Greenheart Group Limited - Proxy Solicitation & Information Statement 2005

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

This circular is for information purpose only and does not constitute an invitation or offer to acquire, purchase or subscribe for the securities of the Company.

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

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

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

renren Holdings Limited 人人控股有限公司[*]

(Incorporated in Bermuda with limited liability)

(Stock code: 59)

(I) VERY SUBSTANTIAL ACQUISITION IN RELATION TO PROPOSED ACQUISITION OF 49% SHAREHOLDING IN AND SHAREHOLDER’S LOANS DUE BY YAUBOND LIMITED; (II) PROPOSED RIGHTS ISSUE IN THE PROPORTION OF SIX RIGHTS SHARES FOR EVERY EXISTING SHARE; (III) APPLICATION FOR WHITEWASH WAIVER;

(IV) PROPOSED CHANGE OF AUDITORS; AND

(V) REFRESHMENT OF GENERAL MANDATE TO ISSUE NEW SHARES

Financial adviser to renren Holdings Limited

Independent financial adviser to the Independent Board Committee and the Independent Shareholders

CIMB-GK Securities (HK) Limited

A letter from the Board is set out on pages 10 to 45 of this circular. A letter from the Independent Board Committee containing its advice to the Independent Shareholders in connection with the Acquisition Agreement and the transactions contemplated therein, the Rights Issue and the Whitewash Waiver is set out on pages 46 to 47 of this circular. A letter from CIMB-GK Securities (HK) Limited, the independent financial adviser to the Independent Board Committee and the Independent Shareholders, containing its advice to the Independent Board Committee and the Independent Shareholders in connection with the Acquisition Agreement and the transactions contemplated therein, the Rights Issue and the Whitewash Waiver is set out on pages 48 to 75 of this circular.

A notice convening a special general meeting of the Company to be held at 10:30 a.m., on Friday, 25 November 2005 at Private Room at Flamingo Cafe, 1st Floor, Newton Hotel, 218 Electric Road, North Point, Hong Kong is set out on pages 177 to 182 of this circular. A form of proxy is also enclosed. Whether or not you are able to attend and vote at the special general meeting in person, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon to the Company’s branch share registrars in Hong Kong, Abacus Share Registrars Limited, at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong as soon as possible and in any event not later than 48 hours before the time appointed for holding the meeting or any adjourned meeting. Completion and return of the form of proxy will not preclude you from subsequently attending and voting at the meeting or any adjourned meeting, should you so wish.

for identification purpose only

8 November 2005

	Page
Summary of the Rights Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	ii
Expected Timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	iii
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	46
Letter from CIMB-GK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	48
Appendix I — Financial Information of the Group. . . . . . . . . . . . . . . . . . . . . .	76
Appendix II — Accountants’ Report on Yaubond Group . . . . . . . . . . . . . . . . .	124
Appendix III — Unaudited Pro Forma Financial Information
of the Enlarged Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	143
Appendix IV — Management Discussion and Analysis . . . . . . . . . . . . . . . . . . . .	153
Appendix V — Property Valuation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	158
Appendix VI — General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	166
Notice of the SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	177

— i —

SUMMARY OF THE RIGHTS ISSUE

The following information is derived from, and should be read in conjunction with, the full text of this circular:

Basis of the Rights Issue:

Six Rights Shares for every existing Share held on the Record Date

Number of existing Shares in issue:

82,023,735 Shares as at the Latest Practicable Date (Note)

Number of Rights Shares to be issued:

Not more than 492,142,410 Rights Shares (Note)

Subscription Price: HK$0.30 per Rights Share

Grand Cosmos Entitlement: 189,655,362 Rights Shares

Number of Underwritten Shares: Not more than 302,487,048 Underwritten Shares

Basis of entitlement: Rights Shares will be allotted in the proportion of six Rights Shares for every existing Share held by the Qualifying Shareholders on the Record Date. No Rights Shares will be offered to the Excluded Shareholders

Right of excess application:

The Qualifying Shareholders will have the right to apply for excess Rights Shares

Amount to be raised by Not more than approximately HK$147.6 million before the Rights Issue: expenses

Underwriter:

(a) Grand Cosmos to underwrite 169,153,715 Rights Shares; and
(b) Tai Fook Securities to underwrite up to 133,333,333 Rights Shares

Note: Of 82,023,735 Shares as at the Latest Practicable Date, 16,299 Shares are to be cancelled pursuant to the Share Cancellation. The effectiveness of such cancellation is subject to completion of formal procedures to rectify the register of members of the Company, which completion is expected to be on or before the Record Date. Accordingly, should the Share Cancellation become effective on or before the Record Date, the number of the existing Shares of the Company will be reduced to 82,007,436 Shares and the number of Rights Shares to be allotted and issued will be reduced to 492,044,616 Rights Shares.

— ii —

EXPECTED TIMETABLE

Set out below is an indicative timetable for the implementation of the Rights Issue. The timetable is subject to change in accordance with the agreement between the Company and the Underwriters. The Company will inform the Shareholders on any changes to the expected timetable as and when appropriate. All times in this circular refer to Hong Kong time.

Last day of dealings in the Shares on a cum-rights basis . . . . . . Thursday, 17 November 2005 Commencement of dealings in the Shares on an ex-rights basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Friday, 18 November 2005 Latest time for lodging transfer of the Shares in order to be qualified for the Rights Shares. . . . . . . . . . . . . . . . . . at 4:00 p.m. on Monday, 21 November 2005 Register of members closes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tuesday, 22 November 2005 to Friday, 25 November 2005 (both dates inclusive) Latest time for lodging proxy forms for the SGM . . . . . . . . . . . . at 10:30 a.m. on Wednesday, 23 November 2005 SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . at 10:30 a.m. on Friday, 25 November 2005 Record Date for the Rights Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . Friday, 25 November 2005 Announcement of the results of the SGM . . . . . . . . . . . . . . . . . . . . Monday, 28 November 2005 Register of members re-opens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Monday, 28 November 2005 Despatch of the Rights Issue Documents . . . . . . . . . . . . . . . . . . . . Monday, 28 November 2005 First day of dealings in nil-paid Rights Shares. . . . . . . . . . . . . Wednesday, 30 November 2005 Latest time for splitting nil-paid Rights Shares . . . . . . . . . . . . . . . . . . . . at 4:00 p.m. on Friday, 2 December 2005 Last day of dealings in nil-paid Rights Shares . . . . . . . . . . . . . . Wednesday, 7 December 2005 Latest time for acceptance of, and payment for, the Rights Shares and application for excess Rights Shares . . . . . . . . . at 4:00 p.m. on Monday, 12 December 2005

— iii —

EXPECTED TIMETABLE

Latest time for the Rights Issue to become unconditional . . . . . . . . at 4:00 p.m. on Thursday, 15 December 2005

Announcement of the results of the Rights Issue

on newspapers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Friday, 16 December 2005

Refund cheques in respect of wholly or partially

unsuccessful applications for excess Rights Shares

expected to be posted on or before . . . . . . . . . . . . . . . . . . . . . . . Monday, 19 December 2005

Certificates for the Rights Shares expected

to be despatched on or before . . . . . . . . . . . . . . . . . . . . . . . . . . . . Monday, 19 December 2005

Dealings in fully-paid Rights Share commence on . . . . . . . . . Wednesday, 21 December 2005

If there is a “black” rainstorm warning or a tropical cyclone warning signal number 8 or above in force in Hong Kong on Monday, 12 December 2005 any time between 12:00 noon and 4:00 p.m., the latest time for payment and acceptance of the Rights Shares will be postponed to the next Business Day which does not have either of those warnings in force in Hong Kong at any time between 9:00 a.m. and 12:00 noon.

It should be noted that the Underwriting Agreement contains provisions granting Tai Fook Securities, by notice in writing, the right to terminate its obligations thereunder on the occurrence of certain events. These events are set out in the paragraph headed “Termination of the Underwriting Agreement” on pages 33 to 35 of this circular. If the Underwriting Agreement is terminated by Tai Fook Securities or does not become unconditional, the Rights Issue will not proceed.

— iv —

DEFINITIONS

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

“Acquisition Agreement”

the conditional agreement dated 5 October 2005 entered into between the Vendor and the Purchaser in relation to the Proposed Acquisition

“Additional Sale Debt”

an additional amount of not more than HK$77.4 million, representing the difference between 49% of the Vendor’s Loan and the Sale Debt. As at the Latest Practicable Date, the amount of the Additional Sale Debt is approximately HK$37.6 million

“Announcement”

the announcement dated 5 October 2005 made by the Company in relation to, inter alia, the Proposed Acquisition, the Rights Issue and the Whitewash Waiver

“Announcement Date”
5 October 2005, being the date of the Announcement
“associate” the meaning ascribed to it under the Listing Rules
“Board” the board of Directors

“Budget Development Costs” being RMB9,000 per square metre, multiply by Salable Floor Area, and minus RMB321,500,000 (which amount of RMB321,500,000 represents the value of the Land as agreed by the parties after taking into account the demolition of the fire station situated on the Land)

“Business Day” a day (excluding Saturday and any day on which typhoon no. 8 signal or above is hoisted or a black rainstorm warning is issued) on which banks are open for business in Hong Kong
“BVI” British Virgin Islands

“CCASS” the Central Clearing and Settlement System established and operated by HKSCC

— 1 —

DEFINITIONS

“CIMB-GK”	CIMB-GK Securities (HK) Limited, a licensed
	corporation to carry out type 1 (dealing in securities),
	type 4 (advising on securities) and type 6 (advising on
	corporate finance) regulated activities under the SFO,
	the independent financial adviser to the Independent
	Board Committee and the Independent Shareholders
“Company”	renren Holdings Limited, a company incorporated in
	Bermuda with limited liability and the shares of which
	are listed on the main board of the Stock Exchange
“Completion”	completion of the sale and purchase of the Sale Shares,
	the Sale Debt and the Additional Sale Debt in accordance
	with the terms of the Acquisition Agreement
“Completion Date”	the seventh Business Day after the fulfillment (or, as the
	case may be, waiver) of the conditions precedent of the
	Acquisition Agreement or such later date as the parties
	shall agree
“Concert Parties”	the meaning ascribed to parties “acting in concert” under
	the Takeovers Code
“connected person(s)”	the meaning ascribed to it under the Listing Rules
“Consideration”	the total consideration for the purchase of the Sale Shares,
	the Sale Debt and the Additional Sale Debt, which shall
	be not more than HK$204.4 million
“Consideration Shares”	66,666,666 Shares to be allotted and issued at HK$0.30
	per Share to the Vendor (or as it may direct) to satisfy
	portion of the Consideration
“controlling shareholder”	the meaning ascribed to it under the Listing Rules
“Conversion”	the exercising of the conversion right attaching to the
	Convertible Note
“Conversion Shares”	the Shares to be issued by the Company as a result of a
	Conversion

— 2 —

DEFINITIONS

“Convertible Note” the 3% convertible note due on the second anniversary of the issue date thereof in the principal amount of HK$60 million to be issued by the Company to satisfy portion of the Consideration

“Deed of Appointment” the deed of appointment to be executed by Yaubond, the Vendor, the Purchaser and the Company on Completion in relation to the appointment of the Purchaser as the project manager of the Development Project

“Development Costs” the total costs of the Development Project including but not limited to the total costs of the Land incurred from the date of the Deed of Appointment, construction costs, fitting out cost of the common area and all incidental and relevant governmental fees and taxes but excluding demolition and settlement costs of the fire station situated on the Land, designs fees and consultants’ fees, the basic project management fee payable by the PRC Company to the Purchaser pursuant to the Deed of Appointment, municipal public facilities charges（市政配套費）and finance costs

“Development Project” the development of the Land by the construction thereon of building(s) for office use and other commercial use (including service apartments, shopping arcade or shops) as the parties may agree
“Directors” directors of the Company “EAF(s)” the form(s) of application for excess Rights Shares to be issued by the Company in relation to the Rights Issue
“Enlarged Group” the Group and Yaubond Group

“Excluded Shareholder(s)” Shareholder(s) whose name(s) appear on the register of members of the Company as at the close of business on the Record Date and whose addresses as shown on such register are outside Hong Kong where the Directors, based on legal opinions provided by legal advisers, consider it necessary or expedient not to offer the Rights Shares to such Shareholders on account either of legal restrictions under the laws of relevant place or the requirements of the relevant regulatory body or stock exchange in that place

— 3 —

DEFINITIONS

“Executive”	the Executive Director of the Corporate Finance Division
	of the SFC or any delegate for the time being of the
	Executive Director
“Existing General Mandate”	the general mandate granted to the Directors at the annual
	general meeting of the Company held on 25 May 2005
	to allot, issue and deal with not more than 1,369,474,717
	new ordinary shares of HK$0.01 each in the share capital
	of the Company (or 13,694,747 Shares as adjusted for
	the share consolidation of the Company which became
	effective on 5 August 2005) being 20% of the number of
	issued shares of the Company as at the date of such
	annual general meeting
“Grand Cosmos”	Grand Cosmos Holdings Limited, a company
	incorporated in the BVI and is beneficially wholly owned
	by Mr. Yu, the sole director of Grand Cosmos
“Grand Cosmos Entitlement”	189,655,362 Rights Shares which will be provisionally
	allotted to Grand Cosmos pursuant to the Rights Issue
“Group”	the Company and its subsidiaries
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“HKSCC”	Hong Kong Securities Clearing Company Limited
“Hong Kong”	the Hong Kong Special Administrative Region of the
	PRC
“Independent Board Committee”	the independent board committee formed by the
	independent non-executive Directors, namely Mr. Choy
	Shu Kwan, Mr. Cheng Wing Keung, Raymond and Ms.
	Chung Lai Fong, la Fontaine, to advise the Independent
	Shareholders on the Acquisition Agreement and the
	transactions contemplated therein, the Rights Issue and
	the Whitewash Waiver
“Independent Shareholders”	Shareholders who are not interested or involved in the
	Proposed Acquisition, the Rights Issue and the
	Whitewash Waiver, being Shareholders other than Mr.
	Yu, his Concert Parties and their respective associates

— 4 —

DEFINITIONS

“Initial Conversion Price” the initial conversion price of HK$0.33 per Conversion Share (subject to adjustment)
“Land” the piece of land located at the northern part of the North Tianhe Road, Tianhe District (天河區天河北路以北 ) in the PRC having a site area of approximately 7,217 square metres
“Last Trading Day” 27 September 2005, being the last trading day of the Shares immediately prior to the suspension of trading in the Shares pending the release of the Announcement
“Latest Practicable Date” 4 November 2005, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained in this circular
“Latest Time for Termination” 4:00 p.m. on the third Business Day after the latest time for acceptance of the offer of the Rights Shares
“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange
“Mr. Yu” Mr. Yu Pan, the controlling shareholder of the Company, an executive Director and the chairman of the Company
“Ms. Azuma” Ms. Azuma Sarina, the person nominated by the Vendor to be issued the Consideration Shares and the Convertible Note
“New General Mandate” the general mandate proposed to be granted to the Directors at the SGM to allot, issue and deal with additional new Shares not exceeding 20% of the nominal value of issued Shares as at the date of the SGM or in the event that completion of the Rights Issue takes place not exceeding 20% of the nominal value of the issued Shares as enlarged by the Rights Issue
“Overseas Shareholders” Shareholders whose addresses on the register of members of the Company are outside Hong Kong on the Record Date

— 5 —

DEFINITIONS

“PAL(s)” the provisional allotment letter(s) to be issued by the Company in relation to the Rights Issue “Poly Agreement” the agreement for sale and purchase dated 22 June 2005 entered into between the Vendor and Ms. Azuma in relation to the acquisition by the Vendor of the entire issued share capital of Yaubond and the shareholder’s loans due by Yaubond to Ms. Azuma

“Poly (HK)” Poly (Hong Kong) Investments Limited, a company incorporated in Hong Kong and the shares of which are listed on the main board of the Stock Exchange. As disclosed in the unaudited interim report of Poly (HK) for the six months ended 30 June 2005, China Poly Group Corporation, a PRC state-owned enterprise, is the controlling shareholder of Poly (HK) having a beneficial interest of approximately 60.3% in its issued share capital

“PRC” the People’s Republic of China “PRC Company” 廣州寰城實業發展有限公司 (Guangzhou Huan Cheng Real Estate Development Company Limited), a wholly foreign owned company established in the PRC which is wholly owned by Yaubond and is the registered and beneficial owner of the Land
“Project Architect” Rocco Design Limited in Hong Kong and/or other architect or quantity surveying firm of international repute from time to time approved by the Company
“Project Completion Date” the date on which the Development Project is completed in conformity with the specifications contained in the Deed of Appointment and documentary evidence for completion of construction was issued by the relevant government authorities such that the Development Project is ready for occupation and use
“Proposed Acquisition” the proposed acquisition of the Sale Shares, the Sale Debt and the Additional Sale Debt by the Purchaser from the Vendor pursuant to the Acquisition Agreement
“Prospectus” the prospectus to be issued by the Company in relation to the Rights Issue

— 6 —

DEFINITIONS

“Prospectus Posting Date”	Monday, 28 November 2005, the posting date of the
	Prospectus (or such later date as agreed between the
	Underwriters and the Company)
“Purchaser”	Nicco Limited, a company incorporated in the BVI with
	limited liability and is wholly owned by the Company
“Qualifying Shareholder(s)”	Shareholder(s) whose name(s) appear on the register of
	members of the Company as at the close of business on
	the Record Date, other than the Excluded Shareholders
“Record Date”	Friday, 25 November 2005, the record date for
	determining entitlements to the Rights Issue
“Rights Issue”	the issue of not more than 492,142,410 Rights Shares at
	the Subscription Price on the basis of six Rights Shares
	for every existing Share held on the Record Date
“Rights Issue Documents”	Prospectus, PALs and EAFs
“Rights Shares”	new Share(s) to be allotted and issued pursuant to the
	Rights Issue
“RMB”	Renminbi, the lawful currency of PRC
“Salable Floor Area”	the total floor area of the Development Project, measured
	and calculated by a qualified PRC surveyor approved by
	Yaubond and in accordance with the relevant PRC rules
	and regulations which is or may be sold to individual
	buyers
“Sale Debt”	HK$45,073,721.04, being 49% of the shareholder’s loans
	due by Yaubond to the Vendor as at 31 August 2005
“Sale Shares”	49 shares of US$1.00 each in the issued share capital of
	Yaubond, representing 49% of the issued share capital
	of Yaubond
“SFC”	Securities and Futures Commission of Hong Kong
“SFO”	the Securities and Futures Ordinance (Chapter 571 of
	the Laws of Hong Kong)

— 7 —

DEFINITIONS

“SGM”	special general meeting of the Company to be held to
	approve the Acquisition Agreement and the transactions
	contemplated therein, the Rights Issue, the Whitewash
	Waiver, the proposed change of auditors and the grant
	of the New General Mandate
“Share Cancellation”	the cancellation of 16,299 Shares as a result of the
	rectification of the register of members of the Company
	as approved by the Supreme Court of Bermuda, details
	of which are set out in the announcement of the Company
	dated 22 July 2005
“Share(s)”	ordinary share(s) of HK$0.01 each in the share capital
	of the Company
“Shareholder(s)”	holder(s) of the Share(s)
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Subscription Price”	the subscription price of HK$0.30 per Rights Share
“Supplemental Agreement”	the supplemental agreement in relation to the Poly
	Agreement entered into between the Vendor, Ms. Azuma
	and the Purchaser, which is conditional on Completion
“Tai Fook Securities”	Tai Fook Securities Company Limited, a licensed
	corporation to carry on types 1, 3 and 4 regulated
	activities for the purpose of the SFO
“Takeovers Code”	the Hong Kong Code on Takeovers and Mergers
“Underwriters”	Grand Cosmos and Tai Fook Securities
“Underwriting Agreement”	the underwriting agreement entered into between the
	Company, the Underwriters and Mr. Yu on 5 October
	2005 in relation to the underwriting of the Underwritten
	Shares
“Underwritten Shares”	all the Rights Shares other than the Grand Cosmos
	Entitlement, being not more than 302,487,048 Rights
	Shares, of which 169,153,715 Rights Shares are
	underwritten by Grand Cosmos and 133,333,333 Rights
	Shares are underwritten by Tai Fook Securities

— 8 —

DEFINITIONS

“Vendor”

Sunny Billion Holdings Limited, a company incorporated in the BVI with limited liability and is wholly owned by Poly (HK)

“Vendor’s Loan”

the total amount of shareholder’s loans advanced by the Vendor to Yaubond as at the Completion Date, which is non-interest bearing and has no fixed repayment date. As at the Latest Practicable Date, the amount of the Vendor’s Loan is approximately HK$168.7 million

“Whitewash Waiver”
a waiver of the obligation of Mr. Yu and his Concert Parties to make a mandatory general offer for all the securities of the Company other than those already owned and/or agreed to be acquired by Mr. Yu and/or his Concert Parties under Rule 26 of the Takeovers Code as a result of the underwriting of the Rights Shares by the Underwriters pursuant to the Underwriting Agreement, the issue of the Consideration Shares pursuant to the Acquisition Agreement and the issue of the Conversion Shares upon conversion of the Convertible Note to be issued pursuant to the Acquisition Agreement
“Yaubond”
Yaubond Limited, a company incorporated in the BVI with limited liability and is wholly owned by the Vendor as at the Announcement Date and the Latest Practicable Date
“Yaubond Group” Yaubond and its subsidiaries
“%” per cent.

Unless otherwise specified in this circular, translations of RMB into HK$ are made in this circular, for illustration only, at the rate of RMB1.00 to HK$0.96. No representation is made that any amounts in RMB could have been or could be converted at those rates or at any other rates.

— 9 —

LETTER FROM THE BOARD

renren Holdings Limited 人人控股有限公司[*]

(Incorporated in Bermuda with limited liability)

(Stock code: 59)

Executive Directors: Yu Pan (Chairman) Mai Zhi Hui Lau Yat Tung, Derrick Wong Lok

Registered office: Clarendon House 2 Church Street Hamilton HM 11 Bermuda

Independent non-executive Directors: Choy Shu Kwan Cheng Wing Keung, Raymond Chung Lai Fong, la Fontaine

Principal place of business in Hong Kong: 2502B, Tower 1 Admiralty Centre 18 Harcourt Road Hong Kong

8 November 2005

To the Shareholders

Dear Sir or Madam,

(I) VERY SUBSTANTIAL ACQUISITION IN RELATION TO
PROPOSED ACQUISITION OF 49% SHAREHOLDING IN AND SHAREHOLDER’S LOANS DUE BY YAUBOND LIMITED; (II) PROPOSED RIGHTS ISSUE IN THE PROPORTION OF SIX RIGHTS SHARES FOR EVERY EXISTING SHARE; (III) APPLICATION FOR WHITEWASH WAIVER; (IV) PROPOSED CHANGE OF AUDITORS; AND
(V) REFRESHMENT OF GENERAL MANDATE TO ISSUE NEW SHARES

INTRODUCTION

On 5 October 2005, the Vendor and the Purchaser, a wholly owned subsidiary of the Company, entered into the Acquisition Agreement pursuant to which the Vendor conditionally agreed to sell and the Purchaser conditionally agreed to purchase (i) the Sale Shares, representing 49%

for identification purpose only

— 10 —

LETTER FROM THE BOARD

of the issued share capital of Yaubond; (ii) the Sale Debt, representing 49% of the shareholder’s loans due by Yaubond to the Vendor as at 31 August 2005; and (iii) the Additional Sale Debt, representing the difference between 49% of the Vendor’s Loan and the Sale Debt.

The aggregate consideration for the Sale Shares and the Sale Debt is HK$127 million. The consideration for the Additional Sale Debt will be equal to its face value and will be not more than HK$77.4 million. As at the Latest Practicable Date, the Additional Sale Debt amounted to HK$37.6 million. The consideration for the Sale Shares and the Sale Debt will be settled by way of (i) cash of approximately HK$47 million; (ii) issue of the Consideration Shares of an aggregate amount of approximately HK$20 million; and (iii) issue of the Convertible Note of HK$60 million. The consideration for the Additional Sale Debt will be fully settled in cash.

Pursuant to the Deed of Appointment to be entered into on Completion, (i) Yaubond will appoint the Purchaser as the project manager to undertake and supervise the construction of the Development Project; (ii) Yaubond will procure the PRC Company to pay to the Purchaser a basic project management fee of RMB30 million (equivalent to approximately HK$28.8 million) and in the event that the actual Development Costs is less than the Budget Development Costs, an additional project management fee equivalent to the difference; and (iii) the Purchaser undertakes to Yaubond and the Vendor that, among other things, the Development Costs shall not exceed the Budget Development Costs and in the event of a breach of this undertaking, the Purchaser shall compensate Yaubond an amount equivalent to the excess. Mr. Yu has agreed to counter-indemnify the Company and the Purchaser for all their liabilities under the Deed of Appointment.

To finance the Proposed Acquisition, the Company proposes to raise approximately HK$147.6 million before expenses by way of a rights issue of not more than 492,142,410 Rights Shares (assuming the Share Cancellation has not become effective) at a price of HK$0.30 per Rights Share on the basis of six Rights Shares for every existing Share held on the Record Date.

In the event that the Underwriters are called upon to subscribe for the Underwritten Shares in full pursuant to their obligations under the Underwriting Agreement and taking into account the Grand Cosmos Entitlement to be taken up by Grand Cosmos and the Consideration Shares to be issued to Ms. Azuma, the interest of Mr. Yu and his Concert Parties in the voting rights of the Company would increase from approximately 38.5% to approximately 92.1% immediately upon completion of the Rights Issue and the issue of the Consideration Shares assuming no Conversion has taken place and 93.9% assuming full Conversion has taken place. Accordingly, the underwriting by the Underwriters of the Underwritten Shares and the issue of the Consideration Shares to Ms. Azuma may trigger an obligation on the part of Mr. Yu and his Concert Parties to make a mandatory general offer under Rule 26 of the Takeovers Code for all the securities of the Company not already owned or agreed to be acquired by Mr. Yu and/ or his Concert Parties.

— 11 —

LETTER FROM THE BOARD

Mr. Yu and his Concert Parties have made an application for the Whitewash Waiver to the Executive pursuant to Note 1 of the Notes on dispensations from Rule 26 of the Takeovers Code.

Mr. Yu, his Concert Parties and their respective associates, who together hold approximately 38.5% of the issued share capital of the Company as at the Latest Practicable Date, will abstain from voting on the ordinary resolutions for approval of the Acquisition Agreement and the transactions contemplated therein, the Rights Issue and the Whitewash Waiver.

The Directors propose to appoint BDO McCabe Lo Limited to fill the casual vacancy arising from the resignation of Albert Lam & Co as auditors of the Company. The proposed appointment is subject to approval by the Shareholders at the SGM.

The Directors also propose to renew the Existing General Mandate granted to them to issue new Shares, which grant is subject to approval by Shareholders at the SGM.

The purpose of this circular is to give you further information regarding the Proposed Acquisition, the Rights Issue, the Whitewash Waiver, the proposed appointment of new auditors of the Company and the proposed grant of the New General Mandate, the recommendation from the Independent Board Committee to the Independent Shareholders and the recommendation from CIMB-GK to the Independent Board Committee and the Independent Shareholders in respect of the Acquisition Agreement and the transactions contemplated therein, the Rights Issue and the Whitewash Waiver, as well as information on the Group, Yaubond Group and the Enlarged Group as required under the Listing Rules and the Takeovers Code. Notice of the SGM is set out on pages 177 to 182 of this circular.

(I) Proposed Acquisition

The Acquisition Agreement

Date

5 October 2005

Parties

Vendor: Sunny Billion Holdings Limited, a wholly owned subsidiary of Poly (HK). As disclosed in the unaudited interim report of Poly (HK) for the six months ended 30 June 2005, China Poly Group Corporation, a PRC state-owned enterprise, is the controlling shareholder of Poly (HK) having a beneficial interest of approximately 60.3% in its issued share capital.

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LETTER FROM THE BOARD

To the best of the Directors’ knowledge, the Vendor is an investment holding company. As at the Announcement Date and the Latest Practicable Date, the Vendor owns the entire issued share capital of Yaubond.

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiry, save for the fact that Mr. Yu, through his wholly owned company, beneficially owns 29% interest in Yue Tian Development Limited, a 51% owned subsidiary of Poly (HK), each of the Vendor and Poly (HK) and their associates are third parties independent of the Company and connected persons of the Company and the Vendor and Poly (HK) have no shareholding interest in the Company as at the Announcement Date and the Latest Practicable Date.

Purchaser: Nicco Limited, a wholly owned subsidiary of the Company.

Assets to be acquired

i. the Sale Shares, being 49 shares of US$1.00 each in the capital of Yaubond, representing 49% of the total issued share capital of Yaubond;
ii. the Sale Debt, representing 49% of the shareholder’s loan due by Yaubond to the Vendor as at 31 August 2005; and
iii. the Additional Sale Debt, representing the difference between 49% of the Vendor’s Loan and the Sale Debt (i.e. 49% of the additional amount of shareholder’s loans advanced by the Vendor to Yaubond from 1 September 2005 up to Completion Date).

The Consideration

The aggregate consideration for the Sale Shares and the Sale Debt shall be HK$127 million, of which approximately HK$81.9 million is for the Sale Shares and approximately HK$45.1 million is for the Sale Debt, and the consideration for the Additional Sale Debt shall equal to its face value as at Completion Date and which shall be not more than HK$77.4 million.

The Consideration has been agreed by the parties after arm’s length negotiations with reference to the unaudited consolidated net assets of Yaubond as at 31 August 2005 (as adjusted by the Company to take into account the new and revised Hong Kong Financial Reporting Standards which become effective for accounting periods beginning on or after 1 January 2005) of approximately HK$93 million, the fair value of the Land as at 31 August 2005 of approximately HK$260 million (as valued by RHL Appraisal Ltd., an independent professional property valuer) and the face value of the Sale Debt of approximately HK$45.1 million and the Additional Sale Debt of not more than HK$77.4 million.

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LETTER FROM THE BOARD

The Consideration has been paid/shall be payable by the Purchaser to the Vendor in the following manner:

(a) a deposit of HK$5 million has been paid by the Purchaser upon signing of the Acquisition Agreement;
(b) a sum of HK$20 million shall be satisfied at Completion by way of an issue and allotment of the Consideration Shares by the Company to the Vendor or as it may direct;
(c) a sum of HK$60 million shall be satisfied at Completion by way of the issue of the Convertible Note by the Company to the Vendor or as it may direct; and
(d) the balance of not more than HK$119.4 million shall be payable on Completion in cash.

In determining the payment method of the Consideration, the Directors have considered the appropriate size of the Rights Issue, which in turn was arrived at after discussion with other independent potential underwriters of the potential terms of the Rights Issue. Based on such discussions, the Directors concluded that the size of the Rights Issue could not be increased to an amount which was sufficient to cover the underlying amount of the Consideration Shares and the Convertible Note unless the subscription price of the Rights Shares was at a substantial discount to the net asset value per Share. The Directors do not consider conducting a large-scale rights issue with subscription price at a substantial discount to net asset value to be in the interest of the Company and the Shareholders as a whole given the dilution effect of such rights issue. Accordingly, the Directors proposed to the Vendor to have part of the Consideration to be satisfied by the Consideration Shares and the Convertible Note.

As disclosed in the circular of Poly (HK) dated 27 July 2005, pursuant to the Poly Agreement, Poly (HK) acquired the entire issued share capital of Yaubond and the shareholder’s loans due by Yaubond to Ms. Azuma for a total consideration of approximately HK$258 million, of which HK$120 million (the “Balance Consideration”) is payable by Poly (HK) on or before 31 August 2006. Pursuant to the Supplemental Agreement, the Vendor agreed and directed that the Consideration Shares and the Convertible Note shall be issued by the Company direct to Ms. Azuma in partial satisfaction of the Balance Consideration. As security for the warranties given by Ms. Azuma under the Poly Agreement, Ms. Azuma has agreed to pledge to Poly (HK) the Consideration Shares and the Convertible Note to be issued to her.

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiry, Ms. Azuma is a third party independent of the Company and connected persons of the Company and has no shareholding interest in the Company as at the Announcement Date and the Latest Practicable Date.

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LETTER FROM THE BOARD

Conditions precedent

Completion shall be conditional upon the following conditions being fulfilled/waived:

(a) completion by the Purchaser of a due diligence review and investigation on Yaubond and the PRC Company and the Purchaser being satisfied with the results thereof;
(b) the passing of the necessary resolution(s) by the Independent Shareholders at the SGM approving the Rights Issue and the Underwriting Agreement;
(c) the warranties given by the Vendor in the Acquisition Agreement being true and correct and not misleading in any material respects;
(d) the passing of the necessary resolutions by the Independent Shareholders at the SGM approving the Acquisition Agreement and the transactions contemplated therein;
(e) (i) the passing of an ordinary resolution by the Independent Shareholders approving the Whitewash Waiver; and
(ii) the Whitewash Waiver having been obtained from the Executive and not having been revoked or amended;
(f) the Listing Committee of the Stock Exchange granting the listing of and permission to deal in the Consideration Shares, the Rights Shares and the Conversion Shares;
(g) all necessary statutory, governmental and regulatory consents, authorizations or other approvals and requirements (or, as the case may be, the relevant waiver) in connection with the entering into and performance of the terms of the Acquisition Agreement and the transactions contemplated therein having been obtained and complied with, including those under the Listing Rules and the Takeovers Code;
(h) the obtaining of all consents from other third parties which are necessary or desirable in connection with the execution and performance of the Acquisition Agreement and any of the transactions contemplated therein;
(i) the Purchaser having obtained a legal opinion issued by a PRC firm of lawyers in respect of the PRC Company, in such form and substance to the satisfaction of the Purchaser;
(j) the Underwriting Agreement becoming unconditional in all respects (save for any condition requiring the Acquisition Agreement to become unconditional) and not having been terminated or rescinded by Tai Fook Securities;

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LETTER FROM THE BOARD

(k) the delivery by the Vendor to the Purchaser of a legal opinion issued by a BVI law firm acceptable to the Purchaser confirming that (i) each of Yaubond and the Vendor has been duly incorporated and is in good standing together with certificates of incumbency certifying the directors and shareholders of each of the Vendor and Yaubond; and (ii) the Acquisition Agreement has been duly executed by the Vendor and constitutes legal, valid and binding obligations of the Vendor;
(l) the passing of the necessary resolutions by the shareholders (or, if required by the Stock Exchange, the independent shareholders) of Poly (HK) approving the Acquisition Agreement and the transactions contemplated therein in compliance with the Listing Rules and (if applicable) the Takeovers Code; and
(m) no event, occurrence or development of a state of circumstances or facts having occurred which has had or reasonably could be expected to have a material and adverse effect on Yaubond and/or the PRC Company.

The Purchaser may at any time in writing waive the conditions (a), (c), (g), (h), (i), (j), (k) and (m). Neither the Purchaser nor the Vendor may waive conditions (b), (d), (e)(i), (e)(ii), (f) and (l).

If any of the above conditions has not been fulfilled (or waived by the Purchaser) by 31 January 2006 or such later date as the parties may agree, or the conditions (c) and (m) do not remain fulfilled on Completion Date (unless waived by the Purchaser), the Acquisition Agreement shall lapse and be terminated and the Vendor shall refund the deposit to the Purchaser.

Completion

Subject to the fulfillment (or, as the case may be, waiver) of the conditions, Completion shall take place on Completion Date.

Issue of the Consideration Shares

The 66,666,666 Consideration Shares represents approximately 81.3% of the existing issued share capital of the Company and approximately 10.4% of the issued share capital of the Company as enlarged by the Rights Issue and the issue of the Consideration Shares. The issue price of HK$0.30 per Consideration Share represents:

(a) a discount of approximately 45.5% to the closing price of HK$0.55 per Share as quoted on the Stock Exchange on the Last Trading Day;
(b) a discount of approximately 44.4% to the average closing price of HK$0.54 per Share as quoted on the Stock Exchange for the last 10 consecutive trading days up to and including the Last Trading Day;

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LETTER FROM THE BOARD

(c) a discount of approximately 36.2% to the average closing price of HK$0.47 per Share as quoted on the Stock Exchange for the last 30 consecutive trading days up to and including the Last Trading Day;
(d) a discount of approximately 11.8% to the theoretical ex-rights price of approximately HK$0.34 per Share based on the closing price of HK$0.55 as quoted on the Stock Exchange on the Last Trading Day (the “Theoretical Exrights Price”);
(e) a discount of approximately 25.0% to the closing price of HK$0.40 per Share as quoted on the Stock Exchange on the Latest Practicable Date;
(f) a premium of approximately 3.4% to the unaudited consolidated net asset value per Share of approximately HK$0.29 as at 30 June 2005; and
(g) an amount equal to the Subscription Price.

The issue price of HK$0.30 per Consideration Share has been determined after arm’s length negotiations between the parties to the Acquisition Agreement with reference to the Theoretical Ex-rights Price and the net asset value per Share.

The Consideration Shares shall be allotted and issued and credited as fully paid and shall rank pari passu among themselves and with all the Shares at issue on Completion Date.

An application will be made by the Company for the listing of, and permission to deal in, the Consideration Shares.

The Convertible Note

The principal terms of the Convertible Note are as follows:

Principal amount: HK$60 million Initial Conversion HK$0.33 per Conversion Share, subject to adjustments in certain Price: events including, among other things, share consolidation, share subdivision, capitalization issue, capital distribution and rights issue Interest rate: 3% per annum Maturity Date: the second anniversary of the date of issue of the Convertible Note (“Maturity Date”)

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LETTER FROM THE BOARD

Redemption: Unless previously converted or purchased and cancelled in accordance with the terms and conditions of the Convertible Note, the Company shall redeem the Convertible Note on the Maturity Date at the principal amount of the Convertible Note outstanding together with the interest accrued thereon.
Transferability: The Convertible Note is freely transferable but may not be assigned or transferred to a connected person (as defined under the Listing Rules) of the Company without prior written consent of the Company.
Conversion period: The holder of the Convertible Note may at any time during the period commencing from the fifteenth day after the date of issue of the Convertible Note up to and including the date which is 15 days prior to the Maturity Date require the Company to convert the whole or any part of the principal amount of the Convertible Note outstanding (in whole multiples of HK$500,000 or, if less, the then outstanding principal amount of the Convertible Note) into Conversion Shares.
Voting: The holder of the Convertible Note will not be entitled to receive notices of, attend or vote at any meeting of the Company by reason only of it being a holder of the Convertible Note.
Listing: No application will be made for the listing of the Convertible Note on the Stock Exchange or any other stock exchange. An application will be made by the Company for the listing of, and permission to deal in, the Conversion Shares to be issued as a result of the exercise of the conversion rights attached to the Convertible Note.
Ranking: The Convertible Note will rank pari passu with all other present and future unsecured and unsubordinated obligations of the Company.

The Company undertakes that, in the event that the public float falls below the limit prescribed under the Listing Rules after any Conversion, it will defer the issue and allotment of the Conversion Shares to such time as shall be required for it to ensure that immediately upon the issue and allotment of such Conversion Shares, the public float of the Shares will not fall below the limit prescribed under the Listing Rules. Such restriction is explicitly set out in the document of the Convertible Note. The Company will also notify the Stock Exchange and make an announcement if the Convertible Note is transferred to a connected person of the Company.

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LETTER FROM THE BOARD

Based on the Initial Conversion Price of HK$0.33 per Conversion Share, a total of 181,818,181 Conversion Shares will be issued upon full Conversion. The Conversion Shares represent approximately 221.7% of the existing issued share capital of the Company and approximately 22.1% of the issued share capital of the Company as enlarged by the Rights Issue, the issue of the Consideration Shares and the issue of the Conversion Shares at the Initial Conversion Price upon full Conversion.

The Initial Conversion Price of HK$0.33 per Conversion Share was arrived at after arm’s length negotiation between the Company and the Vendor with reference to the Theoretical Ex-rights Price and represents:

(a) a discount of approximately 40.0% to the closing price of HK$0.55 per Share as quoted on the Stock Exchange on the Last Trading Day;
(b) a discount of approximately 38.9% to the average closing price of HK$0.54 per Share as quoted on the Stock Exchange for the last 10 consecutive trading days up to and including the Last Trading Day;
(c) a discount of approximately 29.8% to the average closing price of HK$0.47 per Share as quoted on the Stock Exchange for the last 30 consecutive trading days up to and including the Last Trading Day;
(d) a discount of approximately 2.9% to the Theoretical Ex-rights Price;
(e) a discount of approximately 17.5% to the closing price of HK$0.40 per Share as quoted on the Stock Exchange on the Latest Practicable Date;
(f) a premium of approximately 13.8% to the unaudited consolidated net asset value per Share of approximately HK$0.29 as at 30 June 2005; and
(g) a premium of 10% to the Subscription Price.

The Directors consider the terms of the Convertible Note, including the Initial Conversion Price, fair and reasonable and the issue of the Convertible Note is in the interests of the Company and the Shareholders as a whole.

Deed of Appointment to be entered into on Completion

Appointment:

On Completion, Yaubond will appoint the Purchaser as the project manager to undertake and supervise the construction of the Development Project.

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LETTER FROM THE BOARD

Warranty:

The Purchaser warrants to Yaubond and the Vendor that, among other things:

(i) the Development Costs shall not exceed the Budget Development Costs, which is estimated to be about RMB600 million based on the current development plan; and
(ii) the Project Completion Date shall be no later than 45 months from the date of the Deed of Appointment save and except due to any event of force majeure contained in the Deed of Appointment in which case such Completion Date shall be extended for such further period as shall be certified by the Project Architect.

In the event of a breach of:

(a) warranty (i) above, the Purchaser will compensate Yaubond an amount equivalent to the excess;
(b) warranty (ii) above, the Purchaser shall compensate Yaubond the following amounts:
(1) for any delay not longer than 6 months, interest on the total amount (including loans and capital) injected by Yaubond and its shareholders into the PRC Company for the Development Project as at Project Completion Date at the rate of 15% per annum for the period of the delay; and
(2) for any delay longer than 6 months, an additional amount equivalent to the then prevailing market rental income which should have accrued to the PRC Company under the Development Project during the period of such delay beyond the first 6 months.

A pro rata amount of the compensation mentioned above based on the shareholding percentage of the Vendor in Yaubond shall be payable directly to the Vendor.

As security for the Purchaser’s warranties set out in the Deed of Appointment, the Purchaser agrees to pledge its 49% shares of Yaubond to the Vendor.

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LETTER FROM THE BOARD

Remuneration:

Yaubond shall procure the PRC Company to pay to the Purchaser:

i. a basic project management fee of RMB30 million payable by (i) consecutive monthly payments of RMB700,000 each commencing from the later of the date of the Deed of Appointment or the date on which agreement in relation to the building plans, the budget costs and the program of works of the Development Project are agreed by Yaubond and the Purchaser (which must be within 3 months from the date of the Deed of Appointment) and until Project Completion Date; and (ii) the balance by one lump sum within 14 days of Project Completion Date; and
ii. in the event the actual Development Costs is less than the Budget Development Costs, an additional project management fee equivalent to the difference.
Guarantee by the Company:
Termination of the Appointment:

The Company unconditionally and irrevocably guarantees to Yaubond the due and punctual performance and observance by the Purchaser of all its obligations, commitments, warranties and undertakings under the Deed of Appointment.

The Deed of Appointment may be terminated upon happening of, among other things, any of the followings:

(a) failure of the parties to the Deed of Appointment to reach agreement on the building plans, budget costs or the program of works of the Development Project within 3 months from the date of the Deed of Appointment; or
(b) the Purchaser ceases to be a shareholder of Yaubond; or
(c) material breach by the Purchaser of its warranty under the Deed of Appointment which is not capable of remedy, other than breach as to the amount of the Development Costs or Project Completion Date; or
(d) the whole of the Development Project is sold before Project Completion Date.

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LETTER FROM THE BOARD

The Budget Development Costs is agreed between the parties based on the Development Project’s specifications including the design, construction, fitting and furnishing etc. The Company has engaged an independent firm of quantity surveyors (the “Quantity Surveyor”) to review the Budget Development Costs and the Quantity Surveyor has preliminarily advised that the Budget Development Costs is achievable in the absence of any unforeseeable events. The Directors consider that (i) it is a normal market practice for a property development project manager to warrant a completion period and to pay penalty for project delay; and (ii) the Budget Development Costs and the 45month maximum development period are reasonable based on the Development Project’s specifications, the preliminary advice of the Quantity Surveyor and the fact that the expected construction period according to the current development plan is not more than 36 months. The Directors also consider that the pledge of 49% interest in Yaubond by the Purchaser to the Vendor as security for its obligations under the Deed of Appointment to be acceptable considering that the Company intends to hold the interest in Yaubond as long term investment and the Company is confident that the Purchaser would not breach the warranties under the Deed of Appointment.

The basic project management fee of RMB30 million payable to the Purchaser under the Deed of Appointment represents 5% of the total Budget Development Costs of about RMB600 million, which is within the Directors’ estimation of the market management fee for property development projects in Guangzhou, the PRC, of 2% to 5%.

In the event that the Deed of Appointment is terminated, Yaubond may either appoint another project manager to supervise the Development Project or manage the project by itself. Under either situation, the Development Project will continue and the Directors do not expect the termination of the Deed of Appointment to have any material impact on the Company save for the loss of project management fee as a result of such termination.

Indemnity by Mr. Yu

At the request of Tai Fook Securities, Mr. Yu has agreed to counter-indemnify the Company and the Purchaser against any of their liabilities under the Deed of Appointment.

Information on Yaubond

Yaubond is a single purpose investment holding company incorporated in the BVI on 3 May 2005 and has not, since its corporation, carried on any business other than acquisition and holding of its equity interests in the PRC Company.

The PRC Company was established in the PRC on 12 October 2004 and is now a wholly foreign owned enterprise with a registered capital of RMB220 million, all of

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LETTER FROM THE BOARD

which has been fully paid up. The PRC Company is a project company and has not carried on any business since its establishment other than the acquisition and holding of the Land. The Land is situated at the junction of Tianhe Bei Road and Linhe Dong Road, Tinahe District, Guangzhou, Guangdong Province, the PRC with a site area of approximately 7,217 square metres. The PRC Company has obtained the land use rights certificate issued by 廣州市國土資源和房屋管理局 (Guangzhou Land Resources and Housing Management Bureau) for a term of 40 years, commencing from 12 April 2005 and the relevant land use permits in respect of the Land. According to the valuation report prepared by RHL Appraisal Ltd., an independent professional valuer, (i) the valuation of the Land as at 31 August 2005 on the basis that the fire station having a floor area of 5,400 square metres currently situated on the Land will remain to be situated on the Land using the comparison method is approximately HK$260 million; and (ii) the valuation of the Land as at 31 August 2005 on the basis that the fire station currently situated on the Land is relocated outside the Land (such that the entire building on the subject site shall be used for commercial/office purposes free from the fire station re-habitation requirement) at an aggregate settlement and relocation cost of no more than RMB80 million using the comparison method is approximately HK$325 million. Subject to approval by the PRC Government, the PRC Company can relocate the fire station currently situated on the Land by means of property exchange. In this regard, the PRC Company has already commenced negotiation with the relevant authority for the purpose of reaching an agreement on the property exchange. Given the latest progress of negotiations with the authority in charge of the fire station and the regulatory authority, 廣州市城市規劃局 (Town Planning Bureau of Guangzhou), the Directors and the Vendor are of the view that there shall be no foreseen obstacle in reaching property exchange agreement with the relevant authorities. Under the current plan, the Land is planned to be developed into an office, commercial and residential complex having a gross floor area of around 84,000 square metres and car parking spaces of around 18,000 square metres. As at the Latest Practicable Date, construction work on the Land has not yet commenced.

The property to be developed from the Land is intended to be partly leased and partly sold for office and other commercial use (including service apartments, shopping arcade or shops). According to the current plan, it is expected that the PRC Company will obtain the relevant construction permit for the Development Project in 2006 and the construction of the Development Project will commence thereafter. The construction is expected to be completed by the end of 2008.

The total cost of the Development Project (inclusive of the cost of Land, the Development Costs and other expenses) is estimated to be about RMB910 million (equivalent to approximately HK$875 million), which is expected to be financed by shareholders’ contribution of about RMB260 million, bank borrowings of about RMB400 million and proceeds from pre-sale of units of about RMB250 million. Of the total amount of

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LETTER FROM THE BOARD

RMB260 million (equivalent to approximately HK$250 million) to be contributed by Yaubond’s shareholders, HK$122.5 million (being 49% of the total amount) will be contributed by the Group through the acquisition of the Sale Debt of approximately HK$45.1 million and the Additional Sale Debt of up to HK$77.4 million (in the event that the amount of the Additional Sale Debt as at Completion Date is less than HK$77.4 million, the difference is expected to be injected into Yaubond by the Group after Completion in accordance with its shareholding in Yaubond). As at the Latest Practicable Date, the amount of the Vendor’s Loan is approximately HK$168.7 million, of which approximately HK$86.4 million has been utilized before 31 August 2005 for settlement of the Land premium and procuring the title of the Land to be vested in the PRC Company and approximately HK$76.8 million has been utilized in September 2005 for payment of demolition and settlement costs for the clearance of the fire station located on the Land.

The audited consolidated financial position of Yaubond as at 31 August 2005 and the audited consolidated results of Yaubond for the period from 3 May 2005 (date of incorporation) to 31 August 2005, as extracted from the Accountants’ Report on Yaubond set out in Appendix II to this circular, are as follows:

As	at 31 August 2005
	(audited)
	(HK$’000)
Total assets_(Note 1)_	258,053
Net assets	93,001
For the period from 3 May 2005
(date of incorporation)
	to 31 August 2005
	(audited)
	(HK$’000)
Turnover	Nil
Net profit before and after taxation and extraordinary items_(Note 2)_	89,605

Notes:

The audited consolidated total assets of Yaubond as at 31 August 2005 mainly consist of the Land under development of HK$250 million.
The net profit mainly included a gain on acquisition of subsidiary of approximately HK$89.7 million arising from the acquisition of the PRC Company.

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LETTER FROM THE BOARD

Reasons for and benefits of the Proposed Acquisition

The Company is an investment holding company and its principal subsidiaries are engaged in the provision of property development, project management and related advisory services, internet services and investment in securities.

For the year ended 31 December 2004, the Group’s turnover was mainly derived from the general trading of unalloyed aluminum and provision of agency service to an independent third party in arranging the sale of certain shares, which are traded on the Over-the-counter Bulletin Board of the United States of America, held by the party. The asset obtained by the Company in return for its provision of the aforesaid agency service has been substantially written off as at the date of this circular. The Group recorded an audited consolidated net loss of approximately HK$47.5 million for the year ended 31 December 2004. The loss mainly comprised of loss on disposal of trading securities of approximately HK$13.7 million, loss on and provision for investment in securities of approximately HK$16.0 million, write-off of bad debts and provision for doubtful debts of approximately HK$12.2 million and amortization and impairment of goodwill of approximately HK$5.6 million. Leveraging on the experience of Mr. Yu and Mr. Derrick Lau, an executive Director, both of whom have substantial property development experience in the PRC, the Group began to diversify into provision of property management services since the beginning of 2005. As disclosed in the Company’s unaudited interim report for the six months ended 30 June 2005, the Group derived income of approximately HK$2.7 million from provision of property development project management services for a hotel and office development project and a residential property development project, both projects being located in Guangzhou, the PRC.

Since Mr. Yu became the indirect controlling shareholder of the Company in December 2004, the Company has been exploring into new opportunities in order to enhance its income stream. However, the Group has not made any acquisitions of assets or companies until the entering into of Acquisition Agreement. By acquiring a 49% interest in Yaubond, the Group will acquire an interest in the Land and be able to participate in the Development Project. The Group has been engaging in the provision of property development project management services prior to the Proposed Acquisition and the Proposed Acquisition represents a further step for the Group to directly participate in the property development sector. The Directors consider that the Proposed Acquisition, which amounts to a vertical extension of the Group’s existing property project management business, represents a good opportunity for the Company to diversify into the PRC property market which has good prospects given the economic development in the PRC, particularly for the more affluent cities like Guangzhou where the Development Project is located. Therefore, the Directors consider that the Proposed Acquisition will enhance the earning base of the Group, thereby bringing better return to the Shareholders.

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LETTER FROM THE BOARD

Besides, pursuant to the Deed of Appointment to be entered into on Completion, the Purchaser will be appointed as the project manager of the Development Project and be able to earn project management fees no later than 3 months after the entering into of the Deed of Appointment, unless the parties cannot agree to the building plans etc for the Development Project within 3 months from the date of the Deed of Appointment and the Deed of Appointment is terminated as a result thereof. In the event that the Deed of Appointment is terminated or the parties agree to extend the abovementioned 3 months period, the Company will make an announcement.

After the execution of the Deed of Appointment, Mr. Yu and Mr. Derrick Lau will be responsible for the overall supervision of the Development Project. The Group will also hire some additional employees to carry out the day-to-day work required under the Deed of Appointment.

The Directors consider that the entering into of the Acquisition Agreement is in the interest of the Shareholders as a whole and that the terms of the Acquisition Agreement are fair and reasonable. Accordingly, the Directors recommend the Independent Shareholders to approve the Acquisition Agreement and the transactions contemplated therein at the SGM.

As stated in the announcement of Poly (HK) dated 12 October 2005, when the Vendor acquired 100% equity interests in Yaubond in August 2005, it had no immediate intention to develop the Land. Subsequent to completion of such acquisition, Poly (HK) was approached by the Company to negotiate for the acquisition and development of the Land. The main reasons for Poly (HK) to dispose of its 49% equity interest in Yaubond and in turn its 49% interest in the Land to the Company were due to the facts that (i) the Development Costs are guaranteed by the Purchaser and hence the development risk of the Development Project would be substantially reduced; (ii) by engaging the Purchaser as the project manager of the Development Project, Poly (HK) could leverage on the experiences of Mr. Yu and Mr. Derrick Lau in project development in the PRC; and (iii) Poly (HK) would be able to record a profit from the disposal of its 49% equity interest in Yaubond within 2 months of acquisition while maintaining control of the Development Project.

On Completion, Yaubond will be owned as to 49% by the Purchaser and as to 51% by the Vendor and the Group’s 49% interest in Yaubond would be accounted for as an investment in associate company. The Company has no intention to purchase any of the remaining 51% equity interest in Yaubond. It is also the intention of Poly (HK) to maintain its 51% equity interest in Yaubond. The Group would continue to be engaged in its existing business activities of provision of property project management but intends to downsize its online operation to web design and development services and discontinue the businesses of trading, financial services and securities investment activities. Considering the good prospects of the PRC property market, the Group’s intention is to

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focus on participating in property development projects and engaging in property project management services. In this regard, the Group will continue to identify and invest in property-related projects in the PRC which offer attractive investment return.

Ms. Azuma has indicated to the Company that she will not nominate any director to the Board upon Completion. Therefore, there will not be any change in the composition of the Board or the control of the Company solely as a result of the Proposed Acquisition.

(II) Rights Issue

Issue statistics

Basis of the Rights Issue: Six Rights Shares for every existing Share held by Qualifying Shareholders on the Record Date Number of existing Shares 82,023,735 Shares as at the Latest Practicable Date in issue: (Note) Number of Rights Shares: Not more than 492,142,410 Rights Shares (Note) Grand Cosmos Entitlement: 189,655,362 Rights Shares Underwritten Shares: Not more than 302,487,048 Rights Shares Subscription price: HK$0.30 for each Rights Share Underwriters: (a) Grand Cosmos to underwrite 169,153,715 Rights Shares; and (b) Tai Fook Securities to underwrite up to 133,333,333 Rights Shares.

As at the Latest Practicable Date, the Company had no outstanding convertible securities, options or warrants in issue which confer any right to subscribe for or convert into Shares.

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LETTER FROM THE BOARD

Under the Rights Issue, assuming that the Share Cancellation has not become effective on or before the Record Date, 492,142,410 nil-paid Rights Shares would be provisionally allotted, representing 600% of the existing issued share capital of the Company and approximately 85.7% of the issued share capital of the Company as enlarged by the issue of 492,142,410 Rights Shares and approximately 76.8% of the issued share capital of the Company as enlarged by the issue of the Rights Shares and the Consideration Shares.

Qualifying Shareholders

To qualify for the Rights Issue, a Shareholder must be registered as a member of the Company at the close of business on the Record Date. The Company will send the Rights Issue Documents, including the Prospectus, the PALs and the EAFs, to the Qualifying Shareholders. The Company will send the Prospectus to the Excluded Shareholders for information purposes.

Terms of the Rights Issue

Subscription Price

HK$0.30 per Rights Share, payable in full by a Qualifying Shareholder upon acceptance of the provisional allotment of the Rights Shares under the Rights Issue or application for excess Rights Shares or when a renouncee of any provisional allotment of the Rights Shares or a transferee of nil-paid Rights Shares applies for the Rights Shares.

The Subscription Price represents:

(a) a discount of approximately 45.5% to the closing price of HK$0.55 per Share as quoted on the Stock Exchange on the Last Trading Day;
(b) a discount of approximately 44.4% to the average closing price of HK$0.54 per Share as quoted on the Stock Exchange for the last 10 consecutive trading days up to and including the Last Trading Day;
(c) a discount of approximately 36.2% to the average closing price of HK$0.47 per Share as quoted on the Stock Exchange for the last 30 consecutive trading days up to and including the Last Trading Day;
(d) a discount of approximately 11.8% to the Theoretical Ex-rights Price;
(e) a discount of approximately 25.0% to the closing price of HK$0.40 per Share as quoted on the Stock Exchange on the Latest Practicable Date;

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LETTER FROM THE BOARD

(f) a premium of approximately 3.4% to the unaudited consolidated net asset value per Share of approximately HK$0.29 as at 30 June 2005; and
(g) an amount equal to the issue price of the Consideration Shares.

The Subscription Price was arrived at after arm’s length negotiation between the Company and the Underwriters with reference to the market price of the Shares under the prevailing market conditions. The Directors consider that the terms of the Rights Issue are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Basis of Provisional Allotments

Six Rights Shares (in nil-paid form) for every existing Share held by Qualifying Shareholders as at the close of business on the Record Date.

Status of the Rights Shares

The Rights Shares (when allotted, issued and fully paid) will rank pari passu with the existing Shares in issue in all respects. Holders of fully-paid Rights Shares will be entitled to receive all future dividends and distributions which may be declared, made or paid after the date of allotment and issue of the fully-paid Rights Shares.

Certificates for the Rights Shares

Subject to the fulfillment or the waiver in whole or in part by Tai Fook Securities of the conditions of the Underwriting Agreement and Tai Fook Securities not having terminated the Underwriting Agreement as described in the section headed “Termination of the Underwriting Agreement” below, certificates for all fully-paid Rights Shares are expected to be posted to those Qualifying Shareholders who have paid for and have accepted the Rights Shares, at their own risk.

Rights of the Overseas Shareholders

The Rights Issue Documents will not be registered under the applicable securities legislation of any jurisdiction other than Hong Kong and Bermuda. Based on the register of members of the Company as at the Latest Practicable Date, there were 6 Shareholders with registered addresses which were outside Hong Kong in the following countries: the United States of America, Macau and the PRC. As such, the Directors have, in compliance with Rule 13.36(2)(a) of the Listing Rules, made enquiries regarding the legal restrictions under the laws of the relevant place and the requirements of the relevant regulatory body or stock exchange. Based on the results of the enquiries made with qualified lawyers of these jurisdictions, the Directors are of the view that it is necessary or expedient not to offer the Rights Shares to Shareholders whose registered addresses are in the United States of America due to substantial procedures and costs involved in the registration of the Rights Issue Documents and/or compliance with the legal or regulatory

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LETTER FROM THE BOARD

requirements or special formalities in those places. Accordingly, the Shareholders whose registered addresses are in the United States of America are the Excluded Shareholders and the Rights Issue is not available to them. The Company will send the Prospectus to the Excluded Shareholders for their information only. The Company will not send the PALs and EAFs to the Excluded Shareholders.

Arrangements will be made for the Rights Shares which would have otherwise been provisionally allotted to the Excluded Shareholders to be sold in the market in their nilpaid form as soon as practicable after dealings in the nil-paid Rights Shares commence on the Stock Exchange and in any event before the last date for dealings in nil-paid Rights Shares, if a premium (net of expenses) can be obtained. The proceeds of each sale, less expenses and stamp duty, of HK$100 or more will be paid to the relevant Excluded Shareholder in Hong Kong dollars. The Company will retain individual amounts of less than HK$100 for the benefit of the Company.

For those Qualifying Shareholders with the registered addresses on the Record Date in Macau and the PRC, the Directors have been advised by legal counsels of the relevant jurisdictions that it would be lawful for the Company to offer the Rights Shares in those places even though the Rights Issue Documents are not registered in the relevant jurisdictions. Therefore, the provisional allotment of the Rights Shares will be made and a copy of the Rights Issue Documents will be sent to such Qualifying Shareholders.

It is the responsibility of any person (including but without limitation to nominee, agent and trustee) receiving a copy of the Rights Issue Documents outside Hong Kong and wishing to take up the Rights Shares under the Rights Issue to satisfy himself as to the full observance of the laws of the relevant territory including the obtaining of any governmental or other consents for observing any other formalities which may be required in such territory or jurisdiction, and to pay any taxes, duties and other amounts required to be paid in such territory or jurisdiction in connection therewith. Any acceptance by any person will be deemed to constitute a representation and warranty from such person to the Company that these local laws and requirements have been complied with. Shareholders should consult their professional advisers if in doubt.

Application for excess Rights Shares

Qualifying Shareholders shall be entitled to apply for any unsold entitlements of the Excluded Shareholders and any Rights Shares provisionally allotted but not accepted by the Qualifying Shareholders or otherwise subscribed for by transferees of nil-paid Rights Shares. The Board will allocate the excess Rights Shares at its discretion, but on a fair and reasonable basis as far as practicable, and will give preference to topping-up odd lots to whole board lots. Shareholders with their Shares held by a nominee company should note that the Board will regard the nominee company as a single Shareholder according to the register of members of the Company. Accordingly, Shareholders should note that the aforesaid arrangement in relation to the top-up of odd lots for allocation of excess Rights Shares will not be extended to beneficial owners individually. Shareholders

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LETTER FROM THE BOARD

with their Shares held by a nominee company are advised to consider whether they would like to arrange for the registration of the relevant Shares in the name of the beneficial owner(s) prior to the Record Date.

Application for listing

The Company will apply to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Rights Shares in both nil-paid and fully-paid forms. No part of the securities of the Company is listed or dealt in or on which listing or permission to deal is being or is proposed to be sought on any other stock exchange.

Nil-paid Rights Shares are expected to be traded in board lots of 2,000. Dealings in the Rights Shares (in both nil-paid and fully-paid forms) will be subject to the payment of stamp duty, Stock Exchange trading fee, transaction levy, investor compensation levy or any other applicable fees and charges in Hong Kong.

Subject to the granting of listing of, and permission to deal in, the Rights Shares in both their nil-paid and fully-paid forms on the Stock Exchange, the Rights Shares in both their nil-paid and fully-paid forms will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the commencement date of dealings in the Rights Shares in both their nil-paid and fully-paid forms on the Stock Exchange or such other date as determined by HKSCC. Settlement of transactions between participants of the Stock Exchange on any trading day is required to take place in CCASS on the second trading day thereafter. All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time.

Undertaking of Grand Cosmos

As at the Latest Practicable Date, Mr. Yu, through Grand Cosmos (a company wholly owned by him), is interested in 31,609,227 Shares, representing approximately 38.5% of the existing issued share capital of the Company. Pursuant to the Underwriting Agreement, Grand Cosmos has irrevocably undertaken to Tai Fook Securities and the Company that, among other things, (i) Grand Cosmos will accept and procure the acceptance of 189,655,362 Rights Shares which will be provisionally allotted to it in respect of the Shares held by it; and (ii) Grand Cosmos shall not, and shall procure that its nominees and/or companies controlled by it or by any of its nominees shall not, during the period from immediately after the execution of the Underwriting Agreement and prior to or on the Record Date, without the prior written consent of Tai Fook Securities dispose of or transfer or acquire any Shares or any interests therein (except the acceptance of Rights Shares provisionally allotted pursuant to the Rights Issue or pursuant to Grand Cosmos’s underwriting obligations under the Underwriting Agreement or submitting EAFs or acquiring Shares in circumstances which do not contravene the Listing Rules).

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LETTER FROM THE BOARD

The Underwriting Agreement

Date:

5 October 2005

Underwriters and number (a) Grand Cosmos to underwrite 169,153,715 Rights of Underwritten Shares: Shares; and
(b) Tai Fook Securities to underwrite up to 133,333,333 Rights Shares.

For any untaken Rights Shares, Grand Cosmos will be obliged to subscribe or procure subscribers to subscribe for the first of such number of untaken Rights Shares up to his commitment of 169,153,715 Rights Shares, and Tai Fook Securities will subscribe or procure subscribers to subscribe for the balance of the untaken Rights Shares.

Grand Cosmos is wholly owned by Mr. Yu, who is the controlling shareholder, an executive Director and the chairman of the Company.

To the best of the Directors’ knowledge and information and having made all reasonable enquiries, save for the provision of a loan facility by Tai Fook Securities to Grand Cosmos, Tai Fook Securities and its holding company, Tai Fook Securities Group Limited, are third parties independent of the Company and connected persons of the Company.

Commission:

2.5% of the aggregate Subscription Price of the Underwritten Shares

Conditions of the Underwriting Agreement

The Underwriting Agreement is conditional upon the following conditions being fulfilled/ waived:

(a) the Company despatching the circular containing notice of the SGM to the Shareholders containing, among other matters, details of the Rights Issue and the Whitewash Waiver;
(b) the passing of by the Independent Shareholders at the SGM of the ordinary resolution(s) to approve the Rights Issue, the Whitewash Waiver and the Acquisition Agreement and the transactions contemplated therein by no later than the Prospectus Posting Date;

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LETTER FROM THE BOARD

(c) the Executive granting the Whitewash Waiver to Mr. Yu and his Concert Parties and the satisfaction of all conditions (if any) attached to the Whitewash Waiver granted;
(d) the Listing Committee of the Stock Exchange granting listing of and permission to deal in all the Rights Shares (in their nil-paid and fully-paid forms) by no later than the Prospectus Posting Date;
(e) the Bermuda Monetary Authority granting consent to (if required) the issue of the Rights Shares by no later than the Prospectus Posting Date;
(f) the entering into a deed of indemnity by Mr. Yu in favour of the Company and the Purchaser in respect of their obligations under the Deed of Appointment;
(g) compliance with and performance of all the undertakings and obligations of the Company under the terms of the Underwriting Agreement;
(h) compliance with and performance by each of Mr. Yu and Grand Cosmos of all of their obligations and undertakings under the terms of the Underwriting Agreement; and
(i) the Acquisition Agreement becoming unconditional (except for any condition requiring the Underwriting Agreement to become unconditional and not terminated or rescinded by Tai Fook Securities).

None of the parties to the Underwriting Agreement may waive the conditions (a) to (e) above. Tai Fook Securities may waive the conditions (f) to (h) in whole or in part. If the above conditions are not satisfied and/or waived by 4:00 p.m. on 31 January 2006 or such later date as Tai Fook Securities may agree with the Company and Grand Cosmos, the Underwriting Agreement shall terminate.

Termination of the Underwriting Agreement

If prior to the Latest Time for Termination:

(a) in the absolute opinion of Tai Fook Securities, the success of the Rights Issue would be materially and adversely affected by:
i. the introduction of any new regulation or any change in existing law or regulation (or the judicial interpretation thereof) or other occurrence of any nature whatsoever which may in the absolute opinion of Tai Fook Securities materially and adversely affect the business or the financial or trading position or prospects of the Group as a whole; or

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LETTER FROM THE BOARD

ii. the occurrence of any local, national or international event or change, whether or not forming part of a series of events or changes occurring or continuing before, and/or after the date of the Underwriting Agreement, of a political, financial, economic currency, market or other nature (whether or not ejusdem generis with any of the foregoing), or in the nature of any local, national or international outbreak or escalation of hostilities or armed conflict, or affecting local securities markets which may, in the absolute opinion of Tai Fook Securities materially and adversely affect the business or the financial or trading position or prospects of the Group as a whole; or
iii. any material adverse change in the business or in the financial or trading position or prospects of the Group as a whole; or
iv. any act of God, war, riot, public disorder, civil commotion, fire, flood, explosion, epidemic, terrorism, strike or lock-out which may in the absolute opinion of Tai Fook Securities materially and adversely affect the business or the financial or trading position or prospects of the Group as a whole; or
v. there occurs or comes into effect the imposition of any moratorium, suspension or material restriction on trading in the Shares generally on the Stock Exchange due to exceptional financial circumstances or otherwise; or
vi. the commencement by any third party of any litigation or claim against any member of the Group which is or might be material to the Group taken as a whole; or
(b) any material adverse change in market conditions (including, without limitation, a change in fiscal or monetary policy or foreign exchange or currency markets, suspension or restriction of trading in securities, imposition of economic or other sanctions, on Hong Kong, the PRC or other jurisdiction relevant to the Group or any member of the Group and a change in currency conditions includes a change in the system under which the value of the Hong Kong currency is pegged with that of the currency of the United States of America) occurs which in the absolute opinion of Tai Fook Securities makes it inexpedient or inadvisable to proceed with the Rights Issue; or
(c) the circular or the Prospectus when published contain information (either as to business prospects or the condition of the Group or as to its compliance with any laws or the Listing Rules or any applicable regulations) which has not prior to the date of the Underwriting Agreement been publicly announced or published by the Company and which in the absolute opinion of Tai Fook Securities is material to

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LETTER FROM THE BOARD

the Group as a whole and is likely to affect materially and adversely the success of the Rights Issue or might cause a prudent investor not to accept the Rights Shares provisionally allotted to it,

Tai Fook Securities shall be entitled to terminate the Underwriting Agreement.

Tai Fook Securities shall also be entitled to rescind the Underwriting Agreement if prior to the Latest Time for Termination:

(i) any material breach of any of the warranties or undertakings contained in the Underwriting Agreement comes to the knowledge of Tai Fook Securities; or
(ii) any event occurring or matter arising on or after the date of the Underwriting Agreement and prior to the Latest Time for Termination which if it had occurred or arisen before the date of the Underwriting Agreement would have rendered any of the warranties contained in the Underwriting Agreement untrue or incorrect in any material respect comes to the knowledge of Tai Fook Securities.

Warning of the risks of dealing in the Shares

If Tai Fook Securities terminates or rescinds the Underwriting Agreement, the Rights Issue will not proceed.

Any dealings in the Shares from the date of this circular up to the date on which all the conditions of the Rights Issue are fulfilled (or, if appropriate, waived), and any dealings in the Rights Shares in their nil-paid form are accordingly subject to the risk that the Rights Issue may not become unconditional or may not proceed.

Any Shareholders or other persons contemplating any dealings in the Shares or the Rights Shares in their nil-paid forms are recommended to consult their own professional advisers.

Effect of bad weather on the latest time for acceptance of and payment for the Rights Shares

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LETTER FROM THE BOARD

Use of proceeds and reason for the Rights Issue

The estimated net proceeds from the Rights Issue is approximately HK$142 million. The Directors intend to apply such proceeds as to (i) up to HK$119.4 million to satisfy part of the Consideration (comprising the cash payable on Completion for the Sale Shares and the Sale Debt of approximately HK$42 million and for the Additional Sale Debt of up to HK$77.4 million (in the event that the amount of the Additional Sale Debt as at Completion Date is less than HK$77.4 million, the difference is expected to be injected into Yaubond by the Group after Completion in accordance with its shareholding in Yaubond)); and (ii) the remaining balance of approximately HK$22.6 million as the Group’s general working capital.

The Directors consider that the Proposed Acquisition represents a good opportunity for the Company to diversify into the PRC property market which has good prospects given the economic development in the PRC, particularly for the more affluent cities like Guangzhou where the Development Project is located. Accordingly, the Directors consider that the Rights Issue which enables the Group to obtain funding for the Proposed Acquisition to be in the interests of the Company and the Shareholders as a whole.

Financial effects of the Proposed Acquisition and the Rights Issue on the Group

The Company’s net assets will be increased as a result of the issue of the Rights Shares and the Consideration Shares. Save for the aforesaid, Completion will not have any immediate impact on the Company’s net assets. Subsequent to Completion, the Group will commence to record project management fee income pursuant to the Deed of Appointment and will share the results of Yaubond in accordance with its shareholding interest in Yaubond.

Information and intention of Grand Cosmos

Grand Cosmos is a company incorporated in the BVI with limited liability which is wholly and beneficially owned by Mr. Yu. Mr. Yu is also the sole director of Grand Cosmos. Grand Cosmos is an investment holding company whose ordinary course of business does not include underwriting of securities.

As mentioned the last paragraph of the section headed “Reasons for and benefits of the Proposed Acquisition” of this letter, subsequent to Completion, the Group would continue to be engaged in its existing business activities of provision of property project management but intends to downsize its online operation to web design and development services and discontinue the businesses of trading, financial services and securities investment activities. Furthermore, the Group intends to focus on participating in property development projects and engaging in property project management services. It is the intention of Grand Cosmos to continue the existing business strategy of the Group.

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LETTER FROM THE BOARD

While Grand Cosmos has no current plan to introduce any major changes to the Group’s business strategy, including redeployment of the Group’s fixed assets and material changes to the continued employment of the Group’s employees, Grand Cosmos will continue to conduct review of the Group’s operations from time to time and may identify suitable investment projects for the Group which may offer growth potential to the Group when such opportunities arise.

(III) Application for the Whitewash Waiver

In the event that the Underwriters are called upon to subscribe for the Underwritten Shares in full pursuant to their obligations under the Underwriting Agreement and taking into account the Grand Cosmos Entitlement to be taken up by Grand Cosmos and the Consideration Shares to be issued to Ms. Azuma, the interest of Mr. Yu and his Concert Parties in the voting rights of the Company would increase from approximately 38.5% to approximately 92.1% immediately upon completion of the Rights Issue and the issue of the Consideration Shares assuming no Conversion has taken place and approximately 93.9% assuming full Conversion has taken place. Accordingly, the underwriting by the Underwriters of the Underwritten Shares and the issue of the Consideration Shares to Ms. Azuma may trigger an obligation on the part of Mr. Yu and his Concert Parties to make a mandatory general offer under Rule 26 of the Takeovers Code for all the securities of the Company not already owned or agreed to be acquired by Mr. Yu and/or his Concert Parties.

Mr. Yu and his Concert Parties (including Poly (HK), Ms. Azuma and Tai Fook Securities) have not acquired any voting rights of the Company and have not dealt in any securities of the Company in the six months prior to the Announcement Date.

Mr. Yu and his Concert Parties have made an application for the Whitewash Waiver to the Executive pursuant to Note 1 of the Notes on dispensations from Rule 26 of the Takeovers Code. The Whitewash Waiver, if granted by the Executive, would be subject to, among other things, approval of the Independent Shareholders taken by poll at the SGM. Mr. Yu, his Concert Parties and their respective associates will abstain from voting at the SGM on the proposed resolution approving the Whitewash Waiver. The Executive has indicated that it will, subject to approval by the Independent Shareholders, grant the Whitewash Waiver. If the Whitewash Waiver is not granted by the Executive, the Rights Issue will not proceed.

Based on the shareholding structure of the Company as at the Latest Practicable Date and assuming the Underwriters are required to subscribe for the Underwritten Shares in full, the voting rights held by Grand Cosmos and its Concert Parties (including Ms. Azuma and Tai Fook Securities) in the Company immediately upon completion of the Rights Issue and the issue of the Consideration Shares may exceed 92% of the total outstanding voting rights of the Company. In the event

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LETTER FROM THE BOARD

that the aggregate interest of Grand Cosmos and its Concert Parties in the voting rights of the Company upon completion of the Rights Issue and the issue of the Consideration Shares exceeds 50%, Grand Cosmos and its Concert Parties would be permitted to increase their shareholding interest in the Company without incurring any further obligation under Rule 26 of the Takeovers Code to make a general offer.

Changes in the shareholding structure of the Company arising from the issue of the Rights Shares, the Consideration Shares and the Conversion Shares

The changes in the shareholding structure of the Company arising from the issue of the Rights Shares and the Consideration Shares assuming the Conversion has not taken place and there is no other changes to the capital structure of the Company from the Latest Practicable Date to Completion Date are as follows:

Grand Cosmos_(Note 1) Grand Cosmos as the underwriter(Note 2) Sub-total for Grand Cosmos Ms. Azuma(Note 3) Tai Fook Securities (Notes 2, 4 & 9)_ Sub-total for Mr. Yu and his Concert Parties Public Shareholders Total	As at the Latest Practicable Date No. of Shares % 31,609,227 38.54 — — 31,609,227 38.54 — — — — 31,609,227 38.54 50,414,508 61.46 82,023,735 100.00	Immediately after completion of the Rights Issue and the issue of the Consideration Shares on the assumption as set out in Note 5 No. of Shares % 221,264,589 34.53 — — 221,264,589 34.53 66,666,666 10.40 — — 287,931,255 44.93 352,901,556 55.07 640,832,811 100.00	Immediately after completion of the Rights Issue and the issue of the Consideration Shares on the assumption as set out in Note 6 No. of Shares % 221,264,589 34.53 169,153,715 26.40 390,418,304 60.93 66,666,666 10.40 133,333,333 20.81 590,418,303 92.14 50,414,508 7.86 640,832,811 100.00	Immediately after completion of the Rights Issue and the issue of the Consideration Shares on the assumption as set out in Note 6 No. of Shares % 221,264,589 34.53 169,153,715 26.40 390,418,304 60.93 66,666,666 10.40 133,333,333 20.81 590,418,303 92.14 50,414,508 7.86 640,832,811 100.00
				60.93 10.40 20.81
				92.14 7.86
				100.00

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LETTER FROM THE BOARD

The changes in the shareholding structure of the Company arising from the issue of the Rights Shares, the Consideration Shares and the Conversion Shares at the Initial Conversion Price assuming full Conversion has taken place and there is no other changes to the capital structure of the Company from the Latest Practicable Date to Completion Date are as follows:

Grand Cosmos_(Note 1) Grand Cosmos as the underwriter(Note 2) Sub-total for Grand Cosmos Ms. Azuma(Note 3) Tai Fook Securities (Notes 2, 4 & 9)_ Sub-total for Mr. Yu and his Concert Parties Public Shareholders Total	As at the Latest Practicable Date No. of Shares % 31,609,227 38.54 — — 31,609,227 38.54 — — — — 31,609,227 38.54 50,414,508 61.46 82,023,735 100.00	Immediately after completion of the Rights Issue and the issue of the Consideration Shares and the Conversion Shares on the assumption as set out in Note 7 No. of Shares % 221,264,589 26.89 — — 221,264,589 26.89 248,484,847 30.21 — — 469,749,436 57.10 352,901,556 42.90 822,650,992 100.00	Immediately after completion of the Rights Issue and the issue of the Consideration Shares and the Conversion Shares on the assumption as set out in Note 8 No. of Shares % 221,264,589 26.89 169,153,715 20.56 390,418,304 47.45 248,484,847 30.21 133,333,333 16.21 772,236,484 93.87 50,414,508 6.13 822,650,992 100.00	Immediately after completion of the Rights Issue and the issue of the Consideration Shares and the Conversion Shares on the assumption as set out in Note 8 No. of Shares % 221,264,589 26.89 169,153,715 20.56 390,418,304 47.45 248,484,847 30.21 133,333,333 16.21 772,236,484 93.87 50,414,508 6.13 822,650,992 100.00
				47.45 30.21 16.21
				93.87 6.13
				100.00

Notes:

Grand Cosmos is beneficially and wholly owned by Mr. Yu.
Being the Underwriters pursuant to the Underwriting Agreement.
Representing the issue of 66,666,666 Consideration Shares and 181,818,181 Conversion Shares at the Initial Conversion Price assuming full Conversion.

Pursuant to the Supplemental Agreement, the Vendor agreed and directed that the Consideration Shares and the Convertible Note shall be issued by the Company direct to Ms. Azuma in partial satisfaction of the Balance Consideration.

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LETTER FROM THE BOARD

On 4 November 2005, Tai Fook Securities and Grand Cosmos entered into a loan agreement pursuant to which Tai Fook Securities provided a loan facility to Grand Cosmos. Accordingly, Tai Fook Securities became a Concert Party of Mr. Yu on 4 November 2005.
Assuming (i) all Shareholders take up their respective provisional allotments of the Rights Shares in full; and (ii) no Conversion has taken place.
Assuming (i) none of the Shareholders (save for Grand Cosmos) takes up any provisional allotments of the Rights Shares; (ii) the provisional allotments of the Rights Shares of all Shareholders (save for Grand Cosmos) are taken up by the Underwriters (as to 169,153,715 Rights Shares by Grand Cosmos and as to 133,333,333 Rights Shares by Tai Fook Securities) pursuant to the Underwriting Agreement; and (iii) no Conversion has taken place.
Assuming (i) all Shareholders take up their respective provisional allotments of the Rights Shares in full; and (ii) full Conversion has taken place at the Initial Conversion Price.
Assuming (i) none of the Shareholders (save for Grand Cosmos) takes up any provisional allotments of the Rights Shares; (ii) the provisional allotments of the Rights Shares of all Shareholders (save for Grand Cosmos) are taken up by the Underwriters (as to 169,153,715 Rights Shares by Grand Cosmos and as to 133,333,333 Rights Shares by Tai Fook Securities) pursuant to the Underwriting Agreement; and (iii) full Conversion has taken place at the Initial Conversion Price.
On 3 November 2005, the Supreme Court of Bermuda approved the Share Cancellation. The effectiveness of such share cancellation is subject to completion of formal procedures to rectify the register of members of the Company, which completion is expected to be on or before the Record Date. Should the Share Cancellation become effective on or before the Record Date, (i) the number of the issued Shares of the Company as at the Record Date will be reduced to 82,007,436 Shares; (ii) the number of Rights Shares to be allotted and issued will be reduced to 492,044,616 Rights Shares; and (iii) the maximum number of Rights Shares to be underwritten and that may be taken up by Tai Fook Securities will be reduced to 133,235,539 Rights Shares. Assuming the Share Cancellation becomes effective on or before the Record Date and under the scenario as set out in Note 6, the aggregate number of Shares that will be held by Mr. Yu and his Concert Parties will be reduced to 590,320,509 Shares, representing approximately 92.13% of the issued share capital of the Company as enlarged by the issue of the Consideration Shares and the Rights Shares. Assuming the Share Cancellation becomes effective on or before the Record Date and under the scenario as set out in Note 8, the aggregate number of Shares that will be held by Mr. Yu and his Concert Parties will be reduced to 772,138,690 Shares, representing approximately 93.87% of the issued share capital of the Company as enlarged by the issue of the Consideration Shares, the Rights Shares and the Conversion Shares at the Initial Conversion Price assuming full Conversion.

Restoration of public float

The Stock Exchange has stated that if, upon completion of the Rights Issue and the issue of the Consideration Shares and/or the Conversion Shares, less than 25% of the Shares are held by the public or if the Stock Exchange believes that:

a false market exists or may exist in the trading in the Shares; or
there are too few Shares in public hands to maintain an orderly market;

then it will consider exercising its discretion to suspend trading in the Shares until a sufficient public float is attained.

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LETTER FROM THE BOARD

As shown under the section headed “Changes in the shareholding structure of the Company arising from the issue of the Rights Shares, the Consideration Shares and the Conversion Shares” above, immediately upon completion of the Rights Issue and the issue of the Consideration Shares assuming (i) none of the Shareholders (save for Grand Cosmos) takes up any provisional allotments of the Rights Shares; (ii) the provisional allotments of the Rights Shares of all Shareholders (save for Grand Cosmos) are taken up by the Underwriters (as to 169,153,715 Rights Shares by Grand Cosmos and as to 133,333,333 Rights Shares by Tai Fook Securities) pursuant to the Underwriting Agreement; and (iii) full Conversion has taken place at the Initial Conversion Price, the public float will drop to 6.1%. The Company and its controlling shareholder, Grand Cosmos, undertake they will make prior arrangements before Completion to ensure minimum public float is maintained immediately after the issue of the Rights Shares and the Consideration Shares.

Fund raising activity of the Company since January 2004

The last rights issue by the Company was in February 2004 (the “Last Rights Issue”). As disclosed in the circular of the Company dated 6 February 2004, the net proceeds of the Last Rights Issue, which amounted to approximately HK$51.3 million, was intended to be utilized as to approximately HK$25 million for investment in business projects; HK$21 million for general working capital of the Company; and the balance of HK$5 million for repayment of a loan. However, the net proceeds of the Last Rights Issue was actually utilized as to approximately HK$20 million for investment in business projects, which value has already been substantially written off; HK$14.6 million for investment in securities, which have all been sold to third parties and such disposals have resulted in an aggregate loss of approximately HK$13.7 million; HK$12 million for general working capital of the Company; and the balance of HK$4.7 million for repayment of the loan.

On 7 June 2005, the Company raised net proceeds of approximately HK$21.7 million by issuing 1,355,000,000 new ordinary shares of HK$0.01 each in the share capital of the Company (“Placing Share”) (prior to the share consolidation of the Company) at the issue price of HK$0.016 per Placing Share (theoretically equivalent to HK$1.6 per Share adjusting for the share consolidation of the Company). The Placing Shares were issued under the authority of the then existing general mandate granted to the Directors at the annual general meeting of the Company held on 24 May 2004. The Company intended to apply the net proceeds of approximately HK$21.7 million as general working capital of the Company. As at the Latest Practicable Date, an amount of approximately HK$20 million has not yet been utilized.

Save as disclosed above, the Group has not raised any funds by issue of equity securities of the Company in the twelve months preceding the Announcement Date.

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LETTER FROM THE BOARD

(IV) Proposed Change of Auditors

The Board wishes to announce that Albert Lam & Co resigned as auditors of the Company with effect from 28 September 2005. Albert Lam & Co confirmed in their resignation letter to the Board and the audit committee of the Company that there were no circumstances connected with their resignation which they considered should be brought to the attention of the members or creditors of the Group.

The Board proposes to appoint BDO McCabe Lo Limited, an international accounting firm, as auditors of the Company to fill the casual vacancy arising from the resignation of Albert Lam & Co upon the approval by the Shareholders by an ordinary resolution at the SGM and to hold office until the conclusion of the next annual general meeting.

The Board confirms that there is no disagreement between the Company and Albert Lam & Co and there are no circumstances in respect of the proposed change of auditors which it considers should be brought to the attention of the Shareholders.

(V) The General Mandate

The Existing General Mandate was granted to the Directors to allot and issue 1,369,474,717 new ordinary shares of HK$0.01 each in the share capital of the Company (or 13,694,747 Shares as adjusted for the share consolidation of the Company which became effective on 5 August 2005) at the annual general meeting of the Company held on 25 May 2005. No Shares under the Existing General Mandate have been issued and no refreshment of general mandate has been made since the last annual general meeting held on 25 May 2005. As at the Latest Practicable Date, the Directors only have available mandate to allot and issue 13,694,747 new Shares, representing less than 2.4% of the issued share capital of the Company as enlarged by the issue of the Rights Shares upon completion of the Rights Issue.

The Directors consider it in the best interests of the Company and the Shareholders to grant the New General Mandate to the Directors, which allows greater flexibility for the Company to capture fund raising opportunities should they arise. At the SGM, an ordinary resolution will be proposed to the Shareholders approving the grant of the New General Mandate to the Directors to allot, issue and otherwise deal with new Shares not exceeding in aggregate 20% of the aggregate nominal amount of the share capital of the Company in issue at the date of passing such resolution or in the event completion of the Rights Issue takes place accordingly, 20% of the aggregate nominal amount of the share capital of the Company as enlarged by the Rights Issue.

As at the Latest Practicable Date, the Company had an aggregate of 82,023,735 Shares in issue. An additional 558,809,076 new Shares may fall to be issued upon completion of the Acquisition Agreement and the Rights Issue. Subject to the passing of the ordinary

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LETTER FROM THE BOARD

resolution for the approval of the New General Mandate, the Company will be allowed under the Existing General Mandate to allot, issue and deal with up to 13,694,747 new Shares (or 13,691,487 Shares after the Share Cancellation becoming effective) before completion of the Rights Issue and a total of 95,863,229 new Shares (or 95,840,409 new Shares after the Share Cancellation becoming effective) after completion of the Rights Issue.

The New General Mandate if granted will continue in force until (a) the conclusion of the next annual general meeting of the Company after the SGM; or (b) it is revoked or varied by an ordinary resolution passed in a general meeting of the Company.

GENERAL

Approval by the Independent Shareholders

Given that (i) the Proposed Acquisition constitutes a very substantial acquisition for the Company under the Listing Rules; and (ii) Completion is conditional upon the passing of the resolutions approving the Rights Issue and the Whitewash Waiver by the Independent Shareholders, the Acquisition Agreement and the transactions contemplated therein (including the issue of the Consideration Shares, the Convertible Note and the Conversion Shares) are subject to approval by the Independent Shareholders (to be taken by poll) at the SGM. The Rights Issue and the Whitewash Waiver are also subject to approval by the Independent Shareholders (to be taken by poll) at the SGM. Mr. Yu, his Concert Parties and their respective associates, who together hold approximately 38.5% of the issued share capital of the Company as at the Latest Practicable Date, will abstain from voting on the ordinary resolutions for approval of the Acquisition Agreement and the transactions contemplated therein, the Rights Issue and the Whitewash Waiver.

Mr. Yu, the Chairman of the Company and an executive Director, is indirectly interested in 31,609,227 Shares, representing approximately 38.5% of the existing issued share capital of the Company as at the Latest Practicable Date and is the sole beneficial owner and director of the Grand Cosmos, one of the Underwriters under the Underwriting Agreement. Mr. Yu has also agreed to counter-indemnify the Company and the Purchaser against any of their liabilities under the Deed of Appointment. Mr. Derrick Lau is a salaried executive Director and has participated in the commercial negotiation in relation to the Proposed Acquisition. Mr. Mai Zhi Hui and Mr. Wong Lok are salaried executive Directors. As such, Mr. Yu, Mr. Derrick Lau, Mr. Mai Zhi Hui and Mr. Wong Lok are not eligible to serve on the Independent Board Committee to advise the Independent Shareholders in respect of the Acquisition Agreement and the transactions contemplated therein, the Rights Issue and the Whitewash Waiver. Accordingly, Mr. Choy Shu Kwan, Mr. Cheng Wing Keung, Raymond and Ms. Chung Lai Fong, la Fontaine, all being independent non-executive Directors, have been invited to constitute the Independent Board Committee to advise the Independent Shareholders in respect of the Acquisition Agreement and the transactions contemplated therein, the Rights Issue and the Whitewash Waiver.

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LETTER FROM THE BOARD

CIMB-GK has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders regarding the Acquisition Agreement and the transactions contemplated therein, the Rights Issue and the Whitewash Waiver.

Approval by the Shareholders

The ordinary resolution in relation to the proposed appointment of BDO McCabe Lo Limited as the Company’s auditors is subject to approval by the Shareholders at the SGM. No Shareholder is required to abstain from voting on this resolution.

Pursuant to Rule 13.36(4)(e) of the Listing Rules, the proposed grant of the New General Mandate is subject to the approval of the Shareholders at the SGM. No Shareholders is required to abstain from voting on this resolution.

SGM

Set out on pages 177 to 182 is a notice convening the SGM to be held at Private Room at Flamingo Cafe, 1st Floor, Newton Hotel, 218 Electric Road, North Point, Hong Kong at 10:30 a.m. on Friday, 25 November 2005 at which resolutions will be proposed to the Shareholders to consider and, if thought fit, approve the Acquisition Agreement and the transactions contemplated therein, the Rights Issue, the Whitewash Waiver, the change of auditors and the grant of the New General Mandate.

A form of proxy for use at the SGM is enclosed with this circular. Whether or not you are able to attend the SGM in person, you are requested to complete and return the form of proxy in accordance with the instructions printed thereon to the Company’s branch share registrars in Hong Kong, Abacus Share Registrars Limited, at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong as soon as possible but in any event not later than 48 hours before the time appointed for holding the SGM or any adjourned meeting thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or any adjourned meeting thereof should you so wish.

VOTING ON POLL

Pursuant to bye-law 66 of the existing bye-laws of the Company, a resolution put to the vote of a meeting shall be decided on a show of hands unless (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is demanded:

(a) by the chairman of such meeting; or
(b) by at least three members present in person or in the case of a member being a corporation by its duly authorised representative or by proxy for the time being entitled to vote at the meeting; or

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LETTER FROM THE BOARD

(c) by a member or members present in person or in the case of a member being a corporation by its duly authorised representative or by proxy and representing not less than onetenth of the total voting rights of all members having the right to vote at the meeting; or
(d) by a member or members present in person or in the case of a member being a corporation by its duly authorised representative or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all shares conferring that right.

A demand by a person as proxy for a member or in the case of a member being a corporation by its duly authorised representative shall be deemed to be the same as a demand by a member.

RECOMMENDATION

CIMB-GK has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders with regard to the transactions contemplated under the Acquisition Agreement, the Rights Issue and the Whitewash Waiver. CIMB-GK considers the terms of the Acquisition Agreement are fair and reasonable to the Independent Shareholders and the entering into of the Acquisition Agreement and the Rights Issue is in the interests of the Company and the Shareholders as a whole. CIMB-GK also considers the terms of the Whitewash Waiver are fair and reasonable to the Independent Shareholders and is in the interests of the Company and Shareholders as a whole. The text of the letter of advice from CIMB-GK containing its recommendation and the principal factors they have taken into account in arriving at their recommendation are set out on pages 48 to 75 of this circular.

The Independent Board Committee, having taken into account the advice of CIMB-GK, considers the terms of the Acquisition Agreement, the Rights Issue and the Whitewash Waiver are fair and reasonable and are in the interests of the Company and the Shareholders as a whole. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the resolutions set out in the notice of SGM to approve the Acquisition Agreement and the transactions contemplated therein, the Rights Issue and the Whitewash Waiver. The full text of the letter from the Independent Board Committee is set out on pages 46 and 47 of this circular.

ADDITIONAL INFORMATION

Your attention is drawn to the letter from the Independent Board Committee, the letter of advice from CIMB-GK, and the information set out in the Appendices to this circular.

Yours faithfully,

For and on behalf of the Board

renren Holdings Limited

Yu Pan Chairman

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

renren Holdings Limited 人人控股有限公司[*]

(Incorporated in Bermuda with limited liability)

(Stock code: 59)

8 November 2005

To the Independent Shareholders

Dear Sir or Madam,

We refer to the letter from the Board set out on pages 10 to 45 of the circular dated 8 November 2005 (the “Circular”) of which this letter forms part. Capitalised terms used herein shall have the same meanings as those defined in the Circular unless the context otherwise requires.

We have been appointed as members of the Independent Board Committee to consider the Acquisition Agreement and transactions contemplated thereunder, the Rights Issue and the Whitewash Waiver and to advise the Independent Shareholders as to whether or not it would be fair and reasonable and in the interests of the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the SGM to approve the Acquisition Agreement and transactions contemplated therein, the Rights Issue and the Whitewash Waiver. CIMBGK has been appointed to advise the Independent Board Committee and the Independent Shareholders in relation to the Acquisition Agreement and transactions contemplated therein, the Rights Issue and the Whitewash Waiver.

We wish to draw your attention to the letter from the Board and the letter from CIMB-GK to the Independent Board Committee and the Independent Shareholders which contains its advice to us in relation to the Acquisition Agreement and transactions contemplated therein, the Rights Issue and the Whitewash Waiver as set out in the Circular.

Having taken into account the principal factors and reasons considered by and the opinion of CIMB-GK as stated in its letter of advice as set out on pages 48 to 75 of the Circular, we consider that it would be fair and reasonable and in the interests of the Independent Shareholders to approve the Acquisition Agreement and transactions contemplated therein, the Rights Issue

* For identification purpose only

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

and the Whitewash Waiver. We therefore recommend the Independent Shareholders to vote in favour of the ordinary resolutions approving the Acquisition Agreement and transactions contemplated therein, the Rights Issue and the Whitewash Waiver to be proposed at the SGM.

Yours faithfully, Independent Board Committee

Mr. Choy Shu Kwan

Independent non-executive Director

Mr. Cheng Wing Keung, Raymond Independent non-executive Director

Ms. Chung Lai Fong, la Fontaine Independent non-executive Director

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LETTER FROM CIMB-GK

CIMB-GK Securities (HK) Limited

25/F Central Tower 28 Queen’s Road Central Hong Kong

8 November 2005

To the Independent Board Committee and the Independent Shareholders of renren Holdings Limited

Dear Sirs,

VERY SUBSTANTIAL ACQUISITION, PROPOSED RIGHTS ISSUE AND APPLICATION FOR WHITEWASH WAIVER

INTRODUCTION

We refer to our engagement as the independent financial adviser to the Independent Board Committee and the Independent Shareholders on the terms of the Acquisition Agreement, the Rights Issue and the Whitewash Waiver, details of which are contained in a circular (the “Circular”) to the Shareholders dated 8 November 2005, of which this letter forms part. Expressions used in this letter have the same meanings as defined in the Circular unless the context otherwise requires.

The Board currently comprises four executive Directors, being Mr. Yu, Messrs. Mai Zhi Hui, Lau Yat Tung, Derrick and Wong Lok, and three independent non-executive Directors, being Mr. Choy Shu Kwan, Mr. Cheng Wing Keung, Raymond and Ms. Chung Lai Fong, la Fontaine. Mr. Yu is the beneficial owner of Grand Cosmos. Each of Messrs. Mai Zhi Hui, Lau Yat Tung, Derrick and Wong Lok is a salaried executive Director. Accordingly, the four executive Directors are considered not sufficiently independent so far as the Whitewash Waiver is

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LETTER FROM CIMB-GK

concerned and therefore they have not participated in formulating a recommendation to the Independent Shareholders so as to avoid any conflict of interest which may arise. Consequently, the Independent Board Committee, comprising Mr. Choy Shu Kwan, Mr. Cheng Wing Keung, Raymond and Ms. Chung Lai Fong, la Fontaine who are the independent non-executive Directors, has been established to advise the Independent Shareholders in relation to the Acquisition Agreement, the Rights Issue and the Whitewash Waiver.

In formulating our recommendation, we have relied on the information, facts and representations contained, referred to and made in the Circular and the property valuation report of the Land as at 31 August 2005 prepared by RHL Appraisal Limited (“RHL”), an independent valuer, set out in Appendix V to the Circular. The Directors have declared in a responsibility statement set out in Appendix VI to the Circular that they jointly and severally accept full responsibility for the accuracy of the information contained in the Circular. We have also assumed that the information, facts and representations contained, made or referred to in the Circular were true and accurate at the time they were made and continue to be so at the date of the despatch of the Circular. We have no reason to doubt the truth, accuracy and completeness of the information, facts and representations provided to us by the Directors. We have also been advised by the Directors and believe that no material facts have been omitted from the Circular.

We consider that we have reviewed sufficient information to reach an informed view, to justify reliance on the accuracy of the information, facts and representations contained, referred to or made in the Circular and to provide a reasonable basis for our recommendation. We have not, however, conducted an independent verification of the information nor have we conducted any form of in-depth investigation into the businesses and affairs or the prospects of the Company or the Yaubond Group or any of their respective subsidiaries or associates.

PRINCIPAL FACTORS CONSIDERED

In arriving at our opinion in respect of the Proposed Acquisition, the Rights Issue and the Whitewash Waiver, we have considered the following principal factors and reasons:

1. Background of and rationale for the Proposed Acquisition

The Company is an investment holding company and its principal subsidiaries are engaged in the provision of property development project management and related advisory services, internet services and investment holding.

The Group has been making losses in recent years. For the three years ended 31 December 2004, the Group recorded an audited consolidated net loss of approximately HK$89.3 million, HK$100.8 million and HK$47.5 million. We note that given the business and financial performance of the Group in recent years, the Company has been exploring into new opportunities in order to enhance its income stream. Furthermore, with the change of control in the Company in late December 2004, we note that the Company

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LETTER FROM CIMB-GK

commenced to leverage on the experience of Mr. Yu and Mr. Lau Yat Tung, Derrick, both are executive Directors who have substantial property development experience in the PRC, to diversify into the provision of property management services since the beginning of 2005. As disclosed in the Company’s interim report for the six months ended 30 June 2005, we note that of the turnover of approximately HK$3.1 million, the Group derived an income of approximately HK$2.7 million from the provision of property development project management services for a hotel and office development project and a residential property development project located in Guangzhou, PRC.

The Directors consider that the Proposed Acquisition represents a good opportunity for the Company to further diversify into the PRC property market which has good prospects given the economic development in the PRC, particularly for the more affluent cities like Guangzhou where the Development Project is located. As noted from publicly released reports issued by Jones Lang LaSalle and from Chesterton Petty Limited, being independent property valuers, the outlook for the office property market in Guangzhou in general remains stable and positive due to the limited supply and the continued business and economic development in Guangzhou, PRC. It was stated in Jones Lang LaSalle’s report that the average rent of Grade A offices in Guangzhou increased by approximately 6.5% with vacancy rate at about 4% during the second quarter of 2005. Given this, we consider that it is reasonable for the Directors to regard the Proposed Acquisition represents a good opportunity for the Company to further diversify into the property market in Guangzhou, PRC.

The total cost of the Development Project (inclusive of the cost of Land, the Development Costs and other expenses) is estimated to be about RMB910 million (approximately HK$875 million), which is expected to be financed by (i) shareholders’ contribution of about RMB260 million; (ii) bank borrowings of about RMB400 million; and (iii) the deposits of pre-sale of units of about RMB250 million. Of the total shareholders’ contribution of RMB260 million (equivalent to approximately HK$250 million), HK$122.5 million (being 49% of the total amount) will be contributed by the Group through the acquisition of the Sale Debt of approximately HK$45.1 million and the Additional Sale Debt of up to HK$77.4 million (in the event that the amount of the Additional Sale Debt is less than HK$77.4 million as at Completion Date, the difference is expected to be injected into Yaubond by the Group after Completion in accordance with its shareholding therein). We understand from the Directors that as at the Latest Practicable Date, the amount of the Vendor’s Loans is approximately HK$168.7 million.

We have discussed with and have been advised by the Directors that based on the experience of Mr. Yu gained in the current Guangzhou property market, the lending sentiment of the banks in the PRC for property projects in Guangzhou remains active and positive; and given the limited supply of high grading office units in Guangzhou and the location of the Land, both the Purchaser and the Vendor do not foresee major difficulties for Yaubond Group to obtain the proposed bank borrowings and to raise the

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LETTER FROM CIMB-GK

expected deposits from the pre-sale of units under the Development Project. Given this, the Directors do not envisage substantial amount will be required to be further contributed by the Group into Yaubond Group to complete the Development Project. Having discussed with the Directors and considered their aforesaid findings and views, we have no reasons to doubt the bases of the proposed financing method of the Development Project. As the Development Project involves future events, Independent Shareholders should note that the property market conditions in Guangzhou may be affected by unforeseeable events or factors in future and the financing method of the Development Project as aforesaid may also be affected. Further funding may be required to be required from shareholders of Yaubond (including the Purchaser). Consequently, we express no opinion as to how closely the proposed financing method of the Development Project corresponds with the actual financing method.

We note that the Company will effect the Rights Issue to finance the Proposed Acquisition and that the Acquisition Agreement will be made conditional upon completion of the Rights Issue so as to ensure that the Company would have sufficient financial resources to finance the Proposed Acquisition. Please refer to the section headed “Reasons for the Rights Issue and use of proceeds” below for further details.

On Completion, the Purchaser will enter into the Deed of Appointment and be appointed as the project manager of the Development Project to supervise the construction of the Development Project and will be entitled to receive project management fees no later than three months thereafter. The Directors advised that the Vendor being the controlling shareholder of Yaubond Group, will be responsible for the overall management of the PRC Company, including the sales and marketing activities of the units under the Development Project. The Directors consider that the Purchaser, apart from assuming the role of project manager under the Deed of Appointment, will also participate in the management of Yaubond Group. Major decisions to be made by Yaubond Group including disposal of assets or borrowings would also require consents from the Purchaser.

We note that Mr. Yu and Mr. Lau Yat Tung, Derrick, both are executive Directors, will be responsible for the overall supervision of the Development Project, and that the Group will also recruit additional employees to carry out the day-to-day work required under the Deed of Appointment. We note that the Company has appointed a qualified Quantity Surveyor to review the Budget Development Costs in order to ensure that the Budget Development Costs is achievable. We have been advised by the Directors that the Quantity Surveyor has confirmed in writing of the achievability of the Budget Development Costs. We have reviewed the report prepared by the Quantity Surveyor and have discussed with the Quantity Surveyor with regard to the achievability of the Budget Development Costs. We have been advised by the Quantity Surveyor that based on the existing specifications of the development plan of the Development Project, the Quantity Surveyor considers that barring unforeseeable circumstances, the Budget Development Costs are achievable. Notwithstanding this, we note that Mr. Yu has

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LETTER FROM CIMB-GK

agreed to counter-indemnify (the “Counter-Indemnity”) the Company against any liabilities of the Company (as guarantor) under the Deed of Appointment. Although no asset will be pledged by Mr. Yu under the Counter-Indemnity, we have discussed with the Directors and understand that the Directors, having considered that Mr. Yu is the single largest shareholder of the Company and with regard to Mr. Yu’s other assets and interests in the PRC, consider that Mr. Yu is financially capable of providing the Counter-Indemnity. In the circumstances where the actual total development costs exceeded the Budget Development Costs, pursuant to the Counter-Indemnity, Mr. Yu will indemnify the Company with the exceeded amount. As the actual total Development Costs involve future factors and events, we express no opinion as to how closely the actual development costs correspond with the Budget Development Costs.

We further note that under the Deed of Appointment, the Purchaser (in its capacity as the project manager of the Development Project) shall compensate Yaubond if the Project Completion Date is delayed for (i) not longer than six months, with interest on the total amount injected by Yaubond and its shareholders into the PRC Company for the Development Project as at Project Completion Date at a rate of 15% per annum for the period of delay; and (ii) a period longer than six months, an additional amount equivalent to the then prevailing market rental income which should have accrued to the PRC Company under the Development project during the period of such delay beyond the first six months. We have been advised by the Directors that the 15% annual interest rate has been determined with reference to the market rates imposed by property developers in case of delay in completion of construction and is also in line with such market rates. We have further discussed with the Quantity Surveyor in this regard and have been informed by the Quantity Surveryor that they consider the interest rate charged and amount payable as compensation for delay in completion under the Deed of Appointment to be in line with market practice for a construction contract.

Having considered the above factors, particularly the stated business objectives of the Group to diversify into the property development and provision of property project management services, the relevant expertise of the Directors in the PRC property market, the prospects of the property market in Guangzhou, PRC, and the Counter-Indemnity, we concur with the views of the Directors that the Proposed Acquisition is in the interests of the Company and the Shareholders as a whole. Shareholders should also note that the future business performance of the Yaubond Group relates to future events, and consequently, we express no opinion as to how closely the actual performance of the Yaubond Group corresponds with the prospects of the Guangzhou property market.

2. The Proposed Acquisition

(a) Assets to be acquired

i. The Sales Shares, being 49 shares of US$1.00 each in the capital of Yaubond, representing 49% of the total issued share capital of Yaubond;

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LETTER FROM CIMB-GK

ii. the Sale Debt, representing 49% of the shareholder’s loan due by Yaubond to the Vendor as at 31 August 2005; and
iii. the Additional Sale Debt, representing the difference between 49% of the Vendor’s Loan and the Sale Debt (i.e. 49% of the additional amount of shareholder’s loans advanced by the Vendor to Yaubond from 1 September 2005 up to Completion Date).

(b) Form of consideration

The Consideration has been paid/shall be payable by the Purchaser to the Vendor in the following manner:

(a) a deposit of HK$5 million has been paid by the Purchaser upon signing of the Acquisition Agreement;
(b) a sum of approximately HK$20 million shall be satisfied at Completion by way of an issue and allotment of the Consideration Shares at an issue price of HK$0.30 per Share by the Company to the Vendor or as it may direct;
(c) a sum of HK$60 million shall be satisfied at Completion by way of the issue of the Convertible Note by the Company to the Vendor or as it may direct; and
(d) the balance of not more than HK$119.4 million shall be payable on Completion in cash.

(c) The Yaubond Group

The PRC Company was established as a wholly foreign owned enterprise in the PRC on 12 October 2004 with a paid-up registered capital of RMB220 million. The PRC Company is a project company and has not carried on any business since its establishment other than the acquisition and holding of the Land. As noted from the PRC legal opinion relating to the Proposed Acquisition, the PRC Company has obtained the land use rights certificate issued by廣州市國土資源和房屋管理局 (Guangzhou Land Resources and Housing Management Bureau) for a term of 40 years, commencing from 12 April 2005 and the relevant land use permits in respect of the Land. According to the valuation report prepared by RHL, the valuation of the Land as at 31 August 2005 is approximately RMB338

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LETTER FROM CIMB-GK

million (HK$325 million) (the “Valuation”) if assuming the fire station has been relocated outside the Land and RMB270 million (HK$260 million) if assuming the fire station is still situated on the Land. We note that under the current plan, the Land is planned to be developed into an office building having a gross floor area of around 84,000 square metres and car parking spaces of around of 18,000 square metres. As at the Latest Practicable Date, construction work on the Land has not yet commenced.

We note from the ‘Letter from the Board’ that the property to be developed from the Land is intended to be partly leased and partly sold for office and other commercial use (including service apartments, shopping arcade or shops). According to the current plan, the Company expects that construction of the Development Project will commence at the beginning of 2006 and the construction is expected to be completed by the end of 2008. The audited consolidated financial position of Yaubond as at 31 August 2005 and the audited consolidated results of Yaubond for the period from 3 May 2005 (date of incorporation) to 31 August 2005 are as follows:

	As at 31 August 2005
	(HK$’000)
Total assets_(Note 1)_	258,053
Net assets	93,001
	For the period from
	3 May 2005 to 31 August 2005
	(HK$’000)
Turnover	Nil
Net profit before and after taxation and
extraordinary items_(Note 2)_	89,605

Notes:

The audited consolidated total assets of Yaubond as at 31 August 2005 mainly consist of the Land under development of HK$250 million.
The net profit mainly included a gain on acquisition of subsidiary of approximately HK$89.7 million arising from the acquisition of the PRC Company.

Further details of the financial information of the Yaubond Group are set out in Appendix II to the Circular.

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LETTER FROM CIMB-GK

3. The Consideration

The Consideration of not more than HK$204.4 million have been agreed by the parties after arm’s length negotiations with reference to the audited consolidated net assets of Yaubond as at 31 August 2005 (as adjusted by the Company to take into account the new and revised Hong Kong Financial Reporting Standards which become effective for accounting periods beginning on or after 1 January 2005) of approximately HK$93 million; the valuation of the Land; the face value of the Sale Debt of approximately HK$45.1 million and the Additional Sale Debt of not more than HK$77.4 million. The Consideration is comprised of three parts being:

the consideration for the Sale Shares of HK$81.9 million;
the consideration for the Sale Debt (up to 31 August 2005) of HK$45.1 million; and
the consideration for the Additional Sale Debt (incurred from 1 September 2005 to Completion Date) of not more than HK$77.4 million.

(i) consideration for the Sale Shares

The audited consolidated NAV of Yaubond Group (“Yaubond NAV”) amounted to approximately HK$93.0 million as at 31 August 2005, of which HK$250 million was recorded as property held for development. We note from the valuation report set out in Appendix V to the Circular that the Valuation amounts to HK$325 million if assuming the fire station has been relocated outside the Land and HK$260 million if assuming the fire station is situated on the Land.

Based on the valuation of the Land of HK$260 million, a valuation surplus of HK$10 million (HK$260 million less HK$250 million) would arise. When taking into account such surplus, the Yaubond NAV would have adjusted to approximately HK$103 million, and 49% of which is approximately HK$50.5 million. The consideration for the Sale Shares of HK$81.9 million would represent a premium of approximately HK$31.4 million over the 49% interests of such valuation.

Nonetheless, as stated in the Letter from the Board, we note that both the Directors and the Vendor, having taken into account the latest progress of negotiations between the PRC Company with the authority in charge of the fire station and the regulatory authority are of the view that there shall be no foreseen obstacle in reaching a property exchange agreement with the relevant authorities to relocate the fire station outside the Land. On this basis, the Directors consider it fair and reasonable to make reference of the Consideration to the Valuation of HK$325 million. Furthermore, we have been advised by the Directors who have been

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LETTER FROM CIMB-GK

advised by the Vendor that the payment for the demolition for the clearance of the fire station located on the Land has been made by the Vendor in September 2005 and RHL has also reflected this amount in the Valuation.

Given the above, we consider it fair and reasonable to assess the consideration for the Sale Shares based on the Valuation of HK$325 million. When taking account of the valuation surplus of the Land of HK$75 million (HK$325 million less HK$250 million), the Yaubond NAV would have adjusted to approximately HK$168 million, and 49% of which is approximately HK$82.3 million. The consideration for the Sale Shares of HK$81.9 million represents a discount of approximately 0.5% to the Purchaser’s 49% attributable interest in the adjusted Yaubond NAV.

(ii) consideration for the Sale Debt

We note from the accountants’ report of Yaubond Group set out in Appendix II to the Circular that the amount of loans from shareholders of Yaubond amounted to approximately HK$92.0 million as at 31 August 2005, and the consideration for the Sale Debt of HK$45.1 million is equivalent to 49% of such amount of Yaubond’s shareholders loan.

(iii) consideration for the Additional Sale Debt

We note that the consideration for the Additional Sale Debt shall be equaled to the face value of the 49% interests of the Vendor’s Loan incurred from 1 September 2005 up to the Completion Date and capped at HK$77.4 million. The Vendor’s Loan is non-interest bearing and has no fixed repayment date. As mentioned above, shareholders of Yaubond will contribute RMB260 million (HK$250 million) to the total cost of the Development Project, and 49% of which amounts to approximately RMB127.4 million (HK$122.5 million). The maximum amount of Additional Sale Debt of HK$77.4 million is equivalent to the difference between the Sale Debt (of HK$45.1 million) and the 49% contribution (HK$122.5 million) to be made by the Purchaser in its capacity as a shareholder of Yaubond to the Development Project upon Completion.

Views

Having taken into account the analyses, we consider that the Consideration as a whole is fair and reasonable so far as the Company and the Independent Shareholders are concerned.

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LETTER FROM CIMB-GK

4. Issue of the Consideration Shares and the Convertible Note

Consideration Shares and the Convertible Note

Of the Consideration, HK$20 million and HK$60 million will be satisfied by the issue of the Consideration Shares and the Convertible Note respectively.

The 66,666,666 Consideration Shares represents approximately 81.3% of the existing issued share capital of the Company and approximately 10.4% of the issued share capital of the Company as enlarged by the issue of the Rights Shares and the Consideration Shares (assuming no Conversion). Based on the Initial Conversion Price (of HK$0.33 per Conversion Share), a total of 181,818,181 Conversion Shares will be issued upon full Conversion. The Conversion Shares represent approximately 221.7% of the existing issued share capital of the Company and approximately 22.1% of the issued share capital of the Company as enlarged by the Consideration Shares and the Conversion Shares (assuming full Conversion at the Initial Conversion Price) and the Rights Shares.

We note that the HK$80 million of the Consideration to be satisfied by the issue of the Consideration Shares and the Convertible Note represents approximately 54% of the gross proceeds of the Rights Issue. If the Rights Issue were used as the sole payment method for the Consideration, the size of the Rights Issue would have to increase by more than half of its existing size. As noted from the Letter from the Board, prior to determining the size of the Rights Issue, the Directors had discussed with other independent potential underwriters of the potential terms of the Rights Issue, and based on such discussions, the Directors concluded that the size of the Rights Issue could not be increased to an amount which was sufficient to cover the underlying amount of the Consideration Shares and the Convertible Note unless the subscription price of the Rights Shares is at a substantial discount to the NAV per Share. The Directors do not consider conducting a large-scale rights issue with subscription price at a substantial discount to NAV to be in the interest of the Company and the Shareholders as a whole given the dilution effect of such rights issue. Accordingly, the Directors propose to the Vendor to have part of the Consideration to be satisfied by the Consideration Shares and the Convertible Note. Given this, we consider that by having the issue of the Consideration Shares and the Convertible Note as part payment of the Consideration in lieu of having the Rights Issue as the sole payment method would lessen the cash requirements from the Independent Shareholders and avoid pricing the Subscription Price below the NAV per Share (which principally comprised liquid assets).

As the Issue Price and the Conversion Price are fair and reasonable (as discussed below) and Shareholders will not experience dilution on a NAV per Share basis following the issue of the Consideration Shares and the Convertible Note, we consider that the

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LETTER FROM CIMB-GK

issue of the Consideration Shares and the Convertible Note as part payment of the Consideration in lieu of a larger scale of the Rights Issue is acceptable so far as the Company and the Independent Shareholders are concerned.

Furthermore, given the existing financial position of the Group and with the amount of the Consideration, we consider that it is in the interests of the Company that the Consideration Shares and the Convertible Note as part payment of the Consideration in lieu of paying in cash from the proceeds of the Rights Issue. In this regard, the Company would better preserve its working capital following Completion for the Enlarged Group’s further business expansion.

The Issue Price and the Initial Conversion Price

In assessing the fairness of the issue price of HK$0.30 (the “Issue Price”) per Consideration Share and the Initial Conversion Price, we have undertaken the following analyses:

Net asset value (“NAV”)

The Issue Price represents a premium of approximately 3.4% to each of the unaudited consolidated NAV per Share of approximately HK$0.29 as at 30 June 2005; and to the unaudited pro forma consolidated NAV per Share of approximately HK$0.29 upon completion of the Acquisition Agreement and the Rights Issue (assuming no Conversion) respectively.

The Initial Conversion Price of HK$0.33 per Conversion Share represents a premium of approximately 13.8% to each of the unaudited consolidated NAV per Share of approximately HK$0.29 as at 30 June 2005; and to the unaudited pro forma consolidated NAV per Share of approximately HK$0.29 upon completion of the Acquisition Agreement and the Rights Issue (assuming no Conversion) respectively.

Accordingly, the issue of the Consideration Shares and the Conversion Shares will not have a dilutive effect on a NAV per Share basis.

Price earnings multiple (“PER”)

As the Company has been making losses in recent years, the use of PER as a reference to assess the fairness of the Issue Price and the Initial Conversion Price is not applicable.

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LETTER FROM CIMB-GK

Share price performance

The Issue Price and the Initial Conversion Price represent:

			Premium/
		Premium/	(Discount)
		(Discount)	to the Initial
	to the Issue		Conversion
Share	price reference	Price	Price
		(%)	(%)
—	to the closing price of HK$0.55 per Share as	(45.5)	(40.0)
	quoted on the Stock Exchange on the
	Last Trading Day;
—	to the average closing price of approximately	(44.4)	(38.9)
	HK$0.54 per Share as quoted on the Stock Exchange
	for the last ten consecutive trading days up to and
	including the Last Trading Day;
—	to the average closing price of HK$0.47 per Share	(36.2)	(29.8)
	as quoted on the Stock Exchange for the last 30
	consecutive trading days up to and including
	the Last Trading Day;
—	to the Theoretical Ex-rights Price of approximately	(11.8)	(2.9)
	HK$0.34 per Share based on the closing price of
	HK$0.55 per Share as quoted on the Stock Exchange
	on the Last Trading Day;
—	to the closing price of HK$0.395 per Share as	(24.1)	(16.5)
	quoted on the Stock Exchange on the
	Latest Practicable Date; and
—	to the theoretical ex-rights price of approximately	(3.2)	6.5
	HK$0.31 per Share based on the closing price of
	HK$0.395 per Share as quoted on the Stock Exchange
	on the Latest Practicable Date.

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LETTER FROM CIMB-GK

The chart below shows the closing prices and the trading volume of the Shares on the Stock Exchange during the six-month preceding to the Last Trading Day (the “Sixmonth Period”) up to and including the Latest Practicable Date (the “Review Period”):

==> picture [374 x 209] intentionally omitted <==

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

(HK$) Price Volume (Shares)
2.5 100,000,000
2.0 80,000,000
1.5 60,000,000
1.0 40,000,000
0.5 20,000,000
0.0 0
Mar Apr May June July Aug Sept Oct Nov
----- End of picture text -----

Source: Bloomberg

Throughout the Six-month Period, the price of the Shares was on a descending trend from the highest of HK$2.00 per Share in April 2005 to the lowest of HK$0.29 per Share in August 2005. As noted from the public announcements made by the Company during this period, save for the effect of a share placement exercise and the implementation of a capital reduction and share consolidation exercise effected in June 2005, no change to the fundamentals or financial position of the Group during the Sixmonth Period was noted. Following the release of the Announcement, the Share price recorded an acute decrease from HK$0.55 per Share on the Last Trading Day to HK$0.36 per Share on the first trading day following the release of the Announcement. As of the Latest Practicable Date, the Share price was HK$0.395 per Share. We note that the trading of the Shares was not liquid with a daily trading volume of approximately 291,300 Shares throughout the Review Period, represents approximately 0.6% of the existing public float of the Company.

As noted in the table above, the Issue Price and the Initial Conversion Price represent a discount of approximately 11.8% and 2.9% to the Theoretical Ex-rights Price (based on Share price quoted on the Last Trading Day) respectively. We regard it fair and reasonable for the Issue Price and the Initial Conversion Price to be at a discount to the Theoretical Ex-rights Price as the issue of the Consideration Shares and the Convertible Note is similar to a share placement exercise whereby the pricing, as a common market practice, would be at a discount to the market price of the underlying shares. We have reviewed all 94 share placements (so far as we are aware and to our knowledge) announced by

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LETTER FROM CIMB-GK

the listed companies on the Stock Exchange from January 2005 up to the Last Trading Day and noted that the average discount of the share placement price to the market share price of these share placements was approximately 8.6%. In the present case, given the substantial size of the Consideration Shares and the Conversion Shares as compared to the market capitalization of the Company as of the Last Trading Day and the low liquidity of the Shares, we consider the discount of the Issue Price and the Initial Conversion Price to the Theoretical Ex-rights Price to be fair and reasonable. Notwithstanding this, the Issue Price and the Initial Conversion Price still represent a premium over the unaudited consolidated NAV per Share. As the Completion is made inter-conditional upon completion of the Rights Issue, and Shareholders can take up their entitlement of the Rights Shares at the Subscription Price, we consider it appropriate to also compare the Issue Price and the Initial Conversion Price with the Subscription Price, and we note that the Issue Price is equivalent to the Subscription Price whilst the Initial Conversion Price represents a premium of 10% over the Subscription Price.

Comparable convertible issues

We have also compared the Initial Conversion Price to the conversion price of other convertible issues (the “Comparable Convertible Issues”) announced by listed companies in Hong Kong during the Six-month Period, which have had the maturity period of two to three years as compared to the 2-year term of the Convertible Note, denominated in HK$ and with no redemption premium. We set out the findings as follows:

								Conversion
								Premium/
		Market					Conversion	(discount)
		capitalisation					premium/	to the latest
Name of		as at			Principal		(discount)/	published
company/ Date	Principal	the date of			amount	Coupon	to share	audited
of announcement	Business	announcement	PER	Maturity	HK$	rate	price	NAV/share
	(Note)	(in million)	(times)	(years)	(in million)	(%)	(Note 8)	(Times)
			(Note 7)				(%)
Magnum International	1	66.42	n.a.	3	35	1	(56.2)	n.a.
Holdings Ltd.			(made loss)					(net deficit)
(8 April 2005)
Orient Industries	2	34.75	n.a.	2	33	—	(52.5)	1.63
Holdings Ltd.			(made loss)
(13 April 2005)
Pricerite Group Ltd.	3	952.83	n.a.	2	108	—	(53.1)	2.97
(25 May 2005)			(made loss)

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LETTER FROM CIMB-GK

								Conversion
								Premium/
		Market					Conversion	(discount)
		capitalisation					premium/	to the latest
Name of		as at			Principal		(discount)/	published
company/ Date	Principal	the date of			amount	Coupon	to share	audited
of announcement	Business	announcement	PER	Maturity	HK$	rate	price	NAV/share
	(Note)	(in million)	(times)	(years)	(in million)	(%)	(Note 8)	(Times)
			(Note 7)				(%)
South Sea Petroleum	4	205.23	16.77	3	40	1	5.00	0.78
Holdings Ltd.
(23 June 2005)
Inno-Tech Holdings	5	33.10	4.99	3	6.3	7.5	(11.35)	1.46
Ltd. (5 July 2005)
Wo Kee Hong	6	148.48	83.75	3	30	7.25	49.25	0.84
(Holdings) Ltd.
(18 August 2005)
Average:						2.79	(28.00)	1.54
The Company		45.1	n.a.	2	60	3	(2.94)	13.8
			(made loss)				(Note 9)	(Note 10)

Source: www.hkex.com.hk, and as far as we are aware and to our reasonable knowledge, the above list is exhaustive.

Notes:

Securities dealing and brokerage, money lending and property investment.
Design, manufacture , sale and trading of carpets.
Furniture and household goods retailing.
Develop, explore and produce crude oil in Indonesia.
Design of residential intranet and provision of e-property management software application consulting services.
Import, marketing and distribution of audio and visual equipment, air-conditioning equipment, car audio and electronic products.
Based on the latest audited financial statements available as at the date of announcement.
Conversion premium represents the percentage of conversion price in excess of the latest closing price as disclosed in the relevant announcements.

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LETTER FROM CIMB-GK

The conversion premium represents the premium of the Initial Conversion Price over the Theoretical Ex-rights Price based on Share price quoted on the Last Trading Day.
The conversion premium represents the premium of the Initial Conversion Price over the unaudited pro forma consolidated NAV per Share upon completion of the Acquisition Agreement (assuming no Conversion) and the Rights Issue.

As noted above, the discount of the Initial Conversion Price to the Theoretical ExRights Price (based on the Share price quoted on the Last Trading Day) is lesser than the average of discount of those of the Comparable Convertible Issues and that the premium of the Initial Conversion Price over the unaudited pro forma consolidated NAV per Share upon completion of the Acquisition Agreement (assuming no Conversion) and the Rights Issue is substantially higher than those of the Comparable Convertible Issues. The coupon rate of the Convertible Note is also comparable to the average coupon rate of the Comparable Convertible Issues.

Views

Given the above analyses, and having considered that:

(i) the Issue Price and the Initial Conversion Price is equivalent to and at a premium over the unaudited consolidated NAV per Share as at 30 June 2005 and to the unaudited pro forma consolidated NAV per Share of approximately HK$0.29 upon completion of the Acquisition Agreement (assuming no Conversion) and the Rights Issue respectively;
(ii) the discount of the Issue Price and the Initial Conversion Price to the TheoreticalEx-rights Price is fair and reasonable in light of the circumstances of the Company including the low liquidity of trading in Shares, the substantial size of the Consideration Shares and the Conversion Shares as compared to the market capitalization of the Company as at Last Trading Day and as compared to the average discount of the share placements effected on the Stock Exchange from January 2005 up to the Last Trading Day as mentioned above; and
(iii) as Completion is conditional upon completion of the Rights Issue, the Consideration Shares and the Conversion Shares will be issued after completion of the Rights Issue, and Shareholders can take up their entitlement of the Rights Shares at the Subscription Price, we consider it appropriate to also compare the Issue Price and the Initial Conversion Price with the Subscription Price, and noted that the Issue Price and the Initial Conversion Price is equivalent to and at a premium of 10% over the Subscription Price respectively, in light of the fact that the Subscription Price is fair and reasonable as explained in the sub-paragraph headed “The Subscription Price” below,

we consider that the Issue Price and the Initial Conversion Price are fair and reasonable so far as the Company and the Independent Shareholders are concerned.

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LETTER FROM CIMB-GK

Other terms of the Convertible Note

The coupon rate of the Convertible Note is 3% per annum, which is comparable to the average coupon rate of the Comparable Convertible Issues as noted above. The Convertible Note has no redemption premium feature and the holder of the Convertible Note will not be entitled to receive notices of, attend or vote at any meeting of the Company. The Convertible Note will rank pari passu with all other present and future unsecured and unsubordinated obligations of the Company. Given this, we are of the view that in addition to the Initial Conversion Price, the other terms of the Convertible Note are also fair and reasonable so far as the Company and the Independent Shareholders are concerned.

Dilution of Independent Shareholders’ holdings

Upon issuance of the Consideration Shares and the Conversion Shares (based on the Initial Conversion Price), a total of 248,484,847 new Shares will be issued, which represent approximately 302.9% of the existing issued share capital of the Company, and approximately 30.2% of the issued share capital of the Company as enlarged by the issuance of such new Consideration Shares, the Rights Shares and the Conversion Shares. Assuming full Conversion and that none of the Rights Shares (apart from Grand Cosmos’ pro rata entitlement to the Rights Shares) need to be taken up by the Underwriters, the shareholding of the Independent Shareholders will be diluted from approximately 61.46% to approximately 42.90% immediately after completion of the Rights Issue and the Acquisition Agreement.

Given the fact that (a) the premium underlying the Initial Conversion Price over the unaudited pro forma consolidated NAV per Share upon Completion and the completion of the Rights Issue; (b) the undertaking given by the Company that it will defer the issue of the Conversion Shares if the public float would fall below the minimum percentage as required under the Listing Rules upon Conversion; (c) the issue of the Consideration Shares and the Conversion Shares will enable the Group to preserve its working capital position following completion of the Acquisition; and (d) there is no dilution to the unaudited pro forma consolidated NAV per Share upon issuance of the Consideration Shares and the Conversion Shares, we regard the possible shareholding dilution effect arising from the issuance of the Consideration Shares and the Conversion Shares to be acceptable so far as the Independent Shareholders are concerned.

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LETTER FROM CIMB-GK

5. Rights Issue

Reasons for the Rights Issue and use of proceeds

Based on the interim report of the Group for the six months ended 30 June 2005, as at that date, the unaudited cash and bank balances of the Group were approximately HK$25.5 million (including proceeds from the share placement effected in early June 2005) with an unaudited total liabilities of approximately HK$4.0 million.

The estimated net proceeds from the Rights Issue amounts to approximately HK$142 million, which we note will be utilized as to (i) up to HK$119.4 million to satisfy part of the Consideration (comprising the cash payable on Completion for the Sale Shares and the Sale Debt of approximately HK$42 million and for the Additional Sale Debt of up to HK$77.4 million); and (ii) the remaining balance of approximately HK$22.6 million as the Group’s general working capital. The Rights Issue is conditional upon completion of the Acquisition Agreement.

Based on the Group’s financial position and the amount of Consideration, we concur with the views of the Directors that the Rights Issue would enable the Company to effect the Proposed Acquisition which it could not be effected by share placement or by bank borrowings because it would be impractical and also not in the interests of the Shareholders as a whole to effect any private share placement of such magnitude, whilst bank borrowings of such amount, if could be obtained, would have adversely affected the gearing position of the Enlarged Group. Hence, we concur with the views of the Directors that the Rights Issue will allow all Qualifying Shareholders to maintain their respective proportionate interests in the Company and to continue to participate in the future growth and development of the Enlarged Group. Furthermore, the Rights Issue will also enhance the capital base of the Enlarged Group.

Given the above and having considered the financial position of the Group as compared with the amount of the Consideration, we concur with the views of the Directors that it is in the interests of both the Company and the Shareholders as a whole to raise capital through the Rights Issue to finance the Proposed Acquisition. Shareholders should note that the Acquisition Agreement and the Rights Issue is conditional upon completion of each other. In this regard, if Shareholders approve the Acquisition Agreement, they should consequentially approve the Rights Issue so as to facilitate the completion of the Acquisition Agreement.

The Subscription Price

The Company will provisionally allot six Rights Share for every one Share held by the Qualifying Shareholders on the Record Date at the Subscription Price of HK$0.30 per Rights Share.

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LETTER FROM CIMB-GK

NAV

The Subscription Price represents a premium of approximately 3.4% to each of the unaudited consolidated NAV per Share of approximately HK$0.29 as at 30 June 2005; and to the unaudited pro forma consolidated NAV per Share of approximately HK$0.29 upon completion of the Acquisition Agreement and the Rights Issue (assuming no Conversion) respectively.

PER

As the Company has been making losses in recent years, the use of PER as a reference to assess the fairness of the Subscription Price is not applicable.

Share price performance

The Subscription Price represents:

		Premium/(Discount) to	Premium/(Discount) to
Share	price reference	the Subscription Price
			(%)
—	to the closing price of HK$0.55 per Share as quoted		(45.5)
	on the Stock Exchange on the Last Trading Day;
—	to the average closing price of approximately HK$0.54		(44.4)
	per Share as quoted on the Stock Exchange for
	the last ten consecutive trading days up to and
	including the Last Trading Day;
—	to the average closing price of HK$0.47 per Share as		(36.2)
	quoted on the Stock Exchange for the last 30
	consecutive trading days up to and including
	the Last Trading Day;
—	to the Theoretical Ex-rights Price of approximately		(11.8)
	HK$0.34 per Share based on the closing price of
	HK$0.55 per Share as quoted on the Stock Exchange
	on the Last Trading Day;
—	to the closing price of HK$0.395 per Share as quoted		(24.1)
	on the Stock Exchange on the Latest Practicable Date;	and
—	to the theoretical ex-rights price of approximately		(3.2)
	HK$0.31 per Share based on the closing price of
	HK$0.395 per Share as quoted on the Stock Exchange
	on the Latest Practicable Date.

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LETTER FROM CIMB-GK

The chart below shows the closing prices and the trading volume of the Shares on the Stock Exchange during the Review Period:

==> picture [374 x 209] intentionally omitted <==

Source: Bloomberg

Throughout the Six-month Period, the price of the Shares was on a descending trend from the highest of HK$2.00 per Share in April 2005 to the lowest of HK$0.29 per Share in August 2005. As noted from the public announcements made by the Company during that period, save for the effect of a share placement exercise and the implementation of a capital reduction and share consolidation exercise in June 2005, no change to the fundamentals or financial position of the Group during the Six-month Period was noted. Following the release of the Announcement, the Share price recorded an acute decrease from HK$0.55 per Share on the Last Trading Day to HK$0.36 per Share on the first trading day following the release of the Announcement and to HK$0.395 per Share as of the Latest Practicable Date. We note that the trading of the Shares was not liquid with a daily trading volume of approximately 291,300 Shares throughout the Review Period, represents approximately 0.6% of the public float of the Company.

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LETTER FROM CIMB-GK

Rights Issue Comparables

We have reviewed the rights issues (the “Rights Issue Comparables”) announced for companies listed on the main board of the Stock Exchange in the Six-month Period, details of which are set out in the following table:

							(Discount)/
							Premium
							of subscription
							price to
							the unaudited
							pro forma
							consolidated
						Premium/	net tangible
			Market			(discount) of	asset value per
			capitalization			subscription	share upon
			as at the			price to	completion
Company/Date	Principal		date of		Amount	theoretical	of the
of announcement		Business	announcement	PER	raised	ex-rights price	rights issue
		(Note)	(HK$’m)	(times)	(HK$’m)	(Note 14)
						%	%
MAE Holdings Limited		1	1,165.80	n.a.	22.42	(44.4)	27.6
(1 April 2005)				(made loss)
Takson Holdings Limited		2	62.32	n.a.	7.79	(33.3)	(20.6)
(4 April 2005)				(made loss)
Ruili Holdings Limited		3	130.33	51.49	161.57	(26.2)	41.2
(29 April 2005)
Lai Sun Garment		4	761.99	5.89	89.86	(7.4)	(64.8)
(International) Limited
(18 May 2005)
Hualing Holdings Limited		5	365.25	n.a.	238.20	(34.2)	998.9
(19 May 2005)				(made loss)
SNP Leefung Holdings		6	563.82	61.4	120.82	(11.76)	(30.9)
Limited (25 May 2005)
Wealthmark International		7	126.00	n.a.	54.00	(10.0)	362.72
(Holdings) Limtied				(made loss)
(8 July 2005)

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LETTER FROM CIMB-GK

						(Discount)/
						Premium
						of subscription
						price to
						the unaudited
						pro forma
						consolidated
					Premium/	net tangible
		Market			(discount) of	asset value per
		capitalization			subscription	share upon
		as at the			price to	completion
Company/Date	Principal	date of		Amount	theoretical	of the
of announcement	Business	announcement	PER	raised	ex-rights price	rights issue
	(Note)	(HK$’m)	(times)	(HK$’m)	(Note 14)
					%	%
Zhong Hua International	8	117.56	17.86	58.78	(26.9)	(48.47)
Holdings Limited
(19 July 2005)
Asia AllianceHoldings	9	30.70	4.30	148.80	(9.5)	(15.42)
Limited (22 July 2005)
Unity Investments	10	14.25	n.a.	52.79	(13.04)	(64.8)
Holdings Limited			(made loss)
(26 July 2005)
Symphony Holdings	11	1,831.18	11.15	349.59	(51.9)	(18.13)
Limited (27 July 2005)
Oriental Investment	12	247.68	n.a.	57.6	(18.23)	n.a.
Corporation Limited			(made loss)			(net deficit)
(12 August 2005)
Century Legend	13	350.59	132.5	48.51	(31.2)	154.64
(Holdings) Limited
(15 August 2005)
Average_(Note 15)_					(23.50)	38.12
The Company		45.1	n.a.	147.64	(11.80)	3.4
			(made loss)		(Note 16)	(Note 17)

Source: www.hkex.com.hk, and as far as we are aware and to our reasonable knowledge, the above list is exhaustive.

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LETTER FROM CIMB-GK

Notes:

Manufacture and sale of electrical adapters, transformers and related accessories, plastic moulds and electrical products.
Sourcing, subcontracting, marketing and selling of garments.
Manufacture and sale of multimedia electronic products, toys and games products.
Manufacture and sale of garments, property investment for rental purposes and investment holding
Manufacture and sale of household electrical appliances under the HUALING brand name.
Printing of books, magazines, packaging products and financial printing.
Manufacture and sale of handbag products and related accessories.
Property development and investment, sale of online English learning courses, leasing of equipment and procision of telecommunication and other related services in the PRC.
Provision of wireless communication services, communication solutions consultancy services and internet operations
Investment in listed and unlisted companies in Hong Kong and PRC.
Manufacture and trading of footwear and property and investment holding.
Investment and leasing of properties, trading of electronic products and development of technology in the environmental protection industry.
Money lending, travel agency and provision of health and beauty services.
The theoretical ex-rights price is calculated based on the closing price of the relevant shares on the last trading day prior to the date of the announcement relating to the rights issue.
Excluding the highest and lowest extremes.
The premium represents the premium of the Subscription Price over the Theoretical Ex-rights Price per Share as at the Last Trading Day.
The conversion discount represents the discount of the Subscription Price to the unaudited pro forma consolidated NAV value per Share assuming completion of the Acquisition Agreement (with no Conversion) and the Rights Issue.

As a rights issue is offered to the shareholders of a company, incentive is often given to the shareholders enticing them to take up their entitlements under the rights issue, and such incentive is given by way of pricing the subscription price of a rights issue at a discount to the theoretical ex-rights price. In the present case, in addition to the assessment of the Subscription Price to the Theoretical Ex-rights Price, we consider that given the size of the Rights Shares is significant (which is approximately three times the market capitalization of the Company as at the Last Trading Day), we are also

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LETTER FROM CIMB-GK

mindful of the dilution effect of the Rights Issue on a NAV per Share basis should Shareholders do not participate in the Rights Issue. Hence, we have also taken into account the unaudited consolidated NAV per Share in assessing the Subscription Price.

As noted from the above analyses, the reference of the subscription prices to their respective theoretical ex-rights prices of the Rights Issue Comparables announced during the Six-month Period ranged from a discount of approximately 9.5% to 44.4%, with an average discount of approximately 23.5% (excluding the highest and lowest extremes). The Subscription Price represents a discount of approximately 11.80% to the Theoretical Ex-rights Price as at the Last Trading Day which falls within the range of discount but is lower than the average discount of the subscription prices of the Rights Issue Comparables announced in the Six-month Period to their respective theoretical exrights prices.

As an additional reference, we also note that the Subscription Price represents a premium of approximately 3.4% (equivalent to approximately HK$0.01 per Share) to the unaudited consolidated NAV per Share following completion of the Rights Issue, as compared to the subscription prices of the Rights Issue Comparables to their respective unaudited pro forma consolidated NAV per share which ranged from a premium of approximately 362.7% to a discount of approximately 64.8%, with an average of premium of approximately 38.1% (excluding the highest and lowest extremes).

We note that the unaudited consolidated NAV of the Group as at 30 June 2005 principally comprised liquid assets. In this regard, although the Subscription Price is at a lower discount to the Theoretical Ex-rights Price as compared to those of the Rights Issue Comparables, given the size of the Rights Issue and the liquid asset base of the Group, we consider it fair and reasonable for the Subscription Price to be priced with close reference to the unaudited consolidated NAV per Share. If the Subscription Price were priced at below the unaudited consolidated NAV per Share, with the size of the Rights Issue, the dilution effect on a NAV per Share following completion of the Rights Issue would be significant if Shareholders do not take up their entitlements under the Rights Issue and this will not be in the interests of the Shareholders as a whole.

View

Having taken into account the above analyses, in particular the discount of the Subscription Price to the Theoretical Ex-rights Price and the fact that Shareholders would not suffer a dilution on a NAV per Share basis following completion of the Rights Issue even if they do not subscribe to their entitlements under the Rights Issue (as the Subscription Price is at a premium to the unaudited consolidated NAV per Share), we consider that the Subscription Price is fair and reasonable so far as the Company and the Shareholders as a whole are concerned.

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LETTER FROM CIMB-GK

Dilution effect on shareholding

For those Qualifying Shareholders who do not exercise their rights to subscribe for the Rights Shares in full, depending on the extent that they accept their entitlements, their shareholding interests will be diluted up to a maximum of approximately 83%. However, it should be noted that such Shareholders will have the opportunity to realise their nilpaid rights to subscribe for the Rights Shares (the “Nil-Paid Rights”) on the market during the dealings of Nil-Paid Rights on the Stock Exchange, subject to the then prevailing market conditions.

The shareholding interests of the Non-Qualifying Shareholders will be diluted by approximately 83% immediately following the Rights Issue. Nevertheless, their entitlements to the Rights Shares will be sold on the market in nil-paid forms, subject to market conditions. The net proceeds of the sale will be paid to the relevant NonQualifying Shareholders except for the amount of less than HK$100, which will be retained by the Company. On the other hand, the Independent Shareholders who wish to increase their shareholdings in the Company through the Rights Issue may, subject to availability, acquire additional Nil-Paid Rights on the market. The Qualifying Shareholders may also apply for excess Rights Shares.

As explained above, based on the Group’s financial position and the amount of Consideration, we concur with the views of the Directors that the Rights Issue would enable the Company to effect the Proposed Acquisition which it could not be effected by share placement or by bank borrowings because it would be impractical and also not in the interests of the Shareholders as a whole to effect any private share placement of such magnitude, whilst bank borrowings of such amount, if could be obtained, would have adversely affected the gearing position of the Enlarged Group.

Hence, although the level of shareholding dilution of the Rights Issue is significant in the circumstances that Shareholders do not take up their entitlements under the Rights Issue, the Subscription Price is priced with close reference to the unaudited consolidated NAV per Share, and Shareholders would not suffer a dilution on a NAV per Share basis following completion of the Rights Issue even if they do not subscribe to their entitlements under the Rights Issue. For those Qualifying Shareholders who take up their entitlements in full under the Rights Issue, their shareholding interests in the Company will remain unchanged after the Rights Issue. Furthermore, as the Rights Issue is conditional upon completion of the Proposed Acquisition, Shareholders will be able to participate in a more sizeable business with a larger asset backing as well as capital base following Completion and the Rights Issue.

Having considered the above analyses, we consider that the shareholding dilution effect arising from the Rights Issue is acceptable.

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LETTER FROM CIMB-GK

6. Financial effect of the Proposed Acquisition and the Rights Issue

NAV

As noted from the unaudited pro forma consolidated balance sheet of the Enlarged Group set out in Appendix III to the Circular, the unaudited pro forma consolidated NAV of the Enlarged Group immediately upon completion of the Proposed Acquisition and the Rights Issue would amount to approximately HK$185.6 million (equivalent to approximately HK$0.29 per Share), representing an increase of HK$162 million as compared to the unaudited consolidated NAV of the Group of approximately HK$23.6 million as at 30 June 2005 (representing approximately HK$0.29 per Share).

Earnings

As noted from the unaudited pro forma consolidated income statement of the Enlarged Group set out in Appendix III to the Circular, assuming the Completion and the Rights Issue had taken place as at 1 January 2005, the unaudited results of the Enlarged Group for the six months ended 30 June 2005 would have improved from a net loss of approximately HK$7.7 million to an unaudited pro forma net profit of approximately HK$36.1 million. Yaubond had not generated any revenue, and its profit of approximately HK$89.6 million was recorded due to a non-recurrent gain on the acquisition of the PRC Company. Upon Completion, the Enlarged Group will commence to record project management fee income pursuant to the Deed of Appointment. The Enlarged Group will equity account for its 49% interest in Yaubond.

Gearing and working capital

Based on the unaudited pro forma consolidated balance sheet of the Enlarged Group set out in Appendix III to the Circular, the Enlarged Group would continue to remain in a net cash position upon completion of the Acquisition Agreement and the Rights Issue as the Consideration will be financed by the net proceeds of the Rights Issue and the issuance of the Consideration Shares and the Convertible Note. Accordingly, the working capital position of the Enlarged Group would not be adversely affected as a result of the Proposed Acquisition.

THE WHITEWASH WAIVER

As at the Latest Practicable Date, Mr. Yu and his Concert Parties were beneficially interested in 31,609,227 Shares, representing approximately 38.50% of the issued share capital of the Company. Pursuant to the Underwriting Agreement, in the event that the Underwriters are required to subscribe for the Underwritten Shares and the Consideration Shares to be issued to Ms. Azuma (who is also a Concert Party of Mr. Yu), Mr. Yu and his Concert Parties will become interested in a total of 590,418,303 Shares, representing i) approximately 92.1% of

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LETTER FROM CIMB-GK

the issued share capital of the Company as enlarged by the Rights Issue and assuming no Conversion, and ii) approximately 93.9% assuming full Conversion has taken place. The underwriting by the Underwriters of the Underwritten Shares and the issue of the Consideration Shares to Ms. Asuma may trigger an obligation on the part of Mr. Yu and his Concert Parties to make a mandatory general offer under Rule 26 of the Takeovers Code for all the securities of the Company not already owned or agreed to be acquired by Mr. Yu and/or his Concert Parties. If the Whitewash Waiver is granted, and in the event that the aggregate interest of Mr. Yu and his Concert Parties in the voting rights of the Company exceeds 50%, Mr. Yu and his Concert Parties would be permitted to further increase their shareholding interest in the Company without triggering an obligation under Rule 26 of the Takeovers Code to make a general offer.

We note that Mr. Yu and his Concert Parties have not acquired any voting rights of the Company and have not dealt in any securities of the Company in the six-month period immediately prior to the date of the Announcement Date. Mr. Yu and his Concert Parties have made an application for the Whitewash Waiver to the Executive pursuant to Note 1 on dispensations from Rule 26 of the Takeovers Code. The Executive has indicated that it will grant the Whitewash Waiver, which will be subject to the approval of the Independent Shareholders taken by way of a poll at the SGM. Mr. Yu and his Concert Parties and their respective associates will abstain from voting at the SGM on the proposed resolutions to approve the Acquisition Agreement, the Rights Issue and the Whitewash Waiver.

We note that it is one of the conditions of the Acquisition Agreement and the Underwriting Agreement that the Whitewash Waiver can be obtained. If the Whitewash Waiver is not being approved by the Independent Shareholders, the Acquisition Agreement and the Underwriting Agreement will not become unconditional and the Proposed Acquisition as well as the Rights Issue will not proceed, thus their benefits will not be accrued to the Company.

RECOMMENDATION

Having considered the abovementioned principal factors and reasons, in particular:

the Proposed Acquisition will enable the Group to diversify into the property market in Guangzhou which has a good prospects and with a recurring stream of income to be derived from the Deed of Appointment with counter-indemnity given by Mr. Yu in favour of the Company;
the issue of the Consideration Shares, the Convertible Note and net proceeds from the Rights Issue will enable the Group to effect the Proposed Acquisition and to improve the overall working capital position of the Enlarged Group for business expansion;
the premium of the Issue Price and the Initial Conversion Price to the unaudited pro forma consolidated NAV per Share as set out in Appendix III to the Circular;

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LETTER FROM CIMB-GK

despite the significant size of the Rights Issue which would result in a significant shareholding dilution effect of approximately 83% if Shareholders do not participate therein, we concur with the views of the Directors that the Rights Issue would be a preferred method of equity financing as it will allow all Qualifying Shareholders to maintain their proportionate interests in the Company and to participate in the future growth and development of the Enlarged Group through the Proposed Acquisition; and Shareholders will not suffer any dilution on a NAV per Share basis even if they do not take up their entitlements under the Rights Issue as the Subscription Price is priced at a premium over the unaudited consolidated NAV per Share;
the discount of the Subscription Price to the Theoretical Ex-rights Price as compared to those of the Rights Issue Comparables;
as a result of the Proposed Acquisition and the Rights Issue, the capital base of the Enlarged Group as well as the unaudited pro forma consolidated NAV per Share will be enhanced and the working capital position of the Enlarged Group will also be preserved,

we consider that the terms of the Proposed Acquisition, the Convertible Note and the terms of the Rights Issue are fair and reasonable so far as the Company and the Independent Shareholders are concerned. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the SGM to approve the Acquisition Agreement (including the issue of the Consideration Shares and the Convertible Note) and the Rights Issue.

Given that the Whitewash Waiver is a condition precedent to the Acquisition Agreement and the Rights Issue, which will not proceed if the Whitewash Waiver is rejected, we consider that the grant of the Whitewash Waiver is fair and reasonable so far as the Company and the Independent Shareholders are concerned. We therefore also recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the SGM to approve the Whitewash Waiver.

Yours faithfully, For and on behalf of CIMB-GK Securities (HK) Limited Alex Lau Flavia Hung Executive Vice President Senior Vice President

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL SUMMARY

Unqualified audit opinions were issued for the results of the Group for the two years ended 31 December 2003. Qualified audit opinion was issued for the results of the Group for the year ended 31 December 2004, full text of which are set out in paragraph 2 of this appendix.

(a) Set out below (except for the notes) is a summary of the audited consolidated profit and loss accounts of the Company for each of the three financial years ended 31 December 2004 as extracted from the annual reports of the Company for the respective years.

CONSOLIDATED PROFIT AND LOSS ACCOUNTS

TURNOVER Cost of sales Gross profit Other income Administrative expenses Other operating expenses Loss on disposal of subsidiaries LOSS FROM OPERATING ACTIVITIES Finance costs LOSS BEFORE TAXATION Taxation LOSS BEFORE MINORITY INTERESTS Minority interests NET LOSS ATTRIBUTABLE TO SHAREHOLDERS LOSS PER SHARE Basic_(Note 1)_ Diluted	2004 HK$’000 9,709 (1,617) 8,092 8,174 (12,730) (49,269) — (45,733) (396) (46,129) (1,359) (47,488) 1 (47,487) 0.76 cents N/A	2003 2002 HK$’000 HK$’000 672 16,649 (516) (15,789) 156 860 737 9,033 (11,965) (29,871) (86,805) (68,056) (1,546) — (99,423) (88,034) (1,354) (1,299) (100,777) (89,333) (8) — (100,785) (89,333) — — (100,785) (89,333) 9.01 cents 21.11 cents N/A N/A

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes:

For the purposes of calculating basic loss per Share, the weighted average number of Shares have been adjusted to reflect the capital reorganization of the Company being effective on 5 August 2005, as set out under note 17 under the section of “Unaudited interim results for the six months ended 30 June 2005” of this appendix set out on pages 111 to 121. Accordingly, the adjusted basic loss per Share for the three years ended 31 December 2002, 2003 and 2004 is HK$21.11, HK$9.01 and HK$0.76 respectively.
There is no extraordinary item, exceptional item or dividend for the three years ended 31 December 2004.
(b) Set out below is a summary of the audited consolidated assets and liabilities of the Company as at 31 December 2002, 2003 and 2004 as extracted from the annual reports of the Company for the respective years.

CONSOLIDATED ASSETS AND LIABILITIES

Non-current assets Current assets Representing: Issued capital (Deficit)/Reserves Shareholders’ funds Non-current liabilities Current liabilities	Year 2004 HK$’000 6,743 7,093 13,836 68,338 (58,864) 9,474 — 4,362 13,836	ended 31 December 2003 2002 HK$’000 HK$’000 9,270 88,658 6,771 20,780 16,041 109,438 13,068 6,200 (9,108) 83,344 3,960 89,544 — — 12,081 19,894 16,041 109,438	ended 31 December 2003 2002 HK$’000 HK$’000 9,270 88,658 6,771 20,780 16,041 109,438 13,068 6,200 (9,108) 83,344 3,960 89,544 — — 12,081 19,894 16,041 109,438
			109,438

			6,200 83,344
			89,544 — 19,894
			109,438

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. AUDITED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2004

(a) Set out below is the auditors’ report extracted from the annual report of the Company for the financial year ended 31 December 2004. References to the page numbers are to page numbers of the annual report of the Company for the financial year ended 31 December 2004.

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林
萬香香聞
CERTIFIED PUBLIC ACCOUNTANTSlbert 25/F., Man Yee Building68 Des Voeux Road Central Lam & Co.am & Co. Accredited Employer 宜大廈二港德輔道中港執業深會計師
Hong KongTel: (852) 2802 1092Fax: (852) 2519 8529 十五六十八會計事務
E-mail: [email protected] 樓號師所
Website: www.albertlamcpa.com.hk Approved
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Albert Lam & Co.am & Co.

To the members

renren Holdings Limited

(Incorporated in Bermuda with limited liability)

We have audited the financial statements on pages 13 to 48 which have been prepared in accordance with accounting principles generally accepted in Hong Kong.

Respective Responsibilities of Directors and Auditors

The Company’s directors are responsible for the preparation of financial statements which give a true and fair view. In preparing financial statements which give a true and fair view it is fundamental that appropriate accounting policies are selected and applied consistently.

It is our responsibility to form an independent opinion, based on our audit, on those statements and to report our opinion solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the content of this report.

Basis of Opinion

We conduct our audit in accordance with Statements of Auditing Standards issued by the Hong Kong Institute of Certified Public Accountants, except that the scope of our work was limited as explained below.

An audit includes an examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Company’s and the Group’s circumstances, consistently applied and adequately disclosed.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

We planned our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the financial statements are free from material misstatement. However, the evidence available to us was limited because included in the Group’s non-current assets as at 31 December 2004 are promissory notes receivable amounting to HK$5,322,000 after provision for doubtful debt of HK$5,322,000 has been made. These promissory notes receivable, with maturity on 31 March 2006, are unsecured. We were not provided with adequate evidence to ensure whether the issuer is able to settle these promissory notes on their maturity and the provision is adequate.

Any adjustment that might have been found to be necessary in respect of the matter set out above would have a consequential significant effect on the net assets of the Group as at 31 December 2004 and the loss for the year then ended.

In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. We believe that our audit provides a reasonable basis for our opinion.

Qualified Opinion arising from limitation of audit scope

Except for any adjustments that might have been found to be necessary had we been able to obtain sufficient evidence relating to the matter set out in the basis of opinion section of this report, in our opinion the financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2004 and of the loss and cash flows of the Group for the year then ended and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

In respect alone of the limitations on our work as set out in the basis of opinion section of this report, we have not obtained all the information and explanations that we consider necessary for the purpose of our audit.

Albert Lam & Co.

Certified Public Accountants

Hong Kong, 25 April 2005

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Set out below is the audited consolidated financial statement of the Group for the financial year ended 31 December 2004 together with the comparative figures for the financial year ended 31 December 2003 which were extracted from the annual report of the Company for the financial year ended 31 December 2004.

Consolidated Profit and Loss Account

Year ended 31 December 2004

Notes TURNOVER 5 Cost of sales Gross profit Other income 5 Administrative expenses Other operating expenses Loss on disposal of subsidiaries LOSS FROM OPERATING ACTIVITIES 6 Finance costs 9 LOSS BEFORE TAXATION Taxation 10 LOSS BEFORE MINORITY INTERESTS Minority interests NET LOSS ATTRIBUTABLE TO SHAREHOLDERS 11, 27 LOSS PER SHARE Basic 12	2004 HK$’000 9,709 (1,617) 8,092 8,174 (12,730) (49,269) — (45,733) (396) (46,129) (1,359) (47,488) 1 (47,487) 0.76 cents	2003 HK$’000 672 (516) 156 737 (11,965) (86,805) (1,546) (99,423) (1,354) (100,777) (8) (100,785) — (100,785) 9.01 cents

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Balance Sheet

At 31 December 2004

Notes NON-CURRENT ASSETS Fixed assets 13 Goodwill 14 Interest in an associate 15 Investments in securities 16 Promissory notes receivable 17 CURRENT ASSETS Trade receivables 19 Deposits, prepayments and other receivables Loan receivable 20 Investments in securities 16 Cash and cash equivalents 21 CURRENT LIABILITIES Trade payables 22 Other payables and accruals Tax payable 10 Amount due to a director 23 Short term loans 24 Convertible bonds 25 NET CURRENT ASSETS/ (LIABILITIES) NET ASSETS CAPITAL AND DEFICIT Issued capital 26 Deficit 27	2004 HK$’000 513 8 — 900 5,322 6,743 — 4,811 1,500 435 347 7,093 273 1,454 1,359 1,276 — — 4,362 2,731 9,474 68,338 (58,864) 9,474	2003 HK$’000 1,225 8,042 3 — — 9,270 1 3,825 — 2,685 260 6,771 652 6,978 8 1,693 1,250 1,500 12,081 (5,310) 3,960 13,068 (9,108) 3,960

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Cash Flow Statement

Year ended 31 December 2004

Notes Net cash used in operating activities 28(a) INVESTING ACTIVITIES Purchases of fixed assets Proceeds from disposal of fixed assets Decrease in pledged time deposits Purchases of other investments Sales of other investments Acquisition of subsidiaries 28(b) Disposal of subsidiaries 28(c) Interest received Net cash used in investing activities FINANCING ACTIVITIES Inception of loans Repayment of loans Proceeds from issue of shares Cancellation of issued share capital Share issue expenses Cash contribution from minority shareholders Proceeds from issue of convertible bonds Additional proceeds from conversion of convertible bonds Capital element of finance lease rental payments Redemption of convertible notes Promissory notes payment Net cash from financing activities NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR CASH AND CASH EQUIVALENTS AT END OF YEAR	2004 HK$’000 (17,620) (108) — — (53,634) 25,008 (4,000) 124 65 (32,545) 3,973 (5,223) 56,554 (720) (2,833) 1 — — — (1,500) — 50,252 87 260 347	2003 HK$’000 (3,589) (280) 268 581 (5,549) 3,240 (900) (14) 30 (2,624) 2,300 (3,100) 13,811 — (161) — 3,000 51 (4,842) — (7,000) 4,059 (2,154) 2,414 260

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statement of Changes in Equity

Year ended 31 December 2004

Balance at 1 January 2003 Net loss for the year Issue of share Share issue expenses Balance at 31 December 2003 Cancellation of paid up ordinary share capital Net loss for the year Issue of share Share issue expenses Balance at 31 December 2004	Share capital HK$’000 6,200 — 6,868 — 13,068 (136) — 55,406 — 68,338	Share premium Accumulated account losses HK$’000 HK$’000 528,121 (444,777) — (100,785) 8,494 — (161) — 536,454 (545,562) (584) — — (47,487) 1,148 — (2,833) — 534,185 (593,049)	Total HK$’000 89,544 (100,785) 15,362 (161) 3,960 (720) (47,487) 56,554 (2,833) 9,474

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Balance Sheet

At 31 December 2004

Notes NON-CURRENT ASSETS Interests in subsidiaries 18 CURRENT ASSETS Deposits, prepayments and other receivables Cash and cash equivalents 21 CURRENT LIABILITIES Amount due to a director 23 Short term loans 24 Other payables and accruals Convertible bonds 25 NET CURRENT ASSETS/ (LIABILITIES) NET (LIABILITIES)/ASSETS CAPITAL AND (DEFICIT)/ RESERVES Issued capital 26 (Deficit)/Reserves 27	2004 HK$’000 (6,442) 2,578 306 2,884 1,276 — 754 — 2,030 854 (5,588) 68,338 (73,926) (5,588)	2003 HK$’000 156,558 — 172 172 1,743 1,250 2,263 1,500 6,756 (6,584) 149,974 13,068 136,906 149,974

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Financial Statements

31 December 2004

1. Corporate Information

The principal activity of the Company is investment holding.

The principal activities of the Company’s subsidiaries comprise the provision of financial services, the provision of internet products and services, general trading and investment holding.

As at 31 December 2004, the directors considered that the ultimate holding company of the Company is Grand Cosmos Holdings Limited, a company incorporated in the British Virgin Islands (“BVI”).

2. Potential Impact Arising from the Recently Issued Accounting Standards

In 2004, the Hong Kong Institute of Certified Public Accountants (“HKICPA”) issued a number of new or revised Hong Kong Accounting Standards and Hong Kong Financial Reporting Standards (hereinafter collectively referred to as “new HKFRSs”) which are effective for accounting periods beginning on or after 1 January 2005. The Group has not early adopted these new HKFRSs in the financial statements for the year ended 31 December 2004. The Group has commenced considering the potential impact of these new HKFRSs but is not yet in a position to determine whether these new HKFRSs would have a significant impact on how its results of operations and financial position are presented. These new HKFRSs may result in changes in the future as to how the results and financial position are presented.

3. Summary of Significant Accounting Policies

Basis of preparation

These financial statements have been prepared in accordance with Hong Kong Statements of Standard Accounting Practice, accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. They are prepared under the historical cost convention, except for the periodic remeasurement of investments in securities and annual revaluation of investment property, as further explained below.

Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries for the year ended 31 December 2004. The results of subsidiaries acquired or disposed of during the year are consolidated from or to their effective dates of acquisition or disposal, respectively. All significant intercompany transactions and balances within the Group are eliminated on consolidation.

Subsidiaries

A subsidiary is a company whose financial and operating policies the Company controls, directly or indirectly, so as to obtain benefits from its activities.

The results of subsidiaries are included in the Company’s profit and loss account to the extent of dividends received and receivable. The Company’s interests in subsidiaries are stated at cost less any impairment losses.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Associates

An associate is a company, not being a subsidiary nor a jointly-controlled entity, in which the Group has a long term interest of generally not less than 20% of the equity voting rights and over which it is in a position to exercise significant influence.

The Group’s share of the post-acquisition results and reserves of associates is included in the consolidated profit and loss account and consolidated reserves, respectively. The Group’s interests in associates are stated in the consolidated balance sheet at the Group’s share of net assets under the equity method of accounting, less any impairment losses. Goodwill or negative goodwill arising from the acquisition of associates is included as part of the Group’s interests in associates.

The results of associates are included in the Company’s profit and loss account to the extent of dividends received and receivable. The Company’s interests in associates are treated as long term assets and are stated at cost less any impairment losses.

Goodwill

Goodwill arising on the acquisition of subsidiaries and associates represents the excess of the cost of the acquisition over the Group’s share of the fair values of the identifiable assets and liabilities acquired as at the date of acquisition.

Goodwill arising on acquisition is recognized in the consolidated balance sheet as an asset and amortized on the straight-line basis over its estimated useful life of three years. In the case of associates, any unamortized goodwill is included in the carrying amount thereof, rather than as a separately identified asset on the consolidated balance sheet.

On disposal of subsidiaries or associates, the gain or loss on disposal is calculated by reference to the net assets at the date of disposal, including the attributable amount of goodwill which remains unamortized and any relevant reserves, as appropriate.

The carrying amount of goodwill is reviewed annually and written down for impairment when it is considered necessary. A previously recognized impairment loss for goodwill is not reversed unless the impairment loss was caused by a specific external event of an exceptional nature that was not expected to recur, and subsequent external events have occurred which have reversed the effect of that event.

Impairment of assets

An assessment is made at each balance sheet date to determine whether there is any indication of impairment of any asset, or whether there is any indication that an impairment loss previously recognized for an asset in prior years may no longer exist or may have decreased. If any such indication exists, the asset’s recoverable amount is estimated. An asset’s recoverable amount is calculated as the higher of the asset’s value in use or its net selling price.

An impairment loss is recognized only if the carrying amount of an asset exceeds its recoverable amount. An impairment loss is charged to the profit and loss account in the period in which it arises, unless the asset is carried at a revalued amount, when the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the recoverable amount of an asset, however not to an amount higher than the carrying amount that would have been determined (net of any depreciation/ amortization), had no impairment loss been recognized for the asset in prior years.

A reversal of an impairment loss is credited to the profit and loss account in the period in which it arises, unless the asset is carried at a revalued amount, when the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

Fixed assets and depreciation

Fixed assets, other than investment properties, are stated at cost less accumulated depreciation and any impairment losses. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after fixed assets have been put into operation, such as repairs and maintenance, is normally charged to the profit and loss account in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the fixed asset, the expenditure is capitalized as an additional cost of that asset.

Depreciation is calculated on the straight-line basis to write off the cost of each asset over its estimated useful life. The principal annual rates used for this purpose are as follows:

Leasehold improvements	20%
Computer equipment and software	50%
Furniture and fixtures	20%
Motor vehicles and vessels	25%

The gain or loss on disposal or retirement of a fixed asset recognized in the profit and loss account, is the difference between the net sales proceeds and the carrying amount of the relevant asset.

Investment properties

Investment properties are interests in land and buildings in respect of which construction work and development have been completed and which are intended to be held for their investment potential with rental income being negotiated at arm’s length.

Investment properties are stated in the balance sheet at their open market value on the basis of period end valuation carried out annually by persons holding a recognised professional qualification in valuing properties and having recent post-qualification experience in valuing properties in the location and in the category of the properties concerned; and at least every three years by an external valuer with similar qualifications. Investment properties are not depreciated, except where the unexpired term of the lease is 20 years or less, in which case depreciation is provided on the carrying amount over the remaining term of the leases.

Changes in the value of investment property is treated as movements in an investment property revaluation reserve, unless the total of this reserve is insufficient to cover a deficit on a portfolio basis, in which case the amount by which the deficit exceeds the total amount in the investment property revaluation reserve is charged to the profit and loss account. Where a deficit has previously been charged to the profit and loss account and a revaluation surplus subsequently arises, this surplus is credited to the profit and loss account to the

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

extent of the deficit previously charged. Upon the disposal of an investment property, the relevant portion of the revaluation reserve realised in respect of previous valuations is released from the investment property revaluation reserve to the profit and loss account.

Investment in securities

Long term investments in unlisted equity securities, intended to be held for a continuing strategic or long term purpose, are classified as investment securities and stated at cost less any impairment losses, on an individual investment basis.

When impairments in values have occurred, the carrying amounts of the investment securities are reduced to their fair values, as estimated by the directors, and the amounts of the impairments are charged to the profit and loss account for the period in which they arise. When the circumstances and events which led to an impairment cease to exist and there is persuasive evidence that the new circumstances and events will persist for the foreseeable future, the amount of the impairment previously charged are credited to the profit and loss account to the extent of the amount previously charged.

Other investments are listed equity securities and are stated at their fair values at the balance sheet date, on an individual investment basis. The fair values of such listed securities are their quoted market prices at the balance sheet date. The gains or losses arising from changes in the fair values of such securities are credited or charged to the profit and loss account in the periods in which they arise.

Provisions

A provision is recognized when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation.

When the effect of discounting is material, the amount recognized for a provision is the present value at the balance sheet date of the future expenditures expected to be required to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in finance costs in the profit and loss account.

Deferred tax

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the 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 is charged or credited in the profit and loss account, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets should be recognised for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilised, and also should be recognised for the carryforward of unused tax credits to the extent that it is probable that future taxable profit will be available against which the unused tax credits can be utilised.

Deferred tax assets and liabilities should be measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates that have been enacted or substantively enacted by the balance sheet date.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Revenue recognition

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

(a) from the rendering of services, when the relevant services are provided.
(b) from the sales of goods, when the significant risks and rewards of ownership have been transferred to the buyers, provided that the Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold.
(c) from operating lease rental income, on a straight-line basis over the period of lease.
(d) interest income, on a time proportion basis, taking into account the principal outstanding and effective interest rate applicable.

Related parties

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities.

Foreign currencies translation

Foreign currency transactions are recorded at the applicable rates of exchange ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange ruling at that date. Exchange differences are dealt with in the profit and loss account.

On consolidation, the financial statements of overseas subsidiaries are translated into Hong Kong dollars using the net investment method. The profit and loss accounts of overseas subsidiaries are translated into Hong Kong dollars at the weighted average exchange rates for the year, and their balance sheets are translated into Hong Kong dollars at the exchange rates at the balance sheet date. The resulting exchange differences are included in the exchange fluctuation reserve.

For the purpose of the consolidated cash flow statement, the cash flows of overseas subsidiaries are translated into Hong Kong dollars at the exchange rates at the dates of the cash flows. Frequently recurring cash flows of overseas subsidiaries which arise throughout the year are translated into Hong Kong dollars at the weighted average exchange rates for the year.

Cash and cash equivalents

For the purpose of the consolidated cash flow statement, cash and cash equivalents comprise cash on hand and demand deposits, and short term highly liquid investments which are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of the Group’s cash management.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

For the purpose of the balance sheet classification, cash and cash equivalents comprise cash on hand and at banks, including short term deposits, which are not restricted as to use.

Employee benefits

(a) Retirement benefits scheme

The Group operates a defined contribution Mandatory Provident Fund retirement benefits scheme (the “MPF Scheme”) under the Mandatory Provident Fund Schemes Ordinance, for all of its employees in Hong Kong. The MPF Scheme has operated since 1 December 2000. Contributions are made based on a percentage of the employees’ basic salaries and are charged to the profit and loss account as they become payable in accordance with the rules of the MPF Scheme. The assets of the MPF Scheme are held separately from those of the Group in an independently administered fund. The Group’s employer contributions vest fully with the employees when contributed into the MPF Scheme.

(b) Share option scheme

The Company operates a share option scheme for the purpose of providing incentive and rewards to eligible participants who contribute to the success of the Group’s operations. The financial impact of share options granted under the share option scheme is not recorded in the Company’s or the Group’s balance sheets until such time as the options are exercised, and no charge is recorded in the profit and loss account or balance sheet for their cost. Upon the exercise of share options, the resulting shares issued are recorded by the Company as additional share capital at the nominal value of the shares, and the excess of the exercise price per share over the nominal value of the shares is recorded by the Company in the share premium account. Options which are cancelled prior to their exercise date, or which lapse, are deleted from the register of outstanding options.

4. Segment Information

Segment information is presented by way of two segment formats:

(i) on a primary segment reporting basis, by business segment; and
(ii) on a secondary segment reporting basis, by geographical segment.

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

(a) Online operations segment refers to the provision of internet services;
(b) Offline operations segment refers to the provision of telecommunication services and products;
(c) Trading and financial segment refers to the general trading and the provision of financial advices and services; and
(d) Investment holding segment refers to the investment in securities and properties.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

In determining the Group’s geographical segments, revenue and results are attributable to the segments based on the location of the customers, and assets are attributed to the segments based on the location of the assets.

Intersegment sales and transfers are transacted with reference to the selling prices used for sales made to third parties at the then prevailing market prices.

(a) Business segments

The following table presents revenue, profit and certain asset, liability and expenditure information for the Group’s business segments.

==> picture [316 x 445] intentionally omitted <==

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

Online Offline Investment Trading and
operations operations holding financial Consolidated
2004 2003 2004 2003 2004 2003 2004 2003 2004 2003
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
Segment revenue:
Sales to external
customers 300 — — 666 16 6 9,393 — 9,709 672
—
Segment results (1,148 ) (8,993 ) (603 ) (28,172 ) (40,963 ) (60,865 ) (2,799 ) (45,513 ) (98,030 )
Interest and
unallocated gains 67 30
Unallocated expenses (287 ) (1,423 )
Loss from operating
activities (45,733 ) (99,423 )
Finance costs:
— — — —
Segment finance costs (8 ) (391 ) (1,346 ) (5 ) (396 ) (1,354 )
Unallocated amounts — —
(396 ) (1,354 )
Share of profits less
losses of associates — — — — — — — — — —
Loss before taxation (46,129 ) (100,777 )
Taxation (1,359 ) (8 )
Loss before minority
interests (47,488 ) (100,785 )
Minority interests 1 —
Net loss attributable
to shareholders (47,487 ) (100,785 )
----- End of picture text -----

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Segment assets Interest in associates Bank balances included in segment assets Unallocated assets TOTAL ASSETS Segment liabilities Unallocated liabilities TOTAL LIABILITIES Other segment information: Impairment losses of goodwill Impairment losses of investment securities Depreciation and amortization Capital expenditure	Online Offline Investment Trading and operations operations holding financial 2004 2003 2004 2003 2004 2003 2004 2003 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 1,800 — — 896 6,142 13,382 3,996 — — — — — — 3 — — — — — 7 306 190 19 — (56 ) (18 ) — (3,192 ) (2,245 ) (8,840 ) (2,013 ) — — 3,532 — 15,000 2,921 20,020 — — — — — — 16,030 — — — — 5,443 — 12,000 2,762 22,456 80 — — — — — 580 1,180 — —	Consolidated 2004 2003 HK$’000 HK$’000 11,938 14,278 — 3 325 197 1,573 1,563 13,836 16,041 (4,314 ) (12,050 ) (48 ) (31 ) (4,362 ) (12,081 ) 2,921 38,552 16,030 — 2,842 39,899 580 1,180

(b) Geographical segments

The following tables present revenue, profit and certain asset, liability and expenditure information for the Group’s geographical segments.

Segment revenue: Sales to external customers Segment results*	Hong Kong 2004 2003 HK$’000 HK$’000 9,409 672 (45,765) (99,384)	Elsewhere in the PRC 2004 2003 HK$’000 HK$’000 300 — 252 —	Consolidated 2004 2003 HK$’000 HK$’000 9,709 672 (45,513) (99,384)

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Other segment information: Segment assets Capital expenditure	Hong Kong 2004 2003 HK$’000 HK$’000 13,836 16,041 580 1,180	Elsewhere in the PRC 2004 2003 HK$’000 HK$’000 — — — —	Consolidated 2004 2003 HK$’000 HK$’000 13,836 16,041 580 1,180	Consolidated 2004 2003 HK$’000 HK$’000 13,836 16,041 580 1,180

				1,180

Disclose pursuant to the requirements of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”).

5. Turnover and Income

Turnover represents the income from the provision of financial services, the value of services rendered and the net invoiced value of goods sold during the year, after allowances for returns and trade discounts.

An analysis of the Group’s turnover and other income is as follows:

Turnover Provision of financial services Sales Rendering of telecommunication services Operating lease rental income Other income/gains Commission income Dividend income Gain on disposal of investment securities Gain on disposal of subsidiaries Interest income Write back of accounts payable Others Total income	2004 HK$’000 7,800 1,593 300 16 9,709 60 36 3,192 3,703 65 635 483 8,174 17,883	2003 HK$’000 — — 666 6
		672
		— — — — 30 329 378
		737
		1,409

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. Loss From Operating Activities

The Group’s loss from operating activities is arrived at after charging:

Notes Cost of inventories sold and services provided (i) Depreciation Deposits written off Amortization of goodwill Impairment of goodwill Loss on disposal of fixed assets Loss on disposal of subsidiaries Unrealized holding loss on investment in securities Loss on disposal of trading securities Investment securities written off Impairment loss of investment securities Provision for diminution in investment in securities Compensation for loss in trading securities Minimum lease payments under operating lease in respect of land and buildings equipment Bad debts written off Provision for doubtful debts Deficit on revaluation of investment property Preliminary expenses Auditors’ remuneration Staff costs, including directors’ emoluments: Wages and salaries Pension contributions (ii)	2004 HK$’000 1,617 150 400 2,692 2,921 27 — 80 13,665 — 16,029 550 — 282 — 6,129 6,042 643 26 320 5,555 35 5,590	2003 HK$’000 516 117 93 39,782 38,552 513 1,546 526 232 200 — — 809 604 2 6,074 — — — 320 3,997 101
		4,098

The deposits written off, the amortization of goodwill, the impairment of goodwill, the loss on disposal of fixed assets, the unrealized holding loss on investments in securities, the loss on disposal of trading securities, the provision for diminution in investment in securities, the compensation for loss in trading securities, the bad debts written off, the impairment loss of investment securities, the provision for doubtful debts and the deficit on revaluation of investment property are included in “Other operating expenses” on the face of the consolidated profit and loss account.

(i) The cost of inventories sold and services provided for the years ended 31 December 2004 and 31 December 2003 had not included any depreciation amount.
(ii) At 31 December 2004 and 2003, the Group had no forfeited contributions available to reduce its contributions to the pension scheme in future years.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

7. Directors’ Remuneration

Directors’ remuneration disclosed pursuant to the Listing Rules and Section 161 of the Hong Kong Companies Ordinance is as follows:

Executive directors: Fees Other emoluments: Salaries, allowances and benefits in kind Discretionary bonuses Pension scheme contributions Independent non-executive directors: Fees Other emoluments	Group 2004 2003 HK$’000 HK$’000 — — 4,304 1,921 — 60 12 22 4,316 2,003 368 140 — — 368 140	Group 2004 2003 HK$’000 HK$’000 — — 4,304 1,921 — 60 12 22 4,316 2,003 368 140 — — 368 140
		2,003

		140 —
		140

The number of directors whose remuneration fell within the following bands is as follows:

Nil to HK$1,000,000 HK$1,000,001 to HK$2,000,000 HK$2,000,001 to HK$3,000,000	Number of directors 2004 2003 9 5 1 — 1 — 11 5	Number of directors 2004 2003 9 5 1 — 1 — 11 5
		5

There was no arrangement under which a director has waived or agreed to waive any emoluments during the current and prior years.

Save as disclosed above, during the current and prior years, no other emoluments were paid by the Group to any of the directors as an inducement to join the Group or upon joining the Group or as compensation for loss of office.

During the year, 147,370,900 (2003: No) share options were granted to directors and the highest paid, non-director employees in respect of their services rendered to the Group. All these share options were cancelled before the year end date. At 31 December 2004, there was no unexecuted share options granted to the directors. The detailed movements of which during the year are set out under the heading “Share option scheme” in the Report of the Directors.

In the absence of a readily available market value for share options on the ordinary shares of the Company, the directors were unable to arrive at an accurate assessment of the value of these share options. Accordingly, no estimated value of such options has been charged to the profit and loss account as at the date of the grant.

— 95 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

8. Five Highest Paid Employees

The five highest paid employees during the year included four (2003: three) directors, details of whose remuneration are set out in note 7 above. Details of the remuneration of the remaining one (2003: two) non-director, highest paid employees are as follows:

Salaries, allowances and benefits in kind Pension scheme contributions	Group 2004 2003 HK$’000 HK$’000 145 454 6 18 151 472	Group 2004 2003 HK$’000 HK$’000 145 454 6 18 151 472
		472

The number of employees whose remuneration fell within the following bands is as follows:

Nil to HK$1,000,000	Number of employees 2004 2003 1 2

Save as disclosed above, during the current and prior years, no other emoluments were paid by the Group to any of the non-director, highest paid employees abovementioned as an inducement to join the Group or upon joining the Group or as compensation for loss of office.

9. Finance Costs

Interest expenses on: Convertible bonds Finance leases Other borrowings	Group 2004 2003 HK$’000 HK$’000 31 109 — 868 365 377 396 1,354	Group 2004 2003 HK$’000 HK$’000 31 109 — 868 365 377 396 1,354
		1,354

10. Taxation

Hong Kong Profits Tax has been provided for at the rate of 17.5% on the estimated assessable profit of the Group for the year. (2003: No Hong Kong profits tax has been provided for in the financial statements as the Group has no assessable profits for the year. Under provision of Hong Kong profits tax for prior year has been provided at the rate of 16%.)

— 96 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Hong Kong profits tax — Provision for the year — Under provision for prior year	Group 2004 2003 HK$’000 HK$’000 1,359 — — 8 1,359 8	Group 2004 2003 HK$’000 HK$’000 1,359 — — 8 1,359 8
		8

The taxation on the Group’s loss before taxation differs from the theoretical amount that would arise using the Hong Kong taxation rate is as follows:

Accounting loss Tax at the domestic rate of 17.5% Income not subject to tax Expenses not deductible for taxation purpose Unrecognised tax losses Utilisation of tax losses previously not recognised Utilisation of taxable temporary difference previously not recognised Under provision for prior year Taxation charge	2004 HK$’000 (46,129) (8,073) (654) 5,919 4,164 (5) 8 — 1,359	2003 HK$’000 (100,777
		(17,640 — 14,033 3,607 — — 8
		8

Taxation in the balance sheet represents provision for taxation for the current year.

At the balance sheet date and for the year then ended, there was no material unprovided deferred tax liability. Deferred tax asset arising from the tax losses has not been recognised as in the opinion of the directors that it is not probable that future taxable profits will be available against which tax losses can be utilised.

The principal components of the Group’s deferred tax assets not recognized at the balance sheet date are as follows:

Tax losses	Current year 2004 2003 HK$’000 HK$’000 3,214 3,607	At the balance sheet date 2004 2003 HK$’000 HK$’000 8,586 5,372

The tax losses of the Group arising in Hong Kong are available indefinitely for offsetting against future taxable profits of the companies in which the losses arose.

11. Net Loss Attributable to Shareholders

The net loss attributable to shareholders for the year ended 31 December 2004 dealt with in the financial statements of the Company was HK$208,563,000 (2003: HK$27,283,000).

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

12. Loss Per Share

The calculation of basic loss per share is based on the net loss attributable to shareholders for the year of HK$47,487,000 (2003: HK$100,785,000), and the weighted average of 6,224,672,336 (2003: 1,119,035,981) ordinary shares in issue during the year, as adjusted to reflect the rights issue effected during the year.

Diluted loss per share for the years ended 31 December 2004 and 2003 have not been disclosed as the share options, bonus warrants, and the convertible bonds and notes outstanding during these years had an anti-dilutive effect on the basic loss per share for these years.

13. Fixed Assets

Group

Computer Leasehold equipment Investment improve- and property ments software HK$’000 HK$’000 HK$’000 Cost or valuation: At 1 January 2004 943 — 21,127 Additions — 20 83 Disposals — (20) (7) Deficit on revaluation (643) — — At 31 December 2004 300 — 21,203 Analysis of cost or valuation At cost — — 21,203 At valuation 300 — — At 31 December 2004 300 — 21,203 Accumulated depreciation: At 1 January 2004 — — 21,127 Charge for the year — — 32 At 31 December 2004 — — 21,159 Net book value: At 31 December 2004 300 — 44 At 31 December 2003 943 — —	Furniture and fixtures HK$’000 249 5 — — 254 254 — 254 177 48 225 29 72	Motor vehicles and vessels HK$’000 280 — — — 280 280 — 280 70 70 140 140 210	Total HK$’000 22,599 108 (27) (643) 22,037 21,737 300 22,037 21,374 150 21,524 513 1,225

The Group’s investment property is leased out under operating leases.

The Group’s investment property was revalued at its open market value at 31 December 2004 by RHL Appraisal Ltd, an independent firm of professional valuers, on an open market value basis. The investment property was acquired through the acquisition of a subsidiary by the Group in 2003.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group’s investment property is situated in Hong Kong and is held on a medium term lease.

14. Goodwill

The amounts of the Group’s goodwill capitalized as an asset and recognized in the consolidated balance sheet, arising from the acquisition and disposal of subsidiaries, are as follows:

Cost: At 1 January 2004 Addition during the year Disposal At 31 December 2004 Accumulated amortization: At 1 January 2004 Amortization during the year Impairment Disposal At 31 December 2004 Net book value: At 31 December 2004 At 31 December 2003	HK$’000 122,144 4,000 (113,320 ) 12,824 114,102 2,692 2,921 (106,899 ) 12,816 8 8,042

During the year, the Group acquired a subsidiary of which the principal activity is provision of travel card business and disposed a number of subsidiaries by writing off the investments in subsidiaries. Further details of the acquisitions and disposals are set out in notes 28(b) and 28(c) to the financial statements.

15. Interest in an Associate

Share of net assets _Less:_Provision for impairment	Group 2004 2003 HK$’000 HK$’000 — 3 — — — 3	Group 2004 2003 HK$’000 HK$’000 — 3 — — — 3
		3

The interest in an associate was held by a wholly-owned subsidiary which had been disposed of by the Group during the year.

— 99 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group’s share of the post-acquisition results of the associate up to the date of disposal has not been equity accounted for by the Group because the amounts are not significant.

Particulars of the associate as at 31 December 2003 disclosed pursuant to Section 129 of the Hong Kong Companies Ordinance were as follows:

			Percentage
	Place of	Issued	of equity
	incorporation	share	attributable	Principal
Name	and operations	capital	to the Group	activities
Seven Perfect
Investment
Co., Ltd*	BVI	US$1,000	35%	Investment holding

Not audited by Albert Lam & Co., CPA.

16. Investments in Securities

Investment securities: Unlisted in Hong Kong, at cost Other investments: Listed in Hong Kong, at market value At 31 December Carrying amount analyzed for reporting purposes as: Non-current Current	Group 2004 2003 HK$’000 HK$’000 900 — 435 2,685 1,335 2,685 900 — 435 2,685 1,335 2,685	Group 2004 2003 HK$’000 HK$’000 900 — 435 2,685 1,335 2,685 900 — 435 2,685 1,335 2,685
		2,685

		— 2,685
		2,685

17. Promissory Notes Receivable Promissory notes receivable Elephant Talk Communications, Inc. (a) Elephant Talk Communications, Inc. (b) _Less:_Provision for doubtful debt	Group 2004 2003 HK$’000 HK$’000 7,800 — 2,844 — 10,644 — (5,322) — 5,322 —	Group 2004 2003 HK$’000 HK$’000 7,800 — 2,844 — 10,644 — (5,322) — 5,322 —
		— —
		—

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(a) Promissory notes with principal amount of HK$7,800,000 in aggregate were issued by Elephant Talk Communications, Inc. to Fantastic Fiesta Limited which assigned these promissory notes to a subsidiary of the Company as a fee for the provision of financial services to Fantastic Fiesta Limited.
(b) Promissory notes with principal amount of HK$2,844,000 in aggregate were issued by Elephant Talk Communications, Inc. as part of the consideration for the acquisition of certain investments in securities from a wholly-owned subsidiary of the Company.
(c) Promissory notes are unsecured, convertible (in whole or in part) into shares of common stock of Elephant Talk Communications, Inc. in the case of default and interest bearing at 2.5% per annum for the initial one-year and increase to 4% per annum for the second year on the principal amount and all accrued interest unpaid. Promissory notes will mature on 31 March 2006.

18. Interests in Subsidiaries

Unlisted shares, at cost Amounts due from subsidiaries Amounts due to subsidiaries Provision for amounts due from subsidiaries	Company 2004 2003 HK$’000 HK$’000 — 3 492,137 461,885 (6,442) (4,510) 485,695 457,378 (492,137) (300,820) (6,442) 156,558	Company 2004 2003 HK$’000 HK$’000 — 3 492,137 461,885 (6,442) (4,510) 485,695 457,378 (492,137) (300,820) (6,442) 156,558
		457,378 (300,820)
		156,558

The amounts due from/(to) subsidiaries are unsecured, interest-free and have no fixed terms of repayment.

Particulars of the Company’s principal subsidiaries are set out on pages 49 to 50 in this annual report.

19. Trade Receivables

The Group has a policy of allowing an average credit period of 60 days to its trade customers.

An aged analysis of the trade receivables as at the balance sheet date, based on invoice date and net of provisions, was as follows:

Within 30 days	Group 2004 2003 HK$’000 HK$’000 — 1

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

20. Loan Receivable

The loan is unsecured, interest bearing at the rate of 9% per annum and will mature in January 2005.

21. Cash and Cash Equivalents

	Group		Company	Company
	2004	2003	2004	2003
	HK$’000	HK$’000	HK$’000	HK$’000
Cash and bank balances	347	260	306	172

22. Trade Payables

An aged analysis of the trade payables as at the balance sheet date, based on invoice date, is as follows:

Within 30 days 31-60 days 61-90 days Over 90 days	Group 2004 2003 HK$’000 HK$’000 — — — — — — 273 652 273 652	Group 2004 2003 HK$’000 HK$’000 — — — — — — 273 652 273 652
		652

23. Amount due to a Director

The amount due is unsecured, interest free and repayable on demand.

24. Short-Term Loans

Loan from a major shareholder Loans from third parties	Group 2004 2003 HK$’000 HK$’000 — 50 — 1,200 — 1,250	Company 2004 2003 HK$’000 HK$’000 — 50 — 1,200 — 1,250	Company 2004 2003 HK$’000 HK$’000 — 50 — 1,200 — 1,250
			1,250

Loan from third parties to the extent of HK$400,000 were charged at the interest rate of 1.25% per month and the remaining HK$800,000 were charged at the interest rate of approximately 54% per annum. The loans of HK$800,000 and HK$400,000 have been settled on 25 February 2004 and 27 February 2004 respectively. Loan from a major shareholder was interest-free. All these short term loans were unsecured and repayable within one year.

— 102 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

25. Convertible Bonds

Convertible bonds payable

Convertible bonds (the “Bonds”) in the principal amount of HK$3,000,000 were issued by the Company on 5 September 2003 in favor of four independent third parties pursuant to a bond placement agreement dated 25 August 2003. The Bonds were repayable on 4 September 2004 and interest bearing at 12% per annum. During the year ended 31 December 2003, an amount of HK1,500,000 of the Bonds and accrued interest of HK$50,795 had been converted into 48,462,327 conversion shares. During the year ended 31 December 2004, the outstanding principal amount of HK$1,500,000 of the Bonds and accrued interest of HK$71,211 had been converted into 49,100,341 conversion shares (Note 26(i)).

26. Issued Capital

The following is a summary of movements in the issued share capital of the Company:

Notes Authorized: At 31 December 2003 and 2004 Issued and fully paid: At 1 January 2004 Conversion of convertible bonds and accrued interests (i) New issue of shares by way of rights issue (ii) Exercise of share options (iii) Cancellation of paid up ordinary share capital (iv) At 31 December 2004	Number of ordinary shares of HK$0.01 each 30,000,000,000 1,306,815,236 49,100,341 5,423,662,308 67,795,700 (13,584,905) 6,833,788,680	Nominal value of ordinary shares HK’000 300,000 13,068 491 54,237 678 (136) 68,338

The following changes in the Company’s issued share capital took place during the year:

(i) On 28 January 2004, an aggregate amount of HK$1,500,000 of convertible bonds and the accrued interest were converted into 49,100,341 ordinary shares of HK$0.01 each at a convertible price of HK$0.032 per share pursuant to the conversion terms and conditions of the bonds. The excess of the consideration received over the nominal value of the shares issued, in the amount of approximately HK$1,080,000, was credited to the share premium account.
(ii) On 26 February 2004, the Company issued 5,423,662,308 shares by rights issue in the proportion of 4 Rights Shares for every 1 share at a subscription price HK$0.01 per share to provide working capital for the Group.

— 103 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(iii) On 16 June 2004 and 24 June 2004, totally 67,795,700 ordinary shares of HK$0.01 each in the Company were issued to certain option holders under the share option scheme operated by the Company at a price of HK$0.011 per share. The excess of the consideration received over the nominal value of the shares issued, in the amount of approximately HK$68,000, was credited to the share premium account.
(iv) In October 2003, a former holder of the convertible bonds of the Company had taken legal proceedings against the Company in respect of a conversion of convertible bonds having an aggregate amount of par value of HK$720,000 into shares without his consent during 2002. In accordance with a High Court Judgment dated 6 July 2004, 13,584,905 shares of the Company must be rectified by striking out from the register of members of the Company.

Shares issued during the year rank pari passu in all respects with shares in issue at that time.

Share options

The Company operates a share option scheme (the “Scheme”). On 26 June 2000, the Scheme was approved pursuant to a written resolution of the Company. The purpose of the Scheme is to enable the Group to grant options to employees as incentives or rewards for their contribution to the Group. The board of directors may, at their discretion, grant options to any full-time employee of the Company or its subsidiaries, to subscribe for shares of the Company. The total number of shares which may be issued upon exercise of all outstanding options granted and yet to be exercised under the Scheme and other schemes by the Company must not exceed 10% of the shares in issue from time to time. A non-refundable nominal consideration of HK$1 is payable by the grantee upon acceptance of an option.

The exercise price of the share options is determinable by the directors but may not be less than the highest of (i) the closing price of the Company’s shares as stated in the Stock Exchange’s daily quotations sheet on the date of the offer of grant, which must be a trading day; (ii) the average closing price of the Company’s shares as stated in the Stock Exchange’s daily quotations sheets for the five trading days immediately preceding the date of the offer of the grant; and (iii) the nominal value of the Company’s shares.

The maximum number of share in respect of which options may be granted under the Scheme may not, when aggregated with any shares subject to any other share option schemes of the Company, exceed 10 per cent of the issued share capital of the Company from time to time.

At the beginning of the year, there were 588,800 share options outstanding under the Scheme, which entitled the holders to subscribe for shares of the Company at any time during the periods ranging from 23 July 2001 to 25 June 2010. The subscription prices per share payable upon the exercise of these options are HK$4.02 and HK$4.05.

Details of the movement in the share options granted, exercised or cancelled during the year are set out under the heading “Share option scheme” in the Report of the Directors.

— 104 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

27. (Deficit)/Reserves

Group

At 1 January 2003 Issue of shares Share issue expenses Net loss for the year At 31 December 2003 and 1 January 2004 Cancellation of paid up ordinary share capital Issue of shares Share issue expenses Net loss for the year At 31 December 2004	Share premium Accumulated account losses HK$’000 HK$’000 528,121 (444,777) 8,494 — (161) — — (100,785) 536,454 (545,562) (584) — 1,148 — (2,833) — — (47,487) 534,185 (593,049)	Total HK$’000 83,344 8,494 (161) (100,785) (9,108) (584) 1,148 (2,833) (47,487) (58,864)

At 31 December 2004 and 2003, all the (deficit)/reserves were retained by the Company and its subsidiaries and none (2003: None) of such (deficit)/reserves was retained by associates.

Company

At 1 January 2003 Issue of shares Share issue expenses Net loss for the year At 31 December 2003 and 1 January 2004 Cancellation of paid up ordinary share capital Issue of shares Share issue expenses Net loss for the year At 31 December 2004	Share premium Accumulated account losses HK$’000 HK$’000 528,121 (372,265) 8,494 — (161) — — (27,283) 536,454 (399,548) (584) — 1,148 — (2,833) — — (208,563) 534,185 (608,111)	Total HK$’000 155,856 8,494 (161) (27,283) 136,906 (584) 1,148 (2,833) (208,563) (73,926)

— 105 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

28. Notes to the Consolidated Cash Flow Statement

(a) Reconciliation of loss from operating activities to net cash used in operating activities

Loss from operating activities Adjustments for: Interest income Amortization of goodwill Impairment of goodwill Depreciation of fixed assets Loss on disposal of fixed assets (Gain)/loss on disposal of subsidiaries Gain on disposal of investment securities Investment securities written off Bad debts written off_(Note 28(d)(i)) Provision for doubtful debt(Note 28(d)(ii))_ Provision for diminution in investment securities Deficit on revaluation of investment property Impairment of investment securities Unrealised holding loss on investments securities Loss on disposal of trading securities Operating loss before working capital changes Decrease in trade receivables Increase in loan receivable Increase in promissory notes receivable Decrease in deposits, prepayments and other receivables Decrease in trade payables (Decrease)/increase in amount due to a director (Decrease)/increase in other payables and accruals Cash used in operations Interest paid Interest element on finance lease rental payments Hong Kong profits tax paid Hong Kong profits tax refunded Net cash used in operating activities	2004 HK$’000 (45,733) (65) 2,692 2,921 150 27 (3,703) (3,192) — 6,034 1,422 550 643 16,029 80 13,665 (8,480) 1 (1,500) (3,900) 92 (379) (417) (2,636) (17,219) (396) — (10) 5 (17,620)	2003 HK$’000 (99,423) (30) 39,782 38,552 117 513 1,546 — 200 — — — — — 526 232 (17,985) 674 — — 11,245 (46) 1,693 2,184 (2,235) (486) (868) — — (3,589)

— 106 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Acquisition of subsidiaries

Net assets acquired: Investment property Other payables and accruals Goodwill arising from acquisition Satisfied by: Cash	2004 HK$’000 — — — 4,000 4,000 4,000	2003 HK$’000 943 (67
		876 24
		900

		900

An analysis of the net cash outflow in respect of the acquisition of subsidiaries is as follows:

Cash consideration	2004 HK$’000 4,000	2003 HK$’000 900

During the year, the following significant acquisition took place:

			Percentages
			of voting		Effective
	Place of	Principal	shares	Cost of	date of
Acquiree	incorporation	activities	acquired	acquisition	acquisition
				HK$’000
Mazars Company	Marshall Islands	Provision of travel	51%	4,000	11 March 2004
Limited		card business

Note: The subsidiary acquired during the year ended 31 December 2004 had no significant contribution to the Group’s net operating activities cash flow and did not contribute to investing activities and financing activities.

— 107 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(c) Disposal of subsidiaries

Net assets disposed of: Interest in an associate Deposits, prepayments and other receivables Cash and bank balances Tax payable Other payables and accruals Unamortised goodwill Gain/(loss) on disposal of subsidiaries Satisfied by: Cash Other receivable_(Note 28(d))_	2004 HK$’000 3 922 6 (3) (2,888) (1,960) 6,421 3,703 8,164 130 8,034 8,164	2003 HK$’000 — 906 14 — (577
		343 1,203 (1,546
		—

		— —
		—

An analysis of the net cash inflow in respect of the disposal of subsidiaries is as follows:

Cash consideration Cash and bank balances disposed of Net cash inflow	2004 HK$’000 130 (6) 124	2003 HK$’000 — —
		—

The subsidiaries disposed of during the year ended 31 December 2004 had no significant impact to the Group’s net operating activities cash flow and did not contribute to investing activities and financing activities.

(d) Major non-cash transactions

(i) During the year, the Group disposed of one of its subsidiaries at a consideration of HK$8,034,000 which was included in other receivables. Among the receivable amount of HK$8,034,000, HK$6,034,000 has been written off as bad debts during the year with the balance of HK$2,000,000 included in deposits, prepayments and other receivables at 31 December 2004.
(ii) During the year, the Group disposed of one of its investment securities at a consideration of HK$4,858,500 representing unsecured convertible promissory notes having a carrying amount of HK$2,844,000 and restricted shares having a carrying amount of HK$2,014,500 respectively. Among the unsecured convertible promissory notes of HK$2,844,000, HK$1,422,000 has been provided as doubtful debt.

— 108 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

29. Contingent Liabilities

As at 31 December 2004, contingent liabilities not provided for in the financial statements were as follows:

Guarantees given to securities dealers in connection with financing facilities granted to subsidiaries	Group and Company 2004 2003 — 15,000

31. Operating Lease Commitments

At 31 December 2004, the Group had total future minimum lease payments under noncancellable operating leases falling due as follows:

Within one year In the second to fifth years, inclusive	Group 2004 2003 HK$’000 HK$’000 — 105 — 55 — 160	Group 2004 2003 HK$’000 HK$’000 — 105 — 55 — 160
		160

At 31 December 2004, the Company had no significant commitments (2003:Nil).

32. Future Operating Lease Income

At the balance sheet date, the total future minimum lease payments under a non-cancellable operating lease are receivable as follow:

Not later than one year	Group 2004 2003 HK$’000 HK$’000 — 12

During the year, an undated tenancy agreement has been entered into between a subsidiary and a third party with a monthly rental income of HK$1,500 for an unspecified period.

33. Post Balance Sheet Events

(a) In April 2005, the Group had disposed of all of the investments in securities held for non-trading purpose at the original acquisition cost of HK$900,000.

— 109 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

34. Related Party Transactions

The Group had the following transactions with related parties during the year:

(i) During the year, the Group acquired 10% of the issued share capital of Cherry Blossom Trading Co., Limited from So Siu Ngan Amy, the spouse of Mak Chi Yeung. At the time of acquisition of these shares, Mak Chi Yeung was the chairman of the Group. The consideration for the acquisition was HK$900,000. (2003: During the year, the Group has acquired the entire issued share capital of Gold Union Investment Limited from Mak Chi Yeung, the chairman of the Company, and Sky Concord Development Limited, the ultimate holding company of the Company. The consideration for the acquisition was HK$900,000).
(ii) During the year, So Siu Ngan Amy, the spouse of Mak Chi Yeung, has made a interest-free loan of HK$140,000 to the Company which has repaid this loan during the year.
(iii) During the year, a contract was entered into between a subsidiary of the Company and New Times Navigation Limited (“NTN”) for the system design and programme development of a website for a consideration of HK$900,000. This consideration together with a prepaid maintenance fee of HK$300,000 totalling HK$1,200,000 has been paid as deposits during the year. Mr. Kong Lung Cheung has been appointed as a director of NTN and the Company on 19 February 2004 and 13 August 2004 respectively while the design and development of website was still in progress and thus has benefit interest in such transaction.

35. Approval of the Financial Statements

The financial statements were approved and authorized for issue by the board of directors on 25 April 2005.

— 110 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2005

Set out below is the unaudited condensed consolidated financial statements of the Group for the six months ended 30 June 2005 together with the comparative figures for the corresponding period in the previous year.

Condensed Consolidated Income Statement

For the six months ended 30 June 2005

		Six months ended	Six months ended	Six months ended
		30	June
		2005		2004
		_(unaudited) _	(unaudited)
	Notes	HK$’000	HK$’000
Turnover	3	3,158		9,400
Cost of sales		(280)		(1,617)
Gross profit		2,878		7,783
Other income		158		2,776
Administrative expenses		(3,859)		(9,899)
Other expenses	5	(6,896)		(8,271)
Loss from operations	4	(7,719)		(7,611)
Finance costs	6	(33)		(497)
Loss before taxation		(7,752)		(8,108)
Taxation	7	—		—
Net loss attributable to shareholders		(7,752)		(8,108)

		HK cents	HK cents
			(Restated)
Loss per share — Basic	8	(0.110)		(0.145)

There is no extraordinary item, exceptional item or dividend for the six months ended 30 June 2005.

— 111 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Condensed Consolidated Balance Sheet

At 30 June 2005

30 June
31
2005
(unaudited)
Notes
HK$’000
ASSETS
Non-current assets
Investment property
9
—
Fixed assets
9
200
Goodwill
—
Investment securities
10
—
Promissory notes receivable
11
—
200
Current assets
Investment securities
10
159
Promissory notes receivable
11
850
Loan receivable
—
Trade receivables
12
200
Deposits, prepayments and
other receivable
703
Bank balances and cash
25,533
27,445
Total assets
27,645
EQUITY AND LIABILITIES
Equity
Share capital
14
82,024
Reserves
(58,397)
Total equity
23,627
Current liabilities
Trade payables
13
273
Other payables and accruals
2,386
Tax payable
1,359
Amount due to a director
—
Total liabilities
4,018
Total equity and liabilities
27,645

December
2004
(audited)
HK$’000
300
213
8
900
5,322
6,743
435
—
1,500
—
4,811
347
7,093
13,836
68,338
(58,864)
9,474
273
1,454
1,359
1,276
4,362
13,836

— 112 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Condensed Consolidated Statement of Changes in Equity

For the six months ended 30 June 2005

At 1 January 2005 Reversal of paid up ordinary share capital being cancelled_(Note a) Issue of shares — share placing(Note b)_ Share issue expenses Net loss for the period At 30 June 2005 At 1 January 2004 Issue of shares: Conversion of convertible bonds and accrued interests Right issue Exercise of share options Share issue expenses Net loss for the period At 30 June 2004	Share capital (unaudited) HK$’000 68,338 136 13,550 — — 82,024 13,068 491 54,237 678 — — 68,474	Share Accumulated premium loss (unaudited) (unaudited) HK$’000 HK$’000 534,185 (593,049) 584 — 8,130 — (495) — — (7,752) 542,404 (600,801) 536,454 (545,562) 1,081 — — — 68 — (2,691) — — (8,108) 534,912 (553,670)	Total (unaudited) HK$’000 9,474 720 21,680 (495) (7,752) 23,627 3,960 1,572 54,237 746 (2,691) (8,108) 49,716

Notes:

(a) In August 2002, the Company converted certain convertible bonds having an aggregate principal value of HK$720,000 into shares without the convertible bondholder's consent. A judgment was made by the High Court of Hong Kong to demand the Company to rectify the position by striking out the name of the convertible bondholder from the register of members of the Company and an entry was made to adjustment for the shares to be cancelled out from the share capital and share premium account as at 31 December 2004.

However, subject to the Companies Act 1981 of Bermuda, rectification of the register of members of the Company must be made by way of an application to the Supreme Court of Bermuda (the “Bermuda Court”). Accordingly, the share cancellation has not, as such, become effective and the adjustment made in prior year in share capital and share premium is reversed pending the approval obtained from the Bermuda Court.

(b) On 7 June 2005, 1,355,000,000 new shares were issued by way of a placing of shares to a number of placees at HK$0.016 each, raising a total gross proceed of approximately HK$21,680,000 for general working capital.

— 113 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Condensed Consolidated Cash Flow Statement

For the six months ended 30 June 2005

	Six months ended	Six months ended
	30	June
	2005	2004
	_(unaudited) _	(unaudited)
	HK$’000	HK$’000
Net cash from (used in) operating activities	2,870	(26,219)
Net cash from (used in) investing activities	1,131	(22,230)
Net cash from financing activities	21,185	51,164
Net increase in cash and cash equivalents	25,186	2,715
Cash and cash equivalents at beginning of the period	347	260
Cash and cash equivalents at end of the period	25,533	2,975
Analysis of the balances of cash and cash equivalents
Bank balances and cash	25,533	2,975

— 114 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Condensed Consolidated Financial Statements

For the six months ended 30 June 2005

1. Statement of Compliance and Accounting Policies

These interim financial statements have been prepared in accordance with the applicable requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (“Listing Rules”), the Hong Kong Accounting Standard (“HKAS”) 34: Interim Financial Reporting and other relevant HKASs and Interpretations, the Hong Kong Financial Reporting Standards (“HKFRSs”) issued by The Hong Kong Institute of Certified Public Accountants (“HKICPA”).

The accounting policies and basis of preparation adopted in these interim financial statements are consistent with those adopted in the Company’s 2004 Annual Report except for the new adoption of those HKFRSs and HKASs as disclosed in Note 2.

2. Impact of New HKFRSs and HKASs

The HKICPA has issued a number of new HKFRSs, and HKASs and Interpretations, which are generally effective for accounting periods beginning on or after 1 January 2005. The Group has adopted HKFRSs and HKASs issued up to 30 June 2005 which are pertinent to its operations and relevant to these interim financial statements.

These HKFRSs and HKASs prescribe new accounting measurement and disclosure practices. The impacts of the adoption of these HKFRSs and HKASs on the Group’s accounting policies and on amounts disclosed in the interim financial statements are, however, insignificant.

3. Segment Information

An analysis of the Group’s turnover is as follows:

Provision of property development project management services Rendering of web design and set-up services Provision of financial services Sale of goods Operating lease rental income	Six months ended 30 June 2005 2004 (unaudited) (unaudited) HK$’000 HK$’000 2,700 — 450 — — 7,800 — 1,593 8 7 3,158 9,400	Six months ended 30 June 2005 2004 (unaudited) (unaudited) HK$’000 HK$’000 2,700 — 450 — — 7,800 — 1,593 8 7 3,158 9,400
		9,400

Segment information is presented by way of two segment formats:

(i) on a primary segment reporting basis, by business segment; and
(ii) on a secondary segment reporting basis, by geographical segment.

— 115 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The businesses based upon which the Group reports its primary segment information are as follows:

(a) Property development project management segment refers to the provision of advisory and project management services in relation to property development projects;
(b) Online operations segment refers to the provision of internet services, web design and setup services and etc; and
(c) Trading, financial services and investment holding segment refers to the general trading, the provision of financial services and the leasing of investment properties.

Segment information is presented below:

(i) In business segments

Property development project management HK$’000 Six months ended 30 June 2005 Segment revenue External 2,700 Results Segment results 2,585 Unallocated other income Unallocated corporate expenses Finance costs Net loss for the period *Six months ended 30 June 2004(Restated)* Segment revenue External — Results** Segment results — Unallocated other income Unallocated corporate expenses Finance costs Net loss for the period	Online operation HK$’000 450 (280) — (2,000)	Trading, financial services and investment holding HK$’000 8 (4,730) 9,400 (5,641)	Consolidated HK$’000 3,158 (2,425) 8 (5,302) (33) (7,752) 9,400 (7,641) 2,288 (2,258) (497) (8,108)

— 116 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(ii) In geographical segments

Segment revenue Hong Kong Elsewhere in the PRC	Six months ended 30 June 2005 2004 (unaudited) (unaudited) HK$’000 HK$’000 458 9,400 2,700 — 3,158 9,400

Contributions to profit or loss by geographical markets have not been presented as they are substantially similar with the contributions to profit or loss by business segments.

4. Loss from Operations

Loss from operations for the period has been arrived at after charging (crediting):

	Six months ended	Six months ended	Six months ended
	30	June
	2005		2004
	(unaudited)		(unaudited)
	HK$’000		HK$’000
Cost of inventories sold and services provided	280		1,617
Staff cost, including directors’ remuneration:
— Salaries and other staff costs	1,412		3,962
— Pension contributions	19		—
	1,431		3,962
Auditors’ remuneration
— Under-provision in last year	120		—
— Current provision	200		—
	320		—
Depreciation of fixed assets	82		78
Interest income	—		(56)
Gain on disposal of subsidiaries	—		(2,098)

— 117 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. Other Expenses

Bad debts written off Provision for doubtful debts Loss on disposal of trading securities Unrealised loss on investment securities Impairment loss of investment securities Impairment of goodwill Loss on disposal of subsidiaries Provision for losses on litigations_(Note 16)_	Six months ended 30 June 2005 2004 (unaudited) (unaudited) HK$’000 HK$’000 — 5 4,472 — — 2,115 35 5,814 159 — — 337 70 — 2,160 — 6,896 8,271	Six months ended 30 June 2005 2004 (unaudited) (unaudited) HK$’000 HK$’000 — 5 4,472 — — 2,115 35 5,814 159 — — 337 70 — 2,160 — 6,896 8,271
		8,271

6. Finance Costs

Interests expenses on: Convertible bonds Short-term loan from a director Other borrowings	Six months ended 30 June 2005 2004 (unaudited) (unaudited) HK$’000 HK$’000 — 13 13 — 20 484 33 497	Six months ended 30 June 2005 2004 (unaudited) (unaudited) HK$’000 HK$’000 — 13 13 — 20 484 33 497
		497

7. Taxation

No provision for profits tax has been made as the Group had no assessable profit for the period.

8. Loss per Share

The calculation of basic loss per share is based on the net loss from ordinary activities attributable to shareholders for the period of HK$7,752,000 (2004: HK$8,108,000) and weighted average of 7,027,042,093 (2004: 5,608,480,074) ordinary shares in issue during the period. Diluted loss per share has not been calculated as there were no diluting events existed during the periods.

9. Investment Property and Fixed Assets

During the current period, the Group had disposed of an investment property at a consideration equal to its value of HK$300,000. In addition, the Group acquired fixed assets at the total cost of HK$69,000.

— 118 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

10. Investment Securities

Investment securities: Unlisted in Hong Kong, at cost Other investments: Listed in Hong Kong, at market value Unlisted in overseas, at market value Carrying amount analyzed for reporting purposes as: Non-current Current 11. Promissory Notes Receivable Notes Promissory notes receivable due from Elephant Talk Communications, Inc. (a) Elephant Talk Communications, Inc. (b) (c) _Less:_Provision for doubtful debt _Less:_Amount due within one year shown under current assets Amount due after one year	30 June 31 December 2005 2004 (unaudited) (audited) HK$’000 HK$’000 — 900 — 117 159 318 159 1,335 — 900 159 435 159 1,335 30 June 31 December 2005 2004 (unaudited) (audited) HK$’000 HK$’000 7,800 7,800 2,844 2,844 10,644 10,644 (9,794) (5,322) 850 5,322 (850) — — 5,322	30 June 31 December 2005 2004 (unaudited) (audited) HK$’000 HK$’000 — 900 — 117 159 318 159 1,335 — 900 159 435 159 1,335 30 June 31 December 2005 2004 (unaudited) (audited) HK$’000 HK$’000 7,800 7,800 2,844 2,844 10,644 10,644 (9,794) (5,322) 850 5,322 (850) — — 5,322
		10,644 (5,322)
		5,322 —
		5,322

(a) Promissory notes with principal amount of HK$7,800,000 in aggregate were issued by Elephant Talk Communications, Inc. to Fantastic Fiesta Limited which assigned these promissory notes to a subsidiary of the Company as a fee for the provision of financial services to Fantastic Fiesta Limited.

(b) Promissory notes with principal amount of HK$2,844,000 in aggregate were issued by Elephant Talk Communications, Inc. as part of the consideration for the acquisition of certain investment securities from a wholly-owned subsidiary of the Company.

— 119 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(c) Promissory notes are unsecured, convertible (in whole or in part) into shares of common stock of Elephant Talk Communications, Inc. in the case of default, and interest bearing at 2.5% per annum for the initial one-year and 4% per annum for the second year on the principal amount and all accrued interest unpaid. Promissory notes will mature on 31 March 2006.

12. Trade Receivables

The Group has a policy of allowing an average credit period of 60 days to its trade customers. The following is an aging analysis of trade receivables at the reporting date:

		30 June	31 December
		2005	2004
		(unaudited)	(audited)
		HK$’000	HK$’000
0 — 30 days		200	—

Trade Payables
The following is an aging analysis of trade payables at the reporting date:
		30 June	31 December
		2005	2004
		(unaudited)	(audited)
		HK$’000	HK$’000
Over 90 days		273	273

Share Capital
	Number	of shares	Amount
			HK$’000
Ordinary shares of HK$0.01 each
Authorised:
At 31 December 2004 and
30 June 2005	30,000,000,000		300,000

Issue and fully paid:
At 1 January 2005	6,847,373,585		68,338
Reversal of paid up ordinary
share capital being cancelled		—	136
Issue of shares — share placing	1,355,000,000		13,550
At 30 June 2005	8,202,373,585		82,024

13. Trade Payables

14. Share Capital

15. Related Party Transaction

During the six months ended 30 June 2005, the director of the Company, Mr. Yu Pan, provided an unsecured short term advance of HK$4,000,000 to the Company at an interest calculated at 5% per annum. The advance was fully repaid during the period.

— 120 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

16. Litigations

During the current period, the Company settled legal actions raised by two former convertible bondholders for outstanding principal value of convertible bonds in a total amount of HK$1,200,000 on the ground that the Company had wrongly allotted shares to the bondholders pursuant to the conversion of the bonds. The relevant shares wrongly issued will be cancelled pending the approval of the Supreme Court of Bermuda on the rectification of the members’ register of the Company.

In the light of the outcome of the aforesaid legal actions, settlement arrangements were recently made with two other former convertible bondholders with threatened legal actions on similar grounds, and a provision of HK$960,000 for losses has been made for the current period.

17. Post Balance Sheet Event

On 24 June 2005, the Company announced a proposal of capital reorganization involving a consolidation of every 100 shares of HK$0.01 each into one consolidated share of HK$1.00, a reduction of the issued share capital of the Company by canceling paid-up capital to the extent of HK$0.99 on each of the consolidated shares, subdividing each consolidated share of HK$1.00 each in the authorized but unissued share capital into one hundred ordinary shares of HK$0.01 each, and the cancellation of the entire amount of the share premium account of the Company (the “Capital Reorganization”). The credit arising from the share reduction and the cancellation of share premium will eliminate the entire accumulated deficit of the Company. The resolution about the Capital Reorganization was passed in a special general meeting and the Capital Reorganization was effective on 5 August 2005.

18. Comparative Figures

Certain comparative figures have been reclassified and modified to conform with the current period’s presentation.

4. MATERIAL CHANGE

As disclosed in the unaudited consolidated financial statements of the Group for the six months ended 30 June 2005 as set out in Appendix I of this circular, there was a provision for doubtful debts of HK$4,472,000 made in relation to the promissory notes receivable and a provision for losses on litigations of HK$2,160,000 during the six months ended 30 June 2005.

On 17 May 2005, the Company announced that it has entered into a placing agreement in relation to the placing of 1,355,000,000 new shares at the issue price of HK$0.016 per share, details of which have been set out under the paragraph of “Material contracts” in Appendix VI of this circular. The Company raised a net proceeds of approximately HK$21 million as a result of this placing, which was completed on 7 June 2005.

Save for the above and the transactions contemplated under the Acquisition Agreement, the Directors confirm there are no material changes in the financial or trading position or outlook of the Group since 31 December 2004, the date to which the latest audited consolidated financial statements of the Group were made up.

— 121 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. STATEMENT OF INDEBTEDNESS

As at the close of business on 30 September 2005, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Group did not have any debt securities issued and outstanding or agreed to be issued, outstanding bank borrowings, bank overdrafts, liabilities under acceptances, acceptance credits, mortgages, charges, other indebtedness in the nature of borrowing, finance lease or hire purchase commitments, guarantees or material contingent liabilities.

The Directors have confirmed that there have been no material changes in the indebtedness and contingent liabilities of the Group since 30 September 2005.

6. WORKING CAPITAL

The Directors are of the opinion that taking into account the Group’s internal resources and the net proceeds to be raised from the Rights Issue if the Rights Issue becomes unconditional, the Group has sufficient working capital for its present requirements.

7. TRADING PROSPECT

The Group is principally engaged in the provision of property development, project management and related advisory services, internet services and investment in securities.

The Group’s business can be divided into four business segments, namely (i) the property development project management; (ii) online operation; (iii) trading, financial services and investment holding; as well as (iv) offline operation. It is the intention of the Group to continue to shift its business focus to the property development project management business, which shift has started when the Group acted as project manager of two property development projects in Guangzhou in the first half of 2005.

With the Proposed Acquisition, the Group will be able to further expand its investment in property development projects and its business activity in the provision of property development project management services.

Following completion of the Proposed Acquisition, the Group will strive to strengthen its market position in providing property project management services in the PRC to benefit from the enormous opportunities arising from the prospering PRC property market. The Group will also continue to identify business opportunities that provide attractive return to the Shareholders.

However, the Group intends to downsize its online operation to web design and development services, as well as to discontinue the businesses of trading, financial services and securities investment activities.

— 122 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

8. FINANCIAL PROSPECT

The management is of the view that the financial strength of the Group will be enhanced by the increase in equity resulting from the Rights Issue. As the financing of the Proposed Acquisition is mostly made by equity, the liquidity and gearing ratios of the Company following Completion will not be adversely affected. The management further considers that the Group’s financial prospect will further be strengthened by the favorable investment return that is expected from the Development Project and the project management fee to be derived from the Deed of Appointment. Given the inherit risks underlying the Development Project, Shareholders and potential investors in the Shares should be aware that the Group may or may not record profit from the Development Project and the earnings per Share after Completion will not necessarily be greater that those for the preceding financial years.

— 123 —

ACCOUNTANTS’ REPORT ON YAUBOND GROUP

APPENDIX II

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8 November 2005

The Directors renren Holdings Limited

Dear Sirs,

We set out below our report on the financial information regarding Yaubond Limited (“Yaubond”) and its subsidiary (hereinafter collectively referred to as the “Yaubond Group”) for the period from 3 May 2005 (date of incorporation of Yaubond) to 31 August 2005 (the “Relevant Period”), for inclusion in the circular of renren Holdings Limited (the “Company”) dated 8 November 2005 (the “Circular”), issued in connection with the proposed acquisition of 49% equity interest in Yaubond (the “Acquisition”).

Yaubond was incorporated in the British Virgin Islands (the “BVI”) with limited liability on 3 May 2005 under the International Business Companies Act (Cap. 291) of the BVI. Yaubond has not carried out any business since the date of its incorporation save for the acquisition and holding of the entire equity interests in its subsidiary in June 2005.

As at the date of this report, Yaubond has direct interests in the following subsidiary, which is a limited liability company established in the People’s Republic of China (the “PRC”).

			Attributable
			equity interest
	Date of	Registered and	directly held by
Name of subsidiary	establishment	paid-in capital	Yaubond	Principal activity
Guangzhou Huan	12 October 2004	RMB220,000,000	100%	Property
Cheng Real Estate				development
Development Company
Limited (“Huan Cheng”)
(廣州寰城實業發展
有限公司)(Note 1)

Note:

The subsidiary is a wholly foreign-owned enterprise.

— 124 —

ACCOUNTANTS’ REPORT ON YAUBOND GROUP

APPENDIX II

No audited statutory financial statements have been prepared for Yaubond since its date of incorporation as there are no statutory requirements for it to prepare audited financial statements. The statutory financial statements of Huan Cheng for the period from 12 October 2004 (date of establishment) to 31 December 2004, which were prepared in accordance with the relevant PRC accounting rules and regulations, were audited by Guangzhou Pei Feng Certified Public Accountants Co., Ltd. （廣州沛豐會計師事務所有限公司）, certified public accountants registered in the PRC.

For the purpose of this report, the directors of Yaubond have prepared the management accounts of the Yaubond Group for the Relevant Period, in accordance with Hong Kong Financial Reporting Standards promulgated by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”). We have undertaken an independent audit of the management accounts of the Yaubond Group in accordance with the Hong Kong Standards on Auditing issued by the HKICPA.

The financial information and the notes thereto for the Relevant Period set out in Sections A to E below (the “Financial Information”) has been prepared based on the management accounts of the Yaubond Group. We have examined the management accounts of the Yaubond Group and have carried out such additional procedures as are necessary in accordance with the Auditing Guideline “Prospectuses and the Reporting Accountant” issued by the HKICPA.

The preparation of the management accounts of the Yaubond Group is the responsibility of the directors of Yaubond. The directors of the Company are responsible for the contents of the Circular in which this report is included. It is our responsibility to form an independent opinion, based on our examination, on the Financial Information and to report our opinion to you.

In our opinion, the Financial Information together with the notes thereto give, for the purpose of this report, a true and fair view of the state of affairs of Yaubond and of the Yaubond Group as at 31 August 2005, and of the results and cash flows of the Yaubond Group for the Relevant Period.

— 125 —

ACCOUNTANTS’ REPORT ON YAUBOND GROUP

APPENDIX II

A. FINANCIAL INFORMATION

1. Consolidated income statement for the period from 3 May 2005 (date of incorporation) to 31 August 2005

Section B Notes Turnover 4 Other revenue 5 Gain on acquisition of subsidiary 22 General and administrative expenses Profit before income tax expense 6 Income tax expense 9 Profit for the period attributable to the equity holder of the parent	HK$’000 — 162 89,674 (231) 89,605 — 89,605

— 126 —

ACCOUNTANTS’ REPORT ON YAUBOND GROUP

APPENDIX II

2. Consolidated balance sheet as at 31 August 2005

Section B Notes Non-current assets Property held for development 14 Current assets Cash and cash equivalents 16 Current liabilities Loans from shareholder 17 Loan from ex-shareholder 18 Net current liabilities Total assets less current liabilities Non-current liabilities Deferred tax liabilities 19 NET ASSETS Capital and reserves Share capital 20 Reserves 21	HK$’000 250,000 8,053 91,987 8,038 100,025 (91,972) 158,028 65,027 93,001 1 93,000 93,001

— 127 —

ACCOUNTANTS’ REPORT ON YAUBOND GROUP

APPENDIX II

3. Balance sheet of Yaubond as at 31 August 2005

			Section B
			Notes	HK$’000
Non-current assets
Investment in subsidiary			15	100,149
Current assets
Cash and cash equivalents			16	2
Current liabilities
Loans from shareholder			17	91,987
Loan from ex-shareholder			18	8,038
				100,025
Net current liabilities				(100,023)
NET ASSETS				126

Capital and reserves
Share capital			20	1
Reserves			21	125
				126

Consolidated statement of changes in equity for the period from 3				May 2005
(date of incorporation) to	31 August	2005
	Share	Exchange	Retained
	capital	reserve	earnings	Total
HK$’000		HK$’000	HK$’000	HK$’000
Issue of shares	1	—	—	1
Exchange differences
on translation of
financial statements
of subsidiary	—	3,395	—	3,395
Profit for the period	—	—	89,605	89,605
At 31 August 2005	1	3,395	89,605	93,001

4. Consolidated statement of changes in equity for the period from 3 May 2005 (date of incorporation) to 31 August 2005

— 128 —

ACCOUNTANTS’ REPORT ON YAUBOND GROUP

APPENDIX II

5. Consolidated cash flow statement for the period from 3 May 2005 (date of incorporation) to 31 August 2005

Section B
Notes
Cash flows from operating activities
Profit before tax
Adjustments for:
Gain on acquisition of subsidiary
22
Interest income
Operating loss before working capital changes
Decrease in prepayments
Net cash used in operating activities
Cash flows from investing activities
Acquisition of subsidiary, net of cash acquired
22
Interest received
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of ordinary shares
Loans from shareholders
Repayment of other borrowings
Net cash generated from financing activities
Cash and cash equivalents at end of period
16

HK$’000
89,605
(89,674)
(162)
(231)
7
(224)
(14,322)
162
(14,160)
1
100,025
(77,589)
22,437
8,053

— 129 —

ACCOUNTANTS’ REPORT ON YAUBOND GROUP

APPENDIX II

B. NOTES TO THE FINANCIAL INFORMATION

1. GENERAL INFORMATION

Yaubond was incorporated in the BVI with limited liability on 3 May 2005 under the International Business Companies Act (Cap. 291) of the BVI. Yaubond has not carried on any business since the date of its incorporation save for the acquisition and holding of the entire equity interests in its subsidiary in June 2005. The address of Yaubond’s registered office is P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands.

Yaubond is an investment holding company. The principal activity of its subsidiary is property development.

The Financial Information is presented in thousands of units of Hong Kong dollars (HK$’000), unless otherwise stated.

2. PRINCIPAL ACCOUNTING POLICIES

(a) Statement of compliance

The Financial Information set out in this report has been prepared in accordance with the principal accounting policies set out below. These accounting policies are in accordance with all applicable Hong Kong Financial Reporting Standards (“HKFRSs”) (which include all applicable Hong Kong Accounting Standards (“HKASs”), Statements of Standard Accounting Practice and Interpretations (“INTs”)) issued by the HKICPA and accounting principles generally accepted in Hong Kong.

The HKICPA has issued the following standards and interpretations that are not yet effective. The Yaubond Group has considered the following standards and interpretations but does not expect they will have a material effect on how the results of operations and financial position of the Yaubond Group are prepared and presented.

HKAS 1	Amendment to Capital Disclosures
HKAS 19	Amendment to Actuarial Gains and Losses, Group Plans and
	Disclosures
HKAS 39	Amendment to Cash Flow Hedge Accounting of Forecast
	Intragroup Transactions
HKAS 39	Amendment to The Fair Value Option
HKAS 39 & HKFRS 4	Amendments to Financial Instruments: Recognition and
	Measurement and Insurance Contracts — Financial Guarantee
	Contracts
HKFRS 7	Financial Instruments: Disclosures
HK(IFRIC) — INT 4	Determining whether an Arrangement contains a Lease

(b) Basis of preparation

The Financial Information has been prepared on a going concern basis notwithstanding that the Yaubond Group had net current liabilities as at 31 August 2005 as its holding company has agreed not to demand for the repayment of the shareholder’s loans until the Yaubond Group has the financial ability to do so.

The Financial Information has been prepared under the historical cost convention.

— 130 —

ACCOUNTANTS’ REPORT ON YAUBOND GROUP

APPENDIX II

(c) Basis of consolidation

The consolidated financial information incorporates the Financial Information of Yaubond and entities controlled by Yaubond (its subsidiaries).

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

Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated.

Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Yaubond Group.

(d) Subsidiaries

Subsidiaries are all entities over which the Yaubond Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Yaubond Group controls another entity.

Subsidiaries are fully consolidated from the date on which control is transferred to the Yaubond Group. They are de-consolidated from the date that control ceases.

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

(e) Goodwill

Goodwill arising on the acquisition of a subsidiary represents the excess of the cost of acquisition over the Yaubond Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary recognised at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses.

For the purpose of impairment testing, goodwill is allocated to each of the Yaubond Group’s cash-generating units expected to benefit from the synergies of the combination. Cashgenerating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.

— 131 —

ACCOUNTANTS’ REPORT ON YAUBOND GROUP

APPENDIX II

On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

(f)

Impairment of assets

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

(g)

Properties held for development

Properties held for development comprise land costs, development costs, borrowing costs and other direct costs attributable to such properties during the development period, less impairment, if any.

No depreciation is provided on properties held for development.

(h) Leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases.

Payments made under operating leases (net of any incentives received from the lessor) are expensed in the income statement on a straight-line basis over the period of the lease.

(i) Foreign currencies

Functional and presentation currency

Items included in the Financial Information of each of the Yaubond Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). For the purpose of the consolidated financial information, the results and financial position of each entity are expressed in HK$, which is the functional currency of Yaubond, and the presentation currency for the consolidated financial information. The functional currency of the subsidiary of Yaubond is Renminbi (“RMB”).

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.

Non-monetary assets and liabilities denominated in foreign currencies, that are stated at historical cost are translated to the functional currency at the foreign exchange rates prevailing at the dates of the transactions.

— 132 —

ACCOUNTANTS’ REPORT ON YAUBOND GROUP

APPENDIX II

Group companies

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

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

On consolidation, exchange differences arising from the translation of the net investment in foreign entities and borrowings are taken to shareholders’ equity. When a foreign operation is sold, such exchange differences are recognised in the income statement as part of the gain or loss on sale.

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

(j) Income taxes

Income taxes for the period comprise current tax and deferred tax.

Current tax is based on the profit or loss from ordinary activities adjusted for items that are non-assessable or disallowable for income tax purposes and is calculated using tax rates that have been enacted or substantively enacted at the reporting period end.

Deferred tax arises from temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the corresponding amounts used for tax purposes and is accounted for using the balance sheet liability method. Except for recognised assets and liabilities that affect neither accounting nor taxable profits, deferred tax liabilities are recognised for all temporary differences. 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. Deferred tax is measured at the tax rates expected to apply in the period when the liability is settled or the asset is realised based on tax rates that have been enacted or substantively enacted at the reporting period end.

Income taxes are recognised in the income statement except when they relate to items directly recognised to equity in which case the taxes are also directly recognised in equity.

(k) Revenue recognition

Interest income from bank deposits is accrued on a time-apportioned basis by reference to the principal outstanding and the rate applicable.

(l) Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet.

— 133 —

ACCOUNTANTS’ REPORT ON YAUBOND GROUP

APPENDIX II

(m) Provision and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when the Yaubond Group has a legal or constructive obligation arising as a result of a past event, which will probably result in an outflow of economic benefits that can be reasonably estimated.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, the existence of which will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

(n) Related parties

3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Estimates and judgments used in preparing the Financial Information are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The Yaubond Group makes estimates and assumptions concerning the future. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Impairment assessment of properties held for development

The Yaubond Group assesses whether properties held for development have any indication of impairment, in accordance with the accounting policy. The recoverable amounts of properties held for development have been determined based on value-in-use calculations, while that of leasehold land has been determined with reference to independent or directors’ estimated valuations. These calculations and valuations require the use of judgement and estimates. No impairment has been recognised during the Relevant Period.

4. TURNOVER

The Yaubond Group did not generate any turnover during the Relevant Period.

5. OTHER REVENUE

	HK$’000
Bank interest income	162

— 134 —

ACCOUNTANTS’ REPORT ON YAUBOND GROUP

APPENDIX II

6. PROFIT BEFORE INCOME TAX EXPENSE

Profit before income tax expense is stated after charging:

	HK$’000
Auditors’ remuneration	2
Exchange differences, net	144
Preliminary expenses	10

7. DIRECTORS’ REMUNERATION

No directors’ remuneration was incurred for the Relevant Period.

8. INDIVIDUALS WITH HIGHEST EMOLUMENTS

Except for the directors, the Yaubond Group did not employ any staff during the Relevant Period; and thus, no staff cost was incurred during the Relevant Period.

9. INCOME TAX EXPENSE

No Hong Kong or PRC income tax has been provided as the Yaubond Group did not generate any assessable profit during the Relevant Period.

Pursuant to the income tax rules and regulations of the BVI, Yaubond is exempt from income tax in the BVI.

The Yaubond Group’s subsidiary in the PRC is subject to an applicable Enterprise Income Tax (“EIT”) rate of 33%.

The income tax expense for the Relevant Period can be reconciled to the profit per the consolidated income statement as follows:

Profit before income tax expense Tax calculated at the PRC applicable tax rate at 33% Tax effect of expenses not deductible for tax purposes Tax effect of revenue not subject to tax Income tax expense	HK$’000 89,605

	29,570 69 (29,639)
	—

10. PROFIT ATTRIBUTABLE TO THE EQUITY HOLDER OF YAUBOND

The profit attributable to the equity holder of Yaubond is dealt with in the Financial Information of Yaubond to the extent of HK$125,000.

11. DIVIDENDS

No dividend has been paid or declared by Yaubond during the Relevant Period.

— 135 —

ACCOUNTANTS’ REPORT ON YAUBOND GROUP

APPENDIX II

12. EARNINGS PER SHARE

No earnings per share information has been presented as such information is not meaningful for the purpose of this report.

13. SEGMENT INFORMATION

No business and geographical segment analyses are presented as the Yaubond Group’s results for the Relevant Period were principally derived from the acquisition of subsidiary and most of the assets and operations of the Yaubond Group are located in the PRC.

14. PROPERTY HELD FOR DEVELOPMENT

Leasehold land in the PRC through acquisition of subsidiary_(Note 22)_ Exchange differences	HK$’000 244,361 5,639
	250,000

The leasehold land has a lease term of 40 years commencing from 12 April 2005.

15. INVESTMENT IN SUBSIDIARY

Unlisted investment, at cost

HK$’000 100,149

Investment in subsidiary represents Yaubond’s direct interests in the following entity:

	Place of		Attributable
	establishment		equity interest
	and	Registered/	directly held	Principal
Name of subsidiary	operation	paid-up capital	by Yaubond	activity
Guangzhou Huan Cheng	PRC	RMB220,000,000/	100%	Property
Real Estate		RMB98,540,696		development
Development Company
Limited (“Huan Cheng”)
(廣州寰城實業發展
有限公司)

The subsidiary is a wholly foreign-owned enterprise.

— 136 —

ACCOUNTANTS’ REPORT ON YAUBOND GROUP

APPENDIX II

16. CASH AND CASH EQUIVALENTS

An analysis of the balance of cash and cash equivalents is as follows:

Cash and bank balances Cash and cash equivalents are denominated in: RMB HK$	Yaubond Group HK$’000 8,053 8,051 2 8,053	Yaubond HK$’000 2

		— 2
		2

RMB is not a freely convertible currency and the remittance of funds out of the PRC is subject to the exchange restriction imposed by the PRC Government.

17. LOANS FROM SHAREHOLDER

The loans are unsecured, interest free and have no fixed repayment terms.

18. LOAN FROM EX-SHAREHOLDER

The loan is unsecured, interest free and has been subsequently repaid in September 2005.

19. DEFERRED TAX LIABILITIES

Yaubond Group

The deferred tax liabilities recognised in the consolidated balance sheet and the movement during the Relevant Period are as follows:

Fair Acquisition of subsidiary_(Note 22)_ Exchange differences As at 31 August 2005 SHARE CAPITAL Authorised: 50,000 ordinary shares of US$1 each Issued and fully paid: 100 ordinary shares of US$1 each Shown in the Financial Information	value gains HK$’000 63,560 1,467
	65,027

	US$50,000

	US$100

	HK$1,000

20. SHARE CAPITAL

— 137 —

ACCOUNTANTS’ REPORT ON YAUBOND GROUP

APPENDIX II

Yaubond was incorporated in the BVI on 3 May 2005 with an authorised share capital of US$50,000. At the time of incorporation, 1 ordinary share of US$1 each was issued for cash at par to the subscriber to provide initial capital to Yaubond.

On 2 June 2005, the issued share capital of Yaubond was increased from US$1 to US$100 by the issue of 99 ordinary shares of US$1 each for cash at par.

21. RESERVES

Yaubond Group

Exchange differences on translation of financial statements of subsidiary Profit for the period At 31 August 2005 Yaubond Profit for the period and at 31 August 2005	Exchange reserve HK$’000 3,395 — 3,395	Retained earnings HK$’000 — 89,605 89,605	Total HK$’000 3,395 89,605
			93,000

			Retained earnings HK$’000 125

Distributable reserves

At 31 August 2005, amounts available for distribution to Yaubond’s shareholder are HK$125,000.

22. ACQUISITION OF SUBSIDIARY

On 3 June 2005, Yaubond acquired 100% equity interests in Huan Cheng, a property development company operated in the PRC. Huan Cheng contributed revenue of HK$9,000 and incurred net loss of HK$194,000 to the Yaubond Group for the period from 3 June 2005 to 31 August 2005. If the acquisition had occurred on 3 May 2005 (date of incorporation of Yaubond), there would have been no change to the Yaubond Group’s revenue and net profit for the Relevant Period.

Details of net assets acquired and gain on acquisition are as follows:

Purchase consideration paid, satisfied by cash Fair value of net assets acquired — shown as below Gain on acquisition	HK$’000 15,970 (105,644)
	(89,674)

— 138 —

ACCOUNTANTS’ REPORT ON YAUBOND GROUP

APPENDIX II

The assets and liabilities arising from the acquisition are as follows:

Cash and cash equivalents Property held for development_(Note 14) Prepayments Other borrowings Deferred tax liabilities(Note 19)_ Net assets acquired Purchase consideration paid, satisfied by cash Cash and cash equivalents in subsidiary acquired Net cash outflow on acquisition	Fair value HK$’000 1,648 244,361 7 (76,812) (63,560) 105,644	Acquiree’s carrying amount HK$’000 1,648 51,754 7 (76,812) —
		(23,403)

		15,970 (1,648)
		14,322

23. FINANCIAL INFORMATION OF HUAN CHENG

The statements of assets and liabilities of Huan Cheng as at 31 December 2004 and 31 August 2005 are as follows:

31 December 2004 HK’000 Non-current assets Property held for development — Deposits for the acquisition of leasehold land note (i) 51,671 51,671 -------------- Current assets Prepayments 6 Cash and cash equivalents 42 48 Current liabilities Loans from Guangzhou Cheng Qi note (ii) 42,324 Net current (liabilities)/assets (42,276) -------------- NET ASSETS 9,395	31 August 2005 HK’000 52,949 —
	52,949 -------------- — 8,051
	8,051 —
	8,051 --------------
	61,000

— 139 —

ACCOUNTANTS’ REPORT ON YAUBOND GROUP

APPENDIX II

The income statements of Huan Cheng for the period from 12 October 2004 (date of establishment) to 31 December 2004 and for the eight months ended 31 August 2005 are as follows:

Period from 12 October 2004 (date of establishment) to 31 December 2004 HK$’000 Turnover note (iii) — Other revenue — General and administrative expenses note (iv) — Results/(loss) before income tax expense — Income tax expense note (v) — Results/(loss) for the periods attributable to the registered owners of Huan Cheng —	Eight months ended 31 August 2005 HK$’000 — 9 (33,004)
	(32,995) —
	(32,995)

note (i) : The balance represented the deposits for the acquisition of the leasehold land mentioned in Note 14 above.

note (ii) : Guangzhou Cheng Qi Holdings Co., Limited (“Guangzhou Cheng Qi”) （廣州城啟集團有限公司） was one of the ex-registered owners of Huan Cheng. The loans were unsecured, interest-free and were repaid in April 2005.
note (iii) : Huan Cheng did not generate any turnover during the periods as Huan Cheng has not carried out any business since the date of its establishment on 12 October 2004 save for the acquisition and holding of the leasehold land in the PRC in April 2005.
note (iv) : General and administrative expenses mainly included an advance of HK$32.8 million to Guangzhou Cheng Qi for the acquisition of the leasehold land. As the advance was irrecoverable, it was written off as an expense.
note (v) : No Hong Kong or PRC income tax has been provided as Huan Cheng did not generate any assessable profit during the periods. Huan Cheng is subject to PRC Enterprise Income Tax at a rate of 33%. No provision for deferred taxation has been recognised as there was no taxable/deductible temporary differences.

24. CAPITAL COMMITMENTS

	Yaubond
	Group	Yaubond
	HK$’000	HK$’000
Commitments for property development costs
— contracted for but not provided	4,351	—

— 140 —

ACCOUNTANTS’ REPORT ON YAUBOND GROUP

APPENDIX II

25. LEASE ARRANGEMENTS

Yaubond Group leases office premises under operating leases for a term of two years without contingent rental payments.

At 31 August 2005, the total future minimum lease payments under a non-cancellable operating lease are payable as follows:

Within one year In the second to the fifth year	Yaubond Group HK$’000 12 19 31	Yaubond HK$’000 — —
		—

26. FINANCIAL INSTRUMENTS

The Yaubond Group’s principal financial assets are cash and bank balances. Financial liabilities of the Yaubond Group include loans from shareholder and ex-shareholder, which are non-interest bearing. The Yaubond Group does not hold or issue financial instruments for trading purposes at the balance sheet date. Exposure to currency risk arises in the normal course of the Yaubond Group’s business.

(a) Foreign currency risk

The functional currency of the subsidiary of Yaubond is RMB. RMB is not freely convertible into foreign currencies. All foreign exchange transactions involving RMB must take place through the People’s Bank of China or other institutions authorised to buy and sell foreign exchange. The exchange rate adopted for the foreign exchange transactions are the rates of exchange quoted by the People’s Bank of China that are determined largely by supply and demand.

(b) Fair value

The carrying amounts of significant financial assets and liabilities approximate their respective fair values as at 31 August 2005.

The carrying values of cash and bank balances and non-interest bearing loans from shareholder and ex-shareholder approximate fair value because of the short maturities of these instruments.

27. ULTIMATE HOLDING COMPANY

The directors consider the ultimate holding company of Yaubond at 31 August 2005 to be Poly (Hong Kong) Investments Limited, which is incorporated and listed in Hong Kong.

— 141 —

ACCOUNTANTS’ REPORT ON YAUBOND GROUP

APPENDIX II

C. SUBSEQUENT EVENTS

In September 2005, Yaubond contributed a further sum of HK$116.7 million towards the registered capital of its subsidiary. Following the contribution, the paid-up capital of the subsidiary reached RMB220 million.
In September 2005, approximately HK$76.5 million has been paid for the demolition and settlement costs for the clearance of the fire station located on the PRC leasehold land of the Yaubond Group.
On 5 October 2005, the Company announced that it, through a wholly owned subsidiary, Nicco Limited (“Nicco”), entered into an agreement with the shareholder of Yaubond, Sunny Billion Holdings Limited (“Sunny Billion”), whereby the Company would acquire from Sunny Billion its 49% equity interest in Yaubond (the “Sale Shares”), 49% of the shareholder’s loans due by Yaubond as at 31 August 2005 (the “Sale Debt”) and the additional loans (the “Additional Sale Debt”) advanced by the shareholder of Yaubond from 1 September 2005 up to the completion date of the acquisition of Yaubond pursuant to the conditions therein. The aggregate consideration for the Sale Shares and the Sale Debt is HK$127 million. The consideration for the Additional Sale Debt will be equal to its face value and will be not more than HK$77.4 million. As at the date of this report, the amount of the Additional Sale Debt is approximately HK$37.6 million.
On completion of the acquisition of Yaubond, a deed of appointment will be executed by Yaubond, Sunny Billion, Nicco and the Company in relation to the appointment of Nicco as the project manager of a property development project of Yaubond’s PRC subsidiary, Huan Cheng.

D. DIRECTORS’ REMUNERATIONS

Save as disclosed in Note 7 of Section B above, no remuneration has been paid or is payable to Yaubond’s directors by the Yaubond Group during the Relevant Period.

E. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Yaubond Group in respect of any period subsequent to 31 August 2005.

Yours faithfully,

BDO McCABE LO LIMITED Certified Public Accountants Li Yin Fan

Practising Certificate Number P03113

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APPENDIX III

1. UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET OF THE ENLARGED GROUP

The following table is an illustrative and unaudited pro forma consolidated balance sheet of the Enlarged Group as at 30 June 2005 which has been prepared for the purpose of illustration as if the Completion and the Rights Issue, which are interconditional, had taken place on 30 June 2005.

The unaudited pro forma consolidated balance sheet is prepared in a manner consistent with both the format and accounting policies adopted by the Group in the preparation of its published unaudited condensed consolidated balance sheet as at 30 June 2005.

The unaudited pro forma consolidated balance sheet is prepared to provide the unaudited proforma information of the Enlarged Group as a result of the Completion and the Rights Issue. As it has been prepared for illustrative purpose only and because of its nature, it may not give a true picture of the financial position or results of the Enlarged Group at any future date.

ASSETS Non-current assets Interests in the Yaubond Group Fixed assets Current assets Investment securities Loans receivable from the Yaubond Group Promissory notes receivable Trade receivables Deposits, prepayments and other receivables Cash and bank balances Total assets	The Group as at Pro forma 30 June 2005 adjustments HK$’000 Notes HK$’000 (Note i) — (ii) 81,926 200 200 --------------- 159 — (ii) 45,074 (iii) 37,534 850 200 703 25,533 (ii) (47,000) (iii) (37,534) (iv) 142,000 27,445 --------------- 27,645	Unaudited Pro forma Enlarged Group as at 30 June 2005 HK$’000 81,926 200
		82,126 --------------- 159 82,608 850 200 703 82,999
		167,519 ---------------
		249,645

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EQUITY AND LIABILITIES Equity Share capital Reserves Total equity Current liabilities Trade payables Other payables and accruals Tax payable Non-current liabilities Convertible note Total liabilities Total equity and liabilities	The Group as at Pro forma 30 June 2005 adjustments HK$’000 Notes HK$’000 (Note i) 82,024 (ii) 667 (iv) 4,921 (58,397) (ii) 19,333 (iv) 137,079 23,627 273 2,386 1,359 4,018 — (ii) 60,000 — --------------- — --------------- 27,645	Unaudited Pro forma Enlarged Group as at 30 June 2005 HK$’000 87,612 98,015
		185,627
		273 2,386 1,359
		4,018
		60,000
		60,000 ---------------
		64,018 ---------------
		249,645

Notes:

(i) Being the unaudited condensed consolidated balance sheet of the Group as at 30 June 2005 extracted from Appendix I.
(ii) Being adjustment to account for the Acquisition. The aggregate consideration for the Sale Shares and the Sale Debt is HK$127 million, of which approximately HK$81.9 million is for the Sale Shares and approximately HK$45.1 million is for the Sale Debt. The consideration will be settled by way of (i) cash of approximately HK$47 million; (ii) issue of the Consideration Shares of an aggregate amount of approximately HK$20 million; and (iii) issue of the Convertible Note of HK$60 million.
(iii) Being adjustment to account for the Additional Sale Debt. As at the Latest Practicable Date, the amount of the Additional Sale Debt is approximately HK$37,534,000.
(iv) Being adjustment for the estimated net proceeds from the Rights Issue of 492,142,410 Rights Shares based on the Subscription Price of HK$0.30 per Rights Share after deducting the related expenses of approximately HK$5,643,000.

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2. UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT OF THE ENLARGED GROUP

The following table is an illustrative and unaudited pro forma consolidated income statement of the Enlarged Group for the six months ended 30 June 2005 which has been prepared for the purpose of illustration as if the Completion and the Rights Issue had taken place at the beginning of the six months ended 30 June 2005.

The unaudited pro forma consolidated income statement is prepared in a manner consistent with both the format and accounting policies adopted by the Group in the preparation of its published unaudited condensed consolidated income statement of the Group for the six months ended 30 June 2005.

The unaudited pro forma consolidated income statement is prepared to provide the unaudited pro forma information of the Enlarged Group as a result of the Completion and the Rights Issue. As it has been prepared for illustrative purpose only and because of its nature, it may not give a true picture of the financial position or results of the Enlarged Group at any future date.

For the six months ended 30 June 2005

Turnover Cost of sales Gross profit Other income Administrative expenses Other expenses Loss from operations Finance costs Share of profit of the Yaubond Group Loss before taxation Taxation Net (loss)/profit attributable to shareholders	Pro forma The Group adjustments HK$’000 Note HK$’000 (Note i) 3,158 (280) 2,878 158 (3,859) (6,896) (7,719) (33) — (ii) 43,906 (7,752) — (7,752)	Unaudited Pro forma Enlarged Group HK$’000 3,158 (280) 2,878 158 (3,859) (6,896) (7,719) (33) 43,906 36,154 — 36,154

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APPENDIX III

Notes:

(i) Being the unaudited condensed consolidated income statement of the Group for the six months ended 30 June 2005 extracted from Appendix I.
(ii) Being the Group’s 49% equity interest in the financial results of the Yaubond Group assuming (a) Yaubond had acquired its subsidiary on 1 January 2005 and (b) the Group had acquired Yaubond on 1 January 2005. The consolidated financial results of the Yaubond Group are based on the audited consolidated income statement of the Yaubond Group for the period from 3 May 2005 (date of incorporation) to 31 August 2005 as set out in Appendix II.

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3. UNAUDITED PRO FORMA CONSOLIDATED CASH FLOW STATEMENT OF THE ENLARGED GROUP

The following table is an illustrative and unaudited pro forma consolidated cash flow statement of the Enlarged Group for the six months ended 30 June 2005 which has been prepared for the purpose of illustration as if the Completion and the Rights Issue had taken place at the beginning of the six months ended 30 June 2005.

The unaudited pro forma consolidated cash flow statement is prepared in a manner consistent with both the format and accounting policies adopted by the Group in the preparation of its published unaudited condensed consolidated cash flow statement of the Group for the six months ended 30 June 2005.

The unaudited pro forma consolidated cash flow statement is prepared to provide the unaudited pro forma information of the Enlarged Group as a result of the Completion and the Rights Issue. As it has been prepared for illustrative purpose only and because of its nature, it may not give a true picture of the financial position or results of the Enlarged Group at any future date.

For the six months ended 30 June 2005

Net cash from operating activities Net cash from (used in) investing activities Net cash from financial activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of the period Cash and cash equivalents as at 30 June 2005	Pro forma The Group adjustments HK$’000 Notes HK$’000 (Note i) 2,870 1,131 (ii) (84,534) 21,185 (iii) 142,000 25,186 347 25,533	Unaudited Pro forma Enlarged Group HK$’000 2,870 (83,403) 163,185 82,652 347 82,999

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Notes:

(i) Being the unaudited condensed consolidated cash flow statement of the Group for the six months ended 30 June 2005 extracted from Appendix I.
(ii) Being the aggregate payment of cash consideration of HK$84,534,000, which comprises HK$47 million for the Sales Shares and the Sale Debt; and HK$37,534,000 for the Additional Sale Debt as at the Latest Practicable Date.
(iii) Being adjustment for the estimated net proceeds from the Rights Issue of 492,142,410 Rights Shares based on the Subscription Price of HK$0.30 per Rights Share after deducting the related expenses of approximately HK$5,643,000.

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APPENDIX III

4. REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION

(a) The following is the full text of a letter received from BDO McCabe Lo Limited for the purpose of incorporation in this circular.

8 November 2005

The Directors renren Holdings Limited 2502B, Admiralty Centre Tower 1 18 Harcourt Road Hong Kong

Dear Sirs,

renren HOLDINGS LIMITED

We report on the unaudited pro forma financial information of renren Holdings Limited (the “Company”) and its subsidiaries (collectively the “Group”) and Yaubond Limited and its subsidiary (hereinafter referred to as the “Enlarged Group”), set out on pages 143 to 148 under the heading “Unaudited Pro Forma Financial Information of the Enlarged Group” in Appendix III to the Company’s circular dated 8 November 2005 (the “Circular”) in connection with the proposed acquisition of 49% equity interest in Yaubond Limited (the “Acquisition”) and the rights issue (the “Rights Issue”). The unaudited pro forma financial information has been prepared by the directors of the Company, for illustrative purposes only, to provide information about how the Acquisition and the Rights Issues might have affected the relevant financial information of the Enlarged Group as at 30 June 2005, and for the six months then ended.

Responsibilities

It is the responsibility solely of the directors of the Company to prepare the unaudited pro forma financial information in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”).

It is our responsibility to form an opinion, as required by paragraph 4.29 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

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APPENDIX III

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 work with reference to the Statements of Investment Circular Reporting Standards and Bulletin 1998/8 “Reporting on pro forma financial information pursuant to the Listing Rules” issued by the Auditing Practices Board in the United Kingdom, where applicable. Our work, which involved no independent examination of any of the underlying financial information, consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments and discussing the unaudited pro forma financial information with the directors of the Company.

Our work does not constitute an audit or a review in accordance with the Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants, and accordingly we do not express any such assurance on the unaudited pro forma financial information.

The unaudited pro forma financial information has been prepared on the basis set out on pages 143 to 148 in Appendix III to the Circular for illustrative purposes only and, because of its nature, it may not be indicative of the financial position, results and cash flows of the Group at any future date or for 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 4.29 of the Listing Rules.

Yours faithfully,

BDO McCABE LO LIMITED Certified Public Accountants Li Yin Fan

Practising Certificate Number P03113

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APPENDIX III

(b) The following is the full text of a letter received from Tai Fook Capital Limited for the purpose of incorporation in this circular.

==> picture [70 x 40] intentionally omitted <==

8 November 2005

The Board of Directors renren Holdings Limited 2502B Admiralty Centre, Tower 1 18 Harcourt Road Hong Kong

Dear Sirs,

Re: renren Holdings Limited (the “Company”) and its subsidiaries (together known as the “Group”)

Review of unaudited pro forma financial information in relation to the Company’s proposed very substantial acquisition and rights issue

In accordance with the instructions of the directors of the Company (the “Directors”), we have reviewed the following documents:

i. the unaudited pro forma consolidated balance sheet of the group combining the Group and Yaubond Limited and its subsidiaries (together known as the “Enlarged Group”) prepared by the Directors;
ii. the unaudited pro forma consolidated income statement of the Enlarged Group prepared by the Directors;
iii. the unaudited pro forma consolidated cash flow statement of the Enlarged Group prepared by the Directors (items (i) to (iii) together known as the “Unaudited Pro Forma Financial Information”); and
iv. the report on the Unaudited Pro Forma Financial Information issued by BDO McCabe Lo Limited (“BDO”), the reporting accountants of the Company;

as set out in Appendix III of the Company’s circular dated 8 November 2005 (the “Circular”) in relation to, among other things, the Company’s proposed acquisition of 49% interest of Yaubond Limited and rights issue.

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We have discussed with the Directors with reference to and reliance on the report on the Unaudited Pro Forma Financial Information from BDO in respect of its opinion on the Unaudited Pro Forma Financial Information and understand the following:

BDO has conducted its work on the Unaudited Pro Forma Financial Information by comparing the Unaudited Pro Forma Financial Information with the source documents, considering the evidence supporting the adjustments and discussing the Unaudited Pro Forma Financial Information with the Directors with reference to, where applicable, the Statements of Investment Circular Reporting Standards and Bulletin 1998/8 “Reporting on pro forma financial information pursuant to the Listing Rules” issued by the Auditing Practices Board in the United Kingdom; and
BDO confirms to the Company that the Unaudited Pro Forma Financial Information has been properly compiled and presented on a basis consistent in all material respects with the accounting policies of the Group, and the adjustments are appropriate for the purpose of the unaudited pro forma financial information as disclosed pursuant to Rule 4.29 of the Rules Governing The Listing Of Securities On The Stock Exchange of Hong Kong Limited.

Based on our discussion with the Directors and BDO and having relied on the statements and report from BDO and considered the information provided to us by the Company and the findings set out above, we are satisfied that the Unaudited Pro Forma Financial Information, for which the Directors are solely responsible, have been prepared with due care and consideration.

Yours faithfully,

For and on behalf of

Tai Fook Capital Limited Derek Chan Managing Director

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MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX IV

1. MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2004 AND THE SIX MONTHS ENDED 30 JUNE 2005

For the financial year ended 31 December 2002

In the financial year of 2002, the Group’s turnover was weakened by the sluggish global economy. Turnover was leveled at approximately HK$16.6 million with a decrease of approximately 5% from that of 2001 caused mainly by the approximately 20% drop in sales of telecommunication products. Due to the slow down in the operation, administration expenses contracted by approximately 48% to approximately HK$29.9 million. The Group was however subject to comparatively higher other operating expenses that included amortization of goodwill arising from the investments in subsidiaries of approximately HK$36.5 million and losses of disposal of fixed assets and trading securities amounting to a total of approximately HK$27.7 million. There resulted to a loss attributable to shareholders for the year of approximately HK$89.3 million.

For the financial year ended 31 December 2003

In the year of 2003, amidst with the bottoming world economy were the outbreaks of SARS and the Iraq War. To counter the poor environment, the Group streamlined its telecom operation as a measure to minimize continuing operating loss incurred by the drastic change in telecom market. Sales of telecommunication products came to a halt and telecommunication service income was at its low level of just HK$0.7 million. Administrative expenses decreased in line with the contraction in operating activities. Amortization of goodwill caused by the investment of subsidiaries of HK$39.8 million and impairment of the goodwill of approximately HK$38.6 million due to the deteriorated financial position of the subsidiaries and associates. These became the two biggest contributing factors to the loss attributable to shareholders of approximately HK$100.8 million for the year.

For the financial year ended 31 December 2004

During the accounting year ended 31 December 2004, the Group recorded an audited consolidated net loss attributable to shareholders of approximately HK$47.5 million and net asset of approximately HK$9.5 million. The loss mainly comprised of loss on disposal of trading securities of approximately HK$13.7 million, loss on and provision for investment in securities of approximately HK$16.0 million, write-off of bad debts and provision for doubtful debts of approximately HK$12.2 million and amortization and impairment of goodwill of approximately HK$5.6 million. The Group reviewed its existing investment portfolio and disposed of those with low earning potential. In 2004, the Group’s revenue was mainly generated from the general trading and provision of

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APPENDIX IV

agency services. Due to the very keen competition and the drastic changes in the information technology industries, the project in the on-line game was also closed down.

For the six months ended 30 June 2005

In the latest six-month period ended 30 June 2005, the Group recorded a loss to the shareholders of approximately HK$7.8 million. The major attributable factor to the loss was a further provision of approximately HK$4.5 million made on the promissory notes receivable based on the directors’ prudent view on the recoverability of the debt against their carrying value of approximately HK$5.3 million. Such promissory notes receivable had an original value of approximately HK$10.6 million and was issued by Elephant Talks Communication Inc., a company engaged in long distance telephone service, in return for the financial service provided by the Group and the consideration received for the Group’s disposal of certain investment interests. No settlement had been received up to 30 June 2005 and thus a further provision for doubtful debt of approximately HK$4.5 million had been made against such receivable resulting in a remaining carrying value of approximately HK$0.85 million. There was another provision of approximately HK$2.2 million for legal actions or claims raised by certain former convertible bondholders for the Company’s wrongful conversion of the bonds into shares in 2002. Excluding the effect of these provisions, the operating loss for the period was narrowed down to approximately HK$1.1 million. The sharp decrease of loss as compared with prior periods was resulted from the Group’s successful cost cut that led to reduced running expenses and streamlining of the Group’s investment activities in the trading of investment securities.

In December 2004, there was a complete change of directors as a result of a disposal of the entire controlling interests in the Company held by the then controlling shareholder, Rich Delta Development Limited, a company beneficially held by Mr. Mak Chi Yeung who was the former chairman of the board, to Grand Cosmos of which Mr. Yu is the beneficial owner. As a result of such change in management, the new management had been developing strategies to turn around the Group’s operating performance by bringing in new business strategies using the expertise for the new management. With the directors’ completion of the streamlining of resources that were tied up in investment projects previously engaged by the Group, the Group was ready to step ahead into a new era in the provision of property development project management and related advisory services in the People’s Republic of China. During the period, the Group had successfully contracted in two property development management projects in Guangzhou. This business would bring in a steady inflow of revenue to the Group.

The Group keeps aggressively looking for business opportunities in property development and other investment opportunities with strong earning potential, the acquisition of the interest in Yaubond Limited being an example. In this connection, the Group has been

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MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX IV

and is negotiation with parties for development plans in some suitable sites for office, commercial and residential properties in Guangzhou. Notwithstanding the recent market adjustments in Shanghai and Beijing in the property sector, market in Guangzhou has been relatively stable and healthy as enhanced by the strong demand of local buyers. With the comparative advantage gained by the management, the Company’s business potential will be positive and favourable.

2. MANAGEMENT DISCUSSION AND ANALYSIS OF YAUBOND GROUP FOR THE PERIOD FROM 3 MAY 2005 (DATE OF INCORPORATION) TO 31 AUGUST 2005

The principal business activity of Yaubond Group is property development. However, Yaubond Group had not yet carried on any business during the period from 3 May 2005 to 31 August 2005.

The sole subsidiary of Yaubond Group is the PRC Company, which was established in the PRC on 12 October 2004. The principal activity of the PRC Company is property development. It paid a deposit for the acquisition of the Land in December 2004 and had made subsequent payments to Guangzhou Cheng Qi Holdings Co., Limited（廣州城啟集團有限公司） one of the ex-registered owners of the PRC Company, of approximately HK$32,801,000 to finance the acquisition of the land use rights of the Land. Such payments were expensed leading to a pre-acquisition loss of the PRC Company prior to it being acquired by Yaubond. Since its establishment, the PRC Company has not yet commenced any development or business activities. Accordingly, no turnover had been recorded by Yaubond Group since the incorporation of Yaubond and up to 31 August 2005, but a gain of approximately HK$89.7 million was recorded from the acquisition of the PRC Company on 3 June 2005.

As at 31 August 2005, Yaubond Group’s major asset was the Land at a valuation of HK$250,000,000. Its major liabilities were long-term liabilities consisting of loans from a shareholder and an ex-shareholder of a total of approximately HK$100,025,000 and deferred tax liabilities of approximately HK$65,027,000.

3. SEGMENTAL INFORMATION

The businesses of the Group can be mainly divided into the following segments:

(i) Property development project management segment — provision of advisory and project management services in relation to property development projects;
(ii) Online operation segment — provision of internet services, web design and setup services, etc.;

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APPENDIX IV

(iii) Trading, financial services and investment holding segment — general trading of goods, provision of financial services, investment in securities and leasing of investment properties; and
(iv) Offline operation segment — provision of telecommunication services and products.

In 2002 and 2003, the tremendous losses incurred in these two years were mainly due to unsatisfactory performance of the Group’s investment holdings activities and offline operations, which accounted for approximately 80% and 15% respectively of the segmental losses of the Group for the year ended 31 December 2002, and approximately 62% and 29% respectively of the total segmental losses of the Group for the year ended 31 December 2003. The high impairment and amortization of goodwill incurred in the investment holding activities and the offline activities for the two years ended 31 December 2002 and 2003 respectively accounted for approximately 45% and 80% of the respective total segmental losses for these two years. The substantial loss on disposal of trading securities in 2002 also accounted for approximately 36% of the loss incurred by the segment of investment holding business. Besides, the online business, another business segment of the Group, was still in the stage of strategic development. Accordingly, online business had not yielded any revenue to the Group during 2002 and 2003 but incurred development costs, thus further putting pressure on the results of the Group.

In the year 2004, the Group started off its new business in the provision of financial service, being agency services performed in the solicitation of a client’s sales of securities to an interested investor, and general trading of unalloyed aluminium. Both of these businesses became additional income streams of the Group, but they were operating at a loss as a result of the provision for doubtful debt. At the same time, the Group also held substantial investment in listed and unlisted securities, which the investment holding business continued to suffer from impairment loss on investments and trading loss in investment securities.

Stating from the year 2005, the Group stepped into a new business sector in property development project management service, which became the Group’s only profit-making income stream.

4. LIQUIDITY AND FINANCIAL RESOURCES

Capital structure and liquidity

The Group continued to have enhanced liquidity position throughout the six-month period ended 30 June 2005. On that date, the Group’s bank balances amounted to approximately HK$25.5 million and liquid assets were improved by the proceeds raised

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APPENDIX IV

from the share placing during the period. The current assets and current liabilities of the Group were approximately HK$27.4 million and approximately HK$4.0 million respectively such that the current ratio rose from 1.63:1 as at 31 December 2004 to 6.83:1 as at 30 June 2005. The net current assets increased from approximately HK$2.7 million as at 31 December 2004 to approximately HK$23.4 million as at 30 June 2005. The Group’s gearing ratio (the ratio of total liabilities over total assets) decreased from approximately 31.5% as at 31 December 2004 to approximately 14.5% as at 30 June 2005.

Bank borrowings and pledge of assets

The Group had no bank borrowings and pledge of assets as at 30 June 2005 and as at 30 September 2005.

Foreign Currency Management

The Group does not have significant exposure to foreign currency fluctuations as most of the transactions are settled in Hong Kong dollars.

Contingent liabilities

The Group had no contingent liabilities as at 30 June 2005 and as at 30 September 2005.

Employees

Currently, other than 4 executive directors, the Group employed 3 employees in Hong Kong. The Group’s staff costs amounted to approximately HK$521,000 during the sixmonth period ended 30 June 2005. Employees are remunerated according to qualifications and experience, job nature and performance, with pay scale aligned with market conditions.

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PROPERTY VALUATION

APPENDIX V

==> picture [366 x 58] intentionally omitted <==

The Directors renren Holdings Limited

2502B Tower 1 Admiralty Centre 18 Harcourt Road Hong Kong

8 November 2005

Dear Sirs,

Re: Valuation of Properties in Tianhe District, Guangzhou, Guangdong Province, the People’s Republic of China (the “PRC”)

1. INSTRUCTION

In accordance with the instructions from renren Holdings Limited (referred to as the “Company”), we have valued the property (referred to as the “Property”) held by the Company or Yaubond Company or their subsidiaries (altogether referred to as the “Enlarged Group”) in the People’s Republic of China (referred to as the “PRC”). We confirm that we have carried out property inspection, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing our opinion of the market value of the Property as at 31 August 2005 (referred to as the “valuation date”).

This letter, which forms part of our valuation report explains the basis and methodology of valuation and set out assumptions made and other qualifications.

2. BASIS OF VALUATION

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

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APPENDIX V

3. VALUATION METHODOLOGY

In valuing the Property, the direct comparison method is adopted where comparison based on prices information of comparable properties is made. Comparable properties of similar size, character and location are analyzed and carefully weighed against all the respective advantages and disadvantages of each property in order to arrive at a fair comparison of capital value.

We have attributed no commercial value to the property in Group II rented by the Enlarged Group due either to the short term nature of the Enlarged Group’s leasehold interest in the property or the prohibition against assignment or sub-letting or otherwise due to the lack of substantial profit rents.

4. ASSUMPTIONS

Our valuation has been made on the assumption that owner sells the Property on the open market in its existing state without the benefit of deferred terms contracts, leaseback, joint ventures, management agreements or any similar arrangement which would serve to affect the value of the Property.

As the Property in Group I is held by the owner by means of long term Land Use Rights granted by the Government, we have assumed that the owner has free and uninterrupted rights to use the Property for the whole of the unexpired term of the Land Use Rights.

We have valued the Property in Group I on the basis that it will be developed after reaching agreement with the existing occupiers on the resettlement arrangements and obtaining approval of building plans. This basis is considered realistic since the PRC Legal Opinion has confirmed that Guangzhou Huan Cheng Real Estate Development Co Ltd has completed all land grant procedures and obtained government approval on the land use as office and apartment. Subject to the compliance with planning conditions such as plot ratio and site coverage etc. as laid down by the government and mentioned in this report, there shall be no legal impediment for Guangzhou Huan Cheng’s obtaining building plan approval and construction permit from the Government.

Other special assumptions for our valuation (if any) have been stated out in the footnotes of the valuation certificate attached herewith.

5. TITLE INVESTIGATION

We have been provided with copies of legal documents regarding the Property in Group I. However, we have not verified ownership of the Property and the existence of any encumbrances that would affect ownership of the Property.

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PROPERTY VALUATION

APPENDIX V

As stipulated in the Land Use Right Certificate (No. Sui Guo Yong 2004 Di 10053 Hao 穗國用 2004第 10053號 ) dated 14 April 2005, the land use rights in the Property in Group I are held by 廣州寰城實業發展有限公司 (Guangzhou Huan Cheng Real Estate Development Co Ltd) for a term of 40 years for commercial purpose.

We have also relied upon the legal opinion provided by the PRC legal advisers, namely 廣東正大方略律師事務所 , to the Company on the relevant laws and regulations in the PRC and on the nature of land use rights in the Property in Group I as at the valuation date.

6. LIMITING CONDITIONS

We have relied to a considerable extent on the information and documents provided by the Company. All dimensions, measurements and areas stated in this report are based on the corresponding figures stated in the legal documents issued by the Government. We have no reason to doubt the truth and accuracy of the information as provided to us by the Company. We have relied on your confirmation that no material facts have been omitted from the information so supplied.

We have carried out inspections of the Property. However, we must point out that we have not carried out site investigations to determine the suitability of the ground conditions or the services for the property development thereon. Our valuation is on the basis that these aspects are satisfactory and that no extraordinary expenses or delays will be incurred during the construction period.

We have inspected the Property but no structural survey has been made. We are therefore, unable to report that the property is free from rot, infestation or any other structural defects. No tests were carried out on any of the services.

The market value estimate contained within this report specifically excludes the impact of structural damage or environmental contamination resulting from earthquakes or other causes. It is recommended that the reader of this report consult a qualified structural engineer and/or environmental auditor for the evaluation of possible structural/ environmental defects, the existence of which could have a material impact on market value.

No soil analysis or geological studies were ordered or made in conjunction with this report, nor were any water, oil, gas, or other subsurface minerals use rights or conditions investigated.

Substances such as asbestos, urea-formaldehyde foam insulation, other chemicals, toxic wastes, or other potentially hazardous materials could, if present, adversely affect the value of the Property. Unless otherwise stated in this report, its existence on the Property was not considered by the appraiser in the development of the conclusion of value. The

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APPENDIX V

stated value estimate is predicated on the assumption that there is no material on or in the Property that would cause such a loss in value. No responsibility is assumed for any such conditions, and the client has been advised that the appraiser is not qualified to detect such substances, quantify the impact on values, or develop the remedial cost.

No allowance has been made in our valuation for any outstanding land premium charge, mortgage or amount owing the Property nor for expense or taxation which may be incurred in effecting a sale. We have assumed that the Property is free from encumbrances, restrictions and outgoing of an onerous nature which could affect the value.

Neither the whole nor any part of this report can be published, disclosed or referred to in any public document without our written consent.

7. REMARKS

According to the information prepared by the Group, the potential tax liabilities which would arise on the disposal of the Property are PRC business tax (approximately 5%), PRC land appreciation tax (approximately 30-60% on capital gain) and PRC corporate income tax (33% on corporate’s taxable profit). According to our established practice, in the course of our valuation, we have neither verified nor taken into account such tax liabilities. As advised by the Group, such tax liabilities are not likely to crystallize as it has no intention to dispose of the Property in the foreseeable future.

In this valuation, we have complied with all the requirements contained in Chapter 5 and Practice Note 12 of the rules governing the listing of securities issued by the Stock Exchange of Hong Kong Limited; the RICS Appraisal and Valuation Standards (5th Edition) published by the Royal Institution of Surveyors and effective from May 2003 and the HKIS Valuation Standards on Properties (1st Edition) published by the Hong Kong Institute of Surveyors and effective from 1 January 2005.

We enclose herewith valuation certificate.

Yours faithfully, For and on behalf of RHL Appraisal Ltd.

Sandra S.W.Lau

Sandra S.W.Lau Tse Wai Leung MFin MHKIS AAPI RPS (GP) BSc MFin MRICS MHKIS RPS (GP) Director Director

Sandra S. W. Lau, who is a member of the Hong Kong Institute of Surveyors, an Associate of the Australian Property Institute and a Registered Professional Surveyor in General Practice, and Tse Wai Leung, who is a member of the Royal Institution of Chartered Surveyors, a member of the Hong Kong Institute of Surveyor, a Registered Professional Surveyor in General Practice and a qualified real estate appraiser in the PRC, have over ten years’ experience in valuation of properties in Hong Kong, Macau and the PRC.

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PROPERTY VALUATION

APPENDIX V

SUMMARY OF VALUATION

Property

Capital value in existing state as at 31 August 2005

Group I — Property held by the Enlarged Group

Development site at the junction of Tianhe Bei Road and Linhe Dong Road Tianhe District, Guangzhou Guangdong Province the PRC.

RMB338,000,000*

Group II — Property rented by the Enlarged Group

Unit L on Level 6 Nos. 138-146 Linhe Zhong Road Tianhe District, Guangzhou Guangdong Province, The PRC.

No Commercial Value

Note: Our opinion of the property has been arrived at on the basis that the fire station therein having a floor area of 5,400 square metres shall be relocated somewhere else such that the entire building on the subject site shall be used for commercial/office purposes free from the fire station re-habitation requirement. Relocation costs of not more than RMB80,000,000 has been allowed in arriving at the above figures.

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VALUATION CERTIFICATE

Group I — Property held by the Enlarged Group

Property

Description and tenure

Capital value in Particulars of existing state as at occupancy 31 August 2005

Development The Property comprises a parcel of Site at the land with an area of 6,057.00 square junction of metres (see note 3 below) . A portion Tianhe Bei of the property abutting onto Tianhe Road and Linhe Bei Road is erected with a 3-storey Dong Road, structure whilst the remaining portion Tianhe District, of it is cleared and vacant. As Guangzhou, confirmed by the Company, the 3- Guangdong storey structure shall be demolished Province, during the course of development. the PRC.

The southern portion RMB338,000,000 of the property abutting onto Tianhe (RENMINBI THREE Bei Road is HUNDRED AND currently occupied THIRTY EIGHT by a fire station MILLION ONLY See whilst the remaining Note 4 below) portion is vacant.

According to the planning conditions issued by the Town Planning Bureau of Guangzhou on 29 July 2004, the Property is permitted for a commercial development with a planned gross floor area of not exceeding 84,150.60 square metres.

The Property is held for the terms of 40 years for commercial purposes.

Notes:

As stipulated in the Land Use Right Certificate (No. Sui Guo Yong 2004 Di 10053 Hao 穗國用 2004第 10053號 ) dated 14 April 2005, the land use rights in the Property with a land area of 6,057 square metres are held by 廣州寰城實業發展有限公司 (Guangzhou Huan Cheng Real Estate Development Co Ltd) for a term of 40 years for commercial purpose. It is a wholly-owned subsidiary of Yaubond Limited and is an independent third party to the Company. After the Proposed Acquisition, Guangzhou Huan Cheng Real Estate Development Co Ltd shall become a 49%-owned associate of the Company.
According to the planning conditions issued by the Town Planning Bureau of Guangzhou on 29 July 2004, the Property is permitted for a commercial development with a planned gross floor area of not exceeding 84,150.60 square metres of which a floor area of not less than 5,400.00 square metres shall be used for accommodating a fire station (See PRC legal opinion in note 5.5 below) .
As revealed by the Construction Land Use Planning Permit issued by the Town Planning Bureau of Guangzhou on 4 September 1995, the subject site initially covered a total area of 7,217 square metres of which 6,057 square metres is attributable to the development site currently held by Guangzhou Huan Cheng Real Estate Development Co Ltd and the remaining portion with an area of 1,160 square metres is designated for the use as public roads.

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Our opinion of the Property as mentioned above has been arrived at on the basis that the fire station as mentioned in note 2 above having a floor area of 5,400 square metres shall be relocated somewhere else such that the entire building on the subject site shall be used for commercial/office purposes free from the fire station re-habitation requirement. As confirmed by Guangzhou Huan Cheng Real Estate Development Co Ltd, the estimated costs for relocating the fire station to somewhere else shall not be more than RMB80,000,000. Such relocation expenses have been estimated based on an offer from an independent agent who underwrite to resettle the fire station completely off the site within the budget of the aforesaid estimated costs. Such relocation expenses have been reflected in our opinion of valuation. Alternatively, if the developer is required to re-house the fire station within the Property, our opinion of valuation of the Property subject to the re-habitation requirement would be RMB270,000,000.
Opinion of the PRC Lawyer on the property is summarized as follows:
5.1 The land use rights in the Property are held by 廣州寰城實業發展有限公司 (Guangzhou Huan Cheng Real Estate Development Co Ltd);
5.2 Guangzhou Huan Cheng Real Estate Development Co Ltd has settled all land costs for acquiring the Property;
5.3 Up to the date of the PRC legal opinion, the property was free from any encumbrances and was not subject to any situation leading to re-entry by the government;
5.4 Guangzhou Huan Cheng Real Estate Development Co Ltd, as a land use right holder of the Property, can freely transfer, mortgage or lease the Property on the market during the unexpired land use right term; and
5.5 Regarding the re-habitation of the fire station, Guangzhou Huan Cheng Real Estate Development Co Ltd. can, subject to the prior approval from the government, fulfill the re-habitation requirements by mean of property exchange. The PRC lawyer understands that Guangzhou Huan Cheng Real Estate Development Co Ltd has initiated negotiation with the relevant authority for the purpose of reaching property exchange agreement between both parties. Given the latest progress of negotiations with the authority in charge of the fire station and the Town Planning Bureau of Guangzhou（廣州市城市規劃局）, both the vendor and the directors of the company consider that there is no foreseen obstacle in reaching property exchange agreement with the authority.
The status of the title and grant of major approvals and licences in accordance with the information provided by the Group and the opinion of the Company’s legal advisers on the PRC law as at the valuation date is as follows:

Land Use Rights Certificate Yes (dated 14 April 2005) Red-line Drawing Yes (dated 7 January 2005) Construction Land Permit Yes (dated 27 April 2004) Construction Land Planning Permit Yes (dated 4 September 1995) Construction Permit Not yet applied for Business Licence Yes (in the name of Guangzhou Huan Cheng Real Estate Development Co Ltd and dated 31 January 2005)

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Group II — Property rented by the Enlarged Group

Property

Description and tenure

Capital value in Particulars of existing state as at occupancy 31 August 2005

Unit L on Level 6 The property comprises an office unit Nos. 138-146 on Level 6 of a 6-storey commercial Linhe Zhong podium underneath a 25-storey Road residential tower completed in 2002. Tianhe District, Guangzhou The gross floor area of the property is Guangdong approximately 100 square metres. Province, The PRC. The property is rented by the Enlarged Group for a term of 3 years commencing on 9 May 2005 and expiring on 8 May 2008 at a monthly rent of RMB1,000 exclusive of management fee and other outgoings.

The property is No Commercial Value currently occupied by the tenant as an office.

Note: Pursuant to a tenancy agreement dated 27 May 2005, the property is rented by 廣州寰城實業發展有限公司 (Guangzhou Huan Cheng Real Estate Development Co Ltd) for a term of 3 years expiring on 8 May 2005 at a monthly rent of RMB1,000.

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GENERAL INFORMATION

APPENDIX VI

1. RESPONSIBILITY STATEMENTS

This circular includes particulars given in compliance with the Takeovers Code and the Listing Rules for the purpose of giving information with regard to the Group. The Directors collectively and individually, and jointly and severally, accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in this circular have been arrived at after due and careful consideration and there are no other facts not contained in this circular, the omission of which would make any statement herein misleading.

2. SHARE CAPITAL

The authorised and issued capital of the Company as at 31 December 2004 and the Latest Practicable Date were, and immediately following completion of the Rights Issue will be, as follows:

Authorised: 30,000,000,000 Shares Issued and fully paid: 6,847,373,585 shares as at 31 December 2004 1,355,000,000 new shares issued on 7 June 2005 pursuant to the placing agreement dated 17 May 2005 8,202,373,585 shares before share consolidation and capital reduction of the Company becoming effective on 5 August 2005	HK$ 300,000,000.00

	68,473,735.85 13,550,000.00
	82,023,735.85

Upon completion of the share consolidation and capital reduction of the Company on 5 August 2005:

82,023,735 Shares as at 5 August 2005 and as at the Latest Practicable Date_(Note) 66,666,666 Consideration Shares to be issued pursuant to the Acquisition Agreement 492,142,410 Rights Shares to be issued pursuant to the Rights Issue(Note)_ 640,832,811 Shares	820,237.35 666,666.66 4,921,424.10
	6,408,328.11

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APPENDIX VI

GENERAL INFORMATION

All the issued Shares rank pari passu with each other in all respects including the rights as to voting, dividends and return of capital. The Consideration Shares and Rights Shares to be allotted and issued will, when issued and fully paid, rank pari passu in all respects with the existing Shares. Save as disclosed in the “Letter from the Board” in this circular in respect of the Consideration Shares and Rights Shares and the placing of new Shares as announced on 18 May 2005 and completed on 7 June 2005, no share or loan capital of the Company has been issued or is proposed to be issued for cash or otherwise and no commissions, discounts, brokerages or other special terms have been granted in connection with the issue or sale of any such capital since 31 December 2004 (the date to which the latest audited consolidated financial statements of the Company were made up). The Company had no debt securities in issue as at the Latest Practicable Date.

As at the Latest Practicable Date, the Company had no outstanding convertible securities, options or warrants in issue which confer any right to subscribe for or convert into Shares.

3. DISCLOSURE OF DIRECTORS’ INTERESTS

As at the Latest Practicable Date, the interests and short positions of the Directors and chief executives of the Company in the shares, underlying shares and debentures of the Company or any of its associated corporation(s) (within the meaning of Part XV of the SFO) which were required, (i) pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO), or (ii) pursuant to Section 352 of the SFO, to be entered in the register referred to therein, or (iii), pursuant to the Model Code for Securities Transactions by Directors of Listed Companies (“Model Code”) of the Listing Rules, to be notified to the Company and the Stock Exchange, or (iv) to be disclosed in this circular pursuant to the requirements of the Takeovers Code, are as follows:

(a) Long position in shares in the Company

Name of	Nature of	Number of	Percentage
Director	interest	Shares held	holdings
Mr. Yu	Interest of controlled corporation	31,609,227	38.5%
	(Note)

Note: These Shares were held by Grand Cosmos whose entire issued share capital is beneficially owned by Mr. Yu.

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APPENDIX VI

Save as disclosed above, as at the Latest Practicable Date, none of the directors, the chief executive (including their spouse and children under 18 years of age) or their associates had any other beneficial interests in the shares of the Company and its associated corporation (within the meaning of the SFO).

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or chief executive of the Company had any interests or short positions in the shares, underlying shares and debentures of the Company or any of its associated corporation(s) (within the meaning of Part XV of the SFO) which were required, (i) pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO), or (ii) pursuant to Section 352 of the SFO, to be entered in the register referred to therein, or (iii) pursuant to the Model Code of the Listing Rules to be notified to the Company and the Stock Exchange, or (iv) to be disclosed in this circular pursuant to the requirements of the Takeovers Code.

(b) Competing interests

None of the Directors or any of their respective associates have any interests in any business which may compete with the business of the Group (as would be required to be disclosed under Rule 8.10 of the Listing Rules if each of them was a controlling shareholder of the Company).

4. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as known to any Directors or chief executive of the Company, the following persons (other than a Director or chief executive of the Company) had, or were deemed or taken to have interests or short positions in the shares or underlying shares of the Company which would fall to be disclosed to the Company and the Stock Exchange 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 the Enlarged Group or had any option in respect of such capital:

		Number of Shares
		interested or
	Capacity/	deemed to
Name of	Nature of	be interested	Percentage
Shareholder	interest	(long position)	holding
Mr. Yu	Controlled corporation_(Note)_	31,609,227	38.5%

Note: These Shares were held by Grand Cosmos whose entire issued share capital is beneficially owned by Mr. Yu.

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APPENDIX VI

Save as disclosed above, so far as known to the Directors or chief executive of the Company, no other person (not being a Director or chief executive of the Company) had any interests or short positions in shares or underlying shares of the Company which would fall to be disclosed to the Company and the Stock Exchange, under the provisions of Divisions 2 and 3 of Part XV of the SFO, or 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 the Enlarged Group or held any option in respect of such capital.

5. DIRECTORS’ INTERESTS IN ASSETS/CONTRACTS AND OTHER INTERESTS

Save as to the counter-indemnity granted by Mr. Yu in favour of the Company and the Purchaser against any of their liabilities under the Deed of Appointment, none of the Directors was materially interested in any contract or arrangement entered into by any member of the Enlarged Group subsisting at the Latest Practicable Date which was significant in relation to the business of the Enlarged Group or has any material personal interest in any contract entered into by Grand Cosmos or Mr. Yu.

None of the Directors has any direct or indirect interests in any assets which have been acquired or disposed of by or leased to any member of the Enlarged Group or are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group since 31 December 2004, being the date to which the latest published audited consolidated accounts of the Group were made up.

None of the Directors was or will be given any compensation for loss of office or otherwise in connection with the Proposed Acquisition, the Rights Issue or the Whitewash Waiver.

As at the Latest Practicable Date, Mr. Yu indirectly and beneficially owns, through Grand Cosmos, 31,609,227 Shares, representing approximately 38.5% of existing issued share capital of the Company. Save for Mr. Yu, none of the Directors has any direct or indirect shareholdings in Grand Cosmos and the Company.

6. MATERIAL CONTRACTS

The following contracts, not being contracts in the ordinary course of business, were entered into by the Company or its subsidiaries during the period commencing two years preceding the date of the Announcement and up to the Latest Practicable Date and are or may be material:

the Acquisition Agreement (with the form of the Deed of Appointment and terms and conditions of the Convertible Note attached);
the Underwriting Agreement;

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APPENDIX VI

the Supplemental Agreement;
the counter-indemnity dated 5 October 2005 executed by Mr. Yu in favour of the Company and the Purchaser pursuant to which Mr. Yu agreed to indemnify the Company and the Purchaser against any of their liabilities under the Deed of Appointment;
the underwriting agreement dated 3 December 2003 (“ 2003 Underwriting Agreement ”) entered into between, inter alia, the Company and TIS Securities (HK) Limited, Upbest Securities Company Limited, Alpha Alliance Securities Company Limited, Emperor Securities Limited, Lei Shing Hong Securities Limited and Great China Brokerage Limited (the “ Previous Underwriters ”) in relation to the Last Rights Issue of not less than 5,033,411,636 new shares and not more than 5,426,563,132 new shares of HK$0.01 each in the Company at a subscription price of HK$0.01 per rights share, pursuant to which the Previous Underwriters agreed to underwrite up to a maximum of 2,897,824,900 right shares for an underwriting commission of 2.5 per cent of the subscription price of the maximum number of the underwritten shares;
the supplemental agreement dated 15 January 2004 to the 2003 Underwriting Agreement entered into between the parties thereof, in relation to, the last Rights Issue of not less than 5,227,260,944 new shares and not more than 5,426,868,984 new shares (subject to an increase up to 5,428,163,508 new shares at a subscription price of HK$0.01 per rights share), pursuant to which the Pervious Underwriters agreed to underwrite 2,898,130,752 right shares (subject to increase up to 2,899,425,276 rights shares) for an underwriting commission of 2.5 per cent of the subscription price of the maximum number of the underwritten shares;
the placing agreement dated 17 May 2005 entered into between the Company and Tai Fook Securities, pursuant to which the Company appointed Tai Fook Securities as placing agent of the Placing of 1,355,000,000 new shares of HK$0.01 each in the share capital of the a Company at the issue price of HK$0.016 per placing share for a commission of 2 per cent of the issue price of the placing shares successfully taken up and paid;
the settlement agreement dated 9 August 2005 entered into between Ms Cheng Siu Ying Pinky and the Company in relation to the settlement of the sum outstanding under a convertible bond in the amount of HK$480,000 with a consideration of HK$430,000;
the settlement agreement dated 26 August 2005 entered into between Mr. Tsang Ching Biu and the Company in relation to the settlement of the sum outstanding under a convertible bond in the amount of HK$480,000 with a consideration of HK$430,000; and

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APPENDIX VI

the sale and purchase agreement dated 25 October 2004 entered into between the Company and Grand Cosmos, pursuant to which Grand Cosmos agreed to purchase 3,160,922,790 shares in the Company for a consideration of approximately HK$34,770,151.

7. LITIGATION

As at the Latest Practicable Date, no member of the Enlarged Group was engaged in any litigation or arbitration of material importance and no litigation or claim of material importance known to the Directors to be pending or threatened by or against any member of the Enlarged Group.

8. EXPERTS AND CONSENTS

The following is the qualification of the experts whose statements have been included in this circular:

Name

Qualification

CIMB-GK

a licensed corporation to carry out type 1 (dealing in securities), type 4 (advising on securities) and type 6 (advising on corporate finance) regulated activities for the purposes of the SFO

BDO McCabe Lo Limited (“BDO”)

Certified Public Accountants

Tai Fook Capital Limited (“TFC”)

a licensed corporation to carry on type 6 (advising on corporate finance) regulated activity for the purposes of the SFO

RHL Appraisals Ltd. (“RHL”)

Property valuer, Chartered Surveyor

CIMB-GK, BDO, TFC and RHL have given and have not withdrawn their written consents to the issue of this circular with the inclusion herein of their letters or references to their names in the form and context in which they respectively appear.

None of CIMB-GK, BDO, TFC and RHL 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.

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GENERAL INFORMATION

APPENDIX VI

None of CIMB-GK, BDO, TFC and RHL have any direct or indirect interests in any assets which have been, since 31 December 2004 (being the date to which the latest published audited accounts of the Company were made up), acquired or disposed of by or leased to any member of the Enlarged Group, or which are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group.

9. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contracts with the Company or any member of the Group or associated companies which (i) have been entered into or amended within 6 months before the commencement of the offer period in relation to the Rights Issue; (ii) are continuous contracts with a notice period of 12 months or more; (iii) are fixed term contracts with more than 12 months to run irrespective of the notice period; or (iv) are not determinable by the Group within one year without payment of compensation (other than statutory compensation).

10. SECRETARY AND QUALIFIED ACCOUNTANT OF THE COMPANY

The secretary and the qualified accountant of the Company is Ms. Cheung Lin Shun, who is a member of the Hong Kong Institute of Certified Public Accountants.

11. SHAREHOLDINGS AND DEALINGS

(a) Save for the 31,609,227 Shares held by Mr. Yu and his Concert Parties as at the Latest Practicable Date as disclosed in the section headed “Shareholding structure of the Company” in the Letter from the Board of this circular, none of Mr. Yu, the sole director of Grand Cosmos, and his Concert Parties (including any directors of any Concert Parties which are entities) owned or controlled any Shares, convertible securities, warrants, options or derivatives of the Company as at the Latest Practicable Date, none of them had dealt for value in any Shares, convertible securities, warrants, options or derivatives of the Company during the period starting six months prior to 5 October 2005 (being the Announcement Date) and ending on the Latest Practicable Date. No other Director held any Shares, convertible securities, warrants, options or derivatives of the Company as at the Latest Practicable Date and none of them have dealt in any securities in the Company for value during the period commencing six months prior to 5 October 2005.
(b) No person with whom Mr. Yu and his Concert Parties had any arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code owned or controlled any Shares, convertible securities, warrants, options or derivatives of the Company as at the Latest Practicable Date, and none of them had dealt for value in any such securities during the period starting six months prior to 5 October 2005 (being the date of the Announcement) and ending on the Latest Practicable Date.

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APPENDIX VI

(c) Neither CIMB-GK, BDO, TFC and RHL nor any other advisers to the Company as specified in class (2) of the definition of associate (excluding exempt principal traders) in the Takeovers Code, their respective ultimate holding companies, nor any of their respective subsidiaries or fellow subsidiaries owned or controlled any Shares, convertible securities, warrants, options or derivatives of the Company as at the Latest Practicable Date.
(d) No subsidiary of the Company or a pension fund of the Company or of its subsidiaries owned or controlled any Shares, convertible securities, warrants, options or derivatives of the Company as at the Latest Practicable Date.
(e) No fund manager (other than exempt fund manager) connected with the Company owned or controlled any Shares, convertible securities, warrants, options or derivatives of the Company as at the Latest Practicable Date.
(f) At no time during the period commencing six months prior to 5 October 2005 (being the Announcement Date), and ending on the Latest Practicable Date, was any member of the Group a party to any arrangement to enable the Directors and their associates to acquire benefits by means of the acquisition of the Shares or any other body corporate.
(g) As at the Latest Practicable Date, no person had any arrangement of the kind referred to in Note 8 to Rule 22 the Takeovers Code with the Company or with any person who is an associate of the Company by virtue of classes (1), (2), (3) and (4) of the definition of associate in the Takeovers Code.
(h) As at the Latest Practicable Date, no arrangement or understanding (including any compensation arrangement) exists between Mr. Yu or his Concert Parties and any Directors or Shareholders having any connection with or dependence upon the Whitewash Waiver.
(i) None of the Directors or the Company have dealt with any shares, convertible securities, warrants, options or derivatives of Grand Cosmos during the period commencing six months prior to 5 October 2005 and ending on the Latest Practicable Date. As at the Latest Practicable Date, save for Mr. Yu who is the sole beneficial owner of Grand Cosmos, none of the Directors or the Company owned or controlled any shares, convertible securities, warrants, options or derivatives of Grand Cosmos.

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GENERAL INFORMATION

APPENDIX VI

12. MARKET PRICES

The table below shows the closing prices on the Stock Exchange of the Shares (i) at the end of each of the six calendar months preceding the Announcement Date; (ii) on the Last Trading Day; (iii) the end of the calendar months following the Announcement Date; and (iv) on the Latest Practicable Date:

Date	Closing Price
	HK$
2005
31 March	1.70
29 April	1.90
31 May	1.90
30 June	1.00
29 July	1.00
31 August	0.37
27 September (Last Trading Date)	0.55
30 September	N/A*
31 October	0.40
Latest Practicable Date	0.40

Trading of the Shares was suspended

The highest and lowest closing prices of the Shares as recorded on the Stock Exchange during the period commencing from the start of the six months preceding the Announcement Date and up to the Latest Practicable Date were respectively HK$0.62 on 12 September 2005 and HK$0.29 on 10 August 2005.

13. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours from 9:00 a.m. to 5:00 p.m. (except Saturdays and public holidays) at the principal office of the Company on 8 November 2005 up to and including 23 November 2005.

(a) the Company’s memorandum of association and Bye-laws;
(b) the material contracts referred to in the section headed “Material Contracts” in this appendix;
(c) the accountants’ report on Yaubond Group included in Appendix II to this circular;
(d) the written consents referred to under the section headed “Experts and Consents” in this appendix;

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APPENDIX VI

(e) the annual reports of the Company for the two years ended 31 December 2004;
(f) the interim report of the Company for six months ended 30 June 2005;
(g) the letter from the Independent Board Committee set out on pages 46 to 47 of this circular;
(h) the letter from CIMB-GK set out on pages 48 to 75 of this circular;
(i) the letter signed by BDO setting out their opinion on the adjustments made on the pro forma financial information of the Enlarged Group as set out in Appendix III to this circular;
(j) the letter from Tai Fook Capital Limited setting out their opinion on the pro forma financial information of the Enlarged Group as set out in Appendix III to this circular;
(k) the letter, summary of values and valuation certificate relating to the property interests of the Yaubond Group, prepared by RHL, the texts of which are set out in Appendix V to this circular;
(l) the loan agreement entered into between Tai Fook Securities and Grand Cosmos dated 4 November 2005 referred to under the section headed “Miscellaneous” in this appendix;
(m) the circular of the Company dated 12 July 2005; and
(n) the circular of the Company dated 1 November 2005.

14. MISCELLANEOUS

(a) The correspondence address of the Directors is at 2502B, Tower 1, Admiralty Centre, 18 Harcourt Road, Hong Kong;
(b) The correspondence address of the Company is at 2502B, Tower 1, Admiralty Centre, 18 Harcourt Road, Hong Kong;
(c) The registered office of the Company is at Clarendon House, 2 Church Street, Hamilton HM11, Bermuda;
(d) The Hong Kong branch share registrar and transfer office of the Company is Abacus Share Registrars Limited at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong;

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GENERAL INFORMATION

APPENDIX VI

(e) The correspondence address of Mr. Yu is at 2502B, Tower 1, Admiralty Centre, 18 Harcourt Road, Hong Kong;
(f) The registered office of Grand Cosmos is P. O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands, and Mr. Yu is the sole beneficial owner and director of Grand Cosmos;
(g) The correspondence address of Grand Cosmos is at 2502B, Tower 1, Admiralty Centre, 18 Harcourt Road, Hong Kong;
(h) The correspondence address of Ms. Azuma is at 21E, Tower 2, The Floridian, 18 San Wan Terrace, Quarry Bay, Hong Kong;
(i) The correspondence address of Tai Fook Securities is at 25/F New World Tower, 16-18 Queen’s Road Central, Hong Kong;
(j) As at the Latest Practicable Date, there was no agreement, arrangement or understanding (including any compensation arrangement) existing (a) between Mr. Yu or his Concert Parties and any of the Directors, recent Directors, Shareholders or recent Shareholders and (b) between any Directors and any other person having any connection with or dependence upon the transactions contemplated under the Acquisition Agreement, the Rights Issue and the Whitewash Waiver;
(k) On 4 November 2005, Tai Fook Securities had entered into a loan agreement with Grand Cosmos pursuant to which Tai Fook Securities provided a loan facility (the “Loan”) to Grand Cosmos. The Loan will be secured by some or all of the Shares owned by Grand Cosmos (the “Pledged Shares”), which may include the Shares to be acquired by Grand Cosmos pursuant to the Grand Cosmos Entitlements and its obligations under the Underwriting Agreement. Pursuant to the security document in respect of the Pledged Shares to be executed by Grand Cosmos, in the event that Grand Cosmos and/or Mr. Yu, as guarantor, fails to repay any amount due under the Loan, Tai Fook Securities shall has the right to enforce the Pledged Shares and transfer the voting rights of the Pledged Shares to Tai Fook Securities or its nominee. Save for the security arrangement in respect of the Loan, there are no securities acquired in relation to the Rights Issue that will be transferred, charged or pledged to any other persons;
(l) As at the Latest Practicable Date, no Independent Shareholders had irrevocably committed themselves to vote for the transactions contemplated under the Acquisition Agreement, the Rights Issue or the Whitewash Waiver; and
(m) The English text of this circular shall prevail over the Chinese text.

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NOTICE OF THE SGM

renren Holdings Limited 人人控股有限公司[*]

(Incorporated in Bermuda with limited liability)

(Stock code: 59)

NOTICE IS HEREBY GIVEN that a special general meeting of renren Holdings Limited (“ Company ”) will be held on Friday, 25 November 2005 at 10:30 a.m. at Private Room at Flamingo Cafe, 1st Floor, Newton Hotel, 218 Electric Road, North Point, Hong Kong for the purpose of considering and, if thought fit, passing, with or without modification, the following resolutions as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

“ THAT , subject to and conditional upon the passing of Ordinary Resolution No. 2 as set out in this notice,
(i) the sale and purchase agreement dated 5 October 2005 (“ Acquisition Agreement ”, a copy of which has been produced to this meeting and marked “ A ” and signed by the Chairman of the meeting for the purpose of identification) entered into between Nicco Limited (“ Nicco ”), a wholly-owned subsidiary of the Company, as purchaser and Sunny Billion Holdings Limited as vendor (“ Vendor ”) whereby, inter alia,:
- (a) Nicco conditionally agreed to purchase from the Vendor a 49% shareholding in and shareholders’ loans due by Yaubond Limited (“ Yaubond ”) to the Vendor on completion of the Acquisition Agreement at an aggregate consideration of not more than HK$204.4 million (“ Consideration ”) to be satisfied (i) as to a sum of HK$20 million by way of issue and allotment of 66,666,666 shares of HK$0.01 each of the Company to the Vendor (or its nominee) (“ Consideration Shares ”), (ii) as to a sum of HK$60 million by way of issue of a 3% convertible note due on the second anniversary of the issue date thereof in the principal amount of HK$60,000,000 to the Vendor (or its nominee) (“ Convertible Note ”, the terms and conditions of which is annexed as Schedule 5 to the Acquisition Agreement) and (iii) the balance in cash; and
for identification purpose only

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NOTICE OF THE SGM

(b) Nicco, the Company, Yaubond and the Vendor shall, on completion of the Acquisition Agreement, enter into a deed of appointment (“ Deed of Appointment ”, a copy of which is annexed as Schedule 1 to Exhibit F of the Acquisition Agreement) pursuant to which Nicco shall be appointed as the project manager for the development of a piece of land consisting of 7,217m[2] situated at Tian He District（廣州市天河區地段） to the north of Tian He Bei Road（天河北路以北）, Guangzhou;

and the transactions contemplated thereunder, be and are hereby approved;

(ii) the Deed of Appointment and the transactions contemplated thereunder be and are hereby approved;
(iii) the issue and allotment of the Consideration Shares be and are hereby approved;
(iv) the issue of the Convertible Note and the issue and allotment to the holder(s) of the Convertible Note, upon due exercise of the conversion rights attached to the Convertible Note, of the shares in the capital of the Company, pursuant to and in accordance with the terms and conditions of the Convertible Note, be and are hereby approved; and
(v) the directors of the Company (“ Directors ”) be and are hereby authorized to execute any documents and instruments as may be necessary or incidental to completion of the Acquisition Agreement, the Deed of Appointment and the Convertible Note and to do all such acts and things they consider necessary, desirable or expedient for the implementation of the Acquisition Agreement, the Deed of Appointment and the Convertible Note and any of the transactions contemplated thereunder.”
“ THAT , subject to and conditional upon (i) the passing of Ordinary Resolution No. 1 as set out in this notice; (ii) the filing and/or, registration of all documents relating to the Rights Issue (as defined below) required by law to be filed and/or, registered with the Registrar of Companies in Hong Kong and in Bermuda; (iii) the Listing Committee of The Stock Exchange of Hong Kong Limited granting listing of, and permission to deal in, the Rights Shares (as defined below) (in both nil-paid and fully-paid forms); and (iv) the underwriting agreement dated 5 October 2005 made among Tai Fook Securities Company Limited, Grand Cosmos Holdings Limited (“ Grand Cosmos ”), Mr. Yu Pan (“ Mr. Yu ”) and the Company (“ Underwriting Agreement ”, a copy of which has been produced to the meeting and marked “ B ” and signed by the Chairman of the meeting for the purpose of identification), becoming unconditional and not being rescinded or terminated in accordance with its terms:
(i) the Underwriting Agreement and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified;

— 178 —

NOTICE OF THE SGM

(ii) the issue of 492,142,410 new ordinary shares of HK$0.01 each of the Company, or the issue of 492,044,616 new ordinary shares of HK$0.01 each of the Company if formal procedures for the rectification of the register of members of the Company has been completed, (“ Rights Shares ”) pursuant to an offer by way of rights to holders of shares in the Company (“ Shares ”) at the subscription price of HK$0.30 per Rights Share (“ Rights Issue ”) in the proportion of six Rights Shares for every existing Share held by holders of Shares (“ Shareholders ”) whose names appear on the register of members of the Company on Friday, 25 November 2005 (“ Record Date ”) other than those Shareholders whose addresses on the register of members of the Company are outside Hong Kong on the Record Date where the Directors, based on legal opinions provided by legal advisers, consider it necessary or expedient not to offer the Rights Shares to such Shareholders on account either of legal restrictions under the laws of relevant place or the requirements of the relevant regulatory body or stock exchange in that place, on and subject to the terms and conditions set out in the circular to the Shareholders dated 8 November 2005 (“ Circular ”) and on such other terms and conditions as may be determined by the Directors be and is hereby approved; and
(iii) the Directors be and are hereby authorized to issue and allot the Rights Shares and to do all such acts and things, to sign and execute all such further documents and to take such steps as the Directors may in their absolute discretion consider necessary, appropriate, desirable or expedient to give effect to or in connection with the Rights Issue and the Underwriting Agreement or any of the transactions contemplated thereunder.”
“ THAT , subject to and conditional upon the passing of Ordinary Resolution No. 2 as set out in this notice, the waiver granted or to be granted by the Executive Director of the Corporate Finance Division of the Securities and Futures Commission (and any delegate of the Executive Director) to Mr. Yu and parties acting in concert with him under Rule 26 of the Hong Kong Code on Takeovers and Mergers from any obligation on the part of Mr. Yu and parties acting in concert with him to make a mandatory offer for all the issued securities of the Company, as a result of the underwriting of the Rights Shares (as defined in Ordinary Resolution No. 2 of this notice) pursuant to the Underwriting Agreement (as defined in Ordinary Resolution No. 2 of this notice), the issue of the Consideration Shares (as defined in Ordinary Resolution No. 1 of this notice) and the issue of the shares of the Company upon conversion of the Convertible Note (as defined in Ordinary Resolution No. 1 of this notice) to be issued upon completion of the Acquisition Agreement (as defined in Ordinary Resolution No. 1 of this notice), be and are hereby approved.”
“ THAT BDO McCabe Lo Limited be and is hereby appointed as the auditors of the Company in place of Albert Lam & Co to hold office until the conclusion of the next annual general meeting of the Company at a remuneration to be agreed with the Directors.”

— 179 —

NOTICE OF THE SGM

5. “ THAT :

(i) the general mandate granted to the Directors to exercise the power of the Company to allot, issue and deal with securities of the Company pursuant to ordinary resolution 4(A) passed by the shareholders of the Company at its annual general meeting held on 25 May 2005 (“ Existing General Mandate ”), to the extent not exercised by the Directors, be and is hereby revoked provided that any exercise of powers of the Company to allot and issue shares in the capital of the Company under the Existing General Mandate prior to the passing of this Resolution shall not in any way be affected or prejudiced;
(ii) subject to sub-paragraph (iv) of this resolution, the exercise by the directors of the Company during the Relevant Period (as hereinafter defined) of all the powers of the Company to allot, issue and deal with additional shares of HK$0.01 each in the capital of the Company and to make or grant offers, agreements and options which might require the exercise of such powers, be and is hereby generally and unconditionally approved;
(iii) the approval in sub-paragraph (ii) of this resolution shall authorise the directors of the Company during the Relevant Period to make or grant offers, agreements and options which might require the exercise of such powers after the end of the Relevant Period;
(iv) the aggregate nominal amount of share capital allotted or agreed conditionally or unconditionally to be allotted (whether pursuant to an option or otherwise) and issued by the directors of the Company pursuant to the approval in sub-paragraph (ii) of this resolution, otherwise than pursuant to (a) a Rights Issue (as hereinafter defined); (b) the exercise of rights of subscription or conversion attaching to any warrants issued by the Company or any securities which are convertible into shares of the Company; (c) any share option scheme of the Company; and (d) any scrip dividend or similar arrangement providing for the allotment of shares in the Company in lieu of the whole or part of a dividend on shares in accordance with the Bye-laws of the Company in force from time to time; shall not exceed 20 per cent. of the aggregate nominal amount of the share capital of the Company in issue on the date of the passing of this resolution or in the event the Rights Issue (as defined in Ordinary Resolution No. 2 of this notice) is completed accordingly, 20 per cent. of the aggregate nominal amount of the share capital of the Company in issue as enlarged by issue of the Rights Shares (as defined in Ordinary Resolution No. 2 of this notice) and the approval granted under paragraphs (ii) and (iii) of this resolution shall be limited accordingly; and

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NOTICE OF THE SGM

(v) for the purpose of this resolution:

“Relevant Period” means the period from the date of the passing of this resolution until whichever is the earliest of:

(a) the conclusion of the next annual general meeting of the Company;
(b) the expiration of the period within which the next annual general meeting of the Company is required by the Bye-laws of the Company or any applicable laws to be held; or
(c) the revocation or variation of the authority set out in this resolution by an ordinary resolution of the shareholders of the Company in general meeting.

“Rights Issue” means an offer of shares, or offer or issue of warrants, options or other securities giving rights to subscribe for shares of the Company open for a period fixed by the directors of the Company to holders of shares of the Company whose names appear on the register of members on a fixed record date in proportion to their then holdings of such shares (subject to such exclusion or other arrangements as the directors of the Company may deem necessary or expedient in relation to fractional entitlements or having regard to any restrictions or obligations under the laws of, or the requirements of, any recognised regulatory body or any stock exchange in any territory applicable to the Company).”

Yours faithfully, By Order of the Board Yu Pan Chairman

Hong Kong, 8 November 2005

Principal place of business in Hong Kong:

2502B, Tower 1 Admiralty Centre 18 Harcourt Road Hong Kong

— 181 —

NOTICE OF THE SGM

Notes:

(1) A member entitled to attend and vote at the above meeting may appoint a proxy to attend and, on a poll vote on his behalf and such proxy need not be a member of the Company. A form of proxy for use at the meeting is enclosed.
(2) In order to be valid, the form of proxy, together with any power of attorney or authority under which it is signed or a certified copy of that power of attorney or authority, must be deposited at the Company’s branch share registrar in Hong Kong, Abacus Share Registrars Limited at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong not less than 48 hours before the time appointed for holding the meeting or any adjournment thereof.
(3) Completion and return of the form of proxy will not preclude a shareholder of the Company from attending and voting in person at the meeting convened or any adjournment thereof and in such event, the authority of the proxy shall be deemed to be revoked.
(4) In case of joint holders of any share, if more than one of such joint holders be present at any meeting, the vote of the senior who tenders a vote, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the register in respect of the joint holding.
(5) Ordinary resolutions Nos. 1-3 will be voted by poll by the Shareholders who are not interested or involved in the Proposed Acquisition, the Rights Issue and the Whitewash Waiver, being Shareholders other than Mr. Yu, parties acting in concert with him and their respective associates.

As at the date hereof, the board of directors of the Company comprises Mr. Yu Pan, Mr. Mai Zhi Hui, Mr. Lau Yat Tung, Derrick and Mr. Wong Lok as executive directors and Mr. Choy Shu Kwan, Mr. Cheng Wing Keung, Raymond and Ms. Chung Lai Fong, la Fontaine as independent non-executive directors.

— 182 —

AI assistant

Greenheart Group Limited — Proxy Solicitation & Information Statement 2005

48939_rns_2005-11-08_32e1b0ce-562f-48e6-9408-939101b5c6c2.pdf

renren Holdings Limited 人人控股有限公司[*]

(V) REFRESHMENT OF GENERAL MANDATE TO ISSUE NEW SHARES

Financial adviser to renren Holdings Limited

Independent financial adviser to the Independent Board Committee and the Independent Shareholders

CIMB-GK Securities (HK) Limited

CONTENTS

EXPECTED TIMETABLE

Certificates for the Rights Shares expected

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

renren Holdings Limited 人人控股有限公司[*]

INTRODUCTION

LETTER FROM THE BOARD

(I) Proposed Acquisition

The Acquisition Agreement

Date

Parties

The Consideration

Conditions precedent

Completion

Issue of the Consideration Shares

The Convertible Note

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Deed of Appointment to be entered into on Completion

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Indemnity by Mr. Yu

Information on Yaubond

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Reasons for and benefits of the Proposed Acquisition

LETTER FROM THE BOARD

LETTER FROM THE BOARD

(II) Rights Issue

Issue statistics

Qualifying Shareholders

Terms of the Rights Issue

Subscription Price

The Subscription Price represents:

Basis of Provisional Allotments

Status of the Rights Shares

Certificates for the Rights Shares

Rights of the Overseas Shareholders

LETTER FROM THE BOARD

Application for excess Rights Shares

Application for listing

Undertaking of Grand Cosmos

The Underwriting Agreement

LETTER FROM THE BOARD

Use of proceeds and reason for the Rights Issue

Financial effects of the Proposed Acquisition and the Rights Issue on the Group

Information and intention of Grand Cosmos

LETTER FROM THE BOARD

(III) Application for the Whitewash Waiver

Changes in the shareholding structure of the Company arising from the issue of the Rights Shares, the Consideration Shares and the Conversion Shares

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Restoration of public float

LETTER FROM THE BOARD

Fund raising activity of the Company since January 2004

(IV) Proposed Change of Auditors

(V) The General Mandate

LETTER FROM THE BOARD

GENERAL

Approval by the Independent Shareholders

Approval by the Shareholders

SGM

VOTING ON POLL

RECOMMENDATION

ADDITIONAL INFORMATION

Greenheart Group Limited Proxy Solicitation & Information Statement 2005