09:31 NEWOCEAN ENERGY<00342> - Announcement (2) Completion of the Agreement is subject to the following conditions: 1. all shareholders of Yong Long Gas consenting to the Acquisition and the board of Yong Long Gas approving the Acquisition; and 2. the Purchaser having completed to its satisfaction a due diligence review on the legal, financial, existing business and future prospects of Yong Long Gas. Completion: Completion shall take place upon fulfillment of all the conditions of the Agreement and in any event not later than 10th January, 2005 (or such later date as may be agreed), otherwise the Agreement may be terminated at the election of either the Vendor or the Purchaser. Information about Yong Long Gas Yong Long Gas is a company incorporated with limited liability under the laws of the PRC in 1995 and currently has a paid up capital comprising cash contribution of RMB4,280,000, 80% of which is beneficially owned by the Vendor. The remaining 20% is held by an existing shareholder of Yong Long Gas who is a third party independent of the Company and connected persons of the Company. It is principally engaged in the sales of LPG pressurised in bottled cylinders to residential, commercial and industrial customers in Qingyuan, Guangdong, PRC. Yong Long Gas operates 29 outlets for sales of LPG in Qingyuan, which, in the opinion of the directors provide a solid retail customer base. Yong Long Gas has been granted the necessary business licences and permissions for the sale of bottled LPG, which include a Certificate of Competency of Urban Gas Enterprise from the Qingyuan Municipal Board of Construction granted on 11th September, 2002 and valid until 11th September, 2007. Unaudited turnover and net loss of Yong Long Gas for the year ended 31st December, 2002 were respectively RMB8,496,616 (or approximately HK$8,015,675) and RMB329,380 (or approximately HK$310,736), and unaudited turnover and net loss for the year ended 31st December, 2003 were respectively RMB 9,157,994 (or approximately HK$8,639,617) and RMB48,368 (or approximately HK$45,630). The unaudited total assets and net asset value of Yong Long Gas as at 30th September, 2004 were RMB4,669,400 (or approximately HK$4,405,094) and RMB4,069,731 (or approximately HK$3,839,369) and the unaudited turnover and net loss for the 9 months ended 30th September, 2004 were respectively RMB7,493,245 (or approximately HK$7,069,099) and RMB36,319 (or approximately HK$34,263). No profits tax has been charged on Yong Long Gas, and the unaudited net losses for Yong Long Gas quoted above represented the unaudited net losses after tax for the periods cited. Reasons for the Acquisition The principal businesses of the Group are the sale and distribution of LPG and leasing of property, plant and equipment. After the acquisition of the Gaolan Harbour Terminal in Zhuhai in 2004 as announced by the Company on 16th December, 2003, the Group capitalise on the capability of the Terminal to handle and process imported LPG to achieve a rapid increase in its wholesale business. During the year, wholesale business surpassed retail business and became the main component of the Group's turnover. With the expansion of the Gaolan Harbour Terminal expected to be under way in the near future, the Group's capacity to import and wholesale LPG will see another significant increase. To achieve a balanced business portfolio, and mindful of the generally higher profit margin for retail business, the management has been canvassing opportunities to expand retail operation. Yong Long Gas is located in Qingyuan, Guangdong, a region suitably sited for the Group's LPG business and hence one of the target markets of the Group. The region is connected to Zhuhai by convenient highway links. Since 2003, the Group has endeavoured to develop its retail operations in the region. The Acquisition will significantly increase the Group's market share in Qingyuan, making the Group one of the largest LPG operators in the region. Of equal importance, the Acquisition will add to the supply channels and enhance the logistic network of the Group. The Directors consider the Acquisition to be of strategic significance, and believe that the Acquisition represents an excellent opportunity for the Group to expand its retail business and logistic capabilities. Given that the previous net losses of Yong Long Gas were, in the opinion of the Directors, occasioned by the high sales costs which mainly comprised commission payments in the sales team, the Directors are confident to turnaround the business of Yong Long Gas into profits by carrying out corporate reorganisation, business re-engineering aiming at better efficiency, and by achieving economy of scale.