G-Resources Group Limited - Proxy Solicitation & Information Statement 2008

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 or registered institution in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in PALADIN 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 registered institution in securities 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.

PALADIN LIMITED

(Incorporated in Bermuda with limited liability)

(Stock codes: 495 and 642 (Preference Shares))

VERY SUBSTANTIAL DISPOSAL IN RELATION TO DISPOSAL OF CERTAIN OFFICE PREMISES

A notice convening a special general meeting of Paladin Limited to be held at Antica Room, Hong Kong Gold Coast Hotel, 1 Castle Peak Road, Castle Peak Bay, Tuen Mun, Hong Kong, at 11:00 a.m. on 13 October 2008 is set out on pages SGM-1 and SGM-2 of this circular.

Whether or not you are able to attend the special general meeting in person, you are requested to complete the enclosed form of proxy in accordance with the instructions printed thereon and return it to the Hong Kong branch share registrar of Paladin Limited, Computershare Hong Kong Investor Services Limited at Rooms 1806-7, 18th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong not less than 48 hours before the time appointed for holding of the special general meeting. Completion and return of the form of proxy will not prevent you from attending and voting in person at the special general meeting or any adjournment thereof if you so wish.

26 September 2008

	Page
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
The Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Information on the Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Reasons for and benefits of the Disposal and use of proceeds . . . . . . . . . . . . . . . . . . . . .	5
Financial effects of the Disposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Financial and trading prospects of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Listing Rules implication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Additional information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
APPENDIX I – FINANCIAL INFORMATION ON THE GROUP. . . . . . . . . . . . . . . . . .	I-1
APPENDIX II – UNAUDITED PRO FORMA FINANCIAL INFORMATION
ON THE REMAINING GROUP. . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-1
APPENDIX III – VALUATION REPORT ON THE PROPERTY. . . . . . . . . . . . . . . . . . . .	III-1
APPENDIX IV – GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	IV-1
NOTICE OF THE SGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	SGM-1

DEFINITIONS

In this circular, unless the context otherwise requires, the following terms shall have the meanings set out below:

“Agreement”

the sale and purchase agreement entered into on 20 August 2008 between the Vendor and the Purchaser in relation to the Disposal

“Completion” completion of the Agreement
“Consideration” HK$176,375,500 payable by the Purchaser to the Vendor pursuant to the Agreement
“Days”
calendar days provided always that when any of the date or dates stipulated in the Agreement shall fall on a day which is not a business day or shall fall on a day on which typhoon signal No.8 or above or black rainstorm warning signal is hoisted in Hong Kong at any time during the business hours, such date or dates shall automatically be postponed to the next business day on which no typhoon signal No.8 or above nor black rainstorm warning signal is hoisted
“Deed of Mutual Covenant(s)” the Deed of Mutual Covenants, Deed of Mutual Covenant, Deed of Mutual Covenant and Management Agreement, Deed of Mutual Covenant and Grant, Supplemental Deed of Mutual Covenant, Sub-Deed of Mutual Covenant or similar document(s) or combination of documents (if any) and any variation or modification thereof now registered in the Land Registry relating to the Property
“Director(s)” director(s) of Paladin
“Disposal” the disposal of the Property by the Vendor to the Purchaser pursuant to the Agreement
“Group”
Paladin and its subsidiaries
“HK$”
Hong Kong dollar, the lawful currency of Hong Kong
“Hong Kong”
the Hong Kong Special Administrative Region of the People’s Republic of China
“Latest Practicable Date”
22 September 2008, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained in this circular

“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange

	DEFINITIONS
“Paladin” or the “Company”	Paladin Limited, a company incorporated in Bermuda with limited
	liability, the shares and preference shares of which are listed on
	the Stock Exchange
“Remaining Group”	the Group after Completion
“Preference Shares”	the convertible redeemable preference shares of Paladin
“Property”	Office 4502 and certain washrooms, 45th Floor, Office Tower,
	Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong
“Purchaser”	The Consulate General of the State of Kuwait Hong Kong
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the Laws
	of Hong Kong), as amended, supplemented or otherwise modified
	from time to time
“SGM”	the special general meeting of Paladin to be convened and held for
	the purpose of considering and, if though fit, approving the terms
	of the Agreement and the transactions contemplated thereunder
“Share(s)”	the ordinary shares of Paladin of HK$0.01 each
“Shareholders”	holders of Shares
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Vendor”	Banhart Company Limited, a company incorporated in Hong Kong
	with limited liability and a wholly-owned subsidiary of Paladin as
	at the Latest Practicable Date

LETTER FROM THE BOARD

PALADIN LIMITED

(Incorporated in Bermuda with limited liability)

(Stock codes: 495 and 642 (Preference Shares))

Directors:

Mr. Law Fong (Chairman)
Mr. Chen Te Kuang, Mike
Mr. Oung Shih Hua, James[#]
Mr. Zhu Pei Qing*

Registered office: Canon’s Court 22 Victoria Street Hamilton HM 12 Bermuda

Ms. Lu Ti Fen*
Mr. Kwok Wai Chi*
# Non-executive Director
Independent non-executive Directors

Head office and principal place of business: 45th Floor, Office Tower Convention Plaza 1 Harbour Road Wanchai Hong Kong

26 September 2008

To the Shareholders; and for information only,
the holders of the Preference Shares

Dear Sirs,

VERY SUBSTANTIAL DISPOSAL IN RELATION TO DISPOSAL OF CERTAIN OFFICE PREMISES

INTRODUCTION

As announced on 26 August 2008, on 20 August 2008, the Vendor (a wholly-owned subsidiary of Paladin) and the Purchaser entered into the Agreement, pursuant to which the Vendor has conditionally agreed to sale and the Purchaser has conditionally agreed to purchase the Property at the Consideration of HK$176,375,500 payable in cash.

Based on the relevant percentage ratio calculation under the Listing Rules, the Disposal constitutes a very substantial disposal of Paladin.

The purpose of this circular is to provide you with, among other things, information on the Disposal, financial information on the Group, unaudited pro forma financial information on the Remaining Group, valuation report on the Property and a notice of the SGM.

LETTER FROM THE BOARD

THE AGREEMENT

Date: 20 August 2008

Parties:

Vendor: Banhart Company Limited, a wholly-owned subsidiary of the Company

Purchaser: The Consulate General of the State of Kuwait Hong Kong. To the best of the Directors’ knowledge, information and belief after having made all reasonable enquiry, the Purchaser is a third party independent of the Company and connected persons of the Company.

Property:

Office 4502 and certain washrooms, 45th Floor, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong.

Consideration:

HK$176,375,500 payable in cash by the Purchaser to the Vendor in the following manner:

(i) HK$5,000,000 (the “Deposit”) has been paid before the execution of the Agreement; and
(ii) as to the remaining HK$171,375,500 (the “Remaining Consideration”) to be paid on the date of Completion.
As at the Latest Practicable Date, the Remaining Consideration has not been paid.

Based on the saleable floor area of the Property of approximately 646.1 square metres, the Consideration represents a selling price of approximately HK$272,985 per square metre. The Consideration is determined between the Vendor and the Purchaser based on arm’s length negotiation with reference to (i) the recent transaction prices of offices in Office Tower of Convention Plaza; (ii) prospect of grade A commercial properties in Hong Kong; and (iii) the premier location of the Property.

Condition precedent:

Completion is subject to approval being given by the Shareholders in the SGM. None of the parties to the Agreement is entitled to waive such condition in any event. If the condition has not been fulfilled within 60 Days from the date of the Agreement (the “Long Stop Date”), the Agreement shall be terminated. As at the Latest Practicable Date, such condition has not been satisfied.

If the Agreement cannot be completed because of the approval is failed to be given by the Shareholders in the SGM, the Vendor is required to refund the Deposit (without interest or penalty) to the Purchaser. If the Vendor fails to complete the Agreement before the Long Stop Date other than the reason above, the Vendor shall return the Deposit to the Purchaser who is then entitled to recover any damages in relation thereto over and above the Deposit. If the Purchaser fails to complete the Agreement before the Long Stop Date, the Vendor is entitled to forfeit the Deposit and any part payment of the Consideration, and is entitled to resell, in whole or in parts, the Property to any other party.

LETTER FROM THE BOARD

Other terms

The Vendor acknowledges that the existing four washrooms on the 45th floor have to be changed to five washrooms. The Vendor agrees and undertakes to install and build the new five washrooms with similar material, apparatus, piping layout, floorings and workmanship as the original four.

Further, the Vendor has submitted to the property manager of the Property for the sub-division of the units on the 45th floor of the Office Tower, Convention Plaza. In the event that the written approval by the property manager is not obtained before the Long Stop Date, the Completion shall be postponed to a date being seven clear Days after such approval is obtained and subject to any amendment made by the property manager to the floor plan and the Purchaser shall not raise any objection thereto.

INFORMATION ON THE PROPERTY

The Property comprises of an office at 4502, 45th Floor, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong and certain washrooms located at the same floor. The Property (together with office 4501 and certain common area at 45th Floor, Office Tower, Convention Plaza, represents the entire 45th Floor of Office Tower, Convention Plaza) was acquired by the Vendor in 1990, is currently used as part of the office of the Group and has not generated any revenue during the past two years. For the two years ended 30 June 2007, the depreciation charges of the Property amounted to approximately HK$2.2 million per annum. As at 31 December 2007, the Property had a net book value of approximately HK$75.8 million. As set out in Appendix III to this circular, the Property was valued at HK$176.5 million as at 30 June 2008.

REASONS FOR AND BENEFITS OF THE DISPOSAL AND USE OF PROCEEDS

The Group is principally engaged in re-development of a property project at Nos. 8, 10 and 12 Peak Road and trading.

The Property is currently used as part of the office of the Group and has not generated any revenue during the past two years. After considered alternative uses of the Property, and current indebtedness level and working capital of the Group, the Directors are of the view that it is beneficial to the Group to dispose of non-core assets of the Group (including the Property) so as to reduce the indebtedness level and to enhance the working capital of the Group. The Directors are of the view that the remaining office premises in Hong Kong (comprising certain portion of office 4501 at 45th Floor, Office Tower, Convention Plaza) are sufficient for the Group’s operations immediately upon Completion.

Based on the Consideration and the associated estimated cost of the Disposal of approximately HK$2.2 milllion, the estimated net proceeds from the Disposal is approximately HK$174.2 million and is expected to be used as to HK$120.0 million to repay loans of the Group, approximately HK$67.9 million of which as at 31 December 2007 is secured by the Property and other assets of the Group, and the balance of HK$54.2 million as general working capital of the Group. Based on the Consideration of HK$176,375,500 and the net book value of the Property of approximately HK$75.8 million as at 31 December 2007, the excess of Consideration over the net book value of the Property amount to approximately HK$100,575,500.

LETTER FROM THE BOARD

FINANCIAL EFFECTS OF THE DISPOSAL

Set out in Appendix II to this circular is the unaudited pro forma financial information on the Remaining Group which illustrates, among other things, the possible financial impact of the Disposal on the results of the Group assuming the Disposal was completed on 1 July 2006 and the financial impact of the Disposal on the net assets of the Remaining Group assuming the Disposal had been completed on 31 December 2007.

Based on the unaudited pro forma consolidated net liabilities/assets statement of the Remaining Group, the net liabilities position of the Remaining Group would be changed to net assets of approximately HK$30.2 million and the Group would, on a pro forma basis, recognise a gain on Disposal of approximately HK$95.1 million as set out in the unaudited pro forma consolidated income statement in Appendix II of this circular. However, the actual gain of Disposal will depends on, among other things, net book value of the Property as at the date of Completion and actual cost of the Disposal.

Upon Completion, the Group will not recognise any depreciation charge on the Property. Accordingly, the total depreciation charge may be decreased and thus may reduce the loss or increase the profit of the Group, subject to the future capital investment and business performance of the Group.

FINANCIAL AND TRADING PROSPECTS OF THE GROUP

The Group has three major business sectors, namely property development, property investment and general trading. The Directors would like to focus its resources in marketing the remaining apartment units and private house of the Peak Road project in the upcoming years. The Directors are optimistic towards luxury property market in Hong Kong, therefore they are of the view that the Peak Road project will generate significant return to the Group and will offer great potential to enhance Shareholders’ value. As at 31 December 2007, the Peak Road project has 23 unsold apartment units and 1 unsold private house.

SGM

To the best of the Directors’ knowledge, information and belief after having made all reasonable enquiries, no Shareholder has a material interest in the Disposal which is different from other Shareholders, therefore no Shareholder is required to abstain from voting for the approval of the Disposal at the SGM.

The SGM will be held at Antica Room, Hong Kong Gold Coast Hotel, 1 Castle Peak Road, Castle Peak Bay, Tuen Mun, Hong Kong, at 11:00 a.m. on 13 October 2008. Notice of the SGM is set out on pages SGM-1 and SGM-2 of this circular.

A form of proxy for use at the SGM accompanies this circular. Whether or not you are able to attend the SGM in person, you are requested to complete the enclosed form of proxy in accordance with the instructions printed thereon and return the same to the Hong Kong branch share registrar of Paladin, Computershare Hong Kong Investor Services Limited at Rooms 1806-7, 18th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong not less than 48 hours before the time appointed for holding of the SGM. Completion and return of the form of proxy will not prevent you from attending and voting in person at the SGM or any adjournment thereof if you so wish.

LETTER FROM THE BOARD

LISTING RULES IMPLICATION

Based on the relevant percentage ratio calculation under the Listing Rules, the Disposal constitutes a very substantial disposal of Paladin.

RECOMMENDATION

The Directors are of the view that the Agreement is on normal commercial terms which are fair and reasonable and in the interests of the Company and the Shareholders as a whole, therefore, the Directors recommend the Shareholders to vote in favour of the resolution in the SGM to approve the Agreement and the transaction contemplated thereunder.

ADDITIONAL INFORMATION

Your attention is drawn to the additional information set out in the appendices to this circular.

By Order of the Board Paladin Limited Law Fong Chairman

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

1. FINANCIAL SUMMARY

Set out below is a summary of the consolidated results and assets and liabilities of the Group for the six months ended 31 December 2007 and the three years ended 30 June 2007 as extracted from the 2007 interim report and the annual reports of the Group for the corresponding years.

Turnover Cost of sales Gross profit (loss) (Loss) profit for the period/year attributable to equity holders of Paladin (Loss) earnings per Share – basic Non-current assets Current assets Current liabilities Net current assets (liabilities) Total assets less current liabilities Capital and reserves Share capital Reserves Non-current liabilities	For the six months ended 31 December 2007 HK$’000 (Unandited) 215,037 (213,900) 1,137 (34,405) (6.46)cents As at 31 December 2007 HK$’000 (Unandited) 387,444 1,140,393 (487,549) 652,844 1,040,288 5,327 (73,575) (68,248) 1,108,536 1,040,288	For the year ended 30 June 2007 2006 2005 HK$’000 HK$’000 HK$’000 (Audited) (Audited) (Audited) 48,298 3,110 497,043 (28,771) (3,149) (342,143) 19,527 (39) 154,900 (109,059) (39,770) 224,543 (20.61)cents (7.53)cents 42.5 cents As at 30 June 2007 2006 2005 HK$’000 HK$’000 HK$’000 (Audited) (Audited) (Audited) 351,638 345,445 182,104 957,353 981,669 1,465,590 (336,951) (606,998) (1,501,575) 620,402 374,671 (35,985) 972,040 720,116 146,119 5,312 264,136 264,136 (54,046) (231,046) (191,276) (48,734) 33,090 72,860 1,020,774 687,026 73,259 972,040 720,116 146,119

I – 1

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

2. UNAUDITED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2007

Set out below are the unaudited condensed consolidated financial statements of the Group together with accompanying notes as extracted from the interim report of Paladin for the six months ended 31 December 2007. References to page numbers in the below extract are made to the page numbers of such interim report of Paladin.

CONDENSED CONSOLIDATED INCOME STATEMENT

FOR THE SIX MONTHS ENDED 31 DECEMBER 2007

Notes Turnover 3 Cost of sales Gross profit Other income Administrative expenses Gain arising on change in fair value of investment properties Loss arising from change in fair value of option derivatives Finance costs 4 (Loss) profit before taxation Taxation charge 5 (Loss) profit for the period attributable to equity holders of the Company (Loss) earnings per share 6 Basic Diluted	Six months ended 31 December 2007 2006 HK$’000 HK$’000 (Unaudited) (Unaudited) 215,037 48,298 (213,900) (28,771) 1,137 19,527 4,249 377 (27,759) (15,393) 38,500 46,393 (10,065) (1,110) (33,730) (26,828) (27,668) 22,966 (6,737) – (34,405) 22,966 (6.46) HK cents 4.35 HK cents N/A 4.07 HK cents

I – 2

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

CONDENSED CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2007

Notes Non-current assets Investment properties 8 Property, plant and equipment 9 Available-for-sale investments Current assets Properties held for sale 10 Trade and other receivables, deposits and prepayments 11 Pledged bank deposits Bank balances and cash Current liabilities Bills payable Other payables Amounts due to directors of subsidiaries 12 Taxation payable Secured bank loans – amount due within one year 13 Other loans – amount due within one year 14 Option derivatives 15 Bank overdrafts Provision for settlement of litigation claim 16 Net current assets	31.12.2007 HK$’000 (Unaudited) 214,000 164,644 8,800 387,444 919,754 106,405 20,000 94,234 1,140,393 70,416 140,743 – 345 120,207 112,639 15,545 27,654 – 487,549 652,844 1,040,288	30.6.2007 HK$’000 (Audited) 175,500 167,338 8,800
		351,638
		919,754 3,762 21,278 12,559
		957,353
		– 135,680 24,098 345 20,787 95,561 5,480 – 55,000
		336,951
		620,402
		972,040

I – 3

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Notes Capital and reserves Share capital 17 Reserves Non-current liabilities Secured bank borrowings – amount due after one year 13 Other loans – amount due after one year 14 Convertible redeemable preference shares 18 Deferred tax liabilities	31.12.2007 HK$’000 (Unaudited) 5,327 (73,575) (68,248) 1,001,308 63,480 26,116 17,632 1,108,536 1,040,288	30.6.2007 HK$’000 (Audited) 5,312 (54,046) (48,734) 905,568 64,573 39,738 10,895 1,020,774 972,040

I – 4

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 31 DECEMBER 2007

	Attributable to equity holders of the Company	Attributable to equity holders of the Company
Share capital HK$’000 264,136 – – – (258,853) – – 29 (258,824) 5,312 – – 15 5,327	Share Contributed premium surplus HK$’000 HK$’000 (Note a) 279,617 132,176 – – – – – – (279,617) (132,176) – – – – 689 – (278,928) (132,176) 689 – – – – – 360 – 1,049 –	Investment Accumulated Capital Translation revaluation (losses) reserve reserve reserve profits HK$’000 HK$’000 HK$’000 HK$’000 (Note b) – (3,088) – (639,751) – – – (109,059) – – 1,300 – – – 1,300 (109,059) – – – 670,646 26,968 – – – (1,458) – – – (293) – – – 25,217 – – 670,646 25,217 (3,088) 1,300 (78,164) – – – (34,405) 14,745 – – – (229) – – – 39,733 (3,088) 1,300 (112,569)	Total HK$’000 33,090
			(109,059) 1,300
			(107,759)
			– 26,968 (1,458) 425
			25,935
			(48,734)
			(34,405) 14,745 146
			(68,248)

I – 5

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

At 1 July 2006 Profit for the period and total recognised income for the period Reduction of share capital, share premium and contributed surplus to offset accumulated losses (see note 17) Recognition of equity component of convertible redeemable preference shares_(see note 18) Issue costs of convertible redeemable preference shares (see note 18)_ At 31 December 2006		Attributable to equity holders of the Company	Attributable to equity holders of the Company
	Share capital HK$’000 264,136 – (258,853) – – 5,283	Share Contributed premium surplus HK$’000 HK$’000 (Note a) 279,617 132,176 – – (279,617) (132,176) – – – – – –	Investment Accumulated Capital Translation revaluation (losses) reserve reserve reserve profits HK$’000 HK$’000 HK$’000 HK$’000 (Note b) – (3,088) – (639,751) – – – 22,966 – – – 670,646 26,968 – – – (1,458) – – – 25,510 (3,088) – 53,861	Total HK$’000 33,090 22,966 – 26,968 (1,458)
				81,566

Notes:

(a) The contributed surplus of the Group represents the surplus arising on acquisition of subsidiaries through the group organisation in the preparation for the listing of the Company’s shares on The Stock Exchange of Hong Kong Limited in 1991.
(b) The capital reserve represents the equity component of convertible redeemable preference shares issued during the year ended 30 June 2007.

I – 6

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

FOR THE SIX MONTHS ENDED 31 DECEMBER 2007

	Six months ended 31 December	Six months ended 31 December
	2007	2006
	HK$’000	HK$’000
	(Unaudited)	(Unaudited)
Net cash (used in) from operating activities	(104,124)	19,243
Net cash from (used in) investing activities	3,559	(1,305)
Net cash from financing activities	182,240	9,934
Net increase in cash and cash equivalents	81,675	27,872
Cash and cash equivalents at beginning of the period	12,559	10,316
Cash and cash equivalents at end of the period	94,234	38,188

Analysis of the balance of cash and cash equivalents:
Bank balances and cash	94,234	38,188

I – 7

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 31 DECEMBER 2007

1. BASIS OF PREPARATION

The condensed consolidated financial statements have been prepared in accordance with the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with Hong Kong Accounting Standard 34 “Interim Financial Reporting” issued by Hong Kong Institute of Certified Public Accountants (“HKICPA”).

2. PRINCIPAL ACCOUNTING POLICIES

The condensed consolidated financial statements have been prepared on the historical cost basis except for certain properties and certain financial instruments, which are measured at fair values, as appropriate.

In the current interim period, the Group has applied, for the first time, the following new standard, amendment and interpretations (“new HKFRSs” or “new HKASs” or “new HK(IFRIC) – INTs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), which are effective for the Group’s financial year beginning 1 July 2007.

HKAS 1 (Amendment) Capital disclosures[1] HKFRS 7 Financial instruments: Disclosures[1] HK(IFRIC) – INT 10 Interim financial reporting and impairment[2] HK(IFRIC) – INT 11 HKFRS 2: Group and treasury share transactions[3]

1 Effective for annual periods beginning on or after 1 January 2007
2
Effective for annual periods beginning on or after 1 November 2006
3 Effective for annual periods beginning on or after 1 March 2007

The adoption of these new HKFRSs had no material effect on the results or financial position of the Group for the current or prior accounting periods. Accordingly, no prior period adjustment has been recognised.

The Group has not early applied the following new standards or interpretations that have been issued but are not yet effective.

HKAS 1 (Revised) Presentation of financial statements[1] HKAS 23 (Revised) Borrowing costs[1] HKFRS 8 Operating segments[1] HK(IFRIC) – INT 12 Service concession arrangements[2] HK(IFRIC) – INT 13 Customer loyalty programmes[3] HK(IFRIC) – INT 14 HKAS 19 – The limit on a defined benefit asset, minimum funding requirements and their interaction[3]

1 Effective for annual periods beginning on or after 1 January 2009
2 Effective for annual periods beginning on or after 1 January 2008
3
Effective for annual periods beginning on or after 1 July 2008

The directors of the Company anticipate that the application of these standards or interpretations will have no material impact on the results and the financial position of the Group.

I – 8

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

3. SEGMENT INFORMATION

For management purposes, the Group is currently organised into three main operating divisions – (i) property development; (ii) property investment; and (iii) general trading. These divisions are the bases on which the Group reports its primarily segment information.

Segment information about these businesses is presented below:

Six months ended 31 December 2007

Property
Property
development
investment
HK$’000
HK$’000
TURNOVER
External sales
–
996
RESULT
Segment result
(11,375)
35,516
Unallocated corporate income
Unallocated corporate expense
Loss arising from change
in fair value of
option derivatives
Finance costs
Loss before taxation
Taxation charge
Loss for the period
Six months ended 31 December 2006
TURNOVER
External sales
48,298
–
RESULT
Segment result
22,094
44,116
Unallocated corporate income
Unallocated corporate expense
Loss arising from change
in fair value of option
derivatives
–
Finance costs
Profit for the period

General
trading
Consolidated
HK$’000
HK$’000
214,041
215,037
(835)
23,306
2,275
(9,454)
(10,065)
(33,730)
(27,668)
(6,737)
(34,405)
–
48,298
(6,218)
59,992
377
(9,465)
–
(1,110)
(26,828)
22,966

More than 90% of the Group’s turnover for the six months ended 31 December 2007 and 2006 was attributable to the operations carried out in Hong Kong.

I – 9

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

4. FINANCE COSTS

Interest on bank borrowings: - wholly repayable within five years - not wholly repayable within five years Interest on convertible redeemable preference shares (note 18) Other borrowing costs	Six months ended 31 December 2007 2006 HK$’000 HK$’000 4,725 1,393 24,424 22,608 1,269 739 3,312 2,088 33,730 26,828	Six months ended 31 December 2007 2006 HK$’000 HK$’000 4,725 1,393 24,424 22,608 1,269 739 3,312 2,088 33,730 26,828
		26,828

5. TAXATION

Hong Kong Profit Tax for the period Deferred tax charge Tax charge attributable to the Company and its subsidiaries	Six months ended 31 December 2007 2006 HK$’000 HK$’000 – – 6,737 – 6,737 –	Six months ended 31 December 2007 2006 HK$’000 HK$’000 – – 6,737 – 6,737 –
		–

No provision for Hong Kong Profits Tax has been made in the current period condensed consolidated financial statements as the Group has no assessable profit for the period.

No provision for Hong Kong Profits Tax had been made in the previous period condensed consolidated financial statements as the estimated profit for that period was wholly absorbed by the tax losses brought forward.

In August 2007, a subsidiary of the Company received an assessment demanding (the “Assessment”) for the year of assessment of 2006/2007 from Hong Kong Inland Revenue Department (“IRD”). By issuing the Assessment, the IRD disagreed the basis adopted by this subsidiary for computation of Hong Kong Profits Tax liability. In addition, the IRD also disagreed the tax losses brought forward of this subsidiary for the year of assessments from 1997/1998 to 1999/2000 and 2004/2005 with aggregated amount of approximately HK$152,347,000. An objection has been lodged by the Group in September 2007 and the IRD has agreed to withhold the provisional profits tax for year of assessment of 2007/2008. The Group has arranged a bank guarantee of approximately HK$36,956,000 in favour of IRD to secure the tax payable of approximately HK$36,956,000 for the year of assessment of 2006/2007.

In the opinion of the directors of the Company, the Group has grounds to object the IRD’s Assessment and the tax losses brought forward from previous years could be used to offset with the assessable profits for the year. As a result, no provision for Hong Kong Profits Tax has been made for the six months ended 31 December 2007.

I – 10

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

6. (LOSS) EARNINGS PER SHARE

The calculation of the basic and diluted (loss) earnings per share attributable to the equity holders of the Company is based on the following data:

(Loss) earnings for the period for the purpose of calculating basic (loss) earnings per share Effect of dilutive potential ordinary shares: Add: Interest on convertible redeemable preference shares charged to condensed consolidated income statement Earnings for the purpose of calculating diluted earnings per share Number of shares Weighted average number of shares/number of shares for the purposes of calculating basic (loss) earnings per share Effect of dilutive potential ordinary shares relating to convertible redeemable preference shares Weighted average number of shares for the purpose of calculating diluted earnings per share	Six months ended 31 December 2007 2006 HK$’000 HK$’000 (34,405) 22,966 739 23,705 Six months ended 31 December 2007 2006 532,393,992 528,271,615 54,549,786 582,821,401	Six months ended 31 December 2007 2006 HK$’000 HK$’000 (34,405) 22,966 739 23,705 Six months ended 31 December 2007 2006 532,393,992 528,271,615 54,549,786 582,821,401
		582,821,401

The calculation of diluted loss per share for the six months ended 31 December 2007 has not been disclosed as the exercise of the Company’s outstanding convertible redeemable preference shares would reduce the loss per share for the period.

7. DIVIDEND

No dividends were paid by the Company in both periods and the Company does not have distributable reserve for distribution in both periods.

8. INVESTMENT PROPERTIES

The fair value of the Group’s investment properties as at 31 December 2007 has been arrived at on the basis of a valuation carried out on that day by Messrs. Savills Valuation and Professional Services Limited, independent qualified professional property valuers not connected with the Group. Messrs. Savills Valuation and Professional Services Limited are members of the Hong Kong Institute of Surveyors, and have appropriate qualification. The valuation, which conforms to The Valuation Standards on Properties issued by the Hong Kong Institute of Surveyors, was arrived at by reference to market evidence of transaction prices for similar properties.

During the six months ended 31 December 2007, the gain arising on change in fair value of the investment properties of approximately HK$38,500,000 (1.7.2006 to 31.12.2006: HK$46,393,000) has been recognised in the condensed consolidated income statement. In addition, a property of approximately HK$31,307,000 (1.7.2007 to 31.12.2007: nil) previously classified as properties held for sale had been reclassified as investment properties during the six months ended 31 December 2006.

9. PROPERTY, PLANT AND EQUIPMENT

During the period, depreciation of approximately HK$2,688,000 (1.7.2006 to 31.12.2006: HK$2,396,000) were charged in respect of the Group’s property, plant and equipment. There are no additions of property, plant and equipment for the six months ended 31 December 2007 (1.7.2006 to 31.12.2006: HK$1,787,000) and the loss on disposal of property, plant and equipment for the six months ended 31 December 2007 amounted to HK$6,000 (1.7.2006 to 31.12.2006: nil).

I – 11

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

10. PROPERTIES HELD FOR SALE

	31.12.2007	30.6.2007
	HK$’000	HK$’000
Carrying amount of properties held for sales	919,754	919,754

At 31 December 2007 and 30 June 2007, the properties held for sale are stated at cost.

11. TRADE AND OTHER RECEIVABLES, DEPOSITS AND PREPAYMENTS

The Group allows an average credit period of 90 days to its trade customers. The following is an aged analysis of trade receivables at the balance sheet date:

0 – 60 days 61 – 90 days	31.12.2007 HK$’000 64,624 38,430 103,054	30.6.2007 HK$’000 – –
		–

12. AMOUNTS DUE TO DIRECTORS OF SUBSIDIARIES

The amounts were due to directors of subsidiaries including Lilian Oung, one of the shareholders of Five Star Investments Limited (“Five Star”), the controlling shareholder of the Company. The amounts were unsecured, noninterest bearing and repaid in full during the six months ended 31 December 2007.

13. SECURED BANK BORROWINGS

Mortgage loans Bank loan Trust receipt loans Less: Amount due within one year shown under current liabilities Amount due after one year At the balance sheet date, the Group’s bank borrowings are repayable as follows: Within one year In more than one year but not more than two years In more than two years but not more than three years In more than three years but not more than four years In more than four years but not more than five years Over five years	31.12.2007 HK$’000 1,028,432 – 93,083 1,121,515 (120,207) 1,001,308 31.12.2007 HK$’000 120,207 27,971 27,971 27,971 118,039 799,356 1,121,515	30.6.2007 HK$’000 906,355 20,000 –
		926,355 (20,787)
		905,568

		30.6.2007 HK$’000 20,787 31,519 31,519 21,519 21,519 799,492
		926,355

I – 12

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

At 30 June 2007, the mortgage loans comprised (i) a mortgage loan with a principal amount of HK$80,000,000 that shall be repayable by 240 monthly instalments and carry interest at a rate of 2% per annum below the Hong Kong dollars Prime Rate; (ii) a mortgage loan with a principal amount of HK$550,000,000 that shall be repayable by 300 monthly instalments and carry interest at a rate of 2.35% per annum below the Hong Kong dollars Prime Rate; (iii) a mortgage loan with a principal amount of HK$30,000,000 that shall be repayable by 300 monthly instalments and carry interest at a rate of 2.65% per annum below the Hong Kong dollars Prime Rate; (iv) a mortgage loan with a principal amount of HK$32,000,000 that shall be repayable by 300 monthly instalments and carry interest at a rate of 2.5% per annum below the Hong Kong dollars Prime Rate; (v) a mortgage loan with a principal amount of HK$70,000,000 that shall be repayable by 300 monthly instalments and carry interest at a rate of 2.6% per annum below the Hong Kong dollars Prime Rate; (vi) a mortgage loan with a principal amount of HK$69,300,000 that shall be repayable by 240 monthly instalments and carry interest at a rate of 1.25% per annum above HIBOR; (vii) a mortgage loan with a principal amount of HK$61,100,000 that shall be repayable by 240 monthly instalments and carry interest at a rate of 1.25% per annum above HIBOR; and (viii) a mortgage loan with a principle amount of HK$32,000,000 that shall be repayable by 300 monthly instalments and carry interest at a rate of 2.5% per annum below the Hong Kong dollars Prime Rate.

During the six months ended 31 December 2007, the Group obtained two new mortgage loans from banks. The new mortgage loans comprised (i) a mortgage loan with a principal amount of HK$110,000,000 that shall be repayable by 60 monthly instalments and carry interest at a rate of 1.2% per annum over HIBOR and (ii) a mortgage loan with a principal amount HK$100,000,000 that shall be repayable by 240 monthly instalments and carry interest at a rate of 2.25% per annum below the Hong Kong dollars Prime Rate.

The range of effective interest rates of the Group’s bank borrowings were 3.45% to 8.50% per annum for the six months ended 31 December 2007 (1.7.2006 to 30.6.2007: 5.09% to 8.50%).

All mortgage loans are secured by certain apartments of the Group’s properties held for sale and investment properties to the banks.

The fair value of the Group’s bank borrowings was approximate to the corresponding carrying amount calculated by discounting the future cash flows at the prevailing market rate for similar borrowings at the balance sheet dates. The Group’s bank borrowings are all denominated in Hong Kong dollars.

14. OTHER LOANS

Other loans from: - related companies_(Note a) - a third party(Note b) - other unrelated companies(Note c)_ Less: Amount due within one year shown under current liabilities Amount due after one year	31.12.2007 HK$’000 13,619 109,350 53,150 176,119 (112,639) 63,480	30.6.2007 HK$’000 13,489 111,906 34,739 160,134 (95,561) 64,573

Notes:

(a) The loans are owed to companies in which Lilian Oung and/or Messrs. Oung Shih Hua, James and Chen Te Kuang Mike, directors of the Company, have controlling interests. The loans are unsecured, non-interest bearing and repayable on demand.

(b) The loans are owed to Fine Chiffon Corporation Limited (“Fine Chiffon”), an independent third party. At 31 December 2007, the loans are comprised of (i) an interest bearing instalment loan of approximately HK$67,886,000 (30.6.2007: HK$69,906,000) and a non-interest bearing loan of approximately HK$41,464,000 (30.6.2007: HK$42,000,000) from Fine Chiffon.

In previous years, the Group obtained an interest bearing instalment loan of HK$80,000,000 from Fine Chiffon. The instalment loan was obtained by Fine Chiffon from a bank and was granted to the Group with the same terms offered by the bank. The Company provides a corporate guarantee of HK$80,000,000 to the bank and the Group’s leasehold properties are also pledged to the bank as security. The loan shall be repayable by 180 monthly instalments and is carried at variable interest rate with 2.5% per annum below the Hong Kong dollars Prime Rate. At 31 December 2007, the outstanding interest bearing instalment loan amounted to approximately HK$67,886,000 (30.6.2007: HK$69,906,000).

I – 13

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

As announced by the Company on 5 April 2006, the Group entered into a loan agreement with Fine Chiffon to obtain a new non-interest bearing loan facility up to HK$42,000,000. The loan is unsecured, non-interest bearing and non-revolving in nature. The loan shall be repayable on or before the date falling 36-months after the first drawdown of the loan. However, Fine Chiffon has a right to withdraw the loan facility at any time prior to the repayment date and accordingly, the loan is classified as current liabilities in the condensed consolidated balance sheet. At 31 December 2007, the outstanding non-interest bearing loan amounted to approximately HK$41,464,000 (30.6.2007: HK$42,000,000).

In addition, the Group also granted two options to Fine Chiffon for purchasing (i) part of the Group’s leasehold properties at a consideration of HK$32,000,000 and (ii) 20% of the share capital of Banhart Company Limited (“Banhart”), which is a wholly-owned subsidiary of the Company and is also the beneficial owner of the Group’s leasehold properties, at a consideration of HK$10,000,000 in substitution for the repayment of the outstanding loan at the end of the loan period. Fine Chiffon is also entitled to exercise the options prior to the expiry of the 36-months loan period and the options are non-transferable.

(c) The loans are unsecured, interest bearing at a rate of 2% per annum over the Hong Kong dollars Prime Rate (30.6.2007: non-interest bearing) and repayable on demand.

The directors of the Company considered that the fair value of the other loans at 31 December 2007 and 30 June 2007 was approximate to the corresponding carrying amount.

15. OPTION DERIVATIVES

	31.12.2007	30.6.2007
	HK$’000	HK$’000
Option derivatives – fair value	15,545	5,480

As described in note 14, the Group granted two options to Fine Chiffon for purchasing (i) part of the Group’s leasehold properties at a consideration of HK$32,000,000 (“Option 1”) and (ii) 20% of the share capital of Banhart, which is the beneficial owner of the Group’s leasehold properties, at a consideration of HK$10,000,000 in substitution for the repayment of the outstanding loan at the end of the loan period (“Option 2”). Fine Chiffon is entitled to exercise the options prior to the expiry of 36-months loan period and the options are non-transferable (see note 14(b)).

The fair values of the option derivatives granted by the Group are determined by using the Black-Scholes Option Pricing Model and the Binomial Option Pricing Model, respectively.

During the six months period ended 31 December 2007, the loss arising from change in fair value of option derivatives amounted to HK$10,065,000 (1.7.2006 to 31.12.2006: HK$1,110,000).

The fair values of the option derivatives for Option 1 and Option 2 are calculated by using the Black-Scholes Option Pricing Model and the Binomial Option Pricing Model, respectively. The inputs into both models are as follows:

Black-Scholes Option Pricing Model – Option 1

	31.12.2007	30.6.2007
Exercise price	HK$32,000,000	HK$32,000,000
Expected volatility	18.87%	18.87%
Expected life	3 years	3 years
Risk-free rate	2.56%	4.3%
Fair value of the leasehold properties
at the balance sheet date	HK$235,000,000	HK$170,000,000
Fair value of option at the balance sheet date	HK$15,495,000	HK$5,480,000

Expected volatility is determined by using the historical volatility of the price indices for Grade A office in core districts in Hong Kong over the previous three years.

I – 14

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Binomial Option Pricing Model – Option 2

	31.12.2007	30.6.2007
Exercise price	HK$10,000,000	HK$10,000,000
Expected volatility	18.87%	18.87%
Expected life	3 years	3 years
Risk-free rate	2.56%	4.3%
Fair value of option at the balance sheet date	HK$50,000	Nil

Expected volatility is determined by using the historical volatility of the price indices for Grade A office in core districts in Hong Kong over the previous three years.

The fair value of the option derivative to purchase 20% of the share capital of Banhart depends on the net asset value of Banhart, which is equivalent to the potential of obtaining economic benefits deriving from the net asset value of Banhart that appears when the value of the leasehold properties held by Banhart exceeds the value of its total liabilities. A discount of 40% to the net asset value of Banhart is used in view of the lack of marketability of the shares of Banhart and being a minority shareholder in Banhart.

16. PROVISION FOR SETTLEMENT OF LITIGATION CLAIM

As announced by the Company on 23 October 2007, Holyrood Limited (“Holyrood”), a wholly-owned subsidiary of the Company, reached a settlement agreement with Hip Hing Construction Company Limited (“Hip Hing”) in respect of a dispute with Hip Hing on construction work performed by Hip Hing for the redevelopment project located at the Peak Road (the “Peak Road Project”). Hip Hing claimed against Holyrood for approximately HK$69,000,000 for the construction costs of the Peak Road Project. The contracts between Hip Hing and Holyrood incorporate arbitration provisions, and, in 2006, both parties agreed to refer the disputes to the arbitration on 6 January 2006. On 22 October 2007, a settlement agreement were entered into between Holyrood and Hip Hing. Pursuant to the settlement agreement, Holyrood agreed to pay HK$50,000,000 to Hip Hing together with estimated legal costs of the arbitration amounting to approximately HK$5,000,000. The provision of HK$55,000,000 has been made during the year ended 30 June 2007. The provision was fully settled by Holyrood to Hip Hing during the six months ended 31 December 2007.

17. SHARE CAPITAL

Nominal value per share HK$ Authorised: At 1 July 2006 0.50 Effect of the Capital Reorganisation referred to below_(Note) At 31 December 2006, 30 June 2007 and 31 December 2007 0.01 Issued and fully paid: At 1 July 2006 0.50 Effect of the Capital Reorganisation referred to below(Note) At 31 December 2006 0.01 Issue of shares on conversion of convertible redeemable preference shares(Note 18) At 30 June 2007 0.01 Issue of shares on conversion of convertible redeemable preference shares(Note 18)_ At 31 December 2007 0.01	Number of shares 1,000,000,000 49,000,000,000 50,000,000,000 528,271,615 – 528,271,615 2,872,377 531,143,992 1,500,000 532,643,992	Amount HK$’000 500,000 –
		500,000

		264,136 (258,853)
		5,283 29
		5,312 15
		5,327

I – 15

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

All shares issued during the six months ended 31 December 2007 rank pari passu in all respects with other shares in issue.

Note: As announced by the Company on 8 June 2006, the Company proposed to effect a capital reorganisation (the “Capital Reorganisation”). Details of the Capital Reorganisation are set out in the circular of the Company dated 20 July 2006.

At the special general meeting of the Company held on 21 August 2006, a special resolution approving the Capital Reorganisation was passed and the following capital reorganisation became effective on 21 August 2006:

(i) a reduction in the nominal value of issued shares of the Company from HK$0.50 each to HK$0.01 each by cancelling HK$0.49 of the paid up capital on each issued share of the Company and by reducing the nominal value of all issued and unissued shares of the Company from HK$0.50 each to HK$0.01 each;
(ii) the authorised share capital of the Company will be restored to HK$500,000,000 and each authorized but unissued share of HK$0.50 each will be sub-divided into 50 shares of nominal value of HK$0.01 each;
(iii) the cancellation of the amount of approximately HK$279,617,000 standing to the credit of share premium account and the cancellation of the amount of approximately HK$132,176,000 standing to the credit of the contributed surplus account; and
(iv) the use of all of the credit of approximately HK$670,646,000 arising from the reduction of capital and the cancellation of the entire amount standing to the credit of the share premium account and the contributed surplus account to offset in full with the accumulated losses of the Company at 31 December 2005.

18. CONVERTIBLE REDEEMABLE PREFERENCE SHARES

Authorised: At 24 November 2006, 30 June 2007 and 31 December 2007 Issued and fully paid: Issued on 24 November 2006 Conversion of issued convertible redeemable preference shares into ordinary shares At 30 June 2007 Conversion of issued convertible redeemable preference shares into ordinary shares At 31 December 2007	Number of preference shares 270,000,000 264,135,807 (2,872,377) 261,263,430 (1,500,000) 259,763,430	Amount HK$’000 2,700 2,641 (29) 2,612 (15) 2,597

The convertible redeemable preference shares with nominal value of HK$0.01 were issued at HK$0.25 per share on 24 November 2006.

I – 16

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Movement of the convertible redeemable preference shares are as follows:

Convertible redeemable preference shares issued on 24 November 2006 Issue costs Net proceeds received Interest charged for the period from 24 November 2006 to 31 December 2006 At 31 December 2006 Conversion of convertible redeemable preference shares Interest charged for the period from 1 January 2007 to 30 June 2007 At 30 June 2007 Reclassification_(Note) Conversion of convertible redeemable preference shares Interest charged for the period from 1 July 2007 to 31 December 2007 At 31 December 2007 _Notes:	Liability component HK$’000 39,066 (2,110) 36,956 739 37,695 (425) 2,468 39,738 (14,745) (146) 1,269 26,116	Equity component HK$’000 26,968 (1,458) 25,510 – 25,510 (293) – 25,217 14,745 (229) – 39,733	Total HK$’000 66,034 (3,568) 62,466 739 63,205 (718) 2,468 64,955 – (375) 1,269 65,849

As announced by the Company on 3 July 2007, the alternation of the terms of the existing convertible redeemable preference shares has been duly approved by the holders of convertible redeemable preference shares at the special general meeting held on 3 July 2007. The approved alternation of the terms of the existing convertible redeemable preference shares are summarised as follows:

(i) Cumulative dividend

The right to receive a fixed dividend of HK$0.02 per convertible redeemable preference share payable annually has been revoked and replaced with the right to receive a dividend per convertible redeemable preference share based on the dividend or any other distribution (if any) per ordinary share of Sensors Integration Technology Limited, a wholly-owned subsidiary of the Company and engaged in manufacture of optical sensor systems and optical communication products, declared and paid by Sensors Integration Technology Limited.

(ii) Early redemption at the option of the Company

The early redemption option of the Company in the event that the price of the ordinary share of the Company close on thirty consecutive trading days at a price that is 100% higher that the conversion price of convertible redeemable preference share has be revoked.

I – 17

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(iii) Further issues

The right of the Company to issue convertible redeemable preference shares in priority to the existing convertible redeemable preference shares has been revoked. New issues of convertible redeemable preference shares has be permitted only if the proceeds of the issues are used solely to subscribe for the same number of ordinary shares in Sensors Integration Technology Limited and at the same price.

As a result of the alternation of the terms of the existing convertible redeemable preference shares, the liability component of the existing convertible redeemable preference shares has been decreased by approximately HK$14,745,000 and, in turn the equity component of the existing convertible redeemable preference shares has been increased by approximately HK$14,745,000 as at 3 July 2007.

The principal revised terms of the convertible redeemable preference shares include the following:

(i) Early redemption at the opinion of the Company

The Company has the option, but not the obligation, to redeem all but not a portion of the convertible redeemable preference shares at face value if there are less then 80 millions convertible redeemable preference shares in issue.

(ii) Conversion rights

Holders of the convertible redeemable preference shares are entitled to convert all or any of their convertible redeemable preference shares into ordinary shares in the Company at the conversion price of HK$0.25 per share, subject to adjustment provisions which are standard terms for convertible securities of similar type. The adjustment events will arise as result of certain changes in share capital of the Company including consolidation or sub-division of shares, capitalisation of profits or reserves, capital distribution in cash or specie or subsequent issue of securities in the Company.

Holders of the convertible redeemable preference shares are not required to pay any extra amount should they convert their convertible redeemable preference shares into ordinary shares in the Company.

(iii) Cumulative dividends

The dividend per convertible redeemable preference share is based on the dividend or any other distribution (if any) per ordinary share of Sensors Integration Technology Limited, a wholly-owned subsidiary of the Company and engaged in manufacture of optical sensor systems and optical communication products, declared and paid by Sensors Integration Technology Limited.

Sensors Integration Technology Limited will declare a dividend to its shareholders only if Sensors Integration Technology Limited has received written confirmation from the Company that the Company is permitted to declare and pay a dividend in the same amount to the holders of the convertible redeemable preference shares and an undertaking to declare and pay such a dividend.

(iv) Redemption

The Company shall pay to such holder a redemption amount equal to the aggregate initial subscription price of such number of convertible redeemable preference shares so redeemed together with the cumulative dividend that has accrued and payable upon the occurrence of any of the following (whichever is the earliest):

(a) 31 December 2016;
(b) any consolidation, amalgamation or merger of the Company with any other corporation;
(c) listing of the ordinary shares of the Company are revoked or withdrawn (except in connection with the simultaneous listing of the ordinary shares on any Recognised Stock Exchange);
(d) a directors’ resolution is passed for the winding-up, insolvency, administration, reorganisation, reconstruction, dissolution or bankruptcy of the Company; or

I – 18

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

(e) an effective resolution is passed for the winding-up, insolvency, administration, reorganisation, reconstruction, dissolution or bankruptcy of the Company or for the appointment of a liquidator, receiver, administrator, trustee or similar officer of the Company.
(v) Priority

The convertible redeemable preference shares rank in priority to the ordinary shares in the Company as to dividends and a return of the capital paid up on the convertible redeemable preference shares. Once the capital paid up has been returned and all the accumulative dividends paid, the convertible redeemable preference shares are not entitled to any further payment from or distributions by the Company.

(vi) Voting

The convertible redeemable preference shares do not entitle the holders to attend or vote at meeting of the Company except on resolutions which directly affect their rights or on a winding-up of the Company or a return or repayment of capital.

(vii) Further issues

New issues of convertible redeemable preference shares has been permitted only if the proceeds of the issues are used solely to subscribe for the same number of ordinary shares in Sensors Integration Technology Limited and at the same price.

The net proceeds received from the issue of the convertible redeemable preference shares contain the following components that are required to be separately accounted for in accordance with HKAS 32 “Financial Instrument: Disclosure and Presentation”:

(a) Debt component represents the present value of the contractually determined stream of future cash flows discounted at the rate of interest at that time by the market to instruments of comparable credit status and providing substantially the same cash flows, on the same terms, but without the conversion option.

The interest charged for the period if calculated by applying effective interest rates of approximately 10.6% of the debt component for the period since the convertible redeemable preference shares were issued.

(b) Equity component represents the difference between the proceeds of issue of the convertible redeemable preference shares and the fair value assigned to the liability component.

19. CONTINGENT LIABILITIES

At 31 December 2007, the Group had given guarantee of HK$80,000,000 (30.6.2007: HK$80,000,000) to a bank to secure the credit facilities granted to Fine Chiffon.

In addition, the Group had the following outstanding litigations as at 31 December 2007 that the directors of the Company are of the opinion that the estimated contingent liabilities arising from the litigations cannot be reasonably ascertained at the current stage.

(a) In 2005, Osmar Far East Limited (of which the beneficial owners are independent third parties) and Holyrood, referred disputes on the construction work for the Peak Road Project to arbitration. Osmar Far East Limited has claimed against Holyrood for approximately HK$6.1 million in relation to the disputes concerning the non-payment of construction cost for the Peak Road Project. A provision for approximately HK$6.1 million in relation to the construction cost had been provided by Holyrood in previous years. Holyrood counterclaimed against Osmar Far East Limited for approximately HK$6.1 million in relation to the liquidated damages and rectification cost caused by defective works performed by Osmar Far East Limited. The hearing was completed on 5 October 2007 and the closing and reply submissions had been completed on 16 November 2007. The case is still pending for the arbitrator’s award.
(b) On 26 July 2005, Brightland Corporation Limited (of which the beneficial owners are all independent third parties) issued a writ against Banhart, a wholly-owned subsidiary of the Company, claiming various declarations, damages and other relief in relation to a sale and purchase of the Group’s property situated at Unit C on the 45th Floor, Office Tower, Convention Plaza, No. 1 Harbour Road, Hong Kong. An order relating to the consolidation, and subsequent directions, of this action with the action mentioned in paragraph (c) was made by the court on 9 June 2006. This action was consolidated with the action mentioned in paragraph (c) below on 9 June 2006.

I – 19

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

(c) On 27 February 2006, Crowning Success Limited (of which the beneficial owners are all independent third parties), a sub-purchaser of the Group’s property situated at Unit C on the 45th Floor, Office Tower, Convention Plaza, No. 1 Harbour Road, Hong Kong, issued a summons against Banhart for the purpose of joining Banhart as the second defendant in its action against Brightland Corporation Limited. On 13 April 2006, the court ordered that Banhart be joined as the second defendant in the action. The amended writ and the amended statement of claim were filed and served on 27 April 2006. An order relating to the consolidation, and subsequent directions, of this action with the action mentioned in paragraph (b) above was made by the court on 9 June 2006. The parties have already filed their pleadings. On 7 December 2007, Banhart issued a summons for an order of the court that upon payment into court a sum of HK$1,893,082 as security for the claim made by Brightland Corporation Limited and a sum of HK$2,481,447 as security for the claim made by Crowning Success Limited, certain incumbrances registered against the subject property be vacated. The said summons will be heard on 18 March 2008. On 14 February 2008, Crowning Success Limited issued a summons for an order of the court that the parties do mutually exchange expert valuation report on the market values of the subject property as at 22 July 2005 and thereafter at 3 months interval until 22 January 2008. The court refused to grant such an order but instead ordered the parties to exchange expert valuation report on the market values of the subject property as at 22 July 2005 and 22 January 2006. On 6 March 2008, Crowning Success Limited filed a notice of appeal to appeal such decision. The appeal will be heard on 22 April 2008.
(d) In 2005, P&T Architects Engineers Limited (“P&T”) and Holyrood referred disputes in relation to architect fees for the Peak Road project to arbitration. P&T has claimed against Holyrood for approximately HK$1 million in relation to disputed architect fees for the project and Holyrood brought 7 heads of counterclaims against P&T for approximately HK$28 million in relation to alleged breach of professional duty of care. The hearing was completed and following interim awards were respectively made on 17 July 2007 and 25 January 2008:
(I) Holyrood shall pay P&T:
- (i) a sum of HK$860,337.30 being the arrears of professional fee and reimbursement of printing cost and out of pocket expenses; and
- (ii) interest on the sum of HK$860,337.30. The interest shall be calculated on simple interest basis at the rate of prime rate + 1% and run from 22 April 2005;
(II) Holyrood’s counterclaims are dismissed; and
(III) as to costs, which was held in favour of P&T:
- (i) cost in respect of counterclaim nos. 2 to 7 to P&T to be taxed on a party and party basis if not agreed;
- (ii) cost in respect of the counterclaim no. 1 brought by Holyrood against P&T for loss due to the alleged failure on the part of P&T to advise and claim on behalf of Holyrood GFA exemption to be assessed on indemnity basis, to be fixed by the Arbitrator if not agreed;
- (iii) simple interest on the sums of costs at judgement rate respectively commencing as to (i) from 17 July 2007 and as to (ii) from 25 January 2008; and
- (iv) costs of the Arbitrators.
(e) On 30 November, 2005, Holyrood filed an indorsement against P&T (of which the beneficial owners are all independent third parties) in relation to P&T’s professional negligence as a structural engineer on a construction work for the Peak Road project. The litigation is ongoing.
(f) On 17 May 2006, Chinese Regency Limited (of which the beneficial owners are independent third parties) issued a writ of summons against Holyrood, claiming damages for breach of an agreement for sale and purchase of Flat B on the 5th Floor of Block A1 and the car parking space No. 5 of the Peak Road Project. The pleading stage has completed and the litigation is still ongoing. As the amount of damages and claims are to be assessed, no such details are available.

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APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

(g) An action was commenced on 18 January 2007 by Vic-Form Co., Limited (of which the beneficial owners are independent third parties) against Holyrood for a claim for outstanding contract sum in the amount of HK$251,500 for the delivery of goods and services rendered by Vic-Form Co., Limited to Holyrood in respect of the residential development of the Peak Road Project. A defense and counterclaim has been filed by Holyrood on 27 March 2007, and the discovery stage is lapsed. The case has been set down for trial, and further witness statements/affirmations are to be filed by the parties.
(h) On 1 June 2007, Gateway International Development Limited (of which the beneficial owners are independent third parties) issued a writ of summons against Holyrood, claiming, among others, damages for breach of an agreement for sale and purchase of Flat A on the 6th Floor of Block A2 and the car parking space No. 51 of the Peak Road Project and breach of the Deed of Mutual Covenant and nuisance. The pleading stage has completed. As the amount of damages and claims are to be assessed, no such details are available.
(i) On 1 June 2007, Sun Crown Trading Limited (of which the beneficial owners are independent third parties) issued a writ of summons against Holyrood, claiming, among others, damages for breach of an agreement for sale and purchase of Flat B on the 6th Floor of Block A2 and the car parking spaces Nos. 47 and 48 of the Peak Road Project and breach of the Deed of Mutual Covenant and nuisance. The pleading stage has completed. As the amount of damages and claims are to be assessed, no such details are available.
(j) On 1 June 2007, Trillion Holdings Limited (of which the beneficial owners are independent third parties) issued a writ of summons against Holyrood, claiming, among others, damages for breach of an agreement for sale and purchase of Flat B on the 8th Floor of Block A2 and the car parking spaces Nos. 41 and 42 of the Peak Road Project and breach of the Deed of Mutual Covenant and nuisance. The pleading stage has completed. As the amount of damages and claims are to be assessed, no such details are available.
(k) In November 2007, the Group arranged a bank guarantee of approximately HK$36,956,000 in favour of IRD to secure the tax payable of a subsidiary of the Group for the year of assessment of 2006/2007 amounting to approximately HK$36,956,000.

20. PLEDGE OF ASSETS

At the balance sheet date, the following assets of the Group were pledged to secure credit facilities granted to the Group.

Properties held for sale Investment properties Leasehold properties Bank deposits	31.12.2007 HK$’000 901,288 214,000 162,782 20,000 1,298,070	30.6.2007 HK$’000 767,579 175,500 165,101 21,278
		1,129,458

21. RELATED PARTY TRANSACTIONS/CONNECTED TRANSACTIONS

(a) Lilian Oung, one of the shareholders of Five Star and a director of the Company’s subsidiaries, has provided personal guarantees in respect of the following:

Credit facilities granted to the Group The Group’s payment obligation of amount owed to a former main contractor of the Group’s property development project	31.12.2007 HK$’000 910,919 15,919 926,838	30.6.2007 HK$’000 684,000 15,919
		699,919

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APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

(b) Details of the amounts due to directors of subsidiaries are set out in note 12.
(c) Details of the other loans from related companies in which the directors of the Company and Lilian Oung have controlling interests are set out in note 14(a).

22. POST BALANCE SHEET EVENT

Subsequent to 31 December 2007, the Company announced to terminate the open offer of convertible redeemable preference shares of HK$0.01 each in the proportion of one convertible redeemable preference share for every two existing ordinary shares and for every two existing convertible redeemable preference shares at HK$0.50 per convertible redeemable preference share.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

3. AUDITED FINANCIAL STATEMENTS FOR THE TWO YEARS ENDED 30 JUNE 2007

Set out below are the audited consolidated financial statements of the Group together with accompanying notes as extracted from the annual report of Paladin for the year ended 30 June 2007. References to page numbers in the below extract are made to the page numbers of such annual report of Paladin. No qualified opinions have been expressed on the financial statements containing the financial information set out below.

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 30 JUNE 2007

Notes Turnover 7 Cost of sales Gross profit (loss) Other income Administrative expenses Gain arising from change in fair value of investment properties 14 Gain arising from change in fair value of option derivatives 23 Gain arising from transfer of properties held for sale to investment properties 14 Loss arising from issue of option derivatives 23 Loss arising from settlement of litigation claim 33(ii) Finance costs 9 Loss before taxation Taxation charge 10 Loss for the year attributable to equity holders of the Company 11 Loss per share – basic 13	2007 HK$’000 48,298 (28,771) 19,527 1,308 (34,583) 7,600 3,630 – – (39,081) (56,565) (98,164) (10,895) (109,059) (20.61) HK cents	2006 HK$’000 3,110 (3,149) (39) 711 (51,734) 54,656 740 5,900 (9,850) – (40,154) (39,770) – (39,770) (7.53) HK cents

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONSOLIDATED BALANCE SHEET

AT 30 JUNE 2007

Notes Non-current assets Investment properties 14 Property, plant and equipment 15 Available-for-sale investments 16 Current assets Properties held for sale 17 Other receivables, deposits and prepayments Pledged bank deposits 18 Bank balances and cash 19 Current liabilities Other payables and accrued charges Amount due to a director of subsidiaries 20 Taxation payable Secured bank borrowings – amount due within one year 21 Other loans – amount due within one year 22 Option derivatives 23 Provision for settlement of litigation claim 33(ii) Net current assets Capital and reserves Share capital 24 Reserves Non-current liabilities Secured bank borrowings – amount due after one year 21 Other loans – amount due after one year 22 Convertible redeemable preference shares 25 Deferred tax liabilities 27	2007 HK$’000 175,500 167,338 8,800 351,638 919,754 3,762 21,278 12,559 957,353 135,680 24,098 345 20,787 95,561 5,480 55,000 336,951 620,402 972,040 5,312 (54,046) (48,734) 905,568 64,573 39,738 10,895 1,020,774 972,040	2006 HK$’000 167,900 170,045 7,500 345,445 948,525 2,684 20,144 10,316 981,669 199,575 3,426 345 154,965 239,577 9,110 – 606,998 374,671 720,116 264,136 (231,046) 33,090 617,082 69,944 – – 687,026 720,116

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2007

Attributable to equity holders of the Company	Attributable to equity holders of the Company
Share Contributed premium surplus HK$’000 HK$’000 (note a) 279,617 132,176 – – 279,617 132,176 – – – – – – (279,617) (132,176) – – – – 689 – (278,928) (132,176) 689 –	Investment Capital Translation revaluation Accumulated reserve reserve reserve losses HK$’000 HK$’000 HK$’000 HK$’000 (note b) – (3,088) – (599,981) – – – (39,770) – (3,088) – (639,751) – – – (109,059) – – 1,300 – – – 1,300 (109,059) – – – 670,646 26,968 – – – (1,458) – – – (293) – – – 25,217 – – 670,646 25,217 (3,088) 1,300 (78,164)	Total HK$’000 72,860 (39,770)
		33,090
		(109,059) 1,300
		(107,759)
		– 26,968 (1,458) 425
		25,935
		(48,734)

(a) The contributed surplus of the Group represents the surplus arising on acquisition of subsidiaries through the group reorganisation in the preparation for the listing of the Company’s shares on The Stock Exchange of Hong Kong Limited in 1991.

(b) The capital reserve represents the equity component of convertible redeemable preference shares issued during the year ended 30 June 2007.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONSOLIDATED CASH FLOW STATEMENT

FOR THE YEAR ENDED 30 JUNE 2007

CASH FLOWS FROM OPERATING ACTIVITIES Loss before taxation Adjustments for: Depreciation of property, plant and equipment Finance costs Interest income Gain arising from change in fair value of investment properties Gain arising from change in fair value of option derivatives Gain arising from transfer of properties held for sale to investment properties Loss arising from settlement of litigation claim Loss arising from issue of option derivatives Operating cash flows before movements in working capital Decrease in properties held for sale Increase in other receivables, deposits and prepayments Decrease in other payables and accrued charges Decrease in property sale receivables Decrease in receivable from stakeholder’s account NET CASH (USED IN) FROM OPERATING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES Interest received Purchase of property, plant and equipment Increase in pledged bank deposits NET CASH USED IN INVESTING ACTIVITIES	2007 HK$’000 (98,164) 5,010 56,565 (584) (7,600) (3,630) – 39,081 – (9,322) 28,771 (1,078) (48,192) – – (29,821) 584 (2,303) (1,134) (2,853)	2006 HK$’000 (39,770) 4,681 40,154 (152) (54,656) (740) (5,900) – 9,850 (46,533) – (1,504) (233,325) 383,201 21,923 123,762 152 (122) (16,961) (16,931)

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APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

CASH FLOWS FROM FINANCING ACTIVITIES Interest paid Other loans raised Repayment of other loans Bank borrowings raised Repayment of bank borrowings Advance from (repayment to) a director of subsidiaries Proceeds from issue of convertible redeemable preference shares Share issue expenses paid NET CASH FROM (USED IN) FINANCING ACTIVITIES NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS AT END OF THE YEAR ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS Bank balances and cash	2007 HK$’000 (53,142) 24,362 (173,749) 314,401 (160,093) 20,672 66,034 (3,568) 34,917 2,243 10,316 12,559 12,559	2006 HK$’000 (11,053) 18,080 (251,269) 1,295,473 (1,114,426) (33,554) – – (96,749) 10,082 234 10,316 10,316

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2007

1. GENERAL

The Company is incorporated in Bermuda with limited liability and its shares are listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). Its parent company and ultimate holding company is Five Star Investments Limited, a company which is incorporated in the British Virgin Islands. The addresses of the registered office and the principal place of business of the Company are disclosed in the “Corporate Information” section to the annual report.

The Company is an investment holding company. Its principal subsidiaries are engaged in investment holding, property development and investment, and general trading.

The consolidated financial statements are presented in Hong Kong dollars which is the same as the functional currency of the Company.

2. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS

In preparing the consolidated financial statements, the directors of the Company have given careful consideration to the future liquidity of the Group in light of the net liabilities of the Group amounting to approximately HK$48,734,000 as at 30 June 2007 and the contingent liabilities for the outstanding litigations as disclosed in note 28. As explained in note 33, the Group will make an open offer of 396,203,711 convertible redeemable preference shares, subsequent to the balance sheet date, at the subscription price of HK$0.50 per convertible redeemable preference share in the proportion of one convertible redeemable preference share for every two existing ordinary shares and every two existing convertible redeemable preference shares held. Provided that the Group can raise approximately HK$198 million, being the planned proceeds, from the open offer of 396,203,711 convertible redeemable preference shares at the subscription price of HK$0.50 per convertible redeemable preference share and on the basis that the Group will spend not more than HK$130 million in respect of the development and establishment of a high technology manufacturing facility in Wuhan East Lake High-Technology Development Zone in the forthcoming twelve months, the directors of the Company are satisfied that the Group will be able to meet in full its financial obligations as they fall due for the foreseeable future.

The conditions described above indicate the existence of a material uncertainty relating to the future funding being made available to the Group which may cast significant doubt on the Group’s ability to continue as a going concern and, therefore, that it may be unable to realise its assets and discharge its liabilities in the normal course of business. The consolidated financial statements have been prepared on a going concern basis as, in the opinion of the directors of the Company, the Group will be able to meet in full its financial obligations as they fall due in the foreseeable future.

3. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSs”)

In the current year, the Group has applied, for the first time, a number of new standards, amendments and interpretations (“new HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants that are effective for the Group’s financial year beginning 1 July 2006. The adoption of these new HKFRSs has no material effect on how the Group’s results and financial position for the current and prior accounting periods have been prepared and presented. Accordingly, no prior period adjustment has been required.

The Group has also not early applied the following new and revised standards, amendment or interpretations that have been issued but are not yet effective. The directors of the Company anticipate that the application of these standards, amendment or interpretations will have no material impact on the results and the financial position of the Group.

HKAS 1 (Amendment) Capital disclosures[1] HKAS 23 (Revised) Borrowing costs[2] HKFRS 7 Financial instruments: Disclosures[1] HKFRS 8 Operating segments[2] HK(IFRIC) – INT 10 Interim financial reporting and impairment[3] HK(IFRIC) – INT 11 HKFRS 2 – Group and treasury share transactions[4] HK(IFRIC) – INT 12 Service concession arrangements[5] HK(IFRIC) – INT 13 Customer loyalty programmes[6] HK(IFRIC) – INT 14 HKAS 19 – The limit on a defined benefit asset, minimum funding requirements and their interaction[5]

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

1 Effective for annual periods beginning on or after 1 January 2007.

2 Effective for annual periods beginning on or after 1 January 2009.

3 Effective for annual periods beginning on or after 1 November 2006.

4 Effective for annual periods beginning on or after 1 March 2007.

5 Effective for annual periods beginning on or after 1 January 2008.

6 Effective for annual periods beginning on or after 1 July 2008.

4. SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared under the historical cost basis except for investment properties and certain financial instruments, which are measured at fair values, as explained in accounting policies set out below.

The consolidated financial statements have been prepared in accordance with HKFRSs issued by the HKICPA. In addition, the consolidated financial statements include applicable disclosures required by the Rules Governing the Listing of Securities on the Stock Exchange (the “Listing Rules”) and by the Hong Kong Companies Ordinance.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) up to 30 June each year. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with those used by other members of the Group.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and properties sold in the normal ordinary course of business, net of return.

Sales of goods are recognised when goods are delivered and title has passed.

Revenue from sale of developed properties in the ordinary course of business is recognised on the execution of a binding sale agreement or when the relevant occupation permit is issued by the respective building authority, whichever is later.

Service income is recognised when services are rendered.

Interest income from a financial asset is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.

Borrowing costs

All borrowing costs are recognised as expense and included in finance costs in the consolidated income statement in the period in which they are incurred.

Property, plant and equipment

Property, plant and equipment are stated at cost less subsequent accumulated depreciation and accumulated impairment losses.

Depreciation is provided to write off the cost of items of property, plant and equipment over their estimated useful lives and after taking into account of their estimated residual value, using the straight-line method.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the consolidated income statement in the year in which the item is derecognised.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Investment properties

On initial recognition, investment properties are measured at cost, including any directly attributable expenditure. Subsequent to initial recognition, investment properties are measured using the fair value model. Gains or losses arising from changes in the fair value of investment property are included in profit or loss for the period in which they arise.

An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use or no future economic benefits are expected from its disposals. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated income statement in the year in which the item is derecognised.

Properties held for sale

Properties held for sale are stated at lower of cost and net realisable value.

Financial instruments

Financial assets and financial liabilities are recognised on the consolidated balance sheet when a group entity becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

Financial assets

The Group’s financial assets are classified into one of the two categories including loans and receivables and available-for-sale financial assets. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. The accounting policies adopted in respect of each category of financial assets are set out below.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. At each balance sheet date subsequent to initial recognition, loans and receivables including other receivables, deposits, pledged bank deposits and bank balances are carried at amortised cost using the effective interest method, less any identified impairment losses. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Impairment losses are reversed in subsequent periods when an increase in the asset’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated or not classified as financial assets at fair value through profit or loss, loans and receivables or held-to-maturity investments.

At each balance sheet date subsequent to initial recognition, available-for-sale financial assets are measured at fair value. Changes in fair value are recognised in equity, until the financial asset is disposed of or is determined to be impaired, at which time, the cumulative gain or loss previously recognised in equity is removed from equity and recognised in profit or loss. Any impairment losses on available-for-sale financial assets are recognised in profit or loss. Impairment losses on available-for-sale equity investments will not reverse in profit or loss in subsequent periods. For available-for-sale debt investments, impairment losses are subsequently reversed if an increase in the fair value of the investment can be objectively related to an event occurring after the recognition of the impairment loss.

I – 30

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost less any identified impairment losses at each balance sheet date subsequent to initial recognition. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired. The amount of the impairment loss is measured as the difference between the carrying amount of the asset and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses will not reverse in subsequent periods.

Financial liabilities and equity

Financial liabilities and equity instruments issued by a group entity are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument.

An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. The accounting policies adopted in respect of financial liabilities and equity instruments are set out below.

Convertible redeemable preference shares

Convertible redeemable preference shares are regarded as compound instruments consisting of a liability component and an equity component. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for similar non-convertible debt without the conversion feature. The difference between the proceeds of issue of the convertible redeemable preference shares and the fair value assigned to the liability component, representing the embedded call option for the holder to convert the convertible redeemable preference shares into equity of the Company, is included in equity (capital reserve).

In subsequent periods, the liability component of the convertible redeemable preference shares is carried at amortised cost using the effective interest method. The equity component, represented by the option to convert the liability component into ordinary shares of the Company, will remain in capital reserve until the conversion option is exercised (in which case the balance stated in capital reserve will be transferred to share premium). Where the option remains unexercised at the expiry date, the balance stated in capital reserve will be released to the accumulated losses. No gain or loss is recognised in profit or loss upon conversion or expiration of the option.

Transaction costs that relate to the issue of the convertible redeemable preference shares are allocated to the liability and equity components in proportion to the allocation of the proceeds. Issue costs relating to the equity component are charged directly to equity. Issue costs relating to the liability component are included in the carrying amount of the liability portion and amortised over the period of the convertible redeemable preference shares using the effective interest method.

Other financial liabilities

Other financial liabilities including other payables, amounts due to directors of subsidiaries, secured bank borrowings and other loans are subsequently measured at amortised cost, using the effective interest method.

Option derivatives

The Group has written options to a third party to purchase part of the Group’s leasehold properties and 20% of the share capital of a wholly-owned subsidiary of the Company (see note 23). These option derivatives are measured at fair value on initial recognition and at each subsequent reporting date and changes in fair values of these derivatives are recognised directly in profit or loss.

Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

Derecognition

Financial assets are derecognised when the rights to receive cash flows from the assets expire or, the financial assets are transferred and the Group has transferred substantially all the risks and rewards of ownership of the financial assets. On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised directly in equity is recognised in profit or loss.

Financial liabilities are derecognised when the obligation specified in the relevant contract is discharged, cancelled or expires. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Impairment

At each balance sheet date, the Group reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

When an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately.

Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (foreign currencies) are recorded in its functional currency (i.e. the currency of the primary economic environment in which the entity operates) at the rates of exchanges prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognised in profit or loss in the period in which they arise.

For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated into the presentation currency of the Company (i.e. Hong Kong dollars) at the rate of exchange prevailing at the balance sheet date, and their income and expenses are translated at the average exchange rates for the year, unless exchange rates fluctuate significantly during the period, in which case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising, if any, are recognised as a separate component of equity (the translation reserve). Such exchange differences are recognised in profit or loss in the period in which the foreign operation is disposed of.

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the Group is able to control the reversal of the temporary differences and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited to the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

The Group as lessor

Rental income from operating leases is recognised in the consolidated income statement on a straight-line basis over the term of the relevant lease.

Leasehold land and building

The land and building elements of a lease of land and building are considered separately for the purpose of lease classification, leasehold land which title is not expected to pass to the lessee by the end of the lease term is classified as an operating lease unless the lease payments cannot be allocated reliably between the land and building elements, in which case, the entire lease is classified as a finance lease.

Retirement benefit scheme

Payments to defined contribution retirement benefit scheme are charged as an expense when employees have rendered service entitling them to the contributions.

5. KEY SOURCES OF ESTIMATION UNCERTAINTY

In the process of applying the Group’s accounting policies, which are described in note 4, management had made the following estimates that have the most significant effect on the amounts recognised in the consolidated financial statements.

Fair value of option derivatives at fair value through profit or loss

The fair values of option derivatives are subject to the limitation of the Black-Scholes Options Pricing Model and the Binominal Option Pricing Model that incorporated market data and involved uncertainty in estimates used by management in the assumptions. Because both models require the input of highly subjective assumptions, including the volatility of price indices, and changes in subjective input assumptions can materially affect the fair value estimate. Details of the assumptions are disclosed in note 23.

6. FINANCIAL INSTRUMENTS

Financial risk management objectives and policies

The Group’s major financial instruments include pledged bank deposits, bank balances and cash, other payables, amounts due to directors of subsidiaries, option derivatives, bank borrowings, other loans and convertible redeemable preference shares. Details of these financial instruments are disclosed in respective notes. The risks associated with these financial instruments and the policies on how to mitigate these risks are set out below. Management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

Credit risk

The Group’s maximum exposure to credit risk which will cause a financial loss to the Group is mainly due to failure to collect the bank deposits and liquid funds from respective banks. However, the credit risk is limited because majority of the counterparties are banks with high credit-ratings assigned by international credit-rating agencies.

Market risk

Currency risk

The Group’s foreign currency risk is insignificant as the Group’s transactions are mainly denominated in Hong Kong dollars, the functional currency of relevant entity.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Interest rate risk

The Group has exposure to cash flow interest rate risk through the impact of the rate changes on floating interest rate bank borrowings. The Group currently does not have an interest rate hedging policy. However, management monitors interest rate exposure and will consider to change the floating interest rate to fixed interest rate when significant interest rate exposure is anticipated.

The Group’s bank balances have exposure to cash flow interest rate risk due to the fluctuation of the prevailing market interest rate on bank balances. The directors of the Company consider the Group’s exposure of the shortterm bank deposits to interest rate risk is not significant as interest bearing bank balances are within short maturity periods.

Fair value interest rate risk

The Group has exposure to fair value interest rate risk from the fixed rate pledged bank deposits. The directors of the Company consider the risk is not significant as the fixed rate pledged bank deposits are within short maturity periods.

Liquidity risk

As mentioned in note 2, the directors of the Company have given careful consideration to the future liquidity of the Group in light of its liquidity risk. The directors of the Company are satisfied that the Group will be able to meet in full its financial obligations as they fall due for foreseeable future provided that the Group can raise approximately HK$198 million, being the planned proceeds, from the open offer of 396,203,711 convertible redeemable preference shares at the subscription price of HK$0.50 per convertible redeemable preference share and on the basis that the Group will spend not more than HK$130 million in respect of the development and establishment of a high technology manufacturing facility in Wuhan East Lake High-Technology Development Zone in the forthcoming twelve months.

Fair value

The fair value of financial assets and financial liabilities are determined as follows:

the fair value of available-for-sale debt investment is determined with reference to market price;
the fair value of loans and receivables and financial liabilities (excluding option derivatives) are determined in accordance with generally accepted pricing models based on discounted cash flow analysis, using prices or rates from observable current market transactions as inputs; and
the fair values of option derivatives are estimated using option pricing models including Black-Scholes Option Pricing Model and Binomial Option Model.

The directors of the Company consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the consolidated financial statements approximate their fair values.

7. TURNOVER

Turnover represents the aggregate of the amounts received and receivable for properties and goods sold, net of returns, during the year. An analysis of the Group’s turnover is as follows:

Sales of properties held for sale Sales of goods	2007 HK$’000 48,298 – 48,298	2006 HK$’000 – 3,110
		3,110

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

8. BUSINESS AND GEOGRAPHICAL SEGMENTS

Business segments

For management purposes, the Group is currently organised into three main operating divisions – (i) property development; (ii) property investment; and (iii) general trading (i.e. textiles). These divisions are the bases on which the Group reports its primary segment information.

Segment information about these businesses is presented below:

Year 2007

(i) Income statement

Property development HK$’000 TURNOVER External sales 48,298 RESULT Segment result 1,290 Gain arising from change in fair value of option derivatives Loss arising from settlement of litigation claim (39,081) Unallocated corporate income Unallocated corporate expenses Finance costs Loss before taxation Taxation charge Loss for the year	Property investment HK$’000 – 5,577	General trading Consolidated HK$’000 HK$’000 – 48,298 (7,482) (615) 3,630 (39,081) 637 (6,170) (56,565) (98,164) (10,895) (109,059)	General trading Consolidated HK$’000 HK$’000 – 48,298 (7,482) (615) 3,630 (39,081) 637 (6,170) (56,565) (98,164) (10,895) (109,059)

			(615) 3,630 (39,081) 637 (6,170) (56,565)
			(98,164) (10,895)
			(109,059)

(ii) Balance sheet

	Property	Property	General
	development	investment	trading	Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000
ASSETS
Segment assets	922,802	175,523	167,827	1,266,152
Unallocated corporate assets				42,839
Consolidated total assets				1,308,991
LIABILITIES
Segment liabilities	126,198	754	1,363	128,315
Unallocated corporate liabilities				1,229,410
Consolidated total liabilities				1,357,725

I – 35

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

(iii) Other information Property development HK$’000 Capital additions 1,571 Depreciation of property, plant and equipment – Year 2006 (i) Income statement Property development HK$’000 TURNOVER External sales – RESULT Segment result (21,054) Loss arising from issue of option derivatives Gain arising from change in fair value of option derivatives Unallocated corporate income Unallocated corporate expenses Finance costs Loss for the year (ii) Balance sheet Property development HK$’000 ASSETS Segment assets 950,128 Unallocated corporate assets Consolidated total assets LIABILITIES Segment liabilities 176,660 Unallocated corporate liabilities Consolidated total liabilities (iii) Other information Property development HK$’000 Capital additions – Depreciation of property, plant and equipment –	Property investment HK$’000 732 64 Property investment HK$’000 – 60,014 Property investment HK$’000 167,900 277 Property investment HK$’000 – –	General trading Consolidated HK$’000 HK$’000 – 2,303 4,946 5,010 General trading Consolidated HK$’000 HK$’000 3,110 3,110 (10,774) 28,186 (9,850) 740 189 (18,881) (40,154) (39,770) General trading Consolidated HK$’000 HK$’000 170,966 1,288,994 38,120 1,327,114 1,389 178,326 1,115,698 1,294,024 General trading Consolidated HK$’000 HK$’000 122 122 4,681 4,681

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Geographical segments

More than 90% of the Group’s turnover for the years ended 30 June 2007 and 2006 were attributable to operation carried out in Hong Kong. Also, almost all of the Group’s assets are located in Hong Kong. Therefore, no geographical segment information is presented.

9. FINANCE COSTS

Interest on bank borrowings: – wholly repayable within five years – not wholly repayable within five years Interest on other loans Finance costs on convertible redeemable preference shares (note 25)	2007 HK$’000 1,393 47,945 4,020 3,207 56,565	2006 HK$’000 34,210 2,164 3,780 –
		40,154

10. TAXATION CHARGE

The charges comprises: Hong Kong Profits Tax for the year Deferred taxation_(note 27)_ Tax charge attributable to the Company and its subsidiaries	2007 HK$’000 – 10,895 10,895	2006 HK$’000 – –
		–

No provision for Hong Kong Profits Tax has been made in the consolidated financial statements as the estimated assessable profits of a subsidiary of the Company for both years are wholly absorbed by the tax losses brought forward. The Company and other subsidiaries of the Group have no assessable profit for both years.

In August 2007, a subsidiary of the Company received an assessment demanding (the “Assessment”) for the year of assessment of 2006/2007 from Hong Kong Inland Revenue Department (“IRD”). By issuing the Assessment, the IRD disagreed the basis adopted by this subsidiary for computation of Hong Kong Profits Tax liability. In addition, the IRD also disagreed the tax losses brought forward of this subsidiary for the year of assessments from 1997/1998 to 1999/2000 and 2004/2005 with aggregated amount of approximately HK$152,347,000. An objection has been lodged by the Group in September 2007 and the IRD has agreed to withhold the provisional profits tax for year of assessment of 2007/2008 while requesting the Group to purchase a tax reserve certificate in the amount of approximately HK$36,956,000, which represents the tax payable for the year of assessment of 2006/2007. In the opinion of the directors of the Company, the Group has grounds to object the IRD’s Assessment and the tax losses brought forward from previous years could be used to offset with the assessable profits for the year. As a result, no provision for Hong Kong Profits Tax has been made for the year.

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APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Taxation for the year can be reconciled to loss before taxation per the consolidated income statement as follows:

Loss before taxation Tax credit at Hong Kong Profits Tax rate of 17.5% (2006: 17.5%) Tax effect of income not taxable for tax purpose Tax effect of expenses not deductible for tax purpose Tax effect of unrealised intragroup profits on properties held for sale not recognised Utilisation of tax losses previously not recognised Taxation for the year 11. LOSS FOR THE YEAR Loss for the year has been arrived at after charging: Directors’ emoluments_(note 12)_ Other staff costs, including retirement benefit scheme contributions Total staff costs Auditor’s remuneration – current year – overprovision in prior year Cost of properties sold Cost of inventories consumed Depreciation of property, plant and equipment Legal and professional fee (included in administrative expenses) and after crediting: Interest income	2007 HK$’000 (98,164) (17,179) (706) 8,736 31,163 (11,119) 10,895 2007 HK$’000 322 1,289 1,611 750 – 28,771 – 5,010 10,882 584	2006 HK$’000 (39,770) (6,960) (1,202) 1,441 42,887 (36,166) – 2006 HK$’000 487 2,931 3,418 660 (10) – 3,149 4,681 20,127 152

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

12. DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS

Particulars of the emoluments of the directors and the five highest paid individuals are as follows:

(a) Directors’ emoluments

The emoluments paid or payable to each of the six (2006: six) directors were as follows:

		2007
Chen Te Kuang Mike HK$’000 – – – – –	Oung Shih Hua, James HK$’000 – – – – –	Zhu Pei Qing HK$’000 60 – – – 60 2006	Lu Ti Fen HK$’000 – – – – –	Kwok Wai Chi HK$’000 144 – – – 144	Total HK$’000 322
					– –
					–
					322


Chen Te Kuang Mike HK$’000 – – – – –	Oung Shih Hua, James HK$’000 – – – – –	Zhu Pei Qing HK$’000 120 – – – 120	Lu Ti Fen HK$’000 105 – – – 105	Kwok Wai Chi HK$’000 144 – – – 144	Total HK$’000 487
					– –
					–
					487

(b) Employees’ emoluments

During the year, the five highest paid individuals of the Group included two (2006: one) executive director, details of whose emoluments are set out in (a) above. The emoluments of the remaining three (2006: four) individuals are as follows:

Salaries and other benefits Retirement benefit scheme contributions	2007 HK$’000 460 44 504	2006 HK$’000 2,060 38
		2,098

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The emoluments of these employees fall within the following bands:

Nil to HK$1,000,000 HK$1,000,001 – HK$1,500,000	Number of employees 2007 2006 3 3 – 1 3 4	Number of employees 2007 2006 3 3 – 1 3 4
		4

During both years, no emoluments were paid by the Group to the five highest paid individuals, including directors, as an inducement to join or upon joining the Group or as compensation for loss in office. In addition, during both years, no director waived any emoluments.

13. LOSS PER SHARE

The calculation of the basic loss per share attributable to the equity holders of the Company is based on the following data:

Loss for the year for the purpose of calculating basic loss per share Number of shares Weighted average number of shares/number of shares for the purpose of calculating basic loss per share	For the year ended 30 June 2007 2006 HK$’000 HK$’000 (109,059) (39,770) 2007 2006 529,072,257 528,271,615	For the year ended 30 June 2007 2006 HK$’000 HK$’000 (109,059) (39,770) 2007 2006 529,072,257 528,271,615

		2006 528,271,615

Diluted loss per share for the year ended 30 June 2007 had not been presented as the exercise of the Company’s outstanding convertible redeemable preference shares would reduce the loss per share for the year.

14. INVESTMENT PROPERTIES

FAIR VALUE At 1 July 2005 Transferred from properties held for sale_(note)_ Increase in fair value recognised in the consolidated income statement At 30 June 2006 and 1 July 2006 Increase in fair value recognised in the consolidated income statement At 30 June 2007	HK$’000 – 113,244 54,656
	167,900 7,600
	175,500

The fair values of the Group’s investment properties as at 30 June 2007 and 2006 have been arrived at on the basis of valuations carried out by Messrs. AA Property Services Limited and Messrs. Savills Valuation And Professional Services Limited, respectively. Both are independent qualified professional property valuers not connected with the Group. Messrs. AA Property Services Limited and Messrs. Savills Valuation And Professional Services Limited are members of the Hong Kong Institute of Surveyors, and have appropriate qualifications. The valuations were arrived at by reference to market evidence of transactions prices for similar properties.

All the Group’s leasehold interests in land held under operating leases to earn rentals are measured using the fair value model and are classified and accounted for as investment properties.

All the Group’s investment properties are situated in Hong Kong with long lease.

I – 40

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Note: The amount included HK$5,900,000 representing the difference of the fair value of the investment properties of HK$113,244,000 and the carrying value of the properties held for sale of HK$107,344,000 at the date of transfer.

15. PROPERTY, PLANT AND EQUIPMENT

COST At 1 July 2005 Additions At 30 June 2006 and 1 July 2006 Additions At 30 June 2007 DEPRECIATION AND IMPAIRMENT At 1 July 2005 Provided for the year At 30 June 2006 and 1 July 2006 Provided for the year At 30 June 2007 CARRYING VALUES At 30 June 2007 At 30 June 2006	Leasehold Leasehold properties improvements HK$’000 HK$’000 211,500 14,555 – – 211,500 14,555 – – 211,500 14,555 37,012 14,555 4,636 – 41,648 14,555 4,751 – 46,399 14,555 165,101 – 169,852 –	Office equipment, furniture and fixtures HK$’000 8,049 122 8,171 2,303 10,474 7,933 45 7,978 259 8,237 2,237 193	Total HK$’000 234,104 122
			234,226 2,303
			236,529
			59,500 4,681
			64,181 5,010
			69,191
			167,338

			170,045

Note: Owner-occupied leasehold land situated in Hong Kong is included in property, plant and equipment as the allocation between the land and building elements cannot be made reliably.

The above items of property, plant and equipment are depreciated on a straight-line basis at the following rates per annum:

Leasehold properties Over the estimated useful lives of 50 years or the period of the lease, whichever is the shorter Leasehold improvements Over the estimated useful lives of 10 years or the period of the lease, which is the shorter Office equipment, furniture 15-25% and fixtures

The leasehold properties of the Group are situated in Hong Kong and are held under long leases. They were pledged to a bank to secure credit facilities granted to the Group.

I – 41

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

16. AVAILABLE-FOR-SALE INVESTMENTS

Unlisted debt investment, at market value Unlisted equity investment, at cost Less: Impairment loss recognised	2007 HK$’000 8,800 15,777 (15,777) 8,800	2006 HK$’000 7,500 15,777 (15,777) 7,500

At 30 June 2007, the above unlisted investments comprised (i) 40% interest in the registered capital of Harbin Zheng Hua Real Estate Developing Company Limited (“Zheng Hua”), which was a company established in the People’s Republic of China (“PRC”) and engaged in property development, with nil carrying amount; and (ii) club debenture with market value of HK$8,800,000 (2006: HK$7,500,000).

The investment in Zheng Hua is not classified as an associate as, in the opinion of the directors of the Company, the Group is not able to exercise significant influence over its financial and operating policy decisions.

The unlisted equity investment is measured at cost less impairment at the balance sheet date because the range of reasonable fair value estimates is so significant that the directors of the Company are of the opinion that the fair value of the investment cannot be measured reliably.

17. PROPERTIES HELD FOR SALE

At 30 June 2007 and 2006, the properties held for sale are stated at cost.

18. PLEDGED BANK DEPOSITS

Pledged bank deposits represent deposits pledged to banks to secure banking facilities granted to the Group. The pledged bank deposits carried interest at an average fixed interest rate of 3.53% (2006: 3.38%) per annum.

19. BANK BALANCES AND CASH

The amounts comprise cash held by the Group and short-term bank deposits with an original maturity of three months or less, at prevailing market interest rates ranging from 2.75% to 3.00% (2006: 2.33% to 3.00%) per annum.

20. AMOUNT DUE TO A DIRECTOR OF SUBSIDIARIES

The amount represents amount due to Lilian Oung, who is also one of the shareholders of Five Star Investments Limited (“Five Star”), the controlling shareholder of the Company. The amounts are unsecured, non-interest bearing and repayable on demand.

21. SECURED BANK BORROWINGS

Bank loan Mortgage loans Less: Amount due within one year shown under current liabilities Amount due after one year	2007 HK$’000 20,000 906,355 926,355 (20,787) 905,568	2006 HK$’000 142,911 629,136 772,047 (154,965) 617,082

I – 42

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

At the balance sheet date, the Group’s bank borrowings are repayable as follows:

Within one year In more than one year but not more than two years In more than two years but not more than three years In more than three years but not more than four years In more than four years but not more than five years Over five years	2007 HK$’000 20,787 31,519 31,519 21,519 21,519 799,492 926,355	2006 HK$’000 154,965 14,031 14,031 14,031 14,031 560,958
		772,047

The bank loan of HK$142,911,000 as at 30 June 2006 was secured by a first legal charge over the Group’s properties held for sale (the “Property”) and a floating charge over all assets of Holyrood Limited (“Holyrood”), a whollyowned subsidiary of the Company. Deposits, rental proceeds and sales proceeds regarding the Property were also assigned to the bank. The bank loan was at variable-rate of Hong Kong Interbank Offered Rate (“HIBOR”) plus 1.75% to 3.5% per annum. During the year ended 30 June 2007, the bank loan of HK$142,911,000 was repaid in full after the Group obtained six new mortgage loans of HK$294,400,000 from certain banks.

During the year ended 30 June 2007, the Group obtained a new bank loan with a principal amount of HK$20,000,000 from another bank. The new bank loan was secured by a first legal charge over one of the Group’s investment properties. Deposits, rental proceeds and sales proceeds regarding the investment property were also assigned to the bank. The bank loan shall be repayable by 24 monthly instalments commencing thirteen months after the bank loan drawdown date with an interest rate of 1% per annum below the Hong Kong dollars Prime Rate.

At 30 June 2006, the mortgage loans comprised (i) a mortgage loan with a principal amount of HK$80,000,000 that shall be repayable by 240 monthly instalments and carry interest at a rate of 2% per annum below the Hong Kong dollars Prime Rate and (ii) a mortgage loan with a principal amount of HK$550,000,000 that shall be repayable by 300 monthly instalments and carry interest at a rate of 2.35% per annum below the Hong Kong dollars Prime Rate.

During the year ended 30 June 2007, the Group obtained six new mortgage loans from certain banks in an aggregate principal amount of HK$294,400,000. The new mortgage loans comprised (i) a mortgage loan with a principal amount of HK$30,000,000 that shall be repayable by 300 monthly instalments and carry interest at a rate of 2.65% per annum below the Hong Kong dollars Prime Rate; (ii) a mortgage loan with a principal amount of HK$32,000,000 that shall be repayable by 300 monthly instalments and carry interest at a rate of 2.5% per annum below the Hong Kong dollars Prime Rate; (iii) a mortgage loan with a principal amount of HK$70,000,000 that shall be repayable by 300 monthly instalments and carry interest at a rate of 2.6% per annum below the Hong Kong dollars Prime Rate; (iv) a mortgage loan with a principal amount of HK$69,300,000 that shall be repayable by 240 monthly instalments and carry interest at a rate of 1.25% per annum above HIBOR; (v) a mortgage loan with a principal amount of HK$61,100,000 that shall be repayable by 240 monthly instalments and carry interest at a rate of 1.25% per annum above HIBOR; and (vi) a mortgage loan with a principle amount of HK$32,000,000 that shall be repayable by 300 monthly instalments and carry interest at a rate of 2.5% per annum below the Hong Kong dollars Prime Rate.

The range of effective interest rates of the Group’s bank borrowings were 5.09% to 8.50% (2006: 5.29% to 8.18%) per annum.

All mortgage loans are secured by certain apartments of the Property and one of the investment properties of the Group to the banks.

I – 43

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

22. OTHER LOANS

Other loans from: – related companies_(note a) – a third party(note b) – other unrelated companies(note c) Less: Amount due within one year shown under current liabilities Amount due after one year _Notes:	2007 HK$’000 13,489 111,906 34,739 160,134 (95,561) 64,573	2006 HK$’000 183,323 91,459 34,739 309,521 (239,577) 69,944

(a) The loans are owed to companies in which Lilian Oung and/or Oung Shih Hua, James and Chen Te Kuang Mike, directors of the Company, have controlling interests. The loans are unsecured, non-interest bearing and repayable on demand.
(b) The loans are owed to Fine Chiffon Corporation Limited (“Fine Chiffon”), an independent third party. At 30 June 2007, the loans comprised (i) an interest bearing instalment loan of approximately HK$69,906,000 (30.6.2006: HK$73,698,000) and (ii) a non-interest bearing loan of approximately HK$42,000,000 (30.6.2006: HK$17,761,000) from Fine Chiffon.

In previous years, the Group obtained an interest bearing instalment loan of HK$80,000,000 from Fine Chiffon. The instalment loan was obtained by Fine Chiffon from a bank and was granted to the Group with the same terms offered by the bank. The Company provides a corporate guarantee of HK$80,000,000 to the bank and the Group’s leasehold properties are also pledged to the bank as security. The loan shall be repayable by 180 monthly instalments and is at variable interest rate with 2.5% per annum below the Hong Kong dollars Prime Rate. At 30 June 2007, the outstanding interest bearing instalment loan amounted to approximately HK$69,906,000 (30.6.2006: HK$73,698,000).

As announced by the Company on 5 April 2006, the Group entered into a loan agreement with Fine Chiffon to obtain a new non-interest bearing loan facility up to HK$42,000,000. The loan is unsecured, non-interest bearing and non-revolving in nature. The loan shall be repayable on or before the date falling 36-months after the first drawdown of the loan. However, Fine Chiffon has a right to withdraw the loan facility at any time prior to the repayment date and accordingly, the loan is classified as current liabilities in the consolidated balance sheet. At 30 June 2007, the outstanding non-interest bearing loan amounted to approximately HK$42,000,000 (30.6.2006: HK$17,761,000).

In addition, during the year ended 30 June 2006, the Group granted two options to Fine Chiffon for purchasing (i) part of the Group’s leasehold properties at a consideration of HK$32,000,000 and (ii) 20% of the share capital of Banhart Company Limited (“Banhart”), which is a wholly-owned subsidiary of the Company and is also the beneficial owner of the Group’s leasehold properties, at a consideration of HK$10,000,000 in substitution for the repayment of the outstanding loan at the end of the loan period. Fine Chiffon is entitled to exercise the options prior to the expiry of the 36-months loan period and the options are non-transferable. Details of the above are set out, inter alia, in the announcement of the Company dated 5 April 2006.

I – 44

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

23. OPTION DERIVATIVES

	2007	2006
	HK$’000	HK$’000
Option derivatives – fair value	5,480	9,110

As described in note 22, the Group granted two options to Fine Chiffon for purchasing (i) part of the Group’s leasehold properties at a consideration of HK$32,000,000 (“Option 1”) and (ii) 20% of the share capital of Banhart, which is the beneficial owner of the Group’s leasehold properties, at a consideration of HK$10,000,000 in substitution for the repayment of the outstanding loan at the end of the loan period (“Option 2”). Fine Chiffon is entitled to exercise the options prior to the expiry of 36-months loan period and the options are non-transferable (see note 22(b)).

The fair values of the option derivatives granted by the Group are determined by using the Black-Scholes Options Pricing Model and the Binomial Option Pricing Model, respectively. The fair values of the option derivatives amounting to HK$9,850,000 at initial recognition and the loss arising from issue of the option derivatives amounting to HK$9,850,000 had been recognised in the consolidated financial statements for the year ended 30 June 2006. The gain from change in fair value of option derivatives from the date of issue to 30 June 2006 amounted to HK$740,000.

During the year ended 30 June 2007, the gain arising from change in fair value of option derivatives amounted to HK$3,630,000.

The fair values of the option derivatives for Option 1 and Option 2 are calculated by using the Black-Scholes Option Pricing Model and the Binominal Option Pricing Model, respectively. The inputs into both models are as follows:

Black-Scholes Option Pricing Model – Option 1

	2007	2006
Exercise price	HK$32,000,000	HK$32,000,000
Expected volatility	18.87%	23.33%
Expected life	3 years	3 years
Risk-free rate	4.3%	4.4%
Fair value of the leasehold properties at 30 June	HK$170,000,000	HK$167,000,000
Fair value of option at 30 June	HK$5,480,000	HK$8,700,000

Expected volatility is determined by using the historical volatility of the price indices for Grade A office in core districts in Hong Kong over the previous three years.

Binomial Option Pricing Model – Option 2

	2007	2006
Exercise price	HK$10,000,000	HK$10,000,000
Expected volatility	18.87%	23.33%
Expected life	3 years	3 years
Risk-free rate	4.3%	4.4%
Fair value of option at 30 June	Nil	HK$410,000

Expected volatility is determined by using the historical volatility of the price indices for Grade A office in core districts in Hong Kong over the previous three years.

I – 45

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

24. SHARE CAPITAL

Nominal value per share HK$ Authorised: At 1 July 2005, 30 June 2006 and 1 July 2006 0.50 Effect of the Capital Reorganisation referred to below_(note) At 30 June 2007 0.01 Issued and fully paid: At 1 July 2005, 30 June 2006 and 1 July 2006 0.50 Effect of the Capital Reorganisation referred to below(note) Issue of shares on conversion of convertible redeemable preference shares(note 25)_ At 30 June 2007 0.01	Numbers of shares 1,000,000,000 49,000,000,000 50,000,000,000 528,271,615 – 2,872,377 531,143,992	Amount HK$’000 500,000 – 500,000 264,136 (258,853) 29 5,312

All shares issued during the year ended 30 June 2007 rank pari passu in all respects with other shares in issue.

Note: As announced by the Company on 8 June 2006, the Company proposed to effect a capital reorganisation (the “Capital Reorganisation”). Details of the Capital Reorganisation are set out in the circular of the Company dated 20 July 2006.

(i) a reduction in the nominal value of issued shares of the Company from HK$0.50 each to HK$0.01 each by cancelling HK$0.49 of the paid up capital on each issued share of the Company and by reducing the nominal value of all issued and unissued shares of the Company from HK$0.50 each to HK$0.01 each;
(ii) the authorised share capital of the Company will be restored to HK$500,000,000 and each authorised but unissued share of HK$0.50 each will be sub-divided into 50 shares of nominal value of HK$0.01 each;
(iii) the cancellation of the amount of approximately HK$279,617,000 standing to the credit of share premium account and the cancellation of the amount of approximately HK$132,176,000 standing to the credit of the contributed surplus account; and
(iv) the use of all of the credit of approximately HK$670,646,000 arising from the reduction of capital and the cancellation of the entire amount standing to the credit of the share premium account and the contributed surplus account to offset in full with the accumulated losses of the Company at 31 December 2005.

I – 46

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

25. CONVERTIBLE REDEEMABLE PREFERENCE SHARES

Number of preference shares Authorised: At 24 November 2006 and 30 June 2007 270,000,000 Issued and fully paid: Issue on 24 November 2006 264,135,808 Conversion of issued convertible redeemable preference shares into ordinary shares (2,872,377) At 30 June 2007 261,263,431	Amount of par value HK$’000 2,700 2,641 (29) 2,612

The convertible redeemable preference shares with nominal value of HK$0.01 were issued at HK$0.25 per share on 24 November 2006.

Movement of the convertible redeemable preference shares are as follows:

Convertible redeemable preference shares issued on 24 November 2006 Issue costs Net proceeds received Conversion of convertible redeemable preference shares Interest charged for the period from 24 November 2006 to 30 June 2007 At 30 June 2007	Liability component HK$’000 39,066 (2,110) 36,956 (425) 3,207 39,738	Equity component HK$’000 26,968 (1,458) 25,510 (293) – 25,217	Total HK$’000 66,034 (3,568) 62,466 (718) 3,207 64,955

The principal terms of the convertible redeemable preference shares include the following:

(i) Early redemption at the option of the Company

The Company has the option, but not the obligation, to redeem all but not a portion of the convertible redeemable preference shares at face value if, either:

the ordinary share in the Company close on thirty consecutive trading days at or above a price that is 100% higher than the consecutive price of the convertible price of the convertible redeemable shares; or
there are less than 80 millions convertible redeemable preference shares in issue.
(ii) Conversion rights

Holders of the convertible redeemable preference shares are entitled to convert all or any of their convertible redeemable preference shares into ordinary shares in the Company at the conversion price of HK$0.25 per share, subject to anti-dilutive adjustment provisions which are standard terms for convertible securities of similar type. The adjustment events will arise as result of certain changes in share capital of the Company including consolidation or sub-division of shares, capitalisation of profits or reserves, capital distribution in cash or specie or subsequent issue of securities in the Company.

I – 47

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(iii) Dividends

The dividend yield on subscription price is 8%. Cumulative dividends of HK$0.02 is payable annually on 31 December. The first dividend payment date is 31 December 2006, and the first dividend will be prorated from the date of issue of the convertible redeemable preference shares to the first dividend payment date. Any dividends payable but unpaid will be accumulated.

However, pursuant to Section 54 of the Companies Act 1981 of Bermuda (“Act”), a company incorporated in Bermuda is not permitted to declare or pay dividends while there are reasonable grounds for believing that the company is, or would after the payment be, unable to pay its liabilities as they become due; or the realisable value of the company’s assets would thereby be less than the aggregate of its liabilities and its issued share capital and share premium account. As a result, the preference shares dividends will only be declared and paid upon fulfilment of the aforementioned conditions of the Act.

(iv) Redemption

A holder of the convertible redeemable preference shares may by notice in writing to the Company requires the Company to redeem all or any of the then outstanding convertible redeemable preference shares, whereupon subject to the requirements of the Companies Act. The Company shall pay to such holder a redemption amount equal to the aggregate initial subscription price of such number of convertible redeemable preference shares so redeemed together with the cumulative dividend that has accrued and payable upon the occurrence of any of the following (whichever is the earliest):

(a) 31 December 2016;
(b) any consolidation, amalgamation or merger of the Company with any other corporation;
(c) listing of the ordinary shares of the Company are revoked or withdrawn (except in connection with the simultaneous listing of the ordinary shares on any Recognised Stock Exchange);
(d) a directors’ resolution is passed for the winding-up, insolvency, administration, reorganisation, reconstruction, dissolution or bankruptcy of the Company; or
(e) an effective resolution is passed for the winding-up, insolvency, administration, reorganisation, reconstruction, dissolution or bankruptcy of the Company or for the appointment of a liquidator, receiver, administrator, trustee or similar officer of the Company.
(v) Priority

(vi) Voting

(vii) Further issues

The terms of the convertible redeemable preference shares do not prohibit further issues of shares ranking pari passu or in priority to the convertible redeemable preference shares.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(a) Debt component represents the present value of the contractually determined stream of future cash flows discounted at the rate of interest at that time by the market to instruments of comparable credit status and providing substantially the same cash flows, on the same terms, but without the conversion option.
The interest charged for the period if calculated by applying effective interest rates of approximately 16.6% of the debt component for the period since the convertible redeemable preference shares were issued.
(b) Equity component represents the difference between the proceeds of issue of the convertible redeemable preference shares and the fair value assigned to the liability component.

26. SHARE OPTION SCHEME

Pursuant to the share option scheme (the “Option Scheme”) adopted at a special general meeting of the Company held on 23 September 1996, the directors of the Company may grant options as incentives to directors or employees of the Company or its subsidiaries to subscribe for shares in the Company within a period of ten years commencing from 23 September 1996. The subscription price of the shares is set to be the higher of the nominal value of the Company’s shares or an amount which is 80% of the average closing price of the Company’s shares on the Stock Exchange on the five trading days immediately preceding the date of grant of the options.

The period during which an option may be exercised will be determined by the directors of the Company in their absolute discretion, save that no option may be exercised more than ten years after it has been granted. No option may be granted more than ten years after the date of approval of the Option Scheme.

The maximum number of shares in respect of which options may be granted cannot exceed 10% of the issued share capital of the Company from time to time and the maximum number of shares in respect of which options may be granted to any one employee cannot exceed 25% of the maximum number of shares in respect of which options may be granted under the Option Scheme. Consideration of HK$1 is payable on each grant.

In accordance with the Listing Rules, certain terms of the Option Scheme need to be amended, or alternatively, a new share option scheme needs to be implemented, in order to comply with the requirements of the Listing Rules. According to the Listing Rules as amended, no more share is available for issue under the Option Scheme.

No share options have been granted under the Option Scheme since its adoption. The Option Scheme was terminated since 22 September 2006 and no new option scheme was adopted during the year ended 30 June 2007.

27. DEFERRED TAXATION

Major deferred tax liabilities and assets of the Group recognised and movements thereon are as follows:

At 1 July 2005 Charge (credit) for the year At 30 June 2006 and 1 July 2006 Charge for the year At 30 June 2007	Investment properties HK$’000 – 9,564 9,564 1,331 10,895	Tax losses HK$’000 – (9,564) (9,564) 9,564 –	Total HK$’000 – –
			– 10,895
			10,895

For the purpose of balance sheet presentation, the above deferred tax liabilities and assets have been offset.

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APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

The following are the deductible temporary differences not recognised by the Group in the consolidated financial statements:

Tax losses Unrealised intragroup profits on properties held for sale Accelerated tax depreciation	2007 HK$’000 492,916 423,143 518 916,577	2006 HK$’000 556,453 245,069 599
		802,121

At 30 June 2007, the Group has unused tax losses of approximately HK$492,916,000 (2006: HK$611,104,000) available for offset against future profits. A deferred tax asset had been recognised in respect of the unused tax losses of approximately HK$54,651,000 (2007: nil) at 30 June 2006. No deferred tax asset has been recognised in respect of the remaining tax losses of approximately HK$492,916,000 (2006: HK$556,453,000) due to the unpredictability of future profits streams. The unrecognised tax losses may be carried forward indefinitely.

The other deductible temporary difference of approximately HK$423,661,000 (2006: HK$245,668,000) as at 30 June 2007 had not been recognised as it was not probable that taxable profit would be available against which the other deductible temporary difference can be utilised.

28. CONTINGENT LIABILITIES

At 30 June 2007, the Group had given guarantee of HK$80,000,000 (2006: HK$80,000,000) to a bank to secure the credit facilities granted to Fine Chiffon.

In addition, the Group had the following outstanding litigations as at 30 June 2007 that the directors of the Company are of the opinion that the estimated contingent liabilities arising from the litigations cannot be reasonably ascertained at the current stage.

(a) In 2005, Osmar Far East Limited (of which the beneficial owners are independent third parties) and Holyrood referred disputes on the construction work for the Peak Road Project to arbitration. Osmar Far East Limited has claimed against Holyrood for approximately HK$6 million in relation to disputes on construction cost for the Peak Road Project and a provision for approximately HK$6 million in relation to the construction cost had been provided by Holyrood in previous years. Holyrood has counterclaimed against Osmar Far East Limited for approximately HK$6.4 million in relation to the defective works performed by Osmar Far East Limited. The arbitration hearing was split into two parts. The first part was heard in March 2007 and the second part is scheduled to be heard on 5 October 2007. The closing submissions of the parties were to be exchanged in late October 2007. A hearing for closing submission is reserved to be heard in November 2007.
(b) On 26 July 2005, Brightland Corporation Limited (of which the beneficial owners are all independent third parties) issued a writ against Banhart claming various declarations, damages and other relief in relation to a sale and purchase of the Group’s leasehold properties. An order relating to the consolidation, and subsequent directions, of this action with the action mentioned in paragraph (c) was made by the court on 9 June 2006. This action was consolidated with the action mentioned in paragraph (c) below on 9 June 2006.
(c) On 27 February 2006, Crowning Success Limited (of which the beneficial owners are all independent third parties), a sub-purchaser of the Group’s leasehold properties, issued a summons against Banhart for the purpose of joining Banhart as the second defendant in its action against Brightland Corporation Limited. On 13 April 2006, the court ordered that Banhart be joined as the second defendant in the action. The amended writ and the amended statement of claim were filed and served on 27 April 2006. An order relating to the consolidation, and subsequent directions, of this action with the action mentioned in paragraph (b) above was made by the court on 9 June 2006. Crowning Success Limited recently amended its statement of claim and amendment of pleadings and further discovery are underway.
(d) On 17 May 2006, Chinese Regency Limited (of which the beneficial owners are independent third parties) issued a writ of summons against Holyrood, claiming damages for breach of an agreement for sale and purchase of Flat B on the 5th Floor of Block A1 and the car parking space no. 5 of the Peak Road Project. The pleading stage is completed and the litigation is still ongoing.

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FINANCIAL INFORMATION ON THE GROUP

(e) An action was commenced on 18 January 2007 by Vic-Form Co., Limited (of which the beneficial owners are independent third parties) against Holyrood, for a claim for outstanding contract sum in the amount of HK$251,500 for the delivery of goods and services rendered by Vic-Form Co., Limited to Holyrood in respect of certain property developments. A defense and counterclaim has been filed by Holyrood on 27 March 2007. The matter is ongoing and is at discovery stage.
(f) On 1 June 2007, Gateway International Development Limited (of which the beneficial owners are independent third parties) issued a writ of summons against Holyrood, claiming damages for breach of an agreement for sale and purchase of Flat A on the 6th Floor of Block A2 and the car parking space no. 51 of the Peak Road Project and breach of the Deed of Mutual Covenant. The pleading stage is underway. As the amount of damages and claims are to be assessed, no such details are available.
(g) On 1 June 2007, Sun Crown Trading Limited (of which the beneficial owners are independent third parties) issued a writ of summons against Holyrood, claiming damages for breach of an agreement for sale and purchase of Flat B on the 6th Floor of Block A2 and the car parking space nos. 47 and 48 of the Peak Road Project and breach of the Deed of Mutual Covenant. The pleading stage is underway. As the amount of damages and claims are to be assessed, no such details are available.
(h) On 1 June 2007, Trillion Holdings Limited (of which the beneficial owners are independent third parties) issued a writ of summons against Holyrood, claiming damages for breach of an agreement for sale and purchase of Flat B on the 8th Floor of Block A2 and the car parking space nos. 41 and 42 of the Peak Road Project and breach of the Deed of Mutual Covenant. The pleading stage is underway. As the amount of damages and claims are to be assessed, no such details are available.

29. PLEDGE OF ASSETS

At the balance sheet date, the following assets of the Group were pledged to secure credit facilities granted to the Group:

Properties held for sale Investment properties Leasehold properties Bank deposits	2007 HK$’000 767,579 175,500 165,101 21,278 1,129,458	2006 HK$’000 948,525 167,900 169,852 20,144
		1,306,421

The issued ordinary shares of Holyrood were also pledged to a bank to secure credit facilities granted to the Group as at 30 June 2006 (note 21).

30. RETIREMENT BENEFIT SCHEME

With effect from 1 December 2000, the Group joined the mandatory provident fund scheme (the “MPF Scheme”) for all the eligible employees of the Group in Hong Kong.

Under the MPF Scheme, the employees are required to contribute 5% of their monthly salaries up to a maximum of HK$1,000 and they can choose to make additional contributions. The employer’s monthly contributions are calculated at 5% of the employee’s monthly salaries up to a maximum of HK$1,000 (the “mandatory contributions”). The employees are entitled to 100% of the employer’s mandatory contribution upon their retirement at the age of 65, death or total incapacity.

The aggregate employer’s contributions during the year ended 30 June 2007 recognised in the consolidated income statement of the Group amounted to HK$42,000 (2006: HK$46,000).

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APPENDIX I

31. RELATED PARTY TRANSACTIONS/CONNECTED TRANSACTIONS

The Group had the following transactions with related parties/persons deemed to be “connected persons” by the Stock Exchange which are also the related parties under the definition of HKAS 24 “Related Party Disclosures”.

(a) During the year ended 30 June 2007, the Group paid underwriting commission fee of approximately HK$502,000 (2006: nil) to Goldenfield Equities Limited, a company in which Mr. Chen Te Keung Mike, a director of the Company, has beneficial interest.
(b) Lilian Oung, one of the shareholders of Five Star and a director of the subsidiaries, has provided personal guarantees in respect of the following:

Credit facilities granted to the Group The Group’s payment obligation of amount owed to a former main contractor of the Group’s property development project	2007 HK$’000 684,000 15,919 699,919	2006 HK$’000 1,544,000 15,919
		1,559,919

(c) Details of the amount due to a director of the subsidiaries are set out in note 20.
(d) Details of the other loans from related companies in which the directors of the Company and Lilian Oung have controlling interests are set out in note 22(a).
(e) At 30 June 2006, Five Star pledged its interest in 50.7% of the issued share capital of the Company, representing 267,815,017 shares in the Company, to a bank to secure credit facilities to the extent of HK$1,464,000,000 granted to the Group.
(f) Compensation of key management personnel

The remuneration of directors and other members of key management during the year was as follows:

	2007	2006
	HK$’000	HK$’000
Short-term employee benefits	812	922

The remuneration of directors and key executives are determined by the board of directors after recommendation from the remuneration committee, having regard to the responsibilities of the directors, the operating results, individual performance and comparable market statistics.

32. OPERATING LEASE ARRANGEMENTS

At the balance sheet date, the Group had contracted with tenants for the following future minimum lease payments.

The Group as lessor

Within one year In the second year	2007 HK$’000 – – –	2006 HK$’000 6,507 6,507
		13,014

Under the leases entered by the Group, the lease payments are fixed and no arrangements have been entered into for contingent rental payments. The properties held have tenants for a term of two years.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

33. POST BALANCE SHEET EVENTS

The following significant events took place subsequent to 30 June 2007:

(i) As announced by the Company on 17 October 2007, shareholders’ resolutions have been duly passed at a special general meeting of the Company dated 17 October 2007 in respect of (a) a proposed open offer of 396,203,711 convertible redeemable preference shares at the subscription price of HK$0.50 per convertible redeemable preference share in the proportion of one convertible redeemable preference share for every two existing ordinary shares and every two existing convertible redeemable preference shares held; and (b) the proposed development of a manufacturing facility at Wuhan East Lake High-Technology Development Zone.

The proceeds from the open offer will be used by the Group to finance the proposed development of a manufacturing facility at Wuhan East Lake High-Technology Development Zone.

(ii) As announced by the Company on 23 October 2007, Holyrood reached a settlement agreement with Hip Hing Construction Company Limited (“Hip Hing”) in respect of a dispute with Hip Hing on construction work performed by Hip Hing for the redevelopment project located at the Peak Road (the “Peak Road Project”). Hip Hing has claimed against Holyrood for approximately HK$69,000,000 for the construction costs of the Peak Road Project. The contracts between Hip Hing and Holyrood incorporate arbitration provisions and in 2006, both parties agreed to refer the disputes to arbitration on 6 January 2006. In addition, the arbitration hearing is scheduled to be heard in late October 2007.

On 22 October 2007, there was a settlement agreement made between Holyrood and Hip Hing. Holyrood agreed to pay HK$50,000,000 to Hip Hing together with estimated legal costs of the arbitration amounting to approximately HK$5,000,000.

As a provision of approximately HK$15,919,000 for the construction costs had been made by the Group in previous years, the loss arising from the settlement of the litigation claim from Hip Hing was amounted to approximately HK$39,081,000. This loss is recognised in the consolidated income statement of the Company for the year ended 30 June 2007.

In addition, subsequent to 30 June 2007, the Group has obtained a bank mortgage loan of HK$100,000,000 from a bank in order to finance the settlement of the above litigation claim in November 2007.

34. PARTICULARS OF PRINCIPAL SUBSIDIARIES

Particulars of the principal subsidiaries of the Company as at 30 June 2007 are as follows:

			Proportion	Proportion
	Place of		of nominal
	incorporation/	Nominal value	value of	issued
	registration	of issued	share capital held
Name of subsidiary	and operation	share capital	by the Company		Principal activities
			Directly	Indirectly
Banhart Company	Hong Kong	Ordinary	–	100%	Property holding
Limited		HK$9,998
		Non-voting
		deferred*
		HK$2
Bowen Hill Limited	British Virgin	US$1	–	100%	Investment holding
	Islands#
Holyrood Limited	Hong Kong	Ordinary	99.9%	0.1%	Property holding
		HK$999,998
		Non-voting
		deferred*
		HK$2

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FINANCIAL INFORMATION ON THE GROUP

			Proportion	Proportion
	Place of		of nominal
	incorporation/	Nominal value	value of	issued
	registration	of issued	share capital held
Name of subsidiary	and operation	share capital	by the Company		Principal activities
			Directly	Indirectly
Homjade Trading Limited	British Virgin	US$1	100%	–	General trading
	Islands/
	Hong Kong
Paladin Trading Limited	British Virgin	US$1	100%	–	Investment holding
	Islands#
Six Gain Investments	Hong Kong#	Ordinary	100%	–	Investment holding
Limited		HK$2
Alpard Limited	Hong Kong	Ordinary	–	100%	Property investment
		HK$10			and holding
Wayguard Limited	Hong Kong	Ordinary	–	100%	Property holding
		HK$1
World Modern International	Hong Kong	Ordinary	–	100%	Property holding
Limited		HK$1

The non-voting deferred shares practically carry no rights to dividends or to receive notice of or to attend or to vote at any general meetings of the company or to participate in any distribution on winding up.
These are investment holding companies which have no specific principal place of operations.

The above lists the subsidiaries of the Company which, in the opinion of the directors of the Company, principally affected the results of the year or formed a substantial portion of the assets or liabilities of the Group. To give details of all the other subsidiaries would, in the opinion of the directors of the Company, result in particulars of excessive length.

None of the subsidiaries had issued any debt securities at 30 June 2007 or at any time during the year.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

4. MANAGEMENT DISCUSSION AND ANALYSIS ON THE REMAINING GROUP

(i) For the six months ended 31 December 2007

Property development

The Peak Road Project located at Nos. 8, 10 and 12 Peak Road, Hong Kong consists of 34 apartment units and a 3-storey private house and the gross floor area is approximately 119,000 square feet. The Company commenced the pre-sale of the Peak Road Project on 22 November 2004 and 11 apartment units were sold up to 31 December 2007. No apartment was sold for the six months ended 31 December 2007.

In the past few years, the management adopted strategy to focus on the completion of the Peak Road Project. Going forward, the management is confident that the returns from the Peak Road Project will significantly improve the Group’s financial position and generate a stable income for the Group.

Property investment

The investment properties have generated rental income of approximately HK$1 million for the six months ended 31 December 2007.

General trading

The turnover of this sector was increased to HK$214 million.

LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE

As at 31 December 2007, net current assets of the Group were approximately HK$653 million. The current ratio was 2.34. The pledged bank deposits, bank balances and cash were approximately HK$114 million.

As at 31 December 2007, the Group has outstanding borrowings of approximately HK$1,536 million comprising (i) bank overdraft and secured bank loans of approximately HK$1,149 million, (ii) other loans and amounts due to directors of subsidiaries of approximately HK$176 million and (iii) bills payable and other payables of approximately HK$211 million. The bank borrowings are on floating interest rates basis.

The majority of the Group’s assets and borrowings are denominated either in Hong Kong dollars or US dollars thereby avoiding exposure to undesirable exchange rate fluctuations. In view of the stability of the exchange rate of HK dollars and US dollars, the directors consider that the Group has no significant exposure to exchange fluctuation and does not pledge against foreign exchange risk.

The Group’s bank loans and other loans were secured by investment properties leasehold land and buildings, properties held for sale and bank deposits of approximately HK$1,298 million.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The director consider that it is not meaningful to publish a gearing ratio of the Group until such time as the Group is in a positive shareholders equity position.

SIGNIFICANT INVESTMENTS, ACQUISITIONS AND DISPOSALS

During the six months ended 31 December 2007, the Group had no material acquisitions and disposals of subsidiaries.

As at 31 December 2007, the Group had no material investment.

EMPLOYEES AND REMUNERATION POLICIES

As at 31 December 2007, the Group employed a total of 14 employees. They were remunerated according to market conditions.

CONTINGENT LIABILITIES

As at 31 December 2007, the Group has contingent liabilities of approximately HK$80 million relating to corporate guarantees given in respective of bank loan facilities granted to an independent third party. In addition, there were contingent liabilities in respect of certain legal proceedings against certain subsidiaries of the Company. The aggregate amount of claims was approximately HK$12 million and a provision of approximately HK$6 million has been provided in the condensed consolidated financial statements. In the opinion of the directors, the remaining balances of liabilities were remote and no provision has been made in the consolidated financial statements.

(ii) For the year ended 30 June 2007

BUSINESS REVIEW AND PROSPECT

Re-development

The Peak Road Project located at Nos. 8, 10 and 12 Peak Road, Hong Kong consists of 34 apartment units and a 3-storey private house and the gross floor area is approximately 119,000 square feet. The Group commenced the pre-sale of the Peak Road Project in November 2004 and has sold 10 apartment units in previous years. During the year, the Group sold 1 apartment unit for approximately HK$48 million.

The returns from the Peak Road Project will significantly improve the Group’s financial position and the Company is still looking for new investment opportunities.

Trading of textiles

The management of the Company is currently focusing the resources of the Group on the development, completion and marketing of the Peak Road Project. As a result, this sector has not generated any income for the year.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE

As at 30 June 2007, net current assets of the Group were approximately HK$957 million. The current ratio was 2.84. The pledged bank deposits, bank balances and cash were approximately HK$34 million.

As at 30 June 2007, the Group has outstanding liabilities of approximately HK$1,358 million comprising (i) secured bank loans of approximately HK$926 million, (ii) other loans and amounts due to directors of subsidiaries of approximately HK$184 million and (iii) other payables of approximately HK$248 million. The bank borrowings are on floating interest rates basis.

The Group’s bank loans and other loans were secured by investment properties, leasehold properties, bank deposits and properties held for sales of approximately HK$1,129 million.

The Directors consider that it is not meaningful to publish a gearing ratio of the Group unit such time as the Group is in a positive shareholders equity position.

SIGNIFICANT INVESTMENTS, ACQUISITIONS AND DISPOSALS

During the year ended 30 June 2007, the Group had no material acquisitions and disposals of subsidiaries.

As at 30 June 2007, the Group had no material investment.

EMPLOYEES AND REMUNERATION POLICIES

As at 30 June 2007, the Group employed total of 15 employees. They were remunerated according to market conditions.

CONTINGENT LIABILITIES

As at 30 June 2007, the Company has contingent liabilities of approximately HK$80 million relating to corporate guarantees given in respect of bank credit facilities granted to an independent third party. In addition, there were contingent liabilities in respect of certain legal proceedings against certain subsidiaries of the Company. The aggregate amount of claim was approximately HK$6 million. In the opinion of the directors, the remaining balances of liabilities were remote and no provision has been made in the consolidated financial statements.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(iii) For the year ended 30 June 2006

BUSINESS REVIEW AND PROSPECT

Re-development

The Peak Road Project located at Nos. 8, 10 and 12 Peak Road, Hong Kong consists of 34 apartment units and a 3-storey private house and the gross floor area is approximately 119,000 square feet. The Group commenced the pre-sale of the Peak Road Project in November 2004 and has sold 10 apartment units in previous years, for the year ended 30 June 2006 no apartment unit has been sold.

The returns from the Peak Road Project will significantly improve the Group’s financial position and the Company is still looking for new investment opportunities.

Trading of textiles

The management of the Company is currently focusing the resources of the Group on the development, completion and marketing of the Peak Road Project. As a result, Turnover in this sector has decreased by 57% from HK$7.2 million to HK$3.1 million when compared with last year.

LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE

As at 30 June 2006, net current assets of the Group were approximately HK$374.7 million. The current ratio was 1.62. The pledged bank deposits, bank balances and cash were approximately HK$30.5 million.

As at 30 June 2006, the Group has outstanding borrowings of approximately HK$1,294.0 million comprising (i) secured bank loans of approximately HK$772.0 million, (ii) other loans and amounts due to directors of subsidiaries of approximately HK$313.0 million and (iii) other payables of approximately HK$209.0 million. The bank borrowings are on floating interest rates basis.

The Group’s bank loans and other loans were secured by leasehold land and buildings, bank deposits, properties held for sales, property sale receivables and receivable from stakeholder’s account of approximately HK$1,306.4 million. The issued ordinary shares of a wholly-owned subsidiary of the Company, Holyrood Limited, were also pledged to a bank to secure credit facilities granted to the Group.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The Directors consider that it is not meaningful to publish a gearing ratio of the Group unit such time as the Group is in a positive Shareholders equity position.

SIGNIFICANT INVESTMENTS, ACQUISITIONS AND DISPOSALS

During the year ended 30 June 2006, the Group had no material acquisitions and disposals of subsidiaries.

As at 30 June 2006, the Group had no material investment.

EMPLOYEES AND REMUNERATION POLICIES

As at 30 June 2006, the Group employed total of 15 employees. They were remunerated according to market conditions.

CONTINGENT LIABILITIES

As at 30 June 2006, the Company has contingent liabilities of approximately HK$80 million relating to corporate guarantees given in respect of bank credit facilities granted to an independent third party. In addition, there were contingent liabilities in respect of certain legal proceedings against certain subsidiaries of the Company. The aggregate amount of claim was approximately HK$68.2 million and a provision of HK$16.0 million has been provided in the consolidated financial statements. In the opinion of the directors, the remaining balances of liabilities were remote and no provision has been made in the consolidated financial statements.

5. INDEBTEDNESS

Borrowings

At the close of business on 31 July 2008, being the latest practicable date for the purpose of ascertaining the indebtedness of the Group prior to the printing of the Circular, the Group had in aggregate outstanding borrowings of approximately HK$1,196.1 million of which approximately HK$1,082.4 million were guaranteed by the Company and secured by a property of the Group with net book value of approximately HK$159.8 million and is located at 45th Floor of Office Tower of Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong (the “Property”) and certain properties of the Group at Nos. 8, 10 and 12 Peak Road, Hong Kong (the “Peak Road Project”), and the remaining balance was unguaranteed and unsecured. The Property was specifically charged for a mortgage loan of approximately HK$65.2 million from a bank. Upon Completion, the Company will repay in full for such mortgage loan.

The borrowings comprised (i) unsecured other loans of approximately HK$71.6 million due to Messrs. Lilian Oung, a director of certain subsidiaries of the Company, have controlling interests; (ii) other loans of approximately HK$107.3 million due to an independent third party, namely Fine Chiffon Corporation Limited (“Fine Chiffon”) of which the amounts included approximately HK$65.2 million secured loan due to Fine Chiffon in connection with an installment loan obtained by Fine Chiffon from a bank and then granted to the Group with the same terms offered by the

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APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

bank and the remaining balance of the loans approximately HK$42.1 million due to Fine Chiffon was unsecured and non-interest bearing and the Group also granted two options to Fine Chiffon for purchasing (a) part of the Property at a consideration of HK$32.0 million and (b) 20% of the share capital of Banhart Company Limited, which is a wholly-owned subsidiary of the Company and is also the beneficial owner of the Property, at a consideration of HK$10 million in substitution for the repayment of the outstanding loan at the end of the loan period; (iii) secured bank loans of approximately HK$948.4 million; (iv) secured trust receipt loans of approximately HK$67.5 million and (v) secured interest payables in respect of the bank borrowings of approximately HK$1.3 million.

Contingent Liabilities

As at 31 July 2008, being the latest practicable date for the purpose of ascertaining indebtedness of the Group prior to the printing of the Circulars, the Group had the following outstanding litigations that the Directors are of the opinion that the estimated contingent liabilities arising from the litigations cannot be reasonably ascertained.

(a) On 26 July 2005, Brightland Corporation Limited issued a writ against the Vendor under HCA 1445 of 2005 claiming various declarations, damages and other relief in relation to the sale and purchase of a property situated at Unit C on the 45th Floor, Office Tower, Convention Plaza, No. 1 Harbour Road, Hong Kong (“the Office Property”). This action was consolidated with the action mentioned in paragraph (b) below on 9 June 2006.
(b) On 27 February 2006, Crowning Success Limited, a sub-purchaser of the Office Property issued a summons against the Vendor for the purpose of joining the Vendor as the second defendant in its action against Brightland Corporation Limited under HCA 1540 of 2005. On 13 April 2006, the court ordered that the Vendor be joined as the second defendant in the action. The amended writ and the amended statement of claim were filed and served on 27 April 2006. The parties have already filed their pleadings. On 14 February 2008, Crowning Success Limited issued a summons for an order of the court that the parties do mutually exchange expert valuation report on the market values of the Office Property as at 22 July 2005 and thereafter at 3-months interval until 22 January 2008. The court refused to grant such an order but instead ordered the parties to exchange expert valuation report on the market values of the Office Property as at 22 July 2005 and 22 January 2006. On 6 March 2008, Crowning Success Limited filed a Notice of Appeal to appeal such decision. The appeal was dismissed by the court on 22 April 2008 with costs to the Vendor. Such costs will be taxed by the Court on 13 October 2008.

The matter has already been set down for trial. The pre-trial review has been fixed for 11 November 2008. The trial has been fixed for 16 March 2009 to 25 March 2009.

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FINANCIAL INFORMATION ON THE GROUP

(c) On 17 May 2006, Chinese Regency Limited (of which the beneficial owners are independent third parties) issued a writ of summons against Holyrood Limited (a wholly-owned subsidiary of Paladin), claiming damages for breach of an agreement for sale and purchase of Flat B on the 5th Floor of Block A1 and the car parking space No. 5 of the Peak Road Project. The pleading stage is completed and the litigation is still ongoing. As the amount of damages and claims are to be assessed, no such details are available.
(d) On 1 June 2007, Gateway International Development Limited (of which the beneficial owners are independent third parties) issued a writ of summons against Holyrood Limited (a wholly-owned subsidiary of Paladin), claiming, among others, damages for breach of an agreement for sale and purchase of Flat A on the 6th Floor of Block A2 and the car parking space No. 51 of the Peak Road Project and breach of the Deed of Mutual Covenant. The pleading stage is underway. As the amount of damages and claims are to be assessed, no such details are available.
(e) On 1 June 2007, Sun Crown Trading Limited (of which the beneficial owners are independent third parties) issued a writ of summons against Holyrood Limited (a wholly-owned subsidiary of Paladin), claiming, among others, damages for breach of an agreement for sale and purchase of Flat B on the 6th Floor of Block A2 and the car parking spaces Nos. 47 and 48 of the Peak Road Project and breach of the Deed of Mutual Covenant. The pleading stage is underway and the parties shall seek directions for trial from the court. As the amount of damages and claims are to be assessed, no such details are available.
(f) On 1 June 2007, Trillion Holdings Limited (of which the beneficial owners are independent third parties) issued a writ of summons against Holyrood Limited (a wholly-owned subsidiary of Paladin), claiming, among others, damages for breach of an agreement for sale and purchase of Flat B on the 8th Floor of Block A2 and the car parking spaces Nos. 41 and 42 of the Peak Road Project and breach of the Deed of Mutual Covenant. The pleading stage is underway. As the amount of damages and claims are to be assessed, no such details are available.

I – 61

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Mortgages and Charges

As at 31 July 2008, certain assets of the Group including the Property, certain properties of the Peak Road Project and bank deposits of HK$24.4 million were pledged to certain banks to secure borrowing facilities granted to the Group.

Debt Securities

As at 31 July 2008, the Group had outstanding convertible redeemable preference shares amounting to HK$64.9 million.

Disclaimer

Save as aforesaid or as otherwise disclosed herein, and apart from intra-group liabilities, the Group did not have outstanding at the close of business on 31 July 2008 any loan capital issued and outstanding or agreed to be issued, all other borrowings or indebtedness in the nature of guaranteed, unguaranteed, secured and unsecured borrowings of the Group including bank overdrafts, loans or other similar indebtedness, liabilities under acceptances (other than normal trade bills) or acceptable credits, debentures, mortgages, charges, finance leases, hire purchase commitments, guarantees or other material contingent liabilities.”

Foreign currency amounts have been translated at the approximate exchange rates prevailing at the close of business on 31 July 2008.

6. WORKING CAPITAL

The Directors are of the opinion that after taking into account the present internal financial resources and the available banking facilities of the Group and the net proceeds from the Disposal, the Group has sufficient working capital for its present requirements for at least the next twelve months from the date of this circular.

I – 62

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE REMAINING GROUP

APPENDIX II

For illustration purpose only, set out below is the unaudited pro forma financial information on the Remaining Group.

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ACCOUNTANTS’ REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION

TO THE DIRECTORS OF PALADIN LIMITED

We report on the unaudited pro forma financial information of Paladin Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”), which has been prepared by the directors of the Company for illustrative purposes only, to provide information about how the disposal of certain office premises of the Group (the “Property”) might have affected the financial information presented, for inclusion in Appendix II to the circular dated 26 September 2008 (the “Circular”). The basis of preparation of the unaudited pro forma financial information is set out in Appendix II to the Circular.

Respective responsibilities of directors of the Company

It is the responsibility solely of the directors of the Company to prepare the unaudited pro forma financial information in accordance with paragraph 29 of Chapter 4 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants.

It is our responsibility to form an opinion, as required by paragraph 29(7) of Chapter 4 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.

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 Hong Kong Institute of Certified Public Accountants. Our work consisted primarily of comparing the unadjusted financial information with source documents, considering the evidence supporting the adjustments and discussing the unaudited pro forma financial information with the directors of the Company. This engagement did not involve independent examination of any of the underlying financial information.

II – 1

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE REMAINING GROUP

APPENDIX II

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 29(1) of Chapter 4 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, 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 2007 or any future date; or
the results of the Group for the year ended 30 June 2007 or any future period.

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 29(1) of Chapter 4 of the Listing Rules.

Deloitte Touche Tohmatsu

Certified Public Accountants

Hong Kong

26 September 2008

II – 2

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE REMAINING GROUP

APPENDIX II

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

The accompanying unaudited pro forma financial information of the Remaining Group has been prepared to illustrate the effect of the disposal of certain office premises of the Group (the “Very Substantial Disposal”). Such to-be disposed office premises (the “Property”) are occupied by the Group as the head office in Hong Kong and accounted as property, plant and equipment of the Group. The Property comprises of the office at Unit 4502, 45th Floor, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong and certain washrooms located at the same floor. The Group retain the remaining office premises at Unit 4501 on the same floor as head office. The Property is not a revenue-generating unit of the Group and does not have identifiable income stream nor asset valuation.

The pro forma financial information of the Remaining Group has been prepared on the assumption that the Very Substantial Disposal had been completed on 31 December 2007 in the case of the pro forma consolidated net liabilities/assets statement and on 1 July 2006 in the case of the pro forma consolidated income statement of the Remaining Group.

1. UNAUDITED PRO FORMA CONSOLIDATED NET LIABILITIES/ASSETS STATEMENT

This unaudited pro forma consolidated net liabilities/assets statement of the Remaining Group is prepared in accordance with Rule 4.29 of the Listing Rules for the purpose of illustrating the effect of the Very Substantial Disposal as if it had been taken place on 31 December 2007.

The unaudited pro forma consolidated net liabilities/assets statement of the Remaining Group has been prepared based on the unaudited consolidated condensed balance sheet as at 31 December 2007 of the Group as extracted from the Company’s published interim report for the six months ended 31 December 2007 as set out in Section 2 of Appendix I to this Circular after making pro forma adjustments relating to the Very Substantial Disposal that are (i) directly attributable to the transaction; and (ii) factually supportable. Accordingly, the unaudited pro forma consolidated net liabilities/assets statement of the Remaining Group is prepared for illustrative purposes only and because of its nature may not give a true picture of the financial position of the Remaining Group as at 31 December 2007 or any future date.

II – 3

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE REMAINING GROUP

APPENDIX II

Non-current assets Investment properties Property, plant and equipment Available-for-sale investments Current assets Properties held for sale Trade and other receivables, deposits and prepayments Pledged bank deposits Bank balances and cash Current liabilities Bills payable Other payables Taxation payable Secured bank borrowings – amount due within one year Other loans – amount due within one year Option derivatives Bank overdrafts Net current assets Non-current liabilities Secured bank borrowings – amount due after one year Other loans – amount due after one year Convertible redeemable preference shares Deferred tax liabilities Net (liabilities) assets	The Group Pro forma adjustments HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) (a) (b) (c) 214,000 164,644 (75,751) 8,800 387,444 919,754 106,405 (122) 20,000 94,234 174,161 122 (67,886) 1,140,393 70,416 140,743 345 120,207 112,639 (67,886) 15,545 27,654 487,549 652,844 1,001,308 63,480 26,116 17,632 1,108,536 (68,248)	Pro forma Remaining Group HK$’000 (unaudited) 214,000 88,893 8,800
		311,693
		919,754 106,283 20,000 200,631
		1,246,668
		70,416 140,743 345 120,207 44,753 15,545 27,654
		419,663
		827,005
		1,001,308 63,480 26,116 17,632
		1,108,536
		30,162

II – 4

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE REMAINING GROUP

APPENDIX II

Notes:

(a) The adjustment represents (i) the elimination of the carrying value of the Property of approximately HK$75,751,000 as at 31 December 2007; and (ii) the estimated net proceeds on disposal of the Property of approximately HK$174,161,000 (calculated based on the consideration of approximately HK$176,376,000 and estimated transaction costs of approximately HK$2,215,000).
(b) The adjustment represents the refund of utilities and sundry deposits related to the Property with the total sum of approximately HK$122,000.
(c) The adjustment represents the repayment of other loans which are secured by the Property amounting to approximately HK$67,886,000. According to the relevant loan agreement, the repayment of other loans is required before the release of the pledge of the Property.

II – 5

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE REMAINING GROUP

APPENDIX II

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

2. UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT

This unaudited pro forma consolidated income statement of the Remaining Group is prepared in accordance with Rule 4.29 of the Listing Rules for the purpose of illustrating the effect of the Very Substantial Disposal as if it had been taken place on 1 July 2006.

The unaudited pro forma consolidated income statement of the Remaining Group has been prepared based on the audited consolidated income statement of the Group as extracted from the Company’s published annual report for the year ended 30 June 2007 as set out in Section 3 of Appendix I to this Circular after making pro forma adjustments relating to the Very Substantial Disposal that are (i) directly attributable to the transaction; and (ii) factually supportable. Accordingly, the unaudited pro forma consolidated income statement of the Remaining Group is prepared for illustrative purposes only and because of its nature may not give a true picture of the results of the Remaining Group for the year ended 30 June 2007 or any future period.

						Pro forma
						Remaining
	The Group		Pro forma	adjustments		Group
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	(audited)	(a)	(b)	(c)	(d)	(unaudited)
Turnover	48,298					48,298
Cost of sales	(28,771)					(28,771)
Gross profit	19,527					19,527
Other income	1,308					1,308
Administrative expenses	(34,583)		2,211	560		(31,812)
Gain arising from change in fair
value of investment properties	7,600					7,600
Gain arising from change in fair
value of option derivatives	3,630					3,630
Gain on disposal of the Property	–	95,121				95,121
Loss arising from settlement of
litigation claim	(39,081)					(39,081)
Finance costs	(56,565)				4,130	(52,435)
(Loss) profit before taxation	(98,164)					3,858
Taxation charge	(10,895)					(10,895)
Loss for the period attributable to
equity holders of the Company	(109,059)					(7,037)

II – 6

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE REMAINING GROUP

APPENDIX II

Notes:

(a) The adjustment is to account for the gain on disposal of the Property of approximately HK$95,121,000, representing the excess of the estimated net proceeds from the Very Substantial Disposal of approximately HK$174,161,000 over the carry value of the Property of approximately HK$79,040,000 as at 1 July 2006.
(b) The adjustment is to reflect the reversal of depreciation charge of the Property for the year ended 30 June 2007 of approximately HK$2,211,000 as if the Very Substantial Disposal had been taken place on 1 July 2006.
(c) The adjustment is to reflect the reversal of management fee and government rate of the Property charged for the year ended 30 June 2007 of approximately HK$440,000 and HK$120,000 respectively as if the Very Substantial Disposal had been taken place on 1 July 2006.
(d) The adjustment is to reflect the reversal of interest expense for the year ended 30 June 2007 of approximately HK$4,130,000 as if the repayment of other loans of HK$73,698,000 was made on 1 July 2006. The other loans carry variable interest rate at 2.5% per annum below the Hong Kong dollars Prime Rate.
(e) No adjustment is made to account for the interest income for the year ended 30 June 2007 from the balance of the estimated net proceeds from the Very Substantial Disposal of HK$174,161,000 and the repayment of other loans of HK$73,698,000, as if they had been taken place on 1 July 2006.
(f) No taxation charge is made to account for the gain on the Very Substantial Disposal as the gain should be regarded as a capital gain and would be exempted from Hong Kong Profits Tax.
(g) The adjustments (b), (c) and (d) described above would have a continuing effect on the Group.

II – 7

VALUATION REPORT ON THE PROPERTY

APPENDIX III

The following is the text of the letter and valuation certificate on the Property of the Group as at 30 June 2008 prepared by LCH (Asia-Pacific) Surveyors Limited for the purpose of inclusion in this circular.

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The readers are reminded that the report which follows has been prepared in accordance with the guidelines set by the International Valuation Standards, Eighth Edition, 2007 (the “IVS”) published by the International Valuation Standards Committee as well as the HKIS Valuation Standards on Properties, First Edition, 2005 (the “HKIS Standards”) published by the Hong Kong Institute of Surveyors (the “HKIS”). Both standards entitle the valuer to make assumptions which may on further investigation, for instance by the readers’ legal representative, prove to be inaccurate. Any exception is clearly stated below. Headings are inserted for convenient reference only and have no effect in limiting or extending the language of the paragraphs to which they refer. If additional documents and facts are made available, the valuer reserves the right to amend this report and its conclusions.

17th Floor Champion Building Nos. 287-291 Des Voeux Road Central Hong Kong

26 September 2008

The Board of Directors Paladin Limited 45th Floor, Office Tower Convention Plaza No. 1 Harbour Road Hong Kong

Dear Sirs,

In accordance with your instructions to value the property in which Paladin Limited (hereinafter referred to as the “Company”) and its subsidiaries (hereinafter together with the Company referred to as the “Group”) have interests in Hong Kong, we confirm that we have conducted physical inspection, made relevant enquiries and obtained such further information as we consider necessary to support our findings and our opinion of value of the property of the Group as at 30 June 2008 (hereinafter referred to as the “Date of Valuation”) for the Company’s internal management reference purpose, and to be incorporated into a Company’s circular for its shareholders’ reference.

III – 1

APPENDIX III

VALUATION REPORT ON THE PROPERTY

We understand that the management of the Company will incorporate our work product (i.e. this letter and the valuation certificate) as part of its business due diligence and we have not been engaged to make specific sale or purchase recommendations. We further understand that the use of our work product will not supplant other due diligence, which the management of the Company should conduct, in reaching its business decisions regarding the property valued. Our work is designed solely to provide information that will give the management of the Company a reference to form part of its internal due diligence process.

BASIS OF VALUATION AND ASSUMPTIONS

According to the IVS, which the HKIS Standards also follows, there are two valuation bases in valuing property, namely market value basis and valuation bases other than market value. Our valuation of the property is on market value basis.

The term “Market Value” is defined as “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”.

We have adopted the comparable sales method of the Market Approach (also called sales comparison approach) on the assumption that the property was sold with the benefit of vacant possession. The comparable sales method considers the sales, listings or offering of similar or substitute properties and related market data and establishes a value of a property that a reasonable investor would have to pay for a similar property of comparable utility and with an absolute title.

Our valuation has been made on the assumption that the owner sells the property on the open market in its existing states without the benefit of a deferred terms contract, leaseback, joint venture, management agreement or any other similar arrangement which would serve to increase the value of the property.

MATTERS THAT MIGHT AFFECT THE VALUE REPORTED

No allowance has been made in our valuation for any charges, mortgages or amounts owing on the property. Unless otherwise stated, it is assumed that the property is free from encumbrances, restrictions, and outgoings of an onerous nature which could affect its value.

As at the Latest Practicable Date of this circular, we are unable to identify any adverse news against the property which may affect the reported value in our work product. Thus, we are not in the position to report and comment on its impact (if any) to the property. However, should it be established subsequently that such news did exist at the Date of Valuation, we reserve the right to adjust the value reported herein.

III – 2

VALUATION REPORT ON THE PROPERTY

APPENDIX III

ESTABLISHMENT OF TITLES

We have not been provided with title documents regarding the property, however, we have conducted title searches of the property in the Land Registry of Hong Kong. We have not examined the original documents to verify the ownership and encumbrances or to ascertain the existence of any lease amendments, which may not appear on the copies handed to us. All documents disclosed (if any) are for reference only and no responsibility is assumed for any legal matters concerning the legal title and the rights (if any) to the property. Any responsibility for our misinterpretation of the documents cannot be accepted.

INSPECTIONS AND INVESTIGATIONS OF THE PROPERTY IN ACCORDANCE WITH VS4 OF THE HKIS STANDARDS

We have inspected the exterior, and where possible, the interior of the property in respect of which we have been provided with such information as we have requested for the purpose of our valuation. We have not inspected those parts of the property which were covered, unexposed or inaccessible and such parts have been assumed to be in reasonable condition. We cannot express an opinion about or advise upon the condition of uninspected parts and the attached valuation certificate should not be taken as making any implied representation or statement about such parts. No structural survey, investigation or examination has been made, but in the course of our inspections we did not note any serious defects in the property valued. We are not, however, able to report that the property is free from rot, infestation or any other structural defects. No tests were carried out to the services (if any) and we are unable to identify those services either covered, unexposed or inaccessible.

We have not carried out on-site measurements to verify the correctness of the floor areas of the property, but have assumed that the floor areas shown on the documents and official floor plans handed to us are correct. All dimensions, measurements and areas are approximations.

We have not arranged for any investigation to be carried out to determine whether or not any deleterious or hazardous materials have been used in the construction of the property, or have since been incorporated into the property, and we are therefore unable to report that the property are free from risk in this respect. For the purpose of this valuation, we have assumed that such investigation would not disclose the presence of any such materials to any significant extent.

SOURCES OF INFORMATION AND ITS VERIFICATION IN ACCORDANCE WITH VS5 OF THE HKIS STANDARDS

We have relied extensively on the information provided by the management of the Company or its appointed personnel without further verification and have fully accepted advice given to us on such matters as planning approvals or statutory notices, locations, titles, easements, tenure, occupation, floor areas and all other relevant matters.

The scope of valuation has been determined by reference to the property list provided by the management of the Company.

III – 3

APPENDIX III

VALUATION REPORT ON THE PROPERTY

Information furnished by others, upon which all or portions of our work product are based, is believed to be reliable but has not been verified in all cases. Our procedures to value or work do not constitute an audit, review, or compilation of the information provided. Thus, no warranty is made nor liability assumed for the accuracy of any data, advice, opinions, or estimates identified as being furnished by others which have been used in formulating our work product.

When we adopted the work products from other professions, external data providers and the management of the Company in our valuation, the assumptions and caveats that adopted by them in arriving at their figures also applied in our valuation. The procedures we have taken do not provide all the evidence that would be required in an audit and, as we have not performed an audit, accordingly, we do not express an audit opinion.

We are unable to accept any responsibility for the information that has not been supplied to us by the management of the Company or its appointed personnel. Also, we have sought and received confirmation from the management of the Company or its appointed personnel that no materials factors have been omitted from the information supplied. Our analysis and valuation are based upon full disclosure between us and the Company of material and latent facts that may affect the valuation.

We have had no reason to doubt the truth and accuracy of the information provided to us by the management of the Company or its appointed personnel. We consider that we have been provided with sufficient information to reach an informed view, and have had no reason to suspect that any material information has been withheld.

Unless otherwise stated, all monetary amounts are in Hong Kong Dollars (“HK$”).

LIMITING CONDITIONS

Our opinion of value of the property in this report is valid only for the stated purpose and only for the Date of Valuation, and for the sole use of the named Company. We or our personnel shall not be required to give testimony or attendance in court or to any government agency by reason of this report, and the valuer accepts no responsibility whatsoever to any other person.

Our valuation has been made on the assumption that no unauthorised alteration, extension or addition has been made in the property, and that the use of the attached valuation certificate should not be used as a building survey of the property. If the management of the Company wants to satisfy them as to the condition of the property, then the management of the Company should obtain a surveyor’s detailed inspection and report of their own.

No responsibility is taken for changes in market conditions and local government policy and no obligation is assumed to revise the attached valuation certificate to reflect events or conditions, which occur or make known to us subsequent to the date hereof.

Neither the whole nor any part of this report or any reference made hereto may be included in any published documents, circular or statement, or published in any way, without our written approval of the form and context in which it may appear. Nonetheless, we consent to the publication of this report in this circular to the Company’s shareholders’ reference.

III – 4

VALUATION REPORT ON THE PROPERTY

APPENDIX III

Our maximum liability relating to services rendered under this engagement (regardless of form of action, whether in contract, negligence or otherwise) shall be limited to the charges paid to us for the portion of its services or work products giving rise to liability. In no event shall we be liable for consequential, special, incidental or punitive loss, damage or expense (including without limitation, lost profits, opportunity costs, etc.), even if it has been advised of their possible existence.

The Company is required to indemnify and hold us and our personnel harmless from any claims, liabilities, costs and expenses (including, without limitation, attorney’s fees and the time of our personnel involved) brought against, paid or incurred by us at a time and in any way based on the information made available in connection with our report except to the extent that any such loses, expenses, damages or liabilities are ultimately determined to be the result of gross negligence of our engagement team in conducting its work. This provision shall survive even after the termination of this engagement for any reason.

STATEMENTS

Our valuation has been prepared in line with the requirements contained in Chapter 5 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited as well as the guidelines contained in both IVS and the HKIS Standards. The valuation has been undertaken by valuers, acting as external valuers, qualified for the purpose of the valuation.

We retain a copy of this report together with the data from which it was prepared, and these data and documents will, according to the Laws of Hong Kong, keep for a period of 6 years from the date of this report and to be destroyed thereafter. We considered these records confidential, and we do not permit access to them by anyone, with the exception for law enforcement authorities or court order, without the Company’s authorisation and prior arrangement made with us.

We hereby certify that the fee for this service is not contingent upon our conclusion of value and we have no significant interest in the property, the Group or the value reported.

The valuation certificate is attached.

Yours faithfully, For and on behalf of

LCH (Asia-Pacific) Surveyors Limited Joseph Ho Chin Choi B.Sc. PgDip RPS (GP) Managing Director

Contributed valuer

Leslie Wong Tak Chiu BSc

Note: Mr. Joseph Ho Chin Choi has been conducting assets valuation (including real estate properties) and advisory work in Hong Kong, Macau, Taiwan, mainland China, Japan, South East Asia, Australia, Finland, Germany, Scotland, Guyana, Canada and the United States of America for various purposes since 1988. He is a valuer in the List of Property Valuers for Undertaking Valuation for Incorporation or Reference in Listing Particulars and Circulars and Valuation in Connection with Takeovers and Mergers published by the HKIS.

III – 5

VALUATION REPORT ON THE PROPERTY

APPENDIX III

VALUATION CERTIFICATE

Property owned and occupied by the Group in Hong Kong and valued on the basis of Market Value

Property Description and tenure

Portion of office The property comprises an office unit space (known as Unit on the 45th Floor of a 39-storeyed office 4502) on 45th Floor building which built over a 10-storeyed Office Tower commercial and convention podium Convention Plaza and with car-parking spaces provided No. 1 Harbour Road on basement levels. The building was Wanchai completed in 1990. Hong Kong According to the information made Part of available to us, the property has a saleable 21,061/4,000,000th area of approximately 646.118 sq.m. shares of and in (6,954.8 sq.ft.) Inland Lot No. 8593 (“the Lot”) The Lot is held under Conditions of Grant No. 11784 for a term of 75 years thereof (See Note 1) commencing from 19 February 1985.

Market Value in its existing state attributable to Particulars of the Group as at occupancy 30 June 2008 HK$ The property is 176,500,000 currently occupied (100% interest) by the Company for office purpose.

The current government rent payable for the Lot is $1,000.00.

Notes:

No registration details of the subject portion (except the whole of the 45th Floor) in the Land Registry. According to the information provided by the Company and a plan signed by an Authorised Person, the property comprises an office space of approximately 646.118 sq.m. on the 45th Floor with a 9,801/4,000,000th undivided shares.
The registered owner of the property is Banhart Company Limited, a wholly-owned subsidiary of the Company.
The property is subject to mortgage and rental assignment in favour of Bank of Communications.
The property is subject to a sealed copy writ of summons in the High Court Action No. 1445 of 2005 dated 26 July 2005.
The property is subject to, which is a deed pending registration, a preliminary sale and purchase agreement with plan re. Unit C dated 30 December 2004 in favour of Brightland Corporation Limited.
The property is subject to, which is a deed pending registration, a provisional agreement for sale and purchase agreement with plan re. Unit C dated 18 January 2005 in favour of Crowing Success Limited.
The property is subject to, which is a deed pending registration, a sealed copy writ of summons with plan re. Unit C dated 5 August 2005 in High Court Action No. 1540 of 2005.
The property is subject to, which is a deed pending registration, a sealed copy amended writ of summons with plan of Unit C in High Court Action No. 1540 of 2005 (as amended on 27 April 2006) re. part of 21,061/4,000,000 shares.
The property is subject to, which is a deed pending registration, a sealed copy of order in High Court Action No. 1445 of 2005 and High Court Action No. 1540 of 2005 (Consolidated).

III – 6

GENERAL INFORMATION

APPENDIX IV

RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to Paladin. 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, and to the best of their knowledge and belief there are no other facts the omission of which would make any statement herein misleading.

DISCLOSURE OF INTERESTS BY DIRECTORS

As at the Latest Practicable Date, the interests or short positions of each director and chief executive of Paladin in the Shares, Preference Shares, debentures or underlying shares in Paladin or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to Paladin and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which he is taken or deemed to have 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 Paladin referred to therein, or which were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies contained in the Listing Rules, to be notified to Paladin and the Stock Exchange, were as follows:

(a) Long position in Shares and Preference Shares

	Number of	Number of	Number of	Number of
	Shares	held	Preference Shares
	Personal	Corporate	Personal	Corporate
Name of Director	interests	interests	interests	interests
Oung Shih Hua, James	5,000,000	–	2,500,000	–
Chen Te Kuang, Mike	5,000,000	21,035,000*	2,500,000	9,099,014*

* 21,035,000 Shares and 9,099,014 Preference Shares were held by Goldenfield Equities Limited in which Mr. Chen Te Kuang, Mike has beneficial interest.

Save as disclosed in this circular, as at the Latest Practicable Date, none of the directors and chief executive of Paladin or their respective associates (within the meaning of the Listing Rules) had any interests and short positions in the Shares, Preference Shares, debentures or underlying shares of Paladin or any of its associated corporations (within the meaning of Part XV of the SFO), which were required to be notified to Paladin and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interest and short positions which he or she was taken or deem to have under such provisions of the SFO), or which were required, pursuant to section 352 of the SFO, to be entered in the registered maintained by Paladin referred to therein, or which were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies contained in the Listing Rules to be notified to Paladin and the Stock Exchange.

IV – 1

GENERAL INFORMATION

APPENDIX IV

(b) Competing interests

As at the Latest Practicable Date, none of the Directors and their respective associates (within the meaning of the Listing Rules) had any interest in a business which competes or may compete with the business of the Group.

(c) Directors’ interests in assets

As at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any asset which had been acquired, or disposed of by, or leased to any member of the Group, or was proposed to be acquired, or disposed of by, or leased to any member of the Group since 30 June 2007, the date to which the latest published audited financial statements of the Group were made up.

(d) Directors’ interests in contracts

As at the Latest Practicable Date, none of the Directors was materially interested, directly or indirectly, in any contract or arrangement entered into by any member of the Group subsisting at the Latest Practicable Date which was significant in relation to the business of the Group.

(e) Directors’ service contracts

As at the Latest Practicable Date, none of the Directors had entered into, or was proposing to enter into any service contract with Paladin or any of its subsidiary which does not expire or is not determinable by the employing company within one year without payment of compensation other than statutory compensation.

IV – 2

GENERAL INFORMATION

APPENDIX IV

DISCLOSURE OF INTERESTS BY SUBSTANTIAL SHAREHOLDERS

As far as is known to any Director or chief executive of Paladin, as at the Latest Practicable Date, persons (other than a Director or chief executive of Paladin) who had an interest or a short position in the Shares, Preference Shares, debentures or underlying shares of Paladin which would fall to be disclosed to Paladin under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who 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 member of Paladin were as follows:

			Number of
	Number		Preference
Name of shareholder	of Shares	%	Shares	%
Five Star Investments Limited	267,815,017	50.28	133,907,508	51.55
(Note)
Oung Da Ming	–	–	50,000,000	19.25

Note: Five Star Investments Limited is owned as to 67% by Madam Oung Chin Liang Fung and 33% by Ms. Lilian Oung, who are both members of the Oung family. Neither Madam Oung Chin Liang Fung nor Ms. Lilian Oung is a Director. None of the Directors is an employee or a director of Five Star Investments Limited.

Save as disclosed, the Directors and chief executive of Paladin were not aware of any other person (other than a Director or chief executive of Paladin) who, as at the L atest Practicable Date, had an interest or short position in the Shares, Preference Shares, debentures or underlying shares of Paladin which would fall to be disclosed to Paladin under the provisions of Divisions 2 and 3 of Part XV of the SFO, who was, 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 member of Paladin or had any options in respect of such shares.

LITIGATION

As at the Latest Practicable Date, as far as the Directors are aware, except for disclosed below, none of the members of the Group was engaged in any litigation or arbitration or claim of material importance and these was no litigation or claims of material importance known to the Directors to be pending or threatened against any member of the Group.

(a) On 26 July 2005, Brightland Corporation Limited issued a writ against the Vendor under HCA 1445 of 2005 claiming various declarations, damages and other relief in relation to the sale and purchase of a property situated at Unit C on the 45th Floor, Office Tower, Convention Plaza, No. 1 Harbour Road, Hong Kong (“the Office Property”). This action was consolidated with the action mentioned in paragraph (b) below on 9 June 2006.

IV – 3

GENERAL INFORMATION

APPENDIX IV

(b) On 27 February 2006, Crowning Success Limited, a sub-purchaser of the Office Property issued a summons against the Vendor for the purpose of joining the Vendor as the second defendant in its action against Brightland Corporation Limited under HCA 1540 of 2005. On 13 April 2006, the court ordered that the Vendor be joined as the second defendant in the action. The amended writ and the amended statement of claim were filed and served on 27 April 2006. The parties have already filed their pleadings. On 14 February 2008, Crowning Success Limited issued a summons for an order of the court that the parties do mutually exchange expert valuation report on the market values of the Office Property as at 22 July 2005 and thereafter at 3-months interval until 22 January 2008. The court refused to grant such an order but instead ordered the parties to exchange expert valuation report on the market values of the Office Property as at 22 July 2005 and 22 January 2006. On 6 March 2008, Crowning Success Limited filed a Notice of Appeal to appeal such decision. The appeal was dismissed by the court on 22 April 2008 with costs to the Vendor. Such costs will be taxed by the Court on 13 October 2008.

The matter has already been set down for trial. The pre-trial review has been fixed for 11 November 2008. The trial has been fixed for 16 March 2009 to 25 March 2009.

(c) On 17 May 2006, Chinese Regency Limited (of which the beneficial owners are independent third parties) issued a writ of summons against Holyrood Limited (a wholly-owned subsidiary of Paladin), claiming damages for breach of an agreement for sale and purchase of Flat B on the 5th Floor of Block A1 and the car parking space No. 5 of the Peak Road Project. The pleading stage is completed and the litigation is still ongoing.
(d) On 1 June 2007, Gateway International Development Limited (of which the beneficial owners are independent third parties) issued a writ of summons against Holyrood Limited (a wholly-owned subsidiary of Paladin), claiming, among others, damages for breach of an agreement for sale and purchase of Flat A on the 6th Floor of Block A2 and the car parking space No. 51 of the Peak Road Project and breach of the Deed of Mutual Covenant. The pleading stage is underway. As the amount of damages and claims are to be assessed, no such details are available.
(e) On 1 June 2007, Sun Crown Trading Limited (of which the beneficial owners are independent third parties) issued a writ of summons against Holyrood Limited (a wholly owned-subsidiary of Paladin), claiming, among others, damages for breach of an agreement for sale and purchase of Flat B on the 6th Floor of Block A2 and the car parking spaces Nos. 47 and 48 of the Peak Road Project and breach of the Deed of Mutual Covenant. The pleading stage is underway. As the amount of damages and claims are to be assessed, no such details are available.
(f) On 1 June 2007, Trillion Holdings Limited (of which the beneficial owners are independent third parties) issued a writ of summons against Holyrood Limited (a wholly-owned subsidiary of Paladin), claiming, among others, damages for breach of an agreement for sale and purchase of Flat B on the 8th Floor of Block A2 and the car parking spaces Nos. 41 and 42 of the Peak Road Project and breach of the Deed of Mutual Covenant. The pleading stage is underway. As the amount of damages and claims are to be assessed, no such details are available.

IV – 4

GENERAL INFORMATION

APPENDIX IV

The Directors are of the view that litigations listed in (a) and (b) above will not have material adverse effect on the Disposal provided that after a total sum of HK$12 million is paid into Court for security for the claims made by Brightland Corporation Limited in HCA 1445 of 2005 and the claim made by Crowning Success Limited in HCA 1540 of 2005, the registration of certain instruments in the Land Registry against the Property be vacated from registration by the Land Registry.

MATERIAL CONTRACTS

The following material contracts, not being contracts entered into in the ordinary business of the Group, have been entered into by any member of the Group within two years immediately preceding the date of this circular:

(a) the Agreement; and
(b) an underwriting agreement dated 4 September 2007 entered into between Paladin and Goldenfield Equities Limited, pursuant to which Goldenfield Equities Limited acted as the underwriter of a maximum of 172,775,441 Preference Shares to be issued under an open offer. Such open offer was subsequently terminated. Details of the underwriting agreement are set out in the circular of Paladin dated 14 September 2007 and prospectus of Paladin dated 7 December 2007.

PROCEDURES BY WHICH A POLL MAY BE DEMANDED

Pursuant to bye-law 70 of Paladin’s Bye-laws, 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 or on the withdrawal of any other demand for a poll) demanded:

(a) by the Chairman of the meeting; or
(b) by at least three Shareholders present in person or by duly authorised corporate representative or by proxy for the time being entitled to vote at the meeting; or
(c) by any Shareholder or Shareholders present in person or by duly authorised corporate representative or by proxy and representing not less than one-tenth of the total voting rights of all the Shareholders having the right to vote at the meeting; or
(d) by any Shareholder or Shareholders present in person or by duly authorised corporate representative or by proxy and holding shares in Paladin 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 the shares conferring that right.

IV – 5

GENERAL INFORMATION

APPENDIX IV

EXPERTS AND CONSENTS

The followings are the qualification of the experts who have been named in this circular or have given opinion or advice which are contained in this circular:

Name Qualification Deloitte Touche Tohmatsu Certified Public Accountants LCH (Asia-Pacific) Surveyors Limited Chartered Surveyors

Each of Deloitte Touche Tohmatsu and LCH (Asia-Pacific) Surveyors Limited has given and has not withdrawn its written consent to the issue of this circular with the inclusion herein of its letter or references to its name in the form and context in which they appear.

As at the Latest P racticable Date, Deloitte Touche Tohmatsu and LCH (Asia-Pacific) Surveyors Limited did not have any shareholding 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, Deloitte Touche Tohmatsu and LCH (Asia-Pacific) Surveyors Limited did not have any direct or indirect interests in any assets which have been, since 30 June 2007 (being the date to which the latest published audited accounts of the Group were made up), acquired or disposed of by or leased to any member of the Group, or which are proposed to be acquired or disposed of by or leased to any member of the Group.

GENERAL

(a) The company secretary and qualified accountant of Paladin is Mr. Chan Chi Ho, who is a fellow member of the Association of Chartered Certified Accountants and an fellow member of the Hong Kong Institute of Certified Public Accountants.
(b) The Hong Kong branch share registrar and transfer office of Paladin is Computershare Hong Kong Investor Services Limited at 17th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong.
(c) The English text of this circular shall prevail over the Chinese text.

IV – 6

GENERAL INFORMATION

APPENDIX IV

DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at the principal place of business of Paladin, at 45th Floor, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong during normal business hours on any business day up to and including the date of the SGM:

(a) the memorandum of association and the bye-laws of Paladin;
(b) the annual reports of the Group for each of the two financial years ended 30 June 2006 and 2007;
(c) the interim report of the Group for the six months ended 31 December 2007;
(d) the unaudited pro forma financial information on the Remaining Group and the comfort letter thereon from Deloitte Touche Tohmatsu, the text of which is set out in Appendix II to this circular;
(e) the property valuation on the Property from LCH (Asia-Pacific) Surveyors Limited, the text of which is set out in Appendix III to this circular;
(f) the written consents referred to under the section headed “Experts and Consents” in this appendix;
(g) material contracts as referred to in the section headed “Material contracts” in this appendix; and
(h) a copy of each circular of Paladin issued pursuant to the requirements set out in Chapters 14 and/or 14A of the Listing Rules since 30 June 2007 (being the date to which the latest published audited consolidated financial statements of the Group were made up).

IV – 7

NOTICE OF THE SGM

PALADIN LIMITED

(Incorporated in Bermuda with limited liability)

(Stock codes: 495 and 642 (Preference Shares))

NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that a special general meeting of Paladin Limited (the “Company”), will be held at Antica Room, Hong Kong Gold Coast Hotel, 1 Castle Peak Road, Castle Peak Bay, Tuen Mun, Hong Kong, at 11:00 a.m. on 13 October 2008, for the purpose of considering and, if thought fit, passing the following resolution as ordinary resolution of the Company:

ORDINARY RESOLUTION

“ THAT the disposal (“Disposal”) of the Property (as defined in the circular (“Circular”) of the Company dated 26 September 2008 by Banhart Company Limited as vendors to the Purchaser (as defined in the Circular) on the terms and conditions of the Agreement (as defined in the Circular and a copy of which has been produced to this meeting and Marked “A” and initialed by the chairman of the meeting for the purpose of identification) be and is hereby approved, and the directors of the Company (“Directors”) be and they are hereby authorised to do all such acts and things, to sign and execute all such further documents and to take such steps and actions as the Directors may in their absolute discretion consider necessary, appropriate, desirable or expedient to give effect to and enforce the Disposal and all terms and conditions contemplated under the Agreement and anything in connection therewith and to agree to any variations, amendments and waivers of any of the terms of the Disposal and settlement of any dispute over the Agreement which are in the opinion of the Directors not material to the Disposal and/or are in the interests of the Company.”

By Order of the Board Paladin Limited Chan Chi Ho Company Secretary

Hong Kong, 26 September 2008

Head Office and Principal Place of Business: 45th Floor, Office Tower Convention Plaza 1 Harbour Road Wanchai Hong Kong

SGM – 1

NOTICE OF THE SGM

Notes:

Any member entitled to attend and vote at the meeting is entitled to appoint one or more proxies to attend and, on a poll, vote instead of him. A proxy need not be a member of the Company.
The form of proxy must be signed by you or your attorney duly authorised in writing or, in the case of a corporation, must be either under its common seal or under the hand of any officer or attorney duly authorised in writing.
In the case of joint registered holders of any shares in the Company, any one of such persons may vote at the meeting either personally of by proxy in respect of such shares but if more than one of such joint holders is present at the meeting personally or by proxy the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes off the other joint holder(s), and for this purpose seniority will be determined by the order in which the names stand in the register of members in respect of the joint holding.
To be valid, a form of proxy, together with the power of attorney or other authority (if any) under which it is signed or a notarially certified copy thereof must be deposited at the Hong Kong branch share registrars of the Company, Computershare Hong Kong Investor Services Limited, Rooms 1806-7, 18th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong not less than 48 hours before the time appointed for holding the meeting or any adjournment thereof.
The proxy need not be a member of the Company but must attend the meeting in person to represent you.
Completion and return of a form of proxy will not preclude you from attending and voting in person at the meeting or any adjourned meeting if you so wish.

As at the date of this notice, the executive directors of the Company are Mr. LAW Fong and Mr. CHEN Te Kuang Mike, the non-executive director is Mr. OUNG Shih Hua, James and the independent nonexecutive directors are Mr. ZHU Pei Qing, Ms. LU Ti Fen and Mr. KWOK Wai Chi.

SGM – 2

AI assistant

G-Resources Group Limited — Proxy Solicitation & Information Statement 2008

49648_rns_2008-09-25_7ec8e7c1-3986-4b20-95b5-995180fc7050.pdf

PALADIN LIMITED

VERY SUBSTANTIAL DISPOSAL IN RELATION TO DISPOSAL OF CERTAIN OFFICE PREMISES

CONTENTS

DEFINITIONS

PALADIN LIMITED

VERY SUBSTANTIAL DISPOSAL IN RELATION TO DISPOSAL OF CERTAIN OFFICE PREMISES

INTRODUCTION

THE AGREEMENT

Parties:

Property:

Consideration:

Condition precedent:

LETTER FROM THE BOARD

Other terms

INFORMATION ON THE PROPERTY

REASONS FOR AND BENEFITS OF THE DISPOSAL AND USE OF PROCEEDS

LETTER FROM THE BOARD

FINANCIAL EFFECTS OF THE DISPOSAL

FINANCIAL AND TRADING PROSPECTS OF THE GROUP

SGM

LETTER FROM THE BOARD

LISTING RULES IMPLICATION

RECOMMENDATION

ADDITIONAL INFORMATION

1. FINANCIAL SUMMARY

2. UNAUDITED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2007

CONDENSED CONSOLIDATED INCOME STATEMENT

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

CONDENSED CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2007

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PREPARATION

3. SEGMENT INFORMATION

Six months ended 31 December 2007

APPENDIX I

4. FINANCE COSTS

5. TAXATION

APPENDIX I

6. (LOSS) EARNINGS PER SHARE

7. DIVIDEND

8. INVESTMENT PROPERTIES

9. PROPERTY, PLANT AND EQUIPMENT

10. PROPERTIES HELD FOR SALE

11. TRADE AND OTHER RECEIVABLES, DEPOSITS AND PREPAYMENTS

12. AMOUNTS DUE TO DIRECTORS OF SUBSIDIARIES

13. SECURED BANK BORROWINGS

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

14. OTHER LOANS

Notes:

APPENDIX I

15. OPTION DERIVATIVES

Black-Scholes Option Pricing Model – Option 1

APPENDIX I

Binomial Option Pricing Model – Option 2

16. PROVISION FOR SETTLEMENT OF LITIGATION CLAIM

17. SHARE CAPITAL

APPENDIX I

18. CONVERTIBLE REDEEMABLE PREFERENCE SHARES

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

(i) Cumulative dividend

(ii) Early redemption at the option of the Company

APPENDIX I

(iii) Further issues

(i) Early redemption at the opinion of the Company

(ii) Conversion rights

(iii) Cumulative dividends

(iv) Redemption

FINANCIAL INFORMATION ON THE GROUP

G-Resources Group Limited Proxy Solicitation & Information Statement 2008