China Foods Limited — Proxy Solicitation & Information Statement 2002

Jul 11, 2002

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt about this circular or as to the action to be taken, you should consult your stock broker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in G-Prop (Holdings) Limited, you should at once hand this circular, together with the enclosed form of proxy, to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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.

G-PROP (HOLDINGS) LIMITED

(incorporated in Bermuda with limited liability)

THE SUPPLEMENTAL S&P AGREEMENTS AND

SUPPLEMENTAL PLACING AGREEMENT

IN RELATION TO THE PROPOSED ACQUISITIONS (MAJOR AND CONNECTED TRANSACTION) AND

PLACING OF THE ADDITIONAL BONDS

Independent financial adviser to the Independent Director

Somerley Limited

A letter from the Independent Director of G-Prop (Holdings) Limited is set out on page 17 of this circular. A letter from Somerley Limited containing its advice to the Independent Director is set out in appendix I to this circular.

A notice convening a special general meeting of G-Prop (Holdings) Limited to be held at 10:00 a.m., on Friday, 26th July, 2002 at Plaza I-III, Lower Lobby, Novotel Century Hong Kong, 238 Jaffe Road, Wanchai, Hong Kong is set out on pages 140 to 143 of this circular. Whether or not you intend to attend the meeting, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon as soon as possible to the branch registrar and transfer office of G-Prop (Holdings) Limited, Secretaries Limited, at 5th Floor, Wing On Centre, 111 Connaught Road Central, Hong Kong and in any event not less than 48 hours before the time appointed for the holding of the meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting or any adjourned meeting should you so desire.

10th July, 2002

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Chairman
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Supplemental Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Supplemental Deed Polls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Reasons for entering into the Supplemental S&P Agreements
and the Supplemental Placing Agreement, and the creation
of the Supplemental Deed Polls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
Shareholding structure of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
Increase in the authorised share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
Special General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
Advice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
Additional information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
Letter from the Independent Director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Appendix I – Letter from Somerley. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Appendix II – Financial information on the Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	33
Appendix III – Valuation report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	83
Appendix IV – Extract of the letter from the Chairman from the Previous Circular. . . . . . .	91
Appendix V – Extract of the accountants’ report on I-Space.Com
from the Previous Circular. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	109
Appendix VI – Extract of the accountants’ report on Regal Leader
from the Previous Circular. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	121
Appendix VII – General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	133
Notice of the Special General Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	140

– i –

DEFINITIONS

In this circular, the following expressions shall have the meanings set out below unless the context requires otherwise:

• “Additional Bonds”

the convertible bonds to be issued by the Company under the Placing Agreement with an aggregate principal amount of up to HK$100,000,000

• “Alpha New”

Alpha New Investments Limited, an investment holding company incorporated in the British Virgin Islands with limited liability and a wholly-owned subsidiary of the Company

• “Associate(s)”

has the meaning ascribed thereto under the Listing Rules

• “Board”

• board of Directors

• “Boria”

• Boria Enterprises Limited, an investment holding company incorporated in Hong Kong with limited liability and a whollyowned subsidiary of I-Space.Com which holds the Godown Property

• “Chinese Estates”

• Chinese Estates Holdings Limited, a company incorporated in Bermuda with limited liability, the shares of which are listed on the Stock Exchange. Chinese Estates is independent of and not connected with the directors, chief executives and substantial shareholders of the Company, any of its subsidiaries, or their respective Associates

• “Companies Act”

Companies Act 1981 of Bermuda

• “Company”

• G-Prop (Holdings) Limited, a company incorporated in Bermuda with limited liability, the shares of which are listed on the Stock Exchange

• “Completion”

• completion of the S&P Agreement I and the S&P Agreement II respectively

• “Completion Date”

• the third business day immediately following fulfillment of the conditions of the S&P Agreement I and the S&P Agreement II respectively

• “Conversion Shares”

• the Shares to be issued by the Company upon exercise of the conversion rights attaching to the Convertible Bonds and the Additional Bonds

• “Convertible Bonds”

the convertible bonds to be issued by the Company under the S&P Agreements with an aggregate principal amount of up to HK$200,000,000

– 1 –

DEFINITIONS

“Directors”

directors of the Company

• “First Supplemental Deed Poll”

• the supplemental deed poll to be executed by the Company pursuant to the Supplemental S&P Agreements, being supplemental to the instrument constituting the Convertible Bonds

• “Golden Hall Properties”

Golden Hall Property I and Golden Hall Property II

• “Golden Hall Property I”

• the property currently owned by Great King, being shop G on the ground floor (including the cockloft thereof), the whole of 1st, 2nd and 3rd floors of Golden Hall Building, numbers 49-63 Castle Peak Road, Yuen Long, New Territories, Hong Kong

• “Golden Hall Property II” the property currently owned by Gold Concept, being flats A and B on the 4th floor (each including the flat roof thereof) and roofs A and B of Golden Hall Building, numbers 49-63 Castle Peak Road, Yuen Long, New Territories, Hong Kong

• “Godown Property” the property currently owned by Boria, being the 1st floor, 3rd floor, 4th floor (including the flat roof thereof), 5th floor, 7th floor, 8th floor, 9th floor, 10th floor, 11th floor, and car parking space number 25 on the ground floor of Chung Kiu Godown Building, numbers 63-71 Lei Muk Road, Kwai Chung, New Territories, Hong Kong

• “Gold Concept” Gold Concept Limited, an investment holding company incorporated in Hong Kong with limited liability and an indirect wholly-owned subsidiary of Regal Leader which holds the Golden Hall Property II

• “Great Empire” Great Empire International Ltd., an investment holding company incorporated in the British Virgin Islands with limited liability and an indirect wholly-owned subsidiary of Paul Y.

• “Great King” Great King Limited, an investment holding company incorporated in Hong Kong with limited liability and an indirect wholly-owned subsidiary of Regal Leader which holds the Golden Hall Property I

• “Group”

• the Company and its subsidiaries

• “Hong Kong”

• the Hong Kong Special Administrative Region of the PRC

• “I-Space.Com”

I-Space.Com Limited, an investment holding company incorporated in the British Virgin Islands with limited liability and a direct wholly-owned subsidiary of Great Empire

– 2 –

DEFINITIONS

• “I-Space.Com Group” I-Space.Com and its subsidiary

• “Independent Director” Mr. Chan Kam Wing, Jack, who is an independent non-executive Director

• “Independent Shareholders”

Shareholders other than Chinese Estates and its Associates

• “Latest Practicable Date”

• 5th July, 2002, being the latest practicable date prior to the printing of this circular for ascertaining certain information referred to in this circular

• “Listing Rules” Rules Governing the Listing of Securities on the Stock Exchange

• “Options” the share options granted to the Directors and employees of the Group under the employees share option scheme of the Company which remain outstanding as at the Latest Practicable Date

• “Oriental Ford Finance” Oriental Ford Finance Limited, a wholly-owned subsidiary of Chinese Estates

• “Paul Y.” Paul Y. Holdings Company Limited, an investment holding company incorporated in the Cayman Islands with limited liability and a wholly-owned subsidiary of Chinese Estates

• “Placing Agreement” the conditional placing agreement dated 28th January, 2002 entered into between the Placing Agent and the Company in relation to the private placing of the Additional Bonds

• “PRC” the People’s Republic of China

• “Previous Circular” circular of the Company dated 22nd February, 2002 containing, inter alia, details of the Proposed Acquisitions and the Placing Agreement

• “Properties” the Godown Property and the Golden Hall Properties

• “Proposed Acquisitions” the proposed acquisitions of, inter alia, the entire issued share capital of I-Space.Com and the entire issued share capital of Regal Leader pursuant to the S&P Agreement I (as supplemented and amended by the Supplemental S&P Agreement I) and the S&P Agreement II (as supplemented and amended by the Supplemental S&P Agreement II) respectively

“Regal Leader” Regal Leader Limited, an investment holding company incorporated in the British Virgin Islands with limited liability and a wholly-owned subsidiary of Paul Y.

– 3 –

DEFINITIONS

• “Regal Leader Group”

• “Sanfull Securities” or “Placing Agent”

• “S&P Agreement I”

• “S&P Agreement II”

• “S&P Agreements”

• “SDI Ordinance”

• “Shareholder(s)”

• “Share(s)”

• “Special General Meeting”

• “Stock Exchange”

• “Second Supplemental Deed Poll”

• “Somerley”

• “Supplemental Deed Polls”

Regal Leader and its subsidiaries

• Sanfull Securities Limited, a dealer registered under the Securities Ordinance (Chapter 333 of the Laws of Hong Kong) and the placing agent appointed by the Company in respect of the placing of the Additional Bonds

• the conditional sale and purchase agreement dated 28th January, 2002 entered into by the Company, Great Empire and Alpha New in relation to, among others, the sale and purchase of the issued share capital of I-Space.Com

• the conditional sale and purchase agreement dated 28th January, 2002 entered into by the Company, Paul Y. and Talent Pioneer in relation to, among others, the sale and purchase of the issued share capital of Regal Leader

the S&P Agreement I and the S&P Agreement II

• Securities (Disclosure of Interest) Ordinance (Chapter 396 of the Laws of Hong Kong)

holder(s) of the Share(s)

• ordinary share(s) of HK$0.01 each in the share capital of the Company

the special general meeting of the Company to be convened at 10:00 a.m., on Friday, 26th July, 2002 at Plaza I-III, Lower Lobby, Novotel Century Hong Kong, 238 Jaffe Road, Wanchai, Hong Kong and any adjournment thereof, notice of which is set out on pages 140 to 143 of this circular

The Stock Exchange of Hong Kong Limited

• the supplemental deed poll to be executed by the Company pursuant to the Supplemental Placing Agreement, being supplemental to the instrument constituting the Additional Bonds

• Somerley Limited, an investment adviser and exempt dealer registered under the Securities Ordinance (Chapter 333 of the Laws of Hong Kong) and the independent financial adviser to the Independent Director

the First Supplemental Deed Poll and the Second Supplemental Deed Poll

– 4 –

DEFINITIONS

• “Supplemental Placing Agreement”

• the supplemental agreement entered into between the Company and the Placing Agent on 8th June, 2002, being supplemental to the Placing Agreement

“Supplemental S&P Agreements” the Supplemental S&P Agreement I and the Supplemental S&P Agreement II

• “Supplemental S&P Agreement I” the supplemental agreement entered into between Great Empire, Alpha New and the Company on 8th June, 2002, being supplemental to the S&P Agreement I

• “Supplemental S&P Agreement II” the supplemental agreement entered into between Paul Y., Talent Pioneer and the Company on 8th June, 2002, being supplemental to the S&P Agreement II

• “Talent Pioneer” Talent Pioneer Assets Limited, an investment holding company incorporated in the British Virgin Islands with limited liability and a wholly-owned subsidiary of the Company

• “Valuer” Norton Appraisals Limited, an independent qualified valuer in Hong Kong

• “Vendors” Great Empire and Paul Y. in relation to the Proposed Acquisitions

• “HK$” Hong Kong dollar(s), the lawful currency for the time being of Hong Kong

• “sq.m.” square metre “sq.ft.” square feet

– 5 –

LETTER FROM THE CHAIRMAN

G-PROP (HOLDINGS) LIMITED

(incorporated in Bermuda with limited liability)

Executive Directors:

Mr. Chan Hung Lit, Simon (Chairman) Mr. Cheung Kwai Sun, Roger (Deputy Chairman) Mr. Lee Sze Kwong, William (Managing Director) Mr. Lo Siu Wah Mr. Li Wing Kin

Independent non-executive Directors:

Mr. Lai Hin Wing, Henry Mr. Chan Kam Wing, Jack

Registered Office: Clarendon House Church Street Hamilton HM 11 Bermuda

Head office and principal place of business in Hong Kong: 13th Floor New World Tower Two 18 Queen’s Road Central Hong Kong

10th July, 2002

• To the Shareholders and, for information, holders of 7.5% convertible bonds due 2002 of the Company and holders of non-interest bearing convertible bonds due 2004 of the Company

Dear Sir or Madam,

THE SUPPLEMENTAL S&P AGREEMENTS AND

SUPPLEMENTAL PLACING AGREEMENT IN RELATION TO THE PROPOSED ACQUISITIONS (MAJOR AND CONNECTED TRANSACTION) AND PLACING OF THE ADDITIONAL BONDS

INTRODUCTION

It was announced on 10th June, 2002 that the Company has entered into the Supplemental S&P Agreements and the Supplemental Placing Agreement pursuant to which certain terms in the S&P Agreements and the Placing Agreement in relation to the Proposed Acquisitions and placing of the Additional Bonds have been amended.

– 6 –

LETTER FROM THE CHAIRMAN

The Supplemental S&P Agreements and the Supplemental Placing Agreement are construed as supplementing and forming part of the respective S&P Agreements and the Placing Agreement, and therefore, the Supplemental S&P Agreements, the Supplemental Placing Agreement and the creation of the Supplemental Deed Polls are subject to approval of the Shareholders at the Special General Meeting.

As Mr. Lai Hin Wing, Henry, an independent non-executive Director, is currently a partner of P.C. Woo & Co., a law firm in Hong Kong, which acts as the legal adviser to the Company in respect of the Proposed Acquisitions, he is not considered to be sufficiently independent for the purpose of advising the Independent Shareholders. The Independent Director, Mr. Chan Kam Wing, Jack, will advise the Independent Shareholders concerning the Supplemental S&P Agreements and the First Supplemental Deed Poll. Somerley has been retained as the independent financial adviser to advise the Independent Director on his advice to the Independent Shareholders concerning the Supplemental S&P Agreements and the First Supplemental Deed Poll.

The purpose of this circular is to provide you with further information in relation to the Supplemental S&P Agreements, the Supplemental Placing Agreement and the Supplemental Deed Polls, to set out the recommendation of the Independent Director and advice from Somerley in relation to the Supplemental S&P Agreements and the First Supplemental Deed Poll, and to give you notice of the Special General Meeting.

Background

On 28th January, 2002, the Company entered into the S&P Agreements and the Placing Agreement in relation to the Proposed Acquisitions and placing of the Additional Bonds.

Under the Proposed Acquisitions, the Company has agreed to acquire:

• the entire issued share capital of I-Space.Com together with the rights, interests and benefit of the amount due to Great Empire by I-Space.Com and Boria respectively as at the Completion Date; and

• the entire issued share capital of Regal Leader together with the rights, interests and benefit of the amount due to Paul Y. by Regal Leader as at the Completion Date.

The principal assets of I-Space.Com Group mainly comprise the Godown Property. The principal assets of Regal Leader Group mainly comprise the Golden Hall Properties. The estimated aggregate consideration of the Proposed Acquisitions amounts to approximately HK$153.2 million which has been determined after arm’s length negotiation between the Company and the Vendors with reference to the valuation of the Properties as at 31st December, 2001 as appraised by the Valuer at HK$182 million and will be satisfied by way of the issue of the Convertible Bonds.

Under the Placing Agreement, the Placing Agent has agreed to place the Additional Bonds on a best endeavour basis. The principal amount of the Additional Bonds is HK$100,000,000. It is intended that, of the net proceeds of HK$94 million from the placing of the Additional Bonds , about HK$30 million will be used to expand the energy saving machine business of the Group, about HK$20 million to invest in CashThrough International Limited and about HK$44 million be applied as general working capital of the Group.

– 7 –

LETTER FROM THE CHAIRMAN

The Proposed Acquisitions constitute a major and connected transaction for the Company under the Listing Rules. The Previous Circular was despatched to the Shareholders on 22nd February, 2002. A special general meeting was held on 11th March, 2002 at which, among other things, the S&P Agreements, the Placing Agreement, and the issue of the Convertible Bonds and the Additional Bonds were approved by the Independent Shareholders.

One of the conditions of the S&P Agreements is the granting of all other necessary consent (if any) by third parties for the entering into and performance of the S&P Agreements by Alpha New, Talent Pioneer and the Company (including without limitation the issue of the Convertible Bonds and the execution of the security documents under the S&P Agreements). As the mortgagee bank in respect of the Golden Hall Properties had not been prepared to grant the requisite consents for the execution of certain security documents under the S&P Agreement II, Oriental Ford Finance, a wholly-owned subsidiary of Chinese Estates, had in late March 2002 provided mortgage facilities to Great King and Gold Concept to replace the original mortgage facilities. Such arrangement may constitute a connected transaction of the Company when Chinese Estates becomes a substantial Shareholder upon conversion of the Convertible Bonds. Should such event arise, the Company will comply with relevant requirements of the Listing Rules.

Since then, the Company has been in discussions with Paul Y. with an aim to enter into arrangement for the completion of the Proposed Acquisitions.

SUPPLEMENTAL AGREEMENTS

Supplemental S&P Agreement I

Date

8th June, 2002

Parties

Vendor: Great Empire Purchaser: Alpha New Issuer and Guarantor: the Company

Supplemental S&P Agreement II

Date

8th June, 2002

Parties

Vendor: Paul Y. Purchaser: Talent Pioneer Issuer and Guarantor: the Company

– 8 –

LETTER FROM THE CHAIRMAN

Subject matters

The terms and conditions of the S&P Agreements are amended by the Supplemental S&P Agreements. Principal amendments include, inter alia, the following:

• Under the Supplemental S&P Agreement II, the consideration would be equal to HK$135.5 million plus the total current assets (excluding the Golden Hall Properties) after deducting the total liabilities (excluding all amount due to Paul Y. by Regal Leader) and the loan secured by the Golden Hall Properties as per the unaudited consolidated accounts of Regal Leader Group as at the Completion Date.

• The instrument executed by the Company by way of a deed poll dated 22nd March, 2002 constituting the Convertible Bonds pursuant to the S&P Agreements will be amended and supplemented by the First Supplemental Deed Poll.

• The stop date of the S&P Agreements will be amended to mean a date falling six months after the date of the Supplemental S&P Agreements or such other date as the parties thereto may agree in writing.

The Supplemental S&P Agreements are construed as supplementing and forming part of the respective S&P Agreements. The terms and provisions of the respective S&P Agreements, as supplemented and amended by the Supplemental S&P Agreements, shall remain in full force and effect.

The aforesaid adjusted consideration payable under the Supplemental S&P Agreement II was determined after arm’s length negotiation between the Company and Paul Y. with reference to the valuation of the Golden Hall Properties of an aggregate of HK$135.5 million as at 7th June, 2002 by the Valuer. Based on the deficit of approximately HK$28.4 million of the net asset value (calculated on the basis as described above) as at 25th January, 2002 as per the unaudited consolidated accounts of Regal Leader Group, the consideration payable under the S&P Agreement II is expected to be approximately HK$107.1 million.

Supplemental Placing Agreement

Date

8th June, 2002

Parties

Issuer: the Company Placing Agent: Sanfull Securities

– 9 –

LETTER FROM THE CHAIRMAN

Subject matters

The terms and conditions of the Placing Agreement are amended by the Supplemental Placing Agreement. Principal amendments include, inter alia, the following:

• The instrument executed by the Company by way of a deed poll dated 22nd March, 2002 constituting the Additional Bonds pursuant to the Placing Agreement will be amended and supplemented by the Second Supplemental Deed Poll.

• The stop date of the Placing Agreement will be amended to mean a date falling six months after the date of the Supplemental Placing Agreement or such other date as the parties thereto may agree in writing.

The Supplemental Placing Agreement is construed as supplementing and forming part of the Placing Agreement. The terms and provisions of the Placing Agreement, as supplemented and amended by the Supplemental Placing Agreement, shall remain in full force and effect.

The proceeds in relation to the placing of the Additional Bonds will be used by the Company in the manner as described in the Previous Circular.

SUPPLEMENTAL DEED POLLS

Amendments to the principal terms of the Convertible Bonds and the Additional Bonds as supplemented by the Supplemental Deed Polls are summarised below:

• (a) Conversion price

The initial conversion price per Share, subject to adjustment, is either:

• (i) HK$0.065 per Share, being an amount equivalent to 110% of the average closing price per Share as quoted on the Stock Exchange in the 10 consecutive trading days immediately prior to the date of the Supplemental S&P Agreements and the Supplemental Placing Agreement; or

• (ii) an amount equivalent to 110% of the average closing price per Share as quoted on the Stock Exchange in the 10 consecutive trading days immediately prior to the date of the Special General Meeting or its adjournment duly convened and held for the purpose of approving the Supplemental S&P Agreements, the Supplemental Placing Agreement and the creation of the Supplemental Deed Polls,

whichever is the lower.

– 10 –

LETTER FROM THE CHAIRMAN

(b) Maturity

Four years after the first issue of the Convertible Bonds or the Additional Bonds (whichever is the earlier).

In addition, as to the First Supplemental Deed Poll, it is added as a condition that in the event that the Company is unable or fails to redeem the Convertible Bonds at the redemption amount at the maturity date, the holders of the Convertible Bonds may at their sole discretion (i) convert all or any of the Convertible Bonds into Shares at any time, whether with or without and/or before or after the enforcement of any security documents (as defined in the S&P Agreements), within 12 months from the maturity date (or such longer period as the Company may agree) and/or; (ii) (in respect of the holders of the Convertible Bonds who are entitled to enforce the security documents) enforce the security documents. Save as aforesaid, in the event that the aggregate amount due to those holders of the Convertible Bonds who are entitled to enforce the security documents which is satisfied by the enforcement of the security documents and/or the total amount of the Convertible Bonds converted into Shares is less than the redemption amount, the holders of the Convertible Bonds shall not be entitled to take any other action whatsoever to recover such deficiency.

Each of the Supplemental Deed Polls is construed as supplementing and forming part of the original instruments constituting the Convertible Bonds and the Additional Bonds respectively. The terms and provisions of the original instruments constituting the Convertible Bonds and the Additional Bonds, as supplemented and amended by the Supplemental Deed Polls, shall remain in full force and effect.

REASONS FOR ENTERING INTO THE SUPPLEMENTAL S&P AGREEMENTS AND THE SUPPLEMENTAL PLACING AGREEMENT, AND THE CREATION OF THE SUPPLEMENTAL DEED POLLS

It has been about four months since the announcement of the Proposed Acquisitions and placing of the Additional Bonds. During such period, the Directors have been working with an aim to complete these transactions. The Directors have decided to enter into the Supplemental S&P Agreements and the Supplemental Placing Agreement, and to create the Supplemental Deed Polls after taking into account the following reasons and factors:

• Reasons for the Proposed Acquisitions as set out in the Previous Circular.

• Reasons for placing of the Additional Bonds as set out in the Previous Circular.

• The S&P Agreements, the Placing Agreement and the issue of the Convertible Bonds and the Additional Bonds have been approved by the Independent Shareholders at the special general meeting held on 11th March, 2002.

– 11 –

LETTER FROM THE CHAIRMAN

• Oriental Ford Finance has stated that it would not consent to the entering into and the execution of certain security documents under the S&P Agreement II. The Directors have been informed that it is principally due to the market price of the Shares since announcement of the Proposed Acquisitions and the premium of the initial conversion price of the Convertible Bonds of HK$0.15 to the prevailing market price. As such, one of the conditions of the S&P Agreement II could not be fulfilled. Paul Y. has indicated that it would procure Oriental Ford Finance to grant the requisite consents after signing of the Supplemental S&P Agreements.

• The Shares have been traded within the range of HK$0.037 to HK$0.125 generally in a descending trend since 1st February, 2002, the first trading date after the announcement of the Proposed Acquisitions and placing of the Additional Bonds up to the Latest Practicable Date.

• No placement of Additional Bonds has been capable of being made since signing of the Placing Agreement. The Directors believe that this is principally due to the market price of the Shares since announcement of placing of the Additional Bonds and the premium of the initial conversion price of the Additional Bonds, being HK$0.15 per Share, to the prevailing market price. The initial conversion price of HK$0.15 per Share, represents (i) a premium of approximately 163.2% over the closing price of HK$0.057 per Share on the Stock Exchange on 7th June, 2002, being the date immediately prior to the date of the Supplemental S&P Agreements and the Supplemental Placing Agreement; (ii) a premium of approximately 154.2% over the average closing price of HK$0.059 per Share on the Stock Exchange in the 10 consecutive trading days ended on 7th June, 2002; and (iii) a premium of approximately 80.7% over the average closing price of HK$0.083 per Share on the Stock Exchange during the period from 1st February, 2002 to 7th June, 2002.

• Although the initial conversion price of the Convertible Bonds and the Additional Bonds was HK$0.15 per Share under the original instruments constituting the Convertible Bonds and the Additional Bonds and would be not higher than HK$0.065 under the Supplemental Deed Polls, they represent a premium of 10% over the average closing price of HK$0.136 per Share and HK$0.059 per Share on the Stock Exchange in the 10 consecutive trading days ended on 28th January, 2002 (the date of the S&P Agreements and the Placing Agreement) and on 7th June, 2002 (the date immediately prior to the date of the Supplemental S&P Agreements and the Supplemental Placing Agreement) respectively.

• The Properties were valued at an aggregate of HK$177,500,000 as at 7th June, 2002 by the Valuer by the investment approach, which is HK$4.5 million lower than the valuation as at 31st December, 2001. Under the Supplemental S&P Agreements, the consideration for the Properties will be adjusted accordingly.

• It is noted that the net asset value as at 25th January, 2002 as per the unaudited combined accounts of I-Space.Com Group and Regal Leader Group after adjusting for the valuation of the Properties as at 7th June, 2002 by the Valuer is approximately HK$41.7 million and approximately HK$107.1 million respectively. As at 7th June, 2002, the valuation of Godown Property is HK$42 million and the aggregate valuation of Golden Hall Properties is HK$135.5 million. As one of the reasons for the Proposed Acquisitions is to enhance the tangible asset

– 12 –

LETTER FROM THE CHAIRMAN

base of the Group and the Directors consider that it would be of economy of scale to maintain the Properties instead of the Godown Property only taking account of the considerable time and cost involved in the management of the Properties, the Directors have decided not to complete the S&P Agreement I alone, notwithstanding that all the conditions of the S&P Agreement I can be fulfilled and that the S&P Agreements are not inter-conditional upon each other. The Directors consider that the acquisition of the Golden Hall Properties as well would enable the Group to create a critical mass for its property investment activities and achieve economy of scale for this business division. In addition, the Godown Property is for warehouse and industrial use and the Golden Hall Properties are principally commercial/ retail properties. It is also the intention of the Directors to maintain a more balanced investment portfolio.

The Directors consider that the terms of the Supplemental S&P Agreements and the First Supplemental Deed Poll are fair and reasonable, and are in the interests of the Group. The Directors also consider that the terms of the Supplemental Placing Agreement and the Second Supplemental Deed Poll are fair and reasonable, and are in the interests of the Group.

SHAREHOLDING STRUCTURE OF THE COMPANY

Set out below is the existing shareholding structure of the Company and the shareholding structure of the Company assuming full conversion of (i) the Convertible Bonds, (ii) the Convertible Bonds and the Additional Bonds (assuming full subscription), and (iii) the Convertible Bonds, the Additional Bonds (assuming full subscription) and the existing convertible bonds of the Company and full exercise of the Options:

Directors (1) Holders of the existing convertible bonds of the Company(2) Vendors(3) Public shareholders	Existing Shares % 490,000 0.1 – – – – 716,504,175 99.9 716,994,175 100.0	Assuming full conversion of the Convertible Bonds Shares % 490,000 – – – 2,400,000,000 77.0 716,504,175 23.0 3,116,994,175 100.0	Assuming full conversion of the Convertible Bonds and the Additional Bonds (assuming full subscription) Shares % 490,000 – – – 2,400,000,000 51.6 2,254,965,713 48.4 4,655,455,713 100.0	Assuming full conversion of the Convertible Bonds, the Additional Bonds (assuming full subscription) and the existing convertible bonds of the Company and full exercise of the Options Shares % 17,577,085 0.3 1,209,900,924 20.5 2,400,000,000 40.7 2,264,222,983 38.5 5,891,700,992 100.0	Assuming full conversion of the Convertible Bonds, the Additional Bonds (assuming full subscription) and the existing convertible bonds of the Company and full exercise of the Options Shares % 17,577,085 0.3 1,209,900,924 20.5 2,400,000,000 40.7 2,264,222,983 38.5 5,891,700,992 100.0
					100.0

– 13 –

LETTER FROM THE CHAIRMAN

Notes:

1. As at the Latest Practicable Date, there are a total of 26,344,355 Options outstanding, of which 17,087,085 Shares are to be subscribed by the Directors upon exercise of the Options.

2. As at the Latest Practicable Date, particulars of the existing convertible bonds of the Company are set out below:

Type of existing convertible bonds Due date 7.5% convertible bonds 23rd August, 2002 0% convertible bonds 18th October, 2004 0% convertible bonds 18th October, 2004	Outstanding Conversion amount price HK$ HK$ 8,400,000 7.883 237,000,000 0.249 64,000,000 0.249 309,400,000	Shares to be issued upon conversion Shares 1,065,584 951,807,228 257,028,112
		1,209,900,924

As at the Latest Practicable Date, there are 13 holders of the existing convertible bonds of the Company, who are independent of and not connected with the directors, chief executive, substantial Shareholders of the Company, any of its subsidiaries, or their respective Associates.

1. On the basis of the expected consideration payable under the S&P Agreement I of HK$41.7 million and the adjusted expected consideration payable under the Supplemental S&P Agreement II of HK$107.1 million, it is anticipated that the Convertible Bonds with an aggregate principal amount of HK$156,000,000 will be issued to the Vendors and an aggregate of 2,400,000,000 Conversion Shares would be issued upon conversion of such Convertible Bonds in full assuming that the initial conversion price were HK$0.065 per Share (being 110% of the average closing price of HK$0.059 per Share as quoted on the Stock Exchange in the 10 consecutive trading days immediately prior to the date of the Supplemental S&P Agreements).

2. Assuming that the entire Convertible Bonds, being an aggregate principal amount of HK$200,000,000 were to be issued to the Vendors in settlement of the consideration payable under the S&P Agreements, at the aforesaid assumed initial conversion price, a total of 3,076,923,076 Conversion Shares would be issued to the Vendors who would be interested in approximately 81.1%, 57.7% and 46.8% of the issued share capital of the Company as enlarged by the full conversion of (i) the Convertible Bonds, (ii) the Convertible Bonds and the Additional Bonds (assuming full subscription), and (iii) the Convertible Bonds, the Additional Bonds (assuming full subscription) and the existing convertible bonds of the Company and full exercise of the Options respectively.

Save as disclosed above, the Company has no other outstanding options, warrants or convertible securities as at the date of this announcement.

Currently, there is no Shareholder holding more than 10% of the issued share capital of the Company. After Completion, assuming full conversion of the Convertible Bonds (at the aforesaid assumed initial conversion price of HK$0.065 per Share), the Vendors will be interested in an aggregate of 2,400,000,000 Shares, representing approximately 77.0%, 51.6% and 40.7% of the share capital of the Company as enlarged by the issue of Shares upon full conversion of (i) the Convertible Bonds, (ii) the Convertible Bonds and the Additional Bonds (assuming full subscription), and (iii) the Convertible Bonds, the Additional Bonds (assuming full subscription) and the existing convertible bonds of the Company, and full exercise of the Options. Should such event arise, the Vendors will comply with the relevant requirements of The Hong Kong Code on Takeovers and Mergers.

– 14 –

LETTER FROM THE CHAIRMAN

INCREASE IN THE AUTHORISED SHARE CAPITAL

The authorised share capital of the Company is HK$200,000,000 divided into 20,000,000,000 Shares and the issued share capital of the Company as at the Latest Practicable Date was HK$7,169,941.75 divided into 716,994,175 Shares, all of which have been fully paid or credited as fully paid. In order to have sufficient authorised and unissued share capital available for future issue of Shares including, but not limited to, the 2,400,000,000 new Shares which may fall to be issued pursuant to the conversion of the Convertible Bonds in full (based on the anticipated aggregate principle amount of the Convertible Bonds of HK$156,000,000 and the conversion price of HK$0.065 per Share), an ordinary resolution will be proposed at the Special General Meeting to increase the authorised share capital of the Company from HK$200,000,000 to HK$800,000,000 by the creation of an additional 60,000,000,000 Shares.

SPECIAL GENERAL MEETING

There is set out on pages 140 to 143 a notice convening the Special General Meeting to be held at 10:00 a.m. on Friday, 26th July, 2002 at Plaza I-III, Lower Lobby, Novotel Century Hong Kong, 238 Jaffe Road, Wanchai, Hong Kong at which resolutions will be proposed to approve, among other things:

• the Supplemental S&P Agreements;

• the Supplemental Placing Agreement;

• the creation of the Supplemental Deed Polls; and

• increase in the authorised share capital of the Company.

None of Chinese Estates or any of its Associates holds any Shares or has any interest in the existing convertible bonds of the Company as at the Latest Practicable Date.

A form of proxy for use at the Special General Meeting is enclosed. Shareholders are requested to complete the enclosed form of proxy and return the same to the branch registrar and transfer office of the Company, Secretaries Limited, at 5th Floor, Wing On Centre, 111 Connaught Road Central, Hong Kong in accordance with the instructions printed thereon not less than 48 hours before the time of the special general meeting (or any adjournment thereof) whether or not they intend to be present at the meeting. Completion and return of the form of proxy will not preclude Shareholders from attending and voting in person at the special general meeting or any adjourned meeting should they so wish.

ADVICE

The Independent Director has given his recommendation to the Independent Shareholders in relation to the Supplemental S&P Agreements and the First Supplemental Deed Poll. Somerley has been retained as the independent financial adviser to advise the Independent Director in this connection.

Your attention is drawn to the advice of the Independent Director set out in the letter dated 10th July, 2002 on page 17 of this circular.

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LETTER FROM THE CHAIRMAN

ADDITIONAL INFORMATION

Your attention is drawn to the letter set out in appendix I to this circular from Somerley which contains its advice to the Independent Director in respect of the Supplemental S&P Agreements and the First Supplemental Deed Poll.

Your attention is also drawn to the “Extract of the letter from the Chairman from the Previous Circular” set out in appendix IV, in particular the sections headed “Reasons for the Proposed Acquisitions” and “Reasons for the Placing of the Additional Bonds” and to the additional information set out in the other appendices to this circular.

Yours faithfully, Chan Hung Lit, Simon Chairman

– 16 –

LETTER FROM THE INDEPENDENT DIRECTOR

G-PROP (HOLDINGS) LIMITED

(incorporated in Bermuda with limited liability)

10th July, 2002

To the Independent Shareholders

Dear Sir or Madam,

I have been appointed as the Independent Director to advise you in connection with the Supplemental S&P Agreements and the First Supplemental Deed Poll in relation to the Proposed Acquisitions (major and connected transaction).

Having considered the principal factors considered by and the opinion of Somerley in relation thereto as set out in its letter of advice contained in appendix I to this circular, I am of the opinion that the terms of the Supplemental S&P Agreements and the First Supplemental Deed Poll are fair and reasonable so far as the Independent Shareholders are concerned and that the Supplemental S&P Agreements and the First Supplemental Deed Poll are in the interests of the Company and the Shareholders as a whole. I therefore recommend you to vote in favour of the ordinary resolution number 1 to approve the Supplemental S&P Agreements and the First Supplemental Deed Poll as set out in the notice of the Special General Meeting contained in this circular.

Your attention is also drawn to the letter from Somerley in appendix I to this circular, which contains its advice regarding the Supplemental S&P Agreements and the First Supplemental Deed Poll, as well as the principal factors and reasons it has taken into account in arriving at its advice.

Yours faithfully,

Chan Kam Wing, Jack

Independent non-executive Director

– 17 –

LETTER FROM SOMERLEY

APPENDIX I

The following is the letter of advice from Somerley to the Independent Director prepared for the purpose of inclusion in this circular.

Somerley Limited Suite 3108, One Exchange Square 8 Connaught Place, Central Hong Kong

10th July, 2002

The Independent Director

G-Prop (Holdings) Limited 13th Floor New World Tower Two 18 Queen’s Road Central Hong Kong

Dear Sir,

SUPPLEMENTAL S&P AGREEMENTS AND FIRST SUPPLEMENTAL DEED POLL IN RELATION TO THE PROPOSED ACQUISITIONS (MAJOR AND CONNECTED TRANSACTION)

We refer to our appointment to advise the Independent Director as regards the Supplemental S&P Agreements and the First Supplemental Deed Poll (the “Supplemental Documents”) in relation to the Proposed Acquisitions. The Supplemental Documents are construed as supplementing and forming part of the respective S&P Agreements and the instrument constituting the Convertible Bonds to be issued pursuant to completion of the Proposed Acquisitions. The Proposed Acquisitions involve the proposed acquisitions by the wholly-owned subsidiaries of the Company of the entire issued share capitals and shareholders’ loans of I-Space.Com Group and Regal Leader Group. Details of the Supplemental Documents are set out in the letter from the Chairman contained in the circular to the Shareholders of the Company dated 10th July, 2002 (the “Circular”), of which this letter forms part. Unless otherwise defined herein, terms used in this letter shall have the same meanings as defined in the Circular.

The S&P Agreements constituted major and connected transaction of the Company for the purposes of the Listing Rules and have been approved by the Independent Shareholders at the special general meeting of the Company held on 11th March, 2002. As the Supplemental Documents are supplemental to the respective S&P Agreements and the instrument constituting the Convertible Bonds, they also require separate approval of the Independent Shareholders at the forthcoming Special General Meeting. One of the independent non-executive Directors, Mr. Lai Hin Wing, Henry, is currently a partner of P.C. Woo & Co., a law firm in Hong Kong, which acts as the legal advisers to the Company in respect of the Proposed Acquisitions, he is therefore not considered to be sufficiently independent for the purpose of advising the Independent Shareholders as regards the terms of the Supplemental Documents. The other independent non-executive Director, Mr. Chan Kam Wing, Jack, has been appointed as the Independent

– 18 –

LETTER FROM SOMERLEY

APPENDIX I

Director to consider the terms of the Supplemental Documents and make recommendation to the Independent Shareholders regarding their voting at the Special General Meeting. In this respect, we have been appointed as the independent financial adviser to the Independent Director to advise him on the Supplemental Documents.

In formulating our opinion, we have relied on the information and facts supplied, and the opinions expressed, by the Directors and management of the Company and have assumed that all statements and representations made to us by the Directors and management of the Company or made or referred to in the Circular are true and accurate at the time they were made and as at the date of the Circular and will continue to be true at the date of the Special General Meeting. We have also sought and received confirmation from the Directors and management of the Company that all material relevant information has been supplied to us and no material facts have been omitted from the information supplied and opinions expressed. We have relied on such information and consider that we have been provided with and have reviewed sufficient information to reach an informed view and to justify our reliance on the accuracy of the information contained in the Circular. We have no reason to believe that any material information has been withheld. We have not, however, conducted an independent investigation into the affairs of the Group, the I-Space.Com Group or the Regal Leader Group.

BACKGROUND

On 28th January, 2002, the Company, through its wholly-owned subsidiaries, conditionally agreed to effectively acquire the Golden Hall Properties from Paul Y. and the Godown Property from Great Empire, an indirect wholly-owned subsidiary of Paul Y.. Paul Y. is in turn a wholly-owned subsidiary of Chinese Estates. The salient terms of the Proposed Acquisitions under the S&P Agreements are summarised below.

The S&P Agreement I

• Alpha New, a wholly-owned subsidiary of the Company, will acquire from Great Empire the entire issued share capital of I-Space.Com, together with the rights, interests and benefits of the loans due to Great Empire by I-Space.Com and its wholly-owned subsidiary, Boria, as at the Completion Date. Boria is the registered owner of the Godown Property.

• The consideration for the acquisition of I-Space.Com has been agreed to be determined with reference to the independent valuation of the Godown Property as at 31st December, 2001 of HK$42 million plus the total current assets (excluding the Godown Property) after deducting the total liabilities (excluding all amount due to Great Empire by I-Space.Com Group) as per the unaudited combined accounts of I-Space.Com Group as at the Completion Date. The estimated consideration for the S&P Agreement I calculated based on the unaudited combined accounts of the I-Space.Com Group as at 25th January, 2002 would be about HK$41.7 million.

The S&P Agreement II

• Talent Pioneer, a wholly-owned subsidiary of the Company, will acquire from Paul Y. the entire issued share capital of Regal Leader, together with the rights, interests and benefits of the amount due to Paul Y. by Regal Leader as at the Completion Date. Regal Leader’s two wholly-owned subsidiaries own the Golden Hall Properties.

– 19 –

LETTER FROM SOMERLEY

APPENDIX I

• The consideration for the acquisition of Regal Leader has been agreed to be determined with reference to the independent valuation of the Golden Hall Properties as at 31st December, 2001 of HK$140 million plus the total current assets (excluding the Golden Hall Properties) after deducting the total liabilities (excluding all amount due to Paul Y. by Regal Leader) and the bank loan secured by the Golden Hall Properties as per the unaudited consolidated accounts of Regal Leader Group as at the Completion Date. The estimated consideration for the S&P Agreement II calculated based on the unaudited consolidated accounts of the Regal Leader Group as at 25th January, 2002 would be about HK$111.5 million.

The consideration

• The consideration payable under the S&P Agreements will be satisfied by the issue of Convertible Bonds in the denomination of HK$500,000 each, any odd amounts of the balance of such consideration will be settled in cash. The principal amount of the Convertible Bonds will be multiplied by a factor of 20/19.

• Unless previously converted or redeemed, the Convertible Bonds will be due for repayment on the third anniversary of the date of their issue.

• Holders of the Convertible Bonds will be entitled to convert the Convertible Bonds into Shares at the initial conversion price of HK$0.15 per Share, subject to adjustment.

• The indebtedness in the Convertible Bonds will be secured by, among others, share mortgages of all the issued shares of I-Space.Com, Regal Leader and their subsidiaries, legal charge of the Godown Property and the Golden Hall Properties and the assignment of all rental income from the relevant properties.

Conditions

• The S&P Agreements are not inter-conditional upon each other, but completion of each of which was conditional on fulfillment of certain conditions, including, among others, (i) approval by the Independent Shareholders at general meeting of the respective S&P Agreements and the issue of the Convertible Bonds having been obtained; and (ii) all other necessary consents (if any) having been granted by third parties for the entering into and performance of the S&P Agreements by Alpha New, Talent Pioneer and the Company (including without limitation of the issue of the Convertible Bonds and the execution of the security documents under the S&P Agreements).

• The conditions of the S&P Agreement I can be fulfilled but not the S&P Agreement II as the mortgagee bank in respect of the Golden Hall Properties had not been prepared to grant the requisite consents for the execution of certain security documents under the S&P Agreement II.

– 20 –

LETTER FROM SOMERLEY

APPENDIX I

Details of the S&P Agreements, including the reasons for the Proposed Acquisitions and a summary of the terms of the Convertible Bonds are, among others, set out in the Previous Circular. Madam Tsang Yim Fan, Josephine, who was an independent non-executive Director (the “Former Independent Director”), was appointed to advise the Independent Shareholders in connection with the Proposed Acquisitions. And in this respect, we were appointed to advise the Former Independent Director.

We had formed the opinion that the terms of the S&P Agreements were fair and reasonable so far as the Independent Shareholders were concerned and that the Proposed Acquisitions were in the interests of the Company and the Shareholders as a whole. Taking into consideration of our advice, the Former Independent Director had recommended the Independent Shareholders to give their approval to the S&P Agreements. The respective letters from the Former Independent Director and Somerley were also included in the Previous Circular. The S&P Agreements and the issue of the Convertible Bonds were, among other matters, duly approved by the Independent Shareholders at the special general meeting of the Company held on 11th March, 2002.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion on the Supplemental Documents, we have taken the following factors and reasons into consideration:–

1. Reasons for the Supplemental Documents

As mentioned above, the mortgagee bank in respect of the Golden Hall Properties, which is an independent party not connected with the Company or Paul Y., had not granted the requisite consents for the execution of certain security documents under the S&P Agreement II. Consequently, the S&P Agreement II had been unable to become unconditional, notwithstanding approval of it by the Independent Shareholders having been obtained. In late March 2002, Oriental Ford Finance, a wholly-owned subsidiary of Chinese Estates, had taken over the mortgage loans on the Golden Hall Properties from the aforesaid mortgagee bank and provided mortgage facilities to Great King and Gold Concept, the registered owners of the Golden Hall Properties.

In the circumstances, the Company has been in discussions with Paul Y. with an aim to enter into arrangement for the completion of the Proposed Acquisitions.

As stated in the “Letter from the Chairman” of the Circular, the Directors have decided not to complete the S&P Agreement I alone, notwithstanding that all the conditions of the S&P Agreement I can be fulfilled and that completion of the S&P Agreements are not inter-conditional upon each other. We are advised by the Directors that the principal reasons for the Company to enter into the Proposed Acquisitions was to enhance the tangible asset base of the Group again for long term investment purposes. In the past, the Group used to have substantial investments in properties in Hong Kong, but had liquidated a substantial portion of its property portfolio holding since 1998. The Group presently holds two investment properties with a book value of approximately HK$11.3 million only as at 30th September, 2001. As stated in the Previous Circular, the Group had streamlined its property portfolio. During the six months ended 30th September, 2001, it had disposed of all the properties which it had held for resale purpose. However, after reviewing the current market conditions, the Directors believed that the prevailing property prices represented a substantial discount to the price in 1997 when the property market in Hong Kong reached

– 21 –

LETTER FROM SOMERLEY

APPENDIX I

its peak, and that further downward adjustment in property price would not generally be anticipated. As such, the Directors considered that the present market would represent an appropriate time to acquire properties for long term investment purpose.

Notwithstanding this, the Godown Property (which is the subject property of S&P Agreement I) is a much smaller property in value than the Golden Hall Properties, with the market value of the Godown Property being 30% of that of the Golden Hall Properties as at 31st December, 2001.

The Directors consider that should the Group proceed with acquisition of the Godown Property alone, it would not be cost efficient, in terms of management time and resources involved, for the Group to maintain a small portfolio of investment properties. The Directors consider that the acquisition of the Golden Hall Properties as well would enable the Group to create a critical mass for its property investment activities and achieve economy of scale for this business division. In this light, the Directors had decided to enter into the Supplemental S&P Agreements for the purpose of completing the Proposed Acquisitions in whole.

We are of the view that the Proposed Acquisitions fall within the ambits of the Group’s businesses. We believe that Golden Hall Properties will be, in general, of greater capital gain potential than the Godown Property, as they are principally commercial/retail properties situated in prime location in Yuen Long, Hong Kong. On the other hand, the Godown Property is for warehouse and industrial use. We expect that the Godown Property would be able to generate stable recurrent income to the Group, but its capital gain potential may not be as good as the Golden Hall Properties. On this basis, we consider that completion of the Proposed Acquisitions in whole would give a more balanced investment portfolio to the Group, rather than the Company going for either property alone. In the circumstances, we consider it fair and reasonable for the Directors to seek completion of the S&P Agreements, but not the S&P Agreement I alone.

2. Terms of the Supplement Documents

The Supplemental S&P Agreements and the First Supplemental Deed Poll form an integral part of the revised terms of the Proposed Acquisitions. Accordingly, we will assess the principal terms of the Supplemental Documents on an overall basis in the following sections, instead of individually by reference to each Supplemental Document.

Pursuant to the Supplemental Documents, there are four main revised terms as follows:

(a) Consideration for the S&P Agreement II being reduced

Under the S&P Agreement II, the consideration payable by the Group for the acquisition of the entire issued share capital of Regal Leader (the “Regal Leader Consideration”) was equal to the sum of (i) HK$140 million (being the amount of the independent valuation of the Golden Hall Properties as at 31st December, 2001 by the Valuer) and (ii) the total current assets (excluding the Golden Hall Properties) after deducting the total liabilities (excluding all amount due to Paul Y. by Regal Leader) and the bank loan secured by the Golden Hall Properties as per the unaudited consolidated accounts of Regal Leader Group as at the Completion Date. Under the Supplemental S&P Agreement II, the Regal Leader Consideration has been reduced to the amount equal to the

– 22 –

LETTER FROM SOMERLEY

APPENDIX I

sum of (i) HK$135.5 million (being the amount of the independent valuation of the Golden Hall Properties as at 7th June, 2002 by the Valuer) and (ii) the total current assets (excluding the Golden Hall Properties) after deducting the total liabilities (excluding all amount due to Paul Y. by Regal Leader) and the loan secured by the Golden Hall Properties as per the unaudited consolidated accounts of Regal Leader Group as at the Completion Date.

An independent valuation of the Golden Hall Properties and the Godown Property as at 7th June, 2002 has been carried out by the Valuer for the purposes of the Supplemental Documents. The amendment made under the Supplemental Documents to the amount of the consideration for the S&P Agreement II is to reflect the updated valuation of the Golden Hall Properties, which are the only materials assets of the Regal Leader Group. We consider that such amendment is fair and reasonable.

No changes to the consideration for the S&P Agreement I has been made as there is no change in the valuation of the Godown Property, which is HK$42 million as at 31st December, 2001 and 7th June, 2002. The Godown Property is the only material asset of the I-Space.Com Group.

(b) Maturity of the Convertible Bonds being extended

The maturity date of the Convertible Bonds has been extended for one more year such that the Convertible Bonds will be due for repayment on the fourth anniversary of the date of their issue, unless previously converted or redeemed.

As stated in Appendix II of this Circular, the Group’s indebtedness as at 31st May, 2002 (being the latest practicable date for the purpose of this indebtedness statement prior to the printing of the Circular) comprised:

Secured bank loans Secured obligation under finance leases Unsecured trust receipts Unsecured loans Convertible bonds	HK$ (million) 6.5 3.1 0.3 47.6 309.4
	366.9

Approximately 97.3% of the outstanding convertible bonds are due in 2004. Unless previously converted or redeemed, these outstanding convertible bonds confer on the holders thereof the rights to convert the bonds into Shares at the price HK$0.249 per Share (subject to adjustment) in respect of bonds due 2004 with total principal amount of HK$301 million and HK$7.883 (subject to adjustment) in respect of bonds due 2002 with total principal amount of HK$8.4 million. Accordingly, these bonds are currently out of money by reference to the closing price of the Shares of HK$0.04 per Share as quoted on the Stock Exchange as at the Latest Practicable Date. Taking account of the

– 23 –

LETTER FROM SOMERLEY

APPENDIX I

indebtedness of the Group, we consider that the extension of the repayment date of the Convertible Bonds by one year would be in the interests of the Company. This would allow the Company greater flexibility in planning their financial requirements and raising necessary fundings for the repayment of the Convertible Bonds, if required, over a longer time spectrum.

The Convertible Bonds will have a 4-year term following the extension of the repayment period. Other than the Convertible Bonds, we have identified a total of 48 convertible notes issued by other companies listed on the Stock Exchange since 1st January, 2002. The repayment periods of these 48 convertible notes issues include 1 year or less in respect of 6 issues, 2 years in respect of 14 issues, 3 years in respect of 23 issues and 5 years in respect of 5 issues. Accordingly, in terms of the length of the repayment period, there is no comparable available for the Convertible Bonds under their present repayment term. However, as illustrated above, the repayment period of most of the convertible notes issued during 2002 by other listed companies are of medium repayment term of 2 or 3 years. For comparison purpose, we consider that the 4-year Convertible Bonds could be regarded to be quite long-term bonds and have therefore referred to the issued statistics of the 5-year convertible notes issued since January 2002 up to the Latest Practicable Date as follows:

						Redemption
				Premium/(Discount)		amount at
			Principal	of conversion price		maturity as
	Market		amount	to last closing price	Interest	percentage of
	Capitalisation	Date of	(HK$	before announcement	rate	principal
Name of company	(HK$ million)	announcement	million)	of the issue	per annum	amount
	(Note 1)
Pacific Century
CyberWorks Ltd	41,754	17/01/2002	3,510	23.6%	4.8766%	119.383%
			(Note 2)		(notional)
					(Note 3)
China Investments
Holdings Ltd	348	26/02/2002	278	(20.6%)	1%	100%
Hang Lung
Properties Ltd	25,715	6/03/2002	2,250	10.4%	3.4%	100%
Hang Lung
Properties Ltd	25,715	23/05/2002	1,200	0%	3.4%	100%
Sino Land
Company Limited	11,623	7/05/2002	1,500	15.1%	4.864%	105.57%
					(notional)
					(Note 4)
The Company	29	10/06/2002	156	10%	1.25%	100%
				(Note 5)	(Note 6)	(Note 6)

– 24 –

LETTER FROM SOMERLEY

APPENDIX I

Notes:

• (1) Calculated based on the closing prices of the issuers as at the Latest Practicable Date.

• (2) These convertible notes were issued in United States dollars and have been converted in Hong Kong dollars in the above table at the rate of US$1 = HK$7.78.

• (3) These convertible notes bear interest at 1% per annum, but will be redeemed at maturity at 119.383% of the principal amount. On this basis, the notional interest rate of these notes would be 4.8766% per annum.

• (4) These convertible notes bear interest at 3.75% per annum, but will be redeemed at maturity at 105.57% of the principal amount. On this basis, the notional interest rate of these notes would be 4.864% per annum.

• (5) As discussed in sub-paragraph (c) below, the conversion price of the Convertible Bonds have been agreed at the price equal to the lower of (i) 110% of the 10-days average closing price per Share before the date of the Supplemental Documents, and (ii) 110% of the average closing price per Share prior to the date of the Special General Meeting.

• (6) The Convertible Bonds are non-interest bearing, but will be issued at 95% of its principal amount and redeemable at 100%. The discount on the issue price of the Convertible Bonds will be amortised and charged to the profit and loss accounts of the Group on a straight-line basis over the term of the Convertible Bonds according to the accounting policies of the Group. Accordingly, the notional annual interest rate of the Convertible Bonds would be 1.25% on the basis of the Supplemental Documents. (The notional annual interest rate of the Convertible Bonds would be approximately 1.7% if without the Supplemental Documents.)

We note that the above convertible notes issues are not entirely comparable with the Convertible Bonds. The issuers of these notes are of very large capitalisation and (except for China Investments Holdings Limited) have credit ratings. This may, in our view, explain the phenomenon that 37 out of 48 of the convertible notes issued by listed companies in first half of 2002 as discussed above were of a two to three years’ term, rather than a longer term of four or five years. It is probably due to the fact that a shorter term would carry lower risks for the relevant noteholders in terms of changes in credit rating of the relevant issuer and in macro economics factors, such as currency risks and interest rates movements.

Given the current financial position of the Company and the substantial losses made by the Group in the past (see sub-paragraph (c) below), the Convertible Bonds could be considered quite speculative so far as the holder is concerned. In such case, under the principle of “high risk high return”, one would normally expect that the Convertible Bonds would carry a high interest rate or a deep discount to market price, or a combination of the two, in order to reflect the credit risks of the Convertible Bonds. However, the above table indicates that the notional interest rate and conversion price for the Convertible Bonds are within range of the issues quoted in the table. On the above basis, we consider the extension of the repayment period to be in the interests of the Company.

• (c) Conversion price for the Convertible Bonds being reduced

Pursuant to the Supplemental Documents, the initial conversion price for the Convertible Bonds will be reduced from HK$0.15 per Share, subject to adjustment, as provided in the S&P Agreements to a price (the “Revised Conversion Price”) equal to the lower of:

• (i) HK$0.065 per Share (the “Fixed Conversion Price”), subject to adjustment; and

• (ii) an amount equivalent to 110% of the average closing price per Share as quoted on the Stock Exchange for the 10 consecutive trading days immediately prior to the date of the Special General Meeting, subject to adjustment.

– 25 –

LETTER FROM SOMERLEY

APPENDIX I

The Fixed Conversion Price is equivalent to 110% of the average closing price per Share as quoted on the Stock Exchange for the 10 consecutive trading days immediately prior to the date of the Supplemental Agreements. The Fixed Conversion Price also represents:

• a premium of approximately 14% over the closing price of HK$0.057 per Share as quoted on the Stock Exchange on 7th June, 2002, being the last trading day prior to the date of the Supplemental S&P Agreements; and

• a premium of approximately 62.5% over the closing price of the Shares of HK$0.04 as quoted on the Stock Exchange on the Latest Practicable Date.

The Fixed Conversion Price comprises a premium over the unaudited adjusted consolidated net tangible liabilities of approximately HK$0.12 per Share before the Proposed Acquisitions. As shown in Appendix II to the Circular, the Company would have unaudited adjusted consolidated net tangible liabilities of about HK$84.8 million before completion of the Proposed Acquisitions.

The Group has made substantial losses in the last four years to the year ended 31st March, 2001 and for the six months ended 30th September, 2001, which are summarised as follows:

						Six months ended	Six months ended
			Year ended 31st March,			30th September,
		1998	1999	2000	2001		2001
		(Audited)	(Audited)	(Audited)	(Audited)		(Unaudited)
		(HK$	(HK$	(HK$	(HK$		(HK$
		million)	million)	million)	million)		million)
Loss	attributable
to	Shareholders	1,411.4	433.2	230.5	458.4		38.5
Loss	per Share	HK$402.8	HK$109.4	HK$12.54	HK$7.97		HK$0.40

Accordingly, no reference to price/earnings multiples could be applied to the Revised Conversion Price.

Although the Revised Conversion Price will not be capable of being determined until the trading day immediately preceding the date of the Special General Meeting, the Revised Conversion Price has been agreed on the basis that there shall be a 10% premium over the relevant 10-days average closing price of the Shares as particularly set out above. The Revised Conversion Price has been capped at HK$0.065 per Share, which is about 57% less than the initial conversion price of HK$0.15 provided in the S&P Agreements. Subsequent to the announcement of the Supplemental Documents and up to the Latest Practicable Date, the Shares have been traded at a range of HK$0.057 per Share (on 11th June, 2002) to HK$0.037 per Share (on 21st June, 2002, 26th and 27th June, 2002). If the share price of the Company maintains generally at the same level as at the Latest Practicable Date, the Revised Conversion Price would likely be below HK$0.065 per Share.

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LETTER FROM SOMERLEY

APPENDIX I

Notwithstanding the reduction in the Revised Conversion Price, we consider it to be acceptable for the following reasons:

• (i) the S&P Agreement II is not capable of becoming unconditional under its original terms as Oriental Ford Finance has not consented to the execution of certain security documents by Talent Pioneer under the S&P Agreement II. The Directors have been informed that it was principally due to the substantial drop in the market price of the Shares since the first announcement of the Proposed Acquisitions, which would result in a large premium of the initial conversion price of HK$0.15 per Share to the prevailing market price, if the Revised Conversion Price could not otherwise be agreed. The Supplemental Documents (including the terms on the Revised Conversion Price) have been entered into by the parties with a view to enabling Completion. Paul Y. has indicated that it would procure Oriental Ford Finance to grant the requisite consents after signing of the Supplemental S&P Agreements. The Supplemental Documents could effectively be construed as a new agreement between the Company and Paul Y., failing which the Proposed Acquisitions would not be able to proceed. In the circumstances, we consider it acceptable for the Company to agree to the Revised Conversion Price, taking account of the prevailing market prices of the Shares;

• (ii) the Proposed Acquisitions have been agreed by the Company with a view to enlarging the asset base and rebuilding the property division of the Group. Despite this objective, we consider it not to be in the best interests of the Company if the Proposed Acquisitions would eventually add on to the debt burden of the Group when the conversion price of the Convertible Bonds were too high that the holders would seek the alternative of repayment at maturity, instead of converting the Convertible Bonds into Shares. The Company is in a huge net deficit position. The net assets position of the Company will be improved significantly if the Convertible Bonds were to be converted into Shares by the holders. Convertible Bonds will become more likely to be converted at the Revised Conversion Price, which we consider to be in the interests of the Company and the Shareholders; and

• (iii) the Revised Conversion Price is still at a substantial premium over the unaudited adjusted consolidated net tangible liabilities per Share of approximately HK$0.12 per Share prior to Completion. As disclosed in the pro forma statement of unaudited adjusted combined net tangible assets value of the Group set out in Appendix II to the Circular, the unaudited adjusted consolidated net tangible liabilities of the Group before the Proposed Acquisitions would be approximately HK$84.8 million, representing approximately HK$0.12 per Share. Upon conversion in full of the Convertible Bonds and on the basis of the Fixed Conversion Price, the Group is expected to have an unaudited pro forma adjusted combined net tangible assets value of approximately HK$60 million or HK$0.02 per Share. This would be, in our view, a significant improvement.

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LETTER FROM SOMERLEY

APPENDIX I

• (d) Provision of non-recourse protection in event of non-repayment of Convertible Bonds

The indebtedness of the Convertible Bonds are secured by:

• (i) the share mortgages of all the shares in issue in I-Space.Com and Regal Leader and their respective subsidiaries;

• (ii) the legal charge or second legal charge (as the case may be) of the Properties in favour of the relevant Vendor to the S&P Agreements;

• (iii) the debenture over the assets of Great King and Gold Concept in favour of Paul Y., and

• (iv) the assignment of all rental income of the Properties which is enforceable if an event of default has occurred.

The security of the Convertible Bonds shall be released upon payment of or conversion of and/or transfer of the Convertible Bonds by the Vendors to any party other than any of Chinese Estates, its subsidiaries and associated companies, in each case up to 80% of the entire amount of the Convertible Bonds to be issued under the respective S&P Agreements.

Pursuant to the Supplemental Documents, the Company is protected from the risk of being brought down by the indebtedness of the Convertible Bonds in the event that the Convertible Bonds were not converted into Shares and the Company has to repay the principal amount of the Convertible Bonds at maturity. It is a condition of the First Supplemental Deed Poll (the “Non-recourse Provision”) that in the event that the Company is unable or fails to redeem the Convertible Bonds at the redemption amount at the maturity date, the holders of the Convertible Bonds may at their sole discretion:

• (i) convert all or any of the Convertible Bonds into Shares at any time, whether with or without and/or before or after the enforcement of any security documents (as defined in the S&P Agreements), within 12 months from the maturity date (or such longer period as the Company may agree) and/or;

• (ii) (in respect of the holders of the Convertible Bonds who are entitled to enforce the security documents) enforce the security documents. Save as aforesaid, in the event that the aggregate amount due to those holders of the Convertible Bonds who are entitled to enforce the security documents which is satisfied by the enforcement of the security documents and/or the total amount of the Convertible Bonds converted into Shares is less than the redemption amount, the holders of the Convertible Bonds shall not be entitled to take any other action whatsoever to recover such deficiency.

In other words, if the Company finds itself unable to meet the repayment of the Convertible Bonds when they fall due at maturity, the holders of the Convertible Bonds will have no recourse to the Company for payment of the principal amount of the Convertible Bonds, except that they may convert their Convertible Bonds into Shares and/or enforce the

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LETTER FROM SOMERLEY

APPENDIX I

security referred to above. In view of the much strained financial position of the Group, we consider this term to be very favourable to the Company.

3. Valuation of the Properties

Your attention is drawn to the updated valuation report prepared by the Valuer on the Properties as set out in Appendix III to the Circular.

The updated valuations as at 7th June, 2002 have been carried out by the Valuer using the same methodology and bases and assumptions as those used in the valuation of the Properties as at 31st December, 2001 for the purpose of the S&P Agreements. The basis of the valuation is set out in the Valuer’s report in Appendix III. We consider the updated valuation of the Properties fair and reasonable. The consideration for the Proposed Acquisitions has been determined on the basis of the Properties’ updated valuation, which we also consider to be fair and reasonable.

4. Potential dilution to shareholding of independent shareholders

Under the initial terms of the S&P Agreements, and on the basis of the then estimated total consideration of HK$153.2 million and a conversion price of HK$0.15 per Share for the Convertible Bonds, the aggregate principal amount of the Convertible Bonds would be HK$160.5 million and the number of Conversion Shares that would fall to be issued upon their conversion in full would be 1,070,000,000.

The number of Conversion Shares which may be issued upon conversion of the Convertible Bonds will be increased significantly as a result of the reduction of the initial conversion price. On the basis of the expected consideration payable under the S&P Agreement I of HK$41.7 million and the estimated adjusted consideration payable under the Supplemental S&P Agreement II of HK$107 million, it is anticipated that the Convertible Bonds with an aggregate principal amount of HK$156 million will be issued and a total of 2,400,000,000 Shares would be issued upon conversion in full of the Convertible Bonds at the Fixed Conversion Price of HK$0.065 per Share. Such Shares represent approximately 335% of the Company’s existing issued share capital and approximately 77% of the issued share capital of the Company as enlarged by the conversion of the Convertible Bonds in full. On that basis, the shareholding in the Company held by public shareholders would be reduced from approximately 99.9% to about 23%. Upon conversion in full of the Convertible Bonds, the potential dilution is, in our opinion, substantial yet acceptable from the viewpoint of the Independent Shareholders, taking into account the fact that full conversion of the HK$156 million Convertible Bonds would help the Company to recover from its net liability position to a net tangible asset position of approximately HK$60 million, giving a net tangible asset value per Share of approximately HK$0.02. Shareholders should note that the number of Conversion Shares that may be issued in the event of conversion of any Convertible Bonds will be increased if the Revised Conversion Price, as determined on the basis referred to in paragraph (2)(c) above, is below the Fixed Conversion Price.

5. Other effects of the Supplemental Documents

The amendments effected by the Supplemental Documents would have some effects, although they may not be significant, on the net worth per Share, the earnings and gearing ratio of the Group, which will be more particularly discussed below.

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LETTER FROM SOMERLEY

APPENDIX I

(a) Net worth per Share

Under the initial terms of the S&P Agreements and the pro forma statement of unaudited adjusted combined net tangible assets value of the Group prior to Completion as set out in Appendix II to the Circular, the unaudited adjusted consolidated net tangible liabilities of the Group before the Proposed Acquisitions would be approximately HK$84.8 million representing approximately HK$0.12 per Share. Save for the expenses incidental to the Supplemental Documents, there will be no material effect on the unaudited pro forma adjusted combined net tangible liabilities of the Group by reason only of the Supplemental Documents. However, due to the increase in number of Conversion Shares, there would be an impact on the net worth per Share if the Convertible Bonds were to be converted into Shares in full as illustrated below:

Unaudited adjusted consolidated net tangible liabilities of the Group before the Proposed Acquisitions Less: Estimated expenses relating to the Proposed Acquisitions Add: Estimated increase in net assets attributable to the Group upon full conversion of the Convertible Bonds Unaudited pro forma adjusted combined net tangible assets of the Group upon completion of the Proposed Acquisitions and conversion of the Convertible Bonds in full Changes in issued share capital: Shares in issue as at Latest Practicable Date Add: Number of Conversion Shares to be issued upon full conversion_(note) Enlarged number of Shares in issue Unaudited adjusted consolidated net deficit per Share before Completion Unaudited pro forma adjusted combined net tangible asset value per Share upon completion of the Proposed Acquisitions and conversion of Convertible Bonds in full(note)_	Under the S&P Agreements without the Supplemental Documents (HK$84.8 million) (HK$2 million) HK$152.5 million HK$65.7 million 716,994,175 1,070,000,000 1,786,994,175 (HK11.8 cents) HK3.7 cents	Under the S&P Agreements with the Supplemental Documents (HK$84.8 million) (HK$2 million) HK$148.2 million HK$61.4 million 716,994,175 2,400,000,000 3,116,994,175 (HK11.8 cents) HK2.0 cents

– 30 –

LETTER FROM SOMERLEY

APPENDIX I

Note: The number of Conversion Shares to be issued pursuant to the Supplemental Documents is calculated based on the Fixed Conversion Price. Accordingly, the actual number of Conversion Shares that may fall to be issued may increase if the Revised Conversion Price is lower than the Fixed Conversion Price, and consequently the pro forma adjusted net tangible asset value per Share upon conversion of the Convertible Bonds in full would be lower than the amount stated above.

As indicated above, improvement in the net worth per Share in the event of full conversion of the Convertible Bonds will be less with the Supplemental Documents in place as the number of Conversion Shares to be issued will increase by at least 124%. Notwithstanding this, the Independent Shareholders would still benefit from an improvement in the net worth per Share with the Supplemental Documents.

(b) Earnings and cash flow

The Supplemental Documents by themselves would not result in any additional effect on the earnings and cash flow of the Group. The effect on the reduction of the amortisation of the discount in the issue price of the Convertible Bonds would be approximately HK$1.95 million at the notional interest rate of 1.25% per annum under the Supplemental Documents (see note (6) to paragraph 2(b) above), as compared to HK$2.7 million at the notional interest rate of approximately 1.7% per annum under the original S&P Agreements. We consider this effect immaterial.

(c) Gearing ratio

Pursuant to the Supplemental Documents, the principal amount of the Convertible Bonds would be reduced to an estimated amount of HK$156 million, due to the reduction in the consideration for the S&P Agreement II. This compares to the estimated indebtedness of about HK$160.5 million as originally contemplated under the S&P Agreements prior to the Supplemental Documents. We consider the reduction in the indebtedness of the Convertible Bonds as resulted from the Supplemental Documents to be insignificant.

CONCLUSION AND RECOMMENDATION

Having considered the above principal factors and reasons, we are of the opinion that the terms of the Supplemental Documents are, on balance, fair and reasonable so far as the Independent Shareholders are concerned and that the Supplemental Documents are in the interests of the Company and the Shareholders as a whole.

The basis for our opinion are summarised as follows:

1. although the Revised Conversion Price will be substantially less than the initial conversion price agreed under the S&P Agreements, it compares favourably to the net deficit per Share prior to the Proposed Acquisitions and will be at 10% premium over the prevailing market price;

2. the Company currently has other convertible bonds outstanding with total principal amount of approximately HK$309.4 million, mostly due in 2004. Based on the market price of the Shares as at the Latest Practicable Date, these convertible bonds are out of money. Given the weak financial position of the Group, it would be in the interests of the Company to agree on

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LETTER FROM SOMERLEY

APPENDIX I

a more realistic conversion price for the Convertible Bonds such that there would be a better chance of the Convertible Bonds being converted into equity of the Company in due course;

1. the Non-recourse Provision limits the Company’s financial exposure in the event that the Company fails to repay the Convertible Bonds when they fall due in accordance with the terms of the Convertible Bonds and if there is deficiency in the value of the security for the indebtedness of the Convertible Bonds when such security is enforced (see paragraph (4) above);

2. the objective for the Proposed Acquisitions is to enhance the tangible asset base of the Group and to hold the Properties for long term investment purpose. It would be more prudent for the Company, financially, if the Company could finance any enlargement of asset base by equity funding, instead of debt financing in view of the present gearing of the Group. On the basis of a more realistic conversion price for the Convertible Bonds and the Non-recourse Provision, the Proposed Acquisitions on the terms of the Supplemental Documents would offer the Company a better opportunity to have the Convertible Bonds converted into Shares in future, and hence turning the indebtedness into permanent equity of the Company;

3. the extension of the repayment period to four years would allow more flexibility for the Company to plan for the possible repayment of the Convertible Bonds; and

4. the consideration for the Proposed Acquisitions reflects the updated valuation of the Properties.

Accordingly, we advise the Independent Director to recommend the Independent Shareholders to vote in favour of the ordinary resolution number 1 to be proposed at the Special General Meeting to approve the Supplemental Documents.

Yours faithfully, For and on behalf of

SOMERLEY LIMITED Mei H. Leung Managing Director

– 32 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

I. FINANCIAL SUMMARY

The following is a summary of the audited financial results of the Group for the three years ended 31st March, 2001:

Turnover Loss before taxation Taxation Loss before minority interests Minority interests Loss for the year	Year ended 31st March, 1999 2000 2001 HK$’000 HK$’000 HK$’000 41,286 33,808 11,084 (432,973) (230,399) (458,720) (349) (108) 348 (433,322) (230,507) (458,372) 113 – 11 (433,209) (230,507) (458,361)

Note: The results of the Group for the year ended 31st March, 1999 have been restated to reflect the change in accounting policy of the Group on the treatment of investments in securities following the adoption of Statement of Standard Accounting Practice 24 “Accounting for investments in securities” issued by the Hong Kong Society of Accountants.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

II. SUMMARY OF AUDITED FINANCIAL STATEMENTS FOR THE TWO YEARS ENDED 31ST MARCH, 2001

The following are the audited consolidated financial statements of the Company for the two years ended 31st March, 2001 together with accompanying notes:

Consolidated Income Statement

For the year ended 31st March, 2001

Notes Turnover 4 Cost of sales Gross profit Other revenue 5 Administrative expenses Other operating expenses 6 Loss from operations 7 Finance costs 8 Share of results of associates Share of results of jointly controlled entities Impairment loss on goodwill 16 & 19 Net gain (loss) on disposal of subsidiaries and associates 9 Waiver of a portion of amount due to a former substantial shareholder Loss before taxation Taxation 11 Loss before minority interests Minority interests Loss for the year 12 Loss per share Basic 13	2001 HK$’000 11,084 (7,294) 3,790 3,606 (66,618) (38,980) (98,202) (29,996) (3,652) (11,329) (320,592) 5,051 – (458,720) 348 (458,372) 11 (458,361) HK$(7.97)	2000 HK$’000 33,808 (28,181) 5,627 19,150 (44,330) (51,576) (71,129) (34,447) (80,972) 232 – (157,804) 113,721 (230,399) (108) (230,507) – (230,507) HK$(12.54)

– 34 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

Consolidated Balance Sheet

At 31st March, 2001

Notes Non-current Assets Investment properties 14 Property, plant and equipment 15 Goodwill 16 Intangible assets 17 Interests in associates 19 Interests in jointly controlled entities 20 Investments in securities 21 Loans to a minority shareholder of subsidiaries 22 Clubs debentures 23 Current Assets Inventories Properties held for resale 24 Trade and other receivables 25 Short-term loans receivable 26 Investments in securities 21 Taxation recoverable Bank balances and cash Current Liabilities Trade and other payables 27 Taxation payable Short-term bank and other borrowings 28 Obligations under finance leases – due within one year 29 Convertible bonds 30 Net Current Liabilities	2001 HK$’000 11,280 16,158 109,781 63,178 10 35,055 111,911 16,000 2,798 366,171 777 1,180 15,985 19,146 24,932 117 3,433 65,570 16,899 – 30,688 423 24,760 72,770 (7,200) 358,971	2000 HK$’000 164,000 16,593 – – 138,289 46,884 – – 3,349 369,115 – 1,450 37,786 28,397 27,307 117 33,891 128,948 59,502 11,851 138,873 – – 210,226 (81,278) 287,837

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

Notes Capital and Reserves Share capital 31 Reserves 33 Minority interests Non-current Liabilities Obligations under finance leases – due after one year 29 Convertible bonds 30 Long-term bank loans 34 Other long-term loans 35	2001 HK$’000 145,178 (96,706) 48,472 207 683 261,306 – 48,303 310,292 358,971	2000 HK$’000 85,864 146,710
		232,574
		–
		– 50,836 3,707 720
		55,263
		287,837

– 36 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

Balance Sheet

At 31st March, 2001

Notes Non-current Assets Interests in subsidiaries 18 Club debenture 23 Current Assets Trade and other receivables Short-term loans receivable 26 Taxation recoverable Bank balances and cash Current Liabilities Trade and other payables Short-term other borrowings 28 Convertible bonds 30 Net Current (Liabilities) Assets Capital and Reserves Share capital 31 Reserves 33 Non-current Liabilities Convertible bonds 30 Amounts due to subsidiaries 36	2001 HK$’000 607,279 100 607,379 911 8,250 117 3,211 12,489 11,573 3,000 24,760 39,333 (26,844) 580,535 145,178 (112,173) 33,005 261,306 286,224 547,530 580,535	2000 HK$’000 556,601 100
		556,701
		615 – 117 31,632
		32,364
		14,018 – –
		14,018
		18,346
		575,047
		85,864 91,453
		177,317
		50,836 346,894
		397,730
		575,047

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

Consolidated Statement of Recognised Gains and Losses

For the year ended 31st March, 2001

Exchange differences arising on translation of the financial statements of overseas operations not recognised in the consolidated income statement Loss for the year Total recognised losses	2001 HK$’000 – (458,361) (458,361)	2000 HK$’000 (174) (230,507) (230,681)

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

Consolidated Cash Flow Statement

For the year ended 31st March, 2001

Notes NET CASH OUTFLOW FROM OPERATING ACTIVITIES 37 RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Interest paid Dividend received from associates Interest received, other than from loans receivable Dividend received from listed other investments NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND SERVICING OF FINANCE TAXATION Overseas tax (paid) refunded INVESTING ACTIVITIES Purchase of subsidiaries (net of cash and cash equivalents acquired) 38 Investments in associates Purchase of investment securities Purchase of intangible assets Purchase of property, plant and equipment Amounts advanced to associates Proceeds from disposal of property, plant and equipment Proceeds from disposal of subsidiaries (net of cash and cash equivalents disposed of) 39 Proceeds from disposal of club debentures Amounts repaid by jointly controlled entities Loan repaid by a minority shareholder of a subsidiary NET CASH OUTFLOW FROM INVESTING ACTIVITIES NET CASH OUTFLOW BEFORE FINANCING	2001 HK$’000 (61,304) (25,524) 838 618 16 (24,052) (3) (219,919) (100,678) (37,531) (36,421) (1,631) (600) 6,679 5,402 501 500 391 (383,307) (468,666)	2000 HK$’000 (16,071) (25,642) – 1,021 – (24,621) 52 1 (61,923) – – (6,435) (27,854) 155 5,655 – 8,596 – (81,805) (122,445)

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

Note FINANCING 40 Proceeds from issue of convertible bonds Borrowings raised Proceeds from issue of shares Repayment of borrowings Expenses in connection with the issue of convertible bonds Expenses in connection with the issue of shares NET CASH INFLOW FROM FINANCING (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR, represented by bank balances and cash	2001 HK$’000 378,800 186,818 55,250 (173,453) (7,442) (1,765) 438,208 (30,458) 33,891 3,433	2000 HK$’000 250,000 107,453 124,699 (320,402) (7,674) (3,190) 150,886 28,441 5,450 33,891

Notes:

1. General

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

The Company is an investment holding company. The principal activities of its principal subsidiaries are set out in note 49.

2. Basis of preparation of financial statements

In preparing the financial statements, the directors have given careful consideration to the future liquidity of the Group in the light of its net current liabilities of approximately HK$7.2 million as at 31st March, 2001. Taking into account the Group’s unutilised credit facilities which are available from an independent third party, the directors are satisfied that the Group will be able to meet in full its financial obligations as they fall due for the foreseeable future. Accordingly, the financial statements have been prepared on a going concern basis.

3. Significant accounting policies

The financial statements have been prepared under the historical cost convention as modified for the revaluation of certain properties and investments in securities.

The financial statements have been prepared in accordance with accounting principles generally accepted in Hong Kong. The principal accounting policies adopted are as follows:

– 40 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to 31st March each year.

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.

Goodwill

Goodwill represents the excess of the purchase consideration over the fair value ascribed to the Group’s share of the separable net assets at the date of acquisition of a subsidiary and is written off to reserves immediately on acquisition or, where appropriate, capitalised and amortised on a straight line basis over its useful economic life of not exceeding twenty years. Where there is a permanent diminution in the value of goodwill, the unamortised balance is written down immediately through the income statement to its recoverable value. Negative goodwill, which represents the excess of the fair value ascribed to the Group’s share of the separable net assets at the date of acquisition of a subsidiary over the purchase consideration is credited to reserves.

Any premium or discount arising on the acquisition of an interest in an associate or a jointly controlled entity, representing the excess or shortfall of the purchase consideration over the fair value ascribed to the Group’s share of the separable net assets of the associate or jointly controlled entity at the date of acquisition, is dealt with in the same manner as that described above for goodwill arising on acquisition of subsidiaries.

On disposal of investments in subsidiaries, associates or jointly controlled entities, the attributable amount of unamortised goodwill or premium/discount previously eliminated against or credited to reserves is included in the determination of the profit or loss on disposal of the subsidiary, associate or jointly controlled entity.

Investments in subsidiaries

A subsidiary is an enterprise in which the Company, directly or indirectly, holds more than half of the issued share capital, or controls more than half of the voting power, or where the Company controls the composition of its board of directors or equivalent governing body.

Investments in subsidiaries are included in the Company’s balance sheet at cost, as reduced by any decline in the value of the subsidiary that is other than temporary.

Interests in associates

An associate is an enterprise over which the Group is in a position to exercise significant influence, including participation in financial and operating policy decisions.

The consolidated income statement includes the Group’s share of the post-acquisition results of its associates for the year. In the consolidated balance sheet, interests in associates are stated at the Group’s share of the net assets of the associates plus the premium paid on acquisition in so far as it has not already been written off or amortised.

When the Group transacts with its associates, unrealised profits and losses are eliminated to the extent of the Group’s interest in the relevant associate, except where unrealised losses provide evidence of an impairment of the asset transferred.

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 over which none of the participating parties has unilateral control.

Jointly controlled entities

Joint venture arrangements which involve the establishment of a separate entity in which each venturer has an interest are referred to as jointly controlled entities.

The Group’s interests in jointly controlled entities are included in the consolidated balance sheet at the Group’s share of the net assets of the jointly controlled entities plus the premium paid on acquisition in so far as it has not already been written off or amortised. The Group’s share of post-acquisition results of jointly controlled entities for the year is included in the consolidated income statement.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

When the Group transacts with its jointly controlled entities, unrealised profits and losses are eliminated to the extent of the Group’s interest in the joint venture, except where unrealised losses provide evidence of an impairment of the asset transferred.

Other joint venture arrangements

Investments made by means of joint venture structures which do not result in the Group having joint control with the other venturers are accounted for as subsidiaries (where the Group controls the board of directors or equivalent governing body), associates (where the Group is in a position to exercise significant influence) or investments in securities (where the Group exercises neither control nor significant influence).

Investments in securities

Investments in securities are recognised on a trade date basis and are initially measured at cost.

Investments other than held-to-maturity debt securities are classified as investment securities or other investments.

Investment securities, which are securities held for an identified long-term strategic purpose, are measured at subsequent reporting dates at cost, as reduced by an impairment loss that is other than temporary.

Other investments are measured at fair value, with unrealised gains and losses included in net profit or loss for the period.

Club debentures

Club debentures are stated at cost, as reduced by any impairment loss that is other than temporary, as considered necessary by the directors.

Revenue recognition

Rental income, including rental invoiced in advance from properties let under operating leases, is recognised on a straight line basis over the period of the respective leases.

When properties are held for resale, revenue is recognised on the execution of a binding sales agreement.

Sales of other investments are recognised when the related bought and sold notes are executed.

Dividend income from investments is recognised when the shareholders’ right to receive payment has been established.

Interest income is accrued on a time basis, by reference to the principal outstanding and at the interest rate applicable.

Investment properties

Investment properties are completed properties which are held for their investment potential, any rental income being negotiated at arm’s length.

No amortisation is charged in respect of investment properties which are held on leases with unexpired terms of more than 20 years.

Investment properties are stated at their open market value based on an annual professional valuation at the balance sheet date. Any surplus or deficit arising on the revaluation of investment properties is credited or charged to the investment property revaluation reserve unless the balance on this reserve is insufficient to cover a deficit on a portfolio basis, in which case the excess of the deficit over the balance on the investment property revaluation reserve is charged to the income statement. Where a deficit has previously been charged to the income statement and a revaluation surplus subsequently arises, this surplus is credited to the income statement to the extent of the deficit previously charged.

On disposal of investment properties, any balance in the investment property revaluation reserve attributable to the disposed properties is included in the determination of the profit or loss on disposal.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

Patent and advertising agency rights

Patent and advertising agency rights are stated at cost less amortisation and provision for permanent diminution in value, if necessary. Amortisation is calculated to write off the cost of patent and advertising agency rights over their estimated useful lives, using the straight line method, over twenty and ten years, respectively.

Property, plant and equipment

Property, plant and equipment are stated at cost less depreciation at the balance sheet date. 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 asset has been put into operation, such as repairs and maintenance and overhaul costs, 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.

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 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 assets, expected future cash flows are not discounted to their present values.

Depreciation is provided to write off the cost of items of property, plant and equipment over their estimated useful lives, using the straight line method, at the following rates per annum:

Energy saving machines	10%
Plant and machinery	10%
Furniture, fixtures and equipment	10% – 20%
Motor vehicles and yachts	10% – 15%

Assets held under finance leases are depreciated over their estimated useful lives on the same basis as owned assets or, where shorter, the period of the relevant lease.

Assets held under finance leases

A lease is classified as a finance lease when the terms of the lease transfer substantially all the risks and rewards of ownership of the assets concerned to the Group. Assets held under finance leases are capitalised at their fair values at the date of acquisition. The corresponding liability to the lessor, net of interest charges, is included in the balance sheet as a finance lease. Finance costs, which represent the difference between the total commitments and the outstanding principal amount at the inception of the finance leases, are charged to the income statement over the period of the relevant lease so as to produce a constant periodic rate of charge on the remaining balances of the obligations for each accounting period.

Properties held for resale

Properties held for resale are stated at the lower of cost and net realisable value. Net realisable value represents the estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale.

Inventories

Inventories represent raw materials which are stated at the lower of cost and net realisable value. Cost, which comprises all costs of purchase and, where applicable, other costs that have been incurred in bringing the inventories to their present location and condition, is calculated using the weighted average cost method. Net realisable value represents the estimated selling price in the ordinary course of business less the estimated costs of completion and costs to be incurred in marketing, selling and distribution.

Convertible bonds

Convertible bonds are separately disclosed and regarded as liabilities unless conversion actually occurs. The finance cost recognised in the income statement in respect of the convertible bonds is calculated so as to produce a constant periodic rate of charge on the remaining balances of the convertible bonds for each accounting period.

– 43 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

The costs incurred in connection with the issue of convertible bonds are deferred and amortised on a straight line basis over the lives of the convertible bonds from the dates of issue of the bonds to their final redemption date. If any of the bonds are purchased and cancelled, redeemed or converted prior to the final redemption date, an appropriate portion of any remaining unamortised costs will be charged immediately to the income statement.

Taxation

The charge for taxation is based on the results for the year after adjusting for items which are non-assessable or disallowed. Timing differences arise from the recognition for tax purposes of certain items of income and expense in a different accounting period from that in which they are recognised in the financial statements. The tax effect of the resulting timing differences, computed using the liability method, is recognised as deferred taxation in the financial statements to the extent that it is probable that a liability or an asset will crystallise in the foreseeable future.

Foreign currencies

Transactions in foreign currencies are translated at the rates ruling on the dates of the transactions or at the contracted settlement rate. Monetary assets and liabilities denominated in foreign currencies are re-translated at the rates ruling on the balance sheet date. Profits and losses arising on exchange are dealt with in the income statement.

On consolidation, the financial statements of overseas operations which are denominated in foreign currencies are translated at the rates ruling on the balance sheet date. All exchange differences arising on translation are dealt with in reserves.

Retirement benefits scheme contributions

The pension cost charged in the income statement represents the contributions payable in respect of the current year to the mandatory provident fund scheme.

Operating leases

Rentals payable under operating leases are charged to the income statement on a straight line basis over the period of the respective leases.

Cash equivalents

Cash equivalents represent short-term, highly liquid investments which are readily convertible into known amounts of cash and which are within three months of maturity when acquired, less advances from banks which are repayable within three months from the dates of the advances.

4. Turnover

Turnover represents the net amounts received and receivable from third parties and is summarised as follows:

Sales of other investments Rental income Income from finance Sales of properties held for resale	2001 HK$’000 4,349 3,523 3,212 – 11,084	2000 HK$’000 15,450 5,428 3,339 9,591
		33,808

– 44 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

5. Other revenue

Other revenue included the following: Interest income, other than from loans receivable Dividend income from listed other investments Release of tax indemnity by a former subsidiary 6. Other operating expenses Provision for bad and doubtful debts Impairment loss on investment securities Unrealised holding loss on other investments Forfeiture of deposits made on acquisition of property interests 7. Loss from operations Loss from operations have been arrived at after charging: Staff costs: Directors’ remuneration_(note 10)_ Salaries and other benefits Retirement benefits scheme contributions, excluding directors Amortisation of intangible assets Amortisation of goodwill arising on acquisition of – subsidiaries – a listed associate – an unlisted associate Auditors’ remuneration Depreciation: – owned assets – assets held under finance leases Deficit arising on revaluation of investment properties Exchange loss Loss on disposal of property, plant and equipment Loss on disposal of club debentures Loss on disposal of unlisted other investments Operating lease rentals in respect of land and buildings Provision for diminution in value of properties held for resale and after crediting: Property rental income, net of outgoings of HK$86,000 (2000: HK$1,398,000) Exchange gain	2001 HK$’000 618 16 – 2001 HK$’000 30,939 5,620 2,421 – 38,980 2001 HK$’000 13,605 9,032 113 22,750 1,421 4,365 – 4,219 1,199 2,542 107 21 3,005 6,405 50 – 2,568 270 3,437 –	2000 HK$’000 1,021 – 13,700
		2000 HK$’000 39,072 – 504 12,000
		51,576
		2000 HK$’000 10,077 5,643 –
		15,720
		– – 4,393 6,117 1,328 1,850 – – – 825 – 134 1,059 293 4,030 2,138

– 45 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

8. Finance costs

Amortisation of issue costs of convertible bonds Unamortised issue costs written off on the conversion of convertible bonds Interest on: – bank and other borrowings wholly repayable within five years – convertible bonds 9. Net (gain) loss on disposal of subsidiaries and associates Net (gain) loss on disposal of subsidiaries Loss on deemed disposal of an associate 10. Directors’ remuneration and employees’ emoluments (a) Directors’ remuneration Directors’ fees: Executives Independent non-executives Other emoluments: Executive directors: Salaries and other benefits Retirement benefits scheme contribution Independent non-executive directors Total directors’ emoluments The emoluments of the directors were within the following bands: Up to HK$1,000,000 HK$1,000,001 to HK$1,500,000 HK$1,500,001 to HK$2,000,000 HK$2,000,001 to HK$2,500,000 HK$2,500,001 to HK$3,000,000 HK$3,000,001 to HK$3,500,000 HK$4,000,001 to HK$4,500,000	2001 2000 HK$’000 HK$’000 1,531 700 2,941 6,344 13,723 18,276 11,801 9,127 29,996 34,447 2001 2000 HK$’000 HK$’000 (5,051) 37,101 – 120,703 (5,051) 157,804 2001 2000 HK$’000 HK$’000 – – 40 40 40 40 13,541 10,037 24 – – – 13,565 10,037 13,605 10,077 Number of directors 2001 2000 8 6 – 1 1 2 – 1 1 – 1 – 1 –	2000 HK$’000 700 6,344 18,276 9,127
		34,447
		2000 HK$’000 37,101 120,703
		157,804
		2000 HK$’000 – 40
		40
		10,037 – –
		10,037
		10,077

– 46 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

• (b) Employees’ emoluments

The emoluments of the five highest paid individuals for the year included five (2000: five) executive directors of the Company, whose emoluments are included in note (a) above.

During the years ended 31st March, 2001 and 2000, no emoluments were paid by the Group to the five highest paid individuals, including directors, as an inducement to join or upon joining the Group or as compensation for loss of office. In addition, during the years ended 31st March, 2001 and 2000, no director waived any emoluments.

11. Taxation

2001	2000
HK$’000	HK$’000

The (credit) charge comprises: Taxation of the Company and its subsidiaries – Hong Kong Profits Tax – Current year – Overprovision in previous years Share of taxation of associates – Hong Kong Profits Tax	– (348) – (348)	12 – 96
		108

No provision for Hong Kong Profits Tax has been made for the current year in the financial statements as the Group had no assessable profit for the year.

Hong Kong Profits Tax for the year ended 31st March, 2000 was calculated at 16% on the estimated assessable profits for the year.

Details of unrecognised deferred taxation are set out in note 42.

12. Loss for the year

The Group’s loss for the year includes a loss of HK$418,397,000 (2000: HK$278,145,000) which has been dealt with in the financial statements of the Company.

13. Loss per Share

The calculation of the basic loss per share is based on the loss for the year of HK$458,361,000 (2000: HK$230,507,000) and on weighted average number of ordinary shares in issue during the year of 57,494,643 (2000: 18,382,870) shares after adjusted for the effect of the consolidation of the Company’s shares in May 2001 as set out in note 51(a).

No diluted loss per share has been calculated for the years ended 31st March, 2001 and 2000 as the exercise of the share options and the conversion of the convertible bonds would result in a decrease in the loss per share for both years.

14. Investment properties

VALUATION At 1st April, 2000 Acquisition of subsidiaries Disposal of subsidiaries Deficit arising on revaluation At 31st March, 2001	THE GROUP HK$’000 164,000 11,301 (164,000) (21)
	11,280

– 47 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

The Group’s investment properties comprises: Properties held under medium-term leases in Hong Kong Freehold properties outside Hong Kong	2001 HK$’000 11,280 – 11,280	2000 HK$’000 148,000 16,000
		164,000

The Group’s investment properties were revalued at 31st March, 2001 by Sallmanns (Far East) Limited, an independent firm of professional property valuers, on an open market value basis. The deficit arising on revaluation has been charged to the consolidated income statement.

15. Property, plant and equipment

THE GROUP COST At 1st April, 2000 Additions Acquisition of subsidiaries Disposals Disposal of subsidiaries At 31st March, 2001 DEPRECIATION At 1st April, 2000 Acquisition of subsidiaries Provided for the year Eliminated on disposals Eliminated on disposal of subsidiaries At 31st March, 2001 NET BOOK VALUES At 31st March, 2001 At 31st March, 2000	Furniture, Energy fixtures Motor saving Plant and and vehicles machines machinery equipment and yachts HK$’000 HK$’000 HK$’000 HK$’000 – – 3,202 16,759 65 46 1,180 1,615 10,989 793 3,580 130 (16) – (663) (16,569) – – (644) – 11,038 839 6,655 1,935 – – 741 2,627 1,955 136 769 36 361 41 608 1,639 (2) – (404) (3,758) – – (440) – 2,314 177 1,274 544 8,724 662 5,381 1,391 – – 2,461 14,132	Total HK$’000 19,961 2,906 15,492 (17,248 (644
		20,467
		3,368 2,896 2,649 (4,164 (440
		4,309
		16,158
		16,593

The Group’s property, plant and equipment include cost of HK$660,000 (2000: nil) and accumulated depreciation of HK$144,000 (2000: nil) in respect of energy saving machines which are held for rental income under operating leases.

Included in the net book value of property, plant and equipment of the Group are assets held under finance leases amounting to HK$1,303,000 (2000: nil).

– 48 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

16. Goodwill

THE GROUP COST Reclassification from interest in associates_(note 19) Acquisition of subsidiaries Provision for impairment loss At 31st March, 2001 AMORTISATION Reclassification from interest in associates(note 19)_ Provided for the year At 31st March, 2001 NET BOOK VALUE At 31st March, 2001	HK$’000 126,584 215,813 (219,514)
	122,883
	8,737 4,365
	13,102
	109,781

In the opinion of the directors, the goodwill is worth at least its carrying value and no further provision for impairment loss is required.

17. Intangible assets

THE GROUP COST Acquisition of subsidiaries Additions At 31st March, 2001 AMORTISATION Acquisition of subsidiaries Provided for the year At 31st March, 2001 NET BOOK VALUE At 31st March, 2001	Advertising Patent agency rights HK$’000 HK$’000 30,600 – – 36,421 30,600 36,421 2,422 – 510 911 2,932 911 27,668 35,510	Total HK$’000 30,600 36,421
		67,021
		2,422 1,421
		3,843
		63,178

In the opinion of the directors, the patent and the advertising agency rights are worth at least their carrying values.

18. Interests in subsidiaries

Unlisted shares, at cost Less: Provision for impairment Amounts due from subsidiaries, less provision	THE COMPANY 2001 2000 HK$’000 HK$’000 659,110 659,110 (659,110) (659,110) – – 607,279 556,601 607,279 556,601	THE COMPANY 2001 2000 HK$’000 HK$’000 659,110 659,110 (659,110) (659,110) – – 607,279 556,601 607,279 556,601
		– 556,601
		556,601

– 49 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

The amounts due from subsidiaries are unsecured and have no fixed terms of repayment. Other than an amount of HK$40,195,000 (2000: HK$293,202,000) which carries interest at prevailing market rates, the remaining balance is interest free. In the opinion of the directors, the amounts will not be repayable within twelve months from the balance sheet date and are therefore shown in the balance sheet as non-current.

Details of the Company’s principal subsidiaries at 31st March, 2001 are set out in note 49.

19. Interests in associates

Share of net assets (liabilities) of associates Goodwill arising on acquisition of associates less amortisation_(Note)_ Amounts due from associates, less provision	THE GROUP 2001 2000 HK$’000 HK$’000 10 (3,610) – 122,066 – 19,833 10 138,289	THE GROUP 2001 2000 HK$’000 HK$’000 10 (3,610) – 122,066 – 19,833 10 138,289
		138,289

The Group’s principal associates at 31st March, 2001 are CashThrough International Limited, formerly CashThrough.com International Limited, (“CashThrough”) and First In Holdings Limited (“First In”). The Group has a 23.33% and a 50% interest in CashThrough and First In, respectively. CashThrough is incorporated in Hong Kong and is principally engaged in the business of the development, implementation and operation of an online or internet payment settlement/clearing system. First In is incorporated in the British Virgin Islands and is an investment holding company and its major investment is principally engaged in research and development of gene therapy technologies. In the opinion of the directors, these are the associates which have significant effect on the results of the Group. To give details of other associates would, in the opinion of the directors, result in particulars of excessive length.

The amounts due from associates were unsecured, interest-free and had no fixed terms of repayment.

Note: Goodwill arising on acquisition of associates.

COST At 1st April, 2000 Additions Reclassification to goodwill_(note 16) Provision for impairment loss At 31st March, 2001 AMORTISATION At 1st April, 2000 Provided for the year Reclassification to goodwill(note 16)_ At 31st March, 2001 NET BOOK VALUES At 31st March, 2001 At 31st March, 2000	HK$’000 126,584 101,078 (126,584) (101,078)
	–
	4,518 4,219 (8,737)
	–
	–
	122,066

– 50 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

20. Interests in jointly controlled entities

Share of jointly controlled entities’ net assets Amounts due from jointly controlled entities, less provision	THE GROUP 2001 2000 HK$’000 HK$’000 21,401 32,730 13,654 14,154 35,055 46,884	THE GROUP 2001 2000 HK$’000 HK$’000 21,401 32,730 13,654 14,154 35,055 46,884
		46,884

The amounts due from jointly controlled entities are unsecured, interest-free and have no fixed terms of repayment. In the opinion of the directors, the amount will not be repayable within the twelve months from the balance sheet date and are therefore shown in the consolidated balance sheet as non-current.

Details of the Group’s principal jointly controlled entities at 31st March, 2001 are set out in note 50.

21. Investments in securities

Investment securities in Hong Kong: Unlisted securities, at cost less impairment loss Other investments in Hong Kong: Listed securities, at market value	THE GROUP 2001 2000 HK$’000 HK$’000 111,911 – 24,932 27,307	THE GROUP 2001 2000 HK$’000 HK$’000 111,911 – 24,932 27,307
		27,307

Included in unlisted investment securities is the Group’s interest in CAA Satellite TV Limited (“CAA”) amounting to approximately HK$106 million. CAA is one of the operators of the satellite television broadcast channel in Macau. At 31st March, 2001, the Group held 50,000 shares of HK$1 each in the share capital of CAA, representing 5% of the issued share capital of CAA.

In the opinion of the directors, the unlisted investments are worth at least their carrying values and no further provision for impairment loss is required.

22. Loans to a minority shareholder of subsidiaries

The amounts are unsecured, carry interest at prime rate and are repayable in June 2002. The amounts are advanced to a shareholder of companies before those companies become subsidiaries of the Company.

23. Club debentures

Club debentures, at cost	THE GROUP 2001 2000 HK$’000 HK$’000 2,798 3,349	THE COMPANY 2001 2000 HK$’000 HK$’000 100 100

In the opinion of the directors, the club debentures are worth at least their carrying values and no provision is required.

– 51 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

24. Properties held for resale

The Group’s properties held for resale comprise: Freehold properties in Canada Less: Provision	THE GROUP 2001 2000 HK$’000 HK$’000 2,225 2,225 (1,045) (775) 1,180 1,450	THE GROUP 2001 2000 HK$’000 HK$’000 2,225 2,225 (1,045) (775) 1,180 1,450
		1,450

25. Trade and other receivables

The Group allows an average credit period of 30 days to its trade debtors.

Included in trade and other receivables is trade receivables of HK$3,378,000 (2000: HK$789,000). Its aged analysis at the balance sheet date is as follows:

Within 30 days 31 – 60 days Over 60 days	2001 HK$’000 314 162 2,902 3,378	2000 HK$’000 158 121 510
		789

26. Short-term loans receivable

Loans receivable Loan note receivable Less: Provision for bad and doubtful debts Analysed as – secured – unsecured	THE GROUP 2001 2000 HK$’000 HK$’000 74,075 63,156 – 5,591 74,075 68,747 (54,929) (40,350) 19,146 28,397 1,700 2,359 17,446 26,038 19,146 28,397	THE COMPANY 2001 2000 HK$’000 HK$’000 23,250 23,250 – – 23,250 23,250 (15,000) (23,250) 8,250 – – – 8,250 – 8,250 –	THE COMPANY 2001 2000 HK$’000 HK$’000 23,250 23,250 – – 23,250 23,250 (15,000) (23,250) 8,250 – – – 8,250 – 8,250 –
			23,250 (23,250)
			–
			– –
			–

The Group maintained a defined credit policy in accordance with respective loan agreements. The following is an aged analysis of loans receivable of the Group at the balance sheet date:

Within 30 days 31 – 60 days Over 60 days	2001 HK$’000 – – 19,146 19,146	2000 HK$’000 8,000 – 20,397
		28,397

– 52 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

27. Trade and other payables

Included in trade and other payables is trade creditors of HK$15,000 (2000: HK$693,000). Its aged analysis at the balance sheet details as follows:

Within 30 days 31 – 60 days Over 60 days	2001 HK$’000 12 – 3 15	2000 HK$’000 693 – –
		693

28. Short-term bank and other borrowings

Current portion of long-term bank loans_(note 34)_ Other short-term loans Advance from independent third party Analysed as – secured – unsecured	THE GROUP 2001 2000 HK$’000 HK$’000 8,252 2,566 22,436 – – 136,307 30,688 138,873 7,852 138,873 22,836 – 30,688 138,873	THE COMPANY 2001 2000 HK$’000 HK$’000 – – 3,000 – – – 3,000 – – – 3,000 – 3,000 –	THE COMPANY 2001 2000 HK$’000 HK$’000 – – 3,000 – – – 3,000 – – – 3,000 – 3,000 –
			–
			– –
			–

(a) Other short-term loans are unsecured, carry interest at prevailing market rates and have no fixed terms of repayments.

(b) The advance from an independent third party of the Group at 31st March, 2000 was secured by certain of the Group’s investment properties and the shares of the respective subsidiaries holding those investment properties.

29. Obligations under finance leases

The maturity of obligations under finance leases is as follows: Within one year Between one and two years Between two and five years Less: Amount due within one year and shown under current liabilities Amount due after one year	THE GROUP 2001 2000 HK$’000 HK$’000 423 – 408 – 275 – 1,106 – (423) – 683 –	THE GROUP 2001 2000 HK$’000 HK$’000 423 – 408 – 275 – 1,106 – (423) – 683 –
		– –
		–

– 53 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

30. Convertible bonds

10% convertible bonds_(Note a) 7.5% convertible bonds(Note b) Less: Unamortised issue costs – expenditure incurred – accumulated amortisation – expenditure written off on the conversion of convertible bonds Less: Amount due within one year and included under current liabilities Amount due after one year _Notes:	THE GROUP AND THE COMPANY 2001 2000 HK$’000 HK$’000 25,000 52,000 265,200 – 290,200 52,000 15,116 7,674 (1,697) (166) (9,285) (6,344) 4,134 1,164 286,066 50,836 (24,760) – 261,306 50,836	THE GROUP AND THE COMPANY 2001 2000 HK$’000 HK$’000 25,000 52,000 265,200 – 290,200 52,000 15,116 7,674 (1,697) (166) (9,285) (6,344) 4,134 1,164 286,066 50,836 (24,760) – 261,306 50,836
		52,000
		7,674 (166) (6,344)
		1,164
		50,836 –
		50,836

• (a) The 10% convertible bonds were issued in December 1999. These 10% convertible bonds are unsecured and carry interest at 10% per annum payable half-yearly in arrears. The bondholders have the rights, at any time within a period of two years from the date of issue, to convert part or all of the principal amount of the 10% convertible bonds outstanding into ordinary shares of the Company at an initial conversion price of HK$0.65 per share, subject to adjustments. At 31st March, 2001, the conversion price was adjusted from HK$0.65 to HK$0.558 due to the issue of the 7.5% convertible bonds during the year.

During the year, nominal value in aggregate of HK$27,000,000 of the 10% convertible bonds was converted into ordinary shares of the Company at the conversion price of HK$0.641 per share, resulting in the issue of 42,121,684 new shares of HK$0.10 each in the Company.

At 31st March, 2001, exercise in full of the outstanding conversion rights of the 10% convertible bonds by the bondholders will, under the share structure of the Company at that date, result in the issue of 44,802,867 new shares of HK$0.10 each in the Company.

– 54 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

(b) Details of the 7.5% convertible bonds are as follows:

Adjusted Initial conversion conversion price per price share at 7.5% Convertible bonds per share 31.3.2001 HK$ HK$ Issued between August and September 2000 pursuant to the deed poll dated 21st August, 2000 0.600 0.524 Issued in October 2000 pursuant to the deed poll dated 24th October, 2000 0.320 0.291 Issued between November and December 2000 pursuant to the deed poll dated 16th November, 2000 0.320 0.311 Issued in November 2000 pursuant to the deed poll dated 23rd November, 2000 0.320 0.304	Principal amount HK$’000 80,400 59,200 164,800 74,400 378,800	Principal Principal amount amount converted outstanding during at the year 31.3.2001 HK$’000 HK$’000 (28,800) 51,600 (8,800) 50,400 (74,400) 90,400 (1,600) 72,800 (113,600) 265,200	Principal Principal amount amount converted outstanding during at the year 31.3.2001 HK$’000 HK$’000 (28,800) 51,600 (8,800) 50,400 (74,400) 90,400 (1,600) 72,800 (113,600) 265,200
			265,200

The above 7.5% convertible bonds are unsecured and carry interest at 7.5% per annum payable half-yearly in arrears. The bondholders have the rights, at any time within a period of two years from the date of issue, to convert part or all of the principal amount of the 7.5% convertible bonds outstanding into ordinary shares of the Company at an initial conversion prices as stated above, subject to adjustments.

During the year, nominal value in aggregate of HK$113,600,000 of the 7.5% convertible bonds was converted into ordinary shares of the Company, resulting in the issue of 317,687,358 new shares of HK$0.10 each in the Company.

At 31st March, 2001, exercise in full of the outstanding conversion rights of the 7.5% convertible bonds by the bondholders will, under the share structure of the Company at that date, result in the issue of 801,818,083 new shares of HK$0.10 each in the Company.

– 55 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

31. Share capital

Ordinary shares of HK$0.10 each Authorised: At 1st April, 1999 – increase of authorised share capital At 1st April, 2000 – increase of authorised share capital At 31st March, 2001 Issued and fully paid: At 1st April, 1999 – rights issue of shares – exercise of share options – exercise of conversion rights of convertible bonds At 1st April, 2000 – issue of shares upon subscription – issue of shares for acquisition of investment securities – exercise of conversion rights of convertible bonds – exercise of share options At 31st March, 2001	Number of ordinary shares 920,000,000 1,080,000,000 2,000,000,000 4,800,000,000 6,800,000,000 41,137,351 411,373,510 24,589,636 381,538,447 858,638,944 90,500,000 133,333,333 359,809,042 9,500,000 1,451,781,319	Amount HK$’000 92,000 108,000
		200,000 480,000
		680,000
		4,114 41,137 2,459 38,154
		85,864 9,050 13,333 35,981 950
		145,178

• (a) Pursuant to a resolution passed in a special general meeting of the Company held on 3rd August, 2000, the authorised share capital of the Company was increased from HK$200,000,000 to HK$380,000,000 by the creation of an additional 1,800,000,000 shares of HK$0.10 each.

Pursuant to another resolution passed in a special general meeting of the Company held on 2nd November, 2000, the authorised share capital of the Company was further increased from HK$380,000,000 to HK$680,000,000 by the creation of an additional 3,000,000,000 shares of HK$0.10 each.

• (b) Pursuant to a placing and subscription agreement entered into on 19th June, 2000 between the Company, Fine Essence Limited (“Fine Essence”) and a placing agent, 77,230,000 ordinary shares of HK$0.10 each in the Company held by Fine Essence were placed to independent institutional investors at a price of HK$0.60 per share, representing a discount of approximately 15.49% to the closing price of HK$0.71 per share as quoted on the Stock Exchange on 16th June, 2000. Fine Essence subscribed an aggregate of 90,500,000 ordinary shares of the Company at a price of HK$0.60 per share.

The net proceeds of the subscription of approximately HK$52 million were used to finance the consideration paid under the agency agreement entered into by the Group with CAA and Beijing Asia Television City Company Limited and to provide general working capital of the Group. These shares were issued under the general mandate granted to the directors of the Company at the annual general meeting held on 29th September, 1999.

Details of the agreements are set out in the announcement of the Company dated 19th June, 2000.

• (c) On 25th August, 2000, the Company issued 133,333,333 new shares of HK$0.10 each at a price of HK$0.60 per share as partial consideration for the acquisition of a 5% equity interest in CAA from an independent third party. The new shares were issued under the general mandate granted to the directors of the Company at the special general meeting held on 18th August, 2000. Details of acquisition are set out in the announcement of the Company dated 11th July, 2000.

– 56 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

• (d) During the year, the Company issued and allotted an aggregate of 359,809,042 new shares of HK$0.10 each as a result of the exercise of the conversion rights of the convertible bonds.

• (e) During the year, 9,500,000 share options were exercised at a subscription price of HK$0.10 per share, resulting in the issue of 9,500,000 ordinary shares of HK$0.10 each in the Company.

All the new shares issued during the year rank pari passu with the then existing shares in all respects.

Details of the changes in the authorised and issued share capital after the balance sheet date are set out in note 51.

32. Share option scheme

Pursuant to the Company’s share option scheme adopted on 16th August, 1990 (the “1990 Scheme”) the Company may grant options at nil consideration to directors and full time employees of the Company or its subsidiaries to subscribe for shares in the Company. Options granted are exercisable at any time during the three year period after the date the options are granted. The maximum number of shares in respect of which options may be granted shall not exceed 10% of the issued share capital of the Company from time to time.

On 23rd August, 2000, the Company adopted a new share option scheme (the “2000 Scheme”). Pursuant to the 2000 Scheme, the Company may grant options to directors and full time employees of the Company or its subsidiaries to subscribe for shares in the Company at the consideration of HK$1.00. Options granted are exercisable at any time during a maximum period of ten years after the date the options are granted. The maximum number of shares in respect of which options may be granted shall not exceed 10% of the issued share capital of the Company from time to time.

Details of the movements of the options during the year and the outstanding options at 31st March, 2001 were as follows:

Exercise Date of grant price HK$ 1990 Scheme: 30.10.1999 0.9696 4.1.2000 1.6704 5.1.2000 1.8080 6.1.2000 1.8960 20.1.2000 2.1400 24.3.2000 0.9840 3.7.2000 0.5056 2000 Scheme: 26.8.2000 0.5040 28.8.2000 0.5040 29.8.2000 0.4960 21.2.2001 0.1000	Outstanding at 1.4.2000 17,700,000 6,923,000 300,000 1,700,000 14,610,000 14,620,000 – 55,853,000 – – – – – 55,853,000	Number of share options Lapsed on Granted Exercised resignation during during during the year the year the year – – – – – – – – – – – – – – – – – – 9,050,000 – (9,050,000) 9,050,000 – (9,050,000) 94,900,000 – (22,500,000) 19,500,000 – (6,500,000) 1,600,000 – – 28,200,000 (9,500,000) (1,200,000) 144,200,000 (9,500,000) (30,200,000) 153,250,000 (9,500,000) (39,250,000)	Outstanding at 31.3.2001 17,700,000 6,923,000 300,000 1,700,000 14,610,000 14,620,000 –
			55,853,000
			72,400,000 13,000,000 1,600,000 17,500,000
			104,500,000
			160,353,000

No consideration was received by the Company for options granted under the 1990 Scheme. Consideration received by the Company for options granted under the 2000 Scheme was negligible.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

33. Reserves

THE GROUP At 1st April, 1999 Premium arising on issue of shares Expenses in connection with the issue of shares Realised on disposal of associates Exchange differences arising on translation of overseas operations Loss for the year At 1st April, 2000 Premium arising on issue of shares Expenses in connection with the issue of shares Realised on disposal of subsidiaries Loss for the year At 31st March, 2001 Attributable to: – the Company and subsidiaries – associates – jointly controlled entities THE COMPANY At 1st April, 1999 Premium arising on issue of shares Expenses in connection with the issue of shares Loss for the year At 1st April, 2000 Premium arising on issue of shares Expenses in connection with the issue of shares Loss for the year At 31st March, 2001	Investment property Share revaluation Translation premium reserve reserve HK$’000 HK$’000 HK$’000 – 729 230 290,949 – – (3,190) – – – (729) – – – (174) – – – 287,759 – 56 216,536 – – (1,765) – – – – 174 – – – 502,530 – 230 502,530 – 230 – – – – – – 502,530 – 230 – – – 290,949 – – (3,190) – – – – – 287,759 – – 216,536 – – (1,765) – – – – – 502,530 – –	Goodwill Contributed reserve surplus HK$’000 HK$’000 (45) 294,601 – – – – – – – – – – (45) 294,601 – – – – – – – – (45) 294,601 (45) 294,601 – – – – (45) 294,601 – 294,701 – – – – – – – 294,701 – – – – – – – 294,701	Deficit HK$’000 (205,154 ) – – – – (230,507 ) (435,661 ) – – – (458,361 ) (894,022 ) (915,262 ) 10 21,230 (894,022 ) (212,862 ) – – (278,145 ) (491,007 ) – – (418,397 ) (909,404 )	Total HK$’000 90,361 290,949 (3,190) (729) (174) (230,507 ) 146,710 216,536 (1,765) 174 (458,361 ) (96,706) (117,946) 10 21,230 (96,706) 81,839 290,949 (3,190) (278,145 ) 91,453 216,536 (1,765) (418,397 ) (112,173)

The contributed surplus of the Group represents the credit arising from the reduction of share capital and cancellation of share premium, net of application towards elimination of the deficit of the Company as at 31st March, 1998.

The contributed surplus of the Company represents the difference between the nominal value of the share capital issued by the Company and the underlying net assets of subsidiaries which were acquired by the Company pursuant to the group reorganisation in 1990; and the credit arising from the reduction of share capital and cancellation of share premium, net of application towards elimination of the deficit of the Company as at 31st March, 1998.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

In addition to retained profits, under the Companies Act 1981 of Bermuda (as amended), contributed surplus is also available for distribution to shareholders. However, a company cannot declare or pay a dividend, or make a distribution out of contributed surplus; if:

• (a) the Company is, or would after the payment be, unable to pay its liabilities as they become due; or

• (b) the realisable value of the Company’s assets would thereby be less than the aggregate of its liabilities and its issued share capital and share premium accounts.

In the opinion of the directors, the Company had no reserves available for distribution to its shareholders as at 31st March, 2001 and 2000.

34. Bank loans

The bank loans are repayable as follows: Within one year or on demand Between one to two years Between two to five years Less: Amount due within one year included under current liabilities_(note 28)_ Amount due after one year	THE GROUP 2001 2000 HK$’000 HK$’000 8,252 2,566 – 1,718 – 1,989 8,252 6,273 (8,252) (2,566 – 3,707	THE GROUP 2001 2000 HK$’000 HK$’000 8,252 2,566 – 1,718 – 1,989 8,252 6,273 (8,252) (2,566 – 3,707
		6,273 (2,566
		3,707

35. Other long-term loans

Advances from – minority shareholders of subsidiaries – an associate	THE GROUP 2001 2000 HK$’000 HK$’000 48,303 320 – 400 48,303 720	THE GROUP 2001 2000 HK$’000 HK$’000 48,303 320 – 400 48,303 720
		720

The advances from minority shareholders of subsidiaries are unsecured and are repayable in June 2002. Other than an amount of HK$12,793,000 (2000: nil) which carries interest at prime rate, the remaining balance is interest-free.

36. Amounts due to subsidiaries

The amounts due to subsidiaries of the Company are unsecured, interest-free and have no fixed terms of repayment. At 31st March, 2000, other than an amount of HK$113,509,000 which carried interest at the prevailing market rate, the remaining balance was interest-free. In the opinion of the directors, the amounts will not be repayable within the next twelve months from the balance sheet date and are therefore shown in the balance sheet as non-current.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

37. Reconciliation of loss before taxation to net cash outflow from operating activities

Loss before taxation Interest expenses Interest income, other than from loans receivable Dividend income from listed other investments Share of results of associates Share of results of jointly controlled entities Amortisation of issue costs of convertible bonds Unamortised issue costs written off on the conversion of convertible bonds Depreciation Amortisation of goodwill Amortisation of intangible assets Loss on disposal of property, plant and equipment Deficit arising on revaluation of investment properties Net (gain) loss on disposal of subsidiaries Loss on deemed disposal of an associate Waiver of a portion of amount due to a former substantial shareholder Release of tax indemnity by a former subsidiary Loss on disposal of unlisted other investments Forfeiture of deposits made on acquisition of property interest Provision for bad and doubtful debts Impairment loss on goodwill Impairment loss on investment securities Provision for diminution in value of property held for resale Loss on disposal of club debenture Unrealised holding loss on other investments Amortisation of premium arising on acquisition of associates Increase in inventories Decrease in properties held for resale Increase in other investments Decrease in trade and other receivables Increase in short-term loans receivable Decrease in trade and other payables Net cash outflow from operating activities	2001 HK$’000 (458,720) 25,524 (618) (16) 3,652 11,329 1,531 2,941 2,649 4,365 1,421 6,405 21 (5,051) – – – – – 30,939 320,592 5,620 270 50 2,421 4,219 (777) 357 (46) 21,306 (2,866) (38,822) (61,304)	2000 HK$’000 (230,399) 27,403 (1,021) – 80,972 (232) 700 6,344 1,850 – – 825 – 37,101 120,703 (113,721) (13,700) 134 12,000 39,072 – – 293 – 504 10,510 – 12,602 (3,121) 1,188 (2,167) (3,911)
		(16,071)

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

38. Purchase of subsidiaries

Net (liabilities) assets acquired: Investment properties Property, plant and equipment Intangible assets Interests in associates Loans to minority shareholders of subsidiaries Properties held for resale Trade and other receivables Short-term loans receivable Bank balances and cash Trade and other payables Amount due to immediate holding company Short-term bank borrowings Obligations under finance leases Long-term bank borrowings Advance from minority shareholders of subsidiaries Minority interests Net (liabilities) assets Goodwill arising on acquisition of subsidiaries Satisfied by: Consideration Reclassification from interests in associates Analysis of net (outflow) inflow of cash and cash equivalents in connection with the acquisition of subsidiaries: Cash consideration paid Bank balances and cash acquired Net (outflow) inflow of cash and cash equivalents in connection with the acquisition of subsidiaries	2001 HK$’000 11,301 12,596 28,178 400 3,944 357 19,939 10,897 322 (17,515) (20,433) (7,000) (13) – (46,437) (218) (3,682) 215,813 212,131 220,241 (8,110) 212,131 (220,241) 322 (219,919)	2000 HK$’000 16,000 – – – – – 301 – 1 (61) – (1,602) – (3,684) – –
		10,955 –
		10,955
		10,955 –
		10,955
		– 1
		1

The subsidiaries acquired during both years did not have any significant impact on the Group’s cash flows, turnover and operating results.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

39. Disposal of subsidiaries

Net assets disposed of: Investment properties Property, plant and equipment Short-term loans receivable Interests in associates Interests in jointly controlled entities Amount due from an associate Amount due from a jointly controlled entity Trade and other receivables Bank balances and cash Trade and other payables Taxation payable Short-term other borrowings Net assets Translation reserve realised on disposal Investment property revaluation reserve realised on disposal Net gain (loss) on disposal of subsidiaries Satisfied by: Consideration Amount due to a former substantial shareholder Total consideration Analysis of net inflow of cash and cash equivalents in connection with the disposal of subsidiaries: Cash consideration received Bank balances and cash disposed of Net inflow of cash and cash equivalents in connection with the disposal of subsidiaries	2001 HK$’000 164,000 204 – – – – – 62 37 (21,296) (11,500) (131,293) 214 174 – 5,051 5,439 5,439 – 5,439 5,439 (37) 5,402	2000 HK$’000 – 50,764 15,000 111,618 3,153 1,051 333 38,913 505 (57,628) – –
		163,709 – (729 (37,101)
		125,879
		36,079 89,800
		125,879
		6,160 (505)
		5,655

The subsidiaries disposed of during both years did not have any significant impact on the Group’s cash flows, turnover and operating results.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

40. Analysis of changes in financing during the year

Share capital and Convertible premium bonds HK$’000 HK$’000 At 1st April, 1999 4,114 122,102 Proceeds from issue of shares 124,699 – Issue of convertible bonds – 250,000 Issue of convertible bonds on acquisition of additional shareholding in an associate – 50,000 Exercise of conversion rights of convertible bonds 248,000 (248,000) Expenses in connection with the issued of shares (3,190) – Expenses in connection with the issue of convertible bonds – (7,674 ) Provision for redemption premium – 1,761 Amortisation of bonds issue costs – 700 Unamortised issue costs written off on the conversion of convertible bonds – 6,344 Acquisition of a subsidiary – – Borrowings raised – – Repayment of borrowings – (124,397) Waiver of a portion of amount due to a former substantial shareholder – – Amount set-off against consideration of disposal of subsidiaries – – Exchange differences – – At 1st April, 2000 373,623 50,836 Proceeds from issue of shares 55,250 – Issue of shares for the acquisition of investment securities 80,000 – Issue of convertible bonds – 378,800 Exercise of conversion rights of convertible bonds 140,600 (140,600) Expenses in connection with the issue of shares (1,765) – Expenses in connection with the issue of convertible bonds – (7,442 ) Amortisation of bonds issue costs – 1,531 Unamortised issue costs written off on the conversion of convertible bonds – 2,941 Inception of finance leases – – Acquisition of subsidiaries – – Disposal of subsidiaries – – Borrowings raised – – Repayment of borrowings – – At 31st March, 2001 647,708 286,066	Obligations Bank under and other finance loans leases HK$’000 HK$’000 217,580 – – – – – – – – – – – – – – – – – – – 5,286 – 99,485 – (179,805) – – – – – 34 – 142,580 – – – – – – – – – – – – – – – – – – 1,275 7,000 13 (131,293) – 185,272 – (172,871) (182) 30,688 1,106	Amount Advance due to Amount from a former due to an minority substantial associate shareholders shareholder HK$’000 HK$’000 HK$’000 400 320 211,753 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 7,968 – – (16,200 ) – – (113,721) – – (89,800 ) – – – 400 320 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 46,437 – – – – – 1,546 – (400) – – – 48,303 –

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

41. Major non-cash transactions

• (a) During the current year, the Group acquired investment securities for a consideration of approximately HK$106 million, out of which HK$80 million was satisfied by the issue of new shares as set out in note 31(c).

• (b) During the current year, nominal value in aggregate of convertible bonds of HK$140.6 million was converted into ordinary shares of the Company, resulting in the issue of 359,809,042 ordinary shares of HK$0.10 each in the Company.

• (c) During the year ended 31st March, 2000, the Company entered into settlement agreements with Hansom Eastern (Holdings) Limited, formerly Tung Fong Hung (Holdings) Limited, (“Hansom”) whereby an amount of approximately HK$203.7 million out of a total debt of approximately HK$219.7 million owing by a subsidiary of the Company to Hansom’s subsidiary (together with Hansom collectively referred to as “Hansom Group”) was released and discharged by a transfer of the Company’s entire interest in the share capital of Kingson Well Limited, which held 21,922,242 shares in Star East Holdings Limited (“Star East”), representing 34.9% of Star East’s issued share capital, and shareholders’ loans due to the Company approximately HK$368 million. Under the settlement agreements, the consideration payable by Hansom for the assignment of the shareholder loans was HK$90 million, which was satisfied by way of a set-off of such amount against the debt owed by the Group to the Hansom Group.

• (d) During the year ended 31st March, 2000, nominal value in aggregate of convertible bonds of HK$248 million was converted into ordinary shares of the Company at a conversion price of HK$0.65 per share, resulting in the issue of 381,538,447 ordinary shares of HK$0.10 each in the Company.

• (e) During the year ended 31st March, 2000, the Group acquired additional shareholding in an associate for a consideration of HK$108 million, out of which HK$40 million was satisfied by issuance of 10% convertible bonds.

42. Unrecognised deferred taxation

At 31st March, 2001, the Group had an unrecognised deferred tax asset of approximately HK$43 million (2000: HK$41 million) which mainly represents the tax effect of timing differences arising as a result of tax losses available to set off against future assessable profits. This deferred tax asset has not been recognised in the financial statements as it is not certain that the benefit will be realised in the foreseeable future.

The Company had no significant unprovided deferred taxation for the year or at the balance sheet date.

43. Operating lease commitments

While the Company had no outstanding operating lease commitments at the balance sheet date, its subsidiaries were committed to make the following rental payments for land and buildings within one year under non-cancellable operating leases which expire:

Within one year In the second to fifth year inclusive	THE GROUP 2001 2000 HK$’000 HK$’000 560 – 2,950 1,614 3,510 1,614	THE GROUP 2001 2000 HK$’000 HK$’000 560 – 2,950 1,614 3,510 1,614
		1,614

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

44. Contingent liabilities

Guarantees given to banks and financial institutions in respect of credit facilities extended to – subsidiaries – a jointly controlled entity Guarantees given to independent third parties in respect of credit facilities granted to subsidiaries	THE GROUP 2001 2000 HK$’000 HK$’000 – – 9,500 9,500 – – 9,500 9,500	THE COMPANY 2001 2000 HK$’000 HK$’000 7,853 6,273 9,500 9,500 – 40,000 17,353 55,773	THE COMPANY 2001 2000 HK$’000 HK$’000 7,853 6,273 9,500 9,500 – 40,000 17,353 55,773
			55,773

45. Pledge of assets

At 31st March, 2001, certain of the Group’s investment properties amounting to HK$10.5 million (2000: HK$16 million) and the Group’s properties held for resale were pledged to banks for banking facilities granted to the Group.

In addition to the above, at 31st March, 2000, certain of the Group’s investment properties amounting to approximately HK$148 million and the shares of the respective subsidiaries holding those investment properties were pledged to an independent third party to secure a loan granted to the Group.

46. Retirement benefits scheme

The Company and its subsidiaries did not operate any retirement schemes covering their employees in previous years. From December 2000, the Group enrolled all eligible employees in Hong Kong into a mandatory provident fund (the “MPF”) scheme. The retirement benefit cost for the MPF scheme charged to the consolidated income statement represents contributions to the MPF scheme by the Group at rates specified in the rules of the MPF scheme.

47. Related party transactions and balances

During the year, the Group paid legal and professional fees totalling HK$1,233,000 (2000: HK$1,187,000) for services rendered by a firm of solicitors, P.C. Woo & Co., in which Mr. Lai Hin Wing, Henry, the independent nonexecutive director of the Company, is a partner of the firm.

During the period from 1st April, 2000 to 3rd January, 2001, the Group also paid legal and professional fees totalling HK$340,000 (2000: HK$445,000) for services rendered by a firm of solicitors, Vincent T.K. Chueng, Yap & Co., in which Ms. Fung Wan Yiu, Agnes, being the independent non-executive director of the Company until 3rd January, 2001, is a partner of the firm.

In 2000, the Group had charged HK$351,000 for the sharing of central administrative expenses with Star East, a former listed associate of the Group, and had received interest amounting to HK$649,000 from Star East.

Details of balances with related parties as at the balance sheet date are set out in the balance sheets and in notes 19, 20 and 35.

Details of contingent liabilities in respect of guarantees given to related companies to secure credit facilities granted to related companies are set out in note 44.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

48. Segment information

An analysis of the Group’s turnover and operating loss by principal activity and geographical region is as follows:

Activity Sales of other investments Rental income Investment and finance Sales of properties held for resale Add: Release of tax indemnity to a former subsidiary Less: Corporate management expenses Loss from operations Geographical region Hong Kong Canada Add: Release of tax indemnity to a former subsidiary Less: Corporate management expenses Loss from operations	Turnover 2001 2000 HK$’000 HK$’000 4,349 15,450 3,523 5,428 3,212 3,339 – 9,591 11,084 33,808 11,013 23,991 71 9,817 11,084 33,808	Operating (loss) profit 2001 2000 HK$’000 HK$’000 (2,644) (228) 406 3,249 (33,394) (36,473) (3,865) (15,905) (39,497) (49,357) – 13,700 (58,705) (35,472) (98,202) (71,129) (39,310) (45,614) (187) (3,743) (39,497) (49,357) – 13,700 (58,705) (35,472) (98,202) (71,129)	Operating (loss) profit 2001 2000 HK$’000 HK$’000 (2,644) (228) 406 3,249 (33,394) (36,473) (3,865) (15,905) (39,497) (49,357) – 13,700 (58,705) (35,472) (98,202) (71,129) (39,310) (45,614) (187) (3,743) (39,497) (49,357) – 13,700 (58,705) (35,472) (98,202) (71,129)
			(49,357) 13,700 (35,472)
			(71,129)
			(45,614) (3,743)
			(49,357) 13,700 (35,472)
			(71,129)

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

49. Principal subsidiaries

Details of the Company’s principal subsidiaries at 31st March, 2001 are as follows:

		Nominal	Attributable	Attributable
		value of issued	proportion of
		and fully	nominal value of
	Place of	paid ordinary	issued capital held
Name of subsidiary	incorporation	share capital	by the Company		Principal activity
			Directly	Indirectly
G-Prop Management Limited	Hong Kong	HK$2	–	100%	Provision of
					management services
G-Pop Technology Limited	British Virgin	US$1	100%	–	Investment holding
	Islands
G-Prop Satellite Television	British Virgin	US$1	100%	–	Investment holding
Limited	Islands
Halliwell Investments Limited	British Virgin	US$1	–	100%	Property investment
	Islands
Lamford Holdings Limited	British Virgin	US$1	–	100%	Security trading
	Islands
Legend Power Ltd.	British Virgin	US$2,000	–	50%*	Investment holding
	Islands
Luckview Development Limited	Hong Kong	HK$2	–	100%	Property investment
Shing Fai Management Limited	British Virgin	US$1	–	100%	Investment holding
	Islands
Universe Dragon Limited	Hong Kong	HK$2	–	50%*	Manufacture and leasing
					of energy saving machines
Wingrove Holdings Limited	British Virgin	US$50,000	–	66.67%	Investment holding
	Islands

• Pursuant to a supplemental agreement entered into between the Group and the other shareholder of Legend Power Ltd. dated 5th December, 2000, the Group has been granted a casting vote on the meeting of the shareholders. Accordingly, Legend Power Ltd. and its subsidiaries are classified as subsidiaries of the Company.

All the above subsidiaries operate in Hong Kong except for Halliwell Investments Limited which operates in Canada.

The above table lists the subsidiaries of the Company which, in the opinion of the directors, principally affected the results or assets of the Group. To give details of other subsidiaries would, in the opinion of the directors, result in particulars of excessive length.

Save as disclosed above, none of the subsidiaries had any debt securities outstanding at the end of the year, or at any time during the year.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

50. Principal jointly controlled entitles

Details of the Group’s principal jointly controlled entities which are held indirectly by the Company at 31st March, 2001 are as follows:

		Proportion of
Name of	Place of	nominal value of
jointly controlled entity	incorporation	issued capital held	Principal activities
Golden Royce Investment	Hong Kong	40%	Property development
Limited			and investment holding
New Champion International	Hong Kong	50%	Property investment
Limited *
Top Grade Assets Limited	British Virgin	50%	Property investment and
	Islands		agency services

• The financial statements of this jointly controlled entity are not audited by member firms of Deloitte Touche Tohmatsu.

All the above jointly controlled entities operate in the People’s Republic of China except for New Champion International Limited which operates in Hong Kong.

The above table lists the jointly controlled entities of the Group which, in the opinion of the directors, principally affected the results of the year or form a substantial portion of the net assets of the Group. To give details of other jointly controlled entities would, in the opinion of the directors, result in particulars of excessive length.

51. Post balance sheet events

• (a) Pursuant to a resolution passed at a special general meeting of the Company held on 14th May, 2001:

• (i) every 20 authorised and unissued shares and every 20 issued shares of HK$0.10 each were consolidated into one share of HK$2.00;

• (ii) the nominal value of the share capital of the Company was reduced from HK$2.00 per share to HK$0.01 per share by the way of cancellation of HK$1.99 paid up capital on each issued share and the subdivision of each authorised but unissued share into 200 shares;

• (iii) the amount of HK$444,334,000 standing to the credit of the share premium account of the Company at 30th September, 2000 was cancelled; and

• (iv) the authorised but unissued share capital of the Company was cancelled to the extent of HK$480,000,000 by way of a cancellation of 48,000,000,000 shares.

• (b) On 21st May, 2001, a placing agreement was entered into between the Company and a placing agent, pursuant to which the placing agent agreed to place 14,500,000 shares of HK$0.01 each in the share capital of the Company to independent investors at a price of HK$0.52 per share. The estimated net proceeds from the placing of approximately HK$7.35 million were used to provide working capital of the Company and its subsidiary, Legend Power Ltd.

• (c) On 13th June, 2001, the Group entered into a sale and purchase agreement with an independent third party for the acquisition of 1,157 shares of US$1 each in the share capital of Harvest Power Limited (“HPL”), representing 45% of the issued share capital of HPL, at a consideration of HK$29 million.

• (d) In June 2001, the Company obtained the consent from the bondholders of the outstanding convertible bonds that the payment of interests of approximately HK$11 million payable on 30th June, 2001 be deferred to 24th December, 2001.

• (e) As announced by the Company on 9th July, 2001, the Company proposed to raise an amount of approximately HK$11.4 million before expenses, subject to the satisfaction of the conditions of the open offer, by issuing not less than 45,789,532 and not more than 70,939,676 offer shares at a price of HK$0.25 per offer share by way of the open offer.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

III. SUMMARY OF UNAUDITED INTERIM FINANCIAL STATEMENTS

The following is the unaudited condensed consolidated financial statements of the Group for the six months ended 30th September, 2001 with comparative figures for the previous corresponding period, extracted from the Company’s interim report for the six months ended 30th September, 2001:

CONDENSED CONSOLIDATED INCOME STATEMENT

For the six months ended 30th September, 2001

Notes Turnover 2 Cost of sales Gross profit Other revenue Administrative expenses Other operating expenses Loss from operations Finance costs Share of results of associates Share of results of jointly controlled entities Loss before tax Income tax expenses 4 Loss before minority interest Minority interest Loss for the period Loss per share – Basic 5	Six months ended 30th September, 2001 2000 (Unaudited) (Unaudited) HK$’000 HK$’000 2,540 8,183 (1,307) (5,415) 1,233 2,768 754 466 (25,046) (25,500) (386) (4,838) (23,445) (27,104) (14,649) (12,694) (1) (2,739) (554) (245) (38,649) (42,782) (109) (2) (38,758) (42,784) 204 – (38,554) (42,784) HK$(0.40) HK$(0.90)

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

CONDENSED CONSOLIDATED BALANCE SHEET

At 30th September, 2001

30th September, 2001 (Unaudited) Notes HK$’000 NON-CURRENT ASSETS Investment properties 11,280 Property, plant and equipment 6 15,156 Goodwill 133,891 Intangible assets 60,592 Interest in associates 9 Interest in jointly controlled entities 34,500 Investment in securities 111,911 Loans to a minority shareholder of subsidiaries – Club debentures 2,798 Finance lease receivables – due after one year 514 370,651 CURRENT ASSETS Inventories 1,071 Properties held for resale – Trade and other receivables 7 18,339 Short-term loans receivable 8 21,543 Investment in securities 24,765 Taxation recoverable 117 Bank balance and cash 866 66,701 CURRENT LIABILITIES Trade and other payables 9 40,919 Taxation payables 107 Short-term bank and other borrowings 26,435 Obligation under finance leases – due within one year 1,172 Convertible bonds 75,430 144,063 NET CURRENT LIABILITIES (77,362) 293,289

31st March, 2001 (Audited) HK$’000 11,280 16,158 109,781 63,178 10 35,055 111,911 16,000 2,798 – 366,171 777 1,180 15,985 19,146 24,932 117 3,433 65,570 16,899 – 30,688 423 24,760 72,770 (7,200) 358,971

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

30th September, 2001 (Unaudited) Notes HK$’000 CAPITAL AND RESERVES Share capital 10 1,414 Reserves 11 29,471 30,885 MINORITY INTERESTS 285 NON-CURRENT LIABILITIES Convertible bonds 212,090 Obligation under finance leases – due after one year 1,626 Other long-term loans 48,403 262,119 293,289	31st March, 2001 (Audited) HK$’000 145,178 (96,706) 48,472 207 261,306 683 48,303 310,292 358,971

– 71 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

CONDENSED CONSOLIDATED STATEMENT OF RECOGNISED GAINS AND LOSSES

For the six months ended 30th September, 2001

Exchange difference arising on translation of overseas operations Net loss for the period Total recognised gains and losses	Six months ended 30th September, 2001 2000 (Unaudited) (Unaudited) HK$’000 HK$’000 24 – (38,554) (42,784) (38,530) (42,784)

– 72 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

CONDENSED CONSOLIDATED CASHFLOW STATEMENT

For the six months ended 30th September, 2001

NET CASH INFLOW (OUTFLOW) FROM OPERATING ACTIVITIES RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Interest paid Interest received, other than from loans receivable CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND SERVICING OF FINANCE TAXATION Overseas tax paid INVESTING ACTIVITIES Purchase of investment securities Purchase of property, plant and equipment Investment in associates Purchase of a subsidiary (net of cash and cash equivalents acquired) Amount repaid by a jointly controlled entity Proceeds from disposal of property, plant and equipment NET CASH OUTFLOW FROM INVESTING ACTIVITIES NET CASH OUTFLOW BEFORE FINANCING FINANCING Borrowings raised Proceeds from issue of convertible bonds Contribution from minority shareholder of subsidiaries Proceeds from issue of shares Repayment of borrowings Expenses in connection with the issue of convertible bonds Expenses in connection with the issue of shares NET CASH INFLOW FROM FINANCING DECREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD EFFECT OF FOREIGN EXCHANGE RATE CHANGES CASH AND CASH EQUIVALENTS AT END OF PERIOD

Six months ended 30th September, 2001 2000 (Unaudited) (Unaudited) HK$’000 HK$’000 8,969 (89,234) (14,648) (12,694) 36 407 (14,612) (12,287) (3) (2) – (68,097) (891) (1,009) (16,800) – – (779) – 500 2,449 125 (15,242) (69,260) (20,888) (170,783) 3,162 126,000 – 80,400 282 – 22,184 54,300 (5,946) (113,798) – (3,544) (1,385) (2,129) 18,297 141,229 (2,591) (29,554) 3,433 33,891 24 – 866 4,337

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

Notes:

1. Basis of preparation of financial statements

The condensed financial statements have been prepared under the historical cost convention as modified for the revaluation of certain properties and investments in securities and prepared in accordance with Statement of Standard Accounting Practice (“SSAP”) 25 “Interim Financial Reporting”. The accounting policies adopted are consistent with those followed in the Group’s audited financial statement for the year ended 31st March, 2001 except the method of accounting for segment reporting. In note 2 to these interim accounts the Group has disclosed segment revenue and results as defined under SSAP 26 “Segment Reporting”. In accordance with the Group’s internal financial reporting the Group has determined that business segments be presented as the primary reporting format and geographical as the secondary reporting format.

2. Segment information

An analysis of turnover and contribution to the Group’s results by business segments and geographical segments is set out below:

Business segments

Sales of other investments Sales of properties held for resale Investment and finance Rental income Less: Corporate management expenses Loss from operations Geographical segments	Segment revenue Six months ended 30th September, 2001 2000 HK$’000 HK$’000 – 4,348 1,277 – 1,167 1,540 96 2,295 2,540 8,183	Segment result Six months ended 30th September, 2001 2000 HK$’000 HK$’000 (168) (2,233) (5,507) – 1,048 (1,358) 35 1,314 (4,592) (2,277) (18,853) (24,827) (23,445) (27,104)	Segment result Six months ended 30th September, 2001 2000 HK$’000 HK$’000 (168) (2,233) (5,507) – 1,048 (1,358) 35 1,314 (4,592) (2,277) (18,853) (24,827) (23,445) (27,104)
			(2,277) (24,827)
			(27,104)

Hong Kong Canada United Kingdom Less: Corporate management expenses Loss from operations	Segment revenue Six months ended 30th September, 2001 2000 HK$’000 HK$’000 1,308 8,138 1,180 45 52 – 2,540 8,183	Segment result Six months ended 30th September, 2001 2000 HK$’000 HK$’000 (3,892) (2,291) (34) 14 (666) – (4,592) (2,277) (18,853) (24,827) (23,445) (27,104)	Segment result Six months ended 30th September, 2001 2000 HK$’000 HK$’000 (3,892) (2,291) (34) 14 (666) – (4,592) (2,277) (18,853) (24,827) (23,445) (27,104)
			(2,277) (24,827)
			(27,104)

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

3. Depreciation/amortisation

Depreciation on property, plant and equipment Amortisation charged in respect of: – goodwill – intangible assets – premium on acquisition of associates	Six months ended 30th September, 2001 2000 HK$’000 HK$’000 1,261 1,221 4,890 – 2,586 – – 3,165 8,737 4,386	Six months ended 30th September, 2001 2000 HK$’000 HK$’000 1,261 1,221 4,890 – 2,586 – – 3,165 8,737 4,386
		4,386

4. Income tax expenses

The charge comprises: Taxation of the Company and its subsidiaries – Hong Kong Profits Tax – overseas taxation	Six months ended 30th September, 2001 2000 HK$’000 HK$’000 (106) – (3) (2 (109) (2	Six months ended 30th September, 2001 2000 HK$’000 HK$’000 (106) – (3) (2 (109) (2
		(2

Hong Kong Profits Tax is calculated at 16% on the estimated assessable profits for the period. No provision for Hong Kong Profits Tax has been made for the six months ended 30th September, 2000 for the Company and its subsidiaries because these companies incurred tax losses for that period.

Overseas taxation is calculated at the rates prevailing in the respective jurisdictions.

5. Loss per Share

The calculation of the basic loss per share is based on the loss for the period of HK$38,554,000 (2000: HK$42,784,000) and on weighted average number of ordinary shares in issue after adjusted for the effect of the Company’s consolidation of shares during the period of 95,595,941 (2000: 47,405,684).

No diluted loss per share has been calculated for the period ended 30th September, 2001 and 2000 as the exercise of share options and the conversion of the convertible bonds would result in a decrease in the loss per share for both periods.

6. Property, plant and equipment

During the period, the Group acquired and disposed property, plant and equipment for the amount of HK$891,000 and HK$2,449,000 respectively.

The Group’s property, plant and equipment include cost of HK$1,443,000 (31st March, 2001: HK$660,000) and accumulated depreciation of HK$340,000 (31st March, 2001: HK$144,000) in respect of energy saving machines which are held for rental income under operating leases.

Included in the net book value of property, plant and equipment of the Group are assets held under finance leases amounting to HK$3,195,000 (31st March, 2001: HK$1,303,000).

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

7. Trade and other receivables

The Group allows an average credit period of 30 days to its trade debtors. Included in trade and other receivables is trade receivables of HK$5,426,000 (31st March, 2001: HK$3,378,000). Its aged analysis at the period end date is as follows:

30th September, 2001 HK$’000 Within 30 days 789 31 – 60 days 1,067 Over 60 days 3,570 5,426	31st March, 2001 HK$’000 314 162 2,902
	3,378

8. Short-term loans receivable

The Group maintained a defined credit policy in accordance with respective loan agreements. All loans receivables at the reporting date are due over 60 days.

9. Trade and other payables

Included in trade and other payables is trade creditors of HK$255,000 (31st March, 2001: HK$15,000). Its aged analysis at the period end date is as follows:

30th September, 2001 HK$’000 Within 30 days 185 31 – 60 days 70 Over 60 days – 255	31st March, 2001 HK$’000 12 – 3
	15

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

10. Share capital

Authorised: At 1st April, 2000 (HK$0.10 each) – increase of authorised share capital At 31st March, 2001 (HK$0.10 each) – re-designation and subdivision of the authorised but unissued shares – reduction of authorised share capital At 30th September, 2001 (HK$0.01 each) Issued and fully paid: At 1st April, 2000 (HK$0.10 each) – issue of shares upon subscription – issue of shares for acquisition of investment securities – exercise of conversion rights of convertible bonds – exercise of share options At 31st March, 2001 (HK$0.10 each) – consolidation of shares of 20 into 1 – capital reduction by cancelling paid up capital to the extent of HK$1.99 per share – exercise of share options – issue of shares upon subscription – open offer At 30th September, 2001 (HK$0.01 each)	Number of ordinary shares 2,000,000,000 4,800,000,000 6,800,000,000 61,200,000,000 (48,000,000,000) 20,000,000,000 858,638,944 90,500,000 133,333,333 359,809,042 9,500,000 1,451,781,319 (1,379,192,254) – 8,530,000 14,500,000 45,785,570 141,404,635	Amount HK$’000 200,000 480,000
		680,000 – (480,000)
		200,000
		85,864 9,050 13,333 35,981 950
		145,178 – (144,452) 85 145 458
		1,414

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

11. Reserves

At 1st April, 2000 Premium arising on issue of shares Expenses in connection with the issue of shares Realised on disposal of subsidiaries Loss for the year At 31st March, 2001 Effect of capital reduction Premium arising on issue of shares Expenses in connection with the issue of shares Translation of financial statements of overseas operation Amount written off Loss for the period At 30th September, 2001	Share Translation premium reserve HK$’000 HK$’000 287,759 56 216,536 – (1,765 ) – – 174 – – 502,530 230 (444,334 ) – 21,496 – (1,385 ) – – 24 – – – – 78,307 254	Goodwill Contributed reserve surplus HK$’000 HK$’000 (45) 294,601 – – – – – – – – (45) 294,601 – 97,778 – – – – – – 145 – – – 100 392,379	Deficit HK$’000 (435,661) – – – (458,361) (894,022) 491,007 – – – – (38,554) (441,569)	Total HK$’000 146,710 216,536 (1,765 174 (458,361 (96,706 144,451 21,496 (1,385 24 145 (38,554 29,471

12. Contingent liabilities

	The	Group	The Company	The Company
	30th	31st	30th	31st
	September,	March,	September,	March,
	2001	2001	2001	2001
	HK$’000	HK$’000	HK$’000	HK$’000
Guarantees given to banks and
financial institutions in respect of
credit facilities extended to
– subsidiaries	–	–	8,275	7,853
– a jointly controlled entity	9,500	9,500	9,500	9,500
	9,500	9,500	17,775	17,353

13. Material events subsequent to 30th September, 2001

• (a) Subsequent to 30th September, 2001, a gross proceeds of HK$269.8 million was raised from issuing new non-interest bearing convertible bonds due 2004. HK$241.2 million has been used to purchase existing convertible bonds due 2002; HK$17.3 million has been used for payment of interest accrued on the existing convertible bonds and the balance has been used as general working capital of the Group.

• (b) In November, 2001, the Company also issued HK$67 million new non-interest bearing convertible bonds due 2004 at an issue price of HK$63.6 million to Hutchison International Limited to settle the existing borrowing from and bonds held by Hutchison group.

• (c) In December, 2001, the Company successfully raised a net proceeds of HK$3.06 million from a placing of 28,200,000 new shares to independent investors. The proceeds will be used as general working capital of the Group.

14. Comparative figures

Certain comparative figures have been restated to conform to the changed accounting policies following adoption of the SSAP 26 which has been come into effect since this year.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

IV. PRO FORMA STATEMENT OF UNAUDITED ADJUSTED COMBINED NET TANGIBLE ASSETS VALUE

The following is a pro forma statement of unaudited adjusted combined net tangible assets value of the Group based on the unaudited consolidated net tangible assets value of the Group as at 30th September, 2001 as set out in appendix II to this circular, adjusted to reflect the effects of the following adjustments:

Unaudited consolidated net assets value of the Group as at 30th September, 2001 Less: Intangible assets Goodwill Unaudited consolidated net tangible assets value of the Group as at 30th September, 2001 Add: Net proceeds from the placing of 28,200,000 new Shares on 11th December, 2001 Net proceeds from the placing of 53,900,000 new Shares on 29th January, 2002 Net proceeds from the placing of 73,400,000 new Shares on 6th March, 2002 Net proceeds from the placing of 239,000,000 new Shares on 29th May, 2002 Increase in consolidated net assets upon the issue of 181,089,540 new Shares upon conversion of convertible bonds due 2004 since 1st October, 2001 Unaudited adjusted consolidated net tangible assets value of the Group before the Proposed Acquisitions and placing of the Additional Bonds_(note 1)_

HK$’000 30,885 (60,592) (133,891) (163,598) 3,060 6,600 7,500 14,100 47,500 (84,838)

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

Unaudited adjusted consolidated net tangible assets value of the Group before Completion and placing of the Additional Bonds Add: Intangible assets Goodwill Unaudited adjusted consolidated net assets value of the Group before Completion and placing of the Additional Bonds Unaudited adjusted consolidated net tangible assets value/net assets value per Share before Completion and placing of the Additional Bonds on the basis of 716,994,175 Shares in issue as at the Latest Practicable Date Effects of the Proposed Acquisitions and the placing of Additional Bonds: Unaudited adjusted consolidated net tangible assets value/net assets value of the Group before Completion and placing of the Additional Bonds Estimated consideration for the acquisition of I-Space.Com to be satisified by issue of Convertible Bonds and cash Net tangible assets of I-Space.Com attributable to the Group upon Completion_(note 3) Estimated consideration for the acquisition of Regal Leader to be satisified by issue of Convertible Bonds and cash Net tangible assets of Regal Leader attributable to the Group upon Completion(note 4) Estimated expenses relating to the Proposed Acquisitions and placing of the Additional Bonds to be incurred by the Group(note 6) Unaudited pro forma adjusted combined net tangible assets value/net assets value of the Group upon Completion and placing of the Additional Bonds(note 5)_ Unaudited pro forma adjusted combined net tangible assets value/net assets value per Share on the basis of 716,994,175 Shares in issue upon Completion and placing of the Additional Bonds	Net tangible assets value (Note 2) HK$’000 (84,838) HK$(0.12) (84,838) (41,700) 41,700 (107,100) 107,100 (3,300) (88,138) HK$(0.12)	Net assets value (Note 2) HK$’000 (84,838) 60,592 133,891 109,645 HK$0.15 109,645 (41,700) 41,700 (107,100) 107,100 (3,300) 106,345 HK$0.15

– 80 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

Effects of full conversion of the Convertible Bonds: Unaudited pro forma adjusted combined net tangible assets value/net assets value of the Group upon Completion and placing of the Additional Bonds Estimated net assets attributable to the Group upon full conversion of the Convertible Bonds Unaudited pro forma adjusted combined net tangible assets value/net assets value of the Group upon Completion and placing of the Additional Bonds and upon full conversion of the Convertible Bonds Unaudited pro forma adjusted combined net tangible assets value/net assets value per Share upon Completion and placing of the Additional Bonds on the basis of 716,994,175 Shares in issue and 2,400,000,000 Shares to be issued upon full conversion of the Convertible Bonds Effects of full subscription of the Additional Bonds, full conversion of the Convertible Bonds and the Additional Bonds: Unaudited pro forma adjusted combined net tangible assets value/net assets value of the Group upon Completion and placing of the Additional Bonds Estimated net assets attributable to the Group upon full subscription of the Additional Bonds, full conversion of the Convertible Bonds and the Additional Bonds Unaudited pro forma adjusted combined net tangible assets value/net assets value of the Group upon Completion and placing of the Additional Bonds and upon full subscription of the Additional Bonds, full conversion of the Convertible Bonds and the Additional Bonds Unaudited pro forma adjusted combined net tangible assets value/net assets value per Share upon Completion and placing of the Additional Bonds on the basis of 716,994,175 Shares in issue and 3,938,461,538 Shares to be issued upon full subscription of the Additional Bonds, full conversion of the Convertible Bonds and the Additional Bonds	Net tangible assets value (Note 2) HK$’000 (88,138) 148,200 60,062 HK$0.02 (88,138) 243,200 155,062 HK$0.03	Net assets value (Note 2) HK$’000 106,345 148,200
		254,545 HK$0.08
		106,345 243,200
		349,545 HK$0.08

– 81 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

Notes:

1. During the period from 1st October, 2001 to the Latest Practicable Date, no Option was exercised.

2. This is calculated on the basis of no exercise of the Options or conversion of the existing convertible bonds of the Company.

3. The calculation of net tangible assets value of I-Space.Com attributable to the Group excludes the amount due to Great Empire by I-Space.Com Group, as such debt will be assigned to Alpha New upon Completion.

4. The calculation of net tangible assets value of Regal Leader attributable to the Group excludes the amount due to Paul Y. by Regal Leader, as such debt will be assigned to Talent Pioneer upon Completion.

5. This is calculated on the basis of the assumption that none of the Convertible Bonds and Additional Bonds is converted into Shares.

6. Estimated expenses relating to the Proposed Acquisitions amounted to HK$2,000,000 and the placing of the Additional Bonds amounted to HK$1,300,000.

V. STATEMENT OF INDEBTEDNESS

As at the close of business on 31st May, 2002, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the companies comprising the Group had an outstanding bank loan of approximately HK$6.5 million which was secured by the Group’s investment properties of approximately HK$9.3 million; and obligations under finance leases of approximately HK$3.1 million which were secured by the Group’s property, plant and equipment of approximately HK$4.2 million. As at the same date, the Group also had an unsecured trust receipt loan of approximately HK$0.3 million from a bank; unsecured loans of approximately HK$47.6 million from a minority shareholder of subsidiaries. In addition, as at the same date, the Company has principal amount of outstanding convertible bonds of approximately HK$309.4 million. Also, as at the same date, the Group has given corporate guarantees of approximately HK$9.5 million to a bank in respect of credit facilities granted to a jointly controlled entity.

Save as aforesaid or as otherwise disclosed herein, and apart from intra-group liabilities, none of the companies comprising the Group had outstanding at the close of business on 31st May, 2002 any mortgages, term loans, charges or debentures, loan capital, bank loans and overdrafts, debt securities or other similar indebtedness, finance leases or hire purchase commitments, liabilities under acceptance (other than normal trade bills) or acceptance credits or any guarantees or other material contingent liabilities.

The Directors have confirmed that there has been no material change in the indebtedness or contingent liabilities of the Group since 31st May, 2002.

VI. WORKING CAPITAL

The Directors are of opinion that, taking into account the present available credit facilities and internal resources of the Group, the Group has sufficient working capital for its present requirements.

VII. MATERIAL CHANGE

Save as disclosed in the interim report of the Company for the six months ended 30th September, 2001, the Directors are not aware of any material change in the financial or trading position or prospects of the Group since 31st March, 2001, being the date of the latest published audited accounts of the Group.

– 82 –

VALUATION REPORT

APPENDIX III

The following is the text of the letter, summary of values and valuation certificate received from Norton Appraisals Limited, an independent qualified valuer, prepared for the purpose of inclusion in this circular, in connection with its valuation of the Properties.

Norton Appraisals Registered Professional Surveyors, Valuers & Property Consultants

Room 4135, Sun Hung Kai Centre 30 Harbour Road Wanchai Hong Kong Tel: (852) 2810 7337 Fax: (852) 2810 6337

The Directors

G-Prop (Holdings) Limited 13th Floor, New World Tower Two 18 Queen’s Road Central Hong Kong

7th June, 2002

Dears Sirs,

• Re : (i) The Whole of 1st Floor, 3rd Floor, 4th Floor (including the Flat Roof thereof), 5th Floor, 7th Floor to 11th Floor and Car Parking Space No. 25 on Ground Floor, Chung Kiu Godown Building, Nos. 63-71 Lei Muk Road, Kwai Chung, New Territories, Hong Kong

• (ii) Shop G on Ground Floor (including the Cockloft thereof) and the whole of 1st, 2nd and 3rd Floors, Golden Hall Building, Nos. 49-63 Castle Peak Road, Yuen Long, New Territories, Hong Kong

• (iii) Flats A and B on 4th Floor (each including Flat Roof thereof) and Roofs A and B, Golden Hall Building, Nos. 49-63 Castle Peak Road, Yuen Long, New Territories, Hong Kong

In accordance with the instructions of G-Prop (Holdings) Limited (hereinafter referred to as the “Company”), we confirm that we have carried out inspections, made relevant enquires and obtained such further information as we consider necessary for the purpose of providing you with our opinion of values of the captioned property interests in the Hong Kong Special Administrative Region (“Hong Kong”) as at 7th June, 2002 (hereinafter referred to as the “date of valuation”).

Our valuations are our opinion of the open market value which we would define as intended to mean “the best price at which the sale of an interest in a property would have been completed unconditionally for cash consideration on the date of valuation, assuming:

• (a) a willing seller;

• (b) that, prior to the date of valuation, there had been a reasonable period (having regard to the nature of the property and the state of the market) for the proper marketing of the interest, for the agreement of price and terms and for the completion of the sale;

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VALUATION REPORT

APPENDIX III

• (c) that the state of the market, level of values and other circumstances were, on any earlier assumed date of exchange of contracts, the same as on the date of valuation;

• (d) that no account is taken of any additional bid by a prospective purchaser with a special interest; and

• (e) that both parties to the transaction had acted knowledgeably, prudently and without compulsion.”

In valuing the property interests, we have assumed that the owners have valid and enforceable title to the property interests which are freely transferable, and have free and uninterrupted right to use the same, for the whole of the unexpired lease granted subject to payment of annual government rent and all requisite land premium/purchase consideration payable have been fully settled.

We have valued the properties on the basis that the each of them is considered individually. We have not allowed for any discount for the properties to be sold to a single party nor have taken into account any effect on the values if the properties are to be offered for sale at the same time as a portfolio.

Our valuations have been made on the assumption that the owners sell the properties on the open market in their existing state without the benefit of a deferred terms contract, leaseback, joint venture, management agreement or any similar arrangement which would serve to affect the values of such property interests. In addition, no account has been taken of any option or right of pre-emption concerning or affecting sales of the properties and no forced sale situation in any manner is assumed in our valuations.

In valuing the property interests, we have valued each of these property interests by the investment approach by taking into account the current rental income of the property and the reversionary potential of the tenancies.

In valuing those property interests which the Government Leases have expired before 30th July, 1997, we have taken into account the provisions contained in the Basic Law of the Hong Kong Special Administrative Region and the New Territories Leases (Extension) Ordinance 1988 that such leases have been extended without any additional payment of premium until 30th June, 2047 and that an annual rent equivalent to three per cent of the rateable value of the property for the time being will be charged from the date of extension.

We have, as agreed with the Company, caused sampling title searches at relevant Land Registries. We have not, however, searched the original documents to verify ownership or to determine the existence of any lease amendments which do not appear on the copies handed to us.

All dimensions, measurements and areas included in the attached valuation certificates are based on information contained in the documents provided to us by the Company and are therefore only approximations.

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

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VALUATION REPORT

APPENDIX III

Having reviewed all relevant documentation, we have relied to a considerable extent on the information provided by the Company and have accepted advice on such matters as planning approvals, statutory notices, easements, tenures, completion dates of buildings, particulars of occupancy, tenancy summaries, site and floor areas and all other pertinent information related to the property interests we valued.

We have no reason to doubt the truth and accuracy of the information provided to us by the Company. We have also been advised by the Company that no material facts have been omitted from the information to reach an informed view, and we have no reason to suspect that any material information has been withheld.

No allowance has been made in our valuations for any charges, mortgages or amounts owing on any of the properties 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.

Our valuations have been prepared in accordance with the Hong Kong Guidance Notes on the Valuation of Property Assets (2nd Edition) published by the Hong Kong Institute of Surveyors in March 2000.

Our Summary of Values and the Valuation Certificates are enclosed herewith.

Yours faithfully, For and on behalf of

Norton Appraisals Limited M. K. Wong MRICS, AHKIS, RPS (G.P.) Director

Note: Mr. M. K. Wong is a Chartered Surveyor who has more than 9 years’ experience in valuation of properties in Hong Kong.

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VALUATION REPORT

APPENDIX III

SUMMARY OF VALUES

			Capital value
		in	existing state as at
	Property		7th June, 2002
			HK$
1.	The Whole of 1st Floor, 3rd Floor, 4th Floor		42,000,000
	(including the Flat Roof thereof), 5th Floor,
	7th Floor to 11th Floor and Car Parking Space No. 25
	on Ground Floor, Chung Kiu Godown Building,
	Nos. 63-71 Lei Muk Road, Kwai Chung,
	New Territories, Hong Kong
2.	Shop G on Ground Floor (including the Cockloft thereof)		132,000,000
	and the whole of 1st, 2nd and 3rd Floors,
	Golden Hall Building, Nos. 49-63 Castle Peak Road,
	Yuen Long, New Territories, Hong Kong
3.	Flats A and B on 4th Floor (each including Flat Roof thereof)		3,500,000
	and Roofs A and B, Golden Hall Building,
	Nos. 49-63 Castle Peak Road, Yuen Long,
	New Territories, Hong Kong
		Total:	177,500,000

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VALUATION REPORT

APPENDIX III

Property

Description and tenure

Capital value in Particulars existing state as at of occupancy 7th June, 2002 HK$

1. The Whole of 1st The property comprises various With the exception of the 42,000,000 Floor, 3rd Floor, 4th floors of a 24-storey industrial whole of 3rd Floor to 5th Floor (including the building and one carparking Floor which are vacant, Flat Roof thereof), space on Ground Floor. The the property is let under 5th Floor, 7th Floor building was completed in or various tenancies and to 11th Floor and Car about 1979. licences, yielding a total Parking Space No. 25 monthly rental income of on Ground Floor, The property has a total gross $213,162 (exclusive of Chung Kiu Godown floor area of approximately rates and service Building, Nos. 63-71 13,065.22 sq.m. (140,634 sq.ft.) charges) and a total Lei Muk Road, Kwai including a flat roof on 4th monthly licence fee Chung, New Floor. income of $3,000 Territories, Hong (inclusive of rates and Kong The Lot is held under a New service charge). Grant No. 4287 for a term of 99 91/242nd equal and years commencing from 1st The occupancy rate is undivided shares of July, 1898 less the last three approximately 60.4%. and in Lot No. 974 in days thereof which is statutorily Demarcation District extended to 30th June, 2047. No. 450 (the “Lot”)

Note: The registered owner of the property is Boria Enterprises Limited vide Memorial No. 1174186 dated 15th September, 1997.

– 87 –

VALUATION REPORT

APPENDIX III

Property

1. Shop G on Ground Floor (including the Cockloft thereof) and the whole of 1st, 2nd and 3rd Floors, Golden Hall Building, Nos. 49-63 Castle Peak Road, Yuen Long, New Territories, Hong Kong

2. 36/185th equal and undivided shares of and in Yuen Long Town Lot No. 263 (the “Lot”)

Description and tenure

• Golden Hall Building is a 13storey (including cocklofts) composite building completed in 1978.

• The property comprises a shop unit on Ground Floor with its cockloft and the whole of 1st, 2nd and 3rd Floors of the building. The property has been renovated into a shopping arcade, currently known as “Yuen Long New Place”, consisting a number of shop units of various sizes on 1st to 3rd Floors together with a shop unit and an entrance lobby at Shop G on Ground Floor and the management office in the Cockloft thereof.

The total gross floor area and the total saleable area of the property are approximately 1,776.98 sq.m. (19,127 sq.ft.) and 826.058 sq.m. (8,892 sq.ft.) respectively. The floor area breakdown is as follows:

Gross Floor Area sq.m. Shop G, G/F 95.987 Cockloft of Shop G 28.176 1/F 571.654 2/F 540.973 3/F 540.189 Total 1,776.979	Saleable Area sq.m. 33.187 – 266.206 273.267 253.398
	826.058

Capital value in existing state as at 7th June, 2002 HK$

Particulars of occupancy

The property, with the 132,000,000 exception of 103, 105, (see Note c below) 106, 108, 111, 116, 118, 119, 120, 122, 123, 125, 126, 127, 131, 132, 133, 135 to 137, 139 to 146, 148, 201, 208, 217, 236, 239, 302, 303, 305 to 309, 311, 312, 315 to 317, 320, 321, 323, 326, 327, 331, 336 to 340, 342, 345 to 349 which are vacant, is subject to various licences/ tenancies for terms of three months to two years.

The total monthly rental income is approximately $325,137 (exclusive of rates and management fees).

The occupancy rate is approximately 54.66%.

All tenancy agreements contain a break clause, which can be exercised by the landlord by giving a 6-month written notice under the sale or demolition clause.

The Lot is held under a New Grant No. 2492 for a term of 99 years commenced from 1st July 1898 less the last three days thereof which is statutorily extended to 30th June, 2047.

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VALUATION REPORT

APPENDIX III

Notes:

• (a) The registered owner of the property is Great King Limited vide Memorial No. 918571 dated 8th April, 2000.

• (b) The property is subject to a Legal Charge to secure general banking facilities for a consideration of all moneys in favour of Oriental Ford Finance Limited vide Memorial No. 1004612 dated 28th March, 2002.

• (c) The Open Market Value of the property has reflected the exclusive right to use the advertising signs on the facade of the external wall of the 1st to 3rd Floors of the subject building under clause 3(b) of the Deeds of Mutual Covenant of the subject building.

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VALUATION REPORT

APPENDIX III

Description and tenure

Property

1. Flats A and B on 4th Golden Hall Building is a 13 Floor (each including storey (including cocklofts) Flat Roof thereof) composite building completed and Roofs A and B, in 1978. Golden Hall Building, Nos. 49-63 The property comprises two Castle Peak Road, residential units and two Yuen Long, New corresponding flat roofs on 4th Territories, Hong Floor and the whole roof of the Kong building. 12/185th equal and The two residential units have a undivided shares of total saleable area of and in Yuen Long approximately 182.58 sq.m. Town Lot No. 263 (1,965 sq.ft.). The flat roofs (the “Lot”) thereof have a total area of approximately 376.90 sq.m. (4,057 sq.ft.), excluding the area of 14.49 sq.m. (156 sq.ft.) for the lift machine room thereof. The roofs have a total roof area of approximately 66.24 sq.m. (713 sq.ft.). The Lot is held under New Grant No. 2492 for a term of 99 years commenced from 1st July 1898 less the last three days thereof which is statutorily extended to 30th June, 2047.

Capital value in Particulars existing state as at of occupancy 7th June, 2002 HK$ All two units of the 3,500,000 property are currently vacant; whilst an airconditioning plant was erected on the flat roof of Unit A.

Notes:

• (a) The registered owner of the property is Gold Concept Limited vide Memorial No. 918621 dated 8th April, 2000.

• (b) The property is subject to a Legal Charge to secure general banking facilities for a consideration of all moneys in favour of Oriental Ford Finance Limited vide Memorial No. 1004611 dated 28th March, 2002.

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APPENDIX IV EXTRACT OF THE LETTER FROM THE CHAIRMAN FROM THE PREVIOUS CIRCULAR

The following is the text of the “Letter from the Chairman” extracted from the Previous Circular.

G-PROP (HOLDINGS) LIMITED

(incorporated in Bermuda with limited liability)

Executive Directors: Mr. Chan Hung Lit, Simon (Chairman) Mr. Cheung Kwai Sun, Roger (Deputy Chairman) Mr. Lee Sze Kwong, William (Managing Director) Mr. Lo Siu Wah Mr. Li Wing Kin

Independent non-executive Directors:

Mr. Lai Hin Wing, Henry Mr. Wong Kai Tat Ms. Tsang Yim Fan, Josephine

Registered Office: Clarendon House Church Street Hamilton HM 11 Bermuda

Head office and principal place of business in Hong Kong: 13th Floor New World Tower Two 18 Queen’s Road Central Hong Kong

22nd February, 2002

• To the shareholders of the Company and, for information, holders of 7.5% convertible bonds due 2002 of the Company and holders of non-interest bearing convertible bonds due 2004 of the Company

Dear Sir or Madam,

PROPOSED ACQUISITIONS (MAJOR AND CONNECTED TRANSACTION) AND PLACING OF THE ADDITIONAL BONDS

INTRODUCTION

It was announced on 31st January, 2002 that the Company has on 28th January, 2002 entered into conditional sale and purchase agreements with each of the Vendors, pursuant to which, the Company agreed to acquire:

• the entire issued share capital of I-Space.Com together with the rights, interests and benefit of the amount due to Great Empire by I-Space.Com Group as at the Completion Date; and

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APPENDIX IV EXTRACT OF THE LETTER FROM THE CHAIRMAN FROM THE PREVIOUS CIRCULAR

• the entire issued share capital of Regal Leader together with the rights, interests and benefit of the amount due to Paul Y. by Regal Leader as at the Completion Date.

The Company has also entered into the Placing Agreement with the Placing Agent on 28th January, 2002 in relation to the placing of the Additional Bonds on a best endeavour basis.

The Proposed Acquisitions constitute a major transaction for the Company under the Listing Rules. Pursuant to Rule 14.23(1)(b) of the Listing Rules, the Proposed Acquisitions also constitute a connected transaction for the Company as Chinese Estates and its Associates may hold more than 30% of the then issued share capital of the Company upon conversion of the Convertible Bonds and, thus is a proposed controlling shareholder of the Company as a result of the Proposed Acquisitions. Accordingly, the Proposed Acquisitions are subject to, among other things, the approval of the independent shareholders of the Company at the Special General Meeting.

The purpose of this circular is to provide you with further information in relation to the Proposed Acquisitions and the Placing Agreement, to set out the recommendation of the Independent Director and advice from Somerley in relation to the Proposed Acquisitions and the Property Management Agreement, and to give you notice of the Special General Meeting.

PROPOSED ACQUISITIONS

S&P Agreement I

Date

28th January, 2002

Parties

Purchaser : Alpha New, a wholly-owned subsidiary of the Company

Vendor : Great Empire

Issuer : the Company

Both Great Empire and its ultimate controlling shareholder are independent of and not connected with the directors, chief executive and substantial shareholders of the Company, any of its subsidiaries, or their respective Associates.

Interests to be acquired

The entire issued share capital of I-Space.Com together with the rights, interests and benefit of the amount due to Great Empire by I-Space.Com Group as at the Completion Date.

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APPENDIX IV

The shares in I-Space.Com to be acquired by Alpha New shall be free from any mortgages, charges, liens, pledges, options and third party claims or other encumbrances (if any) at Completion and with all rights attached thereto as from Completion including all rights on dividends and other distributions declared paid or made in respect thereof after Completion. The rights, interests and benefit of the amount owing by I-Space.Com Group to Great Empire to be assigned to Alpha New shall be free from any charges, liens, pledges, options and third party claims or other incumbrances (if any) at Completion.

Consideration

HK$42 million plus the total current assets (excluding the Godown Property) after deducting the total liabilities (excluding all amount due to Great Empire by I-Space.Com Group) as per the unaudited combined accounts of I-Space.Com Group as at the Completion Date. Such consideration was determined after arm’s length negotiation between the Company and Great Empire with reference to the valuation of the Godown Property of HK$42 million as at 31st December, 2001 by the Valuer. Based on the deficit of approximately HK$0.31 million of the net asset value (calculated on the basis as described above) as at 25th January, 2002 as per the unaudited combined accounts of I-Space.Com Group, the consideration is expected to be approximately HK$41.7 million.

The consideration payable under the S&P Agreement I will be satisfied by the issue of Convertible Bonds with a principal amount equal to such consideration multiplied by a factor of 20/19, i.e. such amount of the Convertible Bonds will be issued at 95% of its principal amount. As the Convertible Bonds will be issued in the denomination of HK$500,000 each, any odd amounts of the balance of such consideration shall be paid in cash from internal resources. As such, Convertible Bonds of a principal amount of HK$43.5 million, being the expected consideration of approximately HK$41.7 million multiplied by 20/19 and in the whole multiples of HK$500,000, is expected to be issued as consideration payable under the S&P Agreement I upon Completion. In addition, the indebtedness in the Convertible Bonds to be issued under the S&P Agreement I is secured by, inter alia, the share mortgages of all the shares in issue in I-Space.Com and Boria respectively and the legal charge of the Godown Property in favour of Great Empire. Such indebtedness is also secured by the assignment of all rental income of the Godown Property which is enforceable when an event of default (as described in the instrument constituting the Convertible Bonds) has occurred. The security of such indebtedness shall be released upon (i) payment of; (ii) conversion of; and/or (iii) transfer to any party other than any of Chinese Estates, its subsidiaries and associated companies, in each case, up to 80% of the entire amount of the Convertible Bonds to be issued under the S&P Agreement I.

After Completion, Alpha New shall instruct the auditors to audit the unaudited combined accounts of I-Space.Com Group as at the Completion Date. In the event that the net asset value as shown in the audited combined accounts of I-Space.Com Group as at the Completion Date is different from those shown in the unaudited combined accounts of I-Space.Com Group as at the same date, the excess or shortfall, as the case may be, shall be paid or repaid, as the case may be, through further issue or return of the Convertible Bonds and in cash.

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APPENDIX IV

S&P AGREEMENT II

Date

28th January, 2002

Parties

Purchaser : Talent Pioneer, a wholly-owned subsidiary of the Company

Vendor : Paul Y.

Issuer : the Company

Both Paul Y. and its ultimate controlling shareholder are independent of and not connected with the directors, chief executive and substantial shareholders of the Company, any of its subsidiaries, or their respective Associates.

Interests to be acquired

The entire issued share capital of Regal Leader together with the rights, interests and benefit of the amount due to Paul Y. by Regal Leader as at the Completion Date.

The shares in Regal Leader to be acquired by Talent Pioneer shall be free from any mortgages, charges, liens, pledges, options and third party claims or other incumbrances (if any) at Completion and with all rights attached thereto as from Completion including all rights on dividends and other distributions declared paid or made in respect thereof after Completion. The rights, interests and benefit of the amount owing by Regal Leader to Paul Y. to be assigned to Talent Pioneer above shall be free from any charges, liens, pledges, options and third party claims or other incumbrances (if any) at Completion.

Consideration

HK$140 million plus the total current assets (excluding the Golden Hall Property I and the Golden Hall Property II) after deducting the total liabilities (excluding all amount due to Paul Y. by Regal Leader) and the bank loan secured by the Golden Hall Property I and the Golden Hall Property II as per the unaudited consolidated accounts of Regal Leader Group as at the Completion Date. Such consideration was determined after arm’s length negotiation between the Company and Paul Y. with reference to the valuation of Golden Hall Property I and the Golden Hall Property II of an aggregate of HK$140 million as at 31st December, 2001 by the Valuer. Based on the deficit of approximately HK$28 million of the net asset value (calculated on the basis as described above) as at 25th January, 2002 as per the unaudited consolidated accounts of Regal Leader Group, the consideration is expected to be approximately HK$111.5 million.

The consideration payable under the S&P Agreement II will be satisfied by the issue of the Convertible Bonds with a principal amount equal to such consideration multiplied by a factor of 20/19, i.e. such amount of the Convertible Bonds will be issued at 95% of its principal amount. As the Convertible

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APPENDIX IV

Bonds will be issued in the denomination of HK$500,000 each, any odd amounts of the balance of such consideration shall be paid in cash from internal resources. As such, Convertible Bonds of a principal amount of HK$117 million, being the expected consideration of approximately HK$111.5 million multiplied by 20/19 and in the whole multiples of HK$500,000, is expected to be issued as consideration payable under the S&P Agreement II upon Completion. In addition, the indebtedness in the Convertible Bonds to be issued under the S&P Agreement II is secured by, inter alia, the share mortgages of all the shares in issue in Regal Leader and its subsidiaries and the second legal charges of the Golden Hall Property I and the Golden Hall Property II or the debenture over the assets of Great King and Gold Concept, in favour of Paul Y.. Such indebtedness is also secured by the assignment of all rental income of the Golden Hall Property I and the Golden Hall Property II which is enforceable when an event of default (as described in the instrument constituting the Convertible Bonds) has occurred. The security of such indebtedness shall be released upon (i) payment of; (ii) conversion of; and/or (iii) transfer to any party other than any of Chinese Estates, its subsidiaries and associated companies, in each case, up to 80% of the entire amount of the Convertible Bonds to be issued under the S&P Agreement II.

After Completion, Talent Pioneer shall instruct the auditors to audit the unaudited consolidated accounts of Regal Leader Group as at the Completion Date. In the event that the net asset value as shown in the audited consolidated accounts of Regal Leader Group as at the Completion Date is different from those shown in the unaudited consolidated accounts of Regal Leader Group as at the same date, the excess or shortfall, as the case may be, shall be paid or repaid, as the case may be, through further issue or return of the Convertible Bonds and in cash.

Conditions

Completion of each of the S&P Agreements is conditional upon, inter alia, the followings:

• (a) the Bermuda Monetary Authority granting its consent to the issue of the Convertible Bonds and the Conversion Shares upon conversion of the Convertible Bonds in accordance with the requirements of the Companies Act;

• (b) the Listing Committee of the Stock Exchange granting approval of the listing of, and permission to deal in, all the Conversion Shares upon conversion of the Convertible Bonds either unconditionally or subject only to conditions to which the relevant Vendors accept and the satisfaction of such conditions (if any) except for the condition relating to the filing of Form F (as set out in the Listing Rules);

• (c) approval of (i) the S&P Agreements severally and the transactions contemplated therein; and (ii) the instrument constituting the Convertible Bonds, the issue of the Convertible Bonds and the allotment and issue of the Conversion Shares upon conversion of the Convertible Bonds, in each case by ordinary resolution passed at a special general meeting of the Company in accordance with the Companies Act, the bye-laws of the Company and the Listing Rules;

• (d) all other necessary consent (if any) having been granted by third parties for the entering into and performance of the S&P Agreements by Alpha New, Talent Pioneer and the Company (including without limitation the issue of the Convertible Bonds and the execution of the security documents under the S&P Agreements);

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APPENDIX IV EXTRACT OF THE LETTER FROM THE CHAIRMAN FROM THE PREVIOUS CIRCULAR

• (e) the Vendors showing that Boria, Great King and Gold Concept have good title to their respective Properties;

• (f) trading in the Shares on the Stock Exchange not being suspended for any single period of more than five Stock Exchange trading days prior to the Completion Date (excluding any suspension for the purpose of clearance by the Stock Exchange and/or the Securities and Futures Commission of any announcement or circular to the shareholders relating to the issue of the Convertible Bonds and the S&P Agreements); and

• (g) the Company delivering to the Vendors an opinion from such firm of Bermuda barristers and attorneys acceptable to the Vendors on Bermuda law confirming the due incorporation, valid existing and good standing of the Company and the legality, enforceability, validity and the due execution of the instrument constituting the Convertible Bonds, such opinion to be in such form as the Vendors may accept.

In the event that any of the conditions as set out in the respective S&P Agreements (which have not previously been waived by the relevant Vendors subject to the terms of the respective S&P Agreements) have not been fulfilled by 28th July, 2002, the respective S&P Agreements shall be void and be of no effect and neither party shall have any further obligations and liabilities thereunder.

The S&P Agreements are not inter-conditional upon each other.

PROPERTY MANAGEMENT AGREEMENT

Upon Completion, Boria, Great King and Gold Concept will enter into the Property Management Agreement with a wholly-owned subsidiary of Chinese Estates, pursuant to which such subsidiary of Chinese Estates will be appointed as manager and leasing agent of the Properties for a period of three years starting from the date of the Property Management Agreement and at a remuneration of HK$45,000 plus 5.5% of the aggregate monthly rental income of the Properties as monthly management fee. Such management fee was determined by the Group and Chinese Estates after arm’s length negotiation with reference to the estimated cost of human resources required to manage the Properties.

Duties of the manager and leasing agent of the Properties include collection of rental or licence fee, building management, financial management, the provision of periodic reports to the Group and identification of prospective tenants for the Properties.

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EXTRACT OF THE LETTER FROM THE CHAIRMAN FROM THE PREVIOUS CIRCULAR

APPENDIX IV

PLACING AGREEMENT

Date

28th January, 2002

Parties

Issuer : the Company

Placing agent : Sanfull Securities

Sanfull Securities has been appointed by the Company as the Placing Agent in relation to the placing of the Additional Bonds. The placing of the Additional Bonds is to be undertaken on a best endeavour basis and is not underwritten by the Placing Agent.

Principal amount of the Additional Bonds and issue price

Aggregate principal amount of up to HK$100,000,000 and to be issued at 95% of the principal amount.

Independence of the Placing Agent and the placees

The Placing Agent, the placees and their respective ultimate beneficial owners are, and will be, independent of and not connected with the directors, chief executives, substantial shareholders of the Company, any of its subsidiaries, or their respective Associates.

Pursuant to the Placing Agreement, there is no limitation on the number of placees to be procured by the Placing Agent. In the event that the number of placees is less than six upon completion of the Placing Agreement, further announcement will be made in this regard. The Directors do not expect at this stage that the placing of the Additional Bonds will result in an introduction of any substantial Shareholder upon the exercise of the conversion rights attached to the Additional Bonds. Further announcement will be made by the Company if there is an introduction of any substantial Shareholder as a result of the placing of the Additional Bonds upon the exercise of the conversion rights attached to the Additional Bonds.

Conditions

The obligations of the Placing Agent under the Placing Agreement are conditional upon the following conditions being fulfilled (or as to condition (c) below being waived in writing by the Placing Agent) at or before 5:00 p.m. (Hong Kong time) on 31st July, 2002 (or such later time and date as the Placing Agent and the Company may agree in writing):

• (a) the Bermuda Monetary Authority granting its consent to the issue of the Additional Bonds and the Conversion Shares upon conversion of the Additional Bonds in accordance with the requirements of the Companies Act;

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APPENDIX IV

• (b) the Listing Committee of the Stock Exchange granting approval for the listing of, and permission to deal in, all the Conversion Shares upon the conversion of the Additional Bonds either unconditionally or subject only to conditions to which the Placing Agent accepts and the satisfaction of such conditions (if any) by no later than 5:00 p.m. on 31st March, 2002 (or such other time and date as the Placing Agent may determine) except for the condition relating to the filing of Form F (as set out in the Listing Rules);

• (c) no event having occurred or occurring before the date of completion of the Placing Agreement which would constitute an event of default or a potential event of default (as described in the instrument constituting the Additional Bonds) had the Additional Bonds been issued;

• (d) the Company delivering to the Placing Agent an opinion from a firm of Bermuda lawyer confirming the legality, enforceability, validity and the due execution of the instrument of the Additional Bonds and that the manner of the placing of the Additional Bonds complies with requirements of applicable Bermuda law and such other matters as the Placing Agent may reasonably require; and

• (e) shareholders’ approval of the issue of the Additional Bonds and the allotment and issue of the Conversion Shares upon the conversion of the Additional Bonds, in each case by ordinary resolution passed at a special general meeting of the Company to be convened by no later than 10:00 a.m. on 31st March, 2002 (or such later time and date as the Placing Agent may agree in writing with the Company).

In the event that any of the conditions as set out in the Placing Agreement (or as to condition (c) above being waived in writing by the Placing Agent) have not been fulfilled by 31st July, 2002 (or such later time and date as the Placing Agent may agree in writing with the Company), the Placing Agreement shall be void and be of no effect and neither party shall have any further obligations and liabilities thereunder.

The Placing Agreement and the S&P Agreements are not inter-conditional upon each other.

Use of proceeds

Assuming full subscription of the Additional Bonds, a total of HK$95 million will be raised by the Company. The net proceeds after deducting the expenses incurred and the estimated commission in relation to the placing of the Additional Bonds is about HK$94 million, of which about HK$30 million will be used to expand the energy saving machine business of the Group, about HK$20 million will be invested in CashThrough International Limited (an associated company of the Company which is engaged in the provision of a unique online internet payment clearing system) and the balance of about HK$44 million will be used as general working capital of the Group.

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APPENDIX IV EXTRACT OF THE LETTER FROM THE CHAIRMAN FROM THE PREVIOUS CIRCULAR

PRINCIPAL TERMS OF THE CONVERTIBLE BONDS AND THE ADDITIONAL BONDS

The principal terms of the Convertible Bonds and the Additional Bonds are summarised below:

(a) Issuer

The Company

(b) Principal amount

Convertible Bonds:

up to an aggregate of HK$200,000,000 (As referred to above, it is expected that Convertible Bonds of a principal amount of HK$160,500,000 will be issued).

Additional Bonds: up to an aggregate of HK$100,000,000.

(c) Issue price

95% of the principal amounts of the Convertible Bonds and the Additional Bonds.

(d) Maturity

3 years after the first issue of the Convertible Bonds or the Additional Bonds (whichever is earlier).

(e) Redemption

The Convertible Bonds and the Additional Bonds may be redeemable after three months from the first issue of the Convertible Bonds or the Additional Bonds.

The Company will redeem the Convertible Bonds or the Additional Bonds at their respective outstanding amount on the date immediately following three years after the first issue of the Convertible Bonds or the Additional Bonds (whichever is earlier) (or, if that is not a business day, the first business day thereafter).

(f) Interest

Non-interest bearing.

(g) Conversion right

The whole but not part of the outstanding principal amount may be converted into Shares in amounts not less than a whole multiple of HK$500,000 at any time from the day immediately following the date of the issue of the Convertible Bonds or the Additional Bonds (whichever is earlier) up to 4:00 p.m. on the date immediately following three years after the first issue of the Convertible Bonds or the Additional Bonds (whichever is earlier).

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APPENDIX IV

Assuming that the principal amount of HK$200 million of the Convertible Bonds is fully converted at the initial conversion price, a total of approximately 1,333,333,333 Conversion Shares will be issued, which represents approximately 363% of the existing issued share capital of the Company and approximately 78% of the issued share capital of the Company as enlarged by the issue of such Conversion Shares.

Assuming full subscription of the Additional Bonds and that the principal amount of HK$100 million of the Additional Bonds is fully converted at the initial conversion price, a total of approximately 666,666,666 Conversion Shares will be issued, which represents approximately 182% of the existing issued share capital of the Company and approximately 64% of the issued share capital of the Company as enlarged by the issue of such Conversion Shares.

Assuming that the aggregate principal amount of HK$300 million of the Convertible Bonds and the Additional Bonds is converted at the initial conversion price, a total of approximately 2,000,000,000 Conversion Shares will be issued, which represents approximately 545% of the existing issued share capital of the Company and approximately 84% of the issued share capital of the Company as enlarged by the issue of the Conversion Shares.

(h) Ranking of the shares to be issued upon conversion

The Conversion Shares will rank pari passu in all respects with all other Shares in issue on the conversion date (as defined in the instruments constituting the Convertible Bonds and the Additional Bonds respectively) and will entitle the holders of such Conversion Shares to all dividends, bonuses and other distributions the record date of which falls on a date on or after the date of deposit of the conversion notice.

(i) Conversion price

The initial conversion price of HK$0.15 per Share, subject to adjustments in accordance with the terms of the Convertible Bonds or the Additional Bonds respectively, was determined after arm’s length negotiations.

The initial conversion price of HK$0.15 per Share representing, (i) a premium of approximately 15% over the closing price of the Shares of HK$0.130 per Share on the Stock Exchange on 28th January, 2002, being the date of the S&P Agreements and the Placing Agreement; (ii) a premium of approximately 10% over the average closing price of HK$0.136 per Share on the Stock Exchange in the 10 consecutive trading days ending on 28th January, 2002 and (iii) a premium of approximately 52% over the closing price of HK$0.099 per Share on the Stock Exchange on the Latest Practicable Date.

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APPENDIX IV

(j) Voting

Holders of the Convertible Bonds or the Additional Bonds are not to be entitled to attend or vote at any general meeting of the Company.

(k) Transferability

The Convertible Bonds and the Additional Bonds may be transferable from the date of first issue, in the whole multiples of HK$500,000 and may be transferred to any person.

The Company has undertaken to the Stock Exchange that it will disclose to the Stock Exchange any dealings by a connected person (as defined in the Listing Rules) of the Company in the Convertible Bonds and the Additional Bonds from time to time immediately upon the Company becoming aware of it.

(l) Listing

No application will be made for the listing of the Convertible Bonds or the Additional Bonds on the Stock Exchange or any other stock exchange. An application will be made to the Stock Exchange for the listing of the Conversion Shares.

(m) Pari passu of the Convertible Bonds and the Additional Bonds

With the exception of the date of issue and the size, the Convertible Bonds and the Additional Bonds will rank pari passu with each other. The Company shall ensure that the terms of the Additional Bonds shall remain the same as the Convertible Bonds except the date of issue and the size.

REASONS FOR THE PROPOSED ACQUISITIONS

It was stated in the 2001 interim report of the Company that the energy saving machine business has been improving and the Company is continuing to explore joint venture opportunities for the expansion of this business. Nevertheless, as at 30th September, 2001, the unaudited consolidated net asset of the Company was HK$31 million, of which about HK$194 million was goodwill and intangible asset. For the two years ended 31st March, 2001 and the six months ended 30th September, 2001, the Company recorded audited consolidated losses and an unaudited consolidated loss of approximately HK$230.5 million, HK$458.4 million and HK$38.6 million respectively.

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APPENDIX IV

The Group has been engaged in property development and investment for a number of years and the Group is currently holding certain properties in Hong Kong and the PRC for investment purposes. Although it was stated in the 2001 annual report of the Company that the Company continues to streamline its property portfolio as it concentrates on the electricity saving machine business and the Company has disposed all existing properties held for resale during the six months ended 30th September, 2001, after reviewing the current property market condition, the Directors believe that the prevailing property price represents a substantial discount to the price in 1997 and further downward adjustment in property price is generally not anticipated. As such, the Directors consider that it is an appropriate time to acquire properties for long term investment purpose. The Directors further believe that, taking into account of the substantial amount of intangible assets of the Group, the tangible asset base of the Group would be enhanced by the Proposed Acquisitions.

The Directors consider that the terms of the S&P Agreements are fair and reasonable, and are in the interests of the Group. The Directors also consider that the issue of the Convertible Bonds at a premium to the consideration payable under the S&P Agreements but non-interest bearing is beneficial to the Group since the Proposed Acquisitions are, other than the odd amount, financed entirely by the issue of the Convertible Bonds. The provision of the security for the consideration payable under the S&P Agreements is a commercial decision reached by the Directors after considering the fact that no upfront cash payment is required and providing security to one’s creditor is a common practice.

REASONS FOR THE PLACING OF THE ADDITIONAL BONDS

The Directors believe that it is a good opportunity to raise additional capital for the Company by way of placing of Additional Bonds. The Directors consider that the placing of Additional Bonds will not have an immediate dilution effect on the shareholding of the existing Shareholders. In the event the conversion rights attached to the Additional Bonds are exercised, the Company will be able to enhance its capital base and enlarge its shareholders’ base. The Directors consider that the terms of the Placing Agreement, which were arrived at after arm’s length negotiations between the Company and the Placing Agent, are fair and reasonable, and are in the interests of the Group.

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APPENDIX IV

SHAREHOLDING STRUCTURE OF THE COMPANY

Set out below is the shareholding structure of the Company as at the Latest Practicable Date and the shareholding structure of the Company assuming full conversion of (i) the Convertible Bonds, (ii) the Convertible Bonds and the Additional Bonds (assuming full subscription), and (iii) the Convertible Bonds, the Additional Bonds (assuming full subscription) and the existing convertible bonds of the Company and full exercise of the Options:

Directors (1) Holders of the existing convertible bonds of the Company (2) Vendors (3) Public shareholders(4)	Existing Shares % – – – – – – 367,140,992 100.0 367,140,992 100.0	Assuming full conversion of the Convertible Bonds Shares % – – – – 1,070,000,000 74.5 367,140,992 25.5 1,437,140,992 100.0	Assuming full conversion of the Convertible Bonds and the Additional Bonds (assuming full subscription) Shares % – – – – 1,070,000,000 50.9 1,033,807,658 49.1 2,103,807,658 100.0	Assuming full conversion of the Convertible Bonds, the Additional Bonds (assuming full subscription) and the existing convertible bonds of the Company and full exercise of the Options Shares % 3,501,085 0.1 1,131,876,943 34.9 1,070,000,000 33.0 1,036,002,928 32.0 3,241,380,956 100.0	Assuming full conversion of the Convertible Bonds, the Additional Bonds (assuming full subscription) and the existing convertible bonds of the Company and full exercise of the Options Shares % 3,501,085 0.1 1,131,876,943 34.9 1,070,000,000 33.0 1,036,002,928 32.0 3,241,380,956 100.0
			2,103,807,658		100.0

Notes:

1. As at the Latest Practicable Date, there were a total of 5,696,355 Options outstanding, of which 3,501,085 Options were granted to the Directors.

2. As at the Latest Practicable Date, particulars of the existing convertible bonds of the Company are set out below:

Type of existing convertible bonds Due date 7.5% convertible bonds 23rd August, 2002 0% convertible bonds 18th October, 2004 0% convertible bonds 18th October, 2004	Outstanding Conversion amount price HK$ HK$ 8,400,000 8.679 247,000,000 0.275 64,000,000 0.275 319,400,000	Shares to be issued upon conversion Shares 967,853 898,181,818 232,727,272
		1,131,876,943

As at the Latest Practicable Date, there are 12 holders of the existing convertible bonds of the Company, who are independent of and not connected with the directors, chief executive and substantial shareholders of the Company, any of its subsidiaries, or their respective Associates.

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APPENDIX IV

1. On the basis of the expected consideration payable under the S&P Agreements as stated above, it is anticipated that the Convertible Bonds with an aggregate principal amount of HK$160.5 million will be issued to the Vendors and an aggregate of 1,070,000,000 Conversion Shares would be issued upon conversion of such Convertible Bonds in full at the initial conversion price.

Assuming that the entire Convertible Bonds, being an aggregate principal amount of HK$200 million were to be issued to the Vendors in settlement of the consideration payable under the S&P Agreements, a total of 1,333,333,333 Conversion Shares would be issued to the Vendors who would be interested in approximately 78.4%, 56.3% and 38.0% of the issued share capital of the Company as enlarged by the full conversion of (i) the Convertible Bonds, (ii) the Convertible Bonds and the Additional Bonds (assuming full subscription), and (iii) the Convertible Bonds, the Additional Bonds (assuming full subscription) and the existing convertible bonds of the Company and full exercise of the Options respectively.

1. Pursuant to the announcement of the Company dated 11th February, 2002, 73,400,000 new Shares are to be issued to independent investors, completion of which is expected to be no later than 6th March, 2002. The shareholding structure of the Company upon completion of the issue of 73,400,000 new Shares, and assuming full conversion of (i) the Convertible Bonds, (ii) the Convertible Bonds and the Additional Bonds (assuming full subscription), and (iii) the Convertible Bonds, the Additional Bonds (assuming full subscription) and the existing convertible bonds of the Company and the full exercise of the Options is set out below:

Directors Holders of the existing convertible bonds of the Company Vendors Public shareholders	Upon completion of the issue of 73,400,000 new Shares Shares % – – – – – – 440,540,992 100.0 440,540,992 100.0	Assuming full conversion of the Convertible Bonds Shares % – – – – 1,070,000,000 70.8 440,540,992 29.2 1,510,540,992 100.0	Assuming full conversion of the Convertible Bonds and the Additional Bonds (assuming full subscription) Shares % – – – – 1,070,000,000 49.1 1,107,207,658 50.9 2,177,207,658 100.0	Assuming full conversion of the Convertible Bonds, the Additional Bonds (assuming full subscription) and the existing convertible bonds of the Company and full exercise of the Options Shares % 3,501,085 0.1 1,131,876,943 34.1 1,070,000,000 32.3 1,109,402,928 33.5 3,314,780,956 100.0	Assuming full conversion of the Convertible Bonds, the Additional Bonds (assuming full subscription) and the existing convertible bonds of the Company and full exercise of the Options Shares % 3,501,085 0.1 1,131,876,943 34.1 1,070,000,000 32.3 1,109,402,928 33.5 3,314,780,956 100.0
			2,177,207,658		100.0

Save as disclosed above, the Company has no other outstanding options, warrants or convertible securities as at the Latest Practicable Date.

As at the Latest Practicable Date, there is no shareholder of the Company holding more than 10% of the issued share capital of the Company. After Completion, assuming full conversion of the Convertible Bonds at the initial conversion price, the Vendors will be interested in an aggregate of 1,070,000,000 Shares, representing approximately 70.8%, 49.1% and 32.3% of the share capital of the Company as enlarged by the issue of 73,400,000 new Shares and Shares upon full conversion of (i) the Convertible Bonds, (ii) the Convertible Bonds and the Additional Bonds (assuming full subscription), and (iii) the Convertible Bonds, the Additional Bonds (assuming full subscription) and the existing convertible bonds of the Company, and full exercise of the Options respectively. Should such event arise, the Vendors will comply with the relevant requirements of The Hong Kong Code on Takeovers and Mergers.

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APPENDIX IV

INFORMATION ON I-SPACE.COM AND REGAL LEADER

I-Space.Com

I-Space.Com is an investment holding company incorporated in the British Virgin Islands with limited liability on 26th January, 2000 and is wholly-owned by Great Empire. I-Space.Com through its direct wholly-owned subsidiary, Boria, holds the entire interest in the Godown Property.

The Godown Property comprises various industrial floors and one car parking space on the ground floor of a 24-storey industrial building completed in or about 1979 and is located at numbers 63-71 Lei Muk Road, Kwai Chung, New Territories, Hong Kong. The Godown Property has a total gross floor area of approximately 13,065.22 sq.m. (approximately 140,634 sq.ft.). In December 2001, the Godown Property was yielding a total monthly rental income of approximately HK$166,000 (exclusive of rates and service charges) with an occupancy rate of about 42.5% and a total monthly licence fee income of HK$3,000 (inclusive of rates and service charge) from the car parking space. Based on the valuation of the Godown Property at HK$42 million as at 31st December, 2001 by the Valuer and annualising the rental income of December 2001, the Godown Property is currently yielding a return of approximately 4.8%.

Boria, the company holding the Godown Property was acquired by Great Empire as its ordinary course of business in April 1999 at a consideration of approximately HK$64 million.

The following table sets out a summary of the audited combined income statement of I- Space.Com Group for the period from 1st September, 1998 to 31st December, 1999 and the two years ended 31st December, 2001:

	For the period from	For the year ended	For the year ended
	1st September, 1998 to	31st December,
	31st December, 1999	2000	2001
	HK$’000	HK$’000	HK$’000
Turnover	2,999	2,208	2,319
(Loss)/profit before tax	(430)	(3,471)	1,171
(Loss)/profit attributable to shareholders	(429)	(3,471)	1,171

As at 31st December, 2001, the audited combined net liabilities of I-Space.Com Group was approximately HK$1,221,000. As at 31st December, 2001, the total borrowings of I-Space.Com Group amounted to approximately HK$42.7 million which was due to Great Empire. The amount due to Great Empire by I-Space.Com Group as at the Completion Date will be assigned to Alpha New pursuant to the S&P Agreement I. None of the companies of I-Space.Com Group had any outstanding charges or material contingent liabilities as at 31st December, 2001. The gearing ratio, being the total liabilities over the total assets, of I-Space.Com Group was 103% as at 31st December, 2001.

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APPENDIX IV

Regal Leader

Regal Leader is an investment holding company incorporated in the British Virgin Islands with limited liability on 8th February, 2001 and is wholly-owned by Paul Y.. Regal Leader through its indirect wholly-owned subsidiaries, Great King and Gold Concept, holds the entire interest in the Golden Hall Property I and Golden Hall Property II respectively.

The Golden Hall Property I comprises a number of shop units with various sizes of a 13-storey composite building completed in 1978 and is located at Golden Hall Building, numbers 49-63 Castle Peak Road, Yuen Long, New Territories, Hong Kong, which has been renovated into a shopping arcade known as “Yuen Long New Place”. The Golden Hall Property I has a total saleable area of approximately 826.058 sq.m (approximately 8,892 sq.ft.). In December 2001, the Golden Hall Property I was yielding a total monthly rental income of approximately HK$434,000 (exclusive of rates and service charges) with an occupancy rate of about 67.5%. Based on the valuation of the Golden Hall Property I at HK$136.5 million as at 31st December, 2001 by the Valuer and annualising the rental income of December 2001, the Golden Hall Property I is currently yielding a return of approximately 3.8%.

The Golden Hall Property II comprises two residential units in the same building. The Golden Hall Property II has a total saleable area of approximately 182.58 sq.m (approximately 1,965 sq.ft.). The Golden Hall Property II is currently vacant.

The Golden Hall Property I and the Golden Hall Property II were acquired by Regal Leader in October 2001 at an aggregate consideration of approximately HK$109 million which was determined with reference to the net current asset value of the holding companies acquired and the then valuation of the Golden Hall Property I and the Golden Hall Property II at an aggregate of HK$140 million by an independent certified valuer.

The following table sets out a summary of the audited consolidated income statement of Regal Leader Group for the period from 8th February, 2001 to 31st December, 2001:

	For the period from
	8th February, 2001 to
	31st December,
	2001
	HK$’000
Turnover	936
Loss before tax	45
Loss attributable to shareholders	45

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APPENDIX IV

As at 31st December, 2001, the audited consolidated net liabilities of Regal Leader Group was approximately HK$45,000. As at 31st December, 2001, the bank borrowings of Regal Leader Group amounted to approximately HK$26 million which was secured by the Golden Hall Property I and Golden Hall Property II. As at the same date, the other borrowings of Regal Leader Group amounted to HK$111.4 million which was due to Paul Y. and one of its Associates. The amount due to Paul Y. by Regal Leader as at the Completion Date will be assigned to Talent Pioneer pursuant to the S&P Agreement II. Save as aforesaid, none of the companies of Regal Leader Group had any outstanding charges or material contingent liabilities as at 31st December, 2001. The gearing ratio, being the total liabilities over the total assets, of Regal Leader Group was approximately 100% as at 31st December, 2001.

APPROVAL BY THE INDEPENDENT SHAREHOLDERS OF THE COMPANY

The Proposed Acquisitions constitute a major transaction for the Company under the Listing Rules. Pursuant to Rule 14.23(1)(b) of the Listing Rules, the Proposed Acquisitions also constitute a connected transaction for the Company as Chinese Estates and its Associates may hold more than 30% of the then issued share capital of the Company upon conversion of the Convertible Bonds and, thus is a proposed controlling shareholder of the Company as a result of the Proposed Acquisitions. As the Property Management Agreement also forms part and parcel of such transaction, the entering into of the Property Management Agreement also constitutes a connected transaction. Accordingly, the Proposed Acquisitions and the Property Management Agreement are subject to, among other things, the approval of the independent shareholders of the Company.

As Mr. Lai Hin Wing, Henry is currently a partner of P.C. Woo & Co., a law firm in Hong Kong, which acts as the legal adviser to the Company in respect of the Proposed Acquisitions, he is not considered to be sufficiently independent for the purpose of advising the independent shareholders of the Company. Mr. Wong Kai Tat is unreachable by all reasonable communication devices on and before the Latest Practicable Date and the Directors are not aware of his itinerary and the date of his return to Hong Kong. The Directors believe it is unnecessary to delay the Proposed Acquisitions to obtain his recommendation to the independent shareholders of the Company. The Independent Director, Ms. Tsang Yim Fan, Josephine, will advise the independent shareholders of the Company in this connection. Somerley has been appointed as the independent financial adviser to advise the Independent Director on her advice to the independent shareholders of the Company concerning the Proposed Acquisitions.

SPECIAL GENERAL MEETING

There is set out on pages 125 to 128 a notice convening the Special General Meeting to be held at 10:00 a.m. on Monday, 11th March, 2002 at Garden Rooms, 2nd Floor, Hotel Nikko Hong Kong, 72 Mody Road, Tsimshatsui East, Kowloon, Hong Kong, at which resolutions will be proposed to approve, among other things:

• the S&P Agreements and the issue of the Convertible Bonds;

• the Placing Agreement and the issue of the Additional Bonds; and

• the Property Management Agreement.

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APPENDIX IV

None of Chinese Estates or any of its Associates holds any Shares or has any interests in the existing convertible bonds of the Company as at the Latest Practicable Date.

A form of proxy for use at the Special General Meeting is enclosed. Shareholders are requested to complete the enclosed form of proxy and return the same to the branch registrar and transfer office of the Company, Secretaries Limited, at 5th Floor, Wing On Centre, 111 Connaught Road Central, Hong Kong in accordance with the instructions printed thereon not less than 48 hours before the time of the special general meeting (or any adjournment thereof) whether or not they intend to be present at the meeting. Completion and return of the form of proxy will not preclude Shareholders from attending and voting in person at the special general meeting or any adjourned meeting should they so wish.

ADVICE

Your attention is drawn to the advice of the Independent Director set out in the letter dated 22nd February, 2002 on page 23 of this circular.

Your attention is also drawn to the letter set out in appendix I to this circular from Somerley which contains its advice to the Independent Director in respect of the Proposed Acquisitions.

ADDITIONAL INFORMATION

Each of the Vendors is a wholly-owned subsidiary of Chinese Estates, the shares of which are listed on the Stock Exchange. Both Chinese Estates and its ultimate controlling shareholder are independent of and not connected with the directors, chief executive and substantial shareholders of the Company, any of its subsidiaries, or their respective Associates.

The text of the letter from Somerley and property valuation report from the Valuer in respect of the Properties to which the Proposed Acquisitions relate are set out in appendices I and IV to this circular respectively. Your attention is also drawn to the information set out in the other appendices to this circular.

Yours faithfully, Chan Hung Lit, Simon Chairman

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APPENDIX V EXTRACT OF THE ACCOUNTANTS’ REPORT ON I-SPACE.COM FROM THE PREVIOUS CIRCULAR

The following is the accountants’ report of I-Space.Com for the three years ended 31st December, 2001, the text of which was included in the Previous Circular and the corrigendum dated 1st March, 2002.

==> picture [193 x 67] intentionally omitted <==

==> picture [78 x 53] intentionally omitted <==

22 February 2002

The Directors G-Prop (Holdings) Limited 13th Floor New World Tower Two 18 Queen’s Road Central Hong Kong

Dear Sirs,

We set out below our report on the combined financial information regarding I-Space.Com Limited (the “Company”) and its subsidiary, Boria Enterprises Limited (“Boria”) (hereinafter collectively referred to as the “Group”) for the period from 1 September 1998 to 31 December 1999[*] and each of the two years ended 31 December 2000 and 2001 (the “Relevant Periods”) for inclusion in the circular of G-Prop (Holdings) Limited (“G-Prop”) dated 22 February 2002 (the “Circular”).

Pursuant to a conditional agreement entered into on 28 January 2002, as described more fully in the section headed “Letter From The Chairman” included in the Circular, G-Prop has conditionally agreed to acquire from Great Empire International Ltd, a wholly owned subsidiary of Chinese Estates Holdings Limited, the entire equity interest in the Company.

The Company is the holding company of a company engaged in the business of property investment. The Company is an International Business Company and was incorporated in the British Virgin Islands under The International Business Companies Act on 26 January 2000. Through a group reorganisation which principally involved the acquisition by the Company of the entire interest in Boria by the issue of fully paid shares by the Company as consideration (the “Group Reorganisation”), the Company has since 8 January 2002 became the holding company of the Group. Boria was incorporated in Hong Kong with limited liability on 13 January, 1997 and has issued and fully paid share capital of HK$20.

We have acted as auditors of both of the companies comprising the Group for the Relevant Periods referred to in this report.

* The Company’s subsidiary changed its accounting date from 31 August to 31 December to conform with the accounting date of its ultimate holding company.

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APPENDIX V

We have examined the audited financial statements (“Underlying Financial Statements”) of the companies now comprising the Group for the Relevant Periods or since their respective dates of incorporation, where this is a shorter period. Our examination was made in accordance with the Auditing Guideline “Prospectuses and the Reporting Accountant” as recommended by the Hong Kong Society of Accountants.

The financial information of the Group for the Relevant Periods set out in this report have been prepared from the audited financial statements of the companies comprising the Group, on the basis set out in Section 1 below. The Underlying Financial Statements are the responsibility of the Directors of those companies who approve their issue. 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, on the basis of presentation set out in Section 1 below, the combined financial information together with the notes thereon give, for the purpose of this report, a true and fair view of the state of affairs of the Group as at 31 December 1999, 2000 and 2001 and of the combined results and cash flows of the Group for the Relevant Periods.

1. BASIS OF PRESENTATION OF COMBINED FINANCIAL INFORMATION

The combined income statements, combined cash flow statements and combined statements of recognised gains and losses for the Relevant Periods referred to in this report have been prepared as if the current group structure had been in existence throughout the Relevant Periods. The combined balance sheets of the Group as at 31 December 1999, 2000 and 2001 have been prepared to present the assets and liabilities of the companies comprising the Group as at the respective dates, as if the current group structure had been in existence as at those dates.

All significant intra-group transactions and balances have been eliminated on combination.

The combined financial information has been prepared on a going concern basis on the basis that G-Prop will agree to provide adequate funds to enable the Group to meet in full its financial obligations as they fall due for the foreseeable future.

2. PRINCIPAL ACCOUNTING POLICIES

The combined financial information set out in this report has been prepared under the historical cost convention as modified for the revaluation of investment property and in accordance with the principal accounting policies set out below which conform with accounting principles generally accepted in Hong Kong.

Revenue recognition

Rental income, including rental invoiced in advance from properties under operating leases, is recognised in the income statement on a straight-line basis over the terms of the relevant lease.

Interest income is accrued on a time basis, by reference to the principal outstanding and at the interest rate applicable.

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APPENDIX V

Investment properties

Investment properties are completed properties which are held for their investment potential, any rental income being negotiated at arm’s length.

Investment properties are stated at their open market value basis on independent professional valuations at the balance sheet date. Any surplus or deficit arising on the revaluation of investment properties is credited or charged to the investment property revaluation reserve unless the balance on this reserve is insufficient to cover a deficit, in which case the excess of the deficit over the balance on the investment property revaluation reserve is charged to the income statement. Where a deficit has previously been charged to the income statement and a revaluation surplus subsequently arises, this surplus is credited to the income statement to the extent of the deficit previously charged.

On disposal of an investment property, the balance on the investment property revaluation reserve attributable to that property is transferred to the income statement.

No depreciation is provided on investment properties except where the unexpired term of the relevant lease is 20 years or less.

Impairment

At each balance sheet date, the Group reviews the carrying amounts of its tangible 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. Impairment losses are recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as revaluation decrease.

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, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

Taxation

The charge for taxation is based on the results for the Relevant Periods as adjusted for items which are non-assessable or disallowed. Timing differences arise from the recognition for tax purposes of certain items of income and expense in a different accounting period from that in which they are recognised in the financial statements. The tax effect of timing differences, computed using the liability method, is recognised as deferred taxation in the financial statements to the extent that it is probable that a liability or asset will crystallise in the foreseeable future.

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APPENDIX V

Cash equivalents

Cash equivalents represent short-term highly liquid investments which are readily convertible into known amounts of cash and which were within three months of maturity when acquired; less advances from banks repayable within three months from the dates of advances.

3. COMBINED INCOME STATEMENTS

The following is a summary of the combined income statements of the Group for the Relevant Periods prepared on the basis set out in Section 1 above:

		1.9.1998	1.1.2000	1.1.2001
		to	to	to
		31.12.1999	31.12.2000	31.12.2001
	Notes	HK$’000	HK$’000	HK$’000
Rental income		2,999	2,208	2,319
Property expenses		(1,073)	(667)	(483)
Net rental income		1,926	1,541	1,836
Other revenue		39	3	348
Administrative expenses		(14)	(11)	(13)
Deficit on revaluation of investment
properties		–	(1,456)	(1,000)
Profit from operations	(a)	1,951	77	1,171
Interest on advance from intermediate
holding company		(2,381)	(3,548)	–
(Loss) profit before tax		(430)	(3,471)	1,171
Taxation	(c)	1	–	–
(Loss) profit for the period/year		(429)	(3,471)	1,171
Accumulated profit (loss) brought
forward		1,508	1,079	(2,392)
Accumulated profit (loss) carried
forward		1,079	(2,392)	(1,221)
Dividend	(d)	–	–	–

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APPENDIX V

Notes:

(a) Profit from operations

Profit from operations
	1.9.1998	1.1.2000	1.1.2001
	to	to	to
	31.12.1999	31.12.2000	31.12.2001
	HK$’000	HK$’000	HK$’000
Profit from operations has been
arrived at after charging:
Directors’ remuneration	–	–	–
Auditors’ remuneration	6	6	6
and after crediting:
Bank interest income	37	–	–
Other interest income	–	–	2

(b) Directors’ remuneration and five highest paid employees

Analysis of Directors’ remuneration and five highest paid employees has not been presented as no such costs were charged to the Group for the Relevant Periods.

(c) Taxation

No provision for Hong Kong Profits Tax has been made in the financial statements as the Group had no assessable profit for the period from 1 September 1998 to 31 December 1999 and for the year ended 31 December 2000. No tax is payable on the profit for the year ended 31 December 2001 arising in Hong Kong since the assessable profit is wholly absorbed by tax losses brought forward. The credit of approximately HK$1,000 for the period from 1 September 1998 to 31 December 1999 represented the over-provision of taxation in prior years.

Deferred taxation has not been provided on the valuation surplus arising on the revaluation of investment properties as profits arising on the disposal of these assets would not be subject to taxation. Accordingly, the revaluation surplus does not constitute a timing difference for tax purposes.

No provision for deferred taxation has been recognised in the financial statements as there are no significant timing differences.

(d) Dividend

No dividend has been paid by the Group during the Relevant Periods.

(e) Related party transactions

Related party transactions
	1.9.1998	1.1.2000	1.1.2001
	to	to	to
	31.12.1999	31.12.2000	31.12.2001
	HK$’000	HK$’000	HK$’000
Interest paid to intermediate holding company	2,381	3,548	–
Secretarial fee paid to a fellow subsidiary	4	4	4

The transactions with the above related parties were carried out on terms mutually agreed by both parties. The Directors confirm that the Group will discontinue the above transactions upon completion of the conditional agreement entered into on 28 January 2002 with G-Prop.

Details of the balances with related parties as at the balance sheet date are set out in notes 4c, 4d and 4e below.

(f) (Loss) earnings per share

(Loss) earnings per share had not been presented as such information is not required for disclosure for private companies.

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APPENDIX V

4. COMBINED BALANCE SHEETS

The following is a summary of the combined net assets (liabilities) of the Group as at 31 December 1999, 2000 and 2001 prepared on the basis set out in Section 1 above:

Notes Non-current asset Investment property (a) Current assets Trade receivables and prepayments (b) Tax recoverable Advance to a fellow subsidiary (c) Advance to intermediate holding company (c) Bank balances and cash Current liabilities Other payables, deposits received and accruals Advance from immediate holding company (d) Advance from intermediate holding company (e) Net current liabilities NET ASSETS (LIABILITIES) CAPITAL AND RESERVES Share capital (f) Investment property revaluation reserve (g) Accumulated profit (losses)	1999 HK$’000 46,000 211 53 – 40 48 352 729 – 43,000 43,729 (43,377) 2,623 – 1,544 1,079 2,623	2000 HK$’000 43,000 – 53 2,074 – 11 2,138 982 – 46,548 47,530 (45,392) (2,392) – – (2,392) (2,392)	2001 HK$’000 42,000 73 – – – 109 182 678 42,725 – 43,403 (43,221) (1,221) – – (1,221) (1,221)

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APPENDIX V

Notes:

(a) Investment property

VALUATION At beginning of the period/year Additions Surplus (deficit) on revaluation At end of the period/year	1999 HK$’000 44,111 345 1,544 46,000	2000 HK$’000 46,000 – (3,000) 43,000	2001 HK$’000 43,000 – (1,000
			42,000

The investment property of the Group was revalued at 31 December 1999, 2000 and 2001 on an open market value basis by Brooke International Limited, B.I. Appraisals Limited and Norton Appraisals Limited, independent professional valuer, respectively.

The investment property of the Group is situated in Hong Kong and held under medium-term lease.

The investment property of the Group is rented out under operating lease.

(b) Trade receivables and prepayments

Included in trade receivables and prepayments at 31 December 1999, 2000 and 2001 are trade receivables of approximately HK$189,000, Nil and HK$73,000 respectively, comprising rental receivables which are billed in advance at beginning of the month and settlements are expected upon receipts of billing.

The aged analysis of trade receivables is as follows:

0 – 30 days 31 – 60 days Over 90 days	1999 HK$’000 96 93 – 189	2000 HK$’000 – – – –	2001 HK$’000 66 1 6
			73

(c) Advances to a fellow subsidiary and intermediate holding company

The advances are unsecured, non-interest bearing and have no fixed repayment term.

(d) Advance from immediate holding company

The advance is unsecured, non-interest bearing and repayable on demand.

(e) Advance from intermediate holding company

The advance is unsecured and has no fixed repayment term. For the period from 1 September, 1998 to 31 December, 1999 and for year ended 31 December, 2000, the advance bears interest at a fixed rate of 8.25% per annum. For the year ended 31 December, 2001, the advance is interest free.

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APPENDIX V

(f) Share capital

For the purpose of the preparation of the combined balance sheet, the balance of the share capital at 31 December, 1999 represent the amount of the share capital of a subsidiary as follows:

I-Space.com Limited Boria Enterprises Limited Shown in the accountants’ report as (g) Investment property revaluation reserve At beginning of the period/year Surplus (deficit) on revaluation At end of the period/year	1999 HK$ – 20 20 HK$’000 – 1999 HK$’000 – 1,544 1,544	2000 HK$ 8 20 28 HK$’000 – 2000 HK$’000 1,544 (1,544) –	2001 HK$ 8 20
			28
			HK$’000 –
			2001 HK$’000 – –
			–

(h) Operating lease commitments

Property rental income earned during the period from 1 September 1998 to 31 December 1999 and for the years ended 31 December 2000 and 2001 was approximately HK$2,999,000, HK$2,208,000 and HK$2,319,000 respectively. The property held has committed tenants for the next year.

At the respective balance sheet dates, the Group had contracted with the tenants for the following future minimum lease payments.

Within one year In the second to fifth year inclusive	1999 HK$’000 1,506 2,420 3,926	2000 HK$’000 2,260 1,766 4,026	2001 HK$’000 1,448 216
			1,664

(i) Contingent liabilities and capital commitments

The Group had no significant contingent liabilities and capital commitments at 31 December 1999, 2000 and 2001.

(j) Distributable reserve of the Company

As the Company was not incorporated until 26 January 2000, it had no distributable reserve at 31 December 1999. At 31 December 2000 and 2001, the Company had no reserve available for distribution to shareholders.

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APPENDIX V

5. COMBINED STATEMENTS OF RECOGNISED GAINS AND LOSSES

	1.9.1998	1.1.2000	1.1.2001
	to	to	to
	31.12.1999	31.12.2000	31.12.2001
	HK$’000	HK$’000	HK$’000
Revaluation increase (decrease) on
investment properties	1,544	(1,544)	–
Loss (profit) for the period/year	(429)	(3,471)	1,171
Total recognised gains (losses)	1,115	(5,015)	1,171

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APPENDIX V

6. COMBINED CASH FLOW STATEMENTS

		1.9.1998	1.1.2000	1.1.2001
		to	to	to
		31.12.1999	31.12.2000	31.12.2001
	Notes	HK$’000	HK$’000	HK$’000
NET CASH INFLOW (OUTFLOW)
FROM OPERATING ACTIVITIES	(a)	309	(37)	3,866
RETURNS ON INVESTMENTS AND
SERVICING OF FINANCE
Interest received		37	–	2
Interest paid		(2,381)	–	(3,548)
NET CASH OUTFLOW FROM RETURNS
ON INVESTMENTS AND
SERVICING OF FINANCE		(2,344)	–	(3,546)
TAXATION
Hong Kong Profits Tax paid		(107)	–	–
Hong Kong Profits Tax refund		–	–	53
		(107)	–	53
INVESTING ACTIVITIES
Additions to investment property		(345)	–	–
NET CASH (OUTFLOW) INFLOW
BEFORE FINANCING		(2,487)	(37)	373
FINANCING	(b)
Repayment to a former fellow
subsidiary		(43,093)	–	–
Advance from immediate holding
company		–	–	42,725
Advance from (repayment to)
intermediate holding company		43,000	–	(43,000)
NET CASH OUTFLOW FROM
FINANCING		(93)	–	(275)
(DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS		(2,580)	(37)	98
CASH AND CASH EQUIVALENTS AT
BEGINNING OF THE PERIOD/YEAR		2,628	48	11
CASH AND CASH EQUIVALENTS
AT END OF THE PERIOD/YEAR		48	11	109
ANALYSIS OF THE BALANCES OF
CASH AND CASH EQUIVALENTS
Bank balances and cash		48	11	109

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APPENDIX V

(a) Reconciliation of (loss) profit before tax to net cash inflow (outflow) from operating activities

		1.9.1998	1.9.1998	1.9.1998	1.1.2000	1.1.2001
				to	to	to
		31.12.1999			31.12.2000	31.12.2001
		HK$’000			HK$’000	HK$’000
(Loss)/profit before tax				(430)	(3,471)	1,171
Interest expense				2,381	3,548	–
Interest income				(37)	–	(2)
Deficit on revaluation of investment
property				–	1,456	1,000
Decrease (increase) in trade
receivables and prepayments				37	211	(73)
(Decrease) increase in other payables,
deposits received and accruals			(1,602)		253	(304)
(Increase) decrease in advance to a
fellow subsidiary				–	(2,074)	2,074
(Increase) decrease in advance to
intermediate holding company				(40)	40	–
NET CASH INFLOW (OUTFLOW) FROM
OPERATING ACTIVITIES				309	(37)	3,866
Analysis of changes in financing during the Relevant Periods
	Advance from				Advance from	Advance from
	a former fellow				immediate	intermediate
		subsidiary		holding company		holding company
		HK$’000			HK$’000	HK$’000
At 1 September 1998		43,093			–	–
(Repayment) advance		(43,093)			–	43,000
At 31 December 1999		–			–	43,000
Interest payable on advance from
intermediate holding company		–			–	3,548
At 31 December 2000		–			–	46,548
Interest paid on advance from
intermediate holding company		–			–	(3,548)
Advance (repayment)		–			42,725	(43,000)
At 31 December 2001		–			42,725	–

(b) Analysis of changes in financing during the Relevant Periods

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APPENDIX V

7. SEGMENTAL INFORMATION

Substantially all of the business activities of the Group during the Relevant Periods were property leasing and carried out in Hong Kong.

8. SUBSEQUENT EVENTS

No significant events took place subsequent to 31 December 2001.

9. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of the Group, the Company or its subsidiary have been prepared in respect of any period subsequent to 31 December, 2001.

Yours faithfully, Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong

– 120 –

APPENDIX VI EXTRACT OF THE ACCOUNTANTS’ REPORT ON REGAL LEADER FROM THE PREVIOUS CIRCULAR

The following is the accountants’ report of Regal Leader for the period ended 31st December, 2001, the text of which was included in the Previous Circular and the corrigendum dated 1st March, 2002.

==> picture [193 x 67] intentionally omitted <==

==> picture [78 x 53] intentionally omitted <==

22 February 2002

The Directors G-Prop (Holdings) Limited 13th Floor New World Tower Two 18 Queen’s Road Central Hong Kong

Dear Sirs,

We set out below our report on the financial information relating to Regal Leader Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) for the period from 8 February 2001 (date of incorporation of the Company) to 31 December 2001 for inclusion in the circular of G-Prop (Holdings) Limited (“G-Prop”) dated 22 February 2002 (the “Circular”).

Pursuant to a conditional agreement entered into on 28 January 2002, as described more fully in the section headed “Letter From The Chairman” included in the Circular, G-Prop, through a wholly-owned subsidiary has conditionally agreed to acquire from Paul Y. Holdings Company Limited, a wholly owned subsidiary of Chinese Estates Holdings Limited, the entire equity interest in the Company.

The Company is the holding company of a group of companies engaged in the business of property investment. The Company is an International Business Company and was incorporated in the British Virgin Islands under The International Business Companies Act on 8 February 2001. The Company acquired the entire interest in Gold Stable Ltd. and its subsidiary and the entire interest in Success Rich Ltd. and its subsidiary on 20 October 2001.

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APPENDIX VI EXTRACT OF THE ACCOUNTANTS’ REPORT ON REGAL LEADER FROM THE PREVIOUS CIRCULAR

As at the date of this report, the Company has the following wholly-owned subsidiaries:

	Place and date of
	incorporation/	Issued and fully
Name of company	establishment	paid share capital	Principal activities
Gold Concept Limited	Hong Kong	HK$2	Property investment
	18 March 1998
Gold Stable Ltd.	British Virgin Islands	US$1	Investment holding
	6 January 2000
Great King Limited	Hong Kong	HK$2	Property investment
	19 January 2000
Success Rich Ltd.	British Virgin Islands	US$1	Investment holding
	12 January 2000

Gold Stable Ltd. and Success Rich Ltd. are directly held by the Company. Gold Concept Limited and Great King Limited are indirectly held by the Company.

We have audited the consolidated financial statements of the Group for the period from 8 February 2001 (date of incorporation of the Company) to 31 December 2001.

We have examined the audited consolidated financial statements of the Group for the period from 8 February 2001 (date of incorporation of the Company) to 31 December 2001. Our examination was made in accordance with the Auditing Guideline “Prospectuses and the Reporting Accountant” as recommended by the Hong Kong Society of Accountants.

The financial information of the Group for the period set out in this report has been prepared from the audited consolidated financial statements of the Group, on the basis set out in Section 1 below. The preparation of the consolidated financial statements of the Group is the responsibility of the Directors of the Company who approved their issue. It is our responsibility to compile the financial information set out in this report from the consolidated financial statements of the Group to form an opinion on the financial information and to report our opinion to you.

In our opinion, on the basis of presentation set out in Section 1 below, the financial information of the Group together with the notes thereon give, for the purpose of this report, a true and fair view of the state of affairs of the Group as at 31 December 2001 and of the consolidated results and cash flows of the Group for the period.

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APPENDIX VI EXTRACT OF THE ACCOUNTANTS’ REPORT ON REGAL LEADER FROM THE PREVIOUS CIRCULAR

1. BASIS OF PRESENTATION OF FINANCIAL INFORMATION

The results of its subsidiaries acquired during the period are included in the consolidated income statement from the effective date of acquisition.

All significant intra-group transactions and balances have been eliminated on consolidation.

The financial information has been prepared on a going concern basis on the basis that G-Prop will provide adequate funds to enable the Group to meet in full its financial obligations as they fall due for the foreseeable future.

2. PRINCIPAL ACCOUNTING POLICIES

The financial information set out in this report has been prepared under the historical cost convention as modified for the revaluation of investment properties and in accordance with accounting principles generally accepted in Hong Kong set out below.

Revenue recognition

Rental income, including rental invoiced in advance from properties under operating leases, is recognised in the income statement on a straight-line basis over the terms of the relevant lease.

Interest income is accrued on a time basis, by reference to the principal outstanding and at the interest rate applicable.

Investment properties

Investment properties are completed properties which are held for their investment potential, any rental income being negotiated at arm’s length.

Investment properties are stated at their open market value based on independent professional valuation at the balance sheet date. Any surplus or deficit arising on the revaluation of investment properties is credited or charged to the investment property revaluation reserve unless the balance on this reserve is insufficient to cover a deficit, in which case the excess of the deficit over the balance on the investment property revaluation reserve is charged to the income statement. Where a deficit has previously been charged to the income statement and a revaluation surplus subsequently arises, this surplus is credited to the income statement to the extent of the deficit previously charged.

On disposal of an investment property, the balance on the investment property revaluation reserve attributable to that property is transferred to the income statement.

No depreciation is provided on investment properties except where the unexpired term of the relevant lease is 20 years or less.

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EXTRACT OF THE ACCOUNTANTS’ REPORT ON REGAL LEADER FROM THE PREVIOUS CIRCULAR

APPENDIX VI

Impairment

At the balance sheet date, the Company reviews the carrying amounts of its tangible 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. Impairment losses are recognised as an expense immediately, unless the relevant asset is carried a revalued amount, in which case the impairment loss is treated as revaluation decrease.

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, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

Taxation

The charge for taxation is based on the results for the period as adjusted for items which are non-assessable or disallowed. Timing differences arise from the recognition for tax purposes of certain items of income and expense in a different accounting period from that in which they are recognised in the financial statements. The tax effect of timing differences, computed using the liability method, is recognised as deferred taxation in the financial statements to the extent that it is probable that a liability or asset will crystallise in the foreseeable future.

Cash equivalents

Cash equivalents represent short-term highly liquid investments which are readily convertible into known amounts of cash and which were within three months of maturity when acquired; less advances from banks repayable within three months from the dates of advances.

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EXTRACT OF THE ACCOUNTANTS’ REPORT ON REGAL LEADER FROM THE PREVIOUS CIRCULAR

APPENDIX VI

3. CONSOLIDATED INCOME STATEMENT

The following is a summary of the consolidated income statement of the Group for the period prepared on the basis set out in Section 1 above:

Notes Rental income Property expenses Net rental income Other revenue Administrative expenses Profit from operations (a) Bank loan interest Loss before tax Taxation (c) Loss for the period and carried forward Dividend (d) There was no recognised gains or losses other than the loss for the period. Notes: (a) Profit from operations Profit from operations has been arrived at after charging: Directors’ remuneration Auditors’ remuneration Provision for bad and doubtful debts

8.2.2001 to 31.12.2001 HK$’000 936 (478) 458 377 (601) 234 (279) (45) – (45) – 8.2.2001 to 31.12.2001 HK$’000 – 32 104

• (b) Directors’ remuneration and five highest paid employees

Analysis of Directors’ remuneration and five highest paid employees had not been presented as no such costs were charged to the Group for the period.

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EXTRACT OF THE ACCOUNTANTS’ REPORT ON REGAL LEADER FROM THE PREVIOUS CIRCULAR

APPENDIX VI

(c) Taxation

No tax is payable on the profit for the period arising in Hong Kong since the assessable profit is wholly absorbed by tax losses brought forward.

No provision for deferred taxation has been recognised in the financial statements as there are no significant timing differences.

(d) Dividend

No dividend has been paid by the Group during the period.

(e) Related party transactions

Expenses paid to fellow subsidiaries: Secretarial fee Management fee	8.2.2001 to 31.12.2001 HK$’000 7 31

The transactions with the above related parties were carried out on terms mutually agreed by both parties. The Group will discontinue the above transactions upon completion of the conditional agreement entered into on 28 January 2002 with G-Prop. In addition, Mr. Joseph, Lau Luen Hung, a Director of the Company, has given personal guarantee in respect of banking facilities granted to a subsidiary of the Company.

Details of the balances with related parties as at the balance sheet date are set out in note 4c below.

(f) Loss per share

Loss per share had not been presented as such information is not required for disclosure for private companies.

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EXTRACT OF THE ACCOUNTANTS’ REPORT ON REGAL LEADER FROM THE PREVIOUS CIRCULAR

APPENDIX VI

4. CONSOLIDATED BALANCE SHEET

The following is a summary of the consolidated balance sheet of the Group as at 31 December 2001 prepared on the basis set out in Section 1 above:

Notes Non-current asset Investment properties (a) Current assets Trade receivables and prepayments (b) Bank balances and cash Current liabilities Advance from immediate holding company (c) Advance from a fellow subsidiary (c) Other payables, deposits received and accruals Secured bank borrowings – due within one year (d) Net current liabilities Total assets less current liabilities Non-current liability Secured bank borrowings – due after one year (d) NET LIABILITIES CAPITAL AND RESERVE Share capital (e) Accumulated loss

2001 HK$’000 140,000 1,129 595 1,724 42,804 68,574 4,407 2,566 118,351 (116,627) 23,373 (23,418) (45) – (45) (45)

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APPENDIX VI

Notes:

(a) Investment properties

	Investment properties
	in Hong Kong
	held under
	medium-term leases
	HK$’000
VALUATION
Acquisition of subsidiaries	140,000
At 31 December 2001	140,000

The investment properties of the Group were revalued at 31 December 2001 on an open market value basis by Norton Appraisals Limited, an independent professional valuer.

All of the investment properties of the Group are rented out under operating leases.

The Group’s investment properties have been pledged to secure banking facilities granted to the Group.

(b) Trade receivables and prepayments

Included in trade receivables and prepayments are trade receivables of approximately HK$764,000 comprising rental receivables which are billed in advance at beginning of the month and settlements are expected upon receipts of billing.

The aged analysis of trade receivables is as follows:

0 – 30 days 31 – 60 days 61 – 90 days Over 90 days	2001 HK$’000 381 99 21 263
	764

(c) Advances from immediate holding company and a fellow subsidiary

The advances are unsecured, non-interest bearing and have no fixed repayment term.

(d) Secured bank borrowings

Secured bank borrowings – within one year – more than one year but not exceeding two years – more than two years but not exceeding five years – over five years _Less:_Current portion shown under current liabilities	2001 HK$’000 2,566 2,701 8,981 11,736
	25,984 (2,566
	23,418

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EXTRACT OF THE ACCOUNTANTS’ REPORT ON REGAL LEADER FROM THE PREVIOUS CIRCULAR

APPENDIX VI

(e) Share capital

Share capital
Ordinary shares of US$1 each Authorised Increase on 8 February 2001 and at 31 December 2001 Issued and fully paid Issue of shares on 8 February 2001 and at 31 December 2001 Shown in the accountants’ report as	Number of shares 50,000 1 HK$’000 –	Share capital HK$ 390,000
		8
		HK$’000 –

(f) Operating lease commitments

Property rental income earned during the period was approximately HK$936,000. The properties held have committed tenants for the next year.

At the balance sheet date, the Group had contracted with the tenants for the following future minimum lease payments.

Within one year In the second to fifth year inclusive	2001 HK$’000 4,914 441
	5,355

(g) Contingent liabilities and capital commitments

The Group had no significant contingent liabilities or capital commitments at 31 December 2001.

(h) Distributable reserve of the Company

At 31 December 2001, the Company had no reserves available for distribution to shareholders.

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APPENDIX VI

5. CONSOLIDATED CASH FLOW STATEMENTS

Notes NET CASH OUTFLOW FROM OPERATING ACTIVITIES (a) RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Interest paid INVESTING ACTIVITIES Acquisition of subsidiaries (b) NET CASH OUTFLOW BEFORE FINANCING FINANCING (c) Advance from immediate holding company Advance from a fellow subsidiary Repayment to former holding company Repayment of secured bank loan NET CASH INFLOW FROM FINANCING INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD CASH AND CASH EQUIVALENTS AT END OF THE PERIOD ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS Bank balances and cash Notes: (a) Reconciliation of loss before tax to net cash outflow from operating activities Loss before tax Interest expense Increase in trade receivables and prepayments Increase in other payables, deposits received and accruals NET CASH OUTFLOW FROM OPERATING ACTIVITIES

2001 HK$’000 (125) (279) (66,409) (66,813) 42,804 68,574 (43,548) (422) 67,408 595 – 595 595 HK$’000 (45) 279 (544) 185 (125)

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EXTRACT OF THE ACCOUNTANTS’ REPORT ON REGAL LEADER FROM THE PREVIOUS CIRCULAR

APPENDIX VI

(b) Acquisition of subsidiaries

NET ASSETS ACQUIRED Investment properties Trade receivables and prepayments Bank balances and cash Other payables, deposits received and accruals Advance from former holding company Secured bank borrowings Satisfied by: Cash Net cash outflow arising an acquisition Cash consideration Bank balances and cash acquired	HK$’000 140,000 585 298 (4,222) (43,548) (26,406)
	66,707
	66,707
	HK$’000 (66,707) 298
	(66,409)

The subsidiaries acquired during the period contributed HK$84,000 to the Group’s net operating cash outflow, paid HK$279,000 in respect of the net returns on investments and servicing of finance and advanced HK$67,408,000 in respect of financing activities.

The subsidiaries acquired during the period contributed HK$936,000 to the Group’s turnover and HK$275,000 to the Group’s profit from operations.

(c) Analysis of changes in financing during the period

Acquisition of subsidiaries Advance Repayment	Secured bank loan HK$’000 26,406 – (422) 25,984	Advance from immediate holding company HK$’000 – 42,804 – 42,804	Advance from a fellow subsidiary HK$’000 – 68,574 – 68,574	Advance from a former holding company HK$’000 43,548 – (43,548)
				–

6. SEGMENTAL INFORMATION

Substantially all of the business activities of the Group during the period were property leasing and carried out in Hong Kong.

7. SUBSEQUENT EVENTS

No significant events took place subsequent to 31 December 2001.

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APPENDIX VI EXTRACT OF THE ACCOUNTANTS’ REPORT ON REGAL LEADER FROM THE PREVIOUS CIRCULAR

8. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of the Group, the Company or any of its subsidiaries have been prepared in respect of any period subsequent to 31 December, 2001.

Yours faithfully, Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong

– 132 –

GENERAL INFORMATION

APPENDIX VII

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group. The Directors collectively and individually 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 and belief, there are no other facts the omission of which would make any statement herein misleading.

2. DISCLOSURE OF INTERESTS

As at the Latest Practicable Date, save as disclosed below, none of the Directors and the chief executive of the Company had any other interest in the securities of the Company or any associated corporations which has to be notified to the Company and the Stock Exchange pursuant to section 28 of the SDI Ordinance, including interests which they are deemed or taken to have under section 31 or Part I of the Schedule to the SDI Ordinance, or which would be required, pursuant to section 29 of the SDI Ordinance, to be entered in the register referred to therein or would be required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies.

(i) Shares of the Company

Name	Type of Interest	Number of Shares held
Chan Kam Wing, Jack	Personal	490,000

(ii) Options of the Company

	Number of
	Shares		Exercise	Period during
	comprising		price per	which rights
Name	the Options	Date of grant	Share	are exercisable
			(HK$)
Chan Hung Lit, Simon	3,270,000	21-3-2002	0.086	21-3-2002 to 30-9-2002
Lee Sze Kwong, William	68,736	30-10-1999	16.92	30-10-1999 to 30-10-2002
	34,368	4-1-2000	29.15	4-1-2000 to 4-1-2003
	1,489	5-1-2000	31.56	5-1-2000 to 5-1-2003
	8,019	6-1-2000	33.10	6-1-2000 to 6-1-2003
	69,882	20-1-2000	37.36	20-1-2000 to 20-1-2003
	78,474	24-3-2000	17.17	24-3-2000 to 24-3-2003
	444,495	26-8-2000	8.79	26-8-2000 to 25-08-2010
	57,280	21-2-2001	1.74	21-2-2001 to 20-2-2011
	2,350,000	21-3-2002	0.086	21-3-2002 to 30-9-2002

– 133 –

GENERAL INFORMATION

APPENDIX VII

	Number of
	Shares		Exercise	Period during
	comprising		price per	which rights
Name	the Options	Date of grant	Share	are exercisable
			(HK$)
Lo Siu Wah	97,377	4-1-2000	29.15	4-1-2000 to 4-1-2003
	2,864	5-1-2000	31.56	5-1-2000 to 5-1-2003
	24,058	6-1-2000	33.10	6-1-2000 to 6-1-2003
	209,073	20-1-2000	37.36	20-1-2000 to 20-1-2003
	206,209	24-3-2000	17.17	24-3-2000 to 24-3-2003
	1,288,808	26-8-2000	8.79	26-8-2000 to 25-08-2010
	372,322	28-8-2000	8.79	28-8-2000 to 27-8-2010
	68,736	21-2-2001	1.74	21-2-2001 to 20-2-2011
	2,200,000	21-3-2002	0.086	21-3-2002 to 30-9-2002
Cheung Kwai Sun, Roger	34,368	4-1-2000	29.15	4-1-2000 to 4-1-2003
	1,489	5-1-2000	31.56	5-1-2000 to 5-1-2003
	8,019	6-1-2000	33.10	6-1-2000 to 6-1-2003
	69,882	20-1-2000	37.36	20-1-2000 to 20-1-2003
	68,736	24-3-2000	17.17	24-3-2000 to 24-3-2003
	229,121	26-8-2000	8.79	26-8-2000 to 25-08-2010
	57,280	21-2-2001	1.74	21-2-2001 to 20-2-2011
	3,200,000	21-3-2002	0.086	21-3-2002 to 30-9-2002
Li Wing Kin	2,200,000	21-3-2002	0.086	21-3-2002 to 30-9-2002
Lai Hin Wing, Henry	366,000	21-3-2002	0.086	21-3-2002 to 30-9-2002

None of the Directors has any existing or proposed service contract with any member of the Group (excluding contracts expiring or determinable by the employer within one year without payment of compensation (other than statutory compensation)).

None of the Directors has any interest, direct or indirect, in any assets which have since 31st March, 2001 (being the date to which the latest published audited accounts of the Company were made up) been 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.

None of the Directors is materially interested in any contract or arrangement subsisting as at the Latest Practicable Date which is significant to the business of the Group.

– 134 –

GENERAL INFORMATION

APPENDIX VII

3. SUBSTANTIAL SHAREHOLDER

As at the Latest Practicable Date, the Directors and the chief executive of the Company are not aware of any person who as at the Latest Practicable Date was 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 the Company.

4. INTEREST OF EXPERTS

Each of Somerley and Norton Appraisals Limited does not have any shareholding in any member of the Group nor any right to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

Each of Somerley and Norton Appraisals Limited does not have any interest, direct or indirect, in any assets which have been, since 31st March, 2001, 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 are proposed to be acquired or disposed of by, or leased to, any member of the Group.

5. QUALIFICATION OF EXPERTS

The following are the qualifications of the experts who have given opinions or advice which are contained in this circular:

Name Qualification

Somerley Investment adviser and exempt dealer registered under the Securities Ordinance (Chapter 333 of the Laws of Hong Kong)

Norton Appraisals Limited Qualified valuer

6. CONSENTS

Each of Somerley and Norton Appraisals Limited has given and has not withdrawn their respective written consents to the issue of this circular, with the inclusion herein of their reports, letters and references to their names, in the forms and context in which they respectively appear.

7. LITIGATION

The following are details of the material litigation in which the Group is currently involved:

High Court Action No.12310A of 1999

This is a secondary action commenced by the Company on 30th July, 1999 against Messrs. Wong & Lam, Solicitors, seeking for damages for breach of duty both in contract and tort for failing to exercise all due and reasonable professional care, skill and diligence as solicitors in relation to the sale and purchase of the property referred to in High Court Action No.463 of 1998.

– 135 –

GENERAL INFORMATION

APPENDIX VII

On 19th May, 2000, the Company was ordered to make payment into Court for the sum of HK$180,000 in response to Messrs. Wong & Lam, Solicitors’ application for security of costs. Payment into court was effected on 29th May, 2000. The parties have completed discovery and inspection. The next stage of the proceedings would be the preparation of witness statements to be filed into Court.

Save as disclosed herein, none of the Company or any of its subsidiaries is engaged in any litigation or arbitration of material importance and there is no litigation or claim of material importance known to the Directors to be pending or threatened by or against either the Company or any other company in the Group.

8. MATERIAL CONTRACTS

The following contracts (not being contracts entered into in the ordinary course of business of the Group) have been entered into by members of the Group within two years immediately preceding the date of this circular and are or may be material:

• (a) the sale and purchase agreement dated 11th July, 2000 entered into between Liu Chen Meihuan and G-Prop Consultant Limited in relation to the sale and purchase of 5% of issued share capital of CAA Satellite TV Limited;

• (b) the supplemental placing agreement dated 21st August, 2000 entered into between the Company and BNP Paribas Peregrine Securities Limited in relation to the placing of HK$240 million 7.5% convertible bonds by the Company;

• (c) the sale and purchase agreement dated 15th September, 2000 entered into between Chan Hung Lit, Simon and G-Prop Technology Limited in relation to the sale and purchase of 33,333 shares of Wingrove Holdings Limited;

• (d) the placing agreement dated 15th September, 2000 entered into between the Company and Asia Financial (Securities) Limited in relation to the placing of HK$112.8 million 7.5% convertible bonds by the Company;

• (e) the placing agreement dated 26th September, 2000 entered into between the Company and Asia Financial (Securities) Limited in relation to the placing of HK$59.2 million 7.5% convertible bonds by the Company;

• (f) the sale and purchase agreement dated 26th September, 2000 entered into between Lucky Man (BVI) Limited, Shing Fai Management Limited, Tin Hang Profits Limited, Star East Holdings Limited and the Company in relation to the sale and purchase of 33.33% of the shares in Tin Hang Profits Limited and the assignment of debt owing by Tin Hang Profits Limited to Star East Holdings Limited;

– 136 –

GENERAL INFORMATION

APPENDIX VII

• (g) the sale and purchase agreement dated 28th September, 2000 entered into between Lucky Man (BVI) Limited, Shing Fai Management Limited, Tin Hang Profits Limited, Star East Holdings Limited and the Company in relation to the sale and purchase of 66.67% of the shares in Tin Hang Profits Limited and the assignment of debt owing by Tin Hang Profits Limited to Star East Holdings Limited;

• (h) the placing agreement dated 28th September, 2000 entered into between the Company and Asia Financial (Securities) Limited in relation to the placing of HK$74.4 million 7.5% convertible bonds by the Company;

• (i) the placing agreement dated 29th September, 2000 entered into between the Company and Asia Financial (Securities) Limited in relation to the placing of HK$200 million 7.5% convertible bonds by the Company;

• (j) the sale and purchase agreement dated 29th December, 2000 entered into between Glory Year Holdings Limited, G-Prop Technology Limited, Cheung Hok Yuk Patrick and the Company in relation to the sale and purchase of the entire issued share capital of Chancewin Holdings Limited;

• (k) the cancellation agreement dated 3rd January, 2001 entered into between Glory Year Holdings Limited, G-Prop Technology Limited, Cheung Hok Yuk Patrick and the Company in relation to the cancellation of the sale and purchase agreement dated 29th December 2000;

• (l) the placing agreement dated 21st May, 2001 entered into between the Company and Get Nice Investment Limited in relation to the placing of 14,500,000 new Shares by the Company;

• (m) the underwriting agreement dated 7th July, 2001 entered into between Fair Eagle Securities Co. Ltd. and the Company in relation to the underwriting of the open offer of the offer shares to the qualifying shareholders on the basis of one offer share for every two shares held by qualifying shareholders on 31st July, 2001;

• (n) the placing agreement dated 4th August, 2001 entered into between Asia Financial (Securities) Limited in relation to the private placing of non-interest bearing convertible bonds due 2004 with an aggregate principal amount of HK$380,000,000 by the Company;

• (o) the settlement agreement dated 10th September, 2001 entered into between Hutchison International Limited and the Company in relation to, among other things, the issue of noninterest bearing convertible bonds due 2004 with an aggregate principal amount of HK$67,000,000 by the Company;

• (p) the placing agreement dated 21st November, 2001 entered into between Newpont Securities Limited and the Company in relation to the private placing of an aggregate 28,200,000 new shares at HK$0.11 each by the Company;

• (q) the placing agreement dated 14th December, 2001 entered into between Newpont Securities Limited and the Company in relation to the private placing of an aggregate 53,900,000 new shares at HK$0.125 each by the Company;

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GENERAL INFORMATION

APPENDIX VII

• (r) the S&P Agreement I;

• (s) the S&P Agreement II;

• (t) the Placing Agreement;

• (u) the placing agreement dated 8th February, 2002 entered into between Newpont Securities Limited and the Company in relation to the private placing of an aggregate 73,400,000 new shares at HK$0.105 each by the Company;

• (v) the placing agreement dated 9th April, 2002 entered into between General Stocks Company Limited and the Company in relation to the placing of 239,000,000 new Shares at HK$0.061 each by the Company;

• (w) the Supplemental S&P Agreements; and

• (x) the Supplemental Placing Agreement.

9. GENERAL

• (a) The registered office of the Company is situated at Clarendon House, Church Street, Hamilton HM 11, Bermuda.

• (b) The head office and principal place of business of the Company is situated at 13th Floor, New World Tower Two, 18 Queen’s Road Central, Hong Kong.

• (c) The principal share registrar of the Company is Butterfield Corporate Services Limited at Rosebank Centre, 11 Bermudiana Road, Pembroke, Bermuda.

• (d) The branch share registrar of the Company is Secretaries Limited at 5th Floor, Wing On Centre, 111 Connaught Road Central, Hong Kong.

• (e) The secretary of the Company is Hong Ka Kei who is a fellow member of the Association of Chartered Certified Accountants and an associate member of The Hong Kong Society of Accountants.

• (f) The English text of this circular shall prevail over the Chinese text for the purpose of interpretation.

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GENERAL INFORMATION

APPENDIX VII

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the Company’s office at 13th Floor, New World Tower Two, 18 Queen’s Road Central, Hong Kong during the normal business hours up to and including 26th July, 2002:

• (a) the memorandum of association and bye-laws of the Company;

• (b) the letter from the Independent Director, the text of which is set out on page 17 of this circular;

• (c) the letter from Somerley, the text of which is set out in appendix I;

• (d) the valuation report from Norton Appraisals Limited, the text of which is set out in appendix III;

• (e) the accountants’ report on I-Space.Com, the extract of which is set out in appendix V;

• (f) the accountants’ report on Regal Leader, the extract of which is set out in appendix VI;

• (g) the annual reports of the Company for the two financial years ended 31st March, 2001;

• (h) the interim report of the Company for the six months ended 30th September, 2001;

• (i) the material contracts referred to under the section headed “Material contracts” in this appendix;

• (j) the written consents referred to under the section headed “Consents” in this appendix;

• (k) a copy of the Previous Circular; and

• (l) a copy of this circular of the Company dated 10th July, 2002.

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NOTICE OF THE SPECIAL GENERAL MEETING

G-PROP (HOLDINGS) LIMITED

(incorporated in Bermuda with limited liability)

NOTICE IS HEREBY GIVEN that a special general meeting (the “Special General Meeting”) of G-Prop (Holdings) Limited (the “Company”) will be held at 10:00 a.m. on Friday, 26th July, 2002 at Plaza I-III, Lower Lobby, Novotel Century Hong Kong, 238 Jaffe Road, Wanchai, Hong Kong for the purpose of considering and, if thought fit, passing the following resolutions as ordinary resolutions:

ORDINARY RESOLUTIONS

1. “ THAT (i) the supplemental sale and purchase agreement (the “Supplemental S & P Agreement I”) with all the Schedules contained therein dated 8th June, 2002 entered into between Great Empire International Ltd. (“Great Empire”) as Vendor, Alpha New Investments Limited (“Alpha New”) as Purchaser and the Company as Issuer being supplemental to the sale and purchase agreement (the “S&P Agreement I”) dated 28th January, 2002 entered into between Great Empire, Alpha New and the Company in relation to the acquisition by Alpha New of 1 share of US$1.00 each (the “I-Space Share”) in I-Space.Com Limited from Great Empire, a copy of which has been produced to the meeting and marked “A” and signed by the chairman of the meeting for the purpose of identification; and (ii) the supplemental sale and purchase agreement (the “Supplemental S & P Agreement II”) with all the Schedules contained therein dated 8th June, 2002 entered into between Paul Y. Holdings Company Limited (“Paul Y.”) as Vendor, Talent Pioneer Assets Limited (“Talent Pioneer”) as Purchaser and the Company as Issuer being supplemental to the sale and purchase agreement (the “S&P Agreement II”) dated 28th January, 2002 entered into between Paul Y., Talent Pioneer and the Company in relation to the acquisition by Talent Pioneer of 1 share of US$1.00 each (the “Regal Share”) in Regal Leader Limited from Paul Y., a copy of which has been produced to the meeting and marked “B” and signed by the chairman of the meeting for the purpose of identification; and (iii) the supplemental deed poll being supplemental to the deed poll dated 22nd March, 2002 executed by the Company and to be executed by the Company pursuant to the Supplemental S&P Agreement I and the Supplemental S&P Agreement II in relation to, among other things, the issue and constitution of convertible bonds in the aggregate principal amount of HK$200,000,000 (the “Convertible Bonds”) in relation to the purchase by Alpha New of the I-Space Share and by Talent Pioneer of the Regal Share pursuant to the terms and conditions of the S & P Agreement I and the S & P Agreement II respectively (the “First Supplemental Deed Poll”), a copy of which has been produced to the meeting and marked “C” and signed by the chairman of the meeting for the purpose of identification (the Supplemental S&P Agreement I, the Supplemental S&P Agreement II and the First Supplemental Deed Poll are collectively referred to hereinafter as the “Supplemental CB Documents”) be and are hereby approved in all respects and that all the transactions contemplated therein including but not limited to the issue of the Convertible Bonds, the allotment and issue of shares of HK$0.01

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NOTICE OF THE SPECIAL GENERAL MEETING

each of the Company (the “Company Shares”) upon the exercise of the conversion rights to be attached to the Convertible Bonds, and the directors of the Company exercising any power of the Company to allot Company Shares at their absolute discretion and to make or grant offers, agreements and options which would or might require the Company Shares to be allotted be and are hereby approved and that any one director of the Company be and is hereby authorised to do or execute for and on behalf of the Company all such acts or such other documents by hand or, in case of execution of documents under seal, to do so jointly for and on behalf of the Company with either the secretary or a second director of the Company or such other person(s) appointed by the board of the directors which in his/her or their opinion may be necessary, desirable or expedient to carry into effect or to give effect to the Supplemental CB Documents and all the transactions contemplated therein, including such changes and amendments thereto as any one director of the Company may consider necessary, desirable or expedient; and THAT conditional on the Listing Committee of The Stock Exchange of Hong Kong Limited granting approval for the listing of, and permission to deal in, all the Company Shares falling to be allotted and issued by the Company pursuant to the exercise of the conversion rights to be attached to the Convertible Bonds, the directors of the Company be and are hereby authorized at their absolute discretion to allot and issue the Company Shares pursuant to the exercise of the conversion rights which may fall to be granted under the Supplemental CB Documents and to take all such steps as may be necessary, desirable and expedient to carry into effect or to give effect to the Supplemental CB Documents in relation to the exercise of such conversion rights as attached to the Convertible Bonds and the allotment and issue of the Company Shares upon the exercise of such conversion rights.”

1. “ THAT (i) the supplemental placing agreement (the “Supplemental Placing Agreement”) with all the Schedules contained therein dated 8th June, 2002 entered into by the Company and Sanfull Securities Limited (“Sanfull Securities”) as placing agent being supplemental to the placing agreement (the “Placing Agreement”) dated 28th January, 2002 entered into between the Company and Sanfull Securities in relation to, among other things, the placing of convertible bonds in the aggregate principal amount of HK$100,000,000 (the “Additional Bonds”) pursuant to the terms and conditions of the Placing Agreement, a copy of the Supplemental Placing Agreement having been produced to the meeting and marked “D” and signed by the chairman of the meeting for the purpose of identification; and (ii) the supplemental deed poll (the “Second Supplemental Deed Poll”) being supplemental to the deed poll dated 22nd March, 2002 executed by the Company and to be executed by the Company pursuant to the Supplemental Placing Agreement in relation to, among other matters, the issue and constitution of the Additional Bonds pursuant to the terms and conditions of the Placing Agreement, a copy of the Second Supplemental Deed Poll having been produced to the meeting and marked “E” and signed by the chairman of the meeting for the purpose of identification (the Supplemental Placing Agreement and the Second Supplemental Deed Poll are collectively referred to hereinafter as the “Supplemental AB Documents”) be and are hereby approved in all respects and that all the transactions contemplated therein including but not limited to the issue of the Additional Bonds, the allotment and issue of Company Shares upon the exercise of the conversion rights to be attached to the Additional Bonds, and the directors of the Company exercising any power of the Company to allot the Company Shares at their absolute discretion and to make or grant offers, agreements and options which would or might require the Company Shares to be allotted be and are hereby approved and

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NOTICE OF THE SPECIAL GENERAL MEETING

that any one director of the Company be and is hereby authorised to do or execute for and on behalf of the Company all such acts or such other documents by hand or, in case of execution of documents under seal, to do so jointly for and on behalf of the Company with either the secretary or a second director of the Company or such other person(s) appointed by the board of the directors which in his/her or their opinion may be necessary, desirable or expedient to carry into effect or to give effect to the Supplemental AB Documents and all the transactions contemplated therein, including such changes and amendments thereto as any one director of the Company may consider necessary, desirable or expedient; and THAT conditional on the Listing Committee of The Stock Exchange of Hong Kong Limited granting approval for the listing of, and permission to deal in, all the Company Shares falling to be allotted and issued by the Company pursuant to the exercise of the conversion rights to be attached to the Additional Bonds, the directors of the Company be and are hereby authorized at their absolute discretion to allot and issue the Company Shares pursuant to the exercise of the conversion rights which may fall to be granted under the Supplemental AB Documents and to take all such steps as may be necessary, desirable and expedient to carry into effect or to give effect to the Supplemental AB Documents in relation to the exercise of such conversion rights as attached to the Additional Bonds and the allotment and issue of the Company Shares upon the exercise of such conversion rights.”

1. “ THAT the authorized share capital of the Company be increased from HK$200,000,000.00 to HK$800,000,000.00 by the creation of 60,000,000,000 new shares of HK$0.01 each ranking pari passu in all respects with the existing shares of HK$0.01 each in the share capital of the Company.”

By Order of the Board Chan Hung Lit, Simon Chairman

Hong Kong, 10th July, 2002

Registered Office:

Clarendon House Church Street Hamilton HM 11 Bermuda

Principal place of business of Hong Kong:

13/F New World Tower Two 18 Queen’s Road Central, Hong Kong

Notes:

1. Any member of the Company entitled to attend and vote at the Special General Meeting is entitled to appoint one or more proxies to attend and vote instead of him. A proxy need not be a member of the Company.

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NOTICE OF THE SPECIAL GENERAL MEETING

1. Where there are joint registered holders of any share, any one of such persons may vote at the Special General Meeting, either personally or by proxy, in respect of such share as if he was solely entitled thereto, but if more than one of such joint holders be present at the Special General Meeting personally or by proxy, that one of the said persons so present whose name stands first on the register of members in respect of such share shall alone be entitled to vote in respect thereof.

2. To be valid, a form of proxy, together with the power of attorney or other authority, if any, under which it is signed or a certified copy of that power or authority, must be deposited at the Company’s branch share registrars and transfer office Secretaries Limited, at 5th Floor, Wing On Centre, 111 Connaught Road Central, Central, Hong Kong, not less than 48 hours before the time appointed for holding the Special General Meeting or adjourned meeting. Completion and return of the form of proxy will not preclude shareholders from attending the Special General Meeting and voting in person.

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