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."
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