Fujian Holdings Limited - Proxy Solicitation & Information Statement 2003

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in Fujian Group Limited, you should at once hand this document together with the enclosed form of proxy to the purchaser or to the transferee or to the bank, a licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or to the transferee.

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

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HC TECHNOLOGY CAPITAL COMPANY LIMITED

(Provisional Liquidators Appointed) (Incorporated in the British Virgin Islands with limited liability) (Incorporated in Hong Kong with limited liability)

PROPOSED RESTRUCTURING OF FUJIAN GROUP LIMITED (PROVISIONAL LIQUIDATORS APPOINTED) INVOLVING CAPITAL RESTRUCTURING, DEBT RESTRUCTURING, SUBSCRIPTION FOR NEW SHARES, LOAN CAPITALISATION, WHITEWASH WAIVER AND PROPOSED CHANGE OF COMPANY NAME AND GENERAL MANDATES TO ISSUE AND TO REPURCHASE SECURITIES

Financial adviser to Fujian Group Limited (Provisional Liquidators Appointed)

Financial Services Group

Financial adviser to HC Technology Capital Company Limited

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Independent financial adviser to the Independent Shareholders

A letter from Dao Heng Securities, the independent financial adviser to the Independent Shareholders, containing its advice to the Independent Shareholders in relation to the transactions contemplated under the Restructuring Agreement and the Whitewash Waiver, is set out on pages 30 to 41 of this document.

A notice convening the EGM to be held at 10:00 a.m. on Monday, 3 November 2003 at Lower Lobby, Novotel Century Hong Kong Hotel, 283 Jaffe Road, Wanchai, Hong Kong is set out on pages 120 to 125 of this document. A form of proxy for use at the EGM is enclosed. Whether or not you are able to attend the EGM, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon to the office of the Provisional Liquidators, 7/F, Allied Kajima Building, 138 Gloucester Road, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding of the EGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjournment thereof should you so desire.

9 October 2003

		Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1
Expected timetable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		7
Letter from	the Provisional Liquidators
1.	Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
2.	Proposed Restructuring of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
3.	Conditions precedent to the Restructuring Agreement . . . . . . . . . . . . . . . . . . . . . . . .	14
4.	Shareholding structure of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
5.	Whitewash Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
6.	Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
7.	Settlements of claims with ICBC and the Railway Department . . . . . . . . . . . . . . . .	17
8.	Reasons for the Proposed Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
9.	Maintain the listing status of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	21
10.	Proposed change of Company name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	21
11.	General mandates to issue and to repurchase securities . . . . . . . . . . . . . . . . . . . . . . .	21
12.	Suspension and resumption of trading of the Shares . . . . . . . . . . . . . . . . . . . . . . . . .	22
13.	Listing and dealings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
14.	Arrangement for share certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24
15.	EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24
16.	General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	25
17.	Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	25
18.	Additional information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	25
Letter from	the Investor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	26
Letter from	Dao Heng Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	30
Appendix I	– Financial information of the Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	42
Appendix II	– Comfort letters for the Group’s working capital adequacy . . . . . . . . . . . . .	87
Appendix III – Property valuation of the Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		94
Appendix IV – General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		109
Appendix V	– Explanatory statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	117
Notice of EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		120

DEFINITIONS

In this document, the following expressions have the following meanings unless the context requires otherwise:

“Administration Office”

the Administration Office of the Government of the Fujian Province in the PRC

“Agreed Security Value”

the lower of:

(a) the appraised value of the respective underlying secured assets of Sino Earn and Jian Xing by independent valuers; and
(b) HK$69,000,000 with HK$40,000,000 and HK$29,000,000 allocated to Sino Earn and Jian Xing respectively
“Announcement”
the joint announcement of the Company and the Investor dated 16 September 2003 in relation to the Proposed Restructuring, Whitewash Waiver, New Issue Mandate and Repurchase Mandate
“Asian Capital”
Asian Capital (Corporate Finance) Limited, a licensed corporation under the SFO which has been appointed as the financial adviser to the Investor
“associates” has the meaning ascribed thereto under the Listing Rules
“Board”

the board of Directors

“Capital Reduction”

the reduction of the nominal value of each issued Share from HK$0.125 to HK$0.0125

“Capital Restructuring” the Capital Reduction and the Unissued Share Subdivision

“CCASS” the Central Clearing and Settlement System established and operated by HKSCC

“Companies Ordinance” the Companies Ordinance (Chapter 32 of Laws of Hong Kong)

“Company” Fujian Group Limited (Provisional Liquidators Appointed), a company incorporated in Hong Kong with limited liability and the shares of which are listed on the Stock Exchange

“Completion” completion of the Proposed Restructuring
“Creditors”

all unsecured creditors of the Company (at the time of implementation of the Scheme) other than Sino Earn, Jian Xing, the Preferential Creditors and the Investor

– 1 –

DEFINITIONS

“Dao Heng Securities”

Dao Heng Securities Limited, a deemed licensed corporation under the SFO which has been appointed as the independent financial adviser to the Independent Shareholders

“Debt Restructuring”
the proposed restructuring of the indebtedness and liabilities of the Company pursuant to the Restructuring Agreement and the Scheme
“Director(s)” director(s) of the Company
“EGM”
the extraordinary general meeting of the Company to be held for the purpose of passing the resolutions, among other things, the Proposed Restructuring
“Executive” the Executive Director of the Corporate Finance Division of the SFC or any delegate of the Executive Director
“FIDC”
Fujian Investment and Development Company Limited, a company incorporated in the British Virgin Islands, which is ultimately owned by the Government of Fujian Province in the PRC and managed by the Administration Office
“Good Fortune”
Good Fortune Resources Limited, a company incorporated in the British Virgin Islands which to the best knowledge of the Provisional Liquidators is ultimately controlled by Mr. Hung To, an ex-director of Yan Hei. The Group does not have any shareholding in Good Fortune
“Group”

the Company and its subsidiaries

“HK Court”

the Court of First Instance of the High Court of Hong Kong

“HKSCC”

Hong Kong Securities Clearing Company Limited

“Hong Kong”

Hong Kong Special Administrative Region of the PRC

“Hotel Co”
Xiamen South East Asia Hotel Company Limited, a sino-foreign co-operative joint venture company established in the PRC, which operates Xiamen Plaza Hotel. The Company effectively holds 100% interest in Xiamen South East Asia Hotel Company Limited
“ICBC”

The Industrial and Commercial Bank of China (Xiamen Branch)

“ICBC Claim”
a claim brought by ICBC against Hotel Co of about RMB39 million (equivalent to about HK$36.4 million) as at 31 March 2003
“Independent Shareholders”
Shareholders other than Sino Earn and parties acting in concert with it

– 2 –

DEFINITIONS

“Investor”

HC Technology Capital Company Limited, a company incorporated in the British Virgin Islands which is beneficially owned by FIDC

“Jian Xing”

Jian Xing Finance Limited, a secured creditor of the Company administered by the Ministry of Finance. The Company owed Jian Xing around HK$56.6 million as at 31 March 2003

“Latest Practicable Date”
8 October 2003, being the latest practicable date prior to the printing of this document for ascertaining certain information contained in this document
“Listing Agreement”
an agreement between an issuer and the Stock Exchange setting out the continuing obligations which the issuer undertakes to comply with as a condition of listing
“Listing Committee”
the listing sub-committee of the directors of the Stock Exchange elected or appointed in accordance with the articles and, where the context so permits, any committee or sub-committee thereof
“Listing Rules”

Rules Governing the Listing of Securities on the Stock Exchange

“Loan Capitalisation”
the capitalisation of the cash advance of about HK$6.79 million by the Investor to the Company during the course of the Proposed Restructuring
“Ministry of Finance”
the Ministry of Finance of the Government of the Fujian Province in the PRC
“New Issue Mandate”
a general and unconditional mandate proposed to be granted to the Directors to allot, issue and deal with New Shares and other securities of the Company not exceeding 20% of the aggregate amount of the share capital of the Company in issue immediately following Completion
“New Share(s)”
ordinary share(s) of the Company with a nominal value of HK$0.0125 per share upon completion of the Capital Restructuring
“Non-core Subsidiaries”
all subsidiaries of the Company other than those holding Hong Kong investment properties and Xiamen Plaza Hotel or otherwise agreed to be kept in the Group by the Investor upon Completion
“parties acting in concert”
has the meaning ascribed thereto under the Takeovers Code
“PRC” The People’s Republic of China

– 3 –

DEFINITIONS

“Preferential Creditor”
“Proposed Restructuring”
“Provisional Liquidators”
“Quam Capital”
“Railway Department”
“Relevant Period”
“Rental Arrears”
“Repurchase Mandate”
“Restructuring Agreement”
“Restructuring Proposal”

a creditor of the Company with a claim, which would be treated as a preferential claim and has priority in a winding-up commenced on the date the Scheme becoming effective in Hong Kong pursuant to section 265 of the Companies Ordinance of Hong Kong

the proposed Capital Restructuring, Debt Restructuring, Subscription, Loan Capitalisation, reorganisation of the Group and Whitewash Waiver pursuant to the terms and conditions of the Restructuring Agreement
Messrs. Cosimo Borrelli and Fan Wai Kuen of RSM Nelson Wheeler Corporate Advisory Services Limited, the joint and several provisional liquidators of the Company

Quam Capital Limited, a corporation deemed licensed under the SFO which has been appointed as financial adviser to the Company

上海鐵路局廈門鐵路開發公司 (The Xiamen Railway Department Company Limited of the Shanghai Railway Department)
the period commencing on 17 March 2003 (being the date falling six months immediately prior to the date of the Announcement) and ending on the Latest Practicable Date
rental payable in arrears by the Company to Sino Earn for the Company’s use of its office premises for the period from 17 January 2003 to the date of Completion at a consideration of HK$20,000 per month pursuant to the Restructuring Agreement
a general and unconditional mandate proposed to be granted to the Directors to exercise all the powers of the Company to repurchase New Shares not exceeding 10% of the aggregate amount of the share capital of the Company in issue immediately following Completion
the formal and legally binding agreement entered into by the Company, the Provisional Liquidators, the Investor, Sino Earn, Jian Xing and RSM Nelson Wheeler Corporate Advisory Services Limited (escrow agent) relating to the Proposed Restructuring dated 25 April 2003
the non-legally binding proposal dated 17 January 2003, entered into between the Company and the Investor, which sets out, amongst other things, the indicative terms for the restructuring of the Company

– 4 –

DEFINITIONS

“Scheme” the proposed scheme of arrangement under section 166 of the Companies Ordinance between the Company and the Creditors with or subject to any modification thereof or addition thereto or condition approved or imposed by the court “SFC” Securities and Futures Commission “SFO” Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)

“Shareholder(s)” holder(s) for the time being of the ordinary shares of the Company “Share(s)” ordinary share(s) of HK$0.125 each in the existing capital of the Company “Sino Earn” Sino Earn Holdings Limited, the existing single largest shareholder and a secured creditor of the Company holding about 32.1% of the existing issued share capital of the Company. Sino Earn is administered by the Ministry of Finance. The Company owed Sino Earn around HK$179.7 million as at 31 March 2003

“Stock Exchange” The Stock Exchange of Hong Kong Limited “Subscription” the proposed subscription for 2,344,827,586 New Shares at the Subscription Price each by the Investor pursuant to the Restructuring Agreement

“Subscription Price” HK$0.0145 being the subscription price per New Share under the Subscription “Takeovers Code” the Hong Kong Code on Takeovers and Mergers “Unissued Share Subdivision” the subdivision of every unissued Share of HK$0.125 each into 10 unissued shares of HK$0.0125 each immediately upon the Capital Reduction becoming effective

“Westly”

Westly Limited, a company incorporated in Hong Kong in which each of the Company and Min Xin Holdings Limited holds 50% of the issued share capital. Min Xin Holdings Limited is a company whose securities are listed on the Stock Exchange and ultimately controlled by Fujian International Trust & Investment Corporation Limited. There is no common director in the Company and Min Xin Holdings Limited

– 5 –

DEFINITIONS

“Westly Charge”

the security interest created pursuant to an agreement dated 8 November 1999 entered into between the Company and Sino Earn which charges 50% of the issued share capital of Westly Limited and the Company’s loan of around HK$162.7 million to Westly as at 31 March 2003

“Whitewash Waiver” a waiver by the Executive pursuant to Note 1 of the Notes on dispensations from Rule 26 of the Takeovers Code from the obligation of the Investor and parties acting in concert with it to make a general offer for all the issued securities of the Company not already owned or agreed to be acquired by them upon Completion

“Yan Hei” Yan Hei Limited, a subsidiary of the Company incorporated in Hong Kong which the Company has 100% beneficial interest

“HK$”

Hong Kong dollar(s), the lawful currency of Hong Kong

“RMB” Renminbi, the lawful currency of the PRC, and the exchange rate for RMB into HK$ for the purpose of this document is RMB1.07 = HK$1.00
“US$” United States dollar(s), the lawful currency of the United States of America, and the exchange rate for US$ into HK$ for the purpose of this document is US$1 = HK$7.78
“%” per cent

– 6 –

2003

EXPECTED TIMETABLE

Latest time of lodging form of proxy for the EGM . . . . . . . . . . . . . . 10:00 a.m. on Saturday, 1 November EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10:00 a.m. on Monday, 3 November Publication of announcement of the results of the EGM . . . . . . . . . . . . . . . . . . . . . . Tuesday, 4 November Creditors’ meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10:00 a.m. on Wednesday, 19 November Announcement of the results of the creditors’ meeting . . . . . . . . . . . . . . . . . . . . . . Thursday, 20 November

The following events are conditional on, among other things, the results of the EGM and the availability of the HK Court. Accordingly, there is no guarantee that the Proposed Restructuring can be proceeded in accordance with the timetable set out below. Further announcements will be made to update the Shareholders or potential investors as and when appropriate.

HK Court hearing of petition to sanction the Scheme. . . . . . . . . . . . . . . . . . . . . . . . . . . Friday, 5 December Completion of the Restructuring Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Friday, 12 December Publication of announcement relating to completion of the Restructuring Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Monday, 15 December Resumption of trading of the New Shares (Note) . . . . . . . . . . . . . . . . 9:30 a.m. on Monday, 15 December First day of free exchange of certificate(s) for Shares for new certificate(s) for New Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Monday, 15 December 2004 Last day for free exchange of certificate(s) for Shares for new certificate(s) for New Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Monday, 12 January

Note: Trading in the Shares was suspended at the request of the Company with effect from 10:00 a.m. on 16 February 2001 and will remain suspended until the Company can satisfy the Stock Exchange that the conditions imposed by the Listing Committee are fulfilled. Details of the conditions which are set out in the “Letter from the Provisional Liquidators”.

– 7 –

9 October 2003

LETTER FROM THE PROVISIONAL LIQUIDATORS

(Provisional Liquidators Appointed)

(Incorporated in Hong Kong with limited liability)

To the Shareholders,

Dear Sir/Madam,

PROPOSED RESTRUCTURING OF FUJIAN GROUP LIMITED (PROVISIONAL LIQUIDATORS APPOINTED) INVOLVING CAPITAL RESTRUCTURING, DEBT RESTRUCTURING, SUBSCRIPTION FOR NEW SHARES, LOAN CAPITALISATION, WHITEWASH WAIVER AND

PROPOSED CHANGE OF COMPANY NAME AND GENERAL MANDATES TO ISSUE AND TO REPURCHASE SECURITIES

1. INTRODUCTION

The Provisional Liquidators and the Investor jointly announced on 30 May 2003 and 16 September 2003 that the Restructuring Agreement was entered into on 25 April 2003 between, among others, the Company and the Investor, and under the Proposed Restructuring:

(i) The Company’s share capital will be restructured by way of the Capital Reduction and the Unissued Share Subdivision;
(ii) The Investor has agreed to inject not more than HK$40.79 million of cash into the Company in exchange for about 63.6% of the enlarged issued share capital of the Company upon Completion;
(iii) All creditors of the Company (except the Investor) will discharge and waive their claims against the Company in accordance with the terms of the Restructuring Agreement and the Scheme. Accordingly, the indebtedness of the Company (except the indebtedness owed to the Investor as a result of the Proposed Restructuring) will be extinguished upon Completion; and
(iv) Subject to the Investor’s consent, the Non-core Subsidiaries will be deregistered, transferred to the Provisional Liquidators (or their nominees) or wound up.

– 8 –

LETTER FROM THE PROVISIONAL LIQUIDATORS

Completion is conditional upon certain conditions as set out below under the section headed “Conditions Precedent to the Restructuring Agreement”.

Upon Completion, the Investor will become the controlling Shareholder.

Dao Heng Securities has been appointed as the independent financial adviser to advise the Independent Shareholders whether the terms of the Restructuring Agreement and the grant of the Whitewash Waiver are fair and reasonable so far as the Independent Shareholders are concerned.

The purpose of this document is to provide you with further information on, among other things, the Proposed Restructuring, the Whitewash Waiver and financial information of the Group, and set out the recommendation of Dao Heng Securities to the Independent Shareholders with respect to the Proposed Restructuring and the Whitewash Waiver, and to give you notice convening the EGM at which resolutions will be proposed to seek your approval of, among other things, the Proposed Restructuring contemplated by the Restructuring Agreement and the Whitewash Waiver.

2. PROPOSED RESTRUCTURING OF THE COMPANY

The Proposed Restructuring involves, among other things, (i) the Capital Restructuring; (ii) the Debt Restructuring; (iii) the Subscription for New Shares; (iv) the Loan Capitalisation; and (v) reorganisation of the Group.

(A) Capital Restructuring

The Company’s existing authorised share capital is HK$500,000,000 comprising 1,074,328,367 issued Shares and 2,925,671,633 unissued Shares of HK$0.125 each. Under the Proposed Restructuring, the Company’s share capital will be restructured by way of the Capital Reduction and the Unissued Share Subdivision as follows:

(a) Capital Reduction

The nominal value of the issued Shares will be reduced from HK$0.125 to HK$0.0125 each. The entire credit balance arising from the Capital Reduction shall be applied to reduce part of the accumulated losses of the Company, which amounted to around HK$1,161.4 million as at 31 March 2003.

(b) Unissued Share Subdivision

Each of the unissued Shares of HK$0.125 each will be subdivided into 10 unissued shares of HK$0.0125 each.

Each board lot of the shares in the Company will remain unchanged at 2,000 New Shares after the Capital Restructuring.

– 9 –

LETTER FROM THE PROVISIONAL LIQUIDATORS

(B) Debt Restructuring

(a) Indebtedness of the Company

As at 31 March 2003, the Company had audited unsecured indebtedness of around HK$489.7 million and secured indebtedness of around HK$236.3 million. As at 31 August 2003, the Company had unaudited unsecured indebtedness of around HK$501.8 million and secured indebtedness of around HK$245.6 million. It is proposed that the outstanding liabilities of the Company will be restructured in the following manner:

(1) Compromise with Sino Earn and Jian Xing

Sino Earn and Jian Xing are the only secured creditors of the Company. As at 31 March 2003, the amounts due to Sino Earn and Jian Xing by the Company approximated around HK$179.7 million and around HK$56.6 million respectively. The assets pledged to Sino Earn and Jian Xing include properties held by the Company, shares in some of the Company’s subsidiaries or associates and loans owed to the Company.

The amounts due to Sino Earn and Jian Xing will be divided into two portions. The first portion will be the amount equal to the Agreed Security Value and this amount will be compromised in full by an issue of New Shares, the number of which will be calculated by dividing the Agreed Security Value by 0.125. 30% of the balance will be waived entirely and the remainder will be compromised in full by an issue of New Shares, the number of which will be calculated by dividing the remaining 70% by 0.6.

Around 381 million and 151.4 million New Shares will be issued to Sino Earn and Jian Xing respectively as a result of these compromises.

Sino Earn and Jian Xing have agreed that in consideration of (i) the allotment to them of such number of New Shares calculated in accordance with the mechanism above and (ii) a cash payment equal to 3% of the Rental Arrears, which approximated HK$160,000 at the Latest Practicable Date, to be made by the Company to Sino Earn, they shall waive, release and discharge all of their claims against the Group and all security interests (except the Westly Charge) in respect of such claims.

The Company’s 50% interest in the issued share capital of Westly Limited is subject to a share charge, among other securities, in favour of Sino Earn to secure loans granted by it to the Company. Such loans totalled about HK$179.7 million as at 31 March 2003. The loans bear interest at the rate of 10.5% per annum plus default interest at the rate of 1.5% per annum. It is the intention of Sino Earn to foreclose the Westly Charge before Completion. Upon Completion, Sino Earn will waive and discharge the balance of the loans and all interests which are secured by the Westly Charge.

– 10 –

LETTER FROM THE PROVISIONAL LIQUIDATORS

The enforcement of the Westly Charge will result in the transfer of the Company’s interest in Westly to Sino Earn. Westly which has been dormant, is an investment holding company and is classified as a jointly controlled entity in the Group’s accounts. The only realisable asset of Westly is cash and bank balances of about HK$3.6 million as at 31 March 2003. The Group’s interest in Westly has been written off entirely. As such, the enforcement will not have a material impact on the operations or financial position of the Group.

(2) The Scheme

Under the Scheme, it is proposed that a cash payment of HK$11 million will be made to the Creditors in consideration of the discharge and waiver of all of their claims against the Company. As at 31 March 2003, the total amount of the Company’s unsecured indebtedness (excluding the Preferential Creditors) was around HK$489.7 million. The estimated indebtedness is set-out herein for indicative purposes only and the Creditors’ claims will be subject to adjudication by the administrators of the Scheme once the Scheme has been implemented.

The Scheme will become effective and binding on all the Creditors if, among other things, a majority of Creditors representing 75% or more in value of the total unsecured indebtedness of the Company votes in favour of the Scheme in a Creditors’ meeting(s) required to be convened for that purpose and sanctioned by the court.

(3) Repayment to the Preferential Creditors

The Investor will advance HK$300,000 to the Company to enable the Provisional Liquidators to settle the claims of the Preferential Creditors who otherwise would have priority if the Company was wound up. The amount to be advanced by the Investor will be treated with effect from Completion as a loan by the Investor to the Company.

Major creditors of the Company (including the major bank creditors, Sino Earn and Jian Xing) representing around 95% of the Company’s total indebtedness (including both secured and unsecured indebtedness of the Company) as at 31 March 2003 have confirmed in writing their “in-principle support” for the preliminary proposal dated 17 January 2003 which set out the key commercial terms of the Proposed Restructuring.

(b) Indebtedness of the Group

Upon Completion, all creditors of the Company (except the Investor) will settle their claims against the Company in accordance with the terms of the Restructuring Agreement and the Scheme. Accordingly, the indebtedness of the Company (except the indebtedness owed to the Investor for the purpose of the Proposed Restructuring) will be extinguished upon Completion. It is estimated that the amount owed to the Investor, for the purpose of the Proposed Restructuring, will be about HK$2.14 million upon Completion, details of which are set out in Section 2(D) below.

– 11 –

LETTER FROM THE PROVISIONAL LIQUIDATORS

As at 31 March 2003, the Group had audited indebtedness of around HK$634.7 million. It is expected that the major outstanding debts of the Group upon Completion will be amounts due to ICBC and the Railway Department by Hotel Co, a principal subsidiary of the Company, for about RMB39 million (equivalent to about HK$36.4 million) and US$820,000 (equivalent to about HK$6.4 million) respectively as at 31 March 2003, bank loans of Hotel Co of around HK$4.1 million, other payables of about HK$10.1 million as well as the estimated amount of the loans to be provided by the Investor to the Company of about HK$2.14 million. The indebtedness of the Group is estimated to be about HK$59.1 million upon Completion.

A settlement agreement was entered into between Hotel Co and ICBC on 24 September 2003, whereby Hotel Co has agreed to settle the ICBC Claim with payments to be made over a seven year period after Completion. The Investor has agreed to provide a contingency reserve, for the settlement of the ICBC Claim, to the Company of no more than RMB 29 million (equivalent to about HK$27.1 million) in the form of a standby loan facility. Details of the settlement agreement and the standby loan facility are set out in section 7(A) below.

A settlement agreement was entered into on 30 September 2003 amongst Hotel Co, Yan Hei and the Railway Department whereby Yan Hei has agreed to repay US$820,000 (equivalent to about HK$6.4 million) to the Railway Department over a five year period after Completion, details of which are set out in section 7(B) below.

(C) Subscription for New Shares by the Investor

Immediately after the implementation of the Capital Restructuring, the Investor will subscribe for around 2,344,827,586 New Shares at HK$0.0145 each for a total cash consideration of HK$34 million.

The number of New Shares to be subscribed for by the Investor represents about 2.18 times of the existing issued share capital or about 53.1% of the enlarged issued share capital of the Company upon Completion, but before placing down to the public.

The subscription price of HK$0.0145 per New Share represents a discount of about 82.3% to the closing price of the Shares of HK$0.082 on 15 February 2001 (which was the last trading day prior to the suspension of the trading in the Shares) and a discount of about 81.6% to the average closing price of HK$0.0788 per Share for the period of 10 trading days ended on 15 February 2001.

The cash proceeds from the Subscription, totalling about HK$34 million, will be applied by the Company in the 12 months immediately following Completion as follows:

(a) US$200,000 (equivalent to HK$1,556,000) and RMB2,000,000 (equivalent to about HK$1,870,000) in settlement of part of the debts of Hotel Co owing to the Railway Department and ICBC respectively;
(b) Up to around HK$11.3 million for cash payments due under the Debt Restructuring; and
(c) The balance of around HK$19.27 million will be retained by the Company for the general working capital requirements of the Group.

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LETTER FROM THE PROVISIONAL LIQUIDATORS

(D) Loan Capitalisation

It is estimated that the Investor will advance about HK$8.93 million to the Company for the interim working capital requirements of the Company, settlement of the fees and expenses incurred in relation to the implementation of the Proposed Restructuring and repayment of the amounts owed to the Preferential Creditors. The cash advance of about HK$6.79 million will be capitalised at Completion at HK$0.0145 per New Share resulting in 468,275,862 New Shares to be issued by the Company to the Investor, representing around 10.6% of the Company’s enlarged issued share capital upon Completion. The balance of the cash advance of about HK$2.14 million and any further amounts to be advanced by the Investor to the Company will continue to be treated as loans to the Company after Completion.

(E) Reorganisation of the Group

The Non-core Subsidiaries are either dormant or have ceased operations and had net liabilities of about HK$201.2 million in aggregate as at 31 March 2003. Their removal from the Group will not have any material impact on the continuing operations of the Group after Completion.

Group chart before and after Completion

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Before Completion
Fujian Group Limited
100% ≤ 50% 100%
Hotel Operation in PRC Property Assets in Hong Kong Non-core Subsidiaries
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----- Start of picture text -----

After Completion
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----- Start of picture text -----

Fujian Group Limited
100% ≤ 50%
Hotel Operation in PRC Property Assets in Hong Kong
----- End of picture text -----

Details of the Company’s hotel operation in the PRC are set out in Appendix I under the section headed “4. Summary of the Audited Financial Information of the Group for the two years ended 31 March 2003”.

– 13 –

LETTER FROM THE PROVISIONAL LIQUIDATORS

3. CONDITIONS PRECEDENT TO THE RESTRUCTURING AGREEMENT

Completion will be conditional upon:

The sanction by the High Court of Hong Kong of the Scheme and the Capital Reduction;
The obtaining of the approval of the Shareholders at the general meeting for the Capital Reduction, the allotment and issue of New Shares to the Investor, Sino Earn and Jian Xing, the granting of the Whitewash Waiver and such other transactions contemplated under the Restructuring Agreement which require such approvals;
Written confirmation from the Stock Exchange approving the resumption of trading in the Shares and trading of New Shares, which may be subject to conditions which are in the reasonable opinion of the Investor acceptable and in line with market practice in a transaction of this nature;
The granting by the Executive of the Whitewash Waiver to the Investor and parties acting in concert with it;
Withdrawal of the winding-up petition dated 15 January 2003 (HCCW 68 of 2003) and the discharge of the Provisional Liquidators, conditional on Completion only;
Confirmation from ICBC that it will accept an amount of not more than RMB10 million (equivalent to about HK$9.3 million) in full and final satisfaction of all claims which it may have against Hotel Co and Yan Hei, and on payment terms which are consistent with the use of cash proceeds set out in the Announcement;
A legal opinion issued by an independent PRC law firm to be reasonably agreed by the Provisional Liquidators and the Investor confirming that Hotel Co has the right to operate and manage Xiamen Plaza Hotel until 12 December 2015 in accordance with the terms of the joint venture agreement between the Railway Department and Yan Hei, as supplemented, the articles of association of Hotel Co, the business licence granted to Hotel Co and the relevant laws and regulations in the PRC, such legal opinion being satisfactory to the Investor in its reasonable opinion;
Confirmation from the Railway Department that it irrevocably accepts the right of Hotel Co to occupy and use the land on which Xiamen Plaza Hotel is situated and the building thereon in accordance with the terms of the joint venture agreement between the Railway Department and Yan Hei, as supplemented, and the relevant laws and regulations in the PRC;
Written confirmation from the Railway Department that it accepts irrevocably the payment of US$820,000 (equivalent to about HK$6.4 million) in full and final satisfaction of all amounts due to the Railway Department prior to 31 December 2002 payable on payment terms which are consistent with the use of cash proceeds set out in the Announcement and the Railway Department will not enforce any claims against Hotel Co pursuant to an award of the China International Economic & Trading Arbitration Committee dated 26 August 2002;

– 14 –

LETTER FROM THE PROVISIONAL LIQUIDATORS

An order by the court directing the 4,000 shares in Yan Hei, a subsidiary of the Company, be transferred by Good Fortune to the Group with no monetary amount payable by the Company together with an opinion from counsel setting out the steps and mechanisms for completion of such transfer and confirming that there is no legal impediment to the enforcement of that order;
Xiamen Plaza Hotel shall continue its operations at all times up to Completion; and
All other consents, approvals, authorisations, waivers, agreements, licenses, exemptions or filings with, or reports or notices to any persons, firms, entities including governmental authority reasonably required to implement the Proposed Restructuring (as the Investor and the Provisional Liquidators have agreed to be necessary (acting reasonably)).

Under the Restructuring Agreement, if any of the above conditions are not fulfilled or waived on or before 30 September 2003 or such other date as the Provisional Liquidators and the Investor may agree in writing, the Restructuring Agreement will lapse. Pursuant to an extension letter dated 24 September 2003, the Company and the Investor have agreed to extend the long stop date of the Restructuring Agreement to 31 January 2004.

Under the terms of the Restructuring Agreement, the Investor may in its sole and absolute discretion waive by notice in writing conditions precedent 6 to 11 either unconditionally or subject to any further terms and conditions which may be agreed between the Investor and the Company (acting reasonably). Any other conditions (except for items 3 to 5 which cannot be waived) may only be waived with the prior written consent of both the Investor and the Provisional Liquidators (which may or may not be granted in their sole and absolute discretion either unconditionally or subject to any further terms and conditions which may be agreed between the Investor and the Company (acting reasonably)).

As at the Latest Practicable Date, conditions 7, 8 and 9 have been fulfilled whereas condition 6 has been waived by the Investor.

The Listing Committee has given its conditional approval to the Proposed Restructuring on the conditions as set out in section 12 (A) below on the basis that conditions precedent 7, 8 and 10 shall not be waived.

Given that Sino Earn is one of the parties to the Restructuring Agreement, Sino Earn and parties acting in concert with it will abstain from voting in respect of 344,568,000 Shares, representing about 32.1% of the Company’s existing issued share capital, on the resolution to be proposed at the EGM in relation to the Whitewash Waiver and other transactions under the Restructuring Agreement. The Executive has indicated his agreement to grant the Whitewash Waiver which will be subject to the approval of the Independent Shareholders by way of a poll at the EGM.

– 15 –

LETTER FROM THE PROVISIONAL LIQUIDATORS

4. SHAREHOLDING STRUCTURE OF THE COMPANY

The existing shareholding structure and the shareholding structure of the Company immediately upon Completion are set out as follows:

Completion are set out as follows:
The Investor Sino Earn Jian Xing Pelota Worldwide Limited (In liquidation)(Note 1) Existing Director_(Note 2)_ Public	Existing structure Number of Shares % – – 344,568,000 32.1 – – 248,897,760 23.2 200,000 – 480,662,607 44.7 1,074,328,367 100.0	Upon Completion Number of New Shares % 2,813,103,448 63.6 725,533,823 16.4 151,393,534 3.4 248,897,760 5.6 – – 480,862,607 11.0 4,419,791,172 100.0
			100.0

Notes:

Pelota Worldwide Limited (“Pelota”) is wholly owned by Mr. So Sik, one of the Directors. Pelota was wound up in November 2000 by a bank in Hong Kong.
As the existing Director, Mr. Wang Hai Min, will resign upon Completion, his shareholding interest will be classified as part of the Company’s public float after Completion. Mr. Wang is also a director of Sino Earn.

The Investor, on one part, and Pelota, Mr. So Sik and Mr. Wang Hai Min, on the other part, are not parties acting in concert under the Takeovers Code.

5. WHITEWASH WAIVER

As at the Latest Practicable Date, the Investor and parties acting in concert with it do not own any securities of or interest in the Company. Upon Completion, the Investor will be interested in 2,813,103,448 New Shares, representing about 63.6% of the enlarged issued share capital of the Company. Accordingly, under Rule 26 of the Takeovers Code, upon Completion, the Investor will be required to make an unconditional general offer for all issued securities of the Company (other than those already owned or agreed to be acquired by the Investor or parties acting in concert with it).

The Investor has applied to the Executive for the Whitewash Waiver. The Executive has indicated that, it will grant the Whitewash Waiver subject to the Independent Shareholders’ approval by way of a poll at the EGM, to waive any obligations of the Investor and parties acting in concert with it to make a general offer which might result from Completion.

Pursuant to the Takeovers Code, upon Completion, the shareholding of the Investor in the Company will exceed 50%, the Investor will be free to acquire additional New Shares thereafter without incurring any further obligations under the Takeovers Code to make a mandatory offer.

The Investor and parties acting in concert with it have not dealt in any securities of the Company for the period of six months prior to 16 September 2003, the date of the Announcement.

– 16 –

LETTER FROM THE PROVISIONAL LIQUIDATORS

6. INDEBTEDNESS

As at 31 August 2003, the total unaudited indebtedness of the Group was approximately HK$659.2 million comprising secured loan from Sino Earn and Jian Xing of approximately HK$186.9 million and HK$58.7 million respectively, bank loans approximately HK$351.5 million, and other loans and payables of approximately HK$62.1 million.

Save as aforesaid, none of the companies in the Group had any outstanding mortgage charge or debenture, loan capital, bank overdraft, loan, debt security or other similar indebtedness or any hire purchase commitment, finance lease commitment, guarantee or other material contingent liability at the close of business as at 31 August 2003.

The indebtedness of the Company (except the indebtedness owed to the Investor for the purpose of the Proposed Restructuring) will be extinguished upon Completion whilst the indebtedness of the Group will be reduced from approximately HK$659.2 million as at 31 August 2003 to approximately HK$59.1 million as set out in the section headed “Pro Forma Unaudited Consolidated Balance Sheet of the Group” in Appendix I to this document.

It is expected that the major outstanding debts of the Group upon Completion will be amounts due to ICBC and the Railway Department by Hotel Co, a principal subsidiary of the Company, for which respective settlement agreements have been reached (details of which are set out in Section 7 below) and the amount of loans to be provided by the Investor to the Company (details of which are set out in Section 2(D) above).

7. SETTLEMENTS OF CLAIMS WITH ICBC AND THE RAILWAY DEPARTMENT

(A) Settlement with ICBC

As disclosed in the 2003 annual report of the Company, pursuant to a claim lodged by ICBC against the Company’s subsidiaries, Yan Hei and Hotel Co in which ICBC has obtained a judgment dated 17 June 2002 from the Xiamen Arbitration Committee in enforcing the repayment of the loan of RMB30 million plus interest thereon. A settlement agreement was subsequently entered into on 24 September 2003 by Hotel Co with ICBC.

The Provisional Liquidators and the Investor have taken into account of the following factors before agreeing to entering into the settlement agreement with ICBC:

Time and costs associated with the on-going litigation;
Uncertainty of the final outcome;
Continuing negative effect of the litigation on the market’s perception of the Company;
Long-term relationship with ICBC; and
Concessions granted in terms of interest waiver and deferral in repayment of principal over an extended period of time (i.e. time value of money).

– 17 –

LETTER FROM THE PROVISIONAL LIQUIDATORS

Pursuant to the terms of the settlement agreement between Hotel Co and ICBC dated 24 September 2003, Hotel Co has agreed to settle the ICBC Claim in the following manner:

(i) Hotel Co has agreed to settle the claims of RMB30 million (equivalent to about HK$28 million), which represents the outstanding principal due to ICBC as at 31 March 2003, to ICBC over a seven-year period after Completion as set out below:

On or before 31 December 2003* 20 December 2004 20 December 2005 20 December 2006 20 December 2007 20 December 2008 20 December 2009 20 December 2010	RMB Equivalent 2,000,000 2,000,000 3,000,000 4,000,000 5,000,000 5,000,000 5,000,000 4,000,000 30,000,000	to about HK$ 1,870,000 1,870,000 2,800,000 3,740,000 4,670,000 4,670,000 4,670,000 3,740,000
		28,030,000

Subject to the Completion date, the due date for the first instalment payment of RMB2,000,000 (equivalent to about HK$1,870,000) may be extended to 25 January 2004.
(ii) The remaining claims of RMB9 million (equivalent to about HK$8.4 million) represent the outstanding interests due to ICBC as at 31 March 2003. ICBC has agreed, subject to an application being filed by the Company each year and in accordance with its interest-waiver policy, to waive and discharge the outstanding interests payable of an amount which is up to the settlement installment of that year.
(iii) Hotel Co has agreed to reimburse RMB176,238 (equivalent to about HK$165,000) to ICBC for the arbitration expenses incurred by ICBC on or before 25 January 2004.
(iv) all interests relating to the ICBC Claim will cease to accrue.

ICBC has agreed to suspend all actions against Hotel Co so long as the settlement agreement remains effective and that Hotel Co complies with the terms and conditions therein.

– 18 –

LETTER FROM THE PROVISIONAL LIQUIDATORS

Pursuant to the terms of the standby loan facility letter between the Company and the Investor dated 17 September 2003, the Investor has agreed to provide to the Company a standby loan facility of no more than RMB29 million (equivalent to about HK$27.1 million) for the settlement with the ICBC. The principal terms of the standby loan facility are set out below:

Principal terms of the standby loan facility

Amount: Up to RMB29 million (equivalent to about HK$27.1 million)

Purpose:

The loan facility should only be used by the Company for settlement or discharge of Hotel Co and Yan Hei’s liabilities under the ICBC Claim and not for any other purpose

Interest rate: 2% per annum on the amount drawn and outstanding under the facility, payable annually in arrears on the twentieth of December of each calendar year
Availability: Subject to (i) Completion on or before 31 January 2004, and (ii) the payment of RMB10 million (equivalent to about HK$9.3 million) by the Company or any members of the Group to ICBC for the settlement of ICBC Claim as evidenced by receipt of payment from ICBC, the facility will be available for 5 years after the date of payment of RMB10 million (equivalent to about HK$9.3 million) in relation to the ICBC Claim

Repayment:

All amount drawn and outstanding under the facility together with any unpaid interest thereon shall be repaid no later than 1 year immediately following the Termination as set out below, in one or more payments in integral multiple of RMB1 million (equivalent to about HK$0.9 million) provided that the Company shall procure Hotel Co and Yan Hei to make repayment to the Company in which case the Company shall forthwith repay those sums to the Investor

Termination:

The facility shall terminate upon the first of any of the following to occur:

(i) the ICBC Claim has been fully settled pursuant to the ICBC settlement agreement entered into between Hotel Co and ICBC dated 24 September 2003; or
(ii) 20 December 2010; or
(iii) Hotel Co and Yan Hei are not longer obliged to make any repayment of any sum or sums still outstanding under the ICBC Claim; or
(iv) Hotel Co no longer operates as a going concern.

– 19 –

LETTER FROM THE PROVISIONAL LIQUIDATORS

(B) Settlement with the Railway Department

On 26 August 2002, the China International Economic and Trading Arbitration Committee delivered a judgment requiring Yan Hei to pay the agreed guaranteed distributable profits of US$580,000 (equivalent to about HK$4.5 million) for the years 1998 to 2000 together with the accrued interests and surcharge to the Railway Department. A settlement agreement was subsequently entered into on 30 September 2003 among Hotel Co, Yan Hei and the Railway Department.

Pursuant to the terms of the settlement agreement, Yan Hei will settle US$820,000 (equivalent to about HK$6.4 million), representing the judgement claim and all subsequent amounts due up to the date of the agreement, to the Railway Department in full over a five year period subject to Completion as set out below:

From date of Completion 1st anniversary 2nd anniversary 3rd anniversary 4th anniversary 5th anniversary	US$ Equivalent* 200,000 200,000 170,000 150,000 100,000 820,000	to about HK$ 1,556,000 1,556,000 1,323,000 1,167,000 778,000
		6,380,000

* All payments will be made by Yan Hei in monthly instalments.

The Railway Department has also agreed that should the terms stated above be properly fulfilled, it will not enforce any claims pursuant to an award of the China International Economic and Trading Arbitration Committee dated 26 August 2002.

Yan Hei is not required to pay any interest on the outstanding balance of the claim nor reimburse the Railway Department for the arbitration expenses.

The Railway Department has also agreed that it irrevocably accepts the right of Hotel Co to occupy and use the land on which Xiamen Plaza Hotel is situated and the building thereon in accordance with the terms of the joint venture agreement between the Railway Department and Yan Hei, as supplemented, and the relevant laws and regulations in the PRC.

8. REASONS FOR THE PROPOSED RESTRUCTURING

The Proposed Restructuring, if implemented, will provide the Company with the necessary working capital and financial resources to revitalise its business operations and to compromise and discharge of all its indebtedness (except the indebtedness owed to the Investor for the purpose of the Proposed Restructuring) through the compromise with Sino Earn and Jian Xing and the Scheme.

The Proposed Restructuring is the only viable proposal available to the Company. If it is not implemented, the Company will be wound up and the Shareholders will not receive any return from their investment in the Company. On this basis, the Provisional Liquidators consider that the Proposed Restructuring serves the best interests of both the creditors and the shareholders of the Company.

– 20 –

LETTER FROM THE PROVISIONAL LIQUIDATORS

9. MAINTAINING THE LISTING STATUS OF THE COMPANY

It is the intention of the Investor to maintain the listing status of the Company on the Stock Exchange upon Completion. Accordingly, the Investor will undertake to the Stock Exchange that it will take appropriate steps to ensure that an adequate number of New Shares are placed to independent third parties so that the public float of the Company will be restored to not less than 25% upon Completion to meet the requirements under Rule 8.08 of the Listing Rules before resumption of trading.

The Stock Exchange has stated that if less than 25% of the issued New Shares are in public hands following Completion or if the Stock Exchange believes that:

a false market exists or may exist in the trading of the New Shares; or
there are insufficient New Shares in public hands to maintain an orderly market,

it will consider exercising its discretion to suspend or continue to suspend the trading in the New Shares.

The Stock Exchange has further stated that, if the Company remains listed on the Stock Exchange, any acquisitions or disposals of assets by the Company will be subject to the provisions of the Listing Rules. Pursuant to the Listing Rules, the Stock Exchange has the power to aggregate a series of acquisitions or disposals by the Company and any such acquisitions or disposals may, in any event, result in the Company being treated as if it were a new applicant for listing and subject to the requirements for new listing applicants as set out in the Listing Rules.

If the share price of the New Shares upon resumption of trading approachs extremity of HK$0.01, the Company will take appropriate step(s), such as to effect a share consolidation, to comply with the requirements of paragraph 30 of the Listing Agreement.

10. PROPOSED CHANGE OF COMPANY NAME

The Provisional Liquidators will propose a special resolution to the Shareholders at the EGM to change the English name of the Company to “Fujian Holdings Limited” and the Chinese name of the Company to “閩港控股有限公司 ”.

The new name is subject to the passing of a special resolution by the Shareholders at the EGM and the approval by the Registrar of Companies in Hong Kong. The Provisional Liquidators will carry out the necessary filing procedures with the Registrar of Companies in Hong Kong.

11. GENERAL MANDATES TO ISSUE AND TO REPURCHASE SECURITIES

An ordinary resolution will be proposed at the EGM to grant an unconditional general mandate to the Directors to allot, issue and deal with additional New Shares and other securities of the Company not exceeding 20% of the aggregate amount of the issued share capital of the Company immediately following Completion.

– 21 –

LETTER FROM THE PROVISIONAL LIQUIDATORS

An ordinary resolution will also be proposed at the EGM to give the Directors a mandate to repurchase New Shares on the Stock Exchange up to a maximum of 10% of the issued share capital of the Company immediately following Completion.

An explanatory statement as required by the relevant provisions of the Listing Rules in connection with the Repurchase Mandate is set out in Appendix V to this document.

12. SUSPENSION AND RESUMPTION OF TRADING OF THE SHARES

(A) Conditional approval from the Listing Committee

The Listing Committee has conditionally approved the Proposed Restructuring, subject to fulfillment of the following conditions prior to the resumption of trading of the Shares on the Stock Exchange:

An independent financial adviser to advise the Independent Shareholders whether the Proposed Restructuring is fair and reasonable so far as the interests of the Independent Shareholders are concerned;
Passing of the resolutions relating to the Proposed Restructuring by the Independent Shareholders;
Restoring the holding of at least 25% of the Company’s issued share capital in public hands;
Issue of the Company’s annual results announcement and annual report for the year ended 31 March 2003;
Issue of a resumption of trading of the Shares announcement;
Withdrawal of all winding up petitions, if any, filed against any member of the Group;
Hotel Co is not subject to any outstanding claims and litigation;
The Investor, auditors and financial advisers of the Company to provide comfort letters on the Group’s cash flow projections and these comfort letters will be included in the circular to the Shareholders; and
Fulfilment of all other conditions, in particular fulfillment (and not waiver) of conditions numbered 7, 8 and 10 stipulated in Section 3 above before Completion.

Conditions 1, 4 and 8 have been fulfilled as at the date of this document.

– 22 –

LETTER FROM THE PROVISIONAL LIQUIDATORS

The Listing Committee has approved that the Company would be deemed to have fulfilled condition 7 and that part of condition 9 which relates to the ICBC Claim, notwithstanding the existence of the ICBC Claim and minor claims, subject to compliance with the following:

(a) Confirmation of sufficiency of working capital of the Group after Completion based on the Group’s cash flow forecast for the 18 months ending 30 September 2004 is submitted to the Stock Exchange;
(b) Obtaining a written confirmation from the Railway Department in respect of the proposed settlement that Hotel Co will repay US$820,000 (equivalent to about HK$6.4 million) to the Railway Department over the five years after Completion; and
(c) The Investor will provide a fund proof, issued by a licensed bank in Hong Kong, of a standby loan facility of not more than RMB29 million (equivalent to about HK$27.1 million) to the Stock Exchange on or before Completion. The loan facility is restricted to the settlement of the ICBC Claim.

The above conditions (a) and (b) have been fulfilled as at the date of this document.

(B) Resumption of trading of the Shares

Trading in the Shares was suspended at the request of the Company with effect from 10:00 a.m. on 16 February 2001 and will remain suspended until the Company can satisfy the Stock Exchange that all of the above conditions imposed by the Listing Committee are fulfilled.

The Company is required to implement the Restructuring Agreement including fulfillment of the conditions imposed by the Listing Committee and resumption of trading in the Shares within six months from 25 July 2003, i.e. on or before 24 January 2004.

13. LISTING AND DEALINGS

An application will be made to the Stock Exchange for the listing of, and permission to deal in the New Shares to be allotted and issued under the Restructuring Agreement.

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

– 23 –

LETTER FROM THE PROVISIONAL LIQUIDATORS

14. ARRANGEMENT FOR SHARE CERTIFICATES

The Capital Restructuring will become effective on the date of Completion.

Subject to the Capital Restructuring becoming effective, certificates for New Shares will be issued in order to distinguish them from certificates for Shares. The certificate for Shares is purple in colour and the certificate for New Shares will be pink in colour.

Shareholders may from 15 December 2003 to 12 January 2004 (both dates inclusive) submit certificates for the Shares to the Company’s share registrars, Standard Registrars Limited at Ground Floor, BEA Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong, to exchange, at the expense of the Company, for new certificates for the New Shares in issue. Thereafter, certificates for the Shares will be accepted for exchange on payment of a fee of, the higher of the following: (i) HK$2.50 multiplied by the number of new certificates issued; or (ii) HK$2.50 multiplied by the number of existing certificates cancelled (or such amount as may from time to time be allowed by the Stock Exchange whichever is higher). It is expected that the certificates for the New Shares will be ready within ten working days from the date of submission of the certificates of the Shares.

All the existing share certificates for the Shares will continue to be effective as documents of title for the same number of New Shares and valid for trading, settlement and registration purpose.

15. EGM

A notice convening the EGM is enclosed in this document which is to be held at 10:00 a.m. on Monday, 3 November 2003 at Lower Lobby, Novotel Century Hong Kong Hotel, 283 Jaffe Road, Wanchai, Hong Kong at which resolutions will be proposed to the Shareholders to approve, among other things, the Proposed Restructuring contemplated in the Restructuring Agreement, the Whitewash Waiver, the proposed change of the Company name, the New Issue Mandate, and the Repurchase Mandate.

A form of proxy for use at the EGM is enclosed. Whether or not you are able to attend the EGM, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon to the office of Provisional Liquidators, 7/F Allied Kajima Building, 138 Gloucester Road, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding of the EGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjournment thereof should you so desire.

– 24 –

LETTER FROM THE PROVISIONAL LIQUIDATORS

16. GENERAL

Asian Capital, the financial adviser to the Investor, has confirmed that sufficient financial resources are available to the Investor to satisfy its obligations under the Restructuring Agreement.

The power of the Directors have been suspended since the appointment of the Provisional Liquidators. No independent board committee of the Company will be formed but Dao Heng Securities has been appointed as the independent financial adviser to advise the Independent Shareholders in relation to the fairness and reasonableness of the terms of the Restructuring Agreement and the Whitewash Waiver. Details of the advice and recommendations of Dao Heng Securities, together with the principal factors and reasons taken into consideration in arriving at such advice and recommendations are set out in pages 30 to 41 of this document.

17. RECOMMENDATIONS

The letter from Dao Heng Securities set out in this document contains the principal factors and reasons considered by Dao Heng Securities and its advice to the Independent Shareholders in relation to the Restructuring Agreement and the Whitewash Waiver. Dao Heng Securities has recommended the Independent Shareholders to vote in favour of the relevant resolutions to be proposed at the EGM. Independent Shareholders are strongly advised to consider the letter before deciding to vote in favour of or against the resolutions to be proposed at the EGM.

18. ADDITIONAL INFORMATION

Your attention is drawn to additional information set out in the appendices to this document, the letter from Dao Heng Securities in respect of the Restructuring Agreement and the Whitewash Waiver, and the notice of the EGM.

Yours faithfully, For and on behalf of

Fujian Group Limited

(Provisional Liquidators Appointed) Cosimo Borrelli Fan Wai Kuen

Joint and Several Provisional Liquidators

– 25 –

LETTER FROM THE INVESTOR

HC TECHNOLOGY CAPITAL COMPANY LIMITED

(Incorporated in British Virgin Islands with limited liability)

Directors: Mr. Chen Ruizeng Mr. Wang Xiaowu Ms. Mei Qinping Ms. Chen Danyun Mr. Chen Chuanzhong

Registered Office: Offshore Corporation Limited P.O. Box 957 Offshore Incorporation Center Road Town, Tortola British Virgin Islands

9 October 2003

To the Shareholders,

Dear Sir/Madam,

PROPOSED RESTRUCTURING OF FUJIAN GROUP LIMITED (PROVISIONAL LIQUIDATORS APPOINTED) INVOLVING CAPITAL RESTRUCTURING, DEBT RESTRUCTURING, SUBSCRIPTION FOR NEW SHARES, LOAN CAPITALISATION, WHITEWASH WAIVER AND CHANGE OF COMPANY NAME AND GENERAL MANDATES TO ISSUE AND TO REPURCHASE SECURITIES

1. INTRODUCTION

It was announced on 30 May 2003 and 16 September 2003 that the Restructuring Agreement was entered into on 25 April 2003 between, among others, the Company and the Investor. Details of the terms of the Restructuring Agreement are set out in the “Letter from the Provisional Liquidators”. The purpose of this letter is to provide you with, among others, additional information on the Investor as well as on the future plans of the Group after Completion.

2. INFORMATION ON THE INVESTOR

The Investor is an investment holding company incorporated in the British Virgin Islands on 27 August 2002. The entire issued share capital of the Investor is beneficially owned by FIDC. FIDC is a company incorporated in the British Virgin Islands and is ultimately owned by the Government of the Fujian Province in the PRC. Except for various agreements entered into with the Provisional Liquidators in relation to the Proposed Restructuring, the Investor has not engaged in any other business since its incorporation.

Directors of FIDC are Messrs. Zhuang Yousong, Yang Dongcheng, Chen Ruizeng, Sa Bengan, Wang Xiaowu, Yerong and Wang Ruilian.

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LETTER FROM THE INVESTOR

Directors of the Investor are Messrs. Chen Ruizeng, Wang Xiaowu and Chen Chuanzhong, Ms Mei Qinping and Chen Danyun.

All of the Investor, Jian Xing and Sino Earn are PRC state-owned enterprises. As in the case of all other state-owned enterprises, their shareholdings are ultimately traced to the PRC state. As such, it may appear that they would fall under class (1) of the presumed classes of parties “acting in concert” under the “Definitions” section of the Takeovers Code. However, FIDC is under the administration of the Administration Office. Whilst, on the other hand, Sino Earn and Jian Xing are both under the administration of the Ministry of Finance. The Administration Office and the Ministry of Finance are separate and distinct branches under the Government of the Fujian Province. On this basis, the Investor has made a submission to the Executive and the Executive has yet to confirm that the Investor, on one part, and Sino Earn and Jian Xing, on the other part, are not parties acting in concert under the Takeovers Code.

The diagram below illustrates the relationship between the Government of the Fujian Province, the Administration Office, the Ministry of Finance, FIDC, Sino Earn and Jian Xing:

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

Government of the Fujian Province
Administration Office
of the Government of
the Fujian Province
administration
Ministry of Finance of
Fujian Investment and
the Government of the
Development Company Limited
Fujian Province
administration
Sino Earn and Jian Xing
----- End of picture text -----

The Investor is independent of and not connected with the directors, chief executive and substantial shareholders of the Company, any of its subsidiaries or their respective associates as defined under the Listing Rules.

3. FUTURE INTENTIONS OF THE INVESTOR

(A) Business

The Investor concurs with the Provisional Liquidators that the Proposed Restructuring, if implemented, will provide the Company with the necessary working capital and financial resources to revitalise its business operations and to compromise and discharge of all its indebtedness (except the indebtedness owed to the Investor for the purpose of the Proposed Restructuring) through the compromise with Sino Earn and Jian Xing and the Scheme. The Company will be in a much healthier financial position to operate and manage its hotel and property investment business.

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LETTER FROM THE INVESTOR

It is the intention of the Investor that upon Completion, the Group will continue its existing businesses of hotel operations and property investment. It will conduct a review of the present and past business activities of the Group in order to formulate long-term business plans and strategies for the Group, and may seek to enter into new business areas that could enhance the operations and profitability of the Group. However, the Investor has no definite or specific plans for such diversification, including any redeployment of the fixed assets.

(B) Directors and management

The Board consists of eight Directors. Since the appointment of the Provisional Liquidators, the powers of the Directors have been suspended. It is the intention of the Investor that all existing Directors will resign and five new Directors will be appointed upon Completion.

Particulars of the proposed Directors are set out below:

Executive Directors

Mr. Wang Xiaowu, aged 46, is a director and the vice chairman of the Investor and the vice general manager of FIDC. Mr. Wang has 20 years of commercial and management experience. Before joining FIDC in 2001, Mr. Wang held various senior positions in Fujian International Trust and Investment Corporation including assistant president, the general manager of the Treasury Department and the International Finance Department. Mr. Wang holds a bachelor degree in electrical and mechanical engineering from Qing Hua University in the PRC and a MBA degree from University of Glasgow in the United Kingdom.

Ms. Mei Qinping, aged 39, is a director and the general manager of the Investor and the assistant president of FIDC. Ms. Mei has 15 years of financial management experience. Before joining FIDC in 2001, Ms. Mei was the vice general manager of the Treasury Department and the general manager of Strategic Planning Department of Fujian International Trust and Investment Corporation. Ms. Mei holds a bachelor degree and a master degree in Economics from Xiamen University in the PRC.

Ms. Chen Danyun, aged 38, is a director and the vice general manager of the Investor. Ms. Chen has 19 years of experience in international trade and has been a senior manager of FIDC since 2002. Ms. Chen holds a bachelor degree in Economics from Xiamen University in the PRC and a MBA degree from Murdoch University in Australia.

Independent Non-Executive Directors

Mr. Lam Kwong Siu, aged 69, is the Vice Chairman of BOC International Holdings Limited, the Delegate of the National People’s Congress, the Chairman of Hong Kong Fukien Chamber of Commerce, the Vice Chairman of Fujian Hong Kong Economic Cooperation, the Treasurer of the Chinese General Chamber of Commerce and the Hong Kong Chinese Enterprises Association, and a Non-Executive Director of Hong Kong CITIC Ka Wah Bank Limited and China Overseas Land & Investment Ltd.. Mr. Lam was awarded the HKSAR Silver Bauhinia Star in 2003.

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LETTER FROM THE INVESTOR

Mr. Christopher, Cheung Wah Fung, aged 51, is the Chairman and Chief Executive of Christfund Securities Limited, Christfund Futures Limited, Christfund Finance Limited and Christfund Corporate Finance Limited, Member of the People’s Political Consultative Conference of PRC, a former Council member of the Hong Kong Stock Exchange and a former Director of the Hong Kong Securities Clearing Co. Ltd., Director of The Chinese General Chamber of Commerce and the Honorary Chairman of Hong Kong Federation of Fujian Associations. Mr. Cheung was appointed as Justice of Peace by the Chief Executive of the HKSAR Government in 2000.

Upon Completion, the Investor will carry out a detailed operational review of the Group (Hotel Co in particular) which may result in rationalisation of operations and a reduction in number of management and staff.

4. MAINTAINING THE LISTING STATUS OF THE COMPANY

The Stock Exchange has stated that if less than 25% of the issued New Shares are in public hands following Completion or if the Stock Exchange believes that:

a false market exists or may exist in the trading of the New Shares; or
there are insufficient New Shares in public hands to maintain an orderly market,

it will consider exercising its discretion to suspend or continue to suspend the trading in the New Shares.

5. GENERAL INFORMATION

Your attention is drawn to the letter from the Provisional Liquidators, the letter from Dao Heng Securities and the additional information set out in the appendices to this document.

Yours faithfully,

By order of the board of the directors

HC TECHNOLOGY CAPITAL COMPANY LIMITED

Mei Qinping Director

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LETTER FROM DAO HENG SECURITIES

Set out below is the text of the letter of advice from Dao Heng Securities to the Independent Shareholders in connection with the Proposed Restructuring and the Whitewash Waiver prepared for inclusion in this circular.

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9 October 2003

The Independent Shareholders Fujian Group Limited (Provisional Liquidators Appointed) c/o The Provisional Liquidators RSM Nelson Wheeler Corporate Advisory Services Limited 7/F Allied Kajima Building 138 Gloucester Road

Wan Chai Hong Kong

Dear Sir/Madam,

PROPOSED RESTRUCTURING OF FUJIAN GROUP LIMITED (PROVISIONAL LIQUIDATOR APPOINTED) INVOLVING CAPITAL RESTRUCTURING, DEBT RESTRUCTURING, SUBSCRIPTION FOR NEW SHARES, LOAN CAPITALISATION AND WHITEWASH WAIVER

We refer to our engagement to advise the Independent Shareholders in relation to the Proposed Restructuring and the Whitewash Waiver, details of which are set out in the letter from the Provisional Liquidators in a circular dated 9 October 2003 to the shareholders of the Company (the “Circular”), of which this letter forms a part. Terms used in this letter shall have the same meanings as those defined in the Circular unless the context otherwise requires.

As the powers of the Directors have been suspended since the appointment of the Provisional Liquidators, no independent board committee of the Company will be formed. Our role as the independent financial adviser will be therefore to advise the Independent Shareholders on the terms of Proposed Restructuring contemplated under the Restructuring Agreement and the Whitewash Waiver.

In formulating our recommendations, we have relied on the accuracy of the information and representations contained in the Circular. We have assumed that all information and representations made or referred to in the Circular and all information and representations which have been provided by the Provisional Liquidators, are true and accurate in all material respects and that all expectations and intentions of the Company, the Provisional Liquidators or the Investor will be met or carried out as the case may be. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Provisional Liquidators and referred to in the Circular, and we have been advised by the Provisional Liquidators that no material facts have been omitted from the information provided to us and referred to in the Circular. We consider that we have reviewed sufficient information to reach an informed view. We have not, however, conducted any form of independent investigation into the businesses and affairs or the financial position or the future prospects of the Company.

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LETTER FROM DAO HENG SECURITIES

BACKGROUND OF THE PROPOSED RESTRUCTURING

The principal activities of the Group are property investment in Hong Kong and hotel operation in the PRC. The Group’s financial position began to deteriorate following the Asian financial crisis and a severe downturn in the property market in Hong Kong, leading to a substantial decline in rental income and diminution in the value of the Group’s property investment. The Group’s operations in Hong Kong and the PRC have been adversely constrained for some time and trading of the Shares on the Stock Exchange has been suspended since 16 February 2001 as a result of the appointment of receivers and managers to various properties owned by the Group. The suspension remains in place as at the Latest Practicable Date.

Pursuant to an Order by the Court made on 15 January 2003, the Provisional Liquidators were appointed. On 25 April 2003, the Company and the Provisional Liquidators entered into the Restructuring Agreement with, amongst others, the Investor, Sino Earn and Jian Xing. The Restructuring Agreement sets out the terms and conditions in relation to, amongst others, the Capital Restructuring, the Debt Restructuring, the Subscription, the Loan Capitalisation, the reorganization of the Group and the Whitewash Waiver. Details of the Proposed Restructuring are described in the letter from the Provisional Liquidators contained in the Circular.

Completion is subject to a number of conditions which include, amongst others, obtaining the approval of the Shareholders at the general meeting for the Capital Reduction, the allotment and issue of New Shares to the Investor, Sino Earn and Jian Xing, the granting of the Whitewash Waiver and such other transactions contemplated under the Restructuring Agreement which require such approvals.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In considering whether or not the terms of the Restructuring Agreement are fair and reasonable so far as the interests of the Independent Shareholders are concerned, we have given particular regard to the following principal factors and reasons:

Reasons for the Proposed Restructuring

As set out in the annual report of the Company for the year ended 31 March 2003, the summary of the results and statement of net assets/liabilities of the Group for the five financial years ended 31 March 2003 are summarised as follows:

Results

		Year	ended 31	March
	2003	2002	2001	2000	1999
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
		(restated)
Turnover	19,158	27,442	60,346	58,850	86,662
Loss attributable to Shareholders	(75,229)	(175,698)	(108,127)	(345,118)	(540,030)

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LETTER FROM DAO HENG SECURITIES

Statement of Net Assets/Liabilities

Total assets Total liabilities Net (liabilities)/assets	2003 HK$’000 138,768 (634,694) (495,926)	As at 31 March 2002 2001 2000 HK$’000 HK$’000 HK$’000 (restated) 316,057 525,354 963,275 (733,920) (747,049) (1,096,394) (417,863) (221,695) (133,119)	1999 HK$’000 1,028,299 (813,800) 214,499

The Group has been experiencing financial difficulties since 1999 as a result of the Asian financial crisis and the subsequent severe downturn in the property market in Hong Kong. The audited loss attributable to Shareholders was about HK$75 million for the year ended 31 March 2003 as compared to a loss attributable to Shareholders of about HK$176 million for the year ended 31 March 2002. The audited net liabilities of the Group was about HK$496 million as at 31 March 2003 as compared to an audited net liabilities of about HK$418 million as at 31 March 2002. The auditors of the Company qualified the accounts for the years ended 31 March 2000, 2001, 2002 and 2003 since they were unable to form an opinion on the audited accounts of the Company and the Group for all these years as to whether the accounts gave a true and fair view of the state of affairs of the Company and the Group as at 31 March 2000, 2001, 2002 and 2003 and of the losses and cash flows of the Group for these years then ended and as to whether the financial statements had been properly prepared in accordance with the requirements of the Hong Kong Companies Ordinance. The Group’s debt ratio measured by the total liabilities over the total assets was 4.54 as at 31 March 2003, compared to 2.32 as at 31 March 2002. The Group has been unable to meet most of the scheduled repayments due to its banks and creditors since August 1999, and all of the Group’s credit facilities were either frozen or due for payment.

From these figures, it is apparent that without implementation of a restructuring, the Group is unlikely to be able to achieve a recovery through the internal resources and existing business operations of the Group. The Proposed Restructuring, if implemented, will provide the Company with the necessary working capital and financial resources to revitalise its business operations and to compromise and discharge of all its indebtedness (except the indebtedness owed to the Investor for the purpose of the Proposed Restructuring) through the compromise with Sino Earn and Jian Xing and the Scheme. The Provisional Liquidators considered that the Proposed Restructuring is the only viable proposal available to the Company and, if it is not implemented, the Company will be wound up and the Shareholders will not receive any return from their investment in the Company. On this basis, we concur with the view of the Provisional Liquidators that the Proposed Restructuring serves the best interests of both the creditors of the Company and the Shareholders.

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LETTER FROM DAO HENG SECURITIES

Terms of the Restructuring Agreement

(A) Capital Restructuring

Under the Proposed Restructuring, the Company’s share capital will be restructured by way of the Capital Reduction and the Unissued Share Subdivision, details of which are set out in the letter from the Provisional Liquidators contained in the Circular.

The purpose of the Capital Restructuring is to enable the Company to issue the New Shares at a consideration below the current nominal value of HK$0.125 per Share, which is part of the other steps such as Debt Restructuring and Subscription under the Proposed Restructuring. As a result of the Capital Restructuring, a credit of around HK$120.9 million will arise and be applied to reduce part of the accumulated losses of the Company of approximately HK$1,161.4 million as at 31 March 2003. It is one of the conditions precedent to the Restructuring Agreement that the Capital Reduction be approved by the Shareholders. In view of the benefits of the Proposed Restructuring, we consider the Capital Restructuring a reasonable step and is in the interests of the Company.

(B) Debt Restructuring

Indebtedness of the Company

As at 31 March 2003, the Company had audited unsecured indebtedness of around HK$489.7 million and secured indebtedness of around HK$236.3 million. As at 31 August 2003, the Company’s unsecured indebtedness and secured indebtedness increased to approximately HK$501.8 million and HK$245.6 million respectively. It is proposed that the outstanding liabilities of the Company will be restructured by way of a compromise with Sino Earn and Jian Xing, the Scheme and the repayment to the Preferential Creditors. Details of the Debt Restructuring are set out in the letter from the Provisional Liquidators.

We note from the letter from the Provisional Liquidators that major creditors of the Company, including the major bank creditors, Sino Earn and Jian Xing, representing approximately 95% of the Company’s total indebtedness as at 31 March 2003 have confirmed in writing their “in-principle support” for the preliminary proposal dated 17 January 2003 which set out the key commercial terms of the Proposed Restructuring. Upon Completion, all creditors of the Company, except the Investor, will settle their claims against the Company in accordance with the terms of the Restructuring Agreement and the Scheme. Accordingly, the indebtedness of the Company (except the indebtedness owed to the Investor for the purpose of the Proposed Restructuring) will be extinguished upon Completion. It is estimated that the amount owed to the Investor, for the purpose of the Proposed Restructuring, will be about HK$2.14 million upon Completion, details of which are set out in the letter from the Provisional Liquidators.

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LETTER FROM DAO HENG SECURITIES

Indebtedness of the Group

As at 31 March 2003, the Group had audited indebtedness of around HK$634.7 million. As at 31 August 2003, the Group’s indebtedness increased to approximately HK$659.2 million. It is expected that the major outstanding debts of the Group upon Completion will be claims brought by ICBC and the Railway Department against Hotel Co, a principal subsidiary of the Company, for about RMB39 million (equivalent to about HK$36.4 million) and US$820,000 (equivalent to about HK$6.4 million) respectively as at 31 March 2003 as well as the estimated amount of the loans to be provided by the Investor to the Company of about HK$2.14 million. The indebtedness of the Group is estimated to be about HK$59.1 million upon Completion.

Pursuant to a settlement agreement between Hotel Co and ICBC dated 24 September 2003, it has been agreed that Hotel Co will settle the claim of RMB30 million (equivalent to approximately HK$28 million) over a period of seven years after Completion while the remaining claim of RMB9 million (equivalent to approximately HK$8.4 million), representing the outstanding interest due to ICBC, will be waived and discharged by ICBC subject to an application being filed by the Company each year in accordance with ICBC’s interestwaiver policy over the same period of seven years. In this regard, the Investor has agreed to provide to the Company a standby loan facility of no more than RMB29 million (equivalent to approximately HK$27.1 million) for the sole purpose of settlement of the claims by ICBC. Details of the terms of this standby loan facility is contained in the letter from the Provisional Liquidators contained in the Circular. Under the settlement agreement, Hotel Co has also agreed to reimburse RMB176,238 (equivalent to about HK$165,000) to ICBC for the arbitration expenses incurred by ICBC on or before 25 January 2004. In addition, all interests relating to the ICBC Claim will cease to accrue.

Although there is no reduction agreed by ICBC in respect of the repayment of the principal amount of RMB30 million (equivalent to approximately HK$28 million), we understand that the following factors have been considered by the Provisional Liquidators and the Investor in agreeing to the entering of the settlement agreement with ICBC:

(a) time and costs associated with on-going litigation;
(b) uncertainty of the final outcome of such litigation;
(c) the negative effect of such litigation on the market’s perception of the Company;
(d) the long term relationship with ICBC; and
(e) concessions granted by ICBC on the outstanding interest and the time value of deferred repayment of the principal over a period of seven years.

In view of the above and the importance to have the claim by ICBC settled quickly so that the Proposed Restructuring can proceed, we are of the opinion that the above settlement is acceptable. Moreover, given the financial positions of the Company and the Group, it is difficult, if not impossible, for the Company to secure any loan facility or long term financing

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LETTER FROM DAO HENG SECURITIES

from outside third parties. Therefore, we are also of the view that the standby loan facility provided by the Investor is beneficial to the Company.

It has also been agreed that the claim of US$820,000 (equivalent to about HK$6.4 million) by the Railway Department will be fully settled over five years from the date of Completion. The Railway Department has agreed not to enforce any claims again Hotel Co pursuant to an award of the China International Economic and Trading Arbitration Committee dated 26 August 2002 and has accepted the right of Hotel Co to occupy and use the land on which the Group’s hotel is situated.

Although the settlement of the claims with ICBC and the Railway Department is not part of the Debt Restructuring of the Company, the above arrangements clear the uncertainty regarding these claims upon Completion and are therefore beneficial to the Proposed Restructuring.

As significant amount of indebtedness has been discharged and waived by the creditors of the Company and of the Group upon successful implementation of the Proposed Restructuring, we are of the opinion that the Debt Restructuring is in the interests of the Company and the Shareholders as a whole.

(C) Subscription for New Shares by the Investor

Immediately after the implementation of the Capital Restructuring, the Investor will subscribe for around 2,344,827,586 New Shares at HK$0.0145 each for a total cash consideration of HK$34 million. The number of New Shares to be subscribed for by the Investor represents about 2.18 times of the existing issued share capital or about 53.1% of the enlarged issued share capital of the Company upon Completion, but before placing down to the public.

It is likely that the cash proceeds from the Subscription, totaling about HK$34 million, will be applied by the Company in the 12 months immediately following Completion as follows:

(a) US$200,000 (equivalent to HK$1,556,000) and RMB2,000,000 (equivalent to about HK$1,870,000) for settlement of part of the debts of Hotel Co owing to Railway Department and the ICBC respectively;
(b) up to around HK$11.3 million for cash payments under the Debt Restructuring; and
(c) the balance of around HK$19.27 million will be retained by the Company for general working capital requirements of the Group.

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LETTER FROM DAO HENG SECURITIES

Despite the substantial discount of the subscription price, we consider that given the current financial conditions of the Company, it would unlikely be able to raise any funds from debt or equity issue at the then prevailing market prices of the Shares. As set out in the pro forma unaudited consolidated balance sheet of the Group in Appendix I to the Circular, the audited consolidated net liabilities of the Group prior to the implementation of the Proposed Restructuring amounted to about HK$496 million or equivalent to about HK$(0.46) per Share. The subscription price of HK$0.0145 represents a significant amount over the audited consolidated net liabilities attributed to each existing Share of the Company. The pro forma unaudited adjusted consolidated net tangible assets of the Group upon Completion will amount to about HK$72 million, which is equivalent to about HK$0.016 per New Share which represents a significant improvement as compared with the audited consolidated net liabilities of about HK$496 million, or about HK$(0.46) per New Share prior to the implementation of the Proposed Restructuring.

Given the facts that the Group has been operating at losses for years, its latest audited consolidated net assets as at 31 March 2003 were in deficiency of approximately HK$496 million, its lack of a stable dividend policy and trading of the Shares has been suspended since 16 February 2001, we consider commonly used valuation techniques such as comparison of price earning ratios and price to book ratios of similar companies, issue price to market price comparison and valuation based on future dividend payouts all inappropriate or inapplicable in assessing the fairness of the Subscription Price.

In view of the significant amount of financial resources to be provided by the Investor to the Company through the subscription of new Shares, the positive financial effects to the Company as discussed in the section headed “Effects of the Proposed Restructuring” below which includes a significant improvement of the net assets of the Group upon the Completion and the avoidance of a possible involuntary liquidation of the Company, we consider that the subscription of New Shares by the Investor at a subscription price of HK$0.0145 each is commercially acceptable and in the interests of the Company and Shareholders as a whole.

(D) Loan Capitalisation

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LETTER FROM DAO HENG SECURITIES

(E) Reorganisation of the Group

Subject to the Investor’s consent, the Non-core Subsidiaries will be deregistered, transferred to the Provisional Liquidators (or their nominees) or wound up. Any disposal of assets by the Company will comply with the provisions of the Takeovers Code. The Non-core Subsidiaries are either dormant or have ceased operations and had net liabilities of about HK$201.2 million in aggregate as at 31 March 2003. The Provisional Liquidators are of the view that their removal from the Group will not have any material impact on the continuing operations of the Group after Completion. On this basis, we consider the reorganisation a reasonable and acceptable arrangement.

EFFECTS OF THE PROPOSED RESTRUCTURING

Net Assets

Based on the pro forma unaudited consolidated balance sheet of the Group as set out in Appendix I to the Circular, the pro forma unaudited adjusted consolidated net tangible assets of the Group upon the Completion will amount to about HK$72 million, which is equivalent to about HK$0.016 per New Share. This represents a significant improvement as compared with the net deficits of approximately HK$496 million, or about HK$(0.46) per Share prior to the implementation of the Proposed Restructuring.

The Proposed Restructuring will accordingly improve the net asset position and the capital base of the Group significantly, represented by the cash received under the Subscription and indebtedness waived, compromised or discharged under the Debt Restructuring and the disposal of the Non-core Subsidiaries after accounting for the restructuring costs and other expenses.

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

Working Capital

Immediately after the implementation of the Capital Restructuring, the Investor will subscribe for around 2,344,827,586 New Shares at HK$0.0145 each for a total cash consideration of HK$34 million. The expected application of such cash proceeds, as described in the paragraph headed “Subscription for New Shares by the Investor” under the section headed “Terms of the Restructuring Agreement” above, includes retaining an amount of around HK$19.27 million by the Company for general working capital requirements. The Provisional Liquidators are of the opinion that in the absence of unforeseen circumstances and subject to Completion, the Group has sufficient working capital for the period from 1 April 2003 to 30 September 2004, details of which are contained in the section headed “Working capital” in Appendix I of the Circular. On this basis, we are of the opinion that the Proposed Restructuring is in the interests of the Company and the Shareholders as a whole.

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LETTER FROM DAO HENG SECURITIES

Operating Results

Under the Proposed Restructuring, subject to the Investor’s consent, the Non-core Subsidiaries will be deregistered, transferred to the Provisional Liquidators (or their nominees) or wound up. The Non-core Subsidiaries are either dormant or have ceased operations and had net liabilities of about HK$201.2 million in aggregate as at 31 March 2003. Their removal from the Group will not have any material impact on the continuing operations of the Group after Completion.

Upon Completion, the indebtedness of the Company will be reduced from about HK$726.0 million (including unsecured indebtedness of about HK$489.7 million and secured indebtedness of about HK$236.3 million) as at 31 March 2003 to nil (except for the indebtedness owed to the Investor for the purpose of the Proposed Restructuring) and the Group’s indebtedness will be reduced from about HK$634.7 million as at 31 March 2003 to about HK$59.1 million. Therefore interest expenses would have been saved as a result of the Proposed Restructuring.

Nevertheless, Shareholders are advised to note that the Proposed Restructuring does not provide for concrete plans for revitalizing the Company’s remaining principal businesses and, therefore, there is no assurance that the Company’s operating performance will improve or the Company will revert to profitability after implementation of the Proposed Restructuring.

Dilution effect on the shareholding

The following table sets out the shareholding structure of the Company before and after the completion of the Proposed Restructuring:

The Investor Sino Earn Jian Xing Pelota Worldwide Limited (In liquidation)(Note 1) Existing Director_(Note 2)_ Public	Existing structure Number of Shares % – – 344,568,000 32.1 – – 248,897,760 23.2 200,000 – 480,662,607 44.7 1,074,328,367 100.0	Upon Completion Number of New Shares % 2,813,103,448 63.6 725,533,823 16.4 151,393,534 3.4 248,897,760 5.6 – – 480,862,607 11.0 4,419,791,172 100.0	Upon Completion Number of New Shares % 2,813,103,448 63.6 725,533,823 16.4 151,393,534 3.4 248,897,760 5.6 – – 480,862,607 11.0 4,419,791,172 100.0
			100.0

Notes:

Pelota Worldwide Limited (“Pelota”) is wholly owned by Mr. So Sik, one of the Directors. Pelota was wound up in November 2000 by a bank in Hong Kong. Upon Completion, the shareholding of Pelota will be diluted to about 5.6%.
As the existing Director, Mr. Wang Hai Min, will resign upon Completion, his shareholding interest will be classified as part of the Company’s public float after Completion. Mr. Wang is also a director of Sino Earn.

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LETTER FROM DAO HENG SECURITIES

We note from the letter from the Provisional Liquidators that the Investor, on one part, and Pelota, Mr. So Sik and Mr. Wang Hai Min, on the other part, are not parties acting in concert under the Takeovers Code.

As illustrated above, Independent Shareholders currently holding about 44.7% of the total issued Shares. Upon Completion, this percentage will be reduced to 11.0% of the enlarged issued share capital of the Company. The decrease in shareholding of the Independent Shareholders is principally due to the dilution as a result of the allotment and issue of New Shares pursuant to the Subscription and the Loan Capitalisation, which will result in the Investor obtaining statutory control in the Company.

In view of the current financial conditions of the Company, we consider that the degree of shareholding dilution for Independent Shareholders, though substantial, is acceptable, bearing in mind that in the absence of the Subscription and a statutory control interest in the Company being delivered to the Investor, the Investor would probably not be willing to proceed with the Proposed Restructuring and the Company will probably be wound up and the Shareholders will not receive any return from their investment in the Company.

FUTURE MANAGEMENT OF THE GROUP AND INTENTIONS OF THE INVESTOR

As described in the letter from the Investor in the Circular, it is the intention of the Investor that, upon Completion, the Group will continue its existing businesses of hotel operations and property investment. The Investor will conduct a review of the present and past business activities of the Group in order to formulate long-term business plans and strategies for the Group, and may seek to enter into new business areas that could enhance the operations and profitability of the Group. However, at present the Investor has no definite or specific plans for such diversification.

The Board currently consists of eight Directors. Since the appointment of the Provisional Liquidators, the powers of the Directors have been suspended. It is the intention of the Investor that all existing Directors will resign and 5 new Directors will be appointed upon Completion. Particulars of these proposed Directors are contained in the letter from the Investor in the Circular. Although all of them apparently do not have any experience in the businesses of property investment and hotel operation, each of the proposed executive Directors has at least 15 years of experience in various business areas such as finance, treasury and international trade. The Investor will carry out a detailed operational review of the Group (Hotel Co in particular) and rationalisation of operations which may include a reduction in the number of management and other staff.

Although based on the above, we are not in a position to comment on the prospects of the Group upon Completion, we consider that the Proposed Restructuring will introduce to the Company a new controlling shareholder who has the financial resources to restore the Group to a stable financial condition and continue its normal business operations and is therefore in the interests of the Company and the Shareholders as a whole.

– 39 –

LETTER FROM DAO HENG SECURITIES

THE WHITEWASH WAIVER

Before implementation of the Proposed Restructuring, the Investor and parties acting in concert with it do not own any securities of or interest in the Company. Upon Completion, the Investor will be interested in 2,813,103,448 New Shares, representing about 63.6% of the enlarged issued share capital of the Company. Accordingly, under Rule 26 of the Takeovers Code, upon Completion, the Investor will be required to make an unconditional general offer for all issued securities of the Company, other than those already owned or agreed to be acquired by the Investor or parties acting in concert with it. The Investor has applied to the Executive for the Whitewash Waiver and the Executive has indicated that the Whitewash Waiver will be granted subject to the approval of the Independent Shareholders by way of a poll at the EGM. Completion is conditional upon, among other things, the granting of the Whitewash Waiver by the Executive and approval of the Independent Shareholders. If this condition precedent is not satisfied, the Restructuring Agreement will lapse and the Proposed Restructuring will not be implemented. Under such circumstances, if there is no other restructuring proposal available to restructure the Company, it is probable that the Company may go into liquidation. It is noted in the letter from the Provisional Liquidators contained in the Circular that the Proposed Restructuring is the only viable proposal available to the Company.

We are of the opinion that the successful implementation of the Restructuring Agreement will have a positive effect on the Group’s financial position and will enhance the value of the Independent Shareholder’s interests in the Company. Therefore, we consider the grant of the Whitewash Waiver is an acceptable element in the context of a financial rescue of the Company, which is an essential element of the Proposed Restructuring, and are of the view that the grant of the Whitewash Waiver is fair and reasonable to the interests of the Independent Shareholders.

RECOMMENDATION

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

a. the discharge and waiver of an significant amount of indebtedness due to the creditors of the Company and the Group upon Completion;
b. the injection of funds from the Subscription which is critical to the operations of the Group’s existing businesses;
c. the improvement in the working capital and financial position of the Group from a net liabilities position to a net asset position upon Completion;
d. the strong possibility of an involuntary liquidation of the Company if it fails to restructure its indebtedness; and
e. there will unlikely be any return to the Shareholders in case of a liquidation of the Company,

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LETTER FROM DAO HENG SECURITIES

we consider that the Proposed Restructuring is in the interests of the Company and the Shareholders as a whole and that the terms of the Restructuring Agreement and the Whitewash Waiver are fair and reasonable so far as the Independent Shareholders are concerned, despite of the dilution effect of the Proposed Restructuring on the shareholding interests of the Independent Shareholders in the Company. We therefore recommend the Independent Shareholders to vote in favour of the resolutions in relation to the Restructuring Agreement and the Whitewash Waiver to be proposed at the EGM.

Yours faithfully, For and on behalf of

Dao Heng Securities Limited

Stella Fung Executive Director and General Manager

Frankie Yan Assistant Director

– 41 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. SHARE CAPITAL

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

Authorised: 4,000,000,000 Shares as at the Latest Practicable Date 30,331,044,697 New Shares immediately after Completion Issued and fully paid: 1,074,328,367 Shares at the Latest Practicable Date 1,074,328,367 New Shares in issue upon Capital Restructuring becoming effective 532,359,357 New Shares to be issued under the Debt Restructuring 2,344,827,586 New Shares to be issued under the Subscription 468,275,862 New Shares to be issued under the Loan Capitalisation 4,419,791,172 New Shares in issue immediately after Completion	HK$ 500,000,000

	379,138,058.71

	134,291,046

	13,429,105 6,654,492 29,310,345 5,853,448
	55,247,390

All of the Shares currently in issue rank pari passu in all respects with each other including, in particular, as to dividends, voting rights and return of capital. All New Shares to be issued will be fully paid and rank pari passu in all respects with each other, including, in particular, as to dividends, voting rights and return of capital.

As at the Latest Practicable Date, the Company had no outstanding options, warrants or securities convertible into Shares, and no other share or loan capital of the Company had been put under option or agreed conditionally or unconditionally of securities which are being offered for or which carry voting rights had been issued or granted or agreed conditionally or unconditionally to be issued or granted.

No Shares has been issued since the end of the last financial year of the Company.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. FINANCIAL SUMMARY

The table set out below summarises the consolidated income statement of the Group for each of the three years ended 31 March 2003, as extracted from the audited consolidated financial statements of the Company. There is no significant change in the accounting policy during the period.

The auditors disclaimed their opinions on each of the audited consolidated financial statements of the Company for the three preceding years. The auditors’ report for the year ended 31 March 2003 is set out on page 44 to page 48 of this document.

RESULTS Turnover Operating loss after finance costs Share of results of jointly controlled entities and associates Loss before taxation Taxation Loss after taxation Minority Interests Loss attributable to shareholders Loss per Share (cents): Basic Fully diluted Dividend per Share (cents)	2001 HK$’000 60,346 (55,770) (52,313) (108,083) (44) (108,127) – (108,127) (10.1) N/A –*	2002 HK$’000 27,442 (167,895) (6,473) (174,368) (1,330) (175,698) – (175,698) (16.3) N/A –*	2003 HK$’000 19,158 (75,179) – (75,179) (50) (75,229) – (75,229) (7.0) N/A –*

No dividend for ordinary Shares was declared for the preceding three financial years ended 31 March 2003.

Note: For each of the three years ended 31 March 2003, there was no exceptional item.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

3. AUDITORS’ REPORT

The following information is extracted from the auditor’s report on the financial statements of the Company for the year ended 31 March 2003. References to page numbers are to page numbers of the 2003 annual report of the Company.

TO THE MEMBERS OF

FUJIAN GROUP LIMITED (PROVISIONAL LIQUIDATORS APPOINTED)

(Incorporated in Hong Kong with limited liability)

We have audited the financial statements on pages 17 to 58 which have been prepared in accordance with accounting principles generally accepted in Hong Kong.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS

The Companies Ordinance requires the Directors to prepare financial statements which give a true and fair view. In preparing financial statements which give a true and fair view it is fundamental that appropriate accounting policies are selected and applied consistently.

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

BASIS OF OPINION

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

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

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

1. Opening balance sheet

We were appointed auditors on 3 June 2003 and did not report on the financial statements for the year ended 31 March 2002. Furthermore, the auditors appointed in respect of the year ended 31 March 2002 were unable to form an opinion as to whether the financial statements gave a true and fair view of the state of affairs of the Company and of the Group as at 31 March 2002 and of the loss and cash flows of the Group for the year then ended because of the possible effect of the limitations in evidence available to them and the fundamental uncertainties.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

We have been unable to carry out auditing procedures necessary to obtain adequate assurance regarding the opening balances. Therefore the corresponding amounts shown may not be comparable and any adjustments to the opening balances as at 1 April 2002 might have a consequential effect on the loss for the year ended 31 March 2003.

2. Appointment of provisional liquidators

As explained in note 2(d) to the financial statements, Messrs. Cosimo Borrelli and Fan Wai Kuen of RSM Nelson Wheeler Corporate Advisory Services Limited were appointed joint and several provisional liquidators (“the Provisional Liquidators”) of the Company on 15 January 2003. The Provisional Liquidators have not been able, notwithstanding taken all necessary procedures, to give an unqualified representation as to the completeness of the recording of the transactions entered into by the Group prior to their appointment and also as to whether the financial statements present a true and fair view of the Group’s operations for the year ended 31 March 2003 and financial status as at 31 March 2003. As a consequence, we have been unable to obtain adequate assurance regarding the completeness and accuracy of the assets, liabilities, income and expenses as well as the disclosures appearing in the financial statements.

3. Prior year adjustment

As explained in note 4(f) to the financial statements, the Company has made a prior year adjustment in restating the net balance of the goodwill and negative goodwill as at 31 March 2002 on the basis that the Group’s goodwill should have been impaired and that the negative goodwill should have been released to the consolidated income statement for the year ended 31 March 2002. However, in the absence of sufficient documentary evidence and accounting records, we have been unable to ascertain whether the prior year adjustment had been appropriate and properly accounted for in the financial statements.

4. Gain on disposal of investment properties

As explained in note 13(b) to the financial statements, certain charged investment properties with a carrying value of HK$124,600,000 were disposed of during the year under enforcement by the mortgagees. Purchase and sale agreements and statements from the mortgagee banks regarding the disposals have not been made available to the Group. The net gain on disposal amounting to HK$2,023,664 as shown in the consolidated income statement was calculated based on the proceeds as shown in the land search documents of such properties. As a consequence, we have been unable to ascertain whether the disposal of the investment properties and the corresponding net gain have been properly accounted for in the financial statements.

5. Revaluation of properties

The properties of the Group and those held by its associates were revalued by independent professional valuers as at 31 March 2003. The values as stated in the draft valuation reports were used for preparing these financial statements. However, the respective signed valuation reports were not yet available for our inspection. Accordingly, we have been unable to ascertain the values of the Group’s hotel properties of HK$107,359,047, investment properties of HK$11,890,000 and

– 45 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

the share of the properties held by the associates of HK$6,166,666 and the resulting revaluation deficit of the investment properties of HK$1,610,000 and the provision for impairment loss on hotel properties of HK$12,500,000 as reflected in the consolidated income statement and the share of deficit of the revaluation of the associates’ investment property of HK$2,866,667 as reflected in the investment property revaluation reserve of the associates.

6. Bank and other borrowings

We have not been able to obtain direct confirmations and/or other documentary evidence in respect of the bank loans and overdrafts of HK$206,664,076 and other borrowings of HK$192,914,286 and interest payable on borrowings of HK$81,276,465 for the Group and the bank loans and overdrafts of HK$70,541,118 and other borrowings of HK$192,914,286 and interest payable on borrowings of HK$70,056,776 for the Company as at 31 March 2003. Accordingly, we have been unable to satisfy ourselves as to whether these amounts have been properly accounted for in the financial statements.

7. Obligation to a jointly controlled entity

As explained in note 15(b) to the financial statements, the Company and the Group provided for obligation to a jointly controlled entity in the amount of HK$15,000,000 as at 31 March 2003, being the net exposure of the Company and of the Group on the outstanding bank loan and other loan balances drawn down by the jointly controlled entity. However, in the absence of direct confirmation and/or sufficient documentary evidence, we have been unable to ascertain whether the obligation to a jointly controlled entity has been properly accounted for in the financial statements.

8. Litigation claim by former directors

As explained in note 28(b) to the financial statements, two former directors of the Company have lodged a claim against the Company demanding unpaid salaries, severance pay and entitled long service payments of HK$5,722,581. The Company has served a counterclaim of HK$6,581,892 for damages as a result of the unauthorised actions performed by these former directors without the knowledge and authority of the Company. A provision of HK$1,111,358 has been made in the financial statements in respect of the said unpaid salaries. However, we have been unable to obtain sufficient evidence to ascertain whether the provision made against the liabilities from the claim, taking into account of the Company’s counterclaim, is sufficient.

9. Consultancy service fee payable to a former potential investor

As explained in note 28(c) to the financial statements, one of the former potential investors is eligible to receive consultancy service fee of HK$6,000,000 according to a memorandum of understanding dated 29 May 2002 (the “MOU”) entered into between the Company and certain potential investors in relation to the possible restructuring of the Group. The confirmation we received from the former potential investor has indicated such claim. However, the Company disputes any such liability as the former potential investor has not fulfilled the conditions set out in the MOU. We have been unable to obtain sufficient evidence to ascertain whether the Company is liable to pay for the said liability.

– 46 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Any adjustments arising in relation to the matters referred to in (1) to (9) above would have a consequential significant effect on the loss and cash flows for the year ended 31 March 2003 and the net liabilities of the Group and of the Company as at that date.

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

FUNDAMENTAL UNCERTAINTY RELATING TO THE INCLUSION OF INTERESTS IN SUBSIDIARIES TO THE GROUP

In forming our opinion, we have considered the adequacy of the disclosures made in note 2(b) to the financial statements concerning the Group accounting for 100% equity interest in Yan Hei Limited (“Yan Hei”) as a result of a Rescission Order issued on 23 February 2001. The Company has not yet executed the Rescission Order to register the 40% shareholdings in Yan Hei under its name. According to a legal opinion obtained by the Company, there might be practical difficulties in the execution of the Rescission Order. However, it is not possible to identify all the practical difficulties and to quantify the financial effect and the costs which might arise from the execution, or any possible counterclaim in relation to the Rescission Order and accordingly, no provision has been made in the financial statements. We consider that the fundamental uncertainty has been adequately disclosed in the financial statements and our opinion is not qualified in this respect.

FUNDAMENTAL UNCERTAINTIES RELATING TO THE OUTSTANDING ARBITRATIONS

i. In forming our opinion we have considered the adequacy of the disclosures in note 28(d) to the financial statements concerning a claim lodged by a bank in the PRC against the Company’s subsidiaries, Yan Hei Limited (“Yan Hei”) and Xiamen South East Asia Hotel Company, Limited (“Xiamen Plaza”) in which the bank has obtained a judgment dated 17 June 2002 from Xiamen Arbitration Committee (the “Judgment”) in enforcing the repayment of the loan of RMB30 million plus interest thereon within 10 days from the judgment date and the right to share and/or to realize the 40% of Yan Hei’s investments in Xiamen Plaza secured thereto for settlement of the outstanding liabilities due to the bank. No action has so far been taken by the bank in enforcing the Judgment. The Company has lodged an appeal to the Court in Xiamen on 3 December 2002 to overturn the Judgment. However, it is uncertain, at this stage, as to the outcome of the appeal. We consider that the fundamental uncertainty has been adequately disclosed in the financial statements and our opinion is not qualified in this respect.
ii. In forming our opinion we have considered the adequacy of the disclosures made in note 28(e) to the financial statements concerning a claim lodged by a joint venture partner against Yan Hei in which the joint venture partner has obtained a judgment dated 26 August 2002 from an Arbitration Committee in the PRC in enforcing the payment of the guaranteed distributable profits of US$580,000 for the years 1998 to 2000. The Group is in the course of finalizing the terms of settlement of the guaranteed distributable profits including the continuing use of the land for the operation of the hotel with the joint venture partner. A provision of US$840,000 has been made in the financial statements for the guaranteed

– 47 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

distributable profits. According to the Company, the joint venture partner will continue to grant Xiamen Plaza the right to use the land for the operation of the hotel. We consider that the fundamental uncertainty has been adequately disclosed in the financial statements and our opinion is not qualified in this respect.

FUNDAMENTAL UNCERTAINTIES RELATING TO THE GOING CONCERN BASIS

In forming our opinion, we have considered the adequacy of the disclosures made in note 2(a) to the financial statements which explains that the adoption of the going concern basis in the preparation of the financial statements is appropriate, provided that (i) the terms of the restructuring agreement for the reorganization of the share capital of the Company can be satisfied; (ii) a compromise could be reached with the bankers and other creditors for restructuring of the Company’s borrowings; (iii) the continuing use of the hotel properties of Xiamen Plaza and (iv) the Group could revitalise its business. The financial statements do not include any adjustments that would result from the failure of implementing these measures. If the going concern basis were not to be appropriate, adjustments would have to be made in the financial statements to reclassify non-current assets as current assets, to restate the assets to their recoverable amounts and to provide for any further liabilities which might arise. Such adjustments may have a consequential significant effect on the net liabilities of the Company and the Group as at 31 March 2003 and of the loss and cash flows of the Group for the year then ended. We consider that appropriate disclosures have been made, but the fundamental uncertainty relating to whether the going concern basis is appropriate is so extreme that we have disclaimed our opinion.

QUALIFIED OPINION: DISCLAIMER ON VIEW GIVEN BY THE FINANCIAL STATEMENTS

Because of the significance of the possible effect of the limitations in evidence available to us on matters specified in the “Basis of opinion” section of this report and the fundamental uncertainties relating to the going concern basis referred to above, we are unable to form an opinion as to whether the financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31 March 2003 and of the loss and cash flows of the Group for the year then ended and as to whether the financial statements have been properly prepared in accordance with the Companies Ordinance.

In respect alone of the limitations on our work relating to matters specified in the “Basis of opinion” section:

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

Nexia Charles Mar Fan & Co. Certified Public Accountants

Hong Kong, 4 September 2003

– 48 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. SUMMARY OF THE AUDITED FINANCIAL INFORMATION OF THE GROUP FOR THE TWO YEARS ENDED 31 MARCH 2003

The following information is extracted from the audited consolidated financial statements of the Company for the year ended 31 March 2003.

Consolidated income statement

Note Turnover 5 Other revenue 5 Staff costs Depreciation 13 Deficit on revaluation of investment properties 13 Provision for impairment loss on hotel properties 13 Net gain/(loss) on disposal of charged investment properties 13 Loss on disposal of interest in a jointly controlled entity Write back of/(provision for) doubtful debts 6 Goodwill/negative goodwill adjustment 4(f) Other operating expenses Loss from operations 7 Finance costs 8 Share of results of jointly controlled entities Share of results of associates Loss from ordinary activities before taxation Taxation 9 Loss from ordinary activities after taxation Minority interests Net loss attributable to the shareholders 10 Basic loss per share 11	2003 HK$ 19,158,328 229,385 (6,021,867) (11,292,948) (1,610,000) (12,500,000) 2,023,664 – 8,991,163 – (19,122,807) (20,145,082) (55,293,968) – 259,941 (75,179,109) (50,110) (75,229,219) – (75,229,219) 7.0 cents	2002 HK$ (restated) 27,442,409 445,626 (8,677,080) (12,522,980) (27,290,000) – (1,246,082) (58,524,946) (21,517,356) 20,309,992 (18,761,897) (100,342,314) (67,552,162) (6,715,082) 241,719 (174,367,839) (1,330,010) (175,697,849) – (175,697,849) 16.3 cents

– 49 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Consolidated balance sheet

Note Non-current assets Fixed assets 13 Jointly controlled entities 15 Associates 16 Current assets Loan to a jointly controlled entity 15 Amount due from a related company 17 Accounts receivable, utility deposits and prepayments 18 Inventories 19 Cash and bank balances Total assets Liabilities Bank and other borrowings 20 Interest payable on borrowings Obligation to a jointly controlled entity 15 Accounts payable, accrued charges and tenants’ deposits 21 Taxation Unclaimed dividends 22 Loans from minority shareholders 23 Total liabilities Minority interests 23 Capital and reserves Share capital 24 Reserves	2003 HK$ 122,339,972 – 11,777,981 134,117,953 – – 1,645,631 499,765 2,504,544 4,649,940 138,767,893 484,690,447 94,438,868 15,000,000 29,263,078 6,982,064 81,573 4,237,716 634,693,746 – (495,925,853) 134,291,046 (630,216,899) (495,925,853)	2002 HK$ 271,423,643 – 16,434,817 287,858,460 7,704,170 15,294,388 2,073,785 1,190,013 1,935,801 28,198,157 316,056,617 570,393,577 104,727,932 16,740,933 30,756,243 6,982,064 81,573 4,237,716 733,920,038 – (417,863,421) 134,291,046 (552,154,467) (417,863,421)

– 50 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Consolidated statement of changes in equity

At 1 April 2001 Deficit on revaluation of associates’ investment properties Unclaimed dividends written back Exchange differences on translation Loss for the year As previously reported Prior year adjustment_(note 4(f)) As restated At 31 March 2002 (As restated) At 1 April 2002 As previously reported Prior year adjustment (note 4(f))_ As restated Deficit on revaluation of associates’ investment properties Exchange differences on translation Loss for the year At 31 March 2003	Share capital HK$ 134,291,046 – – –	Share premium Note 26(b)(i) HK$ 498,369,397 – – –	Capital reserve HK$ 20,309,992 – – –	Investment property revaluation reserve attributable to associates Note26(a)(i) HK$ 8,796,533 (666,667 ) – –	Exchange fluctuation reserve Note26(a)(i) HK$ – – – (33,454)	Accumulated losses Note 26(a)(ii) HK$ (883,461,791) – 539,364 –	Total HK$ (221,694,823) (666,667) 539,364 (33,454)
	– –	– –	– (20,309,992)	– –	– –	(196,007,841) 20,309,992	(196,007,841) –
	– 134,291,046 134,291,046 – 134,291,046 – – – 134,291,046	– 498,369,397 498,369,397 – 498,369,397 – – – 498,369,397	(20,309,992) – 20,309,992 (20,309,992) – – – – –	– 8,129,866 8,129,866 – 8,129,866 (2,866,667) – – 5,263,199	– (33,454)* (33,454) – (33,454) – 33,454 – –	(175,697,849) (1,058,620,276) (1,078,930,268) 20,309,992 (1,058,620,276) – – (75,229,219) (1,133,849,495)	(196,007,841) (417,863,421) (417,863,421) – (417,863,421) (2,866,667) 33,454 (75,229,219) (495,925,853)

These reserve accounts make up the aggregate reserves of deficit HK$630,216,899 (2002: deficit HK$552,154,467) in the consolidated balance sheet.

As at 31 March 2003, the net gains and the losses not recognised in the consolidated income statement comprises loss on investment property revaluation reserve of HK$2,866,667 (2002: loss of HK$666,667) and gain from exchange fluctuation reserve of HK$33,454 (2002: loss of HK$33,454).

– 51 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Consolidated cash flow statement

Note Cash flows from operating activities Loss before taxation Adjustments for: Share of results of jointly controlled entities Share of results of associates Deficit on revaluation of investment properties Provision for impairment loss on hotel properties Depreciation of hotel properties and owned fixed assets Adjustment for over-charge on depreciation of fixed assets Interest income Interest expenses Provision for doubtful debts Provision for inventories Loss on disposal of fixed assets (Gain)/loss on disposal of investment properties Loss on disposal of a jointly controlled entity Goodwill/negative goodwill adjustment (Write back of)/provision for loans to jointly controlled entities Operating (loss)/profit before working capital changes Decrease in loan to a jointly controlled entity Decrease/(increase) in an amount due from a related company 27(a) (Increase)/decrease in accounts receivable, utility deposits and prepayments Decrease/(increase) in inventories (Decrease)/increase in accounts payable, accrued charges and tenants’ deposits Cash generated from operations Interest paid Hong Kong profits tax refunded Net cash outflow from operating activities Cash flows from investing activities Purchase of fixed assets Net proceeds from disposal of charged investment properties 13(b) Loan repayment from a jointly controlled entity Net proceeds from disposal of a jointly controlled entity Interest received Dividends received from associates 27(b) Net cash inflow from investing activities	2003 HK$ (75,179,109) – (259,941) 1,610,000 12,500,000 11,871,682 (578,734) (222) 55,293,968 1,369,655 473,389 218,470 (2,023,664) – – (10,360,818) (5,065,324) – 11,394,838 (941,501) 216,859 (1,493,165) 4,111,707 (65,583,032) – (61,471,325) (1,159,010) 126,623,664 16,324,055 – 222 – 141,788,931	2002 HK$ (restated) (174,367,839) 6,715,082 (241,719) 27,290,000 – 12,522,980 – (7,563) 67,552,162 2,482,018 – 55,280 1,246,082 58,524,946 (20,309,992) 19,035,338 496,775 15,294,388 (15,294,388) 4,869,923 (94,412) 4,195,915 9,468,201 (26,113,299) 38,009 (16,607,089) (309,468) 64,225,578 1,949,250 15,167,189 7,563 118,000 81,158,112

– 52 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Consolidated cash flow statement (continued)

Note Cash flows from financing activities New loans raised Repayment of loans Advances from a shareholder Advances from an associate Advances from third parties Advances from a minority shareholder Dividend paid Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at 1 April 2002/2001 Effect of foreign exchange rate changes Cash and cash equivalents at 31 March 2003/2002 Analysis of Cash and Cash Equivalents Cash and bank balances	2003 HK$ – (87,535,964) 343,759 300,000 7,088,625 – – (79,803,580) 514,026 1,935,801 54,717 2,504,544 2,504,544	2002 HK$ (restated) 17,176,717 (80,803,120) – – – 4,077 (462) (63,622,788) 928,235 1,270,193 (262,627) 1,935,801 1,935,801

– 53 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Balance sheet

Note Non-current assets Fixed assets 13 Subsidiaries 14 Jointly controlled entities 15 Associates 16 Current assets Amounts due from subsidiaries Loan to a jointly controlled entity 15 Accounts receivable, utility deposits and prepayments 18 Cash and bank balances Total assets Liabilities Bank and other borrowings 20 Interest payable on borrowings Obligation to a jointly controlled entity 15 Accounts payable, accrued charges and tenants’ deposits 21 Unclaimed dividends 22 Amounts due to subsidiaries Total liabilities Capital and reserves Share capital 24 Reserves 26	2003 HK$ 12,112,487 – – 5,225,052 17,337,539 – – 375,555 2,061,928 2,437,483 19,775,022 276,495,042 74,103,888 15,000,000 11,039,140 81,573 161,758,376 538,478,019 (518,702,997) 134,291,046 (652,994,043) (518,702,997)	2002 HK$ 13,778,108 92,217,920 – 5,225,052 111,221,080 1,170,859 7,704,170 175,221 1,398,383 10,448,633 121,669,713 283,865,657 63,177,630 16,740,933 10,039,133 81,573 161,794,876 535,699,802 (414,030,089) 134,291,046 (548,321,135) (414,030,089)

– 54 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes to the financial statements

1. CORPORATE INFORMATION

The Company is a public listed company incorporated in Hong Kong and its shares are listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) but such listing has been suspended since 16 February 2001.

The Group is principally engaged in investment holding, property investment in Hong Kong and hotel operation in PRC.

2. BASIS OF PREPARATION OF FINANCIAL STATEMENTS

(a) Going concern

As at 31 March 2003, the Group had net liabilities of approximately HK$496 million and incurred a loss of approximately HK$75 million for the year.

The Group and the Company have been unable to meet most of the scheduled loan instalments and interest payments to its bankers since August 1999 and all of their banking facilities have been frozen. During the year ended 31 March 2003, certain of the mortgaged properties of the Group have been put under receivership, enforced and sold by creditor banks or taken possession by the mortgagees.

The Company received a winding-up petition on 15 January 2003 issued by one of the creditor banks. Pursuant to an Order of the Court made on 15 January 2003, Messrs. Cosimo Borrelli and Fan Wai Kuen of RSM Nelson Wheeler Corporate Advisory Services Limited were appointed joint and several provisional liquidators (“the Provisional Liquidators”) of the Company. The main role of the Provisional Liquidators is to preserve the assets and the current operations of the Group while facilitating a restructuring of its debts and financial affairs.

On 25 April 2003, the Company, the Provisional Liquidators and an investor (the “Investor”) together with the Company’s substantial shareholder, Sino Earn Holdings Limited (“Sino Earn”) and a company related to Sino Earn, Jian Xing Finance Limited (“Jian Xing”) entered into a restructuring agreement (the “Restructuring Agreement”), as further detailed in note 33(a) to the financial statements.

A resumption proposal for the Company based on the terms of the Restructuring Agreement was submitted to the Stock Exchange on 29 April 2003. The Listing Committee of the Stock Exchange has conditionally approved the said resumption proposal of the Company on 13 May 2003, subject to the fulfillment of certain conditions imposed prior to the resumption of trading of the Company’s securities on the Stock Exchange.

As at the date of approval of these financial statements, the Provisional Liquidators consider that the Restructuring Agreement can be completed in accordance with its terms. On this basis, the Provisional Liquidators consider that it is appropriate to prepare the financial statements on a going concern basis. Accordingly, the financial statements do not include any adjustments that would result if the aforementioned Restructuring Agreement cannot be completed.

If the going concern basis were not to be appropriate, adjustments would have to be made to reclassify noncurrent assets as current assets, to restate the assets to their recoverable amounts and to provide for any further liabilities which might arise.

(b) Exclusion of companies from consolidation and inclusion of interest in subsidiaries back to the Group

The Company, jointly with its two wholly-owned subsidiaries, Kiu Sun Investment Company, Limited (“Kiu Sun”) and Smart Truth International Limited (“Smart Truth”) issued a writ of summons on 23 March 2000 (as amended by an amended writ of summons dated 29 March 2000) against Mr HUNG To and Good Fortune Resources Limited (“Good Fortune”) for (i) a declaration that the Company, Kiu Sun and Smart Truth are entitled to rescind an acquisition agreement dated 17 July 1998 (the “Agreement”), (ii) an order that Mr HUNG To to indemnify the Company, Kiu Sun and Smart Truth for losses as a result of breaches of the Agreement and warranties thereof, and (iii) damages and other compensation. The writ of summons against Mr HUNG To, a then minority shareholder of both Skycheer Development Limited (“Skycheer”) and Yan Hei Limited (“Yan Hei”), was to, amongst other things, rescind the Agreement. Under the Agreement, the Group would have (i) purchased from Mr HUNG To a 60% equity interest in Skycheer, the principal asset of which was the 100% interest in Xiamen Hong Du Park Hotel (“Hong Du”) in the PRC; (ii) transferred to Mr HUNG To’s nominee, Good Fortune, the Group’s 40% equity interest in Yan Hei, the principal asset of which was the 100% interest in Xiamen South East Asia Hotel Company, Limited (“Xiamen Plaza”) in the PRC; and (iii) allotted to Mr HUNG To 54,408,959 shares in the capital of the Company. The Company claimed that Mr HUNG To was in breach of the Agreement and sought to rescind it as (i) he allegedly entered into various contracts on behalf of Skycheer and Hong Du to borrow HK$152,490,602 (equivalent to RMB162,250,000) before and/or after entering into the Agreement, without disclosing such borrowings to the Company or its board of directors; and (ii) the development of Hong Du had not been completed nor all necessary operating licenses obtained in accordance with the timetable set out in the Agreement.

– 55 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes to the financial statements (continued)

2. BASIS OF PREPARATION OF FINANCIAL STATEMENTS (continued)

(b) Exclusion of companies from consolidation and inclusion of interest in subsidiaries back to the Group (continued)

On 23 February 2001, the Group was granted a Court Order for rescission (the “Rescission Order”) of the Agreement in relation to the Group’s acquisition of a 60% equity interest in Skycheer, which owns 100% equity interest in Hong Du which was partially settled by the transfer of the Group’s 40% equity interest in Yan Hei, which owns 100% equity interest in Xiamen Plaza. As a result of the Rescission Order, Skycheer and Hong Du would not be 60% owned by the Group and the said 40% equity interest in Yan Hei and its subsidiary, Xiamen Plaza, would be included as wholly owned subsidiaries of the Group.

The Group’s consolidated financial statements for the years ended 31 March 2002 and 2003 were prepared on the aforementioned basis although the Group has not yet formally transferred the said 40% equity interest in Yan Hei back to Group.

According to a legal opinion obtained by the Company in May 2001, there might be practical difficulties in the execution of the Rescission Order. No provision has been made in the financial statements for any loss or expenses that might arise from the practical difficulties in the execution, or any possible counterclaim in relation to the Rescission Order as it is considered impractical to estimate such amount.

(c) Classification of liabilities

As the Group has been in default in payment on schedule of most of its borrowings, the amounts become immediately due and repayable. No attempt has been made to classify the liabilities of the Company and of the Group into non-current or current terms as the settlement of borrowings will be dependent on the successful completion of the Restructuring Agreement.

(d) Qualified representation by the Provisional Liquidators

The Provisional Liquidators were appointed on 15 January 2003 and do not have the same detailed knowledge of the financial affairs of the Group as the directors of the Company would have particularly relating to transactions entered into by the Group prior to their appointment. The Provisional Liquidators have made enquiries of the directors of the Company and reviewed such books and records of the Group as were made available to them. The Provisional Liquidators have not been able to give an unqualified representation as to the completeness and accuracy, of the recording of the transactions entered into by the Group prior to their appointment and also as to whether the financial statements present a true and fair view of the Group’s operations for the year ended 31 March 2003 and its financial status as at 31 March 2003.

(e) Measurement basis

The measurement basis used in the preparation of the financial statements is historical cost as modified by the revaluation of certain investment properties as further explained in note 4(h) below.

3. ADOPTION OF STATEMENTS OF STANDARD ACCOUNTING PRACTICE

The Group has adopted, for the first time, a number of new and revised Statements of Standard Accounting Practice (“SSAPs”) issued by the Hong Kong Society of Accountants (“HKSA”) which became effective for the current year. The new and revised SSAPs have introduced additional and revised disclosure requirements which have been adopted in these financial statements.

The adoption of these new and revised SSAPs has resulted in the following changes to the Group’s accounting policies:

SSAP 1 (Revised) “Presentation of financial statements”

SSAP 1 (Revised) prescribes the basis for the presentation of financial statements and sets out guidelines for their structure and minimum requirements for the content thereof. The principal impact of the revision to this SSAP is that a consolidated statement of changes in equity is now presented on page 19 of the financial statements in place of the consolidated statement of recognised gains and losses that was previously required.

– 56 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes to the financial statements (continued)

3. ADOPTION OF STATEMENTS OF STANDARD ACCOUNTING PRACTICE (continued)

SSAP 11 (Revised) “Foreign currency translation”

SSAP 11 (Revised) prescribes the basis for the translation of foreign currency transactions and financial statements. The principal impact of the revision of this SSAP on the consolidated financial statements is that the income statement of overseas subsidiaries are now translated into Hong Kong dollars at the average exchange rates for the year, whereas previously they are translated at the exchange rates ruling at the balance sheet date. The adoption of the revised SSAP 11 has had no significant effect on the financial statements.

SSAP 15 (Revised) “Cash flow statements”

SSAP 15 (Revised) prescribes the revised format for the cash flow statement. The principal impact of the revision of this SSAP is that the cash flow statement now presents cash flows under three headings, cash flows from operating, investing and financing activities, rather than the five headings previously required. In addition, the definition of cash equivalents for the purpose of the cash flow statement has been revised. Further details of these changes are included in the accounting policy for “Cash equivalents” in note 4(r) to the financial statements.

SSAP 34 “Employee benefits”

SSAP 34 prescribes the recognition and measurement criteria to apply to employee benefits, together with the required disclosures in respect thereof. The adoption of this SSAP has had no effect on the financial statements. Further details of which are included in the accounting policy for “Employee benefits” in note 4(p) to the financial statements.

4. ACCOUNTING POLICIES

A summary of the significant accounting policies followed by the Group in the preparation of the financial statements is set out below:

(a) Statement of compliance

These financial statements have been prepared in accordance with SSAPs and Interpretations issued by the HKSA, accounting principles generally accepted in Hong Kong, the requirements of the Hong Kong Companies Ordinance and the applicable disclosure provisions of the Rules Governing the Listing of Securities on the Stock Exchange, except that (i) net current liabilities have not been disclosed in the balance sheets, and (ii) no attempt has been made to classify the liabilities of the Company and of the Group into non-current or current terms as more fully explained in note 2(c) to the financial statements.

(b) Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries made up to 31 March. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

All significant intercompany transactions and balances within the Group are eliminated on consolidation.

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

Minority interests represent that part of the net results of operations and of net assets of a subsidiary attributable to interests which are not owned, directly or indirectly through subsidiaries, and/or by the Company.

– 57 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes to the financial statements (continued)

4. ACCOUNTING POLICIES (continued)

(c) Subsidiaries

A subsidiary, in accordance with the Hong Kong Companies Ordinance, is a company in which the Group, directly or indirectly, controls more than half of the voting power or issued share capital or controls the composition of the board of directors or equivalent governing body.

In the Company’s balance sheet, investments in subsidiaries are stated at cost less provision for impairment losses, unless the subsidiary is acquired and held exclusively with a view to subsequent disposal in the near future or operates under severe long-term restrictions which significantly impair its ability to transfer funds to the Company, in which case it is stated at fair value with changes in fair value recognised in the income statement as they arise.

The results of subsidiaries are accounted for by the Company on the basis of dividends received and receivable.

(d) Jointly controlled entities

A jointly controlled entity is an entity which through contractual arrangements is subject to joint control by the Group and other parties, and none of the participating parties has unilateral control over the entity.

The consolidated income statement includes the Group’s share of the results of jointly controlled entities for the year, and the consolidated balance sheet includes the Group’s share of the net assets of the jointly controlled entities.

In the Company’s balance sheet, investments in jointly controlled entities are stated at cost less provision for impairment losses. Such provision is determined and made for each jointly controlled entity individually.

The results of jointly controlled entities are accounted for by the Company on the basis of dividends received and receivable.

(e) Associates

An associate is an entity, not being a subsidiary or jointly controlled entity, in which an equity interest is held for the long term and significant influence is exercised in its management.

The consolidated income statement includes the Group’s share of the results of associates for the year, and the consolidated balance sheet includes the Group’s share of the net assets of the associates.

In the Company’s balance sheet, investments in associates are stated at cost less provision for impairment losses. Such provision is determined and made for each associate individually.

The results of associates are accounted for by the Company on the basis of dividends received and receivable.

(f) Goodwill/negative goodwill

Goodwill/negative goodwill arising on consolidation represents the excess/shortfall of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities of a subsidiary, jointly controlled entity or associate at the date of acquisition.

(i) Prior to 1 January 2001

The capital reserve as at 1 April 2001 represented the net balance of goodwill and negative goodwill arising from acquisitions of subsidiaries, jointly controlled entities and associates prior to 1 January 2001. However, the Company did not maintain sufficient accounting records to track the amount of the goodwill and negative goodwill written off to the reserves. Having taken into consideration the carrying value of the assets of the Company’s subsidiaries, jointly controlled entities and associates and the substantial losses incurred by them, the management is of the view that all goodwill should have been impaired prior to the implementation of SSAP 30 and SSAP 31 and that such losses should have been written off to the consolidated income statement for the year ended 31 March 2002. At the same time, the negative goodwill should have been released to the consolidated income statement to cover the losses incurred.

Accordingly, a prior year adjustment in restating the net balance of the goodwill and negative goodwill has been made to the financial statements for the year ended 31 March 2002.

– 58 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes to the financial statements (continued)

4. ACCOUNTING POLICIES (continued)

(f) Goodwill/negative goodwill (continued)

(ii) After 1 January 2001

Negative goodwill arising on acquisitions on or after 1 January 2001 is presented as a deduction from assets and will be released to income based on an analysis of the circumstances from which the balance resulted. To the extent that the negative goodwill is attributable to losses or expenses anticipated at the date of acquisition, it is released to income in the year in which those losses or expenses arise. The remaining negative goodwill is recognised as income on a straight-line basis over the remaining weighted average useful life of the identifiable acquired depreciable/amortisable assets. To the extent that such negative goodwill exceeds the aggregate fair value of the acquired identifiable non-monetary assets, it is recognised as income immediately.

Negative goodwill arising on acquisition of a jointly controlled entity or associate is deducted from the carrying value of that jointly controlled entity or associate. Negative goodwill arising on acquisitions of subsidiaries is presented separately in the balance sheet as a deduction from assets.

(g) Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to the Group and when the revenue can be measured reliably, on the following bases:

(i) Rental income under operating leases is recognised in the period on a straight-line basis over the term of the lease;
(ii) Sale of properties is recognised when the significant risks and rewards of ownership have been transferred to the buyer, provided that the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the properties sold;
(iii) Revenue from hotel operations is recognised in the period when the services are provided; and
(iv) Interest income is recognised on a time-apportioned basis on the principal outstanding and at the rates applicable.

(h) Investment properties

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

Investment properties held on leases with unexpired periods greater than twenty years are valued at intervals of not more than three years by an independent valuer; in each of the intervening years valuations are undertaken by professionally qualified executives of the Group. The valuations are based on an open market value basis. The valuations are incorporated in the annual financial statements. Increases in valuation are credited to the investment properties revaluation reserve. Decreases in valuation are firstly set off against increases on earlier valuations on a portfolio basis and thereafter are debited to the income statement. Any subsequent increases are credited to the income statement up to the amount previously debited.

Investment properties held on leases with unexpired periods of twenty years or less are depreciated over the remaining unexpired periods of the leases.

Upon the disposal of an investment property, the relevant portion of the revaluation reserve realised in respect of previous valuations is released from the investment properties revaluation reserve to the income statement.

(i) Hotel properties

Hotel properties are interests in land and buildings and their integral fixed plant which are collectively used in the operation of the hotel, and are stated at cost less impairment loss.

Hotel properties with remaining lease of less than twenty years are depreciated on a straight-line basis over the remaining unexpired period of the lease.

– 59 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes to the financial statements (continued)

4. ACCOUNTING POLICIES (continued)

(j) Other fixed assets

Other fixed assets are stated at cost less accumulated depreciation and impairment loss. 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. Depreciation of other fixed assets is calculated to write off their costs on the reducing balance method over their expected useful lives to the Group at a principal annual rate of 20%.

Major costs incurred in restoring fixed assets to their normal working condition are charged to the income statement. Improvements are capitalised and depreciated over their expected useful lives to the Group.

The gain or loss on disposal of a fixed asset other than investment properties is the difference between the net sale proceeds and the carrying amount of the relevant asset, and is recognised in the income statement.

(k) Impairment of assets

Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Whenever the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recognised to reduce the asset to its recoverable amount. The recoverable amount is the higher of an asset’s net selling price and value in use. The net selling price is the amount obtainable from the sale of an asset in an arm’s length transaction while value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. Recoverable amounts are estimated for individual asset or, if it is not possible, for the cash-generating unit.

Reversal of impairment losses recognised in prior years is recorded when there is an indication that the impairment losses recognised for the asset no longer exist or have decreased. A reversal of an impairment loss is recognised as income immediately.

(l) Inventories

Inventories consisting of food, beverage and hotel supplies, are stated at the lower of cost and net realisable value. Cost is calculated using the first-in, first-out method. Net realisable value is the price at which inventories can be sold in the normal course of business after allowing for the costs of realisation.

(m) Deferred taxation

Deferred taxation is accounted for at the current taxation rate in respect of timing differences between profit as computed for taxation purposes and profit as stated in the financial statements to the extent that a liability or an asset is expected to be payable or recoverable in the foreseeable future.

(n) Translation of foreign currencies

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

The balance sheet of subsidiary expressed in foreign currencies is translated at the rates of exchange ruling at the balance sheet date whilst its income statement is translated at an average rate. In prior year, their income statement was translated at closing rate prior to the adoption of revised SSAP 11. Exchange differences arising are dealt with as a movement in exchange fluctuation reserve.

(o) Operating leases

Rentals payable and receivable under operating leases are charged or credited to the income statement on a straight-line basis over the lease terms.

– 60 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes to the financial statements (continued)

4. ACCOUNTING POLICIES (continued)

(p) Employee benefits

The Group provides paid annual leave to its employees under their employment contracts on a calendar year basis. Under certain circumstances, such leave which remains untaken as at the balance sheet date is permitted to be carried forward and utilised by the respective employees in the following year.

The Group operates a defined contribution staff retirement scheme. The Group’s contributions under the scheme are charged to the income statement as incurred. The amount of the Group’s contributions is based on a specified percentage of the basic salaries of employees and forfeited contributions in respect of unvested benefits of staff leavers are used to reduce the Group’s contributions. The assets of the scheme are held separately from those of the Group.

(q) Related party transactions

For the purposes of these financial statements, parties are considered to be related to the Group if the Group has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Group and the party are subject to common control or common significant influence. Related parties may be individuals or other entities. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.

(r) Cash equivalents

Cash equivalents are short-term, highly liquid investments that are readily convertible into known amounts of cash which are subject to an insignificant risk of change in value, having a short maturity of generally within three months of maturity when acquired. For the purpose of the cash flow statement, cash equivalents would also include bank overdrafts which are repayable on demand and form an integral part of the Group’s cash management. The revised SSAP 15 has resulted in short term bank loan repayable within three months from the date of the advance no longer qualified as cash equivalents.

(s) Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events and it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Where the effect of the time value of money is material, the amount of a provision is the present value of the expenditures expected to be required to settle the obligation.

(t) Contingencies

A contingent liability is a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that outflow of economic resources will be required or the amount of obligation cannot be measured reliably. A contingent liability is not recognised but is disclosed in the notes to the financial statements. When a change in the probability of an outflow occurs so that outflow is probable, a provision is recognised.

A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence and non-occurrence of one or more uncertain events not wholly within the control of the Group. Contingent assets are not recognised but are disclosed in the notes to the financial statements when an inflow of economic benefits is probable. When inflow is virtually certain, an asset is recognised.

– 61 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes to the financial statements (continued)

4. ACCOUNTING POLICIES (continued)

(u) Segment reporting

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

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

Segment revenue, expenses, results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis to that segment.

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

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

5. TURNOVER, REVENUE AND SEGMENT INFORMATION

Turnover and revenue are analysed as follows:

Turnover Gross rental income from investment properties Revenue from hotel operation of Xiamen Plaza Other revenue Bank interest income Others Total revenue	2003 HK$ 2,131,605 17,026,723 19,158,328 222 229,163 229,385 19,387,713	2002 HK$ 6,873,973 20,568,436
		27,442,409
		7,563 438,063
		445,626
		27,888,035

Segment information is presented in respect of the Group’s business and geographical segments. Business segment information is chosen as the primary reporting format because this is more relevant to the Group’s internal financial reporting.

– 62 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes to the financial statements (continued)

5. TURNOVER, REVENUE AND SEGMENT INFORMATION (continued)

(a) Business segments

The Group comprises the following main business segments:

Property investment

– The rental of investment properties

Hotel operation

– The rendering of hotel accommodation services

Revenue from external customers Other revenue from external customers Total Segment results Unallocated corporate expenses Loss from operations Finance costs Share of results of jointly Share of results of associates Loss from ordinary activities before taxation Taxation Loss from ordinary activities after taxation Minority interests Net loss attributable to the shareholders	Property investment 2003 2002 HK$ HK$ 2,131,605 6,873,973 – – 2,131,605 6,873,973 1,748,454 5,304,641 131,616 131,741 (26,434) (28,589)	Hotel 2003 HK$ 17,026,723 – 17,026,723 (9,998,335) – –	operation 2002 HK$ 20,568,436 – 20,568,436 (11,452,083) – –	Unallocated 2003 2002 HK$ HK$ – – 229,385 445,626 229,385 445,626 – – 128,325 109,978 (23,676) (1,301,421)	Consolidated 2003 2002 HK$ HK$ 19,158,328 27,442,409 229,385 445,626 19,387,713 27,888,035 (8,249,881) (6,147,442) (11,895,201) (94,194,872) (20,145,082) (100,342,314) (55,293,968) (67,552,162) – (6,715,082) 259,941 241,719 (75,179,109) (174,367,839) (50,110) (1,330,010) (75,229,219) (175,697,849) – – (75,229,219) (175,697,849)	Consolidated 2003 2002 HK$ HK$ 19,158,328 27,442,409 229,385 445,626 19,387,713 27,888,035 (8,249,881) (6,147,442) (11,895,201) (94,194,872) (20,145,082) (100,342,314) (55,293,968) (67,552,162) – (6,715,082) 259,941 241,719 (75,179,109) (174,367,839) (50,110) (1,330,010) (75,229,219) (175,697,849) – – (75,229,219) (175,697,849)
						27,888,035

						(6,147,442) (94,194,872)
						(100,342,314) (67,552,162) (6,715,082) 241,719
						(174,367,839) (1,330,010)
						(175,697,849) –
						(175,697,849)

No inter-segment sales and transfers were transacted during the current and prior years.

– 63 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes to the financial statements (continued)

5. TURNOVER, REVENUE AND SEGMENT INFORMATION (continued)

(a) Business segments (continued)

Assets Segment assets Investments in associates Investments in jointly controlled entities Unallocated assets Total assets Liabilities Segment liabilities Unallocated liabilities Total liabilities Other segment information Capital expenditure Depreciation Deficit on revaluation of investment property Provision for impairment loss on hotel properties	Property investment 2003 2002 HK$ HK$ 14,972,939 163,404,389 8,050,614 12,812,099 – – – – (14,224,573) (18,580,618) – 19,998 58,538 131,789 1,610,000 27,290,000 – –	Hotel 2003 HK$ 112,016,638 – – – (15,038,505) 1,159,010 11,234,410 – 12,500,000	operation 2002 HK$ 136,217,057 – – – (12,175,625) 289,470 12,155,708 – –	Unallocated 2003 2002 HK$ HK$ – – 3,727,367 3,622,718 – – 335 354 (592,364,808) (691,105,068) – – – 235,483 – – – –	Consolidated 2003 2002 HK$ HK$ 126,989,577 299,621,446 11,777,981 16,434,817 – – 335 354 138,767,893 316,056,617 (621,627,886) (721,861,311) (13,065,860) (12,058,727) (634,693,746) (733,920,038)	Consolidated 2003 2002 HK$ HK$ 126,989,577 299,621,446 11,777,981 16,434,817 – – 335 354 138,767,893 316,056,617 (621,627,886) (721,861,311) (13,065,860) (12,058,727) (634,693,746) (733,920,038)
						316,056,617

						(721,861,311) (12,058,727)
						(733,920,038)

(b) Geographical segments

The following table presents revenue, profit/(loss) and certain assets and expenditure information for the Group’s geographical segments.

Segment revenue: Revenue from external customers Segment results Other segment information: Segment assets Capital expenditure Depreciation	Hong Kong 2003 2002 HK$ HK$ 2,131,605 6,873,973 1,748,454 5,304,641 26,751,255 179,839,560 – 19,998 58,538 363,554	PRC 2003 2002 HK$ HK$ 17,026,723 20,568,436 (9,998,335) (11,452,083) 112,016,638 136,217,057 1,159,010 289,470 11,234,410 12,159,426	PRC 2003 2002 HK$ HK$ 17,026,723 20,568,436 (9,998,335) (11,452,083) 112,016,638 136,217,057 1,159,010 289,470 11,234,410 12,159,426

			(11,452,083)

			136,217,057

			289,470 12,159,426

– 64 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes to the financial statements (continued)

6. WRITE BACK OF/(PROVISION FOR) DOUBTFUL DEBTS

Write back of/(provision for) doubtful debts due from: – jointly controlled entities – others 7. LOSS FROM OPERATIONS The loss from operations is stated after crediting and charging the following: Gross rental income from investment properties Less: Outgoings Net rental income from investment properties Depreciation: – hotel properties – owned fixed assets – over-provision in prior years Operating lease rentals in respect of land and buildings Auditors’ remuneration Management fee to Sino Earn Loss on disposal of other fixed assets Net exchange loss/(gain) Retirement benefits costs 8. FINANCE COSTS Interest on bank loans and overdrafts – wholly repayable within five years Interest on other borrowings – wholly repayable within five years 9. TAXATION Taxation in the consolidated income statement comprises: Under-provisions of Hong Kong profits tax in prior years Share of taxation attributable to associates	2003 HK$ 10,360,818 (1,369,655) 8,991,163 2003 HK$ 2,131,605 (383,151) 1,748,454 9,462,552 2,409,130 (578,734) – 250,000 307,350 218,470 816,576 38,440 2003 HK$ 31,324,455 23,969,513 55,293,968 2003 HK$ – 50,110 50,110	2002 HK$ (19,035,338) (2,482,018)
		(21,517,356)

		2002 HK$ 6,873,973 (1,569,332)
		5,304,641

		9,462,552 3,060,428 – 23,541 280,000 409,800 55,280 (168,878) 47,070

		2002 HK$ 43,933,462 23,618,700
		67,552,162

		2002 HK$ 1,295,689 34,321
		1,330,010

– 65 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes to the financial statements (continued)

9. TAXATION (continued)

(a) No provision for Hong Kong profits tax has been made in the financial statements as the Company and its subsidiaries did not have any assessable profits for the year (2002: HK$Nil).
(b) No provision for PRC income tax has been made as there were no assessable profits for the subsidiary operating in the PRC during the year (2002: HK$Nil).
(c) No provision for deferred taxation has been made as the Group and the Company have no material potential liabilities arising on timing differences (2002: HK$Nil).
(d) Details on unprovided deferred tax assets relating to tax losses are not disclosed as the information is not available. However, it is not probable that such losses can be utilised in the foreseeable future.

10. NET LOSS ATTRIBUTABLE TO THE SHAREHOLDERS

Included in the consolidated net loss attributable to the shareholders of HK$75,229,219 (2002: HK$175,697,849) is a loss of HK$104,672,908 (2002: HK$212,273,675), including dividends from an associate of HK$2,000,000 (2002: HK$118,000), which has been dealt with in the financial statements of the Company.

11. LOSS PER SHARE

(a) Basic

The calculation of basic loss per share is based on the consolidated net loss attributable to the shareholders for the year of HK$75,229,219 (2002: HK$175,697,849) and 1,074,328,367 (2002: 1,074,328,367) shares in issue during the year.

(b) Diluted

Diluted loss per share has not been presented as there were no potential dilutive share options in existence during the year.

– 66 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes to the financial statements (continued)

12. DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS

(a) Directors’ emoluments

The aggregate amounts of emoluments payable to the directors of the Company during the year are as follows:

Fees: Executive directors Independent non-executive directors Other emoluments for executive directors: – basic salaries, housing allowances, other allowances and benefits in kind Provident fund contributions Total emoluments The emoluments of the directors fell within the following bands: Emolument bands From HK$Nil to HK$1,000,000 From HK$1,000,001 to HK$1,500,000	2003 2002 HK$ HK$ – – – 320,000 – 320,000 211,994 1,566,732 7,000 18,000 218,994 1,584,732 218,994 1,904,732 Number of directors 2003 2002 11 12 – 1 11 13	2002 HK$ – 320,000
		320,000
		1,566,732 18,000
		1,584,732
		1,904,732

		13

No directors waived any emoluments and no emoluments were paid to the directors as an inducement to join or upon joining the Group or as compensation for loss of office during the year.

(b) Five highest paid employees

Two (2002: three) of the five highest paid employees are directors whose emoluments are reflected in the directors’ emoluments above. Details of the aggregate emoluments of the remaining three (2002: two) highest paid non-director individuals are as follows:

Basic salaries, housing allowances, other allowances and benefits in kind Provident fund contributions	2003 HK$ 1,007,836 31,440 1,039,276	2002 HK$ 707,200 20,920
		728,120

The emoluments of each of these three (2002: two) individuals fell within the band from HK$Nil to HK$1,000,000.

– 67 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes to the financial statements (continued)

13. FIXED ASSETS

			Group	Group
Investment properties (note (a)) HK$ – 138,100,000 138,100,000 – – (124,600,000) (1,610,000) 11,890,000 – 11,890,000 11,890,000 – – – – – – – 11,890,000 138,100,000	Hotel properties (note (c)) HK$ 179,000,000 – 179,000,000 – – – – 179,000,000 179,000,000 – 179,000,000 49,678,401 – – 9,462,552 12,500,000 – 71,640,953 107,359,047 129,321,599	Plant and machinery HK$ 5,649,677 –	Furniture and fixtures HK$ 8,749,880 – 8,749,880 126,229 (23,007) (10,515) – 8,842,587 8,842,587 – 8,842,587 7,248,687 (19,120) – 901,257 – (9,552) 8,121,272 721,315 1,501,193	Leasehold improve- ments HK$ 6,450,308 – 6,450,308 1,032,781 (16,737) (367,166) – 7,099,186 7,099,186 – 7,099,186 4,398,330 – – 1,210,971 – (150,000) 5,459,301 1,639,885 2,051,978	Motor vehicles HK$ 2,102,396 – 2,102,396 – (5,625) – – 2,096,771 2,096,771 – 2,096,771 1,887,024 (5,049) – 8,649 – – 1,890,624 206,147 215,372	Computer and office equipment HK$ 534,940 – 534,940 – – – – 534,940 534,940 – 534,940 324,976 – – 41,993 – – 366,969 167,971 209,964	Total HK$ 202,487,201 138,100,000
		5,649,677 – (15,118) (6,823) –					340,587,201 1,159,010 (60,487) (124,984,504) (1,610,000)
		5,627,736					215,091,220
		5,627,736 –					203,201,220 11,890,000
		5,627,736					215,091,220
		5,626,140 (15,055) (578,734) 246,260 – (6,482)					69,163,558 (39,224) (578,734) 11,871,682 12,500,000 (166,034)
		5,272,129					92,751,248
		355,607					122,339,972

		23,537					271,423,643

– 68 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes to the financial statements (continued)

13. FIXED ASSETS (continued)

Cost or valuation Brought forward At cost At professional valuation Revaluation deficit charged to income statement Carried forward At cost At professional valuation Accumulated depreciation Brought forward Charge for the year Carried forward Net book value At 31 March 2003 At 31 March 2002			Company
	Investment properties (note (a)) HK$ – 13,500,000 13,500,000 (1,610,000) 11,890,000 – 11,890,000 11,890,000 – – – 11,890,000 13,500,000	Furniture and fixtures HK$ 134,600 – 134,600 – 134,600 134,600 – 134,600 91,548 8,610 100,158 34,442 43,052	Leasehold improve- ments HK$ 45,500 – 45,500 – 45,500 45,500 – 45,500 11,527 6,794 18,321 27,179 33,973	Computer and office equipment HK$ 505,640 – 505,640 – 505,640 505,640 – 505,640 304,557 40,217 344,774 160,866 201,083	Total HK$ 685,740 13,500,000 14,185,740 (1,610,000) 12,575,740 685,740 11,890,000 12,575,740 407,632 55,621 463,253 12,112,487 13,778,108

(a) All investment properties of the Group are held under medium term leases in Hong Kong.
The investment properties of the Group were revalued on an open market value basis as at 31 March 2003 by Knight Frank (Services) Limited (2002: Knight Frank), an independent firm of professional valuers. The revaluation deficit of HK$1,610,000 (2002: HK$27,290,000) has been charged to the income statement.
(b) The net gain on disposal of charged investment properties amounting to HK$2,023,664 as shown in the consolidated income statement arose from the enforcement of the mortgages on certain investment properties of the Group by the banks during the year. The aggregate consideration of the disposals amounted to HK$128,219,004 was obtained with reference to land search documents. These proceeds were not classified as the Group’s turnover during the year due to the circumstances of their disposals. Proceeds on disposal of the charged investment properties were applied by the relevant banks for direct settlement of outstanding loans and interest due and other relevant outgoings of the transactions. Purchase and sale agreements and statements from banks regarding the disposals have not been made available to the Group. The estimated outgoings incurred on the disposals amounted to HK$1,595,340, and the aggregate carrying value of the investment properties immediately before their disposals was HK$124,600,000.
(c) The hotel properties are situated in the PRC and are held under short term leases. The building ownership certificate for the hotel properties has not been obtained. According to the Company, the joint venture partner will continue to grant the Group the right to use the land until the expiry of the term of lease on 11 December 2015.
(d) The carrying value of the hotel properties stated in the financial statements was reviewed and the recoverable amount was considered to be the net selling price. As such, the carrying value stated was based on an open market value valuation made by an independent firm of professional valuers. A shortfall of HK$12,500,000 between the carrying value and fair value has been charged to the income statement.

– 69 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes to the financial statements (continued)

14. SUBSIDIARIES

Unlisted shares, at cost Less: Provision for impairment losses Loans to subsidiaries Less: Provision for doubtful amounts	2003 HK$ 28,069,474 (28,069,474) – 258,822,508 (258,822,508) – –	2002 HK$ 28,069,474 (28,069,474
		–
		274,088,497 (181,870,577
		92,217,920
		92,217,920

Particulars of subsidiaries at 31 March 2003 are as follows:

	Place of				Issued and
	incorporation		Effective		fully paid
	and principal		percentage		share/
	place of		holding		registered	Principal
Name of subsidiary	operations	2003		2002	capital	activities
		%		%
Direct subsidiaries:
Clarson Hotel Management Limited	Hong Kong	100		100	Ordinary	Inactive
					HK$300,000
Eastborough Enterprises Limited	Hong Kong	100		100	Ordinary	Investment
					HK$600,000	holding
Eastern Associated Investment	Hong Kong	100		100	Ordinary	Investment
Company, Limited					HK$1,000,000	holding
Everlink Development Limited	Hong Kong	100		100	Ordinary	Inactive
					HK$10,000
Fujian Group Nominees Limited	Hong Kong	100		100	Ordinary	Nominee
					HK$2
Honest Bright International Limited	Hong Kong	100		100	Ordinary	Inactive
					HK$2
Kai Loong Land Investment	Hong Kong	100		100	Ordinary	Inactive
Company, Limited					HK$415,000

– 70 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes to the financial statements (continued)

14. SUBSIDIARIES (continued)

	Place of				Issued and
	incorporation		Effective		fully paid
	and principal		percentage		share/
	place of		holding		registered	Principal
Name of subsidiary	operations	2003		2002	capital	activities
		%		%
Direct subsidiaries: (continued)
Kiu Sun Investment Company,	Hong Kong	100		100	Ordinary	Investment
Limited					HK$1,000,000	holding
Ming Chuen Construction	Hong Kong	100		100	Ordinary	Investment
Company, Limited					HK$100,000	holding
Panew International Limited	Hong Kong	100		100	Ordinary	Inactive
(note (c))					HK$2
Real Wide Limited	Hong Kong	55		55	Ordinary	Inactive
(note (d))					HK$10,000
Richlite Investment Limited	Hong Kong	100		100	Ordinary	Inactive
					HK$2
Silver Cone Worldwide Limited	British Virgin	100		100	Ordinary	Investment
	Islands				US$1	holding
Sino Bless International Limited	Hong Kong	100		100	Ordinary	Inactive
					HK$2
Smart Stride Investment Limited	Hong Kong	100		100	Ordinary	Inactive
					HK$2
Smart Truth International Limited	Hong Kong	100		100	Ordinary	Inactive
					HK$10,000
Triplenic Realty Limited	Hong Kong	75		75	Ordinary	Investment
					HK$1,000,000	holding
Wealth Cosmos Limited	Hong Kong	100		100	Ordinary	Inactive
					HK$2
Yan Hei Limited_(note (e))_	Hong Kong	100		100	Ordinary	Investment
					HK$10,000 and	holding
					Non-voting
					deferred
					HK$10,000

– 71 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes to the financial statements (continued)

14. SUBSIDIARIES (continued)

	Place of				Issued and
	incorporation		Effective		fully paid
	and principal		percentage		share/
	place of		holding		registered	Principal
Name of subsidiary	operations	2003		2002	capital	activities
		%		%
Indirect subsidiaries:
Billion Lion Limited	Hong Kong	75		75	Ordinary	Inactive
					HK$2
Gold Silver Limited	Hong Kong	100		100	Ordinary	Inactive
					HK$10,000
Link Smart Investment Limited	Hong Kong	100		100	Ordinary	Inactive
					HK$2
Sheen Sharp Limited	Hong Kong	100		100	Ordinary	Inactive
					HK$2
Texway Industries Limited	Hong Kong	100		100	Ordinary	Inactive
					HK$2
Xiamen South East Asia Hotel	PRC	100		100	Registered	Hotel
Company, Limited					capital	operation
(notes (a)&(b))					US$5,000,000

As further explained in note 2(b) to the financial statements, Skycheer Development Limited and Xiamen Hong Du Park Hotel would not be owned by the Group upon granting of the Rescission Order and accordingly these subsidiaries were excluded from consolidation with effect from the year ended 31 March 2001. No further financial information of these companies can be disclosed as the Group is no longer in a position to access to such information.

Notes:

(a) This subsidiary has a financial year-end of 31 December. Its financial year cannot be co-terminous with that of the Company for the reason of its need to comply with the regulations of the PRC. The financial statements of this subsidiary for the year ended 31 December 2002 have been audited by Pan-China (Xiamen) Certified Public Accountants. The annual results, year-end assets and liabilities of this subsidiary for the year ended 31 March 2003, have been consolidated based on the audited financial statements for the year ended 31 December 2002 and the unaudited management accounts for the three months ended 31 March 2003.
(b) 40% of the Group’s interests in this subsidiary are pledged in favour of a bank for a loan granted to the subsidiary as referred to in notes 20(a)(i) and 28(d) to the financial statements.
(c) The Group’s interests in the issued share capital of this subsidiary are pledged in favour of Sino Earn to secure loan facilities granted to the Company as referred to in note 20(b)(iii) to the financial statements.
(d) The Group’s interests in the issued share capital of this subsidiary are pledged, together with the Group’s investment properties with a carrying value of HK$1,340,000, in favour of a third party for a loan granted to the Company as referred to in note 20(b)(vi) to the financial statements.
(e) 60% of the Group’s interests in the issued share capital of this subsidiary are pledged, among other securities, in favour of Jian Xing to secure loan facilities granted to the Company as referred to in note 20(b)(iv) to the financial statements. The release of the charged share is subject to the successful completion of the Restructuring Agreement as referred to in note 33(a) to the financial statements.

– 72 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes to the financial statements (continued)

15. JOINTLY CONTROLLED ENTITIES

Unlisted shares, at cost Less: Provision for impairment losses Share of net assets other than goodwill Loan to a jointly controlled entity_(note (a))_ Less: Provision for doubtful amounts Less: Amounts repayable on demand classified as current assets	Group 2003 2002 HK$ HK$ – – – – – – – – – – 96,868,810 113,192,865 (96,868,810) (105,488,695) – 7,704,170 – (7,704,170) – – – –	Company 2003 2002 HK$ HK$ 5,005,000 5,005,000 (5,005,000) (5,005,000) – – – – – – 96,868,810 113,192,865 (96,868,810) (105,488,695) – 7,704,170 – (7,704,170) – – – –	Company 2003 2002 HK$ HK$ 5,005,000 5,005,000 (5,005,000) (5,005,000) – – – – – – 96,868,810 113,192,865 (96,868,810) (105,488,695) – 7,704,170 – (7,704,170) – – – –
			– –
			–
			113,192,865 (105,488,695)
			7,704,170 (7,704,170)
			–
			–

Movements of the Group’s and the Company’s obligation to a jointly controlled entity during the year are as follows:

Balance at 1 April 2002 Written back during the year Balance at 31 March 2003_(note (b))_	Group HK$ 16,740,933 (1,740,933) 15,000,000	Company HK$ 16,740,933 (1,740,933)
		15,000,000

Notes:

(a) The loan due from a jointly controlled entity is unsecured, bearing interest at 12% per annum and repayable on demand. No accrual has been made for interest receivable for the current and previous years as provision for doubtful amounts had been made. The Company’s interest in this loan has been subordinated to a joint venture partner in first priority and to Sino Earn in second priority for loan facilities granted as referred to in notes 20(b)(v) and 20(b)(iii) respectively to the financial statements. During the year, this loan was partially repaid by the jointly controlled entity to a joint venture partner in accordance with the subordination agreement.
(b) The obligation to a jointly controlled entity was provided based on the net exposure of the Group and of the Company on the outstanding bank loan and loan from a joint venture partner on balance drawn down by the jointly controlled entity. Such obligation to a jointly controlled entity is limited to the extent of HK$15,000,000 pursuant to the banking facility granted from the bank. Any excess of accrued interest and/or penalty over the guaranteed amount is beyond the Group’s obligation. During the year, another jointly controlled entity has repaid the debts resulting in reduction in obligation to this jointly controlled entity.

– 73 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the financial statements (continued)

15. JOINTLY CONTROLLED ENTITIES (continued)

Particulars of jointly controlled entities at 31 March 2003 are as follows:

	Place of				Issued and
	incorporation		Effective		fully paid
	and principal		percentage		share/
Name of	place of		holding		registered	Principal
jointly controlled entity	operations	2003		2002	capital	activities
		%		%
Asian Eagle Limited_(note (i))_	Hong Kong	50		35	Ordinary	Property
					HK$10,000	development
MT Finance Limited	Hong Kong	50		50	Ordinary	Money
					HK$10,000,000	lending
Westly Limited_(note (ii))_	Hong Kong	50		50	Ordinary	Investment
					HK$10,000	holding

Notes:

(i) The Company indirectly holds the interest in this jointly controlled entity.
(ii) The Company’s interest in the issued share capital of Westly Limited (“Westly”) was the subject of a first share charge in favour of the joint venture partner, to secure loan granted to the Company as referred to in note 20(b)(v) to the financial statements, and a mortgage in favour of the joint venture partner, to secure loans granted to Westly (“Westly Charge”), and is under second share charge, among other securities, in favour of Sino Earn to secure loans granted to the Company as referred to in note 20(b)(iii) to the financial statements. During the year, the Company has fully repaid the debts owing to the joint venture partner and accordingly, first share charge was released.

16. ASSOCIATES

Unlisted shares, at cost Less: Provision for impairment losses Share of net assets other than goodwill Amounts due from associates Less: Provision for doubtful amounts	Group 2003 2002 HK$ HK$ – – – – – – 11,127,981 15,784,817 11,127,981 15,784,817 658,500 658,500 (8,500) (8,500) 11,777,981 16,434,817	Company 2003 2002 HK$ HK$ 6,475,051 6,475,051 (1,899,999) (1,899,999 4,575,052 4,575,052 – – 4,575,052 4,575,052 658,500 658,500 (8,500) (8,500 5,225,052 5,225,052	Company 2003 2002 HK$ HK$ 6,475,051 6,475,051 (1,899,999) (1,899,999 4,575,052 4,575,052 – – 4,575,052 4,575,052 658,500 658,500 (8,500) (8,500 5,225,052 5,225,052
			4,575,052 –
			4,575,052 658,500 (8,500
			5,225,052

The amounts due from associates are unsecured, interest-free and repayable on demand.

– 74 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the financial statements (continued)

16. ASSOCIATES (continued)

Particulars of associates at 31 March 2003 are as follows:

	Place of				Issued and
	incorporation		Effective		fully paid
	and principal		percentage		share/
	place of		holding		registered	Principal
Name of associate	operations	2003		2002	capital	activities
		%		%
Austin Land Investment Limited	Hong Kong	46.82		46.82	Ordinary	Provision of
					HK$6,300,000	building
						management
						services
Ealing Court Limited_(note (a))_	Hong Kong	33.33		33.33	Ordinary	Property
					HK$6,000,000	investment
Ming Sun Contractors Limited	Hong Kong	49.50		49.50	Ordinary	Inactive
					HK$1,000,000
Sherrin Property Investment	Hong Kong	33.33		33.33	Ordinary	Property
Limited_(note (a))_					HK$3	investment

Note:

(a) The Company’s interests in the issued share capital of these associates are pledged, among other securities, in favour of Sino Earn for loan facilities granted to the Company as referred to in note 20(b)(iii) to the financial statements. The release of the charged shares is subject to the successful completion of the Restructuring Agreement as referred to in note 33(a) to the financial statements.

17. AMOUNT DUE FROM A RELATED COMPANY

The amount due from Hungexpress Investment Limited was unsecured, non-interest bearing and with no fixed terms of repayment. This debt was fully repaid during the year.

18. ACCOUNTS RECEIVABLE, UTILITY DEPOSITS AND PREPAYMENTS

Accounts receivable (net of provisions for bad and doubtful debts), with aging analysis Current to 6 months Over 6 months Utility deposits and prepayments	Group 2003 2002 HK$ HK$ 904,223 458,484 74,187 730,610 978,410 1,189,094 667,221 884,691 1,645,631 2,073,785	Company 2003 2002 HK$ HK$ 7,638 21,248 5,984 5,931 13,622 27,179 361,933 148,042 375,555 175,221	Company 2003 2002 HK$ HK$ 7,638 21,248 5,984 5,931 13,622 27,179 361,933 148,042 375,555 175,221
			27,179 148,042
			175,221

– 75 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes to the financial statements (continued)

19. INVENTORIES

At cost Less: Provision for obsolete inventories At net realisable value	Group 2003 2002 HK$ HK$ 973,154 1,190,013 (473,389) – 499,765 1,190,013	Group 2003 2002 HK$ HK$ 973,154 1,190,013 (473,389) – 499,765 1,190,013
		1,190,013

Inventories of HK$499,765 (2002: Nil) are carried at net realised value.

20. BANK AND OTHER BORROWINGS

Group 2003 2002 HK$ HK$ Bank loans and overdrafts (note (a)) 281,160,985 358,277,001 Other borrowings_(note (b)) 203,529,462 212,116,576 484,690,447 570,393,577 _Notes: (a)(i) Bank loans and overdrafts are analysed as follows: Group 2003 2002 HK$ HK$ Secured – bank loans 32,388,765 268,336,922 – overdrafts – 83,189,398 Unsecured – bank loans 186,851,906 6,750,681 – overdrafts 61,920,314 – 281,160,985 358,277,001	Company 2003 2002 HK$ HK$ 72,965,580 71,749,081 203,529,462 212,116,576 276,495,042 283,865,657 Company 2003 2002 HK$ HK$ – 52,811,610 – 16,439,369 55,310,216 2,498,102 17,655,364 – 72,965,580 71,749,081	Company 2003 2002 HK$ HK$ 72,965,580 71,749,081 203,529,462 212,116,576 276,495,042 283,865,657 Company 2003 2002 HK$ HK$ – 52,811,610 – 16,439,369 55,310,216 2,498,102 17,655,364 – 72,965,580 71,749,081
		71,749,081

(a)(ii) All bank loans and overdrafts are repayable on demand or within one year.

As the Group defaulted on its scheduled payment of most of its bank loans, all banking facilities of the Group became immediately due and repayable.

– 76 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes to the financial statements (continued)

20. BANK AND OTHER BORROWINGS (continued)

(b)(i) Other borrowings are analysed as follows:

Note Secured – loans from a shareholder (b)(iii) – loan from a related company (b)(iv) – loan from a joint venture partner (b)(v) – loan from a third party (b)(vi) Unsecured – amount due to a related company (b)(vii) – loan from a former jointly controlled entity (b)(viii) – loans from associates (b)(ix) – loans from third parties (b)(x)	Group 2003 2002 HK$ HK$ 145,632,024 145,288,265 42,000,000 42,000,000 – 7,420,000 3,526,551 3,526,551 73,632 73,632 – 3,899,550 5,208,630 6,908,630 7,088,625 2,999,948 203,529,462 212,116,576	Company 2003 2002 HK$ HK$ 145,632,024 145,288,265 42,000,000 42,000,000 – 7,420,000 3,526,551 3,526,551 73,632 73,632 – 3,899,550 5,208,630 6,908,630 7,088,625 2,999,948 203,529,462 212,116,576	Company 2003 2002 HK$ HK$ 145,632,024 145,288,265 42,000,000 42,000,000 – 7,420,000 3,526,551 3,526,551 73,632 73,632 – 3,899,550 5,208,630 6,908,630 7,088,625 2,999,948 203,529,462 212,116,576
			212,116,576

(b)(ii) All other borrowings are repayable on demand or within one year.

(b)(iii) Secured loans from a shareholder

The loan facilities granted by Sino Earn are secured and bearing interest at 10.5% per annum plus default interest at 1.5% per annum; HK$70,000,000 has been due for repayment since 31 January 2000 and the remaining balance has been due for repayment since 30 June 2001.

(b)(iv) Secured loan from a related company

The loan facility granted by Jian Xing has been due for repayment since 1 April 2000 and is secured and bearing interest at 10.5% per annum plus default interest at 1.5% per annum. Jian Xing is a company related to Sino Earn.

(b)(v) Secured loan from a joint venture partner

The loan facility granted by a joint venture partner was secured and bearing interest at prime rate plus 3.5% per annum with default interest chargeable at 3% per annum. The loan was repaid directly from a jointly controlled entity to the joint venture partner in accordance with the loan agreement.

(b)(vi) Secured loan from a third party

The loan from a third party is secured by certain investment properties of the Company with a carrying value of HK$1,340,000 as at 31 March 2003, and is bearing interest at 12% per annum. The loan has been due for repayment since 30 September 2001.

(b)(vii) Amount due to a related company

The amount due to a related company, Fushan Holdings Limited (“Fushan”), is unsecured, non-interest bearing and with no fixed terms of repayment.

(b)(viii) Unsecured loan from a former jointly controlled entity

The loan from a former jointly controlled entity was unsecured, non-interest bearing and with no fixed terms of repayment. The loan was fully repaid during the year.

(b)(ix) Unsecured loans from associates

The loans are unsecured, non-interest bearing and with no fixed terms of repayment.

– 77 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the financial statements (continued)

20. BANK AND OTHER BORROWINGS (continued)

(b)(x) Unsecured loans from third parties

These comprise a loan of HK$6,799,085 which is unsecured, bearing interest at prime rate plus 3% per annum and repayable on demand, and a loan of HK$289,540 which is unsecured, non-interest bearing and with no fixed terms of repayment.

21. ACCOUNTS PAYABLE, ACCRUED CHARGES AND TENANTS’ DEPOSITS

Accounts payable with aging analysis Current to 6 months Over 6 months Accrued charges and tenants’ deposits	Group 2003 2002 HK$ HK$ 3,102,787 9,098,584 21,148,208 16,989,644 24,250,995 26,088,228 5,012,083 4,668,015 29,263,078 30,756,243	Company 2003 2002 HK$ HK$ 1,575,732 2,172,506 7,967,527 6,427,580 9,543,259 8,600,086 1,495,881 1,439,047 11,039,140 10,039,133	Company 2003 2002 HK$ HK$ 1,575,732 2,172,506 7,967,527 6,427,580 9,543,259 8,600,086 1,495,881 1,439,047 11,039,140 10,039,133
			8,600,086 1,439,047
			10,039,133

22. UNCLAIMED DIVIDENDS

In accordance with article 156 of the Company’s Articles of Association, all dividends unclaimed for six years after having been declared may be forfeited by the directors and shall revert to the Company. Unclaimed dividends in an aggregate amount of HK$81,573 (2002: HK$Nil) shall be forfeited by the Company within one year from 31 March 2003.

23. MINORITY INTERESTS

(a) Minority interests comprise accumulated net losses borne by minority shareholders of the non-wholly-owned subsidiaries of the Group, less provision made for doubtful amounts receivable from minority shareholders.
(b) Loans from minority shareholders

Loans from a minority shareholder to Real Wide Limited_(note (b)(i)) Loans from a minority shareholder to Triplenic Realty Limited(note (b)(ii))_	Group 2003 2002 HK$ HK$ 3,739,396 3,739,396 498,320 498,320 4,237,716 4,237,716	Group 2003 2002 HK$ HK$ 3,739,396 3,739,396 498,320 498,320 4,237,716 4,237,716
		4,237,716

Notes:

(b)(i) Loans to Real Wide Limited (“Real Wide”) from Fushan, being a minority shareholder which owned 45% equity interest in Real Wide, are unsecured, non-interest bearing and with no fixed terms of repayment.
(b)(ii) Loans to Triplenic Realty Limited (“Triplenic Realty”) from Mr FU Ngai Man Raymond (“Mr FU”), being a minority shareholder who owned 25% equity interest in Triplenic Realty, are unsecured, noninterest bearing and with no fixed terms of repayment. Mr FU is a director both of Triplenic Realty and its wholly-owned subsidiary, Billion Lion Limited.

– 78 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes to the financial statements (continued)

24. SHARE CAPITAL

Authorised: Ordinary shares of HK$0.125 each Issued and fully paid: Ordinary shares of HK$0.125 each	Number of shares 4,000,000,000 1,074,328,367	2003 HK$ 500,000,000 134,291,046	Number of shares 4,000,000,000 1,074,328,367	2002 HK$ 500,000,000

				134,291,046

25. SHARE OPTIONS

On 22 January 1997, the Company approved a share option scheme under which the directors may, at their discretion, invite any employee or executive directors of the Company and the Group to take up options to subscribe for shares in the capital of the Company at any time during the ten years from the date of offer. The subscription price of the Company’s shares shall be referred to the average closing price of the Company’s shares as quoted on the Stock Exchange for five dealing days immediately preceding the offer date. The maximum number of shares on which options may be granted may not exceed 10% of the ordinary share capital of the Company in issue from time to time.

No options of the Company were being granted during the year or outstanding as at 31 March 2003.

26. RESERVES

(a) Group

Details of changes in reserves of the Group are set out in the consolidated statements of changes in equity on page 19.

Notes:

(i) The exchange fluctuation reserve and revaluation reserve have been set up and dealt with in accordance with the accounting policies adopted for translation of foreign currencies (note 4(n)) and revaluation of investment properties (note 4(h)).
(ii) Accumulated losses of HK$1,133,849,495 (2002: HK$1,058,620,276) included amounts of losses of HK$149,009,834 (2002: HK$149,009,834) attributable to jointly controlled entities and profits of HK$2,915,597 (2002: HK$2,705,766) attributable to associates.

– 79 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes to the financial statements (continued)

26. RESERVES (continued)

(b) Company

At 1 April 2001 Unclaimed dividends written back Loss for the year At 31 March 2002 and at 1 April 2002 Loss for the year At 31 March 2003	Share premium Note (i) HK$ 498,358,945 – – 498,358,945 – 498,358,945	Capital reserve Note (ii) HK$ 10,000,000 – – 10,000,000 – 10,000,000	Accumulated losses HK$ (844,945,769) 539,364 (212,273,675) (1,056,680,080) (104,672,908) (1,161,352,988)	Total HK$ (336,586,824 539,364 (212,273,675
				(548,321,135 (104,672,908
				(652,994,043

Notes:

(i) The application of share premium is governed by Section 48B of the Hong Kong Companies Ordinance.
(ii) Pursuant to the Directors’ meeting in prior years, the capital reserve of the Company was being set aside for general purpose.
(iii) At 31 March 2003, no distributable reserves of the Company was available for distribution as dividends (2002: HK$Nil).

27. MAJOR NON-CASH FLOW TRANSACTIONS

(a) During the year, an amount due from a related company and loan from a former jointly controlled entity of HK$15,294,388 and HK$3,899,550 respectively were offset against each other and net receivable of HK$11,394,838 was used for repayment of debts and accrued interests owed to Sino Earn.
(b) An associate declared an interim dividend of HK$6,000,000 during the year and the Group’s entitlement of HK$2,000,000 is utilized to partially offset against the loan from the associate.

28. LITIGATION AND CONTINGENT LIABILITIES

(a) As at 31 March 2003, the Group and the Company had contingent liabilities not provided for in the financial statements as follows:

Guarantees of loans of jointly controlled entities Guarantees of bank loans and overdrafts of subsidiaries	Group 2003 2002 HK$ HK$ – 7,259,067 – – – 7,259,067	Company 2003 2002 HK$ HK$ – 7,259,067 340,042,183 340,042,183 340,042,183 347,301,250	Company 2003 2002 HK$ HK$ – 7,259,067 340,042,183 340,042,183 340,042,183 347,301,250
			347,301,250

(b) A writ of summons was lodged by two former directors against the Company, demanding unpaid salaries, severance pay and entitled long service payments of HK$5,722,581. The Company has served a counterclaim of HK$6,581,892 for damages as a result of the unauthorised actions performed by these former directors without the knowledge and authority of the Company. A provision of HK$1,111,358 has been made in the financial statements in respect of the said unpaid salaries.

– 80 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes to the financial statements (continued)

28. LITIGATION AND CONTINGENT LIABILITIES (continued)

(c) According to a memorandum of understanding (the “MOU”) entered into between the Company and certain potential investors on 29 May 2002 in relation to the possible restructuring of the Group, one of the potential investors is eligible to receive consultancy service fee of HK$6,000,000 for the services provided in respect of (i) the negotiation with the financial creditors of the Group for the terms of the debt restructuring agreement; (ii) the daily operation of the Group; and (iii) dealing with the legal proceedings in relation to the Group in these connections. The Company disputes any such liability as the potential investor concerned has not fulfilled the conditions set out in the MOU.
(d) Pursuant to a claim lodged by a bank against the Company’s subsidiaries, Yan Hei and Xiamen Plaza in which the bank has obtained a judgment dated 17 June 2002 from Xiamen Arbitration Committee (the “Judgment”) in enforcing the repayment of the loan of RMB30 million plus interest thereon within 10 days from the judgment date and the right to share and/or to realize 40% of Yan Hei’s investments in Xiamen Plaza secured thereto for settlement of the outstanding liabilities due to the bank. No action has so far been taken by the bank in enforcing the Judgment. According to the Company, the loan together with interest accrued thereon amounting to HK$37,204,373 provided in the financial statements is sufficient and no additional provision is required. The Company has lodged an appeal to the Court in Xiamen on 3 December 2002 to overturn the Judgment. However, it is uncertain, at this state, as to the outcome of the appeal.
(e) On 26 August 2002, an Arbitration Committee in the PRC delivered a judgment requiring Yan Hei, to pay the agreed guaranteed distributable profits of US$580,000 for the years 1998 to 2000 together with the accrued interests and surcharge to a joint venture partner of Xiamen Plaza. The Group is in the course of finalizing the terms of settlement of the guaranteed distributable profits up to the year ended 31 December 2002 including the continual use of the land for the operation of the hotel. A provision of HK$6,529,946 (i.e. US$840,000) has been made in the financial statements for the guaranteed distributable profits up to the balance sheet date. The Provisional Liquidators consider that the said provision is sufficient and no additional provision is required.
(f) As at 31 March 2003, judgment debts have been obtained by the Inland Revenue Department against two subsidiaries for outstanding profits tax payable. A provision for the profits tax payable together with the surcharges has been made in the financial statements.
(g) As detailed in note 2(b) to the financial statements, there might be practical difficulties in the execution of the Rescission Order. No provision has been made in the Group’s financial statements for any loss or expenses that might arise from the practical difficulties, or any possible counterclaim in relation to the Rescission Order as it is considered impractical to estimate such amount.

29. PLEDGE OF ASSETS

Bank loans of HK$Nil (2002: HK$235,743,630) and bank overdrafts of HK$Nil (2002: HK$83,189,398) as at 31 March 2003 are secured by the Group’s investment properties with carrying value amounting to HK$Nil (2002: HK$124,600,000). Bank loan of HK$28,266,154 (2002: HK$28,341,993) is secured by the Group’s 40% interests in Xiamen Plaza.

The Group’s investment properties with a carrying value of HK$10,250,000 as at 31 March 2003 (2002: HK$11,400,000) are secured, among other securities, in favour of Sino Earn for loan facilities granted to the Company amounting to HK$145,632,024 (2002: HK$145,288,265) as referred in note 20(b)(iii) to the financial statements.

The Group’s investment properties with a carrying value of HK$1,340,000 as at 31 March 2003 (2002: HK$1,600,000) are secured, among other securities, in favour of a third party for a loan granted to the Company amounting to HK$3,526,551 (2002: HK$3,526,551) as referred in note 20(b)(vi) to the financial statements.

30. OPERATING LEASE COMMITMENTS

At 31 March 2003, the Group and the Company had no lease payments under non-cancellable operating leases in respect of land and buildings.

– 81 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the financial statements (continued)

31. OPERATING LEASE ARRANGEMENTS

The Group and the Company entered into non-cancellable operating lease arrangements with the tenants and the terms of the leases range from one to four years.

At 31 March 2003, the Group and the Company had total future minimum lease receivables under non-cancellable operating leases in respect of land and buildings as follows:

Within one year In the second to fifth years inclusive	Group 2003 2002 HK$ HK$ 928,700 1,513,541 774,516 1,628,516 1,703,216 3,142,057	Company 2003 2002 HK$ HK$ 928,700 988,400 774,516 1,628,516 1,703,216 2,616,916	Company 2003 2002 HK$ HK$ 928,700 988,400 774,516 1,628,516 1,703,216 2,616,916
			2,616,916

32. RELATED PARTY TRANSACTIONS

On 12 December 2000, the Company entered into an office management fee agreement with Sino Earn, pursuant to which the Company shares the existing office premises and utilities with Sino Earn at an irrevocable monthly fee of HK$34,150 for the period from 10 January 2001 to 9 January 2003. A total fee of HK$307,350 (2002: HK$409,800) was charged by Sino Earn during the year.

The above transactions was carried out on normal commercial terms and conditions no more favourable than those available to other parties.

Particulars of the Company’s and the Group’s accounts with subsidiaries, jointly controlled entities, associates and related parties together with the respective terms of repayment are set out in notes 14,15,16,17 and 20(b) to the financial statements.

33. POST BALANCE SHEET EVENTS

(a) On 25 April 2003, the Company, the Provisional Liquidators, the Investor, Sino Earn and Jian Xing entered into a formal and legally binding Restructuring Agreement for the (i) reorganisation of the share capital of the Company; (ii) compromise of all the indebtedness and liabilities of the Company in accordance with the terms of the Restructuring Agreement and a scheme of arrangement between the Company (except the indebtedness owed to the Investor for the purpose of the Proposal Restructuring) and its creditors excluding Sino Earn and Jian Xing which agree to discharge all claims against the Group and release all charges except for the Westly Charge; and (iii) subscription of new shares to be issued by the Company to the Investor in cash, which will lead to a change in control of the Company, and the Investor will apply to the Securities and Futures Commission for the Whitewash Waiver.
(b) A resumption proposal for the Company based on the terms of the Restructuring Agreement was submitted to the Stock Exchange on 29 April 2003. The Listing Committee of the Stock Exchange has conditionally approved the said resumption proposal of the Company on 13 May 2003, subject to the fulfillment of certain conditions imposed prior to the resumption of trading of the Company’s securities on the Stock Exchange.

34. COMPARATIVES

The comparatives presented in the financial statements have been derived from the financial statements for the year ended 31 March 2002 which were audited by another certified public accountants, whose report dated 27 September 2002 was qualified in respect of a number of audit scope limitations and fundamental uncertainties.

As further explained in notes 3 and 4(f) to the financial statements, due to the adoption of certain new and revised SSAPs for the current year and the implementation of SSAP 30 “Business Combination” and SSAP 31 “Impairment of Assets” in 2002, the accounting treatment and presentation of certain items and balances in the financial statements have been revised to comply with the new requirements.

– 82 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the financial statements (continued)

35. AUTHORISATION FOR ISSUE OF THE FINANCIAL STATEMENTS

The financial statements were approved and authorised for issue by the Provisional Liquidators on 4 September 2003.

5. PRO FORMA STATEMENT OF UNAUDITED ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS OF THE GROUP

Set out below is a statement of the pro forma unaudited adjusted consolidated net tangible assets of the Group before and immediately after Completion based on the audited net liabilities of the Group as at 31 March 2003 and adjusted as follows:

Audited consolidated net liabilities as at 31 March 2003
Less:_Deficit arising on the revaluation
of the Group’s properties as at 31 August 2003(Note)_
_Add:_Subscription of New Shares by the Investor
_Add:_Financial Indebtedness of the Company waived
_Add:_Loan Capitalisation
_Less:_Deregister, transfer or wind up of the Non-core Subsidiaries
_Less:_Restructuring costs and expenses
Pro forma unaudited adjusted consolidated net tangible assets
of the Group upon Completion
Audited consolidated net liability value per New Share
before Completion (based on 1,074,328,367 New Shares
of HK$0.0125 each)
Pro forma unaudited adjusted consolidated net tangible
asset value per New Share immediately following Completion
(based on 4,419,791,172 New Shares of HK$0.0125 each)

HK$’000
(495,926)
(29,663)
34,000
364,873
6,790
201,224
(8,930)
72,368
46 cents
1.6 cents

Note: This represents an adjustment to reflect the revaluation of the Group’s properties performed by Norton Appraisals Limited and Knight Frank Hong Kong Limited for the purpose of this document.

– 83 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. PRO FORMA UNAUDITED CONSOLIDATED BALANCE SHEET OF THE GROUP

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

b as Non-current assets Fixed assets Associates Total Non-Current Assets Current Assets Accounts receivable, utility deposits and prepayments Inventories, at cost Cash and bank balances Total Current Assets Total Assets Liabilities Bank and other borrowings Obligations to jointly controlled entities Accounts payable, accrued charges and tenants’ deposits Taxation Unclaimed dividends Loans from minority shareholders Total Liabilities Net Liabilities Capital and reserves Share capital Reserves	Audited consolidated alance sheet at 31 March 2003 HK$’000 122,340 11,778 134,118 1,646 500 2,504 4,650 138,768 579,129 15,000 29,263 6,982 82 4,238 634,694 (495,926 ) 134,291 (630,217 ) (495,926 )	Capital Debt Adjustment Restructuring Restructuring HK$’000 HK$’000 HK$’000 (Note) (29,396) – – (267 ) – – (29,663) – – – – – – – – – – (11,307 ) – – (11,307 ) (29,663) – (11,307 ) – – (350,309 ) – – (15,000 ) – – (10,789 ) – – – – – (82 ) – – – – – (376,180 ) (29,663) – 364,873 – (120,862) 6,654 (29,663) 120,862 358,219 (29,663) – 364,873	Advance by Investor Restructuring and Loan Subscription expenses Capitalisation HK$’000 HK$’000 HK$’000 – – – – – – – – – – – – – – – 34,000 (8,930) 8,930 34,000 (8,930) 8,930 34,000 (8,930) 8,930 – – 2,140 – – – – – – – – – – – – – – – – – 2,140 34,000 (8,930 ) 6,790 29,310 – 5,853 4,690 (8,930) 937 34,000 (8,930) 6,790	Deregister, transfer or wind up of Non-core Subsidiaries HK$’000 (12 ) – (12) (305 ) – (34 ) (339 ) (351 ) (187,203) – (3,152) (6,982) – (4,238) (201,575) 201,224 – 201,224 201,224	Upon Completion HK$’000 92,932 11,511
					104,443
					1,341 500 25,163
					27,004
					131,447
					43,757 – 15,322 – – –
					59,079
					72,368

					55,246 17,122
					72,368

– 84 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

7. WORKING CAPITAL

In accessing the adequacy of the working capital of the Group, the Provisional Liquidators have prepared the cash flow projection of the Group for the period from 1 April 2003 to 30 September 2004 based on the following principal assumptions. Actual cash flows may differ from the prospective financial information contained in the cash flow projection since actual events may not occur as expected and such variation may be material.

Principal assumptions:

The Proposed Restructuring is successfully implemented;
Hotel Co, a major subsidiary of the Company, will continue to engage in the existing business upon Completion;
No material expenditure for purchases of fixed assets, investments or other acquisitions will be incurred during the period other than with the provision of funding from the Investor;
There will be no material changes in the existing political, legal, fiscal, foreign trade or economic conditions in Hong Kong or the PRC;
There will be no material changes in the bases or rates of taxation applicable to the operations of the Group; and
There will be no disasters, natural, political or otherwise, which would materially disrupt the business or operations of the Group or cause substantial loss, damage or destruction to its facilities.

– 85 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The following is the cash flow projections of the Group for the period from 1 April 2003 to 30 September 2004.

Net cash outflow from operating activities for the period from 1 April 2003 to 30 September 2004 Proceeds from the Subscription Loan from the Investor Payment of restructuring costs and expenses Payment to creditors under the Proposed Restructuring Payment to ICBC Net cash inflow Cash balance as at 1 April 2003 Cash balance as at 30 September 2004	HK$’000 (635) 34,000 8,930 (8,930) (11,307) (1,870) 20,188 2,400 22,588

The Provisional Liquidators are of the opinion that in the absence of unforeseen circumstances and subject to Completion, the Group has sufficient working capital for the period from 1 April 2003 to 30 September 2004.

– 86 –

COMFORT LETTERS FOR THE GROUP’S WORKING CAPITAL ADEQUACY

APPENDIX II

Set out below are the texts of the letter received from Nexia Charles Mar Fan & Co., the Investor, Asian Capital and Quam Capital in connection with the Group’s working capital adequacy and is prepared for the purpose of inclusion in this document.

(a) Letter from Nexia Charles Mar Fan & Co.

9 October 2003

The Provisional Liquidators

Fujian Group Limited (Provisional Liquidators Appointed) 7th Floor Allied Kajima Building 138 Gloucester Road Hong Kong

Dear Sirs,

RE: FUJIAN GROUP LIMITED (PROVISIONAL LIQUIDATORS APPOINTED) ADEQUACY OF WORKING CAPITAL

We refer to the circular dated 9 October 2003 (the “Circular”) issued by Fujian Group Limited (Provisional Liquidators Appointed) (the “Company”) in connection with the restructuring of the Company and its subsidiaries (the “Group”) involving, inter alia, capital restructuring, debt restructuring, subscription, loan capitalization, reorganisation of the Group and whitewash waiver pursuant to the terms and conditions of the Restructuring Agreement (the “Proposed Restructuring”).

In accordance with the instructions of the Provisional Liquidators of the Company, we have reviewed the compilation of the cash flow projections of the Group for the period from 1 April 2003 to 30 September 2004 as set out on page 86 (i.e. up to 18 months after completion of the audited financial statements for the year ended 31 March 2003) (the “Cash Flow Projections”) and the cash flow requirements of the Group for the same period. The Cash Flow Projections have been compiled on the basis of certain principal assumptions (the “Assumptions”) as set out on page 85 of the Circular.

We understand that the Provisional Liquidators propose to make the following statement on page 86 of the Circular.

“The Provisional Liquidators are of the opinion that in the absence of unforeseen circumstances and subject to Completion, the Group has sufficient working capital for the period from 1 April 2003 to 30 September 2004.”

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

– 87 –

APPENDIX II COMFORT LETTERS FOR THE GROUP’S WORKING CAPITAL ADEQUACY

In our opinion, based on our review, so far as the accounting policies and calculations are concerned, the Cash Flow Projections for which the Provisional Liquidators are solely responsible have been properly compiled on the basis of the Assumptions.

Yours faithfully, Nexia Charles Mar Fan & Co. Certified Public Accountants Hong Kong

– 88 –

COMFORT LETTERS FOR THE GROUP’S WORKING CAPITAL ADEQUACY

APPENDIX II

(b) Letter from the Investor

HC TECHNOLOGY CAPITAL COMPANY LIMITED

(Incorporated in British Virgin Islands with limited liability)

Offshore Corporation Limited P.O. Box 957 Offshore Incorporation Center Road Town, Tortola British Virgin Islands

9 October 2003

The Provisional Liquidators Fujian Group Limited (Provisional Liquidators Appointed) c/o 7/F Allied Kajima Building 138 Gloucester Road Wanchai, Hong Kong

Dear Sirs,

FUJIAN GROUP LIMITED

(Provisional Liquidators Appointed) Adequacy of Working Capital

The letter is prepared for the purpose of the statement made by the Provisional Liquidators regarding the sufficiency of working capital for the present requirements of the Group, as set out on page 86 of the circular of the Company dated 9 October 2003 issued in relation to the Company’s proposed restructuring involving, inter alia, Capital Restructuring, Debt Restructuring, Subscription of New Shares, Loan Capitalisation, Whitewash Waiver and a proposed change of the Company name and general mandates to issue and repurchase New Shares (the “Circular”). Terms used herein shall have the same meanings as those defined in the Circular unless defined otherwise.

We have reviewed the cash flow projections of the restructured Group for the eighteen month period from 1 April 2003 to 30 September 2004 (the “Projections”) for which the Provisional Liquidators are solely responsible. The Projections have been compiled on the basis of the principal assumptions made by the Provisional Liquidators including that the Proposed Restructuring as more particularly described on pages 9 to 13 of the Circular will be successfully implemented. We have discussed those assumptions adopted with the Provisional Liquidators.

– 89 –

APPENDIX II

COMFORT LETTERS FOR THE GROUP’S WORKING CAPITAL ADEQUACY

We emphasise that the Projections and the assumptions on which they are based relate to the future and actual cash flows are likely to differ from the Projections because the anticipated events frequently do not occur as expected and the variation may be material.

For these reasons, we express no opinion on how closely the actual cash flows eventually achieved will correspond with the Projections.

Based on our review of the Projections and our discussion with the Provisional Liquidators on the principal assumptions adopted in the Projections, we are satisfied that the statement in the circular as to the adequacy of working capital has been made by the Provisional Liquidators with due care and consideration and that the requirements set out under rule 10.2 and its notes of the Takeovers Code are met.

Yours faithfully,

By order of the board of the directors

HC TECHNOLOGY CAPITAL COMPANY LIMITED Mei Qinping Director

– 90 –

APPENDIX II

COMFORT LETTERS FOR THE GROUP’S WORKING CAPITAL ADEQUACY

(c) Letter from Asian Capital

9 October 2003

The Provisional Liquidators Fujian Group Limited (Provisional Liquidators Appointed) c/o 7/F Allied Kajima Building 138 Gloucester Road Wanchai, Hong Kong

Dear Sirs,

FUJIAN GROUP LIMITED

(Provisional Liquidators Appointed) Adequacy of Working Capital

The letter is prepared for the purpose of the statement made by the Provisional Liquidators regarding the sufficiency of working capital for the present requirements of the Group, as set out on page 86 of the circular of the Company dated 9 October 2003 issued in relation to the Company’s proposed restructuring involving, inter alia, Capital Restructuring, Debt Restructuring, Subscription of New Shares, Loan Capitalisation, Whitewash Waiver, a proposed change of the Company name and general mandates to issue and repurchase New Shares (the “Circular”). Terms used herein shall have the same meanings as those defined in the Circular unless defined otherwise.

For these reasons, we express no opinion on how closely the actual cash flows eventually achieved will correspond with the Projections.

S UITE 1006, BANK OF AMERICA TOWER , 12 HARCOURT ROAD , CENTRAL , HONG KONG . G ENERAL LINE: (852) 2869-8861 FAX : (852) 2869-9660 WEBSITE: www.asiancapital.com.hk

– 91 –

APPENDIX II COMFORT LETTERS FOR THE GROUP’S WORKING CAPITAL ADEQUACY

Based on our review of the Projections and our discussion with the Provisional Liquidators on the principal assumptions adopted in the Projections, we are satisfied that the statement in the Circular as to the adequacy of working capital has been made by the Provisional Liquidatiors with due care and consideration and that the requirements set out under rule 10.2 and its notes of the Takeovers Code are met.

Yours faithfully, For and on behalf of

Asian Capital (Corporate Finance) Limited Patrick K. C. Yeung Managing Director

– 92 –

COMFORT LETTERS FOR THE GROUP’S WORKING CAPITAL ADEQUACY

APPENDIX II

(d) Letter from Quam Capital

Set out below is the text of the letter received from Quam Capital in connection with the Group’s working capital adequacy and is prepared for the purpose of inclusion in this document:

Quam Capital Limited 華富嘉洛證券融資有限公司

Financial Services Group A Member of The Quam Group

9 October 2003

The Provisional Liquidators of Fujian Group Limited (Provisional Liquidators Appointed) c/o 7/F Allied Kajima Building 138 Gloucester Road Wan Chai Hong Kong

Dear Sirs,

We refer to the statement made by the Provisional Liquidators and set out on page 86 of the document dated 9 October 2003 (the “Document”) that based on the cash flow projection of the Group for the period from 1 April 2003 to 30 September 2004 prepared by the Provisional Liquidators (the “Working Capital Forecast”), the Provisional Liquidators are of the opinion that in the absence of unforeseen circumstances and subject to Completion, the Group has sufficient working capital for the period from 1 April 2003 to 30 September 2004. Terms used in this letter shall have the same meanings as defined in the Document unless the context otherwise requires.

We have discussed with the Provisional Liquidators the bases for the Working Capital Forecast and have considered the letter dated 9 October 2003 addressed to the Provisional Liquidators from the Nexia Charles Mar Fan & Co., the auditors of the Company. On the basis of the Working Capital Forecast and the assumptions made by the Provisional Liquidators, which we consider reasonable, we are satisfied that the statement in the Document as to the adequacy of working capital for which the Provisional Liquidators are solely responsible has been made after due and careful enquiry and consideration.

Yours faithfully, For and on behalf of

Quam Capital Limited Richard D. Winter Managing Director

– 93 –

APPENDIX III

PROPERTY VALUATION OF THE GROUP

Set out in this appendix are the texts of the valuation reports prepared in relation to the properties interests held by the Group in the PRC and Hong Kong.

1. PROPERTY INTEREST HELD BY THE GROUP IN THE PRC

The following is the text of the letter 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 property.

==> picture [181 x 36] intentionally omitted <==

Room 3830 – 32, Sun Hung Kai Centre 30 Harbour Road Wanchai Hong Kong Tel: (852) 2810 7337 Fax: (852) 2810 6337

9 October 2003

The Directors

Fujian Group Limited (Provisional Liquidators Appointed)

c/o 7/F Allied Kajima Building 138 Gloucester Road Wanchai Hong Kong

Dear Sirs,

Re: Xiamen Plaza, No. 908 Xiahe Road, Kaiyuan District, Xiamen City, Fujian Province, the People’s Republic of China (the “PRC”)

In accordance with your instructions for us to value the property interest of the captioned property (hereinafter referred to as the “Property”) in its existing state, we confirm that we have inspected the Property, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of open market value of the Property as at 31 August 2003 (hereinafter referred to as the “date of valuation”).

This letter, forming part of our valuation report, identifies the Property being valued, explains the basis and methodology of our valuation, and lists out the assumptions and the title investigation we have made in the course of our valuation, as well as the limiting conditions.

Background

The property interest of the Property is owned exclusively by 廈門東南亞大酒店有限公司 (Xiamen South East Asia Hotel Co., Ltd., hereinafter referred to as the “Joint Venture”) which is a sino-foreign cooperative joint venture enterprise established in 1985. As advised by your Group that Fujian Group Limited and/or its subsidiary (hereinafter together referred to as the “Group”) have 100% beneficial interest in the Joint Venture.

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APPENDIX III

PROPERTY VALUATION OF THE GROUP

The Joint Venture is engaged in the development and operation of Xiamen Plaza which is a hotel erected on a parcel of land with a site area of approximately 5,609.50 square metres situated at No. 908 Xiahe Road, Kaiyuan District, Xiamen City, Fujian Province, the PRC.

The Property is known as Xiamen Plaza and comprises a 13-storey building with a basement and a 3-Storey ancillary building with a total gross floor area of approximately 17,093.11 square metres (excluding the area of the basement which is approximately 3,886.76 square metres). There are a total of 287 guestrooms, 2 restaurants, a bar, a business centre, a shopping arcade, and various recreational and entertainment facilities including a swimming pool, a gymnasium, a KTV lounge and a nightclub.

Basis of Valuation

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

(a) a willing seller;
(b) that, prior to the date of valuation, there had been a reasonable period (having regard to the nature of the property and the state of the market) for the proper marketing of the interest, for the agreement of price and terms and for the completion of the sale;
(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 which is occupied for the purpose of the business operating therein, i.e. a hotel, we have valued on the basis of existing use value. The existing use value takes into account the definition of the open market value but with the following two added assumptions:

(f) that the property can be used for the foreseeable future only for the existing use; and
(g) that vacant possession is provided on completion of the sale of all parts of the property occupied by the business.

The above definition of open market value, with the added assumption that the property will continue in owner occupation in its existing use (albeit potentially with new owners), therefore ignores the potential alternative uses (and/or hope value in the future) which may be attributable to the possibility of securing statutory approvals, with or without the payment of premium for alternative uses, lease modifications, land exchange or joint development. We further assume that any possible extensions or redevelopment would only be undertaken for the purpose of the business, subject to obtaining all necessary consents.

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APPENDIX III

PROPERTY VALUATION OF THE GROUP

Valuation Methodology

In valuing the Property, the direct comparison method is adopted where comparison based on prices information of comparable properties is made. Comparable properties are analysed and carefully weighed against all the respective advantages and disadvantages of each property in order to arrive at the value of Property.

Valuation Assumptions

Our valuation has been based on our experience of valuing properties in the PRC and assumed that the owner sells the property interest on the open market without the benefit of a deferred terms contracts, leaseback, joint venture, management agreement or any similar arrangement which would serve to affect the value of the Property.

In addition, no account has been taken of any opinion or right of pre-emption concerning or affecting the sale of the Property and no forced sale situation in any manner is assumed in our valuation.

We have further assumed the followings:

(a) that transferable land use rights of the Property, having a term up to 12 December 2015 for hotel use, have been granted at nominal land use fees;
(b) that all land premium (assuming the land use rights of the Property have been granted for a term up to 12 December 2015) and costs of resettlement and public utilities services and others have already been fully settled;
(c) that the Joint Venture is in possession of a proper legal title to the Property and is entitled to transfer the Property together with the residual term of its land use rights at no extra land premium and other onerous charges payable to the government;
(d) that the design and construction of the Property are in compliance with the local planning regulations and have been approved by the relevant authorities;
(e) that all consents, approvals and licences from relevant government authorities for the Property have been granted without any onerous conditions or undue delay which might affect the value;
(f) that the Property will continue to be managed by an efficient and effective management with competent key personnel and technical staff to support its ongoing operation; and
(g) that the Property may be disposed of freely to both local and overseas purchasers.

No allowance has been made in our valuation for any charges, mortgages or amount owing on the property nor for any expenses or taxation which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that the Property is free from encumbrances, restrictions and outgoings of an onerous nature which could affect its value.

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APPENDIX III

PROPERTY VALUATION OF THE GROUP

Title Investigation

We have not investigated the title to or liabilities against the Property. We have, however, assumed that transferable land use rights of the Property for the specific term at nominal annual land use fee have been granted and that any premium payable has already been fully paid. We have relied on the advice given by the Group and 福建至理律師事務所 (the “PRC legal adviser”), regarding the title to the property interest. For the purpose of our valuation, we have assumed that the Joint Venture has legal and enforceable title to the property interest.

Limiting Conditions

We have relied to a considerable extent on the written information provided by the Group and have accepted advice given to us on such matters as details of the hotel, planning approvals, statutory notices, easements, joint-venture and management agreements, tenure, occupation, site and floor areas and all other relevant matters. Dimensions, measurements and areas included in this valuation report are based on information contained in the documents provided to us and are therefore approximations only. No onsite measurement has been made.

We have had no reason to doubt the truth and accuracy of the information provided to us by the Group. We were also advised by the Group that no material facts have been omitted from the information supplied.

We consider that we have been provided with sufficient information to reach an informed view and have no reason to suspect that any information has been withheld.

We have inspected the exteriors and, where possible, the interiors of the Property. However, no structural survey has been made nor were any tests carried out on any of the services provided in the Property. We are, therefore, not able to report that the Property is or is not free from rot, infestation or any other structural defects. Yet, in the course of our inspection, we did not note any serious defects.

Our valuation has 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 valuation has also been prepared under the generally accepted valuation procedures and is in compliance with the requirement as stated in the Codes on Takeover and Mergers and Share Repurchases issued by The Securities and Futures Commission and the Practice Note 12 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

Remarks

Unless otherwise stated, all money amounts stated are in Hong Kong dollars. The exchange rates used in our valuation are HK$1=RMB1.06 and USD1=HK$7.8 which were the prevailing exchange rates as at the date of our valuation.

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APPENDIX III

PROPERTY VALUATION OF THE GROUP

Conclusion of Value

Bearing in mind the above and taking into account all the content of the attached valuation certificate, we are of the opinion that the open market value of the Property in existing state as at 31 August 2003 is in the sum of HK$78,000,000 (HONG KONG DOLLARS SEVENTY EIGHT MILLION ONLY).

We attach herewith our valuation certificate.

Yours faithfully, For and on behalf of

Norton Appraisals Limited

Paul M. K. Wong MRICS, MHKIS, RPS (G.P.)

Director

Note: Mr. M. K. Wong is a Registered Professional Surveyor who has more than 10 years’ experience in the valuation of properties in Hong Kong and the People’s Republic of China.

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APPENDIX III

PROPERTY VALUATION OF THE GROUP

VALUATION CERTIFICATE

Property

Xiamen Plaza, No. 908 Xiahe Road, Kaiyuan District, Xiamen City, Fujian Province, the PRC

Description and Tenure

The Property comprises a medium tariff hotel which includes a 13-storey building erected upon a basement and with a 3-storey ancillary building completed in 1990 and 1991 respectively.

Open market value in Particulars of existing state as at occupancy 31 August 2003 The Property is HK$78,000,000 currently operated as a (100% interest hotel and is managed attributable by the Joint Venture. to the Group: HK$78,000,000)

The site on which the buildings are erected comprises an area of approximately 5,609.50 square metres (60,381 square feet).

The Property comprises a fully operational hotel with 287 guest rooms/suites, 2 restaurants, a shopping arcade, a bar, a business centre, swimming pool, gymnasium, KTV lounge, nightclub and other back-ofhouse facilities having a total gross floor area of approximately 17,093.11 square metres (183,990 square feet) and basement floor area of approximately 3,886.76 square metres (41,837 square feet).

The land use rights of the Property have been assumed to be granted for a term up to 12 December 2015 for hotel use.

Notes:

Pursuant to the Certificate for State-owned Land Use Rights No. (95) 512 issued by the People’s Government of Xiamen dated 30 November 1995, the land use rights of the Property, comprising a site area of 5,609.50 square metres, have been granted to 上海鐵路局廈門鐵路開發公司 (廈門東南亞大酒店) (Shanghai Railway Bureau Xiamen Railway Development Company (Xiamen Plaza)) for an unspecified term for hotel (commercial/services) use. The said certificate also stated that 廈門東南亞大酒店有限公司 (Xiamen South East Asia Hotel Co., Ltd.) (hereinafter referred to as the “Joint Venture”) is vested with the land use rights of the Property throughout the operation period of the Joint Venture.

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APPENDIX III

PROPERTY VALUATION OF THE GROUP

Pursuant to two Certificates for Construction Nos. (88) 325 and (91) 216 dated 20 July 1989 and 9 August 1991 respectively, the planned development of the Property is to comprise the gross floor area of 18,000 square metres for hotel and 2,300 square metres for ancillary building.
Pursuant to the Sino-foreign Co-operative Joint Venture Contract (the “Contract”) and the Amendment Agreement (the “Agreement”) entered into between 上海鐵路局廈門鐵路開發公司 (Shanghai Railway Bureau Xiamen Railway Development Company, referred to as the “Bureau”) and Yan Hei Limited (referred to as “Yan Hei”) on 18 December 1987 and 21 January 1992 respectively, both parties have agreed to establish a co-operative joint-venture enterprise known as Xiamen South East Asia Hotel Co., Ltd. (the “Joint Venture”). The significant terms and conditions stipulated in the said contracts are, inter alias, cited as follows:
(i) Business of operation: Jointly develop and operate a hotel named as “Xiamen Plaza”
(ii) Period of operation : 30 years form the date of issue of the business licence
(iii) Total investment : US$22,500,000
(iv) Registered capital : US$5,000,000
(v) The Bureau shall provide a site of approximately 5,000 square metres for the development of Xiamen Plaza.
(vi) Yan Hei shall contribute all the development capital and shall be responsible for the operation and management of the Joint Venture.
(vii) The Bureau shall be entitled to a fixed profit of US$100,000 per annum for the first 5 years and US$200,000 per annum thereafter from the date of operation of the Property and the remaining profit will be attributable to Yan Hei. Yan Hei agreed to adjust the profit sharing after the bank loan has been fully settled.
Pursuant to the Business Licence No. 00135 dated 1st May, 2001, the Joint Venture was incorporated with a registered capital of US$5,000,000 and the operation period was to commence from 12 December 1985 to 12 December 2015.
In the course of our valuation, we have assumed the land use rights of the Property have been granted by relevant government/bureau to the Joint Venture for a term up to 12 December 2015 for hotel use and all the land premium incurred have been settled in full as at the date of valuation.
The opinion of the Group’s legal adviser on PRC law states that:
(i) The Contract and Agreement are valid, legally binding and enforceable in accordance with their terms.
(ii) The Joint Venture has been duly incorporated and has full power and legal capacity to carry on the business specified in the business licence. The scope of business includes operating of hotel, restaurant, lounge, beauty salon, entertainment, health and care, laundry, car parking and retail facilities, etc.
(iii) Pursuant to the Business Licence dated 1st May, 2001, it is confirmed that the operation period of the Joint Venture is from 12th December, 1985 to 12th December, 2015.
The Company advised that the Property at the time of disposal at the amount of its open market value as at 31 August 2003 will not be subject to profit tax in the PRC. The precise tax implication will be subject to formal tax advice, prevailing rules and regulations at the time of disposal. In addition, in light of the future plan of the Investor as set out in the “Letter from the Investor”, the likelihood of any tax liability being crystallized is remote.

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APPENDIX III

PROPERTY VALUATION OF THE GROUP

2. PROPERTIES INTEREST HELD BY THE GROUP IN HONG KONG

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9 October 2003

HC Technology Capital Company Limited c/o Asian Capital (Corporate Finance) Limited Suite 1006, Bank of America Tower No. 12 Harcourt Road Central Hong Kong and Sino Earn Holdings Limited Rooms 1201-2, 12/F., Hang Seng Building No. 77 Des Voeux Road Central Hong Kong and Jian Xing Finance Limited Suite 806, 8/F., Two Chinachem Exchange Square No. 338 King’s Road North Point Hong Kong and

Fujian Group Limited (Provisional Liquidators Appointed) 7/F., Allied Kajima Building No. 138 Gloucester Road Wanchai Hong Kong and

Cosimo Borrelli and Fan Wai Kuen as Joint and Several Provisional Liquidators of Fujian Group Limited (Provisional Liquidators Appointed)

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APPENDIX III

PROPERTY VALUATION OF THE GROUP

Dear Sirs,

In accordance with your instructions for us to value the properties in Hong Kong as per attached Valuation Certificate in which Fujian Group Limited (Provisional Liquidators Appointed) (the “Company”) has interests, we confirm that we have carried out inspections, made relevant enquiries and searches and obtained such further information as we consider necessary for the purpose of providing you with our opinion of values of such properties as at 31 August 2003.

Our valuation of each of the properties represents its open market value which we would define as meaning “the best price at which the sale of an interest in a property might reasonably be expected to have been completed unconditionally for cash consideration on the date of valuation, assuming:

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

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 deferred term contracts, leasebacks, joint ventures, management agreements or any similar arrangements which would serve to affect the value of such properties.

We have valued the properties by reference to comparable market transactions and where appropriate on the basis of capitalization of the net income shown on the schedules handed to us. We have allowed for outgoings and in some cases made provisions for reversionary income potential. Properties which are vacant have been valued assuming sale with vacant possession.

In valuing Property Nos. 3 and 4 which are held from the Government for terms expired before 30 June 1997, we have taken account of the stipulations contained in Annex III of the Joint Declaration of the Government of the United Kingdom and the Government of the People’s Republic of China on the question of Hong Kong and the New Territories Leases (Extension) Ordinance that such lease terms have been extended without premium until 30 June 2047 and that an annual rent at three per cent of the rateable value of each of the properties is charged from the date of extension.

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APPENDIX III

PROPERTY VALUATION OF THE GROUP

We have relied to a considerable extent on the information provided by you and have accepted advice given to us by you on such matters as statutory notices, easements, tenure, particulars of occupancy, floor areas and all other relevant matters. We have caused searches to be made at the Land Registry. However, we have not scrutinised the original documents to verify ownership or to verify any lease amendments which may not appear on the copies handed to us. All documents and leases have been used as reference only and all dimensions, measurements and areas are approximations only.

We have inspected the exterior of the properties. During the course of our inspection, 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 or are not free from rot, infestation or any other defects. No tests were carried out on any of the services.

No allowance has been made in our valuation for any charges, mortgages or amounts owing on any 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 any onerous nature which could affect their values.

We enclose herewith our summary of valuation and valuation certificate.

Yours faithfully, For and on behalf of KNIGHT FRANK HONG KONG LIMITED C.K. Lau

MHKIS MRICS RPS(GP) Director

– 103 –

APPENDIX III

PROPERTY VALUATION OF THE GROUP

SUMMARY OF VALUATION

				Capital value
		Capital value		in existing state
		in existing	Interest	attributable to the
		state as at	attributable	Company as at
	Property	31 August 2003	to the Company	31 August 2003
		HK		HK
1.	Shop Nos. 1, 3, 4, 32, 50,	$8,000,000	33.33%	$2,666,400
	57, 58, 65 and 67
	on Ground Floor,
	Shaukiwan Centre,
	No. 407 Shau Kei Wan Road,
	Shau Kei Wan,
	Hong Kong
2.	Shops A, B and D on Ground Floor,	$9,700,000	33.33%	$3,233,010
	Ealing Court,
	No. 259A Temple Street,
	Yau Ma Tei,
	Kowloon
3.	Shop Nos. 1, 3 and 4 together	$20,500,000	50%	$10,250,000
	with open yard adjoining thereto
	on Ground Floor, the whole of
	First Floor and Second Floor,
	Sun Ming Court,
	Nos. 84-90 Castle Peak Road,
	Sham Shui Po,
	Kowloon
4.	Parking Space Nos. 54, 55,	$300,000	100%	$300,000
	56, 57 and 58,
	Yuet Ming Building,
	No. 52 Yuet Wah Street,
	Kwun Tong,
	Kowloon
			Total :	$16,449,410

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PROPERTY VALUATION OF THE GROUP

APPENDIX III

VALUATION CERTIFICATE

Description and tenure

Property

Shop Nos. 1, 3, 4, 32, The property comprises 9 shop 50, 57, 58, 65 and 67 units on the Ground Floor of a on Ground Floor, 2-storey commercial podium on Shaukiwan Centre, which 3 blocks of 22-storey No. 407 Shau Kei residential building are erected. Wan Road, The development was completed Shau Kei Wan, in 1982. Hong Kong

The total gross floor area of the property is approximately 3,713 sq.ft. (344.95 sq.m.).

272/6, 224th shares of property is approximately 3,713 and in The Remaining sq.ft. (344.95 sq.m.). Portion of Sub-section 1 of Section A of The property is held under a Shaukiwan Lot Government lease for a term of No. 104, Sub-section 999 years from 3 January 1860. 2 of Section A of Shaukiwan Lot The total Government rent No. 104 and payable for Section A of The Remaining Shaukiwan Lot No. 104 and Portion of Section A Sub-Section 1 of Section A of of Shaukiwan Lot Shaukiwan Lot No. 104 is No. 104. HK$47.4 per annum.

The property is held under a Government lease for a term of 999 years from 3 January 1860.

Capital value in Particulars of existing state as at occupancy 31 August 2003 Except for two shop HK$8,000,000 units which are vacant, (33.33% interest the remaining shop attributable to the units are subject to Company : various tenancies with HK$2,666,400) the latest one expiring in March 2005 at a total rental of HK$29,000 per month inclusive of rates and management fee.

Notes:

The registered owner of the property is Sherrin Property Investment Limited by an Assignment dated 25 April 1978 vide Memorial No. 1524331. The Company has a 33.33% interest in Sherrin Property Investment Limited.
According to the Land Registry record, the property was free of mortgage as at 31 August 2003.
The Company advised that the property at the time of disposal at the amount of its open market value as at 31 August 2003 will be subject to profits tax in Hong Kong. The precise tax implication will be subject to formal tax advice, prevailing rules and regulations at the time of disposal. However, in light of the future plan of the Investor as set out in the “Letter from the Investor”, the likelihood of any tax liability being crystallized is remote. For indicative purpose and based on prevailing rules and information available as at the Latest Practicable Date, the potential tax obligation arising from the disposal of this property is estimated to be HK$982,747.

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APPENDIX III

PROPERTY VALUATION OF THE GROUP

Description and tenure

Property

Shops A, B and D on The property comprises 3 shop Ground Floor, units on the Ground Floor of a 17Ealing Court, storey composite building No. 259A Temple completed in 1981. Street, Yau Ma Tei, The total gross floor area of the Kowloon property is approximately 2,301 sq.ft. (213.77 sq.m.).

Capital value in Particulars of existing state as at occupancy 31 August 2003 The property is subject HK$9,700,000 to a tenancy for a term (33.33% interest of 2 years from 1 attributable to the October 2001 at a Company : rental of HK$47,000 HK$3,233,010) per month exclusive of rates and management fee.

78/460th shares of and in The Remaining The property is held under a Portions of Sections Government lease for a term of 75 B, C, D and E of years from 19 December 1904 Kowloon Inland Lot renewable for a further term of 75 No. 1492, The years. Remaining Portion of Sub-Section 1 of The total Government rent Section C and The payable for the property is Remaining Portion of HK$2,556 per annum. Kowloon Inland Lot No. 1492.

Notes:

The registered owner of the property is Ealing Court Limited by an Assignment dated 24 January 1978 vide Memorial No. 1488557. The Company has a 33.33% interest in Ealing Court Limited.
According to the Land Registry record, the property was free of mortgage as at 31 August 2003.
The Company advised that the property at the time of disposal at the amount of its open market value as at 31 August 2003 will be subject to profits tax in Hong Kong. The precise tax implication will be subject to formal tax advice, prevailing rules and regulations at the time of disposal. However, in light of the future plan of the Investor as set out in the “Letter from the Investor”, the likelihood of any tax liability being crystallized is remote. For indicative purpose and based on prevailing rules and information available as at the Latest Practicable Date, the potential tax obligation arising from the disposal of this property is estimated to be HK$1,500,431.

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APPENDIX III

PROPERTY VALUATION OF THE GROUP

Property

Description and tenure

Capital value in Particulars of existing state as at occupancy 31 August 2003

Shop Nos. 1, 3 and 4 The property comprises 3 shop together with open units on the Ground Floor and the yard adjoining thereto whole of the 1st and 2nd Floors of on Ground Floor, the a 13-storey composite building whole of First Floor completed in 1981. and Second Floor, Sun Ming Court, The total gross floor area of the Nos. 84-90 Castle property is approximately 10,464 Peak Road, sq.ft. (972.13 sq.m.). The areas of Sham Shui Po, the yard adjoining to Shop No. 4 Kowloon and the flat roof on 1st Floor are

The total gross floor area of the property is approximately 10,464 sq.ft. (972.13 sq.m.). The areas of the yard adjoining to Shop No. 4 and the flat roof on 1st Floor are approximately 138 sq.ft. (12.82 sq.m.) and 210 sq.ft. (19.51 sq.m.) respectively.

184/467th shares of and in Sections A, B, C and D of New Kowloon Inland Lot No. 2680 and Section A of New Kowloon Inland Lot No. 2715.

The property is held under two Government leases each for a term of 75 years from 1 July 1898 renewable for a further term of 24 years less the last 3 days and is statutorily extended until 30 June 2047.

The property is subject HK$20,500,000 to 3 tenancies with the (50% interest latest one expiring in attributable to the March 2005 at a total Company: rental of HK$159,200 HK$10,250,000) per month mostly exclusive of rates and management fees.

Out of the 3 tenancies, 2 of which contain options for renewal of the tenancies.

The annual Government rent payable for the property is an amount equal to 3% of the rateable value for the time being of the property.

Notes:

The registered owners of the property are Rudder Realty Limited (1/2) by an Assignment dated 13 October 1980 vide Memorial No. 1995877 and Fujian Group Limited (1/2) by a Certified Copy Certificate of Incorporation on Change of Name of Triplenic Holdings Limited dated 17 July 1998 vide Memorial No. 7729221. Therefore, the Company has a 50% interest in the property.
The property is subject to a Legal Charge by Fujian Group Limited (Re: 1/2 share) dated 21 September 1999 in favour of Sino Earn Holdings Limited vide Memorial No. 7876917.
The property is subject to an Order No. INVO 7038/K/02 under Section 26A(1) of The Buildings Ordinance issued by the Building Authority on 27 December 2002 vide Memorial No. 8868295.
The Company advised that the property at the time of disposal at the amount of its open market value as at 31 August 2003 will not give rise to any potential tax liability because the book value of the property as set out in the Company’s latest published annual report is the same as the said open market value.

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APPENDIX III

PROPERTY VALUATION OF THE GROUP

Description and tenure

Property

Parking Space Nos. The property comprises 5 motor 54, 55, 56, 57 and 58, cycle parking spaces on the Yuet Ming Building, Ground Floor of a 13-storey No. 52 Yuet Wah residential building completed in Street, 1975. Kwun Tong, Kowloon The property is held under Conditions of Sale No. 8034 for a

Situated within Kwun term of 99 years less the last 3 Tong Inland Lot No. days from 1 July 1898 and is 400. statutorily extended until 30 June 2047.

Capital value in Particulars of existing state as at occupancy 31 August 2003 The property is vacant. HK$300,000

The annual Government rent payable for the property is an amount equal to 3% of the rateable value for the time being of the property.

Notes:

The registered owner of the property is Fujian Group Limited (formerly known as Kai Ming Investment Company Limited) (Grantee) under Conditions of Sale No. 8034.
According to the Land Registry record, the property was free of mortgage as at 31 August 2003.
The Company advised that the property at the time of disposal at the amount of its open market value as at 31 August 2003 will not give rise to any potential tax liability because the book value of the property as set out in the Company’s latest published annual report is the same as the said open market value.

– 108 –

APPENDIX IV

GENERAL INFORMATION

1. RESPONSIBILITY STATEMENT

This document includes particulars given in compliance with the Takeovers Code and the Listing Rules for the purpose of giving information with regard to the Group and the Investor. The Provisional Liquidators jointly and severally accept full responsibility for the accuracy of the information contained in this document, other than that relating to the Investor, and confirm, having made all reasonable inquiries, that to the best of their knowledge and belief, the opinions expressed in this document other than those relating to the Investor, have been arrived at after due and careful consideration and there are no other facts not contained in this document, the omission of which would make any statement other than those relating to the Investor in this document misleading.

The directors of the Investor jointly and severally accept full responsibility for the accuracy of information contained in this document, other than that relating to the Group or the Provisional Liquidators, and confirm, having made all reasonable inquiries, that to the best of their knowledge and belief, the opinions expressed in this document have been arrived at after due and careful consideration and there are no other facts not contained in this document, the omission of which would make any statement other than those relating to the Group or the Provisional Liquidators in this document misleading.

2. MARKET PRICES

Trading in the Shares has been suspended since 10:00 a.m. on 16 February 2001. The closing price before suspension was HK$0.082 per Share.

3. INTERESTS IN SECURITIES OF THE COMPANY

(a) Directors

As at the Latest Practicable Date, the interests (including short positions) of the Directors (including their respective spouses, infant children, related trusts and companies controlled by them) in the Shares, convertible securities, warrants, options or derivatives in respect of securities which carry voting rights of the Company and its associated corporations (within the meaning of the SFO), which require notification pursuant to Divisions 7 and 8 of Part XV of the SFO (including interest or short position in which any such director is taken or deemed to have under such provision of the SFO) or which were required to be entered in the register kept by the Company pursuant to section 352 of the SFO, or which were required to be notified to the Company pursuant to section 352 of the SFO, or which were required to be notified to the Company and the Stock Exchange, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies in the Listing Rules, were as follows:

			Percentage of
	Personal	Corporate	total issued
Name of Director	interest	interest	share capital
Mr. So Sik	–	248,897,760_(Note)_	23.17%
Mr. Wang Hai Min	200,000	–	0.02%

Note: Mr. So Sik is interested in 248,897,760 Shares by virtue of his ownership of 100% of the issued share capital of Pelota Worldwide Limited (in liquidation) (“Pelota”) which beneficially holds these 248,897,760 Shares. Pelota was put into liquidation on 8 November 2000 by a bank in Hong Kong.

– 109 –

APPENDIX IV

GENERAL INFORMATION

Save as disclosed above, as the Latest Practicable Date, none of the Directors had any interests or short positions in any equity or debt securities of the Company or any associated corporation (within the meaning of the SFO) which were required to be notified to he Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interest and short position in which any such director is taken or deemed to have under such provisions of the SFO) or which were required to be entered in the register kept by the Company pursuant to section 352 of the SFO, to be entered in the registered referred to therein or which were required pursuant to the Model Code for Securities Transactions by Directors of Listed Companies to be notified to the Company and the Stock Exchange.

(b) Shareholders with notifiable interests

As at the Latest Practicable Date, so far as is known to the Directors, except as disclosed below, the following persons (other than the Director), had an interest or short position in the shares or underlying shares of the Company which are required to be disclosed to the Company under the provisions of Divisions 2 and 3 and Part XV of the SFO, and/or, who was, directly or indirectly, interested in 5% 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 or any other member of the Group or had any options in respect of such capital.

			Percentage of total
Name of interested party	Number of Shares		issued share capital
Sino Earn		344,568,000_(Note 1)_	32.07%
Fujian Huaxing Trust & Investment		344,568,000_(Note 1)_	32.07%
Company (“FHTI”)
Fujian Huaxing Industrial Company		344,568,000_(Note 1)_	32.07%
(“FHIC”)
Pelota Worldwide Limited (In liquidation)		248,897,760_(Note 2)_	23.20%
New Goal International Finance Limited		95,942,000	8.93%

Notes:

Sino Earn beneficially holds 344,568,000 Shares. Each of FHTI and FHIC is deemed to be interested in the 344,568,000 Shares by virtue of their being beneficially interested in 30% and 70% of the issued share capital of Sino Earn respectively. Both FHTI and FHIC are state-owned corporations in the PRC.
Pelota Worldwide Limited (“Pelota”) is wholly owned by Mr. So Sik, one of the Directors. Pelota was wound up in November 2000 by a bank in Hong Kong.

Save as disclosed above and so far as is known to the Directors, as at the Latest Practicable Date, no person (other than a Director of the Company), held an interest or short position in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 and Part XV of the SFO, and/or, who was, directly or indirectly, interested in 5% or more of the nominal value of any class of share capital carrying right to vote in all circumstances at general meetings of the Company or any other member of the Group, or in any options in respect of such share capital.

(c) The Company and its subsidiaries

None of the subsidiaries of the Company, nor pension funds of the Company or of any subsidiaries of the Company, nor any fund managed on a discretionary basis by any fund manager

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APPENDIX IV

GENERAL INFORMATION

connected with the Company had any interests in the Shares, convertible securities, warrants, options or derivatives in respect of securities which carry voting rights of the Company as at the Latest Practicable Date.

(d) The Investor

As at the Latest Practicable Date, the Investor together with its directors and parties acting in concert with it did not have any interests in or control over the Shares, convertible securities, warrants, options or derivatives in respect of securities which carry voting rights of the Company.

(e) Others

As at the Latest Practicable Date, no person had any arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code with the Company or with any person who is an associate of the Company by virtue of classes (1), (2), (3) and (4) of the definition of associate under the Takeovers Code, the Investor, or any party acting in concert with any of them had any interest in the securities of the Company.

As at the Latest Practicable Date, none of the advisers to the Company (as specified in class (2) of the definition of associate under the Takeovers Code but excluding exempt principal traders) including Quam Capital, Dao Heng Securities, Nexia Charles Mar Fan & Co., Norton Appraisals Limited, Knight Frank Hong Kong Limited or any of their respective holding companies or respective subsidiaries has any interests in the Shares, convertible securities, warrants, options or derivatives in respect of securities which carry voting rights in Company or any shareholding in any member of the Group or had the right to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

4. DEALINGS IN SECURITIES OF THE COMPANY

(a) Directors of the Company

None of the Directors or parties acting in concert with any of them had dealt in the Shares, convertible securities, warrants, options or derivatives in respect of securities which carry voting rights of the Company during the Relevant Period.

(b) The Company and its subsidiaries

None of the subsidiaries of the Company, the pension fund of the Company or of any subsidiaries of the Company, nor any fund managed on a discretionary basis by any fund manager connected with the Company had dealt in any Shares, convertible securities, warrants, options or derivatives in respect of securities which carrying voting rights of the Company and the Investor during the Relevant Period.

(c) The Investor

The Investor together with its directors and parties acting in concert with it had not dealt in any Shares, convertible securities, warrants, options or derivatives in respect of securities which carry voting rights in the Company during the Relevant Period.

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GENERAL INFORMATION

APPENDIX IV

(d) Others

None of the advisers to the Company (as specified in class (2) of the definition of associate under the Takeovers Code but excluding exempt principal traders) including, Quam Capital, Dao Heng Securities, Nexia Charles Mar Fan & Co., Norton Appraisals Limited, Knight Frank Hong Kong Limited or any of their respective holding companies or respective subsidiaries had dealt in any Shares, convertible securities, warrants, options or derivatives in respect of securities which carry voting rights in the Company during the Relevant Period.

5. INTERESTS AND DEALINGS IN THE SECURITIES OF THE INVESTOR

Neither the Company and the Directors, nor parties acting in concert with them had any interest in the securities of the Investor and none of them had dealt in any such securities during the Relevant Period.

6. DIRECTORS’ INTERESTS IN CONTRACTS

None of the Directors had any interest, direct or indirect, in any assets which have been acquired or disposed of by or leased to any member of the Group since 31 March 2003 (the date of which the latest published audited accounts of the Company were made up) or are proposed to be acquired or disposed of by or lease to any member of the Group as at the Latest Practicable Date.

None of the Directors have entered, or are proposing to enter into any service contract with any member of the Group which is not determinable by the Group within twelve months without payment of compensation (other than statutory compensation), or which has been amended within six months before the Announcement.

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

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GENERAL INFORMATION

APPENDIX IV

7. EXPERTS

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

Name	Qualification
Quam Capital	A deemed licensed corporation under the SFO
Asian Capital	A licensed corporation under the SFO
Dao Heng Securities	A deemed licensed corporation under the SFO
Nexia Charles Mar Fan & Co.	Certified Public Accountants, Hong Kong
Norton Appraisals Limited	Property Valuers
Knight Frank Hong Kong Limited	Property Valuers

8. CONSENTS

Each of Quam Capital, Dao Heng Securities, Nexia Charles Mar Fan & Co., Norton Appraisals Limited and Knight Frank Hong Kong Limited have given and have not withdrawn their respective written consents to the issue of this document with the inclusion of their respective letters and reference to their names, as the case may be, in the form and context in which they respectively appear.

9. LITIGATIONS

Save as disclosed below, neither the Company nor any other member of the Group is engaged in any litigation or arbitration of material importance and no litigation or claim of material importance is known to the Provisional Liquidators to be pending or threatened against the Company or any of its subsidiaries as the Latest Practicable Date.

A writ of summons was lodged by two former directors against the Company, demanding unpaid salaries, severance pay and entitled long service payments of HK$5,722,581. The Company has served a counterclaim of HK$6,581,892 for damages as a result of the unauthorised actions performed by these former directors without the knowledge and authority of the Company. A provision of HK$1,111,358 has been made in the financial statements in respect of the said unpaid salaries.

According to a memorandum of understanding (the “MOU”) entered into between the Company and certain potential investors on 29 May 2002 in relation to the possible restructuring of the Group, one of the potential investors is eligible to receive consultancy service fee of HK$6,000,000 for the services provided in respect of (i) the negotiation with the financial creditors of the Group for the terms of the debt restructuring agreement; (ii) the daily operation of the Group; and (iii) dealing with the legal proceedings in relation to the Group in these connections. The Company disputes any such liability as the potential investor concerned has not fulfilled the conditions set out in the MOU.

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APPENDIX IV

GENERAL INFORMATION

Pursuant to a claim lodged by ICBC against the Company’s subsidiaries, Yan Hei and Hotel Co in which ICBC has obtained a judgment dated 17 June 2002 from the Xiamen Arbitration Committee (the “Judgment”) in enforcing the repayment of the loan of RMB30 million plus interest thereon within 10 days from the judgment date and the right to share and/or to realize 40% of Yan Hei’s investments in Hotel Co secured thereto for settlement of the outstanding liabilities due to ICBC. A settlement agreement was subsequently entered into on 24 September 2003 by the Hotel Co with ICBC.

On 26 August 2002, China International Economic and Trading Arbitration Committee in the PRC delivered a judgment requiring Yan Hei, to pay the agreed guaranteed distributable profits of US$580,000 for the years 1998 to 2000 together with the accrued interests and surcharge to the Railway Department, joint venture partner of Xiamen Plaza Hotel. A provision of HK$6,529,946 (i.e. US$840,000) has been made in the financial statements for the guaranteed distributable profits. A settlement agreement was subsequently entered into on 30 September 2003 among Hotel Co, Yan Hei and the Railway Department.

As at 31 March 2003, judgment debts have been obtained by the Inland Revenue Department against two subsidiaries for outstanding profits tax payable. A provision for the profits tax payable together with the surcharges has been made in the financial statements.

On 23 February 2001, the Group was granted a court order for rescission (the “Rescission Order”) of an acquisition agreement dated 7 July 1998 in relation to the Group’s acquisition of a 60% equity interest in Skycheer Development Limited, which owns 100% equity interest in Xiamen Hong Du Park Hotel which was partially settled by the transfer of the Group’s 40% equity interest in Yan Hei, which owns 100% equity interest in Xiamen Plaza Hotel.

According to a legal opinion obtained by the Company in May 2001, there might be practical difficulties in the execution of the Rescission Order. No provision has been made in the Group’s financial statements for any loss or expenses that might arise from the practical difficulties, or any possible counterclaim in relation to the Rescission Order as it is considered impractical to estimate such amount.

10. MATERIAL CONTRACTS

Save as disclosed below, no material contracts (not being contracts entered into in the ordinary course of business carried on or intend to be carried on by the Group) have been entered into by any member of the Group within the two years preceding 16 September 2003, the date of the Announcement.

(i) a memorandum of understanding dated 29 May 2002 signed by the Company and Soundwill Holdings Limited and Turbo Success Ventures Limited which sets out the board terms in relation to a possible restructuring of the Company;
(ii) the Restructuring Agreement;
(iii) a written confirmation from Railway Department to the Provisional Liquidators dated 26 May 2003 in relation to a settlement of US$820,000 (equivalent to about HK$6.4 million) with Railway Department over a five year period ended 31 December 2007;
(iv) a loan facility letter from the Investor accepted by the Company dated 17 September 2003 in relation to a loan facility of up to RMB29 million (equivalent to about HK$ 27.1 million) provided to the Company for the purpose of settlement with ICBC;
(v) a settlement agreement entered into between the Hotel Co and ICBC dated 24 September 2003 in relation to a settlement of RMB30 million (equivalent to about HK$28 million) with ICBC; and

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GENERAL INFORMATION

APPENDIX IV

(vi) a settlement agreement entered into amongst Hotel Co, Yan Hei and the Railway Department dated 30 September 2003 in relation to a settlement of USD 820,000 (equivalent to about HK$6,396,000) with the Railway Department.

11. MATERIAL CHANGES

As at the Latest Practicable Date, the Provisional Liquidators are not aware of any circumstance or events that may give rise to a material change in the financial or trading position or prospect of the Group since 31 March 2003, the date on which the latest published audited accounts of the Group were made up.

12. MISCELLANEOUS

(a) None of the Shareholders who are entitled to vote have irrevocably committed themselves to vote for or against the Restructuring Agreement and Whitewash Waiver.
(b) No benefit will be given to any Director as compensation for loss of office or otherwise in connection with the Subscription Agreement and the Restructuring Agreement.
(c) No agreement, arrangement or understanding exists whereby any New Shares to be acquired by the Investor will be transferred to any other persons. The Investor does not intend to transfer the New Shares to be acquired pursuant to the Restructuring Agreement to any other persons.
(d) No agreement, arrangement or understanding (including any compensation arrangement) exists between the Investor or any person acting in concert with it or any of the directors, recent directors, shareholders or recent shareholders of the Company having any connection with or dependence upon the Restructuring Agreement and Whitewash Waiver.
(e) No agreement or arrangement between any director of the Company or any of their concert parties and any other person which is conditional on or depend upon the outcome of the Restructuring Agreement and Whitewash Waiver or otherwise connected herewith.
(f) No person who, prior to the posting of this document, has irrevocably committed themselves to accept or reject the Proposed Restructuring had any interest in any securities of the Company.

13. GENERAL

(a) The secretary of the Company is Ms. Man Miu Sheung, AHKSA.
(b) The Company’s Hong Kong branch share registrars is Standard Registrars Limited at 28/F, BEA Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong.
(c) The principal place of business of the Company is c/o the Provisional Liquidators, RSM Nelson Wheeler Corporate Advisory Services Limited, 7/F Allied Kajima Building, 138 Gloucester Road, Wan Chai, Hong Kong.

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APPENDIX IV

GENERAL INFORMATION

(d) The registered office of the Investor is Offshore Corporation Limited, P.O. Box 957, Offshore Incorporation Center Road Town, Tortola, British Virgin Islands.
(e) The registered office of Quam Capital is Room 3308 Gloucester Tower, The Landmark, 11 Pedder Street, Central, Hong Kong.
(f) The registered office of Asian Capital is Suite 1006, Bank of America Tower, 12 Harcourt Road, Central, Hong Kong.
(g) The registered office of Dao Heng Securities is 50/F., The Center, 99 Queen’s Road Central, Hong Kong.
(h) The registered office of Nexia Charles Mar Fan & Co. is 11/F Fortis Bank Tower, 77-79 Gloucester Road, Wanchai, Hong Kong.
(i) The English text of this document and form of proxy shall prevail over the Chinese text in the case of any inconsistency.

14. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours on any weekday (except public holiday) at the office of RSM Nelson Wheeler Corporate Advisory Services Limited at 7/F Allied Kajima Building, 138 Gloucester Road, Wan Chai, Hong Kong up to and including 3 November 2003:

(a) the memorandum and articles of association of the Company;
(b) the memorandum of association and bye-laws of the Investor;
(c) the letter from Dao Heng Securities, the text of which is set out in this document;
(d) the comfort letters from Nexia Charles Mar Fan & Co., the Investor, Asian Capital and Quam Capital, the texts of which are set out in Appendix II to this document;
(e) the annual reports of the Company for the two financial years ended 31 March 2003;
(f) the material contracts referred to in the section headed “Material Contracts” in this appendix;
(g) the consent letters referred to under the section headed “Consents” in this appendix; and
(h) the valuation reports and valuation certificates, which contain details of aggregate valuation of respective underlying assets, prepared by Norton Appraisals Limited and Knight Frank Hong Kong Limited, the texts of which are set out in Appendix III to this document.

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APPENDIX V

EXPLANATORY STATEMENT

This appendix serves as an explanatory statement as required under Rule 10.06(1)(b) of the Listing Rules to provide the requisite information to you for your consideration of the proposal to permit the granting of the general mandate given to the Directors to repurchase New Shares.

THE LISTING RULES

The Listing Rules permit companies whose primary listing are on the Stock Exchange to repurchase their securities on the Stock Exchange subject to certain restrictions, the most important of which are summarised as below. The Company is empowered by its articles of association to repurchase its own securities:

(a) Shareholder’s approval

The Listing Rules provide that all on market repurchases of shares by a company with a primary listing on the Stock Exchange must be approved in advance by an ordinary resolution of shareholders, either by way of general mandate to the directors to make such repurchases or by specific approval of a particular transaction.

(b) Source of funds

Repurchases must be funded out of funds legally available for the purpose and in accordance with the provisions of the memorandum and articles of association of the Company and the Companies Ordinance.

Under the Companies Ordinance, a company may only repurchase its shares out of capital paid up on the shares to be repurchased or out of the funds of the Company which would otherwise be available for dividend or distribution or out of the proceeds of a fresh issue of shares made for the purpose.

Any amount of premium payable on a repurchase over the par value of the shares may only be effected out of funds of the Company which would otherwise be available for dividend or distribution or out of the Company’s share premium account.

(c) Connected parties

The Listing Rules prohibit a company from knowingly repurchasing securities on the Stock Exchange from a connected person (as defined in the Listing Rules) and a connected person is prohibited from knowingly selling his securities to the Company.

SHARE CAPITAL

As at the Latest Practicable Date, 1,074,328,367 Shares were in issue. The Company will issue New Shares upon Completion, if the relevant resolutions set out in the notice convening the EGM have been passed. Upon Completion, there will be 4,419,791,172 New Shares in issue. Subject to the passing of the relevant resolutions at the EGM and on the basis that no Shares are issued or repurchased by the Company prior to the EGM, the Company will be allowed under the Repurchase Mandate to repurchase a maximum of 441,979,117 New Shares.

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APPENDIX V

EXPLANATORY STATEMENT

Save as disclosed above, there were no other options, warrants, convertible securities, derivatives or conversion rights affecting the Shares outstanding as at the Latest Practicable Date.

REASONS FOR REPURCHASES

Although the Company has no present intention of repurchasing any Shares, the Investor believes that the flexibility given by the Repurchase Mandate would be beneficial to the Company and the Shareholders. Repurchases may, depending on the circumstances, result in an increase of net assets and/ or earnings per share. Furthermore, the exercise of the Repurchase Mandate by the proposed Directors may lead to an increase in volume of trading and therefore enhance liquidity of the shares on the Stock Exchange.

FUNDING OF REPURCHASES

Repurchases of the shares will be funded entirely from the Company’s available cash flow or other funds legally available for the repurchase in accordance with the memorandum and articles of association of the Company and the applicable laws of Hong Kong.

Depending on how any such repurchases is financed, there might be an adverse impact on the working capital requirements and gearing position of the Company as compared with the position disclosed in the audited accounts for the year ended 31 March 2003 in the event that the Repurchase Mandate is exercised in full at any time. However, the proposed Directors do not propose to exercise the Repurchase Mandate to such extent as would, in the circumstances, have an adverse effect on the working capital requirements and gearing position of the Company in the opinion of the proposed Directors are from time to time appropriate for the Company. The proposed Directors do not have immediate plans to exercise the Repurchase Mandate unless they consider the repurchases are in the best interests of the Company.

SHARE PRICE

Trading in the Shares has been suspended since 10:00 a.m. on 16 February 2001. The closing price of the Shares before suspension was HK$0.082 per Share.

GENERAL

None of the proposed Directors nor, to the best of their knowledge having made all reasonable enquiries, any of their respective associates (as defined in the Listing Rules) currently intends to sell any Shares to the Company or its subsidiaries in the event that the Repurchase Mandate is approved by the Shareholders at the EGM.

The proposed Directors have undertaken to the Stock Exchange that, so far as the same may be applicable, they will exercise the Repurchase Mandate in accordance with the Listing Rules and the applicable laws of Hong Kong.

The Company has not repurchased any of the Shares (whether on the Stock Exchange or otherwise) during the previous six months preceding the Latest Practicable Date.

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APPENDIX V

EXPLANATORY STATEMENT

If as a result of repurchase of New Shares by the Company, a proportionate interest in the voting rights of the Company held by a holder of New Shares may increase, such increase will be treated as an acquisition for the purpose of the Takeovers Code. Accordingly, a holder of New Shares, or group of holders of New Shares acting in concert, could obtain or consolidated control of the Company or become obliged to make a mandatory offer in accordance with rule 26 of the Takeovers Code. The proposed Directors are not aware of any consequence which would arise under the Takeovers Code as a result of any repurchase pursuant to the Repurchase Mandate.

Any repurchase of New Shares which results in the number of New Shares held by the public being reduced to less than 25% of the New Shares then in issue could only be implemented with the agreement of the Stock Exchange to waive the Listing Rules requirements regarding the public shareholding referred to above. It is believed that a waiver of this provision would not normally be given other than in exceptional circumstances.

No connected person (as defined in the Listing Rules) has notified the Company that he/she has a present intention to sell New Shares to the Company, or has undertaken not to do so if the Repurchase Mandate is exercised.

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NOTICE OF EGM

==> picture [238 x 49] intentionally omitted <==

(Provisional Liquidators Appointed) (Incorporated in Hong Kong with limited liability)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (“EGM”) of Fujian Group Limited (Provisional Liquidators Appointed) (the “Company”) will be held at 10:00 a.m. on Monday, 3 November 2003 at Lower Lobby, Novotel Century Hong Kong Hotel, 283 Jaffe Road, Wanchai, Hong Kong for the purpose of considering and, if thought fit, passing, with or without modifications, resolutions numbered 2, 13 and 14 as special resolutions and resolutions numbered 1 and 3 to 12 as ordinary resolutions as set out below:

ORDINARY RESOLUTION

“ THAT ,
(a) the entry by the Company into restructuring agreement dated 25 April 2003 with, amongst others, (1) Mr. Cosimo Borrelli and Mr. Fan Wai Kuen (the “Provisional Liquidators”), (2) HC Technology Capital Company Limited (the “Investor”), (3) Sino Earn Holdings Limited and (4) Jian Xing Finance Limited in relation to the subscription by the Investor of not less than 2,813,103,448 New Shares (as defined below) at a price of HK$0.0145 each and the restructuring of the capital and the indebtedness of the Company (the “Restructuring Agreement”), a copy of which has been produced to this meeting marked “A” and initialed by the Chairman of this meeting for the purpose of identification, and the transactions contemplated under the Restructuring Agreement and the performance thereof by the Company be and are hereby confirmed, ratified and approved; and
(b) any one of the Provisional Liquidators or any of the future directors of the Company appointed pursuant to resolutions numbered 7 to 11, or in the case of any document requiring execution as a deed or under the common seal of the company, the Provisional Liquidators or any two future directors of the Company appointed pursuant to resolutions numbered 7 to 11, be and are hereby authorized to sign, execute, seal and deliver such other documents or supplemental agreements on behalf of the Company and to do all such things and take all such action as he may consider necessary or desirable for the purpose of giving effect to the Restructuring Agreement and completing the transactions contemplated by the Restructuring Agreement (with such amendments as he may consider necessary, desirable or expedient).”

SPECIAL RESOLUTION

“ THAT , conditional upon approval of resolutions numbered 1 and 4 set out in the notice dated 9 October 2003 convening the extraordinary general meeting of the Company (the “Notice”) and conditional upon the Listing Committee of the Stock Exchange of Hong Kong Limited (the “Stock Exchange”) granting their approval to the listing of, and permission

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NOTICE OF EGM

to deal in, the new ordinary shares of the Company of HK$0.0125 each (“New Shares”) resulting from the restructuring of the share capital of the Company (“Capital Restructuring”) to be effected pursuant to the Restructuring Agreement and in compliance with the Companies Ordinance (Chapter 32 of the Laws of Hong Kong) (“Companies Ordinance”):

(a) the nominal value of each issued share of the Company will be reduced from HK$0.125 to HK$0.0125 so that the Company’s issued share capital of HK$134,291,046 will be reduced by HK$120,861,941 to HK$13,429,105 (“Capital Reduction”);
(b) the surplus of an amount of HK$120,861,941 arising from the Capital Reduction shall be applied to write-off the same amount of the accumulated losses of the Company on a dollar for dollar basis;
(c) conditional upon completion of the Capital Restructuring, paragraph 5 of the Company’s existing Memorandum of Association be amended by deletion of its entirety and by its replacement with the following provision:

“The Authorized Share Capital of the Company is HK$379,138,058.71 divided into 30,331,044,697 Shares of HK$0.0125 each.”;

(d) conditional upon completion of the Capital Restructuring, Article 3 of the Company’s existing Articles of Association be amended by adding the following sentence at the end of paragraph (a) of Article 3:

“Pursuant to various resolutions passed on 3 November 2003, the share capital of the Company is divided into shares of HK$0.0125 each.”; and

(e) the Provisional Liquidators and future directors of the Company appointed pursuant to resolutions numbered 7 to 11 be and are hereby authorized generally to do all things appropriate to effect and implement any of the foregoing.”

ORDINARY RESOLUTIONS

“ THAT , subject to the passing of resolution numbered 2 as set out in the Notice and conditional upon the Listing Committee of the Stock Exchange granting the listing of, and permission to deal in, the New Shares and in compliance with the Companies Ordinance,
(a) every unissued ordinary share of HK$0.125 each in the capital of the Company will be subdivided into 10 unissued shares of HK$0.0125 each;
(b) all of the New Shares of HK$0.0125 each in the capital of the Company after completion of the Capital Restructuring shall rank pari passu in all respects with each other and have the same rights and privileges and be subject to the restrictions contained in the Memorandum and New Articles of Association of the Company (as amended pursuant to resolution numbered 2 above) (the “Amended Memorandum and Articles”); and

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NOTICE OF EGM

(c) the Provisional Liquidators and future directors of the Company appointed pursuant to resolutions numbered 7 to 11 be and are hereby authorized generally to do all things appropriate to effect and implement any of the foregoing.”
“ THAT , the waiver (the “Whitewash Waiver”) granted or to be granted by the Executive Director of the Corporate Finance Division of the Securities and Futures Commission pursuant to Note 1 of the Notes on Dispensations from Rule 26 of the Hong Kong Code on Takeovers and Mergers waiving any obligation on the part of the Investor and parties acting in concert with it, to make a general offer for all the shares of the Company not already owned by it or agreed to be acquired by it upon completion of the Restructuring Agreement and the transactions contemplated therein, be and is hereby approved and the Provisional Liquidators and future directors of the Company appointed pursuant to resolutions numbered 7 to 11 be and are hereby authorized to do all such things and take all such actions as they may consider to be necessary or desirable to give effect to any of the matters relating to, or incidental to, the Whitewash Waiver.”
“ THAT , conditional upon approval of the resolution numbered 4 as set out in the Notice,
(a) subject to paragraph (b) below, the future directors of the Company appointed pursuant to resolutions numbered 7 to 11 be and are hereby generally and unconditionally authorized to exercise during the Relevant Period (as defined below) all the powers of the Company to allot, issue and deal with additional New Shares and to make or grant offer, agreements and options (including warrants, bonds and debentures, notes and any securities which carry rights to subscribe for or are convertible into ordinary shares of the Company) which would or might require the exercise of any of such powers during or after the end of the Relevant Period;
(b) the aggregate nominal amount of the New Shares of the Company allotted, issued or otherwise dealt with or agreed conditionally or unconditionally to be allotted, issued or otherwise dealt with (whether pursuant to an option or otherwise) by the future directors of the Company pursuant to approval of paragraph (a) above, other than pursuant to (i) Right Issue (as defined below); or (ii) an issue of ordinary shares of the Company upon the exercise of rights of subscription or conversion into ordinary shares of the Company; or (iii) an issue of ordinary shares of the Company by way of scrip dividend pursuant to the Amended Memorandum and Articles of Association of the Company from time to time; or (iv) the exercise of any option granted under any option scheme or similar arrangement for the time being adopted for the granted or issue to eligible participants of the Company and/or its subsidiaries, of options to subscribe for, or rights to acquire, shares of the Company, shall not in total exceed 20% of the aggregate nominal amount of the share capital of the Company in issue immediately following completion of the Restructuring Agreement;

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NOTICE OF EGM

(c) for the purpose of this resolution numbered 5, “Relevant Period” means the period from the passing of this resolution until whichever is the earliest of:
(i) the conclusion of the next annual general meeting of the Company;
(ii) the revocation or variation of the authority given under this resolution by ordinary resolution of the shareholders in general meeting; or
(iii) the expiration of the period within which the next annual general meeting of the Company is required by the Amended Memorandum and Articles, or any applicable laws, to be held; and

“Right Issue” means an offer of shares for subscription open for a fixed period by the Company to holders of shares on the register of members of the Company on a fixed record date in proportion to their holdings of shares (subject to such exclusion or other arrangements as future directors of the Company appointed pursuant to resolutions numbered 7 to 11 may deem necessary or expedient in relation to fractional entitlements or having regard to any restrictions or obligations under the laws of, or the requirements of any recognized regulatory body or any stock exchange, any territory outside Hong Kong).”

“ THAT , conditional upon approval of the resolution numbered 4 as set out in the Notice.
(a) the future directors of the Company appointed pursuant to resolutions numbered 7 to 11 be and are hereby generally and unconditionally authorized to exercise during the Relevant Period (as defined below) all powers of the Company to purchase its shares in the capital of the Company, subject to and in accordance with applicable laws;
(b) the aggregate nominal amount of the shares which may be purchased pursuant to the approval in paragraph (a) above shall not in total exceed either:
- (i) 10% of the aggregate nominal amount of the share capital of the Company in issue immediately following completion of the Restructuring Agreement (as defined in resolution numbered 2 as set out in the Notice convening this meeting); or
- (ii) in the event that the Restructuring Agreement shall lapse or fail to be completed in accordance with its terms, 10% of the aggregate nominal amount of the share capital of the Company in issue on the date of this resolution; and
(c) for the purpose of this resolution numbered 6, “Relevant Period” means the period from the passing of this resolution until whichever is the earliest of:
- (i) the conclusion of the next annual general meeting of the Company;

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NOTICE OF EGM

(ii) the revocation or variation of the authority given under this resolution by ordinary resolution of the shareholders in general meeting; or
(iii) the expiration of the period within which the next annual general meeting of the Company is required by the bye-laws of the Company, or any applicable laws, to be held.”
“ THAT , conditional upon and with effect from completion of the Restructuring Agreement, Mr. Wang Xiao Wu be appointed as an executive director of the Company.”
“ THAT , conditional upon and with effect from completion of the Restructuring Agreement, Ms. Mei Qin Ping be appointed as an executive director of the Company.”
“ THAT , conditional upon and with effect from completion of the Restructuring Agreement, Ms. Chen Dan Yun be appointed as an executive director of the Company.”
“ THAT , conditional upon and with effect from completion of the Restructuring Agreement, Mr. Lam Kwong Siu be appointed as an independent non-executive director of the Company.”
“ THAT , conditional upon and with effect from completion of the Restructuring Agreement, Mr. Christopher, Cheung Wah Fung be appointed as an independent non-executive director of the Company.”
“ THAT , conditional upon and with effect from completion of the Restructuring Agreement, the Provisional Liquidators be and are hereby generally and unconditionally authorized to appoint such other new executive directors and new independent non-executive directors to the Company (such number of new executive and independent non-executive directors to be agreed between the Investor and the Company) upon completion of the Restructuring Agreement.”

SPECIAL RESOLUTIONS

“ THAT , conditional upon and effect from completion of the Restructuring Agreement, each of Messrs. (a) Huang Jian Guan (b) Ma Xiao Hua (c) Wang Hai Min (d) So Sik, (e) Li Huiru (f) Pak Siu Pun Ulanda (g) Lau Kin Hon and (h) Lau Yiu Kit be removed as directors of the Company and (i) that the Provisional Liquidators be and are hereby generally and unconditionally authorized to remove all other current directors of the Company (if any) upon completion of the Restructuring Agreement.”

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NOTICE OF EGM

“ THAT , the English name of the Company be changed to “Fujian Holdings Limited” and the Chinese name of the Company be changed to “ 閩港控股有限公司” upon the date of issue of the Certificate of Incorporation on Change of Name by the Companies Registry in Hong Kong.

For and on behalf of

FUJIAN GROUP LIMITED (Provisional Liquidators Appointed) Cosimo Borrelli Fan Wei Kuen

Joint and Several Provisional Liquidators

Hong Kong, 9 October 2003

Notes:

(1) Given that Sino Earn is one of the parties to the Restructuring Agreement, Sino Earn and parties acting in concert with it will abstain from voting on the resolutions in relation to the Whitewash Waiver and all other transactions contemplated under the Restructuring Agreement.
(2) A member entitled to attend and vote at the EGM by the above notice is entitled to appoint another person as his proxy to attend and vote on his behalf. A member who is the holder of two or more shares may appoint more than one proxy to represent him and vote on his behalf at the EGM. A proxy need not be a member of the Company.
(3) In order to be valid, the form of proxy, together with the power of attorney or other authority (if any) under which it is signed, or a certified copy of such power of attorney or other authority, MUST be deposited to the office of Provisional Liquidators, 7/F, Allied Kajima Building, 138 Gloucester Road, Wanchai, Hong Kong not less than 48 hours before the time appointed for holding the EGM or any adjournments thereof.
(4) Where there are joint holders of any share, any one of such persons may vote at the EGM either personally or by proxy, in respect of such share as if he were solely entitled thereto, but if more than one of such joint holders be present at the EGM personally or by proxy, the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the register of members of the Company in respect of such joint holding.
(5) A form of proxy for use in connection with the EGM is enclosed.
(6) Resolutions numbered 1 and 4 shall be voted by way of a poll of the Independent Shareholders (as defined in the document in which the notice convening the EGM is contained).

– 125 –

AI assistant

Fujian Holdings Limited — Proxy Solicitation & Information Statement 2003

49013_rns_2003-10-13_31f71761-aa70-4190-9bc1-04beb9afe843.pdf

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

HC TECHNOLOGY CAPITAL COMPANY LIMITED

Financial adviser to Fujian Group Limited (Provisional Liquidators Appointed)

Financial adviser to HC Technology Capital Company Limited

Independent financial adviser to the Independent Shareholders

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

EXPECTED TIMETABLE

LETTER FROM THE PROVISIONAL LIQUIDATORS

PROPOSED RESTRUCTURING OF FUJIAN GROUP LIMITED (PROVISIONAL LIQUIDATORS APPOINTED) INVOLVING CAPITAL RESTRUCTURING, DEBT RESTRUCTURING, SUBSCRIPTION FOR NEW SHARES, LOAN CAPITALISATION, WHITEWASH WAIVER AND

PROPOSED CHANGE OF COMPANY NAME AND GENERAL MANDATES TO ISSUE AND TO REPURCHASE SECURITIES

1. INTRODUCTION

LETTER FROM THE PROVISIONAL LIQUIDATORS

2. PROPOSED RESTRUCTURING OF THE COMPANY

(A) Capital Restructuring

(a) Capital Reduction

(b) Unissued Share Subdivision

(B) Debt Restructuring

(a) Indebtedness of the Company

(1) Compromise with Sino Earn and Jian Xing

LETTER FROM THE PROVISIONAL LIQUIDATORS

(2) The Scheme

(3) Repayment to the Preferential Creditors

(b) Indebtedness of the Group

LETTER FROM THE PROVISIONAL LIQUIDATORS

(C) Subscription for New Shares by the Investor

LETTER FROM THE PROVISIONAL LIQUIDATORS

(D) Loan Capitalisation

(E) Reorganisation of the Group

Group chart before and after Completion

LETTER FROM THE PROVISIONAL LIQUIDATORS

3. CONDITIONS PRECEDENT TO THE RESTRUCTURING AGREEMENT

LETTER FROM THE PROVISIONAL LIQUIDATORS

4. SHAREHOLDING STRUCTURE OF THE COMPANY

5. WHITEWASH WAIVER

LETTER FROM THE PROVISIONAL LIQUIDATORS

6. INDEBTEDNESS

7. SETTLEMENTS OF CLAIMS WITH ICBC AND THE RAILWAY DEPARTMENT

(A) Settlement with ICBC

LETTER FROM THE PROVISIONAL LIQUIDATORS

LETTER FROM THE PROVISIONAL LIQUIDATORS

LETTER FROM THE PROVISIONAL LIQUIDATORS

(B) Settlement with the Railway Department

8. REASONS FOR THE PROPOSED RESTRUCTURING

LETTER FROM THE PROVISIONAL LIQUIDATORS

9. MAINTAINING THE LISTING STATUS OF THE COMPANY

10. PROPOSED CHANGE OF COMPANY NAME

11. GENERAL MANDATES TO ISSUE AND TO REPURCHASE SECURITIES

LETTER FROM THE PROVISIONAL LIQUIDATORS

12. SUSPENSION AND RESUMPTION OF TRADING OF THE SHARES

(A) Conditional approval from the Listing Committee

LETTER FROM THE PROVISIONAL LIQUIDATORS

(B) Resumption of trading of the Shares

13. LISTING AND DEALINGS

14. ARRANGEMENT FOR SHARE CERTIFICATES

15. EGM

LETTER FROM THE PROVISIONAL LIQUIDATORS

16. GENERAL

17. RECOMMENDATIONS

18. ADDITIONAL INFORMATION

Fujian Group Limited

(Provisional Liquidators Appointed) Cosimo Borrelli Fan Wai Kuen

LETTER FROM THE INVESTOR

HC TECHNOLOGY CAPITAL COMPANY LIMITED

1. INTRODUCTION

2. INFORMATION ON THE INVESTOR

LETTER FROM THE INVESTOR

3. FUTURE INTENTIONS OF THE INVESTOR

(A) Business

LETTER FROM THE INVESTOR

(B) Directors and management

Executive Directors

Fujian Holdings Limited Proxy Solicitation & Information Statement 2003