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 your licensed securities dealer, bank manager, solicitor, professional accountant or other professional advisers.

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.

This circular is addressed to the shareholders of Skyfame Realty (Holdings) Limited in connection with the special general meeting of the Company to be held on Wednesday, 12 July 2006. This circular does not constitute an offer of, nor is it intended to invite offers for, shares in, or other securities of the Company.

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

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PROPOSED OPEN OFFER OF 267,324,486 OFFER SHARES OF HK$0.01 EACH 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

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders

CIMB-GK Securities (HK) Limited

Underwriter

A letter from the Board is set out on pages 7 to 24 of this circular and a letter from the Independent Board Committee is set out on page 25 of this circular. A letter from CIMB-GK Securities (HK) Limited, the independent financial adviser to the Independent Board Committee and the Independent Shareholders, containing its advice to the Independent Board Committee and the Independent Shareholders, is set out on pages 26 to 38 of this circular.

It should be noted that the Underwriting Agreement contains provisions granting Tai Fook Securities Company Limited, by notice in writing, the right to terminate its obligations thereunder on the occurrence of certain events. These events are set out in the section headed “Termination of the Underwriting Agreement” on pages 14 to 15 of this circular. If the Underwriting Agreement is terminated by Tai Fook Securities Company Limited or does not become unconditional, the Open Offer will not proceed.

A notice convening a special general meeting of Skyfame Realty (Holdings) Limited to be held at the office of Strategic Public Relations Group Limited, Room 3203, Tower 1, Admiralty Centre, 18 Harcourt Road, Hong Kong at 10:00 a.m. on Wednesday, 12 July 2006 is set out on pages 125 to 127 of this circular. A form of proxy for use at the special general meeting is 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 or any adjournment thereof should you so wish.

* For identification purposes only

27 June 2006

	Pages
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Expected timetable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	25
Letter from CIMB-GK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	26
Appendix I — Summary of terms of the Bonus Warrants . . . . . . . . . . . . . . . . . .	39
Appendix II — Financial information of the Group . . . . . . . . . . . . . . . . . . . . . . . .	51
Appendix III — Unaudited pro forma adjusted consolidated
net tangible assets of the Group. . . . . . . . . . . . . . . . . . . . . . . . . .	110
Appendix IV — General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	115
Notice of Special General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	125

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DEFINITIONS

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

“Announcement” the announcement of the Company dated 7 June 2006 relating to, among other things, the Open Offer and the Bonus Issue
“Associate(s)” has the meaning ascribed to it under the Listing Rules
“Board”
the board of Directors
“Bonus Issue” the issue of the Bonus Warrants in connection with the Open Offer
“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$1.10 per Share, subject to adjustment, at any time for a period of two years from the date of the creation of such warrant(s)
“Business Day” a day, other than Saturday, on which banks in Hong Kong are open for general business
“BVI”
the British Virgin Islands
“CCASS”
the Central Clearing and Settlement System established and operated by HKSCC
“CIMB-GK”
CIMB-GK Securities (HK) Limited, a licensed corporation to carry out type 1 (dealing in securities), type 4 (advising on securities) and type 6 (advising on corporate finance) regulated activities under the SFO, being the independent financial adviser to the Independent Board Committee and the Independent Shareholders
“Companies Act”
the Companies Act 1981 of Bermuda (as amended)
“Companies Ordinance”
Companies Ordinance, Chapter 32 of the Laws of Hong Kong

— 1 —

DEFINITIONS

“Company” Skyfame Realty (Holdings) Limited（天譽置業（控股）有限公司）*, an exempted company incorporated in Bermuda and whose shares are listed on the Main Board of the Stock Exchange
“connected person(s)” has the meaning ascribed to it under the Listing Rules
“Directors” the directors of the Company “Excluded Shareholders” Overseas Shareholders, to whom the Directors, based on the legal advice provided by legal advisers and on account either of legal restrictions under the laws of relevant place or the requirements of the relevant regulatory body or stock exchange in that place, consider it necessary or expedient not to offer the Offer Shares
“Grand Cosmos” Grand Cosmos Holdings Limited, a company incorporated in the BVI with limited liability and wholly owned by Mr. YU Pan, an executive Director and the chairman of the Company
“Group” the Company and its subsidiaries “HKSCC” Hong Kong Securities Clearing Company Limited “Hong Kong” the Hong Kong Special Administrative Region of the PRC
“Independent Board Committee” an independent committee of the Board formed by Mr. CHOY Shu Kwan, Mr. CHENG Wing Keung, Raymond and Ms. CHUNG Lai Fong, being all the independent nonexecutive Directors to consider and make recommendations to the Independent Shareholders in relation to the Open Offer and the Bonus Issue
“Independent Shareholders” the Shareholders (other than Grand Cosmos and its Associates, who are interested in the Open Offer)
“Latest Acceptance Date” 4:00 p.m. on 28 July 2006 or such later time as may be agreed between the Company and Tai Fook Securities in writing, being the latest time for acceptance of, and payment for the Offer Shares

* For identification purposes only

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DEFINITIONS

“Latest Practicable Date”	22 June 2006, being the latest practicable date for
	ascertaining certain information contained in this circular
	prior to the printing of this circular
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange
“Open Offer”	the proposed offer by the Company of the Offer Shares at
	the subscription price of HK$0.90 per Offer Share pursuant
	to the Prospectus Documents
“Offer Share(s)”	new Share(s) to be issued under the Open Offer
“Overseas Shareholder(s)”	the Shareholder(s) whose name(s) appear(s) on the register
	of members of the Company on the Record Date and whose
	registered address(es) on that date is/are outside Hong Kong
“PRC”	the People’s Republic of China
“Prospectus”	a prospectus to be issued by the Company in relation to the
	Open Offer
“Prospectus Documents”	the Prospectus together with the application form for use
	by the Qualifying Shareholders to apply for the Offer Shares
“Prospectus Posting Date”	13 July 2006 or such later date as Tai Fook Securities may
	agree with the Company in writing
“Qualifying Shareholders”	Shareholders whose names appear on the register of members
	of the Company on the Record Date, other than the Excluded
	Shareholders
“Record Date”	12 July 2006 or such other date as may be agreed between
	the Company and Tai Fook Securities in writing, being the
	date by reference to which Shareholders’ entitlements under
	the Open Offer will be determined
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the
	Laws of Hong Kong)

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DEFINITIONS

“SGM”	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 at 10:00 a.m. on Wednesday, 12 July 2006 to consider
	and, if thought fit, approve, among others, the Open Offer
	and the Bonus Issue, notice of which is set out on pages
	125 to 127 of this circular
“Shareholder(s)”	holder(s) of Shares
“Shares”	the shares of HK$0.01 each in the share capital of the
	Company
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Tai Fook Securities”	Tai Fook Securities Company Limited, a licensed
	corporation to carry on type 1 (dealing in securities), type 3
	(leveraged foreign exchange trading) and type 4 (advising
	on securities) regulated activities under the SFO, being the
	underwriter of the Open Offer
“Underwriting Agreement”	the underwriting agreement dated 2 June 2006 between the
	Company, Tai Fook Securities and Grand Cosmos in relation
	to the Open Offer as varied and supplemented by a
	supplemental agreement dated 7 June 2006 made between
	the Company, Tai Fook Securities and Grand Cosmos
“Underwritten Shares”	211,768,986 Offer Shares underwritten by Tai Fook Securities
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“%”	per cent.

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2006

EXPECTED TIMETABLE

The expected timetable for the Open Offer is set out below:

Last day of dealings in Shares on a cum-entitlement basis . . . . . . . . . . . . . . Wednesday, 5 July First day of dealings in Shares on an ex-entitlement basis . . . . . . . . . . . . . . . . Thursday, 6 July Latest time for lodging transfers of Shares accompanied by the relevant share certificates in order to qualify for the Open Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4:00 p.m. on Friday, 7 July Latest time for lodging forms of proxy for use at the SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10:00 a.m. on Monday, 10 July Register of members closed (both dates inclusive) . . . . . . . . . . . . . . . . . . . . . . . . . Monday, 10 July to Wednesday, 12 July Record Date for the Open Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wednesday, 12 July SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10:00 a.m. on Wednesday, 12 July Despatch of the Prospectus Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thursday, 13 July Announcement of results of the SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thursday, 13 July Register of members re-opens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thursday, 13 July Latest time for acceptance of, and payment for, the Offer Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4:00 p.m. on Friday, 28 July Latest time for the Open Offer to become unconditional . . . . . . . . . . . . . . . . . . . . . . . . . . 4:00 p.m. on Wednesday, 2 August Announcement of results of the Open Offer . . . . . . . . . . . . . . . . . . . . . . . . . Thursday, 3 August Despatch of share certificates for Offer Shares and certificates of Bonus Warrants . . . . . . . . . . . . . . . . . . . . . . . on or before Thursday, 3 August Dealings in Offer Shares and Bonus Warrants commence . . . . . . . . . . . . . . Monday, 7 August

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EXPECTED TIMETABLE

All times in this circular refer to Hong Kong time.

EFFECT OF BAD WEATHER ON THE LATEST TIME FOR APPLICATION OF, AND PAYMENT FOR, THE OFFER SHARES

The latest time for application of, and payment for, the Offer Shares will not take place if there is:

a tropical cyclone warning signal number 8 or above, or
a “black” rainstorm warning,
(i) in force in Hong Kong at any local time before 12:00 noon and no longer in force after 12:00 noon on the Latest Acceptance Date. Instead the latest time for application of, and payment for, the Offer Shares will be extended to 5:00 p.m. on the same Business Day;
(ii) in force in Hong Kong at any local time between 12:00 noon and 4:00 p.m. on the Latest Acceptance Date. Instead the latest time for application of, and payment for, the Offer Shares will be rescheduled to 4:00 p.m. on the following Business Day which does not have either of those warnings in force at any time between 9:00 a.m. and 4:00 p.m..

If the latest time for application of, and payment for, the Offer Shares does not take place on the Latest Acceptance Date, the dates mentioned in this section may be affected. A press announcement will be made by the Company in such event.

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LETTER FROM THE BOARD

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Executive Directors:

Mr. YU Pan Mr. LAU Yat Tung, Derrick Mr. WONG Lok Mr. ZHENG Jian Wei

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

Independent non-executive Directors:

Mr. CHOY Shu Kwan Mr. CHENG Wing Keung, Raymond Ms. CHUNG Lai Fong

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

27 June 2006

To the Shareholders

Dear Sir/Madam,

PROPOSED OPEN OFFER OF

267,324,486 OFFER SHARES OF HK$0.01 EACH 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

INTRODUCTION

On 7 June 2006, the Company announced that it proposed to raise approximately HK$240.59 million before expenses by issuing 267,324,486 Offer Shares at a price of HK$0.90 per Offer Share by way of the Open Offer, payable in full on application, on the basis of 13 Offer Shares for every 40 Shares held by the Qualifying Shareholders on the Record Date with 10 Bonus Warrants for every 13 Offer Shares taken up. The Open Offer will not be available to the Excluded Shareholders, if any.

* For identification purposes only

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LETTER FROM THE BOARD

The Open Offer (other than the 55,555,500 Offer Shares undertaken to be taken up by Grand Cosmos) is fully underwritten by Tai Fook Securities.

Since the offer of 267,324,486 Offer Shares together with the issue of 205,634,220 Shares upon exercise of subscription rights attaching to the Bonus Warrants in full will increase the existing issued share capital of the Company by more than 50%, pursuant to Rule 7.24(5) of the Listing Rules, the Open Offer is conditional on, among other things, the approval by the Independent Shareholders by way of poll at the SGM at which Grand Cosmos, being the controlling Shareholder, and its Associates shall abstain from voting in favour.

The Independent Board Committee comprising the three independent non-executive Directors, namely, Mr. CHOY Shu Kwan, Mr. CHENG Wing Keung, Raymond and Ms. CHUNG Lai Fong, has been established for the purpose of advising the Independent Shareholders on the fairness and reasonableness of the terms of the Open Offer and the Bonus Issue. CIMB-GK has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in such connection.

The purpose of this circular is to provide you with, among other things, further details of the Open Offer, the Bonus Issue and certain financial information in respect of the Group. This circular also contains the recommendation of the Independent Board Committee, the advice of CIMB-GK in respect of the Open Offer and the Bonus Issue and the notice of the SGM.

(A) OPEN OFFER

Issue statistics

Basis of the Open Offer

: 13 Offer Shares for every 40 Shares held by the Qualifying Shareholders on the Record Date at the subscription price of HK$0.90 per Offer Share with 10 Bonus Warrants for every 13 Offer Shares taken up

Number of Shares in issue : 822,536,899 Shares as at the Latest Practicable Date

Number of Offer Shares : 267,324,486 Offer Shares

The aggregate number of Offer Shares to be issued pursuant to the terms of the Open Offer represents (i) approximately 32.5% of the Company’s issued share capital as at the Latest Practicable Date; (ii) approximately 24.5% of the Company’s issued share capital as enlarged by the issue of the Offer Shares; and (iii) approximately 20.6% of the Company’s issued share capital as enlarged by the issue of the Offer Shares and the issue of new Shares upon exercise of the subscription rights attaching to the Bonus Warrants in full.

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LETTER FROM THE BOARD

There were no outstanding convertible securities, options or warrants which confer any right to subscribe for, convert or exchange into new Shares as at the Latest Practicable Date.

Qualifying Shareholders

The Company will send the Prospectus Documents to the Qualifying Shareholders only. The Company will send, for information only, the Prospectus to the Excluded Shareholders.

To qualify for the Open Offer, a Shareholder must be registered as a member of the Company on the Record Date and must not be an Excluded Shareholder. In order to be registered as members on the Record Date, all transfers of Shares (together with the relevant share certificates) must be lodged with the Company’s branch share registrar and transfer office in Hong Kong, Abacus Share Registrars Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong by no later than 4:00 p.m. on Friday, 7 July 2006.

The rights of the Qualifying Shareholders to apply for the Offer Shares is not transferable.

Closure of register of members

The register of members of the Company will be closed from Monday, 10 July 2006 to Wednesday, 12 July 2006 (both dates inclusive) to determine the eligibility of Shareholders to the Open Offer. No transfer of Shares will be registered during this period.

Subscription price for the Offer Shares

The subscription price is HK$0.90 per Offer Share payable in full when a Qualifying Shareholder applies for the Offer Shares under the Open Offer. The subscription price represents:

a discount of 28.0% to the closing price of HK$1.25 per Share as quoted on the Stock Exchange on 2 June 2006 (being the last trading day immediately prior to the publication of the Announcement);
a discount of approximately 26.2% to the average closing price of approximately HK$1.22 per Share based on the daily closing prices as quoted on the Stock Exchange over the last five consecutive trading days up to and including 2 June 2006 (being the last trading day immediately prior to the publication of the Announcement);

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LETTER FROM THE BOARD

a discount of approximately 25.0% to the average closing price of approximately HK$1.20 per Share based on the daily closing prices as quoted on the Stock Exchange over the last 10 consecutive trading days up to and including 2 June 2006 (being the last trading day immediately prior to the publication of the Announcement);
a discount of approximately 22.4% to the theoretical ex-entitlement price of approximately HK$1.16 per Share based on the aforesaid closing price per Share; and
a premium of approximately 291.3% over the audited consolidated net assets value as at 31 December 2005 (as shown in the audited financial statements of the Group for the year ended 31 December 2005) per Share of approximately HK$0.23 which is calculated based on the number of issued Shares as at the date of the Announcement.

The subscription price for the Offer Shares was determined after arm’s length negotiations between the Company and Tai Fook Securities, with reference to the market price of the Shares and also other factors such as liquidity and performance of the Shares. Taking into consideration the theoretical ex-entitlement price per Share, in order to increase the attractiveness of the Open Offer to the Qualifying Shareholders, the Directors consider that the discount on the subscription price to the above average closing prices is appropriate. The Directors consider that the subscription price of the Offer Shares is fair and reasonable so far as the Company and the Shareholders as a whole are concerned.

Status of the Offer Shares

The Offer Shares (when allotted, issued and fully-paid) will rank pari passu in all respects with the then issued Shares on the date of allotment of the Offer Shares in fully-paid form, including the right to receive all dividends and distributions which may be declared, made or paid on or after such date and in addition, the Offer Shares shall entitle their respective first registered holders (i.e. the persons who are allotted with the Offer Shares in accordance with the terms and conditions of the Open Offer) the right to receive the Bonus Warrants on the basis of 10 Bonus Warrants for every 13 Offer Shares taken up under the Open Offer.

The Offer Shares, together with the Shares, are expected to be traded in board lots of 2,000 Shares. Dealings in the Offer Shares will be subject to the payment of the applicable stamp duty, Stock Exchange trading fee, the Securities and Futures Commission transaction levy and any other applicable fees and charges in Hong Kong.

Necessary arrangement will be made by the Company to provide matching services for the odd lots of the Shares after completion of the Open Offer. Further details of such arrangement will be announced by the Company in due course.

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LETTER FROM THE BOARD

Rights of Overseas Shareholders

If at the close of business on the Record Date, a Shareholder’s address on the Company’s register of members is in a place outside Hong Kong, that Shareholder may not be eligible to take part in the Open Offer. The Prospectus Documents will not be registered or filed under the applicable securities or equivalent legislation of any jurisdiction other than Hong Kong and Bermuda.

According to the register of members of the Company as at the Latest Practicable Date, seven Shareholders were Overseas Shareholders with registered addresses in the United States of America, Macau or the PRC. As such, the Directors have, in compliance with Rule 13.36(2)(a) of the Listing Rules, made enquiries regarding the legal restrictions under the laws of the relevant place and the requirements of the relevant regulatory body or stock exchange.

Based on the results of the enquiries made with qualified lawyers practising in these jurisdictions, the Directors are of the view that it is necessary or expedient not to offer the Offer Shares to a Shareholder whose registered address is in the United States of America due to substantial procedures and costs involved in the registration of the Prospectus Documents and/or compliance with the legal or regulatory requirements or special formalities in that place. Accordingly, the Shareholder whose registered address on the Record Date is in the United States of America will become the Excluded Shareholder and the Open Offer will not be available to such Excluded Shareholder. The Company will send the Prospectus, for information only, to such Excluded Shareholder.

The Offer Shares to which such Excluded Shareholder would otherwise have been entitled under the Open Offer form parts of the Underwritten Shares.

For those Shareholders with the registered addresses on the Record Date in Macau or the PRC, the Directors have been advised by legal counsels practising in the relevant jurisdictions that it would be lawful for the Company to offer the Offer Shares in those places even though the Prospectus Documents are not registered in the relevant jurisdictions. Accordingly, such Shareholders whose registered address is in Macau or the PRC are Qualifying Shareholders and subject to the Open Offer having been approved by the Independent Shareholders at the SGM, a copy of the Prospectus Documents containing details of the Open Offer and the Bonus Issue will also be sent to such Shareholders.

It is the responsibility of any person (including but without limitation to nominee, agent and trustee) receiving a copy of the Prospectus Documents outside Hong Kong and wishing to take up the Offer Shares under the Open Offer to satisfy himself as to the full observance of the laws of the relevant territory including the obtaining of any governmental or other consents for observing any other formalities which may be required in such territory or jurisdiction, and to pay any taxes, duties and other amounts required to be paid in such territory or jurisdiction in connection therewith. Any acceptance by

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LETTER FROM THE BOARD

any person will be deemed to constitute a representation and warranty from such person to the Company that these local laws and requirements have been complied with. Shareholders should consult their professional advisers if in doubt.

Share option scheme and convertible securities

As at the Latest Practicable Date, there were no outstanding share options granted pursuant to the Company’s share option scheme nor outstanding convertible securities issued by the Company.

Fractions of Offer Shares

No fractional entitlements to the Offer Shares will be allotted to individual Shareholders. All such fractional entitlements will be aggregated and form part of the Underwritten Shares in accordance with the terms of the Underwriting Agreement.

Share certificates

Subject to the fulfilment of the conditions of the Open Offer, certificates for all the fully-paid Offer Shares are expected to be posted, by ordinary post, to those who have applied and paid for the Offer Shares at their risk on or before Thursday, 3 August 2006.

No application for excess Offer Shares

In view of the discount of the subscription price per Offer Share to the market price per Share and the Bonus Issue in connection with the Open Offer, the Board believes that there would be a high level of acceptance of Offer Shares by the Qualifying Shareholders and, accordingly, there would not be a significant number of Offer Shares which are not taken up by the Qualifying Shareholders and available for excess application. Together with the fact that additional administrative costs and time will be involved, the Company decided that no Qualifying Shareholder is entitled to apply for any Offer Shares which are in excess of its assured entitlements. Any Offer Shares not taken up by the Qualifying Shareholders will be underwritten by Tai Fook Securities.

Application for listing

The Company has applied to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Offer Shares.

Subject to the granting of the listing of, and permission to deal in, the Offer Shares on the Stock Exchange, the Offer Shares will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the commencement

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LETTER FROM THE BOARD

date of dealings in the Offer Shares on the Stock Exchange or such other date as determined by HKSCC. Settlement of transactions between participants of the Stock Exchange on any trading day is required to take place in CCASS on the second trading day thereafter. All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time.

Underwriting Agreement

Date : 2 June 2006 (as varied and supplemented by a supplemental agreement dated 7 June 2006)
Underwriter : Tai Fook Securities

To the best of the Directors’ knowledge and information and having made all reasonable enquiries, Tai Fook Securities and its holding company, Tai Fook Securities Group Limited, are third parties independent of the Company and connected persons of the Company

Total number of Offer : 211,768,986 Offer Shares (being the total number of Shares underwritten Offer Shares less the number of Offer Shares undertaken to be taken up by Grand Cosmos as described below)
Underwriting commission : 2% of the aggregate subscription price of the number of Offer Shares underwritten by Tai Fook Securities, which is determined after arm’s length negotiation between the Company and Tai Fook Securities and accords with the market rate

Undertakings by Grand Cosmos

As at the Latest Practicable Date, Grand Cosmos held 572,236,485 Shares, representing approximately 69.6% of the issued share capital of the Company as at the Latest Practicable Date.

Grand Cosmos has irrevocably undertaken to the Company that:

(a) the Shares beneficially owned by it will remain registered in its name from the date of the Underwriting Agreement up to (and including) the Record Date; and
(b) it will subscribe for 55,555,500 Offer Shares that will be allotted to it under the Open Offer on an assured basis.

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LETTER FROM THE BOARD

Grand Cosmos is not taking up its assured entitlements in full in order to allow the Company to enlarge its shareholders’ base.

Termination of the Underwriting Agreement

The Underwriting Agreement contains provisions granting Tai Fook Securities, by notice in writing, the ability to terminate the obligations of Tai Fook Securities thereunder on the occurrence of certain events. Tai Fook Securities may terminate its commitment under the Underwriting Agreement on or before the third business day after the Latest Acceptance Date if, prior to 4:00 p.m. on the third business day after the Latest Acceptance Date:

(1) in the absolute opinion of Tai Fook Securities, the success of the Open Offer would be materially and adversely affected by:
(a) the introduction of any new regulation or any change in existing law or regulation (or the judicial interpretation thereof) or other occurrence of any nature whatsoever which may, in the absolute opinion of Tai Fook Securities, materially and adversely affect the business or the financial or trading position or prospects of the Group as a whole or is materially adverse in the context of the Open Offer; or
(b) the occurrence of any local, national or international event or change (whether or not forming part of a series of events or changes occurring or continuing before, and/or after the date of the Underwriting Agreement) of a political, military, financial, economic or other nature (whether or not ejusdem generic with any of the foregoing), or in the nature of any local, national or international outbreak or escalation of hostilities or armed conflict, or affecting local securities markets which may, in the absolute opinion of Tai Fook Securities materially and adversely affect the business or the financial or trading position or prospects of the Group as a whole; or
(c) any material adverse change in the business or in the financial or trading position or prospects of the Group as a whole; or
(d) there occurs or comes into effect the imposition of any moratorium, suspension or material restriction on trading of the securities generally on the Stock Exchange; or
(e) any suspension of trading in the Shares for a period of 15 consecutive trading days or more save and except for temporary suspension pending release of the Announcement; or

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LETTER FROM THE BOARD

(2) any material adverse change in market conditions (including, without limitation, a change in fiscal or monetary policy or foreign exchange or currency markets, suspension or restriction of trading in securities, and a change in currency conditions for the purpose of this paragraph includes a change in the system under which the value of the Hong Kong currency is pegged with that of the currency of the United States of America) occurs which in the absolute opinion of Tai Fook Securities makes it inexpedient or inadvisable to proceed with the Open Offer; or
(3) this circular or the Prospectus in connection with the Open Offer when published contain information (either as to business prospects or the condition of the Group or as to its compliance with any laws or the Listing Rules or any applicable regulations) which has not prior to the date of the Underwriting Agreement been publicly announced or published by the Company and which, in the absolute opinion of Tai Fook Securities, is material to the Group as a whole and is likely to affect materially and adversely the success of the Open Offer or might cause a prudent investor not to apply for its assured entitlements of Offer Shares under the Open Offer.

Conditions of the Open Offer

The Open Offer is conditional upon each of the following events:

(i) the Company despatching this circular to the Shareholders containing, among other matters, details of the Open Offer and the terms and conditions of the Bonus Warrants together with proxy form and notice of SGM;
(ii) the passing of a resolution by the Independent Shareholders, on a poll, at the SGM to approve (i) the Open Offer (including, but not limited to, the exclusion of the offer of the Offer Shares to the Excluded Shareholders); and (ii) the creation of the Bonus Warrants and the issue of the Shares upon the exercise of the subscription rights attaching to such Bonus Warrants by no later than the Prospectus Posting Date;
(iii) the Listing Committee of the Stock Exchange granting and not having withdrawn or revoked listing of and permission to deal in all the Offer Shares (in their fullypaid forms), the Bonus Warrants and the Shares which may fall to be issued upon the exercise of the subscription rights attaching to the Bonus Warrants;
(iv) the filing and registration of all documents relating to the Open Offer which are required to be filed or registered with the Registrar of Companies in Hong Kong in accordance with the Companies Ordinance;

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LETTER FROM THE BOARD

(v) the filing of the Prospectus Documents with the Registrar of Companies in Bermuda;
(vi) the posting of the Prospectus Documents to the Qualifying Shareholders on or before the Prospectus Posting Date; and
(vii) compliance with and performance of all the undertakings and obligations of the Company and Grand Cosmos under the terms of the Underwriting Agreement.

Neither the Company nor Tai Fook Securities may waive the conditions (i) to (vi) above. Tai Fook Securities may waive the condition (vii) in whole or in part by written notice to the Company.

If the conditions to the Underwriting Agreement are not satisfied and/or waived in whole or in part by Tai Fook Securities by the relevant date(s) referred to in the respective conditions above or, if no such date is specified, 4:00 p.m. on the third business day after the Latest Acceptance Date or such later date or dates as Tai Fook Securities may agree with the Company in writing, the Underwriting Agreement shall terminate and (save in respect of any rights or obligations which may accrue under the Underwriting Agreement prior to such termination) no party will have any claim against any other party for costs, damages, compensation or otherwise (other than out-of-pocket expenses incurred).

Reasons for the Open Offer and the use of proceeds

It is expected that the Company will receive net proceeds of approximately HK$234.5 million from the Open Offer. The Company intends to apply all or part of the net proceeds to finance the consideration for the acquisition of an indirect 51% interest in a company which is a joint venture partner of a PRC cooperative joint venture for the development of a parcel of land at Zhoutouzui in Guangzhou, PRC as described in the Company’s announcement dated 28 March 2006. As at the Latest Practicable Date, the Company is still in the process of negotiation with the independent vendor on the terms of such acquisition and no binding formal agreement has yet been entered into by the Company with the independent vendor. In the event that the acquisition does not materialise or depending on the terms and conditions of the acquisition, the Company may apply the net proceeds of the Open Offer to finance other potential acquisitions of suitable land reserves or property interests for enhancing the business growth of the Group.

The Open Offer allows the Company to expand its capital base. In addition, the Open Offer allows the Qualifying Shareholders to maintain their respective pro rata shareholdings in the Company and participate in the future growth and development of the Company. The Directors therefore believe that the Open Offer is in the interests of the Company and the Shareholders as a whole.

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LETTER FROM THE BOARD

The Open Offer is conditional. In particular, it is subject to, among other matters, (i) approval by the Independent Shareholders at the SGM; and (ii) Tai Fook Securities not terminating the Underwriting Agreement in accordance with its terms. Accordingly, the Open Offer may or may not proceed. Shareholders and potential investors of the Company should therefore exercise caution when dealing in the Shares.

Any persons contemplating buying or selling Shares from the date of the Announcement, and any dealings in the Shares on an ex-entitlements basis from 6 July 2006, up to the date on which all the conditions of the Open Offer are fulfilled or waived (as the case may be), bear the risk that the Open Offer may not become unconditional or may not proceed.

(B) INFORMATION ON THE GROUP

(C) FUND RAISING ACTIVITY OF THE COMPANY IN THE 12 MONTHS IMMEDIATELY PRECEDING THE DATE OF THE ANNOUNCEMENT

On 7 June 2005, the Company raised net proceeds of approximately HK$21.2 million by issuing, prior to the share consolidation of the Company, 1,355,000,000 new shares of HK$0.01 each in the share capital of the Company (“Placing Shares”) at the issue price of HK$0.016 per Placing Share (theoretically equivalent to HK$1.6 per Share after adjusting for the share consolidation of the Company). The Company intended to apply the net proceeds of approximately HK$21.2 million as general working capital of the Company. As at the Latest Practicable Date, an amount of HK$15 million has been utilised and the remaining balance of the net proceeds is kept with the banks as deposits.

In December 2005, the Company raised net proceeds of approximately HK$142.7 million by rights issue on the basis of six rights shares for every then existing share at a subscription price of HK$0.30 per rights share. It was intended that such proceeds would be applied (i) to satisfy part of the consideration for the acquisition, details of which were set out in the Company’s announcement dated 5 October 2005; and (ii) as the Group’s general working capital. As at the Latest Practicable Date, approximately HK$80.8 million has been used to settle the consideration of the acquisition and the balance of HK$61.9 million is retained by the Group and kept with the banks as deposits to fund the future development cost and the general working capital of the Group.

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LETTER FROM THE BOARD

(D) BONUS ISSUE OF WARRANTS

Basis of the Bonus Issue

In order to recognise the contribution from the Shareholders who take up the Offer Shares and to increase the attractiveness of the Offer Shares, the Bonus Issue will be made on the basis of 10 Bonus Warrants for every 13 Offer Shares taken up by the Qualifying Shareholders.

Condition of the Bonus Issue

The Bonus Issue is conditional upon the completion of the Open Offer.

Subscription price

The Bonus Warrants will entitle the holders to subscribe for new Shares at a price of HK$1.10 per Share in cash, subject to usual adjustments.

The initial subscription price of HK$1.10 represents (i) a discount of 12% to the closing price of HK$1.25 per Share as quoted on the Stock Exchange on 2 June 2006 (being the last trading day before the publication of the Announcement); and (ii) a discount of approximately 9.8% to the average closing price of approximately HK$1.22 per Share based on the daily closing prices as quoted on the Stock Exchange over the last five consecutive trading days up to and including 2 June 2006.

Based on 267,324,486 Offer Shares to be issued under the Open Offer, an aggregate of 205,634,220 Bonus Warrants will be issued by the Company upon completion of the Open Offer.

Exercise of the subscription rights attaching to the Bonus Warrants in full will result in the issue of 205,634,220 new Shares, representing:

(1) approximately 25.0% of the issued share capital of the Company as at the Latest Practicable Date;
(2) approximately 18.9% of the issued share capital of the Company immediately upon completion of the Open Offer; and
(3) approximately 15.9% of the issued share capital of the Company as enlarged by the allotment and issue of the Offer Shares and the Shares upon exercise of the subscription rights attaching to the Bonus Warrants in full.

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LETTER FROM THE BOARD

The Company will seek approval of the Independent Shareholders at the SGM for the creation and issue of the Bonus Warrants and the issue of the Shares pursuant to the exercise of the subscription rights attaching to the Bonus Warrants. It is expected that the Company will receive net proceeds of approximately HK$225 million upon exercise of the subscription rights attaching to the Bonus Warrants in full.

Subscription period

The subscription rights attaching to the Bonus Warrants may be exercised at any time during the period from 3 August 2006 up to and until 4:00 p.m. on 2 August 2008 (if that day is not a business day, the business day immediately preceding that day) (both days inclusive).

At 4:00 p.m. on 2 August 2008 (if that day is not a business day, the business day immediately preceding that day), the subscription rights attaching to the Bonus Warrants will expire.

Status of Shares to be issued upon exercise of Bonus Warrants

Shares which are allotted and issued on the exercise of the subscription rights attaching to the Bonus Warrants will rank pari passu in all respects with the Shares in issue on the date of such allotment and issue.

Application for listing

Application has been made to the Listing Committee of the Stock Exchange for the listing of and permission to deal in the Bonus Warrants and any Shares which may fall to be issued upon exercise of the subscription rights attaching thereto. No part of securities of the Company is listed on or dealt in any other stock exchange and no such listing or permission to deal is being or is proposed to be sought.

Application will also be made to HKSCC for the admission of the Bonus Warrants into the CCASS operated by HKSCC. Subject to the granting of the listing of, and permission to deal in, the Bonus Warrants on the Stock Exchange, the Bonus Warrants will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the commencement date of dealings in the Bonus Warrants on the Stock Exchange or such other date as determined by HKSCC. Settlement of transactions between participants of the Stock Exchange on any trading day is required to take place in CCASS on the second trading day thereafter. All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time.

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LETTER FROM THE BOARD

Board lot

The Bonus Warrants are expected to be traded in the board lots of 4,000 Bonus Warrants each. Necessary arrangement will be made by the Company to provide matching services for the odd lots of the Bonus Warrants after completion of the Bonus Issue. Further details of such arrangement will be announced by the Company in due course.

Warrant certificates

Subject to the fulfillment of the condition for the Bonus Issue as referred to above, it is expected that certificates for the Bonus Warrants will be posted, by ordinary post, on or before Thursday, 3 August 2006 at the risk of the persons entitled thereto to their respective addresses shown on the register of members of the Company and dealings in the Bonus Warrants on the Stock Exchange are expected to commence on Monday, 7 August 2006.

Public float of the Bonus Warrants and market capitalisation

To the best knowledge and belief of the Directors, as at the Latest Practicable Date, the Company had more than 300 registered Shareholders and the three largest public Shareholders in aggregate hold not more than 50% of the Shares in public hands. Coupled with the fact that no excess applications for the Offer Shares are made available to the Qualifying Shareholders and assuming all the Qualifying Shareholders take up their entitlements under the Open Offer, it is expected that the Bonus Issue, which will be made on the basis of 10 Bonus Warrants for every 13 Offer Shares taken up, will be in compliance with the requirements under Rule 8.08(2) and (3) of the Listing Rules. In compliance with Rule 8.09(4) of the Listing Rules, the market capitalisation of the Bonus Warrants is expected to be more than HK$10,000,000 at the time of listing.

(E) SHAREHOLDING STRUCTURE

The following table sets out the shareholding structure of the Company as at the Latest Practicable Date and the shareholding structure (i) immediately after completion of the Open Offer; and (ii) immediately after completion of the Open Offer and the exercise of the subscription rights attaching to the Bonus Warrants in full.

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LETTER FROM THE BOARD

Grand Cosmos Other public Shareholders Tai Fook Securities and its sub-underwriters, if any Total	Shareholding as at the Latest Practicable Date Number of Shares % 572,236,485 69.6 250,300,414 30.4 — — 822,536,899 100.0	Shareholding upon completion of the Open Offer, assuming none of the Independent Shareholders take up their entitlements to the Offer Shares and that Tai Fook Securities is required to take up all the Underwritten Shares but before any exercise of the subscription rights attaching to the Bonus Warrants Number of Shares % 627,791,985 57.6 250,300,414 23.0 211,768,986 19.4 1,089,861,385 100.0	Shareholding upon completion of the Open Offer, assuming that all the Independent Shareholders take up their entitlements to the Offer Shares in full but before any exercise of the subscription rights attaching to the Bonus Warrants Number of Shares % 627,791,985 57.6 331,648,044 30.4 130,421,356 12.0 1,089,861,385 100.0	Shareholding upon completion of the Open Offer, assuming none of the Independent Shareholders take up their entitlements to the Offer Shares and that Tai Fook Securities is required to take up all the Underwritten Shares and assuming the subscription rights attaching to the Bonus Warrants are exercised in full Number of Shares % 670,526,985 51.8 250,300,414 19.3 374,668,206 28.9 1,295,495,605 100.0	Shareholding upon completion of the Open Offer, assuming that all the Independent Shareholders take up their entitlements to the Offer Shares in full and assuming the subscription rights attaching to the Bonus Warrants are exercised in full Number of Shares % 670,526,985 51.8 394,223,144 30.4 230,745,476 17.8 1,295,495,605 100.0	Shareholding upon completion of the Open Offer, assuming that all the Independent Shareholders take up their entitlements to the Offer Shares in full and assuming the subscription rights attaching to the Bonus Warrants are exercised in full Number of Shares % 670,526,985 51.8 394,223,144 30.4 230,745,476 17.8 1,295,495,605 100.0
						100.0

Note: The number of Offer Shares and the number of Bonus Warrants of other public Shareholders in the table above are calculated based on the aggregate number of Shares held by all public Shareholders as a whole.

In the event that the number of Shares held by the public is below 25% as a result of the completion of the Open Offer, the Company will take appropriate measures, including but not limited to making necessary placing arrangements, to ensure that not less than 25% of the Shares are held by the public at all times in order to comply with the minimum public float requirement under the Listing Rules.

It is expected that immediately following the completion of the Open Offer, there will be more than 25% of the Shares held by the public. However, the Stock Exchange has stated that if, at the date of completion of the Open Offer, less than 25% of the Shares are held by the public or if the Stock Exchange believes that:

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

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

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LETTER FROM THE BOARD

(F) GENERAL MATTERS

Approval by Independent Shareholders in respect of the Open Offer and the Bonus Issue

Since the offer of 267,324,486 Offer Shares together with the issue of 205,634,220 Shares upon exercise of the subscription rights attaching to the Bonus Warrants in full will increase the existing issued share capital of the Company by more than 50%, pursuant to Rule 7.24(5) of the Listing Rules, the Open Offer is conditional on, among other things, the approval by the Independent Shareholders by way of poll at the SGM at which Grand Cosmos, being the controlling Shareholder, and its Associates shall abstain from voting in favour. The voting results will be announced by the Company after the SGM.

SGM

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 at 10:00 a.m. on Wednesday, 12 July 2006 is set out on pages 125 to 127 of this circular.

At the SGM, ordinary resolutions will be proposed to approve (i) the Open Offer (including but not limited to, the exclusion of the offer of the Offer Shares to the Excluded Shareholders); and (ii) the creation of the Bonus Warrants and the issue of the Shares upon the exercise of the subscription rights attaching to such Bonus Warrants.

A form of proxy for use at the SGM is enclosed with this circular. Whether or not you are able to attend the SGM in person, you are requested to complete the form of proxy in accordance with the instructions printed thereon and return it to the Company’s branch share registrar and transfer office in Hong Kong, Abacus Share Registrars Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for holding the SGM. Completion and return of the form of proxy will not preclude you from attending and voting at the SGM in person should you so wish.

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LETTER FROM THE BOARD

If the Independent Shareholders approve the Open Offer at the SGM, the Company will then send the Prospectus Documents containing details of the Open Offer and the Bonus Issue to the Qualifying Shareholders and the Prospectus, for information only, to the Excluded Shareholders.

Procedures for demanding a poll by Shareholders

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
(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.

(G) RECOMMENDATION

The executive Directors consider the terms of the Open Offer and the Bonus Issue are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

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LETTER FROM THE BOARD

Your attention is drawn to the letter from the Independent Board Committee set out on page 25 of this circular which contains its recommendation to the Independent Shareholders as to voting of the ordinary resolution at the SGM concerning the Open Offer and the Bonus Issue.

Your attention is also drawn to the letter from CIMB-GK to the Independent Board Committee and the Independent Shareholders set out on pages 26 to 38 of this circular which contains, among other matters, its advice to the Independent Board Committee and the Independent Shareholders in relation to the terms of the Open Offer and the Bonus Issue and the principal factors and reasons considered by it in concluding its advice.

The Independent Board Committee, having taken into account the advice from CIMBGK, considers that the terms of the Open Offer and the Bonus Issue are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the SGM to approve the Open Offer and the Bonus Issue.

(H) ADDITIONAL INFORMATION

Your attention is also drawn to the additional information as set out in the appendices to this circular and the notice of the SGM.

For and on behalf of Skyfame Realty (Holdings) Limited YU Pan Chairman

— 24 —

LETTER FROM INDEPENDENT BOARD COMMITTEE

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==> picture [264 x 64] intentionally omitted <==

27 June 2006

To the Independent Shareholders

Dear Sir or Madam,

We refer to the circular of the Company despatched to its Shareholders dated 27 June 2006 (“Circular”) of which this letter forms part. Terms defined in the Circular have the same meanings when used in this letter unless the context otherwise requires.

We, being all the independent non-executive Directors constituting the Independent Board Committee, have been appointed by the Board to consider the Open Offer and the Bonus Issue and to advise the Independent Shareholders as to the fairness and reasonableness of the Open Offer and the Bonus Issue and to recommend whether or not the Independent Shareholders should vote for the resolution to be proposed at the SGM to approve the Open Offer and the Bonus Issue. CIMB-GK has been appointed as the independent financial adviser to advise the Independent Board Committee in relation to the terms of the Open Offer and the Bonus Issue.

We wish to draw your attention to the letter from CIMB-GK to the Independent Board Committee and the Independent Shareholders set out on pages 26 to 38 of the Circular which contains its advice to us in relation to the Open Offer and the Bonus Issue. We also wish to draw your attention to the Letter from the Board set out on pages 7 to 24 of the Circular.

Having taken into account the advice and recommendation of CIMB-GK, we consider the terms of the Open Offer and the Bonus Issue to be fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the resolution set out in the notice convening the SGM to approve, among other things, the Open Offer and the Bonus Issue at the SGM.

Yours faithfully,

Independent Board Committee

CHOY Shu Kwan

CHENG Wing Keung, Raymond CHUNG Lai Fong

Independent non-executive Directors

* For identification purposes only

— 25 —

LETTER FROM CIMB-GK

The following is the full text of a letter of advice from CIMB-GK to the Independent Board Committee and the Independent Shareholders in relation to the Open Offer and the Bonus Issue, which has been prepared for the purpose of inclusion in this circular:

CIMB-GK Securities (HK) Limited

25/F, Central Tower 28 Queen’s Road Central Hong Kong 27 June 2006

To the Independent Board Committee and the Independent Shareholders of Skyfame Realty (Holdings) Limited

Dear Sirs,

PROPOSED OPEN OFFER AND BONUS ISSUE

INTRODUCTION

We refer to our appointment to advise the Independent Board Committee and the Independent Shareholders in respect of the terms of the Open Offer and the Bonus Issue, details of which are set out in a circular (“Circular”) to the Shareholders dated 27 June 2006, of which this letter forms part. Capitalised terms used in this letter shall have the same meanings ascribed to them in the Circular unless the context otherwise requires.

An independent board committee comprising Mr. CHOY Shu Kwan, Mr. CHENG Wing Keung, Raymond and Ms. CHUNG Lai Fong, being the independent non-executive Directors, has been formed to advise the Independent Shareholders in relation to the Open Offer and the Bonus Issue.

In formulating our recommendation, we have relied on the information and facts contained or referred to in the Circular. We have also assumed that the information and representations contained or referred to in the Circular were true and accurate at the time they were made and continue to be so at the date of the dispatch of the Circular. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Directors. We have also been advised by the Directors and believe that no material facts have been omitted from the Circular.

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LETTER FROM CIMB-GK

We consider that we have reviewed sufficient information and documents to satisfy ourselves that we have a reasonable basis to assess the fairness and reasonableness of the terms of the Open Offer and the Bonus Issue in order to reach an informed view, to justify reliance on the accuracy of the information contained in the Circular and to provide a reasonable basis for our recommendation. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Directors. We have also been advised by the Directors and believe that no material facts have been omitted from the Circular. We have not, however, conducted an independent verification of the information nor have we conducted any form of in-depth investigation into the businesses and affairs or the prospects of the Company or any of its respective subsidiaries or associates.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In assessing the fairness and reasonableness of the Open Offer, we have taken into account the following principal factors and reasons:

Background and rationale

Financial performance

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. The Group has been making losses in recent years. Since Mr. YU Pan became the controlling Shareholder in late December 2004, the Company commenced to leverage on the experience of Mr. YU Pan and Mr. LAU Yat Tung, Derrick, both are executive Directors who have substantial property development experience in the PRC, to diversify into the provision of property management services in early 2005. Set out below is a summary of the audited consolidated results of the Group for the two years ended 31 December 2005:

	For the year ended 31 December	For the year ended 31 December
	2004	2005
	(HK$’000)	(HK$’000)
Turnover	9,709	5,214
Net (loss) attributable to Shareholders	(47,487)	(4,847)

For the financial year ended 31 December 2005 (“FY2005”), the Group’s turnover decreased by approximately 46.3% as compared to the previous year. As noted in the 2005 annual report of the Company, the decrease in turnover and in the net loss in FY2005 was principally due to the Group’s decision to discontinue three of its business segments in that year. The net loss attributable to Shareholders narrowed to approximately HK$4.8 million as compared to

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LETTER FROM CIMB-GK

approximately HK$47.5 million recorded in the previous financial year. As at 31 December 2005, the Group’s total liabilities amounted to approximately HK$57.8 million, and with a bank balance of approximately HK$83.7 million, the gearing ratio (the ratio of total liabilities over total assets) was approximately 23.1% as at 31 December 2005.

Recent fund raising activities

During the twelve months (the “Last 12 Months”) immediately preceding the date of the Announcement, the Company had raised an aggregate of approximately HK$163.9 million by way of placing of new Shares (June 2005) and a rights issue (December 2005). As noted from the Letter from the Board as contained in the Circular, an aggregate of approximately HK$95.8 million has already been utilized, principally in accordance with the originally stated usage. The net proceeds raised by the Company during the Last 12 Months were mainly utilized in the acquisition of a property development project, which was related to the principal activity of the Group, and as general working capital. As advised by the Company, of the remaining proceeds of approximately HK$68.1 million, approximately HK$38.6 million is being reserved as future development costs of property development projects, with the remaining balance as general working capital of the Group.

Use of proceeds

The estimated net proceeds of the Open Offer amounting to approximately HK$234.5 million will be principally utilized to acquire an indirect 51% interest in a company (the “JV”) which is a joint venture partner of a PRC cooperative joint venture for the development of a parcel of land at Zhoutouzui in Guangzhou, the PRC. We note that the Company has announced in late March 2006 of its intention to acquire interests in the JV (the “Proposed Acquisition”). The Directors advised that the Company is still engaged in negotiation with the independent vendor on the terms of the Proposed Acquisition and no binding formal agreement has yet been entered into by the Company with the independent vendor. Hence, the Directors intend that in the event that the Proposed Acquisition does not materialise or depending on the terms and conditions of the Proposed Acquisition, the Company may apply the net proceeds of the Open Offer to finance other potential acquisitions of suitable land reserves or property interests for enhancing the business growth of the Group.

Fund raising alternatives

As advised by the Directors, they have considered the alternative of raising the proceeds through share placement. However, the Directors are of the view that a share placement of this scale will substantially dilute the shareholding of the existing Shareholders, thus limiting the existing Shareholders to participate in the future growth and development of the Company. The Directors have also considered financing the Proposed Acquisition by debt financing.

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LETTER FROM CIMB-GK

However, given the subject amount, the financing interest cost, the possibilities of further interest rate hikes in the near future, and the financial position of the Company, the Directors are of the view that such debt financing is difficult, if not impossible, to obtain, and will adversely affect the gearing ratio and, after taking into account the related interest expenses, the results of the Group. Hence, the Directors consider that the Open Offer is an appropriate fund raising method as it would enable the Company to strengthen its capital base, without incurring additional interest burden, for future growth as a property developer. The Open Offer which is effected on a pro-rata basis will offer all the Qualifying Shareholders an equal opportunity to maintain their proportionate interest in the Company and to continue to participate in the future development of the Group.

Views

As the Group is principally engaged in property development business which is capital intensive in nature and having considered the amount of fund to be raised and the intended use of proceeds of the Open Offer as stated above, notwithstanding the two previous fund raising exercises effected in 2005, we concur with the views of the Directors that the Open Offer is in the interests of the Company and the Shareholders as a whole.

Offer Share Subscription Price

The Open Offer will be made available to the Qualifying Shareholders at HK$0.90 per Offer Share (the “Offer Share Subscription Price”) on the basis of 13 Offer Shares for every 40 existing Shares held by the Qualifying Shareholders on the Record Date.

Offer Share Subscription Price

The Offer Share Subscription Price represents:

a discount of 28.0% to the closing price of HK$1.25 per Share as quoted on the Stock Exchange on 2 June 2006 (the “Last Trading Day”) being the last trading day immediately prior to the date of the Announcement;
a discount of approximately 26.2% to the average closing price of approximately HK$1.22 per Share based on the daily closing prices as quoted on the Stock Exchange over the last five consecutive trading days up to and including the Last Trading Day;
a discount of approximately 22.4% to the theoretical ex-entitlement price of approximately HK$1.16 per Share based on the closing price per Share on the Last Trading Day;

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LETTER FROM CIMB-GK

a discount of approximately 30.2% to the closing price of HK$1.29 per share as quoted on the Stock Exchange as at the Latest Practicable Date;
a premium of approximately 291.3% over the audited consolidated net tangible asset value (“NTA”) per Share of approximately HK$0.23 as at 31 December 2005 (calculated by dividing the audited consolidated NTA as at 31 December 2005 of approximately HK$188.6 million by the number of issued Shares of 822,536,899 Shares as at the date of the Announcement); and
a premium of approximately 91.5 % to the unaudited pro forma adjusted consolidated NTA value per Share of HK$0.47 upon completion of the Open Offer (the “Completion”) as set out in Appendix III to the Circular.

The Offer Share Subscription Price was determined after arm’s length negotiations between the Company and Tai Fook Securities, with reference to the market price of the Shares and other factors including the liquidity and performance of the Shares. In assessing the fairness and reasonableness of the Offer Share Subscription Price, we have taken into consideration the following analyses:

Share price performance

The following chart illustrates the closing price of the Shares on the Stock Exchange in the last six months (the “Six-month Period”) preceding to the date of the Announcement and up to and including the Latest Practicable Date (the “Review Period”):

==> picture [358 x 220] intentionally omitted <==

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

1.4
HKSE/Close/Trade/HKD
Last 1.29
1.2 High 05/08/06 1.32
Average 0.949
Low 12/13/06 0.295
1.0
0.8
0.6
0.4
12/2005 01/2006 02/2006 03/2006 04/2006 05/2006 06/2006
----- End of picture text -----

Source: Bloomberg

— 30 —

LETTER FROM CIMB-GK

For the Six-month Period, the Shares traded within a range of HK$0.295 to HK$1.34 per Share. The Share price underwent an acute surge in early January 2006 and continued to increase and closed at HK$1.25 on the Last Trading Day. We note that the stock market was also on an increasing trend during the period from January 2006 to May 2006. Following the announcement of the Group’s annual results for FY2005 in March 2006, the price of the Share increased from HK$1.07 per Share in late March 2006 to the highest of HK$1.34 per Share in early May 2006. Following the release of the Announcement, the Shares traded within a range of HK$1.09 to HK$1.29 and closed at HK$1.29 as at the Latest Practicable Date.

Open Offer Comparables

In assessing the fairness of the Offer Share Subscription Price, we have, to the best of our knowledge, reviewed and compared the Offer Share Subscription Price with the subscription prices of the rights issues/open offers (the “Open Offer Comparables”) announced by other companies listed on the Stock Exchange in 2006 up to the date of the Announcement. We consider the Open Offer Comparables collectively reflect the indicative market pricing of rights issue/open offer, and their particulars are summarised as follows:

					(Discount)/
					Premium of
					subscription
			(Discount)/		price to the
			Premium of		unaudited
			subscription	(Discount)/	adjusted
			price to	Premium of	consolidated
			closing price of	subscription	NTA per
			shares on the	price to	share upon
	Rights		last trading	theoretical	completion
	Issue/		day prior	ex-	of the
	Open	Date of	to the date of	entitlements	rights issue/
Company	Offer	announcement	announcement	price	open offer
			%	%	%
MAE Holdings	rights	6-Jan-06	(51.50)	(21.00)	0.17
Limited	issue
FinTronics	rights	12-Jan-06	(55.60)	(38.70)	(43.27)
Holdings Limited	issue
Fortuna	open	27-Jan-06	(90.00)	(75.00)	(80.16)
International	offer
Holdings Limited

— 31 —

LETTER FROM CIMB-GK

					(Discount)/
					Premium of
					subscription
			(Discount)/		price to the
			Premium of		unaudited
			subscription	(Discount)/	adjusted
			price to	Premium of	consolidated
			closing price of	subscription	NTA per
			shares on the	price to	share upon
	Rights		last trading	theoretical	completion
	Issue/		day prior	ex-	of the
	Open	Date of	to the date of	entitlements	rights issue/
Company	Offer	announcement	announcement	price	open offer
			%	%	%
South Sea Petroleum	open	27-Jan-06	(41.18)	(31.03)	(41.41)
Holdings Limited	offer
Climax	rights	6-Feb-06	(41.10)	(31.50)	(54.77)
International	issue
Company Limited
Asia Orient	rights	10-Feb-06	(38.80)	(37.60)	(71.53)
Holdings Limited	issue
Uni-Bio Science	open	15-Feb-06	(18.00)	(6.90)	17.38
Group Limited	offer
JCG Holdings	rights	17-Feb-06	(7.59)	(5.19)	55.55
Limited	issue
Heng Tai	open	1-Mar-06	(47.60)	(39.50)	37.91
Consumables	offer
Group Limited
Chuang’s China	rights	6-Mar-06	(10.10)	(8.30)	(75.50)
Investments	issue
Limited
Easyknit	rights	8-Mar-06	(15.50)	(11.10)	(77.48)
International	issue
Holdings Limited

— 32 —

LETTER FROM CIMB-GK

					(Discount)/
					Premium of
					subscription
			(Discount)/		price to the
			Premium of		unaudited
			subscription	(Discount)/	adjusted
			price to	Premium of	consolidated
			closing price of	subscription	NTA per
			shares on the	price to	share upon
	Rights		last trading	theoretical	completion
	Issue/		day prior	ex-	of the
	Open	Date of	to the date of	entitlements	rights issue/
Company	Offer	announcement	announcement	price	open offer
			%	%	%
Tomorrow	open	8-Mar-06	(13.40)	30.70	(55.48)
International	offer
Holdings Limited
Asia Standard	rights	23-Mar-06	(42.68)	(33.33)	(42.24)
Hotel Group	issue
Limited
CK Life Sciences	rights	23-Mar-06	(30.90)	(22.90)	53.70
Int’l., (Holdings)	issue
Inc.
Wing Hing	rights	29-Mar-06	(36.31)	(27.54)	(64.80)
International	issue
(Holdings)
Limited
Wah Yuen	rights	7-Apr-06	(50.74)	(29.18)	(67.20)
Holdings Limited	issue
China National	open	26-Apr-06	(28.60)	(21.10)	97.63
Resources	offer
Development
Limited
See Corporation	rights	27-Apr-06	(79.40)	(39.10)	(45.70)
Limited	issue

— 33 —

LETTER FROM CIMB-GK

					(Discount)/
					Premium of
					subscription
			(Discount)/		price to the
			Premium of		unaudited
			subscription	(Discount)/	adjusted
			price to	Premium of	consolidated
			closing price of	subscription	NTA per
			shares on the	price to	share upon
	Rights		last trading	theoretical	completion
	Issue/		day prior	ex-	of the
	Open	Date of	to the date of	entitlements	rights issue/
Company	Offer	announcement	announcement	price	open offer
			%	%	%
Haywood	open	27-Apr-06	(15.66)	(11.39)	9.92
Investments	offer
Limited
China Nan Feng	open	28-Apr-06	(63.86)	(30.64)	35.69
Group Limited	offer
Anex International	rights	3-May-06	(19.4)	(10.7)	(24.79)
Holdings Limited	issue
Pacific Plywood	open	19-May-06	(89.13)	(80.39)	(85.55)
Holdings Limited	offer
Carico Holdings	open	7-Jun-06	(51.61)	(34.78)	41.39
Limited	offer
Average			(40.81)	(26.79)	(20.89)
The Company			(28.0)	(22.4)	291.3

Source: www.hkex.com.hk , and the respective circulars of the Open Offer Comparables.

It is a common market practice that in order to enhance the attractiveness of a rights issue or open offer of shares to the shareholders, the pricing normally is set at a discount to the theoretical ex-entitlement price of the shares. As noted from the above, the subscription prices of the respective theoretical ex-entitlement prices of the Open Offer Comparables ranged from

— 34 —

LETTER FROM CIMB-GK

30.7% premium to 80.4% discount, with an average discount of approximately 26.8%. Given this, the discount of the Offer Share Subscription Price to its theoretical ex-entitlement price is comparable to such average discount of the Open Offer Comparables.

Net tangible asset value

As at 31 December 2005, the audited consolidated NTA of the Group was approximately HK$188.6 million, representing approximately HK$0.23 per Share (calculated based on the number of issued Shares of 822,536,899 Shares as at the date of the Announcement). As set out in Appendix III to the Circular, upon Completion, the unaudited consolidated NTA per Share would amount to approximately HK$0.47. The Offer Share Subscription Price represents a premium of approximately 91.5% to the unaudited pro forma consolidated NTA per Share of approximately HK$0.47 upon Completion, which is above the relevant average discount of the subscription price of the Open Offer Comparables to their respective NTA of approximately 20.9% as set out in the table above. Accordingly, no dilution in NTA per Share will be resulted from the Open Offer and Shareholders will not experience any dilution in the NTA per Share should they opt not to participate in the Open Offer.

Views

Given the above, we consider that the Offer Share Subscription Price is fair and reasonable so far as the Company and the Independent Shareholders are concerned.

Bonus Issue and Bonus Warrant Subscription Price

We note that the Bonus Issue is conditional upon the Completion, which is to give incentive to the Qualifying Shareholders to participate in the Open Offer. Pursuant to the Bonus Issue, 10 Bonus Warrants will be available for every 13 Offer Shares successfully subscribed by the Qualifying Shareholders. The Bonus Warrants will entitle the holders to subscribe for new Shares at a price of HK$1.10 per Share (the “Bonus Warrant Subscription Price”) in cash, subject to usual adjustments, and may be exercised at any time during the period from 3 August 2006 up to and until 4:00 p.m. on 2 August 2008 (if that day is not a business day, the business day immediately preceding that day) (both days inclusive).

Based on 267,324,486 Offer Shares to be issued under the Open Offer, an aggregate of 205,634,220 Bonus Warrants will be issued by the Company upon Completion, and represents (i) approximately 25.0% of the issued share capital of the Company as at the Latest Practicable Date; (ii) approximately 18.9% of the issued share capital of the Company immediately upon Completion; and (iii) approximately 15.9% of the issued share capital of the Company as enlarged by the allotment and issue of the Offer Shares and the Shares upon exercise of the subscription rights attaching to the Bonus Warrants in full.

— 35 —

LETTER FROM CIMB-GK

The Bonus Warrant Subscription Price represents:

a discount of 12.0% to the closing price of HK$1.25 per Share as quoted on the Stock Exchange on the Last Trading Day;
a discount of approximately 9.8% to the average closing price of approximately HK$1.22 per Share based on the daily closing prices as quoted on the Stock Exchange over the last five consecutive trading days up to and including the Last Trading Day;
a discount of approximately 5.2% to the theoretical ex-entitlement price of approximately HK$1.16 per Share based on the closing price per Share on the Last Trading Day;
a discount of approximately 14.7% to the closing price of HK$1.29 per share as quoted on the Stock Exchange as at the Latest Practicable Date;
a premium of approximately 22.2% to the Offer Share Subscription Price;
a premium of approximately 378.3% over the audited consolidated NTA per Share of approximately HK$0.23 as at 31 December 2005 (calculated by dividing the audited consolidated NTA as at 31 December 2005 of approximately HK$188.6 million by the number of issued Shares of 822,536,899 Shares as at the date of the Announcement); and
a premium of approximately 134.0 % over the unaudited pro forma adjusted consolidated NTA per Share of HK$0.47 upon Completion as set out in Appendix III to the Circular.

As only the Shareholders who subscribe for the Offer Shares will be entitled to the Bonus Warrants, we are of the view that it is fair to set the Bonus Warrant Subscription Price at a premium to the Offer Share Subscription Price given that the Bonus Warrants will be exercisable within two years from the date of their issue. At the same time, having considered the above, in particular the fact that (i) the Bonus Issue serves as a sweetener to entice the Shareholders to subscribe for the Offer Shares; (ii) holders of the Bonus Warrants have full discretion as to whether or not to subscribe for any new Shares entitled under the Bonus Warrants; and (iii) the discount of the Bonus Warrant Subscription Price to the closing price of the Shares on the Last Trading Day of 12.0% is comparable to the discount of approximately 19.4% of a similar bonus warrant issue attached to a rights issue (issued by Anex International Holdings Limited, a company listed on the Main Board of the Stock Exchange) as announced in 2006 up to the date of the Announcement; we consider that the Bonus Issue, which forms part of the Open Offer, is in the interest of the Company and the Shareholders as a whole, and the Bonus Warrant Subscription Price is fair and reasonable so far as the Company and the Independent Shareholders are concerned.

— 36 —

LETTER FROM CIMB-GK

Effect on shareholding interests of the Shareholders

For those Shareholders who take up their entitlements in full under the Open Offer, their shareholding interests in the Company will remain substantially unchanged upon Completion (before taking into account the Shares which may fall to be issued pursuant to the exercise of the subscription rights attaching to the Bonus Warrants).

For those Shareholders who do not exercise their rights to subscribe for the Offer Shares in full, depending on the extent that they take up their entitlements, their shareholding interests will be diluted by up to approximately 24.5% (before taking into account the dilutive effect of the Bonus Issue) and up to approximately 36.5% (after taking into account the dilutive effect of the Bonus Issue).

As explained above, based on the amount of fund to be raised from the Open Offer, the interest expenses of any debt financing, and the intended use of proceeds of the Open Offer, we concur with the views of the Directors that it would be appropriate for the Company to raise equity financing as compared to debt financing, if such can be obtained. Furthermore, as the Open Offer would enable the Qualifying Shareholders to participate on a pro-rata basis, the Open Offer will not have resulted in NTA dilution to Shareholders upon Completion, and the Company will be able to improve its overall financial position and to capitalize for future business development, we consider that the shareholding dilution effect arising from the Open Offer is acceptable.

Financial effects of the Open Offer

Net tangible asset value

As at 31 December 2005, the audited consolidated NTA of the Group was approximately HK$188.6 million, representing approximately HK$0.23 per Share (calculated based on the number of issued Shares of 822,536,899 Shares as at the date of the Announcement). As set out in Appendix III to the Circular, upon Completion, the unaudited pro forma adjusted consolidated NTA of the Group will increase to approximately HK$423.2 million, representing approximately HK$0.47 per Share (before taking into account the Shares which may fall to be issued pursuant to the exercise of the subscription rights attaching to the Bonus Warrants). Pursuant to Note (i) to Appendix III to the Circular, upon Completion and after taking into consideration of the full conversion of the convertible notes in February 2006 (the “Conversion”), the unaudited pro forma adjusted consolidated NTA of the Group would be approximately HK$0.44 per Share (after taking into account the 181,818,181 Shares converted under the Conversion but before taking into account the Shares which may fall to be issued pursuant to the exercise of the subscription rights attaching to the Bonus Warrants).

— 37 —

LETTER FROM CIMB-GK

Working capital

The Group’s cash balances as at 31 December 2005 was approximately HK$83.7 million. With the net proceeds of HK$234.5 million to be raised from the Open Offer, the working capital of the Group will be further improved upon Completion.

RECOMMENDATION

Having considered the above principal factors and reasons, we consider the Open Offer and the Bonus Issue are in the interests of the Company and the Shareholders as a whole and the terms of thereof are fair and reasonable so far as the Company and the Independent Shareholders are concerned. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the SGM to approve the Open Offer and the Bonus Issue.

Yours faithfully, For and on behalf of

CIMB-GK Securities (HK) Limited Alex Lau Flavia Hung Executive Vice President Senior Vice President

— 38 —

APPENDIX I SUMMARY OF TERMS OF THE BONUS WARRANTS

The Bonus Warrants will be issued subject to and with the benefit of the instrument by way of deed poll (the “ Instrument ”) to be executed by the Company. The Bonus Warrants will be issued in registered form and will form one class and rank pari passu in all respects with each other.

The principal terms and conditions of the Bonus Warrants (the “ Conditions ”) will be set out in the Bonus Warrant certificates and will include provisions to the effect set out below. Holders of the Bonus Warrants will be entitled to the benefit of, and will be bound by, and be deemed to have notice of the Conditions. They will also be entitled to the benefit of, and will be bound by, and be deemed to have notice of the provisions of the relevant Instrument, copies of which will be available from 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.

1. SUBSCRIPTION RIGHTS

(a) In this Appendix, unless otherwise stipulated, the following terms shall have the following meanings:
“Subscription Date”
means the date falling during the Subscription Period on which the Subscription Rights or any part thereof are exercised;

“Subscription Period” means the period from 3 August 2006 to 4:00 p.m. (Hong Kong time) on 2 August 2008 (if that day is not a business day, the business day immediately preceding such day) (both days inclusive) during which the Subscription Rights can be exercised;

“Subscription Price” means the sum payable in respect of each Share upon exercise of the Subscription Rights;

“Subscription Rights” means the subscription rights to be attached to the Warrants to subscribe for Shares; and
“Warrants” or
“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, in registered form in units of subscription rights of HK$1.10 each 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$1.10 per Share, subject to adjustment, at any time for a period of two years from the date of the creation of such warrant(s).

— 39 —

APPENDIX I SUMMARY OF TERMS OF THE BONUS WARRANTS

(b) The Warrants

The registered holder for the time being of a Warrant will have the right, which may be exercised in whole or in part, but not in respect of a fraction of a Share, at any time during the Subscription Period to subscribe the whole or part of the amount in respect of which the Warrant is issued for fully paid Shares at the Subscription Price (subject to adjustment) of HK$1.10 per Share. The Subscription Rights attaching to the Warrants may be exercised on or after 3 August 2006 up to and including 4:00 p.m. (Hong Kong time) on the last day of the Subscription Period (or such earlier date as provided in the Instrument). Any Subscription Rights attaching to the Warrants which have not been exercised at or before 4:00 p.m. (Hong Kong time) on the last day of the Subscription Period (or such earlier date as provided in the Instrument) will lapse and the Warrants will cease to be valid for any purpose. Payment of the Subscription Price must be made in immediately available funds. If such payment is not received, the Warrants comprised in the relevant exercise of Subscription Rights will not be treated as exercised earlier than the date of receipt of such payment. No such payment will be accepted after 4:00 p.m. (Hong Kong time) on the last day of the Subscription Period (or such earlier date as aforesaid).

(c) Each Warrant certificate will contain a subscription form. In order to exercise his Subscription Rights, a warrantholder must complete and sign the subscription form and deliver the same and the Warrant certificate together with a remittance for the relevant subscription monies for the Shares in respect of which the Subscription Rights are being exercised, to the registrars of warrantholders, and any such delivery shall constitute an irrevocable commitment by such warrantholder to exercise such Subscription Rights. In each case compliance must also be made by the exercising warrantholder with any exchange control, fiscal or other laws or regulations for the time being applicable.
(d) The number of Shares to be allotted on exercise of the Subscription Rights shall be calculated by dividing the amount specified in the relevant subscription form and duly remitted as aforesaid by the Subscription Price applicable on the Subscription Date. No fraction of a Share will be allotted but any balance representing fractions of the Subscription Price paid on the exercise of the Subscription Rights will be retained by the Company for its own use, provided always that if the Subscription Rights represented by any one or more Warrant certificates are exercised at the same time by the same warrantholder then, for the purposes of determining whether any (and if so what) fraction of a Share arises, the Subscription Rights represented by such Warrant certificates will be aggregated.

— 40 —

APPENDIX I SUMMARY OF TERMS OF THE BONUS WARRANTS

(e) The Company undertakes in the Instrument that any Shares falling to be issued upon the exercise of the Subscription Rights will be allotted and issued no later than 10 business days (as defined in the Instrument) after the relevant Subscription Date and will rank pari passu with the fully paid Shares in issue on the relevant Subscription Date and accordingly will entitle the holders to participate in all dividends or other distributions declared, paid or made on or after the relevant Subscription Date other than any dividend or other distribution previously declared or recommended or resolved to be paid or made if the record date therefor is before the relevant Subscription Date and notice of the amount and record date has been given to the Stock Exchange (as defined in the Instrument) prior to the relevant Subscription Date.
(f) As soon as practicable after the relevant allotment and issue of Shares (and in any event not later than 10 business days (as defined in the Instrument) after the relevant Subscription Date) there will be issued free of charge of the warrantholder(s):
(i) a certificate (or certificates) for the relevant Shares in the name(s) of such warrantholder(s);
(ii) (if applicable) a balancing Warrant certificate in registered form in the name(s) of such warrantholder(s) in respect of any Subscription Rights remaining unexercised;
(iii) (if applicable) a certificate in registered form evidencing the right of the exercising warrantholder to the allotment of an additional nominal amount of the capital of the Company, in the event that the credit standing to the subscription right reserve (see paragraph 4 below) is insufficient for the purpose for which it is established; and
(iv) (if applicable) a certificate of any balance of fractions of Subscription Price paid on exercise of the Subscription Rights which is retained pursuant to the provisions referred to in (d) above.

The certificate(s) for Shares arising on the exercise of Subscription Rights, the balancing Warrant certificate (if any), the certificate evidencing the right to allotment of an additional nominal amount of capital (if any) and the certificate of the balance of fractions of Subscription Price retained by the Company (if any) will be sent by ordinary post at the risk of such warrantholder(s) to the address of such warrantholder or (in the case of a joint holding) to that one of them whose name stands first on the register of warrantholders. If the Company agrees, such certificates may by prior arrangement be retained by the Registrars (as defined in the Instrument) to await collection by the relevant warrantholder(s).

— 41 —

APPENDIX I SUMMARY OF TERMS OF THE BONUS WARRANTS

2. ADJUSTMENTS TO SUBSCRIPTION PRICE

The Instrument contain detailed provisions relating to the adjustment of the Subscription Price. The following is a summary of, and is subject to, the adjustment provisions of the Instrument:

(a) The Subscription Price will be adjusted (except as mentioned in sub-paragraphs (b) and (c) below) as provided in the Instrument in each of the following cases:
(i) an alteration of the nominal amount of the Shares by reason of any consolidation or subdivision;
(ii) an issue (other than in lieu of a cash dividend) by the Company of Shares credited as fully paid by way of capitalisation of profits or reserves (including any share premium account or capital redemption reserve);
(iii) a Capital Distribution (as defined in the Instrument) being made by the Company, whether on a reduction of capital or otherwise, to holders of the Shares (in their capacity as such);
(iv) a grant by the Company to the holders of Shares (in their capacity as such) of rights to acquire for cash assets of the Company or any of its Subsidiaries (as defined in the Instrument);
(v) an offer or grant by the Company to holders of Shares by way of rights or of options or warrants to subscribe for new Shares at a price per new Share which is less than 90% of the market price (calculation as provided in the Instrument);
(vi) an issue wholly for cash being made by the Company or any other company of securities convertible into or exchangeable for or carrying rights or subscription for new Shares, if in any case the total Effective Consideration (as defined in the Instrument) per Share is less than 90% of the market price (calculation as provided in the Instrument), or the terms of any such issue being altered so that the said total Effective Consideration is less than 90% of such market price;
(vii) an issue being made by the Company wholly for cash of Shares (other than pursuant to a Share Option Scheme (as defined in the Instrument)), at a price less than 90% of the market price (calculation as provided in the Instrument); and

— 42 —

APPENDIX I SUMMARY OF TERMS OF THE BONUS WARRANTS

(viii) a cancellation of any Shares repurchased by the Company (other than on the Stock Exchange or any other stock exchange recognised for such purpose) in circumstances where the Directors consider that it may be appropriate to make an adjustment to the Subscription Price.
(b) Except as mentioned in sub-paragraph (c) below, no such adjustment as referred to in sub-paragraph (a) above will be made in respect of:
(i) an issue of fully paid Shares upon the exercise of any conversion rights attached to securities convertible into Shares or upon the exercise of any rights (including the Subscription Rights) to acquire shares;
(ii) an issue of Shares or other securities of the Company or any Subsidiary (as defined in the Instrument) wholly or partly convertible into, or carrying rights to acquire, Shares to executive Directors or employees of the Company or any Subsidiaries or their personal representatives pursuant to a Share Option Scheme (as defined in the Instrument);
(iii) an issue by the Company of Shares or by the Company or any Subsidiary of securities wholly or partly convertible into or carrying rights to acquire Shares, in any such case in consideration or part consideration for the acquisition of any other securities, assets or business;
(iv) an issue of fully paid Shares by way of capitalisation of all or part of the Subscription Right Reserve (as defined in the Instrument) to be established in certain circumstances pursuant to the terms and conditions contained in the Instrument (or any similar reserve which has been or may be established pursuant to the terms of any other securities wholly or partly convertible into or rights to acquire Shares);
(v) an issue of Shares in lieu of a cash dividend where an amount not less than the nominal amount of the Shares so issued is capitalised and the market value (calculated as provided in the Instrument) of such Shares is not more than 110% of the amount of dividends which holders of Shares could elect to or would otherwise receive in cash;
(vi) the issue of the Warrants; and
(vii) the issue of Shares pursuant to the Open Offer (as defined in the Instrument).

— 43 —

APPENDIX I SUMMARY OF TERMS OF THE BONUS WARRANTS

(c) Notwithstanding the provisions referred to in sub-paragraphs (a) and (b) above, in any circumstances where the Directors consider that an adjustment to the Subscription Price provided for under the said provisions should not be made or should be calculated on a different basis or that an adjustment to the Subscription Price should be made notwithstanding that no such adjustment is required under the said provisions, the Directors may appoint an approved merchant bank or the auditors of the Company to consider whether for any reason whatever the adjustment to be made (or the absence of adjustment) would or might not fairly and appropriately reflect the relative interest of the persons affected thereby and, if such approved merchant bank or the auditors of the Company considers this to be the case, the adjustment will be modified or nullified or an adjustment made instead of no adjustment in such manner (including without limitation, making an adjustment calculated on a different basis) as is certified by such an approved merchant bank or the auditors of the Company to be in its opinion appropriate.
(d) Any adjustment to the Subscription Price will be made to the nearest one cent so that any amount under half a cent will be rounded down and any amount of half a cent or more will be rounded up. No adjustment will be made to the Subscription Price in any case in which the amount by which the same would be reduced would be less than one cent and any adjustment which would otherwise then be required will not be carried forward. No adjustment may be made (except on a consolidation of Shares into Shares of a higher nominal amount) which would increase the Subscription Price.
(e) Every adjustment to the Subscription Price will be certified by the auditors of the Company or an approved merchant bank and notice of each adjustment (giving the relevant particulars) will be given to warrantholders. Any such certificates of the auditors and/or approved merchant bank will be available for inspection at the principal place of business for the time being of the Company in Hong Kong.

3. REGISTERED WARRANTS

The Warrants will be issued in registered form. The Company will be entitled to treat the registered holder of any Warrant as the absolute owner thereof and accordingly will not, except as ordered by a Court of competent jurisdiction or required by law, be bound to recognise any equitable or other claim to or interest in such Warrants on the part of any other person, whether or not it has express or other notice thereof.

— 44 —

APPENDIX I SUMMARY OF TERMS OF THE BONUS WARRANTS

4. SUBSCRIPTION RIGHT RESERVE

The Instrument provides that, subject to such provision not contravening the Companies Act and the bye-laws of the Company, if the Company does any act or engages in any transaction which would result in the Subscription Price being reduced below the par value of a Share, a subscription right reserve is to be created and applied in paying up the difference between the Subscription Price and the par value of a Share on any exercise of the Warrants.

5. TRANSFER, TRANSMISSION, REGISTER, VOTING AND DOCUMENT DESTRUCTION

(a) The Subscription Rights will be transferable, in whole amounts or multiples of the Subscription Price for the time being in force, by instrument of transfer in any usual or common form or in any other form which may be approved by the Directors. The Company will maintain a register of warrantholders accordingly. Transfers of Warrants must be executed by both the transferor and the transferee. The provisions of the Company’s bye-laws from time to time relating to the registration, transfer and transmission of Shares and the register of members shall, mutatis mutandis, apply (unless inconsistent with any of the provisions of the Instrument or the Conditions) to the registration, transfer and transmission of the Warrants and the register of warrantholders, save that the Company shall not be obliged (but may if the Directors so resolve) to maintain any register of warrantholders at any place outside Hong Kong.
(b) Where the transferor or the transferee is HKSCC Nominees Limited or its successor thereto (or such other company as may be approved by the Directors for the purpose), the transfers may be executed under the hands of authorised person(s) or by machine imprinted signature(s) on its behalf or of such person(s) as the case may be.
(c) The Instrument contains provisions which incorporate by reference certain provisions of the Company’s bye-laws from time to time in force to regulate the maximum number of holders of a Warrant, the appointment of proxies, attorneys and corporate representatives by warrantholders, the signing and delivery of instruments appointing proxies, attorneys and corporate representatives by warrantholders, voting and the right to speak at warrantholders’ meetings by warrantholders, their proxies, attorneys and corporate representatives, the rights of joint holders of a Warrant and the destruction of documents which have been cancelled or registered.

— 45 —

SUMMARY OF TERMS OF THE BONUS WARRANTS

APPENDIX I

Note: Persons who hold Warrants and have not registered the Warrants in their own names and wish to exercise the Warrants may incur additional costs and expense in connection with any expedited re-registration of the Warrants prior to the transfer or exercise of the Warrants, particularly during the period commencing ten Stock Exchange trading days prior to and including the last day for subscription, or such earlier date as provided in the Instrument.

In addition, since the Warrants will be admitted to CCASS, so far as the applicable laws or regulations of the relevant regulatory authorities, terms of the Instrument and circumstances permit, the last trading day of the Warrants on the Stock Exchange will be on a date which is at least three Stock Exchange trading days prior to their expiry or such earlier date as provided in the Instrument.

6. PURCHASE AND CANCELLATION

The Company or any of the Subsidiaries (as defined in the Instrument) may at any time purchase Warrants:

(a) in the open market or by tender (available to all warrantholders alike) at any price; or
(b) by private treaty at a price, exclusive of expenses, not exceeding 110 per cent. of the closing price prior to the date of purchase of the Warrants on the Stock Exchange,

but not otherwise. All Warrants purchased as aforesaid will be cancelled forthwith and may not be re-issued or re-sold.

7. MEETINGS OF THE WARRANTHOLDERS AND MODIFICATION OF RIGHTS

(a) The Instrument contains provisions for convening meetings of warrantholders to consider any matter affecting the interests of warrantholders, including the modification by a Special Resolution (as defined in the Instrument) of the provisions of the Instrument and/or of the Conditions. A Special Resolution duly passed at any such meeting will be binding on the warrantholders, whether present or not.
(b) All or any of the rights for the time being attached to the Warrants (including any of the provisions of the Instrument) may from time to time (whether or not the Company is being wound up) be altered or abrogated (including but without prejudice to that generality by waiving compliance with, or by waiving or authorising any past or proposed breach of, any of the provisions of the Conditions and/or the Instrument) and the sanction of a Special Resolution shall be necessary and sufficient to effect such alteration or abrogation.

— 46 —

SUMMARY OF TERMS OF THE BONUS WARRANTS

APPENDIX I

(c) Where a warrantholder is a recognised clearing house (within the meaning of the SFO) or a nominee of such clearing house, and, in each case, being a corporation, it may authorise such person(s) as it thinks fit to act as its representative(s) or proxy(ies) at any meeting of warrantholders or at any meeting of any class of warrantholders provided that if more than one person is so authorised, the authorisation shall specify the number of (and, if relevant, the class of) Warrants in respect of which each such representative or proxy is so authorised. Each person so authorised shall be entitled to exercise the same rights and powers on behalf of the recognised clearing house or its nominee(s) could exercise as if such person were an individual warrantholder (or its nominee) in respect of the number (and, in relevant, the class) of Warrants specified in the relevant authorisation or proxy form.
(d) The quorum for a meeting of warrantholders shall be two warrantholders present in person or by proxy and being or representing in aggregate the holders of not less than 10% of the Warrants for the time being outstanding. No business (other than the choosing of a chairman) shall be transacted at any meeting unless the requisite quorum is present at the commencement of any such meeting.

8. CLOSURE OF REGISTER OF WARRANTHOLDERS

The registration of transfers of Warrants may be suspended and the register of warrantholders may be closed for such period as the Directors may from time to time direct, provided that registration may not be suspended or such register be closed for periods exceeding in the whole 30 days or, with the approval of an ordinary resolution of the warrantholders, for periods not exceeding 60 days in any one year. Any transfer or exercise of the Subscription Rights attached to the Warrants made while the register of warrantholders is closed shall, as between the Company and the person claiming under the relevant transfer of Warrants or, as the case may be, as between the Company and the warrantholder who has so exercised the Subscription Rights attached to his Warrant (but not otherwise), be considered as made immediately after the re-opening of the register of warrantholders.

9. OVERSEAS WARRANTHOLDERS

No Subscription Rights represented by a Warrant may be exercised by any person who is resident in or a national of a Restricted Jurisdiction (as hereinafter defined), and the exercise of any Subscriptions Rights represented by a Warrant by a warrantholder shall constitute a confirmation, representation and warranty by the exercising warrantholder that such warrantholder is not a resident or a national of a Restricted Jurisdiction and that all necessary governmental, regulatory or other consents or approvals and all formalities have been obtained and observed by such warrantholder to enable him to

— 47 —

SUMMARY OF TERMS OF THE BONUS WARRANTS

APPENDIX I

legally and validly exercise the relevant Subscription Rights and the Company to legally and validly allot Shares in consequence thereof. “Restricted Jurisdiction” includes the United States of America, any of its territories or possessions, the United Kingdom, Canada, any jurisdiction under the laws of which an exercise of Subscription Rights by a warrantholder who is national or resident thereof or the performance by the Company of the obligations expressed to be assumed by it under the Instrument or the Conditions cannot be carried out lawfully or cannot be carried out lawfully without the Company first having taken certain actions in such jurisdiction, and any other country, state or territory nominated by the Directors from time to time. Warrantholders will be notified of any such nomination as soon as practicable after the Directors have nominated the same.

10. REPLACEMENT OF WARRANT CERTIFICATES

If a Warrant certificate is mutilated, defaced, lost or destroyed, it may, at the discretion of the Company, be replaced at the principal office of the Registrars (as defined in the Instrument) on payment of such costs as may be incurred in connection therewith and on such terms as to evidence, indemnity and/or security as the Company may require and on payment of such fee not exceeding HK$2.50 (or such higher fee as may from time to time be permitted under the rules prescribed by the Stock Exchange) as the Company may determine. Mutilated or defaced Warrant certificates must be surrendered before replacements will be issued.

In the case of lost Warrant certificates, subsections (2), (3), (4), (6), (7) and (8) of section 71A of the Companies Ordinance shall apply as if “Shares” referred to therein included the Warrants.

11. PROTECTION OF SUBSCRIPTION RIGHTS

The Instrument contains certain undertakings by and restrictions on the Company designed to protect the Subscription Rights.

12. LIQUIDATION OF THE COMPANY

If an effective resolution is passed for the voluntary winding-up of the Company, and if such winding up is for the purpose of reconstruction or amalgamation pursuant to a scheme of arrangement to which the warrantholders, or some person designated by them for such purpose by Special Resolution (as defined in the Instrument), will be a party or in conjunction with which a proposal is made to the warrantholders and is approved by a Special Resolution, the terms of such scheme of arrangement or (as the case may be) proposal will be binding on all the warrantholders. The Company shall give notice to the warrantholders of the passing of any such resolution within seven days after the passing thereof.

— 48 —

SUMMARY OF TERMS OF THE BONUS WARRANTS

APPENDIX I

In the event a notice is given by the Company to its shareholders to convene a shareholders’ meeting for the purposes of considering, and if thought fit approving, a resolution to voluntarily wind-up the Company, the Company shall forthwith give notice thereof to each warrantholder and thereupon, every warrantholder shall be entitled by irrevocable surrender of the Warrant certificate(s) to the Company (such surrender to occur not later than five business days prior to the proposed shareholders’ meeting referred to above) with the subscription form(s) duly completed, together with payment of the exercise moneys or the relative portion thereof, to exercise the Subscription Rights represented by such Warrant and the Company shall as soon as possible and in any event no later than the day immediately prior to the date of the proposed shareholders’ meeting allot such number of Shares to the warrantholder which fall to be issued pursuant to the exercise of the Subscription Rights represented by such Warrant. The Company shall give notice to the warrantholders of the proposal of any such resolution within seven days after the notice of the special general meeting is despatched.

Subject to the foregoing, if the Company is wound up, all Subscription Rights which have not been exercised at the date of the passing of such resolution will lapse and each Warrant certificate will cease to be valid for any purpose.

13. DISTRIBUTION AND FURTHER ISSUES OF SECURITIES BY THE COMPANY

The Company shall subject to the Listing Rules from time to time be at liberty to issue further subscription warrants, however, the warrantholders will not be entitled to participate in any distributions or further issues of securities by the Company as a result of them being warrantholders.

14. CALL

If at any time Warrants which have not been exercised carry rights to subscribe for Shares are equal to or less than 10% of the aggregate value of the Subscription Rights attached to the Warrants, the Company may, on giving not less than three months’ notice, require holders of Warrants either to exercise their Subscription Rights or to allow them to lapse. On expiry of such notice, all unexercised Warrants will be automatically cancelled without compensation to the warrantholders.

15. UNDERTAKINGS BY THE COMPANY

The Company undertakes in the Instrument that, amongst other matters:

(a) so long as the Shares remain listed on the Stock Exchange, it will use its best endeavours to ensure that at all times during the Subscription Period the Warrants will be admitted to listing on the Stock Exchange;

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SUMMARY OF TERMS OF THE BONUS WARRANTS

APPENDIX I

(b) so long as the Shares remain listed on the Stock Exchange, it will use its best endeavours to ensure that all Shares allotted on exercise of Subscription Rights will be admitted to listing on the Stock Exchange (and on any other stock exchange on which the Shares may at that time be listed);
(c) it will send to warrantholders, at the same time as the same are sent to the holders of Shares, its audited accounts and all other notices, reports and communications despatched by it to the holders of the Shares generally; and
(d) it will pay all Hong Kong and, if applicable, Bermuda stamp duties, registration fees or similar charges in respect of the execution of the Instrument, the creation and initial issue of the Warrants in registered form, the exercise of the Subscription Rights and the issue of Shares upon exercise of the Subscription Rights.

16. NOTICES

The Instrument contains provisions relating to notices to be given to warrantholders.

17. GOVERNING LAW

The Instrument and the Warrants will be governed by and will be construed in accordance with the laws of Hong Kong.

— 50 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

SUMMARY OF FINANCIAL INFORMATION OF THE GROUP

1. Financial Summary

A summary of the results, assets and liability 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

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)

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Financial Position Total assets Total liabilities Total equity attributable to equity holders of the Company	2005 HK$’000 250,120 (57,786) 192,334	At 31 December 2004 2003 HK$’000 HK$’000 (Restated) (Restated) 13,836 16,041 (5,802) (14,241) 8,034 1,800

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

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

BDO McCabe Lo Limited

Certified Public Accountants 25th Floor, Wing On Centre 111 Connaught Road Central Hong Kong Telephone: (852) 2541 5041 Telefax: (852) 2815 0002

==> 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.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

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

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

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

— 55 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(b) Set out below is the audited consolidated financial statement 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 — 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)

— 56 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

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

— 57 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

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)

— 58 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

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

— 59 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

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$’000 68,338 136 68,474 -------------- — — — — — -------------- 13,550 (81,204) — — — 667 4,920 — — (62,067) -------------- 6,407	Attributable to equity holders of the Company (Accumulated Contributed Convertible Foreign losses)/ Share surplus note equity exchange retained premium reserve reserve reserve profits HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 534,185 — — — (593,049) (1,576 ) — — — — 532,609 — — — (593,049) -------------- -------------- -------------- -------------- -------------- (4,354 ) — — — — — — — 1 — (4,354 ) — — 1 — — — — — (4,847) (4,354 ) — — 1 (4,847) -------------- -------------- -------------- -------------- -------------- 8,130 — — — — — 81,204 — — — (542,404 ) 542,404 — — — — (608,111 ) — — 608,111 — — — — — 19,333 — — — — 142,693 — — — — — — 5,100 — — — — (893) — — (372,248 ) 15,497 4,207 — 608,111 -------------- -------------- -------------- -------------- -------------- 156,007 15,497 4,207 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

— 60 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

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

— 61 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

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.

— 62 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

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.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

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.

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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.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

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 II

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 II

(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 II

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 II

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 II

(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 II

(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 II

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 II

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 II

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 II

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 II

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 Project management 2005 2004 HK$’000 HK$’000 4,757 —	Continuing operations Project management 2005 2004 HK$’000 HK$’000 4,757 —	Discontinued operations	Discontinued operations	Discontinued operations	Discontinued operations	Discontinued operations	Discontinued operations			Consolidated 2005 2004 HK$’000 HK$’000 5,214 9,709	Consolidated 2005 2004 HK$’000 HK$’000 5,214 9,709
		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	) (46,720 ) (2,781

		) ) ) ) )
(2,600 (220 240	) (7,184 ) (306 65							(5,224 — —	) (42,317 (90 —	) (7,824 ) (220 240	) (49,501 ) (396 65
(2,580 (33 —	) (7,425 ) — —							(5,224 — 2,990	) (42,407 (1,359 3,703	) (7,804 ) (33 2,990	) (49,832 ) (1,359 3,703
(2,613	) (7,425							(2,234	) (40,063	) (4,847	) (47,488

Property development 2005 2004 HK$’000 HK$’000 165,807 — — —	Property development 2005 2004 HK$’000 HK$’000 165,807 — — —	Project management 2005 2004 HK$’000 HK$’000 — — 6,498 —	Project management 2005 2004 HK$’000 HK$’000 — — 6,498 —	Online and telecommunication 2005 2004 HK$’000 HK$’000 — — — 1,800	Online and telecommunication 2005 2004 HK$’000 HK$’000 — — — 1,800	Trading and financial advisory Investment holding 2005 2004 2005 2004 HK$’000 HK$’000 HK$’000 HK$’000 — — — — — 4,015 — 5,441	Trading and financial advisory Investment holding 2005 2004 2005 2004 HK$’000 HK$’000 HK$’000 HK$’000 — — — — — 4,015 — 5,441	Trading and financial advisory Investment holding 2005 2004 2005 2004 HK$’000 HK$’000 HK$’000 HK$’000 — — — — — 4,015 — 5,441	Trading and financial advisory Investment holding 2005 2004 2005 2004 HK$’000 HK$’000 HK$’000 HK$’000 — — — — — 4,015 — 5,441	Consolidated 2005 2004 HK$’000 HK$’000 (Restated) 165,807 — 6,498 11,256 77,815 2,580	Consolidated 2005 2004 HK$’000 HK$’000 (Restated) 165,807 — 6,498 11,256 77,815 2,580

—	—	170	—	—	56	—	2,013	—	—
										250,120	13,836

										170 57,616	2,069 3,733


										57,786	5,802

— 77 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

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

— 78 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

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

— 79 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

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

— 80 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

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

— 81 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

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

— 82 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

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)

(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)

— 83 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

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.

— 84 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

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.

— 85 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

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

— 86 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

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).

— 87 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

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 —
		—

— 88 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

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.

— 89 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

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.

— 90 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

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.

— 91 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

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.

— 92 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

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.

— 93 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

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.

— 94 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

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

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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

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APPENDIX II

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.

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APPENDIX II

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

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

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

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(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).

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

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.

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FINANCIAL INFORMATION OF THE GROUP

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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 —

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

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)

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(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

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(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.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(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 prinicpal 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.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

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.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

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. Statement of indebtedness

As at the close of business on 30 April 2006, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Group did not have any debt securities issued and outstanding or agreed to be issued, outstanding bank borrowings, bank overdrafts, liabilities under acceptances, acceptance credits, mortgages, charges, other indebtedness in the nature of borrowing, finance lease or hire purchase commitments, guarantees or material contingent liabilities.

The Directors have confirmed that there have been no material changes in the indebtedness and contingent liabilities of the Group since 1 May 2006.

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APPENDIX II

5. Working capital

The Directors are of the opinion that taking into account the 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 Group has sufficient working capital for its present requirements.

6. Financial and trading prospects of the Group

Starting 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.

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% stake interest in the Tianhebei Road project in late December last year is the first property development project participated by the Group. Having grasped the management’s expertise in the industry, the Group is enabled to participate in other development projects, acting both as a project developer and manager. 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 by increasing suitable land reserves in the premiere 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 is developing financing strategies that are appropriate to achieve such objectives.

The management is of the view that the proceeds from the Open Offer can increase the working capital of the Group and enable the Group to perform in its new business spheres. 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.

— 109 —

UNAUDITED PRO FORMA ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS OF THE GROUP

APPENDIX III

1. STATEMENT OF UNAUDITED PRO FORMA ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS OF THE GROUP

The following is an illustrative and unaudited pro forma adjusted consolidated net tangible assets of the Group which has been prepared on the basis of the notes set out below for the purpose of illustrating the effect of the Open Offer on the audited consolidated net tangible assets of the Group as at 31 December 2005, as set out in Appendix II to this circular, as if the Open Offer had taken place on 31 December 2005.

The statement of unaudited pro forma adjusted consolidated net tangible assets has been prepared for illustrative purposes only and, because of its hypothetical nature, it may not be indicative of the consolidated net tangible assets of the Group following the Open Offer.

Net assets _Less:_Goodwill Net tangible assets No. of Shares issued Unaudited pro forma adjusted consolidated net tangible assets per Share	Audited consolidated net tangible assets of the Estimated Group as at net proceeds 31 December from the 2005 Open Offer HK$’000 HK$’000 Note (i) and (ii) 192,334 234,592 (3,692) — 188,642 234,592 640,718,718 267,324,486 HK$0.2944	Unaudited pro forma adjusted consolidated net tangible assets of the Group after the issue of Offer Shares HK$’000 426,926 (3,692) 423,234 908,043,204 HK$0.4661

— 110 —

UNAUDITED PRO FORMA ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS OF THE GROUP

APPENDIX III

Notes:

(i) In accordance with Rule 4.29 of the Listing Rules, no adjustment has been made to reflect any trading result or other transaction of the Group entered into subsequent to 31 December 2005. Accordingly, the issue by the Company of 181,818,181 Shares as a result of a full conversion by a holder of the convertible notes issued by the Company at a subscription price of HK$0.33 per Share as announced by the Company on 20 February 2006 is not reflected in this pro forma statement. For illustrative purposes only, the unaudited pro forma adjusted consolidated net tangible asset of the Group per Share after taking into account the effect of such conversion (assuming such conversion was taken place on 31 December 2005) and the Open Offer would be approximately HK$0.44 per Share.
(ii) The estimated net proceeds from the Open Offer is calculated based on the issue of 267,324,486 Offer Shares at a price of HK$0.90 per Offer Share on the basis of 13 Offer Shares for every 40 Shares held by the Qualifying Shareholders as at the Record Date, and takes no account of any additional Shares which may be issued upon the exercise of the conversion rights attaching to the Bonus Warrants.

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UNAUDITED PRO FORMA ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS OF THE GROUP

APPENDIX III

2. REPORT ON THE STATEMENT OF UNAUDITED PRO FORMA ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS OF THE GROUP FROM BDO McCABE LO LIMITED

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

BDO McCabe Lo Limited

Certified Public Accountants 25th Floor, Wing On Centre 111 Connaught Road Central Hong Kong Telephone: (852) 2541 5041 Telefax: (852) 2815 0002

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The Directors

Skyfame Realty (Holdings) Limited

2502B, Admiralty Centre Tower 1 18 Harcourt Road Hong Kong

27 June 2006

Dear Sirs,

We report on the statement of unaudited pro forma adjusted consolidated net tangible assets of Skyfame Realty (Holdings) Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”), set out on pages 110 to 111 under the heading of “Statement of Unaudited Pro Forma Adjusted Consolidated Net Tangible Assets of the Group” in Section 1 of Appendix III to the Company’s circular dated 27 June 2006 (the “Circular”) in connection with the proposed open offer (the “Open Offer”) of the Company. The statement of unaudited pro forma adjusted consolidated net tangible assets of the Group has been prepared by the directors of the Company, for illustrative purposes only, to provide information about how the Open Offer might have affected the relevant financial information of the Group as at 31 December 2005. The basis of preparation of the statement of unaudited pro forma adjusted consolidated net tangible assets is set out on pages 110 to 111 to the Circular.

Responsibilities

It is the responsibility solely of the directors of the Company to prepare the statement of unaudited pro forma adjusted consolidated net tangible assets of the Group in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on The

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UNAUDITED PRO FORMA ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS OF THE GROUP

APPENDIX III

Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline 7 Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars issued by the Hong Kong Institute of Certified Public Accountants.

It is our responsibility to form an opinion, as required by paragraph 4.29(7) of the Listing Rules, on the statement of unaudited pro forma adjusted consolidated net tangible assets of the Group 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 statement of unaudited pro forma adjusted consolidated net tangible assets of the Group 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 statement of unaudited pro forma adjusted consolidated net tangible assets of the Group 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 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 statement of unaudited pro forma adjusted consolidated net tangible assets of the Group as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

The Statement of unaudited pro forma adjusted consolidated net tangible assets is for illustrative purposes only, based on the judgements and assumptions of the directors of the Company, and, because of its hypothetical nature, does not provide any assurance or indication that any event will take place in the future and may not be indicative of the financial position of the Group as at 31 December 2005 or any future date.

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UNAUDITED PRO FORMA ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS OF THE GROUP

APPENDIX III

Opinion

In our opinion:

(a) the statement of unaudited pro forma adjusted consolidated net tangible assets of the Group 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 statement of unaudited pro forma adjusted consolidated net tangible assets of the Group as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

BDO McCABE LO LIMITED

Certified Public Accountants Au Yeung Shiu Kau Peter

Practising Certificate Number P02289

— 114 —

GENERAL INFORMATION

APPENDIX IV

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group. 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, opinions expressed in this circular have been arrived at after due and careful consideration and there are no other facts not contained in this circular, the omission of which would make any statement herein misleading.

2. SHARE CAPITAL

The authorised and issued share capital of the Company as at the Latest Practicable Date were, and immediately following completion of the Open Offer and exercise of the subscription rights attaching to the Bonus Warrants in full will be, as follows:

*Authorised:* 30,000,000,000 Shares *Issued and fully paid:* 822,536,899 Shares as at the Latest Practicable Date 267,324,486 Offer Shares to be issued pursuant to the Open Offer 205,634,220 Shares falling to be allotted and issued upon exercise of the subscription rights attaching to the Bonus Warrants in full 1,295,495,605	HK$ 300,000,000

	8,225,368.99 2,673,244.86 2,056,342.20
	12,954,956.05

All the issued Shares rank pari passu with each other in all respects including the rights as to voting, dividends and return of capital. The Offer Shares to be allotted and issued and the Shares falling to be allotted and issued upon exercise of the subscription rights attaching to the Bonus Warrants will, when issued and fully paid, rank pari passu in all respects with the Shares then in issue on their respective date of allotment and issue. In addition, the Offer Shares shall entitle their respective first registered holders (i.e. the persons who are allotted with the Offer Shares in accordance with the terms and conditions of the Open Offer) the right to receive the Bonus Warrants on the basis of 10 Bonus Warrants for every 13 Offer Shares taken up under the Open Offer.

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

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GENERAL INFORMATION

APPENDIX IV

There is no arrangement under which future dividends are waived or agreed to be waived.

3. 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:

		Number	Approximate
Name of		of Shares	shareholding
Director	Capacity	(long position)	percentage
			(note 2)
YU Pan	Interest of a controlled	670,526,985	61.52
	corporation	(note 1)

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 is calculated on the basis of 1,089,861,385 Shares in issue immediately after completion of the Open Offer.

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.

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GENERAL INFORMATION

APPENDIX IV

4. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as known to any Directors or chief executive of the Company, the following persons (other than a Director or chief executive of the Company) had, or were deemed or taken to have interests or short positions in the shares or underlying shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO or, who were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the 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)
Tai Fook Securities	Beneficial owner	374,668,206	34.38
		(note 2)
Tai Fook 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)
Tai Fook 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

— 117 —

GENERAL INFORMATION

APPENDIX IV

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 Tai Fook Securities pursuant to the Underwriting Agreement; and (ii) 162,899,220 Bonus Warrants to be issued to Tai Fook Securities upon completion of the Open Offer. The entire issued share capital of Tai Fook Securities is held by Tai Fook Finance Company Limited, the entire issued share capital of which is held by Tai Fook (BVI) Limited, a wholly owned subsidiary of Tai Fook Securities Group Limited. Tai Fook Finance Company Limited, Tai Fook (BVI) Limited and Tai Fook Securities Group Limited are deemed to be interested in the Shares in which Tai Fook 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.

(b) Short position in the Shares and underlying Shares

			Approximate
Name of		Number of	shareholding
Shareholder	Capacity	Shares	percentage
			(note 1)
Tai Fook Securities	Beneficial owner	325,538,461	29.87
Tai Fook 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)
Tai Fook 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 Tai Fook Securities is held by Tai Fook Finance Company Limited, the entire issued share capital of which is held by Tai Fook (BVI) Limited, a wholly owned subsidiary of Tai Fook Securities Group Limited. Tai Fook Finance Company Limited, Tai Fook (BVI) Limited and Tai Fook Securities Group Limited are deemed to be have short positions in Shares or underlying shares of the Company by virtue of the SFO.

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GENERAL INFORMATION

APPENDIX IV

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.

5. DIRECTORS’ INTERESTS IN ASSETS/CONTRACTS AND OTHER INTERESTS

Save and except for the counter-indemnity (being material contract no. 5 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.

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.

6. MATERIAL CONTRACTS

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

the Underwriting Agreement;
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 underwriting agreement entered into between the Company, Grand Cosmos and Tai Fook 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 IV

the supplemental agreement in relation to the agreement for sale and purchase agreement 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;
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 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 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 placing agreement dated 17 May 2005 entered into between the Company and Tai Fook Securities, pursuant to which the Company appointed Tai Fook Securities as placing agent of the placing of 1,355,000,000 new shares of HK$0.01 each in the share capital of the 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; and
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.

7. LITIGATION

As at the Latest Practicable Date, no member of the Group was engaged in any litigation or arbitration of material importance and no litigation or claim of material importance known to the Directors to be pending or threatened by or against any member of the Group.

— 120 —

GENERAL INFORMATION

APPENDIX IV

8. EXPERTS AND CONSENTS

The following is the qualification of the experts whose statements have been included in this circular:

Name

Qualification

CIMB-GK

a licensed corporation to carry out type 1 (dealing in securities), type 4 (advising on securities) and type 6 (advising on corporate finance) regulated activities under the SFO

BDO McCabe Lo Limited (“BDO”) Certified Public Accountants

CIMB-GK and BDO have given and have not withdrawn their written consent to the issue of this circular with the inclusion of their letters as set out in this circular and references to their names in the form and context in which they respectively appear.

None of CIMB-GK and BDO have any interest in the share capital of any member of the Group nor any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

None of CIMB-GK and BDO have any direct or indirect interest in any assets which have been acquired, disposed of or leased to or which are proposed to be acquired, disposed of or leased to any member of the Group, since 31 December 2005, being the date to which the latest published audited consolidated financial statements of the Group were made up.

As at the Latest Practicable Date, none of CIMB-GK and BDO were materially interested, directly or indirectly in any contract or arrangement subsisting at the date of this circular which is significant in relation to the business of the Group taken as a whole.

9. SERVICE CONTRACTS

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

— 121 —

GENERAL INFORMATION

APPENDIX IV

10. CORPORATE INFORMATION AND PARTIES INVOLVED IN THE OPEN OFFER

Registered office

Clarendon House 2 Church Street Hamilton HM 11 Bermuda

Resident representative Codan Services Limited in Bermuda Clarendon House 2 Church Street Hamilton HM 11 Bermuda Principal place of business 2502B, Tower 1 in Hong Kong Admiralty Centre 18 Harcourt Road Hong Kong

Authorised representatives Mr. YU Pan Flat C, 8th Floor Golden Peach Court 1-2 Kai Yuen Terrace Full Wealth Gardens North Point Hong Kong

Ms. CHEUNG Lin Shun 30D, Tower One Island Resort 28 Siu Sai Wan Road Hong Kong

Company secretary Ms. CHEUNG Lin Shun, HKICPA, FCCA Qualified accountant Ms. CHEUNG Lin Shun, HKICPA, FCCA Legal advisers to the Company As to Hong Kong law: Vincent T.K. Cheung, Yap & Co 15th Floor, Alexandra House 18 Chater Road Hong Kong

— 122 —

GENERAL INFORMATION

APPENDIX IV

As to Bermuda law: Conyers Dill and Pearman 2901 One Exchange Square 8 Connaught Place Central, Hong Kong

Auditors

BDO McCabe Lo Limited, CPA 25th Floor, Wing On Centre 111 Connaught Road Central Hong Kong

Principal share registrar The Bank of Bermuda Limited and transfer office 6 Front Street Hamilton HM 11, Bermuda

Hong Kong branch Abacus Share Registrars Limited share registrar 26th Floor Tesbury Centre 28 Queen’s Road East, Wanchai Hong Kong

Principal bankers CITIC Ka Wah Bank Limited 9th Floor, Tower 1 Lippo Centre 89 Queensway Hong Kong

Underwriter Tai Fook Securities Company Limited 25th Floor, New World Tower 16-18 Queen’s Road Central Hong Kong Legal advisers to Chiu & Partners the Underwriter 41st Floor, Jardine House 1 Connaught Place Hong Kong

11. EXPENSES

The expenses in connection with the Open Offer, including financial and legal advisory fees, underwriting commission, printing and translation expenses are estimated to be approximately HK$6 million and will be payable by the Company.

— 123 —

GENERAL INFORMATION

APPENDIX IV

12. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours from 9:00 a.m. to 5:00 p.m. on any Business Day at the principal place of business in Hong Kong of the Company at 2502B, Tower 1, Admiralty Centre, 18 Harcourt Road, Hong Kong from Tuesday, 27 June 2006 up to and including Wednesday, 12 July 2006:

(a) the Company’s memorandum of association and bye-laws;
(b) the material contracts referred to in the section headed “Material Contracts” in this appendix;
(c) the letter from the Independent Board Committee dated 27 June 2006, the texts of which are set out in this circular;
(d) the letter from CIMB-GK dated 27 June 2006, the texts of which are set out in this circular;
(e) the written consents referred to in the section headed “Experts and Consents” in this appendix;
(f) the annual reports of the Company for the two years ended 31 December 2005; and
(g) the report on the statement of unaudited pro forma adjusted consolidated net tangible assets of the Group from BDO referred to in Appendix III to this circular.

— 124 —

NOTICE OF SPECIAL GENERAL MEETING

==> picture [83 x 73] intentionally omitted <==

==> picture [264 x 64] intentionally omitted <==

NOTICE IS HEREBY GIVEN that a special general meeting of Skyfame Realty (Holdings) Limited (“ Company ”) will be held on Wednesday, 12 July 2006 at 10:00 a.m. at the office of Strategic Public Relations Group Limited, Room 3203, Tower 1, Admiralty Centre, 18 Harcourt Road, Hong Kong for the purpose of considering and, if thought fit, passing, with or without modification, the following resolution as an ordinary resolution of the Company:

ORDINARY RESOLUTION

“ THAT , subject to and conditional upon (i) the Listing Committee of the Stock Exchange of Hong Kong Limited granting listing of, and permission to deal in, the Offer Shares (as defined below) (in their fully-paid forms), the Bonus Warrants (as defined below) and the Shares (as defined below) falling to be allotted and issued pursuant to the exercise of the subscription rights attaching to the Bonus Warrants; (ii) the filing and registration of all documents relating to the Open Offer required to be filed or registered with the Registrar of Companies in Bermuda in accordance with the Companies Act 1981 of Bermuda (as amended) and with the Registrar of Companies in Hong Kong in accordance with the Companies Ordinance in Hong Kong; and (iii) the underwriting agreement dated 2 June 2006 as supplemented and varied by a supplemental agreement dated 7 June 2006 (“ Underwriting Agreement ”, a copy of which has been produced to the meeting and marked “A” and signed by the Chairman of the meeting for the purpose of identification) made among the Company, Tai Fook Securities Company Limited (“ Tai Fook Securities ”) and Grand Cosmos Holdings Limited (“ Grand Cosmos ”) becoming unconditional and not being rescinded or terminated in accordance with its terms:

(a) the Underwriting Agreement and the transactions contemplated thereunder (including but not limited to the underwriting of the Offer Shares (as defined below) not validly applied for by the shareholders of the Company (“ Shareholders ”) by Tai Fook Securities) be and are hereby approved, confirmed and ratified;
(b) the issue of 267,324,486 new ordinary shares (“ Offer Shares ”) of HK$0.01 each of the Company (“ Shares ”) by way of open offer to the Shareholders at the subscription price of HK$0.90 per Offer Share (“ Open Offer ”) payable in full on application in the proportion of 13 Offer Shares for every 40 Shares held by the Shareholders whose names appear on the register of members of the Company on Wednesday, 12 July 2006 (“ Record Date ”) excluding those Shareholders whose registered addresses as shown on such register are outside Hong Kong on the Record Date whom the directors of the Company (“ Directors ”), based on the legal advice provided by legal advisers and on

* For identification purpose only

— 125 —

NOTICE OF SPECIAL GENERAL MEETING

account either of legal restrictions under the laws of the relevant place or the requirements of the relevant regulatory body or stock exchange of that place, consider it necessary or expedient not to offer the Offer Shares (“ Excluded Shareholders ”), on and subject to the terms and conditions set out in the circular to the Shareholders dated 27 June 2006 (“ Circular ”) and on such other terms and conditions as may be determined by the Directors be and is hereby approved;

(c) the Directors be and are hereby authorised to allot and issue the Offer Shares and to do all such acts and things, to sign and execute all such further documents and to take such steps as the Directors may in their absolute discretion consider necessary, appropriate, desirable or expedient to give effect to or in connection with the Open Offer and the Underwriting Agreement or any of the transactions contemplated thereunder;
(d) the Directors be and are hereby authorised to create and issue warrants (“ Bonus Warrants ”), by way of a bonus issue, to the first registered holders of the Offer Shares on the basis of 10 Bonus Warrants for every 13 Offer Shares taken up under the Open Offer entitling the holders of the Bonus Warrants to subscribe in cash up to an aggregate amount of HK$226,197,642 for new Shares at an initial subscription price of HK$1.10 per Share, subject to adjustments and subject to the terms and conditions set out in the Circular and on such other terms and conditions as may be determined by the Directors;
(e) the Directors be and are hereby authorised to allot and issue new Shares to holders of the Bonus Warrants upon the due exercise of the subscription rights attaching to the Bonus Warrants; and
(f) the Directors be and are hereby authorised to do all such acts and things, to sign and execute all such further documents and to take such steps as the Directors may in their absolute discretion consider necessary, appropriate, desirable or expedient to give effect to or in connection with the issue of the Bonus Warrants.”

By Order of the Board

Skyfame Realty (Holdings) Limited YU Pan

Chairman

Hong Kong, 27 June 2006

Principal place of business in Hong Kong:

2502B, Tower 1 Admiralty Centre 18 Harcourt Road Hong Kong

— 126 —

NOTICE OF SPECIAL GENERAL MEETING

Notes:

(1) A member entitled to attend and vote at the above meeting may appoint a proxy to attend and, on a poll vote on his behalf and such proxy need not be a member of the Company.
(2) In order to be valid, the form of proxy, together with any power of attorney or authority under which it is signed or a certified copy of that power of attorney or authority, must be deposited at the Company’s branch share registrar in Hong Kong, Abacus Share Registrars Limited at 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.
(3) Completion and return of the form of proxy will not preclude a Shareholder from attending and voting in person at the meeting convened or any adjournment thereof and in such event, the authority of the proxy shall be deemed to be revoked.
(4) In case of joint holders of any share, if more than one of such joint holders be present at any meeting, the vote of the senior who tenders a vote, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the register in respect of the joint holding.
(5) The resolution will be voted by way of poll by the Shareholders with Grand Cosmos, being the controlling Shareholder and its Associates abstaining from voting in favour in accordance with Rule 7.24(5) of The Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited.

As at the date hereof, the board of directors of the Company comprises Mr. YU Pan, Mr. LAU Yat Tung, Derrick, Mr. WONG Lok and Mr. ZHENG Jian Wei as executive directors and Mr. CHOY Shu Kwan, Mr. CHENG Wing Keung, Raymond and Ms. CHUNG Lai Fong as independent non-executive directors.

— 127 —

AI assistant

Greenheart Group Limited — Proxy Solicitation & Information Statement 2006

48939_rns_2006-06-27_2cb6cb4e-4cb8-413f-b0c6-749fde344fff.pdf

CIMB-GK Securities (HK) Limited

Underwriter

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

EXPECTED TIMETABLE

EFFECT OF BAD WEATHER ON THE LATEST TIME FOR APPLICATION OF, AND PAYMENT FOR, THE OFFER SHARES

PROPOSED OPEN OFFER OF

INTRODUCTION

(A) OPEN OFFER

Issue statistics

Qualifying Shareholders

Closure of register of members

Subscription price for the Offer Shares

Status of the Offer Shares

Rights of Overseas Shareholders

Share option scheme and convertible securities

Fractions of Offer Shares

Share certificates

No application for excess Offer Shares

Application for listing

LETTER FROM THE BOARD

Underwriting Agreement

Undertakings by Grand Cosmos

Termination of the Underwriting Agreement

LETTER FROM THE BOARD

Conditions of the Open Offer

Reasons for the Open Offer and the use of proceeds

(B) INFORMATION ON THE GROUP

(C) FUND RAISING ACTIVITY OF THE COMPANY IN THE 12 MONTHS IMMEDIATELY PRECEDING THE DATE OF THE ANNOUNCEMENT

(D) BONUS ISSUE OF WARRANTS

Basis of the Bonus Issue

Condition of the Bonus Issue

Subscription price

Subscription period

Status of Shares to be issued upon exercise of Bonus Warrants

Application for listing

Board lot

Warrant certificates

Public float of the Bonus Warrants and market capitalisation

(E) SHAREHOLDING STRUCTURE

LETTER FROM THE BOARD

(F) GENERAL MATTERS

Approval by Independent Shareholders in respect of the Open Offer and the Bonus Issue

SGM

Procedures for demanding a poll by Shareholders

(G) RECOMMENDATION

(H) ADDITIONAL INFORMATION

Independent Board Committee

CHOY Shu Kwan

CHENG Wing Keung, Raymond CHUNG Lai Fong

CIMB-GK Securities (HK) Limited

PROPOSED OPEN OFFER AND BONUS ISSUE

INTRODUCTION

LETTER FROM CIMB-GK

PRINCIPAL FACTORS AND REASONS CONSIDERED

Background and rationale

Financial performance

LETTER FROM CIMB-GK

Recent fund raising activities

Use of proceeds

Fund raising alternatives

LETTER FROM CIMB-GK

Views

Offer Share Subscription Price

Offer Share Subscription Price

Share price performance

LETTER FROM CIMB-GK

Open Offer Comparables

LETTER FROM CIMB-GK

LETTER FROM CIMB-GK

LETTER FROM CIMB-GK

LETTER FROM CIMB-GK

Net tangible asset value

Views

Greenheart Group Limited Proxy Solicitation & Information Statement 2006