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SILVERNET GROUP LIMITED
(Incorporated in Bermuda with limited liability)

SECOND INTERIM REPORT

INTERIM RESULTS

The board of Directors (the "Directors") of SilverNet Group Limited (the "Company") announces that the unaudited consolidated results of the Company and its subsidiaries (the "Group") for the twelve months ended 31 August 2000 together with comparative figures for the corresponding period in previous year are as follows:

CONSOLIDATED INCOME STATEMENT
For the twelve months ended 31 August 2000

                                       31st August 2000   31st August 1999
                                             (unaudited)          (audited)
                                 Notes          HK$'000            HK$'000

Turnover                           3            112,412             87,972
Cost of sales                                   (54,969)           (68,701)
                                          -------------      -------------
                                                 57,443             19,271
Other revenue                      4             21,204                909
Selling and administration costs                (90,218)           (63,848)
Other operating expenses                         (4,583)           (46,258)
                                          -------------      -------------
Loss from operations before 
  finance costs                                 (16,154)           (89,926)
Finance costs                                    (8,325)            (7,256)
                                          -------------      -------------
Loss from operations                            (24,479)           (97,182)
Share of results of associates                     (304)                 -
Loss on disposal of discontinued 
  operations                                     (6,168)                 -
                                          -------------      -------------
Loss before tax                                 (30,951)           (97,182)
Income tax expenses                6                  -                (11)
                                          -------------      -------------
Loss after tax                                  (30,951)           (97,193)
Minority interest                                    29               (170)
                                          -------------      -------------
Net loss for the period/year       7            (30,980)           (97,023)
Dividend                                              -                  -
                                          -------------      -------------
Loss retained for the period/year               (30,980)           (97,023)
                                          =============      =============
Loss per share - basic (cents)     8              (1.50)             (9.84)
                                          =============      =============

CONSOLIDATED BALANCE SHEET
As at 31 August 2000

                                       31st August 2000   31st August 1999
                                             (unaudited)          (audited)
                                 Notes          HK$'000            HK$'000

NON-CURRENT ASSETS
Property, plant and equipment      9             17,402             16,377
Investment properties              9             80,998             76,500
Intangible assets                                 4,644              8,499
Interests in associates                         119,676                  -
Investment in securities                         79,730              2,150
                                          -------------      -------------
                                                302,450            103,526
CURRENT ASSETS

Inventories                                           -             20,610
Debtors, deposits and prepayments                40,096             11,100
Loans to related companies                       51,722                  -
Amount due from minority 
  shareholders of subsidiaries                    1,756                  -
Bank balances and cash                          167,886             15,503
                                          -------------      -------------
                                                261,460             47,213
CURRENT LIABILITIES

Creditors and accrued charges                    (4,285)           (24,175)
Amount due to a minority 
  shareholder of a subsidiary                    (6,410)                 -
Amount due to shareholders                       (4,847)                 -
Bank borrowings - due within one year            (6,633)           (23,489)
Obligations under hire purchase 
  contracts - due within one year                   (15)               (13)
                                          -------------      -------------
                                                (22,190)           (47,677)
                                          -------------      -------------
NET CURRENT ASSETS/(LIABILITIES)                239,270               (464)
                                          -------------      -------------
                                                541,720            103,062
                                          =============      =============
CAPITAL AND RESERVES

Share capital                     10            360,038            104,464
Share premium                                   378,002             82,229
Accumulated deficit                            (177,970)          (145,462)
Translation reserve                               1,430             (1,528)
(Goodwill reserve)/Capital reserve              (69,221)               510
                                          -------------      -------------
                                                492,279             40,213

MINORITY INTERESTS                               17,834                  -

NON-CURRENT LIABILITIES
Bank borrowings - due after one year             31,607             43,620
Obligations under hire purchase 
  contracts - due after one year                      -                 14
Loan from former ultimate 
  holding company                                     -             19,215
                                          -------------      -------------
                                                541,720            103,062
                                          =============      =============

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the twelve months ended 31 August 2000

1. Accounting Policies

The consolidated financial statements have been prepared under the historical cost convention, as modified for the revaluation of investment properties and investment in securities.

The consolidated financial statements have been prepared in accordance with the Statement of Standard Accounting Practice 25 ("SSAP 25") "Interim Reporting". The accounting policies adopted are consistent with those followed in the Group's annual financial statements for the year ended 31 August 1999, except as described below.

Investments in securities

SSAP 24 "Accounting for investments in securities" has introduced a new framework for the classification of investments in securities. In adopting SSAP 24, the Group has selected the benchmark treatment for securities other than held-to-maturity securities. Investment securities, which are securities held for an identified long-term strategic purpose, are measured at subsequent reporting dates at cost, as reduced by any impairment loss that is other than temporary. There is no significant impact on the opening reserves as at 1 September 1998 and 1999 upon the adoption of SSAP 24, thus, no prior period adjustment is required.

Interests in associates

The Group has adopted SSAP 10 (revised) "Accounting for investments in associates" for interests in associates.

An associate is an enterprise over which the Group is in a position to exercise significant influence, including participation in financial and operating policy decisions.

The consolidated income statement includes the Group's share of the post-acquisition results of its associates for the year. In the consolidated balance sheet, interests in associates are stated at the Group's share of the net assets of the associates plus the premium paid and less any discount on acquisition in so far as it has not already been written off or amortised.

When the Group transacts with its associates, unrealised profits and losses are eliminated to the extent of the Group's interest in the relevant associates, except where unrealised losses provide evidence of an impairment of the asset transferred.

2. SEGMENT INFORMATION

Business Segments

                                    Revenue                Segment Result
                               2000         1999          2000        1999
                            HK$'000      HK$'000       HK$'000     HK$'000
Continuing Operations:
  Property investment         8,730       33,993         1,943      (2,434)
                          ---------    ---------     ---------   ---------
                              8,730       33,993         1,943      (2,434)
Discontinued operations:
  Sales of goods            103,682       53,979       (20,119)    (41,116)
  Battery cells                   -            -             -        (166)
                          ---------    ---------     ---------   ---------
                            112,412       87,972       (18,176)    (43,716)
                          =========    =========     
Unallocated corporate 
  expenses                                             (10,239)    (46,458)
Interest (net)                                          (2,232)     (7,208)
                                                     ---------   ---------
                                                       (30,647)    (97,182)
                                                     =========   =========

Geographical Segments

                                    Revenue                Segment Result
                               2000         1999          2000        1999
                            HK$'000      HK$'000       HK$'000     HK$'000

PRC                          18,456       37,616         6,973     (37,262)
Hong Kong                    93,956       50,356       (35,388)    (52,712)
                          ---------    ---------     ---------   ---------
                            112,412       87,972       (28,415)    (89,974)
                          =========    =========     
Interest (net)                                          (2,232)     (7,208)
                                                     ---------   ---------
                                                       (30,647)    (97,182)
                                                     =========   =========

3. TURNOVER

An analysis of turnover by activities during the year is as follows:

                                                         2000         1999
                                                      HK$'000      HK$'000
Continuing operations:
Proceeds from disposal of investment properties         5,800       31,800
Rental Income                                           2,930        7,025
                                                   ----------    ---------
                                                        8,730       38,825
Discontinued operations:
Sales of goods                                        103,682       49,147
                                                   ----------    ---------
                                                      112,412       87,972
                                                   ==========    =========

4. OTHER REVENUE

                                                         2000         1999
                                                      HK$'000      HK$'000
Other revenue
  Profit on deemed disposal of interest 
    in a subsidiary                                    12,000            -
  Bank interest income                                  5,804           48
  Write back of inventory provision                     2,050            -
  Others                                                1,350          861
                                                   ----------    ---------
                                                       21,204          909
                                                   ==========    =========

5. DEPRECIATION/AMORTISATION

During the period, depreciation of HK$2.9 million (1999: HK$2.5 million) was charged in respect of the Group's property and plant and equipment, and amortisation of HK$0.8 million (1999: HK$1.3 million) was charged in respect of the Group's intangible assets.

6. TAXATION

No profits tax is provided in the financial statement as the Group does not have any assessable profit for the period. The charge in 1999 represented the underprovision of Hong Kong Profits Tax in prior years.

7. SECOND INTERIM DIVIDEND

The Directors do not propose any interim dividend for the period (1999: Nil).

8. LOSS PER SHARE

The calculation of the basic loss per share is based on the loss attributable to the shareholders of HK$30,980,000 (1999: HK$97,023,000) and on the weighted average number of 2,071,354,570 shares (1999: 985,729,871 shares) in issue during the period.

Since the employee share options have no dilutive effect on the loss per share, no diluted loss per share is calculated for the current period and the corresponding period last year.

9. TANGIBLE ASSETS

During the period, the Group acquired one residential apartment in Macau at HK$1.1 million and sixteen office apartments in the PRC at HK$8.9 million respectively. The consideration was satisfied by the issue and allotment of 9,545,454 new shares and 80,909,090 new shares of the Company respectively. The properties are held for investment purposes.

In addition, a subsidiary of the Group spent approximately HK$16.3 million on the acquisition of computer equipment and on the development of software platform in order to set up its integrated server-client platform for the provision of e-business consultancy services in the PRC.

The Group sold one residential property in Hong Kong at a loss of approximately HK$72,000.

10. SHARE CAPITAL

                                      Number of shares            Amount
                                                                 HK$'000
Authorised:
Shares of HK$0.10 each at 
  31 August 2000                         6,000,000,000           600,000
                                    ==================        ==========

Issued and fully paid:
Balance as at 1 September 1999           1,044,636,470           104,464
Issue of new shares
  acquisition of investment 
    properties                              90,454,544             9,046
  issue share to new shareholders        1,950,000,000           195,000
  investment in associate company           33,333,333             3,333
  acquisition of subsidiaries              481,951,220            48,195
                                    ------------------        ----------
Balance as at 31 August 2000             3,600,375,567           360,038
                                    ==================        ==========

11. OPERATING RESULTS

For the 12 months ended 31 August 2000, the Group recorded a turnover of HK$112.4 million, representing an increase of 28% over the corresponding period last year. The increase was primarily contributed by the apparel retail business of "San Dino" in Hong Kong and the PRC. San Dino was acquired by the Group in August 1999. During the period, San Dino contributed HK$85.4 million or 76% of the total turnover of the Group. The increase was, however, partially offset by the poor performance of "Giovanni Valentino", and lower income from the sale of investment properties as the Group only sold one property during the period as compared to three properties last year.

The net loss attributable to shareholders for the period was HK$31 million, resulting in a loss per share of 1.5 cents. The net loss for the period and the loss per share had been improved by 68.1% and 85% respectively as compared to the corresponding period last year.

12. BUSINESS REVIEW

As disclosed in the interim report for the six months ended 29 February 2000, the Board would undertake a review of the Group's apparel retail business to decide whether such operations should be continued. The Board subsequently decided that, with the introduction of Warburg Pincus and Merrill Lynch as new shareholders to the Company, it would be in the long term interest of the Group to focus on technology investments. As a result, the apparel retail business of Giovanni Valentino and San Dino were sold in April 2000 and August 2000 respectively. In addition, the Board is currently undergoing a review to dispose of the Group's investment properties in Shanghai and Macau.

In respect of new investments, in addition to the series D preference shares in Shanghai Mecox Lane Holdings Co., Ltd. which was acquired in March 2000, the Group has made three new acquisitions since February 2000. In April 2000, the Group acquired a 83.33% equity interest in eGoChina Holdings Limited, a company which provides technology consultancy and management information and support services to a travel portal which specialises in providing travel-related information and air ticket booking services to corporate customers in China. In June 2000, the Group further acquired a 41% equity interest in Xin Hua Control Engineering Co., Ltd., a company in Shanghai which specialises in the manufacture and sale of electro-hydraulic control systems and other control systems for power plants and large scale manufacturing plants. The Group also acquired a 22.57% equity interest in IBR, Inc., an internet data center and infrastructure related company based in South Korea. The investments were made with a combination of new issue of shares and cash.

The Board is determined to build a portfolio of high quality technology-related investments which in the long term will provide significant profitability to the Group. In this regard, a new chief executive officer with extensive investment banking experience was appointed in September 2000 to provide professional management and to implement the strategic plans as laid down by the Board with the objective of creating long term shareholder value.

13. FINANCIAL POSITION

As mentioned under Business Review, the Group has disposed of its apparel retail business so as to prepare itself for focussing on technology-related investments. The financial position of the Group remained healthy and, apart from the HK$38.2 million bank mortgage loans, the Group had a minimal amount of trade liabilities and commitments. As at 31 August 2000, the Group had HK$167.9 million cash on hand. This forms a solid foundation for the Group's forthcoming expansion and development.

14. CONTINGENCIES AND COMMITMENT

Operating lease commitment

The Group had commitments payable in the following year under non-cancelable operating leases expiring in 2 to 5 years in respect of rented properties amounting to approximately HK$1,907,000 (1999: HK$5.7 million in respect of leases expiring within 1 year and HK$27.3 million in respect of leases expiring in 2 to 5 years).

Commitment on the investment in a joint venture

The Group had entered into a joint venture agreement with Beijing eGoChina e-Commerce Company Limited in which the Group was committed to invest US$4,500,000 within three years from February 2000. As at 31 August 2000, the amount not yet contributed by the Group is US$700,000.

15. POST BALANCE SHEET EVENTS

Subsequent to the second interim reporting date, the Group acquired 15.29% of the entire issued share capital of Great Choices Int'l Limited at a consideration of HK$14 million to be satisfied by the issue and allotment of 35 million new shares of the Company. Details of the acquisition are set out in the Group's circular dated 3 October 2000.

16. AUDIT COMMITTEE

The Group has an audit committee comprising all the independent non-executive directors of the Company. During the year, the audit committee has held two meetings to review the interim results of the Group, and to discuss the internal controls and other relevant matters of the Group.

17. PURCHASE, SALE OR REDEMPTION OF THE COMPANY'S LISTED SECURITIES

During the twelve months ended 31 August 2000, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company's listed securities.

18. CODE OF BEST PRACTICE

One of the independent non-executive directors resigned with effect from 3 August 2000, and the office remains vacant as at today. Pursuant to the Rule 3.10 of the Listing Rule, the Company is required to have at least two independent non-executive directors. The Company is at present actively looking for a suitable candidate for the office of the second independent non-executive directors.

Save as disclosed above, none of the directors of the Company is aware of any information that would reasonably indicate that the Company is not, or was not for any part of the 12 months ended 31 August 2000, in compliance with the Code of Best Practise as set out in Appendix 14 of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited.

19. CHANGE OF YEAR END DATE

In order to have the conterminous year end date of the ultimate holding company, the Board resolved that the Company's year end date be changed from August 31 to December 31.

Following the change, the Group drew up this second interim report for the twelve months ended 31 August 2000. The audited results of the Group for the sixteen months ending 31 December 2000 will be published on or before 30 April 2001.



By Order of the Board
Sun Qiang Chang
Chairman

HKSAR, 24 November 2000


Source: Silvernet Group Limited
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