets/(liabilities) Total assets less current liabilities Non-current liabilities Bank loan — due after one year 24 NET ASSETS CAPITAL AND RESERVES Share capital 25 Reserves	2005 HK$’000 19,501 2,401 6,820 9,221 3,127 490 — — 603 4,220 5,001 24,502 (4,435) 20,067 62,466 (42,399) 20,067	2004 HK$’000 19,741 2,703 6,089 8,792 3,802 490 185 5,000 742 10,219 (1,427) 18,314 (4,968) 13,346 47,888 (34,542) 13,346

— I-15 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Balance Sheet

At 31 March 2005

Note Non-current assets Property, plant and equipment 18 Interests in subsidiaries 19 Current assets Trade and other receivables Cash and bank balances Current liabilities Trade and other payables Amounts due to subsidiaries 22 Convertible note 23 Net current assets/(liabilities) NET ASSETS CAPITAL AND RESERVES Share capital 25 Reserves	2005 HK$’000 739 1,878 2,617 641 6,180 6,821 567 489 — 1,056 5,765 8,382 62,466 (54,084) 8,382	2004 HK$’000 — 3,783 3,783 476 3,218 3,694 802 202 5,000 6,004 (2,310) 1,473 47,888 (46,415) 1,473

— I-16 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Statements of Changes in Equity

For the year ended 31 March 2005

The Group

Issued capital HK$’000 At 1 April 2003 77,352 Capital reduction (76,424) Issue of new ordinary shares on debts restructuring 46,960 Exchange differences — Surplus on revaluation — Impairment loss on other land and buildings — Realised on disposals of subsidiaries — Net profit for the year — At 31 March 2004 and 1 April 2004 47,888 Issue of new ordinary shares 14,578 Exchange differences — Net loss for the year — At 31 March 2005 62,466 Attributable to: — the Company and subsidiaries 62,466	Capital Share redemption premium reserve HK$’000 HK$’000 432,722 3,800 — — — — — — — — — — — — — — 432,722 3,800 — — — — — — 432,722 3,800 432,722 3,800	Asset Capital revaluation Translation Accumulated reserve reserve reserve losses HK$’000 HK$’000 HK$’000 HK$’000 50,867 7,521 (1,859) (1,874,493) — — — 76,424 — — — — — — 881 — — 612 — — — (168) — — (29,949) — 21 — — — — 1,299,079 20,918 7,965 (957) (498,990) — — — — — — (45) — — — — (7,812) 20,918 7,965 (1,002) (506,802) 20,918 7,965 (1,002) (506,802)	Total HK$’000 (1,304,090) — 46,960 881 612 (168) (29,928) 1,299,079 13,346 14,578 (45) (7,812) 20,067 20,067

— I-17 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Company

At 1 April 2003 Capital reduction Issue of new ordinary shares on debts restructuring Net profit for the year At 31 March 2004 and 1 April 2004 Issue of new ordinary shares Net loss for the year At 31 March 2005	Issued capital HK$’000 77,352 (76,424) 46,960 — 47,888 14,578 — 62,466	Share premium HK$’000 432,722 — — — 432,722 — — 432,722	Capital redemption reserve HK$’000 3,800 — — — 3,800 — — 3,800	Contributed Accumulated surplus losses HK$’000 HK$’000 64,314 (1,606,075) — 76,424 — — — 982,400 64,314 (547,251) — — — (7,669) 64,314 (554,920)	Total HK$’000 (1,027,887) — 46,960 982,400 1,473 14,578 (7,669) 8,382

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 2005 and 2004.

— I-18 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Cash Flow Statement

For the year ended 31 March 2005

2005
HK$’000
(LOSS)/PROFIT BEFORE TAXATION
(7,997)
Adjustments for:
Interest expenses
476
Interest income
(56)
Depreciation
1,702
Provision for bad and doubtful debts
—
Net loss on disposals of property, plant and equipment
12
Net gain arising from debts discharged under
Schemes of Arrangement
—
Gain on de-consolidation of subsidiaries under Schemes
—
Liabilities written back
—
Impairment loss on other land and buildings
—
2,134
Operating cash flow before movements
in working Capital
(5,863)
Decrease in trade and other receivables
302
(Decrease)/increase in trade and other payables
(675)
(373)
Net cash utilised by operations
(6,236)
Interest paid
(476)
Interest received
56
NET CASH OUTFLOW FROM
OPERATING ACTIVITIES
(6,656)
INVESTING ACTIVITIES
Net cash outflow on de-consolidation of subsidiaries
and subsidiaries under liquidation
—
Proceeds from disposals of property, plant and equipment
3
Purchase of property, plant and equipment
(1,240)
NET CASH (OUTFLOW)/INFLOW FROM
INVESTING ACTIVITIES
(1,237)

2004
HK$’000
1,306,870
23,572
(269)
1,744
801
1,216
(632,718)
(706,083)
(11)
1,363
(1,310,385)
(3,515)
1,612
1,159
2,771
(744)
(443)
84
(1,103)
(573)
1,908
(689)
646

— I-19 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NET CASH OUTFLOW BEFORE FINANCING FINANCING Settlement under the Schemes of Arrangement Settlement of restructuring and Schemes expenses Issue of convertible note Repayment of bank borrowings Issue of new ordinary shares NET CASH INFLOW/(OUTFLOW) FROM FINANCING INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS EFFECT OF FOREIGN EXCHANGE RATE CHANGES CASH AND CASH EQUIVALENTS AT BEGINNING CASH AND CASH EQUIVALENTS AT END OF YEAR ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances	2005 HK$’000 (7,893) — — — (672) 9,578 8,906 1,013 (282) 6,089 6,820 6,820	2004 HK$’000 (457) (44,183) (7,756) 5,000 (495) 46,960 (474) (931) 372 6,648 6,089 6,089

— I-20 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Financial Statements

31 March 2005

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 “SEHK”).

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 services.

(b) 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 inter-company 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. Recently Issued Hong Kong Financial Reporting

The Hong Kong Institute of Certified Public Accountants has issued a number of new Hong Kong Financial Reporting Standards and Hong Kong Accounting Standards, herein collectively referred to as the new HKFRSs, which are generally effective for accounting periods beginning on or after 1 January 2005. The Group has not early adopted these new HKFRSs in preparing the financial statements for the year ended 31 March 2005. The Group has already commenced an assessment of the impact of these new HKFRSs but is not yet in a position to state whether these new HKFRSs would have a significant impact on its results of operations and financial position.

4. 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 and Interpretations issued by the Hong Kong Institute of Certified Public Accountants and the disclosure requirements of the Hong Kong Companies Ordinance. The financial statements are prepared under the historical cost convention. These financial statements also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on the SEHK (“Listing Rules”). A summary of the significant accounting policies adopted by the Group is set out below.

(a) Revenue Recognition

(i) Cold storage service income is recognised pro-rata over the life of the agreement and on an accrual basis.

— I-21 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(ii) Logistics management 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.

(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 straightline 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.

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.

— I-22 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(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 flows are not discounted 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.

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:

Cold Storage Warehouse Over the unexpired useful life Furniture, machinery and equipment 10% to 33% Motor vehicles 20%

— I-23 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

(d) 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 4(e).

(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.

(e) 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).

— I-24 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(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.

(f) 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 intra-group transactions are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

(g) 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.

(h) 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.

— I-25 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(i) 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 fulfil the above criteria.

(j) Provision 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.

(k) Deferred Taxation

Deferred taxation is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred assets are recognized to the extent that it is probable that future taxable profit will be available against the temporary differences can be utilised.

Deferred taxation is provided on temporary differences arising on investments in subsidiaries except when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

(l) 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.

(m) Retirement Costs

The Group operates a defined contribution retirement benefits scheme (the “MPF Scheme”) under the Mandatory Provident Fund Schemes Ordinance for those employees who are eligible to participate in the MPF 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 MPF Scheme. The assets of the MPF Scheme are held separately from those of the Group in an independently administered fund.

— I-26 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(n) Employee Benefits

Salaries, annual bonuses, paid annual leave, leave passage and the cost to the Group of nonmonetary 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.

(o) 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.

No separate analysis for turnover contribution to operating results and asset and liabilities by business segment has been presented as the Group has only one business segment which is cold storage warehousing and logistics management.

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.

(p) 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.

— I-27 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. Turnover and other Revenue

The Company is an investment holding company. The Group is engaged in the provision of cold storage warehousing and logistics management services.

Turnover: Income from cold storage warehousing and logistics management Other revenue Interest income 6. Other Income Other income comprises: Exchange gain, net Others 7. Loss from Operations Loss from operations is stated after charging: Charging: Provision for bad and doubtful debts Auditors’ remuneration — Current year — Underprovision in previous years Depreciation — Owned fixed assets Staff costs including retirement costs of HK$48,300 (2004: HK$58,576) Impairment loss on other land and buildings Loss on disposal of fixed assets (other than properties)	2005 HK$’000 8,521 56 8,577 2005 HK$’000 1,140 117 1,257 2005 HK$’000 — 250 — 1,702 5,307 — 12	2004 HK$’000 9,996 269
		10,265

		2004 HK$’000 3,325 237
		3,562

		2004 HK$’000 801 225 393 1,744 5,848 1,363 1,216

— I-28 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

8. Finance Costs

2005 HK$’000 Interest on bank and other borrowings wholly repayable within five years 476 Net Gain Arising from Debts Discharged under Schemes of Arrangement 2005 HK$’000 Waiver of indebtedness — Restructuring and Schemes expenses — —	2004 HK$’000 23,572 2004 HK$’000 640,474 (7,756) 632,718

9. Net Gain Arising from Debts Discharged under Schemes of Arrangement

The net gain represented the indebtedness and the accrued interest payable by the Company discharged upon the completion of the Schemes, after netting of the related restructuring and Schemes expenses.

10. Gain on De-Consolidation of Subsidiaries under the Schemes

On 5 December 2003, the Company entered into a sale and purchase agreement with an independent third party to dispose of 37 directly and indirectly wholly owned subsidiaries at a consideration of HK$25. Gain of approximately HK$706,083,000 arose on the de-consolidation of these subsidiaries in the financial statements for the year ended 31 March 2004.

11. Taxation — Credit/(Charge)

The credit/(charge) comprises:

Underprovision for Hong Kong Profits Tax in prior years Over provision for overseas taxation in prior years Deferred taxation — overseas Taxation in respect of ordinary activities attributable to the Company and its subsidiaries	2005 HK$’000 — 185 185 — 185	2004 HK$’000 (6,577) — (6,577) (1,232) (7,809)

— I-29 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The credit/(charge) for the year can be reconciled to the (loss)/profit per the consolidation income statement as follows:

(Loss)/profit before taxation Calculated at a taxation rate of 17.5% Over-provision/(under) in prior years Effect of different tax rates at oversea locations Net effect of non-assessable/deductible items Net effect of tax losses and temporary differences utilized/not recognized Effect of gain on de-consolidation of subsidiaries under the Schemes Effect on gain on debts discharged under the Schemes	2005 HK$’000 (7,997) (1,399) 185 — 172 1,227 — — 185	2004 HK$’000 1,306,870

		(228,702) (7,909) 100 (3,046) 38,261 90,572 102,915
		(7,809)

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 both years.

The Group and the Company did not have any other significant unprovided deferred taxation in respect of timing differences arising during the year or as at the balance sheet date.

12. 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 — Independent non-executive directors Other emoluments Salaries and other benefits-in-kind — Executive directors — Independent non-executive directors Retirement benefit costs — Executive directors — Independent non-executive directors	2005 HK$’000 269 237 831 — 14 — 1,351	2004 HK$’000 136 139 312 — 7 —
		594

— I-30 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The emoluments of the directors are within the following bands:

	Number	of Directors
	2005	2004
Nil to HK$1,000,000	4	9

During the years ended 31 March 2005 and 2004, 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 for both years.

13. Individuals with Highest Emoluments

During the year, the five highest paid individuals included one (2004: one) director, details of whose emoluments are set out above. The emoluments of the four (2004: four) individuals are as follows:

Salaries and other benefits MPF Scheme contributions	2005 HK$’000 1,557 83 1,640	2004 HK$’000 1,779 69
		1,848

The emoluments of the employees are within the following band:

Nil — HK$1,000,000	Number of 2005 4	employees 2004 4

During the years ended 31 March 2005 and 2004, 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.

14. (Loss)/Profit Attributable to Shareholders

The consolidated (loss)/profit attributable to shareholders for the year ended 31 March 2005 includes a loss of approximately HK$7,669,000 (2004: Profit of HK$982,400,000) which has been dealt with in the financial statements of the Company.

15. Dividends

The Directors of the Company do not recommend the payment of a dividend for the year ended 31 March 2005 (2004: nil).

— I-31 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

16. (Loss)/Earnings per Share

The calculation of the basic (loss)/earnings per share is based on the net loss for the year of approximately HK$7,812,000 (2004: Profit of HK$1,299,079,000) and on the weighted average number of 5,047,226,422 (2004: 1,594,002,898) shares in issue during the year.

There were no potential dilutive shares in existence for the year ended 31 March 2005 and accordingly, no dilutied earnings per share amount has been presented.

No amount had been presented for the diluted earnings per share amount for the year ended 31 March 2004 as the conversion of the then outstanding warrants would reduce the loss per share from continuing ordinary operations.

17. Segment Information

(a) Business Segment

No separate analysis of segment information by business is presented as the Group has only one business segment which is cold storage warehousing and logistics management services.

(b) Geographical segments

The following table presents revenue, result and certain assets and expenditure for the Group’s geographical segments for the two years ended 31 March 2005 and 2004:

REVENUE External revenue Other revenue Total revenue SEGMENT RESULTS Other information: Segment assets Capital expenditure	Hong Kong & PRC 2005 2004 HK$’000 HK$’000 — — — 186 — 186 (7,533) (6,539) 7,612 4,644 301 28	Australia 2005 2004 HK$’000 HK$’000 8,521 9,996 56 83 8,577 10,079 12 (1,820) 21,110 23,889 939 661	Consolidated 2005 2004 HK$’000 HK$’000 8,521 9,996 56 269 8,577 10,265 (7,521) (8,359) 28,722 28,533 1,240 689	Consolidated 2005 2004 HK$’000 HK$’000 8,521 9,996 56 269 8,577 10,265 (7,521) (8,359) 28,722 28,533 1,240 689
				10,265

				(8,359)

				28,533 689

— I-32 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

18. Property, Plant and Equipment

The Group

Cold storage warehouse HK$’000 Cost or valuation At 1 April 2004 18,409 Exchange adjustments 272 Additions — Disposals — At 31 March 2005 18,681 Analysis of cost or valuation At cost — At valuation 2004 18,681 18,681 Depreciation and amortisation or impairment At 1 April 2004 598 Exchange adjustments 41 Charge for the year 878 Eliminated on disposals — At 31 March 2005 1,517 Net book value At 31 March 2005 17,164 At 31 March 2004 17,811	Other land and building HK$’000 1,620 — — (1,620) — — — — 1,620 — — (1,620) — — —	Furniture, machinery and equipment HK$’000 8,726 112 1,240 (532) 9,546 9,546 — 9,546 7,022 108 746 (517) 7,359 2,187 1,704	Motor vehicles HK$’000 686 11 — — 697 697 — 697 460 9 78 — 547 150 226	Total HK$’000 29,441 395 1,240 (2,152) 28,924 10,243 18,681 28,924 9,700 158 1,702 (2,137) 9,423 19,501 19,741

— I-33 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Company

	Furniture,
	machinery
	and equipment
	HK$’000
Cost
At 1 April 2004	—
Additions	924
At 31 March 2005	924
Depreciation
At 1 April 2004	—
Charge for the year	185
At 31 March 2005	185
Net book value
At 31 March 2005	739
At 31 March 2004	—

The net book value of HK$17,164,000 (2004: HK$17,811,000) cold storage warehouse held by the Group at the balance sheet date is held under freehold outside Hong Kong.

Australian cold storage warehouse was revalued by Chesterton International (NSW) Pty. Limited in July 2003, on an open market existing use basis, at approximately AUD3,100,000.

Certain of the Group’s property, plant and equipment were pledged to secure banking facilities granted to the Group. The net book value of the pledged assets included in the total amount of property, plant and equipment at 31 March 2005 amounted to HK$18,351,000 (2004: HK$19,335,000).

19. Interests in Subsidiaries

Unlisted shares, at cost Amounts due from subsidiaries _Less:_Impairment losses recognised	The Company 2005 2004 HK$’000 HK$’000 — — 387,740 389,645 387,740 389,645 (385,862) (385,862) 1,878 3,783	The Company 2005 2004 HK$’000 HK$’000 — — 387,740 389,645 387,740 389,645 (385,862) (385,862) 1,878 3,783
		389,645 (385,862)
		3,783

Particulars of the Company’s principal subsidiaries as at 31 March 2005 are set out in note 32 to the financial statements.

— I-34 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The amounts due from subsidiaries have no fixed terms of repayment, are unsecured and interest free.

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

20. Trade and other Receivables

Trade receivables Other receivables Deposits paid Prepayements	The Group 2005 2004 HK$’000 HK$’000 906 1,273 190 165 501 385 804 880 2,401 2,703	The Group 2005 2004 HK$’000 HK$’000 906 1,273 190 165 501 385 804 880 2,401 2,703
		2,703

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	The Group 2005 2004 HK$’000 HK$’000 399 695 343 258 164 93 — 227 906 1,273	The Group 2005 2004 HK$’000 HK$’000 399 695 343 258 164 93 — 227 906 1,273
		1,273

21. Trade and other Payables

Trade payables Interest payables Other payables and accruals	The Group 2005 2004 HK$’000 HK$’000 554 1,065 — 37 2,573 2,700 3,127 3,802	The Group 2005 2004 HK$’000 HK$’000 554 1,065 — 37 2,573 2,700 3,127 3,802
		3,802

— I-35 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

0 — 30 days 31 — 60 days 61 — 90 days More than 90 days	The Group 2005 2004 HK$’000 HK$’000 166 375 49 102 — 41 339 547 554 1,065	The Group 2005 2004 HK$’000 HK$’000 166 375 49 102 — 41 339 547 554 1,065
		1,065

22. Amounts due to Subsidiaries

The amounts due to subsidiaries have no fixed repayment terms, are unsecured and interest free.

23. Convertible Note

On 7 January 2004, the Company entered into a subscription agreement with an independent third party for the issuance of convertible note with an aggregate value of HK$5,000,000. The convertible note was convertible into ordinary shares of the Company of HK$0.01 each at the conversion price of HK$0.01 per share for the period from 10 May 2004 to 31 December 2004.

On 23 December 2004, the holder of the said convertible note exercised its options to convert the whole note into 500,000,000 ordinary shares of HK$0.01 each at the conversion price of HK$0.01 per share (note 25(f)).

24. Bank Loan

Bank loan — secured The bank loan is repayable as follows: Within one year or on demand More than one year, but not exceeding two years More than two year, but not exceeding five years Over five years _Less:_Amount due within one year or on demand and shown under current liabilities Amount due after one year	The Group 2005 2004 HK$’000 HK$’000 5,038 5,710 603 742 603 594 1,808 1,781 2,024 2,593 5,038 5,710 (603) (742) 4,435 4,968	The Group 2005 2004 HK$’000 HK$’000 5,038 5,710 603 742 603 594 1,808 1,781 2,024 2,593 5,038 5,710 (603) (742) 4,435 4,968

		742 594 1,781 2,593
		5,710 (742)
		4,968

— I-36 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

25. Share Capital

Note Authorised: At 31 March 2005 and at 31 March 2004 ordinary shares of HK$0.01 each Issued and fully paid: At 1 April 2003 shares of HK$0.05 each Capital reduction of par value from HK$0.05 to HK$0.0006 each (a) Consolidation of every 100 shares to 1 share at HK$0.06 each (b) Subdivided each share into 6 shares at HK$0.01 each (c) Issue upon settlement of debts (d) Issue of shares (e) At 31 March 2004 ordinary shares of HK$0.01 each Issue of new shares (f), (g) At 31 March 2005 ordinary share of HK$0.01 each	No. of shares 10,000,000,000 1,547,042,829 — 1,547,042,829 (1,531,572,400) 15,470,429 77,352,141 92,822,570 96,000,000 4,600,000,000 4,788,822,570 1,457,764,514 6,246,587,084	Value HK$’000 100,000 77,352 (76,424) 928 — 928 — 928 960 46,000 47,888 14,578 62,466

A special resolution was passed on 14 November 2003. It was resolved note (a) to (e):

(a) reduce the par value of the 1,547,042,829 shares in issue up to 5 December 2003 in the Company from HK$0.05 to HK$0.0006 by the cancellation of HK$0.0494 paid up on each issued share. On the basis of 1,547,042,829 ordinary shares in issue at the date of capital reduction, a credit of HK$76,424,000 was raised;
(b) the issued share capital of the Company was consolidated for every 100 shares of HK$0.0006 each into one share of HK$0.06 each following the capital reduction as mentioned in note (a);
(c) subdivide each authorised and issued share of the Company into 6 subdivided shares of HK$0.01 each;
(d) 96,000,000 ordinary shares of HK$0.01 were issued at HK$0.01 to the Scheme Creditors for the settlement of the indebtedness owed by the Group to the Scheme Creditors;
(e) 4,600,000,000 ordinary shares of HK$0.01 each, ranking pari passu in all respects with the existing ordinary shares of the Company, were issued to Many Returns Limited for net cash proceeds of HK$46 million. Further details of the transaction were set out in the Company’s press announcement dated 5 December 2003;

— I-37 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(f) On 23 December 2004, the holder of the convertible note in the principal amount of HK$5,000,000 exercised the options to convert the whole note into 500,000,000 ordinary shares of HK$0.01 each at par, which rank pari passu in all respects with the existing shares of the Company.
(g) On 6 January 2005, the holder of the Warrants of HK$3,000,000 exercised the attached rights to subscribe 300,000,000 ordinary shares of HK$0.01 each in the capital of the Company which were allotted and issued at par on the same date.

On 7 March 2005, the holder of the remaining Warrants of HK$6,577,645 exercised the attached rights to subscribe 657,764,514 ordinary shares of HK$0.01 each in the capital of the Company which were allotted and issued at par on the same date.

All these new ordinary shares rank pari passu in all respects with the existing shares of the Company.

26. Share Option Scheme

The Share Option Scheme adopted on 30 September 1999 was terminated and replaced by a New Share Option Scheme on the 16 July 2004. The new Share Option Scheme shall remain in force for 10 years from the adoption date unless otherwise terminated or amended.

The exercise price of the options shall be determined by the Directors of the Company, but may at least the highest of (i) the Stock Exchange closing price of the Company’s shares on the date of the grant of the share options; (ii) the average Stock Exchange closing price of the Company’s shares for the five trading days immediately preceding the date of the grant of the share options; and (iii) the nominal value of an ordinary share. The maximum number of shares in respect of which options may be granted under the New Share Option Scheme shall not exceed 10% of the issued share capital of the Company from time to time.

No share option has been granted, exercised, cancelled or lapsed under the new Share Option Scheme during the year ended 31 March 2005 or outstanding as at 31 March 2005.

27. Retirement Benefit Schemes

With effect from 1 December 2000, the Group has also joined a MPF Scheme for all employees in Hong Kong. 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. Operating Lease Commitments

The Group leases its office and staff quarter under non-cancelled operating lease arrangements with remaining lease terms ranging from one to two years.

— I-38 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

At 31 March 2005, the Group had total future minimum lease payments under non-cancellable operating lease falling due as follows:

Within one year In the second to fifth years, inclusive	2005 HK$’000 1,570 882 2,452	2004 HK$’000 — —
		—

29. Contingent Liabilities

At the balance sheet date, the Company has given a guarantee to a financial institution in respect of credit facilities utilised by one of its subsidiaries to the extent of approximately HK$5 million (2004: HK$5.7 million).

30. Charges on Assets

At the balance sheet date, the Group’s property, plant and equipment amounted to HK$18,351,000 (2004: HK$19,335,000) have been pledged to secure credit facilities granted to and utilised by the Group.

31. Related Party Transactions

	The	Group	The Company	The Company
	2005	2004	2005	2004
	HK$’000	HK$’000	HK$’000	HK$’000
Management fee to Integrated
Project Solutions Limited	120	80	—	—
Interest income from I-China
Holdings Limited	—	184	—	—

Management fee paid to Integrated Project Solutions Limited, a company in which Mr. Chan Chun Hing, Kenneth is a director, was determined with reference to on floor space occupied by the Groups and costs incurred.

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.

— I-39 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

32. Particulars of Principal Subsidiaries

Particulars of the Company’s principal subsidiaries as at 31 March 2005 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 Ltd.	British Virgin	US$1 share	100*	100	Investment holding
	Islands/
	Hong Kong
Australian Service	Australia	A$2,500,002	100	100	Dormant
Cold Storage		shares
(N.S.W.) Pty Ltd.
iPowerB2B.com Limited	Hong Kong	HK$2 shares	100	100	Investment holding
iPower Holdings Limited	British Virgin	US$45,000	100*	100	Investment holding
	Islands/	shares
	Hong Kong
iPower Warehousing	British Virgin	US$1 shares	100	100	Warehousing
Management System	Islands/				management
Limited	Hong Kong				system holding
Pentagon Profits Limited	British Virgin	US$1 share	100*	100	Dormant
	Islands/PRC
Seapower China	Hong Kong/	HK$2 shares	100	100	Logistics management
Investments Limited	PRC				services
Seapower Developments	British Virgin	US$1 share	100*	100	Dormant
(Indonesia) Limited	Islands/Indonesia
Seapower Resources	Australia	A$7,000,002	100	100	Investment holding
Australia Pty Ltd		shares
Seapower Resources	Australia	A$2,000,002	100	100	Investment holding
Investments Pty Ltd.		shares
Seapower Resources	Australia	A$4,200,002	100	100	Cold storage
Gosford Pty Ltd.		shares			warehousing
Seapower Secretaries	Hong Kong	HK$100 shares	100*	100	Provision secretarial
Limited					services
Topcrown Investments	Hong Kong	HK$10,000 shares	100*	100	Management services
Limited

— I-40 —

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 Directors 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 would, in the opinion of the Directors of the Company, result in particulars of excessive length.

33. Subsequent events

On 6 June 2005, the Company entered into two subscription agreements with two independent subscribers (“Subscribers”), pursuant to which the Company conditionally agreed to issue and allot and the Subscribers conditionally agreed to subscribe for aggregate 106,400,000 new shares of the Company at the price of HK$0.125 per share. The estimated aggregate net proceeds of approximately HK$13,200,000 from the subscription will be applied for the Company’s working capital and future potential investments in clean energy projects. Further details are set out in the Company’s announcement dated 7 June 2005.

— I-41 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Financial Summary

Year ended 31 March 2005

RESULTS Turnover Loss from operations Finance costs Other non-operating losses and expenses Gain on disposal of subsidiaries Gain arising from debts discharged under Schemes of Arrangement (Loss)/gain 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)/profit before taxation Taxation — credit/(charge) (Loss)/profit before minority interests Minority interests Net (loss)/profit for the year	2001 HK$’000 191,767 (105,888) (121,902) (10,847) — — — — 362 (238,275) 407 (237,868) (1,186) (239,054)	For the year ended 31 2002 2003 HK$’000 HK$’000 165,272 16,881 (30,591) (14,243) (91,046) (45,948) (26,795) — (537,800) 9,341 (648,330) — (90,664) — (60,041) — — — (1,485,267) (50,850) (31,224) 3,200 (1,516,491) (47,650) 246 — (1,516,245) (47,650)	March 2004 HK$’000 9,996 (8,359) (23,572) — 706,083 632,718 — — — — — 1,306,870 (7,809) 1,299,061 18 1,299,079	2005 HK$’000 8,521 (7,521) (476) — — — — — — — — (7,997) 185 (7,812) — (7,812)

— I-42 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. UNAUDITED CONDENSED FINANCIAL STATEMENTS OF THE GROUP FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2005

The following financial information has been extracted from the unaudited condensed financial statement of the Group for the six months ended 30 September 2005, together with notes thereto:

Condensed Consolidated Income Statement

For the six months ended 30 September

Notes Turnover Direct operating expenses Other revenue Other income Selling and administrative expenses Other operating expenses 4 Loss from operations Finance costs Loss before taxation Taxation 5 Loss for the period Attributable to: Equity holders of the Company Dividends 6 Loss per share Basic 7 Diluted	2005 HK$’000 (Unaudited) 2,805 (2,412) 48 — (6,791) — (6,350) (193) (6,543) — (6,543) (6,543) — (0.16 cents) N/A	2004 HK$’000 (Unaudited) 4,173 (3,091) 21 47 (5,608) (514) (4,972) (198) (5,170) — (5,170) (5,170) — (0.10 cents) N/A

— I-43 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Condensed Consolidated Balance Sheet

30 September
2005
Notes
HK$’000
(Unaudited)
NON-CURRENT ASSETS
Property, plant and equipment
8
19,628
CURRENT ASSETS
Trade and other receivables
9
2,818
Cash and bank balances
14,391
17,209
CURRENT LIABILITIES
Trade and other payables
10
3,534
Interest bearing borrowings
— due within one year
11
1,903
Amounts due to subsidiaries
under liquidation
490
5,927
NET CURRENT ASSETS
11,282
TOTAL ASSETS LESS
CURRENT LIABILITIES
30,910
NON-CURRENT LIABILITIES
Interest bearing borrowings
— due after one year
11
(4,067)
TOTAL ASSETS LESS TOTAL LIABILITIES
26,843
CAPITAL AND RESERVES
Share capital
12
63,530
Reserves
(36,687)
26,843

31 March
2005
HK$’000
(Audited)
19,501
2,401
6,820
9,221
3,127
603
490
4,220
5,001
24,502
(4,435)
20,067
62,466
(42,399)
20,067

— I-44 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statement of Changes in Equity

For the six months ended 30 September 2005

At 1 April 2005 Issue of new ordinary share Exchange differences Net loss for the period At 30 September 2005 At 1 April 2004 Exchange differences Net loss for the period At 30 September 2004	Issued capital HK$’000 62,466 1,064 — — 63,530 47,888 — — 47,888	Share premium HK$’000 432,722 12,236 — — 444,958 432,722 — — 432,722	Capital redemption reserve HK$’000 3,800 — — — 3,800 3,800 — — 3,800	Capital reserve HK$’000 20,918 — — — 20,918 20,918 — — 20,918	Asset revaluation reserve HK$’000 7,965 — — — 7,965 7,965 — — 7,965	Translation Accumulated reserve losses HK$’000 HK$’000 (1,002) (506,802) — — 19 — — (6,543) (983) (513,345) (957) (498,990) 9 — — (5,170) (948) (504,160)	Total HK$’000 20,067 13,300 19 (6,543) 26,843 13,346 9 (5,170) 8,185

— I-45 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Condensed Consolidated Cash Flow Statement

For the six months ended 30 September 2005

NET CASH USED IN OPERATING ACTIVITIES NET CASH USED IN INVESTING ACTIVITIES NET CASH GENERATED FROM/(USED IN) FINANCING ACTIVITIES INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS EFFECT OF FOREIGN EXCHANGE RATE CHANGES CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD CASH AND CASH EQUIVALENTS AT END OF THE PERIOD ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENT Cash and bank balances	2005 HK$’000 (Unaudited) (5,444) (1,348) 14,122 7,330 241 6,820 14,391 14,391	2004 HK$’000 (Unaudited) (2,976) (273) (421) (3,670) 9 6,089 2,428 2,428

— I-46 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Condensed Consolidated Financial Statements

1. Basis of Preparation and Significant Accounting Policies

(a) Basis of Preparation

These unaudited condensed consolidated interim financial statements have been prepared in accordance with the applicable requirements of the Rules governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (“the Stock Exchange”), the Hong Kong Accounting Standard (“HKAS”) 34 “Interim financial Reporting” and other relevant HKASs and Interpretations, the Hong Kong Financial Reporting Standards (“HKFRSs”) issued by The Hong Kong Institute of Certified Public Accountants (“HKICPA”).

The basis of preparation and accounting policies adopted in these unaudited condensed consolidated interim financial statements are consistent with those adopted in the Company’s annual financial statements for the year ended 31 March 2005, except that the Group has changed certain of its accounting policies following its adoption of new/revised HKFRSs and HKAS which are effective for accounting periods commencing on or after 1 January 2005.

The changes to the Group’s accounting policies and the effect on adoption of these new policies are set out in note 1(b) below.

(b) Changes in Accounting Policies

In 2005, the Group adopted the applicable new/revised HKFRSs below. Accordingly, the 2004 comparatives had been restated in accordance with the relevant requirements.

HKAS 1	:	Presentation of financial statements
HKAS 2	:	Inventories
HKAS 7	:	Cash flow statements
HKAS 8	:	Accounting policies, changes in accounting estimates and errors
HKAS 10	:	Events after the balance sheet date
HKAS 12	:	Income taxes
HKAS 14	:	Segment reporting
HKAS 16	:	Property, plant and equipment
HKAS 17	:	Leases
HKAS 18	:	Revenue
HKAS 19	:	Employee benefits
HKAS 21	:	The effects of changes in foreign exchange rates
HKAS 23	:	Borrowing costs
HKAS 24	:	Related party disclosures
HKAS 27	:	Consolidated and separate financial statements
HKAS 33	:	Earnings per share
HKAS 34	:	Interim financial reporting
HKAS 36	:	Impairment of assets
HKAS 37	:	Provisions, contingent liabilities and contingent assets
HKAS 38	:	Intangible assets
HKFRS 2	:	Share-based payment
HKFRS 3	:	Business combinations

The adoption of the above new HKASs 1, 2, 7, 8, 12, 14, 16, 17, 18, 19, 21, 23, 24, 27, 33, 34, 36, 37, 38 and HKFRS 3 did not result in substantial changes to the Group’s accounting policy, except that HKAS 1 affects certain presentation and disclosure of the accounts and HKFRS 2 is adopted prospectively for the period commencing from 1 January 2005.

— I-47 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. Business and Geographical Segment Information

Geographical Segments

For the six months ended 30 September 2005

REVENUE External revenue Other revenue Total revenue SEGMENT RESULTS For the six months ended 30 September 2004 REVENUE External revenue Other revenue Total revenue SEGMENT RESULTS	Hong Kong and PRC HK$’000 — 42 42 (3,763) Hong Kong and PRC HK$’000 — — — (4,333)	Australia HK$’000 2,805 6 2,811 (2,587) Australia HK$’000 4,173 21 4,194 (639)	Consolidated HK$’000 2,805 48 2,853 (6,350) Consolidated HK$’000 4,173 21 4,194 (4,972)

3. Depreciation and Amortisation

During the period, depreciation and amortisation of approximately HK$842,000 (for the six months ended 30 September 2004: HK$770,000) was charged in respect of the Group’s property, plant and equipment.

— I-48 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. Other Operating Expenses

Other operating expenses comprise:

Provision for bad and doubtful debts Others	For the six months ended 30 September 2005 2004 HK$’000 HK$’000 (Unaudited) (Unaudited) — 478 — 36 — 514

5. Taxation

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

The Group and the Company did not have any other significant unprovided deferred taxation in respect of timing differences arising during the period or as at the balance sheet date.

6. Dividend

No dividend has been paid or declared by the Company for the six months ended 30 September 2005.

7. Loss Per Share

The calculation of the basic loss per share is based on the net loss for the period of approximately HK$6,543,000 (for the six months ended 30 September 2004: HK$5,170,000) and on 6,300,659,215 shares (for the six months ended 30 September 2004: 4,788,822,570 shares).

Diluted loss per share is not presented as there were no dilutive potential ordinary shares in existence for the six months ended 30 September 2005.

8. Property, Plant and Equipment

No impairment losses were recognised in respect of property, plant and equipment for both periods. During the period, the Group spent approximately HK$1,396,000 on property, plant and equipment and also disposed property, plant and equipment with net book value of approximately HK$123,000.

— I-49 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

9. Trade and Other Receivables

Trade receivables Other receivables Deposit paid Prepayment	30 September 2005 HK$’000 (Unaudited) 1,814 182 503 319 2,818	31 March 2005 HK$’000 (Audited) 906 190 501 804 2,401

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

An ageing analysis of trade receivables are as follows:

0 — 30 days 31 — 60 days 61 — 180 days More than 180 days Trade and Other Payables Trade payables Other payables and accrual	30 September 2005 HK$’000 (Unaudited) 312 — 1,502 — 1,814 30 September 2005 HK$’000 (Unaudited) 1,003 2,531 3,534	31 March 2005 HK$’000 (Audited) 399 343 164 — 906 31 March 2005 HK$’000 (Audited) 554 2,573 3,127

10. Trade and Other Payables

— I-50 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

An ageing analysis of trade payables are as follows:

0 — 30 days 31 — 60 days 61 — 90 days More than 90 days 11. Interest Bearing Borrowings — Current Portion Bank loan — secured _Less:_Amount due over 1 year classified as non-current portion Amount due within 1 year Other loan — unsecured	30 September 2005 HK$’000 (Unaudited) 997 — — 6 1,003 30 September 2005 HK$’000 (Unaudited) 4,660 (4,067) 593 1,310 1,903	31 March 2005 HK$’000 (Audited) 166 49 — 339
		554

		31 March 2005 HK$’000 (Audited) 5,038 (4,435)
		603 —
		603

Other loan represents the amount due to the director Mr. Chan Chun Hing, which is unsecured, interest-bearing at 3% over the prevailing prime rate and repayable on 31 March 2006.

12. Share Capital

Authorised: At 31 March 2005 and at 30 September 2005 ordinary shares of HK$0.01 each Issued and fully paid: At 1 April 2004 Issue of shares_(note 1 and 2) At 31 March 2005 Issue of shares(note 3)_ At 30 September 2005	No. of shares 10,000,000,000 4,788,822,570 1,457,764,514 6,246,587,084 106,400,000 6,352,987,084	Amount HK$’000 100,000

		47,888 14,578
		62,466 1,064
		63,530

— I-51 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes:

On 23 December 2004, the holder of the convertible note in the principal amount of HK$5,000,000 exercised the options to convert the whole note into 500,000,000 ordinary shares of HK$0.01 each at par, which rank pari passu in all respects with the existing shares of the Company.
On 6 January 2005, the holder of the Warrants of HK$3,000,000 exercised the attached rights to subscribe 300,000,000 ordinary shares of HK$0.01 each in the capital of the Company which were allotted and issued at par on the same date.
On 7 March 2005, the holder of the remaining Warrants of HK$6,577,645 exercised the attached rights to subscribe 657,764,514 ordinary shares of HK$0.01 each in the capital of the Company which were allotted and issued at par on the same date.
On 29 June 2005, 106,400,000 new ordinary shares of HK$0.01 each were issued at HK$0.125 each per the subscription agreements dated 6 June 2005 to two independent third parties. The reason for the increase in issued share capital was to provide additional general working capital of the Company for its daily operations and its potential investments in clean energy projects.

All these new ordinary shares rank pari passu in all respects with the existing shares of the Company.

13. Operating Lease Commitments

The Group leases its office and staff quarter under non-cancelled operating lease arrangements with remaining lease terms ranging from one to two years.

The Group had total future minimum lease payments under non-cancellable operating lease falling due as follows:

Within one year In the second to fifth years, inclusive	30 September 2005 HK$’000 (Unaudited) 1,570 98 1,668	31 March 2005 HK$’000 (Audited) 1,570 882 2,452

14. 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:

Property, plant and equipment	30 September 2005 HK$’000 (Unaudited) 18,248	31 March 2005 HK$’000 (Audited) 18,351

— I-52 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

15. Contingent Liabilities

At the balance sheet date, the Company has given a guarantee to financial institutions in respect of credit facilities utilised by one of its subsidiaries to the extent of approximately HK$4.6 million (at 31 March 2005: HK$5 million).

16. Related Party Transactions

Details of significant related party transactions during the interim reporting period are as follows:

Interest paid to a director Management fee paid to Integrated Project Solutions Limited	For the six months ended 30 September 2005 2004 HK$’000 HK$’000 (Unaudited) (Unaudited) 32 7 — 120

Interest expenses were calculated with reference to prevailing market interest rates.

17. Subsequent Events

On 19 August 2005, a subsidiary of the Company entered into a conditional sale and purchase agreement to acquire a property at a consideration of RMB7,300,000.

The transaction was completed on 18 October 2005 and the consideration was satisfied by the issue of 53,994,083 ordinary shares of the Company.

Further details are set out in the Company’s announcement dated 22 August 2005.

— I-53 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS OF THE GROUP

The following is the management discussion analysis extracted from the annual report of the Company for the year ended 31 March 2003, 2004 and 2005 and the interim report for the six months ended 30 September 2005.

Business review for the year ended 31 March 2003

The Group was originally engaged in cold storage warehousing, logistics management services, property holding and financial services. Following the appointment of the provisional liquidators on 31 December 2001, the Group’s non-core business operations were discontinued and only the core businesses of cold storage warehousing and logistics management services have been maintained, albeit on a lesser scale than in previous years, as the Group was suffering from a lack of working capital. During the year ended 31 March 2002, the Group disposed of most of its properties including those properties previously used for the Group’s cold storage operations in Hong Kong, and all investment properties (except for 24 townhouses located in Beijing, the PRC) in order to reduce the liabilities of the Group. All of the cold storage warehousing and logistics operations in Hong Kong were closed before the balance sheet date of 31 March 2002.

Financial position

For the year ended 31 March 2003, the Group recorded a consolidated turnover of approximately HK$16.9 million which was attributable to the cold storage warehousing and logistics management businesses.

The net loss for the year was approximately HK$47.7 million. The loss from operations was approximately HK$4.9 million for the year, compared with approximately HK$1,394.2 million in the year 2002.

The Group’s net liabilities approximated HK$1,304 million as at 31 March 2003 (2002: HK$1,252 million). Cash and bank balances and total bank and other borrowings approximated to HK$8 million (2002: HK$10 million) and HK$516 million (2002: HK$535 million) respectively, as at year end. The Group’s borrowings from creditor banks were not repaid according to the schedules set by the creditor banks and, became due for immediate repayment. As a result, the entire amounts outstanding were reclassified as current liabilities.

Bank and other borrowings were predominately in Hong Kong dollars approximately 9% of these bank and other borrowing are in US and Australian dollars. As a result, foreign exchange risk is minimal. Bank and other borrowings were subject to floating interest rates. The Group did not use financial instruments for hedging purposes and did not have foreign currency net investments being hedged by currency borrowings and other hedging instruments.

— I-54 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Segment information

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.

Employees

The Group had approximately 30 employees in Hong Kong, PRC and Australia as at 31 March 2003. The Group ensures that pay scales of its employees are rewarded on a performance-related basis within the general framework of the Group’s remuneration strategy.

Share Option Scheme

The share option scheme (“Share Option Scheme”) became effective on 30 September 1999 and, unless otherwise cancelled or amended, was to remain in force for 5 years from that date.

The outstanding options previously granted to the staff were not exercised and thus lapsed in the year ended 31 March 2003 in accordance with the terms of the Share Option Scheme.

Subsequent to the amendment of Chapter 17 of the Listing Rules with effect from 1 September 2001, no further share options were granted under the Share Option Scheme 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.

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 out of which approximately HK$188 million have been fully crystallised and converted into liabilities upon default in repayment by the subsidiaries.

— I-55 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Charge on assets

As at 31 March 2003, 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 Other receivables Bank deposits	2003 HK$’000 16,802 52 1,692
	18,546

Business review for the year ended 31 March 2004

After the completion of the Company’s restructuring on 5 December 2003, the Group concentrate resources on their core businesses of cold storage warehousing and logistics management services and explore into other business opportunities.

For the year ended 31 March 2004, the Group recorded a consolidated turnover of approximately HK$10.0 million. The net profit for the year was approximately HK$1,299.0 million. The operating loss was approximately HK$8.4 million for the year, compared with approximately HK$4.9 million for the year ended 31 March 2003.

Indebtedness of the Company’s creditors was discharged in full, pursuant to the schemes of arrangement under debt restructuring, at a consideration of making distribution to the scheme creditors on the pro-rata basis which comprised a cash payment of HK$38 million, any cash held by the Company on the date of completion for the Company’s restructuring and issuance of 96 million new shares of the Company. There was a net gain on restructuring of approximately HK$632.7 million for the financial year under review as a result of the written back of the Company’s un-settled indebtedness waived by scheme creditors upon the date of completion for the Company’s restructuring. On the date of completion for the Company’s restructuring, the Company disposed of certain subsidiaries to an independent third party resulting in a gain on de-consolidation of these subsidiaries of approximately HK$706.1 million.

Financial position

The Group’s cash and bank balances approximated HK$6.1 million as at 31 March 2004 (2003: HK$8.3 million). Out of the total borrowings of approximately HK$10.7 million as at the balance sheet date, bank and other borrowings accounted for approximately HK$5.7 million (2003: HK$515.6 million) and approximately HK$0.7 million of which were repayable within 1 year, HK$2.4 million would be repayable over 1 year but not

— I-56 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

exceeding 5 years and the remaining would be repayable over 5 years. The remaining balance of HK$5.0 million represented the convertible note (“Convertible Note”) which will be expired on 31 December 2004 (2003: nil). The Convertible Note was issued to an independent third party for HK$5.0 million on 10 February 2004 which if fully exercised will result in the issuance of 500,000,000 new shares of the Company. The gearing ratio of the Group measured as total debts to total asset was 80% as at 31 March 2004.

Approximately 53% of the total borrowings was in Australian dollars. The Board considered foreign exchange risk being minimal. Bank borrowing was subject to floating interest rate. While the Convertible Note was interest free. The Group did not use financial instruments for hedging purposes and did not have foreign currency net investments being hedged by foreign currency borrowings and other hedging instruments.

Segment information

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.

The Group’s business segments were classified as follows:

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

Employees

The Group had approximately 20 employees in Hong Kong, the PRC and Australia as at 31 March 2004. The Group ensures that pay scales of its employees are rewarded on a performance-related basis within the general framework of the Group’s remuneration strategy.

The emoluments payable to the Company’s directors are determined based on the scope of work, level of involvement, experience and seniority.

Share Option Scheme

No share option has been exercised, cancelled or lapsed during the year ended 31 March 2004 or outstanding as at 31 March 2004 pursuant to the share option scheme adopted on 30 September 1999.

— I-57 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Contingent liabilities

The Company’s guarantees given to financial institutions in respect of credit facilities utilised by its subsidiaries amounting to approximately HK$5.7 million.

During the year, the Company received a Writ of Summons issued by the Former Investors against the Company claiming for breach of the Former Restructuring Agreement made between the Former Investors and the Company to implement a restructuring proposal for the Company whereby the Former Investors asked for damages and losses suffered in the sum of approximately HK$47.7 million. However the claim was struck out by an order of the High Court of Hong Kong on 21 May 2004 as referred to in the Company’s announcement dated 7 June 2004. The Company was informed by its lawyer on 5 June 2004 that the appeal period has expired but no appeal has been lodged by the Former Investors.

At 31 March 2004, the Company has contingent liabilities in respect of litigation commenced by a scheme creditor. In previous year, the scheme creditor submitted a notice of claim to the former Provisional Liquidators of the Company who considered that the scheme creditor was unable to provide sufficient evidence to demonstrate that it had suffered any loss or damage as a result of any action taken by the Company. Its claim had therefore been rejected. The scheme creditor subsequently during the year commenced a litigation in the California Court of the United States of America for compensatory damages and punitive damages in total for approximately US$4.2 million. The Directors of the Company, after having consulted the legal counsel, believe the Company has a motion to dispose of the case and therefore had made no provision in the consolidated income statement for the year ended 31 March 2004.

Charge on assets

As at 31 March 2004, the following assets of the Group have been pledged to secure credit facilities granted to and utilised by the Group:

Property, plant and equipment Other receivables Bank deposits	2004 HK$’000 19,335 — —
	19,335

— I-58 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Business review fo the year ended 31 March 2005

For year ended 31 March 2005, the Company has principally engaged in the operation of its core business of cold storage warehousing and logistics management service.

The business of the Group experienced a mild slow-down mainly because certain multinational customers cut down their external warehousing requirement by developing or upgrading their own storage facilities. As a way out, the Group has been sourcing import traders which have increasing demand on storage space and actively seeking new business opportunities through strategic alliance with potential business partners.

Financial position

For the year ended 31 March 2005, the Group recorded a consolidated turnover of approximately HK$8.52 million representing a decrease of approximately 14.76% over that of the previous year. The direct operating expenses of the year was approximately HK$6.6 million representing a decrease of 22% which was greatly contributed to more effective cost management of the Group. The loss after taxes and minority interest attributable to shareholders for the year was approximately HK$7.81 million. The operating loss was approximately HK$7.52 million for the year representing an improvement of 10% over previous year. The net asset of the Group for the year was approximately HK$20 million representing an increase of 50%.

Current assets amount to HK$9.2 million which consists of cash and bank balances of HK$6.8 million. Current liabilities amounted to HK$4.2 million, the reduction was mainly due to the HK$5 million convertible note converted during the year. The gearing ratio of the Group, measured as total debts to total assets was 30%.

All of the bank borrowings was in Australian dollars. The Board considered foreign exchange risk being minimal. Bank borrowing was subject to floating interest rate. The Group did not use financial instruments for hedging purposes and did not have foreign currency net investments being hedged by foreign currency borrowings and other hedging instruments.

In January 2005, the Company entered into a legally non-binding strategic cooperation memorandum of understanding with Guangdong Guangye Assets Management Company Limited (“Guangye”) expressing the strong intention on the part of both the Company and Guangye to cooperate in the development of business involving clean energy project(s). The signing of the said memorandum of understanding could be a milestone in the Group’s future business development.

— I-59 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The continuing strong growth of the PRC economy has been accompanied by domestic increase in demand for energy supply in recent years. With growing consciousness of environmental protection and more stringent environmental legislation and regulation, it is foreseen that clean energy supply will constitute a more substantial proportion of energy supplied and consumed in China. The Group believes that strong alliance with Guangye will enable the Group to capture extensive business opportunities in the PRC in particular in the area of clean energy projects. Recently, the Company has been actively engaged in negotiation with third parties for the acquisition of certain clean energy business recommended by Guangye.

The Group will continue to devote its efforts to consolidating existing resources, so as to enhance its control capabilities for the operational management and to capture new business opportunities. At the same time, the Group will continue to maintain its existing cold storage warehousing and logistics management services and to further expand such services whenever business opportunities that will benefit the Group arise.

Segment information

No separate analysis of segment information by business is presented as the Group has only one business segment which is cold storage warehousing and logistics management services.

Employees

The Group had approximately 11 employees in Hong Kong, the PRC and Australia as at 31 March 2005. The Group ensures that pay scales of its employees are rewarded on a performance-related basis within the general framework of the Group’s remuneration strategy.

Share Option Scheme

The Share Option Scheme adopted on 30 September 1999 was terminated and replaced a new Share Option Scheme on the 16 July 2004. The new Share Option Scheme shall remain in force for 10 years from the adoption date unless otherwise terminated or amended.

On the 10 August 2004, the Listing Committee of The Stock Exchange of Hong Kong Limited granting approval of the listing of, and permission to deal in, any shares of the Company which may fall to be issued pursuant to the exercise of the options to be granted under the new Share Option Scheme.

No share option has been granted, exercised, cancelled or lapsed under the new Share Option Scheme during the year ended 31 March 2005 or outstanding as at 31 March 2005.

— I-60 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Contingent liabilities

As at 31 March 2005, the Company has given a guarantee to a financial institution in respect of credit facilities utilised by one of its subsidiaries to the extent of approximately HK$5 million.

Charges an assets

As at 31 March 2005, the Group’s property, plant and equipment amounted to HK$18,351,000 have been pledged to secure credit facilities granted to and utilised by the Group.

Business Review for the six months ended 30 September 2005

For the six months ended 30 September 2005, the Company was mainly engaged on the operation of its core business of cold storage warehousing and logistics management services.

Financial position

For the six months ended 30 September 2005, the turnover of the Group dropped by HK$1.36 million (approximately 32%) compared with the last corresponding period to approximately HK$2.8 million. The Group recorded an operating loss of approximately HK$6.35 million for the same period as compared to the operating loss of approximately HK$4.97 million for the last corresponding period. The business of the Group experienced a mild slow-down mainly because certain multi-national customers continued cutting down their external warehousing requirement.

In view of the decline of the Company’s operation in cold storage warehousing and logistics management services, the Company has focused on searching for business opportunities in clear energy industry in Mainland although the Group has not set any specific industrial or geographical limitations on its investment and is still actively negotiating with some potential business partners and associates with the aim of expending the Company’s scope of operation.

On 22 July 2005, the Company entered into a legally binding memorandum of understanding with the government of the Republic of Guyana setting out an arrangement for conducting exploration and exploitation of petroleum, natural gas and mineral resources in Guyana.

On 19 August 2005, the Company entered into an agreement for purchase of an office apartment in Shenzhen for advancement of the Group’s operation in Mainland and part of the office is intended to be the principal place of business of the Group in Mainland.

— I-61 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group mainly finances its daily operations with internally generated cash flows. At 30 September 2005, the current ratio of the Group, measured as total current assets to total current liabilities, was 2.9. The gearing ratio of the Group, measured as total debts to total assets, was 0.27 as at 30 September 2005.

The Group conducts its business transactions mainly in Hong Kong dollars and Australian dollars. The total borrowings are predominantly in Hong Kong dollars and approximately HK$4.6 million was in Australian dollars. Bank borrowing was subject to floating interest rates. The advance from a director of HK$1.3 million is bearing interest at 3% over the prevailing prime rate. The Group did not use financial instruments or arrange any forward currency contract for hedging purposes and did not have foreign currency net investments being hedged by foreign currency borrowings and other hedging instruments. The management will review from time to time the potential foreign exchange exposure and will take appropriate actions to minimize any potential foreign exchange exposure risk to arise in the future.

On 29 June 2005, the Company issued 106,400,000 new ordinary shares to two independent third parties and raised HK$13.3 million for financing general working capital of the Company and potential future investments.

Segment information

No separate analysis of segment information by business is presented as the Group has only one business segment which is cold storage warehousing and logistics management services.

Employees

The Group has approximately 10 employees in Hong Kong, PRC and Australia as at 30 September 2005. The Group ensures that the pay scales of its employees are rewarded on a performance rated basis within the general framework of the Group’s remuneration policy.

Contingent liabilities

As at 30 September 2005, the Company has given a guarantee to financial institutions in respect of credit facilities utilised by one of its subsidiaries to the extent of approximately HK$4.6 million.

Capital Commitment

As at 30 September 2005, the Group has no material capital commitment.

— I-62 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Charges on assets

As at 30 September 2005, the Group’s cold warehousing property located in Australia with a carrying value of approximately HK$18.2 million has been pledged to secure the credit facilities granted and utilized by the Group.

As at 30 September 2005, the company has given a corporate guarantee amounting to approximately HK$4.6 million in favour of the financial institutions for the credit facilities granted and utilized by its subsidiaries.

5. STATEMENT OF INDEBTEDNESS

At the close of business on 28 February 2006 (being the latest practicable date for the purpose of this indebtedness statement prior to printing of this circular), the Enlarged Group had outstanding borrowing of approximately HK$26,540,000.

In addition, as at 28 February 2006, the Company has contingent liabilities in respect of guarantee for banking facilities of approximately HK$4,385,000.

Save as set out in the preceding paragraph and apart from intra-group liabilities and normal trade payables and bills payable, none of the companies of the Group had outstanding as at the close of business of 28 February 2006 any mortgages, charges, debentures, loan capital, debt securities (whether issued and outstanding, and authorised or otherwise created but unissued), term loans and overdrafts, or other similar indebtedness, finance leases or hire purchase commitments, liabilities under acceptances or acceptances credits or other borrowings or indebtedness in the nature of borrowings or any guarantees or other material contingent liabilities.

For the purpose of the above indebtedness statement, foreign currency amounts have been translated into Hong Kong dollars at the approximate exchange rates prevailing at the close of business on 28 February 2006.

The directors have confirmed that there have been no material changes in the indebtedness and/or contingent liabilities of the Group since 28 February 2006.

6. SECURITY

As at 28 February 2006, banking facilities to the extent of approximately HK$4,385,000 of the Enlarged Group were secured by the fixed and floating charge over the assets and undertaking of a member of the Enlarged Group. The Group has also pledged certain of its land use rights in PRC with aggregate carrying value of HK$659,000 to 新安縣投資開發中心 (Xinan County Investment and Development Centre*) for two years commencing from 19 January 2006 to 18 January 2008, which has provided corporate guarantee to secure the Group’s bills payable to suppliers.

— I-63 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

7. WORKING CAPITAL

The Directors are of the opinion that, after taking into account the internal resources available to the Enlarged Group, a loan facility of HK$30 million from an independent third party based on a loan agreement dated 2 May 2006 for a period of eighteen months commencing from 2 May 2006, and banking facilities of A$1 million (equivalent to approximately HK$5.9 million) from Bank of Western Australia Limited to the Group and in the absence of unforeseen circumstances, the Enlarged Group has sufficient working capital for its present requirements for the next twelve months from the date of this curcular.

8. MATERIAL ADVERSE CHANGE

The Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 March 2005 being the date to which the latest published audited financial statements of the Group have been made up.

— I-64 —

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

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26 May 2006

The Directors

Seapower Resources International Limited 3308, Office Tower Convention Plaza 1 Harbour Road Wanchai Hong Kong

Dear Sirs,

We set out below our report on the financial information of 河南阜源石油化工有限公司 (the “Company”) and its subsidiary (hereinafter collectively referred to as the “Group”) for the period from 4 July 2002 (date of incorporation) to 31 March 2003, each of two years ended 31 March 2004 and 2005 and for the nine months ended 31 December 2005 (the “Relevant Periods”) for inclusion in the circular of Seapower Resources International Limited (“Seapower”) dated 26 May 2006 (the “Circular”) in connection with the proposed acquisition of the 51% equity interest in the Company, by Seapower.

The Company was established in the People’s Republic of China (the “PRC”) on 4 July 2002 with a registered capital of RMB5,080,000. Pursuant to an agreement dated 30 September 2002, the Company acquired the whole business, assets (including the 51% equity interest in 新安瀚源石油有限公司 ) and liabilities of 囱運集團石油股份有限公司 at a consideration of RMB4,000,000. The Company is engaged in the wholesale and retail of oil and gas products, including gasoline, petroleum, diesel oil and lubricating oil since incorporation.

— II-1 —

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

Particulars of the Company’s subsidiary as at 31 December 2005 are as follows:

Proportion of Place and date of registered capital incorporation/ Registered held directly Name operation capital by the Company Principal activities 新安瀚源石油有限公司 PRC RMB650,000 51% Sale of gasoline, (Xinan Han Yuan Petroleum 19 September 2002 petroleum, diesel Company Limited) oil and lubricating oil

The financial statements of the Company and its subsidiary have been prepared in accordance with the PRC accounting rules and regulations (the “PRC GAAP”) by the directors of the respective companies for the Relevant Periods. However, the directors of the Company have advised that no PRC statutory audited financial statements of the Company and its subsidiary have been prepared since their respective establishment dates as there is no requirement to do so.

For the purpose of this report, the directors of the Company have prepared consolidated financial statements of the Group and financial statements of the Company for the Relevant Periods (the “HKGAAP accounts”) in accordance with Hong Kong Financial Reporting Standards issued by Hong Kong Institute of Certified Public Accountants (the “HKICPA”). We have carried out independent audit procedures on the HKGAAP accounts for the Relevant Periods in accordance with Hong Kong Standards on Auditing issued by the HKICPA.

We have examined the HKGAAP accounts of the Group for the period from 4 July 2002 (date of incorporation) to 31 March 2003, each of two years ended 31 March 2004 and 2005 and for the nine months ended 31 December 2005 (the “Underlying Financial Statements”) in accordance with the Auditing Guideline 3.304 “Prospectuses and the reporting accountant” as recommended by the HKICPA.

The consolidated income statements, consolidated statements of changes in equity and consolidated cash flow statements of the Group for the period from 4 July 2002 (date of incorporation) to 31 March 2003, each of the two years ended 31 March 2004 and 2005 and for the nine months ended 31 December 2005 and the consolidated balance sheets of the Group and the balance sheets of the Company as at 31 March 2003, 2004 and 2005 and 31 December 2005 together with the notes thereon (the “Financial Information”) set out in this report have been prepared from the Underlying Financial Statements.

— II-2 —

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

The Underlying Financial Statements are the responsibility of the directors of the Company who approved their issue. The directors of Seapower are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information set out in this report from the Underlying Financial Statements, to form an opinion on the Financial Information and to report our opinion to you.

In our opinion, the Financial Information gives, for the purpose of this report, a true and fair view of the state of affairs of the Group and the Company as at 31 March 2003, 2004, 2005 and 31 December 2005 and of the results and cash flows of the Group for the period from 4 July 2002 (date of incorporation) to 31 March 2003, each of the two years ended 31 March 2004 and 2005 and for the nine months ended 31 December 2005.

The comparative consolidated financial information of the Group for the nine months ended 31 December 2004 has been extracted from the Group’s consolidated financial information for the same period which was prepared by the directors of the Company solely for the purpose of this report. We have reviewed the consolidated financial information for the nine months ended 31 December 2004 in accordance with Statement of Auditing Standards 700 “Engagements to review interim financial reports” issued by the HKICPA. Our review consisted principally of making enquires of group management and applying analytical procedures to the consolidated financial information for the nine months ended 31 December 2004 and based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the consolidated financial information for the nine months ended 31 December 2004. On the basis of our review which does not constitute an audit, we are not aware of any material modifications that should be made to the consolidated financial information for the nine months ended 31 December 2004.

— II-3 —

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

I. FINANCIAL INFORMATION

Consolidated income statements

Notes Turnover 4 Cost of goods sold Gross profit Other income 5 Selling and distribution expenses General and administrative expenses Other operating expenses Profit from operations Finance costs 6 Share of results of associates Profit/(loss) before taxation 8 Taxation 9 Net profit/(loss) for the year 10 Attributable to: Equity holders of the Company Minority interests Dividends 11	4/7/2002 to 31/3/2003 RMB’000 194,473 (187,612) 6,861 118 (994) (2,355) (22) 3,608 (805) — 2,803 (1,031) 1,772 1,711 61 1,772 165	Year ended 31/3/2004 31/3/2005 RMB’000 RMB’000 296,725 297,168 (288,678) (278,039) 8,047 19,129 498 196 (3,363) (3,625) (3,171) (4,295) (21) (10) 1,990 11,395 (2,004) (1,423) — — (14) 9,972 (282) (3,487) (296) 6,485 (417) 6,382 121 103 (296) 6,485 1,265 2,092	Nine months ended 31/12/2004 31/12/2005 RMB’000 RMB’000 (unaudited) 226,496 293,067 (211,626) (283,835) 14,870 9,232 105 340 (2,589) (2,881) (3,045) (3,936) (9) (432) 9,332 2,323 (1,054) (1,591) — (189) 8,278 543 (2,947) (405) 5,331 138 5,278 104 53 34 5,331 138 2,092 1,838

— II-4 —

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

Consolidated balance sheets

At 31/3/2003	At 31/3/2004	At At 31/3/2005 31/12/2005	At At 31/3/2005 31/12/2005
RMB’000	RMB’000	RMB’000	RMB’000
3,951 723 — 296	9,217 944	10,467 923	17,430 935 5,322 —
	3,000 542	2,247 —
4,970	13,703	13,637	23,687
7,277 1,704 21 23,996 — 10,000 6,191	13,437 3531	19,913 4170	14,897 3,596 22 8,268 4,578 — 3,198
	, 21 6,744 422 10,000 15,615	, 21 16,830 912 10,000 3,421
49,189 54,159	49,770 63,473	55,267 68,904	34,559 58,246

5,080 1,546 165	5,080 (136)	5,080 4400	5,080 8,107 —
	1,265	, 2,092
6,791 240 7,031	6,209 318 6,527	11,572 338 11,910	13,187 184 13,371
—	—	415	2,532
1,440 13,090 25,250 — — 6,289 — 1,059	8,490 21535	4,206 21343	13,207 18 19,302 2,247 2,970 3,891 416 292
	, 20,080 5 — 6,685 — 151	, 18,936 11 566 10,756 416 345
47,128 47,128 54,159 2,061 7,031	56,946 56,946 63,473 (7,176) 6,527	56,579 56,994 68,904 (1,312) 12,325	42,343 44,875 58,246 (7,784) 15,903

— II-5 —

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

Balance sheets

At 31/3/2003	At 31/3/2004	At At 31/3/2005 31/12/2005	At At 31/3/2005 31/12/2005
RMB’000	RMB’000	RMB’000	RMB’000
3,621 723 1,832 — 264	8,906 944	10,176 923	17,393 935 6,576 5,265 —
	2,248 3,000 566	1,618 2,001 —

6,440	15,664	14,718	30,169
6,534 1,440 21 23,850 — 10,000 5,450	12,477 2821	19,586 3671	14,457 2,243 22 8,240 — — 2,791
	, 21 6,676 128 10,000 15,091	, 21 16,778 — 10,000 3,271
47,295 53,735	47,214 62,878	53,327 68,045	27,753 57,922

5,080 1,551 165	5,080 (177)	5,080 4114	5,080 8,205 —
	1,265	, 2,092
6,796	6,168	11,286	13,285
—	—	384	2,612
1,440 13,090 25,151 — 6,289 — — 969	8,490 21535	4,206 21343	13,207 18 19,149 2,146 3,891 2,970 416 228
	, 19,894 — 6,685 — — 106	, 18,787 — 10,756 566 416 301
46,939 46,939 53,735 356 6,796	56,710 56,710 62,878 (9,496) 6,168	56,375 56,759 68,045 (3,048) 11,670	42,025 44,637 57,922 (14,272) 15,897

— II-6 —

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

Consolidated statement of changes in equity

Share capital RMB’000 Capital contributed upon incorporation 5,080 Purchase of business — Profit for the year — Transfers — Proposed final dividend — At 31 March 2003 5,080 Loss for the year — Transfers — Proposed final dividend — Dividend paid — At 31 March 2004 5,080 Profit for the year — Transfers — Share of capital surplus in associates — Proposed final dividend — Dividend paid — At 31 March 2005 5,080 Revaluation surplus (Note 12) — Deferred tax liability recognized_(Note 12)_ — Profit for the period — Transfers — Dividend paid and payable — At 31 December 2005 5,080 At 1 April 2004 5,080 Profit for the period — Transfers — Share of capital contributed surplus in associates — Proposed final dividend — Dividend paid — At 31 December 2004 5,080	Retained profits RMB’000 — — 1,711 (29) (165) 1,517 (417) (319) (1,265) — (484) 6,382 (528) — (2,092) — 3,278 — — 104 (324) (1,838) 1,220 (484) 5,278 (528) — (2,092) — 2,174	Statutory Property Statutory public Proposed Capital revaluation surplus welfare final reserve reserve reserve fund dividend RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 — — — — — — — — — — — — — — — — — 19 10 — — — — — 165 — — 19 10 165 — — — — — — — 213 106 — — — — — 1,265 — — — — (165) — — 232 116 1,265 — — — — — — — 352 176 — 246 — — — — — — — — 2,092 — — — — (1,265) 246 — 584 292 2,092 — 8,121 — — — — (2,680 ) — — — — — — — — — — 216 108 — — — — — (2,092) 246 5,441 800 400 — — — 232 116 1,265 — — — — — — — 352 176 — 246 — — — — — — — — 2,092 — — — — (1,265) 246 — 584 292 2,092	Minority interest RMB’000 — 179 61 — — 240 121 — — (43) 318 103 — — — (83) 338 — — 34 — (188) 184 318 53 — — — (83) 288	Total RMB’000 5,080 179 1,772 — — 7,031 (296) — — (208) 6,527 6,485 — 246 — (1,348) 11,910 8,121 (2,680) 138 — (4,118) 13,371 6,527 5,331 — 246 — (1,348) 10,756

— II-7 —

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

Consolidated cash flow statements

4/7/2002 to 31/3/2003 RMB’000 Operating activities Profit/(loss) before taxation 2,803 Adjustments for: Depreciation 507 Impairment loss on properties 966 Loss/(gain) on disposal of fixed assets — Amortisation of lease payments for land under operating lease 11 Interest income (40) Interest expenses 805 Share of net results of associates — Operating profit before movements in working capital 5,052 (Increase)/decrease in inventories (4,064) (Increase)/decrease in trade and bills receivables 2,111 (Increase)/decrease in prepayment, deposits and other receivables (18,911) (Increase)/decrease in amount due from related parties — (Increase)/decrease in amount due from associates — (Increase)/decrease of pledged bank deposits (10,000) Increase/(decrease) in trade and bills payables 8,675 Increase/(decrease) in accruals and other payables 13,944 Increase/(decrease) in amount due to related parties — Increase/(decrease) in amount due to holding company 7,724 Increase/(decrease) in advance from directors — Net cash generated from/(used in) operations 4,531 Taxation PRC tax paid (317) Net cash from/(used in) operating activities 4,214	Year ended 31/3/2004 31/3/2005 RMB’000 RMB’000 (14) 9,972 1,124 1,440 — — 11 (21) 21 21 (143) (80) 2,004 1,423 — — 3,003 12,755 (6,160) (6,476) (1,827) (639) 17,252 (10,086) (422) (490) (1,500) 3,049 — — 8,445 (192) (5,170) (1,144) — 566 396 4,071 — 416 14,017 1,830 (1,436) (2,336) 12,581 (506)	Nine months ended 31/12/2004 31/12/2005 RMB’000 RMB’000 (unaudited) 8,278 543 1,063 1,091 — — (21) — 16 17 (68) (118) 1,054 1,591 — 189 10,322 3,313 3,213 5,016 (2,572) 574 (4,924) 8,562 422 (3,666) 3,000 (3,264) 5,000 10,000 (7,901) (21,325) (3,713) 366 2,400 2,404 (3,276) (6,865) 416 — 2,387 (4,885) (1,395) (1,021) 992 (5,906)

— II-8 —

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

Investing activities Interest received Acquisition of a subsidiary Payment for investment in associates Purchase of land use right Purchase of fixed assets Proceeds from disposal of fixed assets Net cash (used in)/from investing activities Financing activities Interest paid Dividend paid Proceeds from issue of new shares (Repayment)/inceptions of short-term loans Net cash from/(used in) financing activities Increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year/period Cash and cash equivalents at end of year/period Analysis of the balances of cash and cash equivalents Bank balances and cash	4/7/2002 to 31/3/2003 RMB’000 40 160 — — (429) — (229) (805) — 5,080 (2,069) 2,206 6,191 — 6,191 6,191	Year ended 31/3/2004 31/3/2005 RMB’000 RMB’000 143 80 — — (1,500) (2,050) (242) — (6,419) (2,691) 18 22 (8,000) (4,639) (2,004) (1,423) (203) (1,342) — — 7,050 (4,284) 4,843 (7,049) 9,424 (12,194) 6,191 15,615 15,615 3,421 15,615 3,421	Nine months ended 31/12/2004 31/12/2005 RMB’000 RMB’000 (unaudited) 68 118 — — (2,050) — — (30) (2,347) (3,372) 22 3,439 (4,307) 155 (1,054) (1,591) (1,330) (1,882) — — (4,784) 9,001 (7,168) 5,528 (10,483) (223) 15,615 3,421 5,132 3,198 5,132 3,198

— II-9 —

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

II. NOTES TO THE FINANCIAL INFORMATION

1. General

The Company is incorporated in PRC with limited liability. The Company’s ultimate holding company is 北京中油瀚峰偉業石油有限公司 , a private company which is incorporated in the PRC. The address of the registered office and principal place of business of the Company are 河南省新安縣洞河路 1號 .

The financial information are presented in Reminbi Yuan (“RMB”) which is the same as the functional currency of the Group.

The principal activities of the Group are wholesale and retail of oil and gas products, including gasoline, petroleum, diesel oil and lubricating oil.

2. Early adoption of new and revised Hong Kong financial reporting standards

Sine 2004, the HKICPA issued a number of new or revised Hong Kong Accounting Standards (“HKASs”) and Hong Kong Financial Reporting Standards (“HKFRSs”) and Interpretation (“INT”) (hereinafter collectively referred to as the “new HKFRSs”) which are effective for accounting periods beginning on or after 1 January 2005. For the purposes of preparing and presenting Financial Information of the Relevant Periods, the Group has early adopted all these new HKFRSs. This includes the following new, revised and renamed standards:

HKAS 1 Presentation of Financial Statements HKAS 2 Inventories HKAS 7 Cash Flow Statements HKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors HKAS 10 Events after the Balance Sheet Date HKAS 12 Income Taxes HKAS 14 Segment Reporting HKAS 16 Property, Plant and Equipment HKAS 17 Leases HKAS 18 Revenue HKAS 19 Employee Benefits HKAS 21 The Effects of Changes in Foreign Exchange Rates HKAS 23 Borrowing Costs HKAS 24 Related Party Disclosures HKAS 27 Consolidated and Separate Financial Statements HKAS 32 Financial Instruments: Disclosures and Presentation HKAS 33 Earnings Per Share HKAS 36 Impairment of Assets HKAS 37 Provision, Contingent Liabilities and Contingent Assets HKAS 38 Intangible Assets HKAS 39 (Amendment) Transition and Initial Recognition of Financial Assets and Financial Liabilities HKAS 40 Investment Properties HKAS- Int 15 Operating Leases- Incentives HKAS- Int 21 Income Taxes Recovery of Revaluated Non-depreciable Assets HKFRS 2 Share-based Payments HKFRS 3 Business Combination HKFRS 4 Insurance Contracts

— II-10 —

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

The HKICPA has issued the following standards and interpretations that are not yet effective. The Group has considered the following standards and interpretations but does not expect they will have a material effect on how the results of operations and financial position of the Group are prepared and presented.

HKAS 1 (Amendment) Capital disclosures HKAS 19 (Amendment) Actuarial gains and losses, group plans and disclosures HKAS 39 (Amendment) Cash flow hedge accounting of forecast intragroup transactions HKAS 39 (Amendment) The fair value option HKAS 39 and HKFRS 4 Financial guarantee contracts (Amendments) HKFRS 7 Financial instruments: disclosures HK(IFRIC)-INT 4 Determining whether an arrangement contains a lease HK(IFRIC)-INT 6 Liabilities arising from participating in a specific market-waste electrical and electronic equipment

3. Significant accounting policies

The Financial Information have been prepared under the historical cost convention except that for the purpose of this report, the buildings of the Group at 31 December 2005 have been stated at the fair market value determined by an independent professional valuer, and in accordance with Hong Kong Financial Reporting Standards issued by the HKICPA. The Financial Information also complies with the disclosure requirements of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (“the Stock Exchange”) as applicable to accountant reports in the listing documents.

The preparation of Financial Information in accordance with the HKFRS requires the management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and contingent liabilities at the balance sheet dates and the reported amounts of revenues and expenses during the Relevant Periods. Actual results could differ from those estimates.

(a) Basis of consolidation

The Financial Information incorporate the financial statements of the Company and its subsidiary made up to each balance sheet date at 31 March, for the purpose of this report.

The results of subsidiary acquired or disposed of during the year/period are included in the consolidated income statements 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 have been eliminated on consolidation.

(b) Investments in subsidiary

Investments in subsidiary are included in the Company’s balance sheet at cost less any identified impairment loss.

— II-11 —

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

(c) Revenue recognition

Sales of goods are recognised when goods are delivered and title has passed.

Interest income from a financial asset is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.

(d) Property, plant and equipment

Property, plant and equipment are stated at cost or valuation less accumulated depreciation and any impairment losses.

The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after the fixed assets have been put into operation, such as repairs and maintenance, is normally charged to the 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.

Depreciation is calculated on the straight-line basis to write off the cost or valuation of each asset over its estimated useful life. The principal annual rates used for this purpose are as follows:

Leasehold buildings	5% — 10%
Furniture, fixtures and office equipment	20%
Plant and machinery	10% — 20%
Motor vehicles	20%

Changes in the values of property, plant and equipment resulting from revaluations are dealt with, on an individual asset basis, as movements in the asset revaluation reserve. Deficits arising from revaluation, to the extent they cannot be offset against the revaluation surplus in respect of the same asset, are charged to the income statement. Any subsequent revaluation surplus is credited to income statement to the extent of the deficit previously charged.

The gain or loss on disposal or retirement of a property, plant and equipment recognised in the income statement is the difference between the net sales proceeds and the carrying amount of the relevant asset. On disposal or retirement, the attributable revaluation surplus not previously dealt with in retained profits is transferred directly to retained profits.

(e) Impairment

At each balance sheet date, the Group reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Any impairment loss is recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately.

— II-12 —

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

(f) Operating leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lease. All other leases are classified as operating leases.

Rental income from operating leases is recognised in the income statement on a straightline basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised as an expense on a straight-line basis over the lease term.

Rental payable under operating leases are charged to profit or loss on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are recognised as a reduction of rental expense over the lease term on a straight-line basis.

(g) Retirement benefit costs

Obligatory retirement benefits in the form of contributions under a defined contribution retirement scheme administered by local government agencies are recognised as expense to the income statement as and when incurred.

(h) Financial instruments

Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group becomes a party to the contractual provisions of the instrument.

(i) Trade and loan receivables

Trade and loan receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method less any identified impairment losses. Appropriate impairment for estimated irrecoverable amounts is recognised in profit or loss when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.

(j) Cash and cash equivalents

Cash and cash equivalents comprise cash in hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

(k) Borrowings

Interest-bearing bank loans and other loans are initially recorded at the proceeds and are subsequently measured at amortised cost, using the effective interest rate method. Finance costs, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accrual basis to the income statement using the effective interest rate method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.

— II-13 —

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

(l) Other payables

Other payables are initially measured at fair value and are subsequently measured at amortised cost, using the effective interest rate method.

(m) Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year/period. Taxable profit differs from profits as reported in the income statement because it excludes items of income and expense that are taxable or deductible in other years/periods, and it further excludes income statement items that are never taxable or deductible.

Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the Financial Information and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it related to items charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

(n) Foreign currencies

In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are translated at the rates prevailing on the balance sheet date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not translated.

Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are included in profit or loss for the period in which they arise.

— II-14 —

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

(o) Borrowing costs

All borrowing costs are recognised as and included in finance costs in the income statement in the period in which they are incurred.

(p) Employee benefits

(q) Segment reporting

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.

(r) Related parties

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

(s) Goodwill

Goodwill represents the excess of the cost of a business combination over the group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities.

Goodwill is stated at cost less accumulated impairment losses. Goodwill is allocated to cash-generating units and is tested annually for impairment.

Any excess of the group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of a business combination is recognised immediately in the incomes statement.

On disposal of cash generating unit, any attributable amount of goodwill is included in the calculation of the profit or loss on disposal.

— II-15 —

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

(t) Land use rights

Land use rights are recognised as operation leases and stated at coat accumulated amortisation of operating lease prepayment over the term of the lease.

(u) Inventories

Inventories are stated at the lower of cost and net realisable value and are calculated using the weighted average cost method. Net realisable value represents the estimated selling price less all estimated costs to completion and costs to be incurred in marking, selling and distribution.

(v) Provisions and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when the Group or the Company 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 expenditure expected to settle the obligation.

Where it is not probable that an outflow of economics 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 economics benefits is remote.

(w) Investments in associates

Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for by the equity method of accounting and are initially recognized at cost. The Group’s investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition.

The Group’s share of its associates’ post-acquisition profits or losses is recognized in the income statement, and its share of post-acquisition movements in reserves is recognized in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognize further losses, unless it has incurred obligations or made payments on behalf of the associate.

Unrealized gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group.

In the Company’s balance sheet the investment in associated companies are stated at cost less provision for impairment losses. The results of associated companies are accounted for by the Company on the basis of dividend received and receivable.

— II-16 —

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

4. Segment information and turnover

No separate analysis of segment information by business segment and geographical segment presented as the Group has only one business segment which is wholesale and retail of oil and gas products, including gasoline, petroleum, diesel oil and lubricating oil, which are conducted in the PRC only.

The turnover represented the sales value of goods supplied to the customers.

5. Other income

Interest income from — bank deposit — loan receivables Bad debts recovered Gain on disposal of fixed assets Transportation income Sundry income	4/7/2002 to 31/3/2003 RMB’000 40 — — — — 78 118	Year ended 31/3/2004 31/3/2005 RMB’000 RMB’000 143 80 — — 355 — — 21 — 83 — 12 498 196	Nine months ended 31/12/2004 31/12/2005 RMB’000 RMB’000 (Unaudited) 68 118 — — — — 21 — — 220 16 2 105 340	Nine months ended 31/12/2004 31/12/2005 RMB’000 RMB’000 (Unaudited) 68 118 — — — — 21 — — 220 16 2 105 340
				340

6. Finance costs

Interest on bank borrowings wholly repayable within five years Interest on other loans wholly repayable within five years	4/7/2002 to 31/3/2003 RMB’000 305 500 805	Year ended 31/3/2004 31/3/2005 RMB’000 RMB’000 969 787 1,035 636 2,004 1,423	Nine months ended 31/12/2004 31/12/2005 RMB’000 RMB’000 (Unaudited) 611 451 443 1,140 1,054 1,591	Nine months ended 31/12/2004 31/12/2005 RMB’000 RMB’000 (Unaudited) 611 451 443 1,140 1,054 1,591
				1,591

— II-17 —

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

7. Directors’ and employees’ emoluments

(a) Directors’ emoluments

For the period from 4 July 2002 (date of incorporation) to 31 March 2003 吳漢民張建設王玉峰王建霞張芳 For the year ended 31 March 2004 吳漢民張建設王玉峰王建霞張芳 For the year ended 31 March 2005 吳漢民張建設王玉峰王建霞張芳陳平	Fees RMB’000 — — — — — — — — — — — — — — — — — — —	Contribution Salaries to retirement and other benefits benefits scheme RMB’000 RMB’000 — — 14 3 13 2 13 2 13 2 53 9 10 — 36 7 32 6 32 6 32 6 142 25 42 — 36 7 32 6 32 6 32 6 19 — 193 25	Total emoluments RMB’000 — 17 15 15 15
			62

			10 43 38 38 38
			167

			42 43 38 38 38 19
			218

— II-18 —

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET

For the nine months ended 31 December 2004 (unaudited) 吳漢民張建設王玉峰王建霞張芳陳平 For the nine months ended 31 December 2005 吳漢民張建設王玉峰王建霞張芳陳平	Fees RMB’000 — — — — — — — — — — — — — —	Contribution Salaries to retirement and other benefits benefits scheme RMB’000 RMB’000 31 — 27 5 24 5 24 5 24 5 11 — 141 20 31 — 27 6 24 5 24 5 24 5 24 — 154 21	Total emoluments RMB’000 31 32 29 29 29 11
			161

			31 33 29 29 29 24
			175

(b) Employees’ emoluments

The five highest paid individuals included four, four, five, five and five directors for the period from 4 July 2002 (date of incorporation) to 31 March 2003, each of the two years ended 31 March 2005 and for the nine months ended 31 December 2004 and 2005 respectively, details of whose emoluments are set out above. The emoluments of the remaining one, one, nil, nil and nil individual are as follows:

4/7/2002 to 31/3/2003 RMB’000 Salaries and other benefits 8 Contributions to retirement benefits scheme — 8	Year ended 31/3/2004 31/3/2005 RMB’000 RMB’000 32 — — — 32 —	Nine months ended 31/12/2004 31/12/2005 RMB’000 RMB’000 (Unaudited) — — — — — —	Nine months ended 31/12/2004 31/12/2005 RMB’000 RMB’000 (Unaudited) — — — — — —
			—

— II-19 —

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

The emoluments were within the following bands:

Number of employees

Nil to RMB$1,000,000 RMB$1,000,001 — RMB$1,500,000	4/7/2002 to 31/3/2003 RMB’000 1 — 1	Year 31/3/2004 RMB’000 1 — 1	ended 31/3/2005 RMB’000 — — —	Nine months ended 31/12/2004 31/12/2005 RMB’000 RMB’000 (Unaudited) — — — — — —	Nine months ended 31/12/2004 31/12/2005 RMB’000 RMB’000 (Unaudited) — — — — — —
					—

8. Profit/(loss) before taxation

Profit/(loss) before taxation is arrived at after charging:

4/7/2002

to 31/3/2003 RMB’000 Staff costs Contribution to retirement scheme 53 Salaries & welfare 696 Other staff costs 31 Total staff costs 780 Impairment loss in respect of trade and other receivables 143 Impairment loss on properties 966 Auditors’ remuneration — Depreciation 507 Amortisation of lease payments for land under operating lease 11 Loss on disposal of property, plant and equipment — Operating lease rental in respect of rented premises —	Year ended 31/3/2004 31/3/2005 RMB’000 RMB’000 209 120 2,005 2,195 72 66 2,286 2,381 — — — — — — 1,124 1,440 21 21 11 — 40 97	Nine months ended 31/12/2004 31/12/2005 RMB’000 RMB’000 (Unaudited) 179 195 1,622 1,694 51 55 1,852 1,944 — — — — — — 1,063 1,091 16 17 — — 65 146	Nine months ended 31/12/2004 31/12/2005 RMB’000 RMB’000 (Unaudited) 179 195 1,622 1,694 51 55 1,852 1,944 — — — — — — 1,063 1,091 16 17 — — 65 146
			1,944 — — — 1,091 17 — 146

9. Taxation

Provision for the PRC enterprise income tax has been provided at the applicable income tax rate of 33% on the assessable profits of the Group and the Company during the Relevant Periods.

No provision for Hong Kong profits tax has been made as the Group had no assessable profits arising in Hong Kong during the Relevant Periods.

— II-20 —

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

(a) Major components of income tax expenses for the Relevant Periods are as follows:

Provision for income tax in respect of profit for the year — Current — Deferred Total taxation charged to consolidation income statement	4/7/2002 to 31/3/2003 RMB’000 1,327 (296) 1,031	The Group Nine months Year ended ended 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 528 2,530 968 (246) 957 (563) 282 3,487 405	4/7/2002 to 31/3/2003 RMB’000 1,220 (264) 956	The Company Nine months Year ended ended 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 386 2,389 902 (302) 950 (531) 84 3,339 371

(b) Tax payables in the balance sheet represents:

At the beginning of year/period Provision for PRC enterprise income tax Payment of PRC enterprise income tax At the end of year/period	The Group Nine months Year ended ended 31/3/2003 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 RMB’000 49 1,059 151 345 1,327 528 2,530 968 (317) (1,436) (2,336) (1,021) 1,059 151 345 292	31/3/2003 RMB’000 46 1,219 (296) 969	The Company Nine months Year ended ended 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 969 106 301 386 2,389 902 (1,249) (2,194) (975) 106 301 228

— II-21 —

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

(c) The charge for the Relevant Periods can be reconciled to the profit/(loss) per the consolidated income statement as follows:

4/7/2002 to 31/3/2003 RMB’000 Profit/(loss) before taxation and share of net results of associates 2,803 Tax at the applicable rates of 33% 925 Income not subject to taxation (32) Expenses not deductible for taxation 26 Underprovision of income tax for previous year/period 112 At the end of year/period 1,031	The Group Nine months Year ended ended 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 (14) 9,972 732 (5) 3,291 241 (27) (45) (2) 69 36 166 245 205 — 282 3,487 405	4/7/2002 to 31/3/2003 RMB’000 2,672 881 (14) 18 71 956	The Company Nine months Year ended ended 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 (379) 9,722 698 (125) 3,208 230 (27) (45) (25) — — 166 236 176 — 84 3,339 371	The Company Nine months Year ended ended 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 (379) 9,722 698 (125) 3,208 230 (27) (45) (25) — — 166 236 176 — 84 3,339 371
				371

10. Profit/(loss) attributable to equity holders of the Company

The profit/(loss) attributable to equity holders of the Company is dealt with in the financial statements of the Company to the extent of RMB1,716,000, (RMB463,000), RMB6,383,000, RMB327,000 and RMB5,379,000 for the period from 4 July 2002 (date of incorporation) to 31 March 2003, year ended 31 March 2004 and 2005, and nine months ended 31 December 2005 and 2004 respectively.

11. Dividends

			The Company
		Year ended		Nine months	ended
	31/3/2003	31/3/2004	31/3/2005	31/12/2004	31/12/2005
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
				(Unaudited)
Proposed final dividend	165*	1,265*	2,092*	2,092*	1,838

These dividends were proposed and declared after the respective balance sheet dates and they were presented as part of the equity of the Group and Company at these balance sheet dates.

The rates of dividends and the number of shares ranking for dividends are not presented as such information is not meaningful having regard to the purpose of this report.

— II-22 —

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

12. Property, plant and equipment

The Group

Construction Leasehold in progress buildings (“CIP”) RMB’000 RMB’000 Cost or revaluation Additions 2,630 — Disposals — — At 31 March 2003 2,630 — Additions 1,663 218 Transfers from CIP 85 (85) Disposals — — At 31 March 2004 4,378 133 Additions — 1,907 Transfers from CIP 509 (622) Disposals — — At 31 March 2005 4,887 1,418 Additions 1,029 2,056 Transfers from CIP 3,474 (3,474) Disposals (607) — Revaluation 6,244 — At 31 December 2005 15,027 — Accumulated depreciation Charge for the period 136 — Disposals — — Impairment loss 966 — At 31 March 2003 1,102 — Charged for the year 258 — Disposals — — At 31 March 2004 1,360 — Charged for the year 328 — Disposals — — At 31 March 2005 1,688 — Charge for the period 253 — Disposals (64) — Written back on revaluation (1,877) — At 31 December 2005 — — Net book value At 31 March 2003 1,528 — At 31 March 2004 3,018 133 At 31 March 2005 3,199 1,418 At 31 December 2005 15,027 —	Furniture, fixtures and Plant and office machinery equipment RMB’000 RMB’000 1,755 154 — — 1,755 154 4,037 136 — — — — 5,792 290 — — 39 74 — — 5,831 364 195 38 — — (3,824 ) (29) — — 2,202 373 254 27 — — — — 254 27 609 49 — — 863 76 753 53 — — 1,616 129 511 48 (954 ) (12) — — 1,173 165 1,501 127 4,929 214 4,215 235 1,029 208	Motor vehicles RMB’000 885 — 885 365 — (46) 1,204 784 — (14) 1,974 54 — (15) — 2,013 90 — — 90 208 (17) 281 306 (13) 574 279 (6) — 847 795 923 1,400 1,166	Total RMB’000 5,424 — 5,424 6,419 — (46) 11,797 2,691 — (14) 14,474 3,372 — (4,475) 6,244 19,615 507 — 966 1,473 1,124 (17) 2,580 1,440 (13) 4,007 1,091 (1,036) (1,877) 2,185 3,951 9,217 10,467 17,430

— II-23 —

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

12. Property, plant and equipment

The Company

Construction Leasehold in buildings progress RMB’000 RMB’000 Cost Additions 2,338 — Disposals — — At 31 March 2003 2,338 — Additions 1,662 218 Transfers from CIP 85 (85) Disposals — — At 31 March 2004 4,085 133 Additions — 1,907 Transfers from CIP 509 (622) Disposals — — At 31 March 2005 4,594 1,418 Additions 1,029 2,056 Transfers from CIP 3,474 (3,474) Disposals (607) — Revaluation 6,537 — At 31 December 2005 15,027 — Accumulated depreciation Charge for the period 122 — Disposals — — Impairment loss 966 — At 31 March 2003 1,088 — Charge for the year 244 — Disposals — — Impairment loss — — At 31 March 2004 1,332 — Charge for the year 314 — Disposals — — Impairment loss — — At 31 March 2005 1,646 — Charged for the year 242 — Disposals (64) — Written back on revaluation (1,824) — At 31 March 2005 — — Net book value At 31 March 2003 1,250 — At 31 March 2004 2,753 133 At 31 March 2005 2,948 1,418 At 31 December 2005 15,027 —	Furniture, fixtures and Plant and office machinery equipment RMB’000 RMB’000 1,698 154 — — 1,698 154 4,037 136 — — — — 5,735 290 — — 39 74 — — 5,774 364 195 38 — — (3,824 ) (29) — — 2,145 373 249 27 — — — — 249 27 603 49 — — — — 852 76 748 53 — — — — 1,600 129 507 49 (954 ) (12) — — 1,153 166 1,449 127 4,883 214 4,174 235 992 207	Motor vehicles RMB’000 885 — 885 365 — (46) 1,204 784 — (14) 1,974 54 — (15) — 2,013 90 — — 90 208 (17) — 281 305 (13) — 573 279 (6) — 846 795 923 1,401 1,167	Total RMB’000 5,075 — 5,075 6,418 — (46) 11,447 2,691 — (14) 14,124 3,372 — (4,475) 6,537 19,558 488 — 966 1,454 1,104 (17) — 2,541 1,420 (13) — 3,948 1,077 (1,036) (1,824) 2,165 3,621 8,906 10,176 17,393

— II-24 —

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

All the buildings of the Group and Company are held under a medium term lease in the PRC. For the purpose of this report, the buildings of the Group and the Company have been revalued by an independent professional valuer, RHL Appraisal Ltd on April 2006, on an open market basis, at approximately RMB 15,027,000 as at 31 March 2006 which, in the opinion of the directors of the Company, approximate to their fair market value at 31 December 2005. The gross revaluation surplus arising on the buildings of the Group and the Company amounting to approximately RMB 8,121,000 and RMB 8,361,000 have been recognized as a reserve movement in the equity respectively as at 31 December 2005. The resulting deferred liability of approximately RMB2,680,000 and RMB2,759,000 have been recognized by the Group and the Company respectively as at 31 December 2005 as referred to Note 29.

13. Prepaid lease payments

The Group’s prepaid lease payments for land use rights comprise:

Leasehold land outside Hong Kong: Long lease Medium-term lease Short lease Analysed for reporting purposes as: Current asset Non-current assets	The Group Nine months Year ended ended 31/3/2003 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 RMB’000 — — — — 744 965 944 957 — — — — 744 965 944 957 21 21 21 22 723 944 923 935 744 965 944 957	31/3/2003 RMB’000 — 744 — 744 21 723 744	The Company Nine months Year ended ended 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 — — — 965 944 957 — — — 965 944 957 21 21 22 944 923 935 965 944 957	The Company Nine months Year ended ended 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 — — — 965 944 957 — — — 965 944 957 21 21 22 944 923 935 965 944 957
				957

				22 935
				957

Based on an independent valuation conducted by RHL Appraisal Ltd on April 2006, the fair market value of the land use rights, on an open market basis, of the Group and the Company amount to approximately RMB14,100,000 as at 31 March 2006 which, in the opinion of the directors of the Company, approximate their fair market value as at 31 December 2005.

14. INTEREST IN A SUBSIDIARY

Unlisted investment, at cost Due from a subsidiary	31/3/2003 RMB’000 185 1,647 1,832	The Company 31/3/2004 31/3/2005 RMB’000 RMB’000 185 185 2,063 1,433 2,248 1,618	31/12/2005 RMB’000 185 6,391
			6,576

The balance with a subsidiary is unsecured, interest-bearing at rate of 5.31% per annum and with no fixed repayment terms.

— II-25 —

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

Particulars of the subsidiary of the Company are as follows:

				Proportion on
	Form of	Country of		registered
	business	incorporation/	Registered	capital held by	Principal
Name	structure	operation	capital	the Company	activities
新安瀚源石油	Corporate	PRC	RMB650,000	51%	Sales of gasoline,
有限公司					petroleum, diesel
					oil and
					lubricating oil

15. Interest in associates

(a)

Unlisted shares, at cost Share of net assets Due from/(to) associates	The Group Nine months Year ended ended 31/3/2003 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 RMB’000 — — — — — 1,500 3,796 3,607 — 1,500 (1,549) 1,715 — 3,000 2,247 5,322	31/3/2003 RMB’000 — — — —	The Company Nine months Year ended ended 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 1,500 3,550 3,550 — — — 1,500 (1,549) 1,715 3,000 2,001 5,265	The Company Nine months Year ended ended 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 1,500 3,550 3,550 — — — 1,500 (1,549) 1,715 3,000 2,001 5,265
				5,265

The balances with the associates are unsecured, interest bearing at rate of 5.31% per annum and have no fixed repayment terms.

(b) The Group had interests in the following associates at 31 December 2005

					Proportion on
	Form of	Country of			registered
	business	incorporation/		Registered	capital held	Principal
Name of entity	structure	operation		capital	by Company	activities
漯河市盛新石化	Corporate	PRC	RMB5,000,000		30%	Sales of汽油、
有限公司						煤油、潤滑油、
（盛新）						化工產品、
						瀝青、石蠟等
洛陽博洋達石油	Corporate	PRC	RMB5,000,000		41%	Sales of潤滑油、
化工有限公司						鋼材、建築材料
（博洋達）						的批發、零售

— II-26 —

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

16. Inventories

At cost Finished goods	The Group Nine months Year ended ended 31/3/2003 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 RMB’000 7,277 13,437 19,913 14,897	31/3/2003 RMB’000 6,534	The Company Nine months Year ended ended 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 12,477 19,586 14,457

The finished goods comprise gasoline, diesel oil and lubricating oil.

17. Trade and bills receivables

The Group allows a credit period ranging from 1 to 60 days to its customers.

Bills receivable Trade receivable _Less:_Provision for bad debt	The Group Nine months Year ended ended 31/3/2003 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 RMB’000 — 300 — — 4,327 5,854 6,249 5,676 4,327 6,154 6,249 5,676 (2,623) (2,623) (2,079) (2,080) 1,704 3,531 4,170 3,596	31/3/2003 RMB’000 — 4,001 4,001 (2,561) 1,440	The Company Nine months Year ended ended 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 — — — 5,382 5,717 4,289 5,382 5,717 4,289 (2,561) (2,046) (2,046) 2,821 3,671 2,243	The Company Nine months Year ended ended 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 — — — 5,382 5,717 4,289 5,382 5,717 4,289 (2,561) (2,046) (2,046) 2,821 3,671 2,243
				4,289 (2,046)
				2,243

The trade receivables with an aged analysis are as follows:

0 — 30 days 31 — 60 days 61 — 180 days 181 — 365 days Over 1 year _Less:_Impairment for bad debts	The Group Nine months Year ended ended 31/3/2003 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 RMB’000 1,146 2,167 2,290 3,348 84 205 580 443 232 327 98 18 259 414 27 59 2,606 2,741 3,254 1,808 4,327 5,854 6,249 5,676 (2,623) (2,623) (2,079) (2,080) 1,704 3,231 4,170 3,596	31/3/2003 RMB’000 907 83 218 248 2,545 4,001 (2,561) 1,440	The Company Nine months Year ended ended 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 1,762 1,818 2,422 200 553 27 327 98 6 414 28 59 2,679 3,220 1,775 5,382 5,717 4,289 (2,561) (2,046) (2,046) 2,821 3,671 2,243	The Company Nine months Year ended ended 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 1,762 1,818 2,422 200 553 27 327 98 6 414 28 59 2,679 3,220 1,775 5,382 5,717 4,289 (2,561) (2,046) (2,046) 2,821 3,671 2,243
				4,289 (2,046)
				2,243

— II-27 —

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

18. Prepayments, deposits and other receivables

Deposits paid to suppliers Prepaid interest Prepaid trademark V.A.T, refundable Sundry deposits Rental prepaid Sundry debtors Others _Less:_Provision for bad debts	The Group Nine months Year ended ended 31/3/2003 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 RMB’000 21,343 4,017 14,665 7,998 — 228 148 — — 96 46 — 72 — — — 11 23 17 10 — — 105 22 2,209 2,308 1,565 — 471 182 844 798 24,106 6,854 17,390 8,828 (110) (110) (560) (560) 23,996 6,744 16,830 8,268	31/3/2003 RMB’000 21,343 — — — 11 — 2,209 287 23,850 — 23,850	The Company Nine months Year ended ended 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 4,017 14,665 7,998 228 148 — 96 46 — — — — 23 17 10 — 105 22 2,308 1,565 — 4 682 660 6,676 17,228 8,690 — (450) (450) 6,676 16,778 8,240	The Company Nine months Year ended ended 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 4,017 14,665 7,998 228 148 — 96 46 — — — — 23 17 10 — 105 22 2,308 1,565 — 4 682 660 6,676 17,228 8,690 — (450) (450) 6,676 16,778 8,240
				8,690 (450)
				8,240

19. Pledged bank deposits The Group Nine months Year ended ended 31/3/2003 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 RMB’000 Deposits placed in certain banks as guarantee for bills payable to suppliers 10,000 10,000 10,000 — 20. Cash and cash equivalents The Group Nine months Year ended ended 31/3/2003 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 RMB’000 Cash at bank 3,592 13,164 2,535 1,629 Cash in hand 2,599 2,451 886 1,569 6,191 15,615 3,421 3,198	31/3/2003 RMB’000 10,000 31/3/2003 RMB’000 2,860 2,590 5,450	The Company Nine months Year ended ended 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 10,000 10,000 — The Company Nine months Year ended ended 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 12,968 2,530 1,491 2,123 741 1,300 15,091 3,271 2,791	The Company Nine months Year ended ended 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 10,000 10,000 — The Company Nine months Year ended ended 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 12,968 2,530 1,491 2,123 741 1,300 15,091 3,271 2,791
			2,791

— II-28 —

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

21. Borrowings

Non-current Current Total borrowings Representing: Bank loan Loans from employees Total borrowings	The Group Nine months Year ended ended 31/3/2003 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 RMB’000 — — — — 1,440 8,490 4,206 13,207 1,440 8,490 4,206 13,207 1,440 8,490 — — — — 4,206 13,207 1,440 8,490 4,206 13,207	31/3/2003 RMB’000 — 1,440 1,440 1,440 — 1,440	The Company Nine months Year ended ended 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 — — — 8,490 4,206 13,207 8,490 4,206 13,207 8,490 — — — 4,206 13,207 8,490 4,206 13,207	The Company Nine months Year ended ended 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 — — — 8,490 4,206 13,207 8,490 4,206 13,207 8,490 — — — 4,206 13,207 8,490 4,206 13,207
				13,207

				— 13,207
				13,207

The loans from bank and employees are repayable within one year and except for a bank loan of approximately RMB2,050,000 at 31 March 2004 were free from any pledge of the assets of the Group and the Company.

(a) The interest rates per annum at the respective balance sheet dates were as follows:

Bank loan Loans from employees 22. Trade and bills payables	The Group Nine months Year ended ended 31/3/2003 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 RMB’000 6.903% 5.31% — — — 6.903% — — 10% 10%	31/3/2003 RMB’000 6.903% —	The Company Nine months Year ended ended 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 5.31% — — — 6.903% — 10% 10%	The Company Nine months Year ended ended 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 5.31% — — — 6.903% — 10% 10%

Trade payables Bills payables	The Group Nine months Year ended ended 31/3/2003 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 RMB’000 3,090 1,535 1,343 18 10,000 20,000 20,000 — 13,090 21,535 21,343 18	31/3/2003 RMB’000 3,090 10,000 13,090	The Company Nine months Year ended ended 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 1,535 1,343 18 20,000 20,000 — 21,535 21,343 18	The Company Nine months Year ended ended 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 1,535 1,343 18 20,000 20,000 — 21,535 21,343 18
				18

— II-29 —

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

The following is an aged analysis of trade payables at the respective balance sheet date.

0 — 30 days 31 — 60 days 61 — 180 days 181 — 365 days Over 1 year	31/3/2003 RMB’000 1,895 1,189 6 — — 3,090	The Year ended 31/3/2004 RMB’000 29 26 1,474 — 6 1,535	Group Nine months ended 31/3/2005 31/12/2005 RMB’000 RMB’000 1,163 12 67 — 107 — — — 6 6 1,343 18	31/3/2003 RMB’000 1,895 1,189 6 — — 3,090	The Company Nine months Year ended ended 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 29 1,163 12 26 67 — 1,474 107 — — — — 6 6 6 1,535 1,343 18	The Company Nine months Year ended ended 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 29 1,163 12 26 67 — 1,474 107 — — — — 6 6 6 1,535 1,343 18
						18

23. Accruals and other Payables

Accrued salaries and welfare payables Business and other tax payables Deposits Accrued freight charges Sundry creditors Other loans_(a)_ Receipts in advance Accrued construction costs Others	31/3/2003 RMB’000 614 735 112 492 6,078 16,945 — — 274 25,250	The Year ended 31/3/2004 RMB’000 926 166 59 121 9,009 7,723 1,595 — 481 20,080	Group Nine months ended 31/3/2005 31/12/2005 RMB’000 RMB’000 988 788 24 1,457 59 59 1,576 1,437 6,620 5,734 3,753 4,559 5,330 3,400 — 1,474 586 394 18,936 19,302	31/3/2003 RMB’000 532 735 112 492 6,078 16,945 — — 257 25,151	The Company Nine Year ended months ended 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 762 860 681 249 5 1,412 59 59 59 121 1,576 1,437 9,009 6,620 5,734 7,723 3,753 4,559 1,508 5,330 3,400 — — 1,474 463 584 393 19,894 18,787 19,149	The Company Nine Year ended months ended 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 762 860 681 249 5 1,412 59 59 59 121 1,576 1,437 9,009 6,620 5,734 7,723 3,753 4,559 1,508 5,330 3,400 — — 1,474 463 584 393 19,894 18,787 19,149
						19,149

(a) The other loans were unsecured, interest bearing and with no fixed repayment terms. The range of interests rates of other loans for the period from 4 July 2002 (date of incorporation) to 31 March 2003, two years ended 31 March 2004 and 2005 and for the nine months ended 31 December 2005 ranged from 5.31% to 6.37%, 5.31% to 6.37%, 5.31% to 10% and 5.31% to 10% per annum respectively.

— II-30 —

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

24. Capital Commitments

		The	Group
	31/3/2003	31/3/2004	31/3/2005	31/12/2005
	RMB’000	RMB’000	RMB’000	RMB’000
Commitment in respect of construction
of building contracted for but not
provided in the financial information	—	3,474	2,174	—

25. Operating Lease Arrangements

The Group as lessee

At respective balance sheet date, the Group had commitments for future minimum lease payments under non-cancellable operating leases which fall due as follows:

Land and buildings Within one year In the second to fifth year inclusive Over five years	31/3/2003 RMB’000 151 600 2,337 3,088	31/3/2004 RMB’000 192 764 2,396 3,352	31/3/2005 RMB’000 192 764 2,205 3,161	31/12/2005 RMB’000 192 764 2,052
				3,008

At 31 March 2003 and 2004, leases are negotiated for term of three years and can be terminated by surrendering three months’ notice from the landlord or the Group after the first year lease. Monthly rental are recognised over the term of the leases. Contingent rental payments were calculated based on the excess of certain amount of turnover of the relevant operating that occupied the relevant properties over the pre-determined monthly rentals agreed by both parties.

At 31 March 2005 and 31 December 2005, leases are negotiated for terms of fourteen years and can be terminated by surrendering one year notice after the first ten years of tenancy. Monthly rental are recognised on a straight-line basis over the term of the leases.

26. Paid in issued capital

At 31 March 2003, 2004 and 2005 At 31 December 2005	The Company Registered Paid-in capital capital RMB’000 RMB’000 5,080 5,080 5,080 5,080	The Company Registered Paid-in capital capital RMB’000 RMB’000 5,080 5,080 5,080 5,080

		5,080

— II-31 —

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

27. Related party transactions

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

(a) During the Relevant Periods, the Company’s Directors and the Group’s senior management are of the view that the following companies are related parties of the Group:

Name of related party Relationship with the Group

北京中油瀚峰偉業有限公司 Parent enterprise of the Company 珠海博洋化工燃料發展限公司陳平(appointed on 1/9/2004) is a common director 新安電力集團有限公司 Minority shareholder of 新安瀚源石油有限公司

(b) Transactions with related parties:

The Group had the following significant transactions with its related parties:

				Nine
		Year ended		months ended
	31/3/2003	31/3/2004	31/3/2005	31/12/2005
	RMB’000	RMB’000	RMB’000	RMB’000
Sales of petroleum_(Note (i))_
北京中油瀚峰偉業有限公司	—	19,411	—	68,744
珠海博洋化工燃料發展	—	—	—	4,772
有限公司
新安電力集團有限公司	6,492	11,130	8,998	21,034
Sales of fixed assets_(Note (ii))_
洛陽博洋達石油	—	—	—	3,438
化工有限公司
Purchases of petroleum
北京中油瀚峰偉業有限公司	19,307	56,770	77,537	22,839
珠海博洋化工燃料發展
有限公司	—	3,915	4,366	3,471
Interest expenses
北京中油瀚峰偉業有限公司	256	154	112	93

(i) Sales to and purchases from 珠海博洋化工燃料發展有限公司 and 新安電力集團有限公司 were conducted at terms mutually agreed. The directors are of the view that the above transactions were carried out in the ordinary course of business.
(ii) During the year ended 31 December 2005, buildings, plant and equipment were sold to 洛陽博洋達石油化工有限公司 at the consideration of RMB3,438,000 which was same as the carrying value of these assets.

— II-32 —

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

(c) Balances with related parties

31/3/2003 RMB’000 Amount due from related parties Trade balances: 珠海博洋化工燃料發展有限公司 — 新安電集團有限公司 — — Amount due to related parties Trade balances: 珠海博洋化工燃料發展有限公司 — Amount due to holding company Trade balances: 北京中油瀚峰偉業有限公司 6,289	The Group Year ended 31/3/2004 31/3/2005 RMB’000 RMB’000 128 — 294 912 422 912 — 566 6,685 10,756	Nine months ended 31/12/2005 RMB’000 — 4,578 4,578 2,970 3,891	31/3/2003 RMB’000 — — — — 6,289	The Company Year ended 31/3/2004 31/3/2005 RMB’000 RMB’000 128 — — — 128 — — 566 6,685 10,756	Nine months ended 31/12/2005 RMB’000 — —
					—

					2,970

					3,891

The trade related balances with related companies and parties, arising from trade in nature, were interest bearing at rate of 5.31% per annum and with normal trade credit period and terms similar to those charged to third party customers in the ordinary course of business of the Group.

28. Amount due to directors

Non-trade balances 張建設王玉峰王建霞張芳	31/3/2003 RMB’000 — — — — —	The Group Nine Year ended months ended 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 — 60 60 — 105 105 — 171 171 — 80 80 — 416 416	31/3/2003 RMB’000 — — — — —	The Company Nine Year ended months ended 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 — 60 60 — 105 105 — 171 171 — 80 80 — 416 416	The Company Nine Year ended months ended 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 — 60 60 — 105 105 — 171 171 — 80 80 — 416 416
					416

The amounts due were unsecured, interest bearing at rate of 10% per annum and repayable on demand.

— II-33 —

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

29. Deferred income tax assets and liabilities

The movement in deferred income tax (assets)/liabilities during the year/period is as follows:

Taxation in the balance sheets represents: At the beginning of year/period Revaluation on buildings (Note 12) (Credited)/charged to consolidated income statement At the end of year/period	31/3/2003 RMB’000 — — (296) (296)	The Year ended 31/3/2004 RMB’000 (296 ) — (246 ) (542 )	Group Nine months ended 31/3/2005 31/12/2005 RMB’000 RMB’000 (542 ) 415 — 2,680 957 (563) 415 2,532	31/3/2003 RMB’000 — — (264) (264)	The Company Nine Year ended months ended 31/3/2004 31/3/2005 31/12/2005 RMB’000 RMB’000 RMB’000 (264 ) (566 ) 384 — — 2,759 (302 ) 950 (531 ) (566 ) 384 2,612

30. Business combination

On 30 September 2002, the business and all the assets and liabilities of 囱運集團石油股份有限公司 were transferred to the Company at a consideration of RMB4,000,000. This acquisition has been accounted for using purchase method.

The fair values of net assets acquired in the transaction are as follows:

Property, plant and equipment
Operating lease prepayments
Inventories
Trade and bills receivables
Prepayment and other receivables
Amount due from北京中油瀚峰偉業有限公司
Cash and cash equivalents
Tax payable
Short-term loans
Trade and bills payables
Accruals and other payables
Minority interest
Net assets acquired
Total consideration satisfied by:
Cash
Net cash inflow arising on acquisition:
Cash consideration paid
Cash and cash equivalents

RMB’000
4,996
756
3,212
3,815
5,084
1,435
4,160
(49)
(3,509)
(4,415)
(11,307)
(178)
4,000
4,000
RMB’000
(4,000)
4,160
160

— II-34 —

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

31. Financial risks and management

Exposure to credit, liquidity and interest rate arises in the normal course of the Group’s business. These risks are limited by the Group’s financial management policies and practices described below.

Credit risk

The Group’s principal financial assets are trade and other receivables, amounts due from related parties and bank balances and cash, which represent the Group’s maximum exposure to credit risk in relation to financial assets.

The Group’s credit risk is primarily attributable to its trade receivables and loan receivables. The amounts presented in the balance sheet are net of accumulated impairment, if any, estimated by the Group’s management based on prior experience and their assessment of the current economic environment. The Group has no significant concentration of credit risk on trade receivables, with exposure spread over a large number of counterparties and customers.

The credit risk on liquid funds is limited because majority of the counterparties are banks with creditworthy financial institutions.

Liquidity risk

The Company is exposed to minimal liquidity risk as the Company closely monitors its cash flow position.

Foreign exchange risk

The Group’s functional and presentation currency has been in Reminbi Yuan (“RMB”) since the operations are located only in the PRC and the operating expenses incurred are denominated in RMB. Accordingly, there is no foreign exchange risk.

Interest rate risk

The Group obtained financing through bank and third party borrowings, and the details of the Group’s interest rate exposure are disclosed in note 21.

32. Reserves

The Group

The amounts of the Group’s reserves and the movements therein for the Relevant Periods are presented in the consolidated statement of changes in equity.

— II-35 —

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

The Company

Retained profits (Accumulated losses) RMB’000 At 4 July 2002 — Profit for the year 1,716 Transfers (29) Proposed final dividend (165) At 31 March 2003 1,522 Loss for the year (463) Transfers (319) Proposed final dividend (1,265) Dividend paid — At 31 March 2004 (525) Profit for the year 6,383 Transfers (528) Proposed final dividend (2,092) Dividend paid — At 31 March 2005 3,238 Revaluation surplus (Note 12) — Deferred tax liability (Note 12) — Profit for the period 327 Transfers (324) Dividend paid and payable (1,838) At 31 December 2005 1,403 At 1 April 2004 (525) Profit for the period 5,379 Transfers (528) Proposed final dividend (2,092) Dividend paid — At 31 December 2004 2,234	Property revaluation reserve RMB’000 — — — — — — — — — — — — — — — 8,361 (2,759) — — — 5,602 — — — — — —	Statutory surplus reserve RMB’000 — — 19 — 19 — 213 — — 232 — 352 — — 584 — — — 216 — 800 232 — 352 — — 584	Statutory public welfare fund RMB’000 — — 10 — 10 — 106 — — 116 — 176 — — 292 — — — 108 — 400 116 — 176 — — 292	Proposed final dividend RMB’000 — — — 165 165 — — 1,265 (165) 1,265 — — 2,092 (1,265) 2,092 — — — — (2,092) — 1,265 — — 2,092 (1,265) 2,092	Total RMB’000 — 1,716 — — 1,716 (463) — — (165) 1,088 6,383 — — (1,265) 6,206 8,361 (2,759) 327 — (3,930) 8,205 1,088 5,379 — — (1,265) 5,202

— II-36 —

ACCOUNTANTS’ REPORT ON THE TARGET

APPENDIX II

(a) Statutory surplus reserve

In accordance with the Company Law of the PRC, the Company and its subsidiary are required to allocate 10% of their profit after tax to the statutory surplus reserve (“SSR”), based on the PRC statutory audited accounts of the respective companies, until such reserve reaches 50% of the registered capital of the Company and its subsidiary respectively. Subject to certain restrictions set out in the Company Law of the PRC, part of the SSR may be converted to increase share capital, provided that the remaining balance after the capitalisation is not less than 25% of the registered capital.

(b) Statutory public welfare fund

The Company and its subsidiary are required to transfer 5% to 10% of their respective net profit after tax to the statutory public welfare fund. The statutory public welfare fund can only be utilised on capital items for employees collective welfare. The statutory public welfare fund forms part of the shareholders’s equity but is not distributable other than in liquidation.

33. Pledge of assets

During the two years ended 31 March 2004 and 2005, the Group pledged one piece of land use right and certain buildings to 新安縣投資開發中心 which in turn provided guarantees to secure the Group’s bills payable to its suppliers. The carrying value of the pledged land use right and buildings of the Group amounted to RMB259,000 and RMB1,397,000 at 31 March 2004, RMB251,000 and RMB1,491,000 at 31 March 2005 respectively.

In addition, as at 31 March, 2004, buildings, plant and machinery with carrying value of approximately RMB584,000 and RMB3,447,000 were pledged to secure a bank loan of RMB2,050,000. The charges on these assets were released in November, 2004 when the bank loan was fully repaid.

34. Post balance sheet events

(a) On 19 January 2006, the Group has pledged certain of its land use rights with aggregate carrying value of RMB690,000 to 新安縣投資開發中心 for two years commencing from 19 January 2006 to 18 January 2008, which has provided corporate guarantee to secure the Group’s bills payable to suppliers to the extent of approximately RMB8,000,000.
(b) On 20 January 2006, the director 張建設 together with his wife and 新安縣投資開發中心 provided personal and corporate guarantees to secure the Group’s bills payable amounted to RMB10,000,000.
(c) On 4 January 2006, the Company entered into an agreement with Seapower Resources International Limited, under which, Seapower Resources International Limited agreed to contribute approximately RMB27.6 million, subject to adjustments, as additional capital of the Company for its 51% equity interest.

B. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by any companies in the Group in respect of any period subsequent to 31 December 2005.

Yours faithfully, CCIF CPA Limited Certified Public Accountants Hong Kong Chan Wai Dune, Charles Practicing Certificate Number P00712

— II-37 —

APPENDIX III PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The information set out below is for illustrative purpose only and does not form part of the accountant’s report prepared by the reporting accountants of the Group, CCIF CPA Limited, as set out in Appendix II to this circular.

(a) The Target Group will be acquired by the Company upon the Completion. Details of which are set out in section headed “Letter from the Board” in this circular. The acquisition of the Target Group will be accounted for under acquisition accounting in the financial statements of the Group in the coming financial statements prepared immediately after Completion.

To provide additional financial information, the unaudited pro forma financial information of the Enlarged Group as at 31 March 2005 have been prepared based on the audited consolidated financial statements of the Group for the year ended 31 March 2005 which have been extracted from Appendix 1 to this circular but have been restated for the effects arising from the adoption of all the new Hong Kong Financial Reporting Standards (“HKFRSs”), Hong Kong Accounting Standards (“HKAS”) and Interpretation (hereafter collectively referred to as “new HKFRSs”) and the consolidated financial statements of the Target Group for the year ended 31 March 2005 which have been prepared under new HKFRSs as extracted from Appendix II to this circular, after taking into account of the unaudited pro forma adjustments as described in the notes thereto, for illustrative purposes, to demonstrate the effect of the Acquisition on the unaudited pro forma consolidated income statement, unaudited pro forma consolidated balance sheet and unaudited pro forma consolidated cash flow statement as if the Acquisition had taken place on 1 April 2004, 31 March 2005 and 1 April 2004 respectively.

The unaudited pro forma financial information of the Enlarged Group presented below does not purport to present what the consolidated income statement, consolidated balance sheet and consolidated cash flow statement would actually have been if the Acquisition had been taken place on 1 April 2004, 31 March 2005 and 1 April 2004 respectively or to project the financial information for any future period and are included for illustrative purposes only.

The unaudited pro forma financial information should be read in conjunction with the historical financial information of the Group, the financial information of the the Target Group and other information included elsewhere in this circular.

The unaudited pro forma financial information below has been prepared for illustrative purposes only and because of its nature, it may not give a true picture of the financial position of the Enlarged Group as at 31 March 2005 and at any future date.

— III-1 —

APPENDIX III PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

(i) Unaudited pro forma consolidated income statement of the Enlarged Group, prepared based on the audited consolidated income statement of the Group and the Target Group for the year ended 31 March 2005 (translated into Hong Kong dollars at the rate of RMB1.06 = HK$1) as if the Acquisition has been completed on 1 April 2004. As explained in Note(1) , there were no effects on the consolidated income statement of the Group for the year ended 31 March 2005 if new HKFRSs were adopted.

were adopted.
						Audited
				Audited	consolidated
	Audited			consolidated		income
	consolidated			income	statement
	income			statement		of the
	statement of			of the		Target				Unaudited
	the Group			Group		Group				pro forma
	for the			for the		for the				consolidated
	year ended			year ended	year ended					income
	31 March			31 March	31 March					statement
	2005		New	2005		2005	Unaudited			of the
	(under old		HKFRSs	(under new	(under new		pro forma			Enlarged
	GAAP)	adjustment		HKFRSs)	HKFRSs)		adjustment			Group
	HK$’000		HK$’000	HK$’000		HK$’000		HK$’000	Note	HK$’000
			Note (1)
Turnover	8,521		—	8,521		280,347		—		288,868
Cost of goods sold	(6,623)		—	(6,623)		(262,301)		—		(268,924)
Gross profit	1,898		—	1,898		18,046		—		19,944
Other revenue	56		—	56		—		—		56
Other income	1,257		—	1,257		185		—		1,442
Selling and distribution expenses	—		—	—		(3,420)		—		(3,420)
General and administrative expenses	(10,732)		—	(10,732)		(4,052)		—		(14,784)
Other operating expenses	—		—	—		(9)		—		(9)
Profit from operations	(7,521)		—	(7,521)		10,750		—		3,229
Finance costs	(476)		—	(476)		(1,342)		—		(1,818)
Share of results of associates	—		—	—		—		—		—
Profit/(loss) before taxation	(7,997)		—	(7,997)		9,408		—		1,411
Taxation	185		—	185		(3,290)		—		(3,105)
Net profit/(loss) for the year	(7,812)		—	(7,812)		6,118		—		(1,694)

Attributable to:
Equity holders of the Company	(7,812)		—	(7,812)		6,021		(2,950) (a)		(4,741)
Minority interests	—		—	—		97		2,950	(a)	3,047
	(7,812)		—	(7,812)		6,118		—		(1,694)

Dividends	—		—	—		1,974		(1,007) (b)		967

Notes:

(a) This represents the share of results for the year ended 31 March 2005 of the Target Group by its 49% minority shareholders.
(b) Adjustment is made for the Group’s share (51%) of total dividends proposed by the Target Group for the year ended 31 March 2005.

— III-2 —

PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX III

(ii) Unaudited pro forma consolidated balance sheet of the Enlarged Group as at 31 March 2005, prepared based on the audited consolidated financial statements of the Group and the Target Group as at 31 March 2005 (translated into Hong Kong dollars at the exchange of RMB1.06 = HK$1), as if the transaction has been completed on 31 March 2005.

			Audited	Audited
	Audited		consolidatedconsolidated
	consolidated		balance	balance
	balance		sheet of	sheet of
	sheet of		the Group	the Target			Unaudited
	the Group		for the	Group for			pro forma
	for year		year ended	year ended			consolidated
	ended 31		31 March	ended 31			balance sheet
	March 2005	New	2005	March 2005	Unaudited		of the
	(under old	HKFRSs	(under new	(under new	pro forma		Enlarged
	GAAP)	adjustment	HKFRSs)	HKFRSs)	adjustment		Group
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	Note	HK$’000
		Note (1)
ASSETS
Non-current assets
Goodwill	—	—	—	—	7,191	(2)	7,191
Property, plant and equipment	19,501	—	19,501	9,874	—		29,375
Prepaid lease payments	—	—	—	871	—		871
Interest in associates	—	—	—	2,120	—		2,120
	19,501	—	19,501	12,865	7,191		39,557
Current assets
Inventories	—	—	—	18,786	—		18,786
Trade and other receivables	2,401	—	2,401	19,812	—		22,213
Prepaid lease payments	—	—	—	20	—		20
Amounts due from related parties	—	—	—	860	—		860
Pledged bank deposits	—	—	—	9,434	—		9,434
Cash and cash equivalents	6,820	—	6,820	3,227	—		10,047
	9,221	—	9,221	52,139	—		61,360
Total assets	28,722	—	28,722	65,004	7,191		100,917

— III-3 —

PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX III

					Audited		Audited
	Audited			consolidated		consolidated
	consolidated				balance		balance			Unaudited pro
	balance				sheet of		sheet of				forma
	sheet of			the Group		the Target				consolidated
	the Group				for the	Group for				balance sheet
	for year			year ended		year ended		Unaudited			of the
	ended 31			31 March			ended 31	pro forma			Enlarged
	March 2005		New		2005	March 2005		adjustment			Group
	(under old		HKFRSs	(under new		(under new
	GAAP)	adjustment		HKFRSs)		HKFRSs)
	HK$’000		HK$’000		HK$’000		HK$’000	HK$’000	Note		HK$’000
			Note (1)
EQUITY AND LIABILITIES
Capital and reserves
Paid — in capital	62,466		—		62,466		4,792	(4,792) (2)			62,466
Reserves	(42,399)		(1,029)		(43,428)		4,151	(4,151) (2)			(43,428)
Proposed final dividends	—		—		—		1,974	(1,974) (2)			—
Equity attributable to equity holders
of the Company	20,067		(1,029)		19,038		10,917	(10,917)			19,038
Minority interest	—		—		—		319	18,108	(2)		18,427
Total equity	20,067		(1,029)		19,038		11,236	7,191			37,465
Non— current liabilities
Interest bearing borrowings
— due after one year	4,435		—		4,435		—	—			4,435
Deferred tax liability	—		1,029		1,029		392	—			1,421
	4,435		1,029		5,464		392	—			5,856
Current liabilities
Interest bearing borrowings
— due within one year	603		—		603		3,968	—			4,571
Trade and other payables	3,127		—		3,127		37,999	—			41,126
Dividend payables	—		—		—		10	—			10
Amount due to holding company	—		—		—		10,147	(10,147)	(3)		—
Amounts due to subsidiaries
under liquidation	490		—		490		—	—			490
Amounts due to directors	—		—		—		392	(392)	(3)		—
Amounts due to related parties	—		—		—		534	10,539	(3)		11,073
Tax payables	—		—		—		326	—			326
	4,220		—		4,220		53,376	—			57,596
Total liabilities	8,655		1,029		9,684		53,768	—			63,452
Total equity and liabilities	28,722		—		28,722		65,004	7,191			100,917

Net current assets/(liabilities)	5,001		—		5,001		(1,237)	—			3,764

Total assets less current liabilities	24,502		—		24,502		11,628	7,191			43,321

— III-4 —

APPENDIX III PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

Notes:

(1) The Group’s financial information has been prepared in accordance with accounting principles generally accepted in Hong Kong, that include Hong Kong Financial Reporting Standards (HKFRSs). A summary of changes in accounting policies resulting from the Group’s application of the HKFRSs is set out below:

(a) HKAS-Int 21 Income Taxes- Recovery of Revalued Non-depreciable Assets

The adoption of revised HKAS-Int 21 has resulted in a change in the accounting policy relating to the deferred taxation of the Group’s cold storage warehouse erected on a piece of freehold land. In accordance with the provision of HKAS-Int 21, deferred tax liabilities arising from the revaluation of freehold land is measured on the basis of tax consequence that would flow from the recovery of the carrying value of that asset through sale. The change in the accounting policy has been applied retrospectively.

The adoption of HKAS-Int 21 has resulted in a decrease in the asset revaluation reserve brought forward from 1 April 2004 by HK$1,029,000 and decrease in the accumulated losses by the same amount because there was tax loss available to offset the deferred tax effects arising from the revaluation surplus of the freehold land at 1 April 2004 by HK$1,029,000.

(b) HKAS 32 Financial Instruments: disclosure and presentation and HKAS 39 financial instrument: recognition and measurement

HKAS 32 and HKAS 39 establish principles for disclosure, presentation, recognition and measurement of financial instruments, including non-derivative financial assets, non-derivative financial liabilities, and derivative instruments for hedging activities. The Group has adopted HKAS 32 and HKAS 39 prospectively from 1 January 2005.

Under HKAS 39, the Company’s convertible note of HK$5,000,000 at 31 March 2004 was required to be split into a debt liability upon its inception and the attached embedded conversion option shall be reported as equity as at 31 March 2004.

The adoption of the HKAS 39 has resulted, as at 31 March 2004, in a decrease in the convertible note (as liability component) by HK$245,000 and increase in the equity by HK$245,000 in respect of the embedded conversion option attached to the outstanding convertible note as at 31 March 2004.

There were no impacts on the balance sheet as at 31 March 2005 as the whole convertible note was converted into shares of the Company during the year ended 31 March 2005.

The summary of the effects of the changes in accounting policies arising from adoption of new HKFRSs

(i) There were no effects on the consolidated income statement and cash flows of the Group for the years ended 31 March 2005.
(ii) Effect on the consolidated balance sheet of the Group as at 31 March 2005

As set out below, the overall effect on the adoption of new HKFRSs accounts for 5% on the reported audited net assets of the Group as at 31 March 2005 under old Hong Kong accounting standards (“Old GAAP”), which would be insignificant to the net assets of the Enlarged Group.

— III-5 —

APPENDIX III PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

Increase/(decrease) in Assets Liabilities Deferred tax liabilities Convertible note_(Note)_ Equity Asset revaluation reserve Equity conversion reserve Total equity and liabilities	HKAS- Int 21 HK$’000 — 1,029 — 1,029 (1,029) — (1,029) —	HKASs 32 and 39 HK$’000 — — — — — — — —	Total HK$’000 —

			1,029 —
			1,029

			(1,029) —
			(1,029)

			—

Note: The balance of the convertible note as liability component and the equity conversion reserve attached to the convertible note had been transferred to issued share capital upon conversion of the whole convertible note into issued shares of the Company at par. Therefore, there was no effect as at 31 March 2005 upon adoption of HKASs 32 and 39.

(2) The Company will inject approximately RMB27,600,000 (equivalent to approximately HK$26,038,000) as capital to the Target for 51% equity stake in the Target:

RMB’000 Net assets of the Target Group at 31 March 2005, attributable to equity holders of the Target 11,572 Cash contribution by Seapower 27,600 39,172 Minority interest Attributable to 51% equity interest in the Target Group acquisition Consideration by Seapower Goodwill	HK$’000 10,917 26,038
	36,955 (18,108)
	18,847 26,038

	7,191

Goodwill is calculated in accordance with HKFRs 3 “Business Combination” and will be carried at cost less any impairment losses

(3) Reclassifications are required to make for amounts due to related parties in the Enlarged Group’s financial statements.

— III-6 —

APPENDIX III PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

(iii) Unaudited pro forma consolidated cash flow statement of the Enlarged Group prepared based on the audited consolidated cash flow statements of the Group and the Target Group for the year ended 31 March 2005 (translated into Hong Kong dollars at the exchange rate of RMB1.06 = HK$1) as if the transaction has been completed on 1 April 2004. As explained in Note(1), there were no effects on the consolidated cash flow statement of the Group for the year ended 31 March 2005 if new HKFRSs were adopted.

			Audited	Audited
			consolidated	consolidated
	Audited		cash flow	cash flow
	consolidated		statement	statement
	cash flow		of the	of the
	statement of		Group	Target			Unaudited
	the Group		for the	Group			pro forma
	for the year		year ended	for the year			consolidated
	ended 31		31 March	ended 31			cash flow
	March 2005	New	2005	March 2005	Unaudited		statement of
	(under old	HKFRS	(under new	(under new	pro forma		the Enlarged
	GAAP)	adjustment	HKFRSs)	HKFRSs)	adjustment		Group
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	Note	HK$’000
		Note (1)
Operating activities
Profit/(loss) before taxation	(7,997)	—	(7,997)	9,408	—		1,411
Adjustments for:
Depreciation	1,702	—	1,702	1,358	—		3,060
Loss on disposal of fixed assets	12	—	12	(20)	—		(8)
Amortisation of lease payments
for land under operating lease	—	—	—	20	—		20
Interest income	(56)	—	(56)	(75)	—		(131)
Interest expenses	476	—	476	1,342	—		1,818
Operating cash inflow before
movement in working capital	(5,863)	—	(5,863)	12,033	—		6,170
(Increase)/decrease in inventories	—	—	—	(6,109)	—		(6,109)
(Increase)/decrease in trade and
other receivables	302	—	302	(10,118)	—		(9,816)
(Increase)/decrease in amounts
due from related parties	—	—	—	(462)	—		(462)
(Increase)/decrease in amounts due
from associates	—	—	—	2,876	—		2,876
Increase/(decrease) in trade and
other payables	(675)	—	(675)	(1,260)	—		(1,935)
Increase/(decrease) in amounts
due to related parties	—	—	—	534	4,233	(b)	4,767
Increase/(decrease) in amount
due to holding company	—	—	—	3,841	(3,841)	(b)	—
Increase/(decrease) in advance
from directors	—	—	—	392	(392)	(b)	—
Net cash generated from/(used in)
operations	(6,236)	—	(6,236)	1,727	—		(4,509)
Taxation
PRC tax paid	—	—	—	(2,204)	—		(2,204)
Net cash from/(used in) operating
activities	(6,236)	—	(6,236)	(477)	—		(6,713)

— III-7 —

PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX III

				Audited		Audited
				consolidated consolidated
		Audited		cash flow	cash flow
consolidated				statement	statement
	cash flow			of the		of the
statement of				Group		Target				Unaudited
	the Group			for the		Group				pro forma
for		the year		year ended	for the year					consolidated
		ended 31		31 March		ended 31				cash flow
March 2005			New	2005	March 2005		Unaudited			statement of
	(under old		HKFRS	(under new	(under new		pro forma			the	Enlarged
		GAAP)	Adjustment	HKFRSs)	HKFRSs)		adjustment				Group
		HK$’000	HK$’000	HK$’000		HK$’000		HK$’000	Note		HK$’000
			Note (1)
Investing activities
Interest received		56	—	56		75		—			131
Acquisition of subsidiaries		—	—	—		—		14,731	(a)		14,731
Payment for investment in associates		—	—	—		(1,934)		—			(1,934)
Purchase of fixed assets		(1,240)	—	(1,240)		(2,539)		—			(3,779)
Proceeds from disposal of fixed assets		3	—	3		21		—			24
Net cash (used in)/from investing
activities		(1,181)	—	(1,181)		(4,377)		14,731			9,173
Financing activities
Interest paid		(476)	—	(476)		(1,342)		—			(1,818)
Dividend paid		—	—	—		(1,266)		—			(1,266)
Proceeds from issue of new shares		9,578	—	9,578		—		—			9,578
Repayment of short — term loans		(672)	—	(672)		(4,042)		—			(4,714)
Net cash from/(used in) financing
activities		8,430	—	8,430		(6,650)		—			1,780
Increase/(decrease) in cash and
cash equivalents		1,013	—	1,013		(11,504)		14,731			4,240
Effect of foreign exchange rate changes		(282)	—	(282)		—		—			(282)
Cash and cash equivalents at
beginning of year		6,089	—	6,089		14,731		(14,731) (a)			6,089
Cash and cash equivalents at
end of year		6,820	—	6,820		3,227		—			10,047

Analysis of the balances of cash and
cash equivalents
Bank balances and cash		6,820	—	6,820		3,227		—			10,047

— III-8 —

PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX III

Notes:

Analysis of net cash inflow from acquisition of subsidiaries:
	RMB’000	HK$’000
Net cash outflow on acquisition by Seapower	(27,600)	(26,038)
Bank balances and cash of the Target Group as at 1 April 2004	15,615	14,731
Consideration received by the Target Group from Seapower	27,600	26,038
Net cash inflow	15,615	14,731

(b) Reclassifications are required to make for amounts due to related parties in the Enlarged Group’s financial statements.

— III-9 —

APPENDIX III PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

LETTER FROM THE REPORTING ACCOUNTANTS

The following is the text of a letter received from CCIF CPA Limited, the reporting accountants, for inclusion in this circular, in respect of the unaudited pro forma financial information of the Enlarged Group as set out in the section headed “(pro forma financial information of the Enlarged Group”) in the Appendix III:

==> picture [105 x 75] intentionally omitted <==

The Directors

Seapower Resources International Limited 3308, Office Tower Convention Plaza 1 Harbour Road Wanchai Hong Kong

26 May 2006

Dear Sirs,

We report on the pro forma financial information set out in as set out in the Appendix III under the heading of “Pro Forma Financial Information on the Enlarged Group” of Seapower Resources International Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) of the circular dated 26 May 2006 (the “Circular”) in connection with the proposed acquisition of 51% equity interests in 河南阜源石油化工有限公司 , and which has been prepared for illustrative purpose only to provide information about how the acquisition might have affected the relevant financial information presented.

RESPONSIBILITIES

It is the sole responsibility of the directors of the Company to prepare the pro forma financial information in accordance with paragraph 29 of Chapter 4 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (“Listing Rules”).

— III-10 —

APPENDIX III PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

It is our responsibility to form an opinion, as required by the Listing Rules, on the pro forma financial information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the pro forma financial information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

BASIS OF OPINION

We conducted our work in accordance with the Statements of Investment Circular Reporting Standards and Bulletin 1998/8 “Reporting on pro forma financial information pursuant to the Listing Rules” issued by the Auditing Practices Board in the United Kingdom, where applicable. Our work, which involved on independent examination of any of the underlying financial information, consisted primarily of comparing the unaudited financial information with the source documents, considering the evidence supporting the adjustments and discussing the pro forma financial information with the directors of the Company.

Our work does not constitute an audit or review in accordance with Hong Kong Standards on Auditing, Hong Kong Standards on Review Engagement or Hong Kong Standards on Assurance Engagements issued by the Hong Kong Institute of Certified Public Accountants and accordingly, we do not express any such assurance on the pro forma financial information.

The pro forma financial information has been prepared on the bases set out in the Circular for illustrative purpose only and because of its nature, it may not be indicative of the results and cash flows of the Enlarged Group for the year ended 31 March 2005 or for any future period nor the financial position of the Enlarged Group as at 31 March 2005 or at any future date.

OPINION

In our opinion:

(a) the pro forma financial information has been properly compiled on the basis stated;
(b) such basis is consistent with the accounting policies of the Group; and
(c) the adjustments are appropriate for the purposes of the pro forma financial information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Yours faithfully, For and on behalf of CCIF CPA Limited Choi Man On

Director

— III-11 —

PROPERTY VALUATION REPORT

APPENDIX IV

The following is the text of a letter, summary of values and valuation certificates, prepared for the purpose of incorporation in this circular received from RHL Appraisal Ltd., an independent valuer, in connection with its valuation as at 31 March 2006 of the property interests of the Target Group and the Enlarged Group.

Surveying Practices – Corporate Valuation and Property Consultancy Lincense No.: C-015672

==> picture [67 x 33] intentionally omitted <==

26 May 2006

The Board of Directors Seapower Resources International Limited Unit 3308, Office Tower Convention Plaza No. 1 Harbour Road Wanchai Hong Kong

Dear Sirs,

In accordance with your instructions to value the property interests of Henan Fuyuan Petroleum Company Limited (the “Target Company”) and its subsidiaries (hereinafter together referred to as the “Target Group”); and Seapower Resources International Limited (the “Company”) and its subsidiaries (hereinafter together referred to as the “Enlarged Group”) in the People’s Republic of China (the “PRC”), Hong Kong and Australia, we confirm that we have carried out inspections, made relevant enquiries and searches and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the values of the property interests as at 31 March 2006 (the “date of valuation”).

Our valuations of the property interests represent the market value which we would define as intended to mean “the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion”.

We have valued the property nos. 8 and 12 by the direct comparison approach assuming sale of the property interests in their existing state with the benefit of immediate vacant possession and by making reference to comparable sale transactions as available in the relevant markets.

Where, due to the nature of the buildings and structures of the properties, there are no market sales comparables readily available, the property nos. 1-7 and no. 13 have been valued on the basis of their depreciated replacement cost.

— IV-1 —

PROPERTY VALUATION REPORT

APPENDIX IV

Depreciated replacement cost is defined as “the current cost of replacement (reproduction) of a property less deductions for physical deterioration and all relevant forms of obsolescence and optimization.” This method has been used due to the lack of an established market upon which to base comparable transactions and is a method of using current replacement costs to arrive at the value to the business in occupation of the property as existing at the valuation date.

We have not attributed any commercial value to the property interests in Groups II and V, which are leased by the Target Group and the Enlarged Group respectively, due either to the short-term nature of the leases or the prohibition against assignment or sub-letting or otherwise due to the lack of substantial profit rents.

Our valuations have been made on the assumption that the seller sells the property interests in the market without the benefit of a deferred term contract, leaseback, joint venture, management agreement or any similar arrangement, which could serve to affect the values of the property interests.

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

In valuing the property interest of the Enlarged Group in Hong Kong held under the Government Leases expiring before 30 June 1997, we have taken into account the stipulations contained in Annex III of the Joint Declaration of the Government of the United Kingdom and the Government of the People’s Republic of China on the question of Hong Kong and the New Territories Leases (Extension) Ordinance 1988 that such leases have been extended without premium until 30 June 2047 and that a rent of three per cent of the then rateable value is charged per annum from the date of extension.

In valuing the property interests, we have complied with all the requirements contained in Chapter 5 and Practice Note 12 to the Rules Governing the Listing of Securities issued by The Stock Exchange of Hong Kong Limited; Rule 11 to The Codes on Takeovers and Mergers and Share Repurchases issued by the Securities and Futures Commission effective from October 2005; the RICS Appraisal and Valuation Standards (5th Edition) published by The Royal Institution of Chartered Surveyors and effective from May 2003; and the HKIS Valuation Standards on Properties (First Edition 2005) published by The Hong Kong Institute of Surveyors effective from 1 January 2005.

We have relied to a very considerable extent on the information given by the Target Group and the Enlarged Group and have accepted advice given to us on such matters as tenure, planning approvals, statutory notices, easements, particulars of occupancy, lettings, and all other relevant matters.

We have been, in some instances, provided by the Target Group and the Enlarged Group with extracts of the title documents relating to the properties in the PRC and Australia, and have caused searches to be made at the Hong Kong Land Registry in respect of the Hong Kong

— IV-2 —

PROPERTY VALUATION REPORT

APPENDIX IV

property. Where possible, we have searched the original documents to verify the existing titles to the property interests in the PRC and any material encumbrances that might be attached to the properties or any lease amendments which may not appear on the copies handed to us. We have relied considerably on the advice given by the Target Group and the Enlarged Group’s PRC legal adviser — Guantao Law Firm, concerning the validity of the titles of the Target Group and the Enlarged Group to the property interests.

We have not carried out detailed site measurements to verify the correctness of the site areas in respect of the properties but have assumed that the site areas shown on the documents and official site plans handed to us are correct. All documents and contracts have been used as reference only and all dimensions, measurements and areas are approximations. No on-site measurement has been taken.

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

We have had no reason to doubt the truth and accuracy of the information provided to us by the Target Group and the Enlarged Group. We have also sought confirmation from the Target Group and the Enlarged Group that no material factors have been omitted from the information supplied. We consider that we have been provided with sufficient information to reach an informed view, and we have no reason to suspect that any material information has been withheld.

Unless otherwise stated, all monetary sums stated in this report are in Hong Kong Dollars. The exchange rates adopted in our valuations are approximately HK$1 = RMB1.03546 and HK$1 = AUD0.18129 which were approximately the prevailing exchange rate as at the date of valuation.

Our valuations are summarised below and the valuation certificates are attached.

Yours faithfully, For and on behalf of

RHL Appraisal Ltd.

Sandra S.W. Lau

Sandra S.W. Lau Vincent K. C. Cheung M.Fin MHKIS AAPI RPS(GP) MBA BSc(Hons) MRICS MHKIS RPS(GP) Director Associate Director

Ms. Sandra S.W. Lau is a Registered Professional Surveyor with over 10 years’ experience in valuation of properties in Hong Kong, the PRC and Australia. Ms. Lau is a member of The Hong Kong Institute of Surveyors as well as an Associate of the Australian Property Institute.

Mr. Vincent K. C. Cheung is a Registered Professional Surveyor with over 8 years’ experience in valuation of properties in Hong Kong, the PRC and the Asia Pacific Region. Mr. Cheung is a member of The Royal Institution of Chartered Surveyors as well as a member of the Hong Kong Institute of Surveyors.

— IV-3 —

PROPERTY VALUATION REPORT

APPENDIX IV

SUMMARY OF VALUES

Group I — Property interests held and occupied by the Target Group in the PRC

				Capital Value
				in existing state
		Capital Value	Interest	Attributable
		in existing state	Attributable	to the Target
		as at	to the	Group as at
No.	Property	31 March 2006	Target Group	31 March 2006
		HK$		HK$
1.	A Petrol Filling Station	No commercial value	100%	No commercial value
	located at
	Beiguan Village
	Chengguan Town
	Xinan County
	Luoyang City
	Henan Province
	The PRC
2.	A Petrol Filling Station	No commercial value	100%	No commercial value
	located at
	Chengxi
	Wangzhuang Village
	Chengguan Town
	Xinan County
	Luoyang City
	Henan Province
	The PRC
3.	A Petrol Filling Station	1,229,000	100%	1,229,000
	located at
	Cijian Town
	Xinan County
	Luoyang City
	Henan Province
	The PRC
4.	A Petrol Filling Station	1,180,000	51%	600,000
	located at the East of
	Miaotou Village
	Tiemen Town
	Xinan County
	Luoyang City
	Henan Province
	The PRC

— IV-4 —

PROPERTY VALUATION REPORT

APPENDIX IV

No. Property 5. A Petrol Filling Station located at the North of No. 310 Expressway Jiangzhuang Village Chengguan Town Xinan County Luoyang City Henan Province The PRC 6. A Petrol Filling Station located at Shisi Village Shisi Town Xinan County Luoyang City Henan Province The PRC 7. An Oil Depot located at the South of Railway Chengguan Street East Chengguan Town Xinan County Luoyang City Henan Province The PRC 8. Units 201-207 Level 2 Block 1 of Area 11 Binhe Road High-tech Development Zone Luoyang City Henan Province The PRC Sub-total:	Capital Value Interest in existing state Attributable as at to the 31 March 2006 Target Group HK$ 4,430,000 100% 900,000 100% 14,209,000 100% 1,040,000 100% 22,988,000	Capital Value in existing state Attributable to the Target Group as at 31 March 2006 HK$ 4,430,000 900,000 14,209,000 1,040,000
		22,408,000

— IV-5 —

PROPERTY VALUATION REPORT

APPENDIX IV

Group II — Property interests leased and occupied by the Target Group in the PRC

No. Property 9. A Petrol Filling Station No located at the North of Lincai Road Youfenzui Village Chengguan Town Xinan County Luoyang City Henan Province The PRC 10. A Petrol Filling Station No located at Li Village Xinan County Luoyang City Henan Province The PRC 11. A Petrol Filling Station No located at Cangtou Village Xinan County Luoyang City Henan Province The PRC Sub-total: Total (for Target Group):	Capital Value Interest in existing state Attributable as at to the 31 March 2006 Target Group HK$ commercial value 100% No commercial value 100% No commercial value 100% No Nil 22,988,000	Capital Value in existing state Attributable to the Target Group as at 31 March 2006 HK$ commercial value commercial value commercial value
		Nil
		22,408,000

— IV-6 —

PROPERTY VALUATION REPORT

APPENDIX IV

Group III — Property interest held and occupied by the Enlarged Group in the PRC

No. Property 12. Level 7 Xinruike Building Futian Trade Zone Futian District Shenzhen The PRC Sub-total:	Capital Value Interest in existing state Attributable as at to the 31 March 2006 Enlarged Group HK$ 8,690,000 100% 8,690,000	Capital Value in existing state Attributable to the Enlarged Group as at 31 March 2006 HK$ 8,690,000
		8,690,000

Group IV — Property interest held and occupied by the Enlarged Group in Australia

No. Property 13. Central Coast Cold Storage Lots 11 and 120 Racecourse Road West Gosford New South Wales Australia Sub-total:	Capital Value Interest in existing state Attributable as at to the 31 March 2006 Enlarged Group HK$ 22,900,000 100% 22,900,000	Capital Value in existing state Attributable to the Enlarged Group as at 31 March 2006 HK$ 22,900,000
		22,900,000

— IV-7 —

PROPERTY VALUATION REPORT

APPENDIX IV

Group V — Property interest leased and occupied by the Enlarged Group in Hong Kong

No. Property 14. Units 3307-09, No Office Tower Convention Plaza No. 1 Harbour Road Wanchai Hong Kong Sub-total: Total (for Enlarged Group):	Capital Value Interest in existing state Attributable as at to the 31 March 2006 Enlarged Group HK$ commercial value 100% No Nil 31,590,000	Capital Value in existing state Attributable to the Enlarged Group as at 31 March 2006 HK$ commercial value
		Nil
		31,590,000

— IV-8 —

PROPERTY VALUATION REPORT

APPENDIX IV

VALUATION CERTIFICATE

Group I — Property interests held and occupied by the Target Group in the PRC

Property Description and tenure 1. A Petrol Filling The property comprises a Station parcel of land with a site area located at of approximately 2,059.65 Beiguan Village sq.m. on which are Chengguan Town constructed 3 buildings and Xinan County various ancillary structures Luoyang City completed in the 1990s. Henan Province The PRC The buildings have a total gross floor area of approximately 314.89 sq.m. The petrol filling station comprises a kiosk/dormitory/ back office, a toilet and a power sub-station/kitchen. The structures mainly comprise boundary walls, oil tanks, oil ducts and the station cover. The collectively-owned land use rights of the property were granted for a term of 30 years commencing from 16 March 1993 and expiring on 16 March 2023 for industrial uses.

Capital Value Particulars in existing state as at of occupancy 31 March 2006 HK$ The property is currently No commercial value occupied by the Target Group for petroleum 100% interest filling station operation, attributable to the ancillary office and Target Group: dormitory purposes. Nil

Notes:

Pursuant to a Collectively-owned Land Use Rights Certificate, Xin Ji Yong (1999) Zi Di No. 382 issued by the Land Administrative Bureau of Xinan County on 21 September 1999, the collectively-owned land use rights of a parcel of land with a site area of approximately 2,059.65 sq.m. were granted to 河南恆運集團股份有限公司新安分公司 for a term of 30 years commencing from 16 March 1993 and expiring on 16 March 2023 for industrial uses.
Henan Fuyuan Petroleum Company Limited is formerly known as 河南恆運集團股份有限公司新安分公司 .
Pursuant to a Building Ownership Certificate, Xin Fang Zi Di No. 200201024 issued by the Real Estate Administrative Bureau of Xinan County on 26 August 2002, the building ownership rights of a building (kiosk/dormitory/back office) with a gross floor area of approximately 268.89 sq.m. were owned by Henan Fuyuan Petroleum Company Limited.
For reference purpose, the estimated depreciated replacement cost of the buildings (with Building Ownership Certificate) and structures as at the date of valuation is HK$513,000.
In the valuation of this property, we have not attributed any commercial value to the land which is collectively-owned and the buildings and structures erected thereon.

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PROPERTY VALUATION REPORT

APPENDIX IV

We have been provided with a legal opinion regarding the property interests by the Company’s PRC legal advisers, which contains, inter alia, the following:
(i) As pursuant to the Rule No. 43 of the PRC Land Law, any person or unit who wish to utilize land for development must apply to the relevant government authority for the acquisition of state-owned land, except for village/town collectively-owned enterprises and local villagers who, upon the approval from the local villagers committee, utilize the collectively-owned land for residential purposes or the erection of public utilities and welfare services;
(ii) As pursuant to the Rule No. 63 of the PRC Land Law, collectively-owned land use rights cannot be granted, transferred or leased for non-agricultural development, with the exception of such land use rights which is obtained through liquidation or mergers and acquisitions without violating the overall land use planning;
(iii) Pursuant to a document named “Opinion on Transfer of Collectively-owned Land in Henan Province” issued by the Henan Provincial Government dated 26 August 2003, transfer of collectively-owned land by way of sale, let and injection as capital asset was allowed by Henan Provincial Government.
(iv) Pursuant to the Land Use Classification Document dated 21 August 2001 issued by the Ministry of Land and Resources P.R.C., petrol filling station is classified as “commercial” use instead of “industrial” use effective from the date of the aforesaid document. Henan Fuyuan Petroleum Company Limited should apply for change of the existing use from “industrial” to “commercial” in order to comply with the latest land use policy;
(v) Henan Fuyuan Petroleum Company Limited should execute the required procedures under the P.R.C. City Real Estate Administration Law to change the name of owner as stated in the Collectively-owned Land Use Rights Certificate from 河南囱運集團股份有限公司新安分公司 to Henan Fuyuan Petroleum Company Limited;
(vi) Henan Fuyuan Petroleum Company Limited legally owns the building ownership rights of the building as mentioned in note 3 above; however, such building cannot be freely leased, mortgaged or transferred due to the subject land is collectively-owned;
(vii) The property is not subject to mortgage or any other encumbrances; and
(viii) As there are discrepancies regarding the legality in the transfer of collectively-owned land use rights in Henan Province, the use of the property as petrol filling station by Henan Fuyuan Petroleum Company Limited may be regulated if the State policy gets rid of the relevant policy in the provincial hierarchy by the relevant government authority.

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PROPERTY VALUATION REPORT

APPENDIX IV

Property Description and tenure

A Petrol Filling The property comprises a Station parcel of land with a site area located at of approximately 2,306.68 Chengxi sq.m. on which are Wangzhuang constructed 4 buildings and Village various ancillary structures Chengguan Town completed in the 1990s. Xinan County Luoyang City The buildings have a total Henan Province gross floor area of The PRC approximately 358.54 sq.m. The petrol filling station comprises a back office/ dormitory, a lubricant room, a power sub-station and a toilet. The structures mainly comprise boundary walls, oil tanks, oil ducts and the station cover.

Capital Value Particulars in existing state as at of occupancy 31 March 2006 HK$ No commercial value

The property is currently No commercial value occupied by the Target Group for petroleum 100% interest filling station operation, attributable to the ancillary office and Target Group: dormitory purposes.

Nil

The collectively-owned land use rights of the property were granted for commercial uses.

Notes:

Pursuant to a Collectively-owned Land Use Rights Certificate, Xin Ji Yong (2003) Zi Di No. 718 issued by the State-owned Land Resources Administrative Bureau of Xinan County on 20 October 2003, the collectively-owned land use rights of a parcel of land with a site area of approximately 2,306.68 sq.m. were granted to Henan Fuyuan Petroleum Company Limited for commercial uses.
Pursuant to 3 Building Ownership Certificates, Xin Fang Zi Di Nos. 200201023, 200201031 and 200201036 issued by the Real Estate Administrative Bureau of Xinan County on 29 August 2002, the building ownership rights of 3 buildings (back office/dormitory, lubricant room and power sub-station) with a total gross floor area of approximately 335.94 sq.m. were owned by Henan Fuyuan Petroleum Company Limited.
For reference purpose, the estimated depreciated replacement cost of the buildings (with Building Ownership Certificates) and structures as at the date of valuation is HK$962,000.
According to the notes stipulated in the Collectively-owned Land Use Rights Certificate, an additional area of approximately 804.858 sq.m. exceeds the surveyed land area of the lot, but a temporary permit was granted for the occupier to use and occupy the additional portion of land. The buildings and structures erected thereon should not be demolished unless they affect the local planning, and no compensation would be reimbursed upon the demolishment.
In the valuation of this property, we have not attributed any commercial value to the land which is collectively-owned and the buildings erected thereon.

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PROPERTY VALUATION REPORT

APPENDIX IV

We have been provided with a legal opinion regarding the property interests by the Company’s PRC legal advisers, which contains, inter alia, the following:
(i) As pursuant to the Rule No. 43 of the PRC Land Law, any person or unit who wish to utilize land for development must apply to the relevant government authority for the acquisition of state-owned land, except for village/town collectively-owned enterprises and local villagers who, upon the approval from the local villagers committee, utilize the collectively-owned land for residential purposes or the erection of public utilities and welfare services;
(ii) As pursuant to the Rule No. 63 of the PRC Land Law, collectively-owned land use rights cannot be granted, transferred or leased for non-agricultural development, with the exception of such land use rights which is obtained through liquidation or mergers and acquisitions without violating the overall land use planning;
(iii) Pursuant to a document named “Opinion on Transfer of Collectively-owned Land in Henan Province” issued by the Henan Provincial Government dated 26 August 2003, transfer of collectively-owned land by way of sale, let and injection as capital asset was allowed by Henan Provincial Government.
(iv) Henan Fuyuan Petroleum Company Limited legally owns the land use rights of the subject property as pursuant to the Collectively-owned Land Use Rights Certificate;
(v) Henan Fuyuan Petroleum Company Limited legally owns the building ownership rights of the buildings as mentioned in note 2 above; however, such buildings cannot be freely leased, mortgaged or transferred due to the subject land is collectively-owned;
(vi) The property is not subject to mortgage or any other encumbrances; and
(vii) As there are discrepancies regarding the legality in the transfer of collectively-owned land use rights in Henan Province, the use of the property as petrol filling station by Henan Fuyuan Petroleum Company Limited may be regulated if the State policy gets rid of the relevant policy in the provincial hierarchy by the relevant government authority.

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PROPERTY VALUATION REPORT

APPENDIX IV

Description and tenure

Property

A Petrol Filling The property comprises a Station parcel of land with a site area located at of approximately 3,479.11 Cijian Town sq.m. on which are Xinan County constructed 6 buildings and Luoyang City various ancillary structures Henan Province completed in the 1990s. The PRC

Capital Value Particulars in existing state as at of occupancy 31 March 2006 HK$ The property is currently 1,229,000 occupied by the Target Group for petroleum 100% interest filling station operation, attributable to the ancillary office and Target Group: dormitory purposes. 1,229,000

The buildings have a total gross floor area of approximately 678.03 sq.m. The petrol filling station comprises an office/dormitory, a back office, a power substation, a kitchen, a toilet and a kiosk.

The structures mainly comprise boundary walls, oil tanks, oil ducts and the station cover.

The land use rights of the property were granted for a term expiring on 14 May 2037 for commercial uses.

Notes:

Pursuant to a State-owned Land Use Rights Certificate, Xin Guo Yong (2002) Zi Di No. 094 issued by the State-owned Land Resources Administrative Bureau of Xinan County on 20 August 2002, the land use rights of a parcel of land with a site area of approximately 3,479.11 sq.m. were granted to Henan Fuyuan Petroleum Company Limited for a term expiring on 14 May 2037 for commercial uses.
Pursuant to a Building Ownership Certificate, Xin Fang Zi Di No. 200201016 issued by the Real Estate Administrative Bureau of Xinan County on 23 August 2002, the building ownership rights of a building (office/dormitory) with a gross floor area of approximately 460.53 sq.m. were owned by Henan Fuyuan Petroleum Company Limited.
In the valuation of this property, we have not attributed any commercial value to the 5 buildings (back office, power sub-station, kitchen, toilet and kiosk) with a total gross floor area of approximately 217.5 sq.m. which have not been granted with any proper title certificate. However, for reference purposes, we are of the opinion that the capital value of the buildings (excluding the land) as at the date of valuation would be HK$162,000 assuming all relevant title ownership certificates had been granted.
Pursuant to a Land Use Other Rights Certificate, Xin Ta Xiang (2006) Zi Di No. 002, the subject land, together with the land parcels of property nos. 4, 5, 6 and 7 are subject to a mortgage in favour of 新安縣投資開發中心 for a period of 2 years commencing from 19 January 2006 and expiring on 18 January 2008 (the “land mortgage”). The total mortgaged land area is 28,925.57 sq.m. and the consideration was RMB8,000,000.

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PROPERTY VALUATION REPORT

APPENDIX IV

For reference purpose, the breakdown of the land and building component of the property is as follows:

in Land Buildings and Structures Total:	Capital Value existing state as at 31 March 2006 (HK$) 350,000 879,000
	1,229,000

We have been provided with a legal opinion regarding the property interests by the Company’s PRC legal advisers, which contains, inter alia, the following:
(i) Henan Fuyuan Petroleum Company Limited legally owns the land use rights of the subject property and has the rights to freely lease, mortgage, transfer or otherwise handle the land use rights subject to discharge of the land mortgage;
(ii) Henan Fuyuan Petroleum Company Limited legally owns the building ownership rights of the building as mentioned in note 2 above and has the rights to freely lease, mortgage, transfer or otherwise handle the building ownership rights; and
(iii) The land mortgage as mentioned in Note 4 has been properly registered, but Henan Fuyuan Petroleum Company Limited may still transfer, let or otherwise handle the land use rights as it sees fit provided that any proceed received shall be used to settle the secured indebtedness.

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PROPERTY VALUATION REPORT

APPENDIX IV

Property Description and tenure

A Petrol Filling The property comprises a Station parcel of land with a site area located at of approximately 2,168.75 the East of sq.m. on which are Miaotou Village constructed 3 buildings and Tiemen Town various ancillary structures Xinan County completed in the 1990s. Luoyang City Henan Province The buildings have a total The PRC gross floor area of approximately 659.04 sq.m. The petrol filling station comprises a back office/ dormitory, a toilet and a kiosk.

Capital Value Particulars in existing state as at of occupancy 31 March 2006 HK$ The property is currently 1,180,000 occupied by the Target Group for petroleum 51% interest filling station operation, attributable to the ancillary office and Target Group: dormitory purposes. 600,000

The structures mainly comprise boundary walls, oil tanks, oil ducts and the station cover.

The land use rights of the property were granted for a term expiring on 14 May 2037 for commercial uses.

Notes:

Pursuant to a State-owned Land Use Rights Certificate, Xin Guo Yong (2002) Zi Di No. 095 issued by the State-owned Land Resources Administrative Bureau of Xinan County on 20 August 2002, the land use rights of a parcel of land with a site area of approximately 2,168.75 sq.m. were granted to Henan Fuyuan Petroleum Company Limited for a term expiring on 14 May 2037 for commercial uses.
Pursuant to a Building Ownership Certificate, Xin Fang Zi Di No. 200201018 issued by the Real Estate Administrative Bureau of Xinan County on 23 August 2002, the building ownership rights of a building (back office/dormitory) with a gross floor area of approximately 614.04 sq.m. were owned by Henan Fuyuan Petroleum Company Limited.
In the valuation of this property, we have not attributed any commercial value to the 2 buildings (toilet and kiosk) with a total gross floor area of approximately 45 sq.m. which have not been granted with any proper title certificate. However, for reference purposes, we are of the opinion that the capital value of the buildings (excluding the land) as at the date of valuation would be HK$34,000 (capital value attributable to the Group: HK$17,000) assuming all relevant title ownership certificates had been granted.
Pursuant to a Land Use Other Rights Certificate, Xin Ta Xiang (2006) Zi Di No. 002, the subject land, together with the land parcels of property nos. 3, 5, 6 and 7 are subject to a mortgage in favour of 新安縣投資開發中心 for a period of 2 years commencing from 19 January 2006 and expiring on 18 January 2008 (the “land mortgage”). The total mortgaged land area is 28,925.57 sq.m. and the consideration was RMB8,000,000.

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PROPERTY VALUATION REPORT

APPENDIX IV

For reference purpose, the breakdown of the land and building component of the property is as follows:

in Land Buildings and Structures Total:	Capital Value existing state as at 31 March 2006 (HK$) 280,000 900,000
	1,180,000

We have been provided with a legal opinion regarding the property interests by the Company’s PRC legal advisers, which contains, inter alia, the following:
(i) Henan Fuyuan Petroleum Company Limited legally owns the land use rights of the subject property and has the rights to freely lease, mortgage, transfer or otherwise handle the land use rights subject to discharge of the land mortgage;
(ii) Henan Fuyuan Petroleum Company Limited legally owns the building ownership rights of the building as mentioned in note 2 above and has the rights to freely lease, mortgage, transfer or otherwise handle the building ownership rights; and
(iii) The land mortgage as mentioned in Note 4 has been properly registered, but Henan Fuyuan Petroleum Company Limited may still transfer, let or otherwise handle the land use rights as it sees fit provided that any proceed received shall be used to settle the secured indebtedness.

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PROPERTY VALUATION REPORT

APPENDIX IV

Property Description and tenure

A Petrol Filling The property comprises a Station parcel of land with a site area located at of approximately 4,820.02 the North of sq.m. on which are No. 310 constructed 5 buildings and Expressway various ancillary structures Jiangzhuang completed in various stages Village between the 1990s and 2005. Chengguan Town Xinan County The buildings have a total Luoyang City gross floor area of Henan Province approximately 5,326.03 sq.m. The PRC The petrol filling station comprises a kiosk/carport, a transformer room, a toilet, an office block and a dormitory. The structures mainly comprise boundary walls, oil tanks, oil ducts and the station cover.

Capital Value Particulars in existing state as at of occupancy 31 March 2006 HK$ The property is currently 4,430,000 occupied by the Target Group for petroleum 100% interest filling station operation, attributable to the ancillary office and Target Group: dormitory purposes. 4,430,000

The land use rights of the property were granted for a term expiring on 14 May 2037 for commercial uses.

Notes:

Pursuant to a State-owned Land Use Rights Certificate, Xin Guo Yong (2002) Zi Di No. 096 issued by the State-owned Land Resources Administrative Bureau of Xinan County on 20 August 2002, the land use rights of a parcel of land with a site area of approximately 4,820.02 sq.m. were granted to Henan Fuyuan Petroleum Company Limited for a term expiring on 14 May 2037 for commercial uses.
Pursuant to 2 Building Ownership Certificates, Xin Fang Zi Di Nos. 200201029 and 200201035 issued by the Real Estate Administrative Bureau of Xinan County on 26 August 2002, the building ownership rights of 2 buildings (kiosk/carpark and transformer room) with a total gross floor area of approximately 286.33 sq.m. were owned by Henan Fuyuan Petroleum Company Limited.
In the valuation of this property, we have not attributed any commercial value to the 3 buildings (toilet, office block and dormitory) with a total gross floor area of approximately 5,039.7 sq.m. which have not been granted with any proper title certificate. However, for reference purposes, we are of the opinion that the capital value of the buildings (excluding the land) as at the date of valuation would be HK$5,041,000 assuming all relevant title ownership certificates had been granted.
Pursuant to a Land Use Other Rights Certificate, Xin Ta Xiang (2006) Zi Di No. 002, the subject land, together with the land parcels of property nos. 3, 4, 6 and 7 are subject to a mortgage in favour of 新安縣投資開發中心 for a period of 2 years commencing from 19 January 2006 and expiring on 18 January 2008 (the “land mortgage”). The total mortgaged land area is 28,925.57 sq.m. and the consideration was RMB8,000,000.

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PROPERTY VALUATION REPORT

APPENDIX IV

For reference purpose, the breakdown of the land and building component of the property is as follows:

in Land Buildings and Structures Total:	Capital Value existing state as at 31 March 2006 (HK$) 3,410,000 1,020,000
	4,430,000

We have been provided with a legal opinion regarding the property interests by the Company’s PRC legal advisers, which contains, inter alia, the following:
(i) Henan Fuyuan Petroleum Company Limited legally owns the land use rights of the subject property and has the rights to freely lease, mortgage, transfer or otherwise handle the land use rights subject to discharge of the land mortgage;
(ii) Henan Fuyuan Petroleum Company Limited legally owns the building ownership rights of the buildings as mentioned in note 2 above and has the rights to freely lease, mortgage, transfer or otherwise handle the building ownership rights;
(iii) The land mortgage as mentioned in Note 4 has been properly registered, but Henan Fuyuan Petroleum Company Limited may still transfer, let or otherwise handle the land use rights as it sees fit provided that any proceed received shall be used to settle the secured indebtedness; and
(iv) Henan Fuyuan petroleum Company Limited should apply for the proper Building Ownership Certificates in respect of the Dormitory and Office Block which were just completed.

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PROPERTY VALUATION REPORT

APPENDIX IV

Property Description and tenure

A Petrol Filling The property comprises a Station parcel of land with a site area located at of approximately 2,431.0 Shisi Village sq.m. on which are Shisi Town constructed 5 buildings and Xinan County various ancillary structures Luoyang City completed in the 1990s. Henan Province The PRC The buildings have a total gross floor area of approximately 354.19 sq.m. The petrol filling station comprises a kiosk, an office/ dormitory, a power substation, a bathroom/laundry and a toilet.

Capital Value Particulars in existing state as at of occupancy 31 March 2006 HK$ The property is currently 900,000 occupied by the Target Group for petroleum 100% interest filling station operation, attributable to the ancillary office and Target Group: dormitory purposes. 900,000

The structures mainly comprise boundary walls, oil tanks, oil ducts and the station cover.

The land use rights of the property were granted for a term expiring on 14 May 2037 for commercial uses.

Notes:

Pursuant to a State-owned Land Use Rights Certificate, Xin Guo Yong (2002) Zi Di No. 097 issued by the State-owned Land Resources Administrative Bureau of Xinan County on 20 August 2002, the land use rights of a parcel of land with a site area of approximately 2,431.0 sq.m. were granted to Henan Fuyuan Petroleum Company Limited for a term expiring on 14 May 2037 for commercial uses.
Pursuant to 4 Building Ownership Certificates, Xin Fang Zi Di No. 200201002 (dated 21 August 2002), No. 200201017 (dated 23 August 2002), Nos. 200201032 and 200201034 (both dated 26 August 2002) issued by the Real Estate Administrative Bureau of Xinan County, the building ownership rights of 4 buildings (kiosk, office/dormitory, power substation and bathroom/laundry) with a total gross floor area of approximately 341.69 sq.m. were owned by Henan Fuyuan Petroleum Company Limited.
In the valuation of this property, we have not attributed any commercial value to the toilet with a gross floor area of approximately 12.5 sq.m. which has not been granted with any proper title certificate. However, for reference purposes, we are of the opinion that the capital value of the toilet (excluding the land) as at the date of valuation would be HK$5,000 assuming all relevant title ownership certificates had been granted.
Pursuant to a Land Use Other Rights Certificate, Xin Ta Xiang (2006) Zi Di No. 002, the subject land, together with the land parcels of property nos. 3, 4, 5 and 7 are subject to a mortgage in favour of 新安縣投資開發中心 for a period of 2 years commencing from 19 January 2006 and expiring on 18 January 2008 (the “land mortgage”). The total mortgaged land area is 28,925.57 sq.m. and the consideration was RMB8,000,000.

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PROPERTY VALUATION REPORT

APPENDIX IV

For reference purpose, the breakdown of the land and building component of the property is as follows:

in Land Buildings and Structures Total:	Capital Value existing state as at 31 March 2006 (HK$) 240,000 660,000
	900,000

We have been provided with a legal opinion regarding the property interests by the Company’s PRC legal advisers, which contains, inter alia, the following:
(i) Henan Fuyuan Petroleum Company Limited legally owns the land use rights of the subject property and has the rights to freely lease, mortgage, transfer or otherwise handle the land use rights subject to discharge of the land mortgage;
(ii) Henan Fuyuan Petroleum Company Limited legally owns the building ownership rights of the buildings as mentioned in note 2 above and has the rights to freely lease, mortgage, transfer or otherwise handle the building ownership rights; and
(iii) The land mortgage as mentioned in Note 4 has been properly registered, but Henan Fuyuan Petroleum Company Limited may still transfer, let or otherwise handle the land use rights as it sees fit provided that any proceed received shall be used to settle the secured indebtedness.

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PROPERTY VALUATION REPORT

APPENDIX IV

Description and tenure

Property

An Oil Depot The property comprises a located at parcel of land with a site area the South of approximately 16,026.69 of Railway sq.m. on which are Chengguan Street constructed 22 buildings and East various ancillary structures Chengguan Town completed in the 1990s. Xinan County Luoyang City The buildings have a total Henan Province gross floor area of The PRC approximately 3,273.85 sq.m.

Capital Value Particulars in existing state as at of occupancy 31 March 2006 HK$ The property is currently 14,209,000 occupied by the Target Group for petroleum 100% interest depot, ancillary office and attributable to the dormitory purposes. Target Group: 14,209,000

The oil depot comprises a machine oil depot, 2 dormitories, 2 offices, 3 oil conveyance pump rooms, 2 guardhouses, a storage, 2 vacant rooms, 3 fire services pump-rooms, a toilet, 3 carports, a warehouse and a weighing room; and various ancilliary structures which mainly comprise boundary walls, oil tanks, oil ducts and the station cover.

The land use rights of the property were granted for a term expiring on 9 July 2038 for warehouse uses.

Notes:

Pursuant to a State-owned Land Use Rights Certificate, Xin Guo Yong (2002) Zi Di No. 098 issued by the State-owned Land Resources Administrative Bureau of Xinan County on 20 August 2002, the land use rights of a parcel of land with a site area of approximately 16,026.69 sq.m. were granted to Henan Fuyuan Petroleum Company Limited for a term expiring on 9 July 2038 for warehouse uses.
Pursuant to 14 Building Ownership Certificates issued by the Real Estate Administrative Bureau of Xinan County, the building ownership rights of 14 buildings (machine oil depot, a dormitory, 2 offices, 2 oil conveyance pump rooms, 2 guardhouses, a storage, 2 vacant rooms and 3 fire services pumprooms) with a total gross floor area of approximately 2,803.85 sq.m. were owned by Henan Fuyuan Petroleum Company Limited.

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PROPERTY VALUATION REPORT

APPENDIX IV

Details of the Building Ownership Certificates are listed below:

Xin Fang Zi Di Nos.	of Storey	Gross Floor Area	Date of Issue
		(sq.m.)
200201003	2	487.34	21 August 2002
200201014	2	736.94	23 August 2002
200201015	2	937.08	23 August 2002
200201019	1	45.89	23 August 2002
200201022	1	19.98	23 August 2002
200201025	1	76.59	26 August 2002
200201026	2	17.88	26 August 2002
200201027	1	20.91	26 August 2002
200201028	2	15.48	26 August 2002
200201030	1	30.89	26 August 2002
200201033	1	45.67	26 August 2002
200201037	2	268.13	26 August 2002
200201038	1	34.04	26 August 2002
200201039	1	67.03	26 August 2002
	Total:	2,803.85

In the valuation of this property, we have not attributed any commercial value to 8 buildings (an oil conveyance pump-room, a dormitory, a toilet, 3 carports, a warehouse and a weighing room) with a total gross floor area of approximately 470 sq.m. which have not been granted with any proper title certificate. However, for reference purposes, we are of the opinion that the capital value of the buildings (excluding the land) as at the date of valuation would be HK$341,000 assuming all relevant title ownership certificates had been granted.
As advised by the Target Group, it is in the process of applying the Building Ownership Certificates for the buildings as mentioned in Note 3.
Pursuant to a Land Use Other Rights Certificate, Xin Ta Xiang (2006) Zi Di No. 002, the subject land, together with the land parcels of property nos. 3, 4, 5 and 6 are subject to a mortgage in favour of 新安縣投資開發中心 for a period of 2 years commencing from 19 January 2006 and expiring on 18 January 2008 (the “land mortgage”). The total mortgaged land area is 28,925.57 sq.m. and the consideration was RMB8,000,000.
For reference purpose, the breakdown of the land and building component of the property is as follows:

in Land Buildings and Structures Total:	Capital Value existing state as at 31 March 2006 (HK$) 9,020,000 5,189,000
	14,209,000

We have been provided with a legal opinion regarding the property interests by the Company’s PRC legal advisers, which contains, inter alia, the following:
(i) Henan Fuyuan Petroleum Company Limited legally owns the land use rights of the subject property and has the rights to freely lease, mortgage, transfer or otherwise handle the land use rights subject to discharge of the land mortgage;
(ii) Henan Fuyuan Petroleum Company Limited legally owns the building ownership rights of the buildings as mentioned in note 2 above and has the rights to freely lease, mortgage, transfer or otherwise handle the building ownership rights; and
(iii) The land mortgage as mentioned in Note 5 has been properly registered, but Henan Fuyuan Petroleum Company Limited may still transfer, let or otherwise handle the land use rights as it sees fit provided that any proceed shall be used to settle the secured indebtedness.

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PROPERTY VALUATION REPORT

APPENDIX IV

				Capital Value
			Particulars	in existing state as at
	Property	Description and tenure	of occupancy	31 March 2006
				HK$
8.	Units 201-207	The property comprises the	The property is currently	1,040,000
	Level 2	whole of level 2 of a 6-storey	vacant.
	Block 1 of Area 11	office building completed in		100% interest
	Binhe Road	about 2002.		attributable to the
	High-tech			Target Group:
	Development Zone	The property has a gross floor
	Luoyang City	area of approximately 540.61		1,040,000
	Henan Province	sq.m.
	The PRC
		The land use rights of the
		property were granted for a
		term of 43 years commencing
		from 24 April 2002 and
		expiring on 24 April 2045 for
		education uses.

Notes:

Pursuant to a Building Ownership Certificate, Luo Shi Fang Quan Zheng (2004) Zi Di No. X267743 issued by the Real Estate Administrative Bureau of Luoyang City on 26 July 2004, the building ownership rights of the property with a gross floor area of approximately 540.61 sq.m. were owned by Henan Fuyuan Petroleum Company Limited.
The property was purchased from 洛陽佳都房地產開發有限公司 in 2003 at a consideration of RMB900,000.
For reference purpose, the breakdown of the land and building component of the property is as follows:

in Land Building Total:	Capital Value existing state as at 31 March 2006 (HK$) 280,000 760,000
	1,040,000

We have been provided with a legal opinion regarding the property interests by the Company’s PRC legal advisers, which contains, inter alia, the following:
(i) Henan Fuyuan Petroleum Company Limited legally owns the building ownership rights of the property and has the right to freely lease, transfer, mortgage or otherwise handle the land use rights and building ownership rights of the property;
(ii) The PRC lawyer has not been presented with any copy of the title document in relation to the land use rights of the subject property. As pursuant to the Rule No. 60 of the P.R.C. City Real Estate Administration Law, upon the transfer of any property the conveyance should be registered with the local Real Estate Administrative Bureau at or above county’s level; and to register the change in land use rights ownership with the local Land Administrative Bureau (of the same hierarchy of Real Estate Administrative Bureau which the property conveyance is registered) according to the new Building Ownership Certificate. Henan Fuyuan Petroleum Company Limited should execute such procedures if they are yet to be executed;
(iii) The use of the property as an office is legal as pursuant to the Building Ownership Certificate; and
(iv) The property is not subject to mortgage or any other encumbrances.

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PROPERTY VALUATION REPORT

APPENDIX IV

Group II — Property interests leased and occupied by the Target Group in the PRC

				Capital Value
			Particulars	in existing state as at
	Property	Description and tenure	of occupancy	31 March 2006
				HK$
9.	A Petrol Filling	The property comprises a	The property is currently	No commercial value
	Station	parcel of land with a site area	occupied by the Target
	located at	of approximately 763 sq.m. on	Group for petroleum	100% interest
	the North of	which are constructed 4	filling station operation,	attributable to the
	Lincai Road	buildings and various	ancillary office and	Target Group:
	Youfenzui Village	ancillary structures completed	dormitory purposes.
	Chengguan Town	in the 1990s.		Nil
	Xinan County
	Luoyang City	The buildings have a total
	Henan Province	gross floor area of
	The PRC	approximately 114 sq.m.
		The petrol filling station
		comprises an office/
		dormitory/kiosk, 2 vacant
		rooms and a toilet.
		The structures mainly
		comprise boundary walls, oil
		tanks, oil ducts and the station
		cover.
		The subject land is leased to
		Henan Fuyuan Petroleum
		Company Limited from an
		independent third party for a
		term of 25 years commencing
		from 1 February 2004 and
		expiring on 31 January 2028
		at an annual rent of RMB912.

Notes:

Pursuant to a Tenancy Agreement entered into between 夏明選 (the “lessor”) and Henan Fuyuan Petroleum Company Limited (the “lessee”) on 30 January 2004, the subject land is leased to the lessee for a term of 25 years commencement from 1 February 2004 and expiring on 31 January 2028. According to the Agreement, the leased area is 1.14 mu or 763 sq.m. and the compensation payable to the lessor for the use of site is RMB800 per mu per annum.
As advised by the Target Group, the buildings and structures of the property are erected on their own cost and are yet to be granted with any proper title certificate. We have therefore attributed no commercial value to such buildings and structures.
We have been provided with a legal opinion regarding the property interests by the Company’s PRC legal advisers, which contains, inter alia, the following:
(i) As pursuant to the Rule No. 43 of the PRC Land Law, any person or unit who wish to utilize land for development must apply to the relevant government authority for the acquisition of state-owned land, except for village/town collectively-owned enterprises and local villagers who, upon the approval from the local villagers committee, utilize the collectively-owned land for residential purposes or the erection of public utilities and welfare services;
(ii) As pursuant to the Rule No. 63 of the PRC Land Law, collectively-owned land use rights cannot be granted, transferred or leased for non-agricultural development, with the exception of such land use rights which is obtained through liquidation or mergers and acquisitions without violating the overall land use planning;

— IV-24 —

PROPERTY VALUATION REPORT

APPENDIX IV

(iii) Pursuant to a document named “Opinion on Transfer of Collectively-owned Land in Henan Province” issued by the Henan Provincial Government dated 26 August 2003, transfer of collectively-owned land by way of sale, let and injection as capital asset was allowed by Henan Provincial Government.
(iv) As there are discrepancies regarding the legality in the transfer of collectively-owned land use rights in Henan Province, the tenancy entered into between the lessor and lessee and use of the property as petrol filling station by Henan Fuyuan Petroleum Company Limited may be regulated if the State policy gets rid of the relevant policy in the provincial hierarchy by the relevant government authority; and
(v) The tenancy may became invalid should it contravene the provisions as stipulated in the State laws and regulations.

— IV-25 —

PROPERTY VALUATION REPORT

APPENDIX IV

Property Description and tenure 10. A Petrol Filling The property comprises a Station parcel of land with a site area located at of approximately 1,170 sq.m. Li Village on which are constructed 2 Xinan County buildings and various Luoyang City ancillary structures completed Henan Province in the 1990s. The PRC The buildings have a total gross floor area of approximately 122.5 sq.m. The petrol filling station comprises an office/ dormitory/kiosk and a toilet. The structures mainly comprise boundary walls, oil tanks, oil ducts and the station cover. The subject land is leased to Henan Fuyuan Petroleum Company Limited from an independent third party for a term of 20 years commencing from 24 June 2003 and expiring on 24 June 2023 at an annual rent of RMB1,000.

Notes:

Pursuant to a Tenancy Agreement entered into between the Village Committee of Huangpo Village, Li Village (the “lessor”) and Henan Fuyuan Petroleum Company Limited (the “lessee”) on 24 June 2003, the subject land is leased to the lessee for a term of 20 years commencement from 24 June 2003 and expiring on 24 June 2023 at an annual rent of RMB1,000. In addition, the buildings erected on the site with a gross floor area of approximately 115 sq.m., together with boundary walls and 2 oil tanks were sold to the lessee for the operation of the Petrol Filling Station at a consideration of RMB38,000.
As advised by the Target Group, the buildings are yet to be granted with any proper title certificate. We have therefore attributed no commercial value to such buildings.
We have been provided with a legal opinion regarding the property interests by the Company’s PRC legal advisers, which contains, inter alia, the following:
(i) As pursuant to the Rule No. 43 of the PRC Land Law, any person or unit who wish to utilize land for development must apply to the relevant government authority for the acquisition of state-owned land, except for village/town collectively-owned enterprises and local villagers who, upon the approval from the local villagers committee, utilize the collectively-owned land for residential purposes or the erection of public utilities and welfare services;
(ii) As pursuant to the Rule No. 63 of the PRC Land Law, collectively-owned land use rights cannot be granted, transferred or leased for non-agricultural development, with the exception of such land use rights which is obtained through liquidation or mergers and acquisitions without violating the overall land use planning;
(iii) Pursuant to a document named “Opinion on Transfer of Collectively-owned Land in Henan Province” issued by the Henan Provincial Government dated 26 August 2003, transfer of collectively-owned land by way of sale, let and injection as capital asset was allowed by Henan Provincial Government.

— IV-26 —

PROPERTY VALUATION REPORT

APPENDIX IV

(iv) As there are discrepancies regarding the legality in the transfer of collectively-owned land use rights in Henan Province, the tenancy entered into between the lessor and lessee and use of the property as petrol filling station by Henan Fuyuan Petroleum Company Limited may be regulated if the State policy gets rid of the relevant policy in the provincial hierarchy by the relevant government authority; and
(v) The tenancy may became invalid should it contravene the provisions as stipulated in the State laws and regulations.

— IV-27 —

PROPERTY VALUATION REPORT

APPENDIX IV

Property Description and tenure

A Petrol Filling The property comprises 4 Station buildings and various located at ancillary structures completed Cangtou Village in the 1990s. Xinan County Luoyang City The buildings have a total Henan Province gross floor area of The PRC approximately 225.96 sq.m. The petrol filling station comprises a kiosk/dormitory/ back office, 2 dormitories and a toilet. The structures mainly comprise boundary walls, oil tanks, oil ducts and the station cover. The buildings are leased to Henan Fuyuan Petroleum Company Limited from an independent third party for a term of 19 years commencing from 22 October 2003 and expiring on 22 October 2022 at an annual rent of RMB3,000 exclusive of water and electricity charges.

Particulars of occupancy

The property is currently occupied by the Target Group for petroleum filling station operation, ancillary office and dormitory purposes.

Capital Value in existing state as at 31 March 2006 HK$ No commercial value

100% interest attributable to the Target Group:

Nil

Notes:

Pursuant to a Tenancy Agreement entered into between 韓巧雲 (the “lessor”) and Henan Fuyuan Petroleum Company Limited (the “lessee”) on 22 October 2003, the property is leased to the lessee for a term of 19 years commencement from 22 October 2003 and expiring on 22 October 2022 at an annual rent of RMB3,000 exclusive of water and electricity charges.
We have been provided with a legal opinion regarding the property interests by the Company’s PRC legal advisers, which contains, inter alia, the following:
(i) The tenancy is valid, legal, binding and enforceable under the PRC laws; and
(ii) The tenancy has not been registered with the relevant government authority; however it does not affect the occupation of Henan Fuyuan Petroleum Company Limited in the subject premises during the lease term.

— IV-28 —

PROPERTY VALUATION REPORT

APPENDIX IV

Group III — Property interest held and occupied by the Enlarged Group in the PRC

				Capital Value
			Particulars	in existing state as at
	Property	Description and tenure	of occupancy	31 March 2006
				HK$
12.	Level 7	The property comprises the	The property is currently	8,690,000
	Xinruike Building	whole of level 7 of a 7-storey	vacant.
	Futian Trade Zone	industrial building completed		100% interest
	Futian District	in November 2002.		attributable to the
	Shenzhen			Enlarged Group:
	The PRC	The property has a gross floor
		area of approximately		8,690,000
		2,736.75 sq.m.
		The land use rights of the
		property were granted for a
		term of 50 years commencing
		from 25 May 2001 and
		expiring on 24 May 2051 for
		high technology industrial
		purposes.

Notes:

Pursuant to a Real Estate Title Certificate, Shen Fang Di Zi Di No. 9000489 issued by the Administration Bureau of Shenzhen Trade Zone on 18 October 2005, the building ownership rights of the property with a gross floor area of approximately 2,736.75 sq.m. are held by Triumph Kind Investment Limited. The property is within a 7-storey building and erected on a parcel of land with a site area of approximately 7,387.4 sq.m.
The property was purchased by Triumph Kind Investment Limited in 19 August 2005. The consideration was RMB7,300,000.
Triumph Kind Investment Limited is a wholly-owned subsidiary of the Company.
For reference purpose, the breakdown of the land and building component of the property is as follows:

in Land Building Total:	Capital Value existing state as at 31 March 2006 (HK$) 4,500,000 4,190,000
	8,690,000

We have been provided with a legal opinion regarding the property interests by the Company’s PRC legal advisers, which contains, inter alia, the following:
(i) Triumph Kind Investment Limited legally owns the land use rights and building ownership rights of the property and has the right to freely lease, transfer, mortgage or otherwise handle the land use rights and building ownership rights of the property; and
(ii) Triumph Kind Investment Limited should apply for the change of user stated in the Real Estate Title Certificate from “high technology industrial” to “office” purpose.

— IV-29 —

PROPERTY VALUATION REPORT

APPENDIX IV

Group IV — Property interest held and occupied by the Enlarged Group in Australia

				Capital Value
			Particulars	in existing state as at
	Property	Description and tenure	of occupancy	31 March 2006
				HK$
13.	Central Coast	The property is a purpose	The property is currently	22,900,000
	Cold Storage	built cold storage warehouse	occupied as a cold-
	Lots 11 and 120	facility with ancillary offices,	storage.	100% interest
	Racecourse Road	loading docks and amenities.		attributable to the
	West Gosford	Part of the property was		Enlarged Group:
	New South Wales	constructed in about 1972
	Australia	with extensions carried out in		22,900,000
		about 1980.
		The property comprises two
		conjoining lots with a total
		site area of approximately
		11,525 sq.m. and the
		buildings erected thereon have
		a total gross floor area of
		approximately 4,557 sq.m.
		The land status of the
		property is freehold.

Notes:

The subject land parcels are held under the provisions of the Real Property Act, within the Local Government area of Gosford, Parish of Gosford and Country of Northumberland by the registered owner of Seapower Resources Gosford Pty Ltd.
Seapower Resources Gosford Pty Ltd. is a wholly-owned subsidiary of the Company.
The property is subject to a mortgage in favour of Hong Kong Bank of Australia Limited.
For reference purpose, the breakdown of the land and building component of the property is as follows:

in Land Building Total:	Capital Value existing state as at 31 March 2006 (HK$) 10,700,000 12,200,000
	22,900,000

— IV-30 —

PROPERTY VALUATION REPORT

APPENDIX IV

Group V — Property interest leased and occupied by the Enlarged Group in Hong Kong

				Capital Value
			Particulars	in existing state as at
	Property	Description and tenure	of occupancy	31 March 2006
				HK$
14.	Units 3307-09,	The property comprises 3	The property is currently	No commercial value
	Office Tower	conjoining office units on	occupied by the Enlarged
	Convention Plaza	level 33 of a 40-storey office	Group for office purposes.	100% interest
	No. 1 Harbour	block erected upon a 10-		attributable to the
	Road	storey podium of commercial		Enlarged Group:
	Wanchai	and exhibition complex. It
	Hong Kong	was completed in about 1990.		Nil
	542/1,201st of	The property has a saleable
	20,395/	area of approximately 5,584
	4,000,000th parts	sq.ft.
	or shares of and in
	Inland Lot No.	The property is leased to the
	8593	Company from an
		independent third party for a
		term of 2 years commencing
		from 1 October 2004 and
		expiring on 30 September
		2006, with an option to renew
		for a further term of 3 years,
		at a monthly rent of
		HK$111,328 exclusive of
		rates, management fees and
		air-conditioning charges.

Notes:

Pursuant to a Tenancy Agreement entered into between Ceroilfood Finance Limited (the “lessor”), the mortgagee of the property, and Seapower Resources International Limited (the “lessee”) on 26 July 2004, the property is leased to the lessee for a term of 2 years commencing from 1 October 2004 and expiring on 30 September 2006, at a monthly rent of HK$111,328 exclusive of rates, management fees and air-conditioning charges. According to the Tenancy Agreement, the lessee has an option to renew for a further term of 3 years at market rent.
The registered owner of the property is Roxon Development Limited vide Memorial No. UB7215623 dated 15 July 1997.
The Tenancy Agreement of the property has been duly stamped with the Stamp Duty Office.
The property is subject to a Deed of Mutual Covenant vide Memorial No. UB4568130 dated 13 September 1990.
The property is subject to an Occupation Permit No. H29/90 vide Memorial No. UB4501042 dated 7 March 1990.
The property is subject to a Mortgage to secure general credit facilities in favour of Ceroilfood Finance Limited vide Memorial No. UB7215624 dated 15 July 1997. The consideration was all monies.
The property is subject to a second legal charge in favour of SSANGYONG (Hong Kong) Company Limited vide Memorial No. UB7369968 dated 1 December 1997. The consideration was all monies.
The property is subject to a Memorandum of Outstanding and Unpaid Management Fees and Other Charges by Kiu Lok Service Management Company Limited vide Memorial No. UB7582742 dated 8 October 1998.

— IV-31 —

GENERAL INFORMATION

APPENDIX V

1. RESPONSIBILITY STATEMENTS

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually, and jointly and severally, accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in 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 herein misleading.

2. SHARE CAPITAL

As at the Latest Practicable Date, the authorised and issued capital of the Company were as follows:

Authorized share capital 10,000,000,000 Shares Issued and fully paid: 6,602,293,667 Shares	HK$ 100,000,000

	66,022,936

As at the Latest Practicable Date, the Company had no outstanding convertible securities, options or warrants in issue which confer any right to subscribe for or convert into Shares.

3. DISCLOSURE OF DIRECTORS’ INTERESTS

(a) Interests of Directors and chief executive of the Company

As at the Latest Practicable Date, the interests and short positions of the Directors and chief executives of the Company in the shares, underlying shares and debentures of the Company or any of its associated corporation(s) (within the meaning of Part XV of the SFO) which were required, (i) pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO) to be notified to the Company and the Stock Exchange, or (ii) pursuant to Section 352 of the SFO, to be entered in the register referred to therein, or (iii), pursuant to the Model Code for Securities Transactions by Directors of Listed Companies (“Model Code”)

— V-1 —

GENERAL INFORMATION

APPENDIX V

of the Listing Rules, to be notified to the Company and the Stock Exchange, or (iv) to be disclosed in this circular pursuant to the requirements of the Takeovers Code, are as follows:

		Total	Percentage
	Capacity and	No. of issued	of issued
Name of Director	nature of Interest	shares held	share capital
			(%)
Mr. Fung Tsun Pong	Interest of controlled	1,050,000,000	15.9
	corporation_(Note)_

Note: Mr. Fung Tsun Pong wholly owns Ocean Gain Limited (“OGL”) which is interested in 1,050,000,000 shares in the Company, representing approximately 15.9% in the issued shares of the Company. OGL is a substantial shareholder of the Company and its shareholding in the Company is set out in the section headed “Substantial Shareholders”

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or chief executive of the Company had any interests or short positions in the shares, underlying shares and debentures of the Company or any of its associated corporation(s) (within the meaning of Part XV of the SFO) which were required, (i) pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO) to be notified to the Company and the Stock Exchange, or (ii) pursuant to Section 352 of the SFO, to be entered in the register referred to therein, or (iii) pursuant to the Model Code of the Listing Rules to be notified to the Company and the Stock Exchange, or (iv) to be disclosed in this circular pursuant to the requirements of the Takeovers Code.

(b) Particulars of Directors’ service contracts

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contracts with the Company or any member of the Group or associated companies which is not determinable by the Group within one year without payment of compensation (other than statutory compensation).

(c) Directors’ interests in competing business

As at the Latest Practicable Date, none of the Directors and their respective associates has any interest in a business which competes or is likely to compete, either directly or indirectly, with the business of the Group pursuant to the Listing Rules.

— V-2 —

GENERAL INFORMATION

APPENDIX V

(d) Directors’ interests in assets and contracts

As at the Latest Practicable Date, so far as the Directors were aware and save as disclosed herein:

(i) none of the Directors or their associates had any direct or indirect interests in any assets which have been acquired or disposed of by or leased to the Company or any of its subsidiaries, or are proposed to be acquired or disposed of by, or leased to, the Company or any of its subsidiaries, since 31 March 2005, being the date to which the latest published audited consolidated accounts of the Group were made up; and
(ii) none of the Directors is materially interested in any contract or arrangement entered into by the Company or any of its subsidiaries which contract or arrangement is subsisting at the date of this Circular and which is significant in relation to the business of the Group.

4. SUBSTANTIAL SHAREHOLDERS’ INTERESTS AND SHORT POSITIONS IN SHARES

As at the Latest Practicable Date, according to the register of interests kept by the Company under section 336 of the SFO and so far as known to any Directors or chief executive of the Company, the following persons (other than a Director or chief executive of the Company) had, or were deemed or taken to have interests or short positions in the shares or underlying shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO or, who were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group or had any option in respect of such capital:

Long position in shares or underlying shares of the Company

			Percentage of
Name of shareholders	Capacity	No. of Shares	issued shares
Ocean Gain Limited_(Note 1)_	Beneficial owner	1,050,000,000	15.90
Richest Billion Ltd_(Note 2)_	Beneficial owner	1,045,000,000	15.83
Allkeen Investments Limited_(Note 3)_	Beneficial owner	1,000,000,000	15.15
Huang Wailing	Beneficial owner	895,064,514	13.56

Notes:

Ocean Gain Limited is wholly-owned by Mr. Fung Tsun Pong, an executive Director.

— V-3 —

GENERAL INFORMATION

APPENDIX V

Richest Billion Ltd is wholly-owned by Ms. Li Shi Miao.
Allkeen Investments Limited is wholly-owned by Ms. Wong Yat Ping

5. MATERIAL CONTRACTS

The following contracts, not being contracts in the ordinary course of business, were entered into by the Company or its subsidiaries during the period commencing two years preceding the date of the Announcement and up to the Latest Practicable Date and are or may be material:

(i) the Acquisition Agreement;
(ii) a subscription agreement dated 16 May 2006 entered into between the Company, as issuer, and Total Gain Investment Limited as subscriber, pursuant to which, the Company conditionally agreed to issue and allot to the subscriber 60,156,250 new Shares, representing approximately 0.91% of the existing issued share capital of the Company and approximately 0.90% of the issued share capital of the Company as enlarged by the subscription, at a subscription price of HK$0.128 per Share, i.e. a total consideration of HK$7,700,000, which shall fully settle the consultancy fee owing by the Company to the subscriber under an agency agreement dated 19 December 2005;
(iii) an option agreement dated 16 May 2006 entered into between the Company and Mr. Danny Chan, pursuant to which the Company has been granted an option at a consideration of HK$1.00, exercisable by the Company within five years after the completion of the acquisition of Jaling Forest Industries Inc. to purchase from Mr. Danny Chan 51% shareholding of Garner Forest Industries Inc. at a total price of HK$60,000,000;
(iv) a share acquisition agreement dated 10 April 2006 entered into between the Company, Wide Forest Limited (a wholly owned subsidiary of the Company) as purchaser, Jaling Forest Industries Inc. (“Jaling”), Mr. Peter Chan as vendor and Mr. Danny Chan as guarantor, pursuant to which the purchaser conditionally agreed to purchase a 51% equity interest in Jaling for a consideration of HK$154 million, which would be settled by way of cash consideration of HK$39 million and issue of consideration shares worth HK$115 million;

— V-4 —

GENERAL INFORMATION

APPENDIX V

(v) five Subscription Agreements dated 9 March 2006 entered into between the Company and each of Messrs. Lee Ting Lap, Liu Guo hua, Liu Li Qiang, Pang Tung Choi, and Yu Hoi Ching, pursuant to which the Company issued and allotted 20,000,000, 50,000,000, 46,875,000, 68,437,500 and 10,000,000 new Shares (a total of 195,312,500) to them respectively, which represented approximately 0.3%, 0.76%, 0.71%, 1.04% and 0.15% (a total of 2.96%) of the issued share capital of the Company as enlarged by the said subscription, at HK$0.128 per share (an aggregate consideration of HK$25,000,000);
(vi) a property sale and purchase agreement dated 19 August 2005 entered into between Miss Yuan Yi as vendor and Triumph Kind Investment Limited, a wholly owned subsidiary of the Company as purchaser for the acquisition of a real property situated at Shenzhen, China for a consideration of RMB7,300,000 (equivalent to approximately HK$7,019,231) which was satisfied by issue of 53,994,083 new Shares (0.84% of the issued share capital of the Company as enlarged by the allotment) to the vendor pursuant to a subscription agreement dated 19 August 2005; and
(vii) two subscription agreements dated 6 June 2005 entered into between the Company and Messrs. Liu Li Qiang and Lui Kwan Wing as subscribers pursuant to which the Company issued and allotted 45,600,000 and 60,800,000 new Shares (a total of 106,400,000 Shares representing approximately 1.67% of the issued share capital of the Company as enlarged by the allotment) to them respectively at HK$0.125 per share (an aggregate consideration of HK$13,300,000).

6. LITIGATION

As at the Latest Practicable Date, no member of the Group was engaged in any litigation or arbitration of material importance and no litigation or claim of material importance known to the Directors to be pending or threatened by or against any member of the Group.

— V-5 —

GENERAL INFORMATION

APPENDIX V

7. EXPERTS AND CONSENTS

(i) The following is the qualification of the experts whose statements have been included in this circular:

Name

Qualification

CCIF CPA Limited (“CCIF”)

Certified Public Accountants
RHL Appraisal Limited (“RHL”)
Qualified property valuer, Chartered Surveyor
CIMB-GK Securities (HK) Limited (“CIMB-GK”)
a corporation licensed under the SFO to carry on type 1 (dealing in securities), type 4 (advising on securities) and type 6 (advising on corporate finance) regulated activities
(ii) As at the Latest Practicable Date, each of CCIF, RHL and CIMB-GK has given and has not withdrawn its written consents to the issue of this circular with the inclusion herein of their letters or references to their names in the form and context in which they respectively appear.
(iii) As at the Latest Practicable Date, none of CCIF, RHL and CIMB-GK have any shareholding in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.
(iv) None of CCIF, RHL, and CIMB-GK have any direct or indirect interests in any assets which have been, since 31 March 2005 (being the date to which the latest published audited accounts of the Company were made up), acquired or disposed of by or leased to any member of the Group, or which are proposed to be acquired or disposed of by or leased to any member of the Group.

8. MISCELLANEOUS

(a) The head office and principal place of business of the Company in Hong Kong is at Room 3308, Office Tower, Convention Plaza, Wanchai, Hong Kong and the registered office of Company is situated at Caledonian House, George Town, Grand Cayman, Cayman Islands.
(b) The share registrar and transfer office of the Company in Hong Kong is Progressive Registration Limited at 26/F, Tesbury Centre, 28 Queen’s Road East, Hong Kong.

— V-6 —

GENERAL INFORMATION

APPENDIX V

(c) The company secretary of the Company is Miss Ngan Wai Kam, Sharon, a Practising Solicitor in Hong Kong.
(d) The qualified accountant of the Company is Mr. Tsang Kam Ching, David, a fellow member of the Chartered Association of Certified Accountants in the United Kingdom and a member of the HKICPA.
(e) In the event of inconsistency, the English text of this circular shall prevail over the Chinese text.

9. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours from 9:00 a.m. to 5:00 p.m. (except Saturdays and public holidays) at the principal office of the Company on any business day from the date of this circular up to and including the date of the SGM.

(a) the Company’s Memorandum and Articles of Association;
(b) the annual report of the Company for the two years ended 31 March 2005;
(c) the interim report of the Company for the six months ended 30 September 2005;
(d) the “Letter from the Independent Board Committee” as set out in page 27 of this circular;
(e) the “Letter from CIMB-GK Securities (HK) Limited” as set out in pages 28 to 34 of this circular;
(f) the minutes of the Board approving the details of the Continuing Connected Transactions and the Caps;
(g) the accountants’ report from CCIF CPA Limited dated 26 May 2006 as set out in Appendix II to this circular;
(h) the report from CCIF CPA Limited in respect of the unaudited pro forma financial information of the Group upon completion of the Acquisition as set out in Appendix III to this circular;
(i) the valuation report from RHL Appraisal Limited dated 26 May 2006 as set out in Appendix IV to this circular;
(j) the material contracts referred to in the section headed “Material contracts” in this Appendix; and
(k) the written consents referred to under the section headed “Experts and consents” in this Appendix.

— V-7 —

NOTICE OF SPECIAL GENERAL MEETING

==> picture [56 x 52] intentionally omitted <==

SEAPOWER RESOURCES INTERNATIONAL LIMITED （凱暉國際實業有限公司[*] ）

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 269)

NOTICE IS HEREBY GIVEN that a special general meeting (“ SGM ”) of Seapower Resources International Limited (the “ Company ”) will be held at Falcon Room II, Basement Floor, Luk Kwok Hotel, 72 Gloucester Road, Wanchai, Hong Kong, on 12 June 2006 at 11:00 a.m. for the purpose of considering and, if thought fit, passing with or without amendments, the following resolutions as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

(1) “ THAT
(a) the conditional agreement in Chinese dated 7 January 2006 (the “ Acquisition Agreement ”, a copy of which has been produced to the Meeting and marked “A” and initialled by the Chairman of the Meeting for the purpose of identification) made between the Company and 河南阜源石油化工有限公司 (Henan Fu Yuan Petroleum and Chemical Engineering Company Limited) (the “ Target ”), pursuant to which the Company has conditionally agreed to subscribe for 51% equity interest of the enlarged capital of the Target for a total consideration of approximately RMB27,600,000 (equivalent to approximately HK$26,500,000) subject to the net asset value of the Target as at 31 December 2005, the transactions contemplated thereunder or incidental to the Acquisition Agreement and any supplemental agreement as the Directors may consider necessary to be entered into between the parties, and all actions taken or to be taken by the Company pursuant to the Acquisition Agreement as described in the circular to the shareholders of the Company dated 26 May 2006 (the “ Circular* ”, a copy of which has been produced to the Meeting and marked “B” and initialed by the Chairman of the Meeting for the purpose of identification) be and are hereby generally and unconditionally approved, ratified and confirmed; and
(b) any one executive Director of the Company be and is hereby authorized for and on behalf of the Company to do all such acts and things, to sign and execute any agreements supplemental to the Acquisition Agreement, all such other documents, deeds, instruments and agreements and to take such steps as he/she may consider necessary, appropriate, desirable or expedient to give effect to or in connection with the Acquisition Agreement or any of the transactions contemplated thereunder
For identification purpose only

— N-1 —

NOTICE OF SPECIAL GENERAL MEETING

or incidental to the Acquisition Agreement and all other matters incidental thereto, including (without limitation) exercising or enforcing any right thereunder, and to agree to any amendment to any of the terms of the Acquisition Agreement which in the opinion of any Director of the Company is not of a material nature and is in the interests of the Company.”

(2) “THAT

(a) Beijing Zhong You Sales Connected Transactions (as defined in the Circular) relating to sale of oil and gas products by the Target to 中油瀚峰偉業石油有限公司 (Beijing Zhongyou Hanfeng Weiye Petroleum Company Limited*) be and are hereby approved, ratified and confirmed and the fixing of the maximum amount of the aggregate sales value in the sum of RMB110,000,000, RMB132,000,000 and RMB159,000,000 for the three years ending 31 March 2009 be and are approved and confirmed;
(b) Beijing Zhong You Purchase Connected Transactions (as defined in the Circular) relating to the purchase of oil and gas products by the Target from 中油瀚峰偉業石油有限公司 (Beijing Zhongyou Hanfeng Weiye Petroleum Company Limited*) be and are hereby approved, ratified and confirmed and the fixing of the maximum amount of the aggregate transaction value in the sum of RMB48,000,000, RMB57,000,000 and RMB69,000,000 respectively for the three years ending 31 March 2009 be and are approved and confirmed;
(c) Xinan Sales Connected Transactions (as defined in the Circular) relating to the sale of oil and gas products by 新安瀚源石油有限公司 (Xinan Han Yuan Petroleum Company Limited), a 51% subsidiary of the Target to 洛陽新安電力集團有限公司 (Luo Yang Xinan Light and Power Group Limited) and its subsidiaries and associates be and are hereby approved, ratified and confirmed and the fixing of the maximum amount of the aggregate sales value in the sum of RMB42,000,000, RMB55,000,000 and RMB66,000,000 respectively for the three years ending 31 March 2009 be and are approved and confirmed; and
(d) any one executive Director of the Company be and is hereby authorized for and on behalf of the Company to do all such acts and things, to sign and execute any agreements, all such other documents, deeds, instruments and agreements and to take such steps as he/she may consider necessary, appropriate, desirable or

— N-2 —

NOTICE OF SPECIAL GENERAL MEETING

expedient to give effect to or in connection with all the Continuing Connected Transactions (as defined in the Circular) and all other matters contemplated thereunder and incidental thereto.”

By order of the Board Seapower Resources International Limited Tsang Kam Ching, David Executive Director

Hong Kong, 26 May 2006

Principal place of business:

Unit 3308, Office Tower Convention Plaza 1 Harbour Road, Wanchai Hong Kong

Notes:

(a) A member entitled to attend and vote at the above meeting is entitled to appoint one or more than one proxies to attend and vote on his behalf. A proxy need not be a member of the Company but must be present in person to represent the member.
(b) If the appointer is a corporation, the form of proxy must be under its common seal, or under the hand of an officer or attorney duly authorized on its behalf.
(c) In order to be valid, a form of proxy must be deposited at the Company’s Hong Kong branch share registrar, Progressive Registration Limited at 26/F, Tesbury Centre, 28 Queen’s Road East, Hong Kong, as soon as possible and in any event not less than 48 hours before the time appointed for holding the meeting or any adjournment thereof. The completion and delivery of the form of proxy will not preclude you from attending and voting at the meeting if you so wish. In the event that you attend the meeting after having lodged the form of proxy, the form of proxy will be deemed to have been revoked.
(d) Where there are joint registered holders of any share, any one of such persons may vote at the meeting, either personally or by proxy, in respect of such shares as if he was solely entitled thereto; but if more than one of such joint holders be present at the meeting personally or by proxy, that one of the said persons so present whose name stands first on the register of members of the Company in respect of such share shall alone be entitled to vote and will be accepted to the exclusion of other joint registered holders in respect hereof.
(e) For the purpose of determining entitlement to attend and vote at the SGM of the Company, the Company shall close its registers of members and transfers from 9 June 2006 to 12 June 2006 (both days inclusive). Any person who has acquired shares in the Company but has not lodged the share transfer with the Company’s branch share registrars in Hong Kong should do so before 4:00 p.m. 8 June 2006 in order to qualify for attending and voting at the SGM.

As at the date hereof, the board comprises two executive directors, namely Mr. Fung Tsun Pong and Mr. Tsang Kam Ching, David; and three independent non-executive directors, namely Messrs Yip Tak On, Liu Ka Lim and Jing Baoli.

— N-3 —

AI assistant

Central Development Holdings Limited — Proxy Solicitation & Information Statement 2006

49236_rns_2006-05-26_cdacc936-cb80-46c8-b69e-7b2385eddf3a.pdf

SEAPOWER RESOURCES INTERNATIONAL LIMITED （凱暉國際實業有限公司[*] ）

VERY SUBSTANTIAL ACQUISITION IN RELATION TO PROPOSED ACQUISITION OF 51% INTEREST IN A UTILITIES COMPANY AND CONTINUING CONNECTED TRANSACTIONS

CIMB-GK Securities (HK) Limited

CONTENTS

DEFINITION

DEFINITION

DEFINITION

DEFINITION

DEFINITION

SEAPOWER RESOURCES INTERNATIONAL LIMITED （凱暉國際實業有限公司[*] ）

VERY SUBSTANTIAL ACQUISITION IN RELATION TO PROPOSED ACQUISITION OF 51% INTEREST IN A UTILITIES COMPANY AND CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

THE ACQUISITION AGREEMENT

Assets to be acquired

Consideration

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Condition precedent

SHAREHOLDING STRUCTURE PRIOR TO AND AFTER COMPLETION

Before Completion:

After Completion:

INFORMATION ON THE TARGET

LETTER FROM THE BOARD

Risk factors associated with certain properties occupies by the Target

LETTER FROM THE BOARD

LETTER FROM THE BOARD

REASONS FOR THE ACQUISITION

MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

FINANCIAL AND TRADING PROSPECT OF THE GROUP

FINANCIAL EFFECTS OF THE ACQUISITION

Earnings

Asset and liabilities

CONTINUING CONNECTED TRANSACTIONS

Beijing Zhong You Sales Connected Transactions

Beijing Zhong You Sales Agreement

LETTER FROM THE BOARD

Basis of the Beijing Zhong You Sales Caps

Reasons for Sales Agreement

Beijing Zhong You Purchase Connected Transactions

Beijing Zhong You Purchase Agreement

Basis of the Beijing Zhong You Purchase Caps

LETTER FROM THE BOARD

Reason for the Beijing Zhong You Purchase Agreement

Xinan Sales Connected Transactions

Xinan Sales Agreement

Basis of the Xinan Sales Caps

Reason for the Xinan Sales Agreement

IMPLICATIONS UNDER THE LISTING RULES

LETTER FROM THE BOARD

THE SGM

GENERAL

PROCEDURES FOR DEMANDING A POLL BY SHAREHOLDERS

THE INDEPENDENT BOARD COMMITTEE

INDEPENDENT FINANCIAL ADVISER

RECOMMENDATION

ADDITIONAL INFORMATION

SEAPOWER RESOURCES INTERNATIONAL LIMITED （凱暉國際實業有限公司[*] ）

CONTINUING CONNECTED TRANSACTIONS

Yours faithfully,

LETTER FROM CIMB-GK SECURITIES (HK) LIMITED

CIMB-GK Securities (HK) Limited

CONTINUING CONNECTED TRANSACTIONS

LETTER FROM CIMB-GK SECURITIES (HK) LIMITED

PRINCIPAL FACTORS CONSIDERED

Background and rationale

Basis of determination

The Beijing Zhong You Sales Caps and The Beijing Zhong You Purchase Caps

Views

The Xinan Sales Caps

Views

RECOMMENDATION

1. FINANCIAL SUMMARY

(i) Results

(ii) Asset and liabilities

Central Development Holdings Limited Proxy Solicitation & Information Statement 2006