Listed Company Information
 

SHANGHAI LAND<00067> - Results Announcement

Shanghai Land Holdings Limited announced on 23/12/2004:
(stock code: 00067 )
Year end date: 30/06/2004
Currency: HKD
Auditors' Report: Qualified

                                                        (Audited   )
                                     (Audited   )       Last
                                     Current            Corresponding
                                     Period             Period
                                     from 01/07/2003    from 01/07/2002
                                     to 30/06/2004      to 30/06/2003
                               Note  ('000      )       ('000      )
Turnover                           : 53,268             15,106            
Profit/(Loss) from Operations      : (42,533)           (815)             
Finance cost                       : (29,861)           (2,716)           
Share of Profit/(Loss) of 
  Associates                       : N/A                N/A               
Share of Profit/(Loss) of
  Jointly Controlled Entities      : N/A                N/A               
Profit/(Loss) after Tax & MI       : (158,293)          (246,668)         
% Change over Last Period          : N/A       %
EPS/(LPS)-Basic (in dollars)       : (0.0519)           (0.0808)          
         -Diluted (in dollars)     : N/A                N/A               
Extraordinary (ETD) Gain/(Loss)    : N/A                N/A               
Profit/(Loss) after ETD Items      : (158,293)          (246,668)         
Final Dividend                     : Nil                Nil
  per Share                                              
(Specify if with other             : N/A                N/A
  options)                                               
                                                         
B/C Dates for 
  Final Dividend                   : N/A   
Payable Date                       : N/A
B/C Dates for (-)            
  General Meeting                  : N/A   
Other Distribution for             : N/A
  Current Period                     
                                     
B/C Dates for Other 
  Distribution                     : N/A   
  
Remarks:

                                    
1.      BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS

a.     Qualified representation by the Receivers

The Receivers have taken all reasonable steps and have used their best 
endeavours to prepare the Group's and the Company's financial statements 
for the year ended 30 June 2004.  Despite their efforts in ascertaining 
the affairs of the Group, the Receivers have only had limited access to 
the books and records of Shanghai Hongxin Real Estate Development Company 
Limited ("Hongxin") and certain original documents of Shanghai Yihe 
Longbai Hotel Limited ("Longbai") as their former legal representatives 
and directors, who are known to be Mr. Chau Ching Ngai's ("Mr. Chau") 
associates, have been uncooperative.    

The Receivers and their staff 
became the legal representatives and directors of Longbai and Hongxin on 
16 December 2003 and 15 January 2004 respectively. In the course of the 
Receivers' investigations, they understand that such books and records and 
documents are currently kept by Shanghai Nongkai Development Group Limited 
("Shanghai Nongkai").  

Hongxin's management accounts for the period from 1 
July 2003 to 30 June 2004 are not available because the former legal 
representative and directors of Hongxin have failed to surrender Hongxin's 
books and records to the Receivers and their staff.  Hongxin's management 
accounts were prepared according to the available bank statements obtained 
from various banks and the auditor of Hongxin is therefore unable to form 
an opinion on Hongxin's audited financial statements for the year ended 31 
December 2003 and for the six months ended 30 June 2004.  

As a 
consequence, the Receivers have been unable to satisfy themselves as to 
whether certain balances relating to Hongxin and Longbai have been 
properly accounted for in the financial statements.  

Before the Receivers' 
appointment on 7 June 2003, Bowyer Profits Limited ("Bowyer") appointed 
Shanghai Nongkai as manager to act on its behalf for all matters relating 
to the leasing of its investment properties in Jun Ling Plaza including 
but not limited to receiving income and making payments of expenses 
related thereto. Shanghai Nongkai prepared monthly financial reports in 
respect of the leasing status and cash position of Bowyer's investment 
properties in Jun Ling Plaza.   

In the March and April 2004 financial 
reports prepared by Shanghai Nongkai, the Receivers noticed that legal 
expenses of RMB4,180,000 have been recorded but not properly supported. 
Despite numerous requests by the Receivers, Shanghai Nongkai has failed to 
respond to queries raised by the Receivers and has failed to return the 
rental proceeds and other relevant records of Bowyer to the Receivers. 
However, a representative of Shanghai Nongkai has orally confirmed to the 
Receivers that the money has been used to settle legal fees incurred by 
Mr. Chau. The Receivers terminated the service of Shanghai Nongkai on 29 
April 2004 and have appointed FPDSavills Property Services (Shanghai) 
Company Limited as the manager on 10 June 2004. The Receivers have taken 
out legal actions to recover the said amount from Shanghai Nongkai. On 25 
August 2004, enforcement notices were issued by the Shanghai Arbitration 
Tribunal to the tenants of Bowyer notifying the tenants to freeze payments 
to Shanghai Nongkai. The Receivers have not received any financial reports 
from Shanghai Nongkai since May 2004. The monthly financial reports for 
the period from 1 July 2003 to 30 April 2004 prepared by Shanghai Nongkai 
were used in the preparation of the Group's financial statements. Given 
the above, the Receivers have been unable to ascertain whether certain 
balances relating to Bowyer have been properly accounted for in the 
financial statements.   

Under the circumstances, the Receivers are unable 
to give an unqualified representation that all the transactions affecting 
the Group during the year ended 30 June 2004 have been included in the 
financial statements and whether the financial statements present a true 
and fair view of the operations and cash flows of the Group for the year 
ended 30 June 2004 and the financial position of the Company and of the 
Group as at 30 June 2004. The Receivers therefore disclaim any liabilities 
in respect of the financial statements of the Company and of the Group in 
relation to the affairs of the Company and of the Group for the year ended 
30 June 2004.  

The audit committee of the Company ("Audit Committee") had 
reviewed and discussed the financial statements with the Receivers and the 
board of directors (the "Board"). Based on the results of the inquiries 
and the inspection of the books and records of the Company and its 
subsidiaries available in Hong Kong and the People's Republic of China 
("PRC"), the members of the Audit Committee were unable to satisfy 
themselves as to whether the financial statements present a true and fair 
view and, under such circumstances, the Audit Committee was unable to make 
recommendation to the Board in accepting and/or adopting the financial 
statements of the Company and of the Group for the year ended 30 June 
2004.  

The Board at a meeting held on 7 December 2004 had resolved not to 
approve the financial statements as the Company has not been under the 
management of the Board for the relevant accounting period for which the 
financial statements were prepared.  

In light of the above circumstances 
and in view of the fact that the Receivers will continue to manage the 
Company in the near future until further order of the High Court of Hong 
Kong (the "Court"), the Receivers consider it appropriate, notwithstanding 
the limitations referred to above, to take up the responsibility from the 
Board to prepare and approve the financial statements. An order from the 
Court was obtained on 20 December 2004 conferring upon the Receivers 
powers to lay before the Company at its annual general meetings the profit 
and loss accounts, together with group accounts, balance sheets, auditors' 
report and reports by the Receivers prepared in respect of the Company for 
the year ended 30 June 2004; and to approve and sign any profit and loss 
accounts, group accounts, balance sheets and reports in respect of the 
Company and of the Group for the year ended 30 June 2004.  

b.   Longbai

The major assets of Longbai, being the hotel properties, were allegedly 
secured against a purported loan advanced to Longbai. As a result of the 
decrease in the carrying value of the hotel properties to RMB170,000,000 
(equivalent to HK$160,650,000), Longbai has net liabilities as at 30 June 
2004. Thus, Longbai might have a going concern problem.   

An enforcement 
notice against Longbai was served by Shanghai Pudong New District Liuli 
Rural Credit Cooperative Union ("Liuli SRCC") and a judgment related to 
the loan of RMB350,000,000 purportedly made by Liuli SRCC to Longbai (the "Longbai 
Purported Loan") pursuant to a loan agreement dated 11 April 2003 and the 
accompanying security agreement dated 11 April 2003 entered into between 
Liuli SRCC and Longbai (the "Longbai Purported Loan Agreements") was 
issued by the Shanghai No. 1 Intermediate Court ("Intermediate Court") on 
19 November 2004 ruling that, among other things, the Longbai Purported 
Loan Agreements are legally binding, the Intermediate Court does not 
support Longbai's application for the invalidation of the Longbai 
Purported Loan Agreements, the return by Liuli SRCC of interest of 
approximately RMB9,928,000 paid by Longbai and payment of an amount of 
approximately RMB399,000, being the interest accrued on the interests paid 
by Longbai, and further ruled that Longbai must bear the court fees of 
approximately RMB1,760,000, which have already been paid. Longbai might 
lose its ownership of Hotel Yihe Longbai Shanghai ("Hotel Longbai") should 
Liuli SRCC resume its enforcement action against Longbai.

c.      Hongxin

The major asset of Hongxin, being the property under development with a 
carrying value of RMB285,000,000 (equivalent to HK$269,325,000), was 
allegedly secured against a purported loan advanced to Hongxin. The 
Receivers have been unable to determine whether Hongxin is able to meet 
all its liabilities due to insufficient books and records. Further, 
according to the information available to the Receivers, funds equivalent 
to the purported loan were advanced to a PRC entity. Should this 
receivable become irrecoverable and the proceeds from realisation of the 
property under development be insufficient to cover the purported loan and 
other liabilities, Hongxin might have a going concern problem.
           
An enforcement notice against Hongxin was served by the Shijidadao Branch 
of Shanghai Pudong New District Rural Credit Cooperative Union 
("Shijidadao SRCC") and a judgment related to the loan of RMB300,000,000 
purportedly made by Shijidadao SRCC to Hongxin pursuant to a loan 
agreement dated 27 March 2003 and the accompanying security agreement 
dated 27 March 2003 entered into between Shijidadao SRCC and Hongxin (the 
"Hongxin Purported Loan Agreements") was issued by the Intermediate Court 
on 17 November 2004 ruling that, among other things, the Hongxin Purported 
Loan Agreements are legally binding, the Intermediate Court does not 
support Hongxin's application for the invalidation of the Hongxin 
Purported Loan Agreements, the return by Shijidadao SRCC of interest of 
RMB4,071,000 paid by Hongxin and payment of an amount of approximately 
RMB194,500, being the interest accrued on the interests paid by Hongxin, 
and further ruled that Hongxin must bear the court fees of approximately 
RMB1,510,000, which have already been paid. Hongxin might lose its land 
use right in respect of the land at Wuzhong Road should Shijidadao SRCC 
resume its enforcement action against Hongxin.  

The registered capital of Hongxin was US$16,700,000 as of 20 January 2003 
but an application to increase Hongxin's registered capital to 
US$30,000,000 was made to Shanghai Foreign Investment Commission ("SFIC") 
before the Receivers' appointment. Pursuant to the new business licence 
issued to one of the Receivers acting as the legal representative of 
Hongxin effective on 15 January 2004, the registered capital of Hongxin 
was listed at US$30,000,000, of which US$16,700,000 has been paid-up. The 
investment amount, which was originally listed at US$50,000,000, was 
listed at US$90,000,000 pursuant to the Certificate of Approval of 
Hongxin.   

On 6 February 2004, Hongxin applied to SFIC for the restoration 
to its original registered capital of US$16,700,000 and investment amount 
of US$50,000,000. The deadline for paying up the additional registered 
capital was 24 May 2004. On 30 April 2004, the Receivers requested SFIC to 
extend the deadline to 24 November 2004. SFIC, however, advised that SFIC 
annual inspection was required for their consideration. 

Furthermore, the business licence of Hongxin would be revoked if the 
annual inspection of Hongxin's business licence for 2003 ("AIC 
Inspection") was not completed. The AIC Inspection could only be processed 
after the SFIC annual inspection had been passed and the deadline to pay 
the additional registered capital was extended. 

Subsequent to the completion of Hongxin's 2003 audit on 2 August 2004 and 
Hongxin's 2003 foreign exchange audit on 28 September 2004, the SFIC 
annual inspection was passed on 9 October 2004. The Receivers then 
continued to consult SFIC, Shanghai Administrative Bureau for Industry and 
Commerce and the Foreign Economic Commission of Huangpu District Shanghai 
("FEC") to restore the registered capital and investment amount of Hongxin 
to their original amount, US$16,700,000 and US$50,000,000 respectively. 

Following confirmation by FEC that the application for restoration would 
not be accepted, an application was submitted to FEC on 25 November 2004 
to extend the deadline for the payment of the additional capital to 24 
November 2005. 

In light of the judgment on Hongxin on 17 November 2004, FEC has verbally 
rejected Hongxin's application to extend the payment of the additional 
registered capital to 24 November 2005. The Receivers are currently 
considering all legal options in this respect. Should the business licence 
of Hongxin be revoked, Hongxin might also have a going concern problem.

2.      IMPACT OF A REVISED STATEMENT OF STANDARD ACCOUNTING 
         PRACTICE ("SSAP")

SSAP 12 (Revised) "Income taxes" is effective for the first time for the 
current year's financial statements. SSAP 12 prescribes the accounting for 
income taxes payable or recoverable, arising from the taxable profit or 
loss for the current period (current tax); and income taxes payable or 
recoverable in future periods, principally arising from taxable and 
deductible temporary differences and the carryforward of unused tax losses 
(deferred tax).

3.      TURNOVER AND SEGMENTAL INFORMATION

Turnover represents income from operations from the hotel investment and 
rental income from investment properties earned during the year and is 
analysed as follows:

Business segments

Business segment analysis is chosen as the primary reporting format as the 
Group's results were principally affected by property investment, hotel 
investment and property development activities. 

Hotel           Property        Property
investment      investment      development     Consolidated
2004    2003    2004    2003    2004    2003    2004    2003
HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000
        (Restated)      (Restated)      (Restated)      (Restated)
Turnover        
51,885  13,290  1,383   1,816   -       -       53,268  15,106
===============================================================
Segment results 
19,397  3,058   884     1,445   -       -       20,281  4,503
============================================
Interest income                                 12,821  26,737

Unallocated administrative expenses net of other revenue
                                                (75,635) (32,055)
                                                -------  ---------
Loss from operations                            (42,533)  (815)
Finance costs                                   (29,861)  (2,716)
Surplus/(deficit) on revaluation of investment  properties      
-       -       1,965   (12,360) -      -       1,965   (12,360)

Deficit on revaluation of hotel properties      
(200,350) (111,500)-    -       -       -       (200,350) (111,500)             

Impairment loss on property under development written back/  (provided)
-       -       -       -       71,325  (136,925) 71,325  (136,925)

Amortisation of goodwill        
-       (383)   -       (18)    -       (12,214)        -  (12,615)

Impairment loss on goodwill written back/ (provided)    
10,000  (17,998)-       (418)   -       (61,071)        10,000  (79,487)
                                                        -----------------
Loss from ordinary activities before taxation                                   
                                                        (189,454)(356,418)
Taxation                                                31,161   109,750
                                                        ------------------
Loss attributable to shareholders                       (158,293)(246,668)      
                                                        ==================

4.      TAXATION

The amounts of taxation charged/(credited) to the consolidated income 
statement represent:

                                The Group
                                2004            2003
                                HK$'000         HK$'000
                                                (Restated)
Current tax                             
- PRC income tax                292             477
                                
Deferred tax                    (31,453)        (110,227)
                                ----------      -----------
                                (31,161)        (109,750)
                                =========       ============

Current tax

No provision for Hong Kong profits tax has been made in the financial 
statements as the companies operating in Hong Kong did not have any 
assessable profits in both current and prior years.  Taxes on profits 
assessable elsewhere have been calculated at the rates of tax prevailing 
in the countries in which the Group operates, based on existing 
legislation, interpretations and practices in respect thereof.

5. LOSS PER SHARE

The calculation of basic loss per share is based on the loss attributable 
to shareholders for the year of HK$158,293,000 (2003: HK$246,668,000, 
restated) and on 3,051,438,765 (2003: 3,051,438,765) ordinary shares in 
issue during the year.

No diluted loss per share is presented as the potential issue of ordinary 
shares in connection with the Company's share options did not give rise to 
an increase in loss per share and therefore had no dilutive effect on the 
calculation of diluted loss per share.

6.      DISCONTINUED OPERATIONS

Pursuant to a resolution passed at an extraordinary general meeting held 
on 25 March 2003, the Company exercised its rights under a put option 
agreement dated 3 May 2002 entered into between the Company and Investor 
Investment imGO Limited ("Investor imGo") (the "Put Option") to dispose of 
all the wireless technology companies held by the Group to Investor imGo 
for a consideration equal to the aggregate net book value of the 
investments of US$13,037,500 (equivalent to approximately HK$101,684,000). 
The exercise of the Put Option was completed on 28 March 2003 and there 
was no profit or loss arising from the disposal. There was also no tax 
charge or credit arising from the disposal. The proceeds were received on 
1 April 2003. 

The above cash inflow of approximately HK$101,684,000 was however placed 
with the Company's subsidiary, Great Hero Limited, and HK$53,157,294 of 
which was subsequently transferred to Great Center Limited for and on 
behalf of Hongxin without proper cause.  

The turnover, other revenue, 
expenses and results of the discontinued operations of the wireless 
technology segment included in the financial statements are as follows: 

                                        1 July 2002 
                                        to
                                        28 March 2003
                                        HK$'000
Turnover                                -
Direct expenses                         -
                                        ----------------
Other revenue                           -
Administrative expenses                 (181)
                                        ----------------
Loss attributable to shareholders       (181)
                                        ================

7.      SUMMARY OF AUDITORS' REPORT

A summary of auditors' report to the members of the Company is set out 
below:

"Basis of opinion

We conducted our audit in accordance with Statements of Auditing Standards 
issued by the Hong Kong Institute of Certified Public Accountants 
("HKICPA"), except that the scope of our work was limited as explained 
below.  

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

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

1.      Disclaimer on view given on the financial statements in the 
previous year 

Our opinion on the financial statements of the Company and of the Group 
for the year ended 30 June 2003 was disclaimed in view of the significance 
of the possible effect of the limitations in evidence available to us, 
details of which were set out in our audit report dated 27 October 2003. 

2.      Disclaimers of liabilities by the Receivers and the Board

The Receivers, despite having taken all reasonable steps, have not been 
able to obtain all information and documents for preparing the financial 
statements. Accordingly, they were unable to give an unqualified 
representation that all the transactions affecting the Group during the 
year ended 30 June 2004 have been included in the financial statements and 
also as to whether the financial statements present a true and fair view 
of the  operations and cash flows of the Group for the year ended 30 June 
2004 and the financial position of the Company and of the Group as at 30 
June 2004. The Receivers have therefore disclaimed any liabilities in 
respect of the financial statements of the Company and of the Group in 
relation to the affairs of the Company and of the Group for the year ended 
30 June 2004. 

The Audit Committee had reviewed and discussed the financial statements 
with the Receivers and the Directors of the Board (the "Board"). Based on 
the results of the inquiries and the inspection of the books and records 
of the Company and its subsidiaries available in Hong Kong and the PRC, 
the members of the Audit Committee were unable to satisfy themselves as to 
whether the financial statements present a true and fair view and, under 
such circumstances, the Audit Committee was unable to make recommendation 
to the Board in accepting and/or adopting the financial statements of the 
Company and of the Group for the year ended 30 June 2004.

The Board at a meeting held on 7 December 2004 had resolved not to approve 
the financial statements as the Company has not been under the management 
of the Board for the relevant accounting period for which the financial 
statements were prepared.

In light of the above circumstances and in view of the fact that the 
Receivers will continue to manage the Company in the near future until 
further order of  the Court, the Receivers consider it appropriate, 
notwithstanding the limitations referred to above, to take up the 
responsibility from the Board to prepare and approve the financial 
statements. An order from the Court was obtained on 20 December 2004 
conferring upon the Receivers powers, inter alia, to approve and sign the 
financial statements of the Company and of the Group for the year ended 30 
June 2004.

In consequence, we have been unable to carry out auditing procedures 
necessary to obtain adequate assurance regarding the completeness and 
accuracy of the assets, liabilities, income and expenses, cash flows, as 
well as commitments and contingent liabilities, the related party 
transactions and the disclosures appearing in the financial statements.

3.      Accounting records and documents of subsidiaries

a.      The Receivers and their staff, notwithstanding their appointment 
as the legal representatives and directors of Shanghai Yihe Longbai Hotel 
Limited ("Longbai") and Shanghai Hongxin Real Estate Development Company 
Limited ("Hongxin") on 16 December 2003 and 15 January 2004 respectively, 
have only had limited access to the books and records of Longbai and 
Hongxin as their former legal representatives and directors have been 
uncooperative and failed to surrender the books and records and/or certain 
original documents of Longbai and Hongxin. As a consequence, the Receivers 
have been unable to satisfy themselves as to whether the following 
balances relating to Longbai and Hongxin have been properly accounted for 
in the financial statements: 

- Finance costs of HK$29,861,000 on the purported loan; 
- Hotel properties of HK$160,650,000 allegedly pledged for the loan 
advanced; 
- Property under development of HK$269,325,000 allegedly pledged for the
loan advanced;  
- Deposits, prepayments and other receivables of 
HK$666,042,000;  
- Short term loan receivable of HK$283,500,000;  
- Pledged deposits of HK$28,080,000;  
- Cash and bank balances of HK$11,899,000; 
- Interest payable of HK$39,764,000;  
- Accrued expenses and other payables of HK$33,978,000;
- Purported loans of HK$614,250,000; and  
- Deferred tax liabilities of HK$60,585,000, deferred tax credit of 
  HK$32,559,000 and HK$103,163,000 for the current and prior years respectively. 

The Receivers have taken out various actions to recover the amounts 
advanced by Longbai and Hongxin totaling HK$917,275,000.  The Receivers 
are unable to ascertain whether these amounts will be recoverable in full.

b.      Bowyer Profits Limited ("Bowyer") appointed Shanghai Nongkai 
Development Group Limited ("Shanghai Nongkai") as manager to act on its 
behalf for all matters relating to the leasing of its investment 
properties including but not limited to receiving income and making 
payments of expenses related thereto upto 29 April 2004. The Receivers 
have not received any financial reports since May 2004 and certain 
relevant records and information of Bowyer from Shanghai Nongkai. As a 
consequence, the Receivers have been unable to ascertain whether the 
following balances relating to Bowyer have been properly accounted for in 
the financial statements:  

-    Turnover of HK$1,383,000;  
-    Tax payable of HK$1,411,000;  
-    Deposits, prepayments and other receivables of HK$3,950,000; and  
-    Deferred tax liabilities of HK$7,453,000, deferred tax charge of 
     HK$1,106,000 for the current year and deferred tax credit of 
     HK$7,064,000 for the prior year.  

The Receivers have taken out various actions to recover the amount 
taken out from Bowyer of HK$3,950,000. The Receivers are unable to 
ascertain whether this amount will be recoverable in full.

There were no other satisfactory auditing procedures that we could adopt 
to ascertain whether the balances referred to in paragraphs 3a and 3b 
above have been properly accounted for in the financial statements and 
whether the amounts totaling HK$921,225,000 are fully recoverable.  In 
addition, we have also been unable to ascertain whether the increase in 
pledged deposits of HK$28,080,000 has been properly disclosed as financing 
activities and cash and bank balances of HK$11,899,000 have been properly 
classified as cash and cash equivalents in the consolidated cash flow 
statement. 

4.        Amount due from Shun Loong Holdings Limited ("Shun Loong")

Shun Loong had filed an Originating Summons seeking declaratory reliefs 
against Profitex Investments Limited ("Profitex") to the effect that the 
sub-tenancy agreement entered into between Shun Loong and Profitex dated 
23 May 2003 effectively came to an end on 19 October 2003 by virtue of 
Shun Loong's own repudiation of it. Profitex had filed an affirmation in 
opposition to the Originating Summons. The date for the hearing of the 
Originating Summons was scheduled to be held in January 2005.

In view of the foregoing, we are unable to ascertain if the amount due 
from Shun Loong as at 30 June 2004 of HK$3,885,000 included in deposits, 
prepayments and other receivables is fully recoverable.

Any adjustments arising in relation to the matters referred to in 
paragraphs 1 to 4 above would have a consequential significant effect on 
the loss and cash flows of the Group for the year ended 30 June 2004 and 
the net assets of the Company and of the Group as at that date. 

5.      Amounts due from subsidiaries 

The Receivers have only had limited access to the accounting records and 
documents of the subsidiaries referred to in paragraph 3 above and as a 
consequence, they have been unable to ascertain whether the amounts due to 
the Company by these subsidiaries of HK$1,024,947,000 are fully 
recoverable. In addition, in view of the significant net liabilities of 
Profitex, the Receivers have also been unable to ascertain whether the net 
amount due from Profitex of HK$32,761,000 is fully recoverable. As a 
consequence, we have been unable to satisfy ourselves as to whether these 
amounts totaling HK$1,057,708,000 are fully recoverable and have been 
properly accounted for in the financial statements. Any adjustments to 
these amounts would have a consequential effect on the loss of the Company 
for the year ended 30 June 2004 and the net assets of the Company as at 
that date. 

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

FUNDAMENTAL UNCERTAINTY RELATING TO THE GOING CONCERN OF CERTAIN 
SUBSIDIARIES

a.     Longbai 

Longbai's hotel properties, with a carrying value of RMB170,000,000 
(equivalent to HK$160,650,000), were allegedly secured against a loan of 
RMB350,000,000 (equivalent to HK$330,750,000) purportedly granted by 
Shanghai Pudong New District Liuli Rural Credit Cooperatives Union ("Liuli 
SRCC"). As a result of the decrease in the carrying value of the hotel 
properties, Longbai had net liabilities as at 30 June 2004. Thus, Longbai 
might have a going concern problem.  

In addition, Longbai might lose its 
ownership of Longbai's hotel properties should Liuli SRCC resume in its 
enforcement action against Longbai and Longbai fails to fulfill the 
alleged payment obligations.

The Receivers are also currently unable to determine whether there are any 
other contingent liabilities should Liuli SRCC resume its enforcement 
action against Longbai. 

b.      Hongxin

Hongxin's property under development, with a carrying value of 
RMB285,000,000 (equivalent to HK$269,325,000), was allegedly secured 
against a loan of RMB300,000,000 (equivalent to HK$283,500,000) 
purportedly granted by Shijidadao Branch of Shanghai Pudong New District 
Rural Credit Cooperatives Union ("Shijidadao SRCC").  The Receivers have 
been unable to determine whether Hongxin is able to meet all its 
liabilities as the Receivers have only had limited access to Hongxin's 
books and records. Further, according to the information obtained by the 
Receivers, fund largely equivalent to the purported loan was deposited 
and/or advanced to a PRC entity. Should this receivable become 
irrecoverable and the proceeds from the realisation of the property under 
development be insufficient to cover the purported loan and other 
liabilities, Hongxin might have a going concern problem.  

Further, the 
registered capital of Hongxin, according to the business licence of 
Hongxin issued on 15 January 2004 was listed at US$30,000,000, of which 
only US$16,700,000 has been paid up. The investment amount which was 
originally listed at US$50,000,000 was subsequent listed at US$90,000,000 
pursuant to Hongxin's Certificate of Approval. Hongxin has requested the 
Foreign Economic Commission of Hangpu District Shanghai ("FEC") to extend 
the deadline for paying up the additional capital to 24 November 2005. In 
light of the judgment on Hongxin dated 17 November 2004, FEC has verbally 
rejected Hongxin's application to extend the payment of the additional 
registered capital to 24 November 2005. Should the business licence of 
Hongxin be revoked, Hongxin might have a going concern problem.

In addition, Hongxin might lose its ownership of the property under 
development should Shijidadao SRCC resume its enforcement action against 
Hongxin and Hongxin fails to fulfill the alleged payment obligations.

The Receivers are also currently unable to determine whether there are any 
other contingent liabilities should Shijidadao SRCC resume its enforcement 
action against Hongxin. 

The Receivers have indicated that they will unlikely be providing the 
necessary funding to maintain Longbai and Hongxin as a going concern. The 
financial statements include appropriate adjustments to state Longbai's 
hotel properties and Hongxin's property under development at
valuation on a forced sale basis and to reclassify the purported loans 
under current liabilities. No adjustments have been made to restate the 
other assets to their recoverable amounts and to provide for any further 
liabilities that might arise as the amounts are not quantifiable. We 
consider that the fundamental uncertainty has been adequately disclosed in 
the financial statements and our opinion is not qualified in this respect. 

QUALIFIED OPINION: DISCLAIMER ON VIEW GIVEN BY THE FINANCIAL STATEMENTS 
AND DISAGREEMENT ABOUT ACCOUNTING TREATMENT 

Interest expenses of HK$19,665,000 have been accrued on the purported loan 
allegedly borrowed by Hongxin and were recorded as prepayments in the 
financial statements. In our opinion, the interest accrued should be 
accounted for as an expense as required by Statement of Standard 
Accounting Practice 19 "Borrowing costs" ("SSAP 19") issued by HKICPA. If 
the Group had accounted for the borrowing costs in accordance with SSAP 
19, the Group's loss attributable to shareholders for the year ended 30 
June 2004 would have been increased by HK$19,665,000 and the debtors, 
deposits and prepayments of the Group as at 30 June 2004 would have been 
decreased by HK$19,665,000.

Because of the significance of the possible effect of the limitations in 
evidence available to us, we are unable to form an opinion as to whether 
the financial statements give a true and fair view of the state of affairs 
of the Company and of the Group as at 30 June 2004 and of the loss and 
cash flows of the Group for the year then ended and as to whether the 
financial statements have been properly prepared in accordance with the 
Companies Ordinance. 

In respect alone of the limitation on our work relating to the limitations 
on the scope of our audit as referred to above,

-       we have not obtained all the information and explanations that we 
considered necessary for the purpose of our audit; and

-       we were unable to determine whether proper books of account had 
been kept."