Fujian Holdings Limited — Proxy Solicitation & Information Statement 2005

Jan 3, 2005

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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

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

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FUJIAN HOLDINGS LIMITED

(Incorporated in Hong Kong with limited liability)

(Stock Code: 181)

MAJOR AND CONNECTED TRANSACTION IN RELATION TO

THE HARMONY ACQUISITION AGREEMENT AND THE LOAN AGREEMENT

Financial Adviser to Fujian Holdings Limited

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Independent Financial Adviser To The Independent Board Committee And The Independent Shareholders

Kim Eng Corporate Finance (Hong Kong) Limited

A letter from the Independent Board Committee to the Independent Shareholders, containing its recommendation to the Independent Shareholders is set out on pages 17 to 18 of this circular. A letter of advice from Kim Eng, the independent financial adviser to the Independent Board Committee and the Independent Shareholders is set out on pages 19 to 28 of this circular.

A notice convening the EGM to be held at 10:00 a.m. on Thursday, 20 January 2005 at The Boardroom, 1st Floor, South Pacific Hotel, 23 Morrison Hill Road, Wanchai, Hong Kong or any adjournment thereof is set out on pages 95 to 96 of this circular. Whether or not you are able to attend the EGM, you are requested to complete the accompanying form of proxy, in accordance with the instructions printed thereon and deposit the same at the registered office of the Company at Unit 3213, 32nd Floor, Cosco Tower, 183 Queen’s Road Central, Hong Kong as soon as practicable and in any event not less than 48 hours before the time appointed for the 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 wish.

3 January 2005

CONTENTS

		Page
Definitions	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from	the Board
1.	Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
2.	Major and Connected Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
	2.1 Harmony Acquisition Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
	2.2 Loan Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
3.	Information on Harmony Piano . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
4.	Management Discussion on Harmony Piano . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
5.	Information on Brilliant Well . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
6.	Reasons for the Major and Connected Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
7.	Financial Effects of the Major and Connected Transaction on the Group . . . . . . . . . .	13
8.	Financial and Trading Prospect of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
9.	EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
10.	Procedures for demanding a poll at the EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
11.	Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
12.	Further information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
Letter from	the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Letter from	Kim Eng. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
Appendix I	– Financial information on the Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	29
Appendix II	– Accountants’ report on Harmony Piano . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	67
Appendix III – Financial information on the Enlarged Group. . . . . . . . . . . . . . . . . . . . . . . . . .		85
Appendix IV – General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		89
Notice of EGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		95

Accompany document- Form of Proxy

DEFINITIONS

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

• “associates”

has the meaning ascribed to this term under the Listing Rules;

• “Brilliant Well”

• Brilliant Well Investment Limited (�� ! " # $ % & ), a company incorporated in Hong Kong with limited liability, holding 75% equity interest in Harmony Piano, and a wholly owned subsidiary of FIDC;

• “Board” the board of Directors;

• “business day” a day (other than a Saturday and Sunday) on which licensed banks are generally open for business in Hong Kong;

• “Company” Fujian Holdings Limited, a company incorporated in Hong Kong with limited liability, the Shares of which are listed on the Stock Exchange;

• “connected person” has the meaning ascribed to this term under the Listing Rules;

• “Director(s)” director(s) of the Company; “Drawing Date” a day during the drawing period, which shall be any day within 7 days commencing from the day by which the conditions of the Loan Agreement have been fulfilled or any other period as agreed by the Lender;

• “EGM” the extraordinary general meeting to be convened by the Company for the Shareholders to consider and pass, if thought fit, resolutions proposed for approving and implementing the Major and Connected Transaction;

• “Enlarged Group” the Group as enlarged immediately after completion of the Harmony Acquisition Agreement;

• “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;

• “Fairweal” Fairweal Industrial Company Limited (�� !"#$%), a company incorporated in Hong Kong with limited liability, and a wholly owned subsidiary of FIDC, holding 25% interest in Harmony Piano;

– 1 –

DEFINITIONS

“Fujian Properties”

Fujian Properties Limited, a company incorporated in the British Virgin Islands with limited liability, and a wholly owned subsidiary of FIDC;

• “Group”

the Company and its subsidiaries;

“Harmony Acquisition” the acquisition as contemplated under the Harmony Acquisition Agreement;

• “Harmony Acquisition Agreement” the acquisition agreement entered into between Ming Chuen and Fairweal dated 11 November 2004 in relation to the acquisition of 25% equity interest in Harmony Piano;

• “Harmony Piano” Fuzhou Harmony Piano Co. Ltd. (�� !"#$%&' ), a foreign owned enterprise incorporated in the PRC with limited liability, and is owned as to 25% by Fairweal and 75% by Brilliant Well;

• “HC Technology” HC Technology Capital Company Limited, a company incorporated in the British Virgin Islands, the controlling Shareholder holding 53.7% of the issued Shares and beneficially owned by FIDC;

• “Huamin Tourism” Hua Min Tourism Company Limited (�� !"#$% ), a company incorporated in Hong Kong with limited liability, held as to 50% by FIDC and 50% by the Tourism Bureau of Fujian Province (�� !"# ) in the PRC;

• “Hong Kong”

the Hong Kong Special Administrative Region of the PRC;

• “Hongway Garden” a residential property located at No.8 New Market Street, Sheung Wan, Hong Kong, is an investment property held by Fujian Properties;

• “Independent Board Committee” the independent board committee comprising Mr. Lam Kwong Siu, Mr. Cheung Wah Fung, Christopher and Mr. Leung Hok Lim, being all the independent non-executive Directors, has been formed to advise the Independent Shareholders as to the fairness and reasonableness of the Major and Connected Transaction;

• “Independent Shareholders” Shareholders who are not involved in or have any interest in the Harmony Acquisition Agreement and the Loan Agreement;

• “Kim Eng”

Kim Eng Corporate Finance (Hong Kong) Limited, a licensed corporation to carry out type 6 (advising on corporate finance) regulated activities under the SFO;

• “Latest Practicable Date” 31 December 2004, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information contained in this circular;

– 2 –

DEFINITIONS

• “Lender” the Company; “Listing Rules” The Rules Governing the Listing of Securities on the Stock Exchange;

• “Loan” the loan facility to be provided by the Company to Brilliant Well under the Loan Agreement;

• “Loan Agreement” the loan agreement dated 11 November 2004 entered into between the Company and Brilliant Well;

• “Major and Connected Transaction” transactions contemplated under the Harmony Acquisition Agreement and the Loan Agreement;

• “Ming Chuen” Ming Chuen Construction Company Limited, a company incorporated in Hong Kong and a wholly owned subsidiary of the Company;

• “Percentage Ratio(s)” the percentage ratios calculated pursuant to Rule 14.07 of the Listing Rules;

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

• “Properties” eleven residential units in Wah Ming Center and ten residential units in Hongway Garden, all of which are held by Fujian Properties;

• “Property Pledge Agreement” the property pledge agreement(s) to be entered into between Fujian Properties and the Company pursuant to the Loan Agreement whereby Fujian Properties shall pledge the Properties to the Company;

• “SFC” Securities and Futures Commission of Hong Kong;

• “SFO” the Securities and Futures Ordinance, Chapter 571 of the Laws of Hong Kong;

• “Share(s)” ordinary share(s) of HK$0.125 each in the existing share capital of the Company;

• “Shareholders” shareholders of the Company;

• “Stock Exchange” The Stock Exchange of Hong Kong Limited;

– 3 –

DEFINITIONS

“Wah Ming Center”	a residential property located at No.421, Queen’s Road West, Hong
	Kong, is an investment property held by Fujian Properties;
“HK$”	Hong Kong dollar(s), the lawful currency of Hong Kong;
“RMB”	Renminbi, the lawful currency of the PRC;
“US$”	United States dollars, the lawful currency of the United States;
	and
“%”	per cent.

For the purpose of this circular, unless otherwise specified, the conversion rate of RMB to HK$ is based on the approximate exchange rate of HK$1=RMB1.06

– 4 –

LETTER FROM THE BOARD

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FUJIAN HOLDINGS LIMITED

(Incorporated in Hong Kong with limited liability) (Stock Code: 181)

Executive Directors:

Mr. Wang Xiaowu (Chairman) Ms. Mei Qinping Ms. Chen Danyun

Registered office:

Unit 3213, 32/F, Cosco Tower 183 Queen’s Road Central Hong Kong

Non-executive Directors:

Mr. Chen Chuanzhong Mr. Ye Tao

Independent non-executive Directors

Mr. Lam Kwong Siu Mr. Cheung Wah Fung, Christopher Mr. Leung Hok Lim

3 January 2005

To the Shareholders

Dear Sir or Madam,

MAJOR AND CONNECTED TRANSACTION

IN RELATION TO

THE HARMONY ACQUISITION AGREEMENT AND THE LOAN AGREEMENT

1. INTRODUCTION

On 25 November 2004, the Directors announced that Ming Chuen, a wholly owned subsidiary of the Company, had entered into the Harmony Acquisition Agreement in relation to the acquisition of 25% equity interest in Harmony Piano with Fairweal, a wholly owned subsidiary of FIDC, and that the Company had entered into the Loan Agreement with Brilliant Well, another wholly owned subsidiary of FIDC in relation to a loan facility of HK$16.5 million, which shall be applied by Brilliant Well as general working capital of Harmony Piano only.

– 5 –

LETTER FROM THE BOARD

Fairweal and Brilliant Well are connected persons of the Company under Rule 14A.11 of the Listing Rules, and accordingly the transactions contemplated under the Harmony Acquisition Agreement and the Loan Agreement constitute connected transactions for the Company pursuant to Rule 14A.13 of the Listing Rules.

As the aggregate result of the applicable Percentage Ratios for the Harmony Acquisition Agreement and the Loan Agreement is more than 25% but less than 100%, the Harmony Acquisition Agreement and the Loan Agreement together constitute a major transaction for the Company under Rule 14.06(3) of the Listing Rules.

The Major and Connected Transaction shall require, amongst others, the Independent Shareholders’ approval at the EGM by way of a poll. HC Technology is the controlling shareholder of the Company and a connected person of the Company. HC Technology holding 53.7% Shares shall abstain from voting in relation to the ordinary resolutions to be proposed at the EGM for the purpose of approving the Major and Connected Transaction.

The Independent Board Committee has been formed to advise the Independent Shareholders as to the fairness and reasonableness of the Major and Connected Transaction, whether transactions contemplated thereunder are in the interests of the Company and the Shareholders as a whole and to advise the Independent Shareholders how to vote on the ordinary resolutions to be proposed at the EGM for approving the Major and Connected Transaction. The Company has appointed Kim Eng as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders on the same in relation to the Major and Connected Transaction.

The purpose of this circular is to provide you with, among other things, i) further information on the Major and Connected Transaction; ii) the letter from the Independent Board Committee to the Independent Shareholders containing its recommendation to the Independent Shareholders on the Major and Connected Transaction; iii) the letter from Kim Eng containing its advice to the Independent Board Committee and the Independent Shareholders on the Major and Connected Transaction; iv) the financial information of the Group; and v) the notice of the EGM.

2. MAJOR AND CONNECTED TRANSACTION

• 2.1 Harmony Acquisition Agreement

Date: 11 November 2004

Parties

Purchaser: Ming Chuen, a wholly owned subsidiary of the Company

Vendor: Fairweal, a wholly owned subsidiary of FIDC

Asset to be acquired

25% equity interest in the registered capital of Harmony Piano

Consideration and Payment Terms

HK$4,848,500 to be settled by cash by the Group within ten business days after completion of the Harmony Acquisition Agreement. There is no deposit or down payment required to be paid under the Harmony Acquisition Agreement.

– 6 –

LETTER FROM THE BOARD

Basis of Consideration

The consideration is determined after arm’s length negotiation between Fairweal and the Company and arrived at on the basis of 10% premium to the unaudited net asset value of Harmony Piano attributable to the 25% equity interest of approximately HK$4.4 million as at 31 May 2004. The original cost for Fairweal’s acquisition of the 25% equity interest of Harmony Piano in December 2003 is about RMB5.3 million (equivalent to approximately HK$5 million).

The consideration for the Harmony Acquisition represents a price-earnings ratio of approximately 2.2 times of the audited profit after taxation of Harmony Piano attributable to the 25% equity interest of approximately RMB2.3 million (equivalent to approximately HK$2.17 million) and a 40% discount as compared to the audited net asset value attributable to the 25% equity interest of Harmony Piano of RMB8.59 million (equivalent to approximately HK$8.09 million) for the year ended 31 December 2003. The difference on the net asset value of Harmony Piano as at 31 May 2004 and 31 December 2003 is due to the declaration of dividend of RMB15.7 million (equivalent to HK$14.8 million) by Harmony Piano after the year ended 31 December 2003.

The board of Directors is of the view that terms of the Harmony Acquisition Agreement, including the basis for the consideration, are fair and reasonable and in the interests of the Shareholders and the Company as a whole after taking into account: (i) the financial performance of Harmony Piano over the past three years ended 31 December 2003; (ii) the turnover of Harmony Piano of approximately RMB52 million (equivalent to approximately HK$49 million) for the year ended 31 December 2003; and (iii) the net asset value of Harmony Piano as at 31 July 2004 of approximately RMB19.7 million (equivalent to approximately HK$18.5 million).

Conditions of the Harmony Acquisition Agreement

Completion of the Harmony Acquisition Agreement is conditional upon:

• (i) the Company having obtained approvals in relation to the Harmony Acquisition from the relevant original approval authorities of the PRC, including but not limited to the Administration for Industry and Commerce of Fujian province of the PRC and the Fujian Provincial Department of Foreign Trade and Economic Cooperation of the PRC; and

• (ii) the Independent Shareholders approving the Harmony Acquisition at the EGM.

There is no provision for any of the conditions set out above to be waived in the Harmony Acquisition Agreement and the Company has no current intention to waive any of the conditions stated therein. None of the conditions precedent as set out above has been fulfilled as at the date of this circular.

– 7 –

LETTER FROM THE BOARD

Completion

Completion of the Harmony Acquisition Agreement will take place on the day after all the conditions precedent have been satisfied.

Shareholding Structure of Harmony Piano before the completion of the Harmony Acquisition

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

FIDC
100%
HC Technology
53.71% 100% 100%
The Company Brilliant Well Fairweal
100% 75% 25%
Ming Chuen
Harmony Piano
----- End of picture text -----

Shareholding Structure of Harmony Piano after the completion of the Harmony Acquisition

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

FIDC
100%
HC Technology
53.71% 100%
The Company Brilliant Well
100%
Ming Chuen
25% 75%
Harmony Piano
----- End of picture text -----

2.2 Loan Agreement

Date: 11 November 2004

Parties:

Lender: the Company

Borrower: Brilliant Well, a wholly owned subsidiary of FIDC and 75% shareholder of Harmony Piano

Under the Loan Agreement, the Company will provide a loan facility up to an aggregate principal amount of HK$16.5 million to Brilliant Well carrying an interest rate of 6.5% per annum. The term for the Loan Agreement is 18 months commencing from the Drawing Date of the Loan under the Loan Agreement. Brilliant Well shall pay interest quarterly in arrears and repay the principal amount drawn upon maturity. There is a covenant under the Loan Agreement that Brilliant Well shall apply the Loan provided by the Company in its entirely solely as working capital of Harmony Piano only.

It is a condition of the Loan Agreement that Fujian Properties shall enter into the Property Pledge Agreement, pursuant to which Fujian Properties shall pledge to the Company the Properties with an aggregate estimated value of HK$25 million as security for the Loan. The valuation of the Properties was calculated according to internal evaluation carried out by Fujian Properties with reference to the relevant market price of similar residential properties located in neighbourhood in the same region as the Properties as at 24 February 2004. The valuation of the Properties was approximately HK$28.5 million according to the internal valuation conducted by Fujian Properties with reference to the market price as at 30 November 2004.

– 8 –

LETTER FROM THE BOARD

Fujian Properties, a company incorporated in the British Virgin Islands and a wholly owned subsidiary of FIDC, is principally engaged in investment holding and property investment. Fujian Properties holds various investment properties in Hong Kong, including, amongst others, the Properties.

The interest rate for the Loan is determined after arm’s length negotiation between the Company and Brilliant Well with reference to, amongst others, the prime rate issued by the People’s Bank of China for loans of similar duration (which is 5.76% as at the date of the Loan Agreement).

As at the date of this circular, save for disclosed above, the Company has not committed any capital injection to or guarantees given for any of its affiliated companies or any associates of FIDC. Save for the Loan Agreement, Brilliant Well has not provided and has no current intention to provide any loan or financial resources to Harmony Piano as at the date of this circular. According to the accountants’ report of Harmony Piano as set out in Appendix II of this circular, FIDC, being the ultimate holding company of Brilliant Well, has provided loans to Harmony Piano totaling about RMB19.3 million (equivalent to approximately HK$18.2 million) as at 31 July 2004.

The major reason for the arrangement of lending the Loan to Harmony Piano through Brilliant Well is to achieve an earlier completion of the Loan Agreement and hence the Company can enjoy an earlier receipt of the Loan interest and repayment of the principal of the Loan. Brillant Well will apply the Loan provided by the Company in its entirety solely as working capital of Harmony Piano only on the same terms as the Loan Agreement.

The Directors consider that providing the Loan to Brilliant Well is fair and reasonable and in the interests of the Shareholders as a whole as it can generate reasonable return to the Company whilst carrying low credit risk as the Loan shall be adequately secured by the Properties.

Conditions of the Loan Agreement:

The Loan Agreement is conditional upon the following conditions having been fulfilled:

• (i) the Lender having received the following documents, the content and format of which shall be satisfactory to the Lender:

• a. a certified true copy of the board meeting minutes of Brilliant Well duly signed by at least two directors of Brilliant Well or any quorum as required by its constitutional documents authorizing and giving consent to the signing of the Loan Agreement by Brilliant Well as borrower;

• b.

• an execution copy of the Property Pledge Agreement;

• c. a certified true copy of the board meeting minutes of Fujian Properties duly signed by at least two directors of Fujian Properties or any quorum as required by its constitutional documents approving the Property Pledge Agreement by Fujian Properties and authorizing the execution of the Property Pledge Agreement; and

– 9 –

LETTER FROM THE BOARD

• d. a certified true copy of evidence showing the proper registration of the Property Pledge Agreement with The Companies Registry and The Land Registry of Hong Kong;

• (ii) there is sufficient fund available provided by the Company for the drawing by Brilliant Well on the Drawing Date; and

• (iii) the Independent Shareholders approving the Loan Agreement at the EGM.

There is no provision for any of the conditions set out above to be waived in the Loan Agreement and the Company has no intention to waive any of the conditions stated therein. The above condition (i)a has been fulfilled as at the date of this circular.

Completion

The completion of the Loan Agreement will take place on the day after all the conditions of the Loan Agreement as set out above have been satisfied.

Source of Funding

The consideration for the Major and Connected Transaction totaling about HK$21.35 million will be settled by the Company via internal resources of the Group. The Board believes that the Company will have sufficient working capital after the completion of the Major and Connected Transaction.

The Major and Connected Transaction will not proceed if any of the conditions precedent cannot be fulfilled and obligations of contractual parties thereto shall be released. The Board (including the independent non-executive Directors) considers there would be no material adverse impact on the Company if the Major and Connected Transaction cannot proceed.

3. INFORMATION ON HARMONY PIANO

Harmony Piano is principally engaged in the design, manufacturing, sell and distribution of piano and related products. Harmony Piano manufactures a vast variety of piano products with more than 80 different specifications under four major brands, namely Harmony, Nottingham, Teinmach and Athena. Harmony Piano is located in the Pushang Industrial Park of Jinshan Industrial Zone of Fuzhou city in the Fujian province of the PRC with a production area of about 18,000 square meters and yearly production capability of approximately 6,600 sets of piano.

For many years, Harmony Piano is reputable in the musical instrument and piano handicraft industry in the PRC. In 2004, Harmony Piano was awarded as one of “The 2003 Leading Enterprises of China Musical Instrument Industry” (2003�� ! " # $ % & ' ( ) ) by the Chinese Musical Instrument Association and “The Best 10 Performing Enterprises in Major National Industrial Sectors” ( �� !"#$!%&'()! ) by the National Bureau of Statistics of China. Harmony Piano has also sponsored many youth piano competitions and was well-known to the education and public cultural services sector in the PRC.

– 10 –

LETTER FROM THE BOARD

Branded pianos of Harmony Piano are distributed primarily in the PRC and overseas countries and regions such as Germany, Australia, South East Asia and North America.

The financial information of Harmony Piano for the two years ended 31 December 2003 is summarized as follows:

	31 December 2002	31 December 2002	31 December 2003	31 December 2003
		Equivalent		Equivalent
	RMB(000)	HK$(000)	RMB(000)	HK$(000)
Audited net profit before taxation and
extraordinary items*	5,137	4,846	11,871	11,199
Audited net profit after taxation and
extraordinary items*	2,361	2,227	9,179	8,659
Net asset value*	25,157	23,733	34,340	32,396

• The financial information was prepared by Harmony Piano in accordance with accounting principles generally accepted in the PRC. An accountants’ report on Harmony Piano, which was prepared in accordance with the accounting principles generally accepted in Hong Kong, is set out in Appendix II of this circular.

4. MANAGEMENT DISCUSSION ON HARMONY PIANO

The turnover of Harmony Piano for the period 7 months 31 July 2004 was about RMB23.9 million (equivalent to about HK$22.6 million). The net cash inflow for the 7 months ended 31 July 2004 from the operating activities was about RMB6.2 million (equivalent to about HK$5.8 million). The cash and cash equivalents as at 31 July 2004 was about RMB8 million (equivalent to about HK$7.5 million).

Harmony Piano has borrowings on fixed interest rate basis of about RMB13 million as at 31 July 2004, which was secured by inventories and factory plant of Harmony Piano. The gearing ratio (being the ratio of total interest bearing borrowings to shareholders’ fund) of Harmony Piano as at 31 July 2004 was 66%.

The increase in the bank borrowings for the 7 months ended 31 July 2004 was mainly due to the cost incurred for relocating its factory plant in Fuzhou city of the PRC and procurement of new machineries. Following the relocation of its plant, the annual production capacity of Harmony Piano will increase from 6,600 sets of piano to around 8,000 to 12,000 sets of piano.

As at 31 July 2004, Harmony Piano has about 345 employees in the PRC. Employees of Harmony Piano are remunerated with reference to the market terms, individual merits and local statutory requirements such as the pension scheme. Harmony Piano organizes regular training programmes for both the management employees and front line employees on different subjects for at least twice a year.

– 11 –

LETTER FROM THE BOARD

The monetary assets, loans and transactions of Harmony Piano were basically denominated in Renminbi. The management of Harmony Piano did not engage in any derivative activities or use any financial instruments for hedging its balance sheet risk, as only about 5% of the raw materials was normally purchased from countries other than the PRC. The exposure to the exchange rate risk is considered minimal.

In the past several years, 90% of Harmony Piano’s products were sold in retailing sector distributed through intermediate distribution agents in the PRC. About 90% to 95% piano products of Harmony Piano are distributed in the PRC and around 5% to 10% are distributed in overseas market.

Mr. Chen Chuanzhong was appointed as a non-executive Director of the Company on 24 September 2004. Mr. Chen is also a director of Harmony Piano, Fairweal and Fujian Properties. Save as disclosed above, Mr. Chen does not have any interest other than the cross directorship in Harmony Piano, Fairweal, Fujian Properties and the Company. Mr. Chen has therefore abstained from voting at the board meeting approving the Major and Connected Transaction. The existing board of directors of Harmony Piano immediately before the completion of Harmony Acquisition comprises Messrs. Zhang Min, Hu Ying, Lu Shuying, Chen Chuanzhong and Ye Rong. The Company will appoint one additional director to the board of Harmony Piano after the completion of the Harmony Acquisition.

5. INFORMATION ON BRILLIANT WELL

Brilliant Well is principally engaged in investment holding and property investment. As at the date of this circular, the major business activity of Brilliant Well is its investment holding of 75% equity interest in Harmony Piano.

6. REASONS FOR THE MAJOR AND CONNECTED TRANSACTION

As stated in the latest annual report of the Company for the year ended 31 March 2004, the Directors are exploring opportunities to expand the Company’s business and broaden its earning base. Harmony Piano has an operation history of nearly 20 years, and has built up its own branded products and sizable market share in its target market. With the customer base of Harmony Piano growing steadily over years, the Directors believe that the Company’s investment in a well and steadily performing company such as Harmony Piano will enable the Group to diversify its business and broaden its earning base which fits into the Group’s overall business strategy.

The Company has no current intention to acquire the rest of the equity interest in Harmony Piano. The Company has considered the possibility of acquiring more than 25% interest in Harmony Piano but has concluded that the size of such acquisition would lead to the acquisition being treated as a reverse takeover under the Listing Rules, which is not desirable from the Company’s point of view. The Directors of the Company consider the acquisition of 25% of equity interest is in the best interest of the Company and Shareholders as a whole.

– 12 –

LETTER FROM THE BOARD

The Directors also recognize that Harmony Piano has growth potential in both the PRC and international market, and consider providing financial resources as contemplated in the Loan Agreement to Harmony Piano through Brilliant Well would facilitate Harmony Piano’s growth and expansion and benefit the Company through its indirect interest in Harmony Piano. The Loan Agreement itself will also provide a stable and reasonable return to the Company. All foreign debt financing remittance to entities in the PRC has to be registered with the State Administration of Foreign Exchange and this process will take considerable time. By lending the Loan to Brilliant Well, the Loan Agreement can be completed immediately after all conditions precedent to the Loan Agreement are satisfied and Brilliant Well can proceed with the registration process after completion of the Loan Agreement. Whereas lending the Loan to Harmony Piano directly, the completion of the Loan Agreement would subject to conditions precedent to the Loan Agreement as well as registration with State Administration of Foreign Exchange, the completion of which would be later than current arrangement. The Directors consider that the current arrangement of lending to Harmony Piano via Brilliant Well, as opposed to lending directly, will lead to an early completion of the Loan Agreement. As such, an early completion of the Loan Agreement will result in an early draw down of the Loan by Brilliant Well and hence receipt of the Loan interest and repayment of principal of the Loan by the Company.

The Directors do not consider the current arrangement will increase the risk of the transaction given that the Loan shall be adequately secured by the Properties and there is a covenant under the Loan Agreement that Brilliant Well, as the borrower, shall apply the funds in its entirety solely as working capital of Harmony Piano only.

7. FINANCIAL EFFECTS OF THE MAJOR AND CONNECTED TRANSACTION ON THE GROUP

Earnings

For the two years ended 31 March 2004, the Group recorded an audited consolidated net loss after taxation of approximately HK$72.3 million and net profit after taxation of approximately HK$448.9 million respectively.

Given the earnings record of Harmony Piano, the Directors consider the investment in Harmony Piano will contribute positively to the earnings of the Enlarged Group via dividends and participation in future growth in Harmony Piano. The Loan is estimated to contribute about HK$1.6 million of interest income to the Group over the course of the Loan.

Assets and Liabilities

As at 31 March 2004, the audited consolidated net asset value of the Group amounted to approximately HK$70.2 million. Based on the unaudited adjusted pro forma statement of assets and liabilities of the Enlarged Group as set out in Appendix III to this circular, the unaudited proforma consolidated net asset value of the Enlarged Group immediately after the completion of the Major and Connected Transaction will be approximately HK$66.2 million. Based on the 520,000,000 Shares in issue, the pro-forma unaudited adjusted consolidated net asset value per Share immediately after the completion of the Major and Connected Transaction will be approximately HK$0.127.

8. FINANCIAL AND TRADING PROSPECT OF THE GROUP

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

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LETTER FROM THE BOARD

As stated in the latest annual report of the Company for the year ended 31 March 2004, the Company is seeking new business areas that could enhance the operations and profitability of the Group in order to broaden the Group’s earning base. The Company is considering taking the advantage of the strong business resources of the controlling shareholder of the Group, FIDC, to search for new expansion opportunities to enhance the quality of funds, business scope and the cashflow of the Company. With the support of the CEPA agreement, the board of Directors believes that, taking the advantage of the resources from the PRC and coupled with the Group’s healthy financial position, it will diligently, well positioned to capture all the upcoming business opportunities arising from Hong Kong and PRC, develop existing business and enhance asset quality to improve operating results.

The entering into the Harmony Acquisition Agreement leads the Company into new business opportunities, which diversifies the business scope of the Group in the PRC. Looking forward, the Directors will continue to pursue a diversification strategy and explore other business opportunities in the PRC. The Directors are confident and optimistic about the prospects of the Group’s business.

As at the Latest Practicable Date, no material investment nor capital assets acquisition opportunities have been identified yet other than the Major and Connected Transaction as mentioned herein this circular.

9. EGM

A notice convening an extraordinary general meeting of the Company to be held at 10:00 a.m. on Thursday, 20 January 2005 at The Boardroom, 1st Floor, South Pacific Hotel, 23 Morrison Hill Road, Wanchai, Hong Kong is set out on pages 95 to 96 of this circular. Ordinary resolutions will be proposed at the EGM to approve the Major and Connected Transaction by way of a poll.

At the EGM, any connected person of the Company or Shareholders and their respective associates with material interest in the Major and Connected Transaction shall abstain from voting in favor of resolutions approving the same. HC Technology holding 53.7% Shares will therefore abstain from voting at the EGM pursuant to the requirement of the Listing Rules.

A form of proxy for use at the EGM is enclosed with this circular. Whether or not you are able to attend the EGM, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and deposit the same at the registered office of the Company at Unit 3213, 32nd Floor, Cosco Tower, 183 Queen’s Road Central, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the EGM or any adjournment thereof. 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 wish.

10. PROCEDURES FOR DEMANDING A POLL AT THE EGM

Pursuant to Article 73 of the Memorandum and Articles of Association of the Company, a resolution put to the vote of a meeting shall be decided on a show of hands unless a poll is (before or on the declaration of the result of the show of hands) demanded:–

• (i) by the Chairman; or

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LETTER FROM THE BOARD

• (ii) by at least three members present in person or by proxy for the time being entitled to vote at the meeting; or by any member or members having the right to vote at the meeting; or

• (iii) by any member or members present in person or by proxy and holding Shares in the Company conferring a right to vote at the meeting being Shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all the Shares conferring that right.

Unless a poll be so demanded and the demand is not withdrawn, a declaration by the Chairman that a resolution has on a show of hands been carried or carried unanimously, or by a particular majority, or lot and an entry to that effect in the book containing the minutes of the proceedings of the Company, shall be conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favor or against such resolution. The demand for a poll may be withdrawn.

In compliance with the Listing Rules, the Company will procure the chairman of the EGM to demand for a poll, pursuant to article 73 of the Memorandum and Articles of Association of the Company, for the ordinary resolutions to be proposed to approve the Major and Connected Transaction.

11. RECOMMENDATION

Kim Eng has been appointed as an independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in relation to the Major and Connected Transaction. Kim Eng considers that the Major and Connected Transaction is in the interests of the Company and the Shareholders as a whole and the terms and conditions of the Major and Connected Transaction are fair and reasonable insofar as the Shareholders are concerned. Kim Eng further recommended the Independent Shareholders as well as the Independent Board Committee to advise the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the EGM to approve the Major and Connected Transaction. The letter setting out its advice to the Independent Shareholders and the Independent Board Committee from Kim Eng, containing principal factors and reasons it has taken into consideration in arriving at its advice, is set out on pages 19 to 28 of this circular.

The Independent Board Committee, having taken into account the advice from Kim Eng, considers the terms of the Major and Connected Transaction are fair and reasonable so far as the Company and Shareholders are concerned and in the interests of the Shareholders and the Company as a whole. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favor of the ordinary resolutions to be proposed at the EGM to approve the Major and Connected Transaction. The text of the letter of recommendation from the Independent Board Committee is set out on pages 17 to 18 of this circular.

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LETTER FROM THE BOARD

12. FURTHER INFORMATION

Your attention is drawn to the letter of advice from Kim Eng, which contains its advice to the Independent Board Committee and the Independent Shareholders in connection with the Major and Connected Transaction, the letter from the Independent Board Committee setting out its recommendations to the Independent Shareholders in relation to the Major and Connected Transaction and additional information set out in the appendices to this circular.

By order of the Board Fujian Holdings Limited Wang Xiaowu Chairman

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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FUJIAN HOLDINGS LIMITED

(Incorporated in Hong Kong with limited liability) (Stock Code: 181)

3 January 2005

To the Independent Shareholders

Dear Sir or Madam,

MAJOR AND CONNECTED TRANSACTION IN RELATION TO THE HARMONY ACQUISITION AGREEMENT AND THE LOAN AGREEMENT

Reference is made to the circular dated 3 January 2005 of the Company to the Shareholders, of which, this letter forms a part (the “Circular”). Capitalized terms used herein shall have the same meanings as defined in the Circular unless the context requires otherwise.

We have been appointed as members of the Independent Board Committee to advise you in respect of the Major and Connected Transaction, the detailed terms of which are set out on pages 5 to 16 of the Circular, as to whether the terms are fair and reasonable and in the interest of the Company and the Shareholders as a whole and how should the Independent Shareholders vote on the ordinary resolutions approving the same.

We wish to draw your attention to the “Letter from the Board” as set out on pages 5 to 16 of the Circular and the letter of advice set out on pages 19 to 28 of the Circular from Kim Eng, who has been appointed to advise the Independent Board Committee as to whether the terms of the Major and Connected Transaction are fair and reasonable as far as the Independent Shareholders are concerned and in the interest of the Company and the Shareholders as a whole and how should the Independent Shareholders vote on the ordinary resolutions approving the Major and Connected Transaction.

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Having examined the terms of the Major and Connected Transaction and taken into account recommendation from Kim Eng and reasons and factors Kim Eng has considered and searches performed in arriving its opinion, we believe that the terms of the Major and Connected Transaction are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Therefore, we recommend the Independent Shareholders to vote in favor of the ordinary resolutions approving the Major and Connected Transaction which will be proposed at the EGM.

Yours faithfully Independent Board Committee of Fujian Holdings Limited

Independent Non-executive Directors

Lam Kwong Siu Cheung Wah Fung, Leung Hok Lim Christopher

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LETTER FROM KIM ENG

The following is the text of a letter of advice from Kim Eng Corporate Finance (Hong Kong) Limited, which has been prepared for the purpose of incorporation into this circular, setting out its advice to the Independent Board Committee and the Independent Shareholders in connection with the Harmony Acquisition Agreement and the Loan Agreement.

Kim Eng Corporate Finance (Hong Kong) Limited

Room 1901, Bank of America Tower, 12 Harcourt Road, Central Hong Kong

The Independent Board Committee and Independent Shareholders of Fujian Holdings Limited

3 January 2005

Dear Sirs,

MAJOR AND CONNECTED TRANSACTION IN RELATION TO

THE HARMONY ACQUISITION AGREEMENT AND THE LOAN AGREEMENT

INTRODUCTION

We refer to our appointment as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders on the terms and conditions of the Harmony Acquisition Agreement and the Loan Agreement. Details of the Harmony Acquisition Agreement and the Loan Agreement are set out in the letter from the Board contained in the circular to Shareholders dated 3 January 2005 (the “Circular”), of which this letter forms part. Terms used in this letter shall have the same meanings as defined in the Circular unless the context requires otherwise.

On 11 November 2004, Ming Chuen, a wholly-owned subsidiary of the Company, entered into the Harmony Acquisition Agreement in relation to the acquisition of 25% of the total equity interest in Harmony Piano with Fairweal, a wholly-owned subsidiary of FIDC and on the same day, the Company entered into the Loan Agreement with Brilliant Well, another wholly-owned subsidiary of FIDC, pursuant to which the Company will provide Brilliant Well with a loan facility of HK$16.5 million. Pursuant to the terms of the Loan Agreement, such loan facilities shall be applied by Brilliant Well as general working capital of Harmony Piano in its entirety.

As the aggregate result of the applicable percentage ratios calculated pursuant to Rule 14.07 of the Listing Rules for the Harmony Acquisition Agreement and the Loan Agreement is more than 25% but less than 100%, the Harmony Acquisition Agreement and the Loan Agreement together constitute a major transaction for the Company under Rule 14.06(3) of the Listing Rules.

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LETTER FROM KIM ENG

FIDC is the ultimate holding company of the Company, holding 53.7% of the issued Shares through HC Technology, and Fairweal is a wholly-owned subsidiary of FIDC. Accordingly, FIDC and Fairweal are connected persons of the Company under Rule 14A.11 of the Listing Rules. As Brilliant Well is a wholly-owned subsidiary of FIDC, it is also a connected person to the Company under the Listing Rules. Accordingly, Harmony Acquisition Agreement and the Loan Agreement constitute connected transactions for the Company pursuant to Rule14A.13 of the Listing Rules, and shall require, amongst others, the Independent Shareholders’ approval at the EGM. HC Technology is the controlling Shareholder of the Company and a connected person of the Company. HC Technology and its associates (as defined under the Listing Rules) shall abstain from voting in relation to the ordinary resolutions to be put forward at the EGM for the purpose of approving the Harmony Acquisition Agreement and the Loan Agreement.

The EGM will be convened to approve the entering into of Harmony Acquisition Agreement and the Loan Agreement. By virtue of the Listing Rules, the resolutions for the connected transactions are required to be approved by the Independent Shareholders and voted by way of a poll. HC Technology and its associates will abstain from voting at the EGM on the ordinary resolutions in respect of the aforesaid connected transactions.

INDEPENDENT BOARD COMMITTEE

The Board currently consists of three executive Directors, namely Messrs Wang Xiaowu, Mei Qinping and Chen Danyun; two non-executive Directors, namely Messrs Chen Chuanzhong and Ye Tao; and three independent non-executive Directors, namely Messrs Lam Kwong Siu, Cheung Wah Fung, Christopher and Leung Hok Lim, who are considered to be independent pursuant to Rule 3.13 of the Listing Rules.

The Independent Board Committee, comprising all the independent non-executive Directors, namely Messrs Lam Kwong Siu, Cheung Wah Fung, Christopher and Leung Hok Lim, has been formed to consider the terms and conditions of the Harmony Acquisition Agreement and the Loan Agreement and to give advice and recommendations to the Independent Shareholders in respect thereof.

BASIS OF OUR OPINION

In forming our opinion, we have relied on the information and representations as contained in the Circular and have assumed that all information and representations made or referred to in the Circular were true, accurate and complete at the time when they were made and continue to be true, accurate and complete as at the date of the Circular.

We have also assumed that all statements of belief, opinion and intention made by the Board and as contained in the Circular were reasonably made by them after their due enquiry and careful consideration and that there are no other facts the omission of which would make any statement in the Circular misleading in any material respect.

Our review and analyses were based upon the information provided by the Company which is set out below:

• the Harmony Acquisition Agreement and the Loan Agreement;

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LETTER FROM KIM ENG

• the annual report of the Company for the year ended 31 March 2004 (the “Annual Report”);

• the unaudited interim report of the Company for six months ended 30 September 2003;

• the audited financial statements of Harmony Piano for the three years ended 31 December 2003;

• the audited financial statements of Brilliant Well for the two years ended 31 December 2003;

• the management service agreement dated 11 November 2004 entered into between FIDC, Brilliant Well and the Company pursuant to which FIDC has appointed the Company and the Company has agreed to act as an agent to assist FIDC to participate in the management of Hua Min Tourism Company Limited ��� !"#$% � (“Huamin Tourism”) and Harmony Piano (the “Management Service Agreement”); and

• the management contract dated 30 June 2004 entered into between Yan Hei Limited (“Yan Hei”), a wholly-owned subsidiary of the Company, and �� !"#$%&' (Fujian Sunshine Group Limited) (“Sunshine Group”), as confirmed by the Directors to be an independent third party not connected with the directors, chief executive or substantial shareholders of the Company or its subsidiaries or an associate of any of them, pursuant to which Yan Hei appointed Sunshine Group to manage the daily operation of ��� !" �� (Xiamen South East Asia Hotel) (the “Hotel”), one of the main assets of the Group, for a term of 10 years commencing from 1 July 2004 (the “Management Contract”).

In addition to the information provided by the Company, we have performed the following:

• a search for market comparables in order to assist us in assessing the fairness and reasonableness of the terms of the Harmony Acquisition Agreement; and

• an independent online property valuation of the Properties that Fujian Properties shall pledge to the Company pursuant to the Loan Agreement with a major licensed bank in Hong Kong in early December 2004.

We consider that we have reviewed sufficient information to reach a reasonably informed view to justify our reliance on the accuracy of the information contained in the Circular as aforesaid and to provide reasonable grounds for our advice.

Furthermore, we have no reason to doubt the truth, accuracy and/or completeness of the information and representations as provided to us by the Directors. We have not conducted any independent in-depth investigation into nor have we carried out any independent verification of the information supplied and/ or available.

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LETTER FROM KIM ENG

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our opinion regarding the terms and conditions of the Harmony Acquisition Agreement and the Loan Agreement, we have taken into consideration the following principal factors and reasons:

1. HARMONY ACQUISITION AGREEMENT

(I) Reason for and benefit of entering into the Harmony Acquisition Agreement

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

As stated in the Annual Report, the Group is seeking new business areas that could enhance its operations and profitability as well as broaden the Group’s earning base. As stated in the section headed “Reasons for the Major and Connected Transaction” in the letter from the Board, Harmony Piano has an operation history of nearly 20 years, and has built up its own branded products and sizable market share in its target market. As advised by the Directors, the customer base of Harmony Piano has been steadily growing over years. Therefore, the Directors are of the view that the Company’s investment in a well and steadily performing company such as Harmony Piano will enable the Group to diversify its business and broaden its earning base which fits into the Group’s overall business strategy.

Having taken the above information into consideration, we concur with the view of Directors that the entering into of Harmony Acquisition Agreement will enable the Group to diversify its business and broaden its earning base, which is in the interest of the Company and Shareholders as a whole.

In addition, we were given to understand that the Board is very positive about the future prospect of Harmony Piano and has considered acquiring a controlling interest in Harmony Piano. However, such a plan is currently aborted after taken into consideration the requirements of the Listing Rules in respect to reverse takeover. Balancing the Group’s business expansion plan and the requirements of the Listing Rules, the Board concluded that it would be in the best interest of the Company and its Shareholders to acquire 25% of the total equity interest in Harmony Piano whereby the Group can capture a portion of the future profitability and growth of Harmony Piano.

(II) Business prospect and proven track record of Harmony Piano

As stated in the section headed “Information on Harmony Piano” in the letter from the Board, Harmony Piano manufactures a vast variety of piano products with more than 80 different specifications under four major brands, namely Harmony, Nottingham, Teinmach and Athena.

The annual production capacity of Harmony Piano will increase from 6,600 sets to approximately 8,000 to 12,000 sets of piano following the relocation of its production plant.

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LETTER FROM KIM ENG

Harmony Piano is reputable in the musical instrument and piano handicraft industry in PRC. In 2004, Harmony Piano was awarded one of “The 2003 Leading Enterprises of China Musical Instrument Industry”�2003�� !"#$%&'() �by the Chinese Musical Instrument Association and “The Best 10 Performing Enterprises among Major National Industrial Sectors” ��� !"#$!%&'()!�by the National Bureau of Statistics of China. Harmony Piano has also sponsored many youth piano competitions and was well-known to the education and public cultural services sector in the PRC.

Branded pianos of Harmony Piano are distributed primarily in the PRC and oversea countries and regions such as Germany, Australia, South East Asia and North America.

As set out in the accountants’ report on Harmony Piano in Appendix II to the Circular, the profit for the year/period of Harmony Piano were RMB8,940,904, RMB4,272,470, RMB9,182,749 and RMB1,063,961 for the three years ended 31 December 2003 and the seven months ended 31 July 2004 respectively. Shareholders should note that Harmony Piano has made a provision for doubtful debts of RMB2,049,699 for seven months ended 31 July 2004 due to long outstanding debts from customers. After making reasonable inquiries with management of Harmony Piano, the Directors confirmed that such provision for doubtful debts was non-recurring in nature. In view of the said provision which is confirmed to be non-recurring by the Directors, we have not taken the results of Harmony Piano for the seven months ended 31 July 2004 into consideration when determining the price-earnings ratio for the consideration of the Harmony Acquisition.

Having taken into account the above, in particular the proven track record of Harmony Piano which may provide immediate profit contribution to the Group after completion of the Harmony Acquisition, we consider that the Harmony Acquisition is in the interests of the Company and the Shareholders as a whole.

(III) Basis of consideration

The consideration for the Harmony Acquisition was HK$4,848,500 to be settled by cash. As stated in the paragraph headed “Basis of Consideration” in the section headed “Major and Connected Transaction” in the letter from the Board, the consideration was determined after arm’s length negotiation between Fairweal and the Company and arrived at on the basis of 10% premium over the unaudited net assets value of 25% of the attributable equity interest of Harmony Piano of approximately HK$4.4 million as at 31 May 2004.

(IV) Comparing to net assets of Harmony Piano

As set out in the accountants’ report on Harmony Piano in Appendix II to the Circular, the audited net assets value of 25% of the attributable equity interest of Harmony Piano was approximately RMB4,926,000 (equivalent to approximately HK$4,647,000) as at 31 July 2004 (“Audited Net Assets Value”). Accordingly, the consideration for the Harmony Acquisition represents approximately 4.3% premium over the Audited Net Assets Value. For the information of the Independent Shareholders, the original cost paid by Fairweal for the acquisition of 25% of the equity interest of Harmony Piano in December 2003 was about RMB5.3 million (equivalent to approximately HK$5.0 million), representing a premium of approximately 3.1% over the consideration for the Harmony Acquisition payable by the Company. Taken this into consideration and that Harmony Piano has been generating profits from operation in the past three financial

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LETTER FROM KIM ENG

years, we consider that the slight premium of 4.3% of the consideration for the Harmony Acquisition over the Audited Net Assets Value is acceptable.

(V) Price earnings ratio

The consideration for the Harmony Acquisition represents a price earnings ratio of approximately 2.2 times of the audited profit after taxation of Harmony Piano attributable to 25% of the equity interest of approximately RMB2.3 million (equivalent to approximately HK$2.2 million) for the year ended 31 December 2003. The price earnings ratios of Harmony Piano for the two years ended 31 December 2002 were approximately 2.3 and 4.8 times respectively. The average of the price earnings ratio for the three years ended 31 December 2003 was approximately 3.1 times.

(VI) Other comparables

In assessing the fairness and reasonableness of the consideration (in particular, the price earnings ratio of 2.2 times for the year ended 31 December 2003) of the Harmony Acquisition Agreement, we have searched for listed piano manufacturers in the market for comparison. The closest comparable is Yamaha Corporation, one of the world’s leading manufacturers of musical instruments with its shares listed in Tokyo Stock Exchange with a price earnings ratio of 9.2 times as at 31 March 2004. Save for Yamaha Corporation, we are unable to identify any other listed comparable companies in Hong Kong or other parts of the world.

Given that the business of Harmony Piano can also be classified as commerce and industry, we have made reference to weekly Hang Seng Index – Commerce and Industry Index in Hong Kong (“HSI-CI”). During the period from 2 July to 17 December 2004, the price-earnings ratio of HSI-CI ranged from 16.88 times to 19.95 times with an average of approximately 18.06 times. With reference to the above figures and the average price-earnings ratio for the three years ended 31 December 2003 of Harmony Piano, we consider that the consideration for the acquisition of 25% of the equity interest of Harmony Piano of the HK$4,848,500 is acceptable.

(VII) Conclusion

Taking into account that:

• (a) the consideration represents a slight premium of 4.3% over the audited net asset value of Harmony Piano attributable to 25% of the equity interest of Harmony Piano as at 31 July 2004;

• (b) the original cost paid by Fairweal for the acquisition of 25% of the equity interest in Harmony Piano in December 2003 was, in fact, about RMB5.3 million (equivalent to approximately HK$5.0 million), which represents a premium of approximately 3.1% over the consideration payable by the Company under the Harmony Acquisition;

• (c) the consideration represents a historical price earnings ratio of approximately 2.2 times of the audited profit after taxation of Harmony Piano attributable to 25% of the equity interest for the year ended 31 December 2003;

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LETTER FROM KIM ENG

• (d) the consideration represents an average price earnings ratio of approximately 3.1 times of the average audited profit after taxation of Harmony Piano attributable to 25% of the equity interest for the three years ended 31 December 2003;

• (e) the Harmony Acquisition would diversify the Group’s existing business portfolio and provide immediate revenue and profit contribution to the Group; and

• (f) the proven track record and the business potential of Harmony Piano.

We consider that the terms of the Harmony Acquisition Agreement are on normal commercial terms and fair and reasonable as far as the Company and the Shareholders as a whole.

2. LOAN AGREEMENT

• (I) Reasons for the benefit of entering into the Loan Agreement

Together with the Harmony Acquisition Agreement, the Company also entered into the Loan Agreement on 11 November 2004. Pursuant to the Loan Agreement, the Company will provide a loan facility up to an aggregate principal amount of HK$16.5 million to Brilliant Well at an interest rate of 6.5% per annum. The term for the Loan Agreement is 18 months commencing from the Drawing Date. In addition, there is a covenant under the Loan Agreement that Brilliant Well shall apply the Loan provided by the Company as working capital of Harmony Piano.

As stated in the section headed “Reasons for the Major and Connected Transaction” in the letter from the Board, the Directors recognise that the Harmony Piano has growth potential in both the PRC and international market, and consider that provision of financial resources as contemplated in the Loan Agreement to Harmony Piano through Brilliant Well would facilitate Harmony Piano’s growth and expansion, and hence, benefiting the Company through its direct interest in Harmony Piano. The Loan Agreement itself will also provide a stable and reasonable return to the Company. As stated in the section headed “Reasons for the Major and Connected Transaction” in the letter from the Board, all foreign debt financing remittance to entities in the PRC has to be registered with the State Administration of Foreign Exchange and this process will take considerable time. We were given to understand that the Board considers that by lending the Loan to Brilliant Well, the Loan Agreement can be completed and the Loan will be drawn down as soon as all conditions precedent to the Loan Agreement are satisfied and Brilliant Well and Harmony Piano, instead of the Company, will be responsible for processing the aforesaid registration process whereas by lending directly to Harmony Piano, the Loan Agreement can be completed and the Loan will only be drawn down upon all conditions precedent to the Loan Agreement are satisfied and the registration process are completed by Harmony Piano. Accordingly, the Directors consider that the current arrangement of lending to Harmony Piano via Brilliant Well, as opposed to lending directly to Harmony Piano, will lead to an early completion of the Loan Agreement due to an early draw down of the Loan by Brilliant Well, and hence early receipt of the Loan interest and repayment of the principal of the Loan. Based on the reasons as stated above, we concur with the view of the Directors in this regard.

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LETTER FROM KIM ENG

(II) Interest rate

We understand that an interest rate of 6.5% per annum will be charged for the Loan. As stated in the paragraph headed “Loan Agreement” in the section headed “Major and Connected Transaction” in the letter from the Board and pursuant to the terms of the Loan Agreement, Brilliant Well will apply the Loan provided by the Company solely as working capital of Harmony Piano in its entirety only on the same term as the Loan Agreement.

The interest rate for the Loan is determined after arm’s length negotiation between the Company and Brilliant Well with reference to, amongst others, the prime rate issued by People’s Bank of China for loans of similar duration (which is 5.76% as at the date of the Loan Agreement).

Given the fact that (i) the bank deposit interest rate of the Company during the year ended 31 March 2004 was ranged from approximately 0.01% to 0.63% which is lower than the interest rate charged by the Company to Brilliant Well; and (ii) the interest rate charged by the Company to Brilliant Well is higher than the prime rate issued by People’s Bank of China for loans of similar duration, the interest rate that will be charged by banks in the PRC to the Company if it borrows loan in the PRC, and Brilliant Well will charge the same interest rate to Harmony Piano, we consider that the interest rate of 6.5% per annum that will be charged by the Company to Brilliant Well is fair and reasonable as far as the interest of the Company and Shareholders are concerned.

(III) Security

Pursuant to the Loan Agreement, it is conditional that Fujian Properties, a wholly-owned subsidiary of FIDC, will enter into the Property Pledge Agreement, pursuant to which Fujian Properties shall pledge to the Company certain investment properties comprising 11 residential units in Wah Ming Center located at No. 421, Queen’s Road West, Hong Kong and 10 residential units in Hongway Garden located at No. 8, New Market Street, Sheung Wan, Hong Kong with an aggregate estimated value of approximately HK$25 million as security for the Loan. As stated in the paragraph headed “Loan Agreement” in the section headed “Major and Connected Transaction” in the letter from the Board, the valuation of the Properties was calculated according to internal evaluation by Fujian Properties with reference to the relevant market price of similar residential properties located in neighbourhood in the same region as the Properties as at 24 February 2004. The valuation of the Properties was approximately HK$28.5 million according to the internal valuation conducted by Fujian Properties with reference to the market price as at 30 November 2004.

In assessing the valuation of the Properties as security for the Loan, we have performed an independent online property valuation of the Properties with a major licensed bank in Hong Kong in early December 2004 and the result indicated that the internal valuation conducted by Fujian Properties is reasonable.

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LETTER FROM KIM ENG

(IV) Repayment

The terms of the Loan Agreement is 18 months commencing from the Drawing Date. Brilliant Well shall pay interest on a quarterly basis and repay the principal amount drawn upon maturity.

(V) Working capital position of the Group

The Group is currently principally engaged in the business of property investment and operation of a hotel in the PRC. Upon completion of the Harmony Acquisition and the Loan Agreement, the future working capital position of the Group will mainly be attributed from the cashflow in relation to hotel operation, rental income from investment properties, interest income from the Loan Agreement and management fee received from the Management Service Agreement.

Hotel operation

As stated in the section headed “Material Contracts” in Appendix IV to the Circular, Yan Hei, a wholly-owned subsidiary of the Company, entered into the Management Contract with Sunshine Group, an independent third party not connected with the directors, chief executive and substantial shareholders of the Company or its subsidiaries or an associate of any of them, on 30 June 2004 in relation to the appointment of Sunshine Group as the operator to manage the daily operation of the Hotel for a period of 10 years commencing from 1 July 2004. Under the Management Contract, Yan Hei is guaranteed to receive a fixed annual cash payment of RMB6.66 million (equivalent to approximately HK$6.28 million) which is payable monthly and a variable income calculated as 1.0% of the annual turnover of the Hotel. The Sunshine Group has paid RMB5.0 million (equivalent to approximately HK$4.7 million) as security deposit to the Company, which is refundable upon expiry of the Management Contract. The Directors were of the view that the aforesaid guaranteed annual cash payment pursuant to the Management Contract will provide an assured positive future cashflow to the Group.

Investment properties

The Company owns certain investment properties in Hong Kong for rental purposes. The Directors are of the view that the rental income and the interest income from the Loan provide the Group with a stable source of income and cash inflow. The Directors confirmed that the investment properties owned by the Group are neither mortgaged nor pledged. Such properties can be pledged or disposed of for additional funding requirement in the event that the Group needs further working capital for its business expansion or otherwise.

– 27 –

LETTER FROM KIM ENG

Management Service Agreement

Also on 11 November 2004, FIDC, Brilliant Well and the Company entered into the Management Service Agreement pursuant to which FIDC has appointed the Company and the Company has agreed to act as an agent to assist FIDC to participate in the management of (i) Huamin Tourism, a company incorporated in Hong Kong and held as to 50% by FIDC and the remaining 50% held by Tourism Bureau of the Fujian Province of the PRC; and (ii) Harmony Piano. Under the Management Service Agreement, the Company will provide management services to FIDC for a period of 18 months commencing from the effective date of the Management Service Agreement at a fixed management fee of HK$2 million per annum and a floating management fee on the basis of 10% of the net profit after taxation and after deduction of the fixed management fee of Huamin Tourism and Harmony Piano respectively.

Overall

We have scrutinized the bases and assumptions made in the cashflow forecast (which has been reviewed by Nexia Charles Mar Fan & Co., the auditors) for the period up to 31 December 2005 as prepared by the Company. Taken into account the above and the assumption that there is no significant change to the above arrangements, we concur with the Directors’ view that the Company will have sufficient working capital after completion of the Harmony Acquisition Agreement and the Loan Agreement.

• (VI) Conclusion

Having taken into consideration the above information, we consider the Loan Agreement is on normal commercial terms, fair and reasonable and in the interest of the Company and the Shareholders as a whole.

RECOMMENDATION

Taking into consideration of the above principal factors and reasons, we are of the view that terms of the Harmony Acquisition Agreement and the Loan Agreement contemplated thereunder are on normal commercial terms and fair and reasonable so far as Shareholders are concerned and are in the interests of the Company and the Independent Shareholders as a whole. Accordingly, we recommended the Independent Shareholders, as well as the Independent Board Committee to advise the Independent Shareholders, to vote in favour of the ordinary resolutions to be proposed at the EGM to approve the Harmony Acquisition Agreement and the Loan Agreement.

Yours faithfully, For and on behalf of

Kim Eng Corporate Finance (Hong Kong) Limited Winnie Kong

Director

– 28 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

1. SHARE CAPITAL

The authorised and issued share capital of the Company as at the Latest Practicable Date were as follows:

Authorised 3,040,000,000 Shares as at the Latest Practicable Date Issued and to be issued, fully paid or credited as fully paid 520,000,000 Shares in issue as at the Latest Practicable Date 520,000,000 Shares upon completion of the Major and Connected Transaction	HK$ 380,000,000
	65,000,000
	65,000,000

As at the Latest Practicable Date, all the Shares in issue ranked equally in all respects among themselves in all respects, including but not limited to the right to receive all dividends, distributions or entitlements declared, paid or made in respect of the Shares.

The issued Shares are listed on the Stock Exchange. No part of the securities of the Company is listed or dealt in, nor is listing or permission to deal in the securities of the Company being or proposed to be sought, on any other stock exchange.

– 29 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

2. SUMMARY OF THE FINANCIAL INFORMATION OF THE GROUP

The following is a summary of the audited consolidated income statement of the Group for the years ended 31 March 2002, 2003 and 2004 as extracted from the annual reports of the Group for each of the three years ended 31 March 2004 and the unaudited consolidated income statement of the Group for the six months ended 30 September 2004 as extracted from the interim report of the Group for the six months ended 30 September 2004:

Consolidated Income Statement

Six months ended

Turnover Other revenue Staff costs Depreciation Surplus/(deficit) on revaluation of investment properties Provision for impairment loss on hotel properties Net gain/(loss) on disposals of charged investment properties Loss on disposal of interest in a jointly controlled entity (Provision for)/write back of doubtful debts Goodwill/negative goodwill adjustment Other operating expenses Loss from operations Gain on financial restructuring Restructuring expenses Finance costs Share of results of jointly controlled entities Share of results of associates Profit/(loss) before taxation Taxation Profit/(loss) after taxation Minority interests Net profit/(loss) attributable to the shareholders Basic earnings/(loss) per share Basic loss per share (excluding non-recurring items) Diluted earnings/(loss) per share		30 September 2004 HK$ (Unaudited) 8,627,682 1,392,272 (2,902,040) (3,462,208) – – – – – – (6,257,024) (2,601,318) – – (740,165) – 82,651 (3,258,832) (14,464) (3,273,296) – (3,273,296) (0.63)cents N/A N/A	For the year ended 31 March 2004 2003 2002 HK$ HK$ HK$ (Audited) (Audited) (Audited) (Restated) (Restated) 16,156,932 19,158,328 27,442,409 347,210 229,385 445,626 (5,122,932) (6,021,867) (8,677,080) (9,908,156) (11,292,948) (12,522,980) 150,000 (1,610,000) (27,290,000) (24,625,768) (12,500,000) – – 2,023,664 (1,246,082) – – (58,524,946) (1,220,376) 8,991,163 (21,517,356) – – 20,309,992 (13,454,753) (17,304,230) (18,761,897) (37,677,843) (18,326,505) (100,342,314) 525,345,838 – – (6,673,324) (1,818,577) – (36,032,692) (55,293,968) (67,552,162) – – (6,715,082) (415,568) 259,941 241,719 444,546,411 (75,179,109) (174,367,839) 4,361,197 2,905,008 (1,330,010) 448,907,608 (72,274,101) (175,697,849) – – – 448,907,608 (72,274,101) (175,697,849) 19.5 cents (6.7)cents (16.3)cents (3.0)cents (6.6)cents N/A N/A N/A N/A
			2004 HK$ (Audited) 16,156,932 347,210 (5,122,932) (9,908,156) 150,000 (24,625,768) – – (1,220,376) – (13,454,753) (37,677,843) 525,345,838 (6,673,324) (36,032,692) – (415,568) 444,546,411 4,361,197 448,907,608 – 448,907,608 19.5 cents (3.0)cents N/A

– 30 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Balance Sheet

Non-current assets Fixed assets Jointly controlled entities Associates Current assets Loan to a jointly controlled entity Amount due from a related company Trade and other receivables Inventories Cash and bank balances Current liabilities Bank and other borrowings Interest payable on borrowings Obligation to a jointly controlled entity Accounts payable Taxation Unclaimed dividends Loans from minority shareholders Net current assets/(liabilities) Total assets less current liabilities Non-current liabilities Bank and other borrowings Accounts payable Deferred tax Minority interests Net assets/(liabilities) Capital and reserves Share capital Reserves Shareholders’ funds/(deficits)		As at 30 September 2004 HK$ 82,279,030 – 7,239,919 89,518,949 – – 2,956,491 467,729 38,757,134 42,181,354 5,995,485 10,614,559 – 10,570,027 – – – 27,180,071 15,001,283 104,520,232 24,476,808 8,377,012 4,729,278 37,583,098 – 66,937,134 65,000,000 1,937,134 66,937,134		As at 31 March 2003 2002 HK$ HK$ (Restated) (Restated) 122,339,972 271,423,643 – – 11,777,981 16,434,817 134,117,953 287,858,460 – 7,704,170 – 15,294,388 1,645,631 2,073,785 499,765 1,190,013 2,504,544 1,935,801 4,649,940 28,198,157 484,690,447 570,393,577 94,438,868 104,727,932 15,000,000 16,740,933 29,263,078 30,756,243 6,982,064 6,982,064 81,573 81,573 4,237,716 4,237,716 634,693,746 733,920,038 (630,043,806) (705,721,881) (495,925,853) (417,863,421) – – – – 9,119,852 – 9,119,852 – – – (505,045,705) (417,863,421) 134,291,046 134,291,046 (639,336,751) (552,154,467) (505,045,705) (417,863,421)
			2004 HK$ 85,583,798 – 7,171,732 92,755,530 – – 1,313,753 478,426 37,056,793 38,848,972 5,979,283 9,929,772 – 11,859,008 – – – 27,768,063 11,080,909 103,836,439 24,476,808 4,446,000 4,729,278 33,652,086 – 70,184,353 64,988,769 5,195,584 70,184,353

– 31 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

3. EXTRACT OF THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE GROUP FOR THE YEARS ENDED 31 MARCH 2003 AND 2004

Set out below are the audited consolidated income statement of the Group for the years ended 31 March 2003 and 2004, the audited consolidated balance sheet of the Group, the audited balance sheet of the Company as at 31 March 2003 and 2004, the audited consolidated statement of changes in equity and audited consolidated cash flow statement of the Group for the years ended 31 March 2003 and 2004 together with the accompanying notes extracted from the annual report of the Group for the year ended 31 March 2004.

Consolidated Income Statement

For the year ended 31 March

Note Turnover 5 Other revenue 5 Staff costs Depreciation 15 Surplus/(deficit) on revaluation of investment properties 15 Provision for impairment loss on hotel properties 15 Net gain on disposals of investment properties (Provision for)/write back of doubtful debts 7 Other operating expenses Loss from operations 8 Gain on financial restructuring 9 Restructuring expenses Finance costs 10 Share of results of associates Profit/(loss) before taxation Taxation 11 Profit/(loss) after taxation Minority interests 24 Net profit/(loss) attributable to the shareholders 12 Basic earnings/(loss) per share 13 Basic loss per share (excluding non-recurring items) 13 Diluted earnings/(loss) per share 13	2004 HK$ 16,156,932 347,210 (5,122,932) (9,908,156) 150,000 (24,625,768) – (1,220,376) (13,454,753) (37,677,843) 525,345,838 (6,673,324) (36,032,692) (415,568) 444,546,411 4,361,197 448,907,608 – 448,907,608 19.5 cents (3.0)cents N/A	2003 HK$ (Restated) 19,158,328 229,385 (6,021,867) (11,292,948) (1,610,000) (12,500,000) 2,023,664 8,991,163 (17,304,230) (18,326,505) – (1,818,577) (55,293,968) 259,941 (75,179,109) 2,905,008 (72,274,101) – (72,274,101) (6.7)cents (6.6)cents N/A

– 32 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Balance Sheet

As at 31 March Note Non-current assets Fixed assets 15 Jointly controlled entities 17 Associates 18 Current assets Trade and other receivables 19 Inventories 20 Cash and bank balances Current liabilities Bank and other borrowings 21 Interest payable on borrowings Obligation to a jointly controlled entity 17 Accounts payable 22 Taxation Unclaimed dividends 23 Loan from minority shareholders 24 Net current assets/(liabilities) Total assets less current liabilities Non-current liabilities Bank and other borrowings 21 Accounts payable 22 Deferred tax 28 Minority interests 24 Net assets/(liabilities) Capital and reserves Share capital 25 Reserves 27 Shareholders’ funds/(deficits)	2004 HK$ 85,583,798 – 7,171,732 92,755,530 1,313,753 478,426 37,056,793 38,848,972 5,979,283 9,929,772 – 11,859,008 – – – 27,768,063 11,080,909 103,836,439 24,476,808 4,446,000 4,729,278 33,652,086 – 70,184,353 64,988,769 5,195,584 70,184,353	2003 HK$ (Restated) 122,339,972 – 11,777,981 134,117,953 1,645,631 499,765 2,504,544 4,649,940 484,690,447 94,438,868 15,000,000 29,263,078 6,982,064 81,573 4,237,716 634,693,746 (630,043,806) (495,925,853) – – 9,119,852 9,119,852 – (505,045,705) 134,291,046 (639,336,751) (505,045,705)

– 33 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Balance Sheet of the Company As at 31 March Note Non-current assets Fixed assets 15 Subsidiaries 16 Jointly controlled entities 17 Associates 18 Current assets Trade and other receivables 19 Cash and bank balances Current liabilities Bank and other borrowings 21 Interest payable on borrowings Obligation to a jointly controlled entity 17 Accounts payable 22 Unclaimed dividends 23 Amounts due to subsidiaries Net current assets/(liabilities) Net assets/(liabilities) Capital and reserves Share capital 25 Reserves 27 Shareholders’ funds/(deficits)	2004 HK$ 11,390,382 16,258,655 – 2,650,001 30,299,038 919,617 36,903,992 37,823,609 – – – 1,056,056 – – 1,056,056 36,767,553 67,066,591 64,988,769 2,077,822 67,066,591	2003 HK$ 12,112,487 – – 5,225,052 17,337,539 375,555 2,061,928 2,437,483 276,495,042 74,103,888 15,000,000 11,039,140 81,573 161,758,376 538,478,019 (536,040,536) (518,702,997) 134,291,046 (652,994,043) (518,702,997)

– 34 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Statement of Changes in Equity

For the year ended 31 March 2004

Share capital HK$ At 1 April 2002 As previously reported 134,291,046 Prior year adjustment – effect of adopting SSAP 12 (Revised) – As restated 134,291,046 Deficit on revaluation of associates’ investment properties – Exchange differences on translation – Loss for the year – At 31 March 2003 134,291,046 At 1 April 2003 As previously reported 134,291,046 Prior year adjustment – effect of adopting SSAP 12 (Revised) – As restated 134,291,046 Arising from capital reduction of ordinary shares (Note 25) (120,861,941) Issue of ordinary shares 51,559,664 Capital expenditure on issue of ordinary shares – Deficit on revaluation of associates’ investment properties – Unclaimed dividends written back – Profit for the year – At 31 March 2004 64,988,769

Investment property revaluation Exchange reserve fluctuation Accumulated Share attributable reserve losses premium to associates Note 27(a)(i) Note 27(a)(ii) Total HK$ HK$ HK$ HK$ HK$ 498,369,397 8,129,866 (33,454) (1,058,620,276) (417,863,421) – – – (12,074,970) (12,074,970) 498,369,397 8,129,866 (33,454) (1,070,695,246) (429,938,391) – (2,866,667) – – (2,866,667) – – 33,454 – 33,454 – – – (72,274,101) (72,274,101) 498,369,397 5,263,199 – (1,142,969,347) (505,045,705) 498,369,397 5,263,199 – (1,133,849,495) (495,925,853) – – – (9,119,852) (9,119,852) 498,369,397 5,263,199 – (1,142,969,347) (505,045,705) – – – 120,861,941 – 75,475,256 – – – 127,034,920 (660,106) – – – (660,106) – (133,937) – – (133,937) – – – 81,573 81,573 – – – 448,907,608 448,907,608 573,184,547 5,129,262 – (573,118,225) 70,184,353

• These reserve accounts make up the aggregate reserve of HK$5,195,584 (2003 (restated): deficit of HK$639,336,751) in the consolidated balance sheet.

– 35 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Cash flow Statement

For the year ended 31 March

Note Cash flows from operating activities Profit/(loss) before taxation Adjustments for: Share of results of associates (Surplus)/deficit on revaluation of investment properties Provision for impairment loss on hotel properties Depreciation Interest income Interest expenses Loss on disposal of fixed assets Gain on disposal of investment properties Gain on financial restructuring 9 Provision for doubtful debts (Decrease)/increase in provision for inventories Write back of provision for loans to jointly controlled entities Operating loss before working capital changes Decrease in amount due from a related company Increase in trade and other receivables Decrease in inventories Decrease in accounts payable Net cash (outflow)/inflow generated from operations Interest paid Hong Kong profits tax paid Net cash used in operating activities Cash flows from investing activities Purchase of fixed assets Net cash outflow from disposal of subsidiaries 29(a) Net proceeds from disposal of investment properties Loan repayment from a jointly controlled entity 29(b) Interest received Dividend received from associates Net cash inflow from investing activities	2004 HK$ 444,546,411 415,568 (150,000) 24,625,768 9,908,156 (183) 36,032,692 1,733,802 – (525,345,838) 1,978,472 (346,583) (758,096) (7,359,831) – (1,193,786) 367,922 (945,890) (9,131,585) (768,468) (974,996) (10,875,049) (718,615) (34,436) – 758,096 183 412,100 417,328	2003 HK$ (75,179,109) (259,941) 1,610,000 12,500,000 11,292,948 (222) 55,293,968 218,470 (2,023,664) – 1,369,655 473,389 (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

– 36 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Cash flow Statement (Continued)

For the year ended 31 March

Note Cash flows from financing activities Issue of new shares 29(b) Capital expenditure on issue of new shares Repayments of loans Advances from a shareholder (Repayment to)/advances from associates Repayment to a related company Advances from third parties Net cash generated from/(used in) financing activities Net increase in cash and cash equivalents Cash and cash equivalents at 1 April Effect of foreign exchange rate changes Cash and cash equivalents at 31 March Analysis of cash and cash equivalents Cash and bank balances	2004 HK$ 54,000,000 (660,106) (12,309,060) 4,294,923 (122,463) (200,276) – 45,003,018 34,545,297 2,504,544 6,952 37,056,793 37,056,793	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

– 37 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Notes to the Financial Statements

For the year ended 31 March 2004

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”). Its ultimate holding company is Fujian Investment and Development Company Limited, a state-owned corporation in the PRC.

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

2. FINANCIAL RESTRUCTURING

The Company received a winding-up petition on 15 January 2003 issued by one of the creditor banks. Pursuant to an Order of the Hong Kong Court (“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 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 HC Technology Capital Company Limited (“HC Technology”) together with the Company’s then 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”) which were related to the financial restructuring of the Group (the “Financial Restructuring”). The Provisional Liquidators announced that the conditions precedent under the Restructuring Agreement had been satisfied and that the Financial Restructuring was completed on 11 December 2003.

Following the completion of the Financial Restructuring on 11 December 2003, each of the Provisional Liquidators were released and discharged as joint and several provisional liquidators of the Company pursuant to the order of the Court.

The trading of the Company’s shares on the Stock Exchange resumed on 17 December 2003.

Details of the Financial Restructuring were set out in the Company’s circular and announcements dated 9 October 2003, 3 November 2003, 25 November 2003, 11 December 2003 and 16 December 2003 respectively, and are summarised as follows:

(a) Restructuring the Company’s share capital

The nominal value of each issued share was reduced from HK$0.125 to HK$0.0125. The Company’s issued share capital of HK$134,291,046 was reduced by HK$120,861,941 to HK$13,429,105 comprising 1,074,328,367 shares of HK$0.0125 each. The amount of HK$120,861,941 arising from the capital reduction was applied to reduce the same amount of the accumulated losses of the Company.

(b) Restructuring the Group’s obligations to creditors and secured creditors

By an Order of the Hong Kong High Court (“Court”) dated 6 November 2003, the Company was directed to convene a scheme meeting of the unsecured creditors for the purpose of considering and approving the Scheme of Arrangement (the “Scheme”) proposed to be made between the Company and the Scheme Creditors (“Scheme Creditors Meeting”). A Notice of Scheme Creditors Meeting was given to the Scheme Creditors on 7 November 2003 and a set of the Scheme Arrangement and a copy of the Explanatory Statement required to be furnished pursuant to Section 166 of the Companies Ordinance was enclosed. The Scheme Creditors Meeting was held on 25 November 2003 and the Scheme was approved.

The Court sanctioned the Scheme at the hearing held on 10 December 2003 and hence the Scheme became effective and binding on all the Creditors. Upon the completion of the Scheme, the whole indebtedness and liabilities due by the Company to the Scheme Creditors were released and fully discharged.

As part of the Restructuring Agreement, the secured loans from Sino Earn and Jian Xing were partly waived by the said parties. The remaining of the loans were settled by execution of certain charged shares and the issue of 380,965,823 and 151,393,534 ordinary shares to Sino Earn and Jian Xing at HK$0.125 each respectively.

– 38 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

2. FINANCIAL RESTRUCTURING (Continued)

(c) Issue of new ordinary shares in the Company

Immediately following the implementation of the Scheme on 11 December 2003, HC Technology subscribed and the Company allotted and issued 2,792,413,792 ordinary shares at HK$0.0145 each, of which HK$34,000,000 was satisfied by cash and HK$6,490,000 by settlement of the same amount of debts due to HC Technology.

Upon the completion of the Financial Restructuring on 11 December 2003, HC Technology became the immediate holding company of the Company.

3. ADOPTION OF HONG KONG FINANCIAL REPORTING STANDARDS

In the current year, the Group has adopted the following Hong Kong Financial Reporting Standards (“HKFRs”) newly issued by the Hong Kong Society of Accountants (“HKSA”). The term of HKFRs is inclusive of Statements of Standard Accounting Practice (“SSAPs”) and Interpretations approved by the HKSA.

Income taxes

The Group has adopted SSAP 12 (Revised) which became effective for the current year. The principal effect of the implementation of SSAP 12 (Revised) is in relation to deferred tax. In previous years, deferred tax is accounted for at the current taxation in respect of timing differences between profits 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. SSAP 12 (Revised) requires the adoption of a balance sheet liability method, whereby deferred tax is recognised in respect of all temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, with limited exceptions. In the absence of any specific transitional requirements in SSAP 12 (Revised), the new accounting policy has been applied retrospectively. Comparative amounts have been restated accordingly.

As detailed in note 28 to the financial statements, the accumulated losses as at 1 April 2002 and 2003 have been increased by HK$12,074,970 and HK$9,119,852, respectively, which represented the provided deferred tax liability. This change has resulted in an increase in deferred tax liability at 31 March 2004 by HK$4,729,278 (2003: HK$9,119,852). As a consequence, the net profit attributable to the shareholders for the years ended 31 March 2004 has been increased by HK$4,390,574 (2003: HK$2,955,118).

4.

PRINCIPAL ACCOUNTING POLICIES

(a) Statement of compliance

These financial statements have been prepared in accordance with SSAPs and interpretations approved 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.

(b) 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.

(c) 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 disposal of a subsidiary represents the difference between the sales proceeds 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.

– 39 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

4. PRINCIPAL ACCOUNTING POLICIES (Continued)

(d) 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.

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

(e) 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.

(f) 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.

(g) Goodwill/negative goodwill

Goodwill/negative goodwill arising on the acquisition of subsidiaries, jointly controlled entities and associates 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.

Goodwill arising on acquisition is recognised in the consolidated balance sheet as an asset and amortised on the straight-line basis over its estimated useful life.

Negative goodwill arising on acquisition 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.

(h) 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 on a straight-line basis over the term of the lease;

• (ii) Revenue from hotel operations is recognised when the services are provided; and

• (iii) Interest income is recognised on a time-apportioned basis on the principal outstanding and at the rates applicable.

– 40 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

4. PRINCIPAL ACCOUNTING POLICIES (Continued)

(i) 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.

(j) 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 accumulated depreciation and any 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.

(k) Other fixed assets

Other fixed assets (including furniture and fixtures, leasehold improvements, plant and machinery and equipment) 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%.

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.

(l) 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, however not to an amount higher than the carrying amount that would have been determined (net of depreciation/amortisation), had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately.

(m) 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.

– 41 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

4. PRINCIPAL ACCOUNTING POLICIES (Continued)

(n) Income tax

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

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

Deferred taxation is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the accounts. Taxation rates enacted or substantively enacted by the balance sheet date are used to determine deferred taxation.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

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

In prior year, deferred taxation was 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 accounts to the extent that a liability or an asset was expected to be payable or recoverable in the foreseeable future. The adoption of the new SSAP 12 (Revised) represents a change in accounting policy, which has been applied retrospectively so that the comparatives presented have been restated to conform to the changed policy.

(o) 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 the 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. Exchange differences arising are dealt with as a movement in exchange fluctuation reserve.

(p) Operating leases

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

(q) 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.

(r) 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 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.

– 42 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

4. PRINCIPAL ACCOUNTING POLICIES (Continued)

(s) 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.

(t) 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.

(u) 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.

(v) 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 financial expenses and minority interests.

– 43 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

5. TURNOVER AND OTHER REVENUE

Turnover and other revenue are analysed as follows:

Turnover Gross rental income from investment properties Revenue from hotel operation Other revenue Bank interest income Others Total revenue	2004 HK$ 969,200 15,187,732 16,156,932 183 347,027 347,210 16,504,142	2003 HK$ 2,131,605 17,026,723
		19,158,328
		222 229,163
		229,385
		19,387,713

6. SEGMENTAL INFORMATION

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.

(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

– 44 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

6. SEGMENTAL INFORMATION (Continued)

(a) Business segments (Continued)

Revenue from external customers Other revenue from external customers Total Segment results Unallocated corporate expenses Loss from operations Gain on financial restructuring Restructuring expenses Finance costs Share of results of associates Profit/(loss) before taxation Taxation Net profit/(loss) attributable to the shareholders Assets Segment assets Investments in associates Unallocated assets Total assets Liabilities Segment liabilities Unallocated liabilities Total liabilities Other segment information Capital expenditure Depreciation (Surplus)/deficit on revaluation of investment properties Provision for impairment loss on hotel properties	Property investment 2004 2003 HK$ HK$ 969,200 2,131,605 – – 969,200 2,131,605 901,720 1,748,454 (415,568) 131,616 (29,377) (26,434) 12,310,000 14,972,939 7,171,732 8,050,614 (1,056,056) (14,224,573) 696,628 – 45,319 58,538 (150,000) 1,610,000 – –	Property investment 2004 2003 HK$ HK$ 969,200 2,131,605 – – 969,200 2,131,605 901,720 1,748,454 (415,568) 131,616 (29,377) (26,434) 12,310,000 14,972,939 7,171,732 8,050,614 (1,056,056) (14,224,573) 696,628 – 45,319 58,538 (150,000) 1,610,000 – –	Hotel 2004 HK$ 15,187,732 – 15,187,732 (10,402,735) – 4,390,574 75,146,952 – (19,978,231) 21,987 9,861,281 – 24,625,768	operation 2003 HK$ 17,026,723 – 17,026,723 (9,998,335) – 2,955,118 112,016,638 – (15,038,505) 1,159,010 11,234,410 – 12,500,000	Unallocated 2004 2003 HK$ HK$ – – 347,210 229,385 347,210 229,385 – – – 128,325 – (23,676) – – – 3,727,367 – – – – 1,556 – – – – –	Consolidated 2004 2003 HK$ HK$ (restated) 16,156,932 19,158,328 347,210 229,385 16,504,142 19,387,713 (9,501,015) (8,249,881) (28,176,828) (10,076,624) (37,677,843) (18,326,505) 525,345,838 – (6,673,324) (1,818,577) (36,032,692) (55,293,968) (415,568) 259,941 444,546,411 (75,179,109) 4,361,197 2,905,008 448,907,608 (72,274,101) 87,456,952 126,989,577 7,171,732 11,777,981 36,975,818 335 131,604,502 138,767,893 (21,034,287) (29,263,078) (40,385,862) (614,550,520) (61,420,149) (643,813,598)	Consolidated 2004 2003 HK$ HK$ (restated) 16,156,932 19,158,328 347,210 229,385 16,504,142 19,387,713 (9,501,015) (8,249,881) (28,176,828) (10,076,624) (37,677,843) (18,326,505) 525,345,838 – (6,673,324) (1,818,577) (36,032,692) (55,293,968) (415,568) 259,941 444,546,411 (75,179,109) 4,361,197 2,905,008 448,907,608 (72,274,101) 87,456,952 126,989,577 7,171,732 11,777,981 36,975,818 335 131,604,502 138,767,893 (21,034,287) (29,263,078) (40,385,862) (614,550,520) (61,420,149) (643,813,598)
		2,131,605					19,387,713
		1,748,454 131,616 (26,434) 14,972,939 8,050,614 (14,224,573) – 58,538 1,610,000 –					(8,249,881) (10,076,624)
							(18,326,505) – (1,818,577) (55,293,968) 259,941
							(75,179,109) 2,905,008
							(72,274,101)
							126,989,577 11,777,981 335
							138,767,893
							(29,263,078) (614,550,520)
							(643,813,598)

– 45 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

6. SEGMENTAL INFORMATION (Continued)

(b) Geographical segments

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

Hong Kong PRC 2004 2003 2004 2003 HK$ HK$ HK$ HK$ Segment revenue: Revenue from external customers 969,200 2,131,605 15,187,732 17,026,723 Segment results 901,720 1,748,454 (10,402,735) (9,998,335) Other segment information: Segment assets 56,457,550 26,751,255 75,146,952 112,016,638 Capital expenditure 696,628 – 21,987 1,159,010 Depreciation 46,875 58,538 9,861,281 11,234,410 7. (PROVISION FOR)/WRITE BACK OF DOUBTFUL DEBTS 2004 2003 HK$ HK$ (Provision for)/write back of doubtful debts due from: – Jointly controlled entities 758,096 10,360,818 – Others (1,978,472) (1,369,655) (1,220,376) 8,991,163 8. LOSS FROM OPERATIONS 2004 2003 HK$ HK$ The loss from operations is stated after crediting and charging the following: Gross rental income from investment properties 969,200 2,131,605 Less: Outgoings (67,480) (383,151) 901,720 1,748,454 Depreciation: – hotel properties 8,733,279 9,462,552 – owned fixed assets 1,174,877 2,409,130 – over-provision in prior years – (578,734) 9,908,156 11,292,948 Operating lease rentals for land and buildings 5,000 – Auditors’ remuneration 280,000 250,000 Loss on disposal of other fixed assets 1,733,802 218,470 Net exchange (gain)/loss (309,591) 816,576 Retirement benefits costs 29,070 38,440	Hong Kong PRC 2004 2003 2004 2003 HK$ HK$ HK$ HK$ Segment revenue: Revenue from external customers 969,200 2,131,605 15,187,732 17,026,723 Segment results 901,720 1,748,454 (10,402,735) (9,998,335) Other segment information: Segment assets 56,457,550 26,751,255 75,146,952 112,016,638 Capital expenditure 696,628 – 21,987 1,159,010 Depreciation 46,875 58,538 9,861,281 11,234,410 7. (PROVISION FOR)/WRITE BACK OF DOUBTFUL DEBTS 2004 2003 HK$ HK$ (Provision for)/write back of doubtful debts due from: – Jointly controlled entities 758,096 10,360,818 – Others (1,978,472) (1,369,655) (1,220,376) 8,991,163 8. LOSS FROM OPERATIONS 2004 2003 HK$ HK$ The loss from operations is stated after crediting and charging the following: Gross rental income from investment properties 969,200 2,131,605 Less: Outgoings (67,480) (383,151) 901,720 1,748,454 Depreciation: – hotel properties 8,733,279 9,462,552 – owned fixed assets 1,174,877 2,409,130 – over-provision in prior years – (578,734) 9,908,156 11,292,948 Operating lease rentals for land and buildings 5,000 – Auditors’ remuneration 280,000 250,000 Loss on disposal of other fixed assets 1,733,802 218,470 Net exchange (gain)/loss (309,591) 816,576 Retirement benefits costs 29,070 38,440	Hong Kong PRC 2004 2003 2004 2003 HK$ HK$ HK$ HK$ Segment revenue: Revenue from external customers 969,200 2,131,605 15,187,732 17,026,723 Segment results 901,720 1,748,454 (10,402,735) (9,998,335) Other segment information: Segment assets 56,457,550 26,751,255 75,146,952 112,016,638 Capital expenditure 696,628 – 21,987 1,159,010 Depreciation 46,875 58,538 9,861,281 11,234,410 7. (PROVISION FOR)/WRITE BACK OF DOUBTFUL DEBTS 2004 2003 HK$ HK$ (Provision for)/write back of doubtful debts due from: – Jointly controlled entities 758,096 10,360,818 – Others (1,978,472) (1,369,655) (1,220,376) 8,991,163 8. LOSS FROM OPERATIONS 2004 2003 HK$ HK$ The loss from operations is stated after crediting and charging the following: Gross rental income from investment properties 969,200 2,131,605 Less: Outgoings (67,480) (383,151) 901,720 1,748,454 Depreciation: – hotel properties 8,733,279 9,462,552 – owned fixed assets 1,174,877 2,409,130 – over-provision in prior years – (578,734) 9,908,156 11,292,948 Operating lease rentals for land and buildings 5,000 – Auditors’ remuneration 280,000 250,000 Loss on disposal of other fixed assets 1,733,802 218,470 Net exchange (gain)/loss (309,591) 816,576 Retirement benefits costs 29,070 38,440
		(9,998,335)
		112,016,638
		1,159,010 11,234,410
		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)
		11,292,948
		– 250,000 218,470 816,576 38,440

– 46 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

9. GAIN ON FINANCIAL RESTRUCTURING

Debt restructuring gain Loss on disposal of subsidiaries 10. FINANCE COSTS Interest on bank loans and overdrafts – wholly repayable within five years – wholly repayable over five years Interest on other borrowings – wholly repayable within five years 11. TAXATION Taxation in the consolidated income statement comprises: Deferred tax Share of taxation attributable to associates	2004 HK$ 525,695,673 (349,835) 525,345,838 2004 HK$ 19,091,824 1,646,219 15,294,649 36,032,692 2004 HK$ 4,390,574 (29,377) 4,361,197	2003 HK$ – –
		–
		2003 HK$ 31,324,455 – 23,969,513
		55,293,968
		2003 HK$ 2,955,118 (50,110)
		2,905,008

(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 (2003: 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 (2003: HK$Nil).

12. NET PROFIT/(LOSS) ATTRIBUTABLE TO THE SHAREHOLDERS

Included in the consolidated net profit attributable to the shareholders of HK$448,907,608 (2003 (restated): Loss of HK$72,274,101) is a profit of HK$459,313,201 (2003: Loss of HK$104,672,908), including dividends from associates of HK$412,100 (2003: HK$2,000,000), which has been dealt with in the financial statements of the Company.

– 47 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

13. EARNINGS/(LOSS) PER SHARE

(a) Basic

The calculation of basic earnings per share is based on the consolidated net profit attributable to the shareholders for the year of HK$448,907,608 (2003 (restated): Net loss of HK$72,274,101) and the weighted average of 2,300,218,284 (2003: 1,074,328,367) shares in issue during the year.

Additional basic loss per share excluding non-recurring items have also been presented, based on the loss as follows:

Net profit/(loss) for the year Adjustments for: Gain on financial restructuring Restructuring expenses Loss for the year for the purpose of additional basic and diluted loss per share excluding non-recurring items Number of shares: Weighted average number of ordinary shares for the purpose of basic earnings/(loss) per share	2004 HK$ 448,907,608 (525,345,838) 6,673,324 (69,764,906) 2004 2,300,218,284	2003 HK$ (restated) (72,274,101) – 1,818,577
		(70,455,524)
		2003 1,074,328,367

(b) Diluted

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

14. 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	2004 HK$ – – – 2,100 – 2,100	2003 HK$ – –
		–
		211,994 7,000
		218,994

– 48 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

14. DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS (Continued)

(a) Directors’ emoluments (Continued)

The emoluments of the directors fell within the following bands:

Emolument bands From HK$Nil to HK$1,000,000	Number of directors 2004 2003 13 11

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

None (2003: two) of the five highest paid employees are directors whose emoluments are reflected in the directors’ emoluments above. Details of the aggregate emoluments of the five (2003: three) highest paid nondirector individuals are as follows:

Basic salaries, housing allowances, other allowances and benefits in kind Provident fund contributions	2004 HK$ 1,141,200 29,070 1,170,270	2003 HK$ 1,007,836 31,440
		1,039,276

The emoluments of each of these five (2003: three) individuals fell within the band from HK$Nil to HK$1,000,000.

– 49 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

15. FIXED ASSETS

Cost or valuation Brought forward At cost At professional valuation Additions Exchange difference Disposals Disposal of subsidiaries Revaluation surplus Carried forward At cost At professional valuation Accumulated depreciation/impairment Brought forward Exchange difference Charge for the year Disposals Disposal of subsidiaries Impairment Carried forward Net book value At 31 March 2004 At 31 March 2003			Group	Group		Total HK$ 203,201,220 11,890,000 215,091,220 718,615 (19,663) (8,258,286) (46,700) 150,000 207,635,186 196,935,186 10,700,000 207,635,186 92,751,248 (12,711) 9,908,156 (5,184,484) (36,589) 24,625,768 122,051,388 85,583,798 122,339,972
	Investment properties HK$ – 11,890,000 11,890,000 – – (1,340,000) – 150,000 10,700,000 – 10,700,000 10,700,000 – – – – – – – 10,700,000 11,890,000	Hotel properties HK$ 179,000,000 – 179,000,000 – – – – – 179,000,000 179,000,000 – 179,000,000 71,640,953 – 8,733,279 – – 24,625,768 105,000,000 74,000,000 107,359,047	Furniture and fixtures HK$ 8,842,587 –	Leasehold improvements HK$ 7,099,186 – 7,099,186 523,277 (5,910) (1,077,416) – – 6,539,137 6,539,137 – 6,539,137 5,459,301 – 587,679 (22,398) – – 6,024,582 514,555 1,639,885	Plant, machinery and equipment HK$ 8,259,447 – 8,259,447 94,346 (6,472) (3,632,212) (29,300) – 4,685,809 4,685,809 – 4,685,809 7,529,722 (6,001) 78,055 (3,183,351) (23,142) – 4,395,283 290,526 729,725
			8,842,587 100,992 (7,281) (2,208,658) (17,400) –
			6,710,240
			6,710,240 –
			6,710,240
			8,121,272 (6,710) 509,143 (1,978,735) (13,447) –
			6,631,523
			78,717
			721,315

– 50 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

15. FIXED ASSETS (Continued)

Cost or valuation Brought forward At cost At professional valuation Additions Disposals Revaluation surplus Carried forward At cost At professional valuation Accumulated depreciation Brought forward Charge for the year Disposals Carried forward Net book value At 31 March 2004 At 31 March 2003			Company
	Investment properties HK$ – 11,890,000 11,890,000 – (1,340,000) 150,000 10,700,000 – 10,700,000 10,700,000 – – – – 10,700,000 11,890,000	Furniture and fixtures HK$ 134,600 – 134,600 79,005 (125,420) – 88,185 88,185 – 88,185 100,158 6,547 (97,237) 9,468 78,717 34,442	Leasehold improvements HK$ 45,500 – 45,500 523,277 (45,500) – 523,277 523,277 – 523,277 18,321 12,799 (22,398) 8,722 514,555 27,179	Computer and office equipment HK$ 505,640 – 505,640 94,346 (491,590) – 108,396 108,396 – 108,396 344,774 25,973 (359,461) 11,286 97,110 160,866	Total HK$ 685,740 11,890,000
					12,575,740 696,628 (2,002,510) 150,000
					11,419,858
					719,858 10,700,000
					11,419,858
					463,253 45,319 (479,096)
					29,476
					11,390,382
					12,112,487

• (a) The 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 2004 by Norton Appraisals (2003: Knight Frank), an independent firm of professional valuers. The revaluation surplus of HK$150,000 (2003: deficit of HK$1,610,000) has been charged to the income statement.

• (b) 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 a settlement agreement signed on September 30, 2003 by the joint venture partner, it will continue to grant the Group the right to use the land until the expiry of the term of lease on 11 December 2015 based on the continual fulfillment of repayment of outstanding accounts payable to the joint venture partner. The repayment was on schedule upto 31 March 2004.

• (c) 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 of the hotel property stated was based on an open market value valuation made by an independent firm of professional valuers as at 31 March 2004. A shortfall of HK$24,625,768 has been charged to the income statement.

– 51 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

16. SUBSIDIARIES

Unlisted shares, at cost Less: Provision for impairment losses Loans to subsidiaries Less: Provision for doubtful amounts Advances from a subsidiary	2004 HK$ 7,694,824 (7,694,824) – 119,691,065 (67,656,586) 52,034,479 (35,775,824) 16,258,655	2003 HK$ 28,069,474 (28,069,474
		–
		258,822,508 (258,822,508
		–
		–
		–

Particulars of subsidiaries at 31 March 2004 are as follows:

	Place of				Issued and
	incorporation		Effective		fully paid
	and principal		percentage		share/
	place of		holding		registered	Principal
Name of subsidiaries	operations	2004		2003	capital	activities
		%		%
Direct subsidiaries:
Clarson Hotel Management Limited	Hong Kong	–		100	Ordinary	Inactive
					HK300,000
Eastborough Enterprises Limited	Hong Kong	–		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	Ordinary	Inactive
					HK$10,000
Fujian Group Nominees Limited	Hong Kong	–		100	Ordinary	Nominee
					HK$2
Honest Bright International Limited	Hong Kong	–		100	Ordinary	Inactive
					HK$2
Kai Loong Land Investment Company,	Hong Kong	–		100	Ordinary	Inactive
Limited					HK$415,000
Kiu Sun Investment Company, Limited	Hong Kong	100		100	Ordinary	Investment
					HK$1,000,00	holding
Ming Chuen Construction Company,	Hong Kong	100		100	Ordinary	Investment
Limited					HK$100,000	holding
Panew International Limited	Hong Kong	–		100	Ordinary	Inactive
(note (c))					HK$2
Real Wide Limited_(note (d))_	Hong Kong	–		55	Ordinary	Inactive
					HK$10,000

– 52 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

16. SUBSIDIARIES (Continued)

	Place of				Issued and
	incorporation		Effective		fully paid
	and principal		percentage		share/
	place of		holding		registered	Principal
Name of subsidiaries	operations	2004		2003	capital	activities
		%		%
Richlite Investment Limited	Hong Kong	–		100	Ordinary	Inactive
					HK$2
Silver Cone Worldwide Limited	British Virgin	–		100	Ordinary	Investment
	Islands				US$1	holding
Sino Bless International Limited	Hong Kong	–		100	Ordinary	Inactive
					HK$2
Smart Stride Investment Limited	Hong Kong	–		100	Ordinary	Inactive
					HK$2
Smart Truth International Limited	Hong Kong	100		100	Ordinary	Inactive
					HK$10,000
Triplenic Realty Limited	Hong Kong	–		75	Ordinary	Investment
					HK$1,000,000	holding
Wealth Cosmos Limited	Hong Kong	–		100	Ordinary	Inactive
					HK$2
Yan Hei Limited
(“Yan Hei”)(note (e))	Hong Kong	100		100	Ordinary	Investment
					HK$10,000 and	holding
					Non-voting
					deferred
					HK$10,000
Indirect subsidiaries:
Billion Lion Limited	Hong Kong	–		75	Ordinary	Inactive
					HK$2
Gold Silver Limited	Hong Kong	–		100	Ordinary	Inactive
					HK$10,000
Link Smart Investment Limited	Hong Kong	–		100	Ordinary	Inactive
					HK$2
Sheen Sharp Limited	Hong Kong	–		100	Ordinary	Inactive
					HK$2
Texway Industries Limited	Hong Kong	–		100	Ordinary	Inactive
					HK$2
Xiamen South East Asia Hotel	PRC	100		100	Registered	Hotel
Company, Limited (“Xiamen Plaza”)					capital	operation
(notes (a)&(b))					US$5,000,000
Notes:

(a) Xiamen Plaza 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 regulations of the PRC. The financial statements of Xiamen Plaza for the year ended 31 December 2003 have been audited by Pan-China (Xiamen) Certified Public Accountants. The annual results, year-end assets and liabilities of Xiamen Plaza for the year ended 31 March 2004, have been consolidated based on the audited financial statements for the year ended 31 December 2003 and the unaudited management accounts for the three months ended 31 March 2004.

– 53 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

16. SUBSIDIARIES (Continued)

Notes: (Continued)

• (b) 40% of the Group’s interests in Xiamen Plaza are pledged in favour of a bank for a loan granted to the subsidiary as referred to in note 31 to the financial statements.

• (c) The Group’s interests in the issued share capital of Panew International Limited was pledged in favour of Sino Earn to secure loan facilities granted to the Company. The charged shares transferred out of the Group upon the completion of the Financial Restructuring, details of which are set out in note 2 to the financial statements.

• (d) The Group’s interests in the issued share capital of Real Wide Limited were 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 21(b)(ii) to the financial statements. Pursuant to a deed of settlement and a deed of release both signed on 28 August 2003, this third party agreed to accept the assignment of the pledged investment properties with a carrying value of HK$1,340,000 as a settlement of the loan and to release and discharge the share charge.

• (e) The Group was granted a Court Order on 23 February 2001 for rescission (the “Rescission Order”) of the Agreement in relation to the Group’s acquisition of a 60% equity interest in Skycheer Development Limited (“Skycheer”), which owns 100% equity interest in Xiamen Hong Du Park Hotel (“Hong Du”) which was partially settled by the transfer of the Group’s 40% equity interest in Yan Hei Limited (“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.

As the Rescission Order did not include the detailed steps and procedures on how it was to be effected, a second order (“Procedural Order”) has been sought by the Provisional Liquidators and was made by the Court on 3 December 2003. The Procedural Order sets out necessary steps and procedures to effect the Rescission Order which include principally the transfer of the Group’s 60% interests in Skycheer in return for the 40% equity interest in Yan Hei be transferred back to the Group. As the 1st defendant of the case, Mr. HUNG To, is bankrupt whereas the 2nd defendant of the case, Good Fortune Resources Limited, has been struck off from the Register of Companies of the British Virgin Islands, the Procedural Order directs that the Registrar of the High Court be authorised to execute all necessary documents for and on behalf of the defendants to give effect of the Procedural Order. The Group is currently requesting the Official Receiver to execute the documents as set out in the Procedural Order to complete the transaction.

The Group’s 60% interests in the issued share capital of Yan Hei were pledged, among other securities, in favour of Jian Xing to secure loan facilities granted to the Company. The deed of release regarding the charged share was signed and executed upon the completion of the Financial Restructuring on 11 December 2003.

The Group’s consolidated financial statements were prepared on the basis that the Group has 100% equity interest in Yan Hei since the granting of the Rescission Order.

• (f) Upon the completion of the Financial Restructuring, 19 non-core subsidiaries were either transferred out or struck-off on 11 December 2003. Their removal from the Group had no material financial impact to the Group.

17. 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	Group 2004 2003 HK$ HK$ – – – – – – – – – – – 96,868,810 – (96,868,810) – –	Company 2004 2003 HK$ HK$ – 5,005,000 – (5,005,000) – – – – – – – 96,868,810 – (96,868,810) – –	Company 2004 2003 HK$ HK$ – 5,005,000 – (5,005,000) – – – – – – – 96,868,810 – (96,868,810) – –
			– –
			–
			96,868,810 (96,868,810)
			–

– 54 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

17. JOINTLY CONTROLLED ENTITIES (Continued)

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 2003 Written back during the year Balance at 31 March 2004 (note (a))	Group HK$ 15,000,000 (15,000,000) –	Company HK$ 15,000,000 (15,000,000
		–

Note:

• (a) The obligation to a jointly controlled entity was provide 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. Pursuant to the Financial Restructuring, the whole indebtedness and all liabilities due by the Company to its creditors were released and fully discharged, details of which are set out in note 2 to the financial statements.

Particulars of jointly controlled entities at 31 March 2004 are as follows:

	Place of				Issued and
	incorporation		Effective		fully paid
	and principal		percentage		share/
Name of jointly	place of		holding		registered	Principal
controlled entity	operations	2004		2003	capital	activities
		%		%
Asian Eagle Limited	Hong Kong	–		50	Ordinary	Property
(note (i))					HK$10,000	development
MT Finance Limited	Hong Kong	–		50	Ordinary	Money
(note (iii))					HK$10,000,000	lending
Westly Limited_(note (ii))_	Hong Kong	–		50	Ordinary	Investment
					HK$10,000	holding

Notes:

• (i) The Company indirectly held the interest in this jointly controlled entity.

• (ii) The Company’s interest in the issued share capital of Westly Limited was the subject of a first share charge in favour of the joint venture partner, to secure loan granted to the Company and a mortgage in favour of the joint venture partner, to secure loans granted to this jointly controlled entity, and was under second share charge, among other securities, in favour of Sino Earn to secure loans granted to the Company as referred to in note 21(b)(i) to the financial statements. The Company fully repaid the debts owing to the joint venture partner as at 31 March 2003 and accordingly, the first share charge was released. Pursuant to the Financial Restructuring, details of which are set out in note 2 to the financial statements, Sino Earn has executed the share charge as partial settlement of the loan granted.

• (iii) Pursuant to the Financial Restructuring, details of which are set out in note 2 to the financial statements, the other jointly controlled entity was transferred out of the Group during the year. Its removal from the Group had no material financial impact to the Group.

– 55 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

18. 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 2004 2003 HK$ HK$ – – – – – – 6,521,732 11,127,981 6,521,732 11,127,981 650,000 658,500 – (8,500) 7,171,732 11,777,981	Company 2004 2003 HK$ HK$ 6,475,051 6,475,051 (4,475,050) (1,899,999 2,000,001 4,575,052 – – 2,000,001 4,575,052 650,000 658,500 – (8,500 2,650,001 5,225,052	Company 2004 2003 HK$ HK$ 6,475,051 6,475,051 (4,475,050) (1,899,999 2,000,001 4,575,052 – – 2,000,001 4,575,052 650,000 658,500 – (8,500 2,650,001 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.

Particulars of associates at 31 March 2004 are as follows:

	Place of			Issued and
	incorporation		Effective	fully paid
	and principal	percentage		share/
	place of		holding	registered	Principal
Name of associate	operations	2004	2003	capital	activities
		%	%
Austin Land Investment Limited	Hong Kong	46.82	46.82	Ordinary	Provision
				HK$6,300,000	of building
					management
					services
Ealing Court Limited	Hong Kong	33.33	33.33	Ordinary	Property
(note (a))				HK$6,000,000	investment
Ming Sun Contractors Limited	Hong Kong	49.50	49.50	Ordinary	Inactive
				HK$1,000,000
Sherrin Property Investment Limited	Hong Kong	33.33	33.33	Ordinary	Property
(note (a))				HK$3	investment

Note:

(a) The Company’s interests in the issued share capital of these associates were pledged, among other securities, in favour of Sino Earn for loan facilities granted to the Company as referred to in note 21(b)(i) to the financial statements. The deed of release regarding the charged share was signed and executed pursuant to the Financial Restructuring, details of which are set out in note 2 to the financial statements.

– 56 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

19. TRADE AND OTHER RECEIVABLES

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 2004 2003 HK$ HK$ 156,968 904,223 236,347 74,187 393,315 978,410 920,438 667,221 1,313,753 1,645,631	Company 2004 2003 HK$ HK$ 149,405 7,638 316 5,984 149,721 13,622 769,896 361,933 919,617 375,555	Company 2004 2003 HK$ HK$ 149,405 7,638 316 5,984 149,721 13,622 769,896 361,933 919,617 375,555
			13,622 361,933
			375,555

The Group has defined credit terms which are agreed with each of its trade customers.

20. INVENTORIES

At cost Less: Provision for obsolete inventories	Group 2004 2003 HK$ HK$ 605,232 973,154 (126,806) (473,389) 478,426 499,765	Group 2004 2003 HK$ HK$ 605,232 973,154 (126,806) (473,389) 478,426 499,765
		499,765

Inventories of HK$478,426 (2003: HK$499,765) are carried at net realisable value.

21. BANK AND OTHER BORROWINGS

Bank loans and overdrafts_(note (a)) Other borrowings(note (b))_ Portion classified as current liabilities	Group 2004 2003 HK$ HK$ 30,456,091 281,160,985 – 203,529,462 30,456,091 484,690,447 (5,979,283) (484,690,447) 24,476,808 –	Company 2004 2003 HK$ HK$ – 72,965,580 – 203,529,462 – 276,495,042 – (276,495,042) – –	Company 2004 2003 HK$ HK$ – 72,965,580 – 203,529,462 – 276,495,042 – (276,495,042) – –
			–

Notes:

(a) Bank loans and overdrafts are analysed as follows:

Secured – bank loans Unsecured – bank loans – overdrafts	Group 2004 2003 HK$ HK$ 26,359,640 32,388,765 4,096,451 186,851,906 – 61,920,314 30,456,091 281,160,985	Company 2004 2003 HK$ HK$ – – – 55,310,216 – 17,655,364 – 72,965,580	Company 2004 2003 HK$ HK$ – – – 55,310,216 – 17,655,364 – 72,965,580
			72,965,580

– 57 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

21. BANK AND OTHER BORROWINGS (Continued)

Notes: (Continued)

• (a) Bank loans and overdrafts are analysed as follows: (Continued)

Bank loans are repayable as follows:

Within one year In the second year In the third to fifth years, inclusive Over 5 years	Group 2004 2003 HK$ HK$ 5,979,283 281,160,985 2,824,247 – 13,179,820 – 8,472,741 – 30,456,091 281,160,985	Company 2004 2003 HK$ HK$ – 72,965,580 – – – – – – – 72,965,580	Company 2004 2003 HK$ HK$ – 72,965,580 – – – – – – – 72,965,580
			72,965,580

Pursuant to the Financial Restructuring, the whole indebtedness and all liabilities, except for the above bank loans, due by the Company to its creditors was released and fully discharged, details of which are set out in note 2 to the financial statements.

• (b) Other borrowings are analysed as follows:

Note Secured – loans from a shareholder (i) – loan from a related company (i) – loan from a third party (ii) Unsecured – amount due to a related company (iii) – loans from associates (iii) – loans from third parties (iii)	Group 2004 2003 HK$ HK$ – 145,632,024 – 42,000,000 – 3,526,551 – 73,632 – 5,208,630 – 7,088,625 – 203,529,462	Company 2004 2003 HK$ HK$ – 145,632,024 – 42,000,000 – 3,526,551 – 73,632 – 5,208,630 – 7,088,625 – 203,529,462	Company 2004 2003 HK$ HK$ – 145,632,024 – 42,000,000 – 3,526,551 – 73,632 – 5,208,630 – 7,088,625 – 203,529,462
			203,529,462

• (i) Secured loans from a shareholder and from a related company

Pursuant to the Financial Restructuring, Sino Earn and Jian Xing partly waived the loans, executed certain charged shares and were issued ordinary shares for the settlement of the remaining secured loans, details of which are set out in note 2 to the financial statements.

(ii) Secured loan from a third party

The loan from a third party secured by certain investment properties of the Company with a carrying value of HK$1,340,000 was released pursuant to a deed of settlement and a deed of release both signed on 28 August 2003. This third party agreed to accept the assignment of the pledged investment properties as a partial settlement of the loan. The remaining balance was regarded as unsecured and waived subject to the terms of the Scheme, details of which are set out in note 2 to the financial statements.

• (iii) Pursuant to the Financial Restructuring, the whole indebtedness and all liabilities due by the Company to its creditors were released and fully discharged, details of which are set out in note 2 to the financial statements.

– 58 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

22. ACCOUNTS PAYABLE

Accounts payable with aging analysis Current to 6 months Over 6 months Accrued charges and tenants’ deposits Portion classified as non-current liabilities Accounts payable are repayable as follows: Within one year In the second year In the third to fifth years, inclusive	Group 2004 2003 HK$ HK$ 4,223,170 3,102,787 11,810,451 21,148,208 16,033,621 24,250,995 271,387 5,012,083 16,305,008 29,263,078 (4,446,000) – 11,859,008 29,263,078 Group 2004 2003 HK$ HK$ 11,587,621 24,250,995 1,501,500 – 2,944,500 – 16,033,621 24,250,995	Company 2004 2003 HK$ HK$ 789,353 1,575,732 658 7,967,527 790,011 9,543,259 266,045 1,495,881 1,056,056 11,039,140 – – 1,056,056 11,039,140 Company 2004 2003 HK$ HK$ 790,011 9,543,259 – – – – 790,011 9,543,259	Company 2004 2003 HK$ HK$ 789,353 1,575,732 658 7,967,527 790,011 9,543,259 266,045 1,495,881 1,056,056 11,039,140 – – 1,056,056 11,039,140 Company 2004 2003 HK$ HK$ 790,011 9,543,259 – – – – 790,011 9,543,259
			9,543,259

23. 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 of HK$81,573 had been reverted to the Company during the year.

24. MINORITY INTERESTS

• (a) Minority interests comprised accumulated net losses borne by minority shareholders of the non-whollyowned subsidiaries of the Group, less provision made for doubtful amounts receivable from minority shareholders in prior year. These non-wholly-owned subsidiaries had been disposed of during the year and accordingly, there was no minority interests as at 31 March 2004.

• (b) Loans from minority shareholders

Loans from a minority shareholder to Real Wide Limited Loans from a minority shareholder to Triplenic Realty Limited	Group 2004 2003 HK$ HK$ – 3,739,396 – 498,320 – 4,237,716	Group 2004 2003 HK$ HK$ – 3,739,396 – 498,320 – 4,237,716
		4,237,716

Pursuant to the Financial Restructuring, the above loans from minority shareholders were released and fully discharged, details of which are set out in note 2 to the financial statements.

– 59 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

25. SHARE CAPITAL

Note Authorised: At 1 April 2003 Capital reduction a(i) Share subdivision a(ii) Ordinary shares of HK$0.0125 (2003: HK$0.125) each Issued and fully paid: At 1 April 2003 Capital reduction a(i) Issue of shares a(iii) Ordinary shares of HK$0.0125 (2003: HK$0.125) each	Number of shares 4,000,000,000 – 26,331,044,697 30,331,044,697 1,074,328,367 – 4,124,773,149 5,199,101,516	2004 2003 Number HK$ of shares HK$ 500,000,000 4,000,000,000 500,000,000 (120,861,941) – – – – – 379,138,059 4,000,000,000 500,000,000 134,291,046 1,074,328,367 134,291,046 (120,861,941) – – 51,559,664 – – 64,988,769 1,074,328,367 134,291,046	2004 2003 Number HK$ of shares HK$ 500,000,000 4,000,000,000 500,000,000 (120,861,941) – – – – – 379,138,059 4,000,000,000 500,000,000 134,291,046 1,074,328,367 134,291,046 (120,861,941) – – 51,559,664 – – 64,988,769 1,074,328,367 134,291,046
			500,000,000
			134,291,046 – –
			134,291,046

Notes:

(a) Movements during the year

• (i) By an ordinary resolution passed on 3 November 2003 and pursuant to an Order of the Court made on 10 December 2003, the nominal value of each issued share of the Company was reduced from HK$0.125 to HK$0.0125 and the Company’s issued share capital of HK$134,291,046 was reduced by HK$120,861,941 to HK$13,429,105. The amount of HK$120,861,941 arising from the capital reduction was applied to reduce the same amount of the accumulated losses of the Company.

• (ii) Pursuant to the ordinary resolution passed on 3 November 2003, the authorised share capital of the Company of HK$379,138,059 was divided into 30,331,044,697 shares of HK$0.0125 each.

• (iii) Pursuant to the restructuring agreement dated 25 April 2003 and by an ordinary resolution passed on 3 November 2003, 2,792,413,792 shares at HK$0.0145 each were subscribed by HC Technology for a consideration of HK$40,490,000 on 11 December 2003 upon the completion of the Company’s restructuring.

The cash proceeds from the subscription, totaling about HK$34 million, was and would be applied by the Company in the coming 12 months immediately following the completion of the restructuring as follows:

• (a) US$200,000 and RMB2,000,000 in settlement of part of the debts of Xiamen Plaza owing to the The Xiamen Railway Department Company Limited of the Shanghai Railway Department) and The Industrial and Commercial Bank of China (Xiamen Branch);

• (b) Approximately HK$11.3 million for cash payments due under the Debt Restructuring; and

• (c) The balance of approximately HK$19.27 million will be retained by the Company for the general working capital requirements of the Group.

An aggregate of 380,965,823 and 151,393,534 shares were issued to Sino Earn and Jian Xing at HK$0.125 each pursuant to the restructuring agreement to set-off the indebtedness owing by the Company.

– 60 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

25. SHARE CAPITAL (Continued)

Notes: (Continued)

• (a) Movements during the year (Continued)

• (iv) The Company entered into a placing agreement and subscription agreement on 11 December 2003. Pursuant to the placing agreement, HC Technology appointed a placing agent to place 800,000,000 placing shares on a fully underwritten basis to not less than six independent parties at the placing price of HK$0.025 per placing share. The placing was completed on 16 December 2003. Pursuant to the subscription agreement, the Company further issued 800,000,000 shares to HC Technology at HK$0.025 each.

The Placing and the Subscription were made for the purpose of restoring the public float of the shares to not less than 25% in order to meet the requirement under Rule 8.08 of the Listing Rules.

The net proceed for the Subscription is approximately HK$19.4 million and would be used for general working capital purposes.

• (v) Share premium of HK$75,475,256 was resulted from the shares issued in note 25(a)(iii).

(b) Changes subsequent to the year end

• (i) On 27 April 2004, the Company issued a total of 898,484 ordinary shares of HK$0.0125 each at a premium of HK$0.0175 each. The reason of the issue was to better facilitate the proposed share consolidation as mentioned below as well as to round up the various figures relating to the capital structure of the Company.

• (ii) By an ordinary resolution passed on 10 May 2004, the authorised share capital of the Company was increased from HK$379,138,059 to HK$380,000,000 by the creation of an additional 68,955,303 shares of HK$0.0125 each.

• (iii) By an ordinary resolution passed on 10 May 2004, the Company has consolidated every 10 shares of HK$0.0125 each into one consolidated share of HK$0.125 each pursuant to the share consolidation. All the consolidated shares resulting from such consolidation shall rank pari passu in all respect with each other and have the same rights and privileges.

26. SHARE OPTIONS

On 22 January 1997, the Company approved a share option scheme (“Existing 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 dealings 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 or outstanding since the year ended 2002.

On 23 August 2001, the Stock Exchange introduced changes to the provisions of the Chapter 17 of the Listing Rules in relation to share option schemes which came into effect on 1 September 2001. As a result of the amendments to the Listing Rules, the Board has not been able to grant options under the Existing Scheme. In compliance with the amendments to the Listing Rules, by an ordinary resolution passed on 10 May 2004, the Company terminated the existing share option scheme and adopted the new share option scheme (“New Scheme”).

The principal terms of the New Scheme are set out as follows:

Purpose of the Scheme

The purpose of the Scheme is to provide participants of the same with the opportunity to acquire proprietary interests in the Company and to encourage them to work towards enhancing the value of the Company and its shares for the benefit of the Company and its shareholders as a whole.

– 61 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

26. SHARE OPTIONS (Continued)

Eligible Participants of the Scheme

(i) any executive, non-executive or independent non-executive director of any member of the Group or an entity in which the Group holds an interest (“Affiliate”); (ii) any employee or officer (whether full time or part time) (“Employee”) of the Group or an Affiliate; (iii) any shareholder of any member of the Group or an Affiliate who has, in the opinion of the Board, contributed or may contribute to the development and growth of the Group; (iv) any customer, supplier, agent, partner, consultant or adviser of or contractor to any member of the Group or an Affiliate; or (v) the trustee of any trust the beneficiary of which or any discretionary trust the discretionary objects of which include any director, employee, customer, supplier, agent, partner, consultant or adviser of or contractor to any member of the Group or an Affiliate; or (vi) a company beneficially owned by any director, employee, consultant, customer, supplier, agent, partner or adviser of or contractor any member of the Group or an Affiliate.

Total Number of Securities Issuable

The maximum number of shares which may be granted under the New Scheme and any other schemes involving the issue or grant of options or similar rights over shares or other securities by the Company shall not, in aggregate, exceed 10% of shares in issue as at the date of approval of the New Scheme. As at the date of this annual report, no share options have been granted under the New Scheme.

Maximum Entitlement of Each Participant

Unless approved by the shareholders, no option may be granted to any eligible participants which if exercised in full would result in the total number of shares issued and to be issued upon exercise of the options already granted or to be granted to such eligible participant under the New Scheme (including exercised, cancelled and outstanding options) in the 12-month period up to and including the date of such new grant exceeding 1% of the issued share capital of the Company as at the date of such new grant.

Period to Take Up Share Options and Minimum Period to Hold Before Exercise

There is no minimum period within which the shares option must be taken up or for which a share option must be held before it can be exercised.

Amount Payable to Take Up Share Options and Time to Accept Offer

An offer for the granting of share options under the New Scheme shall be accepted within 28 days from the offer date and by way of payment of a consideration of HK$1.

Maximum Period for Exercising on Option

An option may be exercised in accordance with the terms of the Scheme at any time during a period to be determined and notified by the board of Directors to each guarantee, which period may commence on the date on which the offer for the grant of options is made but shall end in any event not more than 10 years from the date of grant of the option.

Exercise Price

The exercise price shall be a price determined by the board of directors of the Company and shall not be less than the highest of:

• (i) the closing price of a share as stated in the Stock Exchange’s daily quotations sheet on the date of grant of the relevant option, which must be a business day;

(ii) an amount equivalent to the average closing price of the shares as stated in the Stock Exchange’s daily quotations sheet for the five business days immediately preceding the date of grant of the relevant option; and

• (iii) the nominal value of a share.

Life of the Scheme

The Scheme shall be valid and effective for a period of 2 years commencing on the date of adoption of the Scheme.

– 62 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

27. RESERVES

(a) Group

Details of changes in reserves of the Group are set out in the consolidated statements of changes in equity on page 35.

Notes:

• (i) The exchange fluctuation reserve has been set up and dealt with in accordance with the accounting policies adopted for translation of foreign currencies (note 4(o)).

• (ii) The accumulated losses of HK$573,118,225 (2003 (restated): Accumulated losses of HK$1,142,969,347) included no profit (2003: Losses of HK$149,009,834) attributable to jointly controlled entities and losses of HK$444,945 (2003: Profits of HK$2,915,597) attributable to associates.

(b) Company

At 1 April 2002 Loss for the year At 31 March 2003 and at 1 April 2003 Capital reduction Release of capital reserve Issue of shares Capital expenditure on issue of ordinary shares Unclaimed dividends written back Profit for the year	Share premium Note (i) HK$ 498,358,945 – 498,358,945 – – 75,485,708 (660,106) – – 573,184,547	Capital Accumulated reserve losses Note (ii) HK$ HK$ 10,000,000 (1,056,680,080) – (104,672,908) 10,000,000 (1,161,352,988) – 120,861,941 (10,000,000) 10,000,000‘ – (10,452 ) – – – 81,573 – 459,313,201 – (571,106,725)	Total HK$ (548,321,135) (104,672,908) (652,994,043) 120,861,941 – 75,475,256 (660,106 ) 81,573 459,313,201 2,077,822

Notes:

• (i) The application of share premium is governed by Section 48B of the Hong Kong Companies Ordinance.

• (ii) The capital reserve, which was previously set aside for general purpose, had been transferred to accumulated losses during the year.

• (iii) At 31 March 2004, no distributable reserves of the Company was available for distribution as dividends (2003: HK$Nil).

– 63 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

28. DEFERRED TAXATION

	Accelerated tax
	depreciation
	HK$
At 1 April 2002	–
As previously reported
Prior year adjustment on adoption of SSAP 12 (Revised)	12,074,970
As restated	12,074,970
Deferred tax credited to income statement (note 11) (as restated)	(2,955,118)
At 31 March 2003	9,119,852
At 1 April 2003	–
As previously reported
Prior year adjustment on adoption of SSAP 12 (Revised)	9,119,852
At restated	9,119,852
Deferred tax credited to income statement (note 11)	(4,390,574)
At 31 March 2004	4,729,278

At 31 March 2004, the Group has unrecognised tax losses of HK$131,540,951 (2003: HK$131,540,951) to carry forward against future taxable income. These tax losses have not been recognised for due to the unpredictability of future profit streams. Included in unrecognised tax losses are losses of HK$8,074,992 (2003: HK$8,074,992) that will expire in the years from 2004 to 2008. The remaining tax losses may be carried forward indefinitely.

29. MAJOR NON-CASH FLOW TRANSACTIONS

(a) Disposal of subsidiaries

Net assets disposal of Fixed assets Other receivables Bank balances Loss on disposal of subsidiaries Cash and cash equivalents disposed	HK$ 10,111 305,288 34,436
	349,835 (349,835)
	–
	(34,436)

(b) Major non-cash flow transactions

• (i) Upon the completion of Financing Restructuring, an aggregate of HK$525,345,838 of the bank and other borrowings, interest payable on borrowings and accounts and other payables were written back as debt restructuring gain.

• (ii) Pursuant to the Restructuring Agreement, the Company allotted a total of 532,359,357 ordinary shares at HK$0.125 each to Sino Earn and Jian Xing as full settlement of part of their loans of HK$66,544,920 (Note 2).

– 64 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

29. MAJOR NON-CASH FLOW TRANSACTIONS (Continued)

• (b) Major non-cash flow transactions (Continued)

• (iii) Pursuant to the Restructuring Agreement, the Company allotted 2,792,413,792 ordinary shares at HK$0.0145 each to HC Technology of which HK$34,000,000 was satisfied by cash and HK$6,490,000 was by settlement of the same amount of debts (Note 2). Pursuant to a subscription agreement, the Company allotted 800,000,000 ordinary shares at HK$0.025 each to HC Technology which was settled by cash of HK$20,000,000 (Note 25 (a) (iv)).

• (iv) Pursuant to the agreed arrangements, certain secured investment properties of the Company with a carrying value of HK$1,340,000 were disposed of to a third party as full settlement of the loan therefrom (Note 20(b)(ii)).

• (v) An associate declared an interim dividend of HK$6,000,000 in the previous year and the Group’s entitlement thereto of HK$2,000,000 as at 31 March 2003 was utilised to partially offset against the loan from the associate.

30. CONTINGENT LIABILITIES

As at 31 March 2004, the Group and the Company did not have any contingent liabilities not provided for in the financial statements. As at 31 March 2003, the Company had issued guarantees to its bankers for bank loans and overdrafts granted to its subsidiaries amounted to HK$340,042,183.

31. PLEDGE OF ASSETS

Bank loans of HK$26,359,640 (2003: HK$28,266,154) are secured by the Group’s 40% interests in Xiamen Plaza.

32. OPERATING LEASE COMMITMENTS

As at 31 March 2004, the Group and Company had future aggregate minimum lease payments under noncancellable operating leases as follows:

Operating leases which expire: Within one year After one year but within five years	Group and Company 2004 2003 HK$ HK$ 291,980 – 517,097 – 809,077 –	Group and Company 2004 2003 HK$ HK$ 291,980 – 517,097 – 809,077 –
		–

33. OPERATING LEASE ARRANGEMENTS

The Group and the Company had entered into non-cancellable operating lease arrangements with the tenants and the terms of the leases range from one to two years. As at 31 March 2004, the Group and the Company had future aggregate minimum lease receivables under non-cancellable operating leases in respect of land and buildings as follows:

Within one year After one year but within five years	Group and Company 2004 2003 HK$ HK$ 848,516 928,700 78,000 774,516 926,516 1,703,216	Group and Company 2004 2003 HK$ HK$ 848,516 928,700 78,000 774,516 926,516 1,703,216
		1,703,216

34. RELATED PARTY TRANSACTIONS

The total fee charged by Sino Earn for the year ended 31 March 2004 was HK$6,639 (2003: HK$307,350).

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

– 65 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

35. POST BALANCE SHEET EVENTS

On 16 April 2004, a circular containing, among other things, information relating to the following proposals (the “Circular”) put forward by the board was dispatched to the shareholders at the extraordinary general meeting (“EGM”):

• (a) Pursuant to the subscription agreement, the issue and allotment of 898,484 ordinary shares to an independent third party, Goldride Holdings Limited;

• (b) The increase of the authorised share capital of the Company from HK$379,138,059 to HK$380,000,000;

• (c) The share consolidation, pursuant to which every 10 shares of HK$0.0125 each are consolidated into one consolidation share of HK$0.125 each and corresponding amendment to the relevant provision in the Articles of Association of the Company;

• (d) The change of board lot size from 200,000 shares to 20,000 consolidated shares;

• (e) The termination of the existing share option scheme and adoption of the new share option scheme; and

• (f) The renewal of the general mandate.

The EGM was held on 10 May 2004 and all resolutions set out in the Notice of EGM contained in the Circular were duly passed.

36. COMPARATIVES

As explained in notes 3 and 4(n) to the financial statements, due to the adoption of SSAP 12 (Revised) the accounting treatment and presentation of certain items and balances in the financial statements have been revised to comply with the new requirements.

37. AUTHORISATION FOR ISSUE OF THE FINANCIAL STATEMENTS

The financial statements were approved and authorised for issue by the board of directors on 27 July 2004.

– 66 –

ACCOUNTANTS’ REPORT ON HARMONY PIANO

APPENDIX II

Th e following is the text of a report received from the reporting accountants of Harmony Piano, Nexia Charles Mar Fan & Co. which is prepared for the purpose of incorporation in this circular.

==> picture [106 x 46] intentionally omitted <==

Nexia Charles Mar Fan & Co.

11th Floor, Fortis Bank Tower 77-79 Gloucester Road Wanchai, Hong Kong

The Board of Directors Fujian Holdings Limited and Asian Capital (Corporate Finance) Limited

3 January 2005

Dear Sirs,

We set out below our report on the financial information relating to Fuzhou Harmony Piano Co. Ltd. (“Harmony Piano”) for the years ended 31 December 2001, 2002 and 2003 and seven months ended 31 July 2004 (the “Relevant Periods”) for inclusion in the circular of Fujian Holdings Limited (the “Company”) dated 3 January 2005 (the “Circular”). The Circular is in connection with the proposed acquisition of 25% equity interest in Harmony Piano (“Harmony Acquisition”) and a loan facility of HK$16.5 million to Brilliant Well Investment Limited (“Brilliant Well”).

Harmony Piano was established in the People’s Republic of China (the “PRC”) on 11 February 1987 and is principally engaged in the design, manufacturing and distribution of piano and related products, and is now a wholly foreign owned enterprise in the PRC. As at the date of this report, 75% and 25% equity interest of Harmony Piano was owned by Brilliant Well and Fairweal Industrial Company Limited (“Fairweal”) respectively, which were both wholly owned subsidiaries of Fujian Investment and Development Company Limited, the ultimate holding company of the Company. Pursuant to a conditional agreement dated 11 November 2004 (the “Acquisition Agreement”), 25% equity interest will be purchased from Fairweal by Ming Chuen Construction Company Limited (“Ming Chuen”), a wholly owned subsidiary of the Company and pursuant to a conditional loan agreement dated 11 November 2004 a loan facility up to HK$16.5 million will be made by the Company to Brilliant Well, the immediate holding company of Harmony Piano and a fellow subsidiary of the Company which shall be applied solely as working capital of Harmony Piano.

The statutory accounts of Harmony Piano for the three years ended 31 December 2003 and the seven months ended 31 July 2004 were prepared by the directors of Harmony Piano in accordance with the relevant accounting principles and financial regulations applicable to enterprises established in the PRC. The statutory accounts of Harmony Piano for the years ended 31 December 2001 and 2003 were audited by Fujian Zhongxing Certified Public Accountants, which is registered in the PRC. The statutory accounts of Harmony Piano for the year ended 31 December 2002 were audited by Beijing Yongtuo Certified Public Accountants Co., Ltd. Fujian Branch, which is registered in the PRC.

– 67 –

ACCOUNTANTS’ REPORT ON HARMONY PIANO

APPENDIX II

As a basis of forming an opinion on the financial information as set out in Section I to III below (the “Financial Information’’), we have carried out an independent audit of the accounts of Harmony Piano for the Relevant Periods in accordance with Statements of Auditing Standards issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”) and have performed such additional procedures as are necessary in accordance with the Auditing Guideline “Prospectuses and the Reporting Accountant” issued by the HKICPA and where considered appropriate, made adjustments considered necessary to restate the accounts to conform with the accounting policies which are acceptable under accounting principles generally accepted in Hong Kong.

The directors of Harmony Piano, during the Relevant Periods, are responsible for preparing its accounts which give a true and fair view. In preparing the accounts, it is fundamental that appropriate accounting policies are selected and applied consistently. The directors of the Company are responsible for the contents of the Circular in which the Financial Information of Harmony Piano is included. It is our responsibility to form an independent opinion, based on our examination, on the Financial Information and to report our opinion to you.

In our opinion, the Financial Information, for the purpose of this report, gives a true and fair view of the results and cash flows of Harmony Piano for the Relevant Periods and of the state of affairs of Harmony Piano as at 31 December 2001, 2002 and 2003 and 31 July 2004.

– 68 –

ACCOUNTANTS’ REPORT ON HARMONY PIANO

APPENDIX II

I. FINANCIAL INFORMATION

1. Income Statements

Seven months ended 31 July 2004 Note RMB Turnover 2 (c) 23,913,719 Cost of sales (17,598,864) Gross profit 6,314,855 Other revenue 307,620 Interest income 160,402 Provision for doubtful debts (2,049,699) Provision for obsolete inventories – General and administrative expenses (1,276,883) Selling and distribution expenses (1,859,803) Profit from operations 4 1,596,492 Finance costs 6 (328,264) Profit before taxation 1,268,228 Taxation 7 (204,267) Profit for the period/year 1,063,961 Dividends paid 15,700,000

Year ended 31 December 2003 2002 2001 RMB RMB RMB 52,174,840 55,280,520 54,448,437 (36,878,757) (39,976,771) (36,291,604) 15,296,083 15,303,749 18,156,833 1,093,168 5,272 703,381 77,694 161,588 81,266 – (2,285,912) – – (875,912) (1,569,500) (1,004,749) (1,097,749) (1,233,919) (3,208,622) (3,563,298) (2,320,019) 12,253,574 7,647,738 13,818,042 (378,726) (599,838) (883,129) 11,874,848 7,047,900 12,934,913 (2,692,099) (2,775,430) (3,994,009) 9,182,749 4,272,470 8,940,904 – – –

– 69 –

ACCOUNTANTS’ REPORT ON HARMONY PIANO

APPENDIX II

2. Balance Sheets

Note Non-current assets Fixed assets 9 Current assets Trade and other receivables 10 Inventories 11 Pledged bank deposits 12 Cash and bank balances Current liabilities Bank loans 13 Trade and other payables 14 Amount due to ultimate holding company 15 Taxation Net current assets Net assets Capital and reserves Paid-up capital 16 Reserves Shareholders’ funds	As at 31 July 2004 RMB 18,066,373 20,758,339 13,232,148 2,000,840 7,989,115 43,980,442 13,000,000 9,525,167 19,326,546 491,130 42,342,843 1,637,599 19,703,972 8,564,886 11,139,086 19,703,972	As at 31 December 2003 2002 2001 RMB RMB RMB 1,939,957 1,631,077 1,553,874 21,848,607 22,469,205 19,225,464 11,139,651 8,552,992 11,135,497 2,000,000 – – 22,679,501 13,855,554 19,061,954 57,667,759 44,877,751 49,422,915 2,000,000 – – 16,257,357 11,403,437 16,086,282 4,272,204 7,493,627 11,658,903 2,738,144 2,454,502 2,346,812 25,267,705 21,351,566 30,091,997 32,400,054 23,526,185 19,330,918 34,340,011 25,157,262 20,884,792 8,564,886 8,564,886 8,564,886 25,775,125 16,592,376 12,319,906 34,340,011 25,157,262 20,884,792	As at 31 December 2003 2002 2001 RMB RMB RMB 1,939,957 1,631,077 1,553,874 21,848,607 22,469,205 19,225,464 11,139,651 8,552,992 11,135,497 2,000,000 – – 22,679,501 13,855,554 19,061,954 57,667,759 44,877,751 49,422,915 2,000,000 – – 16,257,357 11,403,437 16,086,282 4,272,204 7,493,627 11,658,903 2,738,144 2,454,502 2,346,812 25,267,705 21,351,566 30,091,997 32,400,054 23,526,185 19,330,918 34,340,011 25,157,262 20,884,792 8,564,886 8,564,886 8,564,886 25,775,125 16,592,376 12,319,906 34,340,011 25,157,262 20,884,792
			19,225,464 11,135,497 – 19,061,954
			49,422,915
			– 16,086,282 11,658,903 2,346,812
			30,091,997
			19,330,918
			20,884,792
			8,564,886 12,319,906
			20,884,792

– 70 –

ACCOUNTANTS’ REPORT ON HARMONY PIANO

APPENDIX II

3. Statements of Changes in Equity

At 1 January 2001 Profit for the year At 31 December 2001 Profit for the year At 31 December 2002 Profit for the year At 31 December 2003 Profit for the period Transfer to statutory reserve fund 2004 Interim dividends paid At 31 July 2004	Paid-up capital RMB 8,564,886 – 8,564,886 – 8,564,886 – 8,564,886 – – – 8,564,886	Statutory reserve fund (note 17) RMB 1,595,490 – 1,595,490 – 1,595,490 – 1,595,490 – 2,770,565 – 4,366,055	Retained profits RMB 1,783,512 8,940,904 10,724,416 4,272,470 14,996,886 9,182,749 24,179,635 1,063,961 (2,770,565) (15,700,000) 6,773,031	Total RMB 11,943,888 8,940,904 20,884,792 4,272,470 25,157,262 9,182,749 34,340,011 1,063,961 – (15,700,000) 19,703,972

– 71 –

ACCOUNTANTS’ REPORT ON HARMONY PIANO

APPENDIX II

4. Cash Flow Statements

Seven months ended 31 July 2004 RMB Cash flows from operating activities Profit before taxation 1,268,228 Adjustments for: Depreciation 212,956 Interest expense 328,264 Interest income (160,402) Loss on disposal of fixed assets – Provision for doubtful debts 2,049,699 Provision for obsolete inventories – Operating profit before working capital changes 3,698,745 (Increase)/decrease in trade and other receivables (959,431) (Increase)/decrease in inventories (2,092,497) (Decrease)/increase in trade and other payables (6,732,190) Increase/(decrease) in amount due to ultimate holding company 15,054,342 Cash generated from/(used in) operations 8,968,969 Interest paid (328,264) PRC tax paid (2,451,281) Net cash generated from/(used in) operating activities 6,189,424 ----------------

Year ended 31 December 2003 2002 2001 RMB RMB RMB 11,874,848 7,047,900 12,934,913 349,437 293,221 312,818 378,726 599,838 883,129 (77,694) (161,588) (81,266) – 63,896 343,909 – 2,285,912 – – 875,912 1,569,500 12,525,317 11,005,091 15,963,003 620,598 (5,529,653) (13,950,634) (2,586,659) 1,706,593 1,035,343 4,853,920 (4,682,845) 7,201,823 (3,221,423) (4,165,276) 254,042 12,191,753 (1,666,090) 10,503,577 (378,726) (599,838) (883,129) (2,408,457) (2,667,740) (2,223,940) 9,404,570 (4,933,668) 7,396,508 ---------------- ---------------- ----------------

– 72 –

ACCOUNTANTS’ REPORT ON HARMONY PIANO

APPENDIX II

4. Cash Flow Statements (Continued)

Seven months ended 31 July 2004 RMB Cash flows from investing activities Interest received 160,402 Purchase of fixed assets (16,339,372) Proceeds from disposal of fixed assets – Net cash (used in)/generated from investing activities (16,178,970) ---------------- Cash flows from financing activities Increase in pledged deposits (840) New bank loans raised 11,000,000 Dividends paid (15,700,000) Net cash used in financing activities (4,700,840) ---------------- Net (decrease)/increase in cash and cash equivalents (14,690,386) Cash and cash equivalents at beginning of the period/year 22,679,501 Cash and cash equivalents at end of the period/year 7,989,115 Analysis of cash and cash equivalents Cash and bank balances 7,989,115

Year ended 31 December 2003 2002 2001 RMB RMB RMB 77,694 161,588 81,266 (658,317) (439,584) (319,503) – 5,264 1,376,357 (580,623) (272,732) 1,138,120 ---------------- ---------------- ---------------- (2,000,000) – – 2,000,000 – – – – – – – – ---------------- ---------------- ---------------- 8,823,947 (5,206,400) 8,534,628 13,855,554 19,061,954 10,527,326 22,679,501 13,855,554 19,061,954 22,679,501 13,855,554 19,061,954

– 73 –

ACCOUNTANTS’ REPORT ON HARMONY PIANO

APPENDIX II

II. NOTES TO THE FINANCIAL INFORMATION

1. CORPORATE INFORMATION

Harmony Piano is a foreign enterprise incorporated in the PRC and is principally engaged in the design, manufacturing and distribution of piano and related products.

FIDC, a company incorporated in the British Virgin Islands, and Brilliant Well, a company incorporated in Hong Kong, are considered by the directors of Harmony Piano to be Harmony Piano’s ultimate holding company and immediate holding company respectively.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of preparation

The Financial Information has been prepared in accordance with accounting principles generally accepted in Hong Kong and conforms with the disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited as applicable to Accountants’ Report, and on the historical cost convention.

(b) Revenue recognition

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

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

(c) Turnover

Turnover represents the net amounts received and receivable for goods sold, less returns and allowances, and net of value-added tax during the Relevant Periods.

(d) Fixed assets and depreciation

Fixed assets, other than construction in progress, are stated at cost less accumulated depreciation and any impairment losses. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after fixed assets have been put into operation, such as repairs and maintenance, is normally charged to the income statement in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the fixed asset, the expenditure is capitalised as an additional cost of that assets.

Depreciation is calculated on the straight-line basis to write off the cost of each asset, less any estimated residual value, over its estimated useful life. The principal useful lives used for this purpose are as follows:

Buildings 20 years Furniture, fixtures and office equipment 5 years Plant and machinery 10 years Motor vehicles 5 years

The gain or loss on disposal or retirement of a fixed asset recognised in the income statement is the difference between the net sales proceeds and the carrying amount of the relevant asset.

(e) Construction in progress

Construction in progress represents leasehold buildings and plant, under construction, which is stated at cost less any impairment losses. Cost includes construction costs plus interest charges arising from borrowings used to finance these assets during the construction period. Capitalisation of these costs ceases and the assets concerned are transferred to property, plant and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed.

No depreciation is provided on construction in progress until the relevant assets are ready for use.

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ACCOUNTANTS’ REPORT ON HARMONY PIANO

APPENDIX II

(f) 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, however not to an amount higher than the carrying amount that would have been determined (net of depreciation/amortisation), had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately.

(g) Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined on the first-in, first-out basis and includes all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and conditions. Net realisable value is based on estimated selling prices less any estimated costs to be incurred to completion and disposal.

(h) Income tax

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

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

Deferred taxation is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the accounts. Taxation rates enacted or substantively enacted by the balance sheet date are used to determine deferred taxation.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred taxation is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the accounts. Taxation rates enacted or substantively enacted by the balance sheet date are used to determine deferred taxation.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

(i) Foreign currencies

Transactions in currencies other than Renminbi are initially recorded at the rates prevailing on the dates of the transactions. Monetary assets and liabilities denominated in such currencies are re-translated at the rates prevailing on the balance sheet date. Profits and losses arising on exchange are dealt with in the income statement.

(j) Operating leases

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

– 75 –

ACCOUNTANTS’ REPORT ON HARMONY PIANO

APPENDIX II

(k) Employee benefits

• (a) Employee entitlements

Employee entitlements to annual leave and long service payment are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave and long service payment as a result of services rendered by employees up to the balance sheet date.

Non-accumulating compensated absences are not recognised until the time of leave.

• (b) Pension obligations

According to the relevant rules and regulations in the Peoples’ Republic of China (“PRC”), the company operating in the PRC is required to participate in the state-sponsored retirement plan (the “PRC RB Plan”) operated by the respective local municipal governments in the PRC. The company is required to contribute a certain percentage of the basic salaries of their employees to the PRC RB Plan. The PRC RB Plan is responsible for the entire pension obligations payable to the retired employees and the company has no further obligations for the actual pension payments or other post-retirement benefits beyond the annual contributions. Contributions under the PRC RB Plan are charged to the income statement as they become payable in accordance with the rules of the PRC RB Plan.

(l) Related party transactions

For the purposes of these financial statements, parties are considered to be related to the company if the company has the ability, directly or indirectly, to control the party or exercise significant influence over party in making financial and operating decisions, or vice versa, or where the company 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.

(m) 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.

(n) Provisions

Provisions are recognised when the company 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.

(o) 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 company. 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 Information. 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 company. Contingent assets are not recognised but are disclosed in the notes to the Financial Information when an inflow of economic benefits is probable. When inflow is virtually certain, an asset is recognised.

3. SEGMENT INFORMATION

During the Relevant Periods, Harmony Piano is solely engaged in the manufacture and sales of pianos and related products and all its operations are substantially located and carried out in the PRC. Accordingly, no segment information by business and geographical segment is presented.

– 76 –

ACCOUNTANTS’ REPORT ON HARMONY PIANO

APPENDIX II

4. PROFIT FROM OPERATIONS

Seven months ended 31 July 2004 RMB Profit from operations has been arrived at after charging: Auditors’ remuneration 10,000 Depreciation of fixed assets 212,956 Loss on disposal of fixed assets – Operating lease charges in respect of rental premises 623,216 Salaries and allowances (including directors’ 576,619 remuneration –Note 5(a)) Provision for employee leave entitlements 629,280 Contributions to the PRC RB Plan 166,630 Total staff costs 1,372,529	Year ended 31 December 2003 2002 2001 RMB RMB RMB 10,000 20,000 8,000 349,437 293,221 312,818 – 63,896 343,909 806,292 980,338 946,014 1,157,494 1,033,295 1,049,969 – – – 338,377 289,009 222,465 1,495,871 1,322,304 1,272,434	Year ended 31 December 2003 2002 2001 RMB RMB RMB 10,000 20,000 8,000 349,437 293,221 312,818 – 63,896 343,909 806,292 980,338 946,014 1,157,494 1,033,295 1,049,969 – – – 338,377 289,009 222,465 1,495,871 1,322,304 1,272,434
		1,272,434

5. DIRECTORS’ AND EMPLOYEES’ REMUNERATION

(a) Directors’ remuneration

Fees Other emoluments: Basic salaries, other allowances and benefits in kind Contributions to the PRC RB Plan	Seven months ended 31 July 2004 RMB – 92,595 5,405 98,000	Year ended 31 December 2003 2002 2001 RMB RMB RMB – – – 89,000 49,298 53,697 9,267 6,720 4,902 98,267 56,018 58,599	Year ended 31 December 2003 2002 2001 RMB RMB RMB – – – 89,000 49,298 53,697 9,267 6,720 4,902 98,267 56,018 58,599
			58,599

The number of directors whose remuneration fell within the following band is as follows:

Nil to HK$1,000,000	Seven months ended 31 July 2004 Number of directors 5	Year ended 31 December 2003 2002 2001 Number of Number of Number of directors directors directors 5 5 5

– 77 –

ACCOUNTANTS’ REPORT ON HARMONY PIANO

APPENDIX II

(b) Five highest paid employees’ remuneration

The five highest paid employees during the seven months ended 31 July 2004 include two (2003: one; 2002: one; 2001: one) directors, details of whose remuneration are set out in (a) above. Details of the emoluments of the remaining three (2003: four; 2002: four; 2001: four) non-director, highest paid employees are set out below:

Basic salaries, other allowances and benefits in kind Contributions to the PRC RB Plan	Seven months ended 31 July 2004 RMB 95,431 3,640 99,071	Year ended 31 December 2003 2002 2001 RMB RMB RMB 330,894 185,778 189,663 12,960 5,557 2,448 343,854 191,335 192,111	Year ended 31 December 2003 2002 2001 RMB RMB RMB 330,894 185,778 189,663 12,960 5,557 2,448 343,854 191,335 192,111
			192,111

The number of non-director, highest paid employees whose remuneration fell within the following band is as follows:

Nil to HK$1,000,000	Seven months ended 31 July 2004 Number of employees 3	Year ended 31 December 2003 2002 2001 Number of Number of Number of employees employees employees 4 4 4

During the Relevant Periods, no remuneration was paid by Harmony Piano to the directors or any of the five highest paid employees as an inducement to join or upon joining Harmony Piano or as compensation for loss of office. No director of Harmony Piano waived any remuneration during the Relevant Periods.

6. FINANCE COSTS

Interest on – bank loans wholly repayable within five years – other borrowings wholly repayable within five years	Seven months ended 31 July 2004 RMB 212,497 115,767 328,264	Year ended 31 December 2003 2002 2001 RMB RMB RMB 17,199 – – 361,527 599,838 883,129 378,726 599,838 883,129	Year ended 31 December 2003 2002 2001 RMB RMB RMB 17,199 – – 361,527 599,838 883,129 378,726 599,838 883,129
			883,129

– 78 –

ACCOUNTANTS’ REPORT ON HARMONY PIANO

APPENDIX II

7. TAXATION

The tax charge comprises: PRC corporate income tax – Charge for the period/year – (Over)/under provision in prior years	Seven months ended 31 July 2004 RMB 204,267 – 204,267	Year ended 31 December 2003 2002 2001 RMB RMB RMB 2,666,977 2,747,808 4,036,122 25,122 27,622 (42,113) 2,692,099 2,775,430 3,994,009	Year ended 31 December 2003 2002 2001 RMB RMB RMB 2,666,977 2,747,808 4,036,122 25,122 27,622 (42,113) 2,692,099 2,775,430 3,994,009
			3,994,009

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

As Harmony Piano was established and operating in specific development zone in the PRC, its assessable profits were subject to a preferential corporate income tax rate of 27% granted by the relevant authorities during the Relevant Periods.

The charge for the period/year can be reconciled to the profit before taxation per the income statements as follows:

Profit before taxation Tax at the applicable tax rate of 27% (Over)/under provision in prior years Tax effect on other temporary differences recognised Tax effect on expenses that are not deductible for tax purpose Tax charge for the period/year	Seven months ended 31 July 2004 RMB 1,268,228 342,422 – (138,155) – 204,267	Year ended 31 December 2003 2002 2001 RMB RMB RMB 11,874,848 7,047,900 12,934,913 3,206,209 1,902,933 3,492,427 25,122 27,622 (42,113) (752,569) 236,496 516,073 213,337 608,379 27,622 2,692,099 2,775,430 3,994,009	Year ended 31 December 2003 2002 2001 RMB RMB RMB 11,874,848 7,047,900 12,934,913 3,206,209 1,902,933 3,492,427 25,122 27,622 (42,113) (752,569) 236,496 516,073 213,337 608,379 27,622 2,692,099 2,775,430 3,994,009
			3,492,427 (42,113) 516,073 27,622
			3,994,009

There was no material unprovided deferred tax in respect of the Relevant Periods and as at the balance sheet date.

8. EARNINGS PER SHARE

Upon completion of the Harmony Acquisition, Harmony Piano will become part of the Fujian Holdings Group. Accordingly, earnings per share of Harmony Piano is not presented herein as such information is not meaningful.

– 79 –

ACCOUNTANTS’ REPORT ON HARMONY PIANO

APPENDIX II

9. FIXED ASSETS

COST At 1 January 2001 Additions Disposals At 31 December 2001 ACCUMULATED DEPRECIATION At 1 January 2001 Charge for the year Disposals At 31 December 2001 NET BOOK VALUE At 31 December 2001 COST At 1 January 2002 Additions Disposals At 31 December 2002 ACCUMULATED DEPRECIATION At 1 January 2002 Charge for the year Disposals At 31 December 2002 NET BOOK VALUE At 31 December 2002	Buildings RMB 2,630,492 – (2,547,790) 82,702 1,201,205 3,721 (1,171,433) 33,493 49,209 82,702 – – 82,702 33,493 3,722 – 37,215 45,487	Furniture, fixtures and office equipment RMB 315,981 52,751 (3,240) 365,492 144,492 40,014 (1,215) 183,291 182,201 365,492 55,734 (75,140) 346,086 183,291 47,929 (63,864) 167,356 178,730	Plant and machinery RMB 3,873,579 266,752 (1,250,282) 2,890,049 2,336,186 233,083 (908,398) 1,660,871 1,229,178 2,890,049 5,850 (237,528) 2,658,371 1,660,871 154,540 (179,644) 1,635,767 1,022,604	Motor Construction vehicles in progress RMB RMB 326,983 – – – – – 326,983 – 197,697 – 36,000 – – – 233,697 – 93,286 – 326,983 – 378,000 – – – 704,983 – 233,697 – 87,030 – – – 320,727 – 384,256 –	Total RMB 7,147,035 319,503 (3,801,312)
					3,665,226
					3,879,580 312,818 (2,081,046)
					2,111,352
					1,553,874
					3,665,226 439,584 (312,668)
					3,792,142
					2,111,352 293,221 (243,508)
					2,161,065
					1,631,077

– 80 –

ACCOUNTANTS’ REPORT ON HARMONY PIANO

APPENDIX II

COST At 1 January 2003 Additions At 31 December 2003 ACCUMULATED DEPRECIATION At 1 January 2003 Charge for the year At 31 December 2003 NET BOOK VALUE At 31 December 2003 COST At 1 January 2004 Additions At 31 July 2004 ACCUMULATED DEPRECIATION At 1 January 2004 Charge for the period At 31 July 2004 NET BOOK VALUE At 31 July 2004	Buildings RMB 82,702 – 82,702 37,215 3,722 40,937 41,765 82,702 4,578 87,280 40,937 2,171 43,108 44,172	Furniture, fixtures and office equipment RMB 346,086 42,567 388,653 167,356 53,732 221,088 167,565 388,653 4,327 392,980 221,088 27,465 248,553 144,427	Plant and machinery RMB 2,658,371 80,950 2,739,321 1,635,767 155,855 1,791,622 947,699 2,739,321 3,300 2,742,621 1,791,622 79,531 1,871,153 871,468	Motor Construction vehicles in progress RMB RMB 704,983 – 534,800 – 1,239,783 – 320,727 – 136,128 – 456,855 – 782,928 – 1,239,783 – 48,150 16,279,017 1,287,933 16,279,017 456,855 – 103,789 – 560,644 – 727,289 16,279,017	Total RMB 3,792,142 658,317
					4,450,459
					2,161,065 349,437
					2,510,502
					1,939,957
					4,450,459 16,339,372
					20,789,831
					2,510,502 212,956
					2,723,458
					18,066,373

All buildings are situated in the PRC and held under medium-term leases.

10. TRADE AND OTHER RECEIVABLES

Harmony Piano has defined credit terms which are agreed with each of its trade customers.

The aging analysis of the trade receivables (net of provision for doubtful debts) is as follows:

Current to 6 months Over 6 months	As at 31 July 2004 RMB 14,382,632 4,670,188 19,052,820	As at 31 December 2003 2002 2001 RMB RMB RMB 12,256,539 13,251,549 9,373,567 8,986,813 7,510,660 5,074,272 21,243,352 20,762,209 14,447,839	As at 31 December 2003 2002 2001 RMB RMB RMB 12,256,539 13,251,549 9,373,567 8,986,813 7,510,660 5,074,272 21,243,352 20,762,209 14,447,839
			14,447,839

– 81 –

ACCOUNTANTS’ REPORT ON HARMONY PIANO

APPENDIX II

11. INVENTORIES

Raw materials, at cost Work in progress, at cost Finished goods, at cost Less: Provision for obsolete inventories	As at 31 July 2004 RMB 7,531,834 909,992 4,790,322 13,232,148 – 13,232,148	As at 31 December 2003 2002 2001 RMB RMB RMB 7,500,580 8,204,534 8,120,437 816,369 851,847 699,404 2,822,702 1,942,023 3,885,156 11,139,651 10,998,404 12,704,997 – (2,445,412) (1,569,500 11,139,651 8,552,992 11,135,497	As at 31 December 2003 2002 2001 RMB RMB RMB 7,500,580 8,204,534 8,120,437 816,369 851,847 699,404 2,822,702 1,942,023 3,885,156 11,139,651 10,998,404 12,704,997 – (2,445,412) (1,569,500 11,139,651 8,552,992 11,135,497
			12,704,997 (1,569,500
			11,135,497

All of the inventories are stated at net realisable value in 2001 and 2002.

12. PLEDGED BANK DEPOSITS

The amount represents deposits pledged to banks to secure banking facilities granted to Harmony Piano.

13. BANK LOANS

The bank loans are analysed as follows: Secured Unsecured	As at 31 July 2004 RMB 13,000,000 – 13,000,000	As at 31 December 2003 2002 2001 RMB RMB RMB – – – 2,000,000 – – 2,000,000 – –	As at 31 December 2003 2002 2001 RMB RMB RMB – – – 2,000,000 – – 2,000,000 – –
			–

All the above bank loans are repayable on demand or within one year.

14. TRADE AND OTHER PAYABLES

The aging analysis of the trade payables is as follows:

Current to 6 months Over 6 months	As at 31 July 2004 RMB 1,457,938 899,192 2,357,130	As at 31 December 2003 2002 2001 RMB RMB RMB 10,581,373 8,177,609 10,025,971 1,126,657 1,184,965 707,177 11,708,030 9,362,574 10,733,148	As at 31 December 2003 2002 2001 RMB RMB RMB 10,581,373 8,177,609 10,025,971 1,126,657 1,184,965 707,177 11,708,030 9,362,574 10,733,148
			10,733,148

15. AMOUNT DUE TO ULTIMATE HOLDING COMPANY

The amount is unsecured and has no fixed repayment terms. Except for an amount of RMB15,700,000 (2003: Nil, 2002: RMB1,363,696, 2001: RMB4,431,147) which is interest-free, the remaining balance is interest bearing at commercial rate.

– 82 –

ACCOUNTANTS’ REPORT ON HARMONY PIANO

APPENDIX II

16. PAID-UP CAPITAL

For the purposes of this report, the paid-up capital at 31 July 2004, 31 December 2003, 31 December 2002 and 31 December 2001 represented the amount of the fully paid registered capital of Harmony Piano as at the respective dates.

17. STATUTORY RESERVE FUND

In accordance with the relevant PRC regulations, Harmony Piano is required, at the discretion of its directors, to appropriate a certain percentage of its profit after tax, if any, to the statutory reserve fund for the future development and staff welfare. An amount of RMB2,770,565 has been transferred to the statutory reserve fund before Harmony Piano declared the interim dividend during the seven months ended 31 July 2004.

18. COMMITMENTS

Harmony Piano had the following commitments at the end of each of the Relevant Periods.

(a) Capital commitments

Capital expenditure contracted for but not provided in the financial information in respect of acquisition of property, plant and equipment	As at 31 July 2004 RMB 3,083,883	As at 31 December 2003 2002 2001 RMB RMB RMB – – –

(b) Operating lease commitments

At each balance sheet date, Harmony Piano had future aggregate minimum lease payments under noncancellable operating leases in respect of land and buildings as follows:

Operating leases which expire: Within one year After one year but within five years	As at 31 July 2004 RMB 732,170 – 732,170	As at 31 December 2003 2002 2001 RMB RMB RMB 1,080,822 806,292 980,338 274,564 1,355,386 2,161,678 1,355,386 2,161,678 3,142,016	As at 31 December 2003 2002 2001 RMB RMB RMB 1,080,822 806,292 980,338 274,564 1,355,386 2,161,678 1,355,386 2,161,678 3,142,016
			3,142,016

19. PLEDGE OF ASSETS

At each balance sheet date, Harmony Piano has pledged certain of its assets to secure general banking facilities granted. The net book value of these assets are analysed as follows:

Construction in progress Inventories Bank deposits	As at 31 July 2004 RMB 16,279,017 13,232,148 2,000,840 31,512,005	As at 31 December 2003 2002 2001 RMB RMB RMB – – – – – – 2,000,000 – – 2,000,000 – –	As at 31 December 2003 2002 2001 RMB RMB RMB – – – – – – 2,000,000 – – 2,000,000 – –
			–

– 83 –

ACCOUNTANTS’ REPORT ON HARMONY PIANO

APPENDIX II

20. SUBSEQUENT EVENTS

No significant events have taken place subsequent to 31 July 2004.

III. SUBSEQUENT FINANCIAL STATEMENTS

No audited accounts of Harmony Piano have been prepared in respect of any period subsequent to 31 July 2004.

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

– 84 –

APPENDIX III FINANCIAL INFORMATION ON THE ENLARGED GROUP

1. LETTER ON UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The following is the text of a letter from Nexia Charles Mar Fan & Co., the reporting accountants, in respect of the unaudited pro forma consolidated statement of assets and liabilities of the Enlarged Group.

==> picture [106 x 46] intentionally omitted <==

Nexia Charles Mar Fan & Co.

11th Floor, Fortis Bank Tower 77-79 Gloucester Road Wanchai, Hong Kong

The Board of Directors Fujian Holdings Limited

3 January 2005

Dear Sirs,

We report on the unaudited pro forma consolidated statement of assets and liabilities set out in Section 2 of Appendix III (the “Unaudited Pro Forma Financial Information”) of the circular dated 3 January 2005 (the “Circular”) in connection with the proposed acquisition of 25% equity interest in Fuzhou Harmony Piano Co. Ltd. (“Harmony Piano”) by Ming Chuen Construction Company Limited, a wholly owned subsidiary of Fujian Holdings Limited (the “Company”) which has been prepared, for illustrative purposes only, to provide information about how the proposed acquisition (“Harmony Acquisition”) resulting in the formation of an enlarged group (the “Enlarged Group”) and the proposed loan facility of HK$16.5 million provided by the Company to Brilliant Well Investment Limited, a fellow subsidiary of the Company and the immediate holding company of Harmony Piano, (the “Loan”) might have affected the relevant financial information presented.

Responsibilities

It is the responsibility solely of the directors of the Company to prepare the Unaudited Pro Forma Financial Information in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (“the Listing Rules’’).

It is our responsibility to form an opinion, as required by paragraph 4.29 of the Listing Rules, on the Unaudited Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

– 85 –

APPENDIX III FINANCIAL INFORMATION ON THE ENLARGED GROUP

Basis of opinion

We conducted our work with reference to the Statements of Investment Circular Reporting Standards and Bulletin 1998/8 “Reporting on pro forma financial information pursuant to the Listing Rules’’ issued by the Auditing Practices Board in the United Kingdom, where applicable. Our work, which involved no independent examination of any of the underlying financial information, consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments and discussing the Unaudited Pro Forma Financial Information with the directors of the Company.

Our work did not constitute an audit or review in accordance with Statements of Auditing Standards issued by the Hong Kong Institute of Certified Public Accountants, and accordingly, we do not express any such audit or review assurance on the Unaudited Pro Forma Financial Information.

The Unaudited Pro Forma Financial Information has been prepared on the bases set out in Section 2 of Appendix III of the Circular for illustrative purposes only and, because of its nature, it may not be indicative of the financial position of the Group at the date reported or at any future date.

Opinion

In our opinion:

• (a) the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated;

• (b) such basis is consistent with the accounting policies of the Group; and

• (c) the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 4.29 of the Listing Rules.

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

– 86 –

APPENDIX III FINANCIAL INFORMATION ON THE ENLARGED GROUP

2. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES

The unaudited pro forma consolidated statement of assets and liabilities of the Enlarged Group is based on the unaudited consolidated balance sheet of the Group as at 30 September 2004 as extracted from the interim report of the Group for the six months ended 30 September 2004, and the audited balance sheet of Harmony Piano as at 31 July 2004. They have been prepared to illustrate the effects of the proposed Harmony Acquisition and the proposed Loan, as if the Harmony Acquisition and the Loan had taken place at the date reported. They have been prepared for illustrative purposes only and, because of its nature, may not give a true picture of the financial position of the Enlarged Group at the date reported or at any future date.

	The Group
	as at		Pro forma
	30 September	Pro forma	Enlarged
	2004	adjustments	Group
	HK$’000	HK$’000	HK$’000
	(Unaudited)
Non-current assets
Fixed assets	82,279		82,279
Goodwill	–	201(2)	201
Interests in associates	7,240	4,648(1)&(2)	11,888
	89,519		94,368
Current assets
Loan to a fellow subsidiary	–	16,500(3)	16,500
Trade and other receivables	2,956		2,956
Inventories	468		468
Cash and bank balances	38,757	(22,049)(1),(3)&(4)	16,708
	42,181		36,632
Current liabilities
Bank and other borrowings	(5,995)		(5,995)
Interest payable on borrowings	(10,615)		(10,615)
Accounts payable	(10,570)		(10,570)
	(27,180)		(27,180)
Net current assets	15,001		9,452
Total assets less current liabilities	104,520		103,820
Non-current liabilities
Bank and other borrowings	(24,477)		(24,477)
Accounts payable	(8,377)		(8,377)
Deferred tax	(4,729)		(4,729)
	(37,583)		(37,583)
Net assets	66,937	(700)(4)	66,237

– 87 –

APPENDIX III FINANCIAL INFORMATION ON THE ENLARGED GROUP

2. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES (Continued)

Notes to unaudited pro forma consolidated statement of assets and liabilities of the Enlarged Group

• (1) The pro forma adjustment reflects the cash consideration of HK$4,848,500 to be paid by the Group for the acquisition of Harmony Piano.

• (2) The pro forma adjustment reflects the goodwill arising from the excess of consideration over the fair value of identifiable assets and liabilities of Harmony Piano.

• (3) The pro forma adjustment reflects the loan of HK$16,500,000 to be granted to Brilliant Well.

• (4) The pro forma adjustment reflects the estimated expenses of HK$700,000 for the acquisition of Harmony Piano.

3. INDEBTEDNESS

Borrowings

At the close of business on 31 October 2004, being the latest practicable date for the purpose of this indebtedness statement, the Group had outstanding borrowings of approximately HK$40.5 million comprising secured bank loans and interest payable on bank borrowings of approximately HK$36.4 million and unsecured bank loans of approximately HK$4.1 million.

Security

As at 31 October 2004, the secured bank loans were secured by the Group’s 40% interests in Xiamen South East Asia Hotel Company, Limited.

Foreign currency translation

For the purpose of the indebtedness statement, foreign currency amounts have been translated into Hong Kong dollars at the rates of exchange prevailing at the close of business on 31 October 2004.

Disclaimer

Save as aforesaid or otherwise disclosed herein, and apart from intra-group liabilities, none of the companies in the Group had, at the close of business of 31 October 2004, any other loans debt securities or similar borrowings or indebtedness in the nature of borrowing either secured or unsecured, any mortgages, charges or debentures, loan capital issued and outstanding or agreed to be issued, bank overdrafts, or any hire purchase commitments, liabilities under acceptances or acceptances credits or any guarantees or other material contingent liabilities.

The Directors have confirmed that save as disclosed above, there has been no material change in the indebtedness, commitments or contingent liabilities of the Group since 31 October 2004 and up to the Latest Practicable Date.

4. WORKING CAPITAL

The Directors are of the opinion that upon completion of the Harmony Acquisition and the Loan and based on available banking and other facilities and internal resources of the Group, the Group has sufficient working capital for its requirements currently and for the period ending 12 months from the date of this circular.

– 88 –

GENERAL INFORMATION

APPENDIX IV

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group.

The Directors collectively and individually accept the responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, there are no other facts the omission of which would make any statement herein misleading.

2. DISCLOSURE OF INTEREST BY DIRECTORS

As at the Latest Practicable Date, the interests and short positions of the Directors and chief executive of the Company in the Shares, underlying shares and debentures of the Company or any associated corporations (within the meaning of Part XV of the SFO) which (i) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interest or short positions which they were taken or deemed to have under such provisions of the SFO); or (ii) which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (iii) which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by the Directors of the Listed Companies contained in the Listing Rules, were as follows:

(a) Options

Maximum

		Maximum
		number	Options
		of Shares over	exercised
Name of	Date of	which options	during the	Exercise	Nature of	Exercise
Director	grant	are exercisable	period	price	interests	period
				HK$
Wang Xiaowu	3 June 2004	5,200,000	–	0.184	Personal	3 June 2004 –
						2 June 2014
Mei Qinping	3 June 2004	3,120,000	–	0.184	Personal	3 June 2004 –
						2 June 2014
Chen Danyun	3 June 2004	2,080,000	–	0.184	Personal	3 June 2004 –
						2 June 2014
Cheung Wah Fung,	3 June 2004	5,200,000	–	0.184	Personal	3 June 2004 –
Christopher						2 June 2014

Save as disclosed above, as at the Latest Practicable Date, none of the Directors nor the chief executive of the Company had or was deemed to have any interests or short positions in the Shares, underlying shares or debentures of the company and its associated corporation (within the meaning of

– 89 –

GENERAL INFORMATION

APPENDIX IV

Part XV of the SFO)(i) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they were taken or deemed to have under such provisions of the SFO); or (ii) which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (iii) which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of the Listed Companies contained in the Listing Rules.

(b) Interests in competing businesses

As at the Latest Practicable Date, none of the Directors nor their respective associates had any business which competes or is likely to compete, either directly or indirectly, with any business of the Group.

(c) Interests in assets of the Group

As at the Latest Practicable Date, none of the Directors had any direct or indirect interests in any assets which have been acquired or disposed or by, or leased to, or which are proposed to be acquired or disposed of by or leased to, the Company or any of its subsidiaries since 31 March 2004, being the date to which the latest published audited consolidated financial statements of the Company were made up.

(d) Interests in contracts of the Company

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

3. DISCLOSURE OF INTERESTS BY SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as is known to the Directors and chief executive of the Company, the following persons (not being Directors or chief executives of the Company) had, or were deemed to have, interests or short positions in the Shares and underlying shares of the Company which would fall to be disclosed to the Company or the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO or who were, directly or indirectly, interested in ten per cent. or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group or had an option in respect of such capital were as follows:

	Number of	% of total
Name of Shareholders	Shares held	issued Shares
HC Technology Capital Company Limited (“HC Technology”)	279,241,379_(note a)_	53.7
Fujian Investment and Development Company Limited (“FIDC”)	279,241,379_(note a)_	53.7
Sino Earn Holdings Limited (“Sino Earn”)	72,553,382_(note b)_	14.0
Fujian Huaxing Trust & Investment Company (“FHTI”)	72,553,382_(note b)_	14.0
Fujian Huaxing Industrial Company (“FHIC”)	72,553,382_(note b)_	14.0

– 90 –

GENERAL INFORMATION

APPENDIX IV

Notes:

• (a) HC Technology beneficially holds 279,241,379 Shares. Pursuant to the SFO, FIDC is deemed to be interested in the 279,241,379 Shares by virtue of its being beneficially interested in 100% of the issued share capital of HC Technology.

• (b) Sino Earn beneficially holds 72,553,382 Shares. Pursuant to the SFO, each of FHTI and FHIC is deemed to be interested in the 72,553,382 Shares by virtue of their being beneficially interested in 30% and 70% of the issued capital of Sino Earn respectively. Both FHTI and FHIC are state-owned corporations in the PRC.

Save as disclosed above, as at the Latest Practicable Date, the Directors and chief executive of the Company were not aware of any other persons (other than Directors or chief executives of the Company) had, or were deemed to have, interests or short positions in the Shares and underlying shares (including any interests in options in respect of such capital), which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who was, directly or indirectly, interested in 10 per cent. or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group or had any option in respect of such capital.

4. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors have any existing or proposed services contract with any members of the Group excluding contracts expiring or determinable by the employer within one year without payment of compensations other than statutory compensation.

5. MATERIAL LITIGATIONS

As at the Latest Practicable Date, no member of the Group (including Harmony Piano) is engaged in any litigation, arbitration or claim of material importance and no litigation, arbitration or claim of material importance is know to the Directors to be pending or threatened against any member of the Group.

6. MATERIAL CONTRACTS

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

• (a) the Harmony Acquisition Agreement and the Loan Agreement;

• (b) the management services agreement entered into by the Company with FIDC in relation to FIDC’s appointment of the Company as an agent to participate in the management of Harmony Piano and Huamin Tourism. Pursuant to such agreement, the Company will provide management services to FIDC for a period of 18 months commencing from the effective date of the agreement at a fixed management fee of HK$2 million per annum and a floating management fee on the basis of 10% of the net profit after taxation of Huamin Tourism and Harmony Piano respectively and after deduction of the fixed management fee;

• (c) Yan Hei Limited, a wholly owned subsidiary of the Company, entered into a management contract (“Management Contract”) with Fujian Sunshine Group Limited (�� !"#$ �� the “Sunshine Group”), an independent third party not connected with the directors, chief executive or substantial shareholders of the Company or its subsidiaries or their

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respective associates, on 30 June 2004 in relation to the appointment of the Sunshine Group as the operator (the “ Operator”) to manage the daily operation of Xiamen South East Asia Hotel (“Hotel”, a wholly owned subsidiary of Yan Hei Limited), for a period of ten years commencing from 1 July 2004. The Operator’s role includes, among others, managing all pre-existing hotel staff and facilities and setting up internal policies including pricing, marketing, and promotion. Under the Management Contract, Yan Hei is guaranteed to receive a fixed annual cash payment of RMB6.66 million (to be payable monthly) and a variable income calculated as 1% of the annual turnover of the Hotel. The amount will be first payable from the operating cashflow generated from the Hotel and, should there be a shortfall, then by the Sunshine Group. The Sunshine Group has paid RMB5 million as security deposit to the Company, which is refundable upon expiry of the Management Contract. The Hotel remains the property of the Group at all time under the Management Agreement and there will not be a transfer of ownership of the Hotel at or after the completion of the Management Contract.

• (d) the restructuring agreement entered into by the Company, Messrs. Cosimo Borrelli and Fan Wai Kuen of RSM Nelson Wheeler Corporate Advisory Services Limited (being the joint and several provisional liquidators to the Company at that time (the “Provisional Liquidators”), HC Technology, Sino Earn Holdings Limited, Jian Xing Finance Limited and RSM Nelson Wheeler Corporate Advisory Services Limited (as escrow agent) in relation to a court sanctioned scheme of arrangement to restructure the indebtedness of the Company dated 25 April 2003;

• (e) a written confirmation from �� ! " # $ ! % & ' ( The Xiamen Railway Department Company Limited of the Shanghai Railway Department (“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 the Railway Department over a five year period ended 31 December 2007;

• (f) a settlement agreement entered into amongst the Xiamen South East Asia Hotel Company Limited, Yan Hei Limited, a subsidiary of the Company, and the Railway Department dated 30 September 2003 in relation to a settlement of US$820,000 with the Railway Department;

• (g) a loan facility letter from HC Technology accepted by the Company dated 17 September 2003 in relation to a loan facility of up to RMB29 million (equivalent to about HK$27.4 million) provided to the Company for the purpose of settlement with the Industrial and Commercial Bank of China, Xiamen Branch (“ICBC”);

• (h) a settlement agreement entered into between the Xiamen South East Asia Hotel Company Limited and ICBC dated 24 September 2003 in relation to a settlement of RMB30 million (equivalent to about HK$28.3 million) with ICBC; and

• (i) a subscription agreement entered into by the Company and Goldride Holdings Limited in relation to the subscription of 898,484 new Shares by Goldride Holdings Limited dated 15 April 2004.

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7. MATERIAL CHANGES IN THE FINANCIAL OR TRADING POSITION

As at the Latest Practicable Date, save for contracts signed as set out under item 6(b) and 6(c) under the section headed “Material Contracts” of this appendix and the Major and Connected Transaction, consisting the Harmony Acquisition as contemplated under the Harmony Acquisition Agreement at the consideration of HK$4,848,500 and the Loan facility amounting to HK$16.5 million as contemplated under the Loan Agreement, the Directors are not aware of any circumstances or events which may give rise to a change in the financial or trading position of the Group since 31 March 2004, being the date to which the latest published audited accounts of the Company were made up. The Directors consider the above mentioned contracts will not give rise to any material adverse change in the financial or trading position of the Group.

8. EXPERTS AND CONSENTS

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

Name	Qualification
Nexia Charles Mar Fan & Co.	Certified Public Accountants, Hong Kong
Kim Eng	a licensed corporation to carry out type 6 (advising on
	corporate finance) regulated activities under the SFO

Each of the experts above has given and not withdrawn its written consent to the issue of this circular with the inclusion of its letter or opinion, as the case may be, and reference to its name in the form and context in which it appears.

9. EXPERTS’ INTEREST IN ASSETS

As at the Latest Practicable Date, neither Kim Eng nor Nexia Charles Mar Fan & Co. had any shareholding interest in any member of the Group nor the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities of any member of the Group.

As at the Latest Practicable Date, neither Kim Eng nor Nexia Charles Mar Fan & Co. had any direct or indirect interests in any assets which had since 31 March 2004 (being the latest date to which the published audited consolidated financial statements of the Company were made up) been acquired or disposed to any member of the Group, or which are proposed to be acquired or disposed of by or leased to any member of the Group.

10. MISCELLANEOUS

• (a) The company secretary and the qualified accountant of the Company as appointed pursuant to Rule 3.24 of the Listing Rules is Ms. Man Miu Sheung, CPA.

• (b) The Company’s share registrar is Standard Registrars Limited at 28/F., BEA Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong.

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• (c) The registered office and principal place of business of the Company is Unit 3213, 32/F., Cosco Tower, 183 Queen’s Road Central, Hong Kong.

• (d) The English text of this circular shall prevail over the Chinese text.

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be made available for inspection during normal business hours on any weekday, except public holidays, at the office of the Company at Unit 3213, 32/F., Cosco Tower, 183 Queen’s Road Central, Hong Kong from the date of this circular up to and including 20 January 2005 and at the EGM:

• (a) the memorandum and articles of association of the Company;

• (b) the material contracts referred to in the section headed “ Material Contracts” in this appendix;

• (c) the annual reports of the Company for the two financial years ended 31 March 2004;

• (d) the letter from the Independent Board Committee to the Independent Shareholders, the context of which is set out on pages 17 to 18 of this circular;

• (e) the letter of advice from Kim Eng to the Independent Board Committee and the Independent Shareholders, the text of which is set out on pages 19 to 28 of this circular;

• (f) the consent letters from Nexia Charles Mar Fan & Co. and Kim Eng referred to in the paragraph headed “Experts and consents” in this appendix;

• (g) the accountants’ report from Nexia Charles Mar Fan & Co. on Harmony Piano, the text of which is set out in Appendix II to this circular; and

• (h) the letter from Nexia Charles Mar Fan & Co. on the unaudited pro forma financial information of the Enlarged Group, the text of which is set out in Appendix III to this circular.

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NOTICE OF EGM

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FUJIAN HOLDINGS LIMITED

(Incorporated in Hong Kong with limited liability)

(Stock Code: 181)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the “EGM”) of Fujian Holdings Limited (the “Company” ) will be held at 10:00 a.m. on Thursday, 20 January 2005 at The Boardroom, 1st Floor, South Pacific Hotel, 23 Morrison Hill Road, Wanchai, Hong Kong for the purpose of considering and, if thought fit, passing the following resolutions as ordinary resolutions:

ORDINARY RESOLUTIONS

1. “THAT the acquisition agreement dated 11 November 2004 entered into between Ming Chuen Construction Company Limited, a wholly owned subsidiary of the Company, and Fairweal Industrial Company Limited, a wholly owned subsidiary of Fujian Investment and Development Company Limited, a copy of which is tabled at the EGM and marked “A” and initialed by the chairman of the EGM for identification purpose, pursuant to which Fairweal Industrial Company Limited has agreed to sell and Ming Chuen Construction Company Limited has agreed to purchase 25% equity interest of Fuzhou Harmony Piano Co. Ltd. at a consideration of HK$4,848,500 in cash subject to the terms and conditions therein, and the transaction contemplated thereunder or incidental thereto be and is hereby approved and the directors of the Company be and are hereby authorized to take all steps necessary or expedient in their opinion to implement and/or give effect to the terms of such agreement.”

2. “THAT the loan agreement dated 11 November 2004 entered into between the Company and Brilliant Well Investment Limited, a wholly owned subsidiary of Fujian Investment and Development Company Limited, a copy of which is tabled at the EGM and marked “B” and initialed by the chairman of the EGM for identification purpose, pursuant to which the Company has agreed to provide to Brilliant Well Investment Limited a loan facility up to an aggregate principal amount of HK$16.5 million carrying an interest rate of 6.5% per annum for a term of 18 months subject to the terms and conditions therein, and the transaction contemplated thereunder or incidental thereto be and is hereby approved and the directors of the Company be and are hereby authorized to take all steps necessary or expedient in their opinion to implement and/or give effect to the terms of such agreement.”

By order of the Board Fujian Holdings Limited Wang Xiaowu Chairman

Hong Kong, 3 January 2005

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NOTICE OF EGM

Registered office: Unit 3213, 32/F, Cosco Tower 183 Queen’s Road Central Hong Kong

Notes:

1. A form of proxy for use at the EGM is enclosed.

2. Any member entitled to attend and vote at the EGM shall be entitled to appoint another person as his proxy to attend and vote in his stead. A member who is the holder of two or more shares may appoint one or two proxies to represent him and vote on his behalf at the EGM. A proxy need not be a member of the Company.

3. The instrument appointing a proxy must be signed by a member or his attorney duly authorized in writing or, in the case of a corporation or institution, either under the common seal or under the hand of an officer or attorney duly authorized in writing.

4. To be valid, the instrument appointing a proxy and, if such proxy form is signed by a person under a power of attorney or other authority on behalf of the appointer, a notarially certified copy of that power of attorney or other authority, must be deposited at the Company’s registered office, Unit 3213, 32/F., Cosco Tower, 183 Queen’s Road Central, Hong Kong not less than 48 hours before the time appointed for the holding of the EGM or any adjourned meeting thereof.

5. The register of members of the Company will be closed from Tuesday, 18 January 2005 to Wednesday, 19 January 2005, both days inclusive, during which period no share transfers will be registered. All transfer documents accompanied by the relevant share certificates must be lodged with the Company’s share registrar, Standard Registrars Limited, 28th Floor, BEA Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong not later than 4:00 p.m. on Monday, 17 January 2005. Only shareholders whose names appear on the register of members of the Company on 18 January 2005 are entitled to attend and vote at the EGM.

6. In the case of joint holders, any one of such holders may attend and vote at the EGM either personally or by proxy in respect of the shares as if he was solely entitled thereto, but if more than one of such joint holders be present at the EGM, the holder whose name stands first in the register of members shall alone be entitled to vote in respect thereof. Several executors or administrators of a deceased member in whose name any share stands shall for such purpose be deemed joint holders thereof.

7. The voting on the resolution will be conducted by way of a poll.

8. On a poll, every member present in person or by proxy shall have one vote for every share held by him.

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