Hybrid Kinetic Group Limited - Proxy Solicitation & Information Statement 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 stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Compass Pacific 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, stockbroker 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 representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

This circular is for information purposes only and does not constitute an invitation or offer to acquire or subscribe for securities.

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(Incorporated in Bermuda with limited liability) (Stock Code: 1188)

ACQUISITION OF APG VERY SUBSTANTIAL TRANSACTION

A notice convening a special general meeting of the shareholders of Compass Pacific Holdings Limited to be held at Suites 612-617, 6th Floor, Hutchison House, 10 Harcourt Road, Central, Hong Kong on Monday, 18 July 2005 at 9:30 a.m. is set out on pages 187 and 188 of this circular. There is a form of proxy for use at the special general meeting of Compass Pacific Holdings Limited accompanying this circular. Whether or not you are able to attend the meeting, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed thereon to the principal place of business in Hong Kong of Compass Pacific Holdings Limited at Suites 612-617, 6th Floor, Hutchison House, 10 Harcourt Road, Central, Hong Kong not later than 9:30 a.m. on Saturday, 16 July 2005 or, in case of any adjournment, not less than 48 hours before the time appointed for the holding of the meeting. Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting should you so wish.

28 June 2005

* For identification purpose only

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
The 1st Acquisition Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
The 2nd Acquisition Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Completion of the Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Shareholding structure before and after Completion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
Information on the APG Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
Reasons for the 1st Acquisition and the 2nd Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
Financial effects of the Acquisitions on the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
Discussion and Analysis of the Performance of the Group and
Ningbo Phoenix Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
The SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
Procedure to demand poll . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24
Appendix I – Financial Information of the Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	25
Appendix II – Accountants’ Report on APG Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	55
Appendix III – Accountants’ Report on Ningbo Phoenix Group . . . . . . . . . . . . . . . . . . . . . . . . . .	90
Appendix IV – Unaudited Pro forma Financial Information of the Enlarged Group. . . . . . . .	123
Appendix V – Valuation Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	133
Appendix VI – General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	180
Notice of Special General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	187

DEFINITIONS

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

“1st Acquisition Agreement”

the subscription agreement dated 11 March 2005 made between the Purchaser and APG as supplemented by an extension letter dated 12 May 2005

“1st Acquisition”
the subscription of Subscription Shares contemplated under the 1st Acquisition Agreement
“2nd Acquisition Agreements”

the 39 sets sale and purchase agreements all dated 11 March 2005 entered into between each of the Vendors and the Purchaser for the sale and purchase of the Sale Shares as supplemented by 39 extension letters all dated 12 May 2005

“2nd Acquisition”
the sale and purchase of the Sale Shares contemplated under the 2nd Acquisition Agreements
“Acquisitions” 1st Acquisition and 2nd Acquisition
“APG Group” APG and its subsidiaries “APG” American Phoenix Group, Inc., a company incorporated under the laws of the State of California, the United States of America with limited liability
“associate(s)” has the meaning given to that term in the Listing Rules
“Board” board of Directors “Company” Compass Pacific Holdings Limited, a company incorporated in Bermuda, the shares of which are listed on the Stock Exchange
“Completion” completion of the Acquisitions
“connected person” has the meaning given to that term in the Listing Rules “Consideration Shares” such number of new Shares to be allotted and issued by the Company to satisfy the consideration payable by the Company under the 2nd Acquisition
“Director(s)” the director(s) of the Company
“Enlarged Group” the Group and APG Group immediately after Completion
1 -

DEFINITIONS

“Group”	the Company and its subsidiaries
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong”	the Hong Kong Special Administrative Region of the People’s
	Republic of China
“Issue Price”	the higher of (i) HK$0.25 per Share and (ii) the average of the
	closing prices per Share as quoted on the Stock Exchange for 5
	trading days prior to the SGM
“Last Trading Day”	11 March 2005, being the last trading day of the Shares on the
	Stock Exchange immediately prior to the issue of the Company’s
	announcement dated 18 March 2005 regarding the Acquisitions
“Latest Practicable Date”	27 June 2005, being the latest practicable date prior to the printing
	of this circular for ascertaining certain information contained herein
“Listing Committee”	the Listing Committee of the Stock Exchange
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange
“Loan Agreement”	the loan agreement dated 20 September 2004 entered into between
	the Purchaser as lender and APG as borrower with respect to a
	loan facility of US$5.6 million
“Ningbo Phoenix”	寧波鳳凰汽車銷售服務有限公司(English transliteration: Ningbo
	Phoenix Automobile Distribution and Services Co., Ltd), a
	company incorporated under the laws of the PRC with limited
	liability
“Ningbo Phoenix Group”	Ningbo Phoenix and its subsidiaries
“PRC”	The People’s Republic of China
“Purchaser”	American Compass, Inc., a company incorporated in the State of
	California, the United States of America, a wholly-owned
	subsidiary of the Company
“RMB”	Renminbi, the lawful currency of the PRC
“Sale Shares”	an aggregate of 55,875,144 Class A common stocks in the capital
	of APG representing 76.18% of its entire existing issued share
	capital to be purchased by the Purchaser from the Vendors under
	the 2nd Acquisition Agreements

DEFINITIONS

“SGM”	the special general meeting of the Company to be convened for
	the purpose of considering and, if thought fit, approving, among
	other things, the Acquisitions
“SFO”	the Securities and Futures Ordinance (Cap. 571 of the Laws of
	Hong Kong)
“Shareholders”	shareholders of the Company
“Share(s)”	ordinary share(s) of HK$0.1 each in the share capital of the
	Company
“Star Western”	Star Western Holdings LLC, a company incorporated under the
	laws of the State of Delaware, the United States of America, a
	wholly-owned subsidiary of APG
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Subscription Shares”	35,569,384 new Class A common stocks in the share capital of
	APG to be subscribed by the Purchaser under the 1st Acquisition
	Agreement
“US$”	the lawful currency of the United States of America
“Vendors”	37 individuals and two limited liability companies, the legal and
	beneficial owners of the Sale Shares
“%”	per cent.

The exchange rates adopted for the purposes of this circular are: US$1 to HK$7.8 and HK$1 to RMB1.06.

LETTER FROM THE BOARD

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(Incorporated in Bermuda with limited liability) (Stock Code: 1188)

Executive Directors: Yung Yeung (Chairman) Chunhua Huang (Deputy Chairman) Jun Li (Chief Executive Officer) Yuwen Sun Wing Tak Law, Jack (Chief Financial Officer and Company Secretary) Chizuko Kubo

Registered Office: Canon’s Court 22 Victoria Street Hamilton HM 12 Bermuda

Independent Non-executive Directors:

Jian Wang Bangjie He Ho Yip Lee

Principal Place of Business in

Hong Kong: Suites 612-617, 6th Floor Hutchison House 10 Harcourt Road, Central Hong Kong

28 June 2005

To the Shareholders

Dear Sir or Madam,

ACQUISITION OF APG VERY SUBSTANTIAL TRANSACTION

INTRODUCTION

The Board announced on 21 March 2005 that the Purchaser, a wholly-owned subsidiary of the Company, and APG entered into the 1st Acquisition Agreement on 11 March 2005 whereby the Purchaser has conditionally agreed to subscribe for the Subscription Shares at US$5,753,930 (equivalent approximately to HK$44,880,654). The Subscription Shares represent approximately 48.5% of the existing issued share capital of APG and approximately 32.66% of the enlarged share capital of APG upon completion of the 1st Acquisition. It was also announced that the Purchaser had entered into the 2nd Acquisition Agreements with the Vendors on 11 March 2005 pursuant to which the Purchaser has conditionally agreed to purchase the Sale Shares at US$17,589,496 (equivalent to approximately HK$137,198,069). The Sale Shares represent 76.18% of the existing issued share capital of APG and 51.3% of the enlarged share capital of APG immediately after completion of the 1st Acquisition.

If the Acquisitions are completed in full, APG will become a wholly-owned subsidiary of the

Group.

* For identification purpose only

LETTER FROM THE BOARD

The Acquisitions constitute a very substantial acquisition to the Company under the Listing Rules and are subject to the approval of Shareholders. The purpose of this circular is to provide you with further information regarding the Acquisitions and to give you notice of the SGM.

A. THE 1ST ACQUISITION AGREEMENT

Date

11 March 2005 (as supplemented by an extension letter dated 12 May 2005)

Parties

(1) The Purchaser, a wholly-owned subsidiary of the Company, as purchaser.
(2) APG, a company incorporated in the State of California, the United States of America, with limited liability.

An extension letter to the 1st Acquisition Agreement dated 12 May 2005 was entered into between the same parties to extend the date for fulfilling the conditions from 10 June 2005 to 31 July 2005 and date of completion of the 1st Acquisition Agreement from within five business days after fulfilment or waiver of the conditions to within fourteen business days thereafter.

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiry, APG and its shareholders (including their ultimate beneficial owners) are third parties independent of the Company and connected persons of the Company save that the Group is a 23.82% shareholder of APG as at the Latest Practicable Date.

The Group subscribed for a 6.5% interest in APG in March 2004 and pursuant to the capital reorganisation of APG in March 2005, the Group’s interest was increased to 23.82%, no additional capital contribution by the Group was made in this regard.

As at the Latest Practicable Date, the Group does not have any representation on the board of directors of any member of the APG Group.

Subscription Shares

Pursuant to the Loan Agreement (as announced by the Company on 22 September 2004), the Purchaser as lender advanced US$5.6 million (equivalent to approximately HK$43.68 million) to APG which was secured by a share mortgage of 25% equity interest of Star Western, a whollyowned subsidiary of APG. Up to 11 March 2005 and the Latest Practicable Date, the principal amount outstanding is US$5.6 million (equivalent to approximately HK$43.68 million) and the interests accrued thereon is US$153,930 and US$273,985 (equivalent to approximately HK$1.20 million and HK$2.14 million) respectively.

Under the 1st Acquisition Agreement, the Purchaser has conditionally agreed to subscribe for 35,569,384 Subscription Shares at US$5,753,930 (equivalent approximately to HK$44,880,654), representing approximately US$0.16177 (equivalent approximately to HK$1.26178) per Subscription

LETTER FROM THE BOARD

Share. The Subscription Shares represent approximately 48.5% of the existing issued share capital of APG and approximately 32.66% of the enlarged share capital of APG upon completion of the 1st Acquisition. The consideration will be satisfied by setting off against the principal amount owed by APG to the Purchaser under the Loan Agreement and the interest accrued thereon as of 11 March 2005 upon completion of 1st Acquisition.

Ranking

The Subscription Shares shall rank pari passu in all respects with all existing Class A common stocks of APG in issue as at the date of the 1st Acquisition Agreement and shall be free from all encumbrances.

Consideration

The consideration under the 1st Acquisition has been determined after arm’s length negotiations with reference to the means of payment under the 1st Acquisition, the financial and market position and prospects of the APG Group. The Directors consider that the terms of the 1st Acquisition Agreement and the subscription price thereof (being a premium of 5.92% to the audited consolidated net asset value of Ningbo Phoenix Group as at 31 December 2004 and a discount of 1.7% to the audited consolidated net asset value of APG Group as at 31 December 2004 (after adjusting the loan advance of US$5.6 million under the Loan Agreement)) to be fair and reasonable and in the interest of Company and the Shareholders as a whole.

The terms of payment of the consideration under the 1st Acquisition will allow APG to retain the amount otherwise repayable under the Loan Agreement as its working capital.

Conditions

Completion of the 1st Acquisition Agreement is subject to the fulfillment of, among others, the following conditions:

simultaneous completion of the 2nd Acquisition Agreements;
the approval by Shareholders in general meeting of (a) the 1st Acquisition; and (b) all other transactions contemplated under the 1st Acquisition Agreement;
the obtaining of all consents from government or regulatory authorities or third parties which are necessary or desirable in connection with the execution and performance of the 1st Acquisition Agreement and any of the transactions contemplated under the 1st Acquisition Agreement; and
the legal, financial and operational due diligence review on the APG Group having been completed to the satisfaction of the Group.
6 -

LETTER FROM THE BOARD

The Purchaser may waive the condition precedents in items 1 and 3 above at any time, and such waiver may be subject to such terms and conditions as may be determined by the Purchaser. To the best knowledge of the Company, no governmental, regulatory or third party consent is required in connection with the execution and performance of the 1st Acquisition Agreement. As at the Latest Practicable Date, the Group has no intention to waive any of the conditions.

B. THE 2ND ACQUISITION AGREEMENTS

Date

11 March 2005 (as supplemented by 39 extension letters dated 12 May 2005)

Parties

(1) The Vendors, being 37 individuals and 2 limited liability companies, are the legal and beneficial owners of the Sale Shares, which represent 76.18% existing issued share capital of APG. The shareholding of the Vendors in APG ranges from 0.039% to 9.704%.

Both of the two corporate Vendors are limited liability companies principally engaged in the business of financial investments.

(2) The Purchaser, as purchaser.
(3) APG.
(4) The Company.

39 extension letters to the 2nd Acquisition Agreements dated 12 May 2005 were entered into between the same parties to extend the date for fulfilling the conditions from 10 June 2005 to 31 July 2005 and date of completion of the 2nd Acquisition Agreements from within five business days after fulfilment or waiver of the conditions to within fourteen business days thereafter.

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiry by obtaining their written confirmations, all the Vendors and in the case of the corporate Vendors, its ultimate beneficial owner(s), are third parties independent of the Company and connected persons of the Company.

To the best knowledge of the Directors, the Vendors are independent from and not connected with each other.

Sale Shares

The Sale Shares, being 55,875,144 Class A common stocks of APG, represent (i) 76.18% of the existing entire issued capital of APG; and (ii) 51.3% of the enlarged issued capital of APG after completion of the 1st Acquisition.

LETTER FROM THE BOARD

Consideration

The consideration for the sale and purchase of the Sale Shares is US$17,589,496 (equivalent to approximately HK$137,198,069) and will be satisfied by the allotment and issue, at the Issue Price, of the Consideration Shares.

Based on the closing price of the Shares on the Last Trading Day of HK$0.247 per Share and based on the minimum Issue Price of HK$0.25, the number of Consideration Shares will be approximately 548,792,263 and the market value attached to the 2nd Acquisition (i.e. the market value of the Consideration Shares) is approximately HK$135,551,689.

The Company will make a further announcement to inform the Shareholders the number of Consideration Shares to be issued and the effect of shareholding in relation thereto in the event that the Issue Price is higher than HK$0.25.

Based on the minimum Issue Price of HK$0.25 per Consideration Share:

the Consideration Shares represent approximately 28.95% of the existing issued share capital of the Company and approximately 22.45% of the enlarged issued share capital of the Company immediately following Completion; and
the number of Consideration Shares to be allotted and issued to the Vendors ranges from 280,735 Shares to 69,901,966 Shares, representing 0.011% and 2.860% of the enlarged issued share capital of the Company respectively.

The consideration under the 2nd Acquisition and the Issue Price have been determined after arm’s length negotiations with reference to the payment method under the 2nd Acquisition, market and financial position and prospects of the APG Group (as set out in the paragraph headed “Reasons for the 1st Acquisition and the 2nd Acquisition” below). The Directors consider that the terms of the 2nd Acquisition Agreements and the Issue Price, being a premium of 48.1% of the audited consolidated net assets value of Ningbo Phoenix Group as at 31 December 2004 and a premium of 37.4% to the audited consolidated net asset value of APG Group as at 31 December 2004 (after adjusting the loan advance of US$5.6 million under the Loan Agreement), to be fair and reasonable and in the interest of the Company and the Shareholders as a whole.

In considering the consideration payable for the Acquisitions, the Directors have taken into account that the consideration under the 2nd Acquisition would be satisfied by the issue of Consideration Shares at a premium referred to in the section headed “The Issue Price” below and that (i) the minimum Issue Price of HK$0.25 per Share represents a 346.4% premium over the audited consolidated net asset value of the Group of HK$0.056 per Share as at 31 December 2004 and (ii) the audited net loss per Share for the year ended 31 December 2004 is HK$0.0216.

The Directors also considered the difference of the subscription price of approximately US$0.16177 (equivalent approximately to HK$1.26178) per Subscription Share under the 1st Acquisition and the purchase price of US$0.3148 (equivalent approximately to HK$2.45544) per Sale Share under the 2nd Acquisition is fair and reasonable as the latter represents a premium of obtaining control of APG and the fact that the same is to be paid by the issue of Consideration Shares.

LETTER FROM THE BOARD

The total consideration paid by the Purchaser for the Acquisitions, being US$23,343,426 (equivalent to approximately HK$182,078,723) represents a premium of 49.7% of the audited consolidated net assets value of Ningbo Phoenix Group as at 31 December 2004 and a premium of 38.9% to the audited consolidated net asset value of APG Group as at 31 December 2004 (after adjusting the loan advance of US$5.6 million under the Loan Agreement). The Directors considered that the total consideration payable for the Acquisitions to be fair and reasonable and in the interest of the Company and the Shareholders as a whole with reference to the payment methods under the Acquisitions, market and financial position and prospects of the APG Group and the control of APG Group to be obtained.

Each of the Vendors undertakes to the Company that he/she/it:

shall not sell, transfer, assign, or otherwise dispose of the Consideration Shares within the twelve-month period immediately following the date of allotment and issuance of the Consideration Shares; and
shall not sell, transfer, assign, or otherwise dispose of more than 50% of the Consideration Shares he/she/it received during the 12 month period after the first anniversary of the date of allotment and issuance of the Consideration Shares.

An application has been made by the Company to the Stock Exchange for the listing of and permission to deal in the Consideration Shares.

The Issue Price

Assuming the Issue Price of the Consideration Shares (being the higher of HK$0.25 per Share and the average of the closing prices per Share as quoted on the Stock Exchange for 5 trading days prior to the SGM) is HK$0.25 per Share, it represents:

a premium of approximately 1.2% to HK$0.247, the closing price of the Shares on the Stock Exchange on the Last Trading Day;
a premium of approximately 3.7% to HK$0.241, the average closing price of the Shares on the Stock Exchange for the last 5 full trading days up to and including the Last Trading Day;
a premium of approximately 1.6% to HK$0.246, the average closing price of the Shares on the Stock Exchange for the last 10 full trading days up to and including the Last Trading Day; and
a premium of approximately 15.2% to HK$0.217, the closing price of the Shares on the Stock Exchange on the Latest Practicable Date.
9 -

LETTER FROM THE BOARD

The Consideration Shares (being 548,792,263 Shares based on the minimum Issue Price of HK$0.25 each) have an aggregate market value of approximately HK$135,551,689 (calculated on the basis of HK$0.247 per Share with reference to the closing price of the Shares on the Stock Exchange on the Last Trading Day).

Conditions

Completion of the 2nd Acquisition Agreements is subject to the fulfillment of, among others, the following conditions:

completion of the sale and purchase of such number of Sale Shares so that the Group will have over 80% control of the voting rights of APG;
simultaneous completion of the 1st Acquisition Agreement;
the approval by the Shareholders in general meeting of (a) the 2nd Acquisition; (b) the allotment and issue of the Consideration Shares; (c) all other transactions contemplated under the 2nd Acquisition;
the Listing Committee of the Stock Exchange granting the listing of and permission to deal in the Consideration Shares;
(when required) the Bermuda Monetary Authority granting its permission to deal in the Consideration Shares;
the obtaining of all consents from government or regulatory authorities or third parties which are necessary or desirable in connection with the execution and performance of the 2nd Acquisition Agreements and any of the transactions contemplated under the 2nd Acquisition Agreements;
the legal, financial and operational due diligence review on the APG Group having been completed to the satisfaction of the Purchaser.

The Purchaser may waive the condition precedents in items 2 and 6 above at any time, and such waiver may be subject to such terms and conditions as may be determined by the Purchaser. To the best knowledge of the Company, no governmental, regulatory or third party consent is required in connection with the execution and performance of the 2nd Acquisition Agreements. As at the date hereof, the Group has no intention to waive any of the conditions.

COMPLETION OF THE ACQUISITIONS

Completion of the Acquisitions will take place within 14 business days after all the conditions (other than simultaneous completion of the 1st Acquisition and 2nd Acquisition) have either been fulfilled or waived. If any of the conditions to Completion has not been fulfilled (or waived by the Purchaser) by 31 July 2005 (or such later date as the parties may agree in writing), the 1st Acquisition and the 2nd Acquisition will lapse and all obligations and liabilities of all parties thereto will cease except for any antecedent breaches.

10 -

LETTER FROM THE BOARD

SHAREHOLDING STRUCTURE BEFORE AND AFTER COMPLETION

APG

As at the Latest Practicable Date, the Group has a 23.82% shareholding in APG, which it acquired in March 2004 at US$2.75 million (equivalent to HK$21.45 million). Immediately after the completion of the Acquisitions in full, APG will become a wholly owned subsidiary of the Group and the Group may nominate such persons to the board of directors of APG as it determines.

The shareholding structure of APG (a) as at the Latest Practicable Date; (b) immediately after completion of the 1st Acquisition; and (c) immediately after completion of the Acquisitions in full is as follows:

			Number of		Number of
			Class A		Class A
			common stocks		common stocks
			of APG held		of APG held
	Number of		immediately		immediately
	Class A		after completion		after
	common stocks	Approximate	of 1st		completion of	Approximate
	of APG held as	% of issued	Acquisition but	Approximate %	1st Acquisition	% of issued
	at the Latest	share capital	before the 2nd	of issued share	and 2nd	share capital of
Name	Practicable Date	of APG	Acquisition	capital of APG	Acquisition in full	APG
The Purchaser	17,467,108	23.82%	17,467,108	16.038%	108,911,636	100%
The Purchaser			35,569,384	32.659%
The Vendors	55,875,144	76.18%	55,875,144	51.303%	–	–
Total:	73,342,252	100.00%	108,911,636	100.000%	108,911,636	100%

The Company

The shareholding structure of the Company (a) as at the date of the Latest Practicable Date and (b) immediately after Completion based on the minimum Issue Price of HK$0.25 per Share is as follows:

			Number of
	Number of Shares	Approximate	Shares held
	held as at the Latest	% of issued	immediately after	Approximate %
Name	Practicable Date	Shares	Completion in full	of issued Shares
			(note 3)	(note 3)
Sun East LLC
(note 1)	945,456,600	49.88%	945,456,600	38.68%
Pure Shine Limited
(note 2)	162,951,000	8.60%	162,951,000	6.67%
The Vendors	–	–	548,792,263	22.45%
			(note 3)
Other public
Shareholders	787,043,400	41.52%	787,043,400	32.20%
Total:	1,895,451,000	100.00%	2,444,243,263	100.00%
			(note 3)

11 -

LETTER FROM THE BOARD

Note:

Sun East LLC is a company owned as to 35% by Mr. Yung Yeung and 65% by Mr. Chunhua Huang and Mr. Yuwen Sun as trustees for certain trusts established for the benefit of the children of Mr. Yung Yeung.
Pure Shine Limited is a wholly-owned subsidiary of Brilliance China Automotive Holdings Limited.
If the Issue Price is more than HK$0.25, the number of Consideration Shares, the total number of Shares in issue and the shareholding of the Vendors in the Company will be reduced accordingly.

INFORMATION ON THE APG GROUP

General

APG is a company incorporated in August 2002 in the State of California, USA and is an investment holding company. As at the Latest Practicable Date, apart from 73,342,252 Class A common stocks outstanding and in issue, there is no other capital stock outstanding and in issue. Through its subsidiaries, APG operates dealerships in motor vehicles in the PRC and auto malls in Guangzhou and undertakes property development business in Ningbo, the PRC.

Star Western is a company incorporated in July 2002 in the State of Delaware, USA and is an investment holding company. Star Western became interested in the Ningbo Phoenix Group since September 2002 and APG acquired the entire interest of Star Western for US$8,750,000 in January 2004.

12 -

LETTER FROM THE BOARD

Structure of the APG Group

The following chart shows the simplified corporate structure of the APG Group as at the Latest Practicable Date:

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

American Phoenix Group, Inc. (USA)
100%
Star Western Holdings LLC (USA)
100%
Intermediate holding companies (PRC)
100%
50% 寧波鳳凰汽車銷售服務有限公司
(Ningbo Phoenix Automobile
Distribution and Services
Co. Ltd) (PRC)
90% 50% 63.3% 51% 51% 51% 51% 51%
上海交運
上海聖飛汽車上海環亞中廣州申飛寧波聖菲聖飛汽車上海大眾汽上海大眾汽
銷售服務進國際易汽車銷售汽車銷售銷售服務車寧波銷售車台州銷售上海怡通汽車
有限公司有限公司服務有限公司服務有限公司服務有限公司服務有限公司銷售有限公司
(Shanghai (Shanghai (Guangzhou 有限公司 (Shanghai (Shanghai (Shanghai (Shanghai
Automobile Sales and Shengfei International Zhougin Huanya Automobile Shenfei Sales Automobile Shengfei (Ningbo Automobile Jiaoyun – Shengfei Ningbo Sales and Services Volkswagen Taizhou Sales and Services Volkswagen Automobile Yitong Sales
Services, Trade and Sales and Sales Company Company Co.,
Ltd.) Co. Ltd) Services Services, and Ltd.) Ltd.) Ltd.)
(PRC) (PRC) Co. Ltd) Ltd.) Services (PRC) (PRC) (PRC)
(note 1) (note 2) (PRC) (PRC) Co. Ltd) (note 1) (note 4) (note 5)
(note 3) (note 3) (PRC)
(note 1)
90% 90% 90% 51% 50%
廣東眾大廣州申奧廣東佳馬上海怡通汽
汽車維修有限公司服務有限公司汽車銷售服務有限公司汽車銷售有限公司車服務地產有限公司寧波華都房
(Guangdong Maintenance Automobile Co., Ltd.) Zhongda (note 1) (PRC) (Guangzhou Automobile Co., Ltd.) Sales and Shen Ao Services (PRC) (Guangdong Automobile Co., Ltd.) Sales and Services (PRC) Jiama Automobile Co., Ltd) (Shanghai Services (note 1) Yitong (PRC) Real Estate Co., Ltd) (Ningbo (note 5) Huadu (PRC)
(note 3) (note 3)
75%
55%
廣州申飛金華巿華都
通立汽車置業有限公司
銷售服務 (Jinhua
25% 有限公司 Huadu
(Guangzhou Property
Shenfe Co., Ltd.)
Tongli (PRC)
Automobile (note 5)
Sales and
Service
Co., Ltd)
(PRC)
(note 3)
----- End of picture text -----

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LETTER FROM THE BOARD

Notes:

The notes denote the principal operating activities of the members of the APG Group:

sale of automobiles and parts
international trade
sale of automobiles (excluding passenger cars) and parts
sale of automobiles and sales of Volkswagen auto parts
property development

Ningbo Phoenix was incorporated in the PRC in September 2002. The registered capital of Ningbo Phoenix was RMB85,000,000 and has been increased to RMB135,357,883 in December 2003. It established its first subsidiaries in October 2002 in Shanghai and followed by the establishment of a further 8 subsidiaries and acquisition of interest in 6 companies in other major cities in the PRC such as Guangzhou and Ningbo.

Businesses of the APG Group

The principal operating activities of the subsidiaries of Ningbo Phoenix are the dealership of motor vehicles and spare parts, operating auto malls in Guangzhou and property development in the PRC. Ningbo Phoenix is the intermediate holding company of the APG Group.

The APG Group currently has a total of 14 distribution outlets for automobiles located in Shanghai, Ningbo and Guangzhou and 9 repairs centers. For the year ended 31 December 2004, the APG Group distributed 15 brands of passenger cars (on a non-exclusive basis), including MG Rover, GM Buick, Volkswagen, Ford and Audi and sold a total of 9,800 passenger cars.

The APG Group operates 6 auto malls in Guangzhou through 廣州申飛汽車銷售服務有限公司 (English translieration: Guangzhou Shenfei Automobile Sales and Services Co. Ltd), a 63.3% subsidiary. The malls have a total area of 25,550.9 square metres.

The APG Group also undertakes property development in Ningbo through 寧波華都房地產有限公司 (English transliteration: Ningbo Huadu Real Estate Co., Ltd), a 50% subsidiary. The development project comprises of a residential project in Ningbo, the PRC with a site area of approximately 10,300 square meters. Construction commenced in May 2004. It is currently expected that the development will be completed by October 2005 and out of the current total estimated investment cost for the project of RMB52 million (equivalent to HK$49.06 million), approximately RMB27.6 million (equivalent to HK$26.04 million) has been paid up.

The Group did not commit any financial obligations in relation to the businesses of APG Group as a result of the Acquisitions.

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LETTER FROM THE BOARD

Financial information of APG Group

According to the audited consolidated accounts of APG for the two years ended 31 December 2004, it has (i) a consolidated net asset of RMB7.8 million and RMB92.6 million (equivalent to approximately HK$7.4 million and HK$87.4 million); (ii) a consolidated profit/(loss) before tax and before minority interests of RMB(0.4) million and RMB13.4 million (equivalent to approximately HK$(0.4) million and HK$12.6 million); and (iii) a consolidated profit/(loss) after tax and before minority interests of RMB(0.4) million and RMB4.4 million (equivalent to approximately HK$(0.4) million and HK$4.2 million) respectively.

According to the audited consolidated accounts of Ningbo Phoenix for the two years ended 31 December 2004, it has (i) a consolidated net asset of RMB122.1 million and RMB128.9 million (equivalent to approximately HK$115.2 million and HK$121.6 million); (ii) a consolidated profit/(loss) before tax and before minority interests of RMB(18.1) million and RMB19.3 million (equivalent to approximately HK$(17.1) million and HK$18.2 million); and (iii) a consolidated profit/(loss) after tax and before minority interests of RMB(12.0) million and RMB9.9 million (equivalent to approximately HK$(11.3) million and HK$9.3 million) respectively.

Please also refer to Appendix II to this circular for the Accountants’ Report on the APG Group and to Appendix III to this circular for the Accountants’ Report on the Ningbo Phoenix Group.

REASONS FOR THE 1ST ACQUISITION AND THE 2ND ACQUISITION

The principal activities of the Group are the operation of indoor family entertainment game centers and manufacturing and selling automobile axles in the PRC. The performance of these businesses has not been satisfactory in recent years.

The Directors consider that there is substantial room for growth in the dealership of passenger cars in the PRC. With the reduction of car import duty under WTO commitments and more foreign manufacturers are setting up manufacturing facilities in the PRC, the selection available to the Chinese consumers is expected to increase in the next few years. Coupled with the increase in income level, the demand for passenger cars and car ownership are expected to rise. The Directors noted that a sizeable car dealership such as the APG Group (which operates business in major cities and across provinces) is well positioned to become one of the market leaders in this field.

The Group has been engaged in the business of manufacturing automobile parts for several years. The senior management, in particular, the Chairman, Mr. Yeung Yung has considerable experience and expertise in the automobile industry in the PRC.

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LETTER FROM THE BOARD

The Acquisitions would enable the Company to have a foothold in car dealership business in the PRC which the Board intends to further expand and to negotiate distributorship of other quality brands of automobiles. The Group hopes to achieve synergy and economies of scale to strengthen bargaining power with car manufacturers on better pricing and delivery timetable. Increase in business activities could also enhance the business activities in cars repair and maintenances.

The Acquisitions will also help to diversify the existing businesses of the Group.

BOARD OF DIRECTORS

None of Vendors indicates that he/she/it has intention to nominate any representation on the Board.

FINANCIAL EFFECTS OF THE ACQUISITIONS ON THE GROUP

After the full completion of the Acquisitions, APG will become a wholly-owned subsidiary of the Company and the post-acquisition financial results of the APG Group will be consolidated with the results of the Group.

(a) Assets and liabilities

As at 31 December, 2004, the audited net asset value of the Group amounted to approximately HK$106.5 million, representing approximately HK$0.056 per Share (based on 1,895,451,000 Shares in issue as at 31 December 2004). Based on the unaudited pro forma balance sheet of the Enlarged Group set out in Appendix IV to this circular, the unaudited pro forma adjusted combined net asset value of the Enlarged Group will increase to approximately HK$243.7 million whereas the issued shares will be increased by a maximum of 548,792,263 to 2,444,243,263 Shares immediately after Completion. As a result, the net asset value per Share would be increased to approximately HK$0.100.

Upon Completion, a goodwill of approximately HK$72.11 million equivalent to the amount of premium paid by the Group over consolidated net assets value of the APG Group as at 31 December 2004 will be derived. The goodwill will be recognized at its net carrying value after considering adequate impairment loss, pursuant to the new accounting standards effective 1 January 2005.

(b) Earnings

After completion of the Acquisitions, the financial results of the Group will include 100% of the net earnings of APG Group. For the year ended 31 December 2004, the audited consolidated loss before taxation of the Group is approximately HK$44.36 million, representing approximately a loss of HK$0.023 per Share (base on 1,895,451,000 Shares in issue). Based on the unaudited pro forma income statement of the Enlarged Group set out in Appendix IV to this circular, the unaudited pro forma adjusted loss before taxation of the Enlarged Group will decrease to approximately HK$38.93 million, representing approximately a loss of HK$0.016 per Share immediately after Completion (assuming 2,444,243,263 Shares in issue immediately after Completion).

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LETTER FROM THE BOARD

DISCUSSION AND ANALYSIS OF THE PERFORMANCE OF THE GROUP AND NINGBO PHOENIX GROUP

The Group

For the year ended 31 December 2002

Business review

Turnover for the fiscal year ended 31 December 2002 totalled HK$15,445,000, an increase of 8% over the same period in 2001. The increase was a result of the resumption of operation of Shenyang Liao Hua Automobile Axles Company Ltd. (“Shenyang JV”), a sino-foreign joint venture engaged in the manufacturing and sale of automobile axles business in the PRC and was owned as to 51% by the Group and 49% by PRC party. The loss attributed to the Shareholders increased by approximately 66.4% from HK$35,110,000 to HK$58,436,000. During the period under review, the Group was operating under exceptionally harsh market conditions and suffered from internal conflict within the Board in composition prior to 22 November 2002. With a new composition of the board of directors, the Company was then able to centralize its efforts in improving business operations to the benefit of the Company and its Shareholders.

There was no new business, material acquisitions and disposals of subsidiaries and associated companies in the financial year of 2002.

Financial review

The Group had cash and bank balances of approximately HK$124.31 million and without any loan liability as at 31 December 2002. Accordingly, the gearing ratio was zero, calculated on the basis of the Group’s borrowing over shareholders’ fund.

As at 31 December 2002, the Group had aggregate banking facilities of HK$500,000, all of them remained unutilized. The facilities were secured by a certificates of deposit amounted to HK$700,000. There was no other material charges on group assets.

Almost all of the income and expenditure of the Group were denominated in Hong Kong Dollar, Renminbi and United States Dollar. In view of the stability of the exchange rates among these three currencies, the Group had not been subject to exchange rate fluctuation exposure and thus no financial instruments had been adopted for hedging purpose.

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LETTER FROM THE BOARD

For the year ended 31 December 2003

Business review

Compared with the previous year, the Group’s turnover for the year ended 31 December 2003 increased by 12% to approximately HK$17.27 million while gross profit decreased by 54.4% to approximately HK$3.22 million. The turnover for sale of automobile axles increased more than twice to approximately HK$12.59 million, representing 72.9% of the total turnover of the Group during the year under review. The increase was due to the resumption of operation since October 2002. The turnover in previous year only reflected the sales in the last quarter of that year while the turnover in the year under review reflected the sales of a whole year. The turnover for the entertainment game center operations was decreased by 50% to approximately HK$4.68 million. Even though there was significant increase in sales of automobile axles business, the gross profit on sales of automobile axles was much lower than the entertainment centers operations which resulted in the decrease of total gross profit, hence the Group has recorded an unaudited loss attributable to shareholders of HK$51.40 million for the year ended 31 December 2003. The slight decrease in loss was mainly attributable to the success in cost saving.

During the year under review, the Group operated four entertainment centers in the PRC. The outbreak of SARS in the PRC led to a drop in turnover and a significant increase in loss for these operations.

The Shenyang JV achieved a turnover of about HK$12.59 million. The loss on sales of automobile axles decreased from HK$1.60 million to HK$1.37 million. The improved result was due to the better utilization of the assets. The Group had taken steps to utilize the Shenyang JV’s internal resources to advance its production lines with the aim to improve the quality of its products and make them more competitive and attractive to potential customers in the open market.

There was no new business, material acquisitions and disposals of subsidiaries and associated companies in the financial year of 2003.

Financial review

The Group had cash and bank balances of approximately HK$132.92 million and without any loan liability as at 31 December 2003. Accordingly, the gearing ratio was zero, calculated on the basis of the Group’s borrowing over shareholders’ fund.

As at 31 December 2003, the Group had aggregate banking facilities of HK$500,000, all of them remained unutilized. The facilities were secured by a time deposit of HK$700,000. There was no other material charges on group assets.

Almost all of the income and expenditure of the Group were denominated in Hong Kong Dollar, Renmibi and United States Dollar. In view of the stability of the exchange rates among these three currencies, the Group had not been subject to exchange rate fluctuation exposure and thus no financial instruments had been adopted for hedging purpose.

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LETTER FROM THE BOARD

For the year ended 31 December 2004

Business review

During the year, the Group’s turnover amounted to approximately HK$6.76 million, representing a decrease of approximately 60.8% as compared to that of 2003. The decrease was due to the closure of game centers and suspension of production of automobile axles. The Group had recorded an audited loss attributable to shareholders of HK$40.92 million for the year ended 31 December 2004, which represent a decrease of approximately 20.4% when compared to 2003. The decrease in loss was mainly attributable to the success in cost saving.

At the beginning of the year under review, the Group was operating four indoor family entertainment game centers in the PRC. During the year, the entertainment game centers in Shanghai and Wuxi were closed because of poor performance and expiry of tenancy agreement respectively. Total revenue and loss incurred from the Shanghai and Wuxi entertainment game centers for the year ended 31 December 2004 were approximately HK$520,000 and HK$720,000 respectively. The closure of the entertainment game centers resulted in a significant decrease in turnover to about HK$1.66 million when compared to HK$4.68 million in 2003. The recorded loss was decreased by 76.8% from HK$6.09 million in 2003 to HK$1.41 million for the year ended 31 December 2004. This was because the losses due to closure of entertainment game centers had been fully provided and reflected in last year results. The Chinese joint venture partners had taken legal action against the subsidiaries of the Company for compensating their guaranteed profits and legal fees.

The Shenyang JV maintained operations in the first half of 2004 with revenue amounting to approximately HK$5.1 million. However as the local government reclaimed the land of the site of the JV for redevelopment, the JV needed to relocate to a new site causing a substantially impairment to its fixed assets, hence the Shenyang JV reported a loss attributable to the Group (after deducting minority interests) of approximately HK$4.73 million for the year ended 31 December 2004. Due to the re-allocation of plant, the production was temporarily suspended. The Chinese joint venture partner requested a substantial expansion of the Shenyang JV, the Group is reviewing and considering the proposal in a view of maximizing the Group’s benefit and in the best interest of the Group.

The Group maintained its position in locating favorable investment projects globally. During the year, the Group managed to reduce its expenses but still recorded a net loss of approximately HK$34.78 million.

In March 2004, the Group had made an investment of US$2.75 million in APG, which holds a controlling stake in Ningbo Phoenix. Ningbo Phoenix had 14 points of sales and 9 repairs centers located in major cities in the PRC and it distributed 15 brands of passenger cars on a non-exclusive basis. The investment enabled the Company to have a foothold in car dealership business in the PRC which the Board intended to further expand and to negotiate distributorship of other quality brands of automobiles. The Group hoped to achieve synergy and economies of scale to strengthen bargaining power with car manufacturers on better pricing and delivery timetable.

Save as disclosed above, there was no other new business, material acquisitions and disposals of subsidiaries and associated companies in the financial year ended 31 December 2004.

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LETTER FROM THE BOARD

Financial review

The Group had cash and bank balances of approximately HK$31.83 million and without any loan liability as at 31 December 2004. Accordingly, the gearing ratio was zero, calculated on the basis of the Group’s borrowing over Shareholders’ fund.

As at 31 December 2004, the Group had aggregate banking facilities of HK$500,000, all of them remained unutilized. The facilities were secured by a time deposit of HK$700,000. There was no other material charges on group assets.

The Ningbo Phoenix Group

For the year ended 31 December 2002

Ningbo Phoenix was registered in PRC on 30 September 2002 with a registered capital of RMB85 million. It was engaged in the business of dealership of motor vehicles and spare parts. In 2002, 2 subsidiaries in Shanghai were established. As it was still at the early stage of its establishment and expansion plan, it did not commence trading yet and therefore recorded no turnover and suffered a net loss of RMB844,000 and its net asset value was RMB84.2 million as at 31 December 2002. As at 31 December 2002, Ningbo Phoenix Group had cash and bank balances of approximately RMB54.12 million and no loan liabilities. The gearing ratio for Ningbo Phoenix Group as at 31 December 2002 was zero calculated on the basis of borrowing over shareholders’ funds.

For the year ended 31 December 2003

The share capital of Ningbo Phoenix was increased from RMB85 million to approximately RMB135.36 million in December 2003.

During the year, Ningbo Phoenix Group expanded through partnership with local dealers and acquisition of established dealership. It commenced trading in 2003 and acquired majority shareholdings in 15 PRC companies principally engaged in sales of automobiles and parts. It recorded an audited consolidated turnover of approximately RMB145.6 million attributable to the sales of automobiles and parts. However, due to the high operating cost which had not reached its economies of scale, its suffered an audited consolidated net loss of approximately RMB12.4 million. As at 31 December 2003, its net asset value was approximately RMB122.1 million. As at 31 December 2003, Ningbo Phoenix Group had cash and bank balances of approximately RMB44.67 million and pledged bank deposits and restricted bank balances were approximately RMB147.14 million and RMB1.34 million respectively. Secured bills payable and bank loans were approximately RMB238.33 million and RMB31.85 million respectively. Gearing ratio for Ningbo Phoenix Group as at 31 December 2003 was 2.2.

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LETTER FROM THE BOARD

For the year ended 31 December 2004

In 2004, Ningbo Phoenix Group was exploring the full potential of its established subsidiaries. It expanded further with the acquisition of additional 3 subsidiaries, and in October 2004, it acquired a subsidiary in Ningbo which was engaged in property development. However, Ningbo Phoenix also underwent internal streamlining by disposing its interest (i) in three subsidiaries (all were engaged in sales of automobile and parts) back to the original shareholders at the original purchase price. These original shareholders were also former shareholders of Ningbo Phoenix and APG. (ii) in one subsidiary (which was engaged in sales of automobile and parts) to a third party at the original investment cost to restructure its distribution network; and (iii) in one subsidiary (which was engaged in property development) to a related party to realise appreciation in value of its investment. Another subsidiary was also deregistered.

The turnover of Ningbo Phoenix Group increased to approximately RMB1,121.7 million of which approximately RMB1,104 million was derived from sales of automobiles and parts and the rest was derived from sales of properties. It recorded an audited consolidated net profit of approximately RMB6.78 million and its audited net asset value was RMB128.9 million at 31 December 2004. As at 31 December 2004, Ningbo Phoenix Group had cash and bank balances of approximately RMB47.82 million. Pledged bank deposits and restricted bank balances were RMB111.51 million and RMB2.89 million respectively. Secured bills payable and bank loans were RMB220.11 million and RMB88.05 million respectively. Gearing ratio for Ningbo Phoenix Group in 2004 was 2.39.

Almost all of the income and expenditure of Ningbo Phoenix Group were denominated in Renmibi and United States Dollar. In view of the stability of the exchange rates amongst these two currencies, Ningbo Phoenix Group has not been subject to exchange rate fluctuation exposure and thus no financial instruments have been adopted for hedging purpose.

Directors’ view on the modified opinion made by the reporting accountant

In view that five subsidiaries of the APG Group were acquired/incorporated and disposed of, and one subsidiary was incorporated and de-registered during the financial year ended 2004 (the said six subsidiaries are referred to as “Unconsolidated Subsidiaries”), the APG Group was not able to produce the books and records of these companies for consolidation of their attributable results into the consolidated financial statements of Ningbo Phoenix Group and APG Group for the year ended 31 December 2004 as required under the Statement of Standard Accounting Practice No. 32 issued by the Hong Kong Institute of Certified Public Accountants. Disclosures of information on the Unconsolidated Subsidiaries results attributable to APG Group as required by Schedule 10 of the Companies Ordinance have not been included. Accordingly, the reporting accountant has modified their opinion in relation to the consolidated financial statements of APG and Ningbo Phoenix.

Background

In January 2004, APG acquired the issued share capital of Star Western which held amongst others, three of the Unconsolidated Subsidiaries (namely, Shanghai Volkswagen Chengdu Shenrong Sales & Service Co. Ltd (“Chengdu Shenrong”), Beijing Shenyin Automobile Sales Co. Ltd. (“Beijing Shenyin”) and Shanghai Volkswagen Tianjin Dongli Sales & Service Co. Ltd. (“Tianjin Dongli”)). These Unconsolidated Subsidiaries were acquired by Ningbo Phoenix in 2003. The Directors were advised by

21 -

LETTER FROM THE BOARD

the management of APG that after the acquisition of Star Western by APG in early 2004, the minority shareholders/directors of these three Unconsolidated Subsidiaries were not accustomed to the management standards of APG in particular relating to corporate governance and accounting standards and with the approval from APG, the interests held by Ningbo Phoneix in these three Unconsolidated Subsidiaries were disposed back to the original vendors at the original price (which was determined by the then management of Star Western and those vendors) in or about the last quarter of 2004.

One of the Unconsolidated Subsidiaries, Sichuan Shenrong Sales & Service Co. Ltd. was incorporated by Ningbo Phoneix as a 51% shareholder in January 2004, Ningbo Phoneix subsequently sold its entire interest to a third party at the original investment cost in October 2004 to restructure its distribution network.

Xian Tongfei Sales & Service Co. Ltd. was established in May 2003 as a 99% subsidiary of Ningbo Phoneix and business has not been commenced. It was de-registered in April 2004 due to internal streamlining of operations by Ningbo Phoenix.

In October 2004, Ningbo Phoenix acquired 50% interest in Ningbo Huadu Real Estate Co. Ltd. (“Ningbo Huadu”) which held a 60% interest in Jiaxing Shuimu Qinghua Real Estate Company Limited (“Jiaxing Shuimu”). Ningbo Huadu disposed of its entire interest in Jiaxing Shuimu in November 2004 at RMB14.8 million to the other 50% shareholder of Ningbo Huadu to realize the appreciation in value of its investment.

Directors’ view

In conducting the preliminary due diligence exercise on the operational, financial and legal aspects of APG Group prior to the entering into the Acquisitions, the Directors had taken into account of the disposal/deregistration of the Unconsolidated Subsidiaries and noted that their results would not be consolidated into the financial statements of APG, and in determining the consideration for the Acquisitions, the net asset value of the APG Group was prepared without the consolidation of the results of the Unconsolidated Subsidiaries.

The Directors have obtained a PRC legal opinion that such disposals have been completed and are legal and valid and the Directors, having reviewed the relevant sale and purchase agreements for such disposals, are not aware of any potential liabilities on the APG Group in relation to the Unconsolidated Subsidiaries. As such, the Directors consider that the non-consolidation of the results of the Unconsolidated Subsidiaries would not affect the evaluation of the Acquisitions.

The disposals of Ningbo Phoenix’s interests in Chengdu Shenrong, Beijing Shenyin, Tianjin Dongli and Jiaxing Shuimu were considered as related party transactions in the consolidated financial statements of APG. The Directors having considered the reasons for the disposals, consider that the considerations of such disposals were fair and reasonable.

The Directors also noted that Ningbo Chenggi Yuan Property Co. Ltd., a related party to APG, is indebted to the APG Group for RMB10.3 million being the balance of consideration for its acquisition of interests in Jiaxing Shuimu, such outstanding amount is not yet due, the Directors would closely monitor the repayment schedule thereof.

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LETTER FROM THE BOARD

Prospect of the Enlarged Group

The Directors plan to focus on the automobile distribution and property development businesses of the Enlarged Group as the performance of the principal businesses of the Group has not been satisfactory in recent years.

Although the rapid growth of passenger vehicles sales has been slowing down, automobile and related industries remain the focus of the PRC market. The Directors noted that due to the reduction of car import duty under WTO commitments, more foreign manufacturers will be setting up manufacturing facilities in the PRC, the selection of automobiles available to consumers in the PRC would increase in the next few years. Coupled with the increase in income level, the demand for passenger cars and car ownership are expected to continue to rise.

According to the forecast of China Association of Automobile Manufacturers, a total of 5,600,000 units of motor vehicles will be manufactured this year. Given that the construction of the automall in Guangzhou of the Enlarged Group will be completed this year, the Directors are of the view that the turnover of the Enlarged Group will be increased significantly. However, the Directors also noted the conservative buying patterns of PRC consumers may unfavorably affect the profit margin of the Enlarged Group, to cope with this issue and the changing demand of the PRC automobile market, the Directors plan to reformulate the marketing strategy of the APG Group by concentrating on the distribution of latest models of motor vehicles so as to stimulate buying interest to increase turnover.

On the other hand, investment scale in real estate industry in the PRC has exceeded RMB1 trillion in 2003 and remains a major industry in the Chinese national economy. Given that the PRC recorded significant economic growth in recent years, the Directors believe that the trend of economic growth will continue. The high demand for real estate in the PRC is not limited to major cities like Beijing or Shanghai, Ningbo is also a city recorded significant economic growth in recent years. The Directors are of the view that the Enlarged Group’s participation in property development industry would bring reasonable return to the Enlarged Group in the long run. Currently, the major property project for the Enlarged Group is Huadu Apartments in Ningbo which has an estimated total gross floor area of approximately 15,660.7 square meters and will be launched to the market for sale by the end of 2005 or in 2006.

Apart from the Acquisitions, the Directors have no imminent plan for any material investments, acquisitions or disposal of capital assets for the current financial year. However, the Enlarged Group will continue to reinforce its financial position so that it would be fully prepared to seize suitable investment opportunities when they arise.

THE SGM

The Acquisitions are subject to the approval of the Shareholder at the SGM. A notice of the SGM to be convened and held at Suites 612-617, 6th Floor, Hutchison House, 10 Harcourt Road, Central, Hong Kong on Monday, 18 July 2005 at 9:30 a.m. is set out on pages 187 and 188 of this circular with the relevant resolutions to be proposed to the Shareholders to consider and, if thought fit, approve, among others, the Acquisitions. No Shareholder is required to abstain from voting in the SGM.

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LETTER FROM THE BOARD

A form of proxy for use at the SGM is enclosed. Whether or not you are able to attend the meeting, please complete the accompany form of proxy in accordance with the instructions printed thereon and return the same to the principal place of business in Hong Kong of the Company at Suites 612-617, 6th Floor, Hutchison House, 10 Harcourt Road, Central, Hong Kong not later than 9:30 a.m. on Saturday, 16 July 2005 or, in case of any adjournment, not less than 48 hours before the time appointed for the holding of the meeting. Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting should you so wish.

PROCEDURE TO DEMAND POLL

Pursuant to Bye-law 66 of the Bye-laws of the Company, a resolution put to the vote of a meeting shall be decided on a show of hands unless (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is demanded:

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

RECOMMENDATION

The Directors (including all the independent non-executive Directors) are of the view that the terms of the 1st Acquisition Agreement and 2nd Acquisition Agreements are fair and reasonable and in the interest of the Company and the Shareholders as a whole. Accordingly, the Directors (including all the independent non-executive Directors) recommend the Shareholders to vote in favour of the resolutions to be proposed at the SGM.

Your attention is also drawn to the additional information set out in the appendices to this circular.

By order of the Board

Compass Pacific Holdings Limited Law Wing Tak Jack Director

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(A) The following is a summary of the financial information of the Group extracted from the audited financial statements of the Group for the three financial years ended 31 December 2004. The financial statements of the Group have been prepared in accordance with accounting principles generally accepted in Hong Kong and comply with accounting standards issued by the Hong Kong Institute of Certified Public Accountants and the auditors had not issued any qualified or modified opinion on the financial statements.

CONSOLIDATED INCOME STATEMENT

Turnover Cost of sales Gross profit Other revenue Operating expenses Finance cost Loss before taxation Taxation Loss before minority interests Minority interests Loss attributable to shareholders Loss per share – basic Loss per share – diluted	Year ended 31 December 2004 2003 2002 HK$’000 HK$’000 HK$’000 6,758 17,265 15,445 (5,382) (14,045) (8,382) 1,376 3,220 7,063 2,283 1,261 2,524 (48,016) (56,584) (68,558) – – (66) (44,357) (52,103) (59,037) – – – (44,357) (52,103) (59,037) 3,442 703 601 (40,915) (51,400) (58,436) (2.16) cents (3.92) cents (4.62) cents N/A N/A N/A

25 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED BALANCE SHEET

As at 31 December

ASSETS AND LIABILITIES Non-current assets Property, plant and equipment Long term investment Rental, utilities and other deposits Certificates of deposit Other loan receivables Current assets Inventories Land held for resale Trade receivables Other receivables Prepayments and deposits Loan and interest receivables from an investee company Amount due from a related company Pledged bank deposits Cash and cash equivalents Current liabilities Trade payables Accruals and other payables Amount due to a related company Net current assets Total assets less current liabilities Minority interests Net assets CAPITAL AND RESERVES Share capital Reserves Shareholders’ funds	2004 HK$’000 14,249 21,423 650 – 2,259 38,581 71 1,636 – 4,747 9,787 44,227 1,447 700 31,828 94,443 701 13,807 – 14,508 79,935 118,516 12,059 106,457 189,545 (83,088) 106,457	2003 HK$’000 24,723 – 988 – 1,246 26,957 167 – 127 5,706 10,931 – – 700 132,915 150,546 624 13,941 65 14,630 135,916 162,873 15,501 147,372 189,545 (42,173) 147,372	2002 HK$’000 23,710 – 710 1,000 –
			25,420
			721 – 3,317 6,246 986 – – – 124,309
			135,579
			598 9,496 1,076
			11,170
			124,409
			149,829 16,204
			133,625

			126,363 7,262
			133,625

26 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(B) The following is the reproduction of the full text of the audited financial statements of the Company contained in pages 21 to 53 of the Company’s 2004 annual report. References to page number and note number refer to the page number and note number in the 2004 annual report.

CONSOLIDATED INCOME STATEMENT

For the year ended 31st December, 2004

Notes TURNOVER 4 Cost of sales Gross profit Other revenue 4 Operating expenses Loss before taxation 5 Taxation 7 Loss before minority interests Minority interests Loss attributable to shareholders 8 Loss per share – basic 10 Loss per share – diluted 10	2004 HK$’000 6,758 (5,382) 1,376 2,283 (48,016) (44,357) – (44,357) 3,442 (40,915) (2.16) cents N/A	2003 HK$’000 17,265 (14,045) 3,220 1,261 (56,584) (52,103) – (52,103) 703 (51,400) (3.92) cents N/A

27 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED BALANCE SHEET

As at 31st December, 2004

Notes ASSETS AND LIABILITIES Non-current assets Property, plant and equipment 11 Long term investment 13 Rental, utilities and other deposits Other loan receivables 14 Current assets Inventories 15 Land held for resale 16 Trade receivables 17 Other receivables 14,18 Prepayments and deposits Loan and interest receivables from an investee company 13 Amount due from a connected party 21 Pledged bank deposits 27 Cash and cash equivalents 19 Current liabilities Trade payables 20 Accruals and other payables Amount due to a connected party 21 Net current assets Total assets less current liabilities Minority interests Net assets CAPITAL AND RESERVES Share capital 22 Reserves 24 Shareholders’ funds	2004 HK$’000 14,249 21,423 650 2,259 38,581 71 1,636 – 4,747 10,573 44,227 661 700 31,828 94,443 701 13,807 – 14,508 79,935 118,516 12,059 106,457 189,545 (83,088) 106,457	2003 HK$’000 24,723 – 988 1,246 26,957 167 – 127 5,706 10,931 – – 700 132,915 150,546 624 13,941 65 14,630 135,916 162,873 15,501 147,372 189,545 (42,173) 147,372

28 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

BALANCE SHEET

As at 31st December, 2004

Notes ASSETS AND LIABILITIES Non-current assets Interests in subsidiaries 12 Deposits Current assets Prepayments and deposits Other receivables 18 Cash and cash equivalents Current liabilities Accruals and other payables Amounts due to subsidiaries 12 Net current (liabilities)/assets Total assets less current liabilities/Net assets CAPITAL AND RESERVES Share capital 22 Reserves 24 Shareholders’ funds	2004 HK$’000 138,698 324 139,022 428 3,060 4,093 7,581 10,094 822 10,916 (3,335) 135,687 189,545 (53,858) 135,687	2003 HK$’000 149,506 324 149,830 190 2,846 14,040 17,076 9,735 3,538 13,273 3,803 153,633 189,545 (35,912) 153,633

29 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31st December, 2004

Share capital HK$’000 At 1st January, 2003 126,363 Loss for the year – Exchange difference – Issue of share capital 63,182 At 31st December, 2003 and 1st January, 2004 189,545 Loss for the year – At 31st December, 2004 189,545	Share premium HK$’000 260,592 – – 1,937 262,529 – 262,529	Translation reserve HK$’000 (2,332) – 28 – (2,304) – (2,304)	Accumulated losses HK$’000 (250,998) (51,400) – – (302,398) (40,915) (343,313)	Total HK$’000 133,625 (51,400) 28 65,119 147,372 (40,915) 106,457

30 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED CASH FLOW STATEMENT

For the year ended 31st December, 2004

Notes Cash flows from operating activities Loss before taxation Adjustments for: Depreciation of property, plant and equipment (Gain)/Loss on disposal of property, plant and equipment Loss on write off of property, plant and equipment Impairment of property, plant and equipment Revaluation of investment property Interest income Provision for doubtful debts Operating loss before working capital changes Decrease/(Increase) in other receivables, prepayments and deposits Decrease in inventories Decrease/(Increase) in trade receivables (Decrease)/Increase in amount due from/to a connected party Increase in trade payables (Decrease)/Increase in accruals and other payables Net cash used in operating activities Cash flows from investing activities Purchase of property, plant and equipment 30 Proceeds from sales of property, plant and equipment 30 Decrease in certificates of deposit Acquisition of land held for resale Interest received Increase in other loan receivables 14 Acquisition of long term investment 13 Increase in loan receivable from an investee company 13 Net cash used in investing activities Cash flows from financing activities Proceeds from issuance of share capital Increase in pledged bank deposits Net cash generated from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at 1st January, 2004 Effect of exchange rate fluctuation Cash and cash equivalents at 31st December, 2004	2004 HK$’000 (44,357) 4,097 (15) 5,644 1,506 – (1,551) 354 (34,322) 1,589 96 127 (726) 77 (134) (33,293) (2,781) 2,023 – (1,636) 718 (1,071) (21,423) (43,624) (67,794) – – – (101,087) 132,915 – 31,828	2003 HK$’000 (52,103) 4,776 43 – 1,236 (70) (1,172) 3,662 (43,628) (12,679) 554 (127) 2,306 26 4,445 (49,103) (7,424) 426 1,000 – 818 (1,558) – – (6,738) 65,119 (700) 64,419 8,578 124,309 28 132,915

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31st December, 2004

1. GENERAL INFORMATION

Compass Pacific Holdings Limited (the “Company”) was incorporated in Bermuda as an exempted company with limited liability and its shares are listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). The Company is an investment holding company and its subsidiaries (together with the Company referred to as the “Group”) are mainly engaged in the operation of indoor game centres, manufacture and sale of automobile axles in the People’s Republic of China (the “PRC”) and investment holding. The directors consider Sun East LLC, a company incorporated in the United States of America (the “USA”), to be the ultimate holding company.

2. PRINCIPAL ACCOUNTING POLICIES

The principal accounting policies adopted in the preparation of these financial statements are set out below:

(a) Basis of preparation

The financial statements on pages 21 to 53 are prepared in accordance with and comply with all applicable Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), the disclosure requirements of the Hong Kong Companies Ordinance and the Rules Governing the Listing of Securities on the Stock Exchange (the “Listing Rules”). The financial statements are prepared under the historical cost convention as modified by the revaluation of investment property.

(b) Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to 31 December each year. All material intercompany transactions and balances within the Group are eliminated on consolidation.

The results of the 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.

The gain or loss on the disposal of a subsidiary represents the difference between the proceeds of the sale and the Group’s share of its net assets together with any unamortised goodwill and any related accumulated foreign currency translation reserve.

Minority interests represent the interest of outside shareholders in the operating results and net assets of subsidiaries.

(c) Joint ventures

The Group’s joint ventures in the PRC are in the form of Sino-foreign co-operative or Sino-foreign equity joint ventures. For Sino-foreign co-operative joint ventures, the partners’ profit-sharing ratios and share of net assets upon the expiration of the joint venture terms may not be in proportion to their equity ratios but are as defined in the respective joint venture contracts. For Sino-foreign equity joint ventures, the partners’ profit-sharing ratios and share of net assets upon the expiration of the joint venture years are in proportion to their equity contribution ratios.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group’s joint ventures are accounted for as subsidiaries as the Company has the power to govern the financial and operating policies of the joint ventures so as to benefit from their activities.

(d) Subsidiaries

Subsidiaries are those enterprises controlled by the Company. Control exists when the Company has the power to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. In the Company’s balance sheet subsidiaries are carried at cost less impairment losses. The results of the subsidiaries are accounted for by the Company on the basis of dividends received and receivable at the balance sheet date.

(e) Goodwill

Goodwill arising on acquisition represents the excess of the cost of acquisition over the Group’s share of the fair value of the identifiable assets and liabilities acquired. In respect of subsidiaries, goodwill is amortised to the consolidated income statement on a straight line basis over its estimated useful life. Goodwill is stated in the consolidated balance sheet at gross amount less accumulated amortisation and impairment losses.

All goodwill of the Group arisen from transactions completed prior to 1st January, 2002 was eliminated directly against reserves and reduced by impairment losses.

(f) Property, plant and equipment

(i) Depreciation

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

Land use rights and buildings	Over the terms of the leases or 50 years
	whichever is shorter
Leasehold improvements, fixture and fittings,	Over the terms of the leases or estimated
and furniture and equipment	useful lives, ranging from 5 years to 10 years,
	whichever is shorter
Game equipment	20%
Machinery	10%
Motor vehicles	20% to 25%

(ii) Measurement bases

Property, plant and equipment other than investment properties are stated at cost less accumulated depreciation and impairment losses. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to the working condition and location for its intended use. Subsequent expenditure relating to property, plant and equipment is added to the carrying amount of the assets if it can be demonstrated that such expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the assets.

When assets are sold or retired, any gain or loss resulting from their disposal, being the difference between the net disposal proceeds and the carrying amount of the assets, is included in the income statement.

33 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(g) 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.

Investment property is stated at open market value determined annually by independent valuers.

Increases in the carrying amount of investment property are credited to the investment property revaluation reserve; decreases are first offset against increases on earlier valuations on a portfolio basis and thereafter are charged to operating results. A revaluation increase is recognised as income to the extent that it reverses revaluation decrease previously recognised as an expense.

No depreciation is provided for investment property unless the unexpired lease term is 20 years or less, in which case depreciation is provided on the then carrying value over the unexpired lease term.

Upon disposal, the revaluation surpluses relating to the investment property disposed of are released from the investment property reserve and charged to the income statement.

(h) Inventories

Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials computed using the first-in-first-out basis and, where applicable, direct labour and those overheads that have been incurred in bringing the inventories to their present locations and conditions. Net realisable value is calculated as the actual or estimated selling price less all further costs of completion and the estimated costs necessary to make the sale.

(i) Cash and cash equivalents

Cash comprises cash on hand and demand deposits repayable on demand with any other banks or financial institutions. Cash includes deposits denominated in foreign currencies.

Cash equivalents represent short-term, highly liquid investments which are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.

(j) Provisions

A provision is recognised in the balance sheet when the Group has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation, and a reliable estimate of the amount can be made. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where the Group expects a provision to be reimbursed, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain.

(k) Revenue recognition

Provided it is probable that the economic benefits associated with a transaction will flow to the Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised on the following bases:

(i) Games, rides and other amusement facilities

Revenues from games, rides and other amusement facilities are recognised upon the sales of tokens to customers.

34 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(ii) Sale of automobile axles

Revenue from the sale of automobile axles is recognised when the significant risks and rewards of ownership of goods have been transferred to the buyer.

(iii) Interest income

Interest income is recognised on a time proportion basis on the principal outstanding and at the interest rates applicable.

(l) Research and development expenditures

Research and development expenditures are charged to the income statement in the year incurred except for development costs which satisfy the following criteria:

(i) the product or process is clearly defined and the costs are separately identified and measured reliably;
(ii) the technical feasibility of the product or process is demonstrated;
(iii) the product or process will be sold or used in-house;
(iv) a potential market exists for the product or process or its usefulness in the case of internal use is demonstrated; and
(v) adequate technical, financial and other resources required for completion of the product or process are available.

Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of the capitalised development costs.

Capitalised development costs are stated at cost less accumulated amortisation and impairment losses.

(m) Income tax

Income tax for the year comprises current and deferred tax.

Current tax is the expected tax payable on the taxable income for the year using tax rates enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

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

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

35 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

Deferred tax assets and liabilities are not discounted. Deferred tax is calculated at the tax rates that are expected to apply in the year when the liability is settled or the asset realised. Deferred tax is charged or credited to the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

(n) Foreign currencies

(i) Foreign currency transactions

Transactions in foreign currencies are translated into Hong Kong dollars at the rates of exchange ruling at the dates of transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into Hong Kong dollars at the rates of exchange ruling at that date. Gains and losses arising on exchange are dealt with in the income statement.

(ii) Foreign subsidiaries

The balance sheets of subsidiaries expressed in foreign currencies are translated at the rates of exchange ruling at the balance sheet date and their income statements are translated at the average rates for the year. Gains and losses arising on exchange are dealt with as movements in reserve.

(o) Operating leases

Leases where substantially all the risks and rewards of ownership of assets remain with the lessor are accounted for as operating leases. Annual rentals applicable to such operating leases are charged to the income statement on a straight line basis over the lease terms. Lease incentives received are recognised in the income statement as an integral part of the aggregate net lease payments made. Contingent rentals are charged to the income statement in the accounting period in which they are incurred.

(p) Employee benefits

(i) Employee entitlements

Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave 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.

(ii) Pension obligations

The Group’s pension obligations are of defined contribution in nature. Contributions are charged as expense in the income statement as incurred.

(q) Impairment of assets

The carrying amounts of the Group’s assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement.

36 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(i) Calculation of recoverable amount

The recoverable amount of an asset is the greater of its net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash generating unit to which the asset belongs.

(ii) Reversals of impairment

An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount.

An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

(r) Segment reporting

In accordance with the Group’s internal financial reporting the Group has determined that business segments be presented as the primary reporting format and geographical segments as the secondary reporting format.

Unallocated costs represent corporate expenses. Segment assets consist primarily of property, plant and equipment, inventories, receivables and operating cash. Segment liabilities comprise operating liabilities.

In respect of geographical segment reporting, sales are based on the country in which the customer is located and total assets and capital expenditure are where the assets are located.

(s) Contingent liabilities

A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed 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 the outflow is probable, it will then be recognised as a provision.

(t) Investments

Investments in equity securities are stated in the balance sheet at cost less any provisions for impairment losses. Provisions are made when the fair value of such equity securities has declined below the carrying amounts, unless there is evidence that the decline is temporary. The amount of the reduction is recognised as an expense in the income statement.

Provisions against the carrying value of equity securities are written back to income when the circumstances and events that led to the write-downs or write-offs cease to exist and there is persuasive evidence that the new circumstances and events will persist for the foreseeable future.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(u) Related parties

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

(v) Recently issued accounting standards

The HKICPA has issued a number of new and revised Hong Kong Financial Reporting Standards and Hong Kong Accounting Standards (“new HKFRSs”) which are effective for accounting periods beginning on or after 1st January, 2005.

The Group has not early adopted these new HKFRSs in the financial statements for the year ended 31st December, 2004.

SEGMENT INFORMATION

(a) Primary reporting format – business segments

Turnover Sales to external customers Results Segment results Taxation Minority interests Assets and liabilities Segment assets Segment liabilities Other information Capital expenditure Depreciation Impairment Loss on write off of property, plant and equipment Provision for doubtful debts Surplus on revaluation of investment property	Operation of indoor game centres 2004 2003 HK$’000 HK$’000 1,659 4,680 (1,405) (6,088) 951 2,378 3,694 3,816 45 518 590 1,450 368 1,236 – – – 662 – –	Manufacture and sale of automobile axles 2004 2003 HK$’000 HK$’000 5,099 12,585 (8,176) (1,370) 15,150 23,841 339 853 – 3,669 1,021 1,147 1,138 – 5,644 – – – – –	Investment holding and others 2004 2003 HK$’000 HK$’000 – – (34,776) (44,645) 116,923 151,284 10,475 9,961 2,861 3,237 2,486 2,179 – – – – 354 3,000 – (70)	Total 2004 2003 HK$’000 HK$’000 6,758 17,265 (44,357) (52,103) – – 3,442 703 (40,915) (51,400) 133,024 177,503 14,508 14,630 2,906 7,424 4,097 4,776 1,506 1,236 5,644 – 354 3,662 – (70)

38 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Secondary reporting format – geographical segments

The Group’s activities are conducted in Hong Kong, the PRC and the USA. An analysis by geographical segment is as follows:

The PRC (excluding Hong Kong Hong Kong) 2004 2003 2004 2003 HK$’000 HK$’000 HK$’000 HK$’000 Turnover Sales to external customers – – 6,758 17,265 Segment assets 18,050 30,239 16,101 26,219 Capital expenditure 2,796 14 45 4,187 TURNOVER AND REVENUE Turnover: – Revenues from games, rides and other amusement facilities – Sales of automobile axles Other revenue: – Bank interest income – Other interest income – Surplus on revaluation of investment property – Miscellaneous Total turnover and revenue	The USA 2004 2003 HK$’000 HK$’000 – – 98,873 121,045 65 3,223 2004 HK$’000 1,659 5,099 6,758 568 983 – 732 2,283 9,041	Total 2004 2003 HK$’000 HK$’000 6,758 17,265 133,024 177,503 2,906 7,424 2003 HK$’000 4,680 12,585 17,265 818 354 70 19 1,261 18,526	Total 2004 2003 HK$’000 HK$’000 6,758 17,265 133,024 177,503 2,906 7,424 2003 HK$’000 4,680 12,585 17,265 818 354 70 19 1,261 18,526	Total 2004 2003 HK$’000 HK$’000 6,758 17,265 133,024 177,503 2,906 7,424 2003 HK$’000 4,680 12,585 17,265 818 354 70 19 1,261 18,526

				177,503

				7,424

				2003 HK$’000 4,680 12,585
				17,265
				818 354 70 19
				1,261
				18,526

39 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. LOSS BEFORE TAXATION

Loss before taxation is arrived at after charging:

	2004	2003
	HK$’000	HK$’000
Staff costs (including directors’ emoluments)	22,701	25,870
Auditors’ remuneration	340	420
Depreciation of property, plant and equipment	4,097	4,776
Impairment of property, plant and equipment	1,506	1,236
Provision for doubtful debts	354	3,662
Loss on write off of property, plant and equipment	5,644	–
Loss on disposal of property, plant and equipment	–	43
Cost of inventories recognised as expenses	5,121	12,878
Research and development costs	–	3,479
Operating lease rentals in respect of rented premises	2,149	3,256
Pension scheme contributions:
– Hong Kong	102	95
– PRC	184	423
and crediting:
Gain on disposal of property, plant and equipment	15	–

6. DIRECTORS’ AND FIVE HIGHEST PAID INDIVIDUALS’ EMOLUMENTS

(a) Directors’ emoluments

Remunerations of the directors disclosed pursuant to Section 161 of the Hong Kong Companies Ordinance is as follows:

Independent non-executive directors Fees Executive directors Fees Salaries, allowances and benefits in kind Pension scheme contributions Total	2004 HK$’000 176 488 11,157 24 11,669 11,845	2003 HK$’000 156 567 10,417 24
		11,008
		11,164

The emoluments of the directors represent the amounts paid to or receivable by the directors in the respective financial year and exclude the benefits derived from or to be derived from the share options granted under the 2003 Scheme as detailed in note 23.

40 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

As at 31 December 2004, directors’ fees payable to independent non-executive directors amounted to HK$374,000 (2003: HK$276,000) are included in accruals and other payables.

The emoluments of the directors fell within the following bands:

Emolument bands: Up to HK$1,000,000 HK$1,500,001 to HK$2,000,000 HK$2,000,001 to HK$2,500,000 HK$2,500,001 to HK$3,000,000 HK$4,500,001 to HK$5,000,000	Number of directors 2004 2003 5 12 1 – 2 1 – 1 1 1 9 15	Number of directors 2004 2003 5 12 1 – 2 1 – 1 1 1 9 15
		15

No director waived the right to receive emoluments during the year.

(b) Five highest paid individuals

The five individuals whose emoluments were the highest in the Group for the year include four (2003: four) directors whose emoluments are reflected in the analysis presented above. The emoluments of the remaining one (2003: one) individual during the year are as follows:

Salaries, allowances and benefits in kind Pension scheme contributions	2004 HK$’000 935 – 935	2003 HK$’000 781 –
		781

Benefits in kind represent the estimated monetary value of accommodation and other benefits provided to the directors and employees of the Group.

The emoluments of the remaining one (2003: one) individual fell within the following band:

Emolument band Up to HK$1,000,000	Number 2004 2003 1 1

During the year, no emoluments were paid to the five highest paid individuals (including directors and employees) as an inducement to join the Group or as compensation for loss of office.

41 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

7. TAXATION

No provision for Hong Kong profits tax or other income tax has been made in the financial statements as the companies within the Group had no assessable profits for the year in the respective jurisdictions in which the entities operate.

Reconciliation between tax expense and accounting loss at applicable tax rates:

Loss before taxation Tax on loss before taxation, calculated at the rates applicable to losses in the tax jurisdiction concerned Tax effect of non-deductible expenses Tax effect of non-taxable revenues Tax losses not recognised as deferred tax asset Tax effect of prior year’s tax losses utilised this year Other temporary differences not recognised Actual tax expense	2004 HK$’000 (44,357) (11,610) 3,167 (8) 8,256 (13) 208 –	2003 HK$’000 (52,103) (12,727) 4,924 (33) 7,769 – 67 –

The Group has not recognised deferred tax assets in respect of unused tax losses because of the unpredictably of future profit streams. Deferred tax on other temporary differences has not been recognised because the amount involved was not material.

8. LOSS ATTRIBUTABLE TO SHAREHOLDERS

The loss attributable to shareholders includes a loss of HK$17,946,000 (2003: HK$49,023,000) which has been dealt with in the financial statements of the Company.

9. DIVIDENDS

The directors do not recommend the payment of a dividend for the year ended 31st December, 2004 (2003: Nil) and the Company did not pay any interim dividend during the year.

10. LOSS PER SHARE

The calculation of basic loss per share is based on the loss attributable to shareholders of HK$40,915,000 (2003: HK$51,400,000) and on the weighted average of 1,895,451,000 (2003: 1,310,371,148) ordinary shares in issue during the year.

Diluted loss per share for the year ended 31st December, 2004 was not presented because the impact of the exercise of the share options was anti-dilutive.

42 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

11. PROPERTY, PLANT AND EQUIPMENT

The movements of property, plant and equipment of the Group are as follows:

Cost or valuation: At 1st January, 2004 Additions Disposals Write off At 31st December, 2004 Accumulated depreciation and impairment losses: At 1st January, 2004 Depreciation charge for the year Disposals Write off Impairment At 31st December, 2004 Net book value: At 31st December, 2004 At 31st December, 2003 The analysis of cost or valuation of the above assets as at 31st December, 2004 is as follows: At cost The analysis of cost or valuation of the above assets as at 31st December, 2003 is as follows: At cost At professional valuation	Investment property HK$’000 1,620 – (1,620) – – – – – – – – – 1,620 – – 1,620 1,620	Leasehold Land use improvements, rights and fixture Furniture and buildings and fittings equipment HK$’000 HK$’000 HK$’000 7,567 16,430 3,621 – 96 72 – – – (7,567) – – – 16,526 3,693 1,734 15,015 1,810 189 553 328 – – – (1,923) – – – – 5 – 15,568 2,143 – 958 1,550 5,833 1,415 1,811 – 16,526 3,693 7,567 16,430 3,621 – – – 7,567 16,430 3,621	Game equipment HK$’000 58,337 – – – 58,337 57,692 328 – – 161 58,181 156 645 58,337 58,337 – 58,337	Machinery HK$’000 8,923 – – – 8,923 2,648 777 – – 1,138 4,563 4,360 6,275 8,923 8,923 – 8,923	Motor vehicles HK$’000 11,044 2,738 (783) – 12,999 3,920 1,922 (270) – 202 5,774 7,225 7,124 12,999 11,044 – 11,044	Total HK$’000 107,542 2,906 (2,403) (7,567)
						100,478
						82,819 4,097 (270) (1,923) 1,506
						86,229
						14,249
						24,723

						100,478

						105,922 1,620
						107,542

The land use rights were related to land located in the PRC for the operation of the manufacture and sale of automobile axles where no individual land ownership rights existed. The amount has been fully written off as the land was reclaimed by the PRC local government for redevelopment use. The impairment for the year mainly included certain plant and machineries impaired as a result of the relocation of the operation to a new site.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The investment property was located in Hong Kong under a long-term lease. Its carrying value as at 31st December, 2003 was appraised by Chesterton Petty Limited, independent professional valuers, on 21st April, 2004. The investment property was disposed of during the year.

12. INTERESTS IN SUBSIDIARIES

Unlisted shares, at cost Less: Provision for impairment losses Amounts due from subsidiaries Less: Provision for doubtful debts Amount due to subsidiaries	2004 HK$’000 227,220 (94,802) 132,418 147,811 (141,531) 6,280 138,698 2004 HK$’000 822	2003 HK$’000 227,220 (94,802) 132,418 158,619 (141,531) 17,088 149,506 2003 HK$’000 3,538

The amounts due from/to subsidiaries are unsecured, non-interest bearing and have no fixed repayment terms. The directors consider the amounts due from subsidiaries are not repayable within one year.

The directors are of the opinion that the underlying value of the subsidiaries is not less than the carrying amount of the interests in subsidiaries as at 31st December, 2004.

Particulars of the Company’s subsidiaries as at 31st December, 2004 are as follows:

			Proportion of nominal	Proportion of nominal
	Place of	Issued and paid	value of issued share
	incorporation/	up share capital/	capital/registered capital
Name	principal operations	registered capital	held by the	Company	Principal activities
			Directly	Indirectly
			%	%
American Compass Inc.	The USA	Ordinary	100	–	Investment holding
		US$ 17,000,000
Bluebell Fields Limited	The British Virgin Islands	Ordinary US$ 1	100	–	Inactive
Bright Skies Limited	The British Virgin Islands	Ordinary US$ 1	100	–	Investment holding
Compass Pacific Capital Limited	Hong Kong	Ordinary HK$ 2	100	–	Investment holding
(圓通金融有限公司)
Dawes Investments Limited	The British Virgin Islands	Ordinary US$ 1	–	100	Inactive
Hemsby Investments Limited	The British Virgin Islands	Ordinary US$ 200	100	–	Investment holding

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

			Proportion of nominal	Proportion of nominal
	Place of	Issued and paid	value of issued share
	incorporation/	up share capital/	capital/registered capital
Name	principal operations	registered capital	held by the	Company	Principal activities
			Directly	Indirectly
			%	%
Kristal Profits Limited	The British Virgin Islands	Ordinary US$ 1	–	100	Investment holding
Liberty Capital Limited	Hong Kong	Ordinary HK$ 1	–	100	Inactive
(立寶金融有限公司)
Liberty Investment Holdings Limited	Hong Kong	Ordinary HK$ 10,000	–	100	Inactive
(立寶投資控股有限公司)
Nara Profits Limited	The British Virgin Islands	Ordinary US$ 1	–	100	Investment holding
Upward Trend Profits Limited	The British Virgin Islands	Ordinary US$ 1	–	100	Investment holding
Whimsy International Trading Limited	The British Virgin Islands	Ordinary US$ 1	–	100	Inactive
Yaohan Whimsy International Limited	The British Virgin Islands	Ordinary US$ 1	–	100	Inactive
Asian Rose Holdings Limited	Hong Kong	Ordinary HK$ 2	–	100	Property holding
					and leasing
Global Gold Trading Limited	Hong Kong	Ordinary HK$ 2	–	100	Inactive
Parkwell (Hong Kong) Ltd.	Hong Kong	Ordinary HK$ 2	100	–	Leasing
(百宏(香港)有限公司)
United Kam Wah Development Limited	Hong Kong	Ordinary HK$ 2	–	100	Investment holding
(中港金華發展有限公司)
Yaohan Whimsy Co., Limited	Hong Kong	Ordinary HK$1,000	–	100	Investment holding
		ψNon-voting deferred
		HK$1,000
*成都歡樂天地有限公司	Chengdu, the PRC	RMB 10,000,000	–	97	Ceased operations
(Chengdu Happy World Co., Limited)
#河南歡樂天地兒童遊樂有限公司	Henan, the PRC	US$ 2,000,000	–	100	Operation of indoor
(Henan Whimsy Amusement					entertainment
Company Limited)					centre
*上海歡樂天地兒童遊樂有限公司	Shanghai, the PRC	US$ 3,000,000	–	90	Ceased operations
(Shanghai Whimsy Amusement
Co., Limited)
∆沈陽遼華汽車車橋有限公司	Shenyang, the PRC	RMB 30,000,000	–	51	Manufacture of
(Shenyang Liao Hua Automobile					automobile axles
Axles Co. Ltd.)
*蘇州運時家庭電子娛樂有限公司	Suzhou, the PRC	US$ 1,050,000	–	95	Ceased operations
(Suzhou Whimsy Family Electronic
Recreation Co., Limited)

45 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

13.

			Proportion of nominal	Proportion of nominal
	Place of	Issued and paid	value of issued share
	incorporation/	up share capital/	capital/registered capital
Name	principal operations	registered capital	held by the	Company	Principal activities
			Directly	Indirectly
			%	%
*無鍚歡樂天地遊樂有限公司	Wuxi, the PRC	US$ 2,720,000	–	95	Ceased operations
(Wuxi Whimsy Amusement
Co., Limited)
Whimsy Japan Company Limited	Japan	Ordinary	–	100	Inactive
		JPY 10,000,000
Whimsy USA, Inc.	The USA	Ordinary	100	–	Inactive
		US$ 10

These subsidiaries are Sino-foreign co-operative joint ventures.
∆ This subsidiary is a Sino-foreign equity joint venture.
This subsidiary is a wholly foreign owned enterprise.
y The deferred shares, which are not held by the Group, practically carry no rights to dividends, to receive notice of, to attend or vote at any general meeting of the respective companies, and to participate in any distribution on winding up.

LONG TERM INVESTMENT

LONG TERM INVESTMENT
			The Group
			2004	2003
			HK$’000	HK$’000
Unlisted investments in American	Phoenix Group, Inc.	(“APG”), at cost	21,423	–

At 31st December, 2004, the particulars of APG are as		follows:
			Particulars of
	Place of	Principal	issued
Name	incorporation	activities	shares held Interest held
American Phoenix Group, Inc.	USA	Investment	Common stock	9.29%
		holding	US$ 11,038,599

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

On 20th September, 2004 the Group entered into a loan agreement with APG and made available to APG a term loan facility of HK$43,624,000 (US$5.6 million). The loan bears interest at 5% per annum and was originally scheduled to be fully repayable on 24th December, 2004. The loan is secured by a share mortgage of 25% equity interest of a subsidiary of APG.

Loan receivable, secured Interest receivables	The Group 2004 2003 HK$’000 HK$’000 43,624 – 603 – 44,227 –	The Group 2004 2003 HK$’000 HK$’000 43,624 – 603 – 44,227 –
		–

On 18th March, 2005, the Group entered into an agreement to acquired a further interest in APG. The consideration will be satisfied by setting off the above loan receivable from APG. For details please refer to the post balance sheet events disclosed in note 29.

14. OTHER LOAN RECEIVABLES

Other loan receivables – unsecured Less: Current portion due within on year included in other receivables under current assets Non-current portion under non-current assets	The Group 2004 2003 HK$’000 HK$’000 2,629 1,558 (370) (312 2,259 1,246	The Group 2004 2003 HK$’000 HK$’000 2,629 1,558 (370) (312 2,259 1,246
		1,246

The above balance included an unsecured loan made to a member of the senior management of the Group. The loan bears interest at one year LIBOR (subject to adjustment annually in October) and will be repayable by ten instalments in five years.

15. INVENTORIES

Plush toys – at cost Spare parts and other consumables – at cost Less: provision	The Group 2004 2003 HK$’000 HK$’000 48 167 145 – 193 167 (122) – 71 167	The Group 2004 2003 HK$’000 HK$’000 48 167 145 – 193 167 (122) – 71 167
		167 –

		167

As at 31st December, 2004, the above inventories include HK$71,000 (2003: Nil) which are carried at net realisable

value.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

16. LAND FOR RESALE

		The Group
	2004	2003
	HK$’000	HK$’000
Freehold land for resale outside Hong Kong, at cost	1,636	–

17. TRADE RECEIVABLES

The balances resulted from the sales of automobile axles, which were on an average credit period of 90 days.

The aging analysis of the trade receivables of the Group as at 31st December, 2004 is as follows:

			2004	2003
			HK$’000	HK$’000
Over	90	days	–	127

18. OTHER RECEIVABLES

Other receivables Less: Provision for doubtful debts	The Group 2004 2003 HK$’000 HK$’000 11,175 11,780 (6,428) (6,074) 4,747 5,706	The Company 2004 2003 HK$’000 HK$’000 3,060 2,846 – – 3,060 2,846	The Company 2004 2003 HK$’000 HK$’000 3,060 2,846 – – 3,060 2,846
			2,846

19. CASH AND CASH EQUIVALENTS

As at 31st December, 2004, cash and cash equivalents of the Group denominated in Chinese Renminbi (“RMB”) amounted to approximately HK$237,000 (2003: HK$1,002,000). RMB is not freely convertible into other currencies. Subject to the PRC’s Foreign Exchange Control Regulations and Administration of Settlement, Sales and Payment of Foreign Exchange Regulations, the Group is permitted to exchange RMB for other currencies through banks authorised to conduct foreign exchange business.

20. TRADE PAYABLES

The aging analysis of the trade payables of the Group as at 31st December, 2004 is as follows:

0 – 90 days Over 90 days	2004 HK$’000 33 668 701	2003 HK$’000 102 522
		624

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

21. CONNECTED PARTY TRANSACTIONS

(a) Amount due from/(to) a connected party is unsecured, non-interest bearing and repayable on demand and mainly arose from transaction stated in note 21(b) below.
(b) During the year, the Group entered into the following transactions with the connected party:

	2004	2003
	HK$’000	HK$’000
Sales to a connected party	5,100	12,585
Purchase from a connected party	5,019	12,367

The above transactions were carried out after negotiations between the Group and the connected party in the ordinary course of business and on normal commercial terms as determined by the directors.

The above connected party is the holding company of the minority joint venture partner of a subsidiary of the Company.

22. SHARE CAPITAL

Authorised: Ordinary shares of HK$0.10 each Issued and fully paid: At 1st January Increase during year At 31st December	2004 Number of shares Amount HK$’000 3,000,000,000 300,000 1,895,451,000 189,545 – – 1,895,451,000 189,545	2003 Number of shares Amount HK$’000 3,000,000,000 300,000 1,263,634,000 126,363 631,817,000 63,182 1,895,451,000 189,545	2003 Number of shares Amount HK$’000 3,000,000,000 300,000 1,263,634,000 126,363 631,817,000 63,182 1,895,451,000 189,545
			189,545

Pursuant to an open offer of new shares to qualifying shareholders on 13th November, 2003, the Company issued 631,817,000 ordinary shares with a nominal value of HK$0.10 each on 5th December, 2003, at HK$0.106 per share for a total cash consideration, before expenses, of HK$66,972,602. These shares rank pari passu in all respects with the then existing issued shares of the Company.

23. SHARE OPTIONS

On 12th June, 2003, the share option scheme adopted by the Company on 15th March, 1995 (the “1995 Scheme”) was terminated and a new share option scheme (the “2003 Scheme”) was adopted by the Company to comply with the new amendments to the Listing Rules in respect of share option schemes of a listed company.

The 2003 Scheme became effective on 12th June, 2003 and, unless otherwise cancelled or amended, will remain in force for 10 years from that date. The maximum number of shares in respect of which options may be granted must not exceed 10% of the issued share capital of the Company as at the date of adoption of the 2003 Share Option Scheme. The offer of a grant may be accepted upon payment of HK$1 per acceptance. The exercise period of the share options granted is determinable by the Board, and commences on a specified date and ends on a date which is not later than 10 years from

49 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

the date of grant of the share options. The exercise price will be determined by the Board, but shall not be less than the highest of (i) the closing price of the Company’s shares as stated in the Stock Exchange’s daily quotations sheet for trade in one or more board lots of shares on the date of offer for grant which must be a business day; (ii) the average closing price of the Company’s share as stated in the Stock Exchange’s daily quotations sheets for trade in one or more board lots of shares for the five business days immediately preceding the date of the offer for grant which must be a business day; and (iii) the nominal value of the Company’s shares.

The particulars in relation to share option schemes of the Company are as follows:.

At 1st January, Name 2004 Directors Mr. Yung Yeung 10,000,000 21,570,000 Mr. Jun Li 5,400,000 – Mr. Chunhua Huang 5,400,000 – Mr. Yuwen Sun – Ms. Chizuko Kubo – 42,370,000 Employees In aggregate 4,800,000 9,400,000 – 14,200,000 Other eligible persons In aggregate – 56,570,000	At 1st January, 2004 10,000,000 21,570,000 5,400,000 – 5,400,000 – – –	Number of share options Exercise Granted Cancelled At price per during during 31st December, Date of grant of Exercise period share the year the year 2004 share options of share options HK$ – – 10,000,000 16th February, 2000 16th February, 2000 0.690 to 15th February, 2010 – – 21,570,000 2nd November, 2000 2nd November, 2000 0.382 to 1st November, 2010 – – 5,400,000 2nd November, 2000 2 November 2000 0.382 to 1st November, 2010 13,540,000 – 13,540,000 26th January, 2004 26th January, 2004 0.160 to 25th January, 2014 – – 5,400,000 2nd November, 2000 2nd November, 2000 0.382 to 1st November, 2010 13,540,000 – 13,540,000 26th January, 2004 26th January, 2004 0.160 to 25th January, 2014 18,940,000 – 18,940,000 26th January, 2004 26th January, 2004 0.160 to 25th January, 2014 5,000,000 – 5,000,000 26th January, 2004 26th January, 2004 0.160 to 25th January, 2014 51,020,000 – 93,390,000 – – 4,800,000 16th February, 2000 16th February, 2000 0.690 to 15th February, 2010 – – 9,400,000 2nd November, 2000 2nd November, 2000 0.382 to 1st November, 2010 37,800,000 19,028,000 18,772,000 26th January, 2004 26th January, 2004 0.160 to 25th January, 2014 37,800,000 19,028,000 32,972,000 44,000,000 44,000,000 – 26th January, 2004 26th January, 2004 0.160 to 25th January, 2014 132,820,000 63,028,000 126,362,000
	42,370,000	51,020,000

	4,800,000 9,400,000 –	– – 37,800,000

	14,200,000	37,800,000

		44,000,000
	56,570,000	132,820,000

50 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

24. RESERVES

The Group At 31st December, 2004 At 31st December, 2003 The Company At 1st January, 2003 Loss for the year Issue of share capital At 31st December, 2003 and 1st January, 2004 Loss for the year At 31st December, 2004	Share Translation Accumulated premium reserve losses HK$’000 HK$’000 HK$’000 262,529 (2,304) (343,313) 262,529 (2,304) (302,398) Share Contributed Accumulated premium surplus losses HK$’000 HK$’000 HK$’000 260,592 94,601 (344,019) – – (49,023) 1,937 – – 262,529 94,601 (393,042) – – (17,946) 262,529 94,601 (410,988)	Total HK$’000 (83,088) (42,173) Total HK$’000 11,174 (49,023) 1,937 (35,912) (17,946) (53,858)

The contributed surplus of the Company represents the difference between the consolidated shareholders’ funds of the subsidiaries at the date on which they were acquired by the Company, and the nominal amount of the Company’s shares issued for the acquisition at the time of the group reorganisation prior to the listing of the Company’s shares in 1995.

Under the applicable laws of Bermuda, the contributed surplus account of a company is available for distribution. However, the Company cannot declare or pay a dividend, or make a distribution out of contributed surplus if:

(a) it is, or would after the payment be, unable to pay its liabilities as they become due; or
(b) the realisable value of its assets would thereby be less than the aggregate of its liabilities and its issued capital and share premium.

The translation reserve has been established and dealt with in accordance with the accounting policy adopted for foreign currency translation.

The directors consider that the Company had no reserves available for distribution to shareholders as at 31st December, 2004 (2003: Nil).

51 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

25. COMMITMENTS AND CONTINGENCY

(a) Research and development commitments

On 3rd January, 2001 (the “Effective Date”), the Company entered into an agreement with the Trustees of Columbia University in the City of New York (“Columbia”), pursuant to which Columbia was to conduct research in the field of antigen/antibody microarrays for use in immunological diagnostic and functional genomic applications. The Company would have exclusive rights of the results of the said research. In exchange, the Company was to provide financial support for the said research.

The Company had the right to exercise early termination in the first eighteen months after the Effective Date, upon six months written notice to Columbia.

In year 2003, the Company decided to terminate its contribution to the above research project in view of the absence of foreseeable future revenue to be generated to the Group and Columbia failed to provide the Group with a written report summarizing research activities. No provision has been made regarding contribution payable to Columbia for the year amounting to HK$3,592,000.

Capital commitments in respect of the above agreement outstanding as at 31st December, 2004 not provided for in the financial statements of the Group and the Company are summarised as follows:

Contracted for	The Group and the Company 2004 2003 HK$’000 HK$’000 7,366 7,366

(b) Capital commitments

As at 31st December, 2004, the Group had the following commitments for capital expenditure in respect of manufacture and sale of automobile axles:

		The Group
	2004	2003
	HK$’000	HK$’000
Contracted for	26	1,702

The Company had no capital commitment as at 31st December, 2004 (2003: NIL).

(c) Lease commitments

As at 31st December, 2004, the total future minimum lease payments payable under non-cancellable operating leases in respect of rented premises of the Group are as follows:

Within one year After one year but within five years	The Group 2004 2003 HK$’000 HK$’000 1,866 2,073 3,102 4,387 4,968 6,460	The Group 2004 2003 HK$’000 HK$’000 1,866 2,073 3,102 4,387 4,968 6,460
		6,460

52 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The operating lease commitments in respect of certain rented premises are subject to an additional premium based on a fixed percentage of the annual gross turnover and receipts in excess of a specific minimum rental amount that there is no fixed commitment for these leases.

The Company had no lease commitment as at 31st December, 2004 (2003: NIL).

(d) Contingency

The Group provides for potential individual income taxes, related fines and penalties for its employees working in the PRC based on management’s best estimate. The management believes that the possibility for additional fines and penalties that may be payable by the Group is remote.

26. RETIREMENT BENEFITS SCHEME

The employees employed by the subsidiaries located in the PRC are members of state-managed retirement benefits schemes operated by the PRC government. The subsidiaries are required to contribute a certain percentage of their payroll to the retirement benefits schemes in the respective provinces to fund the benefits. The only obligation of the Group with respect to the retirement benefits schemes is to make the required contributions under these schemes.

The Group’s Hong Kong employees are covered by the mandatory provident fund, which is managed by an independent trustee. The Group and its Hong Kong employees each makes monthly contributions to the scheme at 5% of the employees’ cash income with the maximum contribution by each of the Group and the employees limited to HK$1,000 per month.

The retirement benefit scheme cost charged to the income statement represents contributions incurred by the Group. During the year ended 31st December, 2004, the Group’s contributions were approximately HK$286,000 (2003: HK$518,000). There was no (2003: Nil) forfeited contribution used to offset the Group’s contribution during the relevant period and there was no material forfeited contribution available as at the balance sheet dates to reduce the Group’s contribution payable in future periods.

27. BANKING FACILITIES

		The Group
	2004	2003
	HK$’000	HK$’000
Other banking facilities	500	500

As at 31st December, 2004, a subsidiary of the Company had aggregate banking facilities of HK$500,000 (2003: HK$500,000), all of them remained unutilised. The facilities are secured by bank deposits of HK$700,000 (2003: HK$700,000).

28. LEGAL PROCEEDINGS

On 1st December, 2003, the PRC joint venture partner of Shanghai Whimsy Amusement Co., Limited (“Shanghai JV”), a subsidiary of the Company, commenced proceedings against Shanghai JV alleging claims for guaranteed profits of approximately HK$454,000. A provision has been made in the financial statements in respect of such guaranteed profits to the PRC joint venture partner.

On 4th November, 2004, the PRC joint venture partner of Wuxi Whimsy Amusement Co., Limited (“Wuxi JV”), a subsidiary of the Company, commenced proceedings against Wuxi JV alleging claims of legal fee of approximately HK$94,000, together with the cancellation of the JV agreement and the liquidation of Wuxi JV. The directors, after taking legal advice, are contesting this claim although at this stage the outcome of this claim cannot be determined with reasonable certainty. No provision has been made in the financial statements in respect of such claim accordingly.

53 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

29. POST BALANCE SHEET EVENTS

On 11th March, 2005, American Compass Inc. (“ACI”), a subsidiary of the Company, entered into an Acquisition Agreement (the “1st Acquisition”) with American Phoenix Group, Inc. (“APG”), a company incorporated under the laws of the State of California, the United States of America with limited liability, whereby ACI has conditionally agreed to subscribe for the 35,569,384 new Class A common stocks of APG (“the Subscription Shares”). The Subscription Shares represent approximately 48.5% of the existing issued share capital of APG and approximately 32.66% of the enlarged share capital of APG upon completion of the 1st Acquisition. The consideration will be satisfied by setting off the loan of HK$43,624,000 (US$5.6 million) advanced by the Group to APG under the loan agreement dated 20th September, 2004.

On the same date, ACI entered into acquisition agreements with the legal and beneficial owners of the aggregate 55,875,144 Class A common stocks (the “Sale Shares”) in capital of APG (the “Vendors”) (the “2nd Acquisition”) pursuant to which ACI has conditionally agreed to purchase the Sale Shares at HK$137,198,069 (US$17,589,496). The Sale Shares represent 76.18% of the existing issued share capital of APG and 51.3% of the issued capital of APG immediately after completion of the 1st Acquisition. The consideration payable under the 2nd Acquisition will be satisfied by the issue of new shares by the Company at an issue price being the higher of HK$0.25 and the average of the closing prices per share as quoted on the Stock Exchange for five trading days prior to the special general meeting of the Company to be convened for the purpose of considering and if thought fit, approving among other things, the Acquisitions.

30. MAJOR NON-CASH TRANSACTION

During the year, a subsidiary of the Company purchased a motor vehicle with a capital value of HK$2,738,000 and received a trade-in discount of HK$125,000 by disposing of a motor vehicle to the vendor.

31. APPROVAL OF FINANCIAL STATEMENTS

The financial statements on pages 21 to 53 were approved by the board of directors on 28th April, 2005.

(C) INDEBTEDNESS OF THE GROUP

As at the close of business on 30 April 2005, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Group had no outstanding bank borrowings.

Besides, save for provision for potential individual income taxes, related fines and penalties for its employees working in the PRC based on management’s best estimate. The management believes that the possibility for additional fines and penalties that may be payable by the Company is remote and has been disclosed in the annual report 2004 of the Company, the Group has no other contingent liabilities.

Save as disclosed herein and apart from intra-group liabilities, the Group did not have any outstanding mortgages, charges, debentures, or other capital or bank overdrafts, loans or other similar indebtedness or acceptance of credits or hire purchase commitments or any guarantees or other material contingent liabilities as at the close of business on 30 April 2005.

The Directors are not aware of any material adverse changes in the Group’s indebtedness position or contingent liabilities since 30 April 2005.

(D) WORKING CAPITAL

After taking into account the Group’s existing cash and bank balances and the financial resources available, the Directors are of the opinion that the Group has sufficient working capital to satisfy its present requirements in the absence of unforeseen circumstances.

54 -

ACCOUNTANTS’ REPORT ON APG GROUP

APPENDIX II

The following is the text of a report, prepared for the purpose of incorporating in this circular, received from the reporting accountants of APG Group, CCIF CPA Limited, Certified Public Accountants, Hong Kong.

The Directors Compass Pacific Holdings Limited Suites 612-617, 6/F Hutchison House 10 Harcourt Road Central Hong Kong

CCIF

CCIF CPA LIMITED

37th Floor, Hennessy Centre 500 Hennessy Road Causeway Bay, Hong Kong Telephone: +852 2894 6888 Facsimile: +852 2895 3752 E-mail: [email protected] www.hkcpa.com

28 June 2005

Dear Sirs,

We set out below our report on the financial information relating to American Phoenix Group, Inc. (“APG”) and its subsidiaries (hereinafter collectively referred to as “APG Group”) for the period from 21 August 2002 (date of incorporation) to 31 December 2002 and the two years ended 31 December 2003 and 2004 (the “Relevant Period”) (the “Financial Information”) for inclusion in the circular of Compass Pacific Holdings Limited (the “Company”) dated 28 June 2005 (the “Circular”).

APG is a company incorporated in the State of California, the United States of America on 21 August 2002 with limited liability and principally engaged in investment holding. On 1 December 2003, APG entered into an agreement with Mr. Thomas E. Bongarzone (the “Transferor”) to acquire the entire 100% interest in Star Western Holdings, LLC. (“Star Western”), a company incorporated under the laws of the State of Delaware, the United States of America. Pursuant to a supplemental agreement dated 31 December 2003, the acquisition of Star Western was completed effective on 1 January 2004. Star Western is an investment holding company. Through its subsidiaries, APG Group operates dealerships in motor vehicles in the People’s Republic of China (the “PRC”) and auto malls in Guangzhou, the PRC, and undertakes property development business.

For the purpose of this report, we have examined the audited financial statements or, where appropriate, the unaudited management accounts of APG Group prepared in accordance with the accounting principles generally accepted in Hong Kong for the Relevant Period or since their respective dates of incorporation or acquisition, where there is a shorter period and have carried out such additional procedures as are necessary in accordance with the Auditing Guideline “Prospectuses and the Reporting Accountants” issued by the Hong Kong Institute of Certified Public Accountants.

The Financial Information set out in this report has been prepared based on the audited financial statements of APG Group for the Relevant Period.

The directors of APG Group are responsible for the preparation of the financial statements of APG Group which give a true and fair view. In preparing the financial statements which give a true and fair view, it is fundamental that appropriate accounting policies are selected and applied consistently.

The directors of APG Group are also responsible for the Financial Information of APG Group as at and for each of the period ended 31 December 2002 and the two years ended 31 December 2003 and 2004. It is our responsibility to form an independent opinion on the Financial Information of APG Group.

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ACCOUNTANTS’ REPORT ON APG GROUP

APPENDIX II

As stated in note 7 to the Financial Information, APG Group acquired five subsidiaries namely上海大眾汽車成都申蓉銷售服務有限公司(“Chengdu Shenrong”), 北京申銀汽車銷售有限公司(“Beijing Shenyin”), 西安唐飛汽車銷售服務有限公司 (“Xian Tongfei”), 上海大眾汽車天津東麗銷售服務有限公司(“Tianjin Dongli”) and 嘉興市水木清華置業有限公司(“Jiaxing Shuimu”) and formed a subsidiary namely 四川申蓉常瑞汽車貿易有限公司 (“Sichuan Shenrong”) during the year ended 31 December 2004 of which Chengdu Shenrong, Beijing Shenyin, Sichuan Shenrong, Tianjin Dongli and Jiaxing Shuimu were disposed of in the same year. The remaining subsidiary, Xian Tongfei was deregistered in April 2004. APG Group does not have the books and records of these subsidiaries for consolidation of the financial statements of these subsidiaries from the dates of acquisitions or establishment up to the dates of disposals into the Financial Information of APG Group for the year ended 31 December 2004 as the books and records had been handover to the purchasers upon disposals. This is not in accordance with the requirements of Statement of Standard Accounting Practice No. 32 issued by the Hong Kong Institute of Certified Public Accountants. Disclosures of the information on the non-consolidated subsidiaries’ results attributable to APG Group as required by Schedule 10 of the Companies Ordinance have not been included in the Financial Information.

Except for the non-consolidation of the financial statements of the subsidiaries as stated in the preceding paragraph, in our opinion, the Financial Information together with the notes thereon, give for the purpose of this report, a true and fair view of the results of operations and cash flows of APG Group for the Relevant Period, and of the financial position of APG Group as at 31 December 2002, 2003 and 2004.

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ACCOUNTANTS’ REPORT ON APG GROUP

APPENDIX II

I. FINANCIAL INFORMATION

The Financial Information of APG Group for the Relevant Period prepared on the basis set out in Note 1 to the Financial Information is as follows:

Consolidated income statements

Period from
21 August
2002 to
31 December
2002
Note
RMB’000
Turnover
3
–
Cost of sales
–
Gross profit
–
Other revenue
3
–
Distribution and selling expenses
–
General and administrative expenses
–
Other operating expenses
5
–
(Loss)/profit from operations
6
–
Gain on disposal of non-consolidated
subsidiaries
7
–
Finance costs
8
–
(Loss)/profit before tax
–
Taxation
10
–
(Loss)/profit before minority interests
–
Minority interests
–
(Loss)/profit attributable to shareholders
11
–

Year ended 31 December
2003
2004
RMB’000
RMB’000
–
1,121,704
–
(1,067,135)
–
54,569
–
17,487
–
(21,574)
(436)
(35,948)
–
(6,290)
(436)
8,244
–
10,000
–
(4,843)
(436)
13,401
(7)
(8,980)
(443)
4,421
–
(2,786)
(443)
1,635

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ACCOUNTANTS’ REPORT ON APG GROUP

APPENDIX II

Consolidated statements of changes in equity

As at 21 August 2002 (date of incorporation) Issue of share capital Loss attributable to shareholders As at 31 December 2002 As at 1 January 2003 Issue of share capital Loss attributable to shareholders As at 31 December 2003 As at 1 January 2004 Issue of share capital Profit attributable to shareholders Transfer from retained profits As at 31 December 2004	Share capital RMB’000 – – – – – 8,269 – 8,269 8,269 83,095 – – 91,364	Retained Statutory profits/ surplus (accumulated reserve losses) RMB’000 RMB’000 – – – – – – – – – – – – – (443) – (443) – (443) – – – 1,635 145 (145) 145 1,047	Total RMB’000 – – – – – 8,269 (443) 7,826 7,826 83,095 1,635 – 92,556

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ACCOUNTANTS’ REPORT ON APG GROUP

APPENDIX II

Consolidated balance sheets

Notes NON-CURRENT ASSETS Goodwill 12 Fixed assets 13 Interest in an associate 14 Investment securities 15 Deferred tax assets 29 CURRENT ASSETS Inventories 16 Properties under development 17 Completed properties held for sales 18 Land held for future development 19 Due from former subsidiaries 20 Due from minority shareholders 21 Deposits, prepayments and other receivables Prepayments to suppliers Trade receivables 22 Tax recoverable Pledged bank deposits Restricted bank balances Cash and bank balances CURRENT LIABILITIES Trade payables 23 Bills payable, secured Other payables and accruals Bank loans, secured 24 Deposits received from customers Due to minority shareholders 25 Due to a shareholder 26 Due to a director 27 Other loans Tax payable 28 NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES MINORITY INTERESTS NET ASSETS Represented by: SHARE CAPITAL 30 RESERVES 31 SHAREHOLDER’S EQUITY	2002 RMB’000 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – –	At 31 December 2003 2004 RMB’000 RMB’000 – 19,098 – 101,312 – 150 – 215 – 10,694 – 131,469 – 139,532 – 18,807 – 1,995 – 16,746 – 5,017 – 25,864 – 52,276 – 81,478 – 65,359 – 7,161 – 111,508 – 2,892 8,025 48,217 8,025 576,852 – (72,927) – (220,111) – (44,932) – (88,053) – (55,176) – (16,368) – (46,716) – (3,310) (199) (224) – (11,864) (199) (559,681) 7,826 17,171 7,826 148,640 – (56,084) 7,826 92,556 8,269 91,364 (443) 1,192 7,826 92,556

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ACCOUNTANTS’ REPORT ON APG GROUP

APPENDIX II

Consolidated cash flow statements

Period from
21 August
2002 to
31 December
2002
RMB’000
(Loss)/profit before tax
–
Depreciation
–
Amortisation of goodwill
–
Bad debts
–
Provision for inventories
–
Provision for doubtful debts
–
Gain on disposal of non-consolidated
subsidiaries
–
Net loss on disposal of fixed assets
–
Bank interest income
–
Other interest income
–
Interest expenses
–
Provision for completed properties
held for sales
–
Operating (loss)/profit before working
capital changes
–
Increase in inventories
–
Increase in amounts due from
former subsidiaries
–
Increase in amounts due from minority
shareholders
–
Decrease in deposits, prepayments
and other receivables
–
Increase in prepayment to suppliers
–
Increase in trade receivables
–
Increase in trade payables
–
Decrease in amounts due from
non-consolidated subsidiaries
–
Decrease in bills payable
–
Decrease in other payables and accruals
–
Increase in other tax payable
–
Increase in deposits received
from customers
–
Cash (used in) generated from operations
–
Other interest income received
–
Bank interest income received
–
Interest paid
–
Income tax paid
– the PRC
–
– USA
–
Net cash used in operating activities
–

Year ended 31 December
2003
2004
RMB’000
RMB’000
(436)
13,401
–
4,606
–
2,122
–
30
–
556
–
2,794
–
(10,000)
–
181
–
(2,650)
–
(781)
–
4,102
–
419
(436)
14,780
–
(15,547)
–
(217)
–
(15,064)
–
21,833
–
(13,596)
–
(39,995)
–
57,383
–
10,006
–
(18,219)
–
(10,594)
–
902
–
12,638
(436)
4,310
–
781
–
2,650
–
(3,736)
–
(6,615)
(7)
–
(443)
(2,610)

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ACCOUNTANTS’ REPORT ON APG GROUP

APPENDIX II

Note Investing activities Purchase of fixed assets Purchase of subsidiaries 32 Payment for completed properties held for sales Payment for properties under development Payment for land held for future development Purchase of investment securities Proceeds from disposal of investment securities Proceeds on disposal/deregistration of non-consolidated subsidiaries Proceeds on disposal of fixed assets Increase in pledged and restricted bank balances Net cash used in investing activities Financing activities Issue of share capital New bank loans New other loans New loan from a shareholder Repayment of amount due to a director Increase in amounts due to minority shareholders Repayment of amount due to a non-consolidated subsidiary Capital contributed by minority shareholders Net cash generated from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the period/year Cash and cash equivalents at the end of the period/year Analysis of balances of cash Cash and bank balances	Period from 21 August 2002 to 31 December 2002 RMB’000 – – – – – – – – – – – – – – – – – – – – – – – –	Year ended 2003 RMB’000 – – – – – – – – – – – 8,269 – 199 – – – – – 8,468 8,025 – 8,025 8,025	31 December 2004 RMB’000 (48,642) (67,843) (2,414) (15,059) (16,746) (200) 607 29,554 2,114 34,081 (84,548) 83,095 41,206 – 46,350 (48,420) 2,469 (9,850) 12,500 127,350 40,192 8,025 48,217 48,217

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ACCOUNTANTS’ REPORT ON APG GROUP

APPENDIX II

II. NOTES TO THE FINANCIAL INFORMATION

1. Basis of presentation

As at the date of this report, APG has direct or indirect interest in the following subsidiaries:

	Place of	Issued and
	incorporation	fully paid	Percentage of equity
	or registration/	share capital/	interest attributable
Name	operations	registered capital	to the	Group		Principal activities
			Direct	Indirect
Star Western Holdings,	USA	US$8,750,000	100%		–	Investment holding
LLC (“Star Western”)
寧波美立資產	PRC	US$8,650,000	–	100%		Investment holding
管理有限公司
(Ningbo Meili Asset
Management Co. Ltd)
寧波美立德諮詢	PRC	US$750,000	–	100%		Investment holding
有限公司
(Ningbo Meilide
Consulting Co. Ltd.)
寧波保稅區亞飛貿易	PRC	RMB1,000,000	–	100%		Investment holding
有限公司
(Ningbo Duty-free Zone
Yafei Trading Co. Ltd.)
寧波鳳凰汽車銷售	PRC	RMB135,357,883	–	100%		Investment holding and
服務有限公司						trading of motor vehicles
(Ningbo Phoenix Automobile
Distribution and Services
Co., Ltd) (“Ningbo Phoenix”)
上海聖飛汽車銷售	PRC	RMB5,000,000	–	90%		Trading of motor vehicles
服務有限公司
(Shanghai Shengfei Automobile
Sale and Services Ltd.)
上海環亞中進國際	PRC	RMB1,000,000	–	100%		Trading of motor vehicles
貿易有限公司
(Shanghai Huanya Zhougin
International Trade Co. Ltd.)
廣州申飛汽車銷售	PRC	RMB29,990,000	–	63.32%		Trading of motor vehicles
服務有限公司
(Guangzhou Shenfei
Automobile Sales and
Services Co. Ltd.)
廣東眾大汽車維修	PRC	RMB2,000,000	–	56.99%		Trading of motor vehicles
有限公司						and providing repair
(Guangdong Zhongda						and maintenance services
Automobile Maintenance
Co., Ltd)
廣州申奧汽車銷售	PRC	RMB5,000,000	–	56.99%		Trading of motor vehicles
服務有限公司
Guangzhou Shen Ao
Automobile Sales and
Services Co. Ltd.
(“Guangzhou Shen Ao”)

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ACCOUNTANTS’ REPORT ON APG GROUP

APPENDIX II

	Place of	Issued and
	incorporation	fully paid	Percentage of equity
	or registration/	share capital/	interest attributable
Name	operations	registered capital	to the	Group	Principal activities
			Direct	Indirect
廣東佳馬汽車銷售	PRC	RMB5,000,000	–	56.99%	Trading of motor vehicles
服務有限公司
(Guangdong Jiama Automobile
Sales and Services Co Ltd)
(“Guangdong Jiama”)
廣州市申飛通立汽車	PRC	RMB5,000,000	–	61.74%	Trading of motor vehicles
銷售服務有限公司
(Guangzhou Shenfe Tongli
Automobile Sales and
Service Co., Ltd)
上海交運聖飛汽車	PRC	RMB12,000,000	–	51%	Trading of motor vehicles
銷售服務有限公司
(Shanghai Jiaoyun Shengfei
Automobile Sales and
Services Co., Ltd)
(“Shanghai Shengfei”)
寧波聖菲汽車銷售	PRC	RMB10,000,000	–	51%	Trading of motor vehicles
服務有限公司					and providing repair
(Ningbo Shengfei Automobile					and maintenance services
Sales and Services Ltd)
(“Ningbo Shengfei”)
上海大眾汽車寧波	PRC	RMB2,000,000	–	51%	Trading of motor vehicles
銷售服務有限公司
(Shanghai Volkswagen Ningbo
Sales and Services
Company Ltd.)
(“Shanghai Ningbo”)
上海怡通汽車銷售	PRC	RMB10,000,000	–	51%	Trading of motor vehicles
服務有限公司
(Shanghai Yitong Automobile
Sales Co., Ltd.)
(“Shanghai Yitong Sales”)
上海怡通汽車服務	PRC	RMB10,000,000	–	51%	Trading of motor vehicles
有限公司					and providing repair
(Shanghai Yitong Automobile					and maintenance services
Service Co. Ltd)
(“Shanghai Yitong”)
上海大眾汽車台州	PRC	RMB5,000,000	–	51%	Trading of motor vehicles
銷售服務有限公司					and providing repair
(Shanghai Volkswagen Taizhou					and maintenance services
Sales & Service Co. Ltd)
(“Shanghai Taizhou”)
寧波華都房地產	PRC	RMB6,038,153	–	50%	Property development
有限公司
(Ningbo Huadu Real
Enstate Co., Ltd)
(“Ningbo Huadu”)(Note i)
金華市華都置業	PRC	RMB10,000,000	–	27.5%	Property development
有限公司
(Jinhua Huadu Property Co. Ltd)
(“Jinhua Huadu”)(Note ii)

Note:

(i) The board of directors of Ningbo Huadu consists of 7 members of whom 4 members are nominated by Ningbo Phoenix, a 51% owned-subsidiary, therefore, the directors considered that it is appropriate to classify Ningbo Huadu as subsidiary of APG Group.
(ii) Ningbo Huadu holds 55% interest in Jinghua Huadu, therefore, Jinhua Huadu is a subsidiary of APG Group notwithstanding the effective interest is 27.5%.
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ACCOUNTANTS’ REPORT ON APG GROUP

APPENDIX II

The consolidated income statements and cash flow statements for the Relevant Period include the results of operations and cash flows of the companies of APG Group throughout the Relevant Period covered by this report or since their respect dates of incorporation or acquisition where there was a shorter period, except for those nonconsolidated subsidiaries as set out in note 7 to the Financial Information.

The consolidated balance sheets of APG Group as at 31 December 2002, 2003 and 2004 have been prepared to present the financial position of the companies of APG Group as at 31 December 2002, 2003 and 2004, except for those non-consolidated subsidiaries as set out in note 7 to the Financial Information.

All significant transactions and balances within APG Group have been eliminated on consolidation.

2. Principal accounting policies

The financial statements have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (which includes all applicable Statements of Standard Accounting Practice and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants, accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. These financial statements also comply with the applicable provisions of the Rules Governing the Listing of Securities of The Stock Exchange. A summary of the principal accounting policies adopted by APG Group (which is consistent with the accounting policies of the Group) is set out below.

The Hong Kong Institute of Certified Public Accountants has issued a number of new and revised Hong Kong Financial Reporting Standards and Hong Kong Accounting Standards (“new HKFRSs”) which are effect for accounting periods beginning on or after 1 January 2005.

APG Group has not adopted these new HKFRSs in the financial statements for the year ended 31 December 2004. APG Group has already assessed the impact of these new HKFRSs but is not yet in a position to state whether these new HKFRSs would have a significant impact on its results of operations and financial position.

(a) Basis of measurement

The financial statements have been prepared on the historical cost basis.

(b) Subsidiaries

A subsidiary is a company whose financial and operating policies APG Group controls, directly or indirectly, so as to obtain benefits from its activities.

The interest in subsidiary is stated at cost less any impairment losses.

(c) Fixed assets and depreciation

Fixed assets are stated at cost or valuation less accumulated depreciation and any impairment losses. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the assets 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 asset.

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

Leasehold land	Over the lease terms
Leasehold buildings	2% or over the lease terms, whichever is shorter
Leasehold improvements	20% or over the lease terms, whichever is shorter
Furniture, fixtures and equipment	10%-20%
Motor vehicles	10%-20%
Plant and machinery	10%-20%

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ACCOUNTANTS’ REPORT ON APG GROUP

APPENDIX II

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

(d) Consolidation

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

All material intercompany transactions and balances are eliminated on consolidation.

The gain or loss on the disposal of a subsidiary represents the difference between the sales proceeds and APG Group’s share of its net assets together with any unamortised goodwill or goodwill taken to reserves and which was not previously charged or recognised in the consolidated income statement.

Minority interests represents the interests of outside shareholders in the operating results and net assets of subsidiaries.

(e) Goodwill

Goodwill arising on the acquisition of subsidiaries represents the excess of the cost of the acquisition over APG Group’s share of the fair values of the identifiable assets and liabilities acquired as 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 of 10 years.

On disposal of subsidiaries, the gain or loss on disposal is calculated by reference to the net assets at the date of disposal, including the attributable amount of goodwill which remains unamortised and any relevant reserves, as appropriate.

The carrying amount of goodwill is reviewed annually and written down for impairment when it is considered necessary. A previously recognised impairment loss for goodwill is not reversed unless the impairment loss was caused by a specific external event of an exceptional nature that was not expected to recur, and subsequent external events have occurred which have reversed the effect of that event.

(f) Construction-in-progress

Construction-in-progress is stated at cost which comprises construction costs, purchased costs and other related expenses incurred in connection with the construction of plant and machinery for own use, less any provision for impairment loss. No depreciation is provided for construction-in-progress until they are completed and put into production.

(g) Impairment of assets

An assessment is made at each balance sheet date of whether there is any indication of impairment of any asset, or whether there is any indication that an impairment loss previously recognised for an asset in prior years may no longer exist or may have decreased. If any indication exists, the asset’s recoverable amount is estimated. An asset’s recoverable amount is calculated as the higher of the asset’s value in use or its net selling price.

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ACCOUNTANTS’ REPORT ON APG GROUP

APPENDIX II

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. An impairment loss is charged to the income statement in the period in which it arises, unless the asset is carried at a revalued amount, when the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the recoverable amount of an asset, however not to an amount higher than the carrying amount that would have been determined (net of any depreciation), had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is credited to the income statement in the period in which it arises, unless the asset is carried at a revalued amount, when the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

(h) Associate

An associate is a company, not being a subsidiary or a joint venture, in which an equity interest is held for long-term and significant influence is exercised in its management.

The consolidated income statement includes APG Group’s share of the results of associate for the year, and the consolidated balance sheet includes APG Group’s share of the net assets of the associate and goodwill/negative goodwill (net of accumulated amortisation) on acquisition.

Equity accounting is discontinued when the carrying amount of the investment in an associate reaches zero, unless APG Group has incurred obligations or guaranteed obligations in respect of the associate.

Unrealised gains on transactions between APG Group and its associate are eliminated to the extent of APG Group’s interest in the associate; unrealised losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred.

(i) Investment securities

Investment securities are stated in the consolidated balance sheet at cost less any provisions for impairment losses. Provisions are made when the fair value of such investment securities has declined below the carrying amounts, unless there is evidence that the decline is temporary. The amount of the reduction is recognised as an expense in the income statement.

Provisions against the carrying value of investment securities are written back to income when the circumstances and events that led to the write-downs or write-offs cease to exist and there is persuasive evidence that the new circumstances and events will persist for the foreseeable future.

(j) Inventories

Inventories are stated at the lower of cost and net realisable value. Cost includes costs of raw materials determined using the first-in, first-out method of closing and, in cases of work-in-progress and finished goods, also direct labour and an appropriate proportion of production overheads. Net realisable value is based on estimated normal selling price, less further costs expected to be incurred to completion and disposal. Provision is made to obsolete, slow-moving or defective items where appropriate.

When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realisable value, is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.

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ACCOUNTANTS’ REPORT ON APG GROUP

APPENDIX II

(k) Income tax

Income tax comprises current and deferred tax. Income tax is recognised in the income statement or in equity, if it relates to items that are recognised in the same or a different period directly in equity.

Deferred tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Tax rates enacted or substantively enacted by the balance sheet date are used to determine deferred tax.

Deferred tax liabilities are provided in full on all taxable temporary differences while 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.

(l) Foreign currencies

Foreign currency transactions are recorded at the applicable rates of exchange ruling at the transactions dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange ruling at the date. Exchange differences are dealt with in the income statement.

(m) Revenue recognition

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

(i) Revenue from the sales of motor vehicles, on the transfer of ownership, which generally coincides with the time of delivery; and
(ii) Revenue from properties developed for sale is recognised on the execution of a binding sales agreement or when the relevant occupation permit or certificate of compliance is issued by the building authority, whichever is the later.
(iii) Revenue from properties held for sale is recognised on the execution of a binding sales agreement. Payments received from the purchasers prior to this stage are recorded as deposits received on sales of properties and are grouped under current liabilities.
(iv) Interest income, on a time proportion basis taking into account the principal outstanding and the effective interest rate applicable.

(n) Related parties

(o) Trade receivables

Provision is made against trade receivables to the extent that they are considered to be doubtful. Trade receivables in the balance sheet is stated net of such provision.

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ACCOUNTANTS’ REPORT ON APG GROUP

APPENDIX II

(p) Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits, and short term highly liquid investments which are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of cash management.

(q) Provisions and contingent liabilities

A provision is recognised when there is present obligation, legal or constructive, as a result of a past event and it is probable (i.e. more likely than not) than an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed regularly 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.

A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of APG 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, they will then be recognised as a provision.

3. Turnover and revenue

An analysis of the turnover and other revenue is as follows:

Period from 21 August 2002 to 31 December 2002 RMB’000 Turnover Sales of automobiles and parts – Sales of properties – – Other revenue Advertising income – Bank interest income – Compensation income – Consultancy income – Gain on disposal of fixed assets – Government subsidy – Insurance income – Other interest income – Service fee income – Subsidy income – Sundry income – Testing income – – Total revenue –	Year ended 31 December 2003 2004 RMB’000 RMB’000 – 1,103,889 – 17,815 – 1,121,704 – 95 – 2,650 – 48 – 1,895 – 164 – 210 – 5,783 – 781 – 3,596 – 272 – 1,572 – 421 – 17,487 – 1,139,191	Year ended 31 December 2003 2004 RMB’000 RMB’000 – 1,103,889 – 17,815 – 1,121,704 – 95 – 2,650 – 48 – 1,895 – 164 – 210 – 5,783 – 781 – 3,596 – 272 – 1,572 – 421 – 17,487 – 1,139,191
		1,121,704 95 2,650 48 1,895 164 210 5,783 781 3,596 272 1,572 421
		17,487
		1,139,191

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4. Segment information

Segment information is presented in respect of APG Group’s business segments. Business segment is chosen as the primary reporting format because this is more relevant to APG Group’s internal financial reporting. Geographic segment information is not presented as APG Group operates predominantly in the PRC.

(a) An analysis of the turnover and results by business segment is as follows:

Period from
21 August
2002 to
31 December
2002
RMB’000
Turnover:
– Distribution of motor vehicles
–
– Property development
–
–
Segment results:
– Distribution of motor vehicles
–
– Property development
–
–
Unallocated (expenses)/income, net
–
Profit/(loss) from operations
–
Gain on disposal of non-consolidated
subsidiaries
–
Finance costs
–
(Loss)/profit before tax
–
Taxation
–
(Loss)/profit before minority interests
–
Minority interests
–
(Loss)/profit attributable to shareholders
–
Depreciation and amortisation
– Distribution of motor vehicles
–
– Property development
–
– Unallocated
–
–
Provision for doubtful debts
– Distribution of motor vehicles
–
– Property development
–
–

Year ended 31 December
2003
2004
RMB’000
RMB’000
–
1,103,889
–
17,815
–
1,121,704
–
19,338
–
7,216
–
26,554
(436)
(18,310)
(436)
8,244
–
10,000
–
(4,843)
(436)
13,401
(7)
(8,980)
(443)
4,421
–
(2,786)
(443)
1,635
–
6,207
–
179
–
342
–
6,728
–
2,290
–
504
–
2,794

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(b) Additional information on business segments

Period from
21 August
2002 to
31 December
2002
RMB’000
Segment assets:
– Distribution of motor vehicles
–
– Property development
–
–
Unallocated assets
–
Total assets
–
Segment liabilities:
– Distribution of motor vehicles
–
– Property development
–
–
Unallocated liabilities
–
Total liabilities
–
Capital expenditure
– Distribution of motor vehicles
–
– Property development
–
– Unallocated
–
–

Year ended 31 December
2003
2004
RMB’000
RMB’000
–
550,817
–
86,090
–
636,907
8,025
71,414
8,025
708,321
–
(436,397)
–
(44,683)
–
(481,080)
(199)
(78,601)
(199)
(559,681)
–
47,271
–
252
–
1,119
–
48,642

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5. Other operating expenses

Period from
21 August
2002 to
31 December
2002
RMB’000
Bad debts
–
Provision for doubtful debts
–
Loss on disposal of fixed assets
–
Provision for completed properties held for sales
–
Amortisation of goodwill
–
Provision for inventories
–
Others
–
–
6.
(Loss)/profit from operations
The (loss)/profit from operations was arrived at after charging the following:
Period from
21 August
2002 to
31 December
2002
RMB’000
Charging:
Auditors’ remuneration
–
Depreciation on owned assets
–
Minimum lease payments under operating leases
–
Staff costs
– Salaries, bonuses, allowances and benefits
in kind
–
7.
Gain on disposal of non-consolidated subsidiaries
Period from
21 August
2002 to
31 December
2002
RMB’000
Sales proceeds
–
Cost of investments
–
Gain on disposal
–

Year ended 31 December
2003
2004
RMB’000
RMB’000
–
30
–
2,794
–
345
–
419
–
2,122
–
556
–
24
–
6,290
Year ended 31 December
2003
2004
RMB’000
RMB’000
–
7
–
4,606
–
5,902
–
15,971
Year ended 31 December
2003
2004
RMB’000
RMB’000
–
34,754
–
(24,754)
–
10,000

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ACCOUNTANTS’ REPORT ON APG GROUP

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In January 2004, APG acquired the entire issued share capital of Star Western which held, among others, Shanghai Volkswagen Chengdu Shenrong Sales & Service Co., Ltd. (“Chengdu Shenrong”) (上海大眾汽車成都申蓉銷售服務有限公司 ), Beijing Shenyin Automobile Sales Co., Ltd (“Beijing Shenyin”) (北京申銀汽車銷售有限公司 ), Shanghai Volkswagen Tianjin Dongli Sales & Service Co., Ltd (“Tianjin Dongli”)（上海大眾汽車天津東麗銷售服務有限公司 ) and 西安唐飛汽車銷售服務有限公司 (“Xian Tongfei”). On 8 January 2004, Ningbo Phoenix formed a 51% owned subsidiary namely 四川申蓉常瑞汽車貿易有限公司(“Sichuan Shenrong”). Chengdu Shenrong, Beijing Shenyin, Tianjin Dongli and Sichuan Shenrong were engaged in distribution of automobiles. Xian Tongfei had not commenced any business.

Ningbo Phoenix disposed of Chengdu Shenrong on 22 September 2004, Beijing Shenyin on 21 October 2004, Tianjin Dongli on 21 October 2004 and Sichuan Shenrong on 29 September 2004 respectively to 王常裕 (Wang Chang Yu) a director of Chengdu Shenrong, 沈東鷹 (Shan Dong Yin) a minority shareholder who held 28.96% of the registered capital of Beijing Shenyin, 張玉新 (Zhang Yuxin) a minority shareholder who held 29% of the registered capital of Tianjin Dongli and 上海藍深實業有限公司 (Shanghai Lanshan Enterprises Co., Ltd) an independent third party at book value for a total of approximately RMB19,954,000. As Xian Tongfei was located far away from APG Group’s distribution network such as Ningbo, Shanghai and Guangzhou, therefore, the directors decided to close Xian Tongfei. As such Xian Tongfei was deregistered in April 2004.

On 26 October 2004, Ningbo Phoenix acquired a 50% subsidiary Ningbo Huadu from 張偉軍 (Chang Weijun). Ningbo Huadu had a 60% subsidiary, namely 嘉興市水木清華置業有限公司（“Jiaxing Shuimu”) which was engaged in property development. Subsequent to the acquisition, 寧波城之源置業有限公司 (Ningbo Chenggi Yuan Property Co., Ltd) (“Ningbo Chenggi”) (formerly 寧波經濟技術開發區城市建設總公司) (Ningbo Economic and Technical Development Zone Urban Construction Company) made an offer to APG Group to purchase the interest in Jiaxing Shuimu, therefore, on 2 November 2004 Ningbo Huadu disposed of the entire interest in Jiaxing Shuimu to Ningbo Chenggi for RMB14,800,000 with investment cost of RMB4,800,000, therefore, APG Group recorded a gain of RMB10,000,000 on the disposal.

8. Finance costs

Period from 21 August 2002 to 31 December 2002 RMB’000 Bank charges – Interest on bank loans – Other interest – –	Year ended 31 December 2003 2004 RMB’000 RMB’000 – 741 – 3,460 – 642 – 4,843	Year ended 31 December 2003 2004 RMB’000 RMB’000 – 741 – 3,460 – 642 – 4,843
		4,843

9. Directors’ and senior executives’ remuneration

a) No remunerations were paid or payable to directors of APG for the Relevant Period. There was no arrangement under which a director waived or agreed to waive any remuneration during the Relevant Period.
b) The five highest paid individuals in APG Group for the Relevant Period are as follows:

	Period from
	21 August
	2002 to
	31 December	Year ended 31 December
	2002	2003	2004
	RMB’000	RMB’000	RMB’000
Salaries, allowances and benefits in kind	–	341	1,733

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The number of individuals whose remuneration fell within the following bands is as follows:

	Number of individuals	Number of individuals
	Period from
	21 August
	2002 to
	31 December	Year ended 31 December
	2002	2003	2004
Nil to HK$1,000,000	–	1	5

10. Taxation

No provision for Hong Kong profits tax had been made as APG Group did not generate any assessable profits arising in Hong Kong during the Relevant Period.

Taxation in the consolidated income statement represents:

Period from 21 August 2002 to 31 December 2002 RMB’000 Current tax USA income tax – PRC enterprise income tax – – Deferred tax – Tax charge –	Year ended 31 December 2003 2004 RMB’000 RMB’000 7 7 – 11,395 7 11,402 – (2,422 7 8,980	Year ended 31 December 2003 2004 RMB’000 RMB’000 7 7 – 11,395 7 11,402 – (2,422 7 8,980
		11,402 (2,422
		8,980

A reconciliation between tax charge and accounting (loss)/profit at applicable tax rates is as follows:

Period from 21 August 2002 to 31 December 2002 RMB’000 (Loss)/profit before tax – Notional tax on (loss)/profit before tax, calculated at the rates applicable in the tax jurisdictions concerned – Tax effect of non-deductable expenses – Tax effect of tax losses not recognised – Tax charge –	Year ended 31 December 2003 2004 RMB’000 RMB’000 (436) 13,401 (104) 6,554 111 – – 2,426 7 8,980	Year ended 31 December 2003 2004 RMB’000 RMB’000 (436) 13,401 (104) 6,554 111 – – 2,426 7 8,980

		6,554 – 2,426
		8,980

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11. (Loss)/profit attributable to shareholders

The loss for the period ended 31 December 2002 and years ended 31 December 2003 and 2004 dealt with in the financial statements of APG were approximately RMBNil, RMB443,000 and RMB2,266,000 respectively.

12. Goodwill

Cost At beginning of the period/year Arising from acquisition of subsidiaries At end of the period/year Accumulated amortisation At beginning of the period/year Charge for the period/year At end of the period/year Net book value At end of the period/year	2002 RMB’000 – – – – – –	2003 RMB’000 – – – – – –	2004 RMB’000 – 21,220 21,220 (2,122) (2,122) 19,098

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13. Fixed assets

Cost At 21 August 2002 and 31 December 2002 At 1 January 2003 and 31 December 2003 At 1 January 2004 Acquisition of subsidiaries Additions Disposals Transfer from construction in progress At 31 December 2004 Accumulated depreciation At 21 August 2002 and 31 December 2002 At 1 January 2003 and 31 December 2003 At 1 January 2004 Acquisition of subsidiaries Charge for the year Disposals At 31 December2004 Net book value At 31 December 2004 At 31 December 2003 At 31 December 2002	Land and Construction Leasehold buildings in progress improvements RMB’000 RMB’000 RMB’000 – – – – – – – – – 7,301 40,101 543 – 33,937 1,263 (1,004) – – 27,463 (27,463) – 33,760 46,575 1,806 – – – – – – – – – 3,256 – 32 951 – 332 (518) – – 3,689 – 364 30,071 46,575 1,442 – – – – – –	Furniture, fixtures and equipment RMB’000 – – – 6,449 5,115 (149) – 11,415 – – – 2,298 946 (27) 3,217 8,198 – –	Plant and machinery RMB’000 – – – 4,666 2,782 – – 7,448 – – – 1,492 836 – 2,328 5,120 – –	Motor vehicles RMB’000 – – – 10,771 5,545 (3,032) – 13,284 – – – 3,183 1,541 (1,346) 3,378 9,906 – –	Total RMB’000 –
					–
					– 69,831 48,642 (4,185 –
					114,288
					–
					–
					– 10,261 4,606 (1,891
					12,976
					101,312

					–

					–

a) The land and buildings at their net book value are analysed as follows:

Held in the PRC on: – Leases of 10 to 50 years – Leases of over 50 years	At 31 December 2002 2003 2004 RMB’000 RMB’000 RMB’000 – – 29,788 – – 283 – – 30,071	At 31 December 2002 2003 2004 RMB’000 RMB’000 RMB’000 – – 29,788 – – 283 – – 30,071
		30,071

b) Included in the land and buildings, there were certain properties held by APG Group the ownership of which are as follows:

i) There are collectively held and allocated land amounted to approximately RMB910,000 and the buildings on the land amounted to approximately RMB1,465,000, totaling approximately RMB2,375,000 (2003: RMB2,992,000) registered in name of Linhai Automobile Repair Factory (“Linhai Repair”). According to a PRC legal opinion issued by Beijing Forever Law Firm (北京市昌久律師事務所 ), Linhai Repair wound up on 24 November 2003 and all the
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assets under the name of Linhai Repair had been injected to Shanghai Taizhou, a subsidiary of Ningbo Phoenix Group and Shanghai Taizhou has obtained the long term use rights of the land and the building ownership rights of the buildings are legally owned by Shanghai Taizhou. Therefore, the directors consider that it is appropriate to recognize the land and buildings in the Financial Information and no provision or write off for the land and buildings is necessary.

ii) There are no title ownership certificates for certain buildings with net book value of approximately RMB6,116,000 as at 31 December 2004 held by Shanghai Yitong Sales, a subsidiary of APG Group. According to a PRC legal opinion issued by Beijing Forever Law Firm (北京市昌久律師事務所 ), Shanghai Yitong Sales is in the course of applying for the real estate ownership certificate. As Shanghai Yitong Sales has obtained the land use right certificate for the land, based on the legal opinion issued by the PRC lawyer, the directors considered that there are no obstacle to prevent Shanghai Yitong Sales to obtain the said real estate ownership certificate. Therefore, the directors consider that it is appropriate to recognize the land and buildings in the Financial Information and no provision or write off of the land and buildings is necessary.
iii) There are no title ownership certificates for certain buildings with net book value of approximately RMB3,666,000 (2003: approximately RMB212,000) as at 31 December 2004 held by Shanghai Ningbo. According to a PRC legal opinion issued by Beijing Forever Law Firm (北京市昌久律師事務所 ), Shanghai Ningbo is in the course of applying for the real estate ownership certificate. As Shanghai Ningbo has obtained the land use right certificate for the land, the PRC lawyer considered that there is no obstacle in obtaining the said real estate ownership certificate. Therefore, the directors consider that it is appropriate to recognize the land and buildings in the Financial Information and no provision or write off of the land and buildings is necessary.
iv) There are certain properties with net book value of approximately RMB9,749,000 as at 31 December 2004 constructed by Shanghai Shengfei which was on the land leased from Shanghai Automobile Repair Company (“Shanghai Repair”) with a term of 15 years. According to a PRC legal opinion issued by Beijing Forever Law Firm (北京市昌久律師事務所 ), the terms and conditions of the lease agreement do not contravene the PRC laws and regulations and thus the lease agreement is legal, valid and binding on the relevant parties. At present, Shanghai Repair is applying for the real estate ownership. As Shanghai Repair has obtained the land use right certificate for the land, the PRC lawyer considered that there is no obstacle in obtaining the said real estate ownership certificate. Notwithstanding the legal owner of the properties is vested with Shanghai Repair, the directors considered that Shanghai Shengfei has the right to use the properties during the lease period under the lease agreement, therefore, it is appropriate to recognize the properties in the Financial Information and depreciate the properties according to the lease terms.
c) Included in the construction in progress, there were certain properties under construction held by APG Group as follows:

There are properties under construction with net book value of approximately RMB44,713,000 as at 31 December 2004 developed by Guangzhou Shenfei, a subsidiary, on a parcel of land leased from Guangzhou Fangcun District Dongjiao Town Hainan Villagers Authority (the “Lessor”) for a period of 21 years and 10 months commencing from 15 February 2003. According to the lease agreement, the ownership of the properties on the land is belongs to the Lessor. However, Guangzhou Shenfei has the right to use the properties during the tenancy period in accordance with the lease agreement. According to a PRC legal opinion issued by Beijing Forever Law Firm (北京市昌久律師事務所 ), the Lessor has the land use rights to lease the land and the terms and conditions of the lease agreement do not contravene the PRC laws and legislations, and the Lessor is in the course of

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applying the real estate ownership certificates for the properties. The PRC lawyer consider that there is no obstacle in obtaining the real estate ownership certificates, therefore, the directors considered it is appropriate to recognize the properties under construction.

14. Interest in an associate

2002
RMB’000
Share of net assets
–
The details of the associate were as follows:
Place of
% of
Name
incorporation
interest held
上海怡通汽車修理
PRC
30%
有限公司(Shanghai Yitong
Automobile Repairing Co., Ltd.)
Investment securities
2002
RMB’000
Unlisted equity investments, at cost
–
Fund, at cost
–
Club membership
–
–
Inventories
2002
RMB’000
Finished goods
–
Provision
–
–

At 31 December
2003
2004
RMB’000
RMB’000
–
150
Principal
activities
Repair
motor vehicle
At 31 December
2003
2004
RMB’000
RMB’000
–
50
–
150
–
15
–
215
At 31 December
2003
2004
RMB’000
RMB’000
–
141,763
–
(2,231)
–
139,532

15. Investment securities

16. Inventories

No inventories were stated at net realisable value.

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APPENDIX II

17. Properties held under development

At cost Held under long term leases Held under medium term leases 18. Completed properties held for sales At cost Less: provision	2002 RMB’000 – – – 2002 RMB’000 – – –	At 31 December 2003 2004 RMB’000 RMB’000 – 15,059 – 3,748 – 18,807 At 31 December 2003 2004 RMB’000 RMB’000 – 2,414 – (419 – 1,995	At 31 December 2003 2004 RMB’000 RMB’000 – 15,059 – 3,748 – 18,807 At 31 December 2003 2004 RMB’000 RMB’000 – 2,414 – (419 – 1,995
			1,995

The aggregate carrying value of completed properties held for sale that were carried at net realisable value amounted to approximately RMB419,000 (2003: Nil, 2002: Nil).

19. Land held for future development

		At 31 December
	2002	2003	2004
	RMB’000	RMB’000	RMB’000
At Cost	–	–	16,746

The land held for future development was located at Jinhua, Zhejiang Province, the PRC and held for a lease period of 40 years. On 1 November 2004, Jinhua Huadu, a subsidiary of APG Group, appointed Mr. Zhang Minaghai (“Mr. Zhang”) and Mr. Lin Zhou (“Mr. Lin”) to purchase the land. Mr. Zhang and Mr. Lin are minority shareholders who held 25% and 20% of the registered capital of Jinhua Huadu, a 27.5% subsidiary of APG Group.

Pursuant to a stated-owned land use rights grant contract entered into between the Land Resources Bureau of Jinhua and Mr. Zhang and Mr. Lin, the total consideration for the land was RMB16,746,000 of which RMB12,000,000 were paid as at 31 December 2004 and the balance of RMB4,746,000 was included in other payable.

Subsequent to the balance sheet date on 27 May 2005, the Land Resources Bureau of Jinhua issued a land use right certificate to Jinhua Huadu.

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20. Due from former subsidiaries

Beijing Shenyin Chengdu Shenrong Jiaxing Shuimu	2002 RMB’000 – – – –	At 31 December 2003 2004 RMB’000 RMB’000 – 6 – 789 – 4,222 – 5,017	At 31 December 2003 2004 RMB’000 RMB’000 – 6 – 789 – 4,222 – 5,017
			5,017

The amounts were interest free, unsecured and had no fixed terms of repayment. The amount due from Jiaxing Shuimu has been fully settled subsequent to 31 December 2004.

21. Due from minority shareholders

Ningbo Chenggi_(Note i) Wang Xingkang(Note ii) Liang Xinghui(Note iii) Jiang Ruzhi(Note iv) Liu Fei(Note v)_	2002 RMB’000 – – – – – –	At 31 December 2003 2004 RMB’000 RMB’000 – 10,300 – 1,564 – 4,000 – 500 – 9,500 – 25,864	At 31 December 2003 2004 RMB’000 RMB’000 – 10,300 – 1,564 – 4,000 – 500 – 9,500 – 25,864
			25,864

Note:

(i) The amount represents balance of consideration receivable from disposal of a subsidiary namely Jiaxing Shuimu and was due for settlement on 2 February 2005. Pursuant to a repayment schedule issued by Ningbo Chenggi, RMB5,000,000 will be settled by 30 July 2005 and the remaining balance of RMB5,300,000 will be settled by 31 December 2005. In the opinion of the directors, as Ningbo Chenggi will settle the balance by the end of 2005, therefore, no provision for the amount due is considered necessary.
(ii) The amount was interest free, unsecured and had no fixed terms of repayment. Wang Xingkang held 49% registered capital of Shanghai Ningbo, a 51% subsidiary of APG Group and 24% of the registered capital of Ningbo Shengfei, a 51% subsidiary of APG Group.
(iii) The amount was interest free, unsecured and had no fixed terms of repayment. Liang Xinghui held 10% registered capital of Shanghai Taizhou, a 51% subsidiary of APG Group.
(iv) The amount was interest free, unsecured and had no fixed terms of repayment. Jiang Ruzhi held 10% registered capital of Guangdong Jiama, a 56.99% subsidiary of APG Group.
(v) The amount was interest free, unsecured and had no fixed terms of repayment. Liu Fei held 10% registered capital of Guangzhou Shen Ao, a 56.99% subsidiary of APG Group.
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22. Trade receivables

The credit period granted to customers normally ranges from 30 to 90 days. The aging analysis of the trade receivables is as follows:

0 to 30 days 31 to 60 days 61 to 90 days 91 to 120 days 121 to 180 days 181 to 365 days 1 to 2 years Over 2 years Less: Provision for doubtful debts	2002 RMB’000 – – – – – – – – – – –	At 31 December 2003 2004 RMB’000 RMB’000 – 26,464 – 1,622 – 13,687 – 5,171 – 3,076 – 16,520 – 453 – 21 – 67,014 – (1,655) – 65,359	At 31 December 2003 2004 RMB’000 RMB’000 – 26,464 – 1,622 – 13,687 – 5,171 – 3,076 – 16,520 – 453 – 21 – 67,014 – (1,655) – 65,359
			67,014 (1,655)
			65,359

23. Trade payables

The aging analysis of trade payables is as follows:

0 to 30 days 31 to 60 days 61 to 90 days 91 to 120 days 121 to 180 days 181 to 365 days 1 to 2 years Over 2 years Bank loans, secured Bank loans wholly repayable within one year	2002 RMB’000 – – – – – – – – – 2002 RMB’000 –	At 31 December 2003 2004 RMB’000 RMB’000 – 32,454 – 6,913 – 4,742 – 75 – 20,166 – 877 – 7,696 – 4 – 72,927 At 31 December 2003 2004 RMB’000 RMB’000 – 88,053

24. Bank loans, secured

The bank loans were secured by the following:

(i) Leasehold land and buildings with carrying value of approximately RMB13,529,000 as at 31 December 2004;
(ii) Properties under development of approximately RMB3,748,000 as at 31 December 2004;
(iii) Completed properties held for sales of approximately RMB897,000 as at 31 December 2004;
(iv) Other receivable of approximately RMB1,000,000 as at 31 December 2004;
(v) Bank deposits of approximately RMB18,600,000 as at 31 December 2004;
(vi) Corporate guarantee executed by a subsidiary, a minority shareholder, a related party and a third party.
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25. Due to minority shareholders

上海市汽車修理公司台州之遠汽車銷售服務有限公司 (Taizhou Giyuan Automobile Sales and Services Ltd) Zhang Minghai Wang Chang Yu Liu Fei	2002 RMB’000 – – – – – –	At 31 December 2003 2004 RMB’000 RMB’000 – 1,000 – 8,596 – 900 – 4,500 – 1,372 – 16,368	At 31 December 2003 2004 RMB’000 RMB’000 – 1,000 – 8,596 – 900 – 4,500 – 1,372 – 16,368
			16,368

The amount are interest free, unsecured and have no fixed terms of repayment.

26. Due to a shareholder

American Compass, Inc. – Loan principal – Accrued interest	2002 RMB’000 – – –	At 31 December 2003 2004 RMB’000 RMB’000 – 46,350 – 366 – 46,716	At 31 December 2003 2004 RMB’000 RMB’000 – 46,350 – 366 – 46,716
			46,716

On 20 September 2004, APG entered into an agreement with American Compass, Inc, a shareholder of APG pursuant to which American Compass, Inc granted a term loan facility up to US$5.6 million (equivalent to approximately RMB46,350,000) to APG. The loan is secured by a share mortgage of 25% equity interest of Star Western a wholly-owned subsidiary of APG. The loan bears interest at the rate of 5% per annum and repayable in full within 3 months after drawdown of the loan or otherwise upon demand.

27. Due to a director

		At 31 December
	2002	2003	2004
	RMB’000	RMB’000	RMB’000
Mr. Thomas E. Bongarzone
– Promissory note	–	–	3,310

On 1 December, 2003, APG entered into an agreement to acquire the entire issued share capital of Star Western for USD8,750,000. (equivalent to approximately RMB72,421,000) from Mr. Thomas E. Bongarzone a director, chairman and shareholder of APG. The acquisition was completed effective on 1 January 2004. Pursuant to the agreement, APG shall pay USD2,750,000 in cash and issue a promissory note of USD6,000,000 to Mr. Thomas E. Bongarzone for the acquisition. The promissory note was unsecured, interest free and due on 30 November 2004. As at 31 December 2004, the balance due to Mr. Thomas E. Bongarzone amounted to USD400,000 (equivalent to approximately RMB3,310,000) represented the balance of consideration payable.

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28. Tax payable

Enterprise income tax Other tax	2002 RMB’000 – – –	At 31 December 2003 2004 RMB’000 RMB’000 – 10,962 – 902 – 11,864	At 31 December 2003 2004 RMB’000 RMB’000 – 10,962 – 902 – 11,864
			11,864

29. Deferred tax assets

Deferred tax assets have been recognised in respect of these losses from certain companies of APG Group as the directors considered that it is probable that sufficient taxable profit will be available against which the unused tax losses can be utilized by APG Group.

The movement in deferred tax assets is as follows:

At beginning of the period/year Acquisitions of subsidiaries Credited to consolidated income statements At end of the period/year	2002 RMB’000 – – – –	2003 RMB’000 – – – –	2004 RMB’000 – 8,272 2,422
			10,694

30. Share capital

Authorised: Common stock Class A common stock Class B common stock Preferred stock	Number of shares 2002 2003 2004 ’000 ’000 ’000 1,000 – – – 1,000,000 1,000,000 – 100,000 100,000 – 100,000 100,000 1,000 1,200,000 1,200,000	Number of shares 2002 2003 2004 ’000 ’000 ’000 1,000 – – – 1,000,000 1,000,000 – 100,000 100,000 – 100,000 100,000 1,000 1,200,000 1,200,000
		1,200,000

82 -

ACCOUNTANTS’ REPORT ON APG GROUP

APPENDIX II

Class A common stock: Issued and fully paid: At beginning of the period/year Issue of new shares Cancelled At end of the period/year	Number of shares 2002 2003 2004 ’000 ’000 ’000 – – 9,518 – 9,518 17,554 – – (10,143) – 9,518 16,929	2002 RMB’000 – – – –	Amount 2003 RMB’000 – 8,269 – 8,269	2004 RMB’000 8,269 83,095 –
				91,364

APG was incorporated on 21 August 2002 with an authorised capital of 1,000,000 shares of stock without par value. Pursuant to an unanimous written consent of the board of directors dated 2 March 2003, the authorised capital of APG had been changed to 1,200,000,000 shares, comprising of 1,000,000,000 shares of Class A common stock, 100,000,000 shares of Class B common stock and 100,000,000 shares of preferred stock.

On 28 April 2003, 9,517,985 shares of Class A common stock were issued for a total consideration of USD999,000 (equivalent to approximately RMB8,269,000). On 8 March 2004, 6,806,083 shares of Class A common stock were issued for a total consideration of RMB70,357,883 of which 3,855,352 shares were cancelled on 28 December 2004. On 25 March 2004, 1,571,947 shares of Class A common stock were issued to American Compass Inc. for USD2,750,000 (equivalent approximately RMB22,761,000), On the same date 3,506,645 management bonus shares of Class A common stock and 2,781,140 shares of Class A common stock were issued, all of which were subsequently cancelled on 28 December 2004. On 28 December 2004, 2,888,000 shares of Class A common stock were issued to several investor for a total consideration of RMB29,854,697.

Subsequent to the balance sheet date on 1 March 2005, 56,413,589 bonus shares of Class A common stock were issued to several existing shareholders of APG pursuant to a capital reorganisation of APG approved under the board resolutions dated 1 March 2005.

83 -

ACCOUNTANTS’ REPORT ON APG GROUP

APPENDIX II

31. Reserves

At 21 August 2002 (date of incorporation) Loss attributable to shareholders At 31 December 2002 At 1 January 2003 Loss attributable to shareholders At 31 December 2003 At 1 January 2004 Profit attributable to shareholders Transfer from retained profits At 31 December 2004	Retained Statutory profits/ surplus (accumulated reserve losses) RMB’000 RMB’000 – – – – – – – – – (443) – (443) – (443) – 1,635 145 (145) 145 1,047	Total RMB’000 – – – – (443) (443) (443) 1,635 – 1,192

84 -

ACCOUNTANTS’ REPORT ON APG GROUP

APPENDIX II

32. Notes to the consolidated cash flow statements

Purchase of subsidiaries

Period from
21 August
2002 to
31 December
2002
RMB’000
NET ASSETS ACQUIRED
Fixed assets
–
Interest in non-consolidated
subsidiaries
–
Interest in an associate
–
Investment securities
–
Due from a former subsidiary
–
Deferred tax assets
–
Inventories
–
Property under development
–
Tax recoverable
–
Due from a minority shareholder
–
Due from non-consolidated subsidiaries
–
Prepayments to suppliers
–
Deposits, prepayments and other receivables
–
Trade receivables
–
Restricted bank balances
–
Pledged bank deposits
–
Cash and bank balances
–
Bills payable
–
Bank loans
–
Trade payables
–
Other payables and accruals
–
Deposits received from customers
–
Due to a non-consolidated subsidiary
–
Due to minority shareholders
–
Due to a director
–
Other loan
–
–
Minority interests
–
–
Consideration
–
Goodwill
–
ANALYSIS OF NET CASH OUTFLOW IN RESPECT
OF THE ACQUISITION OF SUBSIDIARIES
Cash consideration paid
–
Bank balances and cash acquired
–
NET CASH OUTFLOW IN RESPECT OF THE
ACQUISITION OF SUBSIDIARIES
–

Year ended 31 December
2003
2004
RMB’000
RMB’000
–
59,571
–
29,855
–
150
–
622
–
4,800
–
8,272
–
124,540
–
3,748
–
986
–
500
–
10,006
–
67,882
–
76,558
–
25,739
–
1,339
–
147,142
–
92,588
–
(238,330)
–
(46,847)
–
(15,544)
–
(55,526)
–
(42,538)
–
(9,850)
–
(13,899)
–
(51,730)
–
(25)
–
180,009
–
(40,798)
–
139,211
–
(160,431)
–
(21,220)
–
(160,431)
–
92,588
–
(67,843)

85 -

ACCOUNTANTS’ REPORT ON APG GROUP

APPENDIX II

33. Related party transactions

During the Relevant Period, APG Group have the following significant transactions with its related parties:

				Period from
				21 August
				2002 to	Year	ended
				31 December	31 December
Name		Nature of transaction		2002	2003	2004
			Note	RMB’000	RMB’000	RMB’000
a)	Zhang Yuxin	Proceeds from disposal of	(i)	–	–	3,953
		Tianjin Dongli
b)	Wang Chang Yu	Proceeds from disposal of	(ii)	–	–	4,239
		Chengdu Shenrong
c)	Shan Dong Yin	Proceeds from disposal of
		Beijing Shenyin	(iii)	–	–	6,663
d)	Ningbo Chenggi	Proceeds from disposal of
		Jiaxing Shuimu	(iv)	–	–	14,800
e)	Shanghai	Rental charge for leasing
	Automobile	of properties
	Repair Company		(v)	–	–	600

Note:

(i) Tianjin Dongli was engaged in trading of motor vehicles. In 2004, Ningbo Phoenix entered into an agreement with Zhang Yuxin, a minority shareholder who held 29% of the registered capital of Tianjin Dongli pursuant to which Ningbo Phoenix sold 51% equity interest in Tianjin Dongli for approximately RMB3,953,000 which equal to the investment cost of Ningbo Phoenix therefore, there was no gain or loss on the disposal.
(ii) Chengdu Shenrong was engaged in trading of motor vehicles. In 2004, Ningbo Phoenix entered into an agreement with Wang Chang Yu, a director of Chengdu Shenrong pursuant to which Ningbo Phoenix sold 51% equity interest in Chengdu Shenrong for approximately RMB4,239,000 which equal to the investment cost of Ningbo Phoenix, therefore, there was no gain or loss on the disposal.
(iii) Beijing Shenyin was engaged in trading of motor vehicles. On 21 October 2004, Ningbo Phoenix entered into an agreement with Shan Dong Yin, a minority shareholder who held 28.96% of the registered capital of Beijing Shenyin pursuant to which Ningbo Phoenix sold 51% equity interest in Beijing Shenyin for approximately RMB6,663,000 which equal to the investment cost of Ningbo Phoenix, therefore, there was no gain or loss on the disposal.
(iv) Jiaxing Shuimu was engaged in property development. On 2 November 2004, Ningbo Huadu entered into an agreement with Ningbo Chenggi, a minority shareholder who held 50% of the registered capital of Ningbo Huadu, to dispose of the 60% interest in Jiaxing Shuimu for RMB14,800,000. Pursuant to the agreement, the minority shareholder shall pay the consideration with 3 months from 2 November 2004. As at 31 December 2004, the minority shareholder paid RMB4,500,000, the outstanding balance of RMB10,300,000 was included in note 21 to the financial statements.
(v) One 10 May 2003, Shanghai Shengfei entered into a tenancy agreement with Shanghai Automobile Repair Company, a 49% minority shareholder of Shanghai Shengfei to lease a parcel of land and properties for a period of 15 years commencing from 12 May 2003 for RMB600,000 per annum.

In addition, minority shareholders, namely Taizhou Giyuan Automobile Sales and Services Limited, Liang Xinghai, Liu Fei and a related party had provided guarantees for banking facilities granted to APG Group during the year ended 31 December 2004.

86 -

ACCOUNTANTS’ REPORT ON APG GROUP

APPENDIX II

34. Operating lease commitments

APG Group leases certain of its office, show rooms under operating leases with terms ranging from one to twenty years. As at 31 December 2004, APG Group had total future minimum lease payments under noncancellable operating leases falling due as follows:

Within one year Between one year and five years After five years	2002 RMB’000 – – – –	At 31 December 2003 2004 RMB’000 RMB’000 – 5,535 – 16,012 – 51,256 – 72,803	At 31 December 2003 2004 RMB’000 RMB’000 – 5,535 – 16,012 – 51,256 – 72,803
			72,803

35. Commitments

As at the balance sheet dates, APG Group had the following capital commitments:

		At 31 December
	2002	2003	2004
	RMB’000	RMB’000	RMB’000
Capital commitments contracted for:
Commitments in respect of purchases of fixed assets	–	–	4,857

36. Pledge of assets

As at the balance sheet date, APG Group had pledged the following assets for its banking facilities.

– Land and buildings – Bank deposits – Properties under development – Completed properties held for sales – Other receviable	2002 RMB’000 – – – – – –	At 31 December 2003 2004 RMB’000 RMB’000 – 13,529 – 111,508 – 3,748 – 897 – 1,000 – 130,682	At 31 December 2003 2004 RMB’000 RMB’000 – 13,529 – 111,508 – 3,748 – 897 – 1,000 – 130,682
			130,682

37. Post balance sheet events

On 11th March, 2005, APG entered into an acquisition agreement (the “Acquisition”) with American Compass Inc. (“ACI”), a shareholder of APG, whereby ACI has conditionally agreed to subscribe for the 35,569,384 new Class A common stocks of APG (the “Subscription Shares”). The Subscription Shares represent approximately 48.5% of the existing issued share capital of APG and approximately 32.66% of the enlarged share capital of APG upon completion of the Acquisition. The consideration will be satisfied by setting off the loan of approximately RMB46,350,000 (US$5.6 million) advanced by ACI to APG under the loan agreement dated 20th September, 2004.

III. SUBSEQUENT FINANCIAL INFORMATION

No dividend has been declared or paid by to 31 December 2004.

Yours faithfully,

CCIF CPA LIMITED

Certified Public Accountants

Hong Kong

Chan Wai Dune, Charles

Practising Certificate Number P00712

87 -

ACCOUNTANTS’ REPORT ON NINGBO PHOENIX GROUP

APPENDIX III

The following is the text of a report, prepared for the purpose of incorporating in this circular, received from the reporting accountants of Ningbo Phoenix Group, CCIF CPA Limited, Certified Public Accountants, Hong Kong.

The Directors

Compass Pacific Holdings Limited Suites 612-617, 6/F Hutchison House 10 Harcourt Road Central Hong Kong

CCIF

CCIF CPA LIMITED

37th Floor, Hennessy Centre 500 Hennessy Road Causeway Bay, Hong Kong Telephone: +852 2894 6888 Facsimile: +852 2895 3752 E-mail: [email protected] www.hkcpa.com

28 June 2005

Dear Sirs,

We set out below our report on the financial information relating to 寧波鳳凰汽車銷售服務有限公司 (“Ningbo Phoenix”) and its subsidiaries (hereinafter collectively referred to as “Ningbo Phoenix Group”) for the period from 30 September 2002 (date of incorporation) to 31 December 2002 and the two years ended 31 December 2003 and 2004 (the “Relevant Period”) (the “Financial Information”) for inclusion in the circular of Compass Pacific Holdings Limited (the “Company”) dated 28 June 2005 (the “Circular”).

Ningbo Phoenix is a company incorporated in the Peoples’ Republic of China (the “PRC”) on 30 September 2002 with limited liability and principally engaged in the sale of automobiles and parts and investment holding. The paid up registered capital of Ningbo Phoenix is RMB135,357,883. Through its subsidiaries, Ningbo Phoenix Group operates dealerships in motor vehicles in the PRC and auto malls in Guangzhou, the PRC, and undertakes property development business.

For the purpose of this report, we have examined the audited financial statements or, where appropriate, the unaudited management accounts of Ningbo Phoenix Group prepared in accordance with the accounting principles generally accepted in Hong Kong for the Relevant Period or since their respective dates of incorporation or acquisition, where there is a shorter period and have carried out such additional procedures as are necessary in accordance with the Auditing Guideline “Prospectuses and the Reporting Accountants” issued by the Hong Kong Institute of Certified Public Accountants.

The Financial Information set out in this report has been prepared based on the audited financial statements of Ningbo Phoenix Group for the Relevant Period.

88 -

ACCOUNTANTS’ REPORT ON NINGBO PHOENIX GROUP

APPENDIX III

The directors of Ningbo Phoenix Group are responsible for the preparation of the financial statements of Ningbo Phoenix Group which give a true and fair view. In preparing the financial statements which give a true and fair view, it is fundamental that appropriate accounting policies are selected and applied consistently.

The directors of Ningbo Phoenix Group are also responsible for the Financial Information of Ningbo Phoenix Group as at and for each of the period ended 31 December 2002 and the two years ended 31 December 2003 and 2004. It is our responsibility to form an independent opinion on the Financial Information of Ningbo Phoenix Group.

As stated in notes 7 and 14 to the Financial Information, Ningbo Phoenix Group acquired four subsidiaries namely 上海大眾汽車成都申蓉銷售服務有限公司 (“Chengdu Shenrong”), 北京申銀汽車銷售有限公司 (“Beijing Shenyin”), 西安唐飛汽車銷售服務有限公司 (“Xian Tongfei”) and 上海大眾汽車天津東麗銷售服務有限公司 (“Tianjin Dongli”) in 2003 and formed a subsidiary namely 四川申蓉常瑞汽車貿易有限公司 (“Sichuan Shenrong”) in 2004 of which Chengdu Shenrong, Beijing Shenyin, Sichuan Shenrong and Tianjin Dongli were disposed of in 2004 and Xian Tongfei was deregistered in April 2004. Ningbo Phoenix Group acquired a 60% subsidiary namely 嘉興市水木清華置業有限公司 (“Jiaxing Shuimu”) on 26 October 2004. The entire interest in Jiaxing Shuimu was disposed of to a minority shareholder on 2 November 2004. Ningbo Phoenix Group does not have the books and records of these subsidiaries for consolidation of the financial statements of these subsidiaries from the dates of acquisitions or establishment up to the dates of disposals into the Financial Information of Ningbo Phoenix Group for the years ended 31 December 2003 and 2004 as the books and records had been handover to the purchasers upon disposals. This is not in accordance with the requirements of Statement of Standard Accounting Practice No. 32 issued by the Hong Kong Institute of Certified Public Accountants. Disclosures of the information on the non-consolidated subsidiaries’ results attributable to Ningbo Phoenix Group as required by Schedule 10 of the Companies Ordinance have not been included in the Financial Information.

Except for the non-consolidation of the financial statements of the subsidiaries as stated in the preceding paragraph, in our opinion, the Financial Information together with the notes thereon, give for the purpose of this report, a true and fair view of the results of operations and cash flows of Ningbo Phoenix Group for the Relevant Period, and of the financial position of Ningbo Phoenix Group as at 31 December 2002, 2003 and 2004.

89 -

ACCOUNTANTS’ REPORT ON NINGBO PHOENIX GROUP

APPENDIX III

I. FINANCIAL INFORMATION

The Financial Information of Ningbo Phoenix Group for the Relevant Period prepared on the basis set out in Note 1 to the Financials Information is as follows:

Consolidated income statements

Period from
30 September
2002 to
31 December
2002
Note
RMB’000
Turnover
3
–
Cost of sales
–
Gross profit
–
Other revenue
3
95
Distribution and selling expenses
–
General and administrative expenses
(1,354)
Other operating expenses
5
–
(Loss)/profit from operations
6
(1,259)
Gain on disposal of non-consolidated
subsidiaries
7
–
Finance costs
8
–
(Loss)/profit before tax
(1,259)
Taxation
10
415
(Loss)/profit before minority interests
(844)
Minority interests
–
(Loss)/profit attributable to shareholders
11
(844)

Year ended
31 December
2003
2004
RMB’000
RMB’000
145,557
1,121,704
(133,725) (1,067,093)
11,832
54,611
900
16,965
(3,275)
(21,574)
(18,558)
(31,492)
(8,640)
(5,020)
(17,741)
13,490
–
10,000
(327)
(4,145)
(18,068)
19,345
6,030
(9,437)
(12,038)
9,908
(364)
(3,125)
(12,402)
6,783

90 -

ACCOUNTANTS’ REPORT ON NINGBO PHOENIX GROUP

APPENDIX III

Consolidated statements of changes in equity

As at 30 September 2002 (date of incorporation) Issue of share capital Loss attributable to shareholders As at 31 December 2002 As at 1 January 2003 Issue of share capital Loss attributable to shareholders Transfer from retained profits As at 31 December 2003 As at 1 January 2004 Profit attributable to shareholders Transfer from retained profits As at 31 December 2004	Paid up capital RMB’000 – 85,000 – 85,000 85,000 50,358 – – 135,358 135,358 – – 135,358	Statutory surplus reserve RMB’000 – – – – – – – 16 16 16 – 145 161	Accumulated losses RMB’000 – – (844) (844) (844) – (12,402) (16) (13,262) (13,262) 6,783 (145) (6,624)	Total RMB’000 – 85,000 (844) 84,156 84,156 50,358 (12,402) – 122,112 122,112 6,783 – 128,895

91 -

ACCOUNTANTS’ REPORT ON NINGBO PHOENIX GROUP

APPENDIX III

Consolidated balance sheets

Notes
NON-CURRENT ASSETS
Intangible assets
12
Fixed assets
13
Interest in non-consolidated subsidiaries
14
Interest in associate
15
Investment securities
16
Deferred tax assets
34
CURRENT ASSETS
Inventories
17
Properties under development
18
Completed properties held for sales
19
Land held for future development
20
Due from a fellow subsidiary
21
Due from former subsidiaries
22
Due from immediate holding company
23
Due from minority shareholders
24
Due from non-consolidated subsidiaries
25
Deposits, prepayments and other receivables
Prepayments to suppliers
Trade receivables
26
Tax recoverable
Pledged bank deposits
Restricted bank balances
Cash and bank balances
CURRENT LIABILITIES
Trade payables
27
Bills payable, secured
Other payables and accruals
Bank loans, secured
28
Deposits received from customers
Due to minority shareholders
29
Due to immediate holding company
30
Due to a fellow subsidiary
31
Due to a non-consolidated subsidiary
32
Tax payable
33
NET CURRENT ASSETS
TOTAL ASSETS LESS CURRENT LIABILITIES
MINORITY INTEREST
NET ASSETS
Represented by:
PAID-UP CAPITAL
35
RESERVES
36
SHAREHOLDER’S EQUITY

At 31 December
2002
2003
2004
RMB’000
RMB’000
RMB’000
–
2,180
7,660
1,185
55,730
100,044
–
29,855
–
–
150
150
–
15
215
415
8,272
10,224
1,600
96,202
118,293
–
103,117
139,532
–
–
18,807
–
–
1,995
–
–
16,746
–
–
1,220
–
–
5,017
–
–
5,000
–
500
25,864
–
10,006
–
29,268
47,407
50,725
–
48,342
81,478
–
25,739
65,359
–
950
7,111
–
147,142
111,508
–
1,339
2,892
54,121
44,668
47,822
83,389
429,210
581,076
–
(14,175)
(72,927)
–
(238,330)
(220,111)
(233)
(27,407)
(44,813)
–
(31,847)
(88,053)
–
(27,768)
(55,176)
–
(13,899)
(11,868)
–
(10,047)
(5,672)
–
–
(3,159)
–
(9,850)
–
–
–
(11,868)
(233)
(373,323)
(513,647)
83,156
55,887
67,429
84,756
152,089
185,722
(600)
(29,977)
(56,827)
84,156
122,112
128,895
85,000
135,358
135,358
(844)
(13,246)
(6,463)
84,156
122,112
128,895

92 -

ACCOUNTANTS’ REPORT ON NINGBO PHOENIX GROUP

APPENDIX III

Consolidated cash flow statements

Period from
30 September
2002 to
31 December
2002
Notes
RMB’000
(Loss)/profit before tax
(1,259)
Depreciation
24
Amortisation of goodwill and
negative goodwill
–
Bad debts
–
Provision for inventories
–
Provision for doubtful debts
–
Provision for completed properties
held for sales
–
Gain on disposal of non-consolidated subsidiaries
–
Net loss on disposal of fixed assets
–
Other interest income
–
Bank interest income
(95)
Interest expenses
–
Operating (loss)/profit before working
capital changes
(1,330)
Increase in inventories
–
Increase in amounts due from former subsidiaries
–
Increase in amount due from a fellow subsidiary
–
(Increase)/decrease in amounts due from
non-consolidated subsidiaries
–
(Increase)/decrease in deposits, prepayments and other
receivables
(29,268)
Increase in prepayment to suppliers
–
Increase in trade receivables
–
Decrease/(increase) in amount due from
immediate holding company
–
Increase in trade payables
–
Increase in other tax payable
–
Increase in amount due from immediate
holding company
–
Increase in amount due to a fellow subsidiary
–
Increase in amounts due from minority shareholders
–
Increase/(decrease) in bills payable
–
Increase/(decrease) in other payable and accruals
233
Increase in deposits received from customers
–
Cash (used in) generated from operations
(30,365)
Other interest income received
–
Bank interest income received
95
Interest paid
–
PRC income tax paid
–
Net cash (used in) generated from
operating activities
(30,270)

Year ended
31 December
2003
2004
RMB’000
RMB’000
(18,068)
19,345
1,036
4,264
–
851
14
30
817
556
7,555
2,794
–
419
–
(10,000)
235
181
–
(781)
(705)
(2,241)
324
3,404
(8,792)
18,822
(50,391)
(15,547)
–
(217)
–
(1,220)
(10,006)
10,006
(7,113)
4,896
(15,808)
(13,596)
(9,555)
(39,995)
10,047
(4,375)
2,593
57,383
–
902
–
(5,000)
–
3,159
(500)
(15,064)
76,550
(18,219)
21,999
(17,465)
12,919
12,638
21,943
(22,892)
–
781
705
2,241
(324)
(3,404)
(713)
(6,246)
21,611
(29,520)

93 -

ACCOUNTANTS’ REPORT ON NINGBO PHOENIX GROUP

APPENDIX III

Period from
30 September
2002 to
31 December
2002
Note
RMB’000
Investing activities
Purchase of fixed assets
(1,209)
Purchase of subsidiaries
37
–
Purchase of non-consolidated subsidiaries
–
Payment for completed properties held for sales
–
Payment for properties under development
–
Payment for land held for future development
–
Purchase of investment securities
–
Proceeds on disposal of fixed assets
–
Proceeds from disposal/deregistration of
non-consolidated subsidiaries
–
Decrease/(increase) in pledged and
restricted bank balances
–
Net cash used in investing activities
(1,209)
Financing activities
Issue of share capital
85,000
New bank loans
–
Repayment of bank loans
–
Capital contributed by minority shareholders
600
Increase/(decrease) in amount due to
a non-consolidated subsidiary
–
Increase/(decrease) in amounts due to
minority shareholders
–
Net cash generated from financing activities
85,600
Net increase/(decrease) in cash and
cash equivalents
54,121
Cash and cash equivalents at the beginning of
the period/year
–
Cash and cash equivalents at end of
the period/year
54,121
Analysis of balances of cash and cash equivalents
Cash and bank balances
54,121

Year ended
31 December
2003
2004
RMB’000
RMB’000
(32,202)
(47,522)
80,591
(6,842)
(29,855)
–
–
(2,414)
–
(15,059)
–
(16,746)
–
(200)
249
597
–
29,554
(148,481)
34,081
(129,698)
(24,551)
50,358
–
9,947
88,053
–
(31,847)
14,580
12,900
9,850
(9,850)
13,899
(2,031)
98,634
57,225
(9,453)
3,154
54,121
44,668
44,668
47,822
44,668
47,822

94 -

ACCOUNTANTS’ REPORT ON NINGBO PHOENIX GROUP

APPENDIX III

II. NOTES TO THE FINANCIAL INFORMATION

1. Basis of presentation

As at the date of this report, Ningbo Phoenix has direct or indirect interest in the following subsidiaries:

	Place of		Percentage of	Percentage of
	incorporation	Issued and	equity	interest
	or registration/	fully paid	attributable		Principal
Name	operations	registered capital	to the	Group	activities
			Direct	Indirect
上海聖飛汽車銷售	PRC	RMB5,000,000	90%	–	Trading of motor
服務有限公司					vehicles
Shanghai Shengfei Automobile
Sale and Services Ltd.
上海環亞中進國際	PRC	RMB1,000,000	50%	–	Trading of motor
貿易有限公司					vehicles
Shanghai Huanya Zhougin
International Trade Co. Ltd.
廣州申飛汽車銷售	PRC	RMB29,990,000	63.32%	–	Trading of motor
服務有限公司					vehicles
Guangzhou Shenfei Automobile
Sales and Services Co. Ltd.
廣東眾大汽車維修	PRC	RMB2,000,000	–	56.99%	Trading of motor
有限公司					vehicles and
Guangdong Zhongda Automobile					providing repair
Maintenance Co., Ltd					and maintenance
					services
廣州申奧汽車銷售	PRC	RMB5,000,000	–	56.99%	Trading of motor
服務有限公司					vehicles
Guangzhou Shen Ao Automobile
Sales and Services Co. Ltd.
(“Guangzhou Shen Ao”)
廣東佳馬汽車銷售	PRC	RMB5,000,000	–	56.99%	Trading of motor
服務有限公司					vehicles
Guangdong Jiama Automobile
Sales and Services Co Ltd
(“Guangdong Jiama”)
廣州市申飛通立汽車	PRC	RMB5,000,000	–	61.74%	Trading of motor
銷售服務有限公司					vehicles
Guangzhou Shenfe Tongli
Automobile Sales and
Service Co., Ltd
上海交運聖飛汽車	PRC	RMB12,000,000	51%	–	Trading of motor
銷售服務有限公司					vehicles
Shanghai Jiaoyun Shengfei
Automobile Sales and
Services Co., Ltd
(“Shanghai Shengfei”)

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APPENDIX III

	Place of		Percentage of	Percentage of
	incorporation	Issued and	equity	interest
	or registration/	fully paid	attributable		Principal
Name	operations	registered capital	to the	Group	activities
			Direct	Indirect
寧波聖菲汽車銷售	PRC	RMB10,000,000	51%	–	Trading of motor
服務有限公司					vehicles and
Ningbo Shengfei Automobile					providing repair
Sales and Services Ltd					and maintenance
(“Ningbo Shengfei”)					services
上海大眾汽車寧波	PRC	RMB2,000,000	51%	–	Trading of motor
銷售服務有限公司					vehicles
Shanghai Volkswagen Ningbo
Sales and Services Company Ltd.
(“Shanghai Ningbo”)
上海怡通汽車銷售	PRC	RMB10,000,000	51%	–	Trading of motor
服務有限公司					vehicles
Shanghai Yitong Automobile
Sales Co., Ltd.
(“Shanghai Yitong Sales”)
上海怡通汽車服務	PRC	RMB10,000,000	51%	–	Trading of motor
有限公司					vehicles and
(Shanghai Yitong Automobile					providing repair
Service Co. Ltd)					and maintenance
(“Shanghai Yitong”)					services
上海大眾汽車台州	PRC	RMB5,000,000	51%	–	Trading of motor
銷售服務有限公司					vehicles and
(Shanghai Volkswagen Taizhou					providing repair
Sales & Service Co. Ltd)					and maintenance
(“Shanghai Taizhou”)					services
寧波華都房地產	PRC	RMB6,038,153	50%	–	Property
有限公司					development and
（「寧波華都」）					trading
(Ningbo Huadu Real Enstate Co.,
Ltd) (“Ningbo Huadu”)(Note i)
金華市華都置業	PRC	RMB10,000,000	–	27.5%	Property
有限公司					development
(Jinhua Huadu Property
Co. Ltd)
(“Jinhua Huadu”)(Note ii)

Note: (i) The board of directors of Ningbo Huadu consists of 7 members of whom 4 members are nominated by Ningbo Phoenix, a 51% owned-subsidiary, therefore, the directors considered that it is appropriate to classify Ningbo Huadu as subsidiary of Ningbo Phoenix Group.

(ii) Ningbo Huadu holds 55% interest in Junhua Huadu, therefore, Jinhua Huadu is a subsidiary of Ningbo Phoenix Group notwithstanding the effective interest is 27.5%.
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The consolidated income statements and cash flow statements for the Relevant Period include the results of operations and cash flows of the companies of Ningbo Phoenix Group throughout the Relevant Period covered by this report or since their respect dates of incorporation or acquisition where there was a shorter period, except for those non-consolidated subsidiaries as set out in note 14 to the Financial Information.

The consolidated balance sheets of Ningbo Phoenix Group as at 31 December 2002, 2003 and 2004 have been prepared to present the financial position of the companies of Ningbo Phoenix Group as at 31 December 2002, 2003 and 2004, except for those non-consolidated subsidiaries as set out in note 14 to the Financial Information.

All significant transactions and balances within the Ningbo Phoenix Group have been eliminated on consolidation.

2. Principal accounting policies

The financial statements have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (which includes all applicable Statements of Standard Accounting Practice and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants, accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. These financial statements also comply with the applicable provisions of the Rules Governing the Listing of Securities of The Stock Exchange. A summary of the principal accounting policies adopted by Ningbo Phoenix Group (which is consistent with the accounting policies of the Group) is set out below.

The Group has not adopted these new HKFRSs in the financial statements for the year ended 31 December 2004. The Group has already assessed the impact of these new HKFRSs but is not yet in a position to state whether these new HKFRSs would have a significant impact on its results of operations and financial position.

(a) Basis of measurement

The financial statements have been prepared on the historical cost basis.

(b) Subsidiaries

A subsidiary is a company whose financial and operating policies Ningbo Phoenix Group controls, directly or indirectly, so as to obtain benefits from its activities.

The interest in subsidiary is stated at cost less any impairment losses.

(c) Fixed assets and depreciation

Fixed assets are stated at cost or valuation less accumulated depreciation and any impairment losses. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the assets 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 profit and loss account 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 asset.

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

Leasehold land Over the lease terms Leasehold buildings 2% or over the lease terms, whichever is shorter Leasehold improvements 20% or over the lease terms, whichever is shorter Furniture, fixtures and equipment 10%-20% Motor vehicles 10%-20% Plant and machineries 10%-20%

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

(d) Consolidation

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

All material intercompany transactions and balances are eliminated on consolidation.

The gain or loss on the disposal of a subsidiary represents the difference between the sales proceeds and the Group’s share of its net assets together with any unamortised goodwill or goodwill taken to reserves and which was not previously charged or recognised in the consolidation income statement.

Minority interests represents the interests of outside shareholders in the operating results and net assets of subsidiaries.

In the Company’s balance sheet, the interests 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) Goodwill

Goodwill arising on the acquisition of subsidiaries represents the excess of the cost of the acquisition over Ningbo Phoenix Group’s share of the fair values of the identifiable assets and liabilities acquired as 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 of 10 years.

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(f) Construction-in-progress

(g) Impairment of assets

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. An impairment loss is charged to the profit and loss account in the period in which it arises, unless the asset is carried at a revalued amount, when the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the recoverable amount of an asset, however not to an amount higher than the carrying amount that would have been determined (net of any depreciation), had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is credited to the profit and loss account in the period in which it arises, unless the asset is carried at a revalued amount, when the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

(h) Associate

An associate is a company, not being a subsidiary or a joint venture, in which an equity interest is held for long-term and significant influence is exercised in its management.

The consolidated income statement includes Ningbo Phoenix Group’s share of the results of associate for the year, and the consolidated balance sheet includes Ningbo Phoenix Group’s share of the net assets of the associate and goodwill/negative goodwill (net of accumulated amortisation) on acquisition.

Equity accounting is discontinued when the carrying amount of the investment in an associate reaches zero, unless Ningbo Phoenix Group has incurred obligations or guaranteed obligations in respect of the associate.

Unrealised gains on transactions between Ningbo Phoenix Group and its associate are eliminated to the extent of Ningbo Phoenix Group’s interest in the associate; unrealised losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred.

(i) Investment securities

Investment securities are stated in the balance sheet at cost less any provisions for impairment losses. Provisions are made when the fair value of such equity securities has declined below the carrying amounts, unless there is evidence that the decline is temporary. The amount of the reduction is recognised as an expense in the income statement.

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(j) Inventories

(k) Income tax

Income tax comprises current and deferred tax. Income tax is recognised in the profit and loss account or in equity, if it relates to items that are recognised in the same or a different period directly in equity.

(l) Foreign currencies

(m) Revenue recognition

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

(i) revenue from the sales of motor vehicles, on the transfer of ownership, which generally coincides with the time of delivery; and
(ii) revenue from properties developed for sale is recognised on the execution of a binding sales agreement or when the relevant occupation permit or certificate of compliance is issued by the building authority, whichever is the later.
(iii) revenue from properties held for sale is recognised on the execution of a binding sales agreement. Payments received from the purchasers prior to this stage are recorded as deposits received on sales of properties and are grouped under current liabilities.
(iv) interest income, on a time proportion basis taking into account the principal outstanding and the effective interest rate applicable
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(n) Related parties

(o) Trade receivables

Provision is made against trade receivables to the extent that they are considered to be doubtful. Trade receivables in the balance sheet is stated net of such provision.

(p) Cash and cash equivalents

(q) Provisions and contingent liabilities

A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of Ningbo Phoenix 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.

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3. Turnover and revenue

An analysis of the turnover and other revenue is as follows:

Period from 30 September 2002 to 31 December 2002 RMB’000 Turnover Sales of automobiles and parts – Sales of properties – – Other revenue Advertising income – Bank interest income 95 Compensation income – Consultancy income – Exchange gain – Gain on disposal of fixed assets – Government subsidy – Insurance income – Other interest income – Service fee income – Subsidy income – Sundry income – Testing income – 95 Total revenue 95	Year ended 31 December 2003 2004 RMB’000 RMB’000 145,557 1,103,889 – 17,815 145,557 1,121,704 – 95 705 2,241 – 48 – 1,895 6 – – 164 – 210 – 5,783 – 781 – 3,596 – 272 189 1,459 – 421 900 16,965 146,457 1,138,669	Year ended 31 December 2003 2004 RMB’000 RMB’000 145,557 1,103,889 – 17,815 145,557 1,121,704 – 95 705 2,241 – 48 – 1,895 6 – – 164 – 210 – 5,783 – 781 – 3,596 – 272 189 1,459 – 421 900 16,965 146,457 1,138,669
		1,121,704 95 2,241 48 1,895 – 164 210 5,783 781 3,596 272 1,459 421
		16,965
		1,138,669

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4. Segment information

Segment information is presented in respect of Ningbo Phoenix Group’s business segments. Business information is chosen as the primary reporting format because this is more relevant to Ningbo Phoenix Group’s internal financial reporting. Geographic segment information is not presented as Ningbo Phoenix Group operates predominantly in the PRC.

(a) An analysis of the turnover and results by business segment is as follows:

Period from
30 September
2002 to
31 December
2002
RMB’000
Turnover:
– Distribution of motor vehicles
–
– Property development
–
–
Segment results:
– Distribution of motor vehicles
–
– Property development
–
–
Unallocated (expenses)/income, net
(1,259)
(Loss)/profit from operations
(1,259)
Gain on disposal of non-consolidated subsidiaries
–
Finance costs
–
(Loss)/profit before tax
(1,259)
Taxation
415
(Loss)/profit before minority interests
(844)
Minority interests
–
(Loss)/profit attributable to shareholders
(844)
Depreciation and amortisation
– Distribution of motor vehicles
–
– Property development
–
– Unallocated
–
–
Provision for doubtful debts
– Distribution of motor vehicles
–
– Property development
–
–

Year ended
31 December
2003
2004
RMB’000
RMB’000
145,557
1,103,889
–
17,815
145,557
1,121,704
(854)
19,338
–
7,216
(854)
26,554
(16,887)
(13,064)
(17,741)
13,490
–
10,000
(327)
(4,145)
(18,068)
19,345
6,030
(9,437)
(12,038)
9,908
(364)
(3,125)
(12,402)
6,783
1,036
3,234
–
179
–
851
1,036
4,264
7,555
2,290
–
504
7,555
2,794

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(b) Additional information on business segments

Period from 30 September 2002 to 31 December 2002 RMB’000 Segment assets: – Distribution of motor vehicles 84,574 – Property development – 84,574 Unallocated assets 415 Total assets 84,989 Segment liabilities: – Distribution of motor vehicles (233) – Property development – (233) Unallocated liabilities – Total liabilities (233) Capital expenditure – Distribution of motor vehicles 1,209 – Property development – 1,209	Year ended 31 December 2003 2004 RMB’000 RMB’000 473,484 550,817 – 86,090 473,484 636,907 51,928 62,462 525,412 699,369 (339,527) (436,397 – (44,683 (339,527) (481,080 (33,796) (32,567 (373,323) (513,647) 44,628 47,270 – 252 44,628 47,522	Year ended 31 December 2003 2004 RMB’000 RMB’000 473,484 550,817 – 86,090 473,484 636,907 51,928 62,462 525,412 699,369 (339,527) (436,397 – (44,683 (339,527) (481,080 (33,796) (32,567 (373,323) (513,647) 44,628 47,270 – 252 44,628 47,522
		636,907 62,462
		699,369

		(436,397 (44,683
		(481,080 (32,567
		(513,647)

		47,270 252
		47,522

5. Other operating expenses

Period from 30 September 2002 to 31 December 2002 RMB’000 Bad debts – Provision for doubtful debts – Loss on disposal of fixed assets – Provision for completed properties held for sales – Amortisation of goodwill and negative goodwill – Provision for inventories – Others – –	Year ended 31 December 2003 2004 RMB’000 RMB’000 14 30 7,555 2,794 235 345 – 419 – 851 817 556 19 25 8,640 5,020	Year ended 31 December 2003 2004 RMB’000 RMB’000 14 30 7,555 2,794 235 345 – 419 – 851 817 556 19 25 8,640 5,020
		5,020

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6. (Loss)/profit from operations

The (loss)/profit from operations was arrived at after charging the following:

Period from
30 September
2002 to
31 December
2002
RMB’000
Charging:
Auditors’ remuneration
–
Depreciation on owned assets
24
Minimum lease payments under operating leases
–
Staff costs
– Salaries, bonuses, allowances and benefits in kind
–
Gain on disposal of non-consolidated subsidiaries
Period from
30 September
2002 to
31 December
2002
RMB’000
Sales proceeds
–
Cost of investments
–
Gain on disposal
–

Year ended
31 December
2003
2004
RMB’000
RMB’000
–
5
1,036
4,264
1,741
5,572
4,373
13,497
Year ended
31 December
2003
2004
RMB’000
RMB’000
–
34,754
–
(24,754)
–
10,000

7. Gain on disposal of non-consolidated subsidiaries

As stated in note 14, Ningbo Phoenix acquired Shanghai Volkswagen Chengdu Shenrong Sales & Service Co., Ltd. (“Chengdu Shenrong”) (上海大眾汽車成都申蓉銷售服務有限公司 ), Beijing Shenyin Automobile Sales Co., Ltd (“Beijing Shenyin”) 北京申銀汽車銷售有限公司, Shanghai Volkswagen Tianjin Dongli Sales & Service Co., Ltd (“Tianjin Dongli”) (上海大眾汽車天津東麗銷售服務有限公司 ), for approximately RMB14,854,000 during the year ended 31 December 2003. In addition, Ningbo Phoenix formed 西安唐飛汽車銷售服務有限公司 (“Xian Tongfei”) and 四川申蓉常瑞汽車貿易有限公司 (“Chengdu Shenrong”) and contributed registered capital of RMB9,900,000 and RMB5,100,000 respectively. Chengdu Shenrong, Beijing Shenyin, Tianjin Dongli and Sichuan Shenrong were engaged in distribution of automobile. Xian Tongfei had not commenced any business.

Ningbo Phoenix disposed of Chengdu Shenrong on 22 September 2004, Beijing Shenyin on 21 October 2004, Tianjin Dongli on 21 October 2004 and Sichuan Shenrong on 29 September 2004 respectively to 王常裕 (Wang Chang Yu) a director of Chengdu Shenrong, 沈東鷹 (Shan Dong Yin) a minority shareholder who held 28.96% of the registered capital of Beijing Shenyin, 張玉新 (Zhang Yuxin) a minority shareholder who held 29% of the registered capital of Tianjin Dongli and 上海藍深實業有限公司 (Shanghai Lanshan Enterprises Co., Ltd) an independent third party at book value for a total of approximately RMB19,954,000. As Xian Tongfei was located far away from Ningbo Phoenix Group’s distribution network such as Ningbo, Shanghai and Guangzhou, therefore, the directors decided to close Xian Tongfei. As such, Xian Tongfei was deregistered in April 2004.

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On 26 October 2004, Ningbo Phoenix acquired a 50% subsidiary namely Ningbo Huadu from 張偉軍 (Chang Weijun). Ningbo Huadu had a 60% subsidiary, namely 嘉興市水木清華置業有限公司（“Jiaxing Shuimu”) which was engaged in property development. Subsequent to the acquisition, 寧波城之源置業有限公司 (Ningbo Chenggi Yuan Property Co., Ltd) (“Ningbo Chenggi”) (formerly 寧波經濟技術開發區城市建設總公司 ) (Ningbo Economic and Technical Development Zone Urban Construction Company) made an offer to Ningbo Phoenix Group to purchase the interest in Jiaxing Shuimu, therefore, on 2 November 2004 Ningbo Huadu disposed of the entire interest in Jiaxing Shuimu to Ningbo Chenggi for RMB14,800,000 with investment cost of RMB4,800,000, therefore, Ningbo Phoenix Group recorded a gain of RMB10,000,000 on the disposal.

8. Finance costs

Period from 30 September 2002 to 31 December 2002 RMB’000 Bank charges – Interest on bank loans – Other interest – –	Year ended 31 December 2003 2004 RMB’000 RMB’000 3 741 314 3,128 10 276 327 4,145	Year ended 31 December 2003 2004 RMB’000 RMB’000 3 741 314 3,128 10 276 327 4,145
		4,145

9. Directors’ and senior executives’ remuneration

a) No remunerations were paid or payable to directors for the Relevant Period. There was no arrangement under which a director waived or agreed to waive any remuneration during the Relevant Period.
b) The five highest paid individuals in Ningbo Phoenix Group for the Relevant Period are as follows:

Period from 30 September 2002 to 31 December 2002 RMB’000 Salaries, allowances and benefits in kind 608 Retirement benefits scheme contribution – 608	Year ended 31 December 2003 2004 RMB’000 RMB’000 2,000 1,733 – – 2,000 1,733	Year ended 31 December 2003 2004 RMB’000 RMB’000 2,000 1,733 – – 2,000 1,733
		1,733

The number of individuals whose remuneration fell within the following bands is as follows:

	Number of individuals	Number of individuals
	Period from
	30 September
	2002 to 31
	December 2002	2003	2004
Nil to HK$1,000,000	5	5	5

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10. Taxation

No provision for Hong Kong profits tax had been made as Ningbo Phoenix Group did not generate any assessable profits arising in Hong Kong during the Relevant Period.

Taxation in the consolidated income statement represents:

Period from 30 September 2002 to 31 December 2002 RMB’000 Current tax PRC enterprise income tax – Deferred tax (415) Tax (credit)/charge (415)	Year ended 31 December 2003 2004 RMB’000 RMB’000 1,827 11,389 (7,857) (1,952) (6,030) 9,437	Year ended 31 December 2003 2004 RMB’000 RMB’000 1,827 11,389 (7,857) (1,952) (6,030) 9,437
		9,437

A reconciliation between tax (credit)/charge and accounting profit/(loss) at applicable tax rates is as follows:

Period from 30 September 2002 to 31 December 2002 RMB’000 (Loss)/profit before tax (1,259) Notional tax on (loss)/profit before tax, calculated at the rates in the tax jurisdictions concerned (415) Tax effect of tax losses not recognised – Tax (credit)/charge (415)	Year ended 31 December 2003 2004 RMB’000 RMB’000 (18,068) 19,345 (6,847) 7,045 817 2,392 (6,030) 9,437	Year ended 31 December 2003 2004 RMB’000 RMB’000 (18,068) 19,345 (6,847) 7,045 817 2,392 (6,030) 9,437

		7,045 2,392
		9,437

11. (Loss)/profit attributable to shareholders

The loss for the period ended 31 December 2002 and year ended 31 December 2003 dealt with in the financial statements of Ningbo Phoenix were approximately RMB844,000 and RMB7,759,000 respectively. The profit for the year ended 31 December 2004 dealt with in the financial statements of Ningbo Phoenix amounted to approximately RMB8,518,000.

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12. Intangible assets

	Negative
Goodwill	goodwill	Total
RMB’000	RMB’000	RMB’000

Cost

At 1 30 September 2002 (date of incorporation) and at 31 December 2002 At 1 January 2003 Arising from acquisition of subsidiaries At 31 December 2003 At 1 January 2004 Arising from acquisition of subsidiaries At 31 December 2004 Accumulated amortisation At 30 September 2002 (date of incorporation) and at 31 December 2002 At 1 January 2003 Charge for the year At 31 December 2003 At 1 January 2004 Charge for the year At 31 December 2004 Net book value At 31 December 2004 At 31 December 2003 At 31 December 2002	– – 2,788 2,788 2,788 6,331 9,119 – – – – – (912) (912) 8,207 2,788 –	– – (608) (608) (608) – (608) – – – – – 61 61 (547) (608) –	–
			– 2,180
			2,180
			2,180 6,331
			8,511
			–
			– –
			–
			– (851
			(851
			7,660

			2,180

			–

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13. Fixed assets

Cost Additions and at 31 December 2002 Accumulated depreciation Charge for the period and at 31 December 2002 Net book value At 31 December 2002 Cost At 1 January 2003 Acquisition of subsidiaries Additions Disposals At 31 December 2003 Accumulated depreciation At 1 January 2003 Acquisition of subsidiaries Charge for the year Disposals At 31 December 2003 Net book value At 31 December 2003 Cost At 1 January 2004 Acquisition of subsidiaries Additions Disposals Transfer from construction in progress At 31 December 2004 Accumulated depreciation At 1 January 2004 Acquisition of subsidiaries Charge for the year Disposals At 31 December 2004 Net book value At 31 December 2004	Land and buildings RMB’000 316 1 315 316 7,330 100 (684) 7,062 1 3,516 170 (449) 3,238 3,824 7,062 239 – (1,004) 27,463 33,760 3,238 18 951 (518) 3,689 30,071	Construction Leasehold in progress improvements RMB’000 RMB’000 – – – – – – – – 12,426 421 27,675 122 – – 40,101 543 – – – 18 – 14 – – – 32 40,101 511 40,101 543 – – 33,937 1,263 – – (27,463) – 46,575 1,806 – 32 – – – 332 – – – 364 46,575 1,442	Furniture, fixtures and equipment RMB’000 267 4 263 267 4,748 1,144 – 6,159 4 1,926 330 – 2,260 3,899 6,159 43 5,100 (3) – 11,299 2,260 20 903 (1) 3,182 8,117	Plant and machinery RMB’000 – – – – 3,780 918 (32) 4,666 – 1,355 167 (30) 1,492 3,174 4,666 – 2,782 – – 7,448 1,492 – 836 – 2,328 5,120	Motor vehicles RMB’000 626 19 607 626 3,584 2,243 (1,045) 5,408 19 1,611 355 (798) 1,187 4,221 5,408 3,493 4,440 (1,488) – 11,853 1,187 1,903 1,242 (1,198) 3,134 8,719	Total RMB’000 1,209
						24
						1,185

						1,209 32,289 32,202 (1,761)
						63,939
						24 8,426 1,036 (1,277)
						8,209
						55,730

						63,939 3,775 47,522 (2,495) –
						112,741
						8,209 1,941 4,264 (1,717)
						12,697
						100,044

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a) The land and buildings at their net book value are analysed as follows:

Held in the PRC on: – Leases of 10 to 50 years – Leases of over 50 years	2002 RMB’000 – 315 315	At 31 December 2003 2004 RMB’000 RMB’000 3,525 29,788 299 283 3,824 30,071	At 31 December 2003 2004 RMB’000 RMB’000 3,525 29,788 299 283 3,824 30,071
			30,071

b) Included in the land and buildings, there were certain properties held by Ningbo Phoenix Group the ownership of which are as follows:
i) There are collectively held and allocated land amounted to approximately RMB910,000 and the buildings on the land amounted to approximately RMB1,465,000, totaling approximately RMB2,375,000 (2003: RMB2,992,000) registered in name of Linhai Automobile Repair Factory (“Linhai Repair”). According to a PRC legal opinion issued by Beijing Forever Law Firm (北京市昌久律師事務所 ), Linhai Repair wound up on 24 November 2003 and all the assets under the name of Linhai Repair had been injected to Shanghai Taizhou, a subsidiary of Ningbo Phoenix Group and Shanghai Taizhou has obtained the long term use rights of the land and the building ownership rights of the buildings are legally owned by Shanghai Taizhou. Therefore, the directors consider that it is appropriate to recognize the land and buildings in the Financial Information and no provision or write off for the land and buildings is necessary.
ii) There are no title ownership certificates for certain buildings with net book value of approximately RMB6,116,000 as at 31 December 2004 held by Shanghai Yitong Sales, a subsidiary of Ningbo Phoenix Group. According to a PRC legal opinion issued by Beijing Forever Law Firm (北京市昌久律師事務所 ), Shanghai Yitong Sales is in the course of applying for the real estate ownership certificate. As Shanghai Yitong Sales has obtained the land use right certificate for the land, based on the legal opinion issued by the PRC lawyer, the directors considered that there are no obstacle to prevent Shanghai Yitong Sales to obtain the said real estate ownership certificate. Therefore, the directors consider that it is appropriate to recognize the land and buildings in the Financial Information and no provision or write off of the land and buildings is necessary.
iii) There are no title ownership certificates for certain buildings with net book value of approximately RMB3,666,000 (2003: approximately RMB212,000) as at 31 December 2004 held by Shanghai Ningbo. According to a PRC legal opinion issued by Beijing Forever Law Firm (北京市昌久律師事務所 ), Shanghai Ningbo is in the course of applying for the real estate ownership certificate. As Shanghai Ningbo has obtained the land use right certificate for the land, the PRC lawyer considered that there is no obstacle in obtaining the said real estate ownership certificate. Therefore, the directors consider that it is appropriate to recognize the land and buildings in the Financial Information and no provision or write off of the land and buildings is necessary.
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iv) There are certain properties with net book value of approximately RMB9,749,000 as at 31 December 2004 constructed by Shanghai Shengfei which was on the land leased from Shanghai Automobile Repair Company (“Shanghai Repair”) with a term of 15 years. According to a PRC legal opinion issued by Beijing Forever Law Firm (北京市昌久律師事務所 ), the terms and conditions of the lease agreement do not contravene the PRC laws and regulations and thus the lease agreement is legal, valid and binding on the relevant parties. At present, Shanghai Repair is applying for the real estate ownership. As Shanghai Repair has obtained the land use right certificate for the land, the PRC lawyer considered that there is no obstacle in obtaining the said real estate ownership certificate. Notwithstanding the legal owner of the properties is vested with Shanghai Repair, the directors considered that Shanghai Shengfei has the right to use the properties during the lease period under the lease agreement, therefore, it is appropriate to recognize the properties in the Financial Information and depreciate the properties according to the lease terms.
c) Included in the construction in progress, there were certain properties under construction held by Ningbo Phoenix Group as follows:

There are properties under construction with net book value of approximately RMB44,713,000 (2003: approximately RMB18,189,000) as at 31 December 2004 developed by Guangzhou Shenfei, a subsidiary, on a parcel of land leased from Guangzhou Fangcun District Dongjiao Town Hainan Villagers Authority (the “Lessor”) for a period of 21 years and 10 months commencing from 15 February 2003. According to the lease agreement, the ownership of the properties on the land is belongs to the Lessor. However, Guangzhou Shenfei has the right to use the properties during the tenancy period in accordance with the lease agreement. According to a PRC legal opinion issued by Beijing Forever Law Firm (北京市昌久律師事務所 ), the Lessor has the land use rights to lease the land and the terms and conditions of the lease agreement do not contravene the PRC laws and legislations, and the Lessor is in the course of applying the real estate ownership certificates for the properties, the PRC lawyer considered that there is no obstacle in obtaining the real estate ownership certificates, therefore, the directors considered it is appropriate to recognize the properties under construction.

14. Interest in non-consolidated subsidiaries

Note Unlisted shares, at cost 上海大眾汽車成都申蓉銷售服務有限公司 (“Chengdu Shenrong”) (i) 四川申蓉常瑞汽車貿易有限公司 (“Sichuan Shenrong”) (ii) 西安唐飛汽車銷售服務有限公司 (“Xian Tongfei”) (iii) 北京申銀汽車銷售有限公司 (“Beijing Shenyin”) (iv) 上海大眾汽車天津東麗銷售服務有限公司 (“Tianjin Dongli”) (v)	2002 RMB’000 – – – – – –	2003 RMB’000 4,239 5,100 9,900 6,663 3,953 29,855	2004 RMB’000 – – – – –
			–

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APPENDIX III

Note:

(i) In 2003, Ningbo Phoenix acquired Chengdu Shenrong from Wang Chang Yu for RMB4,239,000, Chengdu Shenrong was established in the PRC and engaged in trading of motor vehicles. Ningbo Phoenix held 51% equity interest in Chengdu Shenrong. In 2004, Ningbo Phoenix disposed of the entire interest in Chengdu Shenrong to Wang Chang Yu, details of which are set out in note 38(b) to the Financial Information.
(ii) On 23 October 2003, Ningbo Phoenix entered into an agreement with a third party to form Sichuan Shenrong. Pursuant to the agreement, Ningbo Phoenix contributed RMB5,100,000 to form Sichuan Shenrong. Sichuan Shenrong was established in the PRC on 8 January 2004, and engaged in trading of motor vehicles. Ningbo Phoenix held 51% equity interest in Sichuan Shenrong. In 2004, Ningbo Phoenix disposed of the entire interest in Sichuan Shenrong to 上海藍深實業有限公司 (Shanghai Lanshan Enterprises Co., Ltd) at RMB5,100,000.
(iii) Xian Tongfei was established in the PRC on 13 May 2003. Ningbo Phoenix contributed RMB9,900,000 and held 99% equity interest in Xian Tongfei. Xian Tongfei had ceased business and deregistered in April 2004.
(iv) On 13 November 2003, Ningbo Phoenix acquired Beijing Shenyin from Shan Dong Yin for approximately RMB6,663,000. Beijing Shenyin was established in the PRC and engaged in trading of motor vehicles. Ningbo Phoenix held 51% equity interest in Beijing Shenyin. On 21 October 2004, Ningbo Phoenix dispose of the entire interest in Beijing Shenyin to Shan Dong Yin at RMB6,662,948, details of which are set out in note 38(c) to the Financial Information.
(v) In 2003, Ningbo Phoenix acquired Tianjin Dongli from Zhang Yuxin for approximately RMB3,953,000, Tianjin Dongli was established in the PRC and engaged in trading of motor vehicles. Ningbo Phoenix held 51% equity interest in Tianjin Dongli. In 2004, Ningbo Phoenix disposed of the entire interest in Tianjin Dongli to Zhang Yuxin, details of which are set out in note 38(a) to the Financial Information.

The books and records of the above subsidiaries had been handover to the purchasers upon disposals of the subsidiaries, therefore, there was no sufficient information to consolidate the financial statements of these subsidiaries in the Financial Information.

15. Interest in an associate Share of net assets The details of the associate were as follows: Place of Name incorporation 上海怡通汽車修理有限公司 PRC (Shanghai Yitong Automobile Repairing Co., Ltd)	At 31 December 2002 2003 2004 RMB’000 RMB’000 RMB’000 – 150 150 % of interest held Principal activities 30% Repair motor vehicle

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APPENDIX III

16. Investment securities

Unlisted equity investments, at cost Fund, at cost Club membership 17. Inventories Finished goods Provision No inventories were stated at net realisable value. 18. Properties held under development At cost Held under long-term lease Held under medium-term lease 19. Completed properties held for sale At cost Less: provision	2002 RMB’000 – – – – 2002 RMB’000 – – – 2002 RMB’000 – – – 2002 RMB’000 – – –	At 31 December 2003 2004 RMB’000 RMB’000 – 50 – 150 15 15 15 215 At 31 December 2003 2004 RMB’000 RMB’000 104,440 141,763 (1,323) (2,231) 103,117 139,532 At 31 December 2003 2004 RMB’000 RMB’000 – 15,059 – 3,748 – 18,807 At 31 December 2003 2004 RMB’000 RMB’000 – 2,414 – (419) – 1,995

The aggregate carrying value of completed properties held for sale that were carried at net realisable value amounted to approximately RMB419,000 (2003: Nil, 2002: Nil)

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20. Land held for future development

At Cost	2002 RMB’000 –	At 31 December 2003 2004 RMB’000 RMB’000 – 16,746

The land held for future development was located at Jinhua, Zhejiang Province, the PRC and held for a lease period of 40 years. On 1 November 2004, Jinhua Huadu, a subsidiary of Ningbo Phoenix Group, appointed Mr. Zhang Minghai (“Mr. Zhang”) and Mr. Lin Zhou (“Mr. Lin”) to purchase the land. Mr. Zhang and Mr. Lin are minority shareholders who held 25% and 20% of the registered capital of Jinhua Huadu, a 27.5% subsidiary of Ningbo Phoenix Group.

Pursuant to a stated-owned land use rights grant contract entered into between the Land Resources Bureau of Jinhua and Mr. Zhang and Mr. Lin, the total consideration for the was RMB16,746,000 of which RMB12,000,000 were paid as at 31 December 2004 and the balance of RMB4,746,000 was included in other payable.

Subsequent to the balance sheet date on 27 May 2005, the Land Resources Bureau of Jinhua issued a land use right certificate to Jinhua Huadu.

21. Due from a fellow subsidiary

Ningbo Meilide Consulting Co. Ltd. (寧波美立德諮詢有限公司)	2002 RMB’000 –	At 31 December 2003 2004 RMB’000 RMB’000 – 1,220

The amount was secured, interest free and without fixed terms of repayment.

22. Due from former subsidiaries

Beijing Shenyin Chengdu Shenrong Jiaxing Shuimu	2002 RMB’000 – – – –	At 31 December 2003 2004 RMB’000 RMB’000 – 6 – 789 – 4,222 – 5,017	At 31 December 2003 2004 RMB’000 RMB’000 – 6 – 789 – 4,222 – 5,017
			5,017

The amounts were secured, interest free and without fixed terms of repayment. The amount due from Jiaxing Shuimu has been fully settled subsequent to 31 December 2004.

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23. Due from immediate holding company

Ningbo Meili Asset Management Co. Ltd. (寧波美立資產管理有限公司) The amount was secured, interest free and without fixed terms	2002 RMB’000 – of repayment.	At 31 December 2003 2004 RMB’000 RMB’000 – 5,000	At 31 December 2003 2004 RMB’000 RMB’000 – 5,000

24. Due from minority shareholders

Ningbo Chenggi_(Note i) Wang Xingkang(Note ii) Liang Xinghui(Note iii) Jiang Ruzhi(Note iv) Liu Fei(Note v) _Note:	2002 RMB’000 – – – – – –	At 31 December 2003 2004 RMB’000 RMB’000 – 10,300 500 1,564 – 4,000 – 500 – 9,500 500 25,864	At 31 December 2003 2004 RMB’000 RMB’000 – 10,300 500 1,564 – 4,000 – 500 – 9,500 500 25,864
			25,864

(i) The amount represents balance of consideration receivable from disposal of a subsidiary namely Jiaxing Shuimu and was due for settlement on 2 February 2005. Pursuant to a repayment schedule issued by Ningbo Chenggi, RMB5,000,000 will be settled by 30 July 2005 and the remaining balance of RMB5,300,000 will be settled by 31 December 2005. In the opinion of the directors, as Ningbo Chenggi will settle the balance by the end of 2005, therefore, no provision for the amount due is necessary.
(ii) The amount was interest free, unsecured and had no fixed terms of repayment. Wang Xingkang held 49% registered capital of Shanghai Ningbo, a 51% subsidiary of APG Group and 24% of the registered capital of Ningbo Shengfei, a 51% subsidiary of Ningbo Phoenix Group.
(iii) The amount was interest free, unsecured and had no fixed terms of repayment. Liang Xinghui held 10% registered capital of Shanghai Taizhou, a 51% subsidiary of Ningbo Phoenix Group.
(iv) The amount was interest free, unsecured and had no fixed terms of repayment. Jiang Ruzhi held 10% registered capital of Guangdong Jiama, a 56.99% subsidiary of Ningbo Phoenix Group.
(v) The amount was interest free, unsecured and had no fixed terms of repayment. Liu Fei held 10% registered capital of Guangzhou Shen Ao, a 56.99% subsidiary of Ningbo Phoenix Group.

25. Due from non-consolidated subsidiaries

Beijing Shenyin Chengdu Shenrong	2002 RMB’000 – – –	At 31 December 2003 2004 RMB’000 RMB’000 6 – 10,000 – 10,006 –	At 31 December 2003 2004 RMB’000 RMB’000 6 – 10,000 – 10,006 –
			–

The amounts were secured, interest free and without fixed terms of repayment.

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26. Trade receivables

The credit period granted to customers normally ranges from 30 to 90 days. The aging analysis of the trade receivables is as follows:

0 to 30 days 31 to 60 days 61 to 90 days 91 to 120 days 121 to 180 days 181 to 365 days 1 to 2 years Over 2 years Less: provision	2002 RMB’000 – – – – – – – – – – –	At 31 December 2003 2004 RMB’000 RMB’000 4,390 26,464 1,139 1,622 20,031 13,687 770 5,171 347 3,076 128 16,520 180 453 4 21 26,989 67,014 (1,250) (1,655) 25,739 65,359	At 31 December 2003 2004 RMB’000 RMB’000 4,390 26,464 1,139 1,622 20,031 13,687 770 5,171 347 3,076 128 16,520 180 453 4 21 26,989 67,014 (1,250) (1,655) 25,739 65,359
			67,014 (1,655)
			65,359

27. Trade payables

The aging analysis of trade payables is as follows:

0 to 30 days 31 to 60 days 61 to 90 days 91 to 120 days 121 to 180 days 181 to 365 days 1 to 2 years Over 2 years Bank loans, secured Bank loans wholly repayable within one year	2002 RMB’000 – – – – – – – – – 2002 RMB’000 –	At 31 December 2003 2004 RMB’000 RMB’000 5,913 32,454 45 6,913 7,658 4,742 16 75 13 20,166 – 877 165 7,696 365 4 14,175 72,927 At 31 December 2003 2004 RMB’000 RMB’000 31,847 88,053

28. Bank loans, secured

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APPENDIX III

The bank loans were secured by the following:

(i) Leasehold land and buildings with carrying value of approximately RMBNil, RMBNil and RMB13,529,000 as at 31 December 2002, 2003 and 2004 respectively;
(ii) Properties under development of approximately RMB3,748,000 as at 31 December 2004 (2002 and 2003: Nil);
(iii) Completed properties held for sales of approximately RMB 897,000 as at 31 December 2004 (2002 and 2003: Nil);
(iv) Other receivable of approximately RMB1,000,000 as at 31 December 2004 (2002 and 2003: Nil);
(v) Bank deposits of approximately RMB 18,600,000 and RMB 18,600,000 as at 31 December 2003 and 2004 (2002: Nil); and
(vi) Corporate guarantees executed by a minority shareholder, a related party and a third party.

29. Due to minority shareholders

上海市汽車修理公司 Liang Xinghui 台州之遠汽車銷售服務有限公司 (Taizhou Giyuan Automobile Sales and Services Ltd) Zhang Minghai Liu Fei	2002 RMB’000 – – – – – –	At 31 December 2003 2004 RMB’000 RMB’000 400 1,000 650 – 12,127 8,596 – 900 722 1,372 13,899 11,868	At 31 December 2003 2004 RMB’000 RMB’000 400 1,000 650 – 12,127 8,596 – 900 722 1,372 13,899 11,868
			11,868

The amounts were secured, interest free and without fixed terms of repayment.

30. Due to immediate holding company

Ningbo Meili Asset Management Co. Ltd. (寧波美立資產管理有限公司)	2002 RMB’000 –	At 31 December 2003 2004 RMB’000 RMB’000 10,047 5,672

The amount was secured, interest free and without fixed terms of repayment.

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31. Due to a fellow subsidiary

Ningbo Meilide Consulting Co. Ltd. (寧波美立德諮詢有限公司) The amount was secured, interest free and without fixed terms 32. Due to a non-consolidated subsidiary Xian Tongfei The amount was secured, interest free and without fixed terms 33. Tax payable Enterprise income tax Other tax	2002 RMB’000 – of repayment. 2002 RMB’000 – of repayment. 2002 RMB’000 – – –	At 31 December 2003 2004 RMB’000 RMB’000 – 3,159 At 31 December 2003 2004 RMB’000 RMB’000 9,850 – At 31 December 2003 2004 RMB’000 RMB’000 – 10,966 – 902 – 11,868	At 31 December 2003 2004 RMB’000 RMB’000 – 3,159 At 31 December 2003 2004 RMB’000 RMB’000 9,850 – At 31 December 2003 2004 RMB’000 RMB’000 – 10,966 – 902 – 11,868
			11,868

34. Deferred tax assets

Deferred tax assets have been recognised in respect of these losses from certain companies of Ningbo Phoenix Group as the directors considered that it is probable that sufficient taxable profit will be available against which the unused tax losses can be utilized by Ningbo Phoenix Group.

The movement in deferred tax assets is as follows:

At beginning of the period/year Credited to consolidated income statement At end of the period/year	2002 RMB’000 – 415 415	2003 RMB’000 415 7,857 8,272	2004 RMB’000 8,272 1,952
			10,224

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35. Paid up capital

The paid up capital represented the nominal value of registered capital of Ningbo Phoenix.

Registered capital Issued and fully paid: At beginning of the period/year Issue of new capital At end of the period/year	2002 RMB’000 – 85,000 85,000	2003 RMB’000 85,000 50,358 135,358	2004 RMB’000 135,358 –
			135,358

Ningbo Phoenix was established on 30 September 2002 with a registered capital of RMB85,000,000. Pursuant to a resolution passed in the shareholders’ meeting on 11 September 2003, the registered capital was increased to RMB105,000,000. Pursuant to a resolution passed in the shareholders’ meeting on 19 November 2003, the registered capital was further increased to RMB135,357,800.

36. Reserves

At 30 September 2002 (date of incorporation) Loss attributable to shareholders At 31 December 2002 At 1 January 2003 Loss attributable to shareholders Transfer from accumulated losses At 31 December 2003 At 1 January 2004 Profit attributable to shareholders Transfer from accumulated losses At 31 December 2004	Statutory surplus reserve RMB’000 – – – – – 16 16 16 – 145 161	Accumulated losses RMB’000 – (844) (844) (844) (12,402) (16) (13,262) (13,262) 6,783 (145) (6,624)	Total RMB’000 – (844
			(844

			(844 (12,402 –
			(13,246

			(13,246 6,783 –
			(6,463

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APPENDIX III

37. Notes to the consolidated cash flow statements

Purchase of subsidiaries

Period from
30 September
2002 to
31 December
2002
NET ASSETS ACQUIRED
Fixed assets
–
Properties under development
–
Investment securities
–
Interest in an associate
–
Inventories
–
Prepayment to suppliers
–
Due from a former subsidiary
–
Deposits, prepayments and other receivables
–
Tax recoverable
–
Trade receivables
–
Cash and bank balances
–
Bank loan
–
Bills payable
–
Trade payables
–
Other payables and accruals
–
Deposit received from customers
–
Long term loan
–
–
Minority interest
–
–
Consideration
–
Goodwill
–
ANALYSIS OF NET CASH INFLOW/(OUTFLOW)
IN RESPECT OF THE ACQUISITION OF
SUBSIDIARIES
Cash consideration paid
–
Bank balances and cash acquired
–
NET CASH INFLOW/(OUTFLOW) IN RESPECT
OF THE ACQUISITION OF SUBSIDIARIES
–

Year ended
31 December
2003
2004
23,863
1,834
–
3,748
15
–
150
–
53,543
21,424
32,534
19,540
–
4,800
17,331
10,662
2,064
338
17,448
–
98,428
11,012
(21,542)
–
(161,780)
–
(11,582)
(1,369)
(5,175)
(34,871)
(14,849)
(14,770)
(358)
–
30,090
22,348
(14,433)
(10,825)
15,657
11,523
(17,837)
(17,854)
(2,180)
(6,331)
(17,837)
(17,854)
98,428
11,012
80,591
(6,842)

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38. Related party transactions

During the Relevant Period, Ningbo Phoenix Group have the following significant transactions with related parties:

				Period from
				30 September
				2002 to	Year	ended
				31 December	31 December
Name		Nature of transaction		2002	2003	2004
			Note	RMB’000	RMB’000	RMB’000
a)	Zhang Yuxin	Proceeds from disposal of
		Tianjin Dongli	(i)	–	–	3,953
b)	Wang Chang Yu	Proceeds from disposal of
		Chengdu Shenrong	(ii)	–	–	4,239
c)	Shan Dong Yin	Proceeds from disposal of
		Beijing Shenyin	(iii)	–	–	6,663
d)	Ningbo Chenggi	Proceeds from disposal of
		Jiaxing Shuimu	(iv)	–	–	14,800
e)	Shanghai Automobile	Rental charge for
	Repair Company	leasing of properties	(v)	–	400	600
Note:

(i) Tianjin Dongli was engaged in trading of motor vehicles. In 2004, Ningbo Phoenix entered into an agreement with Zhang Yuxin, a minority shareholder who held 29% of the registered capital of Tianjin Dongli pursuant to which Ningbo Phoenix sold 51% equity interest in Tianjin Dongli for approximately RMB3,953,000 which equal to the investment cost of Ningbo Phoenix therefore, there was no gain or loss on the disposal.
(ii) Chengdu Shenrong was engaged in trading of motor vehicles. In 2004, Ningbo Phoenix entered into an agreement with Wang Chang Yu, a director of Chengdu Shenrong pursuant to which Ningbo Phoenix sold 51% equity interest in Chengdu Shenrong for approximately RMB4,239,000 which equal to the investment cost of Ningbo Phoenix, therefore, there was no gain or loss on the disposal.
(iii) Beijing Shenyin was engaged in trading of motor vehicles. On 21 October 2004, Ningbo Phoenix entered into an agreement with Shan Dong Yin, a minority shareholder who held 28.96% of the registered capital of Beijing Shenyin pursuant to which Ningbo Phoenix sold 51% equity interest in Beijing Shenyin for approximately RMB6,663,000 which equal to the investment cost of Ningbo Phoenix, therefore, there was no gain or loss on the disposal.
(iv) Jiaxing Shuimu was engaged in property development. On 2 November 2004, Ningbo Huadu entered into an agreement with Ningbo Chenggi, a minority shareholder who held 50% of the registered capital of Ningbo Huadu, to dispose of the 60% interest in Jiaxing Shuimu for RMB14,800,000. Pursuant to the agreement, the minority shareholder shall pay the consideration with 3 months from 2 November 2004. As at 31 December 2004, the minority shareholder paid RMB4,500,000, the outstanding balance of RMB10,300,000 was included in note 24 to the financial statements.
(v) On 10 May 2003, Shanghai Shengfei entered into a tenancy agreement with Shanghai Automobile Repair Company, a 49% minority shareholder of Shanghai Shengfei to lease a parcel of land and properties for a period of 15 years commencing from 12 May 2003 for RMB600,000 per annum.

In addition, minority shareholders namely Taizhou Giyuan Automobile Sales and Services Limited, Liang Xinghai, Liu Fei and a related party had provided guarantees for banking facilities granted to Ningbo Phoenix Group for the year ended 31 December 2004. The related party also provided a guarantee during the year ended 31 December 2003.

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39. Operating lease commitments

Ningbo Phoenix Group leases certain of its office, show rooms under operating leases with terms ranging from one to twenty years. As at 31 December 2004, Ningbo Phoenix Group had total future minimum lease payments under non-cancellable operating leases falling due as follows:

Within one year Between one year and five years After five years	2002 RMB’000 – – – –	At 31 December 2003 2004 RMB’000 RMB’000 4,723 5,535 14,479 16,012 45,595 51,256 64,797 72,803	At 31 December 2003 2004 RMB’000 RMB’000 4,723 5,535 14,479 16,012 45,595 51,256 64,797 72,803
			72,803

40. Commitments

As at the balance sheet dates, Ningbo Phoenix Group had the following capital commitments:

		At 31 December	At 31 December
	2002	2003	2004
	RMB’000	RMB’000	RMB’000
Capital commitments contracted for:
Commitments in respect of purchases of fixed assets	–	9,809	4,857

41. Pledge of assets

As at the balance sheet date, Ningbo Phoenix Group had pledged the following assets for its banking facilities.

Land and buildings Bank deposits Property under development Completed properties held for sales Other receivable	2002 RMB’000 – – – – – –	2003 RMB’000 – 147,142 – – – 147,142	2004 RMB’000 13,529 111,508 3,748 897 1,000
			130,682

III. SUBSEQUENT FINANCIAL INFORMATION

No dividend has been declared or paid by to 31 December 2004.

Yours faithfully,

CCIF CPA LIMITED

Certified Public Accountants

Hong Kong

Chan Wai Dune, Charles

Practising Certificate Number P00712

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APPENDIX IV

(A) Letter on Unaudited Pro Forma Financial Information of the Enlarged Group

The following is the text of a report, prepared for the sole purpose of inclusion in this circular, received from the independent reporting accountants, CCIF CPA Limited, Certified Public Accountants, Hong Kong, in respect of the unaudited pro forma balance sheet of the Enlarged Group as set out in this Appendix.

The Directors Compass Pacific Holdings Limited Suites 612-617, 6/F Hutchison House 10 Harcourt Road Central Hong Kong

CCIF

CCIF CPA LIMITED

37th Floor, Hennessy Centre 500 Hennessy Road Causeway Bay, Hong Kong Telephone: +852 2894 6888 Facsimile: +852 2895 3752 E-mail: [email protected] www.hkcpa.com

28 June 2005

Dear Sirs,

We set out below our report on the unaudited pro forma financial information set out in Section B of Appendix IV to the circular of Compass Pacific Holdings Limited (the “Company”) dated 28 June 2005 (the “Unaudited Pro Forma Financial Information”), which has been prepared by the Company solely for illustrative purposes to provide information on how the proposed acquisition of American Phoenix Group, Inc. (individually referred to as “APG”, together with its subsidiaries referred to as “APG Group”) may have affected the historical financial information of the Company and its subsidiaries (collectively the “Group”). The basis of preparation of the Unaudited Pro Forma Financial Information is set out in the accompanying introduction thereto.

Responsibilities

It is the sole responsibility of the directors of the Company to prepare the Unaudited Pro Forma Financial Information in accordance with Paragraph 29 of Chapter 4 of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (the “Listing Rules”).

It is our responsibility to form an opinion, as required by 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.

Basis of opinion

Where applicable, we conducted our work in accordance with the Statements of Investment Circular Reporting Standards and Bulletin 1998/8 “Reporting on pro forma financial information pursuant to the Listing Rules” issued by the Auditing Practices Board in the United Kingdom. Our work consisted primarily of comparing the historical financial information contained therein with the source documents

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APPENDIX IV

provided by the management, considering the evidence supporting the adjustments and discussing the Unaudited Pro Forma Financial Information with the directors of the Company.

Our work does not constitute an audit or review made in accordance with the 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 is for illustrative purposes only, based on the directors’ judgements and assumptions, and because of its nature, it does not provide any assurance or indication that any event will take place in the future and may not be indicative of the financial position of the Group as at 31 December 2004 or any future date, or the results of operations or cash flows of the Group for the year ended 31 December 2004 or for any future period.

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 Company; and
(c) the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to Paragraph 29 of Chapter 4 of the Listing Rules.

Yours faithfully,

CCIF CPA Limited Certified Public Accountants Hong Kong Chan Wai Dune, Charles

Practising Certificate Number P00712

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

(B) Unaudited Pro Forma Financial Information of The Enlarged Group

The accompanying unaudited pro forma financial information of the Enlarged Group has been prepared to illustrate the effect of the Company’s proposed acquisition of APG Group (the “Acquisition”). The Company together with its subsidiaries is referred to as (the “Group”).

The accompanying unaudited pro forma financial information of the Enlarged Group as at 31 December 2004 illustrate the effect of the Acquisition on (a) the unaudited pro forma combined balance sheet of the Enlarged Group as if the Acquisition had been completed on 31 December 2004 and (b) the unaudited pro forma combined income statement and cash flow statement of the Enlarged Group as if the Acquisition had taken place on 1 January 2004.

The accompanying unaudited pro forma financial information of the Enlarged Group is based upon the historical consolidated financial statements of APG Group and the historical consolidated financial statements of the Group after giving effect to the pro forma adjustments described in the accompanying notes. A narrative description of the pro forma adjustments of the Acquisition that are (i) directly attributable to the transactions; (ii) expected to have a continuing impact on the Enlarged Group; and (iii) factually supportable, are summarised in the accompanying notes.

The accompanying unaudited pro forma financial information of the Enlarged Group is based on a number of assumptions, estimates, uncertainties and currently available information. As a result of these assumptions, estimates and uncertainties, the accompanying unaudited pro forma financial information of the Enlarged Group does not purport to describe the actual financial position or results of operations or cash flows of the Enlarged Group that would have been attained had the Acquisition been completed. Further, the accompanying unaudited pro forma financial information of the Enlarged Group does not purport to predict the Enlarged Group’s future financial position or results of operations.

The unaudited pro forma financial information of the Enlarged Group should be read in conjunction with the audited financial information of APG Group as set out in Appendix II, the audited financial information of the Group as set out in Appendix I and other financial information included elsewhere in this circular.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

(i) Unaudited pro forma combined income statement of the Enlarged Group

Audited Audited consolidated consolidated income income statement of statement of the Group for APG Group for the year ended the year ended 31 December 31 December 2004 2004 HK$’000 HK$’000 (Note 1) Turnover 6,758 1,058,211 Cost of sales (5,382) (1,006,731) Gross profit 1,376 51,480 Other revenues 2,283 16,497 Operating expenses (48,016) (60,200) (Loss)/profit before operations (44,357) 7,777 Gain on disposal of non-consolidated subsidiaries – 9,434 Finance costs – (4,569) Profit/(loss) before tax (44,357) 12,642 Taxation – (8,471) (Loss)/profit before minority interests (44,357) 4,171 Minority interests 3,442 (2,628) (Loss)/profit attributable to shareholders (40,915) 1,543	Pro forma combined HK$’000 1,064,969 (1,012,113) 52,856 18,780 (108,216) (36,580) 9,434 (4,569) (31,715) (8,471) (40,186) 814 (39,372)	Pro forma adjustment HK$’000 (Note 2) – – – – (7,211) (7,211) – – (7,211) – (7,211) – (7,211)	Pro forma Enlarged Group HK$’000 1,064,969 (1,012,113) 52,856 18,780 (115,427) (43,791) 9,434 (4,569) (38,926) (8,471) (47,397) 814 (46,583)

Notes:

(1) The figures of APG Group were denominated in RMB and had been translated into Hong Kong dollars at the conversion exchange of RMB1.06 to HK$1.

(2) The adjustment represents amortisation of goodwill arising from the acquisition of APG Group over a period of 10 years.
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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

(ii) Unaudited pro forma combined cash flow statement of the Enlarged Group

Audited Audited consolidated consolidated cash flow cash flow statement of statement of the Group APG Group for the for the year ended 31 year ended 31 December December 2004 2004 HK$’000 HK$’000 (Note 1) Cash flows from operating activities (Loss)/profit before tax (44,357) 12,642 Depreciation 4,097 4,345 Amortization of goodwill – 2,002 Provision for obsolete and slow moving inventories – 525 Provision for doubtful debts 354 2,636 Bad debt – 28 Net loss/(gain) on disposal of fixed assets (15) 171 Loss on write off of property, plant and equipment 5,644 – Impairment of property, plant and equipment 1,506 – Gain on disposal of non-consolidated subsidiaries – (9,434) Bank interest income (1,551) (2,500) Other interest income – (737) Interest expenses – 3,870 Provision for completed properties held for sales – 395 Operating (loss)/profit before working capital changes (34,322) 13,943 (Increase)/decrease in inventories 96 (14,667) Increase in amounts due from former subsidiaries – (205) Increase in amounts due from minority shareholders – (14,211) Decrease in deposits, prepayments and other receivables 1,589 20,597 Decrease in amount due from/to a connected party (726) – Increase in amount due from non-consolidated subsidiaries – 9,440 Increase in prepayment to suppliers – (12,827) (Increase)/decrease in trade receivables 127 (37,731) Increase in trade payables 77 54,135 Increase in other tax payable – 851 Decrease in bills payable – (17,188) Decrease in other payable and accruals (134) (9,994) Increase in deposits received from customers – 11,923	Pro forma Combined HK$’000 (31,715) 8,442 2,002 525 2,990 28 156 5,644 1,506 (9,434) (4,051) (737) 3,870 395 (20,379) (14,571) (205) (14,211) 22,186 (726) 9,440 (12,827) (37,604) 54,212 851 (17,188) (10,128) 11,923	Pro forma Adjustment HK$’000 (Note 2) – – – – – – – – – – – – – – – – – – – – – – – – – – – –	Pro forma Enlarged Group HK$’000 (31,715) 8,442 2,002 525 2,990 28 156 5,644 1,506 (9,434) (4,051) (737) 3,870 395 (20,379) (14,571) (205) (14,211) 22,186 (726) 9,440 (12,827) (37,604) 54,212 851 (17,188) (10,128) 11,923

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Audited Audited consolidated consolidated cash flow cash flow statement of statement of the Group APG Group for the for the year ended 31 year ended 31 December December 2004 2004 HK$’000 HK$’000 (Note 1) Cash used in generated from operations (33,293) 4,066 Other interest income received – 737 Interest received 718 2,500 Interest paid – (3,525) PRC income tax paid – (6,241) Net cash used in operating activities (32,575) (2,463) Investing activities Purchase of fixed assets (2,781) (45,889) Purchase of subsidiaries – (64,003) Payment for completed properties held for sales – (2,277) Payment for properties under development – (14,207) Payment for land held for future development – (15,798) Acquisition of land held for resale (1,636) – Purchase of investment securities – (189) Acquisition of long term investments (21,423) – Proceeds on disposal deregistration of non-consolidated subsidiaries – 27,881 Increase in other loan receivable (1,071) – Increase in loan receivable from an investee company (43,624) – Proceeds on disposal of fixed assets 2,023 1,994 Proceeds on disposal of investment securities – 573 Increase in pledged and restricted bank balances – 32,152 Net cash used in investing activities (68,512) (79,763)	Pro forma Combined HK$’000 (29,227) 737 3,218 (3,525) (6,241) (35,038) (48,670) (64,003) (2,277) (14,207) (15,798) (1,636) (189) (21,423) 27,881 (1,071) (43,624) 4,017 573 32,152 (148,275)	Pro forma Adjustment HK$’000 (Note 2) – – – – – – – – – – – – – – – – 43,624 – – – 43,624	Pro forma Enlarged Group HK$’000 (29,227) 737 3,218 (3,525) (6,241) (35,038) (48,670) (64,003) (2,277) (14,207) (15,798) (1,636) (189) (21,423) 27,881 (1,071) – 4,017 573 32,152 (104,651)

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Audited Audited consolidated consolidated cash flow cash flow statement of statement of the Group APG Group for the for the year ended 31 year ended 31 December December 2004 2004 HK$’000 HK$’000 (Note 1) Financing activities Issue of share capital – 78,392 New bank loans – 38,874 New loan from a shareholder – 43,726 Repayment of amount due to a director – (45,679) Increase in amount due to minority shareholders – 2,329 Repayment of amount due to a non-consolidated subsidiary – (9,292) Capital contributed by minority shareholders – 11,792 Net cash generated from financing activities – 120,142 Net increase/(decrease) in cash and cash equivalents (101,087) 37,916 Cash and cash equivalents at the beginning of the year 132,915 7,571 Cash and cash equivalents at the end of the year 31,828 45,487 Analysis of balances of cash and cash equivalents Cash and bank balances 31,828 45,487	Pro forma Combined HK$’000 78,392 38,874 43,726 (45,679) 2,329 (9,292) 11,792 120,142 (63,171) 140,486 77,315 77,315	Pro forma Adjustment HK$’000 (Note 2) – – (43,624) – – – – (43,624) – – – –	Pro forma Enlarged Group HK$’000 78,392 38,874 102 (45,679) 2,329 (9,292) 11,792 76,518 (63,171) 140,486 77,315 77,315

Notes:

1) The figures of AGP Group were denominated in RMB and had been translated into Hong Kong dollars at the conversion exchange rate of RMB1.06 to HK$1
2) Being elimination of loan from American Compass Inc to APG.
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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

(iii) Unaudited pro forma combined balance sheet of the Enlarged Group

Audited Audited consolidated consolidated balance balance sheet of sheet of APG the Group Group as at 31 as at 31 December December 2004 2004 Historical Historical HK$’000 HK$’000 (Note 1) NON-CURRENT ASSETS Fixed assets 14,249 95,577 Goodwill – 18,017 Rental, utilities and other deposits 650 – Interest in APG – – Interest in associates – 142 Investment in securities 21,423 203 Deferred tax assets – 10,089 Other loan receivables 2,259 – Total non-current assets 38,581 124,028 CURRENT ASSETS Inventories 71 131,634 Properties under development – 17,742 Properties held for sales 1,636 1,882 Land for future development – 15,798 Trade receivables – 61,660 Prepayment, deposits and other receivables 15,320 49,317 Loan and interest receivables from an investee company 44,227 – Prepayment to suppliers – 76,866 Due from a connected party 661 – Due from former subsidiaries – 4,733 Due from minority shareholders – 24,400 Tax recoverable – 6,756 Pledged bank deposits 700 105,196 Restricted bank balances – 2,728 Cash and bank balances 31,828 45,488 Total current assets 94,443 544,200	Pro Pro Pro Pro Pro Pro Forma Forma Forma Forma Forma Forma Combined Adjustments Adjustments Adjustments Adjustment Adjustment HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Note 2) (Note 3) (Note 4) (Note 5) (Note 6) 109,826 – – – – – 18,017 – – – – 72,113 650 – – – – – – 44,227 – 654 137,198 (182,079) 142 – – – – – 21,626 – – – – (21,423) 10,089 – – – – – 2,259 – – – – – 162,609 44,227 – 654 137,198 (131,389) 131,705 – – – – – 17,742 – – – – – 3,518 – – – – – 15,798 – – – – – 61,660 – – – – – 64,637 – – – – – 44,227 (44,227) – – – – 76,866 – – – – – 661 – – – – – 4,733 – – – – – 24,400 – – – – – 6,756 – – – – – 105,896 – – – – – 2,728 – – – – – 77,316 – – – – – 638,643 (44,227) – – – –	Pro Forma Enlarged Group HK$’000 109,826 90,130 650 – 142 203 10,089 2,259
		213,299
		131,705 17,742 3,518 15,798 61,660 64,637 – 76,866 661 4,733 24,400 6,756 105,896 2,728 77,316
		594,416

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Audited Audited consolidated consolidated balance balance sheet of sheet of APG the Group Group as at 31 as at 31 December December 2004 2004 Historical Historical HK$’000 HK$’000 (Note 1) CURRENT LIABILITIES Trade payables (701) (68,799) Bills payable, secured – (207,652) Other payables and accruals (13,807) (42,389) Deposits received from customers – (52,052) Due to minority shareholders – (15,442) Due to a director – (3,123) Other loans – (211) Loan from a shareholder – (44,072) Bank loans, secured – (83,069) Tax payable – (11,192) Total current liabilities (14,508) (528,001) Net current assets 79,935 16,199 Total assets less current liabilities 118,516 140,227 Non-current liabilities Minority interest (12,059) (52,910) NET ASSETS 106,457 87,317 CAPITAL AND RESERVES Share capital 189,545 86,192 Share premium 262,529 – Statutory reserve – 137 Exchange movement reserve (2,304) – (Accumulated losses) /retained profits (343,313) 988 Reserves (83,088) 1,125 Shareholder’s funds 106,457 87,317	Pro Pro Pro Pro Pro Pro Forma Forma Forma Forma Forma Forma Combined Adjustments Adjustments Adjustments Adjustment Adjustment HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Note 2) (Note 3) (Note 4) (Note 5) (Note 6) (69,500) – – – – – (207,652) – – – – – (56,196) – – (654) – – (52,052) – – – – – (15,442) – – – – – (3,123) – – – – – (211) – – – – – (44,072) – 44,072 – – – (83,069) – – – – – (11,192) – – – – – (542,509) – 44,072 (654) – – 96,134 (44,227) 44,072 (654) – – 258,743 – 44,072 – 137,198 (131,389) (64,969) – – – – – 193,774 – 44,072 – 137,198 (131,389) 275,737 – 44,072 – 54,879 (130,264) 262,529 – – – 82,319 – 137 – – – – (137) (2,304) – – – – – (342,325) – – – – (988) (81,963) – – – 82,319 (1,125) 193,774 – 44,072 – 137,198 (131,389)	Pro Forma Enlarged Group HK$’000 (69,500) (207,652) (56,850) (52,052) (15,442) (3,123) (211) – (83,069) (11,192) (499,091) 95,325 308,624 (64,969) 243,655 244,424 344,848 – (2,304) (343,313) (769) 243,655

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Notes:

The audited consolidated figures of APG Group were denominated in RMB and had been translated into Hong Kong dollars at the conversion exchange rate of RMB1.06 to HK$1.
The adjustment represents conversion of loan to APG into Subscription Shares in APG.
The adjustment represents new shares issued by APG to American Compass Inc. upon conversion of the loan.
The adjustment represents loan interest receivable for the period from 1 January 2005 to 11 March 2005 classified as investment cost in APG.
The adjustment represents 548,792,265 new shares at HK$0.25 each issued by the Company for the acquisition of 55,875,144 class A common stocks of APG.
The adjustment represents elimination of investment cost in APG upon consolidation.
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VALUATION REPORT

APPENDIX V

The following is the text of a letter, summary of values and valuation certificates, prepared for the purpose of incorporation in this circular received from Sallmanns (Far East) Limited, an independent valuer, in connection with its valuation as at 31 March 2005 of the property interests of the APG Group and the Group.

28 June 2005

The Board of Directors Compass Pacific Holdings Limited Suites 612-617, Hutchison House 10 Harcourt Road Central, Hong Kong

Dear Sirs,

In accordance with your instructions to value the properties in which American Phoenix Group Inc. (“APG”) and its subsidiaries (hereinafter together referred to as the “APG Group”) have interests to be acquired by Compass Pacific Holdings Limited (the “Company”) and its subsidiaries (hereinafter together referred to as the “Group”) in the People’s Republic of China (the “PRC”) and in which the Group has interests in Hong Kong and the United States of America (the “USA”) respectively, we confirm that we have carried out inspections, made relevant enquiries and searches and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the capital values of the property interests as at 31 March 2005 (the “date of valuation”).

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

We have valued the property interests nos. 1 and 4 in Group I, property interests in Groups II, IV and V by the direct comparison approach assuming sale of the property interests in their existing state with the benefit of immediate vacant possession and by making reference to comparable sale transactions as available in the relevant markets.

Where, due to the nature of the buildings and structures of the properties in the PRC, there are no market sales comparables readily available, the property interests nos. 2 and 3 in Group I and in Group III have been valued on the basis of their depreciated replacement cost.

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VALUATION REPORT

APPENDIX V

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

We have attributed no commercial value to the property interests in Group VI and in Groups VII and VIII, which are leased by the APG Group and the Group respectively, due either to the short-term nature of the leases or the prohibition against assignment or sub-letting or otherwise due to the lack of substantial profit rents.

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

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

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

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

We have been shown copies of various title documents including State-owned Land Use Rights Certificates, Building Ownership Certificates, Real Estate Title Certificates and official plans relating to the property interests and have made relevant enquiries. Where possible, we have examined the original documents to verify the existing titles to the property interests in the PRC and any material encumbrances that might be attached to the property interests or any lease amendments. We have relied considerably on the advice given by the APG Group’s PRC legal adviser – Beijing Forever Law Firm (北京市昌久律師事務所 ), concerning the validity of the APG Group’s titles to the property interests. According to the PRC legal opinion, properties with proper legal titles can be freely leased, mortgaged and transferred in accordance with the PRC laws and legislations. With regards to the leased properties, the terms and conditions of the tenancy agreements do not contravene the PRC laws and legislations and thus the tenancy agreements are legal, valid and binding on relevant parties upon signing.

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

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VALUATION REPORT

APPENDIX V

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

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

Unless otherwise stated, all monetary figures stated in this report are in Renminbi (RMB). The exchange rate adopted in our valuations is approximately USD1=RMB8.253 which was the prevailing exchange rate at the date of valuation.

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

Yours faithfully, for and on behalf of

Sallmanns (Far East) Limited Paul L. Brown B.Sc. FRICS FHKIS Director

Note: Paul L. Brown is a Chartered Surveyor who has 22 years’ experience in the valuation of properties in the PRC and 25 years of property valuation experience in Hong Kong, the United Kingdom and the AsiaPacific region.

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VALUATION REPORT

APPENDIX V

SUMMARY OF VALUES

Group I – Property interests held and occupied by the APG Group in the PRC

No.
Property
1.
Units 703 and 704
Block 18
Mudan Sub-district
Beilun District
Ningbo
Zhejiang Province
The PRC
2.
A parcel of land, various buildings and structures
located at
Liren Village
Zhoupu Town
Nanhui District
Shanghai
The PRC
3.
Three parcels of land and various buildings
located at
Chengguan Jiangnan Industrial Zone
Linhai
Taizhou
Zhejiang Province
The PRC
4.
Unit 1026
Ningbo Baoshuiqu Commercial Building
Beilun District
Ningbo
Zhejiang Province
The PRC
Sub-total:

Capital Value
in existing state
as at
31 March 2005
RMB
210,000
13,400,000
89,000
290,000

13,989,000

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VALUATION REPORT

APPENDIX V

Group II – Property interests held for sale by the APG Group in the PRC

No. Property 5. Units on Level 1 of Blocks D, F and G and Carport nos. 1, 5 and 6 Haiqin Yuan Beilun District Ningbo Zhejiang Province The PRC 6. Unit A#37-202 and 4 storerooms and 24 carports Chengshiluzhou Haihong Yuan Songhuajiang Road Beilun District Ningbo Zhejiang Province The PRC Sub-total:	Capital Value in existing state as at 31 March 2005 RMB 1,520,000 200,000
	1,720,000

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VALUATION REPORT

APPENDIX V

Group III – Property interest held under development by the APG Group in the PRC

No. Property 7. Huadu Apartments Beilun District Ningbo Zhejiang Province The PRC Sub-total:	Capital Value in existing state as at 31 March 2005 RMB 41,900,000
	41,900,000

Group IV – Property interests held for future development by the APG Group in the PRC

No. Property 8. A parcel of land located at the East of Kangqi Street and North of Kaiyuan Road Jindongxincheng District Jinhua Zhejiang Province The PRC 9. A parcel of land located at He Dong Village Yong Jiang County Jiangbei District Ningbo Zhejiang Province The PRC Sub-total:	Capital Value in existing state as at 31 March 2005 RMB 19,500,000 3,950,000
	23,450,000

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VALUATION REPORT

APPENDIX V

Group V – Property interest held for future development by the Group in the USA

No. Property 10. LA County Assessor’s Parcel No. 3023-026-038 Palmdale California USA Sub-total:	Capital Value in existing state as at 31 March 2005 RMB 1,730,000
	1,730,000

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VALUATION REPORT

APPENDIX V

Group VI – Property interests leased and occupied by the APG Group in the PRC

		Capital Value	Capital Value
		in existing state
			as at
No.	Property	31	March 2005
			RMB
11.	Unit 2903-F	No commercial value
	Ningbo Baoshuiqu International Development Building
	Beilun District
	Ningbo
	Zhejiang Province
	The PRC
12.	Units 501, 504 and 505	No commercial value
	Level 5
	Shanghai Hotel Office Block
	No. 505 Wulumuqi North Road
	Jingan District
	Shanghai
	The PRC
13.	Unit 1801	No commercial value
	Vanke Commercial Plaza
	No. 37 Shuicheng South Road
	Shanghai
	The PRC
14.	Podium level	No commercial value
	Shanghai Jiangsu Hotel
	No. 888 Wuning Road
	Shanghai
	The PRC
15.	Units 107, 108 and 109	No commercial value
	No. 505 Wuning Road
	Shanghai
	The PRC
16.	Unit B309	No commercial value
	No. 459 Futexiyi Road
	Shanghai Waigaoqiao Baoshui District
	Shanghai
	The PRC

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VALUATION REPORT

APPENDIX V

No. Property

A parcel of land, Level 1 and Level 2 of Block 2 No. 597 Tianshan Road Changning District Shanghai The PRC 18. A parcel of land located at the intersection of Zhongxin South Road and Huancheng South Road Jiangdong District Ningbo Zhejiang Province The PRC
C-7 and an ancillary office and C-9 and an ancillary office Section C of Ningbo Century Carcity Showroom Jiangdong District Ningbo Zhejiang Province The PRC 20. A parcel of land and various buildings located at No. 178 Xingning Road Jiangdong District Ningbo Zhejiang Province The PRC
A parcel of land located at Hai Nan Village Dong Jiao Town Fang Cun District Guangzhou The PRC

Sub-total:

Capital Value in existing state as at 31 March 2005 RMB

No commercial value

Nil

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VALUATION REPORT

APPENDIX V

Group VII – Property interest leased and occupied by the Group in Hong Kong

		Capital Value
		in existing state
		as at
No.	Property	31 March 2005
		RMB
22.	Suites 612-617	No commercial value
	6th Floor
	Hutchison House
	No. 10 Harcourt Road
	Central
	Hong Kong
	Sub-total:	Nil
Group VIII – Property interest leased and occupied by the Group in the USA
		Capital Value
		in existing state
		as at
No.	Property	31 March 2005
		RMB
23.	55 S Lake Avenue	No commercial value
	Suite 630
	Pasadena
	California
	USA
	Sub-total:	Nil
	Total:	82,789,000

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VALUATION REPORT

APPENDIX V

VALUATION CERTIFICATE

Group I – Property interests held and occupied by the APG Group in the PRC

Property

Particulars of Description and tenure occupancy

Capital Value in existing state as at 31 March 2005 RMB

Units 703 and The property comprises The property is currently 210,000 704 two units on the 7th floor occupied by Ningbo Block 18 of a 9-storey residential Phoenix Automobile Mudan Subbuilding completed in Distribution and Services district about 1998. Co., Ltd. (“Ningbo Beilun District Phoenix”) (寧波鳳凰汽車 Ningbo The units have a total 銷售服務有限公司 ) for Zhejiang gross floor area of office purpose. Province approximately 85.08 sq.m. The PRC The land use rights of the property to an apportioned site area of approximately 9.45 sq.m. were granted for a term of 70 years and expire on 3 December 2064.

Notes:

Pursuant to a State-owned Land Use Rights Certificate, Ningkai Guo Yong (2003) Zi Di No. 486, issued by the People’s Government of Economic and Technical Development District Administration Authority of Ningbo on 29 January 2003, the land use rights of a parcel of land with an apportioned site area of approximately 9.45 sq.m. were granted to Ningbo Phoenix for a term of 70 years expiring on 3 December 2064 for residential uses.
Pursuant to a Building Ownership Certificate, Yong Fang Quan Zheng Lun (Kai) Zi Di No. 2002007847, issued by Real Estate Administration Bureau of Ningbo, the building ownership rights of 2 units with a total gross floor area of approximately 85.08 sq.m. are owned by Ningbo Phoenix.
The property was purchased by Ningbo Phoenix at a consideration of RMB316,128.80 on 10 October 2002.
Ningbo Phoenix is a wholly-owned subsidiary of the APG Group.
We have been provided with a legal opinion regarding the property interests by the APG Group’s PRC legal advisers, which contains, inter alia , the following:
(i) the land use rights and building ownership rights of the property are legally owned by Ningbo Phoenix;
(ii) the property is not subject to mortgage or any other encumbrances; and
(iii) Ningbo Phoenix can freely lease, mortgage and transfer the property in accordance with the PRC laws and legislations.
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VALUATION CERTIFICATE

Description and tenure

Property

A parcel of land, The property comprises a various buildings parcel of land with a site and structures area of approximately located at 9,912 sq.m. on which are Liren Village erected 8 buildings Zhoupu Town completed in about 2003. Nanhui District Shanghai The buildings have a total The PRC area of approximately 7,915.54 sq.m.

The buildings include 2 offices, a garage, a workshop, a showroom, a staff quarter and a guardhouse.

The land use rights of the property were granted for a term of 40 years expiring on 20 September 2042.

Particulars of occupancy

The property is currently occupied by Shanghai Yitong Automobile Sales Co., Ltd. (“Shanghai Yitong”) (上海怡通汽車銷售有限公司 ) for sales office and garage purposes.

A showroom with a gross floor area of approximately 1,306.45 sq.m. is currently occupied by Shanghai Yitong Automobile Services Co., Ltd. (“Yitong Service”) (上海怡通汽車服務有限公司) at nil rental.

Capital Value in existing state as at 31 March 2005

RMB

13,400,000

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Notes:

Pursuant to a Real Estate Title Certificate, Hu Fang Di Nanhui (2003) Di No. 004755, issued by Shanghai Housing and Land Resources Administrative Bureau on 28 April 2003, the land use rights of a parcel of land with a site area of approximately 9,912 sq.m. and the building ownership rights of the building with a gross floor area of approximately 4,310.5 sq.m. were granted to Shanghai Yitong for a term of 40 years expiring on 20 September 2042 for office uses. The land was purchased on 15 July 2002 at a consideration of RMB1,400,980.
In the valuation of this property, we have not attributed any commercial value to 7 buildings with a total gross floor area of approximately 3,605.04 sq.m. which have not been granted with any proper title certificate. However, for reference purposes, we are of the opinion that the depreciated replacement cost of these buildings as at the date of valuation would be RMB5,400,000 assuming all relevant title ownership certificates had been obtained.
As per our inspection, a showroom with a gross floor area of approximately 1306.45 sq.m. is currently occupied by Yitong Service, a fellow subsidiary of the APG Group, at nil rental.
Shanghai Yitong is a 51% interest-owned subsidiary of the APG Group.
Yitong Service is a 51% interest-owned subsidiary of the APG Group.
We have been provided with a legal opinion regarding the property interests by the APG Group’s PRC legal advisers, which contains, inter alia , the following:
(i) the land use rights and building ownership rights of the parcel of land and the building as mentioned in note 1 are legally owned by Shanghai Yitong;
(ii) the property is not subject to mortgage or any other encumbrances;
(iii) Shanghai Yitong can freely lease, mortgage and transfer the parcel of land and the building as mentioned in note 1 in accordance with the PRC laws and legislations;
(iv) the 7 buildings as mentioned in note 2 were constructed by Shanghai Yitong and are under application for relevant title ownership certificates. Shanghai Yitong owns the land use rights of the property. The application for commencement of the construction work complied with legal procedures and relevant application fee for applying the title ownership certificates had been paid up. (Government of Zhoupu Town of Nanhui District Shanghai has issued a document to act as a proof, which is a legal document.) It is considered that Shanghai Yitong has the rights to occupy, use, handle and lease the 7 buildings with regards to the PRC laws and regulations and can obtain relevant title ownership certificates without legal impediment; and
(v) Yitong Service enjoys the rights to use the showroom mentioned in note 3.
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VALUATION CERTIFICATE

Description and tenure

Property

Three parcels of The property comprises land and various three parcels of conjoining buildings land with a total site area located at of approximately Chengguan 10,917.64 sq.m. Jiangnan Land parcel no. 1 has a

Industrial Zone site area of approximately

Linhai 8,027.51 sq.m. upon

Taizhou which are erected 5

Zhejiang industrial buildings with a

Province covered walkway

The PRC completed in about 1995.

Particulars of occupancy

The property is currently occupied by Shanghai Volkswagen Taizhou Sales & Services Co., Ltd. (“Shanghai Taizhou”) (上海大眾汽車台州銷售服務有限公司 ) for car repairing purposes.

Capital Value in existing state as at 31 March 2005

RMB

89,000

The buildings have a total gross floor area of approximately 4,697.66 sq.m. and the covered walkway has an area of approximately 62.34 sq.m.

The land use rights of land parcel no. 1 are collectively held.

Land parcel no. 2 has a site area of approximately 2,356.13 sq.m. which was allocated to Linhai Automobile Repair Factory (“LARF”) (臨海市轎車修理廠 ) for an unspecified period.

Land parcel no. 3 with a site area of approximately 534 sq.m. was granted to LARF for a term of 50 years expiring on 3 August 2050.

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Notes:

Pursuant to a long term land use agreement entered into between Xia Pu Village (下浦村 ) and LARF on 12 July 1992 and a supplementary agreement entered into between Xia Pu Village (下浦村 ) and Shanghai Taizhou on 31 December 2003, the total rental of two parcels of land with a total site area of approximately 14.95 mui (9,966.72 sq.m.) has been paid up by Shanghai Taizhou which has obtained the long term use rights of the subject land.
Pursuant to a State-owned Land Use Rights Certificate, Lincheng Guo Yong (2000) Zi Di No. 057897 issued by Land Administration Bureau of Linhai on 24 November 2000, the land use rights of a parcel of land with a site area of approximately 2,890.13 sq.m. were allocated to LARF for garage uses.
The land use rights of a portion of the land as mentioned in note 2 with a site area of approximately 534 sq.m. were granted to LARF for a term of 50 years commencing from 4 August 2000 and expiring on 3 August 2050 for garage uses.
Pursuant to a Certificate for Construction on Collectively-owned land, Lin Ji Jian (1995) Zi Di No. 003214 issued by the People’s Government of Linhai on 19 November 1995, the land use for construction on collectively owned land with a site area of approximately 8,027.51 sq.m. is permitted.
Pursuant to a Building Ownership Certificate, Lin Zi Di No. 0045254 issued by Real Estate Administration Bureau of Linhai, the building ownership rights of 5 industrial buildings with a total gross floor area of approximately 4,697.66 sq.m. and a covered walkway with a covered area of approximately 62.34 sq.m. are held by LARF.
In the valuation of this property, we have not attributed any commercial value to the collectively owned and allocated land with a total site area of approximately 10,383.64 sq.m. (land parcel nos. 1 and 2), the 6 buildings with a total gross floor area of approximately 4,716.86 sq.m. and a covered walkway with a covered area of approximately 62.34 sq.m. However, for reference purposes, we are of the opinion that the depreciated replacement cost of the 6 buildings as at the date of valuation would be RMB3,270,000 assuming all relevant title ownership certificates had been obtained.
Shanghai Taizhou is an 51% interest-owned subsidiary of the APG Group.
We have been provided with a legal opinion regarding the property interests by the AGP Group’s PRC legal advisers, which contains, inter alia , the following:
(i) LARF was liquidated on 24 November 2003 and all the assets under the name of LARF have been injected to Shanghai Taizhou;
(ii) Shanghai Taizhou has obtained the long term use rights of the subject land;
(iii) the building ownership rights of the five buildings as mentioned in note 5 (the “Five Buildings”) are legally owned by Shanghai Taizhou;
(iv) Shanghai Taizhou can freely lease, mortgage and transfer the Five Buildings in accordance with the PRC laws and legislations; and
(v) Shanghai Taizhou constructed an electricity distribution room on the subject land (one of the six buildings with a gross floor area of 19.2 sq.m. as mentioned in note 6 (the “Electricity Room”)). The Electricity Room is under application for title ownership certificate. Shanghai Taizhou owns the land use rights of the property. The application for and commencement of the construction work complied with legal procedures and relevant application fee for applying the title ownership certificates had been paid up. It is considered that Shanghai Taizhou has the rights to occupy, use, handle and lease the Electricity Room with regards to the PRC laws and regulations and can obtain relevant title ownership certificates without legal impediment.
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VALUATION CERTIFICATE

Description and tenure

Property

Unit 1026 The property comprises a Ningbo unit on level 10 of a 13Baoshuiqu storey office building Commercial completed in about 2003. Building Beilun District The unit has a gross floor Ningbo area of approximately Zhejiang 76.15 sq.m. Province The PRC The land use rights of the property to an apportioned site area of approximately 19.31 sq.m. were granted for a term of 40 years expiring on 5 September 2042.

	Capital Value
	in existing state
	as at
Particulars of	31 March 2005
occupancy	RMB
The property is currently	290,000
vacant.

Notes:

Pursuant to a State-owned Land Use Rights Certificate, Yong Bao Tu Guo Yong (2003) Zi Di No. 0080, issued by the People’s Government of Ningbo Baoshuiqu Administrative Authority on 13 May 2003, the land use rights of a parcel of land with an apportioned site area of approximately 19.31 sq.m. were granted to Ningbo Huadu Real Estate Co., Ltd. (“Ningbo Huadu”) (寧波華都房地產有限公司 ) for a term of 40 years expiring on 5 September 2042 for office uses.
Pursuant to a Building Ownership Certificate, Yong Fang Quan Zheng Bao Zi Di No. 20030076 issued by Ningbo Baoshuiqu (Export Processing District) Real Estate Administration Bureau on 25 April 2003, the building ownership rights of the unit with a gross floor area of approximately 76.15 sq.m. are owned by in Ningbo Huadu.
The property was purchased by Ningbo Huadu at a consideration of RMB238,373.29 in April 2003.
Ningbo Huadu is an 50% interest-owned subsidiary of the APG Group.
We have been provided with a legal opinion regarding the property interests by the APG Group’s PRC legal advisers, which contains, inter alia , the following:
(i) the land use rights and building ownership rights of the property are legally owned by Ningbo Huadu;
(ii) the property is not subject to mortgage or any other encumbrances; and
(iii) Ningbo Huadu can freely lease, mortgage and transfer the property in accordance with the PRC laws and legislations.
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VALUATION CERTIFICATE

Group II – Property interests held for sale by the APG Group in the PRC

Property

Description and tenure

Particulars of occupancy

Capital Value in existing state as at 31 March 2005

RMB

Units on Level 1 The property comprises of Blocks D, F three units on level 1 and and G and three carports of three 12Carport nos. 1, 5 storey composite and 6 residential/office blocks Haiqin Yuan completed in about 2003. Beilun District Ningbo The three units have a Zhejiang Province total gross floor area of The PRC approximately 505.13 sq.m. and the three carports have a total gross floor area of approximately 77.79 sq.m.

The property is currently 1,520,000 vacant.

The land use rights of the property to an apportioned site area of approximately 44.33 sq.m. were granted for a term of 40 years and expire on 26 July 2043.

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Notes:

Pursuant to a State-owned Land Use Rights Certificate, Lun Guo Yong (2004) Zi Di No. 3347343, issued by People’s Government of Economic and Technical Development District Administration Authority of Ningbo in 2004, the land use rights of a parcel of land with an apportioned site area of approximately 44.33 sq.m. for units on level 1 of Blocks B, D, F and G of Haiqin Yuan were granted to Ningbo Huadu for a term of 40 years expiring on 26 July 2043 for composite residential/office uses.
Pursuant to a Building Ownership Certificate, Yong Fang Quan Zheng Lun (Kai) Zi Di No. 2004010789, issued by Real Estate Administration Bureau of Ningbo on 29 June 2004, the building ownership rights of 3 units with a total gross floor area of 505.13 sq.m. stated above are owned by in Ningbo Huadu.
In the valuation of this property, we have not attributed any commercial value to Carport nos. 1, 5 and 6 of Haiqin Yuan which have not been granted with proper title certificates. However, for reference purposes, we are of the opinion that the capital values of these carports as at date of valuation would be RMB100,000 assuming all relevant title ownership certificates had been obtained.
Units on level 1 of Blocks B, D, F and G of Haiqin Yuan are subject to a mortgage for an amount of RMB1,440,000 in favour of Beilun Branch of Ningbo Commence Bank Holdings Limited (寧波市商業銀行股份有限公司北侖支行 ).
Ningbo Huadu is a 50% interest-owned subsidiary of the APG Group.
We have been provided with a legal opinion regarding the property interests by APG Group’s PRC legal advisers, which contains, inter alia , the following:
(i) the land use rights and building ownership rights of the three units on level 1 of Blocks D, F and G of Haiqin Yuan (the “Three Units”) are legally owned by Ningbo Huadu;
(ii) Ningbo Huadu can freely lease, mortgage and transfer the Three Units in accordance with the PRC laws and legislations;
(iii) Carport nos 1, 5 and 6 of Haiqin Yuan (the “Three Carports”) have to be purchased together with residential units in order to be eligible to apply for the State-owned Land Use Rights Certificates and the Building Ownership Certificates; and
(iv) Since the Three Carports have not been sold, relevant title ownership certificates have not been obtained.
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VALUATION CERTIFICATE

Property

Description and tenure

Capital Value in existing state as at Particulars of 31 March 2005 occupancy RMB

Unit A#37-202 The property comprises a and 4 storerooms residential unit on level 2 and 24 carports of a 7-storey residential Chengshiluzhou block, four storerooms and Haihong Yuan twenty-four carports on Songhuajiang level 1 of various Road residential blocks Beilun District completed in about 2003. Ningbo Zhejiang The residential unit has a Province gross floor area of The PRC approximately 134.99 sq.m.

The property is currently 200,000 vacant.

The four storerooms have a total gross floor area of approximately 22.77 sq.m. and twenty-four carports have a total gross floor area of approximately 559.14 sq.m.

The land use rights of the property were granted for a term expiring on 11 October 2071.

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Notes:

Pursuant to a State-owned land Use Rights Grant Contract, Ning Kai Tu Chu He (2001) No. 35 entered into between Economic and Technical Development Zone Branch of Land Administration Bureau of Ningbo (the “Grantor”) and Ningbo Huadu (the “Grantee”) on 2 July 2001, the land use rights of a parcel of land with a site area of approximately 14,540 sq.m. were granted to Ningbo Huadu for a term of 70 years at a consideration of RMB9,291,060 for residential uses.
Pursuant to a State-owned Land Use Rights Certificate, Ning Kai Guo Yong (2002) Zi Di No. 3754 issued by the People’s Government of Economic and Technical Development District Administration Authority of Ningbo on 19 October 2001, the land use rights of a parcel of land with a site area of 14,540 sq.m. were granted to the Grantee for a term of 70 years expiring on 11 October 2071 for residential uses.
In the valuation of this property, we have not attributed any commercial value to the 4 storerooms and 24 carports which have not been granted with proper title certificates. However, for reference purposes, we are of the opinion that the capital values of the 4 storerooms and 24 carports as at date of valuation would be RMB870,000 assuming all relevant title ownership certificates had been obtained.
Ningbo Huadu is a 50% interest-owned subsidiary of the APG Group.
We have been provided with a legal opinion regarding the property interests by the APG Group’s PRC legal advisers, which contains, inter alia , the following:
(i) After the residential unit A#37-202 is sold to a purchaser, the purchaser can apply for State-owned Land Use Rights Certificate and Building Ownership Certificate;
(ii) the 4 storerooms and 24 carports has to be purchased together with residential units in order to be eligible to apply for the State-owned Land Use Rights Certificates and the Building Ownership Certificates; and
(iii) Since the 4 storerooms and 24 carports have not been sold, relevant title ownership certificates have not been obtained.
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VALUATION CERTIFICATE

Group III – Property interest held under development by APG Group in the PRC

Description and tenure

Property

Huadu The property comprises a Apartments parcel of land with a site Xiaoganglianhe area of approximately Road South 10,061.5 sq.m. on which Beilun District are erected 6 composite Ningbo commercial/residential Zhejiang blocks with carparking Province area which are scheduled The PRC to be completed by the end of 3rd quarter of 2005.

Particulars of occupancy

The property is currently under construction.

Capital Value in existing state as at 31 March 2005

RMB

41,900,000

The buildings have a total planned gross floor area of approximately 15,660.7 sq.m. whilst the carparking area has a planned gross floor area of approximately 1,769.7 sq.m.

The land use rights of the property were granted for a term expiring on 7 June 2063 for residential uses.

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Notes:

Pursuant to a State-owned Land Use Rights Transfer Contract entered into between Ningbo United Group Holdings Co., Ltd. (寧波聯合集團股份有限公司 ) (the “Transferor”) and Ningbo Huadu (the “Transferee”) dated 18 June 2003, the land use rights of a parcel of land with a site area of approximately 10,317 sq.m. were transferred to the Transferee at a consideration of RMB9,563,869.
Pursuant to a Stated-owned Land Use Rights Certificate, Ningkai Guo Yong (2003) Zi Di No. 6610 issued by the People’s Government of Economic and Technical Development District Administration Authority of Ningbo on 24 August 2003, the land use rights of a parcel of land with a site area of approximately 10,061.5 sq.m. were granted to Ningbo Huadu for a term expiring on 7 June 2063 for residential uses.
Pursuant to a Construction Land and Planning Permission Certificate, No. (2003) Xi Gui (Di) Zheng 0204343 issued by Beilun Branch of Planning Bureau of Ningbo on 4 August 2003, the development is approved.
Pursuant to two Construction Works and Planning Permission Certificates, Nos. (2004) Xi Gui (Jian) Zheng 0204071 dated 4 March 2004 and (2004) Xi Gui (Jian) Zheng 0204198 dated 21 June 2004 issued by Beilun Branch of Planning Bureau of Ningbo, the total planned gross floor area of the property is 17,370.40 sq.m. and the details are set out below.

Particulars Gross Floor Area (Approx.) Residential 12,436.40 sq.m. Retail 2,802.30 sq.m. Amenities Building 422.00 sq.m. Carpark 1,769.70 sq.m.

Pursuant to two Construction Works Commencement Permission Certificates, Nos. 330206200403180601 dated 24 March 2004 and 330206200407290101 dated 6 September 2004, issued by Beilun District Construction Bureau of Ningbo City, the construction works were permitted to commence.
According to a Pre-sale permit, Lun Fang Xu Zi (2004) Di No. 32, issued by the Construction Bureau of Beilun District, Ningbo in August 2004, Blocks 1 to 5 of the property were permitted for sale.
As advised by the APG Group, the total estimated development cost of the property is RMB52,000,000 of which RMB27,620,000 had been paid and 70 % of the development had been completed as at the date of valuation.
Ningbo Huadu is an 50% interest-owned subsidiary of the APG Group.
We have been provided with a legal opinion regarding the property interests by the APG Group’s PRC legal advisers, which contains, inter alia , the following:
(i) the land use rights and building ownership rights of the property are legally owned by Ningbo Huadu;
(ii) the property is not subject to mortgage or any other encumbrances; and
(iii) Ningbo Huadu can freely lease, mortgage and transfer the property in accordance with the PRC laws and legislations.
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VALUATION CERTIFICATE

Group IV – Property interests held for future development by the APG Group in the PRC

Property

Description and tenure

Particulars of occupancy

Capital Value in existing state as at 31 March 2005

RMB

A parcel of land The property comprises a located at the parcel of land with a site East of Kangqi area of approximately Street and North 13,955 sq.m. of Kaiyuan Road Jindongxincheng The property is planned to District be developed into a Jinhua composite commercial and Zhejiang residential development Province with a total planned gross The PRC floor area of not more than 13,955 sq.m.

The property is currently vacant.

19,500,000

Construction is scheduled to commence in August 2005.

The land use rights of the property were granted for a term of 40 years expiring on 2 December 2044.

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Notes:

Pursuant to a Stated-owned Land Use Rights Grant Contract entered into between Land Resources Bureau of Jinhua and Zhang Ming Hai and Lin Zhou（張明海，林洲）on 3 December 2004, the land use rights of a parcel of land with a site area of approximately 13,955 sq.m. were granted to Zhang Ming Hai and Lin Zhou for a term of 40 years at a consideration of RMB16,746,000 for commercial uses.
Pursuant to a State-owned Land Use Rights Certificate, Jin Shi Guo Yong (2005) Di No.1-71908 issued by the People’s Government of Jinhua on 27 May 2005, the land use rights of a parcel of land with a site area of approximately 13,955 sq.m. were granted to Jinhua Huadu Property Co., Ltd. (“Jinhua Huadu”) (金華市華都置業有限公司 ) for a term of 40 years expiring on 2 December 2044.
According to the information provided by APG Group, Zhang Ming Hai and Lin Zhou owns 25% and 20% shares of Jinhua Huadu respectively. Jinhua Huadu is an 27.5% interest-owned subsidiary of APG Group.
We have been provided with a legal opinion regarding the property interests by the APG Group’s PRC legal advisers, which contains, inter alia , the following:
(i) Jinhua Huadu owns the land use rights of the property; and
(ii) Jinhua Huadu can freely lease, mortgage and transfer the property in accordance with the PRC laws and legislations.
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VALUATION CERTIFICATE

Property Description and tenure

A parcel of land The property comprises a located at He parcel of land with a site Dong Village area of approximately Yong Jiang 13,200 sq.m. County Jiangbei District The land use rights of the Ningbo property were granted for Zhejiang a term expiring on 17 Province March 2047. The PRC

Capital Value in existing state as at Particulars of 31 March 2005 occupancy RMB The property is 3,950,000 currently vacant.

Notes:

Pursuant to a document, (2000) Yongzhi Zi Di No. 592 dated 20 November 2002, Ningbo Huadu has obtained the land use rights of a parcel of land with a site area of approximately 13,200 sq.m. at a consideration of RMB3,400,000.
Pursuant to a Stated-owned Land Use Rights Certificate, Yong Bei Guo Yong (2003) Zi Di No. 0312 issued by the People’s Government of Jiangbei District of Ningbo on 17 January 2003, the land use rights of a parcel of land with a site area of approximately 13,200 sq.m. were granted to Ningbo Huadu for a term expiring on 17 March 2047 for industrial uses.
The property is subject to a mortgage for an amount of RMB4,060,000 is favour of Beilun Branch of Ningbo Commerce Bank Holdings Limited (寧波市商業銀行股份有限公司北侖支行 ).
Ningbo Huadu is an 50% interest-owned subsidiary of the APG Group.
We have been provided with a legal opinion regarding the property interests by the APG Group’s PRC legal advisers, which contains, inter alia , the following:
(i) the land use rights of the property are legally owned by Ningbo Huadu; and
(ii) Ningbo Huadu can freely lease, mortgage and transfer the property in accordance with the PRC laws and legislations.
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VALUATION CERTIFICATE

Group V – Property interest held for future development by the Group in the USA

			Capital Value
			in existing state
			as at
		Particulars of	31 March 2005
Property	Description and tenure	occupancy	RMB
10.LA County	The property comprises a	The property is currently	1,730,000
Assessor’s Parcel	parcel of land with a site	vacant.
No. 3023-026-	area of approximately 2.40
038	acre (9,712.46 sq.m.) for
Palmdale	future residential
California	development.
USA

Notes:

Pursuant to a grant deed nos. 050874792 and 051168311 dated 15 April 2005, the registered owner of the property is Compass Palmdale, LLC.
The property was purchased by the Group on 23 September 2004 at a consideration of USD210,000.
Compass Palmdale, LLC is a wholly-owned subsidiary of the Group.
Our valuation conclusion is reached having regard to the valuation report undertaken by Steven R. Norris, a qualified professional in Real Estate who has 25 years of valuation experience in respect of the properties in the USA and is a member of the Appraisal Institute and a counselor of Real Estate.
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VALUATION CERTIFICATE

Group VI – Property interests leased and occupied by the APG Group in the PRC

Property

Description and tenure

Particulars of

occupancy

Capital Value in existing state as at 31 March 2005

RMB

11.Unit 2903-F The property comprises a Ningbo unit on level 29 of a 35Baoshuiqu storey office building International completed in about 2002. Development Building The unit has a gross floor Beilun District area of approximately 20 Ningbo sq.m. Zhejiang Province The unit is leased to The PRC Ningbo Baoshuiqu Yafei Trading Co., Ltd. (“Ningbo Yafei”) (寧波保稅區亞飛貿易有限公司) from an independent third party for a year commencing from 28 April 2004 and expiring on 27 April 2005 at an annual rent of RMB20,000 exclusive of all outgoings.

The property is currently No commercial occupied by the Ningbo value Yafei for office purpose.

Notes:

Pursuant to a tenancy agreement entered into between Ningbo Bohai Business Co., Ltd. (寧波博海實業有限公司 ) (the “Lessor”) and Ningbo Yafei (the “Lessee”) on 28 April 2004, the property is leased to the Lessee for a term of a year commencing from 24 April 2004 and expiring on 27 April 2005 at a an annual rental of RMB20,000 exclusive of all outgoings.
Pursuant to a tenancy agreement entered into between the Lessor and the Lessee on 3 March 2005, Unit 2903-F is renewed for a further term of a year commencing from 28 April 2005 and expiring on 27 April 2006 at a an annual rental of RMB20,000 exclusive of all outgoings.
Ningbo Yafei is a wholly-owned subsidiary of the APG Group.
We have been provided with a legal opinion on the legality of the tenancy agreements to the property issued by the APG Group’s PRC legal adviser, which contains, inter alia , the following:
(i) the land use rights and building ownership rights of the property are legally owned by the Lessor. The Lessee has the rights to lease and use the property in accordance with the tenancy agreements; and
(ii) the terms and conditions of the tenancy agreements do not contravene the PRC laws and legislations and thus the tenancy agreements are legal, valid and binding on relevant parties upon signing.
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VALUATION CERTIFICATE

Property

Description and tenure

Particulars of occupancy

Capital Value in existing state as at 31 March 2005

RMB

12.Units 501, 504 The property comprises and 505 three conjoining units on Level 5 level 5 of an 8-storey Shanghai Hotel office building completed Office Block in about 1983. No. 505 Wulumuqi North The units have a total Road gross floor area of Jingan District approximately 680 sq.m. Shanghai The PRC The units are leased to Ningbo Phoenix and Shanghai Shengfei Automobile Sales & Services., Ltd. (“Shanghai Shengfei”) (上海聖飛汽車銷售服務有限公司） from two independent third parties for a common term of 2 years commencing from 1 January 2005 and expiring on 31 December 2006 at a total annual rental of RMB476,000 exclusive of all outgoings.

The property is currently No commercial occupied by the Ningbo value Phoenix and Shanghai Shengfei for office purpose.

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APPENDIX V

Notes:

Pursuant to a tenancy agreement entered into between Shanghai City Shanghai Hotel Co., Ltd. (上海市上海賓館有限公司 ) (the “Lessor”) and Ningbo Phoenix (the “Lessee 1”) signed on 29 November 2004 and 30 November 2004 respectively, unit 501 is leased to Lessee 1 for a term of 2 years commencing from 1 January 2005 at an annual rent of RMB336,000 exclusive of all outgoings.
Pursuant to a tenancy agreement entered into between the Lessor and Shanghai Xingtong Travel Co. Ltd. (上海行通旅遊有限公司 ) (the “Lessee 2”) signed on 29 November 2004, a portion of level 5 of Shanghai Hotel Office Block with a gross floor area of 190 sq.m. is leased to Lessee 2 for a term of 2 years commencing from 1 January 2005 and expiring on 31 December 2006 at an annual rental of RMB168,000 exclusive of all outgoings.
Pursuant to a supplementary tenancy agreement entered into between the Lessee 2 and Shanghai Shengfei (the “Sub-lessee”), units 504 and 505 together with a conference room with a total gross floor area of 100 sq.m. are leased to Sub-lessee for a term of 2 years commencing from 1 January 2005 and expiring on 31 December 2006 at an annual rental of RMB140,000 exclusive of all outgoings.
Ningbo Phoenix is a wholly-owned subsidiary of the APG Group.
Shanghai Shengfei is a 90% interest-owned subsidiary of the APG Group.
We have been provided with a legal opinion on the legality of the tenancy agreements to the property issued by the APG Group’s PRC legal adviser, which contains, inter alia , the following:
(i) the land use rights and building ownership rights of the property are legally owned by the Lessor. The Lessee 1 has the rights to lease and use unit 501 in accordance with the tenancy agreement mentioned in note 1. The Lessee 2 has the rights to lease or sublease while the Sub-lessee has the rights to lease and use units 504 and 505 and the conference room in accordance with the tenancy agreement and supplementary tenancy agreement mentioned in note 2 and 3 respectively; and
(ii) the terms and conditions of the tenancy agreements do not contravene the PRC laws and legislations and thus the tenancy agreements are legal, valid and binding on relevant parties upon signing.
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Property

Description and tenure

Capital Value in existing state as at Particulars of 31 March 2005 occupancy RMB

13.Unit 1801 The property comprises a Vanke unit on level 18 of an 18Commercial storey office building Plaza completed in about 2002. No. 37 Shuicheng South The unit has a gross floor Road area of approximately Shanghai 100.11 sq.m. The PRC

The property is currently No commercial occupied by Shanghai value Ningbo Meilide as an office.

The property is leased to Shanghai Branch of Ningbo Meilide Consultancy Co. Ltd. (“Shanghai Ningbo Meilide”) (寧波美立德咨詢有限公司上海分公司 ) from an independent third parties for a year commencing from 1 August 2004 and expiring on 31 July 2005 at a monthly rent of RMB8,000 exclusive of all outgoings.

Notes:

Pursuant to a tenancy agreement entered into between Zhuang Di Ping (莊滌萍 ) (the “Lessor”) and Shanghai Ningbo Meilide (the “Lessee”) on 20 July 2004, the unit is leased to the lessee for a term of a year commencing from 1 August 2004 and expiring on 31 July 2005 at a an annual rent of RMB8,000 exclusive of all outgoings.
Shanghai Ningbo Meilide is a wholly-owned subsidiary of the APG Group.
We have been provided with a legal opinion on the legality of the tenancy agreement to the property issued by the APG Group’s PRC legal adviser, which contains, inter alia , the following:
(i) the land use rights and building ownership rights of the property are legally owned by the Lessor. The Lessee has the rights to lease and use the property in accordance with the tenancy agreement; and
(ii) the terms and conditions of the tenancy agreement do not contravene the PRC laws and legislations and thus the tenancy agreement is legal, valid and binding on relevant parties upon signing.
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VALUATION CERTIFICATE

Description and tenure

Property

14.Podium level The property comprises a Shanghai Jiangsu podium level of a 23Hotel storey hotel building No. 888 Wuning completed in the 1990s. Road Shanghai The unit has a gross floor The PRC area of approximately 595.62 sq.m.

	Capital Value
	in existing state
	as at
Particulars of	31 March 2005
occupancy	RMB
The property is currently	No commercial
occupied by Shanghai	value
Yitong as a showroom.

The property is leased to Yitong Sales from an independent third party for a term of 2 years commencing from 1 December 2004 and expiring on 31 November 2006 at an annual rent of RMB500,000 exclusive of all outgoings.

Notes:

Pursuant to a tenancy agreement entered into between Shanghai Jiangsu Hotel (上海江蘇飯店 ) (the “Lessor”) and Shanghai Yitong (the “Lessee”) signed on 2 November 2004 and 29 October 2004 respectively, the unit is leased to the Lessee for a term of 2 years commencing from 1 December 2004 and expiring on 31 November 2006 at an annual rent of RMB500,000 exclusive of all outgoings.
Shanghai Yitong is a 51% interest-owned subsidiary of the APG Group.
We have been provided with a legal opinion on the legality of the tenancy agreements to the property issued by the APG Group’s PRC legal adviser, which contains, inter alia , the following:
(i) the land use rights and building ownership rights of the property are legally owned by the Lessor. The Lessee has the rights to lease and use the property in accordance with the tenancy agreement; and
(ii) the terms and conditions of the tenancy agreement do not contravene the PRC laws and legislations and thus the tenancy agreement is legal, valid and binding on relevant parties upon signing.
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VALUATION CERTIFICATE

Description and tenure

Property

15.Units 107, 108 The property comprises 3 and 109 units on level 1 of a 7- Block 47 storey office building No. 505 Wuning completed in about 1996. Road Shanghai The property has a total The PRC gross floor area of approximately 128 sq.m.

	Capital Value
	in existing state
	as at
Particulars of	31 March 2005
occupancy	RMB
The property is currently	No commercial
occupied by Shanghai	value
Yitong as a showroom.

The property is leased to Yitong Sales from an independent third party for a term commencing from 28 October 2004 and expiring on 31 December 2005 at a monthly rent of RMB16,200 exclusive of all outgoings.

Notes:

Pursuant to a tenancy agreement entered into between Shanghai Electrical Appliances Technology Research Institute (上海電器科技研究所 ) (the “Lessor”) and Shanghai Sanyin Technology Integrated Development Business Co., Ltd. (上海三銀科技綜合開發實業有限公司 ) (the “Lessee”), a portion of two blocks of buildings and a building located at Cao Yang Road with a total gross floor area of 2,073 sq.m. are leased to the Lessee for a term commencing from 1 January 2001 and expiring on 31 December 2005 at an annual rental of RMB100,000 for the first two years which will be increased by 10% in the third year.
Pursuant to a tenancy agreement entered into between the Lessee and Shanghai Yitong (the “Sub-lessee”) on 14 October 2004, the property is leased to Sub-lessee for a term commencing from 28 October 2004 and expiring on 31 December 2005 at a monthly rent of RMB16,200 exclusive of all outgoings.
Shanghai Yitong is a 51% interest-owned subsidiary of the APG Group.
We have been provided with a legal opinion on the legality of the tenancy agreements to the property issued by the APG Group’s PRC legal adviser, which contains, inter alia , the following:
(i) the land use rights and building ownership rights of the property are legally owned by the Lessor. The Lessee has the rights to lease, use and sub-lease the property while the sub-lessee has the rights to lease and use the property in accordance with the tenancy agreements; and
(ii) the terms and conditions of the tenancy agreements do not contravene the PRC laws and legislations and thus the tenancy agreements are legal, valid and binding on relevant parties upon signing.
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Property

Description and tenure

Capital Value in existing state as at Particulars of 31 March 2005 occupancy RMB

RMB

16.Unit B309 The property comprises a No. 459 unit on level 3 of a 6- Futexiyi Road storey office building Shanghai completed in the 1990s. Waigaoqiao Baoshui District The unit has a gross floor Shanghai area of approximately The PRC 23.27 sq.m.

The property is currently No commercial occupied by the Shanghai value Huanya for office purpose.

The property is leased to Shanghai Huanya Zhongjin International Trade Co., Ltd. (“Shanghai Huanya”) (上海環亞中進國際貿易有限公司 ) from an independent third party for a term commencing from 1 December 2003 and expiring on 30 November 2008 at an annual rent of RMB25,000 exclusive of all outgoings.

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Notes:

Pursuant to a tenancy agreement entered into between Shanghai Waigaoqiao Baoshuiqu Development Holdings Co., Ltd. (上海外高橋保稅區開發股份有限公司 ) (the “Lessor”) and Shanghai Waigaoqiao Automobile Trading Market Co., Ltd. (上海外高橋汽車貿易市場有限公司 ) (the “Lessee”) dated 12 November 2001, the whole building located at No. 459 Futexiyi Road with a gross floor area of 8,508.76 sq.m. is leased to the Lessee for a term of four years commencing from 28 February 2002 and expiring on 27 February 2006 at a monthly rental of USD31,057 exclusive of all outgoings. The monthly rental will be increased by 15% effective from the fourth year of the lease term.
Pursuant to a tenancy agreement entered into between the Lessee and Shanghai Huanya (the “Sub-lessee”) on 9 February 2004, the unit is leased for a term commencing from 1 December 2003 and expiring on 30 November 2005 at an annual rent of RMB25,000 exclusive of all outgoings.
Shanghai Huanya is a wholly-owned subsidiary of the APG Group.
We have been provided with a legal opinion on the legality of the tenancy agreements to the property issued by the APG Group’s PRC legal adviser, which contains, inter alia , the following:
(i) the land use rights and building ownership rights of the property are legally owned by the Lessor. The Lessee has the rights to lease, use and sublease while the Sub-lessee has the rights to lease and use the property in accordance with the tenancy agreements; and
(ii) the terms and conditions of the tenancy agreements do not contravene the PRC laws and legislations and thus the tenancy agreements are legal, valid and binding on relevant parties upon signing.
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VALUATION CERTIFICATE

Property

Description and tenure

Capital Value in existing state as at Particulars of 31 March 2005 occupancy RMB

RMB

17.A parcel of land, The property comprises a Level 1 and parcel of land with a site Level 2 of area of approximately Block 2 4,600 sq.m., and the whole No. 597 of levels 1 and 2 of a 6- Tianshan Road storey industrial building Changning erected on the subject District land, which was Shanghai completed in about 2002. The PRC

The property is currently No commercial occupied by the Shanghai value Jiaoyun as car showrooms and ancillary offices.

The two levels of the industrial building have a total gross floor area of approximately 1,000 sq.m.

The property is leased to Shanghai Jiaoyun Shengfei Automobile Sales & Services Co., Ltd. (“Shanghai Jiaoyun”) (上海交運聖飛汽車銷售服務有限公司 ) from an independent third party for 15 years commencing from 12 May 2003 and expiring on 11 May 2018 at an annual rent of RMB600,000 exclusive of all outgoings for the first two years and the rental for the remaining term to be agreed.

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Notes:

Pursuant to a tenancy agreement entered into between Shanghai Automobile Repair Company (上海市汽車修理公司 ) (the “Lessor”) and Shanghai Jiaoyun (the “Lessee”) dated 12 May 2003, the property is leased to the Lessee for a term of 15 years commencing from 12 May 2003 and expiring on 11 May 2018 at an annual rent of RMB600,000 exclusive of all outgoings for the first two years and the rental for the remaining term to be agreed.
As per our recent on-site inspection, the Lessee has constructed a car showroom with a gross floor area of approximately 3,610 sq.m. As confirmed by the Lessee, the Lessor is in the process of applying the Building Ownership Certificate for this showroom.
In the course of valuation, we have not attributed any commercial value to the showroom with a gross floor area of approximately 3,610 sq.m. However, for reference purposes, we are of the opinion that the depreciated replacement cost of the showroom as at the date of valuation would be RMB7,450,000 assuming all relevant title ownership certificates have been obtained without further payment of any premium, administration fee or tax etc.
Shanghai Jiaoyun is a 51% interest-owned subsidiary of the APG Group.
We have been provided with a legal opinion on the legality of the tenancy agreement to the property issued by the APG Group’s PRC legal adviser, which contains, inter alia , the following:
(i) the land use rights and building ownership rights of the property are legally owned by the Lessor. The Lessee has the rights to lease and use the property in accordance with the tenancy agreement;
(ii) the terms and conditions of the tenancy agreement do not contravene the PRC laws and legislations and thus the tenancy agreement is legal, valid and binding on relevant parties upon signing; and
(iii) Shanghai Jiaoyun enjoys the land use rights of the property so that it can construct buildings in accordance with the requirements of relevant government authority. The showroom mentioned in note 2 is under application for title ownership certificate. According to a document issued by the local government authority, the application for and commencement of the construction work complied with legal procedures. Relevant application fee for applying the title ownership certificates has been paid up. It is considered that Shanghai Jiaoyun has the rights to occupy, use, handle and lease the property with regards to the PRC laws and regulations and the Lessor can obtain relevant title ownership certificates without legal impediment.
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VALUATION CERTIFICATE

Property

Description and tenure

Particulars of occupancy

Capital Value in existing state as at 31 March 2005

RMB

18.A parcel of land The property comprises a located at parcel of land with a site the intersection area of approximately of 10,125 sq.m. Zhongxin South Road and The land is leased to Huancheng Ningbo Shengfei South Road Automobile Sales & Jiangdong Services., Ltd. (“Ningbo District Shengfei”) (寧波聖菲汽 Ningbo 車銷售服務有限公司 ) Zhejiang from an independent third Province party for a term of 20 The PRC years commencing from 30 June 2004 and expiring on 29 June 2024 at an annual rent of RMB600,000 exclusive of all outgoings.

The property is currently No commercial under construction and value will be occupied by Ningbo Shengfei as a showroom.

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Notes:

Pursuant to a tenancy agreement entered into between Ningbo Jiangdong Fuyuan Electrical Appliances Manufacturing Co., Ltd. (寧波市江東福源電器制造有限公司 ) (the “Lessor”) and Ningbo Kunyuan Automobile Sales & Service Co., Ltd. (寧波市坤源汽車銷售服務有限公司 ) (the “Lessee”) dated 28 February 2004, a parcel of land with a site area of approximately 30,700 sq.m. is leased to the Lessee for a term of 20 years commencing from 1 March 2004 and expiring on 29 February 2024, with an option to renew the term, at an annual rental of RMB138,150 exclusive of all outgoings.
Pursuant to a tenancy agreement entered into between the Lessee and Ningbo Shengfei (the “Sub-lessee”) on 1 July 2004, a parcel of land with a site area of approximately 10,125 sq.m. is leased to the Sub-lessee for a term of 20 years commencing from 25 June 2004 at an annual rent of RMB600,000 exclusive of all outgoings.
As per our recent on-site inspection, a showroom is currently under construction on site by the Sub-lessee with an estimated gross floor area of approximately 4,000 sq.m. and is scheduled to be completed in the 2nd quarter of 2005.
As advised by the APG Group, the total estimated construction cost of the showroom is about RMB3,550,000 of which RMB2,850,000 has been paid as at the date of valuation.
Ningbo Shengfei is a 51% interest-owned subsidiary of the APG Group.
We have been provided with a legal opinion on the legality of the tenancy agreements to the property issued by the APG Group’s PRC legal adviser, which contains, inter alia , the following:
(i) The land use rights of the property is legally owned by the Lessor. The Lessee has the rights to lease, use and sublease while the Sub-lessee has the rights to lease and use the property in accordance with the tenancy agreements;
(ii) the terms and conditions of the tenancy agreement do not contravene the PRC laws and legislations and thus the tenancy agreements are legal, valid and binding on relevant parties upon signing; and
(iii) Ningbo Shengfei enjoys the land use rights of the property. The showroom mentioned in note 3 is under application for title ownership certificate. The application for and commencement of the construction work complied with legal procedures. Relevant application fee for applying the title ownership certificates has been paid up. It is considered that Ningbo Shengfei has the rights to occupy, use, handle and lease the property with regards to the PRC laws and regulations and the Lessor can obtain relevant title ownership certificates without legal impediment.
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VALUATION CERTIFICATE

Property

Description and tenure

Capital Value in existing state as at Particulars of 31 March 2005 occupancy RMB

RMB

19.C-7 and an

The property comprises ancillary office two conjoining portions of and display area and two C-9 and an ancillary offices of a ancillary office single storey showroom Section C of completed in about 2004. Ningbo Century Carcity The two portions of Showroom showroom and ancillary Jiangdong office have a total gross District floor area of Ningbo approximately 600 sq.m. Zhejiang Province The property is leased to The PRC Shanghai Volkswagen Ningbo Sales & Services Co., Ltd. (“Shanghai Ningbo”) (上海大眾汽車寧波銷售服務有限公司) and Ningbo Shengfei from an independent third party for a common term of 2 years commencing from 25 June 2004 and expiring on 24 June 2006 at a total annual rent of RMB373,280 exclusive of all outgoings.

The property is currently No commercial occupied by the Shanghai value Ningbo and Ningbo Shengfei as car showrooms and ancillary offices.

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Notes:

Pursuant to a tenancy agreement entered into between Ningbo Century Car City Service Co., Ltd. (寧波市世紀轎車城服務有限公司 ) (the “Lessor”) and Shanghai Ningbo (the “Lessee 1”) on 26 June 2004, C-7 and ancillary office are leased to Lessee 1 for a term of 2 years commencing from 25 June 2004 and expiring on 24 June 2006 at an annual rent of RMB186,640 exclusive of all outgoings.
Pursuant to a tenancy agreement entered into between the Lessor and Ningbo Shengfei (the “Lessee 2”) on 8 July 2004, C-9 and ancillary office are leased to Lessee 2 for a term of 2 years commencing from 25 June 2004 and expiring on 24 June 2006 at a an annual rent of RMB186,640 exclusive of all outgoings.
Shanghai Ningbo is a 51% interest-owned subsidiary of the APG Group.
Ningbo Shengfei is a 51% interest-owned subsidiary of the APG Group.
We have been provided with a legal opinion on the legality of the tenancy agreements to the property issued by the APG Group’s PRC legal adviser, which contains, inter alia , the following:
(i) the land use rights and building ownership rights of the property are legally owned by the Lessor. The Lessee 1 and Lessee 2 have the rights to lease and use the property in accordance with the tenancy agreements; and
(ii) the terms and conditions of the tenancy agreements do not contravene the PRC laws and legislations and thus the tenancy agreements are legal, valid and binding on relevant parties upon signing.
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VALUATION CERTIFICATE

Description and tenure

Property

20.A parcel of land The property comprises a and various parcel of land with a site buildings area of approximately located at 7,144.67 sq.m. on which No. 178 are erected 9 industrial Xingning Road buildings completed in Jiangdong various stages between District 1999 and 2004. Ningbo Zhejiang The buildings have a total Province gross floor area of The PRC approximately 5,897.55 sq.m.

The property is leased to Shanghai Ningbo for a term commencing from 31 December 2001 and expiring on 30 December 2018 at an annual rental of RMB399,800 exclusive of all outgoings.

Particulars of occupancy

The property is currently occupied by Shanghai Ningbo as showroom and car-repairing purposes.

Part of the car-repairing workshop is sublet to Ningbo Shengfei for a term of 3 years commencing from 1 October 2003 and expiring on 30 September 2006 at an annual rent of RMB100,000 exclusive of all outgoings.

Capital Value in existing state as at 31 March 2005

RMB

No Commercial Value

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Notes:

Pursuant to a tenancy agreement entered into between Ningbo Jiangdong District Dongjiaoxiang Chouhua Village Economic Cooperation Administration Authority (寧波市江東區東郊鄉仇華村經濟合作社管理委員會 ) (the “Lessor”) and Shanghai Ningbo (the “Lessee”) on 9 July 2003, a parcel of land with a site area of approximately 7,144.67 sq.m. and various buildings with a total gross floor area of approximately 4,864.13 sq.m. are leased to the lessee for a term commencing from 31 December 2001 and expiring on 30 December 2018 at an annual rental of RMB399,800 exclusive of all outgoings. The rental will be reviewed every three years at a percentage change between 8% and 10% of the rental. The Lessee has obtained the consent of the Lessor to demolish a building with a gross floor area of 745 sq.m. and reconstruct it into a showroom with a gross floor area of 1,362 sq.m. without changes in the rental. Pursuant to a supplementary agreement of tenancy agreement dated 3 June 2005, the annual rental has been reviewed to RMB439,780 effective for the period between 31 December 2004 and 30 December 2007.
Pursuant to a tenancy agreement entered into between the Lessee and Ningbo Shengfei (the “Sub-lessee”) on 1 October 2003, portion of the car-repairing workshop with a gross floor area of approximately 500 sq.m. is leased to the Sub-lessee for a term of 3 years commencing from 1 October 2003 and expiring on 30 September 2006 at an annual rent of RMB100,000 exclusive of all outgoings.
As per our inspection, there are 9 buildings with a total gross floor area of approximately 5,897.55 sq.m. of which 5,481.13 sq.m. are mentioned in the tenancy agreement in note 1. The additional floor area of 416.42 sq.m. is constructed by Shanghai Ningbo.
In the course of valuation, we have not attributed any commercial value to 9 buildings with a total gross floor area of 5,897.55 sq.m. However, for reference purposes, we are of the opinion that the depreciated replacement cost of the buildings as at the date of valuation would be RMB5,660,000 assuming all relevant title ownership certificates have been obtained without further payment of any premium, administration fee or tax etc.
Shanghai Ningbo is a 51% interest-owned subsidiary of the APG Group.
Ningbo Shengfei is a 51% interest-owned subsidiary of the APG Group.
We have been provided with a legal opinion on the legality of the tenancy agreements to the property issued by the APG Group’s PRC legal adviser, which contains, inter alia , the following:
(i) the building ownership rights of the property are legally owned by the Lessor. The Lessee and Sub-Lessee have the rights to lease and use the property in accordance with the tenancy agreements.
(ii) the terms and conditions of the tenancy agreements do not contravene the PRC laws and legislations and thus the tenancy agreements are legal, valid and binding on relevant parties upon signing;
(iii) the buildings with a gross floor area of 4,170.58 sq.m. are included in title ownership certificates and that of 693.55 sq.m. are under application for relevant title ownership certificates. According to a document issued by the local government authority, the application for and commencement of the construction work complied with legal procedures;
(iv) the Lessee enjoys the extension of gross floor area of 617 sq.m. of the newly constructed showroom without increase in the rental;
(v) the Lessee can claim for compensation for the extension of gross floor area of 617 sq.m. of the newly constructed showroom if it was demolished due to Urban Planning;
(vi) The application for and commencement of the construction work of the extension of gross floor area of 617 sq.m. complied with legal procedure and is under application for relevant title ownership certificate. The Lessee enjoys the rights to occupy, use handle and lease the property with regards to the PRC laws and regulations; and
(vii) Shanghai Ningbo has constructed an additional building with a gross floor are of 416.42 sq.m. which are under application for relevant title ownership certificate. Shanghai Ningbo enjoys the land use rights of the property. The application for and commencement of the construction work complied with legal procedures and relevant application fee for applying the title ownership certificates has been paid up. It is considered that Shanghai Ningbo has the rights to occupy, use, handle and lease the property with regards to the PRC laws and regulations and the Lessor can obtain relevant title ownership certificates without legal impediment.
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VALUATION CERTIFICATE

Property

Description and tenure

Capital Value in existing state as at Particulars of 31 March 2005 occupancy RMB

RMB

21.A parcel of land The property comprises a located at parcel of land with a site Hai Nan Village area of approximately Dong Jiao Town 56,976.93 sq.m. on which Fang Cun District are erected 6 showrooms Guangzhou with a total gross floor The PRC area of approximately 21,135.90 sq.m. completed in various stages between 2003 and 2004.

Of the 6 showrooms, 5 of No commercial them are currently value occupied by Guangzhou Shenfei.

The land is leased to Guangzhou Shenfei Automobile Sales & Services Co., Ltd. (“Guangzhou Shenfei”) (廣州申飛汽車銷售服務有限公司 ) from an independent third party for a term commencing from 15 February 2003 and expiring on 14 December 2023 at a monthly rental of RMB3.8 per sq.m. for the first three years and the rent will be increased by 13.99% for every three years thereafter, exclusive of all outgoings.

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Notes:

Pursuant to a tenancy agreement entered into between Guangzhou Fangcun District Dongjiao Town Hainan Villagers Authority (廣州市芳村區東桝鎮海南村民委員會 ) (the “Lessor”) and Guangzhou Shenfei (the “Lessee”) on 19 January 2003 and a supplementary tenancy agreement on 15 February 2003, a parcel of land with a site area of approximately 56,976.93 sq.m. is leased to the Lessee for a term commencing from 15 February 2003 and expiring on 14 December 2023. The detail of the rental schedule is tabulated below:

Year	Monthly rental per sq.m. (RMB)	Monthly rental (RMB)
1st to 3rd year	3.80	216,512.33
4th to 6th year	4.33	246,710.11
7th to 9th year	4.94	281,466.03
10th to 12th year	5.63	320,780.12
13th to 15th year	6.42	365,791.89
16th to 18th year	7.31	416,501.36
19th to 21st year	8.34	475,187.60

All are exclusive of all outgoings for the whole lease period

Pursuant to a Construction Land and Planning Permission Certificate, Sui Cheng Gui Nan Pian Di Zi 1995 Di No. 12 dated 19 May 1995 issued by Urban Planning Bureau of Guangzhou, a parcel of land with a site area of 141,513 sq.m. located at Hai Nan Village, Dong Jiao Town, Fang Cun District, Guangzhou, the PRC was approved for industrial and/or commercial uses. A portion of the 141,531 sq.m. of land is leased by the Lessee as mentioned in note 1.

Pursuant to 6 Construction Works and Planning Permission Certificates, Sui Fang Gui Jian (2003) nos. 17 and 21 dated 30 May 2003, 69 and 127 dated 31 January 2005, 128 and 129 dated 28 February 2005 issued by Branch of Fang Cun District of Urban Planning Bureau of Guangzhou, the construction of 7 showrooms and an electricity distribution room with a total gross floor area of 25,550.9 sq.m. was approved.

In the course of valuation, we have not attributed any commercial value to the 6 showrooms with a gross floor area of 21,135.90 sq.m. However, for reference purposes, we are of the opinion that the depreciated replacement cost of the 6 showrooms as at the date of valuation would be RMB42,100,000 assuming all relevant title ownership certificates have been obtained without further payment of any premium, administration fee or tax etc.

As advised by the client, the construction work of a showroom and an electricity distribution room has been stopped since May 2004.
Guangzhou Shenfei is a 63.32% interest-owned subsidiary of the APG Group.
We have been provided with a legal opinion on the legality of the tenancy agreements to the property issued by the APG Group’s PRC legal adviser, which contains, inter alia , the following:
(i) the land ownership rights and land use rights of the subject land are legally owned by the Lessor. The Lessee has the rights to lease and use the land in accordance with the tenancy agreement and supplementary tenancy agreement (hereinafter together referred to as the “Agreements”);
(ii) the terms and conditions of the Agreements do not contravene the PRC laws and legislations and thus the Agreements are legal, valid and binding on relevant parties upon signing; and
(iii) Guangzhou Shenfei enjoys the land use rights of the property within the lease term specified in note 1 and can construct buildings on the subject land. The six showrooms mentioned in note 3 are under application for title ownership certificate. The application for and commencement of the construction work complied with legal procedures. Relevant application fee for applying the title ownership certificates has been paid up. (Guangzhou Fangcun District Dongjiao Town Hainan Villagers Authority has issued a document to act as a proof, which is a legal document.) It is considered that Guangzhou Shenfei has the rights to occupy, use, handle and lease the property with regards to the PRC laws and regulations and the Lessor can obtain relevant title ownership certificates without legal impediment.
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VALUATION CERTIFICATE

Group VII – Property interest leased and occupied by the Group in Hong Kong

Description and tenure

Property

22.Suites 612-617 The property comprises 6 6th Floor units on the 6th floor of a Hutchison House 23-storey office building No. 10 Harcourt completed in about 1974. Road Central The units have a total Hong Kong saleable floor area of approximately 307.84 sq.m.

Particulars of occupancy

The property is currently occupied by the Group for office purposes.

Capital Value in existing state as at 31 March 2005

RMB

No Commercial Value

The property is leased to Parkwell (Hong Kong) Limited from Hongville Limited, an independent third party, for a term of 2 years commencing from 19 July 2003 and expiring on 18 July 2005, at a monthly rental of HK$83,550 exclusive of rates and all other outgoings.

177 -

VALUATION REPORT

APPENDIX V

Notes:

Pursuant to a Tenancy Agreement entered into between Hongville Limited (the “Lessor”) and Parkwell (Hong Kong) Limited (the “Lessee”) dated 22 May 2003, the property is leased to the Lessee for a term of 2 years commencing from 19 July 2003 and expiring on 18 July 2005 at a monthly rental of HK$83,550 exclusive of rates and all other outgoings.
The registered owner of the property is Hongville Limited vide Memorial No. UB5919046 dated 10 August 1994.
The Tenancy Agreement of the property has been duly stamped with the Stamp Duty Office.
Parkwell (Hong Kong) Limited is a wholly-owned subsidiary of the Group.
178 -

VALUATION REPORT

APPENDIX V

VALUATION CERTIFICATE

Group VIII – Property interest leased and occupied by the Group in the USA

Property

Description and tenure

Particulars of

occupancy

Capital Value in existing state as at 31 March 2005

RMB

23.55 S Lake The property comprises a Avenue unit on the 6th floor of a Suite 630 9-storey office building Pasadena completed in about 1991. California USA The unit has a lettable floor area of 4,580 sq.ft.

The property is currently occupied by American Compass for office purpose.

No commercial value

The unit is leased to Medibiotech Co. Inc (“Medibiotech”) which then subleased the property to American Compass Inc. (“American Compass”) for a term of 62 months commencing from 8 June 2003 at a monthly rental of USD11,450 exclusive of all outgoings.

Notes:

Pursuant to an Office Sublease Agreement dated 8 June 2003, Medibiotech lease the property first and then sublease the property to American Compass for a term of 62 months commencing from 8 June 2003 at a monthly rental of USD11,450 exclusive of all outgoings.
American Compass is a wholly-owned subsidiary of the Group.
Pursuant to three grant deeds nos. 992333671, 992333672 and 992333673 all dated 14 December 1999, the registered owner of the property is Pasadena Towers, L.L.C.
Our valuation conclusion is reached having regard to the valuation report undertaken by Steven R. Norris, a qualified professional in Real Estate who has 25 years of valuation experience in respect of the properties in the USA and 25 a member of the Appraisal Institute and a counselor of Real Estate.
179 -

GENERAL INFORMATION

APPENDIX VI

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief there are no other facts the omission of which would make any statement herein misleading.

2. SHARE CAPITAL

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

Authorised: 3,000,000,000 Shares of HK$0.10 each Issued as fully paid or credited as fully paid and to be issued: 1,895,451,000 Shares as at the Latest Practicable Date 548,792,263 Consideration Shares to be issued 2,444,243,263 Shares immediately following Completion	HK$ 300,000,000

	HK$ 189,545,100 54,879,226
	244,424,326

No part of the share capital of the Company is listed or dealt in on any stock exchange other than the Stock Exchange and no application is being made or is currently proposed or sought for the Shares to be listed or dealt in on any other stock exchange.

Save as disclosed in this circular, as at the Latest Practicable Date, there is no outstanding debt, option or warrant of the Company.

180 -

GENERAL INFORMATION

APPENDIX VI

3. DISCLOSURE OF INTERESTS

(a) Director’s Interests or Short Positions in the Shares

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

			Number of
Name of Director	Note	Nature of interest	Shares interested
Mr. Yung Yeung	1	corporate interest	945,456,600
Mr. Yung Yeung	3	personal interest	31,570,000
Mr. Jun Li	3	personal interest	18,940,000
Mr. Chunhua Huang	3	personal interest	18,940,000
Mr. Chunhua Huang	2	corporate interest	945,456,600
Mr. Yuwen Sun	2	corporate interest	945,456,600
Mr. Yuwen Sun	3	personal interest	18,940,000
Mrs. Chizuko Kubo	3	personal interest	5,000,000

Notes:

All these interests represent long positions. These 945,456,600 Shares are beneficially owned by Sun East LLC, a company which is held as to 35% by Mr. Yung Yeung and as to 65% by Mr. Chunhua Huang and Mr. Yuwen Sun as trustees for certain trusts established for the benefit of the children of Mr. Yung Yeung. Mr. Yung Yeung is deemed to be interested in the 945,456,600 Shares by virtue of his interest in Sun East LLC.
All these interests represent long positions. These 945,456,600 Shares are beneficially owned by Sun East LLC, a company which is held as to 35% by Mr. Yung Yeung and as to 65% by Mr. Chunhua Huang and Mr. Yuwen Sun as trustees for certain trusts established for the benefit to the children of Mr. Yung Yeung. Mr. Chunhau Huang and Mr. Yuwen Sun are deemed to be interested in the 945,456,600 Shares by virtue of their interest in Sun East LLC.
Such number of Shares represents the underlying shares of the options granted under (i) the share option scheme of the Company adopted on 15 March, 1995 (which was terminated pursuant to a resolution of the Shareholders passed on 12 June 2003 and replaced by the new share option scheme adopted on 12 June 2003) and (ii) the new share option scheme adopted on 12 June 2003.
181 -

GENERAL INFORMATION

APPENDIX VI

In addition to the above, Mr. Jun Li has non-beneficial personal equity interests in certain subsidiaries held for the benefit of the Company solely for the purpose of complying with the minimum company membership requirements.

Save as disclosed above, as at the Latest Practicable Date, none of the directors or chief executives had any interests or short positions in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the measuring of Part XV of the SFO) which are required (a) 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 are taken or deemed, to have such provisions of the SFO); (b) pursuant to Section 352 of the SFO, to be entered in the register referred to therein; or (c) pursuant to the Model Code for Securities Transactions by Directors of Listed Companies in the Listing Rules to be notified to the Company and the Stock Exchange.

(b) Competing Interests

As at the Latest Practicable Date, none of the Directors nor their respective associates have any interest in any business, which may compete with the business of the Group.

(c) Directors’ Interests in Assets of the Group

As at the Latest Practicable Date, none of the Directors has any direct or indirect interests in any assets which have been acquired or disposed of 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 December 2004, the date to which the latest published audited consolidated financial statements of the Group were made up.

(d) Director’s Interests in Contracts of the Group

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

182 -

GENERAL INFORMATION

APPENDIX VI

4. SUBSTANTIAL SHAREHOLDERS

So far as it is known to any Directors, chief executives of the Company, as at the Latest Practicable Date, Shareholders (other than Directors or chief executive of the Company) who have interests or short positions in the Shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO were as follows:

Name	Note	Number of Shares	Percentage
Sun East LLC	1	945,456,600	49.88%
Pure Shine Limited (“PSL”)		162,951,000	8.60%
Brilliance China Automotive
Holdings Limited (“BCA”)	2	162,951,000	8.60%

Note:

Sun East LLC is a company owned as to 35% by Mr Yung Yeung and 65% by Mr Chunhua Huang and Mr Yuwen Sun as trustees for certain trusts established for the benefit of the children of Mr Yung Yeung.
PSL is a wholly-owned subsidiary of BCA. By virtue of BCA’s interest in PSL, BCA is deemed to be interested in the Shares held by PSL.

Save as disclosed above, as at the Latest Practicable Date, the Directors or chief executive of the Company are not aware of any other person (other than Directors or chief executive of the Company) who has an interest or short positions in the Shares or underlying shares of the Company which would fall to be disclosed to the Company under Divisions 2 and 3 of Part XV of the SFO or which were required, pursuant to section 336 of Part XV of the SFO, to be entered in the register referred to therein, or who is interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meeting of any other member of the Group.

5. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors has a service contract with the Company or any of its subsidiaries or associated companies which is not expiring or which may be terminated within one year without payment of compensation other than statutory compensation.

6. LITIGATION

On 1st December, 2003, the PRC joint venture partner of Shanghai Whimsy Amusement Co., Limited (“Shanghai JV”), a subsidiary of the Company, commenced proceedings in Shanghai against Shanghai JV alleging claims for guaranteed profits of approximately HK$454,000. Kristal Profits Limited (“KPL”), the holding company of the Shanghai JV, which is also a subsidiary of the Company has been joined as defendant in the same proceedings. The court held a hearing on 31 March 2005 but KPL has not yet received the judgment thereof. For prudence sake, a provision has been made in the financial statement of the Group in respect of such guaranteed profits.

183 -

GENERAL INFORMATION

APPENDIX VI

On 4 November 2004, the PRC joint venture partner of Wuxi Whimsy Amusement Co., Limited (“Wuxi JV”), a subsidiary of the Company, commenced proceedings against Wuxi JV alleging claims of legal fee of approximately HK$94,000, together with the cancellation of the Wuxi JV joint venture agreement and the liquidation of Wuxi JV. The Directors, after taking legal advice, are contesting this claim and the outcome of this claim cannot be determined with reasonable certainty at this stage.

Save as disclosed above, as at the Latest Practicable Date, there is no litigation or claims of material importance pending or threatened against any member of the Group.

7. EXPERTS

The following is the qualification of the professional advisers who have given their opinion or advice or report which is contained in this circular:

Name	Qualification
Sallmanns (Far East) Ltd.	Property Valuers
CCIF CPA Limited	Certified Public Accountants
Beijing Forever Law Firm	PRC legal advisers

As at the Latest Practicable Date, each of the above experts has given and has not withdrawn its consent to the issue of this circular with the inclusion herein of its letter(s) of advice or report and/or valuation certificate and/or opinion and/or references to its names in the form and context in which they appear.

As at the Latest Practicable Date, each of the above experts does not have any shareholding in any member of the Group or any right or option (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any members of the Group.

As at the Latest Practicable Date, each of the above experts does not have any direct or indirect interests in any assets which have been acquired or disposed of 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 December 2004, the date of which the latest published audited consolidated financial statements of the Group were made up.

8. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2004, the date to which the latest published audited consolidated financial statements of the Group were made up. The Directors are also of the view that the working capital available to the Group is sufficient.

184 -

GENERAL INFORMATION

APPENDIX VI

9. MATERIAL CONTRACTS

As at the Latest Practicable Date, the following contracts (not being contracts entered into in the ordinary course of business) were entered into by member of the Group within the two years immediately preceding the date of this circular and are, or may be, material:

(a) the 1st Acquisition Agreement;
(b) the 2nd Acquisition Agreements;
(c) the underwriting agreement dated 30 June 2003 between the Company and Sinomax Securities Limited pursuant to which Sinomax Securities Limited had fully underwritten all of the offer shares issued under the open offer of the Company held on 23 July 2003; and
(d) the loan agreement dated 20 September 2004 between American Compass Inc., a whollyowned subsidiary of the Company, as lender and APG as borrower of a term loan facility of US$5.6 million. The loan bears interest at the rate of five per cent. per annum and is secured by a share mortgage of 25% equity interest of a subsidiary of APG. The loan was originally scheduled to be fully repayable on 24 December 2004 but is now agreed to be set off against the consideration of the 1st Acquisition Agreement upon the completion thereof.

Save for the aforesaid material contracts, no material contract has been entered into by the Group (not being contracts entered into in the ordinary course of business) within two years immediately from the Latest Practicable Date which are or may be material.

10. GENERAL

(a) The company secretary and qualified accountant of the Company is Mr. Wing Tak Law Jack who is also an executive director and chief financial officer of the Company. Mr. Wing Tak Law Jack is a member of the Institute of Chartered Accountants in England & Wales and Hong Kong Institute Certified Accountants.
(b) The registered office of the Company is located at Canon’s Court, 22 Victoria Street, Hamilton HM 12, Bermuda. The principal office is located at Suites 612-617, 6th Floor, Hutchison House, 10 Harcourt Road, Central, Hong Kong.
(c) The principal share registrar and transfer office of the Company is The Bank of Bermuda Limited at 6 Front Street, Hamilton HM11, Bermuda.
(d) The Hong Kong branch share registrar and transfer office of the Company is Computershare Hong Kong Investor Services Limited at Shops 1901-5, 19th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong.
(e) In the event of inconsistency, the English text of this circular shall prevail over the Chinese text.
185 -

GENERAL INFORMATION

APPENDIX VI

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours at the principal place of business in Hong Kong of the Company at Suites 612-617, 6th Floor, Hutchison House, 10 Harcourt Road, Central, Hong Kong, from the date of this circular up to and including 16 July 2005 and at the SGM:

(a) the memorandum and articles of association of the Company;
(b) the material contracts referred to in paragraph 9 of this Appendix;
(c) the annual reports of the Company for the year ended 31 December 2003 and 31 December 2004;
(d) the accountants’ report on the APG Group prepared by CCIF CPA Limited, the text of which is set out in Appendix II to this circular;
(e) the accountants’ report on the Ningbo Phoenix Group prepared by CCIF CPA Limited, the text of which is set out in Appendix III to this circular;
(f) the report on the unaudited pro forma financial information of the Enlarged Group prepared by CCIF CPA Limited, the text of which is set out in Appendix IV to this circular;
(g) the valuation report prepared by Sallmanns (Far East) Ltd., the text of which is set out in Appendix V to this circular;
(h) the legal opinion prepared by Beijing Forever Law firm which is referred to in this circular; and
(i) the letters of consent referred to in the section headed “Experts” in this Appendix.
186 -

NOTICE OF SPECIAL GENERAL MEETING

==> picture [257 x 49] intentionally omitted <==

(Incorporated in Bermuda with limited liability) (Stock Code: 1188)

NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that a special general meeting of Compass Pacific Holdings Limited (the “Company”) will be held at Suites 612-617, 6th Floor, Hutchison House, 10 Harcourt Road, Central, Hong Kong on Monday, 18 July 2005 at 9:30 a.m. or any adjournment thereof for the purpose of considering and, if thought fit, passing (with or without amendments) the following as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

RESOLUTION 1

“ THAT

a. the subscription agreement dated 11 March 2005 between American Compass, Inc. as subscriber and American Phoenix Group, Inc. as supplemented by an extension letter dated 12 May 2005 (“1st Acquisition Agreement”) relating to, inter alia, the subscription of shares in the share capital of American Phoenix Group, Inc. and all transactions contemplated thereunder be and are hereby approved, confirmed and ratified; and
b. any one director of the Company be and is hereby authorized to sign, seal, execute, perfect and deliver any documents and to do all such acts, matters and things as he may in his discretion consider necessary or expedient or desirable in connection with and for the purposes of implementing, completing and giving effect to the 1st Acquisition Agreement and the transactions contemplated thereunder.”

RESOLUTION 2

“ THAT

a. the 39 sets of sale and purchase agreement all dated 11 March 2005 between 37 individuals and two limited liability companies as vendors and American Compass, Inc. as purchaser as supplemented by their respective extension letters all dated 12 May 2005 (“2nd Acquisition Agreements”) relating to, inter alia, the sale and purchase of shares in the existing issued share capital of American Phoenix Group, Inc. and all transactions contemplated thereunder be and are hereby approved, confirmed and ratified; and

* For identification purpose only

187 -

NOTICE OF SPECIAL GENERAL MEETING

b. any one director of the Company be and is hereby authorized to sign, seal, execute, perfect and deliver any documents and to do all such acts, matters and things as he may in his discretion consider necessary or expedient or desirable in connection with and for the purposes of implementing, completing and giving effect to the 2nd Acquisition Agreements and the transactions contemplated thereunder including, without limitation, the allotment and issue of such number of new shares of the Company to the vendors thereof in accordance with the terms of the 2nd Acquisition Agreements.”

By Order of the Board COMPASS PACIFIC HOLDINGS LIMITED Law Wing Tak Jack Director

Hong Kong, 28 June 2005

Registered Office Principal Place of Business in Hong Kong Canon’s Court Suites 612-617, 6th Floor 22 Victoria Street Hutchison House Hamilton HM 12 10 Harcourt Road, Central Bermuda Hong Kong

Notes:

Any shareholder of the Company entitled to attend and vote at the special general meeting is entitled to appoint one or more proxies to attend and, in the event of a poll, to vote in his stead. A proxy need not be a shareholder of the Company.
In order for it to be valid, the form of proxy, accompanied by a power of attorney or other authority (if any) under which it is signed or a notarially certified copy of that power or authority, must be completed and returned in accordance with the instructions printed thereon.
188 -

AI assistant

Hybrid Kinetic Group Limited — Proxy Solicitation & Information Statement 2005

49754_rns_2005-06-29_ca6b88f8-1ce1-431e-81ff-658f51fe49b6.pdf

ACQUISITION OF APG VERY SUBSTANTIAL TRANSACTION

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

ACQUISITION OF APG VERY SUBSTANTIAL TRANSACTION

INTRODUCTION

A. THE 1ST ACQUISITION AGREEMENT

Date

Parties

Subscription Shares

Ranking

Consideration

Conditions

LETTER FROM THE BOARD

B. THE 2ND ACQUISITION AGREEMENTS

Date

Parties

Sale Shares

Consideration

The Issue Price

Conditions

COMPLETION OF THE ACQUISITIONS

SHAREHOLDING STRUCTURE BEFORE AND AFTER COMPLETION

APG

The Company

INFORMATION ON THE APG GROUP

General

Structure of the APG Group

Notes:

Businesses of the APG Group

Financial information of APG Group

REASONS FOR THE 1ST ACQUISITION AND THE 2ND ACQUISITION

LETTER FROM THE BOARD

BOARD OF DIRECTORS

FINANCIAL EFFECTS OF THE ACQUISITIONS ON THE GROUP

(a) Assets and liabilities

(b) Earnings

DISCUSSION AND ANALYSIS OF THE PERFORMANCE OF THE GROUP AND NINGBO PHOENIX GROUP

The Group

For the year ended 31 December 2002

Business review

Financial review

For the year ended 31 December 2003

Business review

Financial review

For the year ended 31 December 2004

Business review

Financial review

The Ningbo Phoenix Group

For the year ended 31 December 2002

For the year ended 31 December 2003

For the year ended 31 December 2004

Directors’ view on the modified opinion made by the reporting accountant

Background

Directors’ view

Prospect of the Enlarged Group

THE SGM

PROCEDURE TO DEMAND POLL

RECOMMENDATION

CONSOLIDATED INCOME STATEMENT

CONSOLIDATED BALANCE SHEET

CONSOLIDATED INCOME STATEMENT

CONSOLIDATED BALANCE SHEET

BALANCE SHEET

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED CASH FLOW STATEMENT

NOTES TO THE FINANCIAL STATEMENTS

1. GENERAL INFORMATION

2. PRINCIPAL ACCOUNTING POLICIES

(a) Basis of preparation

(b) Basis of consolidation

(c) Joint ventures

(d) Subsidiaries

(e) Goodwill

(f) Property, plant and equipment

(i) Depreciation

Hybrid Kinetic Group Limited Proxy Solicitation & Information Statement 2005