THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in VXL Capital Limited , you should at once hand this circular and the accompanying form of proxy to the purchaser or the transferee, or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

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(Incorporated in Hong Kong with limited liability) (Stock Code: 727)

VERY SUBSTANTIAL ACQUISITION RELATING TO PROPERTY INTERESTS

Financial adviser to VXL Capital Limited

SOMERLEY LIMITED

A notice convening the Extraordinary General Meeting to be held at Suite 2707-8, One Exchange Square, 8 Connaught Place, Central, Hong Kong on Tuesday, 12 September 2006 at 11:00 a.m. is set out on pages 112 to 113 of this circular.

Whether or not you propose to attend the Extraordinary General Meeting in person, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and deposit the same to the registered office of the Company at Suite 2707-8, One Exchange Square, 8 Connaught Place, Central, Hong Kong or at the Share Registrar of the Company, Computershare Hong Kong Investor Services Limited, at Shops 1712-16, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not later than 48 hours before the time for holding the Extraordinary General Meeting or any adjournment thereof. Completion and delivery of the form of proxy will not preclude you from attending and voting in person at the Extraordinary General Meeting or any adjournment thereof should you so wish.

25 August 2006

			Page
Definitions . . . .		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			6
Appendix I	–	Financial information of the Group. . . . . . . . . . . . . . . . . . . . . . . . . . . .	21
Appendix II	–	Unaudited financial information
		of the North Block . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	70
Appendix III	–	Accountants’ report on the Rich Field Group. . . . . . . . . . . . . . . . . . .	73
Appendix IV	–	Unaudited pro forma financial information
		of the Enlarged Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	85
Appendix V	–	Property valuation report on the property
		interests of the Enlarged Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . .	93
Appendix VI	–	General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	105
Notice of Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			112

DEFINITIONS

In this circular, the following expressions have the following meanings unless the context requires otherwise:

“Acquisition”

the acquisition of the Sale Shares pursuant to the terms and conditions of New Agreement and the indirect acquisition of the Changshou Properties through the acquisition of the Sale Shares by VXL Properties and other related transactions contemplated under the New Agreement

“Agreement”
the agreement for, among others, the sale and purchase of the then entire issued share capital of Rich Field dated 7 March 2006 entered into between VXL Properties, the Vendor and Rich Field, which agreement has been superseded by the Revised Agreement
“Ancillary Properties”
the car parking lots, management office premises and other ancillary structures adjacent to the Changshou Properties
“Board”
the board of Directors
“Changshou Properties”
the North Block and the South Block of the property development known as 長壽商業廣場 (Changshou Commercial Plaza*) situated in the Putuo District in Shanghai, the PRC
“Company”
VXL Capital Limited (Stock Code: 727), a company incorporated in Hong Kong with limited liability, the shares of which are listed on the Main Board of the Stock Exchange
“Daily Right”
Daily Right Limited, a company incorporated in Samoa on 1 November 2005 with limited liability and a wholly-owned subsidiary of Rich Field
“Director(s)”
director(s) of the Company
“Enlarged Group”
the Group after completion of the Acquisition
“Existing PRC Property Contracts” the Property Sale Contracts and the Property Pre-sale Contract
“Extraordinary General Meeting”
an extraordinary general meeting of the Company to be convened and held to consider and, if thought fit, to approve, among other things, the Acquisition and the New Agreement
“Group”

the Company and its subsidiaries

DEFINITIONS

“Heqiang”	上海合強投資有限公司(Shanghai Heqiang Investment
	Company Limited*), a company established in the PRC
“HIBOR”	Hong Kong Interbank Offered Rate
“Hongwei”	上海宏偉房地產開發有限公司(Shanghai Hongwei Property
	Development Company Limited*), a company established in
	the PRC
“Hong Kong”	the Hong Kong Special Administrative Region of the PRC
“Hongwei Share Sale”	the intended acquisition by WFOE of an 85% interest in
	Hongwei, as to 51% from Qiangsheng, 14% from Heqiang
	and 20% from Huayang pursuant to the MOU and subject to
	a formal contract
“Huayang”	上海華揚賽利實業發展有限公司(Shanghai Huayang Saili
	Enterprise Development Company Limited*), a company
	established in the PRC
“Latest Practicable Date”	23 August 2006, being the latest practicable date prior to
	the printing of this circular for ascertaining certain information
	for inclusion in this circular
“Lease”	the existing lease agreement between Hongwei and
	Qiangsheng in respect of the North Block
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange
“Loan”	the RMB59 million (equivalent to approximately HK$57.1
	million) loan advanced by VXL Properties to Rich Field
	pursuant to the terms of the Agreement
“Moral High”	Moral High Limited, a company incorporated in Samoa on
	15 November 2005 and a wholly-owned subsidiary of Daily
	Right
“MOU”	the memorandum of understanding dated 27 December 2005
	(as amended and supplemented on 5 March 2006, 8 May
	2006 and 10 August 2006) among Daily Right, Moral High,
	Hongwei and (in respect of the supplemental memorandum
	dated 10 August 2006 only) WFOE
“New Agreement”	the new agreement dated 3 August 2006 entered into among
	Rich Field, VXL Properties and the Vendor in relation to the
	sale and purchase of the Sale Shares

DEFINITIONS

“New PRC Property Contracts” the New Property Pre-sale Contract and the New Property Sale Contracts
“New Property Pre-sale Contract” the sale and purchase contract dated 15 August 2006 and entered into between Hongwei and WFOE in respect of the South Block
“New Property Sale Contracts”
the six property sale contracts all dated 15 August 2006, entered into between Hongwei and WFOE in respect of the sale and purchase of the North Block
“New Share Charge”

the share charge dated 26 May 2006 executed by the Vendor and Rich Field in favour of VXL Properties charging the Sale Shares to VXL Properties to secure repayment of the Loan and all other monies owing by Rich Field to VXL Properties from time to time

“North Block”
the property situated in 長壽商業廣場 (Changshou Commercial Plaza) with address known as 上海普陀區長壽路《長壽商業廣場（北塊）》幢155（號）1-6層室 (No. 155, Level 1 to Level 6, Changshou Commercial Plaza (North Block), Changshou Road, Putuo Area, Shanghai)
“North Block Consideration”
being the consideration for the North Block pursuant to the New Property Sale Contracts of RMB251,509,500 (equivalent to approximately HK$243,239,362)
“PRC”
The People’s Republic of China which, for the purpose of this circular, excludes the Hong Kong Special Administrative Region, the Macao Special Administrative Region and Taiwan
“Property Pre-sale Contract”
the sale and purchase contract dated 24 February 2006 (as amended and supplemented on 4 and 5 March 2006 and 8 May 2006) and entered into between Hongwei and Moral High in respect of the South Block
“Property Sale Contracts”
the sale and purchase contract dated 27 February 2006 together with its supplemental terms, as superseded by six property sale contracts all dated 5 March 2006, entered into between Hongwei and Moral High in respect of sale and purchase of the North Block
“Qiangsheng” 上海強生置業有限公司 (Shanghai Qiangsheng Property Company Limited*), a company established in the PRC

DEFINITIONS

“Revised Agreement”
the conditional agreement dated 26 May 2006 (as supplemented by an agreement dated 21 June 2006) entered into among Rich Field, the Vendor, VXL Properties, the Company and Benefitway Investments Limited in relation to the sale by the Vendor and purchase by each of VXL Properties and Benefitway Investments Limited of 50% of the issued share capital of Rich Field, which agreement has lapsed
“Rich Field” Rich Field International Limited, a company incorporated in Samoa on 16 December 2005 and is wholly and beneficially owned by the Vendor
“Rich Field Group” Rich Field and its subsidiaries, being Daily Right, Moral High and WFOE as at the date of the New Agreement
“Sale Shares” two issued shares of US$1.00 in the capital of Rich Field, representing the entire issued share capital of Rich Field
“Savills” Savills Valuation and Professional Services Limited, an independent professional property valuer
“SFO” Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
“Share(s)” share(s) of HK$0.20 each in the capital of the Company
“Shareholder(s)” holder(s) of the Share(s)
“Sold Shops” the two shops with addresses at 上海普陀區長壽路 175號 and 179號 (No. 175 and 179, Changshou Road, Putuo Area, Shanghai*) respectively
“South Block” the property situated in 長壽商業廣場 (Changshou Commercial Plaza) with address known as 上海普陀區陝西北路《長壽商業廣場C樓商場》1347, 1351, 1355, 1359, 1363, 1367, 1371, 1375, 1379, 1383號 1層 1-6層室 (No 1347, 1351, 1355, 1359, 1363, 1367, 1371, 1375, 1379, 1383, Level 1 to Level 6, Block C, Changshou Commercial Plaza Block, Xian Xi Bei Road, Putuo Area, Shanghai)
“South Block Consideration”
being the consideration for the South Block pursuant to the New Property Pre-sale Contract of RMB210,490,500 (equivalent to approximately HK$203,569,149)
“Stock Exchange” The Stock Exchange of Hong Kong Limited

DEFINITIONS

“Supplemental New Share	a supplemental share charge dated 3 August 2006 executed
Charge”	by the Vendor, Rich Field and VXL Properties to amend the
	New Share Charge
“Vendor”	Ms. Yeung Pui Shan, the vendor of the Sale Shares
“VXL Partners”	VXL Capital Partners Corporation Limited, a company
	incorporated in the British Virgin Islands and the controlling
	Shareholder interested in approximately 74.3% of the issued
	Shares
“VXL Properties”	VXL Properties Holdings Limited, a company incorporated
	in Samoa on 5 August 2005 with limited liability and a wholly-
	owned subsidiary of the Company
“WFOE”	峻領德高商業發展（上海）有限公司(Peak Moral High
	Commercial Development (Shanghai) Company Limited*), a
	wholly foreign-owned enterprise established in the PRC on
	25 July 2006, the entire registered capital of which is held
	by Moral High
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“RMB”	Renminbi, the lawful currency of the PRC
“US$”	United States dollars, the lawful currency of the United States
	of America
“sq. m.”	square metre
“%”	per cent.

For illustration in this circular (excluding the property valuation report set out in appendix V to this circular), figures denominated in RMB and US$ are translated into HK$ at the approximate exchange rates of RMB1.034 to HK$1 and US$1 to HK$7.8 respectively. The approximate exchange rate of RMB1.027 to HK$1 is used for illustration purpose in appendix V to this circular.

Certain English translations of Chinese names or words in this circular are included for information purpose only and should not be regarded as the official English translation of such Chinese names or words.

For identification only

LETTER FROM THE BOARD

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(Incorporated in Hong Kong with limited liability) (Stock Code: 727)

Executive Directors: Datuk LIM Chee Wah Mr. Percy ARCHAMBAUD-CHAO Ms. Patsy SO Ying Chi Mr. Stephen YUEN Ching Bor

Registered office: Suite 2707-8, One Exchange Square 8 Connaught Place Central Hong Kong

Independent non-executive Directors: Mr. Michael YEE Kim Shing Mr. Alan Howard SMITH, J.P. Dr. Allen LEE Peng Fei, J.P.

25 August 2006

To the Shareholders

Dear Sir or Madam,

VERY SUBSTANTIAL ACQUISITION RELATING TO PROPERTY INTERESTS

INTRODUCTION

On 3 August 2006, the Board announced that VXL Properties, a wholly-owned subsidiary of the Company, entered into the New Agreement with the Vendor and Rich Field on 3 August 2006 to acquire the Sale Shares (representing the entire issued share capital of Rich Field) for a total consideration of HK$5 million. Save for the percentage interest in Rich Field being acquired, the proportionate adjustment to the consideration thereof and the references and the terms in relation to Benefitway Investments Limited, the principal terms of the New Agreement were substantially the same as those of the Revised Agreement, which subsequently has lapsed.

WFOE, an indirect wholly-owned subsidiary of Rich Field, has agreed to acquire the Changshou Properties pursuant to the New PRC Property Contracts. WFOE has also entered into the non-legally binding MOU to, among others, acquire 85% of the registered capital of Hongwei which in turn holds the Ancillary Properties.

The Acquisition constitutes a very substantial acquisition for the Company under Chapter 14 of the Listing Rules and is therefore subject to Shareholders’ approval in general meeting pursuant to Rule 14.49 of the Listing Rules. As no Shareholder has any material interest in the

LETTER FROM THE BOARD

transactions contemplated under the New Agreement which is different from that of the other Shareholders, no Shareholder is required to abstain from voting on the resolution in relation to the Acquisition and the New Agreement at the Extraordinary General Meeting.

The purpose of this circular is to provide you with, among other things, (i) further information in relation to the New Agreement, the New PRC Property Contracts and the Changshou Properties; (ii) financial information of the Group, the Rich Field Group and the Enlarged Group; and (iii) a notice of the Extraordinary General Meeting.

THE NEW AGREEMENT

Date: 3 August 2006

Parties:

(i) Ms. Yeung Pui Shan, the vendor of the Sale Shares. To the best of the Directors’ knowledge, information and belief and after having made all reasonable enquiries, the Vendor is a third party independent of the Company and its connected persons (as defined in the Listing Rules);
(ii) VXL Properties, the purchaser of the Sale Shares and a wholly-owned subsidiary of the Company; and
(iii) Rich Field, a company wholly and beneficially owned by the Vendor as at the date of the New Agreement.

Assets to be acquired:

VXL Properties has conditionally agreed to acquire the Sale Shares (representing the entire issued share capital of Rich Field) from the Vendor free from all liens, charges and encumbrances and together with all rights now or thereafter attaching thereto including all dividends and distributions declared, made or paid on or after the date of completion of the New Agreement. Upon completion of the New Agreement, Rich Field will be accounted for as a subsidiary of the Company and the accounts of Rich Field will be consolidated into the accounts of the Group.

Rich Field holds 100% of the issued share capital of Daily Right, which in turn holds 100% of the issued share capital of Moral High. Rich Field, Daily Right and Moral High have not commenced business since their respective incorporation in late 2005, except for entering into the MOU, the Existing PRC Property Contracts, the Agreement, the Revised Agreement, the New Agreement and transactions incidental and relating thereto. As at the date of the New Agreement, the Rich Field Group has no material assets, other than the deposits and prepayments made for acquiring the North Block and the South Block, and the rights, through WFOE, a wholly-owned subsidiary of Moral High, to acquire the Changshou Properties pursuant to the New PRC Property Contracts. WFOE has also entered into the non-legally binding MOU to, among others, acquire 85% of the registered capital of Hongwei which holds the Ancillary

LETTER FROM THE BOARD

Properties. Details of the New PRC Property Contracts, the Changshou Properties, the MOU and the Ancillary Properties are set out in the paragraphs headed “The New PRC Property Contracts” and “The MOU” below.

Consideration and payment terms:

The consideration for the Sale Shares is HK$5 million, which shall be payable in cash as follows:

(i) HK$10 on completion of the New Agreement; and
(ii) the balance of HK$4,999,990 shall be payable if the following conditions are satisfied: (a) completion of the New Agreement shall have taken place in accordance with its terms; and (b) the purchase of the Changshou Properties by WFOE shall have been completed in accordance with the terms of the New PRC Property Contracts to the satisfaction of VXL Properties.

If either of the above conditions (a) or (b) is not fulfilled on or before 31 October 2006 (or such later date as the parties may agree), the payment of the balance referred to in (ii) above shall be deemed to have been automatically waived by the Vendor, and VXL Properties shall have no further obligation to pay such balance.

Conditions:

Completion of the New Agreement is subject to the fulfillment or waiver of the following conditions on or before 30 September 2006:

(i) the obtaining of the approval of the Shareholders in general meeting in respect of the entering into of the New Agreement and the performance/effecting of all transactions contemplated thereunder in compliance with the Listing Rules and any other applicable regulatory provisions;
(ii) none of the Existing PRC Property Contracts and related documents having been further varied, amended or supplemented, and each of the same being in full force and effect according to its terms and no provision of any of the same having been breached, unfulfilled or untrue or inaccurate or misleading;
(iii) the receipt by VXL Properties of a legal opinion issued by a Samoa lawyer on matters relating to, among other things, the due incorporation, subsistence and good standing of Rich Field and Moral High and the validity and enforceability of the New Agreement, the New Share Charge as supplemented by the Supplemental New Share Charge and the debenture executed by Rich Field in favour of VXL Properties, in the form and substance satisfactory to VXL Properties;

LETTER FROM THE BOARD

(iv) the receipt by VXL Properties of a legal opinion issued by a PRC lawyer on matters relating to, among other things, the title to the Changshou Properties and the Ancillary Properties and the validity and enforceability of the related documents, in the form and substance satisfactory to VXL Properties;
(v) the representations, warranties and undertakings contained in or referred to in the New Agreement given by the Vendor remaining true and accurate and not misleading in any material respect at completion of the New Agreement;
(vi) all necessary approvals of the New Agreement and the actions contemplated therein under any applicable laws or regulations in Hong Kong, Samoa, the PRC and any applicable jurisdiction, if required, to be obtained within 21 days (or such longer period as the parties may agree) from the date of the New Agreement;
(vii) the obtaining of all necessary waivers or consents as VXL Properties may require from the Vendor (if any) to enable VXL Properties or its nominees to be registered as the holder of the Sale Shares within 21 days (or such longer period as the parties may agree) from the date of the New Agreement; and
(viii) completion of the due diligence review (which shall include legal and financial due diligence) by VXL Properties on the Rich Field Group, the Changshou Properties and the Ancillary Properties to the satisfaction of VXL Properties, such due diligence to be completed within 21 days (or such longer period as the parties may agree) from the date of the New Agreement.

VXL Properties may waive any of the conditions referred to above at any time in writing to the Vendor. As at the Latest Practicable Date, none of the above conditions has been waived nor fully have they been fulfilled.

Completion of the New Agreement shall take place on the third business day after all the conditions set out above have been fulfilled or waived, or on a later date as the parties may mutually agree in writing.

In the event that any of the above conditions shall not have been fulfilled or waived by 30 September 2006, the New Agreement shall cease to be of any effect and the parties shall have no claim against each other arising out of or in connection with the New Agreement, save in respect of any claims arising out of any antecedent breach of the New Agreement. In this regard, further announcement(s) will be made by the Company as and when appropriate.

LETTER FROM THE BOARD

The Loan:

Pursuant to the Agreement, VXL Properties agreed to advance the Loan of RMB59 million (equivalent to approximately HK$57.1 million) to Rich Field as follows:

(i) as to RMB46.2 million (equivalent to approximately HK$44.7 million) of the Loan (the “First Drawdown”) upon execution of the Agreement; and
(ii) as to the balance of the available Loan amount, being RMB12.8 million (equivalent to approximately HK$12.4 million) (the “Remaining Drawdown”), to be made available for drawdown by Rich Field by serving not less than one business day’s prior notice to VXL Properties on or before 30 April 2006.

The First Drawdown and the Remaining Drawdown were advanced to Rich Field on 7 March 2006 and 10 March 2006 respectively.

The Loan was advanced on the strict undertaking and condition that the Vendor and Rich Field shall ensure that the Loan is on-lent to Daily Right and/or Moral High solely for the purposes of (i) in respect of the First Drawdown, allowing Daily Right and/or Moral High to meet their respective payment obligations under the Existing PRC Property Contracts; and (ii) in respect of the Remaining Drawdown, repurchasing the Sold Shops (further information on the Sold Shops is set out in the paragraph headed “Reasons for the Acquisition” below) and settling existing tenancies at the North Block.

The Loan is interest free and repayable on demand. The parties acknowledge that if the New Agreement does not proceed to completion for any reason, the outstanding principal of the Loan shall be repaid to VXL Properties within 45 days from the date on which the New Agreement lapses or terminates on its terms.

As security for repayment of the Loan and all other monies owing from time to time by Rich Field to VXL Properties, the Vendor and Rich Field executed the New Share Charge in favour of VXL Properties in respect of the Sale Shares. Due to the lapse of the Revised Agreement and the entry of the New Agreement, the Vendor, Rich Field and VXL Properties have, concurrently with the execution of the New Agreement, executed a Supplemental New Share Charge to amend the New Share Charge. Rich Field has also executed an all-monies debenture in favour of VXL Properties in respect of all the assets of Rich Field including a share charge on the entire issued share capital of Moral High held by Rich Field in favour of VXL Properties. The New Share Charge as supplemented by the Supplemental New Share Charge and the said debenture will be released upon the earlier of the discharge of the obligations under the relevant security and completion of the New Agreement, as by which time Rich Field will have become a wholly-owned subsidiary of VXL Properties.

There is no material difference between the principal terms of the New Agreement and those of the Revised Agreement, save for the percentage interest in Rich Field being acquired, the proportionate adjustment to the consideration thereof and references and the terms in relation to Benefitway Investments Limited.

LETTER FROM THE BOARD

THE NEW PRC PROPERTY CONTRACTS

Pursuant to the MOU, Daily Right, Hongwei, Moral High and WFOE acknowledged and agreed that WFOE would take up the rights and obligations of Moral High under the Existing PRC Property Contracts.

On 15 August 2006, the New PRC Property Contracts were entered into between Hongwei and WFOE in respect of the Changshou Properties under substantially the same terms as those contained in the Existing PRC Property Contracts, save for an earlier payment of part of the North Block Consideration and a delayed payment of part of the South Block Consideration. As the net amount of payment which may be brought forward as a result of such change is approximately RMB8.2 million which accounts for less than 1.8% of the total consideration for the Changshou Properties, the Directors consider such change in payment schedule does not constitute a material change to the tentative terms of the New PRC Property Contracts which warrants a separate announcement by the Company at the time of the execution of the New PRC Property Contracts.

The New PRC Property Contracts comprise the New Property Sale Contracts in respect of the North Block and the New Property Pre-sale Contract in respect of the South Block.

The New Property Sale Contracts

Date: 15 August 2006

Parties:

(i) Hongwei, the developer of the Changshou Properties; and
(ii) WFOE.

The Property Pre-sale Contract

Date: 15 August 2006

Parties:

(i) Hongwei; and
(ii) WFOE.

The principal activity of Hongwei is property development. As at the date of the New Agreement, Hongwei is owned as to 51% by Qiangsheng, 14% by Heqiang and 35% by Huayang. To the best of the Directors’ knowledge, information and belief and after having made all reasonable enquiries, each of Hongwei, Huayang, Qiangsheng and Heqiang and their respective ultimate beneficial owners are third parties independent of the Company and its connected persons (as defined in the Listing Rules).

LETTER FROM THE BOARD

Assets being acquired:

Pursuant to the New Property Sale Contracts, WFOE has agreed to acquire the North Block together with the benefits and rights attached to the Lease from Hongwei. Pursuant to the New Property Pre-sale Contract, WFOE has agreed to acquire the South Block on completed basis from Hongwei free from encumbrances.

The Changshou Properties are situated in the Putuo District in Shanghai, the PRC and consist of two adjacent blocks, the North Block and the South Block, built in a commercial/ residential development known as 長壽商業廣場 (“Changshou Commercial Plaza”). The North Block was completed in late 2002 and comprised a 6-level shopping mall and commercial complex with total gross floor area of approximately 26,312 sq.m. The complex is currently leased to Qiangsheng for a period of 14 years expiring on 31 August 2017. According to the Lease, the annual rental income for the North Block are RMB3 million (equivalent to approximately HK$2.9 million) for each of the first 3 years, RMB4 million (equivalent to approximately HK$3.9 million) for each of the 4th and 5th years, RMB5 million (equivalent to approximately HK$4.8 million) for each of the 6th and 7th years, RMB6 million (equivalent to approximately HK$5.8 million) for each of the 8th and 9th years, RMB7 million (equivalent to approximately HK$6.8 million) for the 10th and 14th year, RMB8 million (equivalent to approximately HK$7.7 million) for the 11th year, RMB9 million (equivalent to approximately HK$8.7 million) for the 12th year and RMB10 million (equivalent to approximately HK$9.7 million) for the 13th year of the lease term. Utilities and other outgoings of the North Block are borne by the tenant.

For each of the two years ended 31 December 2004 and 2005, the accrued rental income before deducting related PRC business tax and property tax for the North Block was approximately RMB3 million (equivalent to approximately HK$2.9 million) each in accordance with the terms of the Lease. For the six months ended 30 June 2006, the accrued rental income before deducting related PRC business tax and property tax for the North Block was approximately RMB1.5 million (equivalent to approximately HK$1.45 million) pursuant to the terms of the Lease. Under the Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants, the rental income under the Lease has to be recognised in the profit and loss account on a straight-line basis over the period of the Lease. Accordingly, the unaudited annual rental income before deducting related PRC business tax and property tax recognised in the profit and loss account for the North Block for each of the two years ended 31 December 2004 and 2005 was approximately RMB5.7 million (equivalent to approximately HK$5.5 million). The unaudited rental income after deducting related PRC business tax and property tax recognised in the profit and loss account for the North Block for each of the two years ended 31 December 2004 and 2005 was approximately RMB4.7 million (equivalent to approximately HK$4.6 million). For the six months ended 30 June 2006, the unaudited rental income before and after deducting related PRC business tax and property tax recognised in the profit and loss account for the North Block were approximately RMB2.9 million (equivalent to approximately HK$2.8 million) and RMB2.4 million (equivalent to approximately HK$2.3 million) respectively.

The South Block is at present being developed into commercial properties with an expected total gross floor area of approximately 14,033 sq.m. Development of the South Block is expected to be completed in or about October 2006 and delivered to Moral High on or before 30 October 2006.

LETTER FROM THE BOARD

Consideration and payment terms of the North Block:

The consideration for the North Block is approximately RMB251.5 million (equivalent to approximately HK$243.2 million) and shall be payable to Hongwei as follows:

(i) as to approximately RMB50.3 million (equivalent to approximately HK$48.6 million and representing 20% of the North Block Consideration) within thirty days from the date of the New Property Sale Contracts;
(ii) as to approximately RMB25.1 million (equivalent to approximately HK$24.3 million and representing 10% of the North Block Consideration) within ten days after Moral High receiving the refund of deposit paid to Hongwei in respect of the North Block and the South Block. Hongwei has to refund such deposit to Moral High within ten days following the receipt of the aforesaid RMB50.3 million referred to in (i) above; and
(iii) as to the balance of approximately RMB176.1 million (equivalent to approximately HK$170.3 million and representing 70% of the North Block Consideration) on the date on which Hongwei and WFOE shall make a joint application to the relevant PRC authority for the transfer of the land title of the North Block.

Of the RMB176.1 million, RMB150.9 million (equivalent to approximately HK$145.9 million and representing 60% of the North Block Consideration) shall be paid to Hongwei directly and the remaining RMB25.2 million (equivalent to approximately HK$24.4 million and representing 10% of the North Block Consideration) shall be deposited into an escrow bank account jointly maintained by Hongwei and WFOE and released to Hongwei upon the due transfer of the property title in respect of the North Block, and the due issuance of the relevant title documents by the relevant PRC government authorities, to WFOE.

Consideration and payment terms of the South Block:

The consideration for the South Block is approximately RMB210.5 million (equivalent to approximately HK$203.6 million) and shall be payable to Hongwei as follows:

(i) as to approximately RMB42.1 million (equivalent to approximately HK$40.7 million and representing 20% of the South Block Consideration) within thirty days from the date of the New Property Pre-sale Contract;
(ii) as to approximately RMB21.1 million (equivalent to approximately HK$20.4 million and representing 10% of the South Block Consideration) within ten days after Moral High receiving the refund of deposit paid to Hongwei in respect of the North Block and the South Block. Hongwei has to refund such deposit to Moral High within ten days following the receipt of the aforesaid RMB42.1 million referred to in (i) above; and

LETTER FROM THE BOARD

(iii) as to the balance of RMB147.3 million (equivalent to approximately HK$142.5 million and representing 70% of the South Block Consideration) on the date of the physical delivery of the South Block, on a completed basis, by Hongwei to WFOE.
Of the RMB147.3 million, approximately RMB126.3 million (equivalent to approximately HK$122.1 million and representing 60% of the South Block Consideration) will be paid to Hongwei directly on physical delivery of the South Block and the remaining approximately RMB21.0 million (equivalent to approximately HK$20.4 million and representing 10% of the South Block Consideration) shall be deposited into an escrow bank account jointly maintained by Hongwei and WFOE and released to Hongwei on the date of the due issuance of the relevant title documents in respect of the South Block by the relevant PRC authorities to WFOE.

Each of the New Property Sale Contracts and the New Property Pre-sale Contract provides that if the relevant contract is not completed due to the default of any party to the contract, the defaulting party shall pay compensation to the non-defaulting party in the sum equal to 3% of the North Block Consideration or the South Block Consideration, as the case may be. If Hongwei is the defaulting party, in addition to the aforesaid compensation, Hongwei has to return to WFOE all consideration money that WFOE has paid to it. If WFOE is the defaulting party, Hongwei shall return all the consideration money that WFOE has paid to it, less the compensation sum payable by WFOE. To this end, Qiangsheng, the controlling shareholder of Hongwei, will give a guarantee undertaking to WFOE guaranteeing the due performance of Hongwei under the New PRC Property Contracts, including but not limited to the payment obligation, if any, of Hongwei under the said contracts.

THE MOU

Date: 27 December 2005 (amended and supplemented on 5 March 2006, 8 May 2006 and 10 August 2006)

Parties:

(i) Daily Right;
(ii) Hongwei;
(iii) Moral High; and
(iv) WFOE, in respect of the supplemental memorandum dated 10 August 2006.

LETTER FROM THE BOARD

Principal terms of the MOU

Pursuant to the MOU and subject to formal contract, WFOE expressed its intention to acquire a total of 85% of the registered capital of Hongwei, as to 51% from Qiangsheng, 14% from Heqiang and 20% from Huayang, for a total consideration of RMB23.8 million (equivalent to approximately HK$23.0 million). Huayang presently holds 35% of Hongwei. Accordingly, it shall remain a 15% registered holder of Hongwei should the Hongwei Share Sale proceed.

Pursuant to the MOU, the principal assets of Hongwei upon completion of the Hongwei Share Sale shall be the Ancillary Properties which comprise approximately 180 car parking lots, property management office premises and other ancillary structure in the Changshou Commercial Plaza adjacent to the Changshou Properties.

Hongwei shall provide Moral High and WFOE with a guarantee issued by Qiangsheng in favour of WFOE guaranteeing the due performance of Hongwei under the New PRC Property Contracts.

The MOU is not legally binding and the aforesaid principal terms of the MOU shall be subject to the execution by the relevant parties of formal binding agreement(s). Should the transaction being contemplated under the MOU materialise, the Company shall comply with the relevant disclosures and/or Shareholders’ approval requirements of the Listing Rules where appropriate.

LETTER FROM THE BOARD

THE SHAREHOLDING STRUCTURES BEFORE AND AFTER COMPLETION OF THE NEW PRC PROPERTY CONTRACTS AND THE NEW AGREEMENT

(i) Before completion of the New PRC Property Contracts and the New Agreement

==> picture [336 x 139] intentionally omitted <==

----- Start of picture text -----

Qiangsheng Heqiang Huayang The Vendor
51% 14% 35% 100%
Rich Field
Hongwei
100%
100%
Daily Right
Ancillary North Block South Block 100%
Properties
Moral High
----- End of picture text -----

(ii) After completion of the New PRC Property Contracts and the New Agreement

==> picture [383 x 277] intentionally omitted <==

----- Start of picture text -----

The Company
100%
VXL Properties
100%
Qiangsheng Heqiang Huayang
Rich Field
51% 14% 35%
100%
Daily Right
100%
Moral High
100%
Hongwei WFOE
100% MOU relating to 100%
the Hongwei
Share Sale
Ancillary
Properties North Block South Block
----- End of picture text -----

LETTER FROM THE BOARD

REASONS FOR THE ACQUISITION

The Group is principally engaged in property investment and financial services. VXL Properties is the holding company of the property investment arm of the Group.

As disclosed in the 2005 annual report of the Group, the Directors foresee tremendous opportunities arising from the growing demand for premium-quality properties and high-end residential apartments both in Hong Kong and the PRC. Given the strong momentum for urbanisation and the upward trend in per capita income in the PRC, the Group continues to identify potential investment opportunities in this sector, with the aim to achieve long-term capital appreciation while generating recurring rental income for the Group.

The Changshou Properties are located in the Putuo District which is one of the central urban zones in the north-west of Shanghai. The Putuo District is also one of the important junctions for land transportation in Shanghai and a fast growing area within Shanghai in terms of urban redevelopment, foreign investment as well as consumer spending. In view of the strategic location of the Changshou Properties, the Directors consider that the development and investment potential of the Changshou Properties is promising. The Directors also consider that the improved living standard resulting from the continued economic development of the Putuo District would help to boost demand for quality shopping mall and residential properties.

Based on the North Block Consideration and the average annual rental income of the North Block of approximately RMB5.7 million (equivalent to approximately HK$5.5 million) over the term of the Lease, the North Block is generating an average return of approximately 2.3% per annum. The Group has already commenced discussions with Hongwei to early discharge the rights and obligations of the parties under the Lease. Up to the Latest Practicable Date, discussions are still in progress and certain agreements have been reached. In order to further enhance the marketability and rental potential of the Changshou Properties and improve the return to the Group, the Group intends to undertake major renovation, improvement and other enhancement work to upgrade the quality of the Changshou Properties. The North Block comprises the first to sixth floors of commercial areas at No. 155, Changshou Road. Beneath the North Block are 2 retail shops on the ground floor, which have been sold to other third parties by Hongwei. Since March 2006 when the parties entered into the Agreement, in order to facilitate efficient management of the Changshou Properties in due course and to consolidate ownership for the purpose of quality management in future, Moral High started negotiations with the relevant owners to repurchase the Sold Shops with the consent of VXL Properties. Up to the Latest Practicable Date, discussions are still in progress and no formal agreement has been reached. Should the repurchase of the Sold Shops materialise, the Company shall comply with the relevant disclosures and/or Shareholders’ approval requirements of the Listing Rules where appropriate. It is estimated that the capital expenditures required for the aforesaid renovation, upgrading and enhancement work of the Changshou Properties, the repurchase of the Sold Shops and other related incidental matters may fall into the range of approximately RMB125 million (equivalent to approximately HK$120.9 million).

LETTER FROM THE BOARD

The Board intends to hold the Changshou Properties for long-term investment purposes to generate recurring rental income for the Group. Notwithstanding the lapse of the Revised Agreement which does not have any adverse financial effect on the Company, the Board has re-examined and is satisfied with the results of the due diligence work performed on the Changshou Properties to date, and consider that the Acquisition is in line with the business strategy of the Group and is in the interests of the Company and the Shareholders as a whole. The consideration for the New Agreement has been arrived at after arm’s length negotiations with the Vendor after taking into account the valuation of the Changshou Properties of approximately RMB703 million (equivalent to approximately HK$679.9 million) as at 31 March 2006 by an independent professional valuer on a vacant possession basis for the North Block and on a completed basis for the South Block, the consideration payable for the Changshou Properties pursuant to the Existing PRC Property Contracts, the estimated amount of capital investment involved in undertaking renovation and improvement work at the Changshou Properties and the resources such as manpower and time to be incurred by the Group for the discharge of the Lease in respect of the North Block. The Board considers that the terms of the New Agreement including the consideration are fair and reasonable. The valuation report prepared by Savills on the Changshou Properties is set out in appendix V to this circular.

FUNDING ARRANGEMENT

The Group intends to fund the consideration of HK$5 million for the acquisition of the Sale Shares by internal resources of the Group. It is expected that the Group will finance the capital expenditures for the acquisition of the Changshou Properties as to approximately HK$339.9 million by bank borrowings, as to approximately HK$36.9 million by its internal resources and as to approximately HK$70.0 million by a loan provided by VXL Partners, the controlling Shareholder, bearing an annual interest at 2-month HIBOR plus 0.25%. In this connection, VXL Properties has received an indicative offer from a financial institution on 22 August 2006 to provide a long term loan facility of not exceeding HK$340 million bearing interest at Hong Kong Dollar prime lending interest rate to finance the proposed acquisition of the Changshou Properties pursuant to the New PRC Property Contracts. The Directors are of the opinion that the aforesaid loan proposal will be completed before the due date for the final payment of the consideration for the North Block and the South Block which is currently expected to be 31 October 2006.

As disclosed in the paragraph headed “Reasons for the Acquisition”, it is estimated that the capital expenditures required for the renovation, upgrading and enhancement work of the Changshou Properties, the repurchase of the Sold Shops and other related incidental matters may fall into the range of approximately HK$120.9 million. The Group intends to fund these capital expenditures partly by internal resources of the Group and partly through issue of securities of the Company. In this connection, the Company has been in discussions with an independent third party for possible fund raising exercise involving the issue of new securities of the Company. However, no agreement has yet been entered into as at the Latest Practicable Date and the terms thereof are yet to be finalised. The Company shall comply with the relevant disclosures and/or Shareholders’ approval requirements of the Listing Rules should any agreement for the issue of new securities be entered into. The completion and pricing of

LETTER FROM THE BOARD

issuance of securities will depend on market conditions and such issuance may or may not materialise. If the issuance of securities does not materialise, the Enlarged Group would consider alternative funding sources. As at the Latest Practicable Date, the Group has no intention to invite strategic partners to co-invest in the Changshou Properties project.

FINANCIAL EFFECTS OF THE ACQUISITION ON THE GROUP

Immediately following completion of the New Agreement, Rich Field shall become a whollyowned subsidiary of the Group and the results of the Rich Field Group will be consolidated into the accounts of the Group.

As set out in the consolidated balance sheet of the Group contained in appendix I to this circular, the Group had audited total assets attributable to the Shareholders of approximately HK$300.5 million as at 31 December 2005. Based on the total assets of the Group as at 31 December 2005 and assuming completion of the Acquisition including the acquisition of the Changshou Properties, the unaudited pro forma total assets attributable to the Shareholders will be approximately HK$835.3 million as shown in the unaudited pro forma consolidated balance sheet of the Enlarged Group contained in appendix IV to this circular.

Since an aggregate borrowings of approximately HK$409.9 million, including bank borrowings of approximately HK$339.9 million to be drawn by the Group and Shareholder’s loan in the amount of HK$70 million provided by VXL Partners, are expected to be used to finance the acquisition of the Changshou Properties, the liabilities of the Enlarged Group would accordingly increase after completion of the Acquisition.

The acquisition of the Changshou Properties is expected to enhance the revenue base of the Group. As shown in the unaudited pro forma consolidated profit and loss account of the Enlarged Group contained in appendix IV to this circular, approximately HK$5.5 million annual rental income before deducting related PRC business tax and property tax would be recognised in the profit and loss account for the North Block and shared by the Group assuming completion of the acquisition of the Changshou Properties. Due to (a) the expected drawdown of aforesaid bank borrowings to finance the acquisition of the Changshou Properties and on the basis of interest rate of 6.5% per annum, and (b) the Shareholder’s loan provided by VXL Partners bearing interest at 2.4% per annum, the Group is expected to incur additional finance cost of approximately HK$23.8 million per annum assuming completion of the New Agreement and the acquisition of the Changshou Properties.

EXTRAORDINARY GENERAL MEETING

The Acquisition constitutes a very substantial acquisition for the Company under Chapter 14 of the Listing Rules and is therefore subject to Shareholders’ approval pursuant to Rule 14.49 of the Listing Rules. As no Shareholder has any material interest in the transactions contemplated under the New Agreement which is different from that of the other Shareholders, no Shareholder is required to abstain from voting on the resolution in relation to the Acquisition and the New Agreement at the Extraordinary General Meeting.

LETTER FROM THE BOARD

Set out on pages 112 to 113 of this circular is a notice convening the Extraordinary General Meeting to be held at Suite 2707-8, One Exchange Square, 8 Connaught Place, Central, Hong Kong on Tuesday, 12 September 2006 at 11:00 a.m. at which an ordinary resolution will be proposed and, if thought fit, passed to, among other things, approve the Acquisition and the New Agreement.

PROCEDURES FOR DEMANDING A POLL

Article 89 of the articles of association of the Company sets out the procedures by which the Shareholders may demand a poll.

At any general meeting, a resolution put to the vote of the meeting shall be decided on a show of hands unless a poll is (before or on the declaration of the result of the show of hands) demanded:

(a) by the Chairman; or
(b) by at least three Shareholders present in person (or in the case of a Shareholder being a corporation by its duly authorised representative) or by proxy for the time being entitled to vote at the meeting; or
(c) by a Shareholder or Shareholders present in person (or in the case of a Shareholder being a corporation by its duly authorised representative) or by proxy and holding Shares conferring a right to vote at the meeting being Shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all Shares conferring that right.

RECOMMENDATION

The Directors consider the terms and conditions of the New Agreement to be fair and reasonable and the Acquisition to be in the interests of the Company and the Shareholders as a whole and therefore recommend the Shareholders to vote in favour of the resolution to be proposed at the Extraordinary General Meeting.

ADDITIONAL INFORMATION

Your attention is drawn to the financial information relating to the Group, the Rich Field Group, the Enlarged Group and the Changshou Properties, the valuation report on the properties of the Enlarged Group and other information set out in the appendices to this circular.

Yours faithfully By order of the Board

Stephen YUEN Ching Bor Executive Director

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL SUMMARY

The following is a summary of the consolidated financial information of the Group for the period from 1 April 2003 to 31 December 2003 and for the two years ended 31 December 2004 and 2005, as extracted from the relevant annual reports of the Company which are not subject to any qualified opinion.

The Group has adopted the new/revised Hong Kong Financial Reporting Standards (“HKFRS”) in its 2005 financial statements with 2004 comparatives restated as required. The financial statements for the period from 1 April 2003 to 31 December 2003 have not been restated to conform with the new/revised HKFRS.

CONSOLIDATED PROFIT AND LOSS ACCOUNTS

	Period from
	1 April 2003 to	Year ended	Year ended
	31 December	31 December	31 December
	2003	2004	2005
		(Restated)
	HK$’000	HK$’000	HK$’000
Turnover	7,274	3,739	11,819
Other revenue	12,068	–	16
Total revenue	19,342	3,739	11,835
Fair value gain on investment properties	–	–	33,574
Staff costs	(9,666)	(5,320)	(12,043)
Other operating expenses	(3,658)	(8,300)	(21,693)
Profit on disposal of a subsidiary	–	1,470	–
Operating profit/(loss)	6,018	(8,411)	11,673
Finance costs	–	–	(1,348)
Share of profits less losses of
associated companies	1,452	1,015	(465)
Profit/(loss) before taxation	7,470	(7,396)	9,860
Taxation (charge)/credit	(386)	1,247	(5,793)
Profit/(loss) attributable
to the Shareholders	7,084	(6,149)	4,067

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED BALANCE SHEETS
	As at	As at	As at
	31 December	31 December	31 December
	2003	2004	2005
		(Restated)
	HK$’000	HK$’000	HK$’000
Non-current assets
Property, plant and equipment	213	511	5,105
Investment property	–	–	143,000
Goodwill	–	–	18,314
Interests in associated companies	2,247	2,286	–
Available-for-sale financial assets	–	–	476
Other investments	256	256	–
	2,716	3,053	166,895
Current assets
Financial assets at fair vale through profit or loss	–	–	591
Trading securities	5,985	–	–
Receivables under reverse repo transactions	77,653	–	–
Trade and other receivables	33,779	293	10,048
Tax recoverable	90	275	–
Bank balances and cash	76,693	186,672	122,971
	194,200	187,240	133,610
Current liabilities
Trade and other payables	984	1,068	10,335
Long-term bank loan	–	–	2,174
Obligation under finance leases	–	–	465
Amounts due to a fellow subsidiary	45	–	–
Taxation payable	513	–	–
	1,542	1,068	12,974
Net current assets	192,658	186,172	120,636
Total assets less current liabilities	195,374	189,225	287,531
Non-current liabilities
Long-term bank loan	–	–	74,826
Obligations under finance leases	–	–	667
Deferred tax liabilities	–	–	18,526
	–	–	94,019
Net assets	195,374	189,225	193,512
Financed by:
Share capital	14,400	14,400	14,400
Reserves	116,651	116,612	116,832
Retained earnings	64,323	58,213	62,280
Shareholders’ funds	195,374	189,225	193,512

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. AUDITED CONSOLIDATED FINANCIAL INFORMATION OF THE GROUP FOR THE YEAR ENDED 31 DECEMBER 2005

Set out below are the audited financial statements of the Group together with its notes for the year ended 31 December 2005 which are reproduced from of pages 59 to 124 of the annual report of the Company for the year ended 31 December 2005.

“ CONSOLIDATED PROFIT AND LOSS ACCOUNT

FOR THE YEAR ENDED 31 DECEMBER 2005

Note Turnover 5 Other revenue 5 Total revenue Fair value gain on investment property 15 Staff costs 6 Other operating expenses Profit on disposal of a subsidiary 7 Operating profit/(loss) 8 Finance costs 9 Share of profits less losses of associates Profit/(loss) before taxation Taxation (charge)/credit 10 Profit/(loss) attributable to shareholders 11 Basic and diluted profit/(loss) per share attributable to shareholders of the Company for the year 12	2005 HK$’000 11,819 16 11,835 33,574 (12,043) (21,693) – 11,673 (1,348) (465) 9,860 (5,793) 4,067 HK$0.06	2004 (Restated) HK$’000 3,739 – 3,739 – (5,320) (8,300) 1,470 (8,411) – 1,015 (7,396) 1,247 (6,149) (HK$0.09)

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED BALANCE SHEET

AS AT 31 DECEMBER 2005

Note Non-current assets Property, plant and equipment 14(a) Investment property 15 Goodwill 16 Interests in associates 18(a) Available-for-sale financial assets 19 Other investments 20 Current assets Financial assets at fair value through profit or loss 21 Trade and other receivables 22 Tax recoverable Bank balances and cash 23 Current liabilities Trade and other payables 24 Long-term bank loan 25 Obligations under finance leases 26 Net current assets Total assets less current liabilities Non-current liabilities Long-term bank loan 25 Obligations under finance leases 26 Deferred tax liabilities 27 Net assets Financed by: Share capital 28 Reserves 29(a) Shareholders’ funds	2005 HK$’000 5,105 143,000 18,314 – 476 – 166,895 591 10,048 – 122,971 133,610 10,335 2,174 465 12,974 120,636 287,531 74,826 667 18,526 94,019 193,512 14,400 179,112 193,512	2004 HK$’000 511 – – 2,286 – 256
		3,053 – 293 275 186,672
		187,240 1,068 – –
		1,068
		186,172
		189,225 – – –
		–
		189,225

		14,400 174,825
		189,225

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

BALANCE SHEET

AS AT 31 DECEMBER 2005

Note Non-current assets Property, plant and equipment 14(b) Interests in subsidiaries 17 Interests in associates 18(b) Available-for-sale financial assets 19 Other investments 20 Current assets Financial assets at fair value through profit or loss 21 Trade and other receivables 22 Amounts due from subsidiaries 17 Tax recoverable Bank balances and cash 23 Current liabilities Trade and other payables 24 Obligations under finance leases 26 Net current assets Total assets less current liabilities Non-current liabilities Obligations under finance leases 26 Net assets Financed by: Share capital 28 Reserves 29(b) Shareholders’ funds	2005 HK$’000 3,650 9,000 – 476 – 13,126 591 3,989 56,597 – 112,436 173,613 1,799 465 2,264 171,349 184,475 667 183,808 14,400 169,408 183,808	2004 HK$’000 412 9,059 1,250 – 256
		10,977 – 285 – 275 181,455
		182,015 998 –
		998
		181,017
		191,994 –
		191,994

		14,400 177,594
		191,994

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED CASH FLOW STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2005

Note Operating activities Profit/(loss) before taxation Adjustments for: Share of profits less losses of associates Fair value gain on investment property Interest expense Provision for doubtful debts Depreciation of property, plant and equipment Profit on disposal of a subsidiary 7 Loss on disposal of property, plant and equipment Operating loss before working capital changes (Increase)/decrease in trade and other receivables Increase in trade and other payables Increase in financial assets at fair value through profit or loss Decrease in trading securities Decrease in amount due to a fellow subsidiary Increase in amount due to the former ultimate holding company Net cash (outflow)/inflow generated from operations Hong Kong profits tax refund, net Net cash (outflow)/inflow from operating activities	2005 HK$’000 9,860 465 (33,574) 1,348 – 1,082 – 89 (20,730) (8,489) 8,681 (591) – – – (21,129) 275 (20,854)	2004 HK$’000 (7,396) (1,015) – – 655 236 (1,470) – (8,990) 32,023 221 – 5,985 (45) 2,145 31,339 550 31,889

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED CASH FLOW STATEMENT (continued) FOR THE YEAR ENDED 31 DECEMBER 2005

Note Investing activities Purchase of property, plant and equipment Purchase of investment property Sale of a subsidiary, net of cash disposed 7 Proceeds for disposal of property, plant and equipment Dividends received from an associate Dividends received from investments in securities Receipts from reverse repo transaction Investment in and advances to an associate Proceeds for disposal of investment in an associate and assignment of advances to such associate Net cash (outflow)/inflow from investing activities Financing activities Secured bank loan drawn down Capital element of finance lease rentals paid Interest paid Net cash inflow from financing activities (Decrease)/increase in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December Analysis of balances of cash and cash equivalents Cash at banks and in hand Short term deposits placed with banks 23	2005 HK$’000 (4,426) (115,007) – 56 1,125 16 – – – (118,236) 77,000 (263) (1,348) 75,389 (63,701) 186,672 122,971 11,623 111,348 122,971	2004 HK$’000 (558) – 20 – 975 – 77,653 (4,135) 4,135 78,090 – – – – 109,979 76,693 186,672 10,538 176,134 186,672

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2005

At 1 January 2004 Net loss for the year attributable to shareholders At 31 December 2004 At 1 January 2005 As previously reported Opening adjustment on adoption of HKFRS 3 As restated Changes in fair value of available-for-sale financial assets Net profit for the year attributable to shareholders At 31 December 2005	Share capital HK$’000 14,400 – 14,400 14,400 – 14,400 – – 14,400	Share premium HK$’000 116,612 – 116,612 116,612 – 116,612 – – 116,612	Available- for-sale financial assets reserve HK$’000 – – – – – – 220 – 220	Capital reserve HK$’000 39 – 39 39 (39) – – – –	Retained earnings HK$’000 64,323 (6,149) 58,174 58,174 39 58,213 – 4,067 62,280	Total HK$’000 195,374 (6,149) 189,225 189,225 – 189,225 220 4,067 193,512

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS

1. GENERAL INFORMATION

The principal activity of the Company is investment holding, whilst those of its principal subsidiaries are set out in note 17 to the financial statements.

The directors consider the ultimate holding company to be VXL Capital Partners Corporation Limited incorporated in British Virgin Islands.

2. PRINCIPAL ACCOUNTING POLICIES

The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below and have been consistently applied to all the years presented, unless otherwise stated.

2.1 Basis of preparation

The consolidated financial statements of the Group have been prepared in accordance with the Hong Kong Financial Reporting Standards (HKFRSs) which is a collective term includes all applicable Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (HKASs) and Interpretations issued by Hong Kong Institute of Certified Public Accountants (HKICPA). These financial statements also comply with the applicable disclosures provisions of the Hong Kong Companies Ordinance and the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited. They have been prepared under the historical cost convention except, as modified by the available-for-sale financial assets and the financial assets at fair value through profit or loss, and the investment property which are carried at fair value.

The preparation of the financial statements in conformity with the HKFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed in note 4.

For the year ended 31 December 2005, the Group adopted the new/revised standards and interpretations of HKFRS, which are relevant to its operations, as set out below. The year 2004 comparatives have been amended as appropriate in accordance with the relevant requirements.

HKAS 1 Presentation of Financial Statements HKAS 7 Cash Flow Statements HKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors HKAS 10 Events after the Balance Sheet Date HKAS 16 Property, Plant and Equipment HKAS 17 Leases HKAS 21 The Effects of Changes in Foreign Exchange Rates HKAS 23 Borrowing Costs HKAS 24 Related Party Disclosures HKAS 27 Consolidated and Separate Financial Statements HKAS 28 Investments in Associates HKAS 32 Financial Instruments: Disclosures and Presentation HKAS 33 Earnings per Share HKAS 36 Impairment of Assets HKAS 39 Financial Instruments: Recognition and Measurement HKAS 39 Transition and Initial Recognition of Financial Assets and Financial Amendment Liabilities HKAS 40 Investment Property HK(SIC)-Int 15 Operating Leases – Incentives HK(SIC)-Int 21 Income Taxes – Recovery of Revalued Non-Depreciated Assets HKFRS 2 Share-based Payments HKFRS 3 Business Combinations

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The adoption of the above new HKFRSs did not result in substantial changes to the Group’s accounting policies, except for the adoption of HKFRS 3, HKAS 32, and HKAS 39. In summary:

HKAS 1 has affected the presentation of share of net after-tax results of associates and other disclosures.
HKASs 7, 8, 10, 16, 17, 21, 23, 27, 28, 33, 36, 40 and HK(SIC)-Int 15 and 21 have no material effect on the Group’s policies.
HKFRS 2 affected the Group’s policy but had no effect on the Group’s financial statements as the Group did not made any share-based payment.
HKAS 24 has affected the identification of related parties and some other related party disclosures.

HKAS 32 and HKAS 39

The adoption of HKASs 32 and 39 has resulted in a change in the accounting policy relating to the classification of “Financial assets at fair value through profit or loss” and “Available-for-sale financial assets”. HKAS 39 does not permit to recognize, derecognize and measure financial assets and liabilities on a retrospective basis. The Group applied the previous SSAP 24 “Accounting for investments in securities” to other investment for the year 2004 comparative information.

HKFRS 3

The adoption of HKFRS 3 results in a change in the accounting policy for goodwill/negative goodwill. Prior to this, the accounting policy was:

Goodwill on acquisitions that occurred prior to 1 January 2001 was eliminated against reserves. Any impairment arising on such goodwill is accounted for in the profit and loss account.
Goodwill on acquisition occurring on or after 1 January 2001 was included in intangible assets and is amortized using the straight-line method over a period of not exceeding 15 years.
Negative goodwill on acquisitions that occurred prior to 1 January 2001 was taken directly to reserves on acquisition.
Negative goodwill on acquisition occurring on or after 1 January 2001 was presented in the same balance sheet classification as goodwill.

In accordance with the provisions of HKFRS 3, the Group has derecognized the previously recognized negative goodwill with a corresponding adjustment to the opening balance of retained profits.

The adoption of HKFRS 3 resulted in:

(Decrease)/increase As at 1 January 2005 and 31 December 2005 HK$’000

Capital reserve	(39)
Retained profits	39

Certain new standards, amendments and interpretations to existing standards have been published that are mandatory for the Group’s accounting periods beginning on or after 1 January 2006 or later periods but which the Group has not early adopted, as follows:

HKAS 39 (Amendment), The Fair Value Option (effective from 1 January 2006). This amendment changes the definition of financial instruments classified at fair value through profit or loss and restricts the ability to designate financial instruments as part of this category.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

HKAS 39 and HKFRS 4 (Amendment), Financial Guarantee Contracts (effective from 1 January 2006). This amendment requires issued financial guarantees, other than those previously asserted by the entity to be insurance contracts, to be initially recognized at their fair value, and subsequently measured at the higher of (a) the unamortized balance of the related fees received and deferred, and (b) the expenditure required to settle the commitment at the balance sheet date.
HKFRS 7, Financial Instruments: Disclosures, and a complementary Amendment to HKAS 1, Presentation of Financial Statements – Capital Disclosures (effective from 1 January 2007). HKFRS 7 introduces new disclosures to improve on the information about financial instruments. It requires the disclosure of qualitative and quantitative information about exposure to risks arising from financial instruments, including specified minimum disclosures about credit risk, liquidity risk and market risk, including sensitivity analysis to market risk. It replaces HKAS 30, Disclosures in the Financial Statements of Banks and Similar Financial Institutions, and disclosure requirements in HKAS 32, Financial Instruments: Disclosure and Presentation. It is applicable to all entities that report under HKFRS. The amendment to HKAS 1 introduces disclosures about the level of an entity’s capital and how it manages capital.

In addition, the Hong Kong Companies (Amendment) Ordinance 2005 came into effect on 1 December 2005 and would be first applicable to the Group’s financial statements for the period beginning 1 January 2006.

The Group has not early applied the above new standards and interpretations that have been issued but are not yet effective. The amendments to HKAS 1, HKAS 27 and HKFRS 3 made as a result of the Hong Kong Companies (Amendment) Ordinance 2005 are not applicable to the Group’s operations. The adoption of the remaining new standards is not likely to have a significant impact on the Group’s results of operations and financial position.

2.2 Consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries made up to 31 December.

(a) Subsidiaries

Subsidiaries are those entities in which the Company, directly or indirectly, controls the composition of the board of directors, controls more than half the voting power or holds more than half of the issued and paid up share capital.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group and are de-consolidated from the date such control ceases.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference (which would have been known as negative goodwill under the previous accounting policy) is recognized directly in the profit and loss account.

Inter-company transactions, balances and unrealized gains on transactions between group companies are eliminated. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

The gain or loss on the disposal of a subsidiary represents the difference between the proceeds from the disposal of that subsidiary and its carrying amount as of the date of disposal, including any attributable amount of goodwill and any related accumulated foreign currency translation reserve.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

In the Company’s balance sheet the investments in subsidiaries are stated at cost less provision for impairment losses. The results of subsidiaries are accounted for by the Company on the basis of dividend received and receivable.

(b) Associates

Associates are entities which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting and are initially recognized at cost. The Group’s investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition (Note 2.7).

The Group’s share of its associates’ post-acquisition profits or losses is recognized in the profit and loss account, and its share of post-acquisition movements in reserves is recognized in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognize further losses, unless it has incurred obligations or made payments on behalf of the associate.

Unrealized gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group.

In the Company’s balance sheet the investments in associates are stated at cost less provision for impairment losses. The results of associates are accounted for by the Company on the basis of dividend received and receivable.

2.3 Segment reporting

A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments.

In accordance with the Group’s internal financial reporting system, the Group has determined that business segments be presented as the primary reporting format and geographical segments as the secondary reporting format for the purposes of these financial statements.

Segment revenue, results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis to that segment. Segment revenue, results, assets, and liabilities are determined before intra-group balances and intra-group transactions are eliminated as part of the consolidation process, except to the extent that such intra-group balances and transactions are between group entities within a single segment. Segment assets consist primarily of property, plant and equipment, investment property, receivables and other assets. Segment liabilities comprise operating liabilities and exclude items such as taxation and borrowings.

Segment capital expenditure is the total cost incurred during the period to acquire segment assets (both tangible and intangible) that are expected to be used for more than one period.

Unallocated items mainly comprise property, plant and equipment used for corporate office, tax balances and corporate expenses.

In respect of geographical segment reporting, sales are based on the country in which the customer is located and total assets and capital expenditure are where the assets are located.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2.4 Foreign currency translation

(a) Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are presented in HK dollars, which is the Company’s functional and presentation currency.

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the profit and loss account.

Translation differences on non-monetary financial assets and liabilities are reported as part of the fair value gain or loss. Translation difference on non-monetary financial assets, such as equities classified as available-for-sale financial assets, are included in the fair value reserve in equity.

(c) Group companies

The results and financial position of all the group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

(i) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
(ii) income and expenses for each profit and loss account are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and
(iii) all resulting exchange differences are recognized as a separate component of equity.

On consolidation, exchange differences arising from the translation of the net investment in foreign operations, and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders’ equity. When a foreign operation is sold, exchange differences that were recorded in equity are recognized in the profit and loss account as part of the gain or loss on sale.

2.5 Property, plant and equipment

Property, plant and equipment are stated at historical cost less accumulated depreciation and accumulated impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are expensed in the profit and loss account during the financial period in which they are incurred.

Depreciation of property, plant and equipment is calculated using the straight-line method to allocate cost to their residual values over their estimated useful lives, as follows:

Furniture and fixtures 3 years
– Office equipment 3 years
– Computer and related equipment 3 years
– Motor vehicles 5 years

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Improvements are capitalized and depreciated over their expected useful lives to the Group.

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

An impairment loss is recognized immediately to write down an asset’s carrying amount to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (Note 2.8). Gains and losses on disposals are determined by comparing proceeds with carrying amounts.

2.6 Investment property

Property that is held for long-term rental yields or for capital appreciation or both, which is not occupied by the companies in the Group, is classified as investment property.

Investment property comprises land held under operating leases and buildings held under finance leases.

Land held under operating leases are classified and accounted for as investment property when the rest of the definition of investment property is met. The operating lease is accounted for as if it were a finance lease.

Investment property is measured initially at its cost, including related transaction costs, except when it is acquired through a business combination, in which case it is measured initially at fair value. After initial recognition, investment property is carried at fair value.

Fair value is based on valuations carried out by external valuers. Changes in fair values are recognized in the profit and loss account.

Subsequent expenditure is charged to the asset’s carrying amount only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are expensed in the profit and loss account during the financial period in which they are incurred.

2.7 Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary, associate, or business attributable to the Group at the effective date of acquisition or an increase in holding in a subsidiary.

Goodwill on acquisitions of subsidiaries and businesses is included in intangible assets while goodwill on acquisitions of associates is included in “Interests in associates”. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity or business include the carrying amount of goodwill relating to the entity or business sold. Goodwill is allocated to cash generating units for the purpose of impairment testing.

2.8 Impairment of non-financial assets

Assets that have an indefinite useful life are not subject to amortization, which are at least tested annually for impairment and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2.9 Investments

The Group has classified its investments in the following categories: financial assets at fair value through profit or loss (including trading and other investments), held-to-maturity investments, loans and receivables, and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Available-for-sale financial assets and financial assets at fair value through profit or loss are carried at fair value. Loans and receivables and held-to-maturity investments are carried at amortized cost using the effective interest method. Realized and unrealized gains and losses arising from changes in the fair value of financial assets at fair value through profit or loss are included in the profit and loss account in the period in which they arise. Unrealized gains and losses arising from changes in the fair value of available-for-sale financial assets are recognized in equity. When available-for-sale financial assets are sold or impaired, the accumulated fair value adjustments are included in the profit and loss account.

The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models refined to reflect the specific circumstances of the issuer.

The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is considered as an indicator in determining whether the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss (measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in the profit and loss account) is removed from equity and recognized in the profit and loss account. Impairment losses recognized in the profit and loss account on equity instruments are not reversed through the profit and loss account.

2.10 Trade and other receivables

Trade and other receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment. A provision for impairment of trade and other receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognized in the profit and loss account.

2.11 Cash and cash equivalents

For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks, cash investments with a maturity of three months or less from date of investment and bank overdrafts.

2.12 Borrowings

Borrowings are recognized initially at fair value, net of transaction costs incurred. Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial asset or financial liability, including fees and commissions paid to agents, advisers, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties. Borrowings are subsequently stated at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the profit and loss account over the period of the borrowings using the effective interest method.

2.13 Income tax

Income tax for the year comprises current tax and movements in deferred tax assets and liabilities. Current tax and movements in deferred tax assets and liabilities are recognized in profit or loss account except to the extent that they relate to items recognized directly in equity, in which case they are recognized in equity.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Current tax is the expected tax payable on the taxable income for the year using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, if the deferred tax arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not accounted for. Taxation rates enacted or substantively enacted by the balance sheet date are used to determine deferred taxation.

Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized.

Deferred tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

2.14 Employee benefits

(a) Employee leave entitlements

Employee entitlements to annual leave are recognized when they accrue to employees. A provision is made for the estimated liability for annual leave as a result of services rendered by employees up to the balance sheet date.

Employee entitlements to sick leave and maternity or paternity leave are not recognized until the time of leave.

(b) Bonus plans

The expected cost of bonus payments due wholly within twelve months after balance sheet date are recognized as a liability when the Group has a present legal or constructive obligation as a result of services rendered by employees and a reliable estimate of the obligation can be made.

(c) Pension obligations

The Group has a defined contribution retirement plan and the assets are held in independent mutual funds. The pension plan is generally funded by payments from employees and by the relevant companies within the Group based on a percentage of the employee’s basic salary.

The Group’s contributions to the defined contribution retirement plan are expensed as incurred.

(d) Share option scheme

The Group operates an equity-settled, share-based compensation plan, known as the Scheme. The fair value of the employee services received in exchange for the grant of the options is recognized as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions. Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. At each balance sheet date, the entity revises its estimates of the number of options that are expected to become exercisable. It recognizes the impact of the revision of original estimates, if any, in the profit and loss account, and a corresponding adjustment to equity over the remaining vesting period.

The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2.15 Provisions

Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation; and a reliable estimate of the amount can be made.

2.16 Revenue recognition

Revenue is recognized when it is probable that the economic benefits will flow to the Group and when the revenue can be measured reliably on the following bases:

(a) Rental income receivable under operating leases is recognized in profit or loss on a straight-line basis over the periods covered by the lease term.
(b) Corporate advisory fees are recognized as revenue when the agreed services have been provided.
(c) Interest income is recognized on a time proportion basis using the effective interest method.
(d) Realized gain/(loss) on trading of securities is recognized as revenue on a trade date basis.
(e) Unrealized gain/(loss) on trading of securities is recognized when trading securities are restated to fair value at the reporting date.
(f) Dividend income is recognized when the right to receive payment is established.

2.17 Leases

(a) Operating leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged in the profit and loss account on a straight-line basis over the period of the lease.

(b) Finance leases

Leases of assets where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalized at the lease’s commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The interest element of the finance cost is recognized in the profit and loss account over the lease period so as to produce a constant rate of interest on the remaining balance of the liability for each period.

2.18 Related parties

For the purposes of these financial statements, parties are considered to be related to the Group if the Group has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vise versa, or where the Group and the party are subject to common control or common significant influence. Related parties may be individuals (being members of key management personnel, significant shareholders and/ or their close family members) or other entities and include entities which are under the significant influence of related parties of the Group where those parties are individuals and post-employment benefit plans which are for the benefit of employees of the Group or of any entity that is a related party of the Group.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2.19 Contingent liabilities and contingent assets

A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. It can also be a present obligation arising from past events that is not recognized because it is not probable that outflow of economic resources will be required or the amount of obligation cannot be measured reliably.

A contingent liability is not recognized but is disclosed in the notes to the financial statements. When a change in the probability of an outflow occurs so that the outflow is probable, it will then be recognized as a provision.

A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain events not wholly within the control of the Group.

A contingent asset is not recognized but is disclosed in the notes to the financial statements when an inflow of economic benefits is probable. When inflow is virtually certain, an asset is recognized.

3. FINANCIAL RISK MANAGEMENT

3.1 Financial risk factors

The Group’s activities expose it to a variety of financial risks: market risk (including currency risk and fair value interest risk), credit risk, liquidity risk and cash flow interest-rate risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance.

(a) Market risk

(i) Foreign exchange risk

The Group’s monetary assets and transactions are principally denominated in Hong Kong Dollars (“HK$”), United States Dollars (“USD”), and Renminbi (“RMB”). The Group is exposed to foreign exchange risk arising from the exposure of HK$ against USD and RMB, respectively. Considering that the exchange rate between HK$ and USD is pegged, and that there is insignificant fluctuation in the exchange rate between HK$ and RMB, the Group believes its exposure to exchange rate risk is minimal. The group has also placed a small portion of cash on high yield currency linked deposits. These deposits are linked to either European currencies or Australian dollars and will be exposed to the fluctuation of exchange rates. The Group has policies in place to ensure that these deposits are insignificant to limit the exchange rate risk exposed by the Group on these deposit.

(ii) Price risk

The Group is exposed to equity securities price risk because the Group’s result is affected by the fluctuation in the market price of investments held by the Group which are classified as financial assets at fair value through profit or loss.

(b) Credit risk

The Group’s credit risk is primarily attributable to trade and other receivables, investments and bank deposits. The exposures to these credit risks are monitored on an ongoing basis.

In respect of trade and other receivables, these receivables are due within 3 days from the date of billing. Reminders are sent to the debtors with balances that are more than 14 days overdue.

In respect of investments and bank deposits, the Group has diversified its exposures into different financial institutions. It has policies in place to assess counterparties and financial institutions before the Group invests its assets.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(c) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. The Group has a sound financial position with cash reserve of approximately HK$123,000,000. In view of the dynamic nature of the underlying businesses, the Group aims to maintain flexibility in funding by keeping committed credit lines available.

(d) Cash flow and fair value interest rate risk

The Group maintains a strong cash position and has low cash flow risk. The Group’s interest-rate risk arises from deposits, other investment activities and long-term borrowings. The Group monitors its interest-sensitive investments and limits interest rate exposure through management of maturity profile, currency mix and choice of fixed and floating interest rates.

3.2 Fair value estimation

The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. The quoted market price used for financial assets held by the Group is the bid price.

The fair value of debtors and prepayments, cash and cash equivalents, creditors and accruals and current borrowings are assumed to approximate their carrying amount due to the short-term maturities of these assets and liabilities.

The fair values of long-term borrowings are estimated using the expected future payments discounted at market interest rates.

4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

In the process of applying the accounting policies described in Note 2 above, the Group has made the following judgements that have the most significant effect on the amounts recognized in the financial statements. The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of the Group’s assets and liabilities within the next financial year are disclosed below.

(a) Classification as investment properties and owner-occupied properties

The Group determines whether the newly acquired property qualifies as an investment property. In making its judgement, the Group considers whether the property generates cash flows largely independently of the other assets held by an entity and the level of ancillary services provided to the tenants. Owner-occupied properties generate cash flows that are attributable not only to property but also to other assets used in the production or supply process. Taking into consideration of all the factors, the Group considers the newly acquired property to be an investment property.

(b) Estimate of fair value of investment property

The best evidence of fair value is current prices in an active market for similar property, lease and other contracts. The Group engages external independent professional valuers to carry out the valuation annually on an open market for existing use basis, and adopts such valuation as the fair value of investment property. In making the judgement, consideration is given to assumptions that are mainly based on market conditions existing at the balance sheet date and appropriate capitalization rates. These estimates are regularly compared to the actual market data and actual transaction available.

(c) Income taxes

It is the Group’s policy to recognize deferred tax assets for unused tax losses carried forward to the extent that it is probable that future taxable profits will be available against which the unused tax losses can be utilized, based on all available evidence. Recognition primarily depends on management’s expectation of future taxable profit that will be available against which tax losses can be utilized.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(d) Estimated impairment of assets

The Group tests at least annually whether goodwill or assets that have indefinite useful lives have suffered any impairment. Other assets, including investment in subsidiary at the company level, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset exceeds its recoverable amount. The recoverable amount of an asset or a cash-generating unit has been determined based on value-in-use calculations. These calculations require the use of estimates, such as discount rates, future profitability and growth rates.

5. TURNOVER AND SEGMENT INFORMATION

The Group engaged in property investment, securities trading and investment, and the provision of corporate finance and advisory services during the year. Revenues recognized are as follows:

Turnover Corporate advisory fees Interest income from – bank deposits – trading investments – currency option attached to high yield deposits Rental and other fee income Fair value (loss)/gain from listed investments Other revenue Dividend income from listed investments Total revenue	2005 HK$’000 4,923 3,840 15 428 2,641 (28) 11,819 16 11,835	2004 HK$’000 2,140 1,014 394 – – 191
		3,739 –
		3,739

Primary reporting format – business segments

The Group’s operating businesses are structured and managed separately, according to the nature of their operations and the services they provide. Each of the Group’s business segments represents a strategic business unit which is subject to risks and returns that are different from those of other business segments. Summarized details of the business segments are as follows:

a) the property investment segment is engaged in operation of the investment property;
b) the securities trading and investment segment is engaged in securities trading and investment and other investment holding. The revenue of this segment mainly comprises interest income from bank deposits and net income from investment and trading securities; and
c) the corporate advisory segment is engaged in the provision of corporate finance and corporate advisory services.

The interest income in the comparative segment information, classified under “Corporate and others” segment, has been reclassified as segment revenue for “Securities trading and investment” segment to conform to the above classification.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The segment results, depreciation and capital expenditures for the years ended 31 December 2005 and 2004 are as follows:

Property investment HK$’000 For the year ended 31 December 2005 Segment revenue: Sales to external customers 2,641 Segment results 33,973 Unallocated operating income and expenses, net Finance costs Share of profits less losses of associates Profit before taxation Taxation Profit attributable to shareholders Other segment information Depreciation 64 Capital expenditure 110,000 For the year ended 31 December 2004 Segment revenue: Sales to external customers – Segment results – Unallocated operating income and expenses, net Profit on disposal of a subsidiary Share of profits less losses of associates Loss before taxation Taxation Loss attributable to shareholders Other segment information Depreciation – Capital expenditure –	Securities trading and investment HK$’000 4,271 4,241 – – 1,599 1,599 – –	Corporate advisory HK$’000 4,923 (3,641) 110 195 2,140 (2,090) 115 –	Unallocated HK$’000 – – 908 5,052 – – 121 558	Group HK$’000 11,835 34,573 (22,900) (1,348) (465) 9,860 (5,793) 4,067 1,082 115,247 3,739 (491) (9,390) 1,470 1,015 (7,396) 1,247 (6,149) 236 558

Capital expenditure comprises additions to investment property (Note 15) and property, plant and equipment (Note 14).

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The segment assets and liabilities as at 31 December 2005 and 2004 are as follows:

Securities Property trading and Corporate investment investment advisory Unallocated HK$’000 HK$’000 HK$’000 HK$’000 At 31 December 2005 Segment assets 164,587 2,385 2,721 7,841 Bank balances and cash Total assets Segment liabilities 2,090 – 2,156 7,221 Long-term bank loan Deferred tax liabilities Total liabilities At 31 December 2004 Segment assets – – 107 1,228 Bank balances and cash Interests in associates Total assets Segment liabilities – – 145 923 Total liabilities	Group HK$’000 177,534 122,971
	300,505

	11,467 77,000 18,526
	106,993

	1,335 186,672 2,286
	190,293

	1,068
	1,068

Segment assets consist primarily of property, plant and equipment, investment property and goodwill, investments and receivables. Segment liabilities comprise operating liabilities. Unallocated assets and liabilities mainly represent assets and liabilities used by the corporate office, which can not be allocated on a reasonable basis to any segment. They exclude items such as deferred tax liabilities and corporate borrowings.

Secondary reporting format – geographical segments

As the Group’s revenue, results, assets and liabilities for the year ended 31 December 2005 are derived from operations in Hong Kong, information by geographical segment has not been presented.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. STAFF COSTS

The staff costs disclosed below are for all employees and include all directors’ emoluments (note 13).

Director fees Wages, salaries and bonus Unutilised annual leave Pension costs – defined contribution plan Other	2005 HK$’000 654 10,189 327 191 682 12,043	2004 HK$’000 636 4,648 (234) 123 147 5,320

7. DISPOSAL OF A SUBSIDIARY

On 7 December 2003, the Company entered into an agreement with Kim Eng Investment Limited (“KEI”) (the “Disposal Agreement”) pursuant to which the Company had conditionally agreed to dispose of all its 100% equity interests in Kim Eng Corporate Finance (Hong Kong) Limited (“KECF”) and Hart Industries (Far East) Industries Limited (“HIL”) and 25% equity interest in Eva Assets Management Limited (“EVA”).

On 3 March 2004, a supplemental agreement was executed pursuant to the Disposal Agreement of which the Company only disposed 100% of all its equity interests in KECF but retained HIL and EVA.

The disposal of KECF was approved by independent shareholders at an extraordinary general meeting held on 29 March 2004. The total cash consideration for the disposal of this subsidiary was HK$5,000,000 and the profit on disposal was approximately HK$1,470,000.

The results of KECF up to the date of disposal were as follows:

	Period 1 January 2004
	to 29 March 2004
	HK$’000
Turnover	2,030
Operating expenses	(3,465)
Loss before taxation	(1,435)

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The effect of the disposal is summarized as follows:

Non-current assets Current assets Total assets Total liabilities Net assets Profit on disposal Total consideration Satisfied by: Cash consideration Net cash inflow arising on disposal Cash received Cash and bank balances disposed of	2004 HK$’000 24 5,788 5,812 (2,282) 3,530 1,470 5,000 5,000 5,000 (4,980) 20

8. OPERATING PROFIT/(LOSS)

Operating profit/(loss) is arrived at after charging/(crediting): Legal and professional fee Consultancy fee Rental income from investment property Direct outgoings for investment property Rental income after direct outgoings Depreciation Loss on disposal of property, plant and equipment Auditors’ remuneration – audit – non-audit Net exchange loss/(gain) Operating leases – land and building Bad and doubtful debts	2005 HK$’000 2,208 6,844 (2,641) 2,082 (559) 1,082 89 655 473 55 2,484 –	2004 HK$’000 1,259 3,554 – – – 236 – 302 25 (18) 726 655

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

9. FINANCE COSTS

Interest on bank loan wholly repayable more than five years Interest on finance leases Other interest expenses	2005 HK$’000 1,307 25 16 1,348	2004 HK$’000 – – –
		–

10. TAXATION

Hong Kong profits tax is calculated at the rate of 17.5% (2004: 17.5%) on the estimated assessable profit. There is no profits tax provided for the year as the Group did not have any assessable profit.

The amount of taxation charge/(credit) to the consolidated profit and loss account represents:

Current taxation: Hong Kong profits tax Company and subsidiaries – Over provisions in prior years Deferred tax_(Note 27)_	2005 HK$’000 – 5,793 5,793	2004 HK$’000 (1,247) –
		(1,247)

Share of associate’s taxation for the year of HK$26,000 (2004: HK$215,000) is included in the consolidated profit and loss account as share of profits less losses of associates.

The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to results of the consolidated companies as follows:

Profit/(loss) before taxation Share of results of associates Profit/(loss) before taxation – Company and subsidiaries Tax calculated at 17.5% Tax effect of non-deductible expenses Tax effect of non-taxable revenue Tax effect on temporary differences not recognised Overprovision for tax in prior years Deferred tax assets on tax losses not recognised Tax charge/(credit)	2005 HK$’000 9,860 465 10,325 1,807 185 (750) (285) – 4,836 5,793	2004 HK$’000 (7,396) (1,015)
		(8,411)
		(1,472) 255 (186) (34) (1,247) 1,437
		(1,247)

11. PROFIT/(LOSS) ATTRIBUTABLE TO SHAREHOLDERS

The profit/(loss) attributable to shareholders is dealt with in the accounts of the Company to the extent of loss of HK$8,406,000 (2004: loss of HK$6,507,000).

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

12. BASIC AND DILUTED PROFIT/(LOSS) PER SHARE

The calculation of basic and diluted profit/(loss) per share is based on the Group’s profit attributable to shareholders of HK$4,067,000 (2004: loss of HK$6,149,000) and the weighted average number of 72,000,000 (2004: 72,000,000) ordinary shares in issue during the year.

The basic and diluted profit/(loss) per share are the same as the Company has no dilutive potential ordinary shares in issue for the years ended 31 December 2005 and 2004.

13. DIRECTORS’ AND SENIOR MANAGEMENT’S EMOLUMENTS

(a) Directors’ emoluments

The remuneration of the Directors for the year ended 31 December 2005 is set out below:

Name of Director Datuk LIM Chee Wah (i) Mr. Percy ARCHAMBAUD-CHAO Mr. Stephen YUEN Ching Bor Ms. Patsy SO Ying Chi Mr. Michael YEE Kim Shing Mr. Alan Howard SMITH, J.P. Dr. Allen LEE Peng Fei, J.P. Mr. Michael CHUM Hon Wang (i)(iii) Mr. Alexander AU Siu Kee (iii) Mr. Paul Steven SERFATY (iii)	Fees HK$’000 – – 108 – 200 200 71 – 29 46 654	Discretionary Salary bonuses HK$’000 HK$’000 – – 2,137 – 265 – 788 75 – – – – – – – – – – – – 3,190 75	Employer’s contribution Other to pension benefits scheme** HK$’000 HK$’000 – – 363 10 – 2 – 10 – – – – – – – – – – – – 363 22	Total HK$’000 – 2,510 375 873 200 200 71 – 29 46
				4,304

The remuneration of the Directors for the year ended 31 December 2004 is set out below:

Name of Director Fees HK$’000 Datuk LIM Chee Wah (i) – Mr. Ronald Anthony OOI Thean Yat (ii)(iv) – Ms. Gloria LEE Woo (ii)(iv) – Ms. Winnie KONG Lai Wan (ii)(iv) – Mr. Michael CHUM Hon Wang (i)(iii) – Mr. Alan Howard SMITH, J.P. 138 Mr. Michael YEE Kim Shing 22 Ms. Constance CHOY Hok Man (ii)(iv) – Mr. CHOW Siu Ngor (ii)(iv) – Mr. Alexander AU Siu Kee (iii) 138 Mr. Paul Steven SERFATY (iii) 338 636	Discretionary Salary bonuses HK$’000 HK$’000 – – – – – – – – – – – – – – – – – – – – – – – –	Employer’s contribution Other to pension benefits scheme** HK$’000 HK$’000 – – – – – – – – – – – – – – – – – – – – – – – –	Total HK$’000 – – – – – 138 22 – – 138 338
			636

** Other benefits include housing allowances.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The above directors’ emoluments were included in staff costs (Note 6). The staff costs and other operating expenses for 2004 have been amended to conform to this classification.

(i) Two of the executives directors, Datuk LIM Chee Wah and Mr. Michael CHUM Hon Wang had waived their emoluments for the years ended 31 December 2005 and 2004.
(ii) The other directors did not receive any remuneration from the Group for the year ended 31 December 2004.
(iii) Resigned in 2005.
(iv) Resigned in 2004.

(b) Five highest paid individuals

The five individuals whose emoluments were the highest in the Group for the year comprise of 2 directors and 3 employees (2004: Nil directors and 5 employees). The details of the emoluments payable to the 3 employees (2004: 5) during the year are presented below.

Salaries and other short-term employee benefits Pension costs – defined contribution plan Others Emoluments band HK$0 – HK$500,000 HK$500,001 – HK$1,000,000	2005 2004 HK$’000 HK$’000 1,992 2,232 27 61 207 45 2,226 2,338 Number of individuals 2005 2004 – 4 3 1 3 5	2004 HK$’000 2,232 61 45
		2,338

		5

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

14. PROPERTY, PLANT AND EQUIPMENT

(a) Group

Furniture Office and fixtures equipment HK$’000 HK$’000 Cost At 1 January 2005 528 87 Acquisition of business_(Note 32) 574 – Additions 2,455 97 Disposals (475) (74) At 31 December 2005 3,082 110 Accumulated depreciation At 1 January 2005 260 87 Charge for the year 649 15 Disposals (349) (72) At 31 December 2005 560 30 Net book value At 31 December 2005 2,522 80 Furniture and fixtures _HK$’000 Cost At 1st January 2004 208 Additions 347 Disposal (27) At 31st December 2004 528 Accumulated depreciation At 1st January 2004 128 Charge for the year 136 Disposal (4) At 31st December 2004 260 Net book value At 31st December 2004 268	Computer and related equipment HK$’000 470 – 393 (124) 739 227 183 (107) 303 436 Office equipment HK$’000 91 – (4) 87 88 3 (4) 87 –	Motor vehicles HK$’000 – – 2,302 – 2,302 – 235 – 235 2,067 Computer and related equipment HK$’000 262 211 (3) 470 132 97 (2) 227 243	Total HK$’000 1,085 574 5,247 (673) 6,233 574 1,082 (528) 1,128 5,105 Total HK$’000 561 558 (34) 1,085 348 236 (10) 574 511

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Company

Furniture and fixtures HK$’000 Cost At 1 January 2005 323 Additions 2,337 Disposals (268) At 31 December 2005 2,392 Accumulated depreciation At 1 January 2005 86 Charge for the year 530 Disposals (141) At 31 December 2005 475 Net book value At 31 December 2005 1,917 Cost At 1 January 2004 Additions At 31 December 2004 Accumulated depreciation At 1 January 2004 Charge for the year At 31 December 2004 Net book value At 31 December 2004	Computer Office and related Motor equipment equipment vehicles HK$’000 HK$’000 HK$’000 – 211 – 56 247 1,616 – (34) – 56 424 1,616 – 36 – 12 118 211 – (14) – 12 140 211 44 284 1,405 Computer Furniture and related and fixtures equipment HK$’000 HK$’000 – – 323 211 323 211 – – 86 36 86 36 237 175	Total HK$’000 534 4,256 (302) 4,488 122 871 (155) 838 3,650 Total HK$’000 – 534 534 – 122 122 412

(c) The net book value of motor vehicles held under finance leases of the Group and the Company was HK$1,405,000 (2004: HK$Nil). None of the leases includes contingent rentals.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

15. INVESTMENT PROPERTY

At 1 January Addition_(Note 32)_ Fair value gain At 31 December	2005 HK$’000 – 109,426 33,574 143,000	Group 2004 HK$’000 – – –
		–

The investment property is held under long-term lease and situated in Hong Kong. The investment property was revalued at 31 December 2005 on an open market value basis by an independent, professionally qualified valuer, Knight Frank Hong Kong Limited.

The Group leases out the investment property under operating leases. The leases typically run for an initial period of one month to two years, with an option to renew the lease at the expiry date at which time all terms are renegotiated. None of the leases includes contingent rentals.

The Group’s total future minimum lease rentals under non-cancellable operating leases are receivable as follows:

Not later than 1 year Later than 1 year and not later than 5 years	2005 HK$’000 1,823 348 2,171	2004 HK$’000 – –
		–

The details of the Group’s investment property are set out as follows:

Property name	Location	Type	Lease term
112 Apartments	112 Chun Yeung Street	Serviced apartments	Long lease
	North Point, Hong Kong

16. GOODWILL

At 1 January Acquisition of business_(Note 32)_ At 31 December	2005 HK$’000 – 18,314 18,314	Group 2004 HK$’000 – –
		–

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

17. INTERESTS IN SUBSIDIARIES

Non-current asset: Unlisted shares at cost Less: impairment provision Amounts due from subsidiaries Current asset: Amounts due from subsidiaries	Company 2005 2004 HK$’000 HK$’000 10,000 10,000 (1,000) (1,000 9,000 9,000 – 59 9,000 9,059 56,597 –	Company 2005 2004 HK$’000 HK$’000 10,000 10,000 (1,000) (1,000 9,000 9,000 – 59 9,000 9,059 56,597 –
		9,000 59
		9,059

		–

The amounts due from subsidiaries are unsecured, non-interest bearing and repayable on demand.

The following is a list of principal subsidiaries at 31 December 2005. Principal subsidiaries are those subsidiaries that are active and have commenced operations.

		Principal	Particulars of
		activities	issued share
	Place of	and place of	capital/registered
Name	incorporation	operations	capital	Interest	held
				2005	2004
Arrow Star Investment Limited	Hong Kong	Property investment	1 ordinary share	*100%	–
		in Hong Kong	of HK$1
Grand Boom Investments Limited	Samoa	Investment	1 ordinary share	100%	–
		in Hong Kong	of US$1
Great Partner International Limited	Hong Kong	Investment	1 ordinary share	100%	–
		in Hong Kong	of HK$1
Great Partner Investment (Shenzhen)	PRC	Investment	Registered capital	100%	–
Limited#		in the PRC	of HK$8,000,000
VXL Financial Services Limited	Hong Kong	Corporate finance	10,000,000	*100%	*100%
(formerly known as KE Capital		advisory	ordinary shares
(Hong Kong) Limited)		in Hong Kong	of HK$1 each
VXL Management Services Limited	Hong Kong	Management services	1 ordinary share	*100%	–
(formerly known as Sonic Plus		in Hong Kong	of HK$1
Holdings Limited)

Shares held directly by the Company.

Subsidiary not audited by PricewaterhouseCoopers. The net assets of the subsidiary not audited by PricewaterhouseCoopers amounted to approximately 4% of the Group’s total assets.

This is only a transliteration of the company name. This company do not have English name.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

18. INTERESTS IN ASSOCIATES

(a) Group

At 1 January Additions during the year Share of (losses)/profits before taxation Share of taxation Dividend income received from associates Amount reclassified as other receivable_(Note 22) Share of deficit of an associate classified as other payables(Note 24)_ At 31 December	2005 HK$’000 2,286 1 (439) (26) (1,125) (1,283) 586 –	2004 HK$’000 2,247 – 1,230 (215) (976) – – 2,286

The Group has undertaken to extend financial support to an associate to make good of its losses. Therefore, the Group has recognized its share of deficits of the associate in excess of its investments.

The Group’s interests in its associates, all of which are unlisted, are as follows:

Assets Liabilities Revenues (Loss)/profit for the year (b) Company Unlisted shares, at cost	2005 HK$’000 1 (587) (586) – (465) 2005 HK$’000 –	2004 HK$’000 2,833 (547) 2,286 1,751 1,015 2004 HK$’000 1,250

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(c) Details of the associates are as follows:

	Place of
	incorporation	Principal	Particulars of
Name	and operations	activities	issued share capital	Interest	held
				2005	2004
Eva Asset Management	Hong Kong	Investment	5,000,000	*25%	*25%
Limited (“EVA”)#		management	ordinary shares
		services	of HK$1 each
Cruise City Holdings Limited	British Virgin	Investment	100 ordinary shares	30%	–
(formerly known as	Islands	holding	of US$1 each
Shine Pacific Investments
Limited)
Cruise City (Hong Kong)	Hong Kong	Cruise terminal	1 ordinary share	30%	–
Limited (formerly known as		development	of HK$1
Proteam Services Limited)

Shares held directly by the Company.
The intended disposal of the Company’s 25% equity interest in EVA to Kim Eng Investment Limited (a wholly owned subsidiary of the former ultimate holding company) pursuant to an agreement dated 7 December 2003 was mutually revoked by a supplemental agreement dated 3 March 2004.

On 16 July 2005, the members of EVA passed a special resolution to voluntarily wind up EVA pursuant to Section 228(1)(b) of the Companies Ordinance. The Group’s interest in EVA is expected to be recovered once the administration of the affairs of the voluntary winding up is completed. The Group has discontinued the equity method of accounting for the interest in EVA, and has reclassified the carrying value of the investment as other receivable in Note 22.

19. AVAILABLE-FOR-SALE FINANCIAL ASSETS

	Group and Company
	Club debentures
	HK$’000
At 1 January 2005	–
Reclassified from other investments_(Note 20)_	256
Changes in fair value taken to reserve_(Note 29)_	220
At 31 December 2005	476

There were no disposals or impairment on available-for-sale financial assets for the year.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

20. OTHER INVESTMENTS

	Group	and Company
	2005	2004
	HK$’000	HK$’000
Club debentures, at market value	–	256

The club debentures have been reclassified to “Available-for-sale financial assets” (Note 19) upon adoption of HKAS 32 and HKAS 39.

21. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

	Group and Company	Group and Company
	2005	2004
	HK$’000	HK$’000
Listed equity securities in Hong Kong
held for trading, at market value	591	–

22. TRADE AND OTHER RECEIVABLES

Trade receivables_(note) Other receivables Receivable from EVA in liquidation(Note 18)_ Prepayments and deposits	Group 2005 2004 HK$’000 HK$’000 2,937 – 2,706 9 1,283 – 3,122 284 10,048 293	Company 2005 2004 HK$’000 HK$’000 – – 87 9 1,250 – 2,652 276 3,989 285	Company 2005 2004 HK$’000 HK$’000 – – 87 9 1,250 – 2,652 276 3,989 285
			285

(note) The ageing analysis of the trade receivables is as follows:


			2005	2004
			HK$’000	HK$’000
Within	30	days	2,937	–

For trade receivables, the rental income is billed before the commencement of the lease period and the financial advisory fee’s billing is in accordance with the agreed mandates. All billings are due on presentation.

23. BANK BALANCES AND CASH

Cash at banks and in hand Short term deposits with banks	Group 2005 2004 HK$’000 HK$’000 11,623 10,538 111,348 176,134 122,971 186,672	Company 2005 2004 HK$’000 HK$’000 1,088 5,321 111,348 176,134 112,436 181,455	Company 2005 2004 HK$’000 HK$’000 1,088 5,321 111,348 176,134 112,436 181,455
			181,455

The effective interest rate at 31 December 2005 for the short term deposits with banks was within the range of 3.90% – 4.31% (2004: 0.08% – 0.40%). These deposits have maturity periods of 7 to 31 days (2004: 7 to 33 days).

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

24. TRADE AND OTHER PAYABLES

Trade payables_(note a) Other payables and accruals Share of deficit of an associate(Note 18) Amount due to a related company(note b)_	Group 2005 2004 HK$’000 HK$’000 2,019 – 7,730 993 586 – – 75 10,335 1,068	Company 2005 2004 HK$’000 HK$’000 – – 1,799 923 – – – 75 1,799 998	Company 2005 2004 HK$’000 HK$’000 – – 1,799 923 – – – 75 1,799 998
			998

(a) The ageing analysis of the trade payables is as follows:

Within 30 days 31 to 90 days 91 to 180 days	Group 2005 2004 HK$’000 HK$’000 2,001 – 12 – 6 – 2,019 –	Group 2005 2004 HK$’000 HK$’000 2,001 – 12 – 6 – 2,019 –
		–

(b) The amount due to a related company as at 31 December 2004 represented the amount payable for management and administrative fee. It is unsecured, interest free and repayable on demand.

25. LONG-TERM BANK LOAN

At 31 December 2005, the secured Hong Kong dollar bank loan was repayable as follows:

Within 1 year – current portion Between 1 and 2 years Between 2 and 5 years Over 5 years Non-current portion	Group 2005 2004 HK$’000 HK$’000 2,174 – 6,788 – 22,982 – 45,056 – 74,826 – 77,000 –	Group 2005 2004 HK$’000 HK$’000 2,174 – 6,788 – 22,982 – 45,056 – 74,826 – 77,000 –

		– – –
		–

		–

The bank loan is secured over the investment property of the Group (Note 15) for a period of 10 years. The effective interest rate as at 31 December 2005 was 6% (2004: Nil).

During the year, a term loan facility of HK$11,000,000 (2004: Nil) was granted by the bank and was unutilized as at 31 December 2005.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

26. OBLIGATIONS UNDER FINANCE LEASES

At 31 December 2005, the Group and the Company had obligations under finance leases repayable as follows:

Finance lease liabilities – minimum lease payments: Not later than 1 year Later than 1 year but not later than 5 years Future finance charges on finance leases The present value of finance lease liabilities is as follows: Not later than 1 year – current portion Later than 1 year but not later than 5 years	Group and Company 2005 2004 HK$’000 HK$’000 508 – 729 – 1,237 – (105) – 1,132 – 465 – 667 – 1,132 –	Group and Company 2005 2004 HK$’000 HK$’000 508 – 729 – 1,237 – (105) – 1,132 – 465 – 667 – 1,132 –
		– –
		–

		– –
		–

The effective interest rate as at 31 December 2005 on the finance leases ranges from 5.6% to 6.6% (2004: Nil).

Lease liabilities are effectively secured as the rights to the leased asset revert to the lessor in the event of default.

27. DEFERRED TAX LIABILITIES

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset and when such accounts relate to the same fiscal authority. The offset amounts are as follows:

Deferred tax assets Deferred tax liabilities	Group 2005 2004 HK$’000 HK$’000 396 – (18,922) – (18,526) –	Group 2005 2004 HK$’000 HK$’000 396 – (18,922) – (18,526) –
		–

The components of deferred tax assets/(liabilities) recognized in the consolidated balance sheet and the movements during the year are as follows:

At 1 January 2005 Acquisition of business_(Note 32) (Charged)/credited to profit and loss account(Note 10)_ At 31 December 2005	Investment property HK$’000 – (12,733) (6,189) (18,922)	Tax losses HK$’000 – – 396 396	Total HK$’000 – (12,733) (5,793)
			(18,526)

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Unrecognized deferred tax assets/(liabilities) are as follows:

Unused tax losses Accelerated (tax)/depreciation allowance	2005 HK$’000 7,654 (253) 7,401	2004 HK$’000 2,818 47
		2,865

At 31 December 2005, the Group has unused tax losses of approximately HK$43,735,000 (2004: HK$16,105,000) to carry forward against future taxable income. No deferred tax asset has been recognized in respect of the tax losses. Such tax loss has no expiry date under the current tax legislation.

28. SHARE CAPITAL

Authorised: 200,000,000 ordinary shares of HK$0.20 each Issued and fully paid: 72,000,000 ordinary shares of HK$0.20 each	2005 HK$’000 40,000 14,400	2004 HK$’000 40,000

		14,400

29. RESERVES

(a) Group

At 1 January 2004 Net loss for the year attributable to shareholders At 31 December 2004 At 1 January 2005 As previously reported Opening adjustment for the adoption of HKFRS 3 As restated Changes in fair value of available-for-sale financial assets Net profit for the year attributable to shareholders At 31 December 2005	Available-for- Share sale financial premium assets reserve HK$’000 HK$’000 116,612 – – – 116,612 – 116,612 – – – 116,612 – – 220 – – 116,612 220	Capital reserve HK$’000 39 – 39 39 (39) – – – –	Retained earnings HK$’000 64,323 (6,149 ) 58,174 58,174 39 58,213 – 4,067 62,280	Total HK$’000 180,974 (6,149
				174,825

				174,825 –
				174,825 220 4,067
				179,112

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Company

At 1 January 2004 Loss for the year At 31 December 2004 and 1 January 2005 Changes in fair value of available-for-sale financial assets Loss for the year At 31 December 2005	Available-for- Share sale financial premium assets reserve HK$’000 HK$’000 116,612 – – – 116,612 – – 220 – – 116,612 220	Retained earnings HK$’000 67,489 (6,507) 60,982 – (8,406) 52,576	Total HK$’000 184,101 (6,507)
			177,594 220 (8,406)
			169,408

30. CONTINGENCIES

One of the Company’s subsidiaries, VXL Financial Services Limited (formerly known as KE Capital (Hong Kong) Limited (“VXLFSL”) was sued by a third party (the “plaintiff”) under a High Court action for the payment of HK$712,000 in respect of printing, translation and advertising services rendered to a customer of VXLFSL, of which VXLFSL acted as the financial adviser in a financial transaction.

The directors are of the opinion that the amount in dispute should be borne by the customer and the Group has no obligation in respect of the services rendered by the plaintiff. Up to the date of approval of these financial statements, there is no further action taken by the plaintiff and the litigation is still pending.

31. COMMITMENTS

(a) Operating lease commitment

At 31 December 2005, the Group had commitments under non-cancelable operating leases in respect of rented premises, which fall due as follows:

Not later than 1 year Later than 1 year and not later than 5 years	2005 HK$’000 3,171 3,198 6,369	2004 HK$’000 861 274
		1,135

(b) Commitment

The Group has 30% effective interest in Cruise City Holdings Limited (“CCHL”) and its subsidiary, Cruise City (Hong Kong) Limited, which submitted an Expression of Interest to the HKSAR Government for the New Cruise Terminal Development in December 2005. Pursuant to a joint venture agreement dated 8 December 2005, the Company has committed to advance approximately HK$3,000,000 to CCHL of which as at 31 December 2005, the Group has recognized a provision of HK$586,000 thereof (Note 18), representing its share of the expenses pursuant to the joint venture agreement.

32. BUSINESS COMBINATIONS

On 9 September 2005, the Group acquired a block of serviced apartments located at 112 Chun Yeung Street, North Point, together with certain furniture and equipment and existing tenancies. This acquisition constitutes a business combination. The acquired business contributed revenues of HK$2,641,000 and operating profit of HK$399,000 and fair value gain of HK$33,574,000 to the Group for the period from 9 September 2005 to 31 December 2005.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Details of net assets acquired and goodwill are as follows:

Purchase consideration: – Cash paid – Direct costs of acquisition – Mortgage loan drawn down_(Note 25) Total purchase consideration Fair value of net assets acquired(note) Goodwill(Note 16) (note)Fair values of assets and liabilities acquired Investment property(Note 15) Property, plant and equipment(Note 14(a)) Deferred tax liabilities(Note 27)_ Net assets acquired	HK$’000 33,000 5,581 77,000 115,581 97,267 18,314 HK$’000 109,426 574 (12,733) 97,267

33. RELATED PARTY TRANSACTIONS

The following transactions are carried out with related parties:

(a) Purchases of services

The Company contracted VXL Management Sdn Bhd, a corporation controlled by a director of the Company and a connected party under the definition of the Listing Rules 14A.31, to provide management and administrative services to the Group. The management and administrative fee paid and payable for the year ended 31 December 2005 is HK$183,000 (2004: HK$75,000).

VXL Financial Services Limited (“VXLFSL”), a wholly-owned subsidiary of the Company, engaged Kim Eng Corporate Finance (Hong Kong) Limited (“KECF”) to provide professional services. Two of VXLFSL’s directors were also directors of KECF during the year. The amount paid and payable for the year ended 31 December 2005 is HK$1,806,000 (2004: HK$Nil).

(b) Sales of services

During the year, VXLFSL provided certain professional services to KECF. The amount received and receivable for the year ended 31 December 2005 is HK$1,430,000 (2004: HK$Nil).

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(c) Key management compensation

Salaries and other short-term employee benefits Pension costs – defined contribution plan Others	2005 HK$’000 5,874 59 570 6,503	2004 HK$’000 1,422 55 45
		1,522

34. PUT OPTION AGREEMENT

In conjunction with the acquisition exercise undertaken by VXL Capital Partners Corporation Limited in December 2003 for the purchase of a controlling stake of 70.01% of the Company’s issued and paid up share capital, the Company has entered into a Put Option Agreement (the “Put Option Agreement”) on 7 December 2003 with Kim Eng Holdings Limited (“KEHL”), the vendor of the said shares.

Pursuant to the Put Option Agreement, the Company is granted a Put Option under which the Company has a right, but not an obligation, to require KEHL to purchase the Company’s 100% equity interests in VXL Financial Services Limited (formerly known as KE Capital (Hong Kong) Limited) at a fixed consideration of HK$9,000,000 at any time during the period from the completion of the Put Option Agreement to twelve months thereafter.

The Company did not exercise the Put Option within the twelve months period in accordance with the Put Option Agreement, and the Put Option lapsed on 29 March 2005. Both the Group and KEHL have mutually discharged each other from the duties and liabilities under the Put Option Agreement.

35. EVENT AFTER THE BALANCE SHEET DATE

On 7 March 2006, VXL Properties Holdings Limited (“VXL Properties”), a wholly-owned subsidiary of the Company, entered into an agreement to acquire the entire issued share capital of Rich Field International Limited (“Rich Field”), which holds the right to acquire a property in Shanghai, for a total consideration of HK$5 million. Upon completion of the acquisition, the Group is obliged to purchase the property at a consideration of approximately HK$446.8 million. The total consideration on the acquisition amounts to approximately HK$451.8 million

Such acquisition is subject to approval of the Company’s shareholders in general meeting.

36. COMPARATIVE FIGURES

Certain comparative figures have been reclassified as a result of the changes in accounting policies as disclosed in Note 2.1, 5, 10 and 13.

37. APPROVAL OF THE FINANCIAL STATEMENTS

The financial statements on pages 59 to 124 were approved by the board of directors on 13 April 2006.”

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. MANAGEMENT DISCUSSION AND ANALYSIS

The following is the management discussion and analysis of the Group’s business, financial results and position extracted from the annual reports of the Company for the nine months ended 31 December 2003, and for the two years ended 31 December 2004 and 2005.

(i) For the nine months ended 31 December 2003

FINANCIAL AND BUSINESS REVIEW

Revenue

After the disposal of the brokerage businesses to a fellow subsidiary in mid 2002, the Group has only carried on its businesses in corporate finance and financial advisory services and investment and trading in securities. Affected by the sluggish local stock market, the outbreak of Severe Acute Respiratory Syndrome in the first half of 2003 and the change of year-end date commencing this year, turnover of the corporate finance and financial advisory businesses fell by approximately 67%.

With the combination of the disposal of brokerage businesses and persistent low interest rates, the Group’s interest income fell significantly.

On account of disposal of investment in a mutual fund during the period, the Group realized approximately HK$11.9 million profit therefrom and reported a total net contribution of approximately HK$14.0 million to operating profit from securities investment and trading.

Costs

In line with a decline in the Group’s turnover, staff costs and other operating expenses fell by approximately 30% and 42%, respectively over the nine month period, owing largely to the disposal of the brokerage businesses in May 2002.

LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE

The Group generated net cash outflow of HK$86.1 million for the nine months ended 31 December 2003, which was mainly due for the payments for reverse repo transactions of HK$77.7 million and operating activities. The Group had cash reserves of HK$76.7 million as at 31 December 2003. Most of cash reserves was placed in HK$ and US$ short-term deposits with major banks in Hong Kong.

Gearing ratio is measured on the basis of the Group’s total interest bearing debts net of cash reserves over the Company’s shareholders’ funds as of the reporting date. Net of debt balances, the Group had a net cash surplus of approximately HK$76.7 million and approximately HK$163 million at the close of 31 December 2003 and 31 March 2003, respectively. As such, a gearing ratio, as required under paragraph 32 of Appendix 16 to the Listing Rules, at these two days did not exist.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

EMPLOYMENT AND REMUNERATION POLICY

The Group had a total of 18 employees, including executive directors, at 31 December 2003. Remuneration packages including basic salaries, bonuses, provident funds, and other kinds of staff benefits are competitive and are performance based. The Group also adopts a share option scheme under which the Directors may, at their discretion, offer to any employees and executive directors of the Group options to subscribe for shares in the Company.

(ii) For the year ended 31 December 2004

FINANCIAL REVIEW

Turnover

The Group’s turnover for the year was HK$3.7 million, representing a decrease of 48.6% when compared to last year. The drop in turnover was mainly attributable to the fall in corporate advisory fee and the reduction in trading and investment activities in securities. The market for corporate finance and advisory business was very competitive and the regulatory requirements are very stringent which resulted in difficulties in gaining new assignments and incurrence of additional time for completion of corporate exercise.

Other revenue

In 2004, after the change of management, the Group has been focusing on developing and exploring new business opportunities. The investment activities in securities had reduced significantly. Therefore, there was no disposal income on investment securities as compared to HK$12 million non-recurring trading income on securities in respect of 2003.

Staff costs

The Group has reduced the number of employees consequent upon a reduction in the level of operations as one of the subsidiaries had been disposed of and the holding company was in the process of building up its core businesses. The staff costs dropped from HK$9.7 million to HK$4.7 million in 2004.

Operating expenses

The increase in operating expenses for the year under review was mainly due to legal & professional costs and consultancy fees in relation to aborted acquisition exercises, development of business plans, pursuit of potential business opportunities and evaluation of possible investment projects. In addition, bad debts were written off in 2004 amounted to HK$0.66 million.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The difficult market environment of the corporate advisory business, the reduction in securities dealings, the change of management and the business development costs were the major factors that attributed to the loss before tax of HK$7.2 million (2003: profit before tax of HK$7.5 million).

LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE

The Group generated net cash inflow of HK$110.0 million during the year. This was mainly the effect of receipts from reverse repo transactions of HK$77.7 million and the operating cashflow of HK$30.5 million as a result of collection of trade and other receivables. The Group had cash reserves of HK$186.7 million as at 31 December 2004. The cash reserves were placed in HKD cash and short term deposits with major banks in Hong Kong.

The Group had a very sound financial position and there were no borrowings during the year and as at the balance date. There was no change as to the share capital structure of the Group during the year.

During the year, a subsidiary was disposed of with a profit of HK$1.47 million. The disposal of the subsidiary was pursuant to a disposal agreement signed on 7 December 2003.

Current assets of the Group were recorded at HK$187.2 million as compared to the current liabilities of HK$1.1 million as at 31 December 2004. The Group has a strong working capital for future business plans and developments.

Gearing ratio and financial management

Gearing ratio is measured on the basis of the Group’s total interest bearing debts net of cash reserves over the Shareholders’ funds as of the reporting date. Net of debt balances, the Group had a net cash surplus (net of the total interest bearing debts and the cash reserves) of HK$186.7 million and HK$76.7 million at the close of 31 December 2004 and 2003 respectively. As such, the gearing ratio as required under paragraph 32 of Appendix 16 of the Listing Rules at these two days did not exist.

The Group did not have any exposure to fluctuation in foreign currency exchange rates arising from the operations. Therefore, the Group did not have any foreign exchange contracts for hedging purpose.

BUSINESS REVIEW

The Group is principally engaged in investment holding and the provision of corporate financial advisory services. The investments activities are mainly carried out in the holding company while the subsidiary, VXL Financial Services Limited (formerly known as “KE Capital (Hong Kong) Limited”), a company registered under the Securities and Futures Commission, carries out the corporate finance and advisory services.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The turnover in trading and investment together with the interest earned on funds was HK$1.6 million (42.8% of total turnover). The turnover in corporate advisory segment was HK$2.1 million (57.2% of total turnover).

The Group’s principal activities and revenue for the year ended 31 December 2004 were derived from operations in Hong Kong.

EMPLOYMENT AND REMUNERATION POLICY

The Group had a total of 6 employees, including executive directors as at 31 December 2004. The remuneration packages to employees were commensurable to the market trend. Other employee benefits include discretionary bonus based on individual performance, medical insurance and provident funds. The Group also adopts a share option scheme under which the directors may, at their discretion, offer to any employees and executive directors of the Group options to subscribe for shares in the Company.

CONTINGENT LIABILITIES

There is a litigation against one of the subsidiaries by a third party for the payment of HK$713,000 on printing, translation and advertising services rendered to a customer of the subsidiary. The litigation was lodged in 2003 and since then there was no further progress or action taken by the plaintiff. The directors are of the view that no provision for the said amount is required in the financial statements of the Group for the year ended 31 December 2004 as the amount in dispute should be borne by the customer.

(iii) For the year ended 31 December 2005

FINANCIAL REVIEW

Turnover

For the year ended 31 December 2005, the Group recorded turnover of HK$11.8 million, representing a remarkable increase of 219% on the HK$3.7 million recorded in the previous year. This growth in turnover was primarily attributable to rental income generated by the Group’s investment property in North Point, along with an encouraging income stream from the Group’s corporate financial advisory business. The performance of our North Point investment property was good, with turnover of HK$2.6 million, while our corporate financial advisory business registered 133% growth for a turnover of HK$4.9 million this year.

As a result of efficient cash management and higher interest rates, the Group also achieved improved interest income of HK$4.3 million, an increase of 207% over the HK$1.4 million recorded in 2004.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Operating expenses

Operating expenses increased for the year as a result of increases in staff costs, legal costs, and professional and consultancy fees. During the year, the Group formed a new management team and brought in experienced professionals to prepare for planned future growth. It moved to new office premises, and leased an extra office for its corporate finance division, contributing to an increase in rental and occupancy expenses.

Net profit

The Group made a net profit for the year of HK$4.1 million, representing a significant improvement compared with the net loss of HK$6.1 million recorded in 2004. This was due to increase in the Group’s turnover during the year, and the fair value gain on its investment property of HK$33.6 million, on the open market value basis, excluding incidental expenses on disposal.

LIQUIDITY AND FINANCIAL RESOURCES

The Group generated net cash outflow of HK$63.7 million during the year. This was mainly due to the net payment in acquisition of an investment property of HK$38.0 million and operating activities. The Group maintains a very strong and healthy liquidity position, with bank and cash balances amounting to HK$123 million as at 31 December 2005. Cash reserves are in general held as time deposits and short-term high-yield currency-linked deposits with major banks in Hong Kong.

Gearing ratio and financial management

As at 31 December 2005, the Group had a mortgage loan for securing over its investment property of HK$77 million, maturing in more than five years and the obligations under finance leases of HK$1.1 million maturing in 2008.

The gearing ratio (the ratio of the Group’s total interest-bearing debts net of cash reserves divided by the Shareholders’ funds as at 31 December 2005) did not exist due to the Group having surplus cash reserves after netting its borrowings as at 31 December 2005.

The Group placed a small proportion of its cash into high-yield currency-linked deposits. These deposits are linked to either European currencies or Australian dollars, and are exposed to exchange rate fluctuations. Save as disclosed above, the Group did not have any foreign exchange contract for hedging purposes.

Currents assets of the Group were recorded at HK$134 million whilst the current liabilities amounted to HK$13 million as at 31 December 2005. The Group has a strong working capital for future businesses and developments.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

BUSINESS REVIEW

Property Investment

In property investment, the Group foresees tremendous opportunities arising from the growing demand for premium-quality properties and high-end residential apartments both in Hong Kong and the PRC. As evidence of this, our recently-acquired investment property in North Point has not only generated a stable income stream for the Group, it has also created a healthy fair value gain since its acquisition in September 2005.

On 23 June 2005, Arrow Star Investment Limited, a wholly-owned subsidiary of the Group, entered into a sale-and-purchase agreement to acquire an investment property at 112 Chun Yeung Street, North Point, for a consideration of HK$110 million. The acquisition, comprising 96 serviced units and a retail shop, was completed on 9 September 2005. Within the period from 9 September to 31 December 2005, the property contributed approximately HK$2.6 million to the Group’s turnover, besides achieving a significant fair value gain of HK$33.6 million. The success of this investment has demonstrated our level of insight in property investment, and reinforced our determination to acquire further quality properties in the near future.

Financial Services

To strengthen its management team, the Group successfully recruited a new batch of financial professionals. Management was particularly bolstered within the Group’s wholly owned subsidiary VXL Financial Services Limited, which provides a comprehensive range of financial services including corporate finance, mergers and acquisitions, initial public offering exercises, and financial advisory services, targeting clients of medium-sized fastgrowing corporations. Since the beginning of the third quarter of 2005 this new team has generated HK$4.1 million in corporate advisory fees, accounting for more than 80% of the total for the year. This income stream amounted to over one third of the Group’s total turnover, and was integral to the Group’s success during the year.

With its extensive local knowledge and business relationship network in the PRC, the Company is poised to capture significant growth opportunities created by the opening of the PRC financial market. Entry into this market is being pioneered by the establishment of VXL International Leasing Co., Ltd., a wholly owned subsidiary of the Group. Incorporated and located in Beijing, it is scheduled to commence business in April 2006 after a leasing business license was granted on 24 February 2006, new business premises established, and a group of Chinese financial managers from the banking industry recruited with the goal of better meeting the specific financing needs of business enterprises in the PRC. By broadening the access to capital, promoting greater transparency and democratization of capital in the PRC, the Group can participate and contribute to the growth of this sector.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The total turnover of the PRC’s leasing and commercial service industry in 2005 was RMB51.5 billion, a figure representing 42.2% growth over the previous year according to the PRC’s National Bureau of Statistics. This spectacular growth rate is expected to continue or even accelerate which suggests that the leasing industry represents a potentially lucrative business opportunity for the Group. This leasing unit is ready to finance various types of business at different levels of the economy. Active negotiation has been underway with a few top 500 companies in the PRC and local banking institutions to set up long term business relationship.

By entering early into the PRC financial market and building an efficient financial management system and proactive organization, the Group is optimistic about its prospects in the vibrant and fast-growing financial services sector in the Greater China region. Backed by its links to international financial institutions and the expertise of its own financial advisory team, the Group will play an active role in the ever-growing financial services business in Asia, and especially the Greater China region.

Resources Investment

The PRC is pushing ahead with reform of its oil-pricing system and a schedule for linking natural gas prices to those of other fossil fuels, according to its 11th five-year programme. The hope is that by allowing market forces to determine prices, wastage will be reduced and incentives will be created for producers, making it a more appealing and profitable option for businesses to enter this industry.

Given this background, the Group plans to keep seeking out investment opportunities in oil and gas, gold and other key minerals as attractive potential investments, and a way of mitigating any adverse economic uncertainties and maintaining sustainable growth. The Group’s resources investment business strategy is still in its infancy and will be periodically reviewed every six months.

EMPLOYMENT AND REMUNERATION POLICY

As at 31 December 2005, the Group had a total of 25 employees, including executive directors. The Group’s remuneration policy and packages for the executive directors and senior management are reviewed and recommended by the remuneration, quality and nomination committee and approved by the Board on an annual basis while that for other employees’ are reviewed and approved by the Chief Executive Officer. The Group remunerates its employees based on industry practice and the performance of each individual. The Group also offers discretionary bonuses, medical insurance, and a provident fund, and provides a share option scheme for its employees and executive directors.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONTINGENT LIABILITY

The contingent liability of the Group has not changed from that disclosed in 2004’s annual report.

PROSPECTS

The 2005 financial year was one in which the Group laid the foundation that will enable it to move towards implementing its “Innovative Concept Development” strategy. Drawing on healthy financial resources and extensive project managerial expertise of the Group, the Group is using its core businesses – property investment and financial services – to back and fund its future as a “Concept Developer”, creating a flexible “Investment and Financing Platform” for foreign and China-based business alike.

4. INDEBTEDNESS

As at 31 July 2006, being the latest practicable date for the purpose of this statement of indebtedness prior to printing of this circular, the Enlarged Group had outstanding borrowings of HK$136,674,790, which comprised the following:

HK$

Bank loans repayable Within one year Between one and two years Between two and five years Over five years Other loans repayable Within one year Finance lease obligations Within one year Between one and two years	45,031,064 6,968,873 23,713,306 40,300,297
	116,013,540 ------------------- 20,000,000 ------------------- 345,000 316,250
	661,250 ------------------- 136,674,790

The bank loans of HK$77,000,000 and HK$39,013,540 are secured over the investment property of the Group with a carrying value of HK$143 million as at 31 December 2005 and equivalent amounts of deposits placed in banks respectively. The net book value of the Group’s motor vehicles held under the finance lease amounted to approximately HK$1.4 million as at 31 December 2005.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

One of the Company’s subsidiaries, VXL Financial Services Limited (“VXLFSL”, at the material time known as Kim Eng Capital (Hong Kong) Limited) was sued by a third party (the “Plaintiff”) under a High Court action for the payment of approximately HK$713,000, together with the judgement interest thereon, in respect of printing, translation and advertising services rendered to a customer of VXLFSL, of which VXLFSL acted as the financial adviser in a financial transaction.

The Directors are of the opinion that the amount in dispute should be borne by the customer and the Enlarged Group has no obligation in respect of the services rendered by the Plaintiff. Up to 31 July 2006, there is no further action taken by the Plaintiff and the litigation is still pending.

DISCLAIMER

Saved as disclosed above, as at the close of business on 31 July 2006, the Enlarged Group did not have any outstanding loan capital, any other borrowings or indebtedness in the nature of borrowings including bank overdrafts and liabilities under acceptance (other than normal trade bills) or other similar indebtedness, debentures, mortgages, charges, loans, acceptance credits, hire purchase commitments, guarantees or other material contingent liabilities.

5. WORKING CAPITAL

The Directors, after due and careful consideration, are of the opinion that, based on the available banking and other facilities, loans obtained and to be obtained from the controlling Shareholder and internal resources of the Enlarged Group, and subject to the completion of issuance of new securities and the long term loan facility from a financial institution to finance the proposed acquisition of the Changshou Properties, the Enlarged Group has sufficient working capital for its present requirements and for the period ending twelve months from the date of this circular.

On 22 August 2006, VXL Properties has received an indicative offer from a financial institution to provide a long term loan facility of not exceeding HK$340 million bearing interest at Hong Kong Dollar prime lending interest rate to finance the proposed acquisition of the Changshou Properties. The Directors are of the opinion that the aforesaid loan proposal will be completed before the due date for the final payment of the consideration for the North Block and the South Block which is currently expected to be 31 October 2006.

In addition, the completion and pricing of issuance of new securities will depend on market conditions and such issuance may or may not materialise. If the issuance of new securities does not materialise, the Enlarged Group would find alternative funding sources.

6. MATERIAL ADVERSE CHANGE

The Directors are not aware, as at the Latest Practicable Date, of any material adverse change in the financial or trading position of the Group since 31 December 2005, the date to which the latest published audited financial statements of the Company were made up.

UNAUDITED FINANCIAL INFORMATION OF THE NORTH BLOCK

APPENDIX II

UNAUDITED FINANCIAL INFORMATION OF THE NORTH BLOCK

The following is the unaudited financial information of the North Block (“the Unaudited Financial Information”) for the years ended 31 December 2004 and 2005, and for the six months ended 30 June 2006 (the “Relevant Periods”).

I) Basis of preparation

Pursuant to the New PRC Property Contracts, WFOE has agreed to acquire from Hongwei the North Block for a cash consideration of RMB251,509,500 (equivalent to approximately HK$243,239,362).

The Unaudited Financial Information only includes rental income, property tax and business tax attributable to the North Block and is compiled and derived from certain records provided by Hongwei after taking into consideration of adjustments that are required in conformity with the principal accounting policies of the Group except as stated below. The rental income for the North Block is recognised in accordance with the terms of the Lease between Hongwei and Qiangsheng dated 17 December 2003. According to the Lease, utilities and other outgoings of the North Block are borne by the tenant. Property tax and business tax are calculated based on 12% and 5% of rental income respectively.

The Unaudited Financial Information does not include the financial impact on the North Block arising from the adoption of Hong Kong Accounting Standard 40 “Investment Property” (“HKAS 40”). The Directors confirmed that HKAS 40 will be applied in respect of the North Block after the completion of the Acquisition. Details of the relevant accounting policies of the Group that will be applied for the North Block in compliance with HKAS 40 are set out below.

Investment property

Property that is held for long-term rental yields or for capital appreciation or both, which is not occupied by the companies in the Group, is classified as investment property.

Investment property comprises land held under operating leases and buildings held under finance leases.

UNAUDITED FINANCIAL INFORMATION OF THE NORTH BLOCK

APPENDIX II

Fair value is based on valuations carried out by external valuers. Changes in fair values are recognised in the profit and loss account.

In addition, the Unaudited Financial Information has been prepared for illustrative purposes only and, because of its limited nature, may not give a true picture of the financial results of the North Block as if it had been owned and managed by the Company.

II) Extract of relevant principal accounting policies of the Group

Revenue recognition

Rental income received or receivable under operating leases is recognised in the profit and loss account on a straight-line basis over the periods covered by the lease term.

III) Unaudited Financial Information

The following is a summary of unaudited rental income and property tax and business tax attributable to the North Block for the Relevant Periods prepared on the basis set out in Section (I) above:

			For the
			six months
	For the year ended		ended
	31 December		30 June
	2004	2005	2006
	HK$’000	HK$’000	HK$’000
Rental income	5,526	5,526	2,763
Property tax	(663)	(663)	(332)
Business tax	(276)	(276)	(138)

The above summary does not include the financial impact on the North Block if HKAS 40 had been adopted in the compilation of the Unaudited Financial Information.

The Company’s auditors have carried out the following procedures on the Unaudited Financial Information in accordance with Hong Kong Standard on Related Services 4400 “Engagements to Perform Agreed-Upon Procedures Regarding Financial Information” issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”):

UNAUDITED FINANCIAL INFORMATION OF THE NORTH BLOCK

APPENDIX II

discussed with the management of the Company in respect of the basis as set out in Section (I) above; and
checked the rental income, property tax and business tax attributable to the North Block to certain records provided by Hongwei and the Company after taking into consideration of adjustments required in conformity with the principal accounting policies of the Group.

As the information based on which the Unaudited Financial Information has been prepared is limited, the auditors made no representations on the completeness and accuracy of the information. Because the above procedures do not constitute an assurance engagement made in accordance with Hong Kong Standards on Auditing, Hong Kong Standards on Review Engagements or Hong Kong Standards on Assurance Engagements issued by HKICPA, the auditors do not express any assurance on the Unaudited Financial Information. Since the said procedures above were agreed between the Directors and the Company’s auditors, they should not be used or relied by any other parties for any other purpose.

MANAGEMENT DISCUSSION AND ANALYSIS ON THE NORTH BLOCK

For each of the two years ended 31 December 2004 and 2005, the rental income for the North Block based on the Lease was RMB3 million (equivalent to approximately HK$2.9 million). For the six months ended 30 June 2006, the rental income for the North Block based on the Lease was approximately RMB1.5 million (equivalent to approximately HK$1.45 million). Under the Hong Kong Financial Reporting Standards issued by Hong Kong Institute of Certified Public Accountants, the rental income under the Lease should be recognised on a straight line basis over the period of the Lease. Accordingly, the rental income recognised for each of the two years ended 31 December 2004 and 2005 was approximately RMB5.7 million (equivalent to approximately HK$5.5 million) and for the six months ended 30 June 2006 was approximately RMB2.9 million (equivalent to approximately HK$2.8 million).

According to the terms of the Lease, the utility and related expenses incidental to the North Block are borne by the tenant. Save for the property tax and business tax which are charged at 12% and 5% of the gross rental income based on the Lease, there were no other material expenses in relation to the North Block. For each of the two years ended 31 December 2004 and 2005, the accrued property tax and business tax amounted to approximately RMB0.68 million (equivalent to approximately HK$0.66 million) and RMB0.29 million (equivalent to approximately HK$0.28 million) respectively. For the six months ended 30 June 2006, the accrued property tax and business tax amounted to approximately RMB0.34 million (equivalent to approximately HK$0.33 million) and RMB0.14 (equivalent to approximately HK$0.14 million) respectively.

The cashflow items of the North Block during each of the two years ended 31 December 2004 and 2005 and for the six months ended 30 June 2006 comprised principally the aforesaid rental income and property and business taxes.

APPENDIX III ACCOUNTANTS’ REPORT ON THE RICH FIELD GROUP

The following is the text of a report, prepared for the purpose of incorporation in this circular, received from the reporting accountants, PricewaterhouseCoopers, Certified Public Accountants.

25 August 2006

The Directors VXL Capital Limited

Dear Sirs

We set out below our report on the financial information relating to Rich Field International Limited (“Rich Field”) and its subsidiaries (hereinafter collectively referred to as the “Rich Field Group”) for inclusion in the circular of VXL Capital Limited (the “Company”) dated 25 August 2006 (the “Circular”) in connection with the proposed acquisition of property interests through acquisition of 100% equity interests in Rich Field (“the Proposed Acquisition”) by VXL Properties Holding Limited (“VXL Properties”), a wholly owned subsidiary of the Company.

Rich Field was a private company incorporated in Samoa on 16 December 2005 with limited liability pursuant to the provisions of Section 14(3) of the International Companies Act 1987 of Samoa.

As at the date of this report, Rich Field has direct and indirect interests in the following subsidiaries:

	Country and		Issued and	Attributable
	date of	Kind of	fully paid up	equity	Principal
Name	incorporation	legal entity	share capital	interest	activities
Directly held:
Daily Right Limited	Samoa;	Private limited	US$2	100%	Investment
(“Daily Right”)	1 November	liability company			holding
	2005
Indirectly held:
Moral High Limited	Samoa;	Private limited	US$1	100%	Property
(“Moral High”)	15 November	liability company			investment
	2005
峻領德高商業發展	People’s Republic	Wholly foreign	Note	100%	Property
（上海）有限公司	of China (“PRC”);	owned enterprise			investment
	25 July 2006

Note: The registered capital of USD25,000,000 has not been paid as at the date of this report.

APPENDIX III ACCOUNTANTS’ REPORT ON THE RICH FIELD GROUP

Rich Field acquired the entire interests in Daily Right on 16 December 2005.

All companies comprising the Rich Field Group have adopted 31 December as their financial year end date.

No audited financial statements have been prepared for Rich Field, Daily Right and Moral High since their respective dates of incorporation as there is no statutory requirement for these entities to prepare audited financial statements.

We have examined the unaudited management accounts of all companies comprising the Rich Field Group for the period from 16 December 2005 (date of incorporation of Rich Field) to 31 December 2005 and the six months ended 30 June 2006 (the “Relevant Periods”) and have carried out such additional procedures as are necessary in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the Hong Kong Institute of Certified Public Accountants.

The financial information as set out in sections I to IV (the “Financial Information”) has been prepared based on the unaudited management accounts of all the companies comprising the Rich Field Group. The directors of the respective companies are responsible for preparing the unaudited management accounts which give a true and fair view. In preparing these accounts, it is fundamental that appropriate accounting policies are selected and applied consistently.

The directors of the Company and Rich Field are responsible for preparing the Financial Information. It is our responsibility to form an independent opinion, based on our examination, on the Financial Information and to report our opinion.

In our opinion, the Financial Information, for the purpose of this report, gives a true and fair view of the state of affairs of Rich Field and the Rich Field Group as at 31 December 2005 and 30 June 2006 and the results and cash flows of the Rich Field Group for the Relevant Periods.

APPENDIX III ACCOUNTANTS’ REPORT ON THE RICH FIELD GROUP

I FINANCIAL INFORMATION

(a) Consolidated balance sheets

Note Current assets Due from a shareholder 4 Deposits and prepayments 5 Current liability Loan from VXL Properties 6 Net current assets Total assets less current liability Financed by: Share capital 7 Total equity	As at As at 30 June 31 December 2006 2005 HK$ HK$ 16 8 57,047,000 – 57,047,016 8 ----------------- ----------------- 57,047,000 – 57,047,000 – ----------------- ----------------- 16 8 ----------------- ----------------- 16 8 16 8 16 8	As at As at 30 June 31 December 2006 2005 HK$ HK$ 16 8 57,047,000 – 57,047,016 8 ----------------- ----------------- 57,047,000 – 57,047,000 – ----------------- ----------------- 16 8 ----------------- ----------------- 16 8 16 8 16 8
		8 ----------------- –
		– ----------------- 8 -----------------
		8

		8
		8

APPENDIX III ACCOUNTANTS’ REPORT ON THE RICH FIELD GROUP

(b) Company balance sheets

Note Non-current asset Investment in a subsidiary 8 Current assets Due from a shareholder 4 Due from a subsidiary 4 Current liabilities Due to a subsidiary 4 Loan from VXL Properties 6 Net current liabilities Total assets less current liabilities Financed by: Share capital 7 Total equity	As at As at 30 June 31 December 2006 2005 HK$ HK$ 16 16 16 16 ----------------- ----------------- 16 8 57,047,000 – 57,047,016 8 ----------------- ----------------- 16 16 57,047,000 – 57,047,016 16 ----------------- ----------------- – (8) ----------------- ----------------- 16 8 16 8 16 8

APPENDIX III ACCOUNTANTS’ REPORT ON THE RICH FIELD GROUP

(c) Consolidated profit and loss accounts for the six months ended 30 June 2006 and for the period from 16 December 2005 to 31 December 2005

No consolidated profit and loss account is presented as there were no profit or loss items for the six months ended 30 June 2006 and for the period from 16 December 2005 to 31 December 2005.

The auditors’ remuneration was borne by VXL Capital Limited.

Rich Field Group’s incorporation expenses of approximately HK$14,000 for the period from 16 December 2005 to 31 December 2005 were borne by the ultimate controlling party.

There were no directors’ emoluments paid or payable for the six months ended 30 June 2006 and for the period from 16 December 2005 to 31 December 2005.

(d) Consolidated statement of changes in equity

	Share capital
	HK$
At date of incorporation, 16 December 2005	–
Issue of share	8
At 31 December 2005	8
Issue of share	8
At 30 June 2006	16

APPENDIX III ACCOUNTANTS’ REPORT ON THE RICH FIELD GROUP

(e) Consolidated cash flow statements

Operating activity
Increase in amount due from a shareholder
Net cash outflow from operating activity
Investment activity
Payment of deposits and prepayments
related to investment properties
Net cash outflow from investment activity
Financing activities
Issue of share
Increase in loan from VXL Properties
Net cash inflow from financing activities
Change in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period

From
From
1 January
16 December
to
to
30 June
31 December
2006
2005
HK$
HK$
(8)
(8)
(8)
(8)
-----------------
-----------------
(57,047,000)
–
(57,047,000)
–
-----------------
-----------------
8
8
57,047,000
–
57,047,008
8
-----------------
-----------------
–
–
–
–
–
–

II NOTES TO THE FINANCIAL INFORMATION

1 General Information

The principal activity of Rich Field is investment holding, whilst the principal activities of its subsidiaries are stated in note 8 to the Financial Information.

Rich Field is a limited liability company incorporated in Samoa. The address of its registered office is Offshore Chambers, P.O. Box 217, Apia, Samoa.

The director of Rich Field considers the ultimate controlling party of Rich Field to be Ms Yeung Pui Shan.

APPENDIX III ACCOUNTANTS’ REPORT ON THE RICH FIELD GROUP

2 Summary of significant accounting policies

2.1 Basis of preparation

The Financial Information has been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRS”) issued by the Hong Kong Institute of Certified Public Accountants and has been prepared under the historical cost convention. The preparation of financial statements in conformity with HKFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the accounting policies.

Adoption of new/ revised HKFRS

In 2006, Rich Field Group adopted the following amendments to the existing standards which are relevant to its operations and results:

HKAS 39 (Amendment), The Fair Value Option
HKAS 39 and HKFRS 4 (Amendment), Financial Guarantee Contracts

The adoption of the above amendments to the existing standards had no material effect on Rich Field Group’s policies.

Standards, interpretations and amendments to published standards that are not yet effective

Certain new standards, amendments and interpretations to existing standards have been published and relevant to the Rich Field Group’s operations and results that are mandatory for the Rich Field Group’s accounting periods beginning on or after 1 January 2007 or later periods and relevant to the Group’s operations and financial statements but which the Rich Field Group has not early adopted, as follows:

HKFRS 7, Financial Instruments: Disclosures, and a complementary Amendment to HKAS 1, Presentation of Financial Statements - Capital Disclosures.
HK(IFRIC) - Int 9, Reassessment of Embedded Derivatives

The Rich Field Group has commenced to assess the impact of these new standards and amendments, and considers that they will not have a significant impact on its results of operations and financial position.

2.2 Consolidation

The consolidated financial statements include the financial statements of Rich Field and its subsidiaries.

ACCOUNTANTS’ REPORT ON THE RICH FIELD GROUP

APPENDIX III

Subsidiaries

Subsidiaries are all entities over which the Rich Field Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Rich Field Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group and are de-consolidated from the date such control ceases.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Rich Field Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the profit and loss account.

Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

In the company’s balance sheet, the investments in subsidiaries are stated at cost less provision for impairment losses. The results of subsidiaries are accounted for by the company on the basis of dividend received and receivable.

2.3 Foreign currency translation

(a) Functional and presentation currency

Items included in the financial statements of each of the Rich Field Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are presented in Hong Kong dollars, which is the Rich Field’s functional and presentation currency.

(b) Transactions and balances

APPENDIX III ACCOUNTANTS’ REPORT ON THE RICH FIELD GROUP

in foreign currencies are recognised in the profit and loss account. Translation differences on non-monetary financial assets and liabilities are reported as part of the fair value gain or loss. Translation differences on non-monetary financial assets, such as equities classified as available-for-sale financial assets, are included in the fair value reserve in equity.

(c) Group companies

(i) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
(ii) income and expenses for each profit and loss account are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and
(iii) all resulting exchange differences are recognised as a separate component of equity.

On consolidation, exchange differences arising from the translation of the net investment in foreign operations, and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders’ equity. When a foreign operation is sold, exchange differences that were recorded in equity are recognised in the profit and loss account as part of the gain or loss on sale.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

(d) Receivables

Receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of receivables is established when there is objective evidence that the Rich Field Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the carrying amount of the asset and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in the profit and loss account.

APPENDIX III ACCOUNTANTS’ REPORT ON THE RICH FIELD GROUP

(e) Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial asset or financial liability, including fees and commissions paid to agents, advisers, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the profit and loss account over the period of the borrowings using the effective interest method.

3 Turnover and revenue

The Rich Field Group did not generate any revenue during the Relevant Periods.

4 Due from a shareholder and due from/to a subsidiary

These balances are interest-free, unsecured and have no fixed terms of repayment. The carrying amounts of these balances approximate their fair values.

5 Deposits and prepayments

Deposits Prepayments	Group As at As at 30 June 31 December 2006 2005 HK$ HK$ 44,680,000 – 12,367,000 – 57,047,000 –	Group As at As at 30 June 31 December 2006 2005 HK$ HK$ 44,680,000 – 12,367,000 – 57,047,000 –
		–

(i) The deposits relate to the acquisition of:
a) the North Block of Changshou Commercial Plaza situated in the Putuo District in Shanghai (the “North Block”) pursuant to the sale and purchase contract dated 27 February 2006 together with its supplemental terms, as superseded by six property sale contracts all dated 5 March 2006, and entered with Shanghai Hongwei Property Development Company Limited (“Hongwei”); and
b) the South Block of Changshou Commercial Plaza situated in the Putuo District in Shanghai pursuant to the sale and purchase contract dated 24 February 2006 (as amended and supplemented on 4 and 5 March 2006 and 8 May 2006), and entered with Hongwei.

APPENDIX III ACCOUNTANTS’ REPORT ON THE RICH FIELD GROUP

The carrying amount of deposits approximate its fair values.

(ii) The prepayments relate to the payments made in settling existing tenancies at the North Block and acquiring two shops in the North Block.

6 Loan from VXL Properties

The loan is interest-free and repayable on demand. It is secured by two issued shares of the Company. The carrying amount of the loan approximates its fair value.

7 Share capital

		As at	As at
		30 June	31 December
		2006	2005
		US$	US$
Authorised
1,000,000 ordinary shares of US$1 each		1,000,000	1,000,000

	Number of shares		HK$
Issued and fully paid:
Ordinary shares of US$1 each
At date of incorporation, 16 December 2005		–	–
Issue of share		1	8
At 31 December 2005		1	8
Issue of share		1	8
At 30 June 2006		2	16

At 16 December 2005 and 26 May 2006, the Company issued one ordinary share at par for cash.

8 Investment in a subsidiary


	2006	2005
	HK$	HK$
Unlisted shares, at cost	16	16

ACCOUNTANTS’ REPORT ON THE RICH FIELD GROUP

APPENDIX III

At 30 June 2006, the details of the Company’s subsidiaries are as follows:

			Issued and
	Place of	Principal	fully paid up
Name	incorporation	activities	share capital	Interest held
Directly held:
Daily Right Limited	Samoa	Investment	2 ordinary shares	100%
		holding	of US$1
Indirectly held:
Moral High Limited	Samoa	Property	1 ordinary shares	100%
		investment	of US$1

9 Commitments

Investment properties Contracted but not provided for Authorised but not contracted for	Group As at As at 30 June 31 December 2006 2005 HK$ HK$ 402,127,660 – 108,510,638 –	Group As at As at 30 June 31 December 2006 2005 HK$ HK$ 402,127,660 – 108,510,638 –

		–

III SUBSEQUENT EVENT

On 25 July 2006, a wholly owned subsidiary, 峻領德高商業發展（上海）有限公司 (“WFOE”), was set up as a wholly owned foreign enterprise, in the PRC with registered capital of US$25,000,000.

At the date of this report, the registered capital of WFOE has not been paid.

IV SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared for Rich Field or its subsidiaries in respect of any period subsequent to 30 June 2006. In addition, no dividend or distribution has been declared, made or paid by Rich Field or its subsidiaries in respect of any period subsequent to 30 June 2006.

Yours faithfully PricewaterhouseCoopers Certified Public Accountants Hong Kong

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

1. UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The following unaudited pro forma consolidated balance sheet, consolidated profit and loss account and consolidated cash flow statement of the Enlarged Group (collectively referred to as the “Unaudited Pro Forma Financial Information”) which has been prepared on the basis of the notes set out below for the purpose of illustrating the effect of the Acquisition as if it had taken place on 31 December 2005 for the pro forma consolidated balance sheet and on 1 January 2005 for the pro forma consolidated profit and loss account and consolidated cash flow statement. This Unaudited Pro Forma Financial Information has been prepared for illustrative purposes only and because of its hypothetical nature, it may not give a true picture of the financial position, and financial results and cash flows of the Enlarged Group had the Acquisition been completed as at 31 December 2005 and 1 January 2005 respectively or at any future date.

The Unaudited Pro Forma Financial Information has been prepared based on the audited consolidated financial statements of the Group for the year ended 31 December 2005 after giving effect to the pro forma adjustments described in the accompanying notes.

I. Unaudited Pro Forma Consolidated Balance Sheet of the Enlarged Group

Audited consolidated balance sheet of the Group as at 31 December 2005 Pro forma adjustments #1 #2 Note HK$’000 HK$’000 HK$’000 Note 1 Note 2 Non-current assets Property, plant and equipment 5,105 Investment properties 143,000 591,956 2(a) Goodwill 18,314 Intangible asset – 5,000 (5,000) 2(d) Available-for-sale financial assets 476 166,895	The Enlarged Group Total HK$’000 5,105 734,956 18,314 – 476
	758,851

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

I. Unaudited Pro Forma Consolidated Balance Sheet of the Enlarged Group (continued)

Audited consolidated balance sheet of the Group as at 31 December 2005 Pro forma adjustments #1 #2 Note HK$’000 HK$’000 HK$’000 Note 1 Note 2 Current assets Financial assets at fair value through profit or loss 591 Trade and other receivables 10,048 Bank balances and cash 122,971 (5,000) (52,204) 2(c) 133,610 Total assets 300,505 Current liabilities Trade and other payables 10,335 Long-term bank loan 2,174 Obligations under finance leases 465 12,974 Non-current liabilities Secured bank borrowings – due after one year 74,826 339,942 2(a) Loan from VXL Partners – 70,000 2(b) Obligations under finance leases 667 Deferred tax liabilities 18,526 41,188 2(a) 94,019 Total liabilities 106,993 Equity Share capital 14,400 Reserves 179,112 83,622 2(e) Total equity 193,512 Total equity and liabilities 300,505	The Enlarged Group Total HK$’000 591 10,048 65,767
	76,406
	835,257

	10,335 2,174 465
	12,974
	414,768 70,000 667 59,714
	545,149
	558,123

	14,400 262,734
	277,134
	835,257

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

II. Unaudited Pro Forma Consolidated Profit and Loss Account of the Enlarged Group

Audited
consolidated
profit and loss
account of
the Group
for the year
ended
31 December
2005
Pro forma adjustments
#2
Note
#3
Note
HK$’000
HK$’000
HK$’000
Note 2
Note 3
Turnover
11,819
5,526
3(a)
Other revenue
16
Total revenue
11,835
Fair value gain on
investment property
33,574
Excess of fair value of net
assets acquired over cost
of acquisition of business
–
83,622
2(e)
Staff costs
(12,043)
Other operating expenses
(21,693)
(939)
3(b)
Profit from operations
11,673
Finance cost
(1,348)
(23,776) 3(c)&(d)
Share of profit less losses of
associates
(465)
Profit before taxation
9,860
Taxation
(5,793)
Profit attributable to
shareholders
4,067

The
Enlarged
Group
Total
HK$’000
17,345
16
17,361
33,574
83,622
(12,043)
(22,632)
99,882
(25,124)
(465)
74,293
(5,793)
68,500

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

III. Unaudited Pro Forma Consolidated Cash Flow Statement of the Enlarged Group

Audited
consolidated
cash flow
statement
of the Group
for the year
ended
31 December
2005
Pro forma adjustments
#1
#2
Note
#4
Note
HK$’000
HK$’000
HK$’000
HK$’000
Note 1
Note 2
Note 4
Net cash used in
operating activities
(20,854)
2,408
4(a)
Net cash used in
investing activities
(118,236)
(5,000)
(462,146) 2(a),(b)
&(c)
Net cash from
financing activities
75,389
409,942
2(a)&(b)
(23,776)
4(b)
Decrease in cash and
cash equivalents
(63,701)
Cash and cash equivalents
at 1 January 2005
186,672
Cash and cash equivalents
at 31 December 2005
122,971

The
Enlarged
Group
Total
HK$’000
(18,446)
(585,382)
461,555
(142,273)
186,672
44,399

IV. Notes to the Unaudited Pro Forma Financial Information of the Enlarged Group

A. Basis of preparation

The pro forma adjustments are derived using the accounting policies as adopted in the audited consolidated financial statements of the Group for the year ended 31 December 2005.

For the purpose of preparing the unaudited pro forma consolidated balance sheet and consolidated profit and loss account of the Enlarged Group, the fair value of North Block as at

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

30 June 2006 as assessed by Savills is applied in the calculation of the underlying pro forma adjustments. Since the fair value of the North Block at the date of the completion of Property Sale Contracts may be substantially different from the fair value used in the preparation of the unaudited pro forma consolidated balance sheet and consolidated profit and loss account presented above, the actual amounts may be different from the adjustments shown in this unaudited pro forma consolidated balance sheet and consolidated profit and loss account.

B. Pro forma Adjustments

The adjustment reflects the acquisition of 100% interest in Rich Field for a cash consideration of HK$5,000,000.
The adjustment reflects the following:
(a) being the amount recognised on acquisition of the Changshou Properties, deferred tax liabilities and bank loan to be drawn down by the Enlarged Group to finance the acquisition of the Changshou Properties through the Rich Field Group. The fair value of the North Block acquired is based on the valuation conducted by Savills as at 30 June 2006 on a vacant possession basis less estimated transaction and professional costs that may be incurred to obtain vacant possession. The value of the South Block is based on the cost of acquisition. Deferred tax is provided at 33% on the difference between the accounting base and the tax base of the North Block.

The bank loan of approximately HK$339,942,000 is to be drawn down under an indicative banking facility offered to the Enlarged Group on 22 August 2006 for financing the acquisition of the Changshou Properties and carrying interest at prime rate. This facility will be secured by (i) the Changshou Properties; (ii) corporate guarantee from the shareholder of VXL Properties; (iii) pledged deposits equivalent to 3 months of the monthly rental; and (iv) assignment of the rights to rental income receivable from the Changshou Properties. The bank loan shall be repaid by 108 equal monthly instalments starting from the thirteenth calendar month after the drawn down date.

(b) being loan from VXL Partners of HK$70,000,000 to partly finance the acquisition of the Changshou Properties. The loan is interest bearing at 2- month HIBOR plus 0.25%, unsecured and not repayable within the next twelve months.
(c) being cash payment out of internal resources of the Enlarged Group to partly finance the acquisition of the Changshou Properties, and other related costs directly attributable to the acquisition of the Changshou Properties.

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

(d) being application of intangible asset acquired as part of the cost of acquisition of the Changshou Properties; and
(e) being the excess of fair value of net assets acquired over cost of acquisition of business of approximately HK$83,622,000 arising from the acquisition of the North Block, with cost of acquisition of HK$243,239,000 plus estimated professional fees and transaction costs, totalling HK$254,302,000.
The adjustment reflects the following:
(a) being rental income from the North Block of approximately HK$5,526,000 for the year ended 31 December 2005, based on Unaudited Financial Information of the North Block included in Appendix II of this circular;
(b) being property tax and business tax calculated based on 12% and 5% of rental income respectively based on Unaudited Financial Information of the North Block included in Appendix II of this circular;
(c) being interest expenses for the bank loan of HK$339,942,000, assuming such bank loan had been drawn down on 1 January 2005 with a corresponding interest at prime rate of 6.5%. The prime rate is calculated based on the average prime rate incurred by the Enlarged Group for the year ended 31 December 2005; and
(d) being interest expenses for the loan from VXL Partners of HK$70,000,000, assuming such loan had been drawn down on 1 January 2005 with a corresponding interest at 2-month HIBOR of 2.15% plus 0.25%. The 2-month HIBOR is calculated based on the average 2-month HIBOR for the year ended 31 December 2005.
The adjustment reflects the following:
(a) being cash receipt from rental income net of property tax and business tax of HK$2,408,000; and
(b) being interest expenses as set forth under note 3(c) and 3(d).
No adjustment has been made to reflect any trading result or other transaction of the Group entered into subsequent to 31 December 2005.

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

2. REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The following is the text of a report received from PricewaterhouseCoopers, Certified Public Accountants, in respect of the unaudited pro forma financial information of the Enlarged Group as set out in this appendix for inclusion in this circular.

25 August 2006

The Directors

VXL Capital Limited

Dear Sirs,

We report on the unaudited pro forma financial information of VXL Capital Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) set out on pages 85 to 90 under the heading of “Unaudited Pro Forma Financial Information of the Enlarged Group” (the “unaudited pro forma financial information”) in Appendix IV of the Company’s circular dated 25 August 2006, in connection with the proposed acquisition of property interests through acquisition of 100% equity interests in Rich Field International Limited (“the Proposed Acquisition”) (the “Circular”) by VXL Properties Holdings Limited. The unaudited pro forma financial information has been prepared by the Directors of the Company, for illustrative purposes only, to provide information about how the Proposed Acquisition might have affected the relevant financial information of the Group. The basis of preparation of the unaudited pro forma financial information is set out on pages 85 to 90 of the Circular.

Respective Responsibilities of Directors of the Company and Reporting Accountants

It is the responsibility solely of the Directors of the Company to prepare the unaudited pro forma financial information in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

It is our responsibility to form an opinion, as required by paragraph 4.29(7) of the Listing Rules, on the unaudited pro forma financial information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the unaudited pro forma financial information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Basis of Opinion

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the HKICPA. Our work, which involved no independent examination of any of the underlying financial information, consisted primarily of comparing the audited consolidated balance sheet as at 31 December 2005, consolidated profit and loss account and consolidated cash flow statement of the Group for the year ended 31 December 2005 with the audited financial statements of the Group for the year ended 31 December 2005 as set out in Appendix I of this Circular, considering the evidence supporting the adjustments and discussing the unaudited pro forma financial information with the Directors of the Company.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the unaudited pro forma financial information has been properly compiled by the Directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purposes of the unaudited pro forma financial information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

The unaudited pro forma financial information is for illustrative purposes only, based on the judgements and assumptions of the Directors of the Company, and because of its hypothetical nature, it does not provide any assurance or indication that any event will take place in the future and may not be indicative of:

the financial position of the Group as at 31 December 2005 or any future date, or
the results and cash flows of the Group for the year ended 31 December 2005 or any future periods.

Opinion

In our opinion:

a) the unaudited pro forma financial information has been properly compiled by the Directors of the Company on the basis stated;
b) such basis is consistent with the accounting policies of the Group; and
c) the adjustments are appropriate for the purposes of the unaudited pro forma financial information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Yours faithfully,

PricewaterhouseCoopers

Certified Public Accountants

Hong Kong

PROPERTY VALUATION REPORT ON THE PROPERTY INTERESTS OF THE ENLARGED GROUP

APPENDIX V

The following is the text of a letter and valuation certificate for the purpose of incorporation in this circular received from Savills Valuation and Professional Services Limited, an independent property valuer, in connection with their valuation of the property interests to be acquired by the Group and other property interests held by the Group as at 30 June 2006.

==> picture [98 x 98] intentionally omitted <==

T: (852) 2801 6100 F: (852) 2530 0756

23/F Two Exchange Square Central, Hong Kong

EA LICENCE: C-023750 savills.com

The Directors VXL Capital Limited Suite 2707-2708 One Exchange Square 8 Connaught Road Central

Hong Kong

25 August 2006

Dear Sirs

In accordance with your instructions for us to value the property interests to be acquired by VXL Capital Limited (the “Company”) and its subsidiaries (herewith together referred to as the “Group” ) in the People’s Republic of China (“the PRC”) and other property interests held by the Group in Hong Kong, we confirm that we have carried out inspections, made relevant inquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the market value of the property interests as at 30 June 2006.

Our valuation of each of the property interests is our opinion of its market value which we would define as intended to mean “the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.”

PROPERTY VALUATION REPORT ON THE PROPERTY INTERESTS OF THE ENLARGED GROUP

APPENDIX V

The market value is the best price reasonably obtainable in the market by the seller and the most advantageous price reasonably obtainable in the market by the buyer. This estimate specifically excludes an estimated price inflated or deflated by special terms or circumstances such as atypical financing, sale and leaseback arrangements, special considerations or concessions granted by anyone associated with the sale, or any element of special value. The market value of a property is also estimated without regard to costs of sale and purchase, and without offset for any associated taxes.

In the course of our valuation, we have assumed that, unless otherwise stated, transferable land use rights in respect of the properties in the PRC for respective specific terms at nominal annual land use fees have been granted and that any premium payable has already been fully paid. We have also assumed that, unless otherwise stated, the owners of the properties have enforceable title to the properties and have free and uninterrupted rights to use, occupy or assign the properties for the whole of the term as granted.

In valuing Property No.1 which is to be acquired by the Group, we have valued this property on a vacant possession basis according to the specific term of instructions. In respect of Property No. 2 which is under development and to be acquired by the Group, we have valued this property on a completion basis as at the date of valuation in accordance with the latest development proposals provided to us. We have also assumed that approvals for the proposal have been obtained from the relevant authorities. In arriving at our valuation, we have valued the properties by making reference to market evidence as available in the market. In addition, we have not taken into account any outstanding construction costs in our valuation.

In valuing the property in Group III which is held by the Group for investment, we have adopted the direct comparison method by making reference to the comparable sales transactions.

In valuing the properties in Group IV which are leased by the Group, we have assigned no commercial values to these properties mainly due to the short term nature of the respective tenancies, prohibition against assignment or the lack of substantial profit rents.

In respect of the property interests in Hong Kong, we have caused searches to be made at the Land Registry. For the property interests in the PRC, we have been provided with copies of extracts of title documents relating to the properties. However, we have not inspected the original documents to verify the ownership or to verify any amendments, which may not appear on the copies handed to us.

In the course of our valuation, we have relied to a very considerable extent on the information given by the Group and its legal advisers on PRC Law, Grandall Legal Group, regarding to the titles and other legal matters relating to the properties in the PRC and have accepted advice given to us on matters such as planning approvals or statutory notices, easements, tenure, identification of the properties, particulars of occupancy, floor areas and all other relevant matters. Dimensions, measurements and areas included in the valuation certificate are based on information contained in the documents provided to us by the Group and are therefore only approximations. We have not been able to carry out on-site measurements to

PROPERTY VALUATION REPORT ON THE PROPERTY INTERESTS OF THE ENLARGED GROUP

APPENDIX V

verify the correctness of the site and floor areas of the properties. We have assumed that the site and floor areas shown on the documents handed to us are correct.

We have no reason to doubt the truth and accuracy of the information provided to us by the Group which is material to the valuation. We were also advised by the Group that no material facts have been omitted from the information provided. We consider that we have been provided with sufficient information to reach an informed view.

We have inspected the exterior of the properties. During the course of our inspection, we did not note any serious defects. However, no structural survey has been made and we are therefore unable to report that the properties are free from rot, infestation or any other structural defects. No tests were carried out on any of the services. We have not carried out investigations on site to determine the suitability of the ground conditions and the services etc for any future development. Our valuations are prepared on the assumption that these aspects are satisfactory and that no extraordinary expenses or delays will be incurred during the construction period.

No allowance has been made in our valuation for any charges, mortgages or amounts owing on any property nor for any expenses or taxation that may be incurred in effecting a sale. Unless otherwise stated, it is assumed that the properties are free from encumbrances, restrictions and outgoings of onerous nature which could affect their values.

In valuing the property interests, we have complied with all the requirements contained in Chapter 5 and Practice Note 12 of the Rules Governing the Listing of Securities issued by The Stock Exchange of Hong Kong Limited and Valuation Standards on Properties (First Edition 2005) published by the Hong Kong Institute of Surveyors.

Unless otherwise specified, all money amounts are stated in Hong Kong dollars. The exchange rate adopted in our valuation is approximately HK$1=RMB1.027, which was the approximate exchange rate prevailing as the date of valuation and there has been no significant fluctuation in such exchange rate between that date and the date of this letter.

We enclose herewith our summary of valuation and valuation certificate.

Yours faithfully For and on behalf of

Savills Valuation and Professional Services Limited

Charles C K Chan

MSc FRICS FHKIS MCIArb RPS (GP)

Managing Director

Note: Charles C K Chan, Chartered Estate Surveyor, MSc, FRICS, FHKIS, MCIArb, RPS(GP), has about 21 years’ experience in the valuation of properties in Hong Kong and has extensive experience in the valuation of properties in the PRC.

PROPERTY VALUATION REPORT ON THE PROPERTY INTERESTS OF THE ENLARGED GROUP

APPENDIX V

Summary of Valuation

No. Property

Market value in existing state as at 30 June 2006

Group I – Property interest to be acquired by the Group

Levels 1 to 6, Changshou Commercial Plaza, 155 Changshou Road (the “North Block”), Putou District, Shanghai, the PRC
No. Property

RMB472,000,000 (HK$459,591,042) Sub-total: HK$459,591,042 Market value on completion basis as at 30 June 2006

Group II – Property interest under development and to be acquired by the Group

Levels 1 to 6, RMB231,000,000 Changshou Commercial Plaza Block C, (HK$224,926,972) Shanxi North Road (the “South Block”), Putou District, Shanghai, the PRC Sub-total: HK$224,926,972 Market value in existing state

No. as at 30 June 2006

No. Property

Group III – Property interest held by the Group for investment

112 Chun Yeung Street, HK$143,000,000 North Point, Hong Kong Sub-total: HK$143,000,000

PROPERTY VALUATION REPORT ON THE PROPERTY INTERESTS OF THE ENLARGED GROUP

APPENDIX V

No. Property

Market value in existing state as at 30 June 2006

Group IV – Property interests leased by the Group

Suites 2705-2708, One Exchange Square, 8 Connaught Place, Central, Hong Kong
Unit 3214 on 32nd Floor, Cosco Tower, 183 Queen’s Road Central, Hong Kong
Car Park 5415 on Basement Level B5, Two International Finance Centre, 8 Finance Street, Central, Hong Kong
Flat A on 3rd Floor, Roof A and Car Parking Space Nos. 9 and 11 on Ground Floor, 11 Ching Sau Lane, Chung Hom Kok, Hong Kong
Flat B on 56th Floor of Tower 1 and Car Parking Space No. 1-224, The Harbourside, No. 1 Austin Road West, Kowloon, Hong Kong
Room 3A02, Block B, No. 1588, Shanxi Road North, Puduo District, Shanghai, the PRC
F402B, Ocean Plaza, Fuxingmennei Street, Xicheng District, Beijing, the PRC

Sub-total:

Grand total:

No commercial value

HK$827,518,014

PROPERTY VALUATION REPORT ON THE PROPERTY INTERESTS OF THE ENLARGED GROUP

APPENDIX V

VALUATION CERTIFICATE

Group I – Property interest to be acquired by the Group

Property

Description and tenure

Market value in existing state Particulars of as at occupancy 30 June 2006

Levels 1 to 6, Changshou Commercial Plaza Changshou is a residential/commercial Commercial Plaza, development comprising two 155 Changshou high-rise residential/office Road towers erected on a 6-level (the “North Block”), commercial podium and a Putou District, basement for carparking Shanghai, spaces completed in 1999. the PRC

According to the RMB472,000,000 specific term of (HK$459,591,042) instructions from the Group, we have valued the property on a vacant possession basis.

The property comprises the 6- level commercial podium of Changshou Commercial Plaza with a total gross floor area of approximately 26,311.98 sq.m. (283,222 sq. ft.).

The land use rights of the property have been granted for a term of 40 years commencing on 22 March 2005 and expiring on 21 March 2045 for commercial uses.

Notes: –

(1) Pursuant to the Shanghai Certificate of Real Estate Ownership No. Hu Fang Di Pu Zi (2005) Di 029340, the property is held by Shanghai Hongwei Property Development Company Limited(上海宏偉房地產開發有限公司 ) (“Hongwei”) for a term of 40 years commencing on 22 March 2005 and expiring on 21 March 2045 for commercial uses.
(2) We have been provided with a legal opinion on the title to the property issued by the Group’s PRC legal advisers, which contains, inter alia, the following information:
(i) The owner of the property is Hongwei;
(ii) The property is transferable; and
(iii) The property is not subject to any encumbrances.

PROPERTY VALUATION REPORT ON THE PROPERTY INTERESTS OF THE ENLARGED GROUP

APPENDIX V

Group II – Property interest under development and to be acquired by the Group

Property Description and tenure

Market value on completion basis Particulars of as at occupancy 30 June 2006

Levels 1 to 6, Changshou Commercial Plaza Changshou Block C is proposed to be Commercial Plaza developed with a high-rise Block C, residential tower erected on a Shanxi North Road, 6-level commercial podium. (the “South Block”) The development is scheduled Putou District, to be completed in October Shanghai, 2006. the PRC

The property is RMB231,000,000 currently under (HK$224,926,972) construction.

The property comprises the 6- level commercial podium of the development with a total gross floor area of approximately 14,032.7 sq. m. (151,047 sq. ft.).

The land use rights of the property have been granted for a term of 40 years commencing on 22 March 2005 and expiring on 21 March 2045 for commercial uses.

Notes: –

(1) The owner of the property is Shanghai Hongwei Property Development Company Limited(上海宏偉房地產開發有限公司 ) (“Hongwei”).
(2) According to the specific term of instructions from the Group, we have valued the property on the assumption that the property were completed as at the date of valuation in accordance with the latest development proposals provided to us. We have also assumed that approvals for the proposal have been obtained from the relevant authorities. No outstanding construction costs have been taken into account in our valuation.
(3) We have been provided with a legal opinion on the title to the property issued by the Group’s PRC legal advisers, which contains, inter alia, the following information:
(i) The owner of the property is Hongwei;
(ii) A Shanghai Commodity Housing Pre-sale Contract No. Pu Tou Fang Di (2006) Yu Zi 000081 was issued to Hongwei on 28 March 2006 for the property; and
(iii) The property is transferable.

PROPERTY VALUATION REPORT ON THE PROPERTY INTERESTS OF THE ENLARGED GROUP

APPENDIX V

Group III – Property interest held by the Group for investment

Property

Description and tenure

Market value in existing state Particulars of as at occupancy 30 June 2006

112 Chun Yeung The property comprises a 25Street, storey (there being no 4th, 14th North Point, and 24th Floors) building Hong Kong accommodating a retail shop and 96 serviced units. The Inland Lot building was completed in Nos. 6723 and 6724 about 1997.

The total gross floor area of the property is approximately 3,025.76 sq.m. (32,569 sq.ft.).

The property is held under two Government leases each for a term of 75 years from 5 September 1921 renewed for a further term of 75 years.

The total Government rent payable for the property is HK$15,388 per annum.

A portion of the HK$143,000,000 Ground Floor is subject to a tenancy for a term of 3 years from 1 January 2005 at a rent of HK$29,000 per month inclusive of rates and government rent but exclusive of management fee with an option to renew for a further term of 2 years at a rent of not less than the then market rent or not exceeding 110% of the existing rent. The 96 serviced units are let under short-term licences generating an average monthly income of about HK$700,000 in recent months.

All the aforesaid rent and income are before profit tax.

Notes: –

(1) The registered owner of the property is Arrow Star Investment Limited, a wholly-owned subsidiary of the Company.
(2) The property is subject to a mortgage dated 9 September 2005 to secure general banking facilities in favour of Liu Chong Hing Bank Limited.
(3) The property lies within an area zoned for “Commercial/Residential” uses under North Point Outline Zoning Plan.

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PROPERTY VALUATION REPORT ON THE PROPERTY INTERESTS OF THE ENLARGED GROUP

APPENDIX V

Group IV – Property interests leased by the Group

Property

Suites 2705-2708, One Exchange Square, 8 Connaught Place, Central, Hong Kong

Description

The property comprises four office units on the 27th Floor of a 52-storey commercial building completed in about 1984.

The total lettable area of the property is approximately 517.66 sq.m. (5,570 sq.ft.).

Market value in existing state as at 30 June 2006

Particulars of occupancy

Suites 2705-2706 No commercial are leased by the value Group for a term expiring on 30 April 2008 at a rent of HK$186,486 per month exclusive of rates and management charges.

Suites 2707-2708 are leased by the Group for a term of 3 years from 1 May 2005 at a rent of HK$181,050 per month exclusive of rates and management charges.

The property is occupied by the Group as an office.

Unit 3214 on 32nd Floor, Cosco Tower, 183 Queen’s Road Central, Hong Kong

The property comprises an office unit on the 32nd Floor of a 52-storey commercial building completed in about 1998.

The gross floor area of the property is approximately 190.64 sq.m. (2,052 sq.ft.).

The property is leased by the Group for a term of 2 years from 27 June 2005 at a rent of HK$51,300 per month exclusive of rates and management fees.

No commercial value

The property is occupied by the Group as an office.

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PROPERTY VALUATION REPORT ON THE PROPERTY INTERESTS OF THE ENLARGED GROUP

APPENDIX V

Property

Description

Car Park 5415 on The property comprises a car Basement Level B5, park in Basement B5 of a 78Two International storey office building erected a Finance Centre 5-storey retail podium and a 5- Carpark, storey basement for car park 8 Finance Street, purposes. The building was Central, completed in about 2003. Hong Kong

Market value in existing state as at

Particulars of occupancy

30 June 2006

The property is No commercial leased by the value Group on monthly basis from 1 March 2006 at a rent of HK$3,200 per month.

The property is occupied by the Group as a car park.

Flat A on 3rd Floor, Roof A and Car Parking Space Nos. 9 and 11 on Ground Floor, 11 Ching Sau Lane, Chung Hom Kok, Hong Kong
The property comprises a residential unit on the 3rd Floor and the roof thereabove and 2 carparking spaces of a 4-storey residential building completed in about 1979.

The gross floor area of the property (excluding the car parking spaces) is approximately 162.58 sq.m.(1,750 sq.ft.) plus a roof of approximately 127.28 sq.m.(1,370 sq.ft.).

The property is No commercial leased by the value Group for a term of 2 years from 1 June 2005 at a rent of HK$45,000 per month inclusive of rates and management fee.

The property is occupied by the Group for residential and car parking purpose.

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PROPERTY VALUATION REPORT ON THE PROPERTY INTERESTS OF THE ENLARGED GROUP

APPENDIX V

Property

Description

Market value in existing state as at

Particulars of as at occupancy 30 June 2006

Flat B on 56th Floor The property comprises a of Tower 1 and residential unit on the 56th Car Parking Space Floor of a 65-storey residential No 1-224, building together with a car The Harbourside, parking space completed in No. 1 Austin Road about 2004. West, Kowloon, Hong Kong The gross floor area of the property (excluding the car parking space) is approximately 135.97 sq.m. (1,463 sq.ft.).

The property is No commercial leased by the value Group for a term of 2 years from 15 May 2006 at a rent of HK$55,000 inclusive of rates and management fees.

The property is occupied by the Group for residential and car parking purposes.

Room 3A02, The property comprises a unit Block B, on the 3rd Floor of a 28-storey No. 1588, composite building completed Shanxi Road North, in about 2002. Puduo District, Shanghai, The gross floor area of the the PRC property is approximately 173.13 sq.m.(1,864 sq.ft.).

The property is No commercial leased by the value Group for a term of 1 year from 25 June 2006 at a rent of RMB6,600 per month exclusive of management charges.

The property is occupied by the Group as dormitory.

Note: We have been provided with a legal opinion on the legality of the lease agreement to the property issued by the Group’s PRC legal adviser, which contains, inter alia, the following information:

(i) The tenancy agreement is valid, binding and enforceable under the PRC laws; and

(ii) Pursuant to a Real Estate Titte Certificate Pu Zi (2004) Di No. 006544, 上海都城企業發展有限公司 (“the lessor”) is the registered owner of the property and has the legal right to lease the property.

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PROPERTY VALUATION REPORT ON THE PROPERTY INTERESTS OF THE ENLARGED GROUP

APPENDIX V

Market value in existing state

Property

Description

Particulars of occupancy

as at

30 June 2006

F402B, The property comprises an Ocean Plaza, office unit on the 4th Floor of a Fuxingmennei 19-storey composite building Street, completed in about 1999. Xicheng District, Beijing, The gross floor area of the the PRC property is approximately 317.61 sq.m.(3,419 sq.ft.).

The property is No commercial leased by the value Group for a term of 2 year from 5 February 2006 at a rent of RMB66,698.10 per month inclusive of management fee.

The property is occupied by the Group for office purposes.

Note: We have been provided with a legal opinion on the legality of the lease agreement to the property issued by the Group’s PRC legal adviser, which contains, inter alia, the following information:
(i) The tenancy agreement is valid, binding and enforceable under the PRC laws; and
(ii) Pursuant to a Real Estate Title Certificate Shi Xi Gang Ao Tai Zi Di No. 2470138, 絲寶實業發展（武漢）有限公司 (“the lessor”) is the registered owner of the property and has the legal right to lease the property.

104

GENERAL INFORMATION

APPENDIX VI

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, there are no other facts the omission of which would make any statement herein misleading.

2. DIRECTORS’ AND CHIEF EXECUTIVE’S INTERESTS IN SECURITIES

As at the Latest Practicable Date, the interests and short positions of each Directors and the Chief Executive Officer of the Company in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) which had been notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions in which they were taken or deemed to have taken under such provisions of the SFO), or which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein, or were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers in the Listing Rules, to be notified to the Company and the Stock Exchange were as follows:

			Approximate
			percentage of the
	Long Position	Nature of	total issued
Name of the Director	(Shares)	interests	share capital (%)
Datuk LIM Chee Wah	53,465,400	Interest through	74.26
(“Datuk Lim”)	(Note 1)	a controlled corporation
Mr. Percy	15,000,000	Interest through	20.83
ARCHAMBAUD-CHAO	(Note 2)	a controlled corporation
(“Mr. A. Chao”)

Notes:

The corporate interests in these Shares are held through VXL Partners, a company wholly and beneficially owned by Datuk Lim. The interests in the 15,000,000 Shares are duplicated with that of Mr. A. Chao and those shown in Note 2 of the section headed “Substantial Shareholders’ Interests in Securities” hereinafter.
The corporate interests in these Shares are held through Huge More Limited, a company wholly and beneficially owned by Mr. A. Chao. The interests in the 15,000,000 Shares are duplicated with that of Datuk Lim and those shown in Note 2 of the section headed “Substantial Shareholders’ Interests in Securities” hereinafter.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or the Chief Executive Officer of the Company had any interest and short positions in the shares, underlying shares and debentures of the Company or any associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and

105

GENERAL INFORMATION

APPENDIX VI

short positions in which they were taken or deemed to have taken under such provisions of the SFO), or which were required, pursuant to section 352 of the SFO, to be entered in the register maintained by the Company referred to therein, or were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers in the Listing Rules, to be notified to the Company and the Stock Exchange.

3. SUBSTANTIAL SHAREHOLDERS’ INTERESTS IN SECURITIES

As at the Latest Practicable Date, so far as was known to the Directors or the Chief Executive Officer of the Company, the following persons (not being a Director or the Chief Executive Officer of the Company) had an interest or short position in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other members of the Group or had any options in respect of such capital:

			Approximate
			percentage of the
Name of	Long Position		total issued
the Shareholder	(Shares)	Nature of interests	share capital (%)
VXL Partners	38,465,400	Beneficial interests	53.42
	(Note 1)
	15,000,000	Security interests	20.83
	(Note 2)
Huge More Limited	15,000,000	Interests through	20.83
	(Note 2)	a controlled corporation

Notes:

These Shares are registered in the name of VXL Partners, a company wholly and beneficially owned by Datuk Lim.
These Shares are registered in the name of Huge More Limited, a company wholly and beneficially owned by Mr. A. Chao and in which VXL Partners has a security interest in the entire issued share capital. The interests in the 15,000,000 Shares are duplicated among themselves and those shown in Notes 1 & 2 of the section headed “Directors’ and Chief Executive’s Interests in Securities”.

Save as disclosed above, as at the Latest Practicable Date, so far as was known to the Directors or the Chief Executive Officer of the Company, no other persons (not being a Director or the Chief Executive Officer of the Company) had an interest or short position in the Shares and underlying Shares under the provisions of Divisions 2 and 3 of Part XV of the SFO, or was, directly or indirectly, interested in 10% or more of the normal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other members of the Group or had any options in respect of such capital.

106

GENERAL INFORMATION

APPENDIX VI

4. MATERIAL CONTRACTS

Save as disclosed below, no material contracts (not being contracts entered into in the ordinary course of business carried out by the Enlarged Group) have been entered into by any member of the Enlarged Group within the two years preceding the date of this circular:

(a) the offer letter for the sale and purchase of the property (the “Property”) situated at 112 Chun Yeung Street, North Point, Hong Kong dated 10 June 2005 executed between Arrow Star Investment Limited (“Arrow Star”), a wholly-owned subsidiary of the Company, and Kinco Investment Holding Limited (“Kinco”);
(b) the formal sale and purchase agreement dated 23 June 2005 entered into between Arrow Star and Kinco whereby Arrow Star agreed to purchase the Property from Kinco at a consideration of HK$110 million;
(c) the joint venture agreement dated 8 December 2005 entered into among Fullbrim Limited, Cruise City (BVI) Limited, Grand Boom Investments Limited (a whollyowned subsidiary of the Company), Nan Fung Development Limited, Star Cruises Asia Holding Limited, the Company, Cruise City Holdings Limited (formerly known as “Shine Pacific Investments Limited”) and Cruise City (Hong Kong) Limited (formerly known as “Proteam Services Limited”) for the formation of a joint venture company, pursuant to which the Company agreed to inject share capital and shareholder’s loan in the amount of US$30 (equivalent to approximately HK$234) and HK$2,999,767.5 respectively into the joint venture company;
(d) the Agreement;
(e) a share charge dated 7 March 2006 given by the Vendor and Rich Field in favour of VXL Properties whereby the Vendor as chargor charged to VXL Properties as chargee by way of first fixed charge, as continuing security for the discharge of the Vendor’s obligations under the Agreement, the one share in Rich Field together with all further shares, warrants, securities, dividends and other distributions, rights, money or property accruing, paid, offered or deriving therefrom or in respect thereof;
(f) a deed of charge dated 7 March 2006 given by Rich Field in favour of VXL Properties whereby Rich Field charged to VXL Properties (i) by way of first floating charge over all book debts and other debts and the proceeds of realisation thereof and all moneys whatsoever for the time being due, owing or payable to Rich Field, and the benefit of any security interests and securities for the time being held by Rich Field in respect of any such debts or moneys; and (ii) by way of first fixed charge over 2 shares of Daily Right registered in the name of Rich Field;

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GENERAL INFORMATION

APPENDIX VI

(g) the MOU;
(h) the Property Pre-sale Contract;
(i) the Property Sale Contracts;
(j) a guarantee undertaking dated 27 February 2006 given by Qiangsheng in favour of Moral High guaranteeing the due performance of Hongwei under the Previous PRC Property Contracts;
(k) the Revised Agreement;
(l) the New Share Charge;
(m) the New Agreement;
(n) the Supplemental New Share Charge;
(o) the New Property Pre-sale Contract; and
(p) the New Property Sale Contracts.

5. LITIGATION

A High Court action has been lodged against one of the Company’s subsidiaries, VXL Financial Services Limited (at the material time known as “Kim Eng Capital (Hong Kong) Limited”) (“VXLFSL”), by a third party (the “Plaintiff”) in 2003 for payment of approximately HK$713,000, together with judgement interest thereon, in respect of printing, translation and advertising services rendered to a customer of VXLFSL, of which VXLFSL acted as the financial adviser in a financial transaction.

The Directors are of the opinion that the amount in dispute should be borne by the said customer and the Group has no obligation in respect of the services rendered by the Plaintiff. Up to the Latest Practicable Date, no further action has been taken by the Plaintiff and the litigation is still pending.

Save as disclosed above, as at the Latest Practicable Date, no litigation or claims of material importance was known to the Directors to be pending or threatened against any member of the Enlarged Group.

108

GENERAL INFORMATION

APPENDIX VI

6. EXPERTS AND CONSENTS

The following are the qualifications of the experts who have given opinions or advice contained in this circular:

Name

Qualification

PricewaterhouseCoopers Certified Public Accountants Grandall Legal Group PRC legal adviser Savills Professional property valuers

Each of PricewaterhouseCoopers, Grandall Legal Group and Savills has given and has not withdrawn its written consent to the issue of this circular with the inclusion herein of its letter, report and/or references to its name in the form and context in which they respectively appear.

As at the Latest Practicable Date, neither PricewaterhouseCoopers, Grandall Legal Group nor Savills had any shareholding, directly or indirectly, in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

As at the Latest Practicable Date, neither PricewaterhouseCoopers, Grandall Legal Group nor Savills had any direct or indirect interests in any assets which had been, since 31 December 2005 (being the date to which the latest published audited financial statements of the Company were made up), acquired or disposed of by or leased to the Enlarged Group, or proposed to be acquired or disposed of by or leased to any member of the Enlarged Group.

7. SERVICE CONTRACT

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contracts with the Company or any member of the Group which did not expire or was not determinable by the Group within one year without payment of compensation (other than statutory compensation).

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GENERAL INFORMATION

APPENDIX VI

8. CONTRACTS OR ARRANGEMENTS AND COMPETING BUSINESSES

The Company has entered into a contract with VXL Management Sdn Bhd, a corporation controlled by Datuk Lim, the Chairman and executive Director, under which VXL Management Sdn Bhd agreed to provide management and administrative services to the Group. The management and administrative fee paid for the year ended 31 December 2005 was HK$183,000 (2004: HK$75,000). The said contract was renewed for the period from 1 January 2006 to 30 June 2006 at a service fee of HK$7,000 per month, and for the period from 1 July 2006 to 31 December 2006 at HK$13,000 per month. In addition, the service recipient under the contract has been changed from the Company to VXL Management Services Limited, a direct wholly owned subsidiary of the Company, effective on 1 June 2006.

As set out in the announcement of the Company dated 15 May 2006, VXL Management Services Limited entered into a tenancy agreement with Smart Forward Investment Limited, a direct wholly and beneficially owned corporation of Datuk Lim, the Chairman and executive Director, on 15 May 2006 to lease the premises at Flat B, 56th Floor, Tower 1 and car parking No. 1-224 on 1st Floor, The Harbourside, No. 1 Austin Road West, Kowloon, Hong Kong, for a term of two years commencing from 15 May 2006 at a rental of HK$55,000 per month. The premises are intended to be used as housing accommodation for staff or guests of the Company.

Save as disclosed above, none of the Directors was materially interested in any contracts or arrangements subsisting as at the Latest Practicable Date which is significant in relation to the business of the Enlarged Group.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any assets which had been, since 31 December 2005 (being the date to which the latest published audited accounts of the Company were made up), acquired or disposed of by or leased to or were proposed to be acquired or disposed of by or leased to any member of the Enlarged Group.

As at the Latest Practicable Date, none of the Directors and his/her associates was interested in any business which competes or is likely to compete, either directly or indirectly, with business of the Group.

9. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours at the registered office of the Company at Suite 2707-8, One Exchange Square, 8 Connaught Place, Central, Hong Kong, from the date of this circular and up to and including Tuesday, 12 September 2006:

(a) the memorandum and articles of association of the Company;
(b) the material contracts referred to in the section headed “Material Contracts” in this appendix;

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GENERAL INFORMATION

APPENDIX VI

(c) the accountants’ report on the Rich Field Group, the text of which is set out in appendix III to this circular;
(d) the letter from PricewaterhouseCoopers in relation to the unaudited pro forma financial information of the Enlarged Group as set out in appendix IV to this circular;
(e) the property valuation report on property interests of the Enlarged Group issued by Savills contained in appendix V to this circular;
(f) the letters of consent referred to under the section headed “Experts and Consents” in this appendix;
(g) the annual reports of the Company for the two years ended 31 December 2004 and 2005; and
(h) a copy each of the circulars issued by the Company pursuant to the requirements set out in Chapter 14 and/or 14A of the Listing Rules since 31 December 2005 (being the date to which the latest published audited consolidated financial statements of the Group were made up).

10. MISCELLANEOUS

(a) As at the Latest Practicable Date, the Board comprises seven Directors, of whom Datuk LIM Chee Wah, Mr. Percy ARCHAMBAUD-CHAO, Ms. Patsy SO Ying Chi and Mr. Stephen YUEN Ching Bor are executive Directors, and Mr. Michael YEE Kim Shing, Mr. Alan Howard SMITH, J.P. and Dr. Allen LEE Peng Fei, J.P. are independent non-executive Directors.
(b) The company secretary of the Company is Ms. Emily HO Kit Man. She is an associate member of both The Hong Kong Institute of Chartered Secretaries and The Institute of Chartered Secretaries and Administrators.
(c) The qualified accountant of the Company is Ms. Mina YAU Yue Ka. She is an associate member of The Hong Kong Institute of Certified Public Accountants and a member of the American Institute of Certified Public Accountants.
(d) The share registrar and transfer office of the Company is Computershare Hong Kong Investor Services Limited at Shops 1712-16, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.
(e) The registered office of the Company is situated at Suite 2707-8, One Exchange Square, 8 Connaught Place, Central, Hong Kong.
(f) The English texts of this circular and the accompanying form of proxy prevail over the Chinese texts.

111

NOTICE OF EXTRAORDINARY GENERAL MEETING

==> picture [136 x 37] intentionally omitted <==

(Incorporated in Hong Kong with limited liability) (Stock Code: 727)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that the Extraordinary General Meeting of VXL Capital Limited will be held at Suite 2707-8, One Exchange Square, 8 Connaught Place, Central, Hong Kong on Tuesday, 12 September 2006 at 11:00 a.m. for the purpose of considering and, if thought fit, passing with or without modifications the following resolution as an ordinary resolution:–

ORDINARY RESOLUTION

“ THAT

(a) the following be and are hereby approved:
(i) the Acquisition (as defined in the circular of the Company dated 25 August 2006 (the “Circular”), a copy of which has been produced to this meeting marked “A” and signed by the chairman of the meeting for the purpose of identification);
(ii) all transactions contemplated under the New Agreement (as defined in the Circular), a copy of which has been produced to this meeting marked “B” and signed by the chairman of the meeting for the purpose of identification;
(b) the signing and execution (under hand or under seal), and the perfection and delivery of the New Agreement be and are hereby confirmed; and
(c) the directors of the Company be and are hereby authorised to do all such acts and things (including, without limitation, signing, execution (under hand or under seal), perfection and delivery of all documents) which are in their opinion necessary, appropriate, desirable or expedient to implement and give effect to the terms of the Acquisition, and all transactions contemplated under the New Agreement and all other matters incidental thereto or in connection therewith and to agree to and make such variation, amendment and waiver of any of the matters relating thereto or in connection therewith.”

By order of the Board Emily HO Kit Man Company Secretary

Hong Kong, 25 August 2006

112

NOTICE OF EXTRAORDINARY GENERAL MEETING

Notes:

Any Shareholder entitled to attend and vote at the Extraordinary General Meeting convened by the above notice shall be entitled to appoint one or more proxies to attend and vote instead of him. A proxy need not be a Shareholder but must attend the meeting, or any adjournment thereof, in person to represent his appointor.
A form of proxy for use at the Extraordinary General Meeting is being despatched to the Shareholders together with a copy of this notice.
The Chinese version of this notice is for reference only. Should there be any discrepancies, the English version shall prevail.

113

AI assistant

B & S International Holdings Ltd. — Proxy Solicitation & Information Statement 2006

50104_rns_2006-08-28_5ecf1c4c-c819-40ed-a6de-78f71e7db8d2.pdf

VERY SUBSTANTIAL ACQUISITION RELATING TO PROPERTY INTERESTS

Financial adviser to VXL Capital Limited

SOMERLEY LIMITED

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

VERY SUBSTANTIAL ACQUISITION RELATING TO PROPERTY INTERESTS

INTRODUCTION

THE NEW AGREEMENT

Parties:

Assets to be acquired:

Consideration and payment terms:

Conditions:

The Loan:

THE NEW PRC PROPERTY CONTRACTS

The New Property Sale Contracts

Parties:

The Property Pre-sale Contract

Parties:

Assets being acquired:

Consideration and payment terms of the North Block:

Consideration and payment terms of the South Block:

LETTER FROM THE BOARD

THE MOU

Parties:

Principal terms of the MOU

THE SHAREHOLDING STRUCTURES BEFORE AND AFTER COMPLETION OF THE NEW PRC PROPERTY CONTRACTS AND THE NEW AGREEMENT

REASONS FOR THE ACQUISITION

FUNDING ARRANGEMENT

FINANCIAL EFFECTS OF THE ACQUISITION ON THE GROUP

EXTRAORDINARY GENERAL MEETING

LETTER FROM THE BOARD

PROCEDURES FOR DEMANDING A POLL

RECOMMENDATION

ADDITIONAL INFORMATION

1. FINANCIAL SUMMARY

CONSOLIDATED PROFIT AND LOSS ACCOUNTS

CONSOLIDATED BALANCE SHEETS

2. AUDITED CONSOLIDATED FINANCIAL INFORMATION OF THE GROUP FOR THE YEAR ENDED 31 DECEMBER 2005

“ CONSOLIDATED PROFIT AND LOSS ACCOUNT

CONSOLIDATED BALANCE SHEET

BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

APPENDIX I

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE FINANCIAL STATEMENTS

1. GENERAL INFORMATION

2. PRINCIPAL ACCOUNTING POLICIES

2.1 Basis of preparation

HKAS 32 and HKAS 39

HKFRS 3

2.2 Consolidation

(a) Subsidiaries

(b) Associates

2.3 Segment reporting

2.4 Foreign currency translation

(b) Transactions and balances

(c) Group companies

2.5 Property, plant and equipment

2.6 Investment property

2.7 Goodwill

2.8 Impairment of non-financial assets

2.9 Investments

2.10 Trade and other receivables

2.11 Cash and cash equivalents

2.12 Borrowings

2.13 Income tax

2.14 Employee benefits

(c) Pension obligations

(d) Share option scheme

2.15 Provisions

2.16 Revenue recognition

2.17 Leases

(a) Operating leases

B & S International Holdings Ltd. Proxy Solicitation & Information Statement 2006