Greenheart Group Limited - Proxy Solicitation & Information Statement 2006

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in Skyfame Realty (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 takes no responsibility for the contents of this circular, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

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VERY SUBSTANTIAL ACQUISITION PROPOSED ACQUISITION OF 51% SHAREHOLDING IN AND SHAREHOLDERS’ LOANS DUE BY LOYAL WAY (CHINA) GROUP LIMITED

Financial adviser to Skyfame Realty (Holdings) Limited

A notice convening the special general meeting of the Company to be held at the office of Strategic Public Relations Group Limited, Room 3203, Tower 1, Admiralty Centre, 18 Harcourt Road, Hong Kong on Friday, 18 August 2006 at 11:00 a.m. is set out on pages 138 to 139 of this circular. A form of proxy for use at the aforesaid special general meeting is also enclosed. Whether or not you are able to attend and vote at the special general meeting, you are requested to complete the enclosed form of proxy in accordance with the instructions printed thereon and deposit the same with the Company’s Hong Kong branch share registrar, Abacus Share Registrars Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding of the special general meeting or any adjournment thereof. Completion and return of the form of proxy shall not preclude you from attending and voting in person at the special general meeting should you so wish.

2 August 2006

* For identification purposes only

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Appendix I — Financial information of the Group. . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Appendix II — Financial information of the Loyal Way Group . . . . . . . . . . . . . . . .	76
Appendix III — Unaudited pro forma financial information
of the Enlarged Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	99
Appendix IV — Management discussion and analysis. . . . . . . . . . . . . . . . . . . . . . . . . .	109
Appendix V — Valuation report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	117
Appendix VI — General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	129
Notice of the SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	138

— i —

DEFINITIONS

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

“Ace Billion”	Ace Billion Investments Limited, a company incorporated
	in the BVI with limited liability
“Acquisition”	the proposed acquisition of the Sale Shares and the Sale
	Debt by the Purchaser from the Vendor pursuant to the
	Acquisition Agreement
“Acquisition Agreement”	the conditional agreement dated 6 July 2006 entered into
	between the Vendor and the Purchaser in relation to the
	Acquisition
“Acquisition Completion”	completion of the sale and purchase of the Sale Shares and
	the Sale Debt according to the terms of the Acquisition
	Agreement
“Acquisition Completion Date”	the third Business Day after the fulfillment (or, as the case
	may be, waiver by the Purchaser) of the conditions precedent
	of the Acquisition Agreement or such later date as the parties
	may agree
“Announcement”	the announcement dated 11 July 2006 made by the Company
	in relation to the Acquisition
“associate”	has the meaning ascribed to it under the Listing Rules
“BADL”	Bright Able Developments Limited, a company incorporated
	in BVI with limited liability and owns 49% of the issued
	share capital of Loyal Way as at the Latest Practicable Date
“Board”	the board of Directors
“Bonus Warrants”	the warrants to be issued by the Company, by way of a
	bonus issue to the first registered holders of the Offer Shares
	on the basis of 10 such warrants for every 13 Offer Shares
	taken up under the Open Offer, entitling the holders thereof
	to subscribe in cash up to an aggregate amount of
	HK$226,197,642 for new Shares at an initial subscription
	price of HK$1.1 per Share, subject to adjustment, at any
	time for a period of two years from the date of the creation
	of such warrants, details of which were set out in the
	Company’s announcement dated 7 June 2006, circular dated
	27 June 2006 and prospectus dated 13 July 2006

— 1 —

DEFINITIONS

“Business Day”	a day (excluding Saturday and any day on which 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
“Company”	Skyfame Realty (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
“Consideration”	the total consideration for the purchase of the Sale Shares
	and the Sale Debt, which in aggregate shall not be more
	than HK$400 million
“Development Project”	the development of the Land by the construction thereon of
	building(s) for residential and other commercial use
	(including hotels or service apartments) as the parties may
	agree
“Directors”	directors of the Company
“Enlarged Group”	the Group and the Loyal Way Group
“Fortunate Start”	Fortunate Start Investments Limited, a company incorporated
	in the BVI with limited liability
“GPAB”	廣州港務局(Guangzhou Port Authority Bureau), a state
	owned enterprise and one of the PRC parties of the PRC JV
“Group”	the Company and its subsidiaries
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong”	the Hong Kong Special Administrative Region of the PRC
“Land”	the piece of land located at the north of Mayong, the east of
	Zhujiang, the south of Tongfuxi Road and the north of Houde
	Road, Zhoutouzui, Haizhu District, Guangzhou City,
	Guangdong Province, in the PRC having a site area of
	approximately 106,273 square metres
“Latest Practicable Date”	28 July 2006, being the latest practicable date for
	ascertaining certain information included in this circular

— 2 —

DEFINITIONS

“Letter of Intent”	the letter of intent dated 28 March 2006 entered into between
	the Vendor and the Purchaser in relation to the acquisition
	of the Sale Shares
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange
“Loyal Way”	Loyal Way (China) Group Limited, a company incorporated
	in the BVI with limited liability and is 51% and 49% owned
	by the Vendor and BADL respectively as at the Latest
	Practicable Date
“Loyal Way Group”	Loyal Way and its subsidiaries
“Offer Shares”	new Shares to be issued under the Open Offer
“Open Offer”	the proposed offer by the Company of the Offer Shares at
	the subscription price of HK$0.90 per Offer Share, details
	of which were set out in the Company’s announcement dated
	7 June 2006, circular dated 27 June 2006 and prospectus
	dated 13 July 2006
“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
“PRC”	the People’s Republic of China
“PRC JV”	廣州市譽城房地產開發有限公司(Guangzhou Yucheng
	Real Estate Development Company Limited), a sino-foreign
	cooperative joint venture enterprise established in the PRC
	which is established by Yuexiu, GPAB and Zhoutouzui
	Development
“Promissory Note”	the 8% promissory note with maximum principal amount of
	HK$64 million to be executed by the Purchaser in the favour
	of the Vendor for the purpose of settling partially the
	Consideration
“Purchaser”	Smartford Limited, a company incorporated in the BVI with
	limited liability and is indirectly wholly-owned by the
	Company

— 3 —

DEFINITIONS

“RMB”	Renminbi, the lawful currency of the PRC
“Sale Debt”	not more than HK$332 million, being the face value of the
	total shareholders’ loans contributed by the Vendor in
	accordance with his 51% shareholding interest in Loyal Way
	on the Acquisition Completion Date, which includes an
	amount of not more than HK$52 million shareholders’ loan
	to be payable by the Purchaser on behalf of the Vendor
	during the period commencing from the date of the
	Acquisition Agreement and up to the Acquisition Completion
	Date pursuant to the Acquisition Agreement
“Sale Shares”	51 shares of US$1.00 each in the issued share capital of
	Loyal Way, representing 51% of the issued share capital of
	Loyal Way
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the
	Laws of Hong Kong)
“SGM”	special general meeting of the Company to be held to
	approve the Acquisition Agreement and the respective
	transactions contemplated therein
“Share(s)”	existing ordinary share(s) of HK$0.01 each in the share
	capital of the Company
“Shareholder(s)”	holder(s) of the Share(s)
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Underwriting Agreement”	the underwriting agreement dated 2 June 2006 entered into
	between the Company, Taifook Securities Company Limited
	and Grand Cosmos Holdings Limited in relation to the Open
	Offer as varied by a supplemental agreement dated 7 June
	2006 made between the Company, Taifook Securities
	Company Limited and Grand Cosmos Holdings Limited
“US$”	United States dollars, the lawful currency of the United
	States of America
“Vendor”	Mr. LUO Dong Liang（羅東亮）

— 4 —

DEFINITIONS

“Yuexiu”	廣州越秀企業（集團）公司(Guangzhou Yuexiu Enterprise
	(Group) Company Limited), a state owned enterprise and
	one of the PRC parties of the PRC JV
“Zhoutouzui Development”	廣州洲頭咀發展有限公司(Guangzhou Zhoutouzui
	Development Limited), a company incorporated in Hong
	Kong with limited liability, which is indirectly wholly-owned
	by Loyal Way and is the Hong Kong party of the PRC JV
“%”	per cent

If there is any inconsistency between the Chinese names of the PRC entities mentioned in this circular and their English translations, the Chinese version shall prevail.

Unless otherwise specified in this circular, translations of RMB into HK$ and US$ into HK$ are made in this circular, for illustration only, at the rate of RMB1.00 to HK$0.97 and US$1.00 to HK$7.77 respectively. No representation is made that any amount in RMB or US$ could have been or could be converted at those rates or any other rates.

— 5 —

LETTER FROM THE BOARD

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Executive Directors:

YU Pan LAU Yat Tung, Derrick WONG Lok WEN Xiao Bing

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

Head office and principal place of business in Hong Kong: 2502B, Tower 1 Admiralty Centre 18 Harcourt Road Hong Kong

2 August 2006

To the Shareholders

Dear Sir or Madam,

VERY SUBSTANTIAL ACQUISITION PROPOSED ACQUISITION OF 51% SHAREHOLDING IN AND SHAREHOLDERS’ LOANS DUE BY LOYAL WAY (CHINA) GROUP LIMITED

INTRODUCTION

On 6 July 2006, the Vendor and the Purchaser, a wholly-owned subsidiary of the Company, entered into the Acquisition Agreement pursuant to which the Purchaser conditionally agreed to purchase, and the Vendor conditionally agreed to (i) sell the Sale Shares, representing 51% of the total issued share capital of Loyal Way; and (ii) assign the Sale Debt, at an aggregate consideration of not more than HK$400 million.

The Acquisition constitutes a very substantial acquisition of the Company pursuant to Rule 14.06(5) of the Listing Rules and is therefore subject to, among other things, approval by Shareholders at the SGM to approve the Acquisition Agreement. As at the Latest Practicable Date, the Vendor does not have any interests in the Company. Should the Vendor have any Shares at the date of the SGM, the Vendor and his associates will abstain from voting on the resolution to approve the Acquisition at the SGM.

* For identification purposes only

— 6 —

LETTER FROM THE BOARD

The purpose of this circular is to provide you with further information in relation to the Acquisition. This circular also contains the notice of the SGM for considering and, if thought fit, to approve the Acquisition Agreement and the transactions contemplated therein.

THE ACQUISITION AGREEMENT

Date

6 July 2006

Parties

Vendor: Mr. LUO Dong Liang（羅東亮）. As at the Latest Practicable Date, the Vendor owns 51% equity interests in Loyal Way. To the best of the Directors’ knowledge, information and belief, the Vendor and his associates are third parties independent of the Company and connected persons (as defined under the Listing Rules) of the Company. As at the Latest Practicable Date, the Vendor has no shareholding interest in the Company
Purchaser: Smartford Limited, an investment holding company indirectly wholly-owned by the Company

Assets to be acquired or assigned

(i) the Sale Shares, being 51 shares of US$1.00 each in the capital of Loyal Way, representing 51% of the total issued share capital of Loyal Way; and
(ii) the Sale Debt, representing 51% of the face value of the total shareholders’ loan of Loyal Way on the Acquisition Completion Date (including an amount of not more than HK$52 million shareholders’ loan to be payable by the Purchaser on behalf of the Vendor from time to time during the period commencing from the date of the Acquisition Agreement and up to the Acquisition Completion Date) which shall not be more than HK$332 million.

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LETTER FROM THE BOARD

Shareholding structure of Loyal Way

The shareholding structure of Loyal Way before and after the Acquisition is illustrated as follows:

Existing structure

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

Poly (HK)
(Note 1)
100%
CMIC Property
(China) Limited
100%
BADL Vendor
49% 51%
Loyal Way
100% 100%
Fortunate Start Ace Billion
90% 10%
Yuexiu GPAB Zhoutouzui
Development
PRC JV
(Note 2)
----- End of picture text -----

Upon completion of the Acquisition

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

Poly (HK)
(Note 1) The Company
100% 100%
CMIC Property Fine Luck
(China) Limited Group Limited
100% 100%
BADL Purchaser
49% 51%
Loyal Way
100% 100%
Fortunate Start Ace Billion
90% 10%
Yuexiu GPAB Zhoutouzui
Development
PRC JV
(Note 2)
----- End of picture text -----

— 8 —

LETTER FROM THE BOARD

Notes:

Poly (HK) is a company incorporated in Hong Kong, the shares of which are listed on the Main Board of the Stock Exchange.
PRC JV is a sino-foreign cooperative joint venture enterprise. Under the terms of the sino-foreign cooperative joint venture agreement entered into by the parties, (i) Zhoutouzui Development has paid RMB10 million to Yuexiu as cash compensation and Yuexiu is then no longer entitled to the future profits generated by the PRC JV; (ii) GPAB will be entitled to 28% of the total gross floor area of the Development Project upon completion of the proposed development and after which, GPAB will no longer be entitled to any profits generated by the PRC JV; and (iii) Zhoutouzui Development will be entitled to 72% of the total gross floor area of the Development Project upon completion of the proposed development and the entire profit to be generated by the PRC JV. The entire results of the PRC JV is consolidated into the accounts of Loyal Way.
As at the Latest Practicable Date, to the best knowledge of the Company, none of the parties as set out in the above shareholding structure has any shareholding interest in the Company.

Information on Loyal Way

As at the Latest Practicable Date, Loyal Way is held as to 51% by the Vendor and as to 49% by BADL, which is an indirect wholly-owned subsidiary of Poly (HK), the shares of which are listed on the Main Board of the Stock Exchange.

Loyal Way is an investment holding company incorporated in the BVI with limited liability on 6 July 2005 and has not, since its incorporation, carried on any business other than acquisition and holding of its equity interests in the PRC JV through its two wholly-owned subsidiaries, Ace Billion and Fortunate Start. Ace Billion is an investment holding company incorporated in the BVI with limited liability on 12 August 2005. Fortunate Start is an investment holding company incorporated in the BVI with limited liability on 5 August 2005. Each of Ace Billion and Fortunate Start has no operating business other than its holding interests of 10% and 90% respectively in the issued share capital of Zhoutouzui Development which in turn, is the Hong Kong party of the PRC JV. Ace Billion and Fortunate Start acquired their respective interests in Zhoutouzui Development from a third party (not being Poly (HK)) independent of the Company and connected persons (as defined under the Listing Rules) of the Company in October 2005.

The PRC JV is a sino-foreign cooperative joint venture enterprise established by Yuexiu, GPAB and Zhoutouzui Development on 31 March 2003 in the PRC with a registered capital of US$12 million (equivalent to approximately HK$93 million) and has a term of operation for 15 years. Yuexiu and GPAB contributed the Land for development while Zhoutouzui Development contributed the entire amount of the registered capital of the PRC JV in cash and bears the cost of site clearance and property development. The PRC JV is a project company and has not carried on any business since its establishment other than its beneficial interest in the Land. Pursuant to the sino-foreign cooperative joint venture agreement entered into by the parties, (i) Zhoutouzui Development has paid RMB10 million to Yuexiu as cash

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LETTER FROM THE BOARD

compensation; (ii) GPAB will be entitled to 28% of the total gross floor area of the Development Project upon completion of the proposed development; and (iii) Zhoutouzui Development will be entitled to the remaining 72% of the total gross floor area of the Development Project upon completion of the proposed development.

The Land, with a total site area of approximately 106,273 square metres, is located at the north of Mayong, the east of Zhujiang, the south of Tongfuxi Road and the north of Houde Road, Zhoutouzui, Haizhu District, Guangzhou City, Guangdong Province, the PRC. Although Yuexiu is currently the registered owner of the Land as at the Latest Practicable Date, the PRC JV is the beneficial owner of the Land pursuant to the sino-foreign cooperative joint venture agreement and, as stated in the business license（企業法人營業執照）of the PRC JV, has the right to use the Land and develop, construct, sale, lease and manage any properties built thereon. As at the Latest Practicable Date, majority portion of the site with an area of approximately 86,000 square metres, being the area where the Development Project comprising the residential, commercial and office complex will be situated, has been vacated and cleared with a total cost of approximately RMB389 million (equivalent to approximately HK$377 million). To the best knowledge of the Company, the demolition and vacating cost of the remaining portion of the Land (which is currently occupied by third parties (who are not any parties as set out in the existing shareholding structure of Loyal Way as illustrated above) independent of the Company and connected persons (as defined under the Listing Rules) of the Company) is expected to be approximately RMB192.5 million (equivalent to approximately HK$187 million), which will be solely payable by Zhoutouzui Development according to the sino-foreign cooperative joint venture agreement. Upon completion of the demolition, the PRC JV will proceed to arrange for the transfer of the legal title of the Land from Yuexiu and obtain the land use rights certificate of the Land, subject to approval by the relevant authorities (including but not limited to, Bureau of Land Resources and Housing Management of Guangzhou Municipality（廣州市國土資源和房屋管理局）) in the PRC.

The Development Project principally comprises the development and construction on the Land of luxury high rise residential apartments, serviced-residential apartments, hotel, community center and other ancillary facilities such as retail commercial mall, club house and underground car parks. Under the current plan, the maximum gross floor area of the Development Project upon completion would be approximately 212,546 square metres plus basement area of approximately 29,000 square metres. As at the Latest Practicable Date, construction work on the Land has not yet commenced and according to the current plan, it is expected that the PRC JV will obtain the relevant construction permit for the Development Project in the second quarter of 2007 and the construction of the Development Project will commence thereafter. The pre-sale of the residential properties is expected to commence in August 2008 and the construction is expected to be completed and ready for move in by the end of 2009.

— 10 —

LETTER FROM THE BOARD

The total cost of the Development Project (inclusive of the obtaining of the land title rights and premium paid for the acquisition of the interest of the Land, demolition and settlement charges, the development costs, and other related expenses) is estimated to be approximately RMB2,148 million (equivalent to approximately HK$2,084 million) which is expected to be financed by the shareholders’ loan of approximately RMB808 million, bank borrowings of approximately RMB690 million and proceeds from pre-sale of residential units of approximately RMB650 million. Of the total amount of approximately HK$548 million of the loan contributed by the shareholders up to the Latest Practicable Date, approximately HK$223 million has been utilized for the obtaining of the land title rights and premium paid for the acquisition of the interest of the Land, approximately HK$317 million has been utilized for demolition and settlement charges, and approximately HK$8 million has been utilized for the development costs and other related expenses.

According to the valuation report as set out in appendix V to this circular prepared by RHL Appraisal Ltd., an independent professional property valuer, the market value of the Land (on vacant possession basis) as at 30 June 2006 was approximately RMB990 million (equivalent to approximately HK$960 million). Shareholders should note that the market value of the 28% total gross floor area of the Development Project to be allocated to GPAB as discussed above has been taken out in the valuation of the Land. As at 30 June 2006, approximately 80% of the Land (in terms of site area) has been vacated. In order to clear the remaining 20% of the Land, a further cost of RMB192.5 million (equivalent to approximately HK$187 million) as estimated by the valuer is to be incurred by Loyal Way.

Loyal Way had an audited consolidated net assets value of approximately HK$66.4 million as at 31 March 2006 and recorded an audited consolidated net loss (both before and after taxation) of approximately HK$4.8 million for the period from 6 July 2005 (date of incorporation) to 31 March 2006. Upon the Acquisition Completion, Loyal Way will become a non-wholly owned subsidiary of the Company and it is expected that, subject to the final decision of the Company’s auditors, there will not be any material impact on the earnings of the Group and the Group will record goodwill of approximately HK$83 million as a result of the Acquisition. Besides, according to the unaudited proforma consolidated balance sheet of the Enlarged Group (assuming the Acquisition Completion and the Open Offer had taken place on 31 December 2005) in appendix III to this circular, it is expected that the net assets value of the Group will be improved as a result of the Acquisition.

The Consideration

The aggregate consideration for the Sale Shares and the Sale Debt shall be not more than HK$400 million, of which HK$68 million represents the consideration for the Sale Shares and not more than HK$332 million represents the consideration for the Sale Debt. The Sale Debt is equal to 51% of the face value of the total shareholders’ loans of Loyal Way on the Acquisition Completion Date and includes not more than HK$52 million shareholders’ loan to be contributed by the Purchaser on behalf of the Vendor from time to time during the period

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LETTER FROM THE BOARD

from the date of the Acquisition Agreement and up to the Acquisition Completion Date pursuant to the Acquisition Agreement (which represents 51% of the expected total shareholders’ loans to be contributed by the Vendor and Poly (HK) to Loyal Way during the said period).

The Consideration is arrived at after arm’s length negotiations between the parties to the Acquisition Agreement with reference to the financial position of Loyal Way as at 31 March 2006, the market value of the Land as at 30 June 2006 of approximately RMB990 million (as valued by RHL Appraisal Ltd., an independent professional property valuer) and the face value of the Sale Debt of not more than HK$332 million on the Acquisition Completion Date. As at the Latest Practicable Date, the Sale Debt was amounted to approximately HK$280 million, which represents the face value of the shareholders’ loan contributed by the Vendor according to its shareholding interest in Loyal Way.

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

(a) an earnest monies of HK$10 million has been paid by the Purchaser in cash upon signing of the Letter of Intent on 28 March 2006 and has been treated as deposit for the Acquisition upon the entering into of the Acquisition Agreement;
(b) a deposit of HK$40 million has been paid by the Purchaser in cash within 3 Business Days after the entering into of the Acquisition Agreement;
(c) an interim deposit of HK$150 million shall be payable by the Purchaser in cash within 14 days after conditions (e) and (f) as stated in the paragraph headed “Conditions precedent” below are fulfilled;
(d) an interim deposit of HK$84 million shall be payable by the Purchaser in cash within 45 days after conditions (e) and (f) as stated in the paragraph headed “Conditions precedent” below are fulfilled;
(e) at the request of the Vendor, not more than HK$52 million shall be payable by the Purchaser on behalf of the Vendor from time to time from the date of the Acquisition Agreement and up to the Acquisition Completion Date as shareholders’ loan to finance the development of the Development Project; and
(f) a remaining sum of up to HK$64 million will be settled by the Purchaser by way of the issue of the Promissory Note by the Purchaser upon the Acquisition Completion Date.

The Promissory Note will bear interest of 8% per annum. The Purchaser is obliged to repay the principal amount of the Promissory Note, together with the interest accrued, to the Vendor within 24 months from the date of issue.

— 12 —

LETTER FROM THE BOARD

The Company proposed an Open Offer of 267,324,486 Offer Shares at HK$0.90 per Offer Share payable in full on application (in the proportion of 13 Offer Shares for every 40 Shares held) with 10 Bonus Warrants for every 13 Offer Shares taken up. As stated in the Company’s announcement dated 7 June 2006, circular dated 27 June 2006 and prospectus dated 13 July 2006 in relation to the Open Offer and the Bonus Warrants (the “Open Offer Documents”), the Company expects that a net proceeds of approximately HK$234.5 million and approximately HK$225 million will be received by the Company upon completion of the Open Offer and upon exercise of the subscription rights attaching to the Bonus Warrants in full respectively, which will be used to finance the Consideration. The completion of the Open Offer and the issue and allotment of the Offer Shares and the Bonus Warrants pursuant to the Open Offer is one of the conditions of the Acquisition as detailed below.

As referred to in the Open Offer Documents, Mr. YU Pan, the chairman and executive Director, has undertaken to take up 55,555,500 Offer Shares. As advised by the Directors, Mr. YU has further undertaken to exercise the subscription rights attaching to the 42,735,000 Bonus Warrants to be allocated to him in full. Therefore, subject to the Open Offer becoming unconditional, the Company will have guaranteed proceeds of approximately HK$281.5 million (representing the sum of the net proceeds from the Open Offer of approximately HK$234.5 million and the proceeds from the exercise of the subscription rights attaching to the 42,735,000 Bonus Warrants to be allocated to Mr. YU of approximately HK$47 million) from the Open Offer and the issue of the Bonus Warrants in connection with the Open Offer.

As at the Latest Practicable Date, a total of HK$50 million of the Consideration has been paid by the Purchaser as earnest monies and deposit pursuant to the Acquisition Agreement, leaving the remaining of not more than HK$350 million of the Consideration being outstanding (“Outstanding Consideration”). Therefore, assuming the subscription rights attaching to the Bonus Warrants are not exercised by Shareholders other than Mr. YU, the Outstanding Consideration will be satisfied by the following: (i) approximately HK$281.5 million by the guaranteed proceeds from the Open Offer and the issue of the Bonus Warrants as mentioned above; (ii) HK$64 million by the issue of the Promissory Note; and (iii) the remaining approximately HK$4.5 million by the internal resources of the Group.

Conditions precedent

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

(a) completion by the Purchaser of a due diligence review and investigation on Loyal Way, its subsidiaries and the PRC JV and the Purchaser being satisfied with the results thereof;
(b) the warranties, statements, guarantees and promises given by the Vendor in the Acquisition Agreement being true and correct and not misleading in any material respects;

— 13 —

LETTER FROM THE BOARD

(c) the obtaining of the formal land use rights certificate in respect of the Land by the PRC JV;
(d) the Purchaser being satisfied with the terms of the shareholders’ agreement to be entered into between BADL and the Purchaser on the Acquisition Completion Date;
(e) the completion of the Open Offer and the issue and allotment of the Offer Shares and the Bonus Warrants pursuant to the Open Offer;
(f) the passing of the necessary resolution(s) by the Shareholders at the SGM approving the Acquisition Agreement and the transactions contemplated therein;
(g) all necessary statutory, governmental and regulatory consents, authorizations or other approvals and requirements 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;
(h) the obtaining of a legal opinion issued by a PRC firm of lawyers in respect of, but not limited to, the benefits entitled by Zhoutouzui Development in the PRC JV and the sino-foreign cooperative joint venture agreement, the PRC JV, the Land, the reclamation work on the Land, the Development Project etc, in such form and substance to the satisfaction of the Purchaser; and
(i) the obtaining of a legal opinion issued by a BVI firm of lawyers in respect of, but not limited to, Loyal Way and its subsidiaries incorporated in the BVI, in such form and substance to the satisfaction of the Purchaser.

If any of the above conditions has not been fulfilled (or waived by the Purchaser) by 31 March 2007 or such later date as the parties may agree, or the conditions do not remain fulfilled on the Acquisition Completion Date (unless waived by the Purchaser), the Acquisition Agreement shall lapse and be terminated and the Vendor shall refund the entire amount of the consideration already paid by the Purchaser without any interest, within 7 days from the receipt of the written notice issued by the Purchaser.

Completion

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

— 14 —

LETTER FROM THE BOARD

REASONS FOR AND BENEFITS OF THE ACQUISITION

The Company is an investment holding company and its principal subsidiaries are engaged in investment holding, property development and the provision of property development management services. As stated in the Company’s annual report for the financial year ended 31 December 2005, subsequent to the change in the Group’s substantial Shareholders at the end of 2004, the Group sold all its non-profitable businesses and directed strategic focus on property development in the PRC, especially premium grade property projects in Guangzhou. The Company further stated that in the next couple of years the Company will concentrate on seizing the premier grade property market in Guangzhou, and in the long term the Group plans to explore more quality property projects with promising potential in the PRC so as to build an extensive premium grade property portfolio.

The Land is located at the metropolitan area of Guangzhou along the Pearl River where the Company considers as a prime site for the Development Project. Based on the current development plan, the Company believes that the Development Project is a quality property project which is in line with the Group’s business development direction and strategy. The proposed Acquisition allows the Group to further participate in the property development sector in Guangzhou which the Group believes has high growth potential. In light of the Company’s confidence and optimism in the prospects of the Guangzhou’s property market and its management expertise in property development business, the Directors believe that the proposed Acquisition represents a valuable opportunity for the Group to expand and strengthen its portfolio in property development business and believes that the Acquisition may offer attractive investment return to the Group in coming years.

Based on the above, the Directors consider that the terms of the Acquisition are fair and reasonable and the Acquisition is in the interests of the Shareholders and the Company as a whole.

GENERAL

The Acquisition constitutes a very substantial acquisition of the Company pursuant to Rule 14.06(5) of the Listing Rules and is therefore subject to, among other things, approval by Shareholders at the SGM to approve the Acquisition Agreement. As at the Latest Practicable Date, the Vendor does not have any interests in the Company. Should the Vendor has any Shares at the date of the SGM, the Vendor and his associates will abstain from voting on the resolution to approve the Acquisition at the SGM.

— 15 —

LETTER FROM THE BOARD

THE SGM

Set out on pages 138 to 139 of this circular is a notice convening the SGM to be held at the office of Strategic Public Relations Group Limited, Room 3203, Tower 1, Admiralty Centre, 18 Harcourt Road, Hong Kong on Friday, 18 August 2006, at 11:00 a.m. at which a resolution will be proposed to the Shareholders to consider and, if thought fit, approve the Acquisition Agreement and the transactions contemplated therein.

A form of proxy for use at the SGM is also enclosed with this circular. Whether or not you are able to attend the SGM, you are requested to complete the form of proxy in accordance with the instructions printed thereon and return the same to the Company’s branch share registrars in Hong Kong, Abacus Share Registrars Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not less 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.

PROCEDURES BY WHICH A POLL MAY BE DEMANDED

Pursuant to bye-law 66 of the Bye-laws of the Company, at any general meeting, a resolution put to the vote of the meeting shall be decided on a show of hands unless voting by way of a poll is required by the Listing Rules or (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 by:

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

— 16 —

LETTER FROM THE BOARD

(e) if required by the Listing Rules, by any Director or Directors who, individually or collectively, hold proxies in respect of Shares representing five per cent. (5%) or more of the total voting rights at such meeting in circumstances where, or a show of hands, a meeting votes in the opposite manner to that instructed in those proxies, provided that if it is apparent from the total proxies held that a vote taken on a poll shall not reverse the vote taken on a show of hands, then the Director or Directors shall not be required to demand a poll.

RECOMMENDATION

The Directors are of the view that the terms of the Acquisition Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of the ordinary resolution to be proposed at the SGM to approve the Acquisition Agreement and the transactions contemplated therein.

FURTHER INFORMATION

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

Yours faithfully For and on behalf of the Board Skyfame Realty (Holdings) Limited YU Pan Chairman

— 17 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

SUMMARY OF FINANCIAL INFORMATION OF THE GROUP

1. Financial Summary

A summary of the results, assets and liabilities of the Group for the three financial years ended 31 December 2005, as prepared by reference to the published audited financial statements for the three years ended 31 December 2005, is set out below.

Results
Turnover
— Continuing operations
— Discontinued operations
Loss before income tax
— Continuing operations
— Discontinued operations
Income tax expenses
— Continuing operations
— Discontinued operations
Loss for the year
— Continuing operations
— Discontinued operations
Attributable to
— Equity holders of the Company
— Minority interests
Financial Position
Total assets
Total liabilities
Total equity attributable to equity
holders of the Company

For the year ended 31 December
2005
2004
2003
HK$’000
HK$’000
HK$’000
(Restated)
(Restated)
4,757
—
—
457
9,709
672
5,214
9,709
672
(2,580)
(7,425)
—
(2,234)
(38,704)
(100,777)
(4,814)
(46,129)
(100,777)
(33)
—
—
—
(1,359)
(8)
(33)
(1,359)
(8)
(2,613)
(7,425)
—
(2,234)
(40,063)
(100,785)
(4,847)
(47,488)
(100,785)
(4,847)
(47,487)
(100,785)
—
(1)
—
(4,847)
(47,488)
(100,785)
At 31 December
2005
2004
2003
HK$’000
HK$’000
HK$’000
(Restated)
(Restated)
250,120
13,836
16,041
(57,786)
(5,802)
(14,241)
192,334
8,034
1,800

— 18 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. Audited Financial Statements for the Financial Year ended 31 December 2005

(a) Set out below is the auditors’ report extracted from the annual report of the Company for the financial year ended 31 December 2005. References to the page numbers are to page numbers of the annual report of the Company for the financial year ended 31 December 2005.

Report of the Auditors

==> picture [80 x 56] intentionally omitted <==

==> picture [121 x 52] intentionally omitted <==

To the members of Skyfame Realty (Holdings) Limited (formerly known as renren Holdings Limited)

(incorporated in Bermuda with limited liability)

We have audited the financial statements on pages 23 to 79 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, in accordance with Section 90 of the Companies Act 1981 of Bermuda, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

We were appointed auditors of the Company on 25 November 2005. The financial statements of the Company and its subsidiaries for the year ended 31 December 2004 were audited by another firm of auditors whose report dated 25 April 2005 was qualified in respect of limited evidence available to them to assess the recoverability of the promissory notes receivable with a net carrying amount of HK$5,322,000 (aggregate principal amount of HK$10,644,000 less provision for doubtful debts of HK$5,322,000) and the adequacy of the provision as at 31 December 2004.

— 19 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Basis of Opinion

We conducted our audit in accordance with Hong Kong Standards on Auditing 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 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 judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group’s and the Company’s circumstances, consistently applied and adequately disclosed.

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 as follows:

(1) Scope limitation — Audit scope limitation affecting opening balances

We were not able to obtain sufficient reliable evidence to enable us to assess the net carrying amounts of the promissory note receivable of HK$1,422,000 (principal amount of HK$2,844,000 less provision for doubtful debt of HK$1,422,000) and account receivable of HK$3,900,000 (gross amount of HK$7,800,000 less provision for doubtful debt of HK$3,900,000, now reclassified from the promissory notes receivable as detailed in note 22) brought forward as at 1 January 2005. Any adjustments found to be necessary in respect thereof had we been able to obtain sufficient reliable evidence would have a consequential effect on the carrying amounts of the promissory note receivable, the account receivable, and the accumulated losses of the Group as at 1 January 2005 and the Group’s results for the current year and the related disclosures thereof in the financial statements.

(2) Scope limitation — Impairment losses on the promissory note receivable and account receivable and gain on disposal of subsidiary

The promissory note receivable and account receivable referred to in point (1) above were recorded in the books of a wholly-owned subsidiary of the Company. During the year, further impairment losses on the promissory note receivable and account receivable totalling HK$4,682,000 have been provided before the disposal of said subsidiary from which a gain on disposal of HK$2,348,000 was generated. Our scope was limited due to the absence of sufficient and reliable evidence to enable us to assess whether the additional impairment losses provided by the Group in the current year is

— 20 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

appropriate and whether the recognition of the impairment losses of HK$4,682,000 and the gain on disposal of HK$2,348,000 included in the Group’s results for the year under the classification “discontinued operations” were fairly stated and properly classified. Any adjustments found to be necessary to the above amounts would affect the related disclosures thereof in the financial statements.

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 in respect of the promissory note receivable and account receivable referred to above, in our opinion, the financial statements give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2005 and of the Group’s loss and cash flows for the year then ended and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

BDO McCabe Lo Limited

Certified Public Accountants

Li Yin Fan Practising Certificate Number P03113

Hong Kong, 28 March 2006

— 21 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Set out below is the audited consolidated financial statements of the Group for the financial year ended 31 December 2005 together with the comparative figures for the financial year ended 31 December 2004 which were extracted from the annual report of the Company for the financial year ended 31 December 2005.

Consolidated Income Statement

For the year ended 31 December 2005

Notes Continuing operations: Turnover 4 Other income 6 Administration expenses Other operating expenses Loss from operations 7 Finance costs 9 Finance income 9 Loss before income tax Income tax expense 10 Loss for the year from continuing operations Discontinued operations: Loss for the year from discontinued operations 11 Loss for the year Attributable to: — Equity holders of the Company — Minority interests Dividends 13 Basic loss per share for loss attributable to equity holders of the Company 14 — from continuing operations — from discontinued operations — from continuing and discontinued operations	2005 HK$’000 4,757 117 (7,457) (17) (2,600) (220) 240 (2,580) (33) (2,613) (2,234) (4,847) (4,847) — (4,847) Nil (HK$0.025) (HK$0.022) (HK$0.047)	2004 HK$’000 (Restated) — 2 (7,081) (105) (7,184) (306) 65 (7,425) — (7,425) (40,063) (47,488) (47,487) (1) (47,488) Nil (HK$0.119) (HK$0.643) (HK$0.762)

— 22 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Balance Sheet

As at 31 December 2005

Notes Non-current assets Plant and equipment 17 Investment property 18 Goodwill 19 Interest in associate 20 Investment securities 21 Account receivable 22 Promissory note receivable 23 Current assets Other investments 21 Deposits, prepayments and other receivables 24 Cash and cash equivalents 25 Current liabilities Trade and other payables 26 Income tax payable Net current assets Total assets less current liabilities Non-current liabilities Convertible note 27 Deferred tax liabilities 28 Net assets Capital and reserves Share capital 29 Reserves/(deficit) 30 Total equity attributable to equity holders of the Company	2005 HK$’000 163 — — 165,807 — — — 165,970 ------------------- — 403 83,747 84,150 ------------------- 1,773 66 1,839 ------------------- 82,311 248,281 ------------------- 55,087 860 55,947 ------------------- 192,334 6,407 185,927 192,334	2004 HK$’000 (Restated) 213 300 8 — 900 3,900 1,422 6,743 ------------------- 435 6,311 347 7,093 ------------------- 4,443 1,359 5,802 ------------------- 1,291 8,034 ------------------- — — — ------------------- 8,034 68,474 (60,440) 8,034

— 23 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Balance Sheet

As at 31 December 2005

Notes Non-current assets Interests in subsidiaries 31 Current assets Deposits, prepayments and other receivables 24 Cash and cash equivalents 25 Current liabilities Trade and other payables 26 Net current assets/(liabilities) Non-current liabilities Convertible note 27 Deferred tax liabilities 28 Net assets/(liabilities) Capital and reserves Share capital 29 Reserves/(deficit) 30	2005 HK$’000 172,667 ------------------- 206 77,172 77,378 ------------------- 2,090 75,288 ------------------- 55,087 860 55,947 ------------------- 192,008 6,407 185,601 192,008	2004 HK$’000 (Restated) — ------------------- 2,578 306 2,884 ------------------- 9,912 (7,028) ------------------- — — — ------------------- (7,028) 68,474 (75,502) (7,028)

— 24 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statement of Changes in Equity

For the year ended 31 December 2005

2004 Notes At 1 January 2004 — As previously reported — Prior period adjustment 36 — As restated Expenses incurred on issue of shares and recognised directly in equity 30 Loss for the year Total recognised expenses for the year Issue of shares: — Conversion of convertible bonds and accrued interests 29, 30 — Rights issue 29 — Exercise of share options 29, 30 Capital contributions from minority shareholders At 31 December 2004, as restated	Attributable to equity holders of the Company Share Share Accumulated capital premium losses HK$’000 HK$’000 HK$’000 13,068 536,454 (545,562) — (2,160) — 13,068 534,294 (545,562) ------------ ------------ ------------ — (2,833) — — — (47,487) — (2,833) (47,487) ------------ ------------ ------------ 491 1,080 — 54,237 — — 678 68 — — — — 55,406 1,148 — ------------ ------------ ------------ 68,474 532,609 (593,049)	Minority interests HK$’000 — — — ------------ — (1) (1) ------------ — — — 1 1 ------------ —	Total HK$’000 3,960 (2,160) 1,800 ------------ (2,833) (47,488) (50,321) ------------ 1,571 54,237 746 1 56,555 ------------ 8,034

— 25 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Attributable to equity holders of the Company

2005 Notes At 1 January 2005 — As previously reported — Prior period adjustment 36 — As restated Expenses incurred on issue of shares 30 Exchange differences arising on consolidation of overseas subsidiary 30 Net (expenses)/income recognised directly in equity Loss for the year Total recognised (expenses)/income for the year Issue of shares — share placing 29, 30 Capital re-organisation: — Capital reduction 29, 30 — Cancellation of share premium 30 — Set-off against accumulated losses of the Company 30 Cancellation of paid-up ordinary share capital 29, 30 Issue of shares: — Acquisition of associate 29, 30 — Rights issue 29, 30 Recognition of equity component of convertible note 27, 30 Tax on equity component of convertible note 28, 30 At 31 December 2005	Share capital HK$’000 68,338 136 68,474 -------------- — — — — — -------------- 13,550 (81,204) — — — 667 4,920 — — (62,067) -------------- 6,407	Share premium HK$’000 534,185 (1,576 ) 532,609 -------------- (4,354 ) — (4,354 ) — (4,354 ) -------------- 8,130 — (542,404 ) — — 19,333 142,693 — — (372,248 ) -------------- 156,007	Contributed surplus reserve HK$’000 — — — -------------- — — — — — -------------- — 81,204 542,404 (608,111 ) — — — — — 15,497 -------------- 15,497	Convertible note equity reserve HK$’000 — — — -------------- — — — — — -------------- — — — — — — — 5,100 (893) 4,207 -------------- 4,207	(Accumulated Foreign losses)/ exchange retained reserve profits HK$’000 HK$’000 — (593,049) — — — (593,049) -------------- -------------- — — 1 — 1 — — (4,847) 1 (4,847) -------------- -------------- — — — — — — — 608,111 — — — — — — — — — — — 608,111 -------------- -------------- 1 10,215	Total HK$’000 9,474 (1,440 ) 8,034 -------------- (4,354 ) 1 (4,353 ) (4,847 ) (9,200 ) -------------- 21,680 — — — — 20,000 147,613 5,100 (893) 193,500 -------------- 192,334

— 26 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Cash Flow Statement

For the year ended 31 December 2005

Notes Net cash generated from/(used in) operating activities 34(a) Investing activities Interest received Dividend received from listed investment Acquisitions of subsidiary 34(b) Disposal of subsidiaries, net of cash disposed of 34(c) Purchase of other investments Proceeds from sale of other investments Acquisition of associate 34(d) Purchase of plant and equipment Net cash used in investing activities Financing activities Proceeds from issue of ordinary shares Proceeds from shares issued under share option scheme Expenses incurred on issue of shares Interest paid Proceeds from borrowings Repayments of borrowings Decrease in amount due to director Capital contributions from minority shareholders Net cash from financing activities Increase in cash and cash equivalents Effect of foreign exchange rate changes Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 25	2005 HK$’000 2,270 240 — — 2,300 — 949 (85,807) (183) (82,501) ------------------- 169,293 — (4,354) (33) 4,000 (4,000) (1,276) — 163,630 ------------------- 83,399 1 347 83,747	2004 HK$’000 (Restated) (17,523) 65 36 (4,000) 124 (53,634) 25,008 — (108) (32,509) ------------------- 54,237 746 (2,833) (365) 3,973 (5,223) (417) 1 50,119 ------------------- 87 — 260 347

— 27 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Financial Statements

31 December 2005

1. General

Skyfame Realty (Holdings) Limited (formerly known as renren Holdings Limited) (the “Company”) is incorporated in Bermuda as an exempted company with limited liability and its shares are listed on the Stock Exchange of Hong Kong Limited. As at 31 December 2005, the directors considered that the parent and ultimate holding company of the Company is Grand Cosmos Holdings Limited, which is incorporated in the British Virgin Islands (the “BVI”). The Company’s registered office and principal place of business situate at Clarendon House, 2 Church Street, Hamilton HM11, Bermuda and 2502B, Tower 1, Admiralty Centre, 18 Harcourt Road, Hong Kong respectively.

The Company and its subsidiaries are hereinafter collectively referred to as the “Group”. The principal activity of the Company continues to be investment holding. The principal activities of its subsidiaries are investment holding, property development and provision of property development project management services. During the year, the Group ceased its operations in general trading, securities and property investments and the provision of internet and telecommunication products and services.

The consolidated financial statements are presented in thousands of Hong Kong dollars, which is also the functional currency of the Company, unless otherwise stated.

2. Principal accounting policies

(a) Statement of compliance

The consolidated financial statements have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (“HKFRSs”), Hong Kong Accounting Standards (“HKASs”) and Interpretations (hereinafter collectively referred to as the “new HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”). In addition, the consolidated financial statements include applicable disclosures required by the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (the “Stock Exchange”).

(b) Basis of preparation

The consolidated financial statements have been prepared under the historical cost basis except for the investment property and certain financial instruments, which are measured at fair values or revalued amounts.

In the current year, the Group has applied, for the first time, a number of new HKFRSs issued by the HKICPA that are effective for accounting periods beginning on or after 1 January 2005. The application of the new HKFRSs has resulted in a change in the presentation of the consolidated income statement, consolidated balance sheet and consolidated statement of changes in equity. In particular, the presentation of minority interests has been changed. The changes in presentation have been applied retrospectively.

— 28 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The applicable HKFRSs are set out below and the 2004 consolidated financial statements have been restated in accordance with the relevant requirements, where applicable.

HKAS 1	Presentation of Financial Statements
HKAS 7	Cash Flow Statements
HKAS 8	Accounting Policies, Changes in Accounting Estimates and
	Errors
HKAS 10	Events after the Balance Sheet Date
HKAS 12	Income Taxes
HKAS 14	Segment Reporting
HKAS 16	Property, Plant and Equipment
HKAS 17	Leases
HKAS 18	Revenue
HKAS 19	Employee Benefits
HKAS 21	The Effects of Changes in Foreign Exchange Rates
HKAS 23	Borrowing Costs
HKAS 24	Related Party Disclosures
HKAS 27	Consolidated and Separate Financial Statements
HKAS 28	Investments in Associates
HKAS 32	Financial Instruments: Disclosure and Presentation
HKAS 33	Earnings Per Share
HKAS 36	Impairment of Assets
HKAS 37	Provisions, Contingent Liabilities and Contingent Assets
HKAS 38	Intangible Assets
HKAS 39	Financial Instruments: Recognition and Measurement
HKAS 40	Investment Property
HKFRS 2	Share-based Payment
HKFRS 3	Business Combinations
HKFRS 5	Non-current Assets Held for Sale and Discontinued Operations
HKAS-INT 15	Operating Leases — Incentives
HKAS-INT 21	Income Taxes — Recovery of Revalued Non-Depreciable
	Assets

The adoption of HKAS 1, 7, 8, 10, 12, 14, 16, 18, 19, 21, 23, 24, 27, 28, 33, 36, 37, 38 and HKAS-INT 15 and 21 did not result in substantial changes to the Group’s accounting policies. In summary:

HKAS 1 affects certain presentation in the consolidated income statement, consolidated balance sheet and consolidated statement of changes in equity.
HKAS 8, 16, 21 and 28 affect certain disclosures of the consolidated financial statements.
HKAS 7, 10, 12, 14, 18, 19, 23, 27, 33, 36, 37, 38 and HKAS-INT 15 and 21 do not have any impact as the Group’s accounting policies already comply with the standards.
HKAS 24 affects the identification of related parties and the disclosure of related party transactions.

— 29 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

HKFRS 2 “Share-based Payment”

In the current year, the Group has applied HKFRS 2 “Share-based Payment” which requires an expense to be recognised where the Group buys goods or obtains services in exchange for shares or rights over shares (“equity-settled transactions”), or in exchange for other assets equivalent in value to a given number of shares or rights over shares (“cash-settled transactions”). The principal impact of HKFRS 2 on the Group is in relation to the expensing of the fair value of directors’ and employees’ share options of the Company determined at the date of grant of the share options over the vesting period. Prior to the application of HKFRS 2, the Group did not recognise the financial effect of these share options until they were exercised. The Group has applied HKFRS 2 to share options granted on or after 1 January 2005. In relation to share options granted before 1 January 2005, the Group has taken advantage of the transitional provision set out in HKFRS 2, under which the new recognition and measurement policies have not been applied to the following grants of options:

(a) all options granted to directors and employees on or before 7 November 2002; and
(b) all options granted to directors and employees after 7 November 2002 but which had vested before 1 January 2005.

No adjustment to the opening balances as at 1 January 2004 is required as all options existed at that time were vested before 1 January 2005.

HKFRS 3 “Business Combinations”

Goodwill

In prior years, positive goodwill which arose on or after 1 January 2001 was amortised on a straight line basis over its useful life and was subject to impairment testing when there were indications of impairment.

In accordance with the relevant transitional provisions under HKFRS 3 and HKAS 36 “Impairment of Assets”, the Group has applied the new policy in respect of positive goodwill prospectively from 1 January 2005. Comparative figures for 2004 have not been restated. The cumulative amount of amortisation as at 1 January 2005 has been offset against the cost of goodwill. Positive goodwill is no longer amortised but is tested for impairment annually including the year of initial recognition, as well as when there are indications of impairment, at the cash generating unit level by applying a fair-value-based test in accordance with HKAS 36.

Excess of the Group’s interest in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities over cost (previously known as “negative goodwill”).

In accordance with HKFRS 3, any excess of the Group’s interest in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of acquisition (“discount on acquisition”) is recognised immediately in income statement in the period in which the acquisition takes place. In previous periods, negative goodwill arising on acquisitions prior to 1 January 2001 was held in reserves, and negative goodwill arising on acquisitions after 1 January 2001 was presented as a deduction from assets and released to income based on an analysis of the circumstances from which the balance resulted. The change in policy relating to negative goodwill had no effect on the financial statements as there was no negative goodwill deferred as at 31 December 2004.

— 30 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

HKFRS 5 “Non-current Assets Held for Sale and Discontinued Operations”

In the current year, the Group has adopted HKFRS 5 from 1 January 2005 prospectively in accordance with the standard’s provisions. The adoption of HKFRS 5 has resulted in a change in the accounting policy for non-current assets (or disposal groups) held for sale. The non-current asset (or disposal groups) held for sale were previously neither classified nor presented as current assets or liabilities. There was no difference in measurement for non-current assets (or disposal groups) held for sale or for continuing use. Non-current assets (or disposal groups) are classified as assets held for sale and stated at the lower of carrying amount and fair value less costs to sell if their carrying amount is recovered principally through a sale transaction rather than through a continuing use. The application of HKFRS 5 does not have any impact on the prior-year financial statements other than a change in the presentation of the results and cash flows of discontinued operations.

HKAS 17 “Leases” HKAS 40 “Investment Property”

The adoption of HKAS 17 has resulted in a change in accounting policy relating to leasehold land. In the current year, the Group has applied HKAS 17 “Leases”. Under HKAS 17, the land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification, unless the lease payments cannot be allocated reliably between the land and buildings elements, in which case, the entire lease is generally treated as a finance lease. The adoption of HKAS 17 had no effect on the financial statements for the current and prior periods.

In the current year, the Group has, for the first time, applied HKAS 40 “Investment Property”. At 1 January 2005, the property interest owned by the Group was held under an operating lease under HKAS 17. It also satisfied the classification of, and the Group has opted to account it for as, an investment property under HKAS 40. In accordance with the standards’ provisions, the property interest is accounted for as if it were a finance lease and fair value model is used for the asset recognised. Fair value model requires gains or losses arising from changes in the fair value of investment properties to be recognised directly in the profit or loss for the year in which they arise. In previous years, investment properties under the Statement of Standard Accounting Practice (“SSAP”) 13 “Accounting for Investment Properties” were measured at open market values, with revaluation surplus or deficits credited or charged to investment property revaluation reserve unless the balance on this reserve was insufficient to cover a revaluation decrease, in which case the excess of the revaluation decrease over the balance on the investment property revaluation reserve was charged to the income statement. Where a decrease had previously been charged to the income statement and revaluation subsequently arose, that increase was credited to the income statement to the extent of the decrease previously charged. The Group has applied the relevant transitional provisions in HKAS 40 and elected to apply HKAS 40 from 1 January 2005 onwards. No investment property revaluation reserve existed at 1 January 2005.

— 31 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

HKAS 32 “Financial Instruments: Disclosure and Presentation” HKAS 39 “Financial Instruments: Recognition and Measurement”

In the current year, the Group has applied HKAS 32 “Financial Instruments: Disclosure and Presentation” and HKAS 39 “Financial Instruments: Recognition and Measurement”. HKAS 32 requires retrospective application. HKAS 39, which is effective for accounting periods beginning on or after 1 January 2005, generally does not permit the recognition, derecognition or measurement of financial assets and liabilities on a retrospective basis. The principal effects resulting from the implementation of HKAS 32 and HKAS 39 are summarised below:

Convertible debt

The principal impact of HKAS 32 on the Group is in relation to convertible debts issued by the Group that contain both liability and equity components. Previously, convertible debts were classified as liabilities on the balance sheet. HKAS 32 requires an issuer of a compound financial instrument that contains both financial liability and equity components to separate the compound financial instrument into the liability and equity components on initial recognition and to account for these components separately. In subsequent periods, the liability component is carried at amortised cost using the effective interest method. Further details of the new policies are set out in note 2(i)(iii).

Classification and measurement of financial assets and financial liabilities

The Group has applied the relevant transitional provisions in HKAS 39 with respect to classification and measurement of financial assets and financial liabilities that are within the scope of HKAS 39.

Debt and equity securities previously accounted for under the benchmark treatment of SSAP 24

Prior to 1 January 2005, the Group classified and measured its debt and equity securities in accordance with the benchmark treatment of SSAP 24. Under SSAP 24, debt securities that the Group intends and has the ability to hold to maturity (“heldto-maturity securities”) are measured at amortised cost, less any impairment loss recognised to reflect irrecoverable amounts. The annual amortisation of a discount or premium arising from the acquisition of a held-to-maturity security is aggregated with other investment income receivable over the term of the instrument so that the revenue recognised in each period represents a constant yield on the investment. Investments other than held-to-maturity securities are classified as investment securities or other investments. Securities which are held for an identified long-term purpose, are classified as investment securities. They are measured at subsequent reporting dates at cost, less any impairment loss that is other than temporary. Securities not classified as investment securities are classified as other investments. Other investments are measured at fair value at subsequent reporting dates, with unrealised gains and losses included in net profit or loss for the year.

From 1 January 2005 onwards, the Group classifies and measures its debt and equity securities in accordance with HKAS 39. Under HKAS 39, financial assets are classified as “financial assets at fair value through profit or loss”, “available-forsale financial assets”, “loans and receivables”, or “held-to-maturity financial assets”. “Financial assets at fair value through profit or loss” that are not part of a hedging relationship and “available-for-sale financial assets” are carried at fair value, with

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

changes in fair values recognised in profit or loss and equity respectively. “Loans and receivables” and “held-to-maturity financial assets” are measured at amortised cost using the effective interest method after initial recognition.

On 1 January 2005, the Group classified and measured its debt and equity securities in accordance with the transitional provisions of HKAS 39. The adoption of HKAS 39 had no effect on the financial statements as at 1 January 2005.

Financial assets and financial liabilities other than debt and equity securities

From 1 January 2005 onwards, the Group classifies and measures its financial assets and financial liabilities other than debt and equity securities (which were previously outside the scope of SSAP 24) in accordance with the requirements of HKAS 39. As mentioned above, financial assets under HKAS 39 are classified as “financial assets at fair value through profit or loss”, “available-for-sale financial assets”, “loans and receivables” or “held-to-maturity financial assets”. Financial liabilities are generally classified as “financial liabilities at fair value through profit or loss” or “financial liabilities other than financial liabilities at fair value through profit or loss (other financial liabilities)”. “Other financial liabilities” are carried at amortised cost using the effective interest method.

Derecognition

Under HKAS 39, a financial asset is derecognised, when and only when, either the contractual rights to the asset’s cash flows expire, or the asset is transferred and the transfer qualifies for derecognition in accordance with HKAS 39. The decision as to whether a transfer qualifies for derecognition is made by applying a combination of risks and rewards and control tests. The Group has applied the relevant transitional provisions and applied the revised accounting policy prospectively for transfers of financial assets on or after 1 January 2005. Further details of the new policies are set out in note 2 (i)(iv).

(c)

Basis of consolidation

Where the Company has the power, either directly or indirectly, to govern the financial and operating policies of another entity or business so as to obtain benefits from its activities, it is classified as a subsidiary. The consolidated financial statements present the results of the Group as if they formed a single entity. Inter-company transactions and balances between group companies are therefore eliminated in full.

On acquisition, the assets and liabilities of the relevant subsidiaries are measured at their fair values at the date of acquisition. The interest of minority shareholders is stated at the minority’s proportion of the fair values of the assets and liabilities recognised.

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

The Company’s interests in subsidiaries are stated at cost less impairment loss, if any. All significant inter-company transactions and balances among group companies are eliminated on consolidation.

Minority interests represent the interests of outside shareholders in the operating results and net assets of subsidiaries.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(d) Cash and cash equivalents

Cash includes cash on hand and demand deposits with any bank or other financial institutions. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash which are subject to an insignificant risk of changes in value.

(e) Goodwill

Goodwill represents the excess of the cost of a business combination over the interest in the fair value of identifiable assets, liabilities and contingent liabilities acquired. Cost comprises the fair values of assets given, liabilities assumed and equity instruments issued, plus any direct costs of acquisition.

Goodwill is capitalised as an intangible asset with any impairment in carrying value being charged to the income statement.

Where the fair value of identifiable assets, liabilities and contingent liabilities exceed the fair value of consideration paid, the excess is credited in full to the income statement.

(f) Impairment of non-financial assets

Impairment test on goodwill is undertaken annually. Other non-financial assets are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of an asset exceeds its recoverable amount (i.e. the higher of value in use and fair value less costs to sell), the asset is written down accordingly.

Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the asset’s cash-generating unit (i.e. the lowest group of assets in which the asset belongs for which there are separately identifiable cash flows). Goodwill is allocated on initial recognition to each of the Group’s cash-generating units that are expected to benefit from the synergies of the combination giving rise to the goodwill.

Impairment charges are included in the administrative expenses line item in the income statement, except to the extent they reverse gains previously recognised in the statement of recognised income and expense.

(g) Associates

Where the Group has the power to participate in (but not control) the financial and operating policy decisions of another entity, it is classified as an associate. Associates are initially recognised in the consolidated balance sheet at cost. The Group’s share of post-acquisition profits and losses is recognised in the consolidated income statement, except that losses in excess of the Group’s investment in the associate are not recognised unless there is an obligation to make good those losses.

Profits and losses arising on transactions between the Group and its associates are recognised only to the extent of unrelated investors’ interests in the associate. The investor’s share in the associate’s profits and losses resulting from these transactions is eliminated against the carrying value of the associate.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Any premium paid for an associate above the fair value of the Group’s share of the identifiable assets, liabilities and contingent liabilities acquired is capitalised and included in the carrying amount of the associate and subject to impairment in the same way as goodwill arising on a business combination described above.

(h)

Foreign currency

Transactions entered into by Group entities in a currency other than the currency of the primary economic environment in which it operates (the “functional currency”) are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the balance sheet date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are similarly recognised immediately in the income statement, except for foreign currency borrowings qualifying as a hedge of a net investment in a foreign operation.

On consolidation, the results of overseas operations are translated into Hong Kong dollars at rates approximating to those ruling when the transactions took place. All assets and liabilities of overseas operations, including goodwill arising on the acquisition of those operations, are translated at the rate ruling at the balance sheet date. Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at actual rate are recognised directly in equity (the “foreign exchange reserve”). Exchange differences recognised in the income statement of group entities’ separate financial statements on the translation of long-term monetary items forming part of the Group’s net investment in the overseas operation concerned are reclassified to the foreign exchange reserve if the item is denominated in the functional currency of the Group or the overseas operation concerned.

On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign exchange reserve relating to that operation up to the date of disposal are transferred to the income statement as part of the profit or loss on disposal.

(i)

Financial instruments

(i) Financial assets

The Group classifies its financial assets into one of the following categories, depending on the purpose for which the asset was acquired. Other than financial assets in a qualifying hedging relationship (see below), the Group’s accounting policy for each category is as follows:

Fair value through profit or loss: This category comprises the financial assets that have been acquired for the purpose of selling or repurchasing it in the short-term or if so designated by management. This category includes derivatives which are not qualified for hedge accounting. Debt securities and bank deposits with embedded derivatives for yield enhancement whose economic characteristics and risks are not closely related to the host securities and deposits are designated as financial assets at fair value through profit or loss. They are carried in the balance sheet at fair value with changes in fair value recognised in the income statement.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Loans and receivables: These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (trade debtors), but also incorporate other types of contractual monetary asset. At each balance sheet date subsequent to initial recognition, they are carried at amortised cost using the effective interest rate method, less any identified impairment losses.

Held-to-maturity investments: These assets are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s management has the positive intention and ability to hold to maturity. At each balance sheet date subsequent to initial recognition, held-to-maturity investment are measured at amortised cost using effective interest rate method, less any identified impairment losses.

Available-for-sale: Non-derivative financial assets not included in the above categories are classified as available-for-sale and comprise the Group’s strategic investments in entities not qualifying as subsidiaries, associates or jointly controlled entities. They are carried at fair value with changes in fair value recognised directly in equity. Where a decline in the fair value of an available-for-sale financial asset constitutes objective evidence of impairment, the amount of the loss is removed from equity and recognised in the income statement.

(ii) Financial liabilities

The Group classifies its financial liabilities into one of two categories, depending on the purpose for which the liability was incurred. Other than financial liabilities in a qualifying hedging relationship (see below), the Group’s accounting policy for each category is as follows:

Fair value through profit or loss: This category comprises only out-of-themoney derivatives. They are carried in the balance sheet at fair value with changes in fair value recognised in the income statement.

Other financial liabilities: Other financial liabilities include the following items:

Trade payables and other short-term monetary liabilities, which are recognised at amortised cost.
Bank borrowings, certain preference shares and the debt element of convertible debt issued by the Group are initially recognised at the amount advanced net of any transaction costs directly attributable to the issue of the instrument. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the balance sheet. “Interest expense” in this context includes initial transaction costs and premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(iii) Convertible debt

The proceeds received on issue of the Group’s convertible debt are allocated into their liability and equity components. The amount initially attributed to the debt component equals the discounted cash flows using a market rate of interest that would be payable on a similar debt instrument that did not include an option to convert. Subsequently, the debt component is accounted for as a financial liability measured at amortised cost.

The difference between the net proceeds of the convertible debt and the amount allocated to the debt component is credited direct to equity and is not subsequently remeasured. On conversion, the debt and equity elements are credited to share capital and share premium as appropriate.

(iv) Derecognition

The Group derecognises a financial asset where the contractual rights to the future cash flows in relation to the investment expire or where the financial asset has been transferred and the transfer meets the criteria for derecognition in accordance with HKAS 39.

(j) Employee benefits

(i) Defined contribution pension plan

Obligations for contributions to defined contribution retirement plan are recognised as an expense in the income statement as incurred.

(ii) Employee entitlements

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

Employee entitlements to sick leave and maternity leave are not recognised until the time of leave.

(k) Share-based payments

Where share options are awarded to employees, the fair value of the options at the date of grant is charged to the income statement over the vesting period. Nonmarket vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each balance sheet date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored into the fair value of the options granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition.

Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to the income statement over the remaining vesting period.

Where equity instruments are granted to persons other than employees, the income statement is charged with the fair value of goods and services received.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(l) Leased assets

Where substantially all of the risks and rewards incidental to ownership of a leased asset have been transferred to the Group (a “finance lease”), the asset is treated as if it had been purchased outright. The amount initially recognised as an asset is the present value of the minimum lease payments payable over the term of the lease. The corresponding lease commitment is shown as a liability. Lease payments are analysed between capital and interest. The interest element is charged to the income statement over the period of the lease and is calculated so that it represents a constant proportion of the lease liability. The capital element reduces the balance owed to the lessor.

Where substantially all of the risks and rewards incidental to ownership are retained by the lessor (an “operating lease”), the total rentals payable under the lease are charged to the income statement on a straight-line basis over the lease term.

(m) Investment properties

Investment properties are properties held for long-term rental yields or for capital appreciation and not occupied by the Group. Investment properties are carried at fair value, representing open-market value determined annually by independent qualified valuers. Changes in fair value are recognised in the income statement.

(n) Plant and equipment

Plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.

Plant and equipment are depreciated at rates sufficient to write off their cost net of expected residual value over their estimated useful lives on a straight-line basis. The useful lives and residual value are reviewed, and adjusted if appropriate, at each balance sheet date. The principal annual rates are as follows:

Computer equipment and software	20% — 50%
Furniture and fixtures	20%
Motor vehicles	25%
Leasehold improvements	over the remaining lives of the lease

(o) Non-current assets held for sale and disposal groups

Non-current assets and disposal groups are classified as held for sale when:

they are available for immediate sale;
management is committed to a plan to sell;
it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn;
an active programme to locate a buyer has been initiated;
the asset or disposal group is being marketed at a reasonable price in relation to its fair value; and
a sale is expected to complete within 12 months from the date of classification.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Following their classification as held for sale, non-current assets (including those in a disposal group) are not depreciated.

The results of operations disposed of during the year are included in the consolidated income statement up to the date of disposal.

(p) Revenue recognition

Revenue from goods sold is recognised when title of goods sold has passed to the purchaser, which is at the time of delivery.

Property development project management and web design and development service fee income are recognised when services are provided.

Rental income is recognised on a straight-line basis over the term of the relevant lease.

Interest income is accrued on a time basis on the principal outstanding at the applicable interest rate.

Dividend income is recognised when the right to receive the dividend is established.

(q) Income taxes

Income taxes for the year 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 balance sheet date.

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 balance sheet date.

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.

(r) Provisions and contingent liabilities

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

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 nonoccurrence of one or more future events, are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

(s)

Borrowing costs

Borrowing costs are expensed in the income statement in the period in which they are incurred, except to the extent that they are capitalised as being directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to get ready for its intended use or sale.

The capitalisation of borrowing costs as part of the cost of a qualifying asset commences when expenditure for the asset is being incurred, borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalisation of borrowing costs is suspended or ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are interrupted or complete.

(t)

Discontinued operations

A discontinued operation is a component of the Group’s business, the operations and cash flows of which can be clearly distinguished from the rest of the Group and which represents a separate major line of business or geographical area of operations, or is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations, or is a subsidiary acquired exclusively with a view to resell.

Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. It also occurs when the operation is abandoned.

Where an operation is classified as discontinued, a single amount is presented on the face of the income statement, which comprises:

the post-tax profit or loss of the discontinued operation; and
the post-tax gain or loss recognised on the measurement to fair value less costs to sell, or on the disposal, of the assets or disposal group(s) constituting the discontinued operation.

(u) Segment reporting

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

In accordance with the Group’s internal financial reporting system, the Group has chosen business segment information as the primary reporting format and geographical segment information as the secondary reporting format for the purposes of these financial statements.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Segment revenue, expenses, results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis to that segment. Segment revenue, expenses, assets and liabilities are determined before intra-group balances and intra-group transactions are eliminated as part of the consolidated process, except to the extent that such intra-group balances and transactions are between Group entities within a single segment.

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

3. Potential impact arising on the new accounting standards not yet effective

The Group has not yet applied the following new HKFRSs that have been issued but are not yet effective.

Effective for accounting periods beginning on or after

HKAS 1 Amendment	Capital Disclosures	1 January 2007
HKAS 19 Amendment	Employee Benefits — Actuarial Gains	1 January 2006
	and Losses, Group Plans and
	Disclosures
HKAS 21 Amendment	The Effects of Changes in Foreign Exchange	1 January 2006
	Rates — Net Investment in a Foreign
	Operation
HKAS 39 Amendment	Cash Flow Hedge Accounting of Forecast	1 January 2006
	Intragroup Transactions
HKAS 39 Amendment	The Fair Value Option	1 January 2006
HKAS 39 & HKFRS 4	Financial Instruments: Recognition and	1 January 2006
Amendments	Measurement and Insurance Contracts
	— Financial Guarantee Contracts
HKFRSs 1 & 6	First-time Adoption of Hong Kong Financial	1 January 2006
Amendments	Reporting Standards and Exploration for
	and Evaluation of Mineral Resources
HKFRS 6	Exploration for and Evaluation of Mineral	1 January 2006
	Resources
HKFRS 7	Financial Instruments: Disclosures	1 January 2007
HKFRS-INT 4	Determining whether an Arrangement	1 January 2006
	contains a Lease
HKFRS-INT 5	Rights to Interests arising from	1 January 2006
	Decommissioning, Restoration and
	Environmental Rehabilitation Funds
HK(IFRIC)-INT 6	Liabilities arising from Participating in	1 December 2005
	a Specific Market — Waste Electrical and
	Electronic Equipment
HK(IFRIC)-INT 7	Applying the Restatement Approach under	1 March 2006
	HKAS 29 Financial Reporting in
	Hyperinflationary Economies

The Group has already commenced an assessment of the impact of these new HKFRSs but is not yet in a position to state whether they would have a significant impact on its results of operations and financial position.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. Turnover

Turnover represents the net invoiced value of goods sold, property development project management fee, web design and development service fee, financial advisory service fee and rental income earned by the Group. The amounts of each significant category of revenue recognised in turnover during the year are as follows:

Continuing operations Property development project management fee Discontinued operations_(note 11(b))_ Rental income Sales of goods Financial advisory service fee Web design and development service fee	2005 HK$’000 4,757 -------------- 7 — — 450 457 -------------- 5,214	2004 HK$’000 — -------------- 16 1,593 7,800 300

		9,709 --------------
		9,709

5. Segment information

Segment information is presented by way of two-segment format:

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

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 different from those of other business segments. A summary of the business segments is as follows:

Continuing operations

(a) Property development segment refers to the development and sale of properties (Note: this segment did not generate any revenue and results in year 2005) ; and
(b) Project management segment refers to the provision of advisory and management services rendered for property development projects;

Discontinued operations

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

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

Business segments

Continuing operations	Continuing operations	Discontinued operations	Discontinued operations	Discontinued operations	Discontinued operations	Discontinued operations	Discontinued operations			Consolidated 2005 2004 HK$’000 HK$’000 5,214 9,709 ) (1,212 ) (46,720 ) (6,612 ) (2,781 ) ) (7,824 ) (49,501 ) ) (220 ) (396 ) 240 65 ) (7,804 ) (49,832 ) ) (33 ) (1,359 ) 2,990 3,703 ) (4,847 ) (47,488 ) Consolidated 2005 2004 HK$’000 HK$’000 (Restated) 165,807 — 6,498 11,256 77,815 2,580 250,120 13,836 170 2,069 57,616 3,733 57,786 5,802
Project management 2005 2004 HK$’000 HK$’000 4,757 —		Online and Trading and telecommunication financial advisory 2005 2004 2005 2004 HK$’000 HK$’000 HK$’000 HK$’000 450 300 — 9,393				Investment holding 2005 2004 HK$’000 HK$’000 7 16		Total 2005 2004 HK$’000 HK$’000 457 9,709

4,190 (6,790	— ) (7,184	130	(5,757	) (3,998	) 856	(1,534	) (41,819	) (5,402 178	) (46,720 4,403	) (1,212 (6,612

		) ) ) ) ) Project management 2005 2004 HK$’000 HK$’000 — — 6,498 —		Online and telecommunication 2005 2004 HK$’000 HK$’000 — — — 1,800
(2,600 (220 240	) (7,184 ) (306 65							(5,224 — —	) (42,317 (90 —	) (7,824 ) (220 240
(2,580 (33 —	) (7,425 ) — —							(5,224 — 2,990	) (42,407 (1,359 3,703	) (7,804 ) (33 2,990
(2,613	) (7,425							(2,234	) (40,063	) (4,847

Property development 2005 2004 HK$’000 HK$’000 165,807 — — —

—	—	170	—	—	56	—	2,013	—	—
										250,120

										170 57,616


										57,786

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Continuing operations Project management Unallocated Total 2005 2004 2005 2004 2005 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Other segment information Capital expenditure 86 — 97 — 183 — Bad debts written off — — — 95 — 95 Provision for doubtful debts — — — — — — Impairment losses on promissory note receivable and account receivable — — — — — — Impairment loss on investment securities — — — — — — Impairment of goodwill — — — — — — Fair value losses (including loss on disposal) on financial assets at fair value through profit or loss — — — — — — Net realised and unrealised losses on other investments — — — — — — Depreciation and amortization — — 78 70 78 70	Continuing operations	Discontinued operations Online and Trading and telecommunication financial advisory Investment holding Total Consolidated 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 — — — 580 — — — 580 183 580 — — — — — 6,034 — 6,034 — 6,129 — — — 3,900 — 2,142 — 6,042 — 6,042 — — 3,431 — 1,251 — 4,682 — 4,682 — — — — — — 14,333 — 14,333 — 14,333 — 2,921 — — — — — 2,921 — 2,921 — — — — 267 — 267 — 267 — — — — — — 15,991 — 15,991 — 15,991 — 1,078 43 80 — 1,614 43 2,772 121 2,842

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Geographical segments

Revenue from external customers Segment assets Capital expenditure 6. Other income Commission income Dividend income from listed investment Net realised gains on investment securities Write-back of trade and other payables Others	Hong Kong 2005 2004 HK$’000 HK$’000 1,507 9,409 79,154 13,836 97 580 Continuing operations 2005 2004 HK$’000 HK$’000 — 2 — — — — 117 — — — 117 2	Elsewhere in the People’s Republic of China (the “PRC”) 2005 2004 HK$’000 HK$’000 3,707 300 170,966 — 86 — Discontinued operations (note 11(b)) 2005 2004 HK$’000 HK$’000 — 58 — 36 — 3,192 20 634 158 483 178 4,403	Consolidated 2005 2004 HK$’000 HK$’000 5,214 9,709 250,120 13,836 183 580 Consolidated 2005 2004 HK$’000 HK$’000 — 60 — 36 — 3,192 137 634 158 483 295 4,405	Consolidated 2005 2004 HK$’000 HK$’000 5,214 9,709 250,120 13,836 183 580 Consolidated 2005 2004 HK$’000 HK$’000 — 60 — 36 — 3,192 137 634 158 483 295 4,405
				4,405

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

7. Loss from operations

Loss from operations is stated after charging:

	Continuing	Continuing	Discontinued	Discontinued
	operations		operations			Consolidated
			(note	11(b))
	2005	2004	2005	2004		2005	2004
	HK$’000	HK$’000	HK$’000	HK$’000		HK$’000	HK$’000
Amortisation of goodwill	—	—	—	2,692		—	2,692
Auditors’ remuneration:
— current year	452	320	—		—	452	320
— under-provision
for prior years	120	—	—		—	120	—
Bad debts written off	—	95	—	6,034		—	6,129
Deposits written off	—	—	—		400	—	400
Impairment losses on
promissory note
receivable and
account receivable	—	—	4,682		—	4,682	—
Provision for doubtful debts	—	—	—	6,042		—	6,042
Cost of inventories sold and
services provided	—	—	280	1,617		280	1,617
Decrease in fair value of
investment property	—	—	—		643	—	643
Depreciation	78	70	43		80	121	150
Impairment loss on
investment securities	—	—	—	14,333		—	14,333
Impairment of goodwill	—	—	—	2,921		—	2,921
Loss on disposal of plant
and equipment	—	—	—		27	—	27
Minimum lease payments
under operating lease
in respect of land
and buildings	80	282	—		—	80	282
Preliminary expenses	—	26	—		—	—	26
Fair value losses (including
loss on disposal) on
financial assets at fair
value through profit
or loss	—	—	267		—	267	—
Net realised and unrealised
losses on other
investments	—	—	—	15,991		—	15,991

— 46 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

8. Staff costs

Staff costs (including directors) comprise: Basic salaries and other benefits Bonuses Retirement scheme contributions	2005 HK$’000 3,388 436 70 3,894	2004 HK$’000 5,555 — 35
		5,590

9. Finance costs and income

Continuing operations 2005 2004 HK$’000 HK$’000 Finance costs: Interest on convertible note wholly repayable within five years_(note 27)_ 187 — Interest on convertible bonds wholly repayable within five years — 31 Interest on short-term loan from a director 13 — Interest on other borrowings 20 275 220 306 Finance income: Bank interest income 240 65	Discontinued operations (note 11(b)) 2005 2004 HK$’000 HK$’000 — — — — — — — 90 — 90 — —	Consolidated 2005 2004 HK$’000 HK$’000 187 — — 31 13 — 20 365 220 396 240 65	Consolidated 2005 2004 HK$’000 HK$’000 187 — — 31 13 — 20 365 220 396 240 65
			396

			65

— 47 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

10. Income tax expense

Provision for current tax for the year: — Hong Kong profits tax — outside Hong Kong Deferred tax_(note 28)_ Total income tax expense	Continuing operations 2005 2004 HK$’000 HK$’000 62 — 4 — (33) — 33 —	Discontinued operations (note 11(b)) 2005 2004 HK$’000 HK$’000 — 1,359 — — — — — 1,359	Consolidated 2005 2004 HK$’000 HK$’000 62 1,359 4 — (33) — 33 1,359	Consolidated 2005 2004 HK$’000 HK$’000 62 1,359 4 — (33) — 33 1,359
				1,359

Hong Kong profits tax is calculated at 17.5% (2004: 17.5%) on the estimated assessable profits for the year.

Taxation for the Group’s operations outside Hong Kong is provided at the applicable current rates of taxation on the estimated assessable profits in the relevant jurisdiction during the year.

The income tax expense for the year can be reconciled to the loss per the consolidated income statement as follows:

Loss before income tax from_(note 34(a))_: Continuing operations Discontinued operations Tax calculated at the domestic tax rate of 17.5% (2004: 17.5%) Effect of different tax rates of subsidiaries operating in other jurisdictions Tax effect of expenses not deductible for tax purposes Tax effect of revenue not subject to tax Tax effect of tax losses not recognised Tax effect of utilisation of tax losses not previously recognised Tax effect of utilisation of taxable temporary difference not previously recognised Others Income tax expense	2005 HK$’000 (2,580) (2,234) (4,814) (843) 2 1,111 (598) 371 — — (10) 33	2004 HK$’000 (7,425 (38,704
		(46,129

		(8,073 — 5,919 (654 4,164 (5 8 —
		1,359

— 48 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

11. Discontinued operations

During the year, the Group entered into sale and purchase agreements to dispose of certain of its subsidiaries which carried out businesses in online and telecommunication services, general trading, financial advisory services and securities and property investment activities. The disposal was effected in order to streamline the operations of the Group and to focus on its core businesses in property development and provision of property development project management services.

(a) The loss for the year from the discontinued operations is analysed as follows:

Note Loss of discontinued operations for the year Gain on disposal of subsidiaries 34(c)	2005 HK$’000 (5,224) 2,990 (2,234)	2004 HK$’000 (43,766) 3,703 (40,063)

(b) An analysis of the results of the discontinued operations, which have been included in the consolidated income statement, is as follows:

Notes Turnover 4 Cost of sales and services provided Gross profit Other income 6 Administration expenses Other operating expenses Loss from operations 7 Finance costs 9 Loss before income tax Income tax expense 10 Loss for the year	2005 HK$’000 457 (280) 177 178 (630) (4,949) (5,224) — (5,224) — (5,224)	2004 HK$’000 9,709 (1,617) 8,092 4,403 (5,649) (49,163) (42,317) (90) (42,407) (1,359) (43,766)

(c) No tax charge or credit arose from gain on disposal of subsidiaries.
(d) During the year, the cash flows from discontinued operations are as follows:

Net cash from/(used in) operating activities Net cash from/(used in) investing activities Net cash used in financing activities Increase/(decrease) in cash and cash equivalents	2005 HK$’000 3,614 2,349 — 5,963	2004 HK$’000 (10,263) (32,574) (90) (42,927)

— 49 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

12. Profit/(loss) attributable to equity holders of the company

The profit attributable to equity holders of the Company is dealt with in the financial statements of the Company to the extent of HK$9,890,000 (2004: Loss of HK$208,563,000).

13. Dividends

The directors do not recommend payment of any dividend for the year ended 31 December 2005 (2004: Nil).

14. Loss per share

Basic loss per share

From continuing and discontinued operations

The calculation of basic loss per share is based on the loss attributable to ordinary equity holders of the Company of HK$4,847,000 (2004: HK$47,487,000), and the weighted average of 102,746,254 (2004: 62,313,118) ordinary shares in issue during the year, as adjusted to reflect the effect of share consolidation and rights issue during the year.

From continuing operations

The calculation of basic loss per share from continuing operations attributable to ordinary equity holders of the Company is based on the loss of HK$2,613,000 (2004: HK$7,425,000), and the same weighted average number of ordinary shares mentioned above.

From discontinued operations

The calculation of basic loss per share from discontinued operations attributable to ordinary equity holders of the Company is based on the loss of HK$2,234,000 (2004: HK$40,062,000), and the same weighted average number of ordinary shares mentioned above.

Diluted loss per share

No diluted loss per share is presented for the years ended 31 December 2005 and 2004 as the Company’s outstanding convertible note has an anti-dilutive effect.

— 50 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

15. Directors’ emoluments

The aggregate amounts of the directors’ emoluments, disclosed pursuant to Section 161 of the Hong Kong Companies Ordinance, are as follows:

Notes 2004 Executive directors Mak Chi Yeung Cheng Wai Keung Kong Lung Cheung Independent non-executive directors Lo Chi Man, Joseph Wong Kwong Lung, Terence Yip Tai Him 2005 Executive directors Yu Pan Mai Zhi Hui Lau Yat Tung, Derrick (ii) Wong Lok (iii) Independent non-executive directors Choy Shu Kwan Cheng Wing Keung, Raymond Chung Lai Fong Wong Kwong Lung, Terence (iv)	Fees HK$’000 — — — 229 109 30 368 — — — — 100 100 100 — 300	Salaries and other benefits (note (i)) HK$’000 2,586 1,616 102 — — — 4,304 1,200 100 235 82 — — — — 1,617	Compensation Retirement for loss scheme Bonuses of office contributions HK$’000 HK$’000 HK$’000 — — 12 — — — — — — — — — — — — — — — — — 12 200 — 12 19 — — 50 — 8 27 — 4 8 — — 8 — — 8 — — — 50 — 320 50 24	Total HK$’000 2,598 1,616 102 229 109 30
				4,684

				1,412 119 293 113 108 108 108 50
				2,311

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

— 51 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes:

(i) Salaries and other benefits included basic salaries, housing, other allowances and benefits in kind.
(ii) Appointed on 6 May 2005.
(iii) Appointed on 29 August 2005.
(iv) Save as to the payment to Mr. Wong Kwong Lung, Terence, a former director of the Company, during the current and prior years, no other emoluments were paid by the Group to any of the directors or former directors as an inducement to join the Group or upon joining the Group or as compensation for loss of office.

16. Five highest paid individuals

The five highest paid individuals during the year included two (2004: four) directors, details of whose emoluments are set out in note 15 above. Details of the emoluments of the remaining three (2004: one) individuals are as follows:

Basic salaries and other benefits Bonuses Retirement scheme contributions	2005 HK$’000 1,071 107 23 1,201	2004 HK$’000 145 — 6
		151

The number of highest paid individuals in 2005 and 2004 whose emoluments fall within the band set out below is as follows:

	No of	employees
	2005	2004
Nil to HK$1,000,000	3	1

— 52 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

17. Plant and equipment

Group

Computer
equipment
and software
HK$’000
Cost
At 1 January 2004
21,127
Additions
83
Disposals
(7)
At 1 January 2005
21,203
Additions
121
Disposal of subsidiaries
(21,203)
At 31 December 2005
121
-------------
Accumulated depreciation
At 1 January 2004
21,127
Charge for the year
32
At 1 January 2005
21,159
Charge for the year
35
Eliminated on disposal
of subsidiaries
(21,178)
At 31 December 2005
16
-------------
Net book value
At 31 December 2005
105
At 31 December 2004
44
18.
Investment property
At beginning of year, at valuation
Disposal of subsidiary
Change in fair value
At end of year, at valuation

Furniture
and
Leasehold
Motor
fixtures improvements
vehicles
Total
HK$’000
HK$’000
HK$’000
HK$’000
249
—
280
21,656
5
20
—
108
—
(20)
—
(27)
254
—
280
21,737
62
—
—
183
(254)
—
(280)
(21,737)
62
—
—
183
-------------
-------------
-------------
-------------
177
—
70
21,374
48
—
70
150
225
—
140
21,524
28
—
58
121
(249)
—
(198)
(21,625)
4
—
—
20
-------------
-------------
-------------
-------------
58
—
—
163
29
—
140
213
Group
2005
2004
HK$’000
HK$’000
300
943
(300)
—
—
(643)
—
300

At 31 December 2004, the property was situated in Hong Kong and was held under a medium-term lease. This property interest held under operating lease to earn rentals was measured using the fair value model and was classified and accounted for as an investment property under finance lease. The property was leased out under operating lease.

Gross rental income from leasing the investment property amounted to HK$7,000 for the year ended 31 December 2005 (2004: HK$16,000).

— 53 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

19. Goodwill

Cost At beginning of year Opening balance adjustment to eliminate accumulated amortisation At beginning of year, as adjusted Acquired through business combinations Eliminated on disposal of subsidiaries At end of year Amortisation and impairment At beginning of year Eliminated against cost at 1 January 2005 At beginning of year, as adjusted Amortisation Impairment Eliminated on disposal of subsidiaries At end of year Net book value At end of year	Group 2005 2004 HK$’000 HK$’000 12,824 122,144 (1,078) — 11,746 122,144 — 4,000 (11,746) (113,320 — 12,824 -------------- -------------- 12,816 114,102 (1,078) — 11,738 114,102 — 2,692 — 2,921 (11,738) (106,899 — 12,816 -------------- -------------- — 8	Group 2005 2004 HK$’000 HK$’000 12,824 122,144 (1,078) — 11,746 122,144 — 4,000 (11,746) (113,320 — 12,824 -------------- -------------- 12,816 114,102 (1,078) — 11,738 114,102 — 2,692 — 2,921 (11,738) (106,899 — 12,816 -------------- -------------- — 8
		122,144 4,000 (113,320
		12,824 -------------- 114,102 —
		114,102 2,692 2,921 (106,899
		12,816 --------------
		8

20. Interest in associate

Share of net assets other than goodwill Goodwill Loan to associate_(note (i))_	Group 2005 2004 HK$’000 HK$’000 79,223 — 3,692 — 82,892 — 165,807 —	Group 2005 2004 HK$’000 HK$’000 79,223 — 3,692 — 82,892 — 165,807 —
		—

— 54 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Note:

(i) The loan is unsecured, interest-free and repayable on demand.
(a) Details of the associate, which is unlisted, are as follows:

				Proportion of	Proportion of
				ownership	interest
	Form of	Place of	Particulars of	Group’s
Name of	business	incorporation/	issued and	effective	Held by a
associate	structure	operation	paid-up capital	interest	subsidiary	Principal activity
Yaubond	Incorporated	BVI/Hong Kong	100 ordinary shares	49%	49%	Investment holding
Limited			of US$1 each

(b) Financial information of the associate is as follows:

Total assets Total liabilities	2005 HK$’000 429,913 (268,234)	2004 HK$’000 —

		—

The associate has not yet contributed any revenue and profits to the Group during the year ended 31 December 2005 (2004: Nil).

As at 31 December 2005, the Group has pledged its shares of the associate, representing 49% interest in the associate, in favour of the holder of the other 51% interest in the associate to secure for the warranties given by the Group for the performance of a subsidiary of the Group, United Prime Limited, as the property project manager of the associate.

— 55 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

21. Investments in securities

Investment securities: Unlisted in Hong Kong, at cost less impairment Other investments: Listed in Hong Kong, at market value Listed outside Hong Kong, at market value Carrying amount analysed for reporting purposes as: Non-current Current	Group 2005 2004 HK$’000 HK$’000 — 900 -------------- -------------- — 117 — 318 — 435 -------------- -------------- — 1,335 — 900 — 435 — 1,335	Group 2005 2004 HK$’000 HK$’000 — 900 -------------- -------------- — 117 — 318 — 435 -------------- -------------- — 1,335 — 900 — 435 — 1,335
		435 --------------
		1,335

		900 435
		1,335

22. Account receivable

Account receivable, as previously reported — reclassification_(note 23) Account receivable, as restated _Less: Provision for doubtful debt — as previously reported — reclassification_(note 23)_ — as restated Amount due after one year	Group 2005 2004 HK$’000 HK$’000 (Restated) — — — 7,800 — 7,800 — — — (3,900) — (3,900) -------------- -------------- — 3,900	Group 2005 2004 HK$’000 HK$’000 (Restated) — — — 7,800 — 7,800 — — — (3,900) — (3,900) -------------- -------------- — 3,900
		7,800
		— (3,900)
		(3,900) --------------
		3,900

In 2004, one of the Group’s subsidiaries provided financial services to an independent third party to earn a fee of HK$7,800,000. The independent third party settled the fee by assigning a promissory note with a principal amount of HK$7,800,000 issued by another independent third party. As the promissory note was not duly registered in the name of the subsidiary as at 31 December 2004, it should not be classified as promissory note receivable as set out in note 23 below. Accordingly, the said receivable was reclassified from promissory note receivable to account receivable.

The account receivable was disposed of through the disposal of the subsidiary during the year.

— 56 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

23. Promissory notes receivable

Promissory notes receivable, as previously reported — reclassification_(note 22) Promissory note receivable, as restated _Less:_Provision for doubtful debt — as previously reported — reclassification(note 22)_ — as restated Amount due after one year	Group 2005 2004 HK$’000 HK$’000 (Restated) — 10,644 — (7,800 — 2,844 -------------- -------------- — (5,322 — 3,900 — (1,422 -------------- -------------- — 1,422	Group 2005 2004 HK$’000 HK$’000 (Restated) — 10,644 — (7,800 — 2,844 -------------- -------------- — (5,322 — 3,900 — (1,422 -------------- -------------- — 1,422
		2,844 -------------- (5,322 3,900
		(1,422 --------------
		1,422

The promissory note was unsecured, convertible (in whole or in part) into shares of common stock of the issuer in case of default as defined in the terms of the promissory note and borne interest at a rate of 2.5% per annum for the initial year and up to 4% per annum for the second year on the principal amount and all accrued interest unpaid. The promissory note was disposed of through the disposal of one of the Group’s subsidiaries during the year.

24. Deposits, prepayments and other receivables

Prepayments Deposits and other receivables Short-term loan receivable	Group 2005 2004 HK$’000 HK$’000 281 561 122 4,250 — 1,500 403 6,311	Company 2005 2004 HK$’000 HK$’000 86 561 120 2,017 — — 206 2,578	Company 2005 2004 HK$’000 HK$’000 86 561 120 2,017 — — 206 2,578
			2,578

Deposits and other receivables are expected to be recovered within one year. The fair values of deposits and other receivables and short-term loan receivable approximate their respective carrying amounts at the balance sheet date due to their short maturity.

The short-term loan was unsecured, borne interest at a rate of 9% per annum and was fully repaid during the year.

— 57 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

25. Cash and cash equivalents

Short-term bank deposits Cash at bank and in hand	Group 2005 2004 HK$’000 HK$’000 75,331 — 8,416 347 83,747 347	Company 2005 2004 HK$’000 HK$’000 74,029 — 3,143 306 77,172 306	Company 2005 2004 HK$’000 HK$’000 74,029 — 3,143 306 77,172 306
			306

Included in cash and cash equivalents are the following amounts denominated in currencies other than the functional currency of the Company:

Renminbi (“RMB”)	Group 2005 2004 ’000 ’000 RMB1,434 RMB Nil	Company 2005 2004 ’000 ’000 RMB Nil RMB Nil

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.

The effective interest rate on short-term bank deposits ranges from 2.6% to 3.8% per annum (2004: Nil). These deposits have an average maturity of approximately 20 days.

26. Trade and other payables

Trade payables Other payables and accruals Amount due to director Amounts due to subsidiaries	Group 2005 2004 HK$’000 HK$’000 (Restated) — 273 1,773 2,894 — 1,276 — — 1,773 4,443	Company 2005 2004 HK$’000 HK$’000 (Restated) — — 1,495 2,194 — 1,276 595 6,442 2,090 9,912	Company 2005 2004 HK$’000 HK$’000 (Restated) — — 1,495 2,194 — 1,276 595 6,442 2,090 9,912
			9,912

Trade and other payables are expected to be settled within one year. The fair values of trade and other payables approximate their respective carrying amounts at the balance sheet date due to their short maturity.

At 31 December 2004, the trade payables were aged over 90 days.

The amount due to a director was unsecured, interest-free and was fully repaid during the year.

The amounts due to subsidiaries are unsecured, interest-free and repayable on demand.

— 58 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Included in trade and other payables are the following amounts denominated in currencies other than the functional currency of the Company:

		Group	Company	Company
	2005	2004	2005	2004
	’000	’000	’000	’000
Renminbi	RMB153	RMB Nil	RMB Nil	RMB Nil

27. Convertible note

The Company issued a 3% convertible note with a face value of HK$60 million on 16 December 2005.

The convertible note matures in 2 years from the issue date at its face value of HK$60 million or can be converted into shares of the Company at the holder’s option between the fifteenth day after the issue date and fifteen days prior to the maturity date at HK$0.33 per share.

The fair values of the liability component and the equity conversion component were determined at issuance of the note.

The fair value of the liability component at initial recognition was calculated using a market interest rate for an equivalent non-convertible note. The residual amount, representing the value of the equity conversion component, is included in shareholders’ equity (note 30) net of deferred income taxes.

The convertible note recognised in the balance sheets is calculated as follows:

Face value of convertible note issued on 16 December 2005 Equity component_(note 30) Liability component on initial recognition at 16 December 2005 Interest expense(note 9)_ Liability component at end of year	Group and 2005 HK$’000 60,000 (5,100) 54,900 187 55,087	Company 2004 HK$’000 — —
		— —
		—

The fair value of the liability component of the convertible note at 31 December 2005 amounted to HK$55,087,000. The fair value is calculated using cash flows discounted at a rate based on the borrowings rate of 7.75%.

Interest expense on the convertible note is calculated using the effective interest method by applying the effective interest rate of 7.75% to the liability component.

— 59 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

28. Deferred tax liabilities

The deferred tax liabilities recognised in the balance sheets and the movements during the year are as follows:

	Arising from
Group and Company	convertible note
	HK$’000
At 1 January 2004 and 1 January 2005	—
Charged to equity_(note 30)_	893
Credited to income statement_(note 10)_	(33)
At 31 December 2005	860

At the balance sheet date, the Group and the Company have estimated unused tax losses of HK$16,469,000 (2004: HK$49,063,000) and HK$16,148,000 (2004: HK$14,349,000) respectively which are available to offset against future profits. No deferred tax asset has been recognised in respect of these balances due to the unpredictability of future profit streams. The unrecognised tax losses can be carried forward indefinitely.

— 60 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

29. Share capital

Share Notes Authorised At beginning of year, ordinary shares of HK$0.01 each Capital re-organisation (ii) — Share consolidation of every 100 shares of HK$0.01 each into one consolidated share of HK$1.00 — Share sub-division of every consolidated share of HK$1.00 into 100 shares of HK$0.01 each At end of year, ordinary shares of HK$0.01 each Issued and fully paid At beginning of year, ordinary shares of HK$0.01 each — As previously reported — Prior period adjustment 36 — As restated Issue of shares — share placing (i) Capital re-organisation: — Share consolidation of every 100 shares of HK$0.01 each into one share of HK$1.00 each and reduction of nominal value of issued shares from HK$1.00 each to HK$0.01 each on 5 August 2005 (ii) Cancellation of paid-up ordinary share capital (iii) Issue of shares: — Acquisition of associate (iv) — Rights issue (iv) — Conversion of convertible bonds and accrued interests — Exercise of share options At end of year, ordinary shares of HK$0.01 each	Number of shares 2005 2004 ’000 ’000 (Restated) 30,000,000 30,000,000 (29,700,000) — 29,700,000 — 30,000,000 30,000,000 6,833,788 1,306,815 13,585 — 6,847,373 1,306,815 --------------- --------------- 1,355,000 — (8,120,350) — (16) — 66,667 — 492,045 5,423,662 — 49,100 — 67,796 (6,206,654) 5,540,558 --------------- --------------- 640,719 6,847,373	Nominal value of share capital 2005 2004 HK$’000 HK$’000 (Restated) 300,000 300,000 — — — — 300,000 300,000 68,338 13,068 136 — 68,474 13,068 --------------- --------------- 13,550 — (81,204) — — — 667 — 4,920 54,237 — 491 — 678 (62,067) 55,406 --------------- --------------- 6,407 68,474	Nominal value of share capital 2005 2004 HK$’000 HK$’000 (Restated) 300,000 300,000 — — — — 300,000 300,000 68,338 13,068 136 — 68,474 13,068 --------------- --------------- 13,550 — (81,204) — — — 667 — 4,920 54,237 — 491 — 678 (62,067) 55,406 --------------- --------------- 6,407 68,474
			300,000

			13,068 —
			13,068 --------------- — — — — 54,237 491 678
			55,406 ---------------
			68,474

— 61 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes:

(i) During the year, pursuant to a placing agreement dated 17 May 2005, a total of 1,355,000,000 new ordinary shares of HK$0.01 each, were placed through a placing agent on a best effort basis at a placing price of HK$0.016 per share. The closing market price was HK$0.019 per share as quoted on The Stock Exchange of Hong Kong Limited on 17 May 2005. The net proceeds from the placement of shares were for the purposes of providing additional working capital.
(ii) Pursuant to a special resolution passed on 4 August 2005, the Company underwent a capital re-organisation scheme involving a consolidation of all issued and unissued ordinary shares on the basis 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 cancelling paid-up capital to the extent of HK$0.99 on each consolidated share, a sub-division of each consolidated share of HK$1.00 each in the authorised but unissued share capital into 100 ordinary shares of HK$0.01 each and a cancellation of the entire amount of the share premium account of the Company (collectively, the “Capital Re-organisation”). The credits arising from the capital reduction and the cancellation of share premium were transferred to the contributed surplus account of the Company. The contributed surplus to the extent of HK$608,111,000 was then utilised to eliminate the entire accumulated losses of the Company as at 31 December 2004 in accordance with the bye-laws of the Company and the Companies Act 1981 of Bermuda. As a result of the Capital Re-organisation, issued share capital amounting to approximately HK$81,204,000 was reduced.
(iii) On 9 November 2005, the Company cancelled 16,299 ordinary shares of HK$0.01 each, as adjusted by the Capital Re-organisation referred to above and the capital reorganisation in August 2002, as a result of the wrongful conversion of convertible bonds as detailed in note 36.
(iv) On 16 December 2005, the Company issued 492,044,616 ordinary shares of HK$0.01 each by a rights issue in the proportion of 6 rights shares for every 1 share at a subscription price of HK$0.30 per share, and issued 66,666,666 ordinary shares of HK$0.01 each as part of the purchase consideration for the acquisition of associate. The fair value of the shares issued at the date of acquisition amounted to HK$20,000,000 (HK$0.30 per share) (note 34(d) ).

All new shares issued as a result of the placement of shares, exercise of share options, conversion of convertible bonds, rights issue and acquisition of associate rank pari passu with the then existing shares in all respects.

Share option schemes

Pursuant to a resolution passed on 4 August 2005, the 2000 share option scheme was terminated and a new share option scheme was adopted (the “2005 Scheme”). Under the 2000 share option scheme, no share options were granted during the year.

The Company operates the 2005 Scheme for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations. Eligible participants of the 2005 Scheme include the Company’s directors and other employees of the Group. The 2005 Scheme became effective on 5 August 2005 and, unless otherwise cancelled or amended, will remain in force for 10 years from that date. Under the 2005 Scheme, the directors of the Company are authorised at their absolute discretion, to invite any employee (including the executive and non-executive directors), executive or officer of

— 62 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

any member of the Group or any entity in which the Group holds any equity interest and any supplier, consultant, adviser or customer of the Group or any entity in which the Group holds an equity interest who is eligible to participate in the 2005 Scheme, to take up options to subscribe for shares in the Company.

The maximum number of shares which may be issued upon exercise of all options to be granted under the 2005 Scheme and any other share option schemes of the Company shall not in aggregate exceed 10 per cent. of the total number of shares in issue as at the date of adoption of the 2005 Scheme.

The Company may seek approval of the shareholders in general meeting for refreshing the 10 per cent. limit under the 2005 Scheme save that the total number of shares which may be issued upon exercise of all options to be granted under the 2005 Scheme and any other share option schemes of the Company under the limit as “refreshed” shall not exceed 10 per cent. of the total number of shares in issue as at the date of approval of the limit. Options previously granted under the 2005 Scheme and any other share option schemes of the Company (including those outstanding, cancelled, lapsed in accordance with the other scheme(s) or exercised options) will not be counted for the purpose of calculating the limit as “refreshed”.

Notwithstanding aforesaid in this paragraph, the maximum number of shares which may be issued upon exercise of all outstanding options granted and yet to be exercised under the 2005 Scheme and any other share option schemes of the Company must not exceed 30 per cent. of the total number of shares in issue from time to time.

The total number of shares issued and to be issued upon exercise of the options granted to each participant (including exercised, cancelled and outstanding options) in any 12-month period shall not exceed 1 per cent. of the total number of shares in issue at the offer date (the “Individual Limit”). Any further grant of options in excess of the Individual Limit must be subject to the shareholders’ approval in general meeting with such participant and his, her or its associates abstaining from voting.

The exercise price in respect of any particular option shall be such price as determined by the board in its absolute discretion at the time of the making of the offer but in any case the exercise price shall not be less than the highest of (i) the closing price of the shares as stated in the daily quotation sheets of the Stock Exchange on the offer date; (ii) the average of the closing prices of the shares as stated in the daily quotation sheets of the Stock Exchange for the five trading days immediately preceding the offer date; and (iii) the nominal value of the shares of the Company.

The offer of a grant of share options must be accepted not later than 21 days after the date of the offer, upon payment of a consideration of HK$1 by the grantee. The exercise period of the share options granted is determined by the board of directors, save that such period shall not be more than a period of ten years from the date upon which the share options are granted or deemed to be granted and accepted.

As at the balance sheet date, no share options have been granted under the 2005 Scheme since its adoption.

— 63 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

30. Reserves/(Deficit)

Group

Notes 2004 At 1 January 2004 — As previously reported — Prior period adjustment 36 — As restated Issue of shares: — Conversion of convertible bonds and accrued interests — Exercise of share options Expenses incurred on issue of shares Loss for the year At 31 December 2004, as restated 2005 At 1 January 2005 — As previously reported — Prior period adjustment 36 — As restated Issue of shares — share placing 29(i) Capital re-organisation: 29(ii) — Capital reduction — Cancellation of share premium — Set-off against accumulated losses of the Company Cancellation of paid-up ordinary share capital 29(iii) Issue of shares: 29(iv) — Acquisition of associate — Rights issue Expenses incurred on issue of shares Recognition of equity component of convertible note 27 Tax on equity component of convertible note 28 Loss for the year Exchange differences arising on consolidation of overseas subsidiary At 31 December 2005	Contributed Share surplus premium reserve HK$’000 HK$’000 536,454 — (2,160 ) — 534,294 — 1,080 — 68 — (2,833 ) — — — 532,609 — 534,185 — (1,576 ) — 532,609 — 8,130 — — 81,204 (542,404 ) 542,404 — (608,111 ) — — 19,333 — 142,693 — (4,354 ) — — — — — — — — — 156,007 15,497	Convertible note equity reserve HK$’000 — — — — — — — — — — — — — — — — — — — 5,100 (893) — — 4,207	(Accumulated Foreign losses)/ exchange retained reserve profits HK$’000 HK$’000 — (545,562 ) — — — (545,562 ) — — — — — — — (47,487 ) — (593,049 ) — (593,049 ) — — — (593,049 ) — — — — — — — 608,111 — — — — — — — — — — — — — (4,847 ) 1 — 1 10,215	Total HK$’000 (9,108 ) (2,160 ) (11,268 ) 1,080 68 (2,833 ) (47,487 ) (60,440 ) (58,864 ) (1,576 ) (60,440 ) 8,130 81,204 — — — 19,333 142,693 (4,354 ) 5,100 (893 ) (4,847 ) 1 185,927

— 64 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Company

Notes 2004 At 1 January 2004 — As previously reported — Prior period adjustment 36 — As restated Issue of shares: — Conversion of convertible bonds and accrued interests — Exercise of share options Expenses incurred on issue of shares Loss for the year At 31 December 2004, as restated 2005 At 1 January 2005 — As previously reported — Prior period adjustment 36 — As restated Issue of shares — share placing 29(i) Capital re-organisation: 29(ii) — Capital reduction — Cancellation of share premium — Set-off against accumulated losses of the Company Cancellation of paid-up ordinary share capital 29(iii) Issue of shares: 29(iv) — Acquisition of associate — Rights issue Expenses incurred on issue of shares Recognition of equity component of convertible note 27 Tax on equity component of convertible note 28 Profit for the year At 31 December 2005	Share premium HK$’000 536,454 (2,160) 534,294 1,080 68 (2,833) — 532,609 534,185 (1,576) 532,609 8,130 — (542,404) — — 19,333 142,693 (4,354) — — — 156,007	Contributed surplus reserve HK$’000 — — — — — — — — — — — — 81,204 542,404 (608,111) — — — — — — — 15,497	Convertible note equity reserve HK$’000 — — — — — — — — — — — — — — — — — — — 5,100 (893) — 4,207	(Acc- umulated losses)/ retained profits HK$’000 (399,548) — (399,548) — — — (208,563) (608,111) (608,111) — (608,111) — — — 608,111 — — — — — — 9,890 9,890	Total HK$’000 136,906 (2,160) 134,746 1,080 68 (2,833) (208,563) (75,502) (73,926) (1,576) (75,502) 8,130 81,204 — — — 19,333 142,693 (4,354) 5,100 (893) 9,890 185,601

— 65 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(a) Nature and purpose of reserves

(i) Share premium

The amount relates to subscription for share capital in excess of nominal value. The application of the share premium account is governed by clause 150 of the Company’s bye-laws and the Companies Act 1981 of Bermuda.

(ii) Contributed surplus reserve

The amount arose from the capital reduction, cancellation of share premium and part of which has been set-off against the accumulated losses of the Company as at 31 December 2004 pursuant to the Capital Re-organisation as mentioned in note 29(ii) to these financial statements.

Under the Companies Act 1981 of Bermuda, the Company may make distributions to its equity holders out of the contributed surplus reserve under certain circumstances.

(iii) Convertible note equity reserve

The amount represents the value of the unexercised equity component of the convertible note issued by the Company recognised in accordance with the accounting policy adopted in note 2(i)(iii).

(iv) Foreign exchange reserve

The amount represents gains/losses arising from the translation of the financial statements of foreign operations. The reserve is dealt with in accordance with the accounting policy set out in note 2(h).

(b) Distributable reserves

At 31 December 2005, the distributable reserves available for distribution to equity holders of the Company were HK$25,387,000 (2004: HK$Nil).

— 66 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

31. Interests in subsidiaries

Unlisted shares, at cost Amounts due from subsidiaries Provision for amounts due from subsidiaries	2005 HK$’000 — 172,667 — 172,667	2004 HK$’000 — 492,137 (492,137) —

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

Details of the Company’s principal subsidiaries are as follows:

		Particulars of	Percentage of	Percentage of
		issued ordinary	interest	held by
	Place of	share/registered	the Company
Name of subsidiaries	incorporation	capital	Directly	Indirectly	Principal activities
Nicco Limited	BVI	US$100	—	100%	Investment holding
Skyfame Management	Hong Kong	HK$1	100%	—	Provision of
Services Limited					management services
					to the Group
United Prime Limited	BVI	US$1	—	100%	Provision of property
					development project
					management services
					and acting as the
					project manager to
					undertake and
					supervise the
					construction of
					property in the PRC

Guangzhou Yu Jun	PRC	HK$5,000,000	—	100%	Provision of property
Consulting Service					development project
Company Limited					management services
(“Yu Jun”)
（廣州譽浚諮詢服務
有限公司）

The above table lists the subsidiaries of the Company which, in the opinion of the directors, principally affects the results or assets of the Group. Yu Jun is a wholly foreign-owned enterprise with limited liability established in the PRC.

Except for Yu Jun, which operates in the PRC, all the above subsidiaries operate in Hong Kong.

None of the subsidiaries had any debt securities outstanding at the end of the year or at any time during the year.

— 67 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

32. Employee retirement benefits

Defined contribution pension plans

As stipulated by the labour regulations of the PRC, the Group participates in a defined contribution retirement plan organised by municipal and provincial governments for its employees. The Group is required to make contributions to the retirement plan at a specified percentage of the eligible employees’ salaries. The Group has no other obligation for the payment of its employees’ retirement and other post-retirement benefits other than contributions described above.

The Group also operates a Mandatory Provident Fund Scheme (“the MPF Scheme”) under the Hong Kong Mandatory Provident Fund Schemes Ordinance for employees employed under the jurisdiction of the Hong Kong Employment Ordinance and not previously covered by the defined contribution retirement plan as mentioned above. The MPF Scheme is a defined contribution retirement scheme administered by independent trustees. Under the MPF Scheme, the employer and its employees are each required to make contributions to the MPF Scheme at 5% of the employees’ relevant income, subject to a cap of monthly relevant income of HK$20,000. The Group’s employer contributions vest fully with the employees when contributed into the MPF Scheme.

33. Lease arrangement

The Group leases office premises in the PRC under operating lease. The lease runs for a period of two years with no renewal option and contingent rental under the terms of the lease.

Rentals on office premises — minimum lease payments	2005 HK$’000 80	2004 HK$’000 282

At the balance sheet date, the total future minimum lease payments under the non-cancellable operating lease are payable as follows:

Within one year	Group 2005 2004 HK$’000 HK$’000 40 —

— 68 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

34. Notes to the consolidated cash flow statement

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

Notes Loss before income tax 10 Adjustment for: Amortisation of goodwill Bad debts written off Provision for doubtful debts Impairment losses on promissory note receivable and account receivable Decrease in fair value of investment property Depreciation of plant and equipment Deposits written off Dividend income from listed investment Net realised gains on investment securities Impairment loss on investment securities Impairment of goodwill Finance costs Finance income Loss on disposal of plant and equipment Fair value losses (including loss on disposal) on financial assets at fair value through profit or loss Net realised and unrealised losses on other investments Write-back of trade and other payables Gain on disposal of subsidiaries (c) Operating loss before working capital changes Increase in account receivable Decrease/(increase) in deposits, prepayments and other receivables Decrease in trade and other payables Cash generated from/(used in) operations Income tax paid Income tax refunded Net cash generated from/(used in) operations	2005 HK$’000 (4,814) — — — 4,682 — 121 — — — — — 220 (240) — 267 — (137) (2,990) (2,891) — 5,600 (439) 2,270 — — 2,270	2004 HK$’000 (Restated) (46,129) 2,692 6,129 6,042 — 643 150 400 (36) (3,192) 14,333 2,921 396 (65) 27 — 15,991 (634) (3,703) (4,035) (7,800) (2,622) (3,061) (17,518) (10) 5 (17,523)

— 69 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Acquisition of subsidiary

Net assets acquired: Other receivables 51% share of net assets acquired Goodwill arising from acquisition Satisfied by: Cash Net cash outflow arising from acquisition of subsidiary Cash consideration *(c)* *Disposal of subsidiaries* Net assets disposed of: Plant and equipment Investment property Interest in associate Account receivable Promissory note receivable Other investments Trade and other receivables Cash and cash equivalents Trade and other payables Income tax payable Unamortised goodwill Gain on disposal of subsidiaries_(note 11(a))_ Satisfied by: Cash Other receivables Net cash inflow arising from disposal of subsidiaries Cash consideration Cash and cash equivalents disposed of	2005 HK$’000 — — — — — — 2005 HK$’000 112 300 — 469 171 119 308 43 (818) (1,359) (655) 8 2,990 2,343 2,343 — 2,343 2,343 (43) 2,300	2004 HK$’000 1 — 4,000 4,000 4,000 4,000 2004 HK$’000 — — 3 — — — 922 6 (2,888) (3) (1,960) 6,421 3,703 8,164 130 8,034 8,164 130 (6) 124

— 70 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(d) Acquisition of associate

On 16 December 2005, the Group acquired 49% equity interests in Yaubond Limited, an investment holding company operating in Hong Kong. Yaubond Limited has not yet contributed any revenue and profits to the Group for the period from 16 December 2005 to 31 December 2005. Had the acquisition occurred on 3 May 2005 (date of incorporation of Yaubond Limited), the Group’s profit for the year would have been HK$38,937,000.

Details of share of net assets acquired and goodwill are as follows:

Purchase consideration: — cash paid — direct costs relating to the acquisition — fair value of shares issued_(note 29 (iv)_) — issue of convertible note Total purchase consideration Fair value of share of net assets acquired — shown as below Shareholder’s loan acquired Goodwill	HK$’000 84,819 988 20,000 60,000
	165,807 (79,223) (82,892)
	3,692

The goodwill is attributable to the high profitability of the acquired associate.

The fair value of the shares issued was based on the published share price.

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

Cash and cash equivalents Property held for development Other receivables Other payables Shareholders’ loans Deferred tax liabilities Net assets 49% share of net assets acquired Net cash outflow arising from acquisition of associate Cash consideration Direct costs relating to the acquisition	Fair value HK$’000 483 400,961 28,468 (145) (169,168) (98,920) 161,679 79,223	Acquiree’s carrying amount HK$’000 483 298,254 28,468 (145 (169,168 (65,027
		92,865

		84,819 988
		85,807

There was no acquisition of associate during the year ended 31 December 2004.

— 71 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(e) Major non-cash transactions

During the year, the Group acquired an associate at a consideration of HK$165,807,000 of which HK$20,000,000 and HK$60,000,000 were settled by issue of 66,666,666 Company’s ordinary shares and issue of convertible note with face value of HK$60,000,000 respectively.

35. Related party transactions

Pursuant to a deed of appointment entered into by the Company and its subsidiary, United Prime Limited, with an associate of the Company, as disclosed in note 20 to these financial statements, the performance of United Prime Limited, the project manager of a property development project held by the associate of the Company, was guaranteed by the Company which was counter-indemnified by Mr. Yu Pan, the director of the Company, in favour of the Company. Mr. Yu Pan is also one of the directors of the associate of the Company.

During the year, Mr. Yu Pan provided an unsecured short term advance of HK$4,000,000 to the Company at an interest approximately of HK$13,000 calculated at 5% per annum. The advance was fully repaid during the year.

During the year, an underwriting agreement was entered into between the Company and Grand Cosmos Holdings Limited, the entire shares of which were beneficially held by Mr. Yu Pan, to underwrite up to 169,153,715 ordinary shares of the Company in a rights issue. As a result, an underwriting commission in respect of the rights issue amounted to HK$1,269,000 was paid to Grand Cosmos Holdings Limited.

A lease agreement was entered into between a subsidiary of the Company, Yu Jun, and Guangzhou Chuang Yu Property Development Company Limited (“Chuang Yu”) for the lease of office premises owned by Chuang Yu for one year commencing from 1 November 2005 to 31 October 2006 at monthly rental of RMB41,000. In addition, Guangzhou Tian Yu Property Management Company Limited (“Tian Yu Property”) has charged Yu Jun the building management and air-conditioning expenses. Mr. Yu Pan is a major shareholder of Chuang Yu and Tian Yu Property. Rental of RMB84,000 and building management fee and air-conditioning charges of RMB114,000 respectively were charged to Yu Jun during the year.

During the year, the Group disposed of the entire interest in a subsidiary, Jet Concord Inc., to Madam So Siu Ngan Amy, the spouse of a former director, Mr. Mak Chi Yeung, at a consideration of HK$200,000.

The Group occupied during the year an office as its principal place of business in Hong Kong free of rental and all other outgoings relating to the office premises. The existing tenant of the premises is Yue Tian Development Limited (“Yue Tian”) of which 29% equity interest is held by Mr. Yu Pan who is also a director of Yue Tian.

36. Prior period adjustment

In 2002, an aggregate amount of HK$2,160,000 of convertible bonds were converted into 40,754,714 conversion shares (“Conversion Shares”) without the bondholders’ consent. In 2004, the Company paid HK$720,000, being the par value of one of the convertible bonds, to one of the bondholders to settle the wrongful conversion of 13,584,905 Conversion Shares. Share capital and share premium of HK$136,000 and HK$584,000 were then reversed in 2004 respectively. However, the relevant shares wrongly issued should not have been cancelled until the approval of the Supreme Court of Bermuda was obtained in 2005.

— 72 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Accordingly, a prior period adjustment was recorded in the current year to rectify the error. The Company’s share capital and number of shares have been increased by HK$136,000 and 13,584,905 respectively as at 31 December 2004. In addition, the Company’s and the Group’s share premium as at 1 January 2004 and 31 December 2004 has been decreased by HK$2,160,000 and HK$1,576,000 respectively to retrospectively adjust for the aggregate amount of all the convertible bonds in subject and the related premium arising from the wrongful conversion. Other payables as at 31 December 2004 have been increased by HK$1,440,000.

37. Events after the balance sheet date

On 16 February 2006, a sale and purchase agreement was entered into between a third party and Grand Cosmos Holdings Limited which is 100% beneficially owned by Mr. Yu Pan, the director of the Company, for the transfer of a convertible note, which was originally held by the third party, in the principal amount of HK$60,000,000 with the right of conversion into the Company’s ordinary shares of HK$0.01 per share at a price of HK$0.33 per share.

On 20 February 2006, Grand Cosmos Holdings Limited exercised the conversion right and was allotted a total of 181,818,181 ordinary shares of HK$0.01 each of the Company.

38. Financial instruments — risk management

The Group’s principal financial assets are cash and bank balances and short-term bank deposits. Financial liabilities of the Group include trade and other payables and convertible note. The Company has not issued and does not hold any financial instruments for trading purposes at the balance sheet date, except the Company’s issued ordinary shares which are listed on the Stock Exchange of Hong Kong Limited. The main risks arising from the Group’s financial instruments are interest rate risk, foreign currency risk, credit risk and liquidity risk.

(a) Interest rate risk

The Group’s exposure to interest rate risk relates primarily to the convertible note. The Group has not entered into any interest rate hedging contracts or any other derivative financial instruments. The rates of interest and terms of repayment of the convertible note have been disclosed in note 27 to these financial statements.

(b) Foreign currency risk

The Group’s major investment is the interest in an associate operating in the PRC, which is engaged in property development activities. The Group also contracts with suppliers for goods and services that are denominated in Renminbi. The Group does not hedge its foreign currency risks as the rate of exchange between Hong Kong dollar and Renminbi is controlled within a narrow range. However, any permanent changes in foreign exchange rates in Renminbi may have an impact on the Group’s results.

(c) Credit risk

Financial instruments that are subject to credit risk are mainly related to cash and cash equivalents consisting of short-term bank deposits and cash and bank balances. They are placed with licensed banks having high credit ratings and in short terms. The management foresees minimal credit risks.

— 73 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group’s maximum exposure to credit risk arising from default of the counterparties is equal to the carrying amounts of these financial instruments.

(d) Liquidity risk

The Group’s policy is to regularly monitor the current and expected liquidity requirements, to ensure that it maintains sufficient reserves of cash resources and adequately committed funding from financial institutions to meet its liquidity requirements in the short and long term.

(e) Fair value

All significant financial instruments are carried at amounts not materially different from their fair values as at 31 December 2005.

The Group has no off-balance sheet arrangements that have or are likely to have a current or future effect on its financial condition, revenue or expenses, results of operations, liquidity, capital expenditure or capital resources that is material to the equity holders of the Company.

39. Comparative figures

Certain comparative figures have been adjusted or re-classified as a result of the changes in accounting policies and the prior period adjustment (note 36) .

40. Approval of financial statements

The financial statements were approved and authorised for issue by the Board of Directors on 28 March 2006.

3. Material adverse change

The Directors confirm that there are no material adverse changes in the financial or trading position of the Group since 31 December 2005, the date to which the latest audited consolidated financial statements of the Group were made up.

4. Financial and trading prospects of the Group

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 and investment holding.

From 2005, the Group has started to focus onto the property development project management business and completed business streamlining to such effect by December 2005. All the previous business segments in online operation, trading, financial and investment holding as well as the offline operations have been discontinued in 2005.

— 74 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Apart from being a project manager in construction contracts for contractors in some projects in the PRC, the Group also commenced its activities in the property development in Guangzhou, the PRC. The investment of 49% equity interest in the Tianhebei Road project in late December 2005 is the first property development project participated by the Group. Leveraging on the management’s expertise in the industry, the Group is able to participate in other development projects, acting both as a project developer and manager. The management is of the view that the proceeds from the Open Offer can further increase the working capital of the Group and enable the Group to strengthen its new business spheres through the Acquisition.

Besides, the management will select unique investment opportunities in property interests, mainly in the Guangzhou city, that are of growth potential in capital value and rental yield. In such regards, the Group keeps aggressively looking for business opportunities and increasing suitable land reserves in the premier grade property niche market and property interests in Guangzhou city, or if appropriate, other suitable regions in the PRC. To cope with these plans, the Group has been formulating and implementing various financing strategies that are appropriate to achieve such objectives. Subject to obtaining quality land reserves and the performance in the business that brings satisfactory returns to the Shareholders, the management considers that the Group’s financial prospect will be enhanced.

— 75 —

APPENDIX II FINANCIAL INFORMATION OF THE LOYAL WAY GROUP

ACCOUNTANTS’ REPORT OF THE LOYAL WAY GROUP

The following is the text of a report, prepared for the purpose of inclusion in this circular, received from the auditors and reporting accountants of the Company, BDO McCabe Lo Limited.

==> picture [95 x 64] intentionally omitted <==

==> picture [140 x 60] intentionally omitted <==

The Directors Skyfame Realty (Holdings) Limited 2502B, Admiralty Centre Tower 1 18 Harcourt Road Hong Kong

2 August 2006

Dear Sirs,

We set out below our report on the financial information regarding Loyal Way (China) Group Limited (“Loyal Way”) and its subsidiaries and its jointly controlled entity (hereinafter collectively referred to as the “Loyal Way Group”) for the period from 6 July 2005 (date of incorporation of Loyal Way) to 31 December 2005 and the three months ended 31 March 2006 (the “Relevant Periods”), for inclusion in the circular of Skyfame Realty (Holdings) Limited (the “Company”) dated 2 August 2006 (the “Circular”), issued in connection with, inter alia, the proposed acquisition of 51% equity interest in Loyal Way (the “Acquisition”).

Loyal Way was incorporated in the British Virgin Islands (the “BVI”) with limited liability on 6 July 2005 under the International Business Companies Act (Cap. 291) of the BVI. Loyal Way has not carried on any business since the date of its incorporation save for the acquisition and holding of its entire equity interests in Guangzhou Zhoutouzui Development Limited (“ZTZ”) through its two wholly-owned subsidiaries, namely Fortunate Start Investments Limited (“Fortunate Start”) and Ace Billion Investments Limited (“Ace Billion”).

— 76 —

APPENDIX II FINANCIAL INFORMATION OF THE LOYAL WAY GROUP

As at the date of this report, Loyal Way has direct and indirect interests in the following subsidiaries and jointly controlled entity.

	Place and
	date of
Name	incorporation	Issued/	Attributable
of subsidiary/jointly	and kind of	registered and	equity interest			Principal
controlled entity	legal entity	paid-in capital	held by Loyal Way			activity
			Directly	Indirectly
Fortunate Start	BVI,	United States	100%		—	Investment
	5 August 2005,	dollars				holding
	limited	(“US$”)100
	company
Ace Billion	BVI,	US$100	100%		—	Investment
	12 August 2005,					holding
	limited
	company
ZTZ	Hong Kong,	Hong Kong	—	100%		Investment
	26 August 2002,	dollars				holding
	limited	(“HK$”) 100
	company
Guangzhou	The People’s	US$12,000,000	—	100%		Property
Yucheng Real	Republic of China			(Note)		development
Estate	(the “PRC”),
Development	31 March 2003,
Company Limited	Sino-foreign
(“Yucheng”)	cooperative joint
廣州市譽城房地產	venture enterprise
開發有限公司
(“譽城”)

Note: Under the terms of the sino-foreign cooperative joint venture agreement entered into by the parties, (i) ZTZ has paid RMB10 million to Guangzhou Yuexiu Enterprise (Group) Company Limited (“Yuexiu”) as cash compensation and Yuexiu is then no longer entitled to any profit or loss generated by Yucheng; (ii) Guangzhou Port Authority Bureau (“GPAB”) will be entitled to 28% of the total gross floor area of the project upon completion of the proposed development and after which, GPAB will no longer be entitled to any profit or loss generated by Yucheng; and (iii) ZTZ will be entitled to 72% of the total gross floor area of the project upon completion of the proposed development and the entire profit or loss to be generated by Yucheng.

— 77 —

APPENDIX II FINANCIAL INFORMATION OF THE LOYAL WAY GROUP

No audited statutory financial statements have been prepared for Loyal Way since its date of incorporation as there are no statutory requirements for it to prepare audited financial statements. The statutory financial statements of Yucheng for the period from 31 March 2003 (date of incorporation) to 31 December 2003, and for the two years ended 31 December 2004 and 2005, which were prepared in accordance with the relevant PRC accounting rules and regulations, were audited by Guang Dong Zhihe Certified Public Accountants Co., Ltd.（廣東智合會計師事務所有限公司）, Shenzhen Da Hua Tian Cheng Certified Public Accountants （深圳大華天誠會計師事務所）and 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 Loyal Way have prepared the management accounts of the Loyal Way Group for the Relevant Periods, 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 Loyal Way Group in accordance with the Hong Kong Standards on Auditing issued by the HKICPA.

The financial information and the notes thereto for the Relevant Periods set out in Sections A to D below (the “Financial Information”) have been prepared based on the management accounts of the Loyal Way Group. We have examined the management accounts of the Loyal Way 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 Loyal Way Group is the responsibility of the directors of Loyal Way. 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 Loyal Way and of the Loyal Way Group as at 31 December 2005 and 31 March 2006, and of the results and cash flows of the Loyal Way Group for the Relevant Periods.

— 78 —

APPENDIX II FINANCIAL INFORMATION OF THE LOYAL WAY GROUP

A. FINANCIAL INFORMATION

1. Consolidated income statements

Period from 6 July 2005 (date of incorporation of Loyal Way) to 31 December 2005 Note HK$’000 Turnover 3 — Other revenue 5 22 General and administrative expenses (483) Interest on amounts due to shareholders — Loss before income tax expense 6 (461) Income tax expense 10 — Loss for the period attributable to the equity holder of Loyal Way (461)	Three months ended 31 March 2006 HK$’000 — — (37) (4,350) (4,387) — (4,387)

— 79 —

APPENDIX II FINANCIAL INFORMATION OF THE LOYAL WAY GROUP

2. Consolidated balance sheets

Note Assets Non-current assets Office equipment 15 Properties held for development 14 Goodwill 17 Current assets Prepayments and other receivables 18 Cash and cash equivalents 19 Total assets Liabilities Current liabilities Other payables and accrued charges Non-current liabilities Amounts due to shareholders 20 Deferred tax liabilities 21 Total liabilities TOTAL NET ASSETS Capital and reserves Share capital 23 Reserves 24 Total equity attributable to equity holders of Loyal Way	As at 31 December 2005 HK$’000 14 221,304 65,474 286,792 86,539 17,310 103,849 390,641 2,489 2,489 289,980 51,302 341,282 343,771 46,870 1 46,869 46,870	As at 31 March 2006 HK$’000 13 495,530 65,474
		561,017
		— 19,743
		19,743
		580,760
		3,128
		3,128
		459,938 51,302
		511,240
		514,368
		66,392

		1 66,391
		66,392

— 80 —

APPENDIX II FINANCIAL INFORMATION OF THE LOYAL WAY GROUP

3. Balance sheets of Loyal Way

Note Non-current assets Investments in subsidiaries 16 Current liabilities Amount due to a subsidiary 16 Net liabilities Capital and reserves Share capital 23 Deficits 24	As at 31 December 2005 HK$’000 2 (11) (9) 1 (10) (9)	As at 31 March 2006 HK$’000 2 (11) (9) 1 (10) (9)

— 81 —

APPENDIX II FINANCIAL INFORMATION OF THE LOYAL WAY GROUP

4. Consolidated statements of changes in equity

Share capital Note HK$’000 At 6 July 2005 (Date of incorporation of Loyal Way) — Issue of shares 23 1 Contribution from shareholders — Exchange differences on translation of financial statements of a jointly controlled entity 24 — Loss for the period 24 — At 31 December 2005 1 Contribution from shareholders — Exchange differences on translation of financial statements of a jointly controlled entity 24 — Loss for the period 24 — At 31 March 2006 1	Capital reserve HK$’000 — — 47,107 — — 47,107 24,119 — — 71,226	Exchange Accumulated reserve losses HK$’000 HK$’000 — — — — — — 223 — — (461) 223 (461) — — (210) — — (4,387) 13 (4,848)	Total HK$’000 — 1 47,107 223 (461) 46,870 24,119 (210) (4,387) 66,392

— 82 —

APPENDIX II FINANCIAL INFORMATION OF THE LOYAL WAY GROUP

5. Consolidated cash flow statements

Period from
6 July 2005
(date of
incorporation
of Loyal Way)
to 31 December
2005
HK$’000
Cash flows from operating activities
Loss before income tax expenses
(461)
Adjustments for:
Interest on amounts due to shareholders
—
Interest income
(22)
Operating loss before working
capital changes
(483)
Properties held for development
(19,380)
Prepayments and other receivables
(69,745)
Other payables and accrued charges
(6,977)
Net cash used in operating activities
(96,585)
-----------------
Cash flows from investing activities
Acquisition of a subsidiary, net of
cash acquired_(Note 22)
(158,800)
Interest received
22
Net cash used in investing activities
(158,778)
-----------------
Cash flows from financing activities
Proceeds from issue of ordinary shares
1
Advances from shareholders
272,678
Net cash from financing activities
272,679
-----------------
Net increase in cash and cash equivalents
17,316
Effect of foreign exchange on cash
and cash equivalents
(6)
Cash and cash equivalents at
beginning of period
—
Cash and cash equivalents at end
of period (Note 19)_
17,310

Three months
ended
31 March
2006
HK$’000
(4,387)
4,350
—
(37)
(274,225)
86,539
639
(187,084)
-----------------
—
—
—
-----------------
—
189,517
189,517
-----------------
2,433
—
17,310
19,743

— 83 —

APPENDIX II FINANCIAL INFORMATION OF THE LOYAL WAY GROUP

B. NOTES TO THE FINANCIAL INFORMATION

1. General

Loyal Way was incorporated in the BVI with limited liability on 6 July 2005 under the International Business Companies Act (Cap. 291) of the BVI. Loyal Way has not carried on any business since the date of its incorporation save for the acquisition and holding of its entire equity interests in ZTZ through its two wholly-owned subsidiaries, namely Fortunate Start and Ace Billion. The address of Loyal Way’s registered office is Portcullis Trust Net Chambers, P.O. Box 3444, Road Town, Tortola, British Virgin Islands.

Loyal Way is an investment holding company. The principal activities of its subsidiaries are investment holding and property development.

The Financial Information is presented in thousands of Hong Kong dollars (HK$’000), unless otherwise stated, which is the same as the functional currency of the Company.

2. Principal accounting policies

(a) Statement of compliance

The Financial Information set out in this report has been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (“HKFRSs”) (which include all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”), and Interpretations (“INTs”)) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”). In addition, the Financial Information includes applicable disclosures required by the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

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

HKAS 1 (Amendment) Capital Disclosures[1] HKFRS 7 Financial Instruments: Disclosures[1] HK(IFRIC)-Int 7 Applying the Restatement Approach under HKAS 29 Financial Reporting in Hyperinflationary Economies[2] HK(IFRIC)-Int 8 Scope of HKFRS 2[3] HK(IFRIC)-Int 9 Reassessment of Embedded Derivatives[4]

(b) Basis of preparation

The Financial Information comprises the financial statements of Loyal Way and its subsidiaries and its jointly controlled entity.

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

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

2

Effective for annual periods beginning on or after 1 March 2006.

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

4

Effective for annual periods beginning on or after 1 June 2006.

— 84 —

APPENDIX II FINANCIAL INFORMATION OF THE LOYAL WAY GROUP

(c) Basis of consolidation

The consolidated financial information incorporates the Financial Information of Loyal Way and its subsidiaries and its interest in a jointly controlled entity.

Where Loyal Way has the power, either directly or indirectly, to govern the financial and operating policies of another entity or business so as to obtain benefits from its activities, it is classified as a subsidiary. The Financial Information presents the results of the Loyal Way Group as if they formed a single entity. Inter-company transactions and balances between group companies are therefore eliminated in full.

Loyal Way’s interests in subsidiaries are stated at cost less impairment loss, if any.

A jointly controlled entity is included in the financial statements using proportionate consolidation. The share of the jointly controlled entity’s assets, liabilities, income and expenses are combined on a line-to-line basis with those of Loyal Way.

Profits and losses arising on transactions between Loyal Way and its jointly controlled entity is recognised only to the extent of unrelated investors’ interests in the entity. The investor’s share in the jointly controlled entity’s profits and losses resulting from these transactions is eliminated against the asset or liability of the jointly controlled entity arising on the transaction.

(d) Subsidiaries

A subsidiary is an entity in which Loyal Way is able to exercise its control on it. Control is achieved where Loyal Way has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

(e) Jointly Controlled Entity

A jointly controlled entity is a contractual arrangement whereby the Group and other parties undertake an economic activity which is subject to joint control and none of the participating parties has unilateral control over the economic activity.

— 85 —

APPENDIX II FINANCIAL INFORMATION OF THE LOYAL WAY GROUP

(f) Goodwill

Goodwill is capitalised as an intangible asset with any impairment in carrying value being charged to the income statement.

Where the fair value of identifiable assets, liabilities and contingent liabilities exceed the fair value of consideration paid, the excess is credit in full to the income statement.

(g) Impairment of non-financial assets

(h) Foreign currencies

Transactions entered into by any of the group entities in a currency other than the currency of the primary economic environment in which it operates (the “functional currency”) are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the balance sheet date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are similarly recognised immediately in the income statement, except for foreign currency borrowings qualifying as a hedge of a net investment in a foreign operation.

On consolidation, the results of overseas operations are translated into Hong Kong dollars at rates approximating to those ruling when the transactions took place. All assets and liabilities of overseas operations, including goodwill arising on the acquisition of those operations, are translated at the rate ruling at the balance sheet date. Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at actual rate are recognised directly in equity (the “foreign exchange reserve”). Exchange differences recognised in the income statement of group entities’ separate financial statements on the translation of long-term monetary items forming part of the Loyal Way Group’s net investment in the overseas operation concerned are reclassified to the foreign exchange reserve if the item is denominated in the functional currency of the Loyal Way Group or the overseas operation concerned.

— 86 —

APPENDIX II FINANCIAL INFORMATION OF THE LOYAL WAY GROUP

(i) Office equipment

Office equipment is stated at cost less accumulated depreciation and accumulated impairment losses. Office equipment is depreciated at rates sufficient to write off their costs net of expected residual value over their estimated useful lives on a straight-line basis. The useful lives and residual value are reviewed, and adjusted if appropriate, at each balance sheet dates. The principal annual rate is 20%.

(j) Properties held for development

Properties held for development are stated at the lower of cost and net realizable value and comprises development expenditure and professional fees. Net realisable value is determined by reference to management estimates based on prevailing market conditions less costs to be included in selling the property. On completion, the properties are transferred to completed properties held for sale.

(k) Properties held for sale

Properties held for sale are stated at the lower of cost and net realisable value. Net realisable value is determined by reference to management estimates based on prevailing market conditions less estimated costs to be incurred in selling the property.

(l) Cash and cash equivalents

(m) Income taxes

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

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.

(n) Revenue recognition

Interest income is accrued on a time basis on the principal outstanding at the applicable interest rate.

— 87 —

APPENDIX II FINANCIAL INFORMATION OF THE LOYAL WAY GROUP

(o) Financial instruments

(i) Financial assets

The Loyal Way Group classifies its financial assets into one of the following categories, depending on the purpose for which the asset was acquired. Other than financial assets in a qualifying hedging relationship, the Loyal Way Group’s accounting policy for each category is as follows:

Held-to-maturity investments: These assets are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Loyal Way Group’s management has the positive intention and ability to hold to maturity. At each balance sheet date subsequent to initial recognition, held-to-maturity investments are measured at amortised cost using effective interest rate method, less any identified impairment losses.

Available-for-sale: Non-derivative financial assets not included in the above categories are classified as available-for-sale and comprise the Loyal Way Group’s strategic investments in entities not qualifying as subsidiaries, associates or jointly controlled entities. They are carried at fair value with changes in fair value recognised directly in equity. Where a decline in the fair value of an available-for-sale financial asset constitutes objective evidence of impairment, the amount of the loss is removed from equity and recognised in the income statement.

(ii) Financial liabilities

The Loyal Way Group classifies its financial liabilities into one of two categories, depending on the purpose for which the liability was incurred. Other than financial liabilities in a qualifying hedging relationship, the Loyal Way Group’s accounting policy for each category is as follows:

Fair value through profit or loss: This category comprises only out-of-the-money derivatives. They are carried in the balance sheet at fair value with changes in fair value recognised in the income statement.

— 88 —

FINANCIAL INFORMATION OF THE LOYAL WAY GROUP

APPENDIX II

Other financial liabilities: Other financial liabilities include the following items:

Trade payables and other short-term monetary liabilities, which are recognised at amortised cost.
Bank borrowings, certain preference shares, amounts due to shareholders and the debt element of convertible debt issued by the Loyal Way Group are initially recognised at the amount advanced net of any transaction costs directly attributable to the issue of the instrument. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the balance sheet. “Interest expense” in this context includes initial transaction costs and premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding.

(p) Provision and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when the Loyal Way 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.

(q) 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.

3. Turnover

The Loyal Way Group did not generate any turnover during the Relevant Periods.

4. Segment information

The Loyal Way Group is principally engaged in property development in the PRC, which is regarded as one business segment and one geographical segment.

— 89 —

APPENDIX II FINANCIAL INFORMATION OF THE LOYAL WAY GROUP

5. Other revenue

Period from 6 July 2005 (date of incorporation Three months of Loyal Way) ended to 31 December 2005 31 March 2006 HK$’000 HK$’000 Bank interest income 22 —

6. Loss before income tax expense

Loss before income tax expense is stated after charging:

Period from
6 July 2005
(date of incorporation
of Loyal Way)
to 31 December 2005
HK$’000
Depreciation
1
Less:_expenses capitalised
(1)
—
Auditors’ remuneration
150
Exchange differences, net
309
7.
Staff costs
Period from
6 July 2005
(date of incorporation
of Loyal Way)
to 31 December 2005
_HK$’000
Staff costs (including directors) comprise:
Basic salaries and other benefits
—
Contributions to defined contribution pension plan
—
—
_Less:_expenses capitalised
—
—

Three months
ended
31 March 2006
HK$’000
1
(1)
—
—
—
Three months
ended
31 March 2006
HK$’000
232
49
281
(281)
—

8. Directors’ emoluments

No directors’ emoluments were incurred for the Relevant Periods.

— 90 —

APPENDIX II FINANCIAL INFORMATION OF THE LOYAL WAY GROUP

9. Five highest paid individuals

During the Relevant Periods, none of the five highest paid individuals is a director of the Company. The emoluments payable to the five highest paid individuals for the Relevant Periods are as follows:

Period from 6 July 2005 (date of incorporation of Loyal Way) to 31 December 2005 HK$’000 Basic salaries and other benefits — Contributions to defined contribution pension plan — —	Three months ended 31 March 2006 HK$’000 61 10
	71

The number of highest paid individuals for the Relevant Periods whose emoluments fall within the band set out below is as follows:

	No. of	employees
	Period from
	6 July 2005
	(date of incorporation	Three	months
	of Loyal Way)		ended
	to 31 December 2005	31 March 2006
Nil to HK$1,000,000	—		5

10. Income tax expense

No Hong Kong or PRC income tax has been provided as the Loyal Way Group did not generate any assessable profits during the Relevant Periods.

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

The Loyal Way Group’s jointly controlled entity in the PRC is subject to an applicable Enterprise Income Tax (“EIT”) rate of 33%.

However, there was no income tax expense reconciled since the Loyal Way Group did not generate any assessable profits for the Relevant Periods.

11. Loss attributable to equity holder of Loyal Way

The loss attributable to the equity holder of Loyal Way is dealt with in the Financial Information of Loyal Way to the extent of HK$10,000 and HK$Nil, respectively, for the period from 6 July 2005 (date of incorporation of Loyal Way) to 31 December 2005 and the three months ended 31 March 2006.

— 91 —

FINANCIAL INFORMATION OF THE LOYAL WAY GROUP

APPENDIX II

12. Dividends

No dividend has been paid or declared by Loyal Way during the Relevant Periods.

13. Earnings per share

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

14. Properties held for development

Properties held for development in PRC through acquisition of a subsidiary (Note 22) are as follows:

Land use right, premium paid for the acquisition of the interest of the land, and demolition and settlement costs Construction cost Others	As at 31 December 2005 HK$’000 217,637 2,311 1,356 221,304	As at 31 March 2006 HK$’000 489,321 4,131 2,078
		495,530

Land use right comprises cost of acquiring rights to use certain land, which are all located in the PRC, for property development over fixed periods between 40 to 70 years. Up to 31 March 2006, the Loyal Way Group was in the process of applying for formal land use rights certificates.

During the Relevant Periods, no properties held for development were pledged as collateral for the Loyal Way Group’s borrowings.

15. Office equipment

Cost Acquired through acquisition of a subsidiary (note 22) on 25 October 2005 As at 31 December 2005 and 31 March 2006 Accumulated depreciation Acquired through acquisition of a subsidiary (note 22) on 25 October 2005 Charge for the period As at 31 December 2005 Charge for the period As at 31 March 2006 Net book value As at 31 March 2006 As at 31 December 2005	HK$’000 21 ------------ 21 ------------ 6 1
	7 1
	8 ~~------------~~
	13

	14

— 92 —

APPENDIX II FINANCIAL INFORMATION OF THE LOYAL WAY GROUP

16. Interests in subsidiaries

Unlisted investments, at cost Amount due to a subsidiary	As at 31 December 2005 HK$’000 2 11	As at 31 March 2006 HK$’000 2

		11

Investments in subsidiaries represent Loyal Way’s direct interests in the following entities.

	Place and		Attributable equity
	date of	Issued and	interest directly	Principal
Name of subsidiary	incorporation	paid-in capital	held by Loyal Way	Activity
Fortunate Start	BVI	US$100	100%	Investment
	5 August 2005			Holding
Ace Billion	BVI	US$100	100%	Investment
	12 August 2005			Holding

The amount due to a subsidiary is unsecured, interest-free and repayable on demand. The directors consider that the carrying amount of the balance approximates its fair value.

17. Goodwill

As at 6 July 2005 (Date of incorporation of Loyal Way) Acquired through acquisition of a subsidiary_(Note 22)_ Acquired through investing in a jointly controlled entity As at 31 December 2005 and 31 March 2006	HK$’000 — 56,012 9,462
	65,474

Impairment test for goodwill

The Loyal Way Group operates in one cash-generating unit (“CGU”) which is property development. The recoverable amount of the CGU is determined based on value-in-use calculations. These calculations use cash flow projections based on financial budgets approved by management covering a five years period with key assumptions including revenues, direct costs and other operating costs. Management determined these key assumptions based on past performance and expectations on market development. A discount rate of 12% is used and it reflects specific risks relating to the business. Management believes that any reasonably possible change in any of these assumptions would not cause the carrying amount of the CGU to exceed its recoverable amount.

— 93 —

APPENDIX II FINANCIAL INFORMATION OF THE LOYAL WAY GROUP

18. Prepayments and other receivables

Prepayments and other receivables are expected to be recovered within one year. The fair values of the balances approximate their respective carrying amounts at the balance sheet dates to their short maturity.

19. Cash and cash equivalents

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

Loyal Way Group

		As at	As at
	31	December	31 March
		2005	2006
		HK$’000	HK$’000
Cash and bank balances		17,310	19,743

Included in cash and cash equivalents in the consolidated balance sheets are the following amounts denominated in a currency other than the functional currency of Loyal Way to which they relate:

RMB Loyal Way Cash and bank balances	As at 31 December 2005 ‘000 17,979 As at 31 December 2005 HK$’000 —	As at 31 March 2006 ‘000 20,466

		As at 31 March 2006 HK$’000 —

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.

20. Amounts due to shareholders

The amounts are unsecured, carry interest at an effective rate of 6% per annum and repayable no later than 1 August 2008. The fair value of the amounts due to shareholders, estimated by discounting their future cash flows at the prevailing market rates at the balance sheet dates for similar borrowings, approximates to their fair values.

— 94 —

APPENDIX II FINANCIAL INFORMATION OF THE LOYAL WAY GROUP

21. Deferred tax liabilities

The component of deferred tax liabilities recognised in the balance sheet and movements during the Relevant Periods are as follows:

As at 6 July 2005 (Date of incorporation of Loyal Way) Acquisition of a subsidiary_(Note 22)_ Exchange differences As at 31 December 2005 and 31 March 2006	Fair value Gain HK$’000 — 51,233 69
	51,302

22. Acquisition of a subsidiary

On 25 October 2005, Loyal Way acquired 100% equity interest in ZTZ, which operates a jointly controlled entity, Yucheng. Yucheng is a property development company operated in the PRC. ZTZ and Yucheng contributed no revenue and incurred net losses of HK$128,000 and HK$2,333,000 for the period from 25 October 2005 to 31 December 2005 and the three months ended 31 March 2006, respectively.

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

Purchase consideration: — Cash paid — Direct costs relating to the acquisition Total consideration _Less:_Fair value of net assets acquired as set forth below Goodwill on acquisition Office equipment Goodwill Properties held for development Prepayments Amount due to an ex-shareholder of ZTZ Other payables and accrued charges Deferred tax liabilities Net (liabilities)/assets acquired	Carrying amount HK$’000 15 9,462 46,400 16,770 (64,408) (9,470) — (1,231)	HK$’000 158,177 623
		158,800 (102,788
		56,012

		Fair Value HK$’000 15 9,462 201,652 16,770 (64,408 (9,470 (51,233
		102,788

— 95 —

APPENDIX II FINANCIAL INFORMATION OF THE LOYAL WAY GROUP

23. 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	As at 31 December 2005 US$50,000 US$100 HK$1,000	As at 31 March 2006 US$50,000

		US$100

		HK$1,000

Loyal Way was incorporated in the BVI on 6 July 2005 with an authorised share capital of US$50,000. At the time of incorporation, 100 ordinary shares of US$1 each were issued for cash at par to the subscribers to provide initial capital to Loyal Way.

24. Reserves/(Deficits)

Loyal Way Group

Capital reserve HK$’000 As at 6 July 2005 (Date of incorporation of Loyal Way) — Contribution from shareholders 47,107 Exchange differences on translation of financial statements of a jointly controlled entity — Loss for the period — As at 31 December 2005 47,107 Contribution from shareholders 24,119 Exchange differences on translation of financial statements of a jointly controlled entity — Loss for the period — As at 31 March 2006 71,226	Exchange Accumulated reserve losses HK$’000 HK$’000 — — — — 223 — — (461) 223 (461) — — (210) — — (4,387) 13 (4,848)	Total HK$’000 — 47,107 223 (461)
		46,869 24,119 (210) (4,387)
		66,391

Loyal Way

	Accumulated losses
	HK$’000
As at 6 July 2005 (Date of incorporation)	—
Loss for the Relevant Period	(10)
As at 31 December 2005 and 31 March 2006	(10)

— 96 —

APPENDIX II FINANCIAL INFORMATION OF THE LOYAL WAY GROUP

(a) Exchange reserve

The amount represents gains/losses arising from the translation of the financial statements of subsidiaries the functional currencies of which are different from the presentation currency. The reserve is dealt with in accordance with the accounting policy set out in note 2(h).

(b) Capital reserve

The amount represents the capital contributions from shareholders.

(c) Distributable reserves

As at 31 December 2005 and as at 31 March 2006, the distributable reserves available for distribution to equity holders of Loyal Way are HK$ Nil and HK$ Nil respectively.

25. Capital commitments

Loyal Way Group

Commitments for property development costs — contracted for but not provided in the accounts	As at 31 December 2005 HK$’000 1,022,247	As at 31 March 2006 HK$’000 835,773

26. Financial instruments

The Loyal Way Group’s principal financial assets are cash and bank balances. Financial liabilities of the Loyal Way Group include loans from shareholder, which are non-interest bearing. The Loyal Way Group does not hold or issue financial instruments for trading purposes at the balance sheet date.

(a) Foreign currency risk

The functional currency of the jointly controlled entity of Loyal Way 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 December 2005 and 31 March 2006.

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

— 97 —

APPENDIX II FINANCIAL INFORMATION OF THE LOYAL WAY GROUP

C. DIRECTORS’ REMUNERATION

Save as disclosed in note 8 of Section B above, no remuneration has been paid or is payable to Loyal Way’s directors by the Loyal Way Group during the Relevant Periods.

D. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Loyal Way Group in respect of any period subsequent to 31 March 2006.

Yours faithfully,

BDO McCABE LO LIMITED

Certified Public Accountants Au Yeung Shiu Kau Peter Practising Certificate Number P02289

— 98 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

A. UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The following pro forma financial information is prepared in a manner consistent with both the format and accounting policies adopted by the Group in the preparation of its published audited consolidated financial statements for the financial year ended 31 December 2005. It is prepared to provide the unaudited pro forma financial information of the Enlarged Group as a result of the Acquisition Completion and the Open Offer. 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.

1. 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 which has been prepared based on the consolidated profit and loss account of the Group for the year ended 31 December 2005 as extracted from appendix I, and the consolidated profit and loss account of the Loyal Way Group for the period from 6 July 2005 (date of incorporation) to 31 December 2005 as extracted from appendix II, after making certain pro forma adjustments in relation to the Acquisition and the Open Offer as if the Acquisition Completion and the Open Offer had taken place on 1 January 2005.

— 99 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

The Loyal Way Group for the period from 6 July The Group 2005 (date of for the year ended incorporation) to 31 December 31 December 2005 2005 HK$’000 HK$’000 (Note a) (Note b) Continuing operations: Turnover 4,757 — Other income 117 — Administrative expenses (7,457) (483) Other operating expenses (17) — Loss from operations (2,600) (483) Finance costs (220) — Finance income 240 22 Loss before income tax (2,580) (461) Income tax expense (33) — Loss for the year from continuing operations (2,613) (461) Discontinued operations: Loss for the year from discontinued operations (2,234) — Loss for the year (4,847) (461) Attributable to: Equity holders of the Company (4,847) (461) Minority interests — — (4,847) (461)	Pro forma adjustments relating to the Acquisition HK$’000 Note — — — — — (5,120) (c) (27,596) (e) 15,211 (f) — (17,505) — (17,505) — (17,505) (5,120) (c) (27,596) (e) 15,211 (f) 13,748 (d) (13,748) (d) (17,505)	Unaudited Pro forma Enlarged Group HK$’000 4,757 117 (7,940) (17) (3,083) (17,725) 262 (20,546) (33) (20,579) (2,234) (22,813) (9,065) (13,748) (22,813)

Notes:

(a) Being the audited consolidated income statement of the Group for the year ended 31 December 2005 extracted from appendix I to this circular.
(b) Being the audited consolidated income statement of the Loyal Way Group for the period from 6 July 2005 (date of incorporation) to 31 December 2005 extracted from appendix II to this circular.
(c) Being the maximum interest expense of the 2-year promissory note of a principal amount of not more than HK$64 million with a fixed interest rate of 8% per annum, principal and interest payable within 24 months from the date of issue.
(d) Being recognition of the share of 49% interest of the Loyal Way Group’s loss of approximately HK$0.5 million for the period from 6 July 2005 (date of incorporation) to 31 December 2005 and the interest on amounts due to shareholders of approximately HK$27.6 million by minority shareholder.

— 100 —

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(e) Being the interest expense on the amounts due to shareholders of approximately HK$459.9 million as at 31 March 2006, which carry interest at an effective rate of 6% per annum.
(f) Being reversal of the interest received from the Loyal Way Group on the amount due to the Group of approximately HK$253.5 million as at 31 March 2006, which carry interest at an effective rate of 6% per annum.

2. 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 which has been prepared based on the consolidated balance sheet of the Group as at 31 December 2005 as extracted from appendix I and the consolidated balance sheet of the Loyal Way Group as at 31 March 2006 as extracted from appendix II, after making certain pro forma adjustments relating to the Acquisition and the Open Offer as if the Acquisition Completion and the Open Offer had taken place on 31 December 2005.

Pro forma
Unaudited
The Loyal
Pro forma
The Group adjustments
Pro forma Way Group adjustments
as at
relating
Group
as at
relating
31 December
to the
after the
31 March
to the
2005 Open Offer
Open Offer
2006 Acquisition
HK$’000
HK$’000 Note
HK$’000
HK$’000
HK$’000 Note
(Note a)
(Note b)
Non-current assets
Plant and equipment
163
—
163
13
—
Properties held for development
—
—
—
495,530
—
Goodwill
—
—
—
65,474
70,465
(e)
Interest in associate
165,807
—
165,807
—
—
165,970
—
165,970
561,017
70,465
------------
------------
------------
------------
------------
Current assets
Deposits, prepayments and
other receivables
403
—
403
—
—
Cash and cash equivalents
83,747
234,500
(c)
318,247
19,743
(284,000) (d)
84,150
234,500
318,650
19,743
(284,000)
------------
------------
------------
------------
------------
Current liabilities
Trade, other payables and accruals
1,773
—
1,773
3,128
—
Income tax payable
66
—
66
—
—
1,839
—
1,839
3,128
—
------------
------------
------------
------------
------------
Net current assets/(liabilities)
82,311
234,500
316,811
16,615
(284,000)
------------
------------
------------
------------
------------

Unaudited
Pro forma
Enlarged
Group
HK$’000 Note
176
495,530
135,939
165,807
797,452
------------
403
53,990
54,393
------------
4,901
66
4,967
------------
49,426
------------

— 101 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Pro forma The Group adjustments as at relating 31 December to the 2005 Open Offer HK$’000 HK$’000 Note (Note a) Total assets less current liabilities 248,281 234,500 ------------ ------------ Non-current liabilities Convertible note 55,087 — Deferred tax liabilities 860 — Promissory note payable — — Amounts due to shareholders — — 55,947 — ------------ ------------ Net assets 192,334 234,500 Capital and reserves Share capital 6,407 2,673 (c) Reserves 185,927 231,827 (c) Total equity attributable to equity holders of the Company 192,334 234,500 Minority interest — — 192,334 234,500	Unaudited The Loyal Pro forma Pro forma Way Group adjustments Group as at relating after the 31 March to the Open Offer 2006 Acquisition HK$’000 HK$’000 HK$’000 Note (Note b) 482,781 577,632 (213,535) ------------ ------------ ------------ 55,087 — — 860 51,302 — — — 64,000 (d) — 459,938 (243,675) (d) (206,414) (g) 55,947 511,240 (386,089) ------------ ------------ ------------ 426,834 66,392 172,554 9,080 1 (1) (e) 417,754 66,391 2,466 (e) (36,325) (d) (32,532) (h) 426,834 66,392 (66,392) (e) — — 206,414 (g) 32,532 (h) 426,834 66,392 172,554	Unaudited Pro forma Enlarged Group HK$’000 Note 846,878 ------------ 55,087 52,162 64,000 9,849 (f) 181,098 ------------ 665,780 9,080 417,754 426,834 238,946 665,780

Notes:

(a) Being the audited consolidated balance sheet of the Group as at 31 December 2005 extracted from appendix I to this circular.
(b) Being the audited consolidated balance sheet of the Loyal Way Group as at 31 March 2006 extracted from appendix II to this circular.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

(c) Issue of 267,324,486 Offer Shares at HK$0.90 each for HK$234.5 million to be received net of cost of issue in cash.
(d) Being the aggregated acquisition consideration of not more than HK$348 million (excluding the maximum of HK$52 million shareholders’ loan which may be contributed by the Purchaser on behalf of the Vendor during the period from the date of the Acquisition Agreement and up to the Acquisition Completion Date), comprising (i) HK$68 million for the Sale Shares and (ii) not more than HK$280 million for the Sale Debt. The net consideration will be settled by:
cash of approximately HK$284 million, and
the Promissory Note with a principle amount of HK$64 million.

In terms of HKAS 39 “Financial Instruments: Recognition and Measurement”, the Group would be required to record the consideration for the Sale Debt at its fair value of approximately HK$243.7 million and to increase the cost of investment in Loyal Way by the amount of approximately HK$36.3 million, which represents the capital contribution, being the difference between the maximum consideration for the Sales Debt of HK$280 million and its fair value of approximately HK$243.7 million. Accordingly the Group’s cost of investment in Loyal Way would be approximately HK$104.3 million, being the sum of the maximum consideration for the Sale Share of HK$68 million and the capital contribution of approximately HK$36.3 million.

(e) Goodwill arising from the difference between the Group’s cost of investment in Loyal Way amounting to approximately HK$104.3 million stated in note (d) above and 51% of the net assets value amounting to approximately HK$66.4 million of the Loyal Way Group as at 31 March 2006 as if the fair value of the identifiable net assets of the Loyal Way Group equals to its carrying amount.

The net assets of the Loyal Way Group at 31 March 2006 of approximately HK$66.4 million comprise (1) the Group’s share of 51% interest amounting to approximately HK$33.8 million which is the capital contribution from the Group of HK$36.3 million stated in note (d) after deduction of its share of the Loyal Way Group’s accumulated loss amounting to approximately HK$2.5 million and (2) the minority shareholder’s share of 49% interest amounting to approximately HK$32.6 million stated in note (h).

(f) As at 31 March 2006, the fair value of the shareholders’ loan due to the Vendor by the Loyal Way Group was higher than the fair value of the maximum consideration for the Sale Debt of approximately HK$243.7 million. Therefore, a difference of approximately HK$9.8 million was resulted in preparing this unaudited pro forma consolidated balance sheet of the Enlarged Group. In reality, it is expected that the fair value of the consideration for the Sale Debt will be equal to the fair value of the shareholders’ loan due to the Vendor by the Loyal Way Group as at the Acquisition Completion Date and therefore the shareholders’ loan due to the Vendor in the consolidated accounts of the Loyal Way Group will be eliminated in the consolidated accounts of the Enlarged Group when Loyal Way becomes a subsidiary of the Company upon the Acquisition Completion.
(g) Being transfer of the amount due to minority shareholder of approximately HK$206.4 million to minority interest.
(h) Being recognition of the share of 49% interest of the Loyal Way Group’s net asset value of approximately HK$66.4 million as at 31 March 2006 attributable to minority shareholder.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

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 which has been prepared based on the consolidated cash flow statement of the Group for the year ended 31 December 2005 as extracted from appendix I, and the consolidated cash flow statement of the Loyal Way Group for the period from 6 July 2005 (date of incorporation) to 31 December 2005 as extracted from appendix II, after making certain pro forma adjustments in relation to the Acquisition and the Open Offer as if the Acquisition Completion and the Open Offer had taken place on 1 January 2005.

The Loyal Way Group for the period from 6 July 2005 The Group (date of for the Pro forma incorporation) year ended adjustments to 31 December relating to the 31 December 2005 Open Offer 2005 HK$’000 HK$’000 HK$’000 (Note a) (Note c) (Note b) Net cash from (used in) operating activities 2,270 — (96,585) Net cash used in investing activities (82,501) — (158,778) Net cash from financing activities 163,630 234,500 272,679 Net increase in cash and cash equivalents 83,399 234,500 17,316 Cash and cash equivalents at beginning of the period 347 — — Effect of foreign exchange rate changes 1 — (6) Cash and cash equivalents as at 31 December 2005, represented by bank balances and cash 83,747 234,500 17,310	Pro forma adjustments relating to the Acquisition HK$’000 Note — (284,000) (d) — (284,000) — — (284,000)	Unaudited Pro forma Enlarged Group HK$’000 (94,315) (525,279) 670,809
		51,215 347 (5)
		51,557

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Notes:

(a) Being the audited consolidated cash flow statement of the Group for the year ended 31 December 2005 extracted from appendix I to this circular.
(b) Being the audited consolidated cash flow statement of the Loyal Way Group for the period from 6 July 2005 (date of incorporation) to 31 December 2005 extracted from appendix II to this circular.
(c) Being net cash received from the Open Offer.
(d) Being the cash consideration of HK$284 million in connection with the Acquisition, which has not taken into account the maximum of HK$52 million shareholders’ loan which may be contributed by the Purchaser on behalf of the Vendor during the period from the date of the Acquisition Agreement and up to the Acquisition Completion Date.

4. Indebtedness

As at the close of business on 31 May 2006, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Enlarged Group has outstanding borrowings at fair value of approximately HK$482 million, comprising amount due to BADL at fair value of approximately HK$227 million and amount due to the Vendor at fair value of approximately HK$255 million.

As at 31 May 2006, the Enlarged Group had capital commitments contracted for but not provided in respect of the property development costs of approximately HK$805 million.

Save as aforesaid and apart from intragroup liabilities, the Enlarged 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 as at 31 May 2006.

The Directors are not aware of any material changes to the indebtedness and contingent liabilities of the Enlarged Group since 1 June 2006.

5. Working capital

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

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APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

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

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

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==> picture [122 x 52] intentionally omitted <==

The Board of Directors Skyfame Realty (Holdings) Limited 2502B, Admiralty Centre Tower 1 18 Harcourt Road Hong Kong

2 August 2006

Dear Sirs,

We report on the statement of unaudited pro forma financial information (the “Unaudited Pro Forma Financial Information”) of Skyfame Realty (Holdings) Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) and Loyal Way (China) Group Limited and its subsidiaries (together with the Group hereinafter referred to as the “Enlarged Group”), set out in Appendix III to the circular dated 2 August 2006 (the “Circular”) issued by the Company in connection with the very substantial acquisition, whereby the Group, through an indirect wholly-owned subsidiary, Smartford Limited (the “Purchaser”), proposed to acquire 51% shareholding in and shareholder’s loans due by Loyal Way (China) Group Limited (the “Acquisition”), which has been prepared by the directors of the Company, for illustrative purposes only, to provide information about how the Acquisition might have affected the financial information presented.

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”) and with reference to Accounting Guideline

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APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).

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

Basis of opinion

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements (HKSIR) 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by Hong Kong Institute of Certified Public Accountants. Our work consisted primarily of comparing the financial information with source documents, considering the evidence supporting the adjustments and discussing the Unaudited Pro Forma Financial Information with the directors of the Company. This engagement did not involve independent examination of any of the underlying financial information.

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

The Unaudited Pro Forma Financial Information is for illustrative purposes only, based on the judgements and assumptions of the directors of the Company, and, because of its hypothetical nature, does not provide any assurance or indication that any event will take place in the future and may not be indicative of

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

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Opinion

In our opinion:

(a) the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated;
(b) such basis is consistent with the accounting policies of the Group; and
(c) the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Yours faithfully,

BDO McCABE LO LIMITED

Certified Public Accountants Au Yeung Shiu Kau Peter Practising Certificate Number P02289

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MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX IV

A. MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2005

1. 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.

Liquidity and financial resources

Capital structure and liquidity

As at 31 December 2003, at restated values where applicable, the Group had shareholders fund of approximately HK$1.8 million comprising issued capital of approximately HK$13.1 million and deficit of approximately HK$11.3 million. The current assets and current liabilities of the Group were approximately HK$6.8 million and HK$14.2 million respectively such that the current ratio was approximately 0.5:1.

Borrowings and pledge of assets

As at 31 December 2003, the Group had a loan from a major shareholder of HK$50,000 and loans from third parties of HK$1.2 million. The loan from major shareholder was interest-free and the loans from third parties to the extent of HK$0.4 million are charged at interest of 1.25% per month and the remaining HK$0.8 million are charged at the interest rate of approximately 54% per annum. All of such short term loans are unsecured and repayable within one year.

Convertible bonds in the principal amount of HK$3 million 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 convertible bonds were repayable on 4 September 2004 and interest bearing at 12% per annum. During the year ended 31 December 2003, an amount of HK$1.5 million of the convertible bonds and accrued interest of HK$50,795 had been converted into 48,462,327 conversion shares.

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MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX IV

Foreign currency management

The Group’s sales and purchases were denominated in HK$ and the Group was not exposed to any significant exchange risk.

Contingent liabilities

As at 31 December 2003, the Company granted guarantees to the extent of HK$15 million to various securities dealers who had offered financing facilities to several wholly-owned subsidiaries of the Group. Other then these, the Group had no significant contingent liabilities as at 31 December 2003.

Employees

The Group employed 15 full-time employees as at 31 December 2003. Employee costs excluding director’s remuneration was approximately HK$1.9 million for the year ended 31 December 2003. No options have been granted to any employees during the year.

2. For the financial year ended 31 December 2004

During the financial 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$8.0 million (at restated value). 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 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.

Liquidity and financial resources

Capital structure and liquidity

As at 31 December 2004, at restated values where applicable, the Group had shareholders fund of approximately HK$8.0 million comprising issued capital of approximately HK$68.5 million and deficit of approximately HK$60.4 million. The current assets and current liabilities of the Group were approximately HK$7.1 million and approximately HK$5.8 million respectively such that the current ratio was approximately 1.2:1.

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MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX IV

Borrowings and pledge of assets

The Group had no outstanding bank borrowings as at 31 December 2004.

Foreign currency management

Most revenue received from customers of the Group were denominated in US$. The Group did not hedge its foreign currency risks as the rate of exchange between HK$ and US$ is pegged and controlled within a narrow range. However, any permanent changes in the peg system with US$ may have an impact on the Group’s results.

Contingent liabilities

The Group had no contingent liabilities as at 31 December 2004.

Employees

As at 31 December 2004, other than executive Directors, the Group employed one employee in Hong Kong. The Group’s staff costs amounted to approximately HK$0.9 million during the year. Employees are remunerated according to qualifications and experience, job nature and performance, with pay scale aligned with market conditions.

3. For the financial year ended 31 December 2005

For the year ended 31 December 2005, the new management started and completed the Group’s restructure program to streamline its investments by either disposing of or winding up unprofitable projects. The online and telecommunication operations, general trading, financial advisory services, securities and property investment activities were discontinued. As a result of these measures, the Group recorded losses from discontinued operation of approximately HK$2.2 million during the year.

The board of directors determined to dedicate the Group’s resources in the property development operations. The Directors adopted “Skyfame Realty (Holdings) Limited” as the name of the Company in February 2006 which signified the change of the primary business focus of the Group to the property development and related businesses. During the year, the Group has been contracted as a project manager in two property development projects in Guangzhou that generate a relatively constant inflow of income and cash. Yet the operation of this new business has not reflected a full year extent in the profit and loss accounts of the Company for the year, the management believes the operating performance in the coming year will be improving.

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MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX IV

The Group’s 49% equity investment in the development project in North Tianhe Road, Guangzhou is a premium residential and commercial complex tower located in the heart of the central business district of the city. As at 31 December 2005, project stands an investment value of approximately HK$166 million in the balance sheet of the Group. In the long term, leveraging on the experience of the management team, the Group plans to explore more quality property projects with promising potential in the PRC so as to build an extensive premium grade property portfolio.

Liquidity and financial resources

Capital structure and liquidity

As a result of the placing and rights issue of shares for cash during the year which has brought about a net proceed of approximately HK$165 million, the Group’s liquidity position was strengthened with a bank balance of approximately HK$83.7 million at the balance sheet date. The current assets and current liabilities of the Group were approximately HK$84.2 million and approximately HK$1.8 million respectively such that the current ratio was improved from 1.2:1 as at the end of 2004 to 45.8:1. This was accompanied with a decrease in the Group’s gearing ratio (the ratio of total liabilities over total assets) from 41.9% to 23.1%. The Group’s liabilities mainly consist of a convertible note in a principal amount of HK$60 million that was fully converted into shares on 20 February 2006. The conversion leads the Group virtually with a minimal liability position.

Borrowings and pledge of assets

As at 31 December 2005, the Group had pledged its 49% interests in Yaubond Limited, an associate of the Group engaged in the property project at North Tianhebei Road, to secure for warranties given by the Group for the appointment of a subsidiary of the Group as the property project manager. The Group had no bank borrowing as at 31 December 2005.

Foreign currency management

The Group’s major investment is the interest in Yaubond Limited which is engaged in property development activities in the PRC. The Group also contracts with its suppliers for goods and services that are denominated in RMB. The Group does not hedge its foreign currency risks as the rate of exchange between HK$ and RMB is controlled within a narrow range. However, any permanent changes in foreign exchange rates in RMB may have an impact on the Group’s results.

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MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX IV

Contingent liabilities

The Group had no contingent liabilities as at 31 December 2005.

Employees

As at 31 December 2005, other than executive directors, the Group employed 22 employees in Hong Kong and the PRC. The Group’s staff costs amounted to approximately HK$3.9 million during the year. Employees are remunerated according to qualifications and experience, job nature and performance, with pay scale aligned with market conditions.

4. Segmental information of the Group

At present, the principal business of the Group is property development project management which involves the provision of advisory and project management services in relation to property development projects.

In the past few years, the Group has engaged in the following businesses which were all discontinued in 2005:

(i) Online operation which involved the provision of internet services, web design and set-up services, etc.;
(ii) Trading, financial services and investment holding which involved general trading of goods, provision of financial services, investment in securities and leasing of investment properties; and
(iii) Offline operation which involved the provision of telecommunication services and products.

In 2003, the Group recorded tremendous losses which were mainly due to unsatisfactory performance of the Group’s investment holdings activities and offline operations (accounted for 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 year ended 31 December 2003 accounted for approximately 80% of the total segmental losses for the year. Besides, as the online business was still in the stage of strategic development, it had not yielded any revenue to the Group during 2003 but incurred development costs, thus further putting pressure on the results of the Group.

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MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX IV

In the year 2004, the Group started 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.

B. MANAGEMENT DISCUSSION AND ANALYSIS OF LOYAL WAY GROUP FOR THE PERIOD FROM 6 JULY 2005 (DATE OF INCORPORATION) TO 31 MARCH 2006

Loyal Way was incorporated on 6 July 2005 as a special purpose vehicle to hold the indirect equity interest in the PRC JV, a sino-foreign cooperative joint venture enterprise incorporated on 31 March 2003 pursuant to a sino-foreign cooperative joint venture agreement between Zhoutouzui Development , Yuexiu and GPAB. Under the joint venture agreement, Zhoutouzui Development is obliged to arrange the necessary financing to the PRC JV for the Development Project.

Loyal Way has not carried on any business since its incorporation save for the acquisition of the 100% issued capital of Zhoutouzui Development in October 2005 through its two-wholly owned subsidiaries namely Fortunate Start and Ace Billion. Zhoutouzui Development is also an investment company which holds the proprietary right in the Development Project through the PRC JV. The PRC JV is a project company and has not carried on any business since its establishment other than its beneficial interest in the Land.

The Development Project principally comprises the development and construction on the Land of residential apartments, serviced-residential apartments, hotel, retail commercial mall and other ancillary facilities. It is expected that the PRC JV will obtain the construction permit in mid-2007. Pre-sale of the residential properties is expected to commence in mid-2008 and the whole Development Project is expected to be completed by the end of 2009.

The total cost of the Development Project is estimated to be approximately HK$2,084 million which is to be financed by shareholders’ advances of approximately HK$784 million, bank borrowing of approximately HK$669 million and pre-sale proceeds of approximately HK$631 million. As at 31 March 2006, the balance sheet of the Loyal Way Group recorded development costs in the amount of approximately HK$496 million

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MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX IV

and goodwill of approximately HK$65 million arising from the premium given to the vendor by Loyal Way when it acquired the interest of Zhoutouzui Development in October 2005.

Due to the nature of business as investment vehicles, all amongst Loyal Way, the intermediate holding companies and Zhoutouzui Development have been inactive since their incorporations except that certain general and administrative expenses were incurred. The consolidated accounts of Loyal Way recorded operating loss of an amount of approximately HK$4.8 million for the period from the 6 July 2005 (date of incorporation of Loyal Way) to 31 March 2006.

Liquidity and financial resources

Capital structure and liquidity

Loyal Way’s investment in the PRC JV is entirely financed by shareholders’ advances. As at 31 March 2006, shareholders had contributed a total of approximately HK$527 million to Loyal Way Group. Other than the non-current deferred tax liabilities of approximately HK$51 million, Loyal Way Group had creditor balances of approximately HK$3 million as at 31 March 2006. Relying on the continuing financial support of the shareholders, Loyal Way Group maintained its current assets consisting of solely cash balance at approximately HK$20 million as at 31 March 2006 (2005: bank balance of approximately HK$17 million and prepaid demolition costs of approximately HK$87 million), thus leading to a current ratio of approximately 6.3:1 as at 31 March 2006 and approximately 41.7:1 as at 31 December 2005.

The management is seeking a capital structure that optimizes the benefits and costs between debt and equity to Loyal Way Group. Upon the completion of the acquisition of the interest in the PRC JV by the Company, bank borrowings are to be sought to finance further development costs of the Development Project.

Bank borrowings and pledge of assets

As the aforesaid, the Loyal Way Group had no bank borrowing nor it had any asset pledge at the respective balance sheet dates.

Foreign currency management

The Loyal Way Group’s major investment is the interest in the PRC JV which is engaged in property development activities in the PRC. It contracts with its suppliers for goods and services that are denominated in RMB. The Loyal Way Group does not hedge its foreign currency risks as the rate of exchange between HK$ and RMB is controlled within a narrow range. However, any permanent changes in foreign exchange rates in RMB may have an impact on the Loyal Way Group’s results.

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MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX IV

Contingent liabilities

The Loyal Way Group had no contingent liabilities as at respective balance sheet dates.

Employees

Since January 2006, the Loyal Way Group has started to recruit suitable workforce for the Development Project. As at 31 March 2006, it employed 20 employees, out of which 10 are technical staff with expertise in the property development industry in the PRC and paid staff costs amounting to approximately HK$0.3 million for the three months ended 31 March 2006. Employees are remunerated according to qualifications and experience, job nature and performance, with pay scale aligned with market conditions.

Segmental Information of the Loyal Way Group

The Loyal Way Group is principally engaged in property development in the PRC, which is regarded as one single business segment and geographical segment.

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VALUATION REPORT

APPENDIX V

The following is the text of a letter, summary of value and valuation certificate, prepared for the purpose of incorporation in this circular received from RHL Appraisal Ltd., an independent valuer, in connection with its valuation as at 30 June 2006 of the property interests held by the Enlarged Group .

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2 August 2006

The Board of Directors

Skyfame Realty (Holdings) Limited

2502B, Tower 1 Admiralty Centre No. 18 Harcourt Road Central Hong Kong

Dear Sirs,

Re: Valuation of Properties situated in Guangzhou City, Guangdong Province, the Peoples’ Republic of China (the “properties”)

In accordance with your instructions to value the property interests held by Skyfame Realty (Holdings) Limited (the “Company”) or Loyal Way (China) Group Limited (“Loyal Way”) and their respective subsidiaries (altogether referred to as the “Enlarged Group”) situated in the People’s Republic of China (the “PRC”), we confirm that we have carried out inspections of the properties, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the market values of the properties as at 30 June 2006 (the “date of valuation”).

BASIS OF VALUATION

Our valuation of the properties represents 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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VALUATION REPORT

APPENDIX V

TITLESHIP

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

We have also relied upon the legal opinion provided by the PRC legal advisers, namely Guang Dong Fair Strategy Law Firm（廣州正大方略律師事務所）(the “PRC Legal Opinion”), to the Company on the relevant laws and regulations in the PRC, on the nature of land use rights in the properties in Group I and the validity of the leasehold interest in the properties in Group II.

VALUATION METHODOLOGY

The properties are valued by the comparison method where comparison based on prices realised or market prices of comparable properties is made. Comparable properties of similar size, character and location are analysed and carefully weighed against all the respective advantages and disadvantages of each property in order to arrive at a fair comparison of capital values.

For the development sites of the properties which are held for future development, we have considered their development or redevelopment potential mentioned herein.

We have attributed no commercial value to the properties 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 rent.

ASSUMPTIONS

Our valuation has been made on the assumption that the owners sell the properties on the market in their 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 properties.

As the properties in Group I are held by the owners 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 properties for the whole of the unexpired term of the respective land use rights.

We have valued the properties in Group I on the basis that they shall be developed after completing all necessary resettlement arrangement with existing occupiers and obtaining approval of building plans. This assumption is considered reasonable and realistic since the PRC Legal Opinion has confirmed that the respective owners of the properties have either completed all land grant procedures or have no legal impediment in completing the land grant

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VALUATION REPORT

APPENDIX V

procedures. Subject to the compliance with planning conditions such as plot ratio and site coverage etc. as imposed by the Government and mentioned in this report, there shall have no legal impediment for the owners’ obtaining building plan approval and construction permit from the Government.

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

LIMITING CONDITIONS

No allowance has been made in our report for any charges, mortgages or amounts owing on the properties valued nor for any expenses or taxation which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that the properties are free from encumbrances, restrictions and outgoings of an onerous nature, which could affect their values. Our valuation have been made on the assumption that the seller sells the property on the market without the benefit of a deferred term contract, leaseback, joint venture, management agreement or any similar arrangement, which could serve to affect the values of the properties.

We have relied to a very considerable extent on the information given by the Group and have accepted advice given to us on such matters as tenure, planning approvals, statutory notices, easements, particulars of occupancy, lettings, and all other relevant matters.

We have not carried out detailed site measurements to verify the correctness of the site areas in respect of the properties but have assumed that the site areas shown on the documents and official site plans handed to us are correct. All documents and contracts have been used as reference only and all dimensions, measurements and areas are approximations.

We have carried out inspections of the properties. 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 properties. 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 had no reason to doubt the truth and accuracy of the information provided to us by the Group. We have also sought confirmation from the Group that no material factors have been omitted from the information supplied. We consider that we have been provided with sufficient information to reach an informed view, and we have no reason to suspect that any material information has been withheld.

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APPENDIX V

VALUATION REPORT

According to the information prepared by the Group, the potential tax liabilities which would arise on the disposal of the properties in Group II are PRC business tax (approximately 5% on selling price), 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 properties in Group I in the foreseeable future.

In valuing the properties, we have complied with all the requirements contained in Chapter 5 and Practice Note 12 to the Rules Governing the Listing of Securities issued by The Stock Exchange of Hong Kong Limited; the HKIS Valuation Standards on Properties (First Edition 2005) published by The Hong Kong Institute of Surveyors effective from 1st January 2005.

Unless otherwise stated, all monetary sums stated in this report are in Renminbi (RMB).

Our summary of valuation and valuation certificate are attached herewith.

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

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

Tse Wai Leung is a member of the Royal Institution of Chartered Surveyors, a member of The Hong Kong Institute of Surveyors, a Registered Professional Surveyor in General Practice and a qualified real estate appraiser in the PRC. Sandra S.W. Lau 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. Both of them are on the list of Property Valuers for Undertaking Valuations for Incorporation or Reference in Listing Particulars and Circulars and Valuations in Connection with Takeovers and Mergers of the Hong Kong Institute of Surveyors, Registered Business Valuer under the Hong Kong Business Forum and have over 10 years’ experience in valuation of properties in Hong Kong, in Macau and in the PRC.

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VALUATION REPORT

APPENDIX V

SUMMARY OF VALUATION

Market Value on vacant possession basis as at 30 June 2006 RMB


Property			30 June 2006
			RMB
Group I — Properties held by the Enlarged Group for future development
1.	A parcel of waterfront land located at the north of Mayong,		990,000,000
	the east of Zhujiang, the south of Tongfuxi	Road and	free from the
	the north of Houde Road	estimated further costs
	Zhoutouzui Haizhu District		for site clearance
	Guangzhou City		(please refer to
	Guangdong Province		notes 4 & 5 in
	The PRC		the valuation
		certificate attached
			herewith)
2.	Development site at the junction of Tianhe	Bei Road and	417,000,000
	Linhe Dong Road	(please refer to note 4
	Tianhe District		in the valuation
	Guangzhou City	certificate attached
	Guangdong Province		herewith)
	The PRC
		Sub-total:	1,407,000,000
Group II — Properties rented by the Enlarged		Group
3.	Unit L on Level 6	No	commercial value
	Nos. 138 and 146 Linhe Zhong Road
	Tianhe District
	Guangzhou City
	Guangdong Province
	The PRC
4.	Portion of Level 6	No	commercial value
	No. 142 Linhe Zhong Road
	Tianhe District
	Guangzhou City
	Guangdong Province
	The PRC
		Grand Total :	1,407,000,000

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VALUATION REPORT

APPENDIX V

VALUATION CERTIFICATE

Group I — Properties held by the Enlarged Group for future development

Market Value on vacant possession Particulars of basis as at Property Description and tenure occupancy 30 June 2006 RMB 1. A parcel of The property comprises an The property is 990,000,000 waterfront land irregular-shaped site with a site currently free from the located at the north area of approximately 106,273 undergoing estimated further costs of Mayong, square metres. clearance and for site clearance the east of Zhujiang, demolition work. (please refer to the south of According to a development plan Out of the total notes 4 & 5 below) Tongfuxi Road and handed to us by the Group, a site area of the north of Houde composite development 106,273 square Road accommodating luxury metres of the land, Zhoutouzui residential, serviced apartments, approximately Haizhu District retail, hotel, community centre 86,272 square Guangzhou City and car parking spaces will be metres of it has Guangdong constructed on the subject site. been vacated and Province The permitted total gross floor cleared. The PRC area upon completion would be Remaining portion 212,546 square metres plus of the property is basement area of 29,000 square currently erected metres. with various residential The land use rights of the buildings and property were granted for a term simple structures of 70 years for residential and is occupied by purpose, 40 years for commercial existing residents. and recreational purpose and 50 years for composite purpose commencing from the issue date of the Land Use Right Certificate.

Notes:

Pursuant to a State-owned Land Use Rights Grant Contract dated 10 September 2003, two supplemental agreements respectively dated 18 February 2004 and 15 September 2004, the land use rights in the subject land an area of approximately 106,273 square metres were granted to by the Bureau of Land Resources and Housing Management of Guangzhou Municipality to 廣州越秀企業

（集團）公司 (Guangzhou Yuexiu Enterprise (Group) Company Limited) for a term of 70 years for residential use, 40 years for commercial and recreational use and 50 years for other uses. Subsequently, a Construction Land Use Permit for the property was issued by the Bureau of Land Resources and Housing Management of Guangzhou Municipality on 8 April 2004 in the name of Guangzhou Yuexiu Enterprise (Group) Company Limited. The following material development conditions are contained in the State-owned Land Use Rights Grant Contract:

Plot Ratio : 2x
Total Gross Floor Area : 212,546 square metres (comprising 10,000 square metres of commercial floor area and 202,546 square metres of residential floor area) plus a basement area of 29,000 square metres

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VALUATION REPORT

APPENDIX V

A Construction Land Use Planning Permit (Ref : Sui Guo Tu Jian Yong Zhi [2004] No. 184) in relation to the property was issued by the Land Resource and Building Administration Bureau of Guangzhou on 8 April 2004 in the name of Guangzhou to Guangzhou Yuexiu Enterprise (Group) Company Limited with such permitted uses as ferry pier, commercial, tourism and residential. The planned site area is approximately 396,629 square metres.
Pursuant to a Joint Development Agreement dated 18 September 2001 entered into among Guangzhou Yuexiu Enterprise (Group) Company Limited (Party A), 廣州港務局 (Guangzhou Port Authority Bureau) (Party B) and 廣州洲頭咀發展有限公司 (Guangzhou Zhoutouzui Development Limited) (Party C), a sino-foreign cooperative joint venture enterprise namely 廣州市譽城房地產開發有限公司 (Guangzhou Yucheng Real Estate Development Company Limited) were established for undertaking the subject development project. Material conditions of the Joint Development Agreement are set out as follows:
Party A and B contributed the subject land for the development and Party C bears the costs of site clearance and property development.
Party C paid to Party A a sum of RMB10,000,000 as cash compensation.
For profit sharing of the project, floor area of the project upon completion shall be shared by the three parties in the following ratios:

Party A : 0% Party B : 28% Party C : 72%

Given the profit sharing conditions as mentioned above, we have taken out any benefit to be derived from the floor area of the project attributable to Party B in arriving at the market value of property interest attributable to Party C.
As at the valuation date, majority portion of the subject site with an area of approximately 86,272 square metres has been vacated and cleared. The remaining portion of the subject site with an area of 20,001 square metres (the “uncleared land portion”) was being erected with buildings or simple structures of 1 to 23-storey high. These buildings and structures with a total floor area of approximately 55,000 square metres were not yet vacated. As confirmed by the Company, site clearance work for this occupied land portion shall be proceeded in due course. Given the total floor area of 55,000 square metres of those existing buildings and structures and their prevailing market prices at an unit rate of RMB3,000 to RMB3,500 per square metre in term of floor area, the cost for vacating the uncleared land portion is estimated at RMB192,500,000 as at the valuation date.
We have been provided with a legal opinion regarding the property interests by the Company’s PRC legal advisers, which contains, inter alia, the followings:
(i) The land use rights in the property have been legally, validly and properly granted by the relevant Government authority for the purpose of the subject project and the land premium underlying the land grant have been settled in full by Guangzhou Yucheng Real Estate Development Company Limited.
(ii) Guangzhou Yucheng Real Estate Development Company Limited has the full and unencumbranced interest to own, develop, sale, lease and manage the property or any buildings thereon.
(iii) Guangzhou Yuexiu Enterprise (Group) Company Limited which is merely the registered owner of the property, does not have any real interest in the property and is bounded to transfer the legal title in the property to Guangzhou Yucheng Real Estate Development Company Limited in due course.

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VALUATION REPORT

APPENDIX V

(iv) Guangzhou Yucheng Real Estate Development Company Limited does not have any legal impediment and extra land premium (save for transaction levy equivalent to 3% on land premium paid or assessed fair market land value, whichever is the higher) in obtaining Land Use Right Certificate for any portion of the subject land of which site clearance is completed.
(v) Save for any restriction as laid down in the Land Use Right Grant Contract, Guangzhou Yucheng Real Estate Development Company Limited’s interest in the property is free from any encumbrance and is not subject to any situation leading to re-entry by the Government.
(vi) Subject to the completion of title transfer and the issue of Land Use Right Certificate, Guangzhou Yucheng Real Estate Development Company Limited has the right to freely lease, transfer, mortgage or otherwise disposed of the land use rights in the property.
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 is as follows:

Land Use Rights Certificate: Not yet applied for Red-line Drawing : Yes Construction Land Permit: Yes (dated 8 April 2004) Construction Land Planning Permit: Yes (dated 8 April 2004) Construction Permit: Not yet applied for Business Licence: Yes (in the name of Guangzhou Yucheng Real Estate Development Company Limited and dated 29 April 2006)

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VALUATION REPORT

APPENDIX V

Description and tenure

Property

Development Site at The Property comprises a parcel the junction of of land with an area of 6,057 Tianhe Bei Road and square metres (see note 3 below). Linhe Dong Road, A portion of the property abutting Tianhe District, onto Tianhe Bei Road is erected Guangzhou, with a 3-storey structure whilst Guangdong Province, the remaining portion of it is the PRC. cleared and vacant. As confirmed by the Company, the 3-storey structure shall be demolished during the course of development.

Market Value on vacant possession Particulars of basis as at occupancy 30 June 2006 RMB The southern 417,000,000 portion of the property abutting See Note 4 below onto Tianhe Bei Road is currently occupied by a fire station whilst the remaining 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 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（廣州市城市規劃局）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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VALUATION REPORT

APPENDIX V

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 has been relocated somewhere else as at the valuation date such that Guangzhou Huan Cheng Real Estate Development Co Ltd obtains vacant possession of the entire development site and the entire building on the subject site shall be used for commercial/office purposes free from the fire station re-habitation requirement.
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 rehabitation requirements by mean of property exchange. The PRC lawyer understands that Guangzhou Huan Cheng Real Estate Development Co Ltd has reached agreement with the fire station on this issue.
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 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 23 January 2006)

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VALUATION REPORT

APPENDIX V

Group II — Properties rented by the Enlarged Group

				Market Value on
				vacant possession
			Particulars of	basis as at
Property		Description and tenure	occupancy	30 June 2006
				RMB
3.	Unit L on Level 6	The property comprises an office	The property is	No commercial value
	Nos. 138-146 Linhe	unit on Level 6 of a 6-storey	currently occupied
	Zhong Road	commercial podium underneath a	by the Enlarged
	Tianhe District	25-storey residential tower	Group as an
	Guangzhou City	completed in 2002.	office.
	Guangdong
	Province	The gross floor area of the
	The PRC	property is approximately 100
		square metres.
		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.

Notes:

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.) from 廣州市創譽房地產開發有限公司 (Guangzhou Chuang Yu Real Estate Development Co. Ltd.) for a term of 3 years expiring on 8 May 2008 at a monthly rent of RMB1,000.
Opinion of the PRC Lawyer on the property is summarized as follows:
2.1 The tenancy agreement entered into between 廣州市創譽房地產開發有限公司 (Guangzhou Chuang Yu Real Estate Development Co. Ltd.) and 廣州寰城實業發展有限公司 (Guangzhou Huan Cheng Real Estate Development Co. Ltd.) on 27 May 2005 under which Guangzhou Huan Cheng Real Estate Development Co. Ltd. leased from Guangzhou Chuang Yu Real Estate Development Co. Ltd. the property for a term of 3 years expiring on 8 May 2008;
2.2 a Building and Land Ownership Certificate was issued in the name of Guangzhou Chuang Yu Real Estate Development Co. Ltd. on 13 June 2003;
2.3 the aforesaid tenancy agreement is legal, valid and enforceable and has been completed with registration procedures; and
2.4 the land use rights in the property are held by Guangzhou Chuang Yu Real Estate Development Co. Ltd..

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VALUATION REPORT

APPENDIX V

Market Value on vacant possession Particulars of basis as at Property Description and tenure occupancy 30 June 2006 RMB 4. Portion of Level 6 The property comprises office The property is No commercial value No. 142 Linhe space on Level 6 of a 6-storey currently occupied Zhong Road commercial podium underneath a by the Enlarged Tianhe District 25-storey residential tower Group as an Guangzhou City completed in 2002. office. Guangdong Province The gross floor area of the The PRC property is approximately 1,295 square metres. The property is rented by the Enlarged Group for a term of 1 year commencing on 1 November 2005 and expiring on 31 October 2006 at a monthly rent of RMB41,440 exclusive of management fee and other outgoings.

Notes:

Pursuant to an undated tenancy agreement, the property is rented by 廣州譽浚咨詢顧問有限公司 (Guangzhou Yu Jun Advisory Services Company Limited) from 廣州市創譽房地產開發有限公司 (Guangzhou Chuang Yu Real Estate Development Co. Ltd.) for a term of 1 year expiring on 31 October 2006 at a monthly rent of RMB41,400.
Opinion of the PRC Lawyer on the property is summarized as follows:
2.1 The tenancy agreement entered into between 廣州譽浚咨詢顧問有限公司 (Guangzhou Yu Jun Advisory Services Company Limited) and 廣州市創譽房地產開發有限公司 (Guangzhou Chuang Yu Real Estate Development Co. Ltd.) under which Guangzhou Yu Jun Advisory Services Company Limited leased from Guangzhou Chuang Yu Real Estate Development Co. Ltd. the property for a term of 1 year expiring on 31 October 2006;
2.2 a Building and Land Ownership Certificate was issued in the name of Guangzhou Chuang Yu Real Estate Development Co. Ltd. on 13 June 2003;
2.3 the aforesaid tenancy agreement is legal, valid and enforceable and has been completed with registration procedures; and
2.4 the land use rights in the property are held by Guangzhou Chuang Yu Real Estate Development Co. Ltd..

— 128 —

GENERAL INFORMATION

APPENDIX VI

1. RESPONSIBILITY STATEMENT

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

2. DISCLOSURE OF DIRECTORS’ INTERESTS

Director’s interests in the Company

As at the Latest Practicable Date, the interests and short positions of the Directors and chief executive 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) to be notified to the Company and the Stock Exchange; 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 Issuers of the Listing Rules (“Model Code”) to be notified to the Company and the Stock Exchange are as follows:

	Company/		Number	Approximate
Name of	Associated		of shares	shareholding
Director	corporation	Capacity	(long position)	percentage
YU Pan	Company	Interest of	670,526,985	61.52%
		a controlled	shares_(note 1)_	(note 2)
		corporation
YU Pan	Grand Cosmos	Beneficial	10,000 shares of	100%
	Holdings Limited	owner	US$1 each
	(“Grand Cosmos”)

Notes:

These Shares comprise (i) 572,236,485 existing Shares held by Grand Cosmos; (ii) 55,555,500 Shares undertaken to be taken up by Grand Cosmos pursuant to the Underwriting Agreement; and (iii) 42,735,000 Bonus Warrants to be issued to Grand Cosmos upon completion of the Open Offer. The entire issued share capital of Grand Cosmos is held by Mr. YU Pan.
For the purposes of this section, the shareholding percentage in the Company is calculated on the basis of 1,089,861,385 Shares in issue immediately after completion of the Open Offer.

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GENERAL INFORMATION

APPENDIX VI

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) to be notified to the Company and the Stock Exchange; 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 to be notified to the Company and the Stock Exchange.

3. 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 Group:

(a) Long position in the Shares and underlying Shares

			Approximate
Name of		Number of	shareholding
Shareholder	Capacity	Shares	percentage
			(note 3)
Grand Cosmos	Beneficial owner	670,526,985	61.52
		(note 1)
Taifook Securities	Beneficial owner	374,668,206	34.38
Company Limited		(note 2)
(“Taifook
Securities”)
Taifook Finance	Interest of a controlled	374,668,206	34.38
Company Limited	corporation	(note 2)
Tai Fook (BVI)	Interest of controlled	374,668,206	34.38
Limited	corporations	(note 2)

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GENERAL INFORMATION

APPENDIX VI

			Approximate
Name of		Number of	shareholding
Shareholder	Capacity	Shares	percentage
			(note 3)
Taifook Securities	Interest of controlled	374,668,206	34.38
Group Limited	corporations	(note 2)
PMA Capital	Investment manager	184,000,000	16.88
Management Ltd.
Diversified Asian	Beneficial owner	99,194,000	9.10
Strategies Fund
PMA Asian	Beneficial owner	71,300,000	6.54
Opportunities Fund

Notes:

These Shares comprise (i) 572,236,485 existing Shares held by Grand Cosmos; (ii) the 55,555,500 Shares undertaken to be taken up by Grand Cosmos pursuant to the Underwriting Agreement; and (iii) 42,735,000 Bonus Warrants to be issued to Grand Cosmos upon completion of the Open Offer.
These Shares comprise (i) 211,768,986 Shares agreed to be underwritten by Taifook Securities pursuant to the Underwriting Agreement; and (ii) 162,899,220 Bonus Warrants to be issued to Taifook Securities upon completion of the Open Offer. The entire issued share capital of Taifook Securities is held by Taifook Finance Company Limited, the entire issued share capital of which is held by Tai Fook (BVI) Limited, a wholly-owned subsidiary of Taifook Securities Group Limited. Each of Taifook Finance Company Limited, Tai Fook (BVI) Limited and Taifook Securities Group Limited is deemed to be interested in the Shares in which Taifook Securities is interested by virtue of the SFO.
For the purposes of this section, the shareholding percentage is calculated on the basis of 1,089,861,385 Shares in issue immediately after completion of the Open Offer.

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GENERAL INFORMATION

APPENDIX VI

(b) Short position in the Shares and underlying Shares

			Approximate
Name of		Number of	shareholding
Shareholder	Capacity	Shares	percentage
			(note 1)
Taifook Securities	Beneficial owner	325,538,461	29.87
Taifook Finance	Interest of a controlled	325,538,461	29.87
Company Limited	corporation	(note 2)
Tai Fook (BVI)	Interest of controlled	325,538,461	29.87
Limited	corporations	(note 2)
Taifook Securities	Interest of controlled	325,538,461	29.87
Group Limited	corporations	(note 2)

Notes:

For the purposes of this section, the shareholding percentage is calculated on the basis of 1,089,861,385 Shares in issue immediately after completion of the Open Offer.
The entire issued share capital of Taifook Securities is held by Taifook Finance Company Limited, the entire issued share capital of which is held by Tai Fook (BVI) Limited, a wholly-owned subsidiary of Taifook Securities Group Limited. Each of Taifook Finance Company Limited, Tai Fook (BVI) Limited and Taifook Securities Group Limited is deemed to be have short positions in Shares or underlying shares of the Company by virtue of the SFO.

Save as disclosed above, as at the Latest Practicable Date and 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 Group.

Save and except for the counter-indemnity (being material contract no. 7 as referred to below) granted by Mr. YU Pan in favour of the Company and Nicco Limited 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 Group subsisting at the Latest Practicable Date which was significant in relation to the business of the Group.

4 DIRECTORS’ INTERESTS IN ASSETS/CONTRACTS AND OTHER INTERESTS

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GENERAL INFORMATION

APPENDIX VI

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 Group or are proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2005, being the date to which the latest published audited consolidated accounts of the Group were made up.

5. MATERIAL CONTRACTS

The following contracts, not being contracts entered into in the ordinary course of business, were entered into by the Company or its subsidiaries during the period commencing two years preceding the Latest Practicable Date and are or may be material:

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 of HK$0.01 each in the Company for a consideration of approximately HK$34,770,151;
the placing agreement dated 17 May 2005 entered into between the Company and Taifook Securities, pursuant to which the Company appointed Taifook 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 Company at the issue price of HK$0.016 per placing share for a commission of 2% of the issue price of the placing shares successfully taken up and fully paid;
the agreement for sale and purchase dated 22 June 2005 entered into between Sunny Billion Holdings Limited and Ms. AZUMA Sarina in relation to the acquisition by Sunny Billion Holdings Limited of the entire issued share capital of Yaubond Limited and the shareholder’s loans due by Yaubond Limited to Ms. AZUMA and its supplemental agreement dated 5 October 2005;
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 for 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 for a consideration of HK$430,000;
the underwriting agreement entered into between the Company, Grand Cosmos and Taifook Securities (as underwriters) and Mr. YU Pan on 5 October 2005 in relation to the underwriting of 302,487,048 rights Shares;

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GENERAL INFORMATION

APPENDIX VI

the counter-indemnity dated 5 October 2005 executed by Mr. YU Pan in favour of the Company and Nicco Limited pursuant to which Mr. YU Pan agreed to indemnify the Company and Nicco Limited against any of their liabilities under the deed of appointment executed by Yaubond Limited, Sunny Billion Holdings Limited and the Company in relation to the appointment of Yaubond Limited as the project manager of the development of a piece of land located at the northern part of the North Tianhe Road, Tianhe District in the PRC;
the conditional agreement dated 5 October 2005 entered into between Sunny Billion Holdings Limited and Nicco Limited (a wholly owned subsidiary of the Company) in relation to the proposed acquisition of 49 shares of US$1.00 each in the issued share capital of Yaubond Limited, a shareholder’s loan due by Yaubond Limited to Sunny Billion Holdings Limited of HK$45,073,721.04 and an additional amount of not more than HK$77.4 million at an aggregate consideration of not more than HK$204.4 million;
the shareholders agreement in respect of Yaubond Limited dated 16 December 2005 entered into between Nicco Limited, Sunny Billion Holdings Limited, the Company and Poly (HK);
the deed of appointment dated 16 December 2005 entered into between Yaubond Limited, Sunny Billion Holdings Limited, United Prime Limited (a wholly owned subsidiary of the Company), the Company and Nicco Limited pursuant to which Yaubond Limited appointed United Prime Limited as the project manager to undertake and supervise the construction and development of a piece of land located at Tian He District to the north of Tian He Bei Road, Guangzhou, the PRC;
the deed of indemnity dated 16 December 2005 executed by Sunny Billion Holdings Limited, Yaubond Limited and Nicco Limited pursuant to which Sunny Billion Holdings Limited covenanted with and undertook to indemnify Nicco Limited for itself and as trustee for its successors in title and the Company against certain taxation liability of Yaubond Limited;
the assignment of debt dated 16 December 2005 executed by Sunny Billion Holdings Limited, Nicco Limited and Yaubond Limited pursuant to which Sunny Billion Holdings Limited assigned a debt in the principal sum of HK$82,892,297.96 to Nicco Limited;
the Underwriting Agreement; and
the Acquisition Agreement.

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GENERAL INFORMATION

APPENDIX VI

6. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contracts with any member of the Group other than contracts expiring or determinable by the relevant member of the Group within one year without payment of compensation (other than statutory compensation).

7. COMPETING INTERESTS

As at the Latest Practicable Date, save for Mr. YU Pan, the chairman of the Company, and his associates has personal interest in certain properties including residential buildings, commercial buildings, and hotel, in the PRC, none of the Directors and his/ her respective associates had any interests in any business, which competes or is likely to compete, either directly or indirectly, with the Company’s business (as would be required to be disclosed under rule 8.10 if each of them were a controlling Shareholder).

8. 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 is known to the Directors to be pending or threatened by or against any member of the Enlarged Group.

9. EXPERTS AND CONSENT

The followings are the qualifications of the experts who have been named in this circular or have given opinions, letters or advice contained in this circular:

Name	Qualification
BDO McCabe Lo Limited (“BDO”)	Certified Public Accountants
RHL Appraisal Ltd. (“RHL”)	Property valuer, chartered surveyor

BDO and RHL have given and have not withdrawn their written consents to the issue of this circular with the inclusion therein of their letters or references to their names in the form and context in which they respectively appear.

None of BDO 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 BDO and RHL has any direct or indirect interest in any assets which have been acquired or disposed of by or leased to any member of the Group since 31 December 2005 (being the date to which the latest published audited consolidated accounts of the Company were made up), or which are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group.

10. MISCELLANEOUS

(a) The registered office of the Company is Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda.
(b) The head office and principal place of business of the Company in Hong Kong is at 2502B, Tower 1, Admiralty Centre, 18 Harcourt Road, Hong Kong.
(c) The company secretary and qualified accountant of the Company is Ms. CHEUNG Lin Shun, who is a fellow member of the Hong Kong Institute of Certified Public Accountants and the Association of Chartered Certified Accountants.
(d) The Hong Kong branch share registrars and transfer office of the Company is Abacus Share Registrars Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.
(e) The English text of this circular shall prevail over the Chinese text.

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be 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 from the date of this circular up to and including the date of the SGM:

(a) the memorandum of association and the bye-laws of the Company;
(b) the material contracts referred to in the section headed “Material Contracts” in this appendix;
(c) the annual reports of the Company for the two years ended 31 December 2005;
(d) the report of BDO in respect of the unaudited pro forma financial information of the Enlarged Group as set out in appendix III to this circular;
(e) the valuation report prepared by RHL included in appendix V to this circular;

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GENERAL INFORMATION

APPENDIX VI

(f) the accountants’ report on the Loyal Way Group included in appendix II to this circular;
(g) the written consents referred to under the section headed “Experts and Consents” in this appendix;
(h) the circular of the Company dated 27 June 2006; and
(i) the prospectus of the Company dated 13 July 2006.

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NOTICE OF THE SGM

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NOTICE IS HEREBY GIVEN that a special general meeting of Skyfame Realty (Holdings) Limited (the “ Company ”) will be held at the office of Strategic Public Relations Group Limited, Room 3203, Tower 1, Admiralty Centre, 18 Harcourt Road, Hong Kong on Friday, 18 August 2006 at 11:00 a.m. for the purpose of considering and, if thought fit, passing with or without modifications, the following resolution as ordinary resolution of the Company:

ORDINARY RESOLUTION

“ THAT :
(i) the sale and purchase agreement dated 6 July 2006 (“ 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 Smartford Limited (“ Purchaser ”), an indirect wholly owned subsidiary of the Company, as purchaser and Mr. LUO Dong Liang（羅東亮）as vendor (“ Vendor ”) whereby the Purchaser conditionally agreed to purchase from the Vendor and the Vendor conditionally agreed to sell to the Purchaser a 51% shareholding in Loyal Way (China) Group Limited (“ Loyal Way ”) and assign to the Purchaser the face value of the shareholders’ loans due by Loyal Way to the Vendor on completion of the Acquisition Agreement at an aggregate consideration of not more than HK$400 million be and is hereby approved in all respects and all the transactions contemplated thereby be and are hereby approved; and
(ii) 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 and to do all such acts and things they consider necessary, desirable or expedient for the implementation of the Acquisition Agreement and any of the transactions contemplated thereunder.”

By Order of the Board CHEUNG Lin Shun

Company Secretary

Hong Kong, 2 August 2006

* For identification purposes only

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NOTICE OF THE SGM

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

Notes:

Any member of the Company entitled to attend and vote at the meeting by the above notice shall be entitled to appoint another person as his/her proxy to attend and vote instead of such member and such proxy need not be a member of the Company. A form of proxy for use at the meeting is enclosed.
The instrument appointing a proxy shall be in writing under the hand of the appointor or of his/her attorney duly authorized in writing or, if the appointor is a corporation, either under its seal or under the hand of an officer, attorney or other person authorized to sign the same.
In order to be valid, the form of proxy and the power of attorney or other authority (if any) under which it is signed or a notarially certified copy of that power or authority, must be deposited at the Company’s branch share registrar in Hong Kong, Abacus Share Registrars Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time appointed for holding the meeting or any adjournment thereof.
Completion and delivery 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.
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.
As at the date of this notice, the Board comprises four executive Directors, being Mr. YU Pan, Mr. LAU Yat Tung, Derrick, Mr. WONG Lok, and Mr. WEN Xiao Bing and three independent non-executive Directors, being Mr. CHOY Shu Kwan, Mr. CHENG Wing Keung, Raymond and Ms. CHUNG Lai Fong.

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AI assistant

Greenheart Group Limited — Proxy Solicitation & Information Statement 2006

48939_rns_2006-08-02_d4b3bf34-ec74-4487-99c8-6a4d7f9df113.pdf

Financial adviser to Skyfame Realty (Holdings) Limited

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

Executive Directors:

VERY SUBSTANTIAL ACQUISITION PROPOSED ACQUISITION OF 51% SHAREHOLDING IN AND SHAREHOLDERS’ LOANS DUE BY LOYAL WAY (CHINA) GROUP LIMITED

INTRODUCTION

LETTER FROM THE BOARD

THE ACQUISITION AGREEMENT

Date

Parties

Assets to be acquired or assigned

Shareholding structure of Loyal Way

Existing structure

Upon completion of the Acquisition

LETTER FROM THE BOARD

Information on Loyal Way

LETTER FROM THE BOARD

The Consideration

LETTER FROM THE BOARD

Conditions precedent

Completion

REASONS FOR AND BENEFITS OF THE ACQUISITION

GENERAL

THE SGM

PROCEDURES BY WHICH A POLL MAY BE DEMANDED

RECOMMENDATION

FURTHER INFORMATION

SUMMARY OF FINANCIAL INFORMATION OF THE GROUP

1. Financial Summary

2. Audited Financial Statements for the Financial Year ended 31 December 2005

Report of the Auditors

To the members of Skyfame Realty (Holdings) Limited (formerly known as renren Holdings Limited)

Respective Responsibilities of Directors and Auditors

Basis of Opinion

BDO McCabe Lo Limited

Consolidated Income Statement

Consolidated Balance Sheet

Balance Sheet

Consolidated Statement of Changes in Equity

Consolidated Cash Flow Statement

Notes to the Financial Statements

1. General

2. Principal accounting policies

(a) Statement of compliance

(b) Basis of preparation

HKFRS 2 “Share-based Payment”

HKFRS 3 “Business Combinations”

Goodwill

HKAS 17 “Leases” HKAS 40 “Investment Property”

Convertible debt

Financial assets and financial liabilities other than debt and equity securities

Derecognition

(c)

Basis of consolidation

(d) Cash and cash equivalents

(e) Goodwill

(f) Impairment of non-financial assets

(g) Associates

(h)

Foreign currency

(i)

Financial instruments

(i) Financial assets

(ii) Financial liabilities

(iii) Convertible debt

(j) Employee benefits

(k) Share-based payments

(l) Leased assets

(m) Investment properties

(n) Plant and equipment

(o) Non-current assets held for sale and disposal groups

(p) Revenue recognition

(q) Income taxes

(r) Provisions and contingent liabilities

(s)

Greenheart Group Limited Proxy Solicitation & Information Statement 2006