China Foods Limited - Proxy Solicitation & Information Statement 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 stockbroker 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)

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 23 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 Monday, 11th March, 2002 at Garden Rooms, 2nd Floor, Hotel Nikko Hong Kong, 72 Mody Road, Tsimshatsui East, Kowloon, Hong Kong is set out on pages 125 to 128 of this circular. Whether or not you intend to attend the meeting, you are requested to complete and return the enclosed f orm 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.

22nd February, 2002

CONTENTS

	Page
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Chairman
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Proposed Acquisitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Property Management Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Placing Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
Principal terms of the Convertible Bonds and the Additional Bonds . . . . . . . . . . . . .	13
Reasons for the Proposed Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
Reasons for the placing of the Additional Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
Shareholding structure of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Information on I-Space.Com and Regal Leader . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
Approval by the independent shareholders of the Company . . . . . . . . . . . . . . . . . . .	21
Special General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	21
Advice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	22
Additional information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	22
Letter from the Independent Director. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
Appendix I – Letter from Somerley . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24
Appendix II – Accountants’ reports on I-Space.Com and Regal Leader. . . . . . . . .	34
Appendix III – Financial information on the Group . . . . . . . . . . . . . . . . . . . . . . . . . . .	59
Appendix IV – Valuation report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	110
Appendix V – General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	117
Notice of the Special General Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	125

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 wholly-owned 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
“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 satisfaction 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

“Directors”

directors of the Company

DEFINITIONS

“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 People’s Republic of China
“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
“I-Space.Com Group” I-Space.Com and its subsidiary

DEFINITIONS

“Independent Director”	Ms. Tsang Yim Fan, Josephine, who is an independent non-
	executive Director
“Latest Practicable Date”	20th February, 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 employees 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
“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
“Properties”	the Godown Property, the Golden Hall Property I and the
	Golden Hall Property II
“Property Management	a management agreement to be entered into by Boria,
Agreement”	Great King, Gold Concept and a wholly-owned subsidiary
	of Chinese Estates in respect of the management of the
	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
	and the 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.
“Regal Leader Group”	Regal Leader and its subsidiaries
“S&P Agreement I”	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

DEFINITIONS

“S&P Agreement II”	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
“S&P Agreements”	the S&P Agreement I and the S&P Agreement II
“Sanfull Securities” or	Sanfull Securities Limited, a dealer registered under the
“Placing Agent”	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
“SDI Ordinance”	Securities (Disclosure of Interests) Ordinance (Chapter 396
	of the Laws of Hong Kong)
“Share(s)”	ordinary share(s) of HK$0.01 each in the share capital of
	the Company
“Somerley”	Somerley Limited, an investment adviser and exempt
	dealer registered under the Securities Ordinance (Chapter
	333 of the Laws of Hong Kong) and the independent
	financial adviser to the Independent Director
“Special General Meeting”	the special general meeting of the Company to be
	convened at 10:00 a.m. on Monday, 11th March, 2002 at
	Garden Rooms, 2nd Floor, Hotel Nikko Hong Kong, 72 Mody
	Road, Tsimshatsui East, Kowloon, Hong Kong and any
	adjournment thereof, notice of which is set out on pages
	125 to 128 of this circular
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Talent Pioneer”	Talent Pioneer Assets Limited, an investment holding
	company incorporated in the British Virgin Islands with
	limited liability and a wholly-owned subsidiary of the
	Company
“Valuer”	Norton Appraisals Limited, an independent qualified valuer
	in Hong Kong
“Vendors”	Great Empire and Paul Y. in relation to the Proposed
	Acquisitions
“HK$”	Hong Kong dollar(s), the lawful currency for the time being
	of Hong Kong
“sq.m.”	square metre
“sq.ft.”	square feet

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

Registered Office: Clarendon House Church Street Hamilton HM 11 Bermuda

Mr. Li Wing Kin

Independent non-executive Directors:

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

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

LETTER FROM THE CHAIRMAN

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.

LETTER FROM THE CHAIRMAN

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 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 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.

LETTER FROM THE CHAIRMAN

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.

LETTER FROM THE CHAIRMAN

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 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

LETTER FROM THE CHAIRMAN

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);
(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.

LETTER FROM THE CHAIRMAN

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;

LETTER FROM THE CHAIRMAN

(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.

LETTER FROM THE CHAIRMAN

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).

LETTER FROM THE CHAIRMAN

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.

(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.

LETTER FROM THE CHAIRMAN

(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.

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.

LETTER FROM THE CHAIRMAN

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.

LETTER FROM THE CHAIRMAN

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:

Existing Shares % Directors(1) – – Holders of the existing convertible bonds of the Company(2) – – Vendors (3) – – Public shareholders(4) 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 Conver tible Bonds and the Additional Bonds (assuming full subscr iption) Shares % – – – – 1,070,000,000 50.9 1,033,807,658 49.1 2,103,807,658 100.0	Assuming full conversion of the Conver tible Bonds, the Additional Bonds (assuming full subscription) and the existing conver tible 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 Conver tible Bonds, the Additional Bonds (assuming full subscription) and the existing conver tible 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:

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.
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

LETTER FROM THE CHAIRMAN

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.

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 pr incipal 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 Conver tible Bonds, the Additional Bonds (assuming full subscription) and the existing convertible bonds of the Company and full exercise of the Options respectively.

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:

Upon completion of the issue of 73,400,000 new Shares Shares % Directors – – Holders of the existing convertible bonds of the Company – – Vendors – – Public shareholders 440,540,992 100.0 440,540,992 100.0	Assuming full conversion of the Convertib le 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,

LETTER FROM THE CHAIRMAN

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.

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-

LETTER FROM THE CHAIRMAN

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.

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 13storey 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

LETTER FROM THE CHAIRMAN

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 pur pose 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

LETTER FROM THE CHAIRMAN

the Property Management Agreement.

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

LETTER FROM THE INDEPENDENT DIRECTOR

G-PROP (HOLDINGS) LIMITED

(incorporated in Bermuda with limited liability)

22nd February, 2002

To the independent shareholders of the Company

Dear Sir or Madam,

I have been appointed as the Independent Director to advise you in connection with the Proposed Acquisitions.

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 S&P Agreements and the Property Management Agreement are fair and reasonable so far as the independent shareholders of the Company are concerned and that the Proposed Acquisitions and the appointment of a manager and leasing agent pursuant to the Property Management Agreement are in the interests of the Company and the shareholders of the Company as a whole. I therefore recommend you to vote in favour of the ordinary resolutions to approve the Proposed Acquisitions and the Property Management Agreement 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 Proposed Acquisitions, the Property Management Agreement, as well as the principal factors and reasons it has taken into account in arriving at its advice.

Yours faithfully,

Tsang Yim Fan, Josephine Independent non-executive Director

LETTER FROM SOMERLEY

APPENDIX I

The following is the text of the letter of advice to the Independent Director from Somerley dated 22nd February, 2002 prepared for incorporation in this circular.

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

22nd February, 2002

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

Dear Madam,

PROPOSED ACQUISITIONS AND PROPERTY MANAGEMENT AGREEMENT

We refer to our appointment to advise the Independent Director as regards the Proposed Acquisitions by the Company of (i) the entire issued share capital of I-Space.Com together with the rights, interests and benefit of the amount due to Great Empire by the I-Space.Com Group as at Completion Date; and (ii) 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 Completion Date, and as regards the Property Management Agreement. Details of the S&P Agreements and the Property Management Agreement are set out in the letter from the Chairman contained in the circular to the shareholders of the Company dated 22nd February, 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 Proposed Acquisitions and the entering into the Property Management Agreement constitute connected transactions of the Company for the purposes of the Listing Rules and are subject to, among other things, the approval of the independent shareholders of the Company. The Independent Director has been appointed to consider the terms of the S&P Agreements and the Property Management Agreement and to make recommendation to the independent shareholders of the Company thereon. We have been appointed as the independent financial adviser to the Independent Director to advise her on the fairness and reasonableness of the terms of the S&P Agreements and the Property Management Agreement.

LETTER FROM SOMERLEY

APPENDIX I

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 and the Regal Leader Group.

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

1. Reasons for and background to the Proposed Acquisitions

The Group has been principally engaged in property investment and development for a number of years and has also diversified into other businesses by participating in various strategic investments such as production of energy saving machines, advertising agency and direct investment. During the year ended 31st March, 2001, the Group continued to streamline its property portfolio as it concentrates on the energy saving machine business. The Group disposed all of its properties held for resale during the six months ended 30th September, 2001, and currently maintains some investment properties in Hong Kong and the PRC.

As disclosed in the annual report of the Group for the year ended 31st March, 2001 and interim report for the six months ended 30th September, 2001, the Group recorded losses of approximately HK$458.4 million for the year ended 31st March, 2001 and HK$38.6 million for the six months ended 30th September, 2001. The substantial loss of approximately HK$458.4 million for the year ended 31st March, 2001 was mainly attributable to an approximately HK$320.6 million provision made for impairment loss on goodwill in respect of a subsidiary and two associated companies of the Group engaged in the production of energy saving machines, the provision of an online internet payment clearing system, and in the biopharmaceutical sector. The unaudited consolidated net assets of the Group was approximately HK$30.9 million as at 30th September, 2001, of which about HK$194.5 million were goodwill and intangible assets.

The Directors, after reviewing the current property market condition, 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. The Directors consider that it is an appropriate time to acquire properties for long term investment purpose. The Directors also believe that the total tangible asset base of the Group would be enhanced by the Proposed Acquisitions.

LETTER FROM SOMERLEY

APPENDIX I

We are of the view that the Proposed Acquisitions do not deviate from the ordinary course of business of the Group of properties investment and holding in which the Group has been engaged for a number of years. Given that part of the Properties have been leased out and is currently generating recurring rental income and in view of the continued losses in the Group and the negative net tangible assets of the Group, we consider that the Proposed Acquisitions represent investment opportunities for the Group to broaden its revenue and income stream as well as strengthen its total tangible asset base and are in the interests of the Group.

2. Terms of the S&P Agreements

Basis of the consideration

The consideration under the S&P Agreement I is HK$42 million (which is equivalent to the valuation of the Godown Property as at 31st December, 2001 as valued by the Valuer) plus the total current assets (excluding the Godown Property) after deducting the total liabilities (excluding all amount due to Great Empire by the I-Space.Com Group) as per the unaudited combined accounts of the I-Space.Com Group as at the Completion Date. Based on the net deficit of about HK$0.31 million as at 25th January, 2002 as per the unaudited combined accounts of the I-Space.Com Group, the consideration is expected to be approximately HK$41.7 million.

The consideration under the S&P Agreement II is HK$140 million (which is equivalent to the aggregate of the valuation of the Golden Hall Property I and Golden Hall Property II as at 31st December, 2001 as valued by the Valuer) 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 the Regal Leader Group as at the Completion Date. Based on the net deficit of approximately HK$28 million as at 25th January, 2002 as per the unaudited consolidated accounts of the Regal Leader Group, the consideration is expected to be approximately HK$111.5 million.

The consideration for the Proposed Acquisitions is subject to post-completion adjustments. After completion, both Alpha New and Talent Pioneer shall instruct auditors to audit the unaudited combined accounts of the I-Space.Com Group and the unaudited consolidated accounts of the Regal Leader Group as at the Completion Date. In the event that the respective net asset value as shown in the audited combined accounts of the I-Space.Com Group and the audited consolidated accounts of the Regal Leader Group as at the Completion Date is different from those shown in the unaudited combined accounts of the I-Space.Com Group and the unaudited consolidated accounts of the 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.

LETTER FROM SOMERLEY

APPENDIX I

As both the I-Space.Com Group and the Regal Leader Group are property holding companies and their respective principal assets are the Godown Property and the Golden Hall Property I and Golden Hall Property II, we consider that the consideration under the S&P Agreements, which is based on the audited combined/consolidated net asset values of the respective subject group of companies and has taken into account the independent valuation of the Properties, is arrived at on a fair and reasonable basis.

Form of consideration

The aggregate consideration under the respective S&P Agreements 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., the Convertible Bonds will be issued at 95% of its principal amount. The Convertible Bonds will be issued in multiples of denomination of HK$500,000 each and any odd amounts of the balance of such consideration shall be paid in cash. On the basis of the aforesaid estimated consideration of approximately HK$41.7 million and HK$111.5 million for the S&P Agreement I and S&P Agreement II respectively, the total principal amount of the Convertible Bonds to be issued is expected to be HK$160.5 million.

We consider that the issue of the Convertible Bonds to satisfy the consideration for the Proposed Acquisitions provides a medium term financing for the Group at reasonable terms (see discussions below) and is in the interests of the Company.

Terms of the Convertible Bonds

(a) Maturity

The Convertible Bonds have a maturity period of three years.

(b) Redemption

The Convertible Bonds, if not converted, are redeemable after three months from the first issue of the Convertible Bonds at their respective outstanding amount, i.e., at 100% of the principal amount.

(c) Interest

The Convertible Bonds are non-interest bearing. However, as the Convertible Bonds will be issued at 95% and redeemable at 100%, the discount on the issue price of the Convertible Bonds would 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 approximately 1.7%, and the notional annual interest to be charged to the profit and loss accounts of the Group would be approximately HK$2.7 million. We are advised by the Company that the current average cost of borrowing of the Company from bank loans and other outstanding convertible bonds is approximately

LETTER FROM SOMERLEY

APPENDIX I

7%. The aforesaid notional interest rate of the Convertible Bonds is substantially lower than the current average cost of borrowing of the Group.

(d) Conversion price

The whole but not part of the outstanding principal amount of the Convertible Bonds may be converted into Shares at any time from the day immediately following the date of issue of the Convertible Bonds up to the maturity thereof at an initial conversion price of HK$0.15 per Share, subject to adjustments. The initial conversion price of HK$0.15 per Share for the Convertible Bonds represents:

a premium of approximately 15.4% over the closing pr ice of HK$0.130 per Share as quoted on the Stock Exchange on 28th January, 2002, being the date of the S&P Agreements;
a premium of approximately 10.3% over the average closing price of the Share of HK$0.136 for the ten consecutive trading days up to and including 28th January, 2002; and
a premium of approximately 51.5% over the closing price of the Share of HK$0.099 as quoted on the Stock Exchange on the Latest Practicable Date.

The Company has net tangible liabilities of about HK$115.9 million or HK$0.32 per Share before the S&P Agreements.

We have identified and referred to 30 3-year convertible bonds issued by listed companies in Hong Kong since January 2001 up to the Latest Practicable Date. These 30 comparables carry annual interest rates ranging from 0% to 8%, with both weighted average and median of about 3%. Of these 30 comparables, 16 have fixed conversion price higher than the latest closing market price of the relevant shares prior to issue, 3 have fixed conversion price at discounts to latest closing market price of the relevant shares, 1 has fixed conversion price equals to the latest closing market price of the relevant share, and the remaining 10 have floating conversion price to be determined at the time of conversion. The premia of the conversion price over the latest closing market price of the relevant shares for the aforesaid 16 comparables range from 3.7% to 152.5%, with mean and median of about 55% and 33% respectively.

Based on the above, we consider that the notional interest rate and conversion price for the Conversion Bonds are within range of the aforesaid recent market comparables. It should however be noted that the market comparables are not necessarily entirely comparable with the Convertible Bonds given differences in (i) the industries and businesses in which the issuers are engaged in; (ii) the credit rating of the issuers; (iii) availability of securities; and (iv) issue or redemption price, conversion restrictions and/or other features.

LETTER FROM SOMERLEY

APPENDIX I

(e) Security

The indebtedness of the Convertible Bonds are secured by, inter alia, the share mortgages of all the shares in issue in I-Space.Com, Boria and Regal Leader and its subsidiaries, the legal charge of the Godown Property in favour of Great Empire, the second legal charge 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., and 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 (i) payment of; or (ii) conversion of; and/or (iii) 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. Save as described herein, there is no restriction on the sale or transfer of the Properties by the Group.

We consider that providing securities for borrowings against properties is not uncommon in Hong Kong and would expect a similar security arrangement should the Group seek to finance the Proposed Acquisitions through borrowings from financial institutions. In addition, taking into account the other terms of the Convertible Bonds such as the maturity period and the notional interest rate of 1.7% (on the basis of the 5% discount in the issue price and that the Convertible Bonds are non-interest bearing) which is relatively low as compared to the Group’s current borrowing cost of about 7% and those market comparables as discussed above, we consider that the security arrangement for the Convertible Bonds as a whole is fair and reasonable.

3. Valuation of the Properties

Your attention is drawn to the valuation repor t prepared by the Valuer on the Properties as set out in appendix IV to the Circular.

In assessing the consideration for the Properties, we have reviewed and discussed with the Valuer the methodology of, and basis and assumptions adopted for, the valuation of the Properties as contained in the independent valuation report. For the purpose of the valuation, the Valuer has adopted the investment approach which takes into account the current rental income of the Properties and reversionary potential of the tenancies thereof. The result was cross checked by the Valuer to comparable sale transactions. The methodology is, in our opinion, a fair and reasonable approach in establishing the open market value of the Properties, with reference to which the consideration for the Proposed Acquisitions is determined.

4. Effects of the Proposed Acquisitions on the Group

Net tangible asset/liability value

As disclosed in the pro forma statement of unaudited adjusted combined net tangible assets of the Group contained in appendix III to the Circular, the unaudited adjusted consolidated net tangible liabilities of the Group before the Proposed

LETTER FROM SOMERLEY

APPENDIX I

Acquisitions is approximately HK$115.9 million. The unaudited pro forma adjusted combined net tangible liabilities of the Group upon Completion would be increased by HK$1.5 million (or 1.3%) to approximately HK$117.4 million which represents the estimated expenses to be incurred by the Group relating to the Proposed Acquisitions and placing of the Additional Bonds. On this basis, we consider that the Proposed Acquisitions would not have material adverse effect on the unaudited pro forma adjusted combined net tangible liabilities of the Group.

Upon conversion in full of the Convertible Bonds, the Group is expected to have an unaudited pro forma adjusted combined net tangible assets of approximately HK$35 million or HK$0.02 per Share as opposed to the unaudited pro forma adjusted combined net tangible liabilities of approximately HK$117.4 million or HK$0.32 per Share before conversion, which, in our view, represents a significant improvement.

Earnings and cash flow

As a substantial part of the consideration for the Proposed Acquisitions will be settled by way of the issue of the Convertible Bonds in multiples of denomination of HK$500,000 and only the odd amounts of the balance of such consideration will be settled in cash (which would not exceed HK$500,000 for each of the S&P Agreements), we consider the Proposed Acquisitions will not exert an undue pressure on the immediate liquidity of the Group.

The aggregate annual rental currently generated from the Properties amounts to approximately HK$7.2 million, representing a yield of approximately 4% when compared to the aggregate value of the Properties of HK$182 million as per the valuation of the Properties as at 31st December, 2001 by the Valuer. The annual principal repayment and interest payable on the bank loans drawn against the Golden Hall Property I and Golden Hall Property II (charged at prevailing prime rate) are approximately HK$2.6 million and HK$1.3 million respectively, and the annual notional interest to be charged to the profit and loss accounts of the Group due to amortisation of the discount in the issue price of the Convertible Bonds is approximately HK$2.7 million. The annual management fee payable by the Group under the Property Management Agreement on the basis of the current aggregate annual rental would be approximately HK$0.9 million. On the basis of the existing tenancy agreements for the Properties, the current level of interest rate on the bank loans and the terms of the Property Management Agreement, the Properties are expected to have positive contribution to the Group by generating net annual income and net cash inflow in the amounts of approximately HK$2.3 million and HK$2.4 million respectively.

It should be noted that the expiry dates of the existing tenancy agreements for the Properties fall between February 2002 to November 2003. The amount of future revenue, income and net cashflow, if any, to be generated from the Properties may vary depending on, among other things, whether the Group is able to secure new tenancy agreements on terms which are no less favourable than the existing agreements, which likelihood of achieving is not possible for us to predict. In the event that the Group is not able to secure any new tenancy agreements upon expiry of the existing agreements, the net

LETTER FROM SOMERLEY

APPENDIX I

loss and net cash outflow to the Group as estimated on the above basis would be approximately HK$4.5 million and HK$4.4 million respectively.

The Convertible Bonds, if not converted, are redeemable in full upon maturity thereof. The effect of the redemption on the liquidity position of the Group will depend on the then financial position of the Group. As the Convertible Bonds are secured, among others, against the share mortgages of the issued shares in I-Space.Com, Boria and Regal Leader and its subsidiaries and the legal charges of the Properties, in the event of default on maturity, the Vendors may seize possession of the securities and claim the Group for the shortfall, if any, between the principal amount of the outstanding Convertible Bonds and the value of the securities.

Gearing Ratio

The Proposed Acquisitions will increase the Group’s gearing ratio (as calculated by dividing total debts after deducting cash and bank balances by shareholders’ fund) from approximately 430% before the Proposed Acquisitions to approximately 669% upon Completion. If the Convertible Bonds are converted in full into Shares, the gearing ratio would be reduced to approximately 158%.

In our opinion, the increase in the Group’s gearing ratio upon Completion is acceptable, taking into account the expected positive contributions of the Properties to the Group’s earnings and cash flow as discussed above and that the issue of the Convertible Bonds would not result in an immediate dilution in the shareholding of the independent shareholders of the Company which they might otherwise suffer if the Group chooses to finance the Proposed Acquisitions through equity fund raising instead of borrowings. The Directors advised us that they have considered the effects of other alternative funding for the Proposed Acquisitions (such as equity fund raising and bank borrowing) on the Group and its shareholders and consider that the issue of the Convertible Bonds is the best available means.

Potential dilution to shareholding of independent shareholders

On the basis of the estimated total consideration of HK$153.2 million and the aggregate principal amount of HK$160.5 million Convertible Bonds to be issued, a total of 1,070,000,000 Shares will be issued upon conversion in full of the Convertible Bonds at the initial conversion price of HK$0.15. Such Shares represent approximately 291.4% of the Company’s existing issued share capital and approximately 74.5% of the issued share capital of the Company as enlarged by the conversion of the Convertible Bonds. On that basis, the shareholding in the Company held by public shareholders would be reduced from 100% to about 25.5%. 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 Convertible Bonds will significantly improve the net tangible asset value of the Group by about HK$160.5 million and enhance the net tangible asset backing of the Shares as discussed above.

LETTER FROM SOMERLEY

APPENDIX I

5. The Property Management Agreement

Upon Completion, Boris, 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 (the “Property Manager”) of the Properties for a period of three years starting from the date of the Property Management Agreement at a monthly fee of HK$45,000 plus 5.5% of the aggregate monthly rental income of the Properties. The Property Manager will be responsible for collection of rental or licence fee, building management, financial management, provision of periodic reports to the Group and identification of prospective tenants for the Properties.

In view of the fact that the Properties currently consist of around 300 shop and commercial units and 2 residential units, the Directors consider that the Group would require an experienced team of property management personnel to carry out the aforesaid property management functions of the Property Manager. Given that the Group currently does not have any such personnel, the Group would need to recruit additional staff and therefore incur extra costs if the Property Manager or other appropriate agent is not engaged. The Directors expect that to perform the aforesaid property management functions for the Properties, the Group may need to recruit a team of at least 3 experienced personnel and expect that the total salary and other incremental costs to be incurred by the Group would not be substantially less than the management fee payable to the Property Manager under the Property Management Agreement. As the Company has not engaged similar service of other property agent and manager for investment properties previously and currently held by the Group, there is no comparable transaction available for us to assess whether the monthly fee charged by the Property Manager under the Property Management Agreement are on normal commercial terms. Having considered that Chinese Estates and its subsidiaries are currently performing the aforesaid functions for the Properties, the Directors consider that the appointment of the Property Manager which has the relevant experience on managing the Properties and has established contacts with existing tenants of the Properties would be more efficient and is in the interests of the Group. We concur with the Directors’ view in this regard.

LETTER FROM SOMERLEY

APPENDIX I

CONCLUSION AND RECOMMENDATION

Having considered the above principal factors and reasons, we are of the opinion that the terms of the S&P Agreements and the Property Management Agreement are fair and reasonable so far as the independent shareholders of the Company are concerned and that the Proposed Acquisitions and the appointment of the Property Manager are in the interests of the Company and the shareholders of the Company as a whole. Accordingly, we advise the Independent Director to recommend the independent shareholders of the Company to vote in favour of the ordinary resolutions to be proposed at the Special General Meeting to approve the S&P Agreements and the Property Management Agreement.

Yours faithfully, For and on behalf of SOMERLEY LIMITED Mei H. Leung Managing Director

ACCOUNTANTS’ REPORT ON I-SPACE.COM

APPENDIX II

The following is the text of the accountants’ report on I-Space.Com by Deloitte Touche Tohmatsu, Certified Public Accountants, prepared for inclusion in this circular.

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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.

* 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.

ACCOUNTANTS’ REPORT ON I-SPACE.COM

APPENDIX II

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

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.

ACCOUNTANTS’ REPORT ON I-SPACE.COM

APPENDIX II

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.

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.

ACCOUNTANTS’ REPORT ON I-SPACE.COM

APPENDIX II

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.

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.

ACCOUNTANTS’ REPORT ON I-SPACE.COM

APPENDIX II

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)	–	–	–

ACCOUNTANTS’ REPORT ON I-SPACE.COM

APPENDIX II

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.

ACCOUNTANTS’ REPORT ON I-SPACE.COM

APPENDIX II

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)

ACCOUNTANTS’ REPORT ON I-SPACE.COM

APPENDIX II

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 subsidiar y 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.

ACCOUNTANTS’ REPORT ON I-SPACE.COM

APPENDIX II

(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.

ACCOUNTANTS’ REPORT ON I-SPACE.COM

APPENDIX II

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

ACCOUNTANTS’ REPORT ON I-SPACE.COM

APPENDIX II

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 FROM
OPERATING ACTIVITIES	(a)	43,309	3,511	43
RETURNS ON INVESTMENTS AND
SERVICING OF FINANCE
Interest received		37	–	2
Interest paid		(2,381)	(3,548)	–
		(2,344)	(3,548)	2
TAXATION
Hong Kong Profits Tax paid		(107)	–	–
Hong Kong Profits Tax refund		–	–	53
		(107)	–	53
INVESTING ACTIVITIES
Additions to investment property		(345)	–	–
NET CASH INFLOW (OUTFLOW)
BEFORE FINANCING		40,513	(37)	98
FINANCING	(b)
Repayment to a former fellow
subsidiary		(43,093)	–	–
(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

ACCOUNTANTS’ REPORT ON I-SPACE.COM

APPENDIX II

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

	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	–
Increase in advance from immediate
holding company	–	–	42,725
Increase (decrease) in advance from
intermediate holding company	43,000	3,548	(46,548)
NET CASH INFLOW FROM
OPERATING ACTIVITIES	43,309	3,511	43

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

	Advance from
	a former fellow
	subsidiary
	HK$’000
At 1 September 1998	43,093
Repayment	(43,093)
At 31 December 1999, 2000 and 2001	–

ACCOUNTANTS’ REPORT ON I-SPACE.COM

APPENDIX II

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

ACCOUNTANTS’ REPORT ON REGAL LEADER

APPENDIX II

The following is the text of the accountants’ report on Regal Leader by Deloitte Touche Tohmatsu, Certified Public Accountants, prepared for inclusion in this circular.

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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.

ACCOUNTANTS’ REPORT ON REGAL LEADER

APPENDIX II

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.

ACCOUNTANTS’ REPORT ON REGAL LEADER

APPENDIX II

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.

ACCOUNTANTS’ REPORT ON REGAL LEADER

APPENDIX II

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

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.

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

ACCOUNTANTS’ REPORT ON REGAL LEADER

APPENDIX II

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
(b)
Directors’ remuneration and five highest paid employees

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

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.

ACCOUNTANTS’ REPORT ON REGAL LEADER

APPENDIX II

(c) Taxation

No tax is payable on the profit f or 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.

ACCOUNTANTS’ REPORT ON REGAL LEADER

APPENDIX II

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)

ACCOUNTANTS’ REPORT ON REGAL LEADER

APPENDIX II

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 subsidiar y

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

ACCOUNTANTS’ REPORT ON REGAL LEADER

APPENDIX II

(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 reser ves available for distribution to shareholders.

ACCOUNTANTS’ REPORT ON REGAL LEADER

APPENDIX II

5. CONSOLIDATED CASH FLOW STATEMENTS

Notes
NET CASH INFLOW FROM OPERATING ACTIVITIES
(a)
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest paid
INVESTING ACTIVITIES
Acquisition of subsidiaries
(b)
NET CASH INFLOW BEFORE FINANCING
FINANCING
(c)
Repayment to former holding company
Repayment of secured bank loan
NET CASH OUTFLOW 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 inflow from operating activities
Loss before tax
Interest expense
Increase in trade receivables and prepayments
Increase in other payables, deposits received and accruals
Increase in advance from immediate holding company
Increase in advance from a fellow subsidiary
NET CASH INFLOW FROM OPERATING ACTIVITIES

2001
HK$’000
111,253
(279)
(66,409)
44,565
(43,548)
(422)
(43,970)
595
–
595
595
HK$’000
(45)
279
(544)
185
42,804
68,574
111,253

ACCOUNTANTS’ REPORT ON REGAL LEADER

APPENDIX II

(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$111,294,000 to the Group’s net operating cash inflow, paid HK$279,000 in respect of the net returns on investments and servicing of finance and repaid HK$43,970,000 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	Advance from Advance Secured immediate from bank holding a fellow loan company subsidiary HK$’000 HK$’000 HK$’000 26,406 – – – 42,804 68,574 (422) – – 25,984 42,804 68,574	Advance from a former holding company HK$’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.

ACCOUNTANTS’ REPORT ON REGAL LEADER

APPENDIX II

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

FINANCIAL INFORMATION ON THE GROUP

APPENDIX III

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 f or investments in securities” issued by the Hong Kong Society of Accountants.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX III

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)

FINANCIAL INFORMATION ON THE GROUP

APPENDIX III

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

FINANCIAL INFORMATION ON THE GROUP

APPENDIX III

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

FINANCIAL INFORMATION ON THE GROUP

APPENDIX III

Balance Sheet

At 31st March, 2001

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

FINANCIAL INFORMATION ON THE GROUP

APPENDIX III

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)

FINANCIAL INFORMATION ON THE GROUP

APPENDIX III

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)

FINANCIAL INFORMATION ON THE GROUP

APPENDIX III

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:

FINANCIAL INFORMATION ON THE GROUP

APPENDIX III

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 reser ves.

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.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX III

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.

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 pur pose, 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 proper ties 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.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX III

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.

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.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX III

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

Conver tible 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.

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 nonassessable 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.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX III

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 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 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	2001 HK$’000 4,349 3,523 3,212 – 11,084 2001 HK$’000 618 16 – 2001 HK$’000 30,939 5,620 2,421 – 38,980	2000 HK$’000 15,450 5,428 3,339 9,591
		33,808

		2000 HK$’000 1,021 – 13,700

		2000 HK$’000 39,072 – 504 12,000
		51,576

5. Other revenue

6. Other operating expenses

FINANCIAL INFORMATION ON THE GROUP

APPENDIX III

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 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 10,077 5,643 –
		15,720
		– – 4,393 6,117 1,328 1,850 – – – 825 – 134 1,059 293 4,030 2,138

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	2001 HK$’000 1,531 2,941 13,723 11,801 29,996	2000 HK$’000 700 6,344 18,276 9,127
		34,447

FINANCIAL INFORMATION ON THE GROUP

APPENDIX III

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$’000 (5,051) 37,101 – 120,703 (5,051) 157,804 2001 2000 HK$’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 37,101 120,703
		157,804

		2000 HK$’000 – 40
		40
		10,037 – –
		10,037
		10,077

(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.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX III

11. Taxation

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	2001 HK$’000 – (348) – (348)	2000 HK$’000 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 f or 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’s investment properties comprises: Properties held under medium-term leases in Hong Kong Freehold properties outside Hong Kong	2001 HK$’000 11,280 – 11,280	THE GROUP HK$’000 164,000 11,301 (164,000) (21)
		11,280

		2000 HK$’000 148,000 16,000
		164,000

FINANCIAL INFORMATION ON THE GROUP

APPENDIX III

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

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

FINANCIAL INFORMATION ON THE GROUP

APPENDIX III

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

FINANCIAL INFORMATION ON THE GROUP

APPENDIX III

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 ar ising 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’s principal associates at 31st March, 2001 are CashThrough Inter national 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 par ticulars 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

FINANCIAL INFORMATION ON THE GROUP

APPENDIX III

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 noncurrent.

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

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

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

FINANCIAL INFORMATION ON THE GROUP

APPENDIX III

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 per iod 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

FINANCIAL INFORMATION ON THE GROUP

APPENDIX III

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 –
		– –
		–

FINANCIAL INFORMATION ON THE GROUP

APPENDIX III

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

(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.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX III

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

				Adjusted		Principal	Pr incipal
			Initial	conversion		amount	amount
	conversion			price per		converted	outstanding
			price	share at	Principal	during	at
7.5% Convertible bonds		per share		31.3.2001	amount	the year	31.3.2001
			HK$	HK$	HK$’000	HK$’000	HK$’000
Issued between August and September
2000 pursuant to the deed poll
dated 21st August, 2000			0.600	0.524	80,400	(28,800)	51,600
Issued in October 2000 pursuant to
the deed poll dated 24th October, 2000			0.320	0.291	59,200	(8,800)	50,400
Issued between November and December
2000 pursuant to the deed poll dated
16th November, 2000			0.320	0.311	164,800	(74,400)	90,400
Issued in November 2000 pursuant to
the deed poll dated 23rd November,	2000		0.320	0.304	74,400	(1,600)	72,800
					378,800	(113,600)	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 conver t 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 conver ted 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.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX III

31. Share capital

Number of ordinary shares Ordinary shares of HK$0.10 each Authorised: At 1st April, 1999 920,000,000 – increase of authorised share capital 1,080,000,000 At 1st April, 2000 2,000,000,000 – increase of authorised share capital 4,800,000,000 At 31st March, 2001 6,800,000,000 Issued and fully paid: At 1st April, 1999 41,137,351 – rights issue of shares 411,373,510 – exercise of share options 24,589,636 – exercise of conversion rights of convertible bonds 381,538,447 At 1st April, 2000 858,638,944 – issue of shares upon subscription 90,500,000 – issue of shares for acquisition of investment securities 133,333,333 – exercise of conversion rights of convertible bonds 359,809,042 – exercise of share options 9,500,000 At 31st March, 2001 1,451,781,319	Amount HK$’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 fur ther 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.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX III

(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 dur ing 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:

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

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:

FINANCIAL INFORMATION ON THE GROUP

APPENDIX III

(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 Other long-term loans Advances from – minority shareholders of subsidiaries – an associate	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 48,303 320 – 400 48,303 720

35. Other long-term loans

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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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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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 ar ising 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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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 reser ve 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.

FINANCIAL INFORMATION ON THE GROUP

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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 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX III

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, fomerly 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 pr ice of HK$0.65 per share, resulting in the issue of 381,538,447 ordinar y 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 f or 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 f ollowing 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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APPENDIX III

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 subsidiar ies did not operate any retirement schemes cover ing 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 non-executive 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.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX III

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)

FINANCIAL INFORMATION ON THE GROUP

APPENDIX III

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 f or 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.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX III

50. Principal jointly controlled entitles

Details of the Group’s pr incipal 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.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX III

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)

FINANCIAL INFORMATION ON THE GROUP

APPENDIX III

CONDENSED CONSOLIDATED BALANCE SHEET

At 30th September, 2001

At 30th September, 2001
	30th	September,	31st March,
		2001	2001
		(Unaudited)	(Audited)
	Notes	HK$’000	HK$’000
NON-CURRENT ASSETS
Investment properties		11,280	11,280
Property, plant and equipment	6	15,156	16,158
Goodwill		133,891	109,781
Intangible assets		60,592	63,178
Interest in associates		9	10
Interest in jointly controlled entities		34,500	35,055
Investment in securities		111,911	111,911
Loans to a minority shareholder
of subsidiaries		–	16,000
Club debentures		2,798	2,798
Finance lease receivables
– due after one year		514	–
		370,651	366,171
CURRENT ASSETS
Inventories		1,071	777
Properties held for resale		–	1,180
Trade and other receivables	7	18,339	15,985
Short-term loans receivable	8	21,543	19,146
Investment in securities		24,765	24,932
Taxation recoverable		117	117
Bank balance and cash		866	3,433
		66,701	65,570
CURRENT LIABILITIES
Trade and other payables	9	40,919	16,899
Taxation payables		107	–
Short-term bank and other borrowings		26,435	30,688
Obligation under finance leases
– due within one year		1,172	423
Convertible bonds		75,430	24,760
		144,063	72,770
NET CURRENT LIABILITIES		(77,362)	(7,200)
		293,289	358,971

FINANCIAL INFORMATION ON THE GROUP

APPENDIX III

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

FINANCIAL INFORMATION ON THE GROUP

APPENDIX III

CONDENSED CONSOLIDATED STATEMENT OF RECOGNISED GAINS AND LOSSES

For the six months ended 30th September, 2001

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

FINANCIAL INFORMATION ON THE GROUP

APPENDIX III

CONDENSED CONSOLIDATED CASHFLOW STATEMENT

For the six months ended 30th September, 2001

	Six months ended	Six months ended
	30th September,
	2001	2000
	(Unaudited)	(Unaudited)
	HK$’000	HK$’000
NET CASH INFLOW (OUTFLOW) FROM
OPERATING ACTIVITIES	8,969	(89,234)
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest paid	(14,648)	(12,694)
Interest received, other than from loans receivable	36	407
CASH OUTFLOW FROM RETURNS ON
INVESTMENTS AND SERVICING OF FINANCE	(14,612)	(12,287)
TAXATION
Overseas tax paid	(3)	(2)
INVESTING ACTIVITIES
Purchase of investment securities	–	(68,097)
Purchase of property, plant and equipment	(891)	(1,009)
Investment in associates	(16,800)	–
Purchase of a subsidiary (net of cash and
cash equivalents acquired)	–	(779)
Amount repaid by a jointly controlled entity	–	500
Proceeds from disposal of property, plant and equipment	2,449	125
NET CASH OUTFLOW FROM INVESTING ACTIVITIES	(15,242)	(69,260)
NET CASH OUTFLOW BEFORE FINANCING	(20,888)	(170,783)
FINANCING
Borrowings raised	3,162	126,000
Proceeds from issue of convertible bonds	–	80,400
Contribution from minority shareholder of subsidiaries	282	–
Proceeds from issue of shares	22,184	54,300
Repayment of borrowings	(5,946)	(113,798)
Expenses in connection with the issue of convertible bonds	–	(3,544)
Expenses in connection with the issue of shares	(1,385)	(2,129)
NET CASH INFLOW FROM FINANCING	18,297	141,229
DECREASE IN CASH AND CASH EQUIVALENTS	(2,591)	(29,554)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD	3,433	33,891
EFFECT OF FOREIGN EXCHANGE RATE CHANGES	24	–
CASH AND CASH EQUIVALENTS AT END OF PERIOD	866	4,337

100

FINANCIAL INFORMATION ON THE GROUP

APPENDIX III

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 tur nover 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)

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)

101

FINANCIAL INFORMATION ON THE GROUP

APPENDIX III

3. Depreciation/amortisation

Depreciation on property, plant and equipment Amortisation charged in respect of: – goodwill – intangible assets – premium on acquisition of associates 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 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 (106) – (3) (2) (109) (2)

4. Income tax expenses

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 III

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,	31st March,
	2001	2001
	HK$’000	HK$’000
Within 30 days	789	314
31 – 60 days	1,067	162
Over 60 days	3,570	2,902
	5,426	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,	31st March,
	2001	2001
	HK$’000	HK$’000
Within 30 days	185	12
31 – 60 days	70	–
Over 60 days	–	3
	255	15

103

FINANCIAL INFORMATION ON THE GROUP

APPENDIX III

10. Share capital

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

104

FINANCIAL INFORMATION ON THE GROUP

APPENDIX III

11. Reserves

At 1st April, 2000 Premium ar ising 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 ar ising 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 12. Contingent liabilities	Share Translation premuim 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

	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.

105

FINANCIAL INFORMATION ON THE GROUP

APPENDIX III

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 III 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
Increase in consolidated net assets upon the issue of
143,636,357 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
38,000
(115,938)

106

FINANCIAL INFORMATION ON THE GROUP

APPENDIX III

Net tangible
assets value
(Note 2)
HK$’000
Unaudited adjusted consolidated net tangible assets
value of the Group before the Proposed Acquisitions
and placing of the Additional Bonds
(115,938)
Add: Intangible assets
Goodwill
Unaudited adjusted consolidated net assets
value of the Group before Completion of the Proposed
Acquisitions and placing of the Additional Bonds
Unaudited adjusted consolidated net tangible
assets value/net assets value per Share
before the Proposed Acquisitions and
placing of the Additional Bonds on the basis
of 367,140,992 Shares in issue as at the Latest
Practicable Date
HK$(0.32)
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 of the Proposed Acquisitions and placing
of the Additional Bonds
(115,938)
Estimated consideration for the acquisition of
I-Space.Com to be satisified by issue of
Convertible Bonds and cash
(41,700)
Net tangible assets of I-Space.Com attributable to the
Group upon Completion_(note 3)
41,700
Estimated consideration for the acquisiton of
Regal Leader to be satisified by issue of
Convertible Bonds and cash
(111,500)
Net tangible assets of Regal Leader attributable to the
Group upon Completion(note 4)
111,500
Estimated expenses relating to the Proposed Acquisitions
and placing of the Additional Bonds to be incurred
by the Group
(1,500)
Unaudited pro forma adjusted combined net tangible
assets value/net assets value of the Group upon
Completion of the Proposed Acquisitions and
placing of the Additional Bonds(note 5)_
(117,438)
Unaudited pro forma adjusted combined net tangible
assets value/net assets value per Share on the basis
of 367,140,992 Shares in issue upon Completion of
the Proposed Acquisitions and placing of the
Additional Bonds
HK$(0.32)

Net assets
value
(Note 2)
HK$’000
(115,938)
60,592
133,891
78,545
HK$0.21
78,545
(41,700)
41,700
(111,500)
111,500
(1,500)
77,045
HK$0.21

107

FINANCIAL INFORMATION ON THE GROUP

APPENDIX III

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 of the Proposed Acquisitions 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 of the Proposed Acquisitions 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 of the Proposed Acquisition and placing of the Additional Bonds on the basis of 367,140,992 Shares in issue and 1,070,000,000 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 of the Proposed Acquisitions 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 of the Proposed Acquisitions 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 of the Proposed Acquisitions and placing of the Additional Bonds on the basis of 367,140,992 Shares in issue and 1,736,666,666 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 (117,438) 152,475 35,037 HK$0.02 (117,438) 247,475 130,037 HK$0.06	Net assets value (Note 2) HK$’000 77,045 152,475
		229,520 HK$0.16

		77,045 247,475
		324,520 HK$0.15

108

FINANCIAL INFORMATION ON THE GROUP

APPENDIX III

Notes:

During the period from 1st October, 2001 to the Latest Practicable Date, no Option was exercised.
This is calculated on the basis of no exercise of the Options or conversion of the existing convertible bonds of the Company.
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.
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.
This is calculated on the basis of the assumption that none of the Convertible Bonds and Additional Bonds is converted into Shares.

V. STATEMENT OF INDEBTEDNESS

As at the close of business on 31st December, 2001, 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 outstanding bank loans of approximately HK$7 million which was secured by the Group’s investment properties and obligation under finance leases of approximately HK$3.1 million which were secured by the Group’s plant and machinery and motor vehicles of approximately HK$3.3 million. As at the same date, the Group also had unsecured trust receipt of approximately HK$0.4 million from a bank; unsecured loans of HK$1.5 million from an independent third party and unsecured loans of approximately HK$48.6 million from minority shareholders of subsidiaries. In addition, as at the same date, the Company has principal amount of outstanding convertible bonds of approximately HK$331.4 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 December, 2001 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 December, 2001.

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

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.

109

VALUATION REPORT

APPENDIX IV

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

22nd February, 2002

The Directors

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

Dears Sirs,

Re: (i) The whole of 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 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 by G-Prop (Holdings) Limited (hereinafter referred to as the “Company”), we confirm that we have carried out inspections, made relevant enquiries 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 31st December, 2001 (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;

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VALUATION REPORT

APPENDIX IV

(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;
(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 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 the 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.

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VALUATION REPORT

APPENDIX IV

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.

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 IV

SUMMARY OF VALUES

		Capital value in
		existing state as at
	Property	31st December, 2001
		HK$
1.	The whole of 1st Floor, 3rd Floor,	42,000,000
	4th Floor (including the Flat Roof thereof),
	5th Floor, 7th Floor, 8th Floor, 9th Floor, 10th Floor,
	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	136,500,000
	(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
3.	Flats A and B on 4th Floor	3,500,000
	(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
	Total:	182,000,000

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VALUATION REPORT

APPENDIX IV

VALUATION CERTIFICATE

Property

Description and tenure

Capital value in Particulars existing state as at of occupancy 31st December, 2001

The whole of 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 No. 25 on Ground Floor, Chung Kiu Godown Building, Nos. 63-71 Lei Muk Road, Kwai Chung, New Territories, Hong Kong

91/242nd equal and undivided shares of and in Lot No. 974 in Demarcation District No. 450 (the “Lot”)

The property comprises various floors of a 24-storey industrial building and one carparking space on Ground Floor. The building was completed in or about 1979.

The property has a total gross floor area of approximately 13,065.22 sq.m. (140,634 sq.ft.) including a flat roof on 4th Floor.

The Lot is held under a New Grant No. 4287 for a term of 99 years commencing from 1st July, 1898 less the last three days thereof which is statutorily extended to 30th June, 2047.

With the exception of the whole of 3rd Floor to 5th Floor and the whole of 9th Floor and 11th Floor which are vacant, the property is let under various tenancies and licences, yielding a total monthly rental income of $165,903 exclusive of rates and ser vice charges and a total monthly licence fee income of $3,000 inclusive of rates and service charge.

The occupancy rate is approximately 42.5%.

$42,000,000

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

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APPENDIX IV

Property

Description and tenure

Particulars of occupancy

Capital value in existing state as at 31st December, 2001

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

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

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 property, with the exception of 103, 105, 111, 115, 119 to 120, 122, 126, 127, 132, 133, 135 to 137, 140 to 146, 208, 236, 302 to 303, 305 to 309, 316, 321, 326, 327, 329, 336, 338 to 340, 342, 345, 347 and 348 which are vacant, is

subject to various licences/tenancies for terms of three months to two years.

The total monthly rental income is approximately $434,104 (exclusive of rates and management fees).

$136,500,000 (see Note c below)

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

The occupancy rate is approximately 67.5%.

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 commencing from 1st July 1898 less the last three days thereof which is statutorily extended to 30th June, 2047.

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/Mortgage to secure general banking facilities for a consideration of all moneys in favour of Kincheng Banking Corporation vide Memorial No. 918572 dated 8th April 2000.
(c) The 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 Deed of Mutual Covenant of the subject building.

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VALUATION REPORT

APPENDIX IV

Property

Description and tenure

Particulars of occupancy

Capital value in existing state as at 31st December, 2001

Flats A and B on 4th Golden Hall Building is a 13Floor (each storey (including cocklofts) including the Flat composite building completed in Roof thereof) and 1978. Roofs A and B, Golden Hall The property comprises two Building, Nos. 49-63 residential units and two Castle Peak Road, corresponding flat roofs on 4th Yuen Long, Floor and the whole roof of the New Territories, building. Hong Kong

All two units of the property are cur rently vacant; whilst an airconditioning plant was erected on the flat roof of Unit A.

$3,500,000

The two residential units have a 12/185th equal and total saleable area of undivided shares of approximately 182.58 sq.m. and in Yuen Long (1,965 sq.ft.). The flat roofs Town Lot No. 263 thereof have a total area of (the “Lot”) 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 a New Grant No. 2492 for a term of 99 years commencing from 1st July 1898 less the last three days thereof which is statutorily extended to 30th June, 2047.

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/Mortgage to secure general banking facilities for a consideration of all moneys in favour of Kincheng Banking Corporation vide Memorial No. 918622 dated 8th April, 2000.

116

GENERAL INFORMATION

APPENDIX V

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.

Number of Shares	Number of Shares			Period during
	comprising the		Exercise price	which rights
Name	Options	Date of grant	per Share	are exercisable
			(HK$)
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
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 25-8-2010
	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

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GENERAL INFORMATION

APPENDIX V

Number of Shares	Number of Shares			Period during
	comprising the		Exercise price	which rights
Name	Options	Date of grant	per Share	are exercisable
			(HK$)
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 25-8-2010
	57,280	21-2-2001	1.74	21-2-2001 to 20-2-2011

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.

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 Deloitte Touche Tohmatsu, 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 Deloitte Touche Tohmatsu, Somerley and Norton Appraisals Limited does not have any interest, direct or indirect, in any assets which have been, since 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.

118

GENERAL INFORMATION

APPENDIX V

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

Deloitte Touche Tohmatsu Certified Public Accountants, Hong Kong 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 Deloitte Touche Tohmatsu, 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 or 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.

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.

119

GENERAL INFORMATION

APPENDIX V

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 placing and subscription agreement dated 19th June, 2000 entered into between Fine Essence Limited, Tak Fook Securities Company Limited and the Company in relation to the placing of 90.5 million Shares by Fine Essence Limited;
(b) the exclusive agency agreement dated 19th June, 2000 entered into between CAA Satellite TV Limited and Beijing Asia Television City Company Limited and Twin Art Agents Limited;
(c) the share sale and purchase agreement dated 27th June, 2000 entered into between Cyber Group International Limited, Wingrove Holdings Limited, G-Prop Technology Limited and Chan Hung Lit, Simon in relation to the sale and purchase of 10% of the shares of CashThrough International Limited;
(d) the placing agreement dated 28th June, 2000 entered into between the Company and BNP Prime Peregrine Securities Limited in relation to the placing of HK$240 million 7.5% convertible bonds by the Company;
(e) the sale and purchase agreement dated 11th July, 2000 entered into between Liu Chen Mei-huan and G-Prop Consultant Limited in relation to the sale and purchase of 5% of issued share capital of CAA Satellite TV Limited;
(f) the supplemental placing agreement dated 21st August, 2000 entered into between the Company and BNP Paribas Peregrine Securities Limited in relation of the placing of HK$240 million 7.5% convertible bonds by the Company;

120

GENERAL INFORMATION

APPENDIX V

(g) 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;
(h) 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;
(i) 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;
(j) 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;
(k) 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;
(l) 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;
(m) 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;
(n) 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;
(o) 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;

121

GENERAL INFORMATION

APPENDIX V

(p) 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;
(q) 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;
(r) 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;
(s) 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 non-interest bearing convertible bonds due 2004 with an aggregate principal amount of HK$67,000,000 by the Company;
(t) 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;
(u) 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;
(v) the S&P Agreement I;
(w) the S&P Agreement II;
(x) the Placing Agreement; and
(y) 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.

122

GENERAL INFORMATION

APPENDIX V

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.

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following document 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 11th March, 2002:

(a) the memorandum of association and articles of association of the Company;
(b) the letter from the Independent Director, the text of which is set out on page 23 of this circular;
(c) the letter from Somerley, the text of which is set out on pages 24 to 33 of this circular;
(d) the valuation report from Norton Appraisals Limited, the text of which is set out on pages 110 to 116 of this circular;
(e) the accountants’ report regarding I-Space.Com, the text of which is set out in appendix III;
(f) the accountants’ report regarding Regal Leader, the text of which is set out in appendix III;
(g) the annual reports of the Company for the two financial years ended 31st March, 2001;

123

GENERAL INFORMATION

APPENDIX V

(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; and
(k) a copy of this circular of the Company dated 22nd February, 2002.

124

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 Monday, 11th March, 2002 at Garden Rooms, 2nd Floor, Hotel Nikko Hong Kong, 72 Mody Road, Tsimshatsui East, Kowloon, Hong Kong for the purpose of considering and, if thought fit, passing the following resolutions as ordinary resolutions:

ORDINARY RESOLUTIONS

“ THAT (i) the sale and purchase agreement (the “S&P Agreement I”) with all the schedules contained therein dated 28th January, 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 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 sale and purchase agreement (the “S&P Agreement II”) with all the schedules contained therein dated 28th January, 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 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 deed poll to be executed by the Company 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 “CB Instrument”), 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 S&P Agreement I, the S&P Agreement II and the CB Instrument are collectively referred to hereinafter as the “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 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)

125

NOTICE OF THE SPECIAL GENERAL MEETING

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 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 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 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.”

“ THAT (i) the placing agreement dated 28th January, 2002 entered into by the Company and Sanfull Securities Limited as placing agent in relation to the placing of convertible bonds in the aggregate principal amount of HK$100,000,000 (the “Placing Bonds”) to be issued by the Company, a copy of which has been produced to the meeting and marked “D” and signed by the chairman of the meeting for the purpose of identification; and (ii) the deed poll to be executed by the Company in relation to, among other matters, the issue and constitution of the Placing Bonds (the “PB Instrument”), a copy of which has been produced to the meeting and marked “E” and signed by the chairman of the meeting for the purpose of identification (the Placing Agreement and the PB Instrument are collectively referred to hereinafter as the “PB 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 Placing Bonds, the allotment and issue of Company Shares upon the exercise of the conversion rights to be attached to the Placing 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 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 PB 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 Placing 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 PB Documents and to take all such steps as may be necessary, desirable and expedient to carry into effect or to give effect to the PB Documents in relation to the exercise of such conversion rights as attached to the Placing Bonds and the allotment and issue of the Company Shares upon the exercise of such conversion rights.”

126

NOTICE OF THE SPECIAL GENERAL MEETING

“ THAT conditional on (a) the Special General Meeting passing Resolution No.1 and (b) Boria Enterprises Limited, Great King Limited and Gold Concept Limited (collectively, the “Relevant Subsidiaries”) becoming the indirect wholly-owned subsidiaries of the Company upon the completion of the S & P Agreement I and the S & P Agreement II (as defined in the circular to the shareholders of the Company), the property management agreement (the “Property Management Agreement”) to be entered into between the Relevant Subsidiaries and Chase Master Company Limited, a wholly-owned subsidiary of Chinese Estates Holdings Limited, in relation to the appointment by the Relevant Subsidiaries of Chase Master Company Limited as manager and leasing agent of the Properties (as defined in the circular to shareholders of the Company), a copy of which has been produced to the meeting and marked “F” and signed by the chairman of the meeting for the purpose of identification, be and is hereby approved in all respects and that all the transactions contemplated therein 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 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 for and in connection with the performance and implementation by the Relevant Subsidiaries of the Property Management Agreement and all the transactions contemplated therein.”

By Order of the Board Chan Hung Lit, Simon Chairman

Hong Kong, 22nd February, 2002

Registered Office:

Clarendon House Church Street Hamilton HM 11 Bermuda

Principal place of business of Hong Kong:

13th Floor New World Tower Two

18 Queen’s Road Central

Hong Kong

127

NOTICE OF THE SPECIAL GENERAL MEETING

Notes:

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.
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, 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.
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 registrar 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.

128

G-PROP (HOLDINGS) LIMITED

(Incorporated in Bermuda with limited liability)

FORM OF PROXY FOR USE AT THE SPECIAL GENERAL MEETING TO BE HELD AT 10:00 A.M. ON MONDAY, 11TH MARCH, 2002

I/We [(note 1) ]

being the registered holder(s) of

share(s) [(note 2)] of HK$0.01 each in the

capital of G-Prop (Holdings) Limited (the “Company”) HEREBY APPOINT THE CHAIRMAN OF THE

MEETING or [(note 3)]

as my/our proxy to vote and act for me/us at the special general meeting (the “meeting”) (and at any adjournment thereof) of the Company to be held at Garden Rooms, 2nd Floor, Hotel Nikko Hong Kong, 72 Mody Road, Tsimshatsui East, Kowloon, Hong Kong at 10:00 a.m. on Monday, 11th March, 2002 for the purpose of considering and, if thought fit, passing the following resolution as set out in the notice convening the said meeting.

Please indicate with a (✔) in the space provided how you wish your vote(s) be cast. Should this form be returned duly signed but without a specific direction, the proxy will vote or abstain at his discretion.

RESOLUTIONS	FOR (note 4)	AGAINST (note 4)
Ordinary Resolution No. 1
Ordinary Resolution No. 2
Ordinary Resolution No. 3

Delete where appropriate

Dated this , 2002 Signature [(note 5)] :

Notes:

Full name(s) and address(es) to be inserted in BLOCK CAPITALS.
Please insert the number of shares in the Company registered in your name(s). If no number is inser ted, this proxy form will be deemed to relate to all the shares in the Company registered in your name(s).
If any proxy other than the chairman is preferred, strike out “THE CHAIRMAN OF THE MEETING or” and insert the name and address of the proxy desired in the space provided. ANY ALTERATION MADE TO THIS FORM OF PROXY MUST BE INITIALLED BY THE PERSON WHO SIGNS IT.
IMPORTANT: IF YOU WISH TO VOTE FOR ANY RESOLUTION, PUT A TICK IN THE BOX MARKED “FOR”. IF YOU WISH TO VOTE AGAINST ANY RESOLUTION, PUT A TICK IN THE BOX MARKED “AGAINST”. Failure to do so will entitle your proxy to cast the vote at his discretion. Your proxy will also be entitled to vote at his discretion on any resolution properly put to the meeting other than those resolutions referred to in the notice convening the meeting.
This form of proxy must be signed by you or your attorney duly authorised in writing or, in the case of a corporation, must be either under its common seal or under the hand of an officer, attorney or other person duly authorised.
In the case of joint registered holders of any shares of the Company, any one of such persons may vote at the meeting, either personally or by proxy, in respect of such shares of the Company as if he was solely entitled thereto; but if more than one of such joint holders are present at the meeting, personally or by proxy, that one of the said persons so present whose name stands first on the register of members of the Company in respect of such shares shall alone be entitled to vote in respect thereof.
To be valid, this form of proxy, together with the power of attorney (if any) or other authority (if any) under which it is signed or a notar ially certified copy thereof, must be deposited at the Company’s branch registrar and transf er office, Secretaries Limited, at 5th Floor, Wing On Centre, 111 Connaught Road Central, Hong Kong not less than 48 hours before the time appointed for holding the meeting or any adjournment thereof.
The proxy need not be a member of the Company but must attend the meeting in person to represent you.

AI assistant

China Foods Limited — Proxy Solicitation & Information Statement 2002

49257_rns_2002-02-22_33f055dc-cdf7-437a-815e-1d9c7f136a69.pdf

G-PROP (HOLDINGS) LIMITED

PROPOSED ACQUISITIONS

Somerley Limited

DEFINITIONS

DEFINITIONS

DEFINITIONS

G-PROP (HOLDINGS) LIMITED

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

INTRODUCTION

PROPOSED ACQUISITIONS

S&P Agreement I

LETTER FROM THE CHAIRMAN

Consideration

S&P Agreement II

Date

Parties

Interests to be acquired

Consideration

LETTER FROM THE CHAIRMAN

Conditions

PROPERTY MANAGEMENT AGREEMENT

PLACING AGREEMENT

Date

Parties

Principal amount of the Additional Bonds and issue price

Independence of the Placing Agent and the placees

Conditions

Use of proceeds

PRINCIPAL TERMS OF THE CONVERTIBLE BONDS AND THE ADDITIONAL BONDS

(a) Issuer

(b) Principal amount

(c) Issue price

(d) Maturity

(e) Redemption

(f) Interest

(g) Conversion right

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

(i) Conversion price

(j) Voting

(k) Transferability

(l) Listing

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

REASONS FOR THE PROPOSED ACQUISITIONS

LETTER FROM THE CHAIRMAN

REASONS FOR THE PLACING OF THE ADDITIONAL BONDS

SHAREHOLDING STRUCTURE OF THE COMPANY

LETTER FROM THE CHAIRMAN

LETTER FROM THE CHAIRMAN

INFORMATION ON I-SPACE.COM AND REGAL LEADER

I-Space.Com

Regal Leader

LETTER FROM THE CHAIRMAN

APPROVAL BY THE INDEPENDENT SHAREHOLDERS OF THE COMPANY

SPECIAL GENERAL MEETING

ADVICE

ADDITIONAL INFORMATION

G-PROP (HOLDINGS) LIMITED

PROPOSED ACQUISITIONS AND PROPERTY MANAGEMENT AGREEMENT

1. Reasons for and background to the Proposed Acquisitions

2. Terms of the S&P Agreements

Basis of the consideration

Form of consideration

Terms of the Convertible Bonds

(a) Maturity

(b) Redemption

(c) Interest

(d) Conversion price

(e) Security

3. Valuation of the Properties

4. Effects of the Proposed Acquisitions on the Group

Net tangible asset/liability value

Earnings and cash flow

Gearing Ratio

Potential dilution to shareholding of independent shareholders

5. The Property Management Agreement

CONCLUSION AND RECOMMENDATION

22 February 2002

China Foods Limited Proxy Solicitation & Information Statement 2002