09:35     SMI CORP<00198> - Announcement (4)                                  

    Option 2                                                                  
                                                                              
    To acquire 11% of the issued share capital in Alfaway                     
    from Afresco based on the audited net assets value of                     
    Alfaway such that together with the 40% referred to                       
    in sub-paragraph (7), Stepwise will become interested                     
    in 51% of the issued share capital in Alfaway. Alfaway                    
    shall then become a subsidiary of the Group.                              
                                                                              
    3.   VALUE OF THE ASSETS TO BE DISPOSED OF AND BASIS                      
    OF NEGOTIATION                                                            
                                                                              
    3.1   Value                                                               
                                                                              
    Value of the assets to be disposed of is approximately                    
    HK$25.6 million (after provision), comprises of:                          
                                                                              
    (i)   Approximately HK$9 million being the carrying                       
    amount of 35% interest in Alfaway; and                                    
                                                                              
    (ii)   Approximately HK$16.6 million being the                            
    carrying amount of the outstanding Sales Loans (that                      
    is, principal plus interest accrued up to and                             
    including 31 December 2004 of a total of approximately                    
    HK$22.1 million less impairment loss and provision                        
    made on or before 30 September 2004 (of approximately                     
    HK$5.5 million).                                                          
                                                                              
    3.2   Basis upon which the consideration was determined                   
                                                                              
    The consideration for the disposal was arrived at                         
    after arm's length negotiations between the parties                       
    involved, by reference to the total of HK$30 million                      
    being the then acquisition cost of 35% interest in                        
    Alfaway completed in October 2000 and approximately                       
    HK$16.6 million being the book value of the                               
    outstanding Sale Loans and taking into account the                        
    extended period by which Alfresco is given to pay the                     
    consideration.                                                            
                                                                              
    3.3   The gain on disposal expected to accrue to the                      
    Company                                                                   
                                                                              
    The gain on disposal expected to accrue to the Company                    
    would be not more than approximately HK$22.4 million                      
    (that is the consideration of HK$48 million less the                      
    value of the assets to be disposed of approximately                       
    HK$25.6 million).                                                         
                                                                              
    4.   NET LOSS ATTRIBUTABLE TO THE ASSETS INVOLVED FOR                     
    THE TWO FINANCIAL YEARS IMMEDIATELY PRECEEDING THE                        
    TRANSACTION                                                               
                                                                              
    The unaudited consolidated net loss before/after                          
    taxation and negative net assets value of Alfaway                         
    Group for the year ended 31 December 2004 and 31                          
    December 2003 were as follows:                                            
                                                                              
    31.12.2003   31.12.2004                                                   
    HK$   HK$                                                                 
                                                                              
    Net loss before taxation   (43 million)   (3 million)                     
    Net loss after taxation   (43 million)   (3 million)                      
    Negative net assets value   (17 million)   (20 million)                   
                                                                              
    The unaudited consolidated total assets value of                          
    Alfaway Group as at 31 December 2004 was approximately                    
    HK$11 million. The unaudited consolidated total                           
    assets value of Alfaway Group as at 31 December 2004                      
    attributable to the 35% interest being disposed by                        
    Stepwise under the Agreement was approximately HK$3.9                     
    million.                                                                  
                                                                              
    5.   REASONS FOR AND BENEFITS OF THE TRANSACTION                          
                                                                              
    It is the intention of the Group to focus on its core                     
    businesses including cinema operations, cyber cafes                       
    and new media services. As (i) Alfaway is not                             
    considered as a core business to the Group, (ii) the                      
    Group has no control over Alfaway both in terms of                        
    shareholdings and board composition, and (iii)                            
    Alfaway has suffered loss in both 2003 and 2004, it                       
    is in the interest of the Company to dispose of it.                       
                                                                              
    The Directors believe that the terms of the Disposal                      
    are fair and reasonable and in the interests of the                       
    Shareholders as a whole.